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ugROFYcBD5gMZwcz_DK6 | UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
--------------------------------------------------------------------X
JAN KONOPCA,
CLASS ACTION COMPLAINT
Plaintiff,
Civil Action No:
-against-
CENTER FOR EXCELLENCE IN HIGHER
EDUCATION, INC., INDEPENDENCE UNIVERSITY
and STEVENS-HENAGER COLLEGE,
Defendant.
---------------------------------------------------------------------X
Plaintiff, JAN KONOPCA (“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 CENTER FOR EXCELLENCE IN HIGHER EDUCATION, INC.,
INDEPENDENCE
UNIVERSITY
and
STEVENS-HENAGER
COLLEGE,
(“Defendants”), 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 New
Jersey, 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 incorporated in Indiana,
with its principal place of business located in the State of Utah. 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 District of New Jersey pursuant
to 18 U.S.C. 1391(b)(2), as a substantial part of the events or omissions giving rise to the
claim occurred in the State of New Jersey, County of Monmouth.
PARTIES
4. Plaintiff, JAN KONOPCA (“Plaintiff”), is a natural person residing in Long Branch, New
Jersey and is a “person” as defined by 47 U.S.C. § 153 (10).
5. Defendant, CENTER FOR EXCELLENCE IN HIGHER EDUCATION, INC.,
(“Defendant”), is a corporation incorporated under the laws of the State of Indiana, with
its principal place of business located in the State of Utah.
6. Defendant, INDEPENDENCE UNIVERSITY is a registered d/b/a of Defendant CENTER
FOR EXCELLENCE IN HIGHER EDUCATION, INC. (“Defendant”).
7. Defendant, STEVENS-HENAGER COLLEGE is a registered d/b/a of Defendant
CENTER FOR EXCELLENCE IN HIGHER EDUCATION, INC. (“Defendant”).
8. Prior to December, 2012, STEVENS-HENAGER COLLEGE was a corporation named
STEVENS-HENAGER COLLEGE, INC., incorporated in the State of Utah. In December
of 2012, Defendant STEVENS-HENAGER COLLEGE merged with Defendant CENTER
FOR EXCELLENCE IN HIGHER EDUCATION, INC.
9. Defendant, INDEPENDENCE UNIVERSITY merged with STEVENS-HENAGER
COLLEGE in 2010, and is operated and managed by STEVENS-HENAGER COLLEGE.
FACTUAL ALLEGATIONS
10. On information and belief, on a date better known to Defendants, Defendants began their
campaign of communicating with the Plaintiff via the use of an automated telephone
dialing system and prerecorded messages throughout the past four years by calling his cell
phone number of (732)222-2222 numerous times seeking a third party.
11. The Defendant called from numerous phone numbers, including but not limited to 800-
291-9445, which phone number belongs to Defendants.
12. Plaintiff confirmed these phone numbers as belonging to the Defendant by calling the
above phone number and being greeted by a customer service representative who answered
the phone stating:
“Thank you for calling Independence University.”
13. Additionally, the phone number 800-291-9445 is listed on the Facebook page created,
owned and maintained by Defendant STEVENS-HENAGER COLLEGE.1
14. Defendants specifically used an automated telephone dialing system and prerecorded
messages to call the Plaintiff on his cell phone on July 8, 2011, July 12, 2011 and July 13,
2011 amongst numerous other dates, calling the Plaintiff three to five times per day.
15. The Plaintiff never gave the Defendants his prior, express permission to call his cell phone
via the use of an automated telephone dialing system. Upon information and belief,
Plaintiff has never provided his cell phone number to Defendant or had any business,
educational or personal relationship with the Defendant.
16. Plaintiff had no wish to be contacted on his cell phone via the use of an autodialer, and
1 https://www.facebook.com/pages/Stevens-Henager-College-Online-Financial-
Aid/122121821184316?sk=info&tab=page_info, last visited on July 8, 2015.
expressly directed Defendants to stop calling his cell phone number on numerous
occasions.
17. By placing auto-dialed calls and prerecorded messages to the Plaintiff’s cell phone, the
Defendant violated 47 USC §227(b)(A)(iii) which prohibits using any automated telephone
dialing system or an artificial prerecorded voice to any telephone number assigned to a
cellular telephone service when calling to the plaintiff’s cell phone.
18. The Defendant therefore willfully violated the TCPA numerous times by placing
autodialled calls and prerecorded messages to the Plaintiff's cell phone without his prior,
express consent.
CLASS ALLEGATIONS
19. 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 and such person had not previously consented
to receiving such calls within the four years prior to the filing of this Complaint
20. 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 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.
21. Defendant, its employees and agents are excluded from The Class.
22. 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.
23. 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.
24. 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.
25. 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 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.
26. As a person that received numerous 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.
27. Plaintiff will fairly and adequately protect the interests of the members of The Class.
Plaintiff has retained attorneys experienced in the prosecution of claims arising under the
Telephone Consumer Protection Act and in prosecuting class actions.
28. 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.
29. 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.
30. 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.
31. Plaintiff repeats and incorporates by reference into this cause of action the allegations set
forth above at Paragraphs 1-30.
32. 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.
33. 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).
34. 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.
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 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 seq.
37. 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).
38. Plaintiff and the Class members are also entitled to and seek injunctive relief prohibiting
such conduct in the future.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff respectfully prays that judgment be entered against the
Defendant as follows:
A.
For mandatory statutory damages of $500.00 for each and every call placed
to the cellular phones of the Plaintiff and the members of The Class in violation of the TCPA, as
provided and pursuant to 47 USC §227;
B.
For enhanced trebled damages of $1,500.00, for each and every call placed
to the cellular phones of the Plaintiff and the members of The Class in willful violation of the
TCPA, as provided and pursuant to 47 USC §227;
C.
For any such other and further relief, as well as further costs, expenses and
disbursements of this action, as this Court may deem just and proper.
Dated:
New York, New York
July 8, 2015
Respectfully submitted,
LAW OFFICE OF ALAN J. SASSON, P.C.
By: /s/ Yitzchak Zelman______________
Yitzchak Zelman, Esq. (YZ5857)
ATTORNEYS FOR PLAINTIFF
1669 East 12 Street
Brooklyn, New York 11229
Phone: 718-339-0856
Fax: 347-244-7178
Email:yzelman@Sassonlaw.com
| privacy |
SfaUE4cBD5gMZwcz-VM7 | IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
KISON PATEL,
)
individually and on behalf of a class
)
of a class,
)
Case No. 15 C 8174
)
Plaintiff,
)
)
v.
)
)
AT&T INC.,
)
)
Defendant.
)
COMPLAINT - CLASS ACTION
1.
Plaintiff, Kison Patel brings this action individually and on behalf of a class
against Defendant AT&T Inc., who called Plaintiff using a predictive dialer accompanied with a
prerecorded that left a prerecorded voice message in violation of the Telephone Consumer
Protection Act, 47 U.S.C. § 227.
2.
This Court has jurisdiction under 28 U.S.C. § 1331 (Federal Question) and 47
U.S.C. § 227 (“TCPA”). Mims v. Arrow Financial Services, LLC, 132 S.Ct. 740 (2012); Brill v.
Countrywide Home Loans, Inc., 427 F.3d 446 (7th Cir. 2005).
3.
Venue and personal jurisdiction over Defendant in this District is proper because:
a.
Plaintiff resides in the District;
b.
Defendant transacts business in the District via the telephone lines; and
c.
Defendant’s activities complained of occurred within the District.
4.
AT&T used a “Predictive Dialer”, as defined by the Federal Communications
Commission, to call the cell phone used by Plaintiff and each of the putative class members.
5.
AT&T is capable of dialing telephone numbers without human intervention, and
delivering an automated prerecorded message with text-to-speech customization to insert an
account number into the message.
6.
Plaintiff has a cellular telephone assigned the telephone number XXX-XXX-5877
in which he carries on his person and makes and receives calls on. The first seven digits of
Plaintiff’s cellular telephone number are redacted herein due to privacy considerations.
7.
When plaintiff answered a call on September 3, 2015, from AT&T on Plaintiff’s
cellular telephone a prerecorded message in the form as follows was played:
Hi this is AT&T calling with an important message regarding your AT&T account. Para
Espanol marque el dos. If this is a person authorized to take action on your account
number [pause] 129229770. Please press 1 now. Otherwise to place this call on hold and
allow time for the authorized person to come to the phone press 7. If no one is available
right now press 9. [Pause].
I’m sorry I did not receive an entry. If you are authorized to action on your account
number [pause] 129229770. Press 1 now. To place this call on hold so the authorized
person to come to the phone press 7. If no one is available right now press 9. [Pause].
Please have an authorized billing contact call our business office at 1-800-288-2020
regarding an important matter regarding an important matter with your account number
[pause] 129229770.
For more information your account can be viewed at att.com/pay. To hear this again
press 3.
Thank you. AT&T appreciates your business.
8.
Each time the account number 129229770 was spoke in the message above, the
voice was a text-to-speech customization that inserted the account number AT&T was calling in
regard to.
9.
Plaintiff did not give AT&T permission to call his cell phone number regarding
account number 129229770.
10.
AT&T called Plaintiff’s cell phone once on September 1, 2015, two times on
September 2, 2015, and two times on September 3, 2015.
11.
The calls Plaintiff received were from 1-800-288-2020.
12.
The telephone number 1-800-288-2020 is a telephone number used by AT&T.
13.
The telephone number 1-800-288-2020 is used in relation to AT&T U-verse.
14.
AT&T U-verse is a Wireline segment of AT&T Inc.
15.
Plaintiff contacted AT&T, and Plaintiff believes that that based on his
communication that AT&T was attempting to collect an account that is not his, and therefore, no
established business relationship existed for AT&T to contact him regarding account number
129229770.
16.
On information and belief, AT&T makes an entry in the account notes if they
have been contacted by a person who has indicated that the telephone number they are calling is
not the person to whom owes money on the account AT&T is seeking to collect.
17.
The Telephone Consumer Protection Act, 47 U.S.C. § 227 provides in pertinent
(b) Restrictions on use of automated telephone equipment.
(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; . . .
18.
On information and belief there are 40 similarly situated called parties whose
cellular telephones were called by AT&T using a predictive dialer and/or used a prerecorded
message.
WHEREFORE, Plaintiff requests that the Court enter judgment in favor of Plaintiff and
the class and against Defendant for:
a. Damages allowed under the TCPA;
b. Injunctive relief; and
c. Costs.
Respectfully submitted,
s/ Curtis C. Warner
Curtis C. Warner
Curtis C. Warner
Warner Law Firm, LLC
350 S. Northwest HWY Ste. 300
Park Ridge, IL 60068
(847) 701-5290 (TEL)
cwarner@warnerlawllc.com
NOTICE OF LIEN
Please be advised that the Warner Law Firm, LLC claim a lien upon any recovery herein
for 1/3 of that amount or such an amount as the Court awards.
Respectfully submitted,
s/ Curtis C. Warner
Curtis C. Warner
Curtis C. Warner
Warner Law Firm, LLC
350 S. Northwest HWY Ste. 300
Park Ridge, IL 60068
(847) 701-5290 (TEL)
cwarner@warnerlawllc.com
ESI / DOCUMENT PRESERVATION DEMAND
Plaintiff hereby demands that the defendant take affirmative steps to preserve all relevant
ESI/documents dating four years prior to the filing of this complaint including, recordings, data,
documents and all other tangible things that relate to plaintiff, plaintiff’ cell phone number, the
account listed in the complaint, and the cell phone numbers of the putative class members and
the accounts which indicate that a wrong number was being called, the events described herein,
any third party associated with any telephone call, campaign, account, sale or file associated with
plaintiff, the account referenced in the account above or the putative class members, and any
account or number or symbol relating to any of them. These materials are very likely relevant to
the litigation of this claim. If defendant is aware of any third party that has possession, custody
or control of any such materials, plaintiff demands that defendant request that such third party
also take steps to preserve the materials. This demand shall not narrow the scope of any
independent document preservation duties of the defendant.
Respectfully submitted,
s/ Curtis C. Warner
Curtis C. Warner
Curtis C. Warner
Warner Law Firm, LLC
350 S. Northwest HWY Ste. 300
Park Ridge, IL 60068
(847) 701-5290 (TEL)
cwarner@warnerlawllc.com
| privacy |
DuDrEIcBD5gMZwcz_emG | UNITED STATES DISTRICT COURT
DISTRICT OF MAINE
Portland Hunt-Alpine Club, LLC, on behalf of
itself and all others similarly situated,
CLASS ACTION COMPLAINT
JURY TRIAL DEMANDED
Plaintiff,
v.
Mowi ASA (fka Marine Harvest ASA), Marine
Harvest USA, LLC, Marine Harvest Canada,
Inc., Ducktrap River of Maine LLC, Grieg
Seafood ASA, Grieg Seafood BC Ltd., Ocean
Quality AS, Ocean Quality North America Inc.,
Ocean Quality USA Inc., Ocean Quality
Premium Brands, Inc., SalMar ASA, Leroy
Seafood Group ASA, Leroy Seafood USA Inc.,
and Scottish Sea Farms Ltd.
Defendants.
TABLE OF CONTENTS
Page
NATURE OF ACTION ........................................................................................................ 1
JURISDICTION AND VENUE ........................................................................................... 3
PLAINTIFF .......................................................................................................................... 5
DEFENDANTS .................................................................................................................... 6
AGENTS AND CO-CONSPIRATORS ............................................................................. 24
FACTUAL ALLEGATIONS ............................................................................................. 25
A.
The European Commission Is Investigating Unexplained Price Increases
In The Salmon Market .......................................................................................... 25
B.
Defendants Have Illegally Engaged In Historically Unprecedented And
Unjustified Pricing Behavior That Has Resulted In Record Profitability. .......... 30
C.
In Recent Years, Defendants Have Switches From Competition To
Cooperation. .......................................................................................................... 39
D.
The Structure And Characteristic Of The Market For Atlantic Farm-
Raised Salmon Support the Existence Of A Conspiracy. ..................................... 51
1.
Industry Concentration Facilitates Collusion............................................ 53
2.
Barriers to New Entry Are High. .............................................................. 55
3.
Farm-Raised Salmon Is A Commodity Product And Prices Are
Correlated Across the Globe. .................................................................... 60
4.
Norwegian Companies Dominate The Production Of Farm-Raised
Salmon And The Defendants Are The Largest Global Producers. ........... 63
5.
Norwegian Companies Dominate The Production Of Farm-Raised
Salmon And The Defendants Are The Largest Global Producers.
Farmed Salmon Production Is Highly Inelastic And The Product is
Perishable. ................................................................................................. 64
CLASS ACTION ALLEGATIONS ................................................................................... 67
INTERSTATE TRADE AND COMMERCE .................................................................... 71
PLAINTIFF AND THE CLASSES SUFFERED ANTITRUST INJURY ........................ 71
CAUSES OF ACTION ...................................................................................................... 72
PRAYER FOR RELIEF ................................................................................................... 104
JURY DEMAND ............................................................................................................. 105
Plaintiff Portland Hunt-Alpine Club, LLC (“Plaintiff”), individually and on behalf of all
others similarly situated (the “Class,” as defined below), upon personal knowledge as to the facts
pertaining to itself, and upon information and belief as to all other matters, and based on the
investigation of counsel, brings this class action for damages, injunctive relief, and other relief
pursuant to various federal and state antitrust laws and state unfair competition laws and unjust
enrichment laws, demands a trial by jury, and alleges as follows:
NATURE OF ACTION
1.
This lawsuit arises from unlawful coordination of the price of farm-raised Atlantic
salmon (Salmo salar) and salmon products derived therefrom which were sold by Defendants
Mowi ASA (f/k/a Marine Harvest ASA); Mowi USA, LLC (f/k/a Marine Harvest USA, LLC);
Marine Harvest Canada, Inc.; Mowi Ducktrap, LLC (f/k/a Ducktrap River of Maine LLC); Grieg
Seafood ASA; Grieg Seafood BC Ltd.; Ocean Quality AS; Ocean Quality North America Inc.;
Ocean Quality USA Inc.; Ocean Quality Premium Brands, Inc.; SalMar ASA; Lerøy Seafood
Group ASA; Lerøy Seafood USA Inc.; Scottish Sea Farms Ltd.; and entities owned or controlled
by them (collectively, “Defendants”) between July 1, 2015 and the present in violation of federal
antitrust law and various state antitrust and unfair competition, consumer protection and unfair
trade practices, and unjust enrichment laws.
2.
As used herein, unless otherwise indicated, the term “salmon” refers to “Atlantic
salmon.” As further explained below, “Atlantic salmon” can be farmed not only in locations that
border the Atlantic Ocean (e.g., Norway and Scotland), but also in certain locations that border the
Pacific Ocean (primarily in Canada and Chile).
3.
The European Commission (“EC”) recently confirmed “that on 19 February 2019
its officials carried out unannounced inspections in several Member States at the premises of
several companies in the sector of farmed Atlantic salmon.”1
4.
The EC commenced its investigation by sending a letter in early February 2019 to
the world’s dominant suppliers of farm-raised salmon and their affiliates, in which it explained
that it had received information that the companies—Defendants—are “participat[ing in] or have
participated in anti-competitive agreements and/or concerted practices related to different ways of
price coordination in order to sustain and possibly increase the prices for Norwegian salmon”.2
5.
The Defendants are and have been engaging in the following conduct:
•
Coordinating sales prices and exchanging commercially
sensitive information;
•
Agreeing to purchase production from other competitors
when these other competitors sell at lower prices; and
•
Applying a coordinated strategy to increase spot prices of
farmed Norwegian salmon in order to secure higher price
levels for long-term contracts.
6.
Plaintiff seeks to represent a Nationwide Class consisting of all commercial and
institutional purchasers in the United States and its territories that purchased farm-raised Atlantic
salmon and/or products derived therefrom (“Farm-Raised Salmon”), once or more, other than
1 See European Commission Press Release Statement/19/1310, Antitrust: Commission Confirms
Unannounced Inspections in the Farmed Atlantic Salmon Sector (Feb. 19, 2019),
http://europa.eu/rapid/press-release_STATEMENT-19-1310_en.htm
[hereinafter
E.C.
Statement/19/1310].
2 See Tom Seaman, Norway’s antitrust regulator eyes salmon price-fixing probe ‘with interest’,
UNDERCURRENT
NEWS,
https://www.undercurrentnews.com/2019/02/21/norways-antitrust-
regulator-eyes-salmon-price-fixing-probe-with-interest/.
directly from Defendants, entities owned or controlled by Defendants, or other producers of farm-
raised salmon or products derived therefrom, from July 1, 2015 to the present (the “Class Period”).
Excluded from the Nationwide Class are the Court and its personnel, and any Defendants and their
parent or subsidiary companies.
7.
Plaintiff seeks to represent a Damages Class consisting of all commercial and
institutional purchasers in the Indirect Purchaser States3 that purchased farm-raised salmon and/or
products derived therefrom once or more other than directly from Defendants, entities owned or
controlled by Defendants, or other producers of farm-raised salmon or products derived therefrom
from July 1, 2015 to the present (the “Class Period”). Excluded from the Damage Class are the
Court and its personnel, and any Defendants and their parent or subsidiary companies.
JURISDICTION AND VENUE
8.
Plaintiff seeks damages, restitution, treble damages, disgorgement, other monetary
relief, injunctive, and other equitable relief under federal antitrust law and various state antitrust
and unfair competition, consumer protection and unfair trade practices, and unjust enrichment
laws, as alleged specifically herein, as well as costs of suit, including reasonable attorneys’ fees,
for the injuries that Plaintiff and all others similarly situated sustained as a result of Defendants’
violations of those laws.
9.
This Court has subject matter jurisdiction over the state law claims under 28 U.S.C.
§ 1332 because the amount in controversy for each of the Classes exceeds $5,000,000, there are
more than 100 members in each of the Classes, and there are members of each of the Classes who
3 The Indirect Purchaser States, for purposes of this complaint, are the states and territories under
the laws of which there are claims listed in the Causes of Action section below.
are citizens of different states than Defendants. This Court also has subject matter jurisdiction
under 28 U.S.C. § 1331 because plaintiff is bringing an injunctive claim under federal law.
10.
This Court has personal jurisdiction over each Defendant because, inter alia, each
Defendant: (a) transacted business throughout the United States, including in this District;
(b) manufactured, sold, shipped, and/or delivered substantial quantities of Farm-Raised Salmon
throughout the United States, including in this District; (c) had substantial contacts with the United
States, including in this District; and/or (d) engaged in an antitrust 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.
11.
This Court has personal jurisdiction over the Defendants pursuant to Fed. R. Civ.
P. 4(k) and 15 U.S.C. § 22, which states that “[a]ny suit, action, or proceeding under the antitrust
laws against a corporation may be brought not only in the judicial district whereof it is an
inhabitant, but also in any district wherein it may be found or transacts business; and all process
in such cases may be served in the district of which it is an inhabitant, or wherever it may be
found.”
12.
The Court further has personal jurisdiction over the Defendants based on, inter alia,
their residency or transaction of business in the State of Maine, their purposeful actions in placing
price-fixed salmon and products derived therefrom into the stream of commerce seeking to serve
Maine (into which substantial amounts of Norwegian, Scottish and Chilean salmon have been
shipped during the Class period), Defendants’ purposeful availment of the benefits and protections
of the laws of the State of Maine, Defendants’ commission of tortious acts within the State of
Maine, Defendants’ United States subsidiaries’ purposeful activities within the State of Maine that
are imputable to parent-entity Defendants located outside the United States, and/or the “conspiracy
theory of jurisdiction” recognized by a Maine Superior Court in Sebago, Inc. v Pena, No.
CV99226, 1999 WL 35298380, at *3–4 (Me. Super. July 08, 1999) (adopting the conspiracy theory
of personal jurisdiction as set forth by the Delaware Supreme Court in Institute Bancario Italiano
v. Hunter Engineering Co., 449 A.2d 210, 225 (Del. 1982)). This Court also has jurisdiction over
Defendants based on their minimum contacts with the United States as a whole, and not simply
through their contacts with the State of Maine.
13.
The activities of the Defendants and all co-conspirators, as described herein, were
within the flow of, were intended to, and did have direct, substantial, and reasonably foreseeable
effects on the interstate commerce of the United States.
14.
Venue is appropriate in this District because one or more Defendants resided or
transacted business in this District and is licensed to do business or is doing business in this District,
and because a substantial portion of the affected interstate commerce described herein was carried
out in this District.
PLAINTIFF
15.
Plaintiff Portland Hunt-Alpine Club, LLC is a business located at 75 Market Street
Portland ME 04101. During the Class Period, Plaintiff purchased Farm-Raised Salmon, once or
more, other than directly from Defendants, entities owned or controlled by Defendants, or other
producers of Farm-Raised Salmon. The Farm-Raised Salmon purchased by Plaintiff was impacted
by the conduct of one or more of the Defendants, constituting an antitrust violation as alleged
herein, and plaintiff suffered monetary loss as a result of the antitrust violations alleged herein.
DEFENDANTS
16.
Mowi Defendants. Defendant Mowi ASA (f/k/a Marine Harvest ASA) (“Mowi
ASA”) touts itself as a “global corporate brand”4 of one of the largest seafood companies in the
world and the largest producer of Atlantic salmon. Mowi ASA is headquartered at Sandviksboder,
77AB, 5035, Bergen, Norway. Mowi ASA is listed on the Oslo Stock Exchange, where it is a
constituent of the benchmark OBX Index.
17.
Mowi ASA is a global organization that operates through numerous subsidiaries
and divisions in 25 countries, including the United States. Through its subsidiaries and divisions,
Mowi ASA engages in, inter alia, the production, processing, and sale of farmed salmon, the
operations of which are focused in Norway; Scotland; Canada; the Faroe Islands; Ireland; and
Chile. Mowi ASA has a share of between 25% and 30% of the global salmon and trout market,
making it the world’s largest company in the sector. Mowi ASA also owns a “value added
processing” unit, which prepares and distributes a range of seafood products, and a number of
smaller divisions. In 2013, Mowi ASA acquired Laschinger Seafood, which owned Morpol S.A.
(“Morpol”), the world leader in smoked salmon.
18.
Using its operations in the United States and other countries, Mowi ASA sells its
products to the United States, as well as more than 70 different countries.5 Mowi ASA’s website
states that “[m]ore than 6 million Mowi meals are enjoyed around the world every day.”6
4 Integrated Annual Report 2018, MOWI, 8 (2018), http://hugin.info/209/R/2239765/882920.pdf
[hereinafter Mowi Annual Report 2018].
5 Id. at 9.
6 Our Products, MOWI, https://mowi.com/products/ (last visited Sept. 27, 2019).
19.
Mowi ASA is and advertises itself as a single unified global company. A recent
example of this is its business strategy, unveiled in late 2018, of renaming itself from “Marine
Harvest” to “Mowi,” which functions as a global brand for its products. Indeed, after Mowi ASA
announced its name change, its wholly owned and controlled subsidiaries also changed their
names. For example, Marine Harvest USA, LLC renamed itself as Mowi USA, LLC (“Mowi
USA”)7 and Ducktrap River of Maine, LLC renamed itself as Mowi Ducktrap, LLC (“Mowi
Ducktrap”).8
20.
In furtherance of its unified global business strategy, Mowi ASA promotes itself on
its website and in its marketing materials as one “global fully integrated company”—“Mowi.”9
Instead of having separate websites for each wholly owned and controlled subsidiary, Mowi ASA
integrates most of these subsidiaries within its main webpage under the “Contact us” tab.10 On that
webpage, it represents all of these subsidiaries, including Mowi USA; Mowi Canada West, LLC;
and Mowi Canada East, LLC, as one entity—stating, as noted above, that “Mowi is located in 25
countries worldwide.”11 Mowi ASA’s American subsidiaries are intertwined with the parent entity,
7 Joy Weaver, Articles of Amendment to Articles of Organization of Marine Harvest USA, LLC,
SUNBIZ
(Apr.
19,
2019),
http://search.sunbiz.org/Inquiry/CorporationSearch/ConvertTiffToPDF?storagePath=COR%5C2
019%5C0423%5C27911942.Tif&documentNumber=L01000011779; see also MOWI ANNUAL
REPORT 2018, supra note 4, at 135; Marine Harvest Changes Name to Mowi, SALMON BUSINESS
(Nov. 13, 2018), https://salmonbusiness.com/marine-harvest-changes-name-to-mowi/.
8 Mowi Ducktrap Information Summary, DEPT. OF THE SECRETARY OF STATE OF MAINE.
9 New Name – New Website, MOWI BLOG, https://mowi.com/blog/2019/04/10/new-name-new-
website/ (last visited Sept. 27, 2019).
10 Contact Us, MOWI, https://mowi.com/contact/ (last visited Sept. 27, 2019) [hereinafter Mowi
Contact Us].
as evidenced by Mowi USA’s webpage that only identifies and provides contact information for
three employees—one of whom is identified as the Sales Manager for Mowi Ducktrap.12 In
advertising employment vacancies and new job opportunities within its company, Mowi ASA
provides the public only one webpage, which is not divided by company (or subsidiary name).13
Instead, Mowi ASA consciously gives the impression that all job opportunities are within the one
same “Mowi” company. The “Vacancies” webpage only identifies: (1) a brief job vacancy
description; (2) the workplace (described as a destination, e.g., Fort William, Bruges); and (3) the
application due date.14
21.
Mowi ASA’s promotional materials note that Mowi employs 667 full time “[s]ales
& [m]arketing” employees in “the Americas” alone,15 and that “[t]he [sales and marketing]
division is organized geographically to support our worldwide client base.”16 Mowi ASA further
explains that it has “significant new product development competence in [Mowi’s] central markets
like the Americas.”17 In fact, in 2018 Mowi ASA experienced a 7.6% increase in the “market
distribution and demand” in the United States.18 Specifically, in 2018, the United States had
11 See id.; Mowi USA, MOWI, https://mowi.com/contact/office/ (last visited Sept. 27, 2019); Mowi
Canada East, MOWI, https://mowi.com/contact/canada-east/ (last visited Sept. 27, 2019); Mowi
Canada West, MOWI, https://mowi.com/contact/mowi-canada-west/ (last visited Sept. 27, 2019).
12 See MOWI, Mowi USA, supra note 11.
13 Vacancies, MOWI, https://mowi.com/people/vacancies/ (last visited Sept. 27, 2019).
14 Id.
15 MOWI 2018 ANNUAL REPORT, supra note 4, at 3.
16 Id. at 11.
17 Id.
427,900 GWT (gross weight tonnage) of Mowi ASA’s market distribution and demand, nearly
one-fifth of Mowi ASA’s GWT for all of its markets.19
22.
Mowi ASA targets and transacts business in the United States, including Maine,
through its wholly owned and wholly controlled subsidiary, Mowi Ducktrap, headquartered in
Belfast, Maine. Mowi ASA ships salmon regularly to Mowi USA for the express purpose of
transacting business within the United States. Mowi ASA is so intertwined with its United States
subsidiary that Mowi USA does not even have its own website independent of Mowi ASA. Instead,
as noted above, Mowi USA is relegated to one short webpage within Mowi ASA’s larger website.
Like the other subsidiaries identified on Mowi ASA’s website, Mowi USA is marketed and
advertised on that website using Mowi ASA’s logo. Mowi USA’s registered trademarks “REBEL
FISH” and “THE SALMON KITCHEN.COM” are marketed on Mowi ASA’s website as well.
The public perception is such that media outlets continually describe Mowi in the United States
and abroad as one interchangeable entity, referring, for example, to Mowi USA’s processing plants
in the United States as belonging to “Mowi.”20 Mowi USA has also been described as the “US
downstream division” of Mowi ASA.21
18 Id. at 31.
19 Id.
20 Tom Seaman, Mowi sees big US, China value-added Salmon potential with new plants,
UNDERCURRENT
NEWS
(Apr.
4,
2019,
5:21
PM),
https://www.undercurrentnews.com/2019/04/04/mowi-sees-big-us-china-value-added-salmon-
potential-with-new-plants.
21 Tom Seaman, Marine Harvest to more-than double Miami production with new plant,
UNDERCURRENT
NEWS
(Jan.
26,
2018,
5:12
PM),
https://www.undercurrentnews.com/2018/01/26/marine-harvest-to-more-than-double-miami-
production-with-new-plant/.
23.
Describing its expansion into the United States’ seafood market, Mowi ASA
explained that “[t]hrough our logistical network and well-situated facilities, we are able to reach
the west coast, east coast[,] and central states within days, enabling us to provide fresh, healthy
and delicious salmon and fish products to the entire US market.”22 Fulfilling the crucial role of
targeting American consumers, Mowi ASA uses not only its factories in Florida, Maine, and
Canada, but also its factory in Dallas, Texas, which opened in December of 2016 and replaced the
role of its old factory in Los Angeles, California.23
24.
As described in its annual report, Mowi ASA also launched a skin pack program of
farmed Norwegian Atlantic Salmon in the United States with “a new nationwide retail partner . . .
giving [Mowi] a new revenue stream.”24 According to at least one media site, the nationwide
partner being referred to is none other than Walmart, where Mowi ASA and Walmart’s partnership
with the skin pack program dates back to mid-2015.25
25.
Further targeting American consumers nationwide, Mowi ASA sells its farm-raised
Atlantic salmon through Amazon’s website, something it has done from at least late 2017 through
the present.26
22 MOWI ANNUAL REPORT 2018, supra note 4, at 77.
23 Tom Seaman, Marine Harvest adds regional flavor to Wal-Mart pre-pack offering,
UNDERCURRENT
NEWS,
(Mar.
20,
2017,
2:20
PM),
https://www.undercurrentnews.com/2017/03/20/marine-harvest-adds-regional-flavor-to-walmart-
pre-pack-offering/.
24 MOWI ANNUAL REPORT 2018, supra note 4, at 77.
25 Tom Seaman, Marine Harvest skin-pack salmon, whitefish sales rocket in Wal-Mart,
UNDERCURRENT
NEWS,
(Apr.
6,
2017,
5:18
PM),
https://www.undercurrentnews.com/2017/04/06/marine-harvest-skin-pack-salmon-whitefish-
sales-rocket-in-walmart/.
26.
Mowi ASA has availed itself of the laws and privileges of the United States, filing
forms with the United States Securities & Exchange Commission (“SEC”) and benefitting from
its sale to United States investors of depositary shares evidenced by American depositary receipts
through Citibank, N.A. in the United States.27
27.
Defendant Mowi USA is a Florida limited liability company that maintains its
principal place of business at 8550 N.W. 17th Street #105, Miami, Florida 33126. Mowi ASA
wholly owns and controls its subsidiary Mowi USA for the purpose of causing Mowi USA to
process salmon in the United States and distribute it to wholesalers, retailers, and others in the
United States.
28.
Defendant Mowi Ducktrap is a Maine limited liability company and a wholly-
owned and controlled subsidiary of Mowi ASA. The company has its headquarters at 57 Little
River Dr., Belfast, Maine 04915. Mowi Ducktrap sells processed salmon products, such as sliced
smoked salmon, under a number of trade names, including Ducktrap and Kendall Brook. These
products are sold throughout the United States, including Maine.
29.
Defendant Mowi Canada West (“Mowi Canada”) (f/k/a Marine Harvest Canada) is
a foreign corporation and wholly owned and controlled subsidiary of Mowi ASA. Mowi Canada
is headquartered at 1334 Island Highway, Suite 124, Campbell River, British Columbia, V9W
8C9, Canada. Mowi Canada processes salmon in British Columbia, Canada. Mowi ASA uses its
26 Marine Harvest Fresh Atlantic Salmon, Skin-On, Responsibly Farm Raised, 12 oz by Marine
Harvest,
AMAZON,
https://www.amazon.com/Marine-Harvest-Atlantic-Responsibly-Farm-
Raised/dp/B0732ZP2HC/ref=cm_cr_arp_d_pb_opt?ie=UTF8 (last visited Sept. 27, 2019).
27 See Mowi ASA, Post-Effective Amendment No. 2 to Form F-6 Registration Statement (Form
F-6/A) (Dec. 14, 2018).
ownership and control over Mowi Canada to sell Atlantic salmon in Canada and the United States,
including Maine. As discussed above, Mowi ASA also targets the United States through its wholly-
owned and controlled subsidiary Mowi USA, and, to achieve that purpose, Mowi ASA uses its
control over Mowi Canada to ship fresh salmon to Mowi USA in Florida and Mowi Ducktrap in
Maine on a regular basis.
30.
As evidenced in Mowi ASA’s 2018 annual report, Mowi ASA’s consolidated
financial statements include its subsidiaries in the United States and Canada, such as Mowi USA,
Mowi Canada, and Mowi Ducktrap.
31.
Through its financial, investor, and promotional materials, Mowi ASA clearly
conveys that it consists of a single global, integrated entity, and Mowi USA, Mowi Canada, and
Mowi Ducktrap are each agents and/or divisions of Mowi ASA. Mowi ASA is vicariously liable
for the conduct of Mowi USA, Mowi Canada, and Mowi Ducktrap in relation to the antitrust acts
committed by each complained of herein. In addition, the presence of Mowi ASA, Mowi USA,
Mowi Canada, and/or Mowi Ducktrap in the United States subjects all Mowi entities to the
jurisdiction of this Court for the actions giving rise to this litigation.
32.
Mowi ASA, Mowi USA, Mowi Canada, and Mowi Ducktrap are collectively
referred to herein as “Mowi.”
33.
Grieg Defendants. Defendant Grieg Seafood ASA (“Grieg ASA”) is a foreign
corporation that describes itself as “one of the world’s leading fish farming companies,
specializing in Atlantic salmon.”28 Grieg ASA owns farming facilities in Finnmark and Rogaland
in Norway, British Columbia in Canada, and Shetland in the United Kingdom. The company is
28 See GRIEG SEAFOOD, https://www.griegseafood.no/en/ (last visited Sept. 27, 2019).
headquartered at C. Sundtsgate 17/19, 5004, Bergen, 5004, Norway. Grieg ASA is listed on the
Oslo Stock Exchange.
34.
Grieg ASA targets and sells its salmon to the United States using its majority-
owned sales agent, Ocean Quality AS (“OQ AS”). This company operates in the United States and
Canada through three wholly owned subsidiaries, Defendants Ocean Quality N.A. Inc. (“OQ
NA”), Ocean Quality USA Inc. (“OQ USA”), and Ocean Quality Premium Brands, Inc. (“OQ
Premium Brands”).
35.
Defendant OQ AS is a foreign corporation engaged in the salmon distribution
business, with its headquarters at Grieg-Gaarden, C. Sundtsgate 17/19, N-5004, Bergen, Norway.
Grieg ASA owns 60% of the outstanding shares of OQ AS.29 Bremnes Fryseri AS (“Bremnes”)
owns the remaining 40% of OQ AS. Grieg ASA controls the operations of OQ AS and its various
subsidiaries; indeed, in its 2018 annual report, Grieg ASA describes OQ AS (including its
subsidiaries) as “Grieg Seafood’s sales company” with “offices in the UK and Canada, taking care
of Grieg Seafood’s fish from the processing plant and all the way to the customers.”30 OQ AS has
repeatedly shipped salmon from Norway to the United States as part of its activities.
36.
It was recently announced that Steven Leask, the Managing Director of OQ AS’s
operations in the United Kingdom, was leaving, in a move that one publication has linked with the
ongoing EC antitrust investigation.31
29 Annual Report 2018, GRIEG SEAFOOD, 208 [hereinafter Grieg Seafood Annual Report 2018]
(“OQ sells the fish to Asia, Europe, the USA and Canada.”). See also id. at 49.
30 Id. at 85.
31 Neil Ramsden, Ocean Quality’s UK MD leaves, as EC investigates group, UNDERCURRENT
NEWS (July 9, 2019, 10:19 AM), https://www.undercurrentnews.com/2019/07/09/ocean-qualitys-
uk-md-leaves-as-ec-investigates-group/.
37.
The control and dominance that Grieg ASA exercises over OQ AS was confirmed
by a report issued by a Committee of Experts of the Financial Services Authority of Norway.32
The report states:
Grieg owns 60% of OQ [AS] and, according to the shareholder
agreement, has the right to appoint 3 out of 5 directors, while
Bremnes owns 40% and has 2 out of 5 directors.
In the Financial Supervisory Authority’s assessment, OQ [AS] is not
a joint arrangement, since the relevant activities that significantly
affect OQ [AS]’s return do not have to be decided on unanimously
by the owners, but can be made by the board or the management of
the company. In the assessment of the Financial Supervisory
Authority, Grieg, with a majority of the board, has control over OQ
[AS], and the company must recognize OQ [AS] as a subsidiary.
The company has taken note of the Financial Supervisory
Authority’s assessment, and in the first quarterly report for 2015
presented OQ [AS] as a subsidiary and restated the comparative
figures in accordance with IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors.
38.
During the Class Period, the Board of Directors of OQ AS has included Per Grieg
(“P. Grieg”) (Chairperson of the Board for Grieg ASA); Nina Grieg (Manager Business
Development for Grieg ASA); Andreas Kvame (“Kvame”) (CEO of Grieg ASA), Alte Harald
Santorv (“Santorv”) (Chief Financial Officer (“CFO”) of Grieg ASA), and Knut Utheim
(“Utheim”) (Chief Operating Officer (“COO”) of Grieg ASA).
39.
Defendant OQ NA is a foreign corporation and a wholly-owned subsidiary of OQ
AS. OQ NA is headquartered at 4445 Lougheed Highway, 500, Burnaby, BC V5C0E4, Canada.
OQ NA was set up to undertake distribution and sale of farm-raised salmon produced by Grieg
ASA and its subsidiaries and Bremnes throughout the United States. As explained in a 2014 article:
32
Appendix
A
is
a
certified
translation
of
the
Norwegian
text
found
at
https://www.finanstilsynet.no/nyhetsarkiv/brev/2015/kontroll-av-finansiell-rapportering.
Norway-based Grieg Seafood announced the launch of Ocean
Quality North America, which will assume exclusive responsibility
for all sales and marketing of Grieg Seafood British Columbia’s
farmed seafood products in North America.
According to Dave Mergle, manager of the new sales organization,
the move follows Grieg Seafood in Europe’s launch of Ocean
Quality for selling and marketing Grieg Seafood’s fish a few years
ago.
“That model has gone very well so recently the decision was made
that this is how it should work everywhere so it’s being implemented
here in North America,” Mergle told SeafoodSource. “What they
found was that it’s given [Grieg] a lot more proximity to the market
and allowed them to get closer to the customers.[”]
“Grieg Seafood farms in British Columbia predominantly serve the
North American market. Since its inception, they’ve used a third
party broker, Calkins and [B]urke, for sales and marketing and
focused mostly on producing their fish. We’ve had a great
relationship [with our broker, who has] done a nice job for us but we
think it hasn’t really allowed us to get close to marketplace. We want
to bring transparency to the entire chain and deliver more value by
being integrated. It will also allow us to start giving our customers
more option[s] across our entire portfolio including fish from
Scotland and Norway and accessing the power of the whole Grieg
Network.”33
40.
OQ NA has a dedicated sales office headed by General Manager Dennis Bryant
(“Bryant”), whose direct telephone number bears a Dallas, Texas area code.34
41.
Defendant OQ USA is a Delaware corporation and wholly-owned subsidiary of OQ
AS, with its principal place of business located at 1914 Skillman Street #110-309, Dallas, Texas,
33 April Forristall, Grieg takes over North America sales, marketing, SEAFOODSOURCE (July 9,
2014), https://www.seafoodsource.com/news/supply-trade/grieg-takes-over-north-america-sales-
marketing.
34 Contact, OCEAN QUALITY, https://oceanquality.com/contact/ (last visited Sept. 27, 2019)
[hereinafter Ocean Quality Contact].
75206-8559. OQ USA distributes salmon products produced by Grieg ASA and its subsidiaries
throughout the United States.35
42.
Defendant OQ Premium Brands is a Delaware corporation and wholly owned and
controlled subsidiary of OQ NA, headquartered at 4445 Lougheed Highway, 500, Burnaby, BC
V5C0E4, Canada. OQ Premium Brands’ business purpose, according to a December 7, 2018 filing
with the California Secretary of State, is “MARKETING AND BRANDING.”36 OQ Premium
Brands distributes salmon products produced by Grieg ASA and its subsidiaries throughout the
United States.
43.
Grieg ASA’s own website also evidences the link among all these subsidiary
entities. For example, Grieg AS’s website states: “Ocean Quality is the sales organization of Grieg
Seafood and Bremnes Seashore (60% owned by Grieg Seafood ASA and 40% owned by Bremnes
Fryseri AS.”37 Likewise, there is a similar interconnectedness and dependence between the Ocean
Quality entities as the website fails to mention the other Ocean Quality entities. Instead, on one
brief “Contact” page within OQ AS’s website, OQ AS lists its sales offices across the world,
identifying only one employee for the USA region—Bryant—and only one employee for the North
America region—Managing Director Alexander Krutoy.38
35 See GRIEG SEAFOOD ANNUAL REPORT 2018, supra note 29, at 208 (“Ocean Quality USA Inc.
[is] domiciled in the USA.”).
36 State of California, Statement of Information (Foreign Corporation), OFFICE OF THE
SECRETARY
OF
STATE
OF
THE
STATE
OF
CALIFORNIA
(Dec.
7,
2018),
https://businesssearch.sos.ca.gov/Document/RetrievePDF?Id=04201105-25258957.
37 Sales, GRIEG SEAFOOD, https://www.griegseafood.no/sales/ (last visited Sept. 27, 2019).
38 OCEAN QUALITY CONTACT, supra note 34.
44.
In addition to targeting and selling salmon into the United States through OQ AS
and its subsidiaries, Grieg ASA targets and sells its salmon to the United States, by also using its
wholly-owned and controlled subsidiary, Defendant Grieg Seafood BC Ltd. (“Grieg BC”). Grieg
BC is a foreign corporation and wholly-owned and controlled subsidiary of Grieg ASA. Grieg BC
is headquartered at 1180 Ironwood Street # 106, Campbell River, British Columbia, Canada, V9W
5P7. Grieg BC farms salmon on 22 sites in British Columbia.
45.
Due to its key location, Grieg ASA uses and controls Grieg BC to produce salmon
targeted for the American market.39 In its 2017 annual report, Grieg ASA explained Grieg BC’s
increase in earnings before interest and taxes (“EBIT”), noting that “[h]aving production close to
the US market is advantageous due to fast deliveries and shorter transport.”40 A year later, in its
2018 annual report, Grieg ASA again correlated the success between the increased sales in the
United States market and Grieg BC’s production in Canada: “[t]he main change in our share of
sales was an increase to the USA from 9 % in 2017 to 14 % in 2018 due to record high harvest
volumes in Grieg Seafood British Columbia.”41
46.
Grieg BC produces Skuna Bay, a branded salmon product that is marketed and sold
throughout the United States. Evidencing the interconnected nature of the different Grieg and
Ocean Quality entities, Grieg ASA’s 2018 annual report explained that Skuna Bay is “Grieg
39 See Annual Report 2017, GRIEG SEAFOOD, 48 [hereinafter Grieg Seafood Annual Report 2017]
(“OQ sells the fish to Asia, Europe, the USA and Canada.”).
40 Id.
41 See GRIEG SEAFOOD ANNUAL REPORT 2018, supra note 29, at 95.
Seafood’s premium brand from British Columbia”42 and is sold, along with its other salmon
products, by OQ AS’s subsidiaries.
47.
As part of its success in the American market, Grieg ASA’s annual report
publicized that “[t]he White House served Skuna Bay Salmon on the menu for the Inauguration
Dinner to former President and First Lady of the United States, Barack and Michelle Obama.”43
Indeed, Skuna Bay Salmon had been “served at more than 2,500 high-end restaurants and boutique
retailers” across the United States by 2015,44 and Grieg ASA’s 2018 annual report listed a half
dozen top restaurants throughout the United States that purchased Skuna Bay salmon.45 In addition
to being served at top American restaurants, Skuna Bay salmon has gained marketing and exposure
through its partnerships with the James Beard Foundation, headquartered in New York, and the
Women Chefs and Restaurateurs organization.46
48.
The report highlighted the significance of Skuna Bay sales for Grieg ASA. Adam
O’Brien, General Manager for Skuna Bay at Ocean Quality Canada, explained that “[m]ost
months, Skuna Bay accounts for approximately only five % of the volume and delivers roughly
25% of our margins.”47
42 See id. at 85.
43 Id.
44 Skuna Bay Salmon Expands to Florida Adding North Star Seafood to its Roster of Exclusive
Purveyors, SKUNA SALMON (Apr. 23, 2015), https://www.skunasalmon.com/news/158-skuna-
baysalmon-expands-to-florida-adding-north-star-seafood-to-its-roster-of-exclusive-purveyors
[hereinafter Skuna Salmon].
45 See GRIEG SEAFOOD ANNUAL REPORT 2018, supra note 29, at 86.
46 Id.
47 Id.
49.
Although Skuna Bay salmon was first sold to the United States market in 2011, the
brand was so successful that by mid-2015, Skuna Bay was being sold across the country.48 Now
“Skuna Bay salmon has achieved national U.S. distribution, available in all continental U.S. states
. . . and sixteen exclusive distributor relationships across North America.”49 Skuna Bay salmon is
distributed in Maine.50
50.
Grieg ASA is vicariously liable for the conduct of OQ NA, OQ USA, and OQ
Premium Brands in relation to the antitrust acts committed by each complained of herein. In
addition, the presence of OQ NA, OQ USA, and OQ Premium Brands in the United States subjects
all Grieg entities to the jurisdiction of this Court for the actions giving rise to this litigation.
51.
Grieg ASA, Grieg BC, OQ AS, OQ NA, OQ USA, and OQ Premium Brands are
referred to collectively herein as “Grieg.”
52.
SalMar Defendant. Defendant SalMar ASA (“SalMar”) is a foreign corporation
that describes itself as “one of the world’s largest and most efficient producers of Atlantic salmon,
and is vertically integrated along the entire value chain from broodfish, roe and smolt to harvesting,
48 Sysco-owned distributer to bring Grieg’s ‘Skuna Bay’ salmon to Texas, UNDERCURRENT NEWS
(May 9, 2019, 9:29 AM), https://www.undercurrentnews.com/2016/05/09/sysco-owned-
distributor-to-bring-griegs-skuna-bay-salmon-to-texas/; SKUNA SALMON, supra note 44.
49 FISHCHOICE, https://fishchoice.com/seafood-supplier/ocean-quality-north-america-inc (last
visited Sept. 27, 2019) [hereinafter FishChoice Supplier Directory].
50 Skuna Bay Salmon Expands to New England, Adding Ipswich Shellfish Company to Its Roster
of
Exclusive
Purveyors,
SKUNA
SALMON
(July
22,
2013),
https://www.skunasalmon.com/news/skuna-bay-salmon-expands-to-new-england-adding-
ipswich-shellfish-company-to-its-roster-of-exclusive-purveyors?site=responsive.
processing and sales.”51 The company is headquartered at Idustriveien 51, N-7266, Kverva,
Norway. SalMar is listed on the Oslo Stock Exchange.
53.
According to SalMar’s website:
SalMar has established a fully integrated system for farming,
processing, sales and distribution of farmed salmon and is thus in
control of the total value chain.
The salmon that SalMar is producing is sold through an in-house
salesforce and/or through close partners.
Proximity to markets and customers, direct or through partners is
important to secure efficient use of a high-quality raw material that
has been through a traceable and controlled production process.
InnovaMar is the name of SalMar’s new harvesting and processing
facility in Frøya, central Norway. It aims to be the world’s most
innovative and efficient facility for the landing, harvesting and
processing of farmed salmon. InnovaMar covers 17,500 m2 of floor
space and comprises two departments (harvesting and processing).
The facility has the capacity for all kinds of storage. Good internal
logistics ensure safe and efficient handling of the products. The
increased capacity affords a high level of flexibility with regard to
organising production and sales.
SalMar produces a wide variety of fresh and frozen salmon
products. The customer base is global and includes small and large
importers/exporters, as well as larger processing companies and
retail chains.52
54.
SalMar sells directly to entities within the United States:
SalMar had direct sales to around 50 different countries in 2017.
SalMar’s most important geographic market in 2017 was Europe,
with Poland, Lithuania and Sweden as the largest individual
markets. The second largest market was Asia, with Vietnam, Japan
and Singapore as the largest individual markets. After sales to
51 See 2017 Annual Report, SALMAR, 45 (2017), http://hugin.info/138695/R/2188425/846513.pdf
[hereinafter SalMar Annual Report 2017].
52 See Sales & Distribution, SALMAR, https://www.salmar.no/en/sales-distribution/ (last visited
Sept. 27, 2019).
Russia were blocked in 2014, North America has been the third
largest market, with the USA as the largest individual market.
SalMar experienced particularly strong growth in the American
market in 2017.53
55.
North America is the third largest export destination for SalMar.54 In 2018, its
group revenue from the USA and Canada totaled 1,989,222 (measured in thousands of Norwegian
krone (“NOK”)).55
56.
SalMar targets and transacts business in the United States and has sold salmon to
customers in Maine.
57.
Lerøy Defendants. Defendant Lerøy Seafood Group ASA (“Lerøy ASA”), a
foreign corporation, is a seafood production and distribution company. Lerøy ASA is the second
largest salmon and trout farming company in the world and has fish farms in Hitra, Kristiansund,
Troms and Scotland (Shetland). The company is headquartered at Thormøhlens gate 51 B, 5006
Bergen, Norway.
58.
On its website, Lerøy ASA describes itself as a “global presence stretching from
China to the USA” and selling to “more than 70 markets worldwide.”56 Lerøy ASA’s website also
promotes its global reach and sales offices in the United States:
53 See SALMAR ANNUAL REPORT 2017, supra note 51, at 53.
54 See 2018 Environment and Social Responsibility Report, SALMAR, 55 (2018)
http://hugin.info/138695/R/2242726/885264.pdf.
55 2018 Annual Report, SALMAR, 93 (2018), http://hugin.info/138695/R/2242726/885263.pdf.
56 About Lerøy, LERØY SEAFOOD GROUP, https://www.leroyseafood.com/en/aurora/about-
leroy/?_t_id=1B2M2Y8AsgTpgAmY7PhCfg%3d%3d&_t_q=usa&_t_tags=language%3ano%2c
siteid%3a4f9c115d-7280-41c1-
bc1b318c9d6edd9e%2clanguage%3aen&_t_ip=62.92.69.136&_t_hit.id=Leroy_Core_CMS_Pag
es_Aurora_AuroraPage/_9a11e54b-4ab7-4bc3-bff5-1f57c5bf5304_en&_t_hit.pos=1 (last visited
Sept. 27, 2019).
Our main office is located in Bergen, but we have fishing vessels
and fish farms in operation along the entire coast of Norway. We
have production and packaging plants in Norway, Sweden,
Denmark, Finland, France, the Netherlands, Portugal, Spain and
Turkey. We also have sales offices in the USA, Japan and China.57
59.
A press release advertised the “Lerøy Seafood Group [as] the world’s second
largest farmer of Atlantic salmon . . . . [e]stablished in 1899, its global network today spans
Sweden, France, Portugal, China, Japan and the USA.”58
60.
Defendant Lerøy Seafood USA Inc. (f/k/a “Hallvard Lerøy USA, Inc.”) (“Lerøy
USA”), a North Carolina corporation and wholly-owned and controlled subsidiary of Lerøy ASA,
is the United States distribution subsidiary for Lerøy ASA’s farm-raised salmon business and sells
and distributes Lerøy ASA’s farmed salmon throughout the United States. Lerøy USA’s principal
place of business is located at 1289 Fordham Blvd., Suite 406, Chapel Hill, NC 27514.
61.
Lerøy USA operates as a division of Lerøy ASA. Indeed, Lerøy USA does not have
its own official website. Instead, Lerøy USA is identified within Lerøy ASA’s main website as
one of Lerøy ASA’s offices for “VAP [value-added processing], Sales & Distribution.”59 The only
information provided on Lerøy ASA’s website for Lerøy USA is the address, contact telephone
number, and contact email address for one employee.60 Lerøy USA’s Bloomberg profile states that
57 See About Lerøy, LERØY, https://www.leroyseafood.com/en/about-us/about-leroy/ (last visited
Sept. 27, 2019).
58 Press Release, LERØY, Premium Aurora Salmon from Arctic Norway Now Available in
Singapore, http://www.dunbarjones.com/assets/userfiles/Aurora_Salmon_in_Singapore.pdf (last
visited Sept. 27, 2019).
59 Contact, LERØY, https://www.leroyseafood.com/en/contact/our-offices/ (last visited Sept. 27,
2019).
60 Id.
it has only three employees and that its business consists of “the wholesale distribution of fresh,
cured, or frozen fish and seafood.”61
62.
Lerøy ASA’s premiere brand of salmon is Aurora salmon.62 Aurora salmon is sold
by Lerøy USA throughout the United States.63
63.
Lerøy ASA has availed itself of the laws and privileges of the United States, filing
SEC forms and benefitting from its sale of depositary shares to United States investors evidenced
by American Depositary receipts through Citibank, N.A. in the United States.64
64.
Lerøy ASA and Lerøy USA are collectively referred to herein as “Lerøy.”
65.
Scottish Sea Farms Defendant. Defendant Scottish Sea Farms Ltd. (“Scottish Sea
Farms”) is an aquaculture company that engages in the farming and production of salmon. Scottish
Sea Farms is the United Kingdom’s second largest producer of farmed salmon.65 The company
sells its products to retailers in the United Kingdom, the United States, Europe, and internationally.
Scottish Sea Farms is a joint venture of Defendants SalMar and Lerøy, and each owns a 50%
interest in Scottish Sea Farms through an entity known as Norskott Havbruk AS (“Norskott
Havbruk”). Norske Havbruk includes among its officers or directors Henning Beltestad (Chief
61
Bloomberg
Profile
for
Lerøy,
BLOOMBERG,
https://www.bloomberg.com/profile/company/1008310D:US (last visited Sept. 27, 2019).
62 Key Brands, LERØY, https://www.leroyseafood.com/en/brands/aurora-salmon/ (last visited Sept.
27,
2019);
Aurora
Salmon
Fillets,
LB,
CENTRAL
MARKET
SHOP,
https://centralmarket.com/product/aurora-salmon-fillets-lb/ (last visited Sept. 27, 2019); Aurora
Norwegian
Salmon,
BALDUCCI’S
FOOD
LOVER’S
MARKET,
https://www.balduccis.com/details/aurora-norwegian-salmon (last visited Sept. 27, 2019).
63 FishChoice Supplier Directory, supra note 49.
64 See LERØY SEAFOOD GROUP ASA, Registration Statement (Form F-6) (July 7, 2015).
65 See SALMAR ANNUAL REPORT 2017, supra note 51, at 45.
Executive Officer (“CEO”) of Lerøy), Helge Singelstad (“Singelstad”) (Chairman of Lerøy), Lief-
Inge Nordhammer (a Board member of SalMar), and Gustav Witzøe (“Witzøe“) (co-founder and
Director of Strategic Projects for SalMar). The company is headquartered at Laurel House,
Laurelhill Business Park, Stirling, FK7 9JQ, United Kingdom, 01786 44552. The United States
was the leading destination for exported Scottish farmed salmon four years in a row in 2014,
reaching $334.2 million in that year alone, according to the Scottish Salmon Producers
Organization; Jim Gallagher, Managing Director of Scottish Sea Farms, called this “a great jump
in our performance.”66 By 2017, Scottish salmon exports to the United States were £193 million,
continuing its position as the largest export market.67
AGENTS AND CO-CONSPIRATORS
66.
The acts alleged against the respective Defendants in this Complaint were
authorized, ordered, or done by their officers, agents, employees, or representatives, while actively
engaged in the management and operation of the respective Defendants’ businesses or affairs. The
respective Defendant parent entities identified herein exercise dominance and control over all of
their respective Defendant subsidiary entities and those respective subsidiaries have a unity of
purpose and interest with their respective parents. To the extent any respective parent Defendant
did not keep a tight rein on its respective subsidiary Defendant(s), it had the power to assert control
over the subsidiary if the latter failed to act in the parent’s best interests. The respective parent
Defendants and their respective subsidiary Defendants thus operated as a single economic unit.
The respective subsidiaries played a critical role in the conspiracy in that they (as well as the
66 Scottish Salmon Exports to US to Reach £200m, SEAFOODSOURCE, (Mar. 13, 2014),
https://www.seafoodsource.com/news/aquaculture/scottish-salmon-exports-to-us-to-reach-200m.
67 Scottish salmon export value hits £600m record, FISHFARMINGEXPERT, (Feb. 9, 2018, 7:14 PM),
https://www.fishfarmingexpert.com/article/scottish-salmon-export-value-hits-600m-record/.
respective parent Defendants) sold price-fixed farmed salmon and products derived therefrom to
purchasers outside Defendants’ conspiracy in the United States.
67.
When Plaintiff refers to a corporate family or companies by a single name in its
allegations of participation in the conspiracy, it is to be understood that the Plaintiff is alleging that
one or more employees or agents of entities within the corporate family engaged in conspiratorial
acts or meetings on behalf of all of the Defendant companies within that family. The individual
participants entered into agreements on behalf of, and reported these meetings and discussions to,
their respective corporate families. As a result, the entire corporate family was represented at any
such meetings and discussions by its agents and was a party to the agreements reached by them.
68.
Various persons and/or firms not named as Defendants herein may have
participated as co-conspirators in the violations alleged herein and may have performed acts and
made statements in furtherance thereof.
69.
Each Defendant acted as the principal, agent, or joint venturer of or for other
Defendants with respect to the acts, violations, and common course of conduct alleged by Plaintiff.
FACTUAL ALLEGATIONS
A.
The European Commission Is Investigating Unexplained Price Increases In The
Salmon Market
70.
On February 19, 2019, Undercurrent News, a fishing industry trade publication,
reported that in early February of 2019, the EC opened an antitrust investigation into the world’s
major producers of farm-raised salmon:
According to the letter, the EC has “received information -- from
different actors operating at different levels in the salmon
market -- alleging that Norwegian producers of farmed Atlantic
salmon . . . participate or have participated in anti-competitive
agreements and/or concerted practices related to different ways
of price coordination in order to sustain and possibly increase
the prices for Norwegian salmon.”
The letter, which was sent to producers at the start of February,
states the Norwegian producers concerned have been allegedly:
•
Coordinating sales prices and exchanging commercially
sensitive information;
•
Agreeing to purchase production from other competitors
when these other competitors sell at lower prices; and
•
Applying a coordinated strategy to increase spot prices of
farmed Norwegian salmon in order to secure higher price
levels for long-term contracts.
Based on the information the EC has, these alleged practices
have been going on since “at least” November 2017 and “are
presumably ongoing.”68
71.
The EC also released the following statement on February 19, 2019:
The European Commission can confirm that on 19 February 2019
its officials carried out unannounced inspections in several Member
States at the premises of several companies in the sector of farmed
Atlantic salmon.
The Commission has concerns that the inspected companies
may have violated EU [(“European Union”)] antitrust rules
that prohibit cartels and restrictive business practices (Article
101 of the Treaty on the Functioning of the European Union).
The Commission officials were accompanied by their counterparts
from the relevant national competition authorities.69
72.
According to another article in Undercurrent News dated February 19, 2019, Mowi,
Grieg, and SalMar have all confirmed that they were the subject of EC raids:
Undercurrent first reported the news earlier on Tuesday, then Mowi,
Grieg Seafood and SalMar all confirmed raids on their operations in
the UK. Mowi’s spokesman said the company’s plant in Rosyth,
68 See Seaman, Norway’s antitrust regulator eyes salmon price-fixing probe ‘with interest,’ supra
note 2 (emphasis added).
69See E.C. STATEMENT/19/1310, supra note 1 (emphasis added).
UK, was raided, but then also confirmed a plant in Lemmers,
formerly Marine Harvest Sterk, was inspected.
The Sterk plant, the only one the company owns in the Netherlands,
is mainly specialized on coating whitefish, but also does some
salmon, according to its website.70
73.
In a recently released annual report for 2018, Mowi admitted:
In February 2019, The European Commission carried out
unannounced inspections at selected premises of several Norwegian
salmon companies, including Mowi. The Commission was acting on
concerns that the inspected companies may have violated EU
antitrust rules.71
74.
On February 19, 2019, Grieg filed a notice with the Oslo Stock Exchange stating
as follows:
The European Commission DG (Director General) Competition has
today performed an inspection at Grieg Seafood Shetland to explore
potential anti-competitive behavior in the salmon industry.
Grieg Seafood aims to be open, transparent and forthcoming and
will provide all necessary information requested by the European
Commission DG Competition in its investigation.72
75.
On February 20, 2019, Lerøy filed a notice with the Oslo Stock Exchange stating
as follows:
EU’s competition authorities (European Commission Director
General Competition) has conducted an inspection at the premises
of Scottish Sea Farms Ltd. A company owned 50% by Lerøy
Seafood Group ASA (LSG). The purpose is, according to the
70 See Tom Seaman, Mowi Dutch plant also raided as EC confirms probe of alleged salmon cartel,
UNDERCURRENT NEWS, https://www.undercurrentnews.com/2019/02/19/mowi-dutch-plant-also-
raided-as-ec-confirms-probe-of-alleged-salmon-cartel/.
71 See MOWI 2018 ANNUAL REPORT, supra note 4, at 216.
72 See Stock Exchange Filings, GRIEG SEAFOOD, https://www.griegseafood.no/inverstors/stock-
exchange-filings/ (last visited Sept. 27, 2019).
competition authorities, to investigate accusations of anti-
competitive cooperation in the salmon market. In connection with
the inspection, the EU competition authorities has also requested for
[sic] information from the shareholders in Scottish Sea Farms Ltd.73
76.
Also on February 19, 2019, SalMar issued the following report to the Oslo Stock
Exchange:
On 19th of February 2019 the European Commission Director
General Competition performed an inspection at Scottish Sea Farms
Ltd., in which SalMar ASA indirectly owns 50 per cent. SalMar is
in constructive dialogue with the Commission in this regard.74
77.
The inspections by the EC were not undertaken casually. Inspections are typically
done by an order of the EC, and the EC must have “reasonable grounds for suspecting an
infringement of the competition rules;” “[i]t must be borne in mind that the inspections carried out
by the Commission are intended to enable it to gather the necessary documentary evidence to
check the actual existence and scope of a given factual and legal situation concerning which it
already possesses certain information.”75 The EC relied on multiple sources to support its very
specific allegations that justified the raids.
78.
The EC’s recent investigation into the farmed salmon industry is also not without
precedent. In a decision entered in 1992, the EC found the former Fiskeoppdretternes Salgslag
Organization (“FOS”) (the Norwegian Fresh Fish Trade Association), the Scottish Salmon
73 See Stock Exchange Notices, LEROY SEAFOOD, https://www.leroyseafood.com/en/investor/
Stockexchangenotices/ (last visited Sept. 27, 2019).
74 See SALMAR ASA, Comment to Inspection by the European Comm’n, NEWSWEB (Feb. 19,
2019, 8:21 PM), https://newsweb.oslobors.no/message/470051.
75
Case
No.
T-135/09,
Nexans
France
SAS
v.
Comm’n,
2012
E.C.R.
43,
http://curia.europa.eu/juris/document/document_print.jsf?doclang=EN&text=&pageIndex=0&pa
rt=1&mode=lst&docid=129701&occ=first&dir=&cid=663482.
Growers’ Association (“SSGA”), the Scottish Salmon Farmers’ Marketing Board (“SSB”), and
the Shetland Salmon Farmers Association (“SSA”) had entered into an unlawful agreement to fix
the minimum prices of farmed Atlantic salmon back in 1989 that ended in 1991 with the
bankruptcy of FOS.76 The three Scottish entities had accused the FOS of dumping salmon at low
prices. Although the complaint was terminated without decision, the FOS decided to create a
minimum pricing system on exported Norwegian salmon. The Scottish entities accepted this
proposal and adjusted their own prices accordingly. The EC found that FOS had created a
“coordinated plan to stabilize and increase salmon prices” and that the SSB, SSGA, and SSFA
“contributed to this plan by assuring FOS that they urged their members to exercise price discipline
in support of the Norwegian action.”77 One of the means of implementing the agreement was the
SSB providing FOS with confidential price and volume statistics by SSGA and SSFA members.
“The regular contacts to exchange price information provided the parties with an opportunity to
monitor the success of their agreement.”78
79.
Similarly, the Australian Competition and Consumer Commission found in 2003
that the Tasmanian Salmonid Growers Association facilitated an illegal agreement in 2002 to have
Atlantic salmon farmers cull 10 percent of their salmon stocks in order to reduce the scope of any
price reductions caused by oversupply.79
76 See Appendix B.
77 Id. at 19.
78 Id.
79 See Federal Court Declares Tassal Limited and Tasmanian Salmonid Growers Association
involved in Anti-Competitive Fish Cull, AUSTRALIAN COMPETITION & CONSUMER COMM’N (Aug.
1,
2003),
https://www.accc.gov.au/media-release/federal-court-declares-tassal-limited-and-
tasmanian-salmonid-growers-association.
80.
There is a plausible basis to conclude that similar types of unlawful misconduct are
occurring now and have affected worldwide farmed Atlantic salmon prices, including prices of
such salmon sold in the United States.
B.
Defendants Have Illegally Engaged In Historically Unprecedented And Unjustified
Pricing Behavior That Has Resulted In Record Profitability.
81.
The salmon market is susceptible to manipulation by the major salmon producers
in Norway. As alleged further below, the industry is highly concentrated, and the spot market for
salmon in Oslo, Norway is the most important benchmark for salmon prices around the globe.
82.
Salmon is sold on the spot market and through annual contracts. Only one percent
of Norway’s salmon production is sold on the spot market, but those spot prices set the baseline
for the longer term contract prices.80
83.
As alluded to in the EC’s letter to the companies being investigated, since 2015,
salmon buyers in Europe have complained that Norway’s salmon producers, including Mowi, have
been rigging the spot market by using subsidiary companies, including Mowi’s Polish subsidiary,
Morpol (which is, as noted above, a fish processor and distributor and the world’s leading producer
of smoked salmon products) to drive up the spot price. As the purchasing director of Graal S.A.
(“Graal”) (a Polish salmon processor) Alina Piasecka, has explained, “[w]e’ve seen examples of
prices falling in the spot market, and exporters offering fish at increasingly lower prices.” She
continued, “[s]uddenly, 15 minutes later there are aren’t fish available, and we find out that Morpol
has purchased perhaps 60 truckloads.” Graal’s CEO Boguslaw Kowalski alsoexplained that “[w]e
80 See Aslak Berge, Suempol Norway’s GM doesn’t believe in price caps for second half of 2017,
SALMONBUSINESS.COM,
https://salmonbusiness.com/suempols-gm-does-not-believe-in-price-
caps-in-the-second-half-of-2017/.
are seeing that now and again they take advantage of Morpol to buy at higher prices than that
charged by the market, to hike up prices.”81
84.
In 2017, Stale Hoyem (“Hoyem”), general manager of Suempol Norway, one of the
biggest smoked salmon producers in Poland and Europe, complained that “companies in Norway
buy small quantities of salmon to raise the price for the rest of the players.” Hoyem added that
“[o]ne last thing that affects prices is that some of the major players choose to create their own
purchasing departments buying a truckload here and a truckload there;” he was “suggesting this
‘daily’ practice is heavily influencing prices on the spot market.”82 Borge Prytz Larsen, purchasing
director at Severnaya, which imports salmon into Russia, confirmed Hoyem’s statement: “The big
players buy fish, and they then use the price as indicators for other customers.”83
85.
There is no good non-collusive reason for why the “big players”—the Norwegian
Defendants here—would need to make limited salmon spot market purchases except to drive up
the prices on that market. Each of them is an integrated farmed salmon producer. They simply do
not need to buy more fish.
81 See Marine Harvest Accused of Manipulating Polish Salmon Market, INTRAFISH (Aug. 8, 2016),
https://www.intrafish.com/news/751597/marine-harvest-accused-of-manipulating-polish-salmon-
market.
82 See Norwegian Salmon Giants Accused of Price Manipulation, INTRAFISH (Aug. 22, 2017),
https://www.intrafish.com/news/1330269/norwegian-salmon-giants-accused-of-price-
manipulation.
83 Id.
86.
Defendants’ pricing behavior changed at the start of the Class Period. Hoyem also
complained: “In the old days we could negotiate contracts. Producers looked at their cost and then
they put on a surcharge of about NOK 1 (€0.11/$.13) to NOK 2 (€0.21/$.25) [per kilo].”84
87.
The foregoing are examples of complex and historically unprecedented changes in
pricing structure made at the very same time by multiple competitors and made for no other
discernible reason than collusion.
88.
As a result of the conspiracy, Defendants’ prices—and profits—for salmon have
been increased since mid-2015, as Mowi itself illustrates in this chart:85
84 Id.
85
See
Salmon
Farming
Indus.
Handbook
2019,
MOWI,
41
(2019),
https://corpsite.azureedge.net/corpsite/wp-content/uploads/2019/06/Salmon-Industry-Handbook-
2019.pdf [hereinafter Mowi Salmon Industry Handbook 2019].
89.
Defendants frequently—and falsely—asserted that cost increases justified their
price increases, but their own data disproves their purported justification. For example, the
following chart from Mowi indicates that the “cost in box” of producing salmon (per kilogram)
has increased approximately half of one Euro (or less) during the Class Period—far less than
salmon prices:86
90.
The biggest single production cost for producers of farmed salmon is feed. As
Mowi notes in its 2018 Handbook, “[h]istorically, the two most important ingredients in fish feed
have been fish meal and fish oil. The use of these two marine raw materials in feed production has
been reduced in favour of ingredients such as soy, sunflower, wheat, corn, beans, peas, poultry by-
products (in Chile and Canada) and rapeseed oil. This substitution is mainly due to heavy
constraints on the availability of fish meal and fish oil.”87 The following chart from that Handbook,
86 See MOWI ANNUAL REPORT 2018, supra note 4, at 253.
87 See MOWI SALMON INDUS. HANDBOOK 2019, supra note 85, at 62.
however, shows that these feed components either stabilized or declined in the period since mid-
2015.88
08 Feed Production
8.5 Feed raw material market
91.
It is true that Mowi, for example, markets “organic” farmed salmon that are fed
primarily fish meal and fish oil.89 But the costs for those two components fell significantly during
part of the Class period, as Mowi’s own chart confirms. And economic data compiled by the
Federal Reserve Bank of St. Louis on global fish meal prices show that prices collapsed at the
beginning of 2015, thus providing no cost justification for the price increases by farmed salmon
producers that commenced later that year.90
88 Id. at 57.
89
See
Mowi
Ireland’s
Organic
Salmon
FAQ’s,
MOWI,
http://marineharvestireland.com/product/about-marine-harvest-ireland-organic-salmon/
(last
visited Sept. 27, 2019).
92.
In sum, as the foregoing charts reflect, the price increases for salmon in 2015 and
following years, viewed in relation to production costs, represent a structural break from past
practices. Indeed, in prior periods, the Norwegian farmed salmon industry has been accused of
dumping their product overseas at unreasonably low prices.91
93.
It has sometimes been asserted that increased demand explains the price increases
since mid-2015, but that explanation also does not hold water here. In August of 2014, Russia
banned imports of Norwegian seafood in response to economic sanctions imposed by the United
States, the EU, and others for its annexation of the Crimea; prices in Norway fell by ten percent as
90
See
Global
Price
of
Fish
Meal,
FRED
ECONOMIC
DATA,
https://fred.stlouisfed.org/series/PFISHUSDM#0 (last visited Sept. 27, 2019).
91 See Fresh and Chilled Atlantic Salmon from Norway, Inv. Nos. 701-TA-302 and 731-TA-454,
USITC
Pub.
3835
(Jan.
2006)
(Second
Review),
https://www.usitc.gov/publications/701_731/pub3835.pdf; European Commission Press Release
Memo/06/87, Norwegian Salmon (Feb. 21, 2006), http://europa.eu/rapid/press-release_MEMO-
06-87_en.htm.
a result.92 The ban was supposed to last a year, but Russia extended it in late June of 2015 and it
remains in effect.
94.
This is highly significant because, as an analyst at Swedbank Markets explained in
2017, “Russia’s import ban wiped out 10 percent of Norway’s salmon market.”93 Teimuraz
Ramishvili (“Ramishivili”), the Russian ambassador to Norway, said in 2018 that “[f]rom an
economic point of view, Norway lost a billion dollars from the fish trade with Russia. There
were attempts from Oslo to find new markets, great hopes were associated with China, but the
Russian market was not replaced.”94
95.
Ramishvili’s estimate of the loss to Norwegian salmon farmers like the Defendants
turned out to be severely understated. In January of 2019, the industry publication Intrafish
reported that:
Russia was once one of the seafood sector’s most promising markets
-- for Norwegian seafood suppliers in particular.
But since the 2015 ban on seafood imports from several Western
countries, the Norwegian salmon industry alone has lost NOK
20 billion (€2 billion/$2.3 billion), according to estimates from
Asbjørn Warvik Rørtveit, director of market insight and market
access at the Norwegian Seafood Council (NSC).95
92 See Ole Petter Skonnord, Update 1-Russia Sanctions Throw Norway’s Fish Industry into
Turmoil, REUTERS (Aug. 8, 2014, 8:25 AM), https://www.reuters.com/article/ukraine-crisis-
sanctions-salmon-idUSL6N0QE32E20140808.
93 See Norway fails to find new buyers for its fish after losing Russian market, RT (Mar. 15, 2018,
2:56PM), https://www.rt.com/business/416729-norway-fish-russian-market-sanctions/.
94 Id. (emphasis added).
95 Norway’s Seafood Firms Have Lost Nearly $3 Billion Since Russian Ban, INTRAFISH (Jan. 16,
2019), https://www.intrafish.com/marketplace/1673343/norways-seafood-firms-have-lost-nearly-
usd-3-billion-since-russian-ban.
96.
The Mowi pricing chart depicted in paragraph 91 shows declining Norwegian
salmon average prices in 2014 attributable to the Russian import ban. But it also shows average
prices ramping drastically upward in mid-2015 (shortly after Russia extended that ban) and
continuing to increase or stabilize in succeeding years while the ban continued. These sustained,
historically unprecedented price increases can only be explained by collusion. Norwegian salmon
farmers knew that a huge portion of demand and their export market had been eliminated and
reacted by collusively raising prices. The planning cycle for the production of Norwegian salmon
in 2015 had been set three years earlier in 2012 (before the Russian ban), as Mowi’s 2018
Investor’s Handbook itself reflects.96 Yet despite this supply of salmon based on an overall market
that no longer existed in 2015 and despite the fact that the ban had caused salmon prices to drop
in 2014, Defendants, by conspiring together, were able to raise prices substantially and keep prices
at levels significantly above those experienced in 2014.
97.
These price increases since mid-2015 have resulted in huge profits for the
Defendant farmed salmon producers. According to Mowi’s 4Q 2018 financial disclosures:
“2018 was a very good year for Mowi. Strong demand for salmon
and high prices in all markets resulted in great earnings for the
company. I am proud of all my colleagues who work hard to produce
healthy and tasty seafood for consumers all over the world. They
have all contributed to the strong results”, [sic] says CEO Alf-Helge
Aarskog.97
98.
Mowi’s 2017 annual report also confirmed that since the increases in salmon
pricing starting in 2015, its operating profits or “Operational EBIT” (reported in Euros) has
96 See Salmon Indus. Handbook 2018, MOWI, 32 [hereinafter Mowi Salmon Industry Handbook
2018].
97 See Strong Results for Mowi in the Fourth Quarter 2018, MOWI (Feb. 13, 2019).
substantially increased—from 83 million Euros in 2015, to 184 million Euros in 2016, and 214
million Euros in 2017.98 As noted above, in accounting and finance, earnings before interest and
taxes (“EBIT”) is a measure of a firm’s profit that includes all incomes and expenses (operating
and non-operating) except interest expenses and income tax expenses.
99.
Grieg similarly reported that its EBIT per kg gutted weight of fish (in Norwegian
Kroners) has increased during the course of the conspiracy. According to Grieg’s 2017 annual
report, its EBIT was 0.7 Kroners/kg in 2015, 18.0 Kroners/kg in 2016, and 14.4 Kroners/kg in
2017.99 Grieg’s Q4 2018 Quarterly Report announced an EBIT per kg (in Norwegian Kroner) of
14.72 for 2018.
100.
Lerøy has also experienced substantial increases in EBIT/kg (also measured in
Norwegian Kroner), increasing from 8.8 Kroners in 2015 to 18.9 Kroners in 2016, and 23.6
Kroners in 2017.100 In 2018, Lerøy’s EBIT/kg was 19.6.101
98 See Integrated Annual Report 2017, MARINE HARVEST, 7 (2017).
99 See GRIEG SEAFOOD ANNUAL REPORT 2017, supra note 39, at 8.
100
See
Annual
Report
2017
Key
Figures,
LEROY
SEAFOOD
(2017),
https://www.leroyseafood.com/en/investor/reports-and-webcast/annual-report-2017/to-the-
table/#anchor-article-key-figures.
101
See
Preliminary
Financial
Figures
2018,
LEROY
SEAFOOD,
10
(2018),
https://www.leroyseafood.com/globalassets/02-documents/english/reports/quarterly-reports/q4-
2018-report.pdf.
101.
Similarly, SalMar’s EBIT has increased substantially. In 2015, its EBIT was 1404
million Norwegian Kroners. In 2016, its EBIT was 2432 million Kroners. In 2017, EBIT was 3162
million Kroners.102 In 2018, its EBIT was 3460.8 million Kroners.103
102.
Similarly, the stock prices of Mowi ASA, Grieg ASA, SalMar ASA, and Lerøy
ASA have all risen dramatically since January of 2013.
103.
These price increases—and the Defendants’ coordinated behavior that caused
them—have come at the expense of Plaintiff and the Class, who have paid more for farm-raised
salmon than they otherwise would have in the absence of Defendants’ collusion.
C.
In Recent Years, Defendants Have Switches From Competition To Cooperation.
104.
After the dissolution of the FOS in 1991, the Norwegian farmed salmon industry
appears to have operated competitively for a while. In recent years, however, the farmed salmon
industry has undergone a major shift in attitude, with the key players in Norway and their foreign
subsidiaries transitioning from a culture of competition back to a culture of cooperation that once
again involves a cessation of trade competition.
105.
Trade Associations And Industry Organizations. This attitude is reflected not
only in Defendants’ unprecedented pricing moves in 2015, but also in their transition to openly
collusive behavior reflected in the activities of certain trade associations or industry groups to
which some of them belong. These trade associations or industry groups include several entities
discussed below.
102 See SALMAR ANNUAL REPORT 2017, supra note 51, at 4.
103
See
Quarterly
Report
–
Fourth
Quarter
2018,
SALMAR
ASA
(2018),
http://hugin.info/138695/R/2234948/879657.pdf.
106.
One is the Norwegian Seafood Council (“NSC”), which is based in Tromsø,
Norway and has offices in 12 countries (including an office in Boston) and which bills itself as
“the industry’s main source for market insight based on statistics, trade information, consumption
and consumer insight.”104 It licenses the “Seafood From Norway” trademark utilized by
Norwegian seafood producer-exporters.105 The NSC conducts a co-funded “Joint Marketing
Program” that utilizes this trademark.106 The NSC utilizes “advisory groups” that meet periodically
and give it input and opinions regarding its work; among the members of such groups are Frode
Mikkelsen and Knut Hallvard Lerøy of Lerøy, Witzøe of SalMar, Arne Aarhus of OQ, and Erik
Holvik of Mowi ASA.107 As explained in detail below, the data analytics firm SAS Data
Management (“SAS”) has created a database and analytical tools for the NSC that allow industry
members to share current individualized competitor data, including price data. This is undoubtedly
one of the things to which the EC was referring when it said the raided firms were suspected of
“exchanging commercially sensitive information.”
107.
Another Norwegian industry group of note is the Sjømatbedrifters Landsforening
(the Norwegian Seafood Federation (“NSF”)). The Norwegian Defendants are represented in this
104
About
Us,
NORWEGIAN
SEAFOOD
COUNCIL
(Nov.
18,
2016,
2:36
PM),
https://en.seafood.no/about-norwegian-seafood-council/about-us/.
105 See Licensing “Seafood from Norway”-trademark, NORWEGIAN SEAFOOD COUNCIL (Feb. 28,
2019, 3:02 PM), https://en.seafood.no/marketing/merke--og-stotteordninger/trademarks-and-
labeling/the-country-of-origin-mark/licensing-SFN/.
106 See The NSC’s Joint Marketing Program, NORWEGIAN SEAFOOD COUNCIL (Feb. 25, 2019, 9:10
AM),
https://en.seafood.no/marketing/merke--og-stotteordninger/bedriftsinitiativ-og-
stotteordninger/company-initiative--increasing-the-value-of-norwegian-seafood-together/.
107 See Advisory Groups, NORWEGIAN SEAFOOD COUNCIL, https://en.seafood.no/about-norwegian-
seafood-council/advisory-groups/ (last visited Sept. 27, 2019).
organization. Its former Chairman was Ole-Eirik Lerøy, the Chairman of the Board of Mowi since
2010, who was the CEO of Lerøy from 1991 to 2008; Ole-Eirik Lerøy was also not the only
executive from Lerøy to move to Mowi. The current CEO of Mowi is Alf-Helge Aarskog
(“Aarskog”), who previously served as Executive Vice-President and then CEO of Lerøy, and
Mowi’s Chief Financial Officer (“CFO”) is Ivan Vindheim (“Vindheim”) who formerly served in
that role at Lerøy.108 The Deputy Managing Director of the NSF is Trond Davidsen (“Davidsen”),
whose views on cooperation among salmon producers are set forth below.
108.
A third industry organization of note is the BC Salmon Farmers Association
(“BCSFA”), which is headquartered in Campbell River, British Columbia. Its website states that
it “is a forum for communication and cooperation within the salmon farming sector” and “is
dedicated to driving communication and cooperation within the salmon farming sector.”109 Its
members include OQ NA and subsidiaries of Mowi and Grieg.110 Its executives include Boschman
of Grieg and Dr. Diane Morrison of Mowi Canada.111
109.
A fourth important organization is the International Salmon Farmers Association
(“ISFA”), which includes the NSF and the BCSFA among its members. Its President is Davidsen
108 Mowi ASA (MNHVF.PQ) People, REUTERS, https://www.reuters.com/finance/stocks/company-
officers/MNHVF.PQ (last visited Sept. 27, 2019).
109 Our Members, BC SALMON FARMERS ASSOC., http://bcsalmonfarmers.ca/our-members/ (last
visited Sept. 27, 2019) [hereinafter Our Members]; About the BC Salmon Farmers Association,
BC SALMON FARMERS ASSOC., http://bcsalmonfarmers.ca/about/ (last visited Sept. 27, 2019).
110 OUR MEMBERS, supra note 109.
111 Our Board and Team, BC SALMON FARMERS ASSOC., http://bcsalmonfarmers.ca/about/board-
team/ (last visited Sept. 27, 2019).
of the NSF, who was re-elected as President at a general meeting of ISFA held in Boston in early
2016 and has represented Norway in ISFA since 2012.112
110.
Switch To Cooperation Rather Than Competition. In a speech given in
November of 2016, Davidsen explained how the farmed salmon industry in recent years has shifted
from competition to cooperation:
I was part of the trade disputes since mid 1990’s and I can still
remember how the parties in the processes were able to also take
care of the personal relations across the borders. We had days over
in Europe where the Scots, the Irish and the Norwegians had been
in tough meetings with the European Commission in daytime,
before we all went out for dinner in the evening and having an
enjoyable time together. Some were actually really good friends,
spending their holidays together. And these good relations made
it much easier to shift focus and work together when the trade
wars ended.
***
We have without doubt moved from battling each other in trade
wars to cooperating and finding solutions on common challenges
to feeding a growing world population – such as sea lice, feed
resources, technology and knowledge in general.
Of course, a general good market situation has removed some of the
stress in the salmon industry. But it seems also to be a fact that a
continuously increasing cross border activity in the industry has
moved the whole industry into a new way of thinking. We had
cross border activities in the past as well, with Norwegian salmon
companies involved in operations in Scotland, Ireland and the US.
However, the way the salmon business has developed in the last
years – with a vast increase in cross border ownership and
operations – will probably decrease the risk of any battles
between the producing countries in the future. I am convinced
that the increased business integration strengthens the whole
industry, improves our operations and makes us even more suited to
produce healthy and valuable products to a growing population.
112
Trond
Re-Elected,
INT’L
SALMON
FARMERS
ASSOC.
(Mar.
4,
2016),
http://www.salmonfarming.org/trond-re-elected/.
***
I know for sure that all parties involved in the salmon business agree
that the potential for further growth is tremendous – and that we
need to develop our industry to meet the global demand rather than
fight each other.113
When Davidsen was referring to “trade wars” or “battles” or “fight[ing]” in this speech, he was
clearly referring to price competition. As explained below, farmed salmon is a commodity product
and the way producers can compete with respect to the sale of it is on the dimension of price.
111.
Activities Of The GSI. This commitment to cooperation is also reflected in the
activities of the Global Salmon Initiative (“GSI”). As explained on its website:
In 2012, a small group of CEOs from salmon farming companies
from Norway, Chile and Scotland attended a talk about improving
environmental reputation. Inspired by stories from other sectors,
these CEOs decided to continue the discussions and look at ways
they could break down barriers to environmental improvement in
the salmon aquaculture sector.
Those leaders quickly realized that when one company performs
poorly, it harms the reputation of all, and instead of using
environmental performance as a means of competition, they
would secure greater advantages and economic success by
working together to lift the performance of the sector as a whole.
The GSI was launched in August 2013. Now with 16 members, with
operations covering 8 countries – Australia, Canada, Chile, Faroe
Islands, Ireland, New Zealand, Norway, and the United Kingdom
the group represents approximately 50% of the global farmed
salmon sector.114
113 Producing Healthy Sustainable Food for the World, INTERNATIONAL SALMON FARMERS
ASSOCIATION, http://www.salmonfarming.org/producing-healthy-sustainable-food-for-the-world/
(emphasis added).
114 What is the GSI?, GLOBAL SALMON INITIATIVE, https://globalsalmoninitiative.org/en/what-is-
the-gsi/ (last visited Sept. 27, 2019) (emphasis added).
The original members of GSI included Scottish Sea Farms and the Norwegian entities for Mowi,
Grieg, Lerøy, and SalMar.115 Aarskog, the CEO of Mowi, came up with the idea for the GSI and
is its Co-Chair.
112.
Defendants have conceded the purpose of the GSI is inconsistent with normal
competition for market share by competitors and that the GSI was undertaken with the goal of
increasing revenue.116
113.
While the activities of the GSI were focused on how to sustainably produce farmed
salmon, it was clearly dedicated to preventing competition by individual companies in the
environmental sector. One stated reason for this was a conscious common commitment to
“[m]anaging our operations in a manner to support economic growth and stability.”117 If the
Defendants by mid-2013 were willing to engage explicitly in “precompetitive cooperation” in
order to eliminate individual environmental improvements as a competitive tool, it is entirely
plausible that they would do likewise with respect to farmed salmon prices two years later, when
the ban on Russian sales was disrupting their market and reducing their profits.
114.
Sharing Of Sensitive Commercial Information Under The Auspices Of The
NSC. This close cooperation among Defendants is further exhibited in the data collection practices
115 Norway Trondheim, Global Salmon Initiative (GSI) Launched with Commitment to Sustainable
Salmon
Farming,
GLOBAL
SALMON
INITIATIVE
(Aug.
15,
2013,
00:01
AM),
https://globalsalmoninitiative.org/en/news/global-salmon-initiative-gsi-launched-with-
commitment-to-sustainable-salmon-farming/.
116 Avrim Lazar, 5 Lessons from GSI for Game-Changing Success Through Collaboration,
GLOBAL SALMON INITIATIVE, https://globalsalmoninitiative.org/en/blog/sometimes-the-best-way-
to-win-a-game-is-to-change-it/ (last visited Sept. 27, 2019) (emphasis added).
117
Why
is
GSI
Important?,
GLOBAL
SALMON
INITIATIVE,
https://globalsalmoninitiative.org/en/why-is-the-gsi-important/ (last visited Sept. 27, 2019).
used by SAS on behalf of the NSC. On its website, SAS touts how it has given confidential
“sensitive market insight” to the NSC’s constituency, including Defendants:
The Norwegian Seafood Council employs around 17 people to work
on analysis and reporting on a daily basis. The analysis department
has recently set up a new database to give businesses access to
sensitive market statistics, including an overview of their own
market shares and a comparison of their prices with those of
competitors.
Customers can compare themselves to other exporters in terms
of both price and share of the market.118
This is undoubtedly one of the items the EC was referring to when it declared that the raided firms
were suspected of “exchanging commercially sensitive information.”
115.
This practice of providing horizontal competitors real-time ongoing price and
market share data about each other—a practice to which these competitors obviously agreed—is a
real cause for concern. As discussed above, it was a key aspect of the price-fixing conspiracy
among FOS, SSGA, SSA, and SSB back in 1989-91.
116.
As the Federal Trade Commission (“FTC”) has said:
[F]orming a trade association does not shield joint activities from
antitrust scrutiny: Dealings among competitors that violate the
law would still violate the law even if they were done through a
trade association. For instance, it is illegal to use a trade
association to control or suggest prices of members. It is illegal
to use information-sharing programs, or standardized
contracts, operating hours, accounting, safety codes, or
transportation methods, as a disguised means of fixing prices.
One area for concern is exchanging price or other sensitive
business data among competitors, whether within a trade or
professional association or other industry group. Any data
exchange or statistical reporting that includes current prices, or
118 The Norwegian Seafood Council Uses SAS to Give Norwegian Fish Exporters a Competitive
Advantage, SAS INSTITUTE INC., https://www.sas.com/no_no/customers/norwegian-seafood-
council.html (last visited Sept. 27, 2019) (emphasis added).
information that identifies data from individual competitors,
can raise antitrust concerns if it encourages more uniform
prices than otherwise would exist.119
117.
Likewise, the United States government delegation stated to the Organization for
Economic Cooperation & Development’s Competition Committee in a 2010 report that “certain
information exchanges among competitors may violate Section 1 of the Sherman Act, which
prohibits a ‘contract, combination…or conspiracy’ that unreasonably restrains trade.”120 The
presentation was principally authored by the United States Department of Justice (“DOJ”) and is
part of a list of such submissions on its website.121 The United States government noted that “[i]n
addition to serving as evidence of an unlawful agreement, information exchanges likely to affect
prices may, under certain circumstances, be illegal in and of themselves.”122 Even if the
information exchange is not itself an unlawful agreement, it can be powerful evidence of an
agreement to fix prices because “[t]he antitrust concern is that information exchanges may
facilitate anticompetitive harm by advancing competing sellers’ ability either to collude or to
tacitly coordinate in a manner that lessens competition. Thus, for example, exchanges on price
119 Spotlight on Trade Associations, FEDERAL TRADE COMMISSION, https://www.ftc.gov/tips-
advice/competition-guidance/guide-antitrust-laws/dealings-competitors/spotlight-trade
(last
visited Sept. 27, 2019) (emphasis added).
120 Roundtable on Information Exchanges Between Competitors Under Competition Law, Note by
the Delegation of the United States, DIRECTORATE FOR FINANCIAL & ENTERPRISE AFFAIRS,
ORGANIZATION FOR ECONOMIC COOPERATION & DEVELOPMENT COMPETITION COMMITTEE, 2
(Oct. 21, 2010), https://www.justice.gov/sites/default/files/atr/legacy/2014/09/17/269282.pdf.
121 U.S. Submissions to the Organization for Economic Cooperation and Development (OECD)
Competition Committee, UNITED STATES DEPT. OF JUSTICE, https://www.justice.gov/atr/us-oecd-
submissions-competition-policy (last visited Sept. 27, 2019).
122 DIRECTORATE FOR FINANCIAL & ENTERPRISE AFFAIRS, ORGANIZATION FOR ECONOMIC
COOPERATION & DEVELOPMENT COMPETITION COMMITTEE, supra note 120, at 3.
may lead to illegal price coordination.” 123 The United States delegation noted that actual evidence
of competitive harm, such as industry-wide price movements resulting from the exchange are a
strong factor in finding illegality.124 Other identified factors that may be considered include: (a)
“[t]he nature and quantity of the information (extensive exchange of information regarding pricing,
output, major costs, marketing strategies and new product development is more likely to have
anticompetitive implications);” (b) “[h]ow recent the shared data is (sharing of past data is
generally deemed less problematic than sharing current data);” (c) “[t]he parties’ intent in sharing
the information (an anticompetitive intent, such as an intent to stabilize prices, is problematic);”
(d) “[t]he industry structure (in concentrated industries, an exchange among few firms could be
more likely to harm competition);” and (e) “[t]he frequency of exchanges (the more frequent the
exchange, the more problematic it may be).”125 The frequent detailed information exchanges
among competitors through the NSC satisfy these criteria.
118.
The DOJ and the FTC had made a similar point in their 2000 Antitrust Guidelines
for Collaborations Among Competitors (“DOJ-FTC Guidelines”):
[I]n some cases, the sharing of information related to a market in
which the collaboration operates or in which the participants are
actual or potential competitors may increase the likelihood of
collusion on matters such as price, output, or other competitively
sensitive variables. The competitive concern depends on the nature
of the information shared. Other things being equal, the sharing
of information relating to price, output, costs, or strategic
planning is more likely to raise competitive concern than the
sharing of information relating to less competitively sensitive
variables. Similarly, other things being equal, the sharing of
123 Id. at 2.
124 Id. at 4.
125 Id.
information on current operating and future business plans is
more likely to raise concerns than the sharing of historical
information. Finally, other things being equal, the sharing of
individual company data is more likely to raise concern than the
sharing of aggregated data that does not permit recipients to
identify individual firm data.126
119.
Defendants’ Activities Through The North Atlantic Seafood Forum.
Defendants have also used events organized in part by third parties to communicate with each
other on cooperative pricing arrangements for farmed salmon or products derived therefrom. One
such event is the annual North Atlantic Seafood Forum (“NASF”), which is described as “[t]he
world’s largest seafood business conference” and has occurred every March for the last 14 years
in Bergen, Norway and generally lasts for three days. 127 It is sponsored in part by major players
in the farmed salmon industry, such as Grieg, Mowi, and Lerøy.
120.
In recent years, the NASF conference has proceeded with an initial opening address
called “The View from the Bridge” given by so-called “Global Seafood Industry Captains.” A
speaker at the 2015 meeting was Ole-Eirik Lerøy. There are then typically lunch and “networking”
sessions followed by what are called “parallel sessions” devoted to particular industry sectors “for
the latest update on industry challenges, supply and market outlook, prices, innovation and
business, and sustainability issues.” One such parallel session at NASF is a half day “industry
workshop” devoted to “global salmon supply, markets and prices.” One of the presenters on global
126 Antitrust Guidelines for Collaborations Among Competitors, FEDERAL TRADE COMMISSION, 15
(2000), https://www.ftc.gov/sites/default/files/documents/public_events/joint-venture-hearings-
antitrust-guidelines-collaboration-among-competitors/ftcdojguidelines-2.pdf [hereinafter DOJ-
FTC Antitrust Guidelines for Collaborations Among Competitors] (emphasis added).
127 See 10th North Atlantic Seafood Forum, Bergen 2015 – Final Programme, NORTH ATLANTIC
SEAFOOD
FORUM
(2019),
http://prod.dfox.com/public/images/0000438021/000/080/0000804137.pdf. The 2015 NASF
session preceded by a few months the sudden price increases that occurred in mid-2015.
salmon demand at the 2015 and 2016 sessions was Ola Bratvoll (“Bratvoll”), COO and Group
Sales Director of the Marine Harvest Group. At each annual session, there are provided “different
arenas for meeting the delegates in an unstressed atmosphere . . .” in order to use “networking
opportunities.”
121.
NASF sessions are heavily attended by representatives of the Defendants.128 For
instance, at the tenth annual NASF conference in March of 2015—immediately prior to the
beginning of the Class Period—the delegates for Grieg were: P. Grieg (Chairman of the Board),
Wenche Kjølås (“Kjølås”) (Board Member), Karin Bing Orgland (Board Member), Asbjørn
Reinkind (“Reinkind”) (Vice-Chairman), Andreas Kvame (“Kvame”) Sandtorv ((CFO), and
Utheim (COO).
122.
At the same 2015 session, delegates for Lerøy were: Beltestad (CEO), Sjur Malm
(“Malm”) (CFO), Annichen Edvardsen (“Edvardsen”) (Financial Manager), Jonas Langeteig
(Project Controller), and Singelstad (Chairman).
123.
At the same 2015 session, delegates for Mowi (at that time Marine Harvest ASA)
were Arild Aakre (Marketing Director), Aarskog (CEO), Brattvoll (COO Sales & Marketing), Kim
Galtung Døsvig (IRO), Kristine Gramstad (Global Director Communications), Henrik Heiberg
(VP of Finance and Treasury), Inger-Elisabeth Holberg (Controller Global Farming), Andreas
Mikalsen (Managing Director RMT Europe), Eivind Nævdal-Bolstad (Public Affairs Manager),
Øyvind Oaland (Global Director R&D and Technical), Marit Solberg (COO Farming), Olav
128 See 10th North Atlantic Seafood Forum, Bergen 2015 - Conference Delegates, NORTH
ATLANTIC
SEAFOOD
FORUM
(2019),
http://prod.dfox.com/public/images/0000438021/000/081/0000814865.pdf.
Soleide (Group Controller Sales & Marketing), Vindheim (CFO), Charlie Wu (Managing Director
Asia), and Ole-Eirik Lerøy (Chairman).
124.
Similarly, at the 2019 NASF session, to cite another example, the delegates for
Grieg were: Kristina Furnes (Global Communications Manager), P. Grieg (Chairman), Kjølås
(Board Member), Kvame (CEO), Kathleen Mathison (Chief Human Relations Officer), Reinkind
(Vice-Chairman), Sandtorv (CFO), and Utheim (COO). Also present was Grant Cummings
(Managing Director of Grieg’s Scottish operations).129
125.
At the same 2019 session, delegates for Lerøy were: Jennelyn Grude (Team
Leader), Tone Myklebust (Head of Frozen Foods), Terje Antero Olsen (Team Leader), Bjørn
Opheim (Sales Manager), Carmen Thomasson (Sales Manager), Hans Peter Vestre (Team Leader),
Webjorn Barstad (COO for Wildcatch and Whitefish), Cristian Askvik (Team Manager Value
Added Production (“VAP”) USA), Beltestad (CEO), Endre Edvartsdag (Team Manager), Carmel
Egenberg (Team Manager VAP), Thomas Finnøy (Project Manager IT), Ole Jan Flatraker, Per
Arve Hausvåg (Team Manager), Knut Hallvard Lerøy (Head of Operation), Malm (CFO), Frode
Mikkelsen (Head of VAP), Harald Voltersvik Hernæs (Team Manager), Edvardsen (Finance
Chief), Kristren Hoass (Public Affairs), Anne Hilde Midttveit (Head of Quality & Sustainability),
Ole Risøy (Head of Analysis), Bjarte Sævig (head of IT), Jørn Erik Toppe (Business Analyst), Pål
Erik M. Michelsden (Head of Brands & Digital Marketing), Karoline Møgster (Board member),
Hage Torvund Nilsen (Head of Finance, Sales & Distribution), and Ivar Wulff (COO of Sales &
Distribution).
129 14th North Atlantic Seafood Forum - Conference Delegates, NORTH ATLANTIC SEAFOOD
FORUM, 9 (2019), https://d1tosi66po7sm3.cloudfront.net/1551709799/list-of-delegates-14th-
north-atlantic-seafood-forum-2019.pdf.
126.
At the same 2019 session, delegates for Mowi were: Aarskog (CEO), Kim Galtung
Døsvig (IRO), Ole-Eirik Lerøy (Chairman of the Board), Joachim Ulsrud (Treasury Analyst),
Vindheim (CFO), and Jørgen Wengaard (Driftstekniker).
127.
At the 2018 NASF conference, the CEOs of the major Defendants here were also
present: Kvame of Grieg, Baltestad of Lerøy, Aarskog of Mowi, and Trond Willikson of SalMar.
128.
Joint Venture Activity. As noted above, SalMar and Lerøy are joint owners of
Scottish Sea Farms. This fact is conducive to collusion, as explained in the DOJ’s and FTC’s joint
guidelines on collaborations among competitors. Indeed, the DOJ-FTC joint guidelines provide:
Marketing collaborations may involve agreements on price,
output, or other competitively significant variables, or on the
use of competitively significant assets, such as an extensive
distribution network, that can result in anticompetitive harm.
Such agreements can create or increase market power or facilitate
its exercise by limiting independent decision making; by combining
in the collaboration, or in certain participants, control over
competitively significant assets or decisions about competitively
significant variables that otherwise would be controlled
independently; or by combining financial interests in ways that
undermine incentives to compete independently. For example, joint
promotion might reduce or eliminate comparative advertising, thus
harming competition by restricting information to consumers on
price and other competitively significant variables.130
D.
The Structure And Characteristic Of The Market For Atlantic Farm-Raised Salmon
Support the Existence Of A Conspiracy.
129.
The structure and other characteristics of the market for Atlantic farm-raised
salmon make it conducive to anticompetitive conduct among Defendants and make collusion
particularly attractive.
130 DOJ-FTC ANTITRUST GUIDELINES FOR COLLABORATIONS AMONG COMPETITORS, supra note
126, at 14 (emphasis added).
130.
The DOJ has emphasized that structural market factors can be important in
assessing whether conspiratorial conduct in violation of the antitrust laws has occurred. Indeed,
the DOJ has explained that:
While collusion can occur in almost any industry, it is more likely
to occur in some industries than in others. An indicator of collusion
may be more meaningful when industry conditions are already
favorable to collusion.
• Collusion is more likely to occur if there are few sellers. The
fewer the number of sellers, the easier it is for them to get
together and agree on prices, bids, customers, or territories.
Collusion may also occur when the number of firms is fairly
large, but there is a small group of major sellers and the rest
are “fringe” sellers who control only a small fraction of the
market.
• The probability of collusion increases if other products cannot
easily be substituted for the product in question or if there are
restrictive specifications for the product being procured.
• The more standardized a product is, the easier it is for
competing firms to reach agreement on a common price
structure. It is much harder to agree on other forms of
competition, such as design, features, quality, or service.
• Repetitive purchases may increase the chance of collusion, as
the vendors may become familiar with other bidders and future
contracts provide the opportunity for competitors to share the
work.
• Collusion is more likely if the competitors know each other
well through social connections, trade associations, legitimate
business contacts, or shifting employment from one company
to another.
• Bidders who congregate in the same building or town to
submit their bids have an easy opportunity for last-minute
communications.131
131 Price Fixing, Bid Rigging, And Market Allocation Schemes: What They Are And What To Look
For, FEDERAL TRADE COMMISSION, 5, https://www.justice.gov/atr/file/810261/download (last
visited Sept. 27, 2019).
131.
All of these factors are present here. As explained below: (a) the Norwegian farmed
salmon industry is dominated by a few top producers with a number of smaller players; (b) farmed
Atlantic salmon is a standardized product not readily substitutable with other types of salmon; (c)
opportunities to conspire abound in numerous trade associations and industry meetings, and
otherwise; (d) Mowi, OQ AS, Grieg, and Lerøy are all headquartered in Bergen, Norway; (e) Grieg
BC, Mowi Canada, OQ NA, and OQ Premium Brands are located in British Columbia, Canada;
and (f) there is mobility among executives of certain Defendants, such as Ole-Eirik Lerøy,
Aarskog, and Vindheim.
1.
Industry Concentration Facilitates Collusion
132.
A highly concentrated market is more susceptible to collusion and other
anticompetitive practices than less concentrated markets.
133.
Here, there has been significant (and rapid) consolidation of salmon farming
operations around the globe in recent years, as Mowi reports:132
132 See MOWI SALMON INDUS. HANDBOOK 2019, supra note 85, at 45
The vast majority of the 22 remaining salmon farming companies in Norway are “fringe sellers,”
to use the words of the DOJ. And the Norwegian Defendants dominate the market.
134.
The foregoing graphic is consistent with the 2016 speech by Davidsen of ISFA
quoted previously, in which he referred to a “vast increase in cross border ownership and
operations in recent years.”
135.
According to Mowi’s own figures, Norway’s salmon industry is dominated by
Defendants Mowi, Lerøy, SalMar, and Grieg:133
133 Id. at 44.
2.
Barriers to New Entry Are High.
136.
A collusive arrangement that raises product prices above competitive levels would,
under basic economic principles, attract new entrants seeking to benefit from the supracompetitive
pricing. When, however, there are significant barriers to entry, new entrants are much less likely
to enter the market. The market for farming salmon has high entrance barriers.
137.
The production process for farmed salmon is costly and lengthy.
138.
Mowi has diagrammed the process for breeding and growing farm-raised salmon
as follows:134
134 See Seafood Value Chain, MOWI.COM, https://www.mowi.com/product/seafood-value-chain
(last visited Aug. 16, 2019).
139.
A report commissioned by the EU titled “Developing Innovative Market Orientated
Prediction Toolbox to Strengthen the Economic Sustainability and Competitiveness of European
Seafood on Local and Global markets” further depicts how salmon is processed:135
135 See European Union Horizon 2020 research and innovation program, Deliverable No. 3.4 -
Report on evaluation of industry dynamics opportunities and threats to industry, EUROPEAN
COMMISSION, https://ec.europa.eu/programmes/horizon2020/en/newsroom/546%20547.
140.
Thus, production of farmed salmon is capital intensive, and the development of
marketable fish is a lengthy process—both of which operate as a barrier to entry.
141.
Atlantic salmon is viewed as a separate product distinct from other types of salmon.
The EC, in approving Mowi’s acquisition of Morpol, a salmon processor, noted that there is a
separate product market for the farming and processing of farmed Atlantic salmon.136
142.
Mowi’s 2018 Investor’s Handbook notes that there are relatively few locations in
the world that provide the right mix of oceanic conditions for salmon farming and a political
environment willing to allow the practice. Moreover, even if new entry could occur in the right
geographic location, no additional salmon supply could be brought online in the short run:137
136
Case
No.
COMP/M.6850,
Marine
Harvest/Morpol,
¶
68
(Sept.
30,
2013),
http://ec.europa.eu/competition/mergers/cases/decisions/m6850_20130930_20212_3315220_EN
.pdf.
137 See MOWI SALMON INDUS. HANDBOOK 2019, supra note 85, at 27.
143.
Mowi explains that “[i]n all salmon producing regions, the relevant authorities have
a licensing regime in place. In order to operate a salmon farm, a license is the key prerequisite.
The licenses constrain the maximum for each company and the industry as a whole.”138
138 See id. at 76.
144.
Moreover, wild caught salmon cannot reasonably constrain prices for farm-raised
salmon. National Public Radio summarized the breeding and cost advantages that farm-raised
salmon have over wild caught salmon in an August 29, 2017 article:
Why Are Atlantic Salmon Raised In The Pacific Northwest?
Atlantic salmon are not native to the Pacific Northwest. For years,
they have been bred to become easier to farm — they’re more
“highly domesticated,” according to the Washington Department of
Fish and Wildlife. Most commercial fish farms raise Atlantic
salmon.
The WDFW says Atlantic salmon is a “favored species” to farm in
cold marine waters because the species grows quickly and
consistently, is resistant to disease, and is something people like to
eat. Farmed Atlantic salmon are more docile than wild fish.
Atlantic salmon also have been bred to more “efficiently turn feed
into flesh,” says Michael Rust, the science adviser for NOAA’s
office of aquaculture.
What used to cost several dollars per pound to grow, worldwide,
now costs about $1.25, Rust says. That makes for higher profits.
In the U.S., Washington and Maine are the two largest Atlantic
salmon producing states, but they’re small beans compared to
salmon farms in Canada, Norway and Chile.
Atlantic salmon today, Rust says, probably grow twice as fast as
when aquaculture first started. 139
145.
Wild caught salmon is generally up to twice as expensive per pound as farm-raised
salmon.
139 See Courtney Flatt, Why Are Atlantic Salmon Being Farmed In The Northwest? NAT’L PUBLIC
RADIO
(Aug.
29,
2017,
7:00
AM),
https://www.npr.org/sections/thesalt/2017/08/29/546803147/why-are-atlantic-salmon-being-
farmed-in-the-northwest.
3.
Farm-Raised Salmon Is A Commodity Product And Prices Are Correlated
Across the Globe.
146.
Mowi explains that salmon production is a “commodity” business. A report issued
in 2018 by the EU confirms this point: “[t]he output of most salmonid aquaculture, and Atlantic
salmon in particular, is highly commoditised [sic] i.e., there is little differentiation between farms
and competition is based purely on price. These products, mostly head-on gutted fresh fish, serve
as raw material for further processing. In that situation, large enterprises which can reduce costs
of production through economies of scale and offer the lowest price, have a competitive
advantage.”140 Commodity products are fungible and consumers and other purchasers have a
variety of supply options which makes raising prices by any one supplier difficult in the absence
of a conspiracy.
147.
Atlantic salmon is also viewed as a commodity product by third parties. NASDAQ
maintains a commodity price index for farmed Atlantic salmon.141 Market analysts have also
recognized that farmed salmon is a commodity.142
148.
Furthermore, according to Grieg, salmon prices are linked across the globe, and the
Defendants and others closely follow these prices: “[t]here are several reference prices for salmon
available. In Norway, Fish Pool ASA provides historic price information as well as future salmon
derivative prices FCA Oslo. In the US, Urner Barry provides reference prices for North American
140 See EUROPEAN COMM’N, supra note 74, at 4.
141
NASDAQ
SALMON
INDEX,
https://salmonprice.nasdaqomxtrader.com/public/report;jsessionid=820D4389ED92CEF09633B
A4FC20BC06D?0 (last visited Sept. 27, 2019).
142 See Neil Ramsden, Marine Harvest aims to be ‘Coca-Cola’ of salmon, UNDERCURRENT NEWS
(Apr. 4, 2019, 5:21 PM), https://www.undercurrentnews.com/2018/11/13/marine-harvest-aims-to-
be-coca-cola-of-salmon/.
salmon in Seattle, and Chilean salmon in Miami. Market prices are correlated across regions . . .
.”143 (emphasis added). Likewise, Mowi says in its 2018 Handbook that “[c]omparing FCA Oslo,
FOB Miami and FOB Seattle, there is a clear indication of a global market as prices correlate to a
high degree.”144 (“FCA” is a trade term indicating that a seller is responsible for the delivery of
goods to a specific destination; “FOB” is an acronym for “Free on board,” which indicates whether
the seller or the buyer is liable for goods that are damaged or destroyed during shipping).
149.
Mowi also recognizes that “price correlation across regional markets is generally
strong for Atlantic salmon.”145 Accordingly, price-fixing of salmon prices in one market will affect
prices globally.
150.
In fact, Mowi tracks the correlation of salmon prices globally in the normal course
of its business.146 The company illustrates this graphically in its 2018 Investor’s Handbook:147
143 See GRIEG SEAFOOD ANNUAL REPORT 2018, supra note 29, at 123.
144 See MOWI SALMON INDUS. HANDBOOK 2019, supra note 85, at 41.
145 See id. at 40.
146 Id.
147 Id.
151.
This point was also recognized in a 2016 report issued by the Fish Pool and DNB
Foods & Seafood (which is part of Norway’s largest financial services organization) entitled
“World market for salmon: pricing and currencies.”148 The report pointed out that Norwegian
farmed salmon gate prices are “strongly linked” and that the collusion by Defendants on those
Norwegian prices directly affected prices for farmed salmon raised elsewhere pursuant to the “law
of one price.”149
152.
Indeed, the 2016 report also noted that:150
148 See World market for salmon: pricing and currencies, FISH POOL (2016), http://fishpool.eu/wp-
content/uploads/2016/04/final-dag.pdf. [hereinafter Fish Pool]
149 As explained below, Mowi operates salmon farms in Chile as well as Norway.
150 See FISH POOL, supra note 148.
153.
The 2016 report further elaborates on the economic principle of the “law of one
price” as it relates to the farm-raised salmon market in the Unites States:151
4.
Norwegian Companies Dominate The Production Of Farm-Raised Salmon
And The Defendants Are The Largest Global Producers.
154.
A January 3, 2018 article in SalmonBusiness.com—an industry publication—
illustrates Norway’s dominance in the salmon industry in the following graphic, with about 52%
of supply:152
151 See id.
152 See Berge, supra note 80.
5.
Norwegian Companies Dominate The Production Of Farm-Raised Salmon
And The Defendants Are The Largest Global Producers. Farmed Salmon
Production Is Highly Inelastic And The Product is Perishable.
155.
Mowi acknowledges that:
Due to the long production cycle and the short shelf life of the fresh
product (about 3 weeks), the spot price clears on the basis of the
overall price/quantity preference of customers. As salmon is
perishable and marketed fresh, all production in one period has to
be consumed in the same period. In the short term, the production
level is difficult and expensive to adjust as the planning/production
cycle is three years long. Therefore, the supplied quantity is very
inelastic in the short term, while demand also shifts according to the
season. This has a large effect on the price volatility in the market.153
156.
Accordingly, in the absence of coordinated conduct among producers, Defendants
are price-takers and cannot control the price of their product. They are unable to reduce the supply
153 See MOWI SALMON INDUS. HANDBOOK 2018, supra note 96.
of salmon in the short term to raise prices unilaterally, and they must sell during a very short
window while their product is fit for human consumption. In the long term, Defendants would
have limited incentives to restrict supply when prices are high, thus creating an oversupply in the
market that would depress prices in the absence of collusion. These market constraints make the
market more susceptible to collusion than markets where goods are not perishable and production
levels can be rapidly modulated. As Mowi has noted in its 2018 annual report, “[a]lthough the
market price of salmon is established through supply and demand for the product, in the short term,
salmon producers are expected to be price takers. The long production cycle and a short time
window available for harvesting leave salmon farmers with limited flexibility to manage their
short-term supply.”154 As claimed price takers, Defendants had every incentive to collude to ensure
that the price they took in the market was as high as they could collectively get it.
E.
The Alleged Conspiracy Adversely Affected Purchasers In The United States, Which
Is A Substantial Market For Farm-Raised Salmon.
157.
The activities of Defendants, including those undertaken overseas, impact
purchasers in the United States of farm-raised salmon and products derived therefrom. The United
States is the second largest global market for salmon behind only the EU, as Mowi reports in the
graphic below:155
154 See MOWI ANNUAL REPORT 2018, supra note 4, at 248.
155 See Q4 2019 PRESENTATION, MOWI (2019), http://hugin.info/209/R/2234685/879436.pdf.
158.
A December 12, 2018 article from Intrafish further explains:
Salmon import volumes into the United States through October rose
10.5 percent, reaching 272,676 metric tons, according to new figures
released by the National Marine Fisheries Service (NMFS).
The value of Atlantic salmon imports rose as well, by 9.5 percent,
to reach $2.9 billion (€2.6 billion), up from $2.6 billion (€2.3 billion)
during the same period last year.156
156
See
US
imports
of
fresh
salmon
fillets
spike,
INTRAFISH,
https://www.intrafish.com/marketplace/1654239/us-imports-of-fresh-salmon-fillets-spike
(last
visited Sept. 27, 2019).
CLASS ACTION ALLEGATIONS
159.
Plaintiff brings this action on behalf of themselves 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 commercial and institutional purchasers in the United States and
its territories that purchased farm-raised salmon and/or products
derived therefrom, once or more, other than directly from
Defendants, entities owned or controlled by Defendants, or other
producers of farm-raised salmon or products derived therefrom,
from July 1, 2015 to the present. Excluded from the Nationwide
Class are the Court and its personnel, and any Defendants and their
parent or subsidiary companies.
160.
Plaintiff also brings this action on behalf of themselves 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 and territories listed below (the “Indirect Purchaser States”)157 on
behalf of the following class (the “Damages Class”):
All commercial and institutional purchasers in the Indirect
Purchaser States that purchased farm-raised salmon and/or products
derived therefrom once or more other than directly from Defendants,
entities owned or controlled by Defendants, or other producers of
farm-raised salmon or products derived therefrom from July 1, 2015
to the present. Excluded from the Damages Class are the Court and
its personnel, and any Defendants and their parent or subsidiary
companies.
161.
The Nationwide Class and the Damages Class are referred to herein as the
“Classes.”
157 The Indirect Purchaser States, for purposes of this complaint, are the states and territory for
which there are claims listed in the Causes of Action section below.
162.
Plaintiff reserves the right to modify the class definitions at a later date, including
to add the first level of indirect purchasers.
163.
While Plaintiff does not know the exact number of the members of the Classes,
there are likely thousands of class members.
164.
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 Defendants and their co-conspirators engaged in a combination
and conspiracy among themselves to fix, raise, maintain and/or stabilize
prices of farm-raised salmon and products derived therefrom in the United
States;
(b)
Whether Defendants and their co-conspirators engaged in a combination
and conspiracy among themselves to fix, raise, maintain and/or stabilize
prices of farm-raised salmon and products derived therefrom sold in the
United States;
(c)
Whether Defendants and their co-conspirators participated in meetings and
trade association conversations among themselves in the United States and
elsewhere to implement, adhere to, and police the unlawful agreements that
they reached;
(d)
The identity of the participants of the alleged conspiracy;
(e)
The duration of the alleged conspiracy and the acts carried out by
Defendants and their co-conspirators in furtherance of the conspiracy;
(f)
Whether the alleged conspiracy violated the Sherman Act, as alleged in the
First Count;
(g)
Whether the alleged conspiracy violated state antitrust and unfair
competition laws, and/or state consumer protection laws, as alleged in the
Second and Third Counts;
(h)
Whether 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;
(i)
Whether the conduct of 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;
(j)
The effect of the alleged conspiracy on the prices of farm-raised salmon and
products derived therefrom sold in the United States during the Class
Period;
(k)
Whether the Defendants and their co-conspirators actively concealed,
suppressed, and omitted to disclose material facts to Plaintiff and members
of the Classes concerning Defendants’ unlawful activities to artificially
inflate prices for farm-raised salmon and products derived therefrom, and/or
fraudulently concealed the unlawful conspiracy’s existence from Plaintiff
and the other members of the Classes;
(l)
The appropriate injunctive and related equitable relief for the Nationwide
Class; and
(m)
The appropriate class-wide measure of damages for the Damages Class.
165.
Plaintiff’s claims are typical of the claims of the members 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 farm-raised salmon and products derived therefrom purchased
indirectly from Defendants and/or their co-conspirators. Plaintiff’s claims arise out of the same
common course of conduct giving rise to the claims of the other members of the Classes.
166.
Plaintiff will fairly and adequately protect the interests 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.
167.
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.
168.
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 might not
be practicable to pursue individually, substantially outweigh any difficulties that may arise in
management of this class action. Plaintiff reserves the discretion to certify the Damages Class as
separate classes for each of the Indirect Purchaser States or as separate classes for certain groups
of Indirect Purchaser States, should the Court’s subsequent decisions in this case render that
approach more efficient. Whether certified together or separately, the total number and identity of
the members of the Damages Class would remain consistent.
169.
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.
INTERSTATE TRADE AND COMMERCE
170.
Hundreds of millions of dollars of transactions in farm-raised salmon and products
derived therefrom are entered into each year in interstate commerce in the United States and the
payments for those transactions flowed in interstate commerce.
171.
Defendants’ manipulation of the market had a direct, substantial, and foreseeable
impact on interstate commerce in the United States.
172.
Defendants intentionally targeted their unlawful conduct to affect commerce,
including interstate commerce within the United States, by combining, conspiring, and/or agreeing
to fix, maintain, stabilize, and/or artificially inflate prices for farm-raised salmon and products
derived therefrom.
173.
Defendants’ unlawful conduct has a direct and adverse impact on competition in
the United States. Absent Defendants’ combination, conspiracy, and/or agreement to manipulate
the market for the sale of Farm-Raised Salmon, the prices of Farm-Raised Salmon would have
been determined by a competitive, efficient market.
PLAINTIFF AND THE CLASSES SUFFERED ANTITRUST INJURY
174.
Defendants’ antitrust conspiracy had the following effects, among others:
(a)
Price competition has been restrained or eliminated with respect to the
pricing of farm-raised salmon and products derived therefrom;
(b)
The prices of farm-raised salmon and products derived therefrom have been
fixed, raised, maintained, or stabilized at artificially inflated levels;
(c)
Purchasers of farm-raised salmon and products derived therefrom have been
deprived of the benefits of free and open competition; and
(d)
Purchasers of farm-raised salmon and products derived therefrom paid
artificially inflated prices.
175.
The purpose of the conspiratorial and unlawful conduct of Defendants and their co-
conspirators was to fix, raise, stabilize and/or maintain the price of farm-raised salmon and
products derived therefrom.
176.
The precise amount of the overcharge impacting the prices of farm-raised salmon
and products derived therefrom paid by Plaintiff and the Damages Class can be measured and
quantified using well-accepted models.
177.
By reason of the alleged violations of the antitrust laws, Plaintiff and the members
of the Classes have sustained injury to their businesses or property, having paid higher prices for
farm-raised salmon and products derived therefrom than they would 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.
CAUSES OF ACTION
COUNT I
Violation of Section 1 of the Sherman Act (15 U.S.C. §§ 1, 3)
(Conspiracy in Restraint of Trade)
178.
Plaintiff incorporates by reference the allegations set forth above as if fully set forth
179.
Defendants and their unnamed co-conspirators entered into and engaged in a
contract, combination, or conspiracy in unreasonable restraint of trade in violation of Sections 1
and 3 of the Sherman Act (15 U.S.C. § 1, 3).
180.
During the Class Period, Defendants and their co-conspirators entered into a
continuing agreement, understanding and conspiracy in restraint of trade to artificially allocate
customers, rig bids, and raise, and/or maintain and fix prices for Farm-Raised Salmon, thereby
creating anticompetitive effects.
181.
The conspiratorial acts and combinations have caused unreasonable restraints in the
market for Farm-Raised Salmon.
182.
As a result of Defendants’ unlawful conduct, Plaintiff and other similarly situated
class members in the Nationwide Class that purchased Farm-Raised Salmon have been harmed by
being forced to pay inflated, supracompetitive prices for Farm-Raised Salmon.
183.
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
184.
Defendants’ conspiracy had the following effects, among others:
(a)
Price competition in the market for Farm-Raised Salmon has been
restrained, suppressed, and/or eliminated in the United States;
(b)
Prices for Farm-Raised Salmon 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 Farm-Raised
Salmon indirectly from Defendants and their co-conspirators have been
deprived of the benefits of free and open competition.
185.
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 Farm-Raised Salmon purchased
indirectly from Defendants and the co-conspirators than they would have paid and will pay in the
absence of the conspiracy.
186.
Defendants’ contract, combination, or conspiracy is a per se violation of the federal
antitrust laws.
187.
Plaintiff and members of the Nationwide Class are entitled to an injunction against
Defendants, preventing and restraining the continuing violations alleged herein.
COUNT II
Violation of State Antitrust Statutes
(on behalf of Plaintiff and the Damages Class)
188.
Plaintiff repeats the allegations set forth above as if fully set forth herein, and each
of the state-specific causes of action described below incorporates the allegations as if fully set
forth therein.
189.
During the Class Period, Defendants and their co-conspirators engaged in a
continuing contract, combination, or conspiracy with respect to the sale of Farm-Raised Salmon
in unreasonable restraint of trade and commerce and in violation of the various state antitrust and
other statutes set forth below.
190.
The contract, combination, or conspiracy consisted of an agreement among
Defendants and their co-conspirators to fix, raise, inflate, stabilize, and/or maintain at artificially
supracompetitive prices for Farm-Raised Salmon, including in the United States and its territories.
191.
In formulating and effectuating this conspiracy, Defendants and their co-
conspirators performed acts in furtherance of the combination and conspiracy, including agreeing
to fix, increase, inflate, maintain, or stabilize effective prices of Farm-Raised Salmon purchased
by Plaintiff and members of the Damages Class; and (b) participating in meetings and trade
association conversations among themselves in the United States and elsewhere to implement,
adhere to, and police the unlawful agreements they reached.
192.
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
Farm-Raised Salmon. As a direct and proximate result, Plaintiff and members of the Damages
Class were deprived of free and open competition and paid more for Farm-Raised Salmon than
they otherwise would have 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.
193.
In addition, Defendants have profited significantly from the conspiracy.
Defendants’ profits derived from their anticompetitive conduct come at the expense and detriment
of Plaintiff and the members of the Damages Class.
194.
Accordingly, Plaintiff and the members of the Damages Class in each of the
following 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 following state laws.
195.
Defendants’ anticompetitive acts described above were knowing, willful and
constitute violations of the following state antitrust statutes.
196.
Arizona: Defendants have entered into an unlawful agreement in restraint of trade
in violation of Ariz. Rev. Stat. §44-1401, et seq. Defendants’ conspiracies had the following
effects: (1) price competition for Farm-Raised Salmon was restrained, suppressed, and eliminated
throughout Arizona; (2) Farm-Raised Salmon prices were raised, fixed, maintained, and stabilized
at artificially high levels throughout Arizona. During the Class Period, Defendants’ illegal conduct
substantially affected Arizona commerce. Accordingly, Plaintiff and members of the Damages
Class seek all forms of relief available under Ariz. Rev. Stat. §44-1401, et seq.
197.
California: Defendants have entered into an unlawful agreement in restraint of
trade in violation of Cal. Bus. & Prof. Code §16700, et seq. During the Class Period, Defendants
and their coconspirators entered into and engaged in a continuing unlawful trust in restraint of the
trade and commerce described above in violation of Cal. Bus. & Prof. Code §16720. Each
defendant has acted in violation of Cal. Bus. & Prof. Code §16720 to fix, raise, stabilize, and
maintain prices of Farm-Raised Salmon at supracompetitive levels. The violations of Cal. Bus. &
Prof. Code §16720 consisted, without limitation, of a continuing unlawful trust and concert of
action among Defendants and their co-conspirators, the substantial terms of which were to fix,
raise, maintain, and stabilize the prices of Farm-Raised Salmon. For the purpose of forming and
effectuating the unlawful trust, 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 Farm-
Raised Salmon. The combination and conspiracy alleged herein has had, inter alia, the following
effects: (1) price competition for Farm-Raised Salmon has been restrained, suppressed, and/or
eliminated in the State of California; (2) prices for Farm-Raised Salmon provided by Defendants
and their co-conspirators have been fixed, raised, stabilized, and pegged at artificially high,
noncompetitive levels in the State of California and throughout the United States; and (3) those
who purchased Farm-Raised Salmon indirectly from Defendants and their co-conspirators have
been deprived of the benefit of free and open competition. As a result of Defendants’ violation of
Cal. Bus. & Prof. Code §16720, Plaintiff and members of the Damages Class seek treble damages
and their cost of suit, including a reasonable attorneys’ fee, pursuant to Cal. Bus. & Prof. Code
§16750(a).
198.
District of Columbia: Defendants have entered into an unlawful agreement in
restraint of trade in violation of D.C. Code §28-4501, et seq. Defendants’ combinations or
conspiracies had the following effects: (1) Farm-Raised Salmon price competition was restrained,
suppressed, and eliminated throughout the District of Columbia; (2) Farm-Raised Salmon 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 purchased Farm-Raised Salmon in the District of Columbia, paid
supracompetitive, artificially inflated prices for Farm-Raised Salmon, including in the District of
Columbia. During the Class Period, Defendants’ illegal conduct substantially affected commerce
in the District of Columbia. By reason of the foregoing, Defendants have entered into agreements
in restraint of trade in violation of D.C. Code §28-4501, et seq. Accordingly, Plaintiff and
members of the Damages Class seek all forms of relief available under D.C. Code §28-4501, et
199.
Iowa: Defendants have entered into an unlawful agreement in restraint of trade in
violation of Iowa Code §553.1, et seq. Defendants’ combinations or conspiracies had the
following effects: (1) Farm-Raised Salmon price competition was restrained, suppressed, and
eliminated throughout Iowa; (2) Farm-Raised Salmon prices were raised, fixed, maintained and
stabilized at artificially high levels throughout Iowa. During the Class Period, Defendants’ illegal
conduct substantially affected Iowa commerce. 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.
200.
Kansas: Defendants have entered into an unlawful agreement in restraint of trade
in violation of Kan. Stat. §50-101, et seq. Defendants’ combinations or conspiracies had the
following effects: (1) Farm-Raised Salmon price competition was restrained, suppressed, and
eliminated throughout Kansas; (2) Farm-Raised Salmon prices were raised, fixed, maintained, and
stabilized at artificially high levels throughout Kansas. During the Class Period, Defendants’
illegal conduct substantially affected Kansas commerce. Accordingly, Plaintiff and members of
the Damages Class seek all forms of relief available under Kan. Stat. §50-101, et seq.
201.
Maine: Defendants have entered into an unlawful agreement in restraint of trade
in violation of Me. Rev. Stat. Ann. tit. 10, § 1101. Defendants’ combinations or conspiracies had
the following effects: (1) Farm-Raised Salmon price competition was restrained, suppressed, and
eliminated throughout Maine; (2) Farm-Raised Salmon prices were raised, fixed, maintained, and
stabilized at artificially high levels throughout Maine. During the Class Period, Defendants’ illegal
conduct substantially affected Maine commerce. Accordingly, Plaintiff and members of the
Damages Class seek all relief available under Me. Rev. Stat. Ann. tit. 10, § 1104.
202.
Michigan: Defendants have entered into an unlawful agreement in restraint of
trade in violation of Mich. Comp. Laws §445.771, et seq. Defendants’ combinations or
conspiracies had the following effects: (1) Farm-Raised Salmon price competition was restrained,
suppressed, and eliminated throughout Michigan; (2) Farm-Raised Salmon prices were raised,
fixed, maintained, and stabilized at artificially high levels throughout Michigan. During the Class
Period, Defendants’ illegal conduct substantially affected Michigan commerce. Accordingly,
Plaintiff and members of the Damages Class seek all relief available under Mich. Comp. Laws
§445.771, et seq.
203.
Minnesota: Defendants have entered into an unlawful agreement in restraint of
trade in violation of Minn. Stat. §325D.49, et seq. Defendants’ combinations or conspiracies had
the following effects: (1) Farm-Raised Salmon price competition was restrained, suppressed, and
eliminated throughout Minnesota; (2) Farm-Raised Salmon prices were raised, fixed, maintained,
and stabilized at artificially high levels throughout Minnesota. During the Class Period,
Defendants’ illegal conduct substantially affected Minnesota commerce. Accordingly, Plaintiff
and members of the Damages Class seek all relief available under Minn. Stat. §325D.49, et seq.
204.
Mississippi: Defendants have entered into an unlawful agreement in restraint of
trade in violation of Miss. Code §75-21-1, et seq. Defendants’ combinations or conspiracies had
the following effects: (1) Farm-Raised Salmon price competition was restrained, suppressed, and
eliminated throughout Mississippi; (2) Farm-Raised Salmon prices were raised, fixed, maintained,
and stabilized at artificially high levels throughout Mississippi. During the Class Period,
Defendants’ illegal conduct substantially affected Mississippi commerce. Accordingly, Plaintiff
and members of the Damages Class seek all relief available under Miss. Code §75-21-1, et seq.
205.
Nebraska: Defendants have entered into an unlawful agreement in restraint of
trade in violation of Neb. Rev. Stat. §59-801, et seq. Defendants’ combinations or conspiracies
had the following effects: (1) Farm-Raised Salmon price competition was restrained, suppressed,
and eliminated throughout Nebraska; (2) Farm-Raised Salmon prices were raised, fixed,
maintained, and stabilized at artificially high levels throughout Nebraska. During the Class Period,
Defendants’ illegal conduct substantially affected Nebraska commerce. Accordingly, Plaintiff and
members of the Damages Class seek all relief available under Neb. Rev. Stat. §59-801, et seq.
206.
Nevada: Defendants have entered into an unlawful agreement in restraint of trade
in violation of Nev. Rev. Stat. Ann. §598A.010, et seq. Defendants’ combinations or conspiracies
had the following effects: (1) Farm-Raised Salmon price competition was restrained, suppressed,
and eliminated throughout Nevada; (2) Farm-Raised Salmon prices were raised, fixed, maintained,
and stabilized at artificially high levels throughout Nevada. During the Class Period, Defendants’
illegal conduct substantially affected Nevada commerce. Accordingly, Plaintiff and members of
the Damages Class seek all relief available under Nev. Rev. Stat. Ann. §598A.010, et seq.
207.
New Hampshire: Defendants have entered into an unlawful agreement in restraint
of trade in violation of New Hampshire Revised Statutes Ann. §356:1. Defendants’ combinations
or conspiracies had the following effects: (1) Farm-Raised Salmon price competition was
restrained, suppressed, and eliminated throughout New Hampshire; (2) Farm-Raised Salmon
prices were raised, fixed, maintained, and stabilized at artificially high levels throughout New
Hampshire. During the Class Period, Defendants’ illegal conduct substantially affected New
Hampshire commerce. Accordingly, Plaintiff and members of the Damages Class seek all relief
available under New Hampshire Revised Statutes §356:1, et seq.
208.
New Mexico: Defendants have entered into an unlawful agreement in restraint of
trade in violation of New Mexico Statutes Annotated § 57-1-1, et seq. Defendants’ combinations
or conspiracies had the following effects: (1) Farm-Raised Salmon price competition was
restrained, suppressed, and eliminated throughout New Mexico; (2) Farm-Raised Salmon prices
were raised, fixed, maintained, and stabilized at artificially high levels throughout New Mexico.
During the Class Period, Defendants’ illegal conduct substantially affected New Mexico
commerce. Accordingly, Plaintiff and members of the Damages Class seek all relief available
under New Mexico Statutes Annotated § 57-1-1, et seq.
209.
New York: Defendants have entered into an unlawful agreement in restraint of
trade in violation of New York General Business Laws § 340, et seq. Defendants’ combinations
or conspiracies had the following effects: (1) Farm-Raised Salmon price competition was
restrained, suppressed, and eliminated throughout New York; (2) Farm-Raised Salmon prices were
raised, fixed, maintained, and stabilized at artificially high levels throughout New York. During
the Class Period, Defendants’ illegal conduct substantially affected New York commerce. The
conduct set forth above is a per se violation of the Donnelly Act, § 340, et seq. Accordingly,
Plaintiff and members of the Damages Class seek all relief available under New York General
Business Laws § 340, et seq.
210.
North Carolina: Defendants have entered into an unlawful agreement in restraint
of trade in violation of North Carolina General Statutes § 75-1, et seq. Defendants’ combinations
or conspiracies had the following effects: (1) Farm-Raised Salmon price competition was
restrained, suppressed, and eliminated throughout North Carolina; (2) Farm-Raised Salmon prices
were raised, fixed, maintained, and stabilized at artificially high levels throughout North Carolina;
During the Class Period, Defendants’ illegal conduct substantially affected North Carolina
commerce. Accordingly, Plaintiff and members of the Damages Class seek all relief available
under North Carolina General Statutes § 75-16, et seq.
211.
North Dakota: Defendants have entered into an unlawful agreement in restraint
of trade in violation of N.D. Cent. Code §51-08.1-01, et seq. Defendants’ combinations or
conspiracies had the following effects: (1) Farm-Raised Salmon price competition was restrained,
suppressed, and eliminated throughout North Dakota; (2) Farm-Raised Salmon prices were raised,
fixed, maintained, and stabilized at artificially high levels throughout North Dakota. During the
Class Period, Defendants’ illegal conduct had a substantial effect on North Dakota commerce.
Accordingly, Plaintiff and members of the Damages Class seek all relief available under N.D.
Cent. Code §51-08.1-01, et seq.
212.
Oregon: Defendants have entered into an unlawful agreement in restraint of trade
in violation of Or. Rev. Stat. § 646.725, et seq. Defendants’ combinations or conspiracies had the
following effects: (1) Farm-Raised Salmon price competition was restrained, suppressed and
eliminated throughout Oregon; (2) Farm-Raised Salmon prices were raised, fixed, maintained and
stabilized at artificially high levels throughout Oregon. During the Class Period, Defendants’
illegal conduct had a substantial effect on Oregon commerce. Accordingly, Plaintiff and members
of the Damages Class seek all relief available under Or. Rev. Stat. § 646.780, et seq.
213.
Rhode Island: Defendants have entered into an unlawful agreement in restraint of
trade in violation of Rhode Island General Laws § 6-36-4, et seq. The Rhode Island statutes allow
actions on behalf of indirect purchasers for conduct during the Class Period. Defendants’
combinations or conspiracies had the following effects: (1) Farm-Raised Salmon price competition
was restrained, suppressed, and eliminated throughout Rhode Island; (2) Farm-Raised Salmon
prices were raised, fixed, maintained, and stabilized at artificially high levels throughout Rhode
Island. During the Class Period, Defendants’ illegal conduct had a substantial effect on Rhode
Island commerce. Accordingly, Plaintiff and members of the Damages Class seek all relief
available under Rhode Island General Laws § 6-36-11, et seq.
214.
South Dakota: Defendants have entered into an unlawful agreement in restraint
of trade in violation of South Dakota Codified Laws § 37-1-3.1, et seq. Defendants’ combinations
or conspiracies had the following effects: (1) Farm-Raised Salmon price competition was
restrained, suppressed, and eliminated throughout South Dakota; (2) Farm-Raised Salmon prices
were raised, fixed, maintained, and stabilized at artificially high levels throughout South Dakota.
During the Class Period, Defendants’ illegal conduct had a substantial effect on South Dakota
commerce. Accordingly, Plaintiff and members of the Damages Class seek all relief available
under South Dakota Codified Laws § 37-1-3.1, et seq.
215.
Tennessee: Defendants have entered into an unlawful agreement in restraint of
trade in violation of Tenn. Code Ann. §47-25-101, et seq. Defendants’ combinations or
conspiracies had the following effects: (1) Farm-Raised Salmon price competition was restrained,
suppressed, and eliminated throughout Tennessee; (2) Farm-Raised Salmon prices were raised,
fixed, maintained, and stabilized at artificially high levels throughout Tennessee. During the Class
Period, Defendants’ illegal conduct had a substantial effect on Tennessee commerce. Accordingly,
Plaintiff and members of the Damages Class seek all relief available under Tenn. Code Ann. §47-
25-101, et seq.
216.
Utah: Defendants have entered into an unlawful agreement in restraint of trade in
violation of Utah Code Annotated § 76-10-3101, et seq. Defendants’ combinations or conspiracies
had the following effects: (1) Farm-Raised Salmon price competition was restrained, suppressed,
and eliminated throughout Utah; (2) Farm-Raised Salmon prices were raised, fixed, maintained,
and stabilized at artificially high levels throughout Utah. During the Class Period, Defendants’
illegal conduct had a substantial effect on Utah commerce. Accordingly, Plaintiff and members
of the Damages Class seek all relief available under Utah Code Annotated § 76-10-3101, et seq.
217.
Vermont: Defendants have entered into an unlawful agreement in restraint of trade
in violation of 9 Vermont Stat. Ann. § 2453, et seq. Defendants’ combinations or conspiracies had
the following effects: (1) Farm-Raised Salmon price competition was restrained, suppressed, and
eliminated throughout Vermont; (2) Farm-Raised Salmon prices were raised, fixed, maintained,
and stabilized at artificially high levels throughout Vermont. During the Class Period, Defendants’
illegal conduct had a substantial effect on Vermont commerce. Accordingly, Plaintiff and
members of the Damages Class seek all relief available under 9 V.S.A. § 2465, et seq.
218.
West Virginia: Defendants have entered into an unlawful agreement in restraint
of trade in violation of West Virginia Code § 47-18-3, et seq. Defendants’ combinations or
conspiracies had the following effects: (1) Farm-Raised Salmon price competition was restrained,
suppressed, and eliminated throughout West Virginia; (2) Farm-Raised Salmon prices were raised,
fixed, maintained, and stabilized at artificially high levels throughout West Virginia. During the
Class Period, Defendants’ illegal conduct had a substantial effect on West Virginia commerce.
Accordingly, Plaintiff and members of the Damages Class seek all relief available under West
Virginia Code § 47-18-9, et seq.
219.
Wisconsin: Defendants have entered into an unlawful agreement in restraint of
trade in violation of Wis. Stat. §133.01, et seq. Defendants’ combinations or conspiracies had the
following effects: (1) Farm-Raised Salmon price competition was restrained, suppressed, and
eliminated throughout Wisconsin; (2) Farm-Raised Salmon prices were raised, fixed, maintained,
and stabilized at artificially high levels throughout Wisconsin. During the Class Period,
Defendants’ illegal conduct had a substantial effect on Wisconsin commerce. Accordingly,
Plaintiff and members of the Damages Class seek all relief available under Wis. Stat. §133.01, et
COUNT III
Violation of State Consumer Protection Statutes
(on Behalf of Plaintiff and the Damages Class)
220.
Plaintiff repeats the allegations set forth above as if fully set forth herein, and each
of the state-specific causes of action described below incorporates the allegations as if fully set
forth therein.
221.
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.
222.
Arkansas: Defendants have knowingly entered into an unlawful agreement in
restraint of trade in violation of Ark. Code Ann. §4-88-101, et seq. Defendants knowingly agreed
to, and did in fact, act in restraint of trade or commerce by affecting, fixing, controlling, and/or
maintaining at noncompetitive and artificially inflated levels, the prices at which Farm-Raised
Salmon was sold, distributed, or obtained in Arkansas and took efforts to conceal their agreements
from Plaintiff and members of the Damages Class. The aforementioned conduct on the part of the
Defendants constituted “unconscionable” and “deceptive” acts or practices in violation of Ark.
Code Ann. §4-88-107(a)(10). Defendants’ unlawful conduct had the following effects: (1) Farm-
Raised Salmon price competition was restrained, suppressed, and eliminated throughout Arkansas;
(2) Farm-Raised Salmon prices were raised, fixed, maintained, and stabilized at artificially high
levels throughout Arkansas. During the Class Period, Defendants’ illegal conduct substantially
affected Arkansas commerce and consumers. Defendants have engaged in unfair competition or
unfair or deceptive acts or practices in violation of Ark. Code Ann. §4-88-107(a)(10) and,
accordingly, Plaintiff and the members of the Damages Class seek all relief available under that
statute.
223.
California: Defendants have engaged in unfair competition or unfair,
unconscionable, deceptive or fraudulent acts or practices in violation of Cal. Bus. & Prof. Code
§17200, et seq. During the Class Period, Defendants manufactured, marketed, sold, or distributed
Farm-Raised Salmon in California, and committed and continue to commit acts of unfair
competition, as defined by Cal. Bus. & Prof. Code §17200, et seq., by engaging in the acts and
practices specified above. This claim is instituted pursuant to Cal. Bus. & Prof. Code §§17203
and 17204, to obtain restitution from these Defendants for acts, as alleged herein, that violated Cal.
Bus. & Prof. Code §17200, commonly known as the Unfair Competition Law. Defendants’
conduct as alleged herein violated Cal. Bus. & Prof. Code §17200. The acts, omissions,
misrepresentations, practices and nondisclosures 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 Cal. Bus. & Prof.
Code §17200, et seq., including, but not limited to, the following: (1) the violations of §1 of the
Sherman Act, as set forth above; (2) the violations of Cal. Bus. & Prof. Code §16720, et seq., set
forth above. Defendants’ acts, omissions, misrepresentations, practices, and non-disclosures, as
described above, whether or not in violation of Cal. Bus. & Prof. Code §16720, et seq., and whether
or not concerted or independent acts, are otherwise unfair, unconscionable unlawful or fraudulent;
(3) Defendants’ acts or practices are unfair to purchasers of Farm-Raised Salmon in the State of
California within the meaning of Cal. Bus. & Prof. Code §17200 et. seq.; and (4) Defendants’ acts
and practices are fraudulent or deceptive within the meaning of Cal. Bus. & Prof. Code §17200, et
seq. 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. The illegal conduct alleged
herein is continuing and there is no indication that Defendants will not continue such activity into
the future. 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 supracompetitive and artificially inflated prices for Farm-Raised Salmon. Plaintiff
and the members of the Damages Class suffered injury in fact and lost money or property as a
result of such unfair competition. The conduct of Defendants as alleged in this Complaint violates
Cal. Bus. & Prof. Code §17200, et seq. 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 Cal. Bus. & Prof. Code §§17203 and 17204.
224.
Florida: 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. Defendants’ unlawful conduct had the following effects: (1) Farm-
Raised Salmon price competition was restrained, suppressed, and eliminated throughout Florida;
(2) Farm-Raised Salmon prices were raised, fixed, maintained, and stabilized at artificially high
levels throughout Florida. During the Class Period, Defendants’ illegal conduct substantially
affected Florida commerce and consumers. Accordingly, plaintiff and members of the Damages
Class seek all relief available under Fla. Stat. §501.201, et seq.
225.
Minnesota: Defendants have engaged in unfair competition or unfair,
unconscionable, or deceptive acts or practices in violation of the Minnesota Uniform Deceptive
Trade Practices Act, Minn. Stat. § 325D.43, et seq. Defendants engaged in unfair and deceptive
trade practices during the course of their business dealings, which significantly impacted Plaintiff
as a purchaser of the Defendants’ goods, and which caused Plaintiff to suffer injury. Defendants
took efforts to conceal their agreements from Plaintiff and the members of the Damages Class.
Defendants’ unlawful conduct had the following effects: (1) Farm-Raised Salmon price
competition was restrained, suppressed, and eliminated throughout Minnesota; (2) Farm-Raised
Salmon prices were raised, fixed, maintained, and stabilized at artificially high levels throughout
Minnesota. During the Class Period, Defendants’ illegal conduct substantially affected Minnesota
commerce and Farm-Raised Salmon purchasers. Defendants have engaged in unfair competition
or unfair or deceptive acts or practices in violation of Minn. Stat. § 325D.43, et seq., and,
accordingly, Plaintiff and members of the Class seek all relief available under that statute and as
equity demands.
226.
Missouri: Defendants have engaged in unfair competition or unlawful, unfair,
unconscionable, or deceptive acts or practices in violation of the Missouri Merchandising Practices
Act, Mo. Rev. Stat. § 407.010, et seq. Defendants engaged in the conduct described in this Class
Action Complaint in connection with the sale of products containing Farm-Raised Salmon in
Missouri. During the Class Period, Defendants’ illegal conduct substantially affected Missouri
commerce and consumers. Defendants agreed to, and in fact did, fix, control, and maintain at
artificial and non-competitive levels, the price at which Farm-Raised Salmon was 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 the members of the Damages Class. Defendants
concealed, suppressed, and failed to disclose material facts to Plaintiff and the members of the
Damages Class concerning Defendants’ unlawful activities and artificially inflated prices for
Farm-Raised Salmon. The concealed, suppressed, and omitted facts would have been important to
Plaintiff and the members of the Damages Class as they related to the cost of products containing
Farm-Raised Salmon. Defendants’ unlawful conduct had the following effects: (1) Farm-Raised
Salmon price competition was restrained, suppressed, and eliminated throughout Missouri;
(2) Farm-Raised Salmon prices were raised, fixed, maintained, and stabilized at artificially high
levels throughout Missouri; (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
supracompetitive, artificially inflated prices for products containing Farm-Raised Salmon. The
foregoing acts and practices constituted unlawful practices in violation of the Missouri
Merchandising Practices Act. As a direct and proximate result of the above-described unlawful
practices, Plaintiff and the members of the Damages Class suffered ascertainable loss of money or
property. Accordingly, Plaintiff and the 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, which provides for
the relief sought in this Count.
227.
Nebraska: Defendants have engaged in unfair competition or unfair,
unconscionable, or deceptive acts or practices in violation of the Nebraska Consumer Protection
Act, Neb. Rev. Stat. § 59-1601, et seq. Defendants’ unlawful conduct had the following effects:
(1) Farm-Raised Salmon price competition was restrained, suppressed, and eliminated throughout
Nebraska; (2) Farm-Raised Salmon prices were raised, fixed, maintained, and stabilized at
artificially high levels throughout Nebraska. During the Class Period, Defendants marketed, sold,
or distributed Farm-Raised Salmon in Nebraska, and Defendants’ illegal conduct substantially
affected Nebraska commerce and Farm-Raised Salmon purchasers. Defendants have engaged in
unfair competition or unfair or deceptive acts or practices in violation of Neb. Rev. Stat. § 59-
1601, et seq., and, accordingly, Plaintiff and members of the Damages Class seek all relief
available under that statute.
228.
New Hampshire: Defendants have engaged in unfair competition or unfair,
unconscionable, or deceptive acts or practices in violation of the New Hampshire Consumer
Protection Act, N.H. Rev. Stat. § 358-A:1, et seq. Defendants sold Farm-Raised Salmon in New
Hampshire and deceived Plaintiff and Class Members in New Hampshire into believing that the
Farm-Raised Salmon were competitively priced. Defendants’ unlawful conduct had the following
effects: (1) Farm-Raised Salmon price competition was restrained, suppressed, and eliminated
throughout New Hampshire; (2) Farm-Raised Salmon prices were raised, fixed, maintained, and
stabilized at artificially high levels throughout New Hampshire; (3) Plaintiff and members of the
Damages Class, who resided in New Hampshire and/or purchased the Farm-Raised Salmon in
New Hampshire were deprived of free and open competition in New Hampshire; and (4) Plaintiff
and members of the Damages Class, who resided in New Hampshire and/or purchased Farm-
Raised Salmon in New Hampshire paid supracompetitive, artificially inflated prices for Farm-
Raised Salmon in New Hampshire. During the Class Period, Defendants marketed, sold, or
distributed Farm-Raised Salmon in New Hampshire, and Defendants’ illegal conduct substantially
affected New Hampshire commerce and Farm-Raised Salmon purchasers. As a direct and
proximate result of Defendants’ unlawful conduct, Plaintiff and members of the Damages Class
have been injured. Defendants have engaged in unfair competition or unfair or deceptive acts or
practices in violation of N.H. Rev. Stat. § 358-A:1, et seq., and, accordingly, Plaintiff and members
of the Damages Class seek all relief available under that statute.
229.
New Mexico: Defendants have engaged in unfair competition or unfair,
unconscionable, or deceptive acts or practices in violation of New Mexico Stat. § 57-12-1, et seq.
In New Mexico, price-fixing is actionable as an “unconscionable trade practice” under N.M. Stat.
§ 57-12-2(E) because it “takes advantage of the lack of knowledge … of a person to a grossly
unfair degree” and also results in a “gross disparity between the value received by a person and
the price paid.” Defendants had the sole power to set that price, and Plaintiff and members of the
Damages Class had no meaningful ability to negotiate a lower price from wholesalers. Moreover,
Plaintiff and members of the Damages Class lacked any meaningful choice in purchasing Farm-
Raised Salmon because they were unaware of the unlawful overcharge, and there was no
alternative source of supply through which Plaintiff and members of the Damages Class could
avoid the overcharges. Defendants’ conduct with regard to sales of Farm-Raised Salmon, including
their illegal conspiracy to secretly fix the price of Farm-Raised Salmon at supracompetitive 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 and members of the Damages Class. Defendants’ unlawful conduct
had the following effects: (1) Farm-Raised Salmon price competition was restrained, suppressed
and eliminated throughout New Mexico; (2) Farm-Raised Salmon 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 supracompetitive, artificially inflated prices for Farm-Raised
Salmon. During the Class Period, Defendants’ illegal conduct substantially affected New Mexico
commerce and consumers. 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. 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 members of the
Damages Class seek all relief available under that statute.
230.
New York: 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.
Defendants agreed 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 Farm-
Raised Salmon were sold, distributed or obtained in New York and took efforts to conceal their
agreements from Plaintiff and members of the Damages Class. Defendants and their coconspirators
made public statements about the prices of Farm-Raised Salmon that either omitted material
information that rendered the statements that they made materially misleading or affirmatively
misrepresented the real cause of price increases for Farm-Raised Salmon; and Defendants alone
possessed material information that was relevant to consumers, but failed to provide the
information. Because of Defendants’ unlawful trade practices in the State of New York, New York
class members who indirectly purchased Farm-Raised Salmon were misled to believe that they
were paying a fair price for Farm-Raised Salmon or the price increases for Farm-Raised Salmon
were for valid business reasons; and similarly situated consumers were affected by Defendants’
conspiracy. Defendants knew that their unlawful trade practices with respect to pricing Farm-
Raised Salmon would have an impact on New York consumers and not just Defendants’ direct
customers. Defendants knew that their unlawful trade practices with respect to pricing Farm-
Raised Salmon would have a broad impact, causing commercial and institutional indirect
purchaser class members who indirectly purchased Farm-Raised Salmon to be injured by paying
more for Farm-Raised Salmon than they would have paid in the absence of Defendants’ unlawful
trade acts and practices. The conduct of 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 customers and commercial and institutional indirect purchasers in New York State in
an honest marketplace in which economic activity is conducted in a competitive manner.
Defendants’ unlawful conduct had the following effects: (1) Farm-Raised Salmon price
competition was restrained, suppressed, and eliminated throughout New York; (2) Farm-Raised
Salmon 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 supracompetitive,
artificially inflated prices for Farm-Raised Salmon. During the Class Period, Defendants marketed,
sold, or distributed Farm-Raised Salmon in New York, and Defendants’ illegal conduct
substantially affected New York commerce and consumers. During the Class Period, each of
Defendants named herein, directly, or indirectly and through affiliates they dominated and
controlled, manufactured, sold and/or distributed Farm-Raised Salmon in New York. Plaintiff and
members of the Damages Class seek all relief available pursuant to N.Y. Gen. Bus. Law § 349(h).
231.
North Carolina: Defendants have engaged in unfair competition or unfair,
unconscionable, or deceptive acts or practices in violation of N.C. Gen. Stat. §75-1.1, et seq.
Defendants agreed 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 Farm-
Raised Salmon were sold, distributed or obtained in North Carolina and took efforts to conceal
their agreements from Plaintiff and members of the Damages Class. 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 pretextual and false justifications regarding their price increases.
The conduct of 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.
Defendants’ unlawful conduct had the following effects: (1) Farm-Raised Salmon price
competition was restrained, suppressed and eliminated throughout North Carolina; (2) Farm-
Raised Salmon 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 supracompetitive,
artificially inflated prices for Farm-Raised Salmon. During the Class Period, Defendants
marketed, sold, or distributed Farm-Raised Salmon in North Carolina, and Defendants’ illegal
conduct substantially affected North Carolina commerce and consumers. 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 Farm-Raised Salmon in North Carolina.
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 N.C.
Gen. Stat. §75-1.1, et seq., and, accordingly, Plaintiff and members of the Damages Class seek all
relief available under that statute.
232.
North Dakota: Defendants have engaged in unfair competition or unfair,
unconscionable, or deceptive acts or practices in violation of the North Dakota Unlawful Sales or
Advertising Practices Statute, N.D. Century Code § 51-15-01, et seq. Defendants agreed to, and
did in fact, act in restraint of trade or commerce in North Dakota, by affecting, fixing, controlling,
and/or maintaining, at artificial and non-competitive levels, the prices at which Farm-Raised
Salmon was sold, distributed, or obtained in North Dakota. Defendants deliberately failed to
disclose material facts to Plaintiff and members of the Damages Class concerning Defendants’
unlawful activities and artificially inflated prices for Farm-Raised Salmon. Defendants
misrepresented to all purchasers during the Class Period that Defendants’ Farm-Raised Salmon
prices were competitive and fair. Defendants’ unlawful conduct had the following effects: (1) price
competition for Farm-Raised Salmon was restrained, suppressed, and eliminated throughout North
Dakota; (2) Farm-Raised Salmon prices were raised, fixed, maintained, and stabilized at artificially
high levels throughout North Dakota. During the Class Period, Defendants’ illegal conduct had a
substantial effect on North Dakota commerce and Farm-Raised Salmon purchasers. As a direct
and proximate result of 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. Defendants’ deception, including
their affirmative misrepresentations and omissions concerning the price of Farm-Raised Salmon,
misled all purchasers acting reasonably under the circumstances to believe that they were
purchasing Farm-Raised Salmon at prices set by a free and fair market. Defendants’ misleading
conduct and unconscionable activities constitute violations of N.D. Century Code § 51-15-01, et
seq., and, accordingly, Plaintiff and members of the Damages Class seek all relief available under
that statute.
233.
Rhode Island: 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.) Members of the
Damages Class purchased Farm-Raised Salmon for personal, family, or household purposes.
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 Farm-Raised Salmon were sold, distributed, or obtained in
Rhode Island. Defendants deliberately failed to disclose material facts to Plaintiff and members of
the Damages Class concerning Defendants’ unlawful activities and artificially inflated prices for
Farm-Raised Salmon. 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’
Farm-Raised Salmon prices were competitive and fair. Defendants’ unlawful conduct had the
following effects: (1) Farm-Raised Salmon price competition was restrained, suppressed, and
eliminated throughout Rhode Island; (2) Farm-Raised Salmon 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 supracompetitive, artificially inflated prices for Farm-Raised
Salmon. Defendants’ illegal conduct substantially affected Rhode Island commerce and
consumers, including commercial and institutional indirect purchasers that serve as a conduit to
consumers. As a direct and proximate result of 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.
Defendants’ deception, including their affirmative misrepresentations and omissions concerning
the price of Farm-Raised Salmon, likely misled all purchasers acting reasonably under the
circumstances to believe that they were purchasing Farm-Raised Salmon 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 Farm-Raised
Salmon they purchased. 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.
234.
South Carolina: Defendants have engaged in unfair competition or unfair,
unconscionable, or deceptive acts or practices in violation of the South Carolina Unfair Trade
Practices Act, S.C. Code Ann. §39-5-10 et seq. Defendants’ combinations or conspiracies had the
following effects: (1) Farm-Raised Salmon price competition was restrained, suppressed and
eliminated throughout South Carolina; (2) Farm-Raised Salmon prices were raised, fixed,
maintained and stabilized at artificially high levels throughout South Carolina. During the Class
Period, Defendants’ illegal conduct had a substantial effect on South Carolina commerce. 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. 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.
235.
South Dakota: Defendants have engaged in unfair competition or unfair,
unconscionable, or deceptive acts or practices in violation of the South Dakota Deceptive Trade
Practices and Consumer Protection Statute, S.D. Codified Laws § 37-24-1, et seq. Defendants
agreed to, and did in fact, act in restraint of trade or commerce in South Dakota, by affecting,
fixing, controlling, and/or maintaining, at artificial and non-competitive levels, the prices at which
Farm-Raised Salmon was sold, distributed, or obtained in South Dakota. Defendants deliberately
failed to disclose material facts to Plaintiff and members of the Damages Class concerning
Defendants’ unlawful activities and artificially inflated prices for Farm-Raised Salmon.
Defendants misrepresented to all purchasers during the Class Period that Defendants’ Farm-Raised
Salmon prices were competitive and fair. Defendants’ unlawful conduct had the following effects:
(1) price competition for Farm-Raised Salmon was restrained, suppressed, and eliminated
throughout South Dakota; (2) Farm-Raised Salmon prices were raised, fixed, maintained, and
stabilized at artificially high levels throughout South Dakota. Defendants’ illegal conduct
substantially affected South Dakota commerce and on those who purchased Farm-Raised Salmon
in South Dakota. As a direct and proximate result of 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.
Defendants’ deception, including their affirmative misrepresentations and omissions concerning
the price of Farm-Raised Salmon, misled all purchasers acting reasonably under the circumstances
to believe that they were purchasing Farm-Raised Salmon 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 Farm-Raised Salmon
they purchased. Defendants have engaged in unfair competition or unfair or deceptive acts or
practices in violation of S.D. Codified Laws § 37-24-1, et seq., and, accordingly, Plaintiff and
members of the Damages Class seek all relief available under that statute.
236.
Vermont: Defendants have engaged in unfair competition or unfair,
unconscionable, or deceptive acts or practices in violation of 9 Vermont Stat. Ann. § 2451, et seq.
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 Farm-Raised Salmon were sold, distributed, or obtained in Vermont.
Defendants deliberately failed to disclose material facts to Plaintiff and members of the Damages
Class concerning Defendants’ unlawful activities and artificially inflated prices for Farm-Raised
Salmon. Defendants owed a duty to disclose such facts, and Defendants breached that duty by their
silence. Defendants misrepresented to all purchasers during the Class Period that Defendants’
Farm-Raised Salmon prices were competitive and fair. During the Class Period, Defendants’
illegal conduct had a substantial effect on Vermont commerce and consumers. As a direct and
proximate result of 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. Defendants’ deception, including
their affirmative misrepresentations and omissions concerning the price of Farm-Raised Salmon,
likely misled all commercial and institutional indirect purchasers acting reasonably under the
circumstances to believe that they were purchasing Farm-Raised Salmon 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
237.
Wisconsin: Defendants have engaged in unfair competition or unfair,
unconscionable, or deceptive acts or practices in violation of the Wisconsin Consumer Protection
Statutes, Wisc. Stat. § 100.18, et seq. Defendants agreed to, and did in fact, act in restraint of trade
or commerce in a market that includes Wisconsin, by affecting, fixing, controlling, and/or
maintaining, at artificial and non-competitive levels, the prices at which Farm-Raised Salmon was
sold, distributed, or obtained in Wisconsin. Defendants affirmatively misrepresented to all
purchasers during the Class Period that Defendants’ Farm-Raised Salmon prices were competitive
and fair. Defendants’ unlawful conduct had the following effects: (1) price competition for the
Farm-Raised Salmon was restrained, suppressed, and eliminated throughout Wisconsin; (2) Farm-
Raised Salmon prices were raised, fixed, maintained, and stabilized at artificially high levels
throughout Wisconsin. Defendants’ illegal conduct substantially affected Wisconsin commerce
and purchasers of Farm-Raised Salmon. As a direct and proximate result of 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.
Defendants’
deception,
including
their
affirmative
misrepresentations concerning the price of Farm-Raised Salmon at Issue, misled all purchasers
acting reasonably under the circumstances to believe that they were purchasing Farm-Raised
Salmon at prices set by a free and fair market. Defendants’ affirmative misrepresentations
constitute information important to Plaintiff and members of the Damages Class as they related to
the cost of Farm-Raised Salmon they purchased. Defendants have engaged in unfair competition
or unfair or deceptive acts or practices in violation of Wisc. Stat. § 100.18, et seq., and,
accordingly, Plaintiff and members of the Damages Class seek all relief available under that
COUNT IV
Unjust Enrichment158
(on behalf of Plaintiff and the Damages Class)
238.
Plaintiff incorporates by reference the allegations set forth above as if fully set forth
239.
To the extent required, this claim is pleaded in the alternative to the other claims in
this Complaint.
240.
Defendants have unlawfully benefited from their sales of Farm-Raised Salmon
because of the unlawful and inequitable acts alleged in this Complaint. Defendants unlawfully
overcharged privately held commercial and institutional indirect purchasers, which purchased
Farm-Raised Salmon at prices that were more than they would have been but for Defendants’
unlawful actions.
241.
Defendants’ financial benefits resulting from their unlawful and inequitable acts
are traceable to overpayments by Plaintiff and members of the Damages Class.
242.
Plaintiff and the Damages Class have conferred upon Defendants an economic
benefit, in the nature of profits resulting from unlawful overcharges, to the economic detriment of
Plaintiff and the Damages Class.
243.
Defendants have been enriched by revenue resulting from unlawful overcharges for
Farm-Raised Salmon while Plaintiff and members of the Damages Class has been impoverished
158 Unjust enrichment claims are alleged herein under the laws of the states for which claims are
alleged in Counts Two and Three above.
by the overcharges they paid for Farm-Raised Salmon imposed through Defendants’ unlawful
conduct. Defendants’ enrichment and the impoverishment of Plaintiff and members of the
Damages Class are connected.
244.
There is no justification for Defendants’ retention of, and enrichment from, the
benefits they received, which caused impoverishment to Plaintiff and the Damages Class, because
Plaintiff and the Damages Class paid supracompetitive prices that inured to Defendants’ benefit,
and it would be inequitable for Defendants to retain any revenue gained from their unlawful
overcharges.
245.
Plaintiff did not interfere with Defendants’ affairs in any manner that conferred
these benefits upon Defendants.
246.
The benefits conferred upon Defendants were not gratuitous, in that they
constituted revenue created by unlawful overcharges arising from Defendants’ illegal and unfair
actions to inflate the prices of Farm-Raised Salmon.
247.
The benefits conferred upon Defendants are measurable, in that the revenue
Defendants have earned due to their unlawful overcharges of Farm-Raised Salmon are
ascertainable by review of sales records.
248.
It would be futile for Plaintiff and the Damages Class to seek a remedy from any
party with whom they have privity of contract. Defendants have paid no consideration to any other
person for any of the unlawful benefits they received indirectly from Plaintiff and the Damages
Class with respect to Defendants’ sales of Farm-Raised Salmon.
249.
It would be futile for Plaintiff and the Damages Class to seek to exhaust any remedy
against the immediate intermediary in the chain of distribution from which they indirectly
purchased Farm-Raised Salmon, as the intermediaries are not liable and cannot reasonably be
expected to compensate Plaintiff and the Damages Class for Defendants’ unlawful conduct.
250.
The economic benefit of overcharges and monopoly profits derived by Defendants
through charging supracompetitive and artificially inflated prices for Farm-Raised Salmon is a
direct and proximate result of Defendants’ unlawful practices.
251.
The financial benefits derived by Defendants rightfully belong to Plaintiff and the
Damages Class, because Plaintiff and the Damages Class paid supracompetitive prices during the
Class Period, inuring to the benefit of Defendants.
252.
It would be inequitable under unjust enrichment principles under the law of the
District of Columbia and the laws of all states and territories of the United States, except California,
Ohio and Indiana, for Defendants to be permitted to retain any of the overcharges for Farm-Raised
Salmon derived from Defendants’ unlawful, unfair, and unconscionable methods, acts, and trade
practices alleged in this Complaint.
253.
Defendants are aware of and appreciate the benefits bestowed upon them by
Plaintiff and the Damages Class. Defendants consciously accepted the benefits and continue to do
so as of the date of this filing, as Farm-Raised Salmon prices remain inflated above pre-conspiracy
254.
Defendants should be compelled to disgorge in a common fund for the benefit of
Plaintiff and the Damages Class all unlawful or inequitable proceeds they received from their sales
of Farm-Raised Salmon.
255.
A constructive trust should be imposed upon all unlawful or inequitable sums
received by Defendants traceable to indirect purchases of Farm-Raised Salmon by Plaintiff and
the Damages Class. Plaintiff and the Damages Class have no adequate remedy at law.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff demands judgment for the following relief:
256.
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;
257.
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; or, alternatively
(d) acts of unjust enrichment by Defendants as set forth herein.
258.
Plaintiff and members of the Damages Class recover damages, to the maximum
extent allowed under such state laws, and that a judgment in favor of Plaintiff and members of the
Damages Class be entered against Defendants jointly and severally in an amount to be trebled to
the extent such laws permit;
259.
Plaintiff and 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
obtained;
260.
Plaintiff and 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, and the Court establish of a constructive trust consisting of all ill-gotten
gains from which Plaintiff and members of the Damages Class may make claims on a pro rata
261.
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;
262.
Plaintiff and 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;
263.
Plaintiff and members of the Classes recover their costs of suit, including
reasonable attorneys’ fees, as provided by law; and
264.
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.
Dated: September 30, 2019
Respectfully submitted,
BERMAN & SIMMONS
By: /s/ Taylor Asen
Taylor Asen
129 Lisbon Street
Lewiston, Maine 04240
Telephone: 207-560-0692
Email: tasen@bermansimmons.com
COTCHETT, PITRE & McCARTHY, LLP
Adam J. Zapala (to apply pro hac vice)
840 Malcolm Road
Burlingame, CA 94010
Telephone: (650) 697-6000
Facsimile: (650) 697-0577
Email: azapala@cpmlegal.com
GUSTAFSON GLUEK PLLC
Daniel C. Hedlund (to apply pro hac vice)
Michelle J. Looby (to apply pro hac vice)
120 South 6th Street, Suite 2600
Minneapolis, MN 55402
Telephone: (612) 333-8844
Facsimile: (612) 339-6622
Email: dhedlund@gustafsongluek.com
Email: mlooby@gustafsongluek.com
BARRETT LAW GROUP, P.A.
Don Barrett (to apply pro hac vice)
Katherine Barrett Riley (to apply pro hac vice)
David McMullan (to apply pro hac vice)
P.O. Box 927
404 Court Square
Lexington, MS 39095
Telephone: (662) 834-2488
Email: dbarrett@barrettlawgroup.com
Email: kbriley@barrettlawgroup.com
Email: dmcmullan@barrettlawgroup.com
LARSON • KING, LLP
Shawn M. Raiter (to apply pro hac vice)
2800 Wells Fargo Place
30 East Seventh Street
St. Paul, MN 55101
Telephone: (651) 312-6518
Email: sraiter@larsonking.com
DUBBIN & KRAVETZ, LLP
Samuel J. Dubbin, P.A. (to apply pro hac vice)
1200 Anastasia A venue
Coral Gables, Florida 33134
Telephone: (305) 371-4700
Email: sdubbin@dubbinkravetz.com
CUNEO GILBERT & LADUCA, LLP
Jonathan W. Cuneo
Daniel Cohen
Jennifer Kelly
Blaine Finley
4725 Wisconsin Ave., NW
Suite 200
Washington, DC 20016
Telephone: (202) 789-3960
Email: jonc@cuneolaw.com
Email: danielc@cuneolaw.com
Email: jkelly@cuneolaw.com
Email: bfinley@cuneolaw.com
Counsel for Plaintiff and the Proposed Classes
| antitrust |
AMoZDocBD5gMZwcz8S-i | Javier L. Merino
Marc E. Dann (pro hac vice anticipated)
Brian D. Flick (pro hac vice anticipated)
THE DANN LAW FIRM, PC
372 Kinderkamack Road, Suite 5
Westwood, NJ 07675
Phone: (216) 373-0539
Fax: (216) 373-0536
notices@dannlaw.com
Additional counsel listed in signature block below
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
Civil Action No.
CLASS ACTION COMPLAINT FOR
DAMAGES
JURY DEMAND ENDORSED HEREON
THOMAS SAUNDERS, individually and
on behalf of all others similarly situated,
Plaintiff,
vs.
COLLABERA INC.
Defendant.
Plaintiff THOMAS SAUNDERS (“Plaintiff”), by and through his attorneys, brings this
Class Action Complaint on behalf of himself, and all other persons similarly situated, against
Defendant COLLABERA INC. (“Collabera” or “Defendant”). All allegations made in this
Complaint are made based on information and belief and investigation of counsel, except those
allegations that pertain to Plaintiff, which are based on personal knowledge. Each allegation in this
Complaint has evidentiary support, or alternatively, pursuant to Rule 11(b)(3) of the Federal Rules
of Civil Procedure, is likely to have evidentiary support after a reasonable opportunity for further
investigation or discovery.
INTRODUCTION
1.
Collabera is a corporate staffing company with offices around the world.1
2.
Collabera maintains personally identifiable information (“PII”) relative to workers’
names, addresses, telephone numbers, social security numbers (“SSN”), dates of birth, employee
benefits and employee verification information, passport/visa information, and e-mail addresses.2
3.
On July 10, 2020, Collabera sent correspondence captioned Notice of Data Breach
(“Notice”) to Plaintiff and all potentially affected employees, a copy of which is attached hereto
as Exhibit 1.
4.
The Notice notified Plaintiff and all other potentially affected employees that
Collabera identified malware on June 8, 2020 in its network system consistent with a ransomware
attack. See Exhibit 1, p. 1.
5.
The Notice notified Plaintiff and all other potentially affected employees that on
June 10, 2020 Collabera confirmed that an unauthorized third party obtained its employees’
personal and financial information from its network system, including first and last names, mailing
addresses, telephone numbers, SSNs, dates of birth, employee benefits and employee verification
information, passport/visa information, and e-mail addresses (the “Data Breach”). See Exhibit 1,
6.
At the time of the Data Breach, it is not known how many records were in
Collabera’s database but upon information and belief the database contained more than 16,000
employee’s PII records.3
1 https://www.collabera.com/about/company/
2 Shaun Nichols, Collabera hacked: IT staffing’n’services giant hit by ransomware, employee personal data stolen,
July 14, 2020 at https://www.theregister.com/2020/07/14/collabera_ransomware/; see also Exhibit 1
3 https://www.collabera.com/about/company/
7.
On information and belief, Defendant failed to adopt, implement, maintain, and
enforce proper data security policies and procedures which resulted in Plaintiff’s and other
similarly situated individuals’ PII being improperly disclosed to unauthorized third parties. As a
result, Plaintiff and the Class members have been injured through the loss of control of their PII,
the need to spend time to take appropriate steps to mitigate their injury, and the heightened and
imminent risk of identity theft or fraud.
8.
Plaintiff brings this suit on behalf of himself and a Class of similarly situated
individuals against Defendant for Defendant’s failure to protect their PII.
PARTIES
9.
Plaintiff Thomas Saunders is a natural person and resident and citizen of Cuyahoga
County, Ohio.
10.
Defendant Collabera Inc. is a Delaware Corporation with a principal place of
business located at 110 Allen Road, Basking Ridge, NJ 07920.
JURISDICTION AND VENUE
11.
This Court has personal jurisdiction over Defendant because it regularly conducts
business in New Jersey, and has its headquarters in New Jersey.
12.
This Court has subject matter jurisdiction over this action pursuant to 28 U.S.C. §
1332(d) because Plaintiff believes the amount in controversy in this matter exceeds $5,000,000
and because members of the putative Class are from different states than Defendant. Indeed,
according to a recent news article, Defendant’s database contained records for at least “tens of
thousands” of individuals.4
4 Shaun Nichols, Collabera hacked: IT staffing’n’services giant hit by ransomware, employee personal data stolen,
July 14, 2020 at https://www.theregister.com/2020/07/14/collabera_ransomware/
13.
Venue is proper in this District, pursuant to 28 U.S.C. § 1391(b)(2), because a
substantial portion of the transactions and occurrences relevant to this action took place in this
District. Venue is also proper in this District, pursuant to 28 U.S.C. § 1391(b)(1) as Collabera is
subject to this District’s personal jurisdiction
DAMAGES FROM DATA BREACHES
The Value of Personal Identifying Information
14.
It is well known that PII, and financial account information in particular, is an
invaluable commodity and a frequent target of hackers.
15.
According to Javelin Strategy & Research, in 2017 alone over 16.7 million
individuals were affected by identity theft, causing $16.8 billion to be stolen.5
16.
Consumers place a high value not only on their PII, but also on the privacy of that
data. This is because identity theft causes “significant negative financial impact on victims” as
well as severe distress and other strong emotions and physical reactions.6
17.
Consumers are particularly concerned with protecting the privacy of their financial
account information and SSNs, which are the “secret sauce” that is “as good as your DNA to
hackers.”7 There are long-term consequences to data breach victims whose SSNs are taken and
used by hackers. Even if they know their SSNs have been accessed, Plaintiff and Class members
cannot obtain new SSNs unless they become a victim of SSN misuse. Even then, the Social
5 Javelin Strategy & Research, Identity Fraud Hits All Time High With 16.7 Million U.S. Victims in 2017, According
to New Javelin Strategy & Research Study (Feb. 6, 2018), https://www.javelinstrategy.com/press-release/identity-
fraud-hits-all-time-high-167-million-us-victims-2017-according-new-javelin
6 Identity Theft Resource Center, Identity Theft: The Aftermath 2017, https://www.ftc.gov/system/files/
documents/public_comments/2017/10/00004-141444.pdf
7 Cameron Huddleston, How to Protect Your Kids From the Anthem Data Breach, Kiplinger, (Feb. 10, 2015),
https://www.kiplinger.com/article/credit/T048-C011-S001-how-to-protect-your-kids-from-the-anthem-data-
brea.html
Security Administration has warned that “a new number probably won’t solve all [] problems …
and won’t guarantee … a fresh start.”8
18.
The United States Government Accountability Office released a report in 2007
regarding data breaches (“GAO Report”) in which it noted that victims of identity theft will face
“substantial costs and time to repair the damage to their good name and credit record.”9
19.
The FTC recommends that identity theft victims take several steps to protect their
personal and financial information after a data breach, including contacting one of the credit
bureaus to place a fraud alert (and consider an extended fraud alert that lasts for 7 years if they
learn someone has abused their information), reviewing their credit reports, contacting companies
to dispute fraudulent charges on accounts, placing a credit freeze on their credit, and correcting
their credit reports.10
20.
Identity thieves use another’s personal information, such as SSNs for a variety of
crimes, including credit card fraud, phone or utilities fraud, and bank/finance fraud.
21.
Identity thieves can also use SSNs to obtain a driver’s license or official
identification card in the victim’s name but with the thief’s photograph; use the victim’s name and
SSN to obtain government benefits; or file a fraudulent tax return using the victim’s information.
In addition, identity thieves may obtain a job using the victim’s SSN, rent a house or receive
medical services in the victim’s name, and may even give the victim’s personal information to
police during an arrest resulting in an arrest warrant being issued in the victim’s name.
8 Social Security Admin., Identity Theft and Your Social Security Number, at 6-7, https://www.ssa.gov/pubs/EN-05-
10064.pdf
9 See “Data Breaches Are Frequent, but Evidence of Resulting Identity Theft Is Limited; However, the Full Extent Is
Unknown,” pg. 2, by U.S. Government Accountability Office, June 2007, at: https://www.gao.gov/
new.items/d07737.pdf (the “GAO Report”)
10 See https://www.identitytheft.gov/Steps
22.
A study by the Identity Theft Resource Center shows the multitude of harms caused
by fraudulent use of personal and financial information:
Source:
“Credit
Card
and
ID
Theft
Statistics”
by
Jason
Steele,
10/24/17,
at:
https://www.creditcards.com/credit-card-news/credit-card-security-id-theft-fraud-statistics-
1276.php.
23.
There may be a time lag between when harm occurs and when it is discovered, and
also between when personal and financial information is stolen and when it is used. According to
the U.S. Government Accountability Office:
[L]aw enforcement officials told us that in 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.
See GAO Report, at p. 29.
24.
Personal and financial information is such a valuable commodity to identity thieves
that once the information has been compromised, criminals often trade the information on the
“cyber black-market” for years.
25.
Thus, there is a strong probability that entire batches of stolen information have
been dumped on the black market, and are yet to be dumped on the black market, meaning Plaintiff
and Class members are at an increased risk of fraud and identity theft for many years into the
Industry Standards for Data Security
26.
Data breaches are preventable.11 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 security
solutions.”12 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.”13
27.
“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.”14
28.
In light of the numerous high-profile data breaches targeting companies like Target,
Neiman Marcus, eBay, Anthem, and Equifax, Defendant is, or reasonably should have been, aware
11 Lucy L. Thomson, “Despite the Alarming Trends, Data Breaches Are Preventable,” in Data Breach and Encryption
Handbook (Lucy Thompson, ed., 2012)
12 Id. at 17
13 Id. at 28
14 Id.
of the importance of safeguarding its customers’ PII, as well as of the foreseeable consequences
of its systems being breached.
29.
Security standards commonly accepted among businesses that store PII using the
internet include, without limitation:
A.
Maintaining a secure firewall configuration;
B.
Monitoring for suspicious or irregular traffic to servers;
C.
Monitoring for suspicious credentials used to access servers;
D.
Monitoring for suspicious or irregular activity by known users;
E.
Monitoring for suspicious or unknown users;
F.
Monitoring for suspicious or irregular server requests;
G.
Monitoring for server requests for PII;
H.
Monitoring for server requests from VPNs; and
I.
Monitoring for server requests from Tor exit nodes.
30.
The U.S. Federal Trade Commission (“FTC”) publishes guides for businesses for
cybersecurity15 and protection of PII16 which includes basic security standards applicable to all
types of businesses.
31.
The FTC recommends that businesses:
A.
Identify all connections to the computers where you store sensitive
information;
B.
Assess the vulnerability of each connection to commonly known or
reasonably foreseeable attacks;
C.
Do not store sensitive consumer data on any computer with an internet
connection unless it is essential for conducting their business;
15 Start with Security: A Guide for Business, F.T.C. (June 2015), https://www.ftc.gov/system/files/ documents/plain-
language/pdf0205-startwithsecurity.pdf
16 Protecting Personal Information: A Guide for Business, F.T.C. (Oct. 2016), https://www.ftc.gov/
system/files/documents/plain-language/pdf-0136_proteting personalinformation.pdf
D.
Scan computers on their network to identify and profile the operating
system and open network services. If services are not needed, they should
be disabled to prevent hacks or other potential security problems. For
example, if email service or an internet connection is not necessary on a
certain computer, a business should consider closing the ports to those
services on that computer to prevent unauthorized access to that machine;
E.
Pay particular attention to the security of their web applications—the
software used to give information to visitors to their websites and to retrieve
information from them. Web applications may be particularly vulnerable to
a variety of hack attacks;
F.
Use a firewall to protect their computers from hacker attacks while it is
connected to a network, especially the internet;
G.
Determine whether a border firewall should be installed where the
business’s network connects to the internet. A border firewall separates the
network from the internet and may prevent an attacker from gaining access
to a computer on the network where sensitive information is stored. Set
access controls—settings that determine which devices and traffic get
through the firewall—to allow only trusted devices with a legitimate
business need to access the network. Since the protection a firewall provides
is only as effective as its access controls, they should be reviewed
periodically;
H.
Monitor incoming traffic for signs that someone is trying to hack in. Keep
an eye out for activity from new users, multiple log-in attempts from
unknown users or computers, and higher-than-average traffic at unusual
times of the day;
I.
Monitor outgoing traffic for signs of a data breach. Watch for unexpectedly
large amounts of data being transmitted from their system to an unknown
user. If large amounts of information are being transmitted from a business’
network, the transmission should be investigated to make sure it is
authorized.
32.
The FTC has brought enforcement actions against businesses for failing to
adequately and reasonably protect customer information, 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, 15 U.S.C.
§ 45. Orders resulting from these actions further clarify the measures businesses must take to meet
their data security obligations.17
33.
Because Defendant was entrusted with its employees’ PII, it had, and has, a duty to
them to keep their PII secure.
34.
Employees, such as Plaintiff and Class members, reasonably expect that when they
provide PII to a company, the company will safeguard their PII.
35.
Nonetheless, Defendant failed to upgrade and maintain its data security systems in
a meaningful way so as to prevent the Data Breach. Had Defendant properly maintained its systems
and adequately protected them, it could have prevented the Data Breach.
THE DATA BREACH
36.
Plaintiff and Class members entrusted their PII with Collabera in connection with
the employment placement services provided to them by Collabera.
37.
On information and belief Collabera exercised significant control and authority
over the security of its database containing Plaintiff’s and Class members’ PII.
38.
As set forth above, although the database contained sensitive PII, Defendant failed
to implement and adopt reasonable procedures to ensure that Plaintiff’s and Class members’ PII
would be protected from access by malicious third parties. The database contained a security flaw
that permitted anyone to access Plaintiff’s and Class members’ PII.
39.
On information and belief, third parties did, in fact, access and obtain Plaintiff’s
and Class members’ PII from the database as a direct result of the Data Breach.
40.
Defendant failed to prevent the Data Breach because it did not adhere to commonly
accepted security standards and failed to detect that its database was subject to a security breach.
17 Federal Trade Commission, Privacy and Security Enforcement: Press Releases, https://www.ftc.gov/news-
events/media-resources/protecting-consumer-privacy/privacy-security-enforcement
41.
Defendant’s substandard security practices were a direct and proximate cause of
the massive Data Breach compromising the PII of tens of thousands of Americans.
42.
The aforementioned harms to Plaintiff and Class members was compounded by the
fact that, despite becoming aware of the Data Breach on June 8, 2020 and June 10, 2020, Defendant
did not send notice to any potentially affected persons until July 10, 2020.
43.
Defendant itself acknowledged the imminent harm caused by the Data Breach, as
it is offering two years of free credit monitoring to all of its employees. This credit monitoring is
insufficient to protect Plaintiff and Class members as there is often a substantial time lag between
when harm occurs and when it is discovered.18 For example, according to a 2017 study, “the
amount of fraud committed based on data breach data that is 2-6 years old ha[d] increased by
nearly 400% over the last 4 years.”19
44.
Plaintiff brings this class action against Defendant for its failure to properly secure
and safeguard the PII described above.
FACTS RELEVANT TO PLAINTIFF
45.
Plaintiff is a citizen of Ohio (and was during the period of the Data Breach).
46.
Prior to the Data Breach and during the period of the Data Breach, Plaintiff was
employed by Collabera to various third-party placements.
47.
On or about July 10, 2020 Plaintiff received the Notice (Exhibit 1) from Collabera.
18 See Personal Information: Data Breaches Are Frequent, but Evidence of Resulting Identity Theft Is Limited;
However, the Full Extent Is Unknown,” at 29, U.S. Government Accountability Office, June 2007, available at
https:/www.gao.gov/new.items/d07737.pdf
19 Brian Stack, “Here’s How Much Your Personal Information is Selling for on the Dark Web,” Experian (Dec. 6,
2017), https://www.experian.com/blogs/ask-experian/heres-how-much-your-personal-information-is-selling-for-on-
the-dark-web
48.
After reviewing the Notice, Plaintiff learned for the first time that his PII had been
compromised and Plaintiff was concerned that his identity may have been stolen on at least one, if
not multiple, occasions on June 8, 2020 and/or June 10, 2020.
49.
After reviewing the Notice, Plaintiff spent time reviewing his credit reports and
bank statements.
50.
Since the Data Breach, Plaintiff has been inundated with phishing attempts via text
messages, telephone calls and emails at his phone number and email address that were taken in the
Data Breach. Plaintiff’s PII was stolen in the Data Breach and is being misused by the hackers.
Plaintiff has spent several hours listening to the voicemails and reviewing the emails to verify their
illegitimacy.
51.
As a direct result of the Data Breach, Plaintiff suffered anxiety and emotional
distress, and will now have to expend additional time and energy reviewing his financial
statements, checking his credit reports, verifying his identity with potential creditors, and
monitoring his credit reports.
PLAINTIFF’S AND CLASS MEMBERS’ DAMAGES
52.
Plaintiff and Class members have an interest in ensuring that their personal and
financial information, which is believed to remain in the possession of Defendant, is protected
from further breaches by the implementation of security measures and safeguards, including
making sure that the storage of data or documents containing personal and financial information
is not accessible online and that access to such data is password-protected.
53.
In the Notice, Collabera offers limited guidance to Plaintiff and Class members
about what to do in the event of a discovery that an account has been compromised. Collabera
advises customers to: (a) contact the bank immediately, and (b) change their passwords and
security questions to the accounts.
54.
In addition to the irreparable damage that may result from the theft of PII, identity
theft victims must spend numerous hours and their own money repairing the impact to their credit.
After conducting a study, the Department of Justice’s Bureau of Justice Statistics found that
identity theft victims “reported spending an average of about 7 hours clearing up the issues” and
resolving the consequences of fraud in 2014.20
55.
Plaintiff and Class members have been placed at a substantial risk of harm in the
form of credit fraud or identity theft, and have incurred and will likely incur additional damages
in order to prevent and mitigate credit fraud or identity theft. The information exposed in the Data
Breach is, by its very nature, the information necessary to apply for and obtain lines of credit and
myriad financially-related activities.
56.
Plaintiff and Class members have suffered and will suffer actual injury as a direct
result of the Data Breach. In addition to fraudulent charges, loss of use of and access to their
account funds, costs associated with their inability to obtain money from their accounts, and
damage to their credit, Plaintiff and Class members suffer ascertainable losses in the form of out-
of-pocket expenses and the time and costs reasonably incurred to remedy or mitigate the effects of
the Data Breach, including:
A.
Monitoring compromised accounts for fraudulent charges;
B.
Canceling and reissuing credit and debit cards linked to their accounts;
C.
Loss of access to credit as a result of Collabera’s unilateral decision to
restrict access to these accounts;
D.
Purchasing credit monitoring and identity theft prevention;
20 U.S. Department of Justice, Victims of Identity Theft, 2014 (Revised November 13, 2017), available at
http://www.bjs.gov/content/pub/pdf/vit14.pdf
E.
Addressing their inability to withdraw funds linked to compromised
accounts;
F.
Taking trips to banks and waiting in line to obtain funds held in limited
accounts;
G.
Taking trips to banks and waiting in line to verify their identities in order to
restore access to the accounts;
H.
Placing freezes and alerts with credit reporting agencies;
I.
Spending time on the phone with or at financial institutions to dispute
fraudulent charges;
J.
Contacting their financial institutions and closing or modifying financial
accounts;
K.
Resetting automatic billing and payment instructions from compromised
credit and debit cards to new cards;
L.
Paying late fees and declined payment fees imposed as a result of failed
automatic payments that were tied to compromised accounts that had to be
cancelled; and
M.
Closely reviewing and monitoring financial accounts and credit reports for
unauthorized activity for years to come.
57.
As a direct and proximate result of Defendant’s actions and inactions, Plaintiff and
Class members have suffered out-of-pocket losses, anxiety, emotional distress, and loss of privacy;
they have been placed at an imminent, immediate, and continuing increased risk of harm from
fraud and identity theft; and they have suffered or are at increased risk of suffering from, inter alia,
the loss of the opportunity to control how their PII is used, and the diminution in the value and/or
use of their PII entrusted to Defendant.
CLASS ALLEGATIONS
58.
Class Definition: Plaintiff brings this action pursuant to Fed. Civ. R. 23, on behalf
of a nationwide class of similarly situated individuals and entities (“the Class”), defined as follows:
All individuals whose PII was compromised in the Data Breach.
Excluded from the Class are: (1) Defendant, Defendant’s agents,
subsidiaries, parents, successors, predecessors, and any entity in
which Defendant or its parents have a controlling interest, and 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) any person who executes and files a timely request for
exclusion from the Class; (4) any 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.
59.
Numerosity: Upon information and belief, the Class is composed of thousands of
Class members, as it was reported that financial and banking documents related to tens of
thousands of accounts were affected. Thus, the Class is so numerous that joinder of all members
is impracticable. Class members can easily be identified through Defendant’s records, or by other
means.
60.
Commonality and Predominance: There are several questions of law and fact
common to the claims of Plaintiff and Class members, which predominate over any individual
issues, including:
A.
Whether Defendant adequately protected the personal and financial
information of Plaintiff and Class members;
B.
Whether Defendant stored the personal and financial information of
Plaintiff and Class members without implementing reasonably adequate
security to protect the information;
C.
Whether Defendant adopted, implemented, and maintained reasonable
policies and procedures to prevent the unauthorized access to the personal
and financial information of Plaintiff and Class members;
D.
Whether Defendant properly trained and supervised employees to protect
the personal and financial information of Plaintiff and Class members;
E.
Whether Defendant promptly notified Plaintiff and Class members of the
Data Breach;
F.
Whether Defendant owed a duty to Plaintiff and Class members to
safeguard and protect their personal and financial information;
G.
Whether Defendant breached its duty to Plaintiff and Class members to
safeguard and protect their personal and financial information;
H.
Whether Defendant breached its duty to Plaintiff and Class members by
failing to adopt, implement, and maintain reasonable policies and
procedures to safeguard and protect their personal and financial
information; and
I.
Whether Defendant is liable for the damages suffered by Plaintiff and Class
members as a result of the Data Breach.
61.
Typicality: Plaintiff’s claims are typical of the claims of the members of the Class.
All claims are based on the same legal and factual issues. Plaintiff and each of the Class members
provided their personal and financial information to Collabera, and the information was accessed
by unauthorized hackers. Defendant’s conduct was uniform with respect to all Class members.
62.
Adequacy of Representation: Plaintiff will fairly and adequately represent and
protect the interests of the Class, and has retained counsel competent and experienced in complex
class actions. Plaintiff has no interest antagonistic to the Class, and Defendant has no defense
unique to Plaintiff.
63.
Superiority: A class action is superior to other available methods for the fair and
efficient adjudication of this controversy. The expense and burden of individual litigation would
make it impractical or impossible for members of the Class to prosecute their claims individually.
The trial and the litigation of Plaintiff’s claims are manageable.
COUNT I
Negligence
(On behalf of Plaintiff and the Class)
64.
Plaintiff repeats and realleges the allegations of paragraphs 1-63 with the same
force and effect as though fully set forth herein.
65.
Collabera knew, or should have known, of the risks inherent in collecting and
storing the personal and financial information of Plaintiff and Class members and the importance
of adequate security. Collabera was well aware of numerous, well-publicized data breaches that
exposed the personal and financial information of individuals.
66.
Collabera had a common law duty to prevent foreseeable harm to those who
entrusted their personal and financial information to Collabera. This duty existed because Plaintiff
and Class members were foreseeable and probable victims of the failure of Collabera to adopt,
implement, and maintain reasonable security measures so that Plaintiff’s and Class members’
personal and financial information would not be accessible by unauthorized persons.
67.
Collabera owed a duty of care to Plaintiff and Class members to use reasonable
means to secure and safeguard the entrusted PII, to prevent its unauthorized access and disclosure,
to guard it from theft, and to detect any attempted or actual breach of its systems. These common
law duties existed because Plaintiff and Class members were the foreseeable and probable victims
of any inadequate security practices. In fact, not only was it foreseeable that Plaintiff and Class
members would be harmed by the failure to protect their PII because hackers routinely attempt to
steal such information and use it for nefarious purposes, Collabera knew that it was more likely
than not Plaintiff and Class members would be harmed by such exposure of their PII.
68.
Collabera had a special relationship with Plaintiff and Class members. Collabera
was entrusted with Plaintiff’s and Class members’ personal and financial information, and
Collabera was in a position to protect their personal and financial information from unauthorized
access and activity.
69.
Collabera’s duties also arose under section 5 of the Federal Trade Commission Act
(“FTC Act”), 15 U.S.C. § 45, which prohibits “unfair . . . practices in or affecting commerce,”
including, as interpreted and enforced by the FTC, the unfair practice of failing to use reasonable
measures to protect individuals’ personal and financial information by companies. Various FTC
publications and data security breach orders further form the basis of Collabera’s duties.
70.
Collabera had a duty to exercise reasonable care in obtaining, retaining, securing,
safeguarding, deleting, and protecting Plaintiff’s and Class members’ personal and financial
information in its possession so that the personal and financial information would not come within
the possession, access, or control of unauthorized persons.
71.
More specifically, the duties of Collabera included, among other things, the duty
A.
Adopt, implement, and maintain policies, procedures, and security
measures for protecting Plaintiff’s and Class members’ personal and
financial information, including policies, procedures, and security
measures;
B.
Adopt, implement, and maintain reasonable policies and procedures to
prevent the sharing of Plaintiff’s and Class members’ personal and financial
information with entities that failed to adopt, implement, and maintain
policies, procedures, and security measures;
C.
Adopt, implement, and maintain reasonable policies and procedures to
ensure that Plaintiff’s and Class members’ personal and financial
information is disclosed only with authorized persons who have adopted,
implemented, and maintained policies, procedures, and security measures;
D.
Properly train its employees to protect documents containing Plaintiff’s and
Class members’ personal and financial information; and
E.
Adopt, implement, and maintain processes to quickly detect a data breach
and to promptly repel attacks to the security of its systems.
72.
Collabera breached the foregoing duties to exercise reasonable care in obtaining,
retaining, securing, safeguarding, deleting, and protecting Plaintiff’s and Class members’ personal
and financial information in its possession so that the information would not come within the
possession, access, or control of unauthorized persons. The Notice acknowledges that Collabera’s
database was subject to unauthorized access at least as early as June 8, 2020.
73.
Collabera breached the aforementioned duties when it failed to use security
practices that would protect the PII provided to it by Plaintiff and Class members, thus resulting
in unauthorized third party access to the Plaintiff’s and Class members’ PII.
74.
Collabera further breached the aforementioned duties by failing to design, adopt,
implement, control, manage, monitor, update, and audit its processes, controls, policies,
procedures, and protocols for complying with the applicable laws and safeguarding and protecting
Plaintiff’s and Class members’ PII within its possession, custody, and control.
75.
Collabera acted with reckless disregard for the security of the personal and financial
information of Plaintiff and Class members because Collabera knew or should have known that its
data security practices were not adequate to safeguard the personal and financial information that
it collected and stored.
76.
Collabera acted with reckless disregard for the rights of Plaintiff and Class
members by failing to promptly detect the Data Breach and provide prompt notice so that Plaintiff
and Class members could take measures to protect themselves from damages caused by the
unauthorized access of the accounts compromised in the Data Breach and take measures to ensure
the continuity of their financial affairs.
77.
As a direct and proximate cause of failing to use appropriate security practices,
Plaintiff’s and Class members’ PII was disseminated and made available to unauthorized third
78.
Defendant admitted that Plaintiff’s and Class members’ PII was wrongfully
disclosed as a result of the Data Breach.
79.
The Data Breach caused direct and substantial damages to Plaintiff and Class
members, as well as the possibility of future and imminent harm through the dissemination of their
PII and the greatly enhanced risk of credit fraud or identity theft.
80.
By engaging in the forgoing acts and omissions, Defendant committed the common
law tort of negligence. For all the reasons stated above, Defendant’s conduct was negligent and
departed from reasonable standards of care including by, but not limited to: failing to adequately
protect the PII; failing to conduct regular security audits; and failing to provide adequate and
appropriate supervision of persons having access to Plaintiff’s and Class members’ PII.
81.
But for Defendant’s wrongful and negligent breach of its duties owed to Plaintiffs
and Class members, their PII would not have been compromised.
82.
As a result of the conduct of Collabera, Plaintiff and Class members have suffered
and will continue to suffer actual damages including, but not limited to, fraudulent transactions on
their accounts; expenses and time spent on credit monitoring; time spent scrutinizing bank
statements, credit card statements, and credit reports; time spent initiating fraud alerts; and
increased risk of future harm. Further, Plaintiff and Class members have suffered and will continue
to suffer other forms of injury and harm including, but not limited to, anxiety, emotional distress,
loss of privacy, and other economic and non-economic losses.
83.
Neither Plaintiff nor Class members contributed to the breach or subsequent misuse
of their PII as described in this Complaint. As a direct and proximate result of Defendant’s actions
and inactions, Plaintiff and Class members have been put at an increased risk of credit fraud or
identity theft, and Defendant has an obligation to mitigate damages by providing adequate credit
and identity monitoring services. Defendant is liable to Plaintiff and Class members for the
reasonable costs of future credit and identity monitoring services for a reasonable period of time,
substantially in excess of two years. Defendant is also liable to Plaintiff and Class members to the
extent that they have directly sustained damages as a result of identity theft or other unauthorized
use of their PII, including the amount of time Plaintiff and the Class members have spent and will
continue to spend as a result of Defendant’s negligence. Defendant is also liable to Plaintiff and
Class members to the extent their PII has been diminished in value and that Plaintiff and Class
members no longer control that PII and to whom it would be disseminated.
COUNT II
NEGLIGENCE PER SE
(On behalf of Plaintiff and the Class)
84.
Plaintiff repeats and realleges the allegations of paragraphs 1-63 with the same
force and effect as though fully set forth herein.
85.
Pursuant to the Federal Trade Commission Act (“FTC Act”), 15 U.S.C. § 45,
Defendant had a duty to provide fair and adequate computer systems and data security to safeguard
the PII of Plaintiff and Class members.
86.
The FTC Act prohibits “unfair . . . practices in or affecting commerce,” including,
as interpreted and enforced by the FTC, the unfair act or practice by businesses, such as Defendant,
of failing to use reasonable measures to protect PII. The FTC publications and orders described
above also form part of the basis of Defendant’s duty in this regard.
87.
Defendant solicited, gathered, and stored PII of Plaintiff and the Class members to
facilitate transactions which affect commerce.
88.
Defendant violated the FTC Act (and similar state statutes) by failing to use
reasonable measures to protect PII of Plaintiff and the Class members and not complying with
applicable industry standards, as described herein. Defendant’s conduct was particularly
unreasonable given the nature and amount of PII obtained and stored and the foreseeable
consequences of a data breach on Defendant’s systems.
89.
Defendant’s violation of the FTC Act (and similar state statutes) constitutes
negligence per se.
90.
Plaintiff and the Class members are within the class of persons that the FTC Act
was intended to protect.
91.
The harm that occurred as a result of the breach is the type of harm the FTC Act
was intended to guard against. The FTC has pursued enforcement actions against businesses,
which, as a result of their failure to employ reasonable data security measures and avoid unfair and
deceptive practices, caused the same harm as that suffered by Plaintiff and the Class members.
92.
As a direct and proximate result of Defendant’s negligence per se, Plaintiff and the
Class members have suffered, and continue to suffer, damages arising from the breach as described
COUNT III
INVASION OF PRIVACY
(On behalf of Plaintiff and the Class)
93.
Plaintiff repeats and realleges the allegations of paragraphs 1-63 with the same
force and effect as though fully set forth herein.
94.
Defendant invaded Plaintiff’s and the Class members’ right to privacy by allowing
the unauthorized access to Plaintiff’s and Class members’ PII and by negligently maintaining the
confidentiality of Plaintiff’s and Class members’ PII, as set forth above.
95.
The intrusion was offensive and objectionable to Plaintiff, the Class members, and
to a reasonable person of ordinary sensibilities in that Plaintiff’s and Class members’ PII was
disclosed without prior written authorization of Plaintiff and the Class.
96.
The intrusion was into a place or thing which was private and is entitled to be
private, in that Plaintiff and the Class members provided and disclosed their PII to Defendant
privately with an intention that the PII would be kept confidential and protected from unauthorized
disclosure. Plaintiff and the Class members were reasonable to believe that such information would
be kept private and would not be disclosed without their written authorization.
97.
As a direct and proximate result of Defendant’s above acts, Plaintiff’s and the Class
members’ PII was viewed, distributed, and used by persons without prior written authorization and
Plaintiff and the Class members suffered damages as described herein.
98.
Defendant is guilty of oppression, fraud, or malice by permitting the unauthorized
disclosure of Plaintiff’s and the Class members’ PII with a willful and conscious disregard of
Plaintiff’s and the Class members’ right to privacy.
99.
Unless and until enjoined, and restrained by order of this Court, Defendant’s
wrongful conduct will continue to cause Plaintiff and the Class members great and irreparable
injury in that the PII maintained by Defendant can be viewed, printed, distributed, and used by
unauthorized persons. Plaintiff and Class members have no adequate remedy at law for the injuries
in that a judgment for the monetary damages will not end the invasion of privacy for Plaintiff and
the Class, and Defendant may freely treat Plaintiff’s and Class members’ PII with sub-standard
and insufficient protections.
COUNT IV
INJUNCTIVE RELIEF
(On behalf of Plaintiff and the Class)
100.
Plaintiff repeats and realleges the allegations of paragraphs 1-63 with the same
force and effect as though fully set forth herein.
101.
Defendant’s above-described wrongful actions, inaction, omissions, want of
ordinary care, nondisclosures, and resulting Data Breach have caused (and will continue to cause)
Plaintiff and Class members to suffer irreparable harm in the form of, inter alia, (i) identity theft
and identity fraud, (ii) invasion of privacy, (iii) loss of the intrinsic value of their privacy and PII,
(iv) breach of the confidentiality of their PII, (v) deprivation of the value of their PII, for which
there is a well-established national and international market, (vi) the financial and temporal cost
of monitoring their credit, monitoring their financial accounts, and mitigating their damages, and
(vii) the imminent, immediate, and continuing increased risk of ongoing identity theft and identity
fraud. Such irreparable harm will not cease unless and until enjoined by this Court.
102.
Plaintiff and Class members, therefore, are entitled to injunctive relief and other
appropriate affirmative relief including, inter alia, an order compelling Defendant to (i) notify
each person whose PII was exposed in the Data Breach, (ii) provide credit monitoring to each such
person for a reasonable period of time, substantially in excess of two years, (iii) establish a fund
(in an amount to be determined) to which such persons may apply for reimbursement of the time
and out-of-pocket expenses they incurred to remediate identity theft and/or identity fraud (i.e., data
breach insurance), and (iv) discontinue its above-described wrongful actions, inaction, omissions,
want of ordinary care, nondisclosures, and resulting Data Breach.
103.
Plaintiff and Class members also are entitled to injunctive relief requiring
Defendant to implement and maintain data security measures, policies, procedures, controls,
protocols, and software and hardware systems, including, inter alia,(i) engaging third party
security auditors/penetration testers and internal security personnel to conduct testing, including
simulated attacks, penetration tests, and audits on Defendant’s computer systems on a periodic
basis, (ii) engaging third party security auditors and internal personnel to run automated security
monitoring, (iii) auditing, testing, and training its security personnel regarding any new or
modified procedures, (iv) conducting regular database scanning and security checks, (v) regularly
evaluating web applications for vulnerabilities to prevent web application threats, and (vi)
periodically conducting internal training and education to inform internal data security personnel
how to identify and contain data security lapses.
104.
If an injunction is not issued, Plaintiff and Class members will suffer irreparable
injury in the event Defendant commits another security lapse, the risk of which is real, immediate,
and substantial.
105.
The hardship to Plaintiff and Class members if an injunction does not issue exceeds
the hardship to Defendant if an injunction is issued. Among other things, if Defendant suffers
another massive security lapse, Plaintiff and Class members will likely again incur millions of
dollars in damages. On the other hand, and setting aside the fact that Defendant has a pre-existing
legal obligation to employ adequate data security measures, Defendant’s cost to comply with the
above-described injunction it is already required to implement is relatively minimal.
106.
Issuance of the requested injunction will not disserve the public interest. To the
contrary, such an injunction would benefit the public by preventing another security lapse, thereby
eliminating the damages, injury, and harm that would be suffered by Plaintiff, Class members, and
the numerous future applicants and employees whose confidential and sensitive PII would be
compromised.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff THOMAS SAUNDERS individually, and on behalf of all others
similarly situated, respectfully requests that judgment be entered in his favor against Defendant
COLLABERA INC. and for an Order as follows:
A.
A finding that this action satisfies the prerequisites for maintenance as a
class action and certifying the Class defined herein;
B.
Appointing Plaintiff as representative of the Class;
C.
Appointing Plaintiff’s counsel as counsel for the Class;
D.
An award of damages for Plaintiff and Class members for all actual
damages and all other forms of available relief, as applicable;
E.
An award to Plaintiff and Class members of punitive damages and all other
forms of available relief, as applicable;
F.
An award to Plaintiff and Class members for attorney’s fees and costs,
including interest thereon as allowed or required by law;
G.
An injunction requiring Collabera to adopt, implement, and maintain
adequate security measures to protect its employees’ personal and financial
information, as set forth in Count IV; and
H.
Granting all such further and other relief as the Court deems just and
appropriate.
Respectfully submitted,
/s/Javier L. Merino
Javier L. Merino
Marc E. Dann (pro hac vice anticipated)
Brian Flick (pro hac anticipated)
THE DANN LAW FIRM, PC
372 Kinderkamack Road, Suite 5
Westwood, NJ 07675
Phone: (216) 373-0539
Fax: (216) 373-0536
notices@dannlaw.com
Thomas A. Zimmerman, Jr. (pro hac vice
anticipated)
tom@attorneyzim.com
Matthew C. De Re (pro hac vice anticipated)
matt@attorneyzim.com
Sharon A. Harris (pro hac vice anticipated)
sharon@attorneyzim.com
Jeffrey D. Blake (pro hac vice anticipated)
jeff@attorneyzim.com
ZIMMERMAN LAW OFFICES, P.C.
77 W. Washington Street, Suite 1220
Chicago, Illinois 60602
(312) 440-0020 telephone
(312) 440-4180 facsimile
www.attorneyzim.com
Counsel for Plaintiff and the putative Class
JURY DEMAND
Plaintiff hereby requests a trial by jury on all issues.
/s/Javier L. Merino
Javier L. Merino
THE DANN LAW FIRM, PC
| securities |
Z_6cFIcBD5gMZwczQpZr | FOR THE SOUTHERN DISTRICT OF FLORIDA
CLASS ACTION
JURY TRIAL DEMANDED
MANUEL PEREZ, individually and on behalf of all
others similarly situated,
Plaintiff,
vs.
GOLDEN TRUST INSURANCE, INC.
a Florida corporation,
Defendant.
______________________________________/
CLASS ACTION COMPLAINT
1.
Plaintiff, Manuel Perez, brings this action against Defendant, Golden Trust
Insurance, Inc., 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 insurance brokerage that offers a wide range of insurance in fields such
as: life, auto, home, commercial, health, and retirement plans. 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 himself and members
of the class, and any other available legal or equitable remedies.
5.
Jurisdiction is proper under 28 U.S.C. § 1331 as Plaintiff 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.
6.
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. Further, Defendant’s tortious conduct against Plaintiff occurred within the State of Florida
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 Florida.
PARTIES
7.
Plaintiff is a natural person who, at all times relevant to this action, was a resident of
Miami-Dade County, Florida.
8.
Defendant is a Florida corporation whose principal office is located at 1600 Ponce De
Leon Blvd., Suite A, Coral Gables, Florida 33134. Defendant directs, markets, and provides its business
activities throughout the State of Florida.
9.
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).
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
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).
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
20.
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 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 10, 2019 and September 13, 2019, Defendant sent the following
telemarketing text messages to Plaintiff’s cellular telephone number ending in 1217 (the “1217
Number”):
24.
Defendant’s text messages were transmitted to Plaintiff’s cellular telephone, and within
the time frame relevant to this action.
25.
Defendant’s text messages constitute telemarketing because they encouraged the future
purchase or investment in property, goods, or services, i.e., soliciting Plaintiff to sell Defendant’s
insurance, which they directly profit from.
26.
The information contained in the text message advertises Defendant’s “High
Commissions” which Defendant sends to promote its business and sell its products.
27.
Plaintiff received the subject texts 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.
be contacted using an ATDS.
29.
Plaintiff is the subscriber and sole user of the 1217 Number, and is financially
responsible for phone service to the 1217 Number.
30.
Plaintiff has been registered with the national do-not-call registry since 2008.
31.
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)).
32.
The text messages originated from telephone numbers 786-655-4636 and 786-780-
2935, both numbers which upon information and belief are owned and operated by Defendant.
33.
The numbers used by Defendant are 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.
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 are responsible for relaying those messages to the intended mobile phone. This allows for the
transmission of a large number of SMS messages to and from a long code.
35.
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.
36.
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.
37.
The Platform has the capacity to store telephone numbers, which capacity was in
fact utilized by Defendant.
38.
The Platform has the capacity to generate sequential numbers, which capacity was
in fact utilized by Defendant.
39.
The Platform has the capacity to dial numbers in sequential order, which capacity
was in fact utilized by Defendant.
40.
The Platform has the capacity to dial numbers from a list of numbers, which
capacity was in fact utilized by Defendant.
41.
The Platform has the capacity to dial numbers without human intervention, which
capacity was in fact utilized by Defendant.
42.
The Platform has the capacity to schedule the time and date for future transmission
of text messages, which occurs without any human involvement.
following steps:
a. The Platform retrieved each telephone number from a list of numbers in the
sequential order the numbers were listed;
b. The Platform then generated each number in the sequential order listed and
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.
44.
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.
45.
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.
46.
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:
47.
Defendant’s unsolicited text messages caused Plaintiff actual harm, including invasion
of his privacy, aggravation, annoyance, intrusion on seclusion, trespass, and conversion. Defendant’s
text messages also inconvenienced Plaintiff and caused disruption to his daily life.
48.
Defendant’s unsolicited text messages caused Plaintiff actual harm. Specifically,
Plaintiff estimates that he has wasted sixty seconds reviewing all of Defendant’s unwanted
messages. Each time, Plaintiff had to stop what he was doing to either retrieve his phone to review
the message.
49.
Plaintiff was working when he received the subject text messages and the subject
text messages interrupted Plaintiff’s business phone calls causing substantial aggravation and
intrusion.
50.
Additionally, Plaintiff estimates that he wasted approximately 7 minutes
researching Defendant and the source of the messages on the internet, and attempting to determine
how Defendant obtained his telephone number.
51.
Next, Plaintiff wasted approximately 5 minutes locating and retaining counsel for
this case in order to stop Defendant’s unwanted calls.
52.
In all, Defendant’s violations of the TCPA caused Plaintiff to waste at least 13
minutes of his time in addressing and attempting to stop Defendant’s solicitations.
CLASS ALLEGATIONS
PROPOSED CLASS
himself and all others similarly situated.
54.
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.
Do Not Call Registry Class: All persons in the United
States who from four years prior to the filing of this action
(1) were sent a text message by or on behalf of Defendant;
(2) more than one time within any 12-month period; (3)
where the person’s 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 (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.
55.
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
56.
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.
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
58.
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.
59.
The common questions in this case are capable of having common answers. If Plaintiff’s
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
60.
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
61.
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.
62.
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.
63.
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)
64.
Plaintiff re-alleges and incorporates the foregoing allegations as if fully set forth
herein.
65.
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).
66.
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.
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.
68.
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.
69.
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.
70.
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.
COUNT II
Knowing and/or Willful Violation of the TCPA, 47 U.S.C. § 227(b)
(On Behalf of Plaintiff and the Class)
71.
Plaintiff re-allege and incorporate paragraphs 1-63 as if fully set forth herein.
72.
At all times relevant, Defendant knew or should have known that its conduct as
alleged herein violated the TCPA.
73.
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.
74.
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.
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).
COUNT III
Violation of the TCPA, 47 U.S.C. § 227
(On Behalf of Plaintiff and the Do Not Call Registry Class)
60.
Plaintiff repeats and realleges the paragraphs 1 through 63 of this Complaint and
incorporates them by reference herein.
61.
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.”
62.
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.”1
63.
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.”
64.
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” 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. 47 U.S.C. § 227(c).
1 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
telephone solicitations to 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.
66.
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 entitled, inter alia, to receive up to $500 in damages for such violations of 47 C.F.R.
§ 64.1200.
67.
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
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: October 9, 2019
SHAMIS & GENTILE, P.A.
/s/ Andrew J. Shamis
Andrew J. Shamis, Esq.
Florida Bar No. 101754
ashamis@shamisgentile.com
/s/ Garrett O. Berg
Garrett O. Berg, Esq.
Florida Bar No. 1000427
gberg@shamisgentile.com
14 NE 1st Avenue, Suite 1205
Miami, FL 33132
Telephone: 305-479-2299
EDELSBERG LAW, PA
/s/ Scott Edelsberg
Scott Edelsberg, Esq.
Florida Bar No. 0100537
scott@edelsberglaw.com
20900 NE 30th Ave, Suite 417
Aventura, FL 33180
Telephone: 305-975-3320
Counsel for Plaintiff and the Class
| privacy |
aEwO_ogBF5pVm5zYC8e5 | UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
FORT MYERS DIVISION
Case No. 2:18-cv-201-FtM-29 MRM
COUNTY OF MONMOUTH, NEW JERSEY,
on behalf of itself and all others similarly
situated,
Plaintiff,
ANTITRUST CLASS
ACTION AMENDED COMPLAINT
JURY TRIAL DEMANDED
FLORIDA CANCER SPECIALISTS, P.L.;
and DR. WILLIAM N. HARWIN,
Defendants.
TABLE OF CONTENTS
Page
NATURE OF ACTION ...................................................................................................... 1
JURISDICTION AND VENUE ......................................................................................... 3
RELEVANT MARKETS ................................................................................................... 4
PARTIES ............................................................................................................................ 5
A.
Plaintiff ....................................................................................................... 5
B.
Defendants .................................................................................................. 5
AGENTS AND CO-CONSPIRATORS ............................................................................. 6
FACTUAL ALLEGATIONS ............................................................................................. 8
A.
The Oncology Services Market .................................................................. 8
1.
Whistleblower Complaint ............................................................. 10
2.
The Structure and Characteristics of The Market For
Oncology Services in Southwest Florida Supports The
Existence of a Conspiracy ............................................................. 12
a.
The Market For Oncology Services Is Highly
Concentrated ..................................................................... 13
i.
The Anticompetitive Effects of Defendants’
Supracompetitive Pricing ...................................... 15
b.
Defendants’ Conduct Went Against Their
Economic Self-Interests, Absent an Agreement To
Divide the Market with 21st Century................................ 16
c.
The Market For Oncology Services Has High
Barriers To Entry .............................................................. 19
d.
Defendants Had Opportunities To Conspire with
21st Century ...................................................................... 19
e.
The Demand For Oncology Services Is Inelastic ............. 21
CLASS ACTION ALLEGATIONS ................................................................................. 22
PLAINTIFF AND THE CLASS SUFFERED ANTITRUST INJURY ........................... 25
PRAYER FOR RELIEF ................................................................................................... 30
JURY DEMAND .............................................................................................................. 32
Plaintiff County of Monmouth, New Jersey (“Plaintiff”), individually and on behalf
of all others similarly situated (the “Class,” as defined below), upon personal knowledge
as to the facts pertaining to itself and upon information and belief as to all other matters,
and based on the investigation of counsel, brings this class action for damages, injunctive
relief and other relief pursuant to federal antitrust laws, demands a trial by jury, and alleges
as follows:
NATURE OF ACTION
1.
This lawsuit arises from an unlawful agreement between the two largest
cancer treatment centers in Southwest Florida to restrict competition and monopolize the
market for Oncology Services (defined herein) in violation of Sections 1 and 2 of the
Sherman Act (15 U.S.C. §§ 1 and 2).
2.
Plaintiff seeks to represent a Class consisting of all persons and entities in
the United States who paid for all or a portion of their Oncology Services in Southwest
Florida provided directly to 21st Century (defined herein) or Florida Cancer Specialists,
P.L. (“FCS”) (together with Dr. William N. Harwin, collectively referred to herein as
“Defendants”) from 2010 until the effects of their unlawful conduct ceases (the “Class
Period”).
3.
As used in this Complaint, Oncology Services refers to the medical
diagnosis and treatment of cancer using medicine (“Medical Oncology”) or radiation
(“Radiation Oncology”). Medical Oncology refers to the diagnosis and treatment of cancer
with medicine, including chemotherapy, hormonal therapy, biological therapy, and
targeted therapy.1 Radiation Oncology refers to the treatment of cancer with therapeutic
radiation.2
4.
During the Class Period, 21st Century and FCS entered into a “gentleman’s
agreement” to eliminate competition and monopolize the market for Oncology Services in
Southwest Florida. As part of the agreement, FCS’s staff members were instructed to send
their Radiation Oncology patients exclusively to 21st Century, while 21st Century’s staff
would refer all of their Medical Oncology patients to FCS. At the same time, 21st Century
and FCS agreed not to compete with one other’s respective Medical Oncology and
Radiation Oncology practices in Southwest Florida, effectively allocating the market.
5.
As a result of the conspiracy, FCS and 21st Century were able to charge
supracompetitive prices for Oncology Services in Southwest Florida and illegally acquire
and maintain monopoly power. Additionally, FCS and 21st Century illegally acquired and
maintained monopoly power in the respective submarkets for Medical Oncology services
(FCS) and Radiation Oncology services (21st Century) in Southwest Florida.
6.
In June 2017, 21st Century disclosed that the Department of Justice (“DOJ”)
is investigating potential criminal antitrust violations in the market for Oncology Services
in Southwest Florida. This investigation is thought to have been initiated in response to a
whistleblower action filed in January 2017 (“the Whistleblower Complaint”). The
1 National Cancer Institute, NCI Dictionary of Cancer Terms: Medical Oncologist, NATIONAL CANCER
INSTITUTE,
available
at
https://www.cancer.gov/publications/dictionaries/cancer-terms/def/medical-
oncologist (last accessed Mar. 21, 2018).
2 National Cancer Institute, NCI Dictionary of Cancer Terms: Radiation Oncologist, NATIONAL CANCER
INSTITUTE,
available
at
https://www.cancer.gov/publications/dictionaries/cancer-terms/def/radiation-
oncologist (last accessed Mar. 23, 2018).
Whistleblower Complaint was filed by two former FCS employees who accuse FCS and
21st Century of Medicaid fraud and antitrust violations.
JURISDICTION AND VENUE
7.
Plaintiff brings this action under Sections 4 and 16 of the Clayton Act (15
U.S.C. §§ 15 and 26) to recover damages suffered by Plaintiff and the Class and to secure
equitable and injunctive relief against Defendants for violating Sections 1 and 2 of the
Sherman Act (15 U.S.C. §§ 1 and 2). Plaintiff and the Class also seek attorneys’ fees, costs,
and other expenses under federal law.
8.
This Court has jurisdiction over the subject matter of this action pursuant to
Section 16 of the Clayton Act (15 U.S.C. § 26), Sections 1 and 2 of the Sherman Act (15
U.S.C. § 1), and 28 U.S.C. §§ 1331 and 1337.
9.
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 Defendants reside, are licensed to do business in, are doing business in,
had agents in, or are found or transact business in this District.
10.
This court has in personam jurisdiction over Defendants because each
Defendant: (a) transacted business in the United States, including in this District; (b)
provided Oncology Services in this District; (c) had substantial aggregate contacts within
this District; or (d) was engaged in an illegal antitrust violations that were 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. Defendant FCS also conducts
business throughout the United States, including in this District, and it has purposefully
availed itself of the laws of the United States.
11.
By reason of the unlawful activities alleged herein, Defendants substantially
affected commerce throughout the United States, causing injury to Plaintiff and members
of the Class. Defendants, directly and through their agents, engaged in activities to
monopolize as well as to fix, raise, maintain and/or stabilize prices in Southwest Florida
for Oncology Services, which unreasonably restrained trade and adversely affected the
market for Oncology Services.
RELEVANT MARKETS
12.
For purposes of Count I (Conspiracy in Restraint of Trade) and Count II
(Conspiracy to Monopolize) the relevant product market is the market for Oncology
Services, and to the extent necessary, the relevant geographical market is Southwest
Florida, which consists of the following five counties: Manatee County, Sarasota County,
Charlotte County, Lee County, and Collier County.
13.
For purposes of Count III (Attempted Monopolization, Conspiracy to
Monopolize, and Monopolization, the relevant product market is the market for Medical
Oncology services and the relevant geographic market is Southwest Florida.
PARTIES
A.
Plaintiff
14.
Plaintiff COUNTY OF MONMOUTH, NEW JERSEY (“County of
Monmouth”) is a county and public entity organized and existing pursuant to the laws of
the State of New Jersey. Plaintiff County of Monmouth, through its appointed County
Administrator, manages operations of sixty county departments comprised of more than
2,700 employees to deliver services to its residents. The County of Monmouth also
operates a self-funded health insurance plan for its employees and retirees and directly paid
for all or a portion of the cost of its insureds’ Oncology Services provided by Defendants
in Southwest Florida during the Class Period.
B.
Defendants
15.
Defendant, FLORIDA CANCER SPECIALISTS, P.L. (“FCS”), is a Florida
professional limited liability corporation with its principal place of business located at 4371
Veronica South Shoemaker Boulevard, Fort Myers, FL 33916. It was formed in 1998 as a
medical oncology/hematology practice based in Fort Myers, Florida. FCS is the largest
independent medical oncology/hematology practice in the United States with over 180
physicians, 130 nurse practitioners, and over 90 locations in the FCS network. FCS is a full
service cancer care provider that provides Medical Oncology and Radiation Oncology
services; however, notably, it does not provide Radiation Oncology services in Southwest
Florida from Tampa to Marco Island.
16.
Defendant, Dr. William N. Harwin is the President or “managing physician”
of Defendant FCS and is a resident of Fort Myers, Florida. Throughout the Class Period,
Harwin colluded and conspired with Dr. Daniel Dosoretz, former Chief Executive Officer
of 21st Century, to formulate and carry out a so-called “gentleman’s agreement,” which
ensured that 21st Century and FCS would not compete in the market for Oncology Services
in Southwest Florida.
AGENTS AND CO-CONSPIRATORS
17.
Each Defendant acted as the principal of or agent for the other Defendant
with respect to the acts, violations, and common course of conduct alleged herein.
18.
21st Century, as used herein collectively refers to 21st Century Oncology
Inc., 21st Century Oncology Holdings, Inc. and 21st Century Oncology, LLC (or any other
subsidiary or affiliate), which operates as a full service cancer care provider that provides
Medical Oncology and Radiation Oncology services with its principal place of business
located at 2234 Colonial Boulevard, Fort Myers, Florida 33907. 21st Century, notably,
does not provide Medical Oncology services in Southwest Florida from Tampa to Marco
Island.
19.
21st Century participated as a co-conspirator with Defendants in the
offenses alleged in this Complaint, and has performed acts and made statements in
furtherance of the conspiracy or in furtherance of the anticompetitive conduct.
20.
On May 25, 2017, 21st Century filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code. On January 16, 2018, 21st Century
emerged from bankruptcy as a restructured organization under the same name whereby the
Bankruptcy Court’s Joint Chapter 11 Plan of Reorganization of 21st Century Oncology
Holdings, Inc. and Its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code
(“Plan”) became effective. Pursuant to the Plan, all claims that arose before January 16,
2018 were discharged and extinguished. Moreover, the Plan enjoins all persons from
commencing any actions against 21st Century based on claims that arose before January
16, 2018. For this reason, 21st Century is not included as a party Defendant in this action
at this time. Plaintiff reserves the right to request the Court’s permission to add 21st
Century as a named Defendant and to seek damages arising from any acts and/or omissions
committed after January 16, 2018 within the applicable four-year limitations period.
21.
Dr. Daniel Dosoretz is the former Chief Executive Officer of 21st Century
Oncology Holdings, Inc. and 21st Century Oncology, LLC, and a former board member of
21st Century Oncology Inc., and is a resident of Fort Myers, Florida. Throughout the Class
Period, Dosoretz colluded and conspired with Dr. William N. Harwin, President of FCS,
to formulate and carry out a so-called “gentleman’s agreement,” which ensured that 21st
Century and FCS would not compete in the market for Oncology Services in Southwest
Florida. Dosoretz participated as a co-conspirator with Defendants in the offenses alleged
in this Complaint, and has performed acts and made statements in furtherance of the
conspiracy or in furtherance of the anticompetitive conduct. As a former “officer, director
and employee” of 21st Century, Dosoretz is a “Released Party” under the Plan. For this
reason, Dosoretz is not included as a party Defendant in this action.
22.
Various persons, partnerships, agents and individuals not named as
Defendants in this lawsuit, and 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.
23.
Whenever this Complaint makes reference 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 Oncology Services Market
24.
According to the World Health Organization, cancer is one of the leading
causes of “morbidity and mortality worldwide” with 14.0 million new cases in 2012 and
an anticipated increase of roughly 70% over the next two decades.3 In 2016, there were an
estimated 1.7 million new cancers diagnoses, representing an increase of approximately
2% since 2015.4 The steady rise in new cancer cases each year provides a lucrative
opportunity in the market for Oncology Services.5 Other factors such as “population
3 World Health Organization, Cancer: Fact Sheet, WORLD HEALTH ORGANIZATION (Feb. 2018), available at
http://www.who.int/mediacentre/factsheets/fs297/en/ (last accessed Mar. 21, 2018).
4 The American Society of Clinical Oncology, The State of Cancer Care in America, 2017:A Report by the
American
Society
of
Clinical
Oncology,
J.
ONCOL.
PRACT.,
available
at
http://ascopubs.org/doi/full/10.1200/JOP.2016.020743 (last accessed Mar. 21, 2018).
5 Grand View Research, Radiation Oncology Market Analysis By Product (External Beam Radiation
Therapy, Brachytherapy, Systemic Beam Radiation Therapy), By Application, By Technology, By Region,
And Segment Forecasts, 2014 – 2025, GRAND VIEW RESEARCH (Apr. 2017), available at
https://www.grandviewresearch.com/industry-analysis/radiation-oncology-market (last accessed Mar. 21,
2018).
demographics, insurance status and type, and changes in physician retirement rates and
productivity,”6 also contribute to the profitability of Oncology Services.
25.
The U.S. market for Oncology Services is already concentrated. As of 2012,
there were only 1,581 oncology practices throughout the United States.7 Furthermore,
based on a 2012 ASCO survey of oncology practices, only 480 practices reported seeing
new cancer patients in 2016. 8 Specifically, those practices reported 1.1 million new cancer
patients, a considerable portion of the 1.7 million cancer diagnoses in the United States that
year.9
26.
Florida has the second highest number of cancer patients in the country.10
According to the Community Oncology Alliance, as of January 2017, Florida was leading
the nation in the number of oncology “practices that have closed, merged, or been acquired
in recent years,” with most of these practices “affiliate[ing] with hospitals or join[ing] large
groups like [FCS], one of the nation’s biggest physician-owned oncology networks.11
Constantine Mantz, MD, chief medical officer at 21st Century Oncology—which has 144
6 W. Yang, J. Williams, et al., Projected Supply o Demand for Oncology and Radiation Oncologists Through
2025: An Aging, Better-Insured Population Will Result in Shortage, J. Oncol. Pract., available at
http://ascopubs.org/doi/full/10.1200/jop.2013.001319 (last accessed Mar. 21, 2018).
7 The American Society of Clinical Oncology, The State of Cancer Care in America, 2017:A Report by the
American
Society
of
Clinical
Oncology,
J.
ONCOL.
PRACT.,
available
at
http://ascopubs.org/doi/full/10.1200/JOP.2016.020743 (last accessed Mar. 21, 2018).
8 Id.
9 American Cancer Society, Cancer facts & figures 2016, AMERICAN CANCER SOCIETY, available
at https://www.cancer.org/research/cancer-facts-statistics/all-cancer-facts-figures/cancer-facts-figures-
2016.html (last accessed on Mar. 21, 2018).
10 M. Rinde, Consolidation Ripples Out From Florida, ONCLIVE (Dec. 29, 2016), available at
http://www.onclive.com/publications/oncology-business-news/2017/january-2017/consolidation-ripples-
out-from-florida (last accessed Mar. 21, 2018).
11 Id.
centers in 17 states—admits that “we are not seeing the same scale of consolidation
elsewhere as we are seeing in Florida.”12
27.
As small practices are struggling in Florida, larger corporations, like 21st
Century and FCS, have emerged as leaders in the Oncology Services market in the state.
Indeed, 21st Century and FCS dominate the market for Oncology Services in Florida,
particularly in the Southwest region of the state.13
28.
21st Century has roughly 100 oncologists in Florida, the majority of them
radiation oncologists.
29.
FCS is “a physician-owned mega-group that has grown over three decades
to 206 physicians and 100 offices.” FCS’s CEO, Brad Prechtl, has emphasized the benefits
of this dominant market position, stating “[s]ome practices, given their dynamic and their
market—if they’re the only medical oncologist in that market—it might be easier for them
to survive than when there’s competition.”
1.
Whistleblower Complaint
30.
On January 4, 2017, two former employees of FCS filed a whistleblower
action alleging that beginning in 2010, 21st Century and FCS submitted false claims to the
United States government healthcare programs, Medicare and Medicaid, and engaged in a
quid pro quo kickback scheme in violation of the Sherman Antitrust Act, 15 U.S.C. §§ 1 –
12 Id.
13 Id.
31.
During the conspiracy, whistleblower Sharon Dill (“Dill”) served as FCS’s
Vice President, Human Resources and Chief Human Resources Officer from January 23,
2012 until November 10, 2015. Christina Sievert (“Sievert”) served as FCS’s President of
Clinical Financial Services from October 2013 until October 1, 2015.
32.
Dill and Sievert claim they obtained direct knowledge through their
employment at FCS that Dr. William Harwin, President of FCS, colluded and conspired
with Dr. Daniel Dosoretz, former Chief Executive Officer of 21st Century, to formulate
and carry out a so-called “gentleman’s agreement,” which ensured that 21st Century and
FCS would not compete in the market for Oncology Services in Southwest Florida.
33.
Specifically, the Whistleblower Complaint asserts that FCS and 21st
Century agreed to a quid pro quo scheme whereby 21st Century would exclusively refer
its Medical Oncology patients to FCS and, in return, FCS would refer its Radiation
Oncology patients exclusively to 21st Century. Dill and Sievert allegedly observed first-
hand that FCS staff members were instructed to send any cancer patients who needed
Radiation Oncology in Southwest Florida to 21st Century. In return, Dill and Sievert
observed that 21st Century referred all of their Medical Oncology patients in Southwest
Florida to FCS.
34.
Additionally, according to Dill and Sievert, a new provider, Premiere
Oncology opened in Southwest Florida in 2011. Specifically, Premiere Oncology provided
Medical Oncology, Radiation Oncology and urology services. However, Premiere
Oncology struggled to attract patients, and was ultimately forced to sell its business. To
prevent the sale of Premiere Oncology from generating new competition, Dill and Sievert
allege that FCS and 21st Century entered into a new agreement, whereby 21st Century
would purchase Premiere Oncology’s Radiation Oncology practice and FCS would
purchase Premiere Oncology’s Medical Oncology practice.
35.
Dill and Sievert’s allegations led to an investigation by the DOJ into
anticompetitive conduct by FCS and 21st Century.
36.
Plaintiff and members of the Class did not know and could not have known
of the existence of the anticompetitive conduct alleged herein until June 29, 2017, at the
earliest, the date in which Dill and Sievert’s whistleblower action was disclosed by 21st
Century as part of a federal bankruptcy proceeding.
37.
Because Defendants’ and 21st Century’s agreements were kept secret until
at least June 29, 2017, Plaintiff and members of the Class were unaware of Defendants’
unlawful conduct, and they did not know before then that they were paying
supracompetitive prices for Oncology Services in Southwest Florida during the Class
Period.
2.
The Structure and Characteristics of The Market For
Oncology Services in Southwest Florida Supports The
Existence of a Conspiracy
38.
The structure and other characteristics of the market for Oncology Services
in Southwest Florida make it conducive to anticompetitive conduct among Defendants, and
make collusion particularly attractive. Specifically, the Oncology Services market in
Southwest Florida (1) is highly concentrated; (2) has high barriers to entry; (3) is comprised
of participants who had ample opportunities to conspire; and (4) is inelastic. Additionally,
facts exist that are highly indicative of anticompetitive and monopolistic behavior,
including the fact that prices for Oncology Services in Southwest Florida were artificially
inflated, whereas in truly competitive geographic markets, prices remained lower.
a.
The Market For Oncology Services Is Highly
Concentrated
39.
A highly-concentrated market is more susceptible to collusion and other
anticompetitive practices than less concentrated markets.
40.
The Oncology Services market in Southwest Florida is highly concentrated
and dominated by 21st Century and FCS. The market share and financial resources of non-
defendant health care providers of Oncology Services is small. Through acquisitions and
industry consolidation, 21st Century and FCS have increased their market power and
reduced the ability of other providers of Oncology Services to compete for patients served
by 21st Century and FCS.
41.
According to government data, 21st Century and FCS control nearly 90%
of the market for Oncology Services in Southwest Florida:
42.
Within the narrower submarket for Radiation Oncology services in
Southwest Florida, 21st Century maintains an 85% market share.
43.
FCS, meanwhile, maintains a 92% market share in the submarket for
Medical Oncology services in Southwest Florida.
44.
The Herfindahl–Hirschman Index (“HHI”) measures the competitive
concentration of a particular industry. An HHI of 0 indicates a perfectly competitive
market. The higher the number, the less competitive the market. Figure 5 below provides
the ranges of HHI concentration levels used by the U.S. Department of Justice and FTC to
classify markets as unconcentrated, moderately concentrated, and highly concentrated.
The higher the market concentration, the higher the monopolistic power.
45.
The HHI for the Oncology Services market in the affected area, Southwest
Florida, is 4,018. Thus, the Oncology Services market in Southwest Florida is highly
concentrated and conducive to anticompetitive behavior.
46.
So too are the respective submarkets for Medical Oncology and Radiation
Oncology services in Southwest Florida. The market for Medical Oncology services in
Southwest Florida, which FCS dominates, has an HHI of 8,580. The market for Radiation
Oncology services in Southwest Florida, which 21st Century dominates, has an HHI of
7,476.
47.
Because of 21st Century and FCS’ concentrated market power, their
concerted actions had the ability to, and did in fact, impact pricing for Oncology Services
in Southwest Florida during the Class Period.
48.
There was no reasonable threat that 21st Century and FCS’ fringe
competitors, who were not parties to the 21st Century and FCS’ “gentleman’s agreement,”
could undercut 21st Century and FCS’ artificially inflated pricing and meet all or a
significant portion of market demand for Oncology Services in Southwest Florida.
i.
The Anticompetitive Effects of Defendants’
Supracompetitive Pricing
49.
Defendants’ scheme to collusively manipulate and control the Oncology
Services market in Southwest Florida with 21st Century had the purpose and effect of
artificially raising prices of Oncology Services to supracompetitive levels.
50.
Indeed, according to data gathered comparing Palm Beach County (located
outside the relevant geographic market)14 and Lee County (located within the relevant
geographic market), prices for Oncology Services in 2015 were dramatically higher in Lee
County. The figure below reflects the average cost of care for Oncology Services in these
counties.
14 Palm Beach County is demonstratively used in this example because 21st Century and FCS compete there
for both Medical and Radiation Oncology.
51.
In fact, prices for Medical Oncology services in Lee County were 62%
higher than prices in Palm Beach County in 2015. Prices for Radiation Oncology services
were 34% higher in Lee County than in Palm Beach County in 2015.
52.
Due to Defendants’ anticompetitive behavior with 21st Century, Plaintiff
and members of the Class paid artificially inflated prices for Oncology Services.
b.
Defendants’ Conduct Went Against Their Economic
Self-Interests, Absent an Agreement To Divide the
Market with 21st Century
53.
FCS competes in the market with 21st Century for Oncology Services
outside of Southwest Florida.
54.
The following map illustrates the direct competition for Oncology Services
in other regions of Florida, compared to the complete lack of such competition in
Southwest Florida:
55.
While 21st Century and FCS have engaged in a series of acquisitions and
aggressive growth strategies over the last decade in other parts of Florida, those efforts
conspicuously avoided any overlap in Southwest Florida.
56.
FSC’s CEO, Brad Prechtl boasts that “[w]hen [he] joined FCS in 2009,
[they] had about 65 physicians in the practice, 800+ employees and under 30 offices,
located exclusively along the Gulf Coast. In the past five years, [FCS] ha[s] tripled in size
to approximately 180 physicians, 2100 employees and over 80 locations throughout
Florida.”15 Similarly, 21st Century began as a single center in 1989 and now markets itself
as “the largest physician-led operator of radiation treatment centers in the world, [w]ith
179 centers in 16 U.S. states and six Latin American countries; the company is more than
three times larger than its closest competitor.”16 This growth occurred exclusively outside
of Southwest Florida.
57.
Within Southwest Florida, FCS’s lack of growth into the Radiation
Oncology market, coupled with 21st Century’s lack of growth into the Medical Oncology
market can only be explained by the existence of their unlawful market allocation
agreement.
58.
21st Century and FCS’ acquisition of Premiere Oncology further
underscores this point. In a rational competitive market, the sale of Premiere Oncology
would have presented an attractive opportunity for either 21st Century or FCS to expand
into the other market (i.e., for FCS to expand into the Radiation Oncology market in
Southwest Florida, or for 21st Century to expand into the Medical Oncology market in
Southwest Florida). Instead, 21st Century and Defendants used the opportunity to reinforce
their existing market allocation agreement and further strengthen their monopoly power in
each respective product market.
15 Cision PR Web, CEO Bradley Prechtl Marks Six Years of Unprecedented Growth At Florida Cancer
Specialists
&
Research
Institute,
PR
WEB
(Apr.
14,
2015)
available
at
http://www.prweb.com/releases/2015/03/prweb12575550.htm (last accessed on Mar. 21, 2018).
16 Business Observer: Bigger and better, 21ST CENTURY ONCOLOGY (Mar. 7, 2014), available at
https://www.21co.com/leecounty/news/business-observer-bigger-and-better (last accessed on Mar. 21,
2018).
c.
The Market For Oncology Services Has High Barriers
To Entry
59.
A collusive arrangement that raises product prices above competitive levels
would, under basic economic principles, attract new entrants seeking to benefit from the
supracompetitive pricing. When, however, there are significant barriers to entry, new
entrants are much less likely to enter the market. Thus, barriers to entry help facilitate the
formation and maintenance of a cartels and market-allocation agreements.
60.
This is particularly true here because providing Oncology Services is capital
intensive. Economic and operational pressures make it difficult for smaller oncology
practices to operate independently and larger hospitals have greater leverage against
manufacturers and third-party payers than office-based practices.17 Moreover, Oncology
Service providers need qualified physicians and access to sophisticated diagnostic
equipment, which necessitates substantial capital.
61.
Therefore, it would require considerable funding and time for a potential
market entrant to gain the economies of scale and patient base achieved by 21st Century
and FCS necessary to compete in the market for Oncology Services.
d.
Defendants Had Opportunities To Conspire with 21st
Century
62.
Defendants had numerous opportunities to meet and conspire with 21st
Century under the guise of legitimate business contacts and to perform acts necessary for
the operation and furtherance of the conspiracy. In particular, 21st Century and FCS are
17 See e.g. Matthew Cook and Sebastian Morisot, Oncology: Still an Attractive Market?, PHARMEXEC (May
13, 2014), http://www.pharmexec.com/oncology-still-attractive-market.
members of the same trade organizations, which afforded them the opportunity to meet and
discuss the anticompetitive agreement.
63.
21st Century and FCS (including, their agents and/or employees) are both
members of the Florida Society of Clinical Oncology, American Society of Clinical
Oncology, American College of Radiation, and American College of Radiation
Oncology.18
64.
21st Century and FCS (including, their agents and/or employees) attend the
same industry conferences, including the annual meetings of the American Society for
Radiation Oncology19 and the Business Summits of the Cancer Center.20
65.
Moreover, the sheer proximity of FCS and 21st Century permitted them
easy access to meet and conspire, as they are headquartered within 2.5 miles of each other
in Fort Myers, Florida.21
18Daniel
C.
Dosoretz,
MD,
FACR,
FACRO,
21ST
CENTURY
ONCOLOGY,
available
at
https://www.21co.com/leecounty/physicians/dosoretz-daniel-e (last accessed Mar. 21, 2018); William N.
Harwin,
M.D.,
FLORIDA
CANCER
SPECIALISTS
AND
RESEARCH
INSTITUTE,
available
at
https://www.flcancer.com/en/physician/william-n-harwin-md/ (last accessed Mar. 21, 2018).
19 Leading Radiation Oncologists Chosen to Present at Annual Conference, 21ST CENTURY ONCOLOGY
(Sept. 24, 2015), available at https://arizona.21co.com/local/news/leading-radiation-oncologists-chosen-to-
present-at-annual-conference-2015 (last accessed Mar. 21, 2018); Janelle Park, MC and Yuenan Wang, PhD
to Present Abstracts at ASTRO’s National Meeting, FLORIDA CANCER SPECIALISTS & RESEARCH INSTITUTE
(Jun. 4, 2015), available at https://flcancer.com/en/articles/janelle-park-md-and-yuenan-wang-phd-present-
abstracts-astros-national-meeting/ (last accessed Mar. 21, 2018).
20 Oncology Care Transformation: What’s Working and What Lies Ahead, CANCER CENTER BUSINESS
SUMMIT, available at http://www.cancerbusinesssummit.com/2016SummitBrochure.pdf (last accessed Mar.
22, 2018).
21 Company Overview of Florida Cancer Specialists & Research Institute, BLOOMBERG, available at
https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=4281536 (last accessed Mar.
20, 2018); Welcome to 21st Century Oncology, 21ST CENTURY ONCOLOGY, available at
https://www.21co.com/overview (last accessed Mar. 21, 2018).
e.
The Demand For Oncology Services Is Inelastic
66.
“Elasticity” is a term used to describe the sensitivity of supply and demand
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 so continue to purchase despite a price increase.
67.
For an antitrust conspirator 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 purchased
substitute products or declined to buy altogether. Inelastic demand is a market
characteristic that facilitates collusion, allowing producers to raise their prices without
triggering customer substitution and lost sales revenue.
68.
Demand for Oncology Services is highly inelastic. A small, non-transitory
increase in the price for Oncology Services would not cause purchasers to switch to other
treatment options in significant enough numbers to negate the value to sellers of the price
increase.
69.
This is because Oncology Services are essential in the diagnosis and
treatment of cancer.
70.
There are no adequate alternatives to Oncology Services for patients
seeking care before or after a cancer diagnosis. Other medical and non-medical options
cannot replace Oncology Services in the diagnosis and treatment of cancer.
CLASS ACTION ALLEGATIONS
71.
Plaintiff brings this action on behalf of itself and as a class action under
Rule 23(a), (b)(2) and (b)(3) of the Federal Rules of Civil Procedure on behalf of the
following class (the “Class”):
All persons and entities in the United States who paid for all
or a portion of the cost of Oncology Services in Southwest
Florida directly to 21st Century or FCS, or any current or
former subsidiary or affiliate of either 21st Century or FCS,
or any co- conspirator, during the period from and including
2010 until the effects of Defendants’ unlawful conduct
ceases. Excluded from the Class are Defendants, their parent
companies, subsidiaries, affiliates, agents, co-conspirators,
federal governmental entities and instrumentalities of the
federal government, and states and their subdivisions,
agencies and instrumentalities.
72.
While Plaintiff does not know the exact number of members of the Class,
Plaintiff believes the class size is numerous given FCS’s and 21st Century’s substantial
presence in Southwest Florida.
73.
Common questions of law and fact exist as to all members of the Class. This
is particularly true given the nature of Defendants’ unlawful anticompetitive conduct,
which was generally applicable to all the members of the Class, 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 restrict output and fix, raise,
maintain or stabilize the prices of Oncology Services;
(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 Section 1 of the Sherman Act,
as alleged in the First Count;
(e)
Whether the alleged conspiracy to monopolize violated Section 2 of the
Sherman Act, as alleged in the Second Count;
(f)
Whether the alleged monopoly by FCS violated Section 2 of the
Sherman Act, as alleged in the Third Count;
(g)
Whether the conduct of Defendants and their co-conspirators, as alleged
in this Complaint, caused injury to the business or property of Plaintiff
and the members of the Class;
(h)
The effect of the alleged conspiracy on the cost of Oncology Services
in Southwest Florida during the Class Period;
(i)
Whether the Defendants and their co-conspirators fraudulently
concealed the existence of their anticompetitive conduct from the
Plaintiff and the members of the Class;
(j)
The appropriate injunctive and related equitable relief for Plaintiff and
the Class; and
(k)
The appropriate class-wide measure of damages.
74.
Plaintiff’s claims are typical of the claims of the members of the Class, and
Plaintiff will fairly and adequately protect the interests of the Class. Plaintiff and all
members of the Class are similarly affected by Defendants’ unlawful conduct in that they
paid artificially inflated prices for Oncology Services provided by Defendants and/or their
co-conspirators.
75.
Plaintiff’s claims arise out of the same common course of conduct giving
rise to the claims of the other members of the Class. Plaintiff’s interests are coincident
with, and not antagonistic to, those of the other members of the Class. Plaintiff is
represented by competent counsel who are experienced in the prosecution of antitrust and
class action litigation.
76.
The questions of law and fact common to the members of the Class
predominate over any questions affecting only individual members, including legal and
factual issues relating to liability and damages.
77.
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.
78.
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.
PLAINTIFF AND THE CLASS SUFFERED ANTITRUST INJURY
79.
Defendants’ antitrust conspiracy, conspiracy to monopolize, attempted
monopolization, and monopolization had the following effects, among others:
(a)
Price competition has been restrained or eliminated with respect to
Oncology Services;
(b)
The prices of Oncology Services have been fixed, raised, maintained,
or stabilized at artificially inflated levels;
(c)
Purchasers of Oncology Services have been deprived of the benefits of
free and open competition; and
(d)
Purchasers of Oncology Services paid artificially inflated prices.
80.
The purpose of the conspiratorial and unlawful conduct of Defendants and
their co-conspirators was to fix, raise, stabilize and/or maintain the price of Oncology
Services in Southwest Florida.
81.
The precise amount of the overcharge impacting the prices of Oncology
Services paid by Plaintiff and the Class can be measured and quantified using well-
accepted models.
82.
By reason of the alleged violations of the antitrust laws, Plaintiff and the
members of the Class have sustained injury to their businesses or property, having paid
higher prices for Oncology Services than they would have paid in the absence of
Defendants’ illegal contract, combination, or conspiracy, conspiracy to monopolize, and
monopolization, 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 (15 U.S.C. § 1)
(Conspiracy in Restraint of Trade)
83.
Plaintiff repeats the allegations set forth above as if fully set forth herein.
84.
Defendants and their co-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).
85.
The acts done by each Defendant, which were 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.
86.
During the Class Period, Defendants and their co-conspirators entered into
a continuing agreement, understanding and conspiracy in restraint of trade to artificially
fix, raise, stabilize, and control prices for Oncology Services.
87.
The conspiratorial acts and combinations have caused unreasonable
restraints in the market for Oncology Services.
88.
As a result of Defendants’ unlawful conduct, Plaintiff and other similarly
situated members of the Class have been harmed by being forced to pay inflated, supra-
competitive prices for Oncology Services.
89.
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.
90.
Defendants’ conspiracy had the following effects, among others:
(a)
Price competition in the market for Oncology Services has been
restrained, suppressed, and/or eliminated in Southwest Florida;
(b)
Prices for Oncology Services provided by Defendants and their co-
conspirators have been fixed, raised, maintained, and stabilized at
artificially high, non-competitive levels throughout Southwest Florida;
and
(c)
Plaintiff and members of the Class who purchased Oncology Services
from Defendants and their co-conspirators have been deprived of the
benefits of free and open competition.
91.
Plaintiff and members of the Class have been injured and will continue to
be injured in their business and property by paying more for Oncology Services purchased
from Defendants and their co-conspirators than they would have paid and will pay in the
absence of the conspiracy.
92.
The alleged contract, combination, or conspiracy is a per se violation of the
federal antitrust laws.
93.
Plaintiff and members of the Class are entitled to treble damages and an
injunction against Defendants, preventing and restraining the violations alleged herein.
SECOND COUNT
Violation of Section 2 of the Sherman Act (15 U.S.C. § 2)
(Conspiracy to Monopolize)
94.
Plaintiff incorporates by reference each preceding and succeeding
paragraph as though fully set forth herein.
95.
Beginning at least as early as 2010, and continuing thereafter, until the
effects of their unlawful conduct ceases, Defendants and their co-conspirators entered into
and participated in an unlawful agreement to monopolize the Southwest Florida Oncology
Services market through the exclusionary, anticompetitive conduct set forth above, all in
violation of Section 2 of the Sherman Act, 15 U.S.C. § 2. Defendants and their co-
conspirators acted pursuant to their unlawful agreement and conspired to do so with the
specific intent of monopolizing the Southwest Florida Oncology Services market.
96.
As a result of the conspiracy, Defendants and 21st Century effectively
excluded competition from a significant, substantial portion of the Southwest Florida
Oncology Services market, unlawfully expanded and maintained 21st Century and FCS
dominant market share in the Southwest Florida Oncology Services market, and profited
from their anticompetitive conduct by maintaining prices at artificially high,
supracompetitve levels and otherwise reaping the benefits of their illegally obtained and
maintained monopoly power.
97.
There is no legitimate business justification for the anticompetitive actions
of Defendants and the conduct through which they acquired and maintained monopoly
power in the Southwest Florida Oncology Services market. The anticompetitive effects of
the conduct of Defendants far outweigh any conceivable pro-competitive benefit or
justification. Even if such justification had existed, any possible pro-competitive benefits
could have been obtained by less restrictive alternatives.
98.
As a direct and proximate result of the anticompetitive combination,
contract, conspiracy, and agreement between Defendants and 21st Century, Plaintiff and
Class members have been injured in their business and property. Plaintiff and Class
members have paid higher, artificially inflated prices for Oncology Services than they
otherwise would have paid absent Defendants and 21st Century’s conspiracy. This injury
is of the type the federal antitrust laws were designed to prevent and flows from that which
makes Defendants’ conduct unlawful.
99.
Accordingly, Plaintiff and Class members seek damages, to be trebled
pursuant to federal antitrust law, and costs of suit, including attorneys’ fees.
THIRD COUNT
Violation of Section 2 of the Sherman Act (15 U.S.C. § 2)
(Monopolization, Attempted Monopolization, and Conspiracy to
Monopolize the Medical Oncology Services Market)
100.
Plaintiff incorporates by reference each preceding and succeeding
paragraph as though fully set forth herein.
101.
FCS and its President Dr. William N. Harwin, has monopolized, attempted
to monopolize, and with 21st Century and its former CEO, Dr. Daniel Dosoretz, conspired
to monopolize, the Medical Oncology services market in Southwest Florida.
102.
FCS, as alleged herein, has monopoly power in the Medical Oncology
services market in Southwest Florida, including the power to control prices and exclude
competition.
103.
FCS and its President Dr. William N. Harwin, has willfully and
intentionally engaged in anticompetitive conduct in order to unlawfully maintain its
monopoly in these markets, in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2.
104.
FCS and its President Dr. William N. Harwin, has unreasonably restrained,
and further threatens to unreasonably restrain competition in the Medical Oncology
services market in Southwest Florida by entering into an unlawful exclusive referral
agreement with 21 Century its former CEO, Dr. Daniel Dosoretz that restrains market
entry, excludes competitors, limits access to Medical Oncology services, and raises prices.
105.
As a direct and proximate result of FCS and its President Dr. William N.
Harwin’s anticompetitive and monopolistic conduct, Plaintiffs and the Class have been
damaged by, among other things: (i) FCS’s ability to charge supracompetitive prices for
Medical Oncology services; and (ii) the limitation of accessibility to Medical Oncology
services in Southwest Florida.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff and the Class respectfully request the following relief:
(a)
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;
(b)
That as to the First Claim for Relief, the unlawful conduct, contract,
conspiracy, or combination alleged herein be adjudged and decreed to be:
i.
an unlawful unreasonable restraint of trade or commerce in violation
of Section 1of the Sherman Act; and
ii.
a per se violation of Section 1 of the Sherman Act;
(c)
That as to the Second Claim for Relief, the Defendants’ conspiracy to
monopolize the Oncology Services market alleged herein be adjudged and decreed to be in
violation of Section 2 of the Sherman Act;
(e)
That as to the Third Claim for Relief, FCS and its President Dr. William N.
Harwin’s
attempted
monopolization,
and/or
conspiracy
to
monopolize,
and
monopolization of the Medical Oncology services market alleged herein be adjudged and
decreed to be in violation of Section 2 of the Sherman Act;
(f)
Plaintiff and the members of the Class recover damages, to the maximum
extent allowed under the federal antitrust laws, and that a joint and several judgment in
favor of Plaintiff and the members of the Class be entered against Defendants in an amount
to be trebled to the extent such laws permit;
(g)
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 or maintaining the monopolies alleged herein or
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;
(h)
Plaintiff and the members of the Class 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;
(i)
Plaintiff and the members of the Class recover their costs of suit, including
reasonable attorneys’ fees, as provided by law; and
(j)
Plaintiff and members of the Class 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.
Dated: April 10, 2018
Respectfully submitted,
By: /s/ Lawrence A. Farese
Florida Bar No: 252808
ROBINS KAPLAN LLP
711 Fifth Avenue South
Suite 201
Naples, FL 34102
(239) 430-7070
lfarese@robinskaplan.com
Hollis Salzman
Kellie Lerner
ROBINS KAPLAN LLP
399 Park Avenue
Suite 3600
New York, NY 10022
(212) 980-7400
hsalzman@robinskaplan.com
klerner@robinskaplan.com
K. Craig Wildfang
ROBINS KAPLAN LLP
800 LaSalle Avenue
Suite 2800
Minneapolis, MN 55402
(612) 349-8500
kcwildfang@robinskaplan.com
Michael D. Fitzgerald
LAW OFFICES OF MICHAEL D.
FITZGERALD
1 Industrial Way West
Building B
Eatontown, NJ 07724
(732) 223-2200
Mdfitz@briellelaw.com
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the foregoing was served this
10th day of April, 2018, to all counsel of record by using the CM/ECF system, as follows:
Michael P. Matthews, Esq.
Foley & Lardner LLP
100 North Tampa Street, Suite 2700
Post Office Box 3391
Tampa, Florida 33601
mmathews@foley.com
dguillen@foley.com
Counsel for Defendants, Florida Cancer
Specialists, P.L. and Dr. William N. Harwin
By: /s/ Lawrence A. Farese
Florida Bar No: 252808
ROBINS KAPLAN LLP
711 Fifth Avenue South
Suite 201
Naples, FL 34102
(239) 430-7070
lfarese@robinskaplan.com
Counsel for Plaintiff, County of
Monmouth, New Jersey, on behalf of itself
and all other similarly situated
| antitrust |
TA6VFocBD5gMZwcznng8 |
BRODSKY & SMITH, LLC
Evan J. Smith, Esquire (SBN 242352)
esmith@brodskysmith.com
Ryan P. Cardona, Esquire (SBN 302113)
rcardona@brodskysmith.com
9595 Wilshire Boulevard, Suite 900
Beverly Hills, CA 90212
Phone: (877) 534-2590
Facsimile: (310) 247-0160
Attorneys for Plaintiff
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
JOHAN STOLTZ, on behalf of himself
and all others similarly situated,
Plaintiff,
vs.
Case No.:
CLASS ACTION
CLASS ACTION COMPLAINT FOR:
(1) Breach of Fiduciary Duties
(2) Aiding and Abetting Breach of Fiduciary
Duties
(3) Violation of § 14 (e) of the Securities
Exchange Act of 1934
PORTOLA PHARMACEUTICALS, INC.,
HOLLINGS C. RENTON, JEFFREY
BIRD, LAURA BREGE, DENNIS
FENTON, SCOTT GARLAND, JOHN H.
JOHNSON, TED LOVE, DAVID C.
STUMP, H. WARD WOLFF,
(4) Violation of § 14 (d) of the Securities
Exchange Act of 1934
Defendants.
(5) Violation of § 20(a) of the Securities
Exchange Act of 1934
DEMAND FOR JURY TRIAL
Plaintiff, Johan Stoltz (“Plaintiff”), by his attorneys, on behalf of himself and those
similarly situated, files this action against the defendants, and alleges upon information and belief,
except for those allegations that pertain to him, which are alleged upon personal knowledge, as
follows:
SUMMARY OF THE ACTION
1.
Plaintiff brings this stockholder class action on behalf of himself and all other
public stockholders of Portola Pharmaceuticals, Inc. (“Portola” or the “Company”), against Portola
and the Company’s Board of Directors (the “Board” or the “Individual Defendants,” collectively
with the Company, the “Defendants”), for violations of Sections 14(e) and 20(a) of the Securities
and Exchange Act of 1934 (the “Exchange Act”) and breaches of fiduciary duty as a result of
Defendants’ efforts to sell the Company to Alexion Pharmaceuticals, Inc. (“Parent”), and Odyssey
Merger Sub, Inc. (“Merger Sub,” and collectively with Parent, “Alexion”) as a result of an unfair
process for an unfair price, and to enjoin an upcoming tender offer on a proposed all cash
transaction valued at approximately $1.41 billion (the “Proposed Transaction”).
2.
The terms of the Proposed Transaction were memorialized in a May 5, 2020, filing
with the Securities and Exchange Commission (“SEC”) on Form 8-K attaching the definitive
Agreement and Plan of Merger (the “Merger Agreement”). Under the terms of the Merger
Agreement, a subsidiary of Alexion will commence a tender offer to acquire all of the outstanding
shares of Portola’s common stock at a price of $18 per share in cash. As a result of the Proposed
Transaction, Portola stockholders will be frozen out of any interest in the surviving entity.
3.
Thereafter, on May 27, 2020, Portola filed a Solicitation/Recommendation
Statement on Schedule 14D-9 (the “Recommendation Statement”) with the SEC in support of the
Proposed Transaction.
4.
The Proposed Transaction is unfair and undervalued for a number of reasons.
Significantly, the Recommendation Statement describes an insufficient process in which the Board
rushed through an inadequate “sales process” in which the only end goal was a sale to Alexion,
with no committee of independent Board members being created to run the sales process and a so-
called “market check” for potentially interested third parties consisting of only outreach to one
potentially interested third party.
5.
Such a sales process, or lack thereof, clearly indicates that the only end-goal
acceptable to the Defendants was an acquisition of Portola by Alexion.
6.
In approving the Proposed Transaction, the Individual Defendants have breached
their fiduciary duties of loyalty, good faith, due care and disclosure by, inter alia, (i) agreeing to
sell Portola without first taking steps to ensure that Plaintiff and Class members (defined below)
would obtain adequate, fair and maximum consideration under the circumstances; and (ii)
engineering the Proposed Transaction to benefit themselves and/or Alexion without regard for
Portola public stockholders. Accordingly, this action seeks to enjoin the Proposed Transaction
and compel the Individual Defendants to properly exercise their fiduciary duties to Portola
stockholders.
7.
Next, it appears as though the Board has entered into the Proposed Transaction to
procure for themselves and senior management of the Company significant and immediate benefits
with no thought to the Company’s public stockholders. For instance, pursuant to the terms of the
Merger Agreement, upon the consummation of the Proposed Transaction, Company Board
Members and executive officers will be able to exchange all Company equity awards for the
merger consideration.
8.
Finally, in violation of the Exchange Act and their fiduciary duties, Defendants
caused to be filed the materially deficient Recommendation Statement on May 27, 2020 with the
SEC in an effort to solicit stockholders to tender their Portola shares in favor of the Proposed
Transaction. The Recommendation Statement is materially deficient, deprives Portola’s
stockholders of the information they need to make an intelligent, informed and rational decision
of whether to tender their shares in favor of the Proposed Transaction. As detailed below, the
Recommendation Statement omits and/or misrepresents material information concerning, among
other things: (a) the sales process and in particular certain conflicts of interest for management;
(b) the financial projections for Portola, provided by Portola to the Company’s financial advisor
Centerview Partners LLC (“Centerview”); (c) the data and inputs underlying the financial
valuation analyses, if any, that purport to support the fairness opinion of Centerview to the
Company
9.
Absent judicial intervention, the Proposed Transaction will be consummated,
resulting in irreparable injury to Plaintiff and the Class. This action seeks to enjoin the Proposed
Transaction or, in the event the Proposed Transaction is consummated, to recover damages
resulting from violation of the federal securities laws by Defendants.
PARTIES
10.
Plaintiff is a citizen of Texas and, at all times relevant hereto, has been a Portola
stockholder.
11.
Defendant Portola is a biopharmaceutical company that develops and
commercializes novel therapeutics in the areas of thrombosis and other hematologic disorders and
inflammation in the United States. Portola is incorporated under the laws of the State of Delaware
and has its principal place of business at 270 E. Grand Avenue, Suite 22, South San Francisco, CA
94080. Shares of Portola common stock are traded on the NasdaqGS under the symbol “PTLA.”
12.
Defendant Hollings C. Renton ("Renton") has been a Director of the Company at
all relevant times. In addition, Renton serves as the Chairperson of the Board.
13.
Defendant Jeffrey Bird ("Bird") has been a director of the Company at all relevant
14.
Defendant Laura Brege ("Brege") has been a director of the Company at all
relevant times.
15.
Defendant Dennis Fenton ("Fenton") has been a director of the Company at all
relevant times.
16.
Defendant Scott Garland ("Garland") has been a director of the Company at all
relevant times.
17.
Defendant John H. Johnson (“Johnson”) has been a director of the Company at all
relevant times.
18.
Defendant Ted Love (“Love”) has been a director of the Company at all relevant
19.
Defendant David C. Stump (“Stump”) has been a director of the Company at all
relevant times.
20.
Defendant H. Ward Wolff (“Wolff”) has been a director of the Company at all
relevant times.
21.
Defendants identified in ¶¶ 12 - 20 are collectively referred to as the “Individual
Defendants.”
22.
Non-Party Parent is a biopharmaceutical company, develops and commercializes
various therapeutic products. The company serves distributors, pharmacies, hospitals, hospital
buying groups, and other healthcare providers in the United States, Europe, the Asia Pacific, and
internationally. Parent was founded in 1992 and is headquartered in Boston, Massachusetts. Parent
common stock is traded on the New York Stock Exchange (“NYSE”) under the ticker symbol
“ALXN.”
23.
Non-Party Merger Sub is a wholly owned subsidiary of Parent created to effectuate
the Proposed Transaction.
JURISDICTION AND VENUE
24.
This Court has subject matter jurisdiction pursuant to Section 27 of the Exchange
Act (15 U.S.C. § 78aa) and 28 U.S.C. § 1331 (federal question jurisdiction) as Plaintiff alleges
violations of Sections 14(e) and 20(a) of the Exchange Act. This action is not a collusive one to
confer jurisdiction on a court of the United States, which it would not otherwise have.
25.
Personal jurisdiction exists over each defendant either because the defendant
conducts business in or maintains operations in this District, or is an individual who is either
present in this District for jurisdictional purposes or has sufficient minimum contacts with this
District as to render the exercise of jurisdiction over defendant by this Court permissible under
traditional notions of fair play and substantial justice.
26.
Venue is proper in this District pursuant to 28 U.S.C. § 1391, because Portola has
its principal place of business is located in this District, and each of the Individual Defendants, as
Company officers or directors, has extensive contacts within this District.
CLASS ACTION ALLEGATIONS
27.
Plaintiff brings this action pursuant to Federal Rule of Civil Procedure 23,
individually and on behalf of the stockholders of Portola common stock who are being and will be
harmed by Defendants’ actions described herein (the “Class”). The Class specifically excludes
Defendants herein, and any person, firm, trust, corporation or other entity related to, or affiliated
with, any of the Defendants.
28.
This action is properly maintainable as a class action because:
a. The Class is so numerous that joinder of all members is impracticable.
According to the Recommendation Statement, as of May 190, 2020, there were
over 78 million shares of common stock of Portola common stock outstanding.
The actual number of public stockholders of Portola will be ascertained through
discovery;
b. There are questions of law and fact which are common to the Class, including
inter alia, the following:
i. Whether Defendants have violated the federal securities laws;
ii. Whether Defendants made material misrepresentations and/or omitted
material facts in the Recommendation Statement; and
iii. Whether Plaintiff and the other members of the Class have and will
continue to suffer irreparable injury if the Proposed Transaction is
consummated.
c. Plaintiff is an adequate representative of the Class, has retained competent
counsel experienced in litigation of this nature and will fairly and adequately
protect the interests of the Class;
d. Plaintiff’s claims are typical of the claims of the other members of the Class
and Plaintiff does not have any interests adverse to the Class;
e. The prosecution of separate actions by individual members of the Class would
create a risk of inconsistent or varying adjudications with respect to individual
members of the Class which would establish incompatible standards of conduct
for the party opposing the Class;
f. Plaintiff anticipates that there will be no difficulty in the management of this
litigation and, thus, a class action is superior to other available methods for the
fair and efficient adjudication of this controversy; and
g. Defendants have acted on grounds generally applicable to the Class with respect
to the matters complained of herein, thereby making appropriate the relief
sought herein with respect to the Class as a whole.
THE INDIVIDUAL DEFENDANTS’ FIDUCAIRY DUTIES
29.
By reason of the Individual Defendants’ positions with the Company as officers
and/or directors, said individuals are in a fiduciary relationship with Portola and owe the Company
the duties of due care, loyalty, and good faith.
30.
By virtue of their positions as directors and/or officers of Portola, the Individual
Defendants, at all relevant times, had the power to control and influence, and did control and
influence and cause Portola to engage in the practices complained of herein.
31.
Each of the Individual Defendants are required to act with due care, loyalty, good
faith and in the best interests of the Company. To diligently comply with these duties, directors
of a corporation must:
a. act with the requisite diligence and due care that is reasonable under the
circumstances;
b. act in the best interest of the company;
c. use reasonable means to obtain material information relating to a given
action or decision;
d. refrain from acts involving conflicts of interest between the fulfillment
of their roles in the company and the fulfillment of any other roles or
their personal affairs;
e. avoid competing against the company or exploiting any business
opportunities of the company for their own benefit, or the benefit of
others; and
f. disclose to the Company all information and documents relating to the
company’s affairs that they received by virtue of their positions in the
company.
32.
In accordance with their duties of loyalty and good faith, the Individual
Defendants, as directors and/or officers of Portola, are obligated to refrain from:
a.
participating in any transaction where the directors’ or officers’
loyalties are divided;
b.
participating in any transaction where the directors or officers are
entitled to receive personal financial benefit not equally shared by the
Company or its public stockholders; and/or
c.
unjustly enriching themselves at the expense or to the detriment of
the Company or its stockholders.
33.
Plaintiff alleges herein that the Individual Defendants, separately and together, in
connection with the Proposed Transaction, violated, and are violating, the fiduciary duties they
owe to Portola, Plaintiff and the other public stockholders of Portola, including their duties of
loyalty, good faith, and due care.
34.
As a result of the Individual Defendants’ divided loyalties, Plaintiff and Class
members will not receive adequate, fair or maximum value for their Portola common stock in the
Proposed Transaction.
SUBSTANTIVE ALLEGATIONS
Company Background
35.
Portola is a biopharmaceutical company, that develops and commercializes novel
therapeutics in the areas of thrombosis and other hematologic disorders and inflammation in the
United States.
36.
The Company offers Andexxa, an antidote for patients treated with rivaroxaban and
apixaban when reversal of anticoagulation is needed due to life-threatening or uncontrolled
bleeding; and Bevyxxa (betrixaban), an oral, once-daily Factor Xa inhibitor for the prevention of
venous thromboembolism in adult patients hospitalized for an acute medical illness. It is also
advancing cerdulatinib, a dual spleen tyrosine kinase and janus kinases inhibitor in development
for the treatment of hematologic cancers. In addition, the company is developing PRT2761, a Syk
inhibitor that has completed Phase II clinical trial for the treatment for allergic conjunctivitis.
Portola’s lead program, magrolimab, is a monoclonal antibody against the CD47 receptor, a “don’t
eat me” signal that cancer cells commandeer to avoid being ingested by macrophages. This
antibody is currently being evaluated in multiple clinical studies in patients with myelodysplastic
syndrome, acute myeloid leukemia, non-Hodgkin lymphoma, and solid tumors.
37.
The Company’s most recent financial performance press release, revealing
financial results from the quarter preceding the announcement of the Proposed Transaction,
indicated sustained and solid financial performance. For example, in a May 11, 2020 press release
announcing its 2020 Q1 financial results, the Company highlighted such milestones as total global
revenues for the first quarter of 2020 were $26.4 million compared with $22.2 million for the same
period in 2019, a decrease in net loss, and a decrease in operating expenses.
38.
Speaking on these positive results, Chief Executive Officer, Scott Garland,
commented on the Company’s positive financial results as follows, “2020 started strong with
January representing our highest month of Andexxa demand in the U.S. since launch, driven in
part by a return of growth in our tier one accounts.”
39.
Portola has seen exponential financial growth dating back to its record year in 2019.
In its 2019 Q4 and Full Year 2019 financial results press release, Company noted its total global
revenues for the fourth quarter of 2019 were $29.2 million compared with $15.3 million for the
fourth quarter of 2018. As well as its total global revenues for the full year 2019 were $116.6
million compared with $40.1 million for the full year 2018, which includes $111.5 million in net
product revenues from sales of Andexxa/Ondexxya, and $5.0 million in collaboration and license
revenues.
40.
Speaking on these positive results, Garland, commented on the Company’s positive
financial results as follows, “2019 was a year of significant accomplishments for Portola with the
launch of our Gen 2 formulation of Andexxa in the United States and the approval and launch of
Ondexxya in Europe. In 2020 we have several catalysts that we expect to drive further adoption
and growth worldwide. This includes the presentation of new clinical data, enhanced education
and support related to reimbursement, the initiation of our urgent surgery study, and continued
execution of the Ondexxya launch in Europe. Combined with the robust growth in the Factor Xa
inhibitor market and our other strategic initiatives, we are confident that Andexxa has significant
long-term growth potential.”
41.
These positive results are not an anomaly, but rather, are indicative of a trend of
continued financial success and future potential success by Portola. Clearly, based upon these
positive financial results and outlook, the Company is likely to have tremendous future success
and should command a much higher consideration than the amount contained within the Proposed
Transaction.
42.
Despite this upward trajectory and continually increasing financial results, the
Individual Defendants have caused Portola to enter into the Proposed Transaction for insufficient
consideration.
The Flawed Sales Process
43.
As detailed in the Recommendation Statement, the process deployed by the
Individual Defendants was flawed and inadequate, was conducted out of the self-interest of the
Individual Defendants, and was designed with only one concern in mind – to effectuate a sale of
the Company to Alexion.
44.
First, the Recommendation Statement indicates that no committee of independent
board members was created to run the sales process.
45.
Furthermore, the Recommendation Statement indicates that only the most cursory
“market check” was conducted by Company and its financial advisors during the sales process,
reaching out to only one potentially interested third party.
46.
The Recommendation Statement is also unclear as to the nature of all specific
standstill restrictions arising out of the terms of any of the non-disclosure agreements entered into
between Portola on the one hand and either any interested third party, including Alexion, on the
other, and if the terms of any included “don’t-ask, don’t-waive” provisions or standstill provisions
in any such agreements, and if so, the specific conditions, if any, under which such provisions
would fall away.
47.
It is not surprising, given this background to the overall sales process, that it was
conducted in a completely inappropriate and misleading manner.
The Proposed Transaction
48.
On May 5, 2020, Alexion and Portola issued a joint press release announcing the
Proposed Transaction. The press release stated, in relevant part:
BOSTON & SOUTH SAN FRANCISCO, Calif – MAY 5, 2020 - Alexion
Pharmaceuticals, Inc. (NASDAQ:ALXN) and Portola Pharmaceuticals, Inc.
(NASDAQ:PTLA) announced today that they have entered into a definitive merger
agreement for Alexion to acquire Portola, a commercial-stage biopharmaceutical
company
focused
on
life-threatening
blood-related
disorders.
Portola’s
commercialized medicine, Andexxa® [coagulation factor Xa (recombinant),
inactivated-zhzo], marketed as Ondexxya® in Europe, is the first and only approved
Factor Xa inhibitor reversal agent, and has demonstrated transformative clinical value
by rapidly reversing the anticoagulant effects of Factor Xa inhibitors rivaroxaban and
apixaban in severe and uncontrolled bleeding. The acquisition will add near-term
diversification to Alexion’s commercial portfolio and provides the opportunity to
apply the company’s demonstrated global commercial excellence to create long-term
value for patients and shareholders. The merger agreement has been unanimously
approved by the boards of Alexion and Portola.
“The acquisition of Portola represents an important next step in our strategy to
diversify beyond C5. Andexxa is a strategic fit with our existing portfolio of
transformative medicines and is well-aligned with our demonstrated expertise in
hematology, neurology and critical care,” said Ludwig Hantson, Ph.D., Chief
Executive Officer of Alexion. “We believe Andexxa has the potential to become the
global standard of care for patients who experience life-threatening bleeds while
taking Factor Xa inhibitors apixaban and rivaroxaban. By leveraging Alexion’s
strong operational and sales infrastructure and deep relationships in hospital
channels, we are well positioned to expand the number of patients helped by
Andexxa, while also driving value for shareholders.”
“In developing and launching Andexxa, Portola has established a strong foundation
for changing the standard of care for patients receiving Factor Xa inhibitors that
experience a major, life-threatening bleed. Andexxa rapidly reverses the
pharmacologic effect of rivaroxaban and apixaban within two minutes, reducing anti-
Factor Xa activity by 92 percent,” said Scott Garland, President and Chief Executive
Officer of Portola. “Given their enhanced resources, global footprint and proven
commercial expertise, we look forward to working with Alexion to maximize the
value of Andexxa. With their commitment to commercial excellence, together, we
will be able to drive stronger utilization of Andexxa, increase penetration and
accelerate adoption in the critical care setting.”
Transaction Details
Under the terms of the merger agreement, a subsidiary of Alexion will commence a
tender offer to acquire all of the outstanding shares of Portola’s common stock at a
price of $18 per share in cash. The tender offer is subject to customary conditions,
including the tender of a majority of the outstanding shares of Portola common stock,
the expiration or termination of the waiting period under the Hart-Scott Rodino
Antitrust Improvements Act of 1976 and receipt of certain other regulatory approvals.
Following successful completion of the tender offer, Alexion will acquire all
remaining shares not tendered in the offer at the same price of $18 per share through
a merger. The transaction is expected to close in the third quarter of 2020.
Alexion will fund the transaction with cash on hand. As part of the acquisition,
Alexion will also be acquiring cash currently on Portola’s balance sheet, net of debt
of approximately $215 million that will become due upon closing. As of December
31, 2019, cash and short-term investments were approximately $430 million. The
actual amounts will be determined as of the transaction close.
RBC Capital Markets, LLC served as Alexion’s exclusive financial advisor.
Centerview Partners served as Portola’s exclusive financial advisor. Cooley LLP
served as Portola’s legal advisor.
The Inadequate Merger Consideration
49.
Significantly, the Company’s financial prospects and opportunities for future
growth, and synergies with Alexion establish the inadequacy of the merger consideration.
50.
First, the compensation afforded under the Proposed Transaction to Company
stockholders significantly undervalues the Company. The proposed valuation does not adequately
reflect the intrinsic value of the Company. Moreover, the valuation does not adequately take into
consideration the Company’s potential financial success with its launch of new products in just
2019 and early 2020 and their potential growth.
51.
Specifically, the Company’s stock has traded as high as $32.11 per share within the
past fifty-two weeks, and traded around $25.00 a share as recently as January 8, 2020, about $7.00
per share less than the consideration in Proposed Transaction.
52.
Additionally, Portola’s future success is extremely likely, given the consistent
positive financial results it has posted over the past several quarters. Obviously, the opportunity
to invest in such a company on the rise is a great coup for Alexion, however it undercuts the
investment of Plaintiff and all other public stockholders.
53.
To be more specific, Biotechnology news source, FiercePharma, released an article
about the Proposed Transaction in May 2020, noting, “The Portola buyout will take Alexion
beyond a rare-disease portfolio dominated by blockbuster C5-inhibitor Soliris and follow-up drug
Ultomiris. The centerpiece of the deal is a bleeding reversal agent, Andexxa, designed for patients
using two common anticoagulant drugs, Xarelto and Eliquis. So far, Andexxa has delivered
disappointing sales, but Alexion still sees promise—even if it'll take a while for that promise to
pay off.” Such promise is likely to translate into strong financial success.
54.
Finally, the Proposed Transaction represents a significant synergistic benefit to
Alexion, which operates in the same industry as Portola, and will use the new portfolio, operational
capabilities, and brand capital to bolster its own position in the market. Specifically, a May 7,
2020 BioPharma-Reporter article commented on Portola’s benefits to Alexion, “With its lead
product, Soliris, facing biosimilar competition in the coming years, having further products to draw
on could help the company dampen any drop in revenue.” This quote followed comments
regarding Portola bringing diversification to Alexion’s portfolio, as said in the May 5, 2020 Press
Release on the Proposed Transaction. Ultimately, outside of broadening Alexion’s portfolio, the
merger provides Alexion with a safety net for the foreseeable future, offering stability it might not
have had were it not for Portola.
55.
Clearly, while the deal will be beneficial to Alexion it comes at great expense to
Plaintiff and other public stockholders of the Company.
56.
Moreover, post-closure, Portola stockholders will be frozen out of any future
benefit from their investment in Portola’s bright future.
57.
It is clear from these statements and the facts set forth herein that this deal is
designed to maximize benefits for Alexion at the expense of Portola stockholders, which clearly
indicates that Portola stockholders were not an overriding concern in the formation of the Proposed
Transaction.
Preclusive Deal Mechanisms
58.
The Merger Agreement contains certain provisions that unduly benefit Alexion by
making an alternative transaction either prohibitively expensive or otherwise impossible.
Significantly, the Merger Agreement contains a termination fee provision that is especially onerous
and impermissible. Notably, in the event of termination, the merger agreement requires Portola to
pay up to $51.5 million to Alexion, if the Merger Agreement is terminated under certain
circumstances. Moreover, under one circumstance, Portola must pay this termination fee even if
it consummates any competing company Takeover Proposal (as defined in the Merger Agreement)
within 12 months following the termination of the Merger Agreement. The termination fee will
make the Company that much more expensive to acquire for potential purchasers. The termination
fee in combination with other preclusive deal protection devices will all but ensure that no
competing offer will be forthcoming.
59.
The Merger Agreement also contains a “No Solicitation” provision that restricts
Portola from considering alternative acquisition proposals by, inter alia, constraining Portola’s
ability to solicit or communicate with potential acquirers or consider their proposals. Specifically,
the provision prohibits the Company from directly or indirectly soliciting, initiating, proposing or
inducing any alternative proposal, but permits the Board to consider an unsolicited bona fide
written “Takeover Proposal” if it constitutes or is reasonably calculated to lead to a “Superior
Proposal” as defined in the Merger Agreement.
60.
Moreover, the Merger Agreement further reduces the possibility of a topping offer
from an unsolicited purchaser. Here, the Individual Defendants agreed to provide Alexion
information in order to match any other offer, thus providing Alexion access to the unsolicited
bidder’s financial information and giving Alexion the ability to top the superior offer. Thus, a
rival bidder is not likely to emerge with the cards stacked so much in favor of Alexion.
61.
These provisions, individually and collectively, materially and improperly impede
the Board’s ability to fulfill its fiduciary duties with respect to fully and fairly investigating and
pursuing other reasonable and more valuable proposals and alternatives in the best interests of the
Company and its public stockholders.
62.
Accordingly, the Company’s true value is compromised by the consideration
offered in the Proposed Transaction.
Potential Conflicts of Interest
63.
The breakdown of the benefits of the deal indicate that Portola insiders are the
primary beneficiaries of the Proposed Transaction, not the Company’s public stockholders. The
Board and the Company’s executive officers are conflicted because they will have secured unique
benefits for themselves from the Proposed Transaction not available to Plaintiff and the public
stockholders of Portola.
64.
Certain insiders stand to receive massive financial benefits as a result of the
Proposed Transaction. Notably, Company insiders, including the Individual Defendants, currently
own large, illiquid portions of Company stock that will be exchanged for large cash pay days upon
the consummation of the Proposed Transaction, as follows:
Number of
Shares
Implied Cash
Consideration
for
Name of Executive Officer or Director
Beneficially
Owned(1)
Shares
Scott Garland
24,529
441,522.00
Mardi C. Dier
39,563
712,134.00
John B. Moriarty, Jr. J.D.
12,893
232,074.00
Ernie W. Meyer
9,541
171,738.00
Sheldon L. Koenig
5,075
91,350.00
Glenn P. Brame
7,651
137,718.00
Rajiv Patni, M.D.
0
0
Jeffrey W. Bird, M.D., Ph.D.
527,172 9,489,096.00
H. Ward Wolff
17,960
323,280.00
Hollings C. Renton
16,020
288,360.00
John H. Johnson
13,194
237,492.00
Laura Brege
13,194
237,492.00
Dennis Fenton, Ph.D.
13,194
237,492.00
David C. Stump, M.D.
13,194
237,492.00
Ted W. Love, M.D.
0
441,522.00
All of our current executive officers and non-employee directors as a group (15 persons) 713,180 12,837,240.00
65.
Furthermore, upon the consummation of the Proposed Transaction, each
outstanding Company option or equity award, will be canceled and converted into the right to
receive certain consideration according to the merger agreement, as follows:
Shares
Shares
Underlying
Value of
Shares
Underlying
Accelerated
Accelerated
Underlying
Portola
Cash-Out
Value of
Portola
Cash-Out
Vested
In-the-
Money
Options
Value of
Vested
In-the-
Money
Options
In-the-
Money
Options
In-the-
Money
Options
Total Value
Name
(#)(1)
($)(2)
(#)(3)
($)(4)
RSUs
(#)(5)
RSUs
($)(6)
($)(7)
Scott Garland
12,500 65,125.00
287,500 1,497,875.00
0
— 1,563,000.00
Mardi C. Dier
4,062 21,163.02
93,438 486,811.98
0
— 507,975.00
John B. Moriarty, Jr., J.D.
4,062 21,163.02
93,438 486,811.98
0
— 507,975.00
Ernie W. Meyer
4,062 21,163.02
93,438 486,811.98
0
— 507,975.00
Sheldon L. Koenig
4,062 21,163.02
93,438 486,811.98
0
— 507,975.00
Glenn P. Brame
4,062 21,163.02
93,438 486,811.98
0
— 507,975.00
Rajiv Patni, M.D.
0
—
125,000 986,250.00
0
— 986,250.00
Jeffrey W. Bird, M.D., Ph.D.
0
—
0
—
0
—
—
H. Ward Wolff
10,520 115,720.00
0
—
0
— 115,720.00
Hollings C. Renton
0
—
0
—
0
—
—
John H. Johnson
0
—
0
—
0
—
—
Laura Brege
0
—
0
—
0
—
—
Dennis Fenton, Ph.D.
0
—
0
—
0
—
—
David C. Stump, M.D.
0
—
0
—
0
—
—
Ted W. Love, M.D.
0
—
0
—
8,294 149,292.00 149,292.00
All of our current executive officers and non-employee
directors as a group (15 persons)
43,330 $ 286,660.10
879,690 $ 4,918,184.90
8,294 $ 149,292.00 $ 5,354,137.00
66.
Additionally, upon the consummation of the Proposed Transaction, each
outstanding Company RSUs or PSUs, will be canceled and converted into the right to receive
certain consideration according to the merger agreement, as follows:
Shares
Acceleration
Underlying
Shares
Acceleration
Total
Portola
Value of
Portola
Value of
Acceleration
Rollover RSUs
Rollover RSUs
Underlying
Portola PSUs
Portola PSUs
Name
(#)(1)
($)(2)
(#)(3)
($)(4)
Value
($)(5)
Scott Garland
153,399
2,761,182.00
100,000
1,800,000.00
4,561,182.00
Mardi C. Dier
32,291
581,238.00
48,750
877,500.00
1,458,738.00
John B. Moriarty, Jr., J.D.
37,083
667,494.00
48,750
877,500.00
1,544,994.00
Ernie W. Meyer
48,750
877,500.00
48,750
877,500.00
1,755,000.00
Sheldon L. Koenig
32,916
592,488.00
48,750
877,500.00
1,469,988.00
Glenn P. Brame
42,916
772,488.00
48,750
877,500.00
1,649,988.00
Rajiv Patni, M.D.
35,000
630,000.00
0
0.00
630,000.00
67.
Moreover, certain employment agreements with certain Portola executives, entitle
such executives to severance packages should their employment be terminated under certain
circumstances. These ‘golden parachute’ packages are significant, and will grant each director or
officer entitled to them millions of dollars, compensation not shared by Portola’s common
stockholders, as follows:
68.
These payouts will be paid to Portola insiders, as a consequence of the Proposed
Transaction’s consummation, as follows:
Golden Parachute Compensation(1)
Perquisites/
Tax
Name
Cash ($)(2)
Equity ($)(3)
Benefits ($)(4)
Reimbursement ($)(5)
Total ($)(6)
Scott Garland
2,548,156
6,059,057
79,389
3,125,221
11,811,823
Mardi Dier
1,079,066
1,945,550
27,626
—
3,052,242
John B. Moriarty, Jr.
1,068,383
2,031,806
46,912
—
3,147,101
Ernie W. Meyer
897,442
2,241,812
30,764
—
3,170,018
Sheldon L. Koenig
924,562
1,956,800
27,626
1,144,666
4,053,654
69.
Thus, while the Proposed Transaction is not in the best interests of Portola
stockholders, it will produce lucrative benefits for the Company’s officers and directors.
The Materially Misleading and/or Incomplete Recommendation Statement
70.
On May 27, 2020, the Portola Board caused to be filed with the SEC a materially
misleading and incomplete Recommendation Statement that, in violation of their fiduciary duties
and federal securities laws, failed to provide the Company’s stockholders with material
information and/or provides them with materially misleading information critical to the total mix
of information available to the Company’s stockholders concerning the financial and procedural
fairness of the Proposed Transaction.
Omissions and/or Material Misrepresentations Concerning the Sales Process leading up
to the Proposed Transaction
71.
Specifically, the Recommendation Statement fails to provide material information
concerning the process conducted by the Company and the events leading up to the Proposed
Transaction. In particular, the Recommendation Statement fails to disclose:
a. The nature of any specific standstill restrictions arising out of the terms of any
of the non-disclosure agreements entered into between Portola on the one hand
and either any interested third party, including Alexion, on the other, and if the
terms of any included “don’t-ask, don’t-waive” provisions or standstill
provisions in any such agreements, and if so, the specific conditions, if any,
under which such provisions would fall away;
b. The specific reasoning as to why only one potentially interested third party was
contacted throughout the sales process;
c. The specific reasoning as to why no committee of independent directors was
created to run the sales process;
d. 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.
Omissions and/or Material Misrepresentations Concerning Portola’s Financial
Projections
72.
The Recommendation Statement fails to provide material information concerning
financial projections provided by Portola management and relied upon by Centerview in its
analyses. The Recommendation Statement discloses management-prepared financial projections
for the Company which are materially misleading.
73.
The Recommendation Statement indicates that in connection with the rendering of
Centerview’s fairness opinion, Centerview reviewed, “certain internal information relating to the
business, operations, earnings, cash flow, assets, liabilities and prospects of the Company,
including certain financial forecasts, analyses and projections relating to the Company prepared
by management of the Company and furnished to Centerview by the Company for purposes of
Centerview's analysis, which are referred to in this summary of Centerview's opinion as the
"Forecasts," and which are collectively referred to in this summary of Centerview's opinion as the
"Internal Data.”
74.
Accordingly, the Recommendation Statement should have, but fails to provide,
certain information in the projections that Portola management provided to the Board and
Centerview. Courts have uniformly stated that “projections … are probably among the most
highly-prized disclosures by investors. Investors can come up with their own estimates of discount
rates or [] market multiples. What they cannot hope to do is replicate management’s inside view
of the company’s prospects.” In re Netsmart Techs., Inc. S’holders Litig., 924 A.2d 171, 201-203
(Del. Ch. 2007).
75.
With respect to the “Initial Long-Term Plan” projections and the “Updated Long-
Term Plan” projections, the Recommendation Statement fails to disclose:
a. All line items used to calculate:
i. EBIT, including:
1. How management’s stock-based compensation was calculated
to derive the EBIT Figures, including whether stock-based
compensation was treated as a cash or non-cash expense.
ii. Unlevered Free Cash Flow, including:
1. The inputs and assumptions used to assume a tax rate of 21%.
b. A reconciliation of all non-GAAP to GAAP metrics, including:
i. EBIT, including:
1. How management’s stock-based compensation was calculated
to derive the EBIT Figures, including whether stock-based
compensation was treated as a cash or non-cash expense
ii. Unlevered Free Cash Flow, including:
1. The inputs and assumptions used to assume a tax rate of 21%
76.
This information is necessary to provide Company stockholders a complete and
accurate picture of the sales process and its fairness. Without this information, stockholders were
not fully informed as to Defendants’ actions, including those that may have been taken in bad faith,
and cannot fairly assess the process.
77.
Without accurate projection data presented in the Recommendation Statement,
Plaintiff and other stockholders of Portola are unable to properly evaluate the Company’s true
worth, the accuracy of Centerview’s financial analyses, or make an informed decision whether to
tender their Company stock in favor of the Proposed Transaction. As such, the Board has breached
their fiduciary duties by failing to include such information in the Recommendation Statement.
Omissions and/or Material Misrepresentations Concerning the Financial Analyses by
Centerview
78.
In the Recommendation Statement, Centerview describes its respective fairness
opinion and the various valuation analyses performed to render such opinion. However, the
descriptions fail to include necessary underlying data, support for conclusions, or the existence of,
or basis for, underlying assumptions. Without this information, one cannot replicate the analyses,
confirm the valuations or evaluate the fairness opinions.
79.
With respect to the Selected Public Companies Analysis, the Recommendation
Statement fails to disclose the following:
a. The specific reasoning as for choosing each comparable company; and
b. The total enterprise value for each comparable company and the line-items used
to calculate it.
80.
With
respect
to
the
Selected
Precedent
Transactions
Analysis,
the
Recommendation Statement fails to disclose the following:
a. The total value of each selected transaction;
b. The specific date on which each selected transaction closed; and
81.
With respect to the Centerview’s analysis of stock price targets, the
Recommendation Statement fails to disclose the following:
a. The price targets observed in the analysis; and
b. The sources for the price targets.
82.
With respect to the Discounted Cash Flow Analysis, the Recommendation
Statement fails to disclose the following:
a. The specific inputs and assumptions used to calculate the assumed unlevered
free cash flow declination rate after December 31, 2032 between 30.0% and
20.0% year-over-year.
b. The specific inputs and assumptions used to calculate the range of discount rates
from 9.5% to 11.5% using a mid-year convention, including:
i. Portola’s weighted average cost of capital;
ii. The inputs and assumptions utilized to assume a tax rate of 21%;
iii.
iv. The inputs and assumptions used to calculate the range of discount rates
from 9.5% to 11.5% applied to the expected receipt of partnership
upfront payments as if received on January 1, 2021;
v. The inputs and assumptions used to calculate assumed net debt as of
June 30, 2020 of $162 million.
c. The specific reasoning of why the Company directed Centerview to assume a
condition of the Company raising $100 million in gross proceeds as a result of
issuance of equity securities at $7 per share in 2020, whether this was likely to
occur in actuality, and if any other DCF was conducted without this
precondition attached.
d. The total number of the Company’s fully diluted shares outstanding as of May
1, 2020.
83.
These disclosures are critical for stockholders to be able to make an informed
decision on whether to tender their shares in favor of the Proposed Transaction.
84.
Without the omitted information identified above, Portola’s public stockholders are
missing critical information necessary to evaluate whether the proposed consideration truly
maximizes stockholder value and serves their interests. Moreover, without the key financial
information and related disclosures, Portola’s public stockholders cannot gauge the reliability of
the fairness opinion and the Board’s determination that the Proposed Transaction is in their best
interests. As such, the Board has breached their fiduciary duties by failing to include such
information in the Preliminary Stockholders.
FIRST COUNT
Claim for Breach of Fiduciary Duties
(Against the Individual Defendants)
85.
Plaintiff repeats all previous allegations as if set forth in full herein.
86.
The Individual Defendants have violated their fiduciary duties of care, loyalty and
good faith owed to Plaintiff and the Company’s public stockholders.
87.
By the acts, transactions and courses of conduct alleged herein, Defendants,
individually and acting as a part of a common plan, are attempting to unfairly deprive Plaintiff and
other members of the Class of the true value of their investment in Portola.
88.
As demonstrated by the allegations above, the Individual Defendants failed to
exercise the care required, and breached their duties of loyalty and good faith owed to the
stockholders of Portola by entering into the Proposed Transaction through a flawed and unfair
process and failing to take steps to maximize the value of Portola to its public stockholders.
89.
Indeed, Defendants have accepted an offer to sell Portola at a price that fails to
reflect the true value of the Company, thus depriving stockholders of the reasonable, fair and
adequate value of their shares.
90.
Moreover, the Individual Defendants breached their duty of due care and candor by
failing to disclose to Plaintiff and the Class all material information necessary for them to make
an informed decision on whether to tender their shares in favor of the Proposed Transaction.
91.
The Individual Defendants dominate and control the business and corporate affairs
of Portola, and are in possession of private corporate information concerning Portola’s assets,
business and future prospects. Thus, there exists an imbalance and disparity of knowledge and
economic power between them and the public stockholders of Portola which makes it inherently
unfair for them to benefit their own interests to the exclusion of maximizing stockholder value.
92.
By reason of the foregoing acts, practices and course of conduct, the Individual
Defendants have failed to exercise due care and diligence in the exercise of their fiduciary
obligations toward Plaintiff and the other members of the Class.
93.
As a result of the actions of the Individual Defendants, Plaintiff and the Class will
suffer irreparable injury in that they have not and will not receive their fair portion of the value of
Portola’s assets and have been and will be prevented from obtaining a fair price for their common
94.
Unless the Individual Defendants are enjoined by the Court, they will continue to
breach their fiduciary duties owed to Plaintiff and the members of the Class, all to the irreparable
harm of the Class.
95.
Plaintiff and the members of the Class have no adequate remedy at law. Only
through the exercise of this Court’s equitable powers can Plaintiff and the Class be fully protected
from the immediate and irreparable injury which Defendants’ actions threaten to inflict.
SECOND COUNT
Aiding and Abetting the Board’s Breaches of Fiduciary Duty
(Against Defendant Portola)
96.
Plaintiff incorporates each and every allegation set forth above as if fully set forth
97.
Defendants Portola knowingly assisted the Individual Defendants’ breaches of
fiduciary duty in connection with the Proposed Transaction, which, without such aid, would not
have occurred.
98.
As a result of this conduct, Plaintiff and the other members of the Class have been
and will be damaged in that they have been and will be prevented from obtaining a fair price for
their shares.
99.
Plaintiff and the members of the Class have no adequate remedy at law.
THIRD COUNT
Violations of Section 14(e) of the Exchange Act
(Against All Defendants)
100.
Plaintiff repeats all previous allegations as if set forth in full herein.
101.
Defendants have disseminated the Recommendation Statement with the intention
of soliciting stockholders to tender their shares in favor of the Proposed Transaction.
102.
Section 14(e) of the Exchange Act provides that in the solicitation of shares in a
tender offer, “[i]t shall be unlawful for any person to make any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements made, in the light of
the circumstances under which they are made, not misleading[.]”
103.
The Recommendation Statement was prepared in violation of Section 14(e)
because it is materially misleading in numerous respects and omits material facts, including those
set forth above. Moreover, in the exercise of reasonable care, Defendants knew or should have
known that the Recommendation Statement is materially misleading and omits material facts that
are necessary to render them non-misleading.
104.
The Individual Defendants had actual knowledge or should have known of the
misrepresentations and omissions of material facts set forth herein.
105.
The Individual Defendants were at least negligent in filing a Recommendation
Statement that was materially misleading and/or omitted material facts necessary to make the
Recommendation Statement not misleading.
106.
The misrepresentations and omissions in the Recommendation Statement are
material to Plaintiff and the Class, and Plaintiff and the Class will be deprived of his entitlement
to decide whether to tender their shares on the basis of complete information if such
misrepresentations and omissions are not corrected prior to the expiration of the tender offer period
regarding the Proposed Transaction.
FOURTH COUNT
Violations of Section 14(d)(4) of the Exchange Act and SEC Rule 14d-9
(Against All Defendants)
107.
Plaintiff repeats all previous allegations as if set forth in full herein.
108.
Defendants have caused the Recommendation Statement to be issued with the
intention of soliciting stockholder support of the upcoming tender offer.
109.
Section 14(d)(4) of the Exchange Act and SEC Rule 14d-9 promulgated thereunder
require full and complete disclosure in connection with tender offers. Specifically, Section
14(d)(4) provides that:
Any solicitation or recommendation to the holders of such a security to accept or
reject a tender offer or request or invitation for tenders shall be made in accordance
with such rules and regulations as the Commission may prescribe as necessary or
appropriate in the public interest or for the protection of investors.
110.
SEC Rule 14d-9(d), which was adopted to implement Section 14(d)(4) of the
Exchange Act, provides that:
Information required in solicitation or recommendation. Any solicitation or
recommendation to holders of a class of securities referred to in section 14(d)(1) of
the Act with respect to a tender offer for such securities shall include the name of
the person making such solicitation or recommendation and the information
required by Items 1 through 8 of Schedule 14D-9 (§ 240.14d-101) or a fair and
adequate summary thereof.
111.
In accordance with Rule 14d-9, Item 8 of a Schedule 14D-9 requires a Company’s
directors to:
Furnish such additional information, if any, as may be necessary to make the
required statements, in light of the circumstances under which they are made, not
materially misleading.
112.
The omission of information from a recommendation statement will violate Section
14(d)(4) and Rule 14d-9(d) if other SEC regulations specifically require disclosure of the omitted
information.
113.
The Recommendation Statement violates Section 14(d)(4) and Rule 14d-9 because
it omits material facts, including those set forth above, which omissions render the
Recommendation Statement false and/or misleading. Defendants knowingly or with deliberate
recklessness omitted, the material information identified above from the Recommendation
Statement, causing certain statements therein to be materially incomplete and therefore misleading.
Indeed, while Defendants undoubtedly had access to and/or reviewed the omitted material
information in connection with approving the Proposed Transaction, they allowed it to be omitted
from the Recommendation Statement, rendering certain portion of the Recommendation Statement
materially incomplete and therefore misleading.
114.
The misrepresentations and omissions in the Recommendation Statement are
material to Plaintiff, and Plaintiff will be deprived of his entitlement to make a fully informed
decision on whether to tender his Company stock if such misrepresentations and omissions are not
corrected prior to the expiration of the tender offer underlying the Proposed Transaction.
FIFTH COUNT
Violations of Section 20(a) of the Exchange Act
(Against All Individual Defendants)
115.
Plaintiff repeats all previous allegations as if set forth in full herein.
116.
The Individual Defendants were privy to non-public information concerning the
Company and its business and operations via access to internal corporate documents, conversations
and connections with other corporate officers and employees, attendance at management and
Board meetings and committees thereof and via reports and other information provided to them in
connection therewith. Because of their possession of such information, the Individual Defendants
knew or should have known that the Recommendation Statement was materially misleading to
Company stockholders.
117.
The Individual Defendants were involved in drafting, producing, reviewing and/or
disseminating the materially false and misleading statements complained of herein. The Individual
Defendants were aware or should have been aware that materially false and misleading statements
were being issued by the Company in the Recommendation Statement and nevertheless approved,
ratified and/or failed to correct those statements, in violation of federal securities laws. The
Individual Defendants were able to, and did, control the contents of the Recommendation
Statement. The Individual Defendants were provided with copies of, reviewed and approved,
and/or signed the Recommendation Statement before its issuance and had the ability or opportunity
to prevent its issuance or to cause it to be corrected.
118.
The Individual Defendants also were able to, and did, directly or indirectly, control
the conduct of Portola’s business, the information contained in its filings with the SEC, and its
public statements. Because of their positions and access to material non-public information
available to them but not the public, the Individual Defendants knew or should have known that
the misrepresentations specified herein had not been properly disclosed to and were being
concealed from the Company’s stockholders and that the Recommendation Statement was
misleading. As a result, the Individual Defendants are responsible for the accuracy of the
Recommendation Statement and are therefore responsible and liable for the misrepresentations
contained herein.
119.
The Individual Defendants acted as controlling persons of Portola within the
meaning of Section 20(a) of the Exchange Act. By reason of their position with the Company, the
Individual Defendants had the power and authority to cause Portola to engage in the wrongful
conduct complained of herein. The Individual Defendants controlled Portola and all of its
employees. As alleged above, Portola is a primary violator of Section 14 of the Exchange Act and
SEC Rule Recommendation Statement. By reason of their conduct, the Individual Defendants are
liable pursuant to section 20(a) of the Exchange Act.
WHEREFORE, Plaintiff demands injunctive relief, in his favor and in favor of the Class,
and against the Defendants, as follows:
A.
Ordering that this action may be maintained as a class action and certifying Plaintiff
as the Class representatives and Plaintiff’s counsel as Class counsel;
B.
Enjoining the Proposed Transaction;
C.
In the event Defendants consummate the Proposed Transaction, rescinding it and
setting it aside or awarding rescissory damages to Plaintiff and the Class;
D.
Declaring and decreeing that the Merger Agreement was agreed to in breach of the
fiduciary duties of the Individual Defendants and is therefore unlawful and unenforceable;
E.
Directing the Individual Defendants to exercise their fiduciary duties to commence
a sale process that is reasonably designed to secure the best possible consideration for
Portola and obtain a transaction which is in the best interests of Portola and its stockholders;
F.
Directing defendants to account to Plaintiff and the Class for damages sustained
because of the wrongs complained of herein;
G.
Awarding Plaintiff, the costs of this action, including reasonable allowance for
Plaintiff’s attorneys’ and experts’ fees; and
H.
Granting such other and further relief as this Court may deem just and proper.
DEMAND FOR JURY TRIAL
Plaintiff hereby demands a jury on all issues which can be heard by a jury.
Dated: June 3, 2020
BRODSKY & SMITH, LLC
By:
Evan J. Smith, Esquire (SBN 242352)
esmith@brodskysmith.com
Ryan P. Cardona, Esquire (SBN 302113)
rcardona@brodskysmith.com
9595 Wilshire Blvd., Ste. 900
Phone: (877) 534-2590
Facsimile (310) 247-0160
Attorneys for Plaintiff
| securities |
I9n8D4cBD5gMZwcztWSO | IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF MISSOURI
STEVE GRAHAM, individually and
on behalf of others similarly situated,
Plaintiff,
Case No.
JURY TRIAL DEMANDED
TYSON FOODS, INC.; TYSON
FRESH MEATS, INC.; JBS S.A.; JBS
USA FOOD COMPANY; SWIFT BEEF
COMPANY; JBS PACKERLAND,
INC.; CARGILL, INCORPORATED;
CARGILL MEAT SOLUTIONS
CORPORATION; MARFRIG
GLOBAL FOODS S.A.; and
NATIONAL BEEF PACKING
COMPANY, LLC,
Defendants.
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CLASS ACTION COMPLAINT
Plaintiff Steve Graham, on behalf of himself and all those similarly situated, for his
Complaint against Defendants states:
NATURE OF THE CASE
1. This case arises from Defendants’ unlawful conspiracy to lower the prices they
paid for fed cattle in violation of the Sherman Antitrust Act and the Commodities
Exchange Act. Plaintiff is a cattle farmer in Cherokee County, Iowa who sold fed cattle to
one or more Defendants and has been damaged by Defendants’ anticompetitive and
unlawful conduct.
1
2. Beginning no later than January 2015 and continuing today Defendants conspired
to suppress the price of fed cattle they purchased in the United States. Defendants’
coordinated conduct, including slashing their respective slaughter volumes and
curtailing their purchases of fed cattle in the cash cattle market, caused an unprecedented
collapse in fed cattle prices in 2015. Defendants continued to suppress the price of fed
cattle through coordinated procurement practices and periodic slaughter restraint.
Defendants’ conspiracy impacted both the physical fed cattle market and the market for
live cattle futures and options traded on the Chicago Mercantile Exchange (“CME”).
3. As middle-men in the supply chain, Defendants’ profitability is driven by the
“meat margin,” which is the spread between the price packers pay for fed cattle and the
price they charge for beef. Because the supply of fed cattle is insensitive to short-term
price changes – owing to the long life cycle of fed cattle, their perishable nature, and their
lack of any alternative use – and as beef demand is relatively insensitive to changes in
price, the meat margin is very sensitive to changes in aggregate industry slaughter levels.
Consequently, Defendants can increase their meat margin, and thus their profitability, by
colluding to reduce their respective slaughter volumes, thereby depressing the price of
fed cattle.
4. Because Defendants have not passed on their illicitly-gained lower prices to their
customers (indeed such a pass-through would defeat the purpose of Defendants’
conspiracy) producers and end consumers both lose: producers are deprived of fair price
2
competition at the top of the supply chain, and consumers are unlawfully overcharged at
the bottom of the supply chain. The only parties that win are the large beef packers who
use their collective market power to squeeze both producers and consumers. As the DOJ
has noted, the Sherman Act was enacted to prevent such buying cartels:
The 1890 debates in both houses of the United States Congress
demonstrated concern with the exercise of market power on both the
buying and selling sides of the market. Many legislators singled out large
meat packers for condemnation, and they were condemned as much for
reducing the prices paid to cattle farmers as for raising prices to consumers.
In response, Congress passed the Sherman Act, aimed at preserving free
and unfettered competition as the rule of trade. The Act is comprehensive
in its terms and coverage, protecting all who are made victims of the
forbidden practices by whomever they may be perpetrated.
The Sherman Act prohibits anticompetitive agreements and exclusionary
conduct and both may be found unlawful on the basis of effects on the
buying side of the market. Buyer cartels are unlawful per se and prosecuted
criminally….
One of the earliest Sherman Act cases involved, among other things, a conspiracy
among meat packers to reduce the price they paid for cattle.
Note by the United States at 1, 3 Roundtable on Monopsony and Buyer Power, available
at
https://www.ftc.gov/sites/default/files/attachments/us-submissions-oecd-and-other-
international-competition-fora/monopsony.pdf
(internal
quotations
and
citations
omitted).
5. Fed cattle are steers and heifers raised and fed for the production and sale of beef
products. Defendants are beef packers who purchase fed cattle from Plaintiff and the
Producer Class (defined below) for slaughter. Defendants then process the resulting
3
carcasses into beef for sale to other processers, wholesalers, and retail outlets, as depicted
Cattle and Beef Industry from Breeding to Consumption
U.S. Gov’t Accountability Off., GAO-18-296, U.S. Department of Agriculture: Additional
Data Analysis Could Enhance Monitoring of U.S. Cattle Market (Apr. 2018) (“2018 GAO
Report”), at 6, https://www.gao.gov/assets/700/691178.pdf.
6. Live cattle futures contracts are standardized contracts traded on the CME in
which the contract buyer agrees to take delivery, from the seller, of a specific quantity of
fed cattle, at a predetermined price on a future delivery date.
4
7. Defendants control the U.S. market for the purchase of slaughter-weight fed cattle.
Since 2011, Defendants have slaughtered over 80% of all fed cattle sold within the United
States on an annual basis. The chart below demonstrates Defendants’ overwhelming
market share for the purchase of fed cattle.
Defendants’ Market Share of Annual U.S. Fed Cattle Slaughter Volumes
Cattle
Buyers
Weekly,
“Steer
And
Heifer
Slaughter
Market
Share”,
http://www.cattlebuyersweekly.com/users/rankings/packerssteerheifer.php.
8. Defendants procure most of their fed cattle though alternative marketing
agreements (“AMAs”), such as “formula” and “forward” contracts. Under these
contracts, the producer agrees to deliver its cattle to a Defendant once they have reached
slaughter-weight, at a price to be determined at or around the time of delivery. The price
5
formulas used by formula contracts typically incorporate reported prices of fed cattle sold
in the weekly cash cattle trade, the industry’s spot market. The price formulas used by
forward contracts incorporate live cattle futures prices, which, in turn, are directly
impacted by reported cash cattle prices. As a result, the prices paid for fed cattle in the
cash cattle trade – which constitute a minority of all fed cattle sold in the United States –
determines the price of almost all fed cattle bought by Defendants.
9. Fed cattle prices increased steadily between 2009 and 2014 in response to strong
beef demand and a shortage of fed cattle following the droughts of 2011 through 2013.
After prices peaked in November 2014, the industry expected the price of fed cattle to
stabilize in 2015 and continue at or around that higher level for years.
10. This widely-predicted price stability did not occur. Instead, Defendants used their
market power, price sensitivities, and the thin cash cattle trade to their advantage and
conspired to depress fed cattle prices. Their conspiracy to reduce fed cattle prices, and
thereby increase the meat margin, was carried out through at least the following
coordinated conduct: (1) Defendants periodically reduced their slaughter volumes to
reduce demand for fed cattle; (2) Defendants curtailed their purchase and slaughter of
cash cattle during those same periods; (3) Defendants coordinated their procurement
practices for cash cattle; (4) Defendants imported foreign cattle at a loss so as to reduce
domestic demand; and (5) Defendants, simultaneously, closed and idled plants.
6
11. Defendants’ conspiracy succeeded in precipitating an unprecedented collapse in
fed cattle prices in the second half of 2015 and continued to suppress fed cattle prices
thereafter.
12. Despite the drastic collapse in fed cattle prices caused by Defendants’ conspiracy,
Defendants continued to benefit from record beef prices. This disconnect allowed
Defendants to reap record per-head meat margins during the Class Period at the expense
of fed cattle producers.
13. The market for purchase of fed cattle is highly conducive to collusion for multiple
reasons: the small number of big market beef packers, high barriers to entry, and
frequent, easily accessible means of communication among Defendants, including
through the subscription-only service Express Markets. Defendants’ field buyers had
ample opportunity to meet and exchange commercially sensitive information with each
other every week as they inspected feedlots within their respective territories. Field
buyers routinely communicated “market color” obtained from the field – including
reports of their competitors’ activities obtained from producers – back to their head office
and their firms’ other field buyers through daily conference calls. Defendants were also
members of various trade and industry organizations, which provided additional
opportunities to conspire.
14. On information and belief, Defendants were also each other’s customers,
frequently purchasing and selling each other’s protein products. These transactions and
7
intertwined business operations provide further opportunities to collude, share
competitive information and police the supply restrictions and purchase boycotts
described herein.
15. Trade records and economic evidence all confirm that Defendants expressly
conspired to depress the price of fed cattle bought during the Class Period. Transactional
data and slaughter volume reported by Defendants and published by the USDA all show
the desired impact of Defendants’ conspiracy.
16. The same data demonstrate that Defendants drastically reduced their purchases
of cash cattle during these periods of slaughter restraint. Defendants restrained slaughter
to create a glut of slaughter-ready cash cattle and coerce producers to take lower prices
for their highly perishable product. Doing so not only dropped cash cattle prices, but also
the prices paid under Defendants’ formula and forward contracts. Once Defendants had
broken the cash cattle trade and created a relative supply glut, Defendants collectively
ramped up their cash cattle purchases and reaped supra-competitive profits at the
expense of the producers.
17. In addition, Defendants also engaged in various collusive bidding practices that
further unlawfully suppressed prices. Defendants enforced, through boycott threats, a
“queuing protocol” that significantly limited cash cattle sellers’ ability to generate price
competition among Defendants. Defendants also typically conducted all, or substantially
all, of their weekly cash cattle purchasing during a short 30- to 60- minute window late
8
on Fridays and would adhere to the price established by the Defendant that had opened
the weekly cash cattle trade. Defendants’ bidding practices differed from the practices of
regional packers (a small percentage of the fed cattle purchasers), which bid on and
purchased cash cattle throughout the week during the Class Period.
18. Defendants employed other procurement methods to depress the cash cattle price
reports incorporated directly into their formula contracts and indirectly into their
forward contracts. Import data show that Defendants continued importing large
numbers of live cattle for slaughter from Canada and Mexico, even after it should have
become economically irrational for them to do so. Such conduct would not have been
economically rational but for Defendants’ agreement to curtail their domestic cash cattle
purchases.
19. The economic facts further support the existence of the alleged conspiracy. Supply
and demand drivers of fed cattle prices, and other commonly proffered explanations, do
not explain the 2015 collapse in fed cattle prices. Fed cattle prices have been artificially
depressed every year since January 2015.
20. Because of Defendants’ misconduct, Plaintiff and other producers who sold fed
cattle to Defendants (the “Producer Class”) received significantly lower prices for their
cattle than they would have in a competitive market, and purchasers of live cattle futures
and options (the “Exchange Class”), including Plaintiff, suffered significant harm because
of Defendants’ misconduct.
9
PARTIES
I.
Plaintiffs
21. Plaintiff Graham owns and operates a farming operation with his son in Cherokee
County, Iowa. Mr. Graham has raised and sold approximately 1,500 to 2,500 cattle every
year since 2015. Most of Plaintiff’s sales of fed cattle since 2015 have been to defendant
Cargill. During the Class Period Plaintiff traded futures contracts (through a brokerage
firm) for fed cattle on the CME to manage price risk associated with sales of his fed cattle.
II. Defendants
A. The Tyson Defendants.
22. Defendant Tyson Foods, Inc. (“Tyson Foods”) is a Delaware corporation with its
principal place of business in Springdale, Arkansas.
23. Defendant Tyson Fresh Meats, Inc. (“Tyson Fresh Meats” and collectively with
Tyson Foods, “Tyson” or the “Tyson Defendants”) is a wholly owned subsidiary of Tyson
Foods. Tyson Fresh Meats is a Delaware corporation with its principal place of business
in Dakota Dunes, South Dakota.
24. During the Class Period, the Tyson Defendants shared a unity of corporate interest
and operated as part of a single enterprise in furtherance of the conspiracy that
purposefully directed conduct causing injury to and derived direct benefit from members
of both Classes in the United States and in this District.
10
B. The JBS Defendants.
22. Defendant JBS S.A. (“JBS”) is a Brazilian corporation with its principal place of
business located in Sao Paulo, Brazil.
23. Defendant JBS USA Food Company (“JBS USA”) is a Delaware corporation with
its principal place of business in Greeley, Colorado.
24. Defendant Swift Beef Company (“Swift”) is a Delaware corporation with its
principal place of business in Greeley, Colorado.
25. Defendant JBS Packerland, Inc. (“JBS Packerland”) is a Delaware corporation with
its principal place of business in Greeley, Colorado.
26. Defendants JBS USA, Swift, and JBS Packerland were, throughout the Class
Period, wholly-owned, direct or indirect subsidiaries of JBS. Defendants JBS, JBS USA,
Swift, and JBS Packerland are referred to collectively herein as the “JBS Defendants.”
27. During the Class Period, the JBS Defendants shared a unity of corporate interest
and operated as part of a single enterprise in furtherance of the conspiracy that
purposefully directed conduct causing injury to and derived direct benefit from members
of both Classes in the United States and in this District.
C. The Cargill Defendants.
28. Defendant Cargill, Incorporated (“Cargill”) is a Delaware corporation with its
principal place of business in Wayzata, Minnesota.
11
29. Defendant Cargill Meat Solutions Corporation (“Cargill Meat” and, collectively
with Cargill, the “Cargill Defendants”), a subsidiary of Cargill, is a Delaware corporation
with its principal place of business in Wichita, Kansas.
30. During the Class Period, the Cargill Defendants shared a unity of corporate
interest and operated as part of a single enterprise in furtherance of the conspiracy that
purposefully directed conduct causing injury to and derived direct benefit from members
of both Classes in the United States and in this District.
D. The National Beef Defendants.
31. Defendant Marfrig Global Foods S.A. (“Marfrig”) is a Brazilian corporation with
its principal place of business in Sao Paulo, Brazil. Marfrig is a meat packing
conglomerate with operations around the world and, since June 2018, owns a controlling
interest in National Beef Packing Company, LLC.
32. Defendant National Beef
Packing
Company, LLC (“National Beef”
and,
collectively with Marfrig, the “National Beef Defendants”) is a Delaware limited liability
company with its principal place of business in Kansas City, Missouri.
33. During at least part of the Class Period, the National Beef Defendants shared a
unity of corporate interest and operated as part of a single enterprise in furtherance of
the conspiracy that purposefully directed conduct causing injury to and derived direct
benefit from members of both Classes in the United States and in this District.
12
E. The Defendants Conspired With Each Other.
34. During the Class Period, each Defendant purchased fed cattle in the United States.
In 2017, the Tyson, JBS, Cargill, and National Beef Defendants accounted for 26%, 21%,
22%, 12.5% of the total U.S. fed cattle slaughter, respectively.1 In their 2017 fiscal years,
the Tyson, JBS, Cargill, National Beef Defendants had approximately $14.8 billion, $13.4
billion, $13.1 billion, $7.3 billion, in sales in their respective beef segments.2
35. During the Class Period, each Defendant exploited the relationship between
physical cash cattle and the CME live cattle market and transacted in cattle futures and/or
options at prices they had suppressed.
36. Each Defendant was a co-conspirator with the other Defendants and committed
overt acts in furtherance of the conspiracy alleged herein in the United States and in this
District.
F. Agents and Affiliates.
37. “Defendants” refers to and includes each of the named Defendants’ predecessors,
successors, parents, wholly-owned or controlled subsidiaries or affiliates, employees,
officers, and directors.
1 CBW Market Share.
2 Jefferies 2018 Annual Report at 38; National Cattlemen’s Beef Association “Directions statistics” (2018), at
2, http://www.beefusa.org/CMDocs/BeefUSA/Publications/CattleFaxSection.pdf; Cattle Buyers Weekly;
“Top 30 Beef Packers 2018,” http://www.cattlebuyersweekly.com/users/rankings/beefpackers2018.php
(last accessed May 6, 2019).
13
38. Whenever reference is made to any act, deed, or transaction of any corporate
group, corporation, or partnership, the allegation means that the corporate group,
corporation, or partnership engaged in the act, deed, or transaction by or through its
officers, directors, agents, employees, representatives, parents, predecessors, or
successors-in-interest while they were actually engaged in the management, direction,
control, or transaction of business or affairs of the corporation or partnership.
JURISDICTION, VENUE AND COMMERCE
39. This action arises under Section 1 of the Sherman Act (15 U.S.C. §1), Sections 4 and
16 of the Clayton Act (15 U.S.C. §§ 15, 26), Sections 202 and 308 of the Packers &
Stockyards Act (7 U.S.C. §§ 192, 209), and Sections 2(a), 6(c) and 22 of the Commodity
Exchange Act, 7 U.S.C. §1 et. seq. Plaintiff, on behalf of himself and the Classes, seeks
injunctive relief, compensatory damages, treble damages, and costs, including reasonable
attorneys’ fees.
40. Jurisdiction exists under 15 U.S.C. §§ 15 and 26 to recover damages and equitable
relief for violation of 15 U.S.C. §1. This Court has federal question subject matter
jurisdiction under 28 U.S.C. §§ 1331, 1332(d), and 1337, 15 U.S.C. §§ 15 and 26, and 7
U.S.C. §25.
41. Venue is proper in this District under 15 U.S.C. §§ 15 and 22 and 28 U.S.C. §1391(b),
(c), and (d) because at all times relevant to the Complaint: (a) Defendants transacted
business, were found, or acted through subsidiaries or agents present in this District; (b)
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a substantial part of the events giving rise to Plaintiff’s claims occurred in this District;
and (c) a substantial portion of the affected interstate trade and commerce described
below has been carried out in this District. Specifically:
a. National Beef’s corporate headquarters are in this District, in Kansas City,
Missouri;3 and
b. Defendants purchased fed cattle owned or located in this District,4 including
from members of the Class, processed the resultant beef at plants located in this District,
and/or sold resultant beef products to customers located in this District.5
42. Defendants’ conspiracy and conduct were within the flow of, were intended to,
and did, in fact, have a substantial effect on the interstate commerce of the United States.
During the Class Period, Defendants used the instrumentalities of interstate commerce,
including interstate wires, in furtherance of their illegal scheme.
43. This Court has personal jurisdiction over each Defendant because each Defendant
transacted business, maintained substantial contacts, is located, or its co-conspirators
3 In addition to National Beef being headquartered in this District, the other Defendants have substantial
footprints in this District as well. Tyson has offices and operations in Sedalia (Pettis County) and St. Joseph,
Missouri. JBS also operates in Pettis County. Cargill operates and has offices in Kansas City, Missouri.
4 Feedlots operated in this District during the Class Period include, without limitation: Valley Oaks Steaks
Co. (Johnson County); Circle A Feeders (headquartered in Miller County with operations in Cedar County).
5
See,
e.g.
National
Cattleman’s
Beef
Association,
Directions
Statistics
available
at
https://www.ncba.org/CMDocs/BeefUSA/Publications/CattleFaxSection.pdf (reporting that Missouri had
4,450,000 head of cattle in 2018; identifying National Beef’s multiple operations based in Kansas City,
Missouri; further identifying the 6th largest operation in the Western District of Missouri (Circle A Angus
in Iberia, MO).
15
committed overt acts in furtherance of the illegal conspiracy and manipulation of the
cattle futures and options market, in the United States, including in this District.
Defendants should, therefore, have foreseen the possibility of being brought before this
Court to answer for any illegal acts related to their business conducted here.
44. During the Class Period, all Defendants, both foreign and domestic, engaged in
conduct within the United States related to these allegations. Defendants’ misconduct
was purposefully directed at the United States and was specifically intended to affect the
prices of fed cattle bought within the United States and live cattle futures and options
transacted by the Defendants with U.S. counterparties. Defendants’ acts were acts in
furtherance of the conspiracy that, because they occurred in the United States by
Defendants’ domestic entities, provide specific personal jurisdiction over all conspirators.
45. The conspiracy and the overt acts taken in furtherance of it, were directed at, and
had the intended effect of, causing injury to persons residing in, located in, or doing
business in the United States, including in this District.
46. Defendants’ conspiracy was motivated by profits. As members of the conspiracy,
foreign-based Defendants are liable for acts taken in furtherance of the conspiracy by
domestic Defendants, as well as their own actions taken in the United States, and personal
jurisdiction attaches, regardless of whether some portion of the conduct in furtherance of
the conspiracy might have occurred overseas.
16
OVERVIEW OF THE FED CATTLE MARKET
47. In 2017, roughly 25.8 million fed cattle were slaughtered and processed into beef
products, accounting for 80% of the roughly 32.2 million commercial cattle slaughtered
across the United States.6
48. The cattle production cycle, running from birth to slaughter, typically ranges
between 15 to 24 months, and is the longest of all animals typically raised for meat. Fed
cattle availability varies seasonally, with supplies being more plentiful over the summer
months because most calves are born in the spring.
49. Fed cattle progress through three interrelated sectors before slaughter: cow/calf;
stocking and background.
50. Once cattle reach between around 950 and 1,500 pounds they are marketed,
transported to, and slaughtered at a packing plant operated by a beef packer such as
Defendants. Defendants process the carcasses into various primal cuts that are then
vacuum-packed and boxed for sale to customers of “boxed beef” who process it into cuts
that are ultimately sold to consumers at retail, restaurants, and other foodservice
operations. Customers of boxed beef include foodservice companies such as Sysco and
U.S. Foods and large retailers such as Costco and Sam’s Club.
6 The remaining volume comprised slaughter cows (female cattle that have birthed a calf) and bulls, whose
meat is typically used for lesser quality beef products such as hamburger patties. “2017 Meat & Poultry
Facts, 46th Ed.,” NORTH AMERICAN MEAT INSTITUTE, 2018, at 11 (“2017 Meat & Poultry Facts”).
17
51. Boxed beef is a commodity product, and competition to sell boxed beef is primarily
on price as between boxes of equivalent USDA quality and yield grades. Defendants also
process boxed beef in-house and sell case-ready beef and other value-added products
(e.g., sausages) directly to retailers, restaurants, hospitals, and others at a premium over
boxed beef prices.
52. As a perishable product, most beef sold domestically is sold on short-term
contracts. Some large purchasers purchase some of their beef on “forward” contracts
(where beef is sold before delivery) and other long-term supply agreements.
53. Historically, beef-packing was a high volume, low margin business.7
54. Each Defendant operates a live cattle procurement team, run by a head buyer, who
is supported by “field buyers” who are responsible for territories. Field buyers buy cattle
from feedlots situated inside their territory. They conduct negotiations directly with the
fed cattle producers and their agents within the parameters set by their head buyer.8
55. Each Defendant seeks to procure enough fed cattle to operate its slaughter plants
at its chosen utilization rates without interruption. Weekly plant capacity is determined
both by plant size and the number and length of shifts run in a given week. Defendants’
average cost of production increases if they underutilize their plant capacity.
7 See Amended Complaint, ¶ 24, U.S. v. JBS SA (N.D. Ill., Eastern Division) (08-cv-05992), filed on November
7, 2008 (“U.S. v. JBS Amended Complaint”).
8 Producers commonly delegate marketing authority to the commercial feedlot or to third-party marketing
cooperatives. A small portion of the fed cattle sales to Defendants also occur at public auctions.
18
56. Before the packing industry became consolidated, almost all fed cattle was sold
through the “cash” or “negotiated” cattle trade. Meat packers’ buyers went to feedlots
and auctions and paid a cattle price set each day at the dollar mark where supply and
demand met.
57. By 2015, though, the cash cattle trade had drastically thinned, and now accounts
for a minority of national fed cattle sales. Despite this, the cash cattle trade remains the
industry’s price discovery mechanism and continues to determine the price of fed cattle
bought using “formula” or “forward” contracts – which now constitutes the majority of
fed cattle sales. Under these agreements, commonly referred to as “captive supply”
agreements, producers commit to deliver their cattle to a packer once they have obtained
slaughter-weight at a price to be determined at or around the point of delivery pursuant
to an agreed-upon formula.
58. The price of cattle delivered under formula contracts is determined by reference
to a stipulated measure of cash cattle prices at, or just prior to, the date of delivery. These
contracts commonly incorporate a specified average cash price reported by the USDA
Agricultural Marketing Service’s (“AMS”) Livestock Mandatory Reporting’s (“LMR”)
cattle transaction price summaries.9 Moreover, the price of cattle delivered under forward
contracts is typically established by reference to the price of the live cattle futures contract
9 These price series collate the information Defendants and others are required to submit to the USDA on a
daily and weekly basis regarding their live cattle purchases and deliveries under the Livestock Mandatory
Reporting Act of 1999. The Act imposes similar reporting obligations on packers for their boxed beef sales.
19
settling in the month of or adjacent to the expected delivery date. The price of live cattle
futures contracts is directly impacted by current and expected cash cattle prices. The price
of cash cattle thus sets or drives the price of the bulk of Defendants’ fed cattle purchases,
despite constituting only a small percentage of total fed cattle purchases.10
59. Each Defendant uses captive supply agreements for the bulk of its procurement
needs.
Captive supply agreements have
incentivized and
enabled
Defendants’
suppression of cash cattle prices. The greater a Defendant’s supply of captive cattle, the
less reliant it becomes on participating in the cash cattle trade to procure enough cattle to
operate its slaughter plants at its desired throughput. This, in turn, allows a Defendant to
abstain from purchasing cash cattle when it regards market prices to be too high. All
things being equal, a reduction in demand for cash cattle causes cash cattle prices to drop,
as producers are forced to lower their asking price to attract a buyer willing to purchase
and slaughter the producer’s perishable product. And because cash cattle prices are used
to set the prices paid under formula contracts and directly impact the live cattle futures
prices incorporated into forward agreements, a reduction in cash cattle prices reduces the
price paid by Defendants for cattle bought on such contracts.
60. As the cost of fed cattle constitutes the majority of their costs of production,
Defendants’ profitability is driven by the “meat margin,” which is the spread between
10 The base prices used in negotiated grid contracts are also impacted by changes in cash cattle prices.
20
the price packers pay for fed cattle and the price they charge for beef.11 The meat margin
is very sensitive to changes in industry aggregate slaughter levels, and Defendants can,
through cooperation, increase it. As noted by the U.S. Department of Justice (“DOJ”), “all
else being equal, when the meat Packer industry reduces production levels, feedlots and
cattle producers are paid less for fed cattle because fewer fed cattle are demanded and
customers pay more for [beef] because less is available for purchase. Because the supply
of fed cattle and demand for [beef] are relatively insensitive to short-term changes in
price, even small changes in industry production levels can significantly affect packer
profits.”12 As a result of these sensitivities, Defendants can improve their profitability by
coordinating their respective slaughter levels at or below the prevailing supply of
slaughter-weight fed cattle.
61. As noted by the DOJ: “The major packers obtain significant information about each
other’s past and future output decisions, including the number of days and shifts that
competitors’ plants operate. Information about production levels is obtained by directly
observing plant operation and from third party sources, including USDA reports
showing aggregate industry slaughter of fed cattle. Major packers use this information to
11
Jefferies
Financial
Group
Inc.,
Annual
Report,
(Form
10-K)
(Jan.
10,
2019)
https://www.sec.gov/Archives/edgar/data/96223/000009622319000009/jfg2018113010kcombodoc.htm
(“Jefferies 2018 Annual Report”), at 38 (“National Beef’s profitability is dependent, in large part, on the
spread between its costs for live cattle, the primary raw material for its business, and the value received
from selling boxed beef and other products, coupled with its overall volume.”).
12 U.S. v. JBS Amended Complaint, ¶¶ 26-27.
21
calculate market shares based on output and consider this information when setting their
own production schedules.”13
62. The fed cattle market is highly concentrated. In fact, during the Class Period,
Defendants have collectively purchased and slaughtered between 81 to 85% of the 23 to
27 million fed cattle slaughtered in the United States annually.14
63. During this same period, Defendants’ respective shares of annual fed cattle
slaughter volumes have remained stable despite any yearly variation in slaughter
numbers. The remainder of the U.S.’s fed cattle slaughter capacity is predominantly
provided by regional independent packer businesses such as Greater Omaha and
Nebraska Beef, which typically only operate one plant (the “Regional Packers”).15
DEFENDANTS CONSPIRED TO DEPRESS FED CATTLE PRICES
64. Fed cattle prices increased consistently from 2009 through 2014, peaking in
November 2014 at approximately $170 per hundredweight (“CWT”).16 Market analysts,
13 Id. at ¶ 27.
14 2017 Meat & Poultry Facts at 11; CBW Market Share.
15 Lee Schulz, et al., “Economic Importance of Iowa’s Beef Industry,” IOWA STATE UNIVERSITY (Dec.
2017), https://store.extension.iastate.edu/product/Economic-Importance-of-Iowas-Beef-Industry; and CBW
Market Share.
16 Cattle are typically priced on a live-weight basis (the price per CWT applied to the live-weight of the
animal prior to slaughter, typically immediately prior to delivery) or a carcass-weight or “dressed” basis
(the price per CWT applied to the animal once “dressed,” i.e., slaughtered with its head, hide, and internal
organs removed). References to fed cattle prices in this Complaint are on a live-weight basis unless
otherwise stated. Live-weight and carcass-weight prices typically move together, as both are based on the
expected value of the cattle once slaughtered.
22
such as the USDA Economic Research Service, predicted that the price levels established
in 2014 would continue for a number of years before experiencing a gradual decline.17
Some forecasters even foresaw no drastic change from 2014 prices “barring any outside
market shocks like drought or a U.S. economic recession.”18
65. While Defendants initially benefited from the rise in fed cattle prices because
wholesale beef prices rose in parallel, the meat margin fell to a low of approximately $50
in the months leading up to 2015, sending the packers’ margins into the red.
66. In response, Defendants commenced and/or accelerated their conspiracy to
depress and stabilize the price of fed cattle purchased in the United States. At the heart
of their conspiracy was an agreement to reduce and then manage their respective
slaughter volumes: a classic abuse of monopsony and a classic feature of buying cartels.
Defendants implemented their buying cartel, by, among other conduct, agreeing to: (1)
periodically restrain or reduce slaughter numbers so as to reduce demand for fed cattle;
(2) curtail their purchases of cash cattle during these periods; (3) coordinate their
17 U.S. Dep’t of Agric., OCE-2015-1, Off. of the Chief Economist: USDA Agricultural Projections to 2024,
Interagency
Agricultural
Projections
Committee
(February
2015)
at
81,
https://www.usda.gov/oce/commodity/projections/USDA_Agricultural_Projections_to_2024.pdf.
18 “Livestock Monitor, A Newsletter for Extension Staff, ”LIVESTOCK MARKETING INFORMATION
CENTER, STATE EXTENSION SERVICES IN COOPERATION WITH USDA (Jan. 12, 2015), at 2;and
“Cattle
Fax
Predicts
Strong
Prices
to
Remain
in
2015,”
AGWEB
(Feb.
6,
2015),
https://www.agweb.com/article/cattlefax-predicts-strong-prices-to-remain-in-2015-naa-news-release/
(“Analyst[s] . . . expect fed cattle prices averaging in the mid-$150s [per CWT in 2015], slightly higher than
last year. Prices will trade in a range from the near $140 [per CWT] in the lows to near $170 [per CWT] in
the highs in the year ahead.”).
23
procurement practices with respect to the cash cattle they did in fact purchase; (4) import
foreign cattle to depress demand for cheaper domestic cattle; and (5) close or idle
slaughter plant and refrain from expanding their remaining slaughtering capacity.
I.
Defendants Agreed to Coordinated Slaughter Reductions.
67. On information and belief, Defendants agreed to periodically reduce slaughter
volumes in response to actual or anticipated rises in fed cattle prices during the Class
68. On information and belief, on multiple occasions, beginning in or around 2015,
Defendants agreed to collectively reduce their slaughter volumes in response to rising
fed cattle prices.
69. The purpose of the agreed slaughter reductions was to force cattle producers (in
particular, cash cattle producers) to feed their cattle for longer periods, and in doing so,
create a condition of oversupply that would force producers to either accept lower cash
prices for their cattle or commit their cattle in advance on captive supply agreements. Put
another way, by creating and encouraging fear for producers that they might not be able
to “get their cattle dead,” Defendants aimed to increase their collective leverage over
producers because once cattle are fed beyond their ideal slaughter-weight, producers face
increasing pressure to drop their prices to get rid of their highly perishable cattle.
70. On information and belief, the slaughter reduction varied from plant to plant,
depending on, among other things, their slaughter capacity and the supply of fed cattle
24
in the surrounding region. Slaughter plants appear to have implemented Defendants’
agreement through planned and unplanned maintenance shutdowns, as well as
deliberately reducing slaughter output below slaughter capacity.
71. On information and belief, Defendants’ agreement extended to proportionate
slaughter reductions designed to suppress seasonal rises in fed cattle prices, such as those
traditionally experienced in the late winter/early spring, and in the fall.19
II. Defendants Agreed to Slash Cash Cattle Purchases During Slaughter Reductions.
72. To further depress cattle prices, Defendants–on information and belief–agreed to
drastically reduce their purchase of cash cattle during periods of agreed slaughter
reduction or restraint. When doing so, Defendants could still obtain the cattle needed to
satisfy their curtailed kill numbers by leaning on their own cattle and cattle deliverable
under previously-agreed formula and forward contracts.20 And, because Defendants had
successfully thinned the cash cattle trade in the decade preceding 2015, even small
reductions in their cash cattle purchases had an outsized impact on cash cattle demand.
19
See,
e.g.,
Cassie
Fish,
“And
the
Beat
Goes
On,”
THE
BEEF
(Feb.
14,
2019),
https://www.thebeefread.com/2019/02/14/and-the-beat-goes-on-2/. (“Packers also know that February is
typically the lightest slaughter month and even though they are killing more cattle than a year ago – some
plant ‘dark days’ began yesterday as plans to keep the balance between supply and demand are paramount.
Some plants will undertake maintenance or upgrade projects and some will honor holidays such as
Monday’s President’s Day. Others will pull back hours to 36-hour work week.”)
20 See Cassie Fish, “Futures Treading Water; Packers Keep Pressure On” The Beef (Jun. 17, 2015),
https://www.thebeefread.com/2015/06/17/futures-treading-water- packers-keep-pressure-on/ (“The news
is well known this week and the packer has the upper hand. Boxes are higher and margins are black but
packers are keeping kills small. The reliance of packers on captive supply coupled with enormous kill cuts
enabled the packer to buy a limited number of negotiated cattle in June and to buy them cheaper.”).
25
73. By reducing their purchases of cash cattle, Defendants sought to reduce the price
of all cattle by utilizing the link between cash cattle prices and the prices paid under
formula and forward contracts. By reducing their cash cattle purchases for a period of
weeks or months, Defendants could back-up the volume of slaughter-ready cash cattle,
thereby coercing producers to overfeed their cattle and/or accept lower prices or enter
captive supply agreements to timely market their perishable product.21
74. Producers have limited if any meaningful leverage to bid up Defendants in such
circumstances, because if producers don’t accept basis bids22 and thereby add to the
packers’ captive supply, they bear the risk that the cash price will drop.
75. In turn, producers’ incentive to avoid the risk of a price drop creates downward
pressure on the cash price, which in turn creates downward pressure on the formula and
forward contracts.
76. The lower reported cash prices were then incorporated into Defendants’ formula
and forward contacts – the latter via a depression of live cattle future prices – thereby
21
Cassie
Fish,
“Whatever
Happened
to
a
Fair
Fight,”
THE
BEEF
(Nov.
10,
2015),
https://www.thebeefread.com/2015/11/10/whatever-happened-to-a-fair-fight/ (“The conversation is no
longer, what’s cash going to be, but rather, who needs any.... The smaller feeder is left to fight it out. Hoping
he can get a buyer to come by and look at his cattle. Pressured to sell cattle with time. Anything to get cattle
gone. Those that attempt to fight the market run the risk of making cattle too big even by today’s standards
or worse, alienate their local buyer. Powerlessness is widely felt by smaller producers on a regular basis.”).
22 The “basis bid” is a form of most favored nation contract under which the packer agrees to pay the
producer some variant of that week’s top reported cash price, with or without a premium. Defendants used
such bids during the Class Period to further reduce the number of cattle they needed to purchase during
the weekly cash cattle trade, thereby putting further pressure on cash cattle prices.
26
lowering the costs of all the cattle delivered to Defendants’ plants.23 And once a condition
of actual or perceived oversupply had been created, Defendants could gradually increase
their cash cattle purchases (and slaughter volumes) without putting any significant
upward pressure on prices.
77. Defendants’ implementation of their conspiracy precipitated the dramatic collapse
in fed cattle prices in 2015.
III. Defendants Coordinated Their Procurement Practices for Cash Cattle.
78. A third prong of Defendants’ conspiracy involved coordinating how each
Defendant purchased cash cattle.
79. First, Defendants supported their conspiracy by collectively enforcing a queuing
convention via threats of boycott. That convention works as follows: once a bid is
received from Packer A, the producer may either accept the bid or pass. But the producer
may not “shop” that bid to other packers. If the producer passes on the bid to seek further
bids from other packers, the producer must inform them that he was bid “X” by Packer
A and that he can, therefore, only accept bids of X+$1.24 If Packer B is only willing to bid
X or if the producer wants to alter its reservation price, the producer is obligated to first
23 Cassie Fish, “Cash Trade Volume Tiny; Futures Shake it Off,” THE BEEF (Jun. 8, 2015),
https://www.thebeefread.com/2015/06/08/cash-trade-volume-tiny-futures-shake-it-off/
(“A
historically
small number of negotiated fed cattle traded at the eleventh hour late Friday and Saturday at $155-$156,
though the official USDA tally isn’t out yet. But at least at this writing it appears it was enough to price
formulas $4 lower than last week, jerking packer margins back to a positive.”).
24 In certain instances, it may be acceptable to offer/accept bids in $0.50 per CWT increments.
27
return to Packer A, who is “on the cattle” at price X and offer it a right-of-first-refusal.
Only if Packer A declines can the producer offer to sell to Packer B at X or the new
reservation price. At this point, however, Packer B is under no obligation to purchase
from the producer.
80. On information and belief, Defendants enforced strict adherence to this
convention with threats of retaliation. Packer Defendant who were “on the cattle” would
be tipped off as to the producer’s “breach” of the convention by the field buyer whom
the producer contacted out of turn.
81. Second, on information and belief, a Defendant would, for periods of time,
sometimes extending across many months, offer the only bid (or the only credible bid)
for a particular feedlot’s fed cattle (or substantially all its fed cattle) week to week,
ensuring that the feedlots affected could not regularly procure credible bids from the
other Defendants. Buyers for these other Defendants would even routinely fail to take or
return calls from the producer until after the Friday trading window had closed. These
arrangements – akin to a “home-market” market allocation scheme – indicate an
agreement among Defendants to respect each other’s relationships with each Defendant’s
preferred suppliers.
82. Third, Defendants periodically stopped buying cash cattle from feedlots located in
a region for weeks to back-up cash cattle in those regions and break the resolve of
producers to hold-out for higher prices. Having boycotted a region for weeks, Defendants
28
would then begin purchasing cattle from that region again during the same week. When
executing this scheme, Defendants would often seek to initiate their weekly cash cattle
trade in the region recently boycotted. This allowed them to use the lower prices agreed
to in that region to set the “market” for the remainder of the trade. In doing so,
Defendants were able to influence the prices of fed cattle sales across the United States.25
83. Fourth, Defendants suspiciously all chose to reserve most of their weekly cash
trade procurement activity for Friday, typically after the CME had closed. This practice
deprives producers of a price discovery mechanism and limits the ability of producers
who hedge their cattle on the CME to manage their positions in response to the bids
offered by the packers. While the exact time on Friday varied from week to week,
Defendants would consistently conduct all, or substantially all, of their weekly cash cattle
trade during the same 30- to 60-minute window on a Friday. During that window,
Defendants typically adhered to the price level established by the Defendant that opened
the weekly cash cattle trade, which would quickly be circulated across the market via
word-of-mouth and industry reporting. If a Defendant felt it necessary to offer prices
above this price level to secure the cattle it required, it would often hold such bids back
until after the core trading window had closed. This reduced the chance that reports of
such bids might impact negotiations conducted during the core trading window.
25 For similar reasons, Defendants would also, at times, seek to set the market price lower by opening the
weekly trade by purchasing a pen of poor quality cattle at a discount.
29
84. In contrast, Regional Packers continued to purchase cash cattle across nearly every
day of the week, thereby securing pens of high-quality cattle with limited competition.
When operated alongside Defendants’ slaughter restraint and other bidding practices
(outlined above), this practice reduced competition amongst Defendants for cash cattle
to a race to place the first bid on each pen during the Friday cash trade. This deprived
producers of a price discovery mechanism and limited the ability of producers who
hedge their cattle on the CME to manage their positions in response to the bids offered
by the packers.
85. For similar reasons, Defendants would also, at times, seek to set the market price
lower by opening the weekly trade by purchasing a pen of poor-quality cattle at a
discount.
86. Reported cash cattle trade across AMS LMR’s price reporting regions confirms
both that Defendants reduced their participation in the cash cattle trade and that they
conducted the bulk of their cash trading on Fridays.
87. The reported data are consistent with the existence of an agreement among
Defendants to both: (1) limit their purchases of cash cattle; and (2) conduct all, or
substantially all, of their cash cattle trade in a short window on Friday. If any single
Defendant took these actions in the absence of such an agreement, that Defendant would
risk failing to secure a sufficient quantity or quality of cattle to operate its plants at the
most efficient capacity and/or meet customer demand, without any guarantee that its
30
actions would have the desired impact on fed cattle or beef prices. The data are even more
striking when one considers that Regional Packers continued to purchase cash cattle
throughout the week and thus can be regarded as being responsible for the bulk of the
transactions reported mid-week.
88. Defendants’ increased reliance on formula and forward contracts and the
corresponding decrease in the number of cash cattle transactions does not explain the
pattern reflected in the data. While the number of cash cattle bought annually fell
continuously from 2005 to 2015, it was not until 2014/2015 that the data show a dramatic
increase in the number of days without any reported cash transaction. This rise is then
sustained despite a slight increase in cash cattle buying year-on-year in 2016 and 2017.
89. In short, even though cash cattle slaughter numbers increased slightly after 2015,
the number of days per month in which there were no cash cattle transactions also
increased. Consequently, Defendants’ coordinated reduction in the number of days on
which they purchase cash cattle is not explained merely by the decline in the number of
cash cattle purchased annually.
IV.
Defendants Uneconomically Imported Foreign Live Cattle to Depress Demand
for U.S. Fed Cattle.
90. Defendants also engaged in coordinated imports and shipping practices that
reduced demand for domestic fed cattle and suppressed the cash price transaction reports
used to set the price of cattle procured under captive supply agreements. In particular,
Defendants shipped cattle over uneconomically long distances to their slaughter plants,
31
from locations both inside the United States and from Canada and Mexico, to avoid
bidding up the reported price of cattle in closer AMS LMR reporting regions.
91. Given the additional freight costs incurred in procuring fed cattle from Canada or
Mexico, it is only economical for a Defendant to incur the additional costs when the
prevailing price differences against domestic prices exceeded the additional costs. But the
data indicate that Defendants’ imports of live cattle from Canada and Mexico began to
increase slightly in 2014, and continued, even after it became uneconomical for them to
do so in or around mid-2015:26
92. Live cattle imports gradually declined until 2014 when they stabilized and began
a slight upward trend. While such imports were originally economical, considering the
prevailing price differences (adjusted for shipping costs and exchange rates), from mid-
2015 onwards, they were often uneconomical, and became increasingly so as the Class
Period continued. This is particularly the case in relation to Canadian cattle, which
comprised the majority of all live cattle imports for slaughter.
93. On information and belief, procuring Canadian and Mexican fed cattle from mid-
2015 onwards was regularly more expensive than procuring fed cattle from the adjacent
U.S. feeding regions.
94. Such concerted actions are consistent with a conspiracy to depress U.S. fed cattle
cash prices. A Defendant would not incur the additional cost associated with the import
26 On information and belief, Defendants are responsible for the bulk of all live cattle imports for slaughter.
32
and purchase of foreign or extra-regional cattle in the hope of lowering its captive supply
procurement costs unless it knew that its major competitors would do the same thing,
and therefore, also abstaining from bidding up local cash cattle prices.
V. Defendants Agreed Not to Expand Their Slaughtering Capacity.
95. To further their conspiracy to manipulate the fed cattle market, Defendants also
agreed not to expand their respective slaughtering capacity, or to increase their use of
existing capacity. Defendants’ plant closures stripped out millions of head of cattle from
the industry’s annual slaughter capacity, thereby limiting demand for fed cattle. In
relation to each closure, the relevant Defendant offered pre-textual explanations such as
a lack of available cattle in the adjacent regions and plant inefficiencies. National Beef
even rejected a significant package of incentives offered by local government, utilities and
nearby feedlots when it decided to close its Brawley plant 27
96. As a result, the United States has experienced both a decline in fed cattle slaughter
capacity and an underutilization of that lowered capacity. This decline in marketing
outlets for fed cattle producers has been compounded in certain regions, where cattle
producers now only have one, or possibly two, slaughter plants to which they are able to
sell their cattle.
27. “National Beef plant closing Brawley Facility,” PROGRESSIVE CATTLEMAN (Mar. 24, 2014),
https://www.progressivecattle.com/news/industry-news/national-beef-plant-closing-brawley-facility.
33
DEFENDANTS’ CONSPIRACY CAUSED THE 2015 PRICE COLLAPSE
AND SUPPRESSED PRICES THEREAFTER
I.
Defendants’ Conduct Precipitated the Collapse in Fed Cattle Prices in 2015.
97. Defendants’ conspiracy succeeded. Responding to the compression of their
margins in late 2014, Defendants reduced their slaughter volumes, and this reduction had
the desired effect. For the first half of 2015, prices fluctuated at or around $160 CWT, $10
CWT (or about $130 per head) lower than the high established in November 2014.
98. Not satisfied, Defendants embarked on an unprecedented slaughter reduction
during the second and third quarters of 2015. To place further pressure on cattle prices,
Defendants also drastically reduced their purchase of cash cattle, leaning heavily on their
own cattle and other captive supplies to satisfy their curtailed kill numbers.28 Defendants’
strategy was immediately successful, with cash cattle – and thus formula cattle – prices
28 Defendants’ slaughter levels of their own cattle across the second half of 2015 were steady on a year-on-
year basis, as reported by AMS LMR Report “LM_CT153 – National Weekly Direct Slaughter Cattle – Prior
Week Slaughter and Contract Purchases,” https://marketnews.usda.gov/mnp/ls-report-config; see also
Cassie Fish, “Cash Trade Volume Tiny; Futures Shake it Off” THE
BEEF
(June
8, 2015),
https://www.thebeefread.com/2015/06/08/cash-trade-volume-tiny-futures-shake-it-off/
(“A
historically
small number of negotiated fed cattle traded at the eleventh hour late Friday and Saturday at $155-$156,
though the official USDA tally isn’t out yet. But at least at this writing it appears it was enough to price
formulas $4 lower than last week, jerking packer margins back to a positive. Only problem is, packers
weren’t able to secure enough cattle cheaper, even when relying on captives, to easily fill an even curtailed
kill expected this week at 540,000 head. June forward contracts are rumored being called in as a way to
offset the absence of negotiated purchases.”); and Fish, “Futures Treading Water; Packers Keep Pressure
On” (“The news is well known this week and the packer has the upper hand. Boxes are higher and margins
are black but packers are keeping kills small. The reliance of packers on captive supply coupled with
enormous kill cuts enabled the packer to buy a limited number of negotiated cattle in June and to buy them
cheaper.”).
34
falling continuously across June to about $150 CWT.29 Meanwhile, with lower slaughter
volumes and lower boxed beef output, the meat margin expanded rapidly, bloating
Defendants’ margins.
99. Tight fed cattle supplies do not explain Defendants’ reduced slaughter volume.
The available supply of fed cattle increased on a year-on-year basis, reflecting the
continuing rebuild of the cattle herd. Fed cattle inventory was higher in almost every
month of 2015, compared to 2014.
100. Industry analysts noted Defendants’ determination to “break” cash cattle
prices through their collective slaughter reductions and reduced cash cattle purchases.
On June 12, 2015, analyst Cassandra Fish of “The Beef” and formerly a risk manager at
Tyson, pondered when a Defendant might break ranks:
Rarely has this industry segment [the beef packers,] been an all-for-one and
one-for-all group. All packers need to buy cattle inventory. Most have cut
hours. So will someone break ranks, pay up for cattle and add hours to
capture the better realization that the next boxed beef rally will bring? Will
one short a customer only to find that order filled by a competitor?30
101.
Ms. Fish answered her own question in the negative a few weeks later,
remarking on June 25, 2015 that the “packers refuse to reach for cattle and are currently
29 Cassie Fish, “Smack Down,” THE BEEF (June 15, 2015), https://www.thebeefread.com/2015/06/15/smack-
down/ (“Cash cattle prices broke hard Friday as packers successfully executed a strategy of slashed kills
and limited negotiated purchases.”).
30
Cassie
Fish,
“Futures
Holding
Gains;
Waiting
on
Cash,”
THE
BEEF
(June
11,
2015),
https://www.thebeefread.com/2015/06/11/futures-holding-gains-waiting-on-cash/.
35
in command. After 3 weeks of sharply curtailed kills, packers are exhibiting incredible
discipline and letting the kill increase gradually,” limiting the ability “of feeders to get all
cattle marketed in a timely fashion.”31
102.
Defendants tightened the screws during the remainder of 2015. They continued
to restrain their slaughter levels and curtail their purchases of cash cattle even after it
became clear that slaughter-ready cattle had been “backed up” and were reaching
historically heavy weights.32
103.
This was particularly evident in September 2015, when Defendants utilized the
leverage they had gained over producers in the prior months to great effect, pushing
prices down to $120 CWT by months’ end, despite increasing their purchases of cash
cattle. Defendants also demanded extended delivery periods of two to four weeks as a
condition of trade throughout the month, providing them with further leverage over
producers who still had cattle to sell.33 As a result, large numbers of the cash cattle sold
in September were not slaughtered until October.
31
Cassie
Fish,
“Another
Round
of
the
Blues,”
THE
BEEF
(June
25,
2015),
https://www.thebeefread.com/2015/06/25/another-round-of-the-blues/.
32
Cassie
Fish,
“Kills
Too
Small
For
Too
Long,”
THE
BEEF
(Sept.
8,
2015),
https://www.thebeefread.com/2015/09/08/kills-too-small-for-too-long/.
33Cassie
Fish,
“No
bottom
in
sight,”
THE
BEEF
(Sept.
16,
2015),
https://www.thebeefread.com/2015/09/16/no-bottom-in-sight/.
36
104.
As Ms. Fish lamented on November 10, 2015, the “[p]ackers no longer compete
against each other to buy fed cattle each week,” and were consequently reaping
“gangbuster profits.”34
105.
During the second half of 2015, after Defendants embarked on their collusive
reduction in slaughter volume, producer margins were materially reduced, while
Defendants’ margins remained positive.
II. Defendants’ Ongoing Conduct Continues to Depress Fed Cattle Prices.
106.
Following their successful 2015, Defendants continued to limit their collective
slaughter numbers and cash cattle purchases in 2016. While monthly slaughter volumes
for the first three quarters of 2016 were up after 2015’s record lows, they remained flat or
below 2014 levels despite the available supply of fed cattle having risen again.
107.
As a result, the price of fed cattle continued to fall across 2016 to a low of
roughly just below $100 per cwt in mid-October. As in 2015, Defendants responded by
dramatically increasing kill volumes in the fourth quarter of 2016.
108.
Defendants’ success in “backing-up” cash cattle in the summer of 2016 is
confirmed by the fact that Defendants were able to raise cash cattle slaughter levels in the
fourth quarter of 2016 over 2014 and 2015 levels without causing a dramatic rise in
34
Cassie
Fish,
“Whatever
Happened
to
a
Fair
Fight”
THE
BEEF
(Nov.
10,
2015)
https://www.thebeefread.com/2015/11/10/whatever-happened-to-a-fair-fight/.
37
prices.35 While prices increased gradually, the gradual price increase was consistent with
the seasonal rise in fed cattle prices typically experienced in the fourth quarter of each
year as the availability of slaughter-weight cattle declines. But for the glut in slaughter-
ready cattle created by Defendants’ coordinated actions, prices would have risen
significantly higher in response to the Defendants’ dramatic increase in year-on-year
slaughter numbers.
109.
As the cattle herd continued to rebuild, and more fed cattle became available
for slaughter in 2017 and into 2018, Defendants responded accordingly. Having already
reduced their slaughter volumes below historic levels and curtailed their cash cattle
purchases, Defendants told the market they had insufficient capacity to slaughter the
supposed “wall of cattle” due to reach slaughter-weight in the summer of 2018.36
Defendants thus encouraged producers to prematurely sign captive supply agreements
35
See
Cassie
Fish,
“And
it
All
Falls
Down,”
THE
BEEF
(Sept.
27,
2016),
https://www.thebeefread.com/2016/09/27/and-it-all-falls-down/ (“The big carryover of unsold negotiated
cattle from last week has gained negative status as the hours have rolled by, with packers willing and able
to sit back and lower bids to $104, $6 lower than 2 weeks ago and $3 lower than the few that traded Friday
and
Saturday”);
and
Cassie
Fish,
“Despondency,”
THE
BEEF
(Oct.
11,
2018),
https://www.thebeefread.com/2016/10/11/despondency/ (“As if on cue, kills this week are now rumored to
be cutback to 585k-595k, with a cooler cleaning and Saturday kills out. . . . A pull back in the kill with record
packer margins cements the reality that easily and efficiently killing our way through the numbers, which
used to be a reality, isn’t any longer. This makes it difficult for the market to return to fully current
marketing status if there is any slowdown in kill.”).
36 Cassie Fish, “Still Green!?!” THE BEEF (Mar. 27, 2018), https://www.thebeefread.com/2018/03/27/still-
green/ (“The [packers’] mechanical [slaughter] capacity exceeds needs [across Q2 2018]. The limitation
perception is linked to labor. The perception of there being a limitation has created fear and inspired some
cattle feeders to “get in line” by selling [cattle] out-front [i.e., on captive supply agreements].”).
38
to ensure they could “get their cattle dead” before Defendants ran out of “hook” or
“shackle space.”37 At the same time, Defendants managed their respective slaughter
volumes to ensure that their collective demand did not exceed the available supply.38
110.
Defendants’ tactics succeeded. Prices fell during late Winter/Spring 2018,
despite record strong beef demand and tight supplies of slaughter-ready cattle across
March and April. Indeed, prices fell from approximately $129 per CWT at the beginning
of March 2018 to $110 per CWT by the beginning of May 2018. Prices stayed at or around
that mark until mid-November 2018, a significant extension of the one to two-month
summer low typically experienced by the market. And of course, Defendants never did
reach slaughter capacity.39
III.
Defendants Publicly Signaled Their Commitment to Supply Restraint.
111.
Defendants’ joint efforts to periodically curtail slaughter levels to “balance”
their demand to supply are further evidenced by public statements by their senior
37
See
Cassie
Fish,
“Holding
Gain,”
THE
BEEF
(Apr.
18,
2018),
https://www.thebeefread.com/2018/04/18/holding-gains/ (“Cattle feeders, still fearful of growing supplies
in May, June and beyond continue to sell cattle for May at substantially lower prices than current values.”).
38 Cassie Fish, “Futures Trade Both Sides; Cash Poised To Trade Lower,” THE BEEF (Apr. 2, 2018), available
at:
https://www.thebeefread.com/2018/04/02/futures-trade-both-sides-cash-poised-to-trade-
lower/
(“Looking back at March’s fed slaughter rate, it underperformed expectations. . .. Packers appear to have
responded to the tight supply of market-ready cattle in the north by keeping the kill constrained and
margins profitable and stable.”).
39
Cassie
Fish,
“Quiet
Conclusion,”
THE
BEEF
(June
1,
2018),
https://www.thebeefread.com/2018/06/01/quiet-conclusion/ (“As each week goes by in June, the calendar
will take the industry into the heart of one of the most well-advertised “walls” of market-ready cattle in
memory. Now that it is a known fact that the industry can kill 540k head of fed cattle and that demand can
absorb the largest beef production in 10-years, the panic experienced in March seems overdone.”).
39
executives about their firms’ commitment to production restraint and operating a
“margin” rather than a “market share” business. Explicit and implicit in the executives’
statements was the importance of restricting slaughter levels and capacity across the
industry.
112.
For example, commenting on National Beef’s decision to close its Brawley,
California plant on January 31, 2014, Tyson’s COO stated “it is consistent, I guess, with
what we’ve been saying all along, as the calf crop declines and the noncompetitive feedlot
areas or noncompetitive plants or the combination thereof, we’ll probably have to curtail
production ... to some extent, we’ve always felt that - and anticipated something like that
would happen.”40
113.
As prices continued to rise in 2014, JBS director Wesley Mendonca Batista
responded to an analyst’s question as to whether U.S. fed cattle slaughtering capacity
needed to be rationalized by suggesting that JBS’s recent acquisition of XL Foods’ Omaha,
Nebraska plant was probably a mistake, and that slaughtering capacity needed to come
out of California and at least one other U.S. region (“If you want to be balanced you need
to have capacity to be shut there.”).41
114.
Even after fed cattle prices had already collapsed, Tyson’s then-CEO Donald
Smith still publicly stressed the need for further slaughter reductions in August 2015:
40 Tyson Foods Q1 2014 Results Earnings Call Transcript (Jan. 31, 2014), at 4.
41 JBS Q3 2014 Earnings Calls Transcript (Nov. 13, 2014), at 12.
40
“[b]ecause we run for margin and not for market share, we’re not willing to overpay for
cattle and we’ve had to cut back on our hours at our plants resulting in inefficiencies and
added costs. In the short-term, we are negatively impacted, but markets will equilibrate,
and conditions are expected to improve for the long term.”42
115.
JBS’s André Nogueira de Souza went further and publicly praised Defendants’
efforts to reduce industry-wide slaughter capacity through plant closures, noting that it
had left the industry in “a very good position, [to achieve] balance in the industry in 2016,
2017, and 2018.”43
116.
Defendants’ executives knew they needed to tread carefully in their public
exhortations for slaughter restraint, as shown by Tyson’s then-CEO Donnie Smith’s slip
during his discussion of output restraint during Tyson’s Q4 2015 Earnings Call:44
You’ve got relatively low cattle supply, you’ve got too much -- well, not to
say too much, probably not the right way to say it, but you’ve got excess
industry capacity. And that limits our ability to drive margins above the
1.5% to 3%, we think.
117.
Such comments are typical in cartels like Defendants, because the
comments serve to publicly affirm – in euphemistic terms – the conspirators’
private understandings.
42 Tyson Foods Q3 2015 Results Earnings Call Transcript (Aug. 3, 2015), at 4.
43 JBS Q3 2015 Results Earnings Call Transcript (Nov. 12, 2015), at 9.
44 Tyson Foods Q4 2015 Earnings Call Transcript (Nov. 24, 2015).
41
IV.
Economic Analysis Supports the Existence of the Alleged Conspiracy.
118.
Economic data and analysis corroborate the direct and circumstantial evidence
of the alleged conspiracy. In particular, data and analysis confirm that: (a) the collapse in
fed cattle prices in 2015 cannot be explained by common supply or demand drivers; (b)
from at least January 1, 2015, fed cattle prices were artificially depressed; and (c) other
explanations potentially offered for the 2015 price collapse do not withstand scrutiny.
A. Supply and Demand Drivers Do Not Explain the 2015 Price Collapse or
Subsequent Low Prices
119.
The prices for fed cattle bought across the United States followed a discernible
pattern: increasing consistently from 2009 through 2014 (accounting for seasonal
fluctuations in prices), collapsing dramatically in 2015, and then stabilizing below the
prior trend line.
120.
Seasonal changes do not explain the dramatic depression of fed cattle prices
during the Class Period. Historically fed cattle prices tend to gradually rise during the
first quarter until the early part of the second quarter, peaking in March or April. Prices
then tend to trend downwards to a summer low typically established in June or July,
before commencing an upward trend that typically peaks in November. 45
45 “Annual and Seasonal Price Patterns for Cattle,” CORNHUSKER ECONOMICS, University of Nebraska-
Lincoln (Aug. 19, 2015), https://agecon.unl.edu/cornhusker-economics/2015/annual-and-seasonal-price-
patterns-for-cattle.
42
121.
Fed cattle producers’ main cost – purchasing feeder cattle – also increased and
decreased during this period. But the decline in feeder cattle costs did not occur until
after fed cattle prices collapsed in 2015.46
122.
That a decline in the fed cattle producers’ costs did not cause the 2015 decline
is evident when one compares fed cattle prices to fed cattle producers’ total costs.
123.
In fact, during 2015, when fed cattle prices underwent a drastic decline, the
costs borne by fed cattle producers increased. Specifically, from January 2015 to January
2016, fed cattle prices in Iowa and Minnesota, for example, decreased by approximately
20.7%, whereas input costs increased by approximately 2.6%.47
124.
Because of this dramatic disconnect between fed cattle prices and input costs,
fed cattle producers suffered their largest losses in 30 years during 2015 and 2016.
125.
While fed cattle producers enjoyed a profitable 2017, this was largely due to a
significant drop in the input costs associated with fed cattle marketed during that year,
and in particular, the price of feeder cattle. Defendants were able to constrain the typical
seasonal rise in fed cattle prices across the first half of 2017 and continued to profit from
historic margins.
46 See Iowa State University’s estimate of the break-even price (i.e., the cost) associated with feeding a 750-
pound yearling to a market weight of 1,250 pounds. Ag Econ Department, Cooperative Extension Service,
Iowa
State
University,
“Estimated
Livestock
Returns”
available
at:
http://www2.econ.iastate.edu/estimated-returns/.
43
126.
Nor do changes in beef demand or consumer preferences explain the
depression of fed cattle prices. While there was a 5.67% decline in retail beef prices from
January 2015 to January 2016, prices rebounded in the months that followed, before going
down, then up again thereafter. Importantly, the spread between retail beef prices and
fed cattle prices continued its gradual increase, consistent with its upward trend during
the past 20 years, suggesting beef demand remained robust. 48
Monthly Beef Demand Indices, Jan. 1988 – Oct. 201749
127.
What changed in 2015 was the meat margin. The meat margins realized by
Defendants in the aftermath of the 2015 price collapse – which at times exceeded $600 per
head – were historically unprecedented.
48 USDA, Economic Research Service (“ERS”), “Meat Price Spreads,” accessed May 3, 2019 at
https://www.ers.usda.gov/data-products/meat-price-spreads/.
49
“Assessing
Beef
Demand
Determinants”
(Jan.
18,
2018),
pp.
13-14,
available
at:
https://www.beefboard.org/news/files/FY2018/Assessing%20Beef%20Demand%20Determinants_FullRe
port.pdf.
44
B. Other Explanations for the Drop in Fed Cattle Prices Do Not Withstand Scrutiny
128.
The United States Government Accountability Office’s (“GAO”) 2018 Report
suggests potential explanations for the price collapse proffered by Defendants and others.
These explanations, however, are not borne out by the facts.
129.
For example, the GAO Report mentions that the droughts of 2011-2013 might
have reduced the availability of forage to raise calves and feeder cattle, leading ranchers
to reduce cattle inventory.50 Under this explanation, ranchers expanded their inventory
once the drought eased, thereby oversupplying the market and causing prices to crash.
Any oversupply of feeder cattle, though, should have caused a collapse in the price of
feeder cattle, which did not happen until well after fed cattle prices had collapsed
130.
It has also been suggested that the increase supply of corn seen in the aftermath
of the 2011-2013 droughts encouraged fed cattle producers to feed their cattle for longer
than they typically would. The resulting fatter cattle then received lower prices per CWT,
as is customary. This premise is faulty: The majority of producers did not choose to
overfeed their cattle but were forced to do so by Defendants’ coordinated slaughter
restrictions.
131.
Finally, the strengthening of the U.S. dollar in 2014 and potentially related
changes in the volume of U.S. imports and exports of live cattle and beef also cannot
50 2018 GAO Report at 12.
45
explain the price collapse.51 These events were not even in lock-step with the collapse in
fed cattle prices in the second half of 2015. In fact, during the second half of 2014, when
net imports of beef and the U.S. dollar were increasing, fed cattle prices still increased to
their November 2014 peak. In the first half of 2015, net imports were transiently around
8% of total U.S. production, but by November 2015 – when fed cattle prices had bottomed
out – net imports of beef had turned slightly negative.
THE FED CATTLE MARKET IS CONDUCIVE TO COLLUSION
132.
The structure and characteristics of the market for the purchase of fed cattle
make the market highly susceptible to collusion. These facts, when considered against
the backdrop of Defendants’ actions that are consistent with collusion and inconsistent
with the proper functioning of a competitive market, support an inference of the
anticompetitive agreement alleged herein.
I.
The Fed Cattle Packer Industry Is Highly Consolidated and Highly Concentrated.
133.
The Fed Cattle Packer industry is highly concentrated.52 Since JBS’s acquisition
of Smithfield Beef Group, Inc. in 2008, Defendants’ cumulative share of annual purchases
51 Id. at 14.
52 The U.S. national four-firm concentration ratio (CR4) for beef packers rose from 25% in 1977 to 71% in
1992, the first year in which the national Herfindahl-Hirschmann Index (“HHI”) exceeded 1800. Since that
time, the HHI index for the industry has only increased, particularly in certain regions. U.S. v. JBS Amended
Complaint, ¶ 36-37; Cai, Stiegert, and Koontz, Regime Switching and Oligopsony power: the case of US
beef processing, Food System Research Group, Working Paper Series, (2010 Cai, X., K. W. Stiegert, and S.
R. Koontz. “Oligopsony Fed Cattle Pricing: Did Mandatory Price Reporting Increase Meatpacker Market
Power?” Proceedings of the NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting,
and
Market
Risk
Management.
Available
at
http://www.farmdoc.illinois.edu/nccc134/conf_2011/pdf/confp24-11.pdf.
46
of U.S. fed cattle has approximated 81-89% each year, with each Defendant’s individual
share of annual purchases remaining largely static. No Regional Packer possesses a
double-digit market share, with Greater Omaha, Defendants’ nearest rival, maintaining
a 2.5-3.5% market share through its Omaha, Nebraska plant. Unsurprisingly, the GAO’s
2018 Report found that lower “packer competition in any given area was associated with
lower fed cattle prices in that area.”53
II. The Supply of Fed Cattle and Demand for Beef Are Relatively Insensitive to Short-
Term Changes in Price
134.
Recent studies have shown that the quantity of beef U.S. consumers purchase
has become less sensitive to changes in beef prices, and the impact of such price changes
on beef demand is small relative to other factors.54 Beef’s own price elasticity for the
period 2008-2017 was estimated at -0.479, indicating that a “10% price increase would
reduce [beef] demand by 4.79%.”55 As a result, Defendants are incentivized to reduce fed
cattle slaughter and beef production, as neither they, nor their immediate customers, are
harmed by the resulting wholesale and retail price increases.
53 2018 GAO Report at 15-16.
54 Glynn Tonsor, Jason Lusk, Ted Schroeder, “Assessing Beef Demand Determinants” (Jan. 18, 2018), at 7-
9,
www.beefboard.org/news/files/FY2018/Assessing%20Beef%20Demand%20Determinants_
FullReport.pdf.
47
135.
Further, as noted above, reduced slaughter volumes and/or lower fed cattle
prices are unlikely to significantly alter the immediately available supply of fed cattle.
Because of cattle’s comparably long life cycle, cattle producers typically require about 39
months to alter supply levels once a decision has been made to increase production.56 As
a result, fed cattle supplies are relatively insensitive to short-term price changes,
particularly given the absence of a substitute market into which fed cattle producers can
sell their cattle.
III.
Fed Cattle Producers Face Significant Market Access Risk
136.
As perishable commodities, producers face significant pressure to sell their
cattle within weeks of reaching slaughter-weight.57 As noted by Grain Inspection, Packers
and Stockyards Administration (now a part of the AMS), “[c]attle held beyond the
optimal marketing period begin to decrease in value because of excessive fat gain and the
rising cost of gain.”58 Further, continuing to hold slaughter-weight cattle increases the
risk of death loss, which elevates after cattle spend more than 5-6 months in the feedlot.59
56
Tyson
Foods
Inc.
“Investor
Fact
Book
–
Fiscal
Year
2017”
(2018),
at
10,
https://s22.q4cdn.com/104708849/files/doc_factbook/Tyson-Foods-FY17-Fact-Book-(rev-042518).pdf
(“Tyson 2017 Fact Book”); 2018 GAO Report at 5.
57 RTI International, “GIPSA Livestock and Meat Marketing Study, Vol. 3: Fed Cattle and Beef Industries,”
prepared for U.S.D.A. Grain Inspection, Packers and Stockyard Administration (2007), at 5-4,
https://www.gipsa.usda.gov/psp/publication/livemarketstudy/LMMS_Vol_3.pdf (“RTI International”).
59 David Cooper, “Feed yard data reveals higher death losses,” PROGRESSIVE CATTLEMAN (Dec. 24,
2015), https://www.progressivecattle.com/topics/herd-health/feedyard-data-reveals-higher-death-losses.
48
137.
These facts, coupled with the absence of a substitute market to sell fed cattle,
expose fed cattle producers to market access risk, namely “the availability of a timely and
appropriate market outlet.”60
138.
That risk and the leverage it provides to Defendants is exacerbated by the
significant information asymmetry faced by producers vis-à-vis Defendants regarding
the available supply of fed cattle and Defendants’ procurement needs. Producers have
only limited information concerning the supply of fed cattle beyond the information
conveyed by the USDA’s Cattle on Feed Reports. By contrast, Defendants can construct
detailed inventories of upcoming fed cattle supplies through their regular contacts with
all the fed cattle producers situated within their respective procurement territories.
139.
The impact of market access risk on the parties’ relative bargaining power is
meaningful. As demonstrated by Defendants’ threats regarding 2018’s supposed “wall of
cattle,” the mere use of coordinated threats of increased market access risk can be
sufficient to coerce producers to commit cattle to captive supply agreements or accept
lower cash prices.
IV.
There Are Many Trade Organizations and Opportunities for Defendants to
Meet and Collude
140.
Defendants’ management and employees have regular opportunities to meet
and collude through their membership in various trade and industry associations,
60 RTI International at 5-4.
49
including: the National Cattlemen’s Beef Association (“NCBA”); the U.S. Meat Export
Federation (“USMEF”); the Global and U.S. Roundtables for Sustainable Beef (“USRSB”)
and the North American Meat Institute (“NAMI”).
141.
For example, the NCBA holds an annual convention (known as “CattleCon”),
a summer conference, a legislative conference, and regional meetings.61 The NCBA
Product Council, which includes Defendants, other packers, and certain retailers and
restaurants, meets quarterly for the Beef Executive Forum, an invitation-only event.62
142.
Similarly, the USMEF – a trade association that develops export opportunities
for U.S. protein producers and whose leadership includes current and former employees
and officers of Defendants – holds both spring and fall conferences and monthly
international trade shows.63
143.
The NAMI – which is a national trade association that represents companies
that process 95% of red meat – conducts a series of annual conference and educational
workshops across the country.64
61
NCBA Allied Industry Membership, NAT’L CATTLEMEN’S BEEF ASS’N (2019),
www.beefusa.org/CMDocs/BeefUSA/AboutUs/2019NCBA%20Allied%20Industry%20Brochure.
pdf; https://us13.campaign-archive.com/?u=3ac0220907d479b33ff07dbbc&id=1d27f4a1b7.
63 See https://www.usmef.org/usmef-events/
64
See
About
NAMI,
NAT’L
AM.
MEAT
ASS’N
(2019),
https://www.meatinstitute.org/index.php?ht=d/sp/i/204/pid/204; Events, NAT’L AMERICAN MEAT
ASS’N (2019), https://www.meatinstitute.org/index.php?ht=d/sp/i/10422/pid/10422.
50
V. Defendants Benefit from High Barriers to Entry
144.
Defendants benefit from substantial barriers to entry into the market. Because
of these barriers, the entry of new fed cattle slaughter businesses, or the repurposing of
existing cow and bull slaughter facilities, is unlikely despite any decrease in the price of
fed cattle or increase in the wholesale price of beef. Construction of large-scale fed cattle
packing facilities require an upfront investment of over $250 million and take years to get
online due to permitting, planning, designing and building requirements.65
145.
The construction of smaller plants, with capacity to slaughter 1,000 - 1,500 head
per day, takes a similar period of time and costs at least $150 million.66 Re-purposing an
existing plant, or reopening a similar sized, but previously shuttered, plant costs many
millions of dollars.
146.
Aside from the costs and time associated with opening a plant, new entrants
face difficulties complying with a significant volume of regulations, finding and training
a workforce of between 1,500 to 3,000 staff, and finding marketing outlets for the resultant
65 U.S. v. JBS Amended Complaint, ¶41.
66
Amanda Ranke, “What’s
the Future For Northern Beef Packers?” BEEF (July
22, 2013),
www.beefmagazine.com/blog/whats-future-northern-beef-packers; Press Release.
51
147.
Given these substantial barriers, it’s unsurprising recent years have seen the
failure of new or re-launched independent fed cattle Packer businesses, including
Northern Beef Packers and Kane Beef.67
DEFENDANTS HAVE SIMILAR COST STRUCTURES AND HAVE SIGNIFICANT OVERSIGHT OF
EACH OTHER’S PRICE AND PRODUCTION DECISIONS
148.
Because of their similar cost structures, Defendants have limited ability to steal
market share from each other by operating with compressed meat margins (i.e., bidding
high for cattle and asking low for beef). But also because of their similar costs, Defendants
have a common interest in manipulating the meat margin to extract increased profits
from their existing market shares.
149.
Defendants’ field buyers’ weekly trips to inspect the feedlots in their territory
provide an opportunity to meet and exchange commercially sensitive information. On
information and belief, field buyers routinely share “market color” obtained from the
field, including reports of their competitors’ activities obtained from producers, back to
their respective head offices and their firm’s other field buyers through daily conference
67
Amanda Radke, “What’s the Future for Northern Beef Packers?” BEEF (July 22, 2013),
www.beefmagazine.com/blog/whats-future-northern-beef-packers; Dirk Lammers, “Aberdeen beef plant
open again and slaughtering” CAPITAL JOURNAL (Nov. 19, 2015), www.capjournal.com/news/aberdeen-
beef-plant-open-again-and-slaughtering-cattle/article_b0a76552-8f0b-11e5-aab0-4747ca2759bc.html;
Greg
Henderson,
“Kane
Beef
Now
under
Court
Receivership,”
DROVERS
(Oct.
16,
2018),
www.drovers.com/article/kane-beef-now-under-court-receivership.
52
150.
These realities, combined with widespread formal and informal reporting of
fed cattle and beef bids, transactions and volumes, and each slaughter plant’s current and
planned output, enable Defendants to monitor each other’s adherence to any
anticompetitive agreement. The purchasing dynamics of the fed cattle market, with its
weekly cash trade, also provide Defendants with the ability to punish any suspected non-
compliance with such an agreement.68
DEFENDANTS ARE RECIDIVISTS WITH A HISTORY OF COLLUSION
151.
The conduct of Defendants alleged herein is consistent with their previous use
of production restraint to increase the price of other commodities such as broiler chicken
and pork. JBS and Tyson maintain significant market shares in both the broiler chicken
and pork processing markets. Cargill was the fourth largest U.S. pork processer until it
sold its pork business to JBS in October 2015.
152.
Broiler chicken and pork processers, including JBS and Tyson, are alleged to
have engaged in a series of synchronized production cuts or restrictions designed to raise
wholesale prices. The broiler chicken processors have also allegedly manipulated the
“Georgia Dock” price benchmark – a self-reported benchmark commonly used by market
participants to set wholesale chicken prices.
68 Research shows that markets, such as the fed cattle market, where many sellers make repetitive sales to
a small group of purchasers, facilitate the formation and maintenance of price-fixing agreements as they
provide opportunities for the purchasers to agree, sustain and enforce market sharing arrangements. See,
e.g., “Price Fixing, Bid Rigging, and Market Allocation Schemes: What They Are and What to Look For,”
U.S.
DEPARTMENT
OF
JUSTICE,
ANTITRUST
DIVISION,
www.justice.gov/atr/public/guidelines/211578.htm.
53
153.
In both cases, like here, the participants publicly called on each other to
maintain supply discipline.
154.
Government investigations69 and civil litigation70 regarding the processers’
alleged conspiracies are ongoing. At least one defendant, Fieldale Farms, opted to settle
with plaintiffs in the broiler class claims.71
155.
In addition, Defendants have a long history of other misconduct, spanning
breaches of the Packers & Stockyards Act as well as antitrust, anti-corruption,
environmental, health and safety regulation, both domestic and foreign.
MANIPULATION OF LIVE CATTLE FUTURES AND OPTIONS
156.
Live cattle futures have traded on the CME since 1964. Live cattle options have
traded on the CME since 1984.72 Both contracts, which are important tools used by
producers such as Plaintiff to manage the risks associated with their businesses, were
impacted by Defendants’ conspiracy.
69 The Antitrust Section of the Florida Attorney General’s office opened an investigation into the broiler
chicken processors’ alleged anticompetitive practices, and the Georgia Department of Agriculture has
suspended the Georgia Dock price index.
70 In re Broiler Chicken Antitrust Litig., No. 16-cv-08637 (N.D. Ill.) and In re Pork Antitrust Litig., 18-cv-1776
(D. Minn). The U.S. District Court for Northern District of Illinois held that the broiler chicken processors’
customers had alleged sufficient facts to plausibly suggest that defendants’ conduct was the product of a
conspiracy. See In re Broiler Chicken Antitrust Litig., 290 F. Supp. 3d 772 (2017) (“Defendants’ business
strategies during the relevant time period are indicative of a conspiracy.”).
71 Order Granting Final Approval of Settlement with Defendant Fieldale Farms Corporation, In re Broiler
Chicken Antitrust Litig., No. 16-cv-08637 (N.D. Ill.), Nov. 16, 2018, Docket #1414.
72
Historical First Trade Dates, CME, https://www.cmegroup.com/media-room/historical-first-trade-
dates.html.
54
I.
Futures and Options Generally
162.
A commodity futures contract is a standardized bilateral agreement for the
purchase and sale of a commodity – like fed cattle – at a specified time. In this context, a
commodity is the underlying product on which a futures contract is based.
163.
A futures contract involves an exchange (in this case, the CME) acting as a
central clearinghouse that guarantees both sides of the transaction, thereby eliminating
counterparty risk. The buyer of a futures contract is typically considered a “long,” whose
position will increase in value as the underlying physical or cash market price increases.
The seller of a futures contract is typically considered a “short” whose position will
increase in value as the underlying physical or cash market price decreases.
164.
Rather than take delivery, futures market participants almost always “offset”
their futures contracts before actual delivery. For example, a purchaser of one live cattle
futures contract may liquidate, cancel, or offset a future obligation to take delivery of the
cattle by selling one live cattle futures contract. The difference between the initial
purchase price and the subsequent sale price represents the realized profit or loss for the
165.
An options contract comes in two forms: a “call option” and a “put option.”
The buyer of a call option has the right (but not the obligation) to purchase the underlying
asset at a set price (the “strike price”). The seller of the call option (the “writer”) has the
obligation to deliver the underlying asset at the strike price if the buyer exercises its right.
55
The buyer of a put option has the right (but not the obligation) to sell the underlying asset
at a set price (the “strike” or “exercise” price). The seller of a put option has the obligation
to buy the underlying asset at the strike price if the buyer exercises its right.
A. Live Cattle Contracts
166.
When fed cattle have reached slaughter-weight, they are referred to as “live,”
“finished,” or “fat” cattle. Fed cattle can be distinguished from “feeder cattle”, which
refers to fed cattle that weigh between 700-900 pounds and have yet to enter the feedlot.
Live cattle, for purposes of CME live cattle futures contracts, weigh no less than 1,050
pounds and no more than 1,550 pounds (or 1,350 pounds for heifers).
167.
Trading in CME live cattle futures and options is subject to the rules and
regulations of the CME, including Chapter 10173 (live cattle futures), Chapter 101A74
(options on live cattle futures), and Chapter 101B75 (options on live cattle futures calendar
spreads) of the CME Rulebook.
168.
CME live cattle futures and options are traded electronically on CME’s Globex
electronic trading platform. While both live cattle futures and options were also traded
in CME’s “open outcry” trading pits at the beginning of the Class Period, only live cattle
options continued to be so traded after the CME’s decision to close down most of its
futures trading pits in July 2015.
73 CME Rulebook, CME, https://www.cmegroup.com/rulebook/CME/ (“CME Rulebook”), Chapter 101.
74 CME Rulebook, Chapter 101A.
75 CME Rulebook, Chapter 101B.
56
1. Live Cattle Futures
169.
Chapter 101 of the CME Rulebook sets forth the rules for trading in CME live
cattle futures–including contract size, trade dates, and tick sizes–as well as deliveries on
CME live cattle futures contracts, including, for example, weight deviations, location
differentials, and delivery points.
170.
One live cattle futures contract calls for the delivery of 40,000 pounds of live
cattle producing 65% Choice, 35% Select USDA grade of live steers or live heifers.76
171.
Live cattle futures prices are quoted in cents per pound. The minimum tick size
is $0.00025 per pound (or $10 per contract).77 A one penny ($0.01) change in the per pound
price results in a $400 change in the contract price.
172.
Live cattle futures trade for the following contract months: February, April,
June, August, October, and December. Nine contract months are eligible for trading at
any given time. They include the six upcoming contract months and the next three
contract months in the calendar cycle.78 For example, in May 2019, the following contract
months were eligible for trading: June 2019, August 2019, October 2019, December 2019,
76 CME Rulebook, Chapter 101, Rules 10101, 10102.B.
77 Live Cattle Futures Contract Specs, CME,
https://www.cmegroup.com/trading/agricultural/livestock/live-cattle_contract_specifications.html.
78 Live Cattle Futures Quotes, CME, https://www.cmegroup.com/trading/agricultural/livestock/live-
cattle_quotes_globex.html.
57
February 2020, April 2020, June 2020, August 2020, and October 2020. Trading continues
until the last business day of the given contract month at 12:00 p.m.79
173.
Live cattle futures are “physically” settled. This means the buyer of a live cattle
future has a right to receive (and the seller of a live cattle future has the obligation to
deliver) 40,000 pounds of cattle per contract.80
174.
Buyers may choose either live graded deliveries or carcass graded deliveries.81
Deliveries of live cattle are to be made at approved delivery points at approved livestock
yards in the following territories: Colorado; Iowa / Minnesota / South Dakota; Kansas;
Nebraska; Texas / Oklahoma / New Mexico.82 Buyers electing carcass graded delivery
must specify an approved slaughter plant enumerated by the CME. Eligible slaughter
plants include those enumerated for the livestock yards to which the cattle were tendered,
and any other approved slaughter plant that is within 225 road miles of the originating
feedlot.
175.
A live delivery unit must consist entirely of steers or entirely of heifers.83 All
cattle are required to be healthy,84 and all cattle must be born and raised exclusively in
the United States.85
80
Self-Study Guide to Hedging with Livestock Futures and Options, CME, (Version 17), at 7,
https://www.cmegroup.com/trading/agricultural/files/AC-215_SelfStuy_GuideNYMEX.pdf.
81 CME Rulebook, Chapter 101, Rules 10103.B (live graded), 10103.C (carcass graded).
82 Id., Rule 10103.B.
85 Id. Rule 10101.
58
2. Live Cattle Options
176.
Chapter 101A of the CME Rulebook outlines the specifications for live cattle
options. The asset underlying a live cattle option is a live cattle futures contract. A live
cattle option permits the holder to buy, in the case of the call, or to sell, in the case of the
put, one live cattle futures contract. Live cattle options trade in cents per pound. The
minimum price fluctuation is $0.00025 per pound.86
177.
Live cattle options trade in the following contract months: February, April,
June, August, October and December.87 At any given time, ten contract months trade, the
six months in the February bi-monthly cycle, plus the three next in that cycle in the
following year, as well as one nearby “serial” month of January, March, May, July,
September, or November.88 Trading in live cattle options ends on the first Friday of the
contract month at 1:00 p.m.89
178.
For monthly options that expire in the February bi-monthly cycle (i.e.,
February, April, June, August, October, and December), the underlying futures contract
is the futures contract for the month in which the option expires. For example, the
underlying futures contract for an option that expires in February is the February futures
contract.90
86 Live Cattle Options Contract Specs, CME,
https://www.cmegroup.com/trading/agricultural/livestock/live-cattle_contractSpecs_options.html.
90 CME Rulebook, Chapter 101A, Rule 101A01.D.
59
179.
For monthly options that expire in months other than those in the February bi-
monthly cycle (i.e., January, March, May, July, September, and November), the
underlying futures contract is the next futures contract in the February bi-monthly cycle
that is nearest to the expiration of the option. For example, the underlying futures
contract for an option that expires in January is the February futures contract.
180.
Live cattle options are “American style,” meaning that the option holders can
exercise their options at any point before trading expires.91
181.
In addition, CME lists “live cattle calendar spread options,” where the option
is to buy (a call), or to sell (a put), one live cattle futures calendar spread.92 A live cattle
futures calendar spread option consists of a combination of a purchase in one futures
contract month and a sale in another futures contract month.93 Unlike American style
options, these options can only be exercised on the day of expiration.94
II. Relationship Between Live Cattle Futures and Cattle Spot (Cash) Prices
182.
There is a strong relationship between live cattle futures and the fed cattle cash
market. As CME observes, “livestock cash prices and futures prices tend to move up and
down together, which is what makes the concept of effective hedging possible.”95
91 Id., Rule 101A02.A.
92 CME Rulebook, Chapter 101B, Rule 101B01.
94 Id., Rule 101B02.
95
INTRODUCTION
TO
LIVESTOCK:
Learn
about
Basis:
Livestock,
CME,
available
at
https://www.cmegroup.com/education/courses/introduction-to-livestock/learn-about-basis-
livestock.html.
60
183.
As the CME has recognized, livestock (including live cattle and feeder cattle)
contract specifications are designed to ensure “a two-way relationship between the
benchmark livestock futures market and the numerous livestock cash markets. The price
that is discovered in a futures market comes from the interaction between the supply
(sellers’ offers) and demand (buyers’ bids).”96 Many futures market “bids and offers come
from cash market participants.”97
184.
“In turn, the futures contract price is then used by cash market participants to
transact in the spot (current) market or for cash forward type contracts.”98 The
relationship between the cash market and the futures market is particularly strong with
respect to live cattle futures because, as the CME has observed, “many cash market
contracts are ‘based on’ or ‘referenced to’ the futures market price.”99
185.
Live cattle futures contracts are designed so that their prices converge with
physical cash cattle prices when they expire. For physically settled contracts such as live
cattle, “[t]he possibility of delivery on the futures contract generally causes the futures
price during the delivery month to align with the cash price at the futures delivery
locations.”100
96 Self-Study Guide to Hedging with Livestock Futures and Options, CME (Version 17), at 6, available at
https://www.cmegroup.com/trading/agricultural/files/AC-215_SelfStuy_GuideNYMEX.pdf.
100 Id. at 11.
61
186.
There is a strong, statistically-significant relationship between: (1) changes in
the physical cash cattle prices reported in the afternoon of day 1 with live cattle futures
market price changes on day 2; (2) changes in physical cash cattle prices reported on day
2 and live cattle futures market price changes on day 2; and (3) changes in live cattle
futures market prices on day 2 and physical cash market prices changes reported on the
morning of day 3.
III.
Defendants Traded CME Live Cattle Futures and Options.
187.
Defendants interact regularly with the CME live cattle markets.
188.
During the period February 1, 2018 through January 31, 2019, for example,
Defendants had the only CME-approved slaughter plants for live cattle.101 As a result,
they are central participants in the CME live cattle market.
189.
In addition, Defendants regularly trade live cattle futures and options. Cargill
touts its ability to effectively “manage risk” in live and feeder cattle futures and options
contracts. “Our risk management team has more than 20 years of experience helping
customers manage price risks across 70-plus commodities markets” including “Live
cattle” and “Feeder cattle.”102 News reports indicate that it trades actively in the cattle
101 CME Group, Chicago Mercantile Exchange Inc. 2018 Approved Slaughter Plants for Live Cattle,
https://www.cmegroup.com/content/dam/cmegroup/notices/market-regulation/2018/01/2018-approved-
slaughter-plants-for-live-cattle.pdf.
102 Cargill, Agriculture Risk Management, https://www.cargill.com/price-risk/crm/agriculture.
62
futures markets. For example, on January 25, 2016, Cargill stated, “We’ve seen not only a
very volatile cattle futures market, but prices were coming down a lot.”103
190.
Tyson uses “derivative financial instruments, primarily futures and options, to
reduce our exposure to various market risks related to commodity purchases,”104 as well
as “to reduce the effect of changing prices and as a mechanism to procure the underlying
commodity....”105 Tyson holds “certain positions, primarily in ... livestock futures, that are
not hedges for financial reporting purposes.”106 “As part of our commodity risk
management activities, we use derivative financial instruments, primarily futures and
options, to reduce our exposure to various market risks related to these purchases….”107
191.
JBS references the CME live cattle futures contract in its procurement
contracts.108 Its financial reports also indicate a high level of commodities, derivatives and
futures trading.109
103 Gregory Meyer, Cattlemen lock horns with futures exchange over market volatility, FINANCIAL TIMES (Jan.
25, 2016), https://www.ft.com/content/6eed1268-c130-11e5-846f-79b0e3d20eaf.
104
Tyson
Foods,
Inc.,
Quarterly
Report
(Form
10-Q)
at
37
(Feb.
4,
2011),
https://www.sec.gov/Archives/edgar/data/100493/000119312511024082/d10q.htm.
105
Tyson
Foods,
Inc.,
Annual
Report
(Form
10-K)
at
8
(Sept.
29,
2018),
https://s22.q4cdn.com/104708849/files/doc_financials/quartely/2018/q4/TSN-FY18-10-K.pdf.
106 Id. at 14.
107 Id. at 52.
108
Driftless
Region
Beef
Conference
2013,
Sample
Contract,
https://lib.dr.iastate.edu/cgi/viewcontent.cgi?referer=https://www.google.com/&httpsredir=1&article=103
4&context=driftlessconference.
109 JBS S.A., Condensed Financial Statements and Independent auditors’ report, at 46 (Sept. 30, 2018),
https://jbss.infoinvest.com.br/enu/4812/DF%20JBS%20300918%20Ingls%20-
%20Condensada%2013.11%2018h20_Parecer.pdf.
63
192.
Marfrig likewise acknowledges that it trades “futures market derivative
financial instruments” to “reduce commodity-related price risk.”110
193.
National Beef has similarly acknowledged it uses “futures contracts in order to
reduce exposure associated with entering into firm commitments to purchase live cattle
at prices determined prior to the delivery of the cattle....”111
194.
The specifics of Defendants’ CME cattle futures and options trading activity
are not public information. Trading on the CME is anonymous. Defendants do not
publicly disclose their specific trading activity. This information can only be obtained
through discovery from Defendants and third parties such as CME.
IV.Defendants Directly Caused Artificial CME Live Cattle Futures and Options Prices
195.
Defendants suppressed the price of fed cattle. Because slaughter-weight fed
cattle is the commodity underlying CME live cattle futures and options, Defendants
necessarily and directly caused prices of live cattle futures and options to be artificial.
196.
Defendants had the motive to cause artificial depression of futures prices,
separate and apart from their futures transactions. In particular, futures prices are used
to set the price of cattle delivered under forward contracts. By depressing live cattle
futures contracts Defendants lower the cost of cattle procured under forward contracts.
110
Marfrig
Global
Foods,
2017
Sustainability
Report
at
77,
http://www.marfrig.com.br/Uploads/Arquivos/Marfrig_RA17_eng.pdf.
111
National
Beef
Annual
Report
(Form
10-K)
at
F-15,
(Nov.
16,
2011),
https://www.sec.gov/Archives/edgar/data/1273784/000144530511003450/nbp201182710k.htm.
64
197.
Defendants’ conduct in the cash cattle market had a direct and proximate
impact on prices in the CME live cattle futures and options markets. For example, on
August 14, 2015, Tyson announced it was closing its Denison, Iowa beef plant, which
resulted in price declines in the cash and futures markets. In particular, the spot or front-
month August contract fell $0.004 per pound ($160 per live cattle future) and the October
2015 contract fell $0.01 per pound ($400 per live cattle future). According to one market
participant, “[s]ome feedlots may have surrendered after seeing futures fall earlier in the
session, partly on word that Tyson closed a beef plant.”112
CLASS ACTION ALLEGATIONS
198.
Plaintiff brings this action on behalf of himself, and, under Rules 23(a) and (b)
of the Federal Rules of Civil Procedure, on behalf of all members of the following two
classes:
Producer Class
All persons or entities within the United States that directly sold to a
Defendant one or more fed cattle for slaughter during the Class Period
other than on a cost-plus basis.
Exchange Class
All persons who transacted in live cattle futures and/or options traded on
the CME or another U.S. exchange during the Class Period.113
112 Theopolis Waters, Livestock-CME live cattle futures sag with initial cash prices, REUTERS, Aug. 14, 2015,
https://www.reuters.com/article/markets-livestock-cattle/livestock-cme-live-cattle-futures-sag-with-
initial-cash-prices-idUSL1N10P2MG20150814.
113 The Exchange Class includes persons who established positions before the Class period but who closed
out or stood for delivery on these positions after the Class Period commenced. As noted below, Plaintiffs
reserve the right to amend the Class definitions as the litigation progresses to include, for example, all
persons who transacted in CME feeder cattle futures and options during the Class Period.
65
199.
Excluded from both Classes are Defendants and their officers, directors,
management, employees, subsidiaries, and affiliates. Also excluded is the Judge
presiding over this action, his or her law clerks, spouse, and any person within the third
degree of relationship living in the Judge’s household and the spouse of such a person.
200.
Because of the conduct described in this Complaint:
a. Plaintiff suffered damages because he received less for his sales of fed cattle to
Defendants than he would have but for Defendants’ unlawful conduct; and
b. Plaintiff suffered damages from a manipulated live cattle futures and options
market. Plaintiff suffered monetary losses by transacting in live cattle futures and options
at artificial prices directly resulting from Defendants’ conduct, including their
suppression of fed cattle prices.
201.
“Fed cattle” means steers and heifers, whether beef breeds or Holsteins, which
are raised and fed specifically for beef production. “Class Period” means the period from
January 1, 2015 through the present. “Cost-plus basis” means an agreement to sell fed
cattle at a price determined by the producers’ costs of production without regard to
prevailing cash cattle prices.
202.
Members of the Classes are so numerous and geographically dispersed that
joinder is impracticable. Members of the Producer Class are readily identifiable from
information and records in the possession of Defendants or third parties (including
commercial feedlots and marketing cooperatives engaged by certain Class members).
66
Members of the Exchange Class are readily identifiable from information and records in
the possession of the CME, or capable of identification via third parties.
203.
Plaintiff’s claims are typical of the claims of the members of both Classes.
Plaintiff and members of both Classes were damaged by the same wrongful conduct of
Defendants.
204.
Plaintiff will fairly and adequately protect and represent the interests of
members of both Classes. The interests of Plaintiff are coincidental with, and not
antagonistic to, those of members of the Classes. Plaintiff and all members of the Producer
Class are similarly affected by Defendants’ wrongful conduct in that they received
artificially low prices for fed cattle sold to Defendants. Plaintiff and all members of the
Exchange Class are similarly affected by Defendants’ course of conduct, which violated
the Commodity Exchange Act.
205.
Plaintiff is represented by counsel with experience in the prosecution and
leadership of antitrust, class action, and other complex litigation, including multiple class
actions in the agricultural industry on behalf of farmers.
206.
Questions of law and fact common to the members of both Classes
predominate over questions that may affect only individual Class members, thereby
making relief with respect to members of both Classes as a whole appropriate. Questions
of law and fact common to members of the Classes include, but are not limited to:
67
a. whether Defendants engaged in a combination and conspiracy among
themselves to fix, depress, suppress, and/or stabilize the prices of fed cattle purchased in
the United States;
b. whether Defendants engaged in a combination and conspiracy among
themselves to allocate the market for the purchase of fed cattle offered for sale in the
United States;
c.
the identity of the participants of the alleged conspiracy;
d. the duration of the alleged conspiracy and the acts carried out by Defendants
in furtherance of the conspiracy;
e. whether Defendants’ alleged conspiracy violated federal antitrust laws;
f.
whether Defendants’ alleged conspiracy and/or course of business violated the
Packers and Stockyards Act;
g. whether Defendants’ conduct violated Sections 6(c)(3), 9(a) and 22 of the
Commodity Exchange Act;
h. whether Defendants’ conduct violated Sections 6(c)(1) and 22 of the
Commodity Exchange Act;
i.
whether Defendants aided and abetted Commodity Exchange Act violations;
j.
whether Plaintiff and members of the Classes suffered injury;
k. the amount of damages suffered by Plaintiff and members of the Classes; and
l.
the appropriate type and scope of injunctive and related equitable relief.
68
207.
A class action is superior to other methods for the fair and efficient adjudication
of this controversy because joinder of all Class members is impracticable. A class action
will permit many similarly-situated persons to adjudicate their common claims in a single
forum simultaneously, efficiently, and without the duplication of effort and expense that
numerous individual actions would engender. Class treatment will also permit the
adjudication of claims by many class members who could not afford individually to
litigate claims such as those asserted in this Complaint. The cost to the court system of
adjudication of such individualized litigation would be substantial. 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.
208.
Plaintiff knows of no special difficulty to be encountered in the maintenance of
this action that would preclude its maintenance as a class action.
209.
Plaintiff has defined members of the Classes based on currently available
information and hereby reserves the right to amend the definition of members of the
Classes, including, without limitation, the length of the Class Period.
STATUTE OF LIMITATIONS AND TOLLING
210.
The statutes of limitations governing Plaintiff’s claims against Defendants were
tolled under the doctrine of fraudulent concealment. The doctrine applies here because
Defendants fraudulently concealed their misconduct through their own affirmative acts,
and because Defendants’ conduct was inherently self-concealing.
69
211.
Defendants actively concealed their violations of law from Plaintiff and both
Classes by, amongst other matters, (i) relying on non-public forms of communication; (ii)
offering pre-textual justifications for their plant closures, slaughter reductions and
withdrawal from the cash cattle trade; (iii) explicitly and implicitly representing that the
fed cattle bids and contract terms Defendants offered Plaintiff and the Producer Class
were the product of honest competition and not a conspiracy; and (iv) affirmatively
misrepresenting that they complied with applicable laws and regulations, including
antitrust laws. Below is a list of non-exhaustive examples of such statements that each
Defendant published during the Class Period:
a. Tyson’s Code of Conduct extolled Tyson’s compliance with antitrust laws
throughout the Class Period. Tyson states that it “compete[s] in the market with integrity
and compl[ies] with competition laws.... We comply with the letter and spirit of
competition laws ... wherever we do business.”114
b. JBS’s 2014 Annual Report detailed the policies it had in place to “ensure ethical
conduct and integrity in the management of its business”, including its Manual of Ethical
Conduct, which “addresses issues related to violations, conflicts of interest, third-party
contracts, employment practices, receiving gifts, decision making, anti-corruption
114
Tyson Code of Conduct, available at
https://www.tysoncodeofconduct.com/suppliers-and-
customers/competition (last accessed May 6, 2019).
70
practices and other sensitive topics.”115 JBS also launched an “Always Do The Right
Thing” compliance program in June 2017 to “ensure that JBS implements the best global
compliance program in the industry in order to restore the trust of its stakeholders.”116
c.
Cargill stressed in its 2015 Corporate Responsibility report that “[w]e obey the
law. Obeying the law is the foundation on which our reputation and Guiding Principles
are built.... We conduct our business with integrity.... We compete vigorously, but do so
fairly and ethically. We ... comply with the laws and regulations that support fair
competition and integrity in the marketplace.” Cargill reiterated this message in its
subsequent Corporate Responsibility reports and on its website.117
d. National Beef’s former majority shareholder, Jefferies Financial Group, Inc.
(formerly Leucadia National Corporation) noted in its 2014 Annual Report that National
Beef was “subject to extensive government regulation” and was subject to the Packers
and Stockyards Act.
210.
Defendants’ conspiracy was inherently self-concealing because it relied on
secrecy for its successful operation. Had the public learned that Defendants conspired to
fix prices in the fed cattle market, their conspiracy could not have continued for as long
115 JBS 2014 Annual Report at 45 – 46, available at
https://jbss.infoinvest.com.br/enu/4362/20150601_RelatorioJBS_ingles_menor.pdf (last accessed May 6,
2019).
116 Available at https://jbss.infoinvest.com.br/enu/4197/JBS%20S.A.%20-%20Material%20Fact%20-
%20Executive%20Committee2.pdf (last accessed May 6, 2019).
117 See “Ethics & Compliance” https://www.cargill.com/about/ethics-and-compliance (last accessed May 6,
2019).
71
as it did. Accordingly, Plaintiff could not have learned of Defendants’ anticompetitive
conduct until recently.
211.
Because of Defendants’ fraudulent concealment, Plaintiff and both Classes
were not aware of Defendants’ misconduct and could not have discovered it through the
exercise of due diligence until recently. Plaintiff and members of both Classes have acted
diligently in seeking to bring their claims promptly.
212.
Accordingly, Plaintiff asserts that the applicable statutes of limitations on
Plaintiff’s claims were tolled. Defendants are also equitably estopped from asserting any
statute of limitations defense.
213.
Additionally, Defendants’ conspiratorial conduct has caused and continues to
cause continuing injuries to Plaintiff and the class. To the extent any statute of limitations
was previously triggered – which is expressly disputed – these continuing injuries
constitute continuing violations which start any statutory period running again.
CLAIMS FOR RELIEF
COUNT I: MARKET ALLOCATION AND PRICE-FIXING IN VIOLATION OF THE SHERMAN ACT,
15 U.S.C. §1
214.
Plaintiff incorporates by reference each prior paragraph as if set forth herein.
215.
During the Class Period, Defendants controlled the slaughter of fed cattle in
the United States and thus the available marketing outlets for fed cattle producers.
Defendants were horizontal competitors in the market for the purchase of fed cattle.
72
216.
From at least January 1, 2015 and continuing to the present, the exact dates
being unknown to Plaintiff, Defendants engaged in a continuing agreement,
understanding and conspiracy in an unreasonable and unlawful restraint of trade to
allocate the market for, and artificially fix, depress, suppress, or stabilize the price of fed
cattle in violation of Section 1 of the Sherman Act, 15 U.S.C. §1. Defendants’ conspiracy
is a per se violation of federal antitrust laws and is, in any event, an unreasonable and
unlawful restraint of trade.
217.
Defendants’ conspiracy and the resulting impact on fed cattle prices received
by producers occurred in and affected U.S. interstate commerce.
218.
As a proximate result of Defendants’ unlawful conduct, Plaintiff and members
of the Producer Class have suffered injury to their business or property. These injuries
included, but were not limited to, receiving artificial and non-competitive prices for fed
cattle sold to Defendants. Plaintiff and the Producer Class were also deprived of the
benefits of free and open competition in the market for the purchase of fed cattle. Plaintiff
and members of the Producer Class are each entitled to treble damages for Defendants’
violations of the Sherman Act alleged herein.
219.
Plaintiff and the members of the Producer Class are threatened with future
injury to their businesses and property unless the injunctive relief requested is granted.
COUNT II: VIOLATIONS OF PACKERS AND STOCKYARDS ACT, 7 U.S.C. §§192 and 209
210.
Plaintiff incorporates by reference each prior paragraph as if set forth herein.
73
211.
Title 7 U.S.C. §192 provides, in pertinent part, “[i]t shall be unlawful for any
packer with respect to livestock . . . to . . . (a) [e]ngage in or use any unfair, unjustly
discriminatory, or deceptive trade practice or device; or . . . (e) [e]ngage in any course of
business or do any act for the purpose or with the effect of manipulating or controlling
prices, or of creating a monopoly in the acquisition of, buying, selling, or dealing in, any
article, or of restraining commerce; or (f) [c]onspire, combine, agree, or arrange with any
other person (1) to apportion territory for carrying on business, or (2) to apportion
purchases or sales of any article, or (3) to manipulate or control prices; or (g) [c]onspire,
combine, agree, or arrange with any other person to do, or aid or abet the doing of, any
act made unlawful by subdivisions (a), (b), (c), (d), or (e).”
212.
Title 7 U.S.C. §209 further provides that, “[i]f any person subject to this chapter
violates any of the provisions of this chapter . . . relating to the purchase, sale, or handling
of livestock, . . . he shall be liable to the person or persons injured thereby for the full
amount of damages sustained in consequence of such violation.” Such liability may be
enforced “by suit in any district court of the United States of competent jurisdiction[.]”
213.
Deceptive trade practices under the Packers and Stockyards Act are addressed
in the Code of Federal Regulations in Part 201 of Title 9. Section 201.70 states “[e]ach
packer and dealer engaged in purchasing livestock, in person or through employed
buyers, shall conduct his buying operations in competition with, and independently of,
other packers and dealers similarly engaged.”
74
214.
From at least January 1, 2015 and continuing to the present, the exact dates
being unknown to Plaintiff, Defendants violated 7 U.S.C. §192(a), (e), (f), and (g) by
engaging in a course of business and doing acts for the purpose or with the effect of
reaching and implementing a conspiracy, combination, agreement, or arrangement to
allocate the market for, and artificially fix, depress, suppress, or stabilize the price of fed
215.
The effect of these acts and this conspiracy, combination, agreement, or
arrangement, was to fix, depress, suppress, stabilize, or otherwise artificially manipulate
the price of fed cattle bought by Defendants. Defendants had no legitimate business
justification for these acts and this conspiracy, combination, agreement, or arrangement.
216.
As a proximate result of Defendants’ breaches of the Packers and Stockyards
Act, Producer Plaintiff and the members of the Producer Class have been injured and
damaged in their respective businesses and property.
COUNT III: UNJUST ENRICHMENT
217.
Plaintiff incorporates by reference each prior paragraph as if set forth herein.
218.
Plaintiff and Producer Class members sold fed cattle during the Class Period
directly to Defendants. These transactions should have been priced based on competitive
market forces and reflect honest competition by Defendants.
75
219.
However, rather than competing honestly and aggressively with each other,
Defendants colluded to fix, depress, suppress, or stabilize the prices paid to Plaintiff and
the Producer Class for the purchase of their fed cattle.
220.
Defendants’ collusion enabled them to enjoy supra-competitive profits at the
expense of Plaintiff and the Producer Class and caused Plaintiff and the Producer Class
to receive less for sales of fed cattle to Defendants than they otherwise would have
received had Defendants acted honestly and fairly.
221.
It is unjust and inequitable for Defendants to have enriched themselves in this
manner at the expense of Plaintiff and the Producer Class, and equity and good
conscience require Defendants to make restitution.
222.
Plaintiff and the Producer Class therefore seek restoration of the monies of
which they were unfairly and unlawfully deprived as described in this Complaint.
COUNT IV: MANIPULATION IN VIOLATION OF THE COMMODITY EXCHANGE ACT
7 U.S.C. §§1, ET SEQ. AND CFTC REGULATION 180.2, 17 C.F.R. §180.2
223.
Plaintiff incorporates by reference each prior paragraph as if set forth herein.
224.
During the Class Period, Defendants specifically intended to manipulate the
prices of fed cattle, the physical commodity underlying the CME live cattle futures and
options contracts, and specifically intended to manipulate the prices of CME live cattle
futures and options.
225.
Defendants had the ability to cause artificial prices in fed cattle and live cattle
futures and options. They did so through, among other things, their dominant position
76
in the market for the purchase of fed cattle, their superior access to information and
reporting mechanisms, their financial wherewithal, and their extensive involvement in
the CME live cattle futures and options trading and delivery processes.
226.
Defendants caused artificial prices in the physical fed cattle market as well as
in live cattle futures and options markets. Their conduct resulted in, among other things,
artificially low prices in the commodity underlying CME live cattle futures and options
prices and in the live cattle futures and options prices themselves.
227.
Defendants therefore engaged in unlawful manipulation of CME live cattle and
futures and options and their underlying physical commodity in violation of Sections
6(c)(3), 7 U.S.C §9(3), 9(a) of the CEA, 7 U.S.C. §13(a), Section 22 of the CEA, 7 U.S.C.
§25(a), and CFTC Rule 180.2, 17 C.F.R. §180.2.
228.
The manipulation by Defendants and their conspirators and agents deprived
Plaintiff and the Exchange Class of a lawfully operating market during the Class Period
and caused them to transact at artificial prices, which directly led to injury and economic
damages.
229.
Plaintiff and Exchange Class members are each entitled to actual damages and
other relief from Defendants.
COUNT V: MANIPULATIVE AND DECEPTIVE DEVICE
IN VIOLATION OF THE COMMODITY EXCHANGE ACT,
7 U.S.C. §§1, ET SEQ. AND CFTC REGULATION 180.1(A), 17 C.F.R. §180.1(A)
210.
Plaintiff incorporates by reference each prior paragraph as if set forth herein.
77
211.
Defendants intended to affect or acted recklessly with regards to affecting
prices of CME live cattle futures and options contracts and engaged in overt acts in
furtherance of that intent.
212.
Defendants intentionally or recklessly used or employed a manipulative device
or artifice to defraud, and engaged in acts, practices, and/or courses of business that
operated as a fraud or deceit on any person in violation of Section 6(c)(1) of the CEA, 7
U.S.C. §9, and Section 22 of the CEA (7 U.S.C. §25), and Regulation 180.1(a), 17 C.F.R.
§180.1(a).
213.
Defendants’ conduct proximately caused injury to Plaintiff and other members
of the Exchange Class who transacted in an artificial and manipulated market, at
manipulated prices during the Class Period.
214.
The manipulative and deceptive devices employed by Defendants and their
conspirators and agents deprived Plaintiff and the Exchange Class of a lawfully operating
market during the Class Period and caused them to transact at artificial prices that
directly led to injury and economic damages.
215.
Plaintiff and Exchange Class members are each entitled to actual damages and
other relief from Defendants.
COUNT VI: PRINCIPAL-AGENT LIABILITY IN VIOLATION OF THE COMMODITY EXCHANGE
ACT, 7 U.S.C. §§ 1, ET SEQ. AND CFTC REGULATION 1.2, 17 C.F.R. §1.2
216.
Plaintiff incorporates by reference each prior paragraph as if set forth herein.
78
217.
Defendants’ traders, employees and/or officers, and conspirators, acted as
agents for their principals, Defendants, when engaging in the manipulation and
manipulative and deceptive devices and schemes described herein.
218.
Defendants are liable under Section 2(a)(1)(B) of the CEA, 7 U.S.C. §2(a)(1)(B)
and Regulation 1.2, 17 C.F.R. §1.2, for the manipulative acts of its agents, representatives,
and/or other persons acting for them in the scope of their employment.
219.
The principal-agent violations by Defendants and their conspirators and agents
deprived Plaintiff and the Exchange Class of a lawfully operating market during the Class
Period and caused them to transact at artificial prices that directly led to injury and
economic damages.
220.
Plaintiff and Exchange Class members are each entitled to actual damages and
other relief from Defendants.
COUNT VII: AIDING AND ABETTING IN VIOLATION OF THE
COMMODITY EXCHANGE ACT, 7 U.S.C. §§1, ET SEQ.
221.
Plaintiff incorporates by reference each prior paragraph as if set forth herein.
222.
Defendants knowingly aided, abetted, counseled, induced and/or procured the
violations of the CEA alleged herein, including violations by the other Defendants.
223.
Defendants did so knowing of their violations of the CEA and willfully
intended to assist these manipulations, which resulted in CME live cattle futures and
options prices, and their underlying physical commodity becoming artificial, during the
Class Period.
79
224.
Through their aiding and abetting violations, Defendants violated Section
22(a)(1) of the CEA, 7 U.S.C. §25(a)(1).
225.
Plaintiff and Exchange Class members are each entitled to actual damages and
other relief from Defendants.
PRAYER FOR RELIEF
226.
Plaintiff, on behalf of himself and members of the Classes, requests relief as
follows:
A. That the Court determine that this action may be maintained as a class action
under Rule 23(a) & (b) of the Federal Rules of Civil Procedure, that the Plaintiff be named
as Class Representative of both Classes, that the undersigned be named as Lead Class
Counsel of both Classes, and direct that notice of this action, as provided by Rule 23(c)(2)
of the Federal Rules of Civil Procedure, be given to Class members;
B. That the Court enter an order declaring that Defendants’ actions, as set forth in
this Complaint, violate the federal laws set forth above;
C. That the Court award Plaintiff and members of the Classes damages, treble
damages, punitive damages, and/or restitution in an amount to be determined at trial;
D. That the Court issue appropriate injunctive and other equitable relief against
Defendants;
E. That the Court award Plaintiff pre- and post-judgment interest;
80
F. That the Court award Plaintiff his costs of suit, including reasonable attorneys’
fees and expenses, including costs of consulting and testifying experts; and
G. That the Court award any and all such other relief as the Court may deem just
and proper.
JURY DEMAND
Pursuant to Federal Rule of Civil Procedure 38(b), Plaintiff demands a trial by jury on
all matters so triable.
Dated: May 8, 2019
Respectfully submitted,
PAUL LLP
By: /s/ Richard M. Paul
Richard M. Paul III (MO #44233)
Sean Cooper (MO #65847)
601 Walnut Street, Suite 300
Kansas City, Missouri 64106
Telephone:
(816) 984-8100
Rick@PaulLLP.com
Sean@PaulLLP.com
ATTORNEYS FOR PLAINTIFF
81
| antitrust |
2vaOE4cBD5gMZwczBRrw |
Case No.:
CLASS ACTION COMPLAINT FOR
VIOLATIONS OF THE FEDERAL
SECURITIES LAWS
JURY TRIAL DEMANDED
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
LANCE TREANKLER, Individually and
On Behalf of All Others Similarly Situated,
Plaintiff,
v.
FERROGLOBE PLC, PEDRO LARREA,
and PHILLIP MURNANE,
Defendants.
Plaintiff Lance Treankler (“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
Ferroglobe PLC (“Ferroglobe” 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 Ferroglobe; and (c) review of other publicly available information
concerning Ferroglobe.
NATURE OF THE ACTION AND OVERVIEW
1.
This is a class action on behalf of persons and entities that purchased or otherwise
acquired Ferroglobe securities between August 21, 2018 and November 26, 2018, inclusive (the
“Class Period”), seeking to pursue remedies under the Securities Exchange Act of 1934 (the
“Exchange Act”).
2.
Ferroglobe purports to produce silicon metal, silicon-based alloys, and
manganese-based alloys and to sell products such as aluminum, silicone compounds, automotive
parts, photovoltaic cells, electronic semiconductors, and steel.
3.
On November 26, 2018, the Company reported a net loss of $2.9 million for the
third quarter 2018, compared to a net profit of $66.0 million the prior quarter.
4.
On this news, the Company’s share price fell $2.97 per share, more than 62%, to
close at $1.80 per share on November 27, 2018, on unusually high 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 there
was excess supply of the Company’s products; (2) that demand for the Company’s products was
declining; (3) that, as a result, the pricing of the Company’s products would be materially
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.
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.
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 Lance Treankler, as set forth in the accompanying certification,
incorporated by reference herein, purchased Ferroglobe 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 Ferroglobe is incorporated under the laws of England and Wales with
its principal executive offices located in London, United Kingdom. Ferroglobe’s common stock
trades on the NASDAQ exchange under the symbol “GSM.”
13.
Defendant Pedro Larrea (“Larrea”) was the Chief Executive Officer of the
Company at all relevant times.
14.
Defendant Phillip Murnane (“Murnane”) was the Chief Financial Officer of the
Company at all relevant times.
15.
Defendants Larrea and Murnane, (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.
Ferroglobe purports to produce silicon metal, silicon-based alloys, and
manganese-based alloys and to sell products such as aluminum, silicone compounds, automotive
parts, photovoltaic cells, electronic semiconductors, and steel.
Materially False and Misleading
Statements Issued During the Class Period
17.
The Class Period begins on August 21, 2018. On that day, the Company published
a press release announcing the second quarter 2018 financial results. It reported a net profit of
$66.0 million, or $0.39 per share, and adjusted EBITDA of $86.3 million.
18.
In the press release, Defendant Larrea stated that volumes and selling prices “have
significantly increased” in the year to date. Moreover, regarding the demand for products, he
The steel industries in North America and Europe – the main end markets for
most of [the Company’s] alloys – are experiencing strong demand and high
capacity utilizations in the wake of recent trade protection measures. Prices of our
products have remained broadly stable overall, and current supply/demand
dynamics in our industry should support continued healthy pricing.
19.
On August 22, 2018, Defendants Larrea and Murnane participated in a conference
call to discuss the financial results with analysts. Regarding silicon metal, Defendant Larrea
stated that “despite some pricing declines in the US and in European indices, Ferroglobe
maintained a flat realized average selling price for silicon metal, reflecting a well-managed
commercial strategy and a good mix of fixed and index price contracts.”
20.
During the call, Defendant Larrea reiterated strong market conditions supported
the business. Specifically, he stated that “the overall supply/demand tension in the market, as
well as increasing input costs, provide good reason to expect prices [of silicon metal] to remain
broadly stable around these levels.” Moreover, he stated: “A recent wave of earnings updates and
outlooks by many of our major customers across these verticals reinforces our confidence that
demand in the next eighteen months should remain healthy. We do not think the evolving trade
wars and tariffs which has targeted the steel and aluminum sectors in particular will impact the
aggregate demand for steel or aluminum globally.”
21.
On September 5, 2018, in the middle of the third quarter, the Company
participated in the Goldman Sachs Leveraged Finance Conference, where Defendants Larrea and
Murnane led investors to believe that the factors underlying the Company’s growth during the
first half of the fiscal year would continue. Specifically, Defendant Larrea stated that “market
fundamentals are accelerating the demand for our products,” pointing to population growth,
urbanization, energy efficiency, and sustainability as megatrends that increase demand for the
Company’s products. Defendant Murnane used the quarterly trend in revenue and adjusted
EBITDA to suggest that the second quarter’s strong performance would continue.
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 there
was excess supply of the Company’s products; (2) that demand for the Company’s products was
declining; (3) that, as a result, the pricing of the Company’s products would be materially
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
23.
On November 26, 2018, the Company reported poor financial results for the third
quarter 2018. In a press release, the Company reported a net loss of $2.9 million and adjusted
EBITDA of $45.0 million, which was down 47.9% from the prior quarter adjusted EBITDA of
$86.3 million.
24.
In the press release, Defendant Larrea attributed the poor performance to “market
conditions in our main products [that] deteriorated through Q3.” Regarding the Company’s
response to these conditions, Defendant Larrea stated:
Ferroglobe has taken swift action to optimize our position across our global
production base. In this regard, we are curtailing production in our silicon metal
and manganese-based alloys businesses in order to take advantage of our
diversified portfolio by optimizing production among our most cost effective
plants and geographies. We also continue to look at further measures to control
our costs, to draw down inventories, and to enhance our free cash flow profile.
That said, we are operating in a volatile environment currently and our financial
results may continue to be challenged in the near-term.
25.
On November 27, 2018, Defendants Larrea and Murnane participated in a
conference call to discuss the financial results with analysts. Defendant Larrea stated that “the
most significant driver of the Q3 results was reduced pricing, specifically average sales price for
silicon metal declined 4.9% versus Q2 2018 [due to] silicon production at high rates, the impact
of customers stocking up in anticipation of the trade case, and availability of aluminum scrap.”
Additionally, he stated that the sales of silicon metal “were impacted by the availability of
aluminum scrap, which is now burdened by a 25% tariff on imports from the US into China.”
26.
Regarding the manganese-based alloys, Defendant Larrea stated that, in addition
to the delink of alloy prices from ore prices, the Company faced “logistical challenges along the
supply chain which resulted in some orders not being shipped during the quarter.”
27.
Regarding the adjusted EBITDA, Defendant Larrea reiterated that “the biggest
factor contributing to the decline this quarter has been pricing.”
28.
On this news, the Company’s share price fell $2.97 per share, more than 62%, to
close at $1.80 per share on November 27, 2018, on unusually high trading volume.
CLASS ACTION ALLEGATIONS
29.
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 Ferroglobe securities between August 21, 2018 and November
26, 2018, 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.
30.
The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, Ferroglobe’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 Ferroglobe 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 Ferroglobe 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.
31.
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.
32.
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.
33.
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 Ferroglobe; and
(c)
to what extent the members of the Class have sustained damages and the proper
measure of damages.
34.
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
35.
The market for Ferroglobe’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, Ferroglobe’s securities traded at artificially inflated prices during the Class
Period. Plaintiff and other members of the Class purchased or otherwise acquired Ferroglobe’s
securities relying upon the integrity of the market price of the Company’s securities and market
information relating to Ferroglobe, and have been damaged thereby.
36.
During the Class Period, Defendants materially misled the investing public,
thereby inflating the price of Ferroglobe’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 Ferroglobe’s business, operations, and prospects as alleged herein.
37.
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 Ferroglobe’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
38.
Defendants’ wrongful conduct, as alleged herein, directly and proximately caused
the economic loss suffered by Plaintiff and the Class.
39.
During the Class Period, Plaintiff and the Class purchased Ferroglobe’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
40.
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 Ferroglobe, their control
over, and/or receipt and/or modification of Ferroglobe’s allegedly materially misleading
misstatements and/or their associations with the Company which made them privy to
confidential proprietary information concerning Ferroglobe, participated in the fraudulent
scheme alleged herein.
APPLICABILITY OF PRESUMPTION OF RELIANCE
(FRAUD-ON-THE-MARKET DOCTRINE)
41.
The market for Ferroglobe’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, Ferroglobe’s securities traded at artificially inflated prices during the Class Period.
On August 29, 2018, the Company’s share price closed at a Class Period high of $8.53 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 Ferroglobe’s securities and market
information relating to Ferroglobe, and have been damaged thereby.
42.
During the Class Period, the artificial inflation of Ferroglobe’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 Ferroglobe’s business, prospects, and operations. These material
misstatements and/or omissions created an unrealistically positive assessment of Ferroglobe 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.
43.
At all relevant times, the market for Ferroglobe’s securities was an efficient
market for the following reasons, among others:
(a)
Ferroglobe 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, Ferroglobe filed periodic public reports with the SEC
and/or the NASDAQ;
(c)
Ferroglobe 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)
Ferroglobe 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.
44.
As a result of the foregoing, the market for Ferroglobe’s securities promptly
digested current information regarding Ferroglobe from all publicly available sources and
reflected such information in Ferroglobe’s share price. Under these circumstances, all purchasers
of Ferroglobe’s securities during the Class Period suffered similar injury through their purchase
of Ferroglobe’s securities at artificially inflated prices and a presumption of reliance applies.
45.
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
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 Ferroglobe 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 Ferroglobe’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.
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 purchasers of the Company’s securities in an effort to
maintain artificially high market prices for Ferroglobe’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 Ferroglobe’s
financial well-being and prospects, as specified herein.
51.
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 Ferroglobe’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 Ferroglobe 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.
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.
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 Ferroglobe’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
Ferroglobe’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 Ferroglobe’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 Ferroglobe was experiencing, which were not disclosed by Defendants, Plaintiff and other
members of the Class would not have purchased or otherwise acquired their Ferroglobe
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 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
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.
Individual Defendants acted as controlling persons of Ferroglobe 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.
60.
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
61.
As set forth above, Ferroglobe 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: January 22, 2019
GLANCY PRONGAY & MURRAY LLP
By: s/ Lesley F. Portnoy
Lesley F. Portnoy (LP-1941)
230 Park Avenue, Suite 530
New York, New York 10169
Telephone: (212) 682-5340
Facsimile: (212) 884-0988
lportnoy@glancylaw.com
-and-
GLANCY PRONGAY & MURRAY LLP
Lionel Z. Glancy
Robert V. Prongay
Lesley F. Portnoy
Charles H. Linehan
Pavithra Rajesh
1925 Century Park East, Suite 2100
Los Angeles, CA 90067
Telephone: (310) 201-9150
Facsimile: (310) 201-9160
Attorneys for Plaintiff Lance Treankler
SWORN CERTIFICATION OF PLAINTIFF
FERROGLOBE PLC SECURITIES LITIGATION
I, Lance Treankler individually, and/or in my capacity as trustee and/or principal for
1/10/2019
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 the Ferroglobe PLC 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 Ferroglobe PLC 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
Lance Treankler
Lance Treankler's Transactions in
Ferroglobe PLC (GSM)
Date
Transaction Type
Quantity
Unit Price
11/26/2018
Bought
500
$4.8200
11/26/2018
Bought
100
$4.8100
11/26/2018
Bought
1,350
$4.8250
11/26/2018
Bought
1,200
$4.8400
11/26/2018
Bought
2,100
$4.8800
11/26/2018
Bought
600
$4.8999
11/26/2018
Bought
900
$4.9000
11/26/2018
Bought
459
$4.8600
11/26/2018
Bought
2,900
$4.8800
11/26/2018
Bought
100
$4.8697
11/26/2018
Bought
541
$4.8700
11/26/2018
Bought
5,350
$4.8600
11/26/2018
Bought
200
$4.8350
11/26/2018
Bought
1,600
$4.8500
11/26/2018
Bought
100
$4.8400
11/26/2018
Bought
300
$4.8450
11/26/2018
Bought
2,200
$4.8800
11/26/2018
Bought
1,436
$4.8999
11/26/2018
Bought
200
$4.9475
11/26/2018
Bought
700
$4.9500
11/26/2018
Bought
1,100
$4.9400
11/26/2018
Bought
2,579
$4.9700
11/26/2018
Bought
2,100
$4.9600
11/26/2018
Bought
100
$4.8250
11/26/2018
Bought
600
$4.8290
11/26/2018
Bought
700
$4.8300
11/26/2018
Bought
400
$4.8400
11/26/2018
Bought
50
$4.8600
11/26/2018
Bought
50
$4.8400
11/26/2018
Bought
400
$4.8290
11/26/2018
Bought
50
$4.8600
11/26/2018
Bought
14
$4.8800
11/26/2018
Bought
800
$4.8700
11/26/2018
Bought
500
$4.8600
11/26/2018
Bought
550
$4.8400
11/26/2018
Bought
764
$4.8999
11/26/2018
Bought
1,400
$4.8900
11/26/2018
Bought
300
$4.8950
11/26/2018
Bought
36
$4.8800
11/26/2018
Bought
1,000
$4.8600
11/26/2018
Bought
300
$4.8700
11/26/2018
Bought
300
$4.8600
11/26/2018
Bought
1,350
$4.8250
11/26/2018
Bought
50
$4.8200
11/26/2018
Bought
1,000
$4.8225
11/26/2018
Bought
300
$4.8999
11/26/2018
Bought
3,941
$4.8800
11/26/2018
Bought
859
$4.8700
11/26/2018
Bought
200
$4.8250
11/26/2018
Bought
300
$4.8290
11/26/2018
Bought
200
$4.8300
11/26/2018
Bought
50
$4.8200
11/26/2018
Bought
600
$4.8225
11/26/2018
Bought
700
$4.8240
11/26/2018
Bought
800
$4.8400
11/26/2018
Bought
1,317
$4.8250
11/26/2018
Bought
2,300
$4.8300
11/26/2018
Bought
1,433
$4.8200
11/26/2018
Bought
1,300
$4.8100
11/26/2018
Bought
150
$4.8300
11/26/2018
Bought
2,400
$4.8200
11/26/2018
Bought
1,300
$4.8100
11/26/2018
Bought
2,750
$4.8300
11/26/2018
Bought
1,000
$4.8200
11/26/2018
Bought
1,900
$4.8250
11/26/2018
Bought
7,900
$4.8300
11/26/2018
Bought
200
$4.8200
11/26/2018
Bought
383
$4.8250
11/26/2018
Bought
4,500
$4.8300
11/26/2018
Bought
67
$4.8200
11/26/2018
Bought
500
$4.8300
11/26/2018
Bought
400
$4.9700
11/26/2018
Bought
300
$4.9900
11/26/2018
Bought
1,300
$4.9450
11/26/2018
Bought
3,900
$4.9499
11/26/2018
Bought
4,800
$4.9500
11/26/2018
Bought
300
$4.9999
11/26/2018
Bought
100
$4.9899
11/26/2018
Bought
5,224
$4.9900
11/26/2018
Bought
700
$4.9850
11/26/2018
Bought
3,714
$4.9900
11/26/2018
Bought
900
$4.9850
11/26/2018
Bought
7,800
$4.9900
11/26/2018
Bought
8,500
$4.8980
11/26/2018
Bought
400
$4.8990
11/26/2018
Bought
200
$4.8940
11/26/2018
Bought
1,745
$5.0000
11/26/2018
Bought
5,586
$5.0000
11/26/2018
Bought
1,200
$5.0000
11/26/2018
Bought
9,400
$4.9700
11/26/2018
Bought
600
$4.9600
11/26/2018
Bought
600
$4.9500
11/26/2018
Bought
1,721
$4.9700
11/26/2018
Bought
900
$4.9800
11/26/2018
Bought
5,231
$4.9900
11/26/2018
Bought
100
$4.9750
11/26/2018
Bought
2,000
$4.9800
11/26/2018
Bought
7,900
$4.9900
11/26/2018
Bought
103
$4.9500
11/26/2018
Bought
950
$4.9700
11/26/2018
Bought
300
$4.9600
11/26/2018
Bought
850
$4.9800
11/26/2018
Bought
6,697
$4.9900
11/26/2018
Bought
10,000
$4.9900
11/26/2018
Bought
10,000
$4.9000
11/26/2018
Bought
200
$5.0297
11/26/2018
Bought
9,800
$5.0300
11/26/2018
Bought
100
$4.9850
11/26/2018
Bought
531
$4.9900
11/26/2018
Bought
100
$4.9900
11/26/2018
Bought
169
$4.9700
11/26/2018
Bought
297
$4.9500
11/26/2018
Bought
803
$4.9800
11/26/2018
Bought
100
$4.9500
11/26/2018
Bought
100
$4.9700
11/26/2018
Bought
100
$4.9900
11/26/2018
Bought
100
$4.9950
11/26/2018
Bought
1,600
$4.9999
11/26/2018
Bought
300
$4.9900
11/26/2018
Bought
2,331
$4.9700
11/26/2018
Bought
969
$4.9900
11/26/2018
Bought
400
$4.9700
| securities |
TvjaE4cBD5gMZwczYoAm | UNITED STATES DISTRICT COURT
SOUTHERN 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
LAZZONI USA INC.,
Defendant.
INTRODUCTION
1.
Plaintiff Brian Fischler, who is legally blind, brings this civil rights action
against Defendant Lazzoni USA Inc. (“Defendant”) for its failure to design, construct,
maintain, and operate its website, www.lazzoni.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 domestic business corporation that is
organized under New York law, and 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 in this District under 28 U.S.C. §§1391(b)(1), 1391(d)
because Defendant’s corporate headquarters is located in this District at 154 West 18th
Street, New York, New York and it would thereby be considered a resident of this
District if it was a separate state.
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 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
(“JAWS”) is currently the most popular, separately purchased and downloaded screen-
reading software program available for a Windows computer.
11.
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.
12.
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.
13.
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
14.
Defendant owns and operates stores throughout the world, including two
New York City locations, 145 Madison Avenue, New York, New York, and a flagship
location at 154 West 18th Street, New York, New York. It sells, at these stores, sofas,
beds, chairs, tables, desks and similar items.
15.
Defendant’s Website is heavily integrated with its stores, serving as a
gateway to them. Through the Website, Defendant’s customers are, inter alia, able to:
learn information about the stores’ locations and hours of operation; learn about items for
sale in the stores and view images of those items; learn about recent projects; book a
design appointment and contact the company via an online form.
16.
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 stores. 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 stores and the numerous facilities, goods, services, and benefits offered to
the public through its Website.
17.
Plaintiff Fischler cannot use a computer without the assistance of screen-
reading software. He is, however, a proficient screen-reader user and uses it to access the
Internet. He has visited the Website on separate occasions using screen-reading software.
18.
During his visits to the Website, the last occurring on or about April 9,
2019, Plaintiff Fischler encountered multiple access barriers that denied him the full
enjoyment of the facilities, goods, and services of the Website, as well as to the facilities,
goods, and services of Defendant’s stores. Because of these barriers he was unable to,
substantially equal to sighted individuals:
a.
Know what is on the Website. This is in part due to the non-text
images lacking proper alternative text. Images on the “Lazzoni Sofas” page are labeled
only with file names and several are not detected. When a sighted user selects
“Products,” he or she is taken to a page with images of several sofas. The sighted user
can then select the sofa he or she likes and choose to “Review more” or “add to wishlist.”
On this page, only four images are detected by the screen reader. Plaintiff Fischler has no
way of knowing if they are products because they are labeled only with file names. The
images for the sofas are labeled as links with no further information on this page.
Therefore, he cannot narrow down his search by style from this page. When he selects a
sofa, the “Modern Chester,” for example, he is taken to a new page. However, he is still
unable to learn about this sofa, because the images are labeled only with file names like
“ymodern1.jpg” and there is no description of the sofa. When he selects the link to
“Technical Detail” he is take to a PDF that is completely inaccessible; it is just a page
labeled “image.” He was unable to learn about products through the catalog as well,
because it is presented in image format with no alternative text. He had similar
difficulties learning about projects. On that page, a sighted user is given several images
of past and current projects. On that page, “mobile logo” is the only detected image.
There are several unlabeled elements and multiple links with the same name.
b.
Navigate the Website. This Website was difficult to navigate using
a screen reader. As mentioned above, there are unlabeled elements throughout the
Website, which make navigation difficult. The Website also provides category links,
with sublinks in which a user can narrow a search. For example, if a sighted user hovers
over “Products” he or she can narrow the search by “seating,” “living,” “bedroom,” or
“dining” and he or she can go one step further and choose specific types of products like
“sofas,” “tv units” or “beds.” However, a blind user cannot navigate the Website in this
manner because screen readers are not able to hover. Therefore, Plaintiff Fischler only
has access to the main category links. As mentioned above, selecting the “Products” link
takes him to sofas. Therefore, there was no way for him to navigate to the page for
“Beds” or “End Tables,” for example.
c.
Book a design appointment. The Website allows a sighted user to
book a design using an online form. However, when Plaintiff Fischler tries to complete
this form using a screen reader, he encounters repeated issues with screen reader focus.
Depending on where screen reader focus is placed, focus can be trapped and no other
information on the page is detected. This required Plaintiff Fischler to have to repeatedly
reload the web page and/or stop interacting with it in order to regain control of his screen
reader.
d.
Contact the company. The Website allows users to contact the
company using an online form. However, the form includes a captcha and there is no
audio captcha offered. Therefore, the form is not accessible to a blind user.
19.
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.
Button elements contain only an image with no alt text describing
the image.
c.
Document titles are blank.
d.
Frames do not have a title.
e.
PDFs are not tagged and therefore are inaccessible to screen
readers.
f.
Some pages have the same title, so the title cannot be used to
distinguish pages.
g.
Forms have fields without label elements or title attributes.
h.
Webpages have duplicate IDs which cause problems in screen
readers.
i.
Webpages have markup errors.
j.
Webpages have no headings, headings are not nested correctly,
k.
Links use general text like “here” which doesn’t explain the link
purpose.
l.
Several links on a page share the same link text, but go to different
destinations.
Defendant Must Remove Barriers to Its Website
20.
Due to the inaccessibility of its Website, blind and visually-impaired
customers 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 stores and enjoying them equal to sighted individuals.
21.
If the Website was equally accessible to all, Plaintiff Fischler could
independently navigate it, view goods and service items, learn about items, contact the
company; and book a design appointment, as sighted individuals can.
22.
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.
23.
Because simple compliance with the WCAG 2.0 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.
24.
Defendant therefore uses standards, criteria or methods of administration
that have the effect of discriminating or perpetuating the discrimination of others, as
alleged herein.
25.
Title III of the ADA expressly contemplates the injunctive relief that
Plaintiff Fischler seeks under 42 U.S.C. § 12188(a)(2).
26.
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 guidelines for its
Website:
a.
Remediating the Website to be WCAG 2.0 AA compliant;
b.
Training Defendant’s employees and agents who develop the
Website on accessibility compliance under the WCAG 2.0 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 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.
27.
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.
28.
Without injunctive relief, Plaintiff Fischler and other visually impaired
consumers will continue to be unable to independently use the Website, violating its
rights.
29.
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.
30.
Defendant has failed to take any prompt and equitable steps to remedy its
discriminatory conduct. These violations are ongoing.
CLASS ACTION ALLEGATIONS
31.
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 Defendant’s stores during the relevant
statutory period (“Class Members”).
32.
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 Defendant’s stores during the relevant
statutory period (“New York Subclass Members”).
33.
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 stores during the relevant
statutory period (“New York City Subclass Members”).
34.
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
stores
are
places
of
“public
accommodation”;
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.
35.
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.
36.
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.
37.
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.
38.
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.
39.
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.
40.
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).
41.
Defendant’s stores are public accommodations within the definition of
Title III of the ADA, 42 U.S.C. § 12181(7). Its Website is a service, privilege, or
advantage of Defendant’s stores. The Website is a service that is integrated with these
locations.
42.
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).
43.
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).
44.
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).
45.
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.
46.
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
47.
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.
48.
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.”
49.
Defendant’s State of New York stores 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 stores. Defendant’s Website is a service
that is by and integrated with these stores.
50.
Defendant is subject to NYSHRL because it owns and operates its stores
and the Website. Defendant is a “person” under N.Y. Exec. Law § 292(1).
51.
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 its stores 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.
52.
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.”
53.
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.”
54.
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.
55.
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.
56.
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 stores 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.
57.
As Defendant’s actions violate the NYSHRL, Plaintiff Fischler seeks
injunctive relief to remedy the discrimination.
58.
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.
59.
Plaintiff Fischler is also entitled to reasonable attorneys’ fees and costs.
60.
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
61.
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.
62.
The NYCHRL 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.” N.Y.C. Admin.
Code § 8-107(4)(a).
63.
Defendant’s New York City stores 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 stores.
64.
Defendant is subject to NYCHRL because it owns and operates its stores
in the City of New York and its Website, making it a person under N.Y.C. Admin. Code
§ 8-102(1).
65.
Defendant is violating the NYCHRL in refusing to update or remove
access barriers to Website, causing its Website 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.
66.
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).
67.
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.
68.
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.
69.
As Defendant’s actions violate the NYCHRL, Plaintiff Fischler seeks
injunctive relief to remedy the discrimination.
70.
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).
71.
Plaintiff Fischler is also entitled to reasonable attorneys’ fees and costs.
72.
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
73.
Plaintiff Fischler, individually and on behalf the Class Members, repeats
and realleges every allegation of the preceding paragraphs as if fully set forth herein.
74.
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 stores, 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.
75.
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 make 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
April 26, 2019
LIPSKY LOWE LLP
s/ Douglas B. Lipsky
Douglas B. Lipsky
Christopher H. Lowe
630 Third Avenue, Fifth Floor
New York, New York 10017-6705
212.392.4772
doug@lipskylowe.com
chris@lipskylowe.com
| civil rights, immigration, family |
GqohCocBD5gMZwczmDO_ | IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF FLORIDA
JACKSONVILLE DIVISION
SAMUEL HUSS,
:
on behalf of himself and all others
:
Case No. 3:20-cv-961
similarly situated,
:
:
Plaintiff,
:
CLASS ACTION COMPLAINT
:
v.
:
DEMAND FOR JURY TRIAL
:
PAPERLESSPAY CORPORATION and
:
FAREWAY STORES, INC.,
:
:
Defendants.
:
_________________________________________ :
Plaintiff SAMUEL HUSS, on behalf of himself and all others similarly situated, brings this
action against Defendants PAPERLESSPAY CORPORATION (“PaperlessPay”) and
FAREWAY STORES, INC. (“Fareway Stores”) (collectively “Defendants ”) to obtain damages,
restitution, and injunctive relief for the Class, as defined below, from the Defendants. Plaintiff
makes the following allegations upon information and belief, except as to his own actions, the
investigation of his counsel, and the facts that are a matter of public record.
I.
NATURE OF THE ACTION
This class action arises out of the recent cyberattack and data breach involving
Defendant PaperlessPay (the “Data Breach”), which held in its possession certain personally
identifiable information (“PII”) of the Plaintiff, who was an employee of Defendant Fareway
Stores, and the putative Class Members, all of whom are employees of Fareway Stores or of other
entities whose payroll data is hosted on PaperlessPay’s servers, including, without limitation,
Marshall Medical Center (“MMC”), Community Memorial Health System (“CMHS”), Orlando
Utilities Commission (“OUC”), MP Environmental Services, Inc. (“MPE”), Prisma Health-
Midlands (“PHM”), and Lee Auto Malls (“Lee Auto Malls”).
The PII compromised in the Data Breach included highly sensitive information
including first and last names, addresses, full bank account numbers, payroll and withholding
information, and Social Security numbers of persons who were employed by Defendant Fareway
Stores, MMC, CMHS, OUC, MPE, or Lee Auto Malls, among other entities serviced by
PaperlessPay.
The Data Breach was a direct result of Defendants’ failure to implement adequate
and reasonable cybersecurity procedures and protocols necessary to protect consumers’ PII.
Plaintiff brings this class action lawsuit on behalf of those similarly situated to
address Defendants’ inadequate safeguarding of Class Members’ PII that they collected and
maintained, and for failing to provide timely and adequate notice to Plaintiff and other Class
Members that their information had been subject to the unauthorized access of an unknown third
party and precisely what specific type of information was accessed.
In addition, Defendant PaperlessPay (acting in the course and scope of its agency
relationship with Defendant Fareway Stores) and its employees failed to properly monitor the
computer network and systems that housed the PII. Had PaperlessPay properly monitored its
property, it would have discovered the intrusion sooner.
Defendants maintained the PII in a reckless manner. In particular, the PII was
maintained on Defendant PaperlessPay’s computer network in a condition vulnerable to
cyberattacks. Upon information and belief, the mechanism of the cyberattack and potential for
improper disclosure of Plaintiff’s and Class Members’ PII was a known risk to Defendants and
2
thus Defendants were on notice that failing to take steps necessary to secure the PII from those
risks left that property in a dangerous condition.
Defendants disregarded the rights of Plaintiff and Class Members (defined below)
by, inter alia, intentionally, willfully, recklessly, or negligently failing to take adequate and
reasonable measures to ensure their data systems were protected against unauthorized intrusions;
failing to disclose that they did not have adequately robust computer systems and security practices
to safeguard Class Member PII; and failing to take standard and reasonably available steps to
prevent the Data Breach.
Plaintiff’s and Class Members’ identities are now at risk because of Defendants’
negligent conduct since the PII that Defendants collected and maintained is now in the hands of
data thieves.
Armed with the PII accessed in the Data Breach, data thieves can commit a variety
of crimes including, e.g., opening new financial accounts in Class Members’ names, taking out
loans in Class Members’ names, using Class Members’ information to obtain government benefits,
filing fraudulent tax returns using Class Members’ information, filing false medical claims using
Class Members’ information, obtaining driver’s licenses in Class Members’ names but with
another person’s photograph, and giving false information to police during an arrest.
As a result of the Data Breach, Plaintiff and Class Members have been exposed to
a heightened and imminent risk of fraud and identity theft. Plaintiff and Class Members must now
and in the future closely monitor their financial accounts to guard against identity theft.
Plaintiff and Class Members may also incur out of pocket costs for, e.g., purchasing
credit monitoring services, credit freezes, credit reports, or other protective measures to deter and
detect identity theft.
3
Through this Complaint, Plaintiff seeks to remedy these harms on behalf of himself
and all similarly situated individuals whose PII was accessed during the Data Breach.
Plaintiff seeks remedies including, but not limited to, compensatory damages,
reimbursement of out-of-pocket costs, and injunctive relief including improvements to
Defendants’ data security systems, future annual audits, and adequate credit monitoring services
funded by Defendants.
Accordingly, Plaintiff brings this action against Defendants seeking redress for
their unlawful conduct, and asserting claims for: (i) negligence, (ii) breach of express contract, (iii)
breach of implied contract; (iv) intrusion upon seclusion/invasion of privacy; and (v) breach of
confidence.
II.
JURISDICTION AND VENUE
This Court has jurisdiction over this action under the Class Action Fairness Act
(“CAFA”), 28 U.S.C. § 1332(d). There are at least 100 members in the proposed class, the
aggregated claims of the individual Class Members exceed the sum or value of $5,000,000.00
exclusive of interest and costs, and members of the Proposed Class, including Plaintiff, are citizens
of states different from Defendant PaperlessPay.
Defendant PaperlessPay is a Florida corporation with its principle place of business
in Jacksonville, Florida. PaperlessPay has sufficient minimum contacts in Florida, as it is a
domestic corporation organized under the laws of the State of North Carolina and has its principal
place of business in Florida, thus rendering the exercise of personal jurisdiction by this Court
proper and necessary.
Defendant Fareway Stores is an Iowa corporation with its principal place of
business in Boone, Iowa. This Court has jurisdiction over Defendant Fareway Stores through its
4
business operations in this District, Defendant Fareway Stores intentionally avails itself of the
markets within this District to render the exercise of jurisdiction by this Court just and proper.
Defendant Fareway Stores has sufficient minimum contacts in Florida as it does business in the
State of Florida (through, among other things, its agent PaperlessPay) and the business being done
in Florida directly relates to the subject of this lawsuit, thus rendering the exercise of personal
jurisdiction by this Court proper and necessary.
Venue is proper in this Court pursuant to 28 U.S.C. § 1391(a)(1) because a
substantial part of the events and omissions giving rise to this action occurred in this District.
III.
PARTIES
Plaintiff Huss (“Huss”) is and at all times mentioned herein was as individual
citizen of the State of Iowa, residing in the city of Vinton. Plaintiff Huss is a former employee of
Fairway, having worked for Fairway as a butcher from 2014 through 2017. He received notice of
the Data Breach from Fareway on or about April 20, 2020. A copy of the notice he received is
attached hereto as Exhibit A (the “Fareway Notice Letter”).
Defendant PaperlessPay is a Florida corporation with its principal place of business
at 800 Water Street, Jacksonville, FL 32204.
Defendant Fareway Stores is an Iowa corporation with its principal place of
business at 715 8th Street, Boone, Iowa 50036.
IV.
STATEMENT OF FACTS
A. Nature of Defendants’ Businesses
Defendant Fareway Stores is a Midwest grocery store chain.
Defendant PaperlessPay is a for-profit company specializing in processing payroll.
5
Defendant Fareway Stores uses PaperlessPay to produce electronic paystubs and
W-2 forms for employees.
MMC, CMHS, OUC, MPE, PHM and Lee Auto Malls also use PaperlessPay to
produce electronic paystubs and W-2 forms for employees.
In the ordinary course of his employment at Defendant Fareway Stores, and as a
condition of his employment, Plaintiff provided PII to Defendant Fareway Stores, including his
name, address, full bank account number, and Social Security number.
In the ordinary course of their employment at MMC, CMHS, OUC, MPE, PHM or
Lee Auto Malls, Class members, who are former or current employees of MMC, CMHS, OUC,
MPE, or Lee Auto Malls, provided PII to MMC, CMHS, OUC, MPE, PHM or Lee Auto Malls,
including their name, address, full bank account number, and Social Security number.
Defendant Fareway Stores and Defendant PaperlessPay (in the course of providing
its services and acting as an agent of Fareway Stores) maintain this PII on their servers and within
their data infrastructure.
MMC, CMHS, OUC, MPE, PHM, and Lee Auto Malls and Defendant
PaperlessPay (in the course of providing its services and acting as an agent of MMC, CMHS,
OUC, MPE, PHM, and Lee Auto Malls) also maintain this PII on their servers and within their
data infrastructure.
6
Fareway Stores has established a Privacy Policy wherein it details the PII it collects
from employees and its standards to maintain the security and integrity of such data.1
The aim of the Privacy Policy is to provide adequate and consistent safeguards for
the handling of employment data by Fareway Stores.
Defendant Fareway Stores, and by extension Defendant PaperlessPay, agreed to
and undertook legal duties to maintain the PII entrusted to them by Plaintiff and Class Members
safely, confidentially, and in compliance with all applicable laws.
Defendant PaperlessPay, acting as an agent of Defendant Fareway Stores, held the
employee information collected by Defendant Fareway Stores at its servers located in Jacksonville,
Florida.2
Defendant PaperlessPay, acting as an agent of MMC, CMHS, OUC, MPE, PHM,
and Lee Auto Malls held the employee information collected by MMC, CMHS, OUC, MPE, PHM,
and Lee Auto Malls at its servers located in Jacksonville, Florida.
The employee information held by Defendant PaperlessPay in its computer systems
and networks included the PII of Plaintiff and Class Members.
B.
The Data Breach
On or about February 19, 2020, the Department of Homeland Security (“DHS”)
notified PaperlessPay that a dark web advertisement offered for sale “access” to PaperlessPay’s
SQL database server. The server contained Social Security numbers for current and former
1 https://www.magellanhealth.com/privacy-policy/#:~:text=Magellan
Health%20uses%20physical%2C%20technical%2C%20and,for%20providing%20service
%20to%20you. (last visited June 25, 2020).
2 See Notice Letter.
7
employees of Fareway Stores as well as that of current and former employees of other companies
serviced by PaperlessPay.
Over the following weeks, PaperlessPay cooperated with the joint investigation
conducted by (“DHS”) and the federal Bureau of Investigation (“FBI”).
PaperlessPay engaged the cybersecurity firm Ankura to investigate the incident.
Ankura confirmed that, at a minimum, on February 18, 2020, an unauthorized individual entered
the server which stored employee data for Defendant Fareway Stores, MMC, CMHS, OUC, MPE,
PHM and Lee Auto Malls and possibly staged an exfiltration from the server.
The data and files exfiltrated from Defendant PaperlessPay’s computer servers
included the PII of Plaintiff and Class Members, including first and last names, addresses, payroll
and withholding information, full bank account numbers, and Social Security numbers.
On or about March 20, 2020, PaperlessPay notified Defendant Fareway Stores,
MMC, CMHS, OUC, MPE, PHM and Lee Auto Malls of the Data Breach
PaperlessPay advised Fareway Stores, MMC, CMHS, OUC, MPE, PHM and Lee
Auto Malls that an unauthorized individual gained access to its server that hosts Fareway Stores’
payroll data. PaperlessPay was unable to confirm the extent of the access, but it did confirm that
an unauthorized individual gained access to it server at least once on February 18, 2020, and that
the unauthorized individual had the ability to query any payroll data within the server.
8
As a result of PaperlessPay’s disclosures, Fareway Stores decided to provide notice
with an offer of one (1) year of identity monitoring without cost to 30,519 current and former
employees, including Plaintiff Huss.3
As a result of PaperlessPay’s disclosures, OUC sent notice of the Data Breach to
2,100 potentially impacted current and former employees.4
As a result of PaperlessPay’s disclosures, MMC sent notice of the Data Breach with
an offer of one (1) year of identity monitoring without cost to its current and former employees.5
As a result of PaperlessPay’s disclosures, CMHS sent notice with an offer of one
(1) year of identity monitoring without cost to its current and former employees.6
As a result of PaperlessPay’s disclosures, MPE decided to provide notice with an
offer of two (2) years identity monitoring without cost to its current and former employees.7
As a result of PaperlessPay’s disclosures, PHM decided to provide notice with an
offer of two (2) years identity monitoring without cost to its current and former employees.8
3 Notice of Data Breach, available at
https://www.iowaattorneygeneral.gov/media/cms/4162020_Fareway_Stores_Inc_961EEB88C3A
3B.pdf; see also Exhibit A.
4 See https://www.orlandosentinel.com/news/crime/os-ne-ouc-data-breach-20200429-
zhayied765asxcqesgqgbha664-story.html.
5 Notice of Data Breach, available at
https://oag.ca.gov/system/files/Breach%20notification%20letter%20-%20April%202020%20-
%20template%20for%20AG.pdf.
6 Notice of Data Breach, available at
https://oag.ca.gov/system/files/%28CMHS%29%20Sample%20Notification%20Letter.pdf.
7 Notice of Data Breach, available at https://media.dojmt.gov/wp-content/uploads/Breach-
NotificationDetails-153.pdf.
8 Notice of Data Breach, available at https://ago.vermont.gov/blog/2020/07/20/prisma-health-
paperless-pay-notice-of-data-breach-to-consumers/.
9
As a result of PaperlessPay’s disclosures, Lee Auto Malls decided to provide notice
with an offer of two (2) years of identity monitoring without cost to its current and former
employees.9
C.
Fareway Stores Privacy Policy
Defendant Fareway Stores had an obligation created by contract, industry
standards, common law, and representations made to Class Members, to keep Plaintiff and Class
Members’ PII confidential and to protect it from unauthorized access and disclosure.
Plaintiff and Fareway Subclass Members provided their PII to Defendant Fareway
Stores with the reasonable expectation and mutual understanding that Defendant Fareway Stores
would comply with its obligations to keep such information confidential and secure from
unauthorized access.
Defendants data security obligations were particularly important given the
substantial increase in cyberattacks and/or data breaches in the last few years.
Indeed, cyberattacks, such as the one experienced by Defendants, have become so
notorious that the Federal Bureau of Investigation (“FBI”) and U.S. Secret Service have issued a
warning to potential targets so they are aware of, and prepared for, a potential attack.
Therefore, the increase in such attacks, and attendant risk of future attacks, was
widely known to the public.
Defendants breached their obligations to Plaintiff and Class Members and/or were
otherwise negligent and reckless because they failed to properly maintain and safeguard their
9 Notice of Data Breach, available at https://ago.vermont.gov/blog/2020/04/15/lee-auto-malls-
notice-of-data-breach-to-consumers/.
10
computer systems and data infrastructure. Defendants’ unlawful conduct includes, but is not
limited to, their failure to:
maintain an adequate data security system to reduce the risk of data breaches and
cyberattacks;
adequately protect employees’ PII;
properly monitor its own data security systems for existing intrusions;
ensure that vendors with access to payroll data employed reasonable security
procedures;
As the result of computer systems in need of security upgrading, failure to
implement proper cybersecurity hardware and software (such as next generation firewalls and
multi-factor authentication), inadequate procedures for handling phishing emails, and inadequately
trained employees, Defendants negligently and unlawfully failed to safeguard Plaintiff’s and Class
Members’ PII.
Accordingly, Plaintiff and Class Members now face an increased risk of fraud and
identity theft.
D.
Data Breaches Cause Disruption and Put Consumers at an Increased Risk of
Fraud and Identify Theft
The United States Government Accountability Office released a report in 2007
regarding data breaches (“GOA Report”) in which they noted that victims of identity theft will
face “substantial costs and time to repair the damage to their good name and credit record.”10
10See “Data Breaches Are Frequent, but Evidence of Resulting Identity Theft Is Limited; However,
the Full Extent Is Unknown,” p. 2, U.S. Government Accountability Office, June 2007,
https://www.gao.gov/new.items/d07737.pdf (last visited July 12) (“GAO Report”).
11
The FTC recommends that identity theft victims take several steps to protect their
personal and financial information after a data breach, including contacting one of the credit
bureaus to place a fraud alert (consider an extended fraud alert that lasts for 7 years if someone
steals their identity), reviewing their credit reports, contacting companies to remove fraudulent
charges from their accounts, placing a credit freeze on their credit, and correcting their credit
reports.11
Identity thieves use stolen personal information such as Social Security numbers
for a variety of crimes, including credit card fraud, phone or utilities fraud, and bank/finance fraud.
Identity thieves can also use Social Security numbers to obtain a driver’s license or
official identification card in the victim’s name but with the thief’s picture; use the victim’s name
and Social Security number to obtain government benefits; or file a fraudulent tax return using the
victim’s information. In addition, identity thieves may obtain a job using the victim’s Social
Security number, rent a house or receive medical services in the victim’s name, and may even give
the victim’s personal information to police during an arrest resulting in an arrest warrant being
issued in the victim’s name. A study by Identity Theft Resource Center shows the multitude of
harms caused by fraudulent use of personal and financial information:12
11See https://www.identitytheft.gov/Steps (last visited July 12, 2020).
12 “Credit Card and ID Theft Statistics” by Jason Steele, 10/24/2017, at:
https://www.creditcards.com/credit-card-news/credit-card-security-id-theft-fraud-statistics-
1276.php (last visited July 12, 2020).
12
What’s more, theft of PII is also gravely serious. PII is a valuable property right.13
Its value is axiomatic, considering the value of Big Data in corporate America and the
consequences of cyber thefts include heavy prison sentences. Even this obvious risk to reward
analysis illustrates beyond doubt that PII has considerable market value.
It must also be noted there may be a substantial time lag – measured in years --
between when harm occurs versus when they is discovered, and also between when PII and/or
financial information is stolen and when they is used. According to the U.S. Government
Accountability Office, which conducted a study regarding data breaches:
[L]aw enforcement officials told us that in 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
13 See, e.g., John T. Soma, et al, Corporate Privacy Trend: The “Value” of Personally Identifiable
Information (“PII”) Equals the “Value" of Financial Assets, 15 Rich. J.L. & Tech. 11, at *3-4
(2009) (“PII, which companies obtain at little cost, has quantifiable value that is rapidly reaching
a level comparable to the value of traditional financial assets.”) (citations omitted).
13
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.
See GAO Report, at p. 29.
PII and financial information are such valuable commodities to identity thieves that
once the information has been compromised, criminals often trade the information on the “cyber
black-market” for years.
As evidenced by the dark web advertisement selling access to PaperlessPay’s
payroll database on the black market, there is a market for Plaintiff’s and Class Members PII, and
the stolen PII has inherent value.
As evidenced by the dark web advertisement selling access to PaperlessPay’s
payroll database on the black market, Plaintiff and Class Members are at an increased risk of fraud
and identity theft for many years into the future. Thus, Plaintiff and Class Members must vigilantly
monitor their financial accounts for many years to come.
V.
PLAINTIFF’S AND CLASS MEMBERS’ DAMAGES
To date, Defendants have done absolutely nothing to compensate Class
Members for the damages they sustained in the Data Breach. Defendant Fareway has merely
offered to Fareway Subclass Members identity monitoring services for a paltry 12 months by
way of TransUnion’s “myTrueIdentity” Credit Monitoring Service.14 Other Class Members
have been offered one or two years of identity monitoring or none at all.
Defendant Fareway’s offer is wholly inadequate as it fails to provide for the fact
that victims of data breaches and other unauthorized disclosures commonly face multiple years
14 See Notice Letter.
14
of ongoing identity theft and they entirely fails to provide any compensation for the
unauthorized release and disclosure of Plaintiff’s and Class Members’ PII.
Furthermore, Defendant Fareway Store’s credit monitoring offer squarely places
the burden on Plaintiff and Class Members, rather than on the Defendant, to investigate and protect
themselves from Defendants’ tortious acts resulting in the Data Breach. Rather than automatically
enrolling Plaintiff and Class Members in credit monitoring services upon discovery of the breach,
Defendants merely sent instructions to Plaintiff and Class Members about actions they can
affirmatively take to protect themselves.15
Plaintiff and Class Members have been damaged by the compromise and
exfiltration of their PII in the Data Breach.
Plaintiff’s PII was compromised and exfiltrated by cyber criminals as a direct and
proximate result of the Data Breach.
As a direct and proximate result of Defendants’ conduct, Plaintiff and Class
Members have been placed at an imminent, immediate, and continuing increased risk of harm from
fraud and identity theft.
As a direct and proximate result of Defendants’ conduct, Plaintiff and Class
Members have been forced to expend time dealing with the effects of the Data Breach.
Plaintiff and Class Members face substantial risk of out-of-pocket fraud losses such
as loans opened in their names, medical services billed in their names, tax return fraud, utility bills
opened in their names, credit card fraud, and similar identity theft.
15 See Notice Letter.
15
Plaintiff and Class Members face substantial risk of being targeted for future
phishing, data intrusion, and other illegal schemes based on their PII as potential fraudsters could
use that information to more effectively target such schemes to Plaintiff and Class Members.
Plaintiff and Class Members may also incur out-of-pocket costs for protective
measures such as credit monitoring fees, credit report fees, credit freeze fees, and similar costs
directly or indirectly related to the Data Breach.
Plaintiff and Class Members also suffered a loss of value of their PII when they
was acquired by cyber thieves in the Data Breach. Numerous courts have recognized the propriety
of loss of value damages in related cases.
Plaintiff and Class Members have spent and will continue to spend significant
amounts of time to monitor their financial accounts and records for misuse.
Plaintiff and Class Members have suffered or will suffer actual injury as a direct
result of the Data Breach. Many victims suffered ascertainable losses in the form of out-of-pocket
expenses and the value of their time reasonably incurred to remedy or mitigate the effects of the
Data Breach relating to:
finding fraudulent charges;
canceling and reissuing credit and debit cards;
purchasing credit monitoring and identity theft prevention;
addressing their inability to withdraw funds linked to compromised accounts;
taking trips to banks and waiting in line to obtain funds held in limited accounts;
lacing “freezes” and “alerts” with credit reporting agencies;
spending time on the phone with or at a financial institution to dispute fraudulent
charges;
16
contacting financial institutions and closing or modifying financial accounts;
resetting automatic billing and payment instructions from compromised credit and
debit cards to new ones;
paying late fees and declined payment fees imposed as a result of failed automatic
payments that were tied to compromised cards that had to be cancelled; and
reviewing and monitoring bank accounts and credit reports for unauthorized
activity for years to come.
Moreover, Plaintiff and Class Members have an interest in ensuring that their PII,
which is believed to remain in the possession of the Defendants, is protected from further breaches
by the implementation of security measures and safeguards, including but not limited to, making
sure that the storage of data or documents containing personal and financial information is not
accessible online and that access to such data is password-protected.
Further, as a result of Defendants’ conduct, Plaintiff and Class Members are forced
to live with the anxiety that their PII —which contains the most intimate details about a person’s
life—may be disclosed to the entire world, thereby subjecting them to embarrassment and
depriving them of any right to privacy whatsoever.
As a direct and proximate result of Defendants’ actions and inactions, Plaintiff and
Class Members have suffered anxiety, emotional distress, and loss of privacy, and are at an
increased risk of future harm.
Defendants’ delay in identifying and reporting the Data Breach caused additional
harm. It is axiomatic that “[t]he quicker a financial institution, credit card issuer, wireless carrier
or other service provider is notified that fraud has occurred on an account, the sooner these
organizations can act to limit the damage. Early notification can also help limit the liability of a
17
victim in some cases, as well as allow more time for law enforcement to catch the fraudsters in the
Indeed, once a Data Breach has occurred, “[o]ne thing that does matter is hearing
about a Data Breach quickly. That alerts consumers to keep a tight watch on credit card bills and
suspicious emails. It can prompt them to change passwords and freeze credit reports. And notifying
officials can help them catch cyber criminals and warn other businesses of emerging dangers. If
consumers don’t know about a breach because they wasn’t reported, they can’t take action to
protect themselves” (internal citations omitted).17
16Identity Fraud Hits Record High with 15.4 Million U.S. Victims in 2016, Up 16 Percent
According to New Javelin Strategy & Research Study, Business Wire¸
https://www.businesswire.com/news/home/20170201005166/en/Identity-Fraud-Hits-Record-
High-15.4-Million.
17Consumer Reports, The Data Breach Next Door: Security breaches don't just hit giants
like Equifax and Marriott. Breaches at small companies put consumers at risk, too, January
31, 2019, https://www.consumerreports.org/data-theft/the-data-breach-next-door/
18
VI.
CLASS ACTION ALLEGATIONS
Plaintiff brings this action on behalf of himself and on behalf of all other persons
similarly situated (the “Class”) pursuant to Rule 23 (b)(2), (b)(3) and (c)(4) of the Federal Rules
of Civil Procedure.
Plaintiff proposes the following Class definition, subject to amendment as
appropriate:
All persons whose PII was compromised in the Data Breach and who were
sent Notice of the Data Breach (the “Class”).
Plaintiff proposes the following Subclass definition, subject to amendment as
appropriate:
All current and former employees of Fareway Stores whose PII was
compromised in the Data Breach and who were sent Notice of the Data
Breach (the “Fareway Subclass”).
Excluded from the Class and Subclass are Defendants’ officers and directors, and
any entity in which Defendants have a controlling interest; and the affiliates, legal representatives,
attorneys, successors, heirs, and assigns of Defendant. Excluded also from the Class are Members
of the judiciary to whom this case is assigned, their families and Members of their staff.
Plaintiff hereby reserves the right to amend or modify the class definitions with
greater specificity or division after having had an opportunity to conduct discovery. The proposed
Class meets the criteria for certification under Rule 23(a), 23(b)(2), 23(b)(3), and 23(c)(4).
Numerosity. The Members of the Class and Subclass are so numerous that joinder
of all of them is impracticable. While the exact number of Class Members is unknown to Plaintiff
at this time, based on information and belief, the Class consists of approximately no less than
32,619 and the Subclass consists of approximately 30,519 consumers whose data was
compromised in the Data Breach.
19
Commonality. There are questions of law and fact common to the Class and
Subclass, which predominate over any questions affecting only individual Class Members. These
common question of law and fact include, without limitation:
Whether Defendants unlawfully used, maintained, lost, or disclosed Plaintiff’s and
Class Members’ PII;
Whether Defendants failed to implement and maintain reasonable security
procedures and practices appropriate to the nature and scope of the information
compromised in the Data Breach;
Whether Defendants’ data security systems prior to and during the Data Breach
complied with applicable data security laws and regulations;
Whether Defendants’ data security systems prior to and during the Data Breach
were consistent with industry standards;
Whether Defendants owed a duty to Class Members to safeguard their PII;
Whether Defendants breached its duty to Class Members to safeguard their PII;
Whether computer hackers obtained Class Members’ PII in the Data Breach;
Whether Defendants knew or should have known that their data security systems
and monitoring processes were deficient;
Whether Plaintiff and Class Members suffered legally cognizable damages as a
result of Defendants’ misconduct;
Whether Defendants’ conduct was negligent;
Whether Defendants’ acts, inactions, and practices complained of herein amount to
acts of intrusion upon seclusion under the law;
20
Whether Defendants failed to provide notice of the Data Breach in a timely manner;
and
Whether Plaintiff and Class Members are entitled to damages, civil penalties,
punitive damages, and/or injunctive relief.
Typicality. Plaintiff’s claims are typical of those of other Class Members because
Plaintiff’s PII, like that of every other Class member, was compromised in the Data Breach.
Adequacy of Representation. Plaintiff will fairly and adequately represent and
protect the interests of the Members of the Class and Subclass. Plaintiff’s Counsel is competent
and experienced in litigating class actions, including data privacy litigation of this kind.
Predominance. Defendants have engaged in a common course of conduct toward
Plaintiff and Class Members, in that all the Plaintiff’s and Class Members’ data was stored on the
same computer systems and unlawfully accessed in the same way. The common issues arising
from Defendants’ conduct affecting Class Members set out above predominate over any
individualized issues. Adjudication of these common issues in a single action has important and
desirable advantages of judicial economy.
Superiority. A class action is superior to other available methods for the fair and
efficient adjudication of the controversy. Class treatment of common questions of law and fact is
superior to multiple individual actions or piecemeal litigation. Absent a class action, most Class
Members would likely find that the cost of litigating their individual claims is prohibitively high
and would therefore have no effective remedy. The prosecution of separate actions by individual
Class Members would create a risk of inconsistent or varying adjudications with respect to
individual Class Members, which would establish incompatible standards of conduct for
Defendants . In contrast, the conduct of this action as a class action presents far fewer management
21
difficulties, conserves judicial resources and the parties’ resources, and protects the rights of each
Class member.
Defendants have acted on grounds that apply generally to the Class as a whole, so
that class certification, injunctive relief, and corresponding declaratory relief are appropriate on a
Class-wide basis.
Likewise, particular issues under Rule 23(c)(4) are appropriate for certification
because such claims present only particular, common issues, the resolution of which would
advance the disposition of this matter and the parties’ interests therein. Such particular issues
include, but are not limited to:
Whether Defendants owed a legal duty to Plaintiff and the Class to exercise due
care in collecting, storing, and safeguarding their PII;
Whether Defendants’ security measures to protect their data systems were
reasonable in light of best practices recommended by data security experts;
Whether Defendants’ failure to institute adequate protective security measures
amounted to negligence;
Whether Defendants failed to take commercially reasonable steps to safeguard
consumer PII; and
Whether adherence to FTC data security recommendations, and measures
recommended by data security experts would have reasonably prevented the Data Breach.
Finally, all members of the proposed Class are readily ascertainable. Defendants
have access to Class Members’ names and addresses affected by the Data Breach. Class Members
have already been preliminarily identified and sent notice of the Data Breach by Defendants.
22
CAUSES OF ACTION
FIRST COUNT
Negligence
(On behalf of Plaintiff and all Class Members against Defendant PaperlessPay)
Plaintiff re-alleges and incorporates by reference all Paragraphs above as if fully
set forth herein.
Plaintiff and Class Members were required to submit PII in order to obtain
employment or as a condition of their employment.
By collecting and storing this data in PaperlessPay’s computer property,
PaperlessPay had a duty of care to use reasonable means to secure and safeguard its computer
property—and Class Members’ PII held within it—to prevent disclosure of the information, and
to safeguard the information from theft. Defendant PaperlessPay’s duty included a responsibility
to implement processes by which it could detect a breach of their security systems in a reasonably
expeditious period of time and to give prompt notice to those affected in the case of a data breach.
Defendant PaperlessPay owed a duty of care to Plaintiff and Class Members
to provide data security consistent with industry standards and other requirements discussed
herein, and to ensure that their systems and networks, and the personnel responsible for them,
adequately protected the PII.
Defendant PaperlessPay’s had duty of care to use reasonable security
measures because it was in a position to ensure that its systems were sufficient to protect against
the foreseeable risk of harm to Class Members from a data breach.
Defendant PaperlessPay’s duty to use reasonable care in protecting
confidential data also arose also because it is bound by industry standards to protect confidential
23
Defendant PaperlessPay breached its duties, and thus was negligent, by
failing to use reasonable measures to protect Class Members’ PII. The specific negligent acts and
omissions committed by Defendant PaperlessPay include, but are not limited to, the following:
Failing to adopt, implement, and maintain adequate security measures to
safeguard Class Members’ PII;
Failing to adequately monitor the security of their networks and systems;
Failure to periodically ensure that their email system had plans in place to maintain
reasonable data security safeguards;
Allowing unauthorized access to Class Members’ PII;
Failing to detect in a timely manner that Class Members’ PII had been
compromised; and
Failing to timely notify Class Members about the Data Breach so that they could
take appropriate steps to mitigate the potential for identity theft and other damages.
It was foreseeable that Defendants’ failure to use reasonable measures to
protect Class Members’ PII would result in injury to Class Members. Further, the breach of
security was reasonably foreseeable given the known high frequency of cyberattacks and data
breaches in the financial services industry.
It was therefore foreseeable that the failure to adequately safeguard Class
Members’ PII would result in one or more types of injuries to Class Members.
Plaintiff and Class Members are entitled to compensatory and consequential
damages suffered as a result of the Data Breach.
Plaintiff and Class Members are also entitled to injunctive relief requiring
Defendants to (i) strengthen their data security systems and monitoring procedures; (ii) submit to
24
future annual audits of those systems and monitoring procedures; and (iii) continue to provide
adequate credit monitoring to all Class Members.
SECOND COUNT
Breach of Express Contract
(On Behalf of Plaintiff and All Class Members against Defendant PaperlessPay)
Plaintiff re-alleges and incorporates by reference all Paragraphs above
as if fully set forth herein.
Plaintiff and Class Members allege that they were the express, foreseeable,
and intended third party beneficiaries, of valid and enforceable express contracts between
Defendant PaperlessPay and Defendant Fareway Stores, MMC, CMHS, OUC, MPE, PHM, or Lee
Auto Malls, contract(s) which (upon information and belief) include obligations to keep sensitive
PII private and secure.
Defendant PaperlessPay materially breached its contractual obligation to
protect the PII of Plaintiff and Class members when the information was accessed and exfiltrated
by unauthorized personnel as part of the Data Breach.
The Data Breach was a reasonably foreseeable consequence of Defendant
PaperlessPay’s actions in breach of these contracts.
As a direct and proximate result of the Data Breach, Plaintiff and Class
Members have been harmed and have suffered, and will continue to suffer, actual damages and
injuries, including without limitation the release, disclosure, and publication of their PII, the loss
of control of their PII, the imminent risk of suffering additional damages in the future, and out-of-
pocket expenses.
Plaintiff and Class Members are entitled to compensatory and consequential
damages suffered as a result of the Data Breach.
25
THIRD COUNT
Breach of Contract
(On Behalf of Plaintiff Huss and Fareway Subclass Members against Defendant Fareway)
Plaintiff re-alleges and incorporates by reference all Paragraphs above
as if fully set forth herein.
Plaintiff and Class Members allege that Fareway’s privacy policy forms a
binding contract between Fareway and its employees when they gave their PII to Fareway at the
start of their employment.
Fareway breached these provisions of the contracts in that they did not have
any measures to stop accidental loss or alteration or unauthorized access to protect Plaintiff and
Class members’ Personal Information, and did not limit access to that information to the specified
individuals or entities. Fareway violated its commitment to maintain the confidentiality and
security of the PII of Plaintiffs and the class members and failed to comply with its own policies
and applicable laws, regulations, and industry standards relating to data security.
The data breach reported on April 20, 2020 is a direct and legal cause of the
injuries and damages suffered by Plaintiffs and the Class members.
As a direct and proximate result of the Data Breach, Plaintiff and Class
Members have been harmed and have suffered, and will continue to suffer, actual damages and
injuries, including without limitation the release, disclosure, and publication of their PII, the loss
of control of their PII, the imminent risk of suffering additional damages in the future, and out-of-
pocket expenses.
Plaintiff and Class Members are entitled to compensatory and consequential
damages suffered as a result of the Data Breach.
26
FOURTH COUNT
Breach of Implied Contract
(On Behalf of Plaintiff Huss and Fareway Subclass Members against Defendant Fareway)
Plaintiff re-alleges and incorporates by reference all Paragraphs above
as if fully set forth herein.
To the extent Fareway’s privacy policy did not form an express contract,
the creation of the employment relationship created implied contracts between Fareway and the
members of the Fareway Subclass.
Fareway breached such implied warranties by failing to adhere to the terms
of its privacy policy, violated its commitment to maintain the confidentiality of the PII of the
members of thw Subclass and failed to comply with its own policies and applicable laws,
regulations and industry standards relating to data security.
As a direct and proximate result of the Data Breach, Plaintiff and Class
Members have been harmed and have suffered, and will continue to suffer, actual damages and
injuries, including without limitation the release, disclosure, and publication of their PII, the loss
of control of their PII, the imminent risk of suffering additional damages in the future, and out-of-
pocket expenses.
Plaintiff and Class Members are entitled to compensatory and consequential
damages suffered as a result of the Data Breach.
FIFTH COUNT
Intrusion Upon Seclusion / Invasion of Privacy
((On behalf of Plaintiff and All Class Members against Defendant PaperlessPay and
on behalf of Plaintiff and all Fareway Subclass Members against Defendant Fareway)
Plaintiff repeats and re-alleges each and every allegation contained in all
Paragraphs above as if fully set forth herein.
27
The Restatement (Second) of Torts states:
One who intentionally intrudes, physically or otherwise, upon the solitude
or seclusion of another or his private affairs or concerns, is subject to
liability to the other for invasion of his privacy, if the intrusion would be
highly offensive to a reasonable person.
Restatement (Second) of Torts § 652B (1977)
Plaintiff and Class Members had a reasonable expectation of privacy in the
PII Defendants mishandled. In failing to protect Plaintiff’s and Class Members’ PII, and in
intentionally misusing and/or disclosing their PII, Defendants acted with intentional malice and
oppression and in conscious disregard of Plaintiff’s and Class Members’ rights to have such
information kept confidential and private. Plaintiff, therefore, seeks an award of damages on
behalf of herself and the Class.
SIXTH COUNT
Breach of Confidence
(On behalf of Plaintiff and All Class Members against Defendant PaperlessPay and
on behalf of Plaintiff and all Fareway Subclass Members against Defendant Fareway)
Plaintiff re-alleges and incorporates by reference all Paragraphs above as if
fully set forth herein.
At all times during Plaintiff’s and Subclass Members’ interactions with
Defendant Fareway Stores, Defendant Fareway Stores was fully aware of the confidential and
sensitive nature of Plaintiff’s and Subclass Members’ PII that Plaintiff and Class Members
provided to Defendant Fareway Stores.
As the agent of Defendant Fareway Stores, MMC, CMHS, OUC, MPE,
PHM, and Lee Auto Mall for purposes of storing, maintaining, and safeguarding Plaintiff’s and
Class Members’ PII, MMC, CMHS, OUC, MPE, PHM, and Lee Auto Mall duty to maintain
confidence is imputed to Defendant PaperlessPay.
28
As alleged herein and above, Defendant Fareway Stores, MMC, CMHS,
OUC, MPE, PHM, and Lee Auto Mall’s relationship with Plaintiff and Class Members was
governed by terms and expectations that Plaintiff and Class Members’ PII would be collected,
stored, and protected in confidence, and would not be disclosed the unauthorized third parties.
Plaintiff and Class Members provided their respective PII to Defendant
Fareway Stores, MMC, CMHS, OUC, MPE, PHM, and Lee Auto Mall with the explicit and
implicit understandings that Defendants would protect and not permit the PII to be disseminated
to any unauthorized parties.
Plaintiff and Class Members also provided their PII to Defendant Fareway
Stores, MMC, CMHS, OUC, MPE, PHM, and Lee Auto Mall with the explicit and implicit
understandings that Defendant Fareway Stores, MMC, CMHS, OUC, MPE, PHM, and Lee Auto
Mall would take precautions to protect that PII from unauthorized disclosure, such as following
basic principles of protecting their networks and data systems, including employees’ email
accounts.
Defendant Fareway Stores, MMC, CMHS, OUC, MPE, PHM, and Lee
Auto Mall voluntarily received in confidence Plaintiff’s and Class Members’ PII with the
understanding that PII would not be disclosed or disseminated to the public or any unauthorized
third parties.
Due to Defendants’ failure to prevent, detect, avoid the Data Breach from
occurring by, inter alia, following best information security practices to secure Plaintiff’s and
Class Members’ PII, Plaintiff’s and Class Members’ PII was disclosed and misappropriated to
unauthorized third parties beyond Plaintiff’s and Class Members’ confidence, and without their
express permission.
29
As a direct and proximate cause of Defendants’ actions and/or omissions,
Plaintiff and Class Members have suffered damages.
But for Defendants’ disclosure of Plaintiff’s and Class Members’ PII in
violation of the parties’ understanding of confidence, their PII would not have been compromised,
stolen, viewed, accessed, and used by unauthorized third parties. Defendants’ Data Breach was the
direct and legal cause of the theft of Plaintiff’s and Class Members’ PII, as well as the resulting
damages.
The injury and harm Plaintiff and Class Members suffered was the
reasonably foreseeable result of Defendants’ unauthorized disclosure of Plaintiff’s and Class
Members’ PII. Defendants knew their computer systems and technologies for accepting and
securing Plaintiff’s and Class Members’ PII had numerous security vulnerabilities.
As a direct and proximate result of Defendant’s breaches of confidence,
Plaintiff and Class Members have suffered and will suffer injury, including but not limited to: (i)
actual identity theft; (ii) the compromise, publication, and/or theft of their PII; (iii) out-of-pocket
expenses associated with the prevention, detection, and recovery from identity theft 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 identity theft; (v) the continued risk to their PII, which remains in
Defendants’ possession and is subject to further unauthorized disclosures so long as Defendants
fail to undertake appropriate and adequate measures to protect the PII in its continued possession;
(vi) future costs in terms of time, effort, and money that will be expended as result of the Data
30
Breach for the remainder of the lives of Plaintiff and Class Members; and (vii) the diminished
value of Defendants’ services they received.
As a direct and proximate result of Defendants’ breaches of its duties,
Plaintiff and Class Members have suffered and will continue to suffer other forms of injury and/or
harm, and other economic and non-economic losses.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff pray for judgment as follows:
For an Order certifying this action as a class action and appointing Plaintiff and
their counsel to represent the Class and Subclass;
For equitable relief enjoining Defendant PaperlessPay from engaging in the
wrongful conduct complained of herein pertaining to the misuse and/or disclosure of
Plaintiff’s and Class Members’ PII;
For equitable relief compelling Defendants to utilize appropriate methods and
policies with respect to consumer data collection, storage, and safety, and to disclose with
specificity the type of PII compromised during the Data Breach;
Ordering Defendants to pay for not less than seven years of credit monitoring
services for Plaintiff and the Class;
For an award of actual damages, compensatory damages, statutory damages, and
statutory penalties, in an amount to be determined, as allowable by law;
For an award of punitive damages, as allowable by law;
For an award of attorneys’ fees and costs, and any other expense, including expert
witness fees;
Pre- and post-judgment interest on any amounts awarded; and
31
Such other and further relief as this court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiff demand a trial by jury on all claims so triable.
Dated: August 26, 2020
Respectfully submitted,
/s/ James E. Felman
James E. Felman, Fla. Bar No. 0775568
Katherine Earle Yanes, Fla. Bar No. 0159727
Kynes Markman & Felman, P.A.
100 S. Ashley Drive, Suite 1450
Tampa, FL 33602
Tel.: (813) 229-1118
Email:
jfelman@kmf-law.com
kyanes@kmf-law.com
Gary E. Mason*
MASON LIETZ & KLINGER LLP
5301 Wisconsin Avenue, NW
Suite 305
Washington, DC 20016
Tel: (202) 429-2290
Email: gmason@masonllp.com
*pro hac vice to be filed
Attorneys for Plaintiff
32
| products liability and mass tort |
zeRZEYcBD5gMZwczR1qW | JUDY LONDON (SBN 149431)
jlondon@publiccounsel.org
SARA VAN HOFWEGEN (SBN
266985)
svanhofwegen@ publiccounsel.org
MARY TANAGHO ROSS (SBN
280657)
mross@publiccounsel.org
PUBLIC COUNSEL
610 South Ardmore Avenue
Los Angeles, CA 90005
Telephone:
(213) 385-2977
Facsimile:
(213) 385-9089
MATTHEW KANNY (SBN 167118)
MKanny@Manatt.com
ADRIANNE MARSHACK (SBN 253682)
AMarshack@Manatt.com
SIRENA CASTILLO (SBN 260565)
SCastillo@Manatt.com
MANATT, PHELPS & PHILLIPS, LLP
11355 West Olympic Boulevard
Los Angeles, CA 90064-1614
Telephone:
(310) 312-4000
Facsimile:
(310) 312-4224
KEITH WURSTER (SBN 198918)
kwurster@lccr.com
LAWYERS’ COMMITTEE FOR CIVIL
RIGHTS OF THE SAN FRANCISCO BAY
AREA
131 Steuart Street, Suite 400
San Francisco, CA 94105
Telephone:
(415) 543-9444
Facsimile:
(415) 543-0296
Attorneys for Plaintiffs
J.L., M.V.B., M.D.G.B., and J.B.A., on behalf
of themselves and all others similarly situated
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
Case No. CV
J.L., M.V.B., M.D.G.B., and J.B.A., on behalf
of themselves and all others similarly situated,
Plaintiffs,
v.
CLASS ACTION COMPLAINT FOR
DECLARATORY AND INJUNCTIVE
RELIEF
CLASS ACTION
ADMINISTRATIVE PROCEDURE
ACT CASE
LEE FRANCIS CISSNA, Director, U.S.
Citizenship and Immigration Services,
KIRSTJEN M. NIELSEN, Secretary, U.S.
Department of Homeland Security, ROBERT
COWAN, Director, National Benefits Center,
U.S. Citizenship and Immigration Services,
UNITED STATES DEPARTMENT OF
HOMELAND SECURITY, and UNITED
STATES CITIZENSHIP AND
IMMIGRATION SERVICES.
Defendants.
1.
This class action seeks to challenge the federal government’s sudden refusal to
provide humanitarian relief in the form of Special Immigrant Juvenile Status (“SIJS”) to
abandoned, abused, or neglected immigrant children between the ages of 18 and 20. Congress
created SIJS to protect vulnerable immigrant children by allowing them to remain lawfully in the
United States in loving and stable homes after one or more of their parents proved unwilling or
unable to care for them. The government’s refusal to adjudicate SIJS petitions in accordance with
8 U.S.C. § 1101(a)(27)(J) (the “SIJS Statute”) and regulations punishes already traumatized
children who, in reliance on the SIJS Statute, brought themselves to the attention of the federal
government and petitioned for relief. Instead of granting them SIJS, the government imposed a
new requirement for eligibility, resulting in the denial of hundreds of meritorious petitions for
relief and placing them in jeopardy of deportation from the United States.
2.
The SIJS Statute delineates roles for the state courts and the federal agency in the
SIJS petition process: The state courts place the child in a custodial relationship and issue
predicate orders (“SIJ Findings”) with specified findings grounded in state child welfare laws
because Congress recognized that state courts are best equipped to make such determinations, and
U.S. Citizenship and Immigration Services (“USCIS”) grants the SIJS petition, which must
include the state court SIJ Findings, to confer immigration benefits on the child. See 8 U.S.C.
§ 1101(a)(27)(J); see also 8 C.F.R. § 204.11(c)(3)-(6). Accordingly, USCIS takes SIJ Findings
from state courts, which themselves determine whether they have the authority under state law to
issue such orders. The SIJS statute makes SIJS available to any child who submits an SIJS
petition to USCIS before turning 21 and extends authority to issue predicate orders to any state
“juvenile court.”
3.
Here, USCIS has acted outside its authority and usurped state authority by denying
SIJS petitions to children who were between the ages of 18 and 20 when they received SIJ
Findings from California probate courts. Specifically, in February 2018, USCIS inexplicably and
unlawfully began imposing a new requirement for SIJS eligibility: that the state court have
jurisdiction to return children to their parent’s custody. The agency’s denials pursuant to this
children and violate both the Administrative Procedure Act (“APA”), 5 U.S.C. § 706(2), and the
Due Process Clause of the United States Constitution.
4.
Plaintiffs J.L., M.V.B., M.D.G.B., and J.B.A. (“Plaintiffs”), on behalf of
themselves and all other similarly situated individuals (the “Proposed Class”), bring this action to
protect immigrant children from the wrongful denial of their SIJS petitions and the lasting harm –
including deportation and risk of death – that follows. The wrongful denials have been
accompanied by a USCIS Policy Memorandum announcing the agency’s intent to issue a Notice
to Appear (“NTA”) and to initiate immigration removal proceedings against all individuals
(including SIJS petitioners) whose applications for immigration benefits are denied and who do
not otherwise have lawful status in the United States. As a result, children who are wrongfully
denied SIJS will now be placed in removal proceedings and potentially deported, forever losing
the loving care and stability they have found in the United States. Children who already are in
removal proceedings when USCIS wrongfully denies their applications are at risk of imminent
deportation.
5.
Until USCIS’s unlawful imposition of a new requirement for SIJS eligibility, each
of the Plaintiffs would have been found eligible for SIJS relief and protected from deportation. In
reliance on USCIS’s previous petition grants and the clear language of the SIJS Statute, Plaintiffs
petitioned USCIS for SIJS, seeking permanent protection in the United States. As a result of
USCIS’s unlawful imposition of additional requirements for SIJS eligibility, Plaintiffs now risk
deportation in spite of findings by state juvenile courts that removal from the United States is not
in their best interests. Thus, many Plaintiffs and Proposed Class members are in a worse position
than if they had never applied for SIJS.
6.
Congress enacted the SIJS Statute to provide a path to long-term, legal
immigration status for immigrant children in the United States, and such children are eligible for
SIJS if they are under 21 years of age; unmarried; declared dependent on a state juvenile court, or
placed in the custody of a state agency or individual appointed by such a court (such as being
appointed a guardian); the subject of specific findings that reunification with one or both parents
return to his or her home country (SIJ Findings, specifically); and subject to the Department of
Homeland Security’s (“DHS’s”) consent to the granting of SIJS, which is generally given when
the order includes a reasonable factual basis for all the required findings. See 8 U.S.C.
§§ 1101(b)(1), 1101(a)(27)(J), and 1232(d)(6); United States Citizenship and Immigration
Services Policy Manual (“USCIS Policy Manual”), Volume 6, Part J, Chapter 2(D)(5). Each of
the Plaintiffs meets the SIJS eligibility requirements.
7.
Each of these Plaintiffs and the class members they represent were placed in the
custody of guardians by the Probate Division of the California Superior Court (“Probate Court”)
pursuant to California Probate Code (“Probate Code”) § 1510.1(a), which specifically authorizes
guardianships for children ages 18 to 20 in California. After receiving the Probate Court’s orders,
each of the Plaintiffs submitted an application for SIJS to USCIS, believing that USCIS would
recognize the state court’s findings, as the SIJS statute requires it to do, and would grant each of
them SIJS in conformation with the agency’s previous practice.
8.
The California legislature enacted Probate Code § 1510.1(a) in 2016 to allow
particularly vulnerable immigrant children ages 18 to 20 to obtain the custody orders they
desperately need to transition successfully into adulthood and receive the state court findings
necessary to petition for SIJS. Until recently, USCIS consistently recognized the validity of SIJS
orders issued pursuant to Probate Code § 1510.1(a) for the purpose of adjudicating SIJS petitions.
The SIJS Statute requires that USCIS do so; in California, a “juvenile court” includes the
juvenile, probate, and family divisions of the Superior Court. CAL. CODE CIV. PROC. § 155(a)(1).
California law is explicit that the Probate Court has jurisdiction to make determinations regarding
the custody and care of juveniles, and such jurisdiction extends to Plaintiffs and the class they
represent. See Probate Code § 1510.1 (providing guardianships for 18-to-20-year-olds and
defining “minor,” “child,” and “ward” to include juveniles ages 18 to 20). Until recently, USCIS
thereby correctly treated California’s Probate Courts as juvenile courts and courts of competent
jurisdiction to make the requisite SIJ Findings.
9.
However, as evidenced by USCIS’s own statement and by the SIJS petition denials
ultra vires requirement on SIJS petitioners and now unlawfully refuses to accept the Probate
Court’s jurisdiction and findings, depriving Plaintiffs of SIJS relief that they otherwise would
have received.
10.
In denying Plaintiffs’ and class members’ applications, USCIS has for the first
time asserted that California state courts lack the authority to make SIJ Findings in accordance
with California law, contravening both the SIJS statute and state law. This sudden and
unjustifiable change in USCIS’s practice underscores the arbitrary and capricious nature of these
denials.
11.
Defendants (defined below) – who are charged with adjudicating SIJS petitions –
issued a statement on April 24, 2018, admitting that they had recently begun to deny SIJS
applications for children, like Plaintiffs, who cannot be reunified with their parents by the state
court. This admission came only after USCIS issued multiple denials or NOIDs in states such as
California and New York – states that allow children between the ages of 18 and 20 to obtain
custody or dependency orders and the SIJ Findings necessary to apply for SIJS. By issuing this
statement, Defendants effectively admitted that they were imposing additional requirements on
SIJS eligibility that have no basis under federal law, undermine the Probate Court’s findings, and
impermissibly deny Plaintiffs and class members access to the protections mandated by Congress.
12.
USCIS’s imposition of arbitrary requirements for SIJS eligibility violates the law,
irreparably harms hundreds of vulnerable children who would otherwise have qualified for SIJS,
and deprives these children of the protections they desperately need and deserve. Obtaining SIJS
relief allows children to remain safely in the United States with their legal guardians and provides
a path to legal permanent residence and citizenship. For countless children like Plaintiffs, a
denial of SIJS will deprive them of loving guardians who can best protect their welfare.
13.
Plaintiffs therefore seek equitable and injunctive relief to enjoin this unlawful
implementation of the law and unconstitutional action. Plaintiffs respectfully request that this
Court compel the government to rescind the improper SIJS denials already issued, reopen the
SIJS petitions, and enjoin any future denials of SIJS petitions on the basis that the Probate Court
JURISDICTION, VENUE, AND INTRADISTRICT ASSIGNMENT
14.
This Court has jurisdiction under 28 U.S.C. § 1331 because this action arises under
the Constitution and the laws of the United States. This case arises under the Immigration and
Nationality Act (“INA”), 8 U.S.C. §§ 1101 et seq., the regulations implementing the INA, and the
APA, 5 U.S.C. §§ 701 et seq. The United States has waived its sovereign immunity pursuant to 5
U.S.C. § 702.
15.
This Court has additional remedial authority under 28 U.S.C. § 1331 (federal
question), 28 U.S.C. §§ 2201 et seq. (declaratory relief), 5 U.S.C. §§ 701-706 (APA), and Federal
Rule of Civil Procedure 65 (injunctive relief).
16.
Venue is proper in this judicial district pursuant to 28 U.S.C. § 1391(b)(2) and
(e)(1) because Defendants are officers or employees of the United States, or agencies thereof,
acting in their official capacities; because a substantial part of the events or omissions giving rise
to the claims occurred in this district; and because Plaintiff J.B.A. resides in this district, as do
many putative class members.
17.
Pursuant to Local Rules 3-2(c) and (d), assignment to the Northern District of
California, San Jose Division, is appropriate because Plaintiff J.B.A. resides in this division and
district, and because a substantial part of the events or omissions giving rise to this action
occurred in this division.
PARTIES
A.
Plaintiffs
18.
J.L. is a 19-year-old citizen of New Zealand who was abandoned by both her
parents and left in the care of relatives when she was four months old. J.L. is a high school
graduate who lives in Compton, California, with her two aunts, who were declared her guardians
by the Los Angeles County Probate Court on January 20, 2017. J.L. also received SIJ Findings
from the Probate Court on January 20, 2017. She submitted her I-360 petition for SIJS to USCIS
on March 15, 2017, and expected that it would be approved within 180 days, which is the time
limit for adjudication under the SIJS statute. See 8 U.S.C. § 1232(d)(2). However, on April 17,
unlawful assertion that, when appointing guardians for 18-to-20-year-olds like J.L. pursuant to
California law, the Probate Court did not qualify as a “juvenile court” under the SIJS Statute
because it lacked legal authority to reunify such children with their parents.
19.
M.V.B. is a 19-year-old Honduran boy who was abandoned by both his parents
shortly after birth. On August 2, 2017, the Los Angeles County Probate Court appointed
M.V.B.’s cousin as his legal guardian and issued SIJ Findings on his behalf. On August 14,
2017, M.V.B. submitted an SIJS application, which now has been pending for more than 11
months, despite USCIS’s obligation to adjudicate the petition within 180 days of receipt.
20.
M.D.G.B. is a 22-year-old Mexican girl who was abandoned by her father at birth
and abused and neglected by her mother throughout her childhood. On February 1, 2017, the San
Diego County Probate Court appointed M.D.G.B.’s grandmother as her guardian and issued SIJ
Findings. On February 2, 2017, M.D.G.B. submitted an SIJS application and expected that it
would be approved within 180 days. However, 14 months later, on April 24, 2018, M.D.G.B.
received a NOID based on USCIS’s new and unlawful requirement.
21.
J.B.A. is a 22-year-old Mexican girl who left a difficult life in Mexico at the age of
seven, and then suffered years of traumatic and violent physical abuse at the hands of her father.
On January 20, 2017, the Alameda County Probate Court appointed J.B.A.’s former computer
science teacher, who had taken J.B.A. in when she was on the run from her father’s abuse, as her
legal guardian and issued SIJ Findings on her behalf. J.B.A. submitted her SIJS petition on
February 6, 2017, and expected that her petition would be approved within 180 days. However,
17 months later, on July 20, 2017, J.B.A. received a NOID based on USCIS’s new and unlawful
requirement.
B.
Defendants
22.
Defendants Lee Francis Cissna, Director, USCIS; Kirstjen Nielsen, Secretary,
DHS; and Robert M. Cowan, Director, USCIS National Benefits Center, are sued in their official
capacity and charged by law with the statutory and regulatory obligation to determine eligibility
for SIJS, pursuant to INA §§ 101(a)(27)(J), 103, and 245(h); 8 U.S.C. §§ 1101, 1103, and 1255;
23.
Defendant Lee Francis Cissna is the Director of USCIS, an “agency” within the
meaning of the APA, 5 U.S.C. § 551(1). In this capacity, he oversees the adjudication of
immigration benefits and establishes and implements governing policies. 6 U.S.C. § 271(a)(3),
(b). He has ultimate responsibility for the adjudication of SIJS applications under the
immigration laws, including the SIJS petitions submitted by Plaintiffs. Defendant Cissna is sued
in his official capacity.
24.
Defendant Kirstjen Nielsen is the Secretary of the DHS, an “agency” within the
meaning of the APA, 5 U.S.C. § 551(1). In this capacity, she is responsible for the administration
of the INA and for overseeing, directing, and supervising all DHS component agencies, including
USCIS. Defendant Nielsen supervises Defendant Cissna. Defendant Nielsen is sued in her
official capacity.
25.
Defendant Robert M. Cowan is the Director of the USCIS National Benefits
Center, which directly adjudicates SIJS applications and which issued the Proposed Class
members’ SIJS denials. Defendant Cowan is sued in his official capacity.
26.
Defendant DHS is an executive agency of the United States and an “agency”
within the meaning of the APA, 5 U.S.C. § 551(1). It is the department within which Defendant
USCIS adjudicates SIJS petitions. USCIS reviews the petitions and the Secretary of Homeland
Security determines whether or not to grant the petitions. 8 U.S.C. § 1101(a)(27)(J)(iii). DHS
and USCIS operate within this district, with headquarters in Washington, D.C.
BACKGROUND
I.
THE SIJS STATUTE GRANTS HUMANITARIAN RELIEF TO VULNERABLE
IMMIGRANT CHILDREN UNDER THE AGE OF 21 WHO HAVE BEEN
PLACED IN THE CUSTODY OF AN INDIVIDUAL APPOINTED BY A
JUVENILE COURT
A.
The History and Expansion of the SIJS Statute
27.
In 1990, Congress created Special Immigrant Juvenile Status to protect abused,
abandoned, and neglected immigrant children in foster care and to provide them a pathway to
permanent residence. Immigrant Act of 1990, Pub. L. No. 101-649 § 153, 104 Stat. 4978 (1990).
an immigrant (i) who has been declared a dependent on a juvenile court located in
the United States and has been deemed eligible by that court for long-term foster
care, and (ii) for whom it has been determined in administrative or judicial
proceedings that it would not be in the alien’s best interest to be returned to the
alien’s or parent’s previous country of nationality or country of last habitual
residence …
Id.
28.
Congress has since twice expanded the SIJS Statute’s reach. In 1994, Congress
expanded the definition to include individuals who had been “legally committed to, or placed
under the custody of, a[] [state] agency or department.” Immigration and Technical Corrections
Act of 1994, Pub. L. No. 103-416, § 219, 108 Stat. 4316 (1994) (emphasis added). This
amendment greatly increased the class of children eligible under the statute because children
placed in the custody of the state include children placed in, for example, juvenile detention
centers or other custodial arrangements, and not just children placed in the foster system. Further,
the amendment expanded the types of proceedings through which SIJS orders were now available
for vulnerable immigrant children. The statute did not specify the relevant age, but it was
interpreted by the Immigration and Naturalization Service (the predecessor agency to USCIS) to
apply to any individual under the age of 21 who otherwise met the SIJS criteria to conform to the
INA’s definition of a “child.”1 See Special Immigrant Status, 58 Fed. Reg. 42843, 42850 (August
12, 1993) (codified at 8 C.F.R. 204.11). This amendment allowed children who were placed in
the custody of an individual through guardianship orders in California Probate Court – and who
were thereby eligible for long-term foster care – to apply for and receive SIJS.
29.
In 2008, Congress once again significantly expanded SIJS eligibility. The
Trafficking Victims Protection Reauthorization Act of 2008 (“TVPRA”) was passed with broad
bipartisan support and removed the requirement that the child be eligible for foster care, replacing
it with the more expansive requirement that a state juvenile court find that “reunification with 1 or
1 “Child” is defined by the INA and California law as a person under 21 years of age. See 8
U.S.C. § 1101(b)(1) (defining a child, in part, as an unmarried individual under the age of 21);
Probate Code § 1510(a)-(d) (defining a “child” to include juveniles at the ages of 18-20).
basis under State law.” Pub. L. No. 110-457, § 235, 122 Sat. 5080 (2008).2 In addition,
consistent with the INA’s definition of a “child,” the amendments under the TVPRA provided
age-out protections so that the SIJS classification would not be denied to anyone on the basis of
age so long as the child was under 21 at the time of filing the SIJS petition (even if she turned 21
while the SIJS petition was pending). Id. By both eliminating the requirement that a child must
be found eligible for long-term foster care in order to receive SIJS and creating age-out
protections, Congress confirmed that SIJ Findings can be made in a wide range of state court
proceedings, such as guardianship proceedings, and that children up to the age of 21 may apply
for SIJS.
30.
Under the current SIJS Statute, petitioners must only be (i) under 21 years of age;
(ii) unmarried; (iii) declared dependent on a state juvenile court,3 or placed in the custody of a
state agency or individual appointed by such a court (such as being appointed a guardian); (iv) the
subject of specific findings that reunification with one or both parents is not viable due to abuse,
abandonment, or neglect, and that it is not in the child’s best interest to return to his or her home
country (SIJ Findings); and (v) subject to DHS’s consent to the SIJ classification. See 8 U.S.C.
§§ 1101(b)(1), 1101(a)(27)(J), and 1232(d)(6).4
B.
The History of USCIS Deference to State Courts
31.
Congress reserved a critical role for state courts in the SIJS framework because
state courts are the experts on making child welfare determinations, including whether a child has
been abused, abandoned, or neglected and what is in his or her best interest. 8 U.S.C. §
1101(a)(27)(J)(i)-(ii). The SIJS Statute accordingly explicitly holds for the state court any
determination about the child’s welfare, custody, and best interest. Id. (requiring state juvenile
2 The regulations have not been updated to reflect this change. See 8 C.F.R. § 204.11.
3 “Juvenile court” as used in the federal SIJS statute is defined as “a court located in the United
States having jurisdiction under state law to make judicial determinations about the custody and
care of juveniles.” 8 C.F.R. § 204.11(a) (emphasis added).
4 SIJS is available without regard to how the child arrived in the United States. The bars to
permanent residence based on unlawful entry, which apply to most other categories of petitioners,
are statutorily inapplicable to children granted SIJS. See 8 U.S.C. § 1255(h).
32.
In adjudicating the SIJS petition, USCIS must defer to the state court’s findings.
USCIS is not authorized to second-guess a state court’s decision that it has jurisdiction to make
findings under state law or the court’s application of state law. USCIS Policy Manual, vol. 6,
pt. J, ch. 2(D)(4) [attached hereto as Ex. 1] (“There is nothing in USCIS guidance that should be
construed as instructing juvenile courts on how to apply their own state law.”) (emphasis added).
33.
Through its own policies and regulations, USCIS itself has continually reaffirmed
the statute’s requirement that it give broad deference to state courts’ determinations of their own
jurisdiction and power to issue the findings laid out in the SIJS Statute. See 58 Fed. Reg. at
42848; Interoffice Memorandum from Michael Aytes, U.S. Citizenship & Immigration Servs.,
AFM Update: Chapter 22: Employment-based Petitions (AD03-01), at 82 (Sept. 12, 2006)
(hereinafter “Aytes Memo”) (“a juvenile court . . . could include any court whose jurisdiction
includes determinations as to juvenile dependency”) [attached hereto as Ex. 2]. USCIS also has
reaffirmed that it is not permitted to conduct its own analysis of the SIJ Findings issued by the
state court. See Aytes Memo at 82 (“The task of the adjudicator is not to determine whether the
[SIJ Finding] was properly issued.”). USCIS relies on the expertise of the juvenile courts in
making these determinations, never reweighing5 the evidence to independently determine whether
the child was subjected to abuse, neglect, abandonment, or a similar basis under state law.
34.
Consistent with Congress’s intent to rely on the state court’s expertise in juvenile
welfare matters, the TVPRA simplified the requirement that DHS consent to the SIJS
classification, and DHS has interpreted this function to require deference to the state court’s
findings. USCIS Policy Manual, vol. 6, pt. J, ch. 2(D). Recognizing the statute’s mandate to
defer to state court determinations as to child welfare, “USCIS generally consents to the grant of
SIJ[S] classification when the order includes or is supplemented by a reasonable factual basis for
all of the required findings.” Id.6
5 USCIS does determine whether the state juvenile court, when issuing the SIJ Findings, relied on
a factual record and applied state law. See USCIS Policy Manual, vol. 6, pt. J, ch. 2(D)(5).
6 USCIS utilizes the consent function only to review the juvenile court order solely to determine
that the SIJ request is “bona fide,” i.e., that it is “sought to obtain relief from abuse, neglect,
35.
California Probate Courts are specialized courts that make care and custody
determinations about California’s children through guardianship proceedings.
36.
The California Probate Code has long established that a guardian has “the care,
custody, and control” of the ward. Probate Code § 2351(a). The guardian is responsible for
providing a child with food, clothing, shelter, education, medical and dental needs, safety,
protection, and physical and emotional growth, among other things. See Probate Code §§ 1820 et
seq.
1.
California Passed AB 900 to Provide Children Ages 18 to 20 Needed
Protections
37.
In 2015, in an effort to provide protections to abused and vulnerable children over
the age of 18, the California legislature passed Assembly Bill 900, which gave California Probate
Courts jurisdiction to appoint legal guardians for children ages 18 to 20; further, the bill aligned
the state law with federal law to allow children to seek SIJ Findings in Probate Courts until their
21st birthday. See Assem. Bill No. 900 (2015-2016 Reg Sess.) § 1(a)(6) (hereinafter “AB 900”).
This bill, codified in Probate Code Section 1510.1, allowed guardianships for certain vulnerable
immigrant children older than 18 and expanded the definition of “child” and “minor” to include
these children under age 21 seeking a guardianship order and SIJ Findings.7 Id. The bill did not
reflect an intent to create a new, separate type of guardianship, but rather was intended to
authorize courts to apply existing guardianship laws to these older children who share the same
vulnerabilities of those age 18 and under. See id.
abandonment, or a similar basis under law.” See USCIS Policy Manual, vol. 6, pt. J, ch. 2(D)(5).
In order to make this determination, “USCIS requires that the juvenile court order or other
supporting evidence contain or provide a reasonable factual basis for each of the findings
necessary for classification as a SIJ.” Id.
7 “AB 900 also made conforming amendments to exclude section 1510.1 from section 1490’s
direction to construe the term ‘guardian’ to mean ‘conservator’ when used to refer to an adult
ward, as well as to sections 1600 and 1601 to provide for termination of a guardianship on the
ward’s 21st birthday or on petition by the ward.” Memo. From Judicial Council of Cal., New
Rules and Forms Implementing AB 900 in Guardianship Proceedings at 3, fn. 6 (June 30, 2016)
(“Judicial Counsel Memo”) (citing Stats. 2015, ch. 694, §§ 2, 4-5.).
custodial relationship they need for their long-term well-being, and to provide them with the
opportunity to apply for SIJS. Cal. Assem. Judiciary Comm., AB 900, (2015-2016 Reg. Sess.)
comments, p. 3-4.
2.
Through AB 900, the California Legislature Expanded the Existing
Guardianship Framework to 18-to-20-Year-Olds and Made a Path for SIJS
for 18-to-20-Year-Olds in Accordance with the Federal SIJS Statute
39.
Although AB 900 allowed 18-to-20 year-olds to access guardianships, the bill did
not change the process for appointing a guardian or the powers and duties afforded to a guardian.8
Judicial Council of Cal., New Rules and Forms Implementing AB 900 in Guardianship
Proceedings (June 30, 2016), p. 2 (The statute “does not reflect any intent to create a new,
separate type of guardianship, but rather to authorize the court to apply existing guardianship law
to these older youth”). Cf. AB 900. Nothing in AB 900 or its amendments to the Probate Code
directs the court to apply a different standard in appointing a guardian or affords separate powers
and duties to a guardian of an 18-to-20-year-old child. Instead, the plain language of the
amended Probate Code refers to a “guardian of the person” and a “guardianship of the person”
without qualification, signaling the legislature’s intent that the court appoint guardians as directed
by the rest of the Probate Code. Probate Code § 1510.1(a)–(b). Subdivision (d) reinforces this
interpretation by specifically defining “child,” “minor,” and “ward” to include 18-to-20-year-olds.
By authorizing courts to apply the existing guardianship statutes without amendment, rather than
enacting a separate statutory scheme, the legislature indicated its intent that existing processes
would continue to apply.
40.
Given that under the amendment, guardians of 18-to-20-year-old children play the
same role as a guardian of a child under 18, California’s Probate Court judges can rely on their
decades of experience and expertise in determining whether a guardian is suitable. See Cal.
8 A guardian’s powers and duties are the same. The only difference between a guardianship for an
18-to-20-year-old is that the child must consent to the custodial relationship and may petition the
court for termination of the guardianship. See Probate Code §§ 1510.1(a), 1601.
41.
The California Probate Court appoints a guardian for an 18-to-20-year-old if “it
appears necessary or convenient.” Probate Code § 1514(a). In reaching this determination, the
best interest of the child is the primary concern. See CAL. FAM. CODE § 3020(a). Once
appointed, the guardian has “care, custody, and control of, and has charge of the education of, the
child.” Probate Code § 2351(a). And through the guardianship, the child can access other
important benefits, including medical insurance, housing discrimination protections, and financial
aid. See National Conference of State Legislatures, Dependent Health Coverage and Age for
Healthcare, http://www.ncsl.org/research/health/dependent-health-coverage-state-
implementation.aspx (as of August 13, 2018) (noting that the Patient Protection and Affordable
Care Act mandates that all health insurance carriers allow dependents to remain on their parents’
or guardians’ family plans until the age of 26); 42 U.S.C. §§ 3602(k), 3604 (wards and their legal
guardians are protected from housing discrimination because they achieve familial status);
Federal Student Aid, Legal Guardianship,
https://studentaid.ed.gov/sa/glossary#Legal_Guardianship (as of August 13, 2018) (student in a
legal guardianship is considered an independent student for financial aid purposes).
D.
The Probate Division of the California Superior Court is a “Juvenile Court”
with Jurisdiction to Issue SIJ Findings for Children Over 18 Years of Age
42.
In amending the TVPRA in 1994 and 2008, Congress expanded the types of courts
that can make a qualifying custody order and can issue SIJ Findings. TVPRA of 2008, Pub. L.
No. 110-457, § 235(d)(i) (2008). SIJ Findings can be made in a wide range of courts across
states. By expanding SIJS eligibility to include not only children who are declared dependent on
the court but also children “legally committed to” or “placed in the custody of” individuals and
entities, the TVPRA made clear that Congress intended that USCIS recognize SIJ Findings issued
by any state court that had the power to place a child in any custodial relationship. See 8 U.S.C. §
1101(a)(27)(J)(i); USCIS Policy Manual, vol. 6, pt. J, ch. 3(A)(1). The USCIS Policy Manual
explicitly lists a probate court as a court that may be competent to issue an SIJ Finding. Id.
43.
“Juvenile court” as used in the federal SIJS Statute is “a court located in the United
care of juveniles.” 8 C.F.R. § 204.11(a). In California, a “juvenile court” includes the juvenile,
probate, and family divisions of the Superior Court. CAL. CIV. PROC. CODE § 155(a)(1).
California law is explicit that the Probate Court has jurisdiction to make determinations regarding
the custody and care of juveniles. Id. The Probate Court makes custody determinations in the
form of guardianships for children, and so falls squarely into the federal statute definition of a
juvenile court. See Probate Code §§ 1514(a), 2351(a). California law is equally clear that this
jurisdiction extends to Plaintiffs and the class they represent. See Probate Code § 1510.1
(providing for guardianships for 18-to-20-year-olds and defining the terms “minor” and “child”
and “ward” to include juveniles ages 18 to 20).
44.
California courts have long recognized that the Probate Court is a juvenile court
with the authority to make SIJ Findings. The California legislature adopted Code of Civil
Procedure Section 155 in 2014, confirming that any division of the Superior Court presented with
a case involving child welfare (including, but not limited to, juvenile, probate, and family law
divisions of the Superior Court) is a juvenile court and may make SIJ Findings. See CAL. CIV.
PROC. CODE § 155(a).
II.
USCIS HAS IMPERMISSIBLY DENIED SIJS PETITIONS BASED ON THE
IMPOSITION OF REQUIREMENTS THAT ARE CONTRARY TO THE SIJS
STATUTE
A.
USCIS’S Unlawful Imposition of New SIJS Eligibility Requirements and Its
Life-Altering Impact on SIJS Petitioners Ages 18 to 20
45.
As detailed above, USCIS routinely approved SIJS petitions for children ages 18
to 20 who had received guardianships from state juvenile courts pursuant to Probate Code
§ 1510.1(a) and similar laws in other states. Upon information and belief, prior to 2017, USCIS
had also not denied a single SIJS petition from a petitioner between ages 18 and 20 on the
grounds that a state juvenile court of any state lacked authority to reunify the child with his or her
parent.
46.
In the summer of 2017, USCIS drastically changed its SIJS adjudication policies.
Instead of adjudicating SIJS petitions filed by children who obtained SIJS predicate orders after
47.
In February 2018, USCIS’s legal counsel purportedly issued “new guidance” to
USCIS, which was never published on USCIS’s website and was not provided to the media until
months later, stating that the SIJS Statute requires that a state court have the authority to return a
child to the custody of her parent in order for that court to find that reunification is not viable.
See Ted Hesson, USCIS Explains Juvenile Visa Denials, POLITICO (Apr. 25, 2018) and April 24,
2018, statement from USCIS spokesperson Jonathan Withington to Politico appended thereto (the
“Withington Statement”) [attached hereto as Ex. 3].
48.
Thereafter, USCIS began to issue denials to these children in New York and
Texas, conveying its novel position that the state court that issued SIJ Findings – such as the New
York Family Court, a state court with jurisdiction over “abuse and neglect proceedings,” among
other matters related to the care and custody of minors, N.Y. FAM. CT. ACT § 115 – was not a
“juvenile court” under the SIJS statute when it issued guardianship orders for children ages 18 to
20.
49.
In or about March 2018, USCIS started imposing this new requirement (which
again, had not yet been made public) in California by issuing NOIDs and denials to petitions filed
for children with guardianship orders issued pursuant to Probate Code § 1510.1(a). USCIS issued
a NOID to J.L. on March 2, 2018, stating, “There is no indication that this procedural statute
gives the court the authority to reunify a person over the age of 18 with a parent.” J.L. then
received a denial of her petition on April 17, 2018. The denial stated that “in order for a court
order to be valid for the purpose of establishing SIJ eligibility, the court must have competent
jurisdiction to . . . order reunification, if warranted.” The denial claimed that J.L. did not provide
an order from a juvenile court of competent jurisdiction determining that reunification was not
viable because “California law does not appear to allow a parent to be reunified with a child who
9 USCIS has not timely adjudicated any of Plaintiffs’ SIJS petitions. For example, USCIS
received J.L.’s application on March 21, 2017, but took no action to adjudicate it for nearly one
year. It acted only after J.L. filed a mandamus complaint nine months later (on December 28,
2017) in the United States District Court for the Central District of California, asking the court to
order USCIS to adjudicate her petition and issue a declaratory judgment against USCIS.
50.
Soon after the first denial in the state of California on this novel basis, the New
York Times contacted USCIS to investigate a purported change in how USCIS adjudicates SIJS
applications of children who applied after their 18th birthdays. Withington denied that any
change had occurred. See Liz Robbins, A Rule Is Changed for Young Immigrants, and Green
Card Hopes Fade, N.Y. TIMES (Apr. 18, 2018) (quoting Withington’s statement that “USCIS has
not issued any new guidance or policy directives regarding the adjudication of SIJS petitions. We
remain committed to adjudicating each petition individually based on the merits of the case and
safeguarding the integrity of our lawful immigration system.”) [attached hereto as Ex. 4].
51.
Yet on April 24, 2018, USCIS reversed course and Withington issued a statement
to a single media outlet, which has never been posted to USCIS’s website or otherwise made
publicly available, explaining an entirely different position for the denials and the reasoning
behind future denials. [Ex. 3 the Withington Statement]. In a reversal of his previous statements,
Withington explained that USCIS decided to centralize adjudication of SIJ cases to the National
Benefits Center and asked its Office of the Chief Counsel for legal guidance in late summer 2017
on pending cases filed by individuals over age 18. Id. Withington then noted that for the
purposes of establishing eligibility for SIJS, USCIS had begun to impose a new requirement that
a state court have the authority to force the return of a child to the custody of his or her parent in
order for that court to find that reunification is not viable. Id. He concluded, “Since most courts
cannot place a child back in the custody of their parent once the child reaches the age of majority
. . . , those state courts do not have power and authority to make the reunification finding for
purposes of SIJ eligibility.” Id.
52.
In the NOIDs and denials it has issued to Plaintiffs and children like them, USCIS
has made clear how it applies this new requirement to California: In USCIS’s view, the Probate
Court now no longer qualifies as a “juvenile court” when it appoints guardians to children and
issues SIJ orders pursuant to Probate Code § 1510.1(a).10 According to USCIS, because the
10 For instance, USCIS issued a NOID to Plaintiff M.D.G.B. on April 24, 2018, which stated that
“because you had already reached the age of majority in California, there is no evidence that the
18 years of age with their parents, it also lacks the authority to determine that such reunification
was “not viable” due to abandonment, abuse, neglect, or a similar basis found in state law.
USCIS thus has signaled its intent to deny the SIJS petitions of all children who, like Plaintiffs,
received guardianships under California Probate Code § 1510.1(a).
B.
USCIS Has Unlawfully Denied SIJS Applications for Children Who Received
Guardianships Pursuant to Probate Code Section 1510.1(a)
1.
USCIS’s Conclusion That the Probate Court Must Have the Ability to
Reunify the Petitioners with Their Parents Is Contrary to the Requirements
in the Federal Law
53.
Defendants’ denial or intent to deny SIJS to Plaintiffs on the grounds that the state
court lacks authority to reunify Plaintiffs with their parents violates the SIJS statute because it
imposes an extra-statutory eligibility requirement on SIJS petitions that does not exist anywhere
in the law. Defendants’ actions are arbitrary, capricious, and contrary to the plain text of the
statutes, regulations, and agency guidance.
54.
USCIS’s own Policy Manual makes no such suggestion that state juvenile courts
must have the legal authority to reunify children with their parents in order to find that
reunification is not viable. Additionally, Section 101(a)(27)(J)(i) of the INA contains no such
suggestion, providing only that the state court determine that “reunification with 1 or both of the
immigrant’s parents is not viable due to abuse, neglect, abandonment, or a similar basis found
under State law.” INA § 101(a)(27)(J)(i). Not even the outdated SIJS Regulation suggests that a
“juvenile court” must have such authority; indeed, the definition of a “juvenile court” makes no
reference whatsoever to reunifying petitioners with their parents. See generally 8 C.F.R. §
204.11(a). Simply nothing in the SIJS Statute indicates that a juvenile court must possess
authority to order SIJS petitioners back into the control of their parents.
state court had jurisdiction under California state law to make a legal conclusion about returning
you to your parents’ custody.”
2.
USCIS’s Conclusion That the State Court Must Have the Ability to
Reunify the Petitioners with Their Parents Is Not A Permissible
Construction of Any Federal Law
55.
Defendants’ unilateral and unsupported imposition of this additional legal
requirement also directly contravenes Congress’s expansion of SIJS eligibility beyond foster-care
youth. Allowing USCIS to implement this requirement would nullify TVPRA of 2008 and the
1994 amendments to the statute.
56.
In each of the denials or NOIDs, USCIS has relied on 8 CFR § 204.11 to argue
that a juvenile court can make SIJ Findings only if it has the authority to actually reunify
petitioners with their natural parents. But those regulations were issued before the TVPRA, were
never updated, and do not conform with the current law. The definition of a youth eligible for
long-term foster care under that regulation is no longer relevant to SIJS eligibility because the
TVPRA eliminated the requirement that a youth be found eligible for long-term foster care in
order to be eligible for SIJS. Pub. L. No. 110-457, § 235(d)(i) (2008).
57.
In addition to reliance on an outdated regulation, the agency’s denials are
inconsistent with the plain language of the statute regarding age limits. As noted above in section
I. A. 3., the TVPRA provided age-out protections so that the SIJS classification would not be
denied to anyone on the basis of age so long as they are under 21 years old on the date they file an
SIJS petition (even if they turn 21 while the petition is pending). Id. Through this change,
Congress reaffirmed and signaled its clear intent for children to access SIJS until the age of 21.
USCIS spokesman Withington acknowledged that USCIS’s new requirement would prevent most
children 18 and older from receiving SIJS.
58.
Accordingly, USCIS’s recent NOIDs, revocations, and denials with respect to
petitions filed under Probate Code § 1510.1(a) ignore the TVPRA of 2008 by denying SIJS to
children based on their age at the time the guardianship order was made. Similarly, construing
the SIJS statute to preclude 18-to-20-year-olds is not a permissible construction of the statute
because it is contrary to the plain language of the INA, which includes people who have not yet
reached their 21st birthday as “children” and thus eligible for SIJS.
3.
USCIS Fails to Defer to State Courts’ Child Welfare Determinations as
Required Under Federal Law
59.
In denying SIJS to Plaintiffs, USCIS fails to defer to the state court’s findings as
clearly mandated by the SIJS Statute. As discussed in Section I. B. above, Congress vested in the
state courts the power to make SIJ Findings. The SIJS Statute specifically reserves for the
juvenile court the ability to make the required custody, dependency, or legal commitment
determination; to find that the child cannot reunify with one or both parents due to abuse,
abandonment, or neglect; and to make the best-interest determination. See 8 U.S.C. §
1101(a)(27)(J). USCIS must defer to the state court’s expertise in child welfare matters and to the
state court’s interpretations of its own laws when the state court makes SIJ Findings. See USCIS
Policy Manual, vol. 6, pt. J, ch. 3(A)(2) (“There is nothing in USCIS guidance that should be
construed as instructing juvenile courts on how to apply their own state law.”) (emphasis added).
However, Defendants have refused to defer to the state court and have begun to impermissibly
challenge the state court’s exercise of jurisdiction over Plaintiffs and other children like them, as
well as the state court’s finding that reunification is not viable under California law. Defendants
also refuse to recognize California law defining a child age 18-20 who consents to guardianship
under Probate Code § 1510.1(a) as a “child” and a “minor,” and incorrectly assert that these
children have reached the “age of majority in California.” See Probate Code § 1510.1(d).
60.
The NOIDs, revocations, and denials issued to Plaintiffs and the Proposed Class
impermissibly disregard the state courts’ findings. Instead, USCIS deliberately refuses to defer to
state court determinations with respect to the welfare of children applying for SIJS under Probate
Code Section 1510.1(a) and accordingly contravenes the law.
C.
USCIS Has Improperly Issued NOIDS, Revocations, and Denials to the
Names Plaintiffs and Putative Class Members in This Case
61.
In this case, the Probate Court has found that the named Plaintiffs’ and the putative
class members’ reunification with their parents would not be viable due to abandonment, abuse,
neglect, or a similar basis under California law; however, Defendants refuse to recognize these
reunify Plaintiffs with their parents at the moment it makes the SIJ Findings. As a direct
consequence of Defendants’ actions, the SIJS applications of all Plaintiffs and the Proposed
Class, who otherwise qualify for SIJS, have been or will be denied.
SEVERE HARM TO PLAINTIFFS
62.
USCIS’s arbitrary imposition of a new SIJS requirement and unlawful refusal to
defer to state court SIJ Findings doom Plaintiffs’ meritorious SIJS applications, jeopardize the
stability Plaintiffs have been striving for in the care of their guardians, and render them
vulnerable to deportations that a state court judge already determined to be against their best
interests.
63.
The United States is the only home J.L. has ever known. Her parents abandoned
and neglected her, and then sent her to the United States when she was just four months old.
J.L.’s guardians, F.T. and N.T., took her in and have provided a loving home where she has
thrived – for instance, by graduating from high school. When USCIS wrongfully denied J.L.’s
SIJS petition based on its new, unlawful requirement, it threw into upheaval the stability J.L. and
her guardians have worked hard to achieve. J.L. was accepted to New Mexico Highlands
University to pursue her ambition of becoming a doctor, but could not attend because her
undocumented immigration status prevented her from securing student loans.11 The denial of her
application has had a dramatic impact on J.L.’s emotional well-being. Once excited to attend
college and build a career, J.L. has felt like “giving up” because she feels as though she is stuck
and her life is on hold. Without status, she has been unable work, attend school, or build a life.
Moreover, J.L. now finds herself vulnerable to removal from the only home she has ever known
to a country to which she has no ties, about which she has no memories, and that she has not seen
since infancy.
64.
M.V.B. is in removal proceedings, and denial of his SIJS petition will render him
11 Upon the approval of her SIJS petition, J.L. would have been eligible to immediately adjust her
status to permanent residency in the United States because visa petitions for SIJ adjustment of
status petitioners were available at the time when J.L.’s application was adjudicated and remain
available today. See 8 U.S.C. § 1255(a).
death at the hands of gang members who murdered his uncle and other family members and
threatened to kill him. Violent gang members murdered his uncle before M.V.B.’s eyes, and then
attempted to kill M.V.B. too. Now under the care of his guardian, N.V.D., for the first time in his
life M.V.B. is safe and well cared for. With the support of his guardian, M.V.B. attended school
for the first time since he was a young child. He relies on N.V.D. to overcome the trauma of
abandonment by his parents and the violence he witnessed in Honduras. M.V.B. was diagnosed
with post-traumatic stress disorder and, thanks to his guardian’s advocacy, has been able to access
critical therapy and other supportive services. M.V.B.’s mental health is already declining
because of USCIS’s unlawful actions. M.V.B. describes that he cannot live in peace with the
apprehension over the potential that his SIJS petition will be denied, and that he will be deported
to a country where his life is in danger, he will lack the services he needs, and there will be no
one to care for him. Like all Plaintiffs, he submitted his application with the expectation that
USCIS would follow the SIJS Statute, its own policies, and its decade of practice in adjudicating
SIJS petitions. Because USCIS’s new interpretation of the SIJS statute is an unlawful divergence
on all fronts, M.V.B., like all Plaintiffs, will unexpectedly be uprooted from the life he has built in
the United States and will face removal from the United States.
65.
M.D.G.B. is a hardworking college student who, without SIJS, will lose the life
she has worked to build. If USCIS denies M.D.G.B.’s case based on its unlawful new
interpretation of the SIJS statute, as it has stated it intends to do, she will be torn from the
community in California that has embraced her, and will be sent back to family in Mexico who
beat her mercilessly and emotionally abused her. Because her grandmother was appointed
M.D.G.B.’s guardian pursuant to AB 900, M.D.G.B. has been able to secure financial aid and
continue to pursue her studies full-time at California State University, Fullerton, where she is
studying animatronics. Relying on the SIJS statute and USCIS’s prior practice, M.D.G.B. applied
for SIJS to secure permanent stability in the United States. After learning that USCIS intends to
deny her SIJS petition, M.D.G.B. has been left scared and devastated. She is terrified to be
deported to Mexico, where she faces violence, where her limited Spanish would prevent her from
the only caregiver who has ever shown her love.
66.
When J.B.A. received her NOID, she felt as if her life was being sucked out of her.
J.B.A. not only fears deportation back to Mexico because of the violence she faced there, but also
seriously fears for her chances of survival because she would not receive the needed medical care
that has helped her survive thyroid cancer in the United States. J.B.A. is on her guardian’s
insurance, so she would not have access to the needed healthcare to combat her cancer and
depression if deported back to Mexico. She would not only lose her guardian, the one person
who has helped her through tremendous physical and emotional pain related both to her illnesses
and to past trauma, but would also lose her access to the very doctors who have likely kept her
alive the past several years.
67.
Moreover, Plaintiffs are aware of at least one case in which an SIJS application
was initially approved, but soon thereafter USCIS issued both a Reopen Notice to reconsider the
decision and a NOID that same day, on the same grounds.
68.
The harms Plaintiffs are already enduring will extend to the Proposed Class they
seek to represent. USCIS’s June 28, 2018, policy memorandum provides that, upon denial of
Plaintiffs’ and other members of the Proposed Class’s SIJS petitions, USCIS will place these
children into removal proceedings if they do not have other lawful status in the United States.
See Office of the Director, U.S. Citizenship & Immigration Services, Updated Guidance for the
Referral of Cases and Issuance of Notices to Appear (NTAs) in Cases Involving Inadmissible
Deportable Aliens, p. 7 (June 28, 2018) [attached hereto as Ex. 5].12 Proposed Class members
who, like M.V.B., are already in removal proceedings face a heightened likelihood of deportation
as a result of the denial of their SIJS petitions. USCIS thereby increases the risk of these
children’s deportations, thus ignoring the state courts’ determinations that it is in these children’s
12 Moreover, beginning September 11, 2018, USCIS adjudicators can deny SIJS petitions for lack
of initial evidence without first giving children an opportunity to respond to Requests for
Evidence or NOIDs. See generally USCIS Policy Memorandum, Issuance of Certain RFEs and
NOIDs; Revisions to Adjudicator’s Field Manual (AFM) Chapter 10.5(a), Chapter 10.5(b) (July
13, 2018) [attached hereto as Ex. 6].
69.
Plaintiffs, already traumatized children, reasonably relied on the requirements in
the SIJS Statute in petitioning the federal government for humanitarian relief. In return,
Defendants’ unlawful and arbitrary imposition of a new SIJS requirement punishes Plaintiffs for
their petitions and leaves them in far worse situations than if they had never petitioned for relief.
Plaintiffs brought themselves to the attention of the federal government. Indeed, the information
provided in the SIJS petitions is the very information the government needs to initiate removal
proceedings against Plaintiffs – proceedings which belie state court findings, subject these
children to further emotional trauma, and deny them the opportunity to remain in the custody of
loving caregivers and to apply for lawful permanent residency.
CLASS ACTION ALLEGATIONS
70.
Plaintiffs bring this action on behalf of themselves and all others who are similarly
situated pursuant to Federal Rules of Civil Procedure 23(a) and 23(b)(2). A class action is proper
because this action involves questions of law and facts common to the classes, the class is so
numerous pursuant to Federal Rule of Civil Procedure 23(a)(1) that joinder of all members is
impractical, Plaintiffs’ claims are typical of the claims of the class, Plaintiffs will fairly and
adequately protect the interests of the respective class, and Defendants have acted on grounds that
apply generally to the class, so that final injunctive relief or corresponding declaratory relief is
appropriate with respect to the class as a whole. Like all class members, the class representatives
of the Proposed Class received guardianship orders and the accompanying SIJ Findings pursuant
to Probate Code § 1510.1(a), and have been denied or will be denied SIJS based on USCIS’s
erroneous requirements that a state court have the authority to return a child to the custody of her
parent in order for that court to make the requisite SIJ Finding that reunification is not viable.
71.
Plaintiffs seek to represent the following class: Children who have received
guardianship orders pursuant to Probate Code § 1510.1(a) and who have or will receive denials of
their SIJS petitions on the grounds that the state court cannot reunify them with their parents.
72.
The class meets the commonality requirements of Federal Rule of Civil Procedure
23(a)(2). The members of the class are subject to denial or revocation of SIJS relief based on the
all SIJS applicants who received guardianships pursuant to Probate Code § 1510.1(a). The
lawsuit raises numerous questions of law common to members of the Proposed Class, including
whether the government’s action in imposing an additional requirement for SIJS relief and
denying SIJS based on the new requirement violates class members’ due process rights, whether
the practice violates the INA or the Constitution, whether the government’s action is arbitrary and
capricious under the APA, and whether the action violated the APA’s rulemaking requirements.
73.
The proposed class meets the typicality requirements of Federal Rule of Civil
Procedure 23(a)(3) because the claims of the representative Plaintiffs are typical of the class.
Each of the class members has been denied or will be denied SIJS despite having met the
requirements under the law for relief. Plaintiffs and the proposed class also share the same legal
claims, which assert the same substantive and procedural rights under the Due Process Clause, the
INA, and the APA.
74.
The Proposed Class meets the adequacy requirements of Federal Rule of Civil
Procedure 23(a)(4). The representative Plaintiffs seek the same relief as the other members of the
class – namely, an order that the government cannot deny SIJS to children who received
guardianship orders pursuant to Probate Code § 1510.1(a) and the accompanying SIJ Findings,
and approval of any wrongfully denied SIJS applications.
75.
The members of the class are readily ascertainable through Defendants’ records.
The proposed class also satisfies Federal Rule of Civil Procedure 23(b)(2). Defendants have
acted on grounds generally applicable to the Proposed Class by denying class relief, or by
indicating that they will deny relief, based on USCIS’s new extra-statutory requirements.
Injunctive and declaratory relief is thus appropriate with respect to the class as a whole.
76.
The Proposed Class is represented by counsel from Public Counsel, Manatt,
Phelps & Phillips, LLP, and the Lawyers’ Committee for Civil Rights of the San Francisco Bay
Area. Counsel have extensive experience litigating class action lawsuits and other complex cases
in federal court, including civil rights lawsuits.
COUNT ONE
FIFTH AMENDMENT – DUE PROCESS
77.
Plaintiffs repeat and incorporate by reference each and every allegation contained
in the preceding paragraphs as if fully set forth herein.
78.
Immigrants who are physically present in the United States are guaranteed the
protections of the Due Process Clause. See Zadvydas v. Davis, 533 U.S. 678, 693 (2001).
79.
The Constitution “imposes constraints on governmental decisions which deprive
individuals of ‘liberty’ or ‘property’ interests within the meaning of the Due Process Clause of the
Fifth or Fourteenth Amendment.” Mathews v. Eldridge, 424 U.S. 319, 332 (1976). A threshold
inquiry in any case involving a violation of due process “is whether the plaintiffs have a protected
property or liberty interest and, if so, the extent or scope of that interest.” Nozzi v. Hous. Auth. of
L.A., 806 F.3d 1178, 1190–91 (9th Cir. 2015) (citing Bd. of Regents of State Colls. v. Roth, 408
U.S. 564, 569–70 (1972)).
80.
The property interests protected by the Due Process Clause “extend beyond
tangible property and include anything to which a plaintiff has a ‘legitimate claim of
entitlement.’” Nozzi, 806 F.3d at 1191 (quoting Roth, 408 U.S. at 576–77). “A legitimate claim
of entitlement is created [by] . . . ‘rules or understandings that secure certain benefits and that
support claims of entitlement to those benefits.’” Id. (quoting Roth, 408 U.S. at 577).
81.
In addition to freedom from detention, Zadvydas, 533 U.S. at 690, the term
“liberty” also encompasses the ability to work, raise a family, and “form the other enduring
attachments of normal life.” Morrissey v. Brewer, 408 U.S. 471, 482 (1972).
82.
Plaintiffs’ and class members’ compliance with the statutory and regulatory
requirements established in 8 U.S.C. §§ 1101(b)(1), 1101(a)(27)(J), and 1232(d)(6) and in 8
C.F.R. § 204.11 vests in them a constitutionally protected property and liberty interest in
obtaining SIJS relief and the numerous benefits that follow, including adjustment of status to
lawful permanent resident. These protected interests exist as a result of the eligibility requirement
in the SIJS Statute and the government’s repeated granting of petitions under Probate Code
Perry v. Sindermann, 408 U.S. 593, 601 (1972) (“A person’s interest in a benefit is a ‘property’
interest for due process purposes if there are such rules or mutually explicit understandings that
support his claim of entitlement to the benefit and that he may invoke at a hearing.”)
83.
As set forth above, Plaintiffs and children like them had a reasonable expectation
of receiving SIJS once they met its well-defined and highly specific eligibility requirements,
based on the language of the SIJS statute and the government’s implementation of the statute until
February 2018.
84.
Defendants’ failure to evaluate Plaintiffs’ and class members’ petitions in
accordance with the SIJS statute and regulations violates the Due Process Clause.
85.
Moreover, Defendants’ unlawful and arbitrary imposition of a new SIJS
requirement punishes Plaintiffs for their petitions and leaves already traumatized children in far
worse situations than if they had never petitioned for relief. Plaintiffs brought themselves to the
attention of the federal government. Indeed, the information provided in the SIJS petition is the
very information the government needs to initiate removal proceedings against Plaintiffs and
meet its burden of establishing their removability from the United States, returning them to
conditions of violence and neglect. In fact, USCIS has recently issued a Memorandum indicating
that it will initiate removal proceedings against all individuals denied an affirmative immigration
benefit.
86.
Indeed, the government induced children to petition for SIJS relief only to change
the requirements once they had already applied and made themselves known to the federal
government. The consequences to Plaintiffs and children like them are disastrous and life-
threatening. The government’s arbitrary imposition of a new requirement to SIJS eligibility
violates the due process rights of Plaintiffs and other otherwise-eligible SIJS applicants.
87.
The Due Process Clause also requires that the federal government’s immigration
enforcement actions be fundamentally fair. Here, the government’s arbitrary decision to add
further requirements and deny SIJS petitions for children who received guardianships after their
18th birthday, without proper notice and justification after years of deferring to juvenile courts’
the law.
88.
Defendants’ due process violations have harmed Plaintiffs and will cause ongoing
harm to Plaintiffs.
COUNT TWO
VIOLATION OF THE IMMIGRATION AND NATIONALITY ACT AND THE
ADMINISTRATIVE PROCEDURE ACT, 5 U.S.C. § 701 ET SEQ.
89.
Plaintiffs repeat and incorporate by reference each and every allegation contained
in the preceding paragraphs as if fully set forth herein.
90.
Defendants are subject to the Administrative Procedure Act. See 5 U.S.C. § 703.
91.
The imposition of new SIJS requirements is final agency action subject to judicial
review because it marks the “consummation of the . . . decisionmaking [sic] process” and is one
“from which legal consequences will flow.” Bennett v. Spear, 520 U.S. 154, 178 (1997) (internal
quotation marks omitted).
92.
The APA requires that courts “shall . . . hold unlawful and set aside agency action,
findings, and conclusions found to be . . . not in accordance with law . . . [or] contrary to
constitutional right, power, privilege, or immunity.” 5 U.S.C. § 706(2)(A), (B).
93.
The INA deems a child eligible for SIJS if he or she is (i) under 21 years of age;
(ii) unmarried; (iii) declared dependent on a state juvenile court, or placed in the custody of a
state agency or individual appointed by such a court (such as being appointed a guardian); (iv) the
subject of specific findings that reunification with one or both parents is not viable due to abuse,
abandonment, or neglect, and that it is not in the child’s best interest to return to his or her home
country; and (v) the beneficiary of DHS consent to the granting of SIJS. See 8 U.S.C.
§§ 1101(b)(1), 1101(a)(27)(J), and 1232(d)(6).
94.
Defendants violate INA § 101(a)(27)(J) by arbitrarily imposing requirements not
found in the SIJS Statute and denying SIJS petitions for children who have received guardianship
orders pursuant to California Probate Code § 1510.1(a).
95.
As set forth above, Defendants’ unlawful imposition of extra-statutory
exclusive authority to make determinations about child welfare pursuant to state law. By denying
SIJS applications on the basis of a new requirement not contemplated by the SIJS Statute or prior
regulations, and by substituting their own decision-making for that of the California Probate
Court, Defendants have acted in contravention of the plain language of the SIJS Statute and
violated the APA.
96.
Defendants’ imposition of a new requirement harms Plaintiffs and class members.
97.
There are no other adequate available remedies.
COUNT THREE
ADMINISTRATIVE PROCEDURE ACT – ARBITRARY AND CAPRICIOUS ACTION
98.
Plaintiffs repeat and incorporate by reference each and every allegation contained
in the preceding paragraphs as if fully set forth herein.
99.
Defendants are subject to the Administrative Procedure Act. See 5 U.S.C. § 703.
Defendants further violate the APA by their arbitrary and capricious actions. The official act of
imposing requirements for SIJS eligibility is a final agency action subject to judicial review
because it marks the “consummation of the . . . decisionmaking [sic] process” and is one “from
which legal consequences will flow.” Bennett, 520 U.S. at 178 (internal quotation marks
omitted).
100.
The “comprehensive” scope of the APA provides a “default” “remed[y] for all
interactions between individuals and all federal agencies.” W. Radio Servs. Co. v. U.S. Forest
Serv., 578 F.3d 1116, 1123 (9th Cir. 2009).
101.
The APA requires that courts “shall . . . hold unlawful and set aside agency action,
findings, and conclusions found to be . . . arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law” or “without observance of procedure required by law.” 5
U.S.C. § 706(2)(A), (D).
102.
The government’s decision to break from years of consistent practice and change
the eligibility requirements for SIJS relief for children who otherwise meet the statutory
requirements violates the APA’s prohibition against “arbitrary and capricious” agency action
laws, exceeds the authority delegated to the agency by Congress, and imposes requirements not
contemplated by Congress.
103.
Moreover, the decision to impose additional requirements for a state court to issue
SIJ Findings is also arbitrary and capricious because the government previously determined that
state courts can issue the predicate findings for those over 18 years of age, and Defendants have
not provided a reasoned analysis for their departure from this determination.
104.
The agency’s decision to impose insurmountable requirements for children seeking
SIJS who otherwise qualify for such relief under the clear language of the statute and its refusal
(for the first time) to defer to the California Probate Court’s determination and exercise of its own
jurisdiction also violate the APA. A decision based on a misinterpretation of clearly established
law is necessarily arbitrary and capricious, and it is particularly so here, where USCIS
circumvents the authority that Congress reserved for the state courts.
105.
Defendants’ actions must also be set aside as arbitrary and capricious because
Defendants have not provided adequate reasons for the imposition of requirements outside the
statute. This failure is unsurprising given that USCIS’s actions clearly circumvent the SIJS
statute and cannot be adequately explained.
106.
Plaintiffs and hundreds of vulnerable children reasonably relied on the plain text of
the SIJS Statute and on Defendants’ past adjudication of SIJS petitions by acknowledging that
they have been abused, abandoned, or neglected, and by bringing themselves into the purview of
the federal government.
107.
The government’s blatant disregard for the reasonable reliance of Plaintiffs and
hundreds of other vulnerable children is the hallmark of arbitrary and capricious action and an
abuse of discretion, and the imposition of a new requirement for SIJS eligibility is in violation of
the APA and must be vacated. See Perez v. Mortg. Bankers Ass’n, 135 S. Ct. 1199, 1209 (2015).
108.
Defendants’ violation has caused Plaintiffs irreparable harm.
ADMINISTRATIVE PROCEDURE ACT – NOTICE-AND-COMMENT RULEMAKING
109.
Plaintiffs repeat and incorporate by reference each and every allegation contained
in the preceding paragraphs as if fully set forth herein.
110.
Defendants are subject to the Administrative Procedure Act. See 5 U.S.C. § 703.
Defendants further violate the APA because the APA and 5 U.S.C. §§ 553 and 706(2)(D) require
that federal agencies conduct rulemaking before engaging in action that impacts substantive
rights.
111.
USCIS is an “agency” under the APA, and the implementation of new legal
guidance and resulting imposition of a new SIJS requirement and the actions that USCIS has
taken are “rules” under the APA. See 5 U.S.C. § 551(1), (4).
112.
In implementing the new USCIS policy, the agency has changed the substantive
criteria necessary for obtaining SIJS relief. Defendants did not follow the procedures required by
the APA before taking action impacting these substantive rights.
113.
With exceptions that are not applicable here, agency rules must go through notice-
and-comment rulemaking. See 5 U.S.C. § 553.
114.
Defendants promulgated and implemented these rules without authority and
without notice-and-comment rulemaking, in violation of the APA. Plaintiffs are impacted
because they have not had the opportunity to comment on the imposition of a new SIJS eligibility
requirement.
115.
Defendants’ violation has caused ongoing harm to Plaintiffs and other vulnerable
children.
COUNT FIVE
ADMINISTRATIVE PROCEDURE ACT – CONSTITUTIONAL VIOLATION
116.
Plaintiffs repeat and incorporate by reference each and every allegation contained
in the preceding paragraphs as if fully set forth herein.
117.
Defendants are subject to the Administrative Procedure Act. See 5 U.S.C. § 703.
The imposition of new SIJS requirements is final agency action subject to judicial review because
legal consequences will flow.” Bennett, 520 U.S. at 178 (internal quotation marks omitted).
118.
The “comprehensive” scope of the APA provides a “default” “remed[y] for all
interactions between individuals and all federal agencies.” W. Radio Servs., 578 F.3d at 1123.
119.
The APA requires that courts “shall . . . hold unlawful and set aside agency action,
findings, and conclusions found to be . . . not in accordance with law . . . [or] contrary to
constitutional right, power, privilege, or immunity.” 5 U.S.C. § 706(2)(A), (B).
120.
For the reasons set forth above, the government’s fundamentally unfair and
arbitrary decision to add requirements to the SIJS statute and deny SIJS petitions for children who
received guardianships after their 18th birthday, without proper notice and justification after years
of deferring to juvenile courts’ assessments of their own jurisdictions, violates the Due Process
Clause and is unconstitutional, and therefore must be vacated.
121.
Defendants’ constitutional violation has caused Plaintiffs irreparable harm.
COUNT SIX
DECLARATORY JUDGMENT THAT THE IMPOSITION OF A NEW SIJS
REQUIREMENT IS UNLAWFUL
122.
Plaintiffs repeat and incorporate by reference each and every allegation contained
in the preceding paragraphs as if fully set forth herein.
123.
As set forth above, pursuant to the SIJS Statute and the intent of Congress, state
courts issue predicate orders with specified findings related to child welfare and USCIS grants
SIJS petitions based on the underlying state court determinations. In February 2018, USCIS
inexplicably began denying SIJS petitions for children between the ages of 18 and 20 who
obtained SIJS orders from California Probate Courts, finding that the state courts must have
jurisdiction over the care and custody of the juvenile under state law and the authority and power
to place the petitioner under the custody of a parent. Until this change, each of the Plaintiffs
would have been found eligible for SIJS relief and protected from deportation.
124.
The Declaratory Judgment Act, 28 U.S.C. § 2201, allows this court, “[i]n a case of
actual controversy within its jurisdiction,” to “declare the rights and other legal relations of any
U.S.C. § 2201(a).
125.
As SIJS-eligible children, Plaintiffs have an interest in the lawful adjudication of
SIJS petitions. The government’s arbitrary decision to impose a new requirement for SIJS
eligibility harmed Plaintiffs and continues to cause ongoing harm to Plaintiffs.
126.
There is an actual controversy regarding whether Defendants’ imposition of a new
requirement for SIJS eligibility and denial of SIJS petitions was lawful and is lawful today.
127.
Plaintiffs are entitled to a declaratory judgment pursuant to 28 U.S.C. § 2201(a)
that the imposition of a new requirement for SIJS relief for children with a guardianship order
pursuant to California Probate Code § 1510.1(a) is unlawful.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs pray that this Court grant the following relief:
1.
Permit this case to proceed as a class action and certify a class as defined when
requested by Plaintiffs in a motion for class certification;
2.
Declare that Defendants’ denial of SIJS and imposition of a new requirement for
SIJS relief, which is contrary to state and federal law, violates the Administrative Procedure Act,
Immigration and Nationality Act, and/or the Due Process Clause of the Fifth Amendment;
3.
Declare that the imposition of a new requirement for SIJS eligibility and resulting
denials of Plaintiffs’ and the putative class members’ SIJS petitions by USCIS were arbitrary,
capricious, and contrary to state and federal law;
4.
Declare that a Probate Court appointing a guardian under Probate Code
§ 1510.1(a) is a juvenile court under INA § 101(a)(27)(J);
5.
Enjoin Defendants from, permanently and preliminarily:
a.
Denying SIJS petitions on the grounds that a California Probate Court does
not have jurisdiction or authority to “reunify” an 18 to 20 year old with her parents;
b.
Initiating removal proceedings against or removing any SIJS petitioner
who was appointed a guardian pursuant to Section 1510.1(a) of the California Probate Code and
whose SIJS petition has been denied on the grounds that the California Probate Court did not
Plaintiffs further request the Court; and
c.
Providing less than 14 days’ notice to Plaintiffs’ counsel before Defendants
take any adverse adjudicatory or enforcement action against any of the Plaintiffs or members of
the Proposed Class during the pendency of this litigation;
6.
Rescind the improper denials of Plaintiffs’ and class members’ SIJS petitions, and
order USCIS to reopen their petitions;
7.
Grant Plaintiffs reasonable attorneys’ fees, costs, and other disbursements pursuant
to the Equal Access to Justice Act, 28 U.S.C. § 2412; and
8.
Grant any other and further relief that this Court may deem just and proper.
Dated: August 14, 2018
MANATT, PHELPS & PHILLIPS, LLP
MATTHEW KANNY
ADRIENNE MARSHACK
SIRENA CASTILLO
PUBLIC COUNSEL
JUDY LONDON
SARA VAN HOFWEGEN
MARY TANAGHO ROSS
LAWYERS’ COMMITTEE FOR CIVIL RIGHTS
OF THE SAN FRANCISCO BAY AREA
KEITH WURSTER
By: /s/
Sirena Castillo
Attorneys for Plaintiffs
J.L., M.V.B., M.D.G.B., and J.B.A., on behalf
of themselves and all others similarly situated
204577938.5
| criminal & enforcement |
qg--FocBD5gMZwcz7MO9 | UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
Plaintiff,
CASE NO.:
Defendant.
/
NATIONWIDE COLLECTIVE ACTION COMPLAINT
AND DEMAND FOR JURY TRIAL
Plaintiff, JAMES RICHMOND ("RICHMOND" or "Plaintiff"), on behalf of himself and
NATURE OF THE ACTION
1.
Plaintiff alleges on behalf of himself and other similarly situated current and former
2.
This action is intended to encompass all "Field Sales Manager" employees, employed
JURISDICTION and VENUE
3.
Jurisdiction in this Court is proper as the claims are brought pursuant to the Fair
4.
The jurisdiction of the Court over this controversy is based upon 29 U.S.C. $216(b).
5.
This Court has the authority to grant declaratory relief pursuant to the FLSA and the
6.
Venue is proper in this Court because Plaintiff resides within the District,
PARTIES
7.
At all times material hereto, Plaintiff was and continues to be a resident of Kane
8.
At all times material hereto, Plaintiff was a "Field Sales Manager," employed by
9.
At all times material hereto Defendant 20/20 was, and continues to be, a Foreign
10.
At all times material hereto, Defendant was, and continues to be, primarily engaged
11.
One of Defendant's corporate clients is Samsung.
12.
Plaintiff, and those similarly situated to Plaintiff were/are "Field Sales Managers"
COVERAGE
13.
At all times material hereto Plaintiff was Defendant's "employee" within the
14.
At all times material hereto, Defendant was Plaintiff's "employer" within the
15.
Defendant was, and continues to be, an "employer" within the meaning of the
16.
At all times material hereto, Defendant was, and continues to be, "an enterprise
15.
Specifically, at all material times hereto, Defendant operated in multiple states
16.
At all times material hereto, Defendant was, and continues to be, an enterprise
18.
At all times material hereto, the annual gross revenue of Defendant was in excess
19.
At all times material hereto, Defendant had two (2) or more employees handling,
20.
At all times hereto, Plaintiff was "engaged in commerce" and subject to individual
21. At all times hereto, Plaintiff was engaged in the "production of goods for
STATEMENT OF FACTS
22.
Defendant works on a contract basis with various companies and their brands,
23.
Among other services/products it provides, Defendant helps its clients launch new
24.
Plaintiff was employed by Defendant as a non-exempt "Field Sales Manager."
25.
Plaintiff worked in this capacity from approximately April 1, 2014 to June 1, 2015.
25.
As a "Field Sales Manager," Plaintiff was assigned to work on Defendant's
26.
Plaintiff and those similarly situated to him, routinely worked in excess of forty27.
Despite working more than forty (40) hours per week, Defendant failed to pay
28.
Defendant has employed and continues to employ hundreds of other individuals as
29.
Defendant has violated Title 29 U.S.C. $207, from at least June 9, 2013, and
a.
Plaintiff worked in excess of forty (40) hours per week for his period of
employment with Defendant;
b.
No payments, or insufficient payments and/or provisions for payment, have
been made by Defendant to properly compensate Plaintiff at the statutory
rate of one and one-half times Plaintiff's regular rate for those hours worked
in excess of forty (40) hours per work week as provided by the FLSA;
C.
Defendant has failed to maintain proper time records as mandated by the
FLSA.
30.
Plaintiff has retained the law firm of MORGAN & MORGAN, P.A. to represent
COLLECTIVE ACTION ALLEGATIONS
31.
Plaintiff and the class members were all "Field Sales Managers," assigned by
32.
Further, Plaintiff and the class members were subjected to the same pay provisions
33.
Defendant's failure to compensate employees for hours worked in excess of 40
34.
This policy or practice was applicable to Plaintiff and the class members.
All "Field Sales Managers" who worked for Defendant nationwide on
Defendant's Samsung account, within the last three years, and up to and
including the date of entry of judgment in this case, who were not
compensated at time-and-one-half for all hours worked in excess of 40 hours
in one or more workweeks.
35.
Defendant knowingly, willfully, or with reckless disregard carried out its illegal
36.
Specifically, Defendant continued to carry out its illegal pattern or practice of
37.
Defendant did not act in good faith or reliance upon any of the following in
38.
During the relevant period, Defendant violated § 7(a)(1) and § 15(a)(2), by
39.
Defendant has acted willfully in failing to pay Plaintiff and the class members in
40.
Defendant has failed to maintain accurate records of Plaintiff's and the class
COUNT I
VIOLATION OF 29 U.S.C. §207 OVERTIME COMPENSATION
41.
Plaintiff realleges and reavers paragraphs 1 through 40 the Complaint as if fully set
42.
From at least April 2014, and continuing through June 2015, Plaintiff worked in43.
Plaintiff was, and is entitled to be paid at the statutory rate of one and one-half times
44.
At all times material hereto, Defendant failed, and continues to fail, to maintain
45.
To date, Defendant continues to fail their "Field Sales Manager" employees their
46.
Defendant's actions in this regard were/are willful and/or showed/show reckless
47.
Defendant has failed to properly disclose or apprise Plaintiff of Plaintiff's rights
48.
Due to the intentional, willful, and unlawful acts of Defendant, Plaintiff suffered
49.
Plaintiff is entitled to an award of reasonable attorney's fees and costs pursuant to
PRAYER FOR RELIEF
to represent the Collective Action members;
b.
FLSA;
C.
engaging in each of the unlawful practices, policies and patterns set forth herein;
d.
An award of unpaid overtime compensation due under the FLSA;
e.
An award of liquidated damages pursuant to 29 U.S.C § 216;
f.
An award of prejudgment and post judgment interest;
g.
expert fees; and
h.
Such other and further relief as this Court deems just and proper.
DEMAND FOR TRIAL BY JURY
9
, 2016.
Respectfully submitted
Gift
Andrew R. Frisch, Esquire
Florida Bar No.: 27777
MORGAN & MORGAN, P.A.
600 N. Pine Island Road, Suite 400
Plantation, Florida 33324
Tel: 954-WORKERS
Fax: 954-327-3013
E-mail: afrisch@forthepeople.com
Trial Counsel for Plaintiff | employment & labor |
hN_BEIcBD5gMZwczlpOH | LAW OFFICE OF BRIAN L. GREBEN
Brian L. Greben, Esq.
316 Great Neck Road
Great Neck, NY 11021
(516) 304-5357
Attorneys for Named Plaintiffs, FLSA
Collective Plaintiffs and Class Members
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------------------------------------X
DINIS PASSARINHO and ANDREW E. SAXE,
on behalf of themselves and others similarly
situated,
INDEX NO.
Plaintiffs,
COMPLAINT
v.
FLSA COLLECTIVE ACTION AND
RULE 23 CLASS ACTION
HANDYBOOK, INC., a/k/a HANDY
TECHNOLOGIES, INC., OISIN HANRAHAN,
DEMAND FOR JURY TRIAL
UMANG DUA, and CAROLYN CHILDERS,
Defendants.
------------------------------------------------------------X
Plaintiffs, on behalf of themselves and all others similarly situated, allege as follows:
1.
Plaintiffs, on behalf of themselves and all others similarly situated, bring this
lawsuit seeking recovery against Defendants for Defendants’ violations of the Fair Labor
Standards Act, 29 U.S.C. § 201, et seq. (“FLSA”) and allege that they are entitled to recover
from Defendants: (1) unpaid overtime; (2) unpaid wages for work performed without pay during
the process of applying for employment with Defendants; (3) liquidated damages; and (4)
attorneys’ fees and costs.
2.
Plaintiffs, on behalf of themselves and all others similarly situated, further bring
this lawsuit seeking recovery against Defendants for Defendants’ violations of the New York
Labor Law, Art. 6, § 190 et. seq., and Art. 19, § 650 et. seq., and the supporting New York State
Department of Labor regulations, 12 N.Y.C.R.R. § 142 (collectively “NYLL”).
3.
Plaintiffs retained the Law Office of Brian L. Greben to represent Plaintiffs,
FLSA Collective Plaintiffs and Class Members in this litigation, and have agreed to pay the firm
a reasonable fee for its services.
4.
Plaintiffs’ consent to sue forms are attached hereto as Exhibit “A.”
JURISDICTION AND VENUE
5.
The Court has original federal question jurisdiction under 28 U.S.C. § 1331
because this case is brought under the FLSA. The Court has supplemental jurisdiction over the
New York state law claims, as they 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.
6.
Venue is proper in the district because Defendants conduct business in the district,
and the acts and/or omissions giving rise to the claims herein alleged took place in the district.
THE PARTIES
7.
Plaintiff Dinis Passarinho is a resident of Yonkers, New York.
8.
Plaintiff Andrew E. Saxe is a resident of New York, New York.
9.
Defendant Handybook, Inc., a/k/a Handy Technologies, Inc. (“Handybook”), is a
corporation organized under the laws of Delaware, with a principal place of business at 33 West
19th Street, Floor 5, New York, New York, 10011, and an address for service of process at c/o C
T Corporation System, 111 Eighth Avenue, New York, New York, 10001.
10.
Upon information and belief, Individual Defendants Oisin Hanrahan, Umang Dua,
and Carolyn Childers (collectively, “Individual Defendants”) are principals, officers and
directors of Handybook.
11.
Upon information and belief, Individual Defendant Oisin Hanrahan is the Chief
Executive Officer of Handybook.
12.
Upon information and belief, Individual Defendant Umang Dua is the Chief
Operating Officer of Handybook.
13.
Upon information and belief, Individual Defendant Carolyn Childers is the Vice
President of Operations of Handybook.
14.
Upon information and belief, Handybook has an annual gross volume of sales in
excess of $500,000.00.
15.
Individual Defendants exercised control over the terms and conditions of the
employment of Plaintiffs, FLSA Collective Plaintiffs and Class Members.
16.
Individual Defendants exercised control over the terms and conditions of the
application for employment process utilized for Plaintiffs, FLSA Collective Plaintiffs and Class
Members.
17.
Individual Defendants have the authority to hire and fire employees, and are in
charge of budgeting issues, including payroll.
18.
Individual Defendants exercise control over Handybook’s day to day operations,
and are actively involved in managing its operations.
19.
To the extent Defendants retained employment records, Individual Defendants
exercised control over those records.
20.
Upon information and belief, Individual Defendants are and/or were employers of
Plaintiffs and those similarly situated under the FLSA and the NYLL.
21.
All Defendants are hereinafter collectively referred to as “Defendants.”
22.
All Plaintiffs are hereinafter collectively referred to as “Plaintiffs.”
FLSA COLLECTIVE ACTION ALLEGATIONS
23.
Plaintiffs bring and seek to prosecute their FLSA claim as a collective action
pursuant to FLSA Section 16(b), 29 U.S.C. § 207, and 29 U.S.C. § 216(b), on behalf of all non-
exempt persons currently or formerly employed by Defendants, including: a) all employees who
are or were formerly employed by Defendants as operations support associates; b) all individuals
who sought employment with Defendants and, in the course of seeking employment, provided a
“trial day” for which they were not compensated; and c) any other similarly situated current and
former employees holding comparable positions (“FLSA collective plaintiffs”), at any time on
or after the date that is three years before the filing of the Complaint in this case as defined
herein (the “Collective Action Period”).
24.
At all relevant times, Plaintiffs and the other FLSA collective plaintiffs are and
have been similarly situated, have had substantially similar job requirements and pay provisions,
and are and have been subject to Defendants’ decisions, policies, plans and common policies,
programs, practices, procedures, protocols, routines, and rules, including willfully failing and
refusing to pay Plaintiffs and the other FLSA Collective Plaintiffs one-and-one-half times their
regular hourly rate for work in excess of forty (40) hours per workweek, as well as requiring
applicants seeking employment to work a complete day of twelve (12) hours or more without
any compensation whatsoever. The claims of Plaintiffs stated herein are essentially the same as
those of the other FLSA Collective Plaintiffs.
25.
The FLSA Claims for Relief are properly brought under and maintained as an opt-
in collective action pursuant to FLSA Section 16(b), 29 U.S.C. § 207, and 29 U.S.C. § 216(b).
26.
The FLSA Collective Plaintiffs are readily ascertainable. For purpose of notice
and other purposes related to this action, their names and addresses are readily available from the
Defendants. Notice can be provided to the FLSA Collective Plaintiffs via first class mail to the
last address known to Defendants.
RULE 23 CLASS ALLEGATIONS - NEW YORK
27.
Plaintiffs bring New York State law Claims for Relief pursuant to the Federal
Rules of Civil Procedure (“F.R.C.P.”) Rule 23, on behalf of all non-exempt persons employed by
Defendants, including: a) all employees who are or were formerly employed by Defendants as
operations support associates; b) all individuals who sought Employment with Defendants and,
in the course of seeking employment, provided a “trial day” for which they were not
compensated; and c) any other similarly situated current and former employees holding
comparable positions, on or after the date that is six years before the filing of the Complaint in
this case as defined herein (the “Class Period”).
28.
All said persons, including Plaintiffs, are referred to herein as the “Class.” The
class members are readily ascertainable. The number and identity of the class members are
determinable from the records of Defendants. The hours assigned and worked, the positions held,
and the rates of pay for each Class member are also determinable from Defendants’ records. For
purposes of notice and other purposes related to this action, their names and addresses are readily
available from Defendants. Notice can be provided by means permissible under said F.R.C.P. 23.
29.
The proposed Class is so numerous that joinder of all class members is
impracticable, and the disposition of their claims as a Class will benefit the parties and the court.
Although the precise number of such persons is unknown, and the facts on which the calculation
of that number are presently within the sole control of Defendants, upon information and belief,
there are more than fifty (50) Members of the Class.
30.
Plaintiff’s claims are typical of those claims which could be alleged by any
member of the Class, and the relief sought is typical of the relief which would be sought by each
member of the Class in separate actions. All the class members were subject to the same
corporate practices of Defendants, as alleged herein, including willfully failing and refusing to
pay class members for the initial “trial day” they provided while seeking employment with
Defendants, as well as willfully failing and refusing to pay class members one-and-one-half
times their regular hourly rate for work in excess of forty (40) hours per workweek for work they
provided thereafter. Defendants’ corporate-wide policies and practices affected all class
members similarly, and Defendants benefited from the same type of unfair and/or wrongful acts
as to each Class member. Plaintiffs and other class members sustained similar losses, injuries and
damages arising from the same unlawful policies, practices and procedures.
31.
Plaintiffs are able to fairly and adequately protect the interests of the Class and
have no interests antagonistic to the Class. Plaintiffs are represented by an attorney who is
experienced and competent in both Class action litigation and employment litigation and has
previously represented clients in wage and hour cases.
32.
A Class action is superior to other available methods for the fair and efficient
adjudication of the controversy - particularly in the context of wage and hour litigation where
individual class members lack the financial resources to vigorously prosecute a lawsuit against
corporate Defendants. Class action 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 efforts and expense that numerous individual actions
engender. Because the losses, injuries and damages suffered by each of the individual class
members are small in the sense pertinent to a Class action analysis, the expenses and burden of
individual litigation would make it extremely difficult or impossible for the individual class
members to redress the wrongs done to them. On the other hand, important public interests will
be served by addressing the matter as a Class action. The adjudication of individual litigation
claims would result in a great expenditure of Court and public resources; however, treating the
claims as a Class action would result in a significant saving of these costs. The prosecution of
separate actions by individual Members of the Class would create a risk of inconsistent and/or
varying adjudications with respect to the individual Members of the Class, establishing
incompatible standards of conduct for Defendants and resulting in the impairment of class
members’ rights and the disposition of their interests through actions to which they were not
parties. The issues in this action can be decided by means of common, Class-wide proof. In
addition, if appropriate, the Court can, and is empowered to, fashion methods to efficiently
manage this action as a Class action.
33.
Upon information and belief, Defendants and other employers throughout the
state violate the New York Labor Law. Current employees are often afraid to assert their rights
out of fear of direct or indirect retaliation. Former employees are fearful of bringing claims
because doing so can harm their employment, future employment, and future efforts to secure
employment. Class actions provide class members who are not named in the complaint a degree
of anonymity which allows for the vindication of their rights while eliminating or reducing these
34.
There are questions of law and fact common to the Class which predominate over
any questions affecting only individual class members, including:
(a)
Whether Defendants properly compensated Plaintiffs and class members
for overtime by paying them overtime pay for the hours worked in excess
of forty (40) hours per workweek within the meaning of New York Labor
Law, Art. 6, § 190 et. seq., and Art. 19, § 650 et. seq., and the supporting
New York State Department of Labor regulations, 12 N.Y.C.R.R. § 142;
(b)
The nature and extent of the class-wide injury and the appropriate measure
of damages for the Class;
(c)
Whether Defendants have a policy of misclassifying operations support
associates and other similarly situated current and former employees
holding comparable positions from coverage of the overtime provisions of
the NYLL;
(d)
Whether Defendants’ policy of misclassifying operations support associates
and other similarly situated current and former employees holding
comparable positions was done willfully;
(e)
Whether Defendants allowed individuals who sought employment with
Defendants to provide a “trial day” for which they were not compensated;
(f)
Whether Defendants have or had a policy of requiring individuals who
sought employment with Defendants to provide a “trial day” for which they
were not compensated;
(g)
Whether Defendants can prove that their unlawful policies were
implemented in good faith; and
(h)
Whether Defendants failed to provide Plaintiffs and the Class the requisite
wage notices and other documents required under the NYLL.
FACTS
35.
Handybook is a privately held company that provides and/or arranges cleaning
and “handyman” services for homes, offices, and rental apartments. The services provided by
Handybook involve directing cleaning personnel to its customers’ homes, offices and apartments
for home and office cleaning. Upon information and belief, Handybook currently operates in at
least twenty-six cities throughout North America and the United Kingdom.
36.
As part of its employment application process, Handybook required applicants for
employment to work a complete day of twelve (12) hours or more without compensation,
allegedly as a “trial day” during which Defendants would evaluate the applicant’s work to
determine whether he or she would be offered a job. This unpaid “trial day” was a standard part
of Defendants’ hiring process.
37.
Plaintiff Andrew E. Saxe applied for employment with Handybook’s customer
service department in May 2013, and worked his “trial day” on May 29, 2013.
38.
Plaintiff Dinis Passarinho applied for employment with Handybook’s customer
service department in May 2013, and worked his “trial day” on May 31, 2013.
39.
The work performed by Plaintiffs during the aforementioned “trial days” did not
differ in any substantive manner from the work they performed throughout their subsequent
employment with Defendants.
40.
Mr. Saxe was hired by Defendants on or about June 3, 2013, and remained
continuously employed by Defendants until September 8, 2014.
41.
Mr. Passarinho was hired by Defendants on or about June 3, 2013, and remained
continuously employed by Defendants until March 20, 2015.
42.
Plaintiffs’ positions with Defendants were not given titles, but were often referred
to as operations support associates. Throughout Mr. Saxe and Mr. Passarinhos’ employment
with Defendants, their work primarily included:
(a)
delivering customer and service provider support via email and computer
“chat”;
(b)
attracting potential customers by answering product and service questions;
(c)
suggesting information about other services (referred to as “upsells”);
(d)
opening customer accounts by recording account information;
(e)
resolving service problems by clarifying customers’ complaints, and
determining the causes of the problems;
(f)
selecting and explaining the best solution to solve problems, and
expediting correction or adjustment;
(g)
following up on issues with customers to ensure resolution;
(h)
issuing refunds to customer after customer complaints or failure to deliver
service;
(i)
providing assistance with cleaning personnel and handymen via telephone,
email, or chat, with matters concerning particular assignments and
payment arrangements;
(j)
cleaning for customers when Defendants did not have enough personnel;
(k)
organizing Defendants’ warehouse;
(l)
delivering keys to cleaners; and
(m)
carrying laundry to partner accounts.
43.
Plaintiffs’ job duties did not include hiring, firing, scheduling or disciplining of
employees. Plaintiffs did not set pay schedules of employees. Rather, Plaintiffs’ job duties were
similar to those duties of non-exempt hourly employees in that Plaintiffs’ duties were void of
meaningful independent discretion with respect to the exercise of their duties.
44.
Pursuant to Defendants’ policies, patterns and practices, plaintiffs each worked
twelve (12) or more hours per day, and worked at least five (5), and often six (6) or seven (7),
days per week. Accordingly, throughout the time Plaintiffs were employed by Defendants,
plaintiffs worked between sixty (60) and eighty (80) hours per week. Plaintiffs were not
provided with lunch breaks, or any other kind of break, during their work days.
45.
Mr. Saxe’s salary from June 3, 2013, until July 16, 2013, was $35,000.00 per
year. His salary from July 16, 2013, until September 8, 2014, was $40,000.00 per year.
46.
Mr. Passarinho’s salary from June 3, 2013, until approximately July 16, 2013,
was $35,000.00 per year; his salary from approximately July 1, 2013, until in our around August
2014, was $40,000.00 per year; his salary from in our around September 2014, until December
2014, was $45,000.00 per year; and his salary between January 2015 until March 20, 2015 was
$48,000.00 per year.
47.
At no time did Defendants pay Plaintiffs overtime at a rate of 1.5 times their
regular hourly rate for hours worked in excess of forty (40) hours per work week, as they are
required to do under the FLSA and the NYLL.
48.
Defendants knowingly and willfully operate their business with a policy of not
paying overtime at a rate of 1.5 times each employee’s regular hourly rate to Plaintiffs, FLSA
Collective Plaintiffs, and Class Members.
49.
In November 2014, the three Individual Defendants held meetings with
Handybook’s operations support associates. At these meetings, Defendants admitted that
Handybook should have been paying its operations support associates premium rates for
overtime hours, but failed to do so, and offered them one-time reimbursements in exchange for
the release of any claims they might have had against Handybook had for unpaid overtime. Mr.
Passarinho attended one such meeting with Carolyn Childers in November 2014, during which
he was offered a one-time overtime reimbursement in exchange for a full release, as described
50.
During the aforementioned November 2014 meeting between Ms. Childers and
Mr. Passarinho, Ms. Childers provided him with a settlement agreement memorializing
Handybook’s offer of a limited amount of retroactively paid overtime in exchange for a release
of any claims. At the meeting, Mr. Passarinho told Ms. Childers that he wanted to bring the
settlement agreement home with him, take a night or two to read it over, and consider his options
before deciding whether he would sign. Ms. Childers, however, told Mr. Passarinho that she
preferred that he sign the document at that moment, and led him to believe that his job would be
in jeopardy if he did not sign the settlement agreement immediately. Mr. Passarinho, under
duress, complied with Ms. Childers’ request and signed the settlement agreement during the
meeting at which it was first presented to him.
51.
The agreement provided that Mr. Passarinho’s overtime rate was $21.634
(equivalent to the regular hourly rate of an employee who worked forty (40) hours per week at a
salary of $45,000.00 per year). The agreement does not provide an explanation for how this rate
was calculated, or why it did not utilize a “premium rate” of 1.5 times Mr. Passarinho’s regular
hourly rate.
52.
The agreement was not submitted to, supervised by, or approved by a court of
competent jurisdiction or the New York State Department of Labor.
53.
At the time of the November 2014 meeting, Mr. Passarinho had worked between
approximately 1,520 and 3,040 overtime hours for Defendants for which he had not been paid a
premium rate, as he was entitled to under the FLSA and the NYLL. Despite this, the retroactive
overtime payment offered to Mr. Passarinho at the November 2014 meeting consisted of
approximately 125.9 hours at the rate of $21.64 per hour.
54.
Mr. Passarinho performed between approximately 360 and 720 hours of overtime
work for Defendants subsequent to the aforementioned meeting of November 2014; he has not
been paid a premium rate of 1.5 times his regular hourly rate for any of these additional overtime
55.
To the extent that the agreement signed by Mr. Passarinho at the aforementioned
meeting of November 2014 purports to waive any claims against Defendants for repayment of
overtime or any related damages, the agreement is void and unenforceable under both the FLSA
and the NYLL.
56.
Approximately one (1) month after the aforementioned meeting between Mr.
Passarinho and Carolyn Childers, Mr. Saxe contacted Defendants and inquired about what, if
anything, they would offer him with respect to his unpaid overtime. Defendants subsequently
offered Mr. Saxe a settlement in the amount of $500.00; Mr. Saxe rejected Defendant’s offer.
57.
Mr. Saxe worked between approximately 1,320 and 2,640 overtime hours for
Defendants for which he had not been paid a premium rate, as he was entitled to under the FLSA
and the NYLL. Despite this, the retroactive overtime payment offered to Mr. Saxe in late 2014
covered only a tiny fraction of the overtime for which Mr. Saxe worked but was not paid.
FIRST CLAIM FOR RELIEF
(FLSA Overtime Violations, 29 U.S.C. § 201, et seq. Brought by Plaintiffs
on Behalf of Themselves, the FLSA Collective Plaintiffs and Class Members)
58.
Plaintiffs, on behalf of themselves, the FLSA Collective Plaintiffs and Class
Members, reallege and incorporate by reference all previous paragraphs.
59.
Throughout the statute of limitations period covered by these claims, the FLSA
Collective Plaintiffs and Class Members regularly worked in excess of forty (40) hours per
workweek and continue to do so.
60.
At all relevant times, Defendants operated under a decision, policy and plan, and
under common policies, programs, practices, procedures, protocols, routines and rules of
willfully failing and refusing to pay the Plaintiffs, FLSA Collective Plaintiffs and Class
Members at one-and-one-half times their regular hourly rates for work in excess of forty (40)
hours per workweek, even though Plaintiffs, the FLSA Collective Plaintiffs and Class
Members have been and are entitled to overtime.
61.
At all relevant times, Defendants willfully, regularly and repeatedly failed to pay
Plaintiffs, the FLSA Collective Plaintiffs and Class Members at the required overtime rates,
one- and-one-half times their regular rates for hours worked in excess of forty (40) hours per
workweek.
62.
Plaintiffs, on behalf of themselves, the FLSA Collective Plaintiffs and Class
Members, seek damages in the amount of their respective unpaid overtime compensation,
liquidated damages as provided by the FLSA for overtime violations, attorneys’ fees and costs,
pre- and post-judgment interest, and such other legal and equitable relief as this Court deems
just and proper.
SECOND CLAIM FOR RELIEF
(New York Overtime Violations, N.Y. Lab. L.
§ 650 et seq., N.Y. Comp. Codes R. & Regs. § 142 et seq.,
Brought by Plaintiffs, the FLSA Collective Plaintiffs and Class Members)
63.
Plaintiffs, on behalf of themselves, the FLSA Collective Plaintiffs and Class
Members, reallege and incorporate by reference all previous paragraphs.
64.
At all times relevant to this action, Plaintiffs were employees and Defendants
were employers within the meaning of NYLL.
65.
The overtime wage provisions of Article 19 of the NYLL and its supporting
regulations apply to Defendants.
66.
It is unlawful under New York law for an employer to suffer or permit a non-
exempt employee to work without paying overtime wages for all hours worked in excess of forty
(40) hours in any workweek.
67.
Throughout the class period, Defendants willfully, regularly and repeatedly failed
to pay Plaintiffs, the FLSA Collective Plaintiffs and Class Members at the required overtime
rates, one-and-one-half times their regular rates for hours worked in excess of forty (40) hours
per workweek.
68.
By failing to pay Plaintiffs and the class members overtime wages for all hours
worked in excess of 40 hours per week, they have willfully violated NYLL Article 19, § 650 et
seq., and the supporting New York State Department of Labor Regulations, including, inter alia,
the regulations in 12 N.Y.C.R.R., Part 142.
69.
As a result of Defendants’ willful and unlawful conduct, Plaintiffs, the FLSA
Collective Plaintiffs and Class Members are entitled to an award of damages, including
liquidated damages, in amount to be determined at trial, pre- and post-judgment interest, costs
and attorneys’ fees, as provided by N.Y. Lab. Law § 663.
THIRD CLAIM FOR RELIEF
(New York Violations, NYLL §§ 195, 198 et seq., Brought
by Plaintiffs, the FLSA Collective Plaintiffs and Class Members)
70.
Plaintiffs, on behalf of themselves, the FLSA Collective Plaintiffs and Class
Members, reallege and incorporate by reference all previous paragraphs.
71.
Defendants did not provide Plaintiff and the Class member with the Notices
required by NYLL § 195.
72.
As a result of Defendants’ unlawful conduct, Plaintiffs are entitled to an award of
damages pursuant to NYLL § 198, in an amount to be determined at trial, pre- and post-
judgment interests, costs and attorneys’ fees, as provided by NYLL § 663.
FOURTH CLAIM FOR RELIEF
(FLSA Claims, 29 U.S.C. § 201, et seq.,
Brought by Plaintiffs on Behalf of Themselves,
the FLSA Collective Plaintiffs and Class Members)
73.
Plaintiffs, on behalf of themselves and the FLSA Collective Plaintiffs and Class
Members, reallege and incorporate by reference all preceding paragraphs as if they were set forth
again herein.
74.
As part of the application process, Handybook required all individuals applying
for employment as an operations support associate, or any similar position, to work a complete
day of twelve (12) hours or more without compensation, allegedly as a “trial day” during which
Defendants would evaluate plaintiff’s work to determine whether he would be offered a job.
This unpaid “trial day” was a standard part of Defendants’ hiring process and, upon information
and belief, was required of all candidates for comparable positions with Handybook.
75.
Plaintiffs, like individuals applying for employment as operations support
associates, or any similar position, were required to work complete days of twelve (12) hours or
more prior to their employment without compensation.
76.
The work performed by applicants during the aforementioned “trial day” did not
differ in any substantive manner from the work performed by Defendants’ employees.
77.
Throughout the statute of limitations period covered by these claims, Defendants
knowingly failed to pay applicants the federal minimum wage for each hour worked during the
aforementioned “trial day.”
78.
Plaintiffs, on behalf of themselves and the FLSA Collective Plaintiffs and Class
Members, seek damages in the amount of their unpaid compensation, liquidated (double)
damages as provided by the FLSA for minimum wage violations, attorneys’ fees and costs, pre-
and post-judgment interest, and such other legal and equitable relief as this Court deems just and
FIFTH CLAIM FOR RELEIF
(New York State Minimum Wage Act, New
York Labor Law § 650 et seq. Brought by Plaintiffs on Behalf
of Themselves, the FLSA Collective Plaintiffs and Class Members)
79.
Plaintiffs, on behalf of themselves, the FLSA Collective Plaintiffs and the Class
Members, reallege and incorporate by reference all preceding paragraphs as if they were set forth
again herein.
80.
As part of the application process, Handybook required all individuals applying
for employment as an operations support associate, or any similar position, to work a complete
day of twelve (12) hours or more without compensation, allegedly as a “trial day” during which
Defendants would evaluate their work to determine whether they would be offered a job. This
unpaid “trial day” was a standard part of Defendants’ hiring process and, upon information and
belief, was required of all candidates for comparable positions with Handybook.
81.
Plaintiffs, like other individuals applying for employment as operations support
associates, or any similar position, were required to work a complete day prior to their
employment without compensation. These “trial days” lasted twelve (12) hours or more.
82.
The work performed by applicants during the aforementioned “trial days” did not
differ in any substantive manner from the work performed by Defendants’ employees.
83.
Throughout the statute of limitations period covered by these claims, Defendants
knowingly failed to pay applicants the New York State minimum wage for each hour worked
during the aforementioned “trial day.”
84.
Defendants knowingly paid Plaintiffs, the FLSA Collective Plaintiffs and the
Class Members less than the New York minimum wage as set forth in N.Y. Lab. Law § 652 and
supporting regulations of the New York State Department of Labor.
85.
Defendants did not pay Plaintiffs, the FLSA Collective Plaintiffs and the Class
Members the minimum wage for all hours worked.
86.
Defendants’ failure to pay Plaintiffs, the FLSA Collective Plaintiffs and the Class
Members the minimum wage was willful within the meaning of N.Y. Lab. Law § 663.
87.
As a result of Defendants’ willful and unlawful conduct, Plaintiffs, the FLSA
Collective Plaintiffs and the Class Members are entitled to an award of damages, including
liquidated damages, in amount to be determined at trial, pre- and post-judgment interest, costs
and attorneys’ fees, as provided by N.Y. Lab. Law § 663.
SIXTH CLAIM FOR RELIEF
(New York Violations, NYLL §162 et seq.,
Brought by Plaintiffs, the FLSA Collective Plaintiffs and Class Members)
88.
Plaintiffs, on behalf of themselves, the FLSA Collective Plaintiffs and Class
Members, reallege and incorporate by reference all previous paragraphs.
89.
Defendants did not provide Plaintiffs and the Class member with a meal break as
is required by NYLL § 162.
90.
As a result of Defendants’ unlawful conduct, Plaintiffs are entitled to an award of
damages in an amount to be determined at trial, pre- and post- judgment interests, costs and
attorneys’ fees, as provided by the provisions of the New York Labor Law.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs, on behalf of themselves and the FLSA Collective Plaintiffs
and Members of the Class, prays for relief as follows:
A.
Designation of this action as a collective action on behalf of the FLSA Collective
Plaintiffs and prompt issuance of notice pursuant to 29 U.S.C. § 216(b) to all
similarly situated Members of the FLSA opt-in Class, apprising them of the
pendency of this action, and permitting them to assert timely FLSA claims and
state claims in this action by filing individual Consent to Sue forms pursuant to 29
U.S.C. § 216(b);
B.
Designation of Plaintiffs as representatives of the FLSA Collective Plaintiffs;
C.
Designation of this action as a Class action pursuant to F.R.C.P. 23;
D.
Designation of Plaintiffs as representatives of the Class;
E.
An award of damages, according to proof, including liquidated damages, to be
paid by Defendants;
F.
Penalties available under applicable laws;
G.
Costs of action incurred herein, including expert fees;
H.
Attorney’s fees, including fees pursuant to 29 U.S.C. § 216, N.Y. Lab. L. § 663
and other applicable statutes;
I.
Pre-Judgment and post-judgment interest, as provided by law; and
J.
Such other and further legal and equitable relief as this Court deems necessary,
just and proper.
DEMAND FOR JURY TRIAL
Plaintiffs hereby demand a jury trial on all causes of action and claims with respect to
which they have a right.
Dated: Great Neck, New York
May 18, 2015
LAW OFFICE OF BRIAN L. GREBEN
/s/ Brian L. Greben
Brian L. Greben
316 Great Neck Road
Great Neck, NY 11021
(516) 304‐5357
| employment & labor |
Gq_QCocBD5gMZwczibQP | IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
CHAILE STEINBERG, Individually and On
Behalf of All Others Similarly Situated,
Case No. ______________
JURY TRIAL DEMANDED
CLASS ACTION
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Plaintiff,
v.
MULTI PACKAGING SOLUTIONS
INTERNATIONAL LIMITED, MARC
SHORE, ZEINA BAIN, GEORGE BAYLY,
RICHARD H. COPANS, ERIC KUMP,
GARY MCGANN, THOMAS S.
SOULELES, JASON TYLER, WESTROCK
COMPANY, and WRK MERGER SUB
LIMITED,
Defendants.
COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934
Plaintiff, by her undersigned attorneys, for this complaint against defendants, alleges
upon personal knowledge with respect to herself, 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 January 24, 2017
(the “Proposed Transaction”), pursuant to which Multi Packaging Solutions International
Limited (“Multi Packaging” or the “Company”) will be acquired by WestRock Company
(“Parent”) and WRK Merger Sub Limited (“Merger Sub,” and together with Parent,
“WestRock”).
2.
On January 23, 2017, Multi Packaging’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
Multi Packaging will receive $18.00 per share in cash.
3.
On February 17, 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 Multi Packaging common stock.
9.
Defendant Multi Packaging is a Bermuda company and maintains its North
American headquarters at 150 East 52nd Street, 28th Floor, New York, New York 10022. Multi
Packaging’s common stock is traded on the NYSE under the ticker symbol “MPSX.”
10.
Defendant Marc Shore (“Shore”) has served as a director of Multi Packaging
since March 2005 and is Chairman of the Board and Chief Executive Officer (“CEO”).
According to the Company’s website, Shore is a member of the Nominating and Governance
Committee.
11.
Defendant Zeina Bain (“Bain”) is a director of Multi Packaging.
12.
Defendant George Bayly (“Bayly”) is a director of Multi Packaging. According
to the Company’s website, Bayly is a member of the Audit Committee and the Compensation
Committee.
13.
Defendant Richard H. Copans (“Copans”) is a director of Multi Packaging.
According to the Company’s website, Copans is Chair of the Nominating and Governance
Committee.
14.
Defendant Eric Kump (“Kump”) has served as a director of Multi Packaging since
June 2015. According to the Company’s website, Kump is Chair of the Compensation
Committee.
15.
Defendant Gary McGann (“McGann”) is a director of Multi Packaging.
According to the Company’s website, McGann is Chair of the Audit Committee and a member
of the Nominating and Governance Committee.
16.
Defendant Thomas S. Souleles (“Souleles”) has served as a director of Multi
Packaging since June 2015. According to the Company’s website, Souleles is a member of the
Compensation Committee.
17.
Defendant Jason Tyler (“Tyler”) is a director of Multi Packaging. According to
the Company’s website, Tyler is a member of the Audit Committee.
18.
The defendants identified in paragraphs 10 through 17 are collectively referred to
herein as the “Individual Defendants.”
19.
Defendant Parent is Delaware corporation and a party to the Merger Agreement.
20.
Defendant Merger Sub is a Bermuda exempted company, a wholly-owned
subsidiary of Parent, and a party to the Merger Agreement.
CLASS ACTION ALLEGATIONS
21.
Plaintiff brings this action as a class action on behalf of herself and the other
public stockholders of Multi Packaging (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
January 20, 2017, there were approximately 77,695,438 shares of Multi Packaging 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 and the Proposed Transaction
28.
Multi Packaging is a global leader in print and packaging with manufacturing
operations in North America, Europe, and Asia.
29.
The Company provides customers with an array of print-based specialty
packaging solutions, including premium folding cartons, inserts, labels, and rigid packaging
across a variety of substrates and finishes, which are complemented by value-added services,
including creative design, new product development, and customized supply chain solutions.
30.
Multi Packaging employs approximately 8,800 people worldwide and is
strategically located to serve customers around the globe. Its global manufacturing footprint
consists of fifty-nine manufacturing sites and nine sales offices across North America, Europe,
and Asia.
31.
Since 2005, the Company has evolved from an initial U.S. platform of five
facilities into a global specialty packaging leader in the consumer, healthcare, and multi-media
end markets through completing a total of fourteen transactions. The Company’s acquisitions
have focused on expanding in its core end markets, adding complementary products and
locations. In 2014, the Company entered into a transformational merger with Chesapeake
Finance 2 Limited (“Chesapeake”), acquired the North American and Asian print businesses of
AGI-Shorewood Group (“ASG”), and completed four additional acquisitions, which further
expanded the Company’s global footprint and significantly diversified its product and end
market profile.
32.
On August 22, 2016, Multi Packaging issued a press release wherein it reported
its results for the fourth quarter and fiscal year 2016. For fiscal year 2016, the Company
reported that GAAP sales were $1.66 billion versus $1.62 billion in fiscal year 2015. GAAP
operating income was $84.1 million versus $71.0 million in fiscal year 2015. Non GAAP net
income was $48.0 million versus $21.7 million in fiscal year 2015. Additionally, adjusted
EBITDA was $254.3 million versus $231.0 million in fiscal year 2015.
33.
With respect to the results, Individual Defendant Shore, CEO of the Company,
commented:
We had a very successful 2016, notwithstanding some significant challenges.
EBITDA was a record $254.3 million despite a negative foreign exchange impact
of $12.4 million. EBITDA margin grew by 100 basis points over the prior year to
15.3%. The business also generated approximately $109 million of free cash flow
which allowed us to make early debt repayments of $60 million. . . .
As we enter fiscal 2017, we are enthusiastic about our prospects. Our facility
improvement plan is gaining traction and other measures that we have taken to
enhance profitability are also being implemented. The company also remains
committed to sourcing strategic and accretive acquisitions and there are several
opportunities in the pipeline.
34.
Nevertheless, on January 23, 2017, the Individual Defendants caused the
Company to enter into the Merger Agreement, pursuant to which the Company will be acquired
for inadequate consideration.
35.
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 5.02(a) of the Merger
Agreement states:
(a) No Solicitation. Except as expressly permitted by this Section 5.02, from the
date of this Agreement until the earlier of the Effective Time or the termination of
this Agreement in accordance with its terms, the Company shall not, and shall
cause its Subsidiaries not to, and shall use its reasonable best efforts to cause its
and its Affiliates’ directors, officers, employees, accountants, consultants, legal
counsel, financial advisors and agents and other representatives (collectively,
“Representatives”) not to, (i) directly or indirectly solicit, seek, initiate,
knowingly encourage or knowingly facilitate any inquiries regarding, or the
making of, any submission or announcement of a proposal or offer that
constitutes, or would reasonably be expected to lead to, any Acquisition Proposal,
(ii) directly or indirectly engage in, continue or otherwise participate in any
discussions or negotiations regarding, or furnish to any other Person any
information in connection with or for the purpose of encouraging or facilitating,
any a proposal or offer that constitutes, or would reasonably be expected to lead
to, any Acquisition Proposal, (iii) approve, endorse or recommend any
Acquisition Proposal, or (iv) enter into any Alternative Acquisition Agreement.
The Company shall, and shall cause its Subsidiaries to, and shall use its
reasonable best efforts to cause its and their respective Representatives to,
(A) immediately cease and cause to be terminated all discussions and negotiations
with any Person or its Representatives that may be ongoing with respect to any
proposal or offer that constitutes, or would reasonably be expected to lead to, any
Acquisition Proposal, (B) immediately request the prompt return or destruction of
all confidential information previously furnished any such Person or its
Representatives and (C) immediately terminate all physical and electronic data
room access previously granted to such Person or its Representatives.
36.
Further, the Company must promptly advise WestRock of any proposals or
inquiries received from other parties. Section 5.02(c) of the Merger Agreement states:
(c) Notice of Acquisition Proposals. The Company shall promptly (and in no
event later than 24 hours after receipt) notify Parent in writing after receipt by the
Company or any of its Representatives of any proposal or offer that constitutes, or
would reasonably be expected to lead to, any Acquisition Proposal, including of
the identity of the Person making such proposal or offer and the material terms
and conditions thereof (including any subsequent changes thereto), and shall
promptly (and in no event later than 24 hours after receipt) provide copies to
Parent of any written proposals, indications of interest and/or draft agreements
and material related documentation relating to such proposal or offer that
constitutes, or would reasonably be expected to lead to, any Acquisition Proposal.
The Company shall keep Parent reasonably informed, on a prompt basis, as to the
status of (including changes to any material terms or conditions of, and any other
material developments with respect to) such proposal or offer that constitutes, or
would reasonably be expected to lead to, any Acquisition Proposal (including by
promptly (and in no event later than 24 hours after receipt) providing to Parent
copies of any additional or revised proposals, indications of interest and/or draft
agreements and material related documentation relating to such Acquisition
Proposal). The Company agrees that it and its Subsidiaries will not enter into any
agreement with any Person subsequent to the date of this Agreement which
prohibits the Company from providing any information to Parent in accordance
with this Section 5.02.
37.
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 WestRock a “matching right” with respect to any
“Superior Proposal” made to the Company. Section 5.02(d) of the Merger Agreement provides:
(d) Adverse Recommendation Change. Except as set forth in this Section 5.02(d),
the Company Board shall not (i) (A) change, withhold, withdraw, qualify or
modify, in a manner adverse to Parent (or publicly propose or resolve to change,
withhold, withdraw, qualify or modify), the Company Recommendation, (B) fail
to include the Company Recommendation in the Proxy Statement, (C) approve,
declare advisable or recommend, or publicly propose to approve, declare
advisable or recommend to the shareholders of the Company, an Acquisition
Proposal or (D) if a tender offer or exchange offer for shares of the Company that
constitutes an Acquisition Proposal is commenced, fail to recommend against
acceptance of such tender offer or exchange offer by the shareholders of the
Company (including, for these purposes, by disclosing that it is taking no position
with respect to the acceptance of such tender offer or exchange offer by its
shareholders, which shall constitute a failure to recommend against acceptance of
such tender offer or exchange offer, within ten (10) Business Days after
commencement of such tender offer or exchange offer (any of the foregoing, an
“Adverse Recommendation Change”) or (ii) authorize, adopt or approve or
propose to authorize, adopt or approve, an Acquisition Proposal, or cause or
permit the Company or its Subsidiaries to enter into any Alternative Acquisition
Agreement. Notwithstanding anything herein to the contrary, at any time prior to
the Company Shareholders Meeting, the Company Board may (I) effect an
Adverse Recommendation Change if the Company Board has determined in good
faith, after consultation with outside legal counsel, that the failure to take such
action could reasonably be expected to be inconsistent with the directors’
fiduciary duties under Applicable Law, or (II) if the Company receives an
Acquisition Proposal that did not result from a material breach of Section 5.02(a)
(or any material violation of the restrictions set forth in Section 5.02(a) by any
Representative of the Company acting in its capacity as such) that the Company
Board determines in good faith, after consultation with a financial advisor of
nationally recognized reputation and outside legal counsel, constitutes a Superior
Proposal, authorize, adopt, or approve such Superior Proposal and cause or permit
the Company to enter into an Alternative Acquisition Agreement with respect to
such Superior Proposal; provided, however, that the Company Board may only
take the actions described in (x) clause (II) if the Company terminates this
Agreement pursuant to Section 8.01(d) concurrently with entering into such
Alternative Acquisition Agreement and pays the applicable Termination Fee in
compliance with Section 8.03(b) and (y) clause (I) or (II) if:
(i) the Company has provided prior written notice to Parent of its or the Company
Board’s intention to take such actions at least three (3) Business Days in advance
of taking such action, which notice shall specify (x) in the case of a Superior
Proposal, the material terms of the Superior Proposal and shall include a copy of
the relevant proposed transaction agreements with, and the identity of, the Person
making the Acquisition Proposal, or (y) in cases not involving a Superior
Proposal, the material circumstances giving rise to the Adverse Recommendation
Change (and the Company shall keep Parent reasonably informed of any material
developments with respect thereto);
(ii) after providing such notice and prior to taking such actions, the Company
shall have, and shall have caused its Representatives to, negotiate with Parent in
good faith (to the extent Parent desires to negotiate) during such three
(3) Business Day period to make such adjustments in the terms and conditions of
this Agreement as would permit the Company or the Company Board not to take
such actions; and
(iii) the Company Board shall have considered in good faith any changes to this
Agreement or other arrangements that may be offered in writing by Parent by
5:00 PM Eastern Time on the third (3rd) Business Day of such three (3) Business
Day period and shall have determined in good faith (A) with respect to the actions
described in clause (I), after consultation with outside legal counsel, that it would
continue to be inconsistent with the directors’ fiduciary duties under Applicable
Law not to effect the Adverse Recommendation Change and (B) with respect to
the actions described in clause (II), after consultation with a financial advisor of
nationally recognized reputation and outside legal counsel, that the Acquisition
Proposal received by the Company would continue to constitute a Superior
Proposal, in each case, if such changes offered in writing by Parent were given
effect (it being understood and agreed that any amendment to any material term of
such Superior Proposal shall require a new notice in accordance with
Section 5.02(d)(i) and a new two (2) Business Day period).
38.
Further locking up control of the Company in favor of WestRock, the Merger
Agreement provides for a “termination fee” of $42.4 million, payable by the Company to
WestRock if the Individual Defendants cause the Company to terminate the Merger Agreement.
39.
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.
40.
Additionally, the Company’s two largest stockholders – affiliates of The Carlyle
Group and Madison Dearborn Partners, LLC – have entered into voting agreements, pursuant to
which they have agreed to vote their Company shares in favor of the Proposed Transaction.
Accordingly, over 57% of the Company’s shares are already locked up in favor of the merger.
41.
The consideration to be paid to plaintiff and the Class in the Proposed Transaction
is inadequate.
42.
Among other things, the intrinsic value of the Company is materially in excess of
the amount offered in the Proposed Transaction.
43.
Further, the merger consideration fails to adequately compensate the Company’s
stockholders for the significant synergies resulting from the merger.
44.
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.
45.
Meanwhile, certain of the Company’s officers and directors stand to receive
substantial benefits as a result of the Proposed Transaction.
46.
For example, Individual Defendant Shore and Dennis Kaltman (“Kaltman”),
President of the Company, have entered into employment agreements with WestRock, pursuant
to which they will retain their employment positions following the close of the Proposed
Transaction.
47.
Additionally, Individual Defendant Shore stands to receive $5,960,485 in
connection with the Proposed Transaction; Kaltman stands to receive $2,838,662; and the
Company’s three other named executive officers stand to receive $2,442,222.
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.
The Proxy Statement omits material information regarding Multi Packaging’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 Multi Packaging’s financial projections, the Proxy
Statement fails to disclose: (i) the Company’s unlevered free cash flows as used by BofA Merrill
Lynch in its Discounted Cash Flow Analysis; (ii) the corresponding definition of unlevered free
cash flow as used by BofA Merrill Lynch in its Discounted Cash Flow Analysis; (iii) the
forecasted individual line items used in the calculation of unlevered free cash flow as used by
BofA Merrill Lynch in its Discounted Cash Flow Analysis, including but not limited to cash
taxes, changes in net working capital, and stock-based compensation expense; and (iv) a
reconciliation of all non-GAAP to GAAP metrics.
52.
With respect to BofA Merrill Lynch’s Discounted Cash Flow Analysis, the Proxy
Statement fails to disclose: (i) the projected stream of net operating losses that Multi Packaging
was forecasted to utilize during fiscal year 2017 through 2032, and the resulting present value, as
calculated and used by BofA Merrill Lynch; (ii) the inputs and assumptions underlying the
calculation of the discount rate range of 8.2% to 9.8% used by BofA Merrill Lynch; (iii) the
terminal year estimated unlevered, after-tax free cash flow amount to which the perpetuity
growth rate range was applied; and (iv) the resulting calculated ranges of terminal values from
using both perpetuity growth rates and terminal forward EBITDA multiples.
53.
With respect to BofA Merrill Lynch’s Selected Publicly Traded Companies
Analysis, the Proxy Statement fails to disclose the individual multiples and financial metrics for
the companies observed by BofA Merrill Lynch in its analysis.
54.
With respect to BofA Merrill Lynch’s Selected Precedent Transactions Analysis,
the Proxy Statement fails to disclose the individual multiples and financial metrics for the
transactions observed by BofA Merrill Lynch in its analysis.
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) “Background
of the Merger”; (ii) “Recommendation of the MPS Board of Directors and Reasons for the
Merger”; (iii) “Opinion of BofA Merrill Lynch”; and (iv) “Certain Financial Forecasts.”
57.
The Proxy Statement also omits material information regarding potential conflicts
of interest of BofA Merrill Lynch.
58.
Specifically, the Proxy Statement fails to disclose the actual amount of the fee
BofA Merrill Lynch will receive for the services it rendered in connection with the Proposed
Transaction.
59.
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.
60.
The omission of this material information renders the Proxy Statement false and
misleading, including, inter alia, the following sections of the Proxy Statement: (i) “Background
of the Merger”; (ii) “Recommendation of the MPS Board of Directors and Reasons for the
Merger”; and (iii) “Opinion of BofA Merrill Lynch.”
61.
The above-referenced omitted information, if disclosed, would significantly alter
the total mix of information available to Multi Packaging’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 Multi Packaging
62.
Plaintiff repeats and realleges the preceding allegations as if fully set forth herein.
63.
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. Multi
Packaging is liable as the issuer of these statements.
64.
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.
65.
The Individual Defendants were at least negligent in filing the Proxy Statement
with these materially false and misleading statements.
66.
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.
67.
The Proxy Statement is an essential link in causing plaintiff and the Company’s
stockholders to approve the Proposed Transaction.
68.
By reason of the foregoing, defendants violated Section 14(a) of the 1934 Act and
Rule 14a-9 promulgated thereunder.
69.
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 WestRock
70.
Plaintiff repeats and realleges the preceding allegations as if fully set forth herein.
71.
The Individual Defendants and WestRock acted as controlling persons of Multi
Packaging 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 Multi Packaging 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.
72.
Each of the Individual Defendants and WestRock 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.
73.
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.
74.
WestRock 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.
75.
By virtue of the foregoing, the Individual Defendants and WestRock violated
Section 20(a) of the 1934 Act.
76.
As set forth above, the Individual Defendants and WestRock 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.
RIGRODSKY & LONG, P.A.
/s/ Timothy J. MacFall
Dated: February 28, 2017
By:
Timothy J. MacFall
825 East Gate Boulevard, Suite 300
Garden City, NY 11530
(516) 683-3516
Seth D. Rigrodsky
Brian D. Long
Gina M. Serra
2 Righter Parkway, Suite 120
Wilmington, DE 19803
(302) 295-5310
Attorneys for Plaintiff
| securities |
8lbABIkBRpLueGJZwrOc | IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
KRISTINA FINK, on behalf of the Nation
Safe Drivers Employee Stock Ownership
Plan, and on behalf of a class of all other
persons similarly situated,
Plaintiff,
Case No.
WILMINGTON TRUST, N.A., as successor
to Wilmington Trust Retirement and
Institutional Services Company, MICHAEL
SMITH, ANDREW SMITH, and FRANK
MENNELLA,
Defendants.
COMPLAINT
Plaintiff Kristina Fink, by her undersigned attorneys, on behalf of the Nation Safe Drivers
Employee Stock Ownership Plan, and similarly situated participants in the Plan and their
beneficiaries, alleges upon personal knowledge, the investigation of her counsel, and upon
information and belief as to all other matters, as to which allegations she believes substantial
evidentiary support will exist after a reasonable opportunity for further investigation and
discovery, as follows:
BACKGROUND
1.
Plaintiff Kristina Fink (“Plaintiff”) brings this suit against Wilmington Trust, N.A.
as successor to Wilmington Trust Retirement and Institutional Services Company (together,
“Wilmington Trust”), the trustee for the Nation Safe Drivers Employee Stock Ownership Plan (the
“Plan”) when the Plan acquired shares of NSD Holdings, Inc. (including its predecessor, Nation
1
Safe Drivers Holdings, Inc.) (“NSD”) in 2014, and against NSD shareholders Michael Smith,
Andrew Smith, and Frank Mennella.
2.
Plaintiff is a participant in the Plan, as defined by ERISA § 3(7), 29 U.S.C.
§ 1002(7), who is vested in shares of NSD allocated to her account in the Plan.
3.
This action is brought under Sections 404, 406, 409, 410, and 502(a) of the
Employee Retirement Income Security Act of 1974, as amended (“ERISA”), 29 U.S.C. §§ 1104,
1106, 1109, 1110, and 1132(a), for losses suffered by the Plan and its participants caused by
Wilmington Trust when it caused the Plan to buy shares of NSD for more than fair market value
in 2014 and other relief.
4.
As alleged below, the Plan has been injured and its participants have been deprived
of hard-earned retirement benefits resulting from Wilmington Trust’s violations of ERISA.
5.
At all relevant times, NSD was a privately-held company and a party in interest to
the Plan. On or about September 29, 2014, the Plan purchased 640,000 shares of NSD common
stock for $342,000,000, which was financed by a $317,225,000 term note agreement between NSD
and the Plan bearing a 2.97% interest rate, and notes financed by the selling shareholders (the
“Selling Shareholders”) of $24,775,000 that bore a 6.00% interest rate, with the notes to be repaid
over a 50 year period (the purchase and loan transactions together, the “ESOP Transaction” or
“Transaction”). At that time, NSD became 100% employee owned.
6.
Wilmington Trust represented the Plan and its participants as Trustee in the ESOP
Transaction. It had sole and exclusive authority to negotiate the terms of the ESOP Transaction on
the Plan’s behalf.
7.
The ESOP Transaction allowed the Selling Shareholders to unload their interests in
NSD above fair market value and saddle the Plan with hundreds of millions of dollars of debt over
2
a 50-year repayment period to finance the Transaction. Wilmington Trust failed to fulfill its ERISA
duties, as Trustee and fiduciary, to the Plan and its participants, including Plaintiff.
8.
Michael Smith, Andrew Smith, and Frank Mennella (the “Selling Shareholder
Defendants”) are parties in interest who are among the Selling Shareholders who sold shares in
the ESOP Transaction. The Selling Shareholder Defendants are liable under ERISA for
participating in the prohibited transactions and in Wilmington Trust’s breaches of fiduciary duty.
9.
Plaintiff brings this action to recover the losses incurred by the Plan, and thus by
each individual account in the Plan held by her and similarly situated participants, resulting from
Wilmington Trust’s engaging in, and causing the Plan to engage in, prohibited transactions under
ERISA, and breaching its fiduciary duties under ERISA, and the Selling Shareholder Defendants’
participation in these violations.
JURISDICTION AND VENUE
10.
This action arises under Title I of ERISA, 29 U.S.C. §§ 1001 et seq., and is brought
by Plaintiff under ERISA § 502(a), 29 U.S.C. § 1132(a), to require Wilmington Trust to make
good to the Plan losses resulting from its violations of the provisions of Title I of ERISA, to obtain
appropriate equitable relief against the Selling Shareholder Defendants, to restore to the Plan any
profits that have been made by breaching fiduciaries and parties in interest through the use of Plan
assets, and to obtain other appropriate equitable and legal remedies in order to redress violations
and enforce the provisions of ERISA.
11.
This Court has subject matter jurisdiction over this action pursuant to ERISA
§ 502(e)(1), 29 U.S.C. § 1132(e)(1).
3
12.
Venue is proper in this District pursuant to ERISA § 502(e)(2), 29 U.S.C.
§ 1132(e)(2), because Defendant Wilmington Trust resides or may be found in this District, and
because some of the events or omissions giving rise to the claims occurred in this District.
PARTIES
13.
Plaintiff Kristina Fink is and has been a Plan participant, as defined in ERISA
§ 3(7), 29 U.S.C. § 1002(7), since the adoption of the Plan effective on August 1, 2014. Plaintiff
Fink resides in Boca Raton, Florida. She was a Claims Manager and Senior Special Investigator
at NSD. She was employed by NSD from August 2002 to February 2018. She was vested by the
Plan’s terms in shares of NSD in her Plan account.
14.
Defendant Wilmington Trust is a trust company chartered in Delaware. Its
headquarters is at 1100 North Market Street, Wilmington, Delaware 19890. Wilmington Trust is
a subsidiary of M&T Bank Corporation. M&T Bank Corporation is headquartered in Buffalo, New
15.
Wilmington Trust was the Trustee of the Plan at the time of the ESOP Transaction.
Wilmington Trust was a “fiduciary” under ERISA because it was the Trustee. As Trustee,
Wilmington Trust had exclusive authority to manage and control the assets of the Plan and had
sole and exclusive discretion to authorize and negotiate the ESOP Transaction on the Plan’s behalf.
Wilmington Trust was a party in interest under ERISA § 3(14), 29 U.S.C. § 1002(14), at all times
that it was Trustee of the Plan.
16.
Wilmington Trust’s power and authority does not include the power and authority
to interpret the terms of the written Plan document.
17.
Wilmington Trust was replaced as Trustee of the Plan by GreatBanc Trust
Company effective September 30, 2017.
4
18.
Defendant Michael Smith was a selling shareholder in the ESOP Transaction.
Michael Smith was a founder of NSD, and a director, officer and employee of the company.
19.
Defendant Andrew Smith was a selling shareholder of NSD stock in the ESOP
Transaction. Andrew Smith was a director, officer and employee of the company.
20.
Defendant Frank Mennella was a selling shareholder of NSD stock in the ESOP
Transaction. Frank Mennella was an officer, director, and employee of the company.
21.
Plaintiff further alleges that the following factual allegations in this paragraph will
likely have evidentiary support after a reasonable opportunity for further investigation or
discovery. Michael Smith, Andrew Smith and Frank Mennella were all 10 percent or more
shareholders of NSD at the time of the ESOP Transaction. They were parties in interest under
ERISA § 3(14), 29 U.S.C. § 1002(14), at the time of the ESOP Transaction.
FACTUAL ALLEGATIONS
22.
Headquartered in Boca Raton, Florida, NSD, which is also known or operated as
Nation Safe Drivers and Nation Motor Club, bills itself as “one of the largest suppliers of auto-
related, supplemental products since 1962,” whose “marquis product” is “24-hour Dispatched
Roadside Assistance.” NSD was at all times a private company. There is and was no public market
for NSD stock.
23.
Brothers Larry Smith and Michael Smith founded NSD in 1962 and spent 52 years
in the business. NSD was a Smith-family owned and operated company to the time of the ESOP
Transaction.
24.
The Plan was adopted effective August 1, 2014.
25.
The Plan is a pension plan within the meaning of ERISA § 3(2), 29 U.S.C.
§ 1002(2), and is subject to ERISA pursuant to ERISA § 4(a)(1), 29 U.S.C. § 1003(a)(1).
5
26.
NSD identified the Plan as intended to be a leveraged employee stock ownership
plan, or “Leveraged ESOP.” The Plan was designed to invest primarily in the employer securities
of NSD.
27.
The Plan’s principal asset was at all times NSD stock.
28.
The Plan is an individual account plan under which a separate individual account
was established for each participant.
29.
NSD is the sponsor of the Plan within the meaning of ERISA § 3(16)(B), 29 U.S.C.
§ 1002(16)(B).
30.
Employees of NSD and NSD’s wholly-owned subsidiary, NSDS Group, Inc.,
participate in the Plan.
31.
NSD is and was the Plan’s administrator within the meaning of ERISA § 3(16)(A),
29 U.S.C. § 1002(16)(A).
32.
The Plan’s Forms 5500 report at Part II Lines 2a & 3a that NSD is the Plan’s
administrator.
33.
NSD administers the Plan through an ESOP Committee appointed by NSD’s Board
of Directors.
34.
NSD is and was an ERISA fiduciary to the Plan as its administrator.
35.
NSD is and was at the time of the ESOP Transaction a party in interest to the Plan
under ERISA § 3(14), 29 U.S.C. § 1002(14).
36.
NSD appointed Wilmington Trust as Trustee of the Plan. As Trustee, Wilmington
Trust had sole and exclusive authority to negotiate and approve the ESOP Transaction on behalf
of the Plan, including the price the Plan paid for NSD stock.
6
37.
As Trustee for the Plan, it was Wilmington Trust’s exclusive duty to ensure that
any transactions between the Plan and the Selling Shareholders and between the Plan and NSD,
including acquisitions of NSD stock by the Plan and loans to the Plan, were fair and reasonable
and to ensure that the Plan paid no more than fair market value.
38.
Wilmington Trust engaged Stout Risius Ross (“Stout”) as its valuator in the ESOP
Transaction.
39.
Wilmington Trust engaged Holland & Knight LLP as its counsel in the ESOP
Transaction.
40.
On or about September 29, 2014, the Plan purchased from the Selling Shareholders
640,000 shares of NSD common stock for $342,000,000.
41.
At that time, NSD became 100% employee owned.
42.
The purchase was financed by a $317,225,000 term note agreement between NSD
and the Plan, which bore a 2.97% interest rate and was to be repaid over a 50 year period through
September 30, 2064, and by Selling Shareholder-financed notes of $24,775,000 that bore a 6.00%
interest rate and were to be repaid over a 50-year period through September 30, 2064.
43.
The Plan’s Form 5500 Annual Return/Report for plan year ending September 30,
2014, reports that the Plan had an acquisition indebtedness of $342,000,000.
44.
The Selling Shareholders were the shareholders of NSD stock, most whom were
members of the Smith family or entities related to the Smith family. Various trusts and a
partnership related to NSD’s founders were also shareholders at the time of the ESOP Transaction.
At all times prior to the ESOP Transaction, the Smith family had a controlling interest in NSD.
45.
Plaintiff further alleges that the following factual allegations in this paragraph will
likely have evidentiary support after a reasonable opportunity for further investigation or
7
discovery. The Selling Shareholder Defendants chose to sell to the Plan because they could not
find a buyer who would pay as much as the ESOP Transaction purchase price, and founders
Michael Smith and Larry Smith wanted out of the business.
46.
Plaintiff further alleges that the following factual allegations in this paragraph will
likely have evidentiary support after a reasonable opportunity for further investigation or
discovery. NSD provided financial projections to Wilmington Trust and Stout for the valuation for
the ESOP Transaction. The financial projections were unreasonably optimistic, and the Selling
Shareholder Defendants knew or should have known that this was the case.
47.
Andrew Smith was NSD’s President and CEO at the time of the ESOP Transaction
and after the Transaction.
48.
Andrew Smith is the son of NSD founder Michael Smith.
49.
Andrew Smith was a director of NSD at the time of the ESOP Transaction and after
the Transaction.
50.
Frank Mennella was an officer, director, and employee of NSD at the time of the
ESOP Transaction and after the Transaction.
51.
The Selling Shareholder Defendants were parties in interest to the Plan under
ERISA § 3(14), 29 U.S.C. § 1002(14), at the time of the ESOP Transaction, as 10 percent or more
shareholders of NSD, directly or indirectly, and/or as directors of NSD or persons with powers or
responsibilities similar to directors, and/or as officers of NSD or persons with powers or
responsibilities similar to officers, and/or as employees of NSD.
52.
Note 7 to the Financial Statements to the Plan’s Forms 5500 Annual Return/Report
for plan year ending September 30, 2014, indicates that the Selling Shareholder Defendants and
NSD, with whom the Plan transacted, were parties in interest.
8
53.
The Schedules of Assets to the Plan’s Forms 5500 Annual Return/Report for plan
years ending September 30, 2014 to September 30, 2017, report that NSD is a party in interest.
54.
Plaintiff further alleges that the following factual allegations in this paragraph will
likely have evidentiary support after a reasonable opportunity for further investigation or
discovery. The Plan did not receive a discount for lack of control and paid a control premium for
NSD even though the Plan did not obtain control over NSD upon its purchase of the Company, as
certain Selling Shareholders continued to control the company. After the ESOP Transaction, the
Selling Shareholder Defendants retained control of NSD with Andrew Smith, Lauren Smith,
and/or other Selling Shareholder Defendants or their appointees or proxies maintaining positions
as NSD directors and/or officers. Selling Shareholders who held warrants had rights to designate
members of the NSD board of directors. Application of a control premium was an incorrect
valuation methodology. The Plan therefore overpaid for NSD stock.
55.
Lauren Smith was NSD’s Treasurer and Secretary, and its Director of Compliance
and Licensing at the time of the ESOP Transaction and after the Transaction.
56.
Lauren Smith is the sister of Andrew Smith and daughter of Michael Smith.
57.
Michael Mennella was NSD’s Vice President and National Sales Manager at the
time of the ESOP Transaction and after the Transaction.
58.
Michael Mennella is the brother of Frank Mennella.
59.
Nearly three years after the ESOP Transaction, NSD still represented itself on its
website as “family owned and operated.”
60.
As Trustee, Wilmington Trust is liable for causing the Plan to pay more than fair
market value for NSD stock as a result of the failure to receive a discount for lack of control, the
9
payment of a control premium where previous owners retained control of NSD, and/or other
factors in Wilmington Trust’s decision to purchase NSD stock for the Plan the ESOP Transaction.
61.
Plaintiff further alleges that the following factual allegations in this paragraph will
likely have evidentiary support after a reasonable opportunity for further investigation or
discovery. Wilmington Trust did not perform due diligence in the course of the ESOP Transaction
similar to the due diligence that is performed by third-party buyers in large corporate transactions.
Wilmington Trust’s due diligence in the ESOP Transaction was less extensive and thorough than
the due diligence performed by third-party buyers in corporate transactions of similar size and
complexity. The Plan overpaid for NSD stock in the ESOP Transaction due to Wilmington Trust’s
reliance on unrealistic growth projections, unreliable or out-of-date financials, improper discount
rates, inappropriate guideline public companies for comparison, and/or its failure to test
assumptions, failure to question or challenge underlying assumptions, and/or other factors that
rendered the valuation of NSD stock in the ESOP Transaction faulty.
62.
The U.S. District Court for the Eastern District of Virginia decided a case with the
same defendant (Wilmington Trust); same valuator (Stout); same kind of transaction (a leveraged
ESOP transaction); and same lousy outcome for participants. See Brundle v. Wilmington Trust
N.A., 241 F. Supp. 3d 610 (E.D. Va. 2017), aff’d, No. 17-1873, 2019 WL 1287632 (4th Cir. Mar.
22, 2019). The Brundle court found that Wilmington Trust has a “tendency to rubber stamp
whatever Constellis [the plan’s sponsor] and SRR [valuator Stout Risius Ross] put in front of it.”
Id. at 642. As Wilmington Trust’s Assistant Vice President and Fiduciary Services Sub-Committee
(“FSSC”) member Greg Golden testified, Wilmington Trust does a lesser level of due diligence as
an ESOP trustee than does a so-called “real world buyer” of a multimillion-dollar company. Id. at
637. Following trial, the Brundle court ruled that Wilmington Trust caused a prohibited transaction
10
by failing to ensure that the plan paid no more than adequate consideration for company stock and
“damaged the ESOP by agreeing to overpay $29,773,250.00 for the stock.” Id. at 649. Plaintiff
alleges the same thing happened here.
63.
For purposes of the 2014 plan year Form 5500 filing with the U.S. Department of
Labor and the Internal Revenue Service, the NSD shares purchased by the Plan in the ESOP
Transaction were subsequently re-valued at $28,992,000 as of September 30, 2014. That is, an
independent appraiser valued the fair market value of the Plan’s NSD stock $313,008,000 lower
at the time, or shortly after, the Plan purchased it.
64.
The Plan’s Form 5500 Annual Return/Report for plan year ending September 30,
2017, reports that the Plan still had an acquisition indebtedness of $332,178,536 on that date.
65.
Incentives to Wilmington Trust to act in favor of the Selling Shareholders in the
ESOP Transaction included the possibility of business from sellers of companies who understood
that Wilmington Trust believed a lesser degree of due diligence was needed for ESOP purchases
of businesses than for non-ESOP-buyers’ purchases of businesses, which Wilmington Trust
distinguished as “real world” transactions, and engagement as the Plan’s ongoing trustee after the
ESOP Transaction and the fees paid for that engagement.
66.
Wilmington Trust is liable to the Plan for the difference between the price paid by
the Plan and the actual value of NSD shares at the time of the ESOP Transaction.
67.
The Selling Shareholder Defendants are liable to the Plan to repay the difference
between the price they received and the actual value of NSD shares at the time of the ESOP
Transaction.
11
68.
Wilmington Trust has received consideration for its own personal account from
NSD for its services in the ESOP Transaction in the form of fees, including a discretionary
transaction fee of $165,750.00, under a contract made when the Selling Shareholders owned NSD.
69.
NSD employees did not learn about the ESOP Transaction until after it took place.
NSD employees were informed of the Plan in approximately 30-minute long meetings held in the
Executive Conference Room at NSD, in which Senior Vice President Howard Goldfarb gave a
presentation. A longer presentation unveiling the Plan, led by Andrew Smith, took place later at
an Embassy Suites hotel.
70.
NSD, at a time that it was owned by the Selling Shareholders, agreed to indemnify
Wilmington Trust as Plan Trustee in connection with the ESOP Transaction. The indemnification
agreement is something of value, potentially worth millions of dollars of defense costs and/or
liability in ERISA private company ESOP litigation.
71.
The indemnification agreement does not contain an exemption addressing violation
of the per se prohibited transaction rules under ERISA § 406.
72.
The indemnification agreement includes an exemption if a court of competent
jurisdiction holds that a loss resulted from Wilmington Trust’s “gross negligence” or “willful
misconduct,” or “breach of fiduciary duty under ERISA.”
73.
Those carve-outs do not apply to ERISA § 406 claims for “Prohibited
Transactions,” which are different than ERISA § 404 claims concerning “Fiduciary Duties,” and
as establishing per se statutory violations do not require findings of gross negligence or willful
misconduct.
12
74.
Under similar contractual terms, Wilmington Trust refused to provide
reimbursement to a plan sponsor following Wilmington Trust’s loss at trial on an ERISA § 406
claim in the Brundle case.
75.
The indemnification agreement is invalid under ERISA § 410(a), 29 U.S.C.
§ 1110(a), as against public policy because Wilmington Trust violated its ERISA duties to the
Plan, and its legal defense and liability for the Plan’s losses should not be paid by the company
that the Plan owns.
76.
Payment by NSD of millions of dollars of attorneys’ fees, costs and litigation
expenses to Wilmington Trust necessarily would adversely impact NSD’s equity value and
therefore the value of Plan assets. Direct payment or reimbursement of Wilmington Trust’s defense
costs by NSD, or the Plan that owns it, would adversely affect the Plan and Plaintiff’s and other
participants’ financial interests.
77.
Advancing of millions of dollars in attorneys’ fees, costs and litigation expenses to
Wilmington Trust necessarily would adversely impact NSD’s equity value and therefore the value
of Plan assets even if Wilmington Trust is eventually ordered to reimburse NSD. The
indemnification agreement does not require payment of interest or otherwise account for the time
value of money.
CLAIMS FOR RELIEF
COUNT I
Causing and Engaging in Prohibited Transactions Forbidden by
ERISA § 406(a)–(b), 29 U.S.C. § 1106(a)–(b), Against Wilmington Trust
78.
Plaintiff incorporates the preceding paragraphs as though set forth herein.
79.
ERISA § 406(a)(1)(A), 29 U.S.C. § 1106(a)(1)(A), prohibits a plan fiduciary, here
Wilmington Trust, from causing a plan, here the Plan, to engage in a sale or exchange of any
13
property, here NSD stock, with a party in interest, here the Selling Shareholder Defendants
including Michael Smith, Andrew Smith, and Frank Mennella, as took place in the ESOP
Transaction.
80.
ERISA § 406(a)(1)(B), 29 U.S.C. § 1106(a)(1)(B), prohibits Wilmington Trust
from causing the Plan to borrow money from a party in interest, here NSD and the Selling
Shareholder Defendants including Michael Smith, Andrew Smith, and Frank Mennella, as took
place in the ESOP Transaction.
81.
ERISA § 406(a)(1)(D), 29 U.S.C. § 1106(a)(1)(D), prohibits Wilmington Trust
from causing the Plan to engage in a transaction that constitutes a direct or indirect transfer to, or
use by or for the benefit of, a party in interest, here the Selling Shareholder Defendants including
Michael Smith, Andrew Smith, and Frank Mennella, of any assets of the ESOP, as took place in
and after the ESOP Transaction with the transfer of Plan assets as payment for NSD stock and in
continuing payments on the loan.
82.
The stock and loan transactions between the Plan and the parties in interest were
authorized by Wilmington Trust in its capacity as Trustee for the Plan.
83.
Wilmington Trust caused the Plan to engage in prohibited transactions in violation
of ERISA § 406(a), 29 U.S.C. § 1106(a), in the ESOP Transaction.
84.
ERISA § 406(b), 29 U.S.C. § 1106(b), inter alia, mandates that a plan fiduciary
shall not “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 “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.”
14
85.
Wilmington Trust caused the Plan to acquire NSD stock from the Selling
Shareholders above fair market value and with the proceeds of loans that were used to pay the
Selling Shareholders. This primarily benefited the Selling Shareholders to the substantial detriment
of the Plan and its participants and beneficiaries, even though Wilmington Trust was required to
act solely in the interests of the Plan’s participants and beneficiaries in connection with any such
transaction.
86.
Wilmington Trust received consideration for its own personal account from NSD—
fees and an indemnification agreement—as Trustee for the Plan in the ESOP Transaction, in
violation of ERISA § 406(b)(3).
87.
Wilmington Trust caused and engaged in prohibited transactions in violation of
ERISA § 406(b) in the ESOP Transaction.
88.
ERISA § 409, 29 U.S.C. § 1109, provides, inter alia, that any person who is a
fiduciary with respect to a plan and who breaches any of the responsibilities, obligations, or duties
imposed on fiduciaries by Title I of ERISA shall be personally liable to make good to the plan any
losses to the plan resulting from each such breach, and additionally is subject to such other
equitable or remedial relief as the court may deem appropriate.
89.
ERISA § 502(a), 29 U.S.C. § 1132(a), permits a plan participant to bring a suit for
relief under ERISA § 409 and to obtain appropriate equitable relief to enforce the provisions of
Title I of ERISA or to enforce the terms of a plan.
90.
Wilmington Trust has caused losses to the Plan by the prohibited transactions in an
amount to be proved specifically at trial.
15
COUNT II
Breaches of Fiduciary Duty Under ERISA § 404(a), 29 U.S.C. § 1104(a), Against
Wilmington Trust
91.
Plaintiff incorporates the preceding paragraphs as though set forth herein.
92.
ERISA § 404(a)(1), 29 U.S.C. § 1104(a)(1), requires, inter alia, that a plan
fiduciary discharge his or her duties with respect to a plan solely in the interest of the participants
and beneficiaries, (A) for the exclusive purpose of providing benefits to participants and the
beneficiaries of the plan, (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, and (D) in accordance
with the documents and instruments governing the plan insofar as such documents and instruments
are consistent with ERISA.
93.
The fiduciary duty of loyalty entails a 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.
94.
ERISA § 409, 29 U.S.C. § 1109, provides, inter alia, that any person who is a
fiduciary with respect to a plan and who breaches any of the responsibilities, obligations, or duties
imposed on fiduciaries by Title I of ERISA shall be personally liable to make good to the plan any
losses to the plan resulting from each such breach, and additionally is subject to such other
equitable or remedial relief as the court may deem appropriate.
95.
ERISA § 502(a), 29 U.S.C. § 1132(a), permits a plan participant to bring a suit for
relief under ERISA § 409 and to obtain appropriate equitable relief to enforce the provisions of
Title I of ERISA or to enforce the terms of a plan.
16
96.
Wilmington Trust was required to undertake an appropriate and independent
investigation of the fair market value of NSD stock in 2014 in order to fulfill its fiduciary duties,
and an appropriate investigation would have revealed that the valuation used for the ESOP
Transaction did not reflect the fair market value of the NSD stock purchased by the Plan.
97.
Wilmington Trust breached its duties under ERISA § 404(a)(1), 29 U.S.C.
§ 1104(a)(1).
98.
Wilmington Trust has caused losses to the Plan by its breaches of fiduciary duty in
an amount to be proved specifically at trial.
COUNT III
Violation of ERISA §§ 410 and 404(a)(1)(A), (B),
29 U.S.C. §§ 1110 and 1104(a)(1)(A), (B), Against Wilmington Trust
99.
Plaintiff incorporates the preceding paragraphs as though set forth herein.
100.
ERISA § 410(a), 29 U.S.C. § 1110(a), provides in relevant part (with exceptions
not applicable here) that “any provision in an agreement or instrument which purports to relieve a
fiduciary from responsibility or liability for any responsibility, obligation, or duty under this part
[Part IV of Subtitle B of Title I of ERISA] shall be void as against public policy.” As ERISA § 406
is under Part IV, any provision that attempts to relieve Wilmington Trust, a Plan fiduciary, of
responsibility or liability is void pursuant to ERISA § 410(a) unless there is an exception or
exemption. No such exception or exemption is applicable to the Count I claim here.
101.
ERISA § 409, 29 U.S.C. § 1109, provides, inter alia, that any person who is a
fiduciary with respect to a plan and who breaches any of the responsibilities, obligations, or duties
imposed on fiduciaries by Title I of ERISA shall be personally liable to make good to the plan any
losses to the plan resulting from each such breach, and additionally is subject to such other
equitable or remedial relief as the court may deem appropriate.
17
102.
ERISA § 502(a), 29 U.S.C. § 1132(a), permits a plan participant to bring a suit for
relief under ERISA § 409 and to obtain appropriate equitable relief to enforce the provisions of
Title I of ERISA or to enforce the terms of a plan.
103.
The indemnification agreement purports to provide payment or reimbursement for
the benefit of Wilmington Trust for its losses, costs, expenses or other damages, including but not
limited to attorney’s fees.
104.
To the extent that the indemnification agreement attempts to relieve Wilmington
Trust of its responsibility or liability to discharge its duties under ERISA, or attempts to have NSD
(a Plan-owned company) and thereby the Plan be responsible for Wilmington Trust’s liability for
breaches of the statute, including but not limited to defense costs, such provisions are void as
against public policy.
105.
To the extent that any of the fiduciaries of the Plan would agree to the exercise of
such a provision that is void against public policy under ERISA § 410, they breached their
fiduciary duties under ERISA by failing to discharge their duties with respect to the Plan solely in
the interest of the participants and beneficiaries and 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 like character and aims, in violation
of ERISA § 404(a)(1)(A) and (B), 29 U.S.C. § 1104(a)(1)(A) and (B). See also ERISA § 403(c)(1),
29 U.S.C. § 1103(c)(1).
106.
As a result of the foregoing, should it be held liable under the preceding Count I or
Count II, Wilmington Trust should be ordered to disgorge any indemnification payments made by
NSD and/or the Plan, plus interest.
18
COUNT IV
Prohibited Transactions Pursuant to 29 U.S.C. § 1132(a)(3), Against Michael Smith,
Andrew Smith and Frank Mennella
107.
Plaintiff incorporates the preceding paragraphs as though set forth herein.
108.
ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3), permits a plan participant to bring a
civil action to obtain appropriate equitable relief to enforce the provisions of Title I of ERISA or
to enforce the terms of a plan.
109.
The Supreme Court has held that anyone, including a non-fiduciary, who receives
the benefit of conduct that violates ERISA may be subject to equitable remedies under ERISA
§ 502(a)(3) if they have “actual or constructive knowledge of the circumstances that rendered the
transaction unlawful.” Harris Trust & Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238, 251
110.
As a result of the prohibited transactions described above, the Selling Shareholder
Defendants including Michael Smith, Andrew Smith, and Frank Mennella received Plan assets in
payments above fair market value for their NSD stock.
111.
The Selling Shareholder Defendants were all parties in interest to the Plan under
ERISA § 3(14), 29 U.S.C. § 1002(14), as described above.
112.
The Selling Shareholder Defendants knew or should have known (1) about the
existence of the Plan, (2) about the Plan’s purchase of their NSD stock in the ESOP Transaction,
(3) that Wilmington Trust was a fiduciary to the Plan, (4) that the ESOP Transaction was for above
fair market value, (5) that Wilmington Trust caused the Plan to engage in transactions prohibited
under ERISA § 406(a) and (b), 29 U.S.C. § 1106(a) and (b), (6) that Wilmington Trust breached
its fiduciary duties under ERISA, and (7) that the true purpose of the ESOP Transaction was to
benefit the Selling Shareholders.
19
113.
As officers and directors of NSD and as Selling Shareholders, Defendants Michael
Smith, Andrew Smith, and Frank Mennella were aware of sufficient facts that the ESOP
Transaction constituted a prohibited transaction with parties in interest. As parties in interest, the
Selling Shareholder Defendants are liable for violations of ERISA § 406(a)(1)(A) and (D), 29
U.S.C. § 1106(a)(1)(A) and (D).
114.
The Selling Shareholder Defendants have profited from the prohibited transactions
in an amount to be proven at trial, and upon information and belief, they remain in possession of
some or all of the assets that belong to the Plan.
115.
The Selling Shareholder Defendants are subject to appropriate equitable relief
including disgorgement of any profits, accounting for profits, surcharge, having a constructive
trust placed on any proceeds received (or which are traceable thereto), having the transactions
rescinded, requiring all or part of the consideration to be restored to the Plan, or to be subject to
other appropriate equitable relief.
CLASS ACTION ALLEGATIONS
116.
Plaintiff brings this action as a class action pursuant to Fed. R. Civ. P. 23(a) and
(b), on behalf of the following class:
All participants in the Nation Safe Drivers Employee Stock
Ownership Plan and the beneficiaries of such participants. Excluded
from the Class are the shareholders who sold the stock of NSD
Holdings, Inc. or its predecessor (“NSD”) to the Plan in September
2014, and their immediate families; the directors of NSD and their
immediate families; and legal representatives, successors, and
assigns of any such excluded persons.
117.
The Class is so numerous that joinder of all members is impracticable. Although
the exact number and identities of Class members are unknown to Plaintiff at this time, the Plan’s
20
most recent Form 5500 filing reports that as of September 30, 2017, there were 148 participants in
the Plan.
118.
Questions of law and fact common to the Class as a whole include, but are not
limited to, the following:
i. Whether Wilmington Trust served as Trustee in the Plan’s acquisition of
NSD stock;
ii. Whether Wilmington Trust was an ERISA fiduciary of the Plan;
iii. Whether Wilmington Trust caused the Plan to engage in prohibited
transactions under ERISA by permitting the Plan to purchase NSD stock
and take loans from parties in interest;
iv. Whether Wilmington Trust engaged in a good faith valuation of the NSD
stock in connection with the ESOP Transaction;
v. Whether Wilmington Trust caused the Plan to pay more than fair market
value for NSD stock;
vi. Whether Wilmington Trust engaged in a prohibited transaction under
ERISA by acting on behalf of a party adverse to the Plan and its participants
in the ESOP Transaction;
vii. Whether Wilmington Trust engaged in a prohibited transaction under
ERISA by receiving consideration for its own account in the ESOP
Transaction;
viii. Whether the Selling Shareholder Defendants were parties in interest;
21
ix. Whether Wilmington Trust breached its fiduciary duty to undertake an
appropriate and independent investigation of the fair market value of NSD
stock in 2014;
x. Whether Michael Smith, Andrew Smith, and Frank Mennella, as parties in
interest, participated in the prohibited transactions;
xi. The amount of losses suffered by the Plan and its participants as a result of
Wilmington Trust’s and the Selling Shareholder Defendants’ ERISA
violations; and
xii. The appropriate relief for Wilmington Trust’s and the Selling Shareholder
Defendants’ violations of ERISA.
119.
Plaintiff’s claims are typical of those of the Class. For example, Plaintiff, like other
Plan participants in the Class, suffered a diminution in the value of her Plan account because the
Plan paid above fair market value and took on excessive loans for NSD stock, resulting in her
being allocated fewer shares of stock, and she continues to suffer such losses in the present because
Wilmington Trust failed to correct the overpayment by the Plan.
120.
Plaintiff will fairly and adequately represent and protect the interests of the Class.
Plaintiff has retained counsel competent and experienced in complex class actions, ERISA, and
employee benefits litigation.
121.
Class certification of Plaintiff’s Claims for Relief for the alleged violations of
ERISA is appropriate pursuant to Fed. R. Civ. P. 23(b)(1) because the prosecution of separate
actions by individual Class members would create a risk of inconsistent or varying adjudications
which would establish incompatible standards of conduct for Wilmington Trust, and/or because
22
adjudications with respect to individual Class members would as a practical matter be dispositive
of the interests of non-party Class members.
122.
In the alternative, class certification of Plaintiff’s Claims for Relief for the alleged
violations of ERISA is appropriate pursuant to Fed. R. Civ. P. 23(b)(2) because Wilmington Trust
has acted or refused to act on grounds generally applicable to the Class, making appropriate
declaratory and injunctive relief with respect to Plaintiff and the Class as a whole. The members
of the Class are entitled to declaratory and injunctive relief to remedy Wilmington Trust’s
violations of ERISA.
123.
The names and addresses of the Class members are available from the Plan. Notice
will be provided to all members of the Class to the extent required by Fed. R. Civ. P. 23.
PRAYER FOR RELIEF
Wherefore, Plaintiff prays for judgment against Defendants and for the following relief:
A.
Declare that Defendant Wilmington Trust caused the Plan to engage in and itself
engaged in prohibited transactions and thereby breached its duties under ERISA;
B.
Declare that Defendants Michael Smith, Andrew Smith, and Frank Mennella
engaged in a prohibited transaction with the Plan in violation of ERISA;
C.
Declare that Defendant Wilmington Trust breached its fiduciary duties under
ERISA to the Plan and the class members;
D.
Order each Defendant found to have violated ERISA to jointly and severally make
good to the Plan and/or to any successor trust(s) the losses resulting from the
breaches of ERISA and restore any profits it or he has made through use of assets
of the Plan;
23
E.
Order that Defendants provide other appropriate equitable relief to the Plan and its
participants and beneficiaries, including but not limited to surcharge, providing an
accounting for profits, and imposing a constructive trust and/or equitable lien on
any funds wrongfully held by Defendants;
F.
Order the proceeds of any recovery for the Plan to be allocated to the accounts of
the class members to make them whole for any injury that they suffered as a result
of the breaches of ERISA in accordance with the Court’s declaration;
G.
Order the allocation to the accounts of the class members of the additional shares
of stock that would have been allocated but for the Plan’s overpayment on company
stock and Defendant Wilmington Trust’s breaches of ERISA;
H.
Declare that the indemnification agreement between Defendant Wilmington Trust
and NSD violates ERISA § 410, 29 U.S.C. § 1110;
I.
Order Defendant Wilmington Trust to reimburse NSD for any money paid by NSD
or its subsidiary under any indemnification agreement between Wilmington Trust
and NSD, plus interest;
J.
Award Plaintiff reasonable attorneys’ fees and costs of suit incurred herein pursuant
to ERISA § 502(g), 29 U.S.C. § 1132(g), and/or for the benefit obtained for the
common fund;
K.
Order Defendant Wilmington Trust to disgorge any fees it received in conjunction
with its services as Trustee for the Plan in the ESOP Transaction as well as any
earnings and profits thereon;
L.
Order Defendants to pay prejudgment and post-judgment interest;
24
M.
Certify this action as a class action pursuant to Fed. R. Civ. P. 23, certify the named
Plaintiff as class representative and her counsel as class counsel; and
N.
Award such other and further relief as the Court deems equitable and just.
Dated: June 25, 2019
BAILEY & GLASSER LLP
BAILEY & GLASSER LLP
By: /s/ David A. Felice
David A. Felice (#4090)
Red Clay Center at Little Falls
2961 Centerville Road, Suite 302
Wilmington, DE 19808
Telephone: (302) 504-6333
Facsimile: (302) 504-6334
dfelice@baileyglasser.com
Gregory Y. Porter (pro hac vice to be filed)
Ryan T. Jenny (pro hac vice to be filed)
1055 Thomas Jefferson Street, NW
Suite 540
Washington, DC 20007
Telephone: (202) 463-2101
Facsimile: (202) 463-2103
gporter@baileyglasser.com
rjenny@baileyglasser.com
Attorneys for Plaintiff
FEINBERG, JACKSON,
WORTHMAN & WASOW LLP
Daniel Feinberg (pro hac vice to be filed)
Todd Jackson (pro hac vice to be filed)
2030 Addison Street, Suite 500
Berkeley, CA 94704
Telephone: (510) 269-7998
Facsimile: (510) 269-7994
dan@feinbergjackson.com
todd@feinbergjackson.com
25
| consumer fraud |
ZstRDocBD5gMZwczYO5Q | UNITED STATES DISTRIC COURT
SOUTHERN DISTRICT OF OHIO
Case No. 20-356
COMPLAINT AND DEMAND FOR
JURY TRIAL
ANTOINE DODSON,
)
TABATHA LAFFERTY,
)
RONNIE LAWRENCE,
)
CARRIE LUPIEN,
)
DARLENE MAPHIS,
)
ANTHONY MILINER,
)
THELMA MYLES,
)
CHRIS TROYAN,
)
CONNIE MCCARTNEY,
)
SAMMY BRYSON,
)
JOHNNY DUYN,
)
RONALD RAGAN,
)
JOLETTA JORDAN,
)
)
Plaintiffs,
)
)
v.
)
)
SANOFI S.A., SANOFI-AVENTIS US LLC,)
SANOFI US SERVICES INC, CHATTEM, )
INC., BOEHRINGER INGELHEIM
)
PHARMACEUTICALS, INC., and
)
GLAXOSMITHKLINE, LLC,
)
)
Defendants.
)
)
Plaintiffs, Antoine Dodson, Tabatha Lafferty, Ronnie Lawrence, Carrie Lupien, Darlene
Maphis, Anthony Miliner, Thelma Myles, Chris Troyan, Connie McCartney, Sammy Bryson,
Johnny Duyn, Ronald Ragan, Joletta Jordan (hereinafter referred to collectively as “Plaintiffs”),
individually and on behalf of all others similarly situated, alleges on personal knowledge,
investigation of their counsel, and on information and belief as follows:
NATURE OF ACTION
1.
Plaintiffs bring this action for damages and other legal and equitable
remedies resulting from the actions of Defendants Sanofi S.A., Sanofi-Aventis U.S. LLC, Sanofi
US Services Inc., Chattem Inc. (hereinafter collectively referred to as “Sanofi” or “Sanofi
Defendants”), Boehringer Ingelheim Pharmaceuticals, Inc. (hereinafter referred to as
“Boehringer”), and GlaxoSmithKline, LLC (“GSK”) in the design, development, manufacturing,
packaging, marketing, advertising, promoting, labeling, distribution and/or sale of the drug
Zantac. Plaintiffs represent individuals who have yet to be diagnosed with cancer as a result of
taking Zantac, and seek medical monitoring and other related remedies in order to manage the
consequences of their exposure.
JURISDICTION AND VENUE
2.
This matter in controversy exceeds $5,000,000, as each member of the
proposed Class of hundreds of thousands has suffered future harm in the form of greatly
increased risk of life-threatening diseases including cancer. Accordingly, this Court has
jurisdiction pursuant to 28 U.S.C. § 1332(d)(2). Further, Plaintiffs allege a national class, which
will result in at least one Class member belonging to a different state. Therefore, both elements
of diversity jurisdiction under the Class Action Fairness Act of 2005 (“CAFA”) are present, and
this Court has jurisdiction.
3.
This Court has personal jurisdiction over the Defendants because, all
Defendants are authorized to do business in Ohio and the conduct at issue occurred in or was
directed toward individuals in the state of Ohio. As a result, all Defendants have established
minimum contacts showing it has purposefully availed itself of the resources and protection of
the State of Ohio.
4.
Venue is proper in the United States District Court for the Southern
District of Ohio pursuant to 28 U.S.C. §§ 1391(b)-(c) and 1441(a) because the Defendants are
deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time
the action is commenced and the Defendants’ contacts with this District are sufficient to subject
it to personal jurisdiction. Defendants sell, market and/or distribute Zantac within this district.
PARTIES
5.
Plaintiff Antoine Dodson is and at all times mentioned herein was, an
individual citizen of the State of Maryland.
6.
Plaintiff Tabatha Lafferty is and at all times mentioned herein was, an
individual citizen of the State of Ohio.
7.
Plaintiff Ronnie Lawrence is and at all times mentioned herein was, an
individual citizen of the State of New Jersey.
8.
Plaintiff Carrie Lupien is and at all times mentioned herein was, an
individual citizen of the State of Maryland.
9.
Plaintiff Darlene Maphis is an at all times mentioned herein was, an
individual citizen of the State of Arizona.
10.
Plaintiff Anthony Miliner is and at all times mentioned herein was, an
individual citizen of the State of Ohio.
11.
Plaintiff Thelma Myles is and at all times mentioned herein was, an
individual citizen of the State of New Jersey.
12.
Plaintiff Chris Troyan is an at all times mentioned herein was, an
individual citizen of the State of Ohio.
13.
Plaintiff Sammy Bryson is an at all times mentioned herein was, an
individual citizen of the State of Indiana.
14.
Plaintiff Sammy Bryon is an at all times mentioned herein was, an
individual citizen of the State of Indiana.
15.
Plaintiff Connie McCartney is an at all times mentioned herein was, an
individual citizen of the State of West Virginia.
16.
Plaintiff Ronald Ragan is an at all times mentioned herein was, an
individual citizen of the State of Colorado.
17.
Plaintiff Joletta Jordan is an at all times mentioned herein was, an
individual citizen of the State of Illinois.
18.
Defendant Sanofi S.A. is a French multinational pharmaceutical company
headquartered in Paris, France, with its principal place of business located at 54, Rue La Boetie,
in the 8th arrondissement. Defendant Sanofi S.A. changed its name to Sanofi in May 2011.
19.
Defendant Sanofi-Aventis US LLC was and is a Delaware limited liability
corporation with its principal place of business located at 55 Corporate Drive, Bridgewater, New
Jersey 08807. Sanofi-Aventis US LLC is a wholly owned subsidiary of Sanofi S.A. Sanofi
Aventis US LLC is duly licensed to transact business in the State of Ohio, and lists its registered
agent as Corporation Service Company, with the address 50 West Broad Street, Suite 1330,
Columbus, Ohio 43215.
20.
Defendant Sanofi US Services Inc. was and is a Delaware corporation
with its principal place of business located at 55 Corporate Drive, Bridgewater, New Jersey
08807, and is a wholly owned subsidiary of Sanofi S.A. Sanofi US Services Inc. is a duly
licensed to transact business in the State of Ohio, and lists its registered agent as Corporation
Service Company, with the address 50 West Broad Street, Suite 1330, Columbus, Ohio 43215.
21.
Defendant Chattem, Inc. is a Tennessee corporation with its principal
place of business at 1715 West 38th Street Chattanooga, Tennessee 37409, and is a wholly
owned subsidiary of Sanofi S.A. Sanofi S.A., through its subsidiary Chattem, Inc., exercised
substantial control over the design, testing, manufacture, packaging and/or labeling of Zantac
that caused the need for the medical monitoring class for Plaintiffs.
22.
Defendant Boehringer Ingelheim Pharmaceuticals, Inc. is a Delaware
Corporation with its principal place of business located at 900 Ridgebury Road, Ridgefield,
Connecticut 06877. Boehringer Ingelheim Pharmaceuticals, Inc. is a subsidiary of the German
company Boehringer Ingelheim Corporation. Boehringer owned the U.S. Rights to OTC Zantac
between 2006 and January 2017, and manufactured and distributed the drug in the United States
during that period.
23.
Defendant GlaxoSmithKline, LLC (“GSK”) is a Delaware corporation
with its principal place of business located at 5 crescent Drive, Philadelphia, Pennsylvania 19112
and Five Moore Drive, Research Triangle, North Carolina 27709. GS was the original inventor
of the Zantac drug and controlled the NDA for prescription Zantac between 1983 and 2009. By
controlling the Zantac NDA it also directly controlled the labeling for all Zantac products
through 2009.
NDMA
24.
N-nitrosodimethlyamine, commonly known as NDMA, is an odorless,
yellow liquid.1 According to the U.S. Environmental Protection Agency, “NDMA is a
semivolatile chemical that forms in both industrial and natural processes.”2 NDMA can be
unintentionally produced in, and released from, industrial sources through chemical reactions
involving other chemicals called alkylamines.
25.
NDMA is unequivocally a harmful carcinogen. It has been known to be a
byproduct of making rocket fuel in the early 1900s. Today it is used to induce tumors in animals
for scientific testing purposes.
26.
The American Conference of Governmental Industrial Hygienists
classifies NDMA as a confirmed animal carcinogen.3 The US Department of Health and Human
Services (DHHS) similarly states that NDMA is reasonably anticipated to be a human
carcinogen.4 This classification is based upon DHHS’s findings that NDMA caused tumors in
numerous species of experimental animals, at several different tissue sites, and by several routes
of exposure, with tumors occurring primarily in the liver, respiratory tract, kidney, and blood
vessels.5
1 https://www.atsdr.cdc.gov/toxprofiles/tp141.pdf.
2 https://www.epa.gov/sites/production/files/2017-10/documents/ndma_fact_sheet_update_9-15-
17_508.pdf.
3 https://www.epa.gov/sites/production/files/2017-10/documents/ndma_fact_sheet_update_9-15-
17_508.pdf.
4 https://www.epa.gov/sites/production/files/2017-10/documents/ndma_fact_sheet_update_9-15-
17_508.pdf.
5 https://www.epa.gov/sites/production/files/2017-10/documents/ndma_fact_sheet_update_9-15-
17_508.pdf.
27.
Both the Environmental Protection Agency (“EPA”) and the International
Agency for Research on Cancer (“IARC”) have classified NDMA as a probable carcinogen. The
World Health Organization (“WHO”) has stated that scientific testing indicates that NDMA
consumption is positively associated with either gastric or colorectal cancer and suggests that
humans may be especially sensitive to the carcinogenicity of NDMA.
28.
Exposure to high levels of NDMA has been linked to liver damage in
humans.6 According to the Agency for Toxic Substances and Disease Registry, “NDMA is very
harmful to the liver of humans and animals. People who were intentionally poisoned on one or
several occasions with unknown levels of NDMA in beverage or food died of severe liver
damage accompanied by internal bleeding.”7
29.
Other studies showed an increase in other types of cancers, including but
not limited to, stomach, colorectal, intestinal, and other digestive tract cancers.
30.
The Environmental Protection Agency classified NDMA as a probable
human carcinogen “based on the induction of tumors at multiple sites in different mammal
species exposed to NDMA by various routes.”8
ZANTAC AND RANITIDINE
31.
Zantac was developed by Glaxo – now known as GlaxoSmithKline, post-
merger – and approved for prescription use by the FDA in 1983. The drug belongs to a class of
medications called histamine H2-receptor antagonists (or H2 blockers), which decrease the
amount of acid produced by the stomach and are used to treat gastric ulcers, heartburn, acid
indigestion, sour stomach, and other gastrointestinal conditions.
32.
Zantac was the world’s best-selling drug in 1988 and in the fiscal year that
ended in June 1989, Zantac accounted for over half of Glaxo’s sales of $3.98 billion. Even as late
6 https://www.epa.gov/sites/production/files/2017-10/documents/ndma_fact_sheet_update_9-15-
17_508.pdf.
7 https://www.atsdr.cdc.gov/toxprofiles/tp141.pdf, p. 2.
8 https://www.epa.gov/sites/production/files/2017-10/documents/ndma_fact_sheet_update_9-15-
17_508.pdf.
as 2016, Zantac was the 50th most prescribed drug in the United States with over 15 million
prescriptions..
33.
Zantac became available without a prescription in 1996, and generic
versions of the drug (ranitidine) became available the following year. Beginning in late 2012, the
manufacturer Defendants, by and through their subsidiaries, manufactured Zantac as a generic
drug. Zantac has been marketed as a safe and effective treatment for infants, children, and adults
34.
The pharmaceutical industry has been aware of the potential for the
formation of nitrosamines in pharmaceutical drugs at least as far back as 2005.9
35.
On September 13, 2019, in response to a citizen’s petition filed by
Valisure, Inc., U.S. and European regulators stated that they are reviewing the safety of
ranitidine.
36.
On September 18, 2019, Novartis AG’s Sandoz Unit, which makes
generic drugs, stated that it was halting the distribution of its versions of Zantac in all markets,
while Canada requested drug makers selling ranitidine to stop distribution.
37.
On September 28, 2019, CVS Health Corp. announced that it would stop
selling Zantac and its own generic ranitidine products out of concern that it might contain a
carcinogen. Walmart, Inc., Walgreens, and Rite Aid Corp have announced removed Zantac and
ranitidine products from their shelves.
38.
On October 2, 2019, the FDA stated that it was requiring all manufacturers
of Zantac and ranitidine products to conduct testing for NDMA and that preliminary testing
results indicated unacceptable levels of NDMA.
39.
On October 18, 2019, Sanofi recalled all of its Zantac OTC in the United
States, which included Zantac 150, Zantac 150 Cool Mint, and Zantac 75.
40.
This is not a contamination case—the levels of NDMA that researchers
are seeing in Zantac is not the product of some manufacturing error. The high levels of NDMA
9 http://www.pharma.gally.ch/UserFiles/File/proofs%20of%20article.pdf.
produced by Zantac are not caused by a manufacturing defect but are inherent to the molecular
structure of ranitidine, the active ingredient in Zantac. The ranitidine molecule contains both a
nitrite and a dimethylamine (‘DMA’) group which are well known to combine to form NDMA.
Thus, ranitidine produces NDMA by “react[ing] with itself”, which means that every dosage and
form of ranitidine, including Zantac, exposes users to NDMA.
41.
As a result, anyone who has taken Zantac is a potential class participant
because of the metabolic breakdown in the body, which creates NDMA.
42.
The FDA has announced a permissible intake limit of 96 ng of NDMA per
day. Valisure’s testing, detected 2,511,469 ng of NDMA per 150 mg tablet of Zantac, i.e., more
than 26,000 times the amount that can be safely ingested daily.
43.
The typical recommended dose of ranitidine for therapy of peptic ulcer
disease in adults is 150 mg twice daily or 300 mg once nightly for 4 to 8 weeks, and maintenance
doses of 150 mg once daily. Moreover, chronic use of the drug is common for therapy of
heartburn and indigestion.
44.
Thus, a typical consumer who is taking Zantac over the course of eight
weeks to treat peptic ulcer disease is exposed to more than 280,000,000 ng (or 0.28 grams) of
NDMA. And a consumer who takes a 150 mg maintenance dose of Zantac once daily is 3
exposed to 889,000,000 ng (0.889 grams) of NDMA over the course of a year, in comparison to
the FDA’s permissible intake limit of NDMA is 96 ng per day, which translates to just 0.000034
grams per year.
45.
In addition to the FDA-recommended testing described above, when
Zantac was tested in conditions simulating the human stomach, the quantity of NDMA detected
was as high as 304,500 ng per tablet—3,171 times more than the amount that can be safely
ingested daily.
46.
Under biologically relevant conditions, when nitrites are present,
staggeringly high levels of NDMA are found in one dose of 150 mg Zantac, ranging between
245 and 3,100 times above the FDA-allowable limit. In terms of smoking, one would need to
smoke over 500 cigarettes to achieve the same levels of NDMA found in one dose of 150 mg
Zantac at the 25 ng level (over 7,000 for the 50 μg level).
47.
During the time that Defendants manufactured and sold over-the-counter
Zantac in the United States, the weight of scientific evidence showed that Zantac exposed users
to unsafe levels of NDMA. Neither Sanofi nor Boehringer disclosed this risk to consumers on the
drug’s label—or through any other means—nor did Defendants report these risks to the FDA,
despite being on notice of the risk.
48.
Defendants concealed the Zantac–NDMA link from consumers in part by
not reporting it to the FDA, which relies on drug manufacturers (or others, such as those who
submit citizen petitions) to bring new information about an approved drug like Zantac to the
agency’s attention.
49.
Manufacturers of an approved drug are required by regulation to submit an
annual report to the FDA containing, among other things, new information regarding the drug’s
safety pursuant to 21 C.F.R. § 314.81(b)(2):
The report is required to contain . . . [a] brief summary of significant new
information from the previous year that might affect the safety, effectiveness, or
labeling of the drug product. The report is also required to contain a brief
description of actions the applicant has taken or intends to take as a result of this
new information, for example, submit a labeling supplement, add a warning to the
labeling, or initiate a new study.
50.
“The manufacturer’s annual report also must contain copies of
unpublished reports and summaries of published reports of new toxicological findings in animal
studies and in vitro studies (e.g., mutagenicity) conducted by, or otherwise obtained by, the
[manufacturer] concerning the ingredients in the drug product.” 21 C.F.R. § 314.81(b)(2)(v).
51.
Defendants ignored these regulations and, disregarding the scientific
evidence available to them, did not report to the FDA significant new information affecting the
safety or labeling of Zantac.
FACTS RELATING TO THE NAMED PLAINTIFFS
Plaintiff Dodson
52.
Plaintiff is, and at all times mentioned herein was, a “person” as defined
by 47 U.S.C. § 153(39).
53.
Beginning in 2017, Plaintiff Dodson took Zantac consistently as an anti-
54.
As of the present time, Plaintiff Dodson has not been diagnosed with
cancer. However, in light of his significantly increased risk of contracting cancer as a result of
prolonged exposure to Zantac, Plaintiff Dodson has undertaken additional efforts to monitor his
medical condition.
Plaintiff Lafferty
55.
Plaintiff is, and at all times mentioned herein was, a “person” as defined
by 47 U.S.C. § 153(39).
56.
Beginning in 2007, Plaintiff Lafferty took Zantac consistently as an anti-
57.
As of the present time, Plaintiff Lafferty has not been diagnosed with
cancer. However, in light of his significantly increased risk of contracting cancer as a result of
prolonged exposure to Zantac, Plaintiff Lafferty has undertaken additional efforts to monitor
her medical condition.
Plaintiff Lawrence
58.
Plaintiff is, and at all times mentioned herein was, a “person” as defined
by 47 U.S.C. § 153(39).
59.
Beginning in 2017, Plaintiff Lawrence took Zantac consistently as an anti-
60.
As of the present time, Plaintiff Lawrence has not been diagnosed with
cancer. However, in light of his significantly increased risk of contracting cancer as a result of
prolonged exposure to Zantac, Plaintiff Lawrence has undertaken additional efforts to monitor
his medical condition.
Plaintiff Lupien
61.
Plaintiff is, and at all times mentioned herein was, a “person” as defined
by 47 U.S.C. § 153(39).
62.
Beginning in 2016, Plaintiff Lupien took Zantac consistently as an anti-
63.
As of the present time, Plaintiff Lupien has not been diagnosed with
cancer. However, in light of his significantly increased risk of contracting cancer as a result of
prolonged exposure to Zantac, Plaintiff Lupien has undertaken additional efforts to monitor her
medical condition.
Plaintiff Maphis
64.
Plaintiff is, and at all times mentioned herein was, a “person” as defined
by 47 U.S.C. § 153(39).
65.
Beginning in 2005, Plaintiff Maphis took Zantac consistently as an anti-
66.
As of the present time, Plaintiff Maphis has not been diagnosed with
cancer. However, in light of his significantly increased risk of contracting cancer as a result of
prolonged exposure to Zantac, Plaintiff Maphis has undertaken additional efforts to monitor
her medical condition.
Plaintiff Miliner
67.
Plaintiff is, and at all times mentioned herein was, a “person” as defined
by 47 U.S.C. § 153(39).
68.
Beginning in 2005, Plaintiff Miliner took Zantac consistently as an anti-
69.
As of the present time, Plaintiff Miliner has not been diagnosed with
cancer. However, in light of his significantly increased risk of contracting cancer as a result of
prolonged exposure to Zantac, Plaintiff Miliner has undertaken additional efforts to monitor his
medical condition.
Plaintiff Myles
70.
Plaintiff is, and at all times mentioned herein was, a “person” as defined
by 47 U.S.C. § 153(39).
71.
Beginning in 2016, Plaintiff Myles took Zantac consistently as an anti-
72.
As of the present time, Plaintiff Myles has not been diagnosed with
cancer. However, in light of his significantly increased risk of contracting cancer as a result of
prolonged exposure to Zantac, Plaintiff Myles has undertaken additional efforts to monitor her
medical condition.
Plaintiff Troyan
73.
Plaintiff is, and at all times mentioned herein was, a “person” as defined
by 47 U.S.C. § 153(39).
74.
Beginning in 2009, Plaintiff Troyan took Zantac consistently as an anti-
75.
As of the present time, Plaintiff Tryoyan has not been diagnosed with
cancer. However, in light of his significantly increased risk of contracting cancer as a result of
prolonged exposure to Zantac, Plaintiff Myles has undertaken additional efforts to monitor his
medical condition.
Plaintiff McCartney
76.
Plaintiff is, and at all times mentioned herein was, a “person” as defined
by 47 U.S.C. § 153(39).
77.
Beginning in 2009, Plaintiff McCartney took Zantac consistently as an
anti-acid. As of the present time, Plaintiff McCartney has not been diagnosed with cancer.
However, in light of her significantly increased risk of contracting cancer as a result of
prolonged exposure to Zantac, Plaintiff McCartney has undertaken additional efforts to
monitor his medical condition.
Plaintiff Bryson
78.
Plaintiff is, and at all times mentioned herein was, a “person” as defined
by 47 U.S.C. § 153(39).
79.
Beginning in 2002, Plaintiff Bryson took Zantac consistently as an anti-
80.
As of the present time, Plaintiff Bryson has not been diagnosed with
cancer. However, in light of his significantly increased risk of contracting cancer as a result of
prolonged exposure to Zantac, Plaintiff Bryson has undertaken additional efforts to monitor his
medical condition.
Plaintiff Duyn
81.
Plaintiff is, and at all times mentioned herein was, a “person” as defined
by 47 U.S.C. § 153(39).
82.
Beginning in 2009, Plaintiff Duyn took Zantac consistently as an anti-
83.
As of the present time, Plaintiff Duyn has not been diagnosed with
cancer. However, in light of his significantly increased risk of contracting cancer as a result of
prolonged exposure to Zantac, Plaintiff Duyn has undertaken additional efforts to monitor his
medical condition.
Plaintiff Ragan
84.
Plaintiff is, and at all times mentioned herein was, a “person” as defined
by 47 U.S.C. § 153(39).
85.
Beginning in 2014, Plaintiff Ragan took Zantac consistently as an anti-
86.
As of the present time, Plaintiff Ragan has not been diagnosed with
cancer. However, in light of his significantly increased risk of contracting cancer as a result of
prolonged exposure to Zantac, Plaintiff Ragan has undertaken additional efforts to monitor his
medical condition.
Plaintiff Jordan
87.
Plaintiff is, and at all times mentioned herein was, a “person” as defined
by 47 U.S.C. § 153(39).
88.
Beginning in 2012, Plaintiff Jordan took Zantac consistently as an anti-
89.
As of the present time, Plaintiff Jordan has not been diagnosed with
cancer. However, in light of her significantly increased risk of contracting cancer as a result of
prolonged exposure to Zantac, Plaintiff Jordan has undertaken additional efforts to monitor his
medical condition.
CLASS ACTION ALLEGATIONS
90.
Plaintiffs bring this action on behalf of themselves and all other persons
similarly situated (hereinafter referred to as “the Class”).
91.
Plaintiffs propose the following Class definition, subject to amendment as
appropriate:
All persons within the United States who took the drug Zantac and
who do not have a diagnosis of cancer that has been attributed to
Zantac as of the filing of this complaint.
Collectively, these persons will be referred to as “Class members.” Plaintiffs Dodson, Lafferty,
Lawrence, Lupien, Maphis, Milinier, Myles, and Troyan represent, and are members of, the
Class. Excluded from the Class are all Defendants, any entities in which a Defendant has a
controlling interest, any agents and employees of any Defendant, any Judge to whom this action
is assigned and any member of such Judge’s staff and immediate family, and claims for
economic loss.
92.
Plaintiffs Ragan also proposes the following Subclass definition,
hereafter known as the “Colorado Subclass,” subject to amendment as appropriate:
All residents of the State of Colorado who took the drug Zantac
and who do not have a diagnosis of cancer that has been attributed
to Zantac as of the filing of this complaint.
Collectively, these persons will be referred to as “Colorado Subclass members.” Plaintiff Ragan
represents, and is a member of, the Colorado Subclass. Excluded from the Subclass are all
Defendants, any entities in which a Defendant has a controlling interest, any agents and
employees of any Defendant, any Judge to whom this action is assigned and any member of such
Judge’s staff and immediate family, and claims for economic loss.
93.
Plaintiff Lupien and Dodson also propose the following Subclass
definition, hereafter known as the “Maryland Subclass,” subject to amendment as appropriate:
All residents of the State of Maryland who took the drug Zantac
and who do not have a diagnosis of cancer that has been attributed
to Zantac as of the filing of this complaint.
Collectively, these persons will be referred to as “Maryland Subclass members.” Plaintiffs
Dodson and Lupien represent, and are members of, the Maryland Subclass. Excluded from the
Subclass are all Defendants, any entities in which a Defendant has a controlling interest, any
agents and employees of any Defendant, any Judge to whom this action is assigned and any
member of such Judge’s staff and immediate family, and claims for economic loss.
94.
Plaintiff Maphis also proposes the following Subclass definition,
hereafter known as the “Arizona Subclass,” subject to amendment as appropriate:
All residents of the State of Arizona who took the drug Zantac and
who do not have a diagnosis of cancer that has been attributed to
Zantac as of the filing of this complaint.
Collectively, these persons will be referred to as “Arizona Subclass members.” Plaintiff Maphis
represents, and is a member of, the Arizona Subclass. Excluded from the Subclass are all
Defendants, any entities in which a Defendant has a controlling interest, any agents and
employees of any Defendant, any Judge to whom this action is assigned and any member of such
Judge’s staff and immediate family, and claims for economic loss.
95.
Plaintiffs Johnny Duyn and Sammy Bryson also propose the following
Subclass definition, hereafter known as the “Indiana Subclass,” subject to amendment as
appropriate:
All residents of the State of Indiana who took the drug Zantac and
who do not have a diagnosis of cancer that has been attributed to
Zantac as of the filing of this complaint.
Collectively, these persons will be referred to as “Indiana Subclass members.” Plaintiffs Duyn
and Bryson represent, and are a member of, the Indiana Subclass. Excluded from the Subclass
are all Defendants, any entities in which a Defendant has a controlling interest, any agents and
employees of any Defendant, any Judge to whom this action is assigned and any member of such
Judge’s staff and immediate family, and claims for economic loss.
96.
Plaintiffs Lafferty, Milnier, and Troyan also proposes the following
Subclass definition, hereafter known as the “Ohio Subclass,” subject to amendment as
appropriate:
All residents of the State of Ohio who took the drug Zantac and
who do not have a diagnosis of cancer that has been attributed to
Zantac as of the filing of this complaint.
Collectively, these persons will be referred to as “Ohio Subclass members.” Plaintiffs Lafferty,
Milnier, and Troyan represent, and are members of, the Ohio Subclass. Excluded from the
Subclass are all Defendants, any entities in which a Defendant has a controlling interest, any
agents and employees of any Defendant, any Judge to whom this action is assigned and any
member of such Judge’s staff and immediate family, and claims for economic loss.
97.
Plaintiff Jordan also proposes the following Subclass definition,
hereafter known as the “Illinois Subclass,” subject to amendment as appropriate:
All residents of the State of Maryland who took the drug Zantac
and who do not have a diagnosis of cancer that has been attributed
to Zantac as of the filing of this complaint.
Collectively, these persons will be referred to as “Illinois Subclass members.” Plaintiff Jordan
represents, and is a member of, the Illinois Subclass. Excluded from the Subclass are all
Defendants, any entities in which a Defendant has a controlling interest, any agents and
employees of any Defendant, any Judge to whom this action is assigned and any member of such
Judge’s staff and immediate family, and claims for economic loss.
98.
Plaintiffs Lawrence and Myles also propose the following Subclass
definition, hereafter known as the “New Jersey Subclass,” subject to amendment as
appropriate:
All residents of the State of New Jersey who took the drug Zantac
and who do not have a diagnosis of cancer that has been attributed
to Zantac as of the filing of this complaint.
Collectively, these persons will be referred to as “New Jersey Subclass members.” Plaintiffs
Lawrence and Myles represent, and are members of, the New Jersey Subclass. Excluded from
the Subclass are all Defendants, any entities in which a Defendant has a controlling interest, any
agents and employees of any Defendant, any Judge to whom this action is assigned and any
member of such Judge’s staff and immediate family, and claims for economic loss.
99.
Plaintiff Connie McCartney also proposes the following Subclass
definition, hereafter known as the “West Virginia Subclass,” subject to amendment as
appropriate:
All residents of the State of Maryland who took the drug Zantac
and who do not have a diagnosis of cancer that has been attributed
to Zantac as of the filing of this complaint.
Collectively, these persons will be referred to as “West Virginia Subclass members.” Plaintiff
McCartney represents, and is a member of, the West Virginia Subclass. Excluded from the West
Virginia Subclass are all Defendants, any entities in which a Defendant has a controlling interest,
any agents and employees of any Defendant, any Judge to whom this action is assigned and any
member of such Judge’s staff and immediate family, and claims for economic loss.
100.
Plaintiffs do not know the exact number of members in the Class and
Subclasses, but Plaintiffs reasonably believes that Class members number at minimum in the
thousands.
101.
Plaintiffs and all members of the Class have been harmed by the acts of
the Defendants, because they are subject to significantly increased risk of cancer and other life-
threatening diseases as a result of exposure to the contaminated medications produced and
distributed by Defendants.
102.
This Class Action Complaint seeks injunctive relief and money damages.
103.
The joinder of all Class members is impracticable due to the size of the
Class and Subclasses and relatively modest value of each individual claim. The disposition of
the claims in a class action will provide substantial benefit to the parties and the Court in
avoiding a multiplicity of identical suits. The Class can be identified through records maintained
by Defendants or third-parties such as pharmacies.
104.
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 Zantac was safe for its intended use;
b.
Whether Zantac was adequately and properly tested
before and after placing it on the market;
c.
Whether the Defendants failed to properly warn
Plaintiffs and Plaintiffs’ healthcare providers that the use of Zantac
carried a risk of developing cancer;
d.
Whether the Defendants failed to provide adequate
post-marketing warnings or instructions after Defendants knew or
should have known of the significant risk of cancer associated with
the use of Zantac;
e.
Whether the Defendants’ conduct was knowing
and/or willful; and
f.
Whether the Defendants should be required to
provide medical monitoring relief on a going-forward basis.
105.
As persons who took Zantac and who are at increased risk of developing
life-threatening diseases as a result of taking Zantac, Plaintiffs assert claims that are typical of
each Class member. Plaintiffs will fairly and adequately represent and protect the interests of the
Class and Subclasses, and has no interests which are antagonistic to any member of the Class or
Subclasses.
106.
Plaintiffs have retained counsel experienced in handling class action
claims on behalf of a wide variety of types of consumers all over the country.
107.
A class action is the superior method for the fair and efficient adjudication
of this controversy. Classwide relief is essential to ensure that all individuals who have taken
Zantac have access to appropriate and necessary medical care. The interest of Class members in
individually controlling the prosecution of separate claims against the Defendants is small.
108.
The Defendants have acted on grounds generally applicable to the Class,
thereby making final injunctive relief and corresponding declaratory relief with respect to the
Class and Subclasses as a whole appropriate.
CAUSES OF ACTION
FIRST COUNT
DEFECTIVE PRODUCT
(On Behalf of the Class Against All Defendants)
109.
Plaintiffs incorporate by reference the foregoing paragraphs of this
Complaint as if fully stated herein.
110.
The Defendants, collectively, manufactured, marketed, sold and
distributed Zantac in an unreasonably dangerous and defective condition and/or placed this
dangerous and defective product into the stream of commerce knowing it would be taken by
patients, including Plaintiffs and members of the proposed Class.
111.
Zantac that was distributed by the Defendants was defective in that, when
placed in the stream of commerce, (1) the foreseeable risks exceeding the benefits associated
with consumption; (2) Zantac was more dangerous than the ordinary consumer, including
Plaintiffs and the Class they seek to represent, would expect, and more dangerous than other
alternatives (such as other anti-acids without ranitidine); (3) there were no warnings provided
about the dangerous nature of the product; and (4) the drugs were not properly tested, if tested at
all for the creation of NDMA.
112.
As a result of the dangerous nature of the product, and the lack of warning
provided by the Defendants as to its dangerous nature, the Defendants are strictly liable to
Plaintiffs and the Class.
SECOND COUNT
NEGLIGENCE
(On Behalf of the Colorado Subclass Against All Defendants)
113.
Plaintiffs incorporate by reference the foregoing paragraphs of this
Complaint as if fully set forth herein.
114.
Each person who has taken Zantac, as a result of the tortious conduct of
the Defendants, has been exposed to dangerous and carcinogenic compounds in the form of
NDMA.
115.
Defendants breached their duty of reasonable care to Plaintiff in that they
negligently promoted, marketed, distributed, and/or labeled the subject product.
116.
NDMA is a proven hazardous substance that has been shown to have a
probable link to human disease, including stomach, colon, liver and other digestive cancers.
117.
Each person who has been exposed to Zantac has a significantly increased
risk of contracting one or more serious latent diseases relative to what would be the case in the
absence of such exposure.
118.
The increases risk of serious latent disease described above makes it
reasonably necessary to each person so exposed to undergo periodic diagnostic medical
examinations different from what would be prescribed in the absence of such exposure.
119.
Monitoring procedures exist that make possible the early detection of the
diseases that have been linked to NDMA exposure.
120.
To safeguard their health against life-threatening diseases that Plaintiff
Ronald Ragan and the Colorado Subclass members are now at greater risk of contracting,
Plaintiffs Ragan and the Colorado Subclass will suffer annoyance, fear, humiliation,
embarrassment, and the cost in time and effort of monitoring their health status. These damages
are a proximate result of the acts and omissions of the Defendants.
121.
As such, Plaintiff Ragan and members of the Colorado Subclass seek the
formation of a medical monitoring fund to pay for the costs and expenses of medical monitoring
for Plaintiff Ragan and members of the Colorado Subclass.
THIRD COUNT
NEGLIGENCE
(On Behalf of the Maryland Subclass Against All Defendants)
122.
Plaintiffs incorporate by reference the foregoing paragraphs of this
Complaint as if fully set forth herein.
123.
Each person who has taken Zantac, as a result of the tortious conduct of
the Defendants, has been exposed to dangerous and carcinogenic compounds in the form of
NDMA.
124.
Defendants breached their duty of reasonable care to Plaintiff in that they
negligently promoted, marketed, distributed, and/or labeled the subject product.
125.
NDMA is a proven hazardous substance that has been shown to have a
probable link to human disease, including stomach, colon, liver and other digestive cancers.
126.
Each person who has been exposed to Zantac has a significantly increased
risk of contracting one or more serious latent diseases relative to what would be the case in the
absence of such exposure.
127.
The increases risk of serious latent disease described above makes it
reasonably necessary to each person so exposed to undergo periodic diagnostic medical
examinations different from what would be prescribed in the absence of such exposure.
128.
Monitoring procedures exist that make possible the early detection of the
diseases that have been linked to NDMA exposure.
129.
To safeguard their health against life-threatening diseases that Plaintiffs
Lupien and Dodson, and the Maryland Subclass members are now at greater risk of contracting,
Plaintiffs Lupien and Dodson, and the Maryland Subclass will suffer annoyance, fear,
humiliation, embarrassment, and the cost in time and effort of monitoring their health status.
These damages are a proximate result of the acts and omissions of the Defendants.
130.
As such, Plaintiffs Lupien and Dodson, and members of the Maryland
Subclass seek the formation of a medical monitoring fund to pay for the costs and expenses of
medical monitoring for Plaintiff Lupien and Dodson and members of the Maryland Subclass.
FOURTH COUNT
NEGLIGENCE
(On Behalf of the Arizona Subclass Against All Defendants)
131.
Plaintiffs incorporate by reference the foregoing paragraphs of this
Complaint as if fully set forth herein.
132.
Each person who has taken Zantac, as a result of the tortious conduct of
the Defendants, has been exposed to dangerous and carcinogenic compounds in the form of
NDMA.
133.
Defendants breached their duty of reasonable care to Plaintiff in that they
negligently promoted, marketed, distributed, and/or labeled the subject product.
134.
NDMA is a proven hazardous substance that has been shown to have a
probable link to human disease, including stomach, colon, liver and other digestive cancers.
135.
Each person who has been exposed to Zantac has a significantly increased
risk of contracting one or more serious latent diseases relative to what would be the case in the
absence of such exposure.
136.
The increases risk of serious latent disease described above makes it
reasonably necessary to each person so exposed to undergo periodic diagnostic medical
examinations different from what would be prescribed in the absence of such exposure.
137.
Monitoring procedures exist that make possible the early detection of the
diseases that have been linked to NDMA exposure.
138.
To safeguard their health against life-threatening diseases that Plaintiff
Maphis and the Arizona Subclass members are now at greater risk of contracting, Plaintiff
Maphis and the Arizona Subclass will suffer annoyance, fear, humiliation, embarrassment, and
the cost in time and effort of monitoring their health status. These damages are a proximate
result of the acts and omissions of the Defendants.
139.
As such, Plaintiff Maphis, and members of the Arizona Subclass seek the
formation of a medical monitoring fund to pay for the costs and expenses of medical monitoring
for Plaintiff Maphis and members of the Arizona Subclass.
FIFTH COUNT
NEGLIGENCE
(On Behalf of the Indiana Subclass Against All Defendants)
140.
Plaintiffs incorporate by reference the foregoing paragraphs of this
Complaint as if fully set forth herein.
141.
Each person who has taken Zantac, as a result of the tortious conduct of
the Defendants, has been exposed to dangerous and carcinogenic compounds in the form of
NDMA.
142.
Defendants breached their duty of reasonable care to Plaintiff in that they
negligently promoted, marketed, distributed, and/or labeled the subject product.
143.
NDMA is a proven hazardous substance that has been shown to have a
probable link to human disease, including stomach, colon, liver and other digestive cancers.
144.
Each person who has been exposed to Zantac has a significantly increased
risk of contracting one or more serious latent diseases relative to what would be the case in the
absence of such exposure.
145.
The increases risk of serious latent disease described above makes it
reasonably necessary to each person so exposed to undergo periodic diagnostic medical
examinations different from what would be prescribed in the absence of such exposure.
146.
Monitoring procedures exist that make possible the early detection of the
diseases that have been linked to NDMA exposure.
147.
To safeguard their health against life-threatening diseases that Plaintiffs
Bryson, Duyn and the Indiana Subclass members are now at greater risk of contracting, Plaintiffs
Bryson, Duyn, and the Indiana Subclass will suffer annoyance, fear, humiliation, embarrassment,
and the cost in time and effort of monitoring their health status. These damages are a proximate
result of the acts and omissions of the Defendants.
148.
As such, Plaintiffs Bryson, Duyn, and members of the Indiana Subclass
seek the formation of a medical monitoring fund to pay for the costs and expenses of medical
monitoring for Plaintiff Bryson, Duyn and members of the Indiana Subclass.
SIXTH COUNT
NEGLIGENCE
(On Behalf of the Ohio Subclass Against All Defendants)
149.
Plaintiffs incorporate by reference the foregoing paragraphs of this
Complaint as if fully set forth herein.
150.
Each person who has taken Zantac, as a result of the tortious conduct of
the Defendants, has been exposed to dangerous and carcinogenic compounds in the form of
NDMA.
151.
Defendants breached their duty of reasonable care to Plaintiff in that they
negligently promoted, marketed, distributed, and/or labeled the subject product.
152.
NDMA is a proven hazardous substance that has been shown to have a
probable link to human disease, including stomach, colon, liver and other digestive cancers.
153.
Each person who has been exposed to Zantac has a significantly increased
risk of contracting one or more serious latent diseases relative to what would be the case in the
absence of such exposure.
154.
The increases risk of serious latent disease described above makes it
reasonably necessary to each person so exposed to undergo periodic diagnostic medical
examinations different from what would be prescribed in the absence of such exposure.
155.
Monitoring procedures exist that make possible the early detection of the
diseases that have been linked to NDMA exposure.
156.
To safeguard their health against life-threatening diseases that Plaintiffs
Lafferty, Miliner, Troyan, and the Ohio Subclass members are now at greater risk of contracting,
Plaintiffs Lafferty, Miliner, and Troyan, and the Ohio Subclass will suffer annoyance, fear,
humiliation, embarrassment, and the cost in time and effort of monitoring their health status.
These damages are a proximate result of the acts and omissions of the Defendants.
157.
As such, Plaintiffs Lafferty, Troyan and Miliner, and members of the Ohio
Subclass seek the formation of a medical monitoring fund to pay for the costs and expenses of
medical monitoring for Plaintiff Lafferty, Miliner, and Troyan and members of the Ohio
Subclass.
SEVENTH COUNT
NEGLIGENCE
(On Behalf of the Illinois Subclass Against All Defendants)
158.
Plaintiffs incorporate by reference the foregoing paragraphs of this
Complaint as if fully set forth herein.
159.
Each person who has taken Zantac, as a result of the tortious conduct of
the Defendants, has been exposed to dangerous and carcinogenic compounds in the form of
NDMA.
160.
Defendants breached their duty of reasonable care to Plaintiff in that they
negligently promoted, marketed, distributed, and/or labeled the subject product.
161.
NDMA is a proven hazardous substance that has been shown to have a
probable link to human disease, including stomach, colon, liver and other digestive cancers.
162.
Each person who has been exposed to Zantac has a significantly increased
risk of contracting one or more serious latent diseases relative to what would be the case in the
absence of such exposure.
163.
The increases risk of serious latent disease described above makes it
reasonably necessary to each person so exposed to undergo periodic diagnostic medical
examinations different from what would be prescribed in the absence of such exposure.
164.
Monitoring procedures exist that make possible the early detection of the
diseases that have been linked to NDMA exposure.
165.
To safeguard their health against life-threatening diseases that Plaintiff
Jordan and the Illinois Subclass members are now at greater risk of contracting, Plaintiff Jordan
and the Illinois Subclass will suffer annoyance, fear, humiliation, embarrassment, and the cost in
time and effort of monitoring their health status. These damages are a proximate result of the
acts and omissions of the Defendants.
166.
As such, Plaintiffs Jordan and members of the Illinois Subclass seek the
formation of a medical monitoring fund to pay for the costs and expenses of medical monitoring
for Plaintiff Jordan and members of the Illinois Subclass.
EIGHTH COUNT
NEGLIGENCE
(On Behalf of the New Jersey Subclass Against All Defendants)
167.
Plaintiffs incorporate by reference the foregoing paragraphs of this
Complaint as if fully set forth herein.
168.
Each person who has taken Zantac, as a result of the tortious conduct of
the Defendants, has been exposed to dangerous and carcinogenic compounds in the form of
NDMA.
169.
Defendants breached their duty of reasonable care to Plaintiff in that they
negligently promoted, marketed, distributed, and/or labeled the subject product.
170.
NDMA is a hazardous substance that has been shown to have a probable
link to human disease, including stomach, colon, liver and other digestive cancers.
171.
Each person who has been exposed to Zantac has a significantly increased
risk of contracting one or more serious latent diseases relative to what would be the case in the
absence of such exposure.
172.
The increases risk of serious latent disease described above makes it
reasonably necessary to each person so exposed to undergo periodic diagnostic medical
examinations different from what would be prescribed in the absence of such exposure.
173.
Monitoring procedures exist that make possible the early detection of the
diseases that have been linked to NDMA exposure.
174.
To safeguard their health against life-threatening diseases that Plaintiffs
Lawrence, Myles and the New Jersey Subclass members are now at greater risk of contracting,
Plaintiffs Lawrence, Myles, and the New Jersey Subclass will suffer annoyance, fear,
humiliation, embarrassment, and the cost in time and effort of monitoring their health status.
These damages are a proximate result of the acts and omissions of the Defendants.
175.
As such, Plaintiffs Lawrence, Myles and members of the New Jersey
Subclass seek the formation of a medical monitoring fund to pay for the costs and expenses of
medical monitoring for Plaintiff Lawrence, Myles, and members of the New Jersey Subclass.
NINTH COUNT
MEDICAL MONITORING
(On Behalf of the West Virginia Subclass Against All Defendants)
176.
Plaintiffs incorporate by reference the foregoing paragraphs of this
Complaint as if fully set forth herein.
177.
Each person who has taken Zantac, as a result of the tortious conduct of
the Defendants, has been exposed to dangerous and carcinogenic compounds in the form of
NDMA.
178.
Defendants breached their duty of reasonable care to Plaintiff in that they
negligently promoted, marketed, distributed, and/or labeled the subject product.
179.
NDMA is a proven hazardous substance that has been shown to have a
probable link to human disease, including stomach, colon, liver and other digestive cancers.
180.
Each person who has been exposed to Zantac has a significantly increased
risk of contracting one or more serious latent diseases relative to what would be the case in the
absence of such exposure.
181.
The increases risk of serious latent disease described above makes it
reasonably necessary to each person so exposed to undergo periodic diagnostic medical
examinations different from what would be prescribed in the absence of such exposure.
182.
Monitoring procedures exist that make possible the early detection of the
diseases that have been linked to NDMA exposure.
183.
To safeguard their health against life-threatening diseases that Plaintiff
McCartney and the West Virginia Subclass members are now at greater risk of contracting,
Plaintiff McCartney and the West Virginia Subclass will suffer annoyance, fear, humiliation,
embarrassment, and the cost in time and effort of monitoring their health status. These damages
are a proximate result of the acts and omissions of the Defendants.
184.
As such, Plaintiff McCartney and members of the West Virginia Subclass
seek the formation of a medical monitoring fund to pay for the costs and expenses of medical
monitoring for Plaintiff McCartney and members of the West Virginia Subclass.
TENTH COUNT
NEGLIGENCE PER SE
(On Behalf of the West Virginia Subclass Against All Defendants)
185.
Plaintiffs incorporate by reference the foregoing paragraphs of this
Complaint as if fully set forth herein.
186.
Each person who has taken Zantac, as a result of the tortious conduct of
the Defendants, has been exposed to metabolic reaction that create dangerous and carcinogenic
compounds in the form of NDMA.
187.
Defendants breached their duty of reasonable care to Plaintiff in that they
negligently promoted, marketed, distributed, and/or labeled the subject product.
188.
NDMA is a proven hazardous substance that has been shown to have a
probable link to human disease, including stomach, colon, liver and other digestive cancers.
189.
Each person who has been exposed to Zantac has a significantly increased
risk of contracting one or more serious latent diseases relative to what would be the case in the
absence of such exposure.
190.
The increases risk of serious latent disease described above makes it
reasonably necessary to each person so exposed to undergo periodic diagnostic medical
examinations different from what would be prescribed in the absence of such exposure.
191.
Monitoring procedures exist that make possible the early detection of the
diseases that have been linked to NDMA exposure.
192.
To safeguard their health against life-threatening diseases that Plaintiff
McCartney and the West Virginia Subclass members are now at greater risk of contracting,
Plaintiffs McCartney and the West Virginia Subclass will suffer annoyance, fear, humiliation,
embarrassment, and the cost in time and effort of monitoring their health status. These damages
are a proximate result of the acts and omissions of the Defendants.
193.
As such, Plaintiff McCartney and members of the West Virginia Subclass
seek the formation of a medical monitoring fund to pay for the costs and expenses of medical
monitoring for Plaintiff McCartney and members of the West Virginia Subclass.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs respectfully request that the Court grant Plaintiffs and all Class
members the following relief against Defendants:
A.
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 Plaintiffs are proper representatives of the Class and Subclasses, and
appointing the lawyers and law firms representing Plaintiffs as counsel for the Class and
Subclasses;
B.
The establishment of a medical monitoring program, funded by the Defendants,
for all members of the Class and Subclasses;
C.
The establishment of a science board, funded by the Defendants, to conduct
additional research on the future impact of Zantac on members of the Class and Subclasses, in
order to improve the effectiveness of the medical monitoring program;
D.
An award of attorneys’ fees and costs to counsel for Plaintiffs and the Class;
E.
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: January 22nd, 2020
By: _/s/ Steven C. Babin Jr.
Adam William Krause
Krause and Kinsman, LLC
Email: adam@krauseandkinsman.com
4717 Grand Ave., Suite 250
Kansas City, Missouri 64112
Telephone: 816-760-2700
Facsimile: 816-760-2800
Steven C. Babin, Jr. ()
BABIN LAW, LLC
Email: steven.babin@babinlaws.com
1320 Dublin Road, Suite 100
Columbus, OH 43215
Telephone: (614) 224-6000
Facsimile: (614) 224-6066
Attorneys for Plaintiff and the Proposed Class
| products liability and mass tort |
yBDKFocBD5gMZwczPh9v |
Law Offices of
BONNETT, FAIRBOURN,
FRIEDMAN & BALINT, P.C.
2325 E. Camelback Road, Suite 300
Phoenix, Arizona 85016
(602) 274-1100
Wendy J. Harrison (014461)
wharrison@bffb.com
Ty D. Frankel (027179)
tfrankel@bffb.com
IN THE UNITED STATES DISTRICT COURT
DISTRICT OF ARIZONA
Case No. ____________________
JAMES HAZELBAKER, on behalf of
himself and all those similarly situated,
Plaintiff,
COLLECTIVE ACTION AND
CLASS ACTION COMPLAINT
v.
[JURY TRIAL DEMANDED]
METROPOLITAN PROPERTY AND
CASUALTY INSURANCE COMPANY,
a Rhode Island Corporation,
Defendant.
Plaintiff James Hazelbaker, individually and on behalf of all others similarly
situated (hereinafter referred to as “Plaintiff” and “Sales Agents” respectively) for his
Complaint against Metropolitan Property and Casualty Insurance Company (“MetLife”)
alleges as follows:
I. NATURE OF THE CASE
1.
Plaintiff brings this action against MetLife for its unlawful failure to pay
overtime wages in direct violation of the Fair Labor Standards Act, 29 U.S.C. §§ 201-219
(hereinafter “FLSA”) and the Arizona Wage Statute, A.R.S. §§ 23-351, 23-353, and 23-
355.
2.
This action is brought as a collective action pursuant to 29 U.S.C. § 216(b)
to recover unpaid overtime compensation, liquidated damages, statutory penalties and
damages owed to Plaintiff and all others similarly situated. This lawsuit is also brought as
a class action under Federal Rule of Civil Procedure 23, to recover unpaid compensation
and treble damages resulting from MetLife’s violations of the Arizona Wage Statute. For
both collective and class action purposes, the proposed class consists of:
Current and former MetLife Property & Casualty Specialists
(aka “Sales Agents”) employed by MetLife during the
Liability Period.
3.
For at least three (3) years prior to the filing of this action (the “Liability
Period”), MetLife had and continues to have a consistent policy and practice of suffering
or permitting its Property & Casualty Specialists (hereinafter “Sales Agents”), including
Plaintiff, to work well in excess of forty (40) hours per week, without paying them proper
overtime compensation as required by federal and state wage and hour laws. Plaintiff
seeks to recover unpaid overtime compensation, including interest thereon, statutory
penalties, reasonable attorneys’ fees and litigation costs on behalf of himself and all
similarly situated current and former Sales Agents who worked for MetLife. Plaintiff and
all similarly situated current and former Sales Agents who may opt-in pursuant to 29
U.S.C. § 216(b) seek liquidated damages.
4.
Plaintiff intends to request the Court to authorize notice to all similarly
situated persons (“Sales Agents”) informing them of the pendency of the action and their
right to “opt-into” this lawsuit pursuant to 29 U.S.C. § 216(b), for the purpose of seeking
overtime compensation and liquidated damages under federal law.
II. JURISDICTION AND VENUE
5.
This Court has jurisdiction over the subject matter and the parties hereto
pursuant to 29 U.S.C. § 216(b), and 28 U.S.C. § 1331.
6.
Plaintiff’s state law claim is sufficiently related to the FLSA claim that it
forms part of the same case or controversy. This Court therefore has supplemental
jurisdiction over Plaintiff’s claim under the Arizona Wage Statute pursuant to 28 U.S.C. §
1367.
7.
Venue is proper in this District under 28 U.S.C. §§ 1391(b) and (c) because
all or a substantial part of the events or omissions giving rise to the claims occurred in the
State of Arizona within this District. Plaintiff was employed by MetLife in this District.
III. PARTIES
8.
At all times relevant to the matters alleged herein, Plaintiff James
Hazelbaker resided in the State of Arizona in Yavapai County.
9.
Plaintiff was a full-time, non-exempt employee of MetLife from in or
around April 2002 until in or around April 4, 2011.
10.
Plaintiff was employed during his tenure for MetLife as a MetLife Property
and Casualty Specialist (aka “Sales Agent”).
11.
Plaintiff did not work for a predetermined wage but was paid on a
commission basis.
12.
Pursuant to 29 U.S.C. § 216(b), attached to and filed with this Complaint as
Exhibit A, is the Consent to Become Party Plaintiff, signed by the above-named
Representative Plaintiff, James Hazelbaker, opting him into this lawsuit.
13.
Defendant MetLife is a Rhode Island corporation, authorized to do business
in Arizona. MetLife sells insurance and related products.
14.
Plaintiff and Sales Agents were employees as defined in 29 U.S.C. §
203(e)(1) and were non-exempt employees under 29 U.S.C. § 213(a)(1).
15.
At all relevant times, MetLife was an employer as defined by 29 U.S.C. §
203(d).
/ / /
/ / /
IV. FACTUAL BACKGROUND
16.
MetLife is a Rhode Island corporation in the business of selling property and
casualty insurance and other related products.
17.
MetLife employs Sales Agents whose principal business is to sell MetLife
insurance products.
18.
Plaintiff and other Sales Agents are paid commissions. They also receive a
semi-monthly draw of $500 per pay period.
19.
Upon information and belief, Sales Agents are not paid at least $455 per
week, or the equivalent amount for a period longer than one week, on a salary basis.
20.
Upon information and belief, Sales Agents do not earn total annual
compensation in excess of $100,000 per year.
21.
The Sales Agents performed the primary duty of selling MetLife’s insurance
products while customarily and regularly performing their duties from a fixed MetLife
branch office.
22.
The Sales Agents did not exercise discretion and independent judgment as
part of their employment at MetLife.
23.
The Sales Agents sold MetLife products pursuant to strict MetLife policies
that they were required to follow in executing the sales of MetLife products.
24.
The Sales Agents are therefore non-exempt employees. They do not qualify
for the administrative, executive, outside sales, or retail or service exemptions, nor do they
qualify for any other exemption required to be proven by the employer under the FLSA.
25.
Plaintiff was employed by MetLife as a Sales Agent from in or around April
2002 until in or around April 4, 2011.
26.
As a non-exempt Sales Agent Plaintiff sold MetLife insurance products
pursuant to strict MetLife policies.
27.
Plaintiff customarily and regularly engaged in these sales transactions on
behalf of MetLife from a fixed MetLife branch office.
28.
Plaintiff was paid commission based on his sales of MetLife insurance
products, as well as a fixed semi-monthly draw of $500 per pay period. Plaintiff did not
earn compensation that exceeded $100,000 per year and was not paid at least $455 per
week, or the equivalent amount for a period longer than one week, on a salary basis.
29.
Plaintiff routinely worked in excess of forty (40) hours per week as part of
his regular schedule as a Sales Agent.
30.
Plaintiff typically worked at least 60 hours per week during his employment
at MetLife as a Sales Agent from in or around April 2002 until in or around April 4, 2011.
31.
Nevertheless, Plaintiff was not paid proper overtime wages at a rate of one
and one half times his regular rate of pay for hours worked over forty in a work week in
violation of the FLSA and Arizona Wage Statute.
32.
Upon information and belief, Plaintiff’s duties, hours and compensation are
indicative of the similarly situated Sales Agents.
V. COLLECTIVE ACTION ALLEGATIONS
33.
Plaintiff brings his claim under the FLSA, 29 U.S.C. § 201 et seq., as a
collective action. Plaintiff brings this action on behalf of himself and others similarly
situated, properly defined as:
Current and former MetLife Property & Casualty Specialists (aka “Sales
Agents”) employed by MetLife during the Liability Period.
34.
MetLife’s illegal overtime wage practices were widespread with respect to
the proposed class. The failure to pay proper overtime was not the result of random or
isolated individual management decisions or practices.
35.
MetLife’s overtime wage practices were routine and consistent. Throughout
the Liability Period, employees regularly were not paid the proper overtime wage despite
working in excess of forty hours per week.
36.
Other Sales Agents performed the same or similar job duties as Plaintiff.
Moreover, these non-exempt employees regularly worked more than forty hours in a
workweek. Accordingly, the employees victimized by MetLife’s unlawful pattern and
practices are similarly situated to Plaintiff in terms of employment and pay provisions.
37.
MetLife’s failure to pay overtime compensation at the rates required by the
FLSA result from generally applicable policies or practices and do not depend on the
personal circumstances of the members of the collective action. Thus, Plaintiff’s
experience is typical of the experience of the others employed by MetLife.
38.
The specific job titles or precise job requirements of the various members of
the collective action do not prevent collective treatment. All MetLife Sales Agents,
including Plaintiff, regardless of their precise job requirements or rates of pay, are entitled
to overtime compensation for hours worked in excess of forty (40). Although the issue of
damages may be individual in character, there is no detraction from the common nucleus
of facts pertaining to liability.
VI. CLASS ACTION ALLEGATIONS
39.
The state law claims under the Arizona Wage Statute are brought as a class
action under Federal Rules of Civil Procedure 23(a) and (b)(3). The class is defined in
paragraph 2 above.
40.
Throughout the Liability Period, MetLife has employed a large number of
Sales Agents. The class is therefore so numerous that joinder of all members is
impracticable. Members of the class can readily be identified from business records
maintained by MetLife.
41.
Proof of MetLife’s liability under the Arizona Wage Statute involves factual
and legal questions common to the class. Whether Defendants paid Class members the
proper wages due in accordance with A.R.S. §§ 23-351, 23-353, 23-355 is a question
common to all Class Members.
42.
Like Plaintiff, all Class Members worked without being paid the statutorily
required overtime wage. Plaintiff’s claim is therefore typical of the claims of the class.
43.
Plaintiff has no interest antagonistic to those of other Class Members and
has retained attorneys who are knowledgeable in wage and hour and class action litigation.
The interests of Class Members are therefore fairly and adequately protected.
44.
This action is maintainable as a class action under Rule 23(b)(3) because
questions of law or fact common to the Class predominate over any questions affecting
only individual members.
45.
In addition, a class action is superior to other available methods for the fair
and efficient adjudication of the controversy. The Arizona Wage Statute recognizes that
employees who are denied their wages often lack the ability to enforce their rights against
employers with far superior resources. Further, because the damages suffered by
individual class members may be relatively small, the expense and burden of individual
litigation makes it difficult for members of the class to individually redress the wrongs
done to them.
46.
Plaintiff’s Arizona Wage Statute claim is easily managed as a class action.
The issue of liability is common to all Class Members. Although the amount of damages
may differ by individual, they are objectively ascertainable and can be easily calculated.
VII. COUNT ONE
(Failure to Properly Pay Overtime Wages - FLSA - 29 U.S.C. § 207)
47.
Plaintiff incorporates by reference all of the above allegations as though
fully set forth herein.
48.
Plaintiff was a non-exempt employee entitled to the statutorily mandated
overtime pay.
49.
MetLife was an employer.
50.
MetLife failed to comply with 29 U.S.C. § 207 because Plaintiff worked for
MetLife in excess of forty hours per week, but MetLife failed to pay Plaintiff for those
excess hours at the statutorily required rate of one and one-half times Plaintiff’s regular
rate of pay as required by the FLSA.
51.
MetLife’s failure to pay overtime to Plaintiff was willful. MetLife knew
Plaintiff was working overtime but failed to properly pay overtime wages. MetLife had
no reason to believe its failure to pay overtime was not a violation of the FLSA.
52.
Plaintiff is entitled to statutory remedies provided pursuant to 29 U.S.C. §
216(b), including but not limited to liquidated damages and attorneys’ fees.
VIII. COUNT TWO
(Failure to Pay Timely Wages Due - Arizona Wage Statute)
53.
Plaintiff incorporates by reference all of the above allegations as though
fully set forth herein.
54.
MetLife was aware of its obligation to pay timely wages pursuant to A.R.S.
§ 23-351.
55.
MetLife was aware that, under A.R.S. § 23-353, it was obligated to pay all
wages due to Plaintiff.
56.
MetLife failed to timely pay Plaintiff wages he was due without a good faith
basis for withholding the wages.
57.
MetLife has willfully failed and refused to timely pay wages due to Plaintiff.
As a result of MetLife’s unlawful acts, Plaintiff is entitled to the statutory remedies
provided pursuant to A.R.S. § 23-355.
IX. REQUESTED RELIEF
WHEREFORE, the Plaintiff, individually and on behalf of all others similarly
situated, prays:
A.
For the Court to order MetLife to file with this Court and furnish to
Plaintiffs’ counsel a list of the names and addresses of all current and former Sales Agents
for the past three years;
B.
For the Court to authorize Plaintiff’s counsel to issue notice at the earliest
possible time to all current and former Sales Agents for the past three years immediately
preceding this action, informing them that this action has been filed and the nature of the
action, and of their right to opt into this lawsuit if they worked hours in excess of forty
(40) hours in a week during the Liability Period, but were not paid overtime as required by
the FLSA;
C.
For the Court to declare and find that MetLife committed one or more of the
following acts:
i.
violated overtime provisions of the FLSA, 29 U.S.C. § 207, by failing
to pay overtime wages to Plaintiff and persons similarly situated who opt into this action;
ii.
willfully violated overtime provisions of the FLSA, 29 U.S.C. § 207;
iii.
willfully violated the Arizona Wage Statute by failing to timely pay
all wages due to Plaintiff;
D.
For the Court to award compensatory damages, including liquidated
damages pursuant to 29 U.S.C. § 216(b) and/or treble damages pursuant to A.R.S. § 23-
355, to be determined at trial;
E.
For the Court to award interest on all overtime compensation due accruing
from the date such amounts were due;
F.
For the Court to award such other monetary, injunctive, equitable, and
declaratory relief as the Court deems just and proper;
G.
For the Court to award restitution;
H.
For the Court to award Plaintiff’s reasonable attorneys’ fees and costs
pursuant to 29 U.S.C. § 216(b);
I.
For the Court to award pre- and post-judgment interest;
J.
For the Court to award Plaintiffs’ resulting consequential damages, in an
amount to be proven at trial; and
K.
For such other relief as the Court deems just and proper.
X. DEMAND FOR JURY TRIAL
58.
Plaintiff, on behalf of himself and all others similarly-situated, hereby
demands trial of his claims by jury to the extent authorized by law.
DATED: March 26, 2013.
BONNETT, FAIRBOURN, FRIEDMAN
& BALINT, P.C.
By /s/ Ty D. Frankel
Wendy J. Harrison
Ty D. Frankel
2325 E. Camelback Road, Suite 300
Phoenix, Arizona 85016
Telephone: 602-274-1100
Facsimile: 602-798-5860
Attorneys for Plaintiff
| employment & labor |
GbkVDIcBD5gMZwczq-9A |
Richard T. Drury (SBN 163559)
richard@lozeaudrury.com
Rebecca Davis (SBN 271662)
rebecca@lozeaudrury.com
Lozeau Drury LLP
410 12th Street, Suite 250
Oakland, California 94607
Tel: 510-836-4200
Fax: 510-836-4205
[Additional counsel appearing on signature page]
Attorneys for Plaintiff and the Class
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
1.
CARLA VARIO, individually and on behalf
of all others similarly situated,
2.
Plaintiff,
5. Case No.
6. CLASS ACTION COMPLAINT
7. JURY TRIAL DEMANDED
4.
UBER TECHNOLOGIES, INC., a Delaware
corporation,
Defendant.
8.
9.
1.
Plaintiff Carla Vario (“Vario” or “Plaintiff”) brings this Class Action Complaint
against Defendant Uber Technologies, Inc. (“Defendant” or “Uber”) to stop its practice of sending
unsolicited text messages to cellular telephones after the cellphone owner opted-out of the receipt
of additional messages, and obtain redress for all persons similarly 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.
PARTIES
2.
Plaintiff Carla Vario is a natural person over the age of eighteen (18) who resides
in New Port Richey, Pasco County, Florida.
3.
Defendant Uber Technologies, Inc. is a corporation incorporated and existing
under the laws of the State of Delaware whose primary place of business and corporate
headquarters is located at 1455 Market Street, 4th Floor, San Francisco, California 94103.
JURISDICTION & VENUE
4.
This Court has subject matter jurisdiction over this action pursuant to 28 U.S.C. §
1331, as the action arises under the Telephone Consumer Protection Act (“TCPA”), 47 U.S.C. §
227, et seq., a federal statute. This Court also has jurisdiction under the Class Action Fairness Act
(“CAFA”), 28 U.S.C. § 1332, because the alleged Class consists of over 100 persons, there is
minimal diversity, and the claims of the class members when aggregated together exceeds $5
million. Further, none of the exceptions to CAFA apply.
5.
This Court has personal jurisdiction over Uber and venue is proper in this District
because it solicits significant business in this District, is registered to do business in this District,
is headquartered in this District, and a substantial part of the events or omissions giving rise to the
claim occurred in this District.
COMMON ALLEGATIONS OF FACT
6.
Bulk text messaging, or SMS, has emerged as a direct method of communicating
with consumers. The term "Short Message Service” or “SMS” is a messaging system that allows
cellular telephone subscribers to use their cellular telephones to send and receive short text
messages, usually limited to 160 characters. An SMS message is a text message call directed to a
wireless device through the use of the telephone number assigned to the device.
7.
When an SMS message call is successfully made, the recipient’s cell phone rings
or vibrates, alerting him or her that a call is being received. As cellular telephones are mobile and
are frequently carried on their owner’s person, calls to cellular telephones, including SMS
messages, may be received by the called party virtually anywhere worldwide and instantaneously.
8.
Defendant Uber is a peer-to-peer ridesharing service headquartered in San
Francisco, California.
9.
In an effort to effectuate Uber’s business, Defendant utilizes bulk SMS messaging
to reach consumers.
10.
Defendant made, or had made on its behalf, the same (or substantially the same)
text messages calls en masse to thousands of cellular telephone numbers throughout the United
States, using the same number even after such persons replied “Stop”.
11.
In sending the text messages at issue in this Complaint, Defendant utilized an
automatic telephone dialing system. Specifically, the hardware and software used by Defendant
(or its agent) has the capacity to store, produce, and dial random or sequential 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 includes features
substantially similar to a predictive dialer, inasmuch as it is capable of making numerous text
message calls simultaneously (all without human intervention).
12.
The problem for Uber is that it fails to properly honor opt-out requests.
13.
That is, Uber continues to send unauthorized SMS messages to cellular subscribers
who have expressly “opted-out” or requested not to receive text messages by responding “STOP”
or with similar commands. Any SMS text message (other than a final, one-time confirmation text
message confirming the recipient’s desire to not receive such messages) sent to a cellular
subscriber after receiving an express STOP or similar request was sent without prior express
consent in violation of the TCPA.
14.
The FCC has made clear that companies must provide an opt-out mechanism in
their text messages and that—at most—a single text may be sent after the consumer exercises
his/her right to opt out confirming the opt out. See In re Rules and Regulations Implementing the
Tel. Consumer Protection Act of 1991, Declaratory Ruling as to Petition of SoundBite
Communications, Inc., CG Docket No. 20–278 (Nov. 29, 2012) (“SoundBite Ruling ”); see also
Gager v. Dell Fin. Servs., LLC, 727 F.3d 265, 272 (3d Cir. 2013) (“In sum, we find that the
TCPA provides consumers with the right to revoke their prior express consent to be contacted on
cellular phones by autodialing systems.”); see also Munro v. King Broad. Co., No. C13-1308JLR,
2013 WL 6185233, at *3 (W.D. Wash. Nov. 26, 2013) (“[T]he weight of authority suggests that
consent may be revoked under the TCPA and that if messages continue after consent is revoked,
those messages violate the TCPA.”) (unpublished decision) (collecting cases).
15.
Notwithstanding such authorities, Defendant ignores the FCC and industry
guidelines and instead fails to honor requests by consumers to opt-out or unsubscribe to the SMS
text messages.
16.
Despite receiving multiple express "STOP" requests from Plaintiff and other
cellular subscribers, Defendant continues to send automated text messages to these subscribers.
17.
Defendant knows or acts in conscious disregard of the fact that its SMS text
messages to these cellular subscribers are unauthorized. “STOP” requests are, by design, sent to
Defendant thereby directly informing (and at the very least putting on actual and constructive
notice) Defendant that any subsequent messages are unauthorized. Ultimately, consumers are
forced to bear the costs and annoyance of receiving these unsolicited and unauthorized text
messages.
FACTS SPECIFIC TO PLAINTIFF
18.
In or around April 2018, Plaintiff Vario began receiving text messages on her
cellular telephone from Uber, which purported to convey a code.
19.
In an effort to end the persistent transmission of text messages from Uber, Plaintiff
replied “Stop.”
20.
Thereafter, Defendant responded by acknowledging the stop request by stating
“SMS from Uber is now disabled. To re-enable, reply START.” Plaintiff never replied START to
re-enable.
21.
Later the same day, Uber sent additional text messages to Plaintiff, again providing
her with an “Uber code.”
22.
Plaintiff continued to receive virtually identical text messages, which were sent for
a commercial purpose, on a daily basis. The messages advertised Uber’s ride-sharing services and
provided a code for the use/accessing of such services.
23.
Every text message was sent from the telephone number 954-504-6058, which is
owned by Defendant or its agent.
24.
Despite repeated attempts to opt-out of future text messages—including various
opt-out words, such as “Stop,” “Stop all,” and “Sms off”—Defendant, despite acknowledging the
opt-out requests, refused to end the transmission of text messages.
25.
By continuing to make unauthorized text message calls as alleged herein, Uber has
caused Plaintiff and other consumers actual harm and cognizable legal injury. This includes the
aggravation, nuisance, and invasion of privacy that results from the receipt of such unwanted text
messages in addition to a loss of value realized for the monies consumers paid to their wireless
carriers for the receipt of such text messages. Furthermore, the text messages interfered with
Plaintiff’s and the other Class members’ use and enjoyment of their cellphones, including the
related data, software, and hardware components. The text messages were annoying and persisted
despite being told to Stop. Defendant also caused substantial injury to their phones by causing
wear and tear on their property, consuming battery life, interfering with their use and enjoyment,
and appropriating cellular minutes and data.
26.
In the present case, a consumer could be subjected to multiple unsolicited text
message advertisements given the fact that Defendant does not provide any functioning
mechanism to opt-out and, thus, fails to honor validly submitted opt-out requests.
27.
Having tried to no avail to get the messages to stop, Plaintiff, on behalf of himself
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 voice and text calls to cell phones—to
end the unlawful conduct of Defendant.
28.
On behalf of the Class, Plaintiff also seeks an injunction requiring Defendant to
cease all wireless spam activities and an award of statutory damages to the class members,
together with costs and reasonable attorneys’ fees.
CLASS ACTION ALLEGATIONS
29.
Plaintiff brings this action pursuant to Federal Rule of Civil Procedure 23(b)(2)
and Rule 23(b)(3) on behalf of herself and the Class defined as follows:
Replied Stop Class: All persons in the United States who (1) from August 18, 2017
through the date notice is sent to the Class; (2) received at least one text message on
their cellular telephone, (3) from Defendant, or a third person acting on behalf of
Defendant, (4) replied to the text message with the words STOP, END, CANCEL,
or similar language, and (5) thereafter received at least one additional text message
to their same cellular telephone number other than a message simply confirming
their opt-out request.
30.
The following people are excluded from the Class: (1) any Judge or Magistrate
presiding over this action and members of their families; (2) Defendant, Defendant’s subsidiaries,
parents, successors, predecessors, and any entity in which the Defendant or its parents have a
controlling interest and its current or former employees, officers and directors; (3) persons who
properly execute and file a timely request for exclusion from the Class; (4) persons whose claims
in this matter have been finally adjudicated on the merits or otherwise released; (5) Plaintiff’s
counsel and Defendant’s counsel; and (6) the legal representatives, successors, and assignees of
any such excluded persons. Plaintiff anticipates the need to amend the class definition following
appropriate discovery.
31.
Numerosity: The exact number of members within the Class is unknown and not
available to Plaintiff at this time, but it is clear that individual joinder is impracticable. On
information and belief, Defendant has placed text messages to thousands of consumers who fall
into the defined Class. The exact number of members of the Class can only be identified through
Defendant’s records.
32.
Typicality: Plaintiff’s claims are typical of the claims of other members of the
Class, in that Plaintiff and the members of the Class sustained damages arising out of Defendant’s
uniform wrongful conduct.
33.
Adequate Representation: Plaintiff will fairly and adequately represent and
protect the interests of the Class and has retained counsel competent and experienced in complex
class actions. Plaintiff and her counsel have no interests antagonistic to those of the Class, and
Defendant has no defenses unique to Plaintiff.
34.
Commonality and Predominance: There are several 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. Common questions for the Class
include, but are not necessarily limited to, the following:
(a)
Whether Defendant’s conduct violated the TCPA;
(b)
Whether members of the Class are entitled to treble damages based on the
willfulness of Defendant’s conduct; and
(c)
Whether Defendant systematically sent text messages to consumers after
they opted-out of the receipt of further text messages by responding Stop.
35.
Conduct Similar Towards All Class Members: By committing the acts set forth
in this pleading, Defendant has acted or refused to act on grounds substantially similar towards all
members of the Class so as to render final injunctive relief and corresponding declaratory relief
appropriate so as to warrant certification under Rule 23(b)(2).
36.
Superiority & Manageability: This case is also appropriate for class certification
under Rule 23(b)(3) because class proceedings are superior to all other available methods for the
fair and efficient adjudication of this controversy. Joinder of all parties is impracticable, and the
damages suffered by the individual members of the Class will likely be relatively small,
especially given the burden and expense of individual prosecution of the complex litigation
necessitated by Defendant’s actions. Thus, it would be virtually impossible for the individual
members of the Class to obtain effective relief from Defendant’s misconduct. Even if members of
the Class 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. 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. Also, there are no pending
governmental actions against Defendant for the same conduct.
CAUSE OF ACTION
Violation of the Telephone Consumer Protection Act, 47 U.S.C. § 227, et seq.
(On behalf of Plaintiff and the Replied Stop Class)
37.
Plaintiff incorporates by reference the foregoing allegations as if fully set forth
herein.
38.
Defendant sent unsolicited and unwanted text message advertisements to telephone
numbers belonging to Plaintiff and the other members of the Replied Stop Class on their cellular
telephones after the recipient informed Defendant that s/he no longer wished to receive text
messages from Defendant.
39.
Defendant sent the text messages using equipment that had the capacity to store or
produce telephone numbers to be called using a random or sequential number generator, and/or
receive and store lists of phone numbers, and to dial such numbers, en masse, without human
intervention. That is, Defendant utilized equipment that sent the text messages to Plaintiff and
other members of the Replied Stop Class simultaneously and without human intervention.
40.
The text messages to Plaintiff and the Replied Stop Class were sent after any
supposed consent had been expressly revoked by responding with an opt-out request, such as
STOP, END, CANCEL, or similar language. This alone violates the TCPA.
41.
Additionally, Defendant’s supposed opt-out mechanism is not cost free. Among
other things, it requires the transmission of data from the user’s cell phone that results in a
reduction of the user’s allowable data.
43.
Based on such conduct, Defendant has violated 47 U.S.C. § 227(b)(1)(A)(iii).
44.
As a result of Defendant’s unlawful conduct, Plaintiff and the other members of
the Replied Stop Class are each entitled to, under section 227(b)(3)(B), a minimum of $500.00 in
damages for each violation of such act.
45.
Defendant’s conduct was willful. Defendant had amble notice of the Stop requests
and even confirmed the receipt of said requests. Thus, in the event that the Court determines that
Defendant’s conduct was willful and knowing, it may, under section 227(b)(3)(C), treble the
amount of statutory damages recoverable by Plaintiff and the other members of the Class.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff Carla Vario, on behalf of herself and the Class, prays for the
following relief:
A.
An order certifying the Class as defined above, appointing Plaintiff Vario
as the representative of the Class, and appointing her counsel as Class Counsel;
B.
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;
C.
An order declaring that Defendant’s actions, as set out above, violate the
TCPA
D.
An order declaring that Defendant’s actions, as set out above, were willful,
and awarding treble damages;
E.
A declaratory judgment that Defendant’s telephone calling equipment
constitutes an automatic telephone dialing system under the TCPA;
F.
An injunction requiring Defendant to cease all unsolicited calling activities,
and otherwise protecting the interests of the Class;
G.
An award of reasonable attorneys’ fees and costs to be paid out of the
common fund prayed for above; and
H.
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,
Dated: June 27, 2018
CARLA VARIO, individually and on behalf of all
others similarly situated,
By: s/ Rebecca Davis
One of Plaintiff’s Attorneys
Richard T. Drury (SBN 163559)
richard@lozeaudrury.com
Rebecca Davis (SBN 271662)
rebecca@lozeaudrury.com
Lozeau Drury LP
410 12th Street, Suite 250
Oakland, California 94607
Tel: 510-836-4200
Fax: 510-836-4205
Steven L. Woodrow*
swoodrow@woodrowpeluso.com
Patrick H. Peluso*
ppeluso@woodrowpeluso.com
Taylor Smith*
tsmith@woodrowpeluso.com
Woodrow & Peluso, LLC
3900 East Mexico Ave., Suite 300
Denver, Colorado 80210
Telephone: (720) 213-0675
Facsimile: (303) 927-0809
Attorneys for Plaintiff and the Class
* Pro Hac Vice admission to be sought
| privacy |
k1WbBIkBRpLueGJZ_2qW |
CIVIL ACTION NO. __________
JURY TRIAL DEMANDED
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IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
MICHAEL MANOLOFF
3835 Brinkman Street
Houston, Texas 77018
and
MIKE C. MANOLOFF, PC
6600 Sands Point Drive
Houston, Texas 77074
Plaintiffs,
v.
Bank of America, N.A.
100 North Tryon Street
Charlotte, North Carolina 28255
and
Cross River Bank
400 Kelby Street
Fort Lee, New Jersey 07024
and
Celtic Bank
268 South State Street, Suite 300
Salt Lake City, Utah 84111
and
JP Morgan Chase Bank, N.A.
1111 Polaris Parkway
Columbus, Ohio 43240
and
Wells Fargo Bank, N.A.
101 North Phillips Avenue
Sioux Falls, South Dakota 57104
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and
Guaranty Bank & Trust
100 West Arkansas Street
Mount Pleasant, Texas 75455
and
Amegy Bank
1717 West Loop South
Houston, Texas 77027
and
Spirit of Texas Bank
625 University Drive
College Station, Texas 77840
and
The Bancorp Bank
409 Silverside Road #105
Wilmington, Delaware 19809
and
WebBank
215 State Street, Suite 1000
Salt Lake City, Utah 84111
and
Zions Bancorporation, N.A.
One South Main Street
Salt Lake City, Utah 84133
and
Allegiance Bank
8727 Wes Sam Houston Parkway N.
Houston, Texas 77040
and
Capital One, N.A.
1680 Capital One Drive
McLean, Virginia 22102
and
Ready Capital Corporation
1140 Avenue of the Americas, 8th Floor
New York, New York 10036
and
ReadyCap Lending, LLC
200 Connell Drive, Suite 400
Berkeley Heights, New Jersey 07922
and
Comerica Bank & Trust, N.A.
101 North Main Street, Suite 100
Ann Arbor, Michigan 75201
Defendants.
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CLASS ACTION COMPLAINT AND JURY DEMAND
Now come Plaintiffs, Michael Manoloff and Mike C. Manoloff, P.C. (collectively
“Manoloff” or “Plaintiff Manoloff”), in their individual and representative capacity, and for their
Complaint against Defendants (collectively “Defendants”) hereby state the following:
INTRODUCTION &
BACKGROUND TO THE PAYROLL PROTECTION PROGRAM
1.
On March 25, 2020, in response to the outbreak of the coronavirus
(“COVID-19”), the federal government enacted emergency legislation to enable small businesses
to continue employing and paying their employees by creating the Payroll Protection Program
(“PPP”), which provides federally guaranteed loans to make payroll expenses for two months.
The PPP is contained within sections 1102 and 1106 of the Coronavirus Aid, Relief, and
Economic Security Act (“CARES Act”). To fund the PPP, Congress approved an initial $349
billion for the program.
2.
On April 24, 2020, the federal government added an additional $310 billion to the
PPP through the Paycheck Protection Program and Health Care Enhancement Act.
3.
The PPP is a temporary program under the Small Business Administration’s
(“SBA”) 7(a) Loan Program. The PPP permits the SBA to guarantee 100 percent of 7(a) loans
and provides forgiveness of up to the full principal amount of any qualifying loan. Small
business owners apply for a PPP loan through existing SBA-approved lenders (“Lenders”) or
through any federally insured deposit institution. The PPP also delegates authority to Lenders to
provide relief expeditiously.
4.
The CARES Act provides that the Administrator of the SBA “shall reimburse a
lender” for processing the loans. 15 U.S.C. § 636(a)(36)(P)(i). This reimbursement shall be
made not later than five days after the disbursement of the PPP loan. Id. at § 636(a)(36)(P)(iii).
5.
Lenders are to be reimbursed the following amounts per loan: Five percent (5%)
for loans of not more than $350,000; three percent (3%) for loans of more than $350,000 and less
than $2 million; and one percent (1%) for loans of at least $2 million. Id. at § 636(a)(36)(P)(i).
6.
The CARES Act also authorizes the payment of a fee to “agents” who assist
eligible recipients in preparing their PPP loan application in an amount that is not in excess of
the limits established by the Administrator. Id. at § 636(a)(36)(P)(ii).
7.
On April 15, 2020, the Administrator issued the Interim Final Rule (the “Rule”)
regarding the PPP loans. Business Loan Program Temporary Changes; Paycheck Protection
Program, 85 Fed. Reg. 20,811 (Apr. 15, 2020) (to be codified at 13 C.F.R. pt. 120). The Rule
provides that agent fees “will be paid by the Lender out of the fees the Lender receives from
SBA.” Id. at 20,816 (emphasis added). The Rule also specifically provides that agents “may not
collect fees from the borrower or be paid out of the PPP loan proceeds.” Id. Thus, per the
combined effect of the CARES Act and the Rule, agents who assist applicants in preparing their
PPP loan can only be paid, and must be paid, a fee by the Lender out of the fees that the Lender
itself receives for processing the PPP loans.
8.
Under the Rule, the total amount that an agent shall receive from the Lender “for
assistance in preparing an application for a PPP loan” is as follows: Up to one percent (1%) for
loans of not more than $350,000; a half of a percent (.5%) for loans of more than $350,000 and
less than $2 million; and a quarter of a percent (.25%) for loans of at least $2 million. Id.
9.
Despite these clear instructions that Lenders are to pay the agent fees—and
despite requests by the agents to the Lenders to be paid their fees—Defendant Lenders have
unlawfully withheld those fees from the agents and have instead kept the funds intended for the
agents for themselves.
10.
Defendant Lenders have no legal authority under the CARES Act to deny the
agents’ fees due and owing to them by the CARES Act and the Rule.
11.
Plaintiffs bring this action, on behalf of themselves and all others similarly
situated, against Defendant Lenders for violations of the CARES Act, the SBA’s 7(A) loan
program, 15 U.S.C. § 636(a), and 13 C.F.R. part 120, and for unjust enrichment. conversion, and
money had and received under Texas law.
JURISDICTION
12.
This Court has jurisdiction over Plaintiffs’ claims under 28 U.S.C. § 1331 because
this action arises under the laws of the United States.
13.
This Court also has jurisdiction under the Class Action Fairness Act, 28 U.S.C.
§ 1332(d), because this is a class action in which (1) the claims of the proposed Class exceed
$5,000,000; (2) at least one member of the class of Plaintiffs is a citizen of a State different from
at least one Defendant; and (3) the proposed Plaintiff Class consists of more than 100 members.
14.
This Court has supplemental jurisdiction under 28 U.S. § 1367(a) over the
state-law claims, as all claims relate to the same case and controversy.
15.
This Court has personal jurisdiction over Defendants because Defendants do
business in this District and a substantial number of the events giving rise to the claims took
place in Texas.
16.
A substantial part of the events or acts giving rise to the claims herein occurred
within this District; and therefore, venue is appropriate in this District pursuant to 28 U.S.C.
§ 1391(b)(2).
PARTIES
17.
Plaintiff Michael Manoloff is a certified public accountant who resides at 3835
Brinkman Street, Houston, Texas.
18.
Plaintiff Mike C. Manoloff, PC, is an active professional corporation incorporated
in the State of Texas and authorized to conduct business in Texas.
19.
Defendant Bank of America, N.A. (“Bank of America”) is a national bank with its
main office in Charlotte, North Carolina. Bank of America conducts substantial business in the
State of Texas.
20.
Defendant Celtic Bank (“Celtic”) is a state-chartered bank with its main office in
Salt Lake City, Utah. Celtic conducts substantial business in the State of Texas.
21.
Defendant Cross River Bank (“Cross River”) is a state-chartered bank with its
main office in Fort Lee, New Jersey. Cross River conducts substantial business in the State of
22.
Defendant JP Morgan Chase Bank, N.A. (“Chase”) is a national bank with its
main office in Columbus, Ohio. Chase conducts substantial business in the State of Texas.
23.
Defendant Wells Fargo Bank, N.A. (“Wells Fargo”) is a national bank with its
main office in Sioux Falls, South Dakota. Wells Fargo conducts substantial business in the State
of Texas.
24.
Defendant Guaranty Bank & Trust (“Guaranty Bank”) is a bank with its main
office in Mount Pleasant, Texas.
25.
Defendant Amegy Bank (“Amegy”) is a bank with its main office in Houston,
26.
Defendant Spirit of Texas Bank (“Spirit of Texas”) is a bank with its main office
in College Station, Texas.
27.
Defendant The Bancorp Bank (“Bancorp”) is a bank with its main office in
Wilmington, Delaware. Bancorp conducts substantial business in the State of Texas.
28.
Defendant WebBank, Inc. (“WebBank”) is a state-chartered bank with its main
office in Salt Lake City, Utah. WebBank conducts substantial business in the State of Texas.
29.
Defendant Zions Bancorporation, N.A. (“Zions”) is a national bank with its main
office in Salt Lake City, Utah. Zions conducts substantial business in the State of Texas.
30.
Defendant Allegiance Bank (“Allegiance”) is a community bank with its main
office in Houston, Texas.
31.
Defendant Capital One, N.A. (“Capital One”) is a national bank with its main
office in McLean, Virginia. Capital One conducts substantial business in the State of Texas.
32.
Defendant Ready Capital Corporation (“Ready Capital”) is a corporation
incorporated in the State of Maryland with its principal place of business in New York, New
York. Ready Capital conducts substantial business in the State of Texas.
33.
Defendant ReadyCap Lending, LLC (“ReadyCap”) is a limited liability company
organized in the State of New Jersey. ReadyCap conducts substantial business in the State of
34.
Defendant Comerica Bank & Trust, N.A. (“Comerica”) is a national bank with its
main office in Ann Arbor, Michigan. Comerica conducts substantial business in the State of
FACTS
35.
Plaintiff Manoloff owns Mike C. Manoloff, PC, an accounting firm with its
principal place of business in Houston, Texas.
36.
Between March 2020 and May 2020, Plaintiff Manoloff prepared and submitted
PPP loan applications on behalf of small businesses.
37.
Of the loans he prepared, the Lenders and SBA approved fifty-one (51) loans,
which ranged from $2,500 to $458,460. The small businesses received their loan proceeds
between April 2020 and June 2020.
38.
Plaintiff Manoloff submitted requests for agent fees to the Defendants.
39.
Plaintiff Manoloff has not received the agent fees from any of the Defendant
Lenders.
40.
In order to prepare and submit the loan applications, Plaintiff Manoloff spent
numerous hours reviewing the CARES Act and PPP loan provisions and preparing and
submitting applications.
41.
As part of the application process, Plaintiff Manoloff assisted each of the
applicants in gathering and analyzing documents, making the necessary calculations, and
preparing and submitting the applications.
42.
During the time that Plaintiff Manoloff was preparing and submitting PPP
applications, he did not and could not pursue other non-PPP business for which he could have
billed those clients.
43.
Under 13 C.F.R. 103.1(a), an agent “means an authorized representative including
an attorney, accountant, consultant, packager, Lender service provider, or any other individual or
entity representing an Applicant or Participant by conducting business with SBA.” Conducting
Business with the SBA includes preparing and submitting an application for financial assistance
of any kind on behalf of an applicant. Id. at 103.1(b).
44.
Under the Code, a “packager” is a person “who prepares the Applicant’s
application for financial assistance and is employed and compensated by the Applicant.” Id.
at 103.1(A)(2).
45.
Based on these Code provisions, the U.S. Department of the Treasury provided
guidance to Lenders through its “Paycheck Protection Program (PPP) Information Sheet—
Lenders,” (“Information Sheet”), a copy of which is attached as Exhibit A.1 With regard to
1 The Information Sheet is available at
https://home.treasury.gov/system/files/136/PPP%20Lender%20Information%20Fact%20Sheet.p
df.
agents, the Treasury Department’s Information Sheet stated the following: “An agent is an
authorized representative and can be:
An attorney;
An accountant;
A consultant;
Someone who prepares an applicant’s application for financial assistance and
is employed and compensated by the applicant;
Someone who assists a lender with originating, disbursing, servicing,
liquidating, or litigating SBA loans;
A loan broker; or
Any other individual or entity representing an applicant by conducting
business with the SBA.”
46.
The Treasury Department’s Information Sheet also stated that “Agent fees will be
paid out of Lender fees. The Lender will pay the agent.” See Ex. A. (emphasis added).
47.
Pursuant to 13 C.F.R. 103.1 and the Treasury Department’s guidance, Plaintiff is
an agent for the small businesses applicants when they prepared and submitted the small
businesses’ PPP loan applications.
48.
Despite the requirements in the Rule and the Treasury Department’s guidance that
the Lender must pay the agent fees out of the fees that the Lender receives from the SBA,
Defendants have failed and/or refused and continue to refuse to pay Plaintiff Manoloff his
authorized agent fees. Furthermore, based on information and belief, Defendants have refused
and continue to refuse to pay any agents the authorized agent fees.
49.
Nothing in the CARES Act, 13 C.F.R. part 120, or the Rule allows the Lenders to
withhold agent fees from agents, and instead, simply keep the fees to enrich themselves. To the
contrary, Defendants are required under the CARES Act and the Rule to pay agents as specified
in the Act and Rule.
50.
The purpose and motivation behind Defendants’ practices are readily apparent.
By refusing to pay agent fees to the actual agents, Defendants kept tens of millions of dollars for
themselves, to which they are not entitled, and thus, deprived Plaintiffs of their property.
51.
Defendants’ actions violate the Rule, which provides that agent fees “will be paid
by the Lender.” Indeed, the SBA has specifically provided that an agent “may not collect fees
from the borrower or be paid out of the PPP loan proceeds.” Thus, if Defendant Lenders are
permitted to withhold the amount due to agents, including Plaintiff Manoloff, then the agents
cannot and will not be compensated for the hours spent assisting small businesses. Such a result
would be inconsistent with the very purpose of the CARES Act, which specifically provided that
agents will obtain fees for assisting small businesses in applying for PPP loans.
52.
Nationally, as of July 10, 2020, the SBA had approved 4,907,655 PPP loans for a
total disbursement of $517,417,286,175. Of this amount, $226,474,015,480 was for loans under
$350,000; $186,389,866,874 was for loans between $350,000 and $2 million; and,
$104,553,403,819 was for loans above $2 million.2
53.
The potential withheld agent fees for all loans under $350,000 is
$2,264,740,154.80. The potential withheld agent fees for all loans between $350,000 and $2
million is $931,949,334.37. And the potential withheld agent fees for all loans over $2 million is
$261,383,509.55.
54.
Thus, upon information and belief, on a nationwide basis, Lenders, including
Defendant Lenders, may have withheld upwards of over $3.4 billion from authorized agents,
2 These figures were obtained from the SBA’s website. A copy of the document is attached as
Exhibit B, and is available at https://www.sba.gov/sites/default/files/2020-07/PPP_Report%20-
%202020-07-1945-508.pdf
many of whom are themselves part of small businesses, and who remain uncompensated for the
time they spent helping other small businesses apply for PPP loans.
55.
As of July 10, 2020, the SBA has approved 391,472 PPP loans in Texas, for a
total disbursement of $40,722,020,170. See Ex. B.
56.
Based on the authorized percentages for agent fees, the potential withheld agent
fees for Texas PPP loans is between $101 million and $407 million.
57.
As a result of Defendants’ conduct, Plaintiff Manoloff has suffered financial
harm, wrongfully lost the opportunity to collect compensation, and generally lost economic
opportunities to conduct business.
58.
Defendants and other Lenders should not be permitted to keep millions and
perhaps billions of dollars for work that was performed by others who expected payment from
the Lenders under the CARES Act as specified by the SBA.
CLASS ACTION ALLEGATIONS
59.
Plaintiffs incorporate each and every allegation contained in the preceding
paragraphs by reference as if fully set forth herein.
60.
Plaintiffs, in accordance with Rule 23(b) of the Federal Rules of Civil Procedure,
bring this action on behalf of themselves and as members of the Class defined below.
61.
Plaintiffs seek to represent a nationwide Class comprised of all individuals and
entities who
a. are an agent under 13 C.F.R. 103.1;
b. prepared and/or submitted approved loan applications on behalf of small
businesses under the PPP between March 25, 2020, and June 30, 2020;
c. submitted a request for payment of the authorized agent fees to Defendant
Lenders or were simply not paid at all for the fees due and owing to them under
the CARES Act, 13 C.F.R. part 120, and/or the Interim Final Rule; and
d. have been denied their agent fee from Defendants.
62.
To the extent that a nationwide Class is not certified and in the alternative,
Plaintiffs seek to represent a statewide Class comprised of all individuals and entities in Texas
a. are an agent under 13 C.F.R. 103.1;
b. prepared and/or submitted approved loan applications on behalf of small
businesses under the PPP between March 25, 2020, and June 30, 2020;
c. submitted a request for payment of the authorized agent fees to Defendant
Lenders or were simply not paid at all for the fees due and owing to them under
the CARES Act, 13 C.F.R. part 120, and/or the Interim Final Rule; and
d. have been denied their agent fee from Defendants.
63.
The following are excluded from the Class and/or Subclass: (a) any Judge or
Magistrate presiding over this action and members of their families; (b) the officers, directors, or
employees of Defendants; and (c) all persons who properly execute and file a timely request for
exclusion from the Class.
64.
The Class and/or Subclass is so numerous that joinder of all members is
impracticable.
65.
There are questions of law and fact common to the Class and/or Subclass. These
common questions include, but are not limited to, whether Defendants wrongful withheld agent
fees from authorized representatives in violation of federal and state law.
66.
The claims of Plaintiffs, which arise out of Defendants’ withholding of agent fees
to authorized representatives of PPP loan applicants, are typical of the claims of the Class and/or
Subclass members. Likewise, Defendants’ defenses to Plaintiffs’ claims would be typical of the
defenses to the Class and/or Subclass claims.
67.
Plaintiffs will fairly and adequately represent and protect the interest of the Class
and/or Subclass. Plaintiffs are articulate and knowledgeable about their claims and fully able to
describe them. There are no conflicts of interest between Plaintiffs with respect to the interests
of the Class and/or Subclass members. Plaintiffs, like the Class and/or Subclass members, have
suffered financial loss as a result of Defendants’ acts. Plaintiffs have sufficient financial
resources to litigate this case and further the interests of the Class and/or Subclass without
compromising them.
68.
Counsel for Plaintiffs are well-suited to represent their interests and the interests
of the Class and/or Subclass at large. Counsel includes Fields Alexander (Beck Redden LLP)
and James E. Arnold, Damion M. Clifford, Gerhardt A. Gosnell II, and Tiffany L. Carwile
(Arnold & Clifford, LLP). The combined experience and areas of professional concentration of
these attorneys are well-suited to representation of the interests of the Class and/or Subclass. All
these lawyers practice complex civil litigation and are experienced in class action litigation.
69.
Class certification is appropriate pursuant to Rule 23(b)(1) of the Federal Rules of
Civil Procedure. Prosecuting separate actions would create a risk of adjudications with respect
to individual Class and/or Subclass 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.
70.
Class certification is appropriate under Rule 23(b)(2) of the Federal Rules of Civil
Procedure. Defendants will continue to commit the alleged violations, and the members of the
Class and/or Subclass will continue to be unfairly denied compensation to which they are entitled
to under the PPP and the CARES Act. Defendants have acted and refused to act on grounds that
apply generally to the Class and/or Subclass so that final injunctive relief and corresponding
declaratory relief is appropriate respecting the Class and/or Subclass as a whole.
71.
Class certification is appropriate under Rule 23(b)(3) of the Federal Rules of Civil
Procedure. The questions of law or fact common to the members of the Class and/or Subclass,
described above, predominate over any questions affecting only individual members.
72.
This Court is an appropriate forum for the litigation of the Class and/or the
Subclass claims.
Count I
Violations of the CARES Act
(Against All Defendants)
73.
Plaintiffs incorporate each and every allegation contained in the preceding
paragraphs by reference as if fully set forth herein.
74.
The CARES Act provides a stimulus package in response to the COVID-19
pandemic and includes the PPP, which provides assistance to small businesses seeking to
maintain payroll and other authorized expenses.
75.
There is an implied cause of action arising under the CARES Act.
76.
The CARES Act, along with the SBA’s Rule on the PPP, provides for the
payment of agent fees to authorized representatives who assisted PPP loan applicants with their
loan applications.
77.
In flagrant disregard for the law, Defendants have failed and/or refused to pay the
agent fees to the Borrowers’ authorized representatives, and instead, kept the fees to enrich
themselves.
78.
Plaintiffs and the Class and/or the Subclass members are agents under the
regulatory provisions for the PPP loan applicants and they are entitled to payment from the
Lenders as set forth in the CARES Act and the Rule.
79.
Nevertheless, Defendants refused to pay Plaintiffs and the Class and/or the
Subclass members the authorized agent fees.
80.
As a direct and proximate result of Defendants’ failure and/or refusal to comply
with the CARES Act and the Rule, Plaintiffs and the Class and/or the Subclass members have
suffered damages in excess of $5 million.
Count II
Violations of the SBA’s 7(a) Loan Program, 15 U.S.C. § 636(a)
(Against All Defendants)
81.
Plaintiffs incorporate each and every allegation contained in the preceding
paragraphs by reference as if fully set forth herein.
82.
The PPP is part of the SBA’s 7(a) loan program, which is designed to assist small
businesses to obtain financing.
83.
There is an implied cause of action arising under the SBA’s 7(a) loan program as
applied through the CARES Act.
84.
The Rule on the PPP provides for the payment of agent fees to authorized
representatives who assisted PPP loan applicants with their loan applications.
85.
In flagrant disregard for the law, Defendants have failed and/or refused to pay
agent fees to Plaintiffs and the other Class and/or Subclass members, and instead, have kept the
fees to enrich themselves.
86.
As a direct and proximate result of Defendants’ wrongful actions, Plaintiffs and
the Class and/or the Subclass members have suffered damages in excess of $5 million.
Count III
Conversion
(Against All Defendants)
87.
Plaintiffs incorporate each and every allegation contained in the preceding
paragraphs by reference as if fully set forth herein.
88.
Plaintiffs and the Class and/or Subclass members have an ownership and
entitlement to possession of the agent fees due and owing to them under the CARES Act, 13
C.F.R. part 120, and/or the Rule.
89.
Defendants have unlawfully and without authorization exercised control over
Plaintiffs and the Class and/or Subclass members’ property, specifically their agent fees.
90.
Defendants’ continued exercise of control over Plaintiffs and the Class and/or
Subclass members’ agent fees is to the exclusion of and inconsistent with their right of
ownership to those same agent fees.
91.
Plaintiffs and the Class and/or Subclass members have demanded that Defendants
pay the agent fees due and owing to them under the CARES Act, 13 C.F.R. part 120, and/or the
92.
Despite requests by Plaintiffs and the Class and/or Subclass members, Defendants
have failed and/or refused to pay the agent fees and instead, have wrongfully kept the agent fees
for their own personal gain.
93.
Defendants’ actions were intentional, willful, reckless, and were committed with
actual malice.
94.
As a direct and proximate result of Defendants’ conduct, Plaintiffs and the Class
and/or the Subclass members have suffered damages in excess of $5 million.
Count IV
Money Had and Received
(Against All Defendants)
95.
Plaintiffs incorporate each and every allegation contained in the preceding
paragraphs by reference as if fully set forth herein.
96.
Defendant Lenders obtained money from the SBA in relation to the PPP loans.
97.
Pursuant to the CARES Act, 13 C.F.R. part 120, and the Rule, part of that money
rightfully belongs to Plaintiffs and the Class and/or the Subclass members.
98.
Justice, equity, and good conscious require Defendant Lenders to remit to
Plaintiffs, the Class, and/or the Subclass members the portion of those funds that belong to
Plaintiffs, the Class, and/or the Subclass, specifically, their agent fees as defined by the CARES
Act and the Rule.
99.
As a direct and proximate result of Defendants’ conduct, Plaintiffs and the Class
and/or the Subclass members have suffered damages in excess of $5 million.
Count V
Unjust Enrichment
(Against All Defendants)
100.
Plaintiffs incorporate each and every allegation contained in the preceding
paragraphs by reference as if fully set forth herein.
101.
Plaintiffs, the Class, and/or the Subclass members further state that Defendants
have been unjustly enriched at Plaintiffs, the Class, and/or the Subclass members’ expense, as
Plaintiffs, the Class, and/or the Subclass members worked to prepare and/or submit PPP loan
applications on behalf of small businesses, all in reliance upon the requirement that Defendants
would remit to Plaintiffs, the Class, and/or the Subclass members the agent fees authorized by
the CARES Act and the Rule.
102.
Defendants were aware that Plaintiffs, the Class, and/or the Subclass members
were conferring a benefit upon them by preparing PPP loan application for small businesses that
participated in the small business loan program under the CARES Act.
103.
Defendants have taken an undue advantage of Plaintiffs, the Class, and/or the
Subclass members’ work in preparing and submitting the PPP loan applications.
104.
Defendants received fees from the SBA; a portion of which belongs to Plaintiffs,
the Class, and/or the Subclass members under the CARES Act and the Rule. Defendants’
continued retention of the agent fees due and owing to Plaintiffs, the Class, and/or the Subclass
members is unjust and unconscionable.
105.
As a direct and proximate result of Defendants’ actions, Plaintiffs, the Class,
and/or the Subclass members have suffered damages in excess of $5 million.
Prayer for Relief
Wherefore, Plaintiffs, the Class, and/or the Subclass pray as follows:
A.
Certify this action as a class action, pursuant to Rule 23 of the Federal Rules of
Civil Procedure, designate Plaintiffs as the Class and/or Subclass representative, and counsel for
Plaintiffs as Class and/or Subclass Counsel;
B.
Direct Defendants to make available to Plaintiffs, the Class, and/or the Subclass
all of the rights and benefits under the CARES Act and its regulations;
C.
Award damages, including compensatory, exemplary, punitive, and statutory
damages, to Plaintiffs, the Class, and/or the Subclass in an amount to be determined at trial, for
the acts complained of herein;
D.
Award Plaintiffs, the Class, and/or the Subclass their expenses and costs of suit,
including reasonable attorneys’ fees to the extent provided by law;
E.
Award Plaintiffs, the Class, and/or the Subclass pre-judgment and post-judgment
interest at the highest legal rate to the extent provided by law; and
F.
Grant all other and further relief to which Plaintiffs, the Class, and/or the Subclass
are entitled by law or in equity as may be determined by the Court to be just, equitable, and
July 13, 2020
Respectfully submitted,
BECK REDDEN LLP
By:__/s/ Fields Alexander
Fields Alexander
Texas Bar No. 00783528
Federal Bar No. 16427
falexander@beckredden.com
1221 McKinney Street, Suite 4500
Houston, TX 77010
Telephone: (713) 951-3700
Fax: (713) 951-3720
ATTORNEY-IN-CHARGE FOR
PLAINTIFFS
OF COUNSEL:
ARNOLD & CLIFFORD LLP
James E. Arnold
Ohio Bar No. 0037712
jarnold@arnlaw.com
Damion M. Clifford
Ohio Bar No. 0077777
dclifford@arnlaw.com
Gerhardt A. Gosnell II
Ohio Bar No. 0064919
ggosnell@arnlaw.com
Tiffany L. Carwile
Ohio Bar No. (0082522)
tcarwile@arnlaw.com
(Motions for Admission Pro Hac Vice Forthcoming)
115 W. Main St., 4th Floor
Columbus, Ohio 43215
Ph:
(614) 460-1600
BECK REDDEN LLP
Patrick Redmon
Texas Bar No. 24110258
Federal Bar No. 3367321
predmon@beckredden.com
1221 McKinney Street, Suite 4500
Telephone: (713) 951-3700
Fax: (713) 951-3720
ATTORNEYS FOR PLAINTIFFS
JURY DEMAND
Plaintiff hereby demands a trial by jury as to all issues so triable.
/s/ Fields Alexander
Fields Alexander
| healthcare |
-U45_ogBF5pVm5zYq0q_ | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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Civil Action No.
LAXMAN TANK, Individually and on Behalf
of All Others Similarly Situated,
CLASS ACTION
Plaintiff,
vs.
COMPLAINT FOR VIOLATION OF THE
FEDERAL SECURITIES LAWS
PLUG POWER INC., ANDREW MARSH,
and PAUL B. MIDDLETON,
DEMAND FOR JURY TRIAL
Defendants.
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Plaintiff Laxman Tank (“plaintiff”), 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 of Plug Power Inc. (“Plug Power” or the “Company”), the Company’s
press releases, and analyst reports, media reports, and other publicly disclosed reports and
information about the Company. 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 persons who purchased Plug Power
securities between November 9, 2020 and March 16, 2021, both dates inclusive (the “Class Period”),
seeking to pursue remedies under the Securities Exchange Act of 1934 (“1934 Act”). These claims
are asserted against Plug Power and certain of its officers who made materially false and misleading
statements during the Class Period.
2.
Plug Power provides hydrogen fuel cell turnkey solutions focused on systems used to
power electric motors in the electric mobility and stationary power markets.
3.
On March 2, 2021, Plug Power filed a Notification of Late Filing with the SEC on
Form 12b-25, stating that it could not timely file its annual report for the period ended December 31,
2020 because the Company was completing a “review and assessment of the treatment of certain
costs with regards to classification between Research and Development versus Costs of Goods Sold,
the recoverability of right of use assets associated with certain leases, and certain internal controls
over these and other areas.” The Company stated that “[i]t is possible that one or more of these
items may result in charges or adjustments to current and/or prior period financial statements.”
- 1 -
4.
As a result of this news, the price of Plug Power stock fell $3.68 per share to close
at $48.78 per share on March 2, 2021, a decline of 7%.
5.
On March 16, 2021, Plug Power issued a press release announcing that the Company
needed to restate its prior financial results for fiscal years 2018 and 2019 and quarterly filings
for 2019 and 2020 because of several accounting “errors.” The accounting errors impacted the
Company’s: (i) reported book value of right of use assets and related finance obligations; (ii) loss
accruals for certain service contracts; (iii) impairment of certain long-lived assets; and (iv) the
misclassification of certain costs, resulting in a decrease in research and development expense and a
corresponding increase in cost of revenue.
6.
Also on March 16, 2020, Plug Power filed with the SEC a current report on Form 8-
K. The current report stated that the Company expected to recognize an impairment related to long-
lived assets and a material weakness in its internal controls over financial reporting. The current
report also stated that investors should not rely on the Company’s prior issued financial statements
going back to 2018 due to the numerous accounting errors outlined above, and that these past results
would be restated.
7.
As a result of this news, the price of Plug Power stock fell $10.10 per share to close
at $36.36 per share on March 18, 2021, a decline of 22% over three trading days.
8.
Throughout the Class Period, defendants violated the federal securities laws by
disseminating false and misleading statements to the investing public and/or failing to disclose
adverse facts pertaining to the Company’s financial results, business, and prospects. Specifically,
defendants concealed material information and failed to disclose that:
(a)
the Company had overstated the carrying amount of right of use assets and
finance obligations associated with leases;
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(b)
the Company had understated the loss accruals relating to certain service
contracts;
(c)
certain of the Company’s long-lived assets suffered from material
impairments, including right of use assets and fixed assets;
(d)
the Company had misclassified certain important costs, resulting in an
overstatement of operating and research and development expenses and an understatement of
revenue costs;
(e)
the Company suffered from material weaknesses in its internal controls over
financial reporting; and
(f)
as a result, defendants’ public statements regarding the Company’s past
financial results were materially false and misleading at all relevant times.
9.
As a result of defendants’ wrongful acts and omissions, plaintiff and the Class (as
defined below) purchased Plug Power securities at artificially inflated prices and were damaged
thereby.
JURISDICTION AND VENUE
10.
The claims alleged herein arise under §§ 10(b) and 20(a) of the 1934 Act, 15 U.S.C.
§§ 78j(b) and 78t(a), and Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated thereunder by the SEC.
11.
This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C.
§ 1331 and § 27 of the 1934 Act.
12.
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.
13.
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,
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the U.S. mails, interstate telephone communications, and the facilities of the national securities
markets.
PARTIES
14.
Plaintiff Laxman Tank, as set forth in the certification attached hereto and
incorporated by reference herein, purchased Plug Power securities during the Class Period and
suffered damages as a result.
15.
Defendant Plug Power is a Delaware corporation with its principal executive office
located in Latham, New York. Plug Power stock trades on the NASDAQ under the ticker symbol
“PLUG.”
16.
Defendant Andrew Marsh (“Marsh”) was at all relevant times, Chief Executive
Officer (“CEO”) of Plug Power.
17.
Defendant Paul B. Middleton (“Middleton”) was at all relevant times, Chief Financial
Officer (“CFO”) of Plug Power.
18.
Defendants Marsh and Middleton are referred to herein collectively as the “Individual
Defendants.”
19.
The Individual Defendants, because of their positions with the Company, possessed
the power and authority to control the contents of Plug Power’s quarterly reports, 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. 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
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were being concealed from the public and that the positive representations being made were then
materially false and misleading.
FRAUDULENT SCHEME AND COURSE OF BUSINESS
20.
Defendants are liable for: (i) making false statements; or (ii) failing to disclose
adverse facts known to them about Plug Power. Defendants’ fraudulent scheme and course of
business that operated as a fraud or deceit on purchasers of Plug Power securities was a success, as
it: (i) deceived the investing public regarding Plug Power’s business, operations, and prospects;
(ii) artificially inflated the prices of Plug Power securities; (iii) permitted defendants Marsh and
Middleton to sell more than 3.7 million shares of their Plug Power common stock for proceeds of
more than $120 million; and (iv) caused plaintiff and other members of the Class (defined herein) to
purchase Plug Power securities at inflated prices.
SUBSTANTIVE ALLEGATIONS
21.
Plug Power provides hydrogen fuel cell turnkey solutions for the electric mobility and
stationary power markets in North America and Europe. It focuses on proton exchange membrane
fuel cell and fuel processing technologies, fuel cell/battery hybrid technologies, and related hydrogen
storage and dispensing infrastructure.
DEFENDANTS’ MATERIALLY FALSE AND MISLEADING STATEMENTS
AND OMISSIONS DURING THE CLASS PERIOD
22.
The Class Period begins on November 9, 2020. On that date, Plug Power reported its
third quarter 2020 financial results in a shareholder letter posted on its website. Therein, the
Company stated in relevant part:
Plug Power achieved a record third quarter with gross billings of $125.6M, the
highest quarter in the company’s 22-year history. This gross billing is over 10%
higher than the previous guidance and reflects growth of 106% year-over-year and
73.4% sequentially, above another record quarter in Q2 2020. Plug Power is raising
2020 full-year gross billings guidance to $325M-$330M up from $310M.
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23.
That same day, Plug Power filed with the SEC its quarterly report on Form 10-Q for
the period ended September 30, 2020, affirming the previously reported financial results. In addition
regarding Plug Power’s disclosure controls and internal control over financial reporting, the Form
10-Q stated, in relevant part, that Plug Power’s “disclosure controls and procedures are
effective . . . [and that] [t]here were no changes in [Plug Power’s] internal control over financial
reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably
likely to materially affect, [Plug Power’s] internal control over financial reporting.”
24.
On February 25, 2021, Plug Power reported its fourth quarter and full year 2020
financial results in a shareholder letter posted on its website. Therein, the Company stated in part:
Plug Power Reports $337 million in Gross Billings for 2020, Up 42.5% Year
over Year
Announced Multiple Partnerships and Executed Strategic Acquisitions, Establishing
Global Platform as a Green Hydrogen Solutions Company
Well Positioned to Leverage Industry Leadership and Capture Meaningful Share of
in the $10T Hydrogen Economy
•
2020 marked a record year in gross billings, with Q4 gross billings of $96.3
million and $337 million for the full year reflecting the Company’s strong
value proposition in the growing hydrogen industry
•
As previously announced, reported revenue and results were negatively
impacted by certain costs of $456 million recorded in the fourth quarter, the
majority being non-cash charges related to the accelerated vesting of a
customer’s remaining warrants. Given the expenses for this customer
program have been fully expensed, the Company’s go-forward reported
results should be easier to understand. This resulted in reported revenue of
negative $316 million for the quarter and negative $100 million for the full
year.
•
Plan to make continued investment during 2021 to deliver on substantial
growth opportunity in the green hydrogen economy on a global basis
•
Strong balance sheet with now over $5 billion in cash to execute on its global
growth strategy and object
•
On track to deliver on recently raised 2021 and 2024 financial targets
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25.
Defendants’ statements referenced in ¶¶ 22–24 above were materially false and
misleading when made because they misrepresented and failed to disclose the adverse facts about
Plug Power’s financial results, business, and prospects, which were known to defendants or
recklessly disregarded by them, as follows:
(a)
That the Company had overstated the carrying amount of right of use assets
and finance obligations associated with leases;
(b)
That the Company had understated the loss accruals relating to certain service
contracts;
(c)
That certain of the Company’s long-lived assets suffered from material
impairments, including right of use assets and fixed assets;
(d)
That the Company had misclassified certain important costs, resulting in an
overstatement of operating and research and development expenses and an understatement of
revenue costs;
(e)
That the Company suffered from material weaknesses in its internal controls
over financial reporting; and
(f)
That, as a result, defendants’ public statements regarding the Company’s past
financial results were materially false and misleading at all relevant times.
26.
Then, on March 2, 2021, before the market opened, Plug Power filed a Notification of
Late Filing with the SEC on Form 12b-25, stating that the Company could not timely file its annual
report for the period ended December 31, 2020 because the Company was completing a “review and
assessment of the treatment of certain costs with regards to classification between Research and
Development versus Costs of Goods Sold, the recoverability of right of use assets associated with
certain leases, and certain internal controls over these and other areas.” The Company stated that
- 7 -
“[i]t is possible that one or more of these items may result in charges or adjustments to current
and/or prior period financial statements.” The Form 12b-5 stated in part:
For the year ended December 31, 2020, Plug Power Inc. (the “Company”) became a
large accelerated filer for the first time and, as a result, the Company has a shortened
filing deadline of 60 days rather than 75 days to file its Annual Report on Form 10-K
for the year ended December 31, 2020 (the “Form 10-K”). The Company requires
additional time to complete the procedures relating to its year-end reporting process,
including the completion of the Company’s financial statements and procedures
relating to management’s assessment of the effectiveness of internal controls, and the
Company is therefore unable to file the Form 10-K by March 1, 2021, the prescribed
filing due date. The Company is working diligently to complete the necessary work,
including review and assessment of the treatment of certain costs with regards to
classification between Research and Development versus Costs of Goods Sold, the
recoverability of right of use assets associated with certain leases, and certain internal
controls over these and other areas. It is possible that one or more of these items may
result in charges or adjustments to current and/or prior period financial statements.
The Company is still evaluating whether any such charges or adjustments would be
required and, if required, whether any such charges or adjustments would be
material; but any charges, if required, would be non-cash in nature and any such
adjustments or charges would not impact the Company’s guidance on forward
projections. The Company expects to file the Form 10-K within the extension period
provided under Rule 12b-25 under the Securities Exchange Act of 1934, as amended.
27.
On this news, the price of Plug Power stock fell $3.68 per share to close at $48.78 per
share on March 2, 2021, a decline of 7%. The stock price continued to decline by $9.48 per share
over three consecutive trading sessions to close at $39.30 per share on March 5, 2021.
28.
On March 16, 2021, Plug Power issued a press release announcing that the Company
needed to restate its prior financial results for fiscal years 2018 and 2018 and quarterly filings
for 2019 and 2020 because of several “errors.” The accounting errors impacted the Company’s:
(i) reported book value of right of use assets and related finance obligations; (ii) loss accruals for
certain service contracts; (iii) impairment of certain long-lived assets; and (iv) the misclassification
of certain costs, resulting in a decrease in research and development expense and a corresponding
increase in cost of revenue.
- 8 -
29.
Also on March 16, 2020, Plug Power filed with the SEC a current report on Form 8-
K. The current report stated that the Company expected to recognize an impairment related to long-
lived assets and a material weakness in its internal controls over financial reporting. The current
report also stated that investors should not rely on the Company’s prior issued financial statements
going back to 2018 due to the numerous accounting errors outlined above, and that these past results
would be restated. The Form 8-K stated in part:
(a) On March 12, 2021, management and the Audit Committee of the Board of
Directors (the “Audit Committee”) of the Company, in consultation with KPMG LLP
(“KPMG”), the Company’s independent registered public accounting firm,
determined that the Company’s previously issued financial statements as of and for
the years ended December 31, 2019 and 2018, and as of and for each of the quarterly
periods ended March 31, 2020 and 2019, June 30, 2020 and 2019, and September 30,
2020 and 2019 (collectively, the “Prior Period Financial Statements”), should no
longer be relied upon due to errors in accounting primarily relating to (i) the reported
book value of right of use assets and related finance obligations (“ROU
Accounting”), (ii) loss accruals for certain service contracts, (iii) the impairment of
certain long-lived assets, and (iv) the classification of certain expenses previously
included in research and development costs ((i) through (iv) collectively, the
“Restatement Items”). In addition, the fourth quarter and full year 2020 financial
results and related discussion included in the Company’s shareholder letter furnished
on the Form 8-K filed by the Company on February 25, 2021 should no longer be
relied upon.
The Company and the Audit Committee have determined that these accounting
changes will require a restatement of the Prior Period Financial Statements.
The revised accounting for the Restatement Items will change how the Company
accounts for certain transactions and items, but the revised accounting is not
expected to impact cash and cash equivalents or the economics of the Company’s
existing or future commercial arrangements. The Company currently anticipates that
the primary impact of the revised accounting on the Prior Period Financial
Statements will include:
•
Adjustments on the balance sheets to reduce the carrying amount of certain
right of use assets and finance obligations associated with leases;
•
An increase in the loss accrual relating to certain service contracts;
•
Recognition of non-cash impairment charges relating to certain long-lived
assets, including certain right of use assets and certain fixed assets; and
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•
A reclassification of certain costs resulting in a decrease in Operating
expenses - Research and development expense and a corresponding increase
in Cost of revenue.
30.
As a result of this news, the price of Plug Power stock fell $10.10 per share to close
at $36.36 per share on March 18, 2021, a decline of 22% over three trading days.
31.
As a result of defendants’ wrongful acts and omissions, plaintiff and the Class
purchased Plug Power securities at artificially inflated prices and were damaged thereby.
ADDITIONAL SCIENTER ALLEGATIONS
32.
As alleged herein, Plug Power and the Individual Defendants acted with scienter in
that they: (i) knew that the public documents and statements issued or disseminated in the name of
the Company were materially false and misleading; (ii) knew that such statements or documents
would be issued or disseminated to the investing public; and (iii) 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 herein in detail, these defendants, by
virtue of their receipt of information reflecting the true facts regarding Plug Power, their control
over, and/or receipt and/or modification of Plug Power’s allegedly materially misleading statements
and/or their associations with the Company which made them privy to confidential proprietary
information concerning Plug Power, participated in the fraudulent scheme alleged herein.
Defendants also had the motive and opportunity to commit fraud, selling millions of dollars’ worth
of Plug Power securities at artificially inflated prices during the Class Period.
NO SAFE HARBOR
33.
The “Safe Harbor” warnings accompanying Plug Power’s reportedly forward-looking
statements (“FLS”), or were not identified as such by defendants, and thus did not fall within any
“Safe Harbor.”
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34.
Plug Power’s verbal “Safe Harbor” warnings accompanying its oral FLS issued
during the Class Period were ineffective to shield those statements from liability.
35.
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 Plug Power who knew that the FLS was false.
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, nor were any of the projections or forecasts made by defendants expressly
related to or stated to be dependent on those historic or present tense statements when made.
LOSS CAUSATION AND ECONOMIC LOSS
36.
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 Plug Power
securities and operated as a fraud or deceit on purchasers of Plug Power securities. As detailed
above, when the truth about Plug Power’s misconduct was revealed, the value of the Company’s
securities declined precipitously as the prior artificial inflation no longer propped up the securities’
prices. The declines in Plug Power’s share price were the direct result of the nature and extent of
defendants’ fraud being revealed to investors and the market. The timing and magnitude of the share
price declines negate any inference that the losses suffered by plaintiff and other members of the
Class were caused by changed market conditions, macroeconomic or industry factors, or Company-
specific facts unrelated to defendants’ fraudulent conduct. The economic loss, i.e., damages,
suffered by plaintiff and other Class members was a direct result of defendants’ fraudulent scheme to
artificially inflate the prices of the Company’s securities and the subsequent significant decline in the
- 11 -
value of the Company’s securities when defendants’ prior misrepresentations and other fraudulent
conduct were revealed.
37.
At all relevant times, defendants’ materially false and misleading statements or
omissions alleged herein directly or proximately caused the damages suffered by plaintiff and other
Class members. Those statements were materially false and misleading through their failure to
disclose a true and accurate picture of Plug Power’s business and operations as alleged herein.
Throughout the Class Period, defendants issued materially false and misleading statements and
omitted material facts necessary to make defendants’ statements not false or misleading, causing the
prices of Plug Power securities to be artificially inflated. Plaintiff and other Class members
purchased Plug Power securities at those artificially inflated prices, causing them to suffer damages
as complained of herein.
APPLICABILITY OF PRESUMPTION OF RELIANCE
38.
Plaintiff and the Class are entitled to a presumption of reliance under Affiliated Ute
Citizens of Utah v. United States, 406 U.S. 128 (1972), because the claims asserted herein against
defendants are predicated upon omissions of material fact for which there was a duty to disclose.
39.
Plaintiff and the Class are also entitled to a presumption of reliance pursuant to Basic
Inc. v. Levinson, 485 U.S. 224 (1988), and the fraud-on-the-market doctrine because the market for
Plug Power securities was an efficient market at all relevant times by virtue of the following factors,
among others:
(a)
Plug Power securities met the requirements for listing, and were listed and
actively traded on NASDAQ, a highly efficient market;
(b)
Plug Power regularly communicated with public investors via established
market communication mechanisms, including the regular dissemination of press releases on
- 12 -
the national circuits of major newswire services and other wide-ranging public disclosures,
such as communications with the financial press and other similar reporting services; and
(c)
Plug Power was followed by a number of 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. These reports were publicly available
and entered the public marketplace.
40.
As a result of the foregoing, the market for Plug Power securities promptly
incorporated current information regarding the Company from publicly available sources and
reflected such information in the prices of the securities. Under these circumstances, all those who
transacted in Plug Power securities during the Class Period suffered similar injury through their
transactions in Plug Power securities at artificially inflated prices and a presumption of reliance
applies.
41.
Without knowledge of the misrepresented or omitted material facts, plaintiff and
other Class members purchased or acquired Plug Power securities between the time defendants
misrepresented and failed to disclose material facts and the time the true facts were disclosed.
Accordingly, plaintiff and other Class members relied, and are entitled to have relied, upon the
integrity of the market prices for Plug Power securities and are entitled to a presumption of reliance
on defendants’ materially false and misleading statements and omissions during the Class Period.
CLASS ACTION ALLEGATIONS
42.
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 purchasers of Plug Power securities
during the Class Period. Excluded from the Class are defendants and members of their immediate
families, the officers and directors of the Company, at all relevant times, and members of their
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immediate families, the legal representatives, heirs, successors, or assigns of any of the foregoing,
and any entity in which defendants have or had a controlling interest.
43.
The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, Plug Power securities were 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 thousands of
members in the proposed Class. Record owners and other members of the Class may be identified
from records maintained by Plug Power 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 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 1934 Act was violated by defendants as alleged herein;
(b)
whether statements made by defendants misrepresented material facts about
the business, operations, and management of Plug Power; and
(c)
to what extent the members of the Class have sustained damages and the
proper measure of damages.
- 14 -
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.
COUNT I
For Violation of § 10(b) of the Exchange Act and Rule 10b-5
Promulgated Thereunder Against All Defendants
48.
Plaintiff incorporates ¶¶ 1–47 by reference.
49.
During the Class Period, defendants 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.
Defendants violated § 10(b) of the Exchange Act and Rule 10b-5 in that they:
(a)
employed devices, schemes, and artifices to defraud;
(b)
made untrue statements of material fact 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 Plug
Power securities during the Class Period.
51.
Plaintiff and the Class have suffered damages in that, in reliance on the integrity of
the market, they paid artificially inflated prices for Plug Power securities. Plaintiff and the Class
- 15 -
would not have purchased Plug Power 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.
52.
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 Plug Power
securities during the Class Period.
COUNT II
For Violation of § 20(a) of the Exchange Act
Against the Individual Defendants
53.
Plaintiff incorporates ¶¶ 1–52 by reference.
54.
The Individual Defendants acted as controlling persons of Plug Power within the
meaning of § 20(a) of the Exchange Act. By reason of their positions as officers and/or directors of
Plug Power, defendants Hennessy and Jones had the power and authority to cause Plug Power and its
employees to engage in the wrongful conduct complained of herein. Plug Power controlled
defendants Hennessy and Jones and all of its employees. By reason of such conduct, the Individual
Defendants are liable pursuant to § 20(a) of the Exchange Act.
PRAYER FOR RELIEF
WHEREFORE, plaintiff prays for relief and judgment, as follows:
A.
Designating plaintiff as Lead Plaintiff and declaring this action to be a class action
properly maintained pursuant to 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;
- 16 -
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 equitable/injunctive or other relief as the Court may deem just and
proper, including permitting any putative Class members to exclude themselves by requesting
exclusion through noticed procedures.
JURY DEMAND
Plaintiff hereby demands a trial by jury.
DATED: May 4, 2021
JOHNSON FISTEL, LLP
RALPH M. STONE
/s/ Ralph M. Stone
RALPH M. STONE
1700 Broadway, 41st Floor
New York, NY 11747
Telephone: 212/292-5690
212/292-5680 (fax)
ralphs@johnsonfistel.com
JOHNSON FISTEL, LLP
MICHAEL I. FISTEL, JR.
40 Powder Springs Street
Marietta, GA 30064
Telephone: 470/632-6000
770/200-3101 (fax)
michaelf@johnsonfistel.com
Counsel for Plaintiff
- 17 -
| securities |
sVI9BIkBRpLueGJZ9iDr | The JS 44 civil cover sheet and the information contained herein neither replace nor supplement the filing and service of pleadings or other papers as required by law, except as
provided by local rules of court This form, approved by the Judicial Conference of the United States in September 1974, is required for the use of the Clerk of Court for the
purpose of initiating the civil docket sheet. (SEE INSTRUCTIONS ON NEXT PAGE OF THIS FORM.)
UaMkWTJFFS
See Attachment A
1687Empress Place
Charlottesville, VA 22911
(b) County of Residence of First Listed Plaintiff
Albemarle County
(EXCEPTIN U.S. PLAINTIFF CASES)
County of Residence of First Listed Defendant ________________
(IN U.S. PLAINTIFF CASES ONLY)
NOTE:
IN LAND CONDEMNATION CASES, USE THE LOCATION OF
THE TRACT OF LAND INVOLVED.
Attorneys (If Known)
. (c) Attorneys (Firm Name, Address, and Telephone Number)
Isaac Wiles Burkholder & Teetor, LLC
Two Miranova Place, Suite 700, Columbus, Ohio 43215-5098
614.221.2121
II. BASIS OF JURISDICTION (Place an "X" in One Box Only)
if 3 Federal Question
(U.S. Government Not a Party)
HI. CITIZENSHIP OF PRINCIPAL PARTIES (Place an "X" in One Box for Plaintiff
(For Diversity Cases Only)
and One Box for Defendant)
PTF
DEF
PTF
DEF
Citizen of This State
□ 1
O 1
Incorporated or Principal Place
of Business In This State
O 4
CK4
Citizen of Another State
«2
□ 2
Incorporated and Principal Place
of Business In Another State
□ 5
□ 5
□ 4 Diversity
(Indicate Citizenship of Parties in Item III)
Citizen or Subject of a
O 3
□ 3
Foreign Nation
□ 6
□ 6
Foreign Country
IV, NATURE OF SUIT (Place an “X” in One Box Only)
Click here for: Nature of Suit Code Descriptions.
CONTRACT
TORTS
FORFEITURE/PENALTY
BANKRUPTCY
OTHERSTATUTES
□ 422 Appeal 28 USC 158
□ 423 Withdrawal
28 USC 157
□ 625 Drug Related Seizure
of Property 21 USC 881
□ 690 Other
PROPERTY RIGHTS
□ 820 Copyrights
□ 830 Patent
□ 835 Patent - Abbreviated
New Drug Application
□ 840 Trademark
LABOR
SOCIAL SECURITY
□ 861 HIA (1395ff)
□ 862 Black Lung (923)
O 863 DIWC/DIWW (405(g))
O 864 SSID Title XVI
a 865 RSI (405(g))
□ 110 Insurance
□ 120 Marine
□ 130 Miller Act
□ 140 Negotiable Instrument
□ 150 Recovery of Overpayment
& Enforcement of Judgment
□ 151 Medicare Act
□ 152 Recovery of Defaulted
Student Loans
(Excludes Veterans)
O 153 Recovery of Overpayment
of Veteran’s Benefits
160 Stockholders’ Suits
190 Other Contract
□ 195 Contract Product Liability
□ 196 Franchise
PERSONAL INJURY
□ 365 Personal Injury -
Product Liability
O 367 Health Care/
Pharmaceutical
Personal Injury
Product Liability
□ 368 Asbestos Personal
Injury Product
Liability
PERSONAL PROPERTY
□ 370 Other Fraud
□ 371 Truth in Lending
CJ 380 Other Personal
Property Damage
□ 385 Property Damage
Product Liability
PERSONAL INJURY
□ 310 Airplane
□ 315 Airplane Product
Liability
□ 320 Assault, Libel &
Slander
□ 330 Federal Employers’
Liability
□ 340 Marine
□ 345 Marine Product
Liability
□ 350 Motor Vehicle
□ 355 Motor Vehicle
Product Liability
□ 360 Other Personal
Injury
□ 362 Personal Injury -
Medical Malpractice
□ 710 Fair Labor Standards
Act
□ 720 Labor/Management
Relations
3 740 Railway Labor Act
□ 751 Family and Medical
Leave Act
□ 790 Other Labor Litigation
□ 791 Employee Retirement
Income Security Act
FEDERAL TAX SLITS
□ 870 Taxes (U.S. Plaintiff
or Defendant)
D 871 IRS-Third Party
26 USC 7609
CIVIL RIGHTS
□ 210 Land Condemnation
□ 220 Foreclosure
□ 230 Rent Lease & Ejectment
□ 240 Torts to Land
□ 245 Tort Product Liability
□ 290 All Other Real Property
IMMIGRATION
□ 375 False Claims Act
□ 376 Qui Tam (31 USC
3729(a))
□ 400 State Reapportionment
X 410 Antitrust
□ 430 Banks and Banking
□ 450 Commerce
□ 460 Deportation
□ 470 Racketeer Influenced and
Corrupt Organizations
□ 480 Consumer Credit
a 490 Cable/Sat TV
□ 850 Securities/Commodities/
Exchange
□ 890 Other Statutory Actions
□ 891 Agricultural Acts
□ 893 Environmental Matters
□ 895 Freedom of Information
Act
□ 896 Arbitration
□ 899 Administrative Procedure
Act/Review or Appeal of
Agency Decision
□ 950 Constitutionality of
State Statutes
□ 462 Naturalization Application
□ 465 Other Immigration
Actions
□ 440 Other Civil Rights
□ 441 Voting
□ 442 Employment
□ 443 Housing/
Accommodations
□ 445 Amer. w/Disabilities •
Employment
□ 446 Amer. w/Disabilities •
Other
□ 448 Education
PRISONER PETITIONS
Habeas Corpus:
□ 463 Alien Detainee
□ 510 Motions to Vacate
Sentence
□ 530 General
□ 535 Death Penalty
Other:
D 540 Mandamus & Other
□ 550 Civil Rights
□ 555 Prison Condition
□ 560 Civil Detainee -
Conditions of
Confinement
□ 8 Multidistrict
Litigation -
Direct File
V. ORIGIN (Place an “X” in One Box Only)
K 1 Original □ 2 Removed from
Proceeding
State Court
□ 3
Remanded from
Appellate Court
□ 4 Reinstated or
Reopened
□ 5 Transferred from
Another District
(specify)
□ 6
Multidistrict
Litigation -
Transfer
VI. CAUSE OF ACTION
CHECK YES only if demanded in complaint:
JURY DEMAND:
M Yes ONo
> 20,000,000.00
Cite the U.S. Civil Statute under which you are filing (Do not cite jurisdictional statutes unless diversify):
15 U.S.C. $ 1
Brief description of cause:
Contract, combination, or conspiracy in restraint of trade, in violation of the Sherman Act
VII. REQUESTED IN
COMPLAINT:
a
CHECK IF THIS IS A CLASS ACTION
UNDER RULE 23, F.R.Cv.P.
DEMANDS
VIE. RELATED CASE(S)
IF ANY
(See instructions):
JUDGE
DOCKET NUMBER
ft j SIGNATURE OF ATTORNEY OF RECORD
The JS 44 civil cover sheet and the information contained herein neither replaces nor supplements the filings and service of pleading or other papers as
required by law, except as provided by local rules of court. This form, approved by the Judicial Conference of the United States in September 1974, is
required for the use of the Clerk of Court for the purpose of initiating the civil docket sheet. Consequently, a civil cover sheet is submitted to the Clerk of
Court for each civil complaint filed. The attorney filing a case should complete the form as follows:
I. (a) Plaintiffs-Defendants. Enter names (last, first, middle initial) of plaintiff and defendant. If the plaintiff or defendant is a government agency, use
only the full name or standard abbreviations. If the plaintiff or defendant is an official within a government agency, identify first the agency and
then the official, giving both name and title.
(b)
County of Residence. For each civil case filed, except U.S. plaintiff cases, enter the name of the county where the first listed plaintiff resides at the
time of filing. In U.S. plaintiff cases, enter the name of the county in which the first listed defendant resides at the time of filing. (NOTE: In land
condemnation cases, the county of residence of the "defendant" is the location of the tract of land involved.)
(c)
Attorneys. Enter the firm name, address, telephone number, and attorney of record. If there are several attorneys, list them on an attachment, noting
in this section "(see attachment)".
II.
Jurisdiction. The basis of jurisdiction is set forth under Rule 8(a), F.R.Cv.P., which requires that jurisdictions be shown in pleadings. Place an "X"
in one of the boxes. If there is more than one basis of jurisdiction, precedence is given in the order shown below.
United States plaintiff. (1) Jurisdiction based on 28 U.S.C. 1345 and 1348. Suits by agencies and officers of the United States are included here.
United States defendant. (2) When the plaintiff is suing the United States, its officers or agencies, place an "X" in this box.
Federal question. (3) This refers to suits under 28 U.S.C. 1331, where jurisdiction arises under the Constitution of the United States, an amendment
to the Constitution, an act of Congress or a treaty of the United States. In cases where the U.S. is a party, the U.S. plaintiff or defendant code takes
precedence, and box 1 or 2 should be marked.
Diversity of citizenship. (4) This refers to suits under 28 U.S.C. 1332, where parties are citizens of different states. When Box 4 is checked, the
citizenship of the different parties must be checked. (See Section III below; NOTE: federal question actions take precedence over diversity
cases.)
III.
Residence (citizenship) of Principal Parties. This section of the JS 44 is to be completed if diversity of citizenship was indicated above. Mark this
section for each principal party.
IV.
Nature of Suit. Place an "X" in the appropriate box. If there are multiple nature of suit codes associated with the case, pick the nature of suit code
that is most applicable. Click here for: Nature of Suit Code Descriptions.
V.
Origin. Place an "X" in one of the seven boxes.
Original Proceedings. (1) Cases which originate in the United States district courts.
Removed from State Court. (2) Proceedings initiated in state courts may be removed to the district courts under Title 28 U.S.C., Section 1441.
When the petition for removal is granted, check this box.
Remanded from Appellate Court. (3) Check this box for cases remanded to the district court for further action. Use the date of remand as the filing
date.
Reinstated or Reopened. (4) Check this box for cases reinstated or reopened in the district court. Use the reopening date as the filing date.
Transferred from Another District. (5) For cases transferred under Title 28 U.S.C. Section 1404(a). Do not use this for within district transfers or
multidistrict litigation transfers.
Multidistrict Litigation - Transfer. (6) Check this box when a multidistrict case is transferred into the district under authority of Title 28 U.S.C.
Section 1407.
Multidistrict Litigation - Direct File. (8) Check this box when a multidistrict case is filed in the same district as the Master MDL docket.
PLEASE NOTE THAT THERE IS NOT AN ORIGIN CODE 7. Origin Code 7 was used for historical records and is no longer relevant due to
changes in statue.
VI.
Cause of Action. Report the civil statute directly related to the cause of action and give a brief description of the cause. Do not cite jurisdictional
statutes unless diversity. Example: U.S. Civil Statute: 47 USC 553 Brief Description: Unauthorized reception of cable service
Vn. Requested in Complaint. Class Action. Place an "X" in this box if you are filing a class action under Rule 23, F.R.Cv.P.
Demand. In this space enter the actual dollar amount being demanded or indicate other demand, such as a preliminary injunction.
Jury Demand. Check the appropriate box to indicate whether or not a jury is being demanded.
VIH. Related Cases. This section of the JS 44 is used to reference related pending cases, if any. If there are related pending cases, insert the docket
numbers and the corresponding judge names for such cases.
Date and Attorney Signature. Date and sign the civil cover sheet.
ATTACHMENT A
DEFENDANTS
Booz Allen Hamilton Holding Corporation
8283 Greensboro Drive
McLean, Virginia, 22102
Booz Allen Hamilton Incorporated
8283 Greensboro Drive
McLean, Virginia, 22102
CACI International Incorporated
1100 North Glebe Road
Arlington, Virginia, 22201
CACI Technologies LLC
1100 North Glebe Road
Arlington, Virginia, 22201
CACI Technologies Incorporated
1100 North Glebe Road
Arlington, Virginia, 22201
Mission Essential Personnel, LLC
6525 West Campus Oval
Suite 101
New Albany, Ohio 43054
| securities |
Q9DiDocBD5gMZwczSIHh | JUDGE FURMAN
X
ECEIVER
APR 20 1312
U.S.D.C. S.D. N.Y.
COMPLAINTERS
Plaintiffs,
FLSA Collective Action
-against-
ECF Case
Defendants.
X
Plaintiffs Prisco Najera, Israel Fuentes, Carlos Altamirano, Cristobal Bravo, Levi
1
NATURE OF THE ACTION
1.
Plaintiffs are former employees of Defendant Corporations ("Gotham Pizza
2.
Upon information and belief, Gotham Pizza Group is comprised of three
3.
Upon information and belief, Gotham Pizza Group is owned and operated by
4.
Upon information and belief, Individual Defendants Michael Shamailov, Lana
5.
Plaintiffs are present and former employees of Defendants. They were ostensibly
6.
However, for delivery workers, the daily work performed by each of Plaintiffs
7.
At all times relevant to this complaint, Defendants maintained a policy and
8.
Defendants employed and accounted for several Plaintiffs as delivery workers in
9.
At all times, regardless of duties, Defendants paid delivery workers at the lowered
10.
However, under both the FLSA and NYLL Defendants were not entitled to take a
11.
Upon information and belief, Defendants employed the policy and practice of
12.
For at least six years prior to the filing of this action, continuing to the present,
3
13.
Plaintiffs now bring this action to recover damages, including but not limited to,
14.
Plaintiffs seek certification of this action as a collective action on behalf of
JURISDICTION AND VENUE
15.
This Court has subject matter jurisdiction pursuant to 29 U.S.C. § 216 (b)
16.
Venue is proper in this District under 28 U.S.C. § 391 (b) and (c) because all or a
PARTIES
Plaintiffs
17.
Plaintiff Prisco Najera ("Plaintiff Prisco") is an adult individual residing in New
18.
Plaintiff Prisco was employed by Defendants from approximately June 200919.
During his employment, Plaintiff Prisco worked at 1443 York Avenue, New York,
20.
Plaintiff Israel Fuentes ("Plaintiff Fuentes") is an adult individual residing in New
21.
Plaintiff Fuentes was employed by Defendants from approximately June 2008
During his employment, Plaintiff Fuentes worked at the York
22.
Plaintiff Carlos Altamirano ("Plaintiff Altamirano") is an adult individual residing
23.
Plaintiff Altamirano was employed by Defendants as a delivery worker from
24.
During the course of his employment, Plaintiff Altamirano worked at the York
25.
Plaintiff Cristobal Bravo ("Plaintiff Bravo") is an adult individual residing in
26.
Plaintiff Bravo was employed by Defendants as a delivery worker from
27.
During the course of his employment, Plaintiff Bravo worked at the York Avenue
5
28.
Plaintiff Levi Gallardo ("Plaintiff Gallardo") is an adult individual residing in
29.
Plaintiff Gallardo was employed by Defendants as a pizza maker from
30.
During the course of his employment, Plaintiff Gallardo worked at the First
31.
Plaintiff Lugo Romano ("Plaintiff Romano") is an adult individual residing in
32.
Plaintiff Romano was employed by Defendants as a delivery worker from
33.
During the course of his employment, Plaintiff Romano worked at the Ninth
34.
Plaintiff Pablo Najera ("Plaintiff Pablo") is an adult individual residing in New
35.
Plaintiff Pablo was employed by Defendants as a pizza maker from
36.
During the course of his employment, Plaintiff Pablo simultaneously worked at
Defendants
37.
Upon information and belief, 1443 York Gotham Pizza, Inc. is a domestic
38.
Upon information and belief, 1667 First Gotham Pizza, Inc. is a domestic
39.
Upon information and belief, 144 Ninth Gotham Pizza, Inc. is a domestic
40.
Upon information and belief, Defendant Michael Shamailov ("Defendant
41.
Defendant Shamailov is sued individually and in his capacity as an owner, officer
42.
Defendant Shamailov possesses or possessed operational control over Defendant
43.
Defendant Shamailov determined the wages and compensation of the employees
44.
7
45.
Upon information and belief, Defendant Lana Shamailov ("Defendant Lana") is
46.
Defendant Lana is sued individually and in her capacity as an owner, officer
47.
Defendant Lana possesses or possessed operational control over Defendant
48.
Defendant Lana determined the wages and compensation of the employees of
49.
Upon information and belief, Defendant Cenan Menedi ("Defendant Menedi") is
50.
Defendant Menedi is sued individually and in his capacity as an owner, officer
51.
Defendant Menedi possesses or possessed operational control over Defendant
52.
Defendant Menedi determined the wages and compensation of the employees ofFACTUAL ALLEGATIONS
Defendants Constitute Joint Employers
53.
Defendants operate a chain of Pizzerias located throughout New York, New York.
54.
The Individual Defendants, Michael Shamailov, Lana Shamailov and Cenan
55.
Defendants are associated and joint employers, act in the interest of each other
56.
Each Defendant possessed substantial control over the Plaintiffs' (and other
57.
Defendants jointly employed the Plaintiffs, and all similarly situated individuals,
58.
In the alternative, Defendants constitute a single employer of the Plaintiffs and/or
59.
Upon information and belief, Individual Defendant MICHAEL SHAMAILOV
9
(a) failing to adhere to the corporate formalities necessary to operate Defendant
Corporations as corporations;
(b) defectively forming or maintaining the corporate entities of Defendant Corporations,
by amongst other things failing to hold annual meetings or maintaining appropriate
corporate records;
(c) transferring assets and debts freely as between all Defendants;
(d) operating Defendant Corporations for his own benefit as the sole or majority
shareholder;
(e) operating Defendant Corporations for his own benefit and maintaining control over
them as closed corporations;
(f) intermingling assets and debts of his own with Defendant Corporations;
(g) diminishing and/or transferring assets of the entities to avoid full liability as
necessary to protect his own interests; and
(h) other actions evincing a failure to adhere to the corporate form.
60.
Upon information and belief, Individual Defendant LANA SHAMAILOV
(a) failing to adhere to the corporate formalities necessary to operate Defendant
Corporations as corporations;
(b) defectively forming or maintaining the corporate entities of Defendant Corporations,
by amongst other things failing to hold annual meetings or maintaining appropriate
corporate records;
(c) transferring assets and debts freely as between all Defendants;
(d) operating Defendant Corporations for her own benefit as the sole or majority
shareholder;
(e) operating Defendant Corporations for her own benefit and maintaining control over
them as closed corporations;
(f) intermingling assets and debts of her own with Defendant Corporations;
(g) diminishing and/or transferring assets of the entities to avoid full liability as
necessary to protect her own interests; and
(h) other actions evincing a failure to adhere to the corporate form.
61.
Upon information and belief, Individual Defendant CENAN MENEDI operates
(a) failing to adhere to the corporate formalities necessary to operate Defendant
Corporations as corporations;
(b) defectively forming or maintaining the corporate entities of Defendant Corporations,
by amongst other things failing to hold annual meetings or maintaining appropriate
corporate records;
(c) transferring assets and debts freely as between all Defendants;
11
(d) operating Defendant Corporations for his own benefit as the sole or majority
shareholder;
(e) operating Defendant Corporations for his own benefit and maintaining control over
them as closed corporations;
(f) intermingling assets and debts of his own with Defendant Corporations;
(g) diminishing and/or transferring assets of the entities to avoid full liability as
necessary to protect his own interests; and
(h) other actions evincing a failure to adhere to the corporate form.
62.
At all relevant times, Defendants were the Plaintiffs' employers within the
63.
In each year from 2006 to the present, Defendants had gross annual sales of no
64.
In addition, upon information and belief, Defendants and/or their enterprise were
Individual Plaintiffs
65.
Plaintiffs are current and former employees of Defendants, primarily employed as66.
They seek to represent a class of similarly situated individuals under 29 U.S.C.
Plaintiff Prisco Najera ("Plaintiff Prisco")
67.
Plaintiff Prisco was employed by Defendants from approximately June 2009 to
68.
Throughout his employment with Defendants, Plaintiff Prisco worked at both
69.
Defendants ostensibly employed Plaintiff Prisco as a delivery worker. However,
70.
Although Plaintiff Prisco was ostensibly employed as a delivery worker, he spent
71.
Plaintiff Prisco regularly handled goods in interstate commerce, such as food and
13
72.
Plaintiff Prisco's work duties required neither discretion nor independent
73.
Throughout his employment with defendants, Plaintiff Prisco regularly worked
74.
From approximately June 2009 until June 2011, Plaintiff Prisco worked from
75.
From approximately July 2011 until March 2012, Plaintiff Prisco worked from
76.
Throughout his employment with Defendants, Plaintiff Prisco was paid in cash.
77.
From approximately June 2009 until June 2011, Plaintiff Prisco was paid $250.00
78.
From approximately July 2011 until March 13, 2012, Plaintiff Prisco was paid at
79.
Defendants did not grant Plaintiff Prisco any breaks or meal periods of any kind.
80.
Plaintiff Prisco was never notified by Defendants that his tips would be included
81.
Defendants did not account for these tips in any daily, weekly, or other
82.
Defendants would withhold Plaintiff Prisco's tips until the end of the week and
83.
No notification, either in the form of posted notices, or other means, was given to
84.
Prior to June 2011, Plaintiff Prisco was not required to keep track of his time, nor
85.
From July 2011 to March 2012, Defendants required Plaintiff Prisco to write on a
86.
Defendants did not provide Plaintiff Prisco with any document or other statement
87.
Instead, in order to disburse his paycheck, Defendants required Plaintiff Prisco to
88.
Defendants required Plaintiff Prisco to purchase "tools of the trade" with his own
Plaintiff Israel Fuentes
89.
Plaintiff Fuentes was employed by Defendants from approximately June 2008
90.
During the course of his employment with Defendants, Plaintiff Fuentes was
91.
Defendants ostensibly employed Plaintiff Fuentes as a delivery worker.
15
92.
However, Plaintiff Fuentes was also required to perform additional duties
93.
Although Plaintiff Fuentes was ostensibly employed as a delivery worker, he
94.
Plaintiff Fuentes regularly handled goods in interstate commerce, such as food
95.
Plaintiff Fuentes's work duties required neither discretion nor independent
96.
Throughout his employment with Defendants, Plaintiff Fuentes regularly worked
97.
From approximately June 2008 until on or about October 2008, Plaintiff Fuentes98.
From approximately October 2008 to June 2011, Plaintiff Fuentes worked from
99.
From approximately July 2011 to March 29, 2012, Plaintiff Fuentes worked from
100.
Throughout his employment with Defendants, Plaintiff Fuentes was paid in cash.
101. From approximately June 2008 until June 2011, Plaintiff Fuentes was paid $250
102.
From approximately July 2011 until March 29, 2012, Plaintiff Fuentes was paid at
103. Defendants did not grant Plaintiff Fuentes any breaks or meal periods of any kind.
104.
Plaintiff Fuentes was never notified by Defendants that his tips would be included
105.
Defendants did not account for these tips in any daily, weekly, or other
106.
Defendants would withhold Plaintiff Fuentes' tips until the end of the week and
17
107.
No notification, either in the form of posted notices, or other means, was given to
108. Prior to June 2011, Plaintiff Fuentes was not required to keep track of his time,
109.
From July 2011 to March 2012, Defendants required Plaintiff Fuentes to write on
110.
Defendants did not provide Plaintiff Fuentes with any document or other
111.
Instead, in order to disburse his paycheck, Defendants required Plaintiff Fuentes
112.
113.
Defendants required Plaintiff Fuentes to purchase "tools of the trade" with his
Plaintiff Carlos Altamirano ("Plaintiff Altamirano")
114.
Plaintiff Altamirano was employed by Defendants from approximately August
115.
During the course of his employment with Defendants, Plaintiff Altamirano was
116. From August 2010 to October 2011, Defendants ostensibly employed Plaintiff
117. However, Plaintiff Altamirano was also required to perform additional duties
118. Although Plaintiff Altamirano was ostensibly employed as a delivery worker, he
119. Plaintiff Altamirano regularly handled goods in interstate commerce, such as food
120.
Plaintiff Altamirano's work duties required neither discretion nor independent
121. From approximately august 2010 until October 2011, Plaintiff Altamirano worked
19
122.
From approximately October 2011 until March 2012, Plaintiff Altamirano worked
123.
Throughout his employment with Defendants, Plaintiff Altamirano was paid in
124.
From approximately August 2010 until June 2011, Plaintiff Altamirano was paid
125.
From approximately July 2011 to October 2011, Plaintiff Altamirano was paid at
126.
From approximately October 2011 to November 2011 Plaintiff Altamirano was
127.
From December 2011 to March 2012, Plaintiff Altamirano was paid at the rate of
128.
Defendants did not grant Plaintiff Altamirano any breaks or meal periods of any
129.
Plaintiff Altamirano was never notified by Defendants that his tips would be
130.
Defendants did not account for these tips in any daily, weekly, or other131. Defendants would withhold Plaintiff Altamirano's tips until the end of the week
132.
No notification, either in the form of posted notices, or other means, was given to
133.
Prior to June 2011, Plaintiff Altamirano was not required to keep track of his
134.
From July 2011 to March2012, Defendants required Plaintiff Altamirano to write
135.
Defendants did not provide Plaintiff Altamirano with any document or other
136. No notification, either in the form of posted notices, or other means, was given to
137.
Instead, in order to disburse his paycheck, Defendants required Plaintiff
138.
Defendants required Plaintiff Altamirano to purchase "tools of the trade" with his
Plaintiff Cristobal Bravo
21
139.
Plaintiff Bravo was employed by Defendants from approximately November 2009
140.
During the course of his employment with Defendants, Plaintiff Bravo was
141.
Defendants ostensibly employed Plaintiff Bravo as a delivery worker.
142. However, Plaintiff Bravo was also required to perform additional duties including
143.
Although Plaintiff Bravo was ostensibly employed as a delivery worker, he spent
144.
Plaintiff Bravo regularly handled goods in interstate commerce, such as food and
145.
Plaintiff Bravo's work duties required neither discretion nor independent
146. Throughout his employment with defendants, Plaintiff Bravo regularly worked
147.
From approximately November 2009 until March 2010, Plaintiff Bravo worked
148.
From approximately March 2010 until May 2011, Plaintiff Bravo worked from
149.
From approximately June 2011 until March 29, 2012, Plaintiff Bravo worked
150.
Throughout his employment with Defendants, Plaintiff Bravo was paid in cash.
151. From approximately November 2009 until June 2011, Plaintiff Bravo was paid
152. From approximately July 2011 until March 29,2012, Plaintiff Bravo was paid at
153.
Defendants did not grant Plaintiff Bravo any breaks or meal periods of any kind.
154.
Plaintiff Bravo was never notified by Defendants that his tips would be included
155.
Defendants did not account for these tips in any daily, weekly, or other
23156. Defendants would withhold Plaintiff Bravo's tips until the end of the week and
157.
No notification, either in the form of posted notices, or other means, was given to
158.
Prior to June 2011, Plaintiff Bravo was not required to keep track of his time, nor
159.
From July 2011 to March2012, Defendants required Plaintiff Bravo to write on a
160.
Defendants did not provide Plaintiff Bravo with any document or other statement
161.
Instead, in order to disburse his paycheck, Defendants required Plaintiff Bravo to
162.
Defendants required Plaintiff Bravo to purchase "tools of the trade" with his own
Plaintiff Levi Gallardo
163.
Plaintiff Gallardo was employed by Defendants from approximately April 2010
164. Throughout his employment with Defendants, Plaintiff Gallardo was stationed at
165.
Defendants employed Plaintiff Gallardo as a pizza maker.
166.
Plaintiff Gallardo regularly handled goods in interstate commerce, such as food
167.
Plaintiff Gallardo's work duties required neither discretion nor independent
168.
Throughout his employment with defendants, Plaintiff Gallardo regularly worked
169.
From approximately April 2010 until July 2010, Plaintiff Gallardo typically
170.
From approximately august 2010 until July 2011, Plaintiff Gallardo worked from
171. Throughout his employment with defendants, Plaintiff Gallardo was paid his
172. From approximately April 2010 until January 2011, Plaintiff Gallardo was paid at
25
173. From approximately February 2011 until July 2011, Plaintiff Gallardo was paid at
174.
Defendants did not grant Plaintiff Gallardo any breaks or meal periods of any
175. No notification, either in the form of posted notices, or other means, was given to
176.
Prior to June 2011, Plaintiff Gallardo was not required to keep track of his time,
177.
After June 2011, Defendants required Plaintiff Gallardo to write on a piece of
178.
Defendants did not provide Plaintiff Gallardo with any document or other
179.
Instead, in order to disburse his paycheck after June 2011, Defendants required
Plaintiff Lugo Romano ("Plaintiff Romano")
180.
Plaintiff Romano was employed by Defendants from approximately April 2009
181.
Throughout his employment with Defendants, Plaintiff Romano was stationed at
182.
Defendants ostensibly employed Plaintiff Romano as a delivery worker.
183.
However, Plaintiff Romano was also required to perform additional duties
184.
Although Plaintiff Romano was ostensibly employed as a delivery worker, he
185.
Plaintiff Romano regularly handled goods in interstate commerce, such as food
186.
Plaintiff Romano's work duties required neither discretion nor independent
187.
Throughout his employment with defendants, Plaintiff Romano regularly worked
27188.
From approximately April 2009 until December 2010, Plaintiff Romano worked
189.
From approximately January 2011 until September 18, 2011, Plaintiff Romano
190.
Throughout his employment with Defendants, Plaintiff Romano was paid his
191.
From approximately April 2009 until June 2011, Plaintiff Romano was paid $300
192.
From approximately June 2011 until September 18, 2011, Plaintiff Romano was
193.
Defendants did not grant Plaintiff Romano any breaks or meal periods of any
194. Plaintiff Romano was never notified by Defendants that his tips would be
195.
Defendants did not account for these tips in any daily, weekly, or other
196.
Defendants would withhold Plaintiff Romano's tips until the end of the week and
197.
No notification, either in the form of posted notices, or other means, was given to
198.
Prior to June 2011, Plaintiff Romano was not required to keep track of his time,
199.
From July 2011 to September 18, 2011, Defendants required Plaintiff Romano to
200.
Defendants did not provide Plaintiff Romano with any document or other
201.
Instead, in order to disburse his paycheck, Defendants required Plaintiff Romano
202.
Defendants required Plaintiff Romano to purchase "tools of the trade" with his
Plaintiff Pablo Najera "Plaintiff Pablo"
203.
Plaintiff Pablo was employed by Defendants from approximately September 2011
29
204.
Throughout his employment with Defendants, Plaintiff Pablo simultaneously
205.
Defendants employed Plaintiff Pablo as a pizza maker, counter attendant,
206.
Plaintiff Pablo regularly handled goods in interstate commerce, such as food and
207.
Plaintiff Pablo's work duties required neither discretion nor independent
208.
Throughout his employment with defendants, Plaintiff Pablo regularly worked
209.
From approximately September 2011 until November 2011, Plaintiff Pablo
210. Throughout his employment with defendants, Plaintiff Pablo was paid his wages
211. From September 2011 to November 2011, Plaintiff Pablo was paid at a rate of
212.
Defendants did not grant Plaintiff Pablo any breaks or meal periods of any kind.
213.
No notification, either in the form of posted notices, or other means, was given to
214. From September 2011 to November 2012, Defendants required Plaintiff Pablo to
215.
Defendants did not provide Plaintiff Pablo with any document or other statement
216. Instead, in order to disburse his paycheck, Defendants required Plaintiff Pablo to
Defendants' General Employment Practices
217.
At all relevant times, Defendants were the Plaintiffs' employers within the
218.
Plaintiffs have been victims of Defendants' common policy and practices that
219.
At all times relevant to this complaint, Defendants maintained a policy and
220.
Defendants have engaged in its unlawful conduct pursuant to a corporate policy of
31221.
Defendants' unlawful conduct was intentional, willful, in bad faith, and caused
222. At all times relevant to this complaint, Defendants maintained a policy and
223.
Defendants failed to post required wage and hour posters in the restaurant, and
224.
Prior to June 2011, Defendants willfully disregarded and purposefully evaded
225.
Upon information and belief, these practices by Defendants were done willfully to
226.
Defendants failed to inform Plaintiffs who received tips that Defendants intended
227.
Defendants failed to inform Plaintiffs that their tips would be credited towards the
228.
Defendants failed to maintain a record of tips earned by Plaintiffs for the
229.
As part of its regular business practice, Defendants intentionally, willfully, and
230. Plaintiffs have been victims of Defendants' common policy and practices
231. Defendants' pay practices resulted in Plaintiffs not receiving payment for all their
232.
As part of its regular business practice, Defendants intentionally, willfully, and
233. Defendants unlawfully misappropriated charges purported to be gratuity, received
234.
Under the FLSA and the NYLL, in order to be eligible for a "tip credit,"
33
235.
Moreover, at all times Defendants required Plaintiffs who were tipped employees
236.
Defendants paid these Plaintiffs at the lowered tip-credited rate, however
237.
Many Plaintiffs were employed ostensibly as delivery workers (tipped employees)
238. New York State regulations provide that an employee cannot be classified as a239.
Plaintiffs' duties were not incidental to their occupation as delivery workers, but
240. Since Plaintiffs spent as much as half or more of their workday in non-tipped,
241. In violation of federal and state law as codified above, Defendants classified
242.
Defendants employed Plaintiffs as delivery workers and required them to provide
243.
Defendants did not provide Plaintiff with any break periods.
FLSA Collective Action Claims
244.
On information and belief, there are over sixty current and former employees that
35
245.
The named Plaintiffs are representative of these other workers and are acting on
246.
Similarly situated former and current employees are readily identifiable and
FIRST CAUSE OF ACTION
Violation of the Minimum Wage Provisions of the FLSA
247. Plaintiffs repeat and reallege all paragraphs above as though fully set forth herein.
248.
At all relevant times, Defendants were Plaintiffs' employers within the meaning
249. At all relevant times, Defendants were engaged in commerce or in an industry or
250.
Defendants constitute an enterprise within the meaning of the Fair Labor
251.
Defendants intentionally failed to pay Plaintiffs at the applicable minimum hourly
252.
Defendants' failure to pay Plaintiffs at the applicable minimum hourly rate was
253. Plaintiffs have been damaged in an amount to be determined at trial.
SECOND CAUSE OF ACTION
Violation of the Overtime Provisions of the FLSA
254. Plaintiffs repeat and reallege all paragraphs above as though fully set forth herein.
255.
Defendants intentionally failed to pay Plaintiffs overtime compensation at rates of
256. Defendants" failure to pay Plaintiffs overtime compensation was willful within
257.
Plaintiffs have been damaged in an amount to be determined at trial.
THIRD CAUSE OF ACTION
Violation of the New York Minimum Wage Act
258. Plaintiffs repeat and reallege all paragraphs above as though fully set forth herein.
259.
At all relevant times, Defendants were Plaintiffs' employers within the meaning
260.
Defendants willfully failed to pay Plaintiffs at the applicable minimum hourly
261.
Defendants failed to pay Plaintiffs in a timely fashion, as required by Article 6 of
262. Defendants' failure to pay Plaintiffs minimum wage was willful within the
263.
Plaintiffs have been damaged in an amount to be determined at trial.
37
FOURTH CAUSE OF ACTION
Violation of the Overtime Provisions of the New York State Labor Law
264. Plaintiffs repeat and reallege all paragraphs above as though fully set forth herein.
265.
Defendants willfully failed to pay Plaintiffs overtime compensation at rates of one
266.
Defendants failed to pay Plaintiffs in a timely fashion, as required by Article 6 of
267. Defendants' failure to pay Plaintiffs overtime compensation was willful within the
268.
Plaintiffs have been damaged in an amount to be determined at trial.
FIFTH CAUSE OF ACTION
Spread of Hours Wage Order of the New York Commissioner of Labor
269. Plaintiffs repeat and reallege all paragraphs above as though fully set forth herein.
270.
Defendants failed to pay Plaintiffs one additional hour pay at the basic minimum
271.
Defendants failed to pay Plaintiffs in a timely fashion, as required by Article 6
of272.
Defendants' failure to pay Plaintiffs an additional hour pay for each day Plaintiffs'
273.
Plaintiffs have been damaged in an amount to be determined at trial.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs respectfully request that this Court enter judgment against
(a)
Designating this action as a collective action and authorizing prompt issuance of
(b)
Declaring that Defendants have violated the minimum wage provisions of, and
(c)
Declaring that Defendants have violated the overtime wage provisions of, and
(d)
Declaring that Defendants have violated the recordkeeping requirements of, and
(e)
Declaring that Defendants' violation of the provisions of the FLSA were willful
(f)
Awarding Plaintiffs and the FLSA class members damages for the amount of
39
(g)
Awarding Plaintiffs and the FLSA class members liquidated damages in an
(h)
Declaring that Defendants have violated the minimum wage provisions of, and
(i)
Declaring that Defendants have violated the overtime wage provisions of, and
(j)
Declaring that Defendants have violated the Spread of Hours Wage Order of the
(k)
Declaring that Defendants have violated the recordkeeping requirements of the
(1)
Declaring that Defendants' violations of the New York Labor Law and Spread of
(m)
Awarding Plaintiffs and the FLSA class members damages for the amount of
(n)
Awarding Plaintiffs and the FLSA class members liquidated damages in an
(o)
Awarding Plaintiffs and the FLSA class members pre-judgment and post-
(p)
Awarding Plaintiffs and the FLSA class members the expenses incurred in this
(q)
All such other and further relief as the Court deems just and proper.
April 20, 2012
MICHAEL FAILLACE & ASSOCIATES, P.C.
By:
Michael Faillace [MF-8436]
110 East 59th Street, 32nd Floor
New York, New York 10022
(212) 317-1200
41 | employment & labor |
4OocEocBD5gMZwcz6YAP | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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PAMELA WILLIAMS, on behalf of herself and all
others similarly situated,
Plaintiffs,
v.
CLASS ACTION COMPLAINT
AND
DEMAND FOR JURY TRIAL
1:20-cv-3972
FATBOY USA1, INC.,
Defendant.
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INTRODUCTION
1.
Plaintiff PAMELA WILLIAMS, on behalf of herself and others similarly situated,
asserts the following claims against Defendant FATBOY USA1, 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, shop.fatboyusa.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 PAMELA WILLIAMS, 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 Texas 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 beanbag chair, seating and lighting company that owns and operates
shop.fatboyusa.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 May of 2020, Plaintiff visited
Defendant’s website, shop.fatboyusa.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 22, 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 |
SnPwFYkB9sM9pEmawwU5 | UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
Case No.
Plaintiff,
TOWNES
- against -
Defendant.
CLASS ACTION COMPLAINT
1.
Plaintiff Dean Nicosia ("Plaintiff"), by and through his counsel of record, on
NATURE OF THE ACTION
2.
Plaintiff brings this consumer protection class action pursuant to FED. R. Civ. P.
3.
Nonetheless, Amazon has repeatedly sold weight loss supplements containing
1
4.
Amazon failed and continues to fail to take adequate measures to prevent the sale
5.
Since December 2008, the Food and Drug Administration ("FDA") has found
6.
In addition to the Class, Plaintiff also brings this action pursuant to FED. R. CIV.
7.
Plaintiff twice unknowingly purchased weight loss supplements from Amazon
2
8.
By marketing, selling, dispensing and distributing Sibutramine Weight Loss
9.
Plaintiff alleges on behalf of himself and the Class claims under the Washington
3
10.
Plaintiff seeks, among other relief, (1) injunctive relief to prevent Amazon from
JURISDICTION AND VENUE
11.
This Court has subject matter jurisdiction over this matter pursuant to 28 U.S.C.
12.
This Court also has subject matter jurisdiction under 28 U.S.C. $1332(d) and the
413.
This Court has personal jurisdiction over Defendant. Defendant is authorized to
14.
Venue is proper in this District under 28 U.S.C. $1391 and 15 U.S.C. $2073.
THE PARTIES
15.
Plaintiff is presently a resident of Wilmington, North Carolina, and during the
5
16.
Defendant is a Delaware corporation with its principal place of business in
17. Sibutramine and "any material, compound, mixture, or preparation which
18.
In 2010, the manufacturer of the branded pharmaceutical Meridia®, the only
19. The decision to withdraw sibutramine from the United States market was
6
According to a October 8, 2010 press release issued by the FDA, "Meridia's
20.
The FDA's October 8, 2010 press release continued:
The FDA requested the market withdrawal after reviewing data from the
Sibutramine Cardiovascular Outcomes Trial (SCOUT). SCOUT was initiated as
part of a postmarket requirement to look at cardiovascular safety of sibutramine
after the European approval of this drug. The trial demonstrated a 16 percent
increase in the risk of serious heart events, including non-fatal heart attack, non-
fatal stroke, the need to be resuscitated once the heart stopped, and death, in a
group of patients given sibutramine compared to another given placebo. There
was a small difference in weight loss between the placebo group and the group
that received sibutramine.
21.
A separate FDA Drug Safety Communication issued on October 8, 2010 advised
22.
Another FDA document dated October 8, 2010 and styled Questions and
7STATEMENT OF FACTS
23.
Defendant markets, sells and distributes a variety of brands of weight loss
24.
The sale of sibutramine was never permitted without a prescription. Other
25.
Amazon states on its website that it may not sell on www.amazon.com, "illegal,
including products available only by prescription,
"
26.
Among the categories of products that Amazon acknowledges on its website that
" (2) ".
27.
Among the "Prescription Drugs and Ingredients" that Amazon acknowledges on
8
28.
Amazon's admissions and acknowledgments that it may not sell prescription
29.
The Food Drug and Cosmetic Act (the "FDCA") and the Controlled Substance
may be delivered, distributed, or dispensed by means of the
30.
The FDCA and CSA further prohibit the sale or distribution of any product
31.
In addition, pursuant to 21 U.S.C. $352(p), a label or packaging for a
32.
Federal rules and regulations contain further prohibitions on selling, dispensing
9
33.
Through passage of the Consumer Products Safety Act (the "CPSA"), Congress
34.
Pursuant to the CPSA, the CPSC has enacted rules and regulations requiring all
$1700.14 Substances requiring special packaging.
(a) Substances. The Commission has determined that the degree or nature of the
hazard to children in the availability of the following substances, by reason of
their packaging, is such that special packaging meeting the requirements of
$1700.20(a) is required to protect children from serious personal injury or serious
illness resulting from handling, using, or ingesting such substances, and the
special packaging herein required is technically feasible, practicable, and
appropriate for these substances:
(4) Controlled drugs. Any preparation for human use that consists in whole or in
part of any substance subject to control under the Comprehensive Drug Abuse
Prevention and Control Act of 1970 (21 U.S.C. 801 et seq.) and that is in a dosage
form intended for oral administration shall be packaged in accordance with the
provisions of $1700.15 (a), (b), and (c).
(10) Prescription drugs. Any drug for human use that is in a dosage form
intended for oral administration and that is required by Federal law to be
dispensed only by or upon an oral or written prescription of a practitioner licensed
by law to administer such drug shall be packaged in accordance with the
provisions of $1700.15 (a), (b), and (c),
1035.
The CPSC has set forth the protective packaging requirements for scheduled
36.
The CPSC's "special packaging" requirements mean "packaging that is designed
37.
The Sibutramine Weight Loss Products sold by Amazon do not comply with the
11
fast
effect edition
1
1 DAY DIET
Quick Effect . No Harm No Rebound
fast
effect edition
13
fast
effect edition
14
1
1 DAY DIET
38. 1 Day Diet sold by Amazon contained the following product insert, which also
15
fast
effect edition
1 Day Diet is specially designed to effectively suppresa appetite, block the absorption
of dietary fat. control fat intake, accelerate metabolism, drive away trash and toxin, and
bum fat especially la abs. thighe and buns. Clinical tests have shown that it is safe and
has no side effect, no rebound or no diarrhea.
Three Unique Features:
1. Speed up the fat consumption: the biatical inside can quickly burn fat and speed
up the ATP circulistido rate to boost the fal decomposing riable
2. Block fat absorption: increase satiety by lichibition reuplake of 5-HT, decrease the
absorption of dietary fat and guarantee enough intake of daily assential nutrients,
3. Accelerate the fat decomposing rate: the apolysis enzyme inside can actively
decompose the fat in waist, belly, hip. and thighs and reduce the waist size.
Five Functions
1 No side effect
the rebound
3 No anorexia
a No diarrhea
5 Loss weight an a regular spoed
Applicable For
1 People with simple obesity,
2. People with daspartum obesity
3. People can not get alim by dieting and exercise
Specification
500mg R Blocapsules
Ingredients
Africa Name, Ganoderma Lucidum. Ginseng Fructus Mume:
Euryale Ferox seeds, Ports Cocos. Semen Prunt, Chinese Yam.
Cassis Seed and when germo other herbal essence
Suggested
Begin taking in small dosage, that is once penday. 1 capsule
Dosage
each time for the first three days. then you can take 2-4 capsules
lach time - (2) if you dont (eill uncomments otherwise,
keep taking In small dosage. Take it before breakfast to achieve
the best results
Warning
Not applicable for people with high blood pressure, atheroscherosis,
heart diseases or any chronic Chasses and women In pregnancy
or licetation
Storage
Store in airproof, study and dry coditions
PRODUCED BY NATIONAL QUALIFIED GMP FACTORY.
Keep Out Of The Reach Of Children.
16
39.
The 1 Day Diet product sold by Amazon contained the following product
PUNI
1
DAY
DIET
Quick
Effect
No
Rebound
No Harm
1740.
An FDA publication titled Tainted Weight Loss Products, last visited July 27,
FDA has identified an emerging trend where over-the-counter products,
frequently represented as dietary supplements, contain hidden active ingredients
that could be harmful. Consumers may unknowingly take products laced with
varying quantities of approved prescription drug ingredients, controlled
substances, and untested and unstudied pharmaceutically active ingredients. These
deceptive products can harm you! Hidden ingredients are increasingly becoming
a problem in products promoted for weight loss.
41.
The FDA's Tainted Weight Loss Products publication contains a link to a FDA-
42.
Prior to releasing its Tainted Weight Loss Products publication, the FDA issued a
An FDA analysis found that the undeclared active pharmaceutical ingredients in
some of these products include sibutramine (a controlled substance), rimonabant
(a drug not approved for marketing in the United States), phenytoin (an anti-
seizure medication), phenolphthalein (a solution used in chemical experiments
18
and a suspected cancer causing agent) and bumetanide (a diuretic). Some of the
amounts of active pharmaceutical ingredients far exceeded the FDA-
recommended levels, putting consumers' health at risk.
These weight loss products, some of which are marketed as "dietary
supplements," are promoted and sold on various Web sites and in some retail
stores. Some of the products claim to be "natural" or to contain only "herbal"
ingredients, but actually contain potentially harmful ingredients not listed on the
product labels or in promotional advertisements. These products have not been
approved by the FDA, are illegal and may be potentially harmful to unsuspecting
consumers.
The health risks posed by these products can be serious; for example,
sibutramine, which was found in many of the products, can cause high blood
pressure, seizures, tachycardia (rapid heart beat), palpitations, heart attack or
stroke. This drug can also interact with other medications that patients may be
taking and increase their risk of adverse drug events. The safety of sibutramine
has also not been established in pregnant and lactating women, or in children
younger than 16 years of age.
43.
The FDA has identified Internet retailers who sell weight loss products as a
44.
A January 26, 2011 FDA Consumer Update warned against Internet retailers that
Sibutramine is the active ingredient of a different medicine called Meridia, a
prescription drug also approved by FDA to help obese people lose weight and
maintain weight loss. In addition, sibutramine is classified as a controlled
substance by the Drug Enforcement Administration because of its potential for
abuse and misuse. Using medicine that contains an active ingredient that wasn't
prescribed by your licensed health care provider may be harmful.
45.
On December 15, 2010, the FDA issued a Consumer Health Information release
46.
Amazon has sold - as recently as July 2014 - at least 47 of the weight loss
19
47.
Defendant's description of the "Appetite Suppressants from Amazon.com" does
Appetite Suppressants from Amazon.com
From natural and organic pills to low-carb fiber sprinkles and gluten-free supplement bars, appetite suppressants from
Amazon.com ranges in format, dietary specialties, quantities, sizes, and more. Available in capsules, tablets, liquids,
powders, drops, creams, chewables, soft-gels, and other formats, we feature well-known and popular brands like Earths
Design, NatureWise, Epic Nutrition, and Sensa. Whether you are looking to take them sprinkled into your food or as a
supplement beforehand, in the mornings, or at night-we pride ourselves on having a wide selection for you to choose from.
Whether you're searching for natural Garcinia Cambogia extract supplements or raspberry ketone drops, we carry a variety
of appetite suppressants for a variety of dietary needs. Easily find the supplements you need with our handy shopping filters
that allow you to sort by format, dietary specialty, shipping option, feature keywords, brands, and more to refine your search.
You can also filter by price and discount for budget-friendly options, or by bestselling and top-rated products for customer-
recommended choices. By using our Subscribe & Save options to order your preferred appetite suppressants and other
health products, you can save money while having regularly scheduled deliveries straight to your home.
Sourced from both natural and chemical ingredients, our selection of appetite suppressants offers you many choices when
you're shopping for all kinds of supplements and weight loss products, and you'll find the supplements you want in the
formulas and doses that that you're looking for. And with several affordable and convenient shipping options to choose from,
it has never been easier to receive your order of appetite suppressants with the click of a mouse.
You can find all the nutritional supplements you're looking for, including appetite suppressants, from Amazon.com, your one-
stop health products shop.
48.
Given the frequency of its sales of Sibutramine Weight Loss Products, the many
49.
Among the weight loss products sold by Amazon containing undisclosed
50.
According to Defendant's marketing of 1 Day Diet on its website,
2051.
Amazon marketed and sold 1 Day Diet on www.amazon.com without a
52.
The 1 Day Diet product marketed for sale and sold by Amazon did not disclose
53.
The 1 Day Diet product marketed for sale and sold by Amazon did not disclose
54.
On January 30, 2013, Plaintiff purchased 1 Day Diet using his credit card from
55.
On April 19, 2013, Plaintiff again purchased 1 Day Diet using his credit card
56.
Because of the labeling violations, Plaintiff is unable to determine who
21
57.
Amazon marketed and sold 1 Day Diet through at least November 2013.
58.
On November 21, 2013, the FDA announced that it had tested the 1 Day Diet
59.
The FDA's announcement was published in a Public Notification, which stated:
a
Complete and submit the report Online: www.fda.gov/MedWatch/report.htm1
Download form2 or call 1-800-332-1088 to request a reporting form, then complete and return to
the address on the pre-addressed form, or submit by fax to 1-800-FDA-0178
DAY
DIET
Tainted Weight Loss Product
Subscribe to the RSS feed4
Tainted Supplement Consumer Article5
60.
After November 21, 2013, Plaintiff learned that Defendant had unlawfully,
2261.
Even though Amazon possesses email and mailing addresses for all customers
62.
Even though Amazon possesses credit card or debit card information for all
CLASS ACTION ALLEGATIONS
63.
For Count I seeking injunctive relief as its sole remedy, Plaintiff brings this
23
64.
For Counts II through VI, Plaintiff also brings this action pursuant to FED. R.
24
65.
Excluded from the Class, and from the CPSA Class, are Defendant and its
66.
The Sibutramine Weight Loss Products identified by product name in Paragraphs
EDA Public Notification Date
7/8/14
7/8/14
257/8/14
6/17/14
5/16/14
5/12/14
5/5/14
4/10/14
3/19/14
1/21/14
1/21/14
12/19/13
12/19/13
12/19/13
11/21/13
11/21/13
11/21/13
11/7/13
11/5/13
10/10/13
9/17/13
6/27/13
6/17/13
6/17/13
26
11/8/12
10/24/12
4/3/12
2/18/12
10/18/11
10/18/11
10/18/11
10/18/11
10/18/11
10/18/11
10/18/11
10/18/11
10/18/11
10/18/11
5/10/11
10/22/10
1/27/09
12/22/08
12/22/08
12/22/08
12/22/08
12/22/08
27
12/22/08
12/22/08
67.
The classes contain many thousands of individuals whose identities can be
68.
Common question of law and fact raised in this action include the following:
(a)
Whether Defendant marketed Sibutramine Weight Loss Products for sale without
a prescription from a licensed physician;
(b)
Whether Defendant sold Sibutramine Weight Loss Products to Plaintiff and the
classes without a prescription from a licensed physician;
(c)
Whether Defendant marketed or sold Sibutramine Weight Loss Products to
Plaintiff and the classes without being a licensed pharmacy;
(d)
Whether the Sibutramine Weight Loss Products sold by Defendant contained the
Schedule IV controlled substance sibutramine;
(e)
Whether the Sibutramine Weight Loss Products sold by Defendant complied
with the labeling, warning, child-resistant caps and packaging rules for prescription
pharmaceuticals and scheduled controlled substances;
(f)
Whether Defendant's marketing or sale of Sibutramine Weight Loss Products
violated the CPSA by reason of violations of CPSC rules and regulations;
(g)
Whether Defendant's marketing or sale of Sibutramine Weight Loss Products
28
was unfair or deceptive;
(h)
Whether Defendant's marketing or sale of Sibutramine Weight Loss Products
violated the Washington Consumer Protection Act, or the consumer protection laws of
other states;
(i)
Whether Defendant made implied warranties concerning the sale, use or
merchantability of Sibutramine Weight Loss Products;
(j)
Whether Defendant's marketing or sale of Sibutramine Weight Loss Products
violated WASH. REV. CODE § § 62A.2-314 AND 62A.2-315, or the implied warranty laws
of other states;
(k)
Whether Defendant was unjustly enriched by its sale and retention of the
proceeds from the sale of Sibutramine Weight Loss Products to Plaintiff and the Class;
(1)
Whether Plaintiff and the Class are entitled to damages, restitution,
disgorgement, a constructive trust, declaratory relief and/or injunctive relief as a result
of Defendant's conduct, and the proper measure of damages and other relief; and
(m)
Whether Plaintiff and the classes are entitled to injunctive relief as a result of
Defendant's sale of Sibutramine Weight Loss Products and continuing sales of products
containing sibutramine.
69.
Plaintiff will fairly and adequately protect the interests of the classes. Plaintiff
70.
The questions of law and fact common to the members of the Class and CPSA
29
71.
The prosecution of separate actions by individual members of the Class and
72.
A class action is superior to other available methods for the fair and efficient
DAMAGES
73. For Counts II thorough VI, Plaintiff and the Class have incurred damages in the
74.
Plaintiff and the Class paid for Sibutramine Weight Loss Products purchased from
3075.
Amazon charged Plaintiff's credit card $37.83 for the purchase of 1 Day Diet
76.
Amazon charged Plaintiff's credit card $20.66 for the purchase of 1 Day Diet
77.
Defendant has not refunded any monies to Plaintiff or his credit card used to make
78.
Defendant has engaged in deceptive and misleading efforts to conceal the true
79. As a result and proximate cause of Defendant's concealment and because
80.
Despite possessing Plaintiff's and the classes' email and mailing addresses, and
31
81.
Even though possessing Plaintiff's and the Class' credit card information used to
82. Due to Defendant's omissions and efforts to conceal its unlawful sale of the
83.
Class members' lack of knowledge as to the existence of their claims against
84.
Plaintiff has been diligent in bringing his claims in this action, both individually
85.
The statute of limitations for all claims alleged in this action should be tolled for
32
FIRST CAUSE OF ACTION
VIOLATION OF CONSUMER PRODUCT SAFETY ACT BY REASON OF VIOLATIONS OF THE
RULES AND REGULATIONS OF THE CONSUMER PRODUCT SAFETY COMMISSION,
15 U.S.C. SECTION 2051, ET. SEQ.
86. Plaintiff restates, re-alleges and incorporates by reference the foregoing
87.
Plaintiff is and was in February and April 2013 the father of three children under
88.
Plaintiff is an "interested person" as contemplated and construed by 15 U.S.C.
89.
Plaintiff is interested in keeping his and other children safe.
90.
Pursuant to 15 U.S.C. $2068,
(a)
It shall be unlawful for any person to-
(1)
sell, offer for sale, manufacture for sale, distribute in commerce, or
import into the United States any consumer product, or other product or substance
that is regulated under this Act or any other Act enforced by the Commission, that
is not in conformity with an applicable consumer product safety rule under this
Act, or any similar rule, regulation, standard, or ban under any other Act enforced
by the Commission;
91.
Pursuant to the CPSA, the CPSC has promulgated a rule and regulation requiring
92.
The CPSC has also issued rules and regulations requiring prescription drugs to
3393.
Sibutramine is a schedule IV controlled substance, available only by prescription
94.
The 1 Day Diet product sold by Defendant contained Sibutramine.
95.
The other Sibutramine Weight Loss Products sold by Defendant contained
96.
Defendant sold and placed in commerce 1 Day Diet without a child resistant cap
97.
On information and belief, Defendant sold and placed in commerce the
98.
Defendant's sale of 1 Day Diet and the Sibutramine Weight Loss Products
99.
Defendant has engaged in a pattern and practice of not complying with rules and
100. Pursuant to 15 U.S.C. $2073, any interested person may bring an action in any
34
101. Pursuant to 15 U.S.C. $2073(a), Plaintiff, the CPSA Class seek an injunction,
102.
Pursuant to 15 U.S.C. $2073, more than 30 days prior to the commencement of
35
SECOND CAUSE OF ACTION
UNJUST ENRICHMENT
103. Plaintiff restates, re-alleges and incorporates by reference the foregoing
104. Defendant has violated the common law of unjust enrichment in Washington, and
105. Defendant has benefited from the unlawful and inequitable acts alleged in this
106. Plaintiff and the Class have conferred upon Defendant a traceable economic
107. The economic benefit derived by Defendant is a direct and proximate result of
108. Defendant has attained an appreciation or knowledge that it was not permitted to
109. The financial benefits derived from or inuring to the benefit of Defendant
110. Under the common law of Washington and all states within the United States, it
36
111. Plaintiff's and the classes' unintentional conferral of profits onto Defendant was
112, Defendant should be compelled provide restitution or to disgorge in a common
113. A constructive trust should be imposed upon all unlawful or inequitable sums
37THIRD CAUSE OF ACTION
VIOLATION OF THE WASHINGTON CONSUMER PROTECTION ACT,
WASH. REV. CODE §§ 19.86.010, ET SEQ
114. Plaintiff restates, re-alleges and incorporates by reference the foregoing
115. The Washington Consumer Protection Act (the "WCPA"), Section 19.86.020,
116. Defendant's unlawful acts alleged herein were made and conducted from the State
117. As alleged herein and above, Defendant has engaged in illegal, unfair and/or
118. As alleged herein and above, Defendant has engaged in unfair and/or deceptive
119. As alleged herein and above, Defendant has engaged in unfair and/or deceptive
120. As alleged herein and above, Defendant has engaged in unfair and/or deceptive
121. As alleged herein and above, Defendant has engaged in unfair and/or deceptive
38
122. Defendant's sale of the Sibutramine Weight Loss Products to Plaintiff and the
123. Defendant's unfair and deceptive acts and practices concerning the marketing,
124. Defendant's unfair and deceptive acts and practices concerning the marketing,
125. Plaintiff and the Class have been injured as a direct and proximate result of
126. Plaintiff and the Class have suffered and incurred actual damages as a direct and
127. Plaintiff and the Class are "persons" as defined WCPA Section 19.86.010.
128. Plaintiff and the Class are entitled to pursue a claim against Defendant pursuant to
39
129. Plaintiff and the Class seek damages, statutory damages, exemplary damages,
130. Even though possessing Plaintiff's and the Classes' email addresses, mailing
40
FOURTH CAUSE OF ACTION
VIOLATIONS OF CONSUMER PROTECTION LAWS
OF STATES ADDITIONAL TO WASHINGTON
131. Plaintiff restates, re-alleges and incorporates by reference the foregoing
132. In the event that the WCFA does not provide redress to Plaintiff's and all Class
(a). The Alaska Unfair Trade Practices and Consumer Protection Act, Alaska State.
(b).
The Arizona Consumer Fraud Act, Ariz. Rev. Stat. Ann. §§ 44-1521, et seq.;
(c).
The Arkansas Deceptive Trade Practices Act, Ark. Code Ann. §§ 4-88-101, et
(d).
The California Consumer Legal Remedies Act, Cal. Civ. Code §§ 1750, et seq.
(e).
The Colorado Consumer Protection Act, Colo. Rev. Stat. §§ 6-1-101, et seq.;
41(f).
The Connecticut Unfair Trade Practices Act, Conn. Gen. Stat. §§ 42-110a, et
(g).
The Delaware Consumer Fraud Act, Del. Code Ann. tit. 6, §§2511 et seq. and/or
(h).
The District of Columbia Consumer Protection Procedures Act, D.C. Code Ann.
(i).
The Florida Deceptive and Unfair Trade Practices Act, Fla. Stat. Ann. §§
(j).
The Georgia Uniform Deceptive Trade Practices Act, Ga. Code Ann. §§ 10-1- -
(k).
The Hawaii Uniform Deceptive Trade Practices Act, Haw. Rev. Stat. §§ 481A-1,
(1).
The Idaho Consumer Protection Act, Idaho Code §§ 48-601, et seq.;
(m).
The Illinois Consumer Fraud and Deceptive Business Practices Act, Ill. Comp.
(n).
The Indiana Deceptive Consumer Sales Act, Ind. Code Ann. §§ 24-5-0.5-1, et
(o).
The Kansas Consumer Protection Act, Kan. Stat. Ann. § § 50-623, et seq.;
(p).
The Kentucky Consumer Protection Act, Ky. Rev. Stat. §§ 367.110, et seq;
(q).
The Maine Unfair Trade Practices Act, Me. Rev. Stat. Ann. tit. 5, §§ 205A, et
42
(r).
The Maryland Consumer Protection Act, Md. Com. Law. Code Ann. §§ 13-101,
(s).
The Massachusetts Regulation of Business Practice and Consumer Protection
(t).
The Michigan Consumer Protection Act, Mich. Comp. Laws Ann §§ 445-901, et
(u).
The Minnesota Prevention of Consumer Fraud Act, Minn. Stat. Ann. §§ 325F.68,
(v).
The Missouri Merchandising Practices Act, Mo. Rev. Stat. § § 407.010, et seq.;
(w).
The Nebraska Consumer Protection Act, Neb. Rev. Stat. §§ 59-1601, et seq.;
(x).
The Nevada Trade Regulation and Practices Act, Nev. Rev. Stat. §§ 598.0903 et
(y).
The New Hampshire Consumer Protection Act, N.H. Rev. Stat. Ann., §§ 358-
(z).
The New Jersey Consumer Fraud Act, N.J. Stat. Ann. §§ 56:8-1, et seq.
(aa). The New Mexico Unfair Practices Act, N.M. Stat. Ann., §§ 57-12-1, et seq.;
(bb). The New York General Business Law $349, et seq.;
(cc). North Carolina, N.C. Gen. Stat. §§ 75-1.1, et seq.;
(dd). North Dakota, N.D. Gen. Stat. §§ 51-15-01, et seq.;
(ee). The Ohio Consumer Sales Practices Act, Ohio Rev. Code Ann. §§ 1345.01, et
(ff).
The Oklahoma Consumer Protection Act, Okla. Stat. Ann. tit. 15, §§ 751, et seq.;
43
(gg). The Oregon Unlawful Trade Practices Law, Or. Rev. Stat., §§ 646-605 et seq.;
(hh). The Pennsylvania Unfair Trade Practices and Consumer Protection Law, Pa.
(ii).
The Rhode Island Unfair Trade Practices and Consumer Protection Act, R.I.
(jj).
The South Dakota Deceptive Trade Practices and Consumer Protection Act, S.D.
(kk). The Texas Deceptive Trade Practices - Consumer Protection Act, Tex. Bus. &
(II).
The Vermont Consumer Fraud Act, Vt. Stat. Ann. tit. 9, §§ 2451, et seq.;
(mm). West Virginia, W.Va. Code §§ 46A-6-101, et seq.;
(nn). Wisconsin, Wisc. Stat. Ann. $100.18; and
(oo). The Wyoming Consumer Protection Act, Wyo. Stat. 40-12-101, et seq.
133. Plaintiff and the Class have been injured as a direct and proximate result of
134. Plaintiff and the Class have suffered and incurred actual damages as a direct and
135. To the extent required to state a claim under any statute listed in this Count,
136. Defendant's unfair and deceptive acts and practices concerning its marketing, sale
44
137. Plaintiff and the Class are consumers who purchased 1 Day Diet from Defendant
138. Plaintiff and the Class are entitled to pursue claims against Defendant pursuant to
139. Plaintiff and the Class seek damages, statutory damages, exemplary damages,
140. Even though possessing Plaintiff's and the Classes' email addresses, mailing
45FIFTH CAUSE OF ACTION
BREACH OF IMPLIED WARRANTIES UNDER
WASH. REV. CODE §§ 62A.2-314 AND 62A.2-315
141. Plaintiff restates, re-alleges and incorporates by reference the foregoing
142. Defendant's unlawful acts alleged herein were made and conducted from the State
143. Defendant marketed and sold the Sibutramine Weight Loss Products to Plaintiff
144. Defendant's marketing of the Sibutramine Weight Loss Products to Plaintiff and
145. Defendant's marketing of the Sibutramine Weight Loss Products to Plaintiff and
146. Defendant's marketing of the Sibutramine Weight Loss Products to Plaintiff and
147. Defendant's representations and implied warranties were false, misleading, and
46
148. Defendant's representations and implied warranties were false, misleading and
149. Defendant's representations and implied warranties were false, misleading, and
150. The Defendant promised on the face of the container that 1 Day Diet would do
151. Defendant breached its warranty of merchantability since the Sibutramine Weight
47
152. Plaintiff and the Class members did rely on said implied warranties made by
153. To the extent required to state a claim for breach of implied warranty, Plaintiff
154. Defendant breached its implied warranties made and owed to Plaintiff and the
155. As a direct and proximate result of Defendant's breach of implied warranties,
156. Defendant's breach of its implied warranties concerning the marketing and sale of
157. Defendant's breach of its implied warranties concerning the marketing and sale
48158. Plaintiff and the Class seek damages, statutory damages, restitution,
49
SIXTH CAUSE OF ACTION
BREACH OF IMPLIED WARRANTIES IN.STATES ADDITIONAL TO WASHINGTON
159. Plaintiff restates, re-alleges and incorporates by reference the foregoing
160.
In the event that the Wash. Rev. Code Sections 62A.2-314 and 62A.2-315 do not
(a).
Alabama, Ala. Code §§ 7-2-314 and 7-2-315;
(b). Alaska, Alaska State. § § 45.02.314 and 45.02.315;
(c).
Arizona, Ariz. Rev. Stat. Ann. §§ 47-2314 and 47-2315;
(d). Arkansas, Ark. Code Ann. §§ 7-2-314 7-2-315;
(e). California, Cal. Comm. Code § § 2314 and 2315;
(f).
Colorado, Colo. Rev. Stat. § § 4-2-314 and 4-2-315;
(g). Connecticut, Conn. Gen. Stat. §§ 42a-2-314 and 42a-2-315;
(h). Delaware, Del. Code Ann. tit. 6, §§ 2-314 and 2-315;
(i).
District of Columbia, D.C. Code Ann. §§ 28:2-314 and 28:2-315;
(j).
Florida, Fla. Stat. Ann. §§ 672.314 and 672.315;
(k). Georgia, Ga. Code Ann. §§ 11-2-314and 11-2-315;
50
(1). Hawaii, Haw. Rev. Stat. § § 490:2-314 and 490:2-315;
(m). Idaho, Idaho Code §§ 28-2-314 and 28-2-315;
(n). Illinois, 810 Ill. Comp. Stat. Ann. §§ 5/2-314 and 5/2-315;
(o). Indiana, Ind. Code Ann. §§ 26-1-2-314 and 26-1-2-315;
(p). Iowa, Iowa Code §§ 554.2314 and 554.2315;
(q). Kansas, Kan. Stat. Ann. §§ 84-2-314 and 84-2-315;
(r).
Kentucky, Ky. Rev. Stat. §§ 355.2-314 and 355.2-315;
(s). Louisiana, La. Civ. Code Ann. Art. 2524;
(t). Maine, Me. Rev. Stat. Ann. § § 2-314 and 2-315;
(u). Maryland, Md. Com. Law. Code Ann. §§ 2-314 and 2-315;
(v). Massachusetts, Mass. Gen. Laws Ann. Ch. 106 §§ 2-314 and 2-315;
(w). Michigan, Mich. Comp. Laws Ann § § 440.2314 and 440.2315;
(x). Minnesota, Minn. Stat. Ann. §§ 336.2-314 and 336.2-315;
(y). Mississippi, Miss. Code Ann. §§ 75-2-314 and 75-2-315;
(z). Missouri, Mo. Rev. Stat. §§ 400.2-314 and 400.2-315;
(aa). Montana, Mont. Code Ann. §§ 30-2-314 and 30-2-315;
(bb). Nebraska, Neb. Rev. Stat. §§ 2-314 and 2-315;
(cc). Nevada, Nev. Rev. Stat. §§ 104.2314 and 104.2315;
(dd). New Hampshire, N.H. Rev. Stat. Ann., §§ 382-A:2-314 and 382-A:2-315;
(ee). New Jersey, N.J. Stat. Ann. §§ 12A:2-314 and 12A:2-315;
(ff). New Mexico, N.M. Stat. Ann., §§ 55-2-314 and § 55-2-315;
(gg). New York, N.Y. U.C.C. §§ 2-314 and 2-315;
51
(hh). North Carolina, N.C. Gen. Stat. § § 25-2-314 and 25-2-315;
(ii). North Dakota, N.D. Gen. Stat. §§ 41-02-31 and 41-02-32;
(jj). Ohio, Ohio Rev. Code Ann. § § 1302.27 and 1302.28;
(kk). Oklahoma, Okla. Stat. Ann. tit. 12A, §§ 2-314 and 2-315;
(II). Oregon, Or. Rev. Stat. § § 72.8020 and 72.8030;
(mm). Pennsylvania, Pa. Stat. Ann. tit. 13, §§ 2314 and 2315;
(nn). Rhode Island, R.I. Gen. Law § § 6A-2-314 and 6A-2-315;
(oo). South Carolina, S.C. Code Ann. §§ 36-2-314 and 36-2-315;
(pp). South Dakota, S.D. Codified Laws Ann. §§ 57A-2-314 and 57A-2-315;
(qq). Tennessee, Tenn. Code. Ann. §§ 47-2-314 and 47-2-315;
(rr). Texas, Tex. Bus. & Com. Code Ann. §§ 2.314 and 2.315;
(ss). Utah, Ut. Code Ann. § § 70A-2-314 and 70A-2-315;
(tt). Vermont, Vt. Stat. Ann. tit. 9, §§ 314 and 315;
(uu). Virginia, Va. Code Ann. § 8.2-314 and$ 8.2-315;
(vv). West Virginia, W. Va. Code § § 46-2-314 and 46-2-315;
(ww). Wisconsin, Wis. Stat. Ann. §§ 402.314 and 402.314; and
(xx). Wyoming, Wyo. Stat. §§ 34.1-2-314 and 34.1-2-315.
161.
Defendant marketed, sold and dispensed 1 Day Diet to Plaintiff and the Class.
162.
Defendant's marketing of the Sibutramine Weight Loss Products to Plaintiff and
163.
Defendant's marketing of the Sibutramine Weight Loss Products to Plaintiff and
52
164.
Defendant's marketing of the other Sibutramine Weight Loss Products to
165.
Defendant's representations and implied warranties were false, misleading, and
166.
Defendant's representations and implied warranties were false, misleading, and
167.
Defendant's representations and implied warranties were false, misleading, and
168.
To the extent required to state a claim for breach of implied warranty, Plaintiff
169.
To the extent required to state a claim for breach of implied warranty, Plaintiff
53170.
Defendant breached its implied warranties made and owed to Plaintiff and the
171.
As a direct and proximate result of Defendant's breach of implied warranties,
172.
The Sibutramine Weight Loss Products Plaintiff and Class members purchased
173.
Defendant's breach of its implied warranties concerning the marketing and sale
174.
Defendant's breach of its implied warranties concerning the marketing and sale
175.
Plaintiff and the Class seek damages, statutory damages, restitution,
54
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, on behalf of himself and all others similarly situated, prays for
A.
An order certifying this case as a class action under FED. R. Civ. P. 23, and
B.
An order declaring that Defendant's alleged acts and practices constitute
C.
To remedy Defendant's violation of the rules and regulations promulgated by the
D.
An order declaring that Defendant's alleged acts and practices caused it to
E.
To remedy Defendant's unjust enrichment, an order requiring restitution by
55
F.
An order declaring that Defendant's alleged acts and practices constitute
G.
To remedy Defendant's violations of the Washington Consumer Protection Act,
H.
An order declaring that Defendant's alleged acts and practices constitute
I.
To remedy Defendant's violations of Wash. Rev. Code Sections 62A.2-314 and
56J.
Pre-judgment and post-judgment interest to fullest extent permitted by law; and
K.
All such other relief as this Court may deem just and proper.
DEMAND FOR JURY TRIAL
Plaintiff hereby demands trial by jury for all claims to the extent authorized by law.
TUSA P.C.
/s/ Joseph S. Tusa
Joseph S. Tusa
Joseph
P.O. Box 566
53345 Main Road, Ste. 10-1
Southold, NY 11971
Tel. (631) 407-5100
joseph.tusapc@gmail.com
LOWEY DANNENBERG COHEN
& HART, P.C.
Peter D. St. Phillip, Jr.
Scott V. Papp
One North Broadway, Suite 509
White Plains, NY 10601
Tel. (914) 997-0500
pstphillip@lowey.com
GREGORY S. DUNCAN, ESQ.
Gregory Duncan (pro hac vice pending)
412 East Jefferson Street
Charlottesville, VA 22902
Tel. (434) 979-8556
gregdun@ntelos.net
BLOOD HURST & O'REARDON, LLP
Timothy G. Blood (pro hac vice pending)
Paula M. Roach (pro hac vice pending)
701 B Street, Ste. 1700
San Diego, CA 92101
Tel. (619) 338-1100
tblood@bholaw.com
proach@bholaw.com
57
EXHIBIT A
Being Fooled by Empty Diet Promise
YouTube
S NOL OOSY
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[ARCHIVED]
112
[ARCHIVED]EXHIBIT B
Media Inquiries:
Rita Chappelle, 240-753-8603
Consumer Inquiries:
888-INFO-FDA
2 Day Diet
3x Slimming Power
5x Imelda Perfect Slimming
3 Day Diet
8 Factor Diet
7 Diet Day/Night Formula
Extrim Plus
GMP
Lida DaiDaihua
Miaozi Slim Capsules
Perfect Slim 5x
Phyto Shape
Royal Slimming Formula
Slim 3 in 1
Slimtech
Somotrim
TripleSlim
Zhen de Shou
Starcaps
Slim Waistline
Slim Up
Sliminate
2x Powerful Slimming
Slim Express 4 in 1
Super Fat Burner
Super Slimming
Trim 2 Plus
Powerful Slim
Slimming Formula
Perfect Slim Up
Slim 3 in 1 Slim Formula
Slim 3 in 1 M18 Royal Diet
Miaozi MeiMiaoQianZiJiaoNang
Meizitang
JM Fat Reducer
Imelda Fat Reducer
Extrim Plus 24 Hour Reburn
Fasting Diet
Body Slimming
Body Shaping
BioEmagrecin
3 Days Fit
Eight Factor Diet
7 Diet#EXHIBIT C | products liability and mass tort |
gEiK_YgBF5pVm5zYqjhU | Lesley F. Portnoy, Esq. (SNB 304851)
GLANCY PRONGAY & MURRAY LLP
1925 Century Park East, Suite 2100
Los Angeles, CA 90067
Telephone: 310.201.9150
Facsimile: 310.201.9160
Email: lportnoy@glancylaw.com
Laurence M. Rosen, Esq. (SBN 219683)
THE ROSEN LAW FIRM, P.A.
355 S. Grand Avenue, Suite 2450
Los Angeles, CA 90071
Telephone: (213) 785-2610
Facsimile: (213) 226-4684
Email: lrosen@rosenlegal.com
Co-Lead Counsel for Plaintiff
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
STEVEN G. CHEEHY, Individually and on
Behalf of all Others Similarly Situated,
Plaintiff,
v.
EKSO
BIONICS
HOLDINGS,
INC.,
THOMAS
LOOBY
and
MAXIMILIAN
SCHEDER-BIESCHIN,
Case No. 3:18-cv-00212-CRB
CONSOLIDATED AMENDED CLASS
ACTION COMPLAINT FOR
VIOLATIONS OF THE FEDERAL
SECURITIES LAWS
Senior District Judge Charles R. Breyer
Date Action Filed: January 10, 2018
Defendants.
RIMON BEKHET, individually and on behalf
of all others similarly situated,
Case No. 3:18-cv-01726-CRB
Senior District Judge Charles R. Breyer
Date Action Filed: January 2, 2018
Plaintiff,
v.
EKSO
BIONICS
HOLDINGS,
INC.,
THOMAS
LOOBY,
and
MAXIMILIAN
SCHEDER-BIESCHIN,
Defendants.
Lead Plaintiff James Myers (“Plaintiff”), individually and on behalf of all other persons
similarly situated, by Plaintiff’s undersigned attorneys, for Plaintiff’s consolidated amended
complaint against Defendants, allege 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 Securities and Exchange Commission (“SEC”) filings, wire and
press releases published by and regarding Ekso Bionics Holdings, Inc. (“Ekso” or the
“Company”), analysts’ reports and advisories about the Company, interviews with former
employees of Ekso (“Confidential Witnesses” or “CWs”), 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
and entities other than Defendants who purchased or otherwise acquired the publicly traded
securities of Ekso between March 15, 2017 and December 27, 2017, both dates inclusive (the
“Class Period”). Plaintiff seeks to recover compensable 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.
2.
Ekso Bionics, Inc. manufactures wearable exoskeletons for use primarily in the
healthcare and industrial markets. Its products are designed to assist patients who have suffered a
stroke or spinal cord injury, as well as industrial workers who engage in repetitive physical tasks.
3.
Throughout the Class Period, Defendants made a number of statements in their
public filings concerning the effectiveness of the Company’s internal control over financial
reporting and disclosure controls and procedures.
4.
In truth, however, a material weakness existed in Ekso’s internal controls for the
year and quarter ending December 31, 2016, and for all subsequent periods throughout the Class
Period, which Defendants did not disclose to the public or the Company’s shareholders.
5.
On December 14, 2017, after the close of trading, Ekso filed a Form 8-K with the
SEC, publicly disclosing that after consultation with its auditor, OUM Co. LLP, management
concluded that the Company’s internal control over financial reporting was not effective at
December 31, 2016 and, accordingly, its disclosure controls and procedures were not effective at
December 31, 2016 or for subsequent interim periods.
6.
On this news, shares of Ekso stock fell $0.15 per share, or 6.17%, from its previous
closing price to close at $2.28 per share on December 15, 2017.
7.
Subsequently, on December 27, 2017, during aftermarket hours, Ekso filed with the
SEC its amended annual report for 2016 and amended quarterly reports for the first three quarters
of 2017, causing a further decline in Ekso stock of $0.34 per share, or over 13%, from its previous
closing price to close at $2.23 per share on December 28, 2017, further damaging investors.
8.
By this action, Lead Plaintiff seeks redress for losses he and other Ekso investors
suffered after purchasing common stock during the Class Period at artificially inflated prices.
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 under 28 U.S.C.
§1331 and §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) as Defendants conduct business in 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.
Lead Plaintiff James Myers, as set forth in the Certification previously submitted to
the Court, purchased Ekso securities at artificially inflated prices during the Class Period and was
damaged upon the revelation of the alleged corrective disclosures.
14.
Defendant Ekso designs, develops, and sells exoskeletons for use in the healthcare,
industrial, military, and consumer markets in North America, Europe, the Middle East, and
Africa. The Company is incorporated in Nevada and its principal executive offices are located at
1414 Harbour Way South, Suite 1201, Richmond, California 94804. Ekso’s common stock is
traded on the Nasdaq Capital Market (“NASDAQ”) under the ticker symbol “EKSO.”
15.
Defendant Thomas Looby (“Looby”) was, during the Class Period, the Chief
Executive Officer (“CEO”) and President of Ekso. He resigned from his positions with Ekso,
effective March 9, 2018.
16.
Defendant Maximilian Scheder-Bieschin (“Scheder-Bieschin”) has been the Chief
Financial Officer (“CFO”) of Ekso since January 2014.
17.
Defendants Looby and Scheder-Bieschin are sometimes referred to herein as the
“Individual Defendants.”
18.
Each of the Individual Defendants:
(a)
directly participated in the management of the Company;
(b)
was directly involved in the day-to-day 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.
19.
The Company is liable for the acts of the Individual Defendants and its employees
under the doctrine of respondeat superior and common law principles of agency because all of the
wrongful acts complained of herein were carried out within the scope of their employment.
20.
The scienter of the Individual Defendants and other employees and agents of the
Company is similarly imputed to the Company under respondeat superior and agency principles.
21.
The Company and the Individual Defendants are referred to herein, collectively, as
the “Defendants.”
SUBSTANTIVE ALLEGATIONS
Ekso Bionics
22.
Ekso designs, develops, and sells exoskeleton technology for use primarily in the
healthcare and industrial markets. Specifically, Ekso develops “wearable exoskeletons,” which,
according to the Company, “are worn over clothing and are mechanically controlled by a trained
operator to augment human strength, endurance, and mobility.”
23.
The Company’s EksoHealth division focuses on devices for the healthcare industry,
providing exoskeletons targeted toward individuals with conditions affecting gait, such as those
who have suffered a stroke or spinal cord injury. Ekso’s primary product, the Ekso GT, is,
according to the Company’s Annual Report on Form 10-K for the fiscal year ending December 31,
2017:
a wearable bionic suit that allows our hospital and rehabilitation customers to
provide in-patients and out-patients with spinal cord injury (“SCI”) and hemiplegia
due to stroke the ability to stand and walk over ground with a full weight-bearing,
reciprocal gait using a cane, crutches or a walker under the supervision of a physical
therapist. Walking is achieved by a user shifting their body to activate sensors in the
device which in turn initiate steps. Battery-powered motors drive the legs, detecting
the deficient neuromuscular function and providing that level of assistance
necessary for a user to complete their step.
24.
The Company’s EksoWorks division develops devices, such as the EksoZeroG to
assist construction and industrial workers and reduce the stress and strain of physical activities.
25.
The Company was formed in 2005 as Berkeley ExoWorks, and became known as
Ekso Bionics in 2012, the same year it began selling devices to customers. The Company went
public in 2014.
26.
As of the beginning of the Class Period, Ekso’s revenues were derived primarily
from sales of its medical devices. In the fourth quarter of 2016, for example, revenues from its
medical devices comprised 75% of its total device revenues for the quarter.1
Ekso’s Internal Controls During the Class Period
27.
The Exchange Act requires issuers like Ekso to keep books and records setting out
the transactions in which it engages. Further, an issuer’s system of internal controls requires that
transactions be recorded as necessary to both prepare financial statements and compare
transactions with assets at reasonable intervals. Specifically, the Exchange Act requires issuers to:
(A) make and keep books, records, and accounts, which, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the issuer;
(B) devise and maintain a system of internal accounting controls sufficient to provide
reasonable assurances that—
[…]
(ii) transactions are recorded as necessary (I) to permit preparation of financial
statements in conformity with generally accepted accounting principles or any other
criteria applicable to such statements, and (II) to maintain accountability for assets;
[and]
[…]
(iv) the recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any differences
[…]
15 U.S.C. §78m(b)(2)(b).
1
See
Ekso
Bionics
Company
Overview
March
2017,
located
at
https://seekingalpha.com/article/4055873-ekso-bionics-holdings-ekso-presents-29th-annual-roth-
conference
28.
A good system of internal controls helps management achieve its objectives related
to the effectiveness and efficiency of its operations, the reliability of its financial reporting, and
compliance with applicable laws and regulations. It is management’s responsibility to develop and
implement internal controls necessary to ensure that it maintains adequate books and records. This
is made clear in SEC regulations as well as by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”) in Internal Control—Integrated Framework (the “COSO
Report”).2
29.
The COSO Report defines internal control as a process that is “designed to pro-vide
reasonable assurance regarding the achievement of objectives” related to the “effectiveness and
efficiency of operations, reliability of financial reporting, [and] compliance with applicable laws
and regulations.” More broadly, however, a system of internal control encompasses more than the
policies governing the objectives related to operations, financial reporting, and compli-ance;
namely, it includes the actions taken by a company’s board of directors, management at all levels,
and employees in running the business.
30.
The COSO Report requires that financial statements prepared for external purposes
be “fairly presented in conformity with generally accepted or other relevant and appropriate
accounting principles and regulatory requirements for external purposes.” Consistent with
generally accepted accounting principles, the COSO Report defines “fair presentation” as the
following:
a. the accounting principles selected and applied have general acceptance;
b. the accounting principles are appropriate in the circumstances;
c. the financial statements are informative of matters that may affect their use,
understanding and interpretation; and
d. the financial statements reflect the underlying transactions and events in a manner
that presents the financial position, results of operations and cash flows stated
2 The COSO report was issued in September 1992 as a four-volume set. An Addendum to
Reporting to External Parties was issued in May 1994.
within a range of acceptable limits, that is, limits that are reasonable and practical to
attain in financial statements.3
31.
The COSO Report describes internal control as “consist[ing] of five interrelated
components” that “are derived from the way management runs a business, and are integrated with
the management process.” The five components of an internal control framework that are needed
to enable a business to achieve its objectives are: (1) the control environment, (2) risk assessment,
(3) control activities, (4) information and communications and (5) monitoring.
32.
Under both the Exchange Act and the COSO Report, maintaining adequate internal
controls includes maintaining books and records setting out contemporaneous records of the
transactions in which the Company engaged.
33.
SEC rules also require management to evaluate a company’s internal controls and
disclose every material weakness they are aware of. See Management’s Report on Internal Con-
trol Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports,
68 Fed. Reg. 36636, 36639 (June 18, 2003).
Ekso’s Internal Controls During the Class Period Were Materially Deficient
34.
On March 15, 2017, the Company filed a Form 10-K for the quarter and fiscal year
ended December 31, 2016 (the “2016 10-K”) with the SEC, which provided the Company’s year-
end financial results and position. For the quarter, Ekso reported a net loss of $5.58 million ($0.29
per diluted share) on revenue of $2.59 million, compared to a net loss of $4.65 million ($0.63 per
diluted share) on revenue of $1.94 million in the quarter ending December 31, 2015. For the year,
Ekso reported a net loss of $23.47 million ($1.87 per diluted share) on revenue of $14.22 million,
compared to a net loss of $19.59 million ($1.66 per diluted share) on revenue of $8.66 million in
2015.
35.
The 2016 10-K also stated that the Company’s internal control over financial
reporting and disclosure controls and procedures were effective as of December 31, 2016.
3 See COSO Report at 35.
Defendants Looby and Scheder-Bieschin signed the 2016 10-K, certifying, pursuant to the
Sarbanes-Oxley Act of 2002 (“SOX”), the accuracy of financial reporting, the disclosure of any
material changes to the Company’s internal controls over financial reporting, and the disclosure of
all fraud.
36.
These statements concerning Ekso’s internal controls in the 2016 10-K were
materially false and/or misleading because they misrepresented and failed to disclose that: (1) there
was a material weakness in Ekso’s internal control over financial reporting and Ekso’s disclosure
controls and procedures were not effective; and (2) as a result, Defendants’ public statements were
materially false and misleading at all relevant times.
37.
In the 2016 10-K, Ekso disclosed the following risk factors, in relevant part:
Any failure to maintain effective internal control over our financial reporting
could materially adversely affect us.
Section 404 of the Sarbanes-Oxley Act of 2002 requires us to include in our annual
reports on Form 10-K and quarterly reports on Form 10-Q an assessment by
management of the effectiveness of our internal control over financial reporting.
We previously reported a material weakness in internal control over financial
reporting related to the timing of the implementation of certain policies, processes
and procedures that we have put in place since the Merger. Throughout 2014 and
2015, we continued to strengthen our internal control environment by implementing
new policies, processes and procedures. Our remediation efforts, including the
testing of these controls, continued into 2015. This material weakness was
considered remediated in the fourth quarter of 2015, once these controls were
shown to be operational for a sufficient period of time to allow management to
conclude that these controls were operating effectively. In addition, our independent
registered public accounting firm has reported on management’s assessment of the
effectiveness of such internal control over financial reporting as of December 31,
2016. While we believe that the policies, processes and procedures we put in place
are sufficient to render our internal controls over financial reporting effective, our
initiatives may not prove successful and in the future management may not be able
to conclude that our internal control over financial reporting is effective.
Furthermore, even if management were to reach such a conclusion, if our
independent registered public accounting firm is not satisfied with the adequacy of
our internal control over financial reporting, or if the independent auditors interpret
the requirements, rules or regulations differently than we do, then (if required in the
future) they may decline to attest to management’s assessment or may issue a report
that is qualified. Any of these events could result in a loss of investor confidence in
the reliability of our financial statements, which in turn could negatively affect the
price of our common stock.
In particular, we must perform system and process evaluation and testing of our
internal control over financial reporting to allow management and our independent
registered public accounting firm to report on the effectiveness of our internal
control over financial reporting, as required by Section 404. Our compliance with
Section 404 may require that we incur substantial accounting expense and expend
significant management efforts.
38.
These risk factors were false and misleading because the risk had materialized with
respect to Ekso’s then present internal controls over financial reporting. Specifically, (1) there was
a material weakness in Ekso’s internal control over financial reporting and Ekso’s disclosure
controls and procedures were not effective; and (2) as a result, Defendants’ public statements were
materially false and misleading at all relevant times.
39.
On May 9, 2017, the Company filed a Form 10-Q for the quarter ended March 31,
2017 (the “1Q 2017 10-Q”) with the SEC, which provided the Company’s first quarter 2017
financial results and position. For the quarter, Ekso reported a net loss of $8.30 million ($0.38 per
diluted share) on revenue of $1.44 million, compared to a net loss of $3.65 million ($0.44 per
diluted share) for the same period in the previous year.
40.
The 1Q 2017 10-Q stated that the Company’s disclosure controls and procedures
were effective as of March 31, 2017, and that “[t]here were no changes in our internal control over
financial reporting that occurred during the most recent fiscal quarter that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.”
Defendants Looby and Scheder-Bieschin signed the 1Q 2017 10-Q, appending SOX certifications
by which Defendants Looby and Scheder-Bieschin certified the accuracy of financial reporting, the
effectiveness of the Company’s internal controls, the disclosure of any material changes to the
Company’s internal controls over financial reporting, and the disclosure of all fraud.
41.
These statements concerning Ekso’s internal controls in the 1Q 2017 10-Q were
materially false and/or misleading because they misrepresented and failed to disclose that: (1) there
was a material weakness in Ekso’s internal control over financial reporting and Ekso’s disclosure
controls and procedures were not effective; and (2) as a result, Defendants’ public statements were
materially false and misleading at all relevant times.
42.
The 1Q 2017 10-Q also states, under Item 2, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” that
The following factors, among others, including those described in the section titled
“Risk Factors” included in our Annual Report on Form 10-K for the year ended
December 31, 2016, could cause our future results to differ materially from those
expressed in the forward-looking information:
…
Our ability to maintain adequate internal controls over financial reporting;
43.
The “Risk Factors” included in the 2016 10-K, incorporated in the 2017 1Q 10-Q,
state, in relevant part:
Any failure to maintain effective internal control over our financial reporting
could materially adversely affect us.
Section 404 of the Sarbanes-Oxley Act of 2002 requires us to include in our annual
reports on Form 10-K and quarterly reports on Form 10-Q an assessment by
management of the effectiveness of our internal control over financial reporting.
We previously reported a material weakness in internal control over financial
reporting related to the timing of the implementation of certain policies, processes
and procedures that we have put in place since the Merger. Throughout 2014 and
2015, we continued to strengthen our internal control environment by implementing
new policies, processes and procedures. Our remediation efforts, including the
testing of these controls, continued into 2015. This material weakness was
considered remediated in the fourth quarter of 2015, once these controls were
shown to be operational for a sufficient period of time to allow management to
conclude that these controls were operating effectively. In addition, our independent
registered public accounting firm has reported on management’s assessment of the
effectiveness of such internal control over financial reporting as of December 31,
2016. While we believe that the policies, processes and procedures we put in place
are sufficient to render our internal controls over financial reporting effective, our
initiatives may not prove successful and in the future management may not be able
to conclude that our internal control over financial reporting is effective.
Furthermore, even if management were to reach such a conclusion, if our
independent registered public accounting firm is not satisfied with the adequacy of
our internal control over financial reporting, or if the independent auditors interpret
the requirements, rules or regulations differently than we do, then (if required in the
future) they may decline to attest to management’s assessment or may issue a report
that is qualified. Any of these events could result in a loss of investor confidence in
the reliability of our financial statements, which in turn could negatively affect the
price of our common stock.
In particular, we must perform system and process evaluation and testing of our
internal control over financial reporting to allow management and our independent
registered public accounting firm to report on the effectiveness of our internal
control over financial reporting, as required by Section 404. Our compliance with
Section 404 may require that we incur substantial accounting expense and expend
significant management efforts.
44.
These risk factors were false and misleading because the risk had materialized with
respect to Ekso’s then present internal controls over financial reporting. Specifically, (1) there was
a material weakness in Ekso’s internal control over financial reporting and Ekso’s disclosure
controls and procedures were not effective; and (2) as a result, Defendants’ public statements were
materially false and misleading at all relevant times.
45.
On August 7, 2017, the Company filed a Form 10-Q for the quarter ended June 30,
2017 (the “2Q 2017 10-Q”) with the SEC, which provided the Company’s second quarter 2017
financial results and position. For the quarter, Ekso reported a net loss of $5.51 million ($0.22 per
diluted share) on revenue of $1.87 million, compared to a net loss of $5.77 million ($0.67 per
diluted share) on revenue of $1.55 million same period the previous year.
46.
The 2Q 2017 10-Q stated that the Company’s disclosure controls and procedures
were effective as of June 30, 2017, and that “[t]here were no changes in our internal control over
financial reporting that occurred during the most recent fiscal quarter that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.”
Defendants Looby and Scheder-Bieschin signed the 2Q 2017 10-Q, appending SOX certifications
by which Defendants Looby and Scheder-Bieschin certified the accuracy of financial reporting, the
effectiveness of the Company’s internal controls, the disclosure of any material changes to the
Company’s internal controls over financial reporting, and the disclosure of all fraud.
47.
These statements concerning Ekso’s internal controls in the 2017 2Q 10-Q were
materially false and/or misleading because they misrepresented and failed to disclose that: (1) there
was a material weakness in Ekso’s internal control over financial reporting and Ekso’s disclosure
controls and procedures were not effective; and (2) as a result, Defendants’ public statements were
materially false and misleading at all relevant times.
48.
The 2Q 2017 10-Q also states, under Item 2, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” that
The following factors, among others, including those described in the section titled
“Risk Factors” included in our Annual Report on Form 10-K for the year ended
December 31, 2016, could cause our future results to differ materially from those
expressed in the forward-looking information:
…
Our ability to maintain adequate internal controls over financial reporting;
49.
The “Risk Factors” included in the 2016 10-K, incorporated in the 2017 2Q 10-Q,
state, in relevant part:
Any failure to maintain effective internal control over our financial reporting
could materially adversely affect us.
Section 404 of the Sarbanes-Oxley Act of 2002 requires us to include in our annual
reports on Form 10-K and quarterly reports on Form 10-Q an assessment by
management of the effectiveness of our internal control over financial reporting.
We previously reported a material weakness in internal control over financial
reporting related to the timing of the implementation of certain policies, processes
and procedures that we have put in place since the Merger. Throughout 2014 and
2015, we continued to strengthen our internal control environment by implementing
new policies, processes and procedures. Our remediation efforts, including the
testing of these controls, continued into 2015. This material weakness was
considered remediated in the fourth quarter of 2015, once these controls were
shown to be operational for a sufficient period of time to allow management to
conclude that these controls were operating effectively. In addition, our independent
registered public accounting firm has reported on management’s assessment of the
effectiveness of such internal control over financial reporting as of December 31,
2016. While we believe that the policies, processes and procedures we put in place
are sufficient to render our internal controls over financial reporting effective, our
initiatives may not prove successful and in the future management may not be able
to conclude that our internal control over financial reporting is effective.
Furthermore, even if management were to reach such a conclusion, if our
independent registered public accounting firm is not satisfied with the adequacy of
our internal control over financial reporting, or if the independent auditors interpret
the requirements, rules or regulations differently than we do, then (if required in the
future) they may decline to attest to management’s assessment or may issue a report
that is qualified. Any of these events could result in a loss of investor confidence in
the reliability of our financial statements, which in turn could negatively affect the
price of our common stock.
In particular, we must perform system and process evaluation and testing of our
internal control over financial reporting to allow management and our independent
registered public accounting firm to report on the effectiveness of our internal
control over financial reporting, as required by Section 404. Our compliance with
Section 404 may require that we incur substantial accounting expense and expend
significant management efforts.
50.
These risk factors were false and misleading because the risk had materialized with
respect to Ekso’s then present internal controls over financial reporting. Specifically, (1) there was
a material weakness in Ekso’s internal control over financial reporting and Ekso’s disclosure
controls and procedures were not effective; and (2) as a result, Defendants’ public statements were
materially false and misleading at all relevant times.
51.
On November 8, 2017, the Company filed a Form 10-Q for the quarter ended
September 30, 2017 (the “3Q 2017 10-Q”) with the SEC, which provided the Company’s third
quarter 2017 financial results and position. For the quarter, Ekso reported a net loss of $6.34
million ($0.18 per diluted share) on revenue of $1.60 million, compared to a net loss of $8.48
million ($0.60 per diluted share) on revenue of $1.60 million for the same period the previous year.
52.
The 3Q 2017 10-Q stated that the Company’s disclosure controls and procedures
were effective as of September 30, 2017, and that “[t]here were no changes in our internal control
over financial reporting that occurred during the most recent fiscal quarter that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.”
Defendants Looby and Scheder-Bieschin signed the 3Q 2017 10-Q, appending SOX certifications
by which Defendants Looby and Scheder-Bieschin certified the accuracy of financial reporting, the
effectiveness of the Company’s internal controls, the disclosure of any material changes to the
Company’s internal controls over financial reporting, and the disclosure of all fraud.
53.
These statements concerning Ekso’s internal controls in the 3Q 2017 10-Q were
materially false and/or misleading because they misrepresented and failed to disclose that: (1) there
was a material weakness in Ekso’s internal control over financial reporting and Ekso’s disclosure
controls and procedures were not effective; and (2) as a result, Defendants’ public statements were
materially false and misleading at all relevant times.
54.
The 3Q 2017 10-Q also states, under Item 2, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” that
The following factors, among others, including those described in the section titled
“Risk Factors” included in our Annual Report on Form 10-K for the year ended
December 31, 2016, could cause our future results to differ materially from those
expressed in the forward-looking information:
…
Our ability to maintain adequate internal controls over financial reporting;
55.
The “Risk Factors” included in the 2016 10-K, incorporated in the 2017 3Q 10-Q,
state, in relevant part:
Any failure to maintain effective internal control over our financial reporting
could materially adversely affect us.
Section 404 of the Sarbanes-Oxley Act of 2002 requires us to include in our annual
reports on Form 10-K and quarterly reports on Form 10-Q an assessment by
management of the effectiveness of our internal control over financial reporting.
We previously reported a material weakness in internal control over financial
reporting related to the timing of the implementation of certain policies, processes
and procedures that we have put in place since the Merger. Throughout 2014 and
2015, we continued to strengthen our internal control environment by implementing
new policies, processes and procedures. Our remediation efforts, including the
testing of these controls, continued into 2015. This material weakness was
considered remediated in the fourth quarter of 2015, once these controls were
shown to be operational for a sufficient period of time to allow management to
conclude that these controls were operating effectively. In addition, our independent
registered public accounting firm has reported on management’s assessment of the
effectiveness of such internal control over financial reporting as of December 31,
2016. While we believe that the policies, processes and procedures we put in place
are sufficient to render our internal controls over financial reporting effective, our
initiatives may not prove successful and in the future management may not be able
to conclude that our internal control over financial reporting is effective.
Furthermore, even if management were to reach such a conclusion, if our
independent registered public accounting firm is not satisfied with the adequacy of
our internal control over financial reporting, or if the independent auditors interpret
the requirements, rules or regulations differently than we do, then (if required in the
future) they may decline to attest to management’s assessment or may issue a report
that is qualified. Any of these events could result in a loss of investor confidence in
the reliability of our financial statements, which in turn could negatively affect the
price of our common stock.
In particular, we must perform system and process evaluation and testing of our
internal control over financial reporting to allow management and our independent
registered public accounting firm to report on the effectiveness of our internal
control over financial reporting, as required by Section 404. Our compliance with
Section 404 may require that we incur substantial accounting expense and expend
significant management efforts.
56.
These risk factors were false and misleading because the risk had materialized with
respect to Ekso’s then present internal controls over financial reporting. Specifically, (1) there was
a material weakness in Ekso’s internal control over financial reporting and Ekso’s disclosure
controls and procedures were not effective; and (2) as a result, Defendants’ public statements were
materially false and misleading at all relevant times.
The Truth Emerges
57.
At 5:21 p.m. on December 14, 2017, after the close of trading, Ekso filed a Form 8-
K with the SEC stating “that the Company’s internal control over financial reporting was not
effective at December 31, 2016 and, accordingly, its disclosure controls and procedures were not
effective at December 31, 2016 or for subsequent interim periods,” stating in pertinent part:
Item 8.01 Other Events
On December 8, 2017, OUM & Co. LLP (“OUM”) notified Ekso Bionics Holdings,
Inc. (the “Company”) that it had concluded that its report on the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2016
should no longer be relied upon and that a material weakness in the Company’s
internal control over financial reporting existed as of such date. This material
weakness has not resulted in a restatement of the Company’s consolidated financial
statements or footnote disclosures for any periods through and including the fiscal
year ended December 31, 2016.
OUM has reconfirmed its unqualified opinion on the fairness of the Company’s
financial statements included in the Annual Report on Form 10-K for the year
ended December 31, 2016 (the “2016 10-K”).
As part of its original audit of the Company’s financial statements included in the
2016 10-K, OUM assessed the Company’s internal control over financial reporting
as of December 31, 2016. At that time, OUM and the Company concluded that the
Company maintained effective internal control over financial reporting as of
December 31, 2016.
Subsequent to the issuance of the 2016 10-K, the Public Company Accounting
Oversight Board conducted an inspection of OUM’s 2016 audit of the Company. As
a result, OUM reevaluated the Company’s information technology (IT) general
controls, and has now concluded that a “material weakness” existed as of December
31, 2016.
As a result of the identified material weakness, OUM has performed additional
testing on the Company’s financial statements as of and for the year ended
December 31, 2016 to reconfirm their opinion on the fairness of the financial
statements included in the 2016 10-K without reliance on the effectiveness of the
Company’s internal controls. As noted above, OUM has now reconfirmed its
unqualified opinion on the fairness of the Company’s financial statements included
in the 2016 10-K.
After consultation with OUM, management has now concluded that the
Company’s internal control over financial reporting was not effective at
December 31, 2016 and, accordingly, its disclosure controls and procedures were
not effective at December 31, 2016 or for subsequent interim periods. As a natural
course of business, management has, over the course of 2017, been working to
further strengthen its internal controls. Specifically, the Company has implemented
a more robust accounting and enterprise resource planning system with software
provided by Infor (which became operational in October 2017).
We plan to amend our Annual Report on Form 10-K for the fiscal year ended
December 31, 2016 and our Quarterly Reports on Form 10-Q for the periods ended
March 31, 2017, June 30, 2017 and September 30, 2017 to reflect the conclusion by
management that there was a material weakness in internal control over financial
reporting and that our disclosure controls and procedures were not effective as of
the end of the periods covered by these reports. OUM’s auditor’s report on the
Company’s internal control over financial reporting will also be revised to state that
the Company’s internal control over financial reporting at December 31, 2016 was
not effective.
The Company’s Audit Committee as well as senior management discussed the
matters described in this Item 8.01 with representatives of OUM. (Emphasis added).
58.
On this news, shares of Ekso fell $0.15 per share, or 6.17%, from its previous
closing price to close at $2.28 per share on December 15, 2017, damaging investors.
59.
Then, on December 27, 2017, during aftermarket hours, Ekso filed with the SEC its
amended annual report for 2016 and amended quarterly reports for the first three quarters of 2017.
60.
In the amended 2016 10-K, the Company stated the following:
EXPLANATORY NOTE
As previously disclosed in Item 8.01 of our Current Report on Form 8-K filed on
December 14, 2017, our independent registered public accounting firm, OUM &
Co. LLP (“OUM”) notified management and the Audit Committee of Ekso Bionics
Holdings, Inc. (the “Company”) that it had concluded that its report on the
effectiveness of the Company’s internal control over financial reporting as of
December 31, 2016 should no longer be relied upon and that a material weakness in
the Company’s internal control over financial reporting existed as of such date.
We note that no restatement of the Company’s consolidated financial statements or
footnote disclosures for any periods through and including the fiscal year ended
December 31, 2016 has occurred.
As part of its original audit of the Company’s financial statements included in the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2016 (the “Original Filing”), OUM assessed the Company’s internal control over
financial reporting as of December 31, 2016. At that time, OUM and the Company
concluded that the Company maintained effective internal control over financial
reporting as of December 31, 2016.
Subsequent to the issuance of the Original Filing, the Public Company Accounting
Oversight Board conducted an inspection of OUM’s 2016 audit of the Company. As
a result, OUM reevaluated the Company’s information technology (IT) general
controls, and has now concluded that a “material weakness” existed as of December
31, 2016.
After consultation with OUM, management also concluded that the Company’s
internal control over financial reporting was not effective at December 31, 2016
and, accordingly, its disclosure controls and procedures were not effective at
December 31, 2016.
61.
The Company further stated:
The Company’s management assessed the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2016 based on the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission
in Internal Control—Integrated Framework (2013). The Company’s management
believes that based on this criteria, as of December 31, 2016, there was a material
weakness in the Company’s information technology general controls. Specifically,
our design and maintenance of processes and procedures that restrict access to key
financial systems and records to appropriate users did not ensure there was adequate
segregation of duties, and our compensating controls, including management
oversight, could not be sufficiently demonstrated by evidence to overcome this
weakness.
62.
The Company’s amended 10-Qs for the quarters ending March 31, 2017, June 30,
2017, and September 30, 2017, contained identical disclosures.
63.
On this news, shares of Ekso fell $0.34 per share, or over 13%, from its previous
closing price to close at $2.23 per share on December 28, 2017, further damaging investors.
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.
Insider Sales
65.
During the Class Period, Russ Angold, President of Ekso Labs, sold over 300,000
shares of Ekso stock, reaping nearly $575,000 in total proceeds. On August 11, 2017, Angold sold
100,000 shares at $1.50 per share; on August 14, 2017, Angold sold 71,746 shares at $1.59 per
share; on August 15, 2017, Angold sold 50,000 shares at $1.59 per share; on August 16, 2017,
Angold sold 28,254 shares at $1.53 per share; on August 23, 2018, Angold sold 9,352 shares at
$1.33 per share; and on November 22, 2017, Angold sold 50,000 shares at $3.51 per share.
66.
By contrast, Angold sold no shares of Ekso stock during the two years preceding
the Class Period.
67.
The last transaction, on November 22, 2017, was just two weeks before the
Company disclosed that it would be amending its periodic reports during the Class Period due to a
material weakness in its internal controls.
PLAINTIFF’S CLASS ACTION ALLEGATIONS
68.
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 the publicly traded securities of Ekso 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.
69.
The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, Ekso 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.
70.
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.
71.
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.
72.
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 the Company;
•
whether Defendants’ public statements to the investing public during the Class
Period omitted material facts necessary to make the statements made, in light of the
circumstances under which they were made, not misleading;
•
whether the Individual Defendants caused the Company to issue false and
misleading SEC filings and public statements during the Class Period;
•
whether Defendants acted knowingly or recklessly in issuing false and misleading
SEC filings and public statements during the Class Period;
•
whether the prices of Ekso 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.
73.
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.
74.
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.
APPLICATION OF PRESUMPTION OF RELIANCE; FRAUD ON THE MARKET
75.
Plaintiff will rely on the presumption of reliance established by the fraud on the
market doctrine. At all relevant times, the market for Ekso’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, Ekso’s securities traded at artificially inflated prices during the Class
Period. Plaintiff and other members of the Class purchased or otherwise acquired the Company’s
securities relying upon the integrity of the market price of Ekso’s securities and market
information relating to Ekso, and have been damaged thereby.
76.
During the Class Period, the artificial inflation of Ekso’s stock was caused by the
material misrepresentations and/or omissions particularized in this Amended 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 Ekso’s business, prospects, and operations. These material misstatements and/or
omissions created an unrealistically positive assessment of Ekso 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.
77.
At all relevant times, the market for Ekso’s securities was an efficient market for
the following reasons, among others:
a. Ekso 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, Ekso filed periodic public reports with the SEC and/or the
NASDAQ;
c. Ekso 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. Ekso 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.
78.
As a result of the foregoing, the market for Ekso’s securities promptly digested
current information regarding Ekso from all publicly available sources and reflected such
information in Ekso’s stock price. Under these circumstances, all purchasers of Ekso’s securities
during the Class Period suffered similar injury through their purchase of Ekso’s securities at
artificially inflated prices and a presumption of reliance applies.
79.
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
COUNT I
Violation of Section 10(b) of The Exchange Act and Rule 10b-5
Against All Defendants
80.
Plaintiff repeats and realleges each and every allegation contained above as if fully
set forth herein.
81.
This Count is asserted against the Company and the Individual 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.
82.
During the Class Period, the Company 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.
83.
The Company 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
Ekso securities during the Class Period.
84.
The Company and the Individual Defendants acted with scienter in that they knew
that the public documents and statements issued or disseminated in the name of the Company 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 the Company, their control over, and/or receipt and/or modification of the Company’s allegedly
materially misleading statements, and/or their associations with the Company which made them
privy to confidential proprietary information concerning the Company, participated in the
fraudulent scheme alleged herein.
85.
Individual Defendants, who are the senior officers and/or directors of the
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 personnel of the Company to
members of the investing public, including Plaintiff and the Class.
86.
As a result of the foregoing, the market price of Ekso securities was artificially
inflated during the Class Period. In ignorance of the falsity of the Company’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 Ekso securities during the Class Period
in purchasing Ekso securities at prices that were artificially inflated as a result of the Company’s
and the Individual Defendants’ false and misleading statements.
87.
Had Plaintiff and the other members of the Class been aware that the market price
of Ekso securities had been artificially and falsely inflated by the Company’s and the Individual
Defendants’ misleading statements and by the material adverse information which the Company’s
and the Individual Defendants did not disclose, they would not have purchased Ekso securities at
the artificially inflated prices that they did, or at all.
88.
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.
89.
By reason of the foregoing, the Company 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 purchases of Ekso securities during the Class Period.
COUNT II
Violation of Section 20(a) of The Exchange Act
Against The Individual Defendants
90.
Plaintiff repeats and realleges each and every allegation contained in the foregoing
paragraphs as if fully set forth herein.
91.
During the Class Period, the Individual Defendants participated in the operation and
management of the Company, and conducted and participated, directly and indirectly, in the
conduct of the Company’s business affairs. Because of their senior positions, they knew the
adverse non-public information regarding the Company’s business practices.
92.
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 the
Company’s financial condition and results of operations, and to correct promptly any public
statements issued by the Company which had become materially false or misleading.
93.
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 the Company disseminated in the marketplace during the Class Period.
Throughout the Class Period, the Individual Defendants exercised their power and authority to
cause the Company to engage in the wrongful acts complained of herein. The Individual
Defendants therefore, were “controlling persons” of the Company 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 Ekso securities.
94.
Each of the Individual Defendants, therefore, acted as a controlling person of the
Company. By reason of their senior management positions and/or being directors of the Company,
each of the Individual Defendants had the power to direct the actions of, and exercised the same to
cause, the Company to engage in the unlawful acts and conduct complained of herein. Each of the
Individual Defendants exercised control over the general operations of the Company 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.
95.
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 the Company.
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: August 14, 2018
GLANCY PRONGAY & MURRAY LLP
By: s/ Lesley F. Portnoy
Lesley Portnoy
1925 Century Park East, Suite 2100
Los Angeles, CA 90067
Telephone: (310) 201-9150
Facsimile: (310) 201-9160
Email: lportnoy@glancylaw.com
THE ROSEN LAW FIRM, P.A.
Laurence M. Rosen, Esq. (SBN 219683)
355 South Grand Avenue, Suite 2450
Los Angeles, CA 90071
Telephone: (213) 785-2610
Facsimile: (213) 226-4684
Email: lrosen@rosenlegal.com
PROOF OF SERVICE BY ELECTRONIC POSTING
I, the undersigned say:
I am not a party to the above case, and am over eighteen years old. On August 14, 2018, I
served true and correct copies of the foregoing document, by posting the document electronically to
the ECF website of the United States District Court for the Northern District of California, for receipt
electronically by the parties listed on the Court’s Service List.
I affirm under penalty of perjury under the laws of the United States of America that the
foregoing is true and correct. Executed on August 14, 2018, at Los Angeles, California.
s/ Lesley F. Portnoy
Lesley F. Portnoy
Electronic Mail Notice List
The following are those who are currently on the list to receive e-mail notices for this case.
Jacob Alexander Goldberg
jgoldberg@rosenlegal.com,etexidor@rosenlegal.com
Nicholas Ethan Ham
nham@mofo.com,loraine-lontayao-5091@ecf.pacerpro.com,llontayao@mofo.com,nicholas-
ham-4276@ecf.pacerpro.com
J Alexander Hood , II
ahood@pomlaw.com,abarbosa@pomlaw.com
Jeremy A Lieberman
jalieberman@pomlaw.com,disaacson@pomlaw.com,abarbosa@pomlaw.com,lpvega@pomlaw.com
Jennifer Pafiti
jpafiti@pomlaw.com,kmsaletto@pomlaw.com,disaacson@pomlaw.com,abarbosa@pomlaw.com
Lesley F. Portnoy
LPortnoy@glancylaw.com,info@glancylaw.com
Darryl Paul Rains
drains@mofo.com,darryl-rains-5289@ecf.pacerpro.com,donna-gillis-
3037@ecf.pacerpro.com,dgillis@mofo.com
Avraham Noam Wagner
avi@thewagnerfirm.com
Manual Notice List
The following is the list of attorneys who are not on the list to receive e-mail notices for this case (who
therefore require manual noticing). You may wish to use your mouse to select and copy this list into your word
processing program in order to create notices or labels for these recipients.
(No manual recipients)
| securities |
CkZi_YgBF5pVm5zYvtUo | Jessica R. K. Dorman, Esq. (SBN: 279919)
jessica@westcoastlitigation.com
Joshua B. Swigart, Esq. (SBN: 225557)
josh@westcoastlitigation.com
Robert L. Hyde, Esq. (SBN: 227183)
bob@westcoastlitigation.com
Hyde & Swigart
411 Camino Del Rio South, Suite 301
San Diego, CA 92108-3551
(619) 233-7770
(619) 297-1022
Attorneys for Aaron Kozacki
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF CALIFORNIA
'13CV0524
KSC
MMA
Case No: ________________
Aaron Kozacki individually and on
behalf of others similarly situated
Class Action Complaint For
Damages
Plaintiffs,
v.
Jury Trial Demanded
CrossCheck, Inc.
Defendant.
INTRODUCTION
1.
The United States Congress has found abundant evidence of the use of
abusive, deceptive, and unfair debt collection practices by many debt
collectors, and has determined 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. Congress wrote the Fair
Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. (hereinafter
“FDCPA”), to eliminate abusive debt collection practices by debt collectors,
to insure that those debt collectors who refrain from using abusive debt
collection practices are not competitively disadvantaged, and to promote
consistent State action to protect consumers against debt collection abuses.
2.
The California legislature has determined that the banking and credit system
and grantors of credit to consumers are dependent upon the collection of just
and owing debts and that unfair or deceptive collection practices undermine
the public confidence that is essential to the continued functioning of the
banking and credit system and sound extensions of credit to consumers. The
Legislature has further determined that there is a need to ensure that debt
collectors exercise this responsibility with fairness, honesty and due regard
for the debtor’s rights and that debt collectors must be prohibited from
engaging in unfair or deceptive acts or practices.
3.
Aaron Kozacki, (Plaintiff), through Plaintiff's attorneys, brings this action to
challenge the actions of CrossCheck, Inc., (“Defendant”), with regard to
attempts by Defendant to unlawfully and abusively collect a debt allegedly
owed by Plaintiff, and this conduct caused Plaintiff damages.
4.
Plaintiff makes these allegations on information and belief, with the exception
of those allegations that pertain to a plaintiff, or to a plaintiff's counsel, which
Plaintiff alleges on personal knowledge.
5.
While many violations are described below with specificity, this Complaint
alleges violations of the statutes cited in their entirety.
6.
Unless otherwise stated, all the conduct engaged in by Defendant took place
in California.
7.
Any violations by Defendant were knowing, willful, and intentional, and
Defendant did not maintain procedures reasonably adapted to avoid any such
violation.
JURISDICTION AND VENUE
8.
Jurisdiction of this Court arises pursuant to 28 U.S.C. § 1332, 15 U.S.C. §
1692(k), and 28 U.S.C. § 1367 for supplemental state claims.
9.
This action arises out of Defendant's violations of the Fair Debt Collection
Practices Act, 15 U.S.C. §§ 1692 et seq. (“FDCPA”) and the Rosenthal Fair
Debt Collection Practices Act, California Civil Code §§ 1788-1788.32
(“Rosenthal Act”).
10.
Because Defendant does business within the State of California, personal
jurisdiction is established.
11.
Venue is proper pursuant to 28 U.S.C. § 1391.
12.
At all times relevant, Defendant conducted business within the State of
California.
PARTIES
13.
Plaintiff is a natural person who resides in the City of Chula Vista, State of
California.
14.
Defendant is located in the City of Petaluma, in the State of California.
15.
Plaintiff is obligated or allegedly obligated to pay a debt, and is a “consumer”
as that term is defined by 15 U.S.C. § 1692a(3).
16.
Defendant is a person who uses an instrumentality of interstate commerce or
the mails in a business the principal purpose of which is the collection of
debts, or who regularly collects or attempts to collect, directly or indirectly,
debts owed or due or asserted to be owed or due another and is therefore a
debt collector as that phrase is defined by 15 U.S.C. § 1692a(6).
17.
Plaintiff is a natural person from whom a debt collector sought to collect a
consumer debt which was due and owing or alleged to be due and owing from
Plaintiff, and is a “debtor” as that term is defined by California Civil Code §
1788.2(h).
18.
Defendant, in the ordinary course of business, regularly, on behalf of himself,
herself, or others, engages in debt collection as that term is defined by
California Civil Code § 1788.2(b), is therefore a debt collector as that term is
defined by California Civil Code § 1788.2(c).
19.
This case involves money, property or their equivalent, due or owing or
alleged to be due or owing from a natural person by reason of a consumer
credit transaction. As such, this action arises out of a consumer debt and
“consumer credit” as those terms are defined by Cal. Civ. Code § 1788.2(f).
FACTUAL ALLEGATIONS
20.
On or about November 10, 2012 Plaintiff purchased a vehicle from Perry
Ford (hereinafter “Perry”).
21.
As part of the purchase agreement, Plaintiff provided Perry two personal
checks, one for $150.00 and the other for $1,250.00 to be held as collateral
until Plaintiff provided the same amount in cash for the down payment on the
purchase of a vehicle.
22.
These financial obligations were primarily for personal, family or household
purposes and are therefore a “debt” as that term is defined by 15 U.S.C.
§1692a(5).
23.
These alleged obligations were money, property, or their equivalent, which is
due or owing, or alleged to be due or owing, from a natural person to another
person and are therefore a “debt” as that term is defined by California Civil
Code §1788.2(d), and a “consumer debt” as that term is defined by California
Civil Code §1788.2(f).
24.
Prior to Plaintiff providing the cash to Perry as the two previously agreed,
Perry attempted to deposit the checks and they were returned for non-
sufficient funds, causing Plaintiff to incur bank charges.
25.
Subsequently, but before December 25, 2012, the alleged debt was assigned,
placed, or otherwise transferred, to Defendant for collection.
26.
On or about December 25, 2012, Defendant mailed a dunning letter to
Plaintiff regarding the $150.00 check.
27.
On or about December 27, 2012, Defendant mailed a similar dunning letter to
Plaintiff regarding the $1,250.00 check.
28.
A few days later, Plaintiff received those letters.
29.
Defendant, a third party debt collector, failed, in the first written notice
initially addressed to Plaintiff's California address in connection with
collecting the alleged debt by Defendant, pursuant to Cal. Civ. Code §
1812.700, and in the manner prescribed by Cal. Civ. Code § 1812.700(b) and
Cal. Civ. Code § 1812.701(b), to provide a notice to Plaintiff as prescribed in
Cal. Civ. Code § 1812.700(a). Consequently, pursuant to Cal. Civ. Code §
1812.702, this omission by Defendant violated the Rosenthal Act.
30.
Furthermore, the dunning letters stated that it was their “policy to report all
unpaid checks to Equifax Information Systems.” However, Crosscheck has
not reported any such information to Equifax.
31.
Through this conduct, Defendant used a false, deceptive, or misleading
representation or means in connection with the collection of a debt.
Consequently, Defendant violated 15 U.S.C. § 1692e and 15 U.S.C. §
1692e(10).
32.
Through this conduct, Defendant threatened to take action that cannot legally
be taken or that is not intended to be taken. Consequently, Defendant violated
15 U.S.C. § 1692e(5).
33.
Additionally, the dunning letters stated that if the requested amount was paid,
Plaintiff’s name would be removed from Defendant’s “National Negative
Data Files.”
34.
This statement was intended to imply that there was another reporting system,
other than the three major credit bureaus that Defendant had reported
derogatory information to, which was a lie, and if it were true, Defendant has
no right to publish such a list of debtors.
35.
Through this conduct, Defendant used a false, deceptive, or misleading
representation or means in connection with the collection of a debt.
Consequently, Defendant violated 15 U.S.C. § 1692e and 15 U.S.C. §
1692e(10).
36.
Through this conduct, Defendant threatened to take action that cannot legally
be taken or that is not intended to be taken. Consequently, Defendant violated
15 U.S.C. § 1692e(5).
37.
Furthermore, the letters failed to inform Plaintiff that in order to trigger
Defendant’s requirement to obtain validation, Plaintiff was required to notify
Defendant “in writing.” Defendant’s notice left out that requirement.
38.
Defendant failed within five days after its initial communication with
Plaintiff, to provide written notification containing a statement that unless
Plaintiff, within thirty days after receipt of that notice, disputed the validity of
the debt, or any portion thereof, Defendant would assume the debt was valid,
or failed within five days after its initial communication with Plaintiff to
provide a written notice containing a statement that if Plaintiff notified
Defendant in writing, within the thirty-day period that the debt, or any portion
thereof, was disputed, Defendant would obtain verification of the debt or a
copy of a judgment against Plaintiff and a copy of such verification or
judgment would be mailed to Plaintiff by Defendant and that Defendant
would provide Plaintiff with the name and address of the original creditor.
This omission by Defendant violated 15 U.S.C. § 1692g.
39.
Because this omission violated the language in 15 U.S.C. § 1692g, Defendant
also violated Cal. Civ. Code § 1788.17 as it incorporates 15 U.S.C. § 1692g.
CLASS ALLEGATIONS
40.
Plaintiff brings this action on behalf of himself and on behalf of and all others
similarly situated (the Class”). The proposed Class that Plaintiff seeks to
represent is defined as follows:
•
All persons within California who were sent a letter similar to the
December 25, 2012 and December 27, 2012 letters sent to Plaintiff by
Defendants within the last year from the filing of this complaint.
41.
Plaintiff represents, and is a member of, the Class, because Plaintiff was sent
the December 25, 2012 and December 27, 2012 letters by Defendant.
42.
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 hundreds if not thousands, if not more. Thus, this
matter should be certified as a Class Action to assist in the expeditious
litigation of this matter.
43.
Plaintiff and members of The Class were harmed by the acts of Defendant in
at least the following ways:
•
Defendant misrepresented the rights of the Class members by misstating
and excluding notices that are required under the Fair Debt Collection
Practices Act.
44.
This suit seeks only statutory damages on behalf of The Class and it expressly
is not intended to request any recovery for personal injury and claims related
thereto. Plaintiff reserves the right to expand The Class definition to seek
recovery on behalf of additional persons as warranted as facts are learned in
further investigation and discovery.
45.
The joinder of The Class members is impractical and the disposition of their
claims in the Class action will provide substantial benefits both to the parties
and to the court. The Class can be identified through Defendant’s records.
46.
There is a well-defined community of interest in the questions of law and fact
involved affecting the parties to be represented. The questions of law and fact
to The Class predominate over questions which may affect individual Class,
including, but not limited to, the following:
•
Whether, within the one year prior to the filing of this Complaint,
Defendant sent a letter similar to the December 25, 2012 and December
27, 2012 letters to a Class member which misstated or misrepresented
the rights of the Class member under the FDCPA
•
Whether Plaintiff and The Class was damaged thereby, and the extent of
damages for such violation; and
47.
As a person that received the December 25, 2012 and December 27, 2012
letters which violated the Fair Debt Collection Practices Act, Plaintiff is
asserting claims that are typical of The Class. Plaintiff will fairly and
adequately represent and protect the interests of The Class in that Plaintiff has
no interests antagonistic to any member of The Class.
48.
Plaintiff and the members of The Class have all suffered irreparable harm as a
result of the Defendant’s unlawful and wrongful conduct. Absent a class
action, The Class will continue to face the potential for irreparable harm. In
addition, these violations of law will be allowed to proceed without remedy
and Defendant will likely continue such illegal conduct.
49.
Plaintiff has retained counsel experienced in handling class action claims and
claims involving consumer actions and violations of the Fair Debt Collection
Practices Act.
50.
A class action is a superior method for the fair and efficient adjudication of
this controversy. Class-wide damages are essential to induce Defendant to
comply with federal. The interest of Class members in individually
controlling the prosecution of separate claims against Defendant is small
because the maximum statutory damages in an individual action for violation
of privacy are minimal. Management of these claims is likely to present
significantly fewer difficulties than those presented in many class claims.
COUNT I
FAIR DEBT COLLECTION PRACTICES ACT (FDCPA)
15 U.S.C. §§ 1692 ET SEQ.
51.
Plaintiff repeats, re-alleges, and incorporates by reference, all other
paragraphs.
52.
The foregoing acts and omissions constitute numerous and multiple violations
of the FDCPA, including but not limited to each and every one of the above-
cited provisions of the FDCPA, 15 U.S.C. § 1692 et seq.
53.
As a result of each and every violation of the FDCPA, Plaintiff is entitled to
any actual damages pursuant to 15 U.S.C. § 1692k(a)(1); statutory damages in
an amount up to $1,000.00 pursuant to 15 U.S.C. § 1692k(a)(2)(A); and,
reasonable attorney’s fees and costs pursuant to 15 U.S.C. § 1692k(a)(3) from
Defendant.
COUNT II
ROSENTHAL FAIR DEBT COLLECTION PRACTICES ACT (ROSENTHAL ACT)
CAL. CIV. CODE §§ 1788-1788.32
54.
Plaintiff repeats, re-alleges, and incorporates by reference, all other
paragraphs.
55.
The foregoing acts and omissions constitute numerous and multiple violations
of the Rosenthal Act, including but not limited to each and every one of the
above-cited provisions of the Rosenthal Act, Cal. Civ. Code §§ 1788-1788.32
56.
As a result of each and every violation of the Rosenthal Act, Plaintiff is
entitled to any actual damages pursuant to Cal. Civ. Code § 1788.30(a);
statutory damages for a knowing or willful violation in the amount up to
$1,000.00 pursuant to Cal. Civ. Code § 1788.30(b); and reasonable attorney’s
fees and costs pursuant to Cal. Civ. Code § 1788.30(c) from Defendant.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays that judgment be entered against Defendant, and
Plaintiff be awarded damages from Defendant, as follows:
•
An award of actual damages pursuant to 15 U.S.C. § 1692k(a)(1);
•
An award of statutory damages of $1,000.00 pursuant to 15 U.S.C. §
1692k(a)(2)(A);
•
An award of costs of litigation and reasonable attorney’s fees, pursuant
to 15 U.S.C. § 1692k(a)(3);
•
An award of actual damages pursuant to California Civil Code §
1788.30(a);
•
An award of statutory damages of $1,000.00 pursuant to Cal. Civ. Code
§ 1788.30(b);
•
An award of costs of litigation and reasonable attorney’s fees, pursuant
to Cal. Civ. Code § 1788.30(c).
57.
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,
Hyde & Swigart
Date: March 5, 2013
By: /s/Jessica R. K. Dorman
Jessica R. K. Dorman
Attorneys for Plaintiff
| consumer fraud |
Rce2DYcBD5gMZwczVArv | IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
ROBERT L. REESE, Individually and On
Behalf of All Others Similarly Situated,
Case No. ______________
COMPLAINT FOR VIOLATION FO THE
SECURITIES EXCHANGE ACT OF 1934
JURY TRIAL DEMANDED
CLASS ACTION
Plaintiff,
v.
WESTAR ENERGY, INC., CHARLES Q.
CHANDLER IV, MOLLIE HALE CARTER,
R.A. EDWARDS, JERRY B. FARLEY,
RICHARD L. HAWLEY, ANTHONY
ISAAC, SANDRA A. J. LAWRENCE,
MARK A. RUELLE, S. CARL
SODERSTROM JR., GREAT PLAINS
ENERGY INCORPORATED, MONARCH
ENERGY HOLDING, INC., and KING
ENERGY, INC.,
Defendants.
)
)
)
)
)
)
)
)
)
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)
)
)
)
)
)
)
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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 July 10, 2017 (the
“Proposed Transaction”), pursuant to which Westar Energy, Inc. (“Westar” or the “Company”)
will be acquired by Great Plains Energy Incorporated (“Parent”), Monarch Energy Holding, Inc.
(“Holdco”), and King Energy, Inc. (“Merger Sub,” and together with Parent and Holdco, the
“Buyers”).
2.
On July 9, 2017, Westar’s Board of Directors (the “Board” or “Individual
Defendants”) caused the Company to enter into an agreement and plan of merger (the “Merger
Agreement”) with the Buyers.1 Pursuant to the terms of the Merger Agreement, each share of
Westar common stock will be converted into the right to receive one share of Holdco common
stock. As a result of the Proposed Transaction, Parent will merge with and into Holdco, with
Holdco continuing as the surviving corporation, and Merger Sub will merge with and into
Westar, with Westar continuing as the surviving corporation. Following the consummation of
the Proposed Transaction, Holdco will be the direct parent of Westar and Parent’s direct
subsidiaries.
3.
On September 14, 2017, defendants filed a Form S-4 Registration Statement (the
“Registration Statement”) with the United States Securities and Exchange Commission (“SEC”)
in connection with the Proposed Transaction.
4.
The Registration Statement omits material information with respect to the
Proposed Transaction, which renders the Registration 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 Registration 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
1 The Merger Agreement is an amendment to an agreement and plan of merger dated May 29,
2016 (the “Original Merger Agreement”) among Wester, Parent, and GP Star, Inc. (“GP Star”).
GP Star withdrew from the Original Merger Agreement and is a party to the Merger Agreement
solely for the purpose of withdrawing from the Original Merger Agreement. Under the terms of
the Original Merger Agreement, Westar’s stockholders would have received $51.00 in cash and
$9.00 in Parent common stock for each share of Westar common stock. On April 19, 2017, the
Kansas Corporation Commission issued an order finding that the original proposed merger was
not in the public interest.
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 Westar common stock.
9.
Defendant Westar is a Kansas corporation and maintains its principal executive
offices at 818 South Kansas Avenue, Topeka, Kansas 66612. Westar’s common stock is traded
on the NYSE under the ticker symbol “WR.”
10.
Defendant Charles Q. Chandler IV (“Chandler”) has served as a director of
Westar since 1999 and as Chairman of the Board of Westar since 2002.
11.
Defendant Mollie Hale Carter (“Carter”) has served as a director of Westar since
12.
Defendant R.A. Edwards (“Edwards”) has served as a director of Westar since
13.
Defendant Jerry B. Farley (“Farley”) has served as a director of Westar since
14.
Defendant Richard L. Hawley (“Hawley”) has served as a director of Westar
since 2011.
15.
Defendant Anthony "Tony" Isaac (“Isaac”) has served as a director of Westar
since 2003.
16.
Defendant Sandra A. J. Lawrence (“Lawrence”) has served as a director of Westar
since 2004.
17.
Defendant Mark A. Ruelle (“Ruelle”) has served as a director of Westar since
2011. Ruelle has served as the Company’s President and Chief Executive Officer (“CEO”) since
August 2011.
18.
Defendant S. Carl Soderstrom Jr. (“Soderstrom”) has served as a director of
Westar since 2010.
19.
The defendants identified in paragraphs 10 through 18 are collectively referred to
herein as the “Individual Defendants.”
20.
Defendant Parent is Missouri corporation and a party to the Merger Agreement.
21.
Defendant Holdco is a Missouri corporation and a party to the Merger Agreement.
22.
Defendant Merger Sub is a Kansas corporation, a wholly-owned subsidiary of
Holdco, and a party to the Merger Agreement.
CLASS ACTION ALLEGATIONS
23.
Plaintiff brings this action as a class action on behalf of himself and the other
public stockholders of Westar (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.
24.
This action is properly maintainable as a class action.
25.
The Class is so numerous that joinder of all members is impracticable. As of July
6, 2017, there were approximately 142,093,387 shares of Westar common stock outstanding,
held by hundreds, if not thousands, of individuals and entities scattered throughout the country.
26.
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.
27.
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.
28.
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.
29.
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 and the Proposed Transaction
30.
Westar is the largest electric energy provider in Kansas.
31.
The
Company
provides
generation,
transmission,
and
distribution
to
approximately 687,000 customers in east and east-central Kansas.
32.
According to its website, Westar is dedicated to operating the best electric utility
in the Midwest and providing quality service at below average prices.
33.
The Company’s energy centers in eleven Kansas communities generate more than
7,000 megawatts of electricity, and it operates and coordinates 34,000 miles of transmission and
distribution lines.
34.
On July 9, 2017, the Individual Defendants caused the Company to enter into the
Merger Agreement, pursuant to which the Company will be acquired by the Buyers.
35.
The Merger Agreement contains a “no solicitation” provision 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.
36.
Further, the Company must promptly advise the Buyers of any proposals or
inquiries received from other parties.
37.
Moreover, the Merger Agreement contains a restrictive “fiduciary out” provision
permitting the Board to withdraw its approval of the Proposed Transaction under extremely
limited circumstances, and grants the Buyers a “matching right” with respect to any “Superior
Proposal” made to the Company.
38.
Further locking up control of the Company in favor of the Buyers, the Merger
Agreement provides for a “termination fee” of $190 million payable by the Company to the
Buyers if the Individual Defendants cause the Company to terminate the Merger Agreement.
39.
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.
40.
The merger consideration to be provided to plaintiff and the Class in the Proposed
Transaction appears inadequate.
41.
Among other things, the intrinsic value of the Company is materially in excess of
the amount offered in the Proposed Transaction.
42.
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.
43.
Meanwhile, following the close of the Proposed Transaction, Individual
Defendant Ruelle will be appointed Chairman of the Board of Holdco for at least a three-year
44.
Westar’s current Senior Vice President and Chief Financial Officer (“CFO”),
Tony Somma, will become Executive Vice President and CFO of Holdco, and Greg Greenwood,
Westar’s Senior Vice President of Strategy, will become Holdco’s Executive Vice President of
Strategy and Chief Administrative Officer.
45.
Additionally, several of the Individual Defendants, including Individual
Defendant Chandler, will be appointed to the Holdco board of directors following the merger.
The Registration Statement Omits Material Information, Rendering It False and Misleading
46.
Defendants filed the Registration Statement with the SEC in connection with the
Proposed Transaction.
47.
The Registration Statement omits material information with respect to the
Proposed Transaction, which renders the Registration Statement false and misleading.
48.
The Registration Statement omits material information regarding Westar’s
financial projections, the Buyers’ financial projections, and the analyses performed by the
Company’s financial advisor, Guggenheim Securities, LLC (“Guggenheim Securities”).
49.
With respect to the “Westar Energy Forward-Looking Financial Information,” the
Registration Statement fails to disclose a reconciliation of all non-GAAP to GAAP metrics.
50.
With respect to the “Great Plains Energy Forward-Looking Financial
Information,” the Registration Statement fails to disclose a reconciliation of all non-GAAP to
GAAP metrics.
51.
The Registration Statement fails to disclose Holdco’s projections and the “pro
forma combined forward looking financial information.”
52.
Further, the Registration Statement fails to disclose the estimated synergies
expected to result from the Proposed Transaction and the estimated costs to achieve such
synergies as prepared by Westar’s management.
53.
With respect to Guggenheim’s Discounted Cash Flow Analyses of Westar, the
Registration Statement fails to disclose: the forecasted after-tax unlevered free cash flows for
Westar used by Guggenheim in the analysis and the constituent line items used to calculate the
after-tax unlevered free cash flows; the estimate of Westar’s terminal/continuing value; the
inputs and assumptions underlying the discount rate range of 4.5%-5.5%; and the implied
perpetuity growth rates applied by Guggenheim.
54.
With respect to Guggenheim’s Discounted Cash Flow Analyses of Parent, the
Registration Statement fails to disclose: the forecasted after-tax unlevered free cash flows for
Parent used by Guggenheim in the analysis and the constituent line items used to calculate the
after-tax unlevered free cash flows; the estimate of Parent’s terminal/continuing value; the inputs
and assumptions underlying the discount rate range of 4.25%-5.25%; and the implied perpetuity
growth rates applied by Guggenheim.
55.
With respect to Guggenheim’s Discounted Cash Flow Analyses of Holdco, the
Registration Statement fails to disclose: the forecasted after-tax unlevered free cash flows for
Holdco and the constituent line items used to calculate the after-tax unlevered free cash flows;
the estimate of Holdco’s terminal/continuing value; the inputs and assumptions underlying the
discount rate range of 4.25%-5.50%; and the implied perpetuity growth rates applied by
Guggenheim.
56.
With respect to Guggenheim’s Westar Energy EPS Accretion/(Dilution) Analysis,
the Registration Statement fails to disclose the expected synergies and related costs to achieve
such synergies used by Guggenheim in the analysis.
57.
With respect to Guggenheim’s Westar Energy and Great Plains Energy Relative
Contributions Analysis, the Registration Statement fails to disclose: the book value of equity and
the combined company’s FY 2018E through FY 2020E average estimated unadjusted net
income, adjusted net income, leverage-adjusted EBITDA, and free cash flow.
58.
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. Moreover, 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.
59.
The omission of this material information renders the Registration Statement false
and misleading, including, inter alia, the following sections of the Registration Statement: (i)
“Background of the Merger”; (ii) “Recommendations of the Westar Energy Board and its
Reasons for the Mergers”; (iii) “Opinion of Westar Energy’s Financial Advisor”; and (iv)
“Forward-Looking Financial Information.”
60.
Additionally, the Registration Statement omits material information regarding
potential conflicts of interest of Guggenheim.
61.
Specifically, the Registration Statement fails to disclose the amount of the
“discretionary transaction bonus” payable to Guggenheim as well as the conditions under which
such payment will be made.
62.
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.
63.
The omission of this material information renders the Registration Statement false
and misleading, including, inter alia, the following sections of the Registration Statement: (i)
“Background of the Merger”; (ii) “Recommendations of the Westar Energy Board and its
Reasons for the Mergers”; and (iii) “Opinion of Westar Energy’s Financial Advisor.”
64.
The above-referenced omitted information, if disclosed, would significantly alter
the total mix of information available to Westar’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 Westar
65.
Plaintiff repeats and realleges the preceding allegations as if fully set forth herein.
66.
The Individual Defendants disseminated the false and misleading Registration
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. Westar is
liable as the issuer of these statements.
67.
The Registration 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
Registration Statement.
68.
The Individual Defendants were at least negligent in filing the Registration
Statement with these materially false and misleading statements.
69.
The omissions and false and misleading statements in the Registration 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
Registration Statement and in other information reasonably available to stockholders.
70.
The Registration Statement is an essential link in causing plaintiff and the
Company’s stockholders to approve the Proposed Transaction.
71.
By reason of the foregoing, defendants violated Section 14(a) of the 1934 Act and
Rule 14a-9 promulgated thereunder.
72.
Because of the false and misleading statements in the Registration 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 the Buyers
73.
Plaintiff repeats and realleges the preceding allegations as if fully set forth herein.
74.
The Individual Defendants and the Buyers acted as controlling persons of Westar
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 Westar and participation in and/or awareness of the
Company’s operations and/or intimate knowledge of the false statements contained in the
Registration 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.
75.
Each of the Individual Defendants and the Buyers was provided with or had
unlimited access to copies of the Registration 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.
76.
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 Registration Statement contains the unanimous
recommendation of the Individual Defendants to approve the Proposed Transaction. They were
thus directly in the making of the Registration Statement.
77.
The Buyers also had direct supervisory control over the composition of the
Registration Statement and the information disclosed therein, as well as the information that was
omitted and/or misrepresented in the Registration Statement.
78.
By virtue of the foregoing, the Individual Defendants and the Buyers violated
Section 20(a) of the 1934 Act.
79.
As set forth above, the Individual Defendants and the Buyers 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 Registration 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.
Plaintiff designates Kansas City, Kansas as the place of trial.
Dated: October 6, 2017
NORRIS & KEPLINGER, LLC
/s/ Bruce Keplinger
By:
Bruce Keplinger (#09562)
Corporate Woods, Building 32
9225 Indian Creek Parkway, Suite 750
Overland Park, KS 66210
Phone: (913) 663-2000
Fax: (913) 663-2006
bk@nkfirm.com
OF COUNSEL:
RIGRODSKY & LONG, P.A.
Brian D. Long
Gina M. Serra
2 Righter Parkway, Suite 120
Wilmington, DE 19803
(302) 295-5310
GMS@rl-legal.com
LAW OFFICE OF ALFRED G.
YATES, JR., P.C.
300 Mt. Lebanon Boulevard
Suite 206-B
Pittsburgh, PA 15234
(412) 391-5164
Attorneys for Plaintiff
| securities |
ss-7DocBD5gMZwczpklF | UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS
SPRINGFIELD DIVISION
SHAYNE EMERY,
Case No.:
Plaintiff,
v.
COMPLAINT
AMERICAN INSURANCE
ORGANIZATION LLC,
JURY DEMANDED
Defendant.
Now comes the Plaintiff, SHAYNE EMERY (“Plaintiff”), by and through his attorneys,
and for his Complaint against the Defendant, AMERICAN INSURANCE ORGANIZATION LLC
(“Defendant”), Plaintiff alleges and states as follows:
PRELIMINARY STATEMENT
1.
This is an action for damages, injunctive relief, and any other available legal or
equitable remedies, for violations of the Telephone Consumer Protection Act (“TCPA”), 47 U.S.C.
§ 227, et seq., resulting from the illegal actions of Defendant, in negligently, knowingly, and/or
willfully placing, through its agent(s), sales, solicitation and/or other telephone calls to Plaintiff’s
cellular telephone, in violation of the TCPA and related regulations, specifically the National Do-
Not-Call and internal do-no-call provisions of 47 C.F.R. § 64.1200(c), 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 attorneys.
2.
According to the Federal Communications Commission’s website, accessed on
August 28, 2020 at https://www.fcc.gov/consumers/guides/stop-unwanted-robocalls-and-texts:
The national Do Not Call list protects landline and wireless phone
numbers. You can register your numbers on the national Do Not Call
list at no cost by calling 1-888-382-1222 (voice) or 1-866-290-4236
(TTY). You must call from the phone number you wish to register.
You can also register at donotcall.gov.
Telemarketers must remove your numbers from their call lists and
stop calling you within 31 days from the date you register. Your
numbers will remain on the list until you remove them or
discontinue service – there is no need to re-register numbers.
3.
The TCPA was designed to prevent automated telephone calls like the ones
described herein, and to protect the privacy of citizens like Plaintiff. “Voluminous consumer
complaints about abuses of telephone technology – for example, computerized calls dispatched to
private homes – prompted Congress to pass the TCPA.” Mims v. Arrow Fin. Servs., LLC, 132 S.
Ct. 740, 744 (2012).
4.
In enacting the TCPA, Congress intended to give consumers a choice as to how
corporate similar entities may contact them, and made specific findings that “[t]echnologies that
might allow consumers to avoid receiving such calls are not universally available, are costly, are
unlikely to be enforced, or place an inordinate burden on the consumer.” TCPA, Pub. L. No. 102–
243, § 11. In support of this, Congress found that:
[b]anning 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. at § 12; see also Martin v. Leading Edge Recovery Solutions, LLC, 2012 WL 3292838, at *4
(N.D.Ill. Aug. 10, 2012) (citing Congressional findings on the TCPA’s purpose).
5.
Persons, like Plaintiff herein, have no control to stop unsolicited, unwanted calls to
their cellular telephones.
6.
Plaintiff and the members of the proposed Class defined below received
telemarketing calls to their telephones despite having registered their telephone numbers on the
National Do-Not-Call list, all because Defendant wished to advertise and market its products
and/or services for its own benefit.
JURISDICTION AND VENUE
7.
This Court has jurisdiction pursuant to 28 U.S.C. § 1331, as this civil action arises
under a law of the United States, the TCPA.
8.
Venue is proper in this District pursuant to 28 U.S.C. § 1391(b) because a
substantial part of the events and omissions giving rise to this claim occurred in this District.
PARTIES
9.
Plaintiff is an individual who was at all relevant times residing in Waverly, Illinois.
10.
On information and belief, Defendant is a limited liability company of the State of
Pennsylvania, which is not registered with the Secretary of State to do business in Illinois, and
which has its principal place of business in Allentown, Pennsylvania.
11.
On information and belief, at all times relevant hereto, Defendant was engaged in
the sale of insurance products and services.
12.
Plaintiff is a “person” as defined in 47 U.S.C. § 153(39).
13.
Defendant is a “person” as defined in 47 U.S.C. § 153(39).
FACTS COMMON TO ALL COUNTS
14.
On or about February 27, 2010, Plaintiff successfully registered his residential
cellular telephone number ending in -2220 with the National Do Not Call Registry.
15.
During or about January of 2017, Defendant began placing unsolicited
telemarketing calls to Plaintiff’s cellular telephone.
16.
Defendant contacted or attempted to contact Plaintiff from telephone number 217-
600-2044, confirmed to belong to Defendant.
17.
Defendant’s unsolicited telemarketing calls to Plaintiff constitute solicitation calls
pursuant to 47 C.F.R. § 64.1200(c)(2), as they were made in attempts to promote or sell
Defendant’s products or services.
18.
Plaintiff received at least 17 such unsolicited telemarketing calls from Defendant
between January and March of 2017.
19.
Plaintiff did not provide his prior express invitation or permission to Defendant to
place these solicitation telemarketing calls to his cellular telephone.
20.
As a result of Defendant’s acts and omissions outlined above, Plaintiff has suffered
concrete and particularized injuries and harm, which include, but are not limited to, the following:
a.
Invasion of privacy;
b.
Intrusion upon and occupation of the capacity of Plaintiff’s cellular
telephones;
c.
Wasting Plaintiff’s time;
d.
Risk of injury due to interruption and distraction when receiving unwanted
telemarketing calls from Defendant;
e.
Depletion of Plaintiff’s cellular telephone batteries;
f.
The cost of electricity to recharge Plaintiff’s cellular telephone batteries;
and
g.
Aggravation, frustration, stress, emotional distress, and similar categories
of damages.
21.
In multiple instances, Defendant placed unsolicited telemarketing calls to Plaintiff
after Plaintiff registered his telephone number ending in -2220 with the federal government’s Do
Not Call List, in violation of the TCPA, 47 U.S.C. § 227, et seq., and 47 C.F.R. § 64.1200(c).
22.
Defendant’s unsolicited telemarketing calls to Plaintiff after Plaintiff registered his
telephone number ending in -2220 with the federal government’s Do Not Call List violated 47
C.F.R. § 64.1200(c) and 47 U.S.C. § 227(c)(5).
CLASS ALLEGATIONS
23.
Plaintiff brings this action on behalf of himself and all others similarly situated, as
members of the proposed class defined as follows (the “Class”):
All residential telephone subscribers within the United States whose
telephone numbers were registered on the National Do-Not-Call
Registry for at least 30 days, who had not granted Defendant prior
express invitation or permission, nor had a prior established business
relationship with Defendant, or who had revoked such invitation or
permission or prior business relationship, who received more than
one solicitation call made by or on behalf of Defendant within any
12-month period, within four years prior to the filing of this
Complaint.
24.
Defendant, its employees and agents are excluded from the Class. Plaintiff does not
know the number of members in the Class, but believes the members of the Class number in the
hundreds, if not thousands or more. Thus, this matter should be certified as a Class Action to assist
in the expeditious litigation of the matter.
25.
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 include hundreds, if not thousands of members. Plaintiff
alleges that the Class members may be ascertained by the records maintained by Defendant.
26.
This suit is properly maintainable as a class action pursuant to Fed. R. Civ. P. 23(a)
because the is so numerous that joinder of its members is impractical and the disposition of their
claims in the Class Action will provide substantial benefits both to the parties and to the Court.
27.
There are questions of law and fact common to the Class affecting the parties to be
represented. The questions of law and fact common to the Class predominate over questions which
may affect individual members and include, but are not limited to, the following:
a.
Whether the Class members’ telephone numbers were called by Defendant
more than once in a 12-month period after the Class members had registered
such numbers on the National Do-Not-Call registry;
b.
Whether Defendant had any Class members’ prior express invitation or
permission to place solicitation telephone calls to them, or had a prior
established business relationship with any Class members;
c.
Whether the Class members are entitled to damages and if so, the proper
measure of those damages; and
d.
Whether Defendant violated the TCPA, 47 U.S.C. § 227, et seq.
28.
As a residential telephone subscriber who received multiple telephone calls in a 12-
month period, made by or on behalf of Defendant, without his prior express invitation or
permission and without a prior established business relationship with Defendant, after his
telephone number was registered on the National Do-Not-Call Registry for at least 30 days, within
four years prior to the filing of this Complaint, Plaintiff is asserting claims that are typical of the
29.
Plaintiff has no interest adverse or antagonistic to the interests of the other members
of the Class.
30.
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.
31.
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. Class treatment will also permit the adjudication of relatively small claims by many Class
members who could not otherwise afford to seek legal redress for the wrongs complained of herein.
32.
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.
33.
Defendant has acted or refused to act in respect generally applicable to the Class,
thereby making appropriate final and injunctive relief with regard to the members of the Class as
a whole.
34.
Defendant failed to comply with the requirements of the TCPA, including but not
limited to 47 U.S.C. § 227(c), and 47 C.F.R. § 64.1200(c), as to the Class members with respect
to the above-alleged transactions.
35.
The TCPA regulations, specifically 47 C.F.R. § 64.1200(c)(2), provide 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.
36.
In multiple instances, Defendant placed solicitation telephone calls to the Class
members after the members had registered their telephone numbers with the federal government’s
Do-Not-Call Registry, and without the prior express invitation or permission of, or without a prior
established business relationship with, the recipients, in violation of the TCPA, 47 U.S.C. § 227,
et seq. and 47 C.F.R. 64.1200.
37.
The size and definition of the Class can be identified through Defendant’s records
and/or Defendant’s agents’ records.
COUNT I
NEGLIGENT VIOLATION OF
THE TELEPHONE CONSUMER PROTECTION ACT
38.
Plaintiff incorporates all of the allegations and statements made in paragraphs 1
through 37 above as if reiterated herein.
39.
The foregoing acts and omissions of Defendant constitutes 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., including the implementing regulations of 47 C.F.R.
64.1200(c).
40.
As a result of Defendant’s negligent violations of 47 U.S.C. § 227, et seq., Plaintiff
is entitled to an award of $500.00 in statutory damages for each and every such violation of the
TCPA, pursuant to 47 U.S.C. § 227(c)(5).
41.
Plaintiff is also entitled to and seek injunctive relief prohibiting such conduct in the
COUNT II
KNOWING AND/OR WILLFUL VIOLATION OF
THE TELEPHONE CONSUMER PROTECTION ACT
42.
Plaintiff incorporates all of the allegations and statements made in paragraphs 1
through 37 above as if reiterated herein.
43.
The foregoing acts and omissions of Defendant constitutes 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 seq., including the implementing regulations
of 47 C.F.R. 64.1200(c).
44.
As a result of Defendant’s knowing and/or willful violations of 47 U.S.C. § 227, et
seq., Plaintiff is entitled to an award of up to $1,500.00 in statutory damages for each and every
such violation of the TCPA, pursuant to 47 U.S.C. § 227(c)(5).
45.
Plaintiff is also entitled to and seek injunctive relief prohibiting such conduct in the
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays for a judgment against Defendant as follows:
a.
An order certifying the Class and appointing Plaintiff as Representative of
the Class;
b.
An order certifying the undersigned counsel as Counsel for the Class;
c.
An order requiring Defendant, at its own cost, to notify all Class members
of the unlawful conduct herein;
d.
Judgment against Defendant in the amount of $500.00 in statutory damages
for each and every negligent violation of the TCPA by Defendant;
e.
Judgment against Defendant in an amount of up to $1,500.00 in statutory
damages for each and every knowing and/or willful violation of the TCPA
by Defendant;
f.
An order for injunctive relief prohibiting such conduct by Defendant in the
future;
g.
Judgment against Defendant for Plaintiff’s court costs, witness fees, and
other litigation costs; and
h.
Any other relief deemed just and proper by this Court.
JURY DEMAND
Plaintiff demands a trial by jury on all issues in this action which are so triable.
RESPECTFULLY SUBMITTED,
SHAYNE EMERY
By:
/s/ David B. Levin
Attorney for Plaintiff
Illinois Attorney No. 6212141
Law Offices of Todd M. Friedman, P.C.
111 W. Jackson Blvd., Suite 103
Chicago, IL 60604
Phone: (224) 218-0882
Fax: (866) 633-0228
dlevin@toddflaw.com
| privacy |
sNM7D4cBD5gMZwczg08Z | MAR 1 b 2012
Case No.
Plaintiffs,
COMPLAINT
- against -
SUMMONS ISSUED
Defendant.
SEYBERT
CLASS ACTION COMPLAINT
Plaintiff Felipe D. Chavez, individually and on behalf of all others similarly situated as a
NATURE OF THE ACTION
1.
Defendant White Post Wholesale Growers, Inc., as its name implies, is a
2.
White Post has several locations on Long Island, and employs at least 40 workers
3.
Plaintiff and others similarly situated are laborers working at several locations on
4.
Throughout the relevant period, it has been White Post's policy to deprive these
5.
In addition, in order to avoid paying the fair wages earned, the defendants
6.
By the conduct described in this Complaint, Defendants have violated the Fair
7.
Plaintiff brings this action on behalf of himself and similarly situated current and
8.
Plaintiff also brings this action on behalf of himself and all similarly situated
THE PARTIES
Plaintiff Felipe Chavez
9.
Plaintiff Chavez is an adult individual who is a resident of Suffolk County, New
10.
Mr. Chavez is a covered employee within the meaning of the FLSA, and the
Defendants
11.
Upon information and belief, Defendants maintain control, oversight, and
12.
White Post Wholesale Growers, Inc. is a New York Corporation with a principal
13.
John Brigati is the president of White Post Wholesale Growers, Inc. He acted on
14.
Defendants functioned as the "employer" of Plaintiffs as that term is used in all
JURISDICTION AND VENUE
15.
This Court has subject matter jurisdiction pursuant to 28 U.S.C. §§ 1331 and
16.
In addition, the Court has jurisdiction over Plaintiffs' claims under the FLSA
17.
This Court is empowered to issue a declaratory judgment pursuant to 28 U.S.C.
18.
Venue is proper in the Eastern District of New York pursuant to 28 U.S.C. §
CLASS ACTION ALLEGATIONS
The New York Class
19.
Mr. Chavez brings the Second, Third, and Fourth Causes of Action under Rule 23
20.
Excluded from the New York Class are Defendant's legal representatives,21.
The persons in the New York Class identified above are so numerous that joinder
22.
Upon information and belief, the size of the New York Class is at least 50
23.
Defendant acted or refused to act on grounds generally applicable to the New
24.
The Second Cause of Action is properly maintainable as a class action under
a. whether Defendants failed to keep true and accurate time records for all hours worked
by the Plaintiff and the New York Class;
b. whether Defendants failed and/or refused to pay the plaintiff and the New York Class
overtime pay for hours worked in excess of 40 hours per workweek within the meaning
of NYLL Article 19, §§ 650 et seq., and the supporting New York State Department of
Labor Regulations, 12 N.Y.C.R.R. Part 142;
c. whether the Defendants engaged in the uniform practice of rounding down the hours
paid to the nearest whole hour worked ("shaving");
d. the nature and extent of New York Class-wide injury and the appropriate measure of
damages for the New York Class;
e. whether Defendants' policies of "shaving" and failure to pay overtime at the overtime
rate were engaged in willfully or with reckless disregard of the statute.
25.
The claims of the Plaintiff are typical of the claims of the New York Class he
26.
The Plaintiff will fairly and adequately represent and protect the interests of the
27.
The Plaintiff has retained counsel competent and experienced in complex class
28.
A class action is superior to other available methods for the fair and efficient
Collective Action Allegations
29.
Plaintiff brings the FLSA claims, the First Cause of Action, on behalf of himself
30.
Defendant is liable under the FLSA for, inter alia, failing to properly compensateCLASS-WIDE FACTUAL ALLEGATIONS
31.
All of the work that Plaintiff, the New York Class Members, and the FLSA
32.
Upon information and belief, it has been Defendant's uniform policy and pattern
33.
As part of its regular business practice, Defendant has intentionally, willfully, and
a. willfully failing to pay their employees, including Plaintiffs and the Class Members,
overtime wages for hours that they worked in excess of 40 hours per week, and instead
paying all overtime at the "regular rate", in cash; and
b. rounding down the hours paid to the nearest hour ("shaving.").
34.
Upon information and belief, Defendants were or should have been aware that
35.
The defendants paid overtime hours in cash at the regular rate with the intent to
36.
The defendants' unlawful conduct described in this complaint was arbitrary,
37.
The defendants' unlawful conduct has been widespread, repeated, and consistent.
PLAINTIFF'S FACTUAL ALLEGATIONS
38.
Mr. Chavez' primary duties included manual labor and the use of forklifts and
39.
Mr. Chavez regularly worked more than 40 hours per workweek.
40.
Mr. Chavez regularly worked for time periods of 5 minutes to 20 minutes past the
41.
Pursuant to the defendants' uniform practice, Mr. Chavez was not paid the
42.
Pursuant to the defendants' uniform practice, Mr. Chavez' hours were "shaved"
43.
Defendants failed to keep accurate records of Mr. Chavez' hours worked.
FIRST CAUSE OF ACTION
Fair Labor Standards Act, 29 U.S.C. §§ 201 et seq.
On behalf of Plaintiff and the FLSA Collective
44.
Plaintiffs reallege and incorporate by reference all allegations in all preceding
45.
Defendant engaged in a widespread pattern, policy, and practice of violating the
46.
At all times relevant, Plaintiffs and the members of the FLSA Collective were
47.
The overtime wage provisions set forth in the FLSA apply to Defendant and
48.
Defendants were each an employer engaged in commerce and/or the production
49.
Defendant White Post's employees handled, sold and otherwise worked on goods
50.
At all times relevant, Plaintiff and the members of the FLSA Collective were or
51.
The defendants employed the FLSA Collective as an employer.
52.
Defendant failed to pay Plaintiff and the members of the FLSA Collective the
53.
Defendant failed to keep accurate records of time worked by Plaintiff and the
54.
Defendants' violations of the FLSA, as described in this Class Action Complaint,
55.
Defendant did not make a good faith effort to comply with the FLSA with respect
56.
Because Defendants' violations of the FLSA were willful, a three-year statute of
57.
As a result of Defendant's violations of the FLSA, Plaintiff and the members ofSECOND CAUSE OF ACTION
AGAINST WHITE POST WHOLESALE GROWERS, INC.
New York Labor Law Article 19, §§ 650 et seq., and the supporting
New York State Department of Labor Regulations, 12 N.Y.C.R.R. Part 142
On behalf of the New York Plaintiffs and the New York Class Members
58.
Plaintiff realleges and incorporates by reference all allegations in all preceding
59.
Defendant White Post engaged in a widespread pattern, policy, and practice of
60.
At all times relevant the Plaintiff and the members of the New York Class have
61.
The Plaintiff and the members of the New York Class are covered by the NYLL.
62.
White Post Wholesale Growers, Inc. employed the New York Plaintiffs and the
63.
Defendant failed to pay the Plaintiff and the New York Class Members' overtime
64.
Defendant failed to keep, make, preserve, maintain, and furnish accurate records
65.
Defendant's violations of the NYLL, as described in this Class Action Complaint,
66.
Due to Defendant's violations of the NYLL, the Plaintiff and the New York Class
THIRD CAUSE OF ACTION
Unjust Enrichment under New York Common Law
67.
Plaintiffs reallege and incorporate by reference each allegation contained in the
68.
Defendants have been unjustly enriched by withholding monies that rightfully
69.
Defendants are liable to Plaintiff and New York Class Members in the amount of
FOURTH CAUSE OF ACTION
Breach of Contract under New York Common Law
70.
Plaintiffs reallege and incorporate by reference each allegation contained in the
71.
Plaintiffs and Defendants had an implied employment contract insofar as the
72.
Plaintiffs agreed to perform certain functions for Defendants, in exchange for
73.
Specifically, Defendants agreed to pay Plaintiffs a certain rate of pay for all hours
74.
By failing to pay Plaintiffs for all time worked and/or at their proper overtime
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs, individually and on behalf of all other similarly situated
A. That, at the earliest possible time, Plaintiffs be allowed to give notice of this collective
B. Unpaid wages;
C. An additional and equal amount as liquidated damages under the FLSA;
D. Certification of the state law claims in this action as class actions and that the case
E. Designation of the Plaintiff as Class Representative;
F.A declaratory judgment that the practices complained of herein are unlawful under
G. Appropriate equitable and injunctive relief to remedy Defendants' violations,
H. An award of liquidated damages under state law;
I. Restitution;
J. Pre-Judgment and Post-Judgment interest, as provided by law;
K. Attorneys' fees and costs of suit, including expert fees; and
L Such other injunctive and equitable relief as the Court may deem just and proper.
March 14, 2012
Respectfully submitted,
STEVEN J. MOSER, P.C.
BY: Steven John Moser
1 School Street, Suite 303
Glen Cove, NY 11542
(516) 671-1150
(800) 597-6958
F (516) 882-5420
sjm@stevenjmoser.com
Attorneys for Plaintiff and the Putative Class | employment & labor |
VwcyM4cBD5gMZwcz7EeB | Annick M. Persinger (SBN #272996)
TYCKO & ZAVAREEI LLP
1970 Broadway, Suite 1070
Oakland, CA 94612
T: (510) 254-6808
F: (202) 973-0950
Email: apersinger@tzlegal.com
Hassan A. Zavareei (SBN #181547)
Allison W. Parr*
TYCKO & ZAVAREEI LLP
1828 L Street, NW Suite 1000
Washington, DC 20036
T: (202) 973-0900
F: (202) 973-0950
Email: hzavareei@tzlegal.com
aparr@tzlegal.com
[Additional counsel listed on signature page]
*Pro Hac Vice Forthcoming
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA, OAKLAND DIVISION
CASE NO.
SARAH BROWN, on behalf of herself and
all others similarly situated,
Plaintiff,
CLASS ACTION
COMPLAINT FOR DAMAGES FOR:
1. Violation of the Florida Deceptive and
v.
PLUM, PBC,
Unfair Trade Practices Act, §501.201 et
seq.;
Defendant.
2. Unjust Enrichment;
JURY TRIAL DEMANDED
Plaintiff SARAH BROWN, on behalf of herself and all others similarly situated (“Plaintiff”),
by and through her undersigned attorneys, brings this Class Action Complaint (the “Action”) against
Defendant PLUM, PBC (“Plum” or “Defendant”) based upon personal knowledge as to herself and
her own acts, and as to all other matters upon information, investigation, and belief of counsel.
INTRODUCTION
1.
Defendant Plum sells baby food products under the brand name “Plum Organics,”
which come in a variety of forms including pouches, snacks (including “Cereal Super Puffs,”
Teether/Wafers, Snack Bars, and Fruit Snacks) and milk-based powders for produced, marketed,
and sold for consumption by infants and young children (collectively, the “Products”).1 These
Products are marketed to parents to give to their young children to consume; and contrary to the fact
that these Products are intended for young children, the Products contain contaminants: including
inorganic arsenic (“arsenic”), lead, cadmium, and mercury (collectively, the “Heavy Metals”), that
public health authorities and child-safety organizations unanimously agree pose serious risks to
children’s health and well-being.2
2.
Defendant knows that food safety is of primary concern to parents. Defendant
conceals the existence of these Heavy Metals in the Products’ listed ingredients. The omitted
information is wholly inconsistent with the Products’ label representations, which are intended to—
and do, in fact—persuade reasonable consumers that the Products are fit for consumption by
children.
3.
Defendant uses consistent messaging across different Product formulations, different
media, and marketing touchpoints, meaning that messaging for any one Product formulation
reinforces Defendant’s inaccurate and misleading claims for other and all formulations.
1 This is by no means an exhaustive list of Defendant’s Products at issue in this Complaint, but
merely a representative sample.
2 “Baby Foods Are Tainted with Dangerous Levels of Arsenic, Lead, Cadmium, and Mercury,”
House of Representatives Subcommittee on Economic and Consumer Policy (Committee on
Oversight and Reform), Staff Report (Feb. 4, 2021), 2021-02-04 ECP Baby Food Staff Report.pdf
(house.gov) (“Congressional Report”).
4.
The Heavy Metals contained in Defendant’s Products are not nutritious, and no
reasonable parent would feed a child meals and snacks containing elevated and unacceptable levels
of arsenic, lead, cadmium, or mercury.
5.
The Congressional Report by the United States House of Representatives Committee
on Economic and Consumer Policy (Committee on Oversight and Reform), examines misconduct
concerning prominent brands of baby foods. It states: “Even low levels of exposure can cause
serious and often irreversible damage to brain development.”3 Defendant’s Products not only
contain these Heavy Metals but contain levels of the Heavy Metals that are unacceptable by virtually
any public health standard, and certainly are unacceptable to reasonable parents.
6.
By virtue of this conduct, and all of the conduct alleged herein, Plaintiff and all
members of the Class have been injured by Defendant’s actions.
JURISDICTION AND VENUE
7.
Subject Matter Jurisdiction. This Court has subject matter jurisdiction pursuant to
the Class Action Fairness Act, 28 U.S.C. § 1332(d)(2). The amount in controversy, exclusive of
costs and interest, exceeds the sum of $5 million in the aggregate. In total, there are well over 100
members of the proposed Classes that are known to exist, and this is a class action in which complete
diversity exists between one Plaintiff and one Defendant – namely, that Plaintiff is a citizen of
Florida, while Defendant is headquartered in, and therefore is a citizen of, California.
8.
General Personal Jurisdiction. This Court has general personal jurisdiction over
Defendant because Defendant purposefully availed itself of the privilege of doing business within
the state, including within this District; had continuous and systematic general business contacts
within the state, including within this District; and Defendant can be said to have reasonably
anticipated being haled into court in this forum.
9.
Specific Personal Jurisdiction. This Court has specific personal jurisdiction over
Defendant because this action arises out of and relates to Defendant’s contacts with this forum.
Specifically, Defendant is headquartered in this District and Defendant knowingly directed the
3 Congressional Report at 2.
Products through the stream of commerce into this District. Defendant advertised and marketed
within this District through the wires and mails and via e-commerce websites through which
residents of this state and District can purchase the Products. Defendant knowingly directs electronic
activity into this state and District with the intent to engage in business interactions and has, in fact,
engaged in such interactions. Defendant cultivated a market for the Products in this state and District
and systematically served a market for the very Products causing the harms alleged in this
Complaint. Thus, there is an affiliation between this forum and the underlying controversy and there
is a strong relationship among Defendant, the forum, and the litigation.
10.
Venue. Venue is proper in this District pursuant to 28 U.S.C. 1391(b)(2) because a
substantial part of the events or omissions giving rise to this action occurred in this District. Venue
also is proper pursuant to 28 U.S.C. 1391(b)(1) and 1391(c)(2) because Defendant is deemed to be
a resident of this District by virtue of the Court’s personal jurisdiction over Defendant with respect
to this action.
PARTIES
11.
Plaintiff Sarah Brown is a citizen of the State of Florida and is a member of the Class
as a purchaser of Defendant Plum’s Products. Plaintiff purchased the Products – namely, Plum’s
“Plum Organics” Mighty Morning Apple Bars (Apple Cinnamon) and Plum’s “Plum Organics”
Mighty Snack Bars (Blueberry) – at retail during the applicable Class Period, specifically during the
year 2021. Plaintiff relied on Defendant’s representations (and omissions) as described herein, and
Plaintiff was harmed by way of Defendant’s representations (and omissions).
12.
Defendant Plum, PBC is a citizen of the State of California, as it maintains its
headquarters here, and is incorporated in the State of Delaware. Plum’s Products are produced by
the same company which makes Campbell’s Soup.
FACTUAL ALLEGATIONS
I.
DEFENDANT MARKETS AND LABELS ITS PRODUCTS AS BEING FIT FOR
CONSUMPTION BY CHILDREN AND REASONABLE CONSUMERS RELIED ON
DEFENDANT’S MISREPRESENTATIONS AND OMISSIONS
13.
The demand for wholesome baby food products is constant as parents continuously
seek to protect their children, as best they can, from all unreasonable risks of harm. Defendant
understands this demand and therefore promotes its Products as organic; Defendant also markets its
Products as being fit for consumption by children. Indeed, the Products all contain the following
substantially similar material statements that represent that the Products are wholesome, safe, and
nutritious for children.
14.
Examples of these material statements on the Defendant’s website are:
“As an organic food company, we strongly believe in the advantages organic
food brings to our families and to Mother Nature. We know there’s a debate
as to whether organic is more nutritious or safer than conventional, but when
it comes to making products for your littlest ones, we believe the simpler the
better. As parents ourselves, we wouldn’t have it any other way.”4
“Little ones deserve the very best food from the very first bite.”5
“Plum products are always made without genetically modified ingredients.”6
15.
After the release of the Congressional Report, Defendant released the following
statement on its website:
As parents who feed Plum to our own kids every day, we understand
you may have questions about some of the news you’re reading. We’re
here to address concerns as clearly, honestly and immediately as
possible.
The House of Representatives Committee on Oversight and Reform
recently released a report about heavy metals in baby and toddler food
products, including Plum Organics.
Plum Organics has always and will always place the safety of our
consumers, especially our youngest consumers, above all else. That is
why we cooperated with the Committee’s baby food review. We
responded quickly to their questions and never refused anything
requested of us. We are surprised that the Committee would suggest
that we were less than full partners in this mission. We welcomed the
opportunity to work with the Committee in 2019—and continue to do
so today.
We are confident in the safety and quality of our products. Our top
priority is to serve children healthy, nutritious food made from the
best ingredients. We want to assure you that Plum’s products are safe
(and delicious) to eat! If we didn’t feel good about our products, we
wouldn’t serve them to our children or yours.7
4 https://www.plumorganics.com/food-philosophy/ (last accessed May 28, 2021).
5 Id.
6 Id.
7 https://www.plumorganics.com/faqs/ (last accessed May 28, 2021) (emphasis added).
16.
Additionally, Defendant includes the following misrepresentations on the labels and
packaging for its Products,8 which it manufactures, markets, and sells:
9
17.
On Amazon, which is a popular distribution channel for Defendant’s Products, the
products are advertised as “Organic, Non-GMO Snack Bar[s]: Plum uses only organic, non-GMO
ingredients.”10
18.
All of the aforementioned statements in this section – from the statements on the
Defendant’s website, to their statement after the release of the Congressional Report, to the
representations that are made on packaging and on Amazon – are demonstrably false.
19.
Plaintiff purchased the Products, which contain materially similar representations to
all Products at issue in this Complaint. Plaintiff and all members of the Class viewed the
representations on the labeling of the Products at the point of purchase. These representations are
8 The selected misrepresentations appeared on the packaging for the same types of Products
purchased by Plaintiff.
9 https://www.amazon.com/Plum-Organics-Organic-Toddler-Strawberry/dp/B00J3I6CXO (last
accessed May 28, 2021).
10 Id.
intended to impact, and do in fact impact, every reasonable parent’s decision regarding which foods
to purchase for their young children.
20.
Plaintiff the Class relied on these representations, specifically the representations
conveying the organic and wholesome nature of the product, when making their purchases.
21.
Other Products in the Product family have substantively similar label.
22.
Critically, Defendant promotes the Products as safe and health for children yet
conceals the presence and elevated levels of the Heavy Metals because no reasonable parent would
purchase the Products at the price offered, or on the same terms, or as frequently, or would not
purchase the Products at all if this information were disclosed.
23.
As the retailer, manufacturer, and seller of the Products, Defendant is responsible for
the accuracy of information conveyed on the Product labels.
24.
Plaintiff reasonably believed that the Products she purchased were free of concerning
levels of Heavy Metals that, in fact, were present at levels that would gravely concern any reasonable
consumer.
25.
Defendant knew or, in the exercise of reasonable care, should have known that the
Products’ labels were false or misleading.
26.
Defendant intended for consumers to rely upon its representations and omissions
concerning the Products’ nature and quality.
27.
It would be reasonable for consumers to rely—as Plaintiff did—upon Defendant’s
representations and omissions concerning the Products.
28.
Defendant’s misrepresentations and omissions were made with the intent to generate
and increase sales of the Products.
29.
Defendant’s misrepresentations and omissions were deceptive and misleading for the
reasons set forth in this Complaint; and they are ongoing.
30.
By representing the Products as wholesome and organic, Defendant implicitly
represented the Products’ value to Plaintiff and other consumers.
31.
As a consequence of Defendant’s unfair and deceptive practices, Plaintiff and other
similarly-situated consumers purchased a product of different and substantially lesser value—one
with a higher effective cost—than Defendant represented, under the false impression that the
Products were safe, high-quality, premium Products free of elevated levels of Heavy Metals.
32.
In fact, because the Products contained elevated levels or had a high risk of
containing unsafe levels of Heavy Metals, they should not have been on the market in the first place,
and thus the Products were of less value or even valueless—i.e., the threat of exposure to high levels
of Heavy Metals would render the Products of no value to reasonable consumers because no
reasonable consumer would willingly administer repeated, elevated doses of Heavy Metals to his or
her child.
33.
Defendant’s omission of all reference to the Heavy Metals deprived Plaintiff and
other consumers the opportunity to make an informed choice whether to purchase the Products.
34.
Accordingly, Plaintiff and the Class did not realize the benefit of the bargain and
their expectations were not met.
35.
Plaintiff and the Classes effectively paid more than the market value represented by
the price bargained for. Plaintiff and the Class bargained with Defendant on a particular market
value for a Product purporting to be a high-quality, premium food—one that would not contain
unacceptable levels of Heavy Metals.
36.
However, unbeknownst to consumers, the Products do contain or have a high risk of
containing unacceptable levels of Heavy Metals; Plaintiff and the Classes thus effectively paid for
Products that were worth less than they were led to reasonably believe, i.e., Plaintiff and the Classes
overpaid for the Products.
37.
Thus, through the use of misleading representations and omissions, Defendant
obtained enhanced negotiating leverage allowing it to command a price Plaintiff and the Class would
not have paid had they been fully informed.
38.
By use of misleading marketing and labeling claims and omissions, Defendant
created increased market demand for the Products and increased its market share relative to what its
demand and share would have been had it marketed and labeled the Products truthfully.
39.
Plaintiff and the Class lost money as a result of Defendant’s misrepresentations and
omissions in that they did not receive what they reasonably believed they were paying for based
upon the misrepresentations and omissions. Plaintiff and the class detrimentally altered their
position and suffered damages as a result of Defendant’s misrepresentations and omissions.
40.
If Plaintiff had been aware that the Products contained unacceptable levels of any
Heavy Metal, Plaintiff would have purchased a different product or no product at all. In other words,
Plaintiff would not have purchased Defendant’s Product but for Defendant’s misrepresentations and
omissions.
41.
Plaintiff and the Class were exposed to and justifiably relied upon the same material
misrepresentations and omissions made on the Products’ labels.
II.
THE TRUTH IS REVEALED
42.
The recent Congressional Report released by the United States House of
Representatives revealed that prominent brands of baby food Products contains “concerning levels”
of the Heavy Metals at-issue.
43.
Public health authorities have expressed concern regarding consumption of the
Heavy Metals. For example, according to the Congressional Report, the FDA has expressed concern
regarding arsenic levels above 100 ppb in infant rice cereals, arsenic above 10 ppb in drinking water,
lead above 5 ppb in drinking water, lead above 50 ppb in juice products, and cadmium above 5 ppb
in drinking water.
44.
Defendant’s Products routinely tested at levels exceeding these limits.
45.
Even more concerning, the Congressional Report states: “[Plum] refused to
cooperate with the Subcommittee’s investigation. The Subcommittee is greatly concerned that their
lack of cooperation might be obscuring the presence of even higher levels of toxic heavy metals in
their baby food products than their competitors’ products.”11
46.
The Congressional Report continues, “[t]he Subcommittee has grave concerns about
baby food products manufactured by … Campbell (Plum Organics). Th[is] company[y] refused to
cooperate with the Subcommittee’s investigation. The Subcommittee is greatly concerned that their
11 Congressional Report at 2.
lack of cooperation might obscure the presence of even higher levels of toxic heavy metals in their
baby food products, compared to their competitors’ products.”12
47.
Specific to Plum, the report states:
Campbell refused to produce its testing standards and specific testing
results to the Subcommittee. Campbell has hidden its policies and the
actual level of toxic heavy metals in its products. Instead of producing
any substantive information, Campbell provided a spreadsheet self
declaring that every one of its products “meets criteria.”
Campbell declined to state what those criteria are… Campbell’s
testing summary hides more than it reveals, since it does not show the
levels of heavy metals that the testing found or the levels of heavy
metals that would “meet criteria.” The Subcommittee was disturbed
that, for mercury, which is a powerful neurotoxin, Campbell notes
with asterisks that it has no criterion whatsoever, stating: “No specific
threshold established because no high-risk ingredients are used.”
However, despite Campbell having no mercury threshold, Campbell
still marked every food as “meets criteria” for mercury. This
misleading framing—of meeting criteria that do not exist—raises
questions about what Campbell’s other thresholds actually are, and
whether they exist.
Campbell’s evasion is concerning, as even limited independent testing
has revealed the presence of toxic heavy metals in its baby food.13
48.
However, both testing by Congress’ House Oversight Committee in 2019 and
additional testing by the Plaintiff (and her counsel) recently found the presence of Heavy Metals in
Defendant’s Products.14
III.
THE DANGER OF HEAVY METALS FOUND IN DEFENDANT’S PRODUCTS
AND DEFENDANT’S SALE OF SAID PRODUCTS
49.
The Congressional Report emphasized the dangers posed by the Heavy Metals in
Defendant’s Products:
Children’s exposure to toxic heavy metals causes permanent
decreases in IQ, diminished future economic productivity, and
increased risk of future criminal and antisocial behavior. Babies’
developing brains are “exceptionally sensitive to injury caused by
toxic chemicals, and several developmental processes have been
shown to be highly vulnerable to chemical toxicity.” The fact that
babies are small, have other developing organ systems, and absorb
12 Id. at 5.
13 Id. at 44-45.
14 Campbell, Product Heavy Metal Test Results (Dec. 11, 2019),
https://oversight.house.gov/sites/democrats.oversight.house.gov/files/12.pdf.
more of the heavy metals than adults, exacerbates their risk from
exposure to heavy metals. Exposure to heavy metals at this
developmental stage can lead to “untreatable and frequently
permanent” brain damage, which may result in “reduced intelligence,
as expressed in terms of lost IQ points, or disruption in behavior.” For
example, a recent study estimates that exposure to environmental
chemicals, including lead, are associated with 40,131,518 total IQ
points loss in 25.5 million children (or roughly 1.57 lost IQ points per
child)—more than the total IQ losses associated with preterm birth
(34,031,025), brain tumors (37,288), and traumatic brain injury
(5,827,300) combined. For every one IQ point lost, it is estimated that
a child’s lifetime earning capacity will be decreased by $18,000. Well-
known vectors of child exposure to toxic heavy metals include lead
paint in old housing and water pollution from landfills. Over the
decades, a range of federal and state laws and regulations have been
passed to protect child health through emissions standards, among
other things. The Food and Drug Administration (FDA) has declared
that inorganic arsenic, lead, cadmium, and mercury are dangerous,
particularly to infants and children. They have “no established health
benefit” and “lead to illness, impairment, and in high doses, death.”
According to FDA, “even low levels of harmful metals from
individual food sources, can sometimes add up to a level of concern.”
FDA cautions that infants and children are at the greatest risk of harm
from toxic heavy metal exposure. The Subcommittee on Economic
and Consumer Policy’s investigation has found another source of
exposure: baby foods. According to documents obtained from baby
food manufacturers, toxic heavy metals, such as arsenic, cadmium,
lead, and mercury are present at substantial levels in both organic and
conventional baby foods. Currently, there is no federal standard on, or
warning to parents and caregivers about, these toxins.15
50.
With respect to arsenic, the Congressional Report states:
Arsenic is ranked number one among substances present in the
environment that pose the most significant potential threat to human
health, according to the Department of Health and Human Services’
Agency for Toxic Substances and Disease Registry (ATSDR). The
known health risks of arsenic exposure include “respiratory,
gastrointestinal, haematological, hepatic, renal, skin, neurological and
immunological effects, as well as damaging effects on the central
nervous system and cognitive development in children.” Studies have
concluded that arsenic exposure has a “significant negative effect on
neurodevelopment in children.” This negative effect is most
pronounced in Full Scale IQ, and more specifically, in verbal and
performance domains as well as memory. For every 50% increase in
arsenic levels, there is an approximately “0.4 decrease in the IQ of
children.” A study of Maine schoolchildren exposed to arsenic in
drinking water found that children exposed to water with an arsenic
concentration level greater than 5 parts per billion (ppb) “showed
significant reductions in Full Scale IQ, Working Memory, Perceptual
Reasoning and Verbal Comprehension scores.” The authors pegged 5
ppb as an important threshold. Likewise, a study of children in Spain
found that increasing arsenic exposure led to a decrease in the
15 Congressional Report at 9-10 (internal citations omitted).
children’s global motor, gross motor, and fine motor function scores.
Boys in particular were more susceptible to arsenic’s neurotoxicity.16
51.
With respect to lead, the Congressional Report states:
Lead is number two on ATSDR’s list of substances present in the
environment that pose the most significant potential threat to human
health. Even small doses of lead exposure are hazardous, particularly
to children. Lead is associated with a range of bad health outcomes,
including behavioral problems, decreased cognitive performance,
delayed puberty, and reduced postnatal growth. According to FDA,
lead is especially dangerous to “infants” and “young children.” FDA
acknowledges that: High levels of lead exposure can seriously harm
children’s health and development, specifically the brain and nervous
system. Neurological effects from high levels of lead exposure during
early childhood include learning disabilities, behavior difficulties, and
lowered IQ. Because lead can accumulate in the body, even low level
chronic exposure can be hazardous over time. Lead exposure severely
affects academic achievement in children. Even at low levels, early
childhood lead exposure has a negative impact on school
performance. Two separate studies of schoolchildren in Detroit and
Chicago public schools found a strong inverse relationship between
lead exposure and test scores. In the Detroit study, there was a
“significant association” between early childhood lead exposure and
decreased standardized test performance, with lead exposure strongly
linked to an adverse effect on academic achievement. The Chicago
study found that higher blood lead concentrations were associated
with lower reading and math scores in 3rd grade children. Increased
blood lead concentrations correlated with a 32% increase in the risk
of failing reading and math. The cognitive effects of early childhood
lead exposure appear to be permanent. In one study, adults who
previously had lead-associated developmental delays continued to
show persisting cognitive deficits, demonstrating the long-lasting
damage of lead exposure.17
52.
With respect to cadmium, the Congressional Report states:
Cadmium is number seven on ATSDR’s list of substances present in
the environment that pose the most significant potential threat to
human health. Cadmium is associated with decreases in IQ, as well as
the development of ADHD. A 2018 study found that cadmium
exposure negatively affected children’s Full Scale IQ, particularly
among boys. Boys exhibiting higher amounts of cadmium exposure
had seven fewer IQ points than those exhibiting less cadmium
exposure. A 2015 study similarly found a significant inverse
relationship between early cadmium exposure and IQ. A 2018 study
linked cadmium exposure to ADHD, finding that the disorder was
more common among children with the highest levels of cadmium
exposure as compared to a control group.18
16 Id.
17 Id. at 11.
18 Id. at 12.
53.
With respect to mercury, the Congressional Report states:
Mercury is number three on ATSDR’s list of substances present in the
environment that pose the most significant potential threat to human
health. Studies of mercury’s effect on childhood development have
primarily been conducted by considering the mother’s exposure to
mercury while pregnant. In these instances, “pre-natal mercury
exposure has been consistently associated with adverse subsequent
neuro-development.” And pre-natal mercury exposure is also related
to poorer estimated IQ. Beyond prenatal exposure, higher blood
mercury levels at “2 and 3 years of age were positively associated with
autistic behaviors among preschool-age children.19
54.
Defendant has shown no concern for the health risks faced by the end-users of its
Products: namely, vulnerable young children. In fact, to date, Defendant continues selling these
Products without any indication to consumers that the Products may contain alarming levels of
Heavy Metals.
55.
Not only did Defendant knowingly mislead parents into believing the Products were
safe, but Defendant charged a premium for them. Plaintiff and the Class would not have purchased
the Products if they were aware of the elevated presence of the Heavy Metals or, alternatively, they
would not have purchased at the Products’ offered price and terms.
IV.
DUE TO THE DEFENDANT’S MISCONDUCT, PLAINTIFF AND THE CLASS
SUFFERED ECONOMIC INJURY
56.
Plaintiff and the Classes were injured economically when they purchased the
Products. As alleged herein, Plaintiff and the Class received something worth less than what they
paid for and did not receive the benefit of their bargain. They paid for Products which were supposed
to be wholesome, but were not. No reasonable consumer would have purchased or paid as much or
as frequently for the Products had they known the Products contained elevated levels of Heavy
Metals. Defendant knew of the Heavy Metals and the levels at which they occur in the Products, but
chose not to disclose this material information to their consumers in an effort to persuade them they
were buying wholesome Products rather than Products with elevated levels of Heavy Metals.
19 Id. at 12-13.
CLASS ACTION ALLEGATIONS
57.
Plaintiff brings this action on behalf of herself and as a class action pursuant to Rule
23 of the Federal Rules of Civil Procedure on behalf of members of the following proposed Class:
All persons within the United States who purchased one or more of
the Products from the beginning of the applicable statutory period
through present.
58.
Excluded from the Class are Defendant, any of their respective members, affiliates,
subsidiaries, officers, directors, employees, successors or assigns, the judicial officers, and their
immediate family members; as well as the Court staff assigned to this Action.
59.
Pursuant to Rule 23 of the Federal Rules of Civil Procedure, Plaintiff also seeks to
represent the following Florida subclass:
All persons within the Florida who purchased one or more of the
Products from the beginning of the applicable statutory period
through present.
60.
Excluded from the Florida Subclass are Defendant, any of their respective members,
affiliates, subsidiaries, officers, directors, employees, successors or assigns, the judicial officers,
and their immediate family members; as well as the Court staff assigned to this Action.
61.
Plaintiff reserves the right to modify or amend Class definitions as appropriate during
the pendency of this Action.
62.
Certification of Plaintiff’s claims for class-wide treatment is appropriate because
Plaintiff can prove the elements of the claims on a class-wide basis using the same evidence as
individual Class members would use to prove those elements in individual actions alleging the same
claims.
63.
This action has been brought and may be properly maintained as a class action under
the criteria of Rule 23:
Numerosity – Rule 23(a)(1). The members of each of the Classes are so numerous and
geographically dispersed that individual joinder of all Class members is impracticable. The precise
number of Class numbers is unknown to Plaintiff but is likely to be ascertained by Defendant’s
records. At a minimum, there likely are tens of thousands of Class Members.
Commonality and Predominance – Rule 23(a)(2), (b)(3). This action involves questions
of law and fact common to the Classes, which predominate over any individual questions, including:
a.
whether Defendant engaged in the conduct alleged herein;
b.
whether Defendant’s course of conduct alleged herein violates the Florida
Deceptive and Unfair Trade Practices Act, Fla. Stat. § 501.201, et seq.;
c.
whether Defendant knew or should have known its representations and
omissions were false or misleading;
d.
whether reasonable consumers were misled by Defendant’s labeling,
marketing and advertising of the Products;
e.
whether Defendant was unjustly enriched by retaining monies from the sale
of the Products at issue;
f.
whether certification of the Class is appropriate under Fed Rule 23;
g.
whether Plaintiff and the Class are entitled to declaratory, equitable, or
injunctive relief, and/or other relief, and the scope of such relief; and
h.
the amount and nature of the relief to be awarded to Plaintiff and the Class,
including whether Plaintiff and the Class are entitled to punitive damages.
Typicality – Rule(a)(3). Plaintiff’s claims are typical of the other Class members because
the Plaintiff, as well as the members of the Class, paid for Defendant’s contaminated Products at
retail. Plaintiff and the members of the Class relied on the representations and omissions made by
the Defendant prior to making their purchase of the Products at issue. Plaintiff and the Class paid
for Defendant’s products at retail and would not have purchased them (or would have paid
substantially less for them) had they known that the Defendant’s representations were untrue and/or
had they possessed the information Defendant omitted from the labels regarding the Heavy Metals.
Adequacy of Representation – Rule 23(a)(4). Plaintiff is an adequate Class representative
because Plaintiff’s interests do not conflict with the interests of the other Class members whom she
seeks to represent, Plaintiff have retained counsel competent and experienced in complex class
action litigation, and Plaintiff intend to prosecute this action vigorously. Class members’ interests
will be fairly and adequately protected by Plaintiff and her counsel.
Superiority of Adjudication as a Class Action – Rule 23(b)(3). To preserve judicial
economy, this case will be best maintained as a class action, which is superior to other methods of
individual adjudication of these claims. This Action is best maintained as a class action because of
the large number of consumers affected by the alleged violations of law as well as the relatively
smaller-purchase economic damages being sought by Plaintiff and the Class. The damages
individual Class members suffered are small compared to the burden and expense of individual
prosecution of the complex and extensive litigation needed to address Defendant’s conduct, such
that it would be virtually impossible for the Class to redress the wrongs done to them and they would
have little incentive to do so given the amount of damage each Class member has suffered when
weighed against the costs and burdens of litigation. The class procedure presents fewer management
difficulties than individual litigation and provides the benefits of single adjudication, economies of
scale, and supervision by a single court.
Certification of Specific Issues – Rule 23(c)(4). To the extent that a Class does not meet
the requirements of Rules 23(b)(2) or (b)(3), Plaintiff seek certification of issues that will drive this
litigation toward resolution. Declaratory and Injunctive Relief – Rule 23(b)(2). Defendant has acted
or refused to act on grounds generally applicable to Plaintiff and the other Class members, thereby
making appropriate final injunctive relief and declaratory relief, as described below, with respect to
the Class members as a whole. Unless a class-wide injunction is issued, Defendant will continue to,
or allow their resellers to, advertise, market, promote, and sell the Products in an unlawful and
misleading manner, as described throughout this Complaint, and members of the Class will continue
to be misled, harmed, and denied their rights under the law.
64.
Plaintiff is unaware of any difficulties that are likely to be encountered in the
management of this action that would preclude its maintenance as a class action.
CLAIMS FOR RELIEF
COUNT I
Violations of the Florida Deceptive and Unfair Trade Practices Act, § 501.201, et seq.
(on behalf of Plaintiff individually and the Florida Subclass)
65.
Plaintiff realleges and incorporates the foregoing paragraphs.
66.
This cause of action is brought pursuant to the Florida Deceptive and Unfair Trade
Practices Act, Fla. Stat. § 501.201, et seq. (“FDUTPA”). The stated purpose of the FDUTPA is to
“protect the consuming public . . . from those who engage in unfair methods of competition, or
unconscionable, deceptive, or unfair acts or practices in the conduct of any trade or commerce.” Fla.
Stat. § 501.202(2).
67.
FDUTPA declares unlawful “[u]nfair methods of competition, unconscionable acts
or practices, and unfair or deceptive acts or practices in the conduct of any trade or commerce.” Fla.
Stat. § 501.204(1). The FDUTPA also prohibits false and misleading advertising.
68.
Plaintiff and all Class members are “consumers” and Defendant has engaged in
“trade or commerce” as defined by FDUTPA. Fla. Stat. § 501.203(7)-(8).
69.
Defendant manufactures, distributes, markets, advertises and sells the Products. The
Products are “goods” within the meaning of FDUTPA.
70.
For the reasons discussed herein, Defendant violated and continues to violate
FDUTPA by engaging in the herein described unconscionable, deceptive, unfair acts or practices
proscribed by Florida Statute §501.201, et seq.
71.
Defendant engaged in unconscionable, unfair or deceptive acts and practices by,
among other things, representing that the Products are healthy, nutritious, organic, made from the
best ingredients, and safe for consumption, and by failing to make any mention of Heavy Metals, or
other undesirable toxins or contaminants in the Baby Foods.
72.
Defendant’s acts and practices, including its omissions, described herein, were likely
to, and did in fact, deceive and mislead members of the public, including consumers acting
reasonably under the circumstances, to their detriment. Consumers, including Plaintiff and Class
Members, would not have purchased the Products, or would have paid less for them, had they known
that the Products were not healthy, nutritious, organic, made from the best ingredients, and safe for
consumption, or that they contained Heavy Metals, or other undesirable toxins or contaminants in
the Baby Foods.
73.
Plaintiff and the Class have been aggrieved by Defendant’s violative
representations, omissions, and practices and their rights have been adversely affected and,
therefore, Plaintiff and the Class are entitled to injunctive and declaratory relief under FDUTPA.
74.
Defendant’s misrepresentations are ongoing such that declaratory or injunctive
relief requiring Defendant to make only truthful statements in its marketing and labeling of the
Products would correct its ongoing violations of FDUTPA and the ongoing harms caused by those
violations.
75.
As a direct and proximate result of Defendant’s unfair or deceptive acts or practices,
Plaintiff and Class Members have been damaged, and are entitled to recover actual damages to the
extent permitted by law, including class action rules, in an amount to be proven at trial.
76.
Plaintiff, individually and on behalf of the Class, seeks: (a) a declaration or
declaratory judgment that Defendant’s acts and practices have violated and continue to violate
FDUTPA; (b) an order enjoining Defendant to refrain from the acts and practices that have violated
and continue to violate FDUTPA, and an order to undertake an immediate public information
campaign to inform members of the proposed class as to their prior practices; (c) actual damages;
(d) attorney’s fees and court costs; and (e) any other legal or equitable relief to which Plaintiff or
the Class members may be entitled.
COUNT II
Unjust Enrichment
(on behalf of the Nationwide Class or, alternatively, the Florida Subclass)
77.
Plaintiff realleges and incorporate the foregoing paragraphs.
78.
Plaintiff and the Class have conferred a benefit on Defendant in the form of payment
for the Products alleged herein.
79.
Defendant was aware of this benefit, voluntarily accepted it, and has retained and
appreciated this benefit, to which it is not entitled, at the expense of Plaintiff and the Classes.
80.
By its wrongful acts and omissions described herein, Defendant was unjustly
enriched at the expense of Plaintiff and Class Members.
81.
Plaintiff and Class Members’ detriment and Defendant’s enrichment were related to
and flowed from the wrongful conduct alleged in this Complaint.
82.
For the reasons set forth in this Complaint, the circumstances are such that it would
be inequitable and unfair for Defendant to retain the full amount of the benefit conferred upon it
by Plaintiff and the Class, and fairness demands that Defendant pay for the benefit.
83.
As a direct and proximate result of Defendants’ wrongful conduct and unjust
enrichment, Plaintiff and the Class are entitled to restitution of, disgorgement of, and/or imposition
of a constructive trust upon all profits, benefits, and other benefits obtained by Defendant for its
inequitable and unlawful conduct.
REQUEST FOR RELIEF
WHEREFORE, Plaintiff respectfully requests that the Court enter judgment against
Defendant as follows:
1.
Certifying this case as a class action representing the Classes as defined
herein pursuant to Rule 23, designate Plaintiff as representatives for the Classes, and appoint counsel
of record as class counsel;
2.
Declaring Defendant’s conduct unlawful under the statutes and causes of
action pled herein;
3.
Entering an order enjoining Defendant to refrain from the acts and practices
cited herein and to undertake an immediate public information campaign to inform members of each
of the Classes as to its prior practices;
4.
Entering an order requiring imposition of a constructive trust and and/or
disgorgement of Defendant’s ill-gotten gains and to pay restitution to Plaintiff and all members of
each of the Classes to restore all funds acquired by means of any act or practice declared by this
Court to be an unlawful, fraudulent or unfair business act or practice;
5.
Entering an award of damages, including all available statutory and punitive
damages, pursuant to the statutes and the causes of action pled herein;
6.
Entering an order Defendant to pay for the costs of the proceedings herein as
well as reasonable attorney’s fees, costs, and expenses as allowable by statute or other law;
7.
Entering an order requiring Defendant to proffer an equitable plan to refund
the Plaintiff’s and the Class members’ monies; and
8.
Awarding any other such relief that this Court deems necessary and proper.
JURY TRIAL DEMAND
Plaintiff and members of the Class hereby demand a trial by jury of all issues so triable.
DATED: June 28, 2021
Respectfully Submitted,
s/ Annick M. Persinger
Annick M. Persinger (SBN #272996)
TYCKO & ZAVAREEI LLP
1970 Broadway, Suite 1070
Oakland, CA 94612
T: (510) 254-6808
F: (202) 973-0950
Email: apersinger@tzlegal.com
Hassan A. Zavareei (SBN #181547)
Allison W. Parr*
TYCKO & ZAVAREEI LLP
1828 L Street, NW Suite 1000
Washington, DC 20036
T: (202) 973-0900
F: (202) 973-0950
Email: hzavareei@tzlegal.com
aparr@tzlegal.com
Daniel L. Warshaw (SBN #185365)
Michael H. Pearson (SBN #277857)
PEARSON SIMON & WARSHAW, LLP
15165 Ventura Boulevard, Suite 400
Sherman Oaks, California 91403
T: 818-788-8300
F: 818-788-8104
Email: dwarshaw@pswlaw.com
mpearson@pswlaw.com
Melissa S. Weiner*
Daniel K. Asiedu*
PEARSON SIMON & WARSHAW, LLP
800 LaSalle Avenue, Suite 2150
Minneapolis, Minnesota 55402
T: 612-389-0600
F: 612-389-0610
Email: mweiner@pswlaw.com
dasiedu@pswlaw.com
Rebecca K. Timmons (Fla. Bar No. 121701)*
LEVIN PAPANTONIO RAFFERTY
316 S. Baylen Street, Suite 600
Pensacola, Florida 32502
T: (850) 435-7140
Email: btimmons@levinlaw.com
Blake Hunter Yagman*
MILBERG COLEMAN BRYSON
PHILLIPS GROSSMAN, PLLC
100 Garden City Plaza, Suite 500
Garden City, New York 11530
T: (212) 594-5300
Email: byagman@milberg.com
Rachel Soffin*
MILBERG COLEMAN BRYSON
PHILLIPS GROSSMAN, PLLC
800 S. Gay Street, Suite 1100
Knoxville, Tennessee 37929
T: (865) 247-0080
Email: rsoffin@milberg.com
*Pro Hac Vice Forthcoming
Attorneys for Plaintiff and Proposed Class
(IN U.S. PLAINTIFF CASES ONLY)
(EXCEPT IN U.S. PLAINTIFF CASES)
(If Known)
(Firm Name, Address, and Telephone Number)
One Box Only)
(For Diversity Cases Only)
and One Box for Defendant)
or
(U.S. Government Not a Party)
and
(Indicate Citizenship of Parties in Item III)
(specify)
(Do not cite jurisdictional statutes unless diversity)
(See instructions):
| consumer fraud |
ZhaNF4cBD5gMZwczkkPF | UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
TEAMSTERS HEALTH & WELFARE
FUND
OF
PHILADELPHIA
AND
Civil Action No. ____________
VICINITY, on behalf of itself and all others
similarly situated,
Plaintiff,
CLASS ACTION COMPLAINT and
DEMAND FOR JURY TRIAL
AMARIN PHARMA, INC., AMARIN
PHARMACEUTICALS IRELAND
LIMITED, and AMARIN CORPORATION
PLC,
Defendants.
Plaintiff Teamsters Health & Welfare Fund of Philadelphia and Vicinity (“Plaintiff”)
brings this action on behalf of itself and all others similarly situated against Amarin Pharma, Inc.,
Amarin Pharmaceuticals Ireland Limited, and Amarin Corporation PLC (collectively “Amarin” or
“Defendants”). These allegations are based on investigations of counsel, publicly available
materials and knowledge, information, and belief.
INTRODUCTION
1.
This is an action under the Sherman Act and various state laws arising from
Defendants’ illegal scheme to delay competition in the United States and its territories for Vascepa,
a prescription medication approved by the U.S. Food and Drug Administration (“FDA”) to treat
hyperglyceridemia in adults. Plaintiff seeks overcharge damages arising from Defendants’
unlawful scheme to prevent generic competition for Vascepa.
2.
Since Amarin first began marketing Vascepa in 2012, it has engaged in an
anticompetitive strategy to block generic competition for Vascepa, its sole product, by hoarding
the world’s supply of the active pharmaceutical ingredient needed to make the drug.
3.
The active ingredient in Vascepa is icosapent ethyl (“IPE”), made from
eicosapentaeonic acid (“EPA”), an omega-3 fatty acid found in fish oil. Vascepa has been shown
both to lower triglycerides and to reduce the risk of cardiovascular events in patients who have
high triglycerides (150 mg/dL or higher). In 2020, annual sales of Vascepa in the United States
were over $600 million.
4.
In September and October of 2016, four drug companies filed applications with the
FDA to launch generic versions of Vascepa: Roxane Laboratories, Inc. and related entities, later
acquired by Hikma Pharmaceuticals Plc (“Hikma”), Dr. Reddy’s Laboratories Inc. (“DRL”), Teva
Pharmaceuticals USA, Inc. and related entities (“Teva”), and Apotex, Inc. (“Apotex”).1 Hikma,
DRL, and Teva each contended that all of the asserted patent claims were either invalid or not
infringed by their respective generic version of Vascepa. Amarin sued each of these generics in
turn. Apotex contended that some of the asserted patent claims were either invalid or not infringed
by Apotex’s generic version of Vascepa but did not challenge all of the asserted patent claims.
5.
Amarin settled with Teva in May 2018 and Apotex in June 2020. Pursuant to those
agreements, Teva and Apotex agreed to forego selling their respective generic versions of Vascepa
in the United States until August 9, 2029, or earlier under certain circumstances.
6.
Hikma and DRL, however, continued their patent fights and won at trial. On March
30, 2020, Judge M. Du Miranda, Federal District Court Judge for the District of Nevada, held that
1 Applications were previously filed with the FDA, but they were rejected after Amarin successfully extended its New
Chemical Entity exclusivity period, rendering those earlier-filed applications premature.
Amarin’s patents were invalid due to obviousness.
7.
After its patent victory, DRL promptly began preparations to launch generic
Vascepa, “only to discover that Amarin had foreclosed all the suppliers of the icosapent ethyl API
who have sufficient capacity to support a commercial launch in a timely manner.”2
8.
Hikma received FDA approval to launch its generic version of 1 g Vascepa on May
22, 2020.
9.
DRL received FDA approval to launch its generic version of 1 g Vascepa on August
7, 2020. As of that date, DRL had removed all legal and regulatory barriers to its entry into the
market for 1 g Vascepa, but it has been entirely foreclosed from entering that market due to
Amarin’s use of a series of exclusive contracts and other anticompetitive conduct to lock up the
world’s supply of IPE, the active pharmaceutical ingredient in Vascepa. Amarin had secured a
supply of several times Amarin’s own needs based on its anticipated sales.
10.
Amarin lost its appeal of Judge Miranda’s March 30, 2020, invalidity order on
September 3, 2020.
11.
Hikma launched limited amounts of its 1 g generic Vascepa on November 5, 2020,
hampered by Amarin’s anticompetitive capture of the world’s supply of IPE.
12.
Amarin was able to prevent DRL’s generic Vascepa launch and limit Hikma’s
launch by purposely contracting with at least four different API manufacturers3 – one or two is
standard in the pharmaceutical industry – using agreements that prevent these suppliers from
selling IPE API to any other manufacturer,4 and has otherwise foreclosed access to at least one
2 Complaint, Doc. No. 1, Dr. Reddy’s Laboratories Inc. v. Amarin Pharma, Inc., Amarin Pharmaceuticals Ireland
Limited, and Amarin Corporation PLC, No. 3:21-cv-10309-BRM-ZNQ (D.N.J. Apr. 27, 2021) (“DRL Complaint”),
¶3.
3 Nisshin Pharma Inc., Equatez Ltd., Chemport Inc., and Novasep.
4 See, e.g., Amarin Corp. plc, Quarterly Report (Form 10-Q), at 16 (Nov. 8, 2011) (“Following FDA approval of
[Vascepa] both agreements [with Equateq and Chemport] include annual purchase levels enabling Amarin to maintain
supply exclusivity with each respective supplier”) (emphasis added).
other major supplier.
13.
Amarin has no legitimate procompetive reason for entering into exclusive supply
agreements with these four manufacturers. The total annual capacity of these suppliers has been
more than triple Amarin’s requirements at relevant times in the past and is at least double Amarin’s
current requirements.
14.
Notably, Amarin has repeatedly touted its anticompetitive scheme to investors,
often coyly referring to “taking advantage of manufacturing barriers to entry,”5 but sometimes
bluntly stating that the addition of a new supplier “fortifies Amarin’s efforts to shield its Vascepa
patent beyond its scheduled 2030 expiration.”6
15.
As a result of Amarin’s scheme, DRL’s launch of generic Vascepa has been delayed
since August 2020, Hikma’s launch of generic Vascepa has been constrained by limited supply,
and Plaintiff and members of the class have been forced to pay anticompetitive prices for Vascepa
and its generic equivalent.
JURISDICTION AND VENUE
16.
This Court has jurisdiction over this action pursuant to 28 U.S.C. § 1332(d) because
this is a class action involving common questions of law or fact in which the aggregate amount in
controversy exceeds $5,000,000, exclusive of interest and costs; there are more than one hundred
members of each class; and at least one member of each of the putative classes is a citizen of a
state different from that of Defendants.
17.
This Court also has supplemental jurisdiction over state law claims pursuant to 28
U.S.C. § 1367(a).
5 Amarin Corp. plc, Annual Report (Form 10-K), at 3 (Feb. 29, 2012).
6 Press Release, Amarin Corp. plc, “Amarin Announces Approval of Supplemental New Drug Application for
Chemport
as
Additional
Vascepa®
Active
Pharmaceutical
Ingredient
Supplier”
(Apr.
18,
2013),
https://investor.amarincorp.com/news-releases/news-release-details/amarin-announces-approval-supplemental-new-
drug-application (last accessed July 7, 2021).
18.
Venue is appropriate within this District under 28 U.S.C. § 1391. Defendants
transact business within this District and/or have agents in and/or that can be found in this District,
and a portion of the affected interstate trade and commerce discussed below was carried out in this
District. At all relevant times, Amarin’s U.S. operations were headquartered in this District.
19.
The Court has personal jurisdiction over Defendants. Defendants have transacted
business, maintained substantial contacts, and/or committed overt acts in furtherance of the illegal
scheme throughout the United States, including in this District. The scheme has been directed at
and has had the intended effect of causing injury to individuals and companies residing in or doing
business throughout the United States, including in this District. Personal jurisdiction lies under
Fed. R. Civ. P. 4(k)(2) over the foreign domiciliary defendants.
THE PARTIES
A. Plaintiff
20.
Plaintiff Teamsters Health & Welfare Fund of Philadelphia and Vicinity is a health
and welfare benefits plan headquartered and with a principal place of business in Pennsauken, New
Jersey. Plaintiff provides health and welfare benefits to members and participants who reside in
numerous locations in the United States. Plaintiff purchased and/or provided reimbursement for
some or all of the purchase price for Vascepa other than for resale in Delaware, Florida, Indiana,
Maryland, New Jersey, and Pennsylvania at supracompetitive prices during the Class Period and
has thereby been injured. In addition, there is a substantial probability that in the future Plaintiff will
purchase Vascepa manufactured by Amarin. Plaintiff also has purchased and/or intends to purchase
generic versions of Vascepa, other than for resale, once they become available. Plaintiff paid and
reimbursed more for these products than they would have absent Defendants’ anticompetitive
conduct to fix, raise, maintain, and stabilize the prices and allocate markets for Vascepa.
B. Defendants
21.
Defendant Amarin Pharma, Inc. is a company organized and existing under the laws
of Delaware with its principal place of business at 1430 Route 206, Bedminster, NJ 07921.
22.
Defendant Amarin Pharmaceuticals Ireland Limited is a company incorporated
under the laws of Ireland with registered offices at 88 Harcourt Street, Dublin 2, Dublin, Ireland.
23.
Defendant Amarin Corporation plc is a company incorporated under the laws of
England and Wales with principal executive offices at 77 Sir John Rogerson’s Quay, Block C,
Gran Canal Docklands, Dublin 2, Ireland. Defendants Amarin Pharma, Inc., Amarin
Pharmaceuticals Ireland Limited, and Amarin Corporation plc are collectively referred to herein
as “Amarin.”
REGULATORY BACKGROUND
A. The Regulatory Structure for Approval of Drugs
24.
Under the Federal Food, Drug, and Cosmetic Act (“FDCA”), a company seeking
to market a new drug must obtain the approval of the FDA by filing a New Drug Application
(“NDA”). 21 U.S.C. §§ 301-92. An NDA must include specific data concerning the safety and
effectiveness of the drug, as well as information on applicable patents. 21 U.S.C. §§ 355(a), (b).
25.
When the FDA approves a brand manufacturer’s NDA, the brand manufacturer
may list in the FDA’s book of Approved Drug Products with Therapeutic Equivalence
Evaluations (called the “Orange Book”) any patent that it certifies (1) claims either the approved
drug product or approved methods of using the drug product, and (2) could reasonably be
asserted against a generic manufacturer who makes, uses, or sells the drug product without
authorization prior to the expiration of the listed patent(s). Relevant patents issued after NDA
approval must be listed in the Orange Book within 30 days of issuance. 21 U.S.C. §§ 355(b)(1),
26.
The FDA relies completely on the brand manufacturer’s certification about its
patents, as the FDA does not have the resources or authority to verify the patents for accuracy or
trustworthiness. In listing patents in the Orange Book, the FDA merely performs a ministerial act.
a. The Hatch-Waxman Amendments and Approval of Generic
Drugs
27.
In 1984, Congress enacted the Hatch-Waxman Amendments to the FDCA to
expedite the entry of less expensive generic competitors to brand drugs to reduce healthcare
expenses nationwide, while also providing for patent term extensions and the ability to file
prelaunch infringement suits to bolster pharmaceutical companies’ financial incentives to create
new and innovative products.
28.
The Hatch-Waxman Amendments achieved both goals, advancing substantially
the rate of generic product launches and ushering in an era of historic revenues and profits for
brand pharmaceutical manufacturers. The Hatch-Waxman Amendments simplified the regulatory
hurdles for prospective generic manufacturers by eliminating the need for them to file lengthy and
costly NDAs.
29.
A manufacturer seeking approval to sell a generic version of a brand drug may
instead file an ANDA. An ANDA relies on the scientific findings of safety and effectiveness
included in the NDA for the brand drug, or reference listed drug (“RLD”). The ANDA applicant
must further show that the generic drug is bioequivalent (i.e., that the active ingredient of the
proposed generic drug is absorbed in the patient’s blood stream to the same extent and for the
same amount of time as the RLD), and that it is pharmaceutically equivalent (e.g., that it contains
the same active ingredient(s), dosage form, route of administration, and strength as the RLD).
Generic drugs that are both bioequivalent and pharmaceutically equivalent are considered
“therapeutically equivalent” to the RLD.
30.
The FDCA and Hatch-Waxman Amendments operate on the proven scientific
principle that therapeutically equivalent drugs are substitutable. Generic drugs that are
therapeutically equivalent to their brand counterparts are given an “AB” rating by the FDA, a
designation which causes a pharmacy presented with a prescription for the brand to automatically
dispense the generic instead.
b. Paragraph IV Certifications
31.
Under the Hatch-Waxman Amendments, 21 U.S.C. § 355(j)(2)(A)(vii), a generic
manufacturer’s ANDA must contain one of four certifications:
(i)
That no patent for the brand drug has been filed with the FDA (a
“Paragraph I certification”);
(ii)
That the patent for the brand drug has expired (a “Paragraph II
certification”);
(iii)
That the patent of the brand drug will expire on a particular date and
the generic company does not seek to market its generic product
before that date (a “Paragraph III certification”); or
(iv)
That the patent for the brand drug is invalid, unenforceable, and/or
will not be infringed by the generic manufacturer’s proposed
product (a “Paragraph IV certification”).
32.
To obtain FDA approval of an ANDA prior to the expiration of a patent or patents
listed in the Orange Book, a generic manufacturer must file a Paragraph IV certification and serve
timely notice to the brand manufacturer. The filing of an ANDA with a Paragraph IV certification
gives rise to a cause of action for patent infringement pursuant to 35 U.S.C. § 271(e)(2). If the brand
manufacturer initiates a patent infringement action against the generic filer within 45 days of
receiving notice of the Paragraph IV certification, the FDA will not grant final approval to the
ANDA until the earlier of (a) the passage of thirty months (the “30-month stay”), or (b) the
issuance of a decision by a court that the patent is invalid or not infringed by the generic
manufacturer’s ANDA. 21 U.S.C. § 355(j)(5)(B)(iii).
33.
The FDA may grant tentative approval to an ANDA when it determines that the
ANDA would otherwise be ready for final approval but for the existence of an unexpired patent
for which the generic filer has submitted a Paragraph III certification (i.e., that the generic does
not intend to market the ANDA product prior to the expiration of the patent) or the existence of a
regulatory exclusivity, such as the 30-month stay.
B. The Benefits of AB-Rated Generic Competition
34.
Since the FDA deems AB-rated generic versions of brand drugs to be just as safe
and effective as their brand counterparts, the only material mode of differentiating the two is their
price. On average, generics are at least 10% less expensive than their brand counterparts when
there is a single generic competitor. This discount typically increases to 50-80% (or more) when
there are multiple generic competitors on the market for a given brand.
35.
Every state has adopted laws that either require or permit pharmacies to
automatically substitute AB-rated generic equivalents for brand prescriptions (unless the
prescribing physician has affirmatively requested the brand). Accordingly, once one generic
equivalent enters the market, the generic quickly captures sales of the corresponding brand drug,
often capturing 80% or more of the brand’s sales within the first six months.
36.
The Federal Trade Commission (“FTC”) found that by 12 months after generic
entry, generics on average capture 90% of corresponding brand drug sales and (with multiple
generics on the market) prices drop 85% relative to brand prices. That is because once multiple
generic competitors enter, the competitive process accelerates, and multiple generic sellers
typically compete vigorously with each other for market share by driving prices further down
toward marginal manufacturing costs. As a result, competition from generic drugs is viewed by
brand drug companies as a grave financial threat.
37.
By contrast, generic competition enables purchasers (like Class members here) to
purchase substantially less expensive generic versions of a drug instead of the more expensive
brand, and to purchase generic versions of a drug at increasingly lower prices as more generic
versions of that brand drug enter the market. In addition, generic competition enables purchasers
to pay lower prices for their remaining brand drugs when the brand company lowers its brand
price to compete with the generic for sales.
38.
Once exclusivity is lost and generic entry occurs—an event sometimes referred to
as the “patent cliff”—the brand manufacturer can expect a significant drop in profits, as it is forced
to either compete by dramatically lowering prices or accept dramatically lower sales. The tradeoff
of longer exclusivity rights in return for quick and effective generic entry after loss of exclusivity
was fundamental to the policies and procedures that Congress established in the Hatch-Waxman
Act, and embraced by the states in their generic substitution laws.
C. Regulatory Exclusivities for New Drugs
39.
In order to promote a balance between new drug innovation and generic drug
competition, the Hatch-Waxman Amendments also provided for exclusive marketing rights for
new drugs. These exclusivities are granted by the FDA upon approval of a drug if statutory
requirements are met. These exclusivities are listed in the Orange Book, along with any applicable
patents and can run concurrently with the listed patents.
40.
One such exclusivity, New Chemical Entity (NCE) exclusivity, applies to products
containing chemical entities never previously approved by FDA either alone or in combination.
If a product receives NCE exclusivity, the FDA may not accept for review any ANDA for a drug
containing the same active moiety for five years from the date of the NDA’s approval, unless the
ANDA contains a certification of patent invalidity or non-infringement, in which case an
application may be submitted after four years. 21 U.S.C. § 355(j)(5)(F)(ii); 21 C.F.R. §
314.108(b)(2).
41.
A drug product may also receive a three-year period of exclusivity if its sponsor
submits a supplemental application that contains reports of new clinical investigations (other than
bioavailability studies) conducted or sponsored by the sponsor that were essential to approval of
the supplemental application. If this exclusivity is granted the FDA may not approve an ANDA
for that drug for three years from the date on which the supplemental application is approved. 21
U.S.C. § 355(j)(5)(F)(iv); 21 C.F.R. § 314.108(b)(2)(5).
D. Supply and Use of API in Drug Products
42.
Brand and generic manufacturers ordinarily purchase the API for their drugs from
API suppliers Although a generic manufacturer’s process for manufacturing the final dosage form
may be different from the manufacturer of the RLD, it is typical for the different manufacturers to
use identical API.
43.
In order to sell API in the United States, the API manufacturer ordinarily must file
a Drug Master File (“DMF”) with the FDA. The DMF provides “confidential detailed information
about facilities, processes, or articles used in the manufacturing, processing, packaging, and storing
of” the API.7 To use an API for a specific drug, the brand or generic drug manufacturer must
reference the API supplier’s DMF in its application to the FDA. In reviewing the drug
manufacturer’s NDA or ANDA, the FDA then reviews the technical information contained in, and
inspects the relevant facilities described in, each DMF. A single DMF may be referenced by
multiple manufacturers.
7 Guidelines For Master Drug Files, § I, https://www.fda.gov/drugs/guidances-drugs/drug-master- files-guidelines (last
accessed July 7, 2021).
44.
The entire process of API development and FDA approval of a supplier’s DMF in
support of an NDA or ANDA takes between one and three years.
45.
If a manufacturer wants or needs to change its API supplier for a drug, it must file
a supplement with the FDA referencing the new API supplier’s DMF and submit data for drug
batches using the new supplier’s API. The manufacturer may only market its drug using the new
supplier’s API if the FDA approves of the change. It is time consuming to prepare and file the
necessary supplement and then obtain FDA approval of the change in API supplier.
46.
If a current DMF holder is willing, a generic drug manufacturer may use API from
an API supplier that already has a DMF on file and reference that DMF in their ANDAs. If,
however, no current DMF holder is willing to supply the generic manufacturer with API, it must
identify a new API supplier (who does not yet have a DMF on file) and work with that supplier to
develop the API and submit a DMF.
47.
Because of the significant costs involved in qualifying an API supplier as well as
the need to continue to ensure quality control by the API supplier, it is industry practice for both
brand and generic drug manufacturers to generally use only one or two API suppliers to support
a drug application. Typically, a drug manufacturer will enter an exclusive contract with an API
supplier only where there are concerns about ensuring an adequate API supply for manufacturing
FACTS
A. Vascepa
48.
Vascepa is the brand name for the icosapent ethyl drug product marketed by
Amarin, manufactured using the active pharmaceutical ingredient IPE, which is derived from
eicosapentaenoic acid (“EPA”), a type of omega-3 fatty acid derived from fish oil.
49.
On July 26, 2012, Amarin received FDA approval to market Vascepa: “as an
adjunct to diet to reduce triglyceride (TG) levels in adult patients with severe (≥500 mg/dL)
hypertriglyceridemia.” Subsequently, the FDA determined that Vascepa was entitled to NCE
exclusivity, see supra at paragraph 40, which ran from the NDA approval date to July 26, 2017.
50.
On December 13, 2019, the FDA approved a new indication for Vascepa: “as an
adjunct to maximally tolerated statin therapy to reduce the risk of myocardial infarction, stroke,
coronary revascularization, and unstable angina requiring hospitalization in adult patients with
elevated triglyceride (TG) levels (≥ 150 mg/dL) and . . . established cardiovascular disease or . . .
diabetes mellitus and 2 or more additional risk factors for cardiovascular disease.” The new
indication is entitled to data exclusivity, which is scheduled to expire on December 13, 2022.
51.
Amarin currently markets Vascepa in the 1 g and 500 mg strengths. Amarin has raised
the price of 1 g Vascepa dramatically since its launch: the list price for the 1 g strength of Vascepa was
estimated to be $308.25 per month in 2019, $355 per month in 2020, and is currently estimated to
be around $368.86.
52.
Vascepa is Amarin’s only product, with revenues of $607 million in 2020.8
B. Amarin set out to lock up the world’s supply of Vascepa API for the explicit purpose
of preventing generic competition.
53.
As discussed above, the API for Vascepa is IPE, which is derived from fish oil.
54.
For more than a decade, Amarin has set out to lock up the world’s supply of IPE
for the explicit purpose of “protecting the potential commercial exclusivity” of Vascepa.9
55.
From the beginning Amarin stated its intention to take advantage of manufacturing
barriers to entry to prevent competition: “We will seek to protect the potential commercial
8 Amarin Corp. plc, Annual Report (Form 10-K), at F-5 (Feb. 25, 2021).
9 Amarin Corp. plc Annual Report (Form 10-K), at 3 (Feb. 20, 2012).
exclusivity of [Vascepa] through a combination of obtaining and maintaining intellectual property
rights and regulatory exclusivity, taking advantage of manufacturing barriers to entry and
maintaining trade secrets.”10
56.
On April 18, 2013, Amarin announced that it had filed a supplemental New Drug
Application (“sNDA”) to add Chemport Inc. (“Chemport”) as an API supplier. In that
announcement Amarin confirmed that the “manufacturing barriers to entry” that it intended to take
advantage of are the various exclusive contracts that it used to foreclose the supply of Vascepa
API: “The addition of Chemport contributes to the planned expansion of the Vascepa
manufacturing supply chain and is additional progress toward Amarin’s goal to protect the
commercial potential of Vascepa to beyond 2030 through a combination of patent protection,
regulatory exclusivity, trade secrets and by taking advantage of manufacturing barriers to
entry.”11
57.
Joseph Zakrewski, Amarin’s CEO, further confirmed that the key barrier to entry
was the supply of API, stating that: “The move [to add Chemport as an API supplier] also fortifies
Amarin’s efforts to shield its Vascepa patent beyond its scheduled 2030 expiration.”12
58.
Amarin further explained its anticompetitive strategy in its 2014 Annual Report:
“Certain of our agreements with our suppliers include minimum purchase
obligations and limited exclusivity provisions based on such minimum purchase
obligations. If we do not meet the respective minimum purchase obligations in our
supply agreements, our suppliers, in certain cases, will be free to sell the active
pharmaceutical ingredient of Vascepa to potential competitors . . . While we
anticipate that intellectual property barriers and FDA regulatory exclusivity will be
10 Id. (emphasis added); see also Amarin Corp. plc Annual Report (Form 10-K), at 21 (Feb. 27, 2014) (“FDA
marketing exclusivity is separate from, and in addition to, patent protection, trade secrets and manufacturing barriers
to entry which also help protect Vascepa against generic competition.”).
11 Press Release, Amarin Corp. plc, “Amarin Announces Approval of Supplemental New Drug Application for
Chemport
as
Additional
Vascepa®
Active
Pharmaceutical
Ingredient
Supplier”
(Apr.
18,
2013),
https://investor.amarincorp.com/news-releases/news-release-details/amarin-announces-approval-supplemental-new-
drug-application (last accessed July 7, 2021) (emphasis added).
12 “Amarin wins U.S. nod to add S. Korea supplier,” Hartford Business Journal (Apr. 19, 2013) (emphasis added),
https://www.hartfordbusiness.com/article/amarin-wins-us-nod-to-add-s-korea- supplier (last accessed July 7, 2021).
the primary means to protect the commercial potential of Vascepa, the availability
of Vascepa active pharmaceutical ingredient from our suppliers to our potential
competitors would make our competitors’ entry into the market easier and more
attractive.13
59.
Amarin expected its scheme to work and wanted the market to know that fact:
In April 2012, the FDA published draft guidance for companies that may seek to
develop generic versions of Vascepa. If an application for a generic version of
Vascepa were filed and if new chemical entity, or NCE exclusivity is not granted
to Vascepa, the FDA may accept the filing for review and we would likely engage
in costly litigation with the applicant to protect our patent rights. If the generic filer
is ultimately successful in patent litigation against us, meets the requirements for a
generic version of Vascepa to the satisfaction of the FDA (after any applicable
regulatory exclusivity period and, typically, the litigation-related 30-month stay
period expires), and is able to supply the product in significant commercial
quantities, the generic company could, with the market introduction of a generic
version of Vascepa, limit our U.S. sales, which would have an adverse impact on
our business and results of operations.14
60.
Amarin further warned the market that failure of its anticompetitive scheme was a
material investment risk: “Risks Related to our Reliance on Third Parties – We may not be able to
maintain our exclusivity with our third-party Vascepa suppliers if we do not meet minimum
purchase obligations due to lower than anticipated sales of Vascepa.”15
C. Amarin has, in fact, locked up the world’s supply of Vascepa API.
61.
To effectuate its anticompetitive scheme, Amarin has entered into exclusive or de
facto exclusive agreements with at least four of the largest suppliers for icosapent ethyl API
and has otherwise secured exclusive supply from yet another supplier.
13 Amarin Corp. plc, Annual Report (Form 10-K), at 40 (March 3, 2015).
14 Amarin Corp. plc, Quarterly Report (Form 10-Q), at 31 (Aug. 8, 2013) (emphasis added).
15 Amarin Corp. plc, Quarterly Report (Form 10-Q), at 46 (Nov. 7, 2013); see also Amarin Corp. plc, Quarterly Report
(Form 10-Q), at 59 (Aug. 7, 2014) (“Certain of our agreements with our suppliers include minimum purchase
obligations and limited exclusivity provisions based on such minimum purchase obligations. If we do not meet the
respective minimum purchase obligations in our supply agreements, our suppliers, in certain cases, will be free to sell
the active pharmaceutical ingredient of Vascepa to potential competitors of Vascepa. Similarly if we terminate certain
of our supply agreements, such suppliers may be free to sell the active pharmaceutical ingredient of Vascepa to
potential competitors of Vascepa. While we anticipate that intellectual property barriers and FDA regulatory
exclusivity will be the primary means to protect the commercial potential of Vascepa, the availability of Vascepa
active pharmaceutical ingredient from our suppliers to our potential competitors would make our competitors’ entry
into the market easier and more attractive.”).
62.
In February 2009, Amarin entered into a supply agreement with Japan-based
Nisshin Pharma Inc. (“Nisshin”), pursuant to which Nisshin agreed to supply Amarin with IPE
(referred to as E-EPA in the agreement). Amarin paid Nisshin $500,000 when the agreement was
signed and agreed to pay Nisshin another $500,000 when Amarin obtained approval to market
Vascepa either in the U.S. or the European Union. The agreement contained a minimum purchase
commitment.16
63.
Amarin believed that Nisshin could produce sufficient quantities of API to support
Amarin’s launch of Vascepa. Nonetheless, it continued to amass API supply and suppliers.
64.
In June 2011, the BBC reported that Amarin had entered into a supply agreement
with Scotland-based Equateq Ltd. (“Equateq”) pursuant to which Equateq agreed to supply Amarin
with the API needed to manufacture Vascepa. Amarin again committed to significant, long-term
purchases. In fact, although the CEO of Equateq refused to provide further specifics of the supply
agreement, he claimed it was worth £100m over its life.17 Amarin revealed to investors in August
2011 that the minimum purchase commitment was intended to prevent Equateq from selling
Vascepa API to any potential competitor of Amarin. Amarin also paid Equateq a $1m
“commitment fee” in May 2011.18 Equateq was acquired by BASF in May 2012.
65.
Also in 2011, Amarin secured an exclusive supply contract with Korea-based
Chemport Inc. (“Chemport”). This agreement contained minimum purchase requirements to
16 Supply Agreement Between (1) Nisshin Pharma Inc. (“Nisshin”) and (2) Amarin Pharmaceuticals (Ireland) Ltd.
(“Amarin”), dated February 23, 2009, https://www.sec.gov/Archives/edgar/data/897448/000095016209000453/
ex4_86.htm (last accessed July 7, 2021).
17 “Equateq nets £100m deal to supply fish oil for heart treatment,” The Scotsman (June 29, 2011),
https://www.scotsman.com/business/equateq-nets-ps100m-deal-supply-fish-oil-heart-treatment-1670500
(last
accessed July 7, 2021).
18 Amarin Corp. plc Quarterly Report (Form 10-Q), at 9 (Aug. 9, 2011) (“Following FDA approvals of [Vascepa],
both agreements [with Equateq and Chemport Inc. (see para. 53 below)] include annual purchase levels to enable
Amarin to maintain exclusivity with each respective supplier, and to prevent potential termination of the
agreements.”).
prevent Chemport from selling API to potential generic manufacturers and also required Amarin
to pay Chemport in cash for any shortfall in the minimum purchase obligations. As part of the
agreement, Amarin agreed to pay Chemport $1.1m for the purchase of raw materials and to provide
an additional $3.3m to Chemport as equity investment.19 During the nine months ended September
30, 2013, Amarin made payments of $4.8 million to Chemport.20
66.
Equateq and Chemport were approved by the FDA to manufacture Vascepa API in
April 2013.21
67.
In December 2012, Amarin announced that it had entered into an additional
exclusive agreement with a fourth supplier, an “exclusive consortium” of companies including
Canada-based Slanmhor Pharmaceutical, Inc., Ocean Nutrition Canada, and Novasep (collectively
referred to in this Complaint as “Novasep”). As part of the agreement, Amarin agreed to pay up to
$2.3 million in development fees and made a commitment of up to $15 million, credited against
future API material purchase. Amarin made payments of $3.9 million to Novasep in the quarter
in which the agreement was signed, and an additional $1.4 million in the following quarter.22 The
Novasep agreement includes minimum purchase obligations, and Amarin is required to make cash
payments to Novasep in the event of a shortfall.23 During first nine months of 2013, Amarin made
payments of $6.1 million to Novasep.24 In July 2014, Amarin cancelled the agreement with the
consortium and in July 2015 it entered a new agreement with Novasep in its own right.25
68.
Amarin purchased approximately $25.7 million worth of Vascepa API in 2013 from
Nisshin and Chemport, and also paid $13.9 million to Novasep related to “commitments,” stability
19 Amarin Corp. plc Annual Report (Form 10-K), at F-25 (Feb. 27, 2014).
20 Amarin Corp. plc Quarterly Report (Form 10-Q), at 15 (Nov. 7, 2013).
21 Amarin Corp. plc Quarterly Report (Form 10-Q), at 13 (May 9, 2013).
22 Amarin Corp. plc Quarterly Report (Form 10-Q), at 13 (May 9, 2013).
23 Amarin Corp. plc Quarterly Report (Form 10-Q), at 15 (Aug. 8, 2013).
24 Amarin Corp. plc Quarterly Report (Form 10-Q), at 15 (Nov. 7, 2013).
25 Amarin Corp. plc Annual Report (Form 10-K), at 14 (Feb. 25, 2016).
and technical batches, and advances on future API purchases.26
69.
In October 2013, an FDA review panel voted against expanding Vascepa’s
approved indications. Although this was expected to result in less-than-hoped-for demand for
Vascepa, Novasep and BASF planned to continue supplying Vascepa API at the agreed-upon
70.
Finally, Amarin has secured significant additional supply from another Japan-
based supplier, Nippon Suisan, and that company’s supply is not available to any U.S. generic.
71.
The foregoing agreements between Amarin and the Vascepa API suppliers were
intended to and have limited competition in the market for generic Vascepa. At bottom, the API
suppliers took millions of dollars in payments from Amarin in exchange for an agreement not to
sell the essential API, regardless of whether Amarin needed the API for its own production needs
or whether there were other market opportunities for the sale of the API. By foreclosing API supply
from generic competitors, Amarin has been able to capture supracompetitive profits from the
inflated sales of Vascepa and has shared those supracompetitive profits with the API suppliers to
buy their complicity in the anticompetitive scheme.
D. Amarin secured more than twice the API supply than it needs for legitimate business
purposes.
72.
In February 2019, Amarin’s CEO John Thero stated that Amarin’s anticipated 2019
sales of Vascepa amounted to $350 million, but the company was purchasing API to support sales
of more than $700 million. Thero was clear that Amarin was not raising its guidance or expecting to
sell more than $700 million in Vascepa that year, but was merely purchasing excess supply.28
26 Amarin Corp. plc Quarterly Report (Form 10-Q), at 33 (Nov. 7, 2013).
27 “Novasep to keep supplying Amarin with Vascepa API,” Outsourcing-Pharma.com (Oct. 30, 2012),
https://www.outsourcing-pharma.com/Article/2013/10/30/Novasep-to-keep-supplying-Amarin-with-Vascepa-API
(last accessed July 7, 2021).
28 Amarin Corp. plc Earnings Call (Feb. 27, 2019), https://www.fool.com/earnings/call-transcripts/ 2019/02/27/
amarin-corporation-plc-amrn-q4-2018-earnings-confe.aspx (last accessed July 7, 2021).
73.
At the same time that Amarin was purchasing more than twice its supply needs for
2019 from its existing suppliers, Amarin was in the process of locking up 420 tons worth of
additional annual supply.29 For comparison, the entire U.S. market for Vascepa is estimated to
require 450 tons per year.
E. Amarin’s excess supply makes no economic sense absent anticompetitive advantages
and is contrary to industry practice.
74.
Amarin acknowledged its role in its suppliers’ efforts to expand their capacity:
The agreements with each of our API suppliers contemplate phased manufacturing
capacity expansions designed to create sufficient manufacturing capacity to meet
anticipated demand for API material for [Vascepa] following FDA approval.
Accordingly, Nisshin and our other potential suppliers are currently working to
expand and qualify their production capabilities to meet regulatory requirements to
manufacture the API for [Vascepa]. These API suppliers are self-funding these
expansion and qualification plans with contributions from Amarin.’30
75.
Amarin provided further detail about the expenses necessary to develop and
maintain so many API suppliers:
Among the conditions for FDA approval of a pharmaceutical product is the
requirement that the manufacturer’s quality control and manufacturing procedures
conform to current Good Manufacturing Practice, or cGMP, which must be
followed at all times. The FDA typically inspects manufacturing facilities before
regulatory approval of a product candidate, such as [Vascepa], and on an ongoing
basis. In complying with cGMP regulations, pharmaceutical manufacturers must
expend resources and time to ensure compliance with product specifications as well
as production, record keeping, quality control, reporting, and other requirements.
Our NDA filed with the FDA for [Vascepa] references one supplier of our API,
Nisshin, with which we have had the longest relationship and which we believe is
qualified to support our initial commercial launch of [Vascepa]. We have defined
with the FDA our plan and specifications for qualifying the additional API
suppliers. We intend to submit sNDAs for the use of these additional API suppliers
after the suppliers successfully complete the specified process and facility
qualifications and after the NDA for the MARINE indication is approved.”31
29 “Amarin: What The Street Hasn’t Factored In And Why Amarin Is Worth $80,” Seeking Alpha (Oct. 9, 2018),
https://seekingalpha.com/article/4210747-amarin-what-street-hasnt-factored-in-and-why-amarin-is-worth-80
(last
accessed July 7, 2021) (“Nippon Suisan (1332 JT), or better known as “Nissui” in the Japanese stock market, has 420
tons worth of annual high-grade EPA supply, solely aimed for the further roll-out of Amarin’s Vascepa.”).
30 Amarin Corp. plc Annual Report (Form 10-K), at 11 (Feb. 20, 2012) (emphasis added).
31 Amarin Corp. plc Quarterly Report, at 16 (Nov. 8, 2011).
76.
As these public statements confirm, it is expensive and time consuming for each
new API supplier to develop, obtain regulatory approval for, and maintain quality control of its
API manufacturing process, and Amarin bears a significant share of that burden.
77.
On the other hand, it is possible and less expensive to scale up the supply from an
existing manufacturer than it is to qualify additional suppliers. Consequently, standard industry
practice is to have only one or two API suppliers.32
78.
In addition to saving initial setup costs, the benefits of scale result in volume
discounts, which Amarin foregoes by engaging additional suppliers with minimum purchase
requirements.
79.
Given these inefficiencies, the only economic advantages from having four API
suppliers, and obtaining excess API inventory, results from the inability of generic competitors to
obtain API supply.
F. Amarin’s scheme succeeded in thwarting generic competition.
80.
DRL obtained final FDA approval on August 7, 2020 but has still been unable to
secure a supply of API sufficient to support a launch of its generic Vascepa.33
81.
Hikma, on the other hand, was able to launch on November 5, 2020, but was forced
to release limited quantities due to supply constraints.34
82.
For its part, Amarin believes its scheme is working, and wants the market to know:
“We have heard from various suppliers that they have been approached regarding supplying API
32 Amarin Corp. plc Annual Report (Form 10-K), at 75 (Feb. 27, 2019) (“our current supply chain is scalable”); see
also, Amarin Corp. plc Earnings Conference Call Transcript (Feb. 27, 2019) (“We have a supplier network that
consists of over 20 independent companies. The API piece of that – we have multiple suppliers on. They’re competing
with one another. And they’re interested in expanding capacity.”), https://www.fool.com/earnings/call-
transcripts/2019/02/27/amarin-corporation-plc-amrn-q4-2018-earnings-confe.aspx (last accessed July 7, 2021).
33 DRL Complaint at ¶ 81.
34 “Amarin launches Vascepa in all-important Europe as it slowly bleeds share to U.S. generic,” Fierce Pharma (Apr.
6, 2021), https://www.fiercepharma.com/marketing/amarin-launches-vascepa-all-important-europe-as-blockbuster-
to-be-heart-drug-slowly (last accessed July 7, 2021).
for generic use. These suppliers informed us that they turned down such approaches for various
reasons including that they don’t have excess capacity.”35 In a press release discussing the Court
of Appeals decision, Amarin acknowledged that generic manufacturers “are likely to have limited
supply capacity.”36
CAUSATION
83.
Generic icosapent ethyl would have entered the market as early as August 2020, the
date of DRL’s final ANDA approval, because but for Amarin’s anticompetitive conduct described
above, there would have been sufficient supply of Vascepa API for DRL to do so.
84.
Likewise, Hikma would have launched its generic Vascepa at full supply because,
absent Amarin’s anticompetitive conduct, there would have been sufficient supply of Vascepa API
for Hikma to do so.
85.
Instead, Amarin willfully and unlawfully maintained its monopoly power in the
relevant market by entering exclusive contracts with API suppliers and engaging in other conduct
alleged herein to exclude generic competition and maintain supracompetitive prices for Vascepa.
86.
The only impediment to DRL’s generic icosapent ethyl entering the market is
Amarin’s unlawful conduct.
87.
Likewise, the only impediment to Hikma’s fully supplying demand for generic
icosapent ethyl is Amarin’s unlawful conduct.
88.
Amarin’s conduct had the purpose and effect of preventing competition to Vascepa,
permitting Amarin to maintain supracompetitive prices for Vascepa, enabling Amarin to sell
35 Amarin Corp. plc Earnings Call Transcript (Apr. 13, 2020), https://www.fool.com/earnings/call-transcripts/2020/04/13/amarin-
corporation-plc-amrn-q1-2020-earnings-call.aspx (last accessed July 7, 2021).
36 Press Release, Amarin Corp. plc, “Amarin Provides Update Following Ruling in Vascepa® ANDA Patent
Litigation” (Sept. 3, 2020), https://investor.amarincorp.com/news-releases/news-release-details/amarin-provides-
update-following-ruling-vascepar-anda-patent (last accessed July 7, 2021).
Vascepa without competition, and allowing Amarin to reap monopoly profits, to the detriment of
purchasers.
MARKET POWER AND DEFINITION
89.
The pharmaceutical marketplace is characterized by a “disconnect” between
product selection and the payment obligation. State laws prohibit pharmacists from dispensing
many pharmaceutical products, including Vascepa, to patients without a prescription. The
prohibition on dispensing certain products without a prescription creates this disconnect. The
patient’s doctor chooses which product the patient will buy while the patient (and in most cases
his or her insurer) has the obligation to pay for the product.
90.
Brand manufacturers, including Amarin, exploit this price disconnect by employing
large sales forces that visit doctors’ offices and persuade them to prescribe the brand
manufacturers’ products. These sales representatives do not advise doctors of the cost of the
branded products. Studies show that doctors typically are not aware of the relative costs of brand
pharmaceuticals and, even when they are aware of the relative costs, they are largely insensitive
to price differences because they do not pay for the products. The result is a marketplace in which
price plays a comparatively unimportant role in product selection.
91.
The relative unimportance of price in the pharmaceutical marketplace reduces what
economists call the price elasticity of demand - the extent to which unit sales go down when price
goes up. This reduced price elasticity, in turn, gives brand manufacturers the ability to raise prices
substantially above marginal cost without losing so many sales as to make the price increase
unprofitable. The ability to profitably raise prices substantially above marginal costs is what
economists and antitrust courts refer to as market power. The result of these pharmaceutical market
imperfections and marketing practices is that brand manufacturers gain and maintain market power
with respect to many branded prescription pharmaceuticals, including Vascepa.
92.
At all relevant times, Amarin had monopoly power in the market for Vascepa
because it had the power to exclude competition and/or raise or maintain the price of Vascepa at
supracompetitive levels without losing enough sales to make supracompetitive prices unprofitable.
93.
A small but significant non-transitory increase to the price of brand Vascepa would
not have caused a significant loss of sales sufficient to make the price increase unprofitable.
94.
Vascepa does not exhibit significant, positive cross-elasticity of demand with
respect to price with any other product for the treatment of hypertriglyceridemia.
95.
Brand Vascepa is differentiated from all other products currently on the market for
treatment of hypertriglyceridemia.
96.
Amarin needed to control only brand Vascepa, and no other products, in order to
maintain the price of icosapent ethyl profitably at supracompetitive prices. Only the market entry
of competing, AB-rated generic versions of Vascepa unconstrained by supply issues would render
Amarin unable to profitably maintain their prices for Vascepa without losing substantial sales.
97.
Amarin had, and exercised, the power to exclude generic competition to brand
Vascepa.
98.
At all relevant times, Amarin enjoyed high barriers to entry with respect to
competition in the relevant product market due to patent and other regulatory protections and high
costs of entry and expansion, which protect brand Vascepa from the forces of price competition.
99.
There is direct evidence of market power and anticompetitive effects available in
this case sufficient to show Amarin’s ability to control the price of Vascepa and generic Vascepa,
and to exclude relevant competitors, without the need to show the relevant antitrust markets. The
direct evidence consists of, inter alia, the following facts: (a) generic Vascepa would have entered
the market at a substantial discount to brand Vascepa but for Amarin’s anticompetitive conduct; (b)
Amarin’s gross margin on Vascepa at all relevant times was very high; and (c) Amarin never
lowered the price of Vascepa to the competitive level in response to the pricing of other brand or
generic drugs, and indeed enjoyed rising sales as it dramatically increased the price of Vascepa.
100.
To the extent proof of monopoly power by defining a relevant product market is
required, Plaintiff alleges that the relevant antitrust market is the market for Vascepa and its AB-
rated generic equivalents.
101.
The United States, the District of Columbia, and the U.S. territories constitute the
relevant geographic market.
102.
Amarin’s market share in the relevant market was 100% prior to Hikma’s
constrained generic launch, implying substantial monopoly power.
MARKET EFFECTS
103.
Amarin willfully and unlawfully maintained its market power by engaging in an
overarching scheme to exclude competition. Amarin designed a scheme to delay competition on
the products’ merits to further Amarin’s anticompetitive purpose of forestalling generic
competition against Vascepa. Amarin carried out the scheme with the anticompetitive intent and
effect of maintaining supracompetitive prices for icosapent ethyl.
104.
Amarin’s exclusivity contracts with API suppliers had the purpose and effect of
unreasonably restraining and injuring competition by protecting brand Vascepa from generic
competition. These actions allowed Amarin to maintain a monopoly and exclude competition in
the market for Vascepa and its AB-rated generic equivalents, to the detriment of Plaintiff and all
other members of the Classes.
105.
Amarin’s exclusionary conduct delayed generic competition and unlawfully
enabled Amarin to sell Vascepa without generic competition. Were it not for Amarin’s illegal
conduct, one or more generic versions of Vascepa would have entered the market sooner.
106.
Amarin’s exclusionary conduct also limited Hikma’s launch of generic Vascepa,
enabling Amarin to sell Vascepa with reduced generic competition.
107.
Amarin’s anticompetitive conduct caused Plaintiff and all members of the Classes
to pay more than they would have paid for Vascepa and generic equivalents absent their illegal
conduct.
108.
If generic competitors had not been unlawfully prevented from entering the market
earlier and competing in the relevant markets, Plaintiff and members of the Classes would have
paid less for icosapent ethyl by (a) paying lower prices on their remaining brand purchases of
Vascepa, and/or (b) substituting purchases of less-expensive generic Vascepa for their purchases
of more-expensive brand Vascepa.
109.
Thus, Amarin’s unlawful conduct deprived Plaintiff and members of the Classes of
the benefits from the competition that the antitrust laws are designed to ensure.
ANTITRUST IMPACT
110.
During the relevant time period, Plaintiff and members of the Classes purchased
substantial amounts of Vascepa indirectly from Amarin. As a result of Amarin’s illegal conduct,
Plaintiff and the members of the Classes were compelled to pay, and did pay, artificially inflated
prices for Vascepa. Those prices were substantially greater than the prices that members of the
Classes would have paid absent the illegal conduct alleged herein, because: (1) the price of brand-
name Vascepa was artificially inflated by Amarin’s illegal conduct, and (2) members of the Classes
have been deprived of the opportunity to purchase lower-priced generic versions of Vascepa. The
supracompetitive prices were paid at the point of sale, which is where Plaintiff and the Classes
suffered antitrust impact.
111.
As a result, Plaintiff and members of the Classes have sustained substantial damage
to their business and property in the form of overcharges. The full amount and form of such
damages will be calculated after discovery and upon proof at trial. Commonly used and well-
accepted economic models can be used to measure both the extent and the amount of the
supracompetitive charge passed through the chain of distribution to Plaintiff and the members of
the Classes.
112.
General economic theory recognizes that any overcharge at a higher level of
distribution generally results in higher prices at every level below. See Hovenkamp, FEDERAL
ANTITRUST POLICY, THE LAW OF COMPETITION AND ITS PRACTICE (1994) at 624.
According to Professor Hovenkamp, “[e]very person at every stage in the chain will be poorer as
a result of the monopoly price at the top.”
113.
Further, the institutional structure of pricing and regulation in the pharmaceutical
drug industry assures that overcharges at the higher level of distribution result in higher prices paid
by members of the Classes.
114.
Amarin’s anticompetitive actions enabled it to indirectly charge Plaintiff and the
Classes prices in excess of what it otherwise would have been able to charge absent its unlawful
agreements described herein.
115.
The prices were inflated as a direct and foreseeable result of Amarin’s
anticompetitive conduct.
116.
The inflated prices the Classes paid are traceable to, and the foreseeable result of,
the overcharges by Amarin.
INTERSTATE AND INTRASTATE COMMERCE
117.
Amarin’s anticompetitive conduct has substantially affected intrastate, interstate,
and foreign commerce.
118.
Amarin’s anticompetitive conduct has substantial intrastate effects in that, inter
alia, it deprived retailers in each state of access to less expensive generic Vascepa that they could
sell to consumers within each respective state. The delayed entry of generic Vascepa has directly
affected and disrupted commerce for consumers within each state.
119.
During the relevant time period, Vascepa was shipped into each state, and
consumers paid for Vascepa in each state.
120.
During the relevant time period, Amarin manufactured, promoted, distributed,
and/or sold substantial amounts of Vascepa in a continuous and uninterrupted flow of commerce
across state lines and national lines
121.
As a direct result of Amarin’s anticompetitive conduct, generic drug manufacturers
have been unable to sell their generic versions of Vascepa when they otherwise would have done
122.
During the relevant time period, Amarin transmitted money as well as contracts,
invoices, and other forms of business communications and transactions in a continuous and
uninterrupted flow of commerce across state and national lines in connection with the purchase
and sale of Vascepa.
123.
During the relevant time period, various devices were used to effectuate the illegal
acts alleged herein, including the United States mail, interstate and foreign travel, and interstate
and foreign telephonic and electronic commerce. Amarin’s activities as alleged in this Complaint
were within the flow of, and have substantially affected, intrastate, interstate, and foreign
commerce.
CLASS ACTION ALLEGATIONS
124.
Plaintiff brings this action on its own behalf and on behalf of all others similarly
situated as a class action under Rules 23(a) and 23(b)(3) of the Federal Rules of Civil Procedure
(“Damages Class”):
All persons and entities who indirectly purchased, paid
and/or provided reimbursement for some or all of the
purchase price for Vascepa, other than for resale, in the
States of Alabama, Alaska, Arizona, Arkansas, California,
Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii,
Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maine,
Maryland,
Massachusetts,
Michigan,
Minnesota,
Mississippi, Missouri, Montana, Nebraska, Nevada, New
Hampshire, New Jersey, New Mexico, New York, North
Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania,
Rhode Island, South Carolina, South Dakota, Tennessee,
Texas, Utah, Vermont, Virginia, Washington, West
Virginia, Wisconsin, Wyoming, the District of Columbia,
and Puerto Rico, at any time during the period from August 7,
2020 through and until the anticompetitive effects of
Defendants’ challenged conduct cease (the “Class Period”).
125.
Plaintiff brings this action on its own behalf and on behalf of all others similarly
situated as a class action under Rules 23(a) and 23(b)(2) of the Federal Rules of Civil Procedure
(“Injunctive Relief Class”):
All persons and entities who purchased, paid and/or
provided reimbursement for some or all of the purchase
price for Vascepa, other than for resale, in the United States
at any time during the period from August 7, 2020 through
and until the anticompetitive effects of Defendants’
challenged conduct cease (the “Class Period”).
126.
Excluded from the Classes are:
a.
Defendants and their counsel, officers, directors, management, employees,
subsidiaries, and affiliates;
b.
all federal governmental entities;
c.
all persons or entities who purchased Vascepa for purposes of resale or
directly from Amarin or their affiliates;
d.
fully insured health plans (i.e., health plans that purchased insurance from
another third-party payer covering 100% of the plan’s reimbursement
obligations to its members);
e.
any “flat co-pay” consumers whose purchases of Vascepa were paid in part
by a third-party payer and whose co-payment was the same regardless of
the retail purchase price;
f.
pharmacy benefit managers;
g.
all counsel of record; and
h.
all judges assigned to this case and any members of their immediate
families.
127.
Members of the Classes are so numerous that joinder is impracticable. Plaintiff
believes that there are hundreds of thousands of members of the Classes, in an amount to be
determined in discovery and at trial. Further, the identities of Class members will be readily
ascertainable through business records kept in regular order.
128.
Plaintiff’s claims are typical of the claims of members of the Classes. Plaintiff and
all members of the Classes were damaged by the same wrongful conduct by Defendants, and all
paid artificially inflated prices for Vascepa and were deprived of the benefits of competition from
less expensive generic versions as a result of Defendants’ conduct.
129.
Plaintiff will fairly and adequately protect and represent the interests of the Classes.
Plaintiff’s interests are coincident with, and not antagonistic to, the Classes.
130.
Plaintiff is represented by counsel who are experienced and competent in the
prosecution of class action litigation, and who have particular experience with class action
litigation involving the pharmaceutical industry.
131.
Questions of law and fact common to the Classes include:
a.
whether Amarin unlawfully maintained monopoly power through all or part
of its overarching scheme;
b.
whether Defendants’ anticompetitive conduct suppressed generic
competition to Vascepa;
c.
as to those parts of Defendants’ challenged conduct for which such
justifications may be offered, whether there exist cognizable, non-pretextual
procompetitive justifications, which Defendants’ challenged conduct was
the least restrictive means of achieving, that offset the harm to competition
in the markets in which Vascepa is sold;
d.
whether direct proof of Amarin’s monopoly power is available, and if
available, whether it is sufficient to prove Amarin’s monopoly power
without the need to also define a relevant market;
e.
to the extent a relevant market or markets must be defined, what that
definition is, or those definitions are;
f.
determination of a reasonable estimate of the amount of delay Defendants’
unlawful monopolistic, unfair, and unjust conduct caused;
g.
whether Defendants’ scheme, in whole or in part, has substantially affected
interstate commerce;
h.
whether Defendants’ scheme, in whole or in part, has substantially affected
intrastate commerce;
i.
whether Defendants foreclosed the supply of icosapent ethyl API.
j.
whether Amarin possessed the ability to control prices and/or exclude
competition for Vascepa during the Class Period;
k.
Whether Defendants’ unlawful monopolistic conduct was a substantial
contributing factor in causing some amount of delay of the entry of AB-
rated generic Vascepa;
l.
Whether Defendants’ unlawful monopolistic conduct was a substantial
contributing factor in limiting the amount of generic Vascepa available
upon the launch of the first generic icosapent ethyl product;
m.
whether Defendants’ scheme, in whole or in part, caused antitrust injury to
the business or property of Plaintiff and members of the Damages Class in
the nature of overcharges; and
n.
the quantum of overcharges paid by the Damages Class in the aggregate.
132.
Defendants acted or refused to act on grounds that apply generally to the Classes,
so that final injunctive relief or corresponding declaratory relief is appropriate respecting the
Classes as a whole.
133.
Questions of law and fact common to members of the Damages Class predominate
over questions, if any, that may affect only individual Damages Class members, because
Defendants have acted on grounds generally applicable to the entire Damages Class. Such
generally applicable conduct is inherent in Defendants’ wrongful conduct.
134.
Class action treatment is a superior method for the fair and efficient adjudication of
this controversy. Among other things, class 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 on claims that might not
be practicable to pursue individually, substantially outweigh any difficulties that may arise in
management of this class action.
135.
Plaintiff knows of no difficulty to be encountered in the maintenance of this action
that would preclude its maintenance as a class action.
CLAIMS FOR RELIEF
FIRST CLAIM FOR RELIEF
Violation of Section 1 of the Sherman Act:
Contract, Combination, or Conspiracy in Restraint of Trade
136.
Plaintiff incorporates by reference all of the allegations above as though fully set
forth herein.
137.
Plaintiff brings this claim on behalf of the Injunctive Relief Class.
138.
Defendants violated 15 U.S.C. § 1 by entering into a series of exclusive contracts
with various API suppliers that were intended to and did lock up supply of Vascepa API, thereby
constraining competition in the market for branded and generic Vascepa.
139.
The agreements between Amarin and each of the API suppliers substantially,
unreasonably, and unduly restrained trade in the relevant market, the purpose and effect of which
a. prevent generic competitors from obtaining the API necessary to manufacture
Vascepa;
b. delay the entry of generic versions of Vascepa;
c. hamper the ability of generic competitors to meet demand for their generic
Vascepa product; and
d. raise and maintain the prices that Plaintiff and the Injunctive Relief Class
members would pay for Vascepa to and at supra-competitive levels.
140.
There is no legitimate, non-pretextual, procompetitive business justification for the
exclusive contracts between Amarin and the API suppliers.
141.
The agreements between Amarin and each of the API suppliers harmed competition
in the relevant market.
142.
As a direct and proximate result of Defendants’ violation of Sherman Act § 1,
Plaintiff and members of the Injunctive Relief Class have been injured in their business and property
throughout the Class Period.
143.
Plaintiff and the Injunctive Relief Class are entitled to injunctive and other
equitable relief, pursuant to 15 U.S.C. § 26.
SECOND CLAIM FOR RELIEF
Violation of Section 2 of the Sherman Act: Monopolization
144.
Plaintiff incorporates by reference all of the allegations above as though fully set
forth herein.
145.
Plaintiff brings this claim on behalf of the Injunctive Relief Class.
146.
As described above, throughout the relevant time period Amarin possessed
monopoly power nationwide and in each of the United States and its territories in the market for
Vascepa. No other manufacturer sold a competing version of Vascepa during the relevant time
147.
At all relevant times, Amarin possessed substantial market power (i.e., monopoly
power) in the relevant market. Amarin possessed the power to control prices in, prevent prices
from falling in, and exclude competitors from the relevant market.
148.
Through the overarching anticompetitive scheme, as alleged above, Amarin
willfully maintained its monopoly power in the relevant market using restrictive or exclusionary
conduct, rather than by means of greater business acumen or a historic accident, and thereby
injured Plaintiff and the Injunctive Relief Class. Amarin’s anticompetitive conduct was done with
the specific intent to maintain their monopoly in the market for Vascepa in the United States and
its territories.
149.
Amarin knowingly and intentionally engaged in this anticompetitive scheme to
monopolize the market for Vascepa and its generic equivalents as described above. Amarin
accomplished this scheme by, inter alia, (1) entering into exclusive supply agreements with at least
four different icosapent ethyl API suppliers; (2) otherwise foreclosing the supply of icosapent ethyl
API; and (3) raising and maintaining prices so that Plaintiff and Class members would pay for
Vascepa at supracompetitive prices.
150.
The goal, purpose, and effect of Amarin’s scheme was to prevent, delay, and limit
the sale of generic Vascepa in the United States at prices significantly below Amarin’s prices for
Vascepa, thereby effectively preventing the average market price of Vascepa and its generic
equivalents from declining dramatically while maintaining and extending its monopoly power with
respect to Vascepa.
151.
Plaintiff and members of the Injunctive Relief Class purchased substantial amounts
of Vascepa indirectly from Amarin.
152.
As a result of Amarin’s illegal conduct, Plaintiff and members of the Injunctive
Relief Class were compelled to pay, and did pay, more than they would have paid for their
requirements of Vascepa and its generic equivalents absent Amarin’s illegal conduct. But for
Amarin’s illegal conduct, competitors would have begun selling generic Vascepa during the
relevant period, and prices for Vascepa and its generic equivalents would have been lower, sooner.
153.
Had manufacturers of generic Vascepa entered the market and lawfully competed
with Amarin earlier, Plaintiff and other members of the Injunctive Relief Class would have
substituted lower-priced generic Vascepa for the higher-priced brand-name Vascepa for some or
all of their requirements of Vascepa and its generic equivalents, and/or would have paid lower net
prices on their remaining Vascepa and/or AB-rated bioequivalent purchases
154.
Plaintiff and members of the Injunctive Relief Class will continue to suffer injury,
in the form of overcharges paid for Vascepa, if Amarin’s unlawful conduct is not enjoined.
155.
Plaintiff and the members of the Injunctive Relief Class therefore seek equitable
and injunctive relief under Section 16 of the Clayton Act, 15 U.S.C. § 26, and other applicable
laws, to correct for the anticompetitive market effects caused by Amarin’s unlawful conduct, and
to assure that similar anticompetitive conduct and effects do not continue or reoccur in the future
THIRD CLAIM FOR RELIEF
Violations of State Antitrust Law
156.
Plaintiff incorporates by reference all of the allegations above as though fully set
forth herein.
157.
Plaintiff brings this claim on behalf of the Damages Class.
158.
The relevant market consists of Vascepa and its generic equivalents.
159.
As described above, throughout the relevant time period Amarin possessed
monopoly power nationwide and in each of the state and its territories in the market for Vascepa
and its generic equivalents.
160.
At all relevant times, Amarin possessed substantial market power (i.e., monopoly
power) in the relevant market. Amarin possessed the power to control prices in, prevent prices
from falling in, and exclude competitors from the relevant market.
161.
Through the overarching anticompetitive scheme, as alleged above, Amarin
willfully maintained monopoly power in the relevant market using restrictive or exclusionary
conduct, rather than by means of greater business acumen or a historic accident, and thereby
injured Plaintiff and the Classes. Amarin’s anticompetitive conduct was done with the specific
intent to maintain its monopoly in the market for Vascepa in the United States.
162.
Amarin knowingly and intentionally engaged in this anticompetitive scheme to
monopolize the Vascepa market as described above. Amarin accomplished this scheme by, inter
alia, (1) entering into exclusive supply agreements with at least four different icosapent ethyl API
suppliers; (2) otherwise foreclosing the supply of icosapent ethyl API; and (3) raising and
maintaining prices so that Plaintiff and members of the Classes would pay for Vascepa at
supracompetitive prices.
163.
The agreements between Amarin and each of the API suppliers substantially,
unreasonably, and unduly restrained trade in the relevant market, the purpose and effect of which
a. prevent generic competitors from obtaining the API necessary to manufacture
Vascepa;
b. delay the entry of generic versions of Vascepa;
c. hamper the ability of generic competitors to meet demand for their generic
Vascepa product; and
d. raise and maintain the prices that Plaintiff and the Injunction Class members
would pay for Vascepa to and at supra-competitive levels.
164.
There is no legitimate, non-pretextual, procompetitive business justification for the
exclusive contracts between Amarin and the API suppliers.
165.
The agreements between Amarin and each of the API suppliers did in fact harm
competition in the relevant market.
166.
The goal, purpose, and effect of Amarin’s scheme was to prevent and delay the sale
of generic Vascepa in the United States at prices significantly below Amarin’s prices for Vascepa,
thereby effectively preventing the average market price of Vascepa and its generic equivalents
from declining dramatically.
167.
The goal, purpose and effect of Amarin’s scheme was also to maintain and extend
its monopoly power with respect to Vascepa and its generic equivalents. Amarin’s illegal scheme
allowed it to continue charging supracompetitive prices for Vascepa, without a substantial loss of
sales, reaping substantial unlawful monopoly profits.
168.
Plaintiff and members of the Damages Class purchased substantial amounts of
Vascepa indirectly from Amarin.
169.
As a result of Amarin’s illegal conduct, Plaintiff and members of the Damages
Class were compelled to pay, and did pay, more than they would have paid for their requirements
of Vascepa and its generic equivalents absent Amarin’s illegal conduct. But for Amarin’s illegal
conduct, competitors would have begun selling generic Vascepa during the relevant period, and
prices for Vascepa and its generic equivalents would have been lower, sooner.
170.
Had manufacturers of generic Vascepa entered the market and lawfully competed
with Amarin earlier, Plaintiff and other members of the Damages Class would have substituted
lower-priced generic Vascepa for the higher-priced brand-name Vascepa for some or all of their
requirements of Vascepa and its generic equivalents, and/or would have paid lower net prices on
their remaining Vascepa and/or AB-rated bioequivalent purchases.
171.
By engaging in the foregoing conduct, Amarin violated the following state antitrust
a. Arizona Rev. Stat. §§ 44-1403, et seq., with respect to purchases of Vascepa
and AB- rated bioequivalents in Arizona by members of the Damages Class.
b. Cal. Bus. & Prof. Code §§ 16700, with respect to purchases of Vascepa and
AB- rated bioequivalents in California by members of the Damages Class.
c. C.G.S.A. §§ 35-27, et seq., with respect to purchases of Vascepa and AB- rated
bioequivalents in Connecticut by members of the Damages Class.
d. D.C. Code §§ 28-4503, et seq., with respect to purchases of Vascepa and AB-
rated bioequivalents in the District of Columbia by members of the Damages
Class.
e. Hawaii Rev. Stat. 480-1, et seq. with respect to purchases of Vascepa and AB-
rated bioequivalents in Hawaii by members of the Damages Class.
f.
Illinois Antitrust Act, 740 Illinois Compiled Statutes 10/1, et seq., with respect
to purchases of Vascepa and AB- rated bioequivalents in Illinois by members
of the Damages Class.
g. Iowa Code §§ 553.5 et seq., with respect to purchases of Vascepa and AB-
rated bioequivalents in Iowa by members of the Damages Class.
h. Kansas Stat. Ann. § 50-101 et seq., with respect to purchases of Vascepa and
AB- rated bioequivalents in Kansas by members of the Damages Class.
i.
Me. Rev. Stat. Ann. 10, §§ 1102, et seq., with respect to purchases of Vascepa
and AB-rated bioequivalents in Maine by consumer members of the Damages
Class.
j.
Md. Com’l Law Code Ann. § 11-204(a), et seq., with respect to purchases of
Vascepa and AB-rated bioequivalents in Maryland by members of the
Damages Class.
k. Mich. Comp. Laws Ann. §§ 445.773, et seq., with respect to purchases of
Vascepa and AB-rated bioequivalents in Michigan by members of the
Damages Class.
l.
Minn. Stat. §§ 325D.49, et seq., and Minn. Stat. § 8.31, et seq., with respect to
purchases of Vascepa and AB-rated bioequivalents in Minnesota by members
of the Damages Class.
m. Miss. Code Ann. §§ 75-21-3, et seq., with respect to purchases of Vascepa and
AB- rated bioequivalents in Mississippi by members of the Damages Class.
n. Neb. Code Ann. §§ 59-802, et seq., with respect to purchases of Vascepa and
AB- rated bioequivalents in Nebraska by members of the Damages Class.
o. Nev. Rev. Stat. Ann. §§ 598A.060, et seq., with respect to purchases of
Vascepa and AB-rated bioequivalents in Nevada by members of the Damages
Class.
p. N.H. Rev. Stat. Ann. §§ 356.11, et seq., with respect to purchases of Vascepa
and AB-rated bioequivalents in New Hampshire by members of the Damages
Class.
q. N.M. Stat. Ann. §§ 57-1-2, et seq., with respect to purchases of Vascepa and
AB-rated bioequivalents in New Mexico by members of the Damages Class.
r.
N.Y. Gen. Bus. Law § 340, et seq., with respect to purchases of Vascepa and
AB-rated bioequivalents in New York by members of the Damages Class.
s.
N.C. Gen. Stat. §§ 75-2.1, et seq., with respect to purchases of Vascepa and
AB- rated bioequivalents in North Carolina by members of the Damages Class.
t.
N.D. Cent. Code §§ 51-08.1-03, et seq., with respect to purchases of Vascepa
and AB-rated bioequivalents in North Dakota by members of the Damages
Class.
u. Or. Rev. Stat. § 646.730, et seq., with respect to purchases of Vascepa and
AB- rated bioequivalents in Oregon by members of the Damages Class.
v. R.I. Gen. Laws §§ 6-36-5 et seq., with respect to purchases of Vascepa and
AB- rated bioequivalents in Rhode Island by members of the Damages Class.
w. S.D. Codified Laws §§ 37-1-3.2, et seq., with respect to purchases of Vascepa
and AB-rated bioequivalents in South Dakota by members of the Damages
Class.
x. Tenn. Code Ann. §§ 47-25-101, et seq., with respect to purchases of Vascepa
and AB-rated bioequivalents in Tennessee by members of the Damages Class.
y. Utah Code Ann. §§ 76-10-911, et seq., with respect to purchases of Vascepa
and AB-rated bioequivalents in Utah by members of the Damages Class.
z. Vt. Stat. Ann. 9, §§ 2453, et seq., with respect to purchases of Vascepa and
AB- rated bioequivalents in Vermont by consumer members of the Damages
Class.
aa. W.Va. Code §§ 47-18-4, et seq., with respect to purchases of Vascepa and AB-
rated bioequivalents in West Virginia by members of the Damages Class.
bb. Wis. Stat. §§ 133.03, et seq., with respect to purchases of Vascepa and AB-
rated bioequivalents in Wisconsin by members of the Damages Class.
172.
Plaintiff and members of the Damages Class have been injured in their business or
property by reason of Amarin’s antitrust violations alleged in this Claim. Their injuries consist of:
(1) being denied the opportunity to purchase lower-priced generic Vascepa, and (2) paying
higher prices for Vascepa and its generic equivalents than they would have paid in the absence of
Amarin’s conduct. These injuries are of the type the antitrust laws were designed to prevent, and
flow from that which makes Amarin’s conduct unlawful.
173.
Plaintiff and the Damages Class seek damages and multiple damages as permitted
by law for their injuries by Amarin’s violations of the aforementioned statutes.
FOURTH CLAIM FOR RELIEF
Unfair or Deceptive Trade Practices Under State Law
174.
Plaintiff incorporates by reference all of the allegations above as though fully set
forth herein.
175.
Plaintiff brings this claim on behalf of the Damages Class.
176.
Defendants engaged in unfair competition, and/or unfair/unconscionable, and/or
deceptive acts or practices in violation of the state consumer protection statutes listed below. As a
direct and proximate result of Defendants’ anticompetitive, deceptive, unfair and/or
unconscionable acts or practices, Plaintiff and Damages Class members were deprived of the
opportunity to purchase a less expensive AB-rated bioequivalent of Vascepa and forced to pay
higher prices in violation of the following consumer protection statutes:
a. Alaska Stat. Ann. § 45.50.471, et seq., with respect to purchases of Vascepa or
AB-rated bioequivalents in Alaska by members of the Damages Class.
Defendants engaged in unfair methods of competition and unfair practices in
the conduct of trade and commerce.
b. Cal. Bus. & Prof. Code §§ 17200, et seq., with respect to purchases of Vascepa
or AB-rated bioequivalents in California by members of the Damages Class.
Defendants engaged in business practices that are unfair in that they are
immoral, unethical, oppressive, unscrupulous, and substantially injurious to
Damages Class members. There are no countervailing benefits to Damages
Class members and any utility of Defendants’ conduct is outweighed by the
consequences to Damages Class members.
c. Fla. Stat. §§ 501.201, et seq., with respect to purchases of Vascepa or AB-rated
bioequivalents in Florida by members of the Damages Class. Defendants
engaged in unfair methods of competition and unfair or deceptive acts or
practices in the conduct of trade or commerce.
d. Mass. Gen. Laws ch. 93A, with respect to purchases of Vascepa or AB-rated
bioequivalents in Massachusetts by members of the Damages Class.
Defendants engaged in unfair methods of competition and unfair or deceptive
acts or practices in the conduct of trade and commerce.
e. Mo. Rev. Stat. §§ 407.020 et seq., with respect to purchases of Vascepa or AB-
rated bioequivalents in Missouri by consumer members of the Damages Class.
Defendants engaged in unfair practices in trade or commerce.
f.
Mont. Code Ann. §§ 30-14-101, et seq., with respect to purchases of Vascepa
or AB-rated bioequivalents in Montana by consumer members of the Damages
Class. Defendants engaged in unfair and deceptive acts and practices.
g. S.C. Code Ann. §§ 39-5-20, et seq., with respect to purchases of Vascepa or
AB-rated bioequivalents in South Carolina by Damages Class members.
Defendants engaged in unfair methods of competition and unfair practices in
the conduct of trade and commerce. Defendants’ conduct is offensive to public
policy and immoral, unethical, and oppressive.
h. Vt. Stat. Ann. 9, §§ 2453, et seq., with respect to purchases of Vascepa or AB-
rated bioequivalents in Vermont by consumer members of the Damages Class.
Defendants engaged in unfair methods of competition, unfair practices, and
deceptive practices in the conduct of trade and commerce.
177.
Plaintiff and members of the Damages Class have been injured in their business
and property by reason of Defendants’ anticompetitive, unfair/unconscionable, and/or deceptive
acts or practices alleged in this Count. Their injury consists of paying higher prices for Vascepa
and/or AB-rated generic bioequivalents than they would have paid in the absence of these
violations. This injury is of the type the state consumer protection statutes were designed to prevent
and directly results from Defendants’ unlawful conduct.
FIFTH CLAIM FOR RELIEF
Unjust Enrichment Under State Law
178.
Plaintiff incorporates by reference all of the allegations above as though fully set
forth herein.
179.
Plaintiff brings this claim on behalf of the Damages Class.
180.
To the extent required, this claim is pleaded in the alternative to the other claims in
this complaint.
181.
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 Vascepa.
182.
Defendants’ financial benefits are traceable to Plaintiff’s and Damages Class
members’ overpayments for Vascepa.
183.
Plaintiff and Damages Class members have conferred and continue to confer an
economic benefit upon Defendants in the nature of profits resulting from the unlawful overcharges
described herein, to the economic detriment of Plaintiff and Damages Class members.
184.
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 Vascepa manufactured by Defendants
during the Class Period.
185.
It would be futile for Plaintiff and Damages Class members to seek to exhaust any
remedy against the immediate intermediary in the chain of distribution from which they indirectly
purchased Vascepa, as those intermediaries are not liable and would not compensate Plaintiff and
Damages Class members for Defendants’ unlawful conduct.
186.
The economic benefit Defendants derived from overcharging Plaintiff and
Damages Class members for Vascepa is a direct and proximate result of Defendants’ unlawful and
anticompetitive practices.
187.
The financial benefits Defendants derived are ill-gotten gains that rightfully belong
to Plaintiff and Damages Class members, who paid and continue to pay artificially inflated prices
that inured to Defendants’ benefit.
188.
It would be inequitable under unjust enrichment principles under the laws of the
states described below for Defendants to retain any of the overcharges Plaintiff and Damages Class
members paid for Vascepa that were derived from Defendants’ unfair, anticompetitive, and
unlawful methods, acts, and trade practices.
189.
Defendants are aware of and appreciate the benefits that Plaintiff and the Damages
Class members have bestowed upon them.
190.
Defendants should be ordered to disgorge all unlawful or inequitable proceeds they
received in a common fund for the benefit of Plaintiff and Damages Class members, who
collectively have no adequate remedy at law.
191.
A constructive trust should be imposed upon all unlawful or inequitable sums
Defendants received, which arise from overpayments for branded and generic versions of Vascepa
by Plaintiff and the Damages Class members.
192.
Plaintiff and Damages Class members have no adequate remedy at law.
193.
By engaging in the foregoing unlawful or inequitable conduct, which deprived
Plaintiff and the Damages Class members of the opportunity to purchase lower-priced generic
versions of Vascepa and forced them to pay higher prices for branded and generic versions of
Vascepa, Defendants have been unjustly enriched in violation of the common law of various states
and commonwealths, as outlined below:
Alabama
194.
Defendants unlawfully overcharged end-payers who made purchases of or
reimbursements for branded and generic versions of Vascepa in Alabama at prices that were more
than they would have been but for Defendants’ actions.
195.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Damages Class members.
196.
Defendants accepted and retained the benefits bestowed upon them under
inequitable and unjust circumstances arising from unlawful overcharges to Plaintiff and Damages
Class members.
197.
Defendants have benefitted at the expense of Plaintiff and Damages Class members
from revenue resulting from unlawful overcharges for branded and generic versions of Vascepa.
Alaska
198.
Defendants unlawfully overcharged end-payers who made purchases of or
reimbursements for branded and generic versions of Vascepa in Alaska at prices that were more
than they would have been but for Defendants’ actions.
199.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Damages Class members.
200.
Defendants appreciated the benefits bestowed upon them by Plaintiff and Damages
Class members.
201.
Defendants accepted and retained the benefits bestowed upon them under
inequitable and unjust circumstances arising from unlawful overcharges to Plaintiff and Damages
Class members.
202.
Under the circumstances, it would be inequitable for Defendants to retain such
benefits without compensating Plaintiff and Damages Class members.
203.
Defendants have benefitted at the expense of Plaintiff and Damages Class members
from revenue resulting from unlawful overcharges for branded and generic versions of Vascepa.
Arizona
204.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Arizona at prices that were more
than they would have been but for Defendants’ actions.
205.
Defendants have been enriched by revenue resulting from unlawful overcharges for
branded and generic versions of Vascepa.
206.
Plaintiff and Damages Class members have been impoverished by the overcharges
for branded and generic versions of Vascepa resulting from Defendants’ unlawful conduct.
207.
Defendants’ enrichment and Plaintiff’s impoverishment are connected. Defendants
have paid no consideration to any other person for any benefits they received from Plaintiff and
Damages Class Members.
208.
There is no justification for Defendants’ receipt of the benefits causing their
enrichment and Plaintiff’s impoverishment, because Plaintiff paid anticompetitive prices that
inured to Defendants’ benefit, and it would be inequitable for Defendants to retain any revenue
gained from their unlawful overcharges.
209.
Plaintiff and Damages Class members have no remedy at law.
Arkansas
210.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Arkansas at prices that were more
than they would have been but for Defendants’ actions.
211.
Defendants received money from Plaintiff and Damages Class members as a direct
result of the unlawful overcharges and have retained this money.
212.
Defendants have paid no consideration to any other person in exchange for this
money.
213.
Under the circumstances, it would be inequitable for Defendants to retain such
benefits without compensating Plaintiff and Damages Class members.
California
214.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in California at prices that were more
than they would have been but for Defendants’ actions.
215.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Class members.
216.
Defendants retained the benefits bestowed upon them under inequitable and unjust
circumstances at the expense of Plaintiff and Damages Class members.
Colorado
217.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Colorado at prices that were more
than they would have been but for Defendants’ actions.
218.
Defendants have received a benefit from Plaintiff and Damages Class members in
the nature of revenue resulting from the unlawful overcharges, which revenue resulted from
anticompetitive prices that inured to the benefit of Defendants.
219.
Defendants have benefitted at the expense of Plaintiff and Damages Class
members.
220.
Under the circumstances, it would be inequitable for Defendants to retain such
benefits without compensating Plaintiff and Damages Class members.
Connecticut
221.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Connecticut at prices that were
more than they would have been but for Defendants’ actions.
222.
Defendants were benefitted in the nature of revenue resulting from unlawful
overcharges to the economic detriment of Plaintiff and Damages Class members.
223.
Defendants have paid no consideration to any other person in exchange for this
benefit.
224.
Defendants retained the benefits bestowed upon them under inequitable and unjust
circumstances at the expense of Plaintiff and Damages Class members.
Delaware
225.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Delaware at prices that were more
than they would have been but for Defendants’ actions.
226.
Defendants have been enriched by revenue resulting from unlawful overcharges for
branded and generic versions of Vascepa.
227.
Plaintiff and Damages Class members have been impoverished by the overcharges
for branded and generic versions of Vascepa resulting from Defendants’ unlawful conduct.
228.
Defendants’ enrichment and Plaintiff’s impoverishment are connected.
229.
There is no justification for Defendants’ receipt of the benefits causing their
enrichment, because Plaintiff and Damages Class members paid supracompetitive prices that
inured to Defendants’ benefit, and it would be inequitable for Defendants to retain any revenue
gained from their unlawful overcharges.
230.
Plaintiff and Damages Class members have no remedy at law.
Florida
231.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Florida at prices that were more
than they would have been but for Defendants’ actions.
232.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and the Damages Class members.
233.
Defendants appreciated the benefits bestowed upon them by Plaintiff and the
Damages Class members.
234.
It is inequitable for Defendants to accept and retain the benefits received without
compensating Plaintiff and the Damages Class members.
Georgia
235.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Georgia at prices that were more
than they would have been but for Defendants’ actions.
236.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Damages Class members.
237.
Under the circumstances, it would be inequitable for Defendants to retain such
benefits without compensating Plaintiff and Damages Class members.
Hawaii
238.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Hawaii at prices that were more
than they would have been but for Defendants’ actions.
239.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Class members.
240.
It is unjust for Defendants to retain the benefits received without compensating
Plaintiff and Damages Class members.
241.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Idaho at prices that were more
than they would have been but for Defendants’ actions.
242.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Damages Class members.
243.
Defendants appreciated the benefit conferred upon them by Plaintiff and Damages
Class members.
244.
Under the circumstances, it would be inequitable for Defendants to retain such
benefits without compensating Plaintiff and Damages Class members.
Illinois
245.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Illinois at prices that were more
than they would have been but for Defendants’ actions.
246.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Damages Class members.
247.
Defendants retained the benefits bestowed upon them under unjust circumstances
arising from unlawful overcharges to Plaintiff and Damages Class members.
248.
It is unjust and inequitable for Defendants to retain the benefits received without
compensating Plaintiff and Damages Class members.
249.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Iowa at prices that were more than
they would have been but for Defendants’ actions.
250.
Defendants have been enriched by revenue resulting from unlawful overcharges for
branded and generic versions of Vascepa, which revenue resulted from anticompetitive prices paid
by Plaintiff and the Damages Class members, which inured to Defendants’ benefit.
251.
Defendants’ enrichment has occurred at the expense of Plaintiff and Damages Class
members.
252.
It is against equity and good conscience for Defendants to be permitted to retain the
revenue resulting from their unlawful overcharges.
Kansas
253.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Kansas at prices that were more
than they would have been but for Defendants’ actions.
254.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Damages Class members.
255.
Defendants retained the benefits bestowed upon them under unjust circumstances
arising from unlawful overcharges to Plaintiff and Damages Class members.
256.
Defendants were unjustly enriched at the expense of Plaintiff and Damages Class
members.
Kentucky
257.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Kentucky at prices that were more
than they would have been but for Defendants’ actions.
258.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Damages Class members.
259.
Defendants appreciated the benefit conferred upon them by Plaintiff and Damages
Class members.
260.
Under the circumstances, it would be inequitable for Defendants to retain such
benefits without compensating Plaintiff and Damages Class members.
Louisiana
261.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Louisiana at prices that were more
than they would have been but for Defendants’ actions.
262.
Defendants have been enriched by revenue resulting from unlawful overcharges for
branded and generic versions of Vascepa.
263.
Plaintiff and Damages Class members have been impoverished by the overcharges
for branded and generic versions of Vascepa resulting from Defendants’ unlawful conduct.
264.
Defendants’ enrichment and Plaintiff’s impoverishment are connected.
265.
There is no justification for Defendants’ receipt of the benefits causing their
enrichment, because Plaintiff and Damages Class members paid supracompetitive prices that
inured to Defendants’ benefit, and it would be inequitable for Defendants to retain any revenue
gained from their unlawful overcharges.
266.
Plaintiff and Damages Class members have no other remedy at law.
267.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Maine at prices that were more
than they would have been but for Defendants’ actions.
268.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Damages Class members.
269.
Defendants retained the benefits bestowed upon them under unjust circumstances
arising from unlawful overcharges to Plaintiff and Damages Class members.
270.
Defendants were aware of and appreciated the benefit bestowed upon them by
Plaintiff and Damages Class members.
271.
Defendants were unjustly enriched at the expense of Plaintiff and Damages Class
members.
Maryland
272.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Maryland at prices that were more
than they would have been but for Defendants’ actions.
273.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Damages Class members.
274.
Defendants were aware of or appreciated the benefit bestowed upon them by
Plaintiff and Damages Class members.
275.
Under the circumstances, it would be inequitable for Defendants to retain such
benefits without compensating Plaintiff and Damages Class members.
Massachusetts
276.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Massachusetts at prices that were
more than they would have been but for Defendants’ actions.
277.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Damages Class members.
278.
Defendants were aware of or appreciated the benefit conferred upon them by
Plaintiff and Damages Class members.
279.
Under the circumstances, it would be inequitable for Defendants to retain such
benefits without compensating Plaintiff and Damages Class members. Fairness and good
conscience require that Defendants not be permitted to retain the revenue resulting from their
unlawful overcharges at the expense of Plaintiff and Damages Class members.
Michigan
280.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Michigan at prices that were more
than they would have been but for Defendants’ actions.
281.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Damages Class members.
282.
Defendants retained the benefits bestowed upon them under unjust circumstances
arising from unlawful overcharges to Plaintiff and Damages Class members.
283.
Defendants were unjustly enriched at the expense of Plaintiff and Damages Class
members.
Minnesota
284.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Minnesota at prices that were
more than they would have been but for Defendants’ actions.
285.
Defendants appreciated and knowingly accepted the benefits bestowed upon them
by Plaintiff and Damages Class members. Defendants have paid no consideration to any other
person for any of the benefits they have received from Plaintiff and Damages Class members.
286.
It is inequitable for Defendants to accept and retain the benefits received without
compensating Plaintiff and Damages Class members.
Mississippi
287.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Mississippi at prices that were
more than they would have been but for Defendants’ actions.
288.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Damages Class members
289.
Defendants retained the benefit of overcharges received on the sales of branded and
generic versions of Vascepa, which in equity and good conscience belong to Plaintiff and Damages
Class members on account of Defendants’ anticompetitive conduct.
Missouri
290.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Missouri at prices that were more
than they would have been but for Defendants’ actions.
291.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Damages Class members.
292.
Defendants appreciated the benefit bestowed upon them by Plaintiff and Damages
Class members.
293.
Defendants accepted and retained the benefit bestowed upon them under
inequitable and unjust circumstances arising from unlawful overcharges to Plaintiff and Damages
Class members.
Montana
294.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Montana at prices that were more
than they would have been but for Defendants’ actions.
295.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Damages Class members.
296.
Under the circumstances, it would be inequitable for Defendants to retain such
benefits without compensating Plaintiff and Damages Class members.
Nebraska
297.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Nebraska at prices that were more
than they would have been but for Defendants’ actions.
298.
Defendants received money from Plaintiff and Damages Class members as a direct
result of the unlawful overcharges and have retained this money. Defendants have paid no
consideration to any other person in exchange for this money.
299.
In justice and fairness, Defendants should disgorge such money and remit the
overcharged payments back to Plaintiff and Damages Class members.
Nevada
300.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Nevada at prices that were more
than they would have been but for Defendants’ actions.
301.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants in the nature of revenue resulting from unlawful overcharges for branded and generic
versions of Vascepa.
302.
Defendants appreciated the benefits bestowed upon them by Plaintiff and Damages
Class members, for which they have paid no consideration to any other person.
303.
Defendants have knowingly accepted and retained the benefits bestowed upon them
by Plaintiff and Damages Class members.
304.
The circumstances under which Defendants have accepted and retained the benefits
bestowed upon them by Plaintiff and Damages Class members are inequitable in that they result
from Defendants’ unlawful overcharges for branded and generic versions of Vascepa.
New Hampshire
305.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in New Hampshire at prices that
were more than they would have been but for Defendants’ actions.
306.
Defendants have received a benefit from Plaintiff and Damages Class members in
the nature of revenue resulting from the unlawful overcharges, which revenue resulted from
anticompetitive prices that inured to the benefit of Defendants.
307.
Under the circumstances, it would be unconscionable for Defendants to retain such
benefits.
New Jersey
308.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in New Jersey at prices that were
more than they would have been but for Defendants’ actions.
309.
Defendants have received a benefit from Plaintiff and Damages Class members in
the nature of revenue resulting from the unlawful overcharges, which revenue resulted from
anticompetitive prices that inured to the benefit of Defendants.
310.
The benefits conferred upon Defendants were not gratuitous, in that they comprised
revenue created by unlawful overcharges arising from arising from unlawful overcharges to
Plaintiff and Damages Class members.
311.
Defendants have paid no consideration to any other person for any of the unlawful
benefits they received from Plaintiff and Damages Class members with respect to Defendants’
sales of branded and generic versions of Vascepa.
312.
Under the circumstances, it would be unjust for Defendants to retain such benefits
without compensating Plaintiff and Damages Class members.
New Mexico
313.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in New Mexico at prices that were
more than they would have been but for Defendants’ actions.
314.
Defendants have knowingly benefitted at the expense of Plaintiff and Damages
Class members from revenue resulting from unlawful overcharges for branded and generic
versions of Vascepa.
315.
To allow Defendants to retain the benefits would be unjust because the benefits
resulted from anticompetitive pricing that inured to Defendants’ benefit and because Defendants
have paid no consideration to any other person for any of the benefits they received.
New York
316.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in New York at prices that were more
than they would have been but for Defendants’ actions.
317.
Defendants have been enriched by revenue resulting from unlawful overcharges for
branded and generic versions of Vascepa, which revenue resulted from anticompetitive prices paid
by Plaintiff and Damages Class members, which inured to Defendants’ benefit.
318.
Defendants’ enrichment has occurred at the expense of Plaintiff and Damages Class
members.
319.
It is against equity and good conscience for Defendants to be permitted to retain the
revenue resulting from their unlawful overcharges.
North Carolina
320.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in North Carolina at prices that were
more than they would have been but for Defendants’ actions.
321.
Plaintiff and Damages Class Members have conferred an economic benefit upon
Defendants in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Damages Class members.
322.
Plaintiff did not interfere with Defendants’ affairs in any manner that conferred
these benefits upon Defendants.
323.
The benefits conferred upon Defendants were not gratuitous, in that they comprised
revenue created by unlawful overcharges arising from Defendants’ actions to delay entry of
generic versions of Vascepa to the market.
324.
The benefits conferred upon Defendants are measurable, in that the revenue
Defendants have earned due to unlawful overcharges are ascertainable by review of sales records
and documents relating to Defendants’ anticompetitive conduct.
325.
Defendants consciously accepted the benefits and continue to do so as of the date
of this filing.
North Dakota
326.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in North Dakota at prices that were
more than they would have been but for Defendants’ actions.
327.
Defendants have been enriched by revenue resulting from unlawful overcharges for
branded and generic versions of Vascepa.
328.
Plaintiff and Damages Class members have been impoverished by the overcharges
for branded and generic versions of Vascepa resulting from Defendants’ unlawful conduct.
329.
Defendants’ enrichment and Plaintiff’s impoverishment are connected. Defendants
have paid no consideration to any other person for any benefits they received directly or indirectly
from Plaintiff and Damages Class members.
330.
There is no justification for Defendants’ receipt of the benefits causing their
enrichment, because Plaintiff and Damages Class members paid anticompetitive prices that inured
to Defendants’ benefit, and it would be inequitable for Defendants to retain any revenue gained
from their unlawful overcharges.
331.
Plaintiff and Damages Class members have no remedy at law.
Oklahoma
332.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Oklahoma at prices that were more
than they would have been but for Defendants’ actions.
333.
Defendants received money from Plaintiff and Damages Class members as a direct
result of the unlawful overcharges and have retained this money.
334.
Defendants have paid no consideration to any other person in exchange for this
money.
335.
Plaintiff and Damages Class members have no remedy at law.
336.
It is against equity and good conscience for Defendants to be permitted to retain the
revenue resulting from their unlawful overcharges.
Oregon
337.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Oregon at prices that were more
than they would have been but for Defendants’ actions.
338.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Damages Class members.
339.
Defendants were aware of the benefit bestowed upon them by Plaintiff and
Damages Class members.
340.
It would be inequitable and unjust for Defendants to retain any of the overcharges
for Vascepa derived from Defendants’ unfair conduct without compensating Plaintiff and Class
members.
Pennsylvania
341.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Pennsylvania at prices that were
more than they would have been but for Defendants’ actions.
342.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Damages Class members.
343.
Defendants appreciated the benefit bestowed upon them by Plaintiff and Damages
Class members.
344.
Under the circumstances, it would be inequitable for Defendants to retain such
benefits without compensating Plaintiff and Damages Class members.
Rhode Island
345.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Rhode Island at prices that were
more than they would have been but for Defendants’ actions.
346.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Damages Class members.
347.
Defendants were aware of and/or recognized the benefit bestowed upon them by
Plaintiff and the Damages Class members.
348.
Under the circumstances, it would be inequitable for Defendants to retain such
benefits without compensating Plaintiff and Damages Class members.
South Carolina
349.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in South Carolina at prices that were
more than they would have been but for Defendants’ actions.
350.
The benefits conferred upon Defendants were not gratuitous, in that they comprised
revenue created by unlawful overcharges to Plaintiff and Damages Class members.
351.
Defendants realized value from the benefit bestowed upon them by Plaintiff and
Damages Class members.
352.
Under the circumstances, it would be inequitable for Defendants to retain such
benefits without compensating Plaintiff and Damages Class members.
South Dakota
353.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in South Dakota at prices that were
more than they would have been but for Defendants’ actions.
354.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Damages Class members.
355.
Defendants were aware of the benefit bestowed upon them by Plaintiff and
Damages Class members.
356.
Under the circumstances, it would be inequitable and unjust for Defendants to retain
such benefits without reimbursing Plaintiff and Damages Class members.
Tennessee
357.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Tennessee at prices that were more
than they would have been but for Defendants’ actions.
358.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Damages Class members.
359.
Defendants were aware of or appreciated the benefit bestowed upon them by
Plaintiff and Damages Class members.
360.
Under the circumstances, it would be inequitable for Defendants to retain such
benefits without compensating Plaintiff and Damages Class members.
361.
It would be futile for Plaintiff and Damages Class members to exhaust all remedies
against the entities with which Plaintiff and Damages Class members have privity of contract
because Plaintiff and Damages Class members did not purchase branded or generic versions of
Vascepa directly from any Defendant.
362.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Texas at prices that were more
than they would have been but for Defendants’ actions.
363.
Defendants have received a benefit from Plaintiff and Damages Class members in
the nature of revenue resulting from the unlawful overcharges, which revenue resulted from
anticompetitive prices that inured to the benefit of Defendants.
364.
Defendants were aware of or appreciated the benefit bestowed upon them by
Plaintiff and Damages Class members.
365.
The circumstances under which Defendants have retained the benefits bestowed
upon them by Plaintiff and Damages Class members are inequitable in that they result from
Defendants’ unlawful overcharges for branded and generic versions of Vascepa.
366.
Plaintiff and Damages Class members have no remedy at law
367.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Utah at prices that were more than
they would have been but for Defendants’ actions.
368.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Damages Class members.
369.
Defendants were aware of or appreciated the benefit bestowed upon them by
Plaintiff and Damages Class members.
370.
Under the circumstances, it would be inequitable for Defendants to retain such
benefits without compensating Plaintiff and Damages Class members.
Vermont
371.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Vermont at prices that were more
than they would have been but for Defendants’ actions.
372.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Damages Class members.
373.
Defendants accepted the benefit bestowed upon them by Plaintiff and Damages
Class members.
374.
Under the circumstances, it would be inequitable for Defendants to retain such
benefits without compensating Plaintiff and Damages Class members.
Virginia
375.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Virginia at prices that were more
than they would have been but for Defendants’ actions.
376.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Damages Class members.
377.
Defendants were aware of the benefit bestowed upon them.
378.
Defendants should reasonably have expected to repay Plaintiff and Damages Class
members.
379.
The benefits conferred upon Defendants were not gratuitous, in that they
constituted revenue created by unlawful overcharges arising from Defendants’ illegal and unfair
actions to inflate the prices of branded and generic versions of Vascepa.
380.
Defendants have paid no consideration to any other person for any of the benefits
they have received from Plaintiff and Damages Class members.
Washington
381.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Washington at prices that were
more than they would have been but for Defendants’ actions.
382.
Plaintiff and the Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Damages Class members.
383.
Defendants were aware of or appreciated the benefit conferred upon them by
Plaintiff and Damages Class members.
384.
Under the circumstances, it would be inequitable for Defendants to retain such
benefits without compensating Plaintiff and Damages Class members.
West Virginia
385.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in West Virginia at prices that were
more than they would have been but for Defendants’ actions.
386.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Damages Class members.
387.
Defendants were aware of or appreciated the benefit bestowed upon them by
Plaintiff and Damages Class members.
388.
Under the circumstances, it would be inequitable for Defendants to retain such
benefits without compensating Plaintiff and Damages Class members.
Wisconsin
389.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Wisconsin at prices that were
more than they would have been but for Defendants’ actions.
390.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Damages Class members.
391.
Defendants appreciated the benefit bestowed upon them by Plaintiff and Damages
Class members.
392.
Under the circumstances, it would be inequitable for Defendants to retain such
benefits without compensating Plaintiff and Damages Class members.
Wyoming
393.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Wyoming at prices that were more
than they would have been but for Defendants’ actions.
394.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Damages Class members.
395.
Defendants accepted, used and enjoyed the benefits bestowed upon them by
Plaintiff and Damages Class members.
396.
Under the circumstances, it would be inequitable for Defendants to retain such
benefits without compensating Plaintiff and Damages Class members.
District of Columbia
397.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in the District of Columbia at prices
that were more than they would have been but for Defendants’ actions.
398.
Plaintiff and Damages Class members have conferred an economic benefit upon
Defendants, in the nature of revenue resulting from unlawful overcharges to the economic
detriment of Plaintiff and Damages Class members.
399.
Defendants accepted and retained the benefit bestowed upon them under
inequitable and unjust circumstances arising from unlawful overcharges to Plaintiff and Damages
Class members.
400.
Under the circumstances, it would be inequitable and unjust for Defendants to retain
such benefits.
Puerto Rico
401.
Defendants unlawfully overcharged end-payers, who made purchases of or
reimbursements for branded and generic versions of Vascepa in Puerto Rico at prices that were
more than they would have been but for Defendants’ actions.
402.
Defendants have been enriched by revenue resulting from unlawful overcharges for
branded and generic versions of Vascepa.
403.
Plaintiff and Damages Class members have been impoverished by the overcharges
for branded and generic versions of Vascepa resulting from Defendants’ unlawful conduct.
404.
Defendants’ enrichment and Plaintiff’s impoverishment are connected.
405.
There is no justification for Defendants’ receipt of the benefits causing their
enrichment and Plaintiff’s impoverishment, because Plaintiff paid anticompetitive prices that
inured to Defendants’ benefit, and it would be inequitable for Defendants to retain any revenue
gained from their unlawful overcharges.
406.
Plaintiff and Damages Class members have no remedy at law.
DEMAND FOR JUDGMENT
WHEREFORE, Plaintiff, on its own behalf and on behalf of the proposed Classes, prays for
judgment against Defendants and that this Court:
a.
Determine that this action may be maintained as a class action pursuant to
Rules 23(a) 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), be given
to the Classes, and appoint Plaintiff as the named representative of the
Classes;
b.
Award Plaintiff and the Damages Class treble damages (i.e., three times
overcharges) in an amount to be determined at trial, plus interest in
accordance with law;
c.
Grant Plaintiff and the Injunctive Relief Class equitable relief in the nature
of disgorgement, restitution, and the creation of a constructive trust to
remedy Defendants’ unjust enrichment;
d.
Award Plaintiff and the Classes their costs of suit, including reasonable
attorneys’ fees as provided by law;
e.
Permanently enjoin Defendants both from continuing the unlawful conduct
alleged here, and from engaging in similar or related conduct in the future;
and
f.
Award such other and further relief as the Court deems just and proper.
JURY DEMAND
Pursuant to Rule 38 of the Federal Rules of Civil Procedure, Plaintiff, on behalf of
itself and the proposed Classes, demands a trial by jury of all issues so triable.
Dated: July 7, 2021
/s/ John A. Macoretta________________
John A. Macoretta
Jeffrey L. Kodroff
Diana J. Zinser
SPECTOR ROSEMAN & KODROFF, P.C.
2001 Market Street, Suite 3420
Philadelphia, PA 19103
Phone: (215) 496-0300
Fax: (215) 496-6611
jmacoretta@srkattorneys.com
jkodroff@srkattorneys.com
dzinser@srkattorneys.com
Stephen C. Richman
Matthew D. Areman
MARKOWITZ & RICHMAN
24 Wilkins Place
Haddonfield, NJ 08033
Phone: (800) 590-4561
Fax: (215) 790-0668
srichman@markowitzrichman.com
mareman@markowitzrichman.com
Counsel for Plaintiff Teamsters Health &
Welfare Fund of Philadelphia and Vicinity and
the Proposed Class
| antitrust |
EE7jA4kBRpLueGJZS_cr | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
--------------------------------------------------------------------X
JOSEPH GALLAGHER, individually and on behalf of
other similar situated
CLASS ACTION COMPLAINT
Plaintiff,
AMENDED COMPLAINT
FOR VIOLATION OF
DISCRIMINATION LAWS
v.
PEPE AUTO GROUP, MERCEDES BENZ OF NEW Civ. No. 7:18-cv-03433-VB
ROCHELLE, JOSEPH PEPE, individually,
GENE PEPE, individually, ROBERT PEPE,
individually, and SALVATORE PEPE, individually,
Defendants.
---------------------------------------------------------------------X DEMAND FOR JURY TRIAL
Plaintiff, Joseph Gallagher (herein referred to as “Gallagher” or “Plaintiff”), individually
and on behalf of others similarly situated, through its counsel, Aboyoun, Heller & Dobbs, LLC,
by way of Amended Complaint against Defendants, Pepe Auto Group (hereinafter referred to as
“Pepe Auto Group”), Mercedes Benz of New Rochelle, Joseph Pepe, individually, Gene Pepe,
individually, Robert Pepe, individually and Salvatore Pepe, individually (collectively herein
referred to as “Pepe” or “Defendants”) says:
JURISDICTION AND VENUE
1.
The claims asserted herein arise under and pursuant to the Age Discrimination in
Employment Act, 29 U.S.C. §621 et seq., and the Older Workers Benefit Protection Act,
29 U.S.C. §626(f).
2.
This Court has jurisdiction of this action pursuant to 29 U.S.C. §626(c), 28 U.S.C. §1331,
and 28 U.S.C. §1367.
3.
Venue is properly laid in this District pursuant to 29 U.S.C. §626(c) and/or 28 U.S.C.
§1391(b) and (c). The acts and conduct complained of herein occurred in substantial part
in this District and the Defendant’s maintain their principal; place of business in this
District.
PARTIES
4.
Plaintiff, Joseph Gallagher, is a resident of Tuxedo Park, New York.
5.
Upon information and belief, Defendant, Pepe Auto Group is located at 50 Bank Street,
White Plains, New York 10606
6.
Upon information and belief, Defendant, Mercedes Benz of New Rochelle is located at 77
East Main Street, New Rochelle, New York 10801.
7.
Upon information and belief, Defendant, Joseph Pepe is an owner and officer of Mercedes
Benz of New Rochelle.
8.
Upon information and belief, Defendant, Gene Pepe is an owner and officer of Mercedes
Benz of New Rochelle.
9.
Upon information and belief, Defendant, Robert Pepe is an owner and officer of Mercedes
Benz of New Rochelle.
10. Upon information and belief, Defendant, Salvatore Pepe is an owner and officer of
Mercedes Benz of New Rochelle.
FACTUAL ALLEGATIONS COMMON TO ALL COUNTS
11. For more than thirty (30) years, Gallagher has enjoyed a successful career in the
automobile industry.
12. Prior to July 2015, Gallagher worked for Mercedes Benz, USA for approximately twenty-
five (25) years.
13. His employment with Mercedes Benz, USA ended in July of 2015, when by way of false
promises and misrepresentations, he was lured away by Joseph Pepe, the COO of Pepe
Auto Group, to accept a position of General Manager at Pepe’s Mercedes Benz of New
Rochelle store. Joseph Pepe stated that he sought out Gallagher due to his experience with
Mercedes Benz, and that Joseph Pepe wanted to minimize the employee turnover that has
plagued the store since its existence.
14. Joseph Pepe offered Gallagher a job working as his general manager for his New Rochelle
Mercedes Benz store (hereinafter referred to as “MBNR”).
15. In July of 2015, Gallagher entered into a three (3) year employment agreement (hereinafter
referred to as the “Agreement”) with Joe Pepe and MBNR.
16. Throughout his employment with MBNR Gallagher was a loyal and hardworking
employee.
17. Shortly after the two year mark of Gallagher’s employment, without any warning, Joseph
Pepe called Gallagher into his office to tell him that “it just isn’t working out.”
18. Pepe fired Gallagher that day without any reason, justification or prior warning.
19. Gallagher never received any of the required written performance reviews, let alone one
that identified any areas of unsatisfactory performance or recommendations of
improvements that he could undertake.
20. To the contrary, Gallagher always received praise for his performance by Pepe and
MBNR.
21. In fact, Gallagher was integral in removing MBNR from Mercedes Benz’s Dealer
Performance Review Program. Gallagher markedly improved employee morale, which
was established through an annual dealer employee survey conducted by Mercedes Benz
USA.
22. Furthermore, Gallagher never received any written notice articulating the reasons for his
termination as required by the Agreement.
23. Gallagher was likewise not provided a reasonable opportunity to cure any alleged breaches
of the Agreement.
24. Gallagher was unlawfully terminated from his employment because of his age.
25. Contemporaneous with Pepe firing Gallagher, Pepe presented and forced Gallagher to sign
a general release in favor of Pepe and MNBR.
26. Pepe misrepresented the terms of the general release to Gallagher in order to wrongfully
induce him to execute the document.
27. Gallagher being blindsided by Pepe, and unaware of his rights, signed the general release
presented by Pepe and MBNR.
28. Thereafter, Gallagher forwarded a letter to Pepe and MBNR rejecting the general release
for reasons, which include that it was not proper under the Older Workers Benefit
Protection Act.
29. Gallagher has been discriminated against on the basis of his age, in violation of the Age
Discrimination in Employment Act (“ADEA”), 29 U.S.C. §§ 621 et seq. and the New
York State Human Rights Law (“NYSHRL”), N.Y. Executive Law §§ 290 et seq.
30. Pepe has also engaged in unlawful retaliatory action against Plaintiff arising from his
seeking to protect his rights under Federal and state law.
31. Furthermore, upon information and belief, Pepe and MBNR have engaged in this same or
substantially similar discrimination with respect to others previously under their employ.
32. The ADEA and NYSHRL provide that it is unlawful for an employer to discriminate
against any individual with respect to compensation, terms, conditions, or privileges of
employment because of such individual’s age. See 29 U.S.C. § 623(a)(l); N.Y. Exec.
Law§ 296(1)(a); see also Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 141
(2000). Claims under the ADEA and NYSHRL are subject to the same analysis. See Abdu-
Brisson v. Delta Air Lines, Inc., 239 F.3d 456, 466 (2d Cir. 2001).
33. Under the Older Workers Benefit Protection Act ("OWBPA"), an amendment to and part
of the ADEA, employers must follow a strict procedure to get a valid release of from any
involuntary terminations and reductions-in-force. Under the OWBPA, for a release to be
valid, the release must be "knowing and voluntary." At minimum, this means that the
release must:
a) Be in writing;
b) Be written in a manner that the employee would understand;
c) Be in plain, clear language that avoids technical jargon and long, complex
sentences;
d) Not mislead or misinform the employee executing the release;
e) Not exaggerate the benefits received by the employee in exchange for signing the
release, or the limitations imposed on the employee as a result of signing the
release;
f) Specifically refer to the ADEA;
g) Specifically advise the employee to consult an attorney before signing the release;
and
h) Not require the employee to waive rights or claims arising after the date the
employee signs the release.
34. Furthermore, The OWBPA requires employers to give employees a specific amount of
time to consider the release. For a single employee, the employee must be given 21 days
to consider the release. The consideration period starts to run from the date of the
employer’s final offer to the employee.
35. After considering and signing the release, an employee has seven days to change his or
her mind and revoke his or her agreement to the release. If these time periods are not
specifically included in the release, then the release is unenforceable.
36. Gallagher was not afforded the aforementioned time to review the agreement, and the
agreement did not reference the aforementioned time frames.
37. Furthermore, Defendants have unlawfully discriminated against Gallagher, and others, on
the basis of their age, in violation of Statutory and common law, including but not limited
to the ADEA and the NYSHRL.
38. To establish a prima facie case of age discrimination, a claimant must demonstrate that:
1) he was within the protected age group; 2) he was qualified for the position; 3) he was
subject to an adverse employment action; and 4) the adverse action occurred under
circumstances giving rise to an inference of discrimination. See Terry v. Ashcroft, 336
F.3d 128, 137-38 (2d Cir. 2003).
39. Gallagher can establish a prima facie claim of age discrimination and breach of the ADEA.
First, he is 51 years old. See 29 U.S.C. § 631(a). Second, Gallagher is qualified for his
position, as he has enjoyed a successful career in the automobile industry for
approximately thirty years. He has received compliments and praise from colleagues and
customers, and has received positive performance reviews, awards, and feedback from his
superiors. Third, Gallagher was terminated without any prior or progressive discipline or
warning. Fourth, upon information and belief, Defendants have stayed true to their history
of hiring new employees in their 20s and 30s, whereby Gallagher was replaced by an
employee substantially younger than him.
40. Regardless, "a plaintiff is not required to show that [h]e was replaced by someone outside
ofh[is] protected class so long as [h]e has presented some other evidence that gives rise to
an inference of discrimination." Morris v. New York City Dep't of Sanitation, 2003 U.S.
Dist. LEXIS 5146, 2003 WL 1739009 at *5 (S.D.N.Y. 2003), citing O'Connor v. Consol.
Coin Caterers Corp., 517 U.S. 308 (1996).
41. The fact that Gallagher was among the oldest employees at MBNR, and over his employ,
Defendants exhibited a pattern and practice of hiring employees in their 20s and 30s,
indicates evidence of a prevailing attitude and bias in the workplace against older workers.
See Hollander v. American Cyanamid Co., 895 F.2d 80, 84 (2d Cir. 1990)("Evidence
relating to company-wide practices may reveal patterns of discrimination against a group
of employees, increasing the likelihood that an employer's offered explanation for an
employment decision regarding a particular individual masks a discriminatory motive.").
42. In light of the fact that Gallagher was forced to execute a General Release in favor of
Defendants that is in blatant breach of the ADEA by virtue of its failure to 1) specifically
refer to ADEA, and 2) specifically advise him to consult with an attorney before signing
the release, we believe that Defendants have forced others to execute similar releases in
violation of the ADEA.
43. Subsequently, Gallagher obtained new employment with Porsche Cars North America
Incorporated (hereinafter referred to as “Porsche”).
44. Porsche hired Gallagher as an Area Pre-Owned Manager to oversee the Pre-Owned sales
divisions of its Franchisee Dealerships in a certain market area.
45. Under his employment with Porsche, Gallagher had a territory with which he had to visit
and work with certain dealerships.
46. Pepe’s Porsche store was part of Gallagher’s territory.
47. Gallagher’s employment with Porsche was proceeding smoothly and successfully.
48. On February 1, 2018, Gallagher was brought in to see his supervisor and an HR
representative for Porsche.
49. Upon information and belief, Pepe called Porsche and stated that Gallagher was no longer
welcome at Pepe’s Porsche store because he was suing Pepe.
50. Upon information and belief, these statements included but are not limited to telling
Porsche that there was pending litigation between the two parties when there was not
which would make it seem that Plaintiff lied to Porsche about this fact.
51. No such litigation existed.
52. Upon information and belief, Pepe told Porsche that Gallagher had no integrity and
could not be trusted as Porsche’s representative.
53. Upon information and belief, Pepe told Porsche that Gallagher made his customers
uncomfortable.
54. Upon information and belief, Pepe told Porsche that Gallagher was costing Pepe’s
dealership business because Gallagher was a poor Pre Owned Manager.
55. Pepe smeared Gallagher’s reputation and good name with his new Employer.
56. Pepe made false and injurious statements to Porsche about Gallagher’s work ethic,
business acumen, integrity, and character.
57. Pepe maliciously made these statements with the purpose of getting Gallagher fired in his
position as Porsche’s Pre Owned Manager in that geographic area.
58. Porsche terminated Gallagher, that day, without looking into the matter further.
COLLECTIVE ACTION CLAIMS
59. Gallagher brings certain of his claims as a collective action under 29 U.S.C. §621 et seq.,
and NY CLS §290 et seq.
60. MBNR generally does not hire or retain for long periods of time older individuals for its
Sales and Management level positions. Rather, it generally hires younger individuals.
61. MBNR’s culture and practices have distributed the benefits of its enormous success
unequally—systematically favoring younger applicants at the expense of their older
counterparts. Individuals 55 years of age and older are rarely in sales and management
positions at MBNR.
62. MBNR maintains hiring policies and practices for giving preference to younger employees
that result in the disproportionate employment of younger applicants.
63. MBNR’s unlawful bias against older workers manifests itself in several ways, including
but not limited to: (1) a focus on attracting and retaining “Millennials,” and (2) a
mandatory early retirement policy that requires employees to retire by age 60, or suffer
some form of termination. As a result of this bias against older workers, older individuals
who are equally or more qualified have been systematically excluded from the career
opportunities that are afforded to people who work for MBNR.
64. The underrepresentation of workers over age 55 at MBNR is stark.
65. Not surprisingly, the number of workers 55 years of age and older in entry-level and lower
to mid-level positions is stunningly low.
66. MBNR’s recruiting and hiring policies, patterns, and/or practices have a disparate impact
on applicants 55 years of age or older because they deter applicants 55 years of age or
older from applying and disfavor hiring those applicants 55 years of age or older who do
apply.
67. These policies, patterns, and/or practices are no accident.
68. Rather, they are part and parcel of MBNR’s corporate culture.
69. Pepe Auto Group has intentionally implemented these company-wide policies and
practices throughout its dealerships in order to maintain its youthful culture and
appearance.
70. MBNR’s policies and practices have the effect of deterring prospective applicants ages 55
and older from applying and denying job opportunities to those individuals ages 55 and
older who do apply.
71. MBNR provides compliance consulting services and undoubtedly understands the
consequences of its own recruitment policies and practices.
72. MBNR is very proud of its inordinately young workforce. In order to continue to attract
and maintain “Millennials,” MBNR intentionally screens out individuals ages 55 and older
who apply for employment and denies them employment opportunities
COLLECTIVE ACTION ALLEGATIONS
73. Gallagher brings this collective action pursuant to 29 U.S.C. §626(b) seeking liability-
phase injunctive and declaratory relief on behalf of a collective of all applicants and
deterred prospective applicants for employment ages 55 and older. Plaintiff also brings
this collective action pursuant to 29 U.S.C. §626(b) for monetary damages and other
make-whole relief on behalf of a collective of all applicants and deterred prospective
applicants for employment ages 55 and older in the United States at any time from October
18, 2013 through the resolution of this action for claims under the ADEA.
74. Gallagher and other potential members of the collective are similarly situated in that they
have all sought and been denied or were deterred from applying for employment at MBNR
by policies and practices that have the purpose and effect of denying them employment
opportunities because of their age, or for termination of their employment simply because
of their age.
75. There are many similarly situated collective members who would benefit from the
issuance of a court-supervised notice of the present lawsuit and the opportunity to join the
present lawsuit. Notice should be sent to the collective pursuant to 29 U.S.C. § 626(b).
76. As part of its regular business practice, MBNR has intentionally, willfully, and repeatedly
engaged in a pattern, practice, and/or policy of violating the ADEA with respect to
Plaintiff and the collective.
77. This policy and pattern or practice includes, but is not limited to:
a) willfully utilizing a biased recruiting system for entry-level accounting hiring that
excludes, deters, and discriminates against workers ages 55 and over; and
b) willfully implementing a termination policy that deters and discriminates against
applicants ages 55 and over for employment;
c) willfully refusing to hire applicants ages 55 and over for employment.
78. MBNR maintained and implemented these policies and practices with the purpose and
effect of denying Plaintiff and other members of the collective employment opportunities
because of their age.
79. These policies cannot be justified on the basis of reasonable factors other than age.
FIRST COUNT
Violation of the Older Workers Benefit Protection Act
29 U.S.C. §626(f)
80. Plaintiff repeats and realleges all prior allegations as if set forth at length herein.
81. This Claim is brought by Representative Plaintiff on behalf of himself and the collective
he represents.
82. Defendants have a pattern and practice of presenting older employees with unlawful
release agreements that do not meet the standards required under the OWBPA, after
advising them that they will be terminated from their employment.
83. Defendants provided Plaintiff with a general release that did not meet the standards
required under the OWBPA.
84. Defendants’ general release did not refer to the rights or claims arising under the ADEA.
85. Defendants’ general release did not advise the employee, in writing, to consult an
attorney before accepting the agreement.
86. Defendants’ general release did not provide the employee with at least 21 days to
consider the offer.
87. Defendants’ general release did not give Plaintiff seven days to revoke his signature.
88. Defendants’ general release did not include rights and claims that may arise after the
date on which the waiver was executed.
89. Plaintiff reasonably believed that the subject release was valid and effective, and
detrimentally relied upon the subject release in not filing a charge against Pepe for
discrimination under the ADEA with the Equal Employment Opportunity Commission
(“EEOC”).
90. Defendants’ violation of the OWBPA unlawfully induced and lulled Plaintiff into not
filing the required charge against Pepe for discrimination under the ADEA with the
EEOC.
91. Defendants’ unlawful conduct should not give rise to a defense against claims for
discrimination under the ADEA arising from the failure to file against Pepe for
discrimination under the ADEA with the EEOC.
92. As a direct and proximate result of the Defendants’ unlawful conduct, Plaintiff has been
damaged.
93. Defendants’ failure to prepare and disseminate a general release which complies with the
OWBPA is a violation of Plaintiff’s rights, entitling Plaintiff to equitable and other
relief, including voiding the release as to all claims; permission to file a charge against
Pepe for discrimination under the ADEA with the EEOC out of time; and permission to
file a second amended complaint in this action which shall include claims under the
ADEA when a notice of right to sue is received from the EEOC.
94. Plaintiff requests relief as hereinafter described.
SECOND COUNT
Unlawful Discriminatory Practices
NY CLS §290 et seq.
95. Plaintiff repeats and realleges all prior allegations as if set forth at length herein.
96. This Claim is brought by Representative Plaintiff on behalf of himself and the collective
he represents.
97. Defendants discharged Plaintiff from his employment because of his age.
98. In doing this, Defendants have discriminated against Plaintiff and caused him harm
99. Plaintiff’s termination, because of his age, was not due to a bona fide occupational
qualification which is allowed under the law.
100. Defendants maintain discriminatory policies, patterns, and/or practices that have an
adverse impact on individuals ages 40 and older in violation of the NY CLS §296, and
are not, and cannot be, justified by reasonable factors other than age.
101. Defendants have maintained these discriminatory policies, patterns, and/or practices both
within and outside the liability period in this case.
102. As a direct result of Defendants’ discriminatory policies and/or practices as described
above, Plaintiff and the collective have suffered damages including, but not limited to,
lost past and future income, compensation, and benefits.
103. The foregoing policies, patterns, and/or practices have an unlawful disparate impact on
employees and prospective employees ages 40 and older in violation of by N.Y. CLS
§296.
104. As a direct and proximate result of the Defendants’ unlawful conduct, Plaintiff has been
damaged.
105. Plaintiff requests relief as hereinafter described.
THIRD COUNT
Breach of Contract
106. Plaintiff repeats and realleges all prior allegations as if set forth at length herein.
107. An employment contract, for a three year period, existed between Plaintiff and
Defendants.
108. Plaintiff fully performed his obligations under the contract.
109. Defendants terminated Plaintiff before the three years indicated in the contract was over
thereby engaging in a material breach pf the contract.
110. Defendants’ failure to perform and carry out the contract as negotiated for resulted in
damages to Plaintiff.
111. Plaintiff requests relief as hereinafter described.
FOURTH COUNT
Wrongful Discharge
112. Plaintiff repeats and realleges all prior allegations as if set forth at length herein.
113. Defendants wrongfully terminated Plaintiff, without lawful basis, in violation of Federal
and state law, and in breach of the obligations under the employment contract between
the parties.
114. As a direct and proximate result of the Defendants’ unlawful conduct, Plaintiff has been
damaged.
115. Plaintiff requests relief as hereinafter described.
FIFTH COUNT
Fiduciary Breaching Duty
116. Plaintiff repeats and realleges all prior allegations as if set forth at length herein.
117. Defendants had a fiduciary relationship with Plaintiff as Pepe was Plaintiff’s contractual
employer and Plaintiff was not independently contracted or an at will employee.
118. Defendants injured Plaintiff and acted contrary to the interests of Plaintiff, to whom they
owed a duty of loyalty to.
119. As a direct and proximate result of the Defendants’ unlawful conduct, Plaintiff has been
damaged.
120. Plaintiff requests relief as hereinafter described.
SIXTH COUNT
Intentional Interference with Contractual Relationship
121. Plaintiff repeats and realleges all prior allegations as if set forth at length herein.
122. Defendants intentionally and tortuously interfered with the performance of Plaintiff’s
employment contract with Porsche.
123. Defendants were aware of the existence of an employment relationship between Plaintiff
and Porsche.
124. Defendants engaged in the aforementioned communications with Porsche for the
purpose of inducing Porsche to improperly terminate Plaintiff’s employment by Porsche.
125. Defendants’ interference with Plaintiff’s relationship with Porsche was intentional.
126. As a direct and proximate result of the Defendants’ unlawful conduct, Plaintiff has been
damaged.
127. Defendants’ interference with Plaintiff’s relationship with Porsche occurred after the
unlawful termination of the Plaintiff’s employment with Pepe, and is thus not subject to
either any arbitration provisions within the employment agreement or any release which
predates the unlawful conduct.
128. Plaintiff requests relief as hereinafter described.
SEVENTH COUNT
Intentional Interference with Prospective Economic Advantage
129. Plaintiff repeats and realleges all prior allegations as if set forth at length herein.
130. There was a clear business relationship between Plaintiff and Porsche.
131. Defendant interfered with this business relationship by speaking ill about Plaintiff’s
business performance.
132. Defendant acted with the sole purpose of harming Plaintiff and used dishonest, unfair
and improper means.
133. As a direct and proximate result of the Defendants’ unlawful conduct, Plaintiff has been
damaged.
134. Defendants’ interference with Plaintiff’s relationship with Porsche occurred after the
unlawful termination of the Plaintiff’s employment with Pepe, and is thus not subject to
either any arbitration provisions within the employment agreement or any release which
predates the unlawful conduct.
135. Plaintiff requests relief as hereinafter described.
EIGHTH COUNT
Injurious Falsehood
136. Plaintiff repeats and realleges all prior allegations as if set forth at length herein.
137. Defendant uttered untrue statements about Plaintiff to higher-ups at Porsche.
138. Upon information and belief, these statements included but are not limited to telling
Porsche that there was pending litigation between the two parties when there was not
which would make it seem that Plaintiff lied to Porsche about this fact.
139. Upon information and belief, Pepe told Porsche that Gallagher had no integrity and
could not be trusted as Porsche’s representative.
140. Upon information and belief, Pepe told Porsche that Gallagher made his customers
uncomfortable.
141. Upon information and belief, Pepe told Porsche that Gallagher was costing Pepe’s
dealership business because Gallagher was a poor Pre Owned Manager.
142. Defendant uttered these statements with ill will and deliberate falsifications.
143. These statements were about Plaintiff’s business and employment.
144. The statements induced Porsche to continue dealing with Plaintiff and denied Plaintiff of
the continuance of his economic advantages from his employment with Porsche.
145. As a direct and proximate result of the Defendants’ unlawful conduct, Plaintiff has been
damaged.
146. Defendants’ unlawful conduct occurred after the unlawful termination of the Plaintiff’s
employment with Pepe, and is thus not subject to either any arbitration provisions within
the employment agreement or any release which predates the unlawful conduct.
147. Plaintiff requests relief as hereinafter described.
NINTH COUNT
Libel Per Se
148. Plaintiff repeats and realleges all prior allegations as if set forth at length herein.
149. Defendant publicized a statement about Plaintiff by disclosing it to the employees of
Porsche, Mercedes Benz and others.
150. Upon information and belief, these statements included but are not limited to telling
Porsche that there was pending litigation between the two parties when there was not
which would make it seem that Plaintiff lied to Porsche about this fact.
151. Upon information and belief, Pepe told Porsche that Gallagher had no integrity and
could not be trusted as Porsche’s representative.
152. Upon information and belief, Pepe told Porsche that Gallagher made his customers
uncomfortable.
153. Upon information and belief, Pepe told Porsche that Gallagher was costing Pepe’s
dealership business because Gallagher was a poor Pre Owned Manager.
154. The statements alleged about Plaintiff to Porsche and others were both false and
defamatory, and as they were directed against Plaintiff’s professionalism and standing in
the business community, constitute per se defamation.
155. Defendant uttered these statements with ill will and deliberate falsifications.
156. As a direct and proximate result of the Defendants’ unlawful conduct, Plaintiff has been
damaged.
157. Defendants’ unlawful conduct occurred after the unlawful termination of the Plaintiff’s
employment with Pepe, and is thus not subject to either any arbitration provisions within
the employment agreement or any release which predates the unlawful conduct.
158. Plaintiff requests relief as hereinafter described.
WHEREFORE, Plaintiff demands judgment against Defendants as follows:
i.
For actual damages;
ii.
For compensatory damages;
iii.
For consequential damages;
iv.
For punitive damages;
v.
For punitive damages;
vi.
For attorney’s fees;
vii.
Cost of suit;
viii.
Certification of the case as a class and/or collective action on behalf of the
proposed class;
ix.
Designation of Plaintiff Joseph Gallagher as representative of the class;
x.
Designation of Representative Plaintiff’s counsel of record as class counsel;
xi.
A declaratory judgment that the practices complained of herein are unlawful
and violate 29 U.S.C. §§ 621, et seq. and/or NY CLS §§ 290, et seq.
xii.
A preliminary and permanent injunction against Defendants and their partners,
officers, agents, successors, employees, representatives, and any and all
persons acting in concert with them, from engaging in policies, patterns,
and/or practices that discriminate against Plaintiff and the class because of
their age;
xiii.
An order that Defendants institute and carry out policies, practices, and
programs that provide equal employment opportunities for all employees
regardless of age, and that it eradicate the effects of their past and present
unlawful employment practices;
xiv.
An order appointing a monitor to ensure that Defendants comply with the
injunction provisions of any decree that the Court orders;
xv.
An order retaining jurisdiction over this action to ensure that Defendants
comply with such a decree;
xvi.
An order for front pay benefits to Plaintiff and class and collective members;
xvii.
Back pay (including interest and benefits) for Plaintiff and class and collective
members;
xviii.
All damages sustained as a result of Defendants’ conduct, including damages
for emotional distress, humiliation, embarrassment, and anguish, according to
proof;
xix.
Liquidated damages;
xx.
Exemplary and punitive damages in an amount commensurate with
Defendants’ ability to pay and to deter future conduct;
xxi.
For prejudgment interest and post-judgment interest; and
xxii.
For any other relief the Court deems just and proper.
JURY DEMAND
Plaintiff demands a trial by jury on all issues subject to trial.
ABOYOUN, HELLER & DOBBS, L.L.C.
Attorneys for Plaintiff
By:_____________________________
Seth L. Dobbs
Attorney ID: 039942009
Dated: June 27, 2018
DESIGNATION OF TRIAL COUNSEL
Seth L. Dobbs, Esq. is hereby designated as trial counsel for the Plaintiff in the above matter.
ABOYOUN, HELLER & DOBBS, L.L.C.
Attorneys for Plaintiff
By:_____________________________
Seth L. Dobbs
Attorney ID: 039942009
Dated: June 27, 2018
DEMAND FOR PRESERVATION OF EVIDENCE
All Defendants are hereby directed and demanded to preserve all physical and electronic
information pertaining in any way to Plaintiffs’ cause of action and/or prayers for relief, to any
defenses to same, and pertaining to any party, including but to limited to electronic data storage,
digital images, computer images, searchable data, emails, memos, text messages, maintenance
records and any other information and/or data, and/or documents which may be relevant to any
claim or defense in this litigation.
Plaintiffs specifically demands that Defendants preserve any and all evidence pertaining to
their phone records. Failure to do so will result in a separate claim for spoliation of evidence, and
appropriate adverse inferences.
ABOYOUN, HELLER & DOBBS, L.L.C.
Attorneys for Plaintiff
By:_____________________________
Seth L. Dobbs
Dated: June 27, 2018
Attorney ID: 039942009
RESERVATION OF RIGHTS
Defendant reserves the right to file such specific amendments and/or additional claims as
are applicable hereinafter in this action and/or as the same are subsequently discovered and
identified.
ABOYOUN, HELLER & DOBBS, L.L.C.
Attorneys for Plaintiff
By:_____________________________
Seth L. Dobbs
Attorney ID: 039942009
Dated: June 27, 2018
| discrimination |
n7IzC4cBD5gMZwczJ81q | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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RAMON JAQUEZ, on behalf of himself and all
others similarly situated,
Plaintiffs,
v.
CLASS ACTION COMPLAINT
AND
DEMAND FOR JURY TRIAL
THGPP LLC,
Defendant.
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Plaintiff, RAMON JAQUEZ (hereinafter, “Plaintiff”), a New York resident,
brings this class complaint by and through the undersigned attorneys against Defendant
THGPP LLC (hereinafter “Defendant”), for its violations of the Americans with
Disabilities Act (“ADA”), 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 ADA as a way of banning discrimination based on disability.
The ADA guarantees that people with disabilities, such as the Plaintiff, have the
same opportunities as everyone else to participate in the mainstream of American
life.
2.
Case law is clear that those opportunities include access to web content, by
requiring business websites to include screen readers and other assistive
technologies to ensure consumers with disabilities have the same access as
everyone else.
3.
The ADA contemplates injunctive relief when the ADA is violated:
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).
NATURE OF THE ACTION
4.
Plaintiff brings this civil rights action, individually and on behalf of those similarly
situated, seeking redress for Defendant’s actions which violate the ADA.
5.
Plaintiff, like approximately 2.0 million other people in the United States, is
visually impaired and legally blind, in that he has visual acuity with correction of
less than or equal to 20 x 200.
6.
Upon visiting Defendant’s website, www.mioskincare.com (hereinafter referred to
as “Website”), Plaintiff quickly became aware of Defendant’s failure to maintain
and operate its website in a way to make it fully accessible for himself and for other
blind or visually-impaired people.
7.
The Internet has become a significant source of information, if not the most
significant source, for conducting all types of necessary activities, such as banking
and shopping.
8.
This is equally true for people with disabilities and those without disabilities.
9.
Fortunately, technology known as screen-reading software provides the blind and
visually-impaired the ability to fully access websites, and the information, products,
goods and contained thereon.
10.
However, 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.
11.
The international website standards organization known throughout the world as
W3C, has published guidelines that should be followed to ensure website
accessibility. The most recent version, version 2.1, is referred to as the Web Content
Accessibility Guidelines (“WCAG 2.1”).
12.
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”).
13.
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
14.
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. The Court also has pendent
jurisdiction over the state law claims in this action pursuant to 28 U.S.C. § 1367.
15.
Venue is proper in this district under 28 U.S.C. §1391(b)(1) and (2).
16.
This Court is empowered to issue a declaratory judgment under 28 U.S.C. §§ 2201
and 2202.
PARTIES
17.
Plaintiff RAMON JAQUEZ, at all relevant times, is and was a resident of Bronx,
New York.
18.
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.
19.
Defendant is and was at all relevant times a Delaware Limited Liability Company
doing business in New York.
20.
Defendant is a skincare product manufacturing company that owns and operates the
website, www.mioskincare.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.
21.
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).
ALLEGATIONS OF FACTS
22.
On or around August of 2020, Plaintiff visited the Website, using a popular screen
reading software called NonVisual Desktop Access, with the intent of browsing
and potentially making a purchase.
23.
Despite his efforts, however, Plaintiff, a visually impaired or blind person, was
denied access 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.
24.
As a result of visiting the Website, Plaintiff is aware that the Website includes
multiple barriers making it impossible for himself, and any other visually impaired
or blind person, from enjoying access to the Website’s content equally to that of a
sighted user.
25.
For example, many features on the Website fail to accurately describe the contents
of graphical images, fail to properly label title, fails to distinguish one page from
another, contain multiple broken links, contain headings that do not describe the
topic or purpose, and the keyboard user interfaces lack a mode of operation where
the keyboard focus indicator is visible.
26.
These access barriers effectively denied Plaintiff the ability to use and enjoy
Defendant’s website the same way sighted individuals do.
27.
Upon information and belief, Defendant has not, and have never, had adequate
policies and procedures in place to ensure the Website is and will remain accessible
to the blind and/or visually impaired.
28.
Due to Defendant’s failure and refusal to remove access barriers to its website,
Plaintiff and visually-impaired persons, who need screen-readers to access
websites, 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.
29.
The access barriers Plaintiff encountered have caused a denial of Plaintiff’s full and
equal access in the past, and have caused the Plaintiff real harm.
30.
If the Website were equally accessible to all, and if simple compliance with the
WCAG 2.1 guidelines were met, Plaintiff could independently navigate the
Website and complete a desired transaction as sighted individuals do.
31.
Because of this, Plaintiff alleges that Defendant has engaged in acts of intentional
discrimination, including maintaining a website that is inaccessible to members of
a protected class.
32.
Due to Defendant’s violations of the ADA, and the harm it has caused, Plaintiff
seeks damages, fees, costs, and injunctive relief.
33.
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
34.
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.
35.
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.
36.
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.
37.
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.
38.
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.
39.
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.
40.
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.
41.
Plaintiff, on behalf of himself and the Class Members, repeats and realleges every
allegation of the preceding paragraphs as if fully set forth herein.
42.
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).
43.
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.
44.
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).
45.
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).
46.
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).
47.
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.
48.
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
49.
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.
50.
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.”
51.
Defendant’s Website is a sales establishment and public accommodations within
the definition of N.Y.C. Admin. Code § 8-102(9).
52.
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).
53.
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.
54.
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).
55.
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.
56.
Defendant has failed to take any prompt and equitable steps to remedy their
discriminatory conduct. These violations are ongoing.
57.
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.
58.
Defendant’s actions were and are in violation of the NYCHRL and therefore
Plaintiff invokes his right to injunctive relief to remedy the discrimination.
59.
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.
60.
Plaintiff is also entitled to reasonable attorneys’ fees and costs.
61.
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
62.
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.
63.
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.
64.
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: September 16, 2020
MARCUS & ZELMAN, LLC
By: /s/ Yitzchak Zelman, Esq.
Yitzchak Zelman, Esq.
Yzelman@MarcusZelman.com
701 Cookman Avenue, Suite 300
Asbury Park, New Jersey 07712
Tel: (732) 695-3282
Fax: (732) 298-6256
ATTORNEYS FOR PLAINTIFF
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Attorneys for Plaintiff �
| consumer fraud |
IFYk_4gBF5pVm5zYtXRT | IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF CONNECTICUT
JEAN M. FLYNN and JAMES E. STEAD,
Individually and on behalf of all others
similarly situated,
Plaintiffs,
CIVIL ACTION NO.:
3:15-cv-01053-JAM
-against-
DIRECTV, LLC and MAS TEC, INC.,
Defendants.
September 8, 2015
AMENDED CLASS ACTION COMPLAINT
Plaintiffs, individually, and on behalf of all others similarly situated,
upon knowledge as to themselves and upon information and belief as to all
other matters, as and for their Amended Complaint against Defendants,
allege as follows:
NATURE OF CLAIMS
1.
Plaintiffs bring this action individually, and on behalf of all similarly
situated persons and/or entities (“Landlords”) that own and lease residential
multiple dwelling unit properties (“MDU’s”) in the State of Connecticut,
upon which Defendants, by their agents, servants and/or employees have, on
at least one occasion during the applicable statutory period, without first
receiving prior written or verbal Landlord authorization and/or permission,
1
installed DIRECTV equipment on the roof and/or exterior walls of said
MDU. Plaintiffs seek injunctive relief, compensatory, consequential and
punitive damages; costs and reasonable attorney’s fees.
2.
Plaintiffs also allege violations of the Connecticut Unfair Trade
Practices Act (CUTPA), 21 CA 275, Sec. 42-110a et. seq. and seek injunctive
relief, compensatory, consequential, punitive damages, costs and reasonable
attorney’s fees for Defendants’ deceptive business practices and violations of
public policy, as herein alleged.
JURISDICTION AND VENUE
3.
This Court has original jurisdiction over this class action pursuant to
18 U.S.C. § 1332(d), which under the provisions of the Class Action Fairness
Act (“CAFA”) explicitly provides for the original jurisdiction of the Federal
Courts in any class action in which any member of the plaintiff class is a
citizen of a State different from any defendant, and in which the matter in
controversy exceeds the sum of $5,000,000, exclusive of interests and costs.
4.
Plaintiffs allege that the total claims of individual class members in
this action are well in excess of $5,000,000 in the aggregate, exclusive of
interests and costs, as required by 28 U.S.C. §§ 1332(d)(2),(5).
5.
Plaintiffs are Citizens of Connecticut. DIRECTV is a Citizen of
California; MAS TEC, INC., is a citizen of Florida. Thus, any member of the
proposed class is a citizen of a state different than any Defendant.
6.
Diversity of citizenship exists under CAFA, as required by 28 U.S.C.
§§ 1332(d) (5) (B).
2
7.
The total approximate number of members of the proposed
Plaintiff Class is 2 5 , 0 0 0 persons/entities.
8.
Venue is proper in the United States District Court for the District of
Connecticut under 28 U.S.C. §§ 1391, because a substantial part of the
events or omissions giving rise to the claim occurred in this district and
Defendants are subject to personal jurisdiction in this District.
THE PARTIES
9.
DIRECTV, LLC,("DIRECTV") is a California limited liability
corporation with its principal place of business located at 2230 East
Imperial Highway, El Segundo, CA 90245.
10.
DIRECTV actively transacts and is doing business in the State of
Connecticut.
11.
MAS TEC, INC., (“ MAS TEC”) is a Florida corporation with its
principal place of business located at 800 S. Douglas Road, Coral Gables,
FL 33134.
12.
MAS TEC actively transacts and is doing business in the State of
Connecticut.
13.
Plaintiff, JEAN M. FLYNN, is a citizen and resident of New
Fairfield, Connecticut 06812.
14.
Plaintiff, JAMES E. STEAD, is a citizen and resident of New
Fairfield, Connecticut 06812.
15.
At all relevant times, Plaintiffs were the owners and landlords of
an MDU located at 106 Greenmount Terrace, Waterbury, Connecticut
3
06708.
STATEMENT OF MATERIAL FACTS
16.
At all relevant times, DIRECTV has been engaged in the marketing
and sales of DIRECTV satellite television service and the leasing and
installation of DIRECTV antennae such as a satellite dish and or other
equipment designed for over-the-air reception of television broadcast signals
(“Equipment”) in the State of Connecticut.
17.
DIRECTV is a leading provider, in Connecticut, of digital
television entertainment programming via satellite to residential and
commercial subscribers.
18.
DIRECTV’s digital entertainment programming is provided to
subscribers by means of the Equipment that it licenses/leases to its
subscribers and installs upon the MDU in which the subscriber rents and
resides.
19.
MAS TEC is a specialty contractor providing installation
fulfillment services to DIRECTV and other companies specializing in
the telecommunications, broadband cable, wireless, and satellite
industries.
20.
MAS TEC is one of the largest DIRECTV installation and service
companies in the United States, serving over 200,000 customers each month.
21.
At all relevant times, MAS TEC had a contractual relationship
with DIRECTV to install DIRECTV equipment at Plaintiffs’ MDU
4
property and at or on other MDUs, located elsewhere in Connecticut.
22.
The contracts between DIRECTV and MAS TEC specify the nature of
the satellite dish installation services they are to provide, and establish
policies and procedures to which MAS TEC technicians must adhere.
23.
Satellite system equipment installed by MAS TEC, pursuant to
these contracts, is provided and/or sold to MAS TEC by DIRECTV.
24.
DIRECTV satellite system equipment is installed by MAS TEC at the
places of residence of DIRECTV customers/subscribers.
25.
DIRECTV requires all prospective M A S T E C technicians to
pass a criminal background check and drug screening test before working
on behalf of DIRECTV.
26.
DIRECTV directs MAS TEC technicians to specific work sites and
details the timeframe in which jobs must be completed.
27.
DIRECTV monitors the location of MAS TEC technicians,
specifies the time at which they are supposed to arrive at appointments,
and regularly evaluates completed work to ensure that it meets
DIRECTV standards.
28.
DIRECTV determines the number of its customers that will be
serviced by MAS TEC technicians on any given day and the rate at which
they are paid for each job.
29.
In accordance with the Federal Communication Commission’s Second
Report and Order, In the Matter of Implementation of Section 207 of the
Telecommunications Act of 1996, Restrictions on Over-the-Air Reception
5
Devices , 1998 WL 888546 (1998), 47 C.F.R. 1.4000(d) a tenant does not have
direct or indirect control over the exterior walls or roof of an MDU, which are
common or restricted areas, and therefore the Regulation does not authorize
installation of Equipment in those areas without consent of the Landlord. In
particular, the Second Report and Order makes clear that DIRECTV cannot
drill holes in an exterior wall or roof of an MDU without consent of the
Landlord.
30.
As a requirement of FCC rule and regulation, Defendants were
required to secure the prior verbal or written consent of the
l a n d l o r d / o wners, before drilling holes in the exterior walls or roofs of
their Connecticut MDUs and permanently affixing DIRECTV Equipment
thereto.
31.
Instead, as a prerequisite for installation of the Equipment DIRECTV
requires its subscribers to execute a written permission form, representing
that the tenant has secured verbal permission/authorization from their
landlord.
32.
MAS TEC technicians were required to secure from DIRECTV
subscribers, an executed written permission form as a pre-requisite for
installation of the Equipment
33.
MAS TEC technicians are trained not to seek verbal/written approval
and consent for installation, directly from landlords.
34.
The lease between Plaintiffs and their tenants at the subject MDU
prohibits the installation of satellite dishes, including DIRECTV Equipment,
6
on roofs and/or exterior walls of the subject MDUs.
35.
Defendants had constructive/actual knowledge that the leases
between Plaintiffs and their tenants prohibit the installation of DIRECTV
Equipment on roofs and/or exterior walls of the subject MDUs, but ignored
this prohibition.
36.
At all relevant times herein, Defendants did not require Tenant-
subscribers to produce any evidence of prior Landlord approval to install
DIRECTV system Equipment.
37.
At all relevant times herein, Defendants did not require Tenant-
subscribers to produce any evidence that the subject lease or rental
agreement did not have any prohibitions in connection with installation
of DIRECTV system Equipment on roofs and/or exterior walls of the
subject MDUs.
38.
DIRECTV caused the installation of DIRECTV equipment on roofs
and/or exterior walls of the MDUs owned by Plaintiffs and putative members
of the class, on the mere representation of any Tenant-subscriber and/or
family member over the age of 18 years, that “DIRECTV System installation
at (address) has been verbally approved by my landlord (or is not required
pursuant to my lease or rental agreement.)”
39.
MAS TECH installed DIRECTV equipment on roofs and/or exterior
walls of MDUs owned by Plaintiffs and putative members of the class, on the
mere representation of the Tenant-subscriber and/or family member over the
age of 18 years that “DIRECTV System installation at (address) has been
7
verbally approved by my landlord (or is not required pursuant to my lease or
rental agreement.)”
40.
MAS TECH installed DIRECTV equipment on roofs and/or exterior
walls of the MDUs owned by Plaintiffs and putative members of the class,
without any knowledge, one way or the other, whether Plaintiff Landlords
and putative members of the class had approved such installation.
41.
During all relevant times herein, Defendants, by their agents, servants
and/or employees knowingly and intentionally violated the above-referenced
FCC rules and regulations, by drilling holes in the exterior walls or roofs of
C o n n e c t i c u t MDUs and permanently affixing DIRECTV Equipment
thereto, without the prior verbal or written consent of the Plaintiffs-Owners
and putative members of the class.
42.
Defendants have circumvented FCC regulations and violated public
policy by performing i nstal lati on of the DIRECTV Equipment on roofs and
exterior walls of MDUs without securing prior written/verbal permission from
the Plaintiffs-Landlords and/or putative class members.
43.
At all relevant times herein, Defendants never paid any fees and/or
other monetary consideration to Plaintiffs or putative members of the class,
for the use/occupancy/installation of DIRECTV system Equipment in or on
the roofs and exterior walls of MDUs owned by Plaintiffs-Landlords or
putative members of the Class.
44.
At all relevant times herein, upon the termination of tenant
subscriptions to its satellite television service, DIRECTV abandons its
8
Equipment permanently affixed to roofs and exterior walls of MDUs,
requiring Plaintiffs-Landlords and putative class members to expend their
own time, money and resources to remove the Equipment and repair the
MDU at the site of affixation.
CLASS ACTION ALLEGATIONS
45.
This action is brought and may be properly maintained as a Class
action pursuant to The Class Action Fairness Act, 28 U.S.C. § 1332.
46.
This action has been brought and may properly be maintained as a
class action against Defendants pursuant to the provisions of Rule 23 of the
Federal Rule of Civil Procedure, because there is a well-defined community of
interest in the litigation and the proposed Classes are easily ascertainable.
47.
Plaintiffs bring this action on behalf of themselves and all others
similarly situated, and seek certification of a Class, defined as:
All persons and/or entities (“Landlords”) that own and lease
residential multiple dwelling units (“MDU’s”) in the State of Connecticut,
upon which Defendants, by their agents, servants and/or employees have,
on at least one occasion during the applicable statutory period, without
first receiving prior written Landlord authorization and/or permission,
installed DIRECTV equipment on the roof and/or exterior walls of said
MDU.
48.
The following are excluded from the Class: any person or entity in
9
which Defendants have a controlling interest; the officers, directors,
employees, affiliates, subsidiaries, legal representatives, heirs, successors
and their assigns of any such person or entity, together with any immediate
family member of any officers, directors, employee of said persons and/or
entities.
49.
The proposed Class Period is the time beginning three (3) years prior to
the date of filing of this Class Action Complaint, and extending to the date of
prospective entry of Judgment for the Class.
50.
Numerosity: Plaintiffs do not know the exact size of the class, but it is
reasonably estimated that the Class is composed of at least t w e n t y f i v e
thousand (25,000) persons/entities. While the identities of Class members are
unknown at this time, this information can be readily ascertained through
appropriate discovery of the records maintained by Defendants.
51.
The persons/entities in the Class are so numerous that the joinder of all
such persons/entities is impracticable and the disposition of their claims in a
class action rather than in individual actions will benefit the parties and the
courts.
52.
This action involves common questions of law and fact, because each
Class Member’s claim derives from the same nucleus of facts and common
relief by way of damages as is sought by Plaintiffs.
53.
The questions of law and fact common to the class members
predominate over questions affecting only individual class members. Thus,
proof of a common or single set of facts will establish the right of each member
10
of the Classes to recover and include, but are not limited, to the following:
(a)
Whether Defendants’ installation and maintenance of DIRECTV
Equipment on roofs and exterior walls of MDUs, was with the
consent/permission of Plaintiffs and putative class members;
(b)
Whether Defendants’ installation and maintenance of DIRECTV
Equipment on roofs and exterior walls of MDUs owned by Plaintiffs and
putative class members, constitutes trespass;
(c)
Whether Defendants’ abandonment of DIRECTV Equipment
permanently affixed to roofs and exterior walls of MDUs owned by Plaintiffs
and putative class members, constitutes continuing trespass;
(d)
Whether Defendants are liable to Plaintiffs and putative class
members for damages arising from their continuing trespass, and if so, the
proper measure of damages;
(e)
Whether Defendants' acts and conduct constitute deceptive or unfair
trade practices under CUTPA;
(f)
Whether Defendants acts and conduct justify imposition of punitive
damages under CUTPA.
54.
The claims asserted by Plaintiffs in this action are typical of the
claims of other Class members, as the claims arise from the same course of
conduct by Defendants and the relief sought is identical.
55.
Plaintiffs’ claims are typical of the members of the Class, since all
such claims arise out of the same business practices of Defendants,
characterized by the permanent installation of DIRECTV system Equipment
11
in or on roofs and/or exterior walls of MDUs, without paying consideration
and in the absence of securing prior verbal or written permission therefor
from the Plaintiffs-Landlords and putative class members.
56.
Plaintiffs have no interest(s) antagonistic to the interests of the other
members of the Class. Plaintiffs are committed to the vigorous prosecution
of this action and have retained competent counsel experienced in Class
action litigation. Accordingly, Plaintiffs are adequate representatives and
will fairly and adequately protect the interests of the Class.
57.
The Class, of which each Plaintiff is a member, is readily identifiable.
58.
A Class action is a superior and cost effective method for the fair and
efficient adjudication of the present controversy and there would accrue
enormous savings to both the Courts and the Class in litigating the common
issues on a class wide, instead of on a repetitive individual basis.
59.
No unusual difficulties are likely to be encountered in the
management of this class action in that all questions of law and/or fact to be
litigated at the liability stage of this action are common to the Class.
60.
A Class action is superior to other available methods for the fair and
efficient adjudication of this controversy, since joinder of all members is
impractical. While the damages suffered by the individual Class members
are not insignificant, the amounts are modest compared to the expense and
burden of individual litigation. A Class action will cause an orderly and
expeditious administration of the claims of the Class and will foster
economies of time, effort and expense.
61.
The prosecution of separate actions by individual members of the Class
12
would run the risk of inconsistent or varying adjudications, which would (a)
establish incompatible standards of conduct of Defendants in this action and
(b) create the risk that 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 adjudications or substantially impair or
impede their ability to protect their interests. Prosecution as a class
action will eliminate the possibility of repetitious litigation.
FIRST COUNT
(Individual Claims for Trespass to Real
Property)
62.
Plaintiffs incorporate all preceding paragraphs of this complaint as
if fully set forth herein.
63.
Defendants intentionally and knowingly installed DIRECTV system
Equipment on the roof of Plaintiffs’ MDU without first securing the prior
verbal or written permission from the Plaintiffs-Owners.
64.
Defendants’ acts and conduct were a physical invasion and intrusion
affecting the Plaintiff's exclusive possessory interest of their real property.
65.
Defendants knowingly and intentionally violated FCC rules and
regulations by drilling holes into the roof of Plaintiffs’ MDU and
permanently affixing DIRECTV Equipment thereto, without the prior
verbal or written consent of the Plaintiffs-Owners.
66.
Plaintiffs did not authorize Defendants or any of them, verbally or
in writing, to install or maintain DIRECTV Equipment on their MDU.
67.
Defendants never paid Plaintiffs any type of monetary
13
consideration for the privilege of installing and/ or maintaining
DIRECTV Equipment on the roof of Plaintiffs’ MDU.
68.
The leases between Plaintiffs and their MDU tenants prohibit the
installation of any satellite dishes, including DIRECTV Equipment on the
roofs and/or exterior walls of Plaintiffs’ MDU.
69.
Plaintiffs’ MDU tenants had no legal authority to authorize the
installation of any satellite dishes, including DIRECTV Equipment, on the
roofs and/or exterior walls of Plaintiffs’ MDU.
70.
Defendants’ entry upon, use and occupancy of Plaintiffs’ MDU, as
described herein, constitutes trespass.
71.
Defendants’ entry upon, and unabated use and occupancy of Plaintiffs’
MDU, as described herein, constitutes continuing trespass.
72.
Defendants are strictly liable to Plaintiffs for trespass.
73.
As a proximate result of Defendants’ trespass, Plaintiffs have
sustained economic damage and pecuniary injury.
74.
As a proximate result of Defendants’ continuing trespass on
Plaintiffs’ MDU, Defendants are liable to the Plaintiffs for damages
measured by the value of the illegal use of plaintiffs’ real property to
DIRECTTV.
75.
As a proximate result of Defendants’ continuing trespass on
Plaintiffs’ MDU, Defendants are liable to the Plaintiffs for damages
measured by the value of the illegal use of plaintiffs’ real property to
MAS TEC.
14
76.
As a proximate result of Defendants’ continuing trespass upon
Plaintiffs’ MDU, Defendants are liable to the Plaintiffs for damages for
the costs to remove the DIRECTV Equipment and repair the roof at the
sites of affixation.
77.
Defendants’ continuing trespass upon Plaintiffs’ MDU has been
intentional, deliberate, with knowledge of a high degree of probability of
harm to Plaintiffs and reckless indifference to the law.
78.
Defendants’ continuing trespass upon Plaintiffs’ MDU offends public
policy as it has been established by statutes, the common law and
otherwise; is immoral, unethical, oppressive, unscrupulous and
demonstrates a reckless disregard of the exclusive possessory real property
interests of Plaintiffs
79.
Defendants are liable to Plaintiffs for punitive damages.
SECOND COUNT
(Class Claims for Trespass to Real Property)
80.
Plaintiffs incorporate all preceding paragraphs of this complaint as
if fully set forth herein.
84.
Defendants intentionally and knowingly installed DIRECTV system
Equipment in or on roofs and/or exterior walls of Connecticut MDUs without
first securing the prior verbal or written permission from members of the
Class.
85.
Defendants’ acts and conduct were a physical invasion and intrusion
15
affecting the exclusive possessory interest of Class members in their real
property.
86.
Defendants knowingly and intentionally violated FCC rules and
regulations by drilling holes in the exterior walls or roofs of Connecticut
MDUs and permanently affixing DIRECTV Equipment thereto, without
the prior verbal or written consent of members of the Class.
87.
Members of the class did not authorize Defendants or DIRECTV,
verbally or in writing, to install or maintain DIRECTV Equipment on
the roofs and/or exterior walls of their MDUs.
88.
Defendants never paid members of the Class any type of monetary
consideration, for the privilege of installing and/ or maintaining DIRECTV
Equipment on the roofs and/or exterior walls of their MDUs.
89.
Defendants’ entry upon, use and occupancy of MDUs owned by
members of the Class, as described herein, constitutes trespass.
90.
Defendants’ entry upon, and unabated use and occupancy of
MDUs owned by Class members, constitutes continuing trespass.
91.
Defendants are strictly liable to members of the Class for
trespass.
92.
As a proximate result of Defendants’ trespass, Class members
have sustained economic damage and pecuniary injury.
93.
As a proximate result of Defendants’ continuing trespass on
Class members' MDUs, Defendants are liable to Class members for
damages measured by the value of the illegal use of plaintiffs’ real
16
property to DIRECTTV.
94.
As a proximate result of Defendants’ continuing trespass on
Class members' MDUs, Defendants are liable to Class members for
damages measured by the value of the illegal use of plaintiffs’ real
property to MAS TEC.
95.
As a proximate result of Defendants’ continuing trespass upon
Class members' MDUs,Defendants are liable to Class members for
damages for the costs to remove the DIRECTV Equipment and repair
the roof at the sites of affixation.
96.
Defendants’ continuing trespass upon Class members' MDUs has
been intentional, deliberate, with knowledge of a high degree of probability
of harm to Class members and reckless indifference to the law.
97.
Defendants’ continuing trespass upon Class members' MDUs offends
public policy as it has been established by statutes, the common law and
otherwise; is immoral, unethical, oppressive, unscrupulous and
demonstrates a reckless disregard of the exclusive possessory real property
interests of Plaintiffs
98.
Defendants are liable to Class members for punitive damages.
THIRD COUNT
(Individual Claims under Connecticut Unfair Trade Practices Act)
99. Plaintiffs incorporate all preceding paragraphs of this complaint as if
fully set forth herein.
100. Defendants’ actions and conduct, as described herein, offends public
17
policy as it has been established by statutes, the common law and otherwise.
101. Defendants’ actions and conduct, as described herein violates the
Federal Communication Commission’s Second Report and Order, In the
Matter of Implementation of Section 207 of the Telecommunications Act of
1996, Restrictions on Over-the-Air Reception Devices , 1998 WL 888546 (1998),
47 C.F.R. 1.4000(d) a tenant does not have direct or indirect control over the
exterior walls or roof of an MDU, which are common or restricted areas, and
therefore the Regulation does not authorize installation of Equipment in those
areas without consent of the Landlord.
102. Defendants’ actions and conduct, as described herein, tortiously
interfered with and circumvented the terms and conditions of the lease existing
between the Plaintiffs and their tenant on the 3rd floor.
103. Defendants’ actions and conduct, as described herein, demonstrated a
reckless disregard of the exclusive possessory real property interests of
Plaintiffs.
104. Defendants’ actions and conduct, as described herein was immoral,
unethical, oppressive and unscrupulous.
105. Defendants’ actions and conduct, as described herein, have directly
caused Plaintiffs to have suffered ascertainable loss, due to the CUTPA
violations alleged.
106. As a proximate result of Defendants’ continuing CUTPA violations,
Defendants are liable to Plaintiffs for compensatory damages.
107. As a proximate result of Defendants’ continuing CUTPA violations,
18
Defendants are liable to Plaintiffs for consequential damages.
107. As a proximate result of Defendants’ continuing CUTPA violations,
Defendants are liable to Plaintiffs for punitive damages.
108. As a proximate result of Defendants’ continuing CUTPA violations,
Defendants are liable to Plaintiffs for reasonable attorney’s fees and the costs
of this litigation.
109. Plaintiffs are entitled to injunctive and other equitable relief, enjoining
Defendants’ continuing CUTPA violations, as alleged herein.
FOURTH COUNT
(Class Claims under Connecticut Unfair Trade Practices Act)
110. Plaintiffs incorporate all preceding paragraphs of this complaint as if
fully set forth herein.
111. Defendants’ actions and conduct, as described herein, offends public
policy as it has been established by statutes, the common law and otherwise.
112. Defendants’ actions and conduct, as described herein violates the
Federal Communication Commission’s Second Report and Order, In the
Matter of Implementation of Section 207 of the Telecommunications Act of
1996, Restrictions on Over-the-Air Reception Devices , 1998 WL 888546 (1998),
47 C.F.R. 1.4000(d) a tenant does not have direct or indirect control over the
exterior walls or roof of an MDU, which are common or restricted areas, and
therefore the Regulation does not authorize installation of Equipment in those
areas without consent of the Landlord.
113. Defendants’ actions and conduct, as described herein, tortiously
19
interfered with and circumvented the terms and conditions of the leases and
leasehold interests existing between members of the Class and their respective
tenants.
114. Defendants’ actions and conduct, as described herein demonstrated a
reckless disregard of the exclusive possessory real property interests of the
Class members.
115. Defendants’ actions and conduct, as described herein was immoral,
unethical, oppressive and unscrupulous.
116. Defendants’ actions and conduct, as described herein, have directly
caused members of the Class to have suffered ascertainable loss, due to the
CUTPA violations alleged.
117. As a proximate result of Defendants’ continuing CUTPA violations,
Defendants are liable to members of the Class for compensatory damages.
118. As a proximate result of Defendants’ continuing CUTPA violations,
Defendants are liable to members of the Class for consequential damages.
119. As a proximate result of Defendants’ continuing CUTPA violations,
Defendants are liable to members of the Class for punitive damages.
120. As a proximate result of Defendants’ continuing CUTPA violations,
Defendants are liable to members of the Class for reasonable attorney’s fees
and the costs of this litigation.
121. Members of the Class are entitled to injunctive and other equitable
relief, enjoining Defendants’ continuing CUTPA violations, as alleged herein.
20
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs, on behalf of themselves and all others
similarly situated, pray for Judgment as follows:
(a)
Certifying this case as a Class Action with Plaintiffs as Class
representatives and t h e i r a t t o r n e y s as Class counsel;
(b)
Awarding Judgment to Plaintiffs for all available damages and
other relief under the FIRST and THIRD COUNTS asserted;
(c)
Awarding Judgment to members of the Class for all available damages
and other relief under the SECOND and FOURTH COUNTS asserted;
(d)
Awarding Plaintiffs and members of the Class their costs and
disbursements, including reasonable attorney’s fees;
(e)
Awarding Plaintiffs and members of the Class pre-judgment and
post-judgment interest;
(f)
Granting such other and further relief as may be deemed just and
proper in the premises.
Dated: September 8, 2015
BROWN PAINDIRIS & SCOTT, LLP
/s/ Bruce E. Newman
747 Stafford Avenue
Bristol, CT 0601
Tel: (860) 583-520
Fax: (860)589-5780
Federal Bar No.: 12301
bnewman@bpslawyers.com
21
BLAU, LEONARD LAW GROUP, LLC
Steven Bennett Blau
Shelly A. Leonard
23 Green Street, Suite 303
Huntington, NY 11743
(631) 458-1010
sblau@blauleonardlaw.com
sleonard@blauleonardlaw.com
Attorneys for Plaintiff
CERTIFICATE OF SERVICE
On this 8th day of September, 2015 a copy of the foregoing Amended Complaint
was filed electronically. Notice of this filing will be sent to all counsel parties of record,
via electronic mail by operation of the Court’s electronic filing system, or via first-class
mail, postage prepaid including to:
Nicholas N. Ouellette, Esq.
Matthew Dallas Gordon, LLC
836 Farmington Avenue, Ste. 221A
West Hartford, CT 06119
______/s/_____________________________
Bruce E. Newman
22
| intellectual property & communication |
cM2PDocBD5gMZwczl-Xw | IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
WACO DIVISION
ROBERT HOSSFELD SR.,
individually and on behalf of all others
similarly situated,
Plaintiff,
CIVIL ACTION NO. 16-386
COMPLAINT – CLASS ACTION
v.
NORTH AMERICAN CREDIT
SERVICES, INC.,
Defendant
§
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ORIGINAL CLASS ACTION COMPLAINT
Jury Trial Requested
Plaintiff Robert Hossfeld Sr. (hereinafter “Plaintiff”) files this Original Class Action
Complaint. Plaintiff institutes the action in accordance with, and to remedy violations by,
Defendant North American Credit Services, Inc. of the Telephone Consumer Protection Act, 47
U.S.C.A § 227 et seq. (hereinafter “TCPA”); Fair Debt Collection Practices Act, 15 U.S.C.A. §
1692 et seq. (hereinafter “FDCPA) and the Texas Debt Collection Act, TEX. FIN. CODE § 392.001
et seq. (hereinafter “TDCA”). Plaintiff brings this action individually and on behalf of all other
persons similarly situated (hereinafter “Class Members”) to recover damages and to enjoin
Defendant North American Credit Services, Inc. from its unlawful conduct.
I.
PARTIES
1.
Plaintiff Robert Hossfeld Sr. is a natural person who resides in Bell County, Texas and is
a “consumer” as defined by 15 U.S.C. §1692a(3) and TEX. FIN. CODE § 392.001(1).
2.
North American Credit Services, Inc. (hereinafter referred to as “Defendant”) is a
Tennessee corporation registered with the Texas Secretary of State which operates as a collection
agency, and is a “debt collector” as that term is defined by 15 U.S.C. § 1692a(6) and TEX. FIN.
CODE § 392.001(6). Its principal place of business is at 2810 Walker Road, Suite 100,
Chattanooga, Tennessee 37421-1082 USA. North American Credit Services, Inc. may be served
by serving its registered agent for process, National Registered Agents, Inc., 1999 Bryan Street,
Suite 900, Dallas, Texas 75201-3136.
3.
All conditions precedent to the Plaintiff proceeding with this lawsuit have occurred.
II.
JURISDICTION AND VENUE
4.
This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. §
1331 (federal question jurisdiction) and the Class Action Fairness Act of 2005, 28 U.S.C. §
1332(d)(2). Plaintiff alleges several nationwide classes, which will result in at least one class
member from each class belonging to a state different than the state in which the Defendant is
deemed to reside.
5.
Pursuant to 28 U.S.C.A. § 1367(a), Plaintiff and Class Members invoke the supplemental
jurisdiction of this Court to hear and decide claims against the Defendant arising under state law.
6.
Venue in this District is appropriate under 28 U.S.C.A. §§ 1391 (b) and (c) and 1441(a)
because: (i) Defendant is actively doing business in this State and is subject to personal jurisdiction
throughout the State; (ii) Defendant transacts business in the State and in the District by and
through the collection of consumer debts in this State and District; and (iii) a substantial part of
the acts, transactions, events and/or omissions giving rise to the claims occurred in this District.
Venue is also proper in this District because the Plaintiff has resided in this District at all times
relevant to these claims.
III.
THE FAIR DEBT COLLECTION PRACTICES ACT,
15 U.S.C. § 1692 et seq.
7.
In enacting the FDCPA, Congress explicitly found that there was “abundant evidence of
the use of abusive, deceptive, and unfair debt collection practices by many debt collectors” that
“contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs, and
to invasions of individual privacy.” 15 U.S.C. § 1692(a). As stated in the preamble to the law,
the purpose of the FDCPA is to “eliminate abusive debt collection practices by debt collectors . . .
to protect consumers against debt collection abuses.” 15 U.S.C. § 1692(e). “The statute is
designed to protect consumers from unscrupulous collectors, regardless of the validity of the debt.”
Mace v. Van Ru Credit Corp., 109 F.3d 338, 341 (7th Cir. 1997) citing Baker v. G.C. Servs. Corp.,
677 F.2d 775, 777 (9th Cir. 1982). Given this purpose, it logically follows that “[t]he FDCPA does
not require proof of actual damages as a condition to the recovery of statutory damages.” Smith v.
Procollect, Inc., 2011 WL 1375667, *7 (E.D. Tex. April 12, 2001) (citations omitted). “In other
words, the FDCPA ‘is blind when it comes to distinguishing between plaintiffs who have suffered
actual damages and those who have not.’” Id. quoting Keele v. Wexler, 149 F.3d 589, 593-594 (7th
Cir. 1998).
IV.
THE TELEPHONE CONSUMER PROTECTION ACT OF 1991
(“TCPA”), 47 U.S.C. § 227
8.
In 1991, Congress enacted the Telephone Consumer Protection Act, 47 U.S.C. § 227
(TCPA),1 in response to a growing number of consumer complaints regarding certain
1 Telephone Consumer Protection Act of 1991, Pub. L. No. 102-243, 105 Stat. 2394 (1991), codified at 47 U.S.C. §
227 (TCPA). The TCPA amended Title II of the Communications Act of 1934, 47 U.S.C. § 201 et seq.
telemarketing practices.
9.
The TCPA regulates, among other things, the use of automated telephone dialing
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. 2
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. 3
11.
The Federal Communications Commission has defined a “predictive dialer” as:
equipment that dials numbers and, when certain computer software is attached, also assists
telemarketers in predicting when a sales agent will be available to take calls. The hardware,
when paired with certain software, has the capacity to store or produce numbers and dial
those numbers at random, in sequential order, or from a database of numbers . . . [i]n most
cases, telemarketers program the numbers to be called into the equipment, and the dealer
calls them at rate to ensure that when a consumer answers the phone, a sales person is
available to take the call. 4
12.
Moreover, the FCC has determined that a “predictive dialer falls within the meaning and
statutory definition of ‘automatic telephone dialing equipment’ and the intent of Congress.” 5
2 47 U.S.C. § 227(b)(1)(A)(iii).
3 Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, CG Docket No. 02-278,
Report and Order, 18 FCC Rcd 14014 (2003).
4 2003 TCPA Order, 18 FCC Rcd at 14091, para. 131.
5 In The Matter of Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, CG Docket
No. 02-278, citing to 2003 TCPA Order, 18 FCC Rcd at 14093, para. 133.
V.
FACTS RELATED TO PLAINTIFF ROBERT HOSSFELD SR.
13.
On or before January 21, 2015 an obligation (the “Debt”) was allegedly incurred by
Plaintiff to the original creditor, Metroplex Hospital (“Creditor”).
14.
The Debt arose out of a transaction in which money, property, insurance or services, which
are the subject of the transaction, are primarily for personal, family or household purposes and
therefore it meets the definition of a “debt” under 15 U.S.C. § 1692a(5) and TEX. FIN. CODE §
392.001(2).
15.
Creditor is a "creditor" as defined by 15 U.S.C. § 1692a(4).
16.
On or before January 21, 2015 the Debt was assigned to, purchased by, or transferred to
Defendant for collection, or Defendant was employed by Creditor to collect the Debt.
17.
Defendant meets the definition of a “debt collector” under TEX. FIN. CODE § 392.001(6)
and 15 U.S.C. § 1692a(6).
18.
Defendant contends that the Debt is in default.
19.
On or about January 21, 2015 Defendant called Plaintiff on his cell phone in an attempt to
collect the Debt.
20.
On or about January 21, 2015, Plaintiff requested that Defendant stop calling Plaintiff’s
cell phone. During this conversation, Defendant agreed to contact Plaintiff via mail. Additionally,
the Defendant’s representative admitted that Defendant used autodialers.
21.
Meanwhile, Plaintiff had made arrangements with Metroplex Hospital to pay $100 a month
and has not missed a payment.
22.
Despite its promise to cease the calls to Plaintiff’s cell phone, Defendant began making
calls to Plaintiff’s cellular telephone number. Each of these calls constituted a “communication”
as defined by 15 U.S.C. § 1692(a)(2) and “debt collection” as defined by TEX. FIN. CODE §
392.001(5).
23.
On information and belief, Defendant utilized a predictive dialer, a type of dialer which the
FCC has explicitly found to be a type of “automatic telephone dialing equipment.” (See supra, ¶¶
24.
Defendant’s automated telephone dialing system made calls to the Plaintiff’s cellular
telephone number on numerous and repeated occasions including, but not limited to, the
following.6
a. 07/17/15, 9:13 am
b. 08/19/15, 2:36 pm
c. 09/10/15 6:53 pm
d. 09/16/15, 10:48 am
e. 09/22/15, 10:24 am
f. 09/23/15, 5:30 pm
g. 09/24/15, 10:22 am
h. 09/25/15, 10:22 am
i. 09/25/15, 4:00 pm
j. 09/29/15, 7:00 pm
k. 10/02/15, 1:43 pm
l. 10/6/15, 1:48 pm
m. 10/9/15, 9:17 am
6 Each of the following times are listed in Mountain Standard Time; Plaintiff has “screen shots” of each of these
calls that will be produced in discovery in this matter.
n. 10/15/15, 11:42 am
o. 10/16/15, 1:40 pm
p. 10/20/15, 5:40 pm
q. 10/23/15, 1:43 pm
r. 10/27/15, 3:26 pm
s. 10/28/15, 4:57 pm
t. 10/29/15, 10:34 am
u. 10/30/15, 1:49 pm
v. 11/02/115, 10:42 am
w. 11/03/15, 11:25 am
x. 11/03/15, 3:54 pm
y. 11/05/15, 11:48 am
z. 11/12/15, 3:47 pm
aa. 11/22/15, 2:04 pm
25.
47 U.S.C. § 227(b)(1) prohibits the use of automated telephone dialing systems for non-
emergency purposes to make a call to any telephone number assigned to a cellular telephone
service.
26.
On each of the aforementioned dates and times and, upon information and belief, other
times as well, Defendant contacted Plaintiff on Plaintiff’s cellular telephone service by using an
“automatic telephone dialing system” as defined by 47 U.S.C. §227(a)(1).
27.
Defendant could have taken the steps necessary to bring its actions within compliance with
the FDCPA and the TDCA, but neglected to do so and failed to adequately review its actions to
ensure compliance with the law.
28.
The telephone number Defendant called was assigned to a cellular telephone service.
29.
These telephone calls constituted calls that were not for emergency purposes as defined by
47 U.S.C. § 227(b)(1)(A)(1).
30.
Defendant placed the telephone calls to Plaintiff’s cellular telephone service through use
of an automated telephone dialing system in violation of 47 U.S.C. § 227(b)(1).
31.
Defendant willfully or knowingly placed the telephone calls to Plaintiff’s cellular telephone
service through use of an automated telephone dialing system in violation of 47 U.S.C. §
227(b)(3)(c).
32.
15 U.S.C. § 1692(d) prohibits a debt collector from using any conduct the natural
consequence of which is to harass, oppress, or abuse any person in connection with the collection
of a debt. This specifically includes a prohibition against “causing a telephone to ring or engaging
any person in telephone conversation repeatedly or continuously with intent to annoy, abuse, or
harass any person at the called number.” 15 U.S.C. § 1692(d)(5).
33.
TEX. FIN. CODE § 392.302(4) prohibits a debt collector from “causing a telephone to ring
repeatedly or continuously, or making repeated or continuous telephone calls, with the intent to
harass a person at the called number” while engaged in debt collection.
34.
The above unlawful practices are Defendant’s routine procedures for collecting consumer
35.
The collection or attempted collection of consumer debts in the aforementioned manner
violates both state and federal collection laws.
VI.
CLASS ALLEGATIONS
36.
This action is maintained as a class action on behalf of the following described classes
(hereinafter collectively referred to as “the Classes”):
a.
TCPA Class: All persons who reside within the United States and who were
called by Defendant from September 27, 2012 though the present, in an
attempt to collect a debt, using an automatic telephone dialing system, where
the call was placed to the person's cellular telephone number that Defendant
did not obtain either from a creditor or directly from the person himself or
herself and/or where the call was placed to the person’s phone number after
the person had revoked prior express consent.
b.
FDCPA Class: All persons who reside in the United States and from whom,
on or after September 27, 2015 Defendant sought to collect, or did collect, a
consumer debt and to whom Defendant placed a telephone call
c.
TDCA Class: All persons who reside within Texas and who were called by
Defendant from September 27, 2014 through the present.
Excluded from each of the above Classes are all employees, including, but not limited to,
Judges, clerks and court staff and personnel, of the United States District Court, their
spouses, and any minor children living in their households. Also excluded are employees
of Defendant, their spouses, and any minor children living in their households. Also
excluded are Class counsel and their employees, their spouses, and any minor children
living in their households.
37.
The unlawful actions of Defendant entitle Plaintiff and each Class Member to actual and
statutory damages as well as injunctive relief.
38.
The members of the Classes for whose benefit this action is brought are so numerous that
joinder of all Class Members is impracticable. The exact number of Class Members is unknown
to Plaintiff. However, the number of the Class Members is reasonably believed to be in the
thousands, and they can be determined from records maintained by Defendant.
39.
Plaintiff will fairly and adequately protect the interests of each Class Member and has
retained counsel experienced and capable in class action litigation and in the fields of debt
collection and consumer law. Plaintiff understands and appreciates his duties to each member of
the Class under FED. R. CIV. P. RULE 23 and is committed to vigorously protecting the rights of
absent Class Members.
40.
Plaintiff is asserting claims that are typical of the claims of each Class Member he seeks to
represent, in that Defendant engaged in the collection and/or attempted collection of debts from
each Class Member he seeks to represent in the same manner—and utilizing the same method—
as Defendant utilized against the Plaintiff. All claims alleged on behalf of each Class Member
flow from this conduct. Further, there is no conflict between Plaintiff and any Class Member with
respect to this action.
41.
There is a well-defined community of interest in the questions of law and fact affecting the
parties to be represented. Questions of law and fact arising out of Defendant’s conduct are common
to all members of each of the Classes, and such common issues of law and fact predominate over
any questions affecting only individual members of each of the Classes. Issues of law and fact
common to members of the FDCPA class include, but are not limited to, the following:
a. Whether Defendant is a “debt collector” as that term is defined by the Fair Debt
Collection Practices Act;
b. Whether Defendant’s actions constitute a violation of 15 U.S.C.A. § 1692(d)(5); and
c. Whether Defendant is liable for damages and the amount of such damages.
42.
Issues of law and fact common to members of the TDCA class include, but are not limited
to, the following:
a. Whether Defendant is a “debt collector” as that term is defined by the Texas Debt
Collection Practices Act;
b. Whether Defendant’s actions constitute a violation of TEX. FIN. CODE § 392.302(4);
c. Whether Defendant is liable for damages and the amount of such damages; and
d. Whether Defendant should be enjoined from engaging in such conduct in the future.
43.
Issues of law and fact common to members of the TCPA class include, but are not limited
to, the following:
a. Whether Defendant made calls to Plaintiff and Class members’ cellular telephones
using an automatic telephone dialing system;
b. Whether such practice violates the TCPA;
c. Whether Defendant’s conduct was knowing and willful;
d. Which services or processes Defendant employed to obtain class members’ cellular
telephone numbers;
e. Which technologies or services were available to Defendant to enable it to
differentiate between wireless numbers and wireline numbers;
f. Whether Defendant is liable for damages and the amount of such damages; and
g. Whether Defendant should be enjoined from engaging in such conduct in the future.
44.
The relief sought by each Class Member is common to the entirety of each respective class.
45.
Defendant has acted on grounds generally applicable to each member of each of the
Classes, thereby making formal declaratory relief or corresponding injunctive relief appropriate
with respect to the Classes as a whole. Therefore, certification pursuant to FED. R. CIV. P. 23(b)(2)
is warranted.
46.
This action is properly maintained as a class action in that the prosecution of separate
actions by individual members would create a risk of adjudication with respect to individual
members which would establish incompatible standards of conduct for Defendant.
47.
For each of the Classes, this action is properly maintained as a class action in that the
prosecution of separate actions by Class Members would create a risk of adjudications with respect
to individual Class Members which would, as a practical matter, be dispositive of the interests of
the other members not parties to the adjudication, or would substantially impair or impede their
ability to protect their interests.
48.
A class action is superior to other available methods for the fair and efficient adjudication
of the claims asserted herein given that, among other things:
a.
significant economies of time, effort, and expense will inure to the benefit of the
Court and the parties in litigating the common issues on a class-wide instead of a
repetitive individual basis;
b.
the size of the individual damages claims of most Class Members is too small to make
individual litigation an economically viable alternative, such that few Class Members
have any interest in individually controlling the prosecution of a separate action;
c.
without the representation provided by Plaintiff herein, few, if any, Class Members
will receive legal representation or redress for their injuries;
d.
class treatment is required for optimal deterrence;
e.
despite the relatively small size of the claims of many individual Class Members,
their aggregate volume, coupled with the economies of scale inherent in litigating
similar claims on a common basis, will enable this case to be litigated as a class action
on a cost effective basis, especially when compared with repetitive individual
litigation;
f.
no unusual difficulties are likely to be encountered in the management of this class
action;
g.
absent a class action, Defendant’s illegal conduct shall go unremedied and
uncorrected; and
h.
absent a class action, the members of the class will not receive compensation and will
continue to be subjected to Defendant’s illegal conduct.
49.
Concentrating this litigation in one forum would aid judicial economy and efficiency,
promote parity among the claims of the individual members of the class, and result in judicial
consistency.
VII.
CAUSES OF ACTION
COUNT ONE
VIOLATIONS OF THE FAIR DEBT COLLECTION PRACTICES ACT
50.
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.
51.
Defendant is a debt collector as defined by the FDCPA. See 15 U.S.C. § 1692a(6).
52.
Plaintiff is a consumer as defined by the FDCPA. See 15 U.S.C. § 1692a(3).
53.
The debt that Defendant sought to collect was a consumer debt as defined by the FDCPA.
See 15 U.S.C. § 1692a(5).
54.
Defendant’s conduct violated 15 U.S.C. § 1692(d)(5) in that Defendant caused a telephone
to ring or engaged any person in telephone conversation repeatedly or continuously with the intent
to annoy, abuse, or harass any person at the called number by repeatedly or continuously calling
Plaintiff with the intent to annoy, abuse, or harass at the called number.
55.
Congress enacted the FDCPA to prevent real harm. Under the FDCPA, the Plaintiff has a
statutory right to not be subjected to harassing calls. The harm that Plaintiff has alleged is exactly
the harm Congress targeted by enacting the FDCPA. Congress “elevat[ed]” these “concrete, de
facto” injuries “to the status of legally cognizable injuries.” Spokeo, Inc. v. Robins, 136 S. Ct.
1540, 1549 (2016). Its aim was “to eliminate abusive debt collection practices by debt collectors.”
15 U.S.C. § 1692(e).
56.
As a result of Defendant’s violations of 15 U.S.C. § 1692(d)(5), Plaintiff and FDCPA Class
members are each entitled to actual and statutory damages.
57.
Plaintiff and FDCPA Class members are also entitled to an award of attorneys’ fees and
COUNT TWO
VIOLATIONS OF THE TEXAS DEBT COLLECTION ACT,
TEX. FIN. CODE § 392.001, et seq.
58.
Plaintiff repeats, reiterates and incorporates the allegations contained in the paragraphs
above herein with the same force and effect as if the same were set forth at length herein.
59.
The acts of Defendant constitute violations of the TDCA. See TEX. FIN. CODE § 392.001
60.
Defendant is a “debt collector” as defined by the TDCA. See TEX. FIN. CODE §392.001(6).
61.
Plaintiff is a “consumer” as defined by the TDCA. See TEX. FIN. CODE § 392.001(1).
62.
The debt that Defendant sought to collect was a consumer debt as defined by the TDCA.
See TEX. FIN. CODE § 392.001(2).
63.
The TDCA limits the rights of debt collectors in an effort to protect the rights of consumers.
64.
Specifically, TEX. FIN. CODE § 392.302(4) states, in pertinent part, that a debt collector is
prohibited from causing a telephone to ring repeatedly or continuously, or making repeated or
continuous telephone calls, with the intent to harass a person at the called number while engaged
in debt collection.
65.
Defendant’s conduct violated TEX. FIN. CODE § 392.302(4) by repeatedly or continuous
making phone calls to Plaintiff, and Defendant acted with the intent to harass Plaintiff at the called
number while engaged in debt collection.
66.
As a result of Defendant’s violations of the TDCA, Plaintiff and Class Members are entitled
to and do seek an injunction against Defendant to prevent or restrain further violations. TEX. FIN.
CODE § 392.403(1).
67.
Defendant’s described actions in violation of the Texas Debt Collection Act have directly
and proximately caused Plaintiff and Class Members injury for which they are entitled to actual
damages, statutory damages, and reasonable attorneys' fees and costs, declaratory relief, injunctive
relief, and other legal and equitable relief pleaded herein.
COUNT THREE
NEGLIGENT VIOLATIONS OF THE TELEPHONE CONSUMER
PROTECTION ACT 47 U.S.C.A. § 227 ET SEQ.
68.
Plaintiff repeats, reiterates and incorporates the allegations contained in the paragraphs
above herein with the same force and effect as if the same were set forth at length herein.
69.
76.87. The Telephone Consumer Protection Act, 47 U.S.C. § 227 et seq., restricts the
making of telephone calls to cellular phones for commercial purposes that are made using “any
automatic telephone dialing system.” TCPA § 227(b)(A)(iii).
70.
Defendant made telephone calls to plaintiff’s cell phone using an automatic telephone
dialing service without consent, which was prohibited by the TCPA.
71.
Defendant negligently disregarded the TCPA in using automated telephone dialing
equipment to call Plaintiff’s and the class’ cellular telephones without express consent.
72.
The foregoing acts and omissions of Defendant 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.
73.
Congress enacted the TCPA to prevent real harm. Congress found that “automated or pre-
recorded calls are a nuisance and an invasion of privacy, regardless of the type of call” and decided
that “banning” such calls made without consent was “the only effective means of protecting
telephone consumers from this nuisance and privacy invasion.”7
74.
Defendant’s phone calls harmed Plaintiff by causing the very harm that Congress sought
to prevent—a “nuisance and invasion of privacy.”
75.
Defendant’s phone calls harmed Plaintiff by trespassing upon and interfering with
Plaintiff’s rights and interests in Plaintiff’s cellular telephone and cellular telephone line.
76.
Defendant’s phone calls harmed Plaintiff by intruding upon Plaintiff’s seclusion.
77.
Defendant harassed Plaintiff by incessantly calling Plaintiff’s telephone.
78.
Defendant’s phone calls harmed Plaintiff by causing Plaintiff aggravation and annoyance.
7 Pub. L. No. 102-243, §§ 2(10-13) (Dec. 20, 1991), codified at 47 U.S.C. § 227. See also Mims v. Arrow Fin.
Servs., L.L.C., 132 S. Ct. 740, 744, 181 L. Ed. 2d 881 (2012) (“The Act bans certain practices invasive of privacy”).
79.
Defendant’s phone calls harmed Plaintiff by wasting Plaintiff’s time.
80.
Defendant’s phone calls harmed Plaintiff by using minutes allocated to Plaintiff by
Plaintiff’s cellular telephone service provider.
81.
As a result of Defendant’s negligent violations of 47 U.S.C. § 227 et seq., Plaintiff and
TCPA 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).
COUNT FOUR
KNOWING AND/OR WILLFUL VIOLATIONS OF THE TELEPHONE CONSUMER
PROTECTION ACT, 47 U.S.C.A. § 227 ET SEQ.
82.
Plaintiff repeats, reiterates and incorporates the allegations contained in the paragraphs
above herein with the same force and effect as if the same were set forth at length herein.
83.
Defendant knowingly and/or willfully disregarded the TCPA by using automated telephone
dialing equipment to call Plaintiff’s and the class’ cellular telephone without express consent.
84.
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 of the above-cited
provisions of 47 U.S.C. § 227 et seq.
85.
Congress enacted the TCPA to prevent real harm. Congress found that “automated or pre-
recorded calls are a nuisance and an invasion of privacy, regardless of the type of call” and decided
that “banning” such calls made without consent was “the only effective means of protecting
telephone consumers from this nuisance and privacy invasion.”[2]
86.
Defendant’s phone calls harmed Plaintiff by causing the very harm that Congress sought
to prevent—a “nuisance and invasion of privacy.”
87.
Defendant’s phone calls harmed Plaintiff by trespassing upon and interfering with
Plaintiff’s rights and interests in Plaintiff’s cellular telephone and cellular telephone line.
88.
Defendant’s phone calls harmed Plaintiff by intruding upon Plaintiff’s seclusion.
89.
Defendant harassed Plaintiff by incessantly calling Plaintiff’s telephone.
90.
Defendant’s phone calls harmed Plaintiff by causing Plaintiff aggravation and annoyance.
91.
Defendant’s phone calls harmed Plaintiff by wasting Plaintiff’s time.
92.
Defendant’s phone calls harmed Plaintiff by using minutes allocated to Plaintiff by
Plaintiff’s cellular telephone service provider.
93.
As a result of Defendant’s knowing and/or willful violations of 47 U.S.C. § 227 et seq.,
Plaintiff and each member of the TCPA Class are entitled to treble damages of up to $1,500.00 for
each and every call in violation of the statute as provided by 47 U.S.C. § 227(b)(3).
VIII.
VICARIOUS LIABILITY
94.
At all times relevant hereto, the individual debt collectors who contacted, attempted to
contact, controlled or programmed Defendant’s automatic telephone dialing system and/or
attempted to communicate with Plaintiff and the Class Members, were employed by Defendant
and were working in the course and scope of their employment with Defendant. Defendant had the
right to control their activities. Therefore, Defendant is liable for their actions, inactions, and
conduct which violated the TCPA, FDCPA and TDCA and proximately caused damages to
Plaintiff and each member of the classes as described herein.
IX.
JURY REQUEST
95.
Plaintiff requests that this matter be tried before a jury.
WHEREFORE, Plaintiff and the Class Members pray that the Court enter judgment in their
favor against Defendant as follows:
a. Enter an order certifying this action as a class action pursuant to FED. R. CIV. P. 23(b)(2)
and/or 23(b)(3).
b. Declaring:
i.
Defendant’s actions violated the FDCPA;
ii.
Defendant’s actions violated the TCPA;
iii.
Defendant’s actions violated the TDCA;
c. Enjoin Defendant from committing further violations of the FDCPA, the TCPA and the
TDCA;
d. Awarding Plaintiff and Class Members actual and statutory damages and penalties under
the FDCPA, the TCPA and the TDCA;
e. Awarding Plaintiff and Class Members reasonable attorneys’ fees, expenses and costs; and
f. Granting such other relief that equity and the law deems appropriate.
Dated: September 27, 2016
Respectfully submitted,
By: /s/ Sam Kinslow
Sam Kinslow
TX State Bar No. 11490300
SMITH & BRATCHER, P.C.
P.O. Box 21473
Waco, Texas 76702-1473
Telephone: 254-751-0044
Facsimile: 254-751-0049
Email: samkinslow@hot.rr.com
Walt D. Roper
TX State Bar No. 00786208
THE ROPER FIRM, P.C.
3001 Knox Street, Suite 405
Dallas, TX 75205
Telephone: 214-420-4520
Facsimile: 1+214-856-8480
Email: walt@roperfirm.com
(PRO HAC VICE ADMISSION PENDING)
ATTORNEYS FOR PLAINTIFF
| consumer fraud |
z-DkEIcBD5gMZwczjayw | James Louis Kohl, Esq., SBN: 120808
795 Folsom Street, First Floor
San Francisco, California 94107
(415)848-2450/ FAX (415)848 2301
jamesk.legal@gmail.com
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF CALIFORNIA
DANIEL BRUNO, Individually and
on behalf of others similarly situated
Plaintiffs,
vs.
CASE NO.
CLASS ACTION COMPLAINT
DEMAND FOR JURY TRIAL
15 United States Code §1681 et seq.
EQUIFAX INFORMATION
SERICES, LLC; GENEVA
FINANCIAL SERVICES, LLC;
RMB WORLD ENTERPRISES, LLC d/b/a
DECISION LINKS; B.B. DIRECT, INC.;
GENESIS MARKETING GROUP, INC.
d/b/a HITMAN DIRECT; AMERICAN
MARKETING AND MAILING
SERVICES, INC.; STRATEGIC
MARKETING SERVICES, LLC.
Defendants.
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CLASS ACTION COMPLAINT
Plaintiff, Daniel Bruno, on behalf of himself and all others similarly situated (hereinafter
“Plaintiff”), files this class action complaint, seeking statutory damages for willful violations of
the Fair Credit Reporting Act, 15 U.S.C. §1681, et seq. (“FCRA”), against Equifax Information
Services, LLC; Geneva Financial Services, LLC; Genesis Marketing Group, Inc. d/b/a Hitman
Direct; American Marketing and Mailing Services, Inc.; RMB World Enterprises; B.B. Direct,
Inc.; and Strategic Marketing Services, LLC. Mr. Bruno brings this lawsuit based upon the illegal
sale of his private credit report information for impermissible marketing purposes.1
1 Mr. Bruno’s allegations are made on personal knowledge as to his experiences and upon information and belief
based on the investigation of his counsel as to the other matters.
I.
PARTIES
1.
Defendant, Equifax Information Services, LLC (hereinafter “Equifax”) is a limited
liability company doing business in California. Equifax can be served through its registered agent,
The Prentice-Hall Corporation System, d/b/a C.S.C. – Lawyers Incorporating Service, 2710
Gateway Oaks Drive, Suite 150 N., Sacramento, CA 95833.
2.
Defendant, Geneva Financial Services, Inc. (hereinafter “Geneva”) is a corporation
incorporated in the State of California. Geneva can be served through its registered agent,
legalzoom.com at 10440 Central Avenue, Montclair, CA 91763.
3.
Defendant, RMB World Enterprises, LLC d/b/a Decision Links (hereinafter
“RMB”) is a data processing service doing business at 401 Congress Avenue, Suite 1540, Austin,
TX 78701. The Registered Agent for service is David Bailey at 1122 Colorado Street, Suite 107,
Austin, TX 78701.
4.
Defendant, B.B. Direct, Inc. (hereinafter “B.B. Direct”) is a data reseller doing
business at 2503 Del Prado Boulevard, Suite 504, Cape Coral, FL 33904. The Registered Agent
for service is Brian E. Berg, 1732 Southwest [SW] 44th Street, Cape Coral, FL 33914.
5.
Defendant, Genesis Marketing Group, Inc., dba Hitman Direct, (hereinafter
“Genesis”) is a marketing agency doing business at 256 North Sam Houston Parkway, Houston,
TX 77060. The Registered Agent for service is Lennon C. Wright, 329 West 21st Street. Houston,
TX 77008.
6.
Defendant, American Marketing and Mailing Services, Inc. (hereinafter
“American”) is a marketing agency doing business at 9427 Corporate Lake Drive, Tampa Bay, FL
33634. The Registered Agent for service is Stephen W. Moore, 8240 – 118th Avenue, North, Suite
300, Largo, FL 33773.
7.
Defendant, Strategic Marketing Services, LLC (hereinafter “Strategic”) is a
marketing agency doing business at 1901 Stanley Gault Parkway, Louisville, KY 40223. The
Registered Agent for service is F.B.T., LLC at 400 West Market Street, 32nd Floor, Louisville,
KY 40202.
JURISDICTION AND VENUE
8.
This Court has federal question jurisdiction under 28 U.S.C. §1331, because this
action arises under 15 U.S.C. §1681, et seq. This Court also has diversity jurisdiction over this
case under 28 U.S.C. §1332(d)(2) because this is a class action in which the amount in controversy
exceeds $5,000,000, and there are members of the Class who are citizens of a different state from
Defendant.
9.
Venue in this judicial district is proper pursuant to 28 U.S.C. § 1391(b), in that a
substantial part of the events or omissions giving rise to the claim occurred in this judicial district.
Venue is also proper in this judicial district pursuant to 15 U.S.C. § 1692k(d), in that Defendants
transact business in this judicial district and the violations of the FCRA complained of occurred in
this judicial district.
STATUTORY BACKGROUND OF THE FCRA
10.
The FCRA is a comprehensive scheme designed to safeguard the privacy of
consumers’ credit information. It became effective in 1971 and has been in force since that date.
11.
The FCRA governs the reporting, use, and sale of information bearing on
consumers’ creditworthiness. A key component of Congress’ oversight is the requirement that
consumer reporting agencies (“CRAs”) may furnish consumer reports only for the purposes
enumerated in the statute (“permissible purpose”). These permissible purposes include, among
others, use of the information: (1) to verify the consumer’s creditworthiness in connection with a
credit transaction; (2) to verify eligibility for employment; (3) in connection with underwriting of
insurance for the consumer; and (4) in connection with a transaction initiated by the consumer; as
well as other legitimate business needs for the information. 15 U.S.C. § 1681b(a)(1) – (6).
12.
Under the FCRA, consumers’ private information bearing on creditworthiness may
not be used without their consent for marketing or promotional purposes other than those
specifically enumerated in the FCRA for firm offers of credit.
13.
In order to ensure that CRAs furnish consumer reports only in accordance with
section 1681b, Congress established compliance procedures in 15 U.S.C. §1981e. Section 1681e
requires CRAs to “maintain reasonable procedures designed to … limit the furnishing of consumer
reports to the purposes listed under [§1681b].”
14.
Before providing consumer reports to a new user of consumer reports the CRA
must make reasonable efforts to verify the user’s identity and to verify that the user has a
permissible use for obtaining a consumer report. If a CRA has reasonable grounds to believe a user
will not use a report for a permissible purpose, it may not furnish a consumer report.
15.
15 U.S.C. §1681e(e) imposes requirements on persons who procure consumer
reports for resale. It requires those persons to certify to the CRA that the end users of the reports
are using them for a permissible purpose and also to establish reasonable procedures designed to
ensure that the persons to whom they are reselling the consumer reports will use them for a
permissible purpose.
16.
15 U.S.C. §1681n imposes statutory damages for any willful violation of the statute.
IV. FACTUAL ALLEGATIONS
Equifax’s relationship with Geneva
17.
Upon information and belief, Equifax and Geneva operate under a sales agent
agreement whereby Geneva, acting as Equifax’s agent, generates lists of consumer credit
information provided by Equifax and then sells said information to third party data brokers on
Equifax’s behalf.
18.
In 2015, Mr. Bruno discovered by visiting Geneva’s website that the site is powered
by Equifax. (See Exhibit A).
B. Equifax unlawfully furnished consumer reports to Geneva for impermissible
marketing purposes.
19.
In February 2016, Mr. Bruno received a mailed solicitation from Geneva inviting
him to purchase a vehicle at Hanlees Nissan Chevrolet through a prescreened offer of credit
between five thousand five hundred dollars ($5,500) and thirty-nine thousand dollars ($39,000).
See Exhibit B.
20.
After contacting Geneva and filling out an application for a loan, Mr. Bruno
requested a copy of his credit report.
21.
Upon reviewing his report, Mr. Bruno discovered that a consumer report containing
his personal information had been obtained by “Geneva Financial Services,” with the address listed
as 10440 Central Ave Ste. B Montclair, CA 91763.
22.
The only business located at 10440 Central Avenue in Montclair, California is a
used car dealership, named “Geneva Motors.”
23.
In April 2016, upon Mr. Bruno contacting Hanlees Nissan Chevrolet in an attempt
to obtain the loan for which he was pre-qualified, a dealership representative advised Mr. Bruno
to contact Geneva.
24.
On or about July 20, 2016, Mr. Bruno submitted the loan application to Geneva.
25.
On or about July 27, 2016, Mr. Bruno contacted Geneva to inquire about the status
of the loan application.
26.
Geneva did not respond to the loan application until July 29, 2016 when a
representative of Geneva personally informed Mr. Bruno that Geneva did not finance vehicles for
purchase and instructed him to contact the used car dealership for financing approval.
27.
The offer that Mr. Bruno received was clearly for a vehicle purchase loan.
28.
Upon information and belief, Geneva purchased lists of consumer information from
Equifax for the purpose of reselling the information.
29.
Upon information and belief, Equifax allowed Geneva to use the “Geneva Financial
Services” name for those entities so the “Geneva Financial Services” name would appear on the
reports of those consumers as the entity which made the promotional inquiry for the purpose of a
firm offer of credit.
30.
Upon information and belief, Equifax furnished tens of thousands of consumer
reports on people throughout the United States to Geneva customers using the “Geneva Financial
Services” name to conduct promotional inquiries and make bogus firm offers of credit.
31.
Promotional inquiries are permissible under the FCRA only when the purchaser
intends to make a “firm offer of credit or insurance” to consumers. See 15. U.S.C.
§ 1681b(c)(1)(B)(i)
32.
Given that Geneva is not in the business of offering credit of any kind, it cannot
make “firm offers of credit or insurance” and has no legitimate right to obtain consumers’ credit
information without their consent.
33.
Instead, Geneva obtained this information illegally for direct marketing purposes.
34.
A cursory search will show that Geneva is not properly licensed as a lender in all
the states in which it does business.
35.
Geneva solicited customers with bogus firm offers of credit to consumers in many
states including, but not limited to, Tennessee, Florida, Texas, California, and Delaware See
Exhibit C.
36.
A cursory search will that show that Geneva lacks the required authority to do
business in many states where it does business.
C. Equifax and Geneva failed to use reasonable procedures to ensure consumers’
reports were sold only for permissible purposes.
37.
Equifax is one of the three largest credit reporting agencies in the United States.
38.
Equifax “organizes, assimilates and analyzes data on more than 820 million
consumers and more than 91 million businesses worldwide.” See Equifax website at
http://www.equifax.com/about-equifax/company-profile.
39.
Geneva describes itself as “good in 47 states”, an “online portal where your dealers
can enter the application” and a company that will “work with the lender to pick the criteria for
the mailer.” See Exhibit A.
40.
Even the most cursory investigation by Equifax into Geneva’s website reveals that
it is “an auto dealer website.” See Exhibit A.
41.
Geneva’s website is designed by Auto Revolution, a company that only creates auto
dealer websites. See http://www.autodealerwebsites.com/website-samples.
42.
Even the most cursory investigation by Equifax into Geneva’s website reveals that
Geneva intends to use consumer credit information for impermissible purposes such as selling this
information to other companies who falsely certify having a permissible purpose.
43.
The companies lacking a permissible purpose to which Geneva sells information
on consumers include, but are not limited to, marketing agencies, data processers and data resellers
such as Defendants RMB, B.B. Direct Inc., Genesis, American and Strategic.
44.
The reports sold by Geneva and Equifax are “consumer reports” as defined by the
FCRA because they include information bearing on the creditworthiness, including, in addition to
basic contact information, debt loads and FICO scores.
45.
At its’ customers’ request, Geneva can screen the lists to provide information on,
for example, a consumer’s payment history and the number of credit relationships that an
individual consumer has.
46.
On information and belief, Equifax does not follow reasonable procedures to ensure
that the information it sells to Geneva is used only for FCRA permissible purposes.
47.
Even a cursory investigation by Equifax would reveal that Geneva was not
incorporated to do business in California until on or about September 10, 2015.
48.
Upon information and belief, Equifax provided over 100,000 consumer credit
reports to Geneva prior to the September 10, 2015 date of its incorporation.
49.
In so doing, Equifax failed to comply with its own Application for Membership,
namely the Company Information and Onsite Property Observation sections. See Application for
Service, available at http://www.e-cbi.com/pdf_forms/cbc_package3_for_equifax.pdf 2
50.
Equifax and Geneva illegally released Mr. Bruno’s, and others’ similarly situated,
information in consumer reports to other people causing him embarrassment and anxiety.
2 Note that an onsite property observation of the company must be conducted prior to the applicant’s account being
established. Any property observation conducted by or on behalf of Equifax would have shown that Geneva’s
onsite property was actually a used car dealership, Geneva Motors, confirming Equifax’s failure to follow
reasonable procedures.
51.
As a direct and proximate cause of Equifax’s failure to use reasonable procedures
to ensure his information would not be used for impermissible purposes, Mr. Bruno has suffered
an unwarranted invasion of his privacy, which may expose him to additional improper uses of the
consumer report or his personal identification information.
52.
Equifax has illegally furnished thousands of consumer reports to Geneva under
false pretenses to entities which have used them for impermissible purposes such as direct
marketing campaigns and reselling consumer information.
53.
Defendant RMB obtained hundreds of thousands of reports from Geneva under
these same false pretenses and illegally used these consumer reports to solicit business from
thousands of consumers.
54.
Defendant B.B. Direct obtained hundreds of thousands of reports from Geneva
under these same false pretenses and illegally used these consumer reports to solicit business from
thousands of consumers.
55.
Defendant Genesis obtained hundreds of thousands of reports from Geneva under
these same false pretenses and illegally used these consumer reports to solicit business from
thousands of consumers.
56.
Defendant American obtained hundreds of thousands of reports from Geneva under
these same false pretenses and illegally used these consumer reports to solicit business from
thousands of consumers.
57.
Defendant Strategic obtained hundreds of thousands of reports from Geneva under
these same false pretenses and illegally used these consumer reports to solicit business from
thousands of consumers.
D. Equifax acted willfully.
58.
Equifax is one of the largest CRAs in the United States.
59.
As a nationwide CRA, at the time it provided consumer reports to entities with
impermissible purposes Equifax was well aware that it was subject to the mandates and
requirements of the FCRA prohibiting the same, and knew or should have known that doing so
violated the FCRA.
60.
Equifax has available substantial written materials that apprise it of its duty under
the FCRA not to allow access to consumer reports by those without permissible purposes.
61.
Despite its knowledge of these legal duties, Equifax acted consciously in breaching
its known duties and depriving Mr. Bruno and the Class members of their rights under the FCRA.
62.
Equifax knew or should have known that the FCRA requires consumer reporting
agencies such as Equifax to “maintain reasonable procedures designed to avoid violations of
…[§1681b] of [the FCRA]” and to ensure those procedures “require that prospective users of the
information identify themselves, certify the purposes for which the information is sought, and
certify that the information will be used for no other purpose” under 15 U.S.C. §1681e(a).
63.
Equifax knew or should have known that it was required, under 15 U.S.C.
§1681e(a), (1), to “make reasonable effort to verify the identity of a new prospective user and the
uses certified by such prospective user prior to furnishing such user a consumer report,” and (2)
not to furnish a consumer report to any person if it had “reasonable grounds for believing that the
consumer report will not be used” for a permissible purpose.
64.
Equifax also knew or should have known that it was required, under 15 U.S.C.
§1681g, to disclose the identity of all persons who had procured a consumer report for any purpose
within the year preceding the consumer’s request.
65.
Equifax should have easily discovered, with minimal time and effort, that Geneva
was not using the consumer reports that Equifax generated and sold to Geneva for any FCRA
permissible purpose.
66.
Mr. Bruno is informed and believes that the business relationship manager at
Equifax, Oliver Markham Healey, was once an equity partner in Direct Lending Source.
67.
Direct Lending Source and Equifax formerly had a business relationship that
resulted in Equifax being sanctioned in a Decision and Order issued by the Federal Trade
Commission (“FTC”) for consumer credit information processes and practices which are parallel
and similar to the practices and processes which Plaintiff has alleged herein. See Exhibit D.
68.
Upon information and belief, said practices and process which the FTC found to be
in violation of the FCRA are very similar to the practices and processes which Mr. Bruno alleged
herein as violations of the FCRA.
69.
Equifax acted willfully in concealing from consumers that it delivered consumer
reports to resellers like Geneva for resale, rather than identifying those resellers in enquiry logs
which the FCRA requires that Equifax prepare and deliver to consumers who request copies of
their consumer credit file under 15 U.S.C. §1681g(a)(3).
70.
Geneva also acted willfully by failing to ensure that consumer reports are not used
for impermissible purposes.
71.
Geneva acted willfully by failing to disclose to Equifax both the identity of the end
users of the reports and the supposed permissible purposes for which the reports were to be used.
72.
Geneva, through the exercise of reasonable procedures including minimal diligence
on its customers, should have discovered that RMB, B.B. Direct, Genesis, American and Strategic
had no permissible purpose for consumer reports.
73.
Defendant RMB also acted willfully by intentionally making false representations
to Geneva regarding their purpose in purchasing consumer reports.
74.
Defendant B.B. Direct also acted willfully by intentionally making false
representations to Geneva regarding their purpose in purchasing consumer reports.
75.
Defendant Genesis also acted willfully by intentionally making false
representations to Geneva regarding their purpose in purchasing consumer reports.
76.
Defendant American also acted willfully by intentionally making false
representations to Geneva regarding their purpose in purchasing consumer reports.
77.
Defendant Strategic also acted willfully by intentionally making false
representations to Geneva regarding their purpose in purchasing consumer reports.
78.
The conduct of Defendants has been the producing and proximate cause of past,
present and future mental distress and emotional anguish stemming from the ongoing invasion of
Mr. Bruno’s and similarly situated individuals’ privacy and other damages that will be presented
to the jury.
79.
Mr. Bruno justifiably fears that, absent this Court’s intervention, Defendants will
continue to unlawfully access his personal, private and financial information and cause harm to
his credit or otherwise harm him economically.
80.
As a result of these FCRA violations, Defendants are liable to Mr. Bruno and
similarly situated individuals for statutory damages from $100 to $1,000 pursuant to 15 U.S.C.
§1681n(a)(1)(A), plus punitive damages pursuant to 15 U.S.C. §1681n(a)(2), as well as attorneys;
fees and costs pursuant to 15 U.S.C. §1681n and §1681o.
V. CLASS ALLEGATIONS
81.
Mr. Bruno brings this action on behalf of himself and a Class of persons similarly
situated under Rule 23, for the following “Geneva Class”:
All natural persons within the United States (including all territories and other
political subdivisions of the United States) who are identified in Equifax’s records
as having been the subject of consumer reports obtained by Geneva or their
affiliates within the five (5) years preceding the filing of this action.
Excluded from the class definition are any employees, officers or directors of any of the
Defendants, any attorneys appearing in this case and any judges assigned to hear this case as well
as their immediate family and staff.
In addition, Mr. Bruno brings this action on behalf of himself and a Class of persons
similarly situated under Rule 23, for the following “Marketing Defendants Class”:
All natural persons within the United States (including all territories and other
political subdivisions of the United States) who are identified in Geneva’s records
as having been the subject of consumer reports requested through Geneva the five
(5) years preceding the filing of this action.
Excluded from the class definition are any employees, officers or directors of any of the
Defendants, any attorneys appearing in this case and any judges assigned to hear this case as well
as their immediate family and staff.
In addition, Mr. Bruno brings this action on behalf of himself and a Class of persons
similarly situated under Rule 23, for the following “Equifax Class”:
All natural persons within the United States (including all territories and other
political subdivisions of the United States) who are the subject of consumer reports
furnished by Equifax within five years preceding the filing of this action and whose
reports were (1) sold to Geneva and/or its affiliates or agents; (2) contained the
notation “PRM” or were otherwise intended for promotional purposes; (3) sold to
end users, including but not limited to the named Defendants herein for which (i)
Equifax had no reasonable grounds for believing the end users would use the reports
for a permissible purpose or (ii) Equifax would have discovered, through the
establishment and implementation of reasonable procedures, that the end users did
not intend to extend a firm offer of credit or insurance to the targeted consumers.
Excluded from the class definition are any employees, officers or directors of any of the
Defendants, any attorneys appearing in this case and any judges assigned to hear this case as well
as their immediate family and staff.
82.
Numerosity. The Class members are so numerous that joinder of all is impractical
under Fed. R. Civ. P. 23(a)(1). Equifax sold, and Geneva acquired, accessed and used the
consumer reports of thousands of individuals, and it would not be practical for all of these injured
parties to bring suit individually. Class members may be notified of this action by first-class mail,
supplemented, if the Court deems advisable, by published notice.
83.
Existence and Predominance of Common Questions. Common questions of law
and fact exist as to all Class members and predominate over any individual questions under Fed.
R. Civ. P. 23(a)(2) and 23(b)(3). These common questions include whether:
a) Geneva had a permissible purpose for consumer reports (as to all Classes);
b)
Geneva, RMB, B.B. Direct Inc., Genesis, American, and Strategic each falsely
certified a permissible purpose in accessing and using Class members’ consumer reports (as to
both classes);
c)
Equifax did not have reasonable grounds for believing end users of consumer
reports it furnished for promotional purposes would use those reports to extend a firm offer of
credit or insurance (as to the Equifax class);
d)
Equifax should have discovered, through the establishment and implementation of
reasonable procedures, that end users of consumer reports it furnished for promotional purposes
did not intend to use those reports to extend a firm offer of credit or insurance (as to the Equifax
e)
Equifax should have discovered, through the establishment and implementation of
reasonable procedures, that Geneva had no permissible purpose (as to the Equifax class);
f)
Geneva acted as Equifax’s agent in selling and/or reselling consumer reports (as to
all Classes);
g)
Equifax implemented and maintained reasonable procedures to limit the provision
of Class members’ consumer reports to purchasers with a permissible purpose (as to the Equifax
h)
RMB, B.B. Direct Inc., Genesis, American, and Strategic had a permissible purpose
for consumer reports (as to the Geneva Class); and
i)
Defendants’ conduct was willful (as to all Classes).
84. Typicality. Mr. Bruno’s claims are typical of the claims of the Class members under
Fed. R. Civ. P. 23(a)(3) because all Class members, like Mr. Bruno, had their personal
information unlawfully accessed without any FCRA permissible purpose. All Equifax
Class members, like Mr. Bruno, had their right to know the identities of persons who
had procured copies of their consumer reports violated. Mr. Bruno has suffered similar
injuries to those of the members of the Classes he seeks to represent. Mr. Bruno bases
his claims, and those on behalf of the Classes, upon the same legal and remedial
theories and is entitled to relief under the same causes of action and upon the same
facts as the other Class members.
85.
Adequacy. Mr. Bruno is an adequate Class representative under Fed. R. Civ. P.
23(a)(4) because he will fairly and adequately protect the interests of all Class members in the
prosecution of this action and in the administration of all matters relating to the claims in this case.
Mr. Bruno has retained counsel experienced in handling FCRA class action suits. Neither Mr.
Bruno nor his counsel have any interest which might cause them not to vigorously pursue this
86.
Superiority. A class action is superior to other available methods for the fair and
efficient adjudication of the controversy under Fed. R. Civ. P. 23(b)(3) because liability will be
determined based on common facts and legal theories, and the damages sought are such that
individual prosecution would prove burdensome and expensive for the litigants and the courts.
Because of the complex and extensive litigation necessitated by Defendants’ conduct, it would be
virtually impossible for the Class members individually to effectively redress the wrongs done to
them. In addition, individual litigation would present a potential for inconsistent or contradictory
judgments and increase the delay and expense to the parties and the court system. By contrast, the
class action procedure will result in substantial benefits to the parties and the Court by allowing
the Court to resolve numerous individual claims based on a single set of proof.
87.
Injunctive Relief. Class certification is also appropriate under Fed. R. Civ. P.
23(b)(2) because Defendants have acted on grounds generally applicable to the Classes, making
equitable or declaratory relief appropriate.
CAUSES OF ACTION
COUNT I – VIOLATIONS OF 15 U.S.C. §§ 1681b, 1681e(a)
As to Defendants Equifax and Geneva – on behalf of all Classes
88.
Mr. Bruno incorporates by reference all preceding paragraphs as though fully stated
89.
Equifax sold the consumer reports of Mr. Bruno and the other Class members to
Geneva in violation of the FCRA, 15 U.S.C. §§ 1681b, 1681e(a).
90.
Geneva, acting as Equifax’s agent, sold the consumer reports of Mr. Bruno and the
other Class members to RMB, B.B. Direct Inc., Genesis, American and Strategic in violation of
the FCRA, 15 U.S.C. §§ 1681b, 1681e(a).
91.
In requesting, obtaining and allowing access to Mr. Bruno’s and other Class
members’ credit information with actual knowledge that the users of the information did not have
a permissible purpose for the same, Geneva and Equifax willfully violated the FCRA for each such
inquiry they made and allowed.
92.
Equifax and Geneva knew or should have known that the prospective use of reports
by others was not for a permissible purpose under §1681b.
93.
As described above, even the most cursory investigation would have revealed this,
and Equifax thus had reasonable grounds for believing the consumer reports would not be used for
permissible purposes under §1681b.
94.
Equifax and Geneva failed to implement and maintain reasonable procedures to
limit the provision of the consumer reports of Mr. Bruno and the Class members to a section 1681b
permissible purpose.
95.
On information and belief, Geneva was a “new prospective user” of consumer
reports, and Equifax failed to make a reasonable effort to verify its identity and the uses of the
consumer reports by Geneva prior to furnishing the consumer reports of Mr. Bruno and the Class
members to Geneva.
96.
Equifax sold the consumer reports to Geneva, who it knew or in the exercise of
reasonable diligence should have known, would resell the reports for purposes not permitted by
the FCRA.
97.
Equifax and Geneva willfully and recklessly disregarded its duties under 15.
U.S.C. §§ 1681b, 1681e(a) to prevent misappropriation and misuse of the private and protected
credit information of Mr. Bruno and the Class members.
98.
Equifax’s sale of the consumer reports described herein carried an unjustifiably
high risk of harm that was either known or so obvious that it should have been known, and even a
minimal level of diligence would have discovered that the lists were not being used for a
permissible purpose.
99.
Equifax’s and Geneva’s failures resulted in the unlawful use of Mr. Bruno’s and
Class members’ credit information for impermissible purposes such as bogus firm offers of credit
and other impermissible marketing purposes.
100.
As a direct and proximate result of the violations of the FCRA by Geneva and
Equifax, Mr. Bruno and the Class members have suffered and will continue to suffer considerable
harm and injury including, but not limited to, mental distress and emotional anguish stemming
from the ongoing invasion of their privacy, entitling Plaintiffs to an award of actual damages in an
amount to be proved at trial, plus attorneys’ fees together with the costs of this action, pursuant to
15 U.S.C. §§ 1681n and o.
COUNT II – VIOLATIONS OF 15 U.S.C. §1681e(e)
As to Defendant Geneva – on behalf of all Classes
101.
Mr. Bruno incorporates by reference all preceding paragraphs as though fully stated
102.
Geneva is liable as a “person who procures a consumer report for purposes of
reselling the report or any information in the report” under 15 U.S.C. §1681e(e).
103.
Geneva procured the consumer reports of Mr. Bruno and the other Class members
from Equifax for the purpose of reselling those reports and information in them, and it did resell
those reports and information in them to others.
104.
On information and belief, Geneva did not disclose to Equifax either the identity of
the end users of the reports and/or information, nor did it disclose a permissible purpose for using
the reports under §1681b.
105.
No permissible purpose could be disclosed to Equifax because Geneva was not
capable of making firm offers of credit.
106.
As a person who procures consumer reports for purposes of reselling the reports or
information contained therein, Geneva had an obligation to establish and comply with reasonable
procedures designed to ensure that the reports and information were resold for a permissible
purpose under §1681b, but Geneva failed to do so.
107.
Geneva willfully and recklessly disregarded its duties under 15 U.S.C. §1681e(e)
to prevent misappropriation and misuse of the private and protected credit information of Mr.
Bruno and the Class members.
108.
Geneva is liable to Mr. Bruno and the Class members for statutory damages,
punitive damages and attorneys’ fees and costs pursuant to 15 U.S.C. §1681n.
COUNT III – VIOLATIONS OF 15 U.S.C. §1681b(f)
As to Defendant Geneva – on behalf of all Classes
109.
Mr. Bruno incorporates by reference all preceding paragraphs as though fully stated
110.
Geneva entered into an agreement whereby it purchased from Equifax consumer
reports containing the personal information of Mr. Bruno and the other Class members.
111.
15 U.S.C. §1681b(f) prohibits persons from using or obtaining consumer reports in
the absence of a permissible purpose.
112.
The only permissible purpose for using consumer reports like those obtained by
Geneva regarding consumers, such as Mr. Bruno and the other Class members, with whom they
have no business relationship is to make a “firm offer of credit or insurance.” See 15. U.S.C.
§1681b(c)(1)(B)(i).
113.
A “firm offer” is one that will be honored (subject to certain expectations) if the
consumer continues to meet the pre-selected criteria used to select them for the offer. Id.
114.
Geneva is not in the business of making firm offers of credit or insurance and had
no intention to make any such firm offer.
115.
Geneva willfully and recklessly disregarded its duties under 15 U.S.C. §1681(b)(f)
to obtain a consumer report only for a permissible purpose.
116.
Geneva’s failures resulted in the unlawful use of consumers’ credit information for
impermissible purposes such as bogus firm offers of credit and other impermissible marketing
purposes.
117.
Geneva is liable to Mr. Bruno and the Class members for statutory damages,
punitive damages and attorneys’ fees and costs pursuant to 15 U.S.C. §1681n.
COUNT IV – VIOLATIONS OF 15 U.S.C. §1681q
As to Defendant Geneva – on behalf of all Classes
118.
Mr. Bruno incorporates by reference all preceding paragraphs as though fully stated
119.
Geneva used the consumer reports of Mr. Bruno and the Class members under false
pretenses in violation of 15 U.S.C. §1681q and 15 U.S.C. §1681n.
120.
Mr. Bruno and the Class members have had their privacy invaded and credit status
placed in jeopardy as a result of Geneva’s use of their credit information in violation of 15 U.S.C.
§1681q and 15 U.S.C. §1681n.
121.
Mr. Bruno and the Class members were injured by this invasion of privacy and
suffered damages as a result.
122.
Geneva is liable to Mr. Bruno and the Class members for statutory damages,
punitive damages and attorneys’ fees and costs pursuant to 15 U.S.C. §1681n.
COUNT V – VIOLATIONS OF 15 U.S.C. §1681b(f)
As to Defendants RMB, B.B. Direct Inc., Genesis, American, and Strategic on behalf of
the Geneva Class
123.
Mr. Bruno incorporates by reference all preceding paragraphs as though fully stated
124.
Upon information and belief, Defendants RMB, B.B. Direct Inc., Genesis,
American, and Strategic (hereinafter, collectively, “Marketing Defendants” and individually,
“Marketing Defendant”) each entered into an agreement whereby they purchased from Geneva
consumer reports containing the personal information of Mr. Bruno and the other Class members.
125.
15 U.S.C. §1681b(f) prohibits persons from using or obtaining consumer reports in
the absence of a permissible purpose.
126.
Upon information and belief, the Marketing Defendants are not in the business of
making firm offers of credit or insurance and have no intention to make any such firm offer.
127.
Each Marketing Defendant willfully and recklessly disregard their duties under 15
U.S.C. §1681(b)(f) to obtain a consumer report only for a permissible purpose.
128.
Each Marketing Defendant’s violation of 15 U.S.C. §168(b)(f) has resulted in the
unlawful use of consumers’ credit information for impermissible purposes such as bogus firm
offers of credit and other impermissible marketing purposes.
129.
Each Marketing Defendant is liable to Mr. Bruno and the Class members for
statutory damages, punitive damages and attorneys’ fees and costs pursuant to 15 U.S.C. §1681n.
COUNT VI – VIOLATIONS OF 15 U.S.C. §1681q
As to Defendants RMB, B.B. Direct Inc., Genesis, American, and Strategic on behalf of
the Geneva Class
130.
Mr. Bruno incorporates by reference all preceding paragraphs as though fully stated
131.
Each Marketing Defendant used the consumer reports of Mr. Bruno and the Class
members under false pretenses in violation of 15 U.S.C. §1681q and 15 U.S.C. §1681n.
132.
Mr. Bruno and the Class members have had their privacy invaded and credit status
placed in jeopardy as a result of each Marketing Defendant’s violation of 15 U.S.C. §1681q and
15 U.S.C. §1681n.
133.
Mr. Bruno and the Class members were injured by this invasion of privacy and
suffered damages as a result.
VI. PRAYER
Mr. Bruno, on his own behalf and on behalf of the Class, prays for relief against Defendants
including:
a) An order certifying the Classes under Fed. R. Civ. P. 23 and appointing Mr. Bruno and
his counsel to represent the Classes;
b) Statutory damages under 15 U.S.C. §1681n;
c) Punitive damages;
d) Pre-judgment interest from the date of filing this lawsuit;
e) Reasonable attorneys’ fees pursuant to 15 U.S.C. §1681n and §1681o;
f) Costs of this proceeding;
g) Equitable and declaratory relief; and
h) All other relief to which Mr. Bruno and the Class members may be justly entitled.
VII. JURY DEMAND
Mr. Bruno demands a trial by jury.
Dated: February 14, 2017
Respectfully submitted,
By: /s/ James Louis Kohl, Esq.
James Louis Kohl, Esq., SBN: 120808
795 Folsom Street, First Floor
San Francisco, California 94107
(415)848-2450/ FAX (415)848 2301
jamesk.legal@gmail.com
Attorney for Plaintiffs
| consumer fraud |
Gr2DDIcBD5gMZwczOmGM | LAW OFFICES OF RONALD A. MARRON
RONALD A. MARRON (SBN 175650)
ron@consumersadvocates.com
ALEXIS WOOD (SBN 270200)
alexis@consumersadvocates.com
KAS GALLUCCI (SBN 288709)
kas@consumersadvocates.com
651 Arroyo Drive
San Diego, California 92103
Telephone:(619) 696-9006
Facsimile: (619) 564-6665
LAW OFFICE OF ALBERT R. LIMBERG
Albert R. Limberg (SBN 211110)
alimberg@limberglawoffice.com
3667 Voltaire Street
San Diego, CA 92106
Phone: 619-344-8667
Fax: 619-344-8657
Attorneys for Plaintiff and the Proposed Class
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
ELIZABETH VANCLEAVE, on behalf
of herself, and all others similarly
situated,
Plaintiff,
v.
BRIDGEPORT FINANCIAL, INC.
Defendant.
Case No.:
CLASS ACTION
COMPLAINT FOR DAMAGES
AND INJUNCTIVE RELIEF
PURSUANT TO THE
TELEPHONE CONSUMER
PROTECTION ACT, 47 U.S.C. §§
227 et seq.
DEMAND FOR JURY TRIAL
INTRODUCTION
1.
Elizabeth Vancleave (“Plaintiff”) brings this Class Action Complaint
for damages, injunctive relief, and any other available legal or equitable remedies,
resulting from the illegal actions of Bridgeport Financial, Inc. (“Defendant” or
“BF”), in negligently, and/or willfully contacting Plaintiff through telephone calls
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.
Plaintiff alleges as follows upon personal knowledge as to her own acts and
experiences, and, as to all other matters, upon information and belief, including
investigation conducted by her attorneys.
JURISDICTION AND VENUE
2.
Jurisdiction is proper under 28 U.S.C. § 1332(d)(2) because Plaintiff
seeks up to $1,500 in damages for each call in violation of the TCPA, which, when
aggregated among a proposed class number in the tens of thousands, exceeds the
$5,000,000 threshold for federal court jurisdiction. Further, Plaintiff alleges a
national class, which will result in at least one class member belonging to a different
state than that of the Defendant, providing jurisdiction under 28 U.S.C. §
1332(d)(2)(A). Therefore, both elements of diversity jurisdiction under the Class
Action Fairness Act of 2005 (“CAFA”) are present, and this Court has jurisdiction.
3.
This Court has federal question subject matter jurisdiction under 28
U.S.C. § 1331, as the action arises under the TCPA, a federal statute.
4.
Venue is proper in the United States District Court for the Northern
District of California pursuant to 28 U.S.C. § 1391(b) because Defendant, at all times
herein mentioned herein, maintained an office in the city of San Jose, State of
California.
1
PARTIES
5.
Plaintiff Elizabeth Vancleave is, and at all times mentioned herein was,
a resident of the State of California, County of Shasta. She is, and at all times
mentioned herein was a “person” as defined by 47 U.S.C. § 153 (32).
6.
Defendant BF is a business entity that maintains a business office in
San Jose, California. BF is a “person” as defined by 47 U.S.C. § 153 (32).
7.
Plaintiff alleges that at all times relevant herein BF conducted business
in the state of California and in the County of Shasta, and within this judicial district.
THE TELEPHONE CONSUMER PROTECTION ACT OF 1991
(TCPA), 47 U.S.C. §§ 227 et seq.
8.
In 1991, Congress enacted the Telephone Consumer Protection Act, 47
U.S.C. § 227 (TCPA),1 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.2
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.
1 Telephone Consumer Protection Act of 1991, Pub. L. No. 102-243, 105 Stat. 2394
(1991), codified at 47 U.S.C. § 227 (TCPA). The TCPA amended Title II of the
Communications Act of 1934, 47 U.S.C. §§ 201 et seq.
2 47 U.S.C. § 227(b)(1)(A)(iii).
2
The FCC also recognized that wireless customers are charged for incoming calls
whether they pay in advance or after the minutes are used.3
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.4 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.”5
FACTUAL ALLEGATIONS
12.
Beginning around at least October 2014, Plaintiff received a number of
unsolicited phone calls from BF to her wireless phone, for which Plaintiff provided
no consent to call.
13.
Such calls were often made by prerecorded or artificial voice message.
14.
The incoming calls from BF received by Plaintiff came from the
following numbers: 877-225-6229, 408-295-7085, and other numbers
15.
Plaintiff advised BF to stop calling her, but the calls continued.
16.
These unsolicited phone calls placed to Plaintiff’s wireless telephone
were placed via an “automatic telephone dialing system,” (“ATDS”) as defined by
47 U.S.C. § 227 (a)(1) and by using “an artificial or prerecorded voice” system as
prohibited by 47 U.S.C. § 227 (b)(1)(A), which had the capacity to produce or store
3 Rules and Regulations Implementing the Telephone Consumer Protection Act of
1991, CG Docket No. 02-278, Report and Order, 18 FCC Rcd 14014 (2003).
4 In the Matter of Rules and Regulations Implementing the Telephone Consumer
Protection Act of 1991 (“FCC Declaratory Ruling”), 23 F.C.C.R. 559, 23 FCC Rcd.
559, 43 Communications Reg. (P&F) 877, 2008 WL 65485 (F.C.C.) (2008).
5 FCC Declaratory Ruling, 23 F.C.C.R. at 564-65 (¶ 10).
3
numbers randomly or sequentially, and to dial such numbers, to place telephone calls
to Plaintiff’s cellular telephone.
17.
The telephone number that Defendant, or its agents, called was assigned
to a cellular telephone service for which Plaintiff incurred a charge for incoming
calls pursuant to 47 U.S.C. § 227 (b)(1).
18.
These telephone calls constitute calls that were not for emergency
purposes as defined by 47 U.S.C. § 227(b)(1)(A)(i).
19.
Plaintiff did not provide Defendant or its agents prior express consent
to receive unsolicited phone calls pursuant to 47 U.S.C. § 227 (b)(1)(A).
20.
These telephone calls by Defendant or its agents therefore violated 47
U.S.C. § 227(b)(1).
21.
Under the TCPA and pursuant to the FCC’s January 2008 Declaratory
Ruling, the burden is on Defendant to demonstrate that Plaintiff provided express
consent within the meaning of the statute.
CLASS ACTION ALLEGATIONS
22.
Plaintiff brings this action on behalf of herself and on behalf of and all
others similarly situated (“the Class”).
23.
Plaintiff represents, and is a member of the Class, consisting of all
persons within the United States who received any unsolicited telephone calls from
Defendant or its agents on their paging service, cellular phone service, mobile radio
service, radio common carrier service, or other service, through the use of any
automatic telephone dialing system or artificial or pre-recorded voice system as set
forth in 47 U.S.C. § 227(b)(1)(A)(3), which telephone calls by Defendant or its
agents were not made for emergency purposes or with the recipients’ prior express
consent, within four years prior to the filing through the present.
24.
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
4
members number in the hundreds of thousands, if not more. Thus, this matter should
be certified as a Class action to assist in the expeditious litigation of this matter.
25.
Plaintiff and members of the Class were harmed by the acts of
Defendant in at least the following ways: Defendant, either directly or through its
agents, illegally contacted Plaintiff and the Class members via their cellular
telephones by using unsolicited telephone calls, thereby causing Plaintiff and the
Class members to incur certain cellular telephone charges or reduce cellular
telephone time for which Plaintiff and the Class members previously paid, and
invading the privacy of said Plaintiff and the Class members. Plaintiff and the Class
members were damaged thereby.
26.
This suit seeks only damages 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. Plaintiff reserves the
right to expand the Class definition to seek recovery on behalf of additional persons
as warranted as facts are learned in further investigation and discovery.
27.
The joinder of the Class members is impractical and the disposition of
their claims in the Class action will provide substantial benefits both to the parties
and to the Court. The Class can be identified through Defendant’s records or
Defendant’s agents’ records.
28.
There is a well-defined community of interest in the questions of law
and fact involved affecting the parties to be represented. The questions of law and
fact to the Class predominate over questions which may affect individual Class
members, including the following:
a. Whether, within four years prior to the filing of this Complaint
through the present, Defendant or its agents placed telephone calls
without the recipients’ prior express consent (other than a telephone
call made for emergency purposes or made with the prior express
consent of the called party) to a Class member using any automatic
5
telephone dialing system or an artificial or pre-recorded voice system,
to any telephone number assigned to a cellular telephone service;
b. Whether the equipment Defendant, or its agents, used to make the
telephone calls in question was an automatic telephone dialing system
as contemplated by the TCPA;
c. Whether Defendant, or its agents, systematically made telephone calls
to persons featuring an artificial or pre-recorded voice;
d. Whether Defendant, or its agents, systematically made telephone calls
to persons who did not previously provide Defendant with their prior
express consent to receive such telephone calls;
e. Whether Plaintiff and the Class members were damaged thereby, and
the extent of damages for such violation; and
f. Whether Defendant and its agents should be enjoined from engaging
in such conduct in the future.
29.
As a person that received at least one unsolicited telephone call to her
cell phone without Plaintiff’s prior express contest, Plaintiff is asserting claims that
are typical of the Class. Plaintiff will fairly and adequately represent and protect the
interests of the Class in that Plaintiff has no interest antagonistic to any member of
the Class.
30.
Plaintiff and the members of the Class have all suffered irreparable
harm as a result of the Defendant’s unlawful and wrongful conduct. Absent a class
action, the Class will continue to face the potential for irreparable harm. In addition,
these violations of law will be allowed to proceed without remedy and Defendant
will likely continue such illegal conduct. Because of the size of the individual Class
member’s claims, few, if any, Class members could afford to individually seek legal
redress for the wrongs complained of herein.
31.
Plaintiff has retained counsel experienced in handling class action
claims and claims involving violations of the Telephone Consumer Protection Act.
6
32.
A class action is a superior method for the fair and efficient adjudication
of this controversy. Class-wide damages are essential to induce Defendant to
comply with federal law. The interest of Class members in individually controlling
the prosecution of separate claims against Defendant is small because the maximum
statutory damages in an individual action for violation of privacy are minimal.
Management of these claims is likely to present significantly fewer difficulties than
those presented in many class claims.
33.
Defendant has acted on grounds generally applicable to the Class,
thereby making appropriate final injunctive relief and corresponding declaratory
relief with respect to the Class as a whole.
FIRST CAUSE OF ACTION
NEGLIGENT VIOLATIONS OF THE TELEPHONE CONSUMER PROTECTION ACT
47 U.S.C. §§ 227 ET SEQ.
34.
Plaintiff incorporates by reference all of the above paragraphs of this
Complaint as though fully stated herein.
35.
Each such telephone call was made using equipment that, upon
information and belief, had the capacity to store or produce telephone numbers to be
called, using a random or sequential number generator, and to dial such numbers.
By using such equipment, Defendant was able to effectively make thousands of
phone calls simultaneously to lists of thousands of wireless phone numbers of
consumers without human intervention. These telephone calls also featured a
prerecorded voice and were made without the prior express consent of the Plaintiff
and other members of the Class to receive such telephone calls.
36.
Defendant also made telephone calls featuring a prerecorded or
artificial voice without the prior express consent of the Plaintiff and other members
of the Class to receive such telephone calls.
7
37.
The foregoing acts and omissions of Defendant and its agents 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.
38.
As a result of Defendant’s, and Defendant’s agents’, negligent
violations of 47 U.S.C. § 227 et seq., Plaintiff and the Class are entitled to 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 Class 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.
40.
Plaintiff incorporates by reference the above paragraphs 1 through 33
inclusive, of this Complaint as though fully stated herein.
41.
Each such telephone call was made using equipment that, upon
information and belief, had the capacity to store or produce telephone numbers to be
called, using a random or sequential number generator, and to dial such numbers.
By using such equipment, Defendant was able to effectively make thousands of
phone calls simultaneously to lists of thousands of wireless phone numbers of
consumers without human intervention. These telephone calls also featured a
prerecorded voice and were made without the prior express consent of the Plaintiff
and other members of the Class to receive such telephone calls.
42.
Defendant also made telephone calls featuring a prerecorded or
artificial voice without the prior express consent of the Plaintiff and other members
of the Class to receive such telephone calls.
43.
The foregoing acts and omissions of Defendant constitutes numerous
and multiple knowing and/or willful violations of the TCPA, including but not
8
limited to each and every one of the above-cited provisions of 47 U.S.C. §§ 227 et
44.
As a result of Defendant’s knowing and/or willful violations of 47
U.S.C. § 227 et seq., Plaintiff and the Class are entitled to treble damages, as
provided by statute, up to $1,500.00, for each and every violation, pursuant to 47
U.S.C. § 227(b)(3)(B) and 47 U.S.C. § 227(b)(3)(C).
45.
Plaintiff and the Class are also entitled to and seek injunctive relief
prohibiting such conduct in the future.
PRAYER FOR RELIEF
Wherefore, Plaintiff respectfully requests the Court to grant Plaintiff and the Class
members the following relief against Defendant:
FIRST CAUSE OF ACTION FOR NEGLIGENT VIOLATION OF
THE TCPA, 47 U.S.C. §§ 227 ET SEQ.
46.
As a result of Defendant’s, and Defendant’s agents’, negligent
violations of 47 U.S.C. § 227(b)(1), Plaintiff seeks for herself and each Class
member $500.00 in statutory damages, for each and every violation, pursuant to 47
U.S.C. § 227(b)(3)(B).
47.
Pursuant to 47 U.S.C. § 227(b)(3)(A), Plaintiff seeks injunctive relief
prohibiting such conduct in the future.
48.
Any other relief the Court may deem just and proper.
SECOND CAUSE OF ACTION FOR KNOWING AND/OR WILLFUL
VIOLATION OF THE TCPA, 47 U.S.C. §§ 227 ET SEQ.
49.
As a result of Defendant’s, and Defendant’s agents’, willful and/or
knowing violations of 47 U.S.C. § 227(b)(1), Plaintiff seeks for herself and each
Class member treble damages, as provided by statute, up to $1,500.00 for each and
every violation, pursuant to 47 U.S.C. § 227(b)(3)(B) and 47 U.S.C. § 227(b)(3)(C).
50.
Pursuant to 47 U.S.C. § 227(b)(3)(A), injunctive relief prohibiting such
conduct in the future.
9
51.
Any other relief the Court may deem just and proper.
JURY DEMAND
Plaintiff hereby demands a trial by jury on all issues so triable.
Dated: December 10, 2015
/s/ Ronald A. Marron
By: Ronald A. Marron
LAW OFFICES OF RONALD A.
MARRON
RONALD A. MARRON
ALEXIS WOOD
KAS GALLUCCI
651 Arroyo Drive
San Diego, California 92103
Telephone: (619) 696-9006
Facsimile: (619) 564-6665
Attorneys for Plaintiff
and the Proposed Class
10
| privacy |
LO-_EocBD5gMZwcztZ85 | UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
______________________________________________
MOSHE HERSHKOWITZ on behalf of himself and
all other similarly situated consumers
Plaintiff,
-against-
PENTAGROUP FINANCIAL, LLC
Defendant.
______________________________________________
CLASS ACTION COMPLAINT
INTRODUCTION
1.
Plaintiff, Moshe Hershkowitz brings this action on behalf of himself and all others
similarly situated, by way of this Class Action Complaint for the illegal practices of
Defendant, Pentagroup Financial, LLC who, inter alia, used false, deceptive, and
misleading practices, and other illegal practices, in connection with its attempts to collect
an alleged debt from the Plaintiff and others.
2.
The Plaintiff alleges that Defendant's collection practices violate the Fair Debt Collection
Practices Act, 15 U.S.C. § 1692, et seq. (“FDCPA”). Such collection practices include,
inter alia:
(a) Leaving telephonic voice messages for consumers, which fail to provide
meaningful disclosure of Defendant's identity;
(b) Leaving telephonic voice messages for consumers, which fail to disclose that the
-1-
call is from a debt collector; and
(c) Leaving telephonic voice messages for consumers, which fail to disclose the
purpose or nature of the communication (i.e. an attempt to collect a debt).
3.
The FDCPA regulates the behavior of collection agencies attempting to collect a debt on
behalf of another. The United States Congress has found abundant evidence of the use of
abusive, deceptive, and unfair debt collection practices by many debt collectors, and has
determined that abusive debt collection practices contribute to a number of personal
bankruptcies, marital instability, loss of jobs, and invasions of individual privacy.
Congress enacted the FDCPA to eliminate abusive debt collection practices by debt
collectors, to ensure that those debt collectors who refrain from using abusive debt
collection practices are not competitively disadvantaged, and to promote uniform State
action to protect consumers against debt collection abuses. 15 U.S.C. § 1692(a) - (e).
4.
The FDCPA is a strict liability statute, which provides for actual or statutory damages
upon the showing of one violation. The Second Circuit has held that whether a debt
collector's conduct violates the FDCPA should be judged from the standpoint of the "least
sophisticated consumer." Clomon v. Jackson, 988 F.2d 1314 (2d Cir. 1993).
5.
To prohibit harassment and abuses by debt collectors, the FDCPA, at 15 U.S.C. § 1692d,
provides that a debt collector may not engage in any conduct the natural consequence of
which is to harass, oppress, or abuse any person in connection with the collection of a
debt and names a non-exhaustive list of certain per se violations of harassing and abusive
collection conduct. 15 U.S.C. § 1692d(l)-(6). Among the per se violations prohibited by
that section are the placement of telephone calls without meaningful disclosure of the
caller's identity. 15 U.S.C. § 1692d(6).
-2-
6.
To prohibit deceptive practices, the FDCPA, at 15 U.S.C. § 1692e, outlaws the use of
false, deceptive, and misleading collection practices and names a non-exhaustive list of
certain per se violations of false and deceptive collection conduct. 15 U.S.C. § 1692e(1)-
(16). Among the per se violations prohibited by that section are: using 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); the failure by debt collectors
to disclose in initial oral communications that the debt collector is attempting to collect a
debt and that any information obtained will be used for that purpose, 15 U.S.C. §
1692e(11); and the failure by debt collectors to disclose in subsequent oral
communications with consumers that the communication is from a debt collector, 15
U.S.C. § 1692e(11).
PARTIES
7.
At all times relevant to this lawsuit, Plaintiff was a citizen of the State of New York who
resides within this District.
8.
Plaintiff is a consumer as that term is defined by 15 U.S.C. § 1692(a)(3) of the FDCPA.
9.
The alleged debt that Defendant sought to collect from the Plaintiff involves a consumer
debt.
10.
At all times relevant to this lawsuit, Defendant's principal place of business was located
within Houston, Texas.
11.
Defendant is regularly engaged upon, for profit, in the collection of allegedly owed
consumer debts.
12.
Defendant is a “debt collector” as specifically defined by the FDCPA, 15 U.S.C. §
1692(a)(6).
-3-
JURISDICTION & VENUE
13.
Jurisdiction of this Court arises under 15 U.S.C. § 1692k(d) and 28 U.S.C. § 1331.
14.
Venue is appropriate in this federal district pursuant to 28 U.S.C. § 139l(b) because a
substantial part of the events giving rise to the claims of Plaintiff occurred within this
federal judicial district.
FACTS PARTICULAR TO MOSHE HERSHKOWITZ
15.
Upon information and belief, on a date better known by Defendant, Defendant began to
attempt to collect an alleged consumer debt from the Plaintiff.
16.
Within the one year immediately preceding the filing of this complaint, the Defendant
contacted the Plaintiff on multiple occasions via telephone and left numerous voice
messages in an attempt to collect the alleged obligation.
17.
By way of limited example only, the following is a transcript of one such message that
Defendant left for Plaintiff on his cellular telephone voicemail system on or about May
21, 2012:
"Hi this message is intended for Moshe Hershkowitz, if this is not the right number for
this person please call me back at 18003859431 so therefore I could remove your phone
number if this is not Moshe Hershkowitz, please hang up, Mr. Hershkowitz, this is Miss
Tilman, Pentagroup Financial, if you can give me a callback, I'll be in the office for
about another hour and a half, my number is 18003859431 if you could please return the
call thank you."
18.
At the time Plaintiff received the said messages, he did not know the identity of the
caller.
19.
At the time Plaintiff received the said messages, he did not know any person named
-4-
"Miss Tilman from Pentagroup Financial."
20.
At the time Plaintiff received the said messages, he did not know any company named
"Pentagroup Financial."
21.
At the time Plaintiff received the said messages, he did not know that the caller was a
debt collector.
22.
At the time Plaintiff received the said messages, he did not know that the call concerned
the collection of a debt.
23.
Each of the messages is a "communication" as defined by 15 U.S.C. § 1692a(2).
24.
Each of the above said messages uniformly failed to identify the callers as debt collectors
attempting to collect a debt.
25.
The only way for Plaintiff and/or any least sophisticated consumer to obtain the identity
of the caller leaving the messages, and to ascertain the purpose underlying the messages,
was to place a return call to the telephone number provided in the messages and to speak
with a debt collector employed by Pentagroup Financial, LLC, and to provide the debt
collector with personal information.
26.
The Defendant intended that the messages have the effect of causing Plaintiff, and other
least sophisticated consumers, to place return calls to the telephone number provided in
the messages and to speak with their debt collectors, and then provide those debt
collectors with their personal information, as the sole means of obtaining the identity of
the caller leaving the messages, and to ascertain the purpose underlying the messages.
Scores of federal court decisions – including the 2nd Circuit Court of Appeals and
District Courts within the State of New York – uniformly hold that the FDCPA requires
debt collectors to provide meaningful identification of itself in telephonic voice messages
-5-
left for consumers, such as the said messages, by accurately stating the name of the debt
collection company and stating the nature and/or purpose of the call.
27.
At all times relevant to this action, Pentagroup Financial, LLC was aware of the
substantial weight of legal authority requiring it to provide meaningful identification of
itself in telephonic voice messages left for consumers, such as the said messages, by
accurately stating its company name and stating the nature and/or purpose of the call.
28.
At all times relevant to this action, Pentagroup Financial, LLC willfully, deliberately, and
intentionally chose not to provide meaningful identification of itself in telephonic voice
messages left for consumers, such as the said messages, by accurately stating its company
name and stating the nature and/or purpose of the call.
29.
The Defendant's act of leaving the said messages for Plaintiff is conduct the natural
consequences of which is to harass, oppress, or abuse a person in connection with the
collection of a debt and is in violation of the FDCPA.
30.
The Defendant's act of leaving the said messages for Plaintiff constitutes the use of a
false, deceptive, or misleading representation or means in connection with the collection
of a debt and is in violation of the FDCPA.
31.
The FDCPA secures a consumer's right to have a debt collector cease further
communications with the consumer. By failing to meaningfully identify itself, disclose
the purpose of its call and state that Pentagroup Financial, LLC is a debt collector in a
manner understandable to the least sophisticated consumer, the Defendant has engaged in
conduct designed to deprive consumers of their right to have a debt collector cease
further communications.
32.
It is Defendant's policy and practice to leave telephonic voice messages for consumers
-6-
and other persons, such as the above said messages, that violate the FDCPA by, inter alia:
(a)
Failing to provide meaningful disclosure of Pentagroup Financial, LLC's
identity; and
(b)
Failing to disclose that the call is from a debt collector; and
(c)
Failing to disclose the purpose or nature of the communication, i.e. an attempt to
collect a debt.
33.
Upon information and belief, such messages, as alleged in this complaint, number at least
in the hundreds.
34.
Upon information and belief, the said messages were either pre-scripted or pre-recorded.
35.
Defendant has engaged in a pattern of leaving messages without disclosing that the
communication is from a debt collector.
36.
The said telephone messages are in violation of 15 U.S.C. §§ 1692d, 1692d(6), 1692e(10)
and 1692e(11) for failing to indicate that the messages were from a debt collector, which
constitutes a deceptive practice.
CLASS ALLEGATIONS
37.
This action is brought as a class action. Plaintiff brings this action on behalf of himself
and on behalf of all other persons similarly situated pursuant to Rule 23 of the Federal
Rules of Civil Procedure.
38.
With respect to the Plaintiff's Class, this claim is brought on behalf of a class of (a) all
persons in the State of New York (b) for whom Pentagroup Financial, LLC left a
voicemail or answering machine message, in the form of the above said messages (c) that
did not identify Pentagroup Financial, LLC by its true company name or state that the call
was for collection purposes (d) made in connection with Pentagroup Financial, LLC's
-7-
attempt to collect a debt (e) which the said messages violate the FDCPA (f) during a
period beginning one year prior to the filing of this initial action and ending 21 days after
the service of the initial complaint filed in this action.
39.
The identities of all class members are readily ascertainable from the records of
Pentagroup Financial, LLC and those business and governmental entities on whose behalf
it attempts to collect debts.
40.
Excluded from the Plaintiff's Class are the Defendants and all officers, members,
partners, managers, directors, and employees of Pentagroup Financial, LLC, and all of
their respective immediate families, and legal counsel for all parties to this action and all
members of their immediate families.
41.
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 the Defendant's telephonic voice messages, such as the above
said messages, violate 15 U.S.C. §§ 1692d, 1692d(6), 1692e(10), and 1692e(11).
42.
The Plaintiff's claims are typical of the class members, as all are based upon the same
facts and legal theories.
43.
The Plaintiff will fairly and adequately protect the interests of the Plaintiff's 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.
-8-
44.
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'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 the Defendant's telephonic voice messages, such
as the above said messages violate 15 U.S.C. §§ 1692d, 1692d(6), 1692e(10),
and 1692e(11).
(c)
Typicality: The Plaintiff's claims are typical of the claims of the class
members. Plaintiff and all members of the Plaintiff's Class defined in this
complaint 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 his counsel have any interests, which might cause them not to
vigorously pursue the instant class action lawsuit.
-9-
(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 appropriate because adjudications with respect to individual
members create a risk of inconsistent or varying adjudications which could
establish incompatible standards of conduct for Defendants who, on
information and belief, collect debts throughout the United States of
America.
45.
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 said messages violate 15 U.S.C. §§
1692d, 1692d(6), 1692e(10), and/or 1692e(11) is tantamount to declaratory relief and any
monetary relief under the FDCPA would be merely incidental to that determination.
46.
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.
-10-
47.
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).
FIRST CAUSE OF ACTION
Violations of the Fair Debt Collection Practices Act brought by Plaintiff on behalf
of himself and the members of a class, as against the Defendant.
48.
Plaintiff re-states, re-alleges, and incorporates herein by reference, paragraphs one (1)
through forty seven (47) as if set forth fully in this cause of action.
49.
Defendant violated the FDCPA. Defendant's violations with respect to the above said
messages include, but are not limited to, the following:
(a)
Engaging in conduct the natural consequence of which is to harass, oppress,
or abuse any person in connection with the collection of a debt, in violation
of 15 U.S.C. § 1692d;
(b)
Leaving telephonic voice messages which fail to disclose the purpose or
nature of the communication (i.e., an attempt to collect a debt), in violation of
15 U.S.C. § 1692d(6);
(c)
Using a false representation or deceptive means to collect or attempt to
collect any debt or to obtain information concerning a consumer, in violation
of 15 U.S.C. § 1692e(10);
(d)
Failing to disclose in its initial communication with the consumer, when that
communication is oral, that Defendant, Pentagroup Financial, LLC was
attempting to collect a debt and that any information obtained will be used for
that purpose, in violation of 15 U.S.C. § 1692e(11); and
-11-
(e)
Failing to disclose in all oral communications that Pentagroup Financial,
LLC is a debt collector, in violation of 15 U.S.C. § 1692e(11).
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, respectfully requests that this Court enter a judgment in Plaintiff's favor as
against the Defendant and award damages as follows:
(a)
Statutory and actual damages provided under the FDCPA, 15 U.S.C. § 1692(k);
(b)
Attorney fees, litigation expenses and costs incurred in bringing this action; and
(c)
Any other relief that this Court deems appropriate and just under the
circumstances.
Dated: Brooklyn, New York
May 1, 2013
___/s/ Maxim Maximov____________
Maxim Maximov, Esq.
Attorneys for the Plaintiff
Maxim Maximov, LLP
1600 Avenue M, 2nd Floor
Brooklyn, New York 11230
Office: (718) 395-3459
Facsimile: (718) 408-9570
E-mail: m@maximovlaw.com
Plaintiff requests trial by jury on all issues so triable.
___/s/ Maxim Maximov____________
Maxim Maximov, Esq.
-12-
| consumer fraud |
KvjiE4cBD5gMZwcz9sZa | Justin Cilenti (GC2321)
Peter H. Cooper (PHC4714)
CILENTI & COOPER, PLLC
708 Third A venue - 6th Floor
New York, NY 10017
T. (212) 209-3933
F. (212) 209-7102
pcooper@jcpclaw.com
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
15 Civ. 46
Case No.
CESAR CORDOBA, on behalf
of himself and others similarly situated,
Plaintiffs,
COMPLAINT
-against-
YESHIVA BNOS AHA VAS ISRAEL, and
DAVID GANZ,
Defendants.
Plaintiff, Cesar Cordoba ("Plaintiff'), on behalf of himself and other similarly
situated employees, by and through his undersigned attorneys, Cilenti & Cooper, PLLC,
files this Complaint against Defendants, Yeshiva Bnos Ahavas Israel ("Yeshiva Bnos
Ahavas"), and David Ganz (collectively, "Defendants"), and states as follows:
INTRODUCTION
1.
Plaintiff, Cesar Cordoba, alleges, that pursuant to the Fair Labor Standards
Act, as amended, 29 U.S.C. §§ 201, et seq. ("FLSA"), he is entitled to recover from the
Defendants: (1) unpaid wages; (2) unpaid overtime compensation; (3) liquidated
damages; (4) prejudgment and post-judgment interest; and (5) attorneys' fees and costs.
Labor Law, he is entitled to recover from the Defendants: (1) unpaid wages; (2) unpaid
overtime compensation; (3) liquidated damages pursuant to the New York Wage Theft
Prevention Act; (4) prejudgment and post-judgment interest; and (5) attorneys' fees and
costs.
JURISDICTION AND VENUE
3.
This Court has jurisdiction over this controversy pursuant to 29 U.S.C.
§216(b), 28 U.S.C. §§ 1331, 1337 and 1343, and has supplemental jurisdiction over
Plaintiffs' state law claims pursuant to 28 U.S.C. § 1367.
4.
Venue is proper in the Eastern District pursuant to 28 U.S.C. § 1391
because the conduct making up the basis of the complaint took place in this judicial
district.
PARTIES
5.
Defendant, Yeshiva Bnos Ahavas, is a New York religious corporation
operating multiple schools in Brooklyn, New York, and has a management office at 2 Lee
A venue, Brooklyn, New York 11211.
6.
Defendant, Yeshiva Bnos Ahavas, is a domestic religious organization
organized and existing under the laws of the State of New York, which operates religious
schools in Brooklyn, New York, and has a principal operating address at 2 Lee A venue,
Brooklyn, New York 11208.
7.
Defendant, Yeshiva Bnos Ahavas, manages, operates, maintains, and
controls religious schools in Kings County, New York.
2
Defendants.
9.
Plaintiff Cesar Cordoba resides in Kings County, New York.
10.
The performance of Plaintiff's job responsibilities, as well as the
responsibilities of other similarly situated employees, was controlled by defendants
David Ganz and Yeshiva Bnos Ahavas.
11.
Upon information and belief, Defendant, David Ganz, is an adult
individual residing in Brooklyn, New York, who at all relevant times managed and made
business decisions at Yeshiva Bnos Ahavas, including but not limited to, the decisions of
what salary the employees will receive and the number of hours the employees will work.
12.
Upon information and belief, Defendant, David Ganz, is a managing agent
of Yeshiva Bnos Ahavas, whose address is unknown at this time and who participated in
the day-to-day operations of Yeshiva Bnos Ahavas, and acted intentionally and
maliciously and is an "employer" pursuant to the FLSA, 29 U.S.A §203(d) and
Regulations promulgated thereunder, 29 C.F.R. § 791.2, as well as New York Labor Law
§ 2 and the Regulations thereunder, and is jointly and severally liable with Yeshiva Bnos
Ahavas.
13.
Plaintiff, Cesar Cordoba, was employed by Defendants in Kings County,
New York, to work as a cook/kitchen worker, cleaner and porter at Defendants' religious
school, from on or about 2000 through on or about June 23, 2014.
14.
At all relevant times, Yeshiva Bnos Ahavas, was, and continues to be, an
"enterprise engaged in commerce" within the meaning of the FLSA.
3
enterprise engaged in commerce" within the meaning of the FLSA.
16.
At all relevant times, the work performed by Plaintiff, and other similarly
situated employees, was and is directly essential to the educational and religious
institutions operated by Yeshiva Bnos Ahavas.
17.
At all relevant times, Defendants knowingly and willfully failed to pay
Plaintiff lawfully earned wages in contravention of the FLSA and New York Labor Law.
18.
At all relevant times, Defendants knowingly and willfully failed to pay
Plaintiff lawfully earned overtime wages in contravention of the FLSA and New York
Labor Law.
19.
Plaintiff, Cesar Cordoba, has fulfilled all conditions precedent to the
institution of this action and/or such conditions have been waived.
STATEMENT OF FACTS
20.
In or around 2000, Plaintiff, Cesar Cordoba, was hired by Defendants to
work as a kitchen helper/cook, cleaner and porter, at Defendants' religious school known
as Yeshiva Bnos Ahavas, located at 2 Lee Avenue, Brooklyn, New York 11211.
21.
Plaintiff, Cesar Cordoba, worked continuously for the defendants during
the time period spanning 2000 until on or about June 23, 2014.
22.
During Plaintiff Cesar Cordoba's employment by Defendants, he worked
well over forty ( 40) hours per week. Plaintiff generally worked six ( 6) days a week, and
his work shift generally consisted of eleven ( 11) hours per day.
23.
Plaintiff was not paid wages or overtime wages for all hours worked.
During the more recent six (6) years, Plaintiff was paid a bi-monthly salary of $970.00 to
4
that he was always paid for exactly fifty-two (52) hours of work per week, although he
generally worked more than sixty (60) hours per week.
24.
Prior to 2013, plaintiff was paid a set salary and work performed above
forty (40) hours per week was not paid at time and one-half the statutory minimum rate of
pay as required by state and federal law. Beginning in 2013, plaintiff continued to be
paid a salary, although his wage statements were changed to reflect fifty-two (52) hours
of work per week. In both instances, plaintiff was not paid an hourly wage, and was not
paid overtime for all hours worked.
25.
Defendants knowingly and willfully operated their business with a policy
of not paying wages to the Plaintiff and other similarly situated employees for all of the
hours they worked.
26.
Defendants knowingly and willfully operated their business with a policy
of not paying Plaintiff and other similarly situated employees either the FLSA overtime
rate (of time and one-halt), or the New York State overtime rate (of time and one-halt), in
direct violation of the FLSA and New York Labor Law and the supporting federal and
New York State Department of Labor Regulations.
2 7.
At all relevant times, upon information and belief, and during the course
of Plaintiffs employment, the Defendants failed to maintain accurate and sufficient time
records.
28.
Defendant, David Ganz, is an individual who, upon information and
belief, manages and makes business decisions on behalf of Yeshiva Bnos Ahavas,
5
the number of hours the employees will work.
STATEMENT OF CLAIM
COUNT I
[Violation of the Fair Labor Standards Act]
29.
Plaintiff re-alleges and re-avers each and every allegation and statement
contained in paragraphs "1" through "28" of this Complaint as if fully set forth herein.
30.
At all relevant times, upon information and belief, Defendants were and
continue to be an employer engaged in interstate commerce and/or the production of
goods for commerce within the meaning of the FLSA, 29 U.S.C. §§ 206(a) and 207(a).
Further, Plaintiff is a covered individual within the meaning of the FLSA, 29 U.S.C. §§
206(a) and 207(a).
31.
At all relevant times, Defendants employed Plaintiff within the meaning of
the FLSA.
32.
Upon information and belief, at all relevant times, Defendants have had
gross revenues in excess of $500,000.
33.
Plaintiff, and other similarly situated employees, worked hours for which
he was not paid the statutory minimum wage.
34.
At all relevant times, Defendants had a policy and practice of refusing to
pay wages to Plaintiff, and other similarly situated employees, for some of their hours
worked.
35.
Defendants failed to pay Plaintiff, and other similarly situated employees,
wages in the lawful amount for all hours worked.
6
statutory minimum for all hours worked in excess of the maximum hours provided for in
the FLSA.
37.
Defendants failed to pay Plaintiff overtime compensation in the lawful
amount for all hours worked in excess of the maximum hours provided for in the FLSA.
38.
At all relevant times, Defendants had, and continues to have a policy and
practice of refusing to pay overtime compensation at the statutory rate of time and one-
half to Plaintiffs for all hours worked in excess of forty ( 40) hours per work week, which
violated and continues to violate the FLSA, 29 U.S.C. §§ 201, et seq., including 29
U.S.C. §§ 207(a)(l) and 215(a).
39.
Defendants knowingly and willfully disregarded the provisions of the
FLSA as evidenced by their failure to compensate Plaintiff for all hours worked, when
they knew or should have known such was due and that non-payment of wages and
overtime pay would financially injure Plaintiff.
40.
Defendants failed to make, keep and preserve records with respect to each
of its employees sufficient to determine the wages, hours worked, and other conditions
and practices of employment in violation of the FLSA, 29 U.S.A. §§ 201, et seq.,
including 29 U.S.C. §§ 21 l(c) and 215(a).
41.
Defendants failed to provide Plaintiff with a true and accurate statement
with every payment of wages pursuant to New York Labor Law§ 195(3).
42.
Defendants failed to properly disclose or apprise Plaintiff of his rights
under the FLSA.
7
employees, with an accurate document accounting for their actual hours worked, and
setting forth their hourly rate of pay, regular wage, and/or overtime wages.
44.
Upon information and belief, this was done in order to disguise the actual
number of hours the employees worked, and to avoid paying them for their full hours
worked; and, overtime due.
45.
Defendants willfully disregarded and purposefully evaded record keeping
requirements of the FLSA and the New York Labor Law by failing to maintain accurate
and complete timesheets and accurate payroll records.
46.
Records, if any, concerning the number of hours worked by Plaintiff and
the actual compensation paid to Plaintiff are in the possession and custody of the
Defendants.
Plaintiff intends to obtain these records by appropriate discovery
proceedings to be taken promptly in this case and, if necessary, will then seek leave of
Court to amend this Complaint to set forth the precise amount due.
4 7.
As a direct and proximate result of Defendants' willful disregard of the
FLSA, Plaintiff is entitled to liquidated damages pursuant to the FLSA.
48.
Due to the intentional, willful and unlawful acts of the Defendants,
Plaintiff suffered damages in an amount not presently ascertainable of unpaid minimum
wages and overtime compensation, an equal amount as liquidated damages, and
prejudgment interest thereon.
49.
Plaintiff is entitled to an award of his reasonable attorneys' fees, costs and
expenses, pursuant to 29 U.S.C. § 216(b).
8
COUNT II
[Violation of the New York Labor Law]
50.
Plaintiff re-alleges and re-avers each and every allegation and statement
contained in paragraphs "1" through "49" of this Complaint as if fully set forth herein.
51.
At all relevant times, Plaintiff was employed by Defendants within the
meaning of New York Labor Law§§ 2 and 651.
52.
Defendants knowingly and willfully violated Plaintiff's rights by failing to
pay wages in the lawful amount for hours worked.
53.
Defendants knowingly and willfully violated Plaintiff's rights by failing to
pay overtime compensation for all hours worked in excess of forty ( 40) hours in a
workweek.
54.
Due to the Defendants' New York Labor Law violations, Plaintiff, and
other similarly situated employees, are entitled to recover from Defendants their unpaid
wages, unpaid overtime wages, reasonable attorneys' fees, and costs and disbursements
of this action, pursuant to New York Labor Law § 663(1) et al. and § 198. Plaintiff also
seeks liquidated damages pursuant to New York Labor Law § 663(1 ).
PRAYER FOR RELEIF
WHEREFORE, Plaintiff, Cesar Cordoba , on behalf of himself, and all similarly
situated employees, respectfully requests that this Court grant the following relief:
(a)
A declaratory judgment that the practices complained of herein are
unlawful under the FLSA and New York Labor Law;
(b)
An award of unpaid wages due under the FLSA and New York Labor
Law;
9
Labor Law;
(d)
An award ofliquidated damages pursuant to 29 U.S.C. § 216;
(e)
An award of liquidated damages as a result of Defendants' failure to pay
wages, and overtime compensation, pursuant to the New York Labor Law;
(f)
An order tolling the statute of limitations herein1;
(g)
An award of prejudgment and post-judgment interest;
(h)
An award of costs and expenses associated with this action, together with
reasonable attorneys' and expert fees; and,
(i)
Such other and further relief as this Court determines to be just and proper.
Dated: New York, New York
January 6, 2015
By:
Peter H. Cooper (PHC 4714)
CILENTI & COOPER, PLLC
Attorneys for Plaintiff
708 Third A venue - 61h Floor
New York, NY 10017
Telephone (212) 209-3933
Facsimile (212) 209-7102
pcooper@jcpclaw.com
The parties stipulated to toll the statute of limitations as of December 4, 2014.
10
Y<i:.\o,fa. ~'¥1· < A\.a;.~o.s 1 s:rae.\ , and/or related entities. I consent to be a plaintiff in the
above-captioned action to collect unpaid wages.
Dated:
ew York, New York
I
,2014
Notary Public
PETER H. COOPER
Notary Public, State of New York
No o2C05059941
0
6°~J].)>'
Quallfie~ in NE~ vo::v
Commlss1on Expires
•
| employment & labor |
x_H6EocBD5gMZwczeneN | IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
GLEN ELLYN PHARMACY, INC.,
)
on behalf of plaintiff and
)
the class members defined herein,
)
)
Plaintiff,
)
)
v.
)
)
GEAR MEDICAL, LLC,
)
and JOHN DOES 1-10,
)
)
Defendants.
)
COMPLAINT – CLASS ACTION
MATTERS COMMON TO MULTIPLE COUNTS
INTRODUCTION
1.
Plaintiff Glen Ellyn Pharmacy, Inc., brings this action to secure redress for the
actions of defendant Gear Medical, LLC, in sending or causing the sending of unsolicited
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.
2.
The TCPA expressly prohibits unsolicited fax advertising. Unsolicited fax
advertising damages the recipients. The recipient is deprived of its paper and ink or toner and
the use of its fax machine. The recipient also wastes valuable time it would have spent on
something else. Unsolicited faxes prevent fax machines from receiving and sending authorized
faxes, cause wear and tear on fax machines, and require labor to attempt to identify the source
and purpose of the unsolicited faxes.
PARTIES
3.
Plaintiff Glen Ellyn Pharmacy, Inc., is an Illinois corporation with offices in Glen
Ellyn, Illinois, where it maintains telephone facsimile equipment.
4.
Defendant Gear Medical, LLC, is a Nevada limited liability company. Its
1
registered agent and office is United Corporation Agents, Inc., 500 N. Rainbow Blvd., Suite
300A, Las Vegas, Nevada 89107.
5.
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
6.
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).
7.
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.
8.
Venue in this District is proper for the same reason.
FACTS
9.
On February 27, 2014, plaintiff Glen Ellyn Pharmacy, Inc., received the
unsolicited fax advertisement attached as Exhibit A on its facsimile machine.
10.
On March 6, 2014, plaintiff Glen Ellyn Pharmacy, Inc., received the unsolicited
fax advertisement attached as Exhibit B on its facsimile machine.
11.
On April 1, 2014, plaintiff Glen Ellyn Pharmacy, Inc., received the
unsolicited fax advertisement attached as Exhibit C on its facsimile machine.
12.
On May 5, 2014, plaintiff Glen Ellyn Pharmacy, Inc., received the unsolicited fax
advertisement attached as Exhibit D on its facsimile machine.
13.
On May 22, 2014, plaintiff Glen Ellyn Pharmacy, Inc., received the unsolicited
fax advertisement attached as Exhibit E on its facsimile machine
14.
Discovery may reveal the transmission of additional faxes as well.
2
15.
Defendant Gear Medical, LLC, is responsible for sending or causing the sending
of the faxes.
16.
Defendant Gear Medical, LLC, as the entity whose products or services were
advertised in the faxes, derived economic benefit from the sending of the faxes.
17.
Defendant Gear Medical, LLC, either negligently or wilfully violated the rights of
plaintiff and other recipients in sending the faxes.
18.
Each fax refers to a website registered to defendant Gear Medical, LLC.
19.
Plaintiff had no prior relationship with defendant and had not authorized the
sending of fax advertisements to plaintiff.
20.
The fax did not contain an opt-out notice that complied with 47 U.S.C. §227.
21.
On information and belief, the faxes attached hereto were sent as part of a mass
broadcasting of faxes.
22.
On information and belief, defendants have transmitted similar unsolicited fax
advertisements to at least 40 other persons in Illinois.
23.
There is no reasonable means for plaintiff or other recipients of defendants’
unsolicited advertising faxes to avoid receiving illegal faxes. Fax machines must be left on and
ready to receive the urgent communications authorized by their owners.
COUNT I – TCPA
24.
Plaintiff incorporates ¶¶ 1-23.
25.
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).
26.
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
3
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.
27.
Plaintiff and each class member suffered damages as a result of receipt of the
unsolicited faxes, in the form of paper and ink or toner consumed as a result. Furthermore,
plaintiff’s statutory right of privacy was invaded.
28.
Plaintiff and each class member is entitled to statutory damages.
29.
Defendants violated the TCPA even if their actions were only negligent.
30.
Defendants should be enjoined from committing similar violations in the future.
CLASS ALLEGATIONS
31.
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 (b) who, on or after a date four years prior to the filing of
this action (28 U.S.C. §1658), (c) were sent faxes by or on behalf of defendant Gear Medical,
LLC , promoting its goods or services for sale (d) and which did not contain an opt out notice as
described in 47 U.S.C. §227.
32.
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.
33.
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 unsolicited fax
advertisements;
4
b.
The manner in which defendants compiled or obtained their list of fax
numbers;
c.
Whether defendants thereby violated the TCPA;
d.
Whether defendants thereby engaged in unfair acts and practices, in
violation of the ICFA.
e.
Whether defendants thereby converted the property of plaintiff.
f.
Whether defendants thereby created a private nuisance.
g.
Whether defendants thereby committed a trespass to chattels.
34.
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.
35.
Plaintiff’s claims are typical of the claims of the class members. All are based on
the same factual and legal theories.
36.
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.
37.
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), aff’d in relevant part, 728
F.3d 682 (7th Cir. 2013); Sadowski v. Med1 Online, 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.
5
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).
38.
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 unsolicited 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
39.
Plaintiff incorporates ¶¶ 1-23.
40.
Defendants engaged in unfair acts and practices, in violation of ICFA § 2, 815
ILCS 505/2, by sending unsolicited fax advertising to plaintiff and others.
41.
Unsolicited fax advertising is contrary to the TCPA and also Illinois law. 720
ILCS 5/26-3(b) makes it a petty offense to transmit unsolicited fax advertisements to Illinois
residents.
6
42.
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.
43.
Plaintiff and each class member suffered damages as a result of receipt of the
unsolicited faxes, in the form of paper and ink or toner consumed as a result.
44.
Defendants engaged in such conduct in the course of trade and commerce.
45.
Defendants’ conduct caused recipients of their advertising to bear the cost thereof.
This gave defendants an unfair competitive advantage over businesses that advertise lawfully,
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.
46.
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.
47.
Defendants should be enjoined from committing similar violations in the future.
CLASS ALLEGATIONS
48.
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 Gear
Medical, LLC, promoting its goods or services for sale (d) and which did not contain an opt out
notice as described in 47 U.S.C. §227.
49.
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.
50.
There are questions of law and fact common to the class that predominate over
7
any questions affecting only individual class members. The predominant common questions
include:
a.
Whether defendants engaged in a pattern of sending unsolicited 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.
51.
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.
52.
Plaintiff’s claims are typical of the claims of the class members. All are based on
the same factual and legal theories.
53.
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.
54.
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 unsolicited fax
8
advertising;
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
55.
Plaintiff incorporates ¶¶ 1-23.
56.
By sending plaintiff and the class members unsolicited faxes, defendants
converted to their own use ink or toner and paper belonging to plaintiff and the class members.
57.
Immediately prior to the sending of the unsolicited 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.
58.
By sending the unsolicited 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.
59.
Defendants knew or should have known that such appropriation of the paper and
ink or toner was wrongful and without authorization.
60.
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 unsolicited faxes.
61.
Defendants should be enjoined from committing similar violations in the future.
CLASS ALLEGATIONS
62.
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 Gear
Medical, LLC, promoting its goods or services for sale (d) and which did not contain an opt out
notice as described in 47 U.S.C. §227.
63.
The class is so numerous that joinder of all members is impractical. Plaintiff
9
alleges on information and belief that there are more than 40 members of the class.
64.
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 unsolicited 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.
65.
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.
66.
Plaintiff’s claims are typical of the claims of the class members. All are
based on the same factual and legal theories.
67.
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.
68.
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:
10
a.
Appropriate damages;
b.
An injunction against the further transmission of unsolicited fax
advertising;
c.
Costs of suit;
d.
Such other or further relief as the Court deems just and proper.
COUNT IV – PRIVATE NUISANCE
69.
Plaintiff incorporates ¶¶ 1-23.
70.
Defendants’ sending plaintiff and the class members unsolicited faxes was an
unreasonable invasion of the property of plaintiff and the class members and constitutes a private
nuisance.
71.
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).
72.
Defendants acted either intentionally or negligently in creating the nuisance.
73.
Plaintiff and each class member suffered damages as a result of receipt of the
unsolicited faxes.
74.
Defendants should be enjoined from continuing its nuisance.
CLASS ALLEGATIONS
75.
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 Gear
Medical, LLC, promoting its goods or services for sale (d) and which did not contain an opt out
notice as described in 47 U.S.C. §227.
76.
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.
77.
There are questions of law and fact common to the class that predominate over
11
any questions affecting only individual class members. The predominant common questions
include:
a.
Whether defendants engaged in a pattern of sending unsolicited 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.
78.
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.
79.
Plaintiff’s claims are typical of the claims of the class members. All are based on
the same factual and legal theories.
80.
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.
81.
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 unsolicited fax
12
advertising;
c.
Costs of suit;
d.
Such other or further relief as the Court deems just and proper.
COUNT V – TRESPASS TO CHATTELS
82.
Plaintiff incorporates ¶¶ 1-23.
83.
Plaintiff and the class members were entitled to possession of the equipment they
used to receive faxes.
84.
Defendants’ sending plaintiff and the class members unsolicited 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 unsolicited faxes),
vacated on jurisdictional grounds 131 F.3d 507 (5th Cir. 1997).
85.
Defendants acted either intentionally or negligently in engaging in such conduct.
86.
Plaintiff and each class member suffered damages as a result of receipt of the
unsolicited faxes.
87.
Defendants should be enjoined from continuing trespasses.
CLASS ALLEGATIONS
88.
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 Gear
Medical, LLC, promoting its goods or services for sale (d) and which did not contain an opt out
notice as described in 47 U.S.C. §227.
89.
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.
90.
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
13
include:
a.
Whether defendants engaged in a pattern of sending unsolicited 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.
91.
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.
92.
Plaintiff’s claims are typical of the claims of the class members. All are based on
the same factual and legal theories.
93.
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.
94.
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 unsolicited fax
advertising;
14
c.
Costs of suit;
d.
Such other or further relief as the Court deems just and proper.
/s/ Daniel A. Edelman
Daniel A. Edelman
Daniel A. Edelman
Michelle R. Teggelaar
Julie Clark
Heather A. Kolbus
EDELMAN, COMBS, LATTURNER & GOODWIN, LLC
120 S. LaSalle Street, 18th floor
Chicago, Illinois 60603
(312) 739-4200
(312) 419-0379 (FAX)
15
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)
16
| privacy |
meIkEYcBD5gMZwczwrTd | UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
_____________________________________________________________________________
JOSE AGEO LUNA VANEGAS,
on behalf of himself and all
others similarly situated,
Case No. 21-cv-54
Plaintiff,
COLLECTIVE ACTION
COMPLAINT PURSUANT TO
v.
29 U.S.C. §216(b)
SIGNET BUILDERS, INC.
Defendant.
______________________________________________________________________________
COMPLAINT
______________________________________________________________________________
PRELIMINARY STATEMENT
1. This is an action for damages and declaratory relief by a Mexican H-2A guest worker against
the employer for which he worked for a number of years between 2004 and 2019. Plaintiff
alleges that Defendant Signet Builders, Inc. violated his rights and the rights of other
similarly situated workers under the Fair Labor Standards Act, 29 U.S.C. §§ 201, et seq.
(“FLSA”).
2. Plaintiff Jose Ageo Luna Vanegas is a citizen of Mexico who was legally admitted to the
United States on a temporary basis pursuant to 8 U.S.C. § 1101(a)(15)(H)(ii)(a) to work for
Defendant building livestock confinement structures in several U.S. states for various years
between 2004 and 2019. In 2019, Plaintiff worked for Defendant in Wisconsin for
approximately three months and Indiana for approximately five months.
3. Defendant violated its obligations to Plaintiff, and all others similarly situated, under federal
law by failing to pay them overtime wages as required by the FLSA. Plaintiff, on behalf of
himself and all others similarly situated (“Prospective Class Members”), seeks recovery of
unpaid wages, liquidated damages, costs of litigation, and attorney’s fees.
JURISDICTION
4. This Court has jurisdiction over this action pursuant to 29 U.S.C. § 216, as this action arises
under the FLSA.
5. This Court has personal jurisdiction over Defendant Signet Builders, Inc. (“Signet”) because
Signet maintains continuous and systematic contacts with the state of Wisconsin. In 2019,
Signet employed Plaintiff at work sites near Lake Mills, Wisconsin and housed Plaintiff in
Whitewater, Wisconsin. During 2020, Signet conducted business and employed agricultural
guestworkers near Lake Mills.
6. This Court is empowered to grant declaratory relief pursuant to 28 U.S.C. §§ 2201 and 2202.
VENUE
7. Venue is proper in this district pursuant to 28 U.S.C. §§ 1391(b)(2)-(3) and (c)(2) because
many of the acts or omissions that give rise to Plaintiff’s claims occurred within this District,
and because Defendant is subject to the Court’s personal jurisdiction.
PARTIES
8. Plaintiff, Jose Ageo Luna Vanegas is a citizen and resident of Mexico. During the periods of
time relevant to this action, Plaintiff was admitted to the United States under the H-2A
temporary foreign worker visa program administered by the U.S. Department of Labor
pursuant to 8 U.S.C. § 1101(a)(15)(H)(ii)(a) to perform labor for Defendant. Workers
admitted into the United States on H-2A visas are commonly known as “H-2A workers.” In
this case, the labor was to be performed “[o]n farms,” with the workers employed to “unload
materials, lay out lumber, tin sheets, trusses, and other components for building livestock
confinement structures. Lift tin sheets to roof and sheet walls, install doors, and caulk
structure. Clean up job sites. Occasional use of forklift upon employer provided
certification.” Prospective Class Members are other H-2A workers who worked for the
Defendant during 2019 and 2020 constructing livestock buildings who were not paid at one
and one-half times their regular rate for hours worked in excess of 40 during a workweek.
Plaintiff’s signed Consent Form is attached to this Complaint as Exhibit A and is
incorporated herein by reference.
9. Defendant, Signet Builders, Inc. is a construction company in interstate commerce, providing
services to businesses in Wisconsin, Iowa, Indiana, and other U.S. states. Signet Builders,
Inc. conducts business in this District. Plaintiff and the other Prospective Class Members
worked with and handled materials that had moved in interstate commerce, including tin
sheets, lumber, and supplies. During both 2019 and 2020, Defendant’s enterprise had annual
gross volume of business done in excess of $500,000.
10. At all times relevant to this action, Defendant employed Plaintiff and Prospective Class
Members within the meaning of the FLSA, 29 U.S.C. § 203(d), and was their “employer”
within the meaning of 20 C.F.R. § 655.103(b).
FACTS
Defendant’s Participation in the H-2A Visa Program
11. An employer in the United States may import H-2A workers to perform agricultural labor or
services on a seasonal or temporary basis if the U.S. Department of Labor (“DOL”) certifies
that: (1) there are insufficient available workers within the United States to perform the job;
and (2) the employment of aliens will not adversely affect the wages and working conditions
of similarly situated U.S. workers. 8 U.S.C. §§ 1101(a)(15)(H)(ii)(a) and 1188(a)(1).
12. Employers seeking the admission of H-2A workers must first file an application for
temporary employment certification with the DOL. 20 C.F.R. § 655.130.
13. The temporary employment certification application must include a job offer, commonly
referred to as a “clearance order” or “job order,” that complies with applicable regulations
and is used in the recruitment of both U.S. and H-2A workers. 20 C.F.R. § 655.121(a)-(c).
The DOL’s regulations establish the minimum benefits, wages, and working conditions that
must be offered in order to avoid adversely affecting U.S. workers. 20 C.F.R. §§ 655.0(a)(2),
655.122 and 655.135. The temporary employment certification application and the clearance
order serve as the employment contract between the employer and the H-2A workers. 20
C.F.R. § 655.122(q).
14. During 2019 and 2020, Defendant, Signet filed various applications to employ temporary
foreign workers through the H-2A program to perform labor in a number of different U.S.
states.
15. Three of Signet’s employment certification applications sought admission of 20 workers to
provide labor at N5344 Crossman Road in Lake Mills, Wisconsin and County Road South C,
County Road A also in Lake Mills, Wisconsin from 1) March 15, 2019 to May 31, 2019; 2)
May 1, 2019 to January 15, 2020; and 3) May 31, 2019 to January 15, 2020. Plaintiff was
hired and employed pursuant to at least one of these temporary employment certifications.
16. Between 2019 and 2020, Defendants obtained over ninety separate employment
certifications, many with identical job descriptions, seeking admission of workers to
construct livestock confinement buildings at sites in various U.S. States including Wisconsin,
Iowa, Indiana, and other U.S. states. None of Defendant’s employment certification
applications involved activities to be performed on properties owned or controlled by Signet,
and none of the job descriptions involved having any contact with livestock on the farms.
Many of Defendant’s temporary employment certification applications and accompanying
clearance orders contained identical job descriptions and requirements: “[o]n farms, unload
materials, lay out lumber, tin sheets, trusses, and other components for building livestock
confinement structures. Lift tin sheets to roof and sheet walls, install doors, and caulk
structure. Clean up job sites. Occasional use of forklift upon employer provided
certification.” The remaining temporary employment certifications and accompanying
clearance orders contained substantially similar job descriptions.
17. Each of the clearance orders included with the temporary employment certification
applications described in Paragraphs 15 and 16 each contained a certification signed by
Defendant that the orders described the actual terms and conditions of employment and
contained all material terms and conditions of the job. These certifications are required by 20
C.F.R. § 653.501(c)(3)(viii).
18. After Defendant’s temporary employment certification applications described in Paragraphs
15 and 16 were approved by the DOL, the Defendant submitted Petitions for Non-immigrant
Workers (Form I-129) to U.S. Citizenship and Immigration Services of the Department of
Homeland Security, and once these were approved, the U.S. Consulate in Monterrey, Mexico
issued H-2A visas to fill the manpower needs described in the temporary employment
certification applications and the accompanying clearance orders.
Plaintiff’s Employment with Defendant
a. Plaintiff and Prospective Class Members Performed Non-Agricultural Work in
All Workweeks
19. Plaintiff and the Prospective Class Members were assigned job duties as described in
Signet’s temporary employment certifications and accompanying job orders. Consistent with
those job descriptions, Plaintiff and Prospective Class Members never had any contact with
the livestock being raised on the various farms where their construction work was performed.
20. During each workweek they worked for Defendant in 2019 or 2020, Plaintiff and Prospective
Class Members were employed exclusively in non-agricultural work within the meaning of
the FLSA, 29 U.S.C. §203(f). The work performed by Plaintiff and Prospective Class
Members, as described in Defendant’s clearance orders, was neither performed in the
employment of a farmer nor was it performed incidentally to--or in conjunction--with the
farming operations of any farmer.
b. Defendant Failed to Pay Overtime Wages
21. While employed by Defendant in 2019 or 2020, Plaintiff and Prospective Class Members
routinely worked more than 40 hours per week.
22. Although Plaintiff and Prospective Class Members performed exclusively non-agricultural
work, Defendant failed to pay Plaintiff and Prospective Class Members for their work hours
in excess of 40 per week at a rate not less than one and one-half times their regular rate, in
violation of the FLSA, 29 U.S.C. § 207 and 29 C.F.R. § 780. 11.
Collective Action Allegations
23. Plaintiff brings these claims on behalf of himself and all other similarly situated persons
pursuant to 29 U.S.C. § 216(b). The class of similarly situated individuals consists of all H-
2A workers employed by Defendant during 2019 or 2020 who were not paid at one and one-
half times their regular rate for hours worked in excess of 40 during a workweek.
24. Plaintiff and Prospective Class members all performed the same or substantially similar
construction job duties. These job duties were those set out in Signet’s numerous temporary
labor certifications, as described in Paragraphs 15 through 19.
25. During 2019, Defendant employed hundreds of H-2A workers, including Plaintiff, and
assigned them exclusively non-agricultural construction work at job sites in at least ten
different U.S. states. In 2020, Defendant also employed hundreds of H-2A workers to
perform non-agricultural construction labor. Defendant failed to pay Plaintiff and other
Prospective Class Members for their work hours in excess of 40 per week at a rate not less
than one and one-half times their regular rate, in violation of the FLSA, 29 U.S.C. § 207 and
29 C.F.R. § 780.11.
26. Pursuant to Section 216(b) of the FLSA, 29 U.S.C. § 216(b), Plaintiff seeks to prosecute his
FLSA claim as a collective action on behalf of all H-2A workers employed by Defendant
during 2019 or 2020 who were not paid at one and one-half times their regular rate for hours
worked in excess of 40 during a workweek. Notice of the pendency and any resolution of
this action can be provided to the members of the class by mail, print publication, radio,
internet publication, social media postings in H-2A Facebook groups, direct messages to
individuals via Facebook Messenger, Instagram and WhatsApp, and/or through
nongovernmental organizations based in the employees’ sending communities in Mexico.
CLAIM FOR RELIEF
FAILURE TO PAY OVERTIME WAGES
FAIR LABOR STANDARDS ACT (FLSA)
27. Defendant’s failure to pay overtime wages to Plaintiff and the Prospective Class Members
appears to be based on its belief that these workers’ labor was exempt from the FLSA’s
overtime requirements because of the so-called agricultural exemption, 29 U.S.C.
§213(b)(12). To qualify for the agricultural exemption, an employer must demonstrate that
the worker’s employment falls within the definition of agriculture in Section 203(f): “any
practices performed by a farmer or on a farm as an incident to or in conjunction with such
farming operations, including preparation for market, delivery to storage or to market or to
carriers for transportation to market.”
28. The work of Plaintiff and Prospective Class Members consisted exclusively of constructing
livestock confinement buildings as described in Defendant, Signet’s temporary employment
certification applications and accompanying clearance orders. Plaintiff and Potential Class
Members had no contact with the livestock at the farms on which those buildings were
constructed, none of which were owned or operated by Signet. As such, their work did not
fall within the agricultural exemption to the FLSA’s overtime requirements, 29 U.S.C.
§213(b)(12)
29. In 2019 and 2020, the work performed by Plaintiff and Prospective Class Members in each
and every workweek was comprised of non-agricultural work that was not exempt from the
overtime hours provisions of the FLSA.
30. Defendant violated the FLSA overtime hours provisions, 29 U.S.C. § 207, by failing to pay
Plaintiff and Prospective Class Members at one- and- one- half times their regular rate of pay
for their hours worked in excess of 40 in all workweeks in 2019 and 2020, as described in
Paragraphs 20 through 22.
31. As a consequence of Defendant’s violations of the FLSA, Plaintiff and Prospective Class
Members are entitled to recover their unpaid overtime wages; an equal amount in liquidated
damages; costs of suit and reasonable attorney’s fees pursuant to 29 U.S.C. § 216(b).
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays that this Court:
(a) Allow this action to proceed as a collective action pursuant to 29 U.S.C. §216(b) for all
H-2A workers employed by Defendant in 2019 or 2020;
(b) Order that notice of the lawsuit be issued in an effective manner to the members of the
putative class described in Paragraph 23 so that similarly-situated employees may
promptly file consent forms and join this action;
(c) Declare that Defendant has violated the overtime provisions of the Fair Labor Standards
Act, 29 U.S.C. § 207, as set forth in Paragraphs 22 and 30;
(d) Enter judgment in favor of Plaintiff and against Defendant on his FLSA overtime wage
claims;
(e) Award Plaintiff his unpaid overtime wages, an equal amount in liquidated damages, costs
of court, and attorney’s fees;
(f) Grant judgment in favor of those similarly situated who consent to join this action on
their FLSA claims and award each of them the amount of his unpaid overtime wages,
along with an equal amount as liquidated damages;
(g) Award Plaintiff his costs incurred in this action;
(h) Award reasonable attorney’s fees; and
(i) Grant such further relief as this Court deems just and appropriate.
Dated this 26th day of January 2021.
Respectfully submitted,
By: s/Jennifer J. Zimmermann
Jennifer J. Zimmermann
One of Plaintiff’s Attorneys
Jennifer J. Zimmermann, WI Bar No. 1067828
jjz@legalaction.org
Erica Sweitzer-Beckman, WI Bar No. 1071961
elb@legalaction.org
LEGAL ACTION OF WISCONSIN
744 Williamson Street, Suite 200
Madison, WI 53703
Tel: 608-256-3304
Fax: 608-256-0510
Attorneys for Plaintiff
| employment & labor |
BKolCocBD5gMZwczmFNe | Mark L. Javitch* (CA SBN 323729)
210 S Ellsworth Ave #486
San Mateo, CA 94401
Telephone: 402-301-5544
Facsimile: 402-396-7131
javitchm@gmail.com
Attorney for Plaintiff and the Class
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN JOSE DIVISION
BRIAN SCHLESINGER, individually and on
behalf of all others similarly situated
Plaintiff,
Case No.: 5:19-cv-02147
CLASS ACTION COMPLAINT
JURY TRIAL DEMANDED
WORLD WIDE MEDICAL INC., a Florida
corporation, JOHN C GARCIA, an individual,
JOSHUA COLLINS, an individual, d/b/a/
XPRESSCAPITALGROUP.COM,
Defendants.
CLASS ACTION COMPLAINT
1.
Plaintiff BRIAN SCHLESINGER (“Plaintiff”) brings this Class Action Complaint and
Demand for Jury Trial against Defendant WORLD WIDE MEDICAL, INC., Defendant JOHN C
GARCIA, and Defendant JOSHUA COLLINS d/b/a XPRESSCAPITALGROUP.COM (together,
“Defendants”) to stop their illegal practice of making unauthorized calls that play prerecorded voice
messages to the cellular telephones of consumers nationwide, and to obtain redress for all persons
injured by their conduct. 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.
1
NATURE OF THE ACTION
2.
Defendants sell medical braces and business capital loans. As a primary part of their
marketing efforts, Defendants and their agents place thousands of automated calls employing a
prerecorded voice message to consumers’ cell phones nationwide.
3.
Unfortunately, Defendants do not obtain consent prior to placing these calls and,
therefore, are in violation of the Telephone Consumer Protection Act (“TCPA”), 47 U.S.C. § 227.
4.
Congress enacted the TCPA in 1991 to restrict the use of sophisticated telemarketing
equipment that could target millions of consumers en masse. Congress found that these calls were not
only a nuisance and an invasion of privacy to consumers specifically but were also a threat to interstate
commerce generally. See S. Rep. No. 102-178, at 2-3 (1991), as reprinted in 1991 U.S.C.C.A.N. 1968,
1969-71.
5.
The TCPA targets unauthorized calls exactly like the ones alleged in this case, based on
Defendants’ use of technological equipment to spam consumers with its advertising on a grand scale.
6.
The California Legal Remedies Act also outlaws calling and playing a prerecorded voice
message without permission. Cal. Civ. Code §1770(a)(22)(A) (“CLRA”).
7.
By placing the calls at issue, Defendants have violated the privacy and statutory rights of
Plaintiff and the Class.
8.
Plaintiff therefore seeks an injunction requiring Defendants to stop its unconsented
calling, as well as an award of actual and statutory fines to the Class members, together with costs and
reasonable attorneys’ fees.
PARTIES
9.
Plaintiff BRIAN SCHLESINGER is a natural person and is a citizen of the Northern
District of California.
10.
Defendant WORLD WIDE MEDICAL SERVICES, INC (“Defendant Worldwide”) is a
corporation organizing and existing under the laws of the State of Florida with its principal place of
business at 8508 Benjamin Road, Suite D, Tampa, Hillsborough County, Florida 33634.
2
11.
Defendant JOHN C GARCIA (“Defendant GARCIA”) is a natural person. Defendant
GARCIA is CEO of Defendant Worldwide and is responsible for all allegations involving Defendant
Worldwide herein.
12.
Defendant JOSHUA COLLINS (“Defendant Collins”) is a natural person. Upon
information and belief, Defendant Collins operates a sole proprietorship or unincorporated business
entity called Xpress Capital Group, which maintains a website at xpresscapitalgroup.com.
JURISDICTION AND VENUE
13.
This Court has federal subject matter jurisdiction under 28 U.S.C. §1331, as the action
arises under the Telephone Consumer Protection Act, 47 U.S.C. §227, which is a federal statute.
14.
This Court has personal jurisdiction over Defendants because they conduct business in
this District and in the State of California and because the events giving rise to this lawsuit occurred in
this District.
15.
Venue is proper in this District pursuant to 28 U.S.C. §1391(b) because Defendants
regularly conduct business in the State of California and in this District, and because the wrongful
conduct giving rise to this case occurred in this District.
COMMON FACTUAL ALLEGATIONS
16.
Defendant Worldwide sells medical braces under the name of Brace Doctor.
17.
Defendant Collins sells access to business capital.
18.
To increase their sales and avoid paying for legitimate forms of advertising, Defendants
repeatedly called and sent prerecorded voice messages to thousands or possibly tens of thousands of
cell phones at once.
19.
When the Class members answered their cell phones or listened to their messages
expecting to hear from a real person, Defendants pulled a bait and switch by playing a prerecorded
voice message.
20.
Unfortunately, Defendants failed to obtain consent from Plaintiff and the Class before
bombarding their cell phones with these illegal voice recordings.
3
FACTS SPECIFIC TO PLAINTIFF
21.
On the morning of March 20, 2019, Plaintiff received a call from Defendant Worldwide
and/or its agents.
22.
When Plaintiff answered, he heard a prerecorded voice advertising Defendants’ medical
braces.
23.
Plaintiff responded to the prompts on the call and Plaintiff was connected to Defendants.
24.
On the April 11, 2019, Plaintiff received a call from 813-906-5219.
25.
When Plaintiff answered the call, he heard a prerecorded voice message.
26.
Plaintiff was connected to a company operated by Defendant Collins and/or its agents.
27.
Defendant Collins and/or his agents emailed him an application from a website operated
by Defendant Collins at www.xpresscapitalgroup.com.
28.
Plaintiff never consented to receive calls from Defendants. Plaintiff has no relationship
with Defendants and has never requested that Defendants contact him in any manner.
29.
Defendants’ calls violated Plaintiff’s statutory rights and his right to privacy.
CLASS ALLEGATIONS
30.
Class Definition: Plaintiff SCHLESINGER brings this action pursuant to Federal Rule of
Civil Procedure 23(b)(3) on behalf of himself and the following classes as defined as follows:
No Consent Class. All persons in the United States who: (1) from the last 4
years to present (2) received at least one telephone call; (3) on his or her cellular
telephone; (4) that was called using an autodialer and/or played a prerecorded
voice message; (5) for the purpose of selling Defendants’ products and/or
services; (6) where Defendants did not have any record of prior express written
consent to place such call at the time it was made.
California Subclass. All persons in California who: (1) from the last 4 years
to present (2) received at least one telephone call; (3) on his or her cellular
telephone; (4) that was called using a prerecorded voice; (5) for the purpose of
4
selling Defendants’ products and/or services; (6) where Defendants did not
have any record of prior express written consent to place such call at the time it
was made.
31.
The following people are excluded from the Classes: (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 the Defendants or their parents have a
controlling interest and its current or former employees, officers and directors; (3) persons who
properly execute and file a timely request for exclusion from the Classes; (4) persons whose claims in
this matter have been finally adjudicated on the merits or otherwise released; (5) Plaintiff’s counsel and
Defendants’ counsel; and (6) the legal representatives, successors, and assigns of any such excluded
persons.
32.
Numerosity: The exact number of the Class members is unknown and not available to
Plaintiff, but it is clear that individual joinder is impracticable. On information and belief, Defendants
placed telephone calls to thousands of consumers who fall into the definition of the Class. Members of
the Class can be identified through Defendants’ records.
33.
Typicality: Plaintiff’s claims are typical of the claims of other members of the Class, in
that Plaintiff and the Class members sustained damages arising out of Defendants’ uniform wrongful
conduct and unsolicited telephone calls.
34.
Adequate Representation: Plaintiff will fairly and adequately represent and protect the
interests of the other members of the Class. Plaintiff’s claims are made in a representative capacity on
behalf of the other members of the Class. Plaintiff has no interests antagonistic to the interests of the
other members of the proposed Class and is subject to no unique defenses. Plaintiff has retained
competent counsel to prosecute the case on behalf of Plaintiff and the proposed Class. Plaintiff and his
counsel are committed to vigorously prosecuting this action on behalf of the members of the Class and
have the financial resources to do so.
35.
Policies Generally Applicable to the Class: This class action is appropriate for
certification because Defendants have acted or refused to act on grounds generally applicable to the
Class as a whole, thereby requiring the Court’s imposition of uniform relief to ensure compatible
standards of conduct toward the Class members and making final injunctive relief appropriate with
5
respect to the Class as a whole. Defendants’ practices challenged herein apply to and affect the Class
members uniformly, and Plaintiff’s challenge of those practices hinge on Defendants’ conduct with
respect to the Class as a whole, not on facts or law applicable only to Plaintiff.
36.
Commonality and Predominance: 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. Common questions for the Class include, but are not
necessarily limited to the following:
i.
Whether Defendants’ conduct violated the TCPA;
ii.
Whether Defendants’ conduct violated the CLRA;
iii.
Whether Defendants obtained prior written consent prior to contacting any members of
the Class;
iv.
Whether members of the Class are entitled to treble damages based on the knowingness
or willfulness of Defendants’ conduct.
37.
Superiority: 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 as joinder of all parties is impracticable. The damages suffered by the individual members
of the Class will likely be relatively small, especially given the burden and expense of individual
prosecution of the complex litigation necessitated by Defendants’ actions. Thus, it would be virtually
impossible for the individual members of the Class to obtain effective relief from Defendants’
misconduct. Even if members of the Class 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. 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 47 U.S.C. § 227
(On behalf of Plaintiff and the No Consent Class)
38.
Plaintiff incorporates the foregoing allegations as if fully set forth herein.
6
39.
Defendants and/or its agent placed telephone calls to Plaintiff’s and the Class members’
cellular telephones without having their prior express written consent to do so.
40.
Defendants’ calls were made for a commercial purpose.
41.
Defendants played a prerecorded voice message to the cell phones of Plaintiff and the
Class members as proscribed by 47 U.S.C. § 227(b)(1)(A)(iii).
42.
As a result of its unlawful conduct, Defendants repeatedly invaded Plaintiff’s and the
Class’s personal privacy, causing them to suffer damages and, under 47 U.S.C. § 227(b)(3)(B), entitling
them to recover $500 in civil fines for each violation and an injunction requiring Defendants to stop
their illegal calling campaign.
43.
Defendants and/or its agent made the violating calls “willfully” and/or “knowingly” under
47 U.S.C. § 227(b)(3)(C).
44.
If the court finds that Defendants willfully and/or knowingly violated this subsection, the
court may increase the civil fine from $500 to $1500 per violation under 47 U.S.C. § 227(b).
SECOND CAUSE OF ACTION
Violation of Cal. Civ. Code §1770(a)(22)(A)
(On behalf of Plaintiff and the California Subclass)
45.
Plaintiff incorporates the foregoing allegations as if fully set forth herein.
46.
Defendants and/or its agent placed telephone calls to Plaintiff’s and the Class members’
cellular telephones without having their prior express written consent to do so.
47.
Defendants’ calls were made for a commercial purpose.
48.
Defendants played a prerecorded voice message to the cell phones of Plaintiff and the
California Subclass members as proscribed by Cal. Civ. Code §1770(a)(22)(A).
49.
As a result of its unlawful conduct, Defendants repeatedly invaded Plaintiff’s and the
Class’s personal privacy, entitling them to recover damages, attorney’s fees, and an injunction requiring
Defendants to stop their illegal calling campaign.
7
PRAYER FOR RELIEF
WHEREFORE, Plaintiff BRIAN SCHLESINGER, individually and on behalf of the Class, prays for
the following relief:
A.
An order certifying the Class as defined above, appointing Plaintiff BRIAN
SCHLESINGER as the Class representative and appointing his counsel as Class Counsel;
B.
An order declaring that Defendants’ actions, as set out above, violate the TCPA;
C.
An order declaring that Defendants’ actions, as set out above, violate the TCPA willfully
and knowingly;
D.
An order declaring that Defendants’ actions, as set out above, violate the CLRA;
E.
An injunction requiring Defendants to cease all unlawful calls without first obtaining the
call recipients’ prior express written consent to receive such calls, and otherwise
protecting interests of the Class;
F.
An award of actual damages and/or statutory fines and penalties;
G.
An award of reasonable attorneys’ fees and costs; and
H.
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.
Dated: April 20, 2019
Respectfully submitted,
BRIAN SCHLESINGER, individually and on
behalf of all others similarly situated,
By: /s/ Mark L. Javitch .
Plaintiff’s Attorney
Mark L. Javitch (California SBN 323729)*
Mark L. Javitch, Attorney at Law
210 S. Ellsworth Ave #486
8
San Mateo CA 94401
Tel: 402-301-5544
Fax: 402-396-7131
Attorney for Plaintiff and the Putative Class
9
| privacy |
mrjcC4cBD5gMZwczyiQP | UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
ERIC JONES, on behalf of
himself and on behalf of all others
similarly-situated,
Plaintiff,
v.
CASE NO.:
SCRIBE OPCO, INC.
d/b/a BIC GRAPHIC,
Defendant.
____________________________________/
CLASS ACTION COMPLAINT
(JURY TRIAL DEMANDED)
Named Plaintiff, Eric Jones, files this Class Action Complaint against Defendant Scribe
Opco, Inc. d/b/a Bic Graphic (“Defendant”) on behalf of himself and all others similarly-
situated. In sum, Defendant violated the Worker Adjustment and Retraining Notification Act,
29 U.S.C. § 2101 et seq. (the “WARN Act”) by terminating the Named Plaintiff and the
putative class members he seeks to represent without providing sufficient advance written
notice as required by the WARN Act. In further support thereof, the Named Plaintiff alleges
as follows:
NATURE OF THE ACTION
1.
This action seeks to recover back pay and benefits under the WARN Act to
redress a common course of conduct by Defendant which resulted in the termination of
hundreds of employees as part of a series of mass layoffs without proper legal notice.
2.
Defendant’s mass layoffs deprived the Named Plaintiff and the Putative Class
Members “…and their families [of] some transition time to adjust to the prospective loss of
employment, to seek and obtain alternative jobs and, if necessary, to enter skill training or
retraining that will allow these workers to successfully compete in the job market.” 20 C.F.R.
§ 639.1(a).
3.
Defendant failed to provide the Named Plaintiff and the Putative Class
Members with the advance written notice that is required by the WARN Act.
4.
Due to COVID-19, Defendant will likely claim exemption from this
requirement under the “unforeseeable business circumstance” exception of the WARN Act.
5.
Under that exception, “[a]n employer may order a plant closing or mass layoff
before the conclusion of the 60-day period if the closing or mass layoff is caused by business
circumstances that were not reasonably foreseeable as of the time that notice would have been
required.” 29 U.S.C. § 2102(b)(2)(A).
6.
However, Defendant was still mandated by the WARN Act to give the Named
Plaintiff and the putative class members “give as much notice as is practicable.” It failed to do
so here, giving Named Plaintiff no advance written notice of his termination whatsoever.
7.
The crucial date under the WARN Act is not the date when the company knows
that a mass layoff is imminent, nor is it the date when the company finally gets around to
identifying the exact employees affected by the mass layoff. Rather, the WARN Act states
plainly that the trigger date is the date when a mass layoff is “reasonably foreseeable.”
8.
As soon as it is probable that a mass layoff will occur, the employer must
provide notice as soon as is practicable. Here, upon information and belief, Defendant likely
knew near the end of March (as evidenced by the March 26 large-scale furlough discussed
below), or in very early April, that a mass layoff was “reasonably foreseeable.”
9.
Despite all of this, rather than notifying Plaintiff and the putative class members
that the mass layoff was reasonably foreseeable, from March 26 through November 20, 2020
Defendant led Plaintiff and the putative class members to believe they would soon return to
work.
10.
This, in turn, caused the Named Plaintiff not to seek other employment as he
erroneously assumed he would be brought back to work. The same is true for other putative
class members. But, instead of returning to work, they were fired with zero days’ notice.
JURISDICTION AND VENUE
11.
This Court has jurisdiction pursuant to 28 U.S.C. § 1331, as well as 29 U.S.C.
§§ 2102, 2104(a)(5).
12.
Venue in this District is proper under 28 U.S.C. §1391(b) and (c), and Section
2104 of the WARN Act, 29 U.S.C. § 2104(a)(5).
THE NAMED PLAINTIFF
13.
Named Plaintiff Eric Jones worked for Defendant for over 16 years before he
was abruptly terminated. He last worked for Defendant at its facility located 14421 Myerlake
Circle, Clearwater, Florida, 33760.
14.
Plaintiff was furloughed on March 26, 2020, along with in excess of 100 other
full-time employees of Defendant.
15.
From March 26, 2020 through November 20, 2020 Plaintiff was told by
Defendant he and the furloughed employees would be brought back to work.
16.
However, that did not happen. Instead, on November 20, 2020, Plaintiff and
the putative class members were told in writing for the first time they would be terminated
effective November 20, 2020.
17.
More specifically, on November 20, 2020, Named Plaintiff received a deficient
written notice from the Defendant terminating his employment.
18.
That notice failed to comport with the WARN Act’s notice requirements
mandated by 20 CFR § 639.7. For example, it failed to include “the name and address of the
employment site where the plant closing or mass layoff will occur.”
19.
Not only that, the notice fails to include a specific “…statement as to whether
the planned action is expected to be permanent or temporary and, if the entire plant is to be
closed, a statement to that effect.” And, it fails to include “[t]he job titles of positions to be
affected and the names of the workers currently holding affected jobs.”
20.
Thus, to date, Plaintiff and the putative class members have still not received a
WARN notice that complies with 20 CFR § 639.7.
21.
Defendant’s decision to terminate Plaintiff was devastating as he had worked
for Defendant for nearly two decades. And, while he understood that the ongoing pandemic
was causing problems for the company, he both expected was entitled to sufficient advance
written notice as to his termination.
22.
The written notice she received on November 20, 2020, simply was not as much
notice as practicable under the circumstances.
THE DEFENDANT
23.
Defendant is an employer as defined by 20 CFR § 639.3, because it employees,
or employed, 100 or more employees, including part-time employees, who in the aggregate
work at least 4,000 hours per week, exclusive of hours of overtime.
PUTATIVE CLASSES DEFINED
24.
The Named Plaintiff and the other Class members were employees of
Defendant who were terminated without cause on their part on or about November 20, 2020,
as part of or as the reasonably expected consequence of a mass layoff, which was effectuated
by Defendant on or about that date.
25.
Defendant failed to give the Named Plaintiff and the putative class members as
much advance written notice as practicable under the circumstances.
26.
In violation of the WARN Act, Defendant failed to provide as much written
notice as was practicable under the circumstance surrounding the COVID-19 pandemic.
27.
Defendant could have but failed to evaluate the impact of COVID-19 upon its
employees in the critical months and weeks leading up to the mass layoffs.
28.
Moreover, the fact that Congress recently made available to Defendant and
many other businesses nationwide millions of dollars in forgivable loans through the
“Paycheck Protection Program,” but Defendant still opted to instead in a mass layoff -- and
do so without sufficient advance written notice to its employees -- only further highlights the
WARN Act violations committed by Defendant .
29.
Not only that, once the Named Plaintiff and the putative class members were
furloughed by Defendant in late March of 2020 they were no longer being paid their salaries.
30.
Thus, while they were furloughed Defendant could have easily provided the
Named Plaintiff and the hundreds of putative class with the required 60 days’ advance written
notice required by the WARN Act because they were not being paid while furloughed.
31.
Defendant’s failure to provide its employees with sufficient advance written
notice had a devastating economic impact on the Named Plaintiff and the putative class
members.
32.
As a consequence, the Named Plaintiff and the putative class members are
entitled under the WARN Act to recover from the Defendant their respective compensation
and benefits for 60 days, no part of which has been paid.
33.
Specifically, the Named Plaintiff seeks to certify the following national class:
WARN Act Class:
All former employees who worked for Defendant who were not
given a minimum of 60 days’ written notice of termination and
whose employment was terminated on or about November 20, 2020,
as a result of a “mass layoff” or “plant closing” as defined by the
Workers Adjustment and Retraining Notification Act of 1988.
THE WARN ACT CLAIM AND CLASS ALLEGATIONS
34.
At all relevant times, the two Defendant each employed 100 or more
employees, exclusive of part-time employees, i.e., those employees who had worked fewer
than 6 of the 12 months prior to the date notice was required to be given or who had worked
fewer than an average of 20 hours per week during the 90 day period prior to the date notice
was required to be given (the “part-time employees”), and each employed 100 or more
employees who in the aggregate worked at least 4,000 hours per week exclusive of hours of
overtime within the United States.
35.
The termination on November 20, 2020, of the Named Plaintiff and the putative
class members resulted in the loss of employment for at least 50 employees, excluding part-
time employees, at each of the facilities at issue.
36.
Specifically, Named Plaintiff worked 14421 Myerlake Circle, Clearwater,
Florida, 33760, where approximately 100-200 people were laid off.
37.
The terminations on November 20, 2020 of the employment of persons who
worked at these facilities, or as the reasonably foreseeable consequence of those terminations,
resulted in the loss of employment for at least 33% of the facilities’ respective employees,
excluding part-time employees.
38.
The Named Plaintiff and the putative class members were discharged without
cause on their part on or about November 20, or thereafter, as the reasonably expected
consequence of the terminations that occurred on that date.
39.
The Named Plaintiff and the putative class members experienced an
employment loss as part of, or as the reasonably expected consequence of, the mass layoffs
which occurred on or about November 20, 2020.
40.
Prior to their terminations, the Named Plaintiff and the putative class members
did not receive written notice at least 60 days in advance of the termination of their
employment. Nor did they receive as much notice as practicable under the circumstances.
41.
The Named Plaintiff and the putative class members constitute a class, or
classes, within the meaning of Rules 23(a) and (b)(3) of the Federal Rules of Civil Procedure.
42.
Each of the putative class members is similarly-situated to the Named Plaintiff
with respect to his or her rights under the WARN Act.
43.
Common questions of law and fact are applicable to the Named Plaintiff and
the putative class members.
44.
The common questions of law and fact arise from and concern the following
facts, among others: that all Class members enjoyed the protection of the WARN Act; that all
Class members were employees of the Defendant; that the Defendant terminated the
employment of all the members of the Class without cause on their part; that the Defendant
terminated the employment of the members of the Class without giving them at least 60 days’
prior written notice as required by the WARN Act; that the Defendant failed to pay the Class
members wages and to provide other employee benefits for a 60-day period following their
respective terminations; and on information and belief, the issues raised by any affirmative
defenses that may be asserted by the Defendant.
45.
The Named Plaintiff’s claims are typical of the claims of the other members of
the Class in that for each of the several acts of Defendant described above, the Named Plaintiff
and the other Class members are injured parties with respect to his/her rights under the WARN
Act.
46.
The Named Plaintiff will fairly and adequately protect and represent the
interests of the Class.
47.
The Named Plaintiff has the time and her counsel the resources to prosecute
this action.
48.
The Named Plaintiff retained the undersigned counsel who have had extensive
experience litigating WARN Act claims, employee rights’ claims and other claims in Federal
court.
49.
The Classes identified herein are so numerous as to render joinder of all
members impracticable in that there are hundreds, if not thousands, of members of the national
class. There are also likely hundreds of members of the putative class.
50.
The questions of law and fact common to the members of the Classes
predominate over any questions affecting only individual members.
51.
A class action is superior to other available methods for the fair and efficient
adjudication of this controversy.
52.
No Class member has an interest in individually controlling the prosecution of
a separate action under the WARN Act.
53.
No other litigation concerning the WARN Act rights of any Class member has
been commenced.
54.
Concentrating all the potential litigation concerning the WARN Act rights of
the Class members in this Court will avoid a multiplicity of suits, will conserve judicial
resources and the resources of the parties, and is the most efficient means of resolving the
WARN Act rights of all the Class members.
55.
On information and belief, the names of all the Class members are contained in
Defendant’s books and records.
56.
On information and belief, a recent residence address of each of the Class
members is contained in Defendant’s books and records.
57.
On information and belief, the rate of pay and the benefits that were being paid
or provided by Defendant to each Class member at the time of his or her termination are
contained in Defendant’s books and records.
58.
Defendant failed to pay the Named Plaintiff and the other Class members for
the Defendant’s violation of the WARN Act in an amount equal to the sum of or any part of
the sum of (a) their respective wages, salary, commissions, bonuses and accrued pay for
vacation and personal days for the work days in the 60 calendar days prior to their respective
terminations and fringe benefits for 60 calendar days prior to their respective terminations; and
(b) their medical expenses incurred during the 60 calendar days from and after the date of
his/her termination that would have been covered under the Defendant ’ benefit plans had those
plans remained in effect.
59.
The Named Plaintiff hereby demands a jury trial of all issues that may be so
tried.
WHEREFORE, the Named Plaintiff demands judgment as follows:
A.
In favor of the Named Plaintiff and each other Class member against the
Defendant equal to the sum of: (a) wages, salary, commissions, bonuses, accrued pay for
vacation and personal days, for 60 days; (b) pension, 401(k) contributions, health and medical
insurance and other fringe benefits for 60 days; and (c) medical expenses incurred during the
60 day period following their respective terminations that would have been covered and paid
under the Defendant ’ health insurance plans had coverage under that plan continued for such
period, all determined in accordance with the WARN Act, 29 U.S.C. § 2104 (a)(1)(A).
B.
Appointment of the Named Plaintiff as Class Representative;
C.
Appointment of the undersigned as Class Counsel;
D.
In favor of the Named Plaintiff for their reasonable attorneys’ fees and the costs
and disbursements of prosecuting this action, as authorized by the WARN Act, 29 U.S.C. §
2104 (a)(6).
E.
Interest allowed by law;
F.
Such other and further relief as this Court deems just and proper.
Dated this 9th day of December, 2020.
Respectfully submitted,
/s/Brandon J. Hill
LUIS A. CABASSA
Florida Bar Number: 053643
Direct No.: 813-379-2565
BRANDON J. HILL
Florida Bar Number: 37061
Direct No.: 813-337-7992
WENZEL FENTON CABASSA, P.A.
1110 North Florida Ave., Suite 300
Tampa, Florida 33602
Main No.: 813-224-0431
Facsimile: 813-229-8712
Email: lcabassa@wfclaw.com
Email: bhill@wfclaw.com
Attorneys for Plaintiffs
and
CHAD A. JUSTICE
Florida Bar Number: 121559
JUSTICE FOR JUSTICE LLC
1205 N Franklin St., Suite 326
Tampa, Florida 33602
Direct No. 813-566-0550
Facsimile: 813-566-0770
E-mail: chad@getjusticeforjustice.com
Co-counsel for Plaintiffs
| employment & labor |
HEP9_IgBF5pVm5zYVFGY | IN THE UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
Civil Action No.
WELFARE PLAN OF THE
INTERNATIONAL UNION OF
OPERATING ENGINEERS LOCALS 137,
137A, 137B, 137C, 137R, on behalf of itself
and those similarly situated,
CLASS ACTION COMPLAINT
Plaintiff,
Jury Trial Demanded
v.
AMARIN PHARMA, INC., AMARIN
PHARMACEUTICALS IRELAND
LIMITED, AMARIN CORPORATION PLC,
Defendants.
TABLE OF CONTENTS
Page
ACRONYMS ................................................................................................................................................. VII
I.
INTRODUCTION ............................................................................................................................ 1
II.
JURISDICTION AND VENUE .................................................................................................... 2
III.
THE PARTIES .................................................................................................................................. 3
A.
Plaintiff .................................................................................................................................... 3
B.
Defendants .............................................................................................................................. 4
IV.
INTERSTATE TRADE AND COMMERCE ........................................................................... 4
V.
REGULATORY FRAMEWORK ................................................................................................. 5
A.
The regulatory structure for approval and substitution of generic
drugs flows from the FDCA and the FDA and intersects with the
patent framework. ................................................................................................................. 5
1.
Congress designed the Hatch-Waxman Amendments to
the FDCA to encourage and hasten generic entry and
reduce healthcare costs. ......................................................................................... 6
2.
The FDA may grant regulatory exclusivities for new
drugs but those exclusivities do not necessarily bar
generic entry. ............................................................................................................ 7
3.
The first ANDA filer to issue a paragraph IV certification
is entitled, once approved, to 180 days as the only ANDA
generic on the market. ............................................................................................ 9
4.
Section viii carveouts and labeling can enable generics to
lawfully enter the market. ...................................................................................11
5.
Patents are not bulletproof. ................................................................................12
6.
Development and sale of a drug’s active pharmaceutical
ingredient is a lengthy and highly regulated process. ..................................14
B.
AB-rated generics drive down prices for purchasers, quickly and
dramatically. .........................................................................................................................15
1.
The first AB-rated generic is priced below the brand,
driving sales to the generic. ................................................................................16
2.
Later generics drive prices down further. .......................................................17
VI.
FACTS ................................................................................................................................................19
A.
Amarin launches Vascepa in 2013. ..................................................................................19
B.
Amarin engages in—and loses—patent litigation over Vascepa. ............................21
1.
Amarin files, and loses, patent ligation against generic
competitors. ............................................................................................................21
2.
Amarin settles with Teva and Apotex, significantly
delaying the date of their generic launch. ........................................................24
C.
Generic competitors obtain the regulatory approvals needed to
launch in mid-2020. ............................................................................................................25
D.
Amarin impedes generic competition for Vascepa through
anticompetitive API agreements. ....................................................................................26
1.
Amarin uses exclusive licenses to tie up API supply. ...................................26
2.
Amarin’s anticompetitive conduct handicaps Hikma’s
launch of generic Vascepa. ...................................................................................34
3.
Amarin’s anticompetitive conduct thwarts DRL’s launch
of generic Vascepa. ................................................................................................35
4.
Amarin sues Hikma for induced infringement. ..............................................36
VII.
AMARIN’S MONOPOLY POWER ...........................................................................................37
VIII.
ANTITRUST INJURY ..................................................................................................................40
IX.
CLASS ACTION ALLEGATIONS .............................................................................................41
X.
FEDERAL CLAIMS FOR RELIEF ...........................................................................................43
COUNT ONE: VIOLATION OF 15 U.S.C. § 1 CONTRACT,
COMBINATION, OR CONSPIRACY IN RESTRAINT OF TRADE .............................43
COUNT TWO: VIOLATION OF 15 U.S.C. § 2 UNLAWFUL
MONOPOLIZATION ....................................................................................................................45
COUNT THREE: DECLARATORY AND INJUNCTIVE RELIEF
UNDER SECTION 2 OF THE SHERMAN ACT .................................................................46
XI.
VIOLATIONS OF STATE ANTITRUST LAWS .................................................................48
COUNT FOUR: VIOLATION OF ARIZONA’S UNIFORM STATE
ANTITRUST ACT, ARIZ. REV. STAT. § 44-1401, ET SEQ. ...........................................49
COUNT FIVE: VIOLATION OF THE DISTRICT OF COLUMBIA
ANTITRUST ACT, D.C. CODE § 28-4501, ET SEQ. ..........................................................49
COUNT SIX: VIOLATION OF THE ILLINOIS ANTITRUST ACT,
740 ILL. COMP. STAT. ANN. 10/3(1), ET SEQ. ..................................................................50
COUNT SEVEN: VIOLATION OF THE IOWA COMPETITION
LAW IOWA CODE § 553.1, ET SEQ........................................................................................51
COUNT EIGHT: VIOLATION OF MAINE’S ANTITRUST
STATUTE ME. REV. STAT. ANN. TIT. 10 § 1101, ET SEQ. .........................................52
COUNT NINE: VIOLATION OF MARYLAND’S ANTITRUST
STATUTE MD. CODE ANN. § 11-204(A), ET SEQ. ...........................................................53
COUNT TEN: VIOLATION OF MASSACHUSETTS MASS. GEN.
LAWS CH. 93A, §1, ET SEQ. .......................................................................................................54
COUNT ELEVEN: VIOLATION OF THE MICHIGAN ANTITRUST
REFORM ACT MICH. COMP. LAWS § 445.771, ET SEQ. ..............................................55
COUNT TWELVE: VIOLATION OF THE MINNESOTA
ANTITRUST LAW, MINN. STAT. §§ 325D.49 ET SEQ. & 325D.57,
ET SEQ...............................................................................................................................................56
COUNT THIRTEEN: VIOLATION OF THE MISSISSIPPI
ANTITRUST STATUTE, MISS. CODE ANN. § 75-21-1, ET SEQ. ...............................57
COUNT FOURTEEN: VIOLATION OF THE MISSOURI
MERCHANDISING PRACTICES ACT, MO. ANN. STAT. § 407.010,
ET SEQ...............................................................................................................................................58
COUNT FIFTEEN: VIOLATION OF THE NEBRASKA JUNKIN
ACT, NEB. REV. STAT. § 59-801, ET SEQ. ...........................................................................59
COUNT SIXTEEN: VIOLATION OF THE NEVADA UNFAIR
TRADE PRACTICES ACT, NEV. REV. STAT. § 598A.010, ET SEQ............................59
COUNT SEVENTEEN: VIOLATION OF NEW HAMPSHIRE’S
ANTITRUST STATUTE, N.H. REV. STAT. ANN. TIT. XXXI, § 356,
ET SEQ...............................................................................................................................................61
COUNT EIGHTEEN: VIOLATION OF THE NEW MEXICO
ANTITRUST ACT, N.M. STAT. ANN. §§ 57-1-1, ET SEQ. .............................................61
COUNT NINETEEN: VIOLATION OF SECTION 340 OF THE NEW
YORK GENERAL BUSINESS LAW .........................................................................................62
COUNT TWENTY: VIOLATION OF THE NORTH CAROLINA
GENERAL STATUTES, N.C. GEN. STAT. § 75-1, ET SEQ. ...........................................63
COUNT TWENTY-ONE: VIOLATION OF THE NORTH DAKOTA
UNIFORM STATE ANTITRUST ACT, N.D. CENT. CODE § 51-08.1,
ET SEQ...............................................................................................................................................64
COUNT TWENTY-TWO: VIOLATION OF THE OREGON
ANTITRUST LAW, OR. REV. STAT. § 646.705, ET SEQ. ...............................................64
COUNT TWENTY-THREE: VIOLATION OF THE PUERTO RICO
ANTITRUST ACT, P.R. LAWS TIT. 10 § 260, ET SEQ. ...................................................65
COUNT TWENTY-FOUR: VIOLATION OF THE RHODE ISLAND
ANTITRUST ACT, R.I. GEN LAWS § 6-36-1, ET SEQ. ...................................................66
COUNT TWENTY-FIVE: VIOLATION OF THE SOUTH DAKOTA
ANTITRUST STATUTE, S.D. CODIFIED LAWS § 37-1-3.1,
ET SEQ...............................................................................................................................................67
COUNT TWENTY-SIX: VIOLATION OF THE UTAH ANTITRUST
ACT, UTAH CODE ANN. §§ 76-10-911, ET SEQ. ...............................................................67
COUNT TWENTY-SEVEN: VIOLATION OF THE WEST
VIRGINIA ANTITRUST ACT, W. VA. CODE §47-18-1, ET SEQ. ................................68
COUNT TWENTY-EIGHT: VIOLATION OF THE WISCONSIN
ANTITRUST ACT, WIS. STAT. ANN. § 133.01(1), ET SEQ. ..........................................69
XII.
VIOLATIONS OF STATE CONSUMER PROTECTION LAWS ...................................70
COUNT TWENTY-NINE: VIOLATION OF ARIZONA CONSUMER
FRAUD ACT ARIZ. REV. STAT. §§44-1521, ET SEQ. ......................................................71
COUNT THIRTY: VIOLATION OF CALIFORNIA’S UNFAIR
COMPETITION LAW CAL. BUS. & PROF. CODE § 17200, ET SEQ.
(THE “UCL”) .....................................................................................................................................72
COUNT THIRTY-ONE: VIOLATION OF THE DISTRICT OF
COLUMBIA CONSUMER PROTECTION PROCEDURES ACT, D.C.
CODE § 28-3901, ET SEQ. ...........................................................................................................74
COUNT THIRTY-TWO: VIOLATION OF THE FLORIDA
DECEPTIVE AND UNFAIR TRADE PRACTICES ACT, FLA. STAT.
§ 501.201(2), ET SEQ. ....................................................................................................................75
COUNT THIRTY-THREE: VIOLATION OF THE ILLINOIS
CONSUMER FRAUD AND DECEPTIVE BUSINESS PRACTICES
ACT, 815 ILL. COMP. STAT. ANN. 505/10A, ET SEQ. ....................................................76
COUNT THIRTY-FOUR: VIOLATION OF THE MASSACHUSETTS
CONSUMER PROTECTION ACT, MASS. GEN. LAWS. CH. 93A § 1,
ET SEQ...............................................................................................................................................77
COUNT THIRTY-FIVE: VIOLATION OF THE MINNESOTA
CONSUMER FRAUD ACT, MINN. STAT. § 325F.68, ET SEQ. ....................................78
COUNT THIRTY-SIX: 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...............................................................................................................................................80
COUNT THIRTY-SEVEN: VIOLATION OF THE NEBRASKA
CONSUMER PROTECTION ACT, NEB. REV. STAT. § 59-1602,
ET SEQ...............................................................................................................................................80
COUNT THIRTY-EIGHT: VIOLATION OF THE NEVADA
DECEPTIVE TRADE PRACTICES ACT, NEV. REV. STAT.
§ 598.0903, ET SEQ. .......................................................................................................................81
COUNT THIRTY-NINE: VIOLATION OF THE NEW HAMPSHIRE
CONSUMER PROTECTION ACT, N.H. REV. STAT. ANN. TIT.
XXXI, § 358-A, ET SEQ. ...............................................................................................................83
COUNT FORTY: VIOLATION OF THE NEW MEXICO UNFAIR
PRACTICES ACT, N.M. STAT. ANN. §§ 57-12-1, ET SEQ. .............................................84
COUNT FORTY-ONE: VIOLATION OF THE NORTH CAROLINA
UNFAIR TRADE AND BUSINESS PRACTICES ACT, N.C. GEN.
STAT. § 75-1.1, ET SEQ. ..............................................................................................................85
COUNT FORTY-TWO: VIOLATION OF THE OREGON
UNLAWFUL TRADE PRACTICES ACT, OR. REV. STAT. § 646.605,
ET SEQ...............................................................................................................................................86
COUNT FORTY-THREE: VIOLATION OF THE RHODE ISLAND
DECEPTIVE TRADE PRACTICES ACT, R.I. GEN. LAWS § 6-13.1-1,
ET SEQ...............................................................................................................................................87
COUNT FORTY-FOUR: VIOLATION OF THE SOUTH
CAROLINA’S UNFAIR TRADE PRACTICES ACT, S.C. CODE ANN.
§§ 39-5-10, ET SEQ.........................................................................................................................88
COUNT FORTY-FIVE: VIOLATION OF THE SOUTH DAKOTA
DECEPTIVE TRADE PRACTICES AND CONSUMER
PROTECTION LAW, S.D. CODIFIED LAWS § 37-24, ET SEQ. ...................................89
COUNT FORTY-SIX: VIOLATION OF THE VERMONT
CONSUMER FRAUD ACT VT. STAT. ANN. TIT. 9, CH. 63 §2451,
ET SEQ...............................................................................................................................................90
COUNT FORTY-SEVEN: VIOLATION OF THE VIRGINIA
CONSUMER PROTECTION ACT, VA. CODE ANN. § 59.1- 196,
ET SEQ...............................................................................................................................................91
COUNT FORTY-EIGHT: VIOLATION OF THE WEST VIRGINIA
CONSUMER CREDIT AND PROTECTION ACT, W. VA. CODE
§ 46A-6-101, ET SEQ. ....................................................................................................................92
COUNT FORTY-NINE: UNJUST ENRICHMENT ............................................................93
A.
Alabama .................................................................................................................................94
B.
Alaska.....................................................................................................................................94
C.
Arizona ..................................................................................................................................95
D.
Arkansas ................................................................................................................................95
E.
California ...............................................................................................................................95
F.
District of Columbia ...........................................................................................................96
G.
Florida ...................................................................................................................................96
H.
Georgia ..................................................................................................................................96
I.
Hawaii ....................................................................................................................................97
J.
Idaho ......................................................................................................................................97
K.
Illinois ....................................................................................................................................97
L.
Iowa ........................................................................................................................................98
M.
Kansas ....................................................................................................................................98
N.
Maine .....................................................................................................................................98
O.
Maryland ...............................................................................................................................99
P.
Massachusetts ......................................................................................................................99
Q.
Michigan ...............................................................................................................................99
R.
Minnesota .......................................................................................................................... 100
S.
Mississippi ......................................................................................................................... 100
T.
Missouri ............................................................................................................................. 101
U.
Montana ............................................................................................................................. 101
V.
Nebraska............................................................................................................................. 101
W.
Nevada ................................................................................................................................ 102
X.
New Hampshire ................................................................................................................ 102
Y.
New Mexico ...................................................................................................................... 102
Z.
New York ........................................................................................................................... 103
AA.
North Carolina .................................................................................................................. 103
BB.
North Dakota .................................................................................................................... 104
CC.
Oregon ................................................................................................................................ 104
DD.
Pennsylvania ..................................................................................................................... 104
EE.
Puerto Rico ........................................................................................................................ 105
FF.
Rhode Island ..................................................................................................................... 105
GG.
South Carolina .................................................................................................................. 106
HH.
South Dakota..................................................................................................................... 106
II.
Tennessee........................................................................................................................... 106
JJ.
Utah ..................................................................................................................................... 107
KK.
Vermont ............................................................................................................................. 107
LL.
Virginia ............................................................................................................................... 108
MM.
West Virginia .................................................................................................................... 108
NN.
Wisconsin .......................................................................................................................... 108
OO.
Wyoming ........................................................................................................................... 109
XIII.
COMPLIANCE WITH NOTICE REQUIREMENTS ...................................................... 109
XIV.
PRAYER FOR RELIEF ............................................................................................................. 110
XV.
JURY DEMAND .......................................................................................................................... 111
ACRONYMS
ANDA
Abbreviated new drug application
API
Active pharmaceutical ingredient
DMF
Drug master file
DRL
Dr. Reddy’s Laboratories
FDA
Federal Drug Administration
FTC
Federal Trade Commission
HTG
Hypertriglyceridemia
NDA
New drug application
PTO
U.S. Patent and Trademark Office
sNDA
Supplemental new drug application
TG
Triglyceride
Plaintiff Welfare Plan of The International Union of Operating Engineers Locals 137,
137A, 137B, 137C, 137R (“IUOE Local 137”), files this action, individually on behalf of itself
and as a class action on behalf of all others similarly situated, against defendants Amarin
Pharma, Inc., Amarin Pharmaceuticals Ireland Limited, and Amarin Corporation PLC
(collectively “Amarin” or “the defendants”) for damages, injunctive relief, and any and all other
available forms of relief. The plaintiff demands a trial by jury on all issues so triable and
complains and alleges as follows:
I.
INTRODUCTION
1.
Faced with inevitable competition for its sole product, Vascepa, and having lost
in litigation and exhausted every regulatory means to prevent and delay the launch of generic
competitors, Amarin adopted an unlawful strategy to artificially extend its monopoly. By
locking up every viable supplier of the key ingredient needed to manufacture generic Vascepa,
Amarin boxed generic manufacturers out of the market. This scheme left Amarin free to
continue charging supracompetitive prices and eke the most profit it could out of Vascepa, at
the expense of the plaintiff and other purchasers of the drug.
2.
By May 2020, price competition for Vascepa was imminent: two generic
manufacturers had obtained every regulatory approval they needed to launch their products
and a federal court had invalidated every patent that Amarin claimed protected the drug from
generic competition.
3.
But Amarin was unsatisfied with the more than seven years of monopoly pricing
it had enjoyed to date. The company’s desperation to protect Vascepa has a ready explanation:
Vascepa is Amarin’s only product. And without any competitors on the market, Amarin had
been able to increase the price of Vascepa every year since the product’s launch in 2013 and
charge monopoly prices throughout.
4.
And so, when competition loomed, Amarin adopted a strategy to unlawfully
shield its prized product and its high prices: preventing would-be competitors from obtaining
the active pharmaceutical ingredient (API) required to manufacture Vascepa.
5.
Amarin successfully boxed out its competition by locking up the supply of
icosapent ethyl, Vascepa’s API through its supply agreements with API manufacturers, which
included exclusive dealing and/or minimum purchasing agreements. Years before generic entry
was set to occur, Amarin began entering into these deals with every viable icosapent ethyl
supplier. In essence, Amarin paid these API suppliers not to do business with any manufacturer
of generic Vascepa.
6.
As a result of Amarin’s conduct, would-be competitors were unable to obtain the
icosapent ethyl they needed for their generic Vascepa products, delaying their fulsome entry
into the market by years. But for Amarin’s anticompetitive conduct, robust generic competition
would have begun in mid-2020. Instead, Amarin has been able to maintain its monopoly and
continue charging supracompetitive prices, harming the plaintiff and other purchasers of
Vascepa.
II.
JURISDICTION AND VENUE
7.
This Court has jurisdiction over this action pursuant to 28 U.S.C. §§ 1332(d),
because this is a class action involving common questions of law of fact in which the aggregate
amount in controversy exceeds $5,000,000, exclusive of interest and costs, there are more than
one hundred members of the class, and at least one member of the putative class is a citizen of a
state different from that one of the defendants.
8.
This Court has jurisdiction over the subject matter of this action pursuant to
Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15, 26, Sections 1 and 2 of the Sherman
Antitrust Act, 15 U.S.C. §§ 1 and 2, and 28 U.S.C. §§ 1331 and 1337. This Court’s exercise of
supplemental jurisdiction over the plaintiff’s state law claims would avoid unnecessary
duplication and multiplicity of actions and should be exercised in the interests of judicial
economy, convenience, and fairness.
9.
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 the 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.
10.
This Court has personal jurisdiction over the defendants because each has the
requisite constitutional contacts with the state of New Jersey due to their domicile, the extent
of their business transactions within New Jersey, their contracts to supply goods and services
in New Jersey, their solicitation of business in New Jersey, and/or commission of illegal acts as
alleged herein within the state of New Jersey. Each defendant has transacted business,
maintained substantial contacts, and/or committed overt acts in furtherance of the illegal
scheme and conspiracy throughout the United States, including in this district. The scheme and
conspiracy have been directed at, and have had the intended effect of, causing injury to persons
residing in, located in, or doing business throughout the United States, including in this
District.
III.
THE PARTIES
A.
Plaintiff
11.
Plaintiff Welfare Plan of the International Union of Operating Engineers Locals
137, 137A, 137B, 137C, 137R is a labor union with a principal address of 1360 Pleasantville
Road, Briarcliff Manor, New York 10510. The plaintiff provides health benefit, including
prescription drug benefits, to its members, plus their spouses and dependents.
12.
During the class Period, the defendants’ anticompetitive and deceptive conduct
caused the plaintiff to pay for and/or reimburse purchases of brand and (the limited available)
generic Vascepa at artificially inflated prices. Plaintiff paid for and/or reimbursed for purchases
of brand and (the limited available) generic Vascepa at grossly inflated prices and was injured
due to the anticompetitive and deceptive practices alleged in this Complaint.
B.
Defendants
13.
Defendant Amarin Pharma, Inc. is a company organized and existing under the
laws of Delaware with its principal place of business at 1430 Route 206, Bedminster, New
Jersey 07921. Amarin Pharma, Inc. is a wholly-owned subsidiary of Amarin Corporation PLC.
14.
Defendant Amarin Pharmaceuticals Ireland Limited is a company incorporated
under the laws of Ireland with registered offices at 88 Harcourt Street, Dublin 2, Dublin,
Ireland. Amarin Pharmaceuticals Ireland Limited is a wholly owned subsidiary of Amarin
Corporation PLC.
15.
Defendant Amarin Corporation PLC is a company incorporated under the laws
of England and Wales with its registered office at One New Change, London, EC4M 9AF,
England and its principal executive offices at 2 Pembroke House, Upper Pembroke Street 28-
32, Dublin 2, Ireland.
IV.
INTERSTATE TRADE AND COMMERCE
16.
From January 2013 through at least November 2020, Amarin was the sole
provider of Vascepa in the United States. At all material times, Amarin manufactured and sold
Vascepa, directly or through one or more of its affiliates, throughout the United States and in
this District, in a continuous and uninterrupted flow through interstate commerce.
17.
By inflating, maintaining, or artificially stabilizing the price for Vascepa, the
defendants deprived purchasers of Vascepa of the benefits of free and open competition, and
thus had a direct, substantial, and reasonably foreseeable effect on interstate commerce within
the United States, as well as intrastate commerce within each state.
18.
Such effects, including the inflated prices that the plaintiff and members of the
proposed class paid for Vascepa during the Class Period, caused antitrust injury in the United
States, and give rise to the plaintiff’s claims.
V.
REGULATORY FRAMEWORK
A.
The regulatory structure for approval and substitution of generic drugs flows
from the FDCA and the FDA and intersects with the patent framework.
19.
Under the Federal Food, Drug, and Cosmetic Act (FDCA),1 manufacturers that
create a new drug must obtain approval from the Food and Drug Administration (FDA) to sell
the product by filing a New Drug Application (NDA).2 An NDA must include specific data
concerning the safety and effectiveness of the drug, as well as any information on applicable
patents.3
20.
When the FDA approves a brand manufacturer’s NDA, the manufacturer may
list in Approved Drug Products with Therapeutic Equivalence Evaluations (known as the “Orange
Book”) certain kinds of patents that the manufacturer asserts could reasonably be enforced
against a generic manufacturer that makes, uses, or sells a generic version of the brand drug
before the expiration of the listed patents.4 The manufacturer may list in the Orange Book
1 Pub. L. No. 75-717, 52 Stat. 1040 (1938) (codified as amended in 21 U.S.C. § 301 et seq.).
2 21 U.S.C. §§ 301-392.
3 21 U.S.C. § 355(a), (b).
4 For example, patents covering processes for making drug products may not be listed in
the Orange Book.
within 30 days of issuance any patents issued after the FDA approved the NDA.5 Valid and
infringed patents may lawfully prevent generic competition, at least for a period, but
manufacturers can abuse the system to use invalid or non-infringed patents to unlawfully delay
generic competition.
21.
The FDA relies completely on the brand manufacturer’s truthfulness about
patent validity and applicability because it does not have the resources or authority to verify
the manufacturer’s patents for accuracy or trustworthiness. In listing patents in the Orange
Book, the FDA merely performs a ministerial act.
1.
Congress designed the Hatch-Waxman Amendments to the FDCA to
encourage and hasten generic entry and reduce healthcare costs.
22.
The FDCA’s Hatch-Waxman Amendments, enacted in 1984, simplified
regulatory hurdles for prospective generic manufacturers by eliminating the need for them to
file lengthy and costly NDAs.6 A manufacturer seeking approval to sell a generic version of a
brand drug may instead file an Abbreviated New Drug Application (ANDA). An ANDA relies
on the scientific findings of safety and effectiveness included in the brand manufacturer’s
original NDA and must show that the generic contains the same active ingredient(s), dosage
form, route of administration, and strength as the brand drug and that it is bioequivalent, i.e.,
absorbed at the same rate and to the same extent as the brand. The FDA assigns a generic that
meets these criteria relative to its brand counterparts an “AB” rating, making it an “AB-rated”
generic.
23.
The FDCA and Hatch-Waxman Amendments operate on the principle that
bioequivalent drug products containing identical amounts of the same active ingredients,
5 21 U.S.C. § 355(b)(1), (c)(2).
6 See Drug Price Competition and Patent Term Restoration Act of 1984, Pub. L. No. 98-
417, 98 Stat. 1585 (1984) (codified as amended at 21 U.S.C. § 355).
having the same route of administration and dosage form, and meeting applicable standards of
strength, quality, purity, and identity are therapeutically equivalent and may be substituted for
one another. Bioequivalence demonstrates that the active ingredient of the proposed generic is
present in the blood of a patient to the same extent and for the same amount of time as the
brand counterpart.7
24.
Through the Hatch-Waxman Amendments, Congress sought to expedite the
entry of less expensive generic competitors to brand drugs, thereby reducing healthcare
expenses nationwide. Congress also sought to protect pharmaceutical manufacturers’ incentives
to create new and innovative products.
25.
The Hatch-Waxman Amendments achieved both goals, advancing substantially
the rate of generic product launches and ushering in an era of historically high profit margins
for brand pharmaceutical manufacturers. In 1983, before the Hatch-Waxman amendments, only
35% of the top-selling drugs with expired patents had generic alternatives; by 1998, nearly all
did. In 1984, revenues for brand and generic prescription drugs totaled $21.6 billion; by 2013,
total prescription drug revenues had climbed to more than $329.2 billion, with generics
accounting for 86% of prescriptions.8 Generics are dispensed about 95% of the time when a
generic form is available.9
2.
The FDA may grant regulatory exclusivities for new drugs but those
exclusivities do not necessarily bar generic entry.
26.
To promote a balance between new drug innovation and generic drug
competition, the Hatch-Waxman Amendments also provide for exclusivities (or exclusive
7 21 U.S.C. § 355(j)(8)(B).
8 See IMS Institute for Healthcare Informatics, Medicine Use and Shifting Costs of Healthcare:
A Review of the Use of Medicines in the United States in 2013 30, 51 (2014).
9 Id. at 51.
marketing rights) for new drugs. The FDA grants any such exclusivities upon approval of a
drug if the sponsor and/or drug meet the relevant statutory requirements. Any such
exclusivities for a drug are listed in the Orange Book, along with any applicable patents, and
can run concurrently with the listed patents.
27.
One such exclusivity, the New Chemical Entity (NCE) exclusivity, applies to
products containing chemical entities never previously approved by the FDA either alone or in
combination. If a product receives NCE exclusivity, the FDA may not accept for review any
ANDA for a drug containing the same active moiety for five years from the date of the NDA’s
approval, unless the ANDA contains a certification of patent invalidity or non-infringement, in
which case an application may be submitted after four years.10
28.
A drug product may also receive a three-year period of exclusivity if its sponsor
submits a supplemental application (sNDA) that contains reports of new clinical investigations
(other than bioavailability studies) conducted or sponsored by the sponsor that were essential
to approval of the supplemental application. If this exclusivity is granted, the FDA may not
approve an ANDA for that drug for three years from the date on which the supplemental
application is approved.11
29.
Regulatory exclusivities may not be absolute bars to generic entry. For example,
some can be overcome by carving out information in the label or for other reasons.12
10 21 U.S.C. § 355(j)(5)(F)(ii); 21 C.F.R. § 314.108(b)(2).
11 21 U.S.C. § 355(j)(5)(F)(iv); 21 C.F.R. § 314.108(b)(2)(5).
12 See, e.g., 21 C.F.R. §§ 314.94(a)(8)(iv), 314.127(a)(7); 21 U.S.C. § 355a(o).
3.
The first ANDA filer to issue a paragraph IV certification is entitled, once
approved, to 180 days as the only ANDA generic on the market.
30.
To obtain FDA approval of an ANDA, a manufacturer must certify that the
generic will not infringe any patents listed in the Orange Book. Under the Hatch-Waxman
Amendments, a generic manufacturer’s ANDA must contain one of four certifications:
a.
That no patent for the brand has been filed with the FDA (a “paragraph I
certification”);
b. That any patent(s) for the brand has/have expired (a “paragraph II
certification”);
c.
That any patent(s) for the brand will expire on a particular date and the
manufacturer does not seek to market its generic before that date (a
“paragraph III certification”); or
d. That any patent(s) for the brand is/are invalid or will not be infringed by the
generic manufacturer’s proposed product (a “paragraph IV certification”).13
31.
If a generic manufacturer files a paragraph IV certification, a brand manufacturer
can delay FDA approval of the ANDA simply by suing the ANDA applicant for patent
infringement. If the brand manufacturer initiates a patent infringement action against the
generic filer within forty-five days of receiving notification of the paragraph IV certification,
the FDA will not grant final approval to the ANDA-filer (which would enable the manufacturer
to market and sell its product) until the earlier of (i) the passage of two-and-a-half years, or (ii)
the issuance of a decision by a court that the patent at issue is invalid or not infringed by the
generic manufacturer’s ANDA.14 Until one of those conditions occurs, the FDA may only grant
13 21 U.S.C. § 355(j)(2)(A)(vii).
14 21 U.S.C. § 355(j)(5)(B)(iii). This period is commonly called a “30-month Hatch-Waxman
stay” or “30-month stay.” The brand/patent holder can choose to sue the generic after 45 days,
including waiting until the generic has launched its product, but, in that event, the brand
cannot take advantage of the 30-month stay of FDA approval, and must instead satisfy the
showing required to obtain a preliminary injunction to prevent the generic launch.
“tentative approval,” meaning the ANDA meets all regulatory requirements and is approvable
but for the 30-month stay.
32.
To encourage manufacturers to seek approval of generic versions of brand
drugs, the Hatch-Waxman Amendments grant the first paragraph IV generic manufacturer
ANDA filer (“first-filer”) a 180-day exclusivity period to market the generic version of the
drug; the FDA may not grant final approval to any other generic manufacturer’s ANDA for the
same brand drug during that time.15 That is, when a first-filer files a substantially complete
ANDA with the FDA and certifies that the unexpired patents listed in the Orange Book as
covering the brand are either invalid or not infringed by the generic, the FDA cannot approve a
later generic manufacturer’s ANDA until that first-filer generic(s) has been on the market for
180 days.16
33.
The 180-day window is often referred to as the first filer’s six-month or 180-day
“exclusivity”; this is a bit of a misnomer, though, because a brand manufacturer can launch an
authorized generic (AG) at any time, manufacturing its AG in accordance with its approved
NDA for the branded product but selling at a lower price point.
34.
A first filer who informs the FDA it intends to wait until all Orange Book-listed
patents expire before marketing its generic does not get a 180-day exclusivity period. Congress
created this 180-day period to incentivize generic manufacturers to challenge weak or invalid
patents or to invent around such patents by creating non-infringing generics.
15 21 U.S.C. § 355(j)(5)(B)(iv), (D).
16 There is an exception: if the first-filer forfeits exclusivity. A first filer can forfeit its 180-
day exclusivity by, for example, failing to obtain tentative approval from the FDA for its
ANDA within 30 months of filing its ANDA. There is no forfeiture here.
4.
Section viii carveouts and labeling can enable generics to lawfully enter the
market.
35.
The Hatch-Waxman Act encourages generic manufacturers to seek approval of
generic products for uses that do not infringe valid and enforceable patents. The Act recognizes
that a generic may infringe one (patented) method of use without infringing another and
encourages generics to “carve out” would-be infringing uses to bring products to market
quickly.
36.
To carve out on a non-infringing use, an ANDA applicant may submit a section
viii statement. A section viii statement asserts that the generic manufacturer will market the
drug for one or more methods of use not covered by the brand’s valid and enforceable patents.17
If an ANDA applicant files a section viii statement, the patent claiming the protected method of
use will not serve as a barrier to ANDA approval.
37.
A section viii statement is commonly used when the brand’s patent on the drug
compound has expired and the brand holds patents on only some approved methods of using
the drug. The ANDA applicant then proposes labeling for the generic drug that “carves out”
from the brand’s approved label the still-patented methods of use.
38.
Typically, the Hatch-Waxman Act requires that an ANDA contain “information
to show that the labeling proposed for the new [generic] drug is the same as the labeling
approved for the listed drug[.]”18 However, FDA regulations also expressly recognize that by
submitting a section viii statement, an ANDA applicant may omit from the proposed labeling a
method of use protected by a listed patent, and therefore need not seek approval for that use.19
17 21 U.S.C. § 355(j)(2)(A)(viii).
18 21 U.S.C. § 355(j)(2)(A)(v).
19 See 21 CFR § 314.94(a)(8)(iv) (“Such differences between the applicant’s proposed labeling
and labeling approved for the reference listed drug may include … omission of an indication or
As the Supreme Court has recognized, “[t]he statutory scheme, in other words, contemplates
that one patented use will not foreclose marketing a generic drug for other unpatented ones.”20
39.
Thus, under the statute, regulations, and applicable case law, the carve-out of
patent-protected labeling is generally permitted if the omission does not render the proposed
drug product less safe or effective for the conditions of use that remain in the labeling.
5.
Patents are not bulletproof.
40.
The existence of one or more patents purporting to cover a drug product does
not guarantee a monopoly. Patents are routinely invalidated or held unenforceable, either upon
reexamination or in inter partes proceedings by the U.S. Patent and Trademark Office (PTO), by
court decision, or by jury verdict. A patent holder always bears the burden of proving
infringement.
41.
One way that a generic can prevail in patent infringement litigation is to show
that its product does not infringe the patent (and/or that the patent holder cannot meet its
burden to prove infringement). Another is to show that the patent is invalid or unenforceable.
42.
A patent is invalid or unenforceable when: (i) the disclosed invention is obvious
in light of earlier prior art; (ii) an inventor, an inventor’s attorney, or another person involved
with the application, with intent to mislead or deceive the PTO, fails to disclose material
information known to that person to be material, or submits materially false information to the
PTO during prosecution; and/or (iii) when a later acquired patent is not patentably distinct
other aspect of labeling protected by patent or accorded exclusivity under section 505(j)(5)(F)
of the Federal Food, Drug, and Cosmetic Act.”); see also 21 CFR § 314.127(a)(7).
20 Caraco Pharm. Labs., Ltd. v. Novo Nordisk A/S, 566 U.S. 399, 415 (2012); see also Purepac
Pharmaceutical Company v. Thompson, 354 F.3d 877, 880 (D.C. Cir. 2004) (upholding generic’s
right to file a section viii statement and carve out from labeling method-of use information
protected by a patent); TorPharm, Inc. v. Thompson, 260 F. Supp. 2d 69, 73 (D.D.C. 2003), aff’d
sub nom. Purepac Pharm. Co. v. Thompson, 354 F.3d 877 (D.C. Cir. 2004) (same).
from the invention claimed in an earlier patent (and no exception, such as the safe harbor,
applies).
43.
In these circumstances, the PTO’s decision to issue a patent does not substitute
for a fact-specific assessment of (i) whether the applicant made intentional misrepresentations
or omissions on which the PTO relied in issuing the patent, and (ii) whether a reasonable
manufacturer in the patent holder’s position would have a realistic likelihood of succeeding on
the merits of a patent infringement suit.
44.
As a statistical matter, if the parties litigate a pharmaceutical patent
infringement suit to a decision on the merits, it is more likely that a challenged patent will be
found invalid or not infringed than upheld. The FTC reports that generics prevailed in 73% of
Hatch-Waxman patent litigation cases resolved on the merits between 1992 and 2002.21 An
empirical study of all substantive decisions rendered in every patent case filed in 2008 and 2009
similarly reports that when a generic challenger stays the course until a decision on the merits,
the generic wins 74% of the time.22
45.
If a generic manufacturer successfully defends against the brand’s infringement
lawsuit—either by showing that its ANDA does not infringe any asserted patents and/or that
any asserted patents are invalid or unenforceable—the generic may enter the market
immediately upon receiving approval from the FDA.
21 FTC, Generic Drug Entry Prior to Patent Expiration: An FTC Study vi-vii (2002), available
at https://www.ftc.gov/sites/default/files/documents/reports/generic-drug-entry-prior-
patent-expiration-ftc-study/genericdrugstudy_0.pdf (last accessed June 7, 2021).
22 John R. Allison, Mark A. Lemley & David L. Schwartz, Understanding the Realities of
Modern Patent Litigation, 92 TEX. L. REV. 1769, 1787 (2014) (“[P]atentees won only 164 of the
636 definitive merits rulings, or 26%,” and “that number is essentially unchanged” from a
decade ago.).
6.
Development and sale of a drug’s active pharmaceutical ingredient is a
lengthy and highly regulated process.
46.
All drugs are made up of two core components—the active pharmaceutical
ingredient (API), which is the biologically active component of a drug product and the central
ingredient, and the excipient(s), the other ingredient(s) that help deliver the medication to your
system. The API is the part of any drug that produces the intended effects. Excipients are
chemically inactive substances, such as lactose or mineral oil in the pill.
47.
Brand and generic manufacturers ordinarily purchase the API for their drugs
from API suppliers. The manufacturers combine the API with inactive ingredients and process
the drugs into their final dosage form. The API for a brand drug and its generic equivalent is
the same.
48.
APIs are subject to stringent regulations and oversight by the FDA. To sell an
API in the United States, the API supplier must file a Drug Master File (DMF) with the FDA.
The DMF provides confidential and detailed information about, among other things, the
facilities and processes used to manufacture, process, package, and store the API.
49.
In its application for FDA approval, a manufacturer must identify its API
supplier and that supplier’s DMF. More than one manufacturer can reference the DMF of the
same API supplier. As part of its review of an NDA or ANDA, the FDA performs a complete
review of the technical information contained in the DMF referenced therein, including, among
other things, inspecting the API supplier’s facilities described in the DMF.
50.
The entire process--from the supplier’s development of the API to the FDA’s
approval of the supplier’s DMF in support of an NDA or ANDA—ordinarily takes more than a
year to complete, and can take up to three years.
51.
If a manufacturer wants or needs to change its API supplier for a drug, it must
file a supplement with the FDA referencing the new API supplier’s DMF and submit data for
drug batches using the new supplier’s API. The manufacturer may only market its drug using
the new supplier’s API if the FDA approves of the change. FDA review and approval of the
change in API supplier can take six months or more.
52.
To speed up the process, generic drug manufacturers typically seek to use API
from suppliers that already have a DMF on file, rather than partnering with API suppliers that
have not yet filed a DMF. But where existing API suppliers are unable or unwilling to supply
to a generic manufacturer, the generic manufacturer may need to develop and work with a new
supplier—one that does not yet have a DMF on file—to develop the API for a specific drug,
including providing specifications, information, and data to the API supplier; co-developing the
API; and overseeing the quality control in the development of the API. These collaborations
take much more time and involve much greater expense.
53.
Because of the significant costs involved in qualifying an API supplier as well as
the need to continue to ensure quality control by the API supplier, it is industry practice for
both brand and generic drug manufacturers to use only one or two API suppliers to support a
drug application. It is unusual and contrary to industry practice for a brand or generic
manufacturer to have multiple exclusive API supply contracts, or for a manufacturer to acquire
significant excess API supplies due to, among other things, the costs of acquisition and storage
and quality control issues.
B.
AB-rated generics drive down prices for purchasers, quickly and dramatically.
54.
Generic versions of brand drugs contain the same active ingredient(s) as the
brand name drug and are determined by the FDA to be just as safe and effective as their brand
counterparts. Because the brand and its AB-rated generics are essentially commodities that
cannot be therapeutically differentiated, the primary basis for competition between a brand
product and its generic version, or between multiple generic versions, is price.
55.
Without AB-rated generics in the market, the manufacturer of a brand drug has
a monopoly—every sale of the product, and the accompanying profit, benefits the brand
manufacturer. Without AB-rated generic competition, brand manufacturers can, and routinely
do, sell their drug for far more than the marginal cost of production, generating profit margins
above 70% while making hundreds of millions of dollars in sales. The ability to command these
kinds of profit margins is what economists call market power.
56.
When a generic equivalent enters the market, however, it quickly captures 80%
or more of the unit sales from the brand drug. When generic entry occurs, the brand
manufacturer loses most of the unit sales; the generic manufacturer sells most of the units, but
at drastically reduced prices, delivering enormous savings to drug purchasers. And when
multiple generics compete in the market, that competition drives prices down to near the
marginal cost of production. This competition ends the brand manufacturer’s market power and
delivers enormous savings to drug purchasers. Competition converts what formerly were
excess profits into purchaser savings.
1.
The first AB-rated generic is priced below the brand, driving sales to the
generic.
57.
Since the passage of the Hatch-Waxman Amendments, every state has adopted
drug product selection laws that either require or permit pharmacies to substitute AB-rated
generic equivalents for brand prescriptions (unless the prescribing physician specifically directs
that substitution is not permitted). Substitution laws and other institutional features of
pharmaceutical distribution and use create the economic dynamic that the launch of AB-rated
generics results both in rapid price decline and rapid sales shift from brand to generic
purchasing.
58.
Experience and economic research show that the first generic manufacturer to
market its product prices it below its brand counterpart.23 As a rule, generics are at least 10%
less expensive than their brand counterparts when there is only one generic competitor. With
the reduction in price and aided by state substitution laws, the first generic manufacturer
almost always captures a large share of sales from the brand. And the presence of a generic at a
lower price reduces the average price for the drug (brand and AB-rated generic combined).
59.
During the 180-day exclusivity period, the first filer is the only ANDA-
approved generic manufacturer on the market. In the absence of competition from other
generics, a first-filer generic manufacturer generally makes about 80% of all the profits that it
will ever make on the product during that 180-day exclusivity period, a significant incentive for
getting to market as quickly as possible.
60.
Once generic competition begins, it quickly captures sales of the corresponding
brand drug, often 80% or more of the market within the first six months after entry. (This
percentage erosion of brand sales holds regardless of the number of generic entrants.)
2.
Later generics drive prices down further.
61.
Once additional generic competitors enter the market, the competitive process
accelerates, and multiple generic manufacturers typically compete vigorously with each other
23 FTC, Authorized Generic Drugs: Short-Term Effects and Long-Term Impact ii-iii, vi, 34
(2011), available at https://www.ftc.gov/sites/default/files/documents/reports/authorized-
generic-drugs-short-term-effects-and-long-term-impact-report-federal-trade-
commission/authorized-generic-drugs-short-term-effects-and-long-term-impact-report-
federal-trade-commission.pdf (“FTC 2011 AG Study”) (last accessed June 7, 2021); FTC, Pay-
for-Delay: How Drug Company Pay-Offs Cost Consumers Billions 8 (2010), available at
https://www.ftc.gov/sites/default/files/documents/reports/pay-delay-how-drug-company-
pay-offs-cost-consumers-billions-federal-trade-commission-staff-study/
100112payfordelayrpt.pdf (“FTC Pay-for-Delay Study”) (last accessed June 7, 2021) at 1.
over price, driving prices down toward marginal manufacturing costs.24 In a recent study, the
Federal Trade Commission (FTC) found that on average, within a year of generic entry,
generics had captured 90% of corresponding brand sales and (with multiple generics on the
market) prices had dropped 85%.25
62.
According to the FDA and the FTC, the greatest price reductions are
experienced when the number of generic competitors goes from one to two. The discount from
the brand price typically increases to 50% to 80% (or more) when there are multiple generic
competitors on the market for a given brand. Consequently, the launch of a generic usually
results in significant cost savings for all drug purchasers: “[a]lthough generic drugs are
chemically identical to their branded counterparts, they are typically sold at substantial
discounts from the branded price. According to the Congressional Budget Office, generic drugs
save consumers an estimated $8 to $10 billion a year at retail pharmacies. Even more billions
are saved when hospitals use generics.”26
63.
Generic competition enables all purchasers of a drug to (i) purchase generic
versions of the drug at substantially lower prices, and/or (ii) purchase the brand at a reduced
price. These competitive effects are known and reliable: brand sales decline to a small fraction
of their level before generic entry and, as a result, brand manufacturers view competition from
generics as a grave threat to their bottom lines.
24 See, e.g., Tracy Regan, Generic Entry, Price Competition, and Market Segmentation in the
Prescription Drug Market, 26 INT’L J. INDUS. ORG. 930 (2008); Richard G. Frank, The Ongoing
Regulation of Generic Drugs, 357 NEW ENG. J. MED. 1993 (2007); Patricia M. Danzon & Li-Wei
Chao, Does Regulation Drive Out Competition in Pharmaceutical Markets?, 43 J.L. & ECON. 311
(2000).
25 See FTC Pay-for-Delay Study.
26 See “What Are Generic Drugs?,” FDA (Aug. 24, 2017), available at https://www.fda.gov/
drugs/generic-drugs/what-are-generic-drugs (last accessed June 7, 2021).
64.
Until a generic version of a brand drug enters the market, however, there is no
bioequivalent drug to substitute for and compete with the brand, leaving the brand
manufacturer to continue to profitably charge supracompetitive prices. Recognizing that
generic competition will rapidly erode their brand sales, brand manufacturers seek to extend
their monopoly for as long as possible, sometimes resorting to illegal means to delay or prevent
generic competition.
VI.
FACTS
A.
Amarin launches Vascepa in 2013.
65.
Vascepa is the brand name for the icosapent ethyl drug product marketed by
Amarin. It is a highly purified preparation of icosapent ethyl (also known as eicosapentaenoic
acid or EPA), an omega-3 fatty acid derived from fish oil. Vascepa is available by prescription
66.
The FDA first approved Vascepa in July 2012 as an adjunct to diet to reduce
triglyceride (TG) levels in adult patients with severe hypertriglyceridemia (HTG). Amarin
currently markets Vascepa in both 1g and 500mg capsules. The daily dose of Vascepa is 4
grams per day, taken as two 1g (or four 500mg) capsules twice daily with food. The FDA
granted NCE exclusivity for Vascepa, which ran from July 26, 2012 (the NDA approval date)
until July 26, 2017.
67.
TGs are the most abundant type of fat in the blood and patients with HTG have
elevated TGs. For most patients with elevated TGs, the primary aim of therapy is lowering
LDL cholesterol (LDL-C) because elevated LDL-C is a major cause of coronary heart disease.
But patients with severe HTG have an elevated risk of acute pancreatitis, a painful and
potentially life-threatening condition. In patients with severe HTG, the primary aim of therapy
is preventing acute pancreatitis by reducing TG levels.
68.
While Vascepa was originally approved for the treatment of severe HTG,
Amarin submitted a supplemental NDA in March 2019, seeking approval for a second
indication: as an adjunct to maximally tolerated statin therapy to reduce cardiovascular risk.
The FDA approved this new indication on December 13, 2019, as well as a three-year
exclusivity for Amarin for that indication; the exclusivity for the second indication is scheduled
to expire on December 13, 2022.
69.
Since it first received FDA approval and in the absence of generic competition,
Amarin has been steadily hiking the price of Vascepa. Amarin increased the price of Vascepa by
approximately 51% between 2013 and 2017. Between December 2017 and November 2019, the
price increased by approximately 8% for the 1g strength. Following the approval of the new
indication in 2019, the list price for the 1g strength jumped by 9% as of September 2020.
70.
Vascepa earned Amarin $614 million in net product revenue in 2020, up from
more than $429 million in 2019. Amarin’s revenues have increased dramatically over the years
and the company has stated that it believes Vascepa total net revenue “will grow to reach
multiple billions of dollars” beyond 2020.
71.
Vascepa’s importance to Amarin cannot be overstated: it is the company’s only
product. Indeed, Amarin described itself in its 2018 annual report as “substantially dependent
upon sales of Vascepa in the United States” and admitted that “much of [Amarin’s] near-term
results and value as a company depends on our ability to execute our commercial strategy for
Vascepa in the United States.”27
27 Amarin Corporation PLC, “Annual Report and Accounts for the Year Ended 31
December 2018,” available at https://investor.amarincorp.com/static-files/f0b8f0dd-6bd8-
4344-ba45-f13322a0df84.
72.
As its president and chief executive officer stated in a company press release,
“Amarin’s goal is to protect the commercial potential of Vascepa to 2030.”28 And it endeavored
to do just that through an anticompetitive strategy to prevent generic competition, as described
in more detail below.
B.
Amarin engages in—and loses—patent litigation over Vascepa.
1.
Amarin files, and loses, patent ligation against generic competitors.
73.
On or about July 26, 2016, three generic manufacturers—Hikma, DRL, and
Teva—submitted to the FDA ANDAs seeking approval to market generic versions of Vascepa.
All three manufacturers included in their applications paragraph IV certifications, alleging that
any patents listed in the Orange Book as covering Vascepa were invalid and/or would not be
infringed by their generic product. At the time, Amarin had listed in the Orange Book at least
fourteen patents as covering Vascepa.
74.
On September 21, 2016, Hikma informed Amarin of its ANDA filing through a
paragraph IV letter.29 DRL sent Amarin its paragraph IV letter on September 22, 201630 and
Teva sent its letter on October 7, 2016.
28 Press Release, Amarin Corporation PLC, “Amarin Announces FDA New Chemical Entity
Market Exclusivity Determination for Vascepa® (icosapent ethyl) Capsules,” May 31, 2016,
https://investor.amarincorp.com/static-files/05a3c6e5-31c5-47b4-b43a-3404e5950178.
29 The Hikma ANDA (ANDA No. 209457) was submitted by Roxane Laboratories, Inc. but
in December 2016, Roxane Laboratories, Inc. transferred the ANDA to West-Ward
Pharmaceuticals International Limited. West-Ward Pharmaceuticals International Limited
changed its name to Hikma Pharmaceuticals International Limited and, on July 8, 2019,
transferred ANDA No. 209457 to Hikma Pharmaceuticals USA Inc.
30 On or about July 11, 2018, DRL, through Dr. Reddy’s Laboratories, Inc., submitted to
the FDA a supplement to its ANDA (ANDA No. 209499) with paragraph IV certifications for
500 mg icosapent ethyl capsules. On July 11, 2018, DRL notified Amarin that it had submitted
the supplement to ANDA No. 209499, with paragraph IV certifications for five of the Orange
Book listed patents.
75.
Hikma, Teva, and DRL all sought to launch generic 1g Vascepa capsules for the
treatment of severe HTG. As required by law, their ANDAs adopted the “same” labelling as
Vascepa, which was then approved only for treatment of severe HTG.31 When Amarin obtained
a new indication for Vascepa in 2019, Hikma and DRL carved out this second, later indication
from their labels, as permitted by the FDCA.
76.
Because Hikma, Teva, and DRL filed their ANDAs on the same day, each was
considered a first filer and was entitled to 180-days of (shared) exclusivity for Vascepa, subject
to their ability to obtain tentative approval from the FDA within thirty months of submitting
their ANDA. If satisfied, this would lead to three, and potentially four, generic Vascepa
products on the market at the start of generic competition: Hikma’s, DRL’s, and Teva’s ANDA
generics, and potentially (and likely) Amarin’s authorized generic.
77.
Amarin sued Hikma for patent infringement on October 31, 2016 in a Nevada
federal court.32 Amarin sued DRL on November 4, 201633 and Teva on November 18, 2016.34
Amarin’s lawsuits against all three generics were consolidated in January 2017.35 Amarin and
Teva settled their litigation shortly thereafter, on May 24, 2018.
31 See 21 U.S.C. §§ 355(j)(2)(A)(v), (j)(4)(G).
32 See Amarin Pharma Inc. et al. v Hikma Pharmaceuticals USA Inc. et al, Case No. 2:16-cv-
025250-MMD-NJK (D. Nev.). Amarin alleged infringement of the following patents: U.S.
Patent No. 8,293,728, U.S. Patent No. 8,318,715, U.S. Patent No. 8,357,677, U.S. Patent No.
8,367,652, U.S. Patent No. 8,377,920, U.S. Patent No. 8,399,446, U.S. Patent No. 8,415,335,
U.S. Patent No. 8,426,399, U.S. Patent No. 8,431,560, U.S. Patent No. 8,440,650, U.S. Patent
No. 8,518,929, U.S. Patent No. 8,524,698, U.S. Patent No. 8,546,372, and U.S. Patent No.
8,617,594.
33 Amarin Pharm., Inc. et al. v. Dr. Reddy’s Labs, Inc. et al., Case No. 2:16-cv02562 (D. Nev.).
34 Amarin Pharm., Inc. et al. v. Teva Pharm. USA, Inc. et al., Case No. 2:16-cv-02658 (D. Nev.).
35 Amarin Pharm. Inc. et al. v Hikma Pharm. USA Inc. et al, Case No. 2:16-cv-025250MMD-
NJK (D. Nev.), ECF No. 30.
78.
Amarin asserted fourteen patents against Hikma and DRL. All of the allegedly
infringed claims of those patents were directed to methods of treating severe HTG by
administering 4 grams per day of purified icosapent ethyl (EPA).
79.
Amarin’s litigation against Hikma and DRL proceeded to a bench trial in
January 2020. On March 30, 2020, Judge Miranda M. Du invalidated all of Amarin’s asserted
patents and entered judgment for Hikma and DRL.36 Judge Du concluded that while Hikma’s
and DRL’s ANDAs infringed, all of Amarin’s asserted patent claims were obvious, and thus the
patents invalid.
80.
Amarin immediately released a public statement expressing its disagreement
with the verdict and detailing Amarin’s ongoing “effort to prevent a generic launch.”37
81.
Amarin appealed Judge Du’s order to the Court of Appeals for the Federal
Circuit. On September 3, 2020, the appellate panel upheld the trial court’s verdict, summarily
affirming the invalidation of Amarin’s patents the day after oral argument.38 The court denied
Amarin’s motions for rehearing and rehearing en banc on November 4, 2020.39 Amarin filed a
petition of certiorari with the Supreme Court on February 11, 2021.40
82.
After the Court of Appeals order, Amarin again released a public statement
criticizing the outcome of the litigation. This time, Amarin foreshadowed that generic
manufacturers would have problems launching their products, despite their legal victories, due
36 Amarin Pharm., Inc. v. Hikma Pharm. USA Inc., 449 F. Supp. 3d 967 (D. Nev.), aff’d, 819 F.
App’x 932 (Fed. Cir. 2020).
37 Amarin Corporation PLC, “Amarin Comments on Ruling in Vascepa® ANDA Litigation”
(Mar. 30, 2020), available at https://investor.amarincorp.com/news-releases/news-release-
details/amarin-comments-ruling-vascepar-anda-litigation.
38 Amarin Pharma, Inc. v. Hikma Pharms. USA Inc., Nos. 2020-1723, 2020-1901 (Fed. Cir.
Sep. 3, 2020), ECF No. 78.
39 Id., ECF No. 90.
40 Id., ECF No. 92.
to API supply issues. Amarin revealed that it “anticipate[d] that generics companies, when
they launch in the United States, are likely to have limited supply capacity for VASCEPA,”
without explaining the basis for this belief.41
2.
Amarin settles with Teva and Apotex, significantly delaying the date of
their generic launch.
83.
While Amarin’s litigation with Hikma and DRL was pending, other would-be
competitors filed ANDAs for generic Vascepa and Amarin began negotiating settlement
agreements with each.
84.
Amarin settled first with Teva, on May 24, 2018.42 Under the terms of their
settlement, Teva delayed its generic Vascepa launch until August 9, 2029. However, the parties
agreed that the August 2029 date would be accelerated in certain circumstances, including if
Amarin’s patents were invalidated in patent litigation (including the pending litigation with
Hikma and DRL). Amarin did not commit to supplying Teva with icosapent ethyl API.
85.
Apotex filed its ANDA seeking to launch generic Vascepa in approximately July
2016, just after the three first-filers, and sent Amarin a paragraph IV letter in September 2016.
However, Apotex’s 2016 ANDA did not include any of the patents included in the Hikma and
DRL litigation. Apotex amended its ANDA in May 2020 to challenge additional Amarin
patents concerning the HTG indication, including the patents litigated by Hikma and DRL.
41 Amarin Corporation PLC, “Amarin Provides Update Following Ruling in Vascepa®
Anda Patent Litigation” (Sep. 3, 2020), available at https://investor.amarincorp.com/news-
releases/news-release-details/amarin-provides-update-following-ruling-vascepar-anda-patent.
42 Amarin Corporation PLC, “Amarin Announces Patent Litigation Settlement Agreement
with Teva,” (May 24, 2018), available at https://investor.amarincorp.com/news-releases/news-
release-details/amarin-announces-patent-litigationsettlement-agreement-teva.
86.
In June 2020, Amarin announced that it had settled with Apotex.43 The two
companies agreed on the same August 9, 2029 launch date as Teva, with a similar acceleration
in the event that Amarin were to lose its appeal of the Hikma and DRL verdict (including any
rehearing en banc). Amarin also disclosed that the settlement covered both indications of
Vascepa, stating that “the agreement also substantially resolves future litigation with Apotex
that could have ensued related to the December 2019 cardiovascular risk reduction indication
of VASCEPA[.]”44 As with Teva, Amarin did not make any API supply commitments as a part
of its settlement with Apotex.
C.
Generic competitors obtain the regulatory approvals needed to launch in mid-
2020.
87.
As their litigation against Amarin proceeded in the courts, Hikma and DRL
simultaneously sought the regulatory approvals they needed to launch generic Vascepa.
88.
The FDA approved Hikma’s ANDA for the 1g strength on May 21, 2020. On
August 7, 2020, the FDA also granted final approval of DRL’s ANDA for the 1g strength and
tentative approval for the 500mg strength.
89.
These final approvals removed any remaining legal impediment to launch, which
meant that DRL and Hikma were permitted to launch their generics at least for the 1g strength
as soon as they were ready.
90.
And as the district court proceedings neared closure and then the appeal
commenced, Hikma had begun to evaluate its options for an at-risk launch before the appellate
43 Amarin Corporation PLC, “Amarin Announces Patent Litigation Settlement Agreement
with Apotex Inc.” (June 16, 2020), available at https://investor.amarincorp.com/news-releases/
news-release-details/amarin-announces-patent-litigation-settlement-agreement-apotex.
44 Id.
court ruled (and before Amarin had exhausted its petitions for rehearing) but after Hikma
received final approval.45
D.
Amarin impedes generic competition for Vascepa through anticompetitive API
agreements.
91.
After invalidating Amarin’s patents and obtaining the required FDA approval,
no regulatory or legal barriers prevented at least two generic competitors—Hikma and DRL—
from launching generic Vascepa, introducing price competition, and driving down prices for
plaintiff and other Vascepa purchasers.
92.
But Amarin impeded the regular operation of the market, as it worked to
artificially prolong its Vascepa monopoly by making it impossible for either Hikma or DRL to
obtain the API needed for generic launch on a reasonable timeline.
1.
Amarin uses exclusive licenses to tie up API supply.
93.
The courts having invalidated more than a dozen patents and crushing its patent
litigation strategy, and facing imminent generic entry on its only product, Amarin turned to its
next trick to unlawfully protect Vascepa from price competition: preventing its competitors
from obtaining icosapent ethyl, the active pharmaceutical ingredient in brand and generic
Vascepa.
94.
The FDA must approve an API supplier’s facilities, process, and product before a
particular API can be used. Rather than beginning this process anew for each new generic
drug—which involves substantial time and expenses, and risks failure to obtain FDA
approval—it is more efficient and less expensive to source API from a manufacturer that
45 Kyle Blankenship, “Disaster At Amarin: Patent Loss Spurs Stock Spiral, But All Hope
Might Not Be Lost,” Fierce Pharma (Mar. 30, 2020), available at
https://www.fiercepharma.com/pharma/disaster-at-amarin-stocks-plummet-70-after-patent-
challenge-loss-for-vascepa-maker
already has FDA approval or that is a good candidate for FDA approval because its
manufacturing practices already satisfy FDA standards.
95.
To identify viable API manufacturers, generic companies often search for DMFs,
the submissions API suppliers make to the FDA providing detailed information about their
facility and process for a given API. By filing a DMF, a supplier that it believes its
manufacturing process meets the FDA’s standards. Sourcing API from a DMF holder
diminishes a company’s risk and makes it easier for generics to come to market.
96.
To thwart generic entry, Amarin sought to cut off potential generic competitors’
access to the suppliers of icosapent ethyl API that had an FDA-approvable manufacturing
process, particularly those who had submitted DMFs. By locking those suppliers into lucrative
exclusive supply agreements or de facto exclusive supply agreements, Amarin forced generic
competitors to work with less established API suppliers, causing the would-be generic
competitors substantial additional costs and delay (to the extent they continued to attempt to
develop generic Vascepa at all).
97.
Since as early as 2010, Amarin entered into exclusive or de facto exclusive
agreements with the only icosapent ethyl API suppliers with sufficient ready capacity to
support a commercial launch of generic icosapent ethyl drug product. These suppliers include
Novasep Holding SAS (Novasep, including its subsidiary Finorga SAS, through a consortium
with Slanmhor Pharmaceutical, Inc.), Nisshin Pharma Inc. (Nisshin), BASF Group (BASF,
formerly Equateq), and Chemport Inc. (Chemport).
98.
Amarin entered into the first of these API supply agreements with Nisshin in
November 2010. Amarin initially purchased all of its API from Japan-based Nisshin.
99.
In December 2012, Amarin announced an “exclusive … consortium”
with Canada-based Slanmhor, “the world’s largest supplier of concentrated omega-3 fatty acid
products.”46 Amarin explained that “Slanmhor, through exclusive agreements, is collaborating
with [Royal DSM N.V.]/[Ocean Nutrition Canada] for the supply of intermediate omega-3
oil, and Novasep, a global leader in purification technologies and API manufacturing.”
Together, this consortium of companies would work to “reliably source Vascepa.”
100.
About one week later, Amarin announced that it had submitted a supplemental
NDA (sNDA) to the FDA, seeking to add Chemport as an additional icosapent ethyl API
supplier.47 Amarin and Chemport had signed an exclusive supply agreement in March 2011. In
announcing the Chemport sNDA, Amarin revealed that adding superfluous suppliers was a part
of its generic delay strategy, stating that the “submission contributes to the planned expansion
of the Vascepa manufacturing supply chain and is additional progress toward Amarin’s goal to
protect the commercial potential of Vascepa to beyond 2030 through a combination of patent
protection, regulatory exclusivity, trade secrets and by taking advantage of manufacturing barriers
to entry.”48 Amarin announced that the FDA approved the Chemport sNDA in April 2013.49
101.
Just two weeks after announcing the Chemport sNDA, Amarin disclosed it had
also submitted an sNDA to add BASF as an API supplier in December 2012.50 In its press
46 Amarin Corporation PLC, “Amarin Announces Additional Vascepa(R) (Icosapent Ethyl)
Supplier,” (Dec. 11, 2012), available at https://investor.amarincorp.com/news-releases/news-
release-details/amarin-announces-additional-vascepar-icosapent-ethyl-supplier.
47 Amarin Corporation PLC, “Amarin Announces Submission of Supplemental New Drug
Application for Chemport, Inc. as an Additional Vascepa(R) Active Pharmaceutical Ingredient
Supplier,” (Dec. 19, 2012), available at https://investor.amarincorp.com/news-releases/news-
release-details/amarin-announces-submission-supplemental-new-drug-application.
48 Id. (emphasis added).
49 Amarin Corporation PLC, “Amarin Announces Approval of Supplemental New Drug
Application for Chemport, Inc. as an Additional Vascepa(R) Active Pharmaceutical Ingredient
Supplier,” (Apr. 18, 2013), available at https://investor.amarincorp.com/news-releases/news-
release-details/amarin-announces-approval-supplemental-new-drug-application.
50 Amarin Corporation PLC, “Amarin Announces Submission of Supplemental New Drug
Application for BASF as an Additional Vascepa(R) Active Pharmaceutical Ingredient Supplier,”
release, Amarin doubled down on its disclosure that the acquisition of exclusive supply
agreements was intended to delay generic entry by “protect[ing] the commercial potential of
Vascepa” and “taking advantage of manufacturing barriers to entry.”51 Amarin announced that
the sNDA was approved on April 30, 2013.52
102.
On August 13, 2013, Amarin formally added yet another API supplier: France-
based Novasep.53 Although it had announced in 2012 that Novasep would be working with
Slanhmor as a part of the companies’ global supply agreement, Amarin submitted an sNDA to
add Novasep Group, S.A.S., through its subsidiary Finorga S.A.S., as an additional icosapent
ethyl API supplier in 2013. The Novasep sNDA was likewise described as a way to “protect”
Vascepa and utilize “manufacturing barriers to entry.”
103.
Amarin’s agreements with these API suppliers contain minimum purchase
requirements in exchange for exclusivity. Amarin has publicly represented that it buys “all” of
the API these manufacturers produce. At least some of these agreements also require Amarin to
pay the suppliers in cash if it cannot satisfy the minimum purchase requirement in order for the
suppliers to maintain exclusivity with Amarin. In 2011, Amarin disclosed that pursuant to its
deal with Chemport, it was required to make minimum annual purchases from Chemport
ranging from approximately $7.5 to $15 million and make a minority share equity investment
available at https://investor.amarincorp.com/static-files/273659d8-76b0-419a-bac0-
54dfc3c38001.
51 Id.
52 Amarin Corporation PLC, “Amarin Announces Approval of Supplemental New Drug
Application for BASF as an Additional Vascepa(R) Active Pharmaceutical Ingredient Supplier,”
(Apr. 30, 2013), available at https://investor.amarincorp.com/news-releases/news-release-
details/amarin-announces-approval-supplemental-new-drug-application-basf.
53 Amarin Corporation PLC, “Amarin Announces Submission Of Supplemental New Drug
Application For Novasep As Fourth Vascepa(R) Active Pharmaceutical Ingredient Supplier,”
(Aug. 26, 2013), available at https://investor.amarincorp.com/news-releases/news-release-
details/amarin-announces-submission-supplemental-new-drug-application-2.
in Chemport of up to $3.3 million. Likewise, Amarin’s minimum purchasing requirements with
BASF cost Amarin between $10 and $20 million per year in order to maintain exclusivity.
104.
On information and belief, the quantity of API guaranteed by Amarin’s
minimum purchase agreements exceeds Amarin’s needs to produce Vascepa, evidencing an
alternative motive, beyond supplying the API quantities needed for production, for entering
into the agreements. This over-purchasing by Amarin of unnecessary API is a profit sacrifice
by Amarin that makes no economic sense absent the anticompetitive effects of Amarin’s scheme
to delay fulsome generic entry by locking up API supply.
105.
Amarin has touted the anticompetitive strategy behind its API supply contracts
in its securities filings, stating in 2012 that its “agreements with our [API] suppliers include
minimum purchase obligations and limited exclusivity provisions based on such minimum
purchase obligations. If we do not meet the respective minimum purchase obligations in our
supply agreements, our suppliers, in certain cases, will be free to sell the active pharmaceutical
ingredient of Vascepa to potential competitors …. While we anticipate that intellectual
property barriers and FDA regulatory exclusivity will be the primary means to protect the
commercial potential of Vascepa, the availability of Vascepa active pharmaceutical ingredient from
our suppliers to our potential competitors would make our competitors’ entry into the market easier and
more attractive.”
106.
There is no legitimate business rationale or pro-competitive justification for
Amarin’s API exclusivity agreements. Amarin did not need, and was not seeking, either this
many manufacturers of or this level of supply of icosapent ethyl API, as Amarin has already
sourced more API than it can use. Amarin reportedly stated in December 2018 that it had
enough API supply for at least two years, totaling $1 billion in Vascepa sales. Given Amarin’s
existing API supplies, it has no legitimate business reason to lock up the quantity of icosapent
ethyl API encompassed by its exclusivity agreements.
107.
It is industry practice for a brand drug manufacturer to have only one to two
API suppliers, even though more may be available, because qualifying suppliers and ensuring
quality control is costly. Without a return elsewhere, Amarin retaining at least five exclusive
API suppliers when there is no indication of supply issues makes no economic sense.
108.
The purpose of Amarin’s API supply agreements is not to support its own
supply chain, but rather to starve any potential generic competitors. In essence, Amarin is
paying API suppliers not to do business with would-be generic competitors, either through
literal exclusive agreements or through agreements that allow Amarin to effectively acquire all
available API supply. Indeed, Amarin publicly admitted in November 2020 that it “continue[d]
to monitor who might or might not be supplying generics.”
109.
As a result of Amarin’s exclusive supply agreements, potential manufacturers of
generic Vascepa products were unable to procure enough icosapent ethyl API to support
fulsome generic launch—or launch at all—significantly delaying generic competition and
harming purchasers.
110.
Amarin recognizes that an inability to work with established API suppliers,
including those with DMFs, introduces significant delay. In 2020, Amarin President and CEO
John Thero described the expense and delay of associated with finding and securing an API
supplier:
It’s expensive. The lead time even for a product facility that’s up
and running is roughly 6 months to deliver product. The lead
time, taking something from a brownfield to a new plant that’s in
and qualified, it can be 2, 3 or more years.
111.
Indeed, this delay in generic competition was Amarin’s plan. Amarin repeatedly
reassured its investors that they need not worry about the threat generic entry posed to
Amarin’s profits because generics would be unable to secure enough API supply to present any
real competition to Amarin’s bottom line.
112.
In April 2020, Amarin’s CEO told investors that the company had “plans” for its
investors to continue benefiting from Vascepa’s high prices—plans that involved tracking API
suppliers’ contacts with generic competitors. “We have heard from various suppliers that they
have been approached regarding supplying API for generic use. These suppliers informed us
that they have turned down such approaches for various reasons, including that they don’t have
excess capacity,” John Thero revealed, failing to mention the lack of capacity was the intent and
result of Amarin’s agreements with the suppliers. “We don’t have perfect visibility of the
dynamics that could contribute to the timing and capacity of a generic launch,” Thero
explained, “but we either have plans in place already or we are rapidly putting plans in place for
a range of possible scenarios. We believe that there is an opportunity for shareholders to
benefit under the most likely of these scenarios.”
113.
Months later, in August 2020, Amarin publicly stated that even if DRL’s and
Hikma’s invalidation of Amarin’s patents was affirmed on appeal, “Amarin anticipates that for
an extended period of time a significant portion of the icosapent ethyl market may remain
branded due to potential supply volume constraints for high quality, generic versions of VASCEPA.”54
114.
In a September 2020 press release issued immediately after the Federal Circuit
upheld the invalidation of its patents, Amarin stated its “anticipat[ion] that generic companies,
54 Amarin Corporation, “Amarin Reports Second Quarter 2020 Financial Results and
Provides Update on Operations” (Aug. 4, 2020), available at
https://investor.amarincorp.com/news-releases/news-release-details/amarin-reports-second-
quarter-2020-financial-results-and.
when they launch in the United States, are likely to have limited supply capacity for
VASCEPA.”55
115.
In November 2020, the same month of Hikma’s limited release, Amarin
executives were asked when they expected generics to obtain significant market share,
particularly considering Hikma’s API sourcing issues. President and CEO John Thero
indicated that he did not anticipate generics presenting a threat to Amarin’s Vascepa monopoly
for years, responding that “putting in new manufacturing lines and qualifying those lines” to
supply API “tends to take a couple of years.” He reiterated that “the supply is pretty limited,”
the result of Amarin’s anticompetitive actions.
116.
In a 2021 presentation, Amarin described the generic market environment for
Vascepa as “atypical” and told its investors that it “expected” generic supply “to remain limited
and potentially variable due to manufacturing complexities, costs and lead times[.]”
117.
Rather than disclose that its supply agreements with API manufacturers is
delaying and frustrating generic launch, Amarin has made repeated, false statements blaming
the generic manufacturers for a “shortfall” in API supply.
118.
In April 2021, Amarin publicly claimed that Hikma’s and DRL’s “lack of
adequate planning, investment, knowhow and expertise regarding this fragile active
ingredient” was to blame for their inability to obtain icosapent ethyl API.
119.
Similarly, in a May 2021 presentation to investors, Amarin repeated its
misrepresentation, blaming the delay in generic launch on “limited investment by generic
companies in supply capacity” rather than revealing the anticompetitive steps it had taken to
effectively block these generic companies from obtaining critical API.
55 Amarin Corporation, “Amarin Provides Update Following Ruling in Vascepa® ANDA
Patent Litigation” (Sep. 3, 2020), available at https://investor.amarincorp.com/news-
releases/news-release-details/amarin-provides-update-following-ruling-vascepar-anda-patent
120.
Amarin’s claims that generic manufacturers are to blame for their inability to
obtain icosapent ethyl API were, and remain, false. Amarin misrepresented the cause of API
supply issues to conceal its efforts to exclude generic competition, frustrate the ability of
generic companies to purchase API, and obscure the exclusionary nature and extent of
Amarin’s API purchasing agreements.
121.
Contrary to Amarin’s claims, generic manufacturers were unable to source the
required icosapent ethyl API due to Amarin’s anticompetitive conduct. Through their false and
deceptive statements, the defendants misled the public about the existence and nature of their
anticompetitive scheme and created the false impression that they were engaged in fair and
open competition.
122.
In April 2021, Amarin revealed that it is being investigated by the U.S. Federal
Trade Commission and the New York Attorney General for its API-related conduct.
2.
Amarin’s anticompetitive conduct handicaps Hikma’s launch of generic
Vascepa.
123.
After the trial court invalidated Amarin’s Vascepa patents and Hikma received
final approval from the FDA, no patent or regulatory barriers prevented Hikma from launching
its generic Vascepa product. Hikma was free to launch its generic product in May 2020.
124.
In November 2020, after the appellate court upheld its patent victory against
Amarin, Hikma effectuated a limited launch of its generic Vascepa product.
125.
But Hikma’s efforts were significantly impeded by Amarin’s anticompetitive
efforts to lock up the supply of icosapent ethyl API. As Hikma’s chief executive officer
explained, Hikma launched in only limited quantities in November 2020 because Hikma was
“restrained” in building inventory, “and that is linked to the access to the active ingredients.”
126.
Hikma’s inability to obtain sufficient API for a fulsome generic launch was
anticipated and intended by Amarin, who had forecasted that generics would face this issue for
months. As Hikma’s CEO Siggi Olafsson observed, it is “interesting that the CEO of Amarin
seems to know so much more than I do about the supply of the generics.”
127.
Amarin recognized that Hikma’s launch was “atypical” for a generic. When
operating as the regulatory framework intends, generic competitors quickly capture up to 80%
of market share by offering a lower price than the brand. Here, however, given the limited
launch due to the lack of API, Hikma secured only 9% of the icosapent ethyl market.
128.
But for Amarin’s anticompetitive restriction of the required API, Hikma would
have had a fulsome generic launch in November 2020, allowing for significant competition on
Vascepa pricing and lower costs for the plaintiff and members of the class.
3.
Amarin’s anticompetitive conduct thwarts DRL’s launch of generic
Vascepa.
129.
DRL developed its generic icosapent ethyl drug product, prevailed in patent
litigation with Amarin, and obtained the necessary regulatory approval to market its generic
drug by August 2020. But DRL has not launched and cannot launch because Amarin’s illegal
conduct foreclosed the supply of icosapent ethyl API. Absent Amarin’s anticompetitive conduct,
DRL would have launched its generic drug product to compete with Amarin’s branded Vascepa
in August 2020 when it received the necessary approval from the FDA.
130.
After prevailing in patent litigation in district court in March 2020, DRL
promptly began preparing to launch its generic product. Even before receiving final FDA
approval or affirmance by the Federal Circuit of the district court win, DRL contacted all API
suppliers holding a DMF for icosapent ethyl API. But DRL quickly learned that Amarin had
foreclosed all such suppliers with sufficient capacity to support a commercial launch in a timely
manner. The other DMF holders for icosapent ethyl API do not have sufficient capacity to
support a commercial launch in the next one to two years.
131.
When its efforts to identify an API supplier with a DMF for icosapent ethyl
API—the most commercially reasonable and expedient option—failed, DRL had to resort to
finding a new supplier and partnering with it to develop icosapent ethyl API from start,
introducing significant cost and delay.
132.
Despite DRL’s best efforts to launch in a timely manner, it is still unable to do
so. The only reason why DRL still cannot launch is because Amarin contracted with suppliers
of icosapent ethyl API not to sell to generic manufacturers including DRL, through exclusive
contracts or and by buying up all available supplies, such that DRL cannot acquire the
necessary API to support a timely commercial launch. But for Amarin’s conduct, DRL would
have launched as early as when it received FDA approval in August 2020.
4.
Amarin sues Hikma for induced infringement.
133.
Shortly after Hikma’s limited November 2020 generic launch, Amarin sued
Hikma in a Delaware federal court for patent infringement. Hikma has FDA approval to market
and sell generic Vascepa for the initial approved indication (adjunct to diet to reduce
triglyceride levels in adult patients with severe hypertriglyceridemia) and has lawfully carved
out any reference to the second, later indication (adjunct to maximally tolerated statin therapy
to reduce cardiovascular risk). Yet in this new litigation, Amarin alleges that Hikma’s sale of
generic Vascepa to treat severe HTG induced infringement of Amarin’s patents for the later
cardiovascular risk indication.
134.
As a remedy, Amarin seeks an injunction removing all of Hikma’s generic
Vascepa product from the market, eliminating all generic competition and restoring Amarin’s
monopoly.
135.
Amarin’s most recent litigation against Hikma is the latest step in its long-
running scheme to delay and thwart generic competition for Vascepa and unlawfully prolong
its Vascepa monopoly.
VII.
AMARIN’S MONOPOLY POWER
136.
The relevant product market is FDA-approved icosapent ethyl drug products
(branded Vascepa and its AB rated generic equivalents). Since 2013, Amarin has possessed
monopoly power in the United States with respect to this market.
137.
At competitive prices, Vascepa does not exhibit significant, positive cross-
elasticity of demand with respect to price with any product other than AB-rated generic
Vascepa.
138. Other, non-EPA pharmaceutical products are not regarded as reasonable
substitutes for Vascepa. Treating patients with severe HTG with purified EPA reduces without
increasing LDL-C, the bad-cholesterol. Other treatments for severe HTG—include treatments
that contain lower levels of EPA as well as docosahexaenoic acid (DHA), such as Lovaza
(omega-3-acid ethyl esters)—increase LDL-C levels, which then often requires the
administration of a separate concurrent cholesterol-lowering drug, such as a statin, just to
address that LDL-C increase. Vascepa only contains EPA and does not affect LDL-C levels.
Additionally, purified EPA reduces cardiovascular risk in severely hypertriglyceridemic
patients on top of a statin, the only TG-lowering treatment shown to confer such a benefit.
Treating severe HTG with purified EPA therefore offers several unique benefits and is not
substitutable for non-EPA treatments.
139.
Other fish-oil based supplements are not regarded as reasonable substitutes for
Vascepa. FDA research into these products has found that they do not offer the therapeutic
benefits of purified EPA and are not intended or approved to treat cardiovascular risk. Further,
as these supplements are not prescription drugs, they are not subject to FDA regulations and
thus are not required to have well-controlled studies to demonstrate safety, efficacy, potency,
and purity before sale.
140.
Even after Hikma launched with limited quantities in November 2020, due to the
limited nature of the launch, Amarin’s market share did not decrease significantly and remains
above 85%. For example, Amarin’s chief executive officer commented that even if Hikma could
find “supply capacity to support tens of millions of dollars in revenue [in the nearterm] … such
level would only be a small portion of Amarin’s total revenue and even a smaller portion of
Vascepa’s potential.”
141.
There is direct evidence of Amarin’s monopoly power. Amarin profitably
increased the price of Vascepa by approximately 51% between 2013 and 2017. Between
December 2017 and November 2019, the price increased by approximately 8% for the 1g
strength. Finally, in the period between the approval of Vascepa’s new indication in 2019 and
September 2020, Amarin raised the price an additional 9%.
142.
Despite Amarin’s regular and large price increases for Vascepa, doctors continue
to prescribe Vascepa instead of switching patients to non-icosapent ethyl products or non-
FDA- approved icosapent ethyl products.
143.
There is also indirect evidence of Amarin’s monopoly power. Amarin has had a
100% share of the relevant market for icosapent ethyl drug products approved for sale in the
United States by the FDA. Amarin maintained this 100 percent market share from 2013
through November 2020, and currently maintains a more than 85 percent share.
144.
The “SSNIP” test (also known as the “hypothetical monopolist” test) further
confirms that the relevant market consists of FDA-approved icosapent ethyl products. The
SSNIP test is a methodology used by antitrust economists to define a relevant market based on
empirical information. The objective of a SSNIP test is to identify the narrowest set of products
for which a hypothetical monopolist could profitably impose a small but significant and non-
transitory increase in price (SSNIP). If enough purchasers would accept a SSNIP rather than
switch to another product, such that the price increase would be profitable, the product set that
was chosen constitutes a relevant antitrust market.
145.
Here, Amarin increased the price of Vascepa by more than 51% between 2013
and 2017, and instituted additional price increases every year since. It profitably maintained
these price increases for more than 7.5 years. That is substantially more than “a small but
significant and non-transitory increase in price.”
146.
In sum, Amarin has had a proven ability to impose a price increase far greater
than a SSNIP while retaining enough sales to make the price increase profitable for a
protracted period. This demonstrates under the SSNIP test that FDA-approved icosapent ethyl
products are the relevant product market for purposes of this litigation.
147.
The relevant geographic market is the United States. Pharmaceutical products
are sold and regulated on a nationwide basis. Additionally, because the U.S. market is limited to
FDA-approved products, it can only include products sold inside the United States.
148.
There are substantial barriers to entry into the market for FDA-approved
icosapent ethyl products. Potential new entrants must obtain FDA approval, a process that is
expensive and can take several years. Moreover, Amarin has maintained its monopoly power by
erecting additional barriers to entry, including exclusive supply agreements with the only
potentially viable suppliers of icosapent ethyl API, thereby blocking generic companies from
procuring the essential ingredient needed to manufacture generic Vascepa products.
VIII. ANTITRUST INJURY
149.
The defendants’ exclusive API sourcing agreements blocked and delayed the
generic competition that would have reduced prices for Vascepa purchasers, including the
plaintiff and members of the proposed class.
150.
The plaintiff and the proposed class paid substantial sums to purchase Vascepa
during the relevant times. Because of Amarin’s anticompetitive and deceptive conduct, the
plaintiff and members of the proposed class have been compelled to pay and continue to pay
artificially inflated prices for Vascepa. Those prices have been substantially higher than the
prices the plaintiff and members of the proposed class would have paid but for the defendants’
illegal conduct.
151.
The plaintiff and members of the proposed class have sustained substantial
losses and damage to their business and property in the form of these overcharges. The full
amount, forms, and components of such damages will be determined after discovery and upon
proof at trial.
152.
But for Amarin’s anticompetitive conduct, one or more generic competitors
would have entered the market for Vascepa by August 2020 or earlier.
153.
Amarin’s efforts to restrain competition in the relevant market has affected, and
continues to substantially affect, interstate and intrastate commerce throughout the United
154.
Amarin’s anticompetitive efforts delayed and deterred generic competitors,
preventing price competition for Vascepa.
155.
Prices for Vascepa have been and will continue to be inflated as a direct and
foreseeable result of the defendants’ anticompetitive conduct. The inflated prices that the
plaintiff and members of the proposed class have paid and will continue to pay are traceable to,
and the foreseeable result of, the defendants’ overcharges.
IX.
CLASS ACTION ALLEGATIONS
156.
The plaintiff brings this action on behalf of itself and all others similarly situated
under Rules 23(a) and 23(b)(3) of the Federal Rules of Civil Procedure:
All persons or entities in the United States and its territories who
indirectly purchased, paid and/or provided reimbursement for
some or all of the purchase price for generic and/or brand
Vascepa from Amarin, Hikma, or any other generic Vascepa
manufacturer or any agents, predecessors, or successors thereof,
for consumption by themselves, their families, or their members,
employees, insureds, participants, or beneficiaries, other than for
resale, during the period from August 7, 2020 through and until
the anticompetitive effects of the defendants’ unlawful conduct
cease.
157.
Excluded from the class are Amarin and any of its officers, directors,
management, employees, parents, subsidiaries, and affiliates.
158.
Also excluded from the class are the government of the United States and all
agencies thereof, and all state or local governments and all agencies thereof.
159.
Members of class are so numerous and geographically dispersed that joinder of
all members is impracticable. The plaintiff believes that the class is numerous and widely
dispersed throughout the United States. Moreover, given the costs of complex antitrust
litigation, it would be uneconomic for many plaintiffs to bring individual claims and join them
together. The class is readily identifiable from information and records in the defendants’
possession.
160.
The plaintiff’s claims are typical of the claims of the members of the class. The
plaintiff and all members of the class were damaged by the same wrongful conduct of the
defendants – i.e., as a result of the defendants’ conduct, they paid artificially inflated prices for
brand Vascepa and any available AB-rated generic equivalents.
161.
The plaintiff will fairly and adequately protect and represent the interests of the
class. The interests of the plaintiff are coincident with, and not antagonistic to, those of the
other members of the class.
162.
Counsel who represent the plaintiff are experienced in the prosecution of class
action antitrust litigation, and have particular experience with class action antitrust litigations
involving pharmaceutical products.
163.
Questions of law and fact common to the members of the class predominate over
questions that may affect only individual class members, because the defendants have acted on
grounds generally applicable to the entire class, thereby making overcharge damages with
respect to the class as a whole appropriate. Such generally applicable conduct is inherent in the
defendants’ wrongful conduct.
164.
Questions of law and fact common to the class include:
a. Whether the defendants unlawfully maintained monopoly power through all
or part of their overall anticompetitive generic suppression scheme;
b. To the extent any procompetitive justifications exist, whether there were
less restrictive means of achieving them;
c. Whether direct proof of the defendants’ monopoly power is available and, if
so, whether it is sufficient to prove the defendants’ monopoly power without
the need to define the relevant market;
d. Whether the defendants’ scheme, in whole or in part, has substantially
affected interstate commerce;
e. Whether the defendants’ unlawful conduct, in whole or in part, caused
antitrust injury through overcharges to the business or property of the
plaintiff and the members of the class;
f. Whether Amarin’s API supply agreements were necessary to yield some
cognizable, non-pretextual procompetitive benefit;
g. Whether Amarin’s anticompetitive conduct harmed competition;
h. Whether Amarin possessed the ability to control prices and/or exclude
competition for Vascepa from January 2013 through the present;
i. Whether Amarin’s unlawful monopolistic conduct was a substantial
contributing factor in causing some amount of delay of the entry of AB-rated
generic Vascepa;
j. Determination of a reasonable estimate of the amount of delay Amarin’s
unlawful monopolistic conduct caused, and;
k. The quantum of overcharges paid by the class in the aggregate.
165.
class action treatment is a superior method for the fair and efficient adjudication
of the controversy. 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, or expense that numerous individual actions would
engender. The benefits of proceeding through the class mechanism, including providing injured
persons or entities a method for obtaining redress on claims that could not practicably be
pursued individually, substantially outweighs potential difficulties in management of this class
166.
The plaintiff knows of no special difficulty to be encountered in litigating this
action that would preclude its maintenance as a class action.
X.
FEDERAL CLAIMS FOR RELIEF
COUNT ONE: VIOLATION OF 15 U.S.C. § 1
CONTRACT, COMBINATION, OR CONSPIRACY IN RESTRAINT OF TRADE
167.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
168.
Amarin violated 15 U.S.C. § 1 by entering into unlawful API supply agreements
that restrained competition in the market for brand Vascepa and its generic equivalents.
169.
The plaintiff has been injured in its business or property by the violation of 15
U.S.C. § 1. The plaintiff’s and members of the class’ injuries consist of having paid higher prices
for its icosapent ethyl than it would have paid in the absence of those violations. Such injury,
called “overcharges,” is of the type that the antitrust laws were designed to prevent, and it
flows from that which makes Amarin’s conduct unlawful.
170.
From the launch of brand Vascepa in January 2013 through the present, Amarin
possessed monopoly power in the relevant market – i.e., the market for sales of Vascepa in the
United States. But for Amarin’s wrongful conduct, as alleged herein, Amarin should have lost
its monopoly power in the relevant market before August 2020.
171.
From 2010 through 2013, Amarin entered into a series of contracts with the API
suppliers Slanmhor, Novasep, Nisshin, BASF, and Chemport under which Amarin paid these
suppliers in exchange for their agreement not to supply icosapent ethyl API to Amarin’s
would-be generic competitors. Amarin entered into these in order to, and with the likely effect
of, unreasonably restraining trade in the icosapent ethyl drug market, the purpose and effect of
which was to: (a) delay generic entry of Vascepa in order to length the period in which Amarin
could monopolize the market and make supra-competitive projects, and (b) maintain and raise
the prices that plaintiff and other members of the class would pay for Vascepa.
172.
There is and was no legitimate, non-pretextual, pro-competitive business
justification Amarin’s conduct that outweighs its harmful effect on purchasers and competition.
Amarin’s conduct can only be explained by anticompetitive motives and a desire to foreclose
competition in the icosapent ethyl drug market. Amarin’s conduct runs contrary to industry
practice and was unnecessary to provide Amarin with adequate API supply. Even if there were
some conceivable and cognizable justification, Amarin’s exclusive API supply agreements were
not necessary to achieve such a purpose.
173.
As a direct and proximate result of Amarin’s anticompetitive conduct, including
the API supply agreements described herein, the plaintiff was harmed.
174.
Amarin’s unlawful conduct continues and, unless restrained, will continue.
Unless and until the activities complained of are enjoined, the plaintiff and members of the class
will suffer immediate and irreparable injury for which they are without an adequate remedy at
COUNT TWO: VIOLATION OF 15 U.S.C. § 2
UNLAWFUL MONOPOLIZATION
175.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
176.
At all relevant times, Amarin has possessed substantial market power (i.e.
monopoly power) in the icosapent ethyl drug market. Amarin possessed the power to control
prices in, prevent prices from falling in, and exclude competitors from this market.
177.
That market power is coupled with strong regulatory and contractual barriers to
178.
As alleged extensively above, Amarin willfully maintained its monopoly power
in the icosapent ethyl drug market by using restrictive or exclusionary conduct, rather than by
means of greater business acumen, and injured the plaintiff and members of the class thereby.
179.
Amarin’s conscious objective was to further its dominance in the icosapent ethyl
drug market by and through its exclusionary conduct.
180.
As stated more fully above, Amarin knowingly, willfully, and wrongfully
maintained its monopoly power and harmed competition in order to delay generic competition,
maintain monopoly power, and charge supracompetitive prices for Vascepa to the plaintiff and
members of the class.
181.
Amarin’s anticompetitive conduct described herein is exclusionary conduct the
purpose and effect of which is to willfully maintain Amarin’s monopoly power, which harms the
competitive process and consumers, in violation of Section 2 of the Sherman Act.
182.
To the extent that Amarin is permitted to assert one, there is and was no
cognizable, non-pretextual procompetitive justification for its exclusionary conduct that
outweighs that conduct’s harmful effects. Even if there were some conceivable such justification
that Amarin were permitted to assert, the conduct is and was broader than necessary to achieve
such a purpose.
183.
The plaintiff and the class have been injured, and unless Amarin’s unlawful
conduct is enjoined will continue to be injured, in their business and property as a result of
Amarin’s continuing monopolization in violation of Section 2 of the Sherman Act.
COUNT THREE: DECLARATORY AND INJUNCTIVE RELIEF UNDER
SECTION 2 OF THE SHERMAN ACT
184.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
185.
At all relevant times, Amarin possessed substantial market power (i.e., monopoly
power) in the relevant market. Amarin possessed the power to control prices in, prevent prices
from falling in, and exclude competitors from the relevant market.
186.
Through its overarching anticompetitive scheme, as alleged above, Amarin
willfully maintained its monopoly power in the relevant market using restrictive or
exclusionary conduct, rather than by means of greater business acumen or a historic accident,
and thereby injured the plaintiff and the class. Amarin’s anticompetitive conduct was done with
the specific intent to maintain its monopoly in the market for icosapent ethyl in the United
States.
187.
Amarin accomplished its scheme by preventing would-be competitors from
obtaining the necessary API to manufacture generic Vascepa, thus delaying generic entry of
Vascepa. It did so in order to lengthen the period in which Amarin’s brand Vascepa could
monopolize the market and Amarin could make supra-competitive profits.
188.
Had Amarin competed on the merits instead of unlawfully maintaining its
monopoly in the market for icosapent ethyl, one or more generics would have been available in
August 2020. The plaintiff and class members would have substituted lower-priced generic
Vascepa for the higher-priced brand-name Vascepa for some or all of their Vascepa
requirements, and would have paid substantially lower prices for brand-name Vascepa and
generic Vascepa.
189.
The goal, purpose, and effect of Amarin’s overarching anticompetitive scheme
was to block generic drugs from entering the market for icosapent ethyl, extend its dominance
in that market, and maintain Vascepa’s prices at supracompetitive levels. It has had the further
effect of depriving the market of competition.
190.
Amarin’s scheme substantially harmed competition in the relevant market and
was an unreasonable restraint of trade.
191.
There is and was no non-pretextual, procompetitive justification for Amarin’s
actions that outweighs the scheme’s harmful effects. Even if there were some conceivable
justification that Amarin could assert, the scheme is and was broader than necessary to achieve
such a purpose.
192.
But for Amarin’s illegal conduct, competitors would have begun marketing
generic versions of Vascepa beginning in August 2020. The plaintiff’s allegations comprise a
violation of Section 2 of the Sherman Act, in addition to state laws as alleged below.
193.
Pursuant to Fed. R. Civ. P. 57 and 28 U.S.C. § 2201(a), the plaintiff and the class
seek a declaratory judgment that Amarin’s conduct in seeking to prevent competition as
described in the preceding paragraphs violates Section 2 of the Sherman Act.
194.
Pursuant to Section 16 of the Clayton Act, 15 U.S.C. § 26, and other applicable
law, the plaintiff and the class further seek equitable and injunctive relief to correct for the
anticompetitive market effects caused by Amarin’s unlawful conduct, and the relief so as to
assure that similar anticompetitive conduct does not occur in the future.
XI.
VIOLATIONS OF STATE ANTITRUST LAWS
195.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
196.
Counts Four through Twenty-Eight are pleaded under the antitrust laws of each
State or jurisdiction identified below, on behalf of the class, and arise from the defendants’
exclusionary, anticompetitive scheme designed to create and maintain a monopoly for Vascepa
and its generic substitutes.
197.
Although each individual count relies upon state law, the essential elements of
each state antitrust claim are the same. The above-alleged conduct which violates the federal
Sherman Antitrust Act will, if proven, establish a claim under each of the state laws cited
198.
Through its anticompetitive overarching scheme and conduct described more
fully above, Amarin willfully maintained monopoly power in the relevant market using
restrictive or exclusionary conduct, rather than by means of greater business acumen or a
historic accident, and thereby injured the plaintiff and the class. This anticompetitive conduct
was undertaken with the specific intent to maintain a monopoly in the Vascepa market in the
United States.
199.
Amarin accomplished its goals by, inter alia, preventing would-be competitors
from obtaining the necessary API to manufacture generic Vascepa, thus delaying generic entry
of Vascepa. It did so in order to lengthen the period in which Amarin’s brand Vascepa could
monopolize the market and Amarin could make supra-competitive profits.
COUNT FOUR: VIOLATION OF ARIZONA’S UNIFORM STATE ANTITRUST ACT,
ARIZ. REV. STAT. § 44-1401, ET SEQ.
200.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
201.
By reason of the conduct alleged herein, defendants have violated Arizona Rev.
Stat. § 44-1401, et seq.
202.
Under Arizona law, “[t]he establishment, maintenance or use of a monopoly or
an attempt to establish a monopoly of trade or commerce, any part of which is within this state,
by any person for the purpose of excluding competition or controlling, fixing or maintaining
prices is unlawful.” Arizona Rev. Stat. § 44-1403.
203.
Amarin established, maintained, or used a monopoly, or attempted to establish a
monopoly, of trade or commerce in the Vascepa market, a substantial part of which occurred
within Arizona, for the purpose of excluding competition or controlling, fixing, or maintaining
prices in the Vascepa market.
204.
Amarin’s violations of Arizona law were flagrant.
205.
Amarin’s unlawful conduct substantially affected Arizona’s trade and commerce.
206.
As a direct and proximate cause of Amarin’s unlawful conduct, the plaintiff and
members of the class have been injured in their business or property and are threatened with
further injury.
207.
By reason of the foregoing, the plaintiff and members of the class are entitled to
seek all forms of relief available under Arizona Revised Statute § 44-1401, et seq.
COUNT FIVE: VIOLATION OF THE DISTRICT OF COLUMBIA ANTITRUST ACT,
D.C. CODE § 28-4501, ET SEQ.
208.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
209.
The policy of District of Columbia Code, Title 28, Chapter 45 (Restraints of
Trade) is to “promote the unhampered freedom of commerce and industry throughout the
District of Columbia by prohibiting restraints of trade and monopolistic practices.”
210.
Members of the class purchased Vascepa within the District of Columbia during
the class period. But for Amarin’s conduct set forth herein, the price of Vascepa would have
been lower, in an amount to be determined at trial.
211.
Under District of Columbia law, indirect purchasers have standing to maintain
an action under the antitrust provisions of the D.C. Code based on the facts alleged in this
complaint, because “any indirect purchaser in the chain of manufacture, production or
distribution of goods...shall be deemed to be injured within the meaning of this chapter.” D.C.
Code § 28-4509(a).
212.
Amarin monopolized or attempted to monopolize the market for Vascepa within
the District of Columbia, in violation of D.C. Code § 28-4501, et seq.
213.
The plaintiff and members of the class were injured with respect to purchases of
Vascepa in the District of Columbia and are entitled to all forms of relief, including actual
damages, treble damages, and interest, reasonable attorneys’ fees and costs.
COUNT SIX: VIOLATION OF THE ILLINOIS ANTITRUST ACT,
740 ILL. COMP. STAT. ANN. 10/3(1), ET SEQ.
214.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
215.
The Illinois Antitrust Act, 740 ILCS 10/1, et seq., aims “to promote the
unhampered growth of commerce and industry throughout the State by prohibiting restraints
of trade which are secured through monopolistic or oligarchic practices and which act or tend
to act to decrease competition between and among persons engaged in commerce and trade ….”
740 ILCS 10/2.
216.
Members of the class purchased Vascepa within the State of Illinois during the
class period. But for defendants’ conduct set forth herein, the price of Vascepa would have been
lower, in an amount to be determined at trial.
217.
Under the Illinois Antitrust Act, indirect purchasers have standing to maintain
an action for damages based on the facts alleged in this complaint. 740 ILCS 10/7(2).
218.
The defendants further unreasonably restrained trade or commerce and
established, maintained or attempted to acquire monopoly power over the market for Vascepa
in Illinois for the purpose of excluding competition, in violation of 740 ILCS 10/1, et seq.
219.
The plaintiff and members of the class were injured with respect to purchases of
Vascepa in Illinois and are entitled to all forms of relief, including actual damages, treble
damages, reasonable attorneys’ fees and costs.
COUNT SEVEN: VIOLATION OF THE IOWA COMPETITION LAW
IOWA CODE § 553.1, ET SEQ.
220.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
221.
The Iowa Competition Law aims to “prohibit[] restraint of economic activity
and monopolistic practices.” Iowa Code § 553.2.
222.
Members of the class purchased Vascepa within the State of Iowa during the
class period. But for the defendants’ conduct set forth herein, the price of Vascepa would have
been lower, in an amount to be determined at trial.
223.
The defendants attempted to establish or did in fact establish a monopoly for the
purpose of excluding competition or controlling, fixing or maintaining prices for Vascepa, in
violation of Iowa Code § 553.1, et seq.
224.
The plaintiff and members of the class were injured with respect to purchases of
Vascepa in Iowa, and are entitled to all forms of relief, including actual damages, exemplary
damages for willful conduct, reasonable attorneys’ fees and costs, and injunctive relief.
COUNT EIGHT: VIOLATION OF MAINE’S ANTITRUST STATUTE
ME. REV. STAT. ANN. TIT. 10 § 1101, ET SEQ.
225.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
226.
Part 3 of Title 10 the Maine Revised Statutes generally governs regulation of
trade in Maine. Chapter 201 thereof governs monopolies and profiteering, generally
prohibiting contracts in restraint of trade and conspiracies to monopolize trade. Me. Rev. Stat.
Ann. Tit. 10, §§ 1101-02.
227.
Members of the class purchased Vascepa within the State of Maine during the
class period. But for defendants’ conduct set forth herein, the price of Vascepa would have been
lower, in an amount to be determined at trial.
228.
Under Maine law, indirect purchasers have standing to maintain an action based
on the facts alleged in this Complaint. Me. Rev. Stat. Ann. Tit. 10, § 1104(1).
229.
The defendants monopolized or attempted to monopolize the trade or commerce
of Vascepa within the intrastate commerce of Maine, in violation of Me. Rev. Stat. Ann. Tit. 10,
§ 1101, et seq.
230.
The plaintiff and members of the class were injured with respect to purchases of
Vascepa in Maine and are entitled to all forms of relief, including actual damages, treble
damages, reasonable attorneys’ and experts’ fees and costs.
COUNT NINE: VIOLATION OF MARYLAND’S ANTITRUST STATUTE
MD. CODE ANN. § 11-204(A), ET SEQ.
231.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein..
232.
Under Maryland law, any political subdivision organized under the authority of
the State is entitled to bring an action for damages and an injunction under the antitrust
statute, “regardless of whether it dealt directly or indirectly with the person who has
committed the violation.” Md. Code Ann. § 11-209(b)(1), (b)(3).
233.
Maryland’s antitrust statute makes it unlawful to, inter alia, “Monopolize,
attempt to monopolize, or combine or conspire with one or more other persons to monopolize
any part of the trade or commerce within the State, for the purpose of excluding competition or
of controlling, fixing, or maintaining prices in trade or commerce.” Md. Code Ann. § 11-
204(a)(2).
234.
The purpose of Maryland’s antitrust statute is “to complement the body of
federal law governing restraints of trade, unfair competition, and unfair, deceptive, and
fraudulent acts or practices.” Md. Code Ann. § 11-202(a)(1).
235.
The defendants monopolized or attempted to monopolize the trade or commerce
of Vascepa within the intrastate commerce of Maryland, in violation of Md. Code
Ann.§ 204(a)(2), et seq.
236.
Under Maryland’s antitrust statute, a plaintiff who establishes a violation is
entitled to recover three times the amount of actual damages resulting from the violation, along
with costs and reasonably attorneys’ fees. Md. Code Ann. § 209(b)(4).
237.
The plaintiff and members of the class were injured with respect to purchases of
Vascepa in Maryland and are entitled to all forms of relief, including actual damages, treble
damages, reasonable attorneys’ and experts’ fees and costs.
COUNT TEN: VIOLATION OF MASSACHUSETTS
MASS. GEN. LAWS CH. 93A, §1, ET SEQ.
238.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
239.
By reason of the conduct alleged herein, including the violation of federal
antitrust laws, defendants have violated the Massachusetts Consumer Protection Act, Mass.
Gen. Laws Ch. 93A § 2, et seq.
240.
Members of the class purchased Vascepa within the State of Massachusetts
during the class period. But for defendants’ conduct set forth herein, the price paid would have
been lower, in an amount to be determined at trial.
241.
The defendants established, maintained, or used a monopoly, or attempted to
establish a monopoly, of trade or commerce in the Vascepa market, a substantial part of which
occurred within Massachusetts, for the purpose of excluding competition or controlling, fixing,
or maintaining prices in the Vascepa market.
242.
The defendants’ conduct was an unfair method of competition, and an unfair or
deceptive act or practice within the conduct of commerce within the State of Massachusetts.
243.
The defendants’ unlawful conduct substantially affected Massachusetts’ trade
and commerce.
244.
As a direct and proximate cause of defendants’ unlawful conduct, the plaintiff
and the members of the class have been injured in their business or property and are threatened
with further injury.
245.
By reason of the foregoing, the plaintiff and the class are entitled to seek all
forms of relief, including up to treble damages and reasonable attorney’s fees and costs under
Mass. Gen. Laws Ch. 93A § 9.
246.
Pursuant to Mass. Gen. Laws Ch. 93A § 9, the plaintiff mailed to all defendants,
via certified mail, return receipt requested, demand for payment letters which explained the
unfair acts, the injury suffered, and requested relief from the defendants.
COUNT ELEVEN: VIOLATION OF THE MICHIGAN ANTITRUST REFORM ACT
MICH. COMP. LAWS § 445.771, ET SEQ.
247.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
248.
The Michigan Antitrust Reform Act aims “to prohibit contracts, combinations,
and conspiracies in restraint of trade or commerce...to prohibit monopolies and attempts to
monopolize trade or commerce...[and] to provide remedies, fines, and penalties for violations of
this act.” Mich. Act 274 of 1984.
249.
Members of the class purchased Vascepa within the State of Michigan during the
class period. But for defendants’ conduct set forth herein, the price of Vascepa would have been
lower, in an amount to be determined at trial.
250.
Under the Michigan Antitrust Reform Act, indirect purchasers have standing to
maintain an action based on the facts alleged in this complaint. Mich. Comp. Laws.
§ 452.778(2).
251.
The defendants established, maintained, or used, or attempted to establish,
maintain, or use, a monopoly of trade or commerce in violation of Mich. Comp. Laws. §445.773.
252.
The plaintiff and members of the class were injured with respect to purchases of
Vascepa in Michigan and are entitled to all forms of relief, including actual damages, treble
damages for flagrant violations, interest, costs, reasonable attorneys’ fees, and injunctive or
other appropriate equitable relief.
COUNT TWELVE: VIOLATION OF THE MINNESOTA ANTITRUST LAW,
MINN. STAT. §§ 325D.49 ET SEQ. & 325D.57, ET SEQ.
253.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
254.
The Minnesota Antitrust Law of 1971 aims to prohibit any contract,
combination or conspiracy when any part thereof was created, formed, or entered into in
Minnesota; any contract, combination or conspiracy, wherever created, formed or entered into;
any establishment, maintenance or use of monopoly power; and any attempt to establish,
maintain or use monopoly power, whenever any of these affect Minnesota trade or commerce.
255.
Members of the class purchased Vascepa within the State of Minnesota during
the class period. But for defendants’ conduct set forth herein, the price of Vascepa would have
been lower, in an amount to be determined at trial.
256.
Under the Minnesota Antitrust Act of 1971, indirect purchasers have standing
to maintain an action based on the facts alleged in this Complaint. Minn. Stat. § 325D.56.
257.
The defendants established, maintained, used or attempted to establish, maintain
or use monopoly power over the trade or commerce in the market for Vascepa within the
intrastate commerce of and outside of Minnesota; and fixed prices and allocated markets for
Vascepa within the intrastate commerce of and outside of Minnesota, in violation of Minn. Stat.
§ 325D.49, et seq.
258.
The plaintiff and members of the class were injured with respect to purchases of
Vascepa in Minnesota and are entitled to all forms of relief, including actual damages, treble
damages, costs and disbursements, reasonable attorneys’ fees, and injunctive relief necessary to
prevent and restrain violations hereof.
COUNT THIRTEEN: VIOLATION OF THE MISSISSIPPI ANTITRUST STATUTE,
MISS. CODE ANN. § 75-21-1, ET SEQ.
259.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
260.
Title 75 of the Mississippi Code regulates trade, commerce and investments.
Chapter 21 thereof generally prohibits trusts and combines in restraint or hindrance of trade,
with the aim that “trusts and combines may be suppressed, and the benefits arising from
competition in business [are] preserved” to Mississippians. Miss. Code Ann. § 75-21-39.
261.
Trusts are combinations, contracts, understandings or agreements, express or
implied, when inimical to the public welfare and with the effect of, inter alia, restraining trade,
increasing the price or output of a commodity, or hindering competition in the production or
sale of a commodity. Miss. Code Ann. § 75-21-1.
262.
Members of the class purchased Vascepa within the State of Mississippi during
the class period. But for defendants’ conduct set forth herein, the price of Vascepa would have
been lower, in an amount to be determined at trial.
263.
Under Mississippi law, indirect purchasers have standing to maintain an action
under the antitrust provisions of the Mississippi Code based on the facts alleged in this
Complaint. Miss. Code Ann. § 75-21-9.
264.
The defendants monopolized or attempted to monopolize the production, control
or sale of Vascepa, in violation of Miss. Code Ann. § 75-21-3, et seq.
265.
The defendants’ Vascepa are sold indirectly via distributors throughout the State
of Mississippi. During the class period, the defendants’ illegal conduct substantially affected
Mississippi commerce.
266.
The plaintiff and members of the class were injured with respect to purchases of
Vascepa in Mississippi and are entitled to all forms of relief, including actual damages and a
penalty of $500 per instance of injury.
COUNT FOURTEEN: VIOLATION OF THE MISSOURI MERCHANDISING
PRACTICES ACT, MO. ANN. STAT. § 407.010, ET SEQ.
267.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
268.
Chapter 407 of the Missouri Merchandising Practices Act (the “MMPA”)
generally governs unlawful business practices, including antitrust violations such as restraints
of trade and monopolization.
269.
Members of the class purchased Vascepa within the State of Missouri during the
class period. But for defendants’ conduct set forth herein, the price of Vascepa would have been
lower, in an amount to be determined at trial.
270.
Under Missouri law, indirect purchasers have standing to maintain an action
under the MMPA based on the facts alleged in this Complaint. Gibbons v. J. Nuckolls, Inc., 216
S.W.3d 667, 669 (Mo. 2007).
271.
The defendants monopolized or attempted to monopolize the market for Vascepa
within the intrastate commerce of Missouri by possessing monopoly power in the market and
willfully maintaining that power through agreements to fix prices, allocate markets and
otherwise control trade, in violation of Mo. Ann. Stat. § 407.010, et seq.
272.
The plaintiff and members of the class were injured with respect to purchases of
Vascepa in Missouri and are entitled to all forms of relief, including actual damages or
liquidated damages in an amount which bears a reasonable relation to the actual damages which
have been sustained, as well as reasonable attorneys’ fees, costs, and injunctive relief.
COUNT FIFTEEN: VIOLATION OF THE NEBRASKA JUNKIN ACT,
NEB. REV. STAT. § 59-801, ET SEQ.
273.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
274.
Chapter 59 of the Nebraska Revised Statute generally governs business and
trade practices. Sections 801 through 831 thereof, known as the Junkin Act, prohibit antitrust
violations such as restraints of trade and monopolization.
275.
Members of the class purchased Vascepa within the State of Nebraska during the
class period. But for defendants’ conduct set forth herein, the price of Vascepa would have been
lower, in an amount to be determined at trial.
276.
Under Nebraska law, indirect purchasers have standing to maintain an action
under the Junkin Act based on the facts alleged in this Complaint. Neb. Rev. Stat. § 59-821.
277.
The defendants monopolized or attempted to monopolize the market for Vascepa
within the intrastate commerce of Nebraska by possessing monopoly power in the market and
willfully maintaining that power through agreements to fix prices, allocate markets and
otherwise control trade, in violation of Neb. Rev. Stat. § 59-801, et seq.
278.
The plaintiff and members of the class were injured with respect to purchases of
Vascepa in Nebraska and are entitled to all forms of relief, including actual damages or
liquidated damages in an amount which bears a reasonable relation to the actual damages which
have been sustained, as well as reasonable attorneys’ fees, costs, and injunctive relief.
COUNT SIXTEEN: VIOLATION OF THE NEVADA UNFAIR TRADE PRACTICES
ACT, NEV. REV. STAT. § 598A.010, ET SEQ.
279.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
280.
The Nevada Unfair Trade Practice Act (“NUTPA”) states that “free, open and
competitive production and sale of commodities...is necessary to the economic well-being of the
citizens of the State of Nevada.” Nev. Rev. Stat. Ann. § 598A.030(1).
281.
The policy of NUTPA is to prohibit acts in restraint of trade or commerce, to
preserve and protect the free, open and competitive market, and to penalize all persons engaged
in anticompetitive practices. Nev. Rev. Stat. Ann. § 598A.030(2). Such acts include, inter alia,
price fixing, division of markets, allocation of customers, and monopolization of trade. Nev.
Rev. Stat. Ann. § 598A.060.
282.
Members of the class purchased Vascepa within the State of Nevada during the
class period. But for defendants’ conduct set forth herein, the price of Vascepa would have been
lower, in an amount to be determined at trial.
283.
Under Nevada law, indirect purchasers have standing to maintain an action
under NUTPA based on the facts alleged in this Complaint. Nev. Rev. Stat. Ann. §598A.210(2).
284.
The defendants monopolized or attempted monopolize trade or commerce of
Vascepa within the intrastate commerce of Nevada, in violation of Nev. Rev. Stat. Ann. § 598A,
285.
The plaintiff and members of the class were injured with respect to purchases of
Vascepa in Nevada in that numerous sales of defendants’ Vascepa took place in Nevada,
purchased by Nevada consumers at supra-competitive prices caused by defendants’ conduct.
286.
Accordingly, the plaintiff and members of the class are entitled to all forms of
relief, including actual damages, treble damages, reasonable attorneys’ fees, costs, and
injunctive relief.
287.
In accordance with the requirements of § 598A.210(3), notice of this action was
mailed to the Nevada Attorney General by the plaintiff.
COUNT SEVENTEEN: VIOLATION OF NEW HAMPSHIRE’S ANTITRUST
STATUTE, N.H. REV. STAT. ANN. TIT. XXXI, § 356, ET SEQ.
288.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
289.
Title XXXI of the New Hampshire Statutes generally governs trade and
commerce. Chapter 356 thereof governs combinations and monopolies and prohibits restraints
of trade. N.H. Rev. Stat. Ann. §§ 356:2, 3.
290.
Members of the class purchased Vascepa within the State of New Hampshire
during the class period. But for defendants’ conduct set forth herein, the price of Vascepa would
have been lower, in an amount to be determined at trial.
291.
Under New Hampshire law, indirect purchasers have standing to maintain an
action based on the facts alleged in this Complaint. N.H. Rev. Stat. Ann. § 356:11(II).
292.
The defendants established, maintained or used monopoly power, or attempted
to, in violation of N.H. Rev. Stat. Ann. § 356:1, et seq.
293.
The plaintiff and members of the class were injured with respect to purchases of
Vascepa in New Hampshire and are entitled to all forms of relief, including actual damages
sustained, treble damages for willful or flagrant violations, reasonable attorneys’ fees, costs, and
injunctive relief.
COUNT EIGHTEEN: VIOLATION OF THE NEW MEXICO ANTITRUST ACT,
N.M. STAT. ANN. §§ 57-1-1, ET SEQ.
294.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
295.
The New Mexico Antitrust Act aims to prohibit restraints of trade and
monopolistic practices. N.M. Stat. Ann. 57-1-15.
296.
Members of the class purchased Vascepa within the State of New Mexico during
the class period. But for defendants’ conduct set forth herein, the price of Vascepa would have
been lower, in an amount to be determined at trial.
297.
Under New Mexico law, indirect purchasers have standing to maintain an action
based on the facts alleged in this Complaint. N.M. Stat. Ann. § 57-1-3.
298.
The defendants monopolized or attempted to monopolize trade for Vascepa
within the intrastate commerce of New Mexico, in violation of N.M. Stat. Ann. §§ 57-1-1 and
57-1-2, et seq.
299.
The plaintiff and members of the class were injured with respect to purchases of
Vascepa in New Mexico and are entitled to all forms of relief, including actual damages, treble
damages, reasonable attorneys’ fees, costs, and injunctive relief.
COUNT NINETEEN: VIOLATION OF SECTION 340 OF THE NEW YORK
GENERAL BUSINESS LAW
300.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
301.
Article 22 of the New York General Business Law general prohibits monopolies
and contracts or agreements in restraint of trade, with the policy of encouraging competition or
the free exercise of any activity in the conduct of any business, trade or commerce in New York.
N.Y. Gen. Bus. Law § 340(1).
302.
Members of the class purchased Vascepa within the State of New York during
the class period. But for defendants’ conduct set forth herein, the price of Vascepa would have
been lower, in an amount to be determined at trial.
303.
Under New York law, indirect purchasers have standing to maintain an action
based on the facts alleged in this Complaint. N.Y. Gen. Bus. Law § 340(6).
304.
The defendants established or maintained a monopoly within the intrastate
commerce of New York for the trade or commerce of Vascepa and restrained competition in the
free exercise of the conduct of the business of Vascepa within the intrastate commerce of New
York, in violation of N.Y. Gen. Bus. Law § 340, et seq.
305.
The plaintiff and members of the class were injured with respect to purchases of
Vascepa in New York and are entitled to all forms of relief, including actual damages, treble
damages, costs not exceeding $10,000, and reasonable attorneys’ fees and all relief available
under N.Y. Gen. Bus. Law §349, et seq.
COUNT TWENTY: VIOLATION OF THE NORTH CAROLINA GENERAL
STATUTES, N.C. GEN. STAT. § 75-1, ET SEQ.
306.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
307.
The defendants established, maintained, or used a monopoly, or attempted to
establish a monopoly, of trade or commerce in the Vascepa market, for the purpose of affecting
competition or controlling, fixing, or maintaining prices, a substantial part of which occurred
within North Carolina.
308.
The defendants’ unlawful conduct substantially affected North Carolina’s trade
and commerce.
309.
As a direct and proximate cause of defendants’ unlawful conduct, plaintiff and
the members of the class have been injured in their business or property and are threatened
with further injury.
310.
By reason of the foregoing, plaintiff and members of the class are entitled to seek
all forms of relief available, including treble damages, under N.C. Gen. Stat. § 75-1, et seq.
COUNT TWENTY-ONE: VIOLATION OF THE NORTH DAKOTA UNIFORM
STATE ANTITRUST ACT, N.D. CENT. CODE § 51-08.1, ET SEQ.
311.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
312.
The North Dakota Uniform State Antitrust Act generally prohibits restraints on
or monopolization of trade. N.D. Cent. Code § 51-08.1, et seq.
313.
Members of the class purchased Vascepa within the State of North Dakota
during the class period. But for defendants’ conduct set forth herein, the price of Vascepa would
have been lower, in an amount to be determined at trial.
314.
Under the North Dakota Uniform State Antitrust Act, indirect purchasers have
standing to maintain an action based on the facts alleged in this Complaint. N.D. Cent. Code
§ 51-08.1-08.
315.
The defendants established, maintained, or used a monopoly, or attempted to do
so, for the purposes of excluding competition or controlling, fixing or maintaining prices for
Vascepa, in violation of N.D. Cent. Code §§ 51-08.1-02, 03.
316.
The plaintiff and members of the class were injured with respect to purchases in
North Dakota and are entitled to all forms of relief, including actual damages, treble damages
for flagrant violations, costs, reasonable attorneys’ fees, and injunctive or other equitable relief.
COUNT TWENTY-TWO: VIOLATION OF THE OREGON ANTITRUST LAW,
OR. REV. STAT. § 646.705, ET SEQ.
317.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
318.
Chapter 646 of the Oregon Revised Statutes generally governs business and
trade practices within Oregon. Sections 705 through 899 thereof govern antitrust violations,
with the policy to “encourage free and open competition in the interest of the general welfare
and economy of the state.” Or. Rev. Stat. § 646.715.
319.
Members of the class purchased Vascepa within the State of Oregon during the
class period. But for defendants’ conduct set forth herein, the price of Vascepa would have been
lower, in an amount to be determined at trial.
320.
Under Oregon law, indirect purchasers have standing under the antitrust
provisions of the Oregon Revised Statutes to maintain an action based on the facts alleged in
this Complaint. Or. Rev. Stat. § 646.780(1)(a).
321.
The defendants monopolized or attempted to monopolize the trade or commerce
of Vascepa, in violation of Or. Rev. Stat. § 646.705, et seq.
322.
The plaintiff and members of the class were injured with respect to purchases of
Vascepa within the intrastate commerce of Oregon, or alternatively to interstate commerce
involving actual or threatened injury to persons located in Oregon, and are entitled to all forms
of relief, including actual damages, treble damages, reasonable attorneys’ fees, expert witness
fees and investigative costs, and injunctive relief.
COUNT TWENTY-THREE: VIOLATION OF THE PUERTO RICO ANTITRUST
ACT, P.R. LAWS TIT. 10 § 260, ET SEQ.
323.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
324.
The provisions of the Puerto Rican Anti-Monopoly Act of 1964 (the AMA)
parallel sections 1 and 2of the Sherman Act, and other federal statutes. And those provisions
are supplemented by The Regulation on Fair Competition Number VII, which proscribes
certain conduct including the type engaged in by the defendants more fully described above.
325.
Under the AMA, it is unlawful to monopolize, or attempt to monopolize any part
of the trade or commerce in the Commonwealth of Puerto Rico. P.R. Laws Tit. 10, §260.
326.
Members of the class purchased Vascepa within Puerto Rico during the class
period. But for defendants’ conduct set forth herein, the price of Vascepa would have been
lower, in an amount to be determined at trial.
327.
By reason of the foregoing, plaintiff and members of the class are entitled to seek
all forms of relief available, including treble damages, attorneys’ fees, and costs of suit under
P.R. Tit. 10, § 268.
COUNT TWENTY-FOUR: VIOLATION OF THE RHODE ISLAND ANTITRUST
ACT, R.I. GEN LAWS § 6-36-1, ET SEQ.
328.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
329.
The Rhode Island Antitrust Act aims to promote the unhampered growth of
commerce and industry throughout Rhode Island by prohibiting unreasonable restraints of
trade and monopolistic practices that hamper, prevent, or decrease competition. R.I. Gen. Laws
§ 636-2(a)(2).
330.
Members of the class purchased Vascepa within the State of Rhode Island during
the class period. But for defendants’ conduct set forth herein, the price of Vascepa would have
been lower, in an amount to be determined at trial.
331.
The defendants established, maintained, or used, or attempted to establish,
maintain or use, a monopoly in the trade of Vascepa for the purpose of excluding competition or
controlling, fixing or maintaining prices within the intrastate commerce of Rhode Island, in
violation of R.I. Gen. Laws § 6-36-1, et seq.
332.
The plaintiff and members of the class were injured with respect to purchases of
Vascepa in Rhode Island and are entitled to all forms of relief, including actual damages, treble
damages, reasonable costs, reasonable attorneys’ fees, and injunctive relief.
COUNT TWENTY-FIVE: VIOLATION OF THE SOUTH DAKOTA ANTITRUST
STATUTE, S.D. CODIFIED LAWS § 37-1-3.1, ET SEQ.
333.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
334.
Chapter 37-1 of the South Dakota Codified Laws prohibits restraint of trade,
monopolies and discriminatory trade practices. S.D. Codified Laws §§ 37-1- 3.1, 3.2.
335.
Members of the class purchased Vascepa within the State of South Dakota
during the class period. But for defendants’ conduct set forth herein, the price of Vascepa would
have been lower, in an amount to be determined at trial.
336.
Under South Dakota law, indirect purchasers have standing under the antitrust
provisions of the South Dakota Codified Laws to maintain an action based on the facts alleged
in this Complaint. S.D. Codified Laws § 37-1-33.
337.
The defendants monopolized or attempted to monopolize trade or commerce of
Vascepa within the intrastate commerce of South Dakota, in violation of S.D. Codified Laws
§ 37-1, et seq.
338.
The plaintiff and members of the class were injured with respect to purchases of
Vascepa in South Dakota and are entitled to all forms of relief, including actual damages, treble
damages, taxable costs, reasonable attorneys’ fees, and injunctive or other equitable relief.
COUNT TWENTY-SIX: VIOLATION OF THE UTAH ANTITRUST ACT,
UTAH CODE ANN. §§ 76-10-911, ET SEQ.
339.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
340.
The Utah Antitrust Act aims to “encourage free and open competition in the
interest of the general welfare and economy of this state by prohibiting monopolistic and unfair
trade practices, combinations and conspiracies in restraint of trade or commerce ….” Utah Code
Ann. § 76-10-3102.
341.
Members of the class purchased Vascepa within the State of Utah during the
class period. But for defendants’ conduct set forth herein, the price of Vascepa would have been
lower, in an amount to be determined at trial.
342.
Under the Utah Antitrust Act, indirect purchasers who are either Utah residents
or Utah citizens have standing to maintain an action based on the facts alleged in this
Complaint. Utah Code Ann. § 76-10-3109(1)(a).
343.
The defendants monopolized or attempted to monopolize trade or commerce of
Vascepa, in violation of Utah Code Ann. § 76-10-3101, et seq.
344.
The plaintiff and members of the class who are either Utah residents or Utah
citizens were injured with respect to purchases of Vascepa in Utah and are entitled to all forms
of relief, including actual damages, treble damages, costs of suit, reasonable attorneys’ fees, and
injunctive relief.
COUNT TWENTY-SEVEN: VIOLATION OF THE WEST VIRGINIA ANTITRUST
ACT, W. VA. CODE §47-18-1, ET SEQ.
345.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
346.
The violations of federal antitrust law set forth above also constitute violations
of section 47-18-1 of the West Virginia Code.
347.
During the class period, defendants engaged in anticompetitive conduct alleged
above, including the establishment or maintenance of a monopoly for the purpose of excluding
competition, in violation of W. Va. Code § 47-18-1 and 47-18-20, et seq.
348.
The defendants’ anticompetitive acts described above were knowing, willful and
constitute violations or flagrant violations of the West Virginia Antitrust Act.
349.
As a direct and proximate result of defendants’ unlawful conduct, plaintiff and
members of the class have been injured in their business and property in that they paid more
for Vascepa than they otherwise would have paid in the absence of defendants’ unlawful
conduct.
350.
Members of the class have standing to pursue their claims under, inter alia, W.
Va. Code § 47-18-9.
351.
As a result of defendants’ violation of Section 47-18-3 of the West Virginia
Antitrust Act, plaintiff and members of the class seek treble damages and their cost of suit,
including reasonable attorneys’ fees, pursuant to section 47-18-9 of the West Virginia Code.
COUNT TWENTY-EIGHT: VIOLATION OF THE WISCONSIN ANTITRUST ACT,
WIS. STAT. ANN. § 133.01(1), ET SEQ.
352.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
353.
Chapter 133 of the Wisconsin Statutes governs trust and monopolies, with the
intent “to safeguard the public against the creation or perpetuation of monopolies and to foster
and encourage competition by prohibiting unfair and discriminatory business practices which
destroy or hamper competition.” Wis. Stat. § 133.01.
354.
Members of the class purchased Vascepa within the State of Wisconsin during
the class period. But for defendants’ conduct set forth herein, the price of Vascepa would have
been lower, in an amount to be determined at trial.
355.
Under Wisconsin law, indirect purchasers have standing under the antitrust
provisions of the Wisconsin Statutes to maintain an action based on the facts alleged in this
Complaint. Wis. Stat. 133.18(a).
356.
The defendants monopolized or attempted to monopolize the trade or commerce
of Vascepa, with the intention of injuring or destroying competition therein, in violation of
Wis. Stat. § 133.01, et seq.
357.
The plaintiff and members of the class were injured with respect to purchases of
Vascepa in Wisconsin in that the actions alleged herein substantially affected the people of
Wisconsin, with at least thousands of consumers in Wisconsin paying substantially higher
prices for defendants’ Vascepa in Wisconsin.
358.
Accordingly, plaintiff and members of the class are entitled to all forms of relief,
including actual damages, treble damages, costs and reasonable attorneys’ fees, and injunctive
359.
The defendants’ anticompetitive activities have directly, foreseeably and
proximately caused injury to plaintiff and members of the class in the United States. Their
injuries consist of: (1) being denied the opportunity to purchase lower-priced Vascepa from
defendants, (2) paying higher prices for Vascepa than they would have in the absence of
defendants’ conduct, and (3) being denied the opportunity to purchase generic Vascepa at a
price substantially lower than what they were forced to pay for Vascepa. These injuries are of
the type of the laws of the above States were designed to prevent, and flow from that which
makes defendants’ conduct unlawful.
360.
The defendants are jointly and severally liable for all damages suffered by the
plaintiff and members of the classes.
XII.
VIOLATIONS OF STATE CONSUMER PROTECTION LAWS
361.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
362.
The defendants’ above-described scheme and conduct constitutes unfair
competition, unconscionable conduct, and deceptive acts and practices in violation of the state
consumer protection statutes set forth below. As a direct and proximate result of defendants’
anticompetitive, deceptive, unfair, and/or unconscionable acts or practices, plaintiff and the
class were both denied the opportunity to purchase lower-priced generic versions of Vascepa
and paid higher prices for branded Vascepa than they should have
363.
The gravity of harm from defendants’ wrongful conduct significantly outweighs
any conceivable utility from that conduct. Plaintiff and class members could not reasonably
have avoided injury from defendants’ wrongful conduct.
364.
The plaintiff and members of the class purchased goods, namely Vascepa,
primarily for personal, family, or household purposes.
365.
There was and is a gross disparity between the price that plaintiff and the class
members paid for Vascepa and the value they received.
366.
Claims Twenty-Nine through Forty-Eight are pleaded under the consumer
protection or similar laws of each State or jurisdiction identified below, on behalf of the class.
COUNT TWENTY-NINE: VIOLATION OF ARIZONA CONSUMER FRAUD ACT
ARIZ. REV. STAT. §§44-1521, ET SEQ.
367.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
368.
The Arizona Consumer Fraud Act prohibits the “[a]ct, use or employment by
any person of any deception, deceptive act or practice, fraud, false pretense, false promise,
misrepresentation, or concealment, suppression or omission of any material fact with intent
that others rely upon such concealment, suppression or omission, in connection with the sale or
advertisement of any merchandise.” Ariz. Rev. Stat. § 44-1522(A)
369.
By reason of the conduct alleged herein, including the violation of federal
antitrust laws, defendants have violated the Arizona Consumer Fraud Act, §§ 44-1521, et seq.
370.
Members of the class purchased Vascepa within the State of Arizona during the
class period. But for defendants’ conduct set forth herein, the price paid would have been lower,
in an amount to be determined at trial.
371.
The defendants established, maintained, or used a monopoly, or attempted to
establish a monopoly, of trade or commerce in the Vascepa market, a substantial part of which
occurred within Arizona, for the purpose of excluding competition or controlling, fixing, or
maintaining prices in the Vascepa market.
372.
The defendants’ conduct was an unfair method of competition, and an unfair or
deceptive act or practice within the conduct of commerce within the State of Arizona.
373.
The defendants’ unlawful conduct substantially affected Arizona’s trade and
commerce.
374.
As a direct and proximate cause of defendants’ unlawful conduct, the plaintiff
and the members of the class have been injured in their business or property and are threatened
with further injury.
375.
By reason of the foregoing, the plaintiff and the class are entitled to seek all
forms of relief, including up to treble damages and reasonable attorney’s fees and costs.
COUNT THIRTY: VIOLATION OF CALIFORNIA’S UNFAIR COMPETITION LAW
CAL. BUS. & PROF. CODE § 17200, ET SEQ. (THE “UCL”)
376.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
377.
The violations of federal antitrust law set forth above also constitute violations
of section 17200, et seq. of California Business and Professions Code.
378.
The defendants have engaged in unfair competition or unfair, unconscionable,
deceptive or fraudulent acts or practices in violation of the UCL by engaging in the acts and
practices specified above.
379.
This claim is instituted pursuant to sections 17203 and 17204 of California
Business and Professions Code, to obtain restitution from these defendants for acts, as alleged
herein, that violated the UCL.
380.
The defendants’ conduct as alleged herein violated the UCL. The acts,
omissions, misrepresentations, practices and non-disclosures of defendants, as alleged herein,
including preventing would-be competitors from obtaining the necessary API to manufacture
generic Vascepa, thus delaying generic entry of Vascepa, 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 the UCL, including, but not limited
to, the violations of section 16720, et seq., of California Business and Professions Code, set forth
381.
The defendants’ acts, omissions, misrepresentations, practices, and non-
disclosures, as described above, whether or not in violation of section 16720, et seq., of California
Business and Professions Code, and whether or not concerted or independent acts, are
otherwise unfair, unconscionable, unlawful or fraudulent.
382.
The plaintiff and members of the class are entitled to, inter alia, 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.
383.
The unlawful and unfair business practices of The defendants, and each of them,
as described above, have caused and continue to cause members of the class to pay supra-
competitive and artificially-inflated prices for Vascepa sold in the State of California. Plaintiff
and the members of the class suffered injury in fact and lost money or property as a result of
such unfair competition.
384.
As alleged in this complaint, defendants have been unjustly enriched as a result
of their wrongful conduct and by defendants’ unfair competition. Plaintiff and the members of
the 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 California Business and
Professions Code sections 17203 and 17204.
COUNT THIRTY-ONE: VIOLATION OF THE DISTRICT OF COLUMBIA
CONSUMER PROTECTION PROCEDURES ACT, D.C. CODE § 28-3901, ET SEQ.
385.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
386.
Members of the class purchased Vascepa for personal, family, or household
purposes.
387.
By reason of the conduct alleged herein, including preventing would-be
competitors from obtaining the necessary API to manufacture generic Vascepa, thus delaying
generic entry of Vascepa, defendants have violated D.C. Code § 28-3901, et seq.
388.
The defendants are “merchants” within the meaning of D.C. Code § 28-
3901(a)(3).
389.
The defendants established, maintained, or used a monopoly, or attempted to
establish a monopoly, of trade or commerce in the Vascepa market, a substantial part of which
occurred within the District of Columbia, for the purpose of excluding competition or
controlling, fixing, or maintaining prices in the Vascepa market.
390.
The defendants’ conduct was an unfair method of competition, and an unfair or
deceptive act or practice within the conduct of commerce within the District of Columbia.
391.
The defendants’ unlawful conduct substantially affected the District of
Columbia’s trade and commerce.
392.
As a direct and proximate cause of defendants’ unlawful conduct, the plaintiff
and members of the class have been injured in their business or property and are threatened
with further injury.
393.
By reason of the foregoing, plaintiff and members of the class are entitled to seek
all forms of relief, including treble damages or $1500 per violation (whichever is greater) plus
punitive damages, reasonable attorney’s fees and costs under D.C. Code § 28-3901, et seq.
COUNT THIRTY-TWO: VIOLATION OF THE FLORIDA DECEPTIVE AND
UNFAIR TRADE PRACTICES ACT, FLA. STAT. § 501.201(2), ET SEQ.
394.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
395.
The Florida Deceptive & Unfair Trade Practices Act, Florida Stat. §§ 501.201,
et seq. (the “FDUTPA”), generally prohibits “unfair methods of competition, unconscionable
acts or practices, and unfair or deceptive acts or practices in the conduct of any trade or
commerce,” including practices in restraint of trade. Florida Stat. § 501.204(1).
396.
The primary policy of the FDUTPA is “[t]o protect the consuming public and
legitimate business enterprises from those who engage in unfair methods of competition, or
unconscionable, deceptive, or unfair acts or practices in the conduct of any trade or commerce.”
Florida Stat. § 501.202(2).
397.
A claim for damages under the FDUTPA has three elements: (1) a prohibited
practice; (2) causation; and (3) actual damages.
398.
Under Florida law, indirect purchasers have standing to maintain an action
under the FDUTPA based on the facts alleged in this complaint. Fla. Stat. § 501.211(a)
(“anyone aggrieved by a violation of this [statute] may bring an action …”).
399.
Members of the class purchased Vascepa within the State of Florida during the
class period. But for defendants’ conduct set forth herein, the price of Vascepa would have been
lower, in an amount to be determined at trial.
400.
The defendants established, maintained or used a monopoly, or attempted to
establish a monopoly, of trade or commerce in the market for Vascepa, for the purpose of
excluding competition or controlling, fixing or maintaining prices in Florida at a level higher
than the competitive market level, beginning at least as early as 2015 and continuing through
the date of this filing.
401.
Accordingly, defendants’ conduct was an unfair method of competition, and an
unfair or deceptive act or practice within the conduct of commerce within the State of Florida.
402.
The defendants’ unlawful conduct substantially affected Florida’s trade and
commerce.
403.
As a direct and proximate cause of defendants’ unlawful conduct, plaintiff and
the members of the class have been injured in their business or property by virtue of
overcharges for Vascepa and are threatened with further injury.
404.
By reason of the foregoing, plaintiff and the members of the class are entitled to
seek all forms of relief, including injunctive relief pursuant to Florida Stat. §501.208 and
declaratory judgment, actual damages, reasonable attorneys’ fees and costs pursuant to Florida
Stat. § 501.211.
COUNT THIRTY-THREE: VIOLATION OF THE ILLINOIS CONSUMER FRAUD
AND DECEPTIVE BUSINESS PRACTICES ACT, 815 ILL. COMP. STAT. ANN.
505/10A, ET SEQ.
405.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
406.
By reason of the conduct alleged herein, defendants have violated 740 Ill. Comp.
Stat. Ann. 10/3(1), et seq.
407.
The defendants established, maintained, or used a monopoly, or attempted to
establish a monopoly, of trade or commerce in the relevant market, a substantial part of which
occurred within Illinois, for the purpose of excluding competition or controlling, fixing, or
maintaining prices in the Vascepa Market.
408.
The defendants’ conduct was unfair, unconscionable, or deceptive within the
conduct of commerce within the State of Illinois.
409.
The defendants’ conduct misled consumers, withheld material facts, and resulted
in material misrepresentations to the plaintiff and members of the class.
410.
The defendants’ unlawful conduct substantially affected Illinois’s trade and
commerce.
411.
As a direct and proximate cause of defendants’ unlawful conduct, the plaintiff
and members of the class were actually deceived and have been injured in their business or
property and are threatened with further injury.
412.
By reason of the foregoing, the plaintiff and members of the class are entitled to
seek all forms of relief, including actual damages or any other relief the Court deems proper
under 815 Ill. Comp. Stat. Ann. 505/10a, et seq.
COUNT THIRTY-FOUR: VIOLATION OF THE MASSACHUSETTS CONSUMER
PROTECTION ACT, MASS. GEN. LAWS. CH. 93A § 1, ET SEQ.
413.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
414.
By reason of the conduct alleged herein, including the violation of federal
antitrust laws, defendants have violated the Massachusetts Consumer Protection Act, Mass.
Gen. Laws Ch. 93A § 2, et seq.
415.
Members of the class purchased Vascepa within the State of Massachusetts
during the class period. But for defendants’ conduct set forth herein, the price paid would have
been lower, in an amount to be determined at trial.
416.
The defendants established, maintained, or used a monopoly, or attempted to
establish a monopoly, of trade or commerce in the Vascepa market, a substantial part of which
occurred within Massachusetts, for the purpose of excluding competition or controlling, fixing,
or maintaining prices in the Vascepa market.
417.
The defendants’ conduct was an unfair method of competition, and an unfair or
deceptive act or practice within the conduct of commerce within the State of Massachusetts.
418.
The defendants’ unlawful conduct substantially affected Massachusetts’ trade
and commerce.
419.
As a direct and proximate cause of defendants’ unlawful conduct, the plaintiff
and the members of the class have been injured in their business or property and are threatened
with further injury.
420.
By reason of the foregoing, the plaintiff and the class are entitled to seek all
forms of relief, including up to treble damages and reasonable attorney’s fees and costs under
Mass. Gen. Laws Ch. 93A § 9.
421.
Pursuant to Mass. Gen. Laws Ch. 93A § 9, the plaintiff mailed to all defendants,
via certified mail, return receipt requested, demand for payment letters which explained the
unfair acts, the injury suffered, and requested relief from the defendants.
COUNT THIRTY-FIVE: VIOLATION OF THE MINNESOTA CONSUMER FRAUD
ACT, MINN. STAT. § 325F.68, ET SEQ.
422.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
423.
By reason of the conduct alleged herein, defendants have violated Minn. Stat.
§ 325F.68, et seq.
424.
The defendants engaged in a deceptive trade practice with the intent to injure
competitors and consumers through supra-competitive profits.
425.
The defendants established, maintained, or used a monopoly, or attempted to
establish a monopoly, of trade or commerce in the Vascepa market, a substantial part of which
occurred within Minnesota, for the purpose of controlling, fixing, or maintaining prices in the
Vascepa market.
426.
The defendants’ conduct was unfair, unconscionable, or deceptive within the
conduct of commerce within the State of Minnesota.
427.
Amarin’s conduct, specifically in its preventing would-be competitors from
obtaining the necessary API to manufacture generic Vascepa, thus delaying generic entry of
Vascepa, created a fraudulent or deceptive act or practice committed by a supplier in connection
with a consumer transaction.
428.
The defendants’ unlawful conduct substantially affected Minnesota’s trade and
commerce.
429.
The defendants’ conduct was willful.
430.
As a direct and proximate cause of defendants’ unlawful conduct, the plaintiff
and the members of the class have been injured in their business or property and are threatened
with further injury.
431.
By reason of the foregoing, the plaintiff and the members of the class are entitled
to seek all forms of relief, including damages, reasonable attorneys’ fees and costs under Minn.
Stat. § 325F.68, et seq. and applicable case law.
COUNT THIRTY-SIX: 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.
432.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
433.
The 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.
434.
The defendants’ unlawful conduct had the following effects: (1) Vascepa price
competition was restrained, suppressed, and eliminated throughout Montana; (2) Vascepa
prices were raised, fixed, maintained, and stabilized at artificially high levels throughout
Montana; (3) the plaintiff and members of the class were deprived of free and open competition;
and (4) the plaintiff and members of the class paid supracompetitive, artificially inflated prices
for Vascepa.
435.
During the class period, defendants’ illegal conduct substantially affected
Montana commerce and consumers.
436.
As a direct and proximate result of defendants’ unlawful conduct, plaintiff and
members of the class have been injured and are threatened with further injury. The 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 class seek all relief available under that statute.
COUNT THIRTY-SEVEN: VIOLATION OF THE NEBRASKA CONSUMER
PROTECTION ACT, NEB. REV. STAT. § 59-1602, ET SEQ.
437.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
438.
By reason of the conduct alleged herein, defendants have violated Neb. Rev. Stat.
§ 59-1602, et seq.
439.
The defendants established, maintained, or used a monopoly, or attempted to
establish a monopoly, of trade or commerce in the Vascepa market, for the purpose of excluding
or limiting competition or controlling or maintaining prices, a substantial part of which
occurred within Nebraska.
440.
The defendants’ conduct was conducted with the intent to deceive Nebraska
consumers regarding the nature of defendants’ actions within the stream of Nebraska
commerce.
441.
The defendants’ conduct was unfair, unconscionable, or deceptive within the
conduct of commerce within the State of Nebraska.
442.
The defendants’ conduct misled consumers, withheld material facts, and had a
direct or indirect impact upon plaintiff and members-of-the-class’ ability to protect themselves.
443.
The defendants’ unlawful conduct substantially affected Nebraska’s trade and
commerce.
444.
As a direct and proximate cause of defendants’ unlawful conduct, the plaintiff
and the members of the class have been injured in their business or property and are threatened
with further injury.
445.
By reason of the foregoing, plaintiff and members of the class are entitled to seek
all forms of relief available under Neb. Rev. Stat. § 59- 1614.
COUNT THIRTY-EIGHT: VIOLATION OF THE NEVADA DECEPTIVE TRADE
PRACTICES ACT, NEV. REV. STAT. § 598.0903, ET SEQ.
446.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
447.
By reason of the conduct alleged herein, defendants have violated Nev. Rev. Stat.
§ 598.0903, et seq.
448.
The defendants engaged in a deceptive trade practice with the intent to injure
competitors and to substantially lessen competition.
449.
The defendants established, maintained, or used a monopoly, or attempted to
establish a monopoly, of trade or commerce in the Vascepa market, a substantial part of which
occurred within Nevada, for the purpose of excluding competition or controlling, fixing, or
maintaining prices in the Vascepa market.
450.
The defendants’ conduct was unfair, unconscionable, or deceptive within the
conduct of commerce within the State of Nevada.
451.
The defendants’ conduct, including their preventing would-be competitors from
obtaining the necessary API to manufacture generic Vascepa, thus delaying generic entry of
Vascepa, amounted to a fraudulent act or practice committed by a supplier in connection with a
consumer transaction.
452.
The defendants’ unlawful conduct substantially affected Nevada’s trade and
commerce.
453.
The defendants’ conduct was willful.
454.
As a direct and proximate cause of defendants’ unlawful conduct, the members of
the class have been injured in their business or property and are threatened with further injury.
455.
By reason of the foregoing, the class is entitled to seek all forms of relief,
including damages, reasonable attorneys’ fees and costs, and a civil penalty of up to $5,000 per
violation under Nev. Rev. Stat. § 598.0993.
COUNT THIRTY-NINE: VIOLATION OF THE NEW HAMPSHIRE CONSUMER
PROTECTION ACT, N.H. REV. STAT. ANN. TIT. XXXI, § 358-A, ET SEQ.
456.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
457.
By reason of the conduct alleged herein, defendants have violated N.H. Rev. Stat.
Ann. tit. XXXI, § 358-A, et seq.
458.
The defendants established, maintained, or used a monopoly, or attempted to
establish a monopoly, of trade or commerce in the Vascepa market, for the purpose of excluding
or limiting competition or controlling or maintaining prices, a substantial part of which
occurred within New Hampshire.
459.
The defendants’ conduct was conducted with the intent to deceive New
Hampshire consumers regarding the nature of defendants’ actions within the stream of New
Hampshire commerce.
460.
The defendants’ conduct was unfair or deceptive within the conduct of commerce
within the State of New Hampshire.
461.
The defendants’ conduct was willful and knowing.
462.
The defendants’ conduct misled consumers, withheld material facts, and had a
direct or indirect impact upon plaintiff’s and members of the class’ ability to protect themselves.
463.
The defendants’ unlawful conduct substantially affected New Hampshire’s trade
and commerce.
464.
As a direct and proximate cause of defendants’ unlawful conduct, the plaintiff
and the members of the class have been injured in their business or property and are threatened
with further injury.
465.
By reason of the foregoing, the plaintiff and the members of the class are entitled
to seek all forms of relief available under N.H. Rev. Stat. Ann. tit. XXXI, §§ 358-A:10 and 358-
COUNT FORTY: VIOLATION OF THE NEW MEXICO UNFAIR PRACTICES ACT,
N.M. STAT. ANN. §§ 57-12-1, ET SEQ.
466.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
467.
By reason of the conduct alleged herein, defendants have violated N.M. Stat.
Ann. §§ 57-12-3, et seq.
468.
The defendants established, maintained, or used a monopoly, or attempted to
establish a monopoly, of trade or commerce in the relevant markets, a substantial part of which
occurred within New Mexico, for the purpose of excluding competition or controlling, fixing,
or maintaining prices in the Vascepa market.
469.
The defendants’ conduct was unfair, unconscionable, or deceptive within the
conduct of commerce within the State of New Mexico.
470.
The defendants’ conduct misled consumers, withheld material facts, and resulted
in material misrepresentations to plaintiff and members of the class.
471.
The defendants’ unlawful conduct substantially affected New Mexico’s trade and
commerce.
472.
The defendants’ conduct constituted “unconscionable trade practices” in that
such conduct, inter alia, resulted in a gross disparity between the value received by the New
Mexico class members and the price paid by them for Vascepa as set forth in N.M. Stat. Ann.
§ 57-12-2E.
473.
The defendants’ conduct was willful.
474.
As a direct and proximate cause of defendants’ unlawful conduct, the plaintiff
and the members of the class have been injured in their business or property and are threatened
with further injury.
475.
By reason of the foregoing, the plaintiff and members of the class are entitled to
seek all forms of relief, including actual damages or up to $300 per violation, whichever is
greater, plus reasonable attorney’s fees under N.M. Stat. Ann. §§ 57-12-10.
COUNT FORTY-ONE: VIOLATION OF THE NORTH CAROLINA UNFAIR TRADE
AND BUSINESS PRACTICES ACT, N.C. GEN. STAT. § 75-1.1, ET SEQ.
476.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
477.
By reason of the conduct alleged herein, defendants have violated N.C. Gen. Stat.
§ 75-1.1, et seq.
478.
The defendants’ conduct was unfair, unconscionable, or deceptive within the
conduct of commerce within the State of North Carolina.
479.
The defendants’ trade practices are and have been immoral, unethical,
unscrupulous, and substantially injurious to consumers.
480.
The defendants’ conduct misled consumers, withheld material facts, and resulted
in material misrepresentations to the plaintiff and members of the class.
481.
The defendants’ unlawful conduct substantially affected North Carolina’s trade
and commerce.
482.
The defendants’ conduct 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.
483.
As a direct and proximate cause of defendants’ unlawful conduct, the plaintiff
and the members of the class have been injured in their business or property and are threatened
with further injury.
484.
By reason of the foregoing, the plaintiff and the members of the class are entitled
to seek all forms of relief, including treble damages under N.C. Gen. Stat. § 7516.
COUNT FORTY-TWO: VIOLATION OF THE OREGON UNLAWFUL TRADE
PRACTICES ACT, OR. REV. STAT. § 646.605, ET SEQ.
485.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
486.
By reason of the conduct alleged herein, defendants have violated Or. Rev. Stat.
§ 646.608, et seq.
487.
The defendants have entered into a contract, combination, or conspiracy
between two or more persons in restraint of, or to monopolize, trade or commerce in the
Vascepa market, a substantial part of which occurred within Oregon.
488.
The defendants established, maintained, or used a monopoly, or attempted to
establish a monopoly, of trade or commerce in the Vascepa market, for the purpose of excluding
or limiting competition or controlling or maintaining prices, a substantial part of which
occurred within Oregon.
489.
The defendants’ conduct was conducted with the intent to deceive Oregon
consumers regarding the nature of the defendants’ actions within the stream of Oregon
commerce.
490.
The defendants’ conduct was unfair or deceptive within the conduct of commerce
within the State of Oregon.
491.
The defendants’ conduct misled consumers, withheld material facts, and had a
direct or indirect impact upon plaintiff’s and members of the class’ ability to protect themselves.
492.
The defendants’ unlawful conduct substantially affected Oregon’s trade and
commerce.
493.
As a direct and proximate cause of the defendants’ unlawful conduct, the plaintiff
and the members of the class have been injured in their business or property and are threatened
with further injury.
494.
By reason of the foregoing, the plaintiff and the members of the class are entitled
to seek all forms of relief available under Or. Rev. Stat. § 646.638.
495.
Pursuant to section 646.638 of the Oregon Unlawful Trade Practices Act, with
the filing of this action, a copy of this complaint is being served upon the Attorney General of
Oregon.
COUNT FORTY-THREE: VIOLATION OF THE RHODE ISLAND DECEPTIVE
TRADE PRACTICES ACT, R.I. GEN. LAWS § 6-13.1-1, ET SEQ.
496.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
497.
By reason of the conduct alleged herein, defendants have violated R.I. Gen. Laws
§ 6-13.1-1, et seq.
498.
The defendants engaged in an unfair or deceptive act or practice with the intent
to injure competitors and consumers through supra-competitive profits.
499.
The defendants established, maintained, or used a monopoly, or attempted to
establish a monopoly, of trade or commerce in the Vascepa market, a substantial part of which
occurred within Rhode Island, for the purpose of controlling, fixing, or maintaining prices in
the Vascepa market.
500.
The defendants’ conduct was unfair or deceptive within the conduct of commerce
within the State of Rhode Island.
501.
The defendants’ conduct amounted to an unfair or deceptive act or practice
committed by a supplier in connection with a consumer transaction.
502.
The defendants’ unlawful conduct substantially affected Rhode Island’s trade and
commerce.
503.
The defendants’ conduct was willful.
504.
The defendants deliberately failed to disclose material facts to the plaintiff and
members of the class concerning the defendants’ unlawful activities, including their preventing
would-be competitors from obtaining the necessary API to manufacture generic Vascepa, thus
delaying generic entry of Vascepa.
505.
The defendants’ deception constitutes information necessary to the plaintiff and
members of the class relating to the cost of Vascepa purchased.
506.
The plaintiff and members of the class purchased goods, namely Vascepa,
primarily for personal, family, or household purposes.
507.
As a direct and proximate cause of defendants’ unlawful conduct, the plaintiff
and the members of the class have been injured in their business or property and are threatened
with further injury.
508.
By reason of the foregoing, the plaintiff and the members of the class are entitled
to seek all forms of relief, including actual damages or $200 per violation, whichever is greater,
and injunctive relief and punitive damages under R.I. Gen. Laws § 6-13.1-5.2.
COUNT FORTY-FOUR: VIOLATION OF THE SOUTH CAROLINA’S UNFAIR
TRADE PRACTICES ACT, S.C. CODE ANN. §§ 39-5-10, ET SEQ.
509.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
510.
By reason of the conduct alleged herein, defendants have violated S.C. Code Ann.
§§ 39-5-10.
511.
The defendants have entered into a contract, combination, or conspiracy
between two or more persons in restraint of, or to monopolize, trade or commerce in the
Vascepa market, a substantial part of which occurred within Oregon.
512.
The defendants established, maintained, or used a monopoly, or attempted to
establish a monopoly, of trade or commerce in the Vascepa market, for the purpose of excluding
or limiting competition or controlling or maintaining prices, a substantial part of which
occurred within South Carolina.
513.
The defendants’ conduct was conducted with the intent to deceive South
Carolina consumers regarding the nature of the defendants’ actions within the stream of South
Carolina commerce.
514.
The defendants’ conduct was unfair or deceptive within the conduct of commerce
within the State of South Carolina.
515.
The defendants’ conduct misled consumers, withheld material facts, and had a
direct or indirect impact upon plaintiff’s and members of the class’ ability to protect themselves.
516.
The defendants’ unlawful conduct substantially affected South Carolina trade
and commerce.
517.
The defendants’ unlawful conduct substantially harmed the public interest of the
State of South Carolina, as nearly all members of the public purchase and consume Vascepa.
COUNT FORTY-FIVE: VIOLATION OF THE SOUTH DAKOTA DECEPTIVE
TRADE PRACTICES AND CONSUMER PROTECTION LAW,
S.D. CODIFIED LAWS § 37-24, ET SEQ.
518.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
519.
By reason of the conduct alleged herein, defendants have violated S.D. Codified
Laws § 37-24-6.
520.
The defendants engaged in a deceptive trade practice with the intent to injure
competitors and consumers through supra-competitive profits.
521.
The defendants established, maintained, or used a monopoly, or attempted to
establish a monopoly, of trade or commerce in the Vascepa market, a substantial part of which
occurred within South Dakota, for the purpose of controlling, fixing, or maintaining prices in
the Vascepa market.
522.
The defendants’ conduct, including their preventing would-be competitors from
obtaining the necessary API to manufacture generic Vascepa, thus delaying generic entry of
Vascepa, was unfair, unconscionable, or deceptive within the conduct of commerce within the
State of South Dakota.
523.
The defendants’ conduct amounted to a fraudulent or deceptive act or practice
committed by a supplier in connection with a consumer transaction.
524.
The defendants’ unlawful conduct substantially affected South Dakota’s trade
and commerce.
525.
The defendants’ conduct was willful.
526.
As a direct and proximate cause of defendants’ unlawful conduct, the plaintiff
and the members of the class have been injured in their business or property and are threatened
with further injury.
527.
By reason of the foregoing, the plaintiff and the members of the class are entitled
to seek all forms of relief, including actual damages and injunctive relief under S.D. Codified
Laws § 37-24-31.
COUNT FORTY-SIX: VIOLATION OF THE VERMONT CONSUMER FRAUD ACT
VT. STAT. ANN. TIT. 9, CH. 63 §2451, ET SEQ.
528.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
529.
Title 9 of the Vermont Statutes generally governs commerce and trade in
Vermont. Chapter 63 thereof governs consumer protection and prohibits, inter alia, unfair
methods competition, unfair and deceptive acts and practices, and antitrust violations such as
restraints of trade and monopolization. Vt. Stat. Ann. Tit. 9 § 2453(a).
530.
Members of the class purchased Vascepa within the State of Vermont during the
class period. But for the defendants’ conduct set forth herein, the price of Vascepa would have
been lower, in an amount to be determined at trial.
531.
Under Vermont law, indirect purchasers have standing under the antitrust
provisions of the Vermont Statutes to maintain an action based on the facts alleged in this
complaint. Vt. Stat. Ann. Tit. 9, § 2465(b).
532.
The defendants competed unfairly by restraining trade as set forth herein, in
violation of Vt. Stat. Ann. Tit. 9, § 2453, et seq.
533.
The plaintiff and members of the classes were injured with respect to purchases
of Vascepa in Vermont and are entitled to all forms of relief, including actual damages, treble
damages, and reasonable attorneys’ fees
COUNT FORTY-SEVEN: VIOLATION OF THE VIRGINIA CONSUMER
PROTECTION ACT, VA. CODE ANN. § 59.1- 196, ET SEQ.
534.
Plaintiff incorporates each and every allegation set forth in the preceding
paragraphs of this complaint.
535.
By reason of the conduct alleged herein, defendants have violated Va. Code Ann.
§ 59.1- 196, et seq.
536.
The defendants established, maintained, or used a monopoly, or attempted to
establish a monopoly, of trade or commerce in the Vascepa market, a substantial part of which
occurred within Virginia, for the purpose of excluding competition or controlling, fixing, or
maintaining prices in the Vascepa market.
537.
The defendants’ conduct caused or was intended to cause unfair methods of
competition within the State of Virginia.
538.
The defendants’ unlawful conduct substantially affected Virginia’s trade and
commerce.
539.
As a direct and proximate cause of defendants’ unlawful conduct, the plaintiff
and the members class have been injured in their business or property and are threatened with
further injury.
540.
By reason of the foregoing, the plaintiff and the members of the class are entitled
to seek all forms of relief, including actual damages, treble damages, plus reasonable attorney’s
fees under Virginia Code Ann. § 59.1-196, et seq..
COUNT FORTY-EIGHT: VIOLATION OF THE WEST VIRGINIA CONSUMER
CREDIT AND PROTECTION ACT, W. VA. CODE § 46A-6-101, ET SEQ.
541.
The plaintiff hereby repeats and incorporates by reference each preceding and
succeeding paragraph as though fully set forth herein.
542.
The West Virginia Consumer Credit and Protection Act prohibits, inter alia,
“unfair or deceptive acts or practices in the conduct of any trade or commerce.” W. Va. Code
Ann. § 46A-6-104.
543.
The violations of federal antitrust law set forth above also constitute violations
of section 46A-6-101, et seq. of the West Virginia Code.
544.
During the class period, defendants engaged in the unfair and deceptive conduct
alleged above.
545.
The defendants’ unfair and deceptive acts described above were knowing, willful
and constitute violations or flagrant violations of West Virginia law.
546.
As a direct and proximate result of defendants’ unlawful conduct, the plaintiff
and members of the class have been injured in their business and property in that they paid
more for Vascepa than they otherwise would have paid in the absence of defendants’ unlawful
conduct.
547.
As a result of defendants’ violation of Section 47-18-3 of the West Virginia
Antitrust Act, plaintiff and members of the class seek all recoverable damages and their cost of
suit, including reasonable attorneys’ fees, pursuant to sections 46A-5-101(a) and 46A-5-104 of
the West Virginia Code
548.
Counsel sent a demand letter to Amarin Pharmaceuticals Ltd.; Amarin Clinical
Research, Inc.; and Amarin Pharmaceuticals US, Inc. This demand letter satisfies the
requirements of West Virginia Code § 46A-6-106(c). The demand letter, which was sent via
certified mail, return receipt requested, identified the claimants as “purchasers of Vascepa” in
individual and representative capacities; described the unfair or deceptive acts or practices
committed by Amarin; described the injury suffered (increased prices for Vascepa due to
Amarin’s anticompetitive restrictions on API supply); set forth a demand for relief (treble
damages, attorneys’ fees, litigation costs, and other sanctions); and requested an offer to cure
within the statutorily prescribed time.
COUNT FORTY-NINE: UNJUST ENRICHMENT
549.
The plaintiff incorporates by reference the allegations in the preceding
paragraphs.
550.
To the extent required, this claim is pled in the alternative to the other claims in
this complaint.
551.
It would be futile for the plaintiff, or any member of the class, to seek a remedy
from any party with whom they had or have privity of contract; the defendants have paid no
consideration to anyone for the improper benefits they received indirectly from the plaintiff and
members of the class.
552.
As a result of their unlawful conduct described above, the defendants have and
will continued to be unjustly enriched by the receipt of unlawfully inflated prices and unlawful
profits of abiraterone acetate.
553.
A constructive trust should be imposed upon all unlawful or inequitable sums
the defendants received that are traceable to the plaintiff and members of the class.
A.
Alabama
554.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Alabama at prices that
were more than they would have been but for the defendants’ actions. The defendants received
money from the class as a direct result of the unlawful overcharges and have retained this
money. The defendants have benefitted at the expense of the class from revenue resulting from
unlawful overcharges for Vascepa or its AB-rated generic equivalents. It is inequitable for the
defendants to accept and retain the benefits received without compensating the plaintiff and the
B.
Alaska
555.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Alaska at prices that
were more than they would have been but for the defendants’ actions. The class has conferred
an economic benefit upon the defendants, in the nature of revenue resulting from unlawful
overcharges to the economic detriment of the class. The defendants appreciated the benefits
bestowed upon them by the class. The defendants accepted and retained the benefits bestowed
upon them under inequitable and unjust circumstances arising from unlawful overcharges to
the class. Under the circumstances, it would be inequitable for the defendants to retain such
benefits without compensating the plaintiff and the class.
C.
Arizona
556.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Arizona at prices that
were more than they would have been but for the defendants’ actions. The defendants have
been enriched by revenue resulting from unlawful overcharges for Vascepa or its AB-rated
generic equivalents. The class has been impoverished by the overcharges for Vascepa or its AB-
rated generic equivalents resulting from the defendants’ unlawful conduct. The defendants’
enrichment and the class’s impoverishment are connected. There is no justification for the
defendants’ receipt of the benefits causing their enrichment and the class’s impoverishment,
because the class paid supra-competitive prices that inured to the defendants’ benefit, and it
would be inequitable for the defendants to retain any revenue gained from their unlawful
overcharges. The class has no remedy at law.
D.
Arkansas
557.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Arkansas at prices that
were more than they would have been but for the defendants’ actions. The defendants received
money from the class as a direct result of the unlawful overcharges and have retained this
money. The defendants have paid no consideration to any other person in exchange for this
money. Under the circumstances, it would be inequitable for the defendants to retain such
benefits without compensating the class.
E.
California
558.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in California at prices that
were more than they would have been but for the defendants’ actions. The defendants have
received a benefit from the class as a direct result of the unlawful overcharges. The defendants
retained the benefits bestowed upon them under inequitable and unjust circumstances at the
expense of the class.
F.
District of Columbia
559.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in the District of Columbia
at prices that were more than they would have been but for the defendants’ actions. The class
has conferred an economic benefit upon the defendants, in the nature of revenue resulting from
unlawful overcharges to the economic detriment of the class. The defendants retained the
benefit bestowed upon them under inequitable and unjust circumstances arising from unlawful
overcharges to the class. Under the circumstances, it would be inequitable and unjust for the
defendants to retain such benefits.
G.
Florida
560.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Florida at prices that
were more than they would have been but for the defendants’ actions. The class has conferred
an economic benefit upon the defendants, in the nature of revenue resulting from unlawful
overcharges to the economic detriment of the class. The defendants appreciated the benefits
bestowed upon them by the class. Under the circumstances, it would be inequitable for the
defendants to retain such benefits without compensating the class.
H.
Georgia
561.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Georgia at prices that
were more than they would have been but for the defendants’ actions. The class has conferred
an economic benefit upon the defendants, in the nature of revenue resulting from unlawful
overcharges to the economic detriment of the class. Under the circumstances, it would be
inequitable for the defendants to retain such benefits without compensating the class.
I.
Hawaii
562.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Hawaii at prices that
were more than they would have been but for the defendants’ actions. The class has conferred
an economic benefit upon the defendants, in the nature of revenue resulting from unlawful
overcharges to the economic detriment of the class. Under the circumstances, it would be
inequitable for the defendants to retain such benefits without compensating the class.
J.
Idaho
563.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Idaho at prices that were
more than they would have been but for the defendants’ actions. The class has conferred an
economic benefit upon the defendants, in the nature of revenue resulting from unlawful
overcharges to the economic detriment of the class. The defendants appreciated the benefit
conferred upon them by the class. Under the circumstances, it would be inequitable for the
defendants to retain such benefits without compensating the class.
K.
Illinois
564.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Illinois at prices that
were more than they would have been but for the defendants’ actions. The class has conferred
an economic benefit upon the defendants, in the nature of revenue resulting from unlawful
overcharges to the economic detriment of the class. The defendants retained the benefits
bestowed upon them under unjust circumstances arising from unlawful overcharges to the
class. It is against equity, justice, and good conscience for the defendants to be permitted to
retain the revenue resulting from their unlawful overcharges.
L.
Iowa
565.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Iowa at prices that were
more than they would have been but for the defendants’ actions. The defendants have been
enriched by revenue resulting from unlawful overcharges for Vascepa or its AB-rated generic
equivalents, which revenue resulted from anticompetitive prices paid by d the class, which
inured to the defendants’ benefit. The defendants’ enrichment has occurred at the expense of
the class. Under the circumstances, it would be unjust for the defendants to retain such benefits
without compensating the class.
M.
Kansas
566.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Kansas at prices that
were more than they would have been but for the defendants’ actions. The class has conferred
an economic benefit upon the defendants, in the nature of revenue resulting from unlawful
overcharges to the economic detriment of the class. The defendants retained the benefits
bestowed upon them under unjust circumstances arising from unlawful overcharges to the
class. Under the circumstances, it would be inequitable for the defendants to retain such
benefits without compensating the class.
N.
Maine
567.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Maine at prices that were
more than they would have been but for the defendants’ actions. The class has conferred an
economic benefit upon the defendants, in the nature of revenue resulting from unlawful
overcharges to the economic detriment of the class. The defendants were aware of or
appreciated the benefit bestowed upon them by the class. Under the circumstances, it would be
inequitable for the defendants to retain such benefits without compensating the class.
O.
Maryland
568.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Maryland at prices that
were more than they would have been but for the defendants’ actions. The class has conferred
an economic benefit upon the defendants, in the nature of revenue resulting from unlawful
overcharges to the economic detriment of the class. The defendants were aware of or
appreciated the benefit bestowed upon them by the class. Under the circumstances, it would be
inequitable for the defendants to retain such benefits without compensating the class.
P.
Massachusetts
569.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Massachusetts at prices
that were more than they would have been but for the defendants’ actions. The class has
conferred an economic benefit upon the defendants, in the nature of revenue resulting from
unlawful overcharges to the economic detriment of the class. The defendants were aware of or
appreciated the benefit conferred upon them by the class. Under the circumstances, it would be
inequitable for the defendants to retain such benefits without compensating the class.
Q.
Michigan
570.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Michigan at prices that
were more than they would have been but for the defendants’ actions. The defendants have
received a benefit from the class in the nature of revenue resulting from the unlawful
overcharges, which revenue resulted from anticompetitive prices that inured to the benefit of
the defendants. The defendants retained the benefits bestowed upon them under unjust
circumstances arising from unlawful overcharges to the class. Under the circumstances, it
would be inequitable for the defendants to retain such benefits without compensating the class.
R.
Minnesota
571.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Minnesota at prices that
were more than they would have been but for the defendants’ actions. The class has conferred
an economic benefit upon the defendants, in the nature of revenue resulting from unlawful
overcharges to the economic detriment of the class. The defendants appreciated and knowingly
accepted the benefits bestowed upon them by the class. Under the circumstances, it would be
inequitable for the defendants to retain such benefits without compensating the class.
S.
Mississippi
572.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Mississippi at prices that
were more than they would have been but for the defendants’ actions. The defendants received
money from the class as a direct result of the unlawful overcharges. The defendants retain the
benefit of overcharges received on the sales of Vascepa or its AB-rated generic equivalents,
which in equity and good conscience belong to the class on account of the defendants’
anticompetitive conduct. Under the circumstances, it would be inequitable for the defendants to
retain such benefits without compensating the class.
T.
Missouri
573.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Missouri at prices that
were more than they would have been but for the defendants’ actions. The class has conferred
an economic benefit upon the defendants, in the nature of revenue resulting from unlawful
overcharges to the economic detriment of the class. The defendants appreciated the benefit
bestowed upon them by the class. The defendants accepted and retained the benefit bestowed
upon them under inequitable and unjust circumstances arising from unlawful overcharges to
the class.
U.
Montana
574.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Montana at prices that
were more than they would have been but for the defendants’ actions. The class has conferred
an economic benefit upon the defendants, in the nature of revenue resulting from unlawful
overcharges to the economic detriment of the class. Under the circumstances, it would be
inequitable for the defendants to retain such benefits without compensating the class.
V.
Nebraska
575.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Nebraska at prices that
were more than they would have been but for the defendants’ actions. The defendants received
money from the class as a direct result of the unlawful overcharges and have retained this
money. The defendants have paid no consideration to any other person in exchange for this
money. In justice and fairness, the defendants should disgorge such money and remit the
overcharged payments back to the class.
W.
Nevada
576.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Nevada at prices that
were more than they would have been but for the defendants’ actions. The class has conferred
an economic benefit upon the defendants in the nature of revenue resulting from unlawful
overcharges for Vascepa or its AB-rated generic equivalents. The defendants appreciated the
benefits bestowed upon them by the class, for which they have paid no consideration to any
other person. Under the circumstances, it would be inequitable for the defendants to retain such
benefits without compensating the class.
X.
New Hampshire
577.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in New Hampshire at prices
that were more than they would have been but for the defendants’ actions. The defendants have
received a benefit from the class in the nature of revenue resulting from the unlawful
overcharges, which revenue resulted from anticompetitive prices that inured to the benefit of
the defendants. Under the circumstances, it would be unconscionable for the defendants to
retain such benefits.
Y.
New Mexico
578.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in New Mexico at prices
that were more than they would have been but for the defendants’ actions. The defendants have
knowingly benefitted at the expense of the class from revenue resulting from unlawful
overcharges for Vascepa or its AB-rated generic equivalents. To allow the defendants to retain
the benefits would be unjust because the benefits resulted from anticompetitive pricing that
inured to the defendants’ benefit and because the defendants have paid no consideration to any
other person for any of the benefits they received.
Z.
New York
579.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in New York at prices that
were more than they would have been but for the defendants’ actions. The defendants have
been enriched by revenue resulting from unlawful overcharges for Vascepa or its AB-rated
generic equivalents, which revenue resulted from anticompetitive prices paid by the class,
which inured to the defendants’ benefit. The defendants’ enrichment has occurred at the
expense of the class. It is against equity and good conscience for the defendants to be permitted
to retain the revenue resulting from their unlawful overcharges.
AA.
North Carolina
580.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in North Carolina at prices
that were more than they would have been but for the defendants’ actions. The class has
conferred an economic benefit upon the defendants in the nature of revenue resulting from
unlawful overcharges to the economic detriment of the class. The class did not interfere with
the defendants’ affairs in any manner that conferred these benefits upon the defendants. The
benefits conferred upon the defendants were not gratuitous, in that they comprised revenue
created by unlawful overcharges arising from arising from unlawful overcharges to the class.
The benefits conferred upon the defendants are measurable, in that the revenue the defendants
have earned due to unlawful overcharges are ascertainable by review of sales records. The
defendants consciously accepted the benefits conferred upon them.
BB.
North Dakota
581.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in North Dakota at prices
that were more than they would have been but for the defendants’ actions. The defendants have
been enriched by revenue resulting from unlawful overcharges for Vascepa or its AB-rated
generic equivalents. The class has been impoverished by the overcharges for Vascepa or its AB-
rated generic equivalents resulting from the defendants’ unlawful conduct. The defendants’
enrichment and the class’s impoverishment are connected. There is no justification for the
defendants’ receipt of the benefits causing their enrichment, because the class paid supra-
competitive prices that inured to the defendants’ benefit, and it would be inequitable for the
defendants to retain any revenue gained from their unlawful overcharges. The class has no
remedy at law. Under the circumstances, it would be unjust for the defendants to retain such
benefits without compensating the class.
CC.
Oregon
582.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Oregon at prices that
were more than they would have been but for the defendants’ actions. The class has conferred
an economic benefit upon the defendants, in the nature of revenue resulting from unlawful
overcharges to the economic detriment of the class. The defendants were aware of the benefit
bestowed upon them by the class. Under the circumstances, it would be unjust for the
defendants to retain such benefits without compensating the class.
DD.
Pennsylvania
583.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Pennsylvania at prices
that were more than they would have been but for the defendants’ actions. The class has
conferred an economic benefit upon the defendants, in the nature of revenue resulting from
unlawful overcharges to the economic detriment of the class. The defendants appreciated the
benefit bestowed upon them by the class. Under the circumstances, it would be inequitable for
the defendants to retain such benefits without compensating the class.
EE.
Puerto Rico
584.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Puerto Rico at prices that
were more than they would have been but for the defendants’ actions. The defendants have
been enriched by revenue resulting from unlawful overcharges for Vascepa or its AB-rated
generic equivalents. The class has been impoverished by the overcharges for Vascepa or its AB-
rated generic equivalents resulting from the defendants’ unlawful conduct. The defendants’
enrichment and the class’s impoverishment are connected. There is no justification for the
defendants’ receipt of the benefits causing their enrichment and the class’s impoverishment,
because the class paid supra-competitive prices that inured to the defendants’ benefit, and it
would be inequitable for the defendants to retain any revenue gained from their unlawful
overcharges. The class has no remedy at law.
FF.
Rhode Island
585.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Rhode Island at prices
that were more than they would have been but for the defendants’ actions. The class has
conferred an economic benefit upon the defendants, in the nature of revenue resulting from
unlawful overcharges to the economic detriment of the class. The defendants appreciated the
benefit bestowed upon them by the class. Under the circumstances, it would be inequitable for
the defendants to retain such benefits without compensating the class.
GG.
South Carolina
586.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in South Carolina at prices
that were more than they would have been but for the defendants’ actions. The benefits
conferred upon the defendants were not gratuitous, in that they comprised revenue created by
unlawful overcharges arising from arising from unlawful overcharges to the class. The
defendants realized value from the benefit bestowed upon them by the class. Under the
circumstances, it would be inequitable for the defendants to retain such benefits without
compensating the class.
HH.
South Dakota
587.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in South Dakota at prices
that were more than they would have been but for the defendants’ actions. The defendants have
received a benefit from the class in the nature of revenue resulting from the unlawful
overcharges, which revenue resulted from anticompetitive prices that inured to the benefit of
defendants. The defendants were aware of the benefit bestowed upon them by the class. Under
the circumstances, it would be inequitable and unjust for the defendants to retain such benefits
without reimbursing the class.
II.
Tennessee
588.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Tennessee at prices that
were more than they would have been but for the defendants’ actions. The class has conferred
an economic benefit upon the defendants, in the nature of revenue resulting from unlawful
overcharges to the economic detriment of the class. The defendants appreciated the benefit
bestowed upon them by the class. Under the circumstances, it would be inequitable for the
defendants to retain such benefits without compensating the class. It would be futile for the
class to seek a remedy from any party with whom they have privity of contract. The defendants
have paid no consideration to any other person for any of the unlawful benefits they received
indirectly from the class with respect to the defendants’ sales of Vascepa or its AB-rated generic
equivalents. It would be futile for The class to exhaust all remedies against the entities with
which the class has privity of contract because the class did not purchase Vascepa or its AB-
rated generic equivalents directly from any defendant.
JJ.
Utah
589.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Utah at prices that were
more than they would have been but for the defendants’ actions. The class has conferred an
economic benefit upon the defendants, in the nature of revenue resulting from unlawful
overcharges to the economic detriment of the class. The defendants were aware of or
appreciated the benefit bestowed upon them by the class. Under the circumstances, it would be
inequitable for the defendants to retain such benefits without compensating the class.
KK.
Vermont
590.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Vermont at prices that
were more than they would have been but for the defendants’ actions. The class has conferred
an economic benefit upon defendants, in the nature of revenue resulting from unlawful
overcharges to the economic detriment of the class. The defendants accepted the benefit
bestowed upon them by the class. Under the circumstances, it would be inequitable for the
defendants to retain such benefits without compensating the class.
LL.
Virginia
591.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Virginia at prices that
were more than they would have been but for the defendants’ actions. The class has conferred
an economic benefit upon the defendants, in the nature of revenue resulting from unlawful
overcharges to the economic detriment of the class. The defendants were aware of the benefit
bestowed upon them. The defendants should reasonably have expected to repay the class. The
benefits conferred upon the defendants were not gratuitous, in that they constituted revenue
created by unlawful overcharges arising from the defendants’ illegal and unfair actions to
inflate the prices of Vascepa or its AB-rated generic equivalents. The defendants have paid no
consideration to any other person for any of the benefits they have received from the class.
MM.
West Virginia
592.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in West Virginia at prices
that were more than they would have been but for the defendants’ actions. The class has
conferred an economic benefit upon the defendants, in the nature of revenue resulting from
unlawful overcharges to the economic detriment of the class. The defendants were aware of or
appreciated the benefit bestowed upon them by the class. Under the circumstances, it would be
inequitable for the defendants to retain such benefits without compensating the class.
NN.
Wisconsin
593.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Wisconsin at prices that
were more than they would have been but for the defendants’ actions. The class has conferred
an economic benefit upon the defendants, in the nature of revenue resulting from unlawful
overcharges to the economic detriment of the class. The defendants appreciated the benefit
bestowed upon them by the class. Under the circumstances, it would be inequitable for the
defendants to retain such benefits without compensating the class.
OO.
Wyoming
594.
The defendants unlawfully overcharged class members, who made purchases of
or reimbursements for Vascepa or its AB-rated generic equivalents in Wyoming at prices that
were more than they would have been but for the defendants’ actions. The class has conferred
an economic benefit upon the defendants, in the nature of revenue resulting from unlawful
overcharges to the economic detriment of the class. The defendants accepted, used and enjoyed
the benefits bestowed upon them by the class. Under the circumstances, it would be inequitable
for the defendants to retain such benefits without compensating the class.
XIII. COMPLIANCE WITH NOTICE REQUIREMENTS
595.
In accordance with the requirements of ARIZONA REV. STAT. § 44-1415, 815 ILL.
COMP. STAT. ANN. 505/10A, 5 ME REV. STAT. § 213(3), MINN. STAT. § 325D.63, MO. REV.
STAT. § 407.025.7, MONT. CODE § 30-14-133, NEV. REV. STAT. § 598A.210(3), N.Y. GEN. BUS.
LAW § 340(5), OR. REV. STAT. § 646.780(5)(B), OR. REV. STAT. § 646.638(2), R.I. GEN. LAWS § 6-
36-21, SC CODE § 39-5-140, UTAH CODE ANN. § 76-10-2109(9), and W. V. CODE §46A-6-106(c)
upon filing counsel will send letters by certified mail, return receipt requested, to:
a. Mark Brnovich, Attorney General of Arizona;
b. Kwame Raoul, Attorney General of Illinois;
c. Aaron Frey, Attorney General of Maine;
d. Keith Ellison, Attorney General of Minnesota;
e. Eric Schmitt, Attorney General of Missouri;
f. Austin Knudsen, Attorney General of Montana;
g. Aaron Ford, Attorney General of Nevada;
h. Letitia James, Attorney General of New York;
i. Ellen Rosenblum, Attorney General of Oregon;
j. Peter Neronha, Attorney General of Rhode Island;
k. Alan Wilson, Attorney General of South Carolina;
l. Sean Reyes, Attorney General of Utah; and
m. Patrick Morrisey, Attorney General of West Virginia
informing them of the existence of this consolidated class action complaint, identifying the
relevant state provisions, and enclosing a copy of this complaint.
XIV. PRAYER FOR RELIEF
Accordingly, the plaintiff respectfully requests that:
A.
The Court determine that this action may be maintained as a class action under
Rules 23(a), (b)(2), and (b)(3) and direct that reasonable notice of this action be given to each
and every member of the class as provided by Rule 23(c)(2);
B.
That the defendants’ unlawful monopoly maintenance and agreements in
restraint of trade alleged herein be adjudged and decreed violations of Sections 1 and 2 of the
Sherman Act, as well as state consumer and antitrust law, as alleged herein;
C.
The plaintiff and members of the class recover damages, to the maximum extent
allowed under such laws, and that a joint and several judgment in favor of the plaintiff and
members of the class be entered against the defendants in an amount to be trebled to the extent
such laws permit;
D.
The defendants be permanently enjoined and restrained from in any manner
continuing, maintaining or renewing the monopoly, contract, conspiracy, or combination
alleged herein, or from entering into any other monopoly, contract, conspiracy, or combination
having a similar purpose or effect;
E.
The plaintiff and the members of the class be awarded restitution for the
defendants’ ill-gotten gains resulting from their unlawful and inequitable unjust enrichment;
F.
The plaintiff and the members of the class recover their costs of suit, including
reasonable attorneys’ fees, as provided by law; and
G.
The plaintiff and members of the class be granted such other and further relief as
the case may require and the Court deems just and proper.
XV.
JURY DEMAND
The plaintiff demands a jury trial on all claims so triable.
DATED June 11, 2021.
Respectfully submitted,
Frank R. Schirripa
/s/
Frank R. Schirripa
Seth M. Pavsner
HACH ROSE SCHIRRIPA & CHEVERIE LLP
112 Madison Avenue, 10th Floor
New York, New York 10016
Phone: (212) 213-8311
Thomas M. Sobol
Lauren G. Barnes
Abbye R. Klamann Ognibene
HAGENS BERMAN SOBOL SHAPIRO LLP
55 Cambridge Parkway, Suite 301
Cambridge, MA 02142
Telephone: (617) 482-3700
Facsimile: (617) 482-3003
tom@hbsslaw.com
lauren@hbsslaw.com
abbyeo@hbsslaw.com
James R. Dugan, II
David S. Scalia
TerriAnne Benedetto
THE DUGAN LAW FIRM
One Canal Place, Suite 1000
365 Canal Street
New Orleans, LA 70130
Telephone: (504) 648-0180
Facsimile: (504) 648-0181
jdugan@dugan-lawfirm.com
dscalia@dugan-lawfirm.com
tbenedetto@dugan-lawfirm.com
Counsel for Plaintiff and the Proposed Class
| antitrust |
PMkQDocBD5gMZwczL-A3 | 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: 323-306-4234
Fax: 866-633-0228
tfriedman@toddflaw.com
mgeorge@toddflaw.com
abacon@toddflaw.com
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
JONATHAN THREDE, individually and on
behalf of all others similarly situated,
Plaintiff,
vs.
Case No. 3:21-cv-4889
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
ALINCO IT, INC.; and DOES 1 through 10,
inclusive,
Defendants.
TELEPHONE CONSUMER
PROTECTION ACT [47 U.S.C. §227 ET
SEQ.]
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
DEMAND FOR JURY TRIAL
Plaintiff, JONATHAN THREDE (“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
ALINCO IT, INC (“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 California 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, JONATHAN THREDE (“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, ALINCO IT, INC. (“Defendant” or “DEFENDANT”), is an
information technology support 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 around October 28, 2019, Defendant contacted Plaintiff on his
cellular telephone ending in -2224, in an effort to sell or solicit its services. Defendant called,
including but not limited to around October 28, 2019 at 9:32 a.m., and October 29, 2019.
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. 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 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 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 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, 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 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 seq.
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 25th day of June, 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 |
3E2wA4kBRpLueGJZTC_K | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE NO.:
DANIEL ESTERLY, individually and on behalf
of all others similarly situated,
Plaintiff,
v.
NORTH BROWARD HOSPITAL DISTRICT
d/b/a BROWARD HEALTH,
Defendant.
CLASS ACTION COMPLAINT
Plaintiff Daniel Esterly (“Plaintiff”), by and through the undersigned counsel, brings this
class action complaint against Defendant North Broward Hospital District d/b/a Broward Health
(“Defendant” or “Broward Health”), on behalf of himself and all others similarly situated. Plaintiff
makes the following allegations based upon personal knowledge as to his own actions and upon
information and belief as to all other matters:
NATURE OF THE CASE
1.
On January 1, 2022, Broward Health, a Florida-based healthcare system that
operates more than 30 healthcare locations in Broward County, Florida, disclosed that it was the
subject of a massive data breach whereby hackers gained unauthorized access to its networks
between October 15 and October 19, 2021 (the “Data Breach”).
2.
The hackers were able to access and exfiltrate highly-sensitive information stored
on Broward Health’s servers, including patients’ full names, dates of birth, addresses, phone
numbers, financial and bank account information, Social Security numbers, insurance information,
account numbers, medical information including history, condition, treatment and diagnoses,
medical record numbers, driver’s license numbers and email addresses (“PII”).
3.
The Data Breach occurred because Broward Health failed to implement reasonable
security procedures and practices, failed to disclose material facts surrounding its deficient data
security protocols, and failed to timely notify the victims of the Data Breach.
4.
As a result of Broward Health’s failure to protect the sensitive information it was
entrusted to safeguard, Plaintiff and class members did not receive the benefit of their bargain with
Broward Health and now face a significant risk of medical-related identity theft and fraud,
financial fraud, and other identity-related fraud now and into the indefinite future.
PARTIES
5.
Plaintiff Daniel Esterly is a resident of Pittsburgh, Pennsylvania and healthcare
patient of Broward Health.
6.
Defendant Broward Health is a healthcare system that operates several hospitals
and dozens healthcare facilities in the South Florida region.
JURISDICTION AND VENUE
7.
This Court has subject matter jurisdiction over this action under the Class Action
Fairness Act, 28 U.S.C. § 1332(d)(2). The amount in controversy exceeds $5 million exclusive of
interest and costs. There are more than 100 putative class members and at least some members of
the proposed Class have a different citizenship from Broward Health. This Court has supplemental
jurisdiction over the state law claims pursuant to 28 U.S.C. § 1367 because all claims alleged
herein form part of the same case or controversy.
8.
This Court has jurisdiction over Broward Health because it maintains and operates
healthcare facilities in this District. Defendant is authorized to and conducts business in this
District and is subject to general personal jurisdiction in this state.
9.
Venue is proper in this Court pursuant to 28 U.S.C. § 1391(a)(1) because a
substantial part of the events and omissions giving rise to this action occurred in this District,
Broward Health operates healthcare facilities within this District, and Broward Health has caused
harm to Class members residing in this District.
FACTUAL ALLEGATIONS
Broward Health’s Privacy Practices
10.
Broward Health operates four hospitals and more than 30 healthcare facilities in the
South Florida region, including Broward Health Medical Center, Broward Health North, Broward
Health Imperial Point, Broward Health Coral Springs, Salah Foundation Broward Health
Children’s Hospital, and Broward Health Weston. Broward Health is overseen by a board of seven
commissioners who are appointed by the Governor of Florida and confirmed by the Florida Senate.
11.
In the course of providing healthcare services, Broward Health requires patients to
provide personal information, including their full names, home addresses, dates of birth, email
addresses, and Social Security numbers, financial information such as bank account and payment
card numbers, and medical information including medical histories, past treatment records,
prescription information, health provider information, and health insurance coverage. As a result,
when patients are treated by a Broward Health healthcare facility, their highly sensitive personal
identifiable information (“PII”) and protected health information (“PHI”) is stored on centralized
servers maintained by Broward Health.
12.
Given the amount and sensitive nature of the data it collects, Broward Health
maintains a “Notice of Privacy Practices for Protected Health Information” which describes how
confidential patient information is used and disclosed. Broward Health represents that it: “will
abide by the most stringent of the regulations as they pertain to Protected Health Information,
including obtaining your prior written authorization, as required, before any such information is
disclosed to a third party.”
13.
The Notice of Privacy Practices states that “Broward Health is required by law to
satisfy the following duties:
• Maintain the privacy of Protected Health Information
• Provide you with a notice of our legal duties and privacy practices with respect to
Protected Health Information
• In the event of a breach of your unsecured Protected Health Information, Broward
Health will provide written or other notification in accordance with federal and state
law.”
14.
Broward Health also maintains a “Code of Conduct” intended to demonstrate its
“commitment to maintaining a culture of compliance.” As part of its Code, Broward Health
maintains that it will “maintain[] the confidentiality of patient and other information in accordance
with legal and ethical standards, and breaches will not be tolerated.”
15.
In order to fulfill its commitment to “protect patient and property information,”
Broward Health states that it will:
• Establish confidentiality and privacy policies and procedures that adhere to the
Health Insurance Portability and Accountability Act (HIPAA).
• Respect and protect patients’ health and personal information in all forms, including
paper, electronic, verbal, telephonic, social media, etc.
• Only access a patient’s chart when involved in that patient’s care or for a legitimate
work-related reason such as billing, administrative, teaching or research
requirements. Access is limited to only the minimum amount necessary to complete
the related work.
• Refrain from revealing information unless it is supported by a legitimate clinical or
business purpose need, in compliance with our policies and procedures and
applicable laws, rules and regulations.
• Refrain from discussing patient information in public, including, but not limited to,
elevators, hallways or dining areas.
• Maintain computer workstations responsibly and refrain from sharing computer
identification information and passwords.
• Carefully manage and maintain confidential and proprietary information to protect
its value.
• Refrain from disclosing other Broward Health financial information, including the
healthcare system’s financial performance and contract pricing for goods and
services, without prior, appropriate approval.
• Refrain from using or sharing “insider information,” which is not otherwise available
to the general public.
16.
Broward Health also permits third-party providers, contractors, volunteers,
physicians, and other individuals who perform services on behalf of Broward Health to access its
systems and networks for various purposes. Broward Health requires these parties execute a
“Confidentiality and Data Security Agreement” whereby they acknowledge that “Broward Health
has a legal and ethical responsibility to safeguard the privacy of all patients” and agree to “protect
the confidentiality of all information that [they] use, originate, discover, or develop in the
performance of [their] duties at Broward Health.”
17.
Among other requirements, the Confidentiality and Data Security Agreement
provides that “Broward Health maintains audit trails of access to information and system activity
and that the audit trail may be reviewed at any time.”
The Data Breach
18.
Contrary to its representations, on October 15, 2021, hackers infiltrated Broward
Health’s networks and accessed highly sensitive patient information stored on its servers. Broward
Health disclosed that it discovered the intrusion on October 19, 2021, and “promptly contained the
incident upon discovery, notified the FBI and the Department of Justice (DOJ), required all
employees to update their passwords and engaged an independent cybersecurity firm to conduct
an extensive investigation into the incident.”
19.
According to Broward Health, the investigation revealed that “the intrusion
occurred through the office of a third-party medical provider who is permitted access to the system
to provide healthcare services.”
20.
The investigation confirmed that extensive personal medical information was
accessed, including patients’ full names, dates of birth, addresses, phone numbers, financial and
bank account information, Social Security numbers, insurance information, account numbers,
medical information including history, condition, treatment and diagnoses, medical record
numbers, driver’s license numbers and email addresses.
21.
Broward Health acknowledged this information was not only accessed, but also
“exfiltrated, or removed, from Broward Health’s systems.” A disclosure by Broward Health to the
office of the Maine attorney general revealed that the breach impacted 1,357,879 individuals.
22.
Broward Health did not disclose the existence of the Data Breach until January 1,
2022, when it began mailing individual notification letters. Broward Health attributed the delayed
notification to a request from the DOJ to “briefly delay this notification to ensure that the
notification does not compromise the ongoing law enforcement investigation.”
The Data Breach was Preventable
23.
Following the Data Breach, Broward Health stated that it “takes the protection of
[patient] personal and medical information very seriously” and “is taking steps to prevent
recurrence of similar incidents, which include the ongoing investigation, a password reset with
enhanced security measures across the enterprise, and the implementation of multifactor
authentication for all users of its systems.”
24.
Broward Health also stated it has “begun implementation of additional minimum-
security requirements for devices that are not managed by Broward Health Information
Technology that access our network, which will become effective in January 2022.”
25.
But these “steps” are industry-standard measures that should have been
implemented long before the Data Breach occurred. This is especially true given that the healthcare
industry is frequently one of the most targeted sectors for cyberattacks and attacks using stolen
credentials have increased precipitously over the last several years.
26.
Healthcare providers like Broward Health are prime targets because of the
information they collect and store, including financial information of patients, login credentials,
insurance information, medical records and diagnoses, and personal information of employees and
patients—all extremely valuable on underground markets.
27.
This was known and obvious to Broward Health as it observed frequent public
announcements of data breaches affecting healthcare providers and knew that information of the
type it collected, maintained, and stored is highly coveted and a frequent target of hackers.
28.
According to a report by the HIPAA Journal, “data breach statistics clearly show
there has been an upward trend in data breaches over the past 10 years, with 2020 seeing more
data breaches reported than any other year since records first started being published.”1 In fact,
healthcare data breaches were up 55% in 2020 from the prior year alone.2
1 https://www.hipaajournal.com/healthcare-data-breach-statistics/ (last visited January 7, 2022).
2 https://www.cpomagazine.com/cyber-security/healthcare-cyber-attacks-rise-by-55-over-26-million-in-
the-u-s-impacted/ (last visited January 7, 2022).
29.
It is well known that use of stolen credentials through long been the most popular
and effective method of gaining authorized access to a company’s internal networks and that
companies should activate defenses to prevent such attacks.
30.
According to the Federal Bureau of Investigation (FBI), phishing schemes designed
to induce individuals to reveal personal information were the most common type of cybercrime in
2020, with such incidents nearly doubling in frequency between 2019 and 2020.3 According to
Verizon’s 2021 Data Breach Investigations Report, 43% of breaches stemmed from phishing
and/or pretexting schemes.4
31.
The risk is so prevalent for healthcare providers that on October 28, 2020, the FBI
and two federal agencies issued a “Joint Cybersecurity Advisory” warning that they have “credible
information of an increased and imminent cybercrime threat to U.S. hospitals and healthcare
providers.”5 The Cybersecurity and Infrastructure Security Agency (CISA), the Department of
3 https://www.ic3.gov/Media/PDF/AnnualReport/2020_IC3Report.pdf (last visited January 7, 2022).
4 https://www.verizon.com/business/resources/reports/dbir/2021/masters-guide/ (subscription required)
(last visited January 7, 2022).
5 https://us-cert.cisa.gov/sites/default/files/publications/AA20-
302A_Ransomware%20_Activity_Targeting_the_Healthcare_and_Public_Health_Sector.pdf (last visited
January 7, 2022).
Health and Human Services (HHS), and the FBI issued the advisory to warn healthcare providers
to take “timely and reasonable precautions to protect their networks from these threats.”6
32.
There are two primary ways to mitigate the risk of stolen credentials: user education
and technical security barriers. User education is the process of making employees or others users
of a network aware of common disclosure schemes and implementing company-wide policies
requiring the request or transfer of sensitive personal or financial information only through secure
sources to known recipients. For example, a common phishing e-mail is an “urgent” request from
a company “executive” requesting confidential information in an accelerated timeframe. The
request may come from an e-mail address that appears official but contains only one different
number or letter. Other phishing methods include baiting a user to click a malicious link that
redirects them to a nefarious website or to download an attachment containing malware.
33.
User education provides the easiest method to assist in properly identifying
fraudulent “spoofing” e-mails and prevent unauthorized access of sensitive internal information.
According to September 2020 guidance from CISA, organizations housing sensitive data should
“[i]mplement a cybersecurity user awareness and training program that includes guidance on how
to identify and report suspicious activity” and conduct “organization-wide phishing tests to gauge
user awareness and reinforce the importance of identifying potentially malicious emails.”7
34.
From a technical perspective, companies can also greatly reduce the flow of
fraudulent e-mails by installing software that scans all incoming messages for harmful attachments
or malicious content and implementing certain security measures governing e-mail transmissions,
including Sender Policy Framework (SPF) (e-mail authentication method used to prevent
6 Id.
7 https://www.cisa.gov/sites/default/files/publications/CISA_MS-
ISAC_Ransomware%20Guide_S508C_.pdf (last visited January 7, 2022).
spammers from sending messages on behalf of a company’s domain), DomainKeys Identified Mail
(DKIM) (e-mail authentication method used to ensure messages are not altered in transit between
the sending and recipient servers), and Domain-based Message Authentication, Reporting and
Conformance (DMARC), which “builds on the widely deployed [SPF] and [DKIM] protocols,
adding a reporting function that allows senders and receivers to improve and monitor protection
of the domain from fraudulent email.”8
35.
Additionally, because the goal of these schemes is to gain an employee’s login
credentials in order to access a company’s network, there are industry-standard measures that
companies can implement to greatly reduce unauthorized access, even if an individual’s login
credentials are disclosed. For example, multi-factor authentication is a security system that
requires more than one method of authentication from independent categories of credentials to
verify the user’s identity for a login. This could include entering a code from the user’s smartphone,
answering a security question, or providing a biometric indicator such as a fingerprint or facial
recognition—in addition to entering a username and password. Thus, even if hackers obtain an
employee’s username and password, access to the company’s system is thwarted because they do
not have access to the additional authentication methods.
36.
Similarly, companies housing sensitive data must implement adequate “network
segmentation,” which is the practice of dividing a larger network into several smaller subnetworks
that are each isolated from one another to provide enhanced security. For example, hackers that
gain access to an unsegmented network (commonly through phishing) can move laterally across
the network to access databases containing valuable assets such as sensitive personal information
or financial records. Malicious lateral movement can be difficult to detect because it oftentimes
8 Id.
appears as normal network traffic. By implementing adequate network segmentation, companies
can prevent even those hackers who already gained a foothold in their network from moving across
databases to access their most sensitive data.
37.
Network segmentation is commonly used in conjunction with the principle of least
privilege (POLP), which is a security practice that limits employees’ privileges to the minimum
necessary to perform the job or task. In an IT environment, adhering to POLP reduces the risk of
hackers gaining access to critical systems or sensitive data by compromising a low-level user
account, device, or application.9 In an example given by security software provider Digital
Guardian:
[A]n employee whose job is to enter info into a database only needs the ability to
add records to that database. If malware infects that employee’s computer or if the
employee clicks a link in a phishing email, the malicious attack is limited to
making database entries. If that employee has root access privileges, however, the
infection can spread system-wide.10
This is precisely why approximately 67% of targeted malware and stolen credential schemes are
directed at individual contributors and lower-level management personnel.11
38.
In addition to mitigating the risk of stolen credentials, the CISA guidance
encourages organizations to prevent unauthorized access by:
• Conducting regular vulnerability scanning to identify and address
vulnerabilities, particularly on internet-facing devices;
• Regularly patching and updating software to latest available versions,
prioritizing timely patching of internet-facing servers and software processing
internet data;
• Ensuring devices are properly configured and that security features are enabled;
9 https://digitalguardian.com/blog/what-principle-least-privilege-polp-best-practice-information-security-
and-compliance (last visited January 7, 2022).
10Id.
11https://healthitsecurity.com/news/pharmaceutical-companies-most-targeted-industry-by-cybercriminals
(last visited January 7, 2022).
• Employing best practices for use of Remote Desktop Protocol (RDP) as threat
actors often gain initial access to a network through exposed and poorly secured
remote services; and
• Disabling operating system network file sharing protocol known as Server
Message Block (SMB) which is used by threat actors to travel through a
network to spread malware or access sensitive data.12
39.
The CISA guidance further recommends use of a centrally managed antivirus
software utilizing automatic updates that will protect all devices connected to a network (as
opposed to requiring separate software on each individual device), as well as implementing a real-
time intrusion detection system that will detect potentially malicious network activity that occurs
prior to ransomware deployment.13
40.
Despite holding the PII and PHI of thousands of patients, Broward Health failed to
adhere these recommended best practices. Indeed, had Broward Health implemented common
sense security measures like network segmentation and POLP, the hackers never could have
accessed millions of patient files using the credentials of a third-party provider and the breach
would have been prevented or much smaller in scope. Broward Health also lacked the necessary
safeguards to detect and prevent phishing attacks and failed to implement adequate monitoring or
control systems to detect the unauthorized infiltration after it occurred.
41.
Broward Health, like any healthcare provider its size storing valuable data, should
have had robust protections in place to detect and terminate a successful intrusion long before
access and exfiltration could expand to millions of patient files. Broward Health’s implementation
of enhanced security measures only after the fact is inexcusable given its knowledge that it was a
prime target for cyberattacks.
12 CISA Guide at 4.
13 Id. at 5.
Broward Heath has a Troubling History of Governance Issues
42.
Broward Health is a taxpayer-supported district that runs hospitals and clinics in
the northern two-thirds of Broward County. With an annual budget approaching $2 billion,
Broward Health is one of the country’s ten largest public health systems. The system operates four
hospitals, with a total of 1,579 beds, 8,300 employees, and more than 1,700 doctors.
43.
Despite its prominent stature, Broward Health has been charged with numerous acts
of corruption that calls into questions its commitment to and investment in patient care. For
example, in 2015 Broward Health entered into a $69.5 million with the state of Florida and the
DOJ amid whistleblower allegations that it engaged in illegal kickbacks based on the number of
patient referrals to the Broward Health system. Six months later, the State of Florida demanded
the healthcare system pay $5.3 million to settle related Medicaid fraud charges.14
44.
In March of 2016, Broward Health’s CEO, Nabil El Sanadi, M.D. committed
suicide. In the year before he killed himself, Dr. El Sanadi brought in a corporate private
investigator to probe wrongdoing at the public hospital system, meeting with him in restaurants
and at his home because he feared his office was bugged.15
45.
In December 2016, the Broward Health board fired CEO Pauline Grant after an
investigation revealed probable violations of the anti-kickback statute. The following year, several
current and former Broward Health board members were indicted for violations of the Florida
Sunshine Law after four commissioners held de facto meetings at a hotel, restaurant, and by
14 https://www.sun-sentinel.com/local/broward/fl-broward-health-ag-demand-20160318-story.html (last
visited January 7, 2022).
15 https://www.sun-sentinel.com/local/broward/fl-broward-health-investigation-20160202-story.html (last
visited January 7, 2022).
telephone to discuss the allegations against Grant.16 Broward Health’s board of directors later
approved a $975,000 settlement with Ms. Grant after she sued for wrongful termination.17
46.
In May 2017, the Broward Health directors voted to approve board member Beverly
Capasso as interim CEO, with an annual salary of $650,000. Controversy arose when it was
discovered Ms. Capasso voted for herself at a special board meeting despite having a clear conflict
of interest.18 Following her appointment, it was reported that Ms. Capasso held a master’s degree
in health administration from Kennedy-Western University, a defunct university identified by
federal investigators as a diploma mill.19
47.
At the time of her appointment, the Florida Sun Sentinel questioned why Capasso
was never fully vetted for the job. “Board members engaged in virtually no questioning of her
background, her work experience or her likely approach to the job. No one asked whether anyone
at Broward Health had talked with her previous health care industry employers about the quality
of her work.”20 Nevertheless, in February 2018, the board of Broward Health rejected four finalists
for the CEO position and voted to elevate Capasso to permanent CEO, along with up to $1.125
million in compensation, despite her being under indictment.21
16 https://www.sun-sentinel.com/local/broward/fl-sb-broward-health-charges-20171212-story.html (last
visited January 7, 2022).
17 https://www.fiercehealthcare.com/hospitals-health-systems/broward-health-settles-ex-ceo-for-975-000
(last visited January 7, 2022).
18 https://www.local10.com/news/2017/05/12/new-broward-health-interim-ceo-voted-for-herself-for-job/
(last visited January 7, 2022).
19 https://www.sun-sentinel.com/health/fl-sb-capasso-degree-20170629-story.html (last visited January 7,
2022).
20 https://www.sun-sentinel.com/local/broward/fl-sb-broward-health-new-ceo-20170508-story.html (last
visited January 7, 2022).
21 https://www.sun-sentinel.com/local/broward/fl-sb-broward-health-ceo-meeting-20180130-story.html
(last visited January 7, 2022).
48.
In October 2018, Capasso resigned after allegations of infighting between Broward
Health’s general counsel’s office, the executive team, and an independent law firm appointed to
ensure the Broward Health is abiding by the terms of its DOJ settlement.22
49.
In July 2019, Broward Health paid a $690,000 fine for violating the terms of the
DOJ settlement after it was alleged Broward Health failed to take certain required steps to ensure
compliance with anti-kickback laws and breached five provisions of the settlement agreement,
leading to individual penalties of up to $2,500 a day.23
50.
In June 2021, Broward Health’s former procurement Brian Bravo pleaded guilty to
a federal conspiracy for accepting over $400,000 in kickbacks in exchange for awarding vendors
lucrative government contracts.24
51.
These are just a subset of the allegations of corruption and misconduct plaguing
taxpayer-funded Broward Health. Thus, while it is clear Broward Health had the knowledge and
resources to prevent a breach—and in fact made significant expenditures to pay settlements and
fines—the organization neglected to make corresponding investments in data security to ensure
the millions of patient files in its possession were securely stored.
Allegations Relating to Plaintiff Daniel Esterly
52.
Plaintiff Daniel Esterly lives and resides in Pittsburgh, Pennsylvania and is a former
healthcare patient of a Broward Health healthcare facility.
53.
For purposes of receiving medical treatment, Mr. Esterly was required to provide
Broward Health with his sensitive personal information, including, among other information, his
22 https://www.miamiherald.com/news/health-care/article219429370.html (last visited January 7, 2022).
23 https://www.politico.com/states/florida/story/2019/07/16/broward-paid-fine-for-breaching-2015-fraud-
settlement-with-feds-1098093 (last visited January 7, 2022).
24 https://www.local10.com/news/local/2021/06/02/ex-broward-health-exec-pleads-guilty-to-400k-
bribery-scheme/ (last visited January 7, 2022).
full name, home address, date of birth, e-mail address, Social Security number, health insurance
ID card, and driver’s license.
54.
Broward Health also maintained Mr. Esterly’s patient account numbers, health
insurance plan member ID numbers, medical record numbers, dates of service, provider names,
and medical and clinical treatment information.
55.
In January 2022, Mr. Esterly received a notification letter from Broward Health
stating that he was a victim of the Data Breach. The letter stated that: “We are alerting you to this
situation now that the involvement of your personal information has been confirmed.”
56.
The letter recommended that Mr. Esterly take certain actions like monitoring his
financial accounts and “placing a ‘fraud alert’ and/or a ‘security freeze’ on your credit report to
further detect any possible misuse of your personal information.” The letter further stated that
“[w]e recommend that you consider steps to protect yourself from medical identity theft. Medical
identity theft occurs when someone uses an individual’s name, and sometimes other identifying
information, without the individual’s knowledge to obtain medical services or products, or to
fraudulently bill for medical services that have not been provided. We suggest that you regularly
review the explanation of benefits statements that you receive from your health plan. If you see
any service that you did not receive, contact the health plan at the number on the statement.”
57.
Despite making these recommendations, Broward Health also attempted to
downplay the risk of harm by stating three times in the letter that “we have no evidence that your
personal information has been misused.” This statement is facially dubious as the objective of
almost every data breach is to access information that can be misused for financial gain and in any
event Broward Health would not receive reports of misuse until after victims are affirmatively
notified they were subject to the Data Breach.
58.
As a result of the Data Breach, Mr. Esterly has spent time and effort researching
the breach and reviewing his financial and medical account statements for evidence of
unauthorized activity, which he will continue to do indefinitely. Mr. Esterly also suffered
emotional distress knowing that his highly personal medical and treatment information is no longer
confidential and can be used for blackmail, extortion, medical-related identity theft or fraud, and
any number of additional harms against him for the rest of his life.
Broward Health Failed to Comply with Federal Law and Regulatory Guidance
59.
Broward Health is a healthcare provider covered by the Health Insurance Portability
and Accountability Act of 1996 (“HIPAA”) (see 45 C.F.R. § 160.102) and as such is required to
comply with the HIPAA Privacy Rule and Security Rule, 45 C.F.R Part 160 and Part 164, Subparts
A and E (“Standards for Privacy of Individually Identifiable Health Information”), and Security
Rule (“Security Standards for the Protection of Electronic Protected Health Information”), 45
C.F.R. Part 160 and Part 164, Subparts A and C.
60.
These rules establish national standards for the protection of patient information,
including PHI, defined as “individually identifiable health information” which either “identifies
the individual” or where there is a “reasonable basis to believe the information can be used to
identify the individual,” that is held or transmitted by a healthcare provider. 45 C.F.R. § 160.103.
61.
HIPAA limits the permissible uses of “protected health information” and prohibits
unauthorized disclosures of “protected health information.”25
62.
HIPAA requires that Broward Health implement appropriate safeguards for this
information.26
25 45 C.F.R. § 164.502.
26 45 C.F.R. § 164.530(c)(1).
63.
HIPAA requires that Broward Health provide notice of a breach of unsecured
protected health information, which includes protected health information that is not rendered
unusable, unreadable, or indecipherable to unauthorized persons—i.e. non-encrypted data.27
64.
Despite these requirements, Broward Health failed to comply with its duties under
HIPAA and its own Notice of Privacy Practices. Indeed, Broward Health failed to:
a. Maintain an adequate data security system to reduce the risk of data breaches and
cyberattacks;
b. Adequately protect the PII and PHI of its patients and employees;
c. Ensure the confidentiality and integrity of electronically protected health information
created, received, maintained, or transmitted, in violation of 45 C.F.R. §
164.306(a)(1);
d. Implement technical policies and procedures for electronic information systems that
maintain electronically protected health information to allow access only to those
persons or software programs that have been granted access rights, in violation of 45
C.F.R. § 164.312(a)(1);
e. Implement adequate policies and procedures to prevent, detect, contain, and correct
security violations, in violation of 45 C.F.R. § 164.308(a)(1)(i);
f. Implement adequate procedures to review records of information system activity
regularly, such as audit logs, access reports, and security incident tracking reports, in
violation of 45 C.F.R. § 164.308(a)(1)(ii)(D);
g. Protect against reasonably anticipated uses or disclosures of electronic protected
health information that are not permitted under the privacy rules regarding
individually identifiable health information, in violation of 45 C.F.R. §
164.306(a)(3);
h. Ensure compliance with the electronically protected health information security
standard rules by their workforces, in violation of 45 C.F.R. § 164.306(a)(4); and/or
i. Train all members of their workforces effectively on the policies and procedures with
respect to protected health information as necessary and appropriate for the members
of their workforces to carry out their functions and to maintain security of protected
health information, in violation of 45 C.F.R. § 164.530(b).
27 45 C.F.R. § 164.404; 45 C.F.R. § 164.402.
65.
Additionally, federal agencies have issued recommendations and guidelines to help
minimize the risks of a data breach for businesses holding sensitive data. For example, the Federal
Trade Commission (“FTC”) has issued numerous guides for business highlighting the importance
of reasonable data security practices, which should be factored into all business-related decision
making.28
66.
The FTC’s publication Protecting Personal Information: A Guide for Business sets
forth fundamental data security principles and practices for businesses to implement and follow as
a means to protect sensitive data.29 Among other things, the guidelines note that businesses should
(a) protect the personal customer information that they collect and store; (b) properly dispose of
personal information that is no longer needed; (c) encrypt information stored on their computer
networks; (d) understand their network’s vulnerabilities; and (e) implement policies to correct
security problems. The FTC guidelines further recommend that businesses use an intrusion
detection system, monitor all incoming traffic for unusual activity, monitor for large amounts of
data being transmitted from their system, and have a response plan ready in the event of a breach.30
67.
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.31 This is consistent with guidance provided by the
FBI, HHS, and the principles set forth in the CISA 2020 guidance.
28 https://www.ftc.gov/system/files/documents/plain-language/pdf0205-startwithsecurity.pdf (last visited
January 7, 2022).
29 https://www.ftc.gov/system/files/documents/plain-language/pdf-0136_proteting-personal-
information.pdf (last visited January 7, 2022).
30 Id.
31 FTC, Start With Security, supra note 41.
68.
The FTC has brought enforcement actions against businesses for failing to
reasonably protect customer information, 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, 15 U.S.C. § 45. Orders
resulting from these actions further clarify the measures businesses must take to meet their data
security obligations.32
69.
Broward Health was fully aware of its obligation to implement and use reasonable
measures to protect the PII and PHI of its patients but failed to comply with these basic
recommendations and guidelines that would have prevented this breach from occurring. Broward
Health’s failure to employ reasonable measures to protect against unauthorized access to patient
information constitutes an unfair act or practice prohibited by Section 5 of the FTC Act, 15 U.S.C.
The Impact of the Data Breach on Victims
70.
The PII and PHI exposed in the Data Breach is highly coveted and valuable on
underground markets as it can be used to commit medical-related identity theft and fraud, one of
the most dangerous and costly forms of identity theft.
71.
According to a Reuters investigation that included interviews with nearly a dozen
healthcare executives, cybersecurity investigators, and fraud experts, medical data for sale on
underground markets “includes names, birth dates, policy numbers, diagnosis codes and billing
information” which fraudsters commonly use “to create fake IDs to buy medical equipment or
32 https://www.ftc.gov/news-events/media-resources/protecting-consumer-privacy/privacy-security-
enforcement (last visited January 7, 2022).
drugs that can be resold, or they combine a patient number with a false provider number and file
made-up claims with insurers.”33
72.
According to Tom Kellermann, chief cybersecurity officer of cybersecurity firm
Carbon Black, “Health information is a treasure trove for criminals [because] by compromising it,
by stealing it, by having it sold, you have seven to 10 personal identifying characteristics of an
individual.”34 For this reason, a patient’s full medical records can sell for up to $1,000 on the dark
web, while credit card numbers and Social Security numbers may cost $5 or less.35
73.
As noted by Paul Nadrag, a software developer for medical device integration and
data technology company Capsule Technologies: “The reason for this price discrepancy—like any
other good or service—is perceived value. While a credit card number is easily canceled, medical
records contain a treasure trove of unalterable data points, such as a patient’s medical and
behavioral health history and demographics, as well as their health insurance and contact
information. Once records are stolen, cybercriminals often tap into members of a criminal network
on the dark web experienced in drug trafficking and money laundering who are eager to buy
medical records to support their criminal activities, such as illegally obtaining prescription
medications, filing bogus medical claims or simply stealing the patient’s identity to open credit
cards and fraudulent loans.”36
74.
Indeed, while federal law generally limits an individual’s liability for fraudulent
credit card charges to $50, there are no such protections for a stolen medical identity. According
33 https://www.reuters.com/article/us-cybersecurity-hospitals/your-medical-record-is-worth-more-to-
hackers-than-your-credit-card-idUSKCN0HJ21I20140924 (last visited January 7, 2022).
34 https://healthtechmagazine.net/article/2019/10/what-happens-stolen-healthcare-data-perfcon (last
visited January 7, 2022).
35 https://www.experian.com/blogs/ask-experian/heres-how-much-your-personal-information-is-selling-
for-on-the-dark-web/ (last visited January 7, 2022).
36 https://www.fiercehealthcare.com/hospitals/industry-voices-forget-credit-card-numbers-medical-
records-are-hottest-items-dark-web (last visited January 7, 2022).
to a 2015 survey on medical identity theft conducted by the Ponemon Institute, victims of medical
identity theft spent an average of $13,500 in out-of-pocket costs to resolve the crime.37 Frequently,
this information was used to obtain medical services or treatments (59%), obtain prescription drugs
(56%), or receive Medicare and Medicaid benefits (52%). Only 14% of respondents said that the
identity thieves used the information to obtain fraudulent credit accounts, indicating that medical
information is a much more profitable market.38
75.
According to the Ponemon study, “[t]hose who have resolved the crime spent, on
average, more than 200 hours on such activities as working with their insurer or healthcare provider
to make sure their personal medical credentials are secured and can no longer be used by an
imposter and verifying their personal health information, medical invoices and claims and
electronic health records are accurate.”39
76.
Additionally, the study found that medical identity theft can have a negative impact
on reputation as 45% of respondents said that medical identity theft affected their reputation
mainly because of embarrassment due to disclosure of sensitive personal health conditions, with
19% responding that they missed out on employment opportunities as a result.40
77.
Exacerbating the problem, victims of medical identity theft oftentimes struggle to
resolve the issue because HIPAA regulations require the victim to be personally involved in the
resolution of the crime.41 In some cases, victims may not even be able to access medical records
using their personal information because they include a false name or data points taken from
37 https://static.nationwide.com/static/2014_Medical_ID_Theft_Study.pdf?r=65 (“Ponemon Study”) (last
visited January 7, 2022).
38 Id. at 9.
39 Id. at 2.
40 Id. at 14.
41 Id. at 1.
another person’s records. Consequently, only 10% of medical identity theft victims responded that
they “achiev[ed] a completely satisfactory conclusion of the incident.”42
78.
Moreover, it can take months or years for victims to even discover they are the
victim of medical-related identity theft or fraud given the difficulties associated with accessing
medical records and healthcare statements. For example, the FTC notes that victims may only
discover their identity has been compromised after they:
• Receive a bill for medical services they did not receive;
• Get contacted by a debt collector about medical debt they do not owe;
• See medical collection notices on their credit report that they do not recognize;
• Find erroneous listings of office visits or treatments on their explanation of benefits
(EOB);
• Receive information from their health plan that they have reached their limit on
benefits; or
• Be denied insurance because their medical records show a condition they do not
have.43
79.
Perhaps most dangerous, however, is the potential for misdiagnoses or treatment.
According to Ann Patterson, a senior vice president of the Medical Identity Fraud Alliance, “About
20 percent of victims have told us that they got the wrong diagnosis or treatment, or that their care
was delayed because there was confusion about what was true in their records due to the identity
theft.” 44 This echoes the Ponemon study, which notes that “many respondents are at risk for further
theft or errors in healthcare records that could jeopardize medical treatments and diagnosis.”45
42 Id.
43 https://www.ftc.gov/system/files/documents/plain-language/bus75-medical-identity-theft-faq-health-
care-health-plan.pdf (last visited January 7, 2022).
44 https://www.consumerreports.org/medical-identity-theft/medical-identity-theft/ (last visited January 7,
2022).
45 Ponemon Study at 1.
80.
According to a Consumer Reports article entitled The Rise of Medical Identity
Theft, this outcome “isn’t a hypothetical problem” as the “long tail on medical identity theft can
create havoc in victims’ lives.”46 As one example, a pregnant woman reportedly used a victim’s
medical identity to pay for maternity care at a nearby hospital. When the infant was born with
drugs in her system, the state threatened to take the victim’s four children away—not realizing her
identity had been stolen. The victim ultimately had to submit to a DNA test to remove her name
from the infant’s birth certificate, but it took years to get her medical records corrected.47
81.
Other types of medical fraud include “leveraging details specific to a disease or
terminal illness, and long-term identity theft.”48 According to Tom Kellermann, “Traditional
criminals understand the power of coercion and extortion. By having healthcare information—
specifically, regarding a sexually transmitted disease or terminal illness—that information can be
used to extort or coerce someone to do what you want them to do.”49 Long-term identity theft
occurs when fraudsters combine a victim’s data points, including publicly-available information
or data points exposed in other data breaches, to create new identities, open false lines of credit, or
commit tax fraud that can take years to remedy.
82.
Given the confirmed exfiltration of PII and PHI from Broward Health’s systems,
many victims of the Data Breach have likely already experienced significant harms as the result
of the Data Breach, including, but not limited to, medical-related identity theft and fraud. Plaintiff
and class members have also spent time, money, and effort dealing with the fallout of the Data
Breach, including purchasing credit monitoring services, reviewing financial and healthcare
46 https://www.consumerreports.org/medical-identity-theft/medical-identity-theft/ (last visited January 7,
2022).
47 Id.
48 https://healthtechmagazine.net/article/2019/10/what-happens-stolen-healthcare-data-perfcon (last
visited January 7, 2022).
49 Id.
statements, checking credit reports, and spending time and effort searching for unauthorized
activity.
83.
It is no wonder then that identity theft exacts a severe emotional toll on its victims.
The 2017 Identity Theft Resource Center survey evidences the emotional suffering experienced
by victims of identity theft:
• 75% of respondents reported feeling severely distressed
• 67% reported anxiety
• 66% reported feelings of fear related to personal financial safety
• 37% reported fearing for the financial safety of family members
• 24% reported fear for their physical safety
• 15.2% reported a relationship ended or was severely and negatively impacted by the
identity theft; and
• 7% reported feeling suicidal.50
84.
Identity theft can also exact a physical toll on its victims. The same survey reported
that respondents experienced physical symptoms stemming from their experience with identity
• 48.3% of respondents reported sleep disturbances
• 37.1% reported an inability to concentrate / lack of focus
• 28.7% reported they were unable to go to work because of physical symptoms
• 23.1% reported new physical illnesses (aches and pains, heart palpitations, sweating,
stomach issues); and
• 12.6% reported a start or relapse into unhealthy or addictive behaviors.51
50 https://www.idtheftcenter.org/images/page-docs/Aftermath_2017.pdf (last visited January 7, 2022).
51 Id.
85.
The unauthorized disclosure of the sensitive PII and PHI to data thieves also
reduces its inherent value to its owner, which has been recognized by courts as an independent
form of harm.52
86.
Consumers are injured every time their data is stolen and traded on underground
markets, even if they have been victims of previous data breaches. Indeed, the dark web is
comprised of multiple discrete repositories of stolen information that can be aggregated together
or accessed by different criminal actors who intend to use it for different fraudulent purposes. Each
data breach increases the likelihood that a victim’s personal information will be exposed to more
individuals who are seeking to misuse it at the victim’s expense.
87.
As the result of the wide variety of injuries that can be traced to the Data Breach,
Plaintiff and class members have and will continue to suffer economic loss and other actual harm
for which they are entitled to damages, including, but not limited to, the following:
a. the unconsented disclosure of confidential information to a third party;
b. losing the inherent value of their PII and PHI;
c. losing the value of the explicit and implicit promises of data security;
d. identity theft and fraud resulting from the theft of their PII and PHI;
e. costs associated with the detection and prevention of identity theft and unauthorized
use of their financial accounts;
f. anxiety, emotional distress, and loss of privacy;
g. costs associated with purchasing credit monitoring, credit freezes, and identity theft
protection services;
h. unauthorized charges and loss of use of and access to their financial and investment
account funds and costs associated with inability to obtain money from their accounts
52 See In re Marriott Int’l, Inc., Customer Data Sec. Breach Litig., 440 F. Supp. 3d 447, 462 (D. Md.
2020) (“Neither should the Court ignore what common sense compels it to acknowledge—the value that
personal identifying information has in our increasingly digital economy. Many companies, like Marriott,
collect personal information. Consumers too recognize the value of their personal information and offer it
in exchange for goods and services.”).
or being limited in the amount of money they were permitted to obtain from their
accounts, including missed payments on bills and loans, late charges and fees, and
adverse effects on their credit;
i. lowered credit scores resulting from credit inquiries following fraudulent activities;
j. costs associated with time spent and the loss of productivity or the enjoyment of one’s
life from taking time to address and attempt to mitigate and address the actual and
future consequences of the Data Breach, including searching for fraudulent activity,
imposing withdrawal and purchase limits on compromised accounts, and the stress,
nuisance, and annoyance of dealing with the repercussions of the Data Breach; and
k. the continued, imminent, and certainly impending injury flowing from potential
fraud and identify theft posed by their PII and PHI being in the possession of one or
many unauthorized third parties.
88.
Even in instances where an individual is reimbursed for a financial loss due to
identity theft or fraud, that does not make that individual whole again as there is typically
significant time and effort associated with seeking reimbursement.
89.
There may also be a significant time lag between when personal information is
stolen and when it is misused for fraudulent purposes. According to the Government
Accountability Office, which conducted a study regarding data breaches: “law enforcement
officials told us that in 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.”53
90.
Plaintiff and class members place significant value in data security. According to a
survey conducted by cyber-security company FireEye Mandiant, approximately 50% of
consumers consider data security to be a main or important consideration when making purchasing
decisions and nearly the same percentage would be willing to pay more in order to work with a
53 http://www.gao.gov/new.items/d07737.pdf (last visited January 7, 2022).
provider that has better data security. Likewise, 70% of consumers would provide less personal
information to organizations that suffered a data breach.54
91.
Because of the value consumers place on data privacy and security, healthcare
providers with robust data security practices are viewed more favorably by patients and can
command higher prices than those who do not. Consequently, had Broward Health’s patients
known the truth about its data security practices—that it did not adequately protect and store their
PII and PHI —they would not have sought medical care from Broward Health or would have paid
significantly less. As such, Plaintiff and class members did not receive the benefit of their bargain
with Broward Health because they paid for the value of services they did not receive.
92.
Plaintiff and class members have a direct interest in Broward Health’s promises
and duties to protect their PII and PHI, i.e., that Broward Health not increase their risk of identity
theft and fraud. Because Broward Health failed to live up to its promises and duties in this respect,
Plaintiff and class members seek the present value of identity protection services to compensate
them for the present harm and present and continuing increased risk of harm caused by Broward
Health’s wrongful conduct. Through this remedy, Plaintiff and class members seek to restore
themselves and class members as close to the same position as they would have occupied but for
Broward Health’s wrongful conduct, namely its failure to adequately protect Plaintiff’s and class
members’ PII and PHI.
93.
Plaintiff and class members further seek to recover the value of the unauthorized
access to their PII and PHI permitted through Broward Health’s wrongful conduct. This measure
of damages is analogous to the remedies for unauthorized use of intellectual property. Like a
technology covered by a trade secret or patent, use or access to a person’s PII or PHI is non-
54 https://www.fireeye.com/blog/executive-perspective/2016/05/beyond_the_bottomli.html (last visited
January 7, 2022).
rivalrous—the unauthorized use by another does not diminish the rights-holder’s ability to practice
the patented invention or use the trade-secret protected technology. Nevertheless, a plaintiff may
generally recover the reasonable use value of the IP—i.e., a “reasonable royalty” from an infringer.
This is true even though the infringer’s use did not interfere with the owner’s own use (as in the
case of a non-practicing patentee) and even though the owner would not have otherwise licensed
such IP to the infringer. A similar royalty or license measure of damages is appropriate here under
common law damages principles authorizing recovery of rental or use value. This measure is
appropriate because (a) Plaintiff and class members have a protectible property interest in their PII
and PHI; (b) the minimum damages measure for the unauthorized use of personal property is its
rental value; and (c) rental value is established with reference to market value, i.e., evidence
regarding the value of similar transactions.
94.
Broward Health’s deficient notice letter also caused Plaintiff and class members
harm. For example, Broward Health provided no context for its repeated unsubstantiated statement
that there was “no evidence that your personal information has been misused” as the objective of
almost every data breach is to gain access to an organization’s sensitive data so that the data can
be misused for financial gain. Furthermore, the letter did not explain the precise nature of the
attack, the identity of the hackers, or the number of individuals affected. Broward Health’s decision
to withhold these key facts is significant because affected individuals may take different
precautions depending on the severity and imminence of the perceived risk. By waiting months to
disclose the Data Breach and by downplaying the risk of misuse, Broward Health prevented
victims from taking meaningful, proactive, and targeted mitigation measures that could help
protect them from harm.
95.
Because Broward Health continues to hold the PII and PHI of its patients, Plaintiff
and class members have an interest in ensuring that their PII and PHI is secured and not subject to
further theft.
CLASS ACTION ALLEGATIONS
96.
Plaintiff seeks relief in his individual capacity and as a representative of all others
who are similarly situated. Pursuant to Federal Rule of Civil Procedure 23, Plaintiff brings this
action on behalf of himself and the Class defined as: All individuals whose personal information
was compromised in the Data Breach (the “Class”).
97.
Specifically excluded from the Class are Defendant; its officers, directors, or
employees; any entity in which Defendant has a controlling interest; and any affiliate, legal
representative, heir, or assign of Defendant. Also excluded from the Class are any federal, state,
or local governmental entities, any judicial officer presiding over this action and the members of
their immediate family and judicial staff, and any juror assigned to this action.
98.
Class Identity: The members of the Class are readily identifiable and ascertainable.
Defendant and/or its affiliates, among others, possess the information to identify and contact class
members.
99.
Numerosity: The members of the Class are so numerous that joinder of all of them
is impracticable. Broward Health’s disclosures reveal that the Class contains more than 1.3 million
individuals whose PII was compromised in the Data Breach.
100.
Typicality: Plaintiff’s claims are typical of the claims of the members of the Class
because all class members had their PII compromised in the Data Breach and were harmed as a
101.
Adequacy: Plaintiff will fairly and adequately protect the interests of the Class.
Plaintiff has no known interest antagonistic to those of the Class and his interests are aligned with
Class members’ interests. Plaintiff was subject to the same Data Breach as class members, suffered
similar harms, and faces similar threats due to the Data Breach. Plaintiff has also retained
competent counsel with significant experience litigating complex class actions, including Data
Breach cases involving multiple classes and data breach claims.
102.
Commonality and Predominance: There are questions of law and fact common to
the Class such that there is a well-defined community of interest in this litigation. These common
questions predominate over any questions affecting only individual class members. The common
questions of law and fact include, without limitation:
a. Whether Defendant owed Plaintiff and class members a duty to implement and
maintain reasonable security procedures and practices to protect their PII and
PHI;
b. Whether Defendant breached an express or implied contract with Plaintiff and
class members, including whether Defendant breached an agreement with
Plaintiff and class members to keep their PII and PHI confidential;
c. Whether Defendant received a benefit without proper restitution making it
unjust for Defendant to retain the benefit without commensurate
compensation;
d. Whether Defendant acted negligently in connection with the monitoring
and/or protection of Plaintiff’s and class members’ PII and PHI;
e. Whether Defendant violated its duty to implement reasonable security systems
to protect Plaintiff’s and class members’ PII and PHI;
f. Whether Defendant’s breach of its duty to implement reasonable security
systems directly and/or proximately caused damages to Plaintiff and class
members;
g. Whether Defendant adequately addressed and fixed the vulnerabilities that
enabled the Data Breach;
h. Whether Plaintiff and class members are entitled to credit monitoring and
other injunctive relief;
i. Whether Defendant provided timely notice of the Data Breach to Plaintiff and
class members; and
j. Whether class members are entitled to compensatory damages, punitive
damages, and/or statutory or civil penalties as a result of the Data Breach.
103.
Defendant has engaged in a common course of conduct and Plaintiff and class
members have been similarly impacted by Defendant’s failure to maintain reasonable security
procedures and practices to protect patients’ PII and PHI, as well as Defendant’s failure to timely
alert affected customers to the Data Breach.
104.
Superiority: A class action is superior to other available methods for the fair and
efficient adjudication of the controversy. Class treatment of common questions of law and fact is
superior to multiple individual actions or piecemeal litigation. Absent a class action, most if not
all class members would find the cost of litigating their individual claims prohibitively high and
have no effective remedy. The prosecution of separate actions by individual class members would
create a risk of inconsistent or varying adjudications with respect to individual class members and
risk inconsistent treatment of claims arising from the same set of facts and occurrences. Plaintiff
knows of no difficulty likely to be encountered in the maintenance of this action as a class action
under the applicable rules.
CLAIMS FOR RELIEF
COUNT I
Negligence
(On Behalf of Plaintiff and the Class)
105.
Plaintiff repeats and realleges every allegation set forth in the preceding paragraphs.
106.
Defendant required Plaintiff and class members to provide their PII and PHI as a
condition of receiving healthcare services. Defendant collected and stored the data for purposes of
providing medical treatment as well as for commercial gain.
107.
Defendant owed Plaintiff and class members a duty to exercise reasonable care in
protecting their PII and PHI from unauthorized disclosure or access. Defendant acknowledged this
duty in its Notice of Privacy Policy, where it promised not to disclose PII and PHI without
authorization.
108.
Defendant owed a duty of care to Plaintiff and class members to provide adequate
data security, consistent with industry standards, to ensure that Defendant’s systems and networks
adequately protected the PII and PHI.
109.
As a healthcare provider, Defendant had a special relationship with Plaintiff and
class members who entrusted Defendant to adequately their confidential personal, financial, and
medical information.
110.
Defendant’s duty to use reasonable care in protecting PII and PHI arises as a result
of the parties’ relationship, as well as common law and federal law, including the HIPAA
regulations described above and Defendant’s own policies and promises regarding privacy and
data security.
111.
Defendant knew, or should have known, of the risks inherent in collecting and
storing PII and PHI in a centralized location, Defendant’s vulnerability to network attacks, and the
importance of adequate security.
112.
Defendant breached its duty to Plaintiff and class members in numerous ways, as
described herein, including by:
a. Failing to exercise reasonable care and implement adequate security systems,
protocols, and practices sufficient to protect the PII and PHI of Plaintiff and class
members;
b. Failing to comply with industry standard data security measures for the healthcare
industry leading up to the Data Breach;
c. Failing to comply with its own privacy policies;
d. Failing to comply with regulations protecting the PII and PHI at issue during the
period of the Data Breach;
e. Failing to adequately monitor, evaluate, and ensure the security of Defendant’s
network and systems;
f. Failing to recognize in a timely manner that PII and PHI had been compromised;
and
g. Failing to timely and adequately disclose the Data Breach.
113.
Plaintiff’s and class members’ PII and PHI would not have been compromised but
for Defendant’s wrongful and negligent breach of their duties.
114.
Defendant’s failure to take proper security measures to protect the sensitive PII and
PHI of Plaintiff and class members as described in this Complaint, created conditions conducive
to a foreseeable, intentional criminal act, namely the unauthorized access and exfiltration of PII
and PHI by unauthorized third parties. Given that healthcare providers are prime targets for
hackers, Plaintiff and class members are part of a foreseeable, discernible group that was at high
risk of having their PII and PHI misused or disclosed if not adequately protected by Defendant.
115.
It was also foreseeable that Defendant’s failure to provide timely and forthright
notice of the Data Breach would result in injury to Plaintiff and class members.
116.
As a direct and proximate result of Defendant’s conduct, Plaintiff and class
members have and will suffer damages including: (i) the loss of rental or use value of their PII and
PHI; (ii) the unconsented disclosure of their PII and PHI to unauthorized third parties; (iii) out-of-
pocket expenses associated with the prevention, detection, and recovery from identity theft, fraud,
and/or unauthorized use of their PII and PHI; (iv) lost opportunity costs associated with 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 fraud
and identity theft; (v) time, effort, and expense associated with placing fraud alerts or 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 and PHI, 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 it; (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; and (ix) any nominal
damages that may be awarded.
COUNT II
Negligence Per Se
(On Behalf of Plaintiff and the Class)
117.
Plaintiff repeats and realleges every allegation set forth in the preceding paragraphs.
118.
As a healthcare provider, Defendant is covered by HIPAA, 45 C.F.R. § 160.102,
and is therefore obligated to comply with all rules and regulations under 45 C.F.R. Parts 160 and
119.
45 C.F.R. Part 164 governs “Security and Privacy,” with Subpart A providing
“General Provisions,” Subpart B regulating “Security Standards for the Protection of Electronic
Protected Health Information,” Subpart C providing requirements for “Notification in the Case of
Breach of Unsecured Protected Health Information,” and Subpart E governing “Privacy of
Individually Identifiable Health Information.”
120.
45 C.F.R. § 164.104 states that the “standards, requirements, and implementation
specifications adopted under this part” apply to covered entities and their business associates, such
as Defendant.
121.
Defendant is obligated under HIPAA to, among other things, “ensure the
confidentiality, integrity, and availability of all electronic protected health information the covered
entity or business associate creates, receives, maintains, or transmits” and “protect against any
reasonably anticipated threats or hazards to the security or integrity of such information.” 45
C.F.R. § 164.306.
122.
45 C.F.R. Sections 164.308 (Administrative safeguards), 164.310 (Physical
safeguards), 164.312 (Technical safeguards), 164.314 (Organizational requirements), and 164.316
(Policies and procedures and documentation requirements) provide mandatory standards that all
covered entities must adhere to.
123.
Defendant violated HIPAA by failing to adhere to and meet the required standards
as set forth in 45 C.F.R. §§ 164.308, 164.310, 164.312, 164.314, and 164.316.
124.
Likewise, HIPAA regulations require covered entities “without unreasonable delay
and in no case later than 60 calendar days after discovery of the breach” to “notify each individual
whose unsecured protected health information has been, or is reasonably believed by the covered
entity to have been, accessed, acquired, used, or disclosed as a result of” a data breach. 45 C.F.R.
§ 164.404. The notice must also contain a minimum amount of information regarding the breach
(including the dates of the breach and its discovery), the types of protected health information that
were involved, steps individuals should take to protect themselves from harm resulting from the
breach, a description of what the entity is doing to investigate the breach and mitigate harm, and
contact information to obtain further information. Id.
125.
Defendant breached its notification obligations under HIPAA by failing to give
timely and complete notice of the breach to Plaintiff and class members.
126.
HIPAA requires Defendant to “reasonably protect” confidential data from “any
intentional or unintentional use or disclosure” and to “have in place appropriate administrative,
technical, and physical safeguards to protect the privacy of protected health information.” 45
C.F.R. § 164.530(c)(1). The confidential data at issue in this case constitutes “protected health
information” within the meaning of HIPAA.
127.
HIPAA further requires Defendant to disclose the unauthorized access and theft of
the PII and PHI to Plaintiff and class members “without unreasonable delay” so that they can take
appropriate measures to mitigate damages, protect against adverse consequences, and detect
misuse of their PII and PHI. See 45 C.F.R. § 164.404.
128.
Defendant violated HIPAA by failing to reasonably protect Plaintiff’s and class
members’ PII and PHI and by failing to give timely and complete notice, as described herein.
129.
Defendant’s violations of HIPAA constitute negligence per se.
130.
Plaintiff and class members are within the class of persons that HIPAA and its
implementing regulations were intended to protect.
131.
The harm that occurred as a result of the Data Breach is the type of harm HIPAA
was intended to guard against.
132.
Additionally, Section 5 of the Federal Trade Commission Act (“FTC Act”)
prohibits “unfair . . . practices in or affecting commerce,” including, as interpreted and enforced
by the FTC, the unfair act or practice by businesses, such as Defendant, of failing to use reasonable
measures to protect PII and PHI. 15 U.S.C. § 45(a)(1).
133.
The FTC publications and orders described above also form part of the basis of
Defendant’s duty in this regard.
134.
Defendant violated Section 5 of the FTC Act by failing to use reasonable measures
to protect PII and PHI and failing to comply with applicable industry standards. Defendant’s
conduct was unreasonable given the nature and amount of PII and PHI they obtained, stored, and
disseminated in the regular course of their business, and the foreseeable consequences of a data
breach, including, specifically, the significant damage that would result to Plaintiff and class
members.
135.
Defendant’s violations of Section 5 of the FTC Act constitute negligence per se.
136.
Plaintiff and class members are within the class of persons that the FTC Act was
intended to protect.
137.
The harm that occurred as a result of the Data Breach is the type of harm the FTC
Act was intended to guard against. The FTC has pursued enforcement actions against businesses,
which, as a result of their failure to employ reasonable data security measures and avoid unfair and
deceptive practices, caused the same harm as that suffered by Plaintiff and class members.
138.
As a direct and proximate result of Defendant’s negligence per se, Plaintiff and
class members sustained actual losses and damages as alleged herein.
COUNT III
Breach of Contract
(On Behalf of Plaintiff and the Class)
139.
Plaintiff repeats and realleges every allegation set forth in the preceding paragraphs.
140.
Defendant disseminated a “Notice of Privacy Practices” to its patients which
constitutes an agreement between Defendant and persons who provided their PII and PHI to
Defendant, including Plaintiff and class members.
141.
Plaintiff and class members formed a contract with Defendant and complied with
all obligations under such contract when they provided PII to Defendant subject to the Notice of
Privacy Practices.
142.
Defendant promised in the Notice of Privacy Practices that it would “abide by the
most stringent of the regulations as they pertain to Protected Health Information, including
obtaining your prior written authorization, as required, before any such information is disclosed to
a third party” and to not disclose information unless as authorized. Defendant further promised it
would “[m]aintain the privacy of Protected Health Information.”
143.
Defendant breached its agreements with Plaintiff and class members when
Defendant allowed for the disclose of Plaintiff’s and class members’ PII and PHI without their
authorization and in a manner that was inconsistent with the permissible authorizations set forth
in the Notice of Privacy Practices, as well as when it failed to maintain the confidentiality of
Plaintiff’s and class members’ medical and treatment information.
144.
As a direct and proximate result of these breaches, Plaintiff and class members
sustained actual losses and damages as alleged herein, including that they did not receive the
benefits of the bargains for which they paid. Plaintiff and class members alternatively seek an
award of nominal damages.
COUNT IV
Breach of Implied Contract
(On Behalf of Plaintiff and the Class)
145.
Plaintiff repeats and realleges every allegation set forth in the preceding paragraphs
and assert this claim in the alternative to his breach of contract claim to the extent necessary.
146.
Plaintiff and class members were required to provide their PII to Defendant in order
to receive healthcare services and treatment.
147.
As part of these transactions, Defendant agreed to safeguard and protect the PII and
PHI of Plaintiff and class members. Implicit in these transactions between Defendant and class
members was the obligation that Defendant would use the PII and PHI for approved business
purposes only and would not make unauthorized disclosures of the information or allow
unauthorized access to the information.
148.
Additionally, Defendant implicitly promised to retain this PII and PHI only under
conditions that kept such information secure and confidential and therefore had a duty to
reasonably safeguard and protect the PII and PHI of Plaintiff and class members from unauthorized
disclosure or access.
149.
Plaintiff and class members entered into implied contracts with the reasonable
expectation that Defendant’s data security practices and policies were reasonable and consistent
with industry standards. Plaintiff and class members believed that Defendant would use part of the
monies paid to Defendant under the implied contracts to fund adequate and reasonable data
security practices to protect their PII and PHI.
150.
Plaintiff and class members would not have provided and entrusted their PII and
PHI to Defendant or would have paid less for Defendant’s services in the absence of the implied
contract between them and Defendant. The safeguarding of Plaintiff’s and class members’ PII and
PHI was critical to realizing the intent of the parties.
151.
The nature of Defendant’s implied promise itself—the subject matter of the
contractual provision at issue—was to protect Plaintiff’s and class members’ PII and PHI in order
to prevent harm and prevent present and continuing increased risk.
152.
Defendant breached their implied contract with Plaintiff and class members by
failing to reasonably safeguard and protect Plaintiff’s and class members’ PII and PHI, which was
compromised as a result of the Data Breach.
153.
As a direct and proximate result of Defendant’s breaches, Plaintiff and class
members sustained actual losses and damages as alleged herein, including that they did not receive
the benefits of the bargains for which they paid. Plaintiff and class members alternatively seek an
award of nominal damages.
COUNT V
Unjust Enrichment
(On Behalf of Plaintiff and the Class)
154.
Plaintiff repeats and realleges every allegation set forth in the preceding paragraphs
and assert this claim in the alternative to their breach of contract claims to the extent necessary.
155.
Plaintiff and class members have an interest, both equitable and legal, in their PII
and PHI that was conferred upon, collected by, and maintained by the Defendant and which was
stolen in the Data Breach. This information has independent value.
156.
Plaintiff and class members conferred a monetary benefit on Defendant in the form
of payments for medical and healthcare services, including those paid indirectly by Plaintiff and
class members to Defendant.
157.
Defendant appreciated and had knowledge of the benefits conferred upon it by
Plaintiff and class members.
158.
The price for medical and healthcare services that Plaintiff and class members paid
(directly or indirectly) to Defendant should have been used by Defendant, in part, to pay for the
administrative costs of reasonable data privacy and security practices and procedures.
159.
Likewise, in exchange for receiving Plaintiff’s and class members’ valuable PII and
PHI, which Defendant was able to use for their own business purposes and which provided actual
value to Defendant, Defendant was obligated to devote sufficient resources to reasonable data
privacy and security practices and procedures.
160.
As a result of Defendant’s conduct, Plaintiff and class members suffered actual
damages as described herein. Under principals of equity and good conscience, Defendant should
be compelled to disgorge into a common fund for the benefit of Plaintiff and class members all
unlawful or inequitable proceeds they received from Plaintiff and class members, including
damages equaling the difference in value between medical and healthcare services that included
implementation of reasonable data privacy and security practices that Plaintiff and class members
paid for and the services without reasonable data privacy and security practices that they actually
received.
COUNT VI
Breach of Confidence
(On Behalf of Plaintiff and the Class)
161.
Plaintiff repeats and realleges every allegation set forth in the preceding paragraphs.
162.
Plaintiff and class members maintained a confidential relationship with Defendant
wherein Defendant undertook a duty not to disclose PII and PHI provided by Plaintiff and class
members to unauthorized third parties. Such PII and PHI was confidential and novel, highly
personal and sensitive, and not generally known.
163.
Defendant knew Plaintiff’s and class members’ PII and PHI was being disclosed in
confidence and understood the confidence was to be maintained, including by expressly and
implicitly agreed to protect the confidentiality and security of the PII and PHI it collected, stored,
and maintained.
164.
There was disclosure of Plaintiff’s and class members’ PII and PHI as a result of
the Data Breach in violation of this understanding. The disclosure occurred because Defendant
failed to implement and maintain reasonable safeguards to protect its patients’ PII and PHI and
failed to comply with industry-standard data security practices.
165.
Plaintiff and class members suffered harm the moment the unconsented disclosure
of the confidential information to an unauthorized third party took place.
166.
As a direct and proximate result of Defendant’s breach of confidence, Plaintiff and
class members suffered injury and sustained actual losses and damages as alleged herein. Plaintiff
and class members alternatively seek an award of nominal damages.
COUNT VII
Declaratory Judgment
(On Behalf of Plaintiff and the Class)
167.
Plaintiff repeats and realleges every allegation set forth in the preceding paragraphs.
168.
Under the Declaratory Judgment Act, 28 U.S.C. §§ 2201, et seq., this Court is
authorized to enter a judgment declaring the rights and legal relations of the parties and grant
further necessary relief. Furthermore, the Court has broad authority to restrain acts, such as here,
that are tortious and violate the terms of the federal statutes described in this Complaint.
169.
An actual controversy has arisen in the wake of the Data Breach regarding
Defendant’s present and prospective common law and other duties to reasonably safeguard PII and
PHI and whether Defendant is currently maintaining data security measures adequate to protect
Plaintiff and class members from further cyberattacks and data breaches that could compromise
their PII and PHI.
170.
Defendant still possesses PII and PHI pertaining to Plaintiff and class members,
which means their PII remains at risk of further breaches because Defendant’s data security
measures remain inadequate. Plaintiff and class members continue to suffer injuries as a result of
the compromise of their PII and PHI and remain at an imminent risk that additional compromises
of their PII and PHI will occur in the future.
171.
Pursuant to the Declaratory Judgment Act, Plaintiff seeks a declaration that: (a)
Defendant’s existing data security measures do not comply with its obligations and duties of care;
and (b) in order to comply with their obligations and duties of care, (1) Defendant must have
policies and procedures in place to ensure the parties with whom it shares sensitive personal
information maintain reasonable, industry-standard security measures, including, but not limited
to, those listed at (ii), (a)-(i), infra, and must comply with those policies and procedures; (2)
Defendant must: (i) purge, delete, or destroy in a reasonably secure manner Plaintiff’s and class
members’ PII and PHI if it is no longer necessary to perform essential business functions so that
it is not subject to further theft; and (ii) implement and maintain reasonable, industry-standard
security measures, including, but not limited to:
a. Engaging 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. Engaging third-party security auditors and internal personnel to run automated
security monitoring;
c. Auditing, testing, and training its security personnel regarding any new or modified
procedures;
d. Encrypting PII and PHI and segmenting PII and PHI 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 its systems;
e. Purging, deleting, and destroying in a reasonable and secure manner PII and PHI not
necessary to perform essential business functions;
f. Conducting regular database scanning and security checks;
g. Conducting regular employee education regarding best security practices;
h. Implementing multi-factor authentication and POLP to combat system-wide
cyberattacks; and
i. Routinely and continually conducting 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.
REQUEST FOR RELIEF
WHEREFORE, Plaintiff, on behalf of themselves and the Class set forth herein,
respectfully requests the following relief:
A.
That the Court certify this action as a class action pursuant to Rule 23 of the Federal
Rules of Civil Procedure, appoint Plaintiff as class representatives and Plaintiff’s counsel as Class
Counsel;
B.
That the Court grant permanent injunctive relief to prohibit and prevent Defendant
from continuing to engage in the unlawful acts, omissions, and practices described herein;
C.
That the Court award Plaintiff and class members compensatory, consequential,
and general damages, including nominal damages as appropriate, for each count as allowed by law
in an amount to be determined at trial;
D.
That the Court award statutory damages, trebled, and/or punitive or exemplary
damages, to the extent permitted by law;
E.
That the Court order disgorgement and restitution of all earnings, profits,
compensation, and benefits received by Defendant as a result of their unlawful acts, omissions,
and practices;
F.
That Plaintiff be granted the declaratory and injunctive relief sought herein;
G.
That the Court award to Plaintiff the costs and disbursements of the action, along
with reasonable attorneys’ fees, costs, and expenses; and
H.
That the Court award pre-and post-judgment interest at the maximum legal rate and
all such other relief as it deems just and proper.
DEMAND FOR JURY TRIAL
Plaintiff hereby demands a jury trial in the instant action.
Dated: January 8, 2022
/s/ Julie Braman Kane .
Julie Braman Kane
(Florida Bar No.: 980277)
julie@colson.com
COLSON HICKS EIDSON
255 Alhambra Circle – Penthouse
Coral Gables, Florida 33134
Telephone: (305) 476-7400
Facsimile: (305) 476-7444
Norman E. Siegel*
J. Austin Moore*
STUEVE SIEGEL HANSON LLP
460 Nichols Road, Suite 200
Kansas City, Missouri 64112
Telephone: (816) 714-7100
siegel@stuevesiegel.com
moore@stuevesiegel.com
*Pro Hac Vice Forthcoming
Counsel for Plaintiff and the Class
| consumer fraud |
ufssFIcBD5gMZwczTBJa | UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
)
Daniel Meir, individually and on behalf
)
Civil Action No.
of all other similarly situated,
)
)
Plaintiff,
)
)
vs.
)
CLASS ACTION COMPLAINT
)
)
DEMAND FOR TRIAL BY JURY
LG CHEM AMERICA, INC.; LG CHEM,
)
LTD; PANASONIC CORPORATION;
)
PANASONIC CORPORATION OF NORTH
)
AMERICA; SANYO ELECTRIC CO., LTD;
)
SONY ENERGY DEVICES CORPORATION;
)
SONY ELECTRONICS, INC.; SAMSUNG SDI
)
CO., LTD.; SAMSUNG SDI AMERICA, INC.;
)
HITACHI, LTD.; HITACHI MAXELL, LTD.;
)
and MAXELL CORPORATION OF AMERICA,
)
)
Defendants.
)
_________________________________________ )
Plaintiff Daniel Meir (“Plaintiff”), on behalf of himself and all others similarly
situated (the “Class” as defined below), upon personal knowledge as to the facts pertaining to
himself and upon information and belief as to all other matters, based on the investigation
of counsel, brings this class action for damages, injunctive relief and other relief pursuant to the
federal antitrust laws, demands a trial by jury, and alleges as follows:
NATURE OF THE CASE
1.
This lawsuit is brought as a proposed class action against the above-captioned
Defendants, the world’s largest manufacturers of Lithium Ion Batteries (defined below) globally
and in the United States, for engaging in a conspiracy to unlawfully fix and artificially raise the
prices of Lithium Ion Batteries.
2.
Defendants, their parents, subsidiaries, and affiliates have orchestrated some of
the largest global price-fixing conspiracies of the past decade – fixing the prices of key
components for consumer electronic goods including computers, televisions and cellular
phones. These entities, and many of their executives, have pleaded guilty to price-fixing
dynamic random access memory (DRAM) chips, liquid crystal display (LCD) screens, and
optical disc drives. These component part conspiracies – like the conspiracy to fix Lithium Ion
Battery prices – all have very similar features, including: (a) a highly concentrated market,
controlled by some or all of the Defendants; (b) pricing pressure exerted on the conspirators by
original equipment manufacturers (“OEMs”) seeking to price their products in a competitive
consumer electronics markets; (c) rapid commoditization of new technology; and (d) pricing
behavior inconsistent with a competitive market.
3.
Defendants’ conspiracy successfully targeted yet another key component of
consumer electronic goods by raising prices for Lithium Ion Batteries and, in turn, the prices of
Lithium Ion Battery Products (defined below) such as that purchased by the Plaintiff.
4.
Plaintiff seeks to represent all persons and entities that, in the United States,
directly purchased a Lithium Ion Battery or Lithium Ion Battery Product from a Defendant
during the period from and including January 1, 2002 through such time as the anticompetitive
effects of Defendants’ conduct ceased (the “Class Period”).
5.
“Lithium Ion Batteries,” as used in this Complaint, are batteries that are
rechargeable and which utilize lithium ion technology.
6.
“Lithium Ion Battery Products,” as used in this Complaint, are consumer products
containing one or more Lithium Ion Batteries.
7.
Defendants LG Chem America, Inc., LG Chem, Ltd., Panasonic Corporation,
Panasonic Corporation of North America, Sanyo Electric Co., Ltd., Sanyo North America
Corporation, Sony Corporation, Sony Electronics, Inc., Sony Energy Devices Corporation,
Samsung SDI Co., Ltd., Samsung SDI America, Inc., Hitachi, Ltd., Hitachi Maxell, Ltd., and
Maxell Corporation of America (collectively “Defendants”) manufacture, market, and sell
Lithium Ion Batteries throughout the United States and the world. Defendants collectively
controlled approximately two-thirds or more of the worldwide market for Lithium Ion Batteries
throughout the Class Period. The manufacture and sale of Lithium Ion Batteries is a multi-
billion dollar industry. In 2011, the worldwide market for Lithium Ion Batteries was
approximately $15 billion.
8.
Defendants and other co-conspirators (as yet unknown) agreed, combined and
conspired to inflate, fix, raise, maintain, or artificially stabilize prices of Lithium Ion Batteries.
9.
As further described below, competition authorities in the United States have been
investigating a conspiracy in the market for Lithium Ion Batteries since at least the first half of
2011. Specifically, the Antitrust Division of the United States Department of Justice (“DOJ”) is
conducting a criminal investigation into anticompetitive conduct in the market for Lithium Ion
Batteries.
10.
Defendants participated in a combination and conspiracy to suppress and
eliminate competition in the market for Lithium Ion Batteries by agreeing to rig bids for, and to
fix, stabilize, and maintain the prices of, Lithium Ion Batteries in the United States. The
combination and conspiracy engaged in by Defendants was an unreasonable restraint of
interstate and foreign trade and commerce in violation of the Sherman Antitrust Act, 15 U.S.C.
11.
As a direct result of the anticompetitive and unlawful conduct alleged herein,
Plaintiff and the Class paid artificially inflated prices for Lithium Ion Batteries and Lithium Ion
Battery Products during the Class Period, and have thereby suffered antitrust injury to their
business or property.
JURISDICTION AND VENUE
12.
This action is instituted under Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§
15 and 26, to recover treble damages, and the costs of this suit, including reasonable attorneys’
fees, against Defendants for the injuries sustained by Plaintiff and the members of the Class by
virtue of Defendants’ violations of Section 1 of the Sherman Act, 15 U.S.C. § 1, and to enjoin
further violations.
13.
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, Section 1331 and 1337.
14.
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.
15.
This Court has in personam jurisdiction over each of the Defendants because each
Defendant, either directly or through the ownership and/or control of its United States
subsidiaries, inter alia: (a) transacted business in the United States, including in this District;
(b) directly or indirectly sold or marketed substantial quantities of Lithium Ion Batteries
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) was 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.
Defendants also conduct business throughout the United States, including this District, and they
have purposefully availed themselves of the laws of the United States.
16.
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.
17.
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.
18.
Lithium Ion Batteries manufactured abroad by Defendants and sold for use in
Lithium Ion Battery Products either manufactured in the United States or manufactured abroad
and sold in the United States are goods brought into the United States for sale, and therefore
constitute import commerce. To the extent any Lithium Ion Batteries are purchased in the
United States, and such Lithium Ion Batteries do not constitute import commerce, Defendants’
unlawful activities with respect thereto, as more fully alleged herein during the Class Period,
had, and continue to have, a direct, substantial and reasonably foreseeable effect on United
States commerce. The anti-competitive conduct, and its effects on United States commerce
described herein, proximately caused antitrust injury to the Plaintiff and members of the Class
in the United States.
19.
By reason of the unlawful activities alleged herein, Defendants substantially
affected commerce throughout the United States, causing injury to the Plaintiff and members of
the Class. Defendants, directly and through their agents, engaged in a conspiracy to fix or
inflate prices of Lithium Ion Batteries, which unreasonably restrained trade and adversely
affected the market for Lithium Ion Batteries and Lithium Ion Battery Products.
20.
Defendants’ conspiracy and wrongdoing described herein adversely affected
persons in the United States who purchased Lithium Ion Batteries and Lithium Ion Battery
Products, including Plaintiff and members of the Class.
PARTIES
21.
Plaintiff Daniel Meir is a resident of Englewood, New Jersey. Plaintiff Meir
purchased a Lithium Ion Battery Product directly from one of the Defendants during the Class
Period. As a result of the antitrust violations alleged in this Complaint, the Plaintiff has suffered
injury.
The LG Chem Defendants
22.
Defendant LG Chem America, Inc. is a Delaware corporation headquartered at
910 Sylvan Avenue, Englewood Cliffs, New Jersey, 07632. Defendant LG Chem America, Inc.
is a wholly-owned subsidiary of Defendant LG Chem, Ltd. Defendant LG Chem America, Inc.
– either directly or through its wholly-owned or controlled subsidiaries – manufactured,
marketed and sold Lithium Ion Batteries that were purchased throughout the United States,
including in this District, during the Class Period.
23.
Defendant LG Chem, Ltd. is a Korean corporation headquartered at 20 Yeouido-
dong, Yeongdeungpo-gu, Seoul 150-721, South Korea. Defendant LG Chem, Ltd. is an affiliate
of Seoul-based conglomerate LG Electronics. LG Chem, Ltd. is one of the world’s leading
manufacturers of Lithium Ion Batteries. LG Chem, Ltd. – either directly or through its wholly-
owned or controlled subsidiaries – manufactured, marketed and sold Lithium Ion Batteries that
were purchased throughout the United States, including in this District, during the Class Period.
24.
Defendants LG Chem, Ltd. and LG Chem America, Inc. are collectively referred
to herein as “LG Chem.”
The Panasonic Defendants
25.
Defendant Panasonic Corporation of North America, formerly known as
Matsushita Electric Corporation of America, is a Delaware Corporation with its principal place
of business at One Panasonic Way, Secaucus, New Jersey 07094. Panasonic Corporation of
North America is a wholly-owned and controlled subsidiary of Defendant Panasonic
Corporation. Defendant Panasonic Corporation of North America – either directly or through
its wholly-owned or controlled subsidiaries – manufactured, marketed and sold Lithium Ion
Batteries and Lithium Ion Battery Products that were purchased throughout the United States,
including in this District, during the Class Period.
26.
Defendant Panasonic Corporation, formerly known as Matsushita Electric
Industrial Co., Ltd., is a Japanese Corporation headquartered at 1006 Oaza Kadoma, Kadoma-
shi, Osaka 57108501, Japan. Defendant Panasonic Corporation is one of the world’s leading
manufacturers of Lithium Ion Batteries. Defendant Panasonic Corporation – either directly or
through its wholly-owned or controlled subsidiaries – manufactured, marketed and sold Lithium
Ion Batteries and Lithium Ion Battery Products that were purchased throughout the United
States, including in this District, during the Class Period.
27.
Defendant Sanyo Electric Co., Ltd. is a Japanese corporation headquartered at 5-5
Keihan-Hondori 2-chome, Moriguchi City, Osaka 570-8677, Japan. Defendant Sanyo Electric
Co., Ltd. is one of the largest manufacturers and suppliers of Lithium Ion Batteries in the world.
Defendant Sanyo Electric Co., Ltd. – either directly or through its wholly-owned or controlled
subsidiaries – manufactured, marketed and sold Lithium Ion Batteries and Lithium Ion Battery
Products that were purchased throughout the United States, including in this District, during the
Class Period.
28.
Defendant Sanyo North America Corporation is a Delaware Corporation with its
principal place of business at 2055 Sanyo Avenue, San Diego, California 92154. Defendant
Sanyo North America Corporation is a wholly-owned subsidiary of Defendant Sanyo Electric
Co., Ltd. Defendant Sanyo North America Corporation – either directly or through its wholly-
owned or controlled subsidiaries – manufactured, marketed and sold Lithium Ion Batteries and
Lithium Ion Battery Products that were purchased throughout the United States, including in
this District, during the Class Period.
29.
Defendants Panasonic Corporation, Panasonic Corporation of North America,
Sanyo Electric, Co., Ltd., and Sanyo North America Corporation are collectively referred to as
“Panasonic.”
The Sony Defendants
30.
Defendant Sony Electronics, Inc. is a Delaware Corporation with its principal
place of business at 16530 Via Esprillo, MZ 7180, San Diego, CA 92127. Defendant Sony
Electronics, Inc. is a wholly-owned and controlled subsidiary of defendant Sony Corporation.
Defendant Sony Electronics, Inc. – either directly or through its wholly-owned or controlled
subsidiaries – manufactured, marketed and sold Lithium Ion Batteries and Lithium Ion Battery
Products that were purchased throughout the United States, including in this District, during the
Class Period.
31.
Defendant Sony Corporation is a Japanese corporation headquartered at 1-7-1
Konan, Minato-Ku, Tokyo 108-0075, Japan. Defendant Sony Corporation invented the Lithium
Ion Battery in 1991 and has remained one of the world’s leading suppliers of Lithuim Ion
Batteries. Defendant Sony Corporation – either directly or through its wholly-owned or
controlled subsidiaries – manufactured, marketed and sold Lithium Ion Batteries and Lithium
Ion Battery Products that were purchased throughout the United States, including in this
District, during the Class Period.
32.
Defendant Sony Energy Devices Corporation is a Japanese corporation
headquartered at 1-1 Shimosugishita, Takakura, Hiwada-machi, Koriyama-shi, Fukushima, 963-
0531, Japan. Defendant Sony Energy Devices Corporation is a wholly-owned subsidiary of
defendant Sony Corporation. Defendant Sony Energy Devices Corporation – either directly or
through its wholly-owned or controlled subsidiaries – manufactured, marketed and sold Lithium
Ion Batteries and Lithium Ion Battery Products that were purchased throughout the United
States, including in this District, during the Class Period.
33.
Defendants Sony Corporation, Sony Energy Devices Corporation, and Sony
Electronics, Inc. are collectively referred to as “Sony.”
The Samsung Defendants
34.
Defendant Samsung SDI America, Inc. is a California corporation with its
principal place of business at 3333 Michelin Drive, Suite 700, Irvine, California 92612.
Samsung SDI America, Inc. is a wholly-owned and controlled subsidiary of Defendant
Samsung SDI Co., Ltd. Defendant Samsung SDI America, Inc. – either directly or through its
wholly-owned or controlled subsidiaries – manufactured, marketed and sold Lithium Ion
Batteries and Lithium Ion Battery Products that were purchased throughout the United States,
including in this District, during the Class Period.
35.
Defendant Samsung SDI Co., Ltd. is a Korean corporation headquartered at 428-5
gongse-dong Giheung-gu, Yongin Kyunggi-do, South Korea. Defendant Samsung SDI Co.,
Ltd. is the world’s largest manufacturer of Lithium Ion Batteries. Defendant Samsung SDI Co.,
Ltd. – either directly or through its wholly-owned or controlled subsidiaries – manufactured,
marketed and sold Lithium Ion Batteries and Lithium Ion Battery Products that were purchased
throughout the United States, including in this District, during the Class Period.
36.
Defendants Samsung SDI and Samsung SDI America are collectively referred to
as “Samsung SDI.”
The Hitachi Defendants
37.
Defendant Hitachi, Ltd. is a Japanese company with its principal place of business
at 1-6-6 Marunouchi, Chiyoda-ku, Tokyo 100-8280, Japan. Defendant Hitachi, Ltd. – either
directly, or through a wholly-owned or controlled subsidiary – manufactured, marketed and sold
Lithium Ion Batteries and Lithium Ion Battery Products that were purchased throughout the
United States, including in this District, during the Class Period.
38.
Defendant Hitachi Maxell, Ltd. is a Japanese corporation with its principal place
of business at 2-18-2, Iidabashi, Chiyoda-ku, Tokyo, 102-8521 Japan. Defendant Hitachi-
Maxell is a wholly-owned subsidiary of Defendant Hitachi, Ltd. Defendant Hitachi Maxell,
Ltd. – either directly, or through a wholly-owned or controlled subsidiary – manufactured,
marketed and sold Lithium Ion Batteries and Lithium Ion Battery Products that were purchased
throughout the United States, including in this District, during the Class Period.
39.
Defendant Maxell Corporation of America is a New Jersey corporation with its
principal place of business at 3 Garett Mountain Plaza, 3rd Floor, Suite 300, Woodland Park,
New Jersey, 07424. Defendant Maxell Corporation of America – either directly, or through a
wholly-owned or controlled subsidiary – manufactured, marketed and sold Lithium Ion
Batteries and Lithium Ion Battery Products that were purchased throughout the United States,
including in this District, during the Class Period.
40.
Defendants Hitachi, Ltd., Hitachi-Maxell, Ltd., and Maxell Corporation of
America are collectively referred to as “Hitachi.”
AGENTS AND CO-CONSPIRATORS
41.
Each Defendant acted as the principal of or agent for other Defendants with
respect to the acts, violations, and common course of conduct alleged herein.
42.
Various persons, partnerships, sole proprietorships, 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.
43.
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 corporations’ or limited liability entity’s business or
affairs.
TRADE AND COMMERCE
44.
During the Class Period, Defendants sold substantial quantities of Lithium Ion
Batteries shipped from outside the United States to direct purchasers located in various states in
the United States in a continuous and uninterrupted flow of interstate and foreign trade and
commerce. In addition, substantial quantities of equipment and supplies necessary to the
production and distribution of Lithium Ion Batteries, as well as payments for Lithium Ion
Batteries and related products sold by Defendants, traveled in interstate and foreign trade and
commerce. The business activities of Defendants in connection with the production and sale of
Lithium Ion Batteries that were the subject of the charged conspiracy were within the flow of,
and substantially affected, interstate and foreign trade and commerce.
FACTUAL ALLEGATIONS
A.
Lithium Ion Batteries
45.
Lithium Ion Batteries possess certain unique performance qualities which make
them the most popular form of secondary (i.e., rechargeable) battery. Because of these unique
characteristics, Lithium Ion Batteries are not interchangeable with other types of secondary
batteries such as nickel cadmium or nickel-metal hydride.
46.
Unlike other forms of rechargeable batteries (such as nickel-cadmium or nickel-
metal hydride), Lithium Ion Batteries are the only rechargeable batteries which do not suffer
from any “memory effect.” For example, if a nickel-cadmium battery is charged repeatedly to
70% capacity, the discharge voltage will begin to fall sharply from the 70% level even after a
full charge and, eventually, the battery will be incapable of holding a charge. The battery
essentially remembers 70% as the full capacity. Lithium Ion Batteries, on the other hand, do
not suffer from the memory effect, and there is no risk to reducing the capacity of the battery
when only partially charging the battery.
47.
A second feature which makes Lithium Ion Batteries unique is that they are
more powerful than all other types of rechargeable batteries. For example, the nominal
voltage of a nickel-metal hydride rechargeable battery is 1.2 volts. The nominal voltage of
a Lithium Ion Battery, by comparison, is 3.7 volts, nearly three times more powerful.
48.
Lithium Ion Batteries also possess a higher “energy density” than other types
of rechargeable batteries. Lithium Ion Batteries can generate the same amount of electricity as
a heavier and larger rechargeable battery of a different type. Lithium Ion Batteries can be as
much as 70% lighter and 60% smaller in volume than nickel hydride batteries, but deliver the
same amount of power.
49.
Lithium Ion Batteries also retain their charge better than other types of
rechargeable batteries. For example, Lithium Ion Batteries lose only about 5% of their
charge per month when idle. Standard nickel-metal hydride batteries may lose up to 40% of
their stored energy in a month, and may be fully empty in as little as two months.
50.
Because of their superior performance characteristics and small size, Lithium Ion
Batteries have become the standard battery used in consumer electronics products.
B.
The Price Movements of Lithium Ion Batteries During the Class Period Defy
Fundamental Economic Principles
51.
Many analysts predicted that, given the economics of the marketplace, prices of
Lithium Batteries would go down during the Class Period. But prices not only failed to decline
throughout most of the Class Period – prices actually rose, defying industry expectations.
52.
Lithium Ion Batteries were undergoing substantial and continuous technological
change that was rapidly improving the energy density of the batteries (watt-hours delivered per
weight or volume) and reducing costs. Such technological progress continued unabated over
the past decade; today, energy density of Lithium Ion Batteries is as high as 250 wh/kg, or 620
53.
Numerous technical studies undertaken in the early- to mid-2000s predicted that
scale economies and learning curves would act to sharply lower cost as production volumes
expanded. For example, a 2006 MIT study concluded that, “[i]n addition to [their] fundamental
advantage with respect to specific energy and power, lithium-ion batteries also offer the
potential for lower cost as the technology matures and production volumes increase. Although
more expensive than NiMH batteries today, lithium-ion batteries scale more readily to high
volume production hence have greater potential for cost reduction. . . . Perhaps more
importantly, while the most expensive constituent materials of NiMh battery are intrinsically
tied to the commodity price of nickel (relatively expensive), lithium ion batteries may be made
from a number of different fungible materials. . . . Over the longer-term, there is strong potential
to transition to even lower cost materials.”
54.
The production volume of Lithium Ion Batteries expanded significantly during the
Class Period, as anticipated.
55.
Basic economics support the notion that, in a competitive market, this rapidly
increasing production should have been associated with continuing price declines for Lithium
Ion Batteries.
56.
As a result of the conduct of the price-fixing cartel alleged in this Complaint,
however, these price declines did not materialize. The interruption of the price decline was
perceived merely as a temporary deviation from the expected trend, rather than as the beginning
of a collusive effort by producers to prevent further erosion of prices.
57.
No later than early 2002, Defendants entered into an illegal conspiracy to stabilize
and raise prices for Lithium Ion Batteries. The impact of Defendants’ conspiracy can be
observed through the South Korean government’s producer price index (“PPI”) for Lithium Ion
Batteries, which is prepared by the Bank of Korea. The price index is an effective tool for
measuring price changes over time, because it controls for changes in the mix of size and
qualities of batteries being produced.
58.
The PPI shows that Lithium Ion Battery prices commenced a steep decrease in
early 2000 and that prices continued to fall sharply until 2002.
59.
After this sharp two-year decline, Lithium Ion Battery prices suddenly stabilized
in early 2002. In fact, as documented by the PPI, during the period between mid-2002 and mid-
2008, the dramatic decline of Lithium Ion Battery prices that took place earlier that decade
completely ceased. Lithium Ion Battery prices actually rose at several intervals between 2002
and 2008.
60.
As a result of the worldwide economic crisis which commenced in or around
2007, demand for Lithium Ion Batteries began to decline. Accordingly, beginning in or around
January 2008, the prices for Lithium Ion Batteries began a steady decline which ended in or
around January 2009.
61.
Corresponding with the decline in prices during 2008, Defendants dramatically
and collusively cut production in an effort to stem the decline in prices. This dramatic
coordinated cut in production achieved its desired result: the price for Lithium Ion Batteries
stabilized by the end of 2009.
62.
Having succeeded in stabilizing prices, Defendants then increased output in mid-
2010, thus returning production to the levels that prevailed prior to the 2009 coordinated
production cuts while holding prices steady.
63.
In a competitive market, producers expand output to the point where the price
received covers the incremental or marginal cost of the last unit produced. Defendants’
dramatic, coordinated reduction in production – only to increase output five months later to
nearly the same production levels – is not plausibly the result of competitive forces.
64.
This production and pricing behavior is, instead, consistent with the existence of
an anticompetitive agreement. Indeed, when Defendants increased production in mid-2010,
prices remained flat for about six months. Such pricing behavior is anomalous in a competitive
market, where prices generally drop when output increases.
65.
Lithium Ion Battery prices remained stable – yet again – until Defendants
received notice in mid-2011 that they were being investigated by the DOJ for price-fixing
Lithium Ion Batteries. The PPI for Lithium Ion Batteries fell within three months of
Defendants’ disclosure that they were being investigated. Such a price decline is consistent
with the end of a cartel which had artificially raised prices, and supports the allegation of
collusion occurring before this time.
C.
The Structure and Characteristics of the Lithium Battery Market Render
The Conspiracy Plausible
66.
The structure and other characteristics of the Lithium Ion Battery market in the
United States are conducive to a price-fixing agreement, and have made collusion particularly
attractive in this market. Specifically, the Lithium Ion Batteries market: (1) has high barriers to
entry; (2) has inelasticity of demand; and (3) is highly concentrated.
1.
The Lithium Ion Batteries market has high barriers to entry.
67.
A collusive arrangement that raises product prices above competitive levels
would, under basic economic principles, attract new entrants seeking to benefit from the
supracompetitive pricing. Where, however, there are significant barriers to entry, new entrants
are less likely. Thus, barriers to entry help to facilitate the formation and maintenance of a
68.
There are substantial barriers that preclude, reduce or make more difficult entry
into the Lithium Ion Batteries market. A new entrant into the market would face costly and
lengthy start-up costs, including multi-million dollar costs associated with research and
development, manufacturing plants and equipment, energy, transportation distribution
infrastructure, skilled labor and longstanding customer relationships.
69.
In addition to the large costs of building a plant, any new entrant would be
required to comply with significant environmental regulations. Compliance with such
regulations would require extensive testing and the receipt of government approvals, all of
which would take many years.
70.
Defendants also own multiple patents for Lithium Ion Batteries. This intellectual
property places a significant and costly burden on potential new entrants, who must avoid
infringing on the patents when entering the market with a new product.
2.
The demand for Lithium Ion Batteries is Inelastic.
71.
“Elasticity” is a term used to describe the sensitivity of supply and demand to
changes in one or the other. Demand is said to be “inelastic” if an increase in the price of a
product results in a relatively smaller decline in the quantity sold of that product. Demand is
inelastic where customers have nowhere to turn for substitute, cheaper products of similar
quality, and therefore continue to make purchases despite a price increase.
72.
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 purchased substitute products or declined to
buy altogether. Inelastic demand is a market characteristic that facilitates collusion, allowing
producers to raise their prices without triggering customer substitution and lost sales revenue.
73.
Demand for Lithium Ion Batteries is inelastic because there are no close
substitutes for these products. In addition, customers must purchase Lithium Ion Batteries as an
essential part of another product, even if the battery prices are maintained at a supracompetitive
3.
The market for Lithium Ion Batteries is highly concentrated.
74.
A highly concentrated market is more susceptible to collusion and other
anticompetitive practices. There is a high level of concentration among firms in the Lithium Ion
Batteries market, as evidenced by the fact the top five manufacturers (all of which are
Defendants) accounted for 71% of the global market for Lithium Ion Batteries in 2010.
D.
Governmental Investigations
75.
A globally-coordinated antitrust investigation is taking place in at least the United
States and Europe, aimed at suppliers of Lithium Ion Batteries.
76.
In or around May 2011, Defendant Sony Corporation disclosed that its wholly-
owned U.S. Subsidiary – Sony Electronics, Inc. – received a subpoena from the Antitrust
Division of the U.S. Department of Justice (“DOJ”) concerning its secondary batteries business.
Specifically, Sony disclosed that:
In May 2011, Sony Corporation’s U.S. subsidiary, Sony
Electronics, Inc., received a subpoena from the U.S. Department
of Justice (“DOJ”) Antitrust Division seeking information about
its secondary battery business. Sony understands that the DOJ
and agencies outside the United States are investigating
competition in the secondary batteries market. Based on the
stage of the proceedings, it is not possible to estimate the amount
of loss or range of possible loss, if any, that might result from
adverse judgments, settlements or other resolutions of this
matter.
77.
On or about August 20, 2012 LG Chem confirmed that it also was a target of the
investigation being conducted by the DOJ.
78.
News reports have confirmed that, in addition to Defendants Sony and LG Chem,
Samsung SDI and Panasonic are also under investigation by the DOJ for price fixing with
respect to the sale of rechargeable batteries.
79.
Defendants’ anticompetitive behavior is the subject of a criminal grand jury
investigation being conducted by the DOJ. In order for the DOJ to institute a grand jury
investigation, a DOJ Antitrust Division attorney must believe that a crime has been committed
and prepare a detailed memorandum to that effect. Following a review of that memorandum,
the request for a grand jury must be approved by the Assistant Attorney General for the
Antitrust Division, based on the standard that a criminal violation may have occurred. In
addition, the fact that the DOJ Antitrust Division investigation is criminal, as opposed to civil, is
significant as well. The Antitrust Division’s “Standards for Determining Whether to Proceed by
Civil or Criminal Investigation” states: “[i]n general, current Division policy is to proceed by
criminal investigation and prosecution in cases involving horizontal, per se unlawful
agreements such as price fixing, bid rigging and horizontal customer and territorial allocations.”
Accordingly, the existence of a criminal investigation into the market for Lithium Ion Batteries
supports the existence of the unlawful conspiracy alleged in this Complaint.
E.
Defendants Have a History of Colluding to Fix Prices for Critical
Components of Consumer Electronics
80.
Many of the Defendants have a long history of collusion and are either currently
involved in worldwide competition authority investigations into other technology-related
products, or have been convicted of participating in price fixing cartels involving technology-
related products. Further, much of the illegal conduct to which the Defendants or their affiliates
have admitted took place during the Class Period identified in this Complaint.
81.
A notebook computer contains four key pieces of hardware: a dynamic random
access memory (DRAM) chip, a liquid crystal display (LCD) screen, an optical disk drive
(ODD), and a rechargeable lithium-ion rechargeable battery. Defendants here have pled guilty
to fixing the prices of the first three of these components and, as alleged herein, the DOJ is
investigating whether to bring criminal price-fixing charges with respect to the fourth
component – Lithium Ion Batteries.
82.
In or around October 2005, Samsung Electronics Company, Ltd. and Samsung
Semiconductor, Inc. agreed to plead guilty and pay a $300 million fine for “participating in an
international conspiracy to fix prices in the [Dynamic Random Access Memory] market . . . .”
Samsung Electronics Company, Ltd. and Samsung Semiconductor, Inc. admitted that they
participated in the conspiracy from approximately April 1, 1999 through June 15, 2002. In
addition, six Samsung executives agreed to plead guilty to participating in the conspiracy with
respect to DRAM. Each executive agreed to pay a $250,000 criminal fine and serve a prison
sentence in the United States ranging from seven to fourteen months.
83.
Although it has not been publicly acknowledged, it is widely believed that
Samsung is in the DOJ leniency program with respect to the DOJ’s investigation into the market
for LCDs, meaning that it has admitted its participation in the cartel.
84.
In November 2008, LG Display Co., Ltd. (“LG Display”), a wholly-owned
Korean subsidiary of LG Electronics, agreed to plead guilty and pay a $400 million fine to the
United States in connection with its participation in a worldwide conspiracy to fix the prices of
LCDs during the period from September 2001 through June 2006. In addition, multiple LG
Display executives agreed to plead guilty to participating in the global conspiracy with respect
to LCDs.
85.
In March 2009, Hitachi Displays, Ltd., a wholly-owned Japanese subsidiary of
Hitachi, Ltd., agreed to plead guilty and pay a $31 million fine for participating in a worldwide
conspiracy to fix the prices of LCDs during the period from April 1, 2011 through March 31,
86.
In September 2011, Hitachi-LG Data Storage, Inc. – a joint venture between
Defendant Hitachi Ltd. and LG Electronics, Inc. – agreed to plead guilty and pay a $21.1
million fine for conspiring to rig bids and fix prices for ODDs during the period from June 2004
through September 2009. In addition, three Hitachi-LG Data Storage executives agreed to
plead guilty for participating in the same conspiracy. All three executives agreed to serve prison
time in the United States and pay criminal fines.
87.
Defendants have also entered guilty pleas for fixing prices for other high-tech
products.
88.
In or around March 2011, Defendant Samsung SDI, Company, Ltd. agreed to
plead guilty and pay a $32 million fine for participating in a “global conspiracy to fix prices,
reduce output, and allocate market share of color display tubes, a type of cathode ray tube used
in computer monitors and other specialized applications . . . .” Samsung SDI Company, Ltd.
admitted that it participated in the conspiracy from approximately January 1997 through at least
March 2006.
89.
In September 2010, Defendant Panasonic Corporation agreed to plead guilty and
pay a $49.1 million fine for participating in a conspiracy to “suppress and eliminate competition
by fixing prices to customers of household compressors” during the period from October 14,
2004 through December 31, 2007.
CLASS ACTION ALLEGATIONS
90.
Plaintiff brings this class action pursuant to Federal Rules of Civil Procedure
23(a) and 23(b)(2)-(3), on his own behalf and as a representative of the following class of
persons and entities (the “Class”):
All persons or entities that purchased a Lithium Ion Battery or
Lithium Ion Battery Product directly from a Defendant in the
United States during the Class Period. Excluded from the Class
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.
91.
While Plaintiff does not know the exact number of members of the Class, Plaintiff
believes there are (at least) thousands of members in the Class.
92.
Common questions of law and fact exist as to all members of the Class. This is
particularly true given the nature of Defendants’ conspiracy, which was generally applicable to
all members of the Class, 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 or conspiracy among themselves to fix, raise, maintain or stabilize the prices of
Lithium Ion Batteries sold in the United States;
(b)
The identity of the participants in 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;
(e)
Whether the conduct of Defendants and their co-conspirators, as alleged
in this Complaint, caused injury to the business or property of Plaintiff and the members of the
(f)
The effect of the alleged conspiracy on the prices of Lithium Ion
Batteries and Lithium Ion Battery Products sold in the United States during the Class Period;
(g)
Whether the Defendants and their co-conspirators fraudulently
concealed the conspiracy’s existence from the Plaintiff and the members of the Class;
(h)
The appropriate injunctive and related equitable relief for the Class; and
(i)
The appropriate class-wide measure of damages for the Class.
93.
Plaintiff’s claims are typical of the claims of the members of the Class, and
Plaintiff will fairly and adequately protect the interests of the Class. Plaintiff and all members
of the Class are similarly affected by Defendants’ wrongful conduct in that they paid artificially
inflated prices for Lithium Ion Batteries or Lithium Ion Battery Products purchased directly
from Defendants.
94.
Plaintiff’s claims arise out of the same common course of conduct giving rise to
the claims of the other members of the Class. Plaintiff’s interests are coincident with, and not
antagonistic to, those of the other members of the Class. Plaintiff is represented by counsel who
are competent and experienced in the prosecution of antitrust and class action litigation.
95.
The questions of law and fact common to the members of the Class predominate
over any questions affecting only individual members, including legal and factual issues
relating to liability and damages.
96.
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 might not be practicable to pursue individually, substantially outweigh any
difficulties that may arise in the management of this class action.
97.
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.
PLAINTIFF AND THE CLASS SUFFERED ANTITRUST INJURY
98.
Defendants’ price-fixing conspiracy had the following effects, among others:
(a)
Price competition has been restrained or eliminated with respect to
Lithium Ion Batteries and Lithium Ion Battery Products;
(b)
The prices of Lithium Ion Batteries and Lithium Ion Battery Products
have been fixed, raised, maintained, or stabilized at artificially inflated levels; and
(c)
Purchasers of Lithium Ion Batteries and Lithium Ion Battery Products
have been deprived of free and open competition.
99.
During the Class Period, Plaintiff and the members of the Class paid
supracompetitive prices for Lithium Ion Batteries and Lithium Ion Battery Products.
100. By reason of the alleged violations of the antitrust laws, Plaintiff and the members
of the Class have sustained injury to their businesses or property, having paid higher prices for
Lithium Ion Batteries and Lithium Ion Battery Products than they would 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
the antitrust laws were meant to punish and prevent.
ACTIVE CONCEALMENT AND TOLLING OF THE STATUTE OF LIMITATIONS
101. Plaintiff repeats and realleges the allegations set forth above.
102. Throughout and beyond the conspiracy, Defendants and their co-conspirators
affirmatively and actively concealed their unlawful conduct from Plaintiff and members of the
Classes.
103. Defendants and their co-conspirators conducted their conspiracy in secret,
concealed the true nature of their unlawful conduct and acts in furtherance thereof, and actively
concealed their activities through various other means and methods to avoid detection.
104. Defendants and their co-conspirators publicly provided pretextual and false
justifications regarding their price increases.
105. Plaintiff and members of the Classes did not discover, and could not have
discovered through the exercise of reasonable diligence, that Defendants and their co-
conspirators were violating the antitrust laws as alleged herein until shortly before this class
action litigation was commenced.
106. Plaintiff has exercised due diligence by promptly investigating the facts giving
rise to the claims asserted herein upon having reasonable suspicion of the existence of
Defendants’ conspiracy.
107. As a result of the active concealment of the conspiracy by Defendants and their
co-conspirators, the statute of limitations otherwise applicable to the allegations herein has been
FIRST COUNT
VIOLATION OF SECTION 1 OF THE SHERMAN ACT
(On behalf of Plaintiff and the Class)
108. Plaintiff incorporates by reference the allegations in the preceding paragraphs.
109. 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).
110. 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.
111. At least as early as January 2002, and continuing until such times as the
anticompetitive effects of Defendants’ conduct ceased, the exact date being unknown to
Plaintiff, Defendants and their co-conspirators entered into a continuing agreement,
understanding and conspiracy in restraint of trade to artificially fix, raise, stabilize, and control
prices for Lithium Ion Batteries, thereby creating anticompetitive effects.
112. The anticompetitive acts were intentionally directed at the United States market
for Lithium Ion Batteries, and had a substantial and foreseeable effect on interstate commerce
by raising and fixing prices for Lithium Ion Batteries and Lithium Ion Battery Products
throughout the United States.
113. The conspiratorial acts and combinations have caused unreasonable restraints in
the market for Lithium Ion Batteries and Lithium Ion Battery Products.
114. As a result of Defendants’ unlawful conduct, Plaintiff and the members of the
Class have been harmed by being forced to pay inflated, supracompetitive prices for Lithium
Ion Batteries and Lithium Ion Battery Products.
115. 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.
116. Defendants’ conspiracy had the following effects, among others:
(a)
Price competition in the market for Lithium Ion Batteries and Lithium Ion
Battery Products has been restrained, suppressed, or eliminated in the United States;
(b)
Prices for Lithium Ion Batteries and Lithium Ion Battery Products sold
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 Class who purchased Lithium Ion
Batteries or Lithium Ion Battery Products directly from Defendants have been deprived of the
benefits of free and open competition.
117. As a direct and proximate results of Defendants’ anticompetitive conduct,
Plaintiff and members of the Class have been injured in their business or property and will
continue to be injured in their business and property by paying more for Lithium Ion Batteries
and Lithium Ion Battery Products purchased directly from Defendants than they would have
paid and will pay in the absence of the conspiracy.
118. The alleged contract, combination, or conspiracy is a per se violation of the
federal antitrust laws.
WHEREFORE, Plaintiff demands judgment against Defendants as follows:
A.
The Court determine that this action may be maintained as a class action
under Rules 23(a) and 23(b)(2)-(3) of the Federal Rules of Civil Procedure, appoint Plaintiff
as Class Representative and his counsel of record as Class Counsel, 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;
B.
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; and
(b)
A per se violation of Section 1 of the Sherman Act;
C.
Plaintiff and the members of the Class recover damages, to the maximum
extent allowed under Federal antitrust laws, and that a joint and several judgment in favor of
Plaintiff and the members of the Class be entered against Defendants in an amount to be
trebled to the extent such laws permit;
D.
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;
E.
Plaintiff and the members of the Class 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;
F.
Plaintiff and the members of the Class recover their costs of suit,
including reasonable attorneys’ fees, as provided by law; and
G.
Plaintiff and members of the Class 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.
DATED: October 24, 2012
By: /s/ Lisa J. Rodriguez
Lisa J. Rodriguez
Nicole Acchione
Trujillo Rodriguez & Richards, LLC
258 Kings Highway, East
Haddonfield NJ, 08033
(856)795-9002
(856)795-9887 (fax)
lisa@trrlaw.com
nacchione@trrlaw.com
Steven A. Asher
Mindee J. Reuben
Jeremy S. Spiegel
Weinstein Kitchenoff & Asher LLC
1845 Walnut Street, Suite 1100
Philadelphia, PA 19103
Telephone: 215-545-7200
Fax: 215-545-7200
asher@wka-law.com
reuben@wka-law.com
spiegel@wka-law.com
Marvin Srulowitz, Esquire
49 West 37th St.
9th Floor
New York, NY 10018
Telephone: 212.686.1224
Fax: 212.532.3206
marvinlaw@aol.com
| antitrust |
3xDjFocBD5gMZwczMuf8 | HYDE & SWIGART, APC
Yana A. Hart, Esq. (SBN: 306499)
yana@westcoastlitigation.com
2221 Camino Del Rio South, Suite 101
San Diego, CA 92108-3609
Telephone: (619) 233-7770
Fax: (619) 297-1022
LAW OFFICE OF DANIEL G. SHAY
Daniel G. Shay (SBN: 250548)
danielshay@tcpafdcpa.com
409 Camino Del Rio South, Suite 101B
San Diego, CA 92108
Telephone: (619) 222-7429
Fax: (866) 431-3292
Attorneys for Plaintiff
William Perez Jr.
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF CALIFORNIA
'18CV2568
WVG
WQH
WILLIAM PEREZ JR.,
Plaintiff,
v.
CAPITAL ONE
FINANCIAL
CORPORATION
Defendant.
Case No:
CLASS ACTION
COMPLAINT FOR DAMAGES
FOR VIOLATIONS OF THE
CALIFORNIA CONSUMER
CREDIT REPORTING
AGENCIES ACT, CAL. CIV.
CODE § 1785.1, ET SEQ.
JURY TRIAL DEMANDED
INTRODUCTION
1. The California legislature found that the banking system is dependent upon fair
and accurate credit reporting; and that, inaccurate credit reports directly impair
the efficiency of the banking system, and unfair credit reporting methods
undermine the public confidence, which is essential to the continued
functioning of the banking system. The California Consumer Credit Reporting
Agencies Act was enacted to insure fair and accurate reporting, promote
efficiency in the banking system and protect consumer privacy; and to ensure
that consumer reporting agencies exercise their grave responsibilities with
fairness, impartiality, and a respect for the consumer’s right to privacy because
consumer reporting agencies have assumed such a vital role in assembling and
evaluating consumer credit and other information on consumers.1
2. Plaintiff WILLIAM PEREZ JR. (“Plaintiff”), through his attorneys, brings this
Complaint for damages, injunctive relief, and any other available legal or
equitable remedies resulting from the illegal actions of Defendant, Capital One
Financial Corporation (“Defendant”), in reporting erroneous negative and
derogatory information on Plaintiff’s credit report, as that term is defined by
Cal. Civ. Code § 1785.3(c).
3. More specifically, Plaintiff brings this Complaint, by and through his attorneys,
for damages arising out of the systematic issuance of erroneous credit reports by
Defendant. Defendant has erroneously reported continual monthly payment
obligations on accounts that have been closed and paid in full.
4. Plaintiff makes these allegations on information and belief, with the exception
of allegations that pertain to Plaintiff, or to Plaintiff’s counsel, which Plaintiff
alleges on personal knowledge.
1 Cal Civ. Code § 1785.1
5. While many violations are described below with specificity, this Complaint
alleges violations of the statutes cited in their entirety.
6. Unless otherwise stated, all the conduct engaged in by Defendant occurred in
California.
7. Any violations by Defendant were knowing and intentional, and that Defendant
did not maintain procedures reasonably adapted to avoid any such violation.
8. 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, and insurers of
Defendant.
JURISDICTION & VENUE
9. Jurisdiction is proper under 28 U.S.C. § 1332(d)(2) because Plaintiff, a resident
of the State of California, seeks relief on behalf of a California class, which will
result in at least one class member belonging to a different state than that of
Defendant, a national credit union with its principal place of business in the
State of Virginia.
10. Plaintiff also seeks the greater of statutory punitive damages of $5,000 per
violation per violation pursuant to Cal. Civ. Code § 1785.31, which, when
aggregated among a proposed class number in the tens of thousands, exceeds
the $5,000,000 threshold for federal court jurisdiction.
11. Therefore, both diversity jurisdiction and the damages threshold under the Class
Action Fairness Act of 2005 (“CAFA”) are present, and this Court has
jurisdiction.
12. Because Defendant conducts business within the State of California, personal
jurisdiction is established.
13. Venue is proper pursuant to 28 U.S.C. § 1391 for the following reasons:
(i) Plaintiff resides in the County of San Diego, State of California which is
within this judicial district; (ii) the conduct complained of herein occurred
within this judicial district; and (iii) Defendant conducted business within this
judicial district at all times relevant.
PARTIES
14. Plaintiff is a natural person who resides in the City of San Diego, County of San
Diego, in the State of California.
15. In addition, Plaintiff is a “consumer” as that term is defined by Cal. Civ. Code §
1785.3(c).
16. Defendant is a corporation with its headquarters located in Mclean Virginia and
authorized to do business in the State of California.
17. The cause of action herein pertains to Plaintiff’s “consumer credit report” as
that term is defined by Cal. Civ. Code § 1785.3(d), in that inaccurate
representations of Plaintiff’s credit worthiness, credit standing, and credit
capacity were made via written, oral, or other communication of information by
a consumer credit reporting agency, which is used or is expected to be used, or
collected in whole or in part, for the purposes of serving as a factor in
establishing Plaintiff’s eligibility for, among other things, credit to be used
primarily for personal, family, household and employment purposes.
18. Defendant is a partnership, corporation, association, or other entity, and is
therefore a “person” as that term is defined by Cal. Civ. Code § 1785.3(j).
FACTUAL ALLEGATIONS
19. At all times relevant to this matter, Plaintiff was an individual residing within
the State of California.
20. Furthermore, Defendant conducted business within the State of California at all
times relevant.
21. At some point prior to the filing of this matter, Plaintiff resolved a number of
debts owed to various furnishers.
22. One such debt was a debt owed to Defendant.
23. With regard to Plaintiff’s Capital One Account with the partial account number
426937100393…., Defendant is reporting to the Credit Bureaus that the account
was paid, never late, has a zero balance, and is closed.
24. However, Defendant also continues to report a $15.00 monthly payment.
25. Because Plaintiff’s account was paid in full and closed, Plaintiff’s monthly
payment should be reported as $0.
26. To report these continuing monthly payment obligations is patently incorrect,
misleading, and fails to comply with the Metro 2 Guidelines.
27. In an effort to comply with the CCCRAA in the most efficient manner,
consumer reporting agencies (such as Experian, Equifax, and Transunion) have
adopted a uniform system to gather and report information about consumers as
well as process and correct inaccuracies and disputes.
28. “Metro 2” is the credit reporting software that was developed as a standard for
the credit reporting industry and provides one standard layout to be used by all
furnishers of information to the consumer reporting agencies.
29. Metro 2 provides a resource guide to each user, which explains the proper
procedures for reporting information, reporting on investigations, and correcting
information.
30. Individual furnishers must be approved by each bureau to report information to
that bureau.
31. Once approved, the furnishers are able to provide information to credit bureaus
through the Metro 2 system.
32. Furnishers’ utilization of the Metro 2 reporting standard correctly is crucial
because the Metro 2 system creates a uniform standard for the meaning given to
each field provided, which fosters consistency in how furnishers formulate data
to report to the credit bureaus, which ultimately leads to objective credit
evaluations.
33. By reporting inaccurate information to the credit bureaus, Defendant has
misrepresented the status of Plaintiff’s financial obligations, specifically
Plaintiff’s payment obligations for a paid and/or closed.
34. As a result of Defendant’s improper and unauthorized conduct, Plaintiff has
suffered actual damages due to Defendant’s misrepresentations regarding
Plaintiff’s current payment obligations.
35. This inaccurate reporting will adversely affect credit decisions because credit
guarantors are made aware of Plaintiff’s current income during the application
process.
36. By reporting continuing monthly payments as opposed to a $0 monthly
payment, Defendant misrepresents Plaintiff’s monthly financial obligations and
gives the false impression that Plaintiff has less funds available to satisfy the
new credit currently being applied for.
37. Defendant’s
inaccurate
and
negative
reporting
damaged
Plaintiff’s
creditworthiness.
38. Plaintiff’s right to be able to apply for credit based on accurate information has
been violated, placing Plaintiff at increased risk of not being able to obtain
valuable credit and adversely affecting Plaintiff’s credit rating.
CLASS ALLEGATIONS
39. Plaintiff brings this action on Plaintiff’s own behalf, and on behalf of all others
similarly situated.
40. Plaintiff is among many thousands of persons in the United States who has had
his or her credit information compiled and reported by Defendant regarding
financial obligations incurred that have been subsequently paid in full, and
currently have a $0 balance owed to the original creditor.
41. Defendant has knowledge of when debts are paid in full, and when accounts are
closed.
42. Despite the fact that Defendant has knowledge and notice of when accounts are
paid in full and/or closed, Defendant has a deliberate policy of not accurately
reporting that said debts are no longer currently still due and owing because
they have been paid in full.
43. As a result of Defendant’s refusal to make such updates to consumers’ credit
reports, debts that have been paid in full and/or closed with a $0 balance are
instead listed on Class Members’ credit reports as a current debt that is due.
44. These notations clearly indicate to potential creditors, employers, or other third
parties that a Class Member still owes a debt. These notations therefore
adversely affect a Class Member’s ability to obtain credit or employment.
45. Defendant knew that the existence of such inaccurate information in the Class
Members’ credit reports would damage the Class Members’ credit ratings and
their ability to obtain new credit, a lease, a mortgage or employment, all of
which may be essential to a consumer’s regular day-to-day life.
46. Defendant has chosen not to accurately report the fact that the Class Members’
debts have been paid in full and/or closed with a $0 balance.
47. Defendant has chosen not to accurately report the fact that the Class Members’
debts have been paid in full and/or closed with a $0 balance.
48. Plaintiff defines the Class as:
all persons with addresses within California; (ii) who have
account(s) with Defendant; (iii) where said account(s) was
paid; (v) where said account(s) was closed; (vi) where said
account(s) had a $0 balance; (vii) where Defendant
reported a monthly payment obligation; (viii) within two
years prior to the filing of the Complaint in this action.
49. Defendant and its employees or agents are excluded from the Class.
50. Plaintiff does not know the exact number of persons in the Class, but believes
them to be in the several hundreds, if not thousands, making joinder of all these
actions impracticable.
51. The identity of the individual members is ascertainable through Defendant’s
and/or Defendant’s agents’ records or by public notice.
52. There is a well-defined community of interest in the questions of law and fact
involved affecting the members of The Class. The questions of law and fact
common to The Class predominate over questions affecting only individual
class members, and include, but are not limited to, the following:
a. Whether Defendant has a standard procedure of continuing to report a
monthly payment obligation after an account is paid and/or closed with a
$0 balance;
b. Whether such practices violate the CCCRAA;
c. Whether members of the Class are entitled to the remedies under the
CCCRAA;
d. Whether members of the Class are entitled to declaratory relief;
e. Whether Defendant should be enjoined from reporting such inaccurate
information; and
f. Whether members of the Class are entitled to injunctive relief.
53. Plaintiff will fairly and adequately protect the interest of the Class.
54. Plaintiff has retained counsel experienced in consumer class action litigation
and in handling claims involving credit reporting practices.
55. Plaintiff’s claims are typical of the claims of The Class, which all arise from the
same operative facts involving reporting a monthly payment obligation after an
account is paid and/or closed with a $0 balance.
56. A class action is a superior method for the fair and efficient adjudication of this
controversy. Class-wide damages are essential to induce Defendant to comply
with federal law. The interest of Class members in individually controlling the
prosecution of separate claims against Defendant is small because the maximum
statutory damages in an individual action for CCCRAA violations are minimal.
57. Management of these claims is likely to present significantly fewer difficulties
than those presented in many class claims, e.g., securities fraud.
58. Plaintiff and the Class seek injunctive relief against Defendant to refrain from
reporting such inaccurate information when Defendant knows or should know
the information is inaccurate.
59. Defendant has acted on grounds generally applicable to the Class thereby
making appropriate final declaratory relief with respect to the Class as a whole.
60. Members of the Class are likely to be unaware of their rights.
61. Plaintiff contemplates providing notice to the putative class members by direct
mail in the form of a postcard and/or via publication.
CAUSE OF ACTION
VIOLATION OF THE CALIFORNIA CREDIT REPORTING AGENCIES ACT
(CCCRAA)
Cal. Civ. Code § 1785.1, et seq.
62. Plaintiff incorporates by reference all of the above paragraphs of this Complaint
as though fully stated herein.
63. The foregoing acts and omissions constitute numerous and multiple violations
of the California Consumer Credit Reporting Agencies Act.
64. In the regular course of its business operations, Defendant routinely furnishes
information to credit reporting agencies pertaining to transactions between
Defendant and Defendant’s consumers, so as to provide information to a
consumer’s credit worthiness, credit standing and credit capacity.
65. Because Defendant is a partnership, corporation, association, or other entity,
and is therefore a “person” as that term is defined by Cal. Civ. Code §
1785.3(j), Defendant is and always was obligated to not furnish information on
a specific transaction or experience to any consumer credit reporting agency if
the person knows or should have known that the information is incomplete or
inaccurate, as required by Cal. Civ. Code § 1785.25(a). Defendant knew or
should have known that Defendant was not able to report monthly payment
obligations on accounts that have been paid and/or closed and/or discharged.
Thus, Defendant violated Cal. Civ. Code § 1785.25(a).
PRAYER FOR RELIEF
WHEREFORE, Plaintiff and the Class Members pray for judgment as
follows:
• Certifying the Classes as requested herein;
• Appointing Plaintiff’s Counsel as Class Counsel;
• An award of actual damages, in an amount to be determined at trial
pursuant to Cal. Civ. Code §1785.31(a)(2)(A), against Defendant;
• An Award of attorneys’ fees and costs pursuant to Cal. Civ. Code §
1785.31(a)(1); and, Cal. Civ. Code § 1785.31(d) against each named
Defendant individually;
• An award of punitive damages of $100-$5,000 per willful violation of
Cal. Civ. Code § 1785.25(a), pursuant to Cal. Civ. Code §
1785.31(a)(2)(B);
• For equitable and injunctive relief pursuant to Cal. Civ. Code §
1785.31(b); and
• Any and all other relief that this Court deems just and proper.
TRIAL BY JURY
66. Pursuant to the Seventh Amendment to the Constitution of the United States of
America, Plaintiff is entitled to, and demands, a trial by jury.
Dated: November 2, 2018
Hyde & Swigart, APC
By: /s/ Yana A. Hart
Yana A. Hart, Esq.
Attorney For Plaintiff
| consumer fraud |
bE5J_ogBF5pVm5zYvNnZ | IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
Joel Castillo,
§
§
§
Civil Action No. 5:18-cv-495-OLG-RBF
Plaintiff,
§
v.
§
§
JURY TRIAL DEMANDED
RWLS, LLC D/B/A RENEGADE
§
SERVICES, MATTHEW GRAY AND
§
RANDY CASSADY,
§
§
Defendants.
§
PLAINTIFF’S AMENDED COMPLAINT
Joel Castillo brings this action to recover compensation, liquidated damages, and
attorneys’ fees and costs, pursuant to the provisions of Section 216(b) of the Fair Labor
Standards Act of 1938, as amended 29 U.S.C. § 216(b).
I.
OVERVIEW
1.
This is an action to recover overtime wages brought pursuant to the Fair Labor
Standards Act (“FLSA”), 29 U.S.C. § 201 et. seq.
2.
Plaintiff worked for Defendants from approximately August 2013 until
approximately April 2016 and was paid a fixed salary plus a non-discretionary job bonus/day
rate for all hours worked in the field, but did not receive overtime for all hours worked over forty
(40) in each workweek.
3.
The FLSA requires that all forms of compensation—including the non-
discretionary job bonuses/day rates paid to Plaintiff—be included in the calculation of the
regular rate of pay for overtime purposes.
4.
Plaintiff routinely worked in excess of 40 hours per workweek.
5.
Plaintiff was not paid overtime for all hours worked in excess of forty (40) hours
per workweek.
6.
The decision by Defendants not to pay overtime compensation to Plaintiff was
neither reasonable nor in good faith.
7.
Defendants knowingly and deliberately failed to compensate Plaintiff overtime
for all hours worked in excess of forty (40) hours per workweek.
8.
Plaintiff did not perform work that meets the definition of exempt work under the
FLSA. Specifically, Plaintiff performed technical and manual labor job duties in the oilfield.
9.
Plaintiff therefore seeks to recover all unpaid overtime and other damages owed
under the FLSA.
II.
THE PARTIES
10.
Plaintiff Joel Castillo is an individual who resides in Corsicana, Navarro County,
Texas. Plaintiff Castillo worked for Defendants within the meaning of the FLSA within this
judicial district within the relevant three-year period. Plaintiff Castillo did not properly receive
overtime compensation for all hours worked in excess of forty (40) hours per workweek. Castillo
has previously consented to being a party in this lawsuit.
11.
RWLS, LLC d/b/a Renegade Services (“RWLS”) is a Texas limited liability
company and has already been served with process.
12.
Matthew Gray (“Gray”) is an employer as defined by 29 U.S.C. § 203(d) and,
along with RWLS, employed or jointly employed Plaintiff. At all relevant times, Gray
maintained operational control (including both economic and decisional control) of significant
aspects of Defendants’ day-to-day functions. Gray has already been served with process.
13.
Randy Cassady (“Cassady”) is an employer as defined by 29 U.S.C. § 203(d) and,
along with RWLS, employed or jointly employed Plaintiff. At all relevant times, Cassady
maintained operational control (including both economic and decisional control) of significant
aspects of Defendants’ day-to-day functions. Cassady has already been served with process.
14.
Defendants are joint employers pursuant to 29 C.F.R. § 791.2. They have
common ownership, oversight and control over RWLS and Plaintiff. As a result, all Defendants
are responsible, both individually and jointly, for compliance with all of the applicable
provisions of the FLSA, including the overtime provisions, with respect to the entire
employment for the workweeks at issue in this case.
III.
JURISDICTION & VENUE
15.
This Court has subject matter jurisdiction over this case pursuant to 28 U.S.C. §
1331 as this is an action arising under 29 U.S.C. § 201 et. seq.
16.
This Court has personal jurisdiction over Defendants because the cause of action
arose within this District as a result of Defendants’ conduct within this District.
17.
Venue is proper in the Western District of Texas because this is a judicial district
where a substantial part of the events or omissions giving rise to the claim occurred.
18.
Specifically, Defendant Cassady resides in San Antonio, Bexar County, Texas,
which is in this District and Division.
19.
Venue is therefore proper in this Court pursuant to 28 U.S.C. § 1391(b).
IV.
FLSA COVERAGE
20.
At all times hereinafter mentioned, Defendants have been employers or joint
employers within the meaning of Section 3(d) of the FLSA, 29 U.S.C. § 203(d).
21.
At all times hereinafter mentioned, Defendants have been enterprises within the
meaning of Section 3(r) of the FLSA, 29 U.S.C. § 203(r).
22.
At all times hereinafter mentioned, Defendants have been enterprises engaged in
commerce or in the production of goods for commerce within the meaning of Section 3(s)(1) of
the FLSA, 29 U.S.C. § 203(s)(1), in that said enterprises have had employees engaged in
commerce or in the production of goods for commerce, or employees handling, selling, or
otherwise working on goods or materials that have been moved in or produced for commerce by
any person, or in any closely related process or occupation directly essential to the production
thereof, and in that those enterprises have had, and have, an annual gross volume of sales made
or business done of not less than $500,000.00 (exclusive of excise taxes at the retail level which
are separately stated).
23.
During Plaintiff’s employment by Defendants, he provided services for
Defendants that involved interstate commerce for purposes of the FLSA.
24.
In performing the operations hereinabove described, Plaintiff was engaged in
commerce or in the production of goods for commerce within the meaning of §§ 203(b), 203(i),
203(j), 206(a), and 207(a) of the FLSA. 29 U.S.C. §§ 203(b), 203(i), 203(j), 206(a), 207(a).
25.
Specifically, Plaintiff was a non-exempt employee who worked for Defendants
and was engaged in oilfield services that were directly essential to the production of goods for
Defendants and related oil and gas exploration and production companies. 29 U.S.C. § 203(j).
26.
At all times hereinafter mentioned, Plaintiff was an individual employee who was
engaged in commerce or in the production of goods for commerce as required by 29 U.S.C. §§
206-207.
V.
FACTS
27.
RWLS is an oilfield wireline service company servicing the oil and gas industry
in the State of Texas and throughout the United States.
28.
To provide their services, Defendants employed numerous workers, including
Plaintiff.
29.
Defendants, individually and collectively, had the ability to hire and fire Plaintiff,
supervised and controlled Plaintiff’s work schedule and/or the conditions of his employment, set
the rate and method of payment for Plaintiff, and maintained Plaintiff’s employment records.
30.
Plaintiff Castillo worked for Defendants as an Radiation Specialist Tracer, Gun
Builder, Grease Unit Operator, and Rigger from approximately August 2013 until approximately
April 2016.
31.
Plaintiff’s primary job duties included performing daily checklists, assisting with
the preparation of equipment, and performing other oilfield-related functions on various job sites
in the State of Texas and throughout the United States.
32.
Plaintiff’s daily and weekly activities were routine and largely governed by
standardized plans, procedures, and checklists created by Defendants and/or their clients.
Virtually every job function was pre-determined by Defendants, including the tools to use at a
job site, the schedule of work, and related work duties. Plaintiff was prohibited from varying his
job duties outside of the predetermined parameters. Moreover, Plaintiff’s job functions were
primarily technical and manual labor in nature, requiring little to no official training, much less a
college education or other advanced degree.
33.
Plaintiff is a blue-collar worker. He relies on his hands, physical skills, and energy
to perform manual labor in the oilfield.
34.
Plaintiff’s duties did not include managerial responsibilities or the exercise of
independent discretion or judgment.
35.
Plaintiff did not have the authority to hire or fire other employees, and he was not
responsible for making hiring or firing recommendations.
36.
Plaintiff did not supervise two or more employees.
37.
Plaintiff worked long hours. Specifically, Plaintiff regularly worked 12 hours per
day and approximately 84 hours per week on average.
38.
Plaintiff received job bonuses/day rates in addition to his regular base pay (fixed
salaries).
39.
The non-discretionary bonuses/day rates paid to Plaintiff was meant to encourage
and motivate Plaintiff to work harder and to reward him for his hard work.
40.
The non-discretionary bonuses/day rates were based upon a pre-determined
formula established by Defendants. Specific criteria had to be met in order to receive the job
bonuses/day rates.
41.
When Plaintiff met the criteria, he was entitled to receive the job bonuses/day
42.
The FLSA mandates that overtime be paid at one and one-half times an
employee’s regular rate of pay. Under the FLSA, the regular rate of pay is the economic reality
of the arrangement between the employer and the employee. 29 C.F.R. § 778.108.
43.
Pursuant to 29 C.F.R. § 778.209, these non-discretionary job bonuses/day rates
(and any other non-discretionary compensation) should have been included in Plaintiff’s regular
rates of pay before any and all overtime multipliers were applied.
44.
Defendants denied Plaintiff overtime pay as a result of a widely applicable, illegal
pay practice. Plaintiff regularly worked in excess of forty (40) hours per week but never received
overtime compensation.
45.
Defendants applied this pay practice despite clear and controlling law that states
that the manual labor or technical duties which were performed by Plaintiff consisted of non-
exempt work.
46.
Accordingly, Defendants’ pay policies and practices blatantly violate the FLSA.
47.
Defendant RWLS has previously and on more than one occasion been sued for
similar overtime violations; nonetheless, the unlawful practice persisted. For example, in
Tvrdovsky v. Renegade Wireline Services (RWLS), No. 2:13-cv-01463-JFC (W.D. Pa., Oct. 8,
2013), Plaintiff filed suit on behalf of a class of Defendant’s non-exempt workers who had also
been misclassified as overtime exempt and paid on the same salary/bonus scheme as Plaintiff.
Therefore, the majority of Plaintiff’s employment was after Defendant was put on notice that the
very same practices challenged in this matter were unlawful, yet the practice persisted.
Additionally, in approximately October 2014, the Tvrdovsky matter was settled. See Tvrdovsky,
No. 2:13-cv-01463-JFC, ECF #24. Nonetheless, Defendant’s unlawful practices persisted,
further depriving Plaintiff of lawful wages. See also, Cesovski v. Renegade Wireline Services
(RWLS), Case No. 2:16-cv-00691-JFC, (W.D. Pa. May 26, 2016), ECF #1 at ¶ 20, corroborating
that, as of at least February 2015 and during part of the period covered by this lawsuit, and
despite the knowledge gained from Tvrdovsky, Defendant continued to pay non-exempt workers
unlawfully and in violation of wage and hour statutes.
48.
Defendants knew or should have known their pay practices were in violation of
the FLSA.
VI.
CAUSE OF ACTION: FAILURE TO PAY WAGES IN ACCORDANCE WITH
THE FAIR LABOR STANDARDS ACT.
49.
Plaintiff incorporates by reference the above paragraphs as if fully stated herein.
50.
Defendants violated provisions of Sections 6, 7, and 15 of the FLSA, 29 U.S.C.
§§ 206, 207, and 215(a)(2) by employing individuals in an enterprise engaged in commerce or in
the production of goods for commerce within the meaning of the FLSA for workweeks longer
than forty (40) hours without compensating such employees for their employment in excess of
forty (40) hours per week at rates at least one and one-half times the regular rates for which they
were employed.
51.
Defendants knowingly, willfully, and with reckless disregard carried out their
illegal pattern of failing to pay Plaintiff overtime compensation. 29 U.S.C. § 255(a).
52.
Defendants were aware of the FLSA’s minimum wage and overtime requirements
and chose not to pay Plaintiff overtime. Defendants have been previously sued for violations of
wage and hour statutes. Defendants knew that Plaintiff performed non-exempt manual labor or
technical work, knew that this work did not qualify Plaintiff for an exemption, and nonetheless
misclassified Plaintiff as exempt from overtime.
53.
Defendants are sophisticated parties and employers, and therefore knew or should
have known their policies were in violation of the FLSA. Plaintiff, on the other hand, is blue-
collar worker who trusted and relied on Defendants to pay him according to the law.
54.
Plaintiff is entitled to overtime wages for all hours worked pursuant to the FLSA
in an amount equal to one-and-a-half times his regular rate of pay, plus liquidated damages,
attorneys’ fees and costs.
VII.
RELIEF SOUGHT
55.
Plaintiff respectfully prays for judgment against Defendants as follows:
a.
For an Order awarding Plaintiff back wages that have been improperly
withheld;
b.
For an Order pursuant to Section 16(b) of the FLSA finding Defendants
liable for unpaid back wages due to Plaintiff and for liquidated damages equal in amount
to the unpaid compensation found due to Plaintiff;
c.
For an Order awarding Plaintiff the costs of this action;
d.
For an Order awarding Plaintiff attorneys’ fees;
e.
For an Order awarding Plaintiff pre-judgment and post-judgment interest
at the highest rates allowed by law; and
f.
For an Order granting such other and further relief as may be necessary
and appropriate.
Respectfully submitted,
/s/ J. Derek Braziel
J. DEREK BRAZIEL
Texas Bar No. 00793380
jdbraziel@l-b-law.com
TRAVIS GASPER
Texas Bar No. 24096881
gasper@l-b-law.com
LEE & BRAZIEL, L.L.P.
1801 N. Lamar Street, Suite 325
Dallas, Texas 75202
(214) 749-1400 phone
(214) 749-1010 fax
jdbraziel@l-b-law.com
JACK SIEGEL
Texas Bar No. 24070621
SIEGEL LAW GROUP PLLC
2820 McKinnon, Suite 5009
Dallas, Texas 75201
P: (214) 790-4454
www.4overtimelawyer.com
CLIF ALEXANDER
Texas Bar No. 24064805
ANDERSON2X, PLLC
819 N. Upper Broadway
Corpus Christi, Texas 78401
(361) 452-1279 phone
(361) 452-1284 fax
www.a2xlaw.com
ATTORNEYS FOR PLAINTIFF
CERTIFICATE OF SERVICE
I hereby certify that the foregoing was electronically filed and served on all parties of
record via the Court’s CM/ECF filing system.
/s/ J. Derek Braziel
J. DEREK BRAZIEL
| employment & labor |
FQ1zFocBD5gMZwczP2Tt | IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TENNESSEE
EASTERN DIVISION
)
TIFFNEY PENLEY and ASHLEY LEWIS,
)
Individually, and on behalf of others
)
similarly situated.
)
)
Plaintiff,
)
)
)
v.
)
NO.
)
)
JURY TRIAL DEMANDED
NPC INTERNATIONAL, INC.
)
)
Defendant.
)
)
COMPLAINT
Plaintiffs Tiffney Penley and Ashley Lewis, individually, and on behalf of all others
similarly situated, for their Complaint against NPC International, Inc. (“NPC”), allege 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 Plaintiffs 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 Plaintiffs’ 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 Plaintiffs
are residents of this District, and NPC conducts business and continues to engage in the
wrongful conduct alleged herein in this District.
III.
CLASS DESCRIPTION
4.
Plaintiffs bring this action on behalf of the following similarly situated persons:
All current and former shift managers 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 pursuant to FLSA, 29 U.S.C. §
216(b) (“the class”).
IV.
PARTIES
5.
NPC is a Kansas Corporation with its principal executive office located in Overland Park,
Kansas.
6.
Plaintiff Tiffney Penley (and others similarly situated) has been employed by NPC as an
hourly-paid shift manager in NPC’s Henderson, Tennessee restaurant during the relevant
period herein. Plaintiff Penley’s Consent to Become a Party-Plaintiff pursuant to 29
U.S.C. § 216(b) is attached hereto as Exhibit A.
7.
Plaintiff Ashley Lewis (and others similarly situated) currently has been employed as an
hourly-paid shift manager in NPC’s Henderson, Tennessee restaurant during the relevant
period herein. Plaintiff Lewis’ Consent to Become a Party-Plaintiff pursuant to 29
U.S.C. § 216(b) is attached hereto as Exhibit B.
IV.
ALLEGATIONS
8.
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.
9.
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.
10.
NPC is and/or has been the “employer” of Plaintiffs and those similarly situated within
the meaning of 29 U.S.C. § 203(d).
11.
NPC employed Plaintiffs (and all of those similarly situated) and was responsible for
setting pay and overtime rates, including overtime pay during the period of time in
question.
12.
The decisions regarding Plaintiffs’ and other members of the class’ compensation and
other terms of employment were made through a centralized management of NPC’s
Headquarters location in Overland Park, Kansas.
13
NPC has had a uniform policy and practice of incentivizing General Managers of its
individual restaurants (as well as Area Managers) to encourage, permit, and/or require
Plaintiffs 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.
14
NPC has had a uniform policy and practice of requiring its General Managers, as well as
the Plaintiff and those similarly situated, to meet its tickets per labor hour standard as a
performance condition.
15.
At all times material to this action, Plaintiffs 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.
16.
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.
17.
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.
18.
At all times material to this action, NPC has had a uniform job training program that shift
managers must undergo and successfully complete as a condition of being employed as a
shift manager.
19.
At all times material to this action, NPC has had a mandatory monthly meeting program
that required the attendance of all shift managers.
20.
Each of NPC’s Pizza Hut restaurants employs hourly-paid shift managers whose primary
duties are to coordinate the operations of the restaurant during their respective shifts
under the supervision of the respective General Manager.
21.
Plaintiff and all other similarly situated persons are current or former employees of NPC.
22.
NPC’s shift managers open and close the restaurants each day as well as perform
prescribed duties during their shifts.
23.
NPC employs a uniform electronic time keeping system for tracking and reporting
employee hours worked at each of its restaurants.
24.
Shift managers are paid only for the hours recorded on the uniform electronic time
keeping system.
25.
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-in to NPC’s electronic
timekeeping system.
26.
As a result of shift managers 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 Plaintiffs and other
members of the class.
27.
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, Plaintiffs 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.
28.
In addition, and as a consequence of NPC’s timekeeping records not reflecting the actual
hours worked, when their “off the clock” work time is added to their recorded time,
Plaintiffs and other members of the class — who, as a result, will have been paid less
than the applicable minimum wage rate required by Fair Labor Standards Act — are
entitled to be compensated for all such work time.
29.
The net effect of NPC’s uniform policy and practice of encouraging, condoning,
suffering, permitting, and/or requiring shift managers to work “off the clock” before,
after, and during their shifts is that NPC willfully failed to pay Plaintiffs 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.
30.
In addition to “off the clock” work time being unpaid as described above, shift managers
were required to undergo and successfully complete NPC’s shift managers’ job training
under NPC’s uniform policies and practices — for which such training time was not
recorded on NPC’s electronic timekeeping system and thus was unpaid.
31.
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
Plaintiffs and other members of the class.
32.
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, Plaintiffs and other
members of the class who have worked in excess of forty hours per week are entitled to
overtime compensation for such work.
33.
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, Plaintiffs
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 minimum wages for
such training time.
34.
The net effect of NPC’s policy of requiring Plaintiff and other members of the class to
undergo and successfully complete shift-manager job training without being paid is that
NPC willfully failed to pay Plaintiffs 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.
35.
In addition to their unpaid “off the clock” work time (as well as the unpaid clocked-out
training time) not being recorded on NPC’s electronic timekeeping system, Plaintiff and
other members of the class were required to attend mandatory monthly meetings under
NPC’s uniform policies and practices — for which attendance time for such meetings
were not recorded on NPC’s electronic timekeeping system.
36.
As a result of such attendance time not being recorded 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.
37.
Also, as a consequence of NPC’s timekeeping records not reflecting time for such
mandatory meetings, when the attendance 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 work.
38.
In addition, and as a consequence of NPC’s timekeeping not reflecting time for such
meetings, when the attendance time is added to the recorded time, Plaintiffs and other
members of the class who, as a result, have received less than minimum for all such work
time are entitled to receive minimum wage for all such meetings time.
39.
The net effect of NPC’s uniform policy and practice of requiring unpaid attendance at
mandatory monthly meetings is that NPC has 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 employees.
40.
Although at this stage Plaintiffs are unable to state the exact amount of damages owed to
the class, Plaintiffs believe 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
41
Plaintiffs brings this action on behalf of themselves and the class as a collective action
under the Fair Labor Standards Act, 29 U.S.C. §§ 206, 207, and 216(b).
42.
The claims under the Fair Labor Standards Act may be pursued by those who opt-in to
this case under 29 U.S.C. § 216(b).
43.
The other members of the class are so numerous that joinder of all other members of the
class is impracticable. While the exact number of the other members of the class is
unknown to Plaintiffs at this time and can only be ascertained through discovery,
Plaintiffs believes there are at least thousands of individuals in the class.
44.
The claims of Plaintiffs are typical of the claims of the class. Plaintiffs 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.
45.
Common questions of law and fact exist as to the class which predominate over any
questions only affecting them individually and include, but are not limited to, the
following:
•
Whether Plaintiffs and other members of the class were expected and/or required
to work hours without compensation;
•
Whether NPC suffered and permitted Plaintiffs and other members of the class to
work hours without compensation;
•
Whether NPC failed to pay Plaintiffs and other members of the class all
applicable straight time wages for all hours worked;
•
Whether NPC failed to pay Plaintiffs and the other members of the class the
applicable minimum wage for all hours worked;
•
Whether NPC failed to pay Plaintiffs 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 Plaintiffs’ claims and the claims of the other
members of the class;
•
Whether Plaintiffs and other members of the class are entitled to damages,
including, but not limited to, liquidated damages, as well as the measure of such
damages; and,
•
Whether NPC is liable for attorneys’ interest, fees, and costs.
46.
Plaintiffs will fairly and adequately protect the interests of the class as their interests are
aligned with those of the other members of the class. Plaintiffs have no interests adverse
to the class and have retained competent counsel who are experienced in collective action
litigation.
47.
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 litigating individual actions, making it
virtually impossible for other members of the class to individually seek address for the
wrongs done to them.
48.
Plaintiffs 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
49.
Plaintiffs, on behalf of themselves and the class, repeat and reallege Paragraphs 1 through
48 above as if they were fully set forth herein.
50.
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).
51.
At all relevant times, NPC employed (and/or continues to employ) Plaintiffs and each of
the other members of the class within the meaning of the FLSA.
52.
At all times relevant, NPC had a uniform policy and practice of willfully refusing to pay
Plaintiffs and other members of the class for all hours worked.
53.
As a result of NPC’s willful failure to pay the applicable federal minimum wages for all
hours worked to its employees (including Plaintiffs and other members of the class),
NPC has violated and continues to violate the FLSA, 29 U.S.C. §§ 201, et seq.
54.
NPC’s conduct constitutes a willful violation of the FLSA within the meaning of 29
U.S.C. § 255(a).
55.
Due to NPC’s FLSA violations, Plaintiffs, on behalf of themselves and the other
members of the class, are entitled to recover compensation from NPC 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
56.
Plaintiffs, on behalf of themselves and other members of the class, repeat and reallege
Paragraphs 1 through 55 above as if they were set forth herein.
57.
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).
58.
At all times relevant herein, NPC employed (and/or continues to employ) Plaintiffs and
each of the other members of the class within the meaning of the FLSA.
59.
At all times relevant herein, NPC had a uniform policy and practice of willfully refusing
to pay Plaintiffs and other members of the class appropriate overtime compensation for
all hours worked in excess of forty hours per week by Plaintiffs and each of the other
members of the class.
60.
As a result of NPC’s willful failure to compensate Plaintiffs and 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).
61.
Due to NPC’s FLSA violations, Plaintiffs and the other members of the class are entitled
to recover compensation from NPC 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 FLSA, 29 U.S.C. § 216(b).
COUNT III
FAIR LABOR STANDARDS ACT VIOLATIONS-MINIMUM WAGES
62.
Plaintiffs, on behalf of themselves and other members of the class, repeat and reallege
Paragraphs 1 through 61 above as if they were fully set forth herein.
63.
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).
64.
Pursuant to NPC’s uniform compensation policies, NPC has failed to pay Plaintiffs and
other members of the class the applicable minimum wage as required by the FLSA.
65.
Because of NPC’s failure to pay Plaintiffs and other members of the class for all hours
worked, Plaintiffs 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.
66.
NPC’s conduct constitutes a willful violation of the FLSA within the meaning of 29
U.S.C. § 255(a).
67.
Plaintiffs and the other members of the class are therefore entitled to compensation for
unpaid wages and 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.
PRAYER FOR RELIEF
Whereas, Plaintiffs, individually and/or on behalf of themselves and all other similarly
situated 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 class
members of the pendency of this action and permitting other class
members 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 Plaintiffs and
other members of the class;
C.
On Count II, an award of compensation for overtime to Plaintiffs and the
other members of the class;
D.
On Count III, an award of compensation for unpaid minimum wages to
Plaintiffs and other members 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 Plaintiffs 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 Plaintiffs 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 Plaintiffs 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 (#24657)
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 |
zNoEE4kBFz4JmiQVM1Vx | UNITED STATES DISTRICT COURT
FILED
EASTERN DISTRICT OF NEW YORK
X
TYNO THOMAS individually
and on behalf of all others
Docket No.
similarly situated
Plaintiffs
-against-
Defendants
JURY TRIAL
MONARCH RECOVERY
MANAGEMENT, INC
I. CLASS ACTION COMPLAINT
Plaintiff, Tyno Thomas, individually and on behalf of all others similarly situated,
brings this action under the Fair Debt Collection Practices Act, 15 U.S.C. Section 1692, et
seq. ("FDCPA"), for a declaration that scripted/pre-recorded telephone messages that the
Defendant uses to collect consumer debts violates the FDCPA, and to recover damages by
reason of Defendant's violations of the Fair Debt Collections Practices Act, (15 USC 1692
et seq). (hereinafter FDCPA), and alleges:
II. JURISDICTION AND VENUE
1. Jurisdiction of this Court arises under 15 U.S.C Section 1692k (d), 28 U.S.C
Section 1337. Venue in this District is proper in that the Defendants transact business here
and the conduct complained of occurred here.
III. PARTIES
2. Plaintiff, Tyno Thomas, is a citizen of the State of New York, residing in the
3. Defendant is a foreign corporation authorized to do business in New York State.
4. Defendant is a "debt collector" as defined by the FDCPA, 15 U.S.C. Section
5. The alleged debt Defendant sought to collect from Plaintiff is a consumer debt,
IV. FACTUAL ALLEGATIONS
6. At all times herein relevant, Plaintiff was and is a "consumer" as defined by 15
7. At all times herein relevant, Defendant was and is a "debt collector" as that term
8. Within one year preceding the date of the filing of the complaint in this action,
9. The messages that the Defendant left for the Plaintiff failed to inform the
Plaintiff that the Defendant was a debt collector. The Defendant failed to give the notices
required by 15 USC 1692e(11). The Defendant secreted the fact that they were a debt
collector so as to trick the Plaintiff into returning the Defendant's call.
10. The messages that the Defendant left for the Plaintiff failed to meaningfully
identify themselves as required by 15 USC 1692d(6). The Defendant secreted their identity
so as to trick the Plaintiff into returning the Defendant's call.
11. The Defendant left the following pre-recorded message on the Plaintiff's voice
This message is for Tyno Thomas, return the call to Andrew Hayes, (215) 613-
1974. Again, Tyno Thomas , return the call to Andrew Hayes, (215)-613-1974.
12. At two different times on October 17, 2012, the Defendant left the identical
Good morning, this is a message call for Tyno Thomas. Return the call to Gary
Adams, (215) 613-1219
13. On October 18, 2012, the Defendant left the following message on the
Good morning, this is a message call for Tyno Thomas. Return the call to Gary
Adams, (215) 613-1219
14. The message violated 15 USC 1692e, 15 USC 1692e(10), 15 USC 1692e(11),
15 USC 1692d, and 15 USC 1692d(6) in that the least sophisticated consumer could
believe that the message is from someone other than a debt collector.
15. The messages left by the Defendant on Plaintiff's voice mail were deceptive in
that the messages attempted to deceptively induce the Plaintiff into returning the call.
16. The Plaintiff listened to the messages left by the Defendant.
17. Two of the Defendant's messages left at different times are identical.
18. The Defendant and/or its agents placed telephone phone calls and left messages
on the voice mail of other New York consumers within one year preceding the filing of
this complaint, said messages were materially identical to the scripted/pre-recorded
messages left for the Plaintiff as identified herein.
V. VIOLATIONS OF THE FDCPA
19. The actions of the Defendant as described above violate 15 USC 1692 e; 15
VI. CLASS ALLEGATIONS
20.
Plaintiff brings the following class pursuant to Federal Rules of Civil
21.
The claims asserted in this case satisfy the requirements of Rule 23(a)
(A)
The members of the class are SO numerous that joinder of all
members is impractical.
(B)
There are questions of law and fact common to the Class and these
questions predominate over any questions affecting only individual
Class members.
(C)
The only individual issue is the identification of the consumers who
received the calls (i.e., the Class members), a matter capable of
ministerial determination from the Defendant's records.
(D)
The Plaintiff's claims are typical of those of the Class members.
All are based on the same facts and legal theories.
(E)
Plaintiff will fairly and adequately represent the Class members'
interests. Plaintiff has retained counsel experienced in bringing classactions and collection-abuse claims. Plaintiffs' interests are
consistent with those of the Class members.
22.
Class action treatment is appropriate under Rule 23(b)(3) because questions
23.
Congress specifically envisions class actions as a principal means of
24.
The members of the Class are generally unsophisticated individuals, whose
25.
Prosecution of separate actions by individual Class members would create
26.
If the facts are discovered to be appropriate, Plaintiffs will seek to certify
WHEREFORE, Plaintiffs asks that this Court enter judgment in his favor and on
(A)
Certify the proposed the Class under Rule 23 of the Federal Rules of Civil
Procedure and appoint Plaintiff and her counsel to represent the Class;
(B)
Statutory damages as provided by $1692k of the FDCPA;
(C)
Attorney's fees, litigation expenses and costs incurred in bringing this
action;
(D)
Any other relief this Court deems appropriate and just under the
circumstances.
DEMAND FOR JURY TRIAL
Please take notice that Plaintiffs demand trial by jury in this action.
West Islip, NY
July 5, 2013
Respectfully submitted,
m
Josephr Mauro (JM: 8295)
306 McCall Ave.
West Islip, NY 11795
631-669-0921 | consumer fraud |
maIjCYcBD5gMZwczdTmf | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Case No.
KAREEM BRITT and
MONIQUE LAURENCE,
on behalf of themselves and
all others similarly situated,
Plaintiffs,
vs.
IEC CORPORATION d/b/a
INTERNATIONAL EDUCATION
CORPORATION and
IEC US HOLDINGS, INC.
d/b/a FLORIDA CAREER COLLEGE,
Defendants.
/
CLASS-ACTION COMPLAINT
Plaintiffs Kareem Britt and Monique Laurence, on behalf of themselves and all others
similarly situated, bring this action against Defendant IEC Corporation d/b/a International
Education Corporation (“IEC”) and Defendant IEC US Holdings, Inc. d/b/a Florida Career College
(“FCC”).
PRELIMINARY STATEMENT
1.
FCC is a private, for-profit vocational school that operates multiple campuses in
Florida and Texas that purport to offer career training to students. In reality, FCC is a sham.
2.
As detailed herein, through the commission of numerous acts and omissions in
connection with the making of federal student loans for enrollment at FCC or for the provision of
educational services by FCC, Defendants have substantially damaged their own students and
enriched themselves in the process.
3.
At the direction of and in conjunction with its parent IEC, FCC employs high
pressure sales tactics to enroll as many students as possible in order to profit from their federal
student loans and grants without providing the experience or career opportunities it promises. This
scheme operates to the substantial detriment of students looking for career training as a way to
improve their financial prospects.
4.
Nearly every aspect of the business is structured to maximize profit from federal
student loans and grants while disadvantaging students. FCC invests only limited resources into
the educational programs; makes promises to prospective students that it does not intend to fulfill;
and targets Black people.
5.
For years, this strategy has paid off. Defendants’ unfair and deceptive practices
allowed them to maximize enrollment and profit off the backs of students while the students were
left worse off than if they had never attended.
6.
FCC offers diplomas, certificates, and associate degrees in various fields.
7.
But students who graduate from FCC are unable to find employment in their field
of study, or, if they do find employment, do not earn enough to pay their loans after covering their
basic needs.
8.
Defendants design their predatory practices to reach students in vulnerable
economic situations, preying on students seeking to navigate economic uncertainty, and leaving
them saddled with debt they cannot pay and no meaningful career prospects.
9.
According to the most recent 2015 Gainful Employment data from the Department
of Education, almost all FCC programs evaluated failed the metric measuring whether graduates’
earnings are sufficient to pay their loans after covering their basic needs.
10.
According to College Scorecard data measured in 2016 and 2017, the median
earnings for students were low. For example, for students who attended the FCC Lauderdale Lakes
and Orlando campuses in 2014-2015 and 2015-2016, their median earnings ranged only between
$12,800 and $24,500.
11.
IEC and FCC train recruiters in uniform unfair, deceptive, and predatory policies
and practices to exert pressure on prospective students to enroll during the admissions enrollment
process.
12.
Through these recruitment policies and practices, including the pressure put on
employees to enroll students, Defendants create a culture that demands, and even encourages,
employees to resort to dishonesty in order to enroll prospective students.
13.
FCC overvalues its education and uses misrepresentations and omissions to induce
prospective students to enroll.
14.
FCC promises prospective students that it will provide them training for a new
career, job placement assistance, adequate equipment, and hands-on experience, but FCC fails to
deliver on these promises.
15.
FCC fails to tell prospective students about its placement rates and the low median
earnings for those who complete FCC programs.
16.
FCC advertises itself as providing students a gateway to a new career and a better
future. Instead, FCC is a gateway to years of debt.
17.
FCC’s tuition is significantly more expensive than nearby public and community
colleges that offer programs in the same or similar fields.
18.
FCC forces students to take out large amounts of federal student loans to pay for
FCC’s inflated tuition.
19.
In 2017-2018, 87 percent of FCC’s revenue, $75,295,192, came from federal funds
authorized by Title IV of the Higher Education Act.
20.
While Defendants continue to profit off students, students are crippled by debt they
cannot pay back.
21.
As measured by College Scorecard in 2016 and 2017, 77 percent of students who
had taken out federal student loans to pay for FCC, and who left the school in 2013 and 2014, were
unable to pay even one dollar of their loans within three years of leaving.
22.
FCC targets prospective students by obtaining contact information from job search
websites like Indeed, Monster, and Career Builder.
23.
Defendants’ misconduct is even more egregious because it targets Black people
with its predatory product.
24.
FCC targets Black people by directing its advertising to them on certain media and
in certain locations.
25.
The success of FCC’s racial-targeting is clear from its enrollment statistics.
26.
In Fall 2018, enrollment at every FCC campus except one was predominantly
27.
With the exception of FCC Lauderdale Lakes, all FCC campuses are located in
majority White and Latinx communities, not majority Black communities.
28.
Plaintiffs, on behalf of themselves and others similarly situated, seek to hold FCC
accountable for violations of the Equal Credit Opportunity Act, 15 U.S.C. § 1691 et seq., Title VI
of the Civil Rights Act of 1964, 42 U.S.C. § 2000d et seq., the Florida Deceptive and Unfair Trade
Practices Act, Fla. Stat. § 501.201 et seq., and also for negligence and breach of contract.
JURISDICTION AND VENUE
29.
This Court has jurisdiction over Plaintiffs’ federal claims under 28 U.S.C. § 1331
and 15 U.S.C. § 1691e(f). It has supplemental jurisdiction over Plaintiffs’ state law claims under
28 U.S.C. § 1367.
30.
Venue is proper under 28 U.S.C. § 1391(b)(2) because a substantial part of the
events and omissions giving rise to the claims occurred in this District.
PARTIES
31.
Plaintiff Kareem Britt is a resident of Miramar, Florida. He enrolled in the Heating,
Ventilation and Air Condition (“HVAC”) program at FCC’s Lauderdale Lakes campus in 2018.
He completed his program in 2019. Mr. Britt is Black.
32.
Plaintiff Monique Laurence is a resident of Bradenton, Florida. She enrolled in the
Medical Assistant program at FCC’s Orlando campus in 2017 and graduated with her diploma in
2018. Ms. Laurence is Latina and White.
33.
Defendant IEC Corporation d/b/a International Education Corporation (“IEC”) is
incorporated in Delaware and has it principal place of business in California. IEC is the parent
company of various for-profit colleges, including FCC, UEI College, United Education Institute
College, and U.S. Colleges.
34.
IEC US Holdings, Inc., is a wholly owned subsidiary of IEC, is incorporated in
Florida and has its principal place of business in California. IEC US Holdings, Inc. does business
as FCC. FCC is a for-profit college that operates in Florida and Texas, with campuses in Boynton
Beach, Hialeah, Houston, Jacksonville, Lauderdale Lakes, Margate, Miami, Orlando, Pembroke
Pines, Tampa, West Palm Beach. FCC’s main campus is located at 1321 S.W. 107th Avenue, Suite
201B, Miami, FL, 33174.
STATUTORY BACKGROUND
Equal Credit Opportunity Act
35.
Congress enacted the Equal Credit Opportunity Act (ECOA) in 1974. ECOA makes
it unlawful for a creditor to discriminate against an applicant during any aspect of a credit
transaction “on the basis of race.” 15 U.S.C. § 1691(a).
36.
ECOA defines “creditor” as “any person who regularly extends, renews, or
continues credit; any person who regularly arranges for the extension, renewal, or continuation of
credit; or any assignee of an original creditor who participates in the decision to extend, renew, or
continue credit.” 15 U.S.C. § 1691a(e).
37.
An applicant is defined as “any person who applies to a creditor directly for an
extension, renewal, or continuation of credit, or applies to a creditor indirectly by use of an existing
credit plan for an amount exceeding a previously established credit limit.” 15 U.S.C. § 1691a(b).
38.
ECOA provides redress to individuals who are denied credit on the basis of
membership in a protected category.
39.
ECOA also protects against “reverse redlining,” which occurs when a creditor
specifically targets and extends credit to a protected class for a predatory product.
40.
Predatory products include products that are financed by debt and disadvantage the
borrower and/or prevent the borrower from repaying the loan.
Title VI of the Civil Rights Act of 1964
41.
Congress enacted Title VI of the Civil Rights Act of 1964 (Title VI) in 1964.
Title VI makes it unlawful for recipients of federal financial assistance under any federal program
or activity to exclude, deny, or discriminate against a person “on the ground of race, color, or
national origin.” 42 U.S.C. § 2000d.
42.
The definition of “program or activity” under Title VI includes “a college,
university, or other postsecondary institution, or a public system of higher education” or “an entire
corporation, partnership, or other private organization, or an entire sole proprietorship—if
assistance is extended to such corporation, partnership, private organization, or sole proprietorship
as a whole; or which is principally engaged in the business of providing education, health care,
housing, social services, or parks and recreation.” 42 U.S.C. § 2000d-4a.
43.
Federal agencies, including the Department of Education, are “empowered to
extend Federal financial assistance to any program or activity, by way of grant, loan, or contract.”
42 U.S.C. § 2000d-1.
44.
Title VI provides redress to individuals who are excluded or discriminated against
because of their membership in a protected class by an entity that receives financial assistance
from the federal government; including when assistance is extended, rather than denied.
45.
Reverse redlining violates Title VI.
FACTUAL BACKGROUND
I.
IEC’s and FCC’s Corporate Structure and Business Model
46.
IEC holds itself out as a premier national provider of post-secondary career
education offering programs in high-demand areas such as healthcare, trades, business,
technology, transportation, and criminal justice.
47.
IEC’s subsidiaries are for-profit colleges including UEI College, United Education
Institute, U.S. Colleges, and FCC, which IEC purchased in 2014.
48.
IEC exercises direct control over its subsidiaries—including over FCC. Indeed, IEC
manages FCC and its other subsidiaries across all areas, including accounting, human resources,
marketing, policies and procedures, compliance, campus operations, public relations, and
governmental affairs.
49.
IEC’s and FCC’s controlling management is one and the same.
50.
IEC’s President and CEO is Fardad Fateri. FCC’s President is also Mr. Fateri.
51.
Mr. Fateri has a well-documented history of involvement with for-profit colleges
that have engaged in predatory practices. Mr. Fateri is an Elected Commissioner and member of
the Board of Directors of the Accrediting Council for Independent Colleges and Schools
(“ACICS”), which, had its recognition as an accreditor revoked in 2016 by the Department of
Education. ACICS has a poor reputation and ties to predatory schools, including FCC. Previously,
Mr. Fateri was the President of DeVry University and the Chief Academic Officer at Corinthian
Colleges, two for-profit colleges that have been subject to numerous lawsuits and investigations.
52.
As an agent of both IEC and FCC, Mr. Fateri directly manages FCC, and has
implemented predatory practices from other for-profit colleges in FCC, such as boiler-room-style
pressure tactics and misrepresentations to profit.
53.
FCC consists of eleven campuses; ten in Florida and one in Texas.
54.
FCC claims to “help students reach their goals” and to be a place where students
“can get career training and skills that will help [them] create a future [they] can be proud of . . . .
[f]rom finding the right career path to finding the right employer after [they] graduate, Florida
Career College is committed to being [their] partner and helping [them] reach [their] goals.”
55.
Indeed, FCC embeds its false promises in its misleading name: “Florida Career
College.”
56.
FCC offers diplomas, certificates, and associate degrees in various fields including:
Business Office Administration, Patient Care Technician, Pharmacy Technician, Health Services
Administration, Medical Assistant Technician, Medical Front Office and Billing, Dental Assistant,
Heating Ventilation and Air Condition, Information Technology, Computer Network Technician,
Nursing, and Cosmetology.
57.
FCC’s business model is simple: (1) it makes unsupported promises to provide
high-value career training; (2) it uses high-pressure sales tactics and unfair, misleading, and false
statements and omissions to induce individuals to enroll and borrow thousands of dollars in federal
student loans; (3) it fails to disclose that the vast majority of graduates cannot afford to pay back
their student loans; (4) it allocates funds in favor of profit and advertising to create future profit
instead of on instruction; and (5) it uses advertising and recruitment tactics to target Black people
whom it believes are particularly susceptible to its predatory product.
58.
FCC relies almost exclusively on revenue from federal student loans and grants to
finance its profitable business.
59.
In 2017-2018, 87 percent of FCC’s revenue, $75,295,192, came from federal funds
authorized by Title IV of the Higher Education Act (Title IV federal funds).1
60.
FCC structures its business to enroll as many students as possible in an effort to
maximize revenue from federal student loans and grants while simultaneously limiting
expenditures on educational services.
II.
FCC Sells a Predatory Product
61.
FCC purports to sell prospective students an experience that will lead to a career.
In reality, FCC sells a predatory product. Prospective students do not receive the experience or
1 In order to maintain eligibility under the 90/10 Revenue Percentage requirements, for-profit
colleges, such as FCC, may receive no more than 90 percent of their annual revenue from Title IV
programs. 20 U.S.C. § 1094(a)(24); 34 C.F.R § 668.14(b)(16). Title IV federal funds include both
federal student loans and federal Pell Grants.
career opportunities FCC promises, and are instead left with loans they are unable to pay.
62.
Although students take out thousands of dollars in federal student loans, which then
are paid directly to FCC, FCC uses those dollars to profit rather than to provide the experience or
job placement opportunities it promised to them.
63.
FCC’s meager per-student education expenditures underscore its predatory
business model.
64.
Per FCC’s 2020 Course Catalog, FCC’s programs cost between $18,450 and
$51,925, depending on the program. The majority of FCC’s programs are nine-month programs.
65.
In Fall 2018, according to Department of Education data from Integrated
Postsecondary Education Data System (IPEDS), FCC spent only $2,952 on instructional expenses
per student at FCC Hialeah for the year; $3,032 at FCC West Palm Beach; and $4,483 at FCC
Lauderdale Lakes. These numbers represent only about four to eighteen percent of the tuition for
each program.
66.
This is in stark contrast to instructional expenses per student at nearby public and
community colleges for programs geared toward similar credentials. For example, in Fall 2018,
Florida International University spent an average of $7,008 per student; Orange Technical
College’s Orlando Campus spent $7,762; and Sheridan Technical College spent $6,530.
67.
The instructional expenses per semester per student at Orange Technical College
and Sheridan Technical College are more than students pay for their whole program at the schools.
For Florida International University, the instructional expense is more than two semesters of
68.
FCC spends less on instruction than its public and private nonprofit counterparts.
For example, in 2016-2017, private 4-year nonprofit institutions spent $18,500 and public 4-year
institutions spent $12,700, as for the respective 2-year institutions spent $6,900 and $6,300,
according to data from the National Center for Education Statistics.
69.
To be eligible for Title IV federal funding, schools must provide educational
programs that “lead to gainful employment in a recognized occupation.” The principal measure of
whether programs lead to gainful employment is the ratio of debt to income that a program’s
typical student has upon graduating the program.
70.
The debt to discretionary income ratio is intended to measure whether graduates’
earnings are sufficient to pay their loans after covering their basic needs.
71.
In the most recent 2015 Gainful Employment data from the Department of
Education, only one of the seventeen programs evaluated passed the debt to discretionary income
metric. Of the seventeen programs evaluated, the median annual earnings of students who were
able to graduate and find employment ranged from $8,983 to $32,871.
72.
The table below lists the students’ mean and median annual earnings for each
program and whether the program failed or passed the debt to discretionary income metric.
PROGRAM
MEAN
ANNUAL
EARNINGS
MEDIAN
ANNUAL
EARNINGS
DEBT TO
EARNINGS -
DISCRETIONARY
INCOME RATIO
$12,953
$10,818
FAIL
COSMETOLOGY/COSMETOLOGIST,
GENERAL.
HEALTH SERVICES ADMINISTRATION.
$20,846
$22,824
FAIL
$10,728
$8,983
FAIL
AESTHETICIAN/ESTHETICIAN AND
SKIN CARE SPECIALIST.
$20,940
$17,803
FAIL
HEATING, VENTILATION, AIR
CONDITIONING AND REFRIGERATION
ENGINEERING
TECHNOLOGY/TECHNICIAN.
$23,940
$23,269
FAIL
COMPUTER ENGINEERING
TECHNOLOGY/TECHNICIAN.
$21,029
$16,328
FAIL
COMPUTER TECHNOLOGY/COMPUTER
SYSTEMS TECHNOLOGY.
$17,247
$16,072
FAIL
COMPUTER INSTALLATION AND
REPAIR TECHNOLOGY/TECHNICIAN.
$23,219
$25,498
FAIL
HEALTH INFORMATION/MEDICAL
RECORDS TECHNOLOGY/TECHNICIAN.
$18,829
$19,162
FAIL
MEDICAL INSURANCE
SPECIALIST/MEDICAL BILLER.
$19,521
$20,894
FAIL
MEDICAL
ADMINISTRATIVE/EXECUTIVE
ASSISTANT AND MEDICAL
SECRETARY.
MEDICAL/CLINICAL ASSISTANT.
$16,654
$16,224
FAIL
$19,225
$17,909
FAIL
MASSAGE THERAPY/THERAPEUTIC
MASSAGE.
$37,378
$32,871
PASS
REGISTERED NURSING/REGISTERED
NURSE.
$15,313
$14,330
FAIL
NURSING ASSISTANT/AIDE AND
PATIENT CARE ASSISTANT/AIDE.
$23,413
$22,331
FAIL
BUSINESS ADMINISTRATION AND
MANAGEMENT, GENERAL.
$27,604
$27,937
FAIL
BUSINESS ADMINISTRATION AND
MANAGEMENT, GENERAL.
$26,347
$28,202
FAIL
MANAGEMENT INFORMATION
SYSTEMS, GENERAL.
73.
Even for the one FCC program that was able to pass the debt to discretionary
income metric, registered nursing, FCC fails its students by failing to prepare them for their
licensure exam. According to the Florida Center for Nursing, in 2018, 60 of the 88 FCC students
who took the National Council Licensure Examination failed (a 68 percent failing rate).
74.
FCC students fared poorly on the registered nursing licensure exam compared to
students from other schools. Florida’s Registered Nurse (RN) passage rate for 2018 was 68 percent
while FCC’s was 32 percent.
75.
Other public and community colleges located near FCC campuses had better
outcomes than FCC. For example, at William T. McFatter Technical College, all programs
evaluated under the debt to discretionary income metric for Gainful Employment passed; at
Broward College, all programs evaluated passed; and at Miami Dade College, all programs
evaluated passed.
76.
According to the College Scorecard, as measured in 2016 and 2017, for students
who attended FCC’s Lauderdale Lakes and Orlando campuses in 2014-2015 and 2015-2016, their
median earnings ranged between $12,800 and $24,500.
77.
The table below lists students’ median earnings for each program at the campuses.
MEDIAN EARNINGS
PROGRAM – LAUDERDALE
LAKES
$18,500
ALLIED HEALTH AND
MEDICAL ASSISTING
SERVICES
$24,500
ENVIRONMENTAL CONTROL
TECHNOLOGIES/TECHNICIANS
$12,800
COSMETOLOGY AND
RELATED PERSON GROOMING
SERVICES
$14,800
PRACTICAL NURSING,
VOCATIONAL NURSING AND
NURSING ASSISTANTS
$19,700
COMPUTER ENGINEERING
TECHNOLOGIES/TECHNICIANS
PUBLIC HEALTH
$23,300
$20,900
COMPUTER AND
INFORMATION SCIENCES,
GENERAL
PROGRAM – ORLANDO
MEDIAN EARNINGS
$18,500
ALLIED HEALTH AND
MEDICAL ASSISTING
SERVICES
$24,500
ENVIRONMENTAL CONTROL
TECHNOLOGIES/TECHNICIANS
$21,400
HEALTH AND MEDICAL
ADMINISTRATIVE SERVICES
$12,800
COSMETOLOGY AND
RELATED PERSON GROOMING
SERVICES
$20,000
ALLIED HEALTH DIAGNOSTIC,
INTERVENTION, AND
TREATMENT PROFESSIONS
$14,800
PRACTICAL NURSING,
VOCATIONAL NURSING AND
NURSING ASSISTANTS
$19,700
COMPUTER ENGINEERING
TECHNOLOGIES/TECHNICIANS
PUBLIC HEALTH
$23,300
$20,900
COMPUTER AND
INFORMATION SCIENCES,
GENERAL
a. FCC Students are Encumbered by Student Debt
78.
FCC’s business strategy coupled with its predatory product is detrimental to
students.
79.
FCC students are encumbered by student debt, which affects nearly every aspect of
their lives, including their credit and thus their ability to provide for themselves and their families,
secure stable housing, purchase a home, or take out additional student loans to further their
education.
80.
Student debt is the economic engine that drives FCC’s sham product. In the 2017-
2018 year, FCC relied on federal student loans and grants for 87 percent, or $75,295,192, of its
revenue.
81.
As measured by College Scorecard in 2016 and 2017, 77 percent of the students
who had taken out federal student loans to pay for FCC, and who left the school in 2013 and 2014,
were unable to pay even one dollar of their loans within three years of leaving.
III.
FCC Uses High Pressure Predatory Tactics to Induce Individuals to Borrow Student
Loans to Pay for High-Cost, Low-Value Programs
82.
FCC trains Admissions Representatives, or “recruiters,” using uniform policies,
procedures, and practices that employ high-pressure tactics to sell its predatory product.
83.
FCC requires recruiters to call 100-150 people per day and enroll three to five
prospective students per week.
84.
FCC surveils and monitors recruiters’ activities to ensure they are employing the
FCC-mandated high-pressure sales tactics.
85.
For example, at FCC Tampa in 2019, recruiters’ calls were recorded by
management. At FCC Houston in 2018, management placed trackers on recruiters’ phones so
management could review how many calls they made during the day.
86.
FCC management puts intense pressure on recruiters who struggle to meet their
enrollment quotas.
87.
FCC management, including IEC staff, holds weekly telephonic meetings with
recruiters, called “Opportunity Calls” or “Accountability Meetings.”
88.
At these weekly meetings, FCC praised well-performing recruiters, while recruiters
who failed to meet their enrollment quotas are publicly chastised.
89.
Recruiters who do not make their enrollment quotas are fired.
90.
FCC’s high-pressure predatory practices created a climate of fear where its
employees routinely suffered breakdowns. For example, in 2017-2018, the Career Services
Director at the West Palm Beach campus took Career Services Representatives to a specific field
called the “Crying Field” when they were overwhelmed by the pressure to perform. There was
also a specific closet called the “Crying Closet.”
91.
FCC pressures its campuses to perform, and accordingly, recruiters pressured
prospective students to enroll. FCC’s pressure campaign induced students to enroll and ultimately
take out federal student loans to attend.
92.
FCC and IEC have strategically developed an environment that encourages
recruiters to do whatever is necessary to enroll students. In fact, FCC permit its recruiters to engage
in schemes to increase enrollment, as further described below.
93.
For example, a recruiter from the Tampa campus, in or around 2018, deceived
prospective students by telling them that they were coming in for a job interview, even though they
were coming in to be recruited to enroll. FCC management knew of this recruiter’s tactics and
allowed her to continue because she got results.
94.
Similarly, in or around 2018-2019, FCC in Tampa created a script that contained
numerous false statements. FCC instructed recruiters to say that a committee decides admission
into the school and that class was starting that month, so the prospective students needed to move
quickly to take advantage of the opportunity. But FCC does not have a committee to decide
admission; this was a tactic used to get students to enroll quickly.
95.
As yet another example, FCC instructed recruiters at FCC Orlando to tell
prospective students programs were full, even if they were not. FCC convinced prospective
students to enroll in a different program that was starting sooner so the school could meet its
enrollment quota.
96.
FCC’s recruitment efforts follow a distinct and common pattern that FCC teaches
to all FCC campus recruiters. FCC management provides recruiters with “lead sheets,” which are
lists with names of prospective students, their contact information, and the source of the
information. FCC trains recruiters on the initial phone contact.
97.
The information from these lead sheets is derived from various means including the
purchase of contact information from job search websites like Indeed, Monster, and Career
Builder.
98.
FCC instructs recruiters to call prospective students multiple times a day.
99.
Recruiters sometimes call prospective students three or four times an hour or
contact them via text message.
100.
FCC contracts with auto-dialer companies, which get prospective students on the
phone and then transfer them to FCC recruiters.
101.
Once a recruiter gets a prospective student on the phone, their objective is to get
the student to come to an FCC campus for an “interview” and a tour.
102.
Once a prospective student comes to campus, the recruiter’s goal is to get them to
enroll.
103.
FCC trains recruiters to convince students to enroll by highlighting the students’
individual struggles and presenting FCC as the answer to those struggles. FCC trains recruiters to
play on students’ emotions and their social and economic circumstances.
104.
FCC’s recruiters follow a script and a handbook that provides statements and
rebuttals to various objections that a prospective student might raise.
105.
The recruitment process flows through a set of pre-planned stages that FCC has
designed to effect maximum pressure and, therefore, maximum enrollment.
106.
The recruiter first brings the prospective student to the Admissions Office to
conduct an “interview,” which is really a high-pressure sales pitch. During the “interview,” the
recruiter asks about the student’s background, education, goals, and motivation. Then, the recruiter
goes over a PowerPoint presentation about the school.
107.
Afterward, the recruiter takes the student on a tour. The tour includes a visit to the
Career Services Department where Career Services Representatives tell the prospective students
that enrolling in FCC will result in a job.
108.
The recruiter then shows the prospective student the facilities including different
classes and equipment.
109.
Throughout the entire enrollment and tour process, FCC creates a false image of
the school to induce students to enroll. FCC makes false representations about the students’
experiences, including what equipment and tools are available, and how the school improves
students’ lives.
110.
The final stage involves recruiters giving prospective students the Enrollment
Agreement to complete and sign. Then, recruiters send the now-enrolled student to the Financial
Aid Department. FCC and IEC fail to disclose to prospective students the truth about FCC’s job
placement statistics or the low rate of students who are able to repay their student loans.
111.
A “Financial Aid Advisor” then helps the prospective student fill out the Free
Application for Federal Student Aid (FAFSA), which is required in order to receive federal
financial aid. “Financial Aid Advisors” provide the prospective student with additional private
loan documents or a retail installment contract with the school.
112.
FCC supplemented its Enrollment Agreement in May 2019 to state:
(1)
We agree not to use any predispute agreement to stop you
from being part of a class action lawsuit in court. You may file a
class action lawsuit in court or you may be a member of a class
action lawsuit even if you do not file it. This provision applies only
to class action claims concerning our acts or omissions regarding the
making of the Federal Direct Loan or the provision by us of
educational services for which the Federal Direct Loan was
obtained. We agree that only the court is to decide whether a claim
asserted in the lawsuit is a claim regarding the making of the Federal
Direct Loan or the provision of educational services for which the
loan was obtained.
(2)
We agree not to use any predispute arbitration agreement
to stop you from bringing a lawsuit concerning our acts or
omissions regarding the making of the Federal Direct Loan or the
provision by us of educational services for which the Federal
Direct Loan was obtained. You may file a lawsuit regarding such a
claim or you may be a member of a class action lawsuit regarding
such a claim even if you do not file it. This provision does not apply
to any other claims. We agree that only the court is to decide
whether a claim asserted in the lawsuit is a claim regarding the
making of the Direct Loan or the provision of educational services
for which the loan was obtained.
113.
FCC’s “Financial Aid Advisors” rush through this process, and purposely do not
adequately explain to students what type of aid is available to them, the type of aid they are
applying for, or the ramifications to students if they are unable to repay the loans.
114.
FCC’s misrepresentations, material omissions, and high-pressure tactics continue
even after a student has enrolled and signed up for federal student loans.
115.
FCC has a policy and practice of tracking students for their first few weeks to make
sure they come to class. The goal is to keep the students enrolled long enough so the school can
keep their student loan money.
116.
For example, in or around 2017, the FCC Jacksonville Admissions Director
demanded recruiters ensure that students were enrolled for a certain minimum number of days so
that FCC could keep their student loan money.
117.
Upon information and belief, FCC continues to employ heavy-handed tactics to
coerce students to enroll or stay enrolled solely so they can keep their student loan money, such as
repeatedly calling students and going to students’ homes in-person to pressure them into attending
and/or returning to class.
118.
After FCC collects all the students’ tuition money, students are left alone unless
they owe monthly payments on their private loans or installment contracts.
119.
Tuition at FCC is significantly higher than at other public and community colleges.
120.
Depending on the program, FCC’s tuition ranges between $18,450 to $51,925. For
example, its Medical Assistant program costs $21,500, its Information Technology program costs
$39,950, and its Nursing program costs $51,925.
121.
Other public and community colleges with campuses near FCC campuses, and with
programs geared toward similar credentials, cost significantly less. For example, Sheridan
Technical College is 5 miles away from FCC Pembroke Pines; for the 2019-2020 school year its
Medical Assisting program costs $5,199, its Computer Systems & Information Technology
program costs $3,063, and its Practical Nursing program costs $5,708. Likewise, Erwin Technical
College is located 8 miles away from FCC Tampa; for the 2019-2020 school year its Medical
Assisting program costs $4,257, its Computer Systems & Information Technology program costs
$4,446, and its Practical Nursing program costs $5,731.
IV.
FCC Induces Students to Enroll Using False Promises and Fraudulent Tactics.
a. FCC Misrepresents Information Regarding Guaranteed Employment and Omits
Information Regarding Job Placement Rates.
122.
FCC overvalues its education and misrepresents its product in order to get students
to enroll. It advertises itself as providing students a gateway to a new career and a better future,
but it is actually only a gateway to years of debt.
123.
FCC misleads students to believe it will find them employment. Recruiters tell
students the Career Services Department guarantees them employment, and recruiters pressure the
Career Services Representatives to tell students they will find them a job.
124.
FCC fails to disclose FCC’s job placement rates.
125.
FCC does not fulfill its promise of employment to prospective students.
126.
FCC’s ongoing misrepresentations and omissions about its job placement efforts
and rates were made possible, in part, by ACICS’ lax guidelines regarding job placement. As long
as a job included certain keywords or responsibilities for the field, it counted as an adequate job
placement for ACICS’ purposes. FCC knew about this “keyword loophole” and routinely exploited
it, in addition to employing a number of other schemes across all FCC campuses to inflate its job
placement rates, as described below.
127.
For example, in 2017-2018, FCC directed Career Services Representatives at FCC
Boynton Beach to tell employers to include certain language in job descriptions that would allow
a job to count as an infield placement.
128.
In yet another ploy, FCC Career Services Representatives also encouraged
employers to split full-time positions into two part-time positions so the representative could have
two placements. They told employers it would save them money, because employers would not
have to provide FCC students with employment benefits.
129.
Upon information and belief, FCC employees continue to influence employers to
split full-time positions into part-time positions and change job descriptions in order to falsely
inflate their job placement numbers.
130.
In 2017-2018, FCC’s Executive Director directed Career Services Representatives
at FCC West Palm Beach to persuade graduates to falsify employment waiver documents so the
school’s placement numbers appeared higher than they actually were. Career Services
Representatives coerced graduates who were unemployed to say they could not work, did not want
to work, started their own business, or that they only came to school for professional development,
even if it was not true. They told the graduates that if they did not lie, the school would lose its
accreditation and their degree would become worthless.
131.
Upon information and belief, FCC continues to falsify employment waiver
documents.
132.
In 2017, Career Services Representatives at FCC West Palm Beach placed students
in temporary jobs at staffing companies. The temporary positions lasted just long enough so that
FCC could count the students as employed for job placement purposes.
133.
Upon information and belief, FCC continues to place students in temporary jobs at
staffing companies to influence its job placement rates.
V.
FCC Breached its Contract with Students
134.
The Course Catalog constitutes a contract.
135.
The Course Catalog provides information about FCC’s policies, procedures,
objectives, course information, and services.
136.
FCC’s Course Catalog states that its various programs provide hands-on
experience, FCC has “well-equipped classrooms, computer labs, clinical settings, medical labs,
[]resource centers,” and job placement assistance.
137.
But, FCC did not fulfill its promises to students. Examples of FCC’s breaches
include the following: Students routinely watched YouTube videos in class in place of actual
instruction; classroom supplies were expired or nonexistent; FCC provided job postings for
irrelevant jobs like meat packing jobs in warehouses; and instructors taught as many as three
classes at once, effectively leaving students with no instructor.
138.
FCC’s misrepresentations, omissions, and failures line FCC’s pockets while
harming students. Each member of the proposed class and subclass were deceived into paying for
an experience that they never received. Whether it be FCC’s failure to provide competent
instructors, equipment, training, experience, job placement, each and every student who enrolled
in FCC during the class period(s) was harmed by FCC’s placing profit over education. FCC’s
actions have deeply and negatively affected the trajectory of these students lives.
139.
Indeed, had FCC disclosed the true nature of the experience they provided or
disclosed the truth about its job placement statistics or the low rate of students who are able to
repay their student loans, the members of the proposed class or subclass would not have enrolled
in FCC or would not have agreed to pay what they did in tuition.
VI.
FCC Targets Black People
140.
In addition to selling a predatory product using high-pressure tactics, FCC targets
its product to Black people through advertisements designed specifically to attract Black people.
FCC does this by using Black models and distributing the advertisements on certain media and in
certain locations. Black students who enrolled at FCC did so after their exposure to advertisements
from FCC.
141.
FCC targets Black prospective students on social media platforms like Facebook
and Instagram, where it is possible to target advertisements to people with specific interests, or in
specific locations, including, for example, people located in a specific geographic area interested
in “African Americans” and/or “African American Culture.”
142.
The following are examples of FCC advertisements that were active on Facebook
and Instagram:
143.
FCC has advertised on radio stations focusing on stations that play Hip-Hop and
R&B music like 99 Jamz, 93.3 The Beat, Power 106.1, and x102.3.
144.
FCC has advertised on certain public buses, bus benches, and bus stops in order to
target people of color.
145.
FCC conducted outreach at local schools with a high percentage of Black students.
For example, FCC recruited at Boyd H. Anderson High School in Lauderdale Lakes, where 89
percent of the student population for the 2017-2018 school year consisted of Black students.
Likewise, FCC recruited at Plantation High School in Plantation, which has 71 percent Black
students.
146.
FCC had billboards in Pine Hill, Florida where 71.7 percent of the residents are
147.
FCC has advertised during daytime television on television shows like Jerry
Springer, Maury, the Montel Williams Show, and Dr. Phil—tactics used by Corinthian Colleges
(a now defunct for-profit college).
148.
FCC sends out advertisements in the mail in order to target Black people.
149.
FCC has advertised at malls like the Boynton Beach Mall, Westland Mall,
Lauderhill Mall, Pembroke Lakes Mall, Wellington Green Mall, and Orange Park Mall.
150.
FCC’s Corporate Marketing Team at IEC works with lead generator companies;
IEC specifies the type of students they want and the companies provide leads based on their
specifications.
151.
FCC distributes the leads providing better performing campuses the best leads.
152.
Upon information and belief, FCC continues to use these recruitment and
advertising tactics to target Black people for its predatory product.
153.
FCC’s racial targeting is successful. As a result of its marketing, advertising, and
recruitment tactics, FCC’s student population is disproportionately Black.
154.
FCC’s student population demographics for Fall 2018 show that every FCC
campus, except for one, is predominantly Black.
155.
The overall population of the United States is 12.7 percent Black.
School
%Blck
%Ltx
%Wht
Nearest Cities
%Blck
%Ltx
%Wht
FCC -
Pembroke Pines
52
24
4
Pembroke Pines, FL
21.7
43.1
65.5
FCC -
Boynton Beach
60
23
13
Boynton Beach, FL
31.7
15.8
62.4
FCC -
Hialeah
55
43
1
Hialeah City, FL
2.5
96.1
92.6
FCC -
Houston, TX
64
27
5
Houston, TX
23.4
44.8
59.3
FCC -
Jacksonville
63
11
14
Jacksonville, FL
31
9.6
58.7
FCC -
Lauderdale Lakes
87
7
2
Lauderdale Lakes,
FL
84.9
4.5
11.2
FCC -
Margate
70
22
7
Margate, FL
28.6
26.3
60.8
FCC -
Miami
26
68
4
Miami, FL
17.7
72.5
75.2
FCC -
Orlando
38
30
7
Orlando, FL
25.4
31.1
60.7
FCC -
Tampa
30
28
8
Tampa, FL
24.2
25.7
64.9
FCC -
West Palm Beach
58
25
11
West Palm Beach,
FL
34.3
24
57.8
156.
In 2016, the overall student population in higher education across the United States
was 13 percent Black for public and nonprofit institutions.
157.
With the exception of FCC Lauderdale Lakes, all FCC campuses are located in
majority White and Latinx communities, not majority Black communities.
158.
As of Fall 2018, every FCC campus has a larger percentage of Black students than
the percentage of Black residents of the city it is located in. FCC is disproportionately composed
of Black students.
159.
The chart above exhibits this using the schools’ Fall 2018 data from College
Navigator and 2015-2018 American Community Survey Census data.2
160.
Nearby public and community colleges that are geared toward similar credentials
at significantly lower costs, have lower percentages of Black students. Sixteen public community
and public colleges surrounding FCC campuses all have a lower percentage of Black students than
FCC’s campuses.
161.
For example, Palm Beach State College (PBSC) is located 13 miles away from FCC
Boynton Beach. PBSC’s student population is 26 percent Black while FCC Boynton Beach’s
student population is 60 percent Black.
162.
Similarly, Florida State College at Jacksonville (FSCJ) is located 17 miles away
from FCC Jacksonville. FSCJ’s student population is 27 percent Black. FCC Jacksonville is 63
percent Black.
163.
FCC targets Black people for its predatory product; discriminating against students
on the basis of race by inducing them to purchase a worthless product by taking on debt they cannot
2 Data for the Black and White populations are taken from the census categories “Total Population”
and “One Race” while data for the Latinx populations are taken from the “Hispanic or Latino and
Race” and “Hispanic or Latino (any race) categories.”
FACTS CONCERNING NAMED PLAINTIFFS
Kareem Britt
164.
In August 2018, after seeing an FCC advertisement on Facebook, Mr. Britt decided
to look into FCC.
165.
At the time, he was a cook working two jobs barely making enough to support
himself and his family. He needed a change and FCC’s advertisement made it seem like FCC could
help him make that change.
166.
The advertisement said: “Are you tired of working minimum wage jobs? Eating
ramen noodles? Are you ready to step up to steak? HVAC degrees make $16 to $23/hr.”
167.
He clicked on the Facebook advertisement and it prompted him to call FCC.
168.
He called the number and spoke to a recruiter named Lisa.
169.
She told him that FCC has great programs, people who attend FCC become
successful, and attending FCC could change his life. Lisa’s statements and the information in the
FCC Facebook advertisement convinced him to come in for an “interview.”
170.
On August 22, 2018, Mr. Britt met with Lisa for his “interview.” Consistent with
her FCC recruitment training, Lisa told Mr. Britt that an FCC education could change his life. She
spoke about his future, and he found it motivational.
171.
Mr. Britt inquired about job placement and was told that the Career Services
Department provided job placement, but FCC failed to disclose its job placement rates.
172.
After his “interview,” Mr. Britt was given a tour of FCC. The recruiter showed him
the HVAC classroom with all the various tools and equipment. Mr. Britt was impressed.
173.
Based on the representations and omissions, Mr. Britt agreed to enroll in the HVAC
program and signed an Enrollment Agreement.
174.
Mr. Britt then met with a “Financial Aid Advisor” named Keith. Keith told him the
cost of the program ($20,400).
175.
Consistent with his role in FCC’s scheme, Keith pressured Mr. Britt to take out
loans to finance his education at FCC.
176.
Keith told Mr. Britt he would qualify for a $6,000 federal Pell Grant and he would
receive a “scholarship loan” from the school for $3,000.
177.
Mr. Britt initially thought he was taking out only one loan with the school for
$3,000. He would later find out after he completed his program that he also had federal loans; one
for $6,000 and another for $3,500.
178.
Keith helped Mr. Britt fill out his financial aid and student loan paperwork.
179.
Afterward, Keith told him he would have to pay $75 a month for his student loans
while he was enrolled in the school.
180.
In addition, Mr. Britt later learned while taking classes that FCC’s representations
about the quality of instruction and students’ access to tools, machinery, and other learning devices
were false. Mr. Britt’s access to tools, machinery, and other learning devices were at best limited,
and at worse, nonexistent.
181.
Mr. Britt’s instructors did not have enough experience or knowledge to teach his
classes.
182.
Mr. Britt found out after he enrolled that FCC did not have the requisite equipment.
They were supposed to have tanks, torches, vacuum pumps, AC units, units to take apart, safety
glasses, and hard hats, but they did not have these materials.
183.
Lisa told Mr. Britt that each student would receive his own tool kit as part of the
tuition, but he never received his own tool kit. In fact, there was only one bag of tools for the whole
class of 27 students.
184.
FCC did not prepare Mr. Britt for the necessary HVAC or OSHA certification tests.
185.
In November 2019, Mr. Britt sought help from FCC’s Career Services Department
to find employment. An FCC Career Services Representative found him two temporary positions,
but each lasted only two weeks.
186.
Upon information and belief, FCC used Mr. Britt’s temporary positions to bolster
its job placement rates, but failed to tell Mr. Britt that FCC’s job placement rates are illusory.
187.
Despite the strong emphasis FCC placed on careers and employment during the
recruitment and interview phase, FCC career services provided Mr. Britt no other help with
employment except resume assistance and posting it on ZipRecruiter. FCC never sent Mr. Britt on
any interviews or provided him with a list of employers to contact. Mr. Britt tried to find
employment on his own. He posted his resume on Indeed and ZipRecruiter, but he did not receive
any calls or interviews.
188.
Mr. Britt currently works as a cook in a hotel, which is similar to the position he
had before and during his attendance at FCC. He does not work in the HVAC field.
189.
FCC’s career services is a sham, and FCC’s promises of employment are made for
the sole purpose of inducing enrollment.
190.
At no time before enrolling at FCC was Mr. Britt told the truth about the quality of
the HVAC program or the actual employment information. FCC had this information but did not
disclose it.
191.
Mr. Britt completed his coursework, but because he eventually fell behind on his
loan payments, FCC refused to provide him his diploma.
192.
While attending FCC, Mr. Britt observed that a majority of the students were Black
or Latinx.
193.
FCC misled Mr. Britt and induced him to enroll in FCC by false promises. He did
not receive what FCC promised.
Monique Laurence
194.
Ms. Laurence was previously a Nurse’s Aid for 24 years in New York. When she
moved to Florida in December 2016, she did not have a Florida nursing license.
195.
Ms. Laurence placed her resume on job sites like Indeed and ZipRecruiter hoping
to find a new position in Florida.
196.
Ms. Laurence received a call from a recruiter suggesting she might need additional
training. The recruiter transferred her to an FCC recruiter.
197.
Upon information and belief, the recruiter received Ms. Laurence’s phone number
from Indeed or ZipRecruiter.
198.
After the initial call from the recruiter, Ms. Laurence continued to receive phone
calls once or twice a week for a month from FCC recruiters asking her to come in to talk about
their programs. She also received emails from FCC recruiters.
199.
In or around May 2017, after countless FCC recruitment calls and emails, Ms.
Laurence went to FCC Orlando to meet with a recruiter. According to FCC’s policies and practices,
the FCC recruiter pressured Ms. Laurence to enroll.
200.
The recruiter told Ms. Laurence that FCC provided lifelong job placement, but
failed to provide Ms. Laurence with the actual job placement rates.
201.
Ms. Laurence experienced FCC’s trademark “hard sell” techniques. The recruiter
told Ms. Laurence that FCC would provide an opportunity for a lifelong career and that it was
better to have a career than a job. The recruiter told Ms. Laurence that she should invest in her
career and invest in her future.
202.
The recruiter promised Ms. Laurence that she would make great money and that
she would even learn how to do x-rays.
203.
Ms. Laurence was particularly interested in learning about x-rays. She thought this
new specialty would make her marketable to employers.
204.
After the “interview,” Ms. Laurence left to think about whether she should enroll
at FCC. FCC trains recruiters to continue to pressure potential students to enroll if the potential
student, like Ms. Laurence, does not enroll on the spot.
205.
After receiving numerous calls from FCC, Ms. Laurence went back to visit FCC a
week later. She met with the same recruiter. The recruiter repeated what she had told Ms. Laurence
during their first meeting.
206.
The recruiter then took Ms. Laurence on a tour. He showed her classrooms and labs.
In one of the classrooms, students were practicing injections on a simulated arm. The recruiter
introduced Ms. Laurence to some instructors, who welcomed her and told her it was a great school
and a good program. The recruiter also showed Ms. Laurence the room where he said she would
learn how to take x-rays.
207.
Based on these representations, Ms. Laurence signed the Enrollment Agreement
and enrolled in the Medical Assistant program at FCC Orlando.
208.
After signing the Enrollment Agreement, and as the next step in the FCC enrollment
scheme, the recruiter walked Ms. Laurence to the Financial Aid Department.
209.
The “Financial Aid Advisor” said she would try to get the most grants and
scholarships for Ms. Laurence. The “Advisor” handed Ms. Laurence several documents and did
not give Ms. Laurence enough time to review them. The “Advisor” instructed Ms. Laurence to
sign the documents, knowing that Ms. Laurence did not have time to review them.
210.
Ms. Laurence filled out the FAFSA on the school’s computer and the “Advisor”
input the amount of federal loan money she should request.
211.
Ms. Laurence financed her education through federal student aid. She received a
Federal Pell Grant for $3,170 and federal loans for $9,500. She also paid around $8,000 out of
212.
FCC did not follow through on its promises to Ms. Laurence.
213.
For example, without notice, FCC discontinued the x-ray portion of the Medical
Assistant program.
214.
The school did not provide adequate equipment. Students would run out of needles
when doing injections. Some of the equipment did not work, including the projector, the EKG
machine, and the blood pressure cups.
215.
FCC did not prepare Ms. Laurence for the medical assistant certification exam.
216.
FCC employees pulled Ms. Laurence out of class two or three times to extract
payments or finalize financial aid paperwork.
217.
These disruptions were embarrassing, and induced Ms. Laurence to pay $8,000 to
the school for the remainder of her tuition so she would not be harassed during class about her
monthly payments.
218.
Ms. Laurence’s dreams of being a medical assistant never actualized. She never
worked a single day as a medical assistant. FCC never provided Ms. Laurence with adequate job
placement assistance. The assistance FCC provided simply included resume assistance, which they
posted on an unknown employment website. Ms. Laurence obtained only one job offer for a
temporary position for only three hours a day. Otherwise she received no interviews and no job
219.
Even after FCC failed to help Ms. Laurence, she continued to look for a job on her
own, but was unable to find employment in her field. She was forced to take a position as a Home
Care Aid to provide for herself.
CLASS ACTION ALLEGATIONS
220.
In accordance with Federal Rule of Civil Procedure 23, Plaintiffs Kareem Britt and
Monique Laurence bring this action on behalf of themselves and all other individuals similarly
situated as members of the following classes:
All FCC Class
All persons who enrolled at any FCC campus in Florida within the last four years.
Race Discrimination Subclass
All Black students who enrolled at any FCC campus in Florida within the last five
years.
221.
Plaintiffs expressly reserve the right to amend the definitions of the Class and
Subclass based on subsequently-discovered information, and reserve the right to establish
additional subclasses where appropriate, at the time of filing a motion for class certification.
222.
Plaintiffs seek certification under Rule 23(b)(3) on the basis that all members of the
class have been injured, in the same way, as a result of Defendants’ conduct. The common
questions predominate over any individual questions, and a class action is superior to alternative
methods for efficient adjudication of the controversy as the class is so numerous that joinder of all
members is impracticable.
Numerosity of the Class: Fed. R. Civ. P. 23(a)(1)
223.
The proposed Class and Subclass are so numerous that joinder of all members is
impracticable. Between 2014 and 2018 alone, approximately 38,717 students attended FCC and
of those students, approximately 19,955 were Black.
Existence of Common Questions or Law and Fact: Fed. R. Civ. P. 23(b)(3)
224.
Common questions of law and fact exist as to all members of the Class and Subclass
and predominate over questions affecting individual members, because all members enrolled in
FCC because of the same or similar representations, entered into the same or similar written
contracts, and had the same or similar experiences. The questions of law and fact are common to
the Class and Subclass include, but are not limited to:
a. Whether Defendants induced class members to enroll at FCC by making false
representations or by failing to disclose material facts;
b. Whether Defendants engaged in unfair or deceptive acts or practices in the course
of conducting business;
c. Whether Defendants breached their contractual obligations to the class;
d. Whether Defendants intentionally targeted Black people for the purpose of
extending credit for a predatory product by engaging in reverse redlining in
violation of the Equal Credit Opportunity Act, 15 U.S.C. § 1691 et seq., Title VI of
the Civil Rights Act of 1964, 42 U.S.C. § 2000d et seq., and Florida Deceptive and
Unfair Trade Practices Act, Fla. Stat. § 501.201 et seq.; and
e. Whether Defendants acts, policies, and practices, by engaging in reverse redlining,
disparately impacted Black people in violation of the Equal Credit Opportunity Act,
15 U.S.C. § 1691 et seq., and Florida Deceptive and Unfair Trade Practices Act,
Fla. Stat. § 501.201 et seq.
Typicality of Claims or Defenses Fed. R. Civ. P. 23(a)(3)
225.
Plaintiffs’ claims are typical of the claims of the proposed Class. Plaintiffs attended
FCC and were subject to the same or similar representations, entered into the same or similar
written contracts with Defendants as the other class members, received the same poor delivery of
services, and were all injured by Defendants through their misconduct. They all face similar harm
as a result of FCC’s vacant promises and omissions.
226.
Plaintiff Kareem Britt’s claims are typical of the claims of the proposed Subclass.
Plaintiff attended FCC and was subject to the same or similar targeting and treatment as the class
members, entered into the same or similar written contracts with Defendants as the other class
members, and was similarly injured by Defendants through their misconduct; all face similar harm
because the school targeted Black people.
Adequate Representation: Fed. R. Civ. P. 23(a)(4)
227.
Plaintiffs are adequate representatives of the Class and Subclass because their
interests align with the interests of the class and do not conflict. Plaintiffs and class members will
rely on the same or similar evidence to establish Defendants’ liability. Plaintiffs desire to hold
Defendants accountable for their misconduct, they assert the same claims as the class, and they
will dutifully represent the class.
228.
Plaintiffs retained competent and experienced counsel who will vigorously fight on
their behalf. Plaintiffs are represented by attorneys from Gelber Schachter & Greenberg, P.A,
Carella, Byrne, Cecchi, Olstein, Brody & Agnello, P.C., and the Legal Services Center of Harvard
Law School. Plaintiffs’ representation have knowledge of and familiarity with applicable laws
pertinent to this litigation and experience litigating large and complex class actions.
Superiority of a Class Action and Predominance of Common Questions: Fed. R. Civ. P.
23(b)(3)
229.
A class action is superior to other alternative methods for the fair and efficient
adjudication of this litigation. All class members were injured and are entitled to recovery from
Defendants for the same reason; therefore, litigating as a class would provide for a simpler and
controlled method to address the issues at once instead of numerous individual actions which could
lead to different determinations and inconsistencies. The Class and Subclass are manageable
because all class members were subjected to the same or similar treatment by Defendants such that
similar relief is appropriate to the classes as a whole.
230.
In the alternative to the “All FCC Class” proposed above, Plaintiffs seek to
represent classes of their respective programs; Plaintiff Kareem Britt as a representative for the
All HVAC Program Class defined below and Plaintiff Monique Laurence as a representative for
the All Medical Assistant Program Class defined below.
All HVAC Program Class
All persons who enrolled in the HVAC program at any FCC campus in Florida
within the last four years.
All Medical Assistant Program Class
All persons who enrolled in the Medical Assistant program at any FCC campus in
Florida within the last four years.
231.
The Subclass would remain the same as noted above, or in the alternative, be
defined as all Black students enrolled at the HVAC program and the Medical Assistant Program
at any FCC campus in Florida within the last five years.
CAUSES OF ACTION
COUNT I – Violation of the Florida Deceptive and Unfair Trade Practices Act, Fla. Stat. §
501.201 et seq.
(All FCC Class against FCC and IEC)
232.
Plaintiffs Kareem Britt and Monique Laurence repeat and re-allege paragraphs 1
through 231 as if fully set forth herein.
233.
At all material times, Defendants were engaged in “trade or commerce” within the
meaning of §§ 501.204(1) and 501.203(8).
234.
In connection with the making of federal student loans for enrollment at FCC or for
the provision of educational services by FCC, Defendants committed “[u]nfair methods of
competition, unconscionable acts or practices, and unfair or deceptive acts or practices in the
conduct of any trade or commerce,” § 501.204(1), when they, among other things:
a. violated Fla. Stat. § 1005.04(1)(c) by failing to “refrain from promising or
implying guaranteed job placement, market availability, or salary;”
b. violated regulations pertaining to “ethical practices and procedures in the
recruitment of students” by using job search websites to recruit students,
Fla. Admin. Code r. 6E-2.004(5)(b)(2), and false representations to induce
students to enroll, Fla. Admin. Code r. 6E-2.004(5)(b)(3);
c. misrepresented their services, facilities, curriculum, and equipment in
violation of 16 C.F.R. § 254.4, a provision of 16 C.F.R. § 254, the Federal
Trade Commission’s Guides for Private Vocational and Distance Education
Schools;
d. stated they would provide class members job placement, but failed to
disclose job placement rates and the low rate of FCC students who are able
to repay their student loans, and otherwise failed to disclose material facts;
and
e. stated that students would be provided employment placement and post-
graduation employment placement, but failed to provide them with
employment placement.
235.
Each of these violations caused Plaintiffs and class members damages.
COUNT II – Breach of Contract
(All FCC Class against FCC)
236.
Plaintiffs Kareem Britt and Monique Laurence repeat and re-allege paragraphs 1
through 231 as if fully set forth herein.
237.
Each Plaintiff entered into an Enrollment Agreement with FCC.
238.
FCC supplemented its Enrollment Agreement in May 2019 to state:
(3)
We agree not to use any predispute agreement to stop you
from being part of a class action lawsuit in court. You may file a
class action lawsuit in court or you may be a member of a class
action lawsuit even if you do not file it. This provision applies only
to class action claims concerning our acts or omissions regarding the
making of the Federal Direct Loan or the provision by us of
educational services for which the Federal Direct Loan was
obtained. We agree that only the court is to decide whether a claim
asserted in the lawsuit is a claim regarding the making of the Federal
Direct Loan or the provision of educational services for which the
loan was obtained.
(4)
We agree not to use any predispute arbitration agreement
to stop you from bringing a lawsuit concerning our acts or
omissions regarding the making of the Federal Direct Loan or the
provision by us of educational services for which the Federal
Direct Loan was obtained. You may file a lawsuit regarding such a
claim or you may be a member of a class action lawsuit regarding
such a claim even if you do not file it. This provision does not apply
to any other claims. We agree that only the court is to decide
whether a claim asserted in the lawsuit is a claim regarding the
making of the Direct Loan or the provision of educational services
for which the loan was obtained.
239.
FCC’s Course Catalog is a contract. Fla. Admin. Code r. 6E-2.004(11)(b)(2).
240.
The Course Catalog describes FCC’s programs as “designed to prepare graduates
for entry-level positions.” It also states that its programs include hands-on experience, “well-
equipped classrooms, computer labs, clinical settings, medical labs, and resource centers,” and job
placement assistance.
241.
In connection with the making of federal student loans for enrollment at FCC or for
the provision of educational services by FCC, Defendant FCC breached these various promises by
failing to provide them.
242.
Defendant FCC’s breaches were material.
243.
As a result of these actions, Defendant FCC caused Plaintiffs and class members
damages.
COUNT III – Negligence
(All FCC Class against FCC and IEC)
244.
Plaintiffs Kareem Britt and Monique Laurence repeat and re-allege paragraphs 1
through 231 as if fully set forth herein.
245.
Defendants had a duty to refrain from promising or implying guaranteed job
placement, market availability, or salary, in violation of Fla. Stat. § 1005.04(1)(c).
246.
In connection with the making of federal student loans for enrollment at FCC or for
the provision of educational services by FCC, Defendants breached their duty.
247.
Defendants’ breach caused harm to Plaintiffs.
COUNT IV – Violation of the Equal Credit Opportunity Act, 15 U.S.C. § 1691 et seq. –
Disparate Impact
(Racial Discrimination Subclass against FCC and IEC)
248.
Plaintiff Kareem Britt repeats and re-alleges paragraphs 1 through 231 as if fully
set forth herein.
249.
Plaintiff Kareem Britt is qualified to take out federal student loans and grants.
250.
Defendants cause students to apply for and take out credit in the form of student
251.
Defendants are “creditors” within the meaning of 15 U.S.C. § 1691a(e) due to their
participation in arranging the extension, renewal, or continuation of student loans.
252.
Plaintiff Kareem Britt is an “applicant” because he applied for an extension,
renewal, and/or continuation of student loans within the meaning of 15 U.S.C. § 1691a(b).
253.
In connection with the making of federal student loans for enrollment at FCC or for
the provision of educational services by FCC, Defendants’ acts, policies, and practices disparately
impacted Black people with respect to aspects of credit transactions in violation of 15 U.S.C. §
1691(a). By targeting Black people with their predatory product, the Defendants engaged in
reverse redlining violating 15 U.S.C. § 1691(a).
254.
As a result of these actions, Defendants caused Plaintiff Kareem Britt and class
members damages.
COUNT V – Violation of the Equal Credit Opportunity Act, 15 U.S.C. § 1691 et seq.—
Disparate Treatment
(Racial Discrimination Subclass against FCC and IEC)
255.
Plaintiff Kareem Britt repeats and re-alleges paragraphs 1 through 231 as if fully
set forth herein.
256.
Defendants cause students to apply for and take out credit in the form of student
257.
Defendants are “creditors” within the meaning of 15 U.S.C. § 1691a(e) due to their
participation in arranging the extension, renewal, or continuation of student loans.
258.
Plaintiff Kareem Britt is an “applicant” because he applied for an extension,
renewal, and/or continuation of student loans within the meaning of 15 U.S.C. § 1691a(b).
259.
In connection with the making of federal student loans for enrollment at FCC or for
the provision of educational services by FCC, Defendants’ acts, policies, and practices in relation
to these credit transactions intentionally discriminate against Black people. By targeting Black
people with their predatory product, the Defendants engaged in reverse redlining violating 15
U.S.C. § 1691(a).
260.
As a result of these actions, Defendants caused Plaintiff Kareem Britt and class
members damages.
COUNT VI – Violation of Title VI of the Civil Rights Act of 1964, 42 U.S.C. § 2000d et seq.
(Racial Discrimination Subclass against FCC and IEC)
261.
Plaintiff Kareem Britt repeats and re-alleges paragraphs 1 through 231 as if fully
set forth herein.
262.
Defendants, as recipients of federal financial aid, receive “Federal financial
assistance” within the meaning of 42 U.S.C. § 2000d.
263.
Defendants have not complied with Title VI of the Civil Rights of 1964, 42 U.S.C.
§ 2000d.
264.
In connection with the making of federal student loans for enrollment at FCC or for
the provision of educational services by FCC, Defendants’ acts, policies, and practices
intentionally discriminated against Black people. By targeting Black people with their predatory
product, Defendants engaged in reverse redlining violating 42 U.S.C. § 2000d.
265.
As a result of these actions, Defendants caused Plaintiff Kareem Britt and class
members damages.
COUNT VII – Violation of the Florida Deceptive and Unfair Trade Practices Act, Fla. Stat.
§ 501.201 et seq.
(Racial Discrimination Subclass against FCC and IEC)
266.
Plaintiff Kareem Britt repeat and re-allege paragraphs 1 through 231 as if fully set
forth herein.
267.
At all material times, Defendants were engaged in “trade or commerce” within the
meaning of §§ 501.204(1) and 501.203(8).
268.
In connection with the making of federal student loans for enrollment at FCC or for
the provision of educational services by FCC, Defendants committed “[u]nfair methods of
competition, unconscionable acts or practices, and unfair or deceptive acts or practices in the
conduct of any trade or commerce,” § 501.204(1), by engaging in a predatory scheme to target
Black people using high pressure tactics for their predatory product in violation of reverse
redlining.
269.
As a result of these actions, Defendants caused Plaintiff Kareem Britt and class
members damages.
PRAYER FOR RELIEF
WHEREFORE, the Plaintiffs respectfully request that this Court enter a judgment against
Defendants, joint and severally, and in favor of Plaintiffs and the Class and Subclass, and award
the following relief:
a. An order certifying this case as a class action under Fed. R. Civ. P. 23;
b. Actual damages, compensatory damages, both economic and non-economic, to
all members of the Class and Subclasses for an amount as determined by a jury
that would completely compensate all members of the Class and Subclasses, to
the extent possible, for their injuries caused by the conduct of Defendants;
c. Punitive damages to all members of the Class and Subclasses for an amount as
determined by a jury that would punish Defendants for their conduct alleged
and deter similar misconduct in the future;
d. Costs and attorneys’ fees pursuant to 15 U.S.C. § 1691e(d), 42 U.S.C. §
1988(b), and Fla. Stat. § 501.2105;
e. A declaration that the foregoing acts, policies, and practices of Defendants
violate the Equal Credit Opportunity Act, 15 U.S.C. § 1691 et seq., Title VI of
the Civil Rights Act of 1964, 42 U.S.C. § 2000d et seq., Florida Deceptive and
Unfair Trade Practices Act, Fla. Stat. § 501.201 et seq.; and breached
Defendants’ contracts with class members; therefore, due to this breach all class
members are absolved from paying monies due under the contracts.
f. A declaration that, based on the acts and omissions by Defendants in relation to
the making of federal student loans for enrollment at FCC or for the provision
of educational services by FCC, Plaintiffs have established a defense to
repayment of their federal student loans and a right to recover amounts
previously collected on the loans.
g. An Order enjoining Defendants and their directors, officers, agents, and
employees from engaging in the conduct described herein, and directing
Defendants and their directors, officers, agents, and employees to take all
affirmative steps necessary to remedy the effects of the conduct described
herein and to prevent additional instances of such conduct or similar conduct
from occurring in the future; and
h. Such other and further relief that may be just and proper.
JURY TRIAL DEMANDED
270.
Plaintiffs request trial by jury as to all issues in this case.
Dated: April 20, 2020
Respectfully Submitted,
/s/Adam M. Schachter
ADAM M. SCHACHTER
Florida Bar No. 647101
aschachter@gsgpa.com
BRIAN W. TOTH
Florida Bar No. 57708
btoth@gsgpa.com
ANDREW J. FULLER
Florida Bar No. 1021164
afuller@gsgpa.com
GELBER SCHACHTER & GREENBERG, P.A.
1221 Brickell Avenue, Suite 2010
Miami, Florida 33131
Telephone: (305) 728-0950
E-service: efilings@gsgpa.com
TOBY MERRILL
(pro hac vice application forthcoming)
tomerrill@law.harvard.edu
EILEEN CONNOR
(pro hac vice application forthcoming)
econnor@law.harvard.edu
EMMANUELLE VERDIEU
(pro hac vice application forthcoming)
everdieu@law.harvard.edu
MARGARET O'GRADY
(pro hac vice application forthcoming)
mogrady@law.harvard.edu
LEGAL SERVICES CENTER OF HARVARD
LAW SCHOOL
122 Boylston Street
Jamaica Plain, MA 02130
Telephone: (617) 390-2576
ZACHARY S. BOWER
Florida Bar No. 17506
zbower@carellabyrne.com
Security Building
117 NE 1st Avenue
Miami, FL 33132-2125
Telephone: (973) 994-1700
CAROLINE F. BARTLETT
(pro hac vice application forthcoming)
cbartlett@carellabyrne.com
CARELLA, BYRNE, CECCHI, OLSTEIN, BRODY
& AGNELLO P.C.
5 Becker Farm Road
Roseland, New Jersey 07068-1739
Telephone: (973) 994-1700
| discrimination |
g9V1D4cBD5gMZwczeCOD | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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PAMELA WILLIAMS, on behalf of herself and all
others similarly situated,
Plaintiffs,
v.
CLASS ACTION COMPLAINT
AND
DEMAND FOR JURY TRIAL
1:20-cv-3969
CURALEAF, INC.,
Defendant.
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INTRODUCTION
1.
Plaintiff PAMELA WILLIAMS, on behalf of herself and others similarly situated,
asserts the following claims against Defendant CURALEAF, 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, ny.curaleaf.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 PAMELA WILLIAMS, 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 Delaware 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 medicinal cannabis company that owns and operates
ny.curaleaf.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 May of 2020, Plaintiff visited
Defendant’s website, ny.curaleaf.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 22, 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 |
h6_SCocBD5gMZwcz2sbb | IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
Civil Case No.: ___________
JURY TRIAL DEMANDED
___________________________
KAYLA MARIE AVERY, KAHARI
THOMAS, PRESTIGE LAWRENCE
individually and on behalf of all others
similarly situated,
Plaintiffs,
v.
ALBANY SHAKER DONUTS LLC,
COHOES DONUTS LLC, THOMPSON
ROAD DONUTS LLC, WORCESTER
UPSTATE DONUTS INC., DUNKIN’
DONUTS FRANCHISING LLC; and
DOES 1-10, inclusive,
Defendants.
ANTITRUST CLASS ACTION COMPLAINT
Plaintiffs KAYLA MARIE AVERY, KAHARI THOMAS, and PRESTIGE
LAWRENCE (“Plaintiffs”), individually and on behalf of all those similarly situated, by and
through their counsel, bring this Class Action Complaint (“Complaint”) against Defendants
ALBANY SHAKER DONUTS LLC, COHOES DONUTS LLC, THOMPSON ROAD
DONUTS LLC, WORCESTER UPSTATE DONUTS INC., DUNKIN’ DONUTS
FRANCHISING LLC (“Dunkin’ Donuts”); and Does 1 through 10 (who collectively shall be
referred to hereinafter as “Defendants”), on personal knowledge with respect to herself and her
own acts, and on information and belief as to other matters, alleges as follows:
I. NATURE OF ACTION
1.
Plaintiffs, on behalf of themselves, on behalf of the New York general public, and
as a class action on behalf of Defendants’ employees from July 9, 2014 through the present
(“Class Members”), seeks millions of dollars in lost wages, plus triple damages, and interest,
caused by Defendants’ long-standing and illegal mutual non-solicitation agreements (i.e.,
agreements that Dunkin’ Donuts franchisees could not solicit for employment the employees of
Dunkin’ Donuts and/or of other Dunkin’ Donuts franchisees) and no-hire agreements (i.e.,
agreements that Dunkin’ Donuts franchisees could not hire the employees of Dunkin’ Donuts
and/or other Dunkin’ Donuts franchisees) that were all entered into by Dunkin’ Donuts
franchises throughout New York State for years and that had the intended and actual effect of
significantly reducing Class Members’ wages and salaries. The genesis of the no-hire and non-
solicitation agreements at issue were franchise agreements between Dunkin’ Donuts and its
franchisees, and between its franchisees, including, upon information and belief, Albany Shaker
Donuts LLC, Cohoes Donuts LLC, Thompson Road Donuts LLC., and/or Worcester Upstate
Donuts Inc.
2.
In sum, Defendants engaged in per se violations of New York Antitrust laws and
the Sherman Antitrust Act by entering into no-hire and non-solicitation agreements, for the
express purpose of depressing and/or reducing market-based wages and benefit increases for
Class Members that are typically associated with the active recruitment of employees and
workers in a competitive industry. While protecting and enhancing their profits, Defendants,
through their no-hire and non-solicitation agreements, robbed Class Members millions of dollars-
worth of wages for which Plaintiffs and the Class now seek relief.
II. JURISDICTION AND VENUE
3.
Plaintiffs bring this class action lawsuit pursuant to Sections 4 and 16 of the
Clayton Act, 15 U.S.C. §§ 15 and 26, to recover damages suffered by the Class and the costs of
suit, including reasonable attorneys’ fees; to enjoin Defendants’ anticompetitive conduct; and for
such other relief as is afforded under the antitrust laws of the U.S. for Defendants’ violations of
Section 1 of the Sherman Act, 15 U.S.C. § 1.
4.
This Court has subject matter jurisdiction pursuant to 28 U.S.C. §§ 1331, 1137,
and Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15(a), 26.
5.
Venue is proper in this District pursuant to Sections 4, 12, and 16 of the Clayton
Act, 28 U.S.C. §§ 15, 22, and 26, and pursuant to 28 U.S.C. § 1391(b), (c), and (d), because, at
all times relevant to the Complaint, one or more of the Defendants resided, transacted business,
was found, or had agents in this District and for the reasons alleged above.
III. THE PARTIES
6.
Plaintiff Kayla Marie Avery, who at all relevant times was a resident of New
York, is a former employee of Defendants Albany Shaker Donuts LLC and Cohoes Donuts LLC.
Plaintiff Avery was employed by Defendants from approximately February 2015 through
October 2017. Plaintiff Avery first worked as a crew member, then shift leader and assistant
manager at a Dunkin’ Donuts location in Loudonville, New York before she was promoted to
manager and promised a higher rate of pay at a Dunkin’ Donuts location in Cohoes, New York.
Plaintiff Avery did not want to move Dunkin’ Donuts location but Defendants persisted. Plaintiff
Avery filled the role of assistant manager and manager at the Cohoes, New York location
however she did not receive her higher rate of pay as promised to her until her sixth month of
employment at the Cohoes, New York location. As a result, Plaintiff Avery was subject to and
victimized by the non-solicitation and no-hire conspiracy between and among the Defendants,
resulting in her having lost wages.
7.
Plaintiff Kahari Thomas, who at all relevant times was a resident of New York, is
a former employee of Defendant Thompson Road Donuts LLC. Plaintiff Thomas worked as a
shift leader at a Dunkin’ Donuts location in Manlius, New York and then in Syracuse, New York
from approximately June/July 2016 through April/May 2017 and again from July 2017 through
August 2018. As a result, Plaintiff Thomas was subject to and victimized by the non-solicitation
and no-hire conspiracy between and among the Defendants, resulting in her having lost wages.
8.
Plaintiff Prestige Lawrence, who at all relevant times was a resident of New York,
is a former employee of Defendant Worcester Upstate Donuts Inc. Plaintiff Lawrence worked as
a cashier crew member and night shift crew member at a Dunkin’ Donuts location in Rochester,
New York from approximately May 2017 through September 2017. Plaintiff Lawrence requested
to be transferred from the Chill Avenue Dunkin’ Donuts location to the Jefferson Road location
but was informed she would have to wait six months. As a result, Plaintiff Lawrence was subject
to and victimized by the non-solicitation and no-hire conspiracy between and among the
Defendants, resulting in her having lost wages.
9.
Upon information and belief, Defendants Albany Shaker Donuts LLC and Cohoes
Donuts LLC are New York limited liability companies, operating at least two locations between
them doing business in New York as Dunkin’ Donuts. Upon information and belief, both
franchisees are owned or ultimately controlled by Mark Cafua. Defendant Albany Shaker Donuts
LLC’s agent of process is located at 897 Main Street, P.O. Box N, Sanford, Maine 04073, while
Defendant Cohoes Donuts LLC maintains a principal place of business located at 78 Rensselaer
Avenue, Cohoes, New York 12047. Upon information and belief, Defendants Albany Shaker
Donuts LLC and Cohoe Donuts LLC both entered into franchise agreements with Defendant
Dunkin’ Donuts Franchising LLC that contained no-hire and non-solicitation provisions.
10.
Defendant Thompson Road Donuts LLC is a New York limited liability company
in Onondaga County New York with its agent of process located at 897 Main Street, P.O. Box N,
Sanford, Maine 04073. Upon information and belief Defendant Thompson Road Donuts LLC
operates at least two stores in New York doing business as Dunkin’ Donuts. Upon information
and belief, Defendant Thompson Road Donuts LLC entered into a franchise agreement with
Defendant Dunkin’ Donuts Franchising LLC that contained no-hire and non-solicitation
provisions.
11.
Defendant Worcester Upstate Donuts Inc. is a New York corporation in Monroe
County New York with its agent of process located at 966 W. Linden Avenue, East Rochester,
New York 14445. Upon information and belief Defendant Worcester Upstate Donuts Inc.
operates at least two stores stores in New York doing business as Dunkin’ Donuts. Upon
information and belief, Defendant Worcester Upstate Donuts Inc. entered into a franchise
agreement with Defendant Dunkin’ Donuts Franchising LLC that contained no-hire and non-
solicitation provisions.
12.
Defendant Dunkin’ Donuts Franchising LLC is a Massachusetts limited liability
company. Upon information and belief, Defendant Dunkin’ Donuts Franchising LLC’s principal
place of business is located at 130 Royall Street Legal Dept. 3 East A, Canton, Massachusetts,
02021. Defendant Dunkin’ Donuts Franchising LLC is a franchisor. Defendant Dunkin’ Donuts
Franchising LLC is in the business of donut stores, which it franchises throughout New York and
the United States. Upon information and belief, Defendant Dunkin’ Donuts Franchising LLC
entered into agreements with its franchisees, including Albany Shaker Donuts LLC, Cohoes
Donuts LLC, Thompson Road Donuts LLC, and Worcester Upstate Donuts Inc. that contained
no-hire and non-solicitation provisions.
13.
The true names and capacities, whether individual, corporate, associate, or
otherwise, of Defendants sued herein as DOES 1 to 10, inclusive, are currently unknown to
Plaintiffs, who therefore sues Defendants by such fictitious names. Does 1 through 10 are the
other largest franchisees of Dunkin’ Donuts in New York based on number of employees
employed. Plaintiffs are informed and believe, and based thereon allege, that each of the
Defendants designated herein as a Doe is legally responsible in some manner for the unlawful
acts referred to herein in that they are additional co-conspirators. Plaintiffs will seek leave of
court to amend this Complaint to reflect the true names and capacities of the Defendants
designated hereinafter as Does when such identities become known. Defendants and the Does 1-
10 shall collectively be referred to as “Defendants.”
14.
Plaintiffs are informed and believe, and based thereon allege, that each Defendant
acted in all respects pertinent to this action as the agent of the other Defendants, carried out a
joint scheme, business plan or policy in all respects pertinent hereto, and the acts of each
Defendant are legally attributable to the other Defendants. Furthermore, Defendants in all
respects acted pursuant to the mutual non-solicitation and no-hire agreements that were intended
to suppress and had the effect of suppressing wages and salaries for the Class Members.
IV. FACTS EVIDENCING THE CONSPIRACY
15.
Defendants had a longstanding agreement to control their employees’ wages and
mobility by agreeing not employ or solicit each other’s employees.
16.
The mutual non-poaching and non-solicitation agreement itself constituted a per
se violation of the Sherman Antitrust Act and the Donnelly Act between Defendants for decades
until it was recently brought to light by the New York Attorney General’s investigation
commencing on or around July 9, 2018 in the course of the AG’s investigation into similarly
illegal mutual non-solicitation and anti-poach agreements entered into between several of the
largest fast food franchisors operating in New York and the United States.1
17.
Upon information and belief, Albany Shaker Donuts LLC, Cohoes Donuts LLC,
Thompson Road Donuts LLC, Worcester Upstate Donuts Inc., and other franchisees, that own a
total of approximately 1,300 Dunkin’ Donuts stores in New York state, entered into franchisee
agreements with no-hire and non-solicitation terms.
18.
As set forth herein, upon information and belief, all of the Defendants entered into
the mutual non-solicitation agreements with the no-hire and non-solicitation terms above, with
the common interest and intention to keep their employees’ wage costs down, so that profits
continued to rise or at least not be undercut by rising salaries across the industry. As a result,
Defendants engaged in anti-competitive behavior in advancement of a common and illegal goal
of profiting at the expense of competitive market-based salaries.
19.
Defendants’ agreements unreasonably restrained trade in violation of the Sherman
Act 15 U.S.C. § 1, et seq. and constituted unfair competition and unfair practices in violation of
the Donnelly Act, N.Y. Gen. Bus. Law § 340. Plaintiffs, on behalf of themselves and on behalf
of the Class defined herein, seek to recover the difference between the wages and salaries that
Class Members were paid and what Class Members would have been paid in a competitive
market, in the absence of Defendants’ unlawful agreements, treble damages, attorneys fees, and
interest, allowed under the law.
V. HARM TO COMPETITION AND ANTITRUST INJURY
20.
Defendants are in the business of operating donut stores where donuts and other
fast food items are prepared and sold by crewmembers. In order to operate, Defendants owned
1 https://www.washingtonpost.com/amphtml/news/wonk/wp/2018/07/09/11-states-launch-investigation-targeting-
fast-food-hiring-practices/
other stores in New York and hired employees in their stores to complete all restaurant activities.
Defendants, other than Dunkin’ Donuts Franchising LLC, are all horizontal competitors of each
other that sell the same product and compete for the same customers.
21.
No-hire and non-solicitation agreements create downward pressure on fast food
worker wages. No-hire and non-solicitation agreements restrict worker mobility, which prevents
low-wage workers from seeking and obtaining higher pay. This artificially suppresses fast food
worker wages. In fact, fast food worker wages have remained stagnant. Simply put, no-hire and
non-solicitation agreements such as those entered into by Defendants serve no other purpose
other than to suppress workers’ wages.
22.
Unrestricted competition and the Free Market are the foundations of the American
economic system. That is because “[f]ree and open markets are the foundation of a vibrant
economy. Just as competition among sellers in an open marketplace gives consumers the benefits
of lower prices, higher quality products and services, more choices, and greater innovation,
competition among employer helps actual and potential employees through higher wages, better
benefits, or other terms of employment.” DOJ/FTC Antitrust Guidance for HR Professionals,
Oct. 2016, at p. 2. Furthermore, Princeton University’s professor of economics, Alan Krueger,
echoes these remarks stating that he can’t see a sound business justification for no-poach clauses
other than to restrain competition between businesses’ franchise locations.2
23.
Upon information and belief, Defendants conspired not to actively solicit or hire
each other’s employees and workers as part of one overarching conspiracy to suppress the
compensation of their employees, including Plaintiffs and Class Members. The desired effect
was obtained. Defendants’ conspiracy suppressed Plaintiffs’ and the Class’s compensation and
2 https://www.qsrmagazine.com/employee-management/welcome-end-no-poach-clauses
restricted competition in the labor markets in which Plaintiffs and the other members of the Class
sold their services, specifically the New York state quick service restaurants that provide fare
similar to that offered by Defendants. It did so through an overarching agreement concerning
mutual non-solicitation and no-hiring. The no-poaching agreements are only more pernicious to
workers due to the fact that no-poaching agreements are invisible to workers and workers have
no ability to argue or negotiate over them.3
24.
Concerning the non-solicitation agreements, active solicitations have a significant
beneficial impact for individual employees’ compensation. As understood by Defendants, active
recruitment by rival employers, here other franchisees doing business as Dunkin’ Donuts, often
include enticing offers that exceed an employee’s wages, salary, and/or benefits, thereby
incentivizing the employee to leave his or her current employment in order to receive greater
compensation for his or her labor, or alternatively, allowing the employee to negotiate increased
compensation from his or her current employer. Employees receiving active solicitation offers
often inform other employees of the offer(s) they received, spreading information about higher
wage and salary levels that can similarly lead to movement for the purposes of higher salary and
wages and/or negotiation by those other employees with their current employer or others for
greater compensation.
25.
Active solicitation similarly affects compensation practices by employers. A
franchisee that actively solicits other franchisees’ employees or other workers will learn whether
their offered compensation is enough to attract their competitors’ employees, and may increase
the offers to make their own company and its salaries more competitive in the marketplace.
Similarly, companies losing or at risk of losing employees to competitors engaged in active
3 http://knowledge.wharton.upenn.edu/article/how-fair-or-legal-are-non-poaching-agreements/
recruitment of employees or workers associated with their competitors may preemptively
increase their employees’ compensation in order to reduce their competitors’ appeal.
26.
Defendants’ efforts to maintain internal equity coupled with their non-solicitation
agreements ensured that their conspiracy caused the compensation of all their employees to be
suppressed.
27.
Furthermore, the effects of Defendants’ no-hire and non-solicitation agreements
are only exacerbated by the fact that such agreements are a widespread practice in the quick
service restaurant industry.
VI.
INTERSTATE COMMERCE
28.
During the Class Period, Defendants employed Plaintiffs and other Class
Members in New York and numerous other states.
29.
States compete to attract low wage workers, including fast food workers, leading
employment in the industry to cross state lines.
30.
Both Defendants and Plaintiffs and other Class Members view labor competition
in the industry to be nationwide. Defendants considered each other’s wages to be competitively
relevant regardless of location, and many Class Members moved between states to pursue
opportunities at Defendants’ stores.
31.
Defendants’ conduct substantially affected interstate commerce throughout the
United States and caused antitrust injury throughout the United States.
VII.
INTRASTATE COMMERCE
32.
During the Class Period, the Class Members were employed in New York.
33.
Defendants’ conduct unfairly restrained Class Members’ ability to find jobs in
New York.
34.
This unfair restraint kept Class Members’ wages artificially low, primarily
benefitting Defendants based in New York
VIII. CLASS ACTION ALLEGATIONS
35.
Plaintiffs bring this case as a class action pursuant to Federal Rule of Civil
Procedure 23(b)(3) on behalf of a Class consisting of:
All persons who were employed by Albany Shaker Donuts LLC, Cohoes Donuts LLC,
Thompson Road Donuts LLC, Worcester Upstate Donuts Inc., Dunkin’ Donuts
Franchising LLC, or any of the ten largest franchises of Dunkin’ Donuts in New York
State at any time from July 9, 2014 through the conclusion of this action (the “Class
Period”).4
36.
Plaintiffs believe there are more than 1,000 current and former employees in the
Class. Given Defendants’ systemic failure to comply with United States and New York laws
outlined in this case, the members of the Class are so numerous that joinder of all members is
impractical. The Class is ascertainable from either Defendants’ employment or hiring records.
37.
Plaintiffs’ claims are typical of the claims of the members of the Class, because
all Class Members are or were employees who sustained damages arising out of Defendants’
illegal mutual no-hire and anti-solicitation arrangements in violation of Section 1 of the Sherman
Antitrust Act and Section 340 of New York General Business Law that resulted in wage
suppression for all of the Class Members.
38.
Plaintiffs will fairly and adequately represent the interests of the Class. Plaintiffs
have no conflict of interest with any member of the Class. Plaintiffs have retained counsel
competent and experienced in complex class action litigation with the resources and expertise
necessary to litigate this case through to conclusion.
4 Plaintiffs reserve the right to modify the class definition at a later date to conform to new facts learned, including
the properly named entity Defendant(s).
39.
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 Plaintiffs and Class Members are:
a.
whether Defendants agreed not to actively recruit each other’s employees
in positions held by the Class Members;
b.
whether the mutual non-solicitation and anti-poaching agreements
between Defendants were per se violations of the Sherman Act, 15 U.S.C.
§ 1, et seq.;
c.
whether the mutual non-solicitation and anti-poaching agreements
between Defendants were violations of the Sherman Act, 15 U.S.C. § 1, et
seq. under a “quick look” analysis of the rule of reason;
d.
whether Defendants violated the Sherman Act by agreeing to not actively
recruit or solicit one another’s workers in positions held by Class
Members;
e.
whether Defendants violated N.Y. Gen. Bus. Law § 340, by entering into
agreements to not actively recruit each other’s workers in positions held
by Class Members;
f.
whether and the extent to which Defendants’ conduct suppressed wages
and salaries below competitive levels;
g.
whether Plaintiffs and the other Class Members suffered injury as a result
of Defendants’ agreements;
h.
whether any such injury constitutes antitrust injury;
i.
whether Class Members are entitled to treble damages; and
j.
the measure of damages suffered by Plaintiffs and the Class.
40.
Class action treatment is superior to any alternative to ensure the fair and efficient
adjudication of the controversy alleged herein. Such treatment will permit a large number of
similarly situated persons to prosecute their common claims in a single forum simultaneously,
efficiently, and without duplication of effort and expense that numerous individuals would entail.
No difficulties are likely to be encountered in the management of this class action that would
preclude its maintenance as a class action, and no superior alternative exists for the fair and
efficient adjudication of this controversy. The Class Members are readily identifiable from
Defendants’ employee rosters, payroll records or other company records.
41.
Defendants’ actions are generally applicable to the entire Class. Prosecution of
separate actions by individual members of the Class creates the risk of inconsistent or varying
adjudications of the issues presented herein, which, in turn, would establish incompatible
standards of conduct for Defendants.
42.
Because joinder of all members is impractical, a class action is superior to other
available methods for the fair and efficient adjudication of this controversy. Furthermore,
the amounts at stake for many members of the Class, while substantial, may not be sufficient to
enable them to maintain separate suits against Defendants.
IX.
STATUTE OF LIMITATIONS AND DEFENDANTS’ CONTINUING
VIOLATION
43.
Defendants’ conspiracy was a continuing violation in which Defendants
repeatedly invaded Plaintiffs’ and Class Members’ interests by adhering to, enforcing, and
reaffirming the anticompetitive agreements described herein.
44.
Before 2018, Plaintiffs and the members of the Class had neither actual nor
constructive knowledge of the pertinent facts constituting their claims for relief asserted herein.
Plaintiffs and members of the Class did not discover, and could not have discovered through the
exercise of reasonable diligence, the existence of any conspiracy until at the earliest some time in
2018 when the investigation by the AG into non-solicitation agreements among fast food
franchisees/franchisors including Dunkin’ Donuts was first revealed publicly. This case is filed
within four years of the moment when it was first revealed that the AG investigation had
unearthed that Dunkin’ Donuts had engaged in mutual non-solicitation and no-hire agreements
with Albany Shaker Donuts LLC, Cohoes Donuts LLC, Thompson Road Donuts LLC,
Worcester Upstate Donuts Inc. and other Dunkin’ Donuts franchisees.
45.
Defendants engaged in a conspiracy that did not give rise to facts that would put
Plaintiffs or the Class on inquiry notice that there was a conspiracy among Dunkin’ Donuts and
franchisees to restrict competition for Class Members’ services through non-solicitation and no-
hire agreements.
X.
CAUSES OF ACTION
FIRST CAUSE OF ACTION
VIOLATION OF SECTION ONE OF SHERMAN ACT
[15 U.S.C. § 1, et seq.]
(On Behalf of Plaintiffs and the Class)
46.
Plaintiffs incorporate by reference the allegations in the above paragraphs as if
fully set forth herein.
47.
Defendants, by and through their officers, directors, employees, agents or other
representatives, have entered into an unlawful agreement, combination and conspiracy in
restraint of trade, in violation of 15 U.S.C. § 1, et seq. Specifically, Defendants agreed to restrict
competition for Class Members’ services through non-solicitation agreements and no-hire
agreements, all with the purpose and effect of suppressing Class Members’ compensation and
restraining competition in the market for Class Members’ services.
48.
According to the Department of Justice (“DOJ”) and Federal Trade Commission
(“FTC”), “…no-poaching agreements, among employers…are per se illegal under the antitrust
laws.” DOJ/FTC Antitrust Guidance for HR Professionals, Oct. 2016, at p. 3. “It is unlawful for
competitors to expressly or implicitly agree not to compete with one another, even if they are
motivated by a desire to reduce costs.” Id. at p. 2.
49.
Defendants’ conduct injured Class Members by lowering their compensation and
depriving them of free and fair competition in the market for their services.
50.
Defendants’ agreements are per se violations of the Sherman Act.
51.
In the alternative, Defendants are liable under a “quick look” analysis where an
observer with even a rudimentary understanding of economics could conclude that the
arrangements in questions would have an anticompetitive effect on employees and labor markets.
52.
Plaintiffs seek the relief set forth below, including underpaid and treble damages.
SECOND CAUSE OF ACTION
ILLEGAL CONTRACT IN RESTRAINT OF TRADE OR FURNISHING OF SERVICES
[New York General Business Law § 340, et seq., (the “Donnelly Act”)]
53.
Plaintiffs incorporate by reference the allegations in the above paragraphs as if
fully set forth herein.
54.
New York General Business Law § 340(1) states: “[e]very contract, agreement,
arrangement or combination whereby a monopoly in the conduct of any business, trade or
commerce or in the furnishing of any service in this state, is or may be established or maintained,
or whereby competition or the free exercise of any activity in the conduct of any business, trade
or commerce or in the furnishing of any service in this state is or may be restrained or whereby
for the purpose of establishing or maintaining any such monopoly or unlawfully interfering with
the free exercise of any activity in the conduct of any business, trade or commerce or in the
furnishing of any service in this state any business, trade or commerce or the furnishing of any
service is or may be restrained, is hereby declared to be against public policy, illegal and void”.
55.
As stated above, the New York Attorney is investigating Dunkin’ Donuts and
believes that the no-hire and non-solicitation provisions of its franchise agreements, by and
between itself and its franchisees, may constitute a contract, combination, conspiracy, or
arrangement in restraint of trade.
56.
Through their conspiracy and actions as alleged herein, Defendants’ efforts to
restrain competition for and suppress compensation of their employees through their franchise
agreements constitutes illegal agreements in violation of the Donnelly Act. Specifically,
Defendants agreed to restrict competition for Class Members’ services through non-solicitation
and no-hire agreements, all with the purpose and effect of suppressing Class Members’
compensation and restraining competition in the market for Class Members’ services.
Defendants’ illegal conspiracy was substantially injurious to Plaintiffs and the Class Members.
57.
Defendants’ conduct injured Plaintiffs and other Class Members by lowering their
compensation and depriving them of free and fair competition in the market for their services,
allowing Defendants to unlawfully retain money that otherwise would have been paid to
Plaintiffs and other Class Members.
58.
The harm to Plaintiffs and members of the Class in being denied payment for their
services in the amount of higher wages and salaries that they would have received in the absence
of the conspiracy outweighs the utility, if any, of Defendants’ illegal non-solicitation and non-
poaching agreements and, therefore, Defendants’ actions described herein constitute an illegal
restraint on trade within the meaning of N.Y. Gen. Bus. Law § 340.
59.
Pursuant to N.Y. Gen. Bus. Law § 340(5), any person who is injured by a
violation of N.Y. Gen. Bus. Law § 340 may bring a civil action to recover three-fold the actual
damages, and attorneys’ fees and costs.
60.
In the alternative, Defendants are liable under a “quick look” analysis where an
observer with even a rudimentary understanding of economics could conclude that the
arrangements in questions would have an anticompetitive effect on employees and labor markets
in the state of New York.
61.
Plaintiffs seek the relief set forth below.
XI.
JURY DEMAND
Pursuant to Federal Rule of Civil Procedure 38(b), Plaintiffs demand a trial by jury on all
issues so triable.
XII.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs, on behalf of themselves and a class of all others similarly
situated, requests that the Court enter an order or judgment against Defendants including the
following:
a. Certification of the class described herein pursuant to Rule 23 of the Federal
Rules of Civil Procedure;
b. Appointment of Plaintiffs as Class Representatives and their counsel of record
as Class Counsel;
c. Compensatory damages in an amount to be proven at trial and trebled thereafter;
d. Pre-judgment and post-judgment interest as provided for by law or allowed in
equity;
e. The costs of bringing this suit, including reasonable attorneys’ fees and costs;
f. Incentive awards to compensate Plaintiffs for their efforts in pursuit of this
litigation;
g. Interest under New York law; and
h. All other relief to which Plaintiffs and the Class may be entitled at law or in
equity.
Dated October 25, 2018.
Respectfully submitted,
Mermelstein Law
Ackermann & Tilajef, P.C.
S/
Avi Mermelstein
MERMELSTEIN LAW
3625 Johnson Avenue, Suite 202
Bronx, New York 10463
Telephone: (646) 470-2105
avi@mermelaw.com
Craig J. Ackermann (pro hac vice pending)
ACKERMANN & TILAJEF, P.C.
1180 S. Beverly Drive, Suite 610
Los Angeles, California 90035
Telephone:
(310) 277-0614
Facsimile:
(310) 277-0635
cja@ackermanntilajef.com
| antitrust |
sKjdCYcBD5gMZwczVw2O | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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FRANKIE MONEGRO, on behalf of himself and
all others similarly situated,
INDEX NO.: 1:20-cv-8554
CLASS ACTION COMPLAINT
AND
Plaintiffs,
v.
DEMAND FOR JURY TRIAL
BRILLIANCE NEW YORK, LLC,
Defendant.
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INTRODUCTION
1.
Plaintiff FRANKIE MONEGRO, on behalf of himself and others similarly
situated, asserts the following claims against Defendant BRILLIANCE NEW
YORK, 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.brilliancenewyork.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 FRANKIE MONEGRO, at all relevant times, is and was a resident of
New York, 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 Florida 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
hair
products
company
that
owns
and
operates
www.brilliancenewyork.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 September of 2020, Plaintiff visited
Defendant’s website, www.brilliancenewyork.com, to make a purchase. 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, 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 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 14, 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 |
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JBS USA Food Company Holdings, Tyson Foods, Inc., Cargill, Inc.
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| antitrust |
hKR5CYcBD5gMZwczfet6 | BLECHER & COLLINS, P.C.
JUL
Maxwell M. Blecher (State Bar No. 26202)
21
mblecher@blechercollins.com
s
Theo Giovanni Arbucci (State Bar No. 249811)
3:51
3
jarbucci@blechercollins.com
515 South Figueroa Street, Suite 1750
Los Angeles, California 90071-3334
Telephone: (213) 622-4222
Facsimile: (213) 622-1656
6
Attorneys for Plaintiff
BERNARD PARRISH et al.
7
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
BERNARD PARRISH, BOB GRANT, ROY
CASE NO.
NO
3200
LEE JEFFERSON, WALTER BEACH, DR.
CLINTON JONES, WALTER ROBERTS,
III, CLIFTON MCNEIL, MARVIN COBB,
JOHN BRODIE, CHUCK BEDNARIK, AND
1) LEGAL MALPRACTICE; AND
PAUL HORNUNG on behalf of himself and
2) BREACH OF FIDUCIARY DUTY
all others similarly situated
(DEMAND FOR JURY TRIAL)
Plaintiff,
vs.
MANATT, PHELPS & PHILLIPS, LLP, and
MCKOOL SMITH, PC,
Defendants.
Clifton McNeil ("McNeil"), Marvin Cobb ("Cobb"), John Brodie ("Brodie"), Chuck
collectively referred to as "defendants"), as follows:
I.
INTRODUCTION
two classes of retired National Football League ("NFL") players against the above-
named defendants. The first class, represented by Jefferson, Parrish, Bednarik,
to the underlying action listed below and participated in the settlement of that action
("Participating Class"). The second class, represented by Cobb, Grant, Jones and
action of Adderly V. National Football League Players Association, fell below the
that defendants breached the fiduciary duty owed to them by virtue of the attorney-
client relationship.
II.
PARTIES
1.
Florida.
2.
Plaintiff Bob Grant is an individual who is a resident and citizen of
California.
3.
Virginia.
4.
Plaintiff Walter Beach is an individual who is a resident and citizen of
Pennsylvania.
5.
California.
6.
California.
7.
Plaintiff Clifton McNeil is an individual who is a resident and citizen of
Alabama.
8.
Plaintiff Marvin Cobb is an individual who is a resident and citizen of
California.
9.
Plaintiff John Brodie is an individual who is a resident and citizen of
California.
10.
Pennsylvania.
11.
Plaintiff Paul Hornung is an individual who is a resident and citizen of
Kentucky.
12.
Liability Partnership headquartered in Los Angeles, California, with law offices
throughout the United States.
13.
D.C., and New York.
III.
JURISDICTION AND VENUE
14.
of contract and breach of fiduciary duty claims substantially overlap and create a
Mclerney & Squire, LLP, 464 F.3d 328 (2d Cir. 2006).
15.
Pursuant to paragraphs 29(f) and 57 of the Settlement and Releasemay include the disposition of the claims stated herein.
16.
Venue is proper in this District pursuant to 28 U.S.C. § 1391(a)(2) because a
substantial part of the events or omissions giving rise to the claims occurred in this
District.
IV.
FACTUAL ALLEGATIONS COMMON TO ALL CLAIMS
17.
In 2007, Parrish retained defendants Manatt and McKool to represent
the National Football League Players Association ("NFLPA") and National Football
was both a retainer agreement with Manatt and a "co-counsel agreement" between
Manatt, McKool and Parrish. Parrish was originally a class representative in the
and the class members the highest degree of loyalty and professional responsibility.
18.
Parrish and Herbert Adderly instituted the underlying action, Parrish V.
Incorporated d/b/a Players Inc., in the United States District Court for the Northern
the labor union for players in the NFL. In the Order Granting in Part and Denying in
"masterpiece of obfuscation.
rais[ing] more questions that it answers." The Court
be determined; (3) when licensing distributions were actually made; and (4) which
players signed the GLAs, but very few had received anything.
19.
Plaintiffs alleged that the NFLPA breached a fiduciary duty to pursue
culminated in a $28.1 million verdict in favor of the class for breach of fiduciary duty,
made no effort to do so - and that the defendants' true commercial motive was to
displeasure with the settlement.
20.
A number of class members, including Parrish and the class
the claims originally appearing in the settlement document which the court properly
decided to reject. Counsel Mr. Katz appeared to be disinterested in listening to
1
A court-approved settlement does not preclude a malpractice claim.
Durkin V. Shea & Gould, 92 F.3d 1510 (9th Cir. 1996).
objectors to the settlement as documents show that in light of a court order requiring
the phone, then tell him he has no more than the same right as any other citizen to
comment on the settlement, and hang up.
21.
Although the District Court was reluctant to voice "criticisms" of
defendants' performance, it did so because of defendants' "overreaching" in their
attempt to obtain attorneys' fees and costs of suit. As set forth more fully below, the
District Court set forth two major deficiencies in defendants' performance that
a negative impact on the final value of the settlement. The Excluded Class further
them from participation in the underlying action, therefore depriving them of the
recovery to which they were otherwise entitled.
22.
failure to lay the proper foundation for critical evidence. A key fact issue in the
players. Third-party discovery revealed an e-mail chain that should have led to
powerful and admissible evidence in favor of the classes in the underlying lawsuit.
e-mail chain - expressly labeled as "critical" even by defendants - would somehow
come into evidence. However, being obvious hearsay, it did not. The details are as
follows.
23.
Electronic Arts, Inc., ("EA") was the NFLPA's/Players Inc.'s single most
dealt with the NFLPA with respect to its series of Madden NFL video games. As towas entered into evidence at trial.
24.
What did not get into evidence was the most critical part of the
Strauser at EA asking LaShun Lawson ("Lawson") at Players, Inc. (defendant in the
records in EA's Madden NFL football game:
I know that Players Inc. doesn't want us to include any
retired players "in the game" - but in this case given that it is
factual, real [world] information that is readily available, our
hope is that you would agree with us that this particular
feature is made much stronger by including text display of
the record data.
relates to rights."
25.
Significantly, therefore, there was no admission from Lawson that
Strauser had accurately stated Players, Inc.'s position regarding the use of retired
Players, Inc., to be that no retired players were to be used in EA games.
26.
Strauser characterized defendants' response to EA's request:
They said "no" to this despite my attempts to convince them
otherwise. They have taken a hard line on no retired player
in the game in any form.
27.
briefing on the extent to which Strauser's internal EA e-mail statements were
admissible. Defendants promised to provide a brief because the admissibility of this
into evidence. The only portions of the e-mail that were admissible were those
action. However, those passages proved nothing. The critical passages were all
written by non-party Mr. Strauser of EA. These passages purported to put what the
District Court characterized as "important words" in the NFLPA's mouth.
28.
Given that defendants represented the e-mail chain as "critical" to the
trial or by deposition to develop the proper foundation to admit the e-mail.
29.
send e-mails to coworkers summarizing conversations with outside parties, among
attempt to establish the business records exception.
30.
As the District Court noted, defendants should not have gambled on
according to the trial judge and common sense, have enlarged the award.
31.
The second of the deficiencies in defendants' performance was their
duty. Defendants wholly failed to present a damages assessment at trial keyed to
contract.
32.For both claims defendants only presented one damage theory, which was based
players.
33.
Defendants presented no alternative theory of damages based on the
breach of fiduciary duty alone. Nor did defendants present any alternative damages
be worth in the market had a sports agent attempted to market the group rights.
Defendants' damages expert admitted to this failure at trial. Indeed, the Court itself
of fiduciary duty.
34.
class members, and the evidence showed defendants did nothing to meet that duty.
they actually been marketed, thus leaving the jury to construct its own number.
the underlying action that this omission resulted in a damages award "diminutive in
The District Court went on to find that "a common sense damages theory based on
V.
CLASS ACTION ALLEGATIONS
35.
Plaintiffs bring this class action, on behalf of themselves and all others
similarly situated pursuant to Rule 23 of the Federal Rules of Civil Procedure. This
action is maintainable as a class action pursuant to Rule 23(a), (b) and (d).
A.
The Participating Class
36.
Plaintiffs Jefferson, Parrish, Bednarik, Hornung, Brodie, McNeil, and
Beach bring claims of legal malpractice and breach of fiduciary duty, on behalf of a
nationwide class seeking damages (the "Participating Class").
37.
The Participating Class is defined as all those retired NFL players who
were members of the Certified Class in the underlying action, which was defined as
"[a]ll retired NFL players who signed [Group Licensing Agreements] with the NFLPA
that were in effect between February 14, 2003, and February 12, 2007 and which
contain the following language: '[T]he moneys generated by such licensing of retired
player group rights will be divided between the player and an escrow account for all
who participated in the settlement and were not awarded the rightful recovery due to
defendants' mistakes, errors and omissions.
B.
The Excluded Class
38.
players who were not included in the underlying settlement (the "Excluded Class").
39.
the definition of the Certified Class in the underlying action but for reasons unknown
were excluded from participation in the underlying lawsuit and settlement.40.
The size of the classes and identities of their individual members are
ascertainable through the defendants' records and the records of the NFLPA.
41.
e-mail notice, website notice, first-class mail, or combinations thereof, or by other
methods suitable to these classes and deemed necessary and/or appropriate by the
Court.
42.
law and fact affecting the members of the Participating Class as required by Rule
the following:
a)
whether defendants' failure to admit critical evidence in the
breach of fiduciary duty resulting in damage to Parrish and the members of the
Participating Class;
b)
for plaintiffs' claims for breach of fiduciary duty fell below the standard of care and
constituted legal malpractice and/or breach of fiduciary duty resulting in damage to
Parrish and the Participating Class; and
c)
whether Parrish and the Participating Class are entitled to
damages, punitive damages, costs and attorneys' fees as a result of the unlawful
conduct of defendants.
43.
The questions of law and fact common to the Excluded Class predominate over any
a)
and constitutes legal malpractice;
b)
whether the acts and omissions of defendants described above
would entitle the Excluded Class to damages for legal malpractice;
c)
whether defendants owed members of the Excluded Class a
fiduciary duty;
d)
if so, whether that fiduciary duty was breached as a result of the
acts and omissions described above; and
e)
whether the class representatives and the Excluded Class are
entitled to damages, punitive damages, costs and attorneys' fees as a result of the
unlawful conduct of defendants.
VI.
CLAIMS FOR RELIEF
FIRST CAUSE OF ACTION
Class))
(Against All Defendants)
44.
43 as though fully set forth herein.
45.
Defendants, and each of them, were obligated to exercise and act with
reasonable care, skill, diligence and fidelity to the class representatives and the
classes.
46.
observance of, and compliance with, applicable legal standards.
47.
by failing to exercise reasonable care and skill in performing their legal services, by,
among other things, committing the following wrongful acts or omissions:
(a)
exclusion, therefore dramatically lessening the classes' recovery in the underlying
action; and
(b)
underlying action.
48.
The conduct alleged herein concerning the legal services provided by
defendants fell below the applicable standard of care and, as such, defendants
breached their duties owed to the class representatives and the classes.
49.
The class representatives and the classes reasonably relied upon the
advice, guidance and legal representations of defendants in connection with the
underlying litigation and depended upon defendants to fully protect their interests in
connection therewith.
50.
Defendants' breaches of these duties, and resulting professional
negligence, proximately caused significant harm and loss to plaintiffs.
51.
But for defendants' failure to exercise reasonable care, plaintiffs would
have recovered a significantly larger sum of damages in the underlying action.
52.
As a direct and proximate result of defendants' failure to exercise the
and costs.
SECOND CAUSE OF ACTION
(Legal Malpractice - Professional Negligence (Excluded Class))
(Against All Defendants)
53.
52 as though fully set forth herein.
54.reasonable care, skill, diligence and fidelity to Jones, Grant and the Excluded Class.
55.
Defendants owed these clients the full complement of duties owed by
every attorney. These duties include, but are not limited to, zealous representation,
and compliance with, applicable legal standards.
56.
by, among other things, committing the following wrongful act or omission:
(a)
therefore depriving all members of the Excluded Class from recovery to which they
were otherwise entitled.
57.
The conduct alleged herein concerning the legal services provided by
defendants fell below the applicable standard of care and, as such, defendants
breached their duties owed to Jones, Grant, Roberts and Cobb and the Excluded
Class.
58.
legal representations of defendants in connection with the underlying litigation and
depended upon defendants to fully protect their interests in connection therewith.
59.
Defendants' breaches of these duties, and resulting professional
negligence, proximately caused significant harm and loss to plaintiffs.
60.
But for defendants' failure to exercise reasonable care, plaintiffs would
entitled.
61.
As a direct and proximate result of defendants' failure to exercise the
have suffered actual damages in an amount to be proven at trial, plus attorneys' fees
and costs.
THIRD CAUSE OF ACTION
(Breach of Fiduciary Duty (Participating Class and Excluded Class))
(Against All Defendants)
62.
61 as though fully set forth herein.
63.
and the classes, defendants owed to them the obligations owing in a fiduciary
with the standards of legal ethics that apply to attorneys. The relationship between
the part of the attorney.
64.
Defendants failed to act competently and to conform diligently to the
fiduciary obligations it owed to the class representatives and the classes. The acts
and/or omissions of defendants are described herein. Defendants breached their
of the attorney-client relationship that existed between them.
65.
Defendants' breaches of their fiduciary duties owing to the class
representatives and the classes proximately caused significant harm and loss to
plaintiffs.
66.
As a direct and proximate result of the foregoing breaches, the class
representatives and the classes have suffered actual damages in an amount to be
proven at trial, plus attorneys' fees and costs.
PRAYER FOR RELIEF
WHEREFORE, plaintiffs, on behalf of themselves and all others similarly
situated, pray as follows:
a.action under Rule 23 of the Federal Rules of Civil Procedure, and that Maxwell M.
Blecher be appointed as lead class counsel.
b.
damages determined to have been sustained by each of them, including punitive
member of the two Classes, respectively, be entered against defendants.
C.
suit, including reasonable attorneys' fees, as provided by law.
Dated: July 20 , 2010
BLECHER & COLLINS, P.C.
MAXWELL M. BLECHER
THEO GIOVANNI ARBUCC
By.
MAXWELL M. BLECHER
Attorneys for Plaintiff | products liability and mass tort |
uE9b_ogBF5pVm5zYZnaw | UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
In re: EBIX INC. SECURITIES
LITIGATION
Master File No. 1:11-CV-02400-RWS
CONSOLIDATED AMENDED
COMPLAINT FOR VIOLATIONS
OF THE FEDERAL SECURITIES
LAWS
JURY TRIAL DEMANDED
INTRODUCTION
1.
These are consolidated securities class actions on behalf of all persons
who purchased or otherwise acquired the common stock of Ebix, Inc. (―Ebix‖ or
the ―Company‖) between May 6, 2009 and June 30, 2011 (the ―Class Period‖) and
suffered damages thereby, inclusive, against Ebix and certain of its officers and/or
directors for violations of the Securities and Exchange Act of 1934 (the ―Exchange
Act‖). Ebix and certain of its officers and/or directors made materially false and
misleading statements during the Class Period in press releases, analyst conference
calls, and filing with the U.S. Securities and Exchange Commission (―SEC‖).
2.
Ebix is a supplier of software and e-commerce solutions to the
insurance industry, providing that industry with carrier systems, agency systems
and exchanges. The Company also purports to develop custom software for the
insurance and financial industries. Ebix is a ―rollup,‖ purchasing many smaller,
related software companies in an attempt to create economies of scale and reduce
3.
Throughout the Class Period, Ebix portrayed itself as a fast-growing
leader in its industry. It announced ever-increasing revenues and net income,
bolstered by its torrid pace of acquisitions and extremely favorable tax situation
which lowered its effective tax rate into the single digits. As a result of its
unabashedly positive outlook, during the Class Period, Ebix common stock traded
at artificially inflated prices, reaching a high of $30.35 per share on March 24,
4.
On March 24, 2011, however, the truth began to seep into the market
when Seeking Alpha published a report by Copperfield Research (―Copperfield‖),
carried by Bloomberg, titled Ebix: Not a Chinese Fraud, but a House of Cards
Nonetheless. In its analysis, among other issues of great concern to investors,
Copperfield detailed myriad problems at Ebix, problems defendants had concealed,
including:
(a)
Defendants caused Ebix to engage in a foreign tax gambit,
transferring profits offshore to benefit from far lower tax rates in Singapore and
India. This tax gambit was an improper and potentially illegal means by which
defendants caused Ebix to overstate materially its net income and diluted earnings
per share (―EPS‖) throughout the Class Period;
(b)
The Company‘s internal controls were wholly inadequate in the
face of its torrid acquisition pace. The Company was unable to prepare materially
accurate financial statements for its acquisitions or on a consolidated basis,
including its inability to accurately account for accounts receivable adequately to
reserve for doubtful accounts. As a result, defendants caused Ebix to overstate its
net income and diluted earnings per share throughout the Class Period; and
(c)
The Company‘s growth was due in large part to its acquisitions.
Organic growth was slow or even negative with the majority of the Company‘s
increased revenues coming from contracts the Company purchased. Defendants‘
statements about organic growth were materially misleading in that they
mischaracterized purchased contracts as ―organic,‖ a critical metric for investors to
understand a roll-up such as Ebix.
5.
On this news, Ebix share price plummeted 25.8% from a March 24,
2011 intraday, class period high 30.35 to close that day at $22.52 per share on
heavy volume of nearly 15 million shares traded.1
6.
In addition, on June 30, 2011, it was disclosed that former shareholder
of a company Ebix had purchased in 2009 had sued the Company, claiming,
among other things, that a failure of Ebix‘s accounting systems had prevented it
from accurately accounting for an earn-out owed and from paying certain
receivables the former shareholders retained upon sale. Essentially, the allegations
in that complaint confirmed several of the points raised in the Seeking Alpha
analysis on March 24, 2011.
7.
On this news, the stock price fell 9% from an intraday high of $20.93
on June 30, 2011 to close that day at $19.05 on heavy volume of over 5 million
shares traded. As a direct result of defendants‘ wrongful acts and omissions,
plaintiffs and the members of the class have suffered significant damages.
JURISDICTION AND VENUE
8.
Jurisdiction is conferred by §27 of the Exchange Act. The claims
asserted herein arise under §§10(b) and 20(a) of the Exchange Act, 15 U.S.C. §§
78j(b) and 78t(a), and SEC Rule 10b-5, 17 C.F.R. §240.10b-5.
1 As of January 4, 2010, the Company affected a 3-for-1 stock split. Ebix stock prices referenced before that time
are all split-adjusted.
9.
Venue is proper in this District pursuant to §27 of the Exchange Act.
The violations of law complained of herein occurred in part in the District,
including the dissemination of materially false and misleading statements
complained of herein into this District. Ebix‘s principal executive offices are
located at 5 Concourse Parkway, Suite 3200, Atlanta, Georgia.
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. Ebix‘s stock trades in an efficient
market on the NASDAQ Global Market.
THE PARTIES
11.
Lead Plaintiff Dan Anghel (―Lead Plaintiff‖) purchased Ebix common
stock during the Class Period as described in the certification attached hereto as
Exhibit A and was damaged thereby.
12.
Representative Plaintiff Scott D. Fenske (―Fenske‖) purchased Ebix
common stock during the Class Period as described in the certification attached
hereto as Exhibit B and was damaged thereby.
13.
Defendant Ebix is a Delaware corporation, headquartered at 5
Concourse Parkway, Suite 3200, Atlanta, Georgia. As stated above, Ebix is a
supplier of software and e-commerce solutions to the insurance industry, providing
that industry with carrier systems, agency systems and exchanges. The Company
also purports to develop custom software for the insurance and financial industries.
14.
Defendant Robin Raina (―Raina‖) was, at all times relevant hereto, the
Chief Executive Officer (―CEO‖) of Ebix. Raina joined Ebix in October, 1997,
becoming President and CEO as of August 2, 1999 and September 23, 1999
respectively. He became Chairman of the Ebix Board in May, 2002. Defendant
Raina purportedly holds an industrial engineering degree from Thapar University
in Punjab, India. Appended to each periodic filing with the SEC during the Class
Period, including annual reports and quarterly reports, the Company appended
Raina‘s certification, attesting to the accuracy of the Company‘s financial
statements. The following, filed with the SEC on May 10, 2011, is representative
of that certification:
I, Robin Raina, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Ebix, 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)) 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) 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
(c) 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.
15.
Defendant Robert Kerris (―Kerris‖) was, at all times relevant hereto,
the Chief Financial Officer (―CFO‖) of Ebix. Kerris joined Ebix as CFO and
Corporate Secretary on October 22, 2007. Kerris is a licensed certified public
accountant, holding an accounting and economics degree from North Carolina
State University. Appended to each periodic filing with the SEC during the Class
Period, including annual reports and quarterly reports, the Company appended
Kerris‘s certification, attesting to the accuracy of the Company‘s financial
statements. The following, filed with the SEC on May 10, 2011, is representative
of that certification:
I, Robert Kerris, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Ebix, 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)) 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) 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
(c) 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.
16.
In addition, both Raina and Kerris certified each financial result
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. §1350,
stating:
In connection with the Quarterly Report on Form 10-Q of
Ebix, Inc. (the ―Company‖) for the period ended
March 31, 2008 as filed with the Securities and Exchange
Commission on the date hereof (the ―Report‖), I, Robin
Raina, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. 1350, as adopted pursuant to 906
of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
2. The information contained in the Report fairly
presents, in all material respects, the financial condition
and results of operations of the Company.
17.
Defendants Raina and Kerris (the ―Individual Defendants‖), because
of their positions with the Company, possessed the power and authority to control
the contents of Ebix‘s quarterly reports, press releases and presentations to
securities analysts, money and portfolio managers and institutional and individual
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. 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 statements pleaded herein.
FRAUDULENT SCHEME AND COURSE OF BUSINESS
18.
Defendants are liable for: (i) making false statements of material fact;
or (ii) failing to disclose adverse material facts known to them about Ebix.
Defendants‘ fraudulent scheme and course of business that operated as a fraud or
deceit on purchasers of Ebix common stock was a success, as it: (i) deceived the
investing public regarding the financial results, prospects and operations of Ebix;
(ii) artificially inflated the prices of Ebix common stock; and (iii) caused Plaintiffs
and other members of the Class to purchase Ebix common stock at inflated prices
and suffer economic loss when the revelations set forth herein reached the market.
CLASS ACTION ALLEGATIONS
19.
Plaintiffs bring this action as a class action pursuant to Rule 23 of the
Federal Rules of Civil Procedure on behalf of all persons who purchased or
otherwise acquired Ebix common stock during the Class Period between May 6,
2009 and June 30, 2011, inclusive and suffered damages thereby (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.
20.
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 March 14, 2011,
Ebix had 39,708,750 shares of commons stock issued and outstanding, owned by
hundreds if not thousands of persons.
21.
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 which predominate over questions which may affect individual Class
members include:
(a)
Whether defendants violated the Exchange Act and the rules
promulgated thereunder;
(b)
Whether defendants omitted and/or misrepresented material
(c)
Whether defendants‘ statements omitted material facts
necessary to make the statements made, in light of the circumstances under which
they were made, not misleading;
(d)
Whether defendants knew or recklessly disregarded that their
statements were false and misleading;
(e)
Whether the price of Ebix common stock was artificially
inflated; and
(f)
The extent of damage sustained by Class members and the
appropriate measure of damages.
22.
Plaintiffs‘ claims are typical of those of the Class because plaintiffs
and the Class sustained damages from defendants‘ wrongful conduct.
23.
Plaintiffs will adequately protect the interests of the Class and has
retained counsel who are experienced in class action securities litigation. Plaintiffs
have no interests which conflict with those of the Class.
24.
A class action is superior to other available methods for the fair and
efficient adjudication of this controversy.
BACKGROUND TO FALSE AND MISLEADING STATEMENTS
25.
Ebix touts itself as ―a leading international supplier of software and e-
commerce solutions to the insurance industry.‖2 In its stable of software solutions,
Ebix ―provides a series of application software products for the insurance industry
ranging from carrier systems, agency systems and exchanges to custom software
development for all entities involved in the insurance and financial industries.‖3
According to the Company, the insurance industry‘s ―desire to reduce paper based
2 Quarterly Report on Form 10-Q, filed with the SEC on May 8, 2009, at 16.
3 Id.
processes and improve efficiency both at the back-end side and also at the
consumer end side‖ has spurred its growth. Again, according to the Company:
Management believes the insurance industry will
continue to experience significant change and increased
efficiencies through online exchanges and reduced paper
based processes are becoming increasingly a norm across
the world insurance markets. Changes in the insurance
industry are likely to create new opportunities for the
Company.4
26.
The Company claimed to be expanding ―both internally as well as
through a series of acquisitions.‖5 As of the start of the Class Period, Ebix was
growing at a fast pace, but overwhelmingly through acquisitions. In 2008, for
example, Ebix purchased three companies. On November 24, 2008, Ebix acquired
ConfirmNet Corporation (―ConfirmNet‖) for $7.4 million, plus an additional earn
out for meeting revenue objectives. On August 1, 2008, Ebix acquired
Acclamation Systems, Inc. for $22 million plus a up to $3 million in additional
cash consideration over the two year period following the effective date of the
acquisition if specific revenue targets of Ebix‘s Health Benefits division are
achieved. Then on January 2, 2008 Ebix completed the acquisition of Australian-
based Telstra eBusiness Services Pty Limited (―Telstra‖) for $43.8 million.
4 Id.
5 Id. at 17.
27.
As of December 31, 2008, Ebix reported pro forma earnings – those
earnings including its 2008 acquisitions as if they had been part of Ebix since
January 1, 2008 – of $86.177 million, 15.3% greater than the $74.752 million of
revenue it reported without the acquisition-based adjustments.
28.
In 2009, Ebix increased the stakes with purchases of even greater
value. On October 1, 2009, Ebix acquired E-Z Data, Inc. (―E-Z Data‖), a leading a
leading industry provider of on-demand customer relationship management
(―CRM‖) solutions for insurance companies, brokers, agents, investment dealers,
and financial advisors for $50.5 million. Also on October 1, 2009, Ebix acquired
Peak Performance Solutions, Inc. (―Peak‖), a provider of comprehensive, end-to-
end insurance software and technology solutions to insurance companies and self-
insured entities for workers‘ compensation claims processing, risk management
administration, and managed care tracking, for $8 million in cash plus an earn-out
based on defined revenue targets after the acquisition. On May 1, 2009, Ebix
acquired Facts, Inc. (―Facts‖), a leading provider of fully automated software
solutions for healthcare payers specializing in claims processing, employee
benefits, and managed care, for $7.0 million in cash for all of Facts‘ stock.
29.
As of December 31, 2009, Ebix reported pro forma earnings – those
earnings including its 2009 acquisitions as if they had been part of Ebix since
January 1, 2009 – of $118.433 million, 21% more than the $97.685 million of
revenue it reported without the acquisition-based adjustments.
30.
In 2010, Ebix continued its acquisition spree. In the third quarter of
2010, Ebix acquired (a) Brazilian-based USIX Technology, S.A. (―USIX‖), a
provider of broker systems and related services for insurance carriers across Latin
America, and (b) Singapore based E-Trek Solutions PTE Ltd, (―E-Trek‖) a
provider of underwriting and claims processing services for the insurance industry
in Singapore for a total of $8.5 million in cash, plus additional earn outs for
meeting revenue targets. During the second quarter or 2010, Ebix acquired (a)
Connective Technologies, Inc. (―Connective Technologies‖) a provider of on-
demand software solutions for property and casualty insurance carriers in the
United States, and (b) Australian based Trades Monitor, a provider of insurance
related software services for the Australian insurance industry. Ebix paid a total of
$4.1 million in cash for these two businesses, plus additional earn outs for meeting
revenue targets. During the first quarter of 2010, Ebix acquired Brazilian-based
MCN Technology & Consulting (―MCN‖) a provider of software development and
consulting services for insurance companies, insurance brokers, and financial
institutions in Brazil, for $3.1 million in cash plus an earn out for meeting certain
revenue targets.
31.
As of December 31, 2010, Ebix reported pro forma earnings – those
earnings including its 2010 acquisitions as if they had been part of Ebix since
January 1, 2010 – of $139.047 million, 5.2% more than the $132.188 million of
revenue it reported without the acquisition-based adjustments.
32.
Thus, over the past three years, Ebix has had to integrate numerous
acquisitions that have dramatically increased the size of the company in terms of
head-count and revenues, its product offerings, and its geographic reach.
Defendants were forced to integrate these acquisitions and to impose sufficient
internal controls over its operations to provide investors with accurate financial
statements, to report organic growth accurately and generally to convey a
materially accurate portrait of the Company with respect to its operations, liquidity
and finances. Defendants failed on all counts
Defendants Failed to Disclose that Ebix Lacked Adequate
Internal Controls, Resulting in its Inability Both to Maintain
Materially Accurate Accounts Receivable and to Report a
Materially Accurate Allowance for Doubtful Accounts Receivable
33.
Over the previous seven years, Ebix has retained a series of
independent auditors each smaller than the last. By letter dated July 7, 2004, after
reporting on Ebix‘s 2002 and 2003 consolidated financial statements, KPMG
informed the SEC that it had resigned its engagement as of June 30, 2004. In its
letter, KPMG agreed with Ebix‘s statement that it had ―no disagreements with
KPMG on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which, if not resolved to KPMG‘s
satisfaction, would have caused them to make reference to the subject matter in
connection with their report on the Company‘s financial statements. . . .‖
34.
In Ebix‘s Annual Report on Form 10-K for the year ended December
31, 2003 (―2003 10-K‖), Ebix included disclosures about its controls and
procedures. According to defendants, Ebix management evaluated ―the design and
operation of the Company's disclosure controls and procedures,‖ concluding that
Ebix‘s internal controls ―were effective to provide reasonable assurance that the
information required to be disclosed by the Company in the reports filed or
submitted under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms.‖ KPMG, however, disagreed, informing defendants that it had identified
―reportable conditions‖ with respect to Ebix‘s internal controls.
35.
The reference in the 2003 10-K to KPMG‘s identifying reportable
conditions to Ebix‘s control lacks specifics. It was not until Ebix filed with the
SEC its Annual Report on Form 10-K for the year ended December 31, 2004
(―2004 10-K‖) that the Company described the reportable conditions. ―According
to KPMG,‖ the 2004 10-K related, ―the communication of the reportable
conditions was based on their professional judgment, taking into consideration
audit differences that required adjustment to the Company‘s financial statements,
as well as the underlying causes for such adjustments, and KPMG‘s observations
about the Company‘s internal control processes, but did not arise from any
particular transaction or event.‖ Thus, KPMG made clear that the Company‘s
internal controls caused Ebix to err materially in the preparation of its financial
statements, errors that KPMG auditors found and caused Ebix to correct.
36.
In the 2004 10-K, Ebix further acknowledged details of the reportable
conditions that KPMG identified, stating:
KPMG presented to the audit committee the details of the
reportable conditions noted during the 2003 audit, which
included (1) delegation of authority and what KPMG
considered to be inadequate reviews by a person other
than the preparer of accounting information, (2) the lack
of a formalized contract review process to ensure proper
revenue recognition, (3) the lack of a complete
understanding of the Company‘s income tax positions
and related accounts, (4) inadequate documentation for
certain unusual transactions (including the basis for the
Company‘s accounting conclusions), and (5) internal
control matters (documented and testable control
environment) under the Sarbanes-Oxley Act, Section 404
(together with applicable regulations, ―SOX 404‖).
37.
In response to KPMG‘s alerting it to these conditions, the Company
claimed to have taken action, changing ―its reporting structure within the financial
accounting group and redistributed responsibilities among the financial accounting
group to create improved checks and balances.‖ Ebix changed the reporting
structure in its finance department, designating the controller as the direct report
for members of the finance department. In addition, Ebix claimed to have created
a formalized contract review process, and, notably, a process whereby Ebix‘s CFO
and Controller undertook responsibility for reviewing income tax provisions
quarterly and for analyzing and documenting unusual transactions. Ebix claimed
to have hired additional staff to insure documentation of control matters, claiming
to have ―strengthened the overall capabilities of the accounting group and allowed
the further reallocation of responsibilities, enabling the corporate controller to
devote additional time to the Company‘s consolidated tax provision and
accounting for income taxes.‖ Ebix also promised to employ an outside consultant
to assist it with reviewing its internal controls, ―perform more detailed quarterly
reconciliations and analyses of the Company‘s revenue accounts,‖ and to bolster its
staff and resources to meet its goals with respect to internal controls and reporting.
38.
Notwithstanding all of its purported efforts in response to KPMG‘s
identifying reportable conditions and resigning, Ebix failed to ameliorate
significant internal control deficiencies. In fact, in the same 10-K the Company
disclosed that its new auditor, BDO Seidman LLP (―BDO‖), in the course of its
audit of the Company‘s 2004 financial statements, ―identified certain significant
deficiencies relating to the Company‘s internal control over financial reporting.‖
39.
A significant deficiency is a control deficiency, or combination of
control deficiencies, that adversely affects the Company‘s ability to initiate,
authorize, record, process, or report external financial data reliably in accordance
with generally accepted accounting principles such that there is more than a remote
likelihood that a misstatement of the Company‘s annual or interim financial
statements that is more than inconsequential will not be prevented or detected.‖
The 2004 10-K further disclosed that ―[t]he details of the significant deficiencies
relate[] to the lack of accounting knowledge and leadership at foreign locations,
inadequate documentation for certain accounting transactions, insufficient analysis
and review of domestic account reconciliations, lack of documentation of
development costs and related agreements, and the lack of documentation to
support the Company‘s income tax provisions and related accounts. Although
Ebix purportedly improved its internal controls in response to the reportable
conditions noted by KPMG, it did not disclose that it addressed the significant
deficiencies noted by BDO stating only that it ―will evaluate what steps it needs to
take to address these significant deficiencies.‖
40.
In the very next paragraph in the 2004 10-K, however, Ebix described
management‘s evaluation of the Company‘s internal controls in which defendant
Raina participated. Defendant Raina and others concluded ―the Company‘s
disclosure controls and procedures were effective to provide such reasonable
assurance.‖ Thus, management, including defendant Raina, was incapable of
discerning whether the Company‘s internal controls were adequate or to discover
and correct significant deficiencies.
41.
BDO served as Ebix‘s independent auditor for the years 2004, 2005
and 2006. As noted above, it reported ―significant deficiencies‖ in Ebix‘s internal
controls in 2004. In 2005 and 2006, however, BDO did not audit Ebix‘s internal
controls. As it stated in its audit opinions dated March 10, 2006 and April 9, 2007:
The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company‘s internal
control over financial reporting. Accordingly, we express
no such opinion.6
42.
Thus, in 2005 and 2006, BDO did not perform the same assessment of
internal controls as both KMPG and it had performed respectively in 2003 and
6 In Ebix‘s Annual Report on Form 10-K for the year ended December 31, 2006 (―2006 10-K‖), BDO‘s report
contained the exact same language, expressing no opinion on Ebix‘s internal controls.
2004 respectively. Rather, in its Annual Report on Form 10-K for the year ended
December 31, 2005, Ebix management once again opined that ―the Company‘s
internal control over financial reporting is effective.‖ In so concluding,
management focused on the supposed financial expertise of and communications
among its accounting staff and that Ebix was a ―relatively small organization.‖
43.
Ebix, however, was growing rapidly in the middle to the end of the
last decade. Total revenues grew from $19.983 million in 2004 to $29.253 million
in 2006. In 2006 alone, Ebix merged with Finetre Corporation and acquired all the
assets of Infinity Systems Consulting, Inc., expending nearly $16 million in cash
on those two transactions.
44.
Then, just as it was expanding by acquisition and increasing revenue
exponentially, in a Current Report on Form 8-K, filed with the SEC on April 27,
2007, Ebix disclosed that on April 23, 2007, it had dismissed BDO as its
independent auditor. Ebix hired Miller Ray Houser & Stewart a small accounting
firm with a fraction of BDO‘s resources. That firm merged with Habif, Arogeti &
Wynne, LLP (―Habif‖), a larger firm, but still materially smaller than BDO.
45.
In its 2007 audit report, as BDO had disclosed before it, Habif stated
that Ebix was not required to have an audit of its internal controls, and Habif did
not perform one. Once again, the assessment of Ebix‘s internal controls was left to
management which, in the Company‘s Annual Report on Form 10-K for the year
ended December 31, 2007 (―2007 10-K‖) pronounced those controls ―effective to
ensure, among other things, that the information required to be disclosed by us in
the reports that we file or submit under the Securities and Exchange Act of 1934 is
accumulated, recorded, processed, and communicated accurately.‖ In discussing
why Habif did not audit Ebix‘s internal controls, management stated that its
internal controls report ―was not subject to attestation by the company's registered
public accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit the company to provide only management's report in this
annual report.‖ Thus, in 2005, 2006 and 2007, Ebix‘s independent auditors did not
audit it internal controls because they were not required to provide any assurances
thereon. By the end of 2007, however, with the $11.25 million acquisition of
Jenquest, Inc., Ebix had grown its revenues to $42.841 million a 46% increase over
46.
Beginning in 2008, however, the SEC‘s temporary suspension of its
internal controls audit requirement was lifted. By Current Report on Form 8-K,
dated December 19, 2008, Ebix disclosed that on December 12, 2008 Habif alerted
Ebix that it would ―not stand for re-appointment as Ebix‘s independent registered
public accountant. . . .‖ Purportedly interested in exploring ―reductions in the audit
cost structure,‖ Ebix‘s Audit Committee had not approved the reappointment of
Habif. Instead, defendants hired the relatively small firm of Cherry, Bekaert &
Holland, LLP (―CBH‖), a southeast-based firm with no office located outside of
that geographic region and only 20 issuer clients as of September, 2007.7
47.
Strikingly, as Ebix has grown its revenue from $14.433 million in
2003 to $132.188 million in 2010, as it has acquired companies at a fast clip, and
as it has expanded its geographic reach well beyond the United States to India,
Singapore, Australia and Brazil, its audit fees have increased by only
approximately $50,000 from $290,000 for KPMG‘s 2003 audit to $339,600 for
CBH‘s 2010 audit.
48.
According to a July 16, 2011 article in Barrons.com, titled Prolonging
a Foreign Tax Holiday, CBH‘s corporate-audit clients are mostly penny stocks and
micro-cap companies. About the Company‘s choice of CBH as independent
auditor, defendant Raina stated in an email to Barrons, ―[t]he Ebix audit committee
reviews auditors every year. For the sake of continuity, our audit committee has
preferred not to change to a Big Three firm too suddenly.‖
49.
More, according to Barrons, Baweja & Kaul (―B&K‖), a small Indian
accounting firm, located in Delhi, audits Ebix‘s Indian subsidiaries. The Public
7 See PCAOB Inspection of Cherry Bekaert & Holland, LLP, September 24, 2007.
Company Accounting Oversight Board (―PCAOB‖) inspects foreign firms,
including those in India, but has never inspected B&K. CBH relied on B&K
notwithstanding that the audit of Ebix‘s India subsidiaries‘ with a purported $38
million in revenue cost only $9,000. Barrons noted that the PCAOB has recently
expressed ―great concern about the ability of small U.S.-based auditors to properly
audit businesses in distant parts of the world.‖ When Barrons questioned him
about CBH‘s supervision of B&K, defendant Raina replied, ―[a]ll auditors test the
work of overseas auditors.‖
50.
In 2008, notwithstanding that Ebix had dismissed Habif, the Company
paid it $313,848 in ―audit fees.‖ In 2008, however, Habif audited neither Ebix‘s
financial statements nor its internal controls. CBH, however, did.
51.
In fact, for the past three years, in 2008, 2009 and 2010, CBH audited
Ebix‘s internal controls, opining that Ebix ―maintained, in all material respects,
effective internal control over financial reporting as of [the end of this fiscal year],
based on criteria established in Internal Control – Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).‖
52.
CBH, however, is not without its own problems. On September 24,
2007, the Public Company Accounting Oversight Board (―PCAOB‖) issued an
inspection report, noting deficiencies in a CBH audit, relating to its failure to
―obtain sufficient competent evidential matter to support its opinion on the issuer‘s
financial statements. That deficiency was the failure to perform sufficient audit
procedures to evaluate and assess revenue recognition.‖ On December 16, 2010,
the PCAOB issued another inspection report on CBH in which it identified another
deficiency, relating to CBH‘s failure to obtain sufficient competent evidential
matter relating to its use of a specialist, or non-accountant, in the course of its
audit.
53.
As the Class Period began, the Company‘s internal controls could not
keep pace with its robust growth-by-acquisition. This would ultimately lead to the
inability of the Company to record and disclose accurate financial statements to
investors. More, the Company‘s growth was fueled by acquisitions while
―organic‖ or internal growth was not nearly as robust as defendants would lead
investors to expect.
54.
Ebix was required by the SEC but failed to maintain books and
records in sufficient detail to reflect the transactions of the Company and prepare
financial statements in accordance with generally accepted accounting principles
(―GAAP‖).8 Section 13(b) 2 of the Exchange Act entitled Periodical and Other
Reports states the following with respect to books and records and internal
controls:
Every issuer which has a class of securities registered
pursuant to section 12 and every issuer which is required
to file reports pursuant to section 15(d) shall:
A.
make and keep books, records, and accounts,
which, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the
issuer;
B.
devise and maintain a system of internal
accounting controls sufficient to provide reasonable
assurances that--
i.
transactions are executed in accordance with
management's general or specific authorization;
ii.
transactions are recorded as necessary (I) to
permit preparation of financial statements in conformity
with generally accepted accounting principles or any
other criteria applicable to such statements, and (II) to
maintain accountability for assets;
iii.
access to assets is permitted only in
accordance with management's general or specific
authorization; and
8 GAAP are those principles recognized by the accounting profession as the conventions, rules and procedures
necessary to define accepted accounting practice at a particular time. Regulation S-X (17 C.F.R. § 210.4-01(a)(1))
states that financial statements filed with the SEC which are not prepared in compliance with GAAP are presumed
to be misleading and inaccurate. Regulation S-X requires that interim financial statements must also comply with
GAAP, with the exception that interim financial statements need not include disclosure which would be duplicative
of disclosures accompanying annual financial statements. 17 C.F.R. § 210.10-01(a).
iv.
the recorded accountability for assets is
compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any
differences.
55.
As the shifting from auditor to auditor shows, during the Class Period,
defendants knew or recklessly disregarded that the Company‘s internal controls
could not keep pace with its aggressive growth-by-acquisition business plan.
There were numerous internal control issues in connection with its acquisitions
throughout the Class Period. A good system of internal controls helps
management achieve its objectives related to the effectiveness and efficiency of its
operations, the reliability of its financial reporting, and compliance with applicable
laws and regulations.
56.
It is management‘s responsibility to develop and implement internal
controls necessary to ensure that it maintains adequate books and records. This is
made clear in SEC regulations and in a report prepared by the Committee of
Sponsoring Organizations of the Treadway Commission (―COSO‖), Internal
Control – Integrated Framework (the ―COSO Report‖).9
9 Generally accepted auditing standards codified in AU §319, Consideration of Internal Control
in a Financial Statement Audit, is based on the internal control framework described in the
COSO Report. The COSO report was issued in September 1992 as a four-volume set. An
Addendum to Reporting to External Parties was issued in May 1994.
57.
The COSO Report defines internal control as a process that is
―designed to provide reasonable assurance regarding the achievement of
objectives‖ related to the effectiveness and efficiency of operations, the reliability
of financial reporting, and compliance with applicable laws and regulations.10
More broadly, however, a system of internal control encompasses more than the
policies governing the objectives related to operations, financial reporting, and
compliance; namely, it includes the actions taken by a company‘s board of
directors, management at all levels, and employees in running the business.
58.
The COSO Report requires that financial statements prepared for
external purposes are fairly presented in conformity with GAAP and regulatory
requirements. Borrowing from generally accepted auditing standards, the COSO
Report defines fair presentation as the following:
the accounting principles selected and applied have
general acceptance;
the accounting principles are appropriate in the
circumstances;
the financial statements are informative of matters
that
may
affect
their
use,
understanding
and
interpretation; and
the financial statements reflect the underlying
transactions and events in a manner that presents the
10 See COSO Report, Executive Summary.
financial position, results of operations and cash flows
stated within a range of acceptable limits, that is, limits
that are reasonable and practical to attain in financial
statements.11
59.
The COSO Report describes internal control within a certain
framework that consists of five separate components that are discussed herein. It
requires that financial statements prepared for external use are fairly presented in
conformity with generally accepted accounting principles and regulatory
requirements. The COSO Report defines five components of an internal control
framework that are needed to enable a business to achieve its objectives: (1) the
control environment, (2) risk assessment, (3) control activities, (4) information and
communications and (5) monitoring.
60.
Everyone in an organization has responsibility for internal control.
The CEO, however, sets the ―tone at the top‖ that affects integrity, ethics, and
other factors of a positive control environment. ―In any organization, ‗the buck
stops‘ with the chief executive. He or she has ultimate ownership responsibility
for the internal control system. The influence of the CEO on an entire organization
cannot be overstated.‖12 The chief executive fulfills this duty by providing
11 See COSO Report, Chapter 3; see also Statement on Auditing Standards No. 69, The Meaning of
“Present Fairly in Conformity With Generally Accepted Accounting Principles” in the
Independent Auditor’s Report (New York: AICPA, 1992).
12 COSO Report, Chapter 8, p. 84.
leadership and direction to senior managers and reviewing the way they are
controlling the business. The Addendum to the COSO Report makes it clear the
role Chief Accounting Officer, who, in the case of Ebix was defendant Kerris,
plays with respect to the internal control system.
61.
Specifically, the CEO, defendant Raina and the CFO, defendant
Kerris failed to comply with SEC regulations and the requirements of COSO. As
described herein there were internal control deficiencies with respect to revenues
and related accounts receivables in connection with certain acquisitions. Ebix‘s
internal control system failed to live up to the standards as set forth in the five
elements of an internal control framework described above. Defendants Raina and
Kerris failed to maintain a proper tone and control awareness that focused on
achieving consistent application of accounting policies and procedures and strict
adherence to GAAP. They failed to ensure that reconciliations, verifications and
monitoring activities were properly carried out. As a result, they failed to discover
in a timely manner or recklessly disregarded deficiencies in Ebix‘s internal control.
62.
Among Ebix‘s internal control issues related to its inability to
maintain adequate internal controls in connection with the companies that it had
acquired both during and before the Class Period. For example, a former senior
billing analyst at Ebix during the relevant period who reported directly to Ebix
corporate controller Sean Donaghy, was responsible for billing clients and posting
cash to specific accounts.13 As an initial matter, the senior billing analyst related
that Ebix only staffed two billing analysts in the United States, the same number
that a much smaller Peak employed prior to the acquisition. The senior billing
analyst described that there was no mandate at Ebix as to how quickly she was
required to post cash to specific customer accounts. Instead, she posted cash
received whenever she had the time, often in between her billing duties. The
senior billing analyst often fell well behind on her cash posting responsibilities.
63.
The senior billing analyst relates that defendant Raina was well aware
of the problem with posting cash to customer accounts, but neither he, nor her
direct report, Mr. Donaghy, attempted to rectify the cash posting problem. Rather,
they set the priority at Ebix of billing customers at the expense of timely and
accurate cash posting. The senior billing analyst confirmed that the delay in
posting cash was always a problem during her tenure at Ebix, especially related to
businesses Ebix acquired.
64.
A June 21, 2010 email from Anita Anjoubault transmitted to, among
others, defendant Kerris, controller Donaghy, Darren Joseph and Elizabeth Toure
confirmed the ongoing trouble Ebix had posting cash:
13 The senior billing analyst left her employment in the summer of 2010.
We are now facing another quarter end, another audit,
another public financial reporting. As of last quarter,
our accounts receivable area became a major concern
to senior management and to our stockholders. In order
to get the client accounts current and out of the severely
past due status, senior management has conducted a
companywide collection blitz, bringing in assistance
from all divisions to help up out. To continue to work
effectively and efficiently with collection, it is so very
important for me and for senior management to know
where we stand, as soon as possible. This helps us to be
able to concentrate on the accounts that have not been
paid. This push is also helping you to get ready for the
next billing wave and to send out client statements in a
timely manner.
*****
Attached is a payments report showing that $488K of
payments have been entered in PS [People Soft] but
only approx. $147K has been posted to the GL. I trust
the checks entered are ones that have to be researched.
I know this is a big part of the delay in posting cash, so
I need to work out a process in streamlining the
researching time. (Emphasis added).
65.
GAAP requires losses from uncollectible receivables to be accrued by
a charge to income when such losses are probable and reasonably estimable.14 In
its Form 10-Q for the first quarter 2009 filed with the SEC on May 8, 2009, Ebix
disclosed that its ―[a]ccounts receivable [were] stated at invoice billed amounts net
of the estimated allowance for doubtful accounts receivable.‖ Ebix also disclosed
14 See FASB ASC 310-10-35-8 – 9.
its policy for determining the allowance for doubtful accounts receivable which
states that ―management specifically analyzes accounts receivable and historical
bad debts, write-offs, customer concentrations, customer creditworthiness, current
economic trends and changes in [its] customer payment terms when evaluating the
adequacy of the allowance for doubtful accounts.‖15
66.
Ebix‘s ability to generate an accurate detail of accounts receivable
showing its unpaid invoices and the amount of time those invoices have been
outstanding – or a detailed aging of accounts receivable – is an essential element to
carrying out its analysis of the allowance for doubtful accounts receivable. Ebix,
however, was unable to maintain an accurate detail of its receivables because of its
inability to generate accurate invoices, accurately and promptly apply cash
collected to specific invoices, and integrate accounts receivable systems of
acquired companies.
67.
For example, on March 23, 2010, the senior billing analyst created an
excel spread sheet titled ―Collection Research All cust‖ that she transmitted to
Ebix controller Sean Donaghy (―Donaghy‖) by email dated March 24, 2010. The
spread sheet detailed collection issues with at least 26 customers. For example, for
15 As stated in its periodic reports under ―Summary of Significant Accounting Policies,‖ the
Company‘s policy for determining the allowance for doubtful accounts receivable remained
substantially unchanged during 2009, 2010 and the first six months of 2011.
customer identification number FLEM100, the spreadsheet indicates that that nine
invoices had been emailed to the customer that went unpaid (invoice numbers
3507, 3571, 4105, 4418, 4663, 5163, 5194, 5526 and 5989). The spread sheet
indicates ―per Sean do not send customer anymore invoices. Sean to review report
customer will fax him.‖ Another customer, identification number THIE, received
emailed invoices 5195, 5218, 5237, 5261, 5284, 5306, 5328, 5351, 5369, 5402,
5430. Ebix continued attempting to collect on these invoices in mid-2010 even
though, the spread sheet indicates, ―customer response – ―contract cancelled
1/1/09.‖ Thus, Ebix was billing and recording amounts as receivable when the
customer had terminated the relationship.
68.
The senior billing analyst remembers another specific account listed
on the spread sheet with identification number WESTV01. This customer, the
state of West Virginia, had outstanding invoices 5158 and 5424 and a notation that
―[a]ll open invoices w[ere] sent via email to Vickie who forward[ed] them to
James Harvey. I‘m waiting on a call back from James.‖ In investigating these
invoices, the senior billing analyst discovered that West Virginia had already paid
all invoices. Notwithstanding that, Ebix continued to pursue payment until West
Virginia sent copies of cancelled checks written to Ebix. Ultimately, West
Virginia opened for bidding the contract it had with Ebix.
69.
Ebix‘s inability to maintain an accurate detail of its receivables
precluded it from conforming to its own policy and accurately determining the
allowance for doubtful accounts receivable. This limitation had the effect of
misstating the balance of its trade accounts receivable and its bad debt expense.
70.
Thus, during the Class Period, Ebix was unable accurately to report its
accounts receivable at their net realizable value as required by GAAP,16 or to
accrue for losses from uncollectible receivables.17
71.
The inability of defendants to report accurately accounts receivable or
to accrue for losses therefrom is critical to Ebix‘s results. Gross accounts
receivable have grown from $16.371 million at March 31, 2009 to $36.256 million
at March 31, 2011, an increase of 121%. During that same time frame, revenue
grew from $20.668 million, as of March 31, 2009 to $40.050 million as of March
31, 2011, and increase of 94%. During the Class Period‘s span, growth in accounts
receivable, therefore, has outpaced growth in revenue by 27%. Comparing the
third quarter of 2010 to the second quarter of 2010, highlights this point. Revenue
grew during that period from $32.207 million to $33.281 million, an increase of
$1.074 million or 3.3%. Gross accounts receivable grew from $25.048 million to
16 See, FAS CON 5: Recognition and Measurement in Financial Statements of Business
Enterprises, Par 67.d. Net realizable (settlement) value.
17 See, FASB ASC 310-10-35-7-11.
$29.137 million, an increase of $4.089 million or 16.3%. The failure of Ebix to
accrue accurately for doubtful accounts receivable, therefore, was critical to the
financial condition it touted. Because Ebix could not accurately assess its
allowance for doubtful accounts during the Class Period, it overstated its net
income and diluted EPS during the Class Period.
72.
Confirming the control problems at Ebix as related by the senior
billing analyst, on May 24, 2011, three former shareholders of Peak Performance
Solutions, Inc. (―Peak‖) filed a lawsuit against Ebix, alleging breach of contract
and fraudulent misrepresentation. The allegations of the Peak shareholders‘
complaint substantiate the problems highlighted by the senior billing analyst and
show them to be far more wide-spread. According to the complaint (―Peak
Complaint‖), in purchasing Peak, Ebix agreed to an ―Earn Out‖ based on Peak‘s
2010 revenue and the value of Peak‘s accounts receivable as of September 30,
2009. In the Peak Complaint, the former shareholders alleged that Ebix violated
the purchase agreement by failing to provide certified financial statements for
73.
In October, 2009, the former shareholders of Peak sold their company
to Ebix for $8 million, in cash, plus an Earn Out of up to $1.5 million based on
Peak‘s 2010 revenues. The purchase agreement required Ebix to pay the earn out
within 5 days of the completion of Peak‘s audited 2010 financial statements but no
later than 90 days after the end of 2010. The purchase agreement also required
Ebix to provide the shareholders Peak‘s audited financial statements for 2010. Not
only did Ebix fail to provide Peak‘s audited financial statements, but it failed to
pay the Earn Out.
74.
Despite numerous contacts seeking audited financial statements, as of
mid-May, 2011, Ebix admitted that it had not had Peak‘s financials independently
audited and that it would take weeks to perform such an audit. According to the
shareholders, however, it was not Peak‘s accounting systems that prevented the
production of audited financials, but that of Ebix.
75.
According to the Peak Complaint – confirming the statements of the
senior billing analyst – Ebix ―was consistently unable to properly bill customers,
tie customer payments to invoices issued by Ebix on Peak‘s behalf, provide basic
financial data or calculate Peak‘s revenue during the Earn Out Period.‖
76.
For example, immediately after acquiring Peak, Ebix transferred its
billing function to Ebix‘s employees who were unable to understand or properly
account for Peak‘s operations. Ebix immediately fired five Peak employees,
including the only one responsible for customer billing. Ebix could not timely and
properly invoice customers. This caused Peak‘s business to suffer, as customers
left or reduced their business with Peak over the billing errors. One such customer
was Sentry Insurance Company which was to retain Peak to provide services at
$7,500 per month during 2010. Because of the invoice errors, Sentry did not retain
Ebix. Notwithstanding that Peak‘s shareholders informed Ebix of these issues in
November 2009, Ebix did nothing.
77.
More, as a direct result of Ebix billing problems, it failed to allocate
Peak sales to the appropriate accounting period, likely overstating Peak‘s accounts
receivable and revenue for the fourth quarter of 2009. In addition, with knowledge
of an overstatement of Peak‘s revenue during the fourth quarter of 2009, Ebix
simply reduced its 2010 revenue to correct for its mistakes in late 2009.
78.
Still further, having fired Peak‘s accounting personnel, Ebix was
immediately responsible for tracking customer payments. Unable to tie payments
to invoices, Ebix was ―unable to determine which customers had made payment for
which projects.‖ Once again, having fired Peak‘s accounting personnel
immediately, this was an Ebix-specific problem and not a legacy problem of
Peak‘s former management. As a result, confirming the problems related by the
senior billing analyst with the accounts of the rest of the Company, Ebix was
unable to manage accounts receivable or to create and maintain accurate books and
records with respect to Peak.
79.
After purchasing Peak, Ebix retained as a senior vice president former
Peak shareholder Steven R. Isaac (―Isaac‖). After assuming control of Peak, the
Peak Complaint relays, Ebix was consistently unable to provide Isaac basic
accounting information in response to his repeated requests. When Ebix did
provide this information, it was riddled with errors.
80.
In response to the Peak shareholders‘ inquiries, Ebix could not and
cannot provide accurate numbers.18 For example, in April, 2011, defendant Kerris
provided an unsupported spread sheet purporting to reflect Peak‘s revenues during
2010. The spreadsheet failed to reflect accurately the amounts Ebix actually
received from customers, indicating that some customers provided ―negative
revenues‖ during 2010. The spread-sheet Kerris provided showed $5.875 million
in 2010 revenue. In December 2010, however, Ebix controller Donaghy provided
a calculation of Peak‘s revenues during 2010, something he updated in April 2011.
According to Donaghy, Peak billed $6.5 million during 2010. Ebix is unable to
account for this discrepancy. According to Ebix‘s own billing records, however,
Peak billed its customers $6.656 million in 2010. Ebix is unable to resolve the
18 On July 26, 2011, Ebix finally provide Peak financial statements, purportedly audited by CBH. These numbers
were different still than those the Peak shareholders had received from each of Ebix controller Donaghy and
defendant Kerris. In addition, the Peak shareholders allege in their Amended Complaint, ―the financial statements
provided to Plaintiffs did not accurately account for Peak‘s revenue during the Earn Out Period, due to improper
adjustments offsets and changes in historical reporting practices, among other things.‖
material discrepancy between defendant Kerris, controller Donaghy and its own
billing records.
81.
According to the Peak shareholders, the failure of Ebix‘s controls
seeped into its cash flow management and revenue and expense tracking. This
directly affected its ability to attract new customers. For example, to do business
in West Virginia, Ebix was required to pay unemployment compensation
premiums. Ebix failed to pay that premium, disabling it from doing business in
West Virginia. As a result, Ebix lost a long-term Peak customer that contributed
$65,000 in revenue annually. In addition, Ebix had issues with its bank accounts
as in March, 2010, it bounced several checks including a check to one of the
former Peak shareholders.
82.
Defendants knew or were reckless in not knowing, too, that Ebix‘s
accounts receivable collection mechanism was deeply flawed and yielded
inaccurate information that it included in its financial statements. For example,
Ebix was required to pay the former Peak shareholders all pre-closing accounts
receivable through September 30, 2009. Ebix‘s inability to collect receivables
relating to Peak‘s pre-closing accounts lead to approximately $250,000 in write-
offs. Ebix was unable either to track which customers had paid pre-closing
receivables or to explain why invoices were still outstanding in 2011.
83.
The issues surrounding Peak were particularly important. According
to the Company‘s Annual Report on Form 10-K for the year ended December 31,
2010 (―2010 10-K‖), during 2010, Ebix ―reversed the previously recorded $1.5
million contingent liability earn out obligation because during the subsequent 2010
earn out period the defined revenue targets were not achieved by the Peak
operations.‖ This enabled Ebix improperly to reduce its 2010 general and
administrative expenses by $1.5 million or 5.9% and increasing its income before
income taxes by 2.6%.
84.
As a result of the internal control weaknesses described above, Ebix
failed to comply with the requirements of COSO. Ebix had a poor tone at the top
that emphasized the maximization of billings to customers over the requirement to
keep accurate records; Ebix was unable to perform basic verifications and
reconciliations, and defendants Robin Raina and Robert Kerris failed to adequately
monitor the activities within the receivables function at Ebix. This was all the
more important given that Ebix‘s accounting staff was inadequate to perform these
necessary functions.
85.
Some of the same internal control issues that plagued Ebix during the
Class Period were very similar to the aforementioned internal control issues
identified by KPMG and BDO Seidman, LLP (―BDO‖) during their respective
2003 and 2004 year-end audits of which defendants were aware or which they
recklessly disregarded.
86.
These very problems continued to plague Ebix during the Class Period
as it grew exponentially by acquisition.
Defendants Improperly Inflated Net Income and
Diluted EPS by Means of an Improper Tax Strategy
87.
Defendants materially overstated net income and diluted earnings per
share (―EPS‖) for each reporting period during the Class Period by engaging in an
improper and potentially illegal tax avoidance scheme. Defendants improperly
claimed that Ebix had effective tax rates of 1.1% and 2.5% in 2010 and 2009
respectively. In support of this very low tax rate, defendants claimed that Ebix‘s
India and Singapore subsidiaries enjoyed the benefit of a tax holiday. About this,
the Company‘s Annual Report on Form 10-K for the year ended December 31,
2009 (―2009 10-K‖), states:
The Company‘s consolidated effective tax rate is reduced
because of the blend of reduced tax rates in foreign
jurisdictions where a significant portion of our income
resides. Furthermore, the Company‘s world-wide product
development operations and intellectual property
ownership has been centralized into our Singapore and
India subsidiaries. Our operations in India benefit from a
tax holiday which will continue thru 2015; as such local
India taxable income, other than passive interest and
rental income, is not taxed. After the tax holiday expires
taxable income generated by our India operations will be
taxed at 50% of the normal 33.99% corporate tax rate for
a period of five years. This tax holiday had the effect of
reducing tax expense by $5.5 million.
88.
The Company issued a substantially similar disclosure in its Annual
Report on Form 10-K for the year ended December 31, 2010 (―2010 10-K‖),
quantifying the effect of the tax holiday on its tax expense at $11.5 million.
Defendants did not quantify the effects of the tax holiday on Ebix‘s quarterly tax
expense in its 10-Q filings.
89.
In pursuing this tax scheme, Ebix, in essence, transferred its income to
its Indian and Singapore subsidiaries even as it earned over 70% of its revenues in
the United States. The following chart, derived from Ebix‘s Annual Report on
Form 10-K for the year ended December 31, 2010 (―2010 10-K‖) indicates the
steady decline in U.S. pre-tax income and increase in foreign income over the past
four years.
Year Ended
December
31, 2006
Year Ended
December
31, 2007
Year Ended
December
31, 2008
Year Ended
December
31, 2009
Year
Ended
December
31, 2010
Domestic
Income
5.162
million
(77.7%)
$12.823
million
(97%)
$7.921
million
(27.6%)
$14.501
million
(36.4%)
$13.694
million
(23%)
Foreign
Income
1.483
million
$376,000
$20.778
million
$25.331
million
$45.960
million
90.
This ―tax holiday‖ has created a fantastic jolt to Ebix‘s net income and
earnings per share. For example, in 2008, the Company‘s reduced its United States
statutory tax rate from 34% to 4.8%. The tax impact of foreign subsidiaries
accounted for approximately 70% of this reduction. Employing the foreign tax
strategy in 2008, Ebix was able to reduce its U.S. tax obligation by 20.3%.
Similarly, in 2009 and 2010 respectively, Ebix was able to reduce its U.S. tax
obligations by 19.5% and 25.6% related solely to the tax holidays it enjoyed in
India and reduced tax rates in Singapore. By contrast, the tax impact of foreign
subsidiaries on Ebix‘s 2007 effective tax rate was only 1%.
91.
Quantifying the impact of its foreign tax strategy for 2010, Ebix stated
in the 2010 10-K, ―[t]his tax holiday had the effect of reducing tax expense by
$11.5 million‖ which had the effect of improving its diluted EPS by $0.29. For
2009, the impact of the tax holiday was $5.5 million which improved diluted EPS
by $0.14.
92.
Properly stated, therefore, Ebix should have recorded a tax expense of
$12.135 million in 2010 and $6.51 million in 2009. In 2010, Ebix reported net
income of $59.019 million, up from $38.822 million in 2009. Thus, by its own
admission, had Ebix been unable to benefit from its foreign tax gambit in 2010, it
would have reported net income of $47.519 million and diluted EPS of $1.22
instead of $1.51. Similarly, in 2009, unable to employ its tax scheme, Ebix would
have reported net income of $33.322 million instead of the $38.822 it reported and
diluted EPS of $0.89 instead of $1.03 reported. Thus, as a result of its tax scheme,
Ebix overstated its net income and diluted EPS by 24.2% in 2010. Similarly, in
2009, Ebix overstated its net income and diluted EPS by 16.5% and 16.3%
respectively.
93.
Ebix‘s foreign tax strategy was, however, a sham. First, it is critical
to note that according to the 2010 10-K, Ebix‘s Indian subsidiaries – Ebix Software
India Private Ltd and Ebix Software Asia SEZ Private Ltd – earned $0.00 revenue
from external customers in 2008, 2009, and 2010 while operations in Singapore
earned 2.6%, 1.9% and 3.1% of Ebix‘s total revenues respectively for those years.
That is so, according to the July 16, 2011 Barrons article, Prolonging a Foreign
Tax Holiday, because all income earned by the Indian subsidiaries results from
intercompany transactions with Ebix‘s other operations.19 Barrons noted that
―[t]he tax savings from Ebix‘s intercompany transactions with its subsidiaries in
Singapore and India have been crucial to the cash flow and profit that Raina‘s
produced at the U.S. parent.‖ Simply put, Ebix‘s other operating units are buying
19 Ebix‘s own public filings confirm that the Indian subsidiaries‘ receivables were exclusively intercompany. This is
so because generally accepted accounting principles (―GAAP‖) require that Ebix only report revenue for geographic
areas such as its Indian subsidiaries from external sources, excluding intercompany revenues. See Financial
Accounting Standards Board (―FASB‖) Accounting Standards Codification (―ASC‖) 280-10-50-4.1.
services and software from its India and Singapore subsidiaries, thus shifting
Ebix‘s earnings into those countries where they are taxed at much lower rates.
94.
GAAP presumes that ―all undistributed earnings of a subsidiary will
be transferred to the parent entity‖20 and requires that a deferred tax liability be
recognized for this eventual transfer21 unless ―sufficient evidence shows that the
subsidiary has invested or will invest the undistributed earnings indefinitely.‖22
For those unrecognized tax liabilities that relate to undistributed earnings of a
foreign subsidiary which are permanently invested, GAAP requires a Company to
disclose the description and cumulative amount of those unremitted earnings and
the amount of the unrecognized deferred tax liability relating thereto or state
affirmatively that determination of such liability is not practicable.23
95.
GAAP also required the Company to record a deferred tax liability by
increasing its tax expense relating to such intercompany transactions if it did not
consider the resulting foreign earnings to be permanently re-invested in India.24
Defendants knew or should have known of this strict requirement and disclosed in
the 2010 10-K that ―[t]he Company has not provided deferred U.S. taxes on its
unremitted foreign earnings because it considers them to be permanently re-
20 See FASB ASC 740-30-50-25-3.
21 See FASB ASC 740-30-50-25-5.
22 See FASB ASC 740-30-50-25-17-18.
23 See FASB ASC 740-30-50-2.
24 See FASB ASC 740-30-50-25-3.
invested.‖ The entirety of Ebix‘s foreign tax gambit, therefore, hinges upon
whether it permanently re-invested the earnings of its Indian subsidiaries in India.
96.
According to Ebix‘s own public filings, however, it did not
permanently re-invest its profits in India. According to Barrons‘ evaluation of
Ebix‘s 2010 public filings in India, Ebix‘s subsidiaries reported revenue of $38
million from Ebix‘s other operating units. Those same public filings make it clear,
according to Barrons, that the Indian subsidiaries‘ outstanding receivables were
equal to a year‘s sales or approximately $38 million. Barrons stated, ―at one point
in 2010, in fact, receivables due from the U.S. parent ballooned to almost three
years‘ worth of one Indian subsidiary‘s sales.‖
97.
These receivable balances indicate that Ebix‘s other operating units
were not paying their bills to the Indian subsidiaries. Because cash being
transferred to the Indian subsidiaries was significantly below the amount owed, the
income that the Indian subsidiaries booked consisted almost entirely of paper gains
that could not possibly have been permanently reinvested there.
98.
Confirming the sham nature of Ebix‘s transactions with its Indian
subsidiaries, Barrons caught defendant Raina misrepresenting the flow of cash to
Ebix‘s Indian subsidiaries. Barrons detailed that Indian regulatory filings ―show
several years in which receivables from Ebix U.S. swelled beyond a year‘s sales.‖
Disputing that fact, Raina stated in an email to Barrons, ―[w]e were following a
policy of clearing all intercompany [accounts receivable] with India within 365
days, which is within guidelines laid out by Reserve Bank of India.‖ Barrons
attributes to defendant Raina that ―receivables in India are now down to $2 million
or less than 100 days of sales, and, going forward, Ebix intends to clear all
receivables with India within 120 days.‖ Defendant Raina‘s statement about the
receivables indicates that he understands the concerns Barrons raised after the
Class Period‘s end and sought publically to alleviate any such concerns.
99.
Yet Ebix‘s own periodic reports to the SEC and investors belie
Raina‘s contention about shrinking receivables, establishing that defendants knew
or recklessly disregarded that Ebix reinvested little if any cash in its Indian
subsidiaries. Indeed, throughout the Class Period, defendants disclosed in periodic
reports to the SEC that Ebix purchased and continues to purchase certain derivative
instruments ―to hedge the intercompany receivables originated by our Indian
subsidiary that are denominated in United States dollars.‖ Defendants continued
that the ―U.S. dollar/Indian rupee hedges are intended to partially offset the impact
of movement in exchange rates on future operating costs, and to reduce the risk
that our earnings and cash flows will be adversely affected by changes in foreign
currency exchange rates.‖ In essence, by purchasing these hedge contracts,
defendants caused Ebix to insure that at least a portion of the intercompany
receivables Ebix purportedly owed to its Indian subsidiaries would avoid the
adverse effect of currency fluctuations. For purposes of Ebix‘s tax gambit,
however, this series of disclosures establishes a continuing and ever increasing
minimum amount of receivables owed to Ebix‘s Indian subsidiaries.
100. In its Current Report on Form 10-Q for the quarter ended June 30,
2011 and filed with the SEC on August 16, 2011, for example, defendants stated
that ―the notional value of these contracts. . . is $23.7 million.‖ That is, as of the
date Raina wrote his email to Barrons, defendants knew or recklessly disregarded
that the Indian subsidiaries‘ receivables were at least 10 times the amount Raina
claimed to Barrons.25
101. Throughout the Class Period and beyond, therefore, Ebix was failing
to pay balances due from Ebix‘s other operating units to its Indian subsidiaries, in
turn failing to transmit the cash that it was required to relinquish and permanently
reinvest in India to benefit from its tax holiday. These intercompany receivables
grew as the Class Period progressed. While defendants knew of or recklessly
disregarded these large intercompany receivable balances, investors and other
users of Ebix‘s financial statements were unaware of this fact because Ebix
25 Nor did that minimum receivables amount abate during the third quarter of 2011. In Ebix‘s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2011, the Company reported notional value of its derivative
instruments of $22 million.
eliminated such receivables in the consolidation of its financial results without
providing other disclosures likely required by GAAP.
102. Because Ebix was failing to transfer cash to its Indian subsidiaries, it
was not – as it claimed – permanently re-investing that income abroad. Defendants
knew or recklessly disregarded that critical fact. The failure permanently to re-
invest that income precluded Ebix from excluding from its income taxable in the
United States the earnings of its Indian subsidiaries. By virtue of this tax strategy
manipulation, defendants violated GAAP by failing to record an adequate tax
expense and to reserve for such a liability. As a result of its tax gambit, Ebix
overstated its 2010 net income by 24.2% and its 2009 net income by 16.2%.
By Artificially Inflating its Net Income
and EPS Defendants Violated GAAP
103. Due to the foregoing accounting improprieties, the Company
represented its financial results and statements in a manner which materially
violated GAAP, including the following fundamental accounting principles:
(a)
The principle that financial reporting should provide
information that is useful to present and potential investors and creditors and
other users in making rational investment, credit and similar decisions was
violated (FASB Statement of Concepts No. 1, ¶ 34);
(b)
The principle that financial reporting should provide
information about the economic resources of an enterprise, the claims to
those resources, and effects of transactions, events and circumstances that
change resources and claims to those resources was violated (FASB
Statement of Concepts No. 1, ¶ 40);
(c)
The principle that financial reporting should provide
information about how management of an enterprise has discharged its
stewardship responsibility to owners (stockholders) for the use of enterprise
resources entrusted to it was violated. To the extent that management offers
securities of the enterprise to the public, it voluntarily accepts wider
responsibility for accountability to prospective investors and to the public in
general (FASB Statement of Concepts No. 1, ¶ 50);
(d)
The principle that financial reporting should provide
information about an enterprise‘s financial performance during a period was
violated. Investors and creditors often use information about the past to help
in assessing the prospects of an enterprise. Thus, although investment and
credit decisions reflect investors‘ expectations about future enterprise
performance, those expectations are commonly based at least partly on
evaluations of past enterprise performance (FASB Statement of Concepts
No. 1, ¶ 42);
(e)
The principle that financial reporting should be reliable in that it
represents what it purports to represent was violated. That information
should be reliable as well as relevant is a notion that is central to accounting
(FASB Statement of Concepts No. 2, ¶¶ 58-59);
(f)
The principle of completeness, which means that nothing is left
out of the information that may be necessary to ensure that it validly
represents underlying events and conditions, was violated (FASB Statement
of Concepts No. 2, ¶ 79); and
(g)
The principle that conservatism be used as a prudent reaction to
uncertainty to try to ensure that uncertainties and risks inherent in business
situations are adequately considered was violated. The best way to avoid
injury to investors is to try to ensure that what is reported represents what it
purports to represent (FASB Statement of Concepts No. 2 ¶¶ 95, 97).
104. The undisclosed adverse information concealed by defendants during
the Class Period is the type of information which, because of SEC regulations,
regulations of the national stock exchanges and customary business practices, is
expected by investors and securities analysts to be disclosed and is known by
corporate officials and their legal and financial advisors to be the type of
information which is expected to be and must be disclosed.
105. In addition, defendants were responsible for accurate financial
reporting under the Sarbanes Oxley Act of 2002 (―SOX‖). Congress enacted SOX
―to protect investors by improving the accuracy and reliability of corporate
disclosures made pursuant to the securities laws, and for other purposes.‖ To
ensure the accountability of management in achieving these goals, SOX requires
the principal executive officer or officers and the principal financial officer or
officers of a company to certify their specific responsibilities over financial
reporting, disclosures, and internal controls over financial reporting. The principal
officers, namely the CEO and CFO, are responsible for the company‘s publicly
filed information, so that end users who rely on such information for decision
making purposes can have a higher level of comfort based on the fact that the
principal officers of the company were taking ―ownership‖ of the financial
information. As stated above, defendants Raina and Kerris certified all of Ebix‘s
financial statements during the Class Period, pursuant to SOX Section 302, 906,
and 404.
Defendants Misrepresented Critical Organic Growth Rates
106. About defendant Raina‘s claim of 11% organic growth in 2010,
Barrons noted, ―[i]n the blur of 18 acquisitions, it‘s been hard to distinguish
acquired growth from organic growth.‖ In a roll-up like Ebix, however, organic
growth information is critical to investors who must determine whether increases
in revenue and income are acquired or are organic and sustainable. In its March
24, 2011 analysis, Copperfield was far more scathing. It stated that ―Investors
have a distorted view of the company‘s organic growth profile (historically roll-ups
trade at low earnings multiples).‖ Copperfield concluded that ―the REAL organic
growth over the past two years appears to be relatively minimal.‖ Cautioning that
its analysis is an estimate, Copperfield stated, ―estimating the contributions of
acquired businesses leads to the conclusion that Ebix has no growth,‖ and that any
growth it shows relates to the impact of foreign exchange rates on revenue.
107. Through the end of 2008, Ebix provided information that enabled
investors to create a crude analysis of organic growth. For example, in its Annual
Report on Form 10-K for the year ended December 31, 2008 (―2008 10-K‖), Ebix
gave investors a glimpse of growth rates by disclosing divisional breakdowns of its
revenue, noting how much each acquisition contributed. Of its increase in 2008
revenues, Ebix stated:
The increase in operating revenue is a result of both
organic and acquisitive growth with the effect of recently
completed business combinations having greater impact.
We have consistently demonstrated the ability to quickly
integrate business acquisition into existing operations and
thereby rapidly leverage product cross-selling
opportunities. The specific components of our revenue
and the changes experienced during the past year are
discussed further below.
108. In discussing revenue components in the 2008 10-K, Ebix broke down
the increase in 2008 revenue by legacy and acquired businesses. For example,
with respect to its business process outsourcing (―BPO‖) unit, Ebix stated:
BPO division revenues increased $7.1 million which
includes revenue increases of approximately $5.5 million
from EbixBPO‘s-Hemet, CA operations (formerly IDS;
acquired in November 2007), $596 thousand from the
EbixBPO‘s-Portland, MI operations (formerly Periculum;
acquired in April 2008), and $1.1 million from
EbixBPO‘s-San Diego, CA operations (formerly
ConfirmNet; acquired in November 2008). EbixBPO‘s-
Hemet, CA operation represents the headquarters of the
newly formed EbixBPO division.
109. Investors were able to glean from this information the amount of
revenues purchased versus the amount attributable to Ebix‘s legacy operations. In
the case of Ebix‘s BPO division, the entirety of its revenue growth in 2008 was
attributable to acquisitions.
110. In reporting the first quarter of 2009, however, defendants replaced
the clarity of that disclosure with unit revenue figures that failed to distinguish
between revenue achieved through legacy operations and revenue achieved
through acquisition. In its Quarterly Report on Form 10-Q for the quarter ended
March 31, 2009, for example, Ebix excised the information distinguishing among
legacy versus acquired revenue sources, stating:
During the three months ended March 31, 2009 our
operating revenue increased $4.0 million or 24%, to
$20.7 million in the first quarter of 2009 compared to
$16.6 million during the first quarter of 2008. The
increase in our first quarter 2009 revenue as compared to
the first quarter of 2008 is a the result of a $2.6 million
increase in our health insurance exchange division
revenues, a $1.5 million increase in our annuity and life
insurance exchange division revenues , and a $1.7
million increase in BPO division revenues, partially
offset by a $1.5 million decrease in our property and
casualty insurance exchange revenues primarily due to
the effect of fluctuation in foreign currency exchange
rates effecting reported results.
111. By early 2009, the start of the Class Period, therefore, the Company‘s
disclosures were completely opaque, disabling investors from analyzing and
determining organic growth. Gone from defendants‘ disclosures on revenue
growth was any breakdown of the contribution of acquisitions to revenue and the
growth of legacy operations.
112. Defendants excised this information from Ebix‘s public filings
because they knew or recklessly disregarded that Ebix‘s organic growth rates were
actually declining, meaning that the only way it could continue to grow revenue
was by acquisition. Several former employees of acquired companies whom Ebix
either employed post-acquisition or with whom it had continuing dealings
confirmed this stalled growth.
113. For example, a former Ebix account manager, who had worked for E-
Z Data prior to the acquisition and continued to work for Ebix until early 2011,
confirmed declining growth. The account manager recounted that after acquiring
E-Z Data, Ebix laid-off a number of E-Z Data personnel, claiming to trim the fat.
In addition, Ebix cut remaining employees‘ salaries by 10%, explaining that
without the cuts it would have to terminate more employees. In particular, the
account manager related, to centralize administrative functions, Ebix terminated all
but one of E-Z Data‘s administrative staff including the sales operations function.
As a result of that centralization, the E-Z Data sales force became less effective as
they assumed sales operations work in addition to their normal functions.
Ultimately, according to the account manager, Ebix was forced to add sales staff.
The account manager departed from Ebix because he saw no growth opportunities
for himself or the company. Having been with the company for three years, he saw
little noticeable organic growth.
114. A senior application developer with Infinity Systems who worked at
Ebix through mid-2011 and reported to John Schmitt, VP of development,
confirms that like E-Z Data, Infinity Systems, too, was experiencing no organic
growth. Indeed, the senior application developer was terminated in May, 2011
because there were not enough sales to justify keeping staff. According to the
senior application developer, the former Infinity Systems group was not getting
new clients because Ebix‘s sales force was not selling the products his group was
developing. When Ebix purchased Infinity Systems, the senior application
developer related, it was simply buying companies like they were on EBay. At the
time, Ebix told Infinity Systems personnel that they would receive support from
Ebix, such as network support. Ebix, however, never satisfied those promises as
promised infrastructure help failed to materialize.
115. In addition, the senior application developer related his experience
dealing with Ebix‘s software developers in India. He stated that Infinity Systems
required good software engineers whom, he believed, Ebix could have hired in
Virginia. Instead, the group was told to include Ebix software engineers from
India. While he praised some of Ebix‘s Indian software development staff, he
stated that no good results came from his sending work to India for completion.
116. As the Copperfield research note demonstrated, therefore, Ebix was
not growing organically as defendants claimed throughout the Class Period.
Rather, according to its public filings, Ebix spent only $6.4 million on sales and
marketing in 2010 or less than 5% of revenue. ―[T]his absolute spend,‖ according
to public filings of Ebix and ADAM – a public company that Ebix acquired during
the first quarter of 2011 – ―was less than Adam‘s stand-alone sales and marketing
expense. ADAM was 1/20th the size of Ebix.‖ Copperfield continued that in 2010,
Ebix spent only $13.6 million on product development or 10% of its sales,
consistent with mature industrial companies and not growing technology
companies.
117. Supporting the conclusions of Copperfield, a former senior executive
of Connective Technologies, Inc., confirmed not only the experience of Peak with
respect to Ebix‘s inability to provide accurate financials on which to base his earn
out, but the lack of a plan to grow Connective or, indeed, Ebix as a whole.
According to this senior executive, he asked Raina directly how Ebix would grow
Connective‘s business. Raina had no plan, instead promising either to hire more
personnel or to outsource the function of marketing the product. According to this
former senior executive, Ebix had dramatically understaffed its marketing
department. He related that a company of Ebix‘s size should have ten to fifteen
marketing personnel while Ebix only staffed two. While Raina promised the
senior executive that he would hire additional marketing staff, Ebix did not meet
that promise. The senior executive said that while Ebix had accumulated some
marketable products, Raina purposefully avoided adding staff to promote those
product additions adequately.
118. The lack of adequate sales and marketing staff, commitment to
products and customers of acquired units, or adequate research and development
spending, organic growth is implausible – all facts of which defendants were aware
or that the recklessly disregarded – belie claims of double digit organic growth.
119. By failing to disclose either accurate organic growth rates or
information that would enable investors to reach their own conclusions,
Defendants violated SEC regulations regarding financial and non-financial
reporting. Public companies are required by the SEC to adhere to, among other
things, rules and regulations regarding financial and non-financial reporting and
disclosures. These rules are set forth in the Securities Act of 1933 and the
Securities Exchange Act of 1934 and regulations promulgated thereunder.
120. For example, Regulation S-X sets forth the form and content
requirements for financial statement to be filed with the SEC. As a public
company bound by this regulation, Ebix was required to file an annual report with
the SEC on Form 10-K, which includes financial statements prepared in
conformity with GAAP. The SEC requires that certain disclosures supplement a
company‘s quarterly and annual financial statements to help investors better
understand a company‘s financial condition.
121. Specifically, SEC Regulation S-K, Item 303, requires that each
quarterly Form 10-Q and annual Form 10-K include a narrative explaining the
financial statements and the changes in financial condition of the company
―through the eyes of management.‖ Interpretative guidance prepared by the SEC –
Financial Reporting Release No. 36 (―FRR 36‖), Management’s Discussion and
Analysis of Financial Condition and Results of Operations – further discusses the
disclosure requirements of Regulation S-K, Item 303. SEC Staff Accounting
Bulletin (―SAB‖) Topic 13B requires disclosure of a policy for each material type
of transaction. This SAB (SAB 101) requires the following disclosures with
respect to revenue recognition in the Management‘s Discussion and Analysis
(―MD&A‖) section of the Form 10-K:
MD&A requires a discussion of liquidity, capital
resources, results of operations and other information
necessary to an understanding of a registrant‘s financial
condition, changes in financial condition and results of
operations.26 This includes unusual or infrequent
transactions, known trends or uncertainties that have had,
or might reasonably be expected to have, a favorable or
unfavorable material effect on revenue, operating income
or net income and the relationship between revenue and
the costs of the revenue…The Commission stated in FRR
26 See Regulation S-K, Article 303 and FRR 36.
36 that MD&A should ―give investors an opportunity to
look at the registrant through the eyes of management by
providing a historical and prospective analysis of the
registrant‘s financial condition and results of operations,
with a particular emphasis on the registrant‘s prospects
for the future.‖27
122. Specifically, Regulation S-K, Item 303 (a) (3) (ii) requires that issuers
―[d]escribe any known trends or uncertainties that have had or that the registrant
reasonably expects will have a material favorable or unfavorable impact on net
sales or revenues or income from continuing operations. . . .‖
123. Ebix failed to disclose the aforementioned required information in its
Forms 10-K during the class period. Further, Ebix omitted certain information
that, under all of the circumstances, was likely required, concerning its acquisitions
during the class period. SEC Rule 3-05(b)(2)(i) of Regulation S-X requires that
companies look at its acquisitions in combination and they therefore cannot pass
off their acquisitions as individually insignificant. Had Ebix furnished separate
financial statements of the individual acquirees, investors would have been in a
position to calculate the acquired growth of Ebix as compared to its true organic
growth.
124. As a result, defendants knew or recklessly disregarded that the organic
growth rates they touted to investors were materially inflated, that Ebix was
27 FRR 36, also in the matter of Matter Caterpillar Inc., AAER 363 (March 31, 1992).
suffering from anemic or negative organic growth, and that the Company was
growing only through acquisition.
DEFENDANTS' FALSE AND MISLEADING
STATEMENTS ISSUED DURING THE CLASS PERIOD
Ebix Discloses Its Financial Results for the First Quarter of 2009
125. On May 6, 2009, the first day of the Class Period, Ebix issued a press
release, disclosing it financial results for the first quarter of 2009, ended March 31,
2009. Ebix recorded first quarter 2009 revenue of $20.67 million up from $16.64
million for the same quarter in 2008, a 24% increase. According to defendants,
―[n]et income after taxes for the quarter rose 47 percent to $8.34 million, or $0.69
per diluted share, up from $5.67 million, or $0.47 per diluted share, in the first
quarter of 2008 - earnings per share growth of 47 percent.‖ The Company
recorded an income tax provision of $196,000 in the first quarter of 2008. The
Company also booked accounts receivable for the quarter of $15.918 million, net
an allowance of $453,000, an increase from $13.562 million net of an allowance of
$453,000 as of December 31, 2008. Defendants reiterated these results both in its
Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, filed with
the SEC on May 8, 2009 and signed by defendants Raina and Kerris, and in a
presentation on an earnings conference call on May 6, 2009.
126. Of these results, in the May 6, 2009 press release, defendant Raina
touted the Company‘s improving net margins in the context of the then current
difficult economic environment and adverse effects relating to foreign exchange
issues. ―Considering all that,‖ defendant Raina stated, ―this has been a satisfying
quarter to the extent that it helps underline the fundamental strength of the
company today. Our repetitive revenue streams and infrastructure based
transaction services, helped ensure that Ebix continues to grow its revenues, net
income and net margins steadily.‖
127. Concluding his remarks on the quarter in the press release with
remarks he would restate in the earning conference call, Raina stated:
In January 2009, we had announced that Ebix has
received a 100% tax-free status till 2014, for its new
development operations in India under the Software
Export Zone (SEZ) act of the Govt. of India. This new
building - our third in India will be fully functional in a
few days from now, resulting in giving Ebix a continued
tax break along with another world class facility to
support our continued growth.
128. On May 6, 2009, defendants convened and conducted an earnings
conference call. During his presentation, defendant Raina reiterated the financial
results Ebix had announced in its press release. With respect to Ebix‘s controls,
Raina stated:
Now, all this when you do stuff like that, and put controls
in place, you can't compromise nimbleness. So, what we
have done is we have created systems across the world so
that while the controls are in place we're not losing in
terms of our efficiency. Having said that, you see
expense control is the journey. When you can't -- you can
never be sure that you have everything under control.
You have to be absolutely on the watch, each and every
day virtually, to make sure you are doing it right.
129. During the question an answer portion of the May 6, 2009 earnings
conference call, investors questioned defendants Raina and Kerris about Ebix‘s tax
rates. For example, one investor asked about Ebix‘s very low tax rates as a result
of tax holidays its Indian and Singapore subsidiaries enjoyed, an investor asked,
whether the tax holiday for the Company‘s existing India subsidiary expired in
2010. In response, Raina stated:
Well, the other tax holiday is basically a -- it's starting in
the March of 2010. However, it is -- at the present
moment, the Government of India has made some
announcement, they're in an election period right now in
India. But before they went into elections, they basically
made some announcement that we're extending it for
another two years. It's not yet a bill, but most likely to
happen, the extension of two years. In any case, we have
almost insulated ourselves, whether they extend it or they
don't extend it. (inaudible) the new facility that we have
in place.
130. Another investor questioned defendants Raina and Kerris about the
Company‘s ―organic growth potential‖ in the context of its revenue opportunities
over the next 3-5 years. In response to this question, defendant Raina answered, in
relevant part:
Well I think, first of all, is the revenue opportunity. If
we're discussing opportunity, I mean, we -- the market
size is almost $59 billion meaning in terms of just the
amount that you are spending on paper-based processes
of insurance alone. So, clearly to me that is opportunity.
Now, what can Ebix do in that? And I don't -- I hate to
answer that because I don't want to be issuing any
guidance on revenues.
Having said that, I think we have consistently grown our
revenue. Meaning, if you go to our website you'll see a
particular presentation there, which walks you through
some of the organic growth rate last year. And once you
take out all that commission, you'll see it's a 22, 23, I
think it's 27% actually. The organic growth rate. So, it's
-- we have done decently well with cross-selling. In a
time like this when new capital decisions are harder to
come by, we have continued cross selling and using --
launching new products and opening up new areas, and
so on, and so that has kept our revenue growing.
And clearly, we will make a few acquisitions, and
coming back to the second question on acquisitions, we
clearly will make a few acquisitions. You could see us
make possibly, you will -- you could see us go after two
kinds of companies. One are relatively smaller
acquisitions, a kind of acquisition we have made in the
past, which tend to be, have to - have always been
accretive. We have never made an acquisition that was
not accretive on day one. And then there is, there are
larger opportunities. You could possibly see us going
after some larger acquisitions, but the only case in which
we'll go after a larger acquisition is only if we see a slam-
dunk situation.
If we see our -- this has the next big life changing step for
us, then only we'll go after that. And clearly, even when
we do that, we are very simplistic in that approach. We
expect accretiveness on day one, rather than as a long
term objective. So, our staff always become harder when
we are looking at acquisitions, because we're almost
trying to make an acquisition with accretiveness in the
first quarter. And that's been our history, and we feel
that's the benchmark we're getting evaluated by, and we
want to stick to that.
131. On May 8, 2009, the Company filed its Quarterly Report on Form 10-
Q for the quarter ended March 31, 2009 signed by defendants Raina and Kerris. In
addition, as stated above, both Raina and Kerris certified the Company‘s financial
results for the first quarter of 2009, ended March 31, 2009.
132. The May 8 10-Q also discusses Ebix‘s accounting for income taxes.
Note 4 to the financial statements boasts and effective income tax rate of 4.7% for
the quarter, down .522% from the same period in 2008. According to the
Company, it bases its interim period tax provision on its ―current estimate of the
effective income tax rates applicable to the related annual twelve month period,
after considering discrete items unique to the respective interim reporting period.‖
The Company further boasted that its tax rate decline in 2009 was related ―to the
change in the mix of taxable income amongst the various domestic and foreign
countries, including certain low tax rate foreign jurisdictions, in which the
Company conducts operations.‖
133. About the taxes on its Indian operations, the 10-Q stated:
Currently, in India the Company‘s local taxable income,
other than passive interest and rental income, is subject to
a tax holiday. The tax holiday is scheduled to expire in
2010. The Company‘s operations in India are also subject
to the 11.33% Minimum Alternative Tax (―MAT‖). For
the three month period ended March 31, 2009 the
Company‘s MAT liability was $396 thousand. The tax
paid under the MAT provisions is carried forward for a
period of seven years and set off against future tax
liabilities computed under the regular corporate income
tax provisions, for which the current income tax rate is
33.99%. Accordingly, the Company‘s consolidated
balance sheet at March 31, 2009 includes a long-term
deferred tax asset in the amount of $1.6 million.
134. About the Company‘s accounts receivable, the 10-Q related that
―Management specifically analyzes accounts receivable and historical bad debts,
write-offs, customer concentrations, customer credit-worthiness, current economic
trends and changes in our customer payment terms when evaluating the adequacy
of the allowance for doubtful accounts.‖ Defendants further related that Ebix
writes-off accounts receivable ―to the allowance account when the Company has
exhausted all reasonable collection efforts. During the three months ending March
31, 2009 and 2008 there were no accounts receivable written off.‖
135. Also in that Form 10-Q, defendants discussed their evaluation of
internal control over financial reporting and their evaluation of disclosure controls
and procedures, stating:
Evaluation of Disclosure Controls and Procedures. As
required by Rule 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, an evaluation was
carried out under the supervision and with the
participation of our management, including the Chief
Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our
disclosure controls and procedures as of March 31, 2009.
Based upon this evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that, as of
March 31, 2009, our disclosure controls and procedures
were effective to provide reasonable assurance that
information required to be disclosed in the reports that
we file or submit under the Securities Exchange Act of
1934 is accurately and properly recorded, processed,
summarized and reported within the time periods
specified in the applicable rules and forms and that it is
accumulated and communicated to our management,
including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
Internal Control over Financial Reporting. There were
no changes in our internal control over financial
reporting during the fiscal quarter ended March 31, 2009,
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.
136. The foregoing statements about the first quarter of 2009 were false or
misleading. As stated above in paragraphs 33-86 and 103-105, defendants knew or
recklessly disregarded that serious internal control problems plagued Ebix since
2003. These internal control problems did not improve throughout the Class
Period. As a result, defendants knew or recklessly disregarded that Ebix was
unable to account for its accounts receivable accurately or to post cash timely and
accurately. Defendants, therefore, were unable to assess accurately Ebix‘s need to
reserve for bad debts in the face of its mounting accounts receivable. Accordingly,
throughout the Class Period, in violation of GAAP, defendants knew or recklessly
disregarded Ebix understated its allowance for doubtful accounts, enabling it to
overstate its net income and diluted earnings per share.
137. In addition, as stated above in paragraphs 87-105, throughout the
Class Period, defendants knew or were reckless in not knowing that Ebix was
overstating net income and diluted EPS by means of a sham tax strategy that
shifted profits overseas, profits, defendants knew or recklessly disregarded, that
Ebix was not permanently reinvesting in the foreign jurisdictions. By means of
this sham tax strategy, in violation of GAAP, defendants knew or recklessly
disregarded that Ebix overstated net income in 2009 by 16.5% and 2009 diluted
EPS by 16.3%.
138. Last, as stated above in paragraphs 106-124, defendants knew or
recklessly disregarded that throughout the Class Period, they disclosed materially
inaccurate organic growth rates, a critical metric for investors in the case of a roll-
up such as Ebix. In fact, as defendants knew or recklessly disregarded, Ebix‘s
legacy operations were not growing organically. Rather the Company was
growing only through acquisition.
Ebix Discloses Its Financial Results for the Second Quarter of 2009
139. On August 5, 2009, the Company issued a press release, detailing its
financial and operating condition for the second quarter of 2009, ended June 30,
2009. Ebix recorded second quarter 2009 revenue of $22.42 million up 26% from
$17.80 million for the same quarter in 2008. Defendants boasted that ―[n]et
income after taxes for the quarter rose 41 percent to $8.96 million, or $0.73 per
diluted share, up from $6.34 million, or $0.54 per diluted share, in the second
quarter of 2008 - an earnings per share growth of 35 percent.‖ For the quarter, the
Company recorded an income tax provision of $416,000. The Company also
booked accounts receivable for the quarter of $16.394 million, net an allowance of
$548,000, an increase from $13.562 million net of an allowance of $453,000 as of
December 31, 2008. Defendants reiterated these results both in its Quarterly
Report on Form 10-Q for the quarter ended June 30, 2009, filed with the SEC on
August 7, 2009 and signed by defendants Raina and Kerris, and in a presentation
on an earnings conference call on August 5, 2009.
140. About these results, defendant Raina stated in the August 5 press
release:
We are pleased that the second quarter results are in line
with our expectations. The insurance industry continues
to pass through a difficult phase with capital decisions
related to deployment of backend systems being
postponed or just being put into cold storage for want of
budget or focus. Considering that inertia, and the adverse
impact of the significant strengthening of the US dollar
on our financial results in the second quarter of 2009 as
compared to the second quarter of 2008 (as much as 15%
with respect to Indian Rupee, 20% with respect to
Australian dollar, 22% with respect to New Zealand
dollar, and 7% with respect to Singapore dollar); we are
pleased that our revenues and net income both have still
continued to grow. The current times have been a good
test of our infrastructure-based On-Demand software
exchanges, our recurring revenue model, and the expanse
of our customer base.
We are especially pleased that net margins after taxes in
the second quarter grew to 40% from 36% in the same
quarter last year. The exchange and BPO channels
continued to grow in a healthy manner and more than
made up for the slight decrease in revenues associated
with postponed implementations and delayed decision
making relating to back-end systems that took place in
the broker and carrier channels. The second quarter saw
the exchange channel become 59% of our total revenues
while the BPO channel accounted for 16% of our
revenues. Broker systems business accounted for 13%
and the carrier channel accounted for 12% of our
worldwide revenues.
141. Also in the August 5, 2009 press release, defendant Kerris stated:
The Company continues to produce substantial cash from
its operating activities generating $15.54 million during
the six months ending June 30, 2009 representing a 46%
improvement over the same period in 2008, while at the
same time sustaining attractive operating margins of 41%
for both the second quarter and six-month periods of
2009, both improvements in our performance since 2008.
142. Also on August 5, 2009, defendants convened and conducted an
earnings conference call. During his presentation, defendant Raina reiterated the
financial results Ebix had announced in its press release. He also touted the
effectiveness of Ebix‘s systems and operations, stating:
we decided to invest in creating effective systems and
effective operations. We decided to aggressively
consolidate, streamline, standardize and centralize our
back office activities. We believe then efficient business
with controls will help us have a better handle on our
own destiny, rather than deal with surprises towards the
end of each quarter. With 20-plus offices across the
globe, it was important for us to establish controls that
had a check and balance mechanism built into them,
while not compromising on nimbleness.
143. During the question and answer session with analysts, Raina discussed
the Company‘s tax rates with analyst Eileen Segall as follows:
EILEEN SEGALL: Right now your earnings are
benefiting from an extremely low tax rate, which seems
to be temporary. Once you work through the NOLs and
the tax holiday, maybe out in 2011, what should I think
of as a tax rate?
ROBIN RAINA: Well, first of all, our tax holiday is until
2014. And then after 2014 we have a 50% tax holiday
until 2019 and basically referring to India. Now, when
you look at our overall tax rate, I could not hazard and
give you a number, because it's too early for me to give
you a number and tell you this is where we think we are
headed. But like I said, we are in the midst of a tax
[review]. We do not think that there is going to be
dramatic changes on our tax rate. I think you will see a
gradual change and that gradual change will happen over
a period of time. You're not going to see some dramatic
changes there. And part of it is because we are widely
spread out and we have tax advantages of being in
different places around the world.
EILEEN SEGALL: What portion of your earnings are
subject to the tax holiday?
ROBIN RAINA: The tax holiday is only in India. In the
US we have NOLs that are only usable in the US. But
then as I said, we have a tax structure worldwide that
takes advantage of India, where India gets paid on
(inaudible) basis based on (inaudible) rules and that
allows India to -- since India is tax free, that's quite
advantageous to us.
EILEEN SEGALL: So looking out after you've used all
your NOLs, we're not looking at a typical 30 to 40% tax
rate kind of long term?
ROBIN RAINA: No, you're not looking at that rate and
like I said, it's very difficult for me to give you a
particular number right now, but purely because in the
mix of the strategy but what you're going to see is a
gradual upswing. You could possibly see over a period of
time these rates going up to possibly 10 then 11 and so
on. You're not going to suddenly see the rate jump up to
30 or 29 or 25.
144. On August 7, 2009, the Company filed a Quarterly Report on Form
10-Q for the quarter ended June 30, 2009 signed by defendants Raina and Kerris.
In that Form 10-Q, defendants reiterated the Company‘s results from the August 5,
2009 press release. In addition, as stated above, both Raina and Kerris certified the
Company‘s financial results for the second quarter of 2009, ended June 30, 2009.
145. In that Form 10-Q, the Company boasted of its continued expansion,
―both organically and through a series of acquisitions. . . .‖ Indeed, during the
second quarter of 2009, the Company acquired Facts Services, Inc. for $6.5 million
in cash, combining it with its EbixHealth division. The reported results from the
second quarter of 2009 included those of Facts Services, Inc.
146. The May 8 10-Q also discusses Ebix‘s accounting for income taxes.
Note 10 to the financial statements boasts and effective income tax rate of 4.81%
for the six months ended June 30, 2009, down .89% from the same period in 2008.
According to the Company, it bases its interim period tax provision on its ―current
estimate of the effective income tax rates applicable to the related annual twelve
month period, after considering discrete items unique to the respective interim
reporting period.‖ The Company further boasted that its tax rate decline in 2009
was related ―to the change in the mix of taxable income amongst the various
domestic and foreign countries, including certain low tax rate foreign jurisdictions,
in which the Company conducts operations.‖
147. About the taxes on its Indian operations, the 10-Q stated:
Currently, the Company‘s local taxable income in India,
other than passive interest and rental income, is subject to
a tax holiday. The tax holiday is scheduled to expire in
2011. The Company‘s operations in India are also subject
to the 11.33% Minimum Alternative Tax (―MAT‖). For
the three month and six periods ended June 30, 2009 the
Company‘s MAT liability was $343 thousand and $739
thousand respectively. The tax paid under the MAT
provisions is carried forward for a period of seven years
to be used as an offset against future tax liabilities
computed under the regular corporate income tax
provisions, for which the current income tax rate is
33.99%. Accordingly, the Company‘s consolidated
balance sheet at June 30, 2009 includes a long-term
deferred tax asset in the amount of $2.1 million.
148. About the Company‘s accounts receivable, the 10-Q again stated that
―Management specifically analyzes accounts receivable and historical bad debts,
write-offs, customer concentrations, customer credit-worthiness, current economic
trends and changes in our customer payment terms when evaluating the adequacy
of the allowance for doubtful accounts.‖ Defendants further related that Ebix
writes-off accounts receivable ―against the allowance account when the Company
has exhausted all reasonable collection efforts. No accounts were written off as
uncollectible during the six months ending June 30, 2009 and 2008 respectively.‖
149. Also in that Form 10-Q, defendants discussed their evaluation of
internal control over financial reporting and their evaluation of disclosure controls
and procedures, stating:
Evaluation of Disclosure Controls and Procedures—As
required by Rule 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, an evaluation was
carried out under the supervision and with the
participation of our management, including the Chief
Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our
disclosure controls and procedures as of June 30, 2009.
Based upon this evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that, as of
June 30, 2009, our disclosure controls and procedures
were effective to provide reasonable assurance that
information required to be disclosed in the reports that
we file or submit under the Securities Exchange Act of
1934 is accurately and properly recorded, processed,
summarized and reported within the time periods
specified in the applicable rules and forms and that it is
accumulated and communicated to our management,
including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
Internal Control over Financial Reporting—There were
no changes in our internal control over financial
reporting during the six months ended June 30, 2009, that
have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.
150. The foregoing statements about the second quarter of 2009 were false
or misleading. As stated above in paragraphs 33-86 and 103-105, defendants knew
or recklessly disregarded that serious internal control problems plagued Ebix since
2003. These internal control problems did not improve throughout the Class
Period. As a result, defendants knew or recklessly disregarded that Ebix was
unable to account for its accounts receivable accurately or to post cash timely and
accurately. Defendants, therefore, were unable to assess accurately Ebix‘s need to
reserve for bad debts in the face of its mounting accounts receivable. Accordingly,
throughout the Class Period, in violation of GAAP, defendants knew or recklessly
disregarded Ebix understated its allowance for doubtful accounts, enabling it to
overstate its net income and diluted earnings per share.
151. In addition, as stated above in paragraphs 87-105, throughout the
Class Period, defendants knew or were reckless in not knowing that Ebix was
overstating net income and diluted EPS by means of a sham tax strategy that
shifted profits overseas, profits, defendants knew or recklessly disregarded, that
Ebix was not permanently reinvesting in the foreign jurisdictions. By means of
this sham tax strategy, in violation of GAAP, defendants knew or recklessly
disregarded that Ebix overstated net income in 2009 by 16.5% and 2009 diluted
EPS by 16.3%.
152. Last, as stated above in paragraphs 106-124, defendants knew or
recklessly disregarded that throughout the Class Period, they disclosed materially
inaccurate organic growth rates, a critical metric for investors in the case of a roll-
up such as Ebix. In fact, as defendants knew or recklessly disregarded, Ebix‘s
legacy operations were not growing organically. Rather the Company was
growing only through acquisition.
Ebix Discloses Its Financial Results for the Third Quarter of 2009
153. On November 4, 2009, Ebix issued a press release, disclosing it
financial results for the third quarter of 2009, ended September 30, 2009. Ebix
recorded third quarter 2009 revenue of $23.29 million up 16% from $20.17 million
for the same quarter in 2008. Defendants again boasted of a substantial earnings
increase, stating, ―[n]et income after taxes for the quarter rose 28 percent to $9.43
million, or $0.76 per diluted share, up from $7.40 million, or $0.62 per diluted
share, in the third quarter of 2008- earnings per share growth of 22 percent.‖ The
Company reported an income tax provision of $313,000. The Company also
booked accounts receivable for the quarter of $18.660 million, net an allowance of
$548,000, an increase from $13.562 million net of an allowance of $453,000 as of
December 31, 2008. Defendants reiterated these results both in its Quarterly
Report on Form 10-Q for the quarter ended September 30, 2009, filed with the
SEC on November 11, 2009 and signed by defendants Raina and Kerris, and in a
presentation on an earnings conference call on November 4, 2009.
154. Of these results, defendant Raina stated in the November 4 press
release:
We are pleased that the third quarter results are in line
with our expectations. We are especially pleased that net
margins after taxes in the third quarter grew to 41% from
37% in the same quarter last year. We feel good about
our consistent revenue streams and believe that the
company has the ability to continue our growth both
organically and through strategic acquisitions.
These are both very strategic acquisitions that allow us
cross selling opportunities, as also help us take a giant
leap forward in terms of making the dream of end-to-end
computing possible. We intend integrating them within
Ebix on a war footing and in the most sensible fashion
with the aim of leading the industry, accompanied by
short term and long term accretiveness for our
shareholders.
In recent times, we have been repeatedly asked by
investors, for some guidance on the impact of EZDATA
and Peak on our financial results. Clearly we remain
focused on getting the same level of net margins from
these two deals, as we are used to today. While we are
not yet fully prepared to discuss the complete positive
impact of the EZ Data and Peak acquisitions on our
results, yet we feel comfortable enough to define some
floor metrics in terms of revenues and net income from
these acquisitions. We expect the two deals to contribute
a combined minimum of $26 million in revenues and
$7.5 million in net income, over the next 12 months.
155. Also in the November 4 press release, defendant Kerris added:
During nine months ending September 30, 2009 the
Company generated $22.1 million from our operating
activities which represents a 14% improvement over the
same period a year earlier. Net income for the third
quarter of $9.43 million is up $483 thousand or 5% from
the second quarter, representing the thirteenth
consecutive quarter of sequential quarter over quarter net
income growth. Our operating margins remain strong at
42% for the quarter and 41% the nine-month period
ending September 30, 2009, respectively. We are also
pleased by the fact that to date $26.6 million of the
original $35.0 million of convertible debt issued during
2007 and 2008 has been paid or converted into Ebix
common stock, leaving a remaining balance due on those
obligations of $8.4 million.
156. Also on November 4, 2009, defendants convened and conducted an
earnings conference call. During his presentation, defendant Raina reiterated the
financial results Ebix had announced in its press release. He also touted the
Company‘s shift in operations to India, including its ―increased [] infrastructure for
R&D. . . .‖ Raina described that Ebix had purchased another building in a tax free
zone in India. Focusing on the tax-free nature of Ebix‘s India operations,
defendant Raina stated ―The SEZ, the Software Export Zone Act of the
government of India, is meant to offer tax-free status for five years and 50% tax-
free status for five years after that, with a view to encourage software exports.‖
Defendant Raina continued:
Ebix decided not to wait until 2011 and, instead, took --
sought government approval to get into the bonded
export area, called the Software Export Zone, SEZ. We
received all the government permissions and are today
fully functional in the tax-free SEZ area, and that
will[does] have a tax-free status until 2014 and 50% tax-
free status after that. That's a rather important
development for Ebix, as it allows us the benefit of
having hundreds of people operating out of (inaudible)
and allows us a low tax jurisdiction in addition to access
to duty-free imports for hardware and infrastructure in
that area.
157. During the question and answer session, one analyst noted the
increase in accounts receivable, questioning whether the increase related to
―acquisitions or just the normal billing cycle?‖ Defendant Raina replied, ―Yes, it
is, and I'll let Bob explain that further, but it is. It‘s purely a timing issue. Clearly,
when you make these acquisitions, I mean, you‘ll have some tiny timing
differences that will happen, and that‘s all you're seeing.‖ Defendant Kerris added,
―Yes. Our DSO at the end of the quarter stood at 63 days, but since the end of the
quarter, we've collected sufficient sums of funds from our foreign customers and
our DSO has come down. We look at this as strictly a timing issue and are not
concerned about any ongoing issues there.‖ Defendant Raina concluded, ―We
have no real A/R issues, so I think it‘s purely a timing issue.‖
158. On November 9, 2009, the Company filed a Quarterly Report on
Form 10-Q for the quarter ended September 30, 2009 signed by defendants Raina
and Kerris. In that Form 10-Q, defendants reiterated the Company‘s results from
the November 4, 2009 press release. In addition, as stated above, both Raina and
Kerris certified the Company‘s financial results for the third quarter of 2009, ended
September 30, 2009.
159. In that Form 10-Q, the company boasted of increased revenues,
stating, ―During the nine months ended September 30, 2009 our operating revenue
increased $11.8 million or 21.6%, to $66.4 million in 2009 compared to $54.6
million during the same period in 2008. This revenue increase is a result of both
the impact of strategic business acquisitions made in 2008 in our health insurance
exchange and BPO channels, as well organic growth realized in our annuity and
life insurance exchange channels.‖
160. The May 8 10-Q also discusses Ebix‘s accounting for income taxes.
Note 9 to the financial statements boasts and effective income tax rate of 5.45% for
the nine months ended September 30, 2009, down .31% from the same period in
2008. According to the Company, it bases its interim period tax provision on its
―estimate of the effective income tax rates applicable to the related annual twelve
month period, after considering discrete items unique to the respective interim
reporting period.‖ The Company continued that ―[r]eported income tax expense
for the three and nine months ended September 30, 2009 are also lower due to
reductions in the provision for unrecognized tax benefits, which is detailed below.‖
The Company further boasted that its tax rate decline in 2009 was related ―to the
change in the mix of taxable income amongst the various domestic and foreign
countries, including certain low tax rate foreign jurisdictions, in which the
Company conducts operations.‖
161. About the taxes on its Indian operations, the 10-Q stated:
Currently, the Company‘s taxable income in India, other
than passive interest and rental income, is subject to a tax
holiday. The tax holiday is scheduled to expire in 2011.
The Company‘s operations in India are also subject to the
Minimum Alternative Tax (―MAT‖) which rate is
16.33% effective March 2009 and had been 11.33%
previously. The MAT liability accrued for the three and
nine month period ending September 30, 2009 was $505
thousand and $1.2 million respectively. The MAT
liability accrued for the corresponding three and nine
month period ending September 30, 2008 was $326
thousand and $978 thousand respectively. The tax paid
under the MAT provisions is carried forward for a period
of seven years to be used as an offset against future tax
liabilities computed under the regular corporate income
tax provisions, for which the current income tax rate is
33.99%. Accordingly, the Company‘s consolidated
balance sheet at September 30, 2009 includes a long-term
deferred tax asset in the amount of $2.6 million.
162. With respect to Company‘s accounts receivable, conspicuously, the
10-Q excised from Note 1 relating to Ebix‘s Summary of Significant Accounting
Policies that ―Management specifically analyzes accounts receivable and historical
bad debts, write-offs, customer concentrations, customer credit-worthiness, current
economic trends and changes in our customer payment terms when evaluating the
adequacy of the allowance for doubtful accounts.‖ Defendants did, however, relate
that Ebix writes-off accounts receivable ―against the allowance account when the
Company has exhausted all reasonable collection efforts. No accounts were
written off as uncollectible during the nine months ending September 30, 2009 and
2008, respectively.‖
163. Also in that Form 10-Q, defendants discussed their evaluation of
internal control over financial reporting and their evaluation of disclosure controls
and procedures, stating:
Evaluation of Disclosure Controls and Procedures— As
required by Rule 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, an evaluation was
carried out under the supervision and with the
participation of our management, including the Chief
Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our
disclosure controls and procedures as of September 30,
2009. Based upon this evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that,
as of September 30, 2009, our disclosure controls and
procedures were effective to provide reasonable
assurance that information required to be disclosed in the
reports that we file or submit under the Securities
Exchange Act of 1934 is accurately and properly
recorded, processed, summarized and reported within the
time periods specified in the applicable rules and forms
and that it is accumulated and communicated to our
management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
Internal Control over Financial Reporting— There were
no changes in our internal control over financial
reporting during the nine months ended September 30,
2009, that have materially affected, or are reasonably
likely to materially affect, our internal control over
financial reporting.
164. The foregoing statements about the third quarter of 2009 were false or
misleading. As stated above in paragraphs 33-86 and 103-105, defendants knew or
recklessly disregarded that serious internal control problems plagued Ebix since
2003. These internal control problems did not improve throughout the Class
Period. As a result, defendants knew or recklessly disregarded that Ebix was
unable to account for its accounts receivable accurately or to post cash timely and
accurately. Defendants, therefore, were unable to assess accurately Ebix‘s need to
reserve for bad debts in the face of its mounting accounts receivable. Accordingly,
throughout the Class Period, in violation of GAAP, defendants knew or recklessly
disregarded Ebix understated its allowance for doubtful accounts, enabling it to
overstate its net income and diluted earnings per share.
165. In addition, as stated above in paragraphs 87-105, throughout the
Class Period, defendants knew or were reckless in not knowing that Ebix was
overstating net income and diluted EPS by means of a sham tax strategy that
shifted profits overseas, profits, defendants knew or recklessly disregarded, that
Ebix was not permanently reinvesting in the foreign jurisdictions. By means of
this sham tax strategy, in violation of GAAP, defendants knew or recklessly
disregarded that Ebix overstated net income in 2009 by 16.5% and 2009 diluted
EPS by 16.3%.
166. Last, as stated above in paragraphs 106-124, defendants knew or
recklessly disregarded that throughout the Class Period, they disclosed materially
inaccurate organic growth rates, a critical metric for investors in the case of a roll-
up such as Ebix. In fact, as defendants knew or recklessly disregarded, Ebix‘s
legacy operations were not growing organically. Rather the Company was
growing only through acquisition.
Ebix Discloses Its Financial Results for
the Fourth Quarter and Year-end 2009
167. On March 8, 2010, Ebix issued a press release, disclosing it financial
results for the fourth quarter and full year 2009, ended December 31, 2009. Ebix
recorded fourth quarter 2009 revenue of $31.3 million, up 55% from $20.1 million
in the fourth quarter of 2008. Annual 2009 revenue increase to $97.7 million up
31% from $74.8 million in 2008. Defendants touted yet another earnings increase,
stating that fourth quarter 2009 net income increased 53% to $12.1 from $7.9
million in the same period of 2008 and reported diluted EPS growth to $0.92, up
from $0.66, a 39.4% increase. Annual earnings were similarly healthy as
defendants ―reported net income of $38.8 million, an increase of 42% from the
prior year net income of $27.3 million‖ and diluted EPS of $3.10, up 36% from
$2.28 in 2008. The Company recorded income tax expenses of $85,000 and
$1.010 million for the fourth quarter and year ended December 31, 2009. With
respect to its taxes, the Company stated that it ―expects its blended worldwide
income tax rate to be in the range of 6-8% for the fiscal year 2010; and a gradual
increase to a blended worldwide tax rate of 8-12% over the following few years.‖
Ebix reported accounts receivable for the year-end of $22.861 million, net an
allowance of $565,000, an increase from $13.562 million net of an allowance of
$453,000 as of December 31, 2008.
168. Defendants reiterated these results both in the 2009 10-K, filed with
the SEC on March 16, 2010 and signed by defendants Raina and Kerris, and in a
presentation on an earnings conference call on March 8, 2010.
169. Of those results, defendant Raina stated in the March 8, 2010 press
release:
These results mark 10 years of continued sequential
growth for Ebix in the areas of revenue, net income and
diluted EPS. Our Q4 and full year results both are record
results for the Company. These results demonstrate our
ability to withstand difficult times in the industry and the
economy. To come up with our best ever results in a
year, which was easily considered the worst year in a
decade for the insurance industry, makes this year's
performance even more special for us. We believe that
the story can get even better from here.
Looking at the future, we see the BRIC countries (Brazil,
Russia, China and India) emerging as the key hubs
driving economic growth in the insurance industry over
the next decade or so. We intend to set up strong local
bases in each of these countries, to be able to benefit
from the early mover advantage, while we attempt to
deploy exchanges in these countries. Our recent efforts
to create strong bases in Brazil, India, Singapore, and
China are a step in that direction.
170. In addition, in the March 8, 2010 press release, defendant Kerris
stated:
We are pleased with our results especially since they
include non-recurring expenses associated with the
acquisitions of EZ Data and Peak. With $19.2 million of
cash as of 31st December 2009, $22 million of additional
borrowing capacity, and the continued growth in
operating cash flows, we believe that we are well
positioned to use this cash towards making strategic
accretive acquisitions in the Exchange arena.
171. Also on March 8, 2010, the Company convened an ―Earnings
Conference Call,‖ that defendants Raina and Kerris conducted. During his
remarks, defendant Raina touted the centralization of the Company‘s intellectual
property and development operations in Singapore and India where the Company
enjoyed ―subsidized tax rates‖ of 10% and 0% respectively. During 2010,
defendants Raina stated, the Company expected a ―blended worldwide income tax
rate‖ of 6%-8% with ―a gradual increase to a blended worldwide tax rate of 8% to
12% over the following years.‖
172. Defendant Raina also discussed accounts receivable, touting an
―almost perfect customer retention rate.‖ Raina attributed the Company‘s
customer retention rate to ―excellent‖ customer relations and no ―material
collection issues over the last decade.‖ Defendant Raina continued that in the
context of Ebix‘s rapid growth it had ―continued to evolve and strengthen its
internal controls through the use of quality partners, vendors, tax advisors, and
arms-length statutory auditors.‖ In response to a question about Ebix‘s changes of
auditors, defendant Raina attempted to deflect that concern, stating:
I think, first of all, our audit firms haven‘t really changed.
Our past audit firm was acquired by another firm and the
partners remain the same. It was simply the name change
middle of the quarter to HAW Having said that, I think
we continue like any other firm, we are very sensitive to
cost, quality of audits and so on. I think we are one of the
few firms who continues to use all the past firms we have
used across -- forget three years -- across the last seven
years, I would say. As I said in my talk, for example,
meaning let's step back and look at 2003. We were using
(inaudible) and (inaudible) today still is our auditor and
in multiple countries as I said earlier, across the world.
HAW in the year 2009 itself we hired them back for
some tax related work. And of course with CBX we
continue to maintain excellent arms length relationship.
So I think it's like any other firm and the fact that all our
past firms work for us today in one capacity or another, it
speaks for itself about the nature of our relationship with
them or the nature of the relationship we always had with
them. Thank you.
173. Another analyst questioned the 30% difference in growth in revenues
of 55% and growth in accounts receivable less deferred revenues of 85% from the
fourth quarter of 2009 over the fourth quarter of 2008. In response, defendant
Kerris related that days sales outstanding (―DSO‖) was 67 days as of December 31,
2009, up 5 days from December 31, 2008. Kerris concluded that ―we look at this
increase as being a temporary matter as we continue to integrate our acquired
customer bases into the Company and into our processes.
174. Following on defendant Kerris‘s comments about the rate of increase
in Ebix‘s accounts receivable, defendant Raina stated:
part of it is that when you make these acquisitions and
you have to remember that as your revenue you're
suddenly having increases in revenue and there will be a
cycle that it will take to set it up. It's like anything else.
That's why you see a bit of a Q coming up but I think we
have fantastic, if you look at our history and you forget
one or two years, to look at a decade and look at our
collection record, we've never had any material issue on
anything virtually so we're pretty pleased with that and
we believe we'll continue moving. I think our
relationship, we're so well entrenched in that space that
really, believe me, we do not spend any time internally
worrying about collection issues in this Company.
175. In response to an analyst‘s question about the Company‘s organic
growth and the contribution of acquisitions to the fourth quarter of 2009, Raina
expressed discomfort, failing to answer the question, but stating. In failing to
answer the question, defendant Raina stated that:
Marti, this is one question, I hate to say it, but I will
answer this, and the reason I hate to say this is because
sometimes when companies talk about organic growth
rate, people want to anyway do their own analysis. So
my suggestion always to them is there are lots of analysts
out there and you can also (inaudible) so people can do
their own analysis. Our analysis, actually, incidentally
tells us that the organic growth rate was somewhere
beyond 14% but I think I‘ll let the analysts worry about
this. We'll continue working on our fundamentals and
keep doing, keep growing the business.
176. On March 16, 2010, the Company filed with the SEC its Annual
Report on Form 10-K for the year December 31, 2009 signed by, among others,
Raina and Kerris. In that Form 10-K, defendants reiterated the Company‘s results
from the March 8, 2010 press release. In addition, both Raina and Kerris certified
the Company‘s financial results for the fourth quarter and full year 2009, ended
December 31, 2009.
177. In the 2009 10-K, defendants included information about the
acquisitions of Peak Performance Solutions, Inc. and E-Z Data, Inc., both during
the fourth quarter of 2009. The Company paid $8 million in cash for Peak and
$50.53 million for E-Z Data, consisting of $25.53 in cash and $25 million in Ebix
common stock. In that context, defendants also commented on the Company‘s
revenues with respect to internal growth, stating:
During the twelve months ended December 31, 2009 our
total revenue increased $22.9 million or 30.7%, to
$97.7 million in 2009 compared to $74.8 million in 2008.
The increase in revenues is a result of both the impact of
strategic business acquisitions made during 2009 and
2008 particularly in the area of exchanges, and in our
BPO channel, as well as organic growth realized in our
BPO and Exchange channels. We are able to quickly
integrate business acquisitions into our existing
operations and thereby rapidly leverage product cross-
selling opportunities. The specific components of our
revenue and the changes experienced during the past year
are discussed further below.
*****
Total revenue – The Company‘s revenues are derived
primarily from the services sector with a smaller portion
coming from the software licensing business. Service
sector revenue includes transaction fees, hosting fees,
implementation, software development and
customization, maintenance, consulting, training and
project management services provided to the Company‘s
customers using our data exchanges, ASP platforms, and
other services. Software licensing revenue includes
revenue derived from the licensing of our proprietary
platforms and the licensing of third party software
applications. During the twelve months ended December
31, 2008 our total revenue increased $31.9 million or
74%, to $74.8 million in 2008 compared to $42.8 million
in 2007. The increase in operating revenue is a result of
both organic and acquisitive growth with the effect of
recently completed business combinations having greater
impact. We have consistently demonstrated the ability to
quickly integrate business acquisition into existing
operations and thereby rapidly leverage product cross-
selling opportunities. The specific components of our
revenue and the changes experienced during the past year
are discussed further below.
178. The 2009 10-K also discusses Ebix‘s accounting for income taxes.
Note 9 to the financial statements boasts and effective income tax rate of 2.5% for
the year ended December 31, 2009, down 4.8% for the same period in 2008. The
company continued that:
The Company‘s consolidated effective tax rate is reduced
because of the blend of reduced tax rates in foreign
jurisdictions where a significant portion of our income
resides. Furthermore, the Company‘s world-wide product
development operations and intellectual property
ownership has been centralized into our Singapore and
India subsidiaries. Our operations in India benefit from a
tax holiday which will continue thru 2015; as such local
India taxable income, other than passive interest and
rental income, is not taxed. After the tax holiday expires
taxable income generated by our India operations will be
taxed at 50% of the normal 33.99% corporate tax rate for
a period of five years. This tax holiday had the effect of
reducing tax expense by $5.5 million.
179. With respect to Company‘s accounts receivable, defendants stated in
the 2009 10-K that ―Management specifically analyzes accounts receivable and
historical bad debts, write-offs, customer concentrations, customer credit-
worthiness, current economic trends and changes in our customer payment terms
when evaluating the adequacy of the allowance for doubtful accounts.‖
Defendants also related that Ebix ―currently has $393 thousand of accounts
receivable that has been outstanding for more than a year over, all which is fully
covered by the allowance for doubtful accounts.‖
180. Also in that Annual Report, defendants included a section on
―Management‘s Report on Internal Control over Financial Reporting.‖ The
assessment of its internal controls did not include recently acquired Facts Services,
Inc., E-Z Data, Inc. or Peak Performance Solutions, Inc. According to defendants:
Based upon this evaluation and assessment, our Chief
Executive Officer and Chief Financial Officer concluded
that as of December 31, 2009 our disclosure controls and
procedures and our internal control over financial
reporting are effective to ensure, among other things, that
the information required to be disclosed by us in the
reports that we file or submit under the Securities and
Exchange Act of 1934 is recorded, processed,
summarized, and reported accurately.
Cherry, Bekaert & Holland, L.L.P., the independent
registered public accounting firm that audited our
Consolidated Financial Statements included in this
Annual Report on Form 10-K, audited the effectiveness
of our internal control over financial reporting as of
December 31, 2009. Cherry, Bekaert &Holland, L.L.P
has issued their report which is included in this Annual
Report on Form 10-K.
181. The foregoing statements about the fourth quarter and year-end 2009
were false or misleading. As stated above in paragraphs 33-86 and 103-105,
defendants knew or recklessly disregarded that serious internal control problems
plagued Ebix since 2003. These internal control problems did not improve
throughout the Class Period. As a result, defendants knew or recklessly
disregarded that Ebix was unable to account for its accounts receivable accurately
or to post cash timely and accurately. Defendants, therefore, were unable to assess
accurately Ebix‘s need to reserve for bad debts in the face of its mounting accounts
receivable. Accordingly, throughout the Class Period, in violation of GAAP,
defendants knew or recklessly disregarded Ebix understated its allowance for
doubtful accounts, enabling it to overstate its net income and diluted earnings per
182. In addition, as stated above in paragraphs 87-105, throughout the
Class Period, defendants knew or were reckless in not knowing that Ebix was
overstating net income and diluted EPS by means of a sham tax strategy that
shifted profits overseas, profits, defendants knew or recklessly disregarded, that
Ebix was not permanently reinvesting in the foreign jurisdictions. By means of
this sham tax strategy, in violation of GAAP, defendants knew or recklessly
disregarded that Ebix overstated net income in 2009 by 16.5% and 2009 diluted
EPS by 16.3%.
183. Last, as stated above in paragraphs 106-124, defendants knew or
recklessly disregarded that throughout the Class Period, they disclosed materially
inaccurate organic growth rates, a critical metric for investors in the case of a roll-
up such as Ebix. In fact, as defendants knew or recklessly disregarded, Ebix‘s
legacy operations were not growing organically. Rather the Company was
growing only through acquisition.
Ebix Discloses Its Financial Results for the First Quarter of 2010
184. On May 7, 2010, Ebix issued a press release, disclosing it financial
results for the first quarter of 2010, ended March 31, 2010. Ebix recorded first
quarter 2010 revenue of $31.6 million up 53% from $20.7 million for the same
quarter in 2009. Net income for the quarter, defendants touted was up 49% from
$8.3 million in 2009 to $12.759 million in 2010. Diluted EPS grew at a similarly
healthy 39% pace to $0.32, up from $0.23 in 2009. The Company reported an
income tax provision of $615,000 and accounts receivable for the quarter of
$26.025 million, net an allowance of $508,000, an increase from $22.861 million
net of an allowance of $565,000 as of December 31, 2009. Defendants reiterated
these results both in its Quarterly Report on Form 10-Q for the quarter ended
March 31, 2010, filed with the SEC on May 10, 2010 and signed by defendants
Raina and Kerris, and in a presentation on an earnings conference call on May 7,
185. Of those results, defendant Raina stated in the May 7 press release:
We are pleased to report record revenues, income and
EPS in Q1 of 2010. This was a good quarter for us in
terms of winning certain key accounts named above. We
believe that we are uniquely positioned today as an end-
to-end enterprise services player for the insurance
industry. That end-to-end strategy has not been emulated
by any Company in the insurances software services
industry worldwide providing us a lead of at least a few
years to gain the early mover advantage worldwide."
We have a choice of growing Ebix aggressively or
growing Ebix aggressively but sensibly. Ebix can either
choose the path of high growth with low 10-15%
operating margins or the path of sensible growth with
40% or more of operating margins. We prefer to do the
latter and thus remain focused on working towards our
goal of Annualized Revenue run rate of $200 Million by
Q4 of 2011, with 40% or more in operating margins.
Doing that, while ensuring Ebix's 70% plus recurring
revenue streams and minimal customer attrition rates is
not likely to be easy. We believe that if we are able to
achieve or beat all these goals by Q4 of 2011, we would
have created a new benchmark in terms of operating cash
flows, for the On-Demand sector in the United States.
186. On May 7, 2010, defendants convened an earnings conference call. In
his prefatory remarks, defendant Raina touted Ebix‘s continued focus on organic
growth, boasting signed accounts with important firms in the insurance industry
and financial services industry.
187. One analyst questioned what accounted for the rise in accounts
receivable. In response, defendant Kerris stated, ―This is just due to the increase in
receivables from recent acquisitions that we've made, strictly a timing issue. And
we look to see quite a bit of collections and reduction of AR during the coming
quarter.‖ In response to a question comparing margin levels at Saleforce.com to
those of Ebix, Raina, too, referred to accounts receivable, comparing Ebix‘s DSO
favorably to those of Salesforce.com. In fact, according to Raina, Ebix‘s DSO
were, on average, 20% better than the DSO of Salseforce.com. Raina concluded,
―And I think the reason we have better DSOs is simply because our attrition rate --
ratio is minimal in terms of customers. Also, we are so highly entrenched in
insurance companies and brokers and so on, that we are able to -- that our
customers are dependent on us as an infrastructure service, not just any other
service.‖
188. On May 10, 2010, the Company filed a Quarterly Report on Form 10-
Q for the quarter ended March 31, 2010 signed by defendants Raina and Kerris. In
that Form 10-Q, defendants reiterated the Company‘s results from the May 7, 2010
press release. In addition, as stated above, both Raina and Kerris certified the
Company‘s financial results for the first quarter of 2010, ended March 31, 2010.
189. The May 10 10-Q also discusses Ebix‘s accounting for income taxes.
Note 7 to the financial statements boasts and effective income tax rate of 4.73% for
the three months ended March 31, 2010, up slightly by .03% from the same period
in 2009. According to the Company, it bases its interim period tax provision on its
―estimate of the effective income tax rate expected to be applicable to the related
annual period, after separately considering any discrete items unique to the
respective interim period being reported.‖ Defendants further stated that the
Company‘s ―effective tax rate reflects the tax benefits from having significant
component of our operations outside the United States in foreign jurisdictions that
have tax rates lower than the U.S. statutory rate of 35%.‖
190. With respect to Company‘s accounts receivable, the 10-Q states in
Note 1 relating to Ebix‘s Summary of Significant Accounting Policies that
―Management specifically analyzes accounts receivable and historical bad debts,
write-offs, customer concentrations, customer credit-worthiness, current economic
trends and changes in our customer payment terms when evaluating the adequacy
of the allowance for doubtful accounts.‖ Defendants further conveyed that ―There
was no bad debt expense incurred during either the three ended March 31, 2010 or
2009. Accounts receivable are written off against the allowance account when the
Company has exhausted all reasonable collection efforts. $57 thousand and $0 of
accounts receivable were written off as uncollectible during the three months
ending March 31, 2010 and 2009, respectively.‖
191. Also in that Form 10-Q, defendants discussed their evaluation of
internal control over financial reporting and their evaluation of disclosure controls
and procedures, stating:
Evaluation of Disclosure Controls and Procedures: The
Company maintains controls and procedures designed to
ensure that it is able to collect the information we are
required to disclose in the reports we file with the SEC,
and to process, summarize and disclose this information
within the time periods specified in the rules of the SEC.
As of the end of the period covered by this report and
pursuant to Rule 13a-15 of the Securities Exchange Act
of 1934, the Company‘s management, including the
Chief Executive Officer and Chief Financial Officer,
conducted an evaluation of the effectiveness and design
of our disclosure controls and procedures to ensure that
information required to be disclosed by the Company in
the reports that files under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported
within the time periods specified by the SEC‘s rules and
forms. Based upon that evaluation, the Company‘s Chief
Executive Officer and Chief Financial Officer concluded
as of March 31, 2010 that the Company‘s disclosure
controls and procedures were effective in recording,
processing, summarizing and reporting information
required to be disclosed, within the time periods specified
in the SEC‘s rules and forms.
Internal Control over Financial Reporting: There were
no changes in our internal control over financial
reporting during the fiscal quarter ended March 31, 2010,
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.
192. Defendants stated nothing further about the Company‘s internal
controls. In particular it did not discuss the internal controls as they related to the
recent acquisitions of E-Z Data and Peak.
193. The foregoing statements about the first quarter of 2010 were false or
misleading. As stated above in paragraphs 33-86 and 103-105, defendants knew or
recklessly disregarded that serious internal control problems plagued Ebix since
2003. These internal control problems did not improve throughout the Class
Period. As a result, defendants knew or recklessly disregarded that Ebix was
unable to account for its accounts receivable accurately or to post cash timely and
accurately. Defendants, therefore, were unable to assess accurately Ebix‘s need to
reserve for bad debts in the face of its mounting accounts receivable. Accordingly,
throughout the Class Period, in violation of GAAP, defendants knew or recklessly
disregarded Ebix understated its allowance for doubtful accounts, enabling it to
overstate its net income and diluted earnings per share.
194. In addition, as stated above in paragraphs 87-105, throughout the
Class Period, defendants knew or were reckless in not knowing that Ebix was
overstating net income and diluted EPS by means of a sham tax strategy that
shifted profits overseas, profits, defendants knew or recklessly disregarded, that
Ebix was not permanently reinvesting in the foreign jurisdictions. By means of
this sham tax strategy, in violation of GAAP, defendants knew or recklessly
disregarded that Ebix overstated net income in 2009 by 16.5% and 2009 diluted
EPS by 16.3%.
195. Last, as stated above in paragraphs 106-124, defendants knew or
recklessly disregarded that throughout the Class Period, they disclosed materially
inaccurate organic growth rates, a critical metric for investors in the case of a roll-
up such as Ebix. In fact, as defendants knew or recklessly disregarded, Ebix‘s
legacy operations were not growing organically. Rather the Company was
growing only through acquisition.
Ebix Discloses Its Financial Results for the Second Quarter of 2010
196. On August 9, 2010, Ebix issued a press release, disclosing it financial
results for the second quarter of 2010, ended June 30, 2010. Ebix recorded second
quarter 2010 revenue of $32.2 million up 44% from $22.4 million for the same
quarter in 2009. Once again, defendants reported extraordinary increases in net
income and diluted EPS. Net income rose 56% to $14.0 million, up from $9.0
million in the second quarter of 2009. Diluted EPS rose 50% to $0.36, up from
$0.24 in 2009. These results included non-operating income of $1.4 million,
relating to the E-Z Data acquisition and the gain on an option granted thereon. The
Company reported an income tax provision of $556,000 and accounts receivable
for the quarter of $24.402 million, net an allowance of $646,000, an increase from
$22.861 million net of an allowance of $565,000 as of December 31, 2009.
Defendants reiterated these results both in its Quarterly Report on Form 10-Q for
the quarter ended June 30, 2010, filed with the SEC on August 9, 2010 and signed
by defendants Raina and Kerris, and in a presentation on an earnings conference
call on August 9, 2010.
197. Of those results, defendant Raina stated in the August 9 press release:
The insurance industry is still reeling from the after
effects of the economic crisis in the United States. With
consumer confidence being rather low, Annuity
production industry wide is down 20% year over year.
The property and casualty sector has had one of the worst
years in a decade. The health insurance industry is still
dealing with the uncertainties created by the Health
reform bill passage. In spite of all of that, Ebix has
continued to move forward with record revenues,
earnings, cash flows and net income. We have continued
to substitute production drops in the industry through
organic growth means by bringing new clients to our
Exchanges. We have always believed that a company‘s
true strength is tested when times are bad for the
industry. A company that can produce record results in
an economy like this has a much better chance of
producing spectacular results as times become better for
the industry as a whole.
We believe that our end-to-end Exchange solutions
provide us a strategic business and technology advantage
over our competition. We are presently in the process of
hiring fifteen new sales people for our Exchange and
CRM initiatives. These additional resources should
enable us to organically grow our revenues more
dramatically over the coming months and years.
In recent times, I have often been asked about the
possibility of a dividend being issued by the Company.
Clearly, our intent is to try and secure the best possible
returns from the use of our operating cash flows. We
believe that our cash can generate much higher returns
for our shareholders, by investing in both new accretive
acquisitions and organic growth initiatives than through
issuing dividends to our shareholders. While the
Company does not completely rule out the possibility of
issuing dividends in the future, at present we are more
inclined to use our cash to generate further improvement
in future earnings.
198. In addition, in the March 8, 2010 press release, defendant Kerris
stated:
We are pleased to report $16 million of operating cash
flows in the second quarter of 2010 and sustained 40%
operating margins. Our current ratio improved to 1.13 at
June 30, 2010 as compared to 0.62 at December 31, 2009
and our working capital position improved to $6.1
million from a deficit of $28.6 million that existed at the
end of the 2009. The improvement in our short-term
liquidity position is the result of stronger operating cash
flows, the refinancing of our revolving credit facility that
is now set to mature in February 2012, and better
collections on outstanding trade accounts receivable.
199. On August 9, 2010, defendants convened and earnings conference
call. Of note, Defendant Raina continued to tout the Company‘s ability to grow
organically stating, ―. . . in spite of the head wind, Ebix has continued to grow
revenues. It‘s because of our ability to organically keep adding new clients
continuously and retaining our existing clients.‖
200. On August 9, 2010, the Company filed a Quarterly Report on Form
10-Q for the period ended June 30, 2010, signed by defendants Raina and Kerris.
In that Form 10-Q, defendants reiterated the Company‘s results from the August 9,
2010 press release. In addition, as stated above, both Raina and Kerris certified the
Company‘s financial results for the second quarter of 2010, ended June 30, 2010.
201. In that Form 10-Q, the company boasted of its continued expansion,
―both organically and through a series of acquisitions.‖ Indeed, defendants stated:
During the three months ended June 30, 2010 our total
operating revenues increased $9.8 million or 44%, to
$32.2 million as compared to $22.4 million during the
second quarter of 2009. This increase in revenues is a
result of healthy organic growth realized in our
Exchange, BPO and Broker channels, and also the due to
certain strategic business acquisitions made during 2009
particularly in our Exchange channel. The Company
continues to consistently and efficiently integrate its
business acquisitions into existing operations, thereby
rapidly leveraging product cross-selling opportunities.
202. The August 9 10-Q also discusses Ebix‘s accounting for income taxes.
Note 7 to the financial statements boasts and effective income tax rate of 4.24% for
the six months ended June 30, 2010, down by .22% from the same period in 2009.
According to the Company, it bases its interim period tax provision on its
―estimate of the effective income tax rate expected to be applicable to the related
annual period, after separately considering any discrete items unique to the
respective interim period being reported.‖ Defendants further stated that ―[t]he
Company‘s effective tax rate for 2010 reflects the tax benefits from having a
higher mix of significant components of our operations outside the United States in
foreign jurisdictions where earnings are taxed at rates lower than U.S. statutory
rates.‖
203. With respect to Company‘s accounts receivable, the 10-Q once again
states in Note 1 relating to Ebix‘s Summary of Significant Accounting Policies that
―Management specifically analyzes accounts receivable and historical bad debts,
write-offs, customer concentrations, customer credit-worthiness, current economic
trends and changes in our customer payment terms when evaluating the adequacy
of the allowance for doubtful accounts.‖ Defendants further conveyed that:
Bad debt expense incurred during three and six month
period ended June 30, 2010 or 2009 was $202 thousand
and $90 thousand respectively. Accounts receivable are
written off against the allowance account when the
Company has exhausted all reasonable collection efforts.
$120 thousand and $0 of accounts receivable were
written off as uncollectible during the six months ending
June 30, 2010 and 2009, respectively.
204. Also in the August 9 Form 10-Q, defendants discussed their
evaluation of internal control over financial reporting and their evaluation of
disclosure controls and procedures, stating:
Evaluation of Disclosure Controls and Procedures: The
Company maintains controls and procedures designed to
ensure that it is able to collect the information we are
required to disclose in the reports we file with the SEC,
and to process, summarize and disclose this information
within the time periods specified in the rules of the SEC.
As of the end of the period covered by this report and
pursuant to Rule 13a-15 of the Securities Exchange Act
of 1934, the Company‘s management, including the
Chief Executive Officer and Chief Financial Officer,
conducted an evaluation of the effectiveness and design
of our disclosure controls and procedures to ensure that
information required to be disclosed by the Company in
the reports that files under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported
within the time periods specified by the SEC‘s rules and
forms. Based upon that evaluation, the Company‘s Chief
Executive Officer and Chief Financial Officer concluded
as of June 30, 2010 that the Company‘s disclosure
controls and procedures were effective in recording,
processing, summarizing and reporting information
required to be disclosed, within the time periods specified
in the SEC‘s rules and forms.
Internal Control over Financial Reporting: There were
no changes in our internal control over financial
reporting during the quarter ended June 30, 2010, that
have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.
205. Defendants stated nothing further about the Company‘s internal
controls. In particular it did not discuss the internal controls as they related to the
recent acquisitions of E-Z Data and Peak.
206. The foregoing statements about the second quarter of 2010 were false
or misleading. As stated above in paragraphs 33-86 and 103-105, defendants knew
or recklessly disregarded that serious internal control problems plagued Ebix since
2003. These internal control problems did not improve throughout the Class
Period. As a result, defendants knew or recklessly disregarded that Ebix was
unable to account for its accounts receivable accurately or to post cash timely and
accurately. Defendants, therefore, were unable to assess accurately Ebix‘s need to
reserve for bad debts in the face of its mounting accounts receivable. Accordingly,
throughout the Class Period, in violation of GAAP, defendants knew or recklessly
disregarded Ebix understated its allowance for doubtful accounts, enabling it to
overstate its net income and diluted earnings per share.
207. In addition, as stated above in paragraphs 87-105, throughout the
Class Period, defendants knew or were reckless in not knowing that Ebix was
overstating net income and diluted EPS by means of a sham tax strategy that
shifted profits overseas, profits, defendants knew or recklessly disregarded, that
Ebix was not permanently reinvesting in the foreign jurisdictions. By means of
this sham tax strategy, in violation of GAAP, defendants knew or recklessly
disregarded that Ebix overstated net income in 2009 by 16.5% and 2009 diluted
EPS by 16.3%.
208. Last, as stated above in paragraphs 106-124, defendants knew or
recklessly disregarded that throughout the Class Period, they disclosed materially
inaccurate organic growth rates, a critical metric for investors in the case of a roll-
up such as Ebix. In fact, as defendants knew or recklessly disregarded, Ebix‘s
legacy operations were not growing organically. Rather the Company was
growing only through acquisition.
Ebix Discloses Its Financial Results for the Third Quarter of 2010
209. On November 9, 2010, Ebix issued a press release, disclosing it
financial results for the third quarter of 2010, ended September 30, 2010. Ebix
recorded third quarter 2010 revenue of $33.3 million up 43% from $23.3 million
for the same quarter in 2009. Defendants reported stunning earnings gains for that
quarter. Net income rose 77% to $16.7 million up from $9.4 million in 2009.
Similarly, diluted EPS rose 72% to $0.43, up from $0.25 in 2009. These results
included non-operating income of $3.9 million, relating to the E-Z Data acquisition
and the gain on an option granted thereon. The Company recorded an income tax
provision of $768,000, and accounts receivable for the quarter of $28.816 million,
net an allowance of $321,000, an increase from $22.861 million net of an
allowance of $565,000 as of December 31, 2009. Defendants reiterated these
results both in its Quarterly Report on Form 10-Q for the quarter ended September
30, 2010, filed with the SEC on November 9, 2010 and signed by defendants Raina
and Kerris, and in a presentation on an earnings conference call on November 9,
210. Of those results, defendant Raina stated in the November 9, 2010
press release:
We are pleased with these results as we are able to
deliver these results despite the present economic crisis
in the insurance industry, along with our continued
investment in future Exchange and On-Demand Based
products and services for the insurance and financial
services industries. We are presently in the process of
building many new products designed to expand the
portfolio, and geographical reach of many of our services
such as life, health and annuity exchanges along with
cloud computing based carrier back end systems. We
expect to launch some of these services in the first half of
2011.
We remain focused on creating a fundamentally strong
Company with recurring revenue streams, 40% operating
margins, minimal customer attrition and healthy
operating cash flows. We have always believed that a
Company with all these attributes has the potential of
becoming the largest Insurance software services player
worldwide. Accordingly, the Company has not tried to
grow its top line aggressively at the cost of its bottom-
line. We intend to make efforts to grow both
proportionately.
We feel good about our future prospects both in the
United States and abroad especially in the area of
Exchanges. Accordingly, we are presently in the process
of doubling our sales resources across the Company
especially in the Exchange arena.
211. In addition, in the November 9, 2010 press release, defendant Kerris
stated:
We are pleased with the Company‘s consistent ability to
generate strong operating cash flows, and in particular
the fact that the $33.8 million of cash flow from our
operating activities for the nine months ending
September 30, 2010 represents a 93% realization of
adjusted net income (defined as net income less net non-
cash gains from derivative instruments and unrealized
foreign exchange gains, or $43.1 million less $5.4 million
and $1.3 million, respectively) for the same period.
Despite our rapid growth, only 1.4% of our receivables
have been outstanding for more than a year, implying
that virtually all of our operating revenues are realized in
the form of cash inflows within our annual reporting
cycle. As to the health of our balance sheet, we are
pleased with the fact that our current ratio has improved
to 1.09 at September 30, 2010 as compared to 0.62 at
December 31, 2009 due to stronger operating cash flows,
retirement of convertible debt obligations, and the
refinancing of our revolving credit facility.
212. On November 9, 2010, defendants conducted and earnings conference
call. In explaining the Company‘s ―exemplary‖ record on accounts receivable,
defendant Raina stated ―We prefer to deploy our services in a manner where clients
pay as they use our system while the ownership of the IP stays at Ebix. This has
been key to our ability to have an exemplary record [] on receivable[s]. For
example, we had only $408,000 in receivable pending for more than a year as of
September 30, 2010.‖
213. With respect to the Company‘s tax rate, on analyst noted the low tax
rate Ebix paid on its earnings and asked when the tax rate might normalize. In the
colloquy that followed, defendant Raina defended the Company‘s guidance on a
10% tax rate, stating:
ROBIN RAINA: Well, I think we have already issued
guidance on taxes in the past, and we have basically said
over the next two years, we expect our tax rate to grow
somewhere close to a 10% number. Part of it is that our
tax rates are low because most of our IT is based abroad.
We also get worldwide lower tax rate on account of
having a lower tax rate than some of the other foreign
jurisdiction, and most of our income lies there.
WALTER RAMSEY: Okay. So the ongoing rates, I
mean, there's no carry-forwards that are currently
reducing it?
ROBIN RAINA: Pardon, I didn't hear you.
WALTER RAMSEY: The 10% doesn't include any tax
carry forwards? I mean this is the actual ongoing normal
business tax rate, 10%?
ROBIN RAINA: Well, I think at this point, we'd like to
give you a general guidance with respect to the 10% rate.
Having said that, I'm not sure I really understand your
question. But this is the overall number, a worldwide
effective number that we have referenced in the past.
214. On November 9, 2010, the Company filed a Quarterly Report on
Form 10-Q for the quarter ended September 30, 2010 signed by defendants Raina
and Kerris. In that Form 10-Q, defendants reiterated the Company‘s results from
the November 9, 2010 press release. In addition, as stated above, both Raina and
Kerris certified the Company‘s financial results for the third quarter of 2010, ended
September 30, 2010.
215. In that Form 10-Q, the Company boasted of its continued expansion,
―both organically and through a series of acquisitions.‖ Indeed, defendants stated:
During the three months ended September 30, 2010 our
total operating revenues increased $10.0 million or 43%,
to $33.3 million as compared to $23.3 million during the
third quarter of 2009. This revenue increase is a result of
organic growth achieved in our Exchange, BPO and
Broker Systems channels, and also because of certain
strategic business acquisitions made during the fourth
quarter of 2009 particularly in our Exchange channel.
The Company continues to efficiently integrate its
business acquisitions across all existing operations,
thereby rapidly leveraging product cross-selling
opportunities.
216. The November 9, 2010 10-Q also discusses Ebix‘s accounting for
income taxes. Note 7 to the financial statements boasts and effective income tax
rate of 4.25% for the nine months ended September 30, 2010, down by 1.20% from
the same period in 2009. According to the Company, it bases its interim period tax
provision on its ―estimate of the effective income tax rates applicable to related
annual twelve month period, after considering any discrete items uniquely related
to the respective interim reporting period.‖ Defendants further stated that ―[t]he
Company‘s lower effective tax rate for 2010 reflects the tax benefits from having a
higher mix of significant components of our operations outside the United States in
foreign jurisdictions where earnings are taxed at rates lower than U.S. statutory
rates.‖
217. With respect to Company‘s accounts receivable, the 10-Q once again
states in Note 1 relating to Ebix‘s Summary of Significant Accounting Policies that
―[m]anagement specifically analyzes accounts receivable and historical bad debts,
write-offs, customer concentrations, customer credit-worthiness, current economic
trends and changes in our customer payment terms when evaluating the adequacy
of the allowance for doubtful accounts.‖ Defendants further conveyed that:
Bad debt expense incurred during three and nine month
periods ended September 30, 2010 was $140 thousand
and $342 thousand respectively and nil and $90
thousand, respectively, for the three and nine month
periods ended September 30, 2009. Accounts receivable
are written off against the allowance account when the
Company has exhausted all reasonable collection efforts.
218. Also in that Form 10-Q, defendants discussed their evaluation of
internal control over financial reporting and their evaluation of disclosure controls
and procedures, stating:
Evaluation of Disclosure Controls and Procedures: The
Company maintains controls and procedures designed to
ensure that it is able to collect the information we are
required to disclose in the reports we file with the SEC,
and to process, summarize and disclose this information
within the time periods specified in the rules of the SEC.
As of the end of the period covered by this report and
pursuant to Rule 13a-15 of the Securities Exchange Act
of 1934, the Company‘s management, including the
Chief Executive Officer and Chief Financial Officer,
conducted an evaluation of the effectiveness and design
of our disclosure controls and procedures to ensure that
information required to be disclosed by the Company in
the reports that files under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported
within the time periods specified by the SEC‘s rules and
forms. Based upon that evaluation, the Company‘s Chief
Executive Officer and Chief Financial Officer concluded
as of September 30, 2010 that the Company‘s disclosure
controls and procedures were effective in recording,
processing, summarizing and reporting information
required to be disclosed, within the time periods specified
in the SEC‘s rules and forms.
Internal Control over Financial Reporting: There were
no changes in our internal control over financial
reporting during the quarter ended September 30, 2010,
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.
219. Defendants stated nothing further about the Company‘s internal
controls. In particular it did not discuss the internal controls as they related to the
recent acquisitions of E-Z Data and Peak.
220. The foregoing statements about the third quarter of 2010 were false or
misleading.
Ebix Discloses Its Financial Results for
the Fourth Quarter and Year-end 2010
221. On March 14, 2011, Ebix issued a press release, disclosing it financial
results for the fourth quarter and full year 2010, ended December 31, 2010. Ebix
recorded fourth quarter 2010 revenues of $35.1 million, up 12% from $31.3
million in the fourth quarter of 2009. Annual 2010 revenue increase to $132.2
million up 35% from $97.7 million in 2009. According to defendants, net income
rose in the fourth quarter by 32% to $15.9 million, up from $12.1 million in 2009.
Diluted EPS rose for the fourth quarter rose 35.5% to $0.42, up from $0.31 in
2009. For the full fiscal year, 2010, defendants boasted a 52% increase in net
income to $59.0 million up from $38.8 million in 2009. Diluted EPS for the year
rose 46.6% to $1.51, up from $1.03 in 2009. The Company recorded an income
tax expense of $635,000 for the fourth quarter of 2010 and an income tax benefit
of $1.304 for the year ended December 31, 2010. Ebix reported accounts
receivable as of December 31, 2010 of $26.028 million, net an allowance of
$1.126, an increase from $22.861 million net of an allowance of $565,000 as of
December 31, 2009. Defendants reiterated these results both in its 2010 10-K,
filed with the SEC on March 16, 2011 and signed by defendants Raina and Kerris,
and in a presentation on an earnings conference call on March 14, 2011.
222. Of those results, defendant Raina stated in the March 14, 2011press
release:
In the year 2010, Ebix emerged as the largest insurance
exchange player worldwide. We intend to launch many
new exchange related services in 2011 and beyond. Our
ability to deliver end-to-end exchange services while
providing enterprise backend solutions in an on-demand
manner continues to differentiate us from all our
competitors worldwide. In addition, our focus on
delivering solutions across the globe with the same code
base, while deploying these solutions in multiple
languages and currencies continues to hold immense
value for our multinational insurance clients.
In the year 2011, our vision is to focus on three key areas
- one, the launch of new exchanges and on-demand
backend platforms in various geographies across the
world; two, the launch of a mobile utility initiative with
applications in diverse insurance areas being deployed on
a utilities basis; three, the continued focus on services
like Ebix Enterprise targeted at providing a single on-
demand platform to a wide variety of insurance entities
across all insurance product lines.
223. In addition, in the March 14, 2011 press release, defendant Kerris
stated:
We are very pleased with the improvements realized
during 2010 particularly regarding our operating cash
flows and the overall health of our balance sheet. Our
recurring operating activities during 2010 produced $19.0
million of additional cash flows above the levels realized
in 2009. We closed the year with $23.4 million of cash
on hand, an increase of $4.2 million or 22% from a year
earlier, in spite of investing $15.2 million for business
acquisitions, remitting $22.5 million to settle outstanding
convertible debt, and paying $10.5 million to repurchase
shares of our common stock. During 2010 our current
ratio significantly improved and was 1.56 at December
31st as compared to 0.62 a year earlier, and we
eliminated all but $5.0 million of the previous $29.4
million of convertible debt.
224. On March 14, 2011, defendants convened and earnings conference
call. In his prefatory remarks, defendant Raina, once again, touted the Company‘s
evolving and strengthening internal controls ―through the use of quality partners,
vendors, tax advisers, and statut[ory] auditors.‖ In addition, Raina reiterated the
subsidized tax rates to which Ebix was entitled of 10% in Singapore and 0% in
India. In the question and answer segment of the conference call, defendant Kerris
continued to guide analysts to a 10-12% tax rate for 2011.
225. In response to an analyst‘s question with respect to organic growth
trends in the context of purportedly successful acquisitions, the following colloquy
between and analyst and defendant Raina ensued:
MARK GIOVANNIELLO, ANALYST, COPELAND
CAPTIAL MANAGEMENT: Thanks. Just a question
about the organic growth trends, particularly in the
Exchange business. I know you‘ve had some successful
acquisitions over the -- certainly this year and last year.
Could you speak to the trend, what you might have done
in Q4 in 2010 and what you might expect going forward?
Thanks.
ROBIN RAINA: I normally -- this is a question I
normally refer to our analysts. Simply because we hate
to talk about organic growth in terms of specific
numbers. Having said that, I‘ll try to address that. We
know that an overall numbers -- when we publish our K,
when the K comes out in a few days, the 10-K, you‘re
going to see a pretty good chop in here which basically
clearly spells it out in terms of what that organic growth
is, because it will tell you what our revenue with all these
acquisitions would have been in 2009, and what it would
have been in 2011 with our current growth rate, so it
basically comes out to 11% that we have.
Now, this 11%, however, it doesn‘t really give you the
true story of the growth in exchanges because exchange
growth has been a lot higher. The number goes down a
bit purely because we had drops in the revenues in the
Carrier segment, and the Carrier segment,-- benefit
Carrier segment that's the PNC back-end Carrier
segment. That‘s clearly taken a bit of a hit in the last few
years, especially in the year 2010. PNC industry has been
in the doldrums in the year 2010 and that has also
[a]ffected us.
Also what has [a]ffected us is earlier and earlier days we
were very -- we used to go out and sign all these large
License-based deals. We decided that the -- when you
look at our recurring versus non-recurring business, the
main non-recurring part of our business was the Carrier
Back-end system business. Everything else had become
more or less recurring, baring professional services
required to customize the system, which is incidentally a
small portion of our business. So when we looked at the
Carrier business we said we have to change our revenue
model. And, in 2010, we made an honest effort to change
our revenue model.
Today, Ebix does not send out a proposal on the Carrier
Back-end business with the license-based revenue model.
We sell everything on a recurring business, but when you
do business on a recurring basis, you‘re not going to get
those multi-million deals. What I mean by that if you
were signing earlier a Carrier with $5 million initial
license revenues or today, we are rather happier to sign a
Carrier who gives us $1 million a year or a couple $1.5
million a year, but continuously keeps doing that through
the life cycle of the Carrier. Because in the earlier model
you have a lot of revenue earlier, but in subsequent years
you were dependent on only the support revenue, and we
felt that's the model where we have to dig a well every
year and get the water out. And so we wanted to convert
it into a recurring business, but then you cannot try to
convert it into a recurring business, you have to make
initial sacrifices and that's what we did in the last quarter,
in the last year, but overall the number that you will see
in the K also is around 11% for the year.
MARK GIOVANNIELLO: Thank you. And going
forward do you think that's a reasonable expectation or is
something more normal in the single digits, typically, for
this business?
ROBIN RAINA: Let me put it that way, that we would
be disappointed if it was in single digits. We don't have a
tendency of issuing guidance and so I'm not going to tell
you what we will do or not do, but at the same time if
you're asking us if would we be happy with that? No,
absolutely not. We would be disappointed if our organic
growth today was in single digits.
226. On March 16, 2011, the Company filed with the SEC its 2010 10-K
signed by, among others, Raina and Kerris. In that Form 10-K, defendants
reiterated the Company‘s results from the March 14, 2011 press release. In
addition, both Raina and Kerris certified the Company‘s financial results for the
fourth quarter and full year 2010, ended December 31, 2010.
227. In the 2010 10-K, stated that Ebix‘s effective tax rate for 2010 was
1.1% down from 2.5% in 2009. The Company‘s income tax expense decreased
$375,000 from $1.0 million in 2009 to $635,000 in 2010. Explaining, in part, the
Company‘s low tax rates, Note 9 to the financial statements boasts:
The Company‘s consolidated effective tax rate is reduced
because of the blend of reduced tax rates in foreign
jurisdictions where a significant portion of our income
resides. Furthermore, the Company‘s world-wide product
development operations and intellectual property
ownership has been centralized into our India and
Singapore subsidiaries, respectively. Our operations in
India benefit from a tax holiday which will continue thru
2015; as such local India taxable income, other than
passive interest and rental income, is not taxed. After the
tax holiday expires taxable income generated by our
India operations will be taxed at 50% of the normal
33.99% corporate tax rate for a period of five years. This
tax holiday had the effect of reducing tax expense by
$11.5 million.
228. With respect to Company‘s accounts receivable, defendants stated in
the 2019 10-K that:
Management specifically analyzes accounts receivable
and historical bad debts, write-offs, customer
concentrations, customer credit-worthiness, current
economic trends and changes in our customer payment
terms when evaluating the adequacy of the allowance for
doubtful accounts. Bad debt expense was $1.2 million
and $321 thousand during the twelve months ended
December 31, 2010 and 2009, respectively.
229. In addition, the 2010 10-K disclosed that the Company was able
partially to offset an increase in general and administrative expenses, resulting
from ―a $1.5 million benefit associated with the reversal of a previously recorded
contingent liability earn out obligation associated with our October 2009
acquisition of Peak, because during the subsequent 2010 earn out period the
defined revenue targets was not achieved by the Peak operations.‖
230. Also in the 2010 10-K, defendants included a section on
―Management‘s Report on Internal Control over Financial Reporting.‖ They
purportedly assessed and tested the Company‘s internal controls, finding them to
be effective. The Company stated:
Based upon this evaluation and assessment, our Chief
Executive Officer and Chief Financial Officer concluded
that as of December 31, 2010 our disclosure controls and
procedures and our internal control over financial
reporting are effective to ensure, among other things, that
the information required to be disclosed by us in the
reports that we file or submit under the Securities and
Exchange Act of 1934 is recorded, processed,
summarized, and reported accurately.
231. Cherry, Bekaert & Holland, L.L.P., the independent registered public
accounting firm that audited the Company‘s Consolidated Financial Statements
opined on the quality of the Company‘s internal controls, stating:
We also have audited, in accordance with the standards
of the Public Company Accounting Oversight Board
(United States), the Company‘s internal control over
financial reporting as of December 31, 2010, based on
criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO),
and our report dated March 16, 2011 expressed an
unqualified opinion thereon.
232. The foregoing statements about the fourth quarter and year-end 2010
were false or misleading. As stated above in paragraphs 33-86 and 103-105,
defendants knew or recklessly disregarded that serious internal control problems
plagued Ebix since 2003. These internal control problems did not improve
throughout the Class Period. As a result, defendants knew or recklessly
disregarded that Ebix was unable to account for its accounts receivable accurately
or to post cash timely and accurately. Defendants, therefore, were unable to assess
accurately Ebix‘s need to reserve for bad debts in the face of its mounting accounts
receivable. Accordingly, throughout the Class Period, in violation of GAAP,
defendants knew or recklessly disregarded Ebix understated its allowance for
doubtful accounts, enabling it to overstate its net income and diluted earnings per
233. In addition, as stated above in paragraphs 87-105, throughout the
Class Period, defendants knew or were reckless in not knowing that Ebix was
overstating net income and diluted EPS by means of a sham tax strategy that
shifted profits overseas, profits, defendants knew or recklessly disregarded, that
Ebix was not permanently reinvesting in the foreign jurisdictions. By means of
this sham tax strategy, in violation of GAAP, defendants knew or recklessly
disregarded that Ebix overstated net income in 2009 by 16.5% and 2009 diluted
EPS by 16.3%.
234. Last, as stated above in paragraphs 106-124, defendants knew or
recklessly disregarded that throughout the Class Period, they disclosed materially
inaccurate organic growth rates, a critical metric for investors in the case of a roll-
up such as Ebix. In fact, as defendants knew or recklessly disregarded, Ebix‘s
legacy operations were not growing organically. Rather the Company was
growing only through acquisition.
Ebix Discloses Its Financial Results for the First Quarter of 2011
235. On May 10, 2011, the Company disseminated a press release,
detailing its first quarter 2011 financial and operating results. Ebix recorded first
quarter 2011 revenue of $40.1 million up 27% from $31.6 million for the same
quarter in 2010. According to defendants, net income for the quarter rose 22% to
$15.2 million up from $12.4 million in 2010, including non-operating of $354,000
related to the E-Z data option. Diluted EPS for the quarter were $0.37, up 15.6%
from $0.32 for the same period in 2010. The Company recorded an income tax
provision of $1.569 million and accounts receivable of $35.173 million net an
allowance for doubtful accounts of 1.083 million, up from a net balance of $26.028
as of December 31, 2010.
236. Of these results, in the May 10, 2011 press release, Raina stated:
Ebix turned in a strong Q1 2011 performance. Operating
margins and cash flow from operations remained strong
despite the impact of one-time acquisition, integration
and other A.D.A.M. - related costs. The highlight of the
Q1 2011 results for us is the fact our operating margins
would have been 43% when excluding the non-recurring
expenses directly associated with the ADAM acquisition
(specifically $1.39 million investment banking fee and
$0.4 million of employee severance costs).
We are very pleased with the progress of the A.D.A.M.
integration so far. We anticipate positive revenue and
profit contributions from A.D.A.M. in future periods as
we work to leverage their customer reach, health
information, and e-Learning expertise to create
pioneering health content and e-commerce exchanges in
the United States and abroad. The integration has proven
to be particularly streamlined given A.D.A.M. was also
based in Atlanta.
237. In addition, Kerris stated:
Ebix continued to produce sustainable and attractive cash
flow from our ongoing operations during Q1 2011. With
$39.3 million of bank deposits ($35.6 million of cash and
$3.7 million of fixed deposits for 90 days or more) as of
March 31, 2011, $26.3 million of additional borrowing
capacity as of April 19, 2011, and the continued growth
in operating cash flows, Ebix is well positioned to use
this cash towards supporting continued organic growth,
develop cutting edge products and services, and making
strategic accretive acquisitions in the Exchange arena.
As of March 31, 2011, the Company had remaining
available domestic NOL carry-forwards of $68.5 million
which are available to negate cash outflows that will
otherwise have been expected in connection with future
federal and certain tax payments associated with future
taxable income. Our Q1 results reflect a worldwide
effective tax rate of 9.4% versus 4.7% in Q1 of 2010
reflecting a relatively greater mix of income in higher tax
rate jurisdictions in Q1 of 2011, as compared to the same
quarter in 2010.
238. Also on May 10, 2011, defendants convened and conducted an
earnings conference call. A colloquy with an analyst over the Company‘s organic
growth rate proceeded as follows:
WALTER RAMSLEY: All right. Great. And organic
growth, did you make that calculation for the quarter?
ROBIN RAINA: We have -- meaning did we -- this is a
question that I would rather have you ask the analysts.
We have four analysts on our staff. Some of them -- one
on the call, and I'm sure you can address it, because we
feel these answers should come from a very unbiased
manner from outside parties, because in the past we have
given answers and people have started to do organic
calculations.
WALTER RAMSLEY: Yeah.
ROBIN RAINA: It depends on how you do your --
analysts do it in their own way, and we're very
comfortable with that. All of the numbers are reported, as
you know of all acquisitions, especially since 2010, they
are all -- we have made filings with the past numbers,
A.D.A.M. was a public company, everybody knows their
numbers. We have filed a -- we have made a specific
filing with their audited numbers for 2010. Any
acquisitions we made in 2010, those numbers are there.
So we feel people should do their analysis independently
on their own, or they should get analysts to do it, because
in the past, like I said, we have done different ways and
then some people say well, we would like to do organic
growth, while if you make an acquisition for 12 months,
don't even count their revenue, even after you have
acquired them, and we find that a bit weird because if we
made an acquisition in a country, ABC, and then in
country ABC, if we made an acquisition, and the revenue
was let's say $1.7 million a year, and now we grew that
$1.7 million to $4 million. Clearly we are going to count
$4 million, minus $1.7 million , $2.3 million as organic
growth.
However, there are people who have told us that is
wrong. They are saying you should not count the $2.3
million as organic growth for one year you should ignore
that, so I'm going to respect their opinion. I'm not going
to disagree with them. It's just another opinion -- it's
another way of doing organic growth, so we really feel
this answer should be best addressed by you yourself
looking, doing your own math, or by asking the analysts,
because each analyst could do it slightly differently, and
I'm nobody to comment on it. So -- thank you.
239. On May 10, 2011, the Company filed with the SEC a Quarterly
Report on Form 10-Q for the quarter ended March 31, 2010 signed by defendants
Raina and Kerris. In that Form 10-Q, defendants reiterated the Company‘s results
from the May 10, 2011 press release. In addition, as stated above, both Raina and
Kerris certified the Company‘s financial results for the first quarter of 2011, ended
March 31, 2011.
240. In that Form 10-Q, the Company boasted of its continued expansion,
―both organically and through a series of acquisitions.‖ Indeed, defendants stated:
During the three months ended March 31, 2011 our total
operating revenues increased $8.4 million or 27%, to
$40.1 million as compared to $31.6 million during the
first quarter of 2010. This revenue increase is primarily
the result of the growth achieved across our Exchange
channel and the revenue from the acquisition of ADAM
since February 7, 2011. The Company continues to
efficiently integrate its business acquisitions across all
existing operations leveraging product cross-selling
opportunities.
241. The May 10 10-Q also discusses Ebix‘s accounting for income taxes.
Note 7 to the financial statements boasts and effective income tax rate of 9.38% for
the three months ended March 31, 2011, and increase of 4.65% from the same
period in 2010. According to the Company, it bases its interim period tax
provision on its ―estimate of the effective income tax rates applicable to related
annual twelve month period, after considering any discrete items uniquely related
to the respective interim reporting period.‖ Defendants further stated that ―[t]he
Company‘s effective tax rate for 2011 reflects the significant tax benefits from
having a higher mix of a portion of our operations in foreign jurisdictions where
earnings are taxed at rates lower than U.S. statutory rates and where certain
components of the Company's income are exempt from taxation.‖
242. With respect to Company‘s accounts receivable, the 10-Q once again
states in Note 1 relating to Ebix‘s Summary of Significant Accounting Policies that
―[m]anagement specifically analyzes accounts receivable and historical bad debts,
write-offs, customer concentrations, customer credit-worthiness, current economic
trends and changes in our customer payment terms when evaluating the adequacy
of the allowance for doubtful accounts.‖ Defendants further conveyed that:
Bad debt expense incurred during the three month
periods ended March 31, 2011 and 2010 was
approximately $11 and $0 thousand, respectively.
Accounts receivable are written off against the allowance
account when the Company has exhausted all reasonable
collection efforts.
243. Also in that Form 10-Q, defendants discussed their evaluation of
internal control over financial reporting and their evaluation of disclosure controls
and procedures, stating:
Evaluation of Disclosure Controls and Procedures: The
Company's management evaluated, with the participation
of the Chief Executive Officer and Chief Financial
Officer, the effectiveness of the company's disclosure
controls and procedures as of the end of the period
covered by this report. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer have
concluded that the Company's disclosure controls and
procedures were effective as of the end of the period
covered by this report.
Internal Control over Financial Reporting: There were
no changes in our internal control over financial
reporting during the quarter ended March 31, 2011, that
have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.
244. The foregoing statements about the first quarter of 2011 were false or
misleading. As stated above in paragraphs 33-86 and 103-105, defendants knew
or recklessly disregarded that serious internal control problems plagued Ebix since
2003. These internal control problems did not improve throughout the Class
Period. As a result, defendants knew or recklessly disregarded that Ebix was
unable to account for its accounts receivable accurately or to post cash timely and
accurately. Defendants, therefore, were unable to assess accurately Ebix‘s need to
reserve for bad debts in the face of its mounting accounts receivable. Accordingly,
throughout the Class Period, in violation of GAAP, defendants knew or recklessly
disregarded Ebix understated its allowance for doubtful accounts, enabling it to
overstate its net income and diluted earnings per share.
245. In addition, as stated above in paragraphs 87-105, throughout the
Class Period, defendants knew or were reckless in not knowing that Ebix was
overstating net income and diluted EPS by means of a sham tax strategy that
shifted profits overseas, profits, defendants knew or recklessly disregarded, that
Ebix was not permanently reinvesting in the foreign jurisdictions. By means of
this sham tax strategy, in violation of GAAP, defendants knew or recklessly
disregarded that Ebix overstated net income in 2009 by 16.5% and 2009 diluted
EPS by 16.3%.
246. Last, as stated above in paragraphs 106-124, defendants knew or
recklessly disregarded that throughout the Class Period, they disclosed materially
inaccurate organic growth rates, a critical metric for investors in the case of a roll-
up such as Ebix. In fact, as defendants knew or recklessly disregarded, Ebix‘s
legacy operations were not growing organically. Rather the Company was
growing only through acquisition.
THE TRUTH BEGINS TO EMERGE
247. On March 24, 2011, Seeking Alpha published a report by Copperfield,
carried by Bloomberg, titled Ebix: Not a Chinese Fraud, but a House of Cards
Nonetheless.
248. About Ebix‘s growth, Copperfield stated:
Winston Churchill's famous quote, "a riddle wrapped in a
mystery inside an enigma," might as well have been
targeting Ebix Inc. (EBIX). EBIX has been an
aggressive acquirer of a variety of companies over the
years, many of which focus on the insurance industry.
The company's offering mix is a confusing amalgamation
of niche products that all have a "roll-up" stench. Robin
Raina, EBIX's CEO, has liberally described his business
with the buzz words du jour, such as "exchanges,"
"CRM," "The Cloud," and "SaaS."
The stock has performed well, fueled by retail investor
interest, momentum publications like Investors' Business
Daily and minimal scrutiny from analysts. We believe
that EBIX is nothing more than a roll-up that has
materially misrepresented its business (relative to the
CEO's buzz words) as well as its organic growth. Its
business model is predicated on two principals: tax
arbitrage and dramatic cost cuts (headcount reductions
and offshoring), neither of which is sustainable. Further,
the company's tax arbitrage may be more than "just"
unsustainable, it may actually be illegal.
EBIX's problems run deeper than unusual accounting.
The EBIX story also comes with multiple auditor
resignations, governance abuses, misrepresented organic
growth, questionable cash flow and a contentious CEO.
Below we address these concerns in great detail. Given
the gravity of these issues, we have notified the IRS and
the SEC of the material abuses at EBIX. We hope the
warranted scrutiny saves investors from significant losses
as the true EBIX story gets told.
EBIX shares are worth no more than $9.00, a level that
would represent a 65% decline from current prices. We
arrive at our target by adjusting current consensus
estimates for a 35% tax rate (where it will likely go), and
applying a generous market multiple of 12x normalized
earnings (consensus estimates include assumptions that
are unattainable and adjust for oddities such as
amortization, while failing to contemplate massive
underinvestment in sales and R&D). We estimate that
the company has less than $0.75 of de novo earnings
power.
249. In a sweeping indictment of Ebix, defendant Raina and the
Company‘s auditor, DBH, among the issues Copperfield highlighted were Ebix‘s
history of auditor turnover and abnormally low audit fees for firms its size and
accounting red flags. Copperfield further noted Ebix‘s ―manipulative metrics‖ for
organic growth, which it calculated were far less than the 10% numbers
management had touted, including Ebix‘s very low sales and research and
development expenses that foretold large margin erosion when the Company began
developing new and enhanced products to damn the floodwaters of deteriorating
organic growth. Copperfield also heavily criticized Ebix‘s foreign tax gambit,
terming its superficial transaction with its Indian subsidiaries unsustainable.
Absent the tax strategy, Copperfield concluded, ―dramatically change[s] the
economics of Ebix‘s business, significantly impair[s] its earnings expectations, and
could subject the company to significant fines, penalties and back taxes.‖ Last,
Copperfield questions the quality of Ebix‘s earnings, noting, in particular, its
manipulation of its accounts receivable and its allowance for doubtful accounts.
250. On this news, shares of Ebix declined $7.20 per share, or over 23%,
closing on March 24, 2011 at $22.52 per share on relatively enormous trading
volume of nearly 15 million shares traded.
251. In an attempt to further defendants‘ fraud, Ebix responded to
Copperfield‘s analysis in a March 25, 2011 press release, defending itself and its
management. It stated:
The Company also refuted the random implications in a
recent blog posted on Seeking Alpha about the Company.
The Company normally does not comment on blog posts,
but believes it is the author's intention to advance his
interests, and the interests of other investors that have
taken a position adverse to the long-term growth
prospects of the company. It is management's opinion
that this post misrepresents and distorts facts not relevant
to the Company's current financial position, long-term
growth prospects and management policies. To that end,
the Company reiterates its long term growth initiatives
and expansion opportunities, both domestically and
internationally with an expanding distribution channel
and broadening a product offering.
The Company holds its directors, officers and employees
to the highest ethical standards in both its business
operations, and in its efforts to achieve long-term value
for its shareholders. The Seeking Alpha post appears to
have been issued specifically to cause a decline in the
Company's stock price to support the increase in the short
interest in the Company stock, and purchases of stock
options related to these short positions. The company is
considering filing a formal complaint with the Securities
and Exchange Commission's Division of Trading and
Markets and Division of Enforcement, to report this
anonymous blog targeted at causing a decline in
shareholder value. The Company will take other
appropriate action if needed to protect its business
operations and the reputation of its management team,
board of directors, employees and partners.
252. On June 3, 2011, in response to a sharp dip in the price of its stock,
defendants confirmed the Company‘s financial health, including strong cash flow
growth for 2011, strong sales, and healthy and improving operating margins. The
Company then reiterated that it was buying back up to $45 million in Ebix shares.
253. On June 30, 2011, however, Bloomberg wrote a story on the Peak
shareholders‘ lawsuit, discussed in detail above, which essentially confirmed some
of the problems discussed in the March 24, 2011 Copperfield research report. In
that story, Bloomberg noted that a similar suit was filed in San Diego, California in
April, 2010, alleging that Ebix had lost control of its accounts receivable
accounting. As a result of the June 30, 2011 disclosure of these allegations, the
price of Ebix fell by $1.30 per share to close at $19.05 per share, down 6% from its
previous close on unusually heavy trading volume of over 5 million shares traded.
254. As a result of defendants‘ false statements and omissions, Ebix
common stock traded at artificially inflated prices during the Class Period.
ADDITIONAL SCIENTER ALLEGATIONS
255. 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 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 Ebix, their control
over, and/or receipt and/or modification of Ebix allegedly materially misleading
misstatements and/or their associations with the Company which made them privy
to confidential proprietary information concerning Ebix, participated in the
fraudulent scheme alleged herein.
LOSS CAUSATION
256. 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 Ebix common stock and operated as a fraud or deceit on Class Period
purchasers of Ebix common stock by failing to disclose and misrepresenting the
adverse facts detailed herein. When defendants‘ prior misrepresentations and
fraudulent conduct were disclosed and became apparent to the market through
partial disclosures, the price of Ebix common stock fell precipitously as the prior
artificial inflation came out. As a result of their purchases of Ebix common stock
during the Class Period, Plaintiffs and the other Class members suffered economic
loss, i.e., damages, under the federal securities laws when the truth about Ebix was
revealed through a series of partial disclosures that removed the artificial inflation
from the price of Ebix common stock.
257. By failing to disclose to investors the adverse facts detailed herein,
defendants presented a misleading picture of Ebix‘s business and prospects.
Defendants‘ false and misleading statements had the intended effect and caused
Ebix common stock to trade at artificially inflated levels throughout the Class
Period, reaching as high as $30.35 per share on March 24, 2011.
258. As a direct result of the disclosures on March 24, 2011 and June 30,
2011, Ebix common stock fell precipitously. These drops removed a good deal of
the artificial inflation from the price of Ebix common stock, causing real economic
loss to investors who had purchased Ebix common stock at artificially inflated
prices during the Class Period.
259. The declines were a direct result of the nature and extent of
defendants‘ fraud finally being revealed to investors and the market. The timing
and magnitude of the price declines in Ebix common stock negates any inference
that the loss suffered by Plaintiffs and the other Class members was caused by
changed market conditions, macroeconomic or industry factors or Company-
specific facts unrelated to defendants' fraudulent conduct. The economic loss, i.e.,
damages, suffered by Plaintiffs and the other Class members was a direct result of
defendants‘ fraudulent scheme to artificially inflate the prices of Ebix common
stock and the subsequent significant declines in the value of Ebix common stock
when defendants‘ prior misrepresentations and other fraudulent conduct were
revealed.
APPLICABILITY OF PRESUMPTION OF RELIANCE:
FRAUD ON THE MARKET DOCTRINE
260. At all relevant times, the market for Ebix common stock was an
efficient market for the following reasons, among others:
(a)
Ebix common 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, Ebix filed periodic public reports with the
SEC and the NASDAQ;
(c)
Ebix regularly communicated with public investors via
established market communication mechanisms, including regular disseminations
of press releases on the national circuits of major newswire services and other
wide-ranging public disclosures, such as communications with the financial press
and other similar reporting services; and
(d)
Ebix was followed by several 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.
261. As a result of the foregoing, the market for Ebix common stock
promptly digested current information regarding Ebix from all publicly available
sources and reflected such information in the prices of the stock. Under these
circumstances, all purchasers of Ebix common stock during the Class Period
suffered similar injury through their purchase of Ebix common stock at artificially
inflated prices and a presumption of reliance applies.
NO SAFE HARBOR
262. 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, defendants are liable for those false
forward-looking statements because at the time each of those forward-looking
statements were 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 executive officer of Ebix who knew that those statements
were false when made.
COUNT I
FOR VIOLATION OF §10(b) OF THE EXCHANGE
ACT AND RULE 10b-5 AGAINST ALL DEFENDANTS
263. Plaintiffs reiterate and incorporate herein by reference the foregoing
paragraphs as if fully stated herein.
264. During the Class Period, defendants participated in the preparation of
and/or caused to be disseminated the material false or misleading statements
specified above, which they knew or deliberately disregarded were misleading in
that they contained misrepresentations and failed to disclose material facts
necessary to make the statements made, in light of the circumstances under which
they were made, not misleading.
265. Defendants violated § 10(b) of the Exchange 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 plaintiffs and others similarly situated in connection with
their purchases of Ebix common stock during the Class Period.
266. Defendants, individually or 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 the truth and/or
adverse material information about the business, operations and financial
performance of Ebix, as related above.
267. 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, by, among other things,
participating in the making of untrue statements of material fact and omitting to
state material facts necessary in order to make the statements made about Ebix and
its operating and financial performance and future prospects, in the light of the
circumstances under which they were made, not misleading, as set forth more
particularly above, and engaged in transactions, practices and a course of business
which operated as a fraud and deceit upon the purchasers of Ebix common stock
during the Class Period.
268. Defendants possessed actual knowledge or recklessly disregarded that
their statements during the Class Period were false and misleading or omitted
material facts they had a duty to disclose. Defendants‘ engaged in violations of
Section 10(b) and Rule 10b-5, knowingly or recklessly disregarding the truth for
the purpose and effect of concealing Ebix‘s true financial and operating condition
from the investing public and supporting the artificially inflated price of its
publicly traded common stock.
269. As a result of defendants‘ disseminating false and misleading
statements about Ebix, as set forth above, the market price of Ebix‘s publicly
traded securities was artificially inflated during the Class Period. In ignorance of
that artificial inflate in the price of Ebix securities and relying directly or indirectly
on the false and misleading statements, or upon the integrity of the market in which
the securities traded, and/or on the absence of material adverse information that
was known to or recklessly disregarded by defendants, but not disclosed in public
statements during the Class Period, Plaintiffs and members of the Class paid
artificially high prices for Ebix securities and were damaged thereby as
demonstrated, in part, by the declines in the price of the Company‘s stock
following the March 24, 2011 and June 30, 2011 disclosures.
270. At the time of defendants‘ misrepresentations and omissions,
Plaintiffs and the members of the Class were ignorant of their falsity, and believed
them to be true. Had Plaintiffs, members of the Class, and the market known the
truth regarding defendants‘ false and misleading statements, Plaintiffs and the
members of the Class would not have purchased or otherwise acquired Ebix
securities, or, if they had, would not have done so at the artificially inflated prices
which they paid.
271. As a direct and proximate result of defendants' wrongful conduct,
Plaintiffs and the Class have suffered damages in connection with their respective
purchases and sales of Ebix stock during the Class Period, because, in reliance on
the integrity of the market, they paid artificially inflated prices for Ebix common
stock and experienced loses when the artificial inflation was released from Ebix
stock as a result of the partial revelations and stock price decline detailed herein.
Plaintiffs and the Class would not have purchased Ebix common stock 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.
272. By virtue of the foregoing, defendants have violated §10(b) of the
Exchange Act and Rule 10b-5 promulgated thereunder.
COUNT II
FOR VIOLATION OF §20(a) OF THE EXCHANGE ACT
AGAINST DEFENDANTS RAINA AND KERRIS
273. Plaintiffs reiterate and incorporate herein by reference the foregoing
paragraphs as if fully stated herein.
274. Defendants Raina and Kerris acted as controlling persons of Ebix
within the meaning of §20(a) of the Exchange Act, as alleged herein. By reason of
their high-level, controlling positions with the Company and their ownership and
contractual rights, participation in and awareness of the Company‘s operations and
intimate knowledge of the false statements and omissions made by the Company
and disseminated to the investing public, these 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 Plaintiffs contend are false and misleading. Ebix provide
Raina and Kerris with unlimited access to copies of the Company‘s reports, press
releases, public filings, and other statements, that Plaintiffs allege 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 Ebix to correct the statements in
question.
275. In particular, Raina and Kerris had direct and supervisory involvement
in the day-to-day finance and accounting operations of the Company. They are
presumed, therefore, to have had the power to control or influence the particular
transactions giving rise to the securities violations as alleged herein, and exercise
the same.
276. As set forth above, each of these defendants violated and others whom
they control violated §10(b) and Rule 10b-5 by their acts and omissions as alleged
in this Complaint.
277. By reason of their own conduct and the conduct of those over whom
they exercised control, defendants Raina and Kerris are liable pursuant to §20(a) of
the Exchange Act.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs pray for judgment as follows:
A.
Declaring this action to be a proper class action pursuant to Fed. R.
Civ. P. 23;
B.
Awarding Plaintiffs and the members of the Class damages, including
interest;
C.
Awarding Plaintiffs reasonable costs and attorneys‘ fees; and
D.
Awarding such equitable/injunctive or other relief as the Court may
deem just and proper.
JURY DEMAND
Plaintiffs demand a trial by jury.
Dated: November 28, 2011
HOLZER HOLZER & FISTEL, LLC
/s/ Marshall P. Dees
Corey D. Holzer
Georgia Bar Number: 364698
Michael I. Fistel, Jr.
Georgia Bar Number: 262062
Marshall P. Dees
Georgia Bar Number: 105776
William W. Stone
Georgia Bar Number: 273907
200 Ashford Center North
Suite 300
Atlanta, Georgia 30338
Telephone: 770-392-0090
Facsimile: 770-392-0029
FARUQI & FARUQI, LLP
Antonio Vozzolo
Richard Gonnello
369 Lexington Avenue, 10th Floor
New York, New York 10017
Tel: 212-983-9330
Fax: 212-983-9331
avozzolo@faruqilaw.com
and
Jacob A. Goldberg
Sandra G. Smith
101 Greenwood Avenue, Suite 600
Jenkintown, PA 19046
Tel: 215-277-5770
Fax: 215-277-5771
jgoldberg@faruqilaw.com
ssmith@faruqilaw.com
Attorneys for Plaintiffs
CERTIFICATE OF SERVICE AND TYPE
Pursuant to Local Rule 7.1(D), the undersigned counsel for Plaintiffs Anghel
and Fenske hereby certifies that the foregoing Consolidated Amended Complaint
for Violations of the Federal Securities Laws has been prepared with a font size
and point selection (Times New Roman, 14 pt.) which was approved by the Court,
and that on this 28th day of November, 2011, the foregoing was electronically filed
with the Clerk of Court using the CM/ECF system which will automatically send
email notification to all counsel of record who have appeared in this matter.
/s/ Marshall P. Dees
Marshall P. Dees
Georgia Bar No. 105776
| securities |
eBeyF4cBD5gMZwczamt0 | IN THE UNITED STATES DISTRICT COURT FOR
THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
CARRIE WILLIAMSON, f/k/a Carrie
Holzgrafe, Individually, and on Behalf of All
Others Similarly Situated,
Plaintiffs,
v.
Case No.
FERMI NATIONAL ACCELERATOR
LABORATORY, c/k/a Fermilab
Defendant.
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COMPLAINT
JURISDICTION AND VENUE
1.
Plaintiff brings this action pursuant to Title I of the Americans With Disabilities
Act of 1990, Title II of the Genetic Information Nondisclosure Act of 2008 and Title I of the
Civil Rights Act of 1991 to correct unlawful employment practices on the basis of disability and
genetic information and to provide appropriate relief to Carrie Holzgrafe and a class of similarly
situated persons who were adversely affected by these practices, pursuant to Rule 23 (b) (2) and
(3). In addition, Plaintiff asserts common law claims based upon, inter alia, her right of privacy.
2.
The Court has jurisdiction of the federal claims under 28 U.S.C. §1331, §1343,
3.
Venue is appropriate under 28 U.S.C. §1391, because Defendant, Fermi National
Accelerator Laboratory (“Fermilab”) is subject to personal jurisdiction in this district.
4.
Venue is also appropriate under 28 U.S.C. §1391(b) (2) because a substantial part
of the events giving rise to these claims occurred in this district.
PARTIES
5.
Plaintiff Carrie Williamson is a resident of Naperville, Illinois which is located in
DuPage County, Illinois.
6.
Plaintiff was, at all times relevant, employed by Fermilab as an Administrative
Support Assistant IV in the Directorate/Program Planning Department. She was hired by letter
dated May 13, 2010. She started her employment on May 15, 2010.
7.
Plaintiff was fired without warning on July 15, 2010.
8.
Sometime after she started work on May 15, 2010, Plaintiff was required to fill
out a medical questionnaire that included questions concerning family medical history, to
provide a DNA sample, and to submit to a physical examination for Defendant.
9.
On the questionnaire, Plaintiff disclosed that she suffered from depression and
Post-Traumatic Stress Disorder (“PTSD”) and is genetically predisposed to heart disease,
hypertension, hearing problems and cancer. Plaintiff then answered further oral inquiries about
her family medical history and had a DNA sample taken by Defendant.
10.
Approximately ten days after her physical exam, Plaintiff was required by
Fermilab to submit to an EKG test, a hearing test and a vision test. Prior to her physical exam,
there had been no mention of these specific tests.
11.
Shortly thereafter, on July 15, 2010, despite receiving no advance warnings and
despite receiving no criticism of her job performance, Plaintiff was fired.
12.
Plaintiff timely submitted a charge to the EEOC charging that she had been
discriminated against by the Defendant in violation of both the ADA and GINA. By letter dated
November 9, 2012, the EEOC ultimately made the following Determination: “the evidence
obtained in the investigation establishes reasonable cause to believe that Respondent
discriminated against Charging Party because of her disability and her genetic information, in
that she was discharged, in violation of the ADA and GINA.” The EEOC’s Determination
further found: “I have also determined that Respondent discriminated against a class of
individuals, including Charging Party, by acquiring their genetic information, in violation of
GINA.”
13.
On April 10, 2013, Plaintiff was issued a Right to Sue letter by the EEOC.
COUNT I
(Violation of GINA)
14.
Plaintiff repeats and realleges paragraphs 1-13 as though fully stated herein.
15.
Pursuant to the Genetic Information Nondiscrimination Act of 2008, 42 U.S.C.A.
§2000ff-1 (“GINA”): “It shall be an unlawful employment practice for an employer to request,
require, or purchase genetic information with respect to an employee or a family member of the
employee…”
16.
At some time in the past at a time unknown to the Plaintiff but well known to the
defendant, the Defendant required all new employees to submit to a physical exam and to
complete a medical questionnaire that included required questions concerning family medical
history.
17.
By requiring Plaintiff and all other new employees to submit to a physical exam
and answering a medical a questionnaire (the “Class”), Fermilab violated GINA.
18.
Plaintiff and the Class have been damaged thereby. Pursuant to 42 USC §1981,
Plaintiff and the class seek compensatory damages in an amount to be determined at trial and
injunctive relief.
19.
Because the Defendant acted with reckless indifference to the rights of Plaintiff
and the Class, Plaintiff and the Class also ask for punitive damages in an amount to be
determined at trial.
COUNT II
(Violation of ADA as to Ms. Williamson only)
20.
Plaintiff repeats and realleges paragraphs 1-13 as though fully set forth herein.
21.
The ADA prohibits discrimination based upon a disability.
22.
Upon information and belief, Plaintiff submits that she was terminated for the
reason that she suffers from PTSD. This is prohibited by the ADA, 42 USC §12101 et seq.
23.
42 USC §12112 prohibits discrimination against an individual based upon a
disability such as PTSD. Plaintiff was terminated because she suffers from PTSD.
24.
The termination letter the Defendant gave the Plaintiff on July 15, 2010 stated that
the reason for discharge was “deficient job performance.” This ground was a pretext only as
Plaintiff’s job performance to that point had been without blemish.
CLASS ALLEGATIONS
25.
With respect to the GINA claim, Plaintiff seek to bring this lawsuit on behalf of
herself and on behalf of all others similarly situated, subject to entry of an order certifying this
cause as a class action pursuant to F.R.C.P., Rule 23(b)(3).
26.
F.R.C.P. Rule 23(b)(3) provides that a cause of action may be maintained as a
class action if:
a. The class is so numerous that joinder of all members, whether otherwise required
or permitted, is impracticable;
b. There are questions of law or fact common to the class which predominate over
any questions affecting only individual members;
c. The claims or defenses of the representative parties are typical of the claims or
defenses of the class;
d. The representative parties will fairly and adequately protect the interests of the
class; and,
e. A class action is superior to other available methods for the fair and efficient
adjudication of the controversy.
Class Definition
27.
Plaintiff seeks Rule 23 certification of the following class:
“All individuals who were hired by the Defendant and who were required to undergo a physical
examination and/or to complete a medical questionnaire resulting in the Defendant collecting
their DNA information.”
Numerosity
28.
Plaintiff and the Class satisfy the numerosity standards. This lawsuit
encompasses at least one hundred fifty potential class members and potentially more. The
proposed class can be identified and located using Defendant’s payroll and personnel records.
Therefore, the class is so numerous that the joinder of all members is impracticable. Class
members may be informed of the pendency of this Class Action by direct mail based upon and/or
published and broadcast notice.
Common Questions of Fact or Law
29.
There are questions of fact and law common to the class that predominate over
any questions affecting only individual members. The questions of law and fact common to the
class arising from Defendant’s actions include, without limitation, the following:
a. Whether the class members were required to submit to physical examinations
and/or to complete questionnaires that revealed their DNA information;
b. Whether the Defendant made this a condition of employment;
c. Whether in so doing the Defendant acted knowingly or recklessly:
d. Whether Defendant’s practice violates the GINA laws;
e. Whether the Defendant’s failure to pay overtime was willful; and,
f. Whether Plaintiff and the class have suffered damages and the proper measure
of those damages.
30.
The questions set forth above predominate over any questions affecting only
individual persons, and a class action is superior with respect to considerations of consistency,
economy, efficiency, fairness and equity, to other available methods for the fair and efficient
adjudication of the controversy.
Typicality
31.
Plaintiff’s claims based upon GINA are typical of the claims of the class
members. Plaintiff suffered similar injuries as those suffered by other class members as a result
of Defendant’s actions.
Adequacy
32.
The named Plaintiff is an adequate representative of the class because she is a
member of the class and her interests do not conflict with the interests of the members of the
class she seeks to represent. The interests of the class members will be fairly and adequately
protected by the named Plaintiff and her undersigned counsel. Plaintiff has hired competent
attorneys who are experienced in class action litigation and who are committed to prosecuting
this action.
Superiority
33.
A class action is superior to other available means for the fair and efficient
adjudication of this controversy because individual joinder of the parties is impracticable. Class
action treatment will allow a large number of similarly situated persons to prosecute their
common claims in a single forum simultaneously, efficiently and without the unnecessary
duplication of effort and expense if these claims were brought individually. Moreover, as the
damages suffered by each class member may be relatively small, the expenses and burden of
individual litigation would make it difficult for plaintiffs to bring individual claims. The
presentation of separate actions by individual class members could create a risk of inconsistent
and varying adjudications, establish incompatible standards of conduct for Defendant and/or
substantially impair or impede the ability of class members to protect their interests.
PRAYER FOR RELIEF
WHEREFORE, the Plaintiff, individually and, with respect to GINA, Count I, on behalf
of all others similarly situated, by her attorneys, demands judgment against the Defendant and in
favor of the Plaintiff and all others similarly situated, for a sum that will properly, adequately and
completely compensate Plaintiff for the nature, extent and duration of their damages, the costs of
this action and as follows:
A. Certify this as a class pursuant to F.R.C.P. 23 (b) (2) and (3).
B. Enter judgment declaring that the Defendant has violated and is violating GINA.
C. Enter an injunction ordering the Defendant to cease violating GINA.
D. Award compensatory damages in an amount according to proof;
E. Award punitive damages for the intentional or reckless violation of GINA in an
amount to be determined at trial;
F. All costs and attorney’s fees incurred prosecuting this claim;
G. Leave to amend to add claims under applicable state and federal laws;
H. For such further relief as the Court deems just and equitable.
WITH RESPECT to the Plaintiff’s Count II brought under the ADA on behalf of
her individually, Plaintiff demands judgment against the Defendant and in favor of the Plaintiff,
for a sum that will properly, adequately and completely compensate Plaintiff for the nature,
extent and duration of her damages, the costs of this action and as follows:
A. Award compensatory damages in an amount according to proof;
B. Award punitive damages for the intentional or reckless violation of ADA in an
amount to be determined at trial;
C. All costs and attorney’s fees incurred prosecuting this claim;
D. Leave to amend to add claims under applicable state and federal laws;
E. For such further relief as the Court deems just and equitable.
JURY DEMAND
For all matters triable to a jury, Plaintiffs demand trial by jury.
Dated: June 6, 2013
Respectfully Submitted
s/Terrence Buehler_______________
One of the Attorneys for the Plaintiffs
Daniel G. Austin
Austin Law Group LLC
1021 West Adams St., Suite 102
Chicago, IL 60607
(312) 829-2300
Terrence Buehler
Touhy, Touhy & Buehler, LLP
55 W. Wacker Dr., Suite 1400
Chicago, IL 60601
(312) 372-2209
| discrimination |
8xaJF4cBD5gMZwcz9iVi |
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Eclesias Stvil,
individually and on behalf of all others similarly situated,
Case No.: 1:21-cv-23145
Plaintiff,
CLASS ACTION COMPLAINT
DEMAND FOR JURY TRIAL
-v.-
Synergetic Communication, Inc. and Jefferson Capital
Systems, LLC.
Defendants.
Plaintiff Eclesias Stvil (“Plaintiff”) brings this Class Action Complaint by and through his
attorneys, Zeig Law Firm, LLC, against Defendants Synergetic Communication, Inc. (“SYN”) and
Jefferson Capital Systems (“Jefferson”), 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” or “Act”) 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). Congress found 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. It 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) &
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 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 Florida 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 Florida, County of Miami-Dade.
8.
Defendant SYN is a "debt collector" as the phrase is defined in 15 U.S.C.
§ 1692(a)(6) and used in the FDCPA with a service address at Corporation Service Company, 1201
Hays Street, Tallahassee, FL 32301-2525.
9.
Upon information and belief, Defendant SYN 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.
10.
Defendant Jefferson 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 for service of process at Corporation Service
Company, 1201 Hays Street, Tallahassee, FL 32301-2525.
11.
Upon information and belief, Defendant Jefferson 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
12.
Plaintiff brings 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 SYN sent an initial collection letter;
c. on behalf of Defendant Jefferson;
d. attempting to collect a consumer debt;
e. that states the amount due may vary due to interest;
f. although no interest is being charged; and
g. 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.
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 officers, 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 Defendants’ written communication to consumers, in the forms attached as Exhibit
A, violate 15 U.S.C. §§ 1692e and 1692f.
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
his 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 Defendants’ written communication to consumers, in the
form attached as Exhibit A, violate 15 U.S.C. §§ 1692e 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.
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 the above allegations as if set forth here.
22.
Some time prior to July 7, 2021, an obligation was allegedly incurred by Plaintiff to
non-party Webbank.
23.
The obligation arose out of a transaction in which money, property, insurance or
services of the subject transactions were incurred for personal purposes, specifically personal
24.
The alleged Webbank obligation is a "debt" as defined by 15 U.S.C.§ 1692a (5).
25.
Webbank is a "creditor" as defined by 15 U.S.C.§ 1692a (4).
26.
According to the letter described below, Jefferson if the current creditor for the
Webbank account.
27.
According to the letter described below, Jefferson is a client of SYN on whose behalf
SYN was attempting to collect on this account.
28.
Defendants collect and attempt 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.
Violation – July 7, 2021 Collection Letter
29.
On or about July 7, 2021, Defendants sent Plaintiff an initial collection letter regarding
the alleged debt (“Account”) originally owed to Webbank. See Letter attached as Exhibit A.
30.
The Letter states:
As of the date of this letter, you owe $901.45. Because of interest that may vary
from day to day, the amount due on the day you pay may be greater. Hence, if you
pay the amount shown above, an adjustment may be necessary after we receive
your payment, in which event we will inform you before depositing the payment
for collection.
31.
The Letter states interest is being charged on the Account.
32.
However, Defendants are not charging interest on the Account.
33.
Subsequent to the date of the Letter, the amount demanded by Defendants had not
changed.
34.
Contrary to the Letter the balance will not vary.
35.
Stating that the balance may increase is merely a deceptive collection tactic intended
to intimidate and coerce Plaintiff into paying immediately.
36.
Plaintiff is unable to evaluate how much is truly being alleged as the correct balance.
37.
Plaintiff cannot properly evaluate the demand for payment or how to address it.
38.
Defendants’ actions caused Plaintiff to suspect there was fraud involved with this
collection.
39.
Because of Defendants’ improper acts, Plaintiff expended time, money, and effort in
determining the proper course of action.
40.
Plaintiff would have pursued a different course of action were it not for Defendants’
statutory violations.
41.
Plaintiff was unable to determine the true balance and its component parts.
42.
Plaintiff was therefore unable to pay the debt in whole or part.
43.
The funds Plaintiff could have used to pay the debt were therefore spent elsewhere.
44.
In addition, Plaintiff suffered emotional harm due to Defendants’ improper acts.
45.
These violations by Defendants were knowing, willful, negligent and/or intentional,
and Defendant did not maintain procedures reasonably adapted to avoid any such violations.
46.
Defendants’ 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 to be not to be misled or treated unfairly with respect to
any action for the collection of any consumer debt.
47.
Defendants’ 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 Defendants’ collection efforts because Plaintiff could not adequately
respond to Defendants’ demand for payment of this debt.
48.
Defendants’ actions created an appreciable risk to Plaintiff of being unable to properly
respond or handle Defendants’ debt collection.
49.
Plaintiff was confused and misled to his detriment by the statements in the dunning
letter, and relied on the contents of the letter to his detriment.
50.
As a result of Defendants’ 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.
51.
Plaintiff repeats the above allegations as if set forth here.
52.
Defendants’ 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.
53.
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.
54.
Defendant violated said section by:
a. Making a false and misleading representation in violation of §§ 1692e and
1692e (10) stating or implying the debt would increase although it did not;
b. Falsely representing the character, amount or legal status of the debt in violation
of § 1692e (2); and
c. Threatening to take an action that it did not intend to take, in violation of §
1692e (5).
55.
By reason thereof, Defendant is liable to Plaintiff for judgment that Defendants’
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.
56.
Plaintiff repeats the above allegations as if set forth here.
57.
Alternatively, Defendants’ 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. §
58.
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.
59.
Defendant violated this section by unfairly stating that interest would accrue although
Defendants never intended to collect such interest.
60.
By reason thereof, Defendant is liable to Plaintiff for judgment that Defendants’
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
61.
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 Eclesias Stvil , individually and on behalf of all others
similarly situated, demands judgment from Defendants Synergetic Communication, Inc. and
Jefferson Capital Systems, LLC as follows:
i.
Declaring that this action is properly maintainable as a Class Action and certifying
Plaintiff as Class representative, and Justin Zeig, 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: August 31, 2021
Respectfully submitted,
/s/ Justin Zeig
By: Justin Zeig, Esq.
Zeig Law Firm, LLC
3475 Sheridan Street, Ste 310
Hollywood, FL 33021
Phone: (754) 217-3084
Fax: (954) 272-7807
Justin@zeiglawfirm.com
Attorneys for Plaintiff
| consumer fraud |
37DhCocBD5gMZwcz0D5x |
Francis J. “Casey” Flynn, Jr.
Law Office of Francis J. Flynn, Jr.
CA State Bar No. 304712
6220 W 3rd St # 115
Los Angeles, CA 90036
Email: francisflynn@gmail.com
ATTORNEY FOR PLAINTIFF
AND THE PROPOSED CLASS
5:18-cv-768
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
DANIEL J. KOLODZIEJ,
individually and on behalf of all
others similarly situated,
Plaintiff
v.
SAMSUNG ELECTRONICS
AMERICA, INC.
Defendant
CASE NO. ______________________
JURY TRIAL DEMANDED
CLASS ACTION
PLAINTIFF’S CLASS ACTION
COMPLAINT FOR:
(1) Violation of California Consumers
Legal Remedies Act, Civil Code
§1750, et seq.;
(2) Unfair Competition Law, Bus. &
Prof. Code §17200, et seq.
(3) Violations of the False Advertising
Law (“FAL”), Cal. Bus. & Prof. Code
§ 17500, et seq.
(4) Violation of The Song-Beverly
Consumer Warranty Act for Breach
Of Express Warranties (Cal. Civ.
Code §§ 1791.2 & 1793.2(D))
(5) Violation of The Song-Beverly
Consumer Warranty Act for Breach
of
Implied
Warranty
of
Merchantability
(Cal. Civ. Code §§ 1791.1 & 1792)
(6) Magnuson-Moss Warranty Act, 15
U.S.C. § 2301
(7) Fraud
(8) Breach of Express Warranty
(9) Unjust Enrichment
PLAINTIFF’S CLASS ACTION COMPLAINT
COMES NOW, Plaintiff Daniel J. Kolodziej (“Plaintiff”), individually and
on behalf of all other similarly situated, by and through Plaintiff’s undersigned
counsel, and brings this action against SAMSUNG ELECTRONICS AMERICA,
INC. (hereinafter “Samsung” or “Defendant”), alleging, upon personal knowledge
as to Plaintiff’s individual actions and upon information and belief and/or counsel’s
investigation as to all other matters, the following:
NATURE OF THE ACTION
1.
This is a consumer protection class action arising out of the purchase
of the Samsung Galaxy S7 designed, marketed, and sold by Defendant, including,
but not limited to the following models: Samsung Galaxy S7, S7 Edge, and S7
Active (collectively, the “Galaxy S7” or “Product”).
2.
Galaxy S7’s are Android smartphones manufactured and marketed by
Samsung Electronics. The Galaxy S7 series serves as the successor to the Galaxy
S6, S6 Edge and S6 Edge+ released in 2015. The phones were officially unveiled
on 21 February 2016, during a Samsung press conference at Mobile World
Congress, with a European and North American release on March 11, 2016.
3.
Galaxy S7 Phones were released in early 2016 with the tagline: “The
earth is made up of mostly water. We’re made up of mostly water. We need water
to survive. So we made a water-resistant phone.”
4.
Samsung advertised and represented Galaxy S7’s waterproof quality:
Because Water Happens
Bring on the spills, splashes and dunks. Now you won’t need to put your
phone in a bowl of rice because of a little water.1
5.
Samsung represents that the Galaxy S7 and S7 Edge phones are IP68-
certified for water and dust resistance and that the Galaxy S7 and S7 Edge phones
are Water Resistant “in up to 5 feet of water for up to 30 minutes.”2
6.
Samsung’s representations induced Plaintiff and Class Members to
purchase Samsung’s purportedly water-resistant phones. Had these consumers
known that Samsung’s representations of water resistance were not accurate, they
would not have purchased a Galaxy S7 phone, or they would have paid
significantly less for the Galaxy S7.
7.
Confronted with customer complaints that the Galaxy S7 Phones are
not water resistant, Defendant has systematically denied this fact, and thus refused
to honor any applicable warranties, as occurred to Plaintiff in this case. Defendant
encouraged Plaintiff and Class Members to use the Galaxy S7 Phones in the water,
knowing that it would damage these phones, and then refuses to honor the warranty
to repair the phones for water damage.
1 See, https://www.Samsung.com/us/mobile/phones/galaxy-s/Samsung-galaxy-s7-32gb-at-t-black-onyx-sm-
g930azkaatt/, last visited 1/1/2018).
2 See, Samsung, https://www.Samsung.com/us/support/answer/ANS00047867/, last visited 1/1/2018).
8.
Plaintiff brings claims individually and on behalf of a class of all other
similarly situated purchasers of the defective Product against Defendant for
violations of California’s Consumers Legal Remedies Act, Cal. Civ. Code § 1750,
et seq., violations of California’s Unfair Competition Law, Cal. Bus. & Prof. Code
§ 17200, et seq. (“UCL”), Violations of the False Advertising Law (“FAL”), Cal.
Bus. & Prof. Code § 17500, et seq., Violation of The Song-Beverly Consumer
Warranty Act for Breach Of Express Warranties (Cal. Civ. Code §§ 1791.2 &
1793.2(D)), Violation Of The Song-Beverly Consumer Warranty Act For Breach
Of Implied Warranty Of Merchantability (Cal. Civ. Code §§ 1791.1 & 1792), fraud,
Breach of Express Warranty, Unjust Enrichment, and violations of the Magnuson-
Moss Warranty Act, 15 U.SC. § 2301, et seq. (“MMWA”).
9.
Expressly disclaiming any and all damages pursuant to Cal. Civ. Code.
1750 et seq., Plaintiff seeks an order requiring Defendant to, among other things:
(1) cease the unlawful material representations and omissions regarding the water
resistance of the Galaxy S7 Phones; (2) conduct a corrective advertising campaign
to alert the public of the defect; (3) pay damages and restitution to Plaintiff and
Class members; and (4) reimburse Plaintiffs and Class members for the loss of use
and value of the Galaxy S7.
PARTIES
10.
Plaintiff Daniel J. Kolodziej (“Plaintiff”) is an individual citizen of the
state of California, residing in the County of Los Angeles.
11.
Defendant Samsung Electronics America, Inc. is a corporation
organized under the laws of the State of New Jersey. Its principal place of business
is in Ridgefield Park, New Jersey. Samsung Electronics distributed and/or sold
consumer electronic devices, including the Galaxy S7 smartphone, in this judicial
District and throughout the state of California. Samsung is a wholly-owned
subsidiary of Samsung Electronics Co., Ltd., a subsidiary of Samsung Group,
which is a Korean multinational corporation headquartered in Suwon, South Korea.
JURISDICTION AND VENUE
12.
This Court has subject matter jurisdiction over this class action
pursuant to 28 U.S.C.§ 1332 as amended by the Class Action Fairness Act of 2005
because:
(a)
the number of members of the proposed plaintiff class is greater than
100;
(b)
at least one Plaintiff and Defendant are citizens of different states; and
(c)
the aggregated claims of the individual Class members exceed
$5,000,000.00, exclusive of interest and costs.
13.
This Court has personal jurisdiction over Plaintiff because Plaintiff
resides in California and submits to the Court’s jurisdiction in this case.
14.
This Court has personal jurisdiction over Defendant because
Defendant, personally or through an agent, engaged in one or more of the following
actions: (a) operating, conducting, engaging in, or carrying on a business or
business venture in this state or having an office or agency in this state and has
sufficient minimum contacts with California, including: Samsung Media Solutions
Center America, a division of Samsung Electronics America, Inc., is based out of
Mountain View, California;3 (b) committing a tortious act within this state; (c)
causing injury to persons or property within this state arising out of an act or
omission by the Defendant outside this state, if, at or about the time of the injury,
the defendant was engaged in solicitation or service activities within this state; or
products, materials, or things processed, serviced, or manufactured by the defendant
anywhere were used or consumed within this state in the ordinary course of
commerce, trade, or use; or (d) breaching a contract in this state by failing to
perform acts required by the contract to be performed in this state. Defendant, who
is engaged in substantial and not isolated activity within this state, whether such
activity is wholly interstate, intrastate, or otherwise, is subject to the jurisdiction of
the courts of this state, whether or not the claim arises from that activity.
15.
This Court has personal jurisdiction over Samsung as well because
Samsung Strategy and Innovation Center, a global organization within Samsung’s
Device Solutions division, is headquartered in Menlo Park, California; Samsung
3 See Samsung, U.S. Divisions, available at: http://www.Samsung.com/us/aboutSamsung/Samsung_electronics
/us_divisions/; http://www.Samsung.com/ContactUs/ElectronicsAmerica/index.htm;
http://www.Samsung.com/ContactUs/InformationSystemsAmerica/index.htm; see also Gannes, Liz, “Samsung
Confirms
Four
New
Bay
Area
Offices,”
Allthingsd.com
(Dec.
3,
2017)
available
at:
http://anthingsd.com/20121229/SAMSUNG-confirms-four-new-bay-area-offices/; “Samsung Electronics Announces
New
Silicon
Valley
R&D
Center,”
BusinessWire.com
(Dec.
3,
2017)
available
at:
http://www.businesswire.com/news/home/20120919005456/en/Samsung-Electronics-Announces-Silicon-Valley-
Center.
Information Systems America is headquartered in San Jose, California; Samsung
Semiconductor, Inc. is headquartered in San Jose, California; and, Samsung Open
Innovation Center is located in Palo Alto, California.4
16.
Venue is proper in this Court under 28 U.S.C. § 1391 because
Samsung innovates, researches, develops, improves, and markets a substantial
amount of phones in this District. Samsung “has been a presence in Silicon Valley
for more than two decades.”5 Samsung’s Media Solutions Center (a.k.a. Research
and Development Center)6, which is located in this District, “delivers innovative,
connected experiences across Samsung’s mobile and digital ecosystem that enhance
the experience of owning a Samsung product,”7 is “[c]omprised of two six-story
LEED Platinum designed office buildings totaling nearly 385,000 square feet, and
two parking structures,” and “serves as an epicenter of innovation and is home to
some of the world’s top talent,” including “more than 250 doctorate recipients from
some of the best schools around the globe.”8 According to a Samsung press release,
the “great successes” of the labs housed at the Media Solutions Center “benefit
Samsung’s vast portfolio of mobile, visual display, home appliance, wearable and
4 Ibid.
5 “Samsung Electronics Announces New Silicon Valley R&D Center,” BusinessWire.com (Sept. 19, 2012 at 9:00
AM) available at: http://www.businesswire.com/news/home/20120919005456/en/Samsung-Electronics-Announces-
Sihcon- Valley-Center.
6 See Ibid.
7 See Samsung, U.S. Divisions, available at:
http://www.Samsung.com/us/aboutSamsung/Samsung_electronics /us_divisions/.
8 “Research at the Core of SAMSUNG Research America’s New Mountain View Campus,” SAMSUNG Newsroom
(Sept. 1, 2015) available at: https://news.SAMSUNG.com/global/research-at-the-core-of-SAMSUNG-research-
americas-new-mountain-view-campus.
audio and stereo products.”9 Samsung also maintains and operates a Strategy and
Innovation headquarters “within Samsung’s Device Solutions division, with the
core missions of open innovation in collaboration with entrepreneurs and strategic
partners,” within this District. Not to mention, Samsung’s Information Systems
America and Semiconductor divisions are headquartered in this District, along with
an Open Innovation Center.10 Therefore, a substantial part of the events and/or
omissions alleged in this complaint, giving rise to Plaintiffs’ claims, occurred in,
emanated from, and/or were directed from this District. Venue is also proper
because Samsung is subject to this District’s personal jurisdiction with respect to
this action.
COMMON ALLEGATIONS OF FACT
17.
Samsung Telecommunications and Samsung are part of the
multinational Samsung Group conglomerate, which is headquartered in Seoul,
South Korea. The Samsung Group has subsidiaries across widely varied industries,
including shipbuilding, construction, insurance, and aerospace as well as consumer
electronics. Samsung Electronics Co. Ltd., the parent of Defendant Samsung
Electronics, is currently the largest manufacturer (by revenue) of mobile phones in
the world.
18.
Samsung engaged in a nationwide campaign where it advertised that
9 Ibid.
10
See SAMSUNG, U.S. Divisions, available at:
http://www.SAMSUNG.com/us/aboutSAMSUNG/SAMSUNG electronics /us divisions/.
its Galaxy S7 Phones Are Water Resistant:
Because Water Happens
Bring on the spills, splashes and dunks. Now you won’t need to put
your phone in a bowl of rice because of a little water.11
19.
In a national commercial, Samsung used the celebrity Dwayne
Michael Carter, Jr., known professionally as Lil Wayne, (best known for, Tha Block
Is Hot, Lights Out, and 500 Degreez), pouring champagne on a Galaxy S7 phone to
demonstrate its water-resistant quality. After answering the phone, he proceeded to
submerge the Galaxy S7 phone in a fish tank while the phone was still on. After
taking the phone out of the fish tank, he was still able to talk to his friend on the
phone.12
20.
Indeed, Samsung advertised and represents that the Galaxy S7 is Water
Resistant “in up to 5 feet of water for up to 30 minutes.”
21.
In Samsung’s Frequently Asked Questions, “Is My Galaxy S7 Dust
and Water Resistant?” Samsung states:
With Samsung’s most resilient mobile device yet, you can run in the
rain and play in the mud, spill on it, splash it, dunk it, then wipe it off
and keep going. The IP68 dust- and water-resistance Ingress
Protection rating means your device is completely protected against
dust, and it is water-resistant in up to 5 feet of water for up to 30
minutes. Your device has also passed military specification (MIL-
STD- 8106) testing against a subset of 20 specific environmental
conditions, including temperature, dust and sand, shock and vibration,
11 https://www.Samsung.com/us/mobile/phones/galaxy-s/Samsung-galaxy-s7-32gb-at-t-black-onyx-sm-g930azkaatt/
last visited 1/1/2018.
12 https://www.youtube.com/watch?v=g8XtahRoLYg, last visited December 3, 2017)
low pressure, and high altitude.13
22.
Because of the advertisements and representations that Galaxy S7 is
Water Resistant, Plaintiff purchased a Samsung Galaxy S7 smartphone through
Verizon, in part because he wanted a water resistant smart phone that can be used
around the pool and can be used to take pictures in the pool. Plaintiff purchased the
phone for personal use.
23.
Samsung has installed a moisture-detecting sticker in the Galaxy S7
phone. These stickers are located near points of entry on the phone’s enclosure at
places where liquid or moisture is most likely to breach the phone’s gaskets and
seals. These stickers allow Samsung to determine if any liquid or moisture has
entered the phone. The stickers appear white unless they are exposed to liquid or
moisture, but if the stickers are exposed to liquid or moisture, they turn a pink
color.
24.
Samsung’s inclusion of these moisture-detecting stickers evidences the
fact that the Galaxy S7 phone is not water resistant as represented. The moisture-
detecting stickers do not contribute to the S7 Phone’s functionality. Nor do the
stickers provide any benefit to the user. Samsung inserts these stickers so that its
technicians can identify at a glance whether the phone’s internal components have
come into contact with liquid or moisture.
13 https://www.Samsung.com/us/support/answer/ANS00047867/, last visited
1/1/2018). (emphasis added).
25.
Furthermore, Samsung does not apply a water-repellent coating to the
circuit board of the S7 Phone even though such technology is available. The lack of
such a coating renders the circuit board vulnerable to short-circuiting and corrosion.
Industry Testing
26.
Industry testing that has been done on the Galaxy S7 phones
demonstrates that these phones are not water resistant.
27.
SquareTrade, gadget-warranty outfit, did testing on whether the
Galaxy S7 was water resistant and found that “Samsung Galaxy S7 and S7 Edge
not quite waterproof, [...] tests reveal.”14
28.
In the test done by SquareTrade, all four superphones were submerged
in 5 feet (1.5 m) of water for 30 minutes. After performing the testing, SquareTrade
concluded: “The Galaxy S7 and S7 Edge stand up to water better than the iPhone 6s
and 6s Plus, but not without sustaining permanent damage.”15
29.
Furthermore, Consumer Reports tested two Galaxy S7 Active units in
a pressure vessel, simulating a depth of “just under 5 feet” for 30 minutes. The
phones suffered water damage, particularly to the displays and power buttons.
30.
Samsung has been riddled by complaints because of the lack of water
resistance for its Galaxy S7 phones.
31.
For example, the following complaints have appeared online:
14 https://www.cnet.com/news/Samsung-galaxy-s7-not-quite-waterproof-torture-tests-reveal, last
visited, 1/1 2018).
15 (Id.)
WARNING:
The Samsung Galaxy S7 is not WATER RESISTANT!!!
After dropping it in shallow water and immediately retrieving it, DRYING IT
OFF for 48 hours and placing it in rice for 24 additional hours, the phone
continues to have problems!The speakers in the phone have become
inaudible & I continue to receive an error message saying there is moisture in
the USB port making charging my phone an impossibility.
Samsung’s site state: “The phone is certified IP68, which means it’s resistant
up to 30 mins in the water at depths up to 5 feet.”
THAT IS NOT THE CASE WHATSOEVER.16
Samsung Galaxy S7 Edge water resistance failure
I told them in store when I returned with the phone, that I deliberately did a
water test in fairly shallow water (8” max) for no more than a couple of
minutes; which the phone failed miserably.17
32.
Before Plaintiff purchased his Galaxy S7 phone, Plaintiff viewed
advertisements which Samsung represented that the Galaxy S7 is water resistant.
Plaintiff never saw any advertisements in which Samsung disclosed the material
fact that the Galaxy S7 was not resistant to water less than 5 feet for 30 minutes.
PLAINTIFF AND THE CLASS’ INJURIES
33.
Plaintiff purchased the Galaxy S7 (“Subject Galaxy S7”) on August 5,
2016 for $672.00 and has been paying $28.00 monthly installments since purchase.
Plaintiff’s Subject Galaxy S7 had never been damaged or replaced up until the
events of June 23, 2017.
34.
Plaintiff’s Subject Galaxy S7 was in a Ziploc bag.
16 https://it-it.facebook.com/SamsungMobileUSA/posts/10153536425141786 (last visited, 1/1/2018).
17
https://forums.androidcentral.com/Samsung-galaxy-s7-edge/715326-Samsung-galaxy-s7-edge-water-resistance-
failure.html (last visited, 1/1/2018)
35.
Plaintiff’s Subject Galaxy S7 accidentally fell into a swimming pool.
36.
The Ziploc bag had a leak and Subject Galaxy S7 was exposed to
water. The phone did not hit the bottom of the pool, but floated on the surface in the
Ziploc bag until it was removed less than a minute after it was exposed to the water.
At no point in time did the Subject Galaxy S7 go at or above five feet of water. The
Subject Galaxy S7 was only in contact with water for less than a minute.
37.
Plaintiff’s Subject Galaxy S7 was left damaged and unusable.
38.
Plaintiff made a warranty claim to Samsung, but the warranty claim
was rejected.
39.
Plaintiff used his Verizon/Asurion insurance plan and paid the
deductible of $149.00 to replace his phone with a new Galaxy S7.
40.
Defendant (a) made material misrepresentations to Plaintiff and the
Classes when it stated that the Galaxy S7 was water resistant when it was not and
(b) made material omissions to Plaintiff and the Classes when it failed to disclose
that the Galaxy S7 was not water resistant.
41.
Plaintiff and the Class have suffered injury in fact and lost money as a
result of Defendant’s representations and omissions.
CLASS ACTION ALLEGATIONS
42.
Plaintiff alleges and asserts the claims for relief herein on his own
behalf, and further seeks certification of this case as a class action on behalf of
similarly situated persons pursuant to Rule 23(b) of the Federal Rules of Civil
Procedure.
43.
Specifically, Plaintiff requests certification on behalf of the following
Classes of individuals:
44.
Nationwide Class:
All individuals in the United States who purchased a new Galaxy S7,
Galaxy S7 Edge, or Galaxy S7 Active cellular phone.
California Class: All individuals in California who purchased a new
Galaxy S7, Galaxy S7 Edge, or Galaxy S7 Active cellular phone.
Excluded from the Classes are (1) Defendant, Defendant’s agents,
subsidiaries, parents, successors, predecessors, and any entity in
which Defendant or Defendant’s parents have a controlling interest,
and 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) Any governmental entities and any
instrumentalities, subdivisions, agencies thereof; (4) any person who
executes and files a timely request for exclusion from the Class; (5)
any person who has had their claims in this matter finally adjudicated
and/or otherwise released; (6) the legal representatives, successors and
assigns of any such excluded person; (7) Counsel of record.
45.
The claims for relief asserted herein satisfy the prerequisites for
certification as a class action pursuant to Federal Rule of Civil Procedure 23(b)(3):
a. There are questions of law or fact common to the classes;
b. The claims or defenses of the representative parties are typical of the
claims or defenses of the classes;
c. The representative party will fairly and adequately protect the interests of
the classes;
d. The questions of law or fact common to members of the classes
predominate over any questions affecting only individual members; and
e. A class action is superior to other available methods for fairly and
efficiently adjudicating the controversy.
46.
Numerosity. The members of the Classes are so numerous that
joinder of all members would be impracticable. The exact number of class
members is unknown, however, likely numbers in the thousands, such that joinder
of individual claims in a single action would be impracticable. The identity of those
persons is within the knowledge of and can be ascertained by resorting to
Defendant’s records.
47.
Commonality.
Plaintiff’s
and
class
members’
claims
raise
predominantly common factual and legal questions that can be answered for all
class plaintiffs through a single class-wide proceeding. For example, to resolve the
claims of any member of the classes, it will be necessary to answer the following
factual and legal questions:
a.
Whether Samsung’s advertising, marketing, and product packaging as
to the water resistance of its Galaxy S7 phones were untrue, misleading, or
reasonably likely to deceive;
b.
Whether Samsung knew its conduct and statements were false, untrue,
misleading, or reasonably likely to deceive as to the water resistance of its Galaxy
S7 phones;
c.
Whether Samsung’s statements, conduct and/or omissions regarding
water resistance of its Galaxy S7 phones were material;
d.
Whether Samsung made false representations concerning the water
resistance of its Galaxy S7 phones with the intent to induce consumers to rely upon
such representations;
e.
Whether Samsung’s conduct violated the California Consumers Legal
Remedies Act, Civil Code §1750, et seq.; and
f.
Whether Defendant’s conduct constituted unlawful, unfair, and/or
fraudulent business practices in violation of California’s Unfair Competition Law
(the “UCL”), Business & Professions Code §17200, et seq
g.
Whether Defendant’s conduct constituted one or more violations of the
False Advertising Law (“FAL”), Cal. Bus. & Prof. Code § 17500, et seq.
h.
Whether Defendant’s conduct constituted a violation of Magnuson-
Moss Warranty Act, 15 U.S.C. § 2301, et seq.
i.
Whether Defendant violated the Song-Beverly Consumer Warranty
Act for Breach of Express Warranties (CAL. CIV. CODE §§ 1791.2 & 1793.2(D));
j.
Whether Defendant violated the Song-Beverly Consumer Warranty
Act for Breach of Implied Warranties (CAL. CIV. CODE §§ 1791.2 & 1793.2(D));
k.
Whether Samsung breached an express warranty;
l.
Whether Defendant engaged in fraud;
m. Whether Defendant was unjustly enriched; and
n.
Whether Plaintiff and the Class were damaged.
48.
Typicality. Plaintiff’s claims are typical of each member’s of the
Classes claims because each arises from a common course of conduct by Samsung.
49.
Adequacy. Plaintiff will fairly and adequately protect the interests of
the Classes. Plaintiff’s interests do not conflict with the interests of the classes, and
Plaintiff has retained counsel experienced in complex class action litigation to
vigorously prosecute this action on behalf of the class.
50.
Predominance. Common questions of law and fact predominate over
any questions affecting only individual members of the classes and a class action is
superior to individual litigation.
51.
Superiority. Under the facts and circumstances set forth above, class
proceedings are superior to any other methods available for both fair and efficient
adjudication of the rights of each member of the Classes, because joinder of
individual members of the Classes is not practical and, if the same were practical,
said members of the classes could not individually afford the litigation, such that an
individual litigation would be inappropriately burdensome, not only to said citizens,
but also the courts.
52.
To process individual cases would both increase the expenses and
cause delay not only to members of the Classes, but also to Samsung and the Court.
53.
In contrast, a class action of this matter will avoid case management
difficulties and provide multiple benefits to the litigating parties, including
efficiency, economy of scale, unitary adjudication with consistent results, and equal
protection of the rights of each member of the Classes, all by way of the
comprehensive and efficient supervision of the litigation by a single court.
54.
Notice of the pendency of the action and of any result or resolution of
the litigation can be provided to Class members by direct mail, the usual forms of
publication, and/or such other methods of notice as deemed appropriate by the
Court.
55.
Without class certification, the prosecution of separate actions by
individual members of the Class described above would create a risk of inconsistent
or varying adjudications with respect to individual members of the Classes that
would establish incompatible standards of conduct for defendant, and/or
adjudications with respect to the individual members of the Classes that would, as a
practical matter, be dispositive of the interests of the other members not parties to
the adjudication, or would substantially impair or impede their ability to protect
their interest.
56.
Defendant has acted or refused to act on grounds that apply generally
to the class and certification is therefore proper pursuant to Federal Rule of Civil
Procedure 23(b)(2).
57.
Injunctive and Declaratory Relief. Plaintiff also brings this
class action under Fed. R. Civ. P. 23(b)(1) as a result of the Defendant’s actions or
omissions set forth herein, which actions are generally applicable to all class
members thereby making final injunctive relief or declaratory relief concerning the
class as a whole appropriate.
58.
Certification of Particular Issues. Fed. R. Civ. P. 23(c)(4).
Issue certification is also appropriate because the following particular issues
(among others) exist that may be brought or maintained as a class action:
a.
Whether Samsung’s advertising, marketing, and product packaging as
to the water resistance of its Galaxy S7 phones were untrue, misleading, or
reasonably likely to deceive;
b.
Whether Samsung knew its conduct and statements were false, untrue,
misleading, or reasonably likely to deceive as to the water resistance of its Galaxy
S7 phones;
c.
Whether Samsung’s statements, conduct and/or omissions regarding
water resistance of its Galaxy S7 phones were material;
d.
Whether Samsung made false representations concerning the water
resistance of its Galaxy S7 phones with the intent to induce consumers to rely upon
such representations;
e.
Whether Samsung’s conduct violated the California Consumers Legal
Remedies Act, Civil Code §1750, et seq.; and
f.
Whether Defendant’s conduct constituted unlawful, unfair, and/or
fraudulent business practices in violation of California’s Unfair Competition Law
(the “UCL”), Business & Professions Code §17200, et seq.
g.
Whether Defendant’s conduct constituted one or more violations of the
False Advertising Law (“FAL”), Cal. Bus. & Prof. Code § 17500, et seq.
h.
Whether Defendant’s conduct violated the Magnuson-Moss Warranty
Act, 15 U.S.C. § 2301, et seq.
i.
Whether Defendant violated the Song-Beverly Consumer Warranty
Act for Breach of Express Warranties (CAL. CIV. CODE §§ 1791.2 & 1793.2(D));
j.
Whether Defendant violated the Song-Beverly Consumer Warranty
Act for Breach of Implied Warranties (CAL. CIV. CODE §§ 1791.2 & 1793.2(D));
k.
Whether Samsung breached an express warranty;
l.
Whether Defendant engaged in fraud; and
m. Whether Defendant was unjustly enriched.
FIRST CLAIM FOR RELIEF
Violation of the
California Consumers Legal Remedies Act, Civil Code §1750, et seq.
(By Plaintiff and the California Class Against Samsung)
59.
Plaintiff re-alleges and incorporates by reference all paragraphs set
forth above.
60.
Plaintiff brings this Count on behalf of the California Subclass.
61.
Plaintiff and the California Class are “consumers” as defined by the
CLRA.
62.
The Galaxy S7 phones are “goods” within the meaning of the CLRA.
63.
Samsung is the “suppliers” and/or “sellers” within the meaning of the
CLRA.
64.
Samsung violated Civil Code § 1770(a)(2) by misrepresenting the
approval or certification of goods.
65.
Samsung violated Civil Code §1770(a)(5) by representing that the
Galaxy S7 had characteristics, uses, and benefits that it did not have.
66.
Samsung violated Cal. Civ. Code § 1770(a)(7) by representing that
goods are of a particular standard, quality, or grade, when they are of another.
67.
Samsung violated Civil Code §1770(a)(9) by advertising goods or
services with intent not to sell them as advertised.
68.
Samsung violated Cal. Civ. Code § 1770(a)(14) by representing that a
transaction confers or involves rights, remedies, or obligations which it does not
have or involve, or which are prohibited by law.
69.
Samsung violated Cal. Civ. Code § 1770(a)(16) by representing that
goods have been supplied in accordance with a previous representation when they
have not.
70.
Samsung violated Cal. Civ. Code § 1770(a)(17) by inserting an
unconscionable provision in the contract.
71.
Plaintiff and the Class relied on Samsung’s misrepresentations and
omissions in deciding whether to purchase the Galaxy S7.
72.
As a direct and proximate result of Samsung’s conduct, Plaintiff and
the Class were injured.
73.
Plaintiff is concurrently serving Defendant with a CLRA notification
and demand letter via certified mail, return receipt requested. See, Exhibit A -
CLRA Letter.
74.
The notice letter sets forth the relevant facts, notifies each Defendant
of its CLRA violations, and requests that Defendant promptly remedy those
violations.
75.
Under the CLRA, a plaintiff may without prior notification file a
complaint alleging violations of the CLRA that seeks injunctive relief only. Then, if
the Defendant does not remedy the CLRA violations within 30 days of notification,
the plaintiff may amend her or his CLRA causes of action without leave of court to
add claims for damages. Plaintiff, individually and on behalf of the class, will
amend this complaint to add damages claims if Defendant does not remedy their
violations as to Plaintiff and the Class Members within the statutory period.
76.
Pursuant to Cal. Civ. Code § 1782(a)(2), Plaintiff, on behalf of
Plaintiff’s self and the Class, demand judgment against Defendant under the CLRA
for injunctive and equitable relief only to enjoin the practices described herein.
77.
Plaintiff, individually and as a member of the Class, has no adequate
remedy at law for the future unlawful acts, methods, or practices as set forth above.
78.
Pursuant to § 1780(d) of the CLRA, attached hereto as Exhibit B is the
affidavit showing that this action has been commenced in the proper forum.
79.
In bringing this action, Plaintiff has engaged the services of attorneys
and has incurred reasonable legal expenses in an amount to be proved at trial.
80.
Plaintiff is also entitled to recover Plaintiff’s attorneys’ fees, costs, and
expenses.
81.
At this time, Plaintiff disclaims damages under the CLRA, but seeks
an order from this Court enjoining the conduct alleged herein.
82.
Plaintiff reserves the right to amend this Complaint and to assert a
claim for damages pursuant to Civil Code §1782.
SECOND CLAIM FOR RELIEF
Unfair Competition Law, Bus. & Prof. Code §17200, et seq.
(By Plaintiff and the California Class Against Samsung)
83.
Plaintiff incorporates and re-alleges all other paragraphs as if fully set
forth herein.
84.
Plaintiff brings this Count on behalf of the California Subclass.
85.
The conduct of Samsung alleged herein constitutes unlawful and unfair
business practices in violation of the UCL, Bus. & Prof. Code §17200, et seq., in
that the violations of the CLRA also constitute unlawful, unfair, and/or fraudulent
business practices under the UCL.
86.
Specifically, Defendant has violated the UCL by engaging in the
following unlawful, unfair, and/or fraudulent business practices:
a.
Making material omissions and misrepresentations regarding the water
resistance of the Galaxy S7;
b.
Violating the California Legal Remedies Act, California Civil Code §
1750, et seq. (the “CLRA”);
c.
Violating the False Advertising Law (“FAL”), Cal. Bus. & Prof. Code
§ 17500, et seq.);
d.
Violating the Song-Beverly Consumer Warranty Act for Breach of
Express Warranties (Cal. Civ. Code §§ 1791.2 & 1793.2(D));
e.
Violating the Song-Beverly Consumer Warranty Act for Breach of
Implied Warranty of Merchantability (Cal. Civ. Code §§ 1791.1 & 1792);
f.
Violating Section 5 of the FTC;
g.
Violating the Magnuson-Moss Warranty Act, 15 U.S.C. § 2301, et
seq.;
h.
Breaching the Express Warranty; and/or
i.
Unjustly Enriching itself.
87.
Samsung’s material omissions and/or misrepresentations were made
with the actual knowledge of Defendant.
88.
Defendant intended for Plaintiff to rely upon the material omissions
and/or misrepresentations to induce them to purchase the Products.
89.
The material omissions and/or misrepresentations set forth herein were
material to Plaintiff, and if Plaintiff had known that the products cause allergic
reaction that would burn and redden her face, Plaintiff would not have bought it.
90.
The utility of Defendant’s conduct is significantly outweighed by the
gravity of the harm they impose on Plaintiff and the Class. Defendant’s acts and
practices are oppressive, unscrupulous, or substantially injurious to consumers.
91.
The above-described unfair, unlawful, and/or fraudulent business
practices conducted by Defendant present a threat and likelihood of harm to
members of the Class in that Defendant has systematically perpetrated and continue
to perpetrate the unfair, unlawful, and/or fraudulent conduct upon members of the
public by engaging in the conduct described herein.
92.
Plaintiff and the Class have suffered harm as a proximate result of the
wrongful conduct of the Defendant alleged herein, and therefore bring this claim for
relief for restitution and disgorgement. Plaintiff is a person who has suffered injury
in fact and has lost money and property as a result of such unfair competition.
93.
Pursuant to Business and Professions Code §§ 17200 and 17203,
Plaintiff, on behalf of himself and the Class, seeks an order of this Court: enjoining
Defendant from continuing to engage in the deceptive practices contained herein.
Plaintiff further requests an order awarding Plaintiff and the Class restitution and
disgorgement of profits acquired by Defendant by means of such unfair, unlawful,
and/or fraudulent acts and/or practices, so as to deter Defendant and to rectify
Defendant’s unfair, unlawful, and/or fraudulent practices and to restore any and all
monies to Plaintiff and the Class, which are still retained by Defendant, plus
interest and attorneys’ fees and costs pursuant to, inter alia, Code of Civil
Procedure section 1021.5.
94.
As a direct and proximate result of Defendant’s conduct, Plaintiff and
the Class were damaged.
95.
This Court may award attorney’s fees to Plaintiff and the Class.
Defendant’s conduct, as set forth above, is likely to deceive members of the public
and is immoral, unethical, oppressive, unscrupulous, and substantially injurious to
consumers.
96.
To the extent that the conduct as set forth above is ongoing and
continues to this date, Plaintiff, the Class members, and the general public are,
therefore, entitled to the relief described herein.
97.
Defendant, through their deceptive trade practices as described herein,
have obtained money from Plaintiff and members of the Class. Plaintiff, in fact,
has been injured by Defendant’s conduct, as have members of the Class.
98.
Plaintiff, individually and as a member of the Class, has no adequate
remedy at law for the future unlawful acts, methods, or practices as set forth above.
99.
As such, Plaintiff seeks injunctive relief to enjoin the practices
described herein.
100. In bringing this action, Plaintiff has engaged the services of attorneys
and has incurred reasonable legal expenses in an amount to be proved at trial.
101. Samsung’s acts, omissions, and practices constitute “unfair” practices
because they are contrary to California’s legislatively declared policy condemning
deceptive advertising of goods and services. Samsung falsely represented that the
Galaxy S7 phone is water resistant when it is not.
102. The conduct of Samsung alleged herein also constitutes fraudulent
business practices in violation of the UCL, Bus. & Prof. Code §17200, et seq., in
that said conduct was likely to deceive reasonable consumers.
103. In particular, Samsung’s conduct is also fraudulent practice in that
Samsung represents that the Galaxy S7 Phone is water resistant despite the fact that
the phone’s internal components are not water resistant. Also, Samsung conceals
that the gaskets and seals on the Galaxy S7 Phone’s enclosure deteriorate with
normal usage, rendering the phone’s internal components susceptible to damage
from water.
104. Bus. & Prof. Code §17203 provides that the Court may restore to any
person in interest any money or property which may have been acquired by means
of such violative conduct. As a direct and proximate result of the conduct alleged
herein acts, Plaintiff and the Class were injured and suffered the loss of money
through making purchases that they would not have made, or they would have paid
significantly less for them, in the absence of such conduct.
THIRD CLAIM FOR RELIEF
(Violations of the False Advertising Law (“FAL”), Cal. Bus. & Prof. Code §
17500, et seq.)
(By Plaintiff and the California Class)
105.
Plaintiff incorporates and re-alleges all other paragraphs as if
fully set forth herein.
106. Plaintiff brings this Count on behalf of the California Subclass.
107. Samsung, with the intent, directly or indirectly, to induce members of
the public to purchase Samsung’s goods, has made or caused to be made statements
to the public in California that were untrue or misleading about the water resistance
of the Galaxy S7 in violation of Bus. & Prof. Code §17500, et seq.
108. Samsung represents in a nationwide advertising campaign that the S7
Phone is water resistant when it is not.
109. Samsung is or should be aware through the exercise of reasonable
diligence that its statements regarding the S7 Phone’s water resistance are and were
false and misleading.
110. Plaintiff and other consumers were entitled to disclosure of these
defects, as the risk of these dangers would be a material fact in a consumer’s
decision to purchase the Products and Defendant’s disclosure is the only way
consumers could have learned of these risks.
111. As alleged in the preceding paragraphs, the misrepresentation and
omission by Defendant of the material facts detailed above constitutes false
advertising within the meaning of California Business & Professions Code § 17500.
112. In addition, Defendant’s use of various forms of advertising media to
advertise, call attention to or give publicity to the sale of goods or merchandise that
are not as represented constitutes unfair competition, unfair, deceptive, untrue or
misleading advertising, and an unlawful business practice within the meaning of
Business & Professions Code §§ 17200 and 17531, which advertisements have
deceived and are likely to deceive the consuming public, in violation of Business &
Professions Code § 17500.
113. As a direct and proximate result of Samsung’s acts and omissions in
violation of the FAL, Plaintiff and California Subclass members have been and
continue to be harmed. Samsung’s violations of the FAL caused Plaintiff and
California Subclass members to suffer out-of-pocket losses. Plaintiff and California
Subclass members would not have purchased S7 Phones, or would have paid
significantly less for them, had Plaintiff and California Subclass members known
that, contrary to Samsung’s false advertising, the phones are vulnerable to damage
from water.
114. Plaintiff brings this action under Business and Professions Code
section 17535 to enjoin the violations described herein and to require Samsung to
issue appropriate corrective disclosures. Plaintiff and California Subclass members
thus seek: (a) an order requiring Samsung to cease its false advertising; (b) full
restitution of all monies paid to Samsung as a result of its false advertising; (c)
interest at the highest rate allowable by law; and (d) payment of Plaintiff’s
reasonable attorneys’ fees and costs under applicable law, including Federal Rule of
Civil Procedure 23 and California Code of Civil Procedure section 1021.5.
Wherefore Plaintiff prays for relief as set forth below.
FOURTH CLAIM FOR RELEIF
VIOLATION OF THE SONG-BEVERLY CONSUMER WARRANTY ACT
FOR BREACH OF EXPRESS WARRANTIES
(CAL. CIV. CODE §§ 1791.2 & 1793.2(D))
(By Plaintiff and the California Class)
115. Plaintiff incorporates by reference all preceding allegations as though
fully set forth herein.
116. Plaintiff brings this Count on behalf of the California Subclass.
117. Plaintiff and the other Class members who purchased the Galaxy S7s
in California are “buyers” within the meaning of Cal. Civ. Code § 1791(b).
118. The Galaxy S7 is a “consumer good” within the meaning of Cal. Civ.
Code § 1791(a).
119. Samsung is a “manufacturer” of the Galaxy S7 within the meaning of
Cal. Civ. Code § 1791(j).
120. Plaintiff and the other Class members bought/leased new Galaxy S7s
manufactured by Samsung.
121. Samsung made express warranties to Plaintiff and the other Class
members within the meaning of Cal. Civ. Code §§ 1791.2 and 1793.2, as described
above.
122. In connection with the purchase or lease of each one of its new Galaxy
S7s, Samsung provides a “Standard Limited Warranty” that is available to the
consumer only electronically, accessible either on Samsung’s website or on the
device itself. The limited Warranty provides that, for a period of one year from the
date of purchase, Samsung will replace or repair a defective device.
123. Defendant’s obligations are as follows:
What are Samsung’s obligations? During the applicable warranty
period, provided the Product is returned in accordance with the terms
of this Standard Limited Warranty, Samsung will repair or replace the
Product, at Samsung’s sole option, without charge.
124. As set forth above in detail, the Galaxy S7 are inherently defective, a
defect that was and continues to be covered by Samsung’s express warranties, and
this defect substantially impairs the use, value, and operation of the phones to
reasonable consumers like Plaintiff and the other Class members.
125. Plaintiff and other Class members notified Samsung or its authorized
representative of the failure to operate as a result of a defect, but Samsung
represented to Plaintiff that it would not honor the warranty.
126. Samsung and its authorized representatives failed and continue to fail
to repair or replace the phones to match Samsung’s written warranties after an
opportunity to do so.
127. As a result of Samsung’s breach of its express warranties, Plaintiff and
the other Class members received goods whose defective condition substantially
impairs their value to Plaintiff and the other Class members. Plaintiff and the other
Class members have been damaged as a result of the diminished value of
Samsung’s products, the products’ malfunctioning, and the nonuse of their
products. Additionally, Plaintiff has been damaged by $149.00 to cover the
deductible associated with making a claim with Plaintiff’s insurance company.
128. Pursuant to Cal. Civ. Code §§ 1793.2 & 1794, Plaintiff and the other
Class members are entitled to damages and other legal and equitable relief
including, at their election, the purchase price of their Galaxy S7, or the
overpayment or diminution in value of their Galaxy S7.
129. Pursuant to Cal. Civ. Code § 1794, Plaintiff and the other Class
members are entitled to costs and attorneys’ fees.
FIFTH CLAIM FOR RELIEF
VIOLATION OF THE SONG-BEVERLY CONSUMER WARRANTY ACT FOR
BREACH OF IMPLIED WARRANTY OF MERCHANTABILITY
(CAL. CIV. CODE §§ 1791.1 & 1792)
(By Plaintiff and the California Class)
130. Plaintiff incorporates by reference all preceding allegations as though
fully set forth herein.
131. Plaintiff brings this Count on behalf of the California Class.
132. Plaintiff and the other Class members who purchased or leased the
Galaxy S7s in California are “buyers” within the meaning of CAL. CIV. CODE
§ 1791(b).
133. The Galaxy S7s are “consumer goods” within the meaning of CAL.
CIV. CODE § 1791(a).
134. Samsung is a “manufacturer” of the Galaxy S7s within the meaning of
CAL. CIV. CODE § 1791(j).
135. Samsung impliedly warranted to Plaintiff and the other Class members
that its Galaxy S7s were “merchantable” within the meaning of CAL. CIV. CODE
§§ 1791.1(a) & 1792; however, the Galaxy S7s do not have the quality that a buyer
would reasonably expect.
136. CAL. CIV. CODE § 1791.1(a) states:
“Implied warranty of merchantability” or “implied warranty that
goods are merchantable” means that the consumer goods meet
each of the following:
(1)
Pass without objection in the trade under the contract
description.
(2)
Are fit for the ordinary purposes for which such goods are
used.
(3)
Are adequately contained, packaged, and labeled.
(4)
Conform to the promises or affirmations of fact made on
the container or label.
137. The Galaxy S7s would not pass without objection in the cell phone
trade because of the Defect in the Galaxy S7s. The Galaxy S7s were not adequately
designed, manufactured, and/or tested.
138. Because of the Defect in the Galaxy S7s, they are not in merchantable
condition and thus not fit for ordinary purposes.
139. The Galaxy S7s are not adequately labeled because the labeling fails to
disclose the Defect in the Galaxy S7s.
140. Samsung breached the implied warranty of merchantability by
manufacturing and selling the Galaxy S7s containing the Defect. Furthermore, these
defects have caused Plaintiffs and the other Class members to not receive the
benefit of their bargain and have caused the Galaxy S7s to depreciate in value.
141. As a direct and proximate result of Fiat’s breach of the implied
warranty of merchantability, Plaintiff and the other Class members received goods
whose defective condition substantially impairs their value to Plaintiff and the other
Class members. Plaintiff and the other Class members have been damaged as a
result of the diminished value of Samsung’s Galaxy S7s, the Galaxy S7s’
malfunctioning, and the inability to use their Galaxy S7s.
142. Pursuant to CAL. CIV. CODE §§ 1791.1(d) & 1794, Plaintiff and the
other Class members are entitled to damages and other legal and equitable relief,
including, at their election, the purchase price of their Galaxy S7s, or the
overpayment or diminution in value of their Galaxy S7s.
143. Pursuant to CAL. CIV. CODE § 1794, Plaintiff and the other Class
members are entitled to costs and attorneys’ fees.
SIXTH COUNT
VIOLATION OF THE MAGNUSON-MOSS WARRANTY ACT
(15 U.S.C. § 2301, ET SEQ.)
(On behalf of the Nationwide Class)
144.
Plaintiff incorporates by reference all preceding allegations as though
fully set forth herein.
145.
Plaintiff and the Classes are “consumers” within the meaning of the
Magnuson-Moss Warranty Act, 15 U.S.C. § 2301(3).
146.
Samsung is a “supplier” and “warrantor” within the meaning of the
Magnuson-Moss Warranty Act, 15 U.S.C. § 2301(4)-(5).
147.
The Galaxy S7s are “consumer products” within the meaning of the
Magnuson-Moss Warranty Act, 15 U.S.C. § 2301(1).
148.
15 U.S.C. § 2301(d)(1) provides a cause of action for any consumer
who is damaged by the failure of a warrantor to comply with a written or implied
warranty.
149.
Samsung’s express warranties are written warranties within the
meaning of the Magnuson-Moss Warranty Act, 15 U.S.C. § 2301(6). The Galaxy
S7’s implied warranties are covered under 15 U.S.C. § 2301(7).
150. In connection with the purchase or lease of each one of its new Galaxy
S7s, Samsung provides a “Standard Limited Warranty” that is available to the
consumer only electronically, accessible either on Samsung’s website or on the
device itself. The limited Warranty provides that, for a period of one year from the
date of purchase, Samsung will replace or repair a defective device.
151. Defendant’s obligations are as follows:
What are Samsung’s obligations? During the applicable warranty
period, provided the Product is returned in accordance with the terms
of this Standard Limited Warranty, Samsung will repair or replace the
Product, at Samsung’s sole option, without charge.
152. As set forth above in detail, the Galaxy S7 are inherently defective, a
defect that was and continues to be covered by Samsung’s express warranties, and
this defect substantially impairs the use, value, and operation of the phones to
reasonable consumers like Plaintiff and the other Class members.
153.
Samsung breached these warranties, as described in more detail
above. Without limitation, Samsung represents that the Galaxy S7s are water
resistant and the Galaxy S7s are actually designed in a way that the Galaxy S7s are
not water resistant. The Galaxy S7s are not adequately designed to resist water and
are therefore defectively designed and manufactured, contrary to Samsung’s
representations about its Galaxy S7s. The Galaxy S7s share a common design and
manufacturing defect which can, among other things, allow the water to enter into
the phone and the phone will break.
154. Plaintiffs and the other Class members have had sufficient direct
dealings with either Samsung or its agents to establish privity of contract between
Samsung on one hand, and Plaintiffs and each of the other Class members on the
other hand. Nonetheless, privity is not required here because Plaintiffs and each of
the other Class members are intended third-party beneficiaries of contracts between
Samsung and its dealers, and specifically, of Samsung’s implied warranties. The
dealers were not intended to be the ultimate consumers of the Galaxy S7s and have
no rights under the warranty agreements provided with the Galaxy S7s; the
warranty agreements were designed for and intended to benefit the consumers only.
155. Samsung failed to cure its breach of written warranties when Plaintiff
attempted to file a warranty claim with Samsung.
156. Affording Samsung a reasonable opportunity to cure its breach of
written warranties would be unnecessary and futile here.
157. At the time of sale or lease of each Galaxy S7, Samsung knew, should
have known, or was reckless in not knowing of its misrepresentations and
omissions concerning the Galaxy S7s inability to perform as warranted, but
nonetheless failed to rectify the situation and/or disclose the defective design.
Under the circumstances, the remedies available under any informal settlement
procedure would be inadequate and any requirement that Plaintiffs resort to an
informal dispute resolution procedure and/or afford Samsung a reasonable
opportunity to cure its breach of warranties is excused and thereby deemed
satisfied.
158. Plaintiffs and the other Class members would suffer economic
hardship if they returned their Galaxy S7s but did not receive the return of all
payments made by them. Because Samsung is refusing to acknowledge any
revocation of acceptance and return immediately any payments made, Plaintiffs and
the other Class members have not re-accepted their Galaxy S7s by retaining them.
159. The amount in controversy of Plaintiffs’ individual claims meets or
exceeds the sum of $25. The amount in controversy of this action exceeds the sum
of $5,000,000, exclusive of interest and costs, computed on the basis of all claims
to be determined in this lawsuit.
160. Plaintiff, individually and on behalf of the other Class members, seek
all damages permitted by law, including diminution in value of the Galaxy S7s, in
an amount to be proven at trial.
SEVENTH CLAIM FOR RELIEF
(Fraud)
(On behalf of Plaintiff and the Classes)
161. Plaintiff re-alleges and incorporates by reference all paragraphs set
forth above.
162. Samsung’s conduct as alleged herein constituted representations of
material fact.
163. Samsung’s representations about that the Galaxy S7 phone was water
resistant were false.
164. Samsung knew the representations were false.
165. Samsung intended for Plaintiff and the Class to rely on those
representations.
166. Plaintiff and the Class did rely on those representations.
167. Plaintiff and the Class were directly and proximately harmed by
suffering the loss of money through making purchases that they would not have
made, or they would have paid significantly less for them, in the absence of such
conduct.
168. Samsung’s conduct as alleged herein constitutes oppression, fraud,
and/or malice such that Samsung is liable for punitive damages.
EIGHTH CAUSE OF ACTION
BREACH OF EXPRESS WARRANTY
(On behalf of Plaintiff and the Classes)
169. Plaintiff hereby realleges and incorporates by reference each and every
allegation set forth above, as if fully set forth in detail herein.
170. Samsung expressly warranted to Plaintiff through advertisements,
marketing, and/or promotional materials that the Galaxy S7 was water resistant.
171. These express warranties induced Plaintiff to purchase and use the
Galaxy S7.
172. These express warranties were both directly and indirectly believed
and relied upon by Plaintiff, and induced Plaintiff to choose the Galaxy S7.
173. Samsung breached the aforesaid warranties when Plaintiffs made a
warranty claim for his Galaxy S7 having water damage when it was purportedly
water resistant, and Samsung failed to honor the warranty when it failed to replace
his Galaxy S7 at no cost to him.
174. The failure of the Galaxy S7 to be water resistant, as represented by
Samsung, caused Plaintiff to suffer the damages hereinabove set forth.
NINTH CLAIM FOR RELIEF
(Unjust Enrichment)
(On behalf of Plaintiff and the Classes)
175. Plaintiff incorporates the above allegations by reference.
176. Plaintiff brings this cause of action on behalf of the Classes.
177. Plaintiff and Class members conferred a benefit on Samsung by
purchasing Galaxy S7 Phones.
178. The Galaxy S7 Phones Plaintiff and Class members purchased did not
possess the water-resistant qualities Samsung represented they possessed. Contrary
to Samsung’s representations, the Galaxy S7 Phones are not water resistant.
179. Purchasers of Galaxy S7 Phones are not provided with water-resistant
phones even after the phones are damaged or disabled.
180. Under these circumstances, retention by Samsung of revenues from the
Galaxy S7 Phones is unjust and inequitable.
181. Plaintiff and Class members are entitled to restitution of their losses.
182. Samsung should be required to disgorge its ill-gotten gains.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, on behalf of themselves and the members of the
Proposed Classes, demand judgment as follows:
A.
For an order certifying the proposed class pursuant to Rule 23 of the
Federal Rules of Civil Procedure, appointing Plaintiff and his counsel to represent
the proposed class, appointing counsel for Plaintiff as lead counsel for the
respective class;
B.
An order awarding declaratory relief and temporarily and permanently
enjoining Defendant from continuing the unlawful, deceptive, fraudulent, and
unfair business practices alleged in this Complaint;
C.
Appropriate injunctive relief;
D.
A declaration that Defendant is financially responsible for all Class
notice and the administration of Class relief;
E.
Expressly disclaiming any and all damages pursuant to Cal. Civ. Code.
1750 et seq., that the Court enter judgment against Defendant for restitution,
disgorgement, punitive damages, statutory damages, treble damages, and exemplary
damages under applicable law, and compensatory damages for economic loss,
diminished value, and out-of-pocket costs in an amount to be determined at trial.
F.
An order awarding any applicable statutory and civil penalties;
G.
An order requiring Defendant to pay both pre- and post-judgment
interest on any amounts awarded;
H.
An award of costs, expenses, and attorneys’ fees as permitted by law;
and
I.
Such other or further relief as the Court may deem appropriate, just,
and proper under the circumstances.
JURY DEMAND
WHEREFORE, Plaintiff demands a trial by jury on all issues so triable as a
matter of right.
Dated: February 5, 2018
By: /s/ Francis J. “Casey” Flynn, Jr.
Francis J. “Casey” Flynn, Jr.
LAW OFFICE OF FRANCIS J. FLYNN, JR.
(seeking admission pro hac vice)
CA State Bar No. 304712
6220 W 3rd St # 415
Los Angeles, CA 90036
Telephone: 314-662-2836
Email: francisflynn@gmail.com
James Rosemergy
Carey, Danis & Lowe
8235 Forsyth Boulevard, Suite 1100
Saint Louis, Missouri 63105-1643
Tele: 314-725-7700
Email: jrosemergy@careydanis.com
ATTORNEYS FOR PLAINTIFFS AND
THE PROPOSED CLASSES
| products liability and mass tort |
ANxnEIcBD5gMZwczp78O | TRINETTE G. KENT (State Bar No. 222020)
10645 North Tatum Blvd., Suite 200-192
Phoenix, AZ 85028
Telephone: (480) 247-9644
Facsimile: (480) 717-4781
E-mail: tkent@lemberglaw.com
Sergei Lemberg (phv application to follow) (CT Bar. No. 425027)
Stephen Taylor (phv application to follow) (CT Bar No. 428505)
Lemberg Law LLC
43 Danbury Road
Wilton, CT 06897
Telephone: (203) 653-2250
Facsimile: (203) 653-3424
E-mail: slemberg@lemberglaw.com
E-mail: staylor@lemberglaw.com
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF CALIFORNIA
Cory Larson, on behalf of himself and all
others similarly situated,
Plaintiff,
vs.
Harman-Management Corporation; and
3Seventy, Inc.,
Case No.: _________________
CLASS ACTION COMPLAINT FOR
DAMAGES AND INJUNCTIVE
RELIEF FOR VIOLATION OF THE
TELEPHONE CONSUMER
PROTECTION ACT, 47 U.S.C. § 227,
ET SEQ.
JURY TRIAL DEMANDED
Defendants.
For his Class Action Complaint, Plaintiff, Cory Larson, by and through his
undersigned counsel, pleading on his own behalf and on behalf of all others similarly
situated, states as follows:
INTRODUCTION
1.
Plaintiff, Cory Larson (“Plaintiff”), brings this class action for damages
resulting from the illegal actions of Harman-Management Corporation (“Harman” or
“Defendant”). Defendants sent unauthorized text messages to Plaintiff’s cellular phone
in violation of the Telephone Consumer Protection Act, 47 U.S.C. § 227, et seq. (the
“TCPA”).
2.
Wireless spam is a growing problem in the United States. In April 2012,
the Pew Research Center found that 69% of texters reported receiving unwanted spam
text messages, while 25% reported receiving spam texts weekly.
http://www.pewinternet.org/fact-sheets/mobile-technology-fact-sheet/ (last visited
February 9, 2016); see also Nicole Perlroth, Spam Invades a Last Refuge, the
Cellphone, N.Y.Times, April 8, 2012, at A1 (“In the United States, consumers received
roughly 4.5 billion spam texts [in 2011], more than double the 2.2 billion received in
2009 . . . .”).
3.
Harman is a nationwide franchisee of several fast-food restaurant chains
including KFC, Taco Bell, Pizza Hut and A&W Restaurants. In a combined effort
with 3Seventy, Inc. (“3Seventy” and with Harman “Defendants”) to market its
restaurants’ products, Harman established a coupon program whereby Defendants sent
automated text messages to consumers offering discounted or free food items.
4.
Defendants sent Plaintiff and other consumers its automated telemarketing
text messages without obtaining clear and conspicuous prior express written consent as
required by the TCPA.
JURISDICTION AND VENUE
5.
This Court has original jurisdiction over this matter pursuant to 28 U.S.C.
§ 1331. Mims v. Arrow Fin. Serv., LLC, 132 S. Ct. 740, 751-53 (2012).
6.
Venue is proper in this District pursuant to 28 U.S.C. § 1391, because a
substantial part of the events giving rise to the claim occurred in this District.
PARTIES
7.
Plaintiff is, and at all times mentioned herein was, an adult individual
residing in Fresno, California, and is a “person” as defined by 47 U.S.C. § 153(39).
8.
Harman is a Utah business entity with an address of 199 First Street, Suite
212, Los Altos, California 94022, and is a “person” as defined by 47 U.S.C. § 153(39).
9.
3Seventy is a Delaware business entity with an address of 2224 Walsh
Tarlton Lane, Suite 220, Austin, Texas 78746, and is a “person” as defined by 47
U.S.C. § 153(39).
THE TELEPHONE CONSUMER PROTECTION ACT OF 1991
10.
The TCPA regulates, among other things, the use of automated telephone
dialing systems (“ATDS”).
11.
Specifically, 47 U.S.C. § 227(b)(1)(A)(iii) prohibits any call using an
ATDS to a cellular phone without prior express consent by the person being called,
unless the call is for emergency purposes.
12.
47 U.S.C. § 227(a)(1) defines an ATDS as equipment having 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.
13.
“Prior express written consent” is required before making automated
telemarketing calls, meaning there must be a written agreement, signed by the person
receiving the call or text, with a “clear and conspicuous disclosure” that specifically
authorizes the seller to send telemarketing communications using an automatic
telephone dialing system or an artificial or prerecorded voice. 47 C.F.R. § 64.1200.
14.
The FCC has clarified that text messages qualify as “calls” under the
TCPA:
We affirm that under the TCPA, it is unlawful to make any call using an
automatic telephone dialing system or an artificial or prerecorded message to
any wireless telephone number. Both the statute and our rules prohibit these
calls, with limited exceptions, “to any telephone number assigned to a paging
service, cellular telephone service, specialized mobile radio service, or other
common carrier service, or any service for which the party is charged.” This
encompasses both voice calls and text calls to wireless numbers including, for
example, short message service (SMS) calls, provided the call is made to a
telephone number assigned to such service.
In re Rules and Regulations Implementing the Telephone Consumer Protection Act of
1991, Report and Order, 18 FCC Rcd. 14014, 14115 (July 3, 2003); see Satterfield v.
Simon & Schuster, Inc., 569 F.3d 946, 953 (9th Cir. 2009).
ALLEGATIONS APPLICABLE TO ALL COUNTS
15.
In 2012, Harman and 3Seventy set out on a telemarketing campaign to
send consumers coupons for Harman restaurant food items via automated text
messages.1
16.
Defendants placed text messages to the Plaintiff’s cellular telephone from
number 70626, an abbreviated telephone number known as an SMS short code licensed
and operated by Harman or 3Seventy.
17.
At all times referenced herein, Harman acted through and with 3Seventy
to send marketing text messages.
18.
Defendants’ first text message to Plaintiff was in response to Plaintiff
text-messaging the word “BURGER” to number 70626. Plaintiff had texted
“BURGER” to the 70626 number to obtain a free A&W Papa Burger Single as part of
Defendants’ promotional campaign.
1 See Carrie Chitsey, A&W Burger Franchise Delivers Tasty Mobile Deals with
SMS Marketing from 3Seventy, prweb (June 28, 2012),
http://www.prweb.com/releases/2012/6/prweb9638487.htm.
19.
However, unbeknownst to the Plaintiff, and undisclosed by the
Defendants, Defendants’ captured Plaintiff’s telephone number, and thereafter sent him
multiple unprompted and uninvited automated text promotions related to A&W
Restaurant food items.
20.
Plaintiff continued to receive Defendants’ automated text messages
through February of 2016.
21.
Defendants’ text messages received by Plaintiff were fully automated.
The content of the messages received by Plaintiff was not individualized to Plaintiff in
any way. The exact same messages were automatically sent to thousands of consumers
as a part of the pre-planned telemarketing campaign between Harman and 3Seventy.
22.
Plaintiff texting “BURGER” to Defendants did not provide Defendants
prior express written consent to send Plaintiff automated calls as required by the
TCPA. Plaintiff was not given clear and conspicuous disclosure that he was
consenting to receive fully automated text messages to his cellular phone for years in
the future.
23.
The text messages sent to Plaintiff’s cellular phone were made with an
ATDS as defined by 47 U.S.C. § 227(a)(1). The ATDS has the capacity to store or
produce telephone numbers to be called, using a random or sequential number
generator.
24.
The telephone number messaged by Defendants was assigned to a cellular
telephone service for which Plaintiff incurs charges for incoming messages pursuant to
47 U.S.C. § 227(b)(1).
25.
The messages from Defendants to Plaintiff were not placed for
“emergency purposes” as defined by 47 U.S.C. § 227(b)(1)(A)(i).
CLASS ACTION ALLEGATIONS
A. The Class
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 class (the “Class”):
All persons within the United States to whom Defendants sent a
telemarketing text message using an ATDS without said person’s
prior express written consent.
28.
Defendants 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 tens of 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
29.
Upon information and belief, Defendants have sent automated
telemarketing text messages to cellular telephone numbers belonging to thousands of
consumers throughout the United States without their prior express written consent.
The members of the Class, therefore, are believed to be so numerous that joinder of all
members is impracticable.
30.
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
31.
There are questions of law and fact common to the Classes that
predominate over any questions affecting only individual Class members. These
questions include:
a. Whether Defendants sent non-emergency text messages to Plaintiff
and Class members’ cellular telephones using an ATDS;
b. Whether Defendants’ text messages were sent for telemarketing
purposes;
c. Whether Defendants can meet their burden of showing they
obtained prior express written consent to send each message;
d. Whether Defendants’ conduct was knowing and/or willful;
e. Whether Defendants are liable for damages, and the amount of
such damages; and
f. Whether Defendants should be enjoined from such conduct in the
future.
32.
The common questions in this case are capable of having common
answers. If Plaintiff’s claim that Defendants routinely send automated text messages
to telephone numbers assigned to cellular telephone services without prior express
written consent is accurate, Plaintiff and the Class members will have identical claims
capable of being efficiently adjudicated and administered in this case.
D. Typicality
33.
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
34.
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
35.
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 Defendants is small because it is not
economically feasible for Class members to bring individual actions.
36.
Management of this class action is unlikely to present any difficulties.
Several courts have certified classes in TCPA actions. These cases include, but are not
limited to: Mitchem v. Ill. Collection Serv., 271 F.R.D. 617 (N.D. Ill. 2011); Sadowski
v. Med1 Online, LLC, 2008 WL 2224892 (N.D. Ill., May 27, 2008); CE Design Ltd. V.
Cy’s Crabhouse North, Inc., 259 F.R.D. 135 (N.D. Ill. 2009); Lo v. Oxnard European
Motors, LLC, 2012 WL 1932283 (S.D. Cal., May 29, 2012).
COUNT I
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.
Defendants sent multiple automated text messages to cellular numbers
belonging to Plaintiff and the other members of the Class without their prior express
written consent.
39.
Each of the aforementioned messages by Defendants constitutes a
violation of the TCPA.
40.
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)(B).
41.
Additionally, Plaintiff and the Classes are entitled to and seek injunctive
relief prohibiting such conduct by Defendants in the future.
42.
Plaintiff and Class members are also entitled to and do seek a declaration
Defendants violated the TCPA;
Defendants used an ATDS; and
Defendants placed calls to the Plaintiff and the Class without prior
express written consent.
COUNT II
Knowing and/or Willful Violations of the
Telephone Consumer Protection Act,
47 U.S.C. § 227, et seq.
43.
Plaintiff repeats and realleges the above paragraphs of this Complaint and
incorporates them herein by reference.
44.
Defendants knowingly and/or willfully sent multiple automated text
messages to cellular numbers belonging to Plaintiff and the other members of the Class
without their prior express consent.
45.
Each of the aforementioned messages by Defendants constitutes a
knowing and/or willful violation of the TCPA.
46.
As a result of Defendants’ knowing and/or willful violations of the TCPA,
Plaintiff and the Classes are entitled to an award of treble damages up to $1,500.00 for
each call in violation of the TCPA pursuant to 47 U.S.C. § 227(b)(3)(B) and 47 U.S.C.
§ 227(b)(3)(C).
47.
Additionally, Plaintiff and the Classes are entitled to and seek injunctive
relief prohibiting such conduct by Defendants in the future.
48.
Plaintiff and TCPA Class members are also entitled to and do seek a
declaration that:
Defendants knowingly and/or willfully violated the TCPA;
Defendants knowingly and/or willfully used ATDS on calls to Plaintiff
and the Class;
Defendants knowingly and/or willfully obtained the telephone numbers of
non-debtors;
Defendants willfully placed automated calls to non-customers such as
Plaintiff and the Class, knowing it did not have prior express consent to do
so; and
It is Defendants’ practice and history to place automated telephone calls to
non-consumers without their prior express consent.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays that the Court grant Plaintiff and the Class
the following relief against Defendants as follows:
1. Injunctive relief prohibiting such violations of the TCPA by Defendants
in the future;
2. 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);
3. 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);
4. An award of attorneys’ fees and costs to counsel for Plaintiff and the
Classes; and
5. Such other relief as the Court deems just and proper.
TRIAL BY JURY DEMANDED ON ALL COUNTS
DATED: February 17, 2016
Respectfully submitted,
By: /s/ Trinette Kent
Trinette Kent, Esq. (Bar No. 222020)
Lemberg Law, LLC
Attorney for Plaintiff, Cory Larson
| privacy |
lOacEYcBD5gMZwczEXR5 | GENOVA, BURNS & VERNOIA
Francis J. Vernoia (FV8880)
354 Eisenhower Parkway
Eisenhower Plaza II
Livingston, New Jersey 07039
(973) 533-0777
SCHOENGOLD SPORN LAITMAN
& LOMETTI, P.C.
Samuel P. Sporn
Ashley Kim
19 Fulton Street, Suite 406
New York, New York 10038
(212) 964-0046
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
------------------------------)
JOHN M. DEWEY, PATRICK
)
DEMARTINO, PATRICIA ROMEO,
)
On Behalf of Themselves and )
All Others Similarly Situated,)
CIVIL ACTION NO.
)
Plaintiffs,
)
)
CLASS ACTION COMPLAINT
vs.
)
)
VOLKSWAGEN OF AMERICA, INC.
)
JURY TRIAL DEMANDED
and VOLKSWAGEN OF AMERICA,
)
INC. d/b/a AUDI OF AMERICA, )
INC.
)
)
Defendants.
)
------------------------------)
Plaintiffs John M. Dewey, Patrick DeMartino and Patricia
Romeo (collectively, “Plaintiffs”), on behalf of themselves and
all others similarly situated, by their attorneys, Schoengold
Sporn Laitman & Lometti, P.C., for their class action complaint
against defendants Volkswagen of America Inc., Volkswagen of
America, Inc. d/b/a Audi of America, Inc.(“Defendants” or
“Volkswagen”),
allege
as
follows,
upon
knowledge
as
to
themselves and upon information and belief based upon review and
analysis of the owner’s manual, maintenance booklet, marketing
brochures, and consultations with experts, information readily
available on the Internet, and other facts as set forth herein.
NATURE OF THE ACTION AND BACKGROUND
This action alleges violations of the Section 56 of the
Consumer Fraud Act of New Jersey (N.J.S.A. 56:8-1, et seq.),
(“CFA”), Sections 2-313 (express warranty), 2-314 (implied
warranty
of
merchantability)
of
the
New
Jersey
Uniform
Commercial
Code
(“UCC”),
common
law
fraud,
negligent
misrepresentation and unjust enrichment in connection with
Defendants’
design,
manufacturing,
marketing,
sale
and
distribution of defectively designed vehicles despite their
knowledge of the problems. The action is brought by Plaintiffs
individually and on behalf of all those persons who currently
own or lease, or who has owned or leased, any Volkswagen Passat
or Jetta (model years 1998 through and including 2006) or Audi
(model years 1997 through and including 2006) (the “Class
Vehicles”).
1.
The Class Vehicles suffer from two distinct and
serious latent design defects. The first is a defect in design
of the pollen filter gasket area (“Pollen Filter Defect”). The
second is a defect in design of the sunroof drain (“Sunroof
Drain Defect”). Both defects cause, inter alia, serious
flooding in the body of the car which significantly impairs the
safety, usability and the value as well as causing damages to
the of the Class Vehicles. Despite their longstanding knowledge
of the problems, Defendants failed to warn and disclose to the
consumers that the vehicles were predisposed to flooding that
would lead to serious and dangerous damage to the major
electrical components which caused the motor to either non-
function
or
malfunction.
Furthermore,
Plaintiffs’
use
and
enjoyment of their vehicles were impaired due to Defendants’
failure to warn of the design defects and Defendants’ failure to
properly and adequately set forth proper maintenance guidelines.
More specifically, the design defects are as follows:
Pollen Filter Defect
2.
The drain hole in the lowest part in the center of the
cowl area (the “plenum drain”) -- which is located on the right
side in plenum chamber that also houses the battery, Engine
Control Module (the “ECM”) and the pollen filter gasket -- is
too small and gets easily clogged with debris and fails to drain
properly. As a result, after some rainfall, a pool of water
develops in the cowl area and the water has no place but the
pollen filter to back up into. Rather than deflect water, the
defectively designed pollen filter sealed with a porous foam
like material lets gallons of water seep right in, past the foam
padding and carpeting, causing a flood in the interior of the
vehicle.
Sunroof Drain Defect
3.
The drain holes on the sunroof tray (the “sunroof
drain”) are connected to the drain tubes that run through the A
and C pillars, which support the roof on either side of the
windshield. However, the drain holes are small and prone to
clogging from accumulation of dust, leaves, and other ordinary
environmental debris. When the water does not properly drain
out of the tube, the water backs up into the sunroof tray and
overflows into the car from the driver’s (right) side of the “A”
pillar which houses the drain.
Damages from Design Defects
4.
The defectively designed pollen filter and the sunroof
drain led to irreparable damage to major electrical components
in the Class Vehicles. The Transmission Control Module (the
“TCM”) is located in a sump or footwell on the front or right
passenger side under the carpeting and matting and gets
submerged in water and becomes susceptible to corrosion and
breakdown when the pollen filter leaks. Similarly, the Climate
Control Module (the “CCM”), located under the driver’s seat is
damaged when the sunroof drain leaks. The soaked interior
becomes extremely difficult to dry properly and is often prone
to hazardous mold and odor, even after several detailed
cleaning. Further, damage to the electrical components creates
a serious safety concern to both the class vehicle occupants and
the public. In fact, Volkswagen recognized this and admits in
its owner’s manual [i.e, 2002 Passat “Tips and Advice –
operating your vehicle the right way”] that “[t]he engine
compartment of any motor vehicle is a potentially hazardous
area.”
5.
Volkswagen knew of the Pollen Filter Defect and the
Sunroof Drain Defect that were present in every Class Vehicle
and likely to manifest at some future time, along with the
attendant dangerous problems, from many sources, including, but
not limited to its technicians, dealers, and consumers, but they
took no action to adequately warn or remedy the defects, but
instead concealed, suppressed and failed to disclose that the
flooding was caused by the design defects. Despite its
awareness of the defects and their attendant problems evidenced
by, among others, its issuance of the Technical Service
Bulleting and redesign of the pollen filter seal, Volkswagen
continues to fail to warn, or even mention, anything about the
Pollen Filter Defect or the Sunroof Drain Defect through its
agents or in the owner’s manual or any of the marketing
materials.
6.
Unfortunately for Plaintiffs and many members of the
Class, they have or will have learned -- only after a period of
time of driving their Class Vehicles -- that their vehicles
cannot withstand rain and are highly prone to a series of
continued problems associated with Volkswagen’s defective pollen
filter and sunroof drain only after gallons of water have
flooded their cars, causing thousands of dollars in damages and
depriving them of operating use. Smaller, initial leaks --
while still causing the same damages to the vehicles and their
owners (i.e., hazardous mold) -- often can go undetected for
years. And while the damages are caused by Volkswagen’s
defectively designed pollen filter and sunroof drains with lack
of any proper maintenance directives, and numerous class vehicle
owners and/or lessees have requested that Volkswagen remedy
and/or address the design defects and the resultant flooding
problems at no expense, Defendants, by and through their agents,
have failed and/or refused to do so, claiming the water leak was
from an outside foreign influence, and thus not covered under
warranty. Even if Defendants were to cover the damages under
warranty, many Plaintiffs and other members of the Class would
never have discovered the latent design defects until after the
expiration of the limited new vehicle warranty.
7.
Defendants have represented and continue to represent
that
they
manufacture
and/or
sell
safe
and
dependable
automobiles with safety as their first concern: “Plenty of
thought and expertise go into making your Volkswagen a joy to
drive. We want you to be safe, happy and comfortable with your
life on the road.” See http://www.vw.com/.
8.
Defendants have also strongly touted their “expert”
and “inside” knowledge of the Class Vehicles: “Our engineers
spend thousands of hours making sure that all the components in
the vehicle system work together in an optimal way.”
9.
Based on these representations, upon which Plaintiffs
relied, including those contained in the “Owner’s Literature,”
maintenance books, and other marketing materials, Plaintiffs and
other members of the Class leased and/or owned a Class Vehicle,
believing that their automobiles would be safe and reliable.
10.
Class Vehicles pose significant safety risks due to
the design defects and incorrect maintenance directives.
11.
To date, Volkswagen has failed to warn or inform its
consumers of the known design defects, fraudulently concealed
these defects and made misrepresentations to the damage and
detriment of Plaintiffs and the other Class members.
12.
As
a
result
of
Defendants’
omissions
and/or
misrepresentations, owners and/or lessees of Class Vehicles have
suffered ascertainable loss of money and/or property and/or loss
in value.
JURISDICTION AND VENUE
13.
The claims asserted herein arise under and pursuant to
alleged violations of Section 56 of the Consumer Fraud Act of
New Jersey (N.J.S.A. 56:8-1), (“CFA”), Sections 2-313, 2-314 of
the New Jersey Uniform Commercial Code (“UCC”), common law
breaches
of
fraud,
unjust
enrichment
and
negligent
misrepresentation.
The
action
is
brought
by
Plaintiffs
individually and on behalf of all those persons who currently
own or lease, or who has owned or leased, any Volkswagen Passat
or Jetta (model years 1998 through and including 2006) or Audi
(model years 1997 through and including 2006) (the “Class
Vehicles”).
14.
This Court has jurisdiction over the subject matter of
this action pursuant to the Class Action Fairness Act of 2005,
28 U.S.C. §1332, diversity jurisdiction pursuant to 28 U.S.C.
§1332(d)(2) and supplemental jurisdiction pursuant to 28 U.S.C.
§ 1367. Plaintiffs and many other Class members are citizens of
states different than that of one or more Defendants, and the
matter in controversy exceeds the sum of $5,000,000, exclusive
of interests and costs.
15.
Venue is proper in this District pursuant to 28 U.S.C.
§ 1391(b) because Defendants transact business in this District,
are subject to personal jurisdiction in this District, and
therefore are deemed to reside in this District, within this
State. Many of the acts and transactions alleged herein,
including the dissemination of materially false and misleading
material including, inter alia, Owner’s Manual, maintenance
books, other marketing materials, and contract negotiation,
occurred in this District. Additionally, Defendants distribute
and inject vehicles within the stream of commerce into this
district. Defendants, directly and through their agents
regularly transact business and otherwise derive substantial
revenue in New Jersey and the United States.
16.
This Court is appropriate for the litigation of the
claims of all members of the Class because Defendants conduct
substantial and continuous business in this State and New Jersey
is Defendants’ chosen state of incorporation. Defendants
conduct business activities relevant to this action and no other
state’s governmental policies or interests with the litigation
outweigh those of this State.
PARTIES
17.
Plaintiff John M. Dewey (“Dewey”) is a resident of
Maryland and owns a 2002 Volkswagen Passat sedan.
18.
In July of 2002, Plaintiff Dewey’s class vehicle
suffered serious and expense damage, including but not limited
to, major electrical components, as a result of the design
defects. Specifically, the rear passenger side floorboard area
was flooded with water after a heavy rainstorm, causing the
vehicle to go into “limp mode” and fail to start. After the
vehicle was towed to the dealership, Plaintiff Dewey was told
that the flooding and the ruining of the TCM was from “clogged
sunroof drains” but that he should also “get the pollen filter
and housing replaced and sealed to insure no further water
leaks.”
19.
As
a
result
of
Defendants’
omissions
and/or
misrepresentations related to the design defects, Plaintiff
Dewey has sustained damages including, but not limited to,
replacement of the TCM, pollen filter and housing gasket,
carpeting, as well as cleaning and finding alternative means of
transportation due to loss of use of the car.
20.
Plaintiff Patrick DeMartino (DeMartino”) is a resident
of New Jersey. Mr. DeMartino owns a 1999 Volkswagen New Passat
GLX.
21.
In
2006,
Plaintiff
DeMartino’s
vehicle
suffered
serious and expense damage, including, but not limited to, a
major electrical component, as a result of the design defects.
Specifically, the TCM was flooded in the rear passenger side.
22.
As
a
result
of
Defendants’
omissions
and/or
misrepresentations related to the design defects, Plaintiff
DeMartino has sustained damages including, but not limited to,
replacement of the TCM, pollen filter and housing gasket,
carpeting, as well as cleaning and finding alternative means of
transportation due to loss of use of the car.
23.
Plaintiff Patricia Romeo (“Ms. Romeo”) is a resident
of New York and owns a 2003 Volkswagen Passat.
24.
In
February
of
2005,
Plaintiff
Romeo’s
vehicle
suffered serious and expense damage, including, but not limited
to, a major electrical component, as a result of the design
defects. Specifically, there was a water leak in the front
passenger footwell. As a result, approximately two gallons of
water accumulation under the front passenger’s side carpet were
removed and a water deflector was installed and pollen filter
was replaced. There has continuously been a heavy musty odor in
the vehicle, especially after rain.
25.
As
a
result
of
Defendants’
omissions
and/or
misrepresentations related to the design defects, Plaintiff
Romeo has sustained damages including, but not limited to,
replacement of the TCM, pollen filter and housing gasket,
carpeting, as well as cleaning and finding alternative means of
transportation due to loss of use of the car.
26.
Defendant Volkswagen of America, Inc. (“VWoA”) is a
New Jersey corporation with its principal place business at 3800
Hamlin Road, Auburn Hills, MI 48326 and, for purposes of 28
U.S.C. '1441(b), is a citizen of New Jersey. Defendant VWoA is
a subsidiary of Volkswagen, A.G. (“VWAG”), a German corporation
headquartered in Wolfsburg, Germany. At all relevant times,
Defendant VWoA imported, distributed and sold motor vehicles
including Passat and Jetta, model years 1998 through and
including 2006.
27.
Defendant Volkswagen of America, Inc. d/b/a Audi of
America, Inc. (“Audi”) is a New Jersey corporation with its
principal place business at 3800 Hamlin Road, Auburn Hills, MI
48326 and, for purposes of 28 U.S.C. '1441(b), is a citizen of
New Jersey. Defendant Audi is a division within Defendant VWoA
and is wholly-owned by Volkswagen Beteiligungs Gesellschaft
m.b.H., a German limited liability company wholly-owned by VWAG.
At all relevant times, Defendant Audi imported, distributed and
sold Audi motor vehicles, model years 1997 through and including
2006.
28.
VWAG owns 99.01% of AUDI AG (“AUDI AG”), a German
corporation,
which
designed
and/or
manufactured
the
Class
Vehicles. The design features in the Class Vehicles are
substantially similar.
29.
Defendants VWOA and Audi are collectively referred to
herein as “Volkswagen” or “Defendants.”
PLAINTIFFS’ CLASS ACTION ALLEGATIONS
30.
Plaintiffs bring this action as a class action
pursuant to Federal Rules of Civil Procedure 23(b)(3) on behalf
of themselves and all members of the proposed class defined as
follows: all those persons who currently own or lease, or who
has owned or leased, any Volkswagen Passat or Jetta (model years
1998 through and including 2006) or Audi (model years 1997
through and including 2006) (the “Class Vehicles”). Excluded
from the Class are claims for personal injury by members of the
Class. Also excluded from the Class are Defendants, their
parents, subsidiaries, affiliates, agents and representatives,
including their registered dealers and their officers and
directors 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 proposed 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 Class Vehicles
have been sold and leased in the United States. Class members
may be identified through discovery from records maintained by
Defendants.
32.
Plaintiffs’ claims are typical of the claims of the
Class, as all Class members were and are similarly affected by
Volkswagen’s wrongful conduct in violations of the CFA, UCC and
common laws that are complained of herein. Plaintiffs and each
of the Class members leased and/or owned Class Vehicles, which
are subject to the flooding and resultant problems as a result
of the design defects in the pollen filter and the sunroof
drain. Defendants knowingly concealed, suppressed, and/or
fraudulently misrepresented/omitted the design defects, with the
intent that Plaintiffs and other Class members rely thereon.
Plaintiffs
and
the
other
Class
members
have
sustained
substantial damages, resulting from Defendants’ omissions and/or
misrepresentations related to the design defects.
33.
Plaintiffs will fairly and adequately represent and
protect the interests of the other Class members and have
retained counsel competent and experienced in class action and
consumer fraud litigation. Plaintiffs and their counsel are
aware of no conflicts of interest between Plaintiffs and the
other members of the Class.
34.
Common questions of law and fact exist as to all Class
members and predominate over any questions solely affecting
individual Class members. Among the questions of law and fact
common to the Class are:
(a)
whether the Class Vehicles were designed with
defects in the pollen filter and the sunroof drain;
(b)
whether the Class Vehicles are predisposed to
flooding, as a result of the design defects;
(c)
whether
the
Class
Vehicles
sustained
damage
directly or indirectly from the design defects;
(d)
whether the design defects and/or inadequate
maintenance recommendations cause significant safety risks;
(e)
whether Defendants knowingly failed to disclose
and warn of the design defects with the intent that others rely
upon such concealment, suppression or omission;
(f)
whether Defendants misrepresented the cause of
the flooding problems in Class Vehicles;
(g)
whether
Defendants
used
or
employed
unconscionable commercial practices in connection with the sale
or lease of Class Vehicles;
(h)
whether Plaintiffs and members of the Class are
entitled
to
entry
of
final
injunctive
relief
compelling
Defendants to recall, inspect and, as necessary, effectively
repair and/or replace the design defects and the resultant
problems from flooding in Class Vehicles;
(i)
whether Plaintiffs and members of the Class are
entitled
to
entry
of
final
injunctive
relief
compelling
Defendants to fully and adequately inform consumers of the
design defects and/or inadequate maintenance recommendations;
(j)
whether Plaintiffs and members of the Class are
entitled to actual damages representing the ascertainable loss
of money and/or property and/or value that have been and/or will
be suffered by Plaintiffs and members of the Class as a result
of the design defects;
(k)
whether
Defendants
breached
their
implied
warranties in that the Class Vehicles were defectively designed
with respect to the pollen filter and the sunroof drain;
(l)
whether
Defendants
breached
their
implied
warranties in that the Class Vehicles were accompanied by an
owner’s
manual
that
incorporated
inadequate
maintenance
specifications;
(m)
whether
Defendants
breached
their
express
warranties in that the Class Vehicles were defectively designed
with respect to the pollen filter and the sunroof drain;
(n)
whether
Defendants
breached
their
express
warranties in that the Class Vehicles were accompanied by an
owner’s
manual
that
incorporated
inadequate
maintenance
specifications;
(o)
whether Defendants intentionally or negligently
misrepresented material facts concerning the design defects in
the Class Vehicles;
(p)
whether Defendants were unjustly enriched by
their misrepresentations, fraud and breaches of warranty;
(q)
whether Class members are entitled to monetary
damages and injunctive relief;
(r)
whether the Court should establish a constructive
trust funded by the benefits conferred upon the Defendants by
their wrongful and unlawful conduct;
(s)
whether the CFA, the UCC and the common laws were
violated by Volkswagen’s conduct as alleged herein;
(t)
whether
statements
made
by
Volkswagen
to
Plaintiffs and the Class members in its documents (i.e., owner’s
manuals, maintenance books, marketing brochures and materials)
were materially false and misleading in that: the pollen filter
and sunroof drain were defective by design;
(u)
whether
Defendants
had
a
duty
to
disclose
material facts concerning the serious problems that would
inevitably result from its inherently defective design in the
pollen filter and sunroof drain to their consumers;
(v)
whether
Defendants
should
be
enjoined
from
engaging in such practices with respect to the Class Vehicles
with defective pollen filter and sunroof drain, known by them to
cause serious problems;
(w)
whether Defendants should have a maintenance
directive on checking the drains in the pollen filter and
sunroof drain areas for clogs as part of its recommended
scheduled maintenance service;
(x)
to what extent the Class has sustained damages;
(y)
to what extent Defendants should be held to
account for its wrongful conduct.
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.
Given the common design defects present in all Class Vehicles,
and the uniform misrepresentations and omissions not disclosed
to the Class, Plaintiffs are not aware of any difficulties in
managing the action as a class action
36.
The prosecution of separate actions can create a risk
of inconsistent or varying adjudications with respect to
individual
members
of
the
Class
which
could
establish
incompatible standards of conduct for Defendants. 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.
FACTUAL ALLEGATIONS
37.
Volkswagen is the manufacturer of Audi, Jetta and
Passat cars. As a result, there is frequent overlap in the
design features of these different vehicles. The Audi vehicles,
beginning with model year 1997, and Jetta and Passat vehicles,
beginning with model year 1998, all have a number of common
design features including, the pollen filter plenum drain and
the sunroof drain. Both of these designs were fundamentally
flawed and predisposed the vehicles to flooding and a series of
other related problems. Moreover, these vehicles also have in
common the placement of two major electrical components, the ECM
and the TCM, in the front seating area, unprotected from
flooding.
A.
Pollen Filter Defect
1.
Description of Pollen Filter Defect
38.
The pollen filter -- also known as cabin air filter,
passenger compartment filter, or dust filter -- functions to
clean and filter out the outside impurities (i.e., pollen,
exhaust soot, bacteria, insecticides and mold spore) that are
sucked into the car like a vacuum. In all Volkswagen vehicles,
the
pollen
filter
is
located
under
the
hood
on
the
right/passenger side of the cabin, under the vehicle.
39.
The drain hole in the lowest part in the center of the
cowl area -- which is located on the right side in the plenum
chamber that also houses the battery, ECM and the pollen filter
gasket -- is too small and gets clogged with debris over time
and fails to drain properly, causing the water to back up
through the pollen filter that is sealed by a porous foam like
material. As a result, after some rainfall, a pool of water
develops in the cowl area and the water has no place but the
pollen filter to back up into. Rather than deflect water, the
defectively designed pollen filter lets water to seep right in,
past the foam padding and carpeting, causing a flood. This is
further exacerbated by the fact that the TCM is placed on the
passenger side of the footwell and gets submerged in water and
becomes susceptible to corrosion and breakdown.
2.
Damages Resulting from the Pollen Filter Design
Flaw
40.
As a result of the flooding problems from the
defectively designed pollen filter, Plaintiffs and the Class
have or will suffer significant damages, including irreparable
damage to a major electrical component known as the TCM,
replacement of the pollen filter and housing gasket, carpeting,
as well as finding alternative means of transportation due to
loss of use of the car. Furthermore, the soaked interior
becomes extremely difficult to dry properly and is often prone
to the hazardous mold and odor, even after several detailed
cleanings. In addition, the resultant damage to the TCM can
cause the engine to shut off, creating a serious safety concern
to both the class vehicle occupants and the public.
41.
Unfortunately for Plaintiffs and Class, they have or
will have learned -- usually after several years of driving
their Class Vehicles -- that their vehicles are not protected
from the elements and are highly prone to a series of problems
associated
with
Volkswagen’s
defective
pollen
filter
and
improper maintenance directives only after gallons of water have
flooded the interior of their cars, causing thousands of dollars
in actual damages alone. Smaller, initial leaks -- while still
causing damages to the vehicles and their owners (i.e.,
hazardous mold) -- often can go undetected for years. And while
the damages are caused by Volkswagen’s defectively designed
pollen filter. Even if Defendants covered the damages under
warranty, many Plaintiffs and other members of the Class would
not
discover
this
latent
design
defect
until
after
the
expiration of the limited new vehicle warranty.
3.
Defendants’ Knowledge of the Pollen Filter Defect
42.
Defendants were well aware of the pollen filter design
flaw which predisposed the Class Vehicles to flooding and its
related ensuing problems from many sources, including, but not
limited to its technicians, dealers, and consumers, they took no
action to adequately warn or remedy the defect, but instead
concealed, suppressed and failed to disclose that the flooding
was caused by the design defect in the pollen filter. For
example, in a Technical Service Bulletin (“TSB”) issued in 2004,
Volkswagen notifies its technicians that “[v]ehicle footwell
carpet is wet after heavy rain. May be caused by water entering
interior due to damaged Pollen filter housing seal or debris
plenum drain” and recommends removing the pollen filter housing
and inspecting “for evidence of water ingress” and “water seal
for damage and proper positioning.” The TSB further mentions
checking and removing any debris in the “plenum drain (under
battery) and area near drain,” and removing “any debris from
plenum and ensure drain under battery for plenum is open.”
Despite its knowledge of the plenum drain’s predisposition to
getting clogged and causing floods, Volkswagen informs its
agents that cleaning of the plenum is not mandatory: “Debris in
plenum drain is considered outside influence and cleaning is not
covered under the New Vehicle Limited Warranty.” In addition,
Volkswagen redesigned the pollen filter seal from the defective
porous rubber foam like material to airtight seal in 2005, but
failed and/or neglected to warn of and cure the existing Pollen
Filter Defect. Volkswagen’s knowledge of the pollen filter
defect is further evidenced by the fact that the customers are
often told by Volkswagen technicians/mechanics that the flooding
was caused by the leak in the sunroof drain, but that as a
precaution, the pollen filer seal has also been replaced.
43.
To the detriment of its consumers, Volkswagen failed
to and continues to fail to warn, or even mention, anything
about the pollen filter in the owner’s manual or any of the
maintenance books to prevent the flooding and the resulting
damages.
44.
Defendants have fraudulently concealed the pollen
filter design defect and continue to make misrepresentations to
the damage and detriment of Plaintiffs and the other Class
members.
As
a
result
of
Defendants’
omissions
and/or
misrepresentations, owners and/or lessees of Class Vehicles have
suffered substantial damages.
B.
Sunroof Drain Defect
1.
Description of Sunroof Defect
45.
The sunroof opens to the air to allow the sun to shine
directly into the vehicle. The sunroof tray catches any water
(i.e, rain or car washes) and its drain tubes carry the water
safely away so that so that it doesn’t enter the car. The
sunroof tray has 4 drain holes in it -- one in each corner,
i.e., front left, front right, rear left and rear right --
connected to the drain tubes that run through the A and C
pillars. The drain holes are small and prone to clogging from
accumulation of dust, leaves, and other ordinary environmental
debris. Moreover, the rear drain holes are covered by the
sunroof and are not easily visible. When the water does not
properly drain out of the tube, the water backs up into the
sunroof tray and overflows into the car from the left/ driver’s
side “A” pillar which houses the drain.
46.
This is further exacerbated by the fact that a major
electrical component known as the CCM is located in the cabin
under the driver’s seat without any insulation from the
flooding.
2.
Damages from the Sunroof Drain Defect
47.
As a result of the flooding problems from the
defectively designed sunroof drain, Plaintiffs and the Class
have or will suffer significant damages, including irreparable
damage to a major electrical component known as the CCM and
carpeting as well as finding alternative means of transportation
due to loss of use of the car. Furthermore, the soaked interior
becomes extremely difficult to dry properly and is often prone
to the hazardous mold and odor, even after several detailed
cleanings. In addition, the resultant damage to the CCM can
cause the engine to shut off, creating a serious safety concern
to both the class vehicle occupants and the public.
48.
Unfortunately for Plaintiffs and Class, they have or
will have learned -- usually after several years of driving
their Class Vehicles -- that their vehicles are not protected
from the elements and are highly prone to a series of problems
associated
with
Volkswagen’s
defective
sunroof
drain
and
improper maintenance directives only after gallons of water have
flooded the interior of their cars, causing thousands of dollars
in actual damages alone. Even if Defendants covered the damages
under warranty, many Plaintiffs and other members of the Class
would not discover this latent design defect until after the
expiration of the limited new vehicle warranty.
3.
Defendants’ Knowledge, Recklessness or Negligence
In Connection With Sunroof Drain Defect.
49.
Defendants were well aware of the sunroof drain design
flaw which predisposed the Class Vehicles to flooding and its
related ensuing problems from many sources, including, but not
limited to its technicians, dealers, and consumers, they took no
action to adequately warn or remedy the Sunroof Drain Defect,
but instead concealed, suppressed and failed to disclose that
the flooding was caused by the design defect in the sunroof
drain.
Despite
its
knowledge
of
the
sunroof
drain’s
predisposition to getting clogged and causing floods, Volkswagen
informed its agents that cleaning of the plenum is not
mandatory: “Debris in plenum drain is considered outside
influence and cleaning is not covered under the New Vehicle
Limited Warranty.” Volkswagen’s knowledge of the sunroof drain
defect is further evidenced by the fact that the customers are
often told by Volkswagen agents, including technicians and
mechanics, that the flooding was caused by the leak in the
sunroof drain and that cuts have been made into the tubes for
drainage.
50.
To the detriment of its consumers, Volkswagen failed
to and continues to fail to warn, or even mention, anything
about the Sunroof Drain Defect in the owner’s manual or any of
the maintenance or marketing materials to prevent flooding and
the resulting damages. Moreover, sunroof drains, especially the
rear drain holes, are covered by the sunroof and are not easily
visible.
51.
Defendants have fraudulently concealed the Sunroof
Drain Defect and continue to make misrepresentations to the
damage and detriment of Plaintiffs and other Class members. As
a result of Defendants’ omissions and/or misrepresentations,
owners and/or lessees of Class Vehicles have suffered or will
suffer substantial damages.
Volkswagen’s Misrepresentations and Omissions
52.
This class action arises from Volkswagen’s deceptive
and unlawful conduct in designing, manufacturing, distributing
and selling defectively designed vehicles without adequate
warnings
or
maintenance
recommendations.
Specifically,
Plaintiffs bring this action individually and on behalf of all
those persons who currently own or lease, or who has owned or
leased, any Volkswagen Passat or Jetta (model years 1998 through
and including 2006) or Audi (model years 1997 through and
including 2006) (the “Class Vehicles”). Each of the Class
members purchased or leased a Volkswagen automobile without any
knowledge of the described inherent design defects. As a result
of
Volkswagen’s
defective
design
and
inadequate
warnings,
countless consumers have suffered and will suffer from water
damages and other associated problems.
53.
Volkswagen has represented and continues to represent
that they manufacture and sell safe and dependable automobiles
with safety as their first concern: “Plenty of thought and
expertise go into making your Volkswagen a joy to drive. We want
you to be safe, happy and comfortable with your life on the
road.” See http://www.vw.com/.
54.
Volkswagen has also strongly touted their “expert” and
“inside” knowledge of the their vehicles that was unique to
them: “Our engineers spend thousands of hours making sure that
all the components in the vehicle system work together in an
optimal way.” Id.
55.
The owner’s manual, i.e, 2002 Passat “Tips and Advice
– operating your vehicle the right way,” specifically states and
touts: “Your vehicle has been designed to help keep maintenance
requirements to a minimum . . . . We strongly urge you to give
your authorized VOLKSWAGEN dealer the opportunity to perform all
scheduled maintenance and necessary repairs. Your dealer has
the facilities, original parts and trained specialists to keep
your vehicle running properly”
56.
The statements set forth in the preceding paragraphs
were materially false and misleading since they clearly conveyed
that the Class Vehicles were safe and reliable and well
maintained by expert technicians who knew the cars inside out.
57.
Plaintiffs and the other Class members have no
knowledge of these defects and their resulting damages until
some time into the ownership or lease, when there are gallons of
water in the car from the pollen filter and/or the sunroof drain
leaks.
58.
In fact, Volkswagen tout and recommend that the “best
protection against environmental influences is frequent washing
and waxing . . . . Under certain circumstances, weekly washing
may be necessary.” (emphasis supplied). See, e.g., 2002 Passat
booklet on “Tips and Advice – operating your vehicle the right
way.”
59.
This language falsely conveys that the Class Vehicles
are safe and able to withstand water.
60.
As stated above, at no time did Defendants notify or
attempt to remedy the Pollen Filter and Sunroof Drain Defects
known to them.
61.
Volkswagen did not fully and truthfully disclose to
its customers the true nature of the inherent design defects,
which were not readily discoverable until years later, often
after the warranty has expired. As a result, Plaintiffs and the
other Class Members were fraudulently induced to lease and or
purchase the Class Vehicles with the said design defects and all
of the resultant problems, which permitted Defendants to amass
enormous ill-gotten profits.
62.
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 Plaintiffs and other Class members. As
described herein, Volkswagen made or caused to be made a series
of materially false or misleading statements about the Class
Vehicles, including lease, purchase and maintenance. These
material misstatements and omissions had the cause and effect of
inducing cautious consumers into leasing and/or purchasing the
Class Vehicles while Volkswagen neglected to warn and remedy the
inherent design defects known to them, thus causing the damages
complained of herein.
Volkswagen’s Fraudulent Concealment
63.
Volkswagen wrongfully and actively concealed from
Plaintiffs and other Class members the true nature of the Class
Vehicles, specifically concerning the pollen filter and sunroof
drains and a series of their attendant problems. Defendants’
misrepresentations
--
to
its
consumers
on
the
websites,
marketing brochures, and via its dealers -- that the Class
Vehicles were safe and reliable precluded Plaintiffs and other
Class members from discovering the nature of the fraud. These
representations were reasonably relied upon by Plaintiffs and
the other Class members to their detriment.
64.
As alleged herein, Plaintiffs have zealously pursued
the uncovering of Volkswagen’s fraud with due diligence as soon
as they learned of the design defects and Volkswagen has not
cured the defects or the damages.
FIRST CLAIM
Violation of the New Jersey Consumer Fraud Act
(N.J.S.A. 56: 8-1 et seq.)
65.
Plaintiffs repeat and reiterate the allegations as set
forth above as if set forth fully herein.
66.
The New Jersey Consumer Fraud Act (N.J.S.A. 56: 8-1)
states:
The act, use or employment by any person of
any
unconscionable
commercial
practice,
deception,
fraud,
false
pretense,
false
promise, misrepresentation, or the knowing
concealment, suppression, or omission of any
material fact with intent that others rely
upon
such
concealment,
suppression
or
omission, in connection with the sale or
advertisement of any merchandise or real
estate, or with the subsequent performance of
such person as aforesaid, whether or not any
person has in fact been misled, deceived or
damaged
thereby,
is
declared
to
be
an
unlawful practice.
67.
As set forth at paragraphs 52- 61 supra, false
representations made by Defendants to Plaintiffs and the other
Class members concerning their Class Vehicles were prepared and
disseminated from New Jersey, including but not limited to all
of the statements made in the owner’s manual, maintenance books,
websites and other public statements.
68.
Plaintiffs’ vehicles, like all Class Vehicles, are
subject to flooding as a result of the design defects.
69.
The flooding problem in Class Vehicles emanates from
the Pollen Filter Defect and/or the Sunroof Drain Defect, common
to all Class Vehicles.
70.
Defendants have known for years about these design
defects.
71.
Defendants
made
the
above-described
misrepresentations, concealment and omissions of material facts
concerning
the
design
defects
with
full
knowledge
or
recklessness that they were false and misleading and with the
intent that their consumers would rely upon such concealment,
suppression and omission.
72.
During all relevant times, Volkswagen engaged in the
following conduct:
a. concealing, suppressing and making fraudulent
and/or
negligent
misrepresentations
concerning
the
design
defects in the Class Vehicles, as herein before alleged.
b.
failing to adequately and properly inform and
warn Plaintiffs and other Class members of the design defects;
c.
failing
to
repair,
replace,
or
reimburse
Plaintiffs and Class members for damages incurred due to said
design defects.
73.
Defendants’ actions, as described above, constitute
unfair and deceptive and/or fraudulent business practices in
violation of the CFA. As a result of Defendants’ actions,
Plaintiffs and other Class members have been injured and damaged
in an amount to be determined at trial.
SECOND CLAIM
Breach of Express Warranty Under the New Jersey Uniform
Commercial Code
74.
Plaintiffs repeat and reiterate the allegations set
forth above as though fully set forth herein.
75.
The Express Warranty provision of the New Jersey
Statute 12A:2-313 provides:
(a)
Any affirmation of fact or promise
made by the seller to the buyer which
relates to the goods and becomes part of
the basis of the bargain creates an
express warranty that the goods shall
conform to the affirmation or promise.
(b) Any description of the goods which is
made part of the basis of the
bargain creates an express warranty that
the
goods
shall
conform
to
the
description.
(c) Any sample or model which is made part
of the basis of the bargain creates an
express warranty that the whole of the
goods shall conform to the sample or
model.
76.
Plaintiffs
and
the
Class
members
leased
and/or
purchased a Class Vehicle from Defendants.
77.
In connection with the lease or sale, Volkswagen,
through
its
authorized
dealers
and
marketing
materials,
expressly warranted to the general public, owners and lessees of
Class Vehicles that the vehicles were merchantable and fit for
the ordinary purposes for which passenger vehicles are used --
that they were safe and reliable. Volkswagen is a merchant with
respect to passenger motor vehicles.
78.
Volkswagen breached this express warranty in that the
Class Vehicles were defectively designed. More specifically,
there are serious latent design defects in the pollen filter
gasket area and the sunroof drain that significantly impair the
safety and the value of the automobiles by causing water to
enter and flood the vehicles. Defendants further breached their
express warranties in that the Class Vehicles were accompanied
by an owner’s manual that incorporated incorrect and incomplete
maintenance specifications. The Class Vehicles were not of
merchantable quality and were unfit for the ordinary purposes
for which passenger vehicles are used because of the design
defects
and
owner’s
manual
that
incorrectly
set
forth
maintenance specifications.
79.
As a result of Volkswagen’s breach of warranties upon
which Plaintiffs reasonably relied, Plaintiffs and the Class
members have sustained financial injury resulting from the
breach by Defendants.
80.
Plaintiffs and Class members could not have reasonably
discovered
the
design
defects
of
the
Class
Vehicles.
Defendants’ breach of their express warranties was the direct
and proximate cause of the Class members’ financial harm.
81.
Volkswagen’s breach also caused the incidental and
consequential damages to Plaintiffs and the Class. Further,
Volkswagen failed to warn of the defects and the associated
problems. Defendants’ conduct was willful, wanton, and reckless.
Based on the intentionally dishonest nature of Volkswagen’s
conduct, which was directed at the Class and at the public
generally, it should be held liable to the Class for actual
damages as well as punitive damages in an amount to be
determined at trial.
THIRD CLAIM
Breach of Implied Warranty Under the New Jersey Uniform
Commercial Code
82.
Plaintiffs repeat and reiterate the allegations set
forth above as though fully set forth herein.
83.
The Implied Warranty provision 12A:2-314 (implied
warranty
of
merchantability)
of
the
New
Jersey
Statute
provides:
(1) Unless excluded or modified (Section 2-316), a
warranty that the goods shall be merchantable is implied in a
contract for their sale if the seller is a merchant with respect
to goods of that kind. Under this section the serving for value
of food or drink to be consumed either on the premises or
elsewhere is a sale.
(2) Goods to be merchantable must be at least such as
(a) pass without objection in the trade
under the contract description; and
(b) in the case of fungible goods, are of
fair average quality within the
description; and
(c) are fit for the ordinary purposes for
which such goods are used;
and
(d) run, within the variations permitted by
kind, quality and quantity within each
unit and among all units involved; and
(e) are adequately contained, packaged, and
labeled as the agreement may require; and
(f) conform to the promises or affirmations
of fact made on the container or label
if any.
(3) Unless excluded or modified (Section 2-316) other
implied warranties may arise from course of
dealing or usage of trade.
84.
Volkswagen was, at all relevant times, a merchant with
respect to the sale and distribution of Volkswagen passenger
motor vehicles. Defendants impliedly warranted to the general
public, owners and lessees of the Class Vehicles that the
vehicles were merchantable and fit for the ordinary purposes for
which the vehicles are used.
85.
Plaintiffs and the Class leased and/or purchased a
Class Vehicle from Volkswagen.
86.
A
warranty
that
the
Class
Vehicles
were
in
merchantable condition was implied by law in the instant action,
pursuant to U.C.C. section 2-314.
87.
Plaintiffs and other Class members never contemplated
that their cars would be unable to withstand water (i.e., rain
or carwash) and eventually become flooded and be subject to the
series of associated problems. Plaintiffs relied on implied
warranties of merchantability made by Defendants concerning the
Class Vehicles and sustained substantial damage resulting from
the breach of those warranties by the Defendants. Plaintiffs
could not have reasonably discovered the design defects of the
Class Vehicles. Defendants’ breach of their implied warranties
of merchantability was the direct and proximate cause of
Plaintiffs’ and the Class members’ damages.
88.
Defendants
breached
the
implied
warranty
of
merchantability
in
that
the
Class
Vehicles
were
not
in
merchantable condition when sold or at any time thereafter, and
were not fit for the ordinary purpose for which such goods are
used, in that there were serious latent design defects in the
pollen
filter
gasket
area
and
the
sunroof
drain
that
significantly impair the safety and the value of the automobiles
by causing water to enter and flood the vehicles. The Class
Vehicles were defectively designed. Defendants further breached
their implied warranties in that the Class Vehicles were
accompanied by an owner’s manual that incorporated incorrect and
incomplete maintenance and service specifications. The Class
Vehicles were not of merchantable quality and were unfit for the
ordinary purposes for which passenger vehicles are used because
of the design defects.
89.
As a result of Volkswagen’s breach of implied warranty
of merchantability, Plaintiffs and other Class members have
suffered substantial damages, including the difference between
the value of the cars accepted and the value they would have had
if they had been as warranted.
90.
Volkswagen’s
breach
also
caused
incidental
and
consequential damages to Plaintiffs and the Class. Plaintiffs
and the Class are entitled to equitable, declaratory and
injunctive relief and such other relief as the Court deems
proper against Volkswagen, wherein Defendants would be required
by this Court’s order to create a fund available to remedy the
defective pollen filter and sunroof drain in the Class Vehicles
and to bear the cost of notice to the Class Members, as approved
by the Court, of the availability of funds to remedy these
defects.
FOURTH CLAIM
Common Law Fraud
91.
Plaintiffs repeat and reiterate the allegations as set
forth above as if set forth fully herein.
92.
The above described conduct and actions constitute
common law fraud by way of misrepresentations, concealment and
omissions of material facts made by Volkswagen in the sale and
servicing of the Class Vehicles which are the subject of this
action.
93.
Volkswagen, upon information and belief, made the
above-described misrepresentations, concealment and omissions of
material facts concerning its sales and maintenance service
practices
with
full
knowledge
that
they
were
false
and
misleading or with reckless disregard of the truth.
94.
Defendants intended that the Plaintiffs and the other
members
of
the
Class
rely
upon
the
above-described
misrepresentations, concealment and omissions.
95.
Defendants’
misrepresentations,
concealments
and
omissions concerning the safety and reliability of the cars and
their expert knowledge of the cars were material in Plaintiffs’
and the other Class member’s decision to lease and/or purchase
their cars from Volkswagen.
96.
The Plaintiffs and other Class members justifiably
relied upon such misrepresentations, concealment and omissions
to their damage and detriment.
97.
Plaintiffs and the Class suffered the damage described
in this complaint as a proximate result thereof.
98.
Defendants’ conduct was willful, wanton, and reckless.
Based on the intentionally dishonest nature of Defendants’
conduct, which was directed at the Class and at the public
generally, Defendants should also be held liable to the Class
for punitive damages in an amount to be determined at trial.
FIFTH CLAIM
Unjust Enrichment
99.
Plaintiffs repeat and reiterate the allegations as
set forth above as if set forth fully herein.
100. As a result of Volkswagen’s materially false and
misleading
statements
and
failure
to
disclose
the
truth
concerning the design defects in the pollen filter and sunroof
drains, Volkswagen has profited and benefited from the lease and
sale of the Class Vehicles. Defendants breached their implied
and
express
warranties
in
that
the
Class
Vehicles
were
defectively designed. Defendants further breached their express
and
implied
warranties
in
that
the
Class
Vehicles
were
accompanied by an owner’s manual that incorporated inadequate
maintenance recommendations.
101. By paying out of their own pockets the cost to repair
the damages caused by the defectively designed pollen filter and
sunroof drain, the Plaintiffs and the Class have conferred a
substantial monetary benefit upon Volkswagen, thereby unjustly
increasing its wealth.
102. In addition, to the extent that any member of the
Class purchased Volkswagen branded replacement parts and were
serviced by Volkswagen dealerships, Volkswagen realized a direct
benefit through such sale.
103. Volkswagen has benefited and been unjustly enriched by
the above alleged conduct. Volkswagen has sold, and continues
to sell, the Class Vehicles in their defective state, thereby
reaping benefits and profits from consumers.
104. Defendants should be required to disgorge this
unjust enrichment.
SIXTH CLAIM
Negligent Misrepresentation
105. Plaintiffs repeat and reiterate the allegations as set
forth above as if set forth fully herein.
106. At all times relevant hereto, Volkswagen had a duty to
manufacture and distribute safe and reliable cars, and had a
further duty to disclose to Plaintiffs and other consumers any
defects or nonconformities.
107. At all times relevant hereto, Volkswagen breached the
aforesaid
duty
of
disclosure
by
representing,
either
affirmatively or by omission, that the aforesaid design defects
did not exist, when in fact, the vehicles had the defects as set
forth
above.
Defendants
negligently
misrepresented
to
Plaintiffs and the Class members the characteristics of the
Class Vehicles with respect to the pollen filter and sunroof
drain. Defendants negligently misrepresented information in the
Class Vehicles’ owner’s manuals and other marketing materials
that
incorporated
inadequate
disclosure
and
maintenance
recommendations.
108. Defendants’ representations of their expertise and the
safety of the automobiles were all material in Plaintiffs and
other members of the Class decision to “purchase” or “lease”
their vehicles by and through Volkswagen.
109. Plaintiffs
and
the
Class
justifiably
relied
on
Defendants’ misrepresentations in leasing or purchasing the
vehicles.
110. The damages sustained by Plaintiffs and other members
of
the
Class
were
a
direct
and
foreseeable
result
of
Volkswagen’s afore-described negligence and misrepresentations.
111. As a result of Defendants’ actions, Plaintiffs and
other Class members have been damaged and injured in an amount
to be determined at trial.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs, on behalf of themselves and all
others similarly situated, pray for relief and judgment, as
follows:
(a) Determining that this action is a proper class action,
designating
Plaintiffs
as
Lead
Plaintiffs
and
Plaintiffs’ counsel as Lead Counsel, and certifying
Plaintiffs as Class representatives under Rule 23 of
the Federal Rules of Civil Procedure;
(b) Awarding compensatory and punitive damages in favor of
Plaintiffs
and
the
other
Class
members
against
Defendants for all damages sustained as a result of
Defendants’ wrongdoing, including violation of the
CFA, in an amount to be determined at trial, including
interest thereon;
(c) Requiring Defendants to account for and/or pay in
damages to Plaintiffs and the Class the amounts by
which Volkswagen was unjustly enriched due to its
wrongful conduct;
(d) Awarding Plaintiffs and the Class their reasonable
costs and expenses incurred in this action, including
counsel fees and expert fees, as well as incidental
(costs of parts and repairs to the cars expended by
the class) and consequential (loss of use and/or
expenditures for substitute transportation; and lost
wages) damages;
(e) Awarding injunctive relief by ordering Volkswagen to
issue
corrective
actions
including
notification,
recall, inspection and, as necessary, repair and/or
replacement of the defective and damaged parts in the
Class Vehicles and imposing a constructive trust upon
monies obtained by Volkswagen as a result of the
alleged wrongful conduct;
(f) Such other and further relief as the Court may deem
just and proper.
JURY TRIAL DEMANDED
Plaintiffs hereby demand a trial by jury.
GENOVA, BURNS & VERNOIA
By: ___/s/Francis J. Vernoia_____
Francis J. Vernoia (8880)
354 Eisenhower Parkway
Eisenhower Plaza II
Livingston, New Jersey 07039
(973) 533-0777
SCHOENGOLD SPORN LAITMAN
& LOMETTI P.C.
Samuel P. Sporn (SS-4444)
Ashley Kim (AK-0105)
19 Fulton Street, Suite 406
New York, NY 10038
(212) 964-0046
Dated:
May 11, 2007
CERTIFICATION, L. CIV. R. 11.2
I hereby certify that to the best of my knowledge the
matter in controversy is not the subject of any other action
pending
in
any
court
or
of
any
pending
arbitration
or
administrative proceeding.
___/s/Francis J. Vernoia_____
Francis J. Vernoia
Dated: May 11, 2007
| consumer fraud |
sM2FDocBD5gMZwczK5EH | Robert V. Prongay (SBN 270796)
rprongay@glancylaw.com
Charles H. 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 Robert Gutman
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
Case No.
ROBERT GUTMAN, Individually and on
Behalf of All Others Similarly Situated,
Plaintiff,
CLASS ACTION COMPLAINT FOR
VIOLATIONS OF FEDERAL
SECURITIES LAWS
v.
FIBROGEN, INC. ENRIQUE CONTERNO,
and JAMES SCHOENECK,
Defendants.
Plaintiff Robert Gutman (“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 FibroGen, Inc.
(“FibroGen” 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 FibroGen; and (c) review of other publicly available information concerning
FibroGen.
NATURE OF THE ACTION AND OVERVIEW
1.
This is a class action on behalf of persons and entities that purchased or otherwise
acquired FibroGen securities between November 8, 2019 and April 6, 2021, inclusive (the “Class
Period”). Plaintiff pursues claims against the Defendants under the Securities Exchange Act of 1934
(the “Exchange Act”).
2.
FibroGen is a biopharmaceutical company that develops medicines for the treatment
of anemia, fibrotic disease, and cancer. Its most advanced product is roxadustat, an oral small
molecule inhibitor of hypoxia-inducible factor-prolyl hydroxylase (“HIF-PH”) activity that acts by
stimulating the body’s natural pathway for red cell production. In December 2019, the Company
filed its New Drug Application (“NDA”) with the U.S. Food and Drug Administration (“FDA”) for
the approval of roxadustat for the treatment of anemia due to chronic kidney disease (“CKD”).
3.
On April 6, 2021, after the market closed, FibroGen issued a statement “provid[ing]
clarification of certain prior disclosures of U.S. primary cardiovascular safety analyses from the
roxadustat Phase 3 program for the treatment of anemia of chronic kidney disease (‘CKD’).”
Specifically, the Company stated that the safety analyses “included post-hoc changes to the
stratification factors.” FibroGen further revealed that, based on analyses using the pre-specified
stratification factors, the Company “cannot conclude that roxadustat reduces the risk of (or is
superior to) MACE+ in dialysis, and MACE and MACE+ in incident dialysis compared to epoetin-
alfa.”
4.
On this news, the Company’s share price fell $14.90, or 43%, to close at $19.74 per
share on April 7, 2021, 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 certain
safety analyses submitted in connection with FibroGen’s NDA for roxudustat included post-hoc
changes to stratification factors; (2) that, based on analyses using the pre-specified stratification
factors, the Company could not conclude that roxadustat reduces the risk of major adverse
cardiovascular events compared to epoetin-alfa; (3) that, as a result, the Company faced significant
uncertainty that its NDA for roxadustat as a treatment for anemia of CKD would be approved by
the FDA; 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.
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 Robert Gutman, as set forth in the accompanying certification, incorporated
by reference herein, purchased FibroGen 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 FibroGen is incorporated under the laws of Delaware with its principal
executive offices located in San Francisco, California. FibroGen’s common stock trades on the
NASDAQ exchange under the symbol “FGEN.”
13.
Defendant Enrique Conterno (“Conterno”) has been the Company’s Chief Executive
Officer (“CEO”) since January 3, 2020.
14.
Defendant James Schoeneck (“Schoeneck”) served as interim CEO from August
2019 to January 3, 2020.
15.
Defendants Conterno and Schoeneck (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.
FibroGen is a biopharmaceutical company that develops medicines for the treatment
of anemia, fibrotic disease, and cancer. Its most advanced product is roxadustat, an oral small
molecule inhibitor of hypoxia-inducible factor-prolyl hydroxylase (“HIF-PH”) activity that acts by
stimulating the body’s natural pathway for red cell production. In December 2019, the Company
filed its New Drug Application (“NDA”) with the U.S. Food and Drug Administration (“FDA”) for
the approval of roxadustat for the treatment of anemia due to chronic kidney disease (“CKD”).
Materially False and Misleading
Statements Issued During the Class Period
17.
The Class Period begins on November 8, 2019. On that day, FibroGen announced
“Positive Phase 3 Pooled Roxadustat Safety and Efficacy Results” in a press release that stated, in
relevant part:
Roxadustat cardiovascular safety comparable to placebo in non-dialysis dependent
(NDD) patients, as assessed by Major Adverse Cardiovascular Events (MACE) and
MACE+
Roxadustat did not increase risk of MACE and reduced risk of MACE+ compared
to epoetin alfa in dialysis-dependent (DD) patients;
Roxadustat reduced risk of MACE by 30% and MACE+ by 34% compared to
epoetin alfa in the incident dialysis (ID) patient subgroup of the DD population
Roxadustat achieved primary efficacy endpoints in NDD and DD patients
WASHINGTON, D.C., November 08, 2019 (GLOBAL NEWSWIRE) – FibroGen,
Inc. (NASDAQ:FGEN), today announced results from the pooled analyses of data
from six global pivotal Phase 3 trials investigating roxadustat, a first-in-class, orally-
administered inhibitor of hypoxia-inducible-factor (HIF) prolyl hydroxylase activity.
The pooled analyses assessed the safety and efficacy of roxadustat as a treatment for
anemia in chronic kidney disease (CKD) compared to placebo in Non-Dialysis-
Dependent (NDD) patients and to standard of care epoetin alfa in Dialysis-
Dependent (DD) patients, including the clinically important Incident Dialysis (ID)
patient subgroup. These Phase 3 trials conducted by FibroGen and collaboration
partners AstraZeneca and Astellas Pharma, Inc., enrolled over 8,000 CKD patients
from more than 50 countries.
“The pooled safety analyses assessing roxadustat as a treatment for anemia in chronic
kidney disease demonstrate a cardiovascular safety profile comparable with placebo
in patients not on dialysis, and comparable or in some cases better than that of epoetin
alfa in patients on dialysis,” said Robert Provenzano, MD, Associate Professor of
Medicine, Wayne State University, Detroit, Michigan, U.S. and a primary
investigator on the global Phase 3 program. “It is exciting to see this application of
the groundbreaking science on oxygen sensing and adaptation to hypoxia recently
awarded the 2019 Nobel Prize in Physiology or Medicine, and championed by
FibroGen’s late founder and CEO, Tom Neff, who sadly passed away earlier this
year. These positive safety results, coupled with roxadustat’s well-defined efficacy
in CKD patients, and its oral formulation, support the potential for roxadustat to
become an important new treatment option for patients with anemia associated with
CKD.”
These late-breaking data were featured in the High-Impact Clinical Trials oral
abstract session on Friday, November 8, at the American Society of Nephrology
Kidney Week 2019 in Washington, D.C. (Presentation FR-OR131)
*
*
*
Cardiovascular (CV) endpoints were defined as:
• Time to first Major Adverse Cardiovascular Event (MACE): a composite
endpoint of all-cause mortality, myocardial infarction, stroke;
• Time to first MACE+, a composite endpoint which includes MACE plus
unstable angina and heart failure requiring hospitalization; and
• Time to all-cause mortality
o In the Non-Dialysis Dependent (NDD) patient population:
§ Risks of MACE, MACE+, and all-cause mortality in
roxadustat patients were comparable to placebo in the ITT
analyses based on a reference non-inferiority margin of 1.3.
[image omitted]
o In a post hoc subgroup analysis of 2,438 non-dialysis patients with
baseline eGFR≥15,
§ The one-year decline in eGFR in roxadustat treated patients (-
2.8) was significantly less than that in placebo treated patients
(-4.4), with a treatment difference of 1.6 mL/min/1.73m2
(p<0.0001).
o In the Dialysis Dependent (DD) patient population:
§ Risks of MACE and all-cause mortality in roxadustat patients
were not increased compared to those for patients receiving
epoetin alfa based on a reference non-inferiority margin of
1.3.
§ Risk of MACE+ was 14% lower in roxadustat-treated patients
than in those receiving epoetin alfa.
[image omitted]
§ The Incident Dialysis (ID) patient sub-group of the Dialysis
Dependent (DD) patient population:
• Risk of MACE was 30% lower in roxadustat patients
than in epoetin alfa patients, and risk of MACE+ was
34% lower.
• Roxadustat-treated patients’ risk showed a trend
towards lower all-cause mortality relative to epoetin
alfa-treated patients.
18.
On December 23, 2019, FibroGen announced that it had submitted its NDA for
roxadustat to the FDA. In a press release, the Company stated, in relevant part:
FibroGen, Inc. (NASDAQ:FGEN), today announced the submission of a New Drug
Application (NDA) to the U.S. Food and Drug Administration (FDA) for roxadustat
for the treatment of anemia of chronic kidney disease (CKD), in both non-dialysis-
dependent (NDD) and dialysis-dependent (DD) CKD patients.
Roxadustat is the first orally administered small molecule hypoxia-inducible factor
prolyl hydroxylase (HIF-PH) inhibitor submitted for FDA regulatory approval for
the treatment of anemia of CKD. Regulatory approval of roxadustat is supported by
positive results from a global Phase 3 program encompassing 15 trials that enrolled
more than 10,000 patients, worldwide.
“The submission of this NDA is a major step toward our goal of bringing this novel
oral medicine to U.S. patients suffering from anemia in CKD,” said Jim Schoeneck,
Interim Chief Executive Officer, FibroGen. “We, in collaboration with our partner
AstraZeneca, look forward to working with the FDA during the NDA review, and to
the potential of roxadustat as a new therapeutic option for treating CKD anemia, in
patients on dialysis and not on dialysis.”
19.
On February 11, 2020, FibroGen announced that the FDA has completed its filing
review of the NDA. In a press release, the Company stated:
FibroGen, Inc. (NASDAQ:FGEN) today announced that the U.S. Food and Drug
Administration (FDA) has completed its filing review of its New Drug Application
(NDA) for roxadustat for the treatment of anemia of chronic kidney disease (CKD),
in both non-dialysis-dependent (NDD) and dialysis-dependent (DD) patients. The
application will be considered filed on February 18, 2020. The FDA has set a
Prescription Drug User Fee Act (PDUFA) date of December 20, 2020.
“The FDA’s acceptance of the roxadustat new drug application is a critical step
towards providing a new treatment option in the United States for chronic kidney
disease patients suffering from anemia, a serious and often life-threatening disease,”
said Enrique Conterno, Chief Executive Officer, FibroGen.
“There is significant unmet medical need for patients with anemia of CKD, who have
seen only limited advances in the last three decades,” said Peony Yu, M.D., Chief
Medical Officer, FibroGen. “We intend to work closely with the FDA, in
collaboration with our partner, AstraZeneca, to make this novel oral therapy
available as soon as possible.”
The filing of the roxadustat NDA triggers a $50 million milestone payment from
AstraZeneca (LSE/STO/NYSE: AZN) to FibroGen.
20.
On December 18, 2020, FibroGen issued a press release announcing that the FDA
had extended the review period for the NDA by three months. Specifically, the Company stated:
FibroGen, Inc. (Nasdaq: FGEN) today announced that the U.S. Food and Drug
Administration (FDA) has extended the review period of the New Drug Application
(NDA) for roxadustat for the treatment of anemia of chronic kidney disease (CKD)
by three months. The updated Prescription Drug User Fee Act (PDUFA) action date
is March 20, 2021.
The FDA is close to finalizing its review of the NDA and FibroGen is submitting
additional analyses of existing roxadustat clinical data, which require an extension
of the original PDUFA date.
“FibroGen is working closely with the FDA, in collaboration with our partner,
AstraZeneca, to support the final review of the new drug application for roxadustat,”
said Enrique Conterno, Chief Executive Officer, FibroGen. “There is significant
unmet medical need for the treatment of anemia of CKD, and we are committed to
bringing roxadustat to patients in the U.S. as soon as possible.
21.
The above statements identified in ¶¶ 17-20 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 certain safety analyses
submitted in connection with FibroGen’s NDA for roxudustat included post-hoc changes to
stratification factors; (2) that, based on analyses using the pre-specified stratification factors, the
Company could not conclude that roxadustat reduces the risk of major adverse cardiovascular events
compared to epoetin-alfa; (3) that, as a result, the Company faced significant uncertainty that its
NDA for roxadustat as a treatment for anemia of CKD would be approved by the FDA; 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
22.
On April 6, 2021, after the market closed, FibroGen issued a statement “provid[ing]
clarification of certain prior disclosures of U.S. primary cardiovascular safety analyses from the
roxadustat Phase 3 program for the treatment of anemia of chronic kidney disease (‘CKD’).”
Specifically, the Company stated that the safety analyses “included post-hoc changes to the
stratification factors.” FibroGen further revealed that, based on analyses using the pre-specified
stratification factors, the Company “cannot conclude that roxadustat reduces the risk of (or is
superior to) MACE+ in dialysis, and MACE and MACE+ in incident dialysis compared to epoetin-
alfa.” Specifically, in a press release, the Company stated, in relevant part:
FibroGen, Inc. (Nasdaq: FGEN) (the “Company”) today provided clarification of
certain prior disclosures of U.S. primary cardiovascular safety analyses from the
roxadustat Phase 3 program for the treatment of anemia of chronic kidney disease
(“CKD”).
“As members of senior management were preparing for the upcoming FDA Advisory
Committee meeting, we became aware that the primary cardiovascular safety
analyses included post-hoc changes to the stratification factors,” said Enrique
Conterno, Chief Executive Officer, FibroGen. “While all of the analyses set forth
below, including the differences in the stratification factors, were included in the
NDA, we promptly decided to clarify this issue with the FDA and communicate with
the scientific and investment communities.”
Mr. Conterno continued, “It is important to emphasize that this does not impact our
conclusion regarding the comparability, with respect to cardiovascular safety, of
roxadustat to epoetin-alfa in dialysis-dependent (DD) patients and to placebo in non-
dialysis dependent (NDD) patients. We continue to have confidence in roxadustat’s
benefit risk profile.”
*
*
*
The table below describes the cardiovascular safety results using the post-hoc
stratification factors reported at the American Society of Nephrology conference in
November 2019, as well as the analyses with the pre-specified stratification factors
which have not been previously publicly reported.
As reflected in the table, the analyses with the pre-specified stratification factors
result in higher hazard ratios (point estimates of relative risk) and 95% confidence
intervals. For MACE+ in dialysis and for MACE and MACE+ in incident dialysis,
the 95% confidence intervals include 1.0. While these hazard ratios remain below
1.0, based on these analyses we cannot conclude that roxadustat reduces the risk
of (or is superior to) MACE+ in dialysis, and MACE and MACE+ in incident
dialysis compared to epoetin-alfa.
23.
On this news, the Company’s share price fell $14.90, or 43%, to close at $19.74 per
share on April 7, 2021, on unusually heavy trading volume.
CLASS ACTION ALLEGATIONS
24.
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 FibroGen securities between November 8, 2019 and April 6, 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.
25.
The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, FibroGen’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 FibroGen 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 FibroGen 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.
26.
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.
27.
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.
28.
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 FibroGen; and
(c)
to what extent the members of the Class have sustained damages and the
proper measure of damages.
29.
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
30.
The market for FibroGen’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, FibroGen’s securities traded at artificially inflated prices during the Class Period. Plaintiff
and other members of the Class purchased or otherwise acquired FibroGen’s securities relying upon
the integrity of the market price of the Company’s securities and market information relating to
FibroGen, and have been damaged thereby.
31.
During the Class Period, Defendants materially misled the investing public, thereby
inflating the price of FibroGen’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 FibroGen’s business, operations, and prospects as alleged herein.
32.
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 FibroGen’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
33.
Defendants’ wrongful conduct, as alleged herein, directly and proximately caused
the economic loss suffered by Plaintiff and the Class.
34.
During the Class Period, Plaintiff and the Class purchased FibroGen’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
35.
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 FibroGen, their control over, and/or receipt
and/or modification of FibroGen’s allegedly materially misleading misstatements and/or their
associations with the Company which made them privy to confidential proprietary information
concerning FibroGen, participated in the fraudulent scheme alleged herein.
APPLICABILITY OF PRESUMPTION OF RELIANCE
(FRAUD-ON-THE-MARKET DOCTRINE)
36.
The market for FibroGen’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, FibroGen’s securities traded at artificially inflated prices during the Class Period. On
February 12, 2021, the Company’s share price closed at a Class Period high of $55.72 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 FibroGen’s securities and market information
relating to FibroGen, and have been damaged thereby.
37.
During the Class Period, the artificial inflation of FibroGen’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 FibroGen’s business, prospects, and operations. These material misstatements
and/or omissions created an unrealistically positive assessment of FibroGen 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.
38.
At all relevant times, the market for FibroGen’s securities was an efficient market
for the following reasons, among others:
(a)
FibroGen 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, FibroGen filed periodic public reports with the SEC
and/or the NASDAQ;
(c)
FibroGen 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)
FibroGen 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.
39.
As a result of the foregoing, the market for FibroGen’s securities promptly digested
current information regarding FibroGen from all publicly available sources and reflected such
information in FibroGen’s share price. Under these circumstances, all purchasers of FibroGen’s
securities during the Class Period suffered similar injury through their purchase of FibroGen’s
securities at artificially inflated prices and a presumption of reliance applies.
40.
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
41.
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 FibroGen 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
42.
Plaintiff repeats and re-alleges each and every allegation contained above as if fully
set forth herein.
43.
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 FibroGen’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.
44.
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 FibroGen’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.
45.
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 FibroGen’s financial
well-being and prospects, as specified herein.
46.
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 FibroGen’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 FibroGen 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.
47.
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.
48.
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 FibroGen’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.
49.
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 FibroGen’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 FibroGen’s securities during
the Class Period at artificially high prices and were damaged thereby.
50.
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 FibroGen
was experiencing, which were not disclosed by Defendants, Plaintiff and other members of the Class
would not have purchased or otherwise acquired their FibroGen 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.
51.
By virtue of the foregoing, Defendants violated Section 10(b) of the Exchange Act
and Rule 10b-5 promulgated thereunder.
52.
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
53.
Plaintiff repeats and re-alleges each and every allegation contained above as if fully
set forth herein.
54.
Individual Defendants acted as controlling persons of FibroGen 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.
55.
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.
56.
As set forth above, FibroGen 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: April 15, 2021
GLANCY PRONGAY & MURRAY LLP
By:
/s/ Pavithra Rajesh
Robert V. Prongay
Charles H. 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
Attorneys for Plaintiff Robert Gutman
FibroGen, Inc. (FGEN) SECURITIES LITIGATION
I, Robert Gutman, 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 FibroGen, 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 FibroGen, 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.
4/9/2021
Date
Robert Gutman
Robert Gutman's Transactions in FibroGen, Inc. (FGEN)
Date
Transaction Type
Quantity
Unit Price
11/15/2019
Bought
200
$36.9996
3/16/2021
Bought
150
$33.5830
| products liability and mass tort |
OA-qFocBD5gMZwczdB8x | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
LEE SIEGEL, individually and on
13 CV 1351
behalf of others similarly situated,
Plaintiffs,
V.
BLOOMBERG L.P.,
Defendant.
6
2013
U.S.D.C.S.D.N.Y.
CASHERS
COMPLAINT
INTRODUCTION
1.
This is a Fair Labor Standards Act collective action and a New York Labor Law
Rule 23 class action brought by "PC support desk employees" for Defendant's unlawful
refusal to pay overtime at the rate of time and one half for all hours worked over forty in
a work week.
2.
Plaintiffs seek unpaid overtime wages, liquidated damages, costs and attorneys'
fees as well as declaratory relief under the Fair Labor Standards Act (FLSA), 29 U.S.C.
§201 et seq. and New York Labor Law §§652, 663 and implementing regulations
including but not limited to 12 NYCRR part 142.
JURISDICTION
3.
Jurisdiction is conferred upon this Court by 29 U.S.C. $216(b) of the Fair Labor
Standards Act, by 28 U.S.C. § $1331, this action arising under laws of the United States,
and by 28 U.S.C. $1337, this action arising under Acts of Congress regulating commerce.
4.
This Court has supplemental jurisdiction over any state claim raised by virtue of
28 U.S.C. $1367(a).
VENUE
5.
Venue is proper in this district pursuant to 28 U.S.C. $1391(b). Plaintiffs worked
for Defendant in this District. The cause of action arose in this District. Plaintiffs reside
in this District. Defendant resides in this District.
PARTIES
A.
Plaintiffs
6.
The named Plaintiff LEE SIEGEL was an employee of Defendant. A Consent to
Sue for this named Plaintiff is attached at the back of this complaint.
7.
Plaintiff SIEGEL is a resident of New Jersey.
8.
Plaintiff was engaged in commerce while working for Defendants.
9.
The named Plaintiff represents a class of PC support desk staff who were not paid
time and one half for hours over 40 worked in one or more weeks.
10.
The term "Plaintiffs" as used in this complaint refers to the named Plaintiff, any
additional represented parties pursuant to the collective action provision of 29 U.S.C.
$216(b), and to such members of the class brought pursuant to Fed. R. Civ. P. Rule 23, as
described below, individually, collectively, or in any combination.
B.
Represented Parties under the FLSA
11.
The named Plaintiff brings this case as a collective action for class members
consisting of "PC Help Desk Workers" in the U.S. who worked more than 40 hours in a
pay week without payment of overtime at the rate of time and one-half within the three
years preceding the filing of a consent to sue by such individual.
C.
Class Plaintiffs under the New York Overtime Law
12.
The named Plaintiff brings this case as a Rule 23 Class Action for class members
consisting of "PC Help Desk Workers" working in New York who worked more than 40
hours in a pay week without payment of overtime at the rate of time and one-half at any
time within the six years preceding the filing of this Complaint.
13.
Upon information and belief, the class is composed of more than fifty individuals.
14.
There are questions of law and fact common to the class, including but not limited
to whether the Plaintiffs were entitled to overtime premium pay, whether the Plaintiffs
worked off the clock, whether the Defendant gave Plaintiffs "comp time" in lieu of
overtime.
15.
The claims of the named Plaintiffs are typical of the claims of the class.
16.
The named Plaintiffs and their counsel will adequately protect the interests of the
class.
17.
Common questions of law or fact predominate over individual questions and a
class action is superior to other methods for the fair and efficient adjudication of the
controversy.
D.
Defendant
18.
Defendant BLOOMBERG L.P. is a Delaware company registered in New York.
The Defendant lists its business address as 731 Lexington Avenue, New York, New York
10022.
19.
Defendant's business is a multinational mass media corporation that provides
financial software tools such as analytics and equity trading platforms, data services and
news to financial companies and organizations around the world through the Bloomberg
Terminal.
20.
Upon information and belief, Defendant grossed more than $500,000 in the past
fiscal year.
21.
Defendant operates an enterprise engaged in commerce within the meaning of the
FLSA.
FACTS
22.
Plaintiff was employed by Defendant.
23.
Plaintiff SIEGEL was employed by Defendant in Princeton, New Jersey and New
York City.
24.
Plaintiff SIEGEL began the Help Desk position in approximately September 9,
2010. He was on medical leave for that position from approximately December 2010-July
2011. He continued working at the Help Desk until he was terminated in June 2012. He
worked primarily in Bloomberg's office in Princeton, New Jersey. He also worked in the
NYC office.
25.
Plaintiff was primarily employed by Defendant to provide computer support for
Defendant's employees who were having problems with their desk top computers or
mobile devises.
26.
Plaintiffs generally have the position title of "Service Desk Employee."
27.
Plaintiffs regularly worked more than 40 hours per week for Defendant.
28.
Plaintiffs were generally scheduled for five eight hour shifts (with an unpaid
lunch hour during the work day).
29.
Plaintiffs were required to be at work before their shift began to log into
Defendant's computer system.
30.
Plaintiffs were required to work past the end of their shifts to complete jobs.31.
Plaintiffs were required to work during their lunch hours to complete jobs.
32.
Plaintiffs generally worked approximately 2-3 or more hours of extra work each
week without receiving overtime compensation.
33.
Defendant knew or should have known that Plaintiffs worked beyond their shift.
34.
Defendant suffered or permitted Plaintiffs to work for its benefit beyond their
shift.
35.
Defendant required Plaintiffs to work on weekends and holidays in addition to
their regular shift, for which Defendant failed to pay overtime, but for which it allowed
Plaintiffs to take "comp time" in a later pay week, under various restrictive conditions.
36.
Plaintiff SIEGEL worked for Defendant beginning on or about January, 20, 1998.
His employment with Defendant ended on or about June 26, 2012.
37.
Defendant paid Plaintiffs a salary rate for all hours worked.
38.
The salary paid to Plaintiffs by Defendant was intended to cover a forty hour
workweek.
39.
Defendant failed to pay Plaintiffs overtime compensation at the rate of time and
one-half for all hours worked over 40 in a workweek.
40.
Defendant failed to pay Plaintiffs any compensation for their hours over 40
worked in a work week.
41.
Defendant's failure to pay Plaintiffs the proper wages required by law was willful.
42.
All actions and omissions described in this complaint were made by Defendant
directly or through its supervisory employees and agents.
CAUSES OF ACTION
(OVERTIME)
43.
Defendant failed to pay premium overtime wages to the Plaintiffs in violation of
the Fair Labor Standards Act, 29 U.S.C. $203, 207 et seq. and its implementing
regulations.
44.
Defendant's failure to comply with the FLSA caused Plaintiffs to suffer loss of
wages and interest thereon.
45.
Defendant failed to pay overtime to the named Plaintiffs and other New York
Plaintiffs in violation of New York Labor Law Articles 6 and 19 and their implementing
regulations, including but not limited to 12 NYCRR Part 142.
46.
Defendant's failure to pay proper overtime wages for each hour worked over 40
per week was willful within the meaning of 29 U.S.C. $255 and Labor Law 662.
47.
Defendant's failure to comply with the NY Labor Law minimum wage and
overtime protections caused New York Plaintiffs to suffer loss of wages and interest
thereon.
WHEREFORE, Plaintiffs request that this Court enter an order:
A.
Declaring that the Defendant violated the Fair Labor Standards Act and
New York Labor Law;
B.
Declaring that the Defendant's violations of overtime protections were
willful;
C.
Granting judgment to the Plaintiffs for their claims of unpaid wages as
secured by the Fair Labor Standards Act as well as an equal amount in
liquidated damages and awarding the Plaintiffs' costs and reasonable
attorneys' fees;
D.
Granting judgment to the New York Plaintiffs for their claims of unpaid
wages as secured by the New York Labor Law as well as an equal amount
in liquidated damages and awarding the Plaintiffs' costs and reasonable
attorneys' fees; and
E.
Granting such further relief as the Court finds just.
Dated: February 27, 2013
Respectfully Submitted,
Dan
Get
Dan Getman (DG4613)
Getman Sweeney PLLC
9 Paradies Lane
New Paltz, NY 12561
(845) 255-9370
ATTORNEYS FOR PLAINTIFFS
CONSENT TO SUE UNDER THE FLSA
I, Lee Siegel, hereby consent to be a plaintiff in an action under the Fair
Labor Standards Act, 29 U.S.C. §201 et seq., to secure any unpaid wages,
overtime pay, liquidated damages, attorneys' fees, costs and other relief
arising out of my employment Bloomberg LP and any other associated
parties. I authorize Getman & Sweeney, PLLC, Dan Getman, Esq., and any
associated attorneys as well as any successors or assigns, to represent me in
such action.
Dated:
2-1-2013
her DiD
Lee Siegel | employment & labor |
3kt3A4kBRpLueGJZJTCd |
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
John McMorrow Jr., on behalf of himself and
all others similarly situated,
Plaintiff,
v.
CASE NO.
CLASS ACTION COMPLAINT
JURY TRIAL DEMANDED
RocketOffr, LLC d/b/a Realteeoffers.com,
Defendant.
CLASS ACTION COMPLAINT
Nature of this Action
1.
John McMorrow Jr. (“Plaintiff”), individually and on behalf of all others similarly
situated, brings this class action against RocketOffr, LLC d/b/a Realteeoffers.com (“Defendant”)
under the Telephone Consumer Protection Act (“TCPA”).
2.
Upon information and good faith belief, Defendant routinely violates 47 U.S.C. §
227(c)(5) and 47 C.F.R. § 64.1200(a)(2) by delivering more than one advertisement or marketing
text message to residential or cellular telephone numbers registered with the National Do-Not-Call
Registry (“DNC Registry”) without the prior express invitation or permission required by the
TCPA.
3.
Additionally, upon information and good faith belief, Defendant routinely violates
47 U.S.C. § 227(c)(5) and 47 C.F.R. §§ 64.1200(d)(4) by delivering more than one advertisement
or telemarketing message to residential or cellular telephone numbers while failing to identify “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.”
Parties
4.
Plaintiff is a natural person who at all relevant times resided in St. Louis, Missouri.
5.
Defendant is a marketing and lead generation real estate business headquartered in
Los Angeles, California, and incorporated in Tennessee.
Jurisdiction and Venue
6.
This Court has subject matter jurisdiction under 47 U.S.C. § 227(c)(5), and 28
U.S.C. § 1331.
7.
Venue is proper before this Court under to 28 U.S.C. § 1391(b)(2) as Plaintiff
resides in this district and a significant portion of the transactions giving rise to this action occurred
in this district.
8.
In particular, Defendant directed its text messages to Plaintiff’s telephone in this
district, and Plaintiff received Defendant’s text messages in this district.
Factual Allegations
9.
Plaintiff is, and has been at all times relevant to this action, the regular and sole user
of his cellular telephone number—(314) 750-XXXX.
10.
Plaintiff uses his cellular telephone as his personal residential telephone numbers.
11.
In 2003, the Federal Communications Commission (“FCC”) ruled that cellular
telephone numbers that are placed on the DNC registry are presumed to be residential. In Re Rules
& Regulations Implementing the Tel. Consumer Prot. Act of 1991, 18 F.C.C. Rcd. 14014, 14039
12.
Plaintiff registered his cellular telephone number with the DNC Registry in
February 2008, and has maintained that registration through the present date.
13.
Beginning in August 2022, Plaintiff received numerous text messages from
telephone number (314) 804-5723 on his cellular telephone:
14.
Plaintiff did not recognize the sender, is not selling his home, is not looking to sell
his home, and does not own a home at 7443 General Sherman Ln., as referenced by telephone
number (314) 804-5723.
15.
Plaintiff subsequently attempted to obtain more information to identify the sender
of these unwanted text messages:
16.
Plaintiff estimates that he has received at least seven text messages from telephone
number (314) 804-5723.
17.
The website for realteeoffers.com fails to identify any legal entity responsible for
the website, its mobile terms and conditions, or its privacy policy.1
18.
However, when visiting realteeoffers.com, users are confronted by a chat
application purporting to be from “RocketOffr”:
1
See generally https://www.realteeoffers.com/home-page1645760540647 (last visited
October 4, 2022).
19.
Accordingly, upon information and good faith belief, and in light of the timing,
content, and context of the text messages and website links associated with telephone number
(314) 804-5723, Defendant delivered, or caused to be delivered, the subject text messages to
Plaintiff’s cellular telephone number.
20.
Plaintiff did not give Defendant prior express consent or prior express written
consent to send text messages to his cellular telephone number.
21.
The text messages at issue were sent for non-emergency purposes.
22.
Upon information and good faith belief, the text messages at issue were sent
voluntarily.
23.
The purpose of the text messages at issue was to advertise and to market
Defendant’s business or services.
24.
However, upon information and belief, Defendant also collects consumer data and
resells that information to investors for potential resale or renting.
25.
As a result, Defendant either (1) solicited Plaintiff to sell his home to it at a discount
in order for Defendant to resell or rent Plaintiff’s home, or (2) solicited Plaintiff to submit his
information to Defendant’s lead generation service and use Defendant’s lead generation services,
which Defendant would then sell to investors for a profit.
26.
Plaintiff did not give Defendant prior express invitation or permission to send
advertisement or marketing text messages to his cellular telephone number.
27.
Plaintiff suffered actual harm as a result of the text messages at issue in that he
suffered an invasion of privacy, an intrusion into his life, and a private nuisance.
28.
Plaintiff suffered additional harm due to his frustration and difficulty in identifying
the entity and persons responsible for the unwanted advertisement or marketing text messages to
his cellular telephone number.
29.
Upon information and good faith belief, Defendant uses an automatic telephone
dialing system to send text messages, absent prior express consent or prior express written consent,
to telephone numbers assigned to a cellular telephone service.
30.
Upon information and good faith belief, Defendant knew, or should have known,
that Plaintiff registered his cellular telephone number with the DNC Registry.
Class Action Allegations
31.
Plaintiff brings this action under Federal Rule of Civil Procedure 23, and as a
representative of the following classes:
Federal Do-Not-Call Registry Class:
All persons throughout the United States (1) to whom RocketOffr, LLC delivered,
or caused to be delivered, more than one text message within a 12-month period,
promoting RocketOffr, LLC’s or its business partners’ goods or services, (2) where
the person’s residential or cellular telephone number had been registered with the
National Do Not Call Registry for at least thirty days before RocketOffr, LLC
delivered, or caused to be delivered, at least two of the text messages within the 12-
month period, (3) within four years preceding the date of this complaint through
the date of class certification.
Sender Identification Class:
All persons and entities throughout the United States (1) to whom RocketOffr, LLC
delivered, or caused to be delivered, more than one text message within a 12-month
period, promoting RocketOffr, LLC’s or its business partners’ goods or services,
(2) where the subject text messages did not state the name of the individual caller,
the name of RocketOffr, LLC, and a telephone number or address at which
RocketOffr, LLC may be contacted, (3) within four years preceding the date of this
complaint through the date of class certification.
32.
Excluded from the classes are Defendant, its officers and directors, members of
their immediate families and their legal representatives, heirs, successors, or assigns, and any entity
in which Defendant has or had a controlling interest.
33.
Upon information and belief, the members of the classes are so numerous that
joinder of all of them is impracticable.
34.
The exact number of members of the classes are unknown to Plaintiff at this time,
and can be determined only through appropriate discovery.
35.
The members of the classes are ascertainable because the classes are defined by
reference to objective criteria.
36.
In addition, the members of the classes are identifiable in that, upon information
and belief, their cellular telephone numbers, names, and addresses can be identified in business
records maintained by Defendant, and by third parties.
37.
Plaintiff’s claims are typical of the claims of the members of the classes.
38.
As it did for all members of the Federal Do-Not-Call Registry Class, Defendant
delivered solicitation text messages to Plaintiff’s telephone number more than thirty days after
Plaintiff registered his cellular telephone number with the DNC Registry.
39.
As it did for all members of the Sender Identification Class, Defendant delivered
solicitation text messages to Plaintiff’s telephone number where the subject text messages did not
state the name of the individual caller, the name of RocketOffr, LLC, and a telephone number or
address at which it may be contacted.
40.
Plaintiff’s claims, and the claims of the members of the classes, originate from the
same conduct, practice, and procedure on the part of Defendant.
41.
Plaintiff’s claims are based on the same theories as are the claims of the members
of the classes.
42.
Plaintiff suffered the same injuries as the members of the classes.
43.
Plaintiff will fairly and adequately protect the interests of the members of the
classes.
44.
Plaintiff’s interests in this matter are not directly or irrevocably antagonistic to the
interests of the members of the classes.
45.
Plaintiff will vigorously pursue the claims of the members of the classes.
46.
Plaintiff has retained counsel experienced and competent in class action litigation.
47.
Plaintiff’s counsel will vigorously pursue this matter.
48.
Plaintiff’s counsel will assert, protect, and otherwise represent the members of the
49.
The questions of law and fact common to the members of the classes predominate
over questions that may affect individual members of the classes.
50.
Issues of law and fact common to all members of the classes are:
a.
Defendant’s conduct, pattern, and practice as it pertains to delivering
advertisement and telemarketing text messages;
b.
For the Federal Do-Not-Call Registry Class, Defendant’s practice of
delivering text messages, for solicitation purposes, to telephone numbers
already registered on the DNC Registry for more than thirty days;
c.
For the Sender Identification Class, Defendant’s practice of delivering text
messages, for solicitation purposes, without identifying the name of the
individual caller, the name of RocketOffr, LLC, and a telephone number or
address at which Defendant may be contacted;
d.
Defendant’s violations of the TCPA; and
e.
The availability of statutory penalties.
51.
A class action is superior to all other available methods for the fair and efficient
adjudication of this matter.
52.
If brought and prosecuted individually, the claims of the members of the classes
would require proof of the same material and substantive facts.
53.
The pursuit of separate actions by individual members of the classes would, as a
practical matter, be dispositive of the interests of other members of the classes, and could
substantially impair or impede their ability to protect their interests.
54.
The pursuit of separate actions by individual members of the classes could create a
risk of inconsistent or varying adjudications, which might establish incompatible standards of
conduct for Defendant.
55.
These varying adjudications and incompatible standards of conduct, in connection
with presentation of the same essential facts, proof, and legal theories, could also create and allow
the existence of inconsistent and incompatible rights within the classes.
56.
The damages suffered by the individual member of the classes may be relatively
small, thus, the expense and burden to litigate each of their claims individually make it difficult
for the members of the classes to redress the wrongs done to them.
57.
The pursuit of Plaintiff’s claims, and the claims of the members of the classes, in
one forum will achieve efficiency and promote judicial economy.
58.
There will be no extraordinary difficulty in the management of this action as a class
59.
Defendant acted or refused to act on grounds generally applicable to the members
of the classes, making final declaratory or injunctive relief appropriate.
Count I
Violation of 47 U.S.C. § 227(c)(5)
On behalf of the Federal Do-Not-Call Registry Class
60.
Plaintiff repeats and re-alleges each and every factual allegation contained in
paragraphs 1-59.
61.
A text message is a “call” as defined by the TCPA. See, e.g., Duran v. La Boom
Disco, Inc., 955 F.3d 279, 280 n.4 (2d Cir. 2020) (“It is undisputed that ‘[a] text message to a
cellular telephone . . . qualifies as a ‘call’ within the compass of [the TCPA].’”) (internal citation
omitted); Satterfield v. Simon & Schuster, Inc., 569 F.3d 946, 954 (9th Cir. 2009).
62.
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.”
63.
Section 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.”
64.
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” may bring a private action based on a violation of those regulations, which were
promulgated to protect telephone subscribers’ privacy rights to avoid receiving telephone
solicitations to which they object. 47 U.S.C. § 227(c).
65.
Defendant violated 47 C.F.R. § 64.1200(c) by initiating, or causing to be initiated,
telephone solicitations to telephone subscribers such as Plaintiff and the class members who
registered their respective cellular or residential telephone numbers with the DNC Registry, which
is a listing of persons who do not wish to receive telephone solicitations that is maintained by the
federal government.
66.
Defendant violated 47 U.S.C. § 227(c)(5) because it delivered, or caused to be
delivered, to Plaintiff and members of the Federal Do-Not-Call Registry Class, more than one
solicitation call or text message in a 12-month period in violation of 47 C.F.R. § 64.1200.
67.
As a result of Defendant’s violations of 47 U.S.C. § 227(c)(5) and 47 C.F.R. §
64.1200, Plaintiff, and the members of the Federal Do-Not-Call Registry Class, are entitled to
damages in an amount to be proven at trial.
Count II
Violation of 47 U.S.C. § 227(c)(5)
On behalf of the Sender Identification Class
68.
Plaintiff repeats and re-alleges each and every factual allegation contained in
paragraphs 1-59.
69.
A text message is a “call” as defined by the TCPA. See, e.g., Duran v. La Boom
Disco, Inc., 955 F.3d 279, 280 n.4 (2d Cir. 2020) (“It is undisputed that ‘[a] text message to a
cellular telephone . . . qualifies as a ‘call’ within the compass of [the TCPA].’”) (internal citation
omitted); Satterfield v. Simon & Schuster, Inc., 569 F.3d 946, 954 (9th Cir. 2009).
70.
The TCPA’s implementing regulation, 47 C.F.R. § 64.1200(d), provides in relevant
part that “[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.” Id. at § 64.1200(d)(4).
71.
Section 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.”
72.
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” may bring a private action based on a violation of those regulations, which were
promulgated to protect telephone subscribers’ privacy rights to avoid receiving telephone
solicitations to which they object. 47 U.S.C. § 227(c).
73.
Defendant violated 47 C.F.R. § 64.1200(d)(4) by initiating, or causing to be
initiated, telephone solicitations to telephone subscribers such as Plaintiff and the class members
while failing to “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.”
74.
Defendant therefore violated 47 U.S.C. § 227(c)(5) because it delivered, or caused
to be delivered, to Plaintiff and members of the Sender Identification Class, more than one
solicitation call or text message in a 12-month period in violation of 47 C.F.R. § 64.1200(d)(4).
75.
As a result of Defendant’s violations of 47 U.S.C. § 227(c)(5) and 47 C.F.R. §
64.1200(d)(4), Plaintiff, and the members of the Sender Identification Class, are entitled to
damages in an amount to be proven at trial.
Prayer for Relief
WHEREFORE, Plaintiff prays for relief and judgment, as follows:
a.
Determining that this action is a proper class action;
b.
Designating Plaintiff as a class representative of the class under Federal
Rule of Civil Procedure 23;
c.
Designating Plaintiff’s counsel as class counsel under Federal Rule of Civil
Procedure 23;
d.
Adjudging and declaring that Defendant violated 47 U.S.C. § 227(c)(5);
e.
Enjoining Defendant from continuing their violative behavior, including
continuing to deliver solicitation text messages to telephone numbers
registered with the DNC Registry for at least thirty days;
f.
Awarding Plaintiff and the members of the class damages under 47 U.S.C.
§ 227(c)(5)(B);
g.
Awarding Plaintiff and the members of the classes treble damages under 47
U.S.C. § 227(c)(5)(C);
h.
Awarding Plaintiff and the classes reasonable attorneys’ fees, costs, and
expenses under Rule 23 of the Federal Rules of Civil Procedure;
i.
Awarding Plaintiff and the members of the classes any pre-judgment and
post-judgment interest as may be allowed under the law; and
j.
Awarding such other and further relief as the Court may deem just and
proper.
Demand for Jury Trial
Pursuant to Federal Rule of Civil Procedure 38(b), Plaintiff demands a trial by jury of any
and all triable issues.
Date: October 4, 2022
/s/ Alex D. Kruzyk
Alex D. Kruzyk
E.D. Mo. Bar No. 24117430(TX)
PARDELL, KRUZYK & GIRIBALDO, PLLC
501 Congress Avenue, Suite 150
Austin, Texas 78701
Tele: (561) 726-8444
akruzyk@pkglegal.com
Counsel for Plaintiff and the proposed classes
| privacy |
QLNWC4cBD5gMZwcz8e6I | Joshua B. Swigart, Esq. (SBN: 225557)
josh@westcoastlitigation.com
Veronica McKnight, Esq. (SBN: 306562)
bonnie@westcoastlitigation.com
HYDE & SWIGART
2221 Camino Del Rio South, Suite 101
San Diego, CA 92108
Office Number: (619) 233-7770
Office Fax Number: (619) 297-1022
Abbas Kazerounian, Esq. (SBN: 249203)
ak@kazlg.com
KAZEROUNI LAW GROUP, APC
245 Fischer Avenue
Costa Mesa, CA 92626
Telephone: (800) 400-6808
Fax: (800) 520-5523
Attorneys for Plaintiff,
Erik Knutson
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF CALIFORNIA
'16CV1898
BGS
BTM
Case No: ________________
Erik Knutson, individually and on
behalf of all others similarly
situated,
CLASS ACTION
Plaintiff,
v.
Protect My Car II, LLC.
Defendant.
COMPLAINT FOR DAMAGES
AND INJUNCTIVE RELIEF
PURSUANT TO THE
TELEPHONE CONSUMER
PROTECTION ACT, 47 U.S.C. §
227, ET. SEQ.
JURY TRIAL DEMANDED
Introduction
1.
Erik Knutson, (Plaintiff), through Plaintiff's attorneys, brings this action for
damages, injunctive relief, and any other available legal or equitable
remedies, resulting from the illegal actions of Protect My Car II, LLC.
(“Defendant”), in negligently and/or intentionally contacting Plaintiff on
Plaintiff’s cellular phone, in violation of the Telephone Consumer Protection
Act, 47 U.S.C. § 227 et seq. (“TCPA”), 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 conduct by his attorneys.
2.
The TCPA was designed to prevent calls and messages like the ones described
within this complaint, and to protect the privacy of citizens like Plaintiff.
“Voluminous consumer complaints about abuses of telephone technology –
for example, computerized calls dispatched to private homes – prompted
Congress to pass the TCPA.” Mims v. Arrow Fin. Servs., LLC, 132 S. Ct. 740,
744 (2012).
3.
In enacting the TCPA, Congress intended to give consumers a choice as to
how creditors and telemarketers may call them, and made specific findings
that “[t]echnologies that might allow consumers to avoid receiving such calls
are not universally available, are costly, are unlikely to be enforced, or place
an inordinate burden on the consumer. TCPA, Pub.L. No. 102–243, § 11.
Toward this end, Congress found that
[b]anning 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. at § 12; see also Martin v. Leading Edge Recovery Solutions, LLC, 2012
WL 3292838, at* 4 (N.D.Ill. Aug. 10, 2012) (citing Congressional findings on
TCPA’s purpose).
4.
Congress also specifically found that “the evidence presented to the Congress
indicates that automated or prerecorded calls are a nuisance and an invasion
of privacy, regardless of the type of call….” Id. at §§ 12-13. See also, Mims,
132 S. Ct. at 744.
5.
As Judge Easterbrook of the Seventh Circuit recently explained in a TCPA
case regarding calls similar to this one:
The Telephone Consumer Protection Act … is well known for
its provisions limiting junk-fax transmissions. A less-litigated
part of the Act curtails the use of automated dialers and
prerecorded messages to cell phones, whose subscribers often
are billed by the minute as soon as the call is answered—and
routing a call to voicemail counts as answering the call. An
automated call to a landline phone can be an annoyance; an
automated call to a cell phone adds expense to annoyance.
Soppet v. Enhanced Recovery Co., LLC, 679 F.3d 637, 638 (7th Cir. 2012).
Jurisdiction and Venue
6.
This Court has federal question jurisdiction because this case arises out of
violation of federal law. 47 U.S.C. §227(b); Mims v. Arrow Fin. Servs., LLC,
132 S. Ct. 740 (2012).
7.
This action arises out of Defendant's violations of the Telephone Consumer
Protection Act, 47 U.S.C. § 227 et seq., (“TCPA”).
8.
Venue is proper in the United States District Court for the Southern District of
California pursuant to 28 U.S.C. § 1391 because Plaintiff resides in the City
of San Diego, County of San Diego, State of California which is within this
judicial district, and the conduct complained of herein occurred within this
judicial district.
Parties
9.
Plaintiff is a resident in the City of San Diego, County of San Diego, State of
California.
10.
Plaintiff is, and at all times mentioned herein was, a “person” as defined by 47
U.S.C. § 153 (39).
11.
Plaintiff is informed and believes, and thereon alleges, that Defendant is, and
at all times mentioned herein was, a company incorporated under the laws in
the state of Florida.
12.
Defendant, is and at all times mentioned herein was, a corporation and is a
“person,” as defined by 47 U.S.C. § 153 (39).
Factual Allegations
13.
Plaintiff alleges that at all times relevant herein Defendant conducted business
in the State of California, County of San Diego, and within this judicial
district.
14.
At no time did Plaintiff ever enter into a business relationship with Defendant.
15.
On June 9, 2016, Plaintiff received a telephone call on his cellular telephone
ending in 6675 via an “automatic telephone dialing system” (“ATDS”), as
defined by 47 U.S.C. § 227(a)(1), using “an artificial or prerecorded voice” as
prohibited by 47 U.S.C. § 227(b)(1)(A).
16.
This ATDS has the capacity to store or produce telephone numbers to be
called, using a random or sequential number generator.
17.
The ATDS used by Defendant also has the capacity to, and does, dial
telephone numbers stored as a list or in a database without human
intervention.
18.
When Plaintiff answered Defendant’s phone call, there was a silence
indicating that an ATDS was in use. Plaintiff then was connected with a
representative from Defendant who wanted to tell Plaintiff about Defendant’s
car protection plan. The representative provided the number 877-739-7206
extension 357 “in case [they] get disconnected.”
19.
Defendant’s call was placed to a telephone number assigned to a cellular
telephone service for which Plaintiff incurs a charge for incoming calls
pursuant to 47 U.S.C.(b)(1).
20.
This telephone call constitutes a call that was not for emergency purposes as
defined by 47 U.S.C. § 227(b)(1)(A)(i).
21.
Plaintiff did not provide prior express consent to Defendant or its agent to
receive calls on Plaintiff’s cellular telephone, pursuant to 47 U.S.C. § 227 (b)
(1)(A).
22.
This telephonic communication by Defendant violated 47 U.S.C. § 227 (b)(1).
23.
Through this action, Plaintiff suffered an invasion of his legally protected
interest in privacy, which is specifically addressed and protected by the
TCPA.
24.
He was personally affected because he was frustrated and distressed that
Defendant harassed Plaintiff with a call using an ATDS.
25.
Defendant’s call forces Plaintiff and class members to live without the utility
of Plaintiff’s cell phone by forcing him to silence his cell phone and/or block
incoming numbers.
26.
Defendant’s calls to Plaintiff’s cellular telephone number were unsolicited by
Plaintiff and without Plaintiff’s permission or consent.
27.
Plaintiff is informed and believes and here upon alleges, that these calls were
made by Defendant or Defendant’s agent, with Defendant’s permission,
knowledge, control and for Defendant’s benefit.
28.
The call from Defendant came from the phone number 619-333-2110.
29.
Plaintiff did not provide “prior express consent” to Defendant to place
telephone calls to Plaintiff’s cellular telephone with an artificial or
prerecorded voice utilizing an ATDS as proscribed under 47 U.S.C. § 227(b)
(1)(A).
30.
Through the aforementioned conduct, Defendant violated 47 U.S.C. § 227 et
seq.
Class Action Allegations
31.
Plaintiff brings this action on behalf of himself and on behalf of all others
similarly situated (the “Class”).
32.
Plaintiff represents, and is a member of the Class, consisting of:
All persons within the United States who received any
telephone call from Defendant or its agent/s and/or
employee/s to said person’s cellular telephone made
through the use of any automatic telephone dialing system
or with an artificial or prerecorded voice, which call was
not make for emergency purposes, within the four years
prior to the filing of the Complaint.
33.
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.
34.
Plaintiff and members of the Class were harmed by the acts of Defendant in at
least the following ways: Defendant, either directly or through its agents,
illegally contacting Plaintiff and the Class members via their cellular
telephones by using an ATDS, thereby causing Plaintiff and the Class
members to incur certain cellular telephone charges or reduce cellular
telephone time for which Plaintiff and the Class members previously paid,
and invading the privacy of said Plaintiff and the Class members. Plaintiff and
the Class members were damaged thereby.
35.
This suit seeks only damages 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. Plaintiff reserves the
right to modify or expand the Class definition to seek recovery on behalf of
additional persons as warranted as facts are learned in further investigation
and discovery.
36.
The joinder of the Class members is impractical and the disposition of their
claims in the Class action will provide substantial benefits both to the parties
and to the court. The Class can be identified through Defendant’s records and/
or Defendant’s agents’ records.
37.
There is a well-defined community of interest in the questions of law and fact
involved affecting the parties to be represented. The questions of law and fact
to the Class predominate over questions which may affect individual Class
members, including but not necessarily limited to the following:
• Whether, within the four years prior to the filing of the Complaint,
Defendant or its agents sent any unsolicited artificial or prerecorded voice
message/s to the Class (other than a message made for emergency purposes
or made with the prior express consent of the called party) using any
automatic dialing system to any telephone number assigned to a cellular
telephone service;
• Whether Defendant can meet its burden of showing Defendant obtained
prior express consent (i.e., consent that is clearly and unmistakably stated);
• Whether Defendant’s conduct was knowing and/or willful;
• Whether Plaintiff and the Class Members were damaged thereby, and the
extent of damages for such violation; and
• Whether Defendant and its agents should be enjoined from engaging in
such conduct in the future.
38.
As a person who received at least one artificial or prerecorded voice message
utilizing an ATDS without Plaintiff’s prior express consent, Plaintiff is
asserting claims that are typical of the Class. Plaintiff will fairly and
adequately represent and protect the interests of the Class in that Plaintiff has
no interests antagonistic to any member of the Class.
39.
Plaintiff and the members of the Class have all suffered irreparable harm as a
result of the Defendant’s unlawful and wrongful conduct. Absent a class
action, the Class will continue to face the potential for irreparable harm. In
addition, these violations of law will be allowed to proceed without a remedy
and Defendant will likely continue such illegal conduct. Because of the size
of the individual Class members’ claims, few, if any, Class members could
afford to seek legal redress for the wrongs complained of herein.
40.
Plaintiff has retained counsel experienced in handling class action claims and
claims involving violations of the Telephone Consumer Protection Act.
41.
A class action is a superior method for the fair and efficient adjudication of
this controversy. Class-wide damages are essential to induce Defendant to
comply with federal law. The interests of Class members in individually
controlling the prosecution of separate claims against Defendant is small
because the maximum statutory damages in an individual action for violation
of privacy are minimal. Management of these claims is likely to present
significantly fewer difficulties than those presented in many class action
claims. Defendant has acted on grounds generally applicable to the Class,
thereby making appropriate final injunctive relief and corresponding
declaratory relief with respect to the Class as a whole.
First Cause of Action
Negligent Violations Of The
Telephone Consumer Protection Act (TCPA)
47 U.S.C. 227
42.
Plaintiff repeats, re-alleges, and incorporates by reference, all of the above
paragraphs of this Complaint as though fully stated herein.
43.
The foregoing acts and omissions constitute numerous and multiple violations
of the TCPA, including but not limited to each and every one of the above-
cited provisions of the TCPA, 47 U.S.C. 227 et. seq.
44.
As a result of Defendant's negligent violations of 47 U.S.C. § 227 et seq.,
Plaintiff is entitled to an award of $500.00 in statutory damages, for each and
every violation, pursuant to 47 U.S.C. § 227(b)(3)(B).
45.
Plaintiff is also entitled to and seeks injunctive relief prohibiting such conduct
in the future.
Prayer For Relief
WHEREFORE, Plaintiff prays that judgment be entered against Defendant, and
Plaintiff be awarded damages from Defendant, as follows:
•
That the action regarding each violation of the TCPA be certified as a
class action on behalf of the Class and requested herein;
•
That Plaintiff be appointed as representative of the Class;
•
That Plaintiff’s counsel be appointed as counsel for the Class;
•
Statutory damages of $500.00 for each negligent violation of the TCPA
pursuant to 47 U.S.C. § 227(b)(3)(B);
•
Pursuant to 47 U.S.C § 227(b)(3)(A), injunctive relief prohibiting such
conduct in the future.
•
any other relief the Court may deem just and proper.
46.
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,
Hyde & Swigart
Date: July 27, 2016
By: /s/ Joshua B. Swigart
Joshua B. Swigart
Attorneys for Plaintiff
I. (a) PLAINTIFFS
DEFENDANTS
Erik Knutson, individually and on behalf of all others similarly situated
Protect My Car II, LLC
San Diego
(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)
Joshua B. Swigart, Esq. (225557); Veronica McKnight, Esq. (306562)
Hyde & Swigart (619) 233-7770
2221 Camino Del Rio South, Suite 101, San Diego, CA 92108
'16CV1898
BGS
BTM
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
’ 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
’ 400 State Reapportionment
’ 130 Miller Act
’ 315 Airplane Product
Product Liability
’ 690 Other
28 USC 157
’ 410 Antitrust
’ 140 Negotiable Instrument
Liability
’ 367 Health Care/
’ 430 Banks and Banking
’ 150 Recovery of Overpayment
’ 320 Assault, Libel &
Pharmaceutical
PROPERTY RIGHTS
’ 450 Commerce
& Enforcement of Judgment
Slander
Personal Injury
’ 820 Copyrights
’ 460 Deportation
’ 151 Medicare Act
’ 330 Federal Employers’
Product Liability
’ 830 Patent
’ 470 Racketeer Influenced and
’ 152 Recovery of Defaulted
Liability
’ 368 Asbestos Personal
’ 840 Trademark
Corrupt Organizations
Student Loans
’ 340 Marine
Injury Product
’ 480 Consumer Credit
(Excludes Veterans)
’ 345 Marine Product
Liability
LABOR
SOCIAL SECURITY
’ 490 Cable/Sat TV
’ 153 Recovery of Overpayment
Liability
PERSONAL PROPERTY ’ 710 Fair Labor Standards
’ 861 HIA (1395ff)
’ 850 Securities/Commodities/
of Veteran’s Benefits
’ 350 Motor Vehicle
’ 370 Other Fraud
Act
’ 862 Black Lung (923)
Exchange
’ 160 Stockholders’ Suits
’ 355 Motor Vehicle
’ 371 Truth in Lending
’ 720 Labor/Management
’ 863 DIWC/DIWW (405(g))
’ 890 Other Statutory Actions
’ 190 Other Contract
Product Liability
’ 380 Other Personal
Relations
’ 864 SSID Title XVI
’ 891 Agricultural Acts
’ 195 Contract Product Liability
’ 360 Other Personal
Property Damage
’ 740 Railway Labor Act
’ 865 RSI (405(g))
’ 893 Environmental Matters
’ 196 Franchise
Injury
’ 385 Property Damage
’ 751 Family and Medical
’ 895 Freedom of Information
’ 362 Personal Injury -
Product Liability
Leave Act
Act
Medical Malpractice
’ 790 Other Labor Litigation
’ 896 Arbitration
REAL PROPERTY
CIVIL RIGHTS
PRISONER PETITIONS
’ 791 Employee Retirement
FEDERAL TAX SUITS
’ 899 Administrative Procedure
’ 210 Land Condemnation
’ 440 Other Civil Rights
Habeas Corpus:
Income Security Act
’ 870 Taxes (U.S. Plaintiff
Act/Review or Appeal of
’ 220 Foreclosure
’ 441 Voting
’ 463 Alien Detainee
or Defendant)
Agency Decision
’ 230 Rent Lease & Ejectment
’ 442 Employment
’ 510 Motions to Vacate
’ 871 IRS—Third Party
’ 950 Constitutionality of
’ 240 Torts to Land
’ 443 Housing/
Sentence
26 USC 7609
State Statutes
’ 245 Tort Product Liability
Accommodations
’ 530 General
’ 290 All Other Real Property
’ 445 Amer. w/Disabilities - ’ 535 Death Penalty
IMMIGRATION
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)
47 U.S.C. § 227, et seq.
VI. CAUSE OF ACTION
Cite the U.S. Civil Statute under which you are filing (Do not cite jurisdictional statutes unless diversity):
Brief description of cause:
Violations of the Telephone Consumer Protection Act
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
07/27/2016
s/Joshua B. Swigart
The JS 44 civil cover sheet and the information contained herein neither replaces nor supplements the filings and service of pleading or other papers as
required by law, except as provided by local rules of court. This form, approved by the Judicial Conference of the United States in September 1974, is
required for the use of the Clerk of Court for the purpose of initiating the civil docket sheet. Consequently, a civil cover sheet is submitted to the Clerk of
Court for each civil complaint filed. The attorney filing a case should complete the form as follows:
I.(a)
Plaintiffs-Defendants. Enter names (last, first, middle initial) of plaintiff and defendant. If the plaintiff or defendant is a government agency, use
only the full name or standard abbreviations. If the plaintiff or defendant is an official within a government agency, identify first the agency and
then the official, giving both name and title.
(b)
County of Residence. For each civil case filed, except U.S. plaintiff cases, enter the name of the county where the first listed plaintiff resides at the
time of filing. In U.S. plaintiff cases, enter the name of the county in which the first listed defendant resides at the time of filing. (NOTE: In land
condemnation cases, the county of residence of the "defendant" is the location of the tract of land involved.)
(c)
Attorneys. Enter the firm name, address, telephone number, and attorney of record. If there are several attorneys, list them on an attachment, noting
in this section "(see attachment)".
II.
Jurisdiction. The basis of jurisdiction is set forth under Rule 8(a), F.R.Cv.P., which requires that jurisdictions be shown in pleadings. Place an "X"
in one of the boxes. If there is more than one basis of jurisdiction, precedence is given in the order shown below.
United States plaintiff. (1) Jurisdiction based on 28 U.S.C. 1345 and 1348. Suits by agencies and officers of the United States are included here.
United States defendant. (2) When the plaintiff is suing the United States, its officers or agencies, place an "X" in this box.
Federal question. (3) This refers to suits under 28 U.S.C. 1331, where jurisdiction arises under the Constitution of the United States, an amendment
to the Constitution, an act of Congress or a treaty of the United States. In cases where the U.S. is a party, the U.S. plaintiff or defendant code takes
precedence, and box 1 or 2 should be marked.
Diversity of citizenship. (4) This refers to suits under 28 U.S.C. 1332, where parties are citizens of different states. When Box 4 is checked, the
citizenship of the different parties must be checked. (See Section III below; NOTE: federal question actions take precedence over diversity
cases.)
III.
Residence (citizenship) of Principal Parties. This section of the JS 44 is to be completed if diversity of citizenship was indicated above. Mark this
section for each principal party.
IV.
Nature of Suit. Place an "X" in the appropriate box. If the nature of suit cannot be determined, be sure the cause of action, in Section VI below, is
sufficient to enable the deputy clerk or the statistical clerk(s) in the Administrative Office to determine the nature of suit. If the cause fits more than
one nature of suit, select the most definitive.
V.
Origin. Place an "X" in one of the six boxes.
Original Proceedings. (1) Cases which originate in the United States district courts.
Removed from State Court. (2) Proceedings initiated in state courts may be removed to the district courts under Title 28 U.S.C., Section 1441.
When the petition for removal is granted, check this box.
Remanded from Appellate Court. (3) Check this box for cases remanded to the district court for further action. Use the date of remand as the filing
date.
Reinstated or Reopened. (4) Check this box for cases reinstated or reopened in the district court. Use the reopening date as the filing date.
Transferred from Another District. (5) For cases transferred under Title 28 U.S.C. Section 1404(a). Do not use this for within district transfers or
multidistrict litigation transfers.
Multidistrict Litigation. (6) Check this box when a multidistrict case is transferred into the district under authority of Title 28 U.S.C. Section 1407.
When this box is checked, do not check (5) above.
VI.
Cause of Action. Report the civil statute directly related to the cause of action and give a brief description of the cause. Do not cite jurisdictional
statutes unless diversity. Example: U.S. Civil Statute: 47 USC 553 Brief Description: Unauthorized reception of cable service
VII.
Requested in Complaint. Class Action. Place an "X" in this box if you are filing a class action under Rule 23, F.R.Cv.P.
Demand. In this space enter the actual dollar amount being demanded or indicate other demand, such as a preliminary injunction.
Jury Demand. Check the appropriate box to indicate whether or not a jury is being demanded.
VIII. Related Cases. This section of the JS 44 is used to reference related pending cases, if any. If there are related pending cases, insert the docket
numbers and the corresponding judge names for such cases.
Date and Attorney Signature. Date and sign the civil cover sheet.
| privacy |
7Ln8C4cBD5gMZwczHiHk | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
RAMON JAQUEZ, on behalf of himself and all
others similarly situated,
Plaintiffs,
v.
CLASS ACTION COMPLAINT
AND
DEMAND FOR JURY TRIAL
NUTRACEUTICAL CORPORATION,
Defendant.
:
:
:
:
:
:
:
:
:
:
:
:
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
Plaintiff, RAMON JAQUEZ (hereinafter, “Plaintiff”), a New York resident,
brings this class complaint by and through the undersigned attorneys against Defendant
NUTRACEUTICAL CORPORATION (hereinafter “Defendant”), for its violations of the
Americans with Disabilities Act (“ADA”), 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 ADA as a way of banning discrimination based on disability.
The ADA guarantees that people with disabilities, such as the Plaintiff, have the
same opportunities as everyone else to participate in the mainstream of American
life.
2.
Case law is clear that those opportunities include access to web content, by
requiring business websites to include screen readers and other assistive
technologies to ensure consumers with disabilities have the same access as
everyone else.
3.
The ADA contemplates injunctive relief when the ADA is violated:
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).
NATURE OF THE ACTION
4.
Plaintiff brings this civil rights action, individually and on behalf of those similarly
situated, seeking redress for Defendant’s actions which violate the ADA.
5.
Plaintiff, like approximately 2.0 million other people in the United States, is
visually impaired and legally blind, in that he has visual acuity with correction of
less than or equal to 20 x 200.
6.
Upon visiting Defendant’s website, www.aubreyorganics.com (hereinafter referred
to as “Website”), Plaintiff quickly became aware of Defendant’s failure to maintain
and operate its website in a way to make it fully accessible for himself and for other
blind or visually-impaired people.
7.
The Internet has become a significant source of information, if not the most
significant source, for conducting all types of necessary activities, such as banking
and shopping.
8.
This is equally true for people with disabilities and those without disabilities.
9.
Fortunately, technology known as screen-reading software provides the blind and
visually-impaired the ability to fully access websites, and the information, products,
goods and contained thereon.
10.
However, 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.
11.
The international website standards organization known throughout the world as
W3C, has published guidelines that should be followed to ensure website
accessibility. The most recent version, version 2.1, is referred to as the Web Content
Accessibility Guidelines (“WCAG 2.1”).
12.
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”).
13.
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
14.
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. The Court also has pendent
jurisdiction over the state law claims in this action pursuant to 28 U.S.C. § 1367.
15.
Venue is proper in this district under 28 U.S.C. §1391(b)(1) and (2).
16.
This Court is empowered to issue a declaratory judgment under 28 U.S.C. §§ 2201
and 2202.
PARTIES
17.
Plaintiff RAMON JAQUEZ, at all relevant times, is and was a resident of Bronx,
New York.
18.
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.
19.
Defendant is and was at all relevant times a Delaware Corporation doing business
in New York.
20.
Defendant is a hair and skincare company that owns and operates the website,
www.aubreyorganics.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.
21.
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).
ALLEGATIONS OF FACTS
22.
On or around August of 2020, Plaintiff visited the Website, using a popular screen
reading software called NonVisual Desktop Access, with the intent of browsing
and potentially making a purchase.
23.
Despite his efforts, however, Plaintiff, a visually impaired or blind person, was
denied access 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.
24.
As a result of visiting the Website, Plaintiff is aware that the Website includes
multiple barriers making it impossible for himself, and any other visually impaired
or blind person, from enjoying access to the Website’s content equally to that of a
sighted user.
25.
For example, many features on the Website fail to accurately describe the contents
of graphical images, fail to properly label title, fails to distinguish one page from
another, contain multiple broken links, contain headings that do not describe the
topic or purpose, and the keyboard user interfaces lack a mode of operation where
the keyboard focus indicator is visible.
26.
These access barriers effectively denied Plaintiff the ability to use and enjoy
Defendant’s website the same way sighted individuals do.
27.
Upon information and belief, Defendant has not, and have never, had adequate
policies and procedures in place to ensure the Website is and will remain accessible
to the blind and/or visually impaired.
28.
Due to Defendant’s failure and refusal to remove access barriers to its website,
Plaintiff and visually-impaired persons, who need screen-readers to access
websites, 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.
29.
The access barriers Plaintiff encountered have caused a denial of Plaintiff’s full and
equal access in the past, and have caused the Plaintiff real harm.
30.
If the Website were equally accessible to all, and if simple compliance with the
WCAG 2.1 guidelines were met, Plaintiff could independently navigate the
Website and complete a desired transaction as sighted individuals do.
31.
Because of this, Plaintiff alleges that Defendant has engaged in acts of intentional
discrimination, including maintaining a website that is inaccessible to members of
a protected class.
32.
Due to Defendant’s violations of the ADA, and the harm it has caused, Plaintiff
seeks damages, fees, costs, and injunctive relief.
33.
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
34.
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.
35.
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.
36.
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.
37.
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.
38.
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.
39.
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.
40.
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.
41.
Plaintiff, on behalf of himself and the Class Members, repeats and realleges every
allegation of the preceding paragraphs as if fully set forth herein.
42.
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).
43.
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.
44.
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).
45.
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).
46.
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).
47.
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.
48.
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
49.
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.
50.
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.”
51.
Defendant’s Website is a sales establishment and public accommodations within
the definition of N.Y.C. Admin. Code § 8-102(9).
52.
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).
53.
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.
54.
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).
55.
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.
56.
Defendant has failed to take any prompt and equitable steps to remedy their
discriminatory conduct. These violations are ongoing.
57.
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.
58.
Defendant’s actions were and are in violation of the NYCHRL and therefore
Plaintiff invokes his right to injunctive relief to remedy the discrimination.
59.
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.
60.
Plaintiff is also entitled to reasonable attorneys’ fees and costs.
61.
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
62.
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.
63.
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.
64.
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: September 16, 2020
MARCUS & ZELMAN, LLC
By: /s/ Yitzchak Zelman, Esq.
Yitzchak Zelman, Esq.
Yzelman@MarcusZelman.com
701 Cookman Avenue, Suite 300
Asbury Park, New Jersey 07712
Tel: (732) 695-3282
Fax: (732) 298-6256
ATTORNEYS FOR PLAINTIFF
| civil rights, immigration, family |
vtNND4cBD5gMZwczVd8j | Laurence M. Rosen, Esq. (SBN 219683)
THE ROSEN LAW FIRM, P.A.
355 South Grand Avenue, Suite 2450
Los Angeles, CA 90071
Telephone: (213) 785-2610
Facsimile: (213) 226-4684
Email: lrosen@rosenlegal.com
Counsel for Plaintiff
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
Case No:
CLASS ACTION COMPLAINT FOR
VIOLATION OF THE FEDERAL
SECURITIES LAWS
JURY TRIAL DEMANDED
AMRAM GALMI, Individually and on
behalf of all others similarly situated,
Plaintiff,
v.
TEVA PHARMACEUTICAL
INDUSTRIES LIMITED, EREZ
VIGODMAN, and EYAL DESHEH,
Defendants.
Plaintiff Amram Galmi (“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 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,
- 1 -
wire and press releases published by and regarding Teva Pharmaceutical Industries
Limited (“Teva” 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 the American
Depositary Shares (“ADSs”) of Teva between February 10, 2015 and November 3,
2016, both dates inclusive (the “Class Period”). Plaintiff seeks to recover
compensable 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.
JURISDICTION AND VENUE
2.
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).
3.
This Court has jurisdiction over the subject matter of this action under
28 U.S.C. §1331 and §27 of the Exchange Act.
4.
Venue is proper in this District pursuant to §27 of the Exchange Act (15
U.S.C. §78aa) and 28 U.S.C. §1391(b) as Defendants conduct business and operate
facilities 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 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.
- 2 -
PARTIES
6.
Plaintiff, as set forth in the accompanying Certification, purchased Teva
ADSs at artificially inflated prices during the Class Period and was damaged upon the
revelation of the alleged corrective disclosures.
7.
Defendant Teva primarily develops, manufactures, markets, and
distributes generic medicines and a portfolio of specialty medicines. The Company is
incorporated in Israel and its principal executive offices are located at 5 Basel Street,
P.O. Box 3190, Petach Tikva 4951033, Israel. Upon information and belief, the
Company operates facilities in this district at Irvine, CA. Teva ADSs are traded on
the New York Stock Exchange (“NYSE”) under the ticker symbol “TEVA.”
8.
Defendant Erez Vigodman (“Vigodman”) has been the Chief Executive
Officer (“CEO”) and President of Teva since February 11, 2014.
9.
Defendant Eyal Desheh (“Desheh”) has been the Chief Financial Officer
(“CFO”) and Group Executive Vice President at Teva since July 2008 and 2012
respectively.
10.
Defendants Vigodman and Desheh are sometimes referred to herein as
the “Individual Defendants.”
11.
Each of the Individual Defendants:
(a)
directly participated in the management of the Company;
(b)
was directly involved in the day-to-day 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;
- 3 -
(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.
12.
The Company is liable for the acts of the Individual Defendants and its
employees under the doctrine of respondeat superior and common law principles of
agency because all of the wrongful acts complained of herein were carried out within
the scope of their employment.
13.
The scienter of the Individual Defendants and other employees and
agents of the Company is similarly imputed to the Company under respondeat
superior and agency principles.
14.
The Company and the Individual Defendants are referred to herein,
collectively, as the “Defendants.”
SUBSTANTIVE ALLEGATIONS
Materially False and Misleading Statements
15.
On February 9, 2015, during aftermarket hours, the Company filed a
Form 20-F for the fiscal year ended December 31, 2014 (the “2014 20-F”) with the
SEC which provided the Company’s year-end financial results and stated that the
Company’s internal control over financial reporting was effective as of December 31,
2014. The 2014 20-F was signed by Defendant Desheh and both Defendants
Vigodman and Desheh signed Teva’s consolidated balance sheet included in the 2014
20-F. The 2014 20-F also contained signed certifications pursuant to Sarbanes-Oxley
Act of 2002 (“SOX”) by Defendants Vigodman and Desheh 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.
16.
The 2014 20-F discussed Teva’s business strategy, stating in relevant
part:
- 4 -
Strategy
In 2014, we began a process of re-defining and re-focusing our
business strategy to better leverage our strengths and differentiate
ourselves in the pharmaceutical market. We seek to capitalize on our
advantages—including the largest generic medicines business in the
world, a focused specialty business, a unique OTC business and our
integrated R&D and API capabilities—to provide patients with
integrated, outcome-focused solutions. Underlying our strategy is our
heightened focus on profitable and sustainable business.
The key elements of our strategy consist of the following:
•
Solidifying
our
foundation
and
driving
organic
growth. We are solidifying the core foundations of our generics
and specialty businesses to create additional value from our
existing operations. In 2014, we implemented organizational
and leadership changes, such as the creation of the Global
Generics Medicines group, designed to achieve global
integration and improve focus and effectiveness. We seek to
drive organic growth in our generics business by emphasizing
markets where we have or are pursuing leadership positions,
and by shifting our generic pipeline and portfolio to include a
larger proportion of complex products, with high barriers to
entry.
•
Focusing on key growth markets. While we currently
operate in numerous markets throughout the world, in 2015 we
intend to concentrate our efforts on a smaller number of large
growth markets where we believe we can establish or expand
leadership positions. We are exploring both organic and
inorganic initiatives to achieve leadership in these markets.
•
Maintaining
Copaxone® and
other
key
specialty
products. We have enhanced our multiple sclerosis (“MS”)
franchise through the introduction of our three-times-a-week
Copaxone® 40 mg/mL product in the United States, and will
launch Copaxone® 40 mg/mL in Europe and other countries in
2015. For many of our other specialty products, we are
expanding into new markets, improving the products and taking
further steps to protect the franchise while creating value for
patients and payors.
- 5 -
•
Solidifying leadership positions in our core therapeutic
areas. We plan to focus on our core therapeutic areas of CNS
(including MS, neurodegenerative diseases and pain) and
respiratory
(including asthma and chronic obstructive pulmonary disease),
establishing leadership positions in such areas. In so doing, we
will leverage our focused R&D efforts, new product
submissions and strong execution of product launches. In
addition, in women’s health and oncology, where we have a
significant commercial presence, we strive to maintain the
existing franchises and may consider business development
opportunities to maximize sustainable profitability.
•
Pursuing strategic business development initiatives. We
continue to pursue business development initiatives across all
our activities. As part of these initiatives, we will continue to
evaluate opportunities for joint ventures, collaborations and
other commercially-oriented activities.
•
Executing on our cost reduction program. We are focused
on the continued execution of our sustainable efficiency
program, which includes improvements in the operational
efficiency of our production plants, in our global procurement
activities, and others.
17.
The 2014 20-F discussed the Company’s strategy in the United States
market in further detail, stating in relevant part:
United States
We are the leading generic drug company in the United States.
We market approximately 375 generic products in more than 1,100
dosage strengths and packaging sizes, including oral, injectables and
inhaled products. We believe that the breadth of our product portfolio
provides us with a strategic advantage, particularly as consolidation
continues among purchasers, including large drugstore chains,
wholesaling organizations and buying groups. Our growth strategy
focuses on a carefully selected portfolio of products that will provide
added value to our customers, payors and patients, utilizing new and
advanced technologies.
- 6 -
In the United States, we are subject to intense competition in the
generic drug market from domestic and international generic drug
manufacturers, brand-name pharmaceutical companies through
lifecycle management initiatives, authorized generics, existing brand
equivalents and manufacturers of therapeutically similar drugs. Price
competition from additional generic versions of the same product
typically results in margin pressures. We believe that our primary
competitive advantages are our ability to continually introduce new
and complex generic equivalents for brand-name drug products on a
timely basis, our quality, our customer service and the breadth of our
product portfolio. We believe we have a focused and competitive
pricing strategy.
A substantial majority of our U.S. generic sales are made to retail
drug chains and wholesalers, which continue to undergo significant
consolidation and globalization. Our portfolio selection, breadth of
products offerings and our global network capabilities, have provided
mutual strategic advantages to our customers. We are committed to
the success of our customers and work closely with them as important
business partners.
In the United States, our wholesale and retail selling efforts are
supported by advertising in professional journals and on leading
pharmacy websites, as well as participating in key medical and
pharmaceutical conferences. We continue to strengthen consumer
awareness of the benefits of generics through partnerships and digital
marketing programs.
18.
On February 11, 2016, the Company filed a Form 20-F for the fiscal year
ended December 31, 2015 (the “2015 20-F”) with the SEC which provided the
Company’s year-end financial results and stated that the Company’s internal control
over financial reporting was effective as of December 31, 2015. The 2015 20-F was
signed by Defendant Desheh and both Defendants Vigodman and Desheh signed
Teva’s consolidated balance sheet included in the 2015 20-F. The 2015 20-F also
contained SOX certifications signed by Defendants Vigodman and Desheh 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.
- 7 -
19.
The 2015 20-F discussed Teva’s business strategy, stating in relevant
part:
Strategy
In 2014, we began a process of re-defining and re-focusing our
business strategy to better leverage our strengths and differentiate
ourselves in the pharmaceutical market. We seek to capitalize on our
advantages—including the largest generic medicines business in the
world, a focused specialty business, a unique OTC business and our
robust R&D and API capabilities—to provide patients with integrated,
outcome-focused solutions. Underlying our strategy is our heightened
focus on profitable and sustainable business.
The key elements of our strategy consist of the following:
•
Solidifying
our
foundation
and
driving
organic
growth. We have solidified, and continue to strengthen, the core
foundations of our generics and specialty businesses to create
additional value from our existing operations. We implemented
organizational and leadership changes, such as the creation of
the Global Generics Medicines group, designed to achieve
global integration and improve focus and effectiveness. We
continue to drive organic growth and improve profitability in
our generics business.
•
Transforming
our
generics
business. Upon
consummation of our acquisition of Actavis Generics, the
Actavis Generics portfolio and pipeline, combined with our
strong existing generics portfolio, will further enhance our
goals of delivering the highest quality generic medicines at
competitive prices. The combined generic business will have a
commercial presence across 100 markets, including a top three
leadership position in over 40 markets.
•
Focusing on key growth markets. While we currently
operate in numerous markets throughout the world, we intend
to concentrate our efforts on a smaller number of growth
markets where we believe we can establish or expand
leadership positions. We are exploring both organic and
inorganic initiatives to achieve leadership in these markets,
including, for example, our pending acquisition of Rimsa, a
leading pharmaceutical company in Mexico.
- 8 -
•
Maintaining
Copaxone® and
other
key
specialty
products. We enhanced our multiple sclerosis (“MS”) franchise
through
the
introduction
of
our
three-times-a-week
Copaxone® 40 mg/mL product in the United States, Europe
and other countries in 2015. We also enhanced our oncology
portfolio with the FDA’s approval in December 2015 of
Bendeka™ (bendamustine hydrochloride), which complements
our Treanda® franchise. For many of our other specialty
products, we are expanding into new markets, improving the
products and taking further steps to protect the franchise while
creating value for patients and payors.
•
Solidifying leadership positions in our core therapeutic
areas. Our focus is on our core therapeutic areas of CNS
(including
MS,
neurodegenerative
diseases,
movement
disorders and pain care) and respiratory (including asthma and
chronic obstructive pulmonary disease), where we seek to
establish leadership positions. In the past year, we have taken
significant steps, both internally and by pursuing business
development initiatives, to significantly solidify our position in
our core therapeutic areas, specifically with the acquisitions of
Labrys and Auspex.
•
Pursuing strategic business development initiatives. We
continue to pursue business development initiatives across all
our activities. As part of these initiatives, we will continue to
evaluate opportunities for joint ventures, collaborations and
other activities that support our strategy.
20.
The 2015 20-F discussed the Company’s strategy in the United States
market in further detail, stating in relevant part:
United States
We are the leading generic drug company in the United States.
We market approximately 370 generic products in more than 1,100
dosage strengths and packaging sizes, including oral, injectable and
inhaled products. We believe that the breadth of our product portfolio
provides us with a strategic advantage, particularly as consolidation
continues among purchasers, including large drugstore chains,
wholesaling organizations and buying groups. Our growth strategy
focuses on a portfolio of products that will provide added value to our
- 9 -
customers, payors and patients, utilizing new and advanced
technologies.
In the United States, we are subject to intense competition in the
generic drug market from domestic and international generic drug
manufacturers, brand-name pharmaceutical companies through
lifecycle management initiatives, authorized generics, existing brand
equivalents and manufacturers of therapeutically similar drugs. Price
competition from additional generic versions of the same product
typically results in margin pressures. We believe that our primary
competitive advantages are our ability to continually introduce new
and complex generic equivalents for brand-name drug products on a
timely basis, our quality, our customer service and the breadth of our
product portfolio. We believe we have a focused and competitive
pricing strategy.
A substantial majority of our U.S. generic sales are made to retail
drug chains and wholesalers, which continue to undergo significant
consolidation and globalization. Our portfolio selection, breadth of
products offerings and our global network capabilities, have provided
mutual strategic advantages to our customers. We are committed to
the success of our customers and work closely with them as important
business partners.
In the United States, our wholesale and retail selling efforts are
supported by advertising in professional journals and on leading
pharmacy websites, as well as participating in key medical and
pharmaceutical conferences. We continue to strengthen consumer
awareness of the benefits of generics through partnerships and digital
marketing programs.
In most other markets in which we operate, we use an integrated
and comprehensive marketing model, offering a range of generic,
specialty and OTC products.
21.
The statements referenced in ¶¶ 15-20 above were materially false
and/or misleading because they misrepresented and 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: (1)
- 10 -
(1) Teva was engaging and/or had engaged in conduct that would result in an antitrust
investigation by the U.S. Department of Justice (“DOJ”) and the State of Connecticut
Office of the Attorney General; (2) the DOJ investigation and the underlying conduct
could cause U.S. prosecutors to file criminal charges against Teva by the end of 2016
for suspected price collusion; and (3) in turn, Teva lacked effective internal
controls over financial reporting; and (4) as a result, Teva’s public statements
were materially false and misleading at all relevant times.
The Truth Emerges
22.
On August 4, 2016, the Company filed a Form 6-K with the SEC which
was signed by Defendant Desheh. The Form 6-K discussed government
investigations relating to Teva’s pricing and marketing, disclosing that the company’s
subsidiary, Teva USA, received two subpoenas, stating in relevant part:
On June 21, 2015, Teva USA received a subpoena from the Antitrust
Division of the United States Department of Justice seeking
documents and other information relating to the marketing and pricing
of certain of Teva USA’s generic products and communications with
competitors about such products. On July 12, 2016, Teva USA
received a subpoena from the Connecticut Attorney General seeking
documents and other information relating to potential state antitrust
law violations. Teva is cooperating fully with these requests.
23.
On this news, Teva’s ADSs fell $1.24 per share from its previous closing
price, to close at $54.21 per share on August 5, 2016, damaging investors.
24.
On November 3, 2016, Bloomberg published the article “U.S. Charges in
Generic-Drug Probe to Be Filed by Year End” which discussed the DOJ’s two year
investigation of suspected price collusion by several pharmaceutical companies,
including Teva, which will likely result in prosecutors filing criminal charges by the
end of the year, stating in part:
U.S. prosecutors are bearing down on generic pharmaceutical
companies in a sweeping criminal investigation into suspected price
- 11 -
collusion, a fresh challenge for an industry that’s already reeling from
public outrage over the spiraling costs of some medicines.
The antitrust investigation by the Justice Department, begun about
two years ago, now spans more than a dozen companies and about
two dozen drugs, according to people familiar with the matter. The
grand jury probe is examining whether some executives agreed with
one another to raise prices, and the first charges could emerge by the
end of the year, they said.
Though individual companies have made various disclosures about
the inquiry, they have identified only a handful of drugs under
scrutiny, including a heart treatment and an antibiotic. Among the
drugmakers to have received subpoenas are industry giants Mylan NV
and Teva Pharmaceutical Industries Ltd. Other companies include
Actavis, which Teva bought from Allergan Plc in August, Lannett
Co., Impax Laboratories Inc., Covis Pharma Holdings Sarl, Sun
Pharmaceutical Industries Ltd., Mayne Pharma Group Ltd., Endo
International Plc’s subsidiary Par Pharmaceutical Holdings and Taro
Pharmaceutical Industries Ltd.
*
*
*
Although it isn’t illegal for companies to raise prices at the same time,
it’s against the law for competitors to agree to set prices or coordinate
on discounts, production quotas or fees that affect prices. The federal
government can prosecute companies for collusion and seek penalties
and potentially send executives to jail.
Charges could extend to high-level executives, according to the
people. The antitrust division, which has an immunity program to
motivate wrongdoers to confess and inform on others, has stepped up
its commitment to holding individuals responsible.
*
*
*
Generic drug companies are also contending with a civil price-fixing
investigation by Connecticut Attorney General George Jepsen. Jepsen
is seeking to lead a group of states to probe the industry, which could
result in cases seeking damages, according to people familiar with the
matter. A spokesman for the Connecticut Attorney General’s office
declined to comment.
- 12 -
The first subpoenas in the generics investigation were issued by
Connecticut in July 2014, while the Justice Department followed in
November, according to regulatory filings by the companies. The
investigations initially focused on mid-sized U.S. companies and have
since extended to the biggest manufacturers and U.S. subsidiaries of
overseas companies.
25.
On this news, Teva ADSs fell $4.13 per share, or over 9.5%, from its
previous closing price to close at $39.20 per share on November 3, 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 ADSs, 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
purchased or otherwise acquired Teva ADSs 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.
28.
The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, Teva ADSs 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 the
Company or its transfer agent and may be notified of the pendency of this action by
- 13 -
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:
•
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 the Company;
•
whether Defendants’ public statements to the investing public during the
Class Period omitted material facts necessary to make the statements
made, in light of the circumstances under which they were made, not
misleading;
•
whether the Individual Defendants caused the Company to issue false
and misleading SEC filings and public statements during the Class
Period;
•
whether Defendants acted knowingly or recklessly in issuing false and
misleading SEC filings and public statements during the Class Period;
- 14 -
•
whether the prices of Teva ADSs 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.
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 individually redress 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 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;
•
Teva ADSs are traded in efficient markets;
•
the Company’s ADSs 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 ADSs; and
•
Plaintiff and members of the Class purchased and/or sold Teva ADSs
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.
- 15 -
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.
COUNT I
Violation of Section 10(b) of The Exchange Act and Rule 10b-5
Against All Defendants
36.
Plaintiff repeats and realleges each and every allegation contained above
as if fully set forth herein.
37.
This Count is asserted against the Company and the Individual
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.
38.
During the Class Period, the Company 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.
39.
The Company 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
- 16 -
•
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 Teva ADSs during the Class Period.
40.
The Company and the Individual Defendants acted with scienter in that
they knew that the public documents and statements issued or disseminated in the
name of the Company 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 the Company, their control over, and/or receipt and/or modification of the
Company’s allegedly materially misleading statements, and/or their associations with
the Company which made them privy to confidential proprietary information
concerning the Company, participated in the fraudulent scheme alleged herein.
41.
Individual Defendants, who are the senior officers and/or directors of
the 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 personnel of the Company to members of the investing public,
including Plaintiff and the Class.
42.
As a result of the foregoing, the market price of Teva ADSs was
artificially inflated during the Class Period. In ignorance of the falsity of the
Company’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 Teva ADSs during the Class Period in purchasing Teva ADSs at
prices that were artificially inflated as a result of the Company’s and the Individual
Defendants’ false and misleading statements.
- 17 -
43.
Had Plaintiff and the other members of the Class been aware that the
market price of Teva ADSs had been artificially and falsely inflated by the
Company’s and the Individual Defendants’ misleading statements and by the material
adverse information which the Company’s and the Individual Defendants did not
disclose, they would not have purchased Teva ADSs at the artificially inflated prices
that they did, or at all.
44.
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.
45.
By reason of the foregoing, the Company 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 Teva ADSs during
the Class Period.
COUNT II
Violation of Section 20(a) of The Exchange Act
Against The Individual Defendants
46.
Plaintiff repeats and realleges each and every allegation contained in the
foregoing paragraphs as if fully set forth herein.
47.
During the Class Period, the Individual Defendants participated in the
operation and management of the Company, and conducted and participated, directly
and indirectly, in the conduct of the Company’s business affairs. Because of their
senior positions, they knew the adverse non-public information regarding the
Company’s business practices.
48.
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 the Company’s financial condition and results of operations, and to correct
promptly any public statements issued by the Company which had become materially
false or misleading.
- 18 -
49.
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 the Company disseminated in the
marketplace during the Class Period. Throughout the Class Period, the Individual
Defendants exercised their power and authority to cause the Company to engage in
the wrongful acts complained of herein. The Individual Defendants therefore, were
“controlling persons” of the Company 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 Teva ADSs.
50.
Each of the Individual Defendants, therefore, acted as a controlling
person of the Company. By reason of their senior management positions and/or being
directors of the Company, each of the Individual Defendants had the power to direct
the actions of, and exercised the same to cause, the Company to engage in the
unlawful acts and conduct complained of herein. Each of the Individual Defendants
exercised control over the general operations of the Company 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.
51.
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 the
Company.
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;
- 19 -
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: November 6, 2016
Respectfully submitted,
THE ROSEN LAW FIRM, P.A.
By: /s/ Laurence M. Rosen
Laurence M. Rosen, Esq. (SBN 219683)
355 S. Grand Avenue, Suite 2450
Los Angeles, CA 90071
Telephone: (213) 785-2610
Facsimile: (213) 226-4684
Email: lrosen@rosenlegal.com
Counsel for Plaintiff
- 20 -
| consumer fraud |
zE5F_ogBF5pVm5zYirTk | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
MIAMI DIVISION
Hesh’s Seafood, Inc. on behalf of itself and all
others similarly situated,
Civil Action No.
Plaintiff,
v.
CLASS ACTION COMPLAINT
JURY TRIAL DEMANDED
Mowi ASA (f/k/a Marine Harvest ASA),
Mowi USA, LLC (f/k/a Marine Harvest USA,
LLC), Mowi Ducktrap, LLC (f/k/a Ducktrap
River of Maine LLC), Grieg Seafood ASA,
Grieg Seafood BC Ltd., Bremnes Seashore
AS, Ocean Quality AS, Ocean Quality North
America, Inc., Ocean Quality USA, Inc.,
Ocean Quality Premium Brands, Inc., SalMar
ASA, Leroy Seafood Group ASA, Leroy
Seafood USA, Inc., and Scottish Sea Farms
Ltd.
Defendants.
Plaintiff Hesh’s Seafood, Inc., on behalf of itself and all others similarly situated, files this
Complaint against Defendants Mowi ASA (f/k/a Marine Harvest ASA), Mowi USA, LLC (f/k/a
Marine Harvest USA, LLC), Mowi Ducktrap, LLC (f/k/a Ducktrap River of Maine LLC), Grieg
Seafood ASA, Grieg Seafood BC Ltd., Bremnes Seashore AS, Ocean Quality AS, Ocean Quality
North America, Inc., Ocean Quality USA, Inc., Ocean Quality Premium Brands, Inc., SalMar
ASA, Leroy Seafood Group ASA, Leroy Seafood USA, Inc., and Scottish Sea Farms Ltd.
(collectively, “Defendants”) for violations of federal antitrust laws.
Plaintiff’s allegations are
made on personal knowledge as to Plaintiff and Plaintiff’s own acts and upon investigation of its
counsel and economic consultants as to all other matters.
NATURE OF THE ACTION
1.
Defendants, who collectively control the majority of the global and United States
market for farm-raised salmon, have conspired since at least 2015 by “participat[ing in] or hav[ing]
participated in anti-competitive agreements and/or concerted practices related to different ways of
price coordination in order to sustain and possibly increase the prices for Norwegian salmon.”
2.
According to the European Commission (“EC”)—which has an open and active
investigation into Defendants’ conduct—Defendants facilitated their conspiracy by: (1)
coordinating sales prices and exchanging commercially sensitive information; (2) agreeing to
purchase production from other competitors when these other competitors offered lower prices;
and (3) applying a coordinated strategy to fix, stabilize, maintain, and/or increase spot prices of
farm-raised Atlantic salmon in order to secure higher price levels for long-term contracts. This
conduct led to recent unannounced inspections—which the EC carries out as a preliminary step
into suspected anticompetitive practices—at the premises of several Defendants in February 2019.
3.
The Food and Agriculture Organization of the United Nations also took note of the
skyrocketing prices in the farm-raised salmon sector, observing that the “[s]everely elevated
2
prices” and “[g]rowth in export revenue for the Norwegian farmed Atlantic salmon industry over
the last three years has been truly remarkable.”
4.
Since 2015, the farm-raised salmon industry saw prices double and surge to record
levels, even as the fish feed cost—which represents more than half of fish farmers’ production
costs—has decreased due to the use of alternative raw materials.
5.
Defendants’ long-standing conspiracy reflected a culture of increasing profits at the
expense of Plaintiff and other Class members. Defendants could not have unilaterally demanded
price increases for farm-raised salmon in recent years; they needed to conspire and agree to do so
in a coordinated fashion.
6.
But for Defendants’ anticompetitive conduct, from at least as early as July 1, 2015,
Plaintiff and Class members would have been able to purchase farm-raised salmon at significantly
lower prices than Defendants charged. The injury to Plaintiff and the Class is significant and
ongoing.
7.
To halt Defendants’ anticompetitive practices and to obtain compensation for its
payment of artificially inflated prices, Plaintiff brings this action under Section 1 of the Sherman
Act, 15 U.S.C. § 1, and Section 16 of the Clayton Act, 15 U.S.C. § 26, on behalf of itself and all
other similarly situated persons. Plaintiff seeks treble damages for injuries and damages suffered
as a result of Defendants’ anticompetitive practices, equitable relief in the form of an injunction
prohibiting Defendants from engaging in any further illegal conduct, and the costs of this suit,
including reasonable attorneys’ fees.
JURISDICTION AND VENUE
8.
Plaintiff brings this action to recover treble damages, costs of the suit, and
reasonable attorneys’ fees resulting from Defendants and their co-conspirators’ violations of the
Sherman Act, 15 U.S.C. §§ 1, 3.
3
9.
This Court has subject matter jurisdiction under 28 U.S.C. §§ 1331 and 1337, and
sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15(a), 26.
10.
This Court also has jurisdiction under 28 U.S.C. § 1332(d) because this action is a
class action in which the aggregate amount in controversy for the proposed Class (defined below)
exceeds $5,000,000, and at least one member of the Class is a citizen of a state different from that
of one of the Defendants.
11.
Venue is appropriate in this District under 15 U.S.C. §§ 15(a), 22, 26, and 28 U.S.C.
§§ 1391(b), (c), and (d). Plaintiff resides and transacts business in this District. Defendants also
reside, transact business, are found, or have agents within this District, and a portion of the affected
interstate trade and commerce discussed below was carried out in this District.
Defendants’
conduct, as described in this Complaint, was within the flow of, was intended to, and did have a
substantial effect on, the interstate commerce of the United States, including in this District.
Moreover, the effects of Defendants’ conduct on interstate trade or commerce are ongoing.
12.
This Court has personal jurisdiction over each Defendant. Each Defendant has
transacted business, maintained substantial contacts, or committed overt acts in furtherance of the
illegal scheme and conspiracy throughout the United States, including in this District. The scheme
and conspiracy have been directed at, and have had the intended effect of causing injury to, persons
residing in, located in, or doing business throughout the United States, including in this District.
The Clayton Act, 15 U.S.C. § 22, moreover, provides for nationwide service of process, giving
this Court personal jurisdiction over Defendants based on their extensive contacts with the United
13.
Certain Defendants have each entered into an unlawful combination, contract,
and/or conspiracy with Mowi USA, LLC, a Florida limited liability company that maintains its
4
principal place of business in this District, at 8550 N.W. 17th Street, No. 105, Miami, Florida
33126, and is thus subject to general jurisdiction in this Court. By entering into an unlawful
conspiracy—the basis for Plaintiff’s claims—with a company in this District, Defendants have
transacted business in and availed themselves of the laws of Florida. The Court therefore has
personal jurisdiction over each Defendant.
THE PARTIES
I.
Plaintiff
14.
Plaintiff Hesh’s Seafood, Inc. is a Pennsylvania corporation that specializes in the
distribution of fresh and frozen seafood to restaurants and other fine establishments locally,
nationally, and internationally. Plaintiff is headquartered at 1428 Ford Rd, Unit C, Bensalem,
Pennsylvania 19020. As a result of Defendants’ collusive and anticompetitive conduct, Plaintiff
purchased farm-raised salmon and/or products derived therefrom directly from one or more of the
Defendants at artificially high or fixed prices and suffered monetary losses.
II.
Defendants
The Mowi Defendants
15.
Defendant Mowi ASA, f/k/a Marine Harvest ASA (“Mowi ASA”), is a Norwegian
seafood company with its principal place of business at Sandviksboder, 77 AB, 5035, Bergen,
Norway. Mowi ASA, both directly and/or through its subsidiaries, is the world’s largest producer
of farm-raised salmon, fulfilling one-fifth of global demand for farm-raised salmon. Mowi ASA
produces, processes, and sells farm-raised salmon internationally, with large operations in
countries including Norway, Scotland, and Canada.
Mowi ASA is listed on the Oslo Stock
Exchange (“OSE”), it is a constituent of the benchmark OBX Index, and its shares also trade on
the U.S. over-the-counter (“OTC”) Market. Mowi ASA also uses some of its well-recognized
5
brands, such as Rebel Fish and Ducktrap River of Maine, to sell its farm-raised salmon products
throughout the world, including in the United States.
16.
Defendant Mowi USA, LLC, f/k/a Marine Harvest USA, LLC (“Mowi USA”), is a
Florida limited liability company with its principal place of business at 8550 N.W. 17th Street,
Unit #105, Miami, Florida 33126. Mowi USA is a wholly-owned subsidiary of Mowi ASA. Mowi
USA, either directly or through subsidiaries, receives fresh farm-raised salmon daily from Norway,
Canada, Chile, and other fish farms around the world at its Miami and Dallas locations, processes
the seafood at its 100,000 square foot headquarters facility in Medley, Florida and at its Arlington,
Texas facility, and distributes it to wholesalers, retailers, and others in Florida and across the
country.
17.
Defendant Mowi Ducktrap, LLC, a/k/a Ducktrap River of Maine, LLC (“Mowi
Ducktrap”), is a Maine limited liability company with its principal place of business at 57 Little
River Drive, Belfast, Maine 04915. Mowi Ducktrap is a wholly-owned subsidiary of Mowi ASA,
and it receives the majority of its farm-raised salmon from Mowi ASA-owned farms in Scotland,
Norway, Iceland, and Chile. Mowi Ducktrap processes the farm-raised salmon, through brining
and/or smoking, and sells the farm-raised salmon through a variety of trade names such as Kendall
Brook, Spruce Point, Winter Harbor, Ducktrap River, and Ducktrap River of Maine.
18.
Defendants Mowi ASA, Mowi USA, and Mowi Ducktrap are collectively referred
to as “Mowi” or the “Mowi Defendants.”
The Grieg Defendants
19.
Defendant Grieg Seafood ASA (“Grieg ASA”) is an international seafood company
with its principal place of business at C. Sundtsgate 17/19, 5004, Bergen, Norway. Grieg ASA,
directly and/or through its subsidiaries, specializes in farming salmon, with fish farms in Norway,
6
the UK, and Canada. Grieg ASA is listed on the OSE. Grieg ASA is the parent company of a
group of companies engaged in the production and sale of seafood and related activities.
20.
Grieg ASA and Defendant Bremnes Seashore AS established and jointly own
Defendant Ocean Quality AS, with Grieg ASA holding a 60 percent ownership interest and
Bremnes Seashore ASA holding a 40 percent ownership interest. Directly through Ocean Quality
AS and/or through its subsidiaries, Grieg ASA, directly and/or through its subsidiaries, sells and
distributes its farm-raised salmon throughout the United States.
21.
Defendant Grieg Seafood BC Ltd. (“Grieg BC”) is a foreign corporation with its
principal place of business at 1180 Ironwood Street, Unit #106, Campbell River, British Columbia,
VPW 597 Canada. Grieg BC is a wholly-owned subsidiary of Grieg ASA. Grieg BC farms salmon
throughout its fish farms and land-based hatchery in Canada. Grieg BC sells its farm-raised salmon
throughout the United States, in part using the Skuna Bay Salmon brand, which it describes as “a
premium salmon product for fine dining restaurants in North America.”
22.
According to Grieg ASA, Skuna Bay Salmon was “launched in November of 2011
in the US Southwest” and has “been served at more than 2,500 high-end restaurants and boutique
retailers across more than 35 states and major urban markets including Los Angeles and New York,
among many others.”
Moreover, according to Grieg ASA, “[w]ell-known chefs from across
America advocate for the [Skuna Bay Salmon] brand.”
23.
Defendants Grieg ASA and Grieg BC are collectively referred to as “Grieg” or the
“Grieg Defendants.”
Defendant Bremnes Seashore
24.
Defendant Bremnes Seashore AS (“Bremnes Seashore”) is a foreign corporation
with its principal place of business at Oklandsvegen 90, N-5430 Bremnes, Norway. Bremnes
7
Seashore is a seafood company that, directly and/or through its subsidiaries, focuses on salmon
farming and has farms throughout Norway. Bremnes Seashore owns 40% of Defendant Ocean
Quality AS and uses it to, directly and/or through its subsidiaries, sell and distribute its farm-raised
salmon internationally, including throughout the United States.
25.
Bremnes Seashore explains: “We supply salmon around the globe through our sales
companies Salmon Brands and Ocean Quality.” Bremnes Seashore also has unique slaughter and
packing plants which allows it to perform slaughter and packing services on behalf of salmon
farming firms Bolaks, Austevoll Melaks, and Fremskridt.
The Ocean Quality Defendants
26.
Defendant Ocean Quality AS (“Ocean Quality AS”) is a foreign corporation with
its principal place of business at Grieg-Gaarden, C. Sundtsgate 17/19, N-5004, Bergen, Norway.
Ocean Quality AS, directly and/or through its subsidiaries, sells seafood, including farm-raised
salmon, throughout the world. Bremnes Seashore owns 40% of the shares of Ocean Quality AS,
and Grieg ASA owns 60% of Ocean Quality AS and controls its operations. Grieg ASA explains
that “[Ocean Quality AS] sells the fish to Asia, Europe, the USA and Canada.”
27.
Defendant Ocean Quality North America, Inc. (“Ocean Quality NA”) is a foreign
corporation with its principal place of business at 4445 Lougheed Highway, 500, Burnaby, BC
V5C0E4, Canada. Ocean Quality NA is a wholly-owned subsidiary of Ocean Quality AS. Ocean
Quality NA provides sales and marketing services for global farm-raised salmon producers,
including assisting with the sale and transportation of farm-raised salmon produced by Grieg
Seafood ASA and Bremnes Seashore throughout the United States.
28.
Indeed, Ocean Quality NA has explained that it “is responsible for moving
approx[imately] 40 million pounds of fresh farmed Atlantic salmon for its main supplier/partner
8
Grieg Seafood, B.C., a major farmed salmon producer in a growing worldwide industry.” Ocean
Quality NA has also explained that it is “one of North America’s leading providers of farmed
salmon to the marketplace . . . [and] is charged with elevating sales performance and expertise in
serving more than 450 customers throughout the US, Canada, and Asia.” Ocean Quality NA has
a dedicated sales office in the United States.
29.
Defendant Ocean Quality USA, Inc. (“Ocean Quality USA”) is a Delaware
corporation with its principal place of business at 1914 Skillman Street, Unit #110-309, Dallas,
Texas 75206. Ocean Quality USA is a wholly-owned subsidiary of Ocean Quality AS. Ocean
Quality USA distributes farm-raised salmon produced by Grieg ASA, its subsidiaries, and
Bremnes Seashore throughout the United States.
30.
Defendant Ocean Quality Premium Brands, Inc. (“Ocean Quality Premium”) is a
Delaware corporation with its principal place of business at 4445 Lougheed Highway, 500,
Burnaby, BC V5C0E4, Canada. Ocean Quality Premium is a wholly-owned subsidiary of Ocean
Quality AS. Ocean Quality Premium specializes in the sale and distribution of farm-raised salmon
produced by Grieg ASA, its subsidiaries, and Bremnes Seashore throughout the United States.
31.
Defendants Ocean Quality AS, Ocean Quality NA, Ocean Quality USA, and Ocean
Quality Premium are collectively referred to as “Ocean Quality” or the “Ocean Quality
Defendants.”
Defendant SalMar
32.
Defendant SalMar ASA (“SalMar”) is a foreign corporation with its principal
place of business at Idustriveien 51, N-7266, Kverva, Norway. SalMar, directly and/or through
its subsidiaries, is one of the world’s largest producers of farm-raised salmon. SalMar is listed
on the OSE.
9
33.
SalMar explains that it has “established a fully integrated system for farming,
processing, sales, and distribution of farmed salmon and is thus in control of the total value chain.”
SalMar further represents that the farm-raised salmon it produces “is sold through an in-house
salesforce and/or through close partners.”
Moreover, SalMar’s “customer base is global and
includes small and large importerts/exporters [sic] as well as larger processing companies and
retail chains.” SalMar claims that it sells directly to the United States and that “North America
has been the third largest market, with the USA as the largest individual market.”
“SalMar
experienced particularly strong growth in the American market in 2017.”
34.
In 2001, SalMar and the Leroy Seafood Group ASA established salmon farm-
raising operations outside of Norway through their joint venture in Norskott Havbruk AS, with
SalMar having a 50% ownership interest. In turn, Norskott Havbruk AS holds a 100% ownership
interest in Scottish Sea Farms Ltd. SalMar also has a 41.95% ownership interest in Arnarlax EHF,
an Icelandic aquaculture company.
The Leroy Defendants
35.
Defendant Leroy Seafood Group ASA (“Leroy ASA”) is a foreign corporation with
its principal place of business at Thormohlens gate 51B, 5006 Bergen, Norway. Leroy ASA is a
self-described “world-leading” seafood corporation. Its core business is “the production of salmon
and trout, catches of whitefish, processing, product development, marketing, sale, and distribution
of seafood. . . . [to] more than 80 different countries.” Leroy ASA has fish farms in Norway, other
parts of Europe, and Turkey. Leroy ASA also has sales offices in the United States. Leroy ASA
is listed on the OSE.
36.
Defendant Leroy Seafood USA, Inc., f/k/a Hallvard Leroy USA, Inc. (“Leroy
USA”), is a North Carolina corporation with its principal place of business at 1289 Fordham Blvd.,
10
Suite 406, Chapel Hill, NC 27514. Leroy USA is a wholly-owned subsidiary of Leroy ASA.
Leroy USA distributes the farm-raised salmon produced by Leroy ASA and its subsidiaries.
37.
Defendants Leroy ASA and Leroy USA are collectively referred to as “Leroy” or
the “Leroy Defendants.”
Defendant Scottish Sea Farms
38.
Defendant Scottish Sea Farms Ltd. (“Scottish Sea Farms”) is a foreign corporation
with its principal place of business at Laurel House, Laurelhill Business Park, Stirling, FK7 9JQ,
United Kingdom, 01786 44552. Scottish Sea Farms is a seafood company that engages in the
farming, processing, and production of farm-raised salmon. Scottish Sea Farms is the United
Kingdom’s second largest producer of farm-raised salmon, selling its salmon throughout the
world, including in the United States.
39.
As discussed above, Norskott Havbruk AS holds a 100% ownership interest in
Scottish Sea Farms; in turn, Norskott Havbruk is jointly owned, with SalMar and Leroy each
holding a 50% ownership interest.
40.
All of Defendants’ actions described in this Complaint are part of, and in
furtherance of, the unlawful conduct alleged in this Complaint. These actions were authorized,
ordered, or undertaken by Defendants’ various officers, agents, employees, or other representatives
while engaged in the management of Defendants’ affairs (or those of their predecessors-in-interest)
within the course and scope of their duties and employment or with the actual, apparent, and/or
ostensible authority of Defendants.
41.
Various persons and/or firms not named as Defendants in this Complaint may have
participated as co-conspirators in the violations alleged herein and may have performed acts and
made statements in furtherance thereof.
11
FACTUAL ALLEGATIONS
A.
The Cycle of Farm Raised Salmon
42.
Farm-raised salmon are born, raised, and harvested under controlled conditions.
Mowi illustrated the process as follows:
43.
Specifically, the process begins with the selection of the parent salmon from the
broodstock cages. Over the next two months, eggs from the female or “hen” fish are fertilized
with milt from the male fish. The fertilized eggs are then incubated in egg trays in freshwater
hatcheries.
44.
For the next several months, the eggs hatch and the baby salmon or alevins
emerge. Alevins carry large, orange-colored yolk sacs, which contain all the nutrients they need.
12
45.
The fish become fry—fish that are capable of feeding themselves—when they
have absorbed their yolk sac. Fry are then transferred from the egg trays to tanks where they
feed for themselves. Fry remain in a freshwater hatchery for about four months, during which
time they grow and become parr—juvenile fish that feed on small invertebrates and are
camouflaged with a pattern of spots and vertical bars.
46.
The parr grow quickly and can double their weight in a month. The parr then
change, taking on a silvery blue color and streamlined shape as they turn into smolts.
47.
Smolts are young salmon which have already spent between 10 to 16 months in
freshwater and are now ready to migrate to a marine environment where they will fully mature.
48.
Once in sea water, smolts continue their development until they become adult
salmon. This stage takes between 14 and 24 months. During this time, salmon evolve, and their
color becomes silver.
49.
Farm-raised salmon cannot be harvested before a buyer has been identified.
Because of the two- to three-year production cycle, harvestable fish must be sold before the next
generation of fish can be introduced into the floating net pens. This means that a fixed volume of
farm-raised salmon must be moved into the market within a short period of time.
B.
The Farm-Raised Salmon Market
50.
Since the 1970s, farm-raised salmon industries around the globe have grown
exponentially. Today, the world’s salmon farmers produce 2.5 million tons of salmon annually.
Global salmon farmers produce 17.5 billion meals every year.
51.
Consumers of salmon will probably find themselves buying a product from
Norway, the world’s leading producer of farm-raised Atlantic salmon.
13
52.
Atlantic salmon—the most popular farm-raised salmon variety—are mostly
harvested offshore in Norway, Chile, Canada, and Scotland. The volume of farm-raised Atlantic
salmon increased almost 1,000 percent between 1990 and 2015.
53.
Although Canada is a significant producer of farm-raised Atlantic salmon in North
America, Canadian supply is restricted by environmental regulations and limited acceptable farm
54.
Likewise, United States producers are not significant market participants due to
environmental regulations and limited acceptable farm sites. In the United States, farm-raised
Atlantic salmon are only produced in a couple of states and on a relatively small scale.
55.
Salmon farming in Chile also does not significantly impact supply of farm-raised
Atlantic salmon. Due to different climatic and sea conditions, Chilean farm-raised Atlantic salmon
does not have the same taste profile and quality as Atlantic salmon that is farm-raised in the
Northern Hemisphere.
Furthermore, due to the limited growing season, Chilean farm-raised
salmon are often smaller than their North Atlantic counterparts. Since Chilean farm-raised salmon
is of lower quality and transportation costs are high, most of the Chilean imports into the United
States are sold as fillets rather than whole fresh gutted Atlantic salmon.
C.
Changes in Cost Cannot Justify the Increased Farm-Raised Salmon Prices
56.
In a market free of collusion, if costs for a good increase, prices will increase as
higher costs will put upwards pressure on prices. Economic models can test this relationship
between costs and prices. The purpose of using an econometrics model in antitrust analysis is
to isolate from the anticompetitive conduct factors that may influence prices due to normal
industry and business cycle reasons.
57.
Feed costs are the most important cost component in aquaculture, representing
over 50 percent of the total costs in aquaculture. Of that amount, feed proteins account for over
14
50 percent of the costs of feed. Absent an unlawful conspiracy, contract, or combination, one
would expect a strong positive relationship between the cost of feed protein (as represented by
fishmeal) and farm-raised salmon prices.
58.
Economic analyses indicate that from 2009 through mid-2015, there was a strong
relationship between the cost of feed protein (represented by the prices of fishmeal) and farm-
raised salmon prices. From July 2015 onwards, farm-raised salmon prices increased sharply
while fishmeal prices remained flat or even decreased at times, as is evidenced below:
15
59.
As illustrated above, one regression analysis compared the relationship between
the spot prices of farm-raised salmon reflected in the Nasdaq Salmon Index (“NQSALMON”)
with the price of fishmeal. The second regression analysis tested whether there was a separate
relationship between price and costs during the proposed Class period that was different from
the relationship during the period preceding the proposed Class period. The results from these
regression analyses indicate that farm-raised salmon prices were higher than what changes in
costs would show. Moreover, these regression analyses indicate that during the proposed Class
period, there was an inverse relationship between farm-raised salmon prices and fishmeal prices,
i.e., as fishmeal prices declined, farm-raised salmon prices increased. These data points are
16
concrete evidence that farm-raised salmon prices were not increasing as a response to costs and,
instead, were being affected by Defendants’ combination, contract, and/or conspiracy.
D.
Forward Prices Underestimate Spot Market Prices During the Proposed Class Period
60.
Nasdaq Clearing AB constructed the NQSALMON to create an index that reflects
the weekly market spot price for fresh Atlantic superior salmon, head on gutted (“HOG”). The
NQSALMON is calculated based on actual physical transactions reported to Nasdaq Commodities
by a panel of Norwegian salmon exporters and salmon producers with export licenses. The sales
prices and volumes reported by the panel of exporters are representative of the total sales and
volumes of exports out of Norway.
61.
An illustration of the NASDAQ price index from 2010 to 2019 is provided below:
17
62.
Forward prices of commodities are unbiased predictors of spot prices of the same
commodities. If forward prices consistently over or underestimate spot prices, they can be used
to arbitrage market prices, which would violate the law of one price. When data shows that
forward prices underestimate spot prices, that can serve as evidence that spot prices are being
manipulated and moved higher than competitive market conditions would otherwise predict.
63.
The farm-raised salmon market during the proposed Class period exhibits these
characteristics.
During the beginning of the proposed Class period, forward prices
underpredicted farm-raised salmon spot prices, in a way that is consistent with the farm-raised
spot price market being manipulated.
64.
The figures below illustrate the relationship between farm-raised salmon’s
monthly spot prices and the forward prices for the same month. During the beginning of the
proposed Class period, forward prices consistently underpredicted spot prices of farm-raised
salmon.
18
19
20
65.
A comparison of the spread between farm-raised salmon’s spot prices and
forward prices also indicates that forward prices were not behaving as unbiased predictors of
spot prices during the beginning of the proposed Class period. As the figures below illustrate,
the “spread”—defined as the difference between the spot price and the forward price—was
consistently greater than zero during the start of the proposed Class period, indicating that market
participants’ price expectations consistently underestimated actual spot prices of farm-raised
salmon.
21
22
66.
As illustrated in the regression analyses above, because the spread increased
during the conspiracy period, forward prices were performing worse as predictors of spot prices.
In other words, the regression analyses of the spread support the conclusion that an unlawful
contract, conspiracy, and/or combination existed.
67.
Consistent with the above findings, those in the farm-raised salmon industry have
also noticed issues with the spot market. Since 2015, salmon buyers in Europe have suspected that
Norway’s salmon producers, including Mowi, have been rigging the spot market by using
subsidiary companies, including Mowi’s Polish subsidiary Morpol, a fish processor and
distributor, to drive up the spot price. As the purchasing director of Polish salmon processor Graal,
S.A. (“Graal”) Alina Piasecka, explained, “We’ve seen examples of prices falling in the spot
market, and exporters offering fish at increasingly lower prices.” She continued, “Suddenly, 15
23
minutes later there are [sic] aren’t fish available, and we find out that Morpol has purchased
perhaps 60 truckloads.”
68.
Graal’s CEO Boguslaw Kowalski has said: “[Morpol is] misusing their market
position to hike up salmon prices. . . We are seeing that now and again [Mowi] take[s] advantage
of Morpol to buy at higher prices than that charged by the market, to hike up prices.”
69.
In 2017, Stale Hoyem, general manager of Suempol Norway, one of the biggest
smoked salmon producers in Poland and Europe, complained that “companies in Norway buy
small quantities of salmon to raise the price for the rest of the players.” Hoyem continued, “One
last thing that affects prices is that some of the major players choose to create their own purchasing
departments buying a truckload here and a truckload there,” he said, “suggesting this ‘daily’
practice is heavily influencing prices on the spot market.”
70.
Borge Prytz Larsen, purchasing director at Severnaya, an importer of farm-raised
salmon into Russia, confirmed Hoyem’s statement: “The big players buy fish, and they then use
the price as indicators for other customers.”
71.
Defendants’ pricing behavior changed at the start of the Class period. Hoyem
complained: “In the old days we could negotiate contracts. Producers looked at their cost and then
they put on a surcharge of about NOK 1 (€0.11/$.13) to NOK 2 (€0.21/$.25) [per kilo].”
E.
As a Result of the Conspiracy, Defendants’ and their Co-Conspirators’ Prices and
Profits For Salmon Have Been Increasing Steadily Since at Least 2015
72.
The Food and Agriculture Organization of the United Nations took note of the
record prices in the salmon sector, observing that 2016 saw “[s]everely elevated prices,” and that
“[g]rowth in export revenue for the Norwegian farmed Atlantic salmon industry over the last three
years has been truly remarkable.”
24
73.
More specifically, the United Nations market report stated: “Even as total
Norwegian export volume declined in 2016, total export value broke the all-time record, while the
average export price for fresh whole salmon was NKr60.1 (US$7.15) per kg for the year,
representing a 40 percent increase compared with 2015. In these conditions, even rapidly rising
production costs associated with feed and sea lice control have not prevented Norwegian salmon
aquaculture companies from realizing record earnings.”
74.
By 2018, prices for Norwegian salmon surged to record levels. Export prices for
Norwegian farmed Atlantic salmon reached a peak of NOK 80 per kg in mid-2018. According to
Statistics Norway, Norwegian salmon prices doubled from 2017 to 2018.
75.
A 2019 industry presentation by Kairos Commodities on price analysis and
forecasts for farm-raised salmon discussed its developed regression model to measure the “fair
value” of farm-raised salmon and found that salmon prices during the Class period vastly exceeded
the “fair value” estimation:
25
76.
Defendants frequently—and falsely—assert that cost increases justify their price
increases, but their own data disproves that purported justification. For example, the following
chart from Mowi indicates that the “cost in box” of producing salmon (per kilogram) has increased
approximately half of one Euro (or less) during the Class period, but prices have increased at a
substantially faster rate:
26
77.
Mowi’s 2017 Annual Report confirms that since the uptick in salmon pricing
beginning in 2015, its operating profits or “operational EBIT” (reported in Euros) has substantially
increased—from 346.8 million Euros in 2015, to 700.2 million Euros in 2016, to 792.1 million
Euros in 2017.
78.
According to CEO Alf-Helge Aarskog, in Mowi’s fourth quarter 2018 financial
disclosures:
2018 was a very good year for Mowi. Strong demand for salmon and high prices
in all markets resulted in great earnings for the company. I am proud of all my
colleagues who work hard to produce healthy and tasty seafood for consumers all
over the world. They have all contributed to the strong results.
79.
Grieg similarly reported that its EBIT per kg gutted weight of fish (in Norwegian
Kroner) has increased during the course of the contract, combination, and/or conspiracy.
According to Grieg’s 2017 Annual Report, EBIT was 0.7 Kroners/kg in 2015, 18.0 Kroners/kg in
2016, and 14.4 Kroners/kg in 2017. In 2018, Grieg’s EBIT was 14.72 Kroners/kg.
80.
Leroy also experienced substantial increases in EBIT (in Norwegian Kroner),
increasing from 8.8 Kroners/kg in 2015 to 18.9 Kroners/kg in 2016, and 23.6 Kroners/kg in 2017.
In 2018, Leroy’s EBIT was 19.6 Kroners/kg.
81.
Similarly, SalMar’s EBIT has increased substantially. In 2015, its EBIT was 1,404
million Norwegian Kroners. In 2016, its EBIT was 2,432 million Kroners. In 2017, its EBIT was
3,162 million Kroners. In 2018, its EBIT rose to 3,460.8 million Kroners.
82.
These price increases and/or artificially fixed, stable, or maintained prices—and
Defendants’ and their co-conspirators’ coordinated behavior that caused them—have harmed
Plaintiff and Class members who have paid more for farm-raised salmon and products derived
therefrom than Plaintiff and Class members otherwise would have in the absence of collusion.
27
F.
The United States Is The Second Largest Global Market For Salmon
83.
Mowi reports that after the European Union (“EU”), the United States is the second
largest global market for salmon.
84.
A December 12, 2018 article from industry publication Intrafish explained:
Salmon import volumes into the United States through October rose 10.5 percent,
reaching 272,676 metric tons, according to new figures released by the National
Marine Fisheries Service (NMFS).
The value of Atlantic salmon imports rose as well, by 9.5 percent, to reach $2.9
billion (€2.6 billion), up from $2.6 billion (€2.3 billion) during the same period last
year.
G.
The EC is Performing an Open and Active Investigation of Defendants
85.
On February 19, 2019, Undercurrent News reported that in early February the EC
opened an antitrust investigation into the world’s major producers of farm-raised salmon:
According to the letter, the EC has “received information -- from different actors
operating at different levels in the salmon market -- alleging that Norwegian
producers of farmed Atlantic salmon . . . participate or have participated in anti-
competitive agreements and/or concerted practices related to different ways of price
28
coordination in order to sustain and possibly increase the prices for Norwegian
salmon.”
86.
The EC’s letter, which was sent to producers at the start of February, stated that the
Norwegian salmon producers under investigation have been allegedly:
Coordinating
sales
prices
and
exchanging
commercially
sensitive
information;
Agreeing to purchase production from other competitors when these other
competitors sell at lower prices; and
Applying a coordinated strategy to increase spot prices of farmed
Norwegian salmon in order to secure higher price levels for long-term
contracts.
87.
Based on the information provided to the EC, these alleged practices “are
presumably ongoing.”
88.
The EC also released the following statement on February 19, 2019:
The European Commission can confirm that on 19 February 2019 its officials
carried out unannounced inspections in several Member States at the premises of
several companies in the sector of farmed Atlantic salmon.
The Commission has concerns that the inspected companies may have violated EU
antitrust rules that prohibit cartels and restrictive business practices (Article 101 of
the Treaty on the Functioning of the European Union). The Commission officials
were accompanied by their counterparts from the relevant national competition
authorities.
89.
Mowi, Grieg, SalMar, and Leroy have all confirmed that they were the subject of
raids at their facilities by the EC:
Undercurrent first reported the news earlier on Tuesday, then Mowi, Grieg Seafood
and SalMar all confirmed raids on their operations in the UK. Mowi’s spokesman
said the company’s plant in Rosyth, UK, was raided, but then also confirmed a plant
in Lemmers, formerly Marine Harvest Sterk, was inspected.
90.
In a recently released annual report for 2018, Mowi disclosed:
In February 2019, The European Commission carried out unannounced inspections
at selected premises of several Norwegian salmon companies, including Mowi. The
29
Commission was acting on concerns that the inspected companies may have
violated EU antitrust rules.
91.
On February 19, 2019, Grieg filed a notice with the OSE stating:
The European Commission DG (Director General) Competition has today
performed an inspection at Grieg Seafood Shetland to explore potential anti-
competitive behavior in the salmon industry.
Grieg Seafood aims to be open, transparent and forthcoming and will provide all
necessary information requested by the European Commission DG Competition in
its investigation.
92.
SalMar also confirmed its UK joint venture Scottish Sea Farms (“SSF”), which is
co-owned with Leroy Seafood ASA, “ha[d] been inspected” as part of an EC probe of alleged
price-fixing in the sector in “several” member states.
93.
Also, on February 19, 2019, SalMar issued the following report to the OSE relating
to an inspection performed at Scottish Sea Farms:
On 19th of February 2019 the European Commission Director General Competition
performed an inspection at Scottish Sea Farms Ltd., in which SalMar ASA
indirectly owns 50 percent.
SalMar is in constructive dialogue with the
Commission in this regard.
94.
On February 20, 2019, Leroy filed a notice with the OSE confirming the inspections
and stating:
EU’s
competition
authorities
(European
Commission
Director
General
Competition) has conducted an inspection at the premises of Scottish Sea Farms
Ltd. a company owned 50% by Lerøy Seafood Group ASA (LSG). The purpose
is, according to the competition authorities, to investigate accusations of anti-
competitive cooperation in the salmon market. In connection with the inspection,
the EU competition authorities has also requested for information from the
shareholders in Scottish Sea Farms Ltd.
H.
The Farm-Raised Salmon Market’s Characteristics Are Conducive to Collusion
95.
The farm-raised salmon market is tailor-made for unlawful but successful contracts,
conspiracies, and/or combinations. The farm-raised salmon market is highly concentrated and
well-protected by high barriers to entry, farm-raised salmon products are commodities with
30
demand inelastic to price, and the farm-raised salmon market is rife with opportunities for
Defendants and their co-conspirators to collude.
1.
The Farm-Raised Salmon Market Is Highly Concentrated.
96.
A highly-concentrated market is more susceptible to collusion and other
anticompetitive practices than less concentrated markets.
97.
Defendants together account for most of the farm-raised salmon sold both globally
and in the United States.
98.
Here, there has been significant (and rapid) consolidation of salmon farming
operations around the globe in recent years. As Mowi reported:
31
2.
There Are High Barriers to Entry into the Farm-Raised Salmon Market.
99.
Under normal circumstances, prices above competitive levels attract new entrants
into the market. Where there are significant barriers to entry, however, new competition is less
likely. By keeping out entrants who would offer a product at lower prices, these barriers favor the
formation and survival of conspiracies. Such is the case with the market for farm-raised salmon
in the United States, where daunting barriers to entry have excluded prospective entrants despite
the artificial fixing, stabilizing, and/or inflation of pricing.
100.
Defendants themselves have acknowledged these barriers. Mowi has described
some of the reasons for the barriers into market entry as follows: (1) There are few locations in the
world that provide the right mix of oceanic conditions for salmon farming and a political
environment to allow the practice; and (2) There is an inability to bring additional salmon supply
online in a short period of time.
32
33
101.
Mowi further explained: “In all salmon producing regions, the relevant authorities
have a licensing regime in place.
In order to operate a salmon farm, a license is the key
prerequisite. The licenses constrain the maximum for each company and the industry as a whole.”
102.
The relatively limited number of sites with conditions suitable for salmon farming
and the regulatory burdens associated with these sites mean that operators of salmon farms have
very limited opportunities to expand capacity.
103.
Consolidation has also resulted in higher efficiencies of scale that reduce costs,
including, for example, volume purchases of feed stock, more efficient transportation, and
computerized feeding technology that reduces labor inputs.
104.
Entry into the farm-raised salmon market demands costly start-up capital
expenditures. More importantly, because of the combination, contract, and/or conspiracy, new
entrants have no ability to enter and differentiate themselves.
105.
These challenging barriers to entry helped facilitate the formation and maintenance
of Defendants’ and their co-conspirators’ contracts, conspiracies, and/or combinations,
safeguarding Defendants from competitive pressure.
3.
Farm-Raised Salmon Is A Commodity Product, And Prices Are Correlated
Across the Globe.
106.
Global commerce and transparency create a commodity price for farm-raised
salmon that is closely tracked in numerous publicly available indices that are reported and easily
accessible. A report issued in 2018 by the EU confirms this point: “The output of most salmonid
aquaculture, and Atlantic salmon in particular, is highly commoditized, i.e., there is little
differentiation between farms and competition is based purely on price. These products, mostly
head-on gutted fresh fish, serve as raw material for further processing. In that situation, large
enterprises, which can reduce costs of production through economies of scale and offer the lowest
34
price, have a competitive advantage.” Commodity products are fungible, and consumers and other
purchasers have a variety of supply options, all of which makes raising prices by any one supplier
difficult in the absence of a conspiracy.
107.
Further, according to Grieg, salmon prices are linked across the globe, and
Defendants, co-conspirators, and others closely follow these prices: “There are several reference
prices for salmon available. In Norway, Fish Pool ASA provides historic price information as well
as salmon derivative prices FCA Oslo. In the United States, Urner Barry provides reference prices
for North American salmon in Seattle and Chilean salmon in Miami. Market prices are correlated
across regions.”
108.
Mowi also recognized that “price correlation across regional markets is generally
strong for Atlantic salmon.” It further explained that arbitrage between regions is one of the factors
constraining prices for Atlantic salmon. Accordingly, price-fixing of salmon prices in one market
will affect prices globally.
109.
In fact, Mowi reported that it tracks the correlation of salmon prices globally in the
normal course of its business.
110.
This point was also recognized in a 2016 report—issued by the Oslo Fish Pool, a
salmon financial contracts exchange, and DNB Foods & Seafood, which is part of Norway’s
largest financial services organization—titled “World market for salmon: pricing and currencies.”
The report pointed out that Norwegian farmed salmon gate prices are “strongly linked” and that
the collusion by Defendants on those Norwegian prices directly affected prices for farmed salmon
raised elsewhere pursuant to the “law of one price.”
111.
Indeed, the 2016 report noted as follows:
35
112.
The 2016 report further elaborated on the economic principle of the “law of one
price” as it related to the farm-raised salmon market in the United States.
4.
Prices for Farm-Raised Salmon Are Inelastic.
113.
Price elasticity measures the responsiveness of demand to a change in price. When
the seller of a product is able to increase prices without a significant drop in demand, pricing is
considered inelastic. Price inelasticity makes a market more susceptible to collusive manipulation
by enabling all producers to raise prices with little fear of driving customers to substitute products.
114.
Accordingly, in the absence of coordinated conduct among producers, Defendants
and others in the farm-raised salmon market are price-takers. They are unable to reduce supply in
the short term to raise prices unilaterally, and they must sell during a very short window while
their product is fit for human consumption. These market constraints make the farm-raised salmon
36
market more susceptible to collusion than markets where goods are not perishable and production
levels can be rapidly modulated.
115.
Defendants have succeeded in steadily maintaining, fixing, stabilizing, and/or
increasing farm-raised salmon prices despite transactional costs that have risen at a much slower
rate overall. In a free and competitive market, Defendants would be under enormous pressure to
cut their prices.
5.
Defendants Had and Continue to Have Many Opportunities to Collude.
116.
Defendants and their co-conspirators attended the same industry events, fostering
opportunities to conspire. Such industry events have provided myriad opportunities to meet,
conspire, and share information.
117.
Defendants also exchanged and continue to exchange price and production
information and purchase farm-raised salmon from each other.
118.
Defendants’ unlawful price-fixing practices have injured and continue to injure
Plaintiff and Class members. Plaintiff and Class members were and are denied the ability to buy
less expensive farm-raised salmon—an injury that is ongoing.
CLASS ACTION ALLEGATIONS
119.
Plaintiff brings this action on behalf of itself and as a class action under Rules 23(a),
(b)(2), and/or (b)(3) on behalf of the following nationwide class of those similarly situated:
All persons and entities in the United States who purchased farm-raised
salmon and/or products derived therefrom directly from Defendants, or
from any current or former subsidiary or affiliate of Defendants, or any co-
conspirator, from at least July 1, 2015 to the present (the “Class”).
120.
Excluded from the Class are Defendants and their parents, subsidiaries, corporate
affiliates, officers, directors, employees, assigns, successors, and co-conspirators, the court, court
staff, Defendants’ counsel, and all respective immediate family members of the excluded entities
37
described above.
Plaintiff reserves the right to revise the definition of the Class based upon
subsequently discovered information and reserves the right to add Sub-Classes where appropriate.
121.
Numerosity: The Class is so numerous that joinder of all members is impractical;
in the United States, there are hundreds, or thousands of purchasers of Defendants’ farm-raised
salmon and/or products derived therefrom. While the exact number and identities of the individual
members of the Class are unknown at this time, such information being in the sole possession of
Defendants and obtainable by Plaintiff only through the discovery process, Plaintiff believes, and
on that basis alleges, that at least hundreds of Class members are the subjects of the Class.
122.
Existence and Predominance of Common Questions of Fact and Law: Common
questions of fact and law exist as to all Class members. These questions predominate over the
questions affecting individual Class members. These common legal and factual questions include,
but are not limited to:
(a)
Whether Defendants and their co-conspirators orchestrated and engaged in
unlawful contracts, combinations, and/or conspiracies in restraint of trade and commerce;
(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 alleged conspiracy;
(d)
Whether Defendants and their co-conspirators violated the Sherman Antitrust Act,
15 U.S.C. § 1, et seq.;
(e)
The effect of the alleged conspiracy on the price of farm-raised salmon and products
derived therefrom during the Class Period;
(f)
Whether Defendants and their co-conspirators fraudulently concealed the existence
of their anticompetitive conduct from Plaintiff and Class members;
38
(g)
Whether Defendants should be required to disclose the existence of such
agreements, contracts, combinations, and/or conspiracies;
(h)
Whether Plaintiff and Class members are entitled to damages, restitution,
disgorgement, equitable relief, and/or other relief; and
(i)
The amount and nature of such relief to be awarded toPlaintiffandClass members.
123.
Typicality: All of Plaintiff’s claims are typical of the claims of the Class inasmuch
as Plaintiff was a purchaser who paid artificially-inflated prices for farm-raised salmon and/or
products derived therefrom that were produced by Defendants and/or their co-conspirators, and
each member of the Class was a purchaser of farm-raised salmon and/or products derived
therefrom that were produced by Defendants and/or their co-conspirators subject to the same
artificially-fixed and/or inflated prices. Further, Plaintiff and Class members sustained the same
monetary and economic injuries of being subjected to and having paid artificially-fixed and/or
inflated prices, and the remedy sought for each is the same.
124.
Adequacy: Plaintiff is an adequate representative because Plaintiff’s interests do
not conflict with the interests of the Class that Plaintiff seeks to represent, Plaintiff has retained
counsel competent and highly experienced in complex 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 Plaintiff’s counsel.
125.
Superiority: A class action is superior to all other available means of fair and
efficient adjudication of the claims of Plaintiff and Class members. The injuries suffered by each
individual Class member are relatively small in comparison to the burden and expense of the
individual prosecution of the complex and extensive litigation necessitated by Defendants’
conduct. It would be virtually impossible for members of the Class individually to redress
39
effectively the wrongs done to them. Even if Class members could afford such individual litigation,
the court system could not. Individualized litigation presents a potential for inconsistent or
contradictory judgments and 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 the benefits of a single adjudication, an
economy of scale, and comprehensive supervision by a single court. Upon information and belief,
Class members can be readily identified and notified based on, inter alia, Defendants’ sales records
and invoices and marketing distribution lists and records.
126.
Defendants have acted and refused to act on grounds generally applicable to the
Class, thereby making appropriate final equitable relief with respect to the Class as a whole.
TRADE AND COMMERCE
127.
During the Class Period, Defendants harvested, promoted, processed, distributed,
and sold substantial amounts of farm-raised salmon and/or products derived therefrom in a
continuous and uninterrupted flow of intrastate and interstate trade and commerce to customers
located throughout the United States. These business activities, as well as substantial quantities of
equipment and supplies necessary to conduct them, and the payments to Defendants have traveled
in and substantially affected intrastate and interstate trade and commerce.
128.
Defendants’ and their co-conspirators’ anticompetitive conduct also had substantial
intrastate effects in every state of purchase in that, among other things, retailers within each state
were foreclosed from offering less-expensive farm-raised salmon, which directly impacted and
disrupted commerce for consumers.
129.
Freed from external competition and agreeing amongst themselves that they would
not compete over prices, Defendants charged fixed and/or inflated prices. These fixed and/or
anticompetitive pricing practices increased prices paid by all for farm-raised salmon.
40
130.
But for Defendants’ illegal conduct, Plaintiff and Class members would have paid
less for farm-raised salmon. Defendants’ conduct proximately caused Plaintiff’s and Class
members’ injuries. It forced them to pay hundreds of millions of dollars in overcharges on
purchases of farm-raised salmon and denied them the opportunity to save by purchasing salmon at
lower prices from other competitors in the marketplace.
ANTITRUST IMPACT
131.
Defendants’ anticompetitive conduct enabled them to raise, fix, and stabilize prices
to Plaintiff and the Class members in excess of the prices Defendants otherwise would have been
able to charge, absent Defendants’ anticompetitive conduct.
132.
The precise amount of the overcharge can be measured and quantified. Commonly
used and well-accepted economic models can be used to measure the extent and the amount of the
supra-competitive charge. Thus, the economic harm to Plaintiff and Class members can be
quantified.
133.
Defendants’ anticompetitive scheme has the purpose and effect of unreasonably
restraining trade by eliminating competition between Defendants competing for buyers of farm-
raised salmon. But for Defendants: (1) coordinating sales prices and exchanging commercially
sensitive information; (2) agreeing to purchase production from other competitors when these
other competitors sell at lower prices; and (3) applying a coordinated strategy to increase spot
prices of farmed Norwegian salmon in order to secure higher price levels for long-term contracts,
direct purchasers of farm-raised salmon and products derived therefrom would have been able to
purchase the products at lower pricing.
FRAUDULENT CONCEALMENT
134.
Throughout the Class Period, Defendants have affirmatively and fraudulently
concealed their unlawful conduct. Plaintiff did not have actual, inquiry or constructive notice of
41
facts giving rise to their claims for relief until February 19, 2019, when it was publicly announced
that the EC carried out inspections at Defendants’ facilities. Before that date, Plaintiff and Class
members did not discover and could not have discovered through the exercise of reasonable
diligence, the existence of Defendants’ and their co-conspirators’ conspiracy to suppress
competition in the relevant markets or the true nature and substance of the acts Defendants and
their co-conspirators have engaged in to further their conspiracy. The nature of Defendants’ and
their co-conspirators’ conspiracy was self-concealing.
135.
Not enough information about Defendants’ and their co-conspirators’ participation
in a farm-raised salmon conspiracy was available in the public domain to Plaintiff and Class
members prior to February 19, 2019, when a news publication noted that certain Atlantic salmon
farming facilities had been raided by European competition authorities. Prior to that time, there
was insufficient information to suggest that Defendants were involved in a conspiracy. For these
reasons, the statute of limitations did not begin to run until at the earliest February 19, 2019, with
respect to the claims that Plaintiff and Class members allege in this Complaint.
136.
Further, fraudulent concealment tolled the statute of limitations on the claims
asserted herein by Plaintiff and the Class until at least February 19, 2019. Defendants affirmatively
and wrongfully concealed their anticompetitive conduct from Plaintiff and Class members, from
at least as early as July 2015 through at least February 19, 2019. During that time, Plaintiff and the
Class did not learn or discover the operative facts giving rise to this Complaint.
137.
Defendants and their co-conspirators agreed to conceal and actively and
purposefully did conceal their unlawful actions by secretly organizing, conducting, and enforcing
their conspiracy by agreeing not to publicly disclose their scheme and by giving pretextual
explanations and justifications for the price increases. Defendants’ and their co-conspirators’
42
purported reasons for the pricing of farm-raised salmon were materially false and misleading and
were made for the purpose of concealing their conspiracy and the actual reasons for fixed and/or
inflated pricing of farm-raised salmon.
138.
Defendants suggested publicly that their pricing activities were unilateral, rather
than based on anticompetitive agreements. In making those false representations, Defendants and
their co-conspirators misled Plaintiff and Class members as to the true, collusive, and coordinated
nature of their price-fixing activities.
139.
As a result of Defendants’ and their co-conspirators’ fraudulent concealment of
their conspiracy, the running of all applicable statutes of limitations has been tolled with respect
to any claims that Plaintiff and Class members have arising from Defendants’ and their co-
conspirators’ unlawful conduct.
CLAIM FOR RELIEF
COUNT I: UNLAWFUL RESTRAINT OF COMPETITION
IN VIOLATION OF THE SHERMAN ACT § 1, et. seq
140.
Plaintiff realleges and incorporates by reference the allegations contained in the
preceding paragraphs of this Complaint and further alleges against Defendants and their co-
conspirators as follows:
141.
Defendants and their co-conspirators orchestrated, entered into, and engaged in
unlawful contracts, combinations in the form of trust or otherwise, and/or conspiracies in restraint
of trade and commerce in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, et seq.
142.
The course, pattern, and practice of Defendants’ and their co-conspirators’
collusive conduct have included, among other things, a continuing agreement, understanding,
conspiracy, and concert of action among them in unreasonable restraint of trade to impose and
enforce fixed, increased, maintained, or stabilized prices in the farm-raised salmon market and
43
products derived therefrom. In order to organize and effectuate their illegal combination, contract,
and conspiracy, Defendants and their co-conspirators have engaged in a number of overtly
collusive acts, including without limitation:
(a)
agreeing to exchange and exchanging competitively sensitive information
among themselves that would normally be withheld from competitors in a competitive
environment with the aim to fix, increase, maintain, or stabilize prices of farm-raised salmon
and/or products derived therefrom in the United States and elsewhere;
(b)
agreeing to participate and participating in conversations and meetings
among themselves to share information and agree to fix, increase, maintain, or stabilize prices of
farm-raised salmon and/or products derived therefrom in the United States and elsewhere;
(c)
agreeing to participate and participating in conversations and meetings to
share information, adopt common strategies, and coordinate actions with respect to their
agreements and business relationships; and
(d)
agreeing to engage and engaging in conduct designed to fix, increase,
maintain, or stabilize the prices of farm-raised salmon sold on the spot market and pursuant to
contracts.
143.
Defendants’ and their co-conspirators’ conduct included concerted efforts, actions,
and undertakings among Defendants and their co-conspirators with the intent, purpose, and effect
of: (a) artificially fixing, increasing, maintaining, or stabilizing across the world, including
specifically the United States, the prices of farm-raised salmon and products derived therefrom;
(b) causing Plaintiff and Class members to suffer a loss in their purchase of farm-raised salmon
and products derived therefrom at artificially fixed, increased, maintained, or stabilized prices and
thereby also depressing future profits of Plaintiff and Class members using said salmon and
44
salmon-derived products; (c) deterring, restraining, suppressing, and/or eliminating price
competition from entering and competing in the market of farm-raised salmon and products
derived therefrom; and (d) unreasonably restraining purchasers’ ability to secure farm-raised
salmon and products derived therefrom at competitive prices.
144.
Defendants and their co-conspirators perpetrated the scheme with the specific intent
of artificially fixing, increasing, maintaining, or stabilizing prices in the United States to the benefit
of Defendants and their co-conspirators.
145.
Defendants’ and their co-conspirators’ conduct as part of and in furtherance of the
contract, combination, or conspiracy was authorized, ordered, or executed by their officers,
directors, agents, employees, or representatives while actively engaging in the management of
Defendants’ and their co-conspirators’ affairs.
146.
Plaintiff and Class members have paid more for Defendants’ and their co-
conspirators’ farm-raised salmon and products derived therefrom than they otherwise would have
paid in the absence of Defendants’ and their co-conspirators’ unlawful conduct, and have as a
result been injured in their property and suffered damages in an amount according to proof at trial.
147.
Defendants’ and their co-conspirators’ conduct, contracts, combinations, and/or
conspiracies are per se violations of § 1 of the Sherman Act.
148.
In the alternative, Defendants and their co-conspirators are liable under a “quick
look” analysis where an observer with even a rudimentary understanding of economics could
conclude that the arrangements in question would have an anticompetitive effect on purchasers
and the market.
149.
Defendants’ and their co-conspirators’ contracts, conspiracies, and/or combinations
have had a substantial effect on interstate commerce.
45
150.
As a direct and proximate result of Defendants’ and their co-conspirators’ unlawful
contracts, conspiracies, and/or combinations in restraint of trade and commerce, Plaintiff and Class
members have suffered and continue to suffer injury to their business or property of the type that
the antitrust laws were designed to prevent, including deprivation of the benefit of free and fair
competition.
151.
Plaintiff and Class members are entitled to treble damages, attorneys’ fees,
reasonable expenses, costs of suit, and, pursuant to 15 U.S.C. § 26, injunctive and other equitable
relief for Defendants’ violations of the Sherman Act to correct for the anticompetitive market
effects caused by Defendants’ and their co-conspirators’ unlawful conduct and other relief to
ensure that similar anticompetitive conduct does not reoccur in the future.
REQUEST FOR RELIEF
152.
WHEREFORE, Plaintiff, on behalf of itself and the proposed Class, pray that the
Court enter judgement herein, adjudging and decreeing that:
(a)
This action may be maintained as a class action pursuant to Rules 23(a),
(b)(2), and (b)(3) of the Federal Rules of Civil Procedure, with Plaintiff designated as Class
representative and its counsel as Class Counsel;
(b)
Defendants have engaged in a contract, combination, and conspiracy in
violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, and that Plaintiff and Class members
have been injured in their business and property as a result of Defendants’ and their co-
conspirators’ violations;
(c)
Defendants, their subsidiaries, affiliates, successors, transferees, assignees,
and the respective officers, directors, partners, agents, and employees and all other persons acting
or claiming to act on their behalf be permanently enjoined and restrained from continuing and
maintaining their contract, combination and conspiracy;
46
(d)
Plaintiff and Class members be awarded damages in an amount to be proven
at trial for the injuries they sustained as a result of Defendants’ unlawful conduct and that a
judgment in their favor be entered against Defendants, jointly and severally, trebling the awarded
damages to the extent permissible under federal antitrust laws;
(e)
Plaintiff and Class members be awarded pre-judgment and post-judgment
interest as allowed by law, at the highest rate from the date of service of this Complaint;
(f)
Plaintiff and Class members recover their costs of this suit, including
reasonable attorneys’ fees and costs as provided by law; and
(g)
Such other relief as the Court deems equitable, appropriate, and just be
awarded to Plaintiff and Class members.
JURY DEMAND
153.
Pursuant to Rule 38 of the Federal Rules of Civil Procedure, Plaintiff, on behalf of
itself and the proposed Class, demands a trial by jury on all issues so triable.
Date: May 28, 2019
PODHURST ORSECK, P.A.
Counsel for Hesh’s Seafood, Inc. and
the Proposed Class
SunTrust International Center
One S.E. 3rd Ave, Suite 2300
Miami, FL 33131
Phone: (305) 358-2800/Fax: (305) 358-2382
/s/ Peter Prieto
Peter Prieto (FBN 501492)
John Gravante, III (FBN 617113)
Matthew P. Weinshall (FBN 84783)
Alissa Del Riego (FBN 99742)
pprieto@podhurst.com
jgravante@podhurst.com
mweinshall@podhurst.com
adelriego@podhurst.com
47
Kimberly A. Justice
Freed Kanner London & Millen LLC
923 Fayette Street
Conshohocken, PA 19428
Tel.: (610) 234-6487/Fax: (224) 632-4521
kjustice@fklmlaw.com
Steven A. Kanner
Douglas A. Millen
Brian M. Hogan
Freed Kanner London & Millen LLC
2201 Waukegan Road, Suite 130
Bannockburn, IL 60015
Tel.: (224) 632-4500/Fax: (224) 632-4521
skanner@fklmlaw.com
dmillen@fklmlaw.com
bhogan@fklmlaw.com
Michael K. Yarnoff
Kehoe Law Firm, P.C.
Two Penn Center Plaza
1500 JFK Boulevard, Suite 1020
Philadelphia, PA 19102
Tel.: (215) 792-6676
myarnoff@kehoelawfirm.com
Lesley E. Weaver
Matthew S. Weiler
BLEICHMAR FONTI & AULD LLP
555 12th Street, Suite 1600
Oakland, CA 94607
Tel.: (415) 445-4003/Fax: (415) 445-4020
Eugene A. Spector
William G. Caldes
SPECTOR ROSEMAN & KODROFF, P.C.
Two Commerce Square
2001 Market Street, Suite 3420
Philadelphia, PA 18103
Telephone (215) 496-0300
espector@srkattorneys.com
bcaldes@srkattorneys.com
48
Guido Saveri
R. Alexander Saveri
SAVERI & SAVERI, INC.
706 Sansome Street
San Francisco, California 94111
Telephone: (415) 217-6810
Facsimile: (415) 217-6813
guido@saveri.com
rick@saveri.com
Counsel for Hesh’s Seafood, Inc. and the
Proposed Class
49
| antitrust |
AOM2EYcBD5gMZwczi0Pu | IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
JAVIER SOTO, Individually and on Behalf
of All Others Similarly Situated,
Civil Action No.
DEMAND FOR JURY TRIAL
Plaintiff,
v.
JAMES M. HENSLER, ROBERT D.
SCHERICH and GREGORY M.
BELLAND,
Defendants.
COMPLAINT
Plaintiff, 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 Horsehead Holding Corp. (“Horsehead” or the
“Company”), filings by Horsehead in the bankruptcy action styled In re Horsehead Holding
Corp., et al, No. 16-10287 (D. Del. Bankr.), 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 Horsehead
securities between May 21, 2014 and February 2, 2016, inclusive (the “Class Period”) for
violations of the Securities Exchange Act of 1934 (“1934 Act”).
2.
Horsehead, together with its subsidiaries, is a leading U.S. producer of zinc
metal and a leading recycler of electric arc furnace (“EAF”) dust. The Company derives the
majority of its revenues from the sale of zinc. On February 2, 2016, Horsehead filed for
protection under the bankruptcy laws and, therefore, is not named as a defendant in this
action.
3.
In September 2011, Horsehead began construction on a new, purportedly
state-of-the-art zinc production facility located in Mooresboro, North Carolina (the
“Mooresboro Facility”) to replace its 80-year old Monaca, Pennsylvania facility (the
“Monaca Facility”). The Company heralded a new zinc production process to be used at the
Mooresboro Facility that would utilize a solvent extraction technology coupled with electro-
winning and casting capabilities. The Company stated that the new facility’s design would
rely on sustainable manufacturing practices to produce zinc solely from recycled materials
and allow the Company to produce new high-grade zinc varieties in addition to the Prime
Western zinc produced at the Monaca Facility.
4.
Horsehead also stated that the Mooresboro Facility would produce over
155,000 tons of zinc metal annually once fully operational, compared to 125,000 tons of zinc
metal produced at the Monaca Facility in fiscal 2013. The Company highlighted other
purported benefits of the new facility, including: (i) reduced manufacturing costs; (ii) higher
labor productivity; (iii) reduced maintenance capital spending; (iv) lower hedging costs; and
(v) the recovery and valuable reuse of metals from the EAF dust recycling process.
5.
In May 2014, Horsehead commenced zinc production at the new Mooresboro
Facility and permanently shut down production at the Monaca Facility the next month.
6.
Unbeknownst to the investing public, the Mooresboro Facility was plagued
with severe construction, engineering and operational defects. For example, when the plant
began operation a substantial portion of the piping melted and production processes failed
immediately. The Company’s management decided to bypass the failed piping and
attempted to operate the rest of the plant knowing that a portion of the plant would not be
useable. Other major problems included filter presses which regularly clogged, clarifiers that
failed to sufficiently filter out solid materials, unplanned overflow into containment areas
resulting in environmental and safety hazards, bleed treatment system failures, equipment
sizing issues and electrolyte contamination. The Mooresboro Facility relied on new and
unproven technologies, and from the commencement of its operations it experienced
catastrophic setbacks that had no clear solution and would require a substantial investment of
time and money and would undermine the feasibility of the facility’s zinc production process
and, ultimately, threaten the Company’s ability to operate as a going concern.
7.
Throughout the Class Period, defendants provided operational updates that
misstated the extent and seriousness of the Mooresboro Facility’s problems, provided zinc
production figures detached from the widespread and unsolved defects throughout the
production process, and failed to disclose cash and revenue shortfalls that threatened the
Company’s ability to pay its creditors and complete the facility’s ramp-up.
8.
As a result of defendants’ false statements, Horsehead common stock traded
at artificially inflated prices during the Class Period, with its share price reaching a high of
$20.70 per share on July 23, 2014.
9.
On January 23, 2015, Horsehead conducted a secondary offering of 5.75
million shares of its common stock at $12.75 per share (the “Secondary Offering”). As a
result of the Secondary Offering, the Company generated approximately $73 million in gross
offering proceeds. The registration statement (“Registration Statement”), which incorporated
a prospectus supplement (“Prospectus”), issued in connection with the Secondary Offering
contained false and misleading statements of fact and failed to disclose facts required to be
disclosed therein under the rules and regulations regarding its preparation.
10.
Then, in a series of partial disclosures, Horsehead revealed in piecemeal
fashion various production problems at the Mooresboro Facility. Although defendants
disclosed certain production issues at the Mooresboro Facility, they falsely assured investors
that the problems were minor in nature, fixable and would not threaten the viability of the
facility, the new production processes being used, or the Company’s long-term business and
prospects. As late as November 9, 2015, the Company’s President and Chief Executive
Officer (“CEO”), defendant James M. Hensler, stated on an earnings conference call that
“our confidence in our plans to address the issues at Mooresboro has increased.” On the
same call, the Company’s Chief Financial Officer, (“CFO”), defendant Robert D. Scherich,
stated: “[W]e believe that we have adequate liquidity and availab[ility] of capital
resources . . . to support the business for the next 12 months.”
11.
Approximately one month later, on December 10, 2015, ratings agency
Moody’s downgraded the Company’s corporate debt from B3 to Caa2 on a negative outlook
due to recurring problems at the Mooresboro Facility. By early January 2016, the Company
had failed to make a $1.8 million interest payment to certain holders of the Company’s
convertible senior notes and shortly thereafter defaulted on multiple credit agreements.
12.
On January 22, 2016, Horsehead announced that it was idling the Mooresboro
Facility and laying off most employees at the site. Shortly before its idling, the facility
achieved only about 25% of its purported production capacity, approximately the same
amount it achieved in its first full month of production in June 2014, more than a year
earlier.
13.
On February 2, 2016, Horsehead announced that it had initiated bankruptcy
proceedings under Chapter 11 of the U.S. Bankruptcy Code. That same day, the Company
filed a plan for restructuring based on its discussions with secured creditors that revealed
“‘[m]ajor [b]ottlenecks” at the Mooresboro Facility. The filing stated that “[s]ignificant
issues” plagued several steps in the zinc production and recycling process, including: (i)
solid/liquid separation; (ii) depletion; (iii) bleed treatment; and (iv) cementation. The filing
also stated that gypsum precipitation and lead/silver recovery at the plant suffered from
“equipment sizing issues,” and that all steps of the production process had at least “[l]imited
issues.” In addition, the filing stated that it would take approximately $81.9 million and
over two years to get the facility back on track.
14.
On February 11, 2016, trading in Horsehead stock was suspended. On
February 23, 2016, Horsehead filed a notice on Form 25-NSE that its common stock had
been removed from listing on the NASDAQ stock exchange.
15.
As a result of defendants’ false statements, Horsehead common stock traded
at artificially inflated prices during the Class Period. However, after the above revelations
seeped into the market, Horsehead common stock was hammered by massive sales, sending
the stock price down 99% from its Class Period high as the artificial inflation came out over
time and causing economic harm and damages to class members. At the time of the trading
suspension the price of the Company’s stock had plummeted to $0.08 per share, and the
stock is now essentially worthless.
JURISDICTION AND VENUE
16.
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.
17.
This Court has jurisdiction over the subject matter of this action pursuant to
28 U.S.C. §1331 and §27 of the 1934 Act.
18.
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 dissemination of materially false
and misleading information, occurred in substantial part in this District. Horsehead is also
incorporated in this District and the Company’s bankruptcy and restructuring proceedings
have been initiated in the U.S. Bankruptcy Court for the District of Delaware.
19.
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
20.
Plaintiff Javier Soto purchased Horsehead securities during the Class Period
as set forth in the attached certification, incorporated herein by reference, and has been
damaged thereby.
21.
Horsehead is a Delaware corporation and a leading U.S. producer of zinc
metal and recycler of EAF dust. On February 2, 2016 Horsehead filed for bankruptcy and,
therefore, is not named as a defendant in this action.
22.
Defendant James M. Hensler (“Hensler”) is, and at all relevant times was, the
Company’s President and CEO and Chairman of its Board of Directors.
23.
Defendant Robert D. Scherich (“Scherich”) is, and at all relevant times was,
the Company’s Vice President and CFO.
24.
Defendant Gregory M. Belland (“Belland”) is a Senior Vice President of the
Company responsible for the Mooresboro Facility and has served in that position since
October 2015.
25.
Defendants, because of their positions with the Company, possessed the
power and authority to control the contents of Horsehead’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, 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. Defendants are liable for the false and misleading
statements pleaded herein.
SUBSTANTIVE ALLEGATIONS
Background
26.
Horsehead is the parent company of Horsehead Corporation (“Horsehead
Corp.”), a leading U.S. producer of zinc metal and a leading recycler of EAF dust; The
International Metals Reclamation Company, LLC, a recycler of nickel-bearing wastes and
nickel-cadmium batteries; and Zochem Inc., a producer of zinc oxide. Horsehead Corp. is
the parent company of Horsehead Metal Products, LLC, which owns and operates the
Mooresboro Facility.
27.
Horsehead’s products are used in a wide variety of applications, including in
the galvanizing of sheet and fabricated steel products, as components in rubber tires, alkaline
batteries, paint, chemicals and pharmaceuticals and as a remelt alloy in the production of
stainless steel. Horsehead purports to be the largest single-site producer of zinc oxide in
North America and the largest North American recycler of EAF dust, a hazardous waste
produced by the carbon steel mini-mill manufacturing process. The Company derives the
majority of its revenues from the sale of zinc.
28.
In September 2011, the Company began construction on a new, purportedly
state-of-the-art zinc production facility located in Mooresboro, North Carolina to replace its
80-year old Monaca, Pennsylvania facility. The Company heralded a new zinc production
process to be used at the Mooresboro Facility which would utilize a solvent extraction
technology coupled with electro-winning and casting capabilities. The Company stated that
the new facility’s design would rely on sustainable manufacturing practices to produce zinc
solely from recycled materials and allow the Company to produce new high-grade zinc
varieties in addition to the Prime Western zinc produced at the Monaca Facility, which
utilized a higher-cost pyrometallurgical process.
29.
The Company also stated that the Mooresboro Facility would produce over
155,000 tons of zinc metal annually once fully operational, with equipment capable of
producing over 170,000 tons of zinc metal per year without significant additional investment.
This compared to 125,000 tons of zinc metal produced at the Monaca Facility in fiscal 2013.
The Company highlighted other purported benefits of the new facility, including: (i) reduced
manufacturing costs; (ii) higher labor productivity; (iii) reduced maintenance capital
spending; (iv) lower hedging costs; and (v) the recovery and valuable reuse of metals from
the EAF dust recycling process.
Materially False and Misleading Statements
Issued During the Class Period
30.
The Class Period begins on May 21, 2014. On that date, Horsehead issued a
press release announcing the beginning of zinc production at the Mooresboro Facility.
According to the press release, the Mooresboro Facility is “expected to have initial capacity
to produce 155,000 tons of zinc per year,” and the “[r]amp up to the initial capacity is
expected to take up to six months.” Defendant Hensler commented on the announcement
stating in pertinent part as follows: “‘We are excited to have reached this critical milestone.
We look forward to beginning to support our customers’ needs from this new facility.’”
31.
On May 28, 2014, Horsehead issued a press release announcing the first
shipment of zinc produced at the Mooresboro Facility and stating that production of the “full
range of zinc metal products” would follow. Defendant Hensler commented on the
announcement stating in pertinent part as follows: “‘This is another exciting milestone for
Horsehead, including its employees, customers and shareholders. . . . We look forward to
serving our customers with a full range of zinc metal products as we begin the ramp up of
zinc production . . . .’”
32.
On July 8, 2014, Horsehead issued a press release announcing that initial zinc
production at the Mooresboro Facility was “better than internal projections.” The press
release also quoted defendant Hensler as stating that a “‘temporary outage’” to upgrade
mixing components would be carried out “for minimal cost” and “‘should result in more
reliable and sustainable operations in the long-run.’”
33.
On August 6, 2014, Horsehead issued a press release providing its fiscal 2014
second quarter financial results. The press release stated in pertinent part that: (i) initial zinc
production at the Mooresboro Facility had exceeded expectations and “validated” the new
production process; (ii) no “insurmountable technical or operational obstacles that materially
challenge the value proposition of this project” had been identified; (iii) production ramp-up
at the facility would be completed by the end of the year resulting in $90-$110 million of
annualized incremental earnings before interest, taxes, depreciation and amortization
(“EBITDA”) benefit; (iv) the lead-silver recovery circuit was finished and would begin
production in August 2014; and (v) the Company had “adequate liquidity” for general
corporate purposes “through the full ramp up of the Mooresboro facility.”
34.
That same day, Horsehead filed its financial results for the second fiscal
quarter of 2014 with the SEC on Form 10-Q (the “2Q14 Form 10-Q”), signed by defendants
Hensler and Scherich. The 2Q14 Form 10-Q extolled the purported benefits of the
Mooresboro Facility, stating in pertinent part:
In September of 2011, we announced plans to construct a new zinc
facility to be located in Mooresboro, North Carolina, which we anticipate
will be capable of production in excess of 155,000 tons of zinc metal per
year once fully operational, including Special High Grade (“SHG”) zinc and
Continuous Galvanizing Grade zinc, in addition to the Prime Western
(“PW”) grade zinc that we produced at our Monaca facility. The new zinc
facility will also enable us to potentially recover other marketable metals
from waelz oxide (“WOX”) produced from EAF dust recycling. The
facility is designed to be capable of producing up to 175,000 tons of zinc
metal per year without significant additional investment. The plant design
will rely upon sustainable manufacturing practices to produce zinc solely
from recycled materials and use significantly less fossil fuel than our recently
closed Monaca smelter. The new zinc facility will convert WOX and other
recycled materials into SHG zinc and other grades that sell at a premium to
the PW grade that we currently offer. This will allow us to expand into new
markets, including selling to continuous galvanizers, which include some of
our EAF dust customers, die casters and LME warehouses, while continuing
to serve customers in our existing markets. In addition, we believe the new
technology will also allow us to recover value from certain metals such as
silver and lead from WOX produced from EAF dust recycling. The new zinc
facility replaced our older smelter technology, which was permanently closed
at the end of April 2014, and will allow us to significantly reduce emissions
of greenhouse gases and particulates into the atmosphere.
The new facility will significantly reduce our manufacturing
conversion costs due to the lower energy cost, higher labor productivity and
reduced operating maintenance costs, and lower operating costs in our
EAF dust recycling plants resulting from the elimination of the need to
calcine a portion of our WOX before it is fed to the smelter.
The 2Q14 Form 10-Q also stated construction of the facility had been “substantially
completed” and reiterated the operational updates listed in ¶¶31-32.
35.
Also on August 6, 2014, Horsehead held an earnings conference call with
analysts and investors to discuss the second quarter 2014 results. During the call, defendant
Hensler stated, among other things, that: (i) the Mooresboro Facility had “exceeded internal
projections” for zinc production; (ii) initial production had “validated” the design of the new
production process; (iii) nothing other than “normal startup issues” had been experienced at
the plant; (iv) the Company had “not encountered or identified any insurmountable technical
or operational obstacles that materially challenge the value proposition in this project”; and
(v) the timeline and benefits of the project remained on track. Defendant Hensler stated in
pertinent part:
We are very excited that zinc production commenced in Mooresboro
on May 21, 2014. Our first full month of production exceeded internal
projections for the first month of the ramp-up period. We produced over
3,100 tons of metal during the quarter.
During initial weeks of operation, we validated that the process as
designed is capable of producing special high-grade quality electrolytes from
waelz oxide using the solvent extraction process. This was the fundamental
technical basis of this investment.
While we have experienced normal startup issues including some
equipment malfunctions such as the recent temporary outage announced in
July to repair mixing equipment in the leaching and effluent treatment
sections of the plant, we have not encountered or identified any
insurmountable technical or operational obstacles that materially
challenge the value proposition in this project.
Mooresboro has restarted, and we are continuing the ramp-up process.
We expect to continue ramping up zinc production to our full operating
capacity of 155,000 tons per year through the remainder of this year.
Construction of the co-product recovery circuit, which is designed to
recover lead and silver from our incoming raw material has been completed.
Commissioning commenced in July, and the expected ramp-up period for this
circuit remains at roughly one year, which is consistent with our previous
announcements.
We expect the first lead-silver concentrate production in August of
this year. Once we reach full operating capacity in both the zinc plant and
the co-product circuit we continue to believe we will realize $90 million to
$110 million of incremental EBITDA benefit.
*
*
*
In summary, before we open the call for questions, I’d like to say that we’re
very excited about zinc production having started at Mooresboro. We
continue to expect the ramp-up to full production to be completed near the
end of the year. We also expect that during the ramp-up of a large facility
such as Mooresboro, we may experience startup issues, which require
periodic and temporary outages similar to the one we took in July as we
endeavor to continuously improve the process equipment and increase
production output.
*
*
*
At full production, annualized EBITDA would be expected to increase by
approximately $25 million to $30 million for each $0.10 increase in the
price of zinc.
36.
During the conference call, defendant Scherich stated that the Company’s
liquidity, cash on hand, and expected cash flows “will provide adequate liquidity to support
both general corporate purposes and potential business opportunities through the full
ramp-up of the Mooresboro facility.” In response to an analyst’s question about expected
cash flows going forward, defendant Scherich stated that full production at the Mooresboro
Facility would lead to “robust cash flow” in 2015 “fairly quickly,” which would allow the
Company to refinance its debt and grow its revenues. The following exchange took place:
Near term, and that’s really through this ramp-up period, we’ll continue, kind
of, paying down payables related to the project. We don’t see cash flow
generation occurring until we hit, kind of, the end of the year as we’ve
achieved the full ramp-up. So as we go into the new year, we anticipate, as
you indicated, robust cash flow starting, and I think that will be our focus
fairly quickly, looking at deleveraging a little bit but ultimately looking to
refinance the debt down the road to get a better cost of debt in place.
And then we’ve got lots of projects that we’ve kind of had on the
back burner. We look to continue to grow the business and invest in growth.
So we see, once we’ve restored liquidity, to start down that path, and that’s
kind of the expectation to grow the business.
37.
On the call, another analyst asked defendant Hensler whether the “normal
startup issues” he had identified in his prepared remarks were simply “boilerplate”
disclosures or whether there were any issues of concern that could cause additional
temporary shutdowns. In response, defendant Hensler stated that besides the one issue
already identified, which was to be expected at any large factory startup, no other issues were
anticipated that could cause a temporary shutdown. Defendant Hensler stated as follows:
Nothing that’s identified at this point, but the issue we had in July was
unusual, it did catch us a bit by surprise, and it’s the kind of thing that
happens at times in a startup situation. So there may be other issues like that
we’re not aware of. We don’t anticipate them, though, at this point in time.
38.
When asked by another analyst about the capacity at which the Mooresboro
Facility was currently operating, defendant Hensler responded that the facility was operating
at 40% capacity and he expected it to operate at 50%-60% by the end of the third quarter:
I think we’re feeding zinc units at a rate that’s probably in the 40% of
capacity type of run rate. But our hope would be that by the time we exit the
third quarter, we’ll be running in the 50% to 60% of capacity run rate, and
that’s our target for exiting the third quarter. So we’ll continue to ramp up
here over the next few weeks.
39.
In response to another analyst question about the lead and silver recovery
circuit at the Mooresboro Facility, defendant Hensler stated that the facility would begin
producing revenue “fairly shortly” (including “significant revenue” in the first quarter of
2015), that the Company had set “fairly conservative” targets, and that the commissioning
process had “gone relatively smoothly” so far:
We’re going to, we believe, start to introduce the feed to the lead and
silver recovery circuit this month. So we’ll actually be able to start getting
revenue here fairly shortly. We see that moving slowly. We’ve kind of set
our targets fairly conservative for this because it’s a relatively new process,
and we are certain that we’ll get into some unusual things during startup, and
so we’ve sort of set our sights that it’s going to take us 12 months.
We could, in fact, ramp it up much quicker than that if we don’t run
into trouble. And the commissioning, so far, has gone relatively smoothly.
We haven’t uncovered any particular issues. But I think we’re probably
looking at first quarter of next year of beginning to see some significant
revenue from that operation.
40.
Later in the call, defendant Hensler stated that the Mooresboro Facility had a
production capacity of 170,000-175,000 tons of zinc metal per year. Defendant Scherich
also stated that the anticipated construction cost for the Mooresboro Facility was
“unchanged” from the previous quarter’s figure of $525 million and, since the Company had
“completed most of” the project, Horsehead had “pretty good visibility” that it would not
exceed that amount.
41.
The statements referenced above in ¶¶30-40 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 construction defects at the Mooresboro Facility, including but not
limited to the construction of defective piping, filtration presses and clarifiers, had left the
facility unable to operate as planned and the facility was not ready to commence operations
in May 2014;
(b)
That the production ramp-up at the Mooresboro Facility was not ahead
of schedule, but instead had since the commencement of operations suffered, and was
continuing to suffer, significant and pervasive engineering and operational problems
including but not limited to the melting of pipelines, filter presses that regularly clogged,
faulty filtration processes, clarifier overflow, bleed treatment failure, defective acid lines and
improper acid use;
(c)
That the problems referenced in (a)-(b) above were not “minor” or
“normal startup issues,” but catastrophic failures that the Company had not rectified and did
not know how to rectify;
(d)
As a result of (a)-(c) above, the initial months of zinc production at the
Mooresboro Facility had not “validated” the new production process, but, to the contrary,
had called into serious doubt the new, unproven technologies upon which it relied;
(e)
As a result of (a)-(d) above, additional temporary production
stoppages at the Mooresboro Facility were highly likely and, in fact, anticipated for the
foreseeable future;
(f)
As a result of (a)-(e) above, the Mooresboro Facility did not have a
potential annual zinc production capacity of 155,000 tons, and could not even sustainably
achieve 50% of this capacity;
(g)
That instead of permanently fixing problems at the Mooresboro
Facility, the Company was employing expensive, temporary workarounds in order to achieve
even limited production capacity, and as a result, the facility was not providing significant
cost savings, but instead was causing the Company to spend cash at an unsustainable rate;
(h)
As a result of (a)-(g) above, the Company could not achieve 155,000
tons of annualized zinc production by the end of 2014 and, therefore, statements that the
Company would significantly and quickly increase its zinc production revenues and achieve
an annualized EBITDA benefit of $90-$110 million in 2015 had no basis;
(i)
That construction at the facility was not “substantially completed,” but
instead would require additional investments of tens of millions of dollars and several years
of highly technical and uncertain work in order to rectify the substantial and pervasive
construction, engineering and operational problems identified in (a)-(h) above, and in fact
such problems may not have been solvable at scale based on existing technologies; and
(j)
As a result of (a)-(i) above, the Company did not have sufficient
liquidity, cash on hand and anticipated cash flows for general corporate purposes to sustain it
through the full ramp-up of the Mooresboro Facility.
42.
On October 1, 2014, after the market close, Horsehead issued a press release
providing an update on the Mooresboro Facility. The release stated that the facility had only
produced 4,300 tons of zinc during the third fiscal quarter of 2014, only 900 tons more than
the previous quarter, and revealed that production at the facility “was impeded mainly by
operational issues associated with controlling the removal of solids in the clarifier unit
downstream of the leaching process.”
43.
The press release stated that the operational issues were “‘normal,’” “‘to be
expected,’” and had been “diagnosed” with solutions “being implemented.” Defendant
Hensler was quoted as stating that: (i) the Company had been “‘adept’” at implementing
“‘corrective actions’” and had made improvements that would “‘improve the level of
operation going forward’”; and (ii) no issues “‘experienced thus far have called into question
the viability of the processes being utilized or materially impair the benefits we expect to
receive once the plant is fully operational.’”
44.
On this news, the price of the Company’s stock declined from $16.05 per
share on October 1, 2014 to $14.98 per share on October 2, 2014, a one-day decline of 7%
on abnormally high volume of 3.6 million shares traded. However, the stock continued to
trade at artificially inflated levels as defendants misrepresented the extent and seriousness of
the problems at the Mooresboro Facility and continued to conceal the true facts about
Horsehead’s operations and prospects.
45.
On November 10, 2014, Horsehead issued a press release providing its fiscal
2014 third quarter financial results. The release stated that: (i) the Company had improved
operations at the Mooresboro Facility; (ii) high-grade zinc production had “‘met . . .
expectations’”; (iii) the “‘primary bottleneck’” at the facility resulted from “‘conventional
technology’” and had been remedied through “‘better control’” and “‘minor’” equipment
modifications; (iv) costs to fix additional problems would not be “‘material’”; (v) no
“‘technical or operational obstacles . . . materially challenge the value proposition of’” the
facility; and (vi) the Company had “adequate liquidity to meet the capital needs of the
business and the ramp-up of the Mooresboro facility.”
46.
That same day, Horsehead also filed its Form 10-Q for the third fiscal quarter
of 2014 with the SEC (the “3Q14 Form 10-Q”), which was signed by defendants Hensler and
Scherich. The 3Q14 Form 10-Q purported to provide an operational update of the
production process at the Mooresboro Facility, which was substantially identical to that
listed in ¶45. The 3Q14 Form 10-Q provided additional statements about operations at the
facility, including that: (i) construction at the facility had been “completed”; (ii) “numerous
improvements” had been made at the facility that should “accelerate the ramp-up rate going
forward”; and (iii) past problems had been “diagnosed” with “solutions implemented.” The
3Q14 Form 10-Q stated in pertinent part:
On October 1, 2014, we reported that the facility produced
approximately 4,300 tons of zinc metal in the third quarter of 2014, compared
to 3,400 tons in the second quarter, as a previously announced temporary
outage at the beginning of the third quarter limited production during the first
half of the quarter. While numerous improvements were made to several
unit operations at the facility during the quarter which should help to
accelerate the ramp-up rate going forward, production during the second
half of the quarter was impeded mainly by operational issues associated with
controlling the removal of solids in the clarifier unit downstream of the
leaching process. These issues were diagnosed and solutions implemented.
We also commissioned the casting line for SHG and CGG “jumbo” ingots.
We continued to supplement zinc metal sales during the third quarter with the
sale of zinc calcine to third parties.
Commissioning of the co-product recovery circuit was completed
during the third quarter and we started to introduce feed, but we reallocated
resources to focus on debottlenecking the zinc production plant in October
which delayed the ramp-up of that circuit. We will restart the ramp-up of the
co-product circuit in November. The ramp up period for the co-product
recovery circuit is estimated to be approximately one year.
We enter the fourth quarter of 2014 with the expectation that we
have resolved several issues that will improve the level of operation going
forward. The primary bottleneck thus far has been with solids/liquid
separation at the front end of the process. This is conventional technology
used extensively in hydrometallurgical and mining applications, so we
anticipate that this issue will be resolved. We have made progress through
better control of the process and by minor equipment modifications. If
additional equipment modifications or additions are required to fully resolve
the issue we have identified, we do not believe the cost would be material.
Several improvements have been implemented which have allowed us to
continue ramping up production. Since the end of the third quarter of 2014,
we have continued to increase the level of production of zinc. We have not
identified any insurmountable technical or operational obstacles that
materially challenge the value proposition of this project; however, issues
such as the solids removal described above have slowed the rate of our ramp-
up and delayed the realization of these benefits. During this ramp up we plan
to continue to sell zinc calcine.
*
*
*
Construction of our new zinc production facility in Mooresboro has
been completed. We enter the fourth quarter of 2014 with the expectation
that we have resolved several issues that will improve the level of operation
going forward. We have made progress through better control of the
process and by minor equipment modifications. If additional equipment
modifications or additions are required to fully resolve the issue we have
identified, we do not believe the cost would be material. Several
improvements have been implemented which have allowed us to continue
ramping up production. We have not identified any insurmountable technical
or operational obstacles that materially challenge the value proposition of this
project; however, issues such as the solids removal problem described above
have delayed the timetable for our expected realization of these benefits.
Commissioning of the co-product recovery circuit was completed
during the quarter and we started to introduce feed to the circuit, however, we
reallocated resources to focus on debottlenecking the zinc production plant in
October which delayed the ramp-up of that circuit. We will restart the ramp-
up of the co-product circuit in November and the ramp up period is estimated
to be approximately one year.
47.
Also on November 10, 2014, Horsehead held an earnings conference call with
analysts and investors to discuss the third quarter 2014 results. In his prepared remarks,
defendant Hensler stated, among other things, that: (i) production issues at the Mooresboro
Facility had been largely resolved or were readily fixable; (ii) zinc production had increased
and was expected to increase “at a faster rate” going forward; (iii) additional expenses
related to fixing ramp-up issues would not be material; (iv) no technologic or operational
challenges had been identified which would materially impact the project’s value; and (v) the
facility would ultimately provide $90-$110 million annualized EBITDA benefit.
48.
During the conference call, in his prepared remarks, defendant Scherich stated
that the Company’s cash on hand and expected cash flows “will provide adequate liquidity
to meet our needs through the full ramp-up of the Mooresboro facility.” Defendant
Scherich also stated that the Company “only need[s] to be at 50% to 60% capacity at
Mooresboro to be cash flow positive, covering interest and maintenance CapEx on a
consolidated basis.”
49.
In response to an analyst’s question, defendant Hensler purported to detail the
issues affecting production at the plant, which he stated were limited to a clarifier that was
not properly removing solids. He stated: “Once we get past that issue, we believe we don’t
see another significant bottleneck in front of us that would move us up to – restrict us
from moving up to closer to design capacity.” Defendant Hensler continued to downplay
the extent and seriousness of the problems facing the facility, stating that the identified
solutions “wouldn’t necessarily be very capital intensive” and could be accomplished “fairly
quickly”:
Over the next few weeks, we think we’ll be at a better point of
understanding whether this is a clarifier design issue versus an operating
issue. But once we get past that issue, we believe we have a lot more
running room in terms of being able to move up production. This is as I
said in the script, this is a conventional technology. The ability to get solids
out is something that the technology exists to do it. We’ve been putting all of
our efforts right now into trying to get the existing equipment to do what it’s
supposed to do, but we may come to the conclusion we need to add
additional equipment to get the clarity we need. We haven’t spent much time
focusing on designing that equipment, but we know that there is technology
out there that we can use.
*
*
*
Well, our hope is we don’t have to do anything with the clarifier.
And we’re working on a number of initiatives to make that perform better.
And our options, really if that doesn’t pan out, are to potentially add more
sand filters, and that would be one approach. So don’t solve the problem
with a clarifier but just add more sand filters to take the solids out. Or
perhaps put in an intermediate step maybe another clarifier as an option.
And the other option that we’re considering is we have another
clarifier in the facility that we believe could be re-purposed for this. And so
that wouldn’t necessarily be very capital intensive. It would require some
re-piping and is something that we may be able to do fairly quickly. So if
the things we’re working on to try to make the current equipment work better
don’t pan out, we would go down that path.
50.
Defendant Scherich followed up by stating that “design and construction at
clarifiers is not highly technical.” Defendant Hensler agreed, stating, “[t]hey’re basically a
big open tank with a pipe coming out of the bottom so it’s not a high-tech piece of
equipment.”
51.
On the call, defendant Hensler also stated that the Mooresboro Facility would
be able to produce more than 205 tons of zinc per day:
We expect to be able to improve over where we are [at 205 tons per
day]. We think we can make incremental improvements within the
constraints that I talked about. We’ve got a number of short-term initiatives
that once they’re implemented, we think we can get the flow to a higher
rate. It’s a little difficult to predict at this point exactly where that is. Our
goal is really to get to this cash flow breakeven number that we estimate to
be around 230 tons per day. That’s an estimate but – that we think it’s
reasonably close.
52.
Defendant Hensler also stated that the internal target for reaching break-even
at the Mooresboro Facility was “early next year in the early first quarter.” He later clarified
that by “breakeven” he meant production revenues from the Mooresboro Facility would be
“covering their own manufacturing costs and the cash interest costs associated with the
project.” Later on the call defendant Hensler also stated that he was referring to
“consistently” producing at the facility at or above the break-even point, which would allow
the Mooresboro Facility to be “self-sustaining”:
The milestone I was referring to is to get consistently operate above
this estimated cash breakeven rate which we estimate at 230 tons of shipped
product per day. And we – as Bob explained, we think that covers operating
cost plus the cash interest expense at Mooresboro. That’s a big target for us
to get to that point because at that point, Mooresboro’s self-sustaining, and
so that’s really where our focus is. And we hope to be able to get there by
early in the first quarter next year based upon the things we have planned
between now and then in terms of improvements to this solids issue
particularly that we talked about.
53.
With regard to the lead and silver byproduct recovery circuit at the
Mooresboro Facility, defendant Hensler stated that the Company had “uncovered some
issues,” but “nothing really major.” He continued: “We don’t really see any particular
issues in the plant ramp-up that would affect our initial thinking on that, but it’s probably
a 12 month process before we really ramp it up. But we would expect to start producing
some salable product out of that operation before the end of the year.” Similarly, with
respect to the production of high-grade zinc at the Mooresboro Facility, an analyst asked
“how should we think about it going forward? . . . And is there any lag effect or anything
which we should be aware of?” Defendant Hensler responded: “No. Not really.”
54.
On January 5, 2015, Horsehead issued a press release stating that the
Mooresboro Facility had produced 12,000 tons of zinc in the fourth quarter of 2014. The
release also quoted defendant Hensler as stating that: (i) the facility had operated near the
“‘estimated cash-flow breakeven level’” for extended periods in December; (ii) the on-site
team was “‘optimistic that the identified challenges can be mitigated or resolved’”; and (iii)
the Mooresboro Facility was still expected to achieve previously stated financial targets,
which included 155,000 tons of annualized zinc production and $90-$110 million of
incremental annualized EBITDA.
55.
On January 6, 2015, members of senior management of Horsehead delivered
an investor presentation to analysts and investors in Mooresboro. Slides accompanying the
presentation stated that the ramp-up at the facility had “accelerated after some initial
delays” and production was “approaching cash flow breakeven” with a target date of
January 15, 2015. The slides also stated that the facility was still expected to generate a $90-
$110 million annualized EBIDTA benefit, and that the Company was already looking
beyond the ramp-up to “focus on future growth opportunities.”
56.
An analyst report from Oppenheimer summarized discussions with
Horsehead’s senior management at the January 6, 2015 meeting. The analyst report stated
that “Mooresboro continues to ramp nicely” and once “short-term issues” were resolved
“the company could be in a highly favorable position to significantly improve
EBITDA/FCF, deliver and pursue additional growth opportunities.”
57.
The statements referenced above in ¶¶43, 45-56 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 construction defects at the Mooresboro Facility, including but not
limited to the construction of defective piping, filtration presses and clarifiers, had left the
facility unable to operate as planned and the facility was not ready to commence operations
in May 2014;
(b)
That operational problems at the Mooresboro Facility were not
“conventional,” “minor” or “short-term” in nature, but significant, pervasive and the result of
fundamental engineering and operational defects, including but not limited to the melting of
pipelines, filter presses that regularly clogged, faulty filtration processes, clarifier overflow,
bleed treatment failure, defective acid lines and improper acid use;
(c)
That the Company had not rectified the problems at the Mooresboro
Facility, including those listed in (b) above, and did not know how to rectify such problems
and, as a result, production disruptions and tens of millions of dollars in costs related to these
problems were likely and anticipated;
(d)
That the initial months of zinc production at the Mooresboro Facility
had not “validated” the new production process “as designed,” but, to the contrary, had
demonstrated that the facility would not be able to scale its production capabilities without
significant redesign;
(e)
That instead of permanently fixing problems at the Mooresboro
Facility, the Company was employing expensive, temporary workarounds in order to achieve
even limited production capacity, and as a result, the facility was not providing significant
cost savings, but instead was causing the Company to spend cash at an unsustainable rate;
(f)
As a result of (a)-(e) above, the Mooresboro Facility did not have an
annual zinc production capacity of 155,000 tons and could not even sustainably achieve 50%
of that capacity;
(g)
As a result of (a)-(f) above, the Mooresboro Facility could not
possibly achieve production revenues sufficient to “break even,” significantly increase
production revenues or achieve an annualized EBITDA benefit of $90-$110 million;
(h)
That construction at the facility was not “completed,” but instead
would require additional investments of tens of millions of dollars and several years of
highly technical and uncertain work in order to rectify the substantial and pervasive
construction, engineering and operational problems identified in (a)-(g) above, and in fact
such problems may not have been solvable at scale based on existing technologies;
(i)
That the operational issues at the Mooresboro Facility were not
improving, but were in fact deteriorating, as stop-gap measures used by the Company to
boost production in the short term were unsustainable, untested, highly risky and causing
decreased operational stability; and
(j)
As a result of (a)-(i) above, the Company did not have sufficient
liquidity, cash on hand and anticipated cash flows for general corporate purposes through the
full ramp-up of the Mooresboro Facility.
58.
On January 23, 2015, Horsehead conducted a secondary offering of 5.75
million shares (including the full exercise of the underwriters’ option) of its common stock at
$12.75 per share pursuant to a shelf registration statement. The Company stated that
proceeds from the Secondary Offering would be used for general corporate purposes.
59.
The Registration Statement, which incorporated the Prospectus (together, the
“Registration Statement”), for the Secondary Offering contained false and misleading
statements of material fact and failed to disclose facts required to be disclosed therein under
the rules and regulations regarding its preparation.
60.
The Registration Statement incorporated by reference the Company’s recent
SEC filings.
61.
The Registration Statement represented that the Mooresboro Facility would
provide significant benefits to Horsehead’s revenues, earnings and operations. The
Registration Statement stated in pertinent part as follows:
Our New Zinc Facility
In September 2011, we began construction of a new, state-of-the-art
zinc facility in Mooresboro, North Carolina to replace our Monaca,
Pennsylvania facility. We began production at our new zinc facility in May
2014. Our new facility provides us with the capability to produce SHG zinc,
Continuous Galvanizing Grade (“CGG”) zinc and High Grade zinc, in
addition to the Prime Western (“PW”) grade zinc metal that we produced at
our Monaca, Pennsylvania facility. The first month of operation of our new
facility validated that the process, as designed, is capable of producing
SHG quality electrolyte from waelz oxide (“WOX”) using the solvent
extraction process. The new facility’s design relies upon sustainable
manufacturing practices to produce zinc solely from recycled materials and
uses significantly less fossil fuel than our former Monaca, Pennsylvania
facility, allowing us to significantly reduce emissions of greenhouse gases
(“GHGs”) and particulates into the atmosphere.
We believe that the new zinc facility, once fully operational, will
provide us with a number of substantial benefits, including reduced
manufacturing conversion costs due to lower energy cost; higher labor
productivity; reduced operating maintenance costs; and lower operating
costs in our EAF dust recycling plants resulting from the elimination of the
need to calcine the majority of our WOX prior to its use. We believe that
the new facility’s capability to convert WOX and other recycled materials
into SHG zinc and other grades will allow us to expand into new markets,
including selling to continuous galvanizers, which include some of our EAF
dust customers, die casters and potentially LME warehouses, while
continuing to serve customers in our existing markets. In addition, the new
technology will also allow us to recover value from certain metals such as
silver and lead from WOX produced from EAF dust recycling. Once the
new zinc facility is fully operational, we believe that the foregoing benefits
will result in annual incremental Adjusted EBITDA of approximately $90
million to $110 million, independent of the price of zinc, compared to our
prior operations at our Monaca, Pennsylvania facility. . . .
We also believe that additional benefits not reflected in the above
estimate may be realized once the new zinc facility is fully operational.
These additional benefits include a reduction in the cost of hedging the price
of zinc, which averaged $9.1 million per year for the period from 2008 to
2013 (the last full year of production at our Monaca, Pennsylvania facility),
reduced maintenance capital spending, which averaged $7.8 million per year
at our Monaca, Pennsylvania facility for the period from 2007 to 2012 (the
last year significant capital expenditures were made at our Monaca,
Pennsylvania facility), and reduced state income taxes as a result of certain
tax incentives available for the investment in the new zinc facility.
. . . Once fully operational, we expect the new zinc facility to be
capable of producing over 155,000 tons of zinc metal per year with
equipment capable of producing over 175,000 tons of zinc metal per year
without significant additional investment.
*
*
*
Our new zinc facility relies upon sustainable manufacturing practices
to produce zinc solely from recycled materials and uses significantly less
fossil fuel than our prior facility in Monaca, Pennsylvania. The new zinc
facility converts WOX produced from EAF dust recycling and other recycled
materials into SHG and other grades of zinc and eliminates the need to
calcine the majority of our WOX prior to its use. We believe the technology
used at our new zinc facility will also allow us to recover value from metals
such as silver and lead contained in EAF dust.
. . . In addition, we expect our new zinc facility to be able to produce
zinc from a wide range of zinc-bearing raw materials. We expect that this
flexibility will allow us to modify our feedstock mix based on cost and
availability, as well as to use 100% recycled zinc feedstock, whether
purchased from third parties at a discount to the LME zinc price or generated
by our EAF dust recycling operations.
62.
The Registration Statement also purported to describe the Mooresboro
Facility’s operations to date. The Registration Statement stated that the facility had only
experienced minor setbacks, all of which had been resolved or were remediable and none of
which had “materially challenge[d] the value proposition of [the] new zinc facility.” The
Registration Statement stated in pertinent part as follows:
Our new zinc facility is currently in the ramp-up stage and has
experienced operational difficulties that we believe are typical of a start-up of
this size and that have resulted in production interruptions. Numerous
improvements have been made to remediate these issues and improve the
ramp-up rate. The primary bottleneck thus far has been the removal of
solids at the front end of the process. This is conventional technology used
extensively in hydrometallurgical and mining applications, thus we
anticipate that this issue will be resolved. We have made progress through
better control of the process and improvements in equipment reliability.
We have not identified any insurmountable technical or operational
obstacles that materially challenge the value proposition of our new zinc
facility. However, issues such as the removal of solids described above have
slowed the ramp-up rate and delayed the realization of the benefits we
believe we can obtain from full operation of our zinc facility. The facility
has operated continuously since early August 2014 after a shutdown during
the month of July 2014. On January 5, 2015, we reported that the facility
produced approximately 12,000 tons of zinc metal in the fourth quarter of
2014 (with approximately 5,400 tons produced in December), compared to
approximately 4,300 tons in the third quarter of 2014 and approximately
3,400 tons in the second quarter of 2014.
*
*
*
Business Strategy
Ramp-up Production at our New Zinc Facility
In May 2014, we began production at our new zinc facility and on
January 5, 2015, we reported that the facility produced approximately 12,000
tons of zinc metal in the fourth quarter of 2014. Once fully operational, we
expect the new zinc facility to be capable of producing over 155,000 tons of
zinc metal per year with equipment capable of producing over 175,000 tons
of zinc metal per year without significant additional investment. Our new
zinc facility has experienced operational difficulties that we believe are
typical of a start-up of this size and that have resulted in production
interruptions. Numerous improvements have been made to remediate these
issues and improve the ramp-up rate. The primary bottleneck thus far has
been the removal of solids at the front end of the process. We have made
progress through better control of the process and improvements in
equipment reliability. The facility has operated continuously since early
August 2014 after a shutdown during the month of July 2014. We expect to
continue to work to correct the issues we have encountered in order to
achieve better production levels in the coming months. Thus far, we have
not identified any insurmountable technical or operational obstacles that
materially challenge the value proposition of our new zinc facility.
63.
The statements referenced above in ¶¶60-62 were materially false and
misleading when made because they failed to disclose the adverse facts listed in ¶57.
64.
In addition, Item 303 of SEC Regulation S-K, 17 C.F.R. §229.303(a)(3)(ii)
(“Item 303”), required the Registration Statement to “[d]escribe any known trends or
uncertainties that have or that the registrant reasonably expects will have a material favorable
or unfavorable impact on net sales or revenues or income from continuing operations.” The
regulation also required the Registration Statement to disclose events that the registrant knew
would “cause a material change in the relationship between costs and revenues.” Id. The
true extent and severity of the construction, operational and engineering problems at the
Mooresboro Facility detailed in ¶57 were required to be disclosed in the Registration
Statement pursuant to Item 303 because these problems posed uncertainties that would (and
did) have an unfavorable impact on Horsehead’s revenues and income from operations.
65.
Moreover, under Item 503 of SEC Regulation S-K, 17 C.F.R. §229.503(c)
(“Item 503”), the “Risk factors” section of the Registration Statement was required to
contain “a discussion of the most significant factors that make the offering speculative or
risky,” and each risk factor was required to “adequately describe[] the risk.” The facts
detailed in ¶57 were required to be disclosed under Item 503 because the “risk factors” did
not adequately describe the risk. An adequate description of the risk required disclosure of
the true extent and severity of the construction, operational and engineering problems at the
Mooresboro Facility detailed in ¶57, in addition to the fact that the new zinc production
processes at the facility had not worked successfully as planned and that the Mooresboro
Facility could not possibly reach the 155,000 tons of zinc production capacity, or achieve the
attendant benefits discussed elsewhere in the Registration Statement, without substantial
redesign, tens of millions of dollars of investment and several years of highly technical and
uncertain work.
66.
On January 28, 2015, Horsehead completed the Secondary Offering,
generating approximately $73.3 million in gross proceeds.
67.
On February 24, 2015, Horsehead issued a press release providing its fiscal
fourth quarter and full year 2014 financial results. The press release stated that the
Mooresboro Facility had achieved “break-even” production capacity during the quarter and
that the “daily average production rate continued to improve” in early 2015, in addition to
stating that the Company had adequate liquidity and reiterating the purported benefits of the
facility. The release stated in pertinent part:
“We are pleased with the progress made during the fourth quarter
with the ramp-up of production at the Mooresboro, NC facility. The fourth
quarter represented a milestone for our Horsehead Corporation segment as we
achieved break-even adjusted EBITDA even though the Mooresboro facility
only operated at an average utilization of 30% of projected capacity . . . .”
Mooresboro Status
“Our primary focus during the quarter was the ramp-up of the
Mooresboro facility. The facility produced approximately 12,000 tons of
zinc metal during the quarter compared to 4,300 tons in the third quarter of
2014. Production for the month of December was approximately 5,400 tons
as improvements with equipment reliability and process debottlenecking
helped to increase the ramp up rate during the quarter. We made significant
progress with the previously reported solids/liquid separation issue at the
front end of the process, allowing the production rate to increase. We were
particularly pleased that for extended periods in December, the facility
operated near our estimated cash flow break-even level after cash interest
expense of 230 tons per day. . . .”
“Since the beginning of 2015, the daily average production rate
continued to improve compared with the fourth quarter rate. During
January 2015 we produced approximately 4,600 tons of zinc metal. We
reduced the plating rate for several days in January to perform some needed
maintenance in the cell house. We also experienced intermittent equipment
reliability issues, particularly with some key pumps, which were further
exacerbated by recent extreme cold weather conditions. On February 20,
2015 we began a planned seven day outage to address several of these issues.
We expect to ramp up production following this outage. Our interim target
is to demonstrate that no bottlenecks exist to operating the facility at 75%
of nameplate capacity, or 330 tons per day, by the end of the first quarter of
2015. We believe that our ability to achieve this higher level of production
will depend primarily on the absence of further unplanned equipment issues.
“We began introducing feed into the lead-silver recovery circuit
during the fourth quarter and have started to produce lead-silver concentrate
that we are currently analyzing to fine tune this circuit. We are also
addressing some issues with pump selection identified during the initial
operating period.”
“We are pleased with the progress being made and continue to
believe that once we are operating at full capacity, we will realize $90 to
$110 million of incremental EBITDA benefit as a result of the investment
in this transformation. However, the timing for completion of the ramp up
cannot be determined with certainty at this time,” added Hensler.
*
*
*
We believe we have adequate liquidity to meet the capital needs of the
business and the ramp-up of the Mooresboro facility.
68.
Also on February 24, 2015, Horsehead held an earnings conference call with
analysts and investors to discuss the fourth quarter and full year 2014 results. In his prepared
remarks, defendant Hensler represented that: (i) the Mooresboro Facility had reached a
“milestone” in the fourth quarter by achieving “break-even adjusted-EBITDA”; (ii) the
production rate had continued to improve in early 2015; and (iii) the Company was targeting
a production rate of 75% of capacity by the end of March and still expected to realize a $90-
$110 million annualized EBITDA benefit from the facility. Defendant Hensler finished his
prepared remarks by stating that “[a]ll of the equipment or operating issues” the
Mooresboro Facility had “experienced recently are minor in nature”:
In summary before we open the call for questions, I’d like to say that
we’re pleased with the progress made during the fourth quarter with the ramp
up of production at the Mooresboro facility. But we also realized that
continued progress will have its ups and downs, as evidenced by our current
outage. All of the equipment or operating issues we’ve experienced recently
are minor in nature, but each has the ability to impede progress until a
permanent fix is installed. We expect, coming out of this outage, that we
should be able to increase production more steadily.
69.
In his prepared remarks, defendant Scherich stated: “We believe we have
adequate liquidity to meet the capital needs of the business and the ramp up of the
Mooresboro facility.”
70.
In response to an analyst asking defendant Hensler about his claim that the
Mooresboro Factory could achieve zinc production of 330 tons per day without any
bottlenecks by the end of the quarter, defendant Hensler stated:
That is our hope. What we think right now is as far as bottlenecks
are concerned we don’t see anything that would impede us from getting to
330 other than unplanned equipment outages. And if we can get to that
level before the end of March, our goal would be try to run consistently at
that level or even higher than that level going forward. So that would be an
objective for the second quarter and it depends upon the fact that I just
mentioned.
71.
Later on the call, in response to a question about the timing and potential for
silver and lead recovery at the Mooresboro Facility, defendant Hensler stated: “[U]ltimately
we think that there is about 10,000 to 12,000 tons of concentrates that we could recover
that would have roughly 70% lead content. . . . Our goal would be to get there over a 12
month period, so hopefully by the end of the year as we ramp up that circle.”
72.
Defendant Hensler also continued to downplay the operational issues at the
Mooresboro Facility. For example, with respect to the failure of clarifiers at the facility to
adequately separate solids, he stated that the Company was “doing a pretty good job of
managing the solid” issue, “working on slight modifications,” and was able to “actually
manage that solid issue up to pretty high levels of production that way.” Similarly, as to
the maintenance of the cell house, he stated “now that’s behind us, we are now into a cycle
where every 30 days we will straighten anodes, so we should be able to manage that
problem going forward.” Likewise, as to problems with pipes at the facility, he stated that
the Company was installing a “permanent bypass line will allow us to continue to ramp
up.” Finally, defendant Hensler stated that he did not expect additional operational issues to
significantly impact the realization of additional production going forward: “We fully think
we can” make “improvements in reliability to be able to get to the highest level of
production.”
73.
On the call, defendant Hensler also stated that the Company expected to be
able to meet all of its high-grade zinc lines and maintain product quality at the Mooresboro
Facility. He stated in pertinent part:
We still have to commission the CGG line, the continuous
galvanizing grade line. We haven’t produced that product yet. It’s a matter
of alloying zinc with aluminum. We don’t anticipate that being a
problem. . . .
. . . But we feel, from a technology standpoint, it’s capable of
producing we want to produce. We just need to operate consistently be able
to do that.
74.
In addition, defendant Hensler stated that the Company’s recent cash raise
from the Secondary Offering had provided adequate liquidity to complete the ramp up of the
Mooresboro Facility and deal with any additional purportedly unexpected operational issues:
“[A]s we said during the recent equity offering we want to use the proceeds to provide
sufficient liquidity to support not only strategic growth projects but also to provide some
backstop liquidity in case we encounter more unforeseen issues at Mooresboro.”
Defendant Scherich continued on this same topic, stating that the Company expected to
improve its debt profile as it moved “into steady cash flow generation”:
[W]e did want to put some back stop liquidity in place as Jim said. We don’t
think as long as the Mooresboro ramp up progresses that that’s something
that will need to use. But it’s good to have it, it’s prudent to have it and we
have these other strategic investments that we think would be well worth
while to start to advance forward. Actually by doing that equity offering, it
now frees up some capacity for additional unsecured debt if that become as
alternative. But absolutely as we move forward, we look to have better
trailing performance that will support a refinancing of debt as we get out as
early as mid 2016 or certainly by maturity in 2017. So we look to both
improve the coupon rate, if the market is conducive to that and our trailing
performance certainly should support that and we will reduce the debt
somewhat. Revolvers don’t need to be tapped as you move into steady cash
flow generation.
75.
On March 2, 2015, Horsehead filed an Annual Report Form 10-K for the
quarter and year ended December 31, 2014 with the SEC, which was signed by defendants
Hensler, and Scherich among others (the “2014 Form 10-K”).
76.
The 2014 Form 10-K purported to provide an operational update of the
production process at the Mooresboro Facility, which was substantially identical to that
listed in ¶67. Moreover, the 2014 Form 10-K provided additional operational updates for the
facility, including statements that the Mooresboro Facility could reach 75% nameplate
capacity (or 330 tons of zinc per day) with “no bottlenecks” by the end of the first quarter of
2015. The 2014 Form 10-K stated in pertinent part:
On January 5, 2015, we reported that the facility produced approximately
12,000 tons of zinc metal in the fourth quarter of 2014 (with approximately
5,400 tons produced in December), compared to approximately 4,300 tons in
the third quarter of 2014 and approximately 3,400 tons in the second quarter
of 2014. During January 2015, we produced approximately 4,600 tons of
zinc metal. We reduced the plating rate for several days in January to
perform some needed maintenance in the cell house. We also experienced
intermittent equipment reliability issues, particularly with some key pumps,
which were further exacerbated by recent extreme cold weather conditions.
On February 20, 2015, we began a planned seven day outage to address
several of these issues. We expect to ramp-up production following this
outage. Our interim target is to demonstrate that no bottlenecks exist to
operating the facility at 75% of nameplate capacity, or 330 tons per day, by
the end of the first quarter of 2015. We believe that our ability to achieve
this higher level of production will depend primarily on the absence of
further unplanned equipment issues. Once fully operational, we expect the
new zinc facility to be capable of producing over 155,000 tons of zinc metal
per year with equipment capable of producing over 170,000 tons of zinc
metal per year without significant additional investment. Timing, however,
for the completion of the ramp-up to full production cannot be determined
with any certainty at this time.
77.
The 2014 Form 10-K also stated that the Company’s “operational
standards . . . allow [it] to deliver higher quality metal than many of [its] competitors.”
78.
In addition, the 2014 Form 10-K stated that the Company believed it had cash
on hand, credit access and expected cash flow “sufficient to satisfy our liquidity and capital
requirements, including capital requirements related to our capital needs based on the
expected ramp-up to full production of the new zinc facility, for the next twelve months.”
79.
On April 1, 2015, Horsehead issued a press release providing an operational
update on the Mooresboro Facility. The release stated that short-term operational issues had
been “addressed” and quoted defendant Hensler as stating that the “‘most significant
reasons’” for the slower production “‘are behind us and we are now focused on ramping up
to our interim goal of 75% of nameplate capacity during the second quarter.’” The release
stated in pertinent part:
The Company reported that the facility produced approximately 10,000 tons
of zinc in the first quarter of 2015, compared to 12,000 tons in the fourth
quarter of 2014. Production was affected by the previously announced
outage taken in late February to install a bypass to resolve a problem with a
clarifier in the leach feed circuit. After an extended period to completely
drain the clarifier, the root cause of the issue was addressed and the clarifier
was placed back into service yesterday. We continued to supplement zinc
metal sales with the sale of approximately 23,200 tons of zinc calcine during
the first quarter.
Jim Hensler, the Company’s President and CEO, issued the following
statement: “We are pleased to have been able to substantially resolve the
issues which forced us to take an outage in February and continue to see
progress in our efforts to anticipate and resolve a number of other potential
equipment issues. While we did not reach the production rates we hoped to
achieve during the quarter, we believe the most significant reasons for that
are behind us and we are now focused on ramping up to our interim goal
of 75% of nameplate capacity during the second quarter.”
80.
On May 8, 2015, Horsehead issued a press release providing its first fiscal
quarter 2015 financial results. The release stated that additional problems at the Mooresboro
Facility identified in the quarter had been rectified and that the Company was “‘confident in
[its] plan to address the known issues that are affecting the pace of the ramp-up.’” The
release also stated that the Company: (i) had “added resources to accelerate the rate of the
ramp-up”; (ii) still believed the facility would achieve $90-$110 million in annualized
EBITDA benefits; and (iii) had adequate liquidity to meet the capital needs of the business
and complete the ramp-up.
81.
That same day, Horsehead filed a quarterly report on Form 10-Q with the
SEC which was signed by defendants Hensler and Scherich (the “1Q15 Form 10-Q”). The
1Q15 Form 10-Q represented that problems at the facility had been “addressed” and that the
facility would provide “significant benefits” and prove “transformative” for the Company,
stating in pertinent part:
On April 1, 2015, we announced that the facility had produced
approximately 10,000 tons of zinc during the first quarter of 2015. During
January 2015, we produced approximately 4,600 tons of zinc metal. We
reduced the plating rate for several days in January to perform some needed
maintenance in the cell house. We also experienced intermittent equipment
reliability issues, particularly with some key pumps, which were further
exacerbated by extreme cold weather conditions. On February 20, 2015, we
began a planned outage to address several of these issues. Production for the
first quarter of 2015 was also affected by the outage taken in late February to
install a bypass to resolve a problem with a clarifier in the leach feed circuit.
After an extended period to completely drain the clarifier, the root cause of
the issue was addressed and the clarifier was placed back into service.
In April 2015, the facility produced approximately 2,800 tons of zinc
metal. Production was lower than expected primarily due to an extended
period of exceptionally heavy rains which filled our containments and
holding ponds, requiring us to process the excess water in the plant rather
than produce zinc. This event highlighted a limitation in the capacity of our
process and storm water utilization capability. As a result, we are engaging a
third party water management company to install a portable unit on-site to
mitigate the excess water while we evaluate our options to expand the
capacity of our own equipment. In addition, in April, we engaged a team of
engineers with hydrometallurgical plant experience from Hatch Associates to
supplement our operations and engineering team and support the on-going
ramp-up.
. . . We continue to believe that once we are operating at full
capacity, we will realize significant benefits as a result of our investment in
this transformative project.
82.
The 1Q15 Form 10-Q also stated that the Company’s cash on hand,
availability under various credit facilities, cost reduction initiatives and cash flow from
operations “will be sufficient to satisfy our liquidity and capital requirements, including
capital requirements related to our capital needs based on the ramp-up to full production of
the new zinc facility, for the next twelve months.”
83.
Also on May 8, 2015, Horsehead held an earnings conference call with
analysts and investors to discuss the first quarter 2015 results. In his prepared remarks,
defendant Hensler stated that the Company had remedied production defects at the
Mooresboro Facility during the quarter and had “added resources to accelerate the rate of
ramp-up,” and that he “continue[d] to believe that after we are operating at full capacity, we
will realize $90 million to $100 million of incremental EBITDA benefit as a result of the
investment in this transformative project.” Defendant Hensler continued, stating the
Company was “gaining confidence” in turning the corner on the known issues affecting the
ramp-up:
I would like to say that while the first quarter was challenging, we are
gaining confidence in our plan to address the known issues affecting the pace
of ramp-up at Mooresboro and continue to believe that we will realize the
incremental of $90 million to $110 million EBITDA after we are operating at
full capacity. The rate of ramp-up has improved in May and should be
enhanced as we make improvements in a few persistent problem areas over
the next several weeks. To that end we’ve brought on additional resources to
provide assistance.
84.
When asked by an analyst whether he was still confident the Mooresboro
Facility would reach full production, defendant Hensler responded in the affirmative:
Yes, we still believe that’s possible. We get that confidence because
of the sizing of our facility, and we look at the size of tanks, reactors, cell
house, and so on, is the same size as other facilities around the world that are
using the same technology and getting the production levels that we expect to
get. So we don’t see fundamental problem with the design to get us there.
It’s really some of the unique things that we’re working through to make the
process more reliable and to deal with the specifics of the design that we’ve
got.
85.
On the call, defendant Scherich stated: “So our expectation is we’ll continue
to ramp that up [from 200 tons a day], and I think our hope is in May to produce somewhere
north of 5,000 tons of finished product and then [we’re] going to move up from there in
June.” Similarly, defendant Hensler stated that none of the problems identified so far would
“require a significant capital investment,” and the Company would “move up the reliability
curve quite a bit” once those problems were addressed. Later, defendant Hensler stated that
production in the second quarter had improved and was expected to “improve even more
during the course of the year”:
[W]e actually installed some upgrades during the outage in January, and
that’s allowed us to increase the power input rate in our melting furnace
which has actually resulted in even higher production rates as we exited the
quarter, and through April so far we’re actually making up ground on the
production we lost in January. So, yes, I think we expect to see the second
quarter being stronger, and we actually expect to see that maybe improve
even more during the course of the year.
86.
Defendant Hensler also stated that the Company expected to produce 330 tons
of zinc per day at the Mooresboro Facility by the end of the third quarter and would
“probably see kind of a slow ramp to full production sometime early next year.” Defendant
Scherich, meanwhile, stated that the increased production was expected to “produce very
acceptable run rates on the performance of the business to support refinancing” later in
the year.
87.
On June 1, 2015, Horsehead issued a press release providing an operational
update on the Mooresboro Facility. The release stated that: (i) in May 2015 the facility
achieved its “highest monthly production since January” 2015; (ii) the Company was
“confident” the issues identified could be addressed; and (iii) the Company expected the
facility to achieve 75% production capacity in the third quarter.
88.
The statements referenced above in ¶¶67-74, 76-87 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 construction defects at the Mooresboro Facility, including but not
limited to the construction of defective piping, filtration presses and clarifiers, had left the
facility unable to operate as planned and the facility was not ready to commence operations
in May 2014;
(b)
That operational problems at the Mooresboro Facility were not
“conventional,” “minor” or “short-term” in nature, but significant, pervasive and the result of
fundamental engineering and operational defects, including but not limited to the melting of
pipelines, filter presses that regularly clogged, faulty filtration processes, clarifier overflow,
bleed treatment failure, defective acid lines and improper acid use;
(c)
That the Company had not rectified the problems at the Mooresboro
Facility, including those listed in (b) above, and did not know how to rectify such problems
and, as a result, production disruptions and tens of millions of dollars in costs related to these
problems were likely and anticipated;
(d)
That the initial months of zinc production at the Mooresboro Facility
had not “validated” the new production process “as designed,” but, to the contrary, had
demonstrated that the facility would not be able to scale its production capabilities without
significant redesign;
(e)
That instead of permanently fixing problems at the Mooresboro
Facility, the Company was employing expensive, temporary workarounds in order to achieve
even limited production capacity, and as a result, the facility was not providing significant
cost savings, but was instead causing the Company to spend cash at an unsustainable rate;
(f)
As a result of (a)-(e) above, the Mooresboro Facility did not have an
annual zinc production capacity of 155,000 tons and could not even sustainably achieve 50%
of that capacity;
(g)
As a result of (a)-(f) above, the Mooresboro Facility could not
possibly achieve 75% production capacity in the first, second or third fiscal quarters of 2015,
generate the revenue increases that would result from such production levels, or achieve an
annualized EBITDA benefit of $90-$110 million;
(h)
That construction at the facility was not “completed,” but instead
would require an additional investment of tens of millions of dollars and several years of
highly technical and uncertain work in order to rectify the substantial and pervasive
construction, engineering and operational problems identified in (a)-(g) above, and in fact
such problems may not have been solvable at scale based on existing technologies;
(i)
That the operational issues at the Mooresboro Facility were not
improving, but in fact were deteriorating, as stop-gap measures used by the Company to
boost production in the short term were unsustainable, untested, highly risky and causing
decreased operational stability; and
(j)
As a result of (a)-(i) above, the Company did not have sufficient
liquidity, cash on hand and anticipated cash flows for general corporate purposes through the
full ramp-up of the Mooresboro Facility.
89.
On July 2, 2015, after the market closed, Horsehead issued a press release
purporting to provide an update on the Mooresboro Facility. The release represented that the
facility had only produced 3,700 tons of zinc during June 2015, a nearly 10% decrease from
the prior month. The release stated that the slowdown in production was due to problems in
the facility’s bleed-treatment system and ongoing “equipment reliability issues.”
90.
The release also stated that: (i) production at the Mooresboro Facility had
“accelerated through the latter half of the month”; (ii) various production problems at the
facility had been solved; (iii) the Company still expected the facility would reach 75%
production capacity in the third quarter of 2015; and (iv) Horsehead had adequate liquidity to
complete the ramp-up.
91.
In response to this news, the price of Horsehead’s stock declined from $11.45
per share on July 2, 2015 to $9.54 per share on July 6, 2015 (the next trading day), a one-day
decline of 17% on high trading volume of 4.7 million shares. A BB&T analyst report stated
that the disappointing results placed the Company’s “ability to execute” and EBITDA
projections “increasingly in doubt,” while “investors want results, not more excuses.”
Defendants, however, continued to misrepresent the extent and seriousness of the problems
at the Mooresboro Facility and continued to conceal the true facts about Horsehead’s
operations and prospects.
92.
On August 7, 2015, Horsehead issued a press release providing its second
quarter 2015 financial results. The release stated that the “pace of the ramp-up increased”
during the quarter and reaffirmed the Mooresboro Facility’s projected EBITDA benefits and
the Company’s purportedly “adequate” liquidity to complete the ramp-up, stating in pertinent
part:
“The pace of the ramp-up increased as we exited the second quarter and in
July, a month in which we took a planned outage, the facility produced
approximately 4,000 tons of zinc metal, a 7% increase over June’s
production. Upgrades made during the planned outage, along with the
additional processing capacity supplied by Veolia (a water treatment
specialist), have eased the bottleneck in our bleed treatment circuit. We
also made progress on the previously mentioned pilot plant designed to
quickly add and evaluate incremental bleed treatment capacity. We expect it
to be operational sometime in August. We expected better performance in
July; however, we experienced unexpected production constraints due to
equipment reliability issues, caused mainly by design deficiencies, some of
which we have already remedied. We are encouraged that the operations in
Mooresboro appear to have stabilized over the past quarter. We expect
continued steady progress as we debottleneck the facility and systematically
address equipment reliability issues. We continue to believe that, once the
Mooresboro facility is fully and efficiently operating, we will realize $90 to
$110 million of incremental Adjusted EBITDA compared to our prior
operations at Monaca. However, the timing for achieving specific
milestones during the ramp-up or the completion of the ramp-up cannot be
predicted with certainty,” added Hensler. . . .
We believe we have adequate liquidity to meet the capital needs of the
business through completion of the ramp-up of the Mooresboro facility.
93.
That same day, Horsehead filed its Form 10-Q for the second quarter of 2015
with the SEC, which was signed by defendants Hensler and Scherich (the “2Q15 Form 10-
Q”). The 2Q15 Form 10-Q stated that: (i) production had substantially improved in May
2015; (ii) July developments at the facility “were encouraging”; and (iii) the Company
expected “continued steady progress” at the facility.
94.
In addition, the 2Q15 Form 10-Q stated that the Company’s cash on hand,
availability under various credit facilities, cost reduction initiatives and cash flow from
operations “will be sufficient to satisfy our liquidity and capital requirements, including
capital requirements related to our capital needs based on the ramp-up to full production of
the new zinc facility, for the next twelve months.”
95.
Also on August 7, 2015, Horsehead held an earnings conference call with
analysts and investors to discuss the second quarter 2015 results. In his prepared remarks,
defendant Hensler stated that the Company had made substantial improvements at the
Mooresboro Facility and expected to increase production by as much as 100 tons per day,
and reaffirmed the Company’s previously stated annualized EBITDA benefits. Defendant
Hensler continued, stating that operations had “stabilized” and zinc production would
“continue to progress”:
I’d like to say that while the second quarter was challenging, operations in
Mooresboro have started to stabilize and we are making steady progress
toward addressing the various design deficiencies and equipment issues
that we have discovered since startup, including those related to the most
significant bottleneck associated with the bleed treatment system. We are
implementing a plan to mitigate this bottleneck.
Production in July was approximately 7% higher than in June, as we partially
eased the bottleneck and as equipment reliability continues to improve. We
believe production will continue to progress through the third quarter as we
implement plans discussed earlier and in recent updates.
We will be aided in these efforts by having extended our relationship with
Hatch Associates to continue taking advantage of their hydrometallurgical
engineering expertise, and by having made further additions to our in-house
staff. We are particularly excited that one of the key technical experts
involved in the commissioning and ramp up of the Scorpion zinc plant, which
is similar in design to ours, has joined the Company and will be leading the
technical efforts at Horsehead to support the ramp up.
96.
Later on the call, defendant Hensler also stated that the Company did not
anticipate any liquidity problems during the remainder of the year and had the capacity to
add $50 million in unsecured debt if needed:
So we think that holds fairly steady, given the hedging that’s in place and
kind of the steady progress that we’re making. So we’re not anticipating the
liquidity changing much here for the balance of the year.
But it could, and one of the things that’s still out there is the capacity to add
up to $50 million of additional unsecured debt. And that’s something that’s
always a next available alternative.
97.
On September 1, 2015, Horsehead issued a press release providing an update
on the Mooresboro Facility. The release stated that the Company had “completed several
upgrades to the plant in August which should improve plant reliability going forward,
including upgrading of some of the problematic pumps and acid distribution components and
improvement to the operating efficiency of the solvent extraction circuit.”
98.
On October 23, 2015, Horsehead announced that it had entered into an at-the-
market offering sales agreement (the “ATM Offering”) with an investment bank. Pursuant to
the agreement, the Company stated it could sell up to $50 million worth of shares of its
common stock, from time to time. The prospectus supplement for the ATM Offering (the
“ATM Prospectus”) included the purported benefits of the Mooresboro Facility, which were
substantially identical to those listed in ¶29. The ATM Prospectus also stated that the
Company had “made and continues to make numerous improvements to remediate the
issues we have faced at our new zinc facility” and that the facility’s operations had “further
improve[d]” during October.
99.
The statements referenced above in ¶¶89-90, 92-98 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 construction defects at the Mooresboro Facility, including but not
limited to the construction of defective piping, filtration presses and clarifiers, had left the
facility unable to operate as planned and the facility was not ready to commence operations
in May 2014;
(b)
That operational problems at the Mooresboro Facility were not
“conventional,” “minor” or “short-term” in nature, but significant, pervasive and the result of
fundamental engineering and operational defects, including but not limited to the melting of
pipelines, filter presses that regularly clogged, faulty filtration processes, clarifier overflow,
bleed treatment failure, defective acid lines and improper acid use;
(c)
That the Company had not rectified the problems at the Mooresboro
Facility, including those listed in (b) above, and did not know how to rectify such problems,
and as a result, production disruptions and tens of millions of dollars in costs related to these
problems were likely and anticipated;
(d)
That the initial months of zinc production at the Mooresboro Facility
had not “validated” the new production process “as designed,” but, to the contrary, had
demonstrated that the facility would not be able to scale its production capabilities without
significant redesign;
(e)
That instead of permanently fixing problems at the Mooresboro
Facility, the Company was employing expensive, temporary workarounds in order to achieve
even limited production capacity, and as a result, the facility was not providing significant
cost savings, but instead was causing the Company to spend cash at an unsustainable rate;
(f)
As a result of (a)-(e) above, the Mooresboro Facility did not have an
annual zinc production capacity of 155,000 tons and could not even sustainably achieve 50%
of this capacity;
(g)
As a result of (a)-(f), above, the Mooresboro Facility could not
possibly achieve 75% production capacity in the third fiscal quarter of 2015, generate the
revenue increases that would result from such production levels, or achieve an annualized
EBITDA benefit of $90-$110 million;
(h)
That construction at the facility was not “completed,” but instead
would require an additional investment of tens of millions of dollars and several years of
highly technical and uncertain work in order to rectify the substantial and pervasive
construction, engineering and operational problems identified in (a)-(g), above, and in fact
such problems may not have been solvable at scale based on existing technologies;
(i)
That operational issues at the Mooresboro Facility were not
improving, but were in fact deteriorating, as stop-gap measures used by the Company to
boost production in the short term were unsustainable, untested, highly risky and causing
decreased operational stability;
(j)
That the purported experts and specialists hired by the Company to
improve the Mooresboro Facility could not substantially remedy the problems at the site
without a prolonged shutdown and redesign of the facility, and the Company did not have
sufficient liquidity for these tasks; and
(k)
As a result of (a)-(j), above, the Company did not have sufficient
liquidity, cash on hand and anticipated cash flows for general corporate purposes through the
full ramp-up of the Mooresboro Facility
100.
On November 9, 2015, Horsehead issued a press release announcing its third
quarter 2015 financial results. The release stated that the Company had suffered a
consolidated net loss of $27.4 million, or $(0.48) per diluted share, during the quarter, nearly
four times the consolidated net loss of $7 million, or $(0.14) per diluted share, for the third
quarter of 2014. The release also revealed that the Mooresboro Facility had only produced
9,700 tons of zinc during the entire quarter, an average run rate of only 25% of the facility’s
purported capacity more than a year after production commenced in May 2014. This is
roughly the same production capacity the facility achieved in June 2014, its first full
month of operation.
101.
In response to this news, the price of Horsehead stock declined from $2.86
per share on November 6, 2015 to $2.57 per share on November 9, 2015 (the next trading
day), a one-day decline of 10%. However, Horsehead stock continued to trade at artificially
inflated levels, as defendants misrepresented the extent and seriousness of the problems at
the Mooresboro Facility and continued to conceal the true facts about Horsehead’s
operations and prospects. This artificial inflation would come out over time, as the
Company’s liquidity problems and its inability to operate as a going concern were slowly
revealed to the market, culminating in the Company’s bankruptcy in February 2016 and the
price of Horsehead stock approaching zero and thereby causing economic harm and damages
to Class members.
102.
On November 9, 2015, the Company held an earnings call with analysts and
investors to discuss its third quarter 2015 results. In his prepared remarks, defendant Hensler
continued to contend that operational results at the Mooresboro Facility were improving. In
defendant Scherich’s prepared remarks, he stated that the Company had sufficient liquidity
for 12 months of operations:
Given our current liquidity and expected cash flow from operations; at
current commodity prices, we believe that we have adequate liquidity and
available [sic] of capital resources, including the ATM program, to support
the business for the next 12 months.
103.
On the call, defendant Belland was introduced as the Senior Vice President
for the Mooresboro Facility. In response to analyst questions, defendant Belland stated that
the facility had “no fundamental flaws whatsoever” and a “very solid core of operations,”
and that he did not “see anything that is preventing us from getting to the design rates as
expected”:
But first off, let me say that my opinion, after being here for a couple of
weeks, on the core of the operation, so that is the leach SX electro – our
cellhouse. It is a solid core operation here. There is [sic] no fundamental
flaws. There is nothing that I see as being impossible to resolve here. We
certainly just need to improve some of the deficiencies that we are
experiencing. But there is absolutely nothing that we should not be able to
resolve here. And it is a very solid core of the operation.
*
*
*
But again, I do not see anything that is preventing us from getting to the
design rates as expected. And it is just going to take a little bit of time to
resolve the deficiencies and some capital to invest in whatever those
deficiencies are.
*
*
*
I had confirmation that the core of the operation is very solid. There is no
fundamental flaws whatsoever in the leach SX or solvent extraction,
electrowinning cellhouse operation; I have full confidence that we are
going to be able to get this plant up to design capacity. As I mentioned, it is
just going to take a little bit of time. So there is [sic] no real big surprises
that I have seen in the two weeks of joining the company. I think, you know,
there is [sic] a few challenges that I was not aware of ahead of time. But
again, all of those are solvable.
These are just problems that exist that all metallurgical operations,
hydro- or pyro-metallurgical operations, that with engineering focus and
operations focus can be resolved. So there is absolutely nothing that I see
that the team here – and it is a very solid team. There has [sic] been a
number of other changes that Jim has put in place here that has a very strong
focus on both the operations and on the projects required to improve the
reliability of the operations, to enable us to get to the design capacity. So I
think, to answer your questions, no real concerns since joining the company.
Just a lot of challenges. But I am very confident we are going to be able to
address all of those challenges.
104.
The statements referenced above in ¶¶102-103 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 the Company did not have sufficient liquidity to meet its capital
needs or complete the ramp-up of the Mooresboro Facility;
(b)
That the Mooresboro Facility had significant issues affecting several
steps of the production process, including but not limited to solid/liquid separation,
depletion, bleed treatment and cementation;
(c)
That the Mooresboro Facility had equipment sizing issues in addition
to those listed in (b) above for gypsum precipitation and lead/silver recovery and other issues
throughout the zinc production process; and
(d)
That the problems identified at the Mooresboro Facility were
significant, pervasive and the result of fundamental engineering and operational defects that
the Company had not rectified and did not know how to rectify.
105.
On December 9, 2015, the Company amended its credit agreement with PNC
Bank National Association (“PNC”).
106.
On December 10, 2015, Moody’s downgraded the Company’s corporate debt
to Caa2 from B3 on a negative outlook. A release announcing the downgrade stated that it
was based in large part on the continued delays at the Mooresboro Facility.
107.
On January 13, 2016, it was reported that the Company was in a 30-day grace
period after missing a $1.8 million interest payment to its 3.8% convertible senior note
holders earlier in the month.
108.
On January 14 and 15, 2016, the Company entered into forbearance
agreements with two of its creditors, PNC and Macquarie Bank Limited, respectively.
109.
On January 22, 2016, the Company announced that it was idling the
Mooresboro Facility and retaining only a “small workforce” at the site.
110.
On February 2, 2016, Horsehead announced that it had initiated bankruptcy
proceedings under Chapter 11 of the U.S. Bankruptcy Code. That same day, the Company
filed a plan for restructuring from its discussions with secured creditors that revealed
“‘[m]ajor [b]ottlenecks’” at the Mooresboro Facility. The plan stated that “[s]ignificant
issues” plagued several steps in the zinc production and recycling process, including: (i)
solid/liquid separation; (ii) depletion; (iii) bleed treatment; and (iv) cementation. In addition,
the plan stated that gypsum precipitation and lead/silver recovery at the plant suffered from
“equipment sizing issues,” and that all steps of the production process had at least “[l]imited
issues.” The plan further stated that it would take approximately $81.9 million and over two
years to get the facility back on track.
111.
On February 11, 2016, trading in Horsehead stock was suspended. On
February 23, 2016, the Company filed a notice on Form 25-NSE that its common stock had
been removed from listing on the NASDAQ stock exchange.
112.
On March 1, 2016, Horsehead filed a notice on Form NT 10-K that it would
be unable to file its annual report for the 2015 fiscal year on time and disclosed that it
“expects that its results of operations for the year ended December 31, 2015 will reflect a
significant adverse change compared with the Company’s results of operations for the year
ended December 31, 2014,” due in part to “continuing issues that delayed the ramp-up of the
Company’s zinc facility in Mooresboro, North Carolina.”
113.
On April 14, 2016, the Company filed its disclosure statement for the debtor’s
joint plan of reorganization pursuant to Chapter 11 of the Bankruptcy Code in the bankruptcy
proceedings, which stated: “The Debtors presently anticipate that approximately 36 months
may be required to implement engineering and operational repairs or modifications necessary
to bring the Mooresboro Facility up to full capacity.”
LOSS CAUSATION/ECONOMIC LOSS
114.
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 Horsehead securities and operated as a fraud or deceit on Class Period purchasers
of Horsehead securities. Later, when defendants’ prior misrepresentations and fraudulent
conduct became apparent to the market, the prices of Horsehead securities fell precipitously,
as the prior artificial inflation came out of the prices over time. As a result of their purchases
of Horsehead securities 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
115.
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 Horsehead
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.
116.
The market for Horsehead securities was efficient for the following reasons,
among others:
(a)
Horsehead stock met the requirements for listing, and was listed and
actively traded on the NASDAQ, a highly efficient and automated market, until trading was
suspended in February 2016;
(b)
As a regulated issuer, Horsehead filed periodic public reports with the
SEC; and
(c)
Horsehead 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
117.
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.”
118.
Adequate verbal “Safe Harbor” warnings did not accompanying defendants’
oral FLS issued during the Class Period effective to shield those statements from liability.
119.
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 Horsehead 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
120.
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 Horsehead securities during
the Class Period (the “Class”). Excluded from the Class are defendants and their immediate
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.
121.
The members of the Class are so numerous that joinder of all members is
impracticable. During the Class Period, Horsehead stock was actively traded on the
NASDAQ and there were nearly 58 million shares of Horsehead 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 Horsehead 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.
122.
Common questions of law and fact predominate and include: (i) whether
defendants violated the 1934 Act; (ii) whether defendants made materially false and
misleading statements; (iii) whether defendants omitted and/or misrepresented material facts;
and (iv) whether defendants’ statements and/or omissions artificially inflated the prices of
Horsehead securities and the extent and appropriate measure of damages.
123.
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.
124.
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.
125.
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
126.
Plaintiff incorporates all allegations in ¶¶1-125 above by reference.
127.
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.
128.
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 Horsehead securities during the Class Period.
(d)
Plaintiff and the Class have suffered damages in that, in reliance on
the integrity of the market, they paid artificially inflated prices for Horsehead securities.
Plaintiff and the Class would not have purchased Horsehead securities 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.
(e)
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 Horsehead securities during the Class Period.
COUNT II
For Violation of §20(a) of the 1934
Act Against All Defendants
129.
Plaintiff incorporates all allegations in ¶¶1-128 above by reference.
130.
Defendants acted as controlling persons of Horsehead within the meaning of
§20(a) of the 1934 Act. By virtue of their positions with the Company, and ownership of
Horsehead common stock, defendants had the power and authority to cause Horsehead to
engage in the wrongful conduct complained of herein. By reason of such conduct,
defendants named herein 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.
FRIEDLANDER & GORRIS, P.A.
/s/ Joel Friedlander
Joel Friedlander (Bar No. 3163)
Jeffrey M. Gorris (Bar No. 5012)
Christopher P. Quinn (Bar No. 5823)
1201 N. Market Street, Suite 2200
Wilmington, DE 19801
(302) 573-3500
jfriedlander@friedlandergorris.com
jgorris@friedlandergorris.com
cquinn@friedlandergorris.com
Counsel for Plaintiff
OF COUNSEL:
ROBBINS GELLER RUDMAN
& DOWD LLP
David C. Walton
Brian E. Cochran
655 West Broadway, Suite 1900
San Diego, CA 92101
(619) 231-1058
ROBBINS GELLER RUDMAN
& DOWD LLP
Samuel H. Rudman
58 South Service Road, Suite 200
Melville, NY 11747
(631) 367-7100
DATED: April 22, 2016
| securities |
2NEFD4cBD5gMZwczt54A | LAW OFFICES OF MITCHELL S. SEGAL P.C.
Mitchell Segal, Esq.
Law Offices of Mitchell Segal, P.C.
1010 Northern Boulevard
Suite 208
Great Neck, New York 11021
Ph. (516) 415-0100
Fx. (516) 706-6631
Attorneys for Plaintiff and the Class
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
_____________________________________________
KENNETH T. CHAVEZ,
on behalf of himself and all others similarly situated,
Case No.:
Plaintiff,
CLASS ACTION COMPLAINT
-against-
CHILLED PROPERTIES LLC d/b/a BORO HOTEL,
Defendant.
______________________________________________
COMPLAINT
Plaintiff, KENNETH T. CHAVEZ (hereinafter “Plaintiff”), on behalf of himself and all others
similarly situated, by their attorney, the Law Offices of Mitchell S. Segal, P.C., hereby files this
Class Action Complaint against the Defendant CHILLED PROPERTIES LLC d/b/a BORO
HOTEL (hereinafter “Defendant”) and states as follows:
INTRODUCTION
1.
This class action seeks retribution for the Defendants’ actions against the Plaintiff and other
individuals who suffer what constitutes a “qualified disability” under the American with
Disabilities Act of 1990. The Plaintiff is uniped and an amputee and uses a wheelchair for mobility.
The Defendant owns and/or operates and/or maintains and/or manages the BORO HOTEL located
at 38-28 27th Street, Long Island City, New York 11101(the “Hotel”) along with its website located
at the domain of www.borohotel.com (the “Website”). The Website describes the Hotel in detail
providing information about the Hotel, rooms and local attractions including pictures and allows
an individual to make reservations through its Website and provides information regarding
guestrooms and amenities. Other websites operated by third parties also allow individuals to use
a reservation system to reserve rooms at the Hotel (the Website and these third-party websites shall
be referred to as the “Websites”).
2.
Pursuant to the American with Disabilities Act (the “ADA”) Defendant, as Hotel owner
and operator was required to update and modify its reservation systems, including its online
reservation systems in order to (a) identify and describe disabled accessible features of the Hotel
in detail; (b) identify and describe disabled accessible features of ADA compliant guest rooms in
detail; (c) permit disabled individuals to independently assess whether the Hotel and its available
guestrooms meet their individual accessibility needs (by describing accessible features or the lack
thereof); and (d) allow reservations to be taken for accessible guestrooms in the same manner as
for non-accessible guestrooms pursuant to 28 C.F.R. § 36.302 (e)(1) . The Defendants have not
complied and discriminate against the Plaintiff and other disabled individuals in violation of the
rights granted under the ADA.
JURISDICTION AND VENUE
3.
This Court has subject matter jurisdiction over this action pursuant to 28 U.S.C. §1331 and
42 U.S.C. § 12181 for Plaintiff’s claims which arise under Title III of the Americans with
Disabilities Act, 42 U.S.C. § 12181, et seq., and 28 U.S.C. § 1332 because this is a class action
defined by 28 U.S.C. § 1332(d)(1)(b), in which a member of the presumed Class is a citizen of a
different state of Defendants and the amount in controversy exceeds the sum or value of
$ 5,000,000, excluding interests and costs. 28 U.S.C. § 1332 (d)(2).
4.
This Court has supplemental jurisdiction pursuant to 28 U.S.C. § 1367 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. (“NYCHRL”).
5.
Venue is proper in the Eastern District of New York pursuant to 28 U.S.C. §§ 1391 (b)-(c)
and 1441(a).
6.
The Court has personal jurisdiction over the Defendant in this action. Defendant transacts
substantial business in this District through its Hotel, located in this District.
7.
Venue lies in this District pursuant to 28 U.S.C. §1391(a)(2), because a substantial part of
the actions and/or omissions giving rise to the Plaintiff’s claims occurred in this District.
Defendant has been and is continuing to commit the alleged acts and/or omissions in the Eastern
District of New York that caused injury and violated the Plaintiff’s rights and the rights of other
disabled individuals.
8.
This honorable Court has the authority to issue a declaratory judgment under 28 U.S.C. §§
2201 and 2202.
PARTIES
9.
The Plaintiff, KENNETH T. CHAVEZ, was and is over the age of 18 years and is a resident
of New York County, New York.
10.
Plaintiff has at all herein suffered from a “qualified disability” as defined in the ADA under
42 U.S.C. § 12102(1)-(2), 28 CFR §§ 36.105, the New York State Human Rights Law and the
New York City Human Rights Law. Plaintiff is uniped, an amputee, and must use a wheelchair
or other motorized mobility device.
11.
The Defendant CHILLED PROPERTIES LLC is a Domestic Limited Liability Company
organized under the laws of New York having an office at 40 Kings Street New York, New York
10014 and owning, operating and managing the Hotel which is located at 38-28 27th Street, Long
Island City, New York, New York 11101 and is authorized to conduct business in New York. The
Defendant owns and/or manages and/or operates and or otherwise controls BORO HOTEL and its
Website.
12.
The Defendant owns, manages, controls and maintains the Website with the domain name
of www.borohotel.com in conjunction with the BORO HOTEL.
13.
The purpose of the ADA is to provide laws, standards and regulations which can provide
national guidelines in order to eliminate discrimination against individuals with disabilities.
Pursuant to 42 U.S.C. §12134(a), the Department of Justice, Office of the Attorney General
(“DOJ”), published revised regulations for Title III of the Americans With Disabilities Act of 1990
requiring, among other things, that public accommodations, including places of lodging, conform
to these revised regulations on or before March 15, 2012. Defendant’s Hotel is a place of public
accommodation that is required to conform to these regulations.
14.
A website is a place of accommodation defined as “places of exhibition and entertainment,”
places of recreation,” and “service establishments.” 28 C.F.R. § 36.201 (a); 42 U.S.C. § 12181 (7).
15.
The Plaintiff seeks injunctive and declaratory relief requiring the Defendants to correct the
barriers which prevent access for the disabled.
CLASS ACTION ALLEGATIONS
16.
Plaintiff, for himself and on behalf of others similarly situated, seeks class action
certification pursuant to the Federal Rules of Civil Procedure Rule 23(a) and 23 (b)(2) of all
disabled individuals in the United States that are unable to walk as a result of their disability and,
as a consequence, must use a wheelchair or other motorized mobility device and who have been
denied equal access to goods and services of the Defendant’s Hotel, Website and the Websites.
17.
Plaintiff, on behalf of himself and on behalf of all others similarly situated, seeks to certify
a New York State subclass under Federal Rules of Civil Procedure Rule 23(a) and 23 (b)(2) of all
disabled individuals in State of New York who are unable to walk as a result of their disability
and, as a consequence, must use a wheelchair or other motorized mobility device and who have
been denied equal access to goods and services of the Defendant’s Hotel, Website and the
Websites.
18.
Plaintiff, on behalf of himself and on behalf of all others similarly situated, seeks to certify
a New York State subclass under Federal Rules of Civil Procedure Rule 23(a) and 23 (b)(2) of all
disabled individuals in the City of New York who are unable to walk as a result of their disability
and, as a consequence, must use a wheelchair or other motorized mobility device and who have
been denied equal access to goods and services of the Defendant’s Hotel, Website and the
Websites.
19.
The Class is so numerous, being composed of millions of disabled individuals in the United
States that are unable to walk as a result of their disability and must use a wheelchair or other
motorized mobility device, that joinder of all members is impracticable, Additionally, there are
questions of law and/or fact common to the Class and the claims of the Plaintiff are typical of the
Class claims.
20.
Common questions of law and fact exist amongst the Class including:
a. Whether the Hotel and Website are "public accommodation[s]" under the ADA
and New York laws;
b. Whether there was a violation under the ADA due to the barriers that exist
at the Defendant’s Hotel and its Website and whether the Plaintiff and the
Class were denied full and equal enjoyment of the goods, services, facilities,
privileges, advantages, or accommodations; and
c. Whether there was a violation under New York law due to the barriers that exist
on the Defendant’s Hotel and its Website and whether the Plaintiff and the
Class were denied full and equal enjoyment of the goods, services, facilities,
privileges, advantages, or accommodations.
21.
The Plaintiff’s claims are typical of those of the Class as they both claim that Defendant
violated the ADA, and/or the laws of New York by failing to have it’s Hotel, Website and the
Websites accessible.
22.
Plaintiff will fairly and adequately represent and protect the interests of the Class members
as the Plaintiff and the Class are individuals having the same claims as they are unable to walk and
must use a wheelchair or other motorized mobility device.
23.
Class certification is appropriate under Fed. R. Civ. P. 23(b)(2) because Defendant has
acted or refused to act on grounds applicable to the Class making declaratory and injunctive relief
appropriate.
24.
Questions of law or fact common to Class members predominate questions affecting
individual Class members and a class action will fairly and efficiently decide this action.
25.
Counsel for the Plaintiff is experienced representing both Plaintiffs and Defendants in
Class actions. As such the Class will be properly represented.
26.
Judicial economy will be served by maintaining this lawsuit as a class action as it will
prevent the filing of a voluminous number of individual lawsuits throughout the United States by
people who are individuals having the same claims as the Plaintiff all of whom are disabled, unable
to walk and must use a wheelchair or other motorized mobility device.
FACTUAL ALLEGATIONS
27.
Defendant is required by the ADA, its accompanying regulations contained in the Code of
Federal Regulations (C.F.R.), Architectural Guidelines and 2010 ADA Standards to ensure that its
place of lodging complies with the standards applicable to public accommodations and is
accessible to disabled individuals.
28.
28 C.F.R. §36.302(e)(l), which became effective on March 12, 2012, provides:
“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 through 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
have been rented and the accessible room requested is the only
remaining room 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 reservations systems; and
(v) Guarantee that the specific accessible guest room 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”.
29.
“Section 36.302 of the 1991 Title III regulation requires public accommodations to make
reasonable modifications in policies, practices or procedures when such modifications are
necessary to afford access to any goods, services, facilities, privileges advantages or
accommodations, unless the entity can demonstrate that making such modifications would
fundamentally alter the nature of such goods, services, facilities, privileges, advantages or
accommodations. Hotels, timeshares resorts, and other places of lodging are subject to this
requirement and must make reasonable modifications to reservation policies, practices or
procedures when necessary to ensure that individuals with disabilities are able to reserve accessible
hotel rooms with the same efficiency, immediacy, and convenience as those who do not need
accessible rooms”. 28 C.F.R. Part 36, Appx. A.
30.
Third-Party reservation services should also be subject to these requirements.
31.
Hotels, motels and other places of lodging are required to identify and describe all
accessible features in the hotel and guestrooms; “[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.” “As a practical matter, ……. designating a room as “accessible” does not
ensure necessarily that the room complies with all of the 1991 Standards.” 28 C.F.R. Part 36, Appx.
32.
“Further hotel rooms that are in full compliance with current standards may differ, and
individuals with disabilities must be able to ascertain which features – in new and existing facilities
– are included in the hotel’s accessible guest rooms. For example, under certain circumstances, an
accessible hotel bathroom may meet accessibility requirements with either a bathtub or a roll in
shower. The presence or absence of particular accessible features such as these may mean the
difference between a room that is usable by a particular person with a disability and one that is
not”. 28 C.F.R. Part 36, Appx. A.
33.
For hotels that were built after the effective date of the 1991 Standards, it is sufficient to
advise that the hotel itself is fully ADA compliant, and for each accessible guestroom, 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.
34.
“For older hotels with limited accessibility features, information about the hotel should
include, at a minimum, information about accessible entrances to the hotel, the path of travel to
guest check-in and other essential services, and the accessible route to the accessible room or
rooms. In addition to the room information described above, these hotels should provide
information about important features that do not comply with the 1991 Standards. For example, if
the door to the “accessible” room or bathroom is narrower than required, this information should
be included (e.g., door to guest room measures 30 inches clear)”. 28 C.F.R. Part 36, Appx. A.
35.
The Hotel is a place of public accommodation that owns and/or leases and operates a place
of lodging pursuant to the ADA. Additionally, the Website is a place of public accommodation
defined as a “place[s] of exhibition and entertainment,” “places of recreation,” and “service
establishments.” 28 C.F.R. § 36.201(a); 42 U.S.C. § 12181 (7).
36. Defendant, by itself or by and through a third party owns, operates, maintains and
controls the Website and Websites which contains an online reservation system located at
www.borohotel.com, www.hotels.com, www.hoteltonight.com, www.reservations.com, and
www.booking.com. The Website and Websites are subject to the requirements of 28 C.F.R.
Section 36.302(e).
37. Prior to the commencement of this action, Plaintiff visited the Website and Websites on
various dates including January 28, 2019 and date thereafter to learn about accessible features of
the Hotel and in order to assess whether he could reserve an accessible room at the Hotel. However,
the Plaintiff was unable to do so as the Website does not comply with the requirements of the ADA,
including the requirements contained in 28 C.F.R. § 36.302(e). The Plaintiff and others desire to
stay at the Hotel but don’t know if they are able to do so due to the lack of information on the
Website and Websites. Plaintiff plans on visiting the Website and Websites regularly to see if the
Defendants have modified their site to be in compliance with the ADA. So far they have not.
38. The Defendants discriminate against the Plaintiff and other disabled individuals throughout
the United States who are unable to walk and must use a wheelchair or other motorized mobility
device excluding them of the same goods, services, features, facilities, benefits, advantages and
accommodations of the Hotel and Website that are available to others.
39. The Website’s homepage mentions features in reference to accessibility features of the Hotel’s
room and the common areas. The problem is that the reservation system does not detail which
rooms are accessible or not. Consequently, Plaintiff and the Class cannot chose a room that they
know will be accessible. If you click the link “Book A Room” no information arises in reference
to the accessibility of a particular room or information for Plaintiff to decipher which room is
accessible or not. There is literally no information about the room’s accessibility features. If you
put in particular dates to reserve a room and access the availability of rooms on particular dates
and see a list of available rooms on that date no accessibility information or accessibility details
for each type of available room are displayed. You can click on the rooms features but there is
no narrative detailing whether the room is accessible or not.
40. The Website’s reservation system contains no information as to whether any of its rooms
available on particular dates contain accessible features including but not limited to roll in showers
or bathtubs, built in seating, grab bars, lowered sinks, wrapped pipes, sink and door hardware, or
sufficient maneuvering space complaint within the room.
41. The Website also is devoid of most of the accessibility information concerning common
areas and Hotel amenities and whether the Hotel is accessible in accordance with the 1991
Standards, or if not, the ways in which it is not with regard to the Hotel’s entrance, the registration
desk, recreational facilities, the restaurants, the parking areas, business center and the routes to and
from all of the aforementioned to and from each other such that the Plaintiff, the Class and Subclass
can evaluate to determine whether the Hotel is accessible to them, although it provides very general
information.
42. Plaintiff has saved and retained all webpages from the Website and Websites concerning his
claim and that of the Class and Subclass.
43. Upon information and belief, Defendant has not complied with various reservation system
requirements: (i) that accessible rooms are held for use by individuals with disabilities until all
other non-accessible guest rooms have been rented and the accessible room requested is the only
remaining room of that type [§ 36.302 (e)(1)(iii)] and (ii) the requirement to reserve, upon request,
accessible guest rooms or specific types of guest rooms and ensure that the guest rooms requested
are blocked and removed from reservation systems. 28 C.F.R. § 36.302 (e)(1)(iv).
44. Plaintiff and the Class will visit the Website and Websites again to determine if the Defendant
has complied with the laws and to learn about the accessible (and inaccessible) features of the
Hotel and rooms because they desire to stay there.
45. Plaintiff and other disabled individuals requiring mobility assistance are aware that the
Website is non-compliant at this time and that they have been discriminated against by the
Defendants.
46. The Website can be viewed by individuals located in New York State in addition to the other
states of the United States and can be reached from computers, tablets and cellphones which can
access the internet.
47. Defendant has discriminated against Plaintiff and all other mobility-impaired individuals by
denying full and equal access to and enjoyment of the goods, services, facilities, privileges,
advantages and accommodations offered on the Website in violation of the ADA.
48. Modifying the Website and Websites to comply with the ADA is readily achievable without
undue burden.
49. Defendant’s non-compliant acts prevents the Plaintiff, Class and Subclass from having equal
access as the remaining public preventing them from enjoying the goods, services and benefits
offered by the Website.
FIRST CAUSE OF ACTION ON BEHALF OF
THE PLAINTIFF, THE CLASS AND THE SUBCLASS
Violation of Title III of the Americans with Disabilities Act
50. The Plaintiff realleges and incorporates by reference the allegations contained in
paragraphs “1” to “49” as if set forth fully herein.
51. The Plaintiff is uniped, an amputee, and must use a wheelchair or other motorized mobility
device. The Plaintiff has an impairment that substantially limits one or more of his major life
activities and is therefore an individual with a disability as defined under the ADA, 42 U.S.C.
§ 12102(2).
52. Title III of the ADA 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." 42 U.S.C. §
12182(a); 28 C.F.R. §36.201.
53. Title III of the ADA provides that “places of public accommodation” may not
discriminate against people with disabilities. Defendant operates a place of public
accommodation as defined by Title III of ADA, 42 U.S.C. § 12181(7) ("place of exhibition and
entertainment," "place of recreation," and "service establishments").
54. Defendant has failed to provide accessibility features on its Website and Websites about the
Hotel, its common areas, its features, its reservation system and its rooms thereby making it non-
accessible to disabled individuals who cannot walk without the use of use a wheelchair or other
motorized mobility device.
55. Discrimination under Title III includes the denial of an opportunity for the person who
cannot walk without the use of use a wheelchair or other motorized mobility device to participate
in programs or services or providing a service that is not equal to that afforded to others. 42
U.S.C. § 12182(b)(l)(A)(i-iii).
56. Discrimination includes the failure to maintain accessible features of facilities and
equipment that are required to be readily accessible to and usable by persons with disability.
28 C.F.R. § 36.211.
57. Defendant discriminates against the Plaintiff, the Class and Subclass on the basis of their
disability by denying them an equal opportunity to participate in and benefit from Defendant’s
goods, services, facilities, privileges, advantages and/or accommodations in violation of Title III
of the ADA, 42 U.S.C. § 12182 (b)(l)(A)(I).
58. It is unlawful to discriminate against individuals with disabilities or a class of individuals
having disabilities to participate in or benefit from the goods, services, facilities, privileges,
advantages, or accommodation offered to others.
59. Failure to make modifications that are reasonable in policies, practices, or procedures,
when such modifications are necessary to afford goods, services, facilities, privileges,
advantages, or accommodations to individuals with disabilities is unlawful, unless
implementing these modifications would fundamentally alter the nature of such goods,
services, facilities, privileges, advantages or accommodations under Title III of the ADA, 42
U.S.C. § 12182(b)(2)(A)(ii).
60. "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" is a prohibited discriminatory practice under Title III of the ADA, 42 U.S.C. §
12182(b)(2)(A)(iii).
61. The Defendant’s actions or lack of actions are discriminatory acts against the Plaintiff,
the Class and the Subclass as it has denied individuals who are disabled and who cannot walk
without the use of use a wheelchair or other motorized mobility device (i) an equal opportunity
to participate and benefit from Defendant’s goods, services, facilities, privileges, advantages
and/or accommodations, in violation of 42 U.S.C. § 1282(b)(1)(A); (ii) a failure to make
reasonable modifications in policies, practices and procedures when necessary to afford the
Plaintiff, the Class and Subclass such goods, services, facilities, privileges, advantages or
accommodations in violation of 42 U.S.C. § 1282(b)(2)(A)(ii); (iii) and failing to take
necessary steps to ensure that the Plaintiff and other disabled individuals who cannot walk
without the use of use a wheelchair or other motorized mobility device are not excluded, denied
services, segregated or treated differently than others because of the absence of accessibility
features of the Defendants’ Hotel, Website and Websites, including its reservation systems.
62. The Defendant has denied full and equal access to disabled individuals who cannot walk
without the use of use a wheelchair or other motorized mobility device to its Website and Websites
by having barriers to their services and accommodations while providing access to their services
and accommodations to non-disabled individuals.
63. Making necessary modifications by adding proper accessibility or non-accessibility
descriptions to its Website and by updating and modifying its reservation system on its Website
and Websites to correct the ADA violations existing on the Defendant’s Website and Websites in
order to make them compliant with ADA and ADAAG requirements would not alter the nature of
Defendant’s goods, services, privileges, advantages or accommodations nor would it result in an
undue burden.
64. The Defendant must be enjoined from engaging in these unlawful discriminatory practices
such that the Plaintiff, the Class and Subclass will no longer be discriminated against.
65. Absent injunctive relief, there is a clear and imminent risk that the Defendant’s
discriminatory actions will continue against the Plaintiff, the Class and Subclass causing
irreparable harm.
66. Plaintiff is entitled to injunctive relief in addition to attorney fees, costs and disbursements
pursuant to the ADA, 42 U.S.C. § 12188(a)(1).
SECOND CAUSE OF ACTION ON BEHALF OF
THE PLAINTIFF AND THE SUBCLASS
Violation of New York State Human Rights Law
67. The Plaintiff realleges and incorporates by reference the allegations contained in paragraphs
“1” to “66” as if set forth fully herein.
68. At all times relevant to this action, the New York Human Rights Law (“NYHRL”),
Article 15 of the N.Y. Executive Law §§ 290 et. seq. covers the actions of the Defendant.
69. The Plaintiff, at all times relevant to this action, has a substantial impairment to a major
life activity of walking and is an individual with a disability under Article 15 of the N.Y.
Executive Law § 292(21).
70. The Defendant, at all relevant times to this action, owns and operates a place of
accommodation, the Website and the Hotel, within the meaning of Article 15 of the N.Y.
Executive Law § 292(9). Defendant is a person within the meaning of Article 15 of the N.Y.
Executive Law § 292(1).
71. The Website and Websites are gateways to and part of the Hotel which is a place of
public accommodation.
72. Plaintiff has visited the Website and Websites and has encountered barriers of access
that exist.
73. Pursuant to Article 15 N.Y. Executive Law § 296(2)(a) “it shall be 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. Discrimination includes the refusal to adopt and implement reasonable modifications
in policies, practices or procedures when they are necessary to afford, facilities, privileges,
advantages or accommodations to individuals with disabilities. Article 15 of the N.Y.
Executive Law§ 296(2)(a), § 296(2)(c)(i).
75. Defendant’s actions violate Article 15 of the N.Y. Exec. Law§ 296(2)(a) by discriminating
against the Plaintiff and Subclass by (i) owning and operating the Website that is inaccessible to
disabled individuals who cannot walk without the use of use a wheelchair or other motorized
mobility device; and (ii) by not removing access barriers to its Website in order to make
accessibility features of the Hotel and its rooms known to disabled individuals who cannot walk
without the use of use a wheelchair or other motorized mobility device; and (iii) by refusing to
modify the Hotel’s online reservation systems on its Website and Websites when such
modifications are necessary to afford facilities, privileges, advantages or accommodations to
individuals with disabilities. This inaccessibility denies disabled individuals who cannot walk
without the use of use a wheelchair or other motorized mobility device full and equal access to the
facilities, goods and services that the Defendant makes available to individuals who are not
disabled and can walk without the need of a wheelchair or other motorized mobility device. Article
15 of the N.Y. Exec. Law§ 296(2)(c).
76. The Defendant’s 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.” Article 15 of the N.Y. Exec. Law§ 296(2)(c).
77. Established guidelines exist for making websites accessible to disabled individuals who
cannot walk without the use of use a wheelchair or other motorized mobility device and are easily
obtainable. These guidelines have been used and followed by government and businesses in
making their websites accessible to disabled individuals who cannot walk without the use of use a
wheelchair or other motorized mobility device, including but not limited to, having descriptions
of accessibility features of a Hotel or lack thereof of its entrance, its common areas, its rooms, its
travel routes to and from various components of the Hotel and having a reservation system that
does not exclude the disabled. Incorporating these components in its Website and Websites would
not fundamentally alter the Defendants’ Website, Hotel or business and would not result in an
undue burden.
78. Defendant’s have intentionally and willfully discriminated against the Plaintiff and
Subclass in violation of the New York State Human Rights Law, Article 15 of the N.Y. Exec.
Law § 296(2) and this discrimination continues to date.
79. Absent injunctive relief, Defendant’s discrimination will continue against the Plaintiff and
Subclass causing irreparable harm.
80. Plaintiff and the Subclass are therefore entitled to compensatory damages, civil penalties
and fines for each and every discriminatory act in addition to reasonable attorney fees and the costs
and disbursements of this action. Article 15 of the N.Y. Exe. Law §§ 297(9), 297(4)(c) et seq.
THIRD CAUSE OF ACTION ON BEHALF OF
THE PLAINTIFF AND THE SUBCLASS
Violation of New York State Civil Rights Law
81. The Plaintiff realleges and incorporates by reference the allegations contained in paragraphs
“1” to “80” as if set forth fully herein.
82. Plaintiff served notice thereof upon the attorney general as required by N.Y. Civil Rights
Law § 41.
83. Persons within N.Y.S. are entitled to full and equal accommodations, advantages,
facilities and privileges of 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 of a place of public accommodation, shall directly or indirectly
refuse, withhold from, or deny to any person any of the accommodations, advantages,
facilities and privileges thereof. N.Y. Civ. Rights Law § 40.
84. No person because of disability, as defined in § 292 (21) of the Executive Law, shall be
subjected to any discrimination in his or her civil rights by person or by any firm, corporation or
institution, or by the state or any agency or subdivision. N.Y. Civ. Rights Law (“CVR”) § 40-c.
85. § 292 of Article 15 of the N.Y. Executive Law deems a disability a physical, mental or
medical impairment resulting from anatomical, physiological, genetic or neurological
conditions which prevents the exercise of a normal bodily function. As such the Plaintiff is
disabled under the N.Y. Civil Rights Law.
86. Defendant discriminates against the Plaintiff and Subclass under CVR § 40 as
Defendant’s Website is a public accommodation that does not provide full and equal
accommodations, advantages, facilities and privileges to all persons and discriminates against
disabled individuals who cannot walk without the use of use a wheelchair or other motorized
mobility device.
87. Defendant intentionally and willfully failed to remove the barriers on their Website
discriminating against the Plaintiff and Subclass preventing access in violation of CVR §40.
88. Defendant has failed to take any steps to halt and correct its discriminatory conduct and
discriminates against and will continue to discriminate against the Plaintiff and the Subclass
members.
89. Under N.Y. Civil Rights Law § 41 a corporation which violates any of the provisions of §§
40, 40-a, 40-b or 42 shall be liable for 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 Plaintiff or Defendant shall reside.
90. Plaintiff and the Subclass hereby demand compensatory damages of five hundred dollars for
the Defendant’s acts of discrimination including civil penalties and fines pursuant to N.Y. Civil
Law § 40 et seq..
FOURTH CAUSE OF ACTION ON BEHALF OF
THE PLAINTIFF AND THE SUBCLASS
Violation of New York City Human Rights Law
91. The Plaintiff realleges and incorporates by reference the allegations contained in paragraphs
“1” to “90” as if set forth fully herein.
92. At all times, the New York City Human Rights Law (“NYCHRL”), New York City
Administrative Code §§ 8-101 et. seq. applied to the conduct of the Defendant as the
Defendant owns and operates the Website and is a person under the law.
93. At all times concerning this action the Plaintiff and the Subclass have had a substantial
impairment to a major life activity of walking and are individuals with a disability under
N.Y.C. Administrative Code § 8-102(16).
94. At all times concerning this action the Defendant’s Website is a place of public
accommodation as defined in N.Y.C. Administrative Code § 8-102(9).
95. “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 the actual or perceived ……. disability …. of any person to
withhold from or deny to such person any of the accommodations required to make reasonable
accommodations to a disabled individual and may not “refuse, withhold from or deny to such
person any of the accommodations, advantages, facilities or privileges thereof” N.Y.C.
Admin. Code § 8-107(4)(a).
96. The willful and intentional non-removal of the Website’s barriers of access for the Plaintiff
and the Subclass by the Defendant discriminates against disabled individuals who cannot walk
without the use of use a wheelchair or other motorized mobility device by denying them full and
equal access to the facilities, goods, and services that Defendant makes available to the non-
disabled individuals who can walk without the use of use a wheelchair or other motorized mobility
device.
97. It is discriminatory for the Defendant “not to provide a 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).
98. Defendant’s actions will continue to prevent the Plaintiff and Subclass from accessing the
Website as the remaining public can and the Plaintiff requests injunctive relief.
99. Plaintiff and Subclass are also entitled to compensatory damages for the injuries and loss
sustained as a result of the Defendant’s discriminatory conduct in addition to punitive damages
and civil penalties and fines for each offense, attorney fees, costs and disbursements of this action.
N.Y.C. Administrative Code § 8-120(8), § 8-126(a) and § 8-502(a).
FIFTH CAUSE OF ACTION ON BEHALF OF THE PLAINTIFF
CLASS AND SUBCLASS FOR DECLARATORY RELIEF
100. The Plaintiff realleges and incorporates by reference the allegations contained in paragraphs
“1” to “99” as if fully set forth herein.
101. The Plaintiff claims that the Website and Websites contains barriers denying disabled
individuals who cannot walk without the use of a wheelchair or other motorized mobility device
full and equal access to the goods and services of the Website.
102. Defendant’s Website and Websites fail to comply with applicable laws and the Defendant
discriminates against the Plaintiff and Subclass under 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. Administrative Code §
8-107, et seq.
103. The Defendant denies these claims.
104. The Plaintiff seeks a declaratory judgment such that the parties understand and know their
respective rights and obligations.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff requests relief as follows:
a. A declaratory judgment pursuant to Federal Rules of Civil Procedure Rule 57 declaring the
Defendant’s policies, procedures and practices are discriminatory against the Plaintiff in violation
of Title III of the Americans with Disabilities Act, The New York Human Rights Law, the New
York City Human Rights Law and the laws of New York;
b. Enjoining the Defendant from actions that deny disabled individuals who cannot walk without
the use of use a wheelchair or other motorized mobility device access to the full and equal
enjoyment of Defendant’s Website and Websites and 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;
c. An Order of the Court requiring the Defendant to make the Website and Websites fully
compliant with the requirements set forth in the ADA, and its regulations pursuant to 28 C.F.R. §
36.302(e)(1) and the 2010 ADAAG Standards, so that the Website is readily accessible to and
usable by disabled individuals who cannot walk without the use of use a wheelchair or other
motorized mobility device;
d. An Order of the Court which certifies 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 attorney as counsel for
the Class;
e. Compensatory damages, statutory penalties and fines for Plaintiff and the proposed Subclass
for violations of their civil rights under the New York State Human Rights Law;
f. Compensatory damages, statutory penalties and fines for Plaintiff and the proposed Subclass
for violations of their civil rights under the New York State Civil Rights;
g. Compensatory damages, punitive damages, statutory penalties and fines for Plaintiff and the
proposed Subclass for violations of their civil rights under the New York City Human Rights Law;
h. Reasonable costs, disbursements and Plaintiff’s attorney fees pursuant to the ADA, New York
Human Rights Law, New York City Human Rights Law and the laws of New York;
i. For pre-judgment and post-judgment interest to the highest extent permitted by law; and
j. Such other and further relief as the Court deems just and proper.
DEMAND FOR JURY TRIAL
Plaintiff, on behalf of himself the Class and Subclass demands a trial by jury on all issues and
requested relief.
Dated: Great Neck, New York
February 26, 2020 /s/ Mitchell Segal
________________________
Mitchell Segal, Esq.
Law Offices of Mitchell Segal, P.C.
Attorneys for Plaintiff, the Class and Subclass
1010 Northern Boulevard, Suite 208
Great Neck, New York 11021
Ph. (516) 415-0100
Fx. (516) 706-6631
| civil rights, immigration, family |
dBVoF4cBD5gMZwczQxa9 | ROBBINS GELLER RUDMAN
& DOWD LLP
JASON A. FORGE (181542)
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Telephone: 619/231-1058
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Telephone: 619/342-8000
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Attorneys for Plaintiff and Proposed Class
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF CALIFORNIA
'13CV2519
RBB
DMS
Case No.
ART COHEN, Individually and on
Behalf of All Others Similarly Situated,
CLASS ACTION
Plaintiff,
vs.
COMPLAINT FOR VIOLATIONS OF
18 U.S.C. § 1962(c)
DONALD J. TRUMP,
Defendant.
Plaintiff Art Cohen ("Plaintiff'), by and through his attorneys, brings this action
on behalf of himself and all others similarly situated, against Donald J. Trump
("Defendant" or "Defendant Trump"). Plaintiff alleges the following based upon
information and belief, the investigation of counsel, and personal knowledge as to the
allegations pertaining to him.
NATURE OF THE ACTION
1.
Defendant ensnared Plaintiff and thousands of other student-victims in a
fraudulent scheme nationwide to sell real estate seminars and mentorships ("Live
Events") by trading on the Trump moniker. Defendant uniformly misled Plaintiff and
the Class that they would learn Donald Trump's real estate secrets through him and
his handpicked professors at his elite "University." The misleading nature of the
enterprise is embodied by its very name. That is because, though Defendant promised
"Trump University," he delivered neither Donald Trump nor a University.
2.
Defendant expressly set out to leverage Donald Trump's fame and
expertise as a real estate mogul by creating "Trump University," which Defendant
marketed as a premier institution of higher learning rivaling Wharton Business
School, and with which Trump was so integrally involved, students would effectively
be learning from him. 1 Defendant marketed Trump University as `the next best thing
to being Trump's "Apprentice," referencing Trump's hit reality television series.
3.
In a promotional video for Trump University posted on YouTube,
embedded in email blasts, and shown at Trump University Live Events (hereinafter,
I the "Main Promotional Video"), Trump himself promised would-be student-victims:
We're going to have professors and adjunct professors that are
absolutely terrifc. Terrific people. Terrific brains. Successful. The
best. We are going to have the best of the best. And, honestly, if you
don't learn from them, if you don't learn front sne, if you don't learn
from the people that we're going to be putting forward, and these are all
people that are handpicked by jne, then, you're just not gonna make it in
1 �
As detailed herein, Trump University changed its name to Trump Entrepreneur
Initiative on June 2, 2010.
terms of the world of success. And that's okay, but you're not gonna
make it in terms of success.
4.
Defendant mass mailed to Plaintiff and the Class a "Special Invitation
from Donald J. Trump" to the free introductory Live Event, adorned with the Trump
University coat of arms and promising: "My hand-picked instructors and mentors
will show you how to use real estate strategies ...." The letter continues that with
"ongoing support from your own Team of Trump Experts — you'll have what you
need to succeed!" The letter closes with Donald J. Trump's name, signature, and
Trump University's address at 40 Wall Street, 32nd Floor, New York, NY 10005.
5.
Trump gave himself a prominent, if not exclusive, role in the national
advertising campaign for "Trump University." However, Trump did not fulfill the
promises he made to student-victims around the country — he did not teach students
his coveted real estate investing "secrets" at the Live Events, he did not contribute in
any meaningful way to the curriculum for the Live Events, and he did not handpick
the Live Event seminar instructors and mentors who "taught" student-victims at 3-day
Live Events and Elite mentorship programs — both of which were upsells from the free
introductory Live Event called the "Preview."
6.
Almost immediately after Trump founded Trump University, the New
York State Education Department ("NYSED") wrote to Donald Trump on May 27,
2005, warning him that using the name "University" was illegal without a license, and
asked Trump to stop using the name "Trump University." Instead of complying,
Defendant's agents created a fictitious office in Dover, Delaware, and then Defendant
continued to brazenly operate illegally out of his 40 Wall Street office in New York,
New York for five years. On March 30, 2010, the NYSED wrote to Donald Trump
and again advised that use of the title "University" in the name of his corporation was
"misleading" and illegal. On June 15, 2010, NYSED wrote to Trump University
2 �
Emphasis is supplied and citations and internal quotation marks omitted here
and throughout, unless otherwise noted.
1
directing Defendant to cease any further training until Trump University obtained a
2 license to operate as an institution of higher learning. The NYSED demanded: "All
3 current students should be refunded" and warned that failure to comply with the law
4 "may result in disciplinary action." Defendant did not give students refunds, but did
5 stop offering and selling Live Events shortly thereafter in or about August 2010.
6 However, Defendant has made multiple statements that he intends to resume Trump
7 University courses in the future.
8 �
7. �
At least 11 Attorneys General and the U.S. Department of Justice have
9 received numerous complaints about Trump University; the Texas Attorney General's
10 investigation into misleading advertisements by Trump University ultimately led to
11 the suspension of Live Events in that state; and a year after the filing of a related class
12 action in this Court, the New York Attorney General launched an investigation into
13 Trump University's deceptive practices. And, due to Defendant's misleading
14 advertisements and marketing of Trump University as a "University," the Better
15 Business Bureau ("BBB") refused to accredit Trump University and gave it a D- grade
16 due to the many complaints lodged by consumers.
17 �
8. �
Plaintiff brings this class action on behalf of himself and all other
18 ~ similarly-situated consumers who purchased Trump University Live Events
19 throughout the United States, asserting violations of the Racketeer Influenced and
20 Corrupt Organizations Act ("RICO Statute"), 18 U.S.C. § 1962(c).
21 �
9. �
Plaintiff seeks damages and equitable relief on behalf of himself and the
22 Class, including, but not limited to: treble their monetary damages; restitution;
23 injunctive relief; punitive damages; costs and expenses, including attorneys' and
24 expert fees; interest; and any additional relief that this Court determines to be
25 necessary or appropriate to provide complete relief to Plaintiff and the Class.
26 �
JURISDICTION AND VENUE
27 �
10. This Court has original jurisdiction over the subject matter of this action
28 pursuant to 28 U.S.C. § 1331, because Plaintiff's claims arise under the RICO Statute,
1 18 U.S.C. § 1962. The Court has diversity jurisdiction under 28 U.S.C. § 1332 because
2 Plaintiff resides in California, and Defendant resides in New York. This Court also
3 has original jurisdiction over this action under the Class Action Fairness Act of 2005,
4 28 U.S.C. § 1332(d)(2) ("CAFA"), as to the named Plaintiff and every Class Member,
5 because the proposed Class contains more than 100 members, the aggregate amount in
6 controversy exceeds $5 million, and Class Members reside across the United States
7 and are therefore diverse from Defendant.
8 �
11. This Court has personal jurisdiction over Defendant because he has
9 significant minimum contacts with this State, and intentionally availed himself of the
10 laws of California by transacting a substantial amount of business throughout the State
11 and this District, including but not limited to, the promotion, marketing, advertising,
12 and sale of Trump University Live Events throughout California and San Diego
13 County, and on the Internet to consumers located throughout California and San
14 Diego County.
15 �
12. Venue is proper under 18 U.S.C. § 1965(a), because Defendant is subject
16 to personal jurisdiction in this District as alleged above, and Defendant has agents
17 located in this District.
18 �
PARTIES
19 A. �
Plaintiff
20 �
13. Plaintiff Art Cohen is a businessman and resident of the state of
21 California. Cohen learned about Trump University in 2009 when he saw an
22 advertisement in the San Jose Mercury News, which is delivered daily to his home.
23 Cohen believes that he also received by mail a "special invitation" to Trump
24 University from Donald Trump, which included 2 VIP tickets to the free seminar.
25 Cohen was lured in by Donald Trump's name and reputation as a real estate expert.
26 Cohen attended the Preview Live Event at the Fremont Marriott Silicon Valley in
27 Fremont, California, on April 29, 2009, where Cohen was shown the Main
28 Promotional Video. Based on Defendant's misrepresentations and material omissions
1 that he would receive Donald Trump's real estate secrets from his handpicked
2 "professors" and mentors at his "University," Cohen purchased the $1,495 Fast Track
3 to Foreclosure Real Estate Retreat, which he attended from May 8-10, 2009, at the
4 Sheraton Palo Alto Hotel in Palo Alto. At the 3-day event, Cohen was upsold to the
5 Gold Elite program, which he purchased on May 10, 2009, for $34,995, plus the
6 interest and finance charges paid to his credit card.
7 �
14. Plaintiff would not have paid for any of the Trump University programs
8 had he known that he would not have access to Donald Trump's real estate investing
9 secrets, that Trump had no meaningful role in selecting the instructors for the Live
10 Events, and/or that Trump University was not a "University," as Defendant had
11 represented to him.
12 B. �
Defendant
13 �
15. Donald J. Trump resides in the State of New York. Trump was a founder
14 and Chairman, officer, director, managing member, principal and/or controlling
15 shareholder of Trump University. Defendant Trump is also Chairman of the board of
16 directors, President and CEO of the Trump Organization, a conglomerate of
17 companies which includes Trump University.
18 �
16. Defendant Trump received revenues paid to Trump University from
19 Plaintiff and other Class Members through two or more shell companies, including
20 DJT University Managing Member LLC (now DJT Entrepreneur Managing Member
21 LLC), a New York Limited Liability Company, and DJT University Member LLC
22 (now DJT Entrepreneur Member LLC), a New York Limited Liability Company.
23 �
17. Defendant Trump has conducted substantial business within the State of
24 I California, including this District.
25 �
18. Defendant Trump approved, authorized, either specifically and/or tacitly
26 directed, ratified and/or participated in the acts complained of herein engaged in by
27 Trump University and its personnel.
1 �
COMMON FACTUAL ALLEGATIONS
2 A. The Scheme
3 �
19. Defendant Trump and others, including but not limited to, the former
4 President of Trump University, Michael Sexton, devised and executed a scheme to
5 make tens of millions of dollars by marketing Trump University as both: (1) a learning
6 institution with which Donald Trump was so integrally involved that students would
7 effectively be learning from him because, among other reasons, they would be
8 learning his real estate secrets from instructors whom he had handpicked; and (2) an
9 actual university with a faculty of professors and adjunct professors.
10 �
20. This "Scheme" was fueled by a national advertising campaign, the
11 cornerstone of which was the Main Promotional Video. Defendant Trump caused the
12 Main Promotional Video to be published to YouTube online so it would be viewed by
13 prospective student-victims throughout the country. Trump University operated an
14 extensive advertising campaign with an annual budget at one time of $6 million, and a
15 database of over one million current and potential customers, which it targeted with
16 frequent email blasts. These e-blasts contained misrepresentations and/or links to
17 view the Main Promotional Video on YouTube, and/or Trump University's Facebook
18 page, Twitter account, and/or LinkedIn profile. When Trump University introduced
19 the Donald Trump "signature" campaigns (featuring Donald Trump's signature in
20 letters and ads) including "Are YOU My Next Apprentice?" and "Learn From the
21 Master," consumer responses jumped by over 50%. And though personnel knew it
22 was false to claim the instructors were handpicked by Defendant Trump, Defendant
23 continued to use this catch-phrase as a marketing hook.
24 �
21. Other methods and means that Defendant Trump and others used to
25 execute and perpetuate the Scheme included the following:
26 �
(a) Defendant Trump reviewing and approving advertisements before
27 I they were released, which featured quotes from Defendant Trump himself, such as: "I
1 can turn anyone into a successful real estate investor, including you. — Donald
Trump."
(b) Using Defendant Trump's name, photos and/or quotes for all Live
Events, website and advertising, and the website home page displayed a large photo of
Defendant Trump along with the message from him: "Are YOU My Next Apprentice?
Prove it to me!"
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(d)
Using advertisements featuring Defendant Trump and his image
with quotes such as: "Don't think you can profit in this market? You can. And I'll
show you how. Learn from my handpicked experts how you can profit from the
largest real estate liquidation in history."
(e)
Sending emails to thousands or tens of thousands consumers from
Trump University's one million customer database that featured Defendant Trump's
photo with the words: "Are you My Next Apprentice," and stated: "76% of the
world's millionaires made their fortunes in real estate. Now it's your turn. My father
did it, I did it, and now I'm ready to teach you how to do it too." The signature block
at the bottom of the email read, Donald J. Trump, Chairman, Trump University, and
above that is Defendant Trump's actual signature.
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(f) �
Sending signed letters through the mails to consumers nationwide,
I with Defendant Trump's name and signature at the bottom, stating: "[N]o course
offers the same depth of insight, experience and support as the one bearing my name.
. My hand-picked instructors and mentors will show you how to use real estate
strategies to: [s]upplement or even replace your income, [s]ecure your long-term
financial future ... [s]tart profiting today! Now is the time to create your financial
legacy. You can do it, even if you only have five or ten hours a week to spare. With
1 our simple instructions and practice exercises — and ongoing support from your own
2 Trump Team of Experts — you'll have what you need to succeed!"
(Second
3 emphasis in original). The letter closed with Donald J. Trump's name, signature, and
4 address, at 40 Wall Street, 32nd Floor, New York, NY 10005.
(g)
Sending substantially-similar signed letters through the mails to
consumers nationwide addressed as "Dear Friend" from Donald Trump promising:
"Come to my free class. In just 90 minutes, my hand-picked instructors will share my
techniques, which took my entire career to develop," and signed "Sincerely, Donald
Trump" with Defendant Trump's signature. (Emphasis in original). The letter
enclosed two "VIP" tickets to an upcoming Preview Live Event in the consumer's
area.
(h)
Delivering to student-victims, who were in the midst of the Trump
University $1,495 Fulfillment Live Event and whom Trump University was trying to
persuade to sign up for the Elite program, a personalized (addressed to them by name)
letter from Donald J. Trump. The letter bore the Trump logo at the top of the letter
and the words "From the Office of Donald J. Trump." The letters stated:
Success in real estate begins with great training and proven
strategies. Without education you don't stand a chance.
I know how to make money in real estate. I've been doing it for a
long time with a lot of success. My family has been a leader in real estate
since my father — Fred Trump — started building residential homes in
New York City 75 years ago. My father was my mentor and he taught
me a lot. Now I want to teach you how to make money in real estate. fo
be my apprentice you need to Think BIG and really want to succeed.
More than anything, you need to take action.
Do YOU have What It Takes to Be My Next Apprentice?
I only work with people who are committed to succeed. I founded
Trump University back in 2005 to teach go-getters how to succeed in
real estate. My team at Trump University is filled with real estate experts
. proven winners. We're the best of the best and we know what
works. If you think you have what it takes to be my next apprentice,
prove it to me.
We've trained thousands of real estate investors over the years and
we know you will be most successful when you work with a partner...
If you're serious about making money and safeguarding your
future, learn to invest in real estate. Trump University will teach you
how. We'll give you the best training and the confidence to succeed. If
you think you've got what it takes to be my next Apprentice, come prove
it to me and my team.
The letter closes with "See you at the top!" And, it is signed, "Donald J. Trump,
~ Chairman, Trump University."
(i)
Promising students that "[t]here are many real estate investment
'seminars available but this is the only one designed by Donald Trump 's personal
advisors , to show you step -by-step how to create quick cash immediately , and how to
build a large monthly cash flow WITHOUT using any of your own money or credit."
(j)
Enforcing the uniform deceptive portrayal of Trump University
I through policies and procedures , including Marketing Guidelines , the PlayBook, and
standardized PowerPoint presentations and scripts that instructors were contractually
required to use. For example , the Marketing Guidelines were designed to "ensure
brand, tone and message across all Trump University's marketing efforts." The
"tone" required by those Marketing Guidelines was to "Think of Trump University as
a real University with a real Admissions process, i . e., not everyone who applies, is
accepted." The Guidelines also required that personnel use the term "faculty" which
was to be marketed as comprised of Donald Trump 's "top experts."
(lc) �
Sending scripts containing misrepresentations to instructors for use
at the Live Events through the interstate wires, such as the Preview Script sent from
Michael Sexton to primary instructors , including James Harris and Stephen Goff. The
speaker was required to use the official Trump University script and PowerPoint, and
not make any changes without prior authorization pursuant to the PlayBook and
his/her contract. Defendant Trump has concealed this speaker script that was used to
execute his Scheme. Excerpts of the concealed speaker script include:
TI-11 III pUnivel-sity
'Preview Script — Version 3.0
Slide 01: Trump University Title Slide
Slide 02: The Trump University Apprenticeship Program
Ladies and gentlemen, I'd like to welcome you to our presentation tonight on
behalf of Mr. Donald Trump and Trump University. My name is (lecturer
rranrej. I'm a member of the faculty at Trump University. Let's talk a little
about Donald Trump.
Slide 03: Trump Montage
Who here thinks they know Donald Trump? Hands up. Very good. Let's play
this little game to get you in the mood of things.
ill
12 1 �
* �
* �
*
I remember one to time Mr. Trump said to its over dinner, he said "real estate
is the only market. that when there is a sale going on people run from the
store". You don't vvKnrt to run from the store.
* �
* �
*
First we will show you Donald "Frump's negotiating system. Nobody
negotiates better than Donald. We'll show you how he does it, why he does it,
and how you can make it work for you. We will share with you marketing
pieces for both finding and selling properties, and again I'll say this to you as I
have before. One of the critical things is being able to got out of a property
when the time is right for you. And that is what we'll show you how to do.
* �
* �
*
Slide 57: Risk Free Guarantee
Making money may not be enough ror some of you. You have lost, thousands
in the markets, but you worry about the $ 1495 that you pay here tonight-.
('Trial Glasu): Some of you are still worried. You say: I am convinced that
Trump University is the real deal. 1 am convinced that Donald Trump
can teach inc how to make money in real estate. 1 am convinced that I
don't have it chance of recovering my 401.1c losses unless I do something.
* �
* �
*
Slide 58: Take Control of Your Life
When you enroll in Trump University and make use of our systems, specific
knowledge and continuing support, you will be taking control of your life.
You will create a new normal for yourself; one that is much morn enjoyable
and rewarding than Your current situation.
Follow the proven practices, philosophy and guidance of Donald 'frump.
(1) �
Promising students in blogs posted on Trump University's website
that Defendant Trump would be actively involved in Trump University and its
courses:
Trump University
rew out of any desire to impart my business
knowledge, accumulat
ed over the years, and my realization that there is
a huge demand for practical, convenient education that teaches success.
I want the people who go to Trump University to succeed, and I
plan to do tray part to help them. I'm not just putting my name on this
venture; I plan to be an active presence
in the curricula. The website,
www.trumpuniversity.com , will include such features as "Ask Mr.
Trump," in which I answer your questions;
the blog you're reading
now; video clips of me; and more. My words, ideas, and image will also
be woven into the courses we create.
The reason I'm playing such an
active role in Trump University is that I truly believe in the power of
education.. . . [T]he people who go to Trump University want to be
successful, and I'm on their side.
Another blog written under Defendant Trump's name promised: "Ihave to believe in
whatever Iput my name on, and it has to reflect who I truly am. To do otherwise
would be a disservice to me, my loyal customers, and prospective customers."
(m) Promising that he would personally select and answer students'
questions in a forum called "Ask Donald Trump," when the questions were selected
and the answers written by a same ghost writer (who was not a real estate expert).
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22. Defendant knew that these representations were false, that Defendant
Trump was not actively involved in Trump University's Live Events, did not select or
interview Trump University's Live Event instructors or mentors, that Defendant
Trump offered no input into the actual instruction provided to Trump University's
student-victims, that a ghost writer wrote the Donald Trump blogs and wrote most or
all of the answers to the "Ask Donald Trump" questions and that Trump University
did not have a faculty of professors and adjunct professors, but rather independent
contractors paid commissions for sales. In other words, Defendant promised Trump
University, but delivered neither Donald Trump nor a University.
1 �
1. �
Not Donald Trump
2 �
23. Though Defendant Trump represented that he would be so integrally
3 involved that Trump University was effectively learning from him, Defendant
4 Trump's involvement was "completely absent," as Defendant Trump has admitted in
5 court filings. Defendant Trump had virtually no involvement in determining, nor was
6 he even aware of, what the instructors actually taught or what the courses were.
7 �
24. Though Defendant Trump represented that all of Trump University's
8 instructors would be handpicked by him, thus implying that students would get the
9 next best thing to Defendant Trump himself, it was Sexton and COO David
10 Highbloom who interviewed the instructors and was in charge of hiring instructors. It
11 was also Sexton — not Defendant Trump — who would know what, if any, education,
12 professional experience, testing, and/or licenses was required of instructors. In most
13 cases, Defendant Trump did not even know who the instructors or mentors were, nor
14 had he met them.
15 �
25. Though the entirety of Defendant Trump and Trump University's
16 marketing and advertising campaigns were centered around Defendant Trump's real
17 estate expertise and access to Defendant Trump's coveted real estate "secrets," Trump
18 University did not teach Donald Trump's real estate "secrets" as promised. Rather,
19 Sexton (who had no real estate experience) was responsible for compiling course
20 materials and largely handed this task over to third parties in the industry such as
21 Dynetech, Mark Dove, and David Early.
22 �
2. �
Not a University
23 �
26. Though Defendant portrayed Trump University as a University with an
24 admissions process and "Ivy League quality" rivaling Wharton Business School,
25 Trump University was unaccredited and unlicensed to operate as an institution of
26 higher learning. Trump University provided no degrees, no credits, no licenses, nor
27 anything else of marketable value to student-victims.
1 �
27. Though Donald Trump in the Main Promotional Video and elsewhere
2 represented to would-be students that they would be taught by a faculty of "professors
3 and adjunct professors," Trump University had no such faculty. Rather, the
4 instructors were high-pressure salespeople hired as independent contractors and paid
5 on a commission basis based on the number and amount of Live Event sales made.
6 �
28. The Trump University PlayBook (see below) refers to students as
7 "Buyers" and directs "instructors" to prepare to "Sell, Sell, Sell!"
8 C. Trump University "Live Events"
9 �
29. Defendant literally had a "PlayBook" for his Scheme and nationwide
10 advertising campaign to mislead student-victims. The PlayBook contains a chart
11 depicting the upsell scheme executed across the country.
12 �
30. Specifically, Defendant first lured consumers in with a free 90-minute
13 Live Event called the Preview. The Preview is used to persuade students to purchase
14 the $1,495 "one year apprenticeship" course called the Fulfillment. If student-victims
15 purchased the Fulfillment, Defendant used the Live Event to convince them to
16 purchase Trump University's $35,000 Gold Elite program. Even then, after investing
17 nearly $36,500, students still do not receive Defendant Trump's "secrets" they were
18 promised, but are constantly subjected to upsells of additional Live Events, products
19 and books.
20 �
31. The Preview and Fulfillment were standardized through PowerPoint
21 presentations. For the upsell, speakers used standardized slides and worked from the
22 same script. There are detailed instructions in the PlayBook, down to where the
23 speakers and coordinators stand, the temperature of the room and music to be played
24 during the Introduction — "Money, Money, Money" from The Apprentice show.
25 �
1. �
The Preview
26 �
32. Trump University conducted a massive advertising campaign with a
27 multi-million dollar annual budget for the Preview, through mainstream newspapers,
28 its website, online newspapers, Facebook, Twitter, YouTube, radio, email blasts, and
direct mail. Seven to ten days prior to the Preview, ads proclaimed: Donald Trump is
"ready to share — with Americans like you — his best advice on investing in today's
`once-in-a-lifetime' real estate market" directly from "Donald Trump's hand-picked
instructors a systematic method for investing in real estate that anyone can use
effectively." Defendant mailed letters from Donald Trump inviting consumers to
learn from "one of my world-class instructors" about Defendant Trump's "proven
system for profitable real estate investing that anyone can use, right away, to score big
profits in today's market." A L.A. Times article quoted Donald Trump as saying that
"[i]nvestors nationwide are making millions in foreclosures ... and so can you!" 3
Other advertisements urged consumers to "Learn from the Master" — Donald Trump,"
that "It's the next best thing to being his Apprentice," and promised would-be students
that they would learn "insider success secrets from Donald Trump."
4 �
E
TRUMP
0.11 ~nc n! �
G �
C �
'.:'Advice
3 �
David Lazarus, Trump's a grump about column on his 'priceless' tips, L.A.
Times, Dec. 16, 2007, http://www.latimes.com/business/la-fi-
lazarus 16decl 6,0,1670633 .column. When Lazarus attended the Pasadena Hilton
Trump seminar, he "learned by attending the seminar the event was a two-hour sales
pitch Tor a three-day workshop that would cost people $1,495." Id.
4 �
Screen �
shot �
from �
http://www.trumpurealestate.com/market-
Phoenix.html?cid=726078 (last visited February 3, 2010).
5 �
Screen shot from http://www.trumpuniversity.com/ (last visited February 3,
2010).
6
33.
At the Preview, students were greeted by a large screen projector and two
tall banners of Donald Trump's photo. The presentation opens with the song "Money,
Money, Money," and the Main Promotional Video is shown.
34.
The instructor is introduced as one of Donald Trump's top instructors
who was hand selected because of his expertise and knowledge in the real estate
business.
35.
The speaker induces the audience to trust in the Donald Trump name and
"family" by walking through the history of the Trump Organization and Defendant
Trump's `humble beginnings.' The speaker tells the audience that 76% of all
millionaires are created from real estate — that "anyone can do it," and that "it's not
easy, but it's simple if you know what you're doing, and we'll teach you what you
need to know." He states that the mission of Trump University is to "train, educate
and mentor entrepreneurs on achieving financial independence through real estate
investing" the Donald Trump way.
1 6 �
Screen shot from http://www.trumptactics.com/ (last visited February 3, 2010).
7
36.
The speaker emphasizes that on the television show, "The Apprentice,"
Donald Trump could only work one-on-one with one person a year, so he created
Trump University — not to make money for himself, but so that he could teach others.
With this program, "Mr. Trump takes you through an entire apprenticeship for one
year." The speaker emphasizes that "Trump University is owned, lock, stock and
barrel by Mr. Trump — it's his `baby,' his company,
designed to help him accomplish
his goal of leaving a legacy." The presentation plays on consumers' trust in the
Donald Trump name, The Apprentice show, Defendant Trump's wealth and
Defendant Trump's real estate expertise. Student-victims are shown slides that
portray Trump University as the latest Donald Trump achievement.
7 �
These and the following slides are from the official approved Trump University
PowerPoint presentation which was presented at a February 12, 2010 Preview Live
Event advertised to prospective customers via email blast, and provided in an online
Live Webinar format on or about February 12, 2010.
37.
Throughout, the instructor portrays him or herself as knowledgeable in
the Donald Trump way of investing and that he or she is close to Defendant Trump
through firsthand accounts of Defendant Trump.
38.
The instructor also plays on the fears of the audience, which includes a
significant percentage of senior citizens. "How many of you lost a lot of your 401k
investment in the market? How many of you are retired or want to retire? How many
of you want to leave a legacy or property to your children or grandchildren?" The
speaker encourages attendees, including the elderly, to cash out their 401K' s or
increase their credit limits so they can supposedly make a higher return on their
investments in the foreclosure market. Consumers are told these strategies will make
them money — they are time-tested strategies that have been in the Trump family for
75 years. Consumers are told they will pay off their credit cards, pay off their cars,
and fully fund their retirement.
39.
The staff at the Live Events are taught to close sales "armed with
objections and rebuttals" set forth in the PlayBook and to "work the room with special
attention to team members in possession of a credit card that needs to be run."
2. �
The Fulfillment
40.
The Preview was a 90-minute advertisement to persuade attendees to sign
up for the "Fulfillment," which purportedly provides a one-year "Comprehensive Real
Estate Education." However, for $1,495 the Fulfillment is a 3-day workshop plus a
phone number to call a "client advisor." Defendant promises mentors who will be
available for a full year. "Other people don't have anyone to call, but you've got
Trump. You'll call 40 Wall Street and they'll walk you through it."
The emphasis is
on persuading consumers that in signing up for Trump University, they can join the
Trump "family."
41.
At the Fulfillment, the Main Promotional Video is shown and/or students
are given personally-addressed letters from Defendant Trump.
42.
At the end of Day 1, the students are asked to fill out a detailed financial
I goal statement presumably to help them with their financial goals. Instead, these
statements are used for Trump University personnel to assess the liquid assets that
each student has to spend on the next Trump University program.
43.
Students are told at the Preview that the Fulfillment is "all you need."
However, at the Fulfillment, student-victims are told what they really need is the Gold
mentorship with a full year of ongoing support from a Trump handpicked
multimillionaire mentor. To make the upsell, instructors make standardized pitches
using a separate PowerPoint slide presentation.
44.
The PlayBook directed personnel to convince student-victims that the 3-
day Fulfillment is not enough (even though it was pitched as such at the Preview) and
emphasized that all personnel must follow this procedure to ensure sales of Elite
programs.
45.
During the Fulfillment, the speakers pressure students to raise their credit
card limits on the pretext of purchasing property. At the end of the workshop,
Defendant's representatives asked students to use their credit cards to purchase the
Gold Elite program for $34,995. If they were unable to persuade students to purchase
at this level (or if students did not have sufficient funds or credit), Defendant's
representatives would encourage the students to purchase the "Trump Silver Elite"
program for $19,495, the "Trump Bronze Elite" program for $9,995, or an Elite
mentorship for approximately $25,000. Each of these prices was pitched as "one-day-
only" sales off the "regular" prices of $48,490 for Gold, $23,490 for Silver and
$10,995 for Bronze.
46.
Defendant's representatives did not warn students they were likely to
I incur finance charges, interest fees and late fees by charging the program on their
credit cards, but would tell students they would quickly make the money back.
Defendant's representatives also did not tell students that by increasing their credit
limits, they could damage their credit scores. And Defendant's representatives never
I warned students that by "maxing out" their credit cards, their credit scores could drop
even more significantly.
3. �
The Elite Mentorship Program
47.
The Gold Elite program was sold on the promise of a mentorship with
Defendant Trump's handpicked real estate experts who would personally teach them
Donald Trump's real estate strategies. Instead, none of the mentors was handpicked
by Donald Trump or trained in his investing "secrets."
48.
During the Gold Elite program, there was still constant up-sell pressure to
purchase other Trump University affiliate programs and products, varying in price
from $495 to $9,995. As a result, Class Members could ultimately spend upwards of
$70,000 after being lured in by a free Live Event.
D. �
Governmental Investigations into Trump University
49.
In addition to the actions of the NYSED described above, Maryland and
Massachusetts required Trump University to change its name for all Live Events held
in those states.
50.
Attorneys General in 11 states and the U.S. Department of Justice
received numerous complaints against Defendant and Trump University, and at least
two Attorneys General launched investigations. In January 2010, Texas Attorney
General Greg Abbott's office launched a probe of Defendant and Trump University's
advertising and business practices after getting two dozen complaints. Abbott said he
was probing "possibly deceptive trade practices" dating back to 2008. Abbott's
investigation resulted in Defendant's ultimate suspension of all Live Events in Texas
in May 2010.
51.
In May 2011, the New York State Attorney General's Office also
launched an investigation into whether Donald Trump and Trump University
"engaged in illegal business practices." The investigation was described by the New
York Times as "the latest problem" in "a string of consumer complaints, reprimands
from state regulators and a lawsuit from dissatisfied former students," and was
prompted by about a dozen complaints concerning Trump University that Attorney
General Eric T. Schneiderman found to be "credible" and "serious. " 8
8 �
See Michael Barbaro, New York Attorney General Is Investigating Trump's
For-Profit School, New York Times, May 19, 2011.
52.
Florida Attorney General Bill McCollum's office has been reportedly
I "reviewing" 20 or more complaints from consumers who paid up to $35,000 for
I various Live Events.
E. The BBB Gives Trump University a Failing Grade
53.
The BBB refused to accredit Trump University due to its misleading
I marketing, explaining that amongst other things, its classification as a
"school/academy/college/university" with "professors" was misleading to a
reasonable consumer.
Another factor contributing to your firm's ineligibility [for
accreditation as a BBB business] is your firm's name "Trump
University " which may potentially lead reasonable consumers to believe
that your firm is an academic institution. As you acknowledged in your
correspondence dated 1/4/2010, your firm does not meet the established
definition of a "university." However, your instructors and program
experts are referred to as "professors" and "faculty" in your promotional
materials and on your web site. Both terms are potentially misleading as
they are generally reserved for the teaching and administrative staff and
members holding academic rank in an educational institution.
54.
The BBB also found Trump University's website misleading in stating:
•
Trump University's School of Real Estate is accredited and we
back up our assertions with unequalled educational and mentoring tools,
such as retreats, phone and email coaching and on-site coaching, where
we actually send a Donald Trump recommended real estate professional
to your town to work with you for 3 days.
55.
In addition, the BBB also found, that Trump University's classification as
a "School/Academy/College/University" is misleading:
[Trump University's] services, as listed in your promotional
materials and on your web site, are inconsistent with the established
definition for this classification as you do not grant academic degrees or
certification and do not appear to have recognized academic charter.
Further, your company does not appear to be recognized as an academic
institution that is accredited by accrediting agencies recognized by the
Secretary of Education.
56.
For these reasons, along with numerous consumer complaints, the BBB
gave Trump University a "D-" rating. After Defendant changed Trump University's
name in mid-2010, Defendant demanded an "A+" evaluation, and when the BBB was
~ unable to issue a good "grade" due to ongoing consumer complaints, Defendant
11 Trump called the BBB and his lawyer threatened to sue the BBB. As a result, the
21 BBB changed Trump University's "grade" to "NR" for "Not Rated."
3 �
RICO ALLEGATIONS
4 A. The Trump University Enterprise
5 �
57. Trump University, LLC (now The Trump Entrepreneur Initiative LLC) is
6 a limited liability company registered in New York with its principal place of business
7 at 40 Wall Street, New York, New York. Trump University is one of the companies
8 in the Trump Organization conglomerate located in New York, New York. After a
9 related class-action lawsuit was filed in this District, Trump University changed its
10 name to "The Trump Entrepreneur Initiative" on or around June 2, 2010.
11 �
58. Trump University has never been an accredited University or held a
12 license to operate out of the State of New York as an educational institution. Trump
13 University does not offer any degrees, licenses or credits.
14 �
59. Defendant Trump and Trump University created a "fictitious office" at
15 160 Greentree Drive, Suite 101, Dover, Delaware 19904, in response to the NYSED's
16 demand that it cease operating as a "University" without a license in New York in
17 2005. The Dover address appears on mass emails sent to Plaintiff and the Class.
18 However, Trump University has never operated out of Dover, Delaware.
19 �
60. Trump University also maintained a sales call center in Utah.
20 �
61. At all times relevant hereto, Trump University conducted substantial
21 business throughout the State of California, including marketing, advertising, and
22 hosting Live Events in San Diego County and all over the State of California.
23 �
62. At all times relevant hereto, Trump University acted for or on behalf of
24 I Donald Trump in undertaking the acts and/or omissions alleged herein.
25 �
63. Trump University, LLC (now The Trump Entrepreneur Initiative LLC) is
26 an "enterprise" within the meaning of 18 U. S.C. § 1961(4), through which Defendant
27 I Donald J. Trump conducted the pattern of racketeering activity described herein.
1 activities affected interstate commerce because it involved commercial activities
2 across state lines, including national marketing campaigns, multi-state Live Events,
3 and the solicitation and receipt of money from victims located throughout the country.
4 �
64. Defendant Donald J. Trump exercised substantial control over the affairs
5 of the Trump University Enterprise, through among other methods and means, the
6 following:
7 �
(a) �
Providing the initial operating capital and holding an
8 approximately 93% ownership stake;
9 �
(b) Creating and approving marketing and advertising materials, which
10 featured his name, likeness (in most), and voice (in the Main Promotional Video);
11 �
(c) Selecting both the original name of Trump University and, five
12 years later approving the change to the current name of The Trump Entrepreneur
13 Initiative;
14 �
(d) Regularly reviewing financial records; and
15 �
(e) �
Negotiating and authorizing others to negotiate significant
16 contracts, such as the lease for the Enterprise's headquarters.
17 �
65. Defendant Trump was a knowing and willing participant in the Scheme,
18 and reaped revenues and/or profits therefrom.
19 �
66. The Trump University Enterprise has an ascertainable structure separate
20 and apart from the pattern of racketeering activity in which Defendant Trump has
21 engaged. The Trump University Enterprise is separate and distinct from Donald J.
22 Trump.
23 �
B. �
Pattern of Racketeering Activity
24 �
67. Defendant Trump, who is a person associated-in-fact with the Trump
25 University Enterprise, knowingly, willfully, and unlawfully conducted or participated,
26 directly or indirectly, in the affairs of the enterprise through a pattern of racketeering
27 activity within the meaning of 18 U.S.C. § 1961(1), 1961(5) and 1962(c). The
28 racketeering activity was made possible by the regular and repeated use of the
1
~ facilities, services, distribution channels, and employees of the Trump University
2 I Enterprise.
3 �
68. Defendant Trump committed multiple "Racketeering Acts," as described
4 below, including aiding and abetting such acts.
5 �
69. The Racketeering Acts were not isolated, but rather were related in that
6 they had the same or similar purposes and results, participants, victims, and methods
7 of commission. Further, the Racketeering Acts were continuous, occurring on a
8 regular (daily) basis throughout a time period beginning in mid-2007 and, upon
9 information and belief, continuing through at least 2010.
10 �
70. Defendant Trump participated in the operation and management of the
11 Trump University Enterprise by directing its affairs, as described above.
12 �
71. In devising and executing the Scheme, Defendant Trump and Trump
13 University personnel committed acts constituting indictable offenses under 18 U.S.C.
14 § § 1341 and 1343, in that he devised and knowingly carried out a material scheme or
15 artifice to defraud or to obtain money by means of materially false or fraudulent
16 pretenses, representations, promises, or omissions of material facts. For the purpose
17 of executing the Scheme, Defendant committed these Racketeering Acts, which
18 number in the thousands, intentionally and knowingly, with the specific intent to
19 advance the Illegal Scheme.
20 �
72. Defendant used thousands of mail and interstate wire communications to
21 create and perpetuate the Scheme through virtually uniform misrepresentations,
22 concealments and material omissions.
23 �
73. Defendant's fraudulent use of the mails and wires included the following
24 ~ items and communications sent by Defendant and Trump University personnel, to
25 Plaintiff and third parties via U.S. mail, commercial carrier, interstate wire, and/or
26 other interstate electronic media:
27 �
(a) Throughout the relevant time period, including on or about the
delivered by mail or by a private or commercial interstate carrier, or received
therefrom, according to the direction thereon, or at the place at which it is directed to
be delivered by the person to whom it is addressed, the items described above,
including those alleged below:
From
To
Date
Description
Donald J. Trump,
Art Cohen,
March or
"Special Invitation from
New York
California
April 2009
Donald J. Trump" to
attend Preview in
Fremont, California
Donald J. Trump,
Sonny Low,
March or
"Special Invitation from
New York
California
August 2009
Donald J. Trump" to
attend Preview in San
Diego, California
(b) Throughout the Class Period, including on or about the dates set
forth below, Defendant Trump and Trump University personnel, for the purpose of
executing the above-described Scheme caused to be transmitted in interstate
commerce by means of wire communications, certain writings, signs, signals and
sounds, including those alleged below:
From
To
Date �
I
Description
Trump University,
Art Cohen, California
August 26,
Email to Art Cohen
New York
2009
regarding link to
Main Promotional
Video
Trump University,
Art Cohen, California April 29,
Email to Art Cohen
New York
2009
regarding one full
year of ongoing
support
Michael Sexton at
David Early, Arizona
April 14,
Email attaching
Trump University,
2009
Preview Script —
New York
Version 3.0
Michael Sexton at
Mark Anthony,
April 14,
Email attaching
Trump University,
California
2009
Preview Script —
New York
Version 3.0
From
To
Date
Description
Michael Bloom,
David Early, Arizona; April 14,
Email regarding
New York
Michael Sexton, New
2010
sales script
York; April B.
Neumann, New York
Art Cohen,
American Express,
April 2009
Credit card
California
North Carolina
transaction in the
amount of $1,495 for
Art Cohen's
purchase of the
Fulfillment Seminar
Trump University,
Art Cohen, California May 11,
Email confirmation
New York
2009
of credit card
transaction in the
amount of $34,995
for Art Cohen's
purchase of the Gold
Elite program
CLASS ACTION ALLEGATIONS
74.
Plaintiff brings this class action on behalf of himself individually and all
others similarly situated, pursuant to Federal Rule of Civil Procedure 23.
75.
The proposed Class consists of all persons who purchased Live Events
from Trump University throughout the United States from January 1, 2007 to the
present. Excluded from the Class are Trump University, its affiliates, employees,
officers and directors, persons or entities that distribute or sell Trump University
products or programs, the Judge(s) assigned to this case, and the attorneys of record in
this case. Plaintiff reserves the right to amend the Class definition if discovery and
further investigation reveal that the Class should be expanded or otherwise modified.
76.
This action is properly brought as a class action because:
(a)
The proposed Class is so numerous and geographically dispersed
throughout the United States that the joinder of all Class Members is impracticable;
(b)
The disposition of Plaintiff's and proposed Class Members' claims
in a class action will provide substantial benefits to both the parties and the Court;
1 �
(c) �
The proposed Class is ascertainable and there is a well-defined
2 community of interest in the questions of law or fact alleged herein since the rights of
3 each proposed Class Member were infringed or violated in the same fashion;
4 �
(d) There are questions of law and fact common to the proposed Class
5 which predominate over any questions that may affect particular Class Members.
6 Such common questions of law and fact include but are not limited to:
7 �
(i) �
Whether Defendant engaged in a fraudulent scheme;
8 �
(ii) �
Whether Donald Trump violated 18 U.S.C. § 1962;
9 �
(iii) �
Whether Plaintiff and Class Members have been harmed and
10 the proper measure of relief;
11 �
(iv) �
Whether Plaintiff and Class Members are entitled to an
12 award of treble, punitive damages, attorneys' fees and expenses; and
13 �
(v) �
Whether, Plaintiff and Class Members are entitled to
14 equitable relief, and if so, the nature of such relief.
15 �
(e) Plaintiff's claims are typical of the claims of the members of the
16 proposed Class. Plaintiff and Class Members have been injured by the same wrongful
17 practices of Defendant. Plaintiff's claims arise from the same practices and conduct
18 that give rise to the claims of all Class Members and are based on the same legal
19 theories;
20 �
(f) �
Plaintiff will fairly and adequately protect the interests of the Class
21 in that he has no interests antagonistic to those of the other Class Members, and
22 Plaintiff has retained attorneys experienced in consumer class actions and complex
23 litigation as counsel;
24 �
(g) A class action is superior to other available methods for the fair
25 and efficient adjudication of this controversy for at least the following reasons:
26 �
(i) �
Given the size of individual Class Member's claims and the
27 expense of litigating those claims, few, if any, Class Members could afford to or
28 would seek legal redress individually for the wrongs Defendant committed against
them and absent Class Members have no substantial interest in individually
controlling the prosecution of individual actions;
(ii)
This action will promote an orderly and expeditious
administration and adjudication of the proposed Class claims, economies of time,
effort and resources will be fostered and uniformity of decisions will be insured;
(iii)
Without a class action, Class Members will continue to
suffer damages, and Defendant's violations of law will proceed without remedy while
Defendant continues to reap and retain the proceeds of his wrongful conduct; and
(iv)
Plaintiff knows of no difficulty that will be encountered in
the management of this litigation which would preclude class certification.
77.
Defendant and his agents had, or have access to, address information for
the Class Members, which may be used for the purpose of providing notice of the
class action.
78.
Plaintiff seeks damages and equitable relief on behalf of the Class on
grounds generally applicable to the entire proposed Class.
COUNT
Violations of the Racketeer Influenced and Corrupt
Organizations Act, 18 U.S.C. §1962(c)
79.
Plaintiff re-alleges and incorporates by reference the above allegations
contained in the paragraphs above as if fully set forth herein.
80.
This claim arises under 18 U.S.C. § 1962(c), which provides in relevant
Ipart:
(c) It shall be unlawful for any person employed by or
associated with any enterprise engaged in, or the activities of which
affect, interstate or foreign commerce, to conduct or participate, directly
or indirectly, in the conduct of such enterprise's affairs through a pattern
of racketeering activity ...
81.
At all relevant times, Defendant Donald J. Trump was a "person" within
the meaning of 18 U.S.C. §1961(3), because he was "capable of holding a legal or
beneficial interest in property." Defendant Trump was associated with the Trump
1 University Enterprise and conducted and participated in that enterprise's affairs
2 though a pattern of racketeering activity, as defined by 18 U.S.C. § 1961(5), consisting
of numerous and repeated uses of the mails and interstate wire communications to
execute a scheme to defraud in violation of 18 U.S.C. § 1962(c).
82.
The Trump University Enterprise was created and/or used as a tool to
carry out the Scheme and pattern of racketeering activity.
83.
Defendant Trump has committed or aided and abetted the commission of
at least two acts of racketeering activity, i.e., indictable violations of 18 U.S.C.
§ § 1341 and 1343, within the past ten years. The multiple acts of racketeering activity
that they committed and/or conspired to, or aided and abetted in the commission of,
were related to each other, pose a threat of continued racketeering activity, and
therefore constitute a "pattern of racketeering activity."
84.
Defendant Trump's predicate acts of racketeering within the meaning of
18 U.S.C. §1961(1) include, but are not limited to:
(a)
Mail Fraud: Defendant Trump violated 18 U.S.C. § 1341, by
or causing to be sent or received, materials via U.S. mail or
sending or receiving, o caus g �o �
,
commercial interstate carriers for the purpose of executing the Scheme, which amount
to a material scheme to defraud and obtain money on false pretenses,
misrepresentations, promises, and/or omissions. The materials include but are not
limited to, letters promoting the Scheme and bearing Defendant Trump's signature or
image; and
(b)
Wire Fraud: Defendant Trump violated 18 U.S.C. § 1343, by
transmitting and receiving, or causing to be transmitted or received, materials by wire
for the purpose of executing the Scheme, which amounts to a material scheme to
defraud and obtain money on false pretenses, misrepresentations, promises, and/or
omissions. The materials transmitted and/or received include but are not limited to,
interstate credit card transactions, emails promoting the Scheme, and the Main
I Promotional Video.
1 �
85. Defendant Trump knowingly and intentionally made these
2 misrepresentations, acts of concealment and failures to disclose. Defendant Trump
3 either knew or recklessly disregarded that these were material misrepresentations and
4 omissions.
5 �
86. Defendant Trump and Trump University obtained money and property
6 belonging to Plaintiff and the Class as a result of these violations. Plaintiff and other
7 Class Members have been injured in their business or property by Defendant Trump's
8 overt acts of mail and wire fraud.
9 �
87. Plaintiff and the Class have been injured in their property by reason of
10 Defendant Trump's violations of 18 U.S.C. § 1962, including the price paid for the
11 Live Events, which collectively amount to tens of millions of dollars, plus interest and
12 late fees incurred on their credit cards. In the absence of Defendant Trump's
13 violations of 18 U.S.C. § 1962, Plaintiff and the Class would not have incurred these
14 losses.
15 �
88. Plaintiffs and the Class's injuries were directly and proximately caused
16 by Defendant Trump's racketeering activity.
17 �
89. Defendant knew and intended that Plaintiff and the Class would rely on
18 the Scheme's fraudulent representations and omissions. Defendant Trump knew and
19 intended Plaintiff and the Class would pay fees as a result of same.
20 �
90. Under the provisions of 18 U.S.C. § 1964(c), Plaintiff is entitled to bring
21 this action and to recover their treble damages, the costs of bringing this suit and
22 reasonable attorneys' fees.
23 �
91. Defendant Trump is accordingly liable to Plaintiff and the Class for three
24 times their actual damages as proved at trial plus interest and attorneys' fees.
25 �
PRAYER FOR RELIEF
26 �
WHEREFORE, Plaintiff, individually and on behalf of all others similarly
27 situated, pray this Court to enter a judgment against Defendant that:
A.
Certifies the Class under Rule 23 of the Federal Rules of Civil Procedure,
as well as any appropriate subclasses, appointing Plaintiff as Class Representative,
and appointing his attorneys as counsel to represent the Class;
B.
Awards actual, compensatory, statutory, consequential damages;
C.
Awards punitive and treble damages;
D.
Awards 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;
E.
Awards Plaintiff and Class Members the costs of this action, including
reasonable attorneys' fees and expenses and expert fees;
F.
Enjoins Defendant from continuing to falsely market and advertise,
conceal material information from the public, and commit unlawful and unfair
business acts and practices; orders Defendant to engage in a corrective notice
campaign, and requires Defendant to refund to Plaintiff and all Class Members the
funds paid;
G.
Awards declaratory relief;
H.
Awards pre judgment and post judgment interest at the highest rate
allowed by law; and
I.
Grants such further relief as this Court may deem just and proper.
DATED: October 18, 2013 �ROBBINS GELLER RUDMAN
& DOWD LLP
JASON A. FORGE
RACHEL L. JENSEN
THOMAS R. MERRICK
/s/ Jason A. Forge
JASON A. FORGE
655 West Broadway, Suite 1900
San Diego, CA 92101
Telephone: 619/231-1058
619/231-7423 (fax)
ZELDES HAEGGQUIST & ECK, LLP
AMBER L. ECK
HELEN I. ZELDES
ALREEN HAEGGQUIST
AARON M. OLSEN
625 Broadway, Suite 1000
San Diego, CA 92101
Telephone: 619/342-8000
619/342-7878 (fax)
Attorneys for Plaintiff and Proposed Class
| criminal & enforcement |
bgMxFYcBD5gMZwczIUN0 | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
WEST PALM BEACH DIVISION
)
CIVIL ACTION NO.
)
CLASS ACTION
)
Plaintiff,
)
)
COMPLAINT FOR VIOLATION OF
)
THE FEDERAL SECURITIES LAWS
)
)
)
)
JURY TRIAL DEMANDED
)
Defendants.
)
)
)
Plaintiff West Palm Beach Firefighters' Pension Fund ("WPB Fire" or "Plaintiff") brings
1
NATURE OF THE ACTION
1.
This action arises out of Defendants' fraudulent scheme to artificially inflate
2.
Altisource, together with its subsidiaries, is a marketplace and transaction
3.
Plaintiff alleges that Defendants have fraudulently inflated Altisource's stock
4.
Specifically, Defendants made false and/or misleading statements and/or failed to
2
5.
Accordingly, Defendants issued materially false and misleading statements and
6.
On February 26, 2014, the Company's illicit practices in connection with its
3
7.
On April 21, 2014, NYDFS raised additional concerns about potential "self-
8.
On August 4, 2014, the NY Department of Financial Services issued another
49.
As a result of this disclosure, Altisource's stock price declined approximately
10.
As a result of Defendants' wrongful acts and omissions, and the precipitous
JURISDICTION AND VENUE
11.
The claims asserted arise under § § 10(b) and 20(a) of the Exchange Act and Rule
12.
Venue is proper pursuant to § 27 of the Exchange Act and 28 U.S.C. § 1391(b).
13.
In connection with the acts alleged in this Complaint, Defendants directly or
5
14.
Plaintiff acquired Altisource common stock at artificially inflated prices during
15.
Defendant Altisource, a process management solutions provider to the mortgage
16.
Defendant William C. Erbey ("Erbey") served as Chairman of the Board
of
17.
Defendant William B. Shepro ("Shepro") is the Chief Executive Officer ("CEO")
6
18.
Defendant Michelle Esterman ("Esterman") has served as the Chief Financial
19.
Defendants Shepro, Esterman, and Erbey are sometimes referred to herein as the
20.
Altisource and the Individual Defendants are sometimes referred to herein as
21.
During the Class Period, the Individual Defendants, as senior executive officers
22.
The Individual Defendants are liable as direct participants in the wrongs
723.
The Individual Defendants, because of their positions with the Company,
24. As senior executive officers and/or directors and as controlling persons of a
25.
The Individual Defendants are liable as participants in a fraudulent scheme and
8
BACKGROUND OF ALTISOURCE
26.
Altisource operates as a marketplace and transaction solutions provider for the
27.
The Company states that its Mortgage Services segment offers services that span
28.
Altisource provides various mortgage and technology services to Ocwen under
29.
In the Company's Form 10-K filed with the SEC on February 13, 2014,
We record revenue we earn from Ocwen and its subsidiaries under various long-
term servicing contracts at rates we believe to be market rates as they are
consistent with one or more of the following: the fees we charge to other
9
customers for comparable services; the fees Ocwen pays to other service
providers; and fees charged by our competitors.
DEFENDANTS' FALSE AND MISLEADING STATEMENTS
AND OMISSIONS OF MATERIAL FACTS
30.
Throughout the Class Period, in regular press releases, conference calls and
31.
The Class Period begins on July 25, 2013, when Altisource issued a press release
Altisource Portfolio Solutions S.A. ("Altisource") (Nasdaq: ASPS) today reported
record service revenue of $161.7 million for the quarter ended June 30, 2013, an
increase of 37% when compared to the quarter ended June 30, 2012. Net income
attributable to Altisource was a record $30.9 million or $1.25 per diluted share for
the quarter ended June 30, 2013, an increase of 10% and 11%, respectively,
compared to the quarter ended June 30, 2012.
The growth in revenue is primarily from the initial referrals on the Homeward
non-Government Sponsored Enterprise ("non-GSE") loans that Ocwen Financial
Corporation ("Ocwen") boarded onto the REALServicing platform in the first
quarter and the expansion of the Financial Services segment which is gaining
traction. Altisource generally begins receiving referrals once portfolios are
boarded onto the REALServicing platform. During the second quarter of 2013,
the Mortgage and Technology Services segments recognized virtually no benefit
from the Residential Capital, LLC ("ResCap") non-GSE portfolio that is expected
to board on REALServicing in the third quarter of 2013. Including Ocwen's
recently announced agreement to purchase $78 billion of mortgage servicing
10rights from One West Bank, FSB ("OneWest"), the number of non-GSE loans on
which Altisource earns revenue is expected to be 65% higher in the fourth quarter
of 2013 compared to the second quarter of 2013.
Net income increased in the second quarter of 2013 over the same period in the
prior year from service revenue growth, partially offset by interest expense on the
$400 million Senior Secured Term Loan ($200 million was funded in the fourth
quarter of 2012 and $200 million was funded in the second quarter of 2013),
intangible asset amortization expense in connection with the Homeward and
ResCap fee-based business transactions and increased technology expenditures to
support our growth. In addition, the Mortgage Services segment was almost fully
staffed to meet the anticipated 65% higher non-GSE loan count on
REALServicing in the fourth quarter of 2013 (compared to the second quarter of
2013). This 65% increase in loans with very little increase in compensation and
benefits will be the major contributor to our goal of improving default related
margins by seven percent by the end of this year compared to 2012.
"We are encouraged by Ocwen's recently announced agreement to purchase
mortgage servicing rights from OneWest which, along with the ResCap portfolio,
will drive meaningful default and technology related revenue growth to
Altisource. Given the traction we see in our strategic initiatives along with
Ocwen's ability to acquire additional mortgage servicing rights, Altisource's long
term growth prospects are very bright," said Chairman William Erbey.
William Shepro, Chief Executive Officer, further commented "We expect
earnings for the second half of 2013 and full year 2014 to be very strong as we
begin to benefit from the ResCap and OneWest non-GSE servicing portfolio
referrals and the higher margin Homeward referrals. We also remain intensely
focused on margin improvement and believe we are making good progress toward
accomplishing the seven percent margin improvement in our default related
businesses by the end of the year."
32.
On the same day, the Company filed its quarterly report for the period ended June
11
We record revenue we earn from Ocwen under various long-term servicing
contracts at rates we believe to be market rates as they are consistent with one or
more of the following: the fees we charge to other customers for comparable
services, the fees Ocwen pays to other service providers, fees commensurate with
market surveys prepared by unaffiliated firms and fees charged by our
competitors.
33.
On October 24, 2013, Altisource issued its third quarter 2013 financial results
Altisource Portfolio Solutions S.A. ("Altisource") (Nasdaq:ASPS) today reported
record third quarter 2013 service revenue of $180.4 million and net income
attributable to shareholders of $36.0 million, or $1.42 per diluted share. Service
revenue for the third quarter 2013 increased by 52% compared to the third quarter
2012 and 12% compared to the second quarter 2013. Net income attributable to
Altisource for the third quarter 2013 increased 33% compared to the third quarter
2012 and 16% compared to the second quarter 2013.
The growth in service revenue and earnings is primarily driven by the Homeward
Residential, Inc. ("Homeward") and Residential Capital, LLC ("ResCap") loans
that Ocwen Financial Corporation ("Ocwen") boarded onto the REALServicing
platform during 2013 and growth in the mortgage charge-off collections business
and customer relationship management business.
Third quarter highlights include:
The average number of loans serviced by Ocwen on REALServicing
totaled 1.2 million loans in the third quarter 2013 compared to 0.8 million loans in
the third quarter 2012;
Cash flows from operating activities totaled $67.2 million, or 37% of
service revenue, in the third quarter 2013 compared to $43.1 million, or 36% of
service revenue, in the third quarter 2012;
On August 21, 2013, Altisource announced the acquisition of Equator,
LLC, a national leader in mortgage and real estate related business process
management solutions at an initial price of $70.0 million plus contingent earn-out
consideration of up to an additional $80.0 million over three years, subject to
Equator, LLC achieving annual performance targets;
Altisource Residential ("Residential"), the company we provide rental
management services to under a 15-year services agreement, increased its loan
and REO portfolio from 1,372 at June 30, 2013 to 6,234 on September 30, 2013
(including announced acquisitions closed in October 2013); and
Altisource acquired 266,300 shares of its common stock during the third
quarter 2013 at an average price of $134.86 per share.
12"We are very pleased with our third quarter results and our execution against
plan. With our focus on developing marketplaces for the very large real estate and
mortgage spaces, we believe that we have exciting growth prospects," said
Chairman William Erbey.
William Shepro, Chief Executive Officer, further commented "Our strong service
revenue, net income and cash flow
34.
On the same day, the Company filed its quarterly report on Form 10-Q for the
35.
On February 13, 2014, the Company announced its fourth quarter and full year
Altisource Portfolio Solutions S.A. ("Altisource") (Nasdaq:ASPS) today reported
record fourth quarter and full year service revenue and record full year net income
attributable to shareholders. The growth in service revenue and net income was
primarily driven by the continued growth of our largest customer, Ocwen
Financial Corporation ("Ocwen"), and growth of the Financial Services' mortgage
charge-off and customer relationship management businesses.
Full Year 2013 Results Compared to 2012:
Service revenue of $662.1 million, a 42% increase
Net income attributable to Altisource of $130.0 million, a 17% increase
Diluted earnings per share of $5.19, a 17% increase
Cash from operations of $185.5 million, a 59% increase
Return on equity of 78%, compared to 58% in 2012
Fourth Quarter 2013 Results Compared to Fourth Quarter 2012:
Service revenue of $192.4 million, a 58% increase
Net income attributable to Altisource of $35.5 million, a 17% increase
Diluted earnings per share of $1.42, an 18% increase
Cash from operations of $50.8 million, a 162% increase
"2013 was a very strong year for Altisource, growing both organically as well as
through strategic acquisitions. Earnings growth was slower than revenue as we
continued to invest in the business to support our future growth. We are well
13
positioned with our core business and our growth initiatives for an even better
2014. Further, we intend to continue our aggressive share repurchase program "
1
said Chairman William Erbey.
Full year and fourth quarter 2013 highlights include:
The average number of loans serviced by Ocwen on REALServicing totaled
1.2 million in 2013 and 1.5 million in the fourth quarter of 2013
On November 15, 2013, we acquired Equator, LLC ("Equator"), a national
leader in mortgage and real estate related business process management
solutions, for an initial purchase price of $63.4 million plus contingent earn-
out consideration of up to an additional $80 million over three years, subject
to Equator achieving annual performance targets
On March 29, 2013, we completed the acquisition of the Homeward
Residential, Inc. fee-based businesses from Ocwen for an aggregate purchase
price of $75.8 million
On April 12, 2013, we completed the Residential Capital, LLC fee-based
business transaction with Ocwen for an aggregate purchase price of $128.8
million
On May 7, 2013, we increased borrowings under our senior secured term loan
agreement to $400 million. Furthermore, on December 9, 2013, we refinanced
the senior secured term loan which, among other changes, lowered the interest
rate of the term loan
We repurchased 1.2 million shares of our common stock under our stock
repurchase program during 2013 at an average price of $116.99 per share
William Shepro, Chief Executive Officer, further commented, "During 2013, we
focused on providing high quality services to our largest customer, Ocwen,
improving our margins in our default related services businesses and developing
our growth engines. With the progress made in 2013, we believe we are on track
to achieve pre-tax income as a percentage of service revenue of 47% in our
default related services businesses by the end of the first quarter of 2014. Further,
we continue to make good progress on our growth initiatives and are optimistic
that they will serve as an important longer term component of our revenue and
customer diversification strategy."
36.
Also on February 13, 2014, the Company filed with the SEC its annual report on
14
37.
The statements set forth above were materially false and misleading and/or
The Truth Slowly Emerges
38.
On February 26, 2014, the Company's illicit practices in connection with its
The Department's ongoing review of Ocwen's mortgage servicing practices has
uncovered a number of potential conflicts of interest between Ocwen and other
public companies with which Ocwen is closely affiliated. Indeed, the facts our
review has uncovered to date cast serious doubts on recent public statements
made by the company that Ocwen has a "strictly arms-length business
relationship" with those companies. We are also concerned that this tangled web
of conflicts could create incentives that harm borrowers and push homeowners
unduly into foreclosure. As such, we are demanding additional information on
these issues as part of our review.
Pursuant to the December 4, 2012 Consent Order between Ocwen and the
Department, we have engaged an independent on-site compliance monitor at
Ocwen to conduct a comprehensive review of Ocwen's servicing operations. It is
in the course of the monitorship that we uncovered these potential conflicts
between and among Ocwen, Altisource Portfolio Solutions, S.A. ("Altisource
Portfolio"), Altisource Residential Corporation, Altisource Asset Management
Corporation, and Home Loan Servicing Solutions Ltd. (together, the "affiliated
15companies"), all of which are chaired by William C. Erbey, who is also the
largest shareholder of each and the Executive Chairman of Ocwen.
As you recall, Altisource Portfolio's Chief Risk Officer was removed as a result
of the Monitor's review. During its review, the Monitor discovered that Ocwen's
Chief Risk Officer also served as the Chief Risk Officer of Altisource Portfolio,
and reported directly to Mr. Erbey in both capacities.
This individual seemed not to appreciate the potential conflicts of interest posed
by this dual role, which was particularly alarming given his role as Chief Risk
Officer.
He told the Monitor that Ocwen paid his entire salary, but he did not know and
had apparently never asked which company paid his risk management staff.
Indeed, it remains unclear whether Altisource Portfolio paid any compensation
for the Chief Risk Officer's services.
Although he has since been removed as Altisource Portfolio' S Chief Risk
Officer, his and Ocwen's failure to affirmatively recognize this conflict
demonstrates that the relationship between Ocwen and the affiliated companies
warrants further examination.
Presently, Ocwen's management owns stock or stock options in the affiliated
companies. This raises the possibility that management has the opportunity and
incentive to make decisions concerning Ocwen that are intended to benefit the
share price of affiliated companies, resulting in harm to borrowers, mortgage
investors, or Ocwen shareholders as a result.
39.
Lawsky's letter to Ocwen was noted in a Bloomberg article dated February 26,
New York's top bank regulator asked Ocwen Financial Corp. for information
about potential conflicts of interest between the firm and its vendors as it seeks to
buy $39 billion of home loans from Wells Fargo & Co. Ocwen shares tumbled 7
percent.
Ocwen Chairman William Erbey is the largest shareholder in companies that
provide mortgage-management services to Ocwen, Benjamin Lawsky,
superintendent of New York's Department of Financial Services, said today in a
letter to the Atlanta-based firm.
Erbey's stakes in Ocwen affiliates "cast serious doubts on recent public
statements made by the company that Ocwen has a 'strictly arms-length
business relationship' with those companies," Lawsky said in the letter.
16
Wells Fargo's planned sale of mortgage-servicing rights to Ocwen was halted by
Lawsky, who's concerned that the company will struggle to properly administer
the loans, a person briefed on the matter said earlier this month. Ocwen agreed to
"put an indefinite hold" on the deal with San Francisco-based Wells Fargo, the
biggest U.S. home lender.
Ocwen dropped to $36.76 in New York, the worst performer in the 228-company
Russell 1000 Financial Services Index. The stock is down 34 percent this year.
Stock Options
"Ocwen's management owns stock or stock options in the affiliated
companies," Lawsky said in the letter. "This raises the possibility that
management has the opportunity and incentive to make decisions concerning
Ocwen that are intended to benefit the share price of affiliated companies,
resulting in harm to borrowers, mortgage investors, or Ocwen shareholders as a
result."
Lawsky's review of Ocwen's operations also revealed that the company's chief
risk officer served in the same role for Altisource Portfolio Solutions, one of
Ocwen's vendors, and "reported directly to Mr. Erbey in both capacities," the
regulator wrote. The officer was removed as a result of the review.
Lawsky asked that Ocwen provide detailed information about the financial
interests of Ocwen officers, directors and employees in several affiliated
companies, and documentation showing the nature and extent of business
relationships between Ocwen and those firms.
40.
Despite this partial disclosure of Defendants' fraud, the Company's common
41.
On April 21, 2014, the NYDFS raised additional concerns about potential "self-
As you know, the Department has been reviewing business relationships between
Ocwen Financial Corporation and its affiliated companies, including Altisource
17Portfolio Solutions S.A. ("Altisource Portfolio"). Our review has raised concerns
surrounding conflicted business relationships between Ocwen and Altisource
Portfolio. One particularly troubling issue is the relationship between Ocwen
and Altisource Portfolio's subsidiary, Hubzu, which Ocwen uses as its principal
online auction site for the sale of its borrowers' homes facing foreclosure, as well
as investor-owned properties following foreclosure.
Hubzu appears to be charging auction fees on Ocwen-serviced properties that are
up to three times the fees charged to non-Ocwen customers. In other W ords, when
Ocwen selects its affiliate Hubzu to host foreclosure or short sale auctions on
behalf of mortgage investors and borrowers, the Hubzu auction fee is 4.5%;
when Hubzu is competing for auction business on the open market, its fee is as
low as 1.5%. These higher fees, of course, ultimately get passed on to the
investors and struggling borrowers who are typically trying to mitigate their
losses and are not involved in the selection of Hubzu as the host site.
The relationship between Ocwen, Altisource Portfolio, and Hubzu raises
significant concerns regarding self-dealing. In particular, it creates questions
about whether those companies are charging inflated fees through conflicted
business relationships, and thereby negatively impacting homeowners and
mortgage investors. Alternatively, if the lower fees are necessary to attract non-
Ocwen business on the open market, it raises concerns about whether Ocwen-
serviced properties are being funneled into an uncompetitive platform at inflated
costs. As such, we are seeking certain information about Ocwen's use of Hubzu,
about the fees charged in connection with Hubzu auctions, and about the value
that Hubzu's "customers" gain in exchange for those fees:
42.
Despite this partial disclosure of Defendants' fraud, the Company's common
43.
On April 24, 2014, the Company released its First Quarter 2014 results, stating
Altisource Portfolio Solutions S.A. ("Altisource") (Nasdaq:ASPS) today reported
record service revenue, net income attributable to shareholders and diluted
earnings per share. The quarter over quarter growth in service revenue and net
income was primarily driven by the higher number of loans that were boarded on
REALServicing in 2013 and the inclusion of a full quarter of Equator, LLC
operations.
First Quarter 2014 Results Compared to First Quarter 2013:
Service revenue of $210.0 million, a 65% increase
18
Net income attributable to Altisource of $39.6 million, a 44% increase
Diluted earnings per share of $1.61, a 46% increase
Cash from operations of $36.3 million, a 280% increase
"Altisource had a very strong quarter, marking the 12th straight quarter of
sequential service revenue growth. To maintain this trend, we remain focused on
executing against our strategic plan," said Chairman William Erbey.
William Shepro, Chief Executive Officer, further commented, "We are focused
on providing high quality, compliant services to our customers while diligently
executing on our 2014 strategic initiatives to diversify our customer base and
grow our revenue and earnings. Our strong cash flow generation provides us the
ability to invest in our next generation technologies, acquire businesses that
advance our strategic objectives and repurchase our common stock."
First quarter 2014 highlights include:
Gross profit as a percentage of service revenue was 44% for the quarter, an
increase from 41% for the same quarter in 2013 driven by margin expansion
in all of the Company's operating segments
The average number of delinquent non-Government Sponsored Enterprise
loans serviced by Ocwen on REALServicing totaled 369 thousand for the
three months ended March 31, 2014, an increase of 57% compared to the
three months ended March 31, 2013
We repurchased 0.3 million shares of our common stock under our stock
repurchase program at an average price of $109.97 per share during the three
months ended March 31, 2014
44.
On the same day, the Company filed its false and misleading quarterly report for
We record revenue we earn from Ocwen and its subsidiaries under various
long-term services contracts at rates we believe to be market rates as we believe
they are consistent with one or more of the following: the fees we charge to
other customers for comparable services, the fees Ocwen pays to other service
providers and fees charged by our competitors.
19
45.
On July 24, 2014, the Company announced its second quarter 2014 financial
Altisource Portfolio Solutions S.A. ("Altisource") (Nasdaq:ASPS) today reported
record second quarter service revenue, net income attributable to shareholders and
diluted earnings per share.
Second Quarter 2014 Results Compared to Second Quarter 2013:
Service revenue of $263.2 million, a 63% increase
Net income attributable to Altisource of $54.1 million, a 75% increase
Diluted earnings per share of $2.24, a 79% increase
Cash from operations of $75.2 million, a 30% increase
"Next month marks our five year anniversary as a stand-alone public company.
During this five year period, we have had 43% cumulative annual service revenue
growth, 47% cumulative annual earnings growth and have focused on providing
best-in-class services, developing new services, driving down costs through
efficiency initiatives and investing in our future. This is exactly what we set out to
do five years ago," said Chairman William Erbey.
William Shepro, Chief Executive Officer, further commented, "We believe our
strategic initiatives, coupled with our strong revenue, earnings and operating cash
flow, position us for attractive growth in the next five years and beyond. We plan
to continue to invest in our next generation technology, develop our newer
services and pursue potential acquisitions, in line with our marketplace
strategy. We also plan to continue our share repurchase program when the stock is
trading at attractive prices."
Second quarter 2014 highlights include:
The average number of loans serviced by Ocwen on REALServicing was 2.3
million for the second quarter of 2014, an increase of 118% compared to the
second quarter of 2013
The average number of delinquent non-Government-Sponsored Enterprise
loans serviced by Ocwen on REALServicing was 352 thousand for the second
quarter of 2014, an increase of 24% compared to the second quarter of 2013
We repurchased 0.4 million shares of our common stock under our stock
repurchase program at an average price of $108.24 per share during the
second quarter of 2014
Altisource Residential Corporation, the company we provide rental
management services to, increased its non-performing loan and real estate
owned portfolio from 12,405 at March 31, 2014 to 14,907 at June 30, 2014
2046.
On July 29, 2014, the Company filed its quarterly report for the period ended June
In accordance with Accounting Standards Codification ("ASC") Topic 250,
Accounting Changes and Error Corrections , the Company evaluated the effect of
the disclosure and presentation errors on its previously issued annual and
quarterly financial statements, both qualitatively and quantitatively, and
concluded that the related party disclosures in the Company's previously issued
annual and quarterly financial statements are not materially misstated.
We record revenue we earn from Ocwen under the Service Agreements at rates
we believe to be market rates as we believe they are consistent with the fees we
charge to other customers for comparable services and /or fees charged by our
competitors.
47.
On August 4, 2014, the NYDFS issued its third letter to Ocwen. The letter
As part of the Department's ongoing examination of Ocwen's mortgage
servicing practices, we are reviewing a troubling transaction involving Ocwen's
related company, Altisource Portfolio Solutions, S.A. ("Altisource"), and the
provision of force-placed insurance. Indeed, this complex arrangement appears
designed to funnel as much as $65 million in fees annually from already-
distressed homeowners to Altisource for minimal work. Additionally, the role
that Ocwen's Executive Chairman William C. Erbey played in approving this
arrangement appears to be inconsistent with public statements Ocwen has
made, as well as representations in company SEC filings.
As you know, the Department has previously expressed concerns about Ocwen's
use of related companies to provide fee-based services such as property
21
inspections, online auction sites, foreclosure sales, real estate brokers, debt
collection, and many others. Because mortgage servicing presents the
extraordinary circumstance where there is effectively no customer to select a
vendor for ancillary services, Ocwen's use of related companies to provide such
services raises concerns about whether such transactions are priced fairly and
conducted at arms-length.
The Department now seeks additional information about Ocwen's provision of
force-placed insurance through related companies. As you are aware, the
Department's recent investigation into force-placed insurance revealed that
mortgage servicers were setting up affiliated insurance agencies to collect
commissions on force-placed insurance, and funneling all of their borrowers'
force-placed business through their own agencies, in violation of New York
Insurance Law section 2324's anti-inducement provisions. The Department
discovered that servicers' own insurance agencies had an incentive to purchase
force-placed insurance with high premiums because the higher the premiums, the
higher the commissions kicked back by insurers to the servicers or their affiliates.
The extra expense of higher premiums, in turn, can push already struggling
families over the foreclosure cliff. In light of this investigation, the Department
last year imposed further prohibitions on these kickbacks to servicers or their
affiliates.
However, as part of our broader review of ancillary services provided by non-
bank mortgage servicers, we are concerned that certain non-bank mortgage
servicers are seeking to side-step those borrower protections through complex
arrangements with subsidiaries and affiliated companies. Indeed, in recent weeks,
we halted one such arrangement at another non-bank mortgage servicing
company.
Agreements with SWBC and Altisource
Based on its investigation and through the Monitor's work, the Department
understands that Ocwen's force-placed arrangement with Altisource features
the use of an unaffiliated insurance agent, Southwest Business Corporation
("SWBC"), apparently as a pass-through so that Ocwen and Altisource are not
directly contracting with each other, but Altisource can still receive insurance
commissions and certain fees seemingly for doing very little work.
These are the facts established by documents Ocwen provided to the Monitor: In
August 2013, Ocwen appointed an Altisource subsidiary called Beltline Road
Insurance Agency, Inc. ("Beltline") as its exclusive insurance representative,
purportedly to negotiate and place a new force-placed insurance program for
Ocwen. Ocwen's existing force-placed arrangement with the insurer Assurant was
set to expire in March 2014, and Beltline's stated task was to find an alternative
arrangement. In January 2014, Altisource provided a memo to the Credit
Committee of Ocwen Mortgage Servicing, Inc., recommending, among other
22things, replacing Assurant with SWBC as Ocwen's managing general agent.
SWBC would then be charged with managing Ocwen's force-placed insurance
program, including negotiating premiums with insurers. As part of this
arrangement, Altisource recommended itself to provide fee-based services to
SWBC.
In emails dated January 15 and 16, 2014, the transaction was approved by the
three members of the Credit Committee: William Erbey, Duo Zhang, and Richard
Cooperstein. The Credit Committee did not meet to discuss this proposal, no
minutes were taken of the Credit Committee's consideration of this proposed
transaction, and the proposed transaction apparently was not presented for review
or approval to any member of the Ocwen Board of Directors except Mr. Erbey, as
Mr. Zhang and Mr. Cooperstein are not members of the Ocwen Board of
Directors.
Just one month after this Credit Committee approval, on February 26, 2014, the
company received the Department's letter raising concerns about potential
conflicts of interest between Ocwen and its related public companies. In that
letter, we identified facts that "cast serious doubts on recent public statements
made by the company that Ocwen has a 'strictly arms-length business
relationship' with those companies," and we specifically referenced the multiple
roles played by Mr. Erbey as an area of concern.
Disregarding the concerns raised in our letter, Ocwen proceeded to execute
contracts formalizing this new force-placed arrangement, apparently without
further consideration by any Board member other than Mr. Erbey. Those
contracts, dated as of June 1, 2014, indicate that Altisource will generate
significant revenue from Ocwen's new force-placed arrangement while
apparently doing very little work. Indeed, a careful review of these and other
documents suggests that Ocwen hired Altisource to design Ocwen's new force-
placed program with the expectation and intent that Altisource would use this
opportunity to steer profits to itself.
First, Altisource will reap enormous insurance commissions for having
recommended that Ocwen hire SWBC. Under the contracts, Ocwen promises to
give its force-placed insurance business to SWBC. SWBC does the work of
negotiating premiums, preparing policies, and handling renewals and
cancellations. For these services, SWBC receives commissions from insurers.
SWBC then passes on a portion of those commissions, constituting 15% of net
written premium on the policies, to Altisource subsidiary Beltline, for
"insurance placement services." Documents indicate that Ocwen expects to
force-place policies on its borrowers in excess of $400 million net written
premium per year; a 15% commission on $400 million would be $60 million per
year. It is unclear what insurance placement services, if any, Altisource is
providing to justify these commissions.
23
Second, Altisource will be paid a substantial annual fee for providing
technology support that it appears to be already obligated to provide. This fee
relates to monitoring services, whereby Ocwen pays a company to monitor
whether its borrowers' insurance remains in effect. Such monitoring is necessary
to establish which borrowers have lapsed on their payments and need to have
insurance force-placed upon them. Prior to 2014, Ocwen was paying ten cents
per loan per month to Assurant for monitoring. In this new arrangement,
however, Ocwen agrees to pay double the prior amount - twenty cents per loan
per month now paid to SWBC, for each of the approximately 2.8 million
borrowers serviced by Ocwen. SWBC, in turn, agrees to pass on fifteen out of
that twenty cents to Altisource, or an estimated $5 million per year. Altisource
provides only one service in exchange for this fee: granting SWBC access to
Ocwen's loan files. Altisource, of course, only has access to Ocwen's loan files
through its own separate services agreements with Ocwen, which appear to
contractually obligate Altisource to provide this access to business users
designated by Ocwen to receive such access.
Third, the contracts require SWBC to use Altisource to provide loss draft
management services for Ocwen borrowers; to pay Altisource $75 per loss draft
for these services; and to pay Altisource an additional $10,000 per month for
certain other services.
Ocwen's Public Statements Concerning Transactions with Related
Companies
In addition to the issues raised above, the Department has serious concerns
about the apparently conflicted role played by Ocwen Executive Chairman
William Erbey and potentially other Ocwen officers and directors in directing
profits to Altisource, which is "related" to Ocwen but is formally a separate,
publicly-traded company. As you know, Mr. Erbey is Ocwen's largest
shareholder and is also the Chairman of and largest shareholder in Altisource. In
fact, Mr. Erbey's stake in Altisource is nearly double his stake in Ocwen: 29
percent versus 15 percent. Thus, for every dollar Ocwen makes, Mr. Erbey's
share is 15 cents, but for every dollar Altisource makes, his share is 29 cents.
The Department and its Monitor have uncovered a growing body of evidence
that Mr. Erbey has approved a number of transactions with the related
companies, despite Ocwen's and Altisource's public claims - including in SEC
filings - that he recuses himself from decisions involving related companies.
Mr. Erbey's approval of this force-placed insurance arrangement as described
above appears to be a gross violation of this supposed recusal policy.
Finally, Ocwen and Altisource state in their public filings that rates charged
under agreements with related companies are market rate, but Ocwen has not
24been able to provide the Monitor with any analysis to support this assertion.
(emphasis added)
48.
An August 6, 2014 article by The Palm Beach Post titled, "N.Y. probe of Ocwen
New York's Department of Financial Services deepened its investigation this
week of West Palm Beach-based Ocwen Financial Corp. with a letter questioning
an arrangement that "appears designed to funnel as much as $65 million in fees
annually from already distressed homeowners" to a spinoff company doing
minimal work.
In the Monday letter to Ocwen General Counsel Timothy Hayes, New York
Superintendent of Financial Services Benjamin Lawsky asks for more
information regarding the mortgage servicing firm's involvement with "related
company" Altisource Portfolio Solutions regarding forced-placed insurance.
Forced-placed insurance, which can cost five to 10 times more than what a
homeowner can get independently, has been charged to borrowers whose policies
lapse as they fall behind on mortgage payments.
Banks, including HSBC, JPMorgan Chase and Wells Fargo, have paid hundreds
of millions of dollars to settle complaints that they took kickbacks or otherwise
colluded with forced-placed insurance companies to collect commissions on
policies.
In a statement, Ocwen said it will "continue to cooperate with the New York
Department of Financial Services and provide the information requested, as we
have done with all previous requests from the department."
Lawsky said in his letter that New York has taken steps to minimize abuses of
forced-placed insurance but is concerned that non- bank mortgage servicers may
be side-stepping borrower safeguards through arrangements with subsidiaries and
related companies.
According to Lawsky, Ocwen and Altisource are using an unaffiliated
insurance agent, Southwest Business Corp. , "apparently" as a pass-through so
that the two companies are not directly contracting with each other and
Altisource can still receive insurance commissions and certain fees seemingly
for doing "very little work."
25
Lawsky's letter also calls out Ocwen Executive Chairman William C. Erbey's
role in the arrangement. Erbey, according to the letter, may have engaged in
"gross violation" of claims made publicly by Ocwen that Erbey recuses himself
from decisions concerning related companies.
Erbey is Ocwen's largest shareholder, and is also the chairman of and largest
shareholder in Altisource, according to Lawsky.
49.
As a result of this disclosure, Altisource's stock price declined more than 13% in
UNDISCLOSED ADVERSE INFORMATION
50.
The market for Altisource's securities was an open, well-developed and efficient
51.
During the Class Period, Defendants materially misled the investing public,
26
52.
At all relevant times, the material misrepresentations and omissions particularized
53.
These material misstatements and omissions had the cause and effect of creating
SCIENTER ALLEGATIONS
54.
As alleged herein, the Defendants acted with scienter in that the Defendants knew
55.
As set forth herein, the Individual Defendants, by virtue of their receipt of
2756.
The ongoing fraudulent scheme described herein could not have been perpetrated
STATUTORY SAFE HARBOR
57.
The federal statutory safe harbor provided for forward-looking statements under
58.
Defendants are liable for the forward-looking statements pleaded because, at the
LOSS CAUSATION
59.
During the Class Period, as detailed herein, Defendants engaged in a scheme to
28
60.
By failing to disclose the true state of the Company's business prospects and
61.
Defendants' false and misleading statements had the intended effect and caused
62.
The decline in the price of Altisource's common stock after the truth came to light
29
APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD ON THE
MARKET DOCTRINE
63.
At all relevant times, the market for Altisource stock was an efficient market for
a.
Altisource securities met the requirements for listing, and were listed and
b.
As a regulated issuer, Altisource filed periodic public reports with the SEC
C.
Altisource securities were followed by securities analysts employed by
d.
Altisource regularly issued press releases which were carried by national
64.
As a result, the market for Altisource securities promptly digested current
CLASS ACTION ALLEGATIONS
65.
Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
3066.
The members of the Class are SO numerous that joinder of all members is
67.
Plaintiff's claims are typical of the claims of the other members of the Class as all
68.
Plaintiff will fairly and adequately protect the interests of the members of the
69.
Common questions of law and fact exist as to all members of the Class and
31
a.
whether the federal securities laws were violated by Defendants' acts and
b.
whether Defendants participated in and pursued the common course of
C.
whether documents, press releases, and other statements disseminated to
d.
whether statements made by Defendants to the investing public during the
e.
whether the market price of Altisource common stock during the Class
f.
the extent to which the members of the Class have sustained damages and
70.
A class action is superior to all other available methods for the fair and efficient
32
COUNTS AGAINST DEFENDANTS UNDER THE EXCHANGE ACT
COUNT I
Against Defendants
71.
Plaintiff repeats and realleges the allegations set forth above as though fully set
72.
During the Class Period, Altisource and the Individual Defendants, and each of
73.
These Defendants: (a) employed devices, schemes, and artifices to defraud; (b)
74.
In addition to the duties of full disclosure imposed on the Defendants as a result
3375.
Altisource and the Individual Defendants, individually and in concert, directly and
76.
Each of the Individual Defendants' primary liability, and controlling person
34
77.
These Defendants had actual knowledge of the misrepresentations and omissions
78.
As a result of the dissemination of the materially false and misleading information
35
79.
At the time of said misrepresentations and omissions, Plaintiff and other members
80.
By virtue of the foregoing, Altisource and the Individual Defendants each violated
81.
As a direct and proximate result of the Defendants' wrongful conduct, Plaintiff
36COUNT II
For Violations of §20(a) of the Exchange Act
Against the Individual Defendants
82.
Plaintiff repeats and realleges the allegations set forth above as if set forth fully
83.
The Individual Defendants were and acted as controlling persons of Altisource
84.
In addition, each of the Individual Defendants had direct involvement in the day-
85.
As set forth above, Altisource and the Individual Defendants each violated §10(b)
37
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, individually and on behalf of the Class, prays for judgment as
a)
Declaring this action to be a class action pursuant to Rule 23(a) and (b) (3) of the
b)
Awarding Plaintiff and the other members of the Class damages in an amount
c)
Awarding Plaintiff and the members of the Class pre-judgment and post-judgment
d)
Awarding such other relief as this Court deems appropriate.
JURY DEMAND
Plaintiff demands a trial by jury.
Respectfully submitted,
Jl
Lester R. Hooker
SAXENA WHITE P.A.
Joseph E. White, III (FL Bar No. 621064)
Lester R. Hooker (FL Bar No. 32242)
5200 Town Center Circle, Suite 601
Boca Raton, FL 33486
561-394-3399 Telephone
561-394-3382 Facsimile
Email: jwhite@saxenawhite.com
Email: lhooker@saxenawhite.com
Counsel for Plaintiff
38
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on September 8, 2014, I presented the foregoing to the Clerk
Jell
Lester R. Hooker
39 | securities |
3a65CocBD5gMZwczEvZl | IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF CONNECTICUT
Plaintiff,
CLASS AND COLLECTIVE
V.
ACTION COMPLAINT
Jury Trial Requested
Defendant.
Plaintiff Robert G. Kiefer, individually and on behalf of all others similarly situated, by
NATURE OF THE ACTION
1.
This is an unpaid overtime case on behalf of Assistant Store Managers ("ASMs")
2.
Throughout the relevant period, it has been Save-A-Lot's policy to deprive its
3.
Save-A-Lot has a history of under-compensating its ASMs. For years, Save-A-
4.
By the conduct described in this Complaint, Save-A-Lot violated and continues to
5.
Plaintiff brings this action on behalf of himself and similarly situated current and
6.
Plaintiff Kiefer also brings this action on behalf of himself and all similarly
JURISDICTION AND VENUE
7.
This Court has subject matter jurisdiction over Plaintiff's federal claims pursuant
8.
Plaintiff's state law claims are SO closely related to Plaintiff's claims under the
9.
This Court also has jurisdiction over Plaintiff's claims under the FLSA pursuant
10.
At least one member of the proposed class is a citizen of a state different from that
11.
Plaintiff's claims involve matters of national or interstate interest.
12.
Upon information and belief, citizenship of the members of the proposed class is
13.
Upon information and belief, two-thirds of the members of all proposed plaintiff
14.
Upon information and belief, there are more than 100 members of the proposed
15.
Defendant is subject to personal jurisdiction in Connecticut.
16.
Defendant maintains a place of business in Connecticut.
17.
Upon information and belief, the amount in controversy in this matter exceeds the
18.
This Court is empowered to issue a declaratory judgment pursuant to 28 U.S.C.
19.
Venue is proper in the United States District Court for the District of Connecticut
20.
A substantial part of the events or omissions giving rise to claims in this Class
THE PARTIES
21.
Plaintiff Robert G. Kiefer ("Kiefer") is an adult individual who is a resident of
22.
Kiefer was employed by Defendant as an ASM in Connecticut from
23.
Kiefer is a covered employee within the meaning of the FLSA.
24.
Kiefer's written Consent to Join form is attached hereto as Exhibit A.
25.
Defendant Moran Foods, Inc. is a corporation organized and existing under the
26.
Throughout the relevant period, Defendant has been a covered employer as that
27.
Throughout the relevant period, Defendant's annual gross volume of sales made
COLLECTIVE ACTION ALLEGATIONS
28.
Plaintiff brings FLSA claims, the First Cause of Action, on behalf of himself and29.
Defendant is liable under the FLSA for, inter alia, failing to properly compensate
CLASS ACTION ALLEGATIONS
30.
Plaintiff Kiefer brings the Second Cause of Action, CMWA claims, under Rule 23
31.
The persons in the Connecticut Class identified above are so numerous that
32.
The size of the Connecticut Class is at least 40 ASMs.
33.
Defendant acted or refused to act on grounds generally applicable to the
34.
This action is properly maintainable as a class action under Federal Rule of Civil
a.
whether Defendant fails and/or refuses to pay Plaintiff and the Connecticut
b.
whether Defendant pays Plaintiff and the Connecticut Class a salary for
c.
whether Defendant pays Plaintiff and the Connecticut Class on an hourly
d.
whether Defendant's uniform conduct prevents or fails to create a clear
e.
the nature and extent of Connecticut Class-wide injury and the appropriate
f.
whether Defendant's policy of failing to pay Plaintiff and the Connecticut
35.
The claims of Plaintiff are typical of the claims of the Connecticut Class he seeks
36.
Plaintiff has retained counsel competent and experienced in complex class action
37.
A class action is superior to other available methods for the fair and efficient
CLASS-WIDE FACTUAL ALLEGATIONS
38.
All of the work that Plaintiff, the FLSA Collective, and the Connecticut Class
39.
Upon information and belief, Defendant's business is a centralized, top-down
40.
It is and has been Defendant's nationwide policy and pattern or practice to pay
41.
Defendant does not follow the strict and narrowly construed rules that allow some42.
Defendant's uniform conduct with respect to its ASMs does not create, and in fact
43.
Defendant does not pay ASMs a fixed weekly salary in workweeks in which a full
44.
Uniform written materials that Defendant provides to its ASMs indicate that
45.
Defendant informed Plaintiff and Class Members via an Associate Handbook that
46.
Defendant pays ASMs on an hourly basis when they work fewer than forty hours
47.
Defendant pays ASMs on an hourly basis in holiday weeks when they actually
48.
Defendant pays ASMs on an hourly basis in weeks in which they take a sick day
49.
Defendant pays ASMs on an hourly basis in weeks in which they take a vacation
50.
Defendant pays ASMs on an hourly basis for work they perform on Sundays.
51.
Defendant's computerized payroll system is programmed to pay ASMs less than
52.
The policies described in the preceding paragraphs do not vary from ASM to
53.
As part of its regular business practice, Defendant has intentionally, willfully, and
a.
willfully failing and/or refusing to pay Class Members time-and-a-half
b.
willfully failing to comply with the FWW method;
c.
willfully failing to cause Plaintiff and Class Members to understand that
54.
Upon information and belief, Defendant's unlawful conduct described in this
55.
Upon information and belief, Defendant was or should have been aware that state
56.
Upon information and belief Defendant was aware, or should have been, that
57.
Defendant's failure to pay Plaintiff and the Class Members overtime wages at
58.
Defendant's unlawful conduct has been widespread, repeated, and consistent.
PLAINTIFF'S FACTUAL ALLEGATIONS
59.
Kiefer regularly worked more than 40 hours per workweek and was not paid one
FIRST CAUSE OF ACTION
Fair Labor Standards Act, 29 U.S.C. §§ 201 et seq.
On behalf of Plaintiff and the FLSA Collective
60.
Plaintiff realleges and incorporates by reference all allegations in all preceding
61.
Defendant engaged in a widespread pattern, policy, and practice of violating the
62.
At all times relevant, Plaintiff and the members of the FLSA Collective were
63.
The overtime wage provisions set forth in the FLSA apply to Defendant and64.
Defendant was an employer engaged in commerce and/or the production of goods
65.
At all times relevant, Plaintiff and the members of the FLSA Collective were or
66.
Defendant employed Plaintiff and the members of the FLSA Collective as an
67.
Defendant failed to pay Plaintiff and the members of the FLSA Collective the
68.
Defendant's violations of the FLSA, as described in this Class Action Complaint,
69.
Defendant did not make a good faith effort to comply with the FLSA with respect
70.
Because Defendant's violations of the FLSA were willful, a three-year statute of
71.
As a result of Defendant's violations of the FLSA, Plaintiff and the members of
SECOND CAUSE OF ACTION
Connecticut Minimum Wage Act
Conn. Gen. Stat. 31-76c; Regs., Conn. State Agencies 31-62-D2(c).
On behalf of Plaintiff and the Connecticut Class
72.
Plaintiff realleges and incorporates by reference all allegations in all preceding
73.
Defendant has engaged in a widespread pattern, policy, and practice of violating
74.
At all relevant times, Defendant has been, and continues to be, an "employer"
75.
At all relevant times, Defendant has employed, and/or continues to employ,
76.
Defendant has failed to pay Plaintiff and the members of the Connecticut Class
77.
At all relevant times, Defendant has had a policy and practice of failing and
78.
The fluctuating work week method is impermissible under the CMWA.
79.
As a result of Defendant's failure to pay time and a half overtime wages earned
80.
Defendant's failure to pay time and a half overtime wages to Plaintiff and the
81.
As a result of Defendant's violations of the CMWA, Plaintiff and the members of
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, individually and on behalf of all other similarly situated
A.
That, at the earliest possible time, Plaintiff be allowed to give notice of
B.
Designation of Plaintiff as class representative, and counsel of record as
C.
Unpaid overtime under the FLSA and the CMWA;
D.
Liquidated damages permitted under the FLSA and the CMWA;
E.
Issuance of a declaratory judgment that the practices complained of in this
F.
Appropriate equitable and injunctive relief to remedy Defendant's
G.
Pre-Judgment and Post-Judgment interest, as provided by law;
H.
Attorneys' fees and costs of suit, including expert fees; and
I.
Such other injunctive and equitable relief as the Court may deem just and
DEMAND FOR TRIAL BY JURY
Pursuant to Rule 38(b) of the Federal Rules of Civil Procedure, Plaintiff demands a trial
Hartford, Connecticut
May 18, 2012
Respectfully submitted,
THE HAYBER LAW FIRM, LLC
By:
Erick bird I. Diaz Dig
Bar No.: CT27023
221 Main Street, Suite 502
Hartford, Connecticut 06106
Telephone: (860) 522-8888
OUTTEN & GOLDENLLP
Justin M. Swartz (pro hac vice application forthcoming)
Elizabeth Wagoner (pro hac vice application forthcoming)
3 Park Avenue, 29th Floor
New York, New York 10016
Telephone: (212) 245-1000
Attorneys for Plaintiff and the Putative Class | employment & labor |
V1fXBIkBRpLueGJZDXsm | UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF PENNSYLVANIA
REBECCA LYNNE PATTERSON,
Individually and on Behalf of All Others
Similarly Situated,
Plaintiff,
v.
Case No.
CLASS ACTION COMPLAINT
JURY TRIAL DEMANDED
CABALETTA BIO, INC., STEVEN A.
NICHTBERGER, ANUP MARDA,
DAVID J. CHANG, CATHERINE
BOLLARD, BRIAN DANIELS,
RICHARD HENRIQUES, and MARK
SIMON,
Defendants.
Plaintiff Rebecca Lynne Patterson (“Plaintiff”), 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 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 Cabaletta Bio, Inc. (“Cabaletta” or the “Company”), analysts’
reports and advisories about the Company, and information readily obtainable on the Internet.
Plaintiff believes that substantial additional evidentiary support will exist for the allegations set
forth herein after a reasonable opportunity for discovery.
1
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 that purchased or otherwise acquired: (a) Cabaletta common
stock pursuant and/or traceable to the Offering Documents (defined below) issued in connection
with the Company’s initial public offering conducted on or about October 24, 2019 (the “IPO” or
“Offering”); and/or (b) Cabaletta securities between October 24, 2019 and December 13, 2021,
both dates inclusive (the “Class Period”). Plaintiff pursues claims against the Defendants under
the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the
“Exchange Act”).
2.
Cabaletta, a clinical-stage biotechnology company, focuses on the discovery and
development of engineered T cell therapies for patients with B cell-mediated autoimmune diseases.
The Company’s proprietary technology utilizes chimeric autoantibody receptor (CAAR) T cells
that are designed to selectively bind and eliminate B cells, which produce disease-causing
autoantibodies or pathogenic B cells. Cabaletta's lead product candidate is DSG3-CAART, which
is in Phase I clinical trial for the treatment of mucosal pemphigus vulgaris (the “Phase 1 Clinical
Trial”), an autoimmune blistering skin disease, and Hemophilia A with Factor VIII alloantibodies.
3.
On September 30, 2019, Cabaletta filed a registration statement on Form S-1 with
the SEC in connection with the IPO, which, after amendment, was declared effective by the SEC
on October 24, 2019 (the “Registration Statement”).
4.
On or about October 24, 2019, pursuant to the Registration Statement, Cabaletta’s
common stock began trading on the Nasdaq Global Select Market (“NASDAQ”) under the trading
symbol “CABA”.
2
5.
On October 25, 2019, Cabaletta filed a prospectus on Form 424B4 with the SEC in
connection with the IPO, which incorporated and formed part of the Registration Statement (the
“Prospectus” and, together with the Registration Statement, the “Offering Documents”).
6.
Pursuant to the Offering Documents, Cabaletta conducted the IPO, selling
approximately 6.8 million shares of common stock priced at $11.00 per share, for approximate
proceeds of $69.5 million to the Company after applicable underwriting discounts and
commissions, and before expenses.
7.
The Offering Documents were negligently prepared and, as a result, contained
untrue statements of material fact or omitted to state other facts necessary to make the statements
made not misleading and were not prepared in accordance with the rules and regulations governing
their preparation. Additionally, throughout the Class Period, Defendants made materially false
and misleading statements regarding the Company’s business, operations, and compliance
policies. Specifically, the Offering Documents and Defendants made false and/or misleading
statements and/or failed to disclose that: (i) top-line data of the Phase 1 Clinical Trial indicated
that DSG3-CAART had, among other things, worsened certain participants’ disease activity scores
and necessitated additional systemic medication to improve disease activity after DSG3-CAART
infusion; (ii) accordingly, DSG3-CAART was not as effective as the Company had represented to
investors; (iii) therefore, the Company had overstated DSG3-CAART’s clinical and/or commercial
prospects; and (iv) as a result, the Company’s public statements were materially false and
misleading at all relevant times.
8.
On December 14, 2021, Cabaletta issued a press release “report[ing] top-line data
on biologic activity from the two lowest dose cohorts in the DesCAARTes™ Phase 1 clinical trial
of DSG3-CAART for the treatment of patients with mucosal Pemphigus Vulgaris
3
(mPV).” Among other results, Cabaletta reported that two cohort participants had “disease activity
scores that worsened . . . after DSG3-CAART infusion” and thus “reduced or discontinued selected
systemic therapies prior to DSG3-CAART infusion, as required by the protocol”, while another
participant “subsequently received systemic medication to improve disease activity after DSG3-
CAART infusion.”
9.
On this news, Cabaletta’s stock price fell $9.15 per share, or 73.14%, to close at
$3.36 per share on December 14, 2021.
10.
As of the time this Complaint was filed, the price of Cabaletta common stock
continues to trade below the $11.00 per share Offering price, damaging investors.
11.
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
12.
The claims asserted herein arise under and pursuant to Sections 11 and 15 of the
Securities Act (15 U.S.C. §§ 77k and 77o), and 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).
13.
This Court has jurisdiction over the subject matter of this action pursuant to 28
U.S.C. § 1331, Section 22 of the Securities Act (15 U.S.C. § 77v), and Section 27 of the Exchange
Act (15 U.S.C. § 78aa).
14.
Venue is proper in this Judicial District pursuant to Section 28 U.S.C. § 1391(b)
and Section 27 of the Exchange Act (15 U.S.C. § 78aa(c)). Cabaletta is headquartered in this
4
Judicial District, Defendants conduct business in this Judicial District, and a significant portion of
Defendants’ actions took place within this Judicial District.
15.
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
16.
Plaintiff, as set forth in the attached Certification, purchased or otherwise acquired
Cabaletta common stock pursuant and/or traceable to the Offering Documents issued in
connection with the IPO, and/or Cabaletta 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.
17.
Defendant Cabaletta is a Delaware corporation with principal executive offices
located at 2929 Arch Street, Suite 600, Philadelphia, Pennsylvania 19104. Cabaletta’s common
stock trades in an efficient market on the NASDAQ under the trading symbol “CABA”.
18.
Defendant Steven A. Nichtberger (“Nichtberger”) has served as Cabaletta’s Chief
Executive Officer at all relevant times. Nichtberger signed or authorized the signing of the
Registration Statement filed with the SEC.
19.
Defendant Anup Marda (“Marda”) has served as Cabaletta’s Chief Financial
Officer at all relevant times. Marda signed or authorized the signing of the Registration Statement
filed with the SEC.
20.
David J. Chang (“Chang”) has served as Cabaletta’s Chief Medical Officer at all
relevant times.
5
21.
Defendants Nichtberger, Marda, and Chang are sometimes referred to herein
collectively as the “Exchange Act Individual Defendants.”
22.
The Exchange Act Individual Defendants possessed the power and authority to
control the contents of Cabaletta’s SEC filings, press releases, and other market communications.
The Exchange Act Individual Defendants were provided with copies of Cabaletta’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 Cabaletta, and their access to material information available to them but not to
the public, the Exchange Act 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 Exchange Act
Individual Defendants are liable for the false statements and omissions pleaded herein.
23.
Cabaletta and the Exchange Act Individual Defendants are sometimes referred to
herein collectively as the “Exchange Act Defendants.”
24.
Defendant Catherine Bollard (“Bollard”) was a director of Cabaletta at the time of
the IPO. Bollard signed or authorized the signing of the Registration Statement filed with the SEC.
25.
Defendant Brian Daniels (“Daniels”) was a director of Cabaletta at the time of the
IPO. Daniels signed or authorized the signing of the Registration Statement filed with the SEC.
26.
Defendant Richard Henriques (“Henriques”) was a director of Cabaletta at the time
of the IPO. Henriques signed or authorized the signing of the Registration Statement filed with
the SEC.
27.
Defendant Mark Simon (“Simon”) was a director of Cabaletta at the time of the
IPO. Simon signed or authorized the signing of the Registration Statement filed with the SEC.
6
28.
The Exchange Act Individual Defendants and Defendants Bollard, Daniels,
Henriques, and Simon are sometimes referred to herein collectively as the “Securities Act
Individual Defendants.”
29.
As directors, executive officers, and/or major shareholders of the Company, the
Securities Act Individual Defendants participated in the solicitation and sale of Cabaletta common
stock in the IPO for their own benefit and the benefit of the Company. The Securities Act
Individual Defendants were key members of the IPO working group and executives of the
Company who pitched investors to purchase the shares sold in the IPO.
30.
Cabaletta and the Securities Act Individual Defendants are sometimes referred to
herein collectively as the “Securities Act Defendants.”
31.
The Exchange Act Defendants and the Securities Act Defendants are sometimes
collectively, in whole or in part, referred to herein as “Defendants.”
SUBSTANTIVE ALLEGATIONS
Background
32.
Cabaletta, a clinical-stage biotechnology company, focuses on the discovery and
development of engineered T cell therapies for patients with B cell-mediated autoimmune diseases.
The Company’s proprietary technology utilizes chimeric autoantibody receptor (CAAR) T cells
that are designed to selectively bind and eliminate B cells, which produce disease-causing
autoantibodies or pathogenic B cells. Cabaletta's lead product candidate is DSG3-CAART, which
is in Phase I clinical trial for the treatment of mucosal pemphigus vulgaris, an autoimmune
blistering skin disease, and Hemophilia A with Factor VIII alloantibodies.
7
33.
On September 30, 2019, Cabaletta filed a registration statement on Form S-1 with
the SEC in connection with the IPO, which, after amendment, was declared effective by the SEC
on October 24, 2019.
34.
On or about October 24, 2019, pursuant to the Registration Statement, Cabaletta’s
common stock began trading on the NASDAQ under the trading symbol “CABA”.
35.
On October 25, 2019, Cabaletta filed a prospectus on Form 424B4 with the SEC in
connection with the IPO, which incorporated and formed part of the Registration Statement.
36.
Pursuant to the Offering Documents, Cabaletta conducted the IPO, selling
approximately 6.8 million shares of common stock priced at $11.00 per share, for approximate
proceeds of $69.5 million to the Company after applicable underwriting discounts and
commissions, and before expenses.
Materially False and Misleading Statements Issued in the Offering Documents
37.
In providing an overview of the Company, the Offering Documents stated, in
relevant part:
We are a clinical-stage biotechnology company focused on the discovery
and development of engineered T cell therapies for B cell-mediated autoimmune
diseases. Our proprietary technology utilizes chimeric autoantibody receptor, or
CAAR, T cells that are designed to selectively bind and eliminate B cells that
produce disease-causing autoantibodies, or pathogenic B cells, while sparing
normal B cells. Our lead CAAR T cell product candidate was designed based on
chimeric antigen receptor, or CAR, T cell technology that has been successfully
developed and is marketed for the treatment of B cell cancers. We believe our
technology, in combination with our proprietary Cabaletta Approach for selective
B cell Ablation platform, called our CABA platform, has applicability across over
two dozen B cell-mediated autoimmune diseases that we have identified, reviewed
and prioritized. During the past two years, using our CABA platform, we have
discovered and developed four product candidates, including our lead product
candidate, to potentially treat patients with mucosal pemphigus vulgaris, or mPV,
and three additional product candidates that have demonstrated specific and
selective target engagement in vitro. In order to accelerate product development for
our lead program and to access a proven cell therapy manufacturing platform, we
have entered into a collaboration with the University of Pennsylvania, or Penn. We
8
hold multiple agreements with Penn to develop CAAR T cell therapies for the
treatment of these diseases. Our goal is to leverage our team’s expertise in
autoimmunity and engineered T cell therapy and our Penn collaboration to rapidly
discover and develop our portfolio of CAAR T product candidates.
***
We are pioneering the development of a new class of engineered T cell
therapies that express CAARs to selectively engage and eliminate pathogenic B
cells. By harnessing the power of targeted cell therapy, we believe our CABA
platform, as developed by our team, has the potential to be a one-time curative
therapy that may be a safer and more effective therapy option than current
treatments. These efforts have attracted the leading investors, including Adage
Capital Partners, 5AM Ventures, Boxer Capital, LLC of Tavistock Group,
Cormorant Asset Management, Deerfield Management and RedMile Group as well
as Penn.
Pipeline
We are developing a portfolio of CAAR T cell product candidates for the
treatment of B cell-mediated autoimmune diseases. Our lead product candidate,
DSG3-CAART, targets B cells that express pathogenic autoantibodies against the
DSG3 protein, which cause mPV. The publication of the first in vivo evaluation of
activity and toxicity of the product candidate in an animal model was followed by
additional preclinical studies to support our IND submission. Our IND was
accepted in September 2019, and we plan to open the first clinical trial site for our
DSG3-CAART product candidate in 2020. Our next PV-directed product
candidate, DSG3/1-CAART, is being designed to target B cells that give rise to
pathogenic autoantibodies against either the DSG3 or DSG1 protein, which cause
mcPV, and could address a broader PV population.
***
Our Approach
We are developing engineered T cell therapy candidates that express
CAARs, which serve as “decoys” for antibodies expressed on the surface of B cells.
Our CAAR T platform is based on the foundation of established CAR T
therapeutics, differing primarily in their use of the antigen rather than an antibody
fragment to target pathogenic B cells. We believe these CAARs enable the T cells
to specifically engage and eliminate pathogenic B cells while sparing normal B
cells. By harnessing the power of cell therapy, our technology has the potential to
overcome the ability of these B cells to evade elimination and thus lead to durable
responses.
9
In contrast to currently available therapies for B cell-mediated autoimmune
diseases, we believe our CAAR T cells can recognize the specific autoantibodies
that are responsible for causing an underlying disease and kill the cells that express
the autoantibodies on their surface while preserving the rest of the humoral immune
system. As a result, we believe CAAR T cell therapy used in B cell-mediated
autoimmune diseases has the potential for durable elimination of pathogenic B cells
and an associated elimination of clinical recurrences with an improved adverse
event, or tolerability, profile relative to the current standard of care. We believe our
technology has broad applicability, and we are building a portfolio of product
candidates for B cell-mediated autoimmune diseases.
Our CABA Platform
We have developed our CABA platform to inform product candidate
development from indication selection through preclinical studies. Using our
CABA platform, our team has identified our highest priority target indications
following a rigorous analysis of B cell-mediated autoimmune diseases. A deep
understanding of the antigenic epitopes targeted in these diseases is required to
design and construct a successful CAAR, a competency that we believe we are
uniquely positioned to utilize in product candidate development. Finally, we
evaluate preclinical activity and toxicity of our optimized CAAR constructs
through in vitro and in vivo studies. We leverage the experience and insight gained
from the development of each product candidate to improve the efficiency of our
CABA platform in evaluating additional potential product candidates.
38.
Further, in describing the Company’s strategy, the Prospectus stated, in relevant
Our goal is to build upon our first mover advantage and expertise in cell
therapies for B cell-mediated autoimmune diseases to accelerate the discovery,
development and commercialization of our CAAR T cell therapies, with a focus on
reliable manufacturing. We believe achieving this goal could result in potentially
curative therapies for patients with unmet medical needs who suffer from certain B
cell-mediated autoimmune diseases. To achieve this goal, key elements of our
strategy include:
• Achieving clinical proof-of-concept for our lead product candidate,
DSG3-CAART in mPV, the first in a series of well-understood and
validated B cell-mediated autoimmune diseases for which we are
developing CAAR T cell product candidates. We believe our biologic
understanding coupled with the well-understood clinical signs, symptoms
and natural course of the disease, identify mPV as a model disease to
evaluate our CAAR T approach. In addition, we have designed and
developed DSG3-CAART, our lead product candidate that has
demonstrated robust target engagement and no off-target toxicities in
10
preclinical studies. We believe our planned Phase 1 clinical trial evaluating
DSG3-CAART for the treatment of mPV represents an optimal first
opportunity to establish initial clinical proof-of-concept of our CABA
platform.
• Leveraging our CABA platform to identify optimal targets for the CAAR
T approach and apply learnings from DSG3-CAART to advance
additional product candidates. Shortly after inception, we undertook a
comprehensive review of all known B cell-mediated autoimmune diseases
in order to evaluate and prioritize the opportunity for selective destruction
of B cells in an effort to cure B cell-mediated autoimmune diseases. We
intend to continue to apply our proprietary learnings from DSG3-CAART,
including scientific and regulatory learnings, to most effectively advance
these additional opportunities.
• Expanding upon our established IP position and first mover advantage in
CAAR T therapy targeted towards B cell-mediated autoimmune diseases.
We believe there is a particularly high value to the first mover advantage
including, but not limited to, experience in discovery, preclinical
development, regulatory efforts, intellectual property and insights from
clinical trials that can be translated across programs. We are focused on
protecting our intellectual property as we continue pursuing the
development of future product candidates. We believe the issued U.S.
patent on our initial CAAR constructs is the first patent covering cells
engineered to express the known pathogenic epitopes recognized by DSG3
and DSG1 autoantibodies, which we are continuing to supplement with
additional patent filings.
• Leveraging our cellular therapy experience and knowledge in addition to
knowledge gained through our Penn collaboration to rapidly build our
own fully-integrated internal infrastructure. We have differentiated
expertise that we believe is uniquely suited for the continued buildout of our
CABA platform specializing in B cell-mediated autoimmune diseases. In
combination with a management team possessing significant experience in
executing on manufacturing strategies for cell therapy products, our
partnership with Penn allows us to utilize their existing infrastructure,
which accelerated our ability to submit our first IND. In parallel, we
continue to build out an experienced team to develop and continue
implementing a path to our manufacturing independence.
39.
The statements referenced in ¶¶ 37-38 were materially false and misleading because
the Offering Documents were negligently prepared and, as a result, contained untrue statements of
material fact or omitted to state other facts necessary to make the statements made not misleading
11
and were not prepared in accordance with the rules and regulations governing their preparation.
Specifically, the Offering Documents made false and/or misleading statements and/or failed to
disclose that: (i) top-line data of the Phase 1 Clinical Trial indicated that DSG3-CAART had,
among other things, worsened certain participants’ disease activity scores and necessitated
additional systemic medication to improve disease activity after DSG3-CAART infusion; (ii)
accordingly, DSG3-CAART was not as effective as the Company had represented to investors;
(iii) therefore, the Company had overstated DSG3-CAART’s clinical and/or commercial
prospects; and (iv) as a result, the Company’s public statements were materially false and
misleading at all relevant times.
Materially False and Misleading Statements Issued During the Class Period
40.
The Class Period begins on October 24, 2019, when Cabaletta’s common stock
began publicly trading on the NASDAQ pursuant to the materially false and misleading statements
or omissions contained in the Offering Documents.
41.
On January 29, 2020, Cabaletta issued a press release entitled, “FDA Grants DSG3-
CAART Orphan Drug Designation for the Treatment of Pemphigus Vulgaris.” The press release
stated, in relevant part:
Cabaletta [. . .] today announced that the U.S. Food and Drug Administration (FDA)
has granted Orphan Drug Designation for the Company’s lead product candidate,
DSG3-CAART, for the treatment of pemphigus vulgaris (PV). DSG3-CAART is
designed to target the cause of mucosal PV (mPV), B cells that express pathogenic
autoantibodies directed against the DSG3 protein, while preserving normal B cell
immune function.
“Mucosal pemphigus vulgaris is a rare and potentially fatal, chronic autoimmune
disease characterized by the loss of adhesion between cells of mucous membranes,
resulting in widespread damage, painful blisters of the mucosal membranes, and
increased susceptibility to life-threatening systemic infections,” said David Chang,
M.D., Chief Medical Officer of Cabaletta. “For affected patients, despite current
treatment options, there is an urgent unmet need for more effective and durable
therapies that can provide reliable, complete, and persistent remission from the
12
disease beyond general immune suppression and B cell depletion provided by
current treatment options. Orphan Drug Designation is an important recognition for
investigational therapies for rare diseases and provides us with potentially valuable
benefits as we prepare to initiate the DesCAARTes trial to generate and then report
acute safety data from the first cohort of patients by the end of 2020.”
42.
On March 30, 2020, Cabaletta issued a press release announcing the Company’s
Q4 and full year 2019 financial results and providing a business update. The press release stated,
in relevant part:
“2019 was a foundational year highlighted by the FDA clearance of the IND for
our lead product candidate, DSG3-CAART, for patients with mucosal pemphigus
vulgaris (mPV). We obtained intellectual property protection and engaged with key
partners to enable the rapid startup of this program, while at the same time making
meaningful progress on our broader pipeline of additional programs,” said Steven
Nichtberger, M.D., Chief Executive Officer and Co-founder of Cabaletta. “With
respect to the COVID-19 pandemic, our top priority is to ensure the safety of our
employees, collaborators, and others involved in our research and development
efforts. As a result, we now anticipate a delay in reporting the acute safety data
from the first cohort in the Phase 1 DesCAARTesTM trial. Once we have visibility
on the impact of the pandemic, possibly during the second quarter of this year, we
expect to issue revised guidance on our timeline for reporting the acute safety data
from this trial. The recent extension of our cash runway until at least the end of the
third quarter of 2022, two quarters beyond previous guidance, provides additional
flexibility for the business.”
Recent Business Highlights and Anticipated Upcoming Milestones
DSG3-CAART: Desmoglein 3 chimeric autoantibody receptor T (DSG3-CAART)
cells as potential treatment for patients with mucosal pemphigus vulgaris (mPV).
• In September 2019, the U.S. Food and Drug Administration (FDA) cleared
Cabaletta’s first Investigational New Drug application (IND) for DSG3-
CAART to initiate a first-in-human clinical trial of DSG3-CAART in
patients with mPV.
• In January 2020, the FDA granted DSG3-CAART Orphan Drug
Designation for the treatment of PV.
• The Company plans to initiate an open-label Phase 1 clinical trial
(DesCAARTesTM) to evaluate the safety and tolerability of DSG3-
CAART in relapsed/refractory mPV patients.
13
43.
That same day, Cabaletta filed an Annual Report on Form 10-K with the SEC,
reporting the Company’s financial and operating results for the year ended December 31, 2019
(the “2019 10-K”). The 2019 10-K contained substantively similar descriptions of the Company’s
overview, strategy, and approach as discussed, supra, in ¶¶ 37-38.
44.
Appended to the 2019 10-K as exhibits were signed certifications pursuant to the
Sarbanes-Oxley Act of 2002 (“SOX”) by Defendants Nichtberger and Marda, attesting that “[t]he
information contained in the [2019 10-K] fairly presents, in all material respects, the financial
condition and result of operations of the Company.”
45.
On May 6, 2020, Cabaletta issued a press release entitled, “Cabaletta Bio Receives
FDA Fast Track Designation for DSG3-CAART for the Treatment of Mucosal Pemphigus
Vulgaris.” The press release stated, in relevant part:
Cabaletta [. . .] today announced that the U.S. Food and Drug Administration (FDA)
has granted Fast Track Designation for DSG3-CAART (Desmoglein 3 Chimeric
AutoAntibody Receptor T cells), the Company’s lead product candidate for
treatment of mucosal pemphigus vulgaris (mPV), for improving healing of mucosal
blisters in patients with mPV.
“We believe that this Fast Track Designation, coming shortly after the Orphan Drug
Designation for DSG3-CAART, further demonstrates that mPV is a devastating,
rare disease for which patients have limited treatment options resulting in a large
unmet need. The Fast Track Designation represents an important next step in our
clinical development plans,” said David J. Chang, M.D., Chief Medical Officer of
Cabaletta. “We appreciate the benefits provided by this designation, including the
opportunity for increased access to the FDA and potential acceleration of our
clinical development path and regulatory review process.”
46.
On May 12, 2020, Cabaletta issued a press release announcing the Company’s Q1
2020 results and providing a business update. The press release stated, in relevant part:
“Following the recent Fast Track Designation from the FDA for our lead product
candidate, DSG3-CAART, for the treatment of patients with mucosal pemphigus
vulgaris (mPV), our Phase 1 DesCAARTes™ trial is ready to launch as soon as
COVID-19 related clinical trial activity restrictions are lifted. mPV is a rare,
serious, and sometimes fatal disease for which patients have limited treatment
14
options. We are eager to explore the potential of our engineered T cell therapy to
fulfill this unmet need,” said Steven Nichtberger, M.D., Chief Executive Officer
and Co-founder of Cabaletta. “We continue to closely monitor the unprecedented
challenges and impact of the COVID-19 pandemic while working to ensure that
patients, our employees and collaborators remain safe. As evidenced by the recent
Fast Track designation, despite working from home over the past two months, our
dedicated team continues to make progress across our portfolio wherever possible
as we strive to develop potential cures for patients with severe autoimmune
diseases.”
Pipeline Highlights and Anticipated Upcoming Milestones
DSG3-CAART: Desmoglein 3 chimeric autoantibody receptor T cells as potential
treatment for patients with mucosal pemphigus vulgaris (mPV).
• In May 2020, the Company announced that the U.S. Food and Drug
Administration (FDA) granted Fast Track Designation to DSG3-CAART.
This follows the January 2020 granting of Orphan Drug Designation from
the FDA for the treatment of PV.
• The Company is prepared to initiate an open-label Phase 1 clinical trial
(DesCAARTes™) to evaluate the safety and tolerability of DSG3-CAART
in relapsed/refractory mPV patients in 2020.
47.
On August 6, 2020, Cabaletta issued a press release announcing the Company’s Q2
2020 results and providing a business update. The press release stated, in relevant part:
“The recent initiation of patient recruitment in the DesCAARTesTM Phase 1 trial
is an important milestone for Cabaletta that reflects the commitment of our
outstanding team and academic partners to patients suffering with mucosal
pemphigus vulgaris. This trial, evaluating the safety and tolerability of DSG3-
CAART, is the first trial exploring whether a highly specific targeted cellular
therapy can provide a deep and durable, perhaps curative, treatment for patients
with a B cell-mediated autoimmune disease. We look forward to reporting acute
safety data from the initial cohort by the first half of 2021,” said Steven
Nichtberger, M.D., Chief Executive Officer and co-founder of Cabaletta.
Pipeline Highlights and Anticipated Upcoming Milestones
DSG3-CAART: Desmoglein 3 chimeric autoantibody receptor (CAAR) T cells as
potential treatment for patients with mucosal pemphigus vulgaris (mPV).
• The Company’s open-label Phase 1 clinical trial (DesCAARTesTM) to
evaluate the safety and tolerability of DSG3-CAART in relapsed/refractory
15
mPV patients is now open for recruitment with clinical acute safety data
from the initial cohort expected by the first half of 2021.
• In May 2020, the Company announced that the U.S. Food and Drug
Administration (FDA) granted Fast Track Designation to DSG3-CAART,
which provides independent validation of mPV as a serious and unmet
medical need in patients.
48.
On August 25, 2020, Cabaletta issued a press release entitled, “Cabaletta Bio
Announces Publication of Comprehensive Preclinical Study Results for DSG3-CAART in
Pemphigus Vulgaris.” The press release stated, in relevant part:
“We believe these comprehensive preclinical data for DSG3-CAART, published in
The Journal of Clinical Investigation, support our approach to develop a durable,
potentially curative, treatment for patients with mucosal pemphigus vulgaris,” said
Steven Nichtberger, M.D., Chief Executive Officer and co-founder of Cabaletta.
“CAAR T cells represent a precision therapy approach designed to eliminate the
underlying cause of B cell-mediated autoimmune diseases. The data also inform
development of the multiple additional CAAR T therapies for B cell-mediated
diseases that are in our pipeline.”
49.
On November 10, 2020, Cabaletta issued a press release announcing the
Company’s Q3 2020 financial results and providing a business update. The press release stated,
in relevant part:
“With patient enrollment now underway for our lead program, DSG3-CAART, for
patients with mucosal pemphigus vulgaris, we are on track to report acute safety
data from the first cohort of patients in the first half of next year. During the quarter,
we opened a second site for the trial and also published comprehensive preclinical
proof of concept data in The Journal of Clinical Investigation further validating the
mechanism of action of DSG3-CAART,” said Steven Nichtberger, M.D., Chief
Executive Officer and co-founder of Cabaletta.
Pipeline Highlights and Anticipated Upcoming Milestones
DSG3-CAART: Desmoglein 3 chimeric autoantibody receptor (CAAR) T cells as
potential treatment for patients with mucosal pemphigus vulgaris (mPV).
• The Company’s open-label Phase 1 clinical trial (DesCAARTes™) to
evaluate the safety and tolerability of DSG3-CAART in relapsed/refractory
mPV patients is actively recruiting patients at the first two sites in the U.S.
16
The Company expects to report acute safety data from the initial cohort in
the study in the first half of 2021.
• In August 2020, the Company announced that comprehensive preclinical
data for DSG3-CAART were published in The Journal of Clinical
Investigation. These data demonstrated that DSG3-CAART achieved
autoantibody elimination and resolution of blisters in an active immune
mouse model of pemphigus vulgaris and that circulating soluble
autoantibodies have the potential to enhance DSG3-CAART efficacy and
did not demonstrate off-target toxicity.
50.
On December 8, 2020, Cabaletta issued a press release entitled, “DesCAARTes™
Trial of DSG3-CAART for Treatment of Mucosal-Dominant Pemphigus Vulgaris.” The press
release stated, in relevant part:
Cabaletta [. . .] today announced that the first patient has been dosed in the
DesCAARTes™ Phase 1 clinical trial of DSG3-CAART for the treatment of
patients with mucosal-dominant pemphigus vulgaris (mPV).
“This is an important milestone in the development of our lead product candidate,
DSG3-CAART, for patients with mucosal pemphigus vulgaris and for patients with
B cell mediated autoimmune diseases more generally. We believe this is the first
time a highly targeted, antigen specific cell therapy has been dosed in a patient with
autoimmune disease. The study is designed to provide insights into the clinical
effect of our precision CAAR T cell therapy in patients suffering from mPV,” said
David J. Chang, M.D., Chief Medical Officer of Cabaletta Bio. “Currently available
therapies for mPV patients, including steroids, typically induce broad
immunosuppression, offer modest efficacy and/or are associated with frequent
relapses. DSG3-CAART therapy, which is engineered to target and specifically
eliminate the cells responsible for generating disease-causing autoantibodies while
preserving the healthy immune system, provides mPV patients the potential of a
deep and durable response, perhaps even a cure.”
51.
On March 16, 2021, Cabaletta issued a press release announcing the Company’s
Q4 and full year 2020 financial results and providing a business update. The press release stated,
in relevant part:
“At the end of 2020, we achieved an important milestone when we dosed the first
patient without any dose limiting toxicities in our Phase 1 clinical trial for DSG3-
CAART, our lead product candidate being developed for the treatment of patients
with mucosal pemphigus vulgaris. This is the first time a highly targeted, antigen
specific cell therapy has been dosed in a patient with an autoimmune disease. We
17
continue to expect to report acute safety data from the initial cohort in this study in
the first half of 2021 followed by additional topline data on any completed dose
cohorts throughout the second half of 2021,” said Steven Nichtberger, M.D., Chief
Executive Officer and Co-founder of Cabaletta.
***
Autoimmune Disease-Focused Pipeline Highlights and Anticipated Upcoming
Milestones
DSG3-CAART: Desmoglein 3 chimeric autoantibody receptor T (DSG3-CAART)
cells as potential treatment for patients with mucosal pemphigus vulgaris (mPV).
• In December 2020, the Company announced that the first patient was dosed
in an open-label, multi-center Phase 1 clinical trial (DesCAARTes™) to
evaluate the safety and tolerability of DSG3-CAART in relapsed/refractory
mPV adult patients. The trial is actively enrolling patients across multiple
sites in the U.S and is expected to enroll a total of approximately 30 patients.
The Company expects to report acute safety data from the initial cohort in
the study in the first half of 2021 followed by additional topline data on any
completed dose cohorts throughout the second half of 2021.
• In August 2020, the Company announced that comprehensive preclinical
data for DSG3-CAART were published in The Journal of Clinical
Investigation. These data demonstrated that DSG3-CAART achieved
autoantibody elimination and resolution of blisters in an active immune
mouse model of pemphigus vulgaris and that circulating soluble
autoantibodies have the potential to enhance DSG3-CAART efficacy and
did not demonstrate off-target toxicity.
• In May 2020, the U.S. Food and Drug Administration (FDA) granted Fast
Track Designation for DSG3-CAART for the improving healing of mucosal
blisters in patients with mPV.
52.
That same day, Cabaletta filed an Annual Report on Form 10-K with the SEC,
reporting the Company’s financial and operating results for the year ended December 31, 2020
(the “2020 10-K”). The 2020 10-K contained substantively similar descriptions of the Company’s
overview, strategy, and approach as discussed, supra, in ¶¶ 37-38.
53.
Appended to the 2020 10-K as exhibits were signed certifications pursuant to SOX
by Defendants Nichtberger and Marda, attesting that “[t]he information contained in the [2020 10-
18
K] fairly presents, in all material respects, the financial condition and result of operations of the
Company.”
54.
On May 3, 2021, Cabaletta issued a press release entitled, “Cabaletta Bio Reports
Acute Safety Data from the First Dose Cohort in DesCAARTes™ Trial.” The press release stated,
in relevant part:
Cabaletta [. . .] today announced acute safety data from the first dose cohort of the
ongoing DesCAARTes™ Phase 1 clinical trial of DSG3-CAART for the treatment
of patients with mucosal-dominant pemphigus vulgaris (mPV).
“We are encouraged by the acute safety profile of DSG3-CAART in this initial low
dose cohort. In the first cohort of three patients dosed with DSG3-CAART, there
were no clinically relevant adverse events, including cytokine release syndrome or
neurotoxicity, during the 8-day acute safety window, which we expect is the period
with highest probability of observing treatment-related toxicities. In addition, no
dose-limiting toxicities or clinically relevant adverse events were observed in the
two patients who have completed more than the full 28-day DLT monitoring period
post-infusion,” said David J. Chang, M.D., Chief Medical Officer of Cabaletta.
These safety data were observed with an administered dose of 20 million DSG3-
CAART cells, without preconditioning and in the presence of circulating anti-
DSG3 antibodies; DSG3-CAART was detected at low levels via quantitative
polymerase chain reaction in both patients who have been evaluated and completed
the 28-day DLT period. The third patient is scheduled to be evaluated for presence
of DSG3-CAART after the 28-day follow-up period.
“The pace of the clinical trial is accelerating with the ongoing enrollment of patients
and engagement of additional clinical sites. We believe these initial safety data
represent an important step towards achieving our goal to offer a therapy that may
provide deep and durable responses, and potentially cures, for patients in the
pemphigus community,” said Dr. Chang.
55.
That same day, Cabaletta issued a press release announcing the Company’s Q1
2021 financial results and providing new pipeline updates. The press release stated, in relevant
“The initial safety data from the first low dose cohort of three patients in the
DesCAARTes™ clinical trial for DSG3-CAART, our lead clinical candidate,
support the acute safety profile of DSG3-CAART at the administered dose in
mucosal-dominant pemphigus vulgaris patients, and are an encouraging indicator
for the safety of the CAAR T platform overall. We look forward to reporting
19
additional topline data on safety and potential target engagement on completed dose
cohorts throughout the second half of 2021,” said Steven Nichtberger, M.D., Chief
Executive Officer and Co-founder of Cabaletta.
***
Acute Safety Data from First Dose Cohort of DesCAARTes™ Trial
Today, the Company reported results from the first cohort of three patients dosed
with DSG3-CAART. There were no clinically relevant adverse events, including
cytokine release syndrome or neurotoxicity, during the 8-day acute safety window,
which the Company expects is the period with highest probability of observing
treatment-related toxicities. In addition, no dose-limiting toxicities (DLTs) were
observed in the first two subjects who have completed the 28-day DLT monitoring
period post-infusion. The third patient has completed the 8-day acute safety
window, and is in the DLT follow-up period. These safety data were observed with
an administered dose of 20 million DSG3-CAART cells, without preconditioning
and in the presence of circulating anti-DSG3 antibodies; DSG3-CAART was
detected at low levels via quantitative polymerase chain reaction in both patients
who have completed the 28-day DLT period and been evaluated. The third patient
is scheduled to be evaluated for presence of DSG3-CAART after completion of the
28-day DLT monitoring period.
The DesCAARTes™ trial is currently enrolling patients in the second cohort at a
treatment dose of 100 million DSG3-CAART cells. Infusions are planned to initiate
following the third patient in the first cohort completing the 28-day monitoring
period without any DLTs. Cabaletta expects to announce acute safety data for the
second and third cohorts in the third and fourth quarters of 2021, respectively.
Topline data on target engagement from the first cohort are anticipated during the
second half of 2021. Cabaletta will continue to provide additional topline safety
and target engagement data from the DesCAARTes™ trial once available on a
cohort-by-cohort basis.
56.
On August 5, 2021, Cabaletta issued a press release announcing the Company’s Q2
2021 financial results and providing a business update. The press release stated, in relevant part:
“During the quarter, we did not observe any clinically relevant adverse events in
the first, low-dose patient cohort of the DesCAARTes™ clinical trial for DSG3-
CAART, our lead clinical product candidate for the treatment of patients with
mucosal-dominant pemphigus vulgaris. We remain well-positioned to achieve
multiple near-term clinical milestones for this program, including our plan to report
safety data from the higher dose second and third patient cohorts in the third and
fourth quarters of 2021, respectively, as well as target engagement data 3 to 6
months after each cohort is completed,” said Steven Nichtberger, M.D., Chief
Executive Officer and Co-founder of Cabaletta.
20
***
Autoimmune Disease-Focused Pipeline Highlights and Anticipated Upcoming
Milestones
DSG3-CAART: Desmoglein 3 chimeric autoantibody receptor T (DSG3-CAART)
cells as a potential treatment for patients with mucosal-dominant pemphigus
vulgaris (mPV).
• In May 2021, Cabaletta announced acute safety data from three patients in
the first cohort in the DesCAARTes™ trial. As of August 4, 2021, no dose
limiting toxicities (DLTs) or clinically relevant adverse events, including
cytokine release syndrome or neurotoxicity, were observed. These safety
data were observed with an administered dose of 20 million DSG3-CAART
cells, without preconditioning and in the presence of circulating anti-DSG3
antibodies. DSG3-CAART was detected at low levels via qPCR in all three
patients during the 28-day DLT monitoring window.
• In August 2021, with FDA clearance, a protocol amendment was
implemented in the DesCAARTes™ trial to allow a minimum dosing
interval of 7 days between patients within a cohort, versus 14 days.
• Cabaletta remains on track to announce 28-day safety data for the second
and third cohorts in the third and fourth quarters of 2021, respectively, in
addition to target engagement data 3 to 6 months after dosing of each cohort
is completed. Cabaletta will continue to provide additional safety and top-
line target engagement data from the DesCAARTes™ trial, once available,
on a cohort-by-cohort basis.
57.
On August 18, 2021, Cabaletta issued a press release entitled, “Cabaletta Bio
Reports Clinical Data from the Second Dose Cohort in DesCAARTes™ Trial in Patients with
mPV.” The press release stated, in relevant part:
Cabaletta [. . .] today announced 28-day data from the second dose cohort, at the
100 million cell dose level, in the DesCAARTes™ Phase 1 clinical trial of DSG3-
CAART for the treatment of patients with mucosal-dominant pemphigus vulgaris
(mPV).
“We continue to be encouraged by the safety profile of DSG3-CAART in all
patients dosed to date. In the second cohort, with patients receiving 100 million
DSG3-CAART cells – a five-fold higher dose than the initial cohort – there were
no clinically relevant adverse events or DLTs observed either acutely or in the 28-
day DLT monitoring period following infusion,” said David J. Chang, M.D., Chief
21
Medical Officer of Cabaletta. “Similar to the first cohort, this safety profile was
observed in the presence of circulating anti-DSG3 antibodies. In the absence of
preconditioning, DSG3-CAART persistence was observed via quantitative
polymerase chain reaction in peripheral blood samples of all three patients in the
second dose cohort during the 28 days following infusion.”
In addition to assessing the safety and tolerability of DSG3-CAART, the trial is
designed to evaluate early signs of efficacy through clinical outcomes, such as
persistent decline in disease activity, reduction or discontinuation of
immunosuppressive therapies and systemic corticosteroids, and absence of
systemic rescue medication, as well as other biologic activity measures, including
a persistent decline in anti-DSG3 antibody titers, indicating target engagement.
“The persistence of DSG3-CAART post-infusion is also being evaluated as it may
be an important indicator. We look forward to generating data on potential biologic
activity, with the goal of providing a targeted and highly effective, and perhaps
curative, therapy without generalized immunosuppression,” continued Dr. Chang.
58.
On November 1, 2021, Cabaletta issued a press release entitled, “Cabaletta Bio
Reports Clinical Data from the Third Dose Cohort in DesCAARTes™ Trial in Patients with mPV.”
The press release stated, in relevant part:
Cabaletta [. . .] today announced 28-day clinical data from the third dose cohort
using 500 million DSG3-CAART cells in the DesCAARTes™ Phase 1 clinical trial
for the treatment of patients with mucosal-dominant pemphigus vulgaris (mPV).
As of October 31, 2021, three patient cohorts in the DesCAARTes™ Phase 1 trial
have completed DSG3-CAART dosing. The Company observed a dose dependent
increase in DSG3-CAART persistence in the third cohort relative to the first two
low dose cohorts throughout the 28 days following infusion. In addition, no
clinically relevant adverse events or DLTs were observed during the 28-day
monitoring period post-infusion. These safety data were observed without
preconditioning, and in the presence of circulating anti-DSG3 antibodies.
“We are highly encouraged by the observation of dose dependent increases in
persistence as well as the continued absence of any DLTs or clinically relevant
adverse events for DSG3-CAART across the first three cohorts, particularly in the
presence of circulating anti-DSG3 antibodies and without lymphodepletion,” said
David J. Chang, M.D., Chief Medical Officer of Cabaletta. “The rapid pace of the
clinical trial has been possible due to the enthusiasm and engagement of patients,
investigators and patient advocacy groups. With a 100% manufacturing success
rate to date, we look forward to continuing to advance the trial until we identify a
maximum tolerated dose and dosing regimen that has the potential to achieve a
durable response while maintaining a favorable tolerability profile for patients
suffering with mPV.”
22
59.
That same day, Cabaletta issued a press release announcing the Company’s Q3
2021 financial results and providing a business update. The press release stated, in relevant part:
“The DesCAARTes™ trial for DSG3-CAART for patients with mucosal-dominant
pemphigus vulgaris has demonstrated encouraging momentum, with continued
strong patient enrollment as well as new site and investigator engagement. Dose
dependent increases in DSG3-CAART persistence in the third cohort through 28
days following infusion have been observed, as well as the continued absence of
any DLTs or clinically relevant adverse events for the first three cohorts as of
October 31, 2021. Our next anticipated data readout will include top-line biologic
activity data from the first two low dose cohorts, which we expect to announce in
the fourth quarter of 2021. We look forward to continuing to generate data on
potential biologic activity as we proceed to higher dosing cohorts, with the goal of
providing a targeted, highly effective, and potentially curative, therapy without
generalized immunosuppression,” said Steven Nichtberger, M.D., Chief Executive
Officer and Co-founder of Cabaletta.
***
Autoimmune Disease-Focused Pipeline Highlights and Anticipated Upcoming
Milestones
DSG3-CAART: Desmoglein 3 chimeric autoantibody receptor T (DSG3-CAART)
cells as a potential treatment for patients with mucosal pemphigus vulgaris (mPV).
• Observance of dose dependent DSG3-CAART persistence and favorable
safety profile through cohort three of the DesCAARTes™ Phase 1 trial: The
Company announced today that three
patient
cohorts in
the
DesCAARTes™ Phase 1 trial have completed DSG3-CAART dosing as of
October 31, 2021. The Company observed a dose dependent increase in
persistence of DSG3-CAART in the third 500 million cell cohort relative to
the first two low dose cohorts throughout the 28 days following infusion. In
addition, no clinically relevant adverse events or DLTs were observed
during the 28-day monitoring period post-infusion. These safety data were
observed without preconditioning, and in the presence of circulating anti-
DSG3 antibodies. This safety profile builds off 28-day safety data from
three patients in the second cohort that the Company reported in August
2021.
• New site activations driving patient enrollment: As of October 31, 2021,
three additional clinical sites were opened for recruitment, doubling the
total number of activated DesCAARTes™ trial sites to six.
23
• Trial advancing through fourth patient cohort: Dosing was initiated in the
fourth patient cohort at a dose of 2.5 billion DSG3-CAART cells. The
Company anticipates announcing 28-day safety data for the fourth dose
cohort in the first quarter of 2022.
• Near-term biologic activity data expected for the first two low dose cohorts:
Cabaletta plans to announce top-line biologic activity data from the first two
low dose cohorts in the fourth quarter of 2021.
60.
The statements referenced in ¶¶ 40-59 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, operations, and compliance policies. Specifically, the
Exchange Act Defendants made false and/or misleading statements and/or failed to disclose that:
(i) top-line data of the Phase 1 Clinical Trial indicated that DSG3-CAART had, among other
things, worsened certain participants’ disease activity scores and necessitated additional systemic
medication to improve disease activity after DSG3-CAART infusion; (ii) accordingly, DSG3-
CAART was not as effective as the Company had represented to investors; (iii) therefore, the
Company had overstated DSG3-CAART’s clinical and/or commercial prospects; and (iv) as a
result, the Company’s public statements were materially false and misleading at all relevant times.
The Truth Emerges
61.
On December 14, 2021, Cabaletta issued a press release entitled, “Cabaletta Bio
Reports Top-line Biologic Activity Data from Two Lowest Dose Cohorts in DesCAARTes™ Trial
in Patients with Mucosal Pemphigus Vulgaris.” Specifically, the press release stated, in relevant
Cabaletta [. . .] today reported top-line data on biologic activity from the two lowest
dose cohorts in the DesCAARTes™ Phase 1 clinical trial of DSG3-CAART for the
treatment of patients with mucosal Pemphigus Vulgaris (mPV).
As of December 12, 2021, six patients, comprising the two lowest dose cohorts (20
million
and
100
million
DSG3-CAART
cells
administered
without
lymphodepletion) had completed three to six months of follow-up for evaluation of
24
DSG3-CAART biologic activity. Patients enrolled had persistent mild to moderate
disease severity prior to infusion despite receiving or having received systemic
medication for treatment of their mPV symptoms prior to enrollment. Parameters
being used in the trial to evaluate potential biologic activity include persistence of
DSG3-CAART, change in level of DSG3 autoantibodies, change in mPV therapy
or need for new systemic rescue therapy, and change in disease activity (e.g., as
assessed by Pemphigus Disease Area Index (PDAI) and Oral Disease Severity
Score (ODSS)). Prior to infusion, disease activity scores improved in five of six
participants in the absence of any protocol directed additions to baseline therapy.
Of those five participants, one had a decline in DSG3 autoantibody levels ≥20%
during that period. Top-line data on biologic activity among the first six participants
in the lowest dose cohorts are:
• In cohort A1, participants received 20 million DSG3-CAART cells:
o Two of three participants had DSG3 autoantibody levels that rose
≥20% along with disease activity scores (e.g., PDAI and ODSS) that
worsened within six months after DSG3-CAART infusion, with one
of these participants receiving additional systemic medication. Both
participants reduced or discontinued selected systemic therapies
prior to DSG3-CAART infusion, as required by the protocol.
o One of three participants had modest DSG3 autoantibody levels and
mild disease activity at infusion and had a negative DSG3 level at
six months along with disease activity scores of zero on both scales
at six months with no systemic medications for mPV since DSG3-
CAART infusion. As permitted by protocol, this participant was
enrolled due to worsening symptoms despite receiving two different
systemic therapies within 9 months of DSG3-CAART infusion. The
systemic therapies may have impacted clinical scores and DSG3
levels, both of which improved between screening and infusion.
• In cohort A2, participants received 100 million DSG3-CAART cells:
o Two of three participants maintained stable DSG3 autoantibody
levels that have not persistently changed +/- 20% of pre-infusion
levels through four months. Through the six month follow-up period,
one of these patients maintained stable disease activity scores, while
the other patient maintained stable scores initially before
subsequently worsening. Both patients did not require any new
systemic medications post-infusion through the entire follow-up
period.
o One of three participants had DSG3 autoantibody levels that rose
≥20% from pre-infusion levels despite stable disease activity scores
with four months of follow-up. This participant subsequently
25
received systemic medication to improve disease activity after
DSG3-CAART infusion.
• DSG3-CAART persistence was not observed above the assay’s threshold
for quantification in any participant from the first two cohorts at three
months post-infusion.
Additional data on the initial cohorts in the DesCAARTes™ trial are anticipated
to be presented at medical meetings and/or scientific sessions in 2022.
“As the first targeted cell therapy clinical trial for patients with a B cell-
mediated autoimmune disease, the DesCAARTes™ trial was designed with
patient safety as the top priority. By starting with these low-dose cohorts, we
have been able to administer the product to autoimmune patients, with no dose-
limiting toxicities or clinically relevant adverse events observed to date,”
reported David J. Chang, M.D., Chief Medical Officer of Cabaletta. “While
clear signs of DSG3-CAART biologic activity were not observed to date in the
two lowest cell dose cohorts, the emerging clinical and serological data in one
of the six patients who has improved since DSG3-CAART infusion is notable.
Patients in the fourth dosing cohort are currently being dosed with 2.5 billion
cells, which is 25 and 125 fold greater than the two dose cohorts reported today.
Based on communications with the U.S. Food and Drug Administration (FDA)
dating to the first half of 2021, as well as the safety data reported from our first
three dosing cohorts, we plan to expand the DesCAARTes™ trial to evaluate
higher dose cohorts and consolidated dosing regimens and, subject to an IND
amendment, an enhanced manufacturing process. Our engagements and
interactions with patients, investigators, and advocacy groups have given us
confidence that patients with mPV are highly interested in a deep, durable, and
potentially curative therapy, and we look forward to advancing the trial to
potentially identify an optimal dose regimen that maximizes the opportunity for
patients to achieve those goals, while maintaining a favorable safety profile.”
The first additional cohort in the dose escalation phase of the DesCAARTes™
trial is anticipated to be the A5 cohort, in which patients will receive between
5.0-7.5 billion DSG3-CAART cells with a consolidated fractionated infusion
regimen including only two fractions – 30% followed by 70%. The planned
enhanced manufacturing process aims to amplify the already present cell
subtypes in the product in order to potentially improve product potency and
trafficking to tissue where the target B cells reside.
“Based on the reported safety data from the first three cohorts, the observation
of dose-dependent increases in persistence previously reported in Cohort A3
relative to the first two cohorts, and consultation with investigators, advisors,
and the FDA, we now have the opportunity to expand the trial to evaluate higher
dose cohorts, consolidated dosing and, subject to an IND amendment, an
enhanced manufacturing process,” said Steven Nichtberger, M.D., Chief
26
Executive Officer and Co-founder of Cabaletta. “With six sites activated and
dosing underway in the fourth cohort at a dose of 2.5 billion DSG3-CAART
cells, we anticipate reporting top-line biologic activity from the 500 million cell
cohort A3 as well as 28-day safety data from the 2.5 billion cell cohort in the
first quarter of 2022.”
62.
On this news, Cabaletta’s stock price fell $9.15 per share, or 73.14%, to close at
$3.36 per share on December 14, 2021.
63.
As of the time this Complaint was filed, the price of Cabaletta common stock
continues to trade below the $11.00 per share Offering price, damaging investors.
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 persons and entities other than
Defendants that purchased or otherwise acquired Cabaletta common stock pursuant and/or
traceable to the Offering Documents issued in connection with the IPO, and/or Cabaletta securities
during the Class Period; and 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.
66.
The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, Cabaletta 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
27
thousands of members in the proposed Class. Record owners and other members of the Class may
be identified from records maintained by Cabaletta 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 in the Offering
Documents for the IPO, or during the Class Period, misrepresented material facts
about the business, operations and management of Cabaletta;
•
whether the Securities Act Individual Defendants negligently prepared the
Offering Documents for the IPO and, as a result, the Offering Documents
contained untrue statements of material fact or omitted to state other facts
necessary to make the statements made not misleading, and were not prepared in
accordance with the rules and regulations governing their preparation;
•
whether the Exchange Act Individual Defendants caused Cabaletta to issue false
and misleading financial statements during the Class Period;
•
whether certain Defendants acted knowingly or recklessly in issuing false and
misleading financial statements;
28
•
whether the prices of Cabaletta 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;
•
Cabaletta 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
•
Plaintiff and members of the Class purchased, acquired and/or sold Cabaletta
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.
29
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 the Exchange Act Defendants)
74.
Plaintiff repeats and re-alleges each and every allegation contained above as if fully
set forth herein.
75.
This Count is asserted against the Exchange Act 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, the Exchange Act 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 Cabaletta
securities; and (iii) cause Plaintiff and other members of the Class to purchase or otherwise acquire
Cabaletta securities and options at artificially inflated prices. In furtherance of this unlawful
scheme, plan and course of conduct, the Exchange Act Defendants, and each of them, took the
actions set forth herein.
30
77.
Pursuant to the above plan, scheme, conspiracy, and course of conduct, each of the
Exchange Act 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 Cabaletta 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 Cabaletta’s finances and business prospects.
78.
By virtue of their positions at Cabaletta, the Exchange Act 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,
the Exchange Act 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 the Exchange Act
Defendants. Said acts and omissions of the Exchange Act Defendants were committed willfully
or with reckless disregard for the truth. In addition, each of the Exchange Act Defendants knew
or recklessly disregarded that material facts were being misrepresented or omitted as described
79.
Information showing that the Exchange Act Defendants acted knowingly or with
reckless disregard for the truth is peculiarly within the Exchange Act Defendants’ knowledge and
control. As the senior managers and/or directors of Cabaletta, the Exchange Act Individual
Defendants had knowledge of the details of Cabaletta’s internal affairs.
80.
The Exchange Act Individual Defendants are liable both directly and indirectly for
the wrongs complained of herein. Because of their positions of control and authority, the Exchange
31
Act Individual Defendants were able to and did, directly or indirectly, control the content of the
statements of Cabaletta. As officers and/or directors of a publicly-held company, the Exchange
Act Individual Defendants had a duty to disseminate timely, accurate, and truthful information
with respect to Cabaletta’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 Cabaletta securities was artificially inflated throughout the
Class Period. In ignorance of the adverse facts concerning Cabaletta’s business and financial
condition which were concealed by the Exchange Act Defendants, Plaintiff and the other members
of the Class purchased or otherwise acquired Cabaletta 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 the Exchange Act Defendants, and were damaged thereby.
81.
During the Class Period, Cabaletta 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 Exchange Act Defendants made, issued or caused to be
disseminated, or relying upon the integrity of the market, purchased or otherwise acquired shares
of Cabaletta securities at prices artificially inflated by the Exchange Act 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 Cabaletta securities was substantially lower than the
prices paid by Plaintiff and the other members of the Class. The market price of Cabaletta
securities declined sharply upon public disclosure of the facts alleged herein to the injury of
Plaintiff and Class members.
32
82.
By reason of the conduct alleged herein, the Exchange Act 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 the Exchange Act 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 Exchange Act Individual
Defendants)
84.
Plaintiff repeats and re-alleges each and every allegation contained in the foregoing
paragraphs as if fully set forth herein.
85.
During the Class Period, the Exchange Act Individual Defendants participated in
the operation and management of Cabaletta, and conducted and participated, directly and
indirectly, in the conduct of Cabaletta’s business affairs. Because of their senior positions, they
knew the adverse non-public information about Cabaletta’s misstatement of income and expenses
and false financial statements.
86.
As officers and/or directors of a publicly owned company, the Exchange Act
Individual Defendants had a duty to disseminate accurate and truthful information with respect to
Cabaletta’s financial condition and results of operations, and to correct promptly any public
statements issued by Cabaletta which had become materially false or misleading.
87.
Because of their positions of control and authority as senior officers, the Exchange
Act Individual Defendants were able to, and did, control the contents of the various reports, press
33
releases and public filings which Cabaletta disseminated in the marketplace during the Class
Period concerning Cabaletta’s results of operations. Throughout the Class Period, the Exchange
Act Individual Defendants exercised their power and authority to cause Cabaletta to engage in the
wrongful acts complained of herein. The Exchange Act Individual Defendants, therefore, were
“controlling persons” of Cabaletta 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 Cabaletta securities.
88.
Each of the Exchange Act Individual Defendants, therefore, acted as a controlling
person of Cabaletta. By reason of their senior management positions and/or being directors of
Cabaletta, each of the Exchange Act Individual Defendants had the power to direct the actions of,
and exercised the same to cause, Cabaletta to engage in the unlawful acts and conduct complained
of herein. Each of the Exchange Act Individual Defendants exercised control over the general
operations of Cabaletta 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 Exchange Act Individual Defendants are liable
pursuant to Section 20(a) of the Exchange Act for the violations committed by Cabaletta.
COUNT III
(Violations of Section 11 of the Securities Act Against the Securities Act Defendants)
90.
Plaintiff repeats and incorporates each and every allegation contained above as if
fully set forth herein, except any allegation of fraud, recklessness, or intentional misconduct.
91.
This Count is brought pursuant to Section 11 of the Securities Act, 15 U.S.C. § 77k,
on behalf of the Class, against Defendants.
34
92.
The Offering Documents for the IPO were inaccurate and misleading, contained
untrue statements of material facts, omitted to state other facts necessary to make the statements
made not misleading, and omitted to state material facts required to be stated therein.
93.
Cabaletta is the registrant for the IPO. Defendants named herein were responsible
for the contents and dissemination of the Offering Documents.
94.
As issuer of the shares, Cabaletta is strictly liable to Plaintiff and the Class for the
misstatements and omissions in the Offering Documents.
95.
None of the Defendants named herein made a reasonable investigation or possessed
reasonable grounds for the belief that the statements contained in the Offering Documents were
true and without omissions of any material facts and were not misleading.
96.
By reasons of the conduct herein alleged, each Defendant violated, and/or
controlled a person who violated Section 11 of the Securities Act.
97.
Plaintiff acquired Cabaletta shares pursuant and/or traceable to the Offering
Documents for the IPO.
98.
Plaintiff and the Class have sustained damages. The value of Cabaletta common
stock has declined substantially subsequent to and because of Defendants’ violations.
COUNT IV
(Violations of Section 15 of the Securities Act Against the Securities Act Individual
Defendants)
99.
Plaintiff repeats and incorporates each and every allegation contained above as if
fully set forth herein, except any allegation of fraud, recklessness, or intentional misconduct.
100.
This Count is asserted against the Securities Act Individual Defendants and is based
upon Section 15 of the Securities Act, 15 U.S.C. § 77o.
35
101.
The Securities Act Individual Defendants, by virtue of their offices, directorship,
and specific acts were, at the time of the wrongs alleged herein and as set forth herein, controlling
persons of Cabaletta within the meaning of Section 15 of the Securities Act. The Securities Act
Individual Defendants had the power and influence and exercised the same to cause Cabaletta to
engage in the acts described herein.
102.
The Securities Act Individual Defendants’ positions made them privy to and
provided them with actual knowledge of the material facts concealed from Plaintiff and the Class.
103.
By virtue of the conduct alleged herein, the Securities Act Individual Defendants
are liable for the aforesaid wrongful conduct and are liable to Plaintiff and the Class for damages
suffered.
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.
36
Dated: February 28, 2022
Respectfully submitted,
THE ROSEN LAW FIRM, P.A
/s/ Jacob A. Goldberg
Jacob A. Goldberg
Gonen Haklay
101 Greenwood Avenue, Suite 440
Jenkintown, PA 19046
Telephone: (215) 600-2817
Facsimile: (212) 202-3827
Email: jgoldberg@rosenlegal.com
Email: ghaklay@rosenlegal.com
Liaison Counsel for Plaintiff
POMERANTZ LLP
Jeremy A. Lieberman
(pro hac vice application forthcoming)
J. Alexander Hood II
(pro hac vice application forthcoming)
Thomas H. Przybylowski
(pro hac vice application forthcoming)
600 Third Avenue
New York, New York 10016
Telephone: (212) 661-1100
Facsimile: (212) 661-8665
jalieberman@pomlaw.com
ahood@pomlaw.com
tprzybylowski@pomlaw.com
Counsel for Plaintiff
37
| securities |
Hg-oFocBD5gMZwcz_RTm | 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 Plaintiffs
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
TERRY FABRICANT; ABANTE
ROOTER AND PLUMBING INC,
individually, and on behalf of all others
similarly situated,
Plaintiffs,
vs.
E MORTGAGE CAPITAL, INC., and
DOES 1 through 10, inclusive,
Case No.
CLASS ACTION
COMPLAINT FOR:
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)]
Defendants.
DEMAND FOR JURY TRIAL
)
)
)
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)
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)
)
)
)
)
1.
Plaintiffs TERRY FABRICANT and ABANTE ROOTER AND
PLUMBING INC (hereinafter collectively referred to as “Plaintiffs”) bring this
Class Action Complaint for damages, injunctive relief, and any other available legal
or equitable remedies, resulting from the illegal actions of Defendant E
MORTGAGE CAPITAL, INC. (hereinafter “Defendants”), in negligently
contacting Plaintiffs on Plaintiffs’ cellular telephone, in violation of the Telephone
Consumer Protection Act, 47 U.S.C. § 227 et seq., (“TCPA”), thereby invading
Plaintiffs’ privacy. Plaintiffs allege as follows upon personal knowledge as to
themselves and their own acts and experiences, and, as to all other matters, upon
information and belief, including investigation conducted by their attorneys.
2.
The TCPA was designed to prevent calls and messages like the ones
described within this complaint, and to protect the privacy of citizens like Plaintiff.
“Voluminous consumer complaints about abuses of telephone technology – for
example, computerized calls dispatched to private homes – prompted Congress to
pass the TCPA.” Mims v. Arrow Fin. Servs., LLC, 132 S. Ct. 740, 744 (2012).
3.
In enacting the TCPA, Congress intended to give consumers a choice
as to how creditors and telemarketers may call them, and made specific findings
that “[t]echnologies that might allow consumers to avoid receiving such calls are
not universally available, are costly, are unlikely to be enforced, or place an
inordinate burden on the consumer. TCPA, Pub.L. No. 102–243, § 11. Toward this
end, Congress found that
[b]anning 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. at § 12; see also Martin v. Leading Edge Recovery Solutions, LLC, 2012 WL
3292838, at* 4 (N.D.Ill. Aug. 10, 2012) (citing Congressional findings on TCPA’s
purpose).
4.
Congress also specifically found that “the evidence presented to the
Congress indicates that automated or prerecorded calls are a nuisance and an
invasion of privacy, regardless of the type of call….” Id. at §§ 12-13. See also,
Mims, 132 S. Ct. at 744.
5.
As Judge Easterbrook of the Seventh Circuit recently explained in a
TCPA case regarding calls to a non-debtor similar to this one:
The Telephone Consumer Protection Act … is well known for its
provisions limiting junk-fax transmissions. A less-litigated part of the
Act curtails the use of automated dialers and prerecorded messages to
cell phones, whose subscribers often are billed by the minute as soon
as the call is answered—and routing a call to voicemail counts as
answering the call. An automated call to a landline phone can be an
annoyance; an automated call to a cell phone adds expense to
annoyance.
Soppet v. Enhanced Recovery Co., LLC, 679 F.3d 637, 638 (7th Cir. 2012).
6.
The Ninth Circuit recently affirmed certification of a TCPA class case
remarkably similar to this one in Meyer v. Portfolio Recovery Associates, LLC, __
F.3d__, 2012 WL 4840814 (9th Cir. Oct. 12, 2012).
Jurisdiction and Venue
7.
Jurisdiction is proper under 28 U.S.C. § 1332(d)(2) because Plaintiff
Terry Fabricant, a California resident, seeks relief on behalf of a Class, which will
result in at least one class member belonging to a different state than that of
Defendants, a company incorporated in California and doing business within and
throughout California. 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.
8.
Venue is proper in the United States District Court for the Central
District of California pursuant to 28 U.S.C. § 1391(b)(2) because Defendants do
business within the State of California and Plaintiff resides within the County of
Alameda.
PARTIES
9.
Plaintiff TERRY FABRICANT (hereinafter “FABRICANT”) is an
individual living in Los Angeles County, California, and is a “person” as defined
by 47 U.S.C. § 153 (39).
10.
Plaintiff ABANTE ROOTER AND PLUMBING INC (hereinafter
“ABANTE”) is a rooting and plumbing business in Emeryville, California and is a
“person” as defined by 47 U.S.C. § 153 (39).
11.
Defendant E MORTGAGE CAPITAL, INC. is a mortgage company
and is a “person” as defined by 47 U.S.C. § 153(39).
12.
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.
13.
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
14.
Beginning in or around February 2019, Defendants contacted
FABRICANT on his cellular telephone number ending in -1083 in an attempt to
solicit FABRICANT to purchase Defendant’s services.
15.
On or about February 4, 2019, Defendants contacted FABRICANT on
FABRICANT’s cellular telephone ending in -1083 to solicit FABRICANT to
purchase Defendant’s services.
16.
On or about February 4, 2019, Defendant sent Plaintiff an unsolicited
text messages to Plaintiff’s cellular telephone ending in -1083 to solicit
FABRICANT to purchase Defendant’s service.
17.
This text message placed to Plaintiff’s cellular telephone was placed
via Defendants’ 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).
18.
Defendants contacted or attempted to contact FABRICANT on
multiple occasions.
19.
Defendants contacted or attempted to contact FABRICANT from
telephone numbers confirmed belonging to Defendants, including without
limitation (949) 393 -1634, and (949) 274 - 6887.
20.
On or about August 24, 2020, Defendants contacted ABANTE on
ABANTE’s cellular telephone ending in -6147 to solicit ABANTE to purchase
Defendant’s services.
21.
Defendants contacted or attempted to contact ABANTE on multiple
occasions.
22.
Defendants contacted or attempted to contact ABANTE from
telephone numbers confirmed belonging to Defendants, including without
limitation (510) 459 - 9826, and (949) 954 - 3206.
23.
The telephone number that Defendants, or their 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).
24.
These telephone calls constituted calls that were not for emergency
purposes as defined by 47 U.S.C. § 227 (b)(1)(A)(i).
25.
Plaintiff was never a customer of Defendants’ and never provided his
cellular telephone number Defendants for any reason whatsoever. Accordingly,
Defendants and their agent never received Plaintiff’s prior express consent to
receive unsolicited calls or text messages, pursuant to 47 U.S.C. § 227 (b)(1)(A).
26.
These telephone calls by Defendants, or its agents, violated 47 U.S.C.
§ 227(b)(1).
27.
Defendants placed multiple calls soliciting its business to Plaintiffs on
their cellular telephones.
28.
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.
CLASS ALLEGATIONS
29.
Plaintiffs bring this action on behalf of themselves and all others
similarly situated (“the Class”).
30.
Plaintiffs represent, and are members of, the Class, defined as follows:
All persons within the United States who received any
solicitation/telemarketing telephone calls and/or text
messages from Defendants 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
31.
Defendants and their employees or agents are excluded from the Class.
Plaintiffs do not know the number of members in the Class but believe the Class
members number in the hundreds of thousands, if not more. Thus, this matter
should be certified as a Class action to assist in the expeditious litigation of this
matter.
32.
Plaintiffs and members of the Class were harmed by the acts of
Defendants in at least the following ways: Defendants, either directly or through
their agents, illegally contacted Plaintiff sand the Class members via their cellular
telephones thereby causing Plaintiffs and the Class members to incur certain
cellular telephone charges or reduce cellular telephone time for which Plaintiffs and
the Class members previously paid, and invading the privacy of said Plaintiffs and
the Class members. Plaintiffs and the Class members were damaged thereby.
33.
This suit seeks only damages 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. Plaintiffs reserve the
right to expand the Class definition to seek recovery on behalf of additional persons
as warranted as facts are learned in further investigation and discovery.
34.
The joinder of the Class members is impractical and the disposition of
their claims in the Class action will provide substantial benefits both to the parties
and to the court. The Class can be identified through Defendants’ records or
Defendants’ agent’s records.
35.
There is a well-defined community of interest in the questions of law
and fact involved affecting the parties to be represented. The questions of law and
fact to the Class predominate over questions which may affect individual Class
members, including the following:
a.
Whether, within the four years prior to the filing of this
Complaint, Defendants or their agents sent any text messages to
the Class (other than a message made for emergency purposes
or made with the prior express consent of the called party) to a
Class member using any automatic dialing system to any
telephone number assigned to a cellular phone service;
b.
Whether Plaintiffs and the Class members were damaged
thereby, and the extent of damages for such violation; and
c.
Whether Defendants and their agents should be enjoined from
engaging in such conduct in the future.
36.
As a person that received at least one marketing telephone call and/or
text message without their prior express consent, Plaintiffs are asserting claims that
are typical of the Class. Plaintiffs will fairly and adequately represent and protect
the interests of the Class in that Plaintiffs have no interests antagonistic to any
member of the Class.
37.
Plaintiffs and the members of the Class have all suffered irreparable
harm as a result of the Defendants’ unlawful and wrongful conduct. Absent a class
action, the Class will continue to face the potential for irreparable harm. In addition,
these violations of law will be allowed to proceed without remedy and Defendants
will likely continue such illegal conduct. Because of the size of the individual Class
member’s claims, few, if any, Class members could afford to seek legal redress for
the wrongs complained of herein.
38.
Plaintiffs have retained counsel experienced in handling class action
claims and claims involving violations of the Telephone Consumer Protection Act.
39.
A class action is a superior method for the fair and efficient
adjudication of this controversy. Class-wide damages are essential to induce
Defendants to comply with federal and California law. The interest of Class
members in individually controlling the prosecution of separate claims against
Defendants are small because the maximum statutory damages in an individual
action for violation of privacy are minimal. Management of these claims is likely
to present significantly fewer difficulties than those presented in many class claims.
40.
Defendants has acted on grounds generally applicable to the Class,
thereby making appropriate final injunctive relief and corresponding declaratory
relief with respect to the Class as a whole.
FIRST CAUSE OF ACTION
Negligent Violations of the Telephone Consumer Protection Act
47 U.S.C. §227(b).
41.
Plaintiffs repeat and incorporates by reference into this cause of action
the allegations set forth above.
42.
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).
43.
As a result of Defendant’s negligent violations of 47 U.S.C. § 227(b),
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).
44.
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(b)
45.
Plaintiffs repeat and incorporates by reference into this cause of action
the allegations set forth above.
46.
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).
47.
As a result of Defendant’s knowing and/or willful violations of 47
U.S.C. § 227(b), 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).
48.
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(b)
• 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).
• 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), 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).
• Any and all other relief that the Court deems just and proper.
JURY DEMAND
49.
Pursuant to the Seventh Amendment to the Constitution of the United
States of America, Plaintiffs are entitled to, and demands, a trial by jury.
Respectfully submitted this 20th day of November, 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 Plaintiffs
| privacy |
gXdmFokB9sM9pEmazCB- | X
AMENDED COMPLAINT
Plaintiffs,
11 Civ. 03391 (PAC) (THK)
-against-
PLAINTIFFS DEMAND A
TRIAL BY JURY
ECF CASE
Defendants.
X
Plaintiffs Anderson Samaroo, Clint Laldeo and Dowlat Ramdihal ("Plaintiffs"),
PRELIMINARY STATEMENT
1.
Plaintiffs complain on behalf of themselves, and other current and former
2.
Plaintiffs further complain pursuant to Fed. R. Civ. Proc. 23 on behalf of
JURISDICTION AND VENUE
3.
Plaintiffs invoke the jurisdiction of this Court pursuant to the Fair Labor
4.
The venue of this action is proper because the events or omissions giving
PARTIES
5.
Plaintiffs and their similarly situated co-workers were employed by
2
6.
Plaintiff Anderson Samaroo ("Plaintiff Samaroo") is an adult individual
7.
Plaintiff Clint Laldeo ("Plaintiff Laldeo") is an adult individual residing in
8.
Plaintiff Dowlat Ramdihal ("Plaintiff Ramdihal") is an adult individual
9.
Deluxe Delivery Systems Inc. is headquartered at 64 West 48th Street, 4th
10.
Upon information and belief, Defendant Yoindra ("Ryan") Ramnarayan
11.
Defendant Ryan, the individual defendant, has engaged in business in New
12.
Defendant DDS is operated jointly by individual Defendant Ryan together
3
13.
Defendant Ryan was the principal, agent, partner, joint venturer,
14.
Upon information and belief, Defendant Ryan had responsibility for
15.
At all relevant times, defendants affected commerce within the meaning of
16.
Upon information and belief, Defendant Deluxe Delivery Systems Inc. is a
17.
Upon information and belief, Defendant Courier on the Run, Inc. is a
18.
Upon information and belief, Defendant Park Avenue Delivery, Inc. is a
19.
The gross annual volume of sales made or business done by defendants,
20.
At all relevant times, defendants were plaintiffs' employer within the
21.
Defendants have the power to hire and fire plaintiffs, control their terms
4CLASS ACTION ALLEGATIONS
22.
The representative plaintiffs bring this action on behalf of themselves and
23.
Plaintiffs sue on their own behalf and on behalf of a class of persons under
24.
Plaintiffs bring this class action on behalf of all persons employed by
25.
Defendants have willfully engaged in a pattern, practice and policy of
26.
The employees in the class identified above are SO numerous that joinder
5
27.
The representative plaintiffs will fairly and adequately protect the interests
28.
There are questions of law and fact common to the Class which
a.
Whether defendants misclassified plaintiffs as independent
contractors;
b.
Whether plaintiffs were denied overtime premium pay for hours
worked in excess of 40 in a workweek;
C.
Whether defendants failed to pay plaintiffs minimum wages for all
work time;
d.
Whether paychecks were withheld due to alleged damage or
improper work;
e.
Whether defendants wrongly required plaintiffs to pay for the
"tools of the trade" necessary to do the work; and,
f.
Whether defendants improperly made deductions from plaintiffs'
wages.
FACTS
29.
Defendants operate a delivery/courier and software/logistics company that
6
30.
Defendants maintain, inter alia, headquarters in Manhattan, approximately
31.
Upon information and belief, defendants employ dozens of couriers and
32.
Plaintiffs Samaroo and Laldeo were employed as vehicle couriers.
33.
Plaintiff Ramdihal was employed as a dispatcher and walk courier.
34.
Upon information and belief, all of the individuals employed by
35.
Upon information and belief, all of the individuals employed by
36.
Plaintiffs Samaroo, Laldeo and the putative class members who were
37.
Upon information and belief, some plaintiff couriers had a route and were
7
38.
Plaintiff Ramdihal was paid an hourly rate as a walk courier and
39.
Plaintiffs were required to arrive at the office, headquarters or the
40.
Subsequent to leaving with a route or a job, plaintiff couriers traveled to
41.
Throughout the day, the defendants' managers were in communication
42.
At the end of the day or after completion of a job, plaintiff couriers were
43.
Upon information and belief, most of the couriers did not stop working
44.
Plaintiffs worked five to seven days per week for defendants.
45.
Dispatchers worked a 50 to 60 hour week for defendants.
46.
At times, vehicle couriers traveled up to 100 miles for a pick-up and
47.
Plaintiff couriers were not allowed to and did not have the ability to
848.
Plaintiff couriers worked very long hours for low pay such that they were,
49.
Defendants did not provide a rate sheet or any information about the
50.
Defendants did not provide a rate sheet or any information about the
51.
Plaintiff couriers were not free to decline jobs or permitted to refuse work
52.
The plaintiff couriers were required to be available to accept work from
53.
On some occasions, plaintiff couriers learned what customers were paying
54.
Defendants, upon information and belief, tampered with the computer
55.
Defendants mandated that plaintiffs work at least five days per week but
56.
Defendants controlled the route or job order of pick-ups and deliveries and
9
57.
Defendants mandated the specific pick-up and delivery time for the
58.
Defendants specified the amount of time to be spent on each job and
59.
Defendants required plaintiff couriers to rent company-issued Nextel two-
60.
Plaintiffs were not permitted to refuse a job and were required to accept all
61.
Plaintiff couriers were not permitted to address or resolve customer
62.
Plaintiff couriers were not permitted to arrange for a substitute or engage
63.
Manifests were provided free of charge to the plaintiff couriers.
64.
Defendants did not maintain a time-keeping system or time clock.
65.
Defendants marketed their services by, inter alia, indicating that they have
66.
The plaintiffs were never paid an overtime rate although they regularly
67.
Plaintiffs' wages were, at times, subject to deductions by defendants for
10
68.
Plaintiffs Samaroo, Laldeo and Ramdihal complained about the low wages
69.
Upon information and belief, the required posters and notices regarding
70.
On the grounds of equitable tolling, the statute of limitations for all claims
AS AND FOR A FIRST CAUSE OF ACTION
Violation of the Minimum Wage Provisions of the FLSA
71.
Plaintiffs repeat and reallege each and every allegation made in paragraphs
72.
At times, defendants failed to pay plaintiffs at the applicable minimum
73.
Defendants' failure to pay plaintiffs at the applicable minimum hourly rate
1174.
Plaintiffs have been damaged in an amount to be determined at trial.
AS AND FOR A SECOND CAUSE OF ACTION
Violation of the Overtime Provisions of the FLSA
75.
Plaintiffs repeat and reallege each and every allegation made in paragraphs
76.
Defendants failed to pay plaintiffs overtime compensation of one and one-
77.
Defendants' failure to pay plaintiffs overtime compensation was willful
78.
Plaintiffs have been damaged in an amount to be determined at trial.
AS AND FOR A THIRD CAUSE OF ACTION
Violation of the New York Minimum Wage Act
79.
Plaintiffs repeat and reallege each and every allegation made in paragraphs
80.
At times, defendants failed to pay plaintiffs and the putative Class at the
81.
Defendants' failure to pay plaintiffs at the applicable minimum hourly rate
82.
Plaintiffs and the putative Class have been damaged in an amount to be
12
AS AND FOR A FOURTH CAUSE OF ACTION
Violation of the Overtime Provisions of the New York Labor Law
83.
Plaintiffs repeat and reallege each and every allegation made in paragraphs
84.
Defendants failed to pay plaintiffs and the putative Class overtime
85.
Defendants' failure to pay plaintiffs overtime compensation was willful
86.
Plaintiffs and the putative Class have been damaged in an amount to be
AS AND FOR A FIFTH CAUSE OF ACTION
Violation of the FLSA - Unlawful Deductions/Tools of the Trade Violations
87.
Plaintiffs repeat and reallege each and every allegation made in paragraphs
88.
Defendants required plaintiffs to provide and/or pay for the "tools of the
89.
Defendants thereby violated 29 CFR § 531.35 and paid less than the
AS AND FOR A SIXTH CAUSE OF ACTION
NYLL Section 193 Claim
90.
Plaintiffs repeat and reallege each and every allegation made in paragraphs
13
91.
Defendants subjected plaintiffs to unlawful deductions from wages and
92.
By deducting wages and requiring that such expenses be incurred by
93.
Plaintiffs and the putative class members have been damaged in an amount
AS AND FOR A SEVENTH CAUSE OF ACTION
Retaliation Under the NYLL
94.
Plaintiffs repeat and reallege each and every allegation made in paragraphs
95.
By punishing Plaintiffs Samaroo, Laldeo and Ramdihal in retaliation for
96.
Pursuant to NYLL § 215, notice of this violation has been served upon the
PRAYER FOR RELIEF
WHEREFORE, plaintiffs respectfully request that this Court enter a judgment:
A.
Designating this action as a collective action and authorizing prompt
14
B.
Certifying this action as a class action under Rule 23 of the Federal Rules
C.
Awarding plaintiffs damages for the amount of unpaid wages, including
D.
Awarding plaintiffs damages for the amounts unlawfully deducted from
E.
Awarding representative Plaintiffs Samaroo, Laldeo and Ramdihal
F.
Awarding plaintiffs liquidated damages pursuant to 29 U.S.C. § 216(b) and
G.
Declaring defendants' conduct complained of herein to be in violation of
H.
Awarding plaintiffs pre-judgment interest;
I.
Awarding plaintiffs the costs of this action together with reasonable
J.
Granting such other injunctive and further relief as this Court deems
DEMAND FOR TRIAL BY JURY
Pursuant to Rule 38(b) of the Federal Rules of Civil Procedure, plaintiffs demand
15September 1, 2011
Respectfully submitted,
By:
David A. Robins
robins@lipmanplesur.com
Lizabeth Schalet
schalet@lipmanplesur.com
Robert D. Lipman
lipman@lipmanplesur.com
Lipman & Plesur, LLP
500 North Broadway, Suite 105
Jericho, NY 11753-2131
Telephone: (516) 931-0050
Facsimile: (516) 931-0030
16 | employment & labor |
VNNGD4cBD5gMZwczcKih | IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
JEROME BITTINGS SR, individually
and on behalf of all others similarly
situated,
Plaintiff,
Case No.
CLASS ACTION
DEMAND FOR JURY TRIAL
v.
TELE-TOWN HALL, LLC, a Virginia
limited liability company,
Defendant.
Plaintiff Jerome Bittings, Sr. (“Bittings” or “Plaintiff”) brings this Class Action
Complaint and Demand for Jury Trial (“Complaint”) against Defendant Tele-Town Hall, LLC
(“Defendant” or “Tele-Town Hall”) to: (1) stop its practice of placing calls using an automatic
telephone dialing system (“ATDS”) to the cellular telephones of consumers nationwide without
their prior express consent, (2) enjoin Defendant from continuing to place autodialed telephone
calls to consumers who did not provide their prior express consent to receive them, or who
revoked such consent, and (3) obtain redress for all persons injured by its conduct. Plaintiff, for
his Complaint, 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.
ALLEGATIONS PURSUANT TO LOCAL CIVIL RULE 10.1
1.
The names and addresses of the parties to this action are as follows:
A.
Plaintiff Jerome Bittings, Sr. resides in Gloucester, County.
B.
Defendant Tele-Town Hall, LLC is a Virginia limited liability company
with its headquarters located at 4600 North Fairfax Drive, Suite 802, Arlington, VA
22203.
NATURE OF THE ACTION
2.
Defendant Tele-Town Hall is the creator and self-described “leading provider of
telephone town hall events”1 and offers several different products to businesses, government
agencies, political candidates, and elected officials.
3.
Defendant’s “Tele-Town Hall Event” system is described as a “personal
communications tool with the power to help you interact live with thousands—even millions—of
voters in minutes through a town-hall-style meeting conducted over the telephone and Web.”2
4.
Defendant’s Tele-Town Hall system “rapidly dials out to a list of phone numbers
provided by your business,” where the called numbers receive a “pre-recorded message inviting
them to remain on the line if they wish to be transferred automatically to [a client’s] Tele-Town
Hall® event.”3
5.
Defendant further notes that their Tele-Town Hall system:
utilizes a patented mass automated variable speed dialing system with a voice
over IP (Internet Protocol) connection to dial out to thousands of phone numbers
from a pre-selected list of participants, submitted to us by our customers…Every
person who answers the phone will be played a pre-recorded Introductory
Message that functions as an automated operator inviting each household to
remain on the phone to participate in a Tele-Town Hall.4
6.
Defendant thus concedes that their Tele-Town Hall system is an ATDS within the
meaning of the Telephone Consumer Protection Act, 47 U.S.C. § 227 et seq. (the “TCPA”).
7.
Defendant also offers “Automated Announcement Calls” to clients.5
8.
Defendant’s Automated Announcement Calls are billed as an:
automated ‘Save The Date’ call service option for candidates and organizations
1 http://teletownhall.com/
2 http://teletownhall.com/tele-town-hall-events
3 Id.
4 http://www.teleboardroom.com/tele-town-hall-safe-harbor-privacy-policy/
5 http://teletownhall.com/automated-announcement-calls
that want to give their potential participants a reminder of an upcoming Tele-
Town Hall® event. This puts the Tele-Town Hall® event top-of-mind for
interested parties and allows them to schedule time to participate and craft any
questions or communications they would like to provide your organization. ‘Save
The Date’ Automated Calls have proven to be a valuable resource for increasing
interest and viewership of Tele-Town Hall® events.6
9.
Defendant thus concedes that their Automated Announcement Calls are
automated and/or pre-recorded calls with the meaning of the TCPA.
10.
Defendant also offers a product “Mobile Direct Access” to clients, which purports
to be able to “[l]eave a voicemail for a cell phone subscriber without ever calling or ringing the
subscriber’s cell phone.” 7
11.
Defendant touts their Mobile Direct Access product as allowing a client to:
drop thousands of messages per hour. In addition, our Intelligent Reporting
Software helps you keep track of who receives your messages by identifying
which voicemail drops were successful, which were unsuccessful and why
unsuccessful drops failed, so that you can update your contact list.8
12.
Defendant gives a peculiar reason for the very existence of the Mobile Direct
Access product, stating that:
current telecom legislation impedes organizations—such as schools, health care
providers, financial institutions and governments—from reaching the individuals
with whom they need to connect. These regulations create a speech barrier to the
more than 327 million cell phones registered in the U.S.9
13.
Defendant additionally publicly represents:
Tele-Town Hall has been abiding by the TCPA since our inception, even in cases
when our users might be exempt from many of the regulations set forth in the law
in order to insure the most positive experience for both our clients and their
participants.10
6 Id.
7 http://teletownhall.com/mobile-direct-access
8 Id.
9 Id.
10 http://teletownhall.com/blog/the-issues-the-fcc-really-needs-to-address
14.
Despite publicly professing to comply with the TCPA, Defendant conducted (and
continue to conduct) a wide-scale telephone campaign that features the making of repeated
unsolicited autodialed and/or pre-recorded telephone calls to consumers’ cellular telephones—
without consent, all in violation of the TCPA.
15.
While certain types of calls may be within the letter of the law for calls placed to
landline (“wireline”) telephones, the same calls to cellular (“wireless”) telephones violate the
TCPA where they are made without prior express written or oral consent. As explained by the
Federal Communications Commission (“FCC”) in its 2012 order:
Additionally, we note that many commenters expressed concern about obtaining
written consent for certain types of autodialed or prerecorded calls, including debt
collection calls, airline notification calls, bank account fraud alerts, school and
university notifications, research or survey calls, and wireless usage notifications.
Again, such calls, to the extent that they do not contain telemarketing messages,
would not require any consent when made to residential wireline consumers, but
require either written or oral consent if made to wireless consumers and other
specified recipients. [Emphasis added].
See In re Rules and Regulations Implementing the Tel. Consumer Protection Act
of 1991, 27 FCC Rcd. 1830 (Feb. 15, 2012).
16.
Yet in violation of this rule, Tele-Town Hall fails to obtain any prior express
consent (oral or written) to make the autodialed calls described herein to cellular telephone
numbers.
17.
Consumer complaints about Tele-Town Hall’s invasive and repetitive calls are
legion. As a sample, consumers have complained as follows:
• This number is an unwanted call that fills my answering machine!! I want it
stopped.11
• Tied up my phone for over 30 minutes. Kept pressing end/off and would not
11 http://800notes.com/Phone.aspx/1-202-759-9999
release my line. Not cool, what if we would have had an emergency!12
• Called – and I pressed zeros but to no avail. Then hung up and tired to use my
phone – STILL GOING – I yelled “Get off my phone” and it hung up. A Town
Hall for something – didn’t pay attention to what…..13
• Unsolicited GetUp town hall conference call14
• Just called us. Caller ID said “HALL, T”, as if it were someone's name. We didn't
recognize the # so picked up/hung up to break the call, BUT IT WOULD NOT
STOP: it paused for a moment and then started ringing again. This has happened
before. This is really scary; you can't get rid of these telepests even by hanging up
on them! Isn't there a LAW against this, too?15
• I keep getting recorded phone messages from different phone numbers for David
Trone for Congress. I don’t even live in his 8th Congressional district so I could
not vote for him if I wanted to!!! Stupid, annoying people. I asked “Rich” at the
website for David Trone for Congress yesterday to stop these phone calls but I got
another one today from this 202 number. Don't politicians know that people
HATE getting unsolicited calls, including political calls? The spam, scam calls
are bad enough but now we will have political calls until November!!!16
• It’s a political, recorded, really badly done robo-call about the open carry laws
that recently passed in Texas.17
18.
By making the telephone calls at issue in this Complaint, Defendant caused
12 Id.
13 Id.
14 https://www.shouldianswer.com/phone-number/2027599999
15 http://800notes.com/Phone.aspx/1-202-759-9933
16 Id.
17 http://800notes.com/Phone.aspx/1-202-838-3284
Plaintiff and the members of the Class 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 a loss of value realized for the monies consumers paid to their wireless carriers for
the receipt of such calls. Furthermore, the calls intentionally interfered with Plaintiff and the
other Class members use and enjoyment of their cellphones, including the related data, software,
and hardware components.
19.
The TCPA was enacted to protect consumers from unsolicited telephone calls like
those alleged in this case. In response to Defendant’s unlawful conduct, Plaintiff files the instant
lawsuit and seeks an injunction requiring Defendant to cease all unsolicited telephone calling
activities to consumers as complained of herein and an award of statutory damages to the
members of the Class under the TCPA, together with costs and reasonable attorneys’ fees.
PARTIES
20.
Plaintiff Jerome Bittings, Sr. is a natural person and citizen of the State of New
21.
Defendant Tele-Town Hall is a limited liability company incorporated and
existing under the laws of the state of Virginia. Defendant is the creator and a leading provider of
telephone town hall events. Defendant conducts business throughout this District, the State of
New Jersey, and throughout the United States.
JURISDICTION AND VENUE
22.
This Court has federal question subject matter jurisdiction under 28 U.S.C. §
1331, as the action arises under the Telephone Consumer Protection Act, 47 U.S.C. § 227 et seq.,
which is a federal statute.
23.
The Court has personal jurisdiction over Defendant because it solicits significant
consumer business in this District, has entered into business to business contracts in this District,
and the unlawful conduct alleged in this Complaint occurred in and/or was directed to this
District.
24.
Venue is proper in this District pursuant to 28 U.S.C. § 1391(b) because
Defendant solicits a significant amount of consumer business within this District and because the
wrongful conduct giving rise to this case occurred in and/or was directed to this District. Venue
is additionally proper because Plaintiff resides in this District.
COMMON FACTUAL ALLEGATIONS
25.
Defendant Tele-Town Hall is the creator of and a leading provider of telephone
town hall events to businesses, associations, non-profit organizations, political candidates, and
elected officials.
26.
Unfortunately for consumers, Defendant utilized (and continues to utilize) a
sophisticated telephone dialing system to call cellular telephone users en masse for the purpose
of inviting, connecting, or reminding consumers about a Tele-Town Hall events, often times
calling consumers on their cellular phones.
27.
In Defendant’s overzealous attempts to service their clients, Defendant placed
(and continue to place) phone calls to consumers that never provided consent to be called and to
consumers with whom they have had no prior dealings or relationship.
28.
In placing the calls that form the basis of this Complaint, Defendant Tele-Town
Hall, or its affiliated entities, utilized an ATDS18 in violation of the TCPA. Specifically, the
hardware and software used by Tele-Town Hall 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. Tele-Town Hall’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).
29.
Telemarketers who wish to avoid calling numbers listed on the National Do Not
Call Registry can easily and inexpensively do so by “scrubbing” their call lists against the
National Do Not Call Registry database. The scrubbing process identifies those numbers on the
National Do Not Call Registry, allowing telemarketers to remove those numbers and ensure that
no calls are placed to consumers who opt-out of telemarketing calls.
30.
To avoid violating the TCPA by calling registered numbers, telemarketers must
scrub their call lists against the National Do Not Call Registry at least once every thirty-one
days. See 16 C.F.R. § 310.4(b)(3)(iv).
31.
There are numerous third party services that will additionally scrub the call lists
for a telemarketer to segment out landline and cellular telephone numbers, since the consent
18 It is without argument that Defendant uses an ATDS. See http://teletownhall.com/automated-
outreach (Describing “Automated Outreach” to include “Automated Announcement Calls” and
“Automated polling to your audience with efficient response collection”);
http://teletownhall.com/click-to-call (Noting that “Tele-Town Hall’s Click-To-Call helps
associations, political campaigns and corporations directly connect their members, voters or
employees [through] Live Calls or IVR Automated Calls inviting them to participate in surveys”
and uses “Robo Calls with more information about key issues”).
standards differ depending on what type of phone a telemarketer is calling.19 Indeed, one service
notes that they can:
Instantly verify whether a specific phone number is wireless or wireline to learn if
TCPA regulations apply – and verify the identity of the current subscriber to
determine if they are the same party who provided you with consent.20
32.
In making the calls to consumers’ cell phones without their prior written express
consent, Defendant used an autodialer in violation of the Telephone Consumer Protection Act.
33.
Furthermore, Defendant calls these consumers who have no “established business
relationship” with Defendant and who are registered on the Do Not Call list.
34.
In making the phone calls at issue in this Complaint, Defendant and/or its agents
utilized an automatic telephone dialing system. Specifically, the hardware and software used by
Defendant (or its agents) has the capacity to store, produce, and dial random or sequential
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 includes features substantially similar to a predictive dialer, inasmuch as it is capable
of making numerous calls simultaneously (all without human intervention).
35.
Defendant knowingly made (and continues to make) telemarketing calls without
the prior express consent of the call recipients and knowingly continues to call them after
requests to stop. As such, 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 JEROME BITTINGS, SR.
36.
On November 24, 2015, Plaintiff Bittings registered his cellular phone number on
19 See e.g. http://www.dncsolution.com/do-not-call.asp; http://www.donotcallprotection.com/do-
not-call-compliance-solutions-1; http://www.mindwav.com/tcpa_compliance_solution.asp;
20 https://www.neustar.biz/services/tcpa-compliance
the National Do Not Call Registry to avoid receiving unsolicited calls on his cellular phone.
37.
After Plaintiff Bittings registered his cellular phone number on the National Do
Not Call Registry, Defendant Tele-Town Hall, either directly, or through its agents, made an
unsolicited autodialed call on October 27, 2016 at approximately 10:30 AM.
38.
When he answered, there was a notable silence on the other end of the line for a
moment, a hallmark sign that Defendant was and is using an ATDS. Several seconds later, the
call was automatically disconnected by Defendant’s ATDS.
39.
The October 27, 2016 call from Defendant displayed the number 202-759-9999
on Plaintiff’s caller id. When calling this number back, a pre-recorded message identifies the
number as belonging to Defendant.
40.
Plaintiff does not have a relationship with Defendant, has never provided his
telephone number directly to Defendant, and has never requested that Defendant place calls to
him or offer its services. Simply put, Plaintiff has never provided any form of prior express
written consent to Defendant to place calls to him and has no business relationship with
Defendant.
41.
Defendant at all times is and was aware that the above-described autodialed
telephone calls were and are being made to consumers like Plaintiff who had not consented to
receive them.
CLASS ALLEGATIONS
42.
Class Allegations: Plaintiff Bittings brings this action pursuant to Federal Rule of
Civil Procedure 23(a), (b)(2), and (b)(3) on behalf of himself and the class defined as follows:
Autodialed No Consent Class: All persons in the United States who from a date
four years prior to the filing of the initial complaint in this case through the
present: (1) Defendant (or a third person acting on behalf of Defendant) called;
(2) on the person’s cellular telephone number; and (3) for whom Defendant
claims it obtained prior express consent in the same manner as Defendant claims
it supposedly obtained prior express consent to call the Plaintiff.
43.
The following people are excluded from the Class: (1) any Judge or Magistrate
presiding over this action and members of their families; (2) Defendant, Defendant’s
subsidiaries, parents, successors, predecessors, and any entity in which the Defendant or its
parents have a controlling interest and its current or former employees, officers and directors; (3)
persons who properly execute and file a timely request for exclusion from the Class; (4) persons
whose claims in this matter have been finally adjudicated on the merits or otherwise released; (5)
Plaintiff’s counsel and Defendant’s counsel; and (6) the legal representatives, successors, and
assigns of any such excluded persons.
44.
Numerosity: The exact size of the Class is unknown and not available to Plaintiff
at this time, but it is clear that individual joinder is impracticable. On information and belief,
Defendant made telephone calls to thousands of consumers who fall into the definition of the
Class. Members of the Class can be objectively identified through reference to Defendant’s
records, consumer phone records, and other evidence to be gained in discovery.
45.
Commonality and Predominance: 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. Common questions for the Class
include, but are not necessarily limited to the following:
(a)
Whether Defendant’s conduct violated the TCPA;
(b)
Whether Defendant systematically made telephone calls to individuals
who did not previously provide Defendant and/or its agents with their
prior express consent to receive such phone calls;
(c)
Whether Defendant made the calls with the use of an ATDS; and
(f)
Whether members of the Class are entitled to treble damages based on the
willfulness of Defendant’s conduct.
46.
Typicality: Plaintiff’s claims are typical of the claims of the other members of the
Class. Plaintiff and the Class sustained damages as a result of Defendant’s uniform wrongful
conduct during transactions with Plaintiff and the Class.
47.
Adequate Representation: Plaintiff will fairly and adequately represent and
protect the interests of the Class, and has retained counsel competent and experienced in
complex class actions. Plaintiff has no interest antagonistic to those of the Class, and Defendant
has no defenses unique to Plaintiff.
48.
Policies Generally Applicable to the Class: This class action is appropriate for
certification because Defendant has acted or refused to act on grounds generally applicable to the
Class as a respective whole, thereby requiring the Court’s imposition of uniform relief to ensure
compatible standards of conduct toward the Class members, and making final injunctive relief
appropriate with respect to the Class as a respective whole. Defendant’s practices challenged
herein apply to and affect the Class members uniformly, and Plaintiff’s challenge of those
practices hinges on Defendant’s conduct with respect to the Class as a respective whole, not on
facts or law applicable only to Plaintiff.
49.
Superiority: 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. The damages suffered by the
individual members of the Class will likely be relatively small, especially given the burden and
expense of individual prosecution of the complex litigation necessitated by Defendant’s actions.
Thus, it would be virtually impossible for the individual members of the Class to obtain effective
relief from Defendant’s misconduct. Even if members of the Class 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. 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 for the Class. Economies of time, effort and
expense will be fostered and uniformity of decisions ensured.
FIRST CAUSE OF ACTION
Violation of 47 U.S.C. § 227 et seq.
(On behalf of Plaintiff and the Autodialed No Consent Class)
50.
Plaintiff incorporates the foregoing allegations as if fully set forth herein.
51.
Defendant made unsolicited and unwanted telemarketing calls to telephone
numbers belonging to Plaintiffs and the other members of the Autodialed No Consent Class—
without their prior express written consent—in an effort to sell its products and services.
52.
Defendant made the telephone calls using equipment that had the capacity to store
or produce telephone numbers to be called using a random or sequential number generator,
and/or receive and store lists of phone numbers, and to dial such numbers, en masse.
53.
Defendant utilized equipment that made the telephone calls to Plaintiff and other
members of the Autodialed No Consent Class simultaneously and without human intervention.
54.
By making unsolicited telephone calls to Plaintiff and members of the Autodialed
No Consent Class’s cellular telephones without prior express consent, and by utilizing an ATDS,
Defendant violated 47 U.S.C. § 227(b)(1)(A)(iii).
55.
As a result of Defendant’s unlawful conduct, Plaintiff and the members of the
Autodialed No Consent Class suffered actual damages in the form of monies paid to receive the
unsolicited telephone calls on their cellular phones and, under Section 227(b)(3)(B), are each
entitled to, inter alia, a minimum of $500 in damages for each such violation of the TCPA.
56.
Should the Court determine that Defendant’s conduct was willful and knowing,
the Court may, pursuant to Section 227(b)(3), treble the amount of statutory damages
recoverable by Plaintiff and the other members of the Autodialed No Consent Class.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff Jerome Bittings, Sr., individually and on behalf of the Class,
prays for the following relief:
1.
An order certifying the Class as defined above, appointing Plaintiff Jerome
Bittings, Sr. as the representative of the Class and appointing his counsel as Class Counsel;
2.
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 other Class Members;
3.
An order declaring that Defendant’s actions, as set out above, violate the TCPA;
4.
A declaratory judgment that Defendant’s telephone calling equipment constitutes
an automatic telephone dialing system under the TCPA;
5.
An order requiring Defendant to disgorge any ill-gotten funds acquired as a result
of its unlawful telephone calling practices;
6.
An order requiring Defendant to identify any third-party involved in the
autodialed calling as set out above, as well as the terms of any contract or compensation
arrangement it has with such third parties;
7.
An injunction requiring Defendant to cease all unsolicited autodialed calling
activities, and otherwise protecting the interests of the Class;
8.
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;
9.
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;
10.
An injunction prohibiting Defendant from conducting any future telemarketing
activities until it has established an internal Do Not Call List as required by the TCPA;
11.
An award of reasonable attorneys’ fees and costs to be paid out of the common
fund prayed for above; and
12.
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,
JEROME BITTINGS, SR., individually and on behalf of
all others similarly situated,
Dated: December 27, 2016
By: /s Stefan Coleman______________
One of Plaintiff’s Attorneys
Stefan Coleman
law@stefancoleman.com
Adam Savett
adam@stefancoleman.com
Law Offices of Stefan Coleman, P.A.
1072 Madison Ave, Ste 1
Lakewood, NJ 08701
Telephone: (877) 333-9427
Facsimile: (888) 498-8946
| privacy |
m8s-DocBD5gMZwczcVXa | UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
KLEEN PRODUCTS LLC, individually and
on behalf of all those similarly situated,
Case No.
Plaintiff,
CLASS ACTION
v.
COMPLAINT FOR VIOLATION OF THE
SHERMAN ACT
JURY TRIAL DEMAND
PACKAGING CORPORATION OF
AMERICA; INTERNATIONAL PAPER;
NORAMPAC INDUSTRIES INC.;
CASCADES, INC.; DOMTAR
CORPORATION; WEYERHAEUSER
COMPANY; GEORGIA PACIFIC LLC;
TEMPLE-INLAND INC.; and SMURFIT-
STONE CONTAINER CORPORATION
Defendants.
Plaintiff Kleen Products LLC, individually and on behalf of a class of all those similarly
situated, brings this action for treble damages under the antitrust laws of the United States
against Defendants, and demands a trial by jury.
NATURE OF THE ACTION
1.
This case is an antitrust class action brought to recover for the injuries sustained
by Plaintiff and the members of the class as a result of Defendants’ violations of Section 1 of the
Sherman Act, 15 U.S.C. § 1. This action is brought on behalf of a Plaintiff Class, defined more
fully below in Paragraph 23, consisting of all persons and entities that purchased Containerboard
Products directly from Defendants between August 2005 and the present (the “Class Period”)
and seeks treble damages, injunctive relief, costs of suit, and reasonable attorneys’ fees pursuant
to Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§15 and 26 and Rule 23 of the Federal Rules
of Civil Procedure.
2.
Containerboard, which includes both linerboard and corrugating medium, is the
principal raw material used to manufacture corrugated products such as boxes and other types of
corrugated containers. Linerboard is used as the facings to which corrugating medium is fluted
and laminated to produce sheets. The containerboard sheets are subsequently printed, cut, folded
and glued to produce corrugated products. As used herein, “Containerboard Products” includes
corrugated sheets and corrugated products including boxes and other containers. Defendants are
integrated producers of the Containerboard Products sold to the Plaintiff Class.
3.
Various Containerboard Products manufacturers, including multiple Defendants
herein and their predecessors, have been subject to governmental investigations and civil
lawsuits concerning their engagement in anticompetitive conduct over the past two decades. The
Containerboard Products industry is highly susceptible to collusive behavior and anticompetitive
conduct due to a small number of manufacturers, inelastic product demand, the commodity-like
nature of the products, and an inability of any single manufacturer to unilaterally control supply
and price.
4.
The consolidation of the containerboard industry has served to further concentrate
the industry and exacerbate the conditions that led to the anticompetitive conduct at issue in this
complaint.
5.
Defendants’ opportunities and ability to engage in anticompetitive practices are
fostered through the frequent meetings and events held by industry trade organizations led by
officers and/or board members who simultaneously serve as the Defendants’ employees.
6.
Beginning in 2005, as the Containerboard Products industry was faced with
decreasing profit margins, rising product demand, and a promising macroeconomic outlook,
Defendants began a coordinated across-the-board imposition of capacity restraints, leading to a
subsequent restriction in the supply of Containerboard Products on the market. The goal of the
conspiracy was to fix, raise, maintain and stabilize the price at which Containerboard Products
were sold during the Class Period.
Defendants’ conspiracy included a scheme to impose
capacity constraints which had the effect of creating an artificial shortage of Containerboard
Products in the United States during a time of stable or increasing demand, thereby allowing
Defendants to charge supra-competitive prices to the Plaintiff Class.
As detailed below, the
conspiracy was effected, in part, by calls-to-arms and pledges by and between defendants that
were followed by actions that resulted in massive and unprecedented idling of production
capacity, reduced production and near simultaneous across-the-board price increases.
2
7.
Defendants’ anticompetitive conduct cannot be explained away as independent
parallel behavior.
As multiple Defendants confirm in their own quarterly reports, market
demand for Containerboard Products remained stable or was expected to increase during the
period of coordinated production capacity restriction. Similarly, no significant lasting changes in
production costs account for the Defendants’ repeated price increases. In fact, during the Class
Period, price increases outpaced cost increases by over fifty percent (50%).
Although basic
economics holds that manufacturers in a competitive market faced with similar demand
conditions as evidenced here would be expected to increase production to satisfy market demand
and gain market share, each Defendant refrained. In sum, Defendants’ conduct, individually and
collectively, evidences a restriction of freedom and sense of obligation associated with an
agreement.
8.
The market impacts of Defendants’ scheme on the Plaintiff Class have been, and
continue to be, substantial. As a result of Defendants’ market domination and their coordinated
restriction of production and operations capacity, direct purchasers of Containerboard Products
were forced to pay substantially higher prices during the conspiracy period than they would have
paid in a competitive market.
9. Giving a voice to those impacted by Defendants’ coordinated actions, on July 13,
2010, the Association of Independent Corrugated Converters (“AAIC”) published an article
entitled “3rd Containerboard Increase puts the Integrity of Our Industry on the Line.”
The
article notes that in light of the manufacturing capacity cuts, as well as the absence of cost
drivers, yet another price increase, the third for 2010, beyond already historic highs “calls into
question the integrity of our industry” and “call[s] into question the pricing activities of the
major companies” and noted the similarity of the present situation to “the years 1994-1995, six
price increases in the span of 18 months pushed containerboard to a then-unheard-of peak”
which resulted in allegations of collusion, government investigations and a consent decree and
over $200 million paid in settlements.
3
JURISDICTION AND VENUE
10.
This action is instituted under Sections 4 and 16 of the Clayton Act, 15 U.S.C.
§§15 and 26 to recover treble damages, and the costs of this suit, including reasonable attorneys’
fees, against Defendants for the injuries sustained by Plaintiff and the members of the Class by
virtue of Defendants’ violations of Section 1 of the Sherman Act, 15 U.S.C. § 1 and to enjoin
further violations.
11.
This Court has jurisdiction under 28 U.S.C. §§ 1331, 1337, and Sections 4 and 16
of the Clayton Act, 15 U.S.C. §§15(a) and 26.
12.
Venue is appropriate in this District under Sections 4, 12, and 16 of the Clayton
Act, 15 U.S.C. §§15, 22 and 26 and 28 U.S.C. §1391(b), (c) and (d), because during the Class
Period the Defendants resided or transacted business in this District, and because a substantial
portion of the affected interstate commerce described herein was carried out in this District.
13.
The activities of the Defendants and their co-conspirators, as described herein,
were within the flow of, were intended to, and did have direct, substantial and reasonably
foreseeable effects on the foreign and interstate commerce of the United States.
PARTIES
14.
Plaintiff Kleen Products LLC (“Plaintiff”) is a limited liability company
organized and existing under the laws of the state of Delaware, with its principal place of
business
in
Minnetonka,
Minnesota.
During
the
Class
Period,
Plaintiff
purchased
Containerboard Products directly from one or more of the Defendants.
15.
Defendant Packaging Corporation of America (“PCA”) is a Delaware corporation
with its principal place of business at Lake Forest, Illinois. During the Class Period, PCA and/or
its predecessors, wholly-owned or controlled subsidiaries or affiliates sold Containerboard
Products in interstate commerce directly to purchasers in the United States.
16.
Defendant International Paper (“International Paper”) is a New York corporation
with its principal place of business at Memphis, Tennessee.
During the Class Period,
International Paper and/or its predecessors, wholly-owned or controlled subsidiaries or affiliates
sold Containerboard Products in interstate commerce directly to purchasers in the United States.
4
17.
Defendant Norampac Inc. (“Norampac”) is a Canadian corporation with its
principal place of business at Quebec, Canada. Norampac was formed in 1997 as a joint venture
by Cascades Inc. and Domtar Corporation and became a wholly-owned and controlled subsidiary
division of Cascades Inc. in December 2006.
During the Class Period, Norampac and/or its
predecessors, wholly-owned or controlled subsidiaries or affiliates sold Containerboard Products
in interstate commerce directly to purchasers in the United States.
18.
Defendant Cascades Inc. (“Cascades”) is a Canadian corporation with its principal
place of business at Quebec, Canada. During the Class Period, Cascades and/or its predecessors,
wholly-owned or controlled subsidiaries or affiliates, including, but not limited to Defendant
Norampac, sold Containerboard Products in interstate commerce directly to purchasers in the
United States.
19.
Defendant Domtar Corporation (“Domtar”) is a Canadian corporation with its
principal place of business at Quebec, Canada.
During the Class Period, Domtar and/or its
predecessors, wholly-owned or controlled subsidiaries or affiliates, including, but not limited to
Defendant Norampac, sold Containerboard Products in interstate commerce directly to
purchasers in the United States.
20.
Defendants Norampac, Cascades, and Domtar are sometimes referred to
collectively herein as “Norampac.” Norampac’s subsidiaries and divisions in Canada serviced
customers in the United States by selling Containerboard Products directly to them as alleged
above. Norampac’s subsidiaries and divisions located in the United States including Norampac
Industries, Inc. Lancaster Division in Lancaster, New York (corrugated packaging containers)
and Niagara Falls Division in Niagara Falls, New York (corrugated medium); Norampac New
England, Inc., Thompson Division in Thompson, Connecticut (corrugated packaging containers)
and Leominster Division in Leominster, Massachusetts (corrugated products) Norampac New
York City Inc., Maspeth, New York (corrugated products) and Norampac Schenectady Inc.
(corrugated packaging) also sold Containerboard Products in interstate commerce directly to
purchasers in the United States.
5
21.
Defendant
Weyerhaeuser
Company
(“Weyerhaeuser”)
is
a
Washington
corporation with its principal place of business at Federal Way, Washington. During the Class
Period, Weyerhaeuser and/or its predecessors, wholly-owned or controlled subsidiaries or
affiliates sold Containerboard Products in interstate commerce directly to purchasers in the
United States.
22.
Defendant Georgia Pacific LLC (“Georgia Pacific”) is a Georgia corporation with
its principal place of business at Atlanta, Georgia.
During the Class Period, Georgia Pacific
and/or its predecessors, wholly-owned or controlled subsidiaries or affiliates sold Containerboard
Products in interstate commerce directly to purchasers in the United States.
23.
Defendant Temple-Inland, Inc. (“Temple-Inland”) is a Delaware corporation with
its principal place of business at Austin, Texas. During the Class Period, Temple-Inland and/or
its predecessors, wholly-owned or controlled subsidiaries or affiliates sold Containerboard
Products in interstate commerce directly to purchasers in the United States.
24.
Defendant Smurfit-Stone Container Corporation (“Smurfit-Stone”) is a Delaware
corporation with its principal place of business at Chicago, Illinois. During the Class Period,
Smurfit-Stone and/or its predecessors, wholly-owned or controlled subsidiaries or affiliates sold
Containerboard Products in interstate commerce directly to purchasers in the United States. On
or about January 26, 2009, Smurfit-Stone filed a voluntary Chapter 11 petition in the United
States Bankruptcy Court for the District of Delaware; effective June 30, 2010, Smurfit-Stone was
discharged from the United States Bankruptcy Court for the District of Delaware under a plan of
reorganization.
25.
“Defendant” or “Defendants” as used herein, includes, in addition to those named
specifically above, all of the named Defendants’ predecessors, including Containerboard
Products manufacturers merged with or acquired by the named Defendants and each named
Defendants’ wholly-owned or controlled subsidiaries or affiliates that sold Containerboard
Products in interstate commerce directly to purchasers in the United States during the Class
6
CO-CONSPIRATORS
26.
Various other persons, firms and corporations, not named as Defendants, have
participated as co-conspirators with Defendants and have performed acts and made statements in
furtherance of the conspiracy.
27.
Whenever reference is made to any act of any corporation, the allegation means
that the corporation engaged in the act 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 business or affairs.
28.
Each of the Defendants named herein acted as the agent or joint-venturer of or for
the other Defendants with respect to the acts, violations and common course of conduct alleged
CLASS ACTION ALLEGATIONS
29.
Plaintiff brings this action on behalf of itself and as a class action under the
provisions of Rule 23(a), (b)(2) and (b)(3) of the Federal Rules of Civil Procedure on behalf of
the members of the following Class:
All persons who purchased Containerboard Products directly from any of the
Defendants or their subsidiaries or affiliates for use or delivery in the United
States from at least as early as August 2005 until the Present.
Specifically excluded from this Class are the Defendants; the officers, directors or
employees of any Defendant; any entity in which any Defendant has a controlling
interest; and any affiliate, legal representative, heir or assign of any Defendant.
Also excluded from this Class are any federal, state or local governmental entities,
any judicial officer presiding over this action and the members of his/her
immediate family and judicial staff, and any juror assigned to this action.
30.
Class Identity: The Class is readily identifiable and is one for which records
should exist.
31.
Numerosity:
Due to the nature of the trade and commerce involved, Plaintiff
believes that there are thousands of Class members as above described, the exact number and
their identities being known to Defendants and their Co-conspirators.
7
32.
Typicality: Plaintiff's claims are typical of the claims of the members of the Class
because Plaintiff purchased Containerboard Products directly from one or more of the
Defendants or their co-conspirators, and therefore Plaintiff’s claims arise from the same common
course of conduct giving rise to the claims of the members of the Class and the relief sought is
common to the Class.
33.
Common Questions Predominate: There are questions of law and fact common to
the Class, including, but not limited to:
a.
Whether Defendants and their Co-conspirators engaged in an agreement,
combination, or conspiracy to fix, raise, elevate, maintain, or stabilize prices of
Containerboard Products sold in interstate commerce in the United States;
b. The identity of the participants of the alleged conspiracy;
c.
The duration of the conspiracy alleged herein and the acts performed by
Defendants and their Co-conspirators in furtherance of the conspiracy
d. Whether the alleged conspiracy violated Section 1 of the Sherman Act, 15 U.S.C.
§1;
e.
Whether the conduct of Defendants and their Co-conspirators, as alleged in this
Complaint, caused injury to the business or property of the Plaintiff and the other
members of the Class;
f.
The effect of Defendants’ alleged conspiracy on the prices of Containerboard
Products sold in the United States during the Class Period; and
g. The appropriate class-wide measure of damages.
34.
These and other questions of law or fact which are common to the members of the
Class predominate over any questions affecting only individual members of the Class.
35.
Adequacy: Plaintiff will fairly and adequately protect the interests of the Class in
that Plaintiff’s interests are aligned with, and not antagonistic to, those of the other members of
the Class and Plaintiff has retained counsel competent and experienced in the prosecution of
class actions and antitrust litigation to represent itself and the Class.
8
36.
Superiority: A class action is superior to other available methods for the fair and
efficient adjudication of this controversy since individual joinder of all damaged Class members
is impractical. Prosecution as a class action will eliminate the possibility of repetitious litigation.
The damages suffered by individual Class members are relatively small, given the expense and
burden of individual prosecution of the claims asserted in this litigation. Absent a class action, it
would not be feasible for Class members to seek redress for the violations of law herein alleged.
Further, individual litigation presents the potential for inconsistent or contradictory judgments
and would greatly magnify the delay and expense to all parties and to the court system.
Therefore, a class action presents far fewer case management difficulties and will provide the
benefits of unitary adjudication, economy of scale and comprehensive supervision by a single
TRADE AND COMMERCE
Containerboard Products
37.
Containerboard is the principal raw material used to manufacture corrugated
products. Containerboard includes both corrugating medium and linerboard. Linerboard is a flat
wood-fiber paperboard. Corrugated medium is a type of fluted paperboard made from the same
material as linerboard. .
Linerboard is used as the inner and outer facings, or liners, of
corrugated products. Corrugating medium is fluted and laminated to linerboard in corrugator
plants to produce corrugated sheets. The sheets are subsequently printed, cut, folded and glued to
produce
corrugated
products,
mostly
boxes
and
other
containers.
As
used
herein,
“Containerboard Products” includes corrugated sheets and corrugated products including
corrugated boxes and other corrugated containers.
38.
Defendants and their co-conspirators manufacture and sell linerboard, corrugated
medium, containerboard and corrugated boxes and other corrugated containers.
39.
Containerboard Products are a multi-billion dollar industry. During the relevant
time period, annual sales of Containerboard Products were tens of billions of dollars.
40.
The containerboard industry is heavily concentrated. As of 2010, Defendants had
an approximate combined 83% share of the containerboard market, controlling nearly thirty
9
million tons of annual production. Collectively, Defendants and their co-conspirators control an
even greater proportion of the supply of Containerboard Products in the market.
41.
The price of corrugated medium is tied to the price of linerboard. As a result, the
price of containerboard is directly tied to the price of corrugated medium and linerboard.
Likewise, because containerboard is used in the manufacture of corrugated containers, a rise in
the price of containerboard results in a similar rise in the price of corrugated containers.
Collectively, Defendants and their co-conspirators utilize most of the linerboard and medium
they manufacture to produce containerboard and corrugated containers that they sell to the
Plaintiff Class. In some instances, Defendants sell the manufactured linerboard and corrugated
medium to other Defendants or independent converters who in turn produce containerboard
sheets and corrugated products.
Corrugated products are generally viewed as interchangeable
commodities because most manufacturers are able to supply the product needs of most
customers.
The Structure of the Containerboard Products Industry
42.
Economists Haizheng Li and Jifeng Luo (hereinafter “Li and Luo”) of the Georgia
Institute of Technology have thoroughly examined the containerboard industry and concluded
that the characteristics of the containerboard industry make it highly susceptible to horizontal
price-fixing and output restrictions:
The linerboard industry is very capital intensive and thus entry is restricted
because
of
the
large
amount
of
capital
and
the
long-term
nature
of
investment…Firms may have similar cost curves if the equipment used is similar.
Additionally, the demand for containerboard is relatively inelastic because of no
major substitutes.
Therefore, the US linerboard industry may have a certain
degree of oligopolistic structure such that leading producers can exercise some
pricing power, for example, through either barometric price leadership or
collusive price leadership.1
43.
Antitrust law and economics have identified several factors which make markets
susceptible to price-fixing. Those factors include: relatively few firms with a large share of the
market; high barriers to entry into the market; lack of close substitutes/commodity nature of the
1 Li, Haizheng and Jifeng Luo. Industry consolidation and price in the US linerboard industry. Journal of Forest
Economics 14 (2008) at 98.
10
good; inelastic demand; and inability of any single firm to control supply and price unilaterally.
The Containerboard Products industry demonstrates all of these factors.
44.
Relatively Few Firms: Historically, Containerboard Products has been considered
a concentrated industry. In the last decade, however, a series of mergers and acquisitions have
led to a significant increase in market concentration.
In 1995, the top five firms controlled
approximately 42% of the containerboard market and the top 10 firms had a combined 66%
market share. During the relevant time period of this complaint, the containerboard industry
endured considerable consolidation resulting in the top five firms controlling approximately
72.5%, of the containerboard
market
while
the Defendants' combined
share reached
approximately 83%.
45.
The consolidation of the Containerboard Products industry involving Defendants
and their co-conspirators both during the Class Period and immediately preceding it has been
substantial. The following are examples of transactions that lead to such concentration:
In February 2004, PCA purchased Acorn Corrugated Box Co.;
In March 2004, Georgia-Pacific bought the assets of Temple-Inland’s
corrugated box plants;
In April 2004, International Paper acquired Box U.S.A.;
In April 2005, PCA acquired Midland Container Corp.;
In September 2005, the Jefferson Smurfit Group merged with Kappa
Packaging;
In October 2005, Norampac acquired three Standard Paper Box plants;
In April 2006, Georgia-Pacific acquired Smurfit-Stone’s Brewton, Alabama,
linerboard mill;
In July 2007, International Paper purchased the remaining shares of
Compagnie Morocaine des Cartons et des Papiers (CMCP); and
In March 2008, International Paper acquired Weyerhaeuser’s Packaging
Business;
In April 2008, Smurfit-Stone acquired Calpine Corrugated LLC.
11
46.
Barriers to Entry: The Containerboard Products industry reflects two significant
barriers to entry: 1) capital-intensive start-up costs; and 2) high transportation costs.
The
equipment used to manufacture Containerboard Products is both highly specialized and very
expensive. Li and Luo conclude that the “linerboard industry is very capital intensive…entry is
restricted because of the large amount of capital and the long-term nature of investment.”
Another industry report affirmed that “The industry is capital-intensive.”2 Consequently, large
capital investments prohibit new entrants.
At a 2005 industry trade conference attended by
Defendants’ officers, employees or representatives, presenter Deloitte Development LLC
instructed the audience not to overestimate “the threat of new entrants into the market,”
indicating that entry into the containerboard market was highly unlikely.3
47.
Manufacturers Have Similar Costs: Defendants and their co-conspirators, share
relatively similar costs. The technology and process of containerboard manufacturing are well-
known and Defendants and their co-conspirators employ the same types of equipment and
processes in the production process.
48.
Moreover, the fewer the number of firms in an industry, the more similar costs
become for the remaining firms. Accordingly, the recent consolidation of the Containerboard
Products industry has in turn driven Defendants’ costs to be even more similar. Further, paper
manufacturing has relatively few economies of scale.
Industry reports state that “Large and
small producers operate the same kinds of plants –large producers just have more of them.”4 The
combination of these industry facts – consolidation, similar plants, and technology – indicates
that the Defendants have very similar cost structures.
49.
Because Containerboard Products are bulky and cumbersome to transport, long-
distance shipping is expensive.
Consequently, there are geographic entry barriers to the
Containerboard Products industry as well. One industry report stated that “[t]he effective sales
2 Hoover’s Industry Profile: Paper Products Manufacture.
3 Sinoway, Mike, Pricing Opportunities in the Forest Products Industry, June 28, 2005, Deloitte Development LLC.
4 See PCA Form 10-K, filed February 20, 2008 at p.11.
12
area for corrugated boxes, for example, is only about 150 miles from the production plant.”5
High start-up costs and shipping costs make entry into the containerboard market very difficult.
50.
No Close Substitutes/Commodity Nature of the Products:
Containerboard
Products do not have close substitutes in the market.
The closest substitutes for corrugated
containers are plastic containers, which comprise a very small portion of the container or
packaging market. Likewise, containerboard and corrugated packaging are commodities because
containerboard and corrugated containers made by any one of the Defendants is interchangeable
with that of any of the other Defendants. In its 2007 10-K filing, PCA acknowledged this fact,
noting “[c]ontainerboard is generally considered a commodity-type product and can be
purchased from numerous suppliers.”6
51.
Inelastic Demand: The demand for Containerboard Products is very inelastic. Li
and Luo estimated the price elasticity of demand for linerboard to be 0.18. This means that a one
percent increase in linerboard price would result in just a 0.18% decrease in the quantity
demanded. When elasticity is this low, concerted price increases are likely to be profitable and
sustainable since purchasers will continue to purchase nearly the same quantity of containerboard
despite price increases.7
52.
Market Power: While the Defendants and their co-conspirators comprise 83% of
the containerboard market, no single firm has sufficient market power to unilaterally control
supply and price. For example, PCA’s 10-K for the year ending December 31, 2006, states that
“PKG [stock symbol for PCA] operates in an industry that is highly competitive, with no single
containerboard or corrugated packaging producer having a dominant position.”
Similarly,
Temple-Inland’s 10-K for the year ending December 31, 2006, states “[g]iven the commodity
nature of our manufactured products, we have little control over market pricing or market
demand. No single company is dominant in any of our industries.”8 As a result, when single
5 Hoover’s Industry Profile: Paper Products Manufacture; see also, PCA Form 10-K, filed February 20, 2008 at p.
11, noting, “[c]orrugated producers generally sell within a 150-mile radius of their plants.”
6 See PCA Form 10-K, filed February 20, 2008 at p. 11.
7 See N. Gregory Mankiw, PRINCIPLES OF ECONOMIICS (5th ed. 2009), at p. 94.
8 See Temple-Inland Form 10-K, filed February 23, 2007 at p. 10.
13
manufacturers have attempted to raise prices without the agreement of other firms, customers are
able to resist the unilateral price increase by turning to other manufacturers.
Industry and Trade Association Membership
53.
The Fibre Box Association (“FBA”) is a Containerboard Products trade
organization. Its members include Defendants PCA, International Paper, Norampac, Georgia-
Pacific, Temple-Inland and Smurfit Stone.
According to its 2007 tax records, Thomas A.
Hassfurther, PCA’s current Executive Vice President, served as FBA’s 1st Vice Chairman, and
its board of directors includes representatives from Temple-Inland, Georgia-Pacific, International
Paper, Weyerhaeuser, and Smurfit-Stone.
The FBA holds at least three meetings each year
where executives and other representatives of the Defendants and their co-conspirators have an
opportunity to meet and talk with one another, including communicating about supply and
prices.
Further, the FBA holds dozens of networking events each year which give the
Defendants and their co-conspirators additional opportunities to communicate with one another.
Further, the FBA publishes a set of antitrust guidelines that it distributes to its members. Notably
absent from these guidelines are prohibitions on communicating or agreeing with other
containerboard product manufacturers concerning output, supply or capacity decisions.
54.
The American Forest & Paper Association (“AF&PA”) is a trade organization
representing forest and building product industries as well as pulp, paper and paperboard
manufacturers. Its members include PCA, International Paper, Georgia-Pacific, Weyerhaeuser,
Temple-Inland and Smurfit-Stone.
During the Class Period, its officers have included James
Hannan, President and CEO of Georgia-Pacific and John Faraci, Chairman and CEO of
International Paper and its board of directors has included Daniel S. Fulton, President & CEO of
Weyerhaeuser, Patrick J. Moore, Chairman & CEO of Smurfit-Stone, Doyle R. Simons,
Chairman & CEO of Temple-Inland, and Paul T. Stecko, Chairman & CEO of PCA.
The
AF&PA holds several meetings a year where executives and other representatives of the
Defendants have an opportunity to meet and talk with one another, including communicating
about supply and prices.
As described below, AF&PA forums have included instructions on
steps to conceal anticompetitive communications between firms.
14
History of Anticompetitive Conduct
55.
For decades, the paper and pulp industry has consistently demonstrated
cartelization
and
anticompetitive
behavior.
In
particular,
the
linerboard,
corrugated,
containerboard and Containerboard Products segments of the industry have a history of antitrust
violations dating back to a consent decree entered on April 23, 1940 in the action entitled United
States of America, Plaintiff, against National Container Association, et al., Defendants (SDNY
Civil Action No. 8-318) and United States v. Container Corporation of America, et al., 393 US
333 (1969) whereby the defendants (including certain predecessors of Defendants herein) were
found to have violated Section 1 of the Sherman Act after being charged with conspiring to
restrain price competition in sale of corrugated containers in the Southeastern United States from
January 1, 1955, to October 14, 1963.9 The Defendants and their co-conspirators have a prior
history of anticompetitive horizontal agreements with one another.
56.
Many of the same firms involved in the cartel alleged in this Complaint, including
PCA, International Paper, Smurfit-Stone (then known as Stone Container Corp.) and Georgia-
Pacific were also involved in a price fixing cartel over corrugated containers and corrugated
cardboard sheets from 1964-1975. Those firms that did not settle went to trial and most settled
before a verdict was rendered; the sole Defendant remaining at the time of the verdict was found
liable for participating in a price fixing conspiracy over corrugated containers and corrugated
sheets from 1964-1975. See In re Corrugated Container Antitrust Litigation, 556 F.Supp. 1117,
1125 (D.C.Tex.1982).
57.
In 1998, Stone Container Corp. (now known as Smurfit-Stone) entered into a
consent agreement with the Federal Trade Commission (“FTC”) in which it pledged to refrain
from “entering into, attempting to enter into, adhering to, or maintaining any combination,
conspiracy, agreement understanding, plan or program with any manufacturer or seller of
linerboard to fix, raise, establish, maintain or stabilize prices or price levels, or engage in any
9 See U.S. v. Container Corp. of America, 273 F.Supp. 18, (M.D.N.C. Aug 31, 1967) and U.S. v. Container Corp.
of America, 1970 WL 513, 1970 Trade Cases P 73,217 (M.D.N.C. May 19, 1970) (on remand).
15
other pricing action with regard to sales of linerboard to third parties.” See In the Matter of
Stone Container Corp., Docket No. C-8306, Decision and Order, May 18, 1998.
58.
Smurfit-Stone, International Paper, Georgia Pacific, Weyerhaeuser, Temple-
Inland, and PCA were involved in a price-fixing cartel over containerboard from 1993-1995.
See In re Linerboard Antitrust Litigation, 305 F.3d 145 (3rd Cir. 2002).
As part of the
conspiracy, these firms increased the “downtime” of linerboard machines, reducing production
and inventory. At the same time, they purchased substantial amounts of containerboard from one
another, protecting market shares, causing an artificial shortage and an increase in the price of
linerboard. At the peak of the cartel’s efficacy in 1995, the price of linerboard peaked at
$530/ton. The class action claims were settled in 2003 when the defendants agreed to pay their
customers over $200 million, however lawsuits brought by Plaintiffs opting out of the class
proceeded.
59.
As a result of their exposure to prior antitrust lawsuits, Defendants have taken
steps to conceal their anticompetitive communications with one another. For example, at the
American Forest & Paper Association’s 128th Annual Paper Week held in New York City in
April 2005, Defendants attended a seminar entitled “Are You Vulnerable to Lawsuits?” aimed at
reducing vulnerability to antitrust litigation.10 Because the Defendants have received training on
how to avoid getting caught communicating with one another regarding price and output
decisions, the amount of conspiratorial evidence that can be obtained from public sources and
without access to internal records and testimony is highly limited. Nevertheless, the existence of
an agreement is unambiguously evidenced through their coordinated conduct during the Class
VIOLATIONS ALLEGED
60.
The unprecedented industry consolidation detailed in paragraphs 44 and 45
created an environment conducive to collusion.
Further, at or about the onset of the Class
Period, the Containerboard Products industry was experiencing decreased profit margins, rising
product demand, and a promising economic outlook.
Additionally, shortly before the Class
10 Are You Vulnerable to Lawsuits? OFFICIAL BOARD MARKETS, (April 23, 2005).
16
Period, the Containerboard Products industry endured two failed price increases. Specifically,
on May 31, 2003, Official Board Markets reported that a $35/ton price increase in both
linerboard and medium failed, noting “[n]ot only is this attempt a failure, but discounting
prevails.” While prices steadily increased in 2004, by early 2005 they again began to recede,
bottoming out in spring 2005.
On May 31, 2005, Official Board Markets reported that
Defendant International Paper announced a $50/ton price increase but due to International
Paper’s competitors not backing the price increase with a “firm stance,” the end result was a
failed increase.
In June 2005, “it became apparent that industry-wide price hikes weren’t
sticking.
Instead of rising about 10%, prices on the thick paper used to make corrugated
containers slipped as inventories of boxes inched higher.”11 These factors acted together as the
catalyst for Defendants to coordinate their capacity restraints in order to reduce available
supplies and thereby fix, raise, stabilize and maintain the prices of Containerboard Products.
61.
In October 2003, Smurfit-Stone announced a massive restructuring plan intended
“to reduce [containerboard] capacity.”12 According to its Chief Executive Officer Pat Moore, the
designed goal was “to cut supply enough at Smurfit [-Stone] to force price increases throughout
the industry.”13 After the failed May 2005 price increase, Smurfit-Stone recognized that their
independent action to reduce containerboard capacity could not force industry prices upward
unless Defendants supported both the capacity reduction and subsequent price increases.
62.
The period of 2005-2010 witnessed an exceptional number of containerboard
plant closings, capacity reductions, and price increases that can only be explained by concerted
effort by the Defendants and their co-conspirators.
Defendants increased Containerboard
Products prices increased eight times between August 2005 and August 2010. Over that period,
Containerboard Product prices have increased over fifty percent (50%) despite the economic
downturn during the latter half of the Class Period.
Each of these price increases was
implemented by the Defendants nearly simultaneously and was facilitated by reductions in
11 Flat pricing boxes in Smurfit; Investors bail out as price hike fails; corrugated maker looks for better half of '05,
Crain's Chicago Bus., June 27, 2005, at p. 4.
12 Clayton, Mo., Packaging Firm Smurfit-Stone Container Thinks Outside the Box, St. Louis Dispatch, Aug. 22,
2004, at p. 1.
13 Id.
17
supply and production capacity.
In the face of increasing demand, these reductions make no
economic sense absent conspiracy and collusion. Norampac’s 2005 20-F filing illustrates these
phenomena:
In 2005, industry box shipments decreased by 0.4% in North America while
North American containerboard operating rates were approximately 95%.
Containerboard producers in the United States reduced their inventories and
drove a US$30/ton increase on linerboard in October following a US$55/ton
decrease in the first three quarters of the year.
63.
Demand for Containerboard Products is tied to overall consumer demand and
spending.
In mid-2005 and continuing thereafter through 2007 consumer demand, including
demand for Containerboard Products in the U.S. was relatively stable and industry expectation
were that demand would increase, yet defendants cut capacity and raised prices. These actions
were contrary to Defendants’ unilateral economic interests because, given market conditions and
expectations that demand was increasing, in a competitive market capacity would, at minimum,
be maintained if not expanded, in order to enhance volumes, revenues, profits and market share.
In 2008, consumer demand in the United States plummeted, yet defendants continued to raise
prices; in August 2008, Defendants and their co-conspirators raised prices of containerboard by
9%; and notwithstanding fears of deflation in the general economy, increased prices an
unprecedented three times in 2010 to all-time highs, without any underlying cost justifications,
leading one market commentator to note that the historic price increases “calls into question the
integrity of our industry” and “call[s] into question the pricing activities of the major companies”
and to note the similarity of the present conduct of Defendants to the conduct in the prior
Linerboard cases.
64.
Defendants and their co-conspirators were also able to facilitate the conspiracy in
part by causing artificially inflated, supra-competitive prices to be published in trade publications
which served to indicate and index prices or to function as list prices for Containerboard Product
purchasers. Certain supply and purchase contracts between Defendants and purchasers were tied
to the prices listed in those trade publications.
18
65.
Defendants accomplished their conspiracy in substantial part through the
coordinated reduction of capacity, and in turn, supply. As a result of Defendants’ conduct as
alleged herein, their production capacity of Containerboard Products was significantly reduced
while their prices increased by approximately 50% between 2005 and 2010:
Containerboard Price vs. Capacity
Quarterly: 2005-2010
100.0
95.0
90.0
85.0
80.0
75.0
Percent of 1Q 2005
Containerboard Capacity
Remaining
70.0
Containerboard Price
($/short ton) 42lb Linerboard
65.0
60.0
55.0
50.0
2Q
3Q
2Q
3Q
2Q
3Q
2Q
3Q
2Q
3Q
2Q
4Q
2006 1Q
4Q
2007 1Q
4Q
2008 1Q
4Q
2009 1Q
4Q
2010 1Q
19
2005
66.
In the 1st Quarter of 2005, Defendant Smurfit-Stone closed its 203,000 tons-per-
year Fernandina Beach, Florida, containerboard plant. Notwithstanding the closure of this plant,
on May 5, 2005, Smurfit Stone reported in its SEC Form 10-Q filing that “[w]e expect our
profitability to improve in the 2nd Quarter of 2005 as a result of stronger demand and high sales
prices for containerboard and corrugated containers.”
67.
During the 1st Quarter of 2005, Defendant PCA idled 65,000 tons per year of
production capacity by taking off-line one of its three paper machines at its containerboard plant
in Tomahawk, Wisconsin.
68.
Defendant Weyerhaeuser likewise reported strong demand for Containerboard
Products during the 1st Quarter of 2005 in its 3rd Quarter 2005 Form 10-Q, stating that:
Containerboard sales increased $36 million. Unit shipments increased 45,000
tons, or approximately 18 percent, and price realizations, which include freight
and are net of normal sales deductions, increased $71 per ton, or approximately
22 percent in the first quarter of 2005, compared to the same period of 2004.
These increases were mainly due to an improvement in demand for corrugated
packaging in U.S. markets.
69.
Similarly, International Paper reported in its May 6, 2005 Form 10-Q that “2nd
Quarter earnings normally benefit from seasonably higher containerboard and box demand.”
70.
Nevertheless, in the 2nd Quarter of 2005, International Paper took approximately
530,000 tons of containerboard downtime compared with approximately 215,000 of downtime in
the 2nd Quarter of 2004. In its 10-Q filed on August 5, 2005, Defendant explained that this was
“market related downtime” which was “taken to balance internal supply with demand to help
manage inventory levels.” However, when a manufacturing plant is idled during “downtime”,
the firm must continue to pay fixed costs, which are very high in the Containerboard Products
industry. Smurfit-Stone acknowledged this fact in its SEC Form 10-K for the 2006 fiscal year,
stating: “the industry is capital intensive, which leads to high fixed costs and has historically
resulted in continued production as long as prices are sufficient to cover marginal costs.”
Accordingly, “market related downtime” is very costly and is economically irrational from a
single-firm’s point of view during periods of strong demand, such as the 2nd Quarter of 2005.
20
71.
As previously alleged, at the onset of the Class Period, Defendants were
experiencing decreased profit margins and historically high demand.
In that context, in June
2005, employees and representatives from each of the Defendants and their co-conspirators,
including Pete Correll, Chairman and CEO of Georgia-Pacific, David A. Spraley. Vice President
of Georgia-Pacific, C. Richard Larrick, General Manager of Georgia-Pacific, Russell Bishop,
Chief Information Officer of Weyerhaeuser, Dick Thomas, Vice President of Weyerhaeuser,
Ronnie Cosper, Papermill Superintendent for Smurfit-Stone, and others were reported as
attending the PIMA 2005 Leadership Conference in Nashville, Tennessee.14 The theme of this
conference was “Success through Collaborative Teamwork.”
Topics discussed included
“Effective Collaboration through Teamwork” and “Price Execution in the Forest Products
Industry.”
72.
During this conference, Deloitte Consulting LLP gave a presentation called
“Pricing Opportunities in the Forest Products Industry.”
Deloitte began its presentation by
stating that the industry was “rich in competitive intelligence, which facilitates strategic pricing
analysis.” The presentation also included a discussion regarding the several factors which made
coordinated price increases possible such as “underestimating competitor’s desire to raise prices”
and “overestimating the threat of new entrants into the market.”15
73.
Immediately before this conference, on June 27, 2005, Smurfit-Stone reported
that it “has no immediate plans to close down plants.”16 But only days later, on July 1, 2005,
Deutsche Bank, which monitors the containerboard industry and issues regular reports on
developments within the industry, reported that “[t]here has been a lot of ‘chatter’ suggesting
that one or more of the big integrated producers will soon shutter capacity.”17
14 The Paper Industry Management Association, or “PIMA,” describes itself as “the premier association for
management professionals in the paper and pulp industry” with the goal of contributing “to the strength of the
international pulp and paper community by providing the means for our members to address relevant industry issues
and to develop their management and leadership skills.”
15 Sinoway, Mike, Pricing Opportunities in the Forest Products Industry, June 28, 2005, Deloitte Development LLC.
16 Flat pricing boxes in Smurfit; Investors bail out as price hike fails; corrugated maker looks for better half of '05,
Crain's Chicago Bus., June 27, 2005, at p. 4.
17 050701 Containerboard & Boxes -- Boxed in, Deutsche Bank – Equity Research
21
74.
On July 19, 2005, Deutsche Bank reported “IP [International Paper] capacity
withdrawals will help uncoated and CB [containerboard] producers. Among the names: DTC
[Domtar], PKG [Packaging Corporation of America], TIN [Temple-Inland].”18
75.
Beginning in early 2005, and continuing throughout the remainder of the year,
Defendant Temple-Inland closed containerboard converting facilities in Antioch, California,
Newark, Delaware, Atlanta, Georgia, and Louisville, Kentucky.
This reduced the supply of
corrugated containers and aided in the overall scheme to increase the price of Containerboard
Products. Temple-Inland closed these facilities despite acknowledging in its May 10, 2005 10-Q
that “market demand strengthened, resulting in higher prices for most of our product offerings.”
The closures were against Temple-Inland’s unilateral economic self-interest because they were
made during a period of increasing demand and prices.
76.
In the 3rd Quarter of 2005, Smurfit-Stone permanently closed two more of its
containerboard mills as part of what the company called “its ongoing assessment and
restructuring efforts.” Smurfit-Stone closed mills in New Richmond, Quebec and Bathurst, New
Brunswick.
It closed these mills despite acknowledging in its 10-Q, filed with the SEC on
August 8, 2005, that “In the third quarter of 2005, we expect seasonably strong demand for
containerboard
and
corrugated
containers.”
All
together,
these
mills
accounted
for
approximately 274,000 tons per year of containerboard. According to its 2007 Annual Report, in
2005 Smurfit Stone shut down 8.5% of its total capacity. The closures were against Smurfit-
Stone’s unilateral economic self-interest because they were made during a period of increasing
demand and prices.
77.
On August 4, 2005 Deutsche Bank reported:
Smurfit-Stone today announced a number of permanent capacity closures…a bit
more capacity than we expected, a bit earlier than we expected. They amount to
480K tons…or about 1.3% NA capacity…With Smurfit having done a good deal
of "heavy lifting", we'll be watching the behavior of other major competitors like
International Paper and Weyerhaeuser…the outlook of demand has also
improved remarkably in recent weeks.19
18 050719 IP Thoughts on Restructuring, Deutsche Bank – Equity Research
19 050804 Bigger - Sooner - Enough -- Smurfit Announces Mill Shuts, Deutsche Bank – Equity Research
22
78.
The following day, the St. Louis Post-Dispatch reported that Smurfit-Stone stated
that “the closures are part of its restructuring efforts and will reduce its container-board
manufacturing capacity by about 700,000 tons.”20
Approximately one month later, on
September 7, 2005, Smurfit-Stone announced a price increase of $30/ton to take effect on
October 1, 2005. On September 17, 2005, Defendant PCA followed with the announcement of a
$30 per ton price increase also effective October 1, 2005.
79.
During the second quarter of 2005, Georgia-Pacific reduced the number of its
containerboard shipments “due to slowback and maintenance downtime.”21
A slowback is
another form of output restriction in lieu of completely shutting a machine or mill down.
Georgia-Pacific did both in 2005, scheduling all major maintenance downtime across its mills in
the fourth quarter of 2005 while announcing price increases of $30 per ton on linerboard
medium, and 8% on boxes to be effective during that quarter.22
80.
In the 3rd Quarter of 2005, International Paper also announced the closing of its
100,000 ton-per-year mill in Fort Madison, Iowa.
81.
On September 20, 2005, Deutsche Bank reported that containerboard prices were
moving up but that “[w]hether prices can rise further without more supply reductions remains an
open question.”23
82.
That same month, September 2005, Defendant Norampac permanently closed one
of its two 150,000 tons-per-year paper machines at its Red Rock, Ontario containerboard mill.
Additionally, in 2005, Norampac took “market related downtime” equal to 6.7% of its North
American capacity despite increasing prices and demand.
83.
In October 2005, Norampac CEO Marc-Andre Depin commented on the
September 2005 machine shut down by noting “[i]f everyone would remove the same amount of
capacity percentage-wise as we have, I think our business would look a lot better. You have to
be ready to let go of business if you want to keep the price up.”24
In its 2005 Form 20-F,
20 Smurfit-Stone plans to close plants, lay off 565, ST. LOUIS POST-DISPATCH, August 5, 2005, p. C3.
21 Georgia-Pacific Reports Second quarter Results, Canada NewsWire, July 28, 2005, at p. 4.
22 Q3 2005 Georgia-Pacific Earnings Conference Call – Final, FD (Fair Disclosure) Wire, Oct. 27, 2005, at p. 6.
23 051017 Deutsche Bank - September Containerboard Monitor, Deutsche Bank – Equity Research
24 Arzoumanian, M. Board Increase Flies Through, Official Board Markets, Volume 81, Issue 44, Oct. 29, 2005.
23
Norampac
also
noted,
“continued
industry
consolidation,
rationalization
of
inefficient
containerboard mill capacity and market-related downtime have helped to better balance supply
with demand and create a less volatile pricing environment.”25
84.
On September 27, 2005, members of the FBA again met in Atlanta, Georgia at
Georgia-Pacific’s offices for the Corrugated Packaging Alliance Meeting.26 Just days later, on
October 1, 2005, Defendants and their co-conspirators raised prices on linerboard by 7%
($30/ton) from $450/ton to $480/ton. At the same time, Defendants and their co-conspirators
raised the price of corrugated medium by 7% ($30/ton) from $420/ton to $450/ton. Notably, the
effective date of the price increase, as well as the amount of price increase, was implemented
uniformly throughout the industry and mirrored the increase announced by Smurfit-Stone and
PCA just weeks prior.
On October 3, 2005, Deutsche Bank reported that all major
containerboard producers were now supporting the price increase.27
85.
Just one month later, on October 27, 2005, Deutsche Bank reported on another
expected price increase: “Chemical producers do it, metal producers do it…maybe CB producers
can do it too.
Two CB price hikes in 60 days is quite unusual.
A December price hike is
unprecedented.”28 Defendants were able to accomplish the across-the-board price increases by
sharing supply and capacity curtailment information with one another in order to coordinate
supply restrictions substantial enough to force and sustain a Containerboard Products price
increase.
86.
On November 16, 2005, there was a meeting of the FBA’s Board of Directors.
That same day, Deutsche Bank reported that containerboard “[i]nventory numbers dropped
steeply in October, much more than typical…inventories down to 2.18 million tons, lowest level
since 1994.”29 Notably, the last time that containerboard inventories were reported to be this low
25 See Norampac Form 20-F for year ending December 31, 2005 at p. 16.
26 The Corrugated Packaging Alliance, or “CPA,” states its mission is in part “to provide a coordinated industry
forum that effectively acts on competing materials matters that could not be accomplished by individual members.”
27 051003 Dr Paper's Pulse on Pricing, Deutsche Bank – Equity Research
28 051027 Deutsche Bank - Smurfit-Stone Container, Deutsche Bank – Equity Research
29 051116 Deutsche Bank - October Containerboard Monitor and Numbers, Deutsche Bank – Equity Research
24
was during a horizontal output restriction conspiracy that ran from 1993-1995.
See In re
Linerboard Antitrust Litigation, 305 F.3d 145 (3rd Cir.2002).
87.
Less than two weeks after the meeting of the FBA’s Board of Directors, on or
about November 28, 2005, Weyerhaeuser and PCA announced a 40$/ton price hike, effective
January 1, 2006. Regarding these announced price hikes, on November 28, 2005 Deutsche Bank
reported that they “are likely to be joined by others before long.”30
88.
On November 28, 2005, Deutsche Bank also reported that:
Industry sources report that 2 of North America's 6 largest containerboard
producers (Weyerhaeuser, PCA) are talking with customers about a price hike on
January 1. It would appear that the increases are in the $40/ton range…Because
January and early February tends to be one of the slowest periods of the year, a
January price hike is unusual…Box plant inventories fell 208K in October and
have fallen 356K in 2 months. Measured in terms of days of supply, box plant
inventories are at only 2.8 weeks - the lowest level we can find in our 20+yrs of
data…Further supply reductions could heat the market even further over the next
month or two.31
89.
The following day, Weyerhaeuser announced its intent to indefinitely idle its
350,000 tons-per-year linerboard machine in Plymouth, North Carolina. On November 29, 2005,
Deutsche Bank reported that “[t]he shutdown removes nearly 1% of US containerboard capacity
at a point when the market has begun to tighten rapidly.
Containerboard was already a tight
market.” 32
90.
On December 3, 2005, Official Board Markets reported that Weyerhaeuser was
informing its customers about the $40 price increase and that “Packaging Corp. of America,
Smurfit Stone Container Corp. and Temple-Inland are telling their customers the same thing.”
91.
In total, Defendants and their co-conspirators shut down nearly 1 million tons of
containerboard capacity in 2005, or over 3% of total market capacity. Their conduct cannot be
reconciled with the strong demand the industry anticipated throughout 2005. Defendants and
their co-conspirators did not have economic justification to unilaterally cull capacity or reduce
production of corrugated containers. As demand and prices were increasing, independent firms
30 051128 Dr Paper's Pulse on Pricing, Deutsche Bank – Equity Research
31 051128 Deutsche Bank - Paper and Packaging, Deutsche Bank – Equity Research
32 051129 Deutsche Bank – Weyerhaeuser, Deutsche Bank – Equity Research
25
acting in their unilateral self-interest had an incentive to refrain from reducing capacity in order
to produce sufficient containerboard to meet the strong demand for corrugated containers, not to
restrain output as they did.
2006
92.
The Defendants and their co-conspirators also anticipated strong demand for
Containerboard Products in 2006. For example, in its 10-K for the year ending December 31,
2005, International Paper reported that “[w]e see favorable signs of positive momentum for the
remainder of 2006. We anticipate that demand in North America for both uncoated paper and
industrial packaging products will be stronger.”
93.
Effective on or about January 1, 2006, Defendants and their co-conspirators again
raised prices on linerboard by 8% ($40/ton) from $480/ton to $520/ton.
At the same time,
Defendants and their co-conspirators raised the price of corrugated medium by 9% ($40/ton)
from $450/ton to $490/ton.
These price increases, deemed “unusual” by Deutsche Bank just
weeks before (see ¶ 88, supra), occurred across-the-board and were imposed by all Defendants
and their co-conspirators at or about the same time. In 2007, PCA Chairman and CEO, Paul
Stecko, commented on the January 2006 price hike, noting “since consolidation began,
inventories have trended down and we did get a price increase last January.
So that would
historically not be a normal time.”33
94.
That same month, in January 2006, the Corrugated Packaging Alliance Action
Team met at Georgia-Pacific’s headquarters in Atlanta, Georgia.
Despite the record low
containerboard and corrugated container inventories and rising containerboard product prices,
over the course of the following year, Defendants and co-conspirators continued to reduce
capacity of Containerboard Products.
In its Form 20-F for fiscal year ending December 31,
2005, Norampac noted, “[i]n the first quarter of 2006, the situation was positive. In particular,
several North American producers announced capacity reductions or closures and some of them
have also reduced their box making capacity.”
33 Transcript of Q1 2007 PCA Earnings Conference Call (April 18, 2007) at p. 6.
26
95.
In the 1st Quarter of 2006, Weyerhaeuser closed its 350,000 tons-per-year
Plymouth, North Carolina containerboard plant. This plant shutdown was not in Weyerhaeuser’s
economic self-interest as it came at a time of rising prices and record low inventories, as
evidenced by its 2006 1st Quarter 10-Q wherein Weyerhaeuser reported that:
The company anticipates improvement in earnings for the Containerboard,
Packaging and Recycling segment in the second quarter primarily due to
implementation of previously announced price increases for both containerboard
and corrugated packaging and a seasonal increase in demand for corrugated
packaging.
96.
On February 13, 2006, Deutsche Bank reported that containerboard “[p]rices are
rising - even faster than expected. Transaction prices on U.S. kraft linerboard and corrugating
medium rose $40/ton in January - fully reflecting the price hike. Spot prices have reportedly
risen further.”34
97.
On February 21, 2006, Deutsche Bank reported that containerboard inventories
“remain at historically lean levels” and characterized containerboard prices as “rapidly rising.”35
Deutsche Bank also noted that: “A $50/ton price hike has been announced for late March/early
April. A $40/ton January increase on linerboard & corrugated medium appears to have taken
hold with relative ease. A $30/ton October hike also went in with ease.”36 On March 4, 2006,
Official Board Markets noted:
“Other integrateds that have announced recently (all up $50 per ton) include
Weyerhaeuser (April 1), Norampac (March 20), and Packaging Corp. of America
(March 21)…¶…Last month, Georgia-Pacific announced a $50 per ton increase
is scheduled to take effect April 1…¶…If this latest increase is fully
implemented it will mean that containerboard prices have risen 33 percent since
mid-October.
98.
On March 6, 2006, International Paper filed its Form 10-K for year ending
December 31, 2005. In its Executive Summary discussing the outlook for 2006, it was noted that
34 060213 Dr Paper's Pulse on Pricing, Deutsche Bank – Equity Research
35 060221 Deutsche Bank - January Containerboard, Deutsche Bank – Equity Research
36 Id.
27
“…operating rates should improve in 2006 reflecting announced industry capacity reductions in
uncoated papers and containerboard.”37
99.
On March 14, 2006, the FBA’s Executive Committee met. Approximately three
weeks later, in early April 2006, Defendants and their co-conspirators raised prices on linerboard
again, this time by nearly 10% ($50/ton) from $520/ton to $570/ton.
At the same time,
Defendants and their co-conspirators raised the price of corrugated medium by over 10%
($50/ton) from $490/ton to $540/ton. These price increases occurred across-the-board and were
imposed by all Defendants and their co-conspirators at or about the same time.
100.
In sum, between October 2005 and April 2006, the Defendants and their co-
conspirators raised prices in concert three times, October 2005, January 2006, and April 2006.
By April 2006, the price of linerboard had reached prices of $560-570/ton – its highest level
since 1995. A trade journal reported, “[s]ince October 2005, board prices have risen 33%. The
quickness of the jump is unprecedented.”38
101.
The price increases in containerboard and its components caused corrugated
container prices to rise as well. As reported by Deutsche Bank: “It appears that most of the first
two containerboard price hikes have made their way into box prices. Producers are now trying to
push this spring's $50/ton hike downstream to boxes. There are encouraging early signs in the
corrugated sheet & local box markets.”39
102.
Defendants’ costs, however, did not increase during this period. In discussing the
increasing profit margins enjoyed by the industry in the first quarter of 2006, Deutsche Bank
noted “[h]igher prices and a moderation of cost pressures were the key drivers.”40
Thus,
increased costs cannot explain the price increases. Notably, in April 2006, containerboard prices
reached their highest peak since 1995 – which was also during a period of known collusion. See
In re Linerboard Antitrust Litigation.
37 International Paper Form 10-K for year ending December 31, 2005, filed March 6, 2006, at p. 11.
38 Paperboard and Packaging (April 2006) at p. 16.
39 060608 Deutsche Bank Report - Dr. Paper's Containerboard Quarterly, Deutsche Bank – Equity Research
40 060608 Deutsche Bank Report - Dr. Paper's Containerboard Quarterly, Deutsche Bank – Equity Research
28
103.
In its May 9, 2006 10-Q, International Paper reiterated its bullish outlook for
demand, noting that “[e]ntering the 2nd quarter, we expect operating profits to be somewhat
higher than in the 1st quarter. Product demand and projects sales volumes are solid across all of
our key platform businesses.”
104.
Strong demand throughout 2006, combined with the capacity cuts and output
restrictions imposed by the Defendants and their co-conspirators, resulted in significantly higher
prices for Containerboard Products as stated in Weyerhaeuser’s 2006 2nd Quarter 10-Q: “The
increasing price realizations for containerboard and corrugated packaging resulted from an
increase in industry demand for corrugated packaging, coupled with high containerboard mill
operating rates and low inventory levels.” Despite an increase in demand which began at least in
2005, in early 2006, Weyerhaeuser closed its 350,000 ton-per-year containerboard machine at its
Plymouth, N.C., mill.
105.
On June 8, 2006, Deutsche Bank reported on the effect of recent tightening of
supply by Defendants:
Most containerboard companies reported q/q [quarter over quarter] margin gains
in Q1 2006.
Higher prices and a moderation of cost pressures were the key
drivers…Published estimates for linerboard price have risen $120/ton since
September, reaching $515/ton - - - the highest level since October 1995…Supply
discipline has been an essential part of the equation. Since early 2005, 1.67MM
tons of capacity have been closed.41
106.
On June 15, 2006, Deutsche Bank confirmed the price increases resulted in higher
corrugated container prices to the Plaintiff Class: “The strong box volume and lower inventories
in May enhance the odds that producers will get full pass through of the CB hike into boxes…
[t]he May figures show very solid demand and an inventory level reviving from upward
climb.”42
107.
On July 18, 2006, Deutsche Bank reported that “[PCA] says that April hike is
now essentially fully into boxes.”43
41 060608 Deutsche Bank Report - Dr. Paper's Containerboard Quarterly, Deutsche Bank – Equity Research
42 060615 Deutsche Bank Report - May Containerboard & Box Numbers Big Volumes, Deutsche Bank – Equity
Research
43 060718 Deutsche Bank Report - COMPANY ALERT - Packaging Corp. of America, Deutsche Bank – Equity
Research
29
108.
On July 25, 2006, Deutsche Bank reported that Weyerhaeuser’s “box prices were
up 5.3%.”44
109.
On August
7, 2006, Deutsche Bank reported that
“[c]ompany earnings
announcements to date show the 3rd price hike is being passed in the form of higher box
prices.”45
110.
Despite the substantially increased prices already brought about by a constriction
of capacity and supply, in the 3rd Quarter of 2006, Norampac closed its 300,000 tons-per-year
Ontario, Canada plant. On August 31, 2006, the Toronto Sun reported the closure, noting that
Norampac cited “unfavourable economic factors” as the reason for the closure.46 The Ontario
plant was 20% of Norampac’s total containerboard capacity and nearly 1% of total North
American containerboard capacity.
Norampac blamed the closure on high energy and input
costs.
However, as recently as June 2006, the trade press had indicated that Containerboard
Products producers’ margins were increasing due in part to a moderation of costs. In response to
the plant closing, Deutsche Bank reported that “[w]e are somewhat surprised by this
announcement. Linerboard prices are up $120/ton over the last year, and the YTD operating rate
for linerboard in the US is 98.9%.”47
This plant shutdown was not in Norampac’s unilateral
economic self-interest as it came at a time of rising containerboard prices, tight supply and high
plant operating rates.
111.
On October 9, 2006, Deutsche Bank reported that containerboard “[d]emand
remains solid.”48
112.
On October 18, 2006, Deutsche Bank reported that PCA had record earnings per
share in the 3rd Quarter of 2006, which reflected the hikes in containerboard prices. Deutsche
Bank also reported that PCA was “trimming output @ pt when mkt appears to be easing. [sic]
They’re not ‘free riding’ & not delaying – encouraging signs…4Q impact of mill outages will
remove 12K tons from system…production cut-backs by a player often viewed as industry ‘free
44 060725 Deutsche Bank Report - COMPANY ALERT – Weyerhaeuser, Deutsche Bank – Equity Research
45 060807 Deutsche Bank Report - Dr. Paper's Pulse on Pricing, Deutsche Bank – Equity Research
46 N. Ontario Mill To Shut Down, THE TORONTO SUN, p. 54.
47 060830 Deutsche Bank Report - Norampac closing Red Rock, Deutsche Bank – Equity Research
48 061009 Deutsche Bank Report - Dr. Paper's Pulse on Pricing, Deutsche Bank - Equity Research
30
rider’ are constructive.”49 PCA was contributing to the cartel by taking downtime and reducing
containerboard output while demand remained strong.
Under competitive market conditions,
PCA’s downtime would not have been in its unilateral interest; rather, it would have continued as
a free rider on the output reductions of the other Defendants.
PCA’s downtime under then-
current market conditions and expectations made economic sense only pursuant to an agreement
or understanding with its competitors that they would also restrict supply.
113.
This was confirmed by PCA’s 10-K for the year ending December 31, 2006:
Industry supply and demand trends were favorable throughout 2006. Industry
shipments of corrugated products increased 1.3% during 2006 compared to 2005,
on a per workday basis.
During this same period, industry containerboard
inventory levels remained at historically low levels, with inventory at the end of
December 2006 at its second lowest level in the past 25 years, on a weeks of
supply basis. Since September 2005, linerboard prices have increased $120 per
ton, or approximately 30%, as reported by industry publications.
114.
Just one week after reporting that PCA was taking downtime to further reduce any
slack in the supply constraint, on October 25, 2006, Deutsche Bank reported that: “Best news
may be SSCC's [Smurfit-Stone] Q4 ‘maintenance’ downtime. With markets appearing to slow,
throttling back on supply could help pricing environment.”50
115.
In October 2006, Weyerhaeuser and International Paper announced a price
increase effective on January 1, 2007.
116.
The unprecedented across-the-board increases in containerboard prices were due
to a concerted effort by the Defendants and their co-conspirators to restrict output and capacity.
Industry trade journals reported that the “linerboard market began to tighten in the fourth quarter
of 2005 and containerboard dropped to an unusually low level of 2.2 million tons.”51 Another
trade journal noted that “capacity reductions…may be the most important overall factor behind
the strong price gains” and that “[w]ith supplies short, mills were in the drivers’ seat and began
to aggressively push up prices.”52
49 061018 Deutsche Bank Report - PKG in 100 Words No more 100% operating rates? Deutsche Bank - Equity
Research
50 061025 Deutsche Bank Report - SSCC Q3 in 100 Words, Deutsche Bank - Equity Research
51 Pulp & Paper (Jan. 2007) at p. 15.
52 Paper Age (September/October 2006) at p. 15.
31
117.
All together, between 1st Quarter 2005 and 3rd Quarter 2006, Defendants and
their co-conspirators shut down nearly 1.7 million tons worth of containerboard capacity.
In
comparison, the conspiracy among a similar set of defendants in 1993-1995 was executed by
shutting down only 300,000-350,000 tons of capacity. See In re Linerboard Antitrust Litigation,
305 F.3d at p. 154.
These massive shutdowns were part of the Defendants and their co-
conspirators’ concerted effort to stabilize and raise the price of Containerboard Products.
2007
118.
In 2007, Defendants and their co-conspirators continued to shut down capacity in
furtherance of their conspiracy. In late January 2007, International Paper took 74,000 tons of
containerboard capacity offline. In April, PCA reported that it took unspecific downtime in the
1st and 2nd Quarters of 2007.
119.
On April 18, 2007, PCA Chairman and CEO, Paul Stecko, stated the following
with respect to industry-wide inventories during the PCA’s 1st Quarter earnings conference call:
Our containerboard inventories at the end of the first quarter were down about
2000 tons compared the year-end 2006 levels. I should also note that yesterday
the Fibre Box Association released industry statistics for the month of March and
in our opinion these statistics are very encouraging.
Corrugated products
demand was up 3.4% per workday and containerboard inventories fell by 75,000
tons to 2.472 million tons or 4.1 weeks of supply. This is 200,000 tons lower
than the average March containerboard inventory for the past ten years and on a
weeks of supply basis, this is the lowest March ending inventory on record. So
pretty healthy statistics.
120.
In June 2007, Smurfit-Stone closed down two plants, a 148,000 tons-per-year
plant in Vernon, California and a 52,000 tons-per-year plant in Carthage, Indiana.
121.
On June 18-20, 2007, there was a Joint AF&PA, AICC and FBA Washington Fly-
In meeting in Washington, DC.
Shortly thereafter, Weyerhaeuser announced a $40/ton price
hike, effective August 1, 2007.
122.
In early July 2007, PCA and Smurfit-Stone also
announced a $40/ton
containerboard price hike, also effective August 1, 2007.
123.
Regarding whether these announced price hikes would work, Deutsche Bank
commented that “the global containerboard backdrop remains just about as favorable as any we
32
have seen in over 20yrs.”53 On July 6, 2007, Deutsche Bank reported that “[v]irtually all major
containerboard producers have slated $40-50/ton hikes for August.”54
124.
On or about August 1, 2007, Defendants and their co-conspirators raised prices on
containerboard again, this time by over 7% ($40/ton) from $570/ton to $610/ton. At the same
time, Defendants and their co-conspirators raised the price of corrugated medium by over 7%
($40/ton) from $540/ton to $580/ton. These price increases occurred across-the-board and were
imposed by all Defendants and their co-conspirators at or about the same time and were
accomplished pursuant to their price-fixing conspiracy.
125.
On September 4, 2007, Deutsche Bank reported that the “full $40/ton price hike
initiative for August was reflected in the trade papers and most of our trade reports suggest
uncharacteristic discipline from the big integrateds.”55
126.
On September 6, 2007, Norampac announced that it had entered into a joint
venture with two other Containerboard Products manufacturers, including Smurfit-Stone, to
establish a new company called Niagara Sheet LLC.
Commenting on the transaction, Marc-
André Dépin, President and CEO of Norampac, noted “[t]he participation of Norampac in this
joint venture follows the trend of our investment strategy which aims to consolidate our
expansion in the United States and enable us to ensure the quality of our products and the
satisfaction of our customers.”
127.
October 2007, International Paper closed down its 200,000 tons-per-year
containerboard plaint in Terra Haute, Indiana.
2008-2009
128.
On February 1, 2008, Deutsche Bank reported that “plant inventories fell from 3.1
to 3.0 weeks, one of the lowest levels in history.”56
129.
On or about March 17, 2008, International Paper announced that it was
purchasing Weyerhaeuser.
This merger would make International Paper the single largest
53 070703 Deutsche Bank Report - August Containerboard Price Hike, Deutsche Bank - Equity Research
54 070706 Deutsche Bank Report - Dr. Paper's Weekly Wrap Up (7/6/07), Deutsche Bank - Equity Research
55 070904 Deutsche Bank Report - Dr. Paper's Pulse on Pricing, Deutsche Bank - Equity Research
56 080201 Deutsche Bank Report - January Containerboard Monitor, Deutsche Bank - Equity Research
33
containerboard producer with 11.5 million tons per year of global containerboard capacity. As
indicated above, prior to the merger announcement, International Paper had been idling and
reducing its capacity.
130.
On March 24-26, 2008, the FBA’s Annual Meeting 2008, was held at the J.W.
Marriot Desert Springs in Palm Desert, California. At this Annual Meeting, the FBA’s Board of
Directors meeting was also held.
131.
On March 30-April 2, 2008, the American Forest & Paper Association held its
Annual Paper Week convention in New York, New York.
132.
On or about May 5, 2008, International Paper’s purchase of Weyerhaeuser was
approved. As a result of the merger, the top 7 containerboard producers made up a combined
market share of approximately 80%.
133.
On May 16, 2008, Deutsche Bank reported that containerboard inventory was the
“second-lowest April level in 20 years.”57
134.
On May 28, 2008, Deutsche Bank reported that both Smurfit-Stone and Georgia
Pacific recently announced a $50/ton price hike, effective July 1, 2008.58
135.
On or about July 1, 2008, despite the effects of an economic recession felt
throughout the United States, Defendants and their co-conspirators raised prices on linerboard
yet again, this time by over 9% ($55/ton) from $610/ton to $665/ton.
At the same time,
Defendants and their co-conspirators raised the price of corrugated medium by over 9%
($40/ton) from $580/ton to $635/ton. The Defendants quickly followed the price increases in
containerboard and corrugated medium by announcing an 11% increase in the price of finished
boxes.59 These price increases occurred across-the-board and were imposed by all Defendants
and their co-conspirators at or about the same time and were accomplished pursuant to their
price-fixing conspiracy.
57 080516 Deutsche Bank Report - April Containerboard Monitor, Deutsche Bank - Equity Research
58 080528 Deutsche Bank Report - July Price Hike, Deutsche Bank - Equity Research
59 P. Scott Vallely. Update on Containerboard Grades: Notes from Deutsche Bank Research Paper. (June 17, 2008
) http://psvallely.blogspot.com/2008/06/update-on-containerboard-grades.html
34
136.
In October 2008, Smurfit-Stone shut down its 135,000 tons-per-year corrugated
medium plant, in Snowflake, Arizona. That same month, International Paper began idling its
250,000 tons-per-year containerboard plant in Albany, Oregon.
Less than a month later, in
November 20008, International Paper shut down its 430,000 tons-per-year linerboard plant in
Valiant, Oklahoma.
137.
Between fourth quarter of 2008 and first quarter of 2009, over 800,000 tons per
year of capacity was idled by Defendants Smurfit-Stone and Georgia Pacific. In fourth quarter
of 2008, Smurfit-Stone idled plants in Matane, Quebec (174,000 tpy), Missoula, Montana
(171,000 tpy), and Jacksonville, Florida (170,000 tpy). Likewise, Georgia Pacific idled plants in
Cedar Springs, Georgia (265,000 tpy) and Palatka, Florida (40,000 tpy).
138.
In 2009, John Geenan, a senior vice-president of the United Steel, Paper and
Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International
Union (USW), explained that the containerboard industry aggressively managed capacity in
order to maintain or increase pricing and that whenever prices threaten to decrease the industry
rapidly removed capacity.
139.
On December 14, 2009, Smurfit-Stone announced the permanent closure of its
Containerboard Products mills in Missoula, Montana (which produced 620,000 tons of
linerboard annually) and Ontonagon, Michigan (which produced 280,000 tons of medium
annually) effective December 31, 2009. In response to the Missoula mill closure, Montana state
senator Cliff Larson sent a letter to Judge Brendan L. Shannon, presiding Judge in Smurfit-
Stone’s Chapter 11 Bankruptcy proceedings, stating:
“We are told that Smurfit-Stone does not want the plant to run because they want
to control ‘the market.’ Well, what about competition? What about gathering in
cash for investors and creditors?
With electric generating capacity of about
seventeen megawatts setting idle, trained plant workers willing to work and
generate that biomass energy source we have a ready source of green energy
sadly not generated. Another income source - not actualized.”
2010
140.
Effective on or about January 1, 2010, Defendants and their co-conspirators again
raised prices on linerboard by over 8% ($50/ton) from $585/ton to $635/ton. At the same time,
35
Defendants and their co-conspirators raised the price of corrugated medium by over 8%
($50/ton) from $555/ton to $605/ton.
This price increase occurred across-the-board and was
imposed by all Defendants and their co-conspirators at or about the same time.
141.
Just three months later, effective on or about April 1, 2010, Defendants and their
co-conspirators again raised prices on linerboard by over 9% ($60/ton) from $635/ton to
$695/ton. At the same time, Defendants and their co-conspirators raised the price of corrugated
medium by over 9% ($60/ton) from $605/ton to $665/ton. This price increase occurred across-
the-board and was imposed by all Defendants and their co-conspirators at or about the same
142.
On June 30, 2010, Defendant International Paper informed its customers of
another $60/ton price effective August1, 2010.
Announcements from other Defendants soon
followed.
143.
On July 13, 2010, the Association of Independent Corrugated Converters
(“AAIC”) published an article entitled “3rd Containerboard Increase puts the Integrity of Our
Industry on the Line.” In light of the significant manufacturing capacity cuts, as well as the
absence of cost drivers, the article recognizes that a third price increase in 2010 in that
environment “calls into question the integrity of our industry.” The article goes on to forewarn
of serious repercussions:
This third increase is rightfully calling into question the pricing activities of the
major companies. During the years 1994-1995, six price increases in the span of
18 months pushed containerboard to a then-unheard-of peak of $525-535/ton.
These actions rightfully caused corrugated users to seek alternative packaging
and reduce their corrugated purchases – witness the growth of returnable plastic
container use in the mid-1990s.
A far more serious result was an inventory
collusion allegation and subsequent class action lawsuit brought by the
corrugated industry’s customer base that cost containerboard makers over $210
million in settlements.
144.
The Defendants and their co-conspirators raised the price of containerboard in
order to cause an increase in the price of corrugated containers. Because Defendants convert
81% of the containerboard they manufacture into corrugated containers, Defendants reduced
36
containerboard capacity and jointly increased containerboard prices in order to artificially drive
up the price of corrugated containers and increase their profits.
145.
To accomplish the unprecedented price increases during the Class Period, the
Defendants and their co-conspirators needed to reduce capacity in a concerted fashion.
No
single Defendant could reduce capacity enough to cause an industry-wide price increase.
Accordingly, the Defendants reduced capacity in concert to prevent any one Defendant from
bearing the brunt of the capacity shutdown.
Defendants’ coordinated efforts to restrict
containerboard supply substantially reduced the inventory available for sale to Plaintiff Class60:
146.
Further, the price of both linerboard and corrugated medium rose at exactly the
same time by exactly the same per-ton amounts.
This identical and simultaneous across-the-
board price increase on multiple products can only be explained by concerted and coordinated
behavior by the Defendants.
There Are No Innocent Explanations for the Coordinated Price Increases
147.
Despite the unprecedented price increases implemented in the Containerboard
Products industry during the Class Period, there were no sustained significant changes in
production costs which could account for those price increases or Defendants’ coordinated
60 M. Wilde, Deutche Bank, Containerboard Market Overview, Apr. 15, 2010, at p. 5.
37
reduction in manufacturing capacity and product supply.
During the Class Period, prices
increased at over double the rate of corresponding manufacturing costs.
148.
There are four main costs which are responsible for the bulk of the total cost to
manufacture and produce Containerboard Products.
They are 1) raw material costs; 2) labor
costs; 3) energy costs; and 4) environmental compliance costs. As explained below, there were
no significant or sustained changes in any of these types of costs during the Class Period.
149.
Raw Material Costs:
Pulpwood (woodchips used to produce various paper
products) is the main input for linerboard. Consequently, it is by far the most significant portion
of linerboard cost, representing approximately 40-50%.
Alternately, other factors including
energy and labor cumulatively represent only about 25%. Because pulpwood prices represent
such a large portion of linerboard cost, significant changes in the former may be detected in
changes in the latter. The price of pulpwood has increased at a constant rate since the middle of
2001 (an average of roughly 6% per year).
As a result, there are no major fluctuations in
pulpwood price that correspond to the fluctuations in Containerboard Products.
150.
Labor costs:
According to PCA’s executives: “[l]abor costs in a well run
containerboard mill run $30-$40/ton cash cost, which is a relatively small part of the overall
manufacturing cost…”61 Average weekly earnings for production workers at paperboard mills
has remained flat during the Class Period.
Additionally, the 2005 annual report for Smurfit-
Stone stated that both post-retirement healthcare and life insurance benefits were reduced in
2005.
Therefore, labor costs can largely be dismissed as an explanation for Containerboard
Products price increases.
151.
Energy Costs: Studies by economists have found no significant effect of energy
costs on containerboard prices.62
Additionally, International Paper, the largest producer of
containerboard, stated in its 2005 10-K that, “[w]hile energy, wood and raw material price
movements are mixed, their impact for the quarter is expected to be flat.” In reference to the first
few months of 2006, it was further added, “[w]e are starting to see some reductions in natural gas
61 Paul Stecko. Creating Shareholder Value in Containerboard Markets. PULP & PAPER 63 (March 1, 2005).
62 See e.g. Li, H. and Luo, J. Industry Consolidation and Price in the US Linerboard Industry. Journal of Forest
Economics 14 (2008), pp. 93-115.
38
and southern wood costs that, if the trend continues, should benefit operations as the year
progresses.”63 Despite some volatility in the natural gas mark since that time, natural gas prices
in 2010 are at or below the natural gas prices existing at the beginning of the Class Period.
152.
Despite the absence of any lasting cost increases, Defendants have nevertheless
attempted to blame increasing costs as the reason for their capacity restrictions and increases in
Containerboard Products prices.
Specifically, in the third quarter of 2006, the President and
CEO of Norampac attempted to the explain the closure of Norampac’s 300,000 tons-per-year
Ontario mill as follows: “[t]his decision was taken to mitigate the negative impacts of several
economic factors such as growing fiber supply costs, rising energy costs and the strengthening of
the Canadian dollar.”64 However, as this explanation does not comport with the relevant market
data, it serves as little more than a pretense for collusive activity. See In re Linerboard Antitrust
Litigation, 504 F.Supp.2d 38, 53 (E.D.Pa. 2007) (“[t]he Third Circuit has long recognized that
evidence of pretextual explanations for price increases or output restrictions, ‘if believed by a
jury, would disprove the likelihood of independent action’ by an alleged conspirator.
[Citations].”)
153.
In response to Norampac’s announcement, Deutsche Bank reported that “[w]e are
somewhat surprised by this announcement. Linerboard prices are up $120/ton over the last year,
and the YTD operating rate for linerboard in the US is 98.9%.”65
154.
There is no consistent observable relationship between the price of natural gas
(the predominant source of energy for the containerboard industry) and the price of
containerboard. For example, although there was a brief uptick in the price of natural gas in the
4th Quarter 2005, the increased containerboard price during the same period outpaced any
corresponding manufacturing cost increase. Moreover, the price of natural gas fell nearly 40%
from December 2005 to April 2006 without any corresponding price decrease in Containerboard
Products. In fact, in April 2006, well after the 40% drop in natural gas prices, Defendants and
their co-conspirators again raised the price of containerboard over 10%. If energy costs were
63 International Paper Form 10-K for year ending December 31, 2005, filed March 6, 2006, at p.11.
64 http://timview.blogspot.com/2006/09/red-rock-mill-shut.html
65 060830 Deutsche Bank Report - Norampac closing Red Rock, Deutsche Bank – Equity Research
39
responsible for price changes (as explained by Defendants to their customers) a 40% decrease in
energy costs should result in a lower containerboard price, not a 10% increase. Similarly, from
April 2006 through June 2007, the price of natural gas declined by approximately 7%. However,
in August 2007, the Defendants and their co-conspirators raised containerboard prices by 7%.
These increases in containerboard price cannot be explained by changes in energy costs.
155.
Deutsche Bank reported that PCA reduced its natural gas usage “to barely over
3% of purchased fuels (was 9% year ago).”66 On April 18, 2006, Deutsche Bank doubted the
ability of the Defendants and their co-conspirators to push further price increases through noting
that “raw material costs for natural gas & wastepaper have fallen.”67 This is further indication
that neither natural gas costs nor raw material costs had a significant impact on costs associated
with producing Containerboard Products.
156.
Environmental Costs: The Defendants’ public filings report that “Compliance
with environmental standards should not adversely effect our competitive position or operating
results.”68
Accordingly, compliance with environmental regulations cannot explain the
extraordinary increase in price of containerboard during the Class Period.
157.
The elimination of cost explanations supports an inference of conspiracy. Both
the capacity reductions and the price increases of the period beginning summer 2005 were record
breaking in magnitude. In early 2006, one trade journal reported, “Since October 2005, board
prices have risen 33%. The quickness of the jump is unprecedented.”69 In regards to capacity
reductions during this period, another trade journal called them “unprecedented.” By the end of
2006, the Defendants had successfully driven inventory to their lowest levels in twenty five
years. In addition, demand for Containerboard Products is tied to overall consumer demand and
spending. In 2008, general consumer demand in the United States plummeted. Yet, in August
2008, Defendants and their co-conspirators raised prices of containerboard by 9%. Even though
the U.S. economy has continued to be weak with fears of deflation being expressed by
66 060124 Deutsche Bank - Packaging Corp's 4Q in 100 words, Deutsche Bank – Equity Research
67 060418 Dr Paper's Pulse on Pricing, Deutsche Bank – Equity Research
68 See e.g. Smurfit-Stone Form 10-K, filed March 06, 2006 at p. 7.
69 Paperboard and Packaging. (April 2006) at 16.
40
economists and policymakers in 2009-2010, during 2010 Defendants and their co-conspirators
raised Containerboard Product prices an unprecedented three times in one year to all time highs.
Defendants accomplished their conspiracy in substantial part through the coordinated reduction
of capacity, and in turn, supply.
158.
The unprecedented reduction in North American containerboard supply was not
the result of the closure of one producer’s machines but rather concerted effort by the Defendants
and their co-conspirators to reduce capacity in an effort to raise and stabilize prices of
Containerboard Products to supra-competitive levels.
ACTIVE CONCEALMENT
159.
Throughout and beyond the conspiracy, Defendants and their co-conspirators
affirmatively, actively and fraudulently concealed their unlawful conduct from Plaintiff and the
Plaintiff Class. Defendants and their co-conspirators conducted their conspiracy in secret and
kept it mostly within the confines of their higher-level executives.
Defendants and their co-
conspirators publicly provided pretextual and false justifications regarding their price increases,
including that energy and raw material cost increases were responsible for the price increases.
Defendants and their co-conspirators conducted their conspiracy in secret, concealed the true
nature of their unlawful conduct and acts in furtherance thereof, and actively concealed their
activities through various other means and methods to avoid detection.
Plaintiffs did not
discover, and could not have discovered through the exercise of reasonable diligence, that
Defendants and their co-conspirators were violating the antitrust laws as alleged herein until
shortly before this litigation was commenced.
160.
As a result of the concealment of the conspiracy by Defendants and their co-
conspirators, any and all applicable statutes of limitations otherwise applicable to the allegations
herein have been tolled.
ANTITRUST IMPACT AND DAMAGES
161.
The unlawful conspiracy has had at least the following effects:
a.
Prices charged by Defendants and their co-conspirators to Plaintiff and the
members of the Class for Containerboard Products were artificially fixed, raised,
41
stabilized and maintained at artificially inflated and supra-competitive levels in
the United States;
b. Plaintiff and the other members of the Class had to pay more for Containerboard
Products than they would have paid in a competitive marketplace, unfettered by
Defendants’ and their co-conspirators’ collusive and unlawful activities;
c.
Competition in the sale of Containerboard Products was restrained, suppressed
and eliminated in the United States; and
d. As a direct and proximate result of the illegal combination, contract or conspiracy,
Plaintiff and the members of the Class have been injured in their respective
businesses and property, in amounts according to proof at trial.
CLAIM FOR RELIEF
VIOLATION OF SECTION 1 OF THE SHERMAN ACT
162.
Plaintiff incorporates and realleges, as though fully set forth herein, each and
every allegation set forth in the preceding paragraphs of this Complaint.
163.
Beginning at a time presently unknown to Plaintiff, and continuing through the
present, the exact dates being unknown to Plaintiff, Defendants and their co-conspirators entered
into a continuing agreement, combination and conspiracy in restraint of trade to artificially raise,
fix, maintain, and/or stabilize prices for Containerboard Products in the United States, in
violation of Section 1 of the Sherman Act, 15 U.S.C. §1.
164.
The contract,
combination or
conspiracy
has resulted
in an agreement,
understanding or concerted action between and among the Defendants and their co-conspirators
in furtherance of which the Defendants and their co-conspirators fixed, raised, maintained,
and/or stabilized prices for Containerboard Products in the United States.
Such contract,
combination, or conspiracy constitutes a per se violation of the federal antitrust laws and is, in
any event, an unreasonable and unlawful restraint of trade.
165.
The Defendants’ contract, combination, agreement, understanding or concerted
action with the co-conspirators occurred in or affected interstate commerce. The Defendants’
unlawful conduct was through mutual understandings, combinations or agreements by, between
42
and among the Defendants and other unnamed co-conspirators.
These other co-conspirators
have either acted willingly or, due to coercion, unwillingly in furtherance of the unlawful
restraint of trade alleged herein.
166.
The contract, combination or conspiracy has had the following effects, among
a.
Prices charged to Plaintiff and Class members for Containerboard Products were
fixed or stabilized at higher, artificially derived, supra-competitive levels;
b. Plaintiff and Class members have been deprived of the benefits of free, open and
unrestricted competition in the market for Containerboard Products; and
c.
Competition in establishing the prices paid, customers of, and territories for
Containerboard
Products
has
been
unlawfully
restrained,
suppressed
and
eliminated.
167.
As a proximate result of the Defendants’ unlawful conduct, Plaintiff and Class
members have suffered injury in that they have paid supra-competitive prices for Containerboard
Products. Plaintiff and Class members will continue to be injured in their business and property
by paying more for Containerboard Products purchased directly from the Defendants and their
co-conspirators than they would pay in the absence of the contract, combination or conspiracy.
PRAYER
WHEREFORE, Plaintiff prays as follows:
A.
That the Court determines that this action may be maintained as a class action
under Rule 23 of the Federal Rules of Civil Procedure.
B.
That the contract, combination or conspiracy, and the acts done in furtherance
thereof by Defendants and their co-conspirators, be adjudged to have been violations of Section
1 of the Sherman Act, 15 U.S.C. §1.
C.
That judgment be entered for Plaintiff and members of the Class against
Defendants for three times the amount of damages sustained by Plaintiff and the members of the
Class as allowed by law, together with the costs of this action, including reasonable attorneys’
fees, pursuant to Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§15 and 26.
43
D.
That Plaintiff and the Class be awarded pre-judgment and post-judgment interest
at the highest legal rate from and after the date of service of this Complaint to the extent
provided by law;
E.
That Defendants and their co-conspirators be enjoined from further violations of
the antitrust laws; and,
E.
That Plaintiff and members of the Class have such other, further or different
relief, as the case may require and the Court may deem just and proper under the circumstances.
JURY TRIAL DEMAND
Pursuant to Federal Rules of Civil Procedure, Rule 38(b), Plaintiff hereby demands
a trial by jury on all issues so triable.
Respectfully submitted,
Dated:
September 9, 2010
/s/ Michael J. Freed
Michael J. Freed
Steven A. Kanner
Michael E. Moskovitz
FREED KANNER LONDON & MILLEN
LLC
2201 Waukegan Road, Suite 130
Bannockburn, IL 60015 USA
T: 224-632-4500
F: 224-632-4521
Daniel J. Mogin
Matthew T. Sinnott
Kristy L. Fischer (Of Counsel)
THE MOGIN LAW FIRM, P.C.
707 Broadway, Suite 1000
San Diego, CA 92101
T: 619-687-6611
F: 619-687-6610
Daniel Gustafson
Daniel Hedlund
Jason S. Kilene
GUSTAFSON GLUECK
650 Northstar East
608 Second Avenue South
Minneapolis, MN 55402
T: 612-333-8844
F: 612-339-6622
44
Joseph Goldberg
FREEDMAN BOYD HOLLANDER
GOLDBERG IVES & DUNCAN, P.A.
20 First Plaza
Albuquerque, NM 87012
T: 505-842-9960
F: 505-842-0761
H. Laddie Montague, Jr.
Ruthanne Gordon
Martin Twersky
BERGER & MONTAGUE, P.C.
1622 Locust Street
Philadelphia, PA 19103
T: 800-424-6690
F: 215-875-4604
Howard Langer
LANGER GROGAN & DIVER, P.C.
1717 Arch Street
Philadelphia, PA 19103
T: 215-320-5661
F: 215-320-5703
Dianne Nast
Erin Burns
RODANAST, P.C.
Attorneys at Law
801 Estelle Drive
Lancaster, PA 17601
T: 717-892-3000
F: 717-892-1200
Chris Burke
SCOTT + SCOTT LLP
707 Broadway, Suite 1000
San Diego, CA 92101
T: 619-233-4565
F: 619-233-0508
Simon B. Paris
Patrick Howard
Charles J. Kocher
SALTZ MONGELUZZI BARRETT &
BENDESKY, P.C.
One Liberty Place, 52nd Floor
1650 Market Street
Philadelphia, PA 19103
T: 215.575.3986
F: 215.575.3894
Attorneys for Plaintiff
45
| antitrust |
IdxQEIcBD5gMZwczMwMD | IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
ABLE HOME HEALTH, LLC,
)
on behalf of itself and a class,
)
)
Plaintiff,
)
)
v.
)
)
GLOBE MEDICAL-SURGICAL
)
SUPPLY CO. and
)
JOHN DOES 1-10,
)
)
Defendants.
)
COMPLAINT – CLASS ACTION
MATTERS COMMON TO MULTIPLE COUNTS
INTRODUCTION
1.
Plaintiff Able Home Health, LLC brings this action to secure redress for
the actions of defendant Globe Medical-Surgical Supply Co., in sending or causing the sending
of unsolicited 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.
2.
The TCPA expressly prohibits unsolicited fax advertising. Unsolicited fax
advertising damages the recipients. The recipient is deprived of its paper and ink or toner and the
use of its fax machine. The recipient also wastes valuable time it would have spent on something
else. Unsolicited faxes prevent fax machines from receiving and sending authorized faxes, cause
wear and tear on fax machines, and require labor to attempt to identify the source and purpose of
the unsolicited faxes.
PARTIES
3.
Plaintiff Able Home Health, LLC is a limited liability company chartered
under Illinois law with offices in the Northern District of Illinois, where it maintains telephone
facsimile equipment.
1
4.
Defendant Globe Medical-Surgical Supply Co., is an Illinois corporation
located at 17939 Chappel Avenue, Lansing, Illinois 60438. Its registered agent and office is JB
Corporate Services, Inc., 353 N. Clark Street, 45 Floor, Chicago, Illinois 60654.
th
5.
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
6.
This Court has jurisdiction under 28 U.S.C. §§1331 and 1367. Mims v.
Arrow Financial Services, LLC, 132 S.Ct. 740 (2012); Brill v. Countrywide Home Loans, Inc.,
427 F.3d 446 (7 Cir. 2005).
th
7.
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.
c.
Are located in Illinois.
8.
Venue in this District is proper for the same reason.
FACTS
9.
On April 25, 2012, plaintiff Able Home Health, LLC received the
unsolicited fax advertisement attached as Exhibit A on its facsimile machine.
10.
On April 26, 2012, plaintiff Able Home Health, LLC received the
unsolicited fax advertisement attached as Exhibit B on its facsimile machine.
11.
On July 10, 2012, plaintiff Able Home Health, LLC received the
unsolicited fax advertisement attached as Exhibit C on its facsimile machine.
12.
Discovery may reveal the transmission of additional faxes as well.
13.
Defendant Globe Medical-Surgical Supply Co., is responsible for sending
or causing the sending of the faxes.
2
14.
Defendant Globe Medical-Surgical Supply Co., as the entity whose
products or services were advertised in the faxes, derived economic benefit from the sending of
the faxes.
15.
Defendant Globe Medical-Surgical Supply Co., either negligently or
wilfully violated the rights of plaintiff and other recipients in sending the faxes.
16.
Plaintiff had no prior relationship with defendant and had not authorized
the sending of fax advertisements to plaintiff.
17.
On information and belief, the faxes attached hereto were sent as part of a
mass broadcasting of faxes.
18.
On information and belief, defendants have transmitted similar unsolicited
fax advertisements to at least 40 other persons in Illinois.
19.
There is no reasonable means for plaintiff or other recipients of
defendants’ unsolicited advertising faxes to avoid receiving illegal faxes. Fax machines must be
left on and ready to receive the urgent communications authorized by their owners.
20.
The faxes do not contain an “opt out” notice in the form required by 47
U.S.C. § 227.
COUNT I – TCPA
21.
Plaintiff incorporates ¶¶ 1-19.
22.
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).
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,
3
(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 unsolicited 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
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 and entities with fax numbers (b) who, on or after a
date four years prior to the filing of this action (28 U.S.C. §1658), or such shorter period during
which faxes were sent by or on behalf of defendant Globe Medical-Surgical Supply Co., and on
or before a date 20 days following the filing of this action, (c) were sent faxes by or on behalf of
defendant Globe Medical-Surgical Supply Co., promoting its goods or services for sale (d) which
do 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:
4
a.
Whether defendants engaged in a pattern of sending unsolicited fax
advertisements;
b.
The manner in which defendants compiled or obtained their list of
fax numbers;
c.
Whether defendants thereby violated the TCPA;
d.
Whether defendants thereby engaged in unfair acts and practices, in
violation of the ICFA.
e.
Whether defendants thereby converted the property of plaintiff.
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.
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, Sadowski v.
Med1 Online, LLC, 07 C 2973, 2008 U.S. Dist. LEXIS 41766 (N.D. Ill. May 27, 2008); Green v.
Service Master on Location Services Corp., 07 C 4705, 2009 U.S. Dist. LEXIS 53297 (N.D. Ill.
June 22, 2009); CE Design v. Beaty Construction, Inc., 07 C 3340, 2009 U.S. Dist. LEXIS 5842
(N.D. Ill. Jan. 26, 2009); Hinman v. M & M Rental Ctr., 06 C 1156, 2008 U.S. Dist. LEXIS
27835 (N.D. Ill. April 7, 2008); G.M. Sign, Inc. v. Group C Communs., Inc., 08 C 4521, 2010
U.S. Dist. LEXIS 17843 (N.D. Ill. Feb. 25, 2010); Targin Sign Systems, Inc. v. Preferred
Chiropractic Center, Ltd., 679 F.Supp.2d 894 (N.D. Ill. 2010); Holtzman v. Turza, 08 C 2014,
5
2009 U.S. Dist. LEXIS 95620 (N.D. Ill. Oct. 14, 2009); G.M. Sign, Inc. v. Finish Thompson,
Inc., 07 C 5953, 2009 U.S. Dist. LEXIS 73869 (N.D. Ill. Aug. 20, 2009); CE Design v. Cy’s
Crabhouse North, Inc., 259 F.R.D. 135 (N.D. Ill. 2009).
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 unsolicited 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 ¶¶ 1-19.
37.
Defendants engaged in unfair acts and practices, in violation of ICFA § 2,
815 ILCS 505/2, by sending unsolicited fax advertising to plaintiff and others.
38.
Unsolicited fax advertising is contrary to the TCPA and also Illinois law.
720 ILCS 5/26-3(b) makes it a petty offense to transmit unsolicited fax advertisements to Illinois
residents.
39.
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.
40.
Plaintiff and each class member suffered damages as a result of receipt of
the unsolicited faxes, in the form of paper and ink or toner consumed as a result.
41.
Defendants engaged in such conduct in the course of trade and commerce.
42.
Defendants’ conduct caused recipients of their advertising to bear the cost
6
thereof. This gave defendants an unfair competitive advantage over businesses that advertise
lawfully, 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.
43.
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.
44.
Defendants should be enjoined from committing similar violations in the
CLASS ALLEGATIONS
45.
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 and entities with Illinois fax numbers (b) who, on
or after a date three years prior to the filing of this action, or such shorter period during which
faxes were sent by or on behalf of defendant Globe Medical-Surgical Supply Co., and on or
before a date 20 days following the filing of this action, (c) were sent faxes by or on behalf of
defendant Globe Medical-Surgical Supply Co., promoting its goods or services for sale (d) which
do not contain an opt out notice as described in 47 U.S.C. § 227.
46.
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.
47.
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 unsolicited fax
7
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.
48.
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.
49.
Plaintiff’s claims are typical of the claims of the class members. All are
based on the same factual and legal theories.
50.
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.
51.
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 unsolicited fax
advertising;
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
52.
Plaintiff incorporates ¶¶ 1-19.
8
53.
By sending plaintiff and the class members unsolicited faxes, defendants
converted to their own use ink or toner and paper belonging to plaintiff and the class members.
54.
Immediately prior to the sending of the unsolicited 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.
55.
By sending the unsolicited 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.
56.
Defendants knew or should have known that such appropriation of the
paper and ink or toner was wrongful and without authorization.
57.
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 unsolicited faxes.
58.
Defendants should be enjoined from committing similar violations in the
CLASS ALLEGATIONS
59.
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 and entities with Illinois fax numbers (b) who, on
or after a date five years prior to the filing of this action, or such shorter period during which
faxes were sent by or on behalf of defendant Globe Medical-Surgical Supply Co., and on or
before a date 20 days following the filing of this action, (c) were sent faxes by or on behalf of
defendant Globe Medical-Surgical Supply Co., promoting its goods or services for sale (d) which
do not contain an opt out notice as described in 47 U.S.C. § 227.
60.
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.
61.
There are questions of law and fact common to the class that predominate
9
over any questions affecting only individual class members. The predominant common
questions include:
a.
Whether defendants engaged in a pattern of sending unsolicited fax
advertisements;
b.
Whether defendants thereby violated the TCPA;
c.
Whether defendants thereby committed the tort of conversion;
d.
Whether defendants thereby engaged in unfair acts and practices, in
violation of the ICFA.
e.
Whether defendants thereby converted the property of plaintiff.
62.
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.
63.
Plaintiff’s claims are typical of the claims of the class members. All are
based on the same factual and legal theories.
64.
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.
65.
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 unsolicited fax
advertising;
10
c.
Costs of suit;
d.
Such other or further relief as the Court deems just and proper.
s/ Daniel A. Edelman
Daniel A. Edelman
Daniel A. Edelman
Cathleen M. Combs
James O. Latturner
Heather Kolbus
EDELMAN, COMBS, LATTURNER & GOODWIN, LLC
120 S. LaSalle Street, 18th floor
Chicago, Illinois 60603
(312) 739-4200
(312) 419-0379 (FAX)
11
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)
T:\26914\Pleading\Complaint - Revised_Pleading.wpd
12
| privacy |
G-IrEYcBD5gMZwczQuiv | FILED
IN CLERK'S OFFICE
US DISTRICT COURT EDNY
FEB 13 2012
Plaintiff,
LONG ISLAND OFFICE
-against-
GLEESON,
Defendant.
CLASS ACTION COMPLAINT
Introduction
Plaintiff Shlomo Oved seeks redress for the illegal practices of Credit One LLC,
concerning the collection of debts, in violation of the Fair Debt Collection Practices Act,
15 U.S.C. § 1692, et seq. ("FDCPA") and Telephone Communications Privacy Act.
Parties
Plaintiff is citizen of the State of New York who resides within this district.
Plaintiff is a consumer as that term is defined by Section 1692(a)(3) of the FDCPA, in
that the alleged debt that defendant sought to collect from plaintiff a consumer debt.
Upon information and belief, defendant is a Louisiana corporation with its principal
place of business located in Metairie, Louisiana.
Defendant is regularly engaged, for profit, in the collection of debts allegedly owed by
consumers.
-1-
Defendant is a "debt collector" as that term is defined by the FDCPA, 15 U.S.C. §
1692(a)(6).
Jurisdiction and Venue
This Court has federal question jurisdiction under 15 U.S.C. § 1692k(d) and 28 U.S.C.
§
1331.
Venue is proper in this district pursuant to 28 U.S.C. § 1391(b), as the acts and
transactions that give rise to this action occurred, in substantial part, in this district.
Allegations Particular to Shlomo Oved
Upon information and belief, on a date better known by defendant, defendant began to
attempt to collect an alleged consumer debt from the plaintiff.
On many occasions within the past year defendant made 18 calls to an unauthorized
wireless number belonging to plaintiff.
Upon information and belief Defendant used an auto dialer and or prerecorded messages
when calling the plaintiff.
Defendant caused plaintiff to incur charges for defendant's collection communications
when plaintiff had no reason to know the communication's purpose.
Defendant was prohibited from placing a call that will cause a charge to plaintiff without
having notified plaintiff to expect it and without having announced its collection
purpose.
Defendant called plaintiff's wireless phone number and plaintiff was charged a toll on all
those incoming calls. Plaintiff was not alerted to the calls beforehand.
The said telephone messages are in violation of the Fair Debt Collection Practices Act,
15 U.S.C. § 1692f(5).
-2-
On or about November 28, 2011 and December 27, 2011 a representative of Credit One
LLC, called and left messages with a third party.
The representative from Credit One asked the third party to give Shlomo Oved the
messages that Andrea, from Credit One, called and to have plaintiff return the calls to
1800 748 8670 ext 168
The representative from Credit One also asked the third party to relay to plaintiff that the
calls were in regard to account wf 343585.
The said communication is unlawful under the FDCPA and in direct violation of Foti V.
NCO Financial Systems, 424 F.Supp.2d 643, 669 (S.D.N.Y. 2006).
Said practice is in violation of the FDCPA based upon the following case law.
See Krapf V. Collectors Training Institute of Illinois, Inc, Dist. Court, WD New York
2010 ruled that this was a violation of 1692b, 1692c (b), and 1692d.
(a complaint alleging that debt collector telephoned plaintiff's neighbor leaving
collector's name and telephone number and asking the neighbor to have plaintiff return
call stated a claim for violation of Section 1692c(b) Romano V. Williams & Fudge, Inc.,
644 F. Supp. 2d 653 - Dist. Court, WD Pennsylvania 2008 quoting West V. Nationwide
Credit, Inc., 998 F. Supp. 642 - Dist. Court, WD North Carolina 1998
(holding that § 1692c(b) does not prohibit only those third-party communications in
which some information about the debt is actually disclosed, because that reading would
render § 1692b superfluous Thomas V. Consumer Adjustment Co., Inc., 579 F. Supp. 2d
1290 - Dist. Court, ED Missouri 2008 quoting West V. Nationwide Credit, Inc., 998 F.
-3-
Supp. 642 - Dist. Court, WD North Carolina 1998
(All provisions of the statute must be considered and each term must be interpreted
equally, so as not to deflect from the meaning of the statute Specifically, as to 15
U.S.C. § 1692, every clause and word must be given force and § 1692c(b) should be
broadly interpreted to prohibit a debt collector from conveying any information to a
third party that concerns a debt (except for the purpose of obtaining location information
as permitted under § 1692b) Blair V. SHERMAN ACQUISITION, Dist. Court, ND
Illinois 2004 quoting West V. Nationwide Credit, Inc., 998 F. Supp. 642 - Dist. Court,
WD North Carolina 1998
("`Other than to obtain location information, a debt collector may not contact third
persons such as a consumer's friends, neighbors, relatives, or employer. Such contacts
are not legitimate collection practices and result in serious invasions of privacy, as well
as the loss of jobs." from West V. Nationwide Credit, Inc., 998 F. Supp. 642, 645 n.2
(W.D.N.C. 1998) (quoting S. Rep. No. 95-382, reprinted at 1977 U.S. Code & Admin.
News 1695, 1699) Mathis V. OMNIUM WORLDWIDE, Dist. Court, D. Oregon 2006
quoting West V. Nationwide Credit, Inc., 998 F. Supp. 642 - Dist. Court, WD North
Carolina 1998
(contact with a thrid party that did not involve an inquiry into Plaintiff's location
information, but rather, revealed that Plaintiff had a "business matter. "stated a claim
-4-under § 1692c (b) finding that the plaintiff's allegation that the defendant contacted a
third party to relay about a "very important" matter regarding the plaintiff.
Plaintiff sufficiently stated claims under § $ 1692b, 1692c (b), and 1692d Krapf V.
COLLECTORS TRAINING INSTITUTE OF ILLINOIS, INC., Dist. Court, WD New
York 2010 quoting West V. Nationwide Credit, Inc., 998 F.Supp. 642, 643-45
(W.D.N.C. 1998)
And finally the famous Foti V. NCO which gave the name to the now all common FOTI
claim already quoted in almost all circuits as a FOTI claim - TO DATE OVER 40
COURTS HAVE ADOPTED FOTIS DEFINITION OF INDIRECT
COMMUNICATION - Judge Karas in foti based his reasoning on West V. Nationwide
Credit In Judge Karas own words in foti ("In West V. Nationwide Credit, 998 F.Supp.
642, 644 (W.D.N.C.1998), the court rejected a narrow interpretation of the word
"communication," similar to that advanced by NCO in this case. The plaintiff in West
alleged that defendants violated § 1692c(b) by contacting plaintiffs neighbor.
Defendants argued that a debt collector's phone call informing a neighbor that he had a
"very important" matter to discuss did not violate § 1692c(b) because no information
was actually conveyed about plaintiffs debt. The West court rejected this narrow
interpretation of "communication" in favor of a broader interpretation. Id. at 644. In
reaching this conclusion, the West court noted that "[i]n interpreting the meaning of a
statute, it is well settled that `[t]he "plain meaning" of statutory language controls its
construction,'" and went on to examine the dictionary definitions of "regarding." Id.
-5-
(quoting 657*657 Summit Inv. & Dev. Corp. V. Leroux, 69 F.3d 608, 610 (1st
Cir.1995)). In particular, the court noted: "Webster's Ninth New Collegiate Dictionary
(1st ed.1983) defines the term `regard' as, inter alia, `to relate to,' while it provides the
following definition of the term `regarding': `with respect to: concerning." Id. "Based on
these definitions, the court believes the ordinary meaning of the term `regarding' is
consistent with the broader interpretation advocated by Plaintiff." Id. This conclusion has
been embraced by other courts as well in the context of applying § 1692c(b). See, e.g.,
Henderson, 2001 WL 969105, at *2 (rejecting defendant's argument that letter sent to
employer seeking information about whether plaintiff was employed, her wage scale,
her type of employment, the full name of her employer, and if terminated, the name of
her present employer, did not violate § 1692c(b) because it did not suggest a debt
collection purpose). Thus, given the choice of language by Congress, the FDCPA should
be interpreted to cover communications that convey, directly or indirectly, any
information relating to a debt, and not just when the debt collector discloses specific
information about the particular debt being collected. Indeed, a narrow reading of the
term "communication" to exclude instances such as the present case where no specific
information about a debt is explicitly conveyed could create a significant loophole in the
FDCPA, allowing debtors to circumvent the § 1692e(11) disclosure requirement, and
other provisions of the FDCPA that have a threshold "communication" requirement,
merely by not conveying specific information about the debt. In fact, under Defendant's
interpretation of "communication," a debt collector could call regularly after the thirty-
day validation notice is sent, and not be subject to § 1692e(11)'s requirement so long as
-6-
the message did not convey specific information about the debt. Such a reading is
inconsistent with 658*658 Congress's intent to protect consumers from "serious and
widespread" debt collection abuses. Foti V. NCO Financial Systems, Inc., 424 F. Supp.
2d 643 - Dist. Court, SD New York 2006 Krug V. Focus Receivables Mgmt., LLC, 2010
U.S. Dist. LEXIS 45850 (D.N.J. May 11, 2010) (same)
Holding that under § 1692c(b), a collector may not communicate with a third party "in
connection with the collection of any debt" except to obtain location information
as provided in § 1692b. To violate § 1692b. the third party communication need only be
"in connection with the collection of a debt;" it need not expressly mention the debt
or debt collection as "communication" includes conveying information about a debt
"indirectly." 15 U.S.C. § 1692a(2). Henderson V. Eaton, 2001 U.S. Dist. LEXIS 13243
(E.D. La. Aug.23, 2001) quoting West V. Nationwide Credit, Inc., 998 F. Supp. 642
(W.D.N.C.1998).Henderson V. Eaton, 2002 U.S. Dist. LEXIS 274 (E.D. La. Jan. 2,
2002). FDCPA class action certified
Finding that a phone call to a debtor's neighbor that the defendant had a "very
important" matter to address was "regarding a debt" because the content of the phone
call was "with respect to" the defendant's efforts to collect on plaintiff's alleged
arrearage.
Leyse V. Corporate Collection Servs., 2006 U.S. Dist. LEXIS 67719 quoting West V.
Nationwide Credit, Inc., 998 F. Supp. 642 (W.D.N.C.1998)
-7-Finding that the messages left by the defendant constituted "communications" even
though they did not technically mention any information about the debt and stated a
claim under § 1692c(b) since it was not left for the purpose of obtaining location
information which is the only communication with third parties permissible under the
FDCPA) quoting ); West V. Nationwide Credit, Inc., 998 F. Supp. 642, 644-45
(W.D.N.C. 1998); also quoting Belin V. Litton Loan Servicing, LP, 2006 U.S. Dist.
LEXIS 47953, 2006 WL 1992410 at *4 (M.D. Fla. July 14, 2006) (finding that the
message was a communication under the FDCPA even though it was not disclosed that
it came from a debt collector where the name of the company was referenced, directions
to return the call were given, and the purpose of the message was to induce the debtor to
return the call)
Wideman V. Monterey Fin. Servs., 2009 U.S. Dist. LEXIS 38824
The consumer adequately alleged that defendant contacted a third party in violation of §
1692c(b) since the defendant's inquiry went beyond the boundaries of location
information. A debt collector may not seek additional information about a consumer,
because such information is beyond the scopeof location information.
Shand-Pistilli V. Professional Account Servs., Inc., 2010 WL 2978029 (E.D. Pa. July 26,
2010)
A "communication" need not refer to the debt." Gburek V. Litton Loan Servicing LP,
614 F.3d 380 (7th Cir. 2010).
-8-
(finding that the telephone message at issue, which referenced an "important" matter,
contained information regarding a file number and whom to contact, and was left for the
purpose of collecting the debt, indirectly conveyed information concerning the debt and,
therefore, met the statutory definition of a "communication"); Edwards V. Niagra Credit
Solutions, Inc., 586 F. Supp. 2d 1346, 1350-51 (N.D. Ga. 2008)
(finding that the message was an indirect communication regarding the plaintiff's debt
where it conveyed pertinent information including the fact that there was a matter he
should attend to and instructions on how to do so) Ramirez V. Apex Financial
Management, LLC, 567 F. Supp. 2d 1035, 1041 (N.D. Ill. 2008)
(finding that the messages left by the defendant constituted "communications" even
though they did not technically mention specific information about the debt)
Hosseinzadeh V. M.R.S. Associates, Inc., 387 F. Supp. 2d 1104, 1116 (C.D. Cal. 2005)
(finding that the message was a communication under the FDCPA even though it was
not disclosed that it came from a debt collector where the name of the company was
referenced, directions to return the call were given, and the purpose of the message was
to induce the debtor to return the call) Belin V. Litton Loan Servicing, LP, 2006 U.S.
Dist. LEXIS 47953, 2006 WL 1992410 at *4 (M.D. Fla. July 14, 2006)
-9-
The only exception in the FDCPA which permits a debt collector to contact third parties
is to obtain: "location information about the consumer." 15 U.S.C. § 1692b On its face, a
communication to someone other than those enumerated in the statute, and which offers
or seeks information not limited to "location information." would be unlawful. (class and
adoption of denial of motion to dismiss), 1998 U.S.Dist. LEXIS 19647 (C.D.III., May,
29, 1998)
(Magistrate Judge's denial of motion to dismiss).
Shaver V. Trauner , 97-1309, 1998 U.S.Dist. LEXIS 19648 (C.D.III., Jul. 31, 1998),
The said telephone messages are in violation of the Fair Debt Collection Practices Act,
AS AND FOR A FIRST CAUSE OF ACTION
Plaintiff restates, realleges, and incorporates herein by reference, paragraphs 1-8 as if set
forth fully in this cause of action.
This action is brought on behalf of plaintiff and the members of two classes.
Class A consists of all persons whom Defendant's records reflect resided in New York
and were left a telephonic message from defendant within one year prior to the date of
the within complaint up to the date of the filing of the complaint; (a) the telephone
message was placed to a service where the consumer was charged for the call, and (c)
-10-
that the telephone messages were in violation 15 U.S.C. § 1692f(5).
Class B consists of all persons whom Defendant's records reflect resided in New York
and whose neighbor, or similar party or even someone other than a spouse within the
debtor's home answered a telephone call from defendant within one year prior to the
date of the within complaint up to the date of the filing of the complaint; (a) the
telephone call was placed to a the consumer's home or similar party seeking payment of
a consumer debt by leaving a message with a third party directing the consumer to call
the defendant; and (c) that the telephone messages were in violation 15 U.S.C. 1692 §§
1692c(b) and 1692d.
Pursuant to Federal Rule of Civil Procedure 23, a class action is appropriate and
preferable in this case because:
SO numerous that joinder of all members is impracticable.
predominate over any questions affecting only individual class members. The principal
question presented by this claim is whether the defendant violated the FDCPA.
messages which were overheard by unauthorized third parties, (i.e. the class members), a
matter capable of ministerial determination from the records of defendant.
same facts and legal theories.
-11-plaintiff has retained counsel experienced in bringing class actions and collection-abuse
claims. The plaintiff's interests are consistent with those of the members of the class.
A class action is superior for the fair and efficient adjudication of the class members'
claims. Congress specifically envisions class actions as a principal means of enforcing
the FDCPA. 15 U.S.C. 1692(k). The members of the class are generally unsophisticated
individuals, whose rights will not be vindicated in the absence of a class action.
Prosecution of separate actions by individual members of the classes would create the
risk of inconsistent or varying adjudications resulting in the establishment of
inconsistent or varying standards for the parties and would not be in the interest of
judicial economy.
If the facts are discovered to be appropriate, the plaintiff will seek to certify a class
pursuant to Rule 23(b)(3) of the Federal Rules of Civil Procedure.
Collection letters, such as those sent by the defendant are to be evaluated by the
objective standard of the hypothetical "least sophisticated consumer."
Violations of the Fair Debt Collection Practices Act
The defendant's actions as set forth above in the within complaint violates the Fair Debt
Collection Practices Act.
Because the defendant violated of the Fair Debt Collection Practices Act, the plaintiff
and the members of the class are entitled to damages in accordance with the Fair Debt
Collection Practices Act.
-12-
(a)
Statutory and actual damages provided under the FDCPA, 15 U.S.C.
1692(k);
(b)
Attorney fees, litigation expenses and costs incurred in bringing this
action; and
(c)
Any other relief that this Court deems appropriate and just under the
circumstances.
AS AND FOR A SECOND CAUSE OF ACTION
Violations of the Telephone Consumer Protection Act brought by plaintiff
Plaintiff restates, realleges, and incorporates herein by reference, paragraphs 1-8 as if
set forth fully in this Cause of Action.
The defendant violated 47 U.S.C. § 227(b)(1)(A)(iii) by initiating eighteen (18)
telephone calls to the plaintiff's wireless telephone number using an artificial and/or pre-
recorded voice to deliver messages without having the consent of the plaintiff to leave
such messages.
Defendant has repeatedly violated the TCPA by the calls made to Plaintiff,
specifically the numerous calls by illegal automatic dialers, predictive dialers, and/or
pre-recorded messages that have been unleashed against plaintiff by defendant also
without having included the proper name of the defendant or any name for that matter.
-13-
There is no exception or justification for the numerous violations of the TCPA by
defendant as plaintiff has not consented to the use of the wireless telephone number at
issue where the plaintiff was charged for each call.
Each call is a separate violation and entitles plaintiff to statutory damages against
defendant in the amount of $500.00 per call.
Plaintiff asserts that since the violations were made intentionally or recklessly that
the violations be assessed a statutory damage of $1,500.00 per call. 47 U.S.C. §
227(b)(3).
All actions taken by Defendant were taken with malice, were done willfully,
recklessly and/or were done with either the desire to harm Plaintiff and/or with the
knowledge that its actions would very likely harm Plaintiff and/or that its actions were
taken in violation of the TCPA and/or that knew or should have known that its actions
were in reckless disregard of the TCPA. Courts have found collection agencies have
willfully or knowingly violated the TCPA simply by calling any plaintiff on his/her cell
phone using a pre-recorded voice, regardless of whether it knew it was violating the law.
(Sengenberger V. Credit Control Services, Inc., 2010 U.S. Dist. LEXIS 43874)
Violations of the Telephone Communications Privacy Act
The FCC did not intend to exempt automated collection calls from the requirements
of 47 C.F.R. 64.1200(b)(1), even if consent was given in the case where the debt
collector failed to leave the legal name of the company. (Sengenberger V. Credit Control
Services, Inc., 2010 U.S. Dist. LEXIS 43874)
The actions of the defendant violate the TCPA.
-14-
Because the defendant intentionally violated the TCPA, the plaintiff is entitled to
damages in accordance with the TCPA namely $1500 for each call where the defendant
failed to obtain prior consent from the plaintiff.
(a) Statutory damages provided under the TCPA and injunctive relief;
(b) Any other relief that this Court deems appropriate and just under the
circumstances.
Dated: Cedarhurst, New York
February 8, 2012
all
Adam J. Fishbein, P.C. (AF-9508)
Attorney At Law
Attorney for the Plaintiff
483 Chestnut Street
Cedarhurst, New York 11516
Telephone (516) 791-4400
Facsimile (516) 791-4411
all
Adam J.\Fishbein (AF-9508)
-15- | consumer fraud |
2tjqD4cBD5gMZwcz_9Ug | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
Civil Action No.: 1:14-cv-8426-LTS-JLC
Plaintiff,
COMPLAINT AND JURY DEMAND
Defendants.
NATURE OF THE ACTION
1.
2.
3.
JURISDICTION AND VENUE
4.
5.
6.
PARTIES
7.
8.
On or about August 22, 2014, Plaintiff's employment with Defendants ceased.
9.
- 2 -
10.
11.
12.
13.
Defendants are engaged in providing advertising services to clients worldwide.
14.
15.
16.
- 3 -
FACTUAL ALLEGATIONS
17.
18.
19.
20.
21.
22.
Knowledge and passion for media/advertising
Strong written and oral communication skills
Excellent attention to detail
Exceptional organizational skills and multi-tasking capabilities
Ability to work well under pressure
Strong quantitative skills, including analytical abilities
Proficiency at MS Suite: Excel, Word, PowerPoint
Ability to be flexible and be a team player
Bachelor's degree
4 -23.
24.
25.
26.
27.
28.
29.
5 -
30.
Defendants paid Plaintiff two (2) times per month.
31.
Defendants paid Plaintiff an annual salary of approximately $33,000.
32.
33.
34.
35.
36.
- 6 -
37.
38.
39.
40.
41.
CLASS AND COLLECTIVE ACTION ALLEGATIONS
Class Action Under Fed. R. Civ. P. 23
42.
43.
- 7 -44.
45.
46.
47.
48.
8 -
49.
50.
51.
52.
- 9 -Collective Action Under 29 U.S.C. §216(b)
53.
54.
55.
56.
57.
58.
- 10 -
59.
COUNT ONE
Fair Labor Standards Act
60.
61.
62.
63.
64.
65.
Plaintiff consents to sue in this action pursuant to 29 U.S.C. $216.
- 11 -
66.
67.
68.
69.
70.
71.
COUNT TWO
New York Labor Law
72.
- 12 -73.
74.
75.
76.
77.
- 13 -
PRAYER FOR RELIEF
a.
opportunity to make an informed decision about whether to participate in it;
b.
C.
pursuant to the FLSA and the NYLL;
d.
Award unpaid overtime compensation due under the FLSA and NYLL;
e.
Award liquidated damages under the FLSA and NYLL;
f.
Award attorneys' fees and costs under the FLSA and NYLL;
g.
Pre- and post-judgment interest; and
h.
Any other relief that this Court deems just and equitable.
- 14 -
DEMAND FOR TRIAL BY JURY
Respectfully submitted,
BRACH EICHLER, L.L.C.
Anthony M. Rainone, Esq.
a
Danielle Y. Alvarez, Esq. (Pro Hac Vice to be filed)
BRACH EICHLER L.L.C.
101 Eisenhower Parkway
Roseland, New Jersey 07068-1067
(973) 228-5700
arainone@bracheichler.com
dalvarez@bracheichler.com
on behalf of all other persons similarly situated
- 15 - | employment & labor |
Ff16FIcBD5gMZwczNoUF | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
MIAMI DIVISION
§
§
§
§
Plaintiff,
§
§
§
CIVIL ACTION NO.
§
§
JURY TRIAL DEMANDED
§
§
§
§
§
§
§
§
§
§
§
Defendants.
§
PLAINTIFF'S ORIGINAL COLLECTIVE ACTION COMPLAINT
I.
SUMMARY
Congress designed the Fair Labor Standards Act of 1938 ("FLSA") to remedy situations
1.
This case implicates a chain of adult entertainment clubs which go by the trade
2.
Defendants have a longstanding policy of misclassifying their employees as
3.
Defendants required and/or permitted Plaintiff Adonay Encarnacion ("Plaintiff")
4.
In fact, Defendants failed to pay Plaintiff any wages whatsoever, throughout her
5.
Thoughout her employment with Defendants, Plaintiff's only compensation was
6.
Defendants' conduct violates the FLSA, which requires non-exempt employees,
7.
Furthermore, Defendants' practice of failing to pay tipped employees pursuant to
8.
Plaintiff brings a collective action to recover the unpaid wages owed to her and all
2
II.
SUBJECT MATTER JURISDICTION AND VENUE
9.
This Court has jurisdiction over the subject matter of this action under 29 U.S.C.
10.
Venue is proper in the Southern District of Florida because a substantial portion
11.
Defendants' headquarters are located at 3040 SW 30th Ave. Pembroke Park,
12.
Plaintiff worked at Defendants' club, located at 2920 SW 30th Ave. Hallandale
III.
PARTIES AND PERSONAL JURISDICTION
13.
Plaintiff Adonay Encarnacion is an individual residing in Miami-Dade County,
14.
The Class Members are all of Defendants' current and former exotic entertainers
3
15.
Defendant J.W. Lee, Inc. d/b/a Scarlett's Cabaret d/b/a Scarlett's of Hallandale,
16.
Defendant J.W. Lee Properties, LLC is a domestic limited liability company
17.
Defendant Ybor Operations, L.C. d/b/a Scarlett's of Ybor Strip is a domestic
18.
Defendant BZLY, Inc. is a domestic corporation doing business in Florida for the
19.
Defendant M.S.B. Land Holdings, Inc. is a domestic corporation doing business
20.
Defendant SVC Joint Ventures, LLC is a domestic limited liability company
421.
Defendant Benore Ventures, Inc. is a domestic corporation doing business in
22.
Defendant SB Productions, Inc. is a domestic corporation doing business in
23.
Defendant Brandon Samuels is an individual residing in Florida. Said Defendant
24.
Defendant John Blanke is an individual residing in Florida. Said Defendant may
25.
Defendant William M. Beasley is an individual residing in Florida. Said
26.
Collectively, Defendants comprise a "joint enterprise" within the meaning of the
IV.
FLSA COVERAGE
27.
In an FLSA case, the following elements must be met. "(1) [plaintiff] is
5
28.
"To be 'employed' includes when an employer 'suffer[s] or permit[s] [the
29.
Here, Defendants had the power to hire and fire Plaintiff. Defendants hold an
30.
Defendants controlled Plaintiff's work schedule. Defendants scheduled Plaintiff
31.
Defendants required Plaintiff and other entertainers to work a certain number of
32.
Defendants provided training, if needed, through an orientation program that
33.
Defendants required Plaintiff and other dancers to wear certain clothing on certain
34.
Defendants required Plaintiff and other dancers to sell certain promotional items
6
35.
Defendants determined the rate and the method of payment of all dancers
and "song lap dances." See Exhibit B. Further, Defendants set a price for their
36.
Additionally, Defendants required Plaintiff and all other entertainers to pay
37.
Entertainers are an integral part of Defendants' strip clubs.
38.
Plaintiff's and all other entertainers' job duties consisted of dancing in designated
1
39.
Defendants maintained some records regarding the time Plaintiff and all other
40.
At all material times, Defendants have been employers within the meaning of 3(d)
741.
Moreover, the Fair Labor Standards Act ("FLSA") defines the term "employer"
42.
The statutory definition of "employer" includes corporate officers, participating
43.
Defendant Brandon Samuels is the President and manager of Benore Ventures,
44.
Defendant Brandon Samuels is the President and manager of J.W. Lee, Inc.
45.
Defendant Brandon Samuels is the manager of J.W. Lee Properties, LLC.
46.
Defendant Brandon Samuels is the manager of Ybor Operations, L.C.
47.
Defendant Brandon Samuels is the President and manager of M.S.B. Land
48.
Defendant Brandon Samuels is the manager of SVC Joint Ventures, LLC.
49.
Defendant Brandon Samuels is the President and manager of SB Productions, Inc.
50.
Defendant John Blanke is the President and Director of Defendant BZLY, Inc.
51.
Defendant John Blanke is the manager of Ybor Operations, L.C.
52.
Defendant John Blanke is the Vice President and director of Benore Ventures,
53.
Defendant John Blanke is the director of J.W. Lee, Inc.
54.
Defendant John Blanke is the manager of J.W. Lee Properties, LLC.
8
55.
Defendant John Blanke is the manager of Ybor Operations, L.C.
56.
Defendant John Blanke is the Vice President and director of M.S.B. Land
57.
Defendant John Blanke is the manager of SVC Joint Ventures, LLC.
58.
Defendant John Blanke is the Vice President and director of SB Productions, Inc.
59.
Defendant William Beasley is the shareholder, manager, officer and director of
60.
Defendant William Beasley is the manager of Ybor Operations, L.C.
61.
Defendant William Beasley is the shareholder and manager of Benore Ventures,
62.
Defendant William Beasley is the shareholder and manager of J.W. Lee, Inc.
63.
Defendant William Beasley is the manager of J.W. Lee Properties, LLC.
64.
Defendant William Beasley is the manager of Ybor Operations, L.C.
65.
Defendant William Beasley is the shareholder and manager of M.S.B. Land
66.
Defendant William Beasley is the manager of SVC Joint Ventures, LLC.
67.
Defendant William Beasley is the shareholder and manager of SB Productions,
68.
Defendants Brandon Samuels, John Blanke, and William Beasley are involved in
69.
Defendants Brandon Samuels, John Blanke, and William Beasley have
9
70.
Defendants Brandon Samuels, John Blanke, and William Beasley are responsible
71.
Defendants Brandon Samuels, John Blanke, and William Beasley have the
72.
Additionally, Defendants Brandon Samuels, John Blanke, and William Beasley
73.
Defendants Brandon Samuels, John Blanke, and William M. Beasley controlled
74.
As such, Defendants Brandon Samuels, John Blanke, and William Beasley are the
75.
"The Fair Labor Standards Act (the "FLSA"), 29 U.S.C. § 207(a) (1), requires an
1076.
At all material times, Defendants have been an enterprise within the meaning of
77.
At all material times, Defendants have been an enterprise in commerce or in the
78.
Specifically, Defendants' employees have sold goods-such as alcoholic
79.
Defendants advertise on the internet, own clubs in two states which they advertise
80.
Defendants, at all times relevant hereto have maintained business operations in
81.
Furthermore, Defendants have had, and continue to have, an annual gross
82.
At all material times, Plaintiff was an individual employee who engaged in
11
83.
Defendants misclassify Plaintiff and all other entertainers as independent
84.
Defendants failed to pay Plaintiff and all other entertainers they hire any
85.
The money Plaintiff received directly from Defendants' customers are tips.
86.
Defendants siphoned Plaintiff's and all other entertainers' tips by requiring them
V.
FACTS
87.
Plaintiff and Class Members have all been victimized by Defendants' common
88.
Defendants operate three adult entertainment clubs in Florida.
89.
Defendants operate an adult entertainment club at 2920 S.W. 30th Ave. Hallandale
90.
Defendants operate an adult entertainment club at 3819 7th Avenue Tampa,
91.
Defendants operate an adult entertainment club at 3650 Fowler Street Fort Myers,
92.
Defendants employ exotic entertainers at Scarlett's Cabaret, Scarlett's Ybor Strip,
93.
Plaintiff Adonay Encarnacion is a former exotic entertainer at Defendants' adult
94.
Plaintiff worked on a regular basis for Defendants' club.
95.
From approximately August of 2012 until October 31, 2013, Plaintiff Adonay
12
96.
Therefore, Plaintiff Adonay Encarnacion has first-hand personal knowledge of the
97.
The exotic entertainers are compensated exclusively through tips from
98.
Defendants did not pay the entertainers compensation for any hours worked at
99.
Defendants charged the entertainers certain fees per shift worked.
100.
Defendants charged the entertainers a "house fee" depending on the time they
101.
Defendants also required the entertainers to share their tips with employees who
102.
Defendants illegally classified the entertainers as independent contractors.
103.
Defendants hired, fired and supervised the entertainers. Defendants also set the
104. Defendants also controlled the entertainers' appearances with respect to their
105.
Defendants disciplined the entertainers for not following club rules.
106.
Defendants tracked the time and days the entertainers worked just as is common
13107. In addition, Defendants instructed the entertainers about when, where, and how
108.
The following further facts demonstrate the entertainers' status as employees:
a)
Defendants had the sole right to hire and fire the entertainers;
b)
Defendants require dancers to complete an employee application as a
prerequisite to their employment;
c)
Defendants made the decision not to pay overtime;
d)
Defendants made the decision not to compensate at the FLSA minimum
wage rate;
e)
Defendants provided the entertainers with music equipment and a
performing stage;
f)
Defendants controlled the entertainers' music;
g)
The dancers have made no financial investment with Defendants'
business;
h)
The dancers were hired as permanent employees and have worked for
Defendants for years;
i)
Defendants supervised the entertainers; and
j)
Defendants scheduled entertainers and as such had sole control over their
opportunity for profit.
109.
Defendants misclassified Plaintiff and Class Members as independent contractors
110.
Plaintiff and Class Members are not exempt from the overtime and minimum
111.
Although Plaintiff and Class Members are required to and do in fact frequently
14
112.
Defendants' method of paying Plaintiff in violation of the FLSA was willful and
113.
Defendants have been in the exotic dancing industry for years and are familiar
114. Further, at all material times, Defendants have operated as a "single enterprise"
115.
All Defendants have a common business purpose of for profit adult entertainment.
116. The individually named Defendants keep employment records for Scarlett's
117.
The individually named Defendants have ultimate authority regarding hiring and
118. The individually named Defendants own and operate Scarlett's Cabaret of
119. The individually named Defendants created and implemented companywide
15
120.
All corporate Defendants have the same registered agent.
121.
Defendants operate a chain of strip clubs under the assumed name "Scarlett's."
122.
Defendants represent themselves to the general public as one strip club-
VI.
COUNT ONE: VIOLATION OF 29 U.S.C. § 207
123.
Plaintiff incorporates all allegations contained in the foregoing paragraphs.
124.
Defendants' practice of failing to pay Plaintiff and Class Members time-and-a-
16125.
None of the exemptions provided by the FLSA regulating the duty of employers
VII.
COUNT TWO: VIOLATION OF 29 U.S.C. § 206
126.
Plaintiff incorporates all allegations contained in the foregoing paragraphs.
127.
Defendants' practice of failing to pay Plaintiff and Class Members at the required
128.
None of the exemptions provided by the FLSA regulating the duty of employers
129.
Defendants failed to keep adequate records of Plaintiff's and Class Members'
130.
Federal law mandates that an employer is required to keep for three (3) years all
a)
The time of day and day of week on which the employees' work week
begins;
b)
The regular hourly rate of pay for any workweek in which overtime
compensation is due under section 7(a) of the FLSA;
c)
An explanation of the basis of pay by indicating the monetary amount
paid on a per hour, per day, per week, or other basis;
d)
The amount and nature of each payment which, pursuant to section 7(e)
of the FLSA, is excluded from the "regular rate";
17
e)
The hours worked each workday and total hours worked each
workweek;
f)
The total daily or weekly straight time earnings or wages due for hours
worked during the workday or workweek, exclusive of premium
overtime compensation;
g)
The total premium for overtime hours. This amount excludes the
straight-time earnings for overtime hours recorded under this section;
h)
The total additions to or deductions from wages paid each pay period
including employee purchase orders or wage assignments;
i)
The dates, amounts, and nature of the items which make up the total
additions and deductions;
j)
The total wages paid each pay period; and
k)
The date of payment and the pay period covered by payment.
131.
Defendants have not complied with federal law and have failed to maintain such
VIII. COLLECTIVE ACTION ALLEGATIONS
18
132. As part of their regular business practices, Defendants have intentionally,
133.
Although Defendants permitted and/or required Class Members to work in excess
134.
Class Members perform or have performed the same or similar work as Plaintiff.
135. Many Class Members regularly work or have worked in excess of forty (40) hours
136. Defendants have classified and continue to classify Class Members as
137.
Class Members are not exempt from receiving overtime pay and/or minimum
138.
As such, Class Members are similar to Plaintiff in terms of job duties, pay
139.
Defendants' failure to pay overtime compensation and hours worked at the
140.
The experiences of Plaintiff, with respect to their pay, are typical of the
19
141. The experiences of Plaintiff, with respect to their job duties, are typical of the
142.
The specific job titles or precise job responsibilities of each Class Member does
143. All Class Members, irrespective of their particular job requirements, are entitled
144. All Class Members, irrespective of their particular job requirements, are entitled
145.
Although the exact amount of damages may vary among Class Members, the
146. The Plaintiff and the Class Members held the same job title: Dancers and/or
147.
The Defendants have classified all of its entertainers as independent contractors
148. The individually named Defendants instituted, permitted, and/or required the
149. The individually named Defendants instituted, permitted, and/or required the
20150. The individually named Defendants instituted, created, and/or permitted the
151. As such, the class of similarly situated Plaintiff is properly defined as follows:
Defendants' current and former exotic entertainers who worked at Scarlett's
Cabaret, Scarlett's of Ybor Strip, and/or Scarlett's of Fort Myers at any time
during the three years preceding the date this Complaint was filed up to the
present.
IX.
DAMAGES SOUGHT
152.
Plaintiff and Class Members are entitled to recover compensation for the hours
153.
Additionally, Plaintiff and Class Members are entitled to recover their unpaid
154. Plaintiff and Class Members are also entitled to all of the misappropriated funds,
155. Plaintiff and Class members are also entitled to an amount equal to all of their
156. Plaintiff and FLSA Class Members are entitled to recover their attorney's fees and
X.
JURY DEMAND
157.
Plaintiff and Class Members hereby demand trial by jury.
PRAYER
21
158. For these reasons, Plaintiff and Class Members respectfully request that judgment
a.
Overtime compensation for all hours worked over forty in a workweek at
the applicable time-and-a-half rate;
b.
All unpaid wages at the FLSA mandated minimum wage rate;
C.
All misappropriated tips;
d.
All misappropriated funds that were labeled as fees or otherwise;
e.
An equal amount of all owed wages and misappropriated funds and tips as
liquidated damages as allowed under the FLSA;
f.
Reasonable attorney's fees, costs and expenses of this action as provided
by the FLSA; and
g.
Such other relief to which Plaintiff and Class Members may be entitled, at
law or in equity.
Respectfully submitted,
/s/ Andrew Frisch
Andrew R. Frisch, Esquire
FL Bar No. 27777
Morgan & Morgan, P.A.
600 N. Pine Island Road, Suite 400
Plantation, FL 33324
Tel: (954) 318-0268
Fax: (954) 327-3013
E-mail: afrisch@forthepeople.com
Galvin B. Kennedy (will seek pro hac vice
admission)
gkennedy@kennedyhodges.com
711 W. Alabama St.
Houston, TX 77006
Telephone: (713) 523-0001
Facsimile: (713) 523-1116
Beatriz Sosa-Morris (will seek pro hac vice
admission)
KENNEDY HODGES, LLP
22
711 W. Alabama Street
Houston, Texas 77006
Telephone: 713-523-0001
Facsimile: 713-523-1116
Bsosamorris@kennedyhodges.com
ATTORNEY IN CHARGE FOR PLAINTIFF &
CLASS MEMBERS
23
EXHIBIT A
CONSENT TO BECOME A PARTY PLAINTIFF
I consent and agree to pursue my claims of unpaid overtime and/or minimum wage
I understand that this lawsuit is brought to recover unpaid wages under the Fair Labor
I intend to pursue my claim individually, unless and until the court certifies this case
In the event the case is certified and then decertified, I authorize Plaintiffs' counsel to
(Date Signed) 5/28/2014EXHIBIT B
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Fort Myers_ | employment & labor |
V7D1CocBD5gMZwczlt0J | UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TENNESSEE
KATHRYN ANNE RADEK, LAUREN HAYES,
and JANINE CHERASARO on behalf of
themselves and all others similarly situated,
Plaintiffs,
vs.
Case No. ____________________
Jury Trial Demanded
VARSITY BRANDS, LLC; VARSITY
SPIRIT, LLC; VARSITY SPIRIT FASHION &
SUPPLIES, LLC; and U.S. ALL STAR
FEDERATION, INC.,
Defendants.
CLASS ACTION COMPLAINT
TABLE OF CONTENTS
NATURE OF THE ACTION ......................................................................................................... 1
THE PARTIES................................................................................................................................ 4
A.
Plaintiff Radek ........................................................................................................ 4
B.
Plaintiff Hayes ........................................................................................................ 4
C.
Plaintiff Cherasaro .................................................................................................. 5
D.
Defendants .............................................................................................................. 5
JURISDICTION AND VENUE ..................................................................................................... 7
FACTUAL BACKGROUND ......................................................................................................... 8
A.
All Star Cheer ......................................................................................................... 8
B.
Varsity Take Over of All Star Cheer .................................................................... 10
C.
USASF .................................................................................................................. 11
D.
Other Cheerleading Governing Bodies ................................................................. 14
E.
All Star Competitions ........................................................................................... 15
F.
All Star Championships ........................................................................................ 17
1.
The Worlds................................................................................................ 18
2.
The Summit ............................................................................................... 19
3.
The U.S. Finals ......................................................................................... 19
G.
All Star Apparel .................................................................................................... 20
H.
V!ROC Choreography .......................................................................................... 22
I.
Music..................................................................................................................... 22
J.
Costs ...................................................................................................................... 23
MARKET POWER AND MARKET DEFINITIONS ................................................................. 25
DEFENDANTS’ EXCLUSIONARY SCHEME .......................................................................... 26
A.
Varsity Acquires Potential Rivals to Secure Its Monopoly in the All Star
Competition Market .............................................................................................. 28
1.
Varsity’s Acquisition of The JAM Brands ............................................... 28
2.
Varsity Made Many Other Acquisitions as Well ...................................... 29
B.
Varsity Leverages Its Monopoly Power in the All Star Competition
Market to Monopolize the All Star Apparel Market ............................................. 31
C.
Varsity Leverages Its Monopoly Power to Impose Exclusionary Contracts
and Anticompetitive Loyalty Programs On All Star Gyms .................................. 33
1.
The Network Agreement Is an Exclusionary Contract ............................. 34
2.
The Family Plan Is an Anticompetitive Loyalty Rebate Program ............ 34
3.
All Star Gym Recognize Varsity’s Predatory Behavior ........................... 36
D.
Varsity and USASF Conspire to Restrain and Eliminate Competition in
the Relevant Markets ............................................................................................ 37
1.
Varsity and USASF Restrict Access to All Star Championship
Competitions to Restrain Competition from IEPs .................................... 37
2.
Varsity and USASF Further Limit Competition from IEPs through
the Rules that They Control ...................................................................... 39
(a)
USASF limits which competitions can use its rules ....................... 39
(b)
USASF and Varsity use and create rules to their advantage .......... 40
3.
Varsity and USASF Impose Credentialing Requirements to Extract
Monopoly Rents from Members of the Class ........................................... 41
4.
Varsity and USASF’s Anticompetitive Scheme Has Worked, and
Members of the Class Have Paid the Price ............................................... 43
E.
Varsity Leverages Its Control of Competition Scoresheets and Judges to
Its Competitive Advantage ................................................................................... 43
1.
Varsity’s Proprietary Scoresheet Is Used at Almost Every All Star
Competitions ............................................................................................. 43
2.
Varsity Controls the Judges at 90% of All Star Competitions.................. 45
F.
Varsity Leverages Its Monopoly Power in the All Star Competition
Market to Impose a “Stay-to-Play” Requirement, Extracting Further Rents
from Members of the Class ................................................................................... 45
G.
Varsity Leverages Its Monopoly Power in the All Star Competition
Market to Impose Music Restrictions, Extracting More Monopoly Rents
from Members of the Class ................................................................................... 47
H.
Varsity Leverages Its Monopoly Power in the All Star Competition
Market to Impose Filming Restrictions, Extracting Monopoly Rents
Through Its Subscription Service FloCheer .......................................................... 49
BARRIERS TO ENTRY .............................................................................................................. 50
PLAINTIFFS’ CLAIMS ARE TIMELY ...................................................................................... 50
CLASS ACTION ALLEGATIONS ............................................................................................. 51
CLAIMS FOR RELIEF ................................................................................................................ 53
COUNT ONE MONOPOLIZATION IN VIOLATION OF 15 U.S.C. § 2 (On
Behalf of Plaintiffs and the Class and Against Varsity) ................................................... 53
COUNT TWO CONSPIRACY TO MONOPOLIZE IN VIOLATION OF 15
U.S.C. § 2 (On Behalf of Plaintiffs and the Class and Against All Defendants) .............. 54
COUNT THREE CONSPIRACY TO MONOPOLIZE IN VIOLATION OF 15
U.S.C. § 1 (On Behalf of Plaintiffs and the Class and Against All Defendants) .............. 55
DEMAND FOR JUDGMENT ...................................................................................................... 56
JURY DEMAND .......................................................................................................................... 56
Plaintiffs Kathryn Anne Radek (“Plaintiff Radek”), Lauren Hayes (“Plaintiff Hayes”),
and Janine Cherasaro (“Plaintiff Cherasaro”) (collectively, “Plaintiffs”) bring this class action on
behalf of themselves and all others similarly situated against Defendants Varsity Brands, LLC
(“Varsity Brands”), Varsity Spirit, LLC (“Varsity Spirit”), Varsity Spirit Fashion & Supplies,
LLC (“Varsity Fashion”) (collectively, “Varsity”), and U.S. All Star Federation, Inc. (“USASF”)
(collectively with Varsity, “Defendants”), for claims under the Sherman Act to recover damages
and injunctive relief for the substantial injuries they and others similarly situated have sustained
arising from Defendants’ anticompetitive conduct.
Plaintiffs’ allegations are based on personal knowledge as to Plaintiffs and Plaintiffs’
own actions and upon information and belief as to all other matters, such information and belief
having been informed by the extensive investigation conducted by and under the supervision of
their counsel. This investigation includes interviews of industry participants who have provided
information in confidence.1
NATURE OF THE ACTION
1.
All Star Cheer is an elite, competitive type of cheerleading. All Star athletes
belong to All Star Gyms, and they compete in All Star Competitions seeking to earn the right to
compete at All Star Championships.
2.
In All Star Cheer, competitions are everything. For athletes, winning competitions
is the goal: it is the gateway to championships, glory, and possibly even scholarships. For All
Star Gyms, athlete recruitment and retention depends on their ability to win All Star
Competitions. For event producers, team attendance is their profit model. And for Varsity,
1 Confidential witnesses (“CWs”) will be identified herein by number (CW1, CW2, etc.). All CWs
will be described in the masculine to protect their identities.
control of the All Star Competition Market allows it to extract monopoly rents from members of
the Class in many different ways.
3.
After swallowing up competitors nationwide, Varsity now dominates the market
for All Star Competitions in the United States: during the Class Period, Varsity controlled 90%
of the Market. And Varsity and All Star Cheer’s governing body USASF, which Varsity also
controls, has conspired to maintain control of the All Star Competition Market by erecting
barriers to entry that prevent non-Varsity event producers (called “Independent Event Producers”
or “IEPs”) from competing in the market.
4.
Now firmly in control of the All Star Competition Market, Varsity dictates all
aspects of it:
•
who can film and distribute video taken at competitions;
•
what music can be used during routines;
•
who can judge competitions;
•
who can coach teams at competitions (by requiring a USASF
certification);
•
who can sell apparel at competitions;
•
which hotels teams can stay at when they travel to competitions;
•
which competitions can offer bids to the crowning year-end
championships; and
•
which competition producers can use the USASF-sanctioned and
copyrighted scorebook.
As one person with knowledge of the industry stated, “Varsity is not just one thing . . . it’s the
whole kit and caboodle. There is no doubt about it, Varsity controls cheerleading.”2 Even the
President of Varsity Spirit, Bill Seely, was forced to acknowledge that he “understand[s]” the
2 See Natalie Adams, co-author of Cheerleader! An American Icon, Cheer (Netflix 2020).
observation that Varsity controls cheerleading.3 With each hook into another aspect of All Star
Cheer, Varsity has further entrenched its monopoly position and its ability to extract additional
monopoly rents from members of the Class.
5.
Varsity also leverages its monopoly in the All Star Competition Market to
monopolize the All Star Apparel Market. Varsity pushes exclusionary contracts and
anticompetitive rebate programs for apparel on gyms in order to funnel market share its own
way. And, Varsity prevents would-be All Star Apparel competitors from selling their products at
90% of the All Star Competitions, a key marketing channel.
6.
As noted above, Varsity even controls USASF, the non-profit entity that acts as
the regulatory body of All Star’s Cheer. Varsity has been in control of USASF since its creation
and currently occupies more than 75% of USASF’s board seats.
7.
USASF sets rules and regulations for all aspects of All Star Cheer from apparel to
coaching qualifications. It also controls which All Star Competitions can award bids to one of the
All Star Championships, as defined below.
8.
There is not a corner of the All Star industry that Varsity does not currently
control or has not set out to seize. And the President of Varsity Spirit brazenly stated, “I don’t
apologize for what we do.”4 The consequence has been reduced competition in the Relevant
Markets as well as overcharges to Plaintiffs, and members of the Class, who have no choice but
to comply with the goliath.
3 See Cheer (Netflix 2020).
4 See Bill Seely, Cheer (Netflix 2020).
THE PARTIES
A.
Plaintiff Radek
9.
Plaintiff Kathryn Anne Radek is a natural person and citizen of the state of
Illinois, and a resident of Lexington, Illinois. Plaintiff Radek is the parent of a former All Star
Cheer athlete who, during the Class Period (as defined below), participated in All Star
Competitions and wore All Star Apparel.
10.
Plaintiff Radek’s son was a member of the Premier Athletics All Star Gym in
Murfreesboro, Tennessee from 2018-2019. Plaintiff Radek’s son competed in multiple Varsity-
owned All Star Competitions, including The JAM Brands, COA Cheer & Dance, One Up, and
Spirit Festival events. As the parent of an All Star Athlete, Plaintiff Radek directly paid Varsity
in the form of competition entry fees to watch her son compete. Plaintiff Radek also paid
membership fees directly to USASF and paid for Varsity-branded All Star Apparel.
11.
Plaintiff Radek paid artificially inflated prices for goods and services purchased
directly from Varsity and thus has suffered economic harm and damages as a direct and
proximate result of Varsity’s conduct.
B.
Plaintiff Hayes
12.
Plaintiff Lauren Hayes is a natural person and citizen of the state of Pennsylvania,
and a resident of Milford, Pennsylvania. Plaintiff Hayes is the parent of an All Star Cheer athlete
who, during the Class Period (as defined below), participated in All Star Competitions and wore
All Star Apparel.
13.
Plaintiff Hayes’s daughter has been an All Star athlete since approximately 2016,
as a member of both the World Cup All Stars gym in Olyphant, Pennsylvania and the Cheer
Factory All Star Gym in Milford, Pennsylvania. Plaintiff Hayes’s daughter competed in multiple
Varsity-owned All Star Competitions. As the parent of an All Star Athlete, Plaintiff Hayes
directly paid Varsity in the form of competition entry fees to watch her daughter compete.
Plaintiff Hayes also paid membership fees directly to USASF and paid for Varsity-branded All
Star Apparel.
14.
Plaintiff Hayes paid artificially inflated prices for goods and services purchased
directly from Varsity and thus has suffered economic harm and damages as a direct and
proximate result of Varsity’s conduct.
C.
Plaintiff Cherasaro
15.
Plaintiff Janine Cherasaro is a natural person and citizen of the state of
Pennsylvania, and a resident of Shohola, Pennsylvania. Plaintiff Cherasaro is the parent of an All
Star Cheer athlete who, during the Class Period (as defined below), participated in All Star
Competitions and wore All Star Apparel.
16.
Plaintiff Cherasaro’s daughter has been an All Star athlete since 2017, as a
member of both the World Cup All Stars gym in Olyphant, Pennsylvania and the Quest Athletics
All Star Gym in Pine Bush, New York. Plaintiff Cherasaro’s daughter competed in multiple
Varsity-owned All Star Competitions. As the parent of an All Star Athlete, Plaintiff Cherasaro
directly paid Varsity in the form of competition entry fees to watch her daughter compete.
Plaintiff Cherasaro also paid membership fees directly to USASF and paid for Varsity-branded
All Star Apparel.
17.
Plaintiff Cherasaro paid artificially inflated prices for goods and services
purchased directly from Varsity and thus has suffered economic harm and damages as a direct
and proximate result of Varsity’s conduct.
D.
Defendants
18.
Defendant Varsity Brands—formally known as Varsity Brands, Inc.—is a
Delaware corporation with its principal place of business in Memphis, Tennessee. It is the parent
company of Defendants Varsity Spirit and Varsity Fashion, as well as the parent company of
non-defendants BSN Sports, which Varsity refers to as the recognized leader in non-cheer team
athletic gear, and Herff Jones, which Varsity refers to as the most trusted name in celebrating
student milestones. Varsity Brands—directly and/or through its affiliates, which it wholly owned
and/or controlled—organized, promoted, produced, and/or managed All Star Competitions
throughout the United States, including in this District at all times relevant to this Complaint.
Varsity Brands—directly and/or through its affiliates, which it wholly owned and/or controlled—
manufactured, distributed, marketed, and/or sold All Star Apparel that was sold and purchased
throughout the United States, including in this District, at all times relevant to this Complaint.
19.
Defendant Varsity Spirit—formally known as Varsity Spirit Corp.—is a
Tennessee corporation with its principal place of business in Memphis, Tennessee. Varsity Spirit
markets cheerleader and dance team uniforms and accessories to the youth, junior high, high
school and college markets, and offers cheerleader and dance team camps, conducts televised
cheerleading and dance team championships, organizes domestic and international travel tours
and sponsors special events for school spirit groups. Varsity Spirit—directly and/or through its
affiliates, which it wholly owned and/or controlled—organized, promoted, produced, and/or
managed All Star Competitions throughout the United States, including in this District at all
times relevant to this Complaint. Varsity Spirit—directly and/or through its affiliates, which it
wholly owned and/or controlled—manufactured, distributed, marketed, and/or sold All Star
Apparel that was sold and purchased throughout the United States, including in this District at all
times relevant to this Complaint.
20.
Varsity Fashion—formally known as Varsity Spirit Fashion & Supplies Inc.—is a
Minnesota corporation with its principal place of business in Memphis, Tennessee. Varsity
Fashion designs and markets sweaters, sweatshirts, jumpers, vests, skirts, warm-up suits, t-shirts,
shorts, pompons, socks, jackets, pins, and gloves. Varsity Fashion—directly and/or through its
affiliates, which it wholly owned and/or controlled—organized, promoted, produced, and/or
managed All Star Competitions throughout the United States, including in this District, at all
times relevant to this Complaint. Varsity Fashion—directly and/or through its affiliates, which it
wholly owned and/or controlled—manufactured, distributed, marketed, and/or sold All Star
Apparel that was sold and purchased throughout the United States, including in this District at all
times relevant to this Complaint.
21.
Varsity has been privately held since 2003. It was acquired by its current owner,
Bain Capital, LP, in 2018 for approximately $2.5 billion.
22.
Defendant USASF is a Tennessee non-profit corporation with its principal place
of business in Memphis, Tennessee. USASF—directly and/or through its affiliates, which it
wholly owns and/or controls—has promulgated and/or enforced rules governing All Star
Competitions and, more broadly, the sport of All Star Cheer throughout the United States,
including in this District at all times relevant to this Complaint. USASF—directly and/or through
its affiliates, which it wholly owns and/or controls—organized, promoted, produced, and/or
managed All Star Competitions throughout the United States, including in this District at all
times relevant to this Complaint.
JURISDICTION AND VENUE
23.
This Court has subject matter jurisdiction over this action pursuant to 28 U.S.C.
§§ 1331 and 1337 and Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15, 26, because this
action arises under the federal antitrust laws.
24.
Venue is appropriate within this district under 15 U.S.C. § 15(a), 15 U.S.C. § 22
(nationwide venue for antitrust matters), and 28 U.S.C. § 1391(b)(c)(d) (general venue
provision). Defendants resided, transacted business, were found, or had agents within this
District, and a portion of the affected interstate trade and commerce discussed below was carried
out in this District. Defendants’ conduct, as described in this Complaint, was within the flow of,
was intended to, and did have a substantial effect on, the interstate commerce of the United
States, including in this District.
25.
The Court has personal jurisdiction over each Defendant. Each Defendant has
transacted business, maintained substantial contacts, and/or committed overt acts in furtherance
of the illegal scheme throughout the United States, including in this District. The scheme has
been directed at, and has had the intended effect of, causing injury to persons residing in, located
in, or doing business throughout the United States, including in this District.
FACTUAL BACKGROUND
A.
All Star Cheer
26.
Cheerleading is not just a sideshow—it is a competitive sport with roughly four
million athletes on thousands of teams, from 70 countries, that generates billions of dollars a year
in revenue. Cheerleading is so lucrative, and Varsity so powerful, that even during the COVID-
19 worldwide pandemic, with its own competitions on hold, Varsity has been able to generate
money, raising approximately $185 million in new capital in less than a 10-day period in late
spring 2020.5
27.
There are four recognized types of cheerleading: (1) school-sponsored cheer
(elementary, middle, high-school, and college teams); (2) youth leagues and athletic association
cheer; (3) professional cheer; and (4) All Star Cheer.
5 See Natalie Walters, “Cheerleading giant Varsity Brands gets $185 million in new capital to power
through pandemic,” The Dallas Morning News, June 22, 2020,
https://www.dallasnews.com/business/local-companies/2020/06/22/cheerleading-giant-varsity-brands-
gets-185-million-in-new-capital-to-power-through-pandemic/ (last accessed Aug. 25, 2020).
28.
Unlike teams in the other cheerleading sectors, All Star Teams, which are the
teams that compete in All Star Cheer, do not cheer to support another athletic team (e.g.,
football) from the sidelines. All Star Teams exist solely to compete.
29.
Athletes on All Star Teams are highly skilled in and focus on tumbling, acrobatics
such as stunting and pyramids, and high-energy dance. All Star Team membership is highly
coveted and competitive.
30.
All Star routines involve two types of tumbling—running tumbling and standing
tumbling. Both types involve gymnastics like skills, such as back handsprings and back tucks. In
a tumbling section, most passes are performed by multiple athletes, if not the entire team, at the
same time. Only the athletes with the most difficult passes will tumble without a partner in a
running tumbling section.
31.
Stunting involves up to four athletes, known as bases, backers, and front spots,
elevating another cheerleader, known as the flyer, in the air. One popular type of stunt is a basket
toss, where the bases release the flyer by tossing her high into the air so she can perform mid-air
tricks, such as twists, before landing. Together, these athletes form what is known as a “stunt
group,” and multiple stunt groups can connect to form a pyramid.
32.
Dance in an All Star routine is high-energy, drill style and may involve typical
cheerleading movements such as “high-V’s,” a motion executed by lifting the arms to resemble
the letter “V;” “low-V’s,” a motion executed by slightly raising the arms to resemble an upside-
down letter “V;” “T’s,” a motion executed by lifting the arms to resemble the letter “T;” and
“touchdowns,” a motion executed by raising the arms by the ears.
33.
All of these skills are necessary to excel in All Star Competitions. “Anyone can
tumble from corner to corner, but it’s the routines with perfect synch, creative formations and
precise execution that stand out to the judges.”6
B.
Varsity Take Over of All Star Cheer
34.
When Varsity was founded by Jeffrey Webb (“Webb”) in 1974, it mainly ran
cheer camps at which athletes could learn new skills that incorporated athleticism with the
traditional crowd leadership role that sideline cheerleading has always been known for. Over the
years, Varsity created the new discipline of All Star Cheer. Varsity held the first high level
cheerleading competition in 1980 to provide a venue in which athletes could be recognized for
their talents and abilities. Varsity also introduced the idea of athletes wearing unique, cutting
edge uniforms, developed new stunts, and created the format for modern cheerleading
competitions. And Varsity is responsible for bringing cheerleading to television through a 32-
year relationship with ESPN.
35.
Despite Varsity being the self-proclaimed “worldwide leader for all things
spirit,”7 interestingly it has argued hard against cheerleading being legally classified as a sport.
In 2010, Webb testified as an expert witness in Biediger v. Quinnipiac University, a landmark
case regarding that classification issue. His testimony that Varsity’s competitions were
established only for “promotion of his cheerleading supply business” helped the court decide
against cheerleading being defined as a sport.8 Varsity’s 2003 Securities and Exchange
6 See “Tumbling Passes to Watch from the Summit,” Varsity, Jan. 4, 2017,
https://www.varsity.com/news/tumbling-passes-to-watch-from-the-summit/ (last accessed Aug. 25,
2020).
7 See “About Varsity Spirit,” Varsity, https://www.varsity.com/about/ (last accessed July 21, 2020).
8 See Leif Reigstad, “Varsity Brands Owns Cheerleading and Fights to Keep it From Becoming an
Official Sport,” Houston Press, July 21, 2015, https://www.houstonpress.com/content/printView/7606297
(last accessed Aug. 25, 2020).
Commission filing (Varsity was briefly a public company) explained that if cheerleading were
recognized as an official sport, then the ensuing increased regulation “would likely have a
material adverse effect on Varsity’s business, financial condition and results of operations.”9
36.
Varsity has transformed “from its humble beginning to the global powerhouse
organization it is today.”10 Today, Varsity describes itself as “the worldwide leader” in
“cheerleading . . . apparel, educational camps and competitions” and “a leader in uniform
innovation, as well as educational camps, clinics and competitions, impacting more than a
million athletes each year.”11 Through a lengthy series of acquisitions, Varsity now controls
dozens and dozens of cheer-related brands—including over 50 brands in the All Star
Competition space alone.
C.
USASF
37.
According to the USASF website, “[w]hile it is not required for all gyms to
belong to USASF, most high quality gyms choose to belong and adhere to USASF’s
regulations.”12 USASF proudly holds itself out as “the national authority for All Star.”13 What
USASF does not advertise, though, is how it is inextricably tied to and controlled by Varsity.
38.
USASF has been in Varsity’s grasp since its inception, as demonstrated by a
myriad of facts.
9 See id.
10 See “Varsity Legends,” Varsity, https://www.varsity.com/about/legends/ (last accessed Aug. 25,
2020).
11 See “About Varsity Spirit,” Varsity, https://www.varsity.com/about/ (last accessed July 21, 2020);
see also “The Driving Force in Cheerleading,” Varsity, https://www.varsitybrands.com/spirit (last
accessed Aug. 25, 2020).
12 See “Cheer Parents 101,” USASF,
https://usasf.net.ismmedia.com/ISM2/ParentsActionCommittee/Cheer_Parents_101.pdf (last accessed
Aug. 25, 2020).
13 See “U.S. All Star Federation,” USASF, https://www.usasf.net/ (last accessed Aug. 25, 2020).
39.
Founded in 2003, USASF opened for operations with a $1.8 million interest-free
loan from Varsity. Indeed, USASF’s financial statements acknowledged, “[p]erhaps the most
significant news for the organization in 2013 was the repayment to Varsity Spirit Corporation of
the startup loan that funded the USASF launch in 2003.”14
40.
Additionally, Varsity submitted the original trademark application for the marks
“U.S. All Star Federation” and “USASF,” listing itself as owner, USASF employees used their
Varsity e-mail addresses for official USASF business, USASF employees were paid directly by
Varsity, Varsity cashed checks issued to USASF, and Varsity owned the URL at which USASF’s
website is located, though it now tries to conceal that connection through the registration of
“PERFECT PRIVACY, LLC.”15
41.
Moreover, for years, USASF’s offices were located at Varsity’s corporate
address, with Varsity providing office services to USASF. Indeed, USASF’s bylaws actually
require that it be located in Memphis, Tennessee—also the home of Varsity’s headquarters:
Article I – Name and Location The name of this organization is the
U.S. All Star Federation, Inc. (“the Corporation”). The principal
office of the Corporation shall be at such place, as the Board of
Directors shall determine within the City of Memphis, Shelby
County, Tennessee.16
42.
Perhaps best summing up the relationship between USASF and Varsity is this
grateful acknowledgement by USASF: “The no-interest start up loan, along with the necessary
14 See “USASF 2013 Annual Report,” USASF,
https://usasfmain.s3.amazonaws.com/Organization/docs/annual/USASF_AnnualReport_2013.pdf (last
accessed Aug. 25, 2020).
15 See “Who REALLY has the power in USASF??,” Cheergyms,
https://cheergyms.activeboard.com/t5660100/who-really-has-the-power-in-usasf/ (last accessed July 21,
2020).
16 See id.
office support, provided by Varsity was the foundation that allowed the USASF to establish and
develop our mission of athlete safety and support.”17
43.
Pursuant to USASF’s 2015 Bylaws, “The Board of Directors is made up of
representatives from Competition Event Producers, gym owners/coaches, and the USASF.”18
With regard to the “Competition Event Producers” seats, those are to be filled with
“representatives named by each of the following Competition Event Producers: Universal
Cheerleaders Association, CheerSport, National Cheerleaders Association, United Spirit
Association, American Cheerleaders Association, Universal Dance Association, and JAMfest.”19
Every single one of those event producers is owned by Varsity. Moreover, with regard to the two
gym owner/coach Board seats that rotate every two years, those are filled by candidates
nominated by the Nominating Committee and must be approved unanimously by the Board.20
The fact that a Varsity-majority board has the mandate to appoint these seats not only ensures
that two theoretically “independent” seats are filled with people friendly to Varsity, it also
provides a further incentive to gym owners and coaches to remain loyal to Varsity so that they
might be seen as good candidates for the seats.
44.
The personnel connections between Varsity and USASF extend beyond the
Board. Two of the three USASF Vice Presidents as well as the USASF Executive Director are
either current or former Varsity employees.
17 See “2014 USASF Annual Report,”
https://usasfmain.s3.amazonaws.com/Organization/docs/annual/USASF_AnnualReport_2014.pdf (last
accessed Aug. 25, 2020).
18 See “About the USASF,” USASF, Sept. 1, 2005, https://www.usasf.net/about (last accessed Aug.
25, 2020).
19 See id.
20 See id.
45.
USASF is also a “member” of USA Cheer, the national governing body for
cheerleading in the U.S. which, as described below, is also controlled by Varsity.
D.
Other Cheerleading Governing Bodies
46.
Varsity controls multiple additional “governing bodies” (beyond USASF) within
cheerleading, including the International Cheer Union (“ICU”); USA Federation for Sport
Cheering (“USA Cheer”); and the American Association of Cheerleading Coaches and
Administrators (“AACCA”); the Universal Cheerleader’s Association (“UCA”). Each of these
entities was founded by Webb and is intertwined with Varsity.
47.
The ICU was founded in 2004 and is the recognized world governing body of
cheerleading. The ICU hosts competitions that welcome millions of athletes from over 70
countries. The ICU manages, directs, promotes, organizes, and assists the activities and
disciplines associated with cheerleading worldwide. Webb is currently the President of the ICU.
48.
USA Cheer is the national governing body for cheerleading in the United States,
recognized by the ICU. It was founded in 2007 and has three primary objectives: help grow and
develop interest and participation in cheer throughout the United States; promote safety and
safety education for cheer in the United States; and represent the United States of America in
international cheer competitions. USA Cheer and the AACCA merged in 2018. The AACCA
was founded by Webb in 1987 with the goal of advancing safety in cheerleading, and had been
instrumental in the development of cheerleading safety regulations, coaches’ education and risk
management. USA Cheer shares its address and telephone number with Varsity and does not
have any employees. Instead, it contracts with Varsity Spirit to use Varsity’s employees as
needed. The USA Cheer President, Bill Seely, is also the President of Varsity Spirit.
49.
The fact that the Varsity website explicitly notes that Varsity does not “own” the
ICU and USA Cheer21 rings as a classic example of “she doth protest too much.”
50.
The UCA was founded in 1974 and is currently the largest cheerleading camp
company in the world. The UCA trains over 180,000 cheerleaders, mostly high schoolers, every
summer at over 3,200 sessions across the United States. The UCA’s registered trademark is “WE
ARE CHEERLEADING®.”22
E.
All Star Competitions
51.
All Star Teams compete against one another at one- or two-day events. According
to Varsity:
At a typical cheerleading competition, teams perform a 2 and a half
minute routine with music that includes stunts, jumps, tumbling.
Teams are judged by a panel of cheerleading experts on difficulty
and execution. The winner in each division gets a trophy and
bragging rights.23
52.
But at these competitions, much more than bragging rights are at stake. When
colleges consider recruiting athletes for their teams, they look to All Star Gyms before looking at
high schools in search of potential team members. All Star Team athletes may also be awarded
scholarships. For instance, the Varsity-owned COA Cheer & Dance competition provides
athletes with the opportunity to win a $1,000 scholarship through the Shirley A. Wedge National
Cheer and Dance Scholarship Fund. This is why All Star Gyms need to be as successful as
possible—that is how they attract the best athletes.
21 See “Frequently Asked Questions,” Varsity, https://www.varsity.com/about/faq/ (last accessed
Aug. 25, 2020).
22 See “About Universal Cheerleaders Association,” Varsity, https://www.varsity.com/uca/about/
(last accessed Aug. 25, 2020).
23 See “What is Competitive Cheerleading?,” Varsity, Feb. 20, 2018,
https://www.varsity.com/news/what-is-competitive-cheerleading/ (last accessed Aug. 25, 2020).
53.
There are hundreds of All Star Competitions across the nation annually. Varsity
alone puts on over 600 regional and national events, which it brands under over 50 unique
banners, thereby hiding from the average person that, in fact, each of these events is a Varsity
event. Varsity’s All Star Competitions attract 900,000 athletes overall. Some of the larger All
Star Competitions may attract tens of thousands of athletes and have over 1,000 All Star Teams
competing.
54.
Most All Star Teams attend a limited number of All Star Competitions per season,
usually between five and 10. The business model for All Star Competitions depends on teams
attending, paying entrance fees, and bringing their families along with them. As a result, All Star
Competition producers should be competing against each other to attract All Star Teams to their
events. Of course, when 90% of the All Star Competitions are owned by Varsity, the competition
is limited.
55.
All Star Teams set their competition schedule with the goal of maximizing their
chances to earn a bid to one of the three recognized championships for All Star Cheerleading:
Worlds, The Summit, and the U.S. Finals (collectively, the “All Star Championships”), as
described further below. Competitions that offer bids to an All Star Championship event are
therefore much more attractive to All Star Teams.
56.
Bids function as formal invitations to All Star Championships, and the All Star
Championship event producers (Varsity and Varsity-controlled USASF) decide whether or not
an All Star Competition will be entitled to award bids. Typically, there are only two to five bids
given out per All Star Competition, if any at all. Because an All Star Team cannot attend an All
Star Championship without a bid, the limited amount makes them highly coveted and
prestigious.
57.
There are three types of bids: fully-paid, partially-paid, and at-large. If an All Star
Team receives a fully-paid bid to an All Star Championship, it means that the championship
competition completely pays for all athletes’ travel and hotel costs. A fully-paid bid is typically
awarded to All Star Teams that come in first place at All Star Competitions. Receiving a
partially-paid bid means the championship competition pays only a partial amount (such as entry
fees only), and receiving an at-large bid means an All Star Team is invited to the championship
competition but must pay their own way.
F.
All Star Championships
58.
As noted above, there are three All Star Championships: The Worlds, The
Summit, and the U.S. Finals. USASF owns The Worlds, while Varsity owns The Summit and the
U.S. Finals, as depicted here:
1.
The Worlds
59.
The Worlds is owned, produced, and promoted by Varsity-controlled USASF and
the International All Star Federation (“IASF”). The IASF, which provides rules, credentialing,
and opportunities in cheer and dance, was previously a part of the USASF until 2016.
60.
The Worlds began in 2004 with two divisions. Today, it includes over 20
divisions and hosts hundreds of teams, including teams from Premier Athletics gyms, and
thousands of athletes each year at Walt Disney World’s ESPN Wide World of Sports in Orlando,
Florida. It is the final end-of-season event for senior level elite teams. Out of six “levels” of
athletes, only Levels 5 and 6—the highest and most advanced levels—were historically eligible
to compete at Worlds. Beginning in 2020, a seventh level was added, and now Levels 5-7 are
eligible to compete.
61.
To attend Worlds, an All Star Team must receive a bid from one of the 42
qualifying All Star Competitions with the right to award Worlds bids. As the producer of the
Worlds event, USASF selects which 42 competitions have the right to award those bids. Notably,
84.25% of the at-large and fully-paid Worlds bids are awarded by Varsity-produced All Star
Competitions. For instance, in 2019, several Premier Athletics gym teams received at-large bids
to Worlds from the One Up Championships—a Varsity-owned event.
62.
Perhaps unsurprisingly, given Varsity’s control over USASF, according to CW1,
despite not officially being a Varsity event, Worlds looks and feels and is run exactly like a
Varsity event, and participants think of it as a Varsity event. CW1 is the parent of an All Star
Team athlete who paid for CW1’s daughter to participate and compete in All Star Cheer for 11
seasons, from 2007 to 2020, taking one year off in the middle. CW2, an All Star Gym owner
who has been in the cheerleading industry for approximately 20 years, has further noted that the
Worlds “playbook” is the Varsity playbook, so Worlds presents exactly as a Varsity event would.
2.
The Summit
63.
Varsity owns, produces, and promotes The Summit, which it founded in 2013.
64.
The Summit hosts 1,500 All Star Teams, including teams from Premier Athletics
gyms, in over 35 divisions. It is designed as a high-caliber event open to all levels, so athletes
may range from Levels 1-6. This makes it the elite event for All Star Teams that cannot
otherwise qualify for Worlds. Like Worlds, it is held each year at Disney’s ESPN Wide World of
65.
All Star Teams must also receive a bid to attend The Summit. As the event
producer of The Summit, Varsity decides which All Star Competitions have the authority to
award bids to The Summit. For instance, in 2019, a Premier Athletics gym team received an at-
large bid to The Summit from the One Up Championships—a Varsity-owned event.
66.
In the 2019-20 season, there were 301 All Star Competitions that had the right to
award bids to The Summit. Every single one of those competitions was a Varsity event.
3.
The U.S. Finals
67.
Finally, the U.S. Finals, founded in 2009, is also owned, produced, and promoted
by Varsity.
68.
The U.S. Finals takes place in multiple locations and then the scores from the
various locations are compared. In the 2020-21 season, for instance, the U.S. Finals will be
hosted in Myrtle Beach, South Carolina; Sevierville, Tennessee; Grapevine, Texas, Louisville,
Kentucky; Pensacola, Florida; Anaheim, California; Worcester, Massachusetts; Kansas City,
Missouri; and Virginia Beach, Virginia. Over 1,000 All Star Teams, ranging from Levels 1-6,
including teams from Premier Athletics gyms, participate.
69.
In order to participate in a U.S. Finals event, an All Star Team must receive a bid.
Varsity decides which All Star Competitions have the authority to award bids to the U.S. Finals.
For instance, in 2016 a Premier Athletics gym team received a paid bid to the U.S. Finals from
the JAM Brands Country Jam competition—a Varsity-owned event.
G.
All Star Apparel
70.
All Star Apparel includes clothing, shoes, accessories, and equipment purchased
for use by All Star Team athletes at All Star Competitions and during All Star Team practices
and training. Specialized clothing includes uniforms, warm-up outfits, and team jerseys;
specialized accessories include hair bows and headbands; and specialized equipment includes
backpacks.
71.
For practices, All Star Team athletes wear lightweight, breathable athletic wear
typically made of spandex, microfiber, or cotton materials. To travel to and from practice,
athletes may have team sweatshirts or jackets, and team sweatpants. Athletes may store this
outerwear in a backpack or duffle bag. During practice, athletes wear shorts or leggings, and a t-
shirt, tank top, or long-sleeved shirt. Female athletes also wear sports bras and may wear that in
lieu of another type of top. Since female athletes typically fulfill the role of the flyer during
stunting, female practice All Star Apparel will usually be skin tight, so that the athletes catching
her on the ground do not get caught in it. Finally, all athletes wear sneakers during practices.
72.
Each individual piece of this All Star Apparel, including the backpack or duffle
bag, may be team- or gym-branded. An All Star Gym may require all athletes on an All Star
Team to match during any given practice. Athletes must therefore always be prepared with
several sets of clothing.
73.
For All Star Competitions, athletes wear entirely matching sets of All Star
Apparel. This includes warms up outfits (jackets, sweatshirts, and sweatpants), hair bows for
female athletes, and uniforms. For male athletes, a uniform consists of pants and a top. For
female athletes, a uniform consists of a skirt, briefs, and either just a crop top or a crop top and
“shell” top over it. These clothes may be carried in a backpack or duffle bag. There usually is no
overlap between the All Star Apparel for practices and for All Star Competitions (so even though
athletes might have jackets or backpacks for both, they will be different).
74.
All Star Apparel is an important aspect of All Star Competitions. USASF rules
govern every detail of what All Star Cheerleaders may wear in a competition. Soft-soled shoes—
like those Varsity manufactures and sells—are required. Skirts, briefs, and shorts must meet
inseam guidelines. Exposed midriffs are forbidden for certain age groups, and tops must be
secured over at least one shoulder. Bows cannot be excessive size, jewelry is forbidden, and
makeup must be uniform and appropriate.24 All Star Competitions require that participants dress
and accessorize in accordance with USASF rules.
75.
In addition to selling All Star Apparel directly to All Star Gyms, manufacturers
showcase and sell their apparel at All Star Competitions. But Varsity prevents other apparel
manufacturers from showcasing their apparel at Varsity’s All Star Competitions, thereby
foreclosing them from 90% of the important All Star Competition marketing channel. One
example that received press is the fact that Varsity forbade Rebel Athletic, an independent
cheerleading apparel company, from having a booth or set up at Varsity competitions, causing
Rebel Athletic to be locked out of partnering with 90% of All Star Competitions. CW1 recalls
that Rebel, in an act of desperation, parked a truck at a Varsity event with an advertisement
instructing patrons how to get to the Rebel pop-up shop located off official Varsity event
property.
24 See “2019-2020 USASF Cheer Rules,” USASF, http://rules.usasfmembers.net/wp-
content/uploads/2019/08/USASF_Cheer_Rules_Overview_19-
20.pdf?__hstc=138832364.efed7d8f1c830aa60b7954df8534ed2a.1587669506683.1587669506683.15877
46180666.2&__hssc=138832364.3.1587746180666&__hsfp=612696179 (last accessed Aug. 25, 2020).
H.
V!ROC Choreography
76.
The routines that teams perform at All Star Competitions are carefully
choreographed to best showcase a team’s skill while making sure to comply with all applicable
77.
CW2 noted that larger gyms may have their own in-house choreographers; most
smaller gyms do not. Smaller gyms, and even sometimes larger gyms for important competitions,
will hire outside choreographers to come in and help their teams. Although choreographers were
traditionally independent contractors, Varsity sensed another area in the All Star space in which
it could get its hooks and founded V!ROC, its own choreography company, in 2006.
78.
Varsity touts V!ROC as the industry’s leading choreography resource for clients,
coaches and athletes. V!ROC offers access to proprietary creative material and, Varsity claims,
the top choreographers from around the country.
79.
V!ROC choreography costs gyms $4,000 per two-day session, not including
airfare to fly the choreographer to the All Star Gym.
I.
Music
80.
Routines at All Star Competitions are set to music. The music and the routines are
carefully choreographed together so that big skills and stunts are punctuated by big moments in
the piece of music. Specifically, they were most often set to mash-ups or remixed versions of
popular songs.
81.
Historically, as CW3, who has years of experience both as an independent event
producer and owning and operating an All Star Gym, explained, All Star Cheer teams used
commercially available music in their routines and tended to use popular pop and rock anthems.
Once All Star competitions started being televised, though, All Star Gyms had to purchase music
rights applications in order to avoid copyright infringement issues.
82.
As described in further detail below, recognizing this change, Varsity swept in
and found a way to take over another aspect of All Star Cheer and further extract money from
All Star Gyms.
J.
Costs
83.
All Star Teams train and practice through privately-owned and operated
businesses known as All Star Gyms. All Star Gyms may have as little as 25 athletes or as many
as over 800 athletes. For instance, Premier Athletics has nine gyms in various locations,
including six in Tennessee, and trains thousands of cheerleaders.
84.
The costs to participate in All Star Cheerleading are considerable. One estimate,
by USASF, noted a range of $3,000 to $6,000 per year, depending on factors such as age and
location, but many parents say that it is even higher than that. For example, CW1 noted that
prices for everything associated with Varsity —including apparel, event fees, and hotel costs—
increased over the years. For the past several years, CW1 estimates paying approximately $7,000
a year for CW1’s daughter’s All Star Cheer costs.
85.
The line items paid by parents range from entrance fees to competitions to hair
bows to USASF registrations to choreography to monthly gym dues. For CW1, some of these
costs break down as follows:
•
$175/month in gym tuition
•
$15/competition to pay for coaches’ expenses to attend the competition
•
$425 bi-yearly for uniforms
•
$110/year for shoes
•
$200/year for practice outfits
•
$100 for a team jacket
•
$50 in additional miscellaneous deposits
•
additional amounts in entrance fees to competitions, hotel stays, travel
expenses, and USASF membership.
Another All Star Gym estimates the annual costs for its athletes, not including admission to All
Star Competitions, to be:
•
$419 monthly tuition
•
$100 tryout fee
•
$30 USASF membership
•
$299 season fee deposit
•
$449 yearly for a uniform
•
$45 bi-yearly for a uniform cover
•
$120 for shoes
•
a possible $1,000 drop fee if the athlete quits within a certain time frame
•
plus transportation and lodging for All Star Competitions.25
86.
Expenses to attend All Star Competitions include both entry fees and travel,
which may include gas or airfare, car rentals, parking, hotel rooms, food, and any additional
money for souvenirs such as event T-shirts. For CW1, these costs include a $35/year USASF fee,
$535 for competition entry fees, $25 competition ticket fees for each one-day competition, $35-
$100 ticket fees per each two-day competition, and more.
87.
According to CW1, until the beginning of the 2018-2019 season, “tickets” to
Varsity All Star Competitions were only able to be purchased with cash; no receipt or actual
physical ticket would be issued upon purchase—only a wristband. Plaintiffs all used cash to
purchase tickets to various Varsity-owned events throughout the Class Period. For instance,
25 See “20 Years,”
https://static1.squarespace.com/static/5d2d081c885081000108f64c/t/5eac69f04bc3e4445b427c19/158835
7629833/20-21+Season+Info.pdf (last accessed Aug. 25, 2020).
Plaintiff Radek used cash to purchase tickets at the 2019 Sprit Festival competition in
Nashville—a Varsity-owned event. As CW1 explained, beginning with the 2018-2019 season,
Varsity began offering tickets online, but tickets purchased online were subject to additional
processing fee upcharges.
MARKET POWER AND MARKET DEFINITIONS
88.
The relevant product markets are the markets for All Star Competitions (the
“Primary Market” or “All Star Competition Market”) and All Star Apparel (the “Ancillary
Market” or “All Star Apparel Market”) (collectively, the “Relevant Markets”).
89.
At all relevant times, Defendants had, and continue to have, substantial market
power and/or monopoly power in the Relevant Markets. Defendants have maintained and
continue to maintain 90% of the All Star Competition Market and 80% of the All Star Apparel
Market.
90.
At all relevant times, Defendants have exercised, and continue to exercise, the
power to exclude and restrict competition in the Relevant Markets.
91.
For All Star Cheerleaders and their All Star Gyms, there are no substitutes for All
Star Competitions. The entire discipline is premised and structured around winning competitions.
And other sectors of cheerleading—school sponsored teams, youth leagues and athletic
associations, and professional teams—have different purposes and different requirements.
92.
The primary purpose of all other types of cheerleading is to support another sport,
commonly football and basketball, and entertain the crowd. Membership on those cheerleading
teams is conditioned on enrollment at the school, youth league, athletic association, or
professional sports team with which the team is affiliated. While other cheerleading sectors may
compete in competitions, these competitions involve fewer stunts and less rigorous tumbling, as
well as an actual cheer, so the routines are less vigorous. Thus, the skill set required to be part of
these other teams is different.
93.
The primary purpose of All Star Cheerleading, on the other hand, is to compete.
Athletes on All Star Teams participate in All Star Competitions at which they perform two and a
half minute routines with music that includes stunts and pyramids, jumps, tumbling, and thus
athletes must be highly skilled in tumbling, acrobatics, and high-energy dance. No other type of
cheerleading is a functional or economic substitute.
94.
Dance and gymnastics competitions are also not functional or economic
substitutes for All Star Competitions. All Star Competition routines involve multiple athletes
performing synchronized movements in precise, drill-like style, whereas dance competition
routines may involve as little as one person, and may include a range of looser styles such as hip
hop, jazz, lyrical, contemporary, tap, or ballet. All Star Competition routines also involve floor
tumbling, whereas gymnastics competition routines involve a combination of floor tumbling,
vault, bars, and beam. Thus, the skill set required to be part of these other teams is different.
95.
The relevant geographic market is the United States and its territories.
DEFENDANTS’ EXCLUSIONARY SCHEME
96.
Over the past 15 years, Varsity has, separately and in combination with USASF,
acquired, enhanced, and maintained monopoly power in the Relevant Markets in the United
States through an unlawful scheme (the “Exclusionary Scheme”).
97.
During the Class Period, Varsity collectively controlled approximately 90% of the
All Star Competition Market and 80% of the All Star Apparel Market. Through their unlawful
conduct, Varsity and USASF, acting together and independently, have substantially foreclosed
competition in both Relevant Markets and thereby maintained and enhanced its monopoly
power. In doing so, their Exclusionary Scheme has led to reduced output, supracompetitive
prices, and reduced choice in both Relevant Markets.
98.
The Exclusionary Scheme has largely worked. During the Class Period, as
defined below, the number and variety of All Star Competitions, as well as the number and
variety of All Star Apparel manufacturers, have fallen. And as the number of rivals in both
Relevant Markets has dropped, prices have risen.
99.
Defendants’ Exclusionary Scheme, as alleged herein, is intentional and
systematic. As Varsity’s founder Webb stated in a recent interview:
We were positioning ourselves to provide all the products and
services that that affinity group [All Star Cheer participants]
utilized. Not only did we have the number one position in those
three segments [competitions, apparel, and camps], but then we
developed a cross-marketing model where we could promote [the
segments within each other] and to be honest with you, it took
off.26
100.
Webb’s biography on the website of political advocacy group that he founded,
American Populists, website actually brags of his ability to create a monopoly:
By being the clear market leader and providing an unparalleled
array of products and services for each segment of the industry he
had created, Webb effectively built a moat to protect his
company’s position and provide a springboard for strong and
sustained growth over three decades.27
101.
Defendants’ Exclusionary Scheme had the purpose and effect of unreasonably
restraining and injuring competition. And the anticompetitive conduct has injured Plaintiffs and
26 See Gabriel Perna, “Varsity Brands Founder On The Big Business Of Cheerleading,” Chief
Executive, Oct. 29, 2018, https://chiefexecutive.net/varsity-brands-big-business-cheerleading/ (last
accessed Aug. 25, 2020).
27 See “Our Founder Jeff Webb,” American Populists,” https://newamericanpopulist.com/our-
founder (last accessed Aug. 25, 2020).
members of the Class (defined below) by forcing them to pay higher prices for All Star
Competitions, All Star Apparel, and related goods and services purchased directly from Varsity.
102.
But for Defendants’ illegal conduct, competition would have resulted in lower
prices for All Star Competitions, All Star Apparel, and related goods.
103.
Defendants’ efforts to restrain competition in the market for All Star
Competitions and All Star Apparel have substantially affected interstate commerce. During the
Class Period, Defendants organized, promoted, and managed All Star Competitions and
manufactured, distributed, and sold All Star Apparel in a continuous and uninterrupted flow of
commerce across state lines and throughout the United States. And Plaintiffs and members of the
Class purchased those goods and services from across state lines as well.
A.
Varsity Acquires Potential Rivals to Secure Its Monopoly in the All Star
Competition Market
104.
Varsity has acquired company after company as part of its rampage of the All Star
Cheer world. As one insider stated, Varsity has “been very successful in squelching other
competitors.”28
1.
Varsity’s Acquisition of The JAM Brands
105.
The most disruptive acquisition made by Varsity in the All Star Competition
Market was its acquisition of The JAM Brands. Prior to 2016, The JAM Brands was Varsity’s
largest competitor for All Star Competitions, producing some of the largest and most popular All
Star Competitions in the United States, including the Majors, the U.S. Finals and JAMFest Cheer
28 See Natalie Adams, co-author of Cheerleader! An American Icon, Cheer (Netflix 2020).
Super Nationals, at which over 550 All Star Teams competed. Together, Varsity and The JAM
Brands controlled 90% of All Star Competition events.29
106.
Notably, Varsity’s acquisition of The JAM Brands not only gave Varsity more
control over the All Star Competition Market, it also had an effect on the All Star Apparel
Market. In 2015, The JAM Brands co-owner Dan Kessler publicly announced its desire to
partner with cheerleading company Rebel Athletic, Varsity’s biggest competitor in the All Star
Apparel space. Dan Kessler called Rebel Athletic “edgy” and said that their “look was real.”30
107.
Despite Dan Kessler’s statements about the value of a partnership with Rebel
Athletic, and despite The JAM Brands and Varsity being in direct competition with one another
in the All Star Competition Market, a few weeks after The JAM Brands announced its proposed
alliance with Rebel Athletic, it suddenly pivoted and merged with Varsity.31 And that was the
end of a partnership between The Jam Brands and Rebel Athletic.
108.
As CW1 explained, another change once The JAM Brands was acquired by
Varsity is that The JAM Brands began charging admission to its events for the first time. Prior to
the acquisition, it was free to enter events put on by The JAM Brands.
2.
Varsity Made Many Other Acquisitions as Well
109.
The JAM Brands may be Varsity’s largest acquisition of an All Star Competition
producer, but it is far from the only one. An earlier significant acquisition was in 2004 when
Varsity bought the National Spirit Group, thereby acquiring ownership and control of the
National Cheerleaders Association (“NCA”). The NCA was founded in 1948 as the first
29 See Leigh Buchanan, “The Battle for the Cheerleading-Uniform Industry Is Surprisingly Cutthroat
and Appropriately Glittery,” Slate, Feb. 22, 2016, https://slate.com/business/2016/02/rebel-wants-to-
disrupt-the-surprisingly-entrenched-cheerleader-uniform-industry.html (last accessed Aug. 25, 2020).
30 See id.
31 See id.
cheerleading company. In 1987, the NCA produced and held the first ever All Star Competition.
Today, the NCA-produced All Star Competition NCA All Star Nationals is a prestigious All Star
Competition that hosts over 25,000 participants and 38,000 spectators each year.
110.
Some additional examples of once-significant, once-independent All Star
Competitions are: All Star Challenge; Aloha Productions; America Cheer Express; American
Spirit Championships; Cheer America; Cheer Ltd.; CheerSport; Cheer Tech; COA Cheer &
Dance; Connecticut Spirit Association; Epic Brands; Golden State Spirit Association; JAMZ
Cheer and Dance; Mardi Gras Spirit Events; Nation’s Best; Pac West Spirit Group; Spirit Cheer;
Universal Spirit; UPA; US Spirit; Valley of the Sun; WCA; Worldwide Spirit Association; and
Xtreme Spirit.
111.
Varsity systematically acquired 12 of these once-independent competitions: All
Star (2008); Pac West (2011); CheerSport and Universal Spirit (2012); Cheer Ltd (2014); COA
Cheer & Dance (2015); Aloha Productions and Golden State Spirit Association (2016); Mardi
Gras Spirit Events and Spirit Celebrations (2017); Epic Brands (2018); and Spirit Cheer. Seven
out of the 12 Varsity-owned All Star Competitions have the ability to offer Worlds bids, whereas
only one of the events that remained independent is a qualifying event for Worlds. None of the
remaining independent events are qualifying events for The Summit.
112.
CW3 explained that the non-Varsity event producers, recognizing that they would
be stronger together than apart, came together years ago, calling themselves Independent Event
Producers, or IEPs. (Recently, the IEPs have rebranded themselves Cheer and Dance Industry
Professionals (“CDIPs”). CW3 described this as the “little guys banding together” and noted that
they would offer discounts to teams for attending multiple independent (i.e., non-Varsity) events
in an attempt to survive Varsity’s scheme.
B.
Varsity Leverages Its Monopoly Power in the All Star Competition Market to
Monopolize the All Star Apparel Market
113.
Varsity has used its control of the All Star Competition Market to acquire,
enhance, and maintain monopoly power in the ancillary All Star Apparel Market by impairing
and/or excluding actual and potential All Star Apparel rivals through the Exclusionary Scheme
alleged herein.
114.
Varsity entered the All Star Apparel Market in 1980 and has, since then, gained
an 80% share of the All Star Apparel Market “[t]hanks to an aggressive campaign of
acquisitions, rebate plans that make it expensive for gym owners to switch suppliers, and other
strategies”32 Indeed Varsity brags that its All Star Apparel “has defined cheerleading for
generations.”33
32 See Leigh Buchanan, “The Battle for the Cheerleading-Uniform Industry Is Surprisingly Cutthroat
and Appropriately Glittery,” Slate, Feb. 22, 2016, https://slate.com/business/2016/02/rebel-wants-to-
disrupt-the-surprisingly-entrenched-cheerleader-uniform-industry.html (last accessed Aug. 25, 2020).
33 See “Why Choose Varsity All Star Fashion,” Varsity, https://www.varsity.com/All Star/All Star-
fashion/why-choose-varsity/ (last accessed Aug. 25, 2020).
115.
Varsity has assembled at least 200 copyrights on uniform design. Varsity uniform
and apparel designs can be identified by a “V” logo on the bottom left of every top or skirt.
116.
In addition to being a showcase for the athletes, All Star Competitions are also, in
part, trade shows at which vendors hawk their wares to a captive—and targeted—audience.
Varsity prevents its competitors in the All Star Apparel space from displaying selling their
products in “showrooms” erected at Varsity’s All Star Competitions, thus depriving those
companies of a key distribution channel and the associated revenue. For instance, The JAM
Brands competitions had been Rebel Athletic’s “most effective platform for marketing
[uniforms] to elite cheer teams.”34 After The JAM Brands’ merger with Varsity, Rebel Athletic
was completely locked out of partnering with 90% of All Star Competitions.
117.
Likewise, Nfinity, another apparel brand, has also been prohibited from selling its
products at once-independent All Star Competitions that were acquired by Varsity. Two
34 See Leigh Buchanan, “The Battle for the Cheerleading-Uniform Industry Is Surprisingly Cutthroat
and Appropriately Glittery,” Slate, Feb. 22, 2016, https://slate.com/business/2016/02/rebel-wants-to-
disrupt-the-surprisingly-entrenched-cheerleader-uniform-industry.html (last accessed Aug. 25, 2020).
examples are CheerSport’s numerous competitions and Battle Under the Big Top. This is to the
disappointment and detriment of athletes who “always depended on them being there.”35
118.
Cutting other brands out of the showcase distribution channel at 90% of All Star
Competitions has a serious exclusionary effect.
119.
Beyond this exclusionary conduct, there is another dark side of Varsity’s conduct
in the All Star Apparel space. In light of the fact that 90% of All Star Competitions are Varsity-
produced—with Varsity not only setting the rules for those competitions but also paying the
judges to judge those competitions—rumors have long circulated that teams outfitted in Varsity
apparel (which are identifiable by the “V” logo) are rewarded with higher scores for their
routines. As one industry participant put it, “you’ve gotta be Varsity, bow to toe” in order to
maximize point awards at All Star Competitions.36 This further discourages All Star Teams from
buying All Star Apparel from anyone other than Varsity.
C.
Varsity Leverages Its Monopoly Power to Impose Exclusionary Contracts and
Anticompetitive Loyalty Programs On All Star Gyms
120.
Varsity employs two types of agreements with All Star Gyms, the “Network
Agreement” and the “Family Plan,” to maintain its dominance in the All Star Competition
Market and to acquire, enhance, and maintain monopoly power in the All Star Apparel Market.
Varsity imposes its exclusionary conduct on All Star Gyms because they recruit, train, organize,
and maintain All Star Teams. They choose which All Star Competitions All Star Teams attend.
They also decide on the All Star Apparel that their All Star Teams purchase. As such, All Star
35 See “Nfinity ‘vengeance’ Vs. Varsity ‘last Pass’,” The Fierce Board, Feb. 1, 2012,
https://www.fierceboard.com/threads/nfinity-vengeance-vs-varsity-last-pass.21245/page-2 (last accessed
Aug. 25, 2020).
36 See Jason Watson, Comments Section, May 27, 2020, https://mattstoller.substack.com/p/the-
coming-collapse-of-a-cheerleading/comments#comment-232780 (last accessed Aug. 25, 2020).
Gyms are a key input for producing a successful All Star Competition and the primary and
necessary distribution channel for All Star Apparel.
121.
The prices that All Star Gyms had to pay to be part of a Network Agreement and
costs that All Star Gyms incur to qualify for the Family Plan were inflated as a direct and
foreseeable result of Defendants’ anticompetitive conduct.
1.
The Network Agreement Is an Exclusionary Contract
122.
Varsity’s exclusionary contract is called the Network Agreement. All Star Gyms
that participate in the Network Agreement are required to attend almost exclusively Varsity All
Star Competitions and exclusively purchase Varsity’s All Star Apparel. Attendance at All Star
Competitions is critical for the events to be successful and make money. Likewise, distribution
of All Star Apparel is critical for manufacturers to make money.
123.
In some of these agreements, Varsity ties discounts on Varsity’s All Star Apparel
and attendance at Varsity All Star Competitions, such that All Star Gyms must both spend a
minimum amount annually on Varsity’s All Star Competitions and attend a minimum number of
Varsity’s All Star Competitions to qualify for non-penalty, or “reward,” prices on Varsity’s All
Star Apparel. All Star Gyms bound by a Network Agreement cannot access non-penalty reward
prices for All Star Competitions unless they also agree to exclusively buy their All Star Apparel
from Varsity.
124.
IEPs and competitor All Star Apparel manufacturers are foreclosed from access to
All Star Gyms that participate in the Network Agreement. This essentially deprives them of
having the best talent participate in their events or wear their apparel.
2.
The Family Plan Is an Anticompetitive Loyalty Rebate Program
125.
Varsity’s anticompetitive rebate program is called the Family Plan. The Family
Plan makes access to non-penalty reward prices on All Star Competitions and All Star Apparel
contingent on All Star Gyms attending primarily Varsity-owned All Star Competitions (as
opposed to those owned by IEPs). All Star Gyms seeking to participate in the Family Plan are
also incentivized to purchase their athletes’ All Star Apparel exclusively from Varsity because
the more they buy, the more they save.37 In order for an All Star Gym to reap the benefits of the
Family Plan, they are required to attend six or more Varsity All Star Competitions each year
(which for many gyms is or is nearly 100% of their competitions) and spend certain dollar
amounts. Attendance at All Star Championships does not count toward the requirement.
Transportation, ticket cost, and other event costs also do not count toward the requirement—only
the actual registration fee is credited. CW2 noted that his gym did not qualify for the rewards for
several years because they did not attend enough Varsity events. The gym did not attend enough
Varsity events due to the fact that Varsity kept increasing the number of events that gyms had to
attend (and the dollar amount that they had to spend) to qualify.
126.
Varsity incentivizes All Star Gyms to have their teams attend more than six
Varsity All Star Competitions by increasing the reward percentages per each additional event
attended. Varsity also incentivizes All Star Teams to spend more money by giving greater
reward percentages the more that is spent. For example, for the 2019-2020 season, Varsity’s
Family Plan reward percentages were as follows:38
37 See Matt Stoller, “The Coming Collapse of a Cheerleading Monopolist”, May 27, 2020,
https://mattstoller.substack.com/p/the-coming-collapse-of-a-cheerleading (last accessed Aug. 25, 2020).
38 See “Varsity 2019-2020 Family Plan,” Varsity, https://www.varsity.com/wp-
content/uploads/2019/06/VAS_FamilyPlan_19.20.pdf (last accessed Aug. 25, 2020).
127.
Varsity, as alleged above, uses its control of the All Star Championship bids to
push All Star Gyms to attend Varsity events. Taken together with the fact that All Star Teams
generally only attend five to 10 competitions per year, this structure all but excludes the
possibility of competition from IEPs in the Relevant Market by effectively punishing All Star
Gyms for attending non-Varsity All Star Competitions.
3.
All Star Gym Recognize Varsity’s Predatory Behavior
128.
Gyms have begun to band together to fight back against Varsity, further
evidencing its predatory behavior. In 2019,39 14 All Star Gyms, including some of the nation’s
largest, such as the California All-Stars—whose teams, as of 2019, have won 46 medals at
Worlds—and the Cheer Athletics All Stars—whose teams, as of 2019, have won 61 medals at
Worlds40—banded together to form a working advocacy group called All-Stars United.41
39 See “US Cheer Rebels,” Facebook, July 2, 2019,
https://www.facebook.com/351424858528244/posts/our-first-allstars-united-national-meeting-was-a-
huge-success-we-had-around-170-/950585431945514/ (last accessed Aug. 25, 2020).
40 See “Worlds,” CheerAthletics, http://www.cheerathletics.com/worlds (last accessed Aug. 20,
2020).
41 See “Founding Members,” All Stars United, http://allstarsunited.us/founding-members (last
accessed Aug. 20, 2020).
Notably, All-Stars United states that the purpose of its existence “is to address various issues
within our sport, especially the financial strain impacting all-star families.”42
129.
All-Stars United now counts more than 300 gyms among its membership.
D.
Varsity and USASF Conspire to Restrain and Eliminate Competition in the
Relevant Markets
130.
Varsity’s dominance of the All Star Competition Market and its control over All
Star Championship bids, described herein, guarantees that All Star Teams attend Varsity-owned,
sponsored, and organized All Star Competitions instead of independent events produced by
Varsity’s competitors.
1.
Varsity and USASF Restrict Access to All Star Championship Competitions
to Restrain Competition from IEPs
131.
Varsity has used its control over USASF, and conspired with USASF, to prevent
rival IEPs from competing in the All Star Competition Market.
132.
As described in further detail above, Varsity owns, produces, and promotes The
Summit and U.S. Finals. Varsity decides which All Star Competitions have the authority to
award bids to The Summit and the U.S. Finals, and only Varsity All Star Competitions are
allowed to award bids to the Summit.
133.
The Worlds is owned, produced, and promoted by USASF, which is controlled by
Varsity, as also described in further detail above. Varsity, with and through USASF, limits the
number of Worlds bids that All Star Competition producers can award to All Star Teams.
According to USASF rules, only “Tier 1” All Star Competition producers can offer fully-paid
bids to Worlds. There are only 42 qualifying All Star Competitions—as determined by
USASF—that have the right to award bids to Worlds. Varsity owns 33 of these competitions;
42 See “About Us,” All Stars United, http://allstarsunited.us/about-me-1 (last accessed Aug. 20, 2020)
(emphasis added).
only nine are owned by IEPs. In total, as of 2019, Varsity awarded 84.25% of fully-paid and at-
large bids for Worlds.
134.
Moreover, while the number of Tier 1 All Star Competitions is fixed, the number
of bids that any one of those All Star Competition producers may distribute can be changed by
Varsity and USASF. Perhaps unsurprisingly, when Varsity has acquired IEPs, it has increased
the number of bids awarded by the All Star Competitions that those IEPs had owned.
135.
The ability to offer bids to one of the three All Star Championships is crucial for
IEP competitors’ ability to compete in the Relevant Market. As explained above, the entire
industry is organized around qualifying for and then placing well at All Star Championship
events. And because athletes only compete at a limited number of All Star Competitions per
year, they are much more likely to select competitions that can offer bids to one of the All Star
Championships. Bids to Worlds, in particular, are not awarded at non-USASF events, further
discouraging All Star Teams from putting these IEPs on their limited competition schedules.
136.
USASF imposes yet another anticompetitive restraint in the All Star Competition
Market through its geographical restrictions. USASF does not allow an All Star Competition
producer to hold a bid-qualifying All Star Competition within 500 miles of any other. As a result,
it is nearly impossible for an IEP to compete with Varsity, which already holds competitions
nationwide in most major metropolitan areas. Thus IEPs would have to acquire existing All Star
Competition producers that already control bids in order to further compete with Varsity.
137.
By restricting competition and eliminating rivals, Varsity is able to, and has,
charged supracompetitive prices for participation in All Star Competitions.
2.
Varsity and USASF Further Limit Competition from IEPs through the Rules
that They Control
138.
USASF and Varsity control the rules governing All Star Competitions and use
that control to limit competition from IEPs.
139.
Notably, competition rule changes sometimes occur in such a way that only those
plugged in to Varsity or USASF, again, likely not the small gyms, will be made aware of them.
For instance, CW2 noted that rule changes may be announced by Varsity at Varsity-sponsored
conferences for All Star Gym owners. This means that All Star Teams who are not associated
with Varsity have no way to know that the rules have changed, disadvantaging them from
creating score-maximizing routines. Rule changes may also result from proposals submitted by
USASF members and discussion at USASF regional meetings. All Star Teams without USASF
affiliation are unable to opine on any of these changes.
(a)
USASF limits which competitions can use its rules
140.
USASF copyrighted its All Star Competition rules in 2016, and it forbids All Star
Competition producers that have not paid USASF membership dues from using those rules at
their events without USASF permission.
141.
By refusing to allow non-USASF IEPs to use the USASF rules, USASF and
Varsity restrict competition in the All Star Competition Market by making it unappealing to
attend an IEP’s competition. After all, if competing at an IEP competition requires an All Star
Gym to learn an entirely new set of rules, they are less likely to do so. Plus, given that 90% of all
All Star Competitions are Varsity-owned, the All Star Teams’ routines would have been
developed to ensure compliance with the USASF rules, not those used by an IEP, further
disincentivising an All Star Gym from sending its teams to non-USASF IEPs’ competitions.
(b)
USASF and Varsity use and create rules to their advantage
142.
USASF and Varsity are the only two organizations with the power to enact rules
affecting 90% of All Star Competitions in the United States. This power has a multiple effects—
both directly advantaging Varsity and/or USASF and directly disadvantaging smaller, less
connected gyms.
143.
For one, Varsity and USASF use their rule-making “authority” to prevent any
potential rival sanctioning organization from creating its own All Star Championships that could
undermine Varsity’s dominance. For example, in October 2011, USASF and IASF—both of
which are controlled by Varsity, as described above— issued a joint letter to member All Star
Gyms, All Star Competitions, and All Star Team coaches stating that it is
the policy of the USASF/IASF that no athlete, coach, judge, or
official is permitted to participate in any way in any event that
claims to be a World or International Championship, other than the
ICU [International Cheer Union] World Championships for
National teams, or the USASF/IASF Worlds for All Star teams.
This stipulation applies to any regional international championship
affiliated with an organization claiming to operate a World
Championship, other than the ICU and USASF/IASF. Failure to
comply with this rule is grounds for disqualifying any athlete,
coach, judge, or official from participating in the ICU and
USASF/IASF World Championships.43
144.
A good example of a rule that specifically hurt smaller gyms had to do with a
change to the “levels” that competed at All Star Competitions. As CW2 described, Varsity
divided All Star Teams into six levels based on age and skill (for years there were Levels 1-5 and
more recently Level 6 was added). All Star Teams were eligible only to compete against other
teams in their level. Beginning with the 2008-2009 season, Varsity created a new level, “Level
4.2,” at which All Star Teams could stunt at Level 4 but tumble at Level 2. This new level
43 See “USASF/IASF: WORLDS POLICY UPDATE”, Spirit Company, Oct. 18, 2011,
https://spiritcompany.com/2011/10/usasfiasf-worlds-policy-update/ (last accessed Aug. 25, 2020).
became eligible to compete in All Star Competitions in September of that season, despite the fact
that All Star Gyms had completed their tryouts and selected their teams by May. This
disadvantaged small All Star Teams that could not compete in Level 4.2 because they did not
have athletes with the correct skill set for this division.
145.
According to CW2, another rule change that specifically disadvantaged smaller
All Star teams had to do with the required number of “basket tosses” that were included in
teams’ routines. Simply by making a rule change to require additional synchronized basket
tosses, Varsity caused smaller gyms that did not have enough athletes to perform required
synchronized moves to automatically lose 0.3 points off their routines’ scores.
146.
Competition rule changes have resulted in teams being “robbed” of receiving a
medal or trophy at competitions. For example, at the 2019 Worlds semi-finals, each country that
competed was supposed to be awarded three spots (gold, silver, and bronze) to advance to the
finals. The rules stated that if two teams had a tied score, a tie-breaker was to be enacted to
“determine the set number moving into semi-finals/final and/or gold, silver and bronze places in
finals.” There was a tie for the U.S. teams’ bronze medal; however, against the rules, no tie-
breaker was held and both U.S. teams advanced, forcing a Canadian team to be completely shut
out of advancing.
3.
Varsity and USASF Impose Credentialing Requirements to Extract
Monopoly Rents from Members of the Class
147.
To enter All Star Teams in USASF-sanctioned events, All Star Gyms, and All
Star Team coaches must become USASF members and pay annual membership dues to USASF.
These membership dues are USASF’s primary revenue source, and it collected over $5 million in
membership dues in 2017.44
148.
The following chart shows the growth in USASF’s revenue from membership
dues from 2008 to 2017. In particular, it shows a dramatic spike in revenue between 2014 and
2015, right when USASF instituted its membership dues policy:45
Membership Dues
$7,000,000
$6,000,000
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
$0
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
149.
Credentialing coaches can be expensive. Larger All Star Gyms sometimes have
more than 80 coaches on staff, and some have had to cut staff as a result of the credentialing
requirement or have decided to only credential them at a minimum level, rather than the more
advanced levels, which cost more.
150.
All Star Competition judges also must be USASF certified.
44 See “USASF Finances 12 months ending December, 2017,” USASF,
https://usasfmain.s3.amazonaws.com/Organization/docs/annual/USASF_AnnualReport_2017.pdf (last
accessed Aug, 25, 2020).
45 See “Annual Report & Financials,” USASF, https://www.usasf.net/about (last accessed Aug. 20,
2020).
4.
Varsity and USASF’s Anticompetitive Scheme Has Worked, and Members of
the Class Have Paid the Price
151.
Defendants have successfully limited competition in the All Star Competition
Market. And as they have accomplished their goal, they have taken steps to erect significant
barriers to entry that eliminate the possibility of future competition. The direct and proximate
result is that Varsity collectively controls approximately 90% of the All Star Competition
Market, and those figures are unlikely to change.
152.
Plaintiffs and members of the Class have suffered antitrust injury because they
pay supracompetitive prices for goods and services that they purchased directly from Varsity in
the Relevant Markets during the Class Period. Those injuries are directly and proximately caused
by Defendant’s anticompetitive conduct. And they are ongoing.
E.
Varsity Leverages Its Control of Competition Scoresheets and Judges to Its
Competitive Advantage
153.
Scoresheets and judging obviously go hand in hand. All Star Teams perform
routines before a panel of judges, and judges use scoresheets to rate those routines.
1.
Varsity’s Proprietary Scoresheet Is Used at Almost Every All Star
Competitions
154.
Varsity’s proprietary scoresheet—which, Varsity brags “has become the standard
in All Star scoring, being utilized by almost every All Star competition in the country”46—
enables Varsity to advantage certain teams over others while further promoting its apparel and
uniform businesses.
155.
As CW2 explained, Varsity is able to manipulate its scoring system because the
scoresheet is sufficiently subjective. All Star Competition judges grade teams using scoresheets
46 See “Scoring & Judges,” Varsity, https://www.varsity.com/all-star/competitions/scoring-
judges/#:~:text=Over%20the%20past%20several%20years,star%20competition%20in%20the%20country
(last accessed Aug. 25, 2020).
with points that often times contain decimal points, i.e. scoring a 9.8 in a section of 10 points
maximum. There are several subjective sections for scoring on a Varsity scoresheet, such as
overall impression, performance, dance, routine composition, creativity, and more. These
sections of the scoresheet can covertly be manipulated by tenths or hundredths of a point without
being able to prove that scores have been manipulated. CW2 explained that the “overall
impression” category is particularly vague, and judges do not need to support their scores in this
category with any reasoning, leaving it open to manipulation. CW2 suspects that this may be a
way to try and reward teams that are loyal to Varsity.
156.
Varsity takes advantage of the scoresheet’s manipulability to shape the sport’s
image. For example, it regulates bow size and glitter usage. Varsity has also used this power to
ban “exaggerated or theatrical movements,” specifically among male cheerleaders, prompting
accusations of homophobia to be levied against it.47
157.
In addition to image control, Varsity takes advantage of the scoresheet’s
manipulability to funnel money into its own businesses—including its choreography and apparel
companies.
158.
Another way to maximize scoring is to use more Varsity merchandise as props.
Webb admitted that in at least one competition, teams received more points for doing just that.
As Plaintiff Cherasaro described, props may be used by All Star Teams during themed routines,
and props must be approved by, and purchased from, Varsity. For instance, in 2019, a team from
the California All-Stars gym performed a race-car themed routine at various Varsity-owned
events that utilized colored and checkered race car flags.
47 See Leif Reigstad, “Varsity Brands Owns Cheerleading and Fights to Keep it From Becoming an
Official Sport,” Houston Press, July 21, 2015, https://www.houstonpress.com/content/printView/7606297
(last accessed Aug. 25, 2020).
2.
Varsity Controls the Judges at 90% of All Star Competitions
159.
For judges at All Star Competitions, judging is often a second job. Judges might
be coaches or teachers and judge on the side. Notably, though, often judges are past Varsity
employees. For instance, the recipient of Varsity’s 2018 Rookie Judge of the Year Award was a
former NCA coach. (Varsity acquired NCA in 2004.) Another judge was an NCA head instructor
for five years.
160.
As the company that owns 90% of All Star Competitions, Varsity also is the
entity responsible for employing and paying judges at those competitions. The judges need
Varsity and its hundreds of competitions to remain employed. And, CW2 explained, Varsity
frowns on judges who also want to judge non-Varsity competitions.
161.
CW2 further noted that CW2 has used a Varsity judge as a choreographer at
CW2’s All Star Gym, something that could provide an advantage in a Varsity competition.
162.
CW2 also noted that judges who want to be eligible to judge Varsity events have
to pay for Varsity training on an annual basis.
163.
For all of these reasons, judges have many incentives to support the All Star
Gyms and teams that are loyal to Varsity. Remember, a Varsity uniform is branded with a visible
“V” logo, so it is always apparent which gyms are wearing Varsity apparel.
F.
Varsity Leverages Its Monopoly Power in the All Star Competition Market to
Impose a “Stay-to-Play” Requirement, Extracting Further Rents from Members of
the Class
164.
To compete at a “Stay-to-Play” event, each athlete must book hotel lodging
through one of Varsity’s designated portals, including one called Connections Housing. Athletes
must also stay at a Varsity-approved “Housing Partner” hotel. According to CW2, Varsity
strictly enforces its requirement by threatening to disqualify entire teams from competitions if
members are found to have violated the rule. Because Varsity monopolizes the All Star
Competition Market, All Star Gyms have little choice but to comply with the rule.
165.
On its website, Varsity justifies this arrangement in part by claiming that it saves
participants and their families money:
Having a housing requirement allows our housing partners the
ability to negotiate the lowest rates, and hold those rates firm for
our customers, preventing supply and demand from influencing
rate changes from the time the venues are contracted until the
event occurs. These negotiations also include getting the best
amenities and team-friendly cancellation policies with premier
hotel properties near the venue.48
166.
In reality, members of the Class are generally charged a rate substantially higher
than is competitive because of this requirement. Many parents report finding identical or
comparable rooms advertised for significantly less.49 CW1 noted that in January 2018, when
CW1’s daughter’s team was competing at JAMfest in Indianapolis, the hotel that Varsity
assigned them to was $129.99 per night. When CW1 looked up that hotel online, he saw rooms
available for $59.99 for the same nights.
167.
According to CW2, in the past, some All Star Gym owners used to arrange their
own travel, including imposing some sort of stay-to-play policy, and they would profit from the
arrangement—receiving some amount of money per booking. It would appear that Varsity
profits in much the same way by virtue of the fact that, for certain competitions, Varsity pays the
All Star Gyms $5 per booking for each of the bookings made by one of the gym’s families.
48 See “Stay Smart,” Varsity, https://www.varsity.com/home/stay-smart/ (last accessed Aug. 25,
2020).
49 See “Slay the Stay to Play,” Cheerdocious, https://cheerfulideas.com/stay-to-play (last accessed
Aug. 25, 2020).
168.
Notably, the very first initiative listed on the All-Stars United (the gym-owner
group looking to push back against Varsity) website is “Lower the cost of participation for our
athletes and their families” and the “Suggested Solution” is “‘Stay to Play’ must be evaluated.”50
G.
Varsity Leverages Its Monopoly Power in the All Star Competition Market to
Impose Music Restrictions, Extracting More Monopoly Rents from Members of the
Class
169.
As noted above, All Star Cheer routines are set to music. Exactly what that music
sounds like, and how it is chosen and produced, has changed over the years, driven largely by
Varsity’s efforts to control yet another aspect of All Star Cheer.
170.
With the advent of YouTube as a popular website for uploading videos, All Star
Gyms, as CW3 explained, fans and parents began posting All Star Competition routines to the
site. These routines, of course, included music. The music companies balked at their music being
distributed in this unauthorized way. Sony Music reportedly threatened Varsity with a copyright
infringement lawsuit. Turning lemons into lemonade, though, Varsity prevented itself from
becoming a defendant in a lawsuit by devising a scheme that enabled it to make money off music
producers.
171.
CW3 explained that Varsity’s scheme worked as follows. First, Varsity created a
library of original music content that was not subject to the copyright issues that existed with the
popular music that had previously been used for All Star routines. Then, Varsity began selling a
limited number of licenses to its music content to music producers who had to apply for the
licenses and were then hand-selected by Varsity. And, Varsity decreed that only mash-ups,
50 See “Initiatives,” All Stars United, http://allstarsunited.us/initiatives (last accessed Aug. 25, 2020).
covers, or remixed music that received its sign-off certificate could be used at Varsity All Star
Competitions or other Varsity-owned events, such as those governed by USA Cheer.51
172.
To the music producers, as CW3 noted, Varsity essentially said that this new
order was the way that things would be done going forward and that if the music producers
wanted to have a future in the industry, they needed to get on board. Of course, with Varsity
controlling upwards of 90% of the All Star Competitions, and with the requirement that only
Varsity-licensed music mash-ups, covers, or remixes be used at its competitions, music
producers were left with no choice but to do so.
173.
From the All Star competition producer perspective, as CW3 explained, Varsity
created an atmosphere of fear to get them on board. Varsity told producers and gyms that if an
All Star Gym used music without the proper license, Varsity might notify Sony, and the gym
might be subject to a lawsuit. Indeed, in its policy, Varsity specifically states that producers who
do not follow its guidelines are “putting their coaches and teams (as well as themselves) at risk
for damages for copyright infringement of up to $150,000 per infringement.”52
174.
According to CW3, the circle complete, gyms that do not wish to use a single,
unedited song for their routines now have no choice but to hire Varsity-authorized music
producers, and music producers who wish to work in the All Star Competition Market have no
choice but to pay for a license to the Varsity credentials.
175.
The consequences of Varsity’s scheme have fallen on members of the Class. All
Star Gyms have been forced to pay large sums of money—up to five thousand dollars for a
single, two-minute music mix, CW3 noted. When that price is multiplied across the many teams
51 See “New Music Guidelines,” Varsity, https://www.varsity.com/wp-
content/uploads/2018/02/Music-Guidelines-2018-1.pdf (last accessed Aug. 25, 2020).
52 See id.
that All Star Gyms have competing in competitions, the cost quickly skyrockets. For instance,
Top Gun, an All Star Gym based in Miami, Florida, had 33 teams for the 2018-2019 season, and
the Stingrays, based out of Georgia, Florida, and Michigan, had 53 teams for the same season. If
each of those teams competes in even just one Varsity All Star Competition (which they likely
do—Top Gun and the Stingrays, for example, each had five teams attend Worlds during the
2018-2018 season), the cost of music alone could range upwards of $165,000-$265,000.
H.
Varsity Leverages Its Monopoly Power in the All Star Competition Market to
Impose Filming Restrictions, Extracting Monopoly Rents Through Its Subscription
Service FloCheer
176.
Only Varsity-authorized people are allowed to film inside a Varsity competition.
In fact, Varsity so severely restricts who can film Varsity All Star Competitions that parents are
prohibited from filming their own children. And, as CW3 noted, if parents were to sneakily film
their child and post the video on social media or YouTube, Varsity would have the video
removed As a result of Varsity’s restrictions, VarsityTV or FloCheer are the only places a parent
or gym can go to obtain footage of a team’s routines.
177.
Varsity imposes these tight restrictions to create demand and eliminate
competition for its subscription service VarsityTV, which is partnered with FloSports and its
division FloCheer, which is a contractor that hosts the videos. Subscriptions to VarsityTV and
FloCheer, which may be reciprocal, cost between $12 and $29.99 per month. Varsity might
claim that the restriction on filming is to somehow protect the athletes, but if that were the case,
Varsity could make the film footage available for free or for a nominal cost.
178.
Varsity’s restrictive policy became notorious thanks to the Netflix documentary
“Cheer.” The documentary was not focused on All Star Cheer, but it included a segment on these
practices because Varsity would not let the documentary crew film inside the event.
179.
Varsity can only impose these restrictions, and extract these rents, because of its
monopolization of the All Star Competition market.
BARRIERS TO ENTRY
180.
Plaintiffs incorporate the preceding paragraphs by reference.
181.
Supracompetitive pricing in a market normally attracts additional competitors
who want to avail themselves of the high levels of profitability that are available. Where there
are significant barriers to entry, however, this is more difficult.
182.
At all relevant times, there were, and continue to be, high barriers to entry with
respect to competition in the Relevant Markets in the form of: (1) high costs for, marketing,
coach and choreographer salaries, travel, competition participation, gym memberships, and
more; (2) high costs for apparel; (3) access to a critical mass of All Star Teams; (4) access to
qualified competition judges; (4) access to competition rule sets; (5) access to original music
content; (6) ability to award bids to All Star Championships; and (7) ability to compete at the All
Star Championships.
183.
Consider again, for example, the ability to award All Star Championship bids.
The sport is organized around Worlds. The Worlds bid allocation rules include a geographical
restriction, thus market entry would require a prospective competitor to acquire an existing bid-
offering competition or establish a competition in an undeveloped location, far enough away
from Varsity run competitions. Barriers to entry such as this one, and the ones detailed above,
allow Varsity to retain control of the relevant markets more easily.
PLAINTIFFS’ CLAIMS ARE TIMELY
184.
Defendants’ unlawful conduct and anticompetitive scheme is continuing.
Plaintiffs and members of the Class are entitled to recover damages suffered within the
applicable limitations periods.
185.
A claim for damages accrued each time a member of the Class paid supra-
competitive prices in the All Star Competition and All Star Apparel Markets as a result of
Defendants’ anticompetitive conduct. Accordingly, Plaintiffs and members of the Class are
entitled to recover all damages suffered within the applicable limitation period for the statutory
claims pleaded below.
CLASS ACTION ALLEGATIONS
186.
Plaintiffs brings this action on behalf of herself and all others similarly situated as
a class action under Rules 23 (b)(2), and (b)(3) of the Federal Rules of Civil Procedure, seeking
equitable and injunctive relief, as well as damages, on behalf of the following class (the “Class”):
All natural persons or entities in the United States that directly paid
Varsity or any wholly or partially owned Varsity subsidiary from
August 25, 2016 until the continuing Exclusionary Scheme alleged
herein ends (the “Class Period”) for: (a) registration, entrance, or
other fees and expenses associated with participation by an All Star
Team or Cheerleader in one or more All Star Competitions; and/or
(b) All Star Apparel.
187.
The following persons and entities are excluded from each of the above-described
proposed Class:
(a)
Defendants and their counsel, parent companies, franchisees, officers,
directors, management, employees, subsidiaries, or affiliates;
(b)
All governmental entities;
(c)
All Counsel of Record; and
(d)
The Court, Court personnel and any member of their immediate families.
188.
Members of the Class are so numerous and geographically dispersed that joinder
of all members of the Class is impracticable. Plaintiffs believe that there are thousands of
members of the Class widely dispersed throughout the United States. Moreover, given the costs
of complex antitrust litigation, it would be uneconomical for many plaintiffs to bring individual
claims and join them together. The Class is readily identifiable.
189.
Plaintiffs’ claims are typical of the claims of members of the Class. Plaintiffs and
members of the Class were harmed by the same wrongful conduct by Defendants in that they
were injured and paid artificially inflated prices as a result of Defendants’ wrongful conduct.
190.
Plaintiffs will fairly and adequately protect and represent the interests of the
members of the Class. Plaintiffs’ interests are coincident with, and not antagonistic to, those of
the members of the Class.
191.
Plaintiffs are represented by counsel with experience in the prosecution of class
action antitrust litigation and with experience in class action antitrust litigation.
192.
Questions of law and fact common to the members of the Class predominate over
questions that may affect only individual members of the Class because Defendants have acted
on grounds generally applicable to the Class, making damages with respect to the Class as a
whole appropriate. Such generally applicable conduct is inherent in Defendants’ wrongful
conduct.
193.
Questions of law and fact common to the Class include:
(a)
Whether the relevant geographic market is the United States;
(b)
Whether Varsity possesses monopoly power in the Relevant Markets;
(c)
Whether Defendants unlawfully maintained monopoly power through all
or part of their overall anticompetitive scheme;
(d)
To the extent such justifications exist, whether there were less restrictive
means of achieving them;
(e)
Whether Defendants’ scheme, in whole or in part, has substantially
affected interstate commerce;
(f)
Whether Defendants’ unlawful agreement, in whole or in part, caused
antitrust injury to Plaintiffs and members of the Class by causing them to pay artificially inflated
prices in Relevant Markets during the Class Period;
(g)
The appropriate measure of damages; and
(h)
The scope and nature of equitable and injunctive relief.
194.
Class action treatment is a superior method for the fair and efficient adjudication
of the controversy. 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, or expense that numerous individual actions would
engender. The benefits of proceeding through the class mechanism, including providing injured
persons or entities a method for obtaining redress on claims that could not practicably be pursued
individually, substantially outweighs potential difficulties in management of this class action.
195.
Injunctive relief is appropriate with respect to the Class as a whole because
Defendants have acted or refused to act on grounds generally applicable to the Class.
196.
Plaintiffs know of no special difficulty to be encountered in litigating this action
that would preclude its maintenance as a class action.
CLAIMS FOR RELIEF
COUNT ONE
MONOPOLIZATION
IN VIOLATION OF 15 U.S.C. § 2
(On Behalf of Plaintiffs and the Class and Against Varsity)
197.
Plaintiffs incorporate the preceding paragraphs by reference.
198.
Varsity controls 90% of the All Star Competition Market and 80% of the All Star
Apparel Market, and it possesses monopoly power in the Relevant Markets. Varsity has
obtained, enhanced, and maintained monopoly power in the Relevant Markets through the
Exclusionary Scheme alleged herein, which conduct is continuing. Varsity has substantially
foreclosed competition and has abused and continues to abuse its power to maintain and enhance
its market dominance in the Relevant Markets through its Exclusionary Scheme.
199.
As a result of Varsity’s conduct, Plaintiffs and members of the Class have been
harmed by having to pay artificially inflated prices directly to Varsity for All Star Competitions
and All Star Apparel that they would not have paid in the absence of Varsity’s anticompetitive
conduct. Plaintiffs and members of the Class are entitled to money damages. Plaintiffs and
members of the Class are also entitled to injunctive relief to correct the anticompetitive market
effects caused by Defendants’ conduct and to ensure that the same or similar anticompetitive
conduct does not reoccur in the future.
COUNT TWO
CONSPIRACY TO MONOPOLIZE
IN VIOLATION OF 15 U.S.C. § 2
(On Behalf of Plaintiffs and the Class and Against All Defendants)
200.
Plaintiffs incorporate the preceding paragraphs by reference.
201.
Varsity and USASF conspired to maintain and enhance Varsity’s monopoly
position in the Relevant Markets through the Exclusionary Scheme and anticompetitive conduct
alleged herein.
202.
Defendants’ conspiracy is continuing, and each has knowingly and willingly
engaged in overt acts in furtherance of their conspiracy, including those alleged herein.
203.
Plaintiffs and Class members have suffered injury and damages in the form of
artificially inflated prices paid directly to Varsity for All Star Competitions and All Star Apparel.
Defendants’ conspiracy in violation of Section 2 of the Sherman Act is the proximate cause of
these injuries.
204.
Plaintiffs and Class Members are entitled to money damages. Plaintiffs and
Members of the Class are also entitled to injunctive relief to correct the anticompetitive market
effects caused by Defendants’ conduct and to ensure that the same or similar anticompetitive
conduct does not reoccur in the future.
COUNT THREE
CONSPIRACY TO MONOPOLIZE
IN VIOLATION OF 15 U.S.C. § 1
(On Behalf of Plaintiffs and the Class and Against All Defendants)
205.
Plaintiffs incorporate the preceding paragraphs by reference.
206.
Varsity and USASF conspired to maintain and enhance Varsity’s monopoly
position in the Relevant Markets through the Exclusionary Scheme and anticompetitive conduct
alleged herein.
207.
Defendants’ conspiracy is continuing, and each has knowingly and willingly
engaged in overt acts in furtherance of their conspiracy, including those alleged herein.
208.
Plaintiffs and the Class members have suffered injury and damages in the form of
artificially inflated prices paid directly to Varsity for All Star Competitions and All Star Apparel.
Defendants’ conspiracy in violation of Section 1 of the Sherman Act is the proximate cause of
these injuries.
209.
Plaintiffs and Class Members are entitled to money damages. Plaintiffs and
Members of the Class are also entitled to injunctive relief to correct the anticompetitive market
effects caused by Defendants’ conduct and to ensure that the same or similar anticompetitive
conduct does not reoccur in the future.
DEMAND FOR JUDGMENT
WHEREFORE, Plaintiffs, on behalf of themselves and the proposed Class, respectfully
demand that this Court:
(a)
Determines that this action may be maintained as a class action pursuant to
Rules 23(a), (b)(2), and (b)(3) of the Federal Rules of Civil Procedure, and directs that
reasonable notice of this action, as provided by Rule 23(c)(2), be given to the Class, and declares
Plaintiffs as representatives of the Class;
(b)
Enters joint and several judgments against Defendants and in favor of
Plaintiff and the Class;
(c)
Awards damages, trebled, in an amount to be determined at trial;
(d)
Grants Plaintiffs and the Class equitable and injunctive relief as is
necessary to correct for the anticompetitive market effects caused by Defendants’ unlawful
conduct;
(e)
Awards Plaintiffs and the Class their costs of suit, including reasonable
attorneys’ fees as provided by law; and
(f)
Awards such further and additional relief as the case may require and the
Court may deem just and proper under the circumstances.
JURY DEMAND
Pursuant to Rule 38 of the Federal Rules of Civil Procedure, Plaintiffs, on behalf of
themselves and the proposed Class, demands a trial by jury on all issues so triable.
Date: August 25, 2020
Respectfully submitted,
By:
/s/Frank B. Thacher, III
Nathan A. Bicks (BPR 10903)
Frank B. Thacher III (BPR 23925)
BURCH, PORTER, & JOHNSON, PLLC
130 North Court Ave.
Memphis, TN 38103
Telephone: (901) 524-5000
nbicks@bpjlaw.com
fthacher@bpjlaw.com
Gregory S. Asciolla (pro hac vice forthcoming)
Karin E. Garvey (pro hac vice forthcoming)
Veronica Bosco (pro hac vice forthcoming)
Ethan H. Kaminsky (pro hac vice forthcoming)
LABATON SUCHAROW LLP
140 Broadway
New York, NY 10005
Telephone: (212) 907-0700
gasciolla@labaton.com
kgarvey@labaton.com
vbosco@labaton.com
ekaminsky@labaton.com
Aubrey B. Harwell, Jr.
Charles Barrett
Aubrey B. Harwell III
NEAL & HARWELL, PLC
1201 Demonbreun St., Suite 1000
Nashville, TN 37203
Telephone: (615) 244-1713
aharwell@nealharwell.com
cbarrett@nealharwell.com
tharwell@nealharwell.com
Attorneys for Plaintiffs and the Proposed Class
| antitrust |
w_jlE4cBD5gMZwczadmf | IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
CHARLESTON DIVISION
2:16-cv-2053-RMG
Civil Action
No. ___________________
COMPLAINT
(FLSA Collective Action/Class Action
under the S.C. Payment of Wages Act)
Jury Trial Requested
Patrick Weckesser, on behalf of
himself and all others similarly
situated,
Plaintiff,
vs.
Knight Enterprises S.E., LLC,
Defendant.
_______________________________
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Plaintiff Patrick Weckesser, individually and on behalf of all other similarly situated
individuals, by way of his Complaint in the above-captioned matter, would allege and show unto
this Honorable Court the following:
NATURE OF THE ACTION
1.
This action is brought individually and as a collective action under the Fair Labor
Standards Act, 29 §§ 201et seq., (“FLSA”) asserting that Plaintiff and all others similarly
situated, cable installation technicians, were misclassified as independent contractors by
Defendant Knight Enterprises S.E., LLC and as a result were deprived of overtime, minimum
wage, and other wages in violation of federal law. Plaintiff brings this case as a collective action
on behalf of a group of cable installation technicians who worked as cable installation
technicians for the Defendant, installing high-speed internet, cable television, and telephone
services for customers and businesses, within the three years prior to the filing of this Complaint.
2.
Plaintiff also brings this action individually and on behalf of all similarly situated current
and former technicians in South Carolina pursuant to Federal Rule of Civil Procedure 23 to
remedy violations of the South Carolina Payment of Wages Act, South Carolina Code Ann. § 41-
10-10, et seq. (“SCPWA”). These claims are proposed as opt-out class claims under Rule 23 of
the Federal Rules of Civil Procedure.
PARTIES, JURISDICTION, AND VENUE
3.
Plaintiff Patrick Weckesser (“Weckesser”) is a citizen and resident of Beaufort County,
South Carolina. Plaintiff currently works as a cable installation technician for Defendant.
4.
Defendant Knight Enterprises S.E., LLC (“Knight Enterprises S.E.”) is a limited liability
company organized and existing pursuant to the laws of the State of South Carolina, and has
conducted business in South Carolina, North Carolina, and Florida. Knight Enterprises S.E.
provides high-speed internet, cable television, and telephone services to customers in South
Carolina, and in other states.
5.
This Court has jurisdiction over this action pursuant to 28 U.S.C. § 1331 and 29 U.S.C. §
216(b), because this action is based, in part, on the FLSA.
6.
In addition, this Court has supplemental jurisdiction, pursuant to 28 U.S.C. § 1367, over
Plaintiffs’ pendent and supplemental claims, which are brought pursuant to the statutory and
common law of the State of South Carolina, because those claims arise out of the same
transaction or occurrence as the federal claims alleged herein.
7.
Venue is proper in this district pursuant to 28 U.S.C. § 1391(b)(2) because a substantial
part of the events or omissions giving rise to the claims occurred in this district.
COLLECTIVE ACTION ALLEGATIONS
8.
Plaintiff brings this action as a collective action on behalf of a class of individuals
similarly situated. Specifically, Plaintiff brings these claims under the Fair Labor Standards Act
as a collective action and will request the Court to grant conditional certification under 29 U.S.C.
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§ 216(b), and to order notices to potential opt-in individuals who have performed cable
installation services for Knight Enterprises S.E. and who were classified as independent
contractors.
9.
Potential opt-in members of the collective action are similarly situated to Plaintiff. They
all held the same job positions and had substantially similar job requirements and pay provisions.
They are or were subject to the same common practices, policies, and plans of Defendant. They
all suffer damages in the nature of lost overtime and wages resulting from Defendant’s wrongful
conduct.
SOUTH CAROLINA CLASS ACTION ALLEGATIONS
10.
Plaintiff realleges each and every allegation contained above as if repeated here verbatim.
11.
Plaintiff brings the third Cause of Action, the South Carolina Payment of Wage Act
(“SCPWA”) claims, as an opt-out class action under Rule 23 of the Federal Rules of Civil
Procedure, on behalf of himself and all similarly situated current and former individuals
classified as “independent contractors” by Defendant in South Carolina within three (3) years
prior to the commencement of this lawsuit. (“SC Rule 23 Class”).
12.
Upon information and belief, this action satisfies the requirements of Rule 23(a), Fed. R.
Civ. P., as alleged in the following particulars:
a. The proposed Plaintiff class is so numerous that joinder of all individual members in
this action is impracticable, and the disposition of their claims as a class will benefit
the parties and the Court;
b. There are questions of law and/or facts common to the members of the proposed
Plaintiff class;
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c. The claims of Plaintiff, the representative of the proposed Plaintiff class, are typical
of the claims of the proposed Plaintiff class; and
d. Plaintiff, the representative of the proposed Plaintiff class, will fairly and adequately
protect the interests of the class.
13.
In addition, upon information and belief, this action satisfies one or more of the
requirements of Rule 23(b) Fed. R. Civ. P., because the questions of law and/or fact common to
the members of the proposed Plaintiff class predominate over any questions affecting only
individual members.
14.
A class action is superior to other available methods for the fair and efficient adjudication
of the controversy – particularly in the context of wage and hour litigation where individual class
members lack the financial resources to vigorously prosecute a lawsuit against corporate
defendants. Class action 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 efforts and expense that numerous individual actions engender.
Because the losses, injuries, and damages suffered by each of the individual SC Rule 23 Class
Members are small in the sense pertinent to a class action analysis, the expenses and burden of
individual litigation would make it extremely difficult or impossible for the individual SC Rule
23 Class Members to redress the wrongs done to them. On the other hand, important public
interests will be served by addressing the matter as a class action. The adjudication of individual
litigation claims would result in a great expenditure of Court and public resources; however,
treating the claims as a class action would result in a significant saving of these costs. The
prosecution of separate actions by individual SC Rule 23 Class Members would create a risk of
inconsistent and/or varying adjudications with respect to the individual SC Rule 23 Class
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Members, establishing incompatible standards of conduct for Defendants and resulting in
impairment of the SC Rule 23 Class Members’ rights and the disposition of their interests
through actions to which they were not parties. The issues in this action can be decided by means
of common, class-wide proof. In addition, if appropriate, the Court can, and is empowered to,
fashion methods to efficiently manage this action as a class action.
15.
Upon information and belief, Defendant throughout the State of South Carolina violates
the SCPWA. Current employees are often afraid to assert their rights out of fear of direct or
indirect retaliation. Former employees are fearful of bringing claims because doing so can harm
their employment, future employment, and future efforts to secure employment. Class actions
provide class members who are not named in the complaint a degree of anonymity, which allows
for the vindication of their rights while eliminating or reducing these risks.
16.
This action is properly maintainable as a class action under Federal Rule of Civil
Procedure 23(b)(3).
STATEMENT OF FACTS
17.
During the last three years, Plaintiff and other similarly situated technicians worked as
cable installation technicians for Knight Enterprises S.E. In this role, Plaintiff and other similarly
situated technicians were responsible for installing, repairing, or constructing the facilities for
high-speed internet, cable television, and/or telephone services.
18.
During the time Plaintiff and other similarly situated technicians performed cable
installation services for Defendant, Plaintiff and others similarly situated performed work
exclusively for Defendant, and did not provide any other high-speed internet, cable television,
telephone, or any other related services except those provided to Defendant.
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19.
Knight Enterprises S.E. purports to contract with individuals to perform such installation,
repair, construction, and supervisory work associated with monitoring the quality of those
services. Defendant purports to call these individuals “independent contractors,” not employees,
thereby avoiding its obligations to pay payroll taxes, workers’ compensation insurance, health
insurance, unemployment insurance, overtime, and such other benefits.
20.
In order to be hired by Defendant, Plaintiff and other similarly situated technicians were
required to undergo stringent background checks and credit checks.
21.
Each technician, including Plaintiff, was required to wear uniforms while working that
displayed the Knight Enterprise S.E. logo, and the cost of the uniforms were deducted from their
paychecks.
22.
Each technician, including Plaintiff, was required to drive a work vehicle with a magnetic
sign on the sides of it that displayed the Knight Enterprises S.E. logo, and the costs of such was
deducted from their paychecks.
23.
The so-called “independent contractors” that work for Knight Enterprises, S.E., including
Plaintiff, are required to show up at a specific garage at a specific time in the morning. At such
locations, they are given specific orders with instructions as to specific work which must be done
that day, and each contractor is provided with specification books as to how each such
installation, repair, or construction work is to be performed, and instructing each technician as to
how to interact with customers.
24.
The cable technicians, including Plaintiff, were subjected to monetary fines that were
deducted from their paychecks if they failed to show up for the garage meetings at the exact time
ordered by Knight Enterprises S.E. each morning.
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25.
Plaintiff and others similarly situated were not allowed to choose their days of work and
are required to request days off from work at least two weeks in advance. Plaintiff and others
similarly situated have been threatened by Defendant to be fired or have deductions taken out of
their paychecks in the event that they call out from work.
26.
Plaintiff and others similarly situated were required to work six full shifts with each shift
generally lasting for twelve (12) hours every week. Plaintiff and others similarly situated were
advised by Defendant that they would be taken off of the schedule entirely and terminated if they
could not work six full shifts every week.
27.
In addition, the cable technicians, including Plaintiff, were required to train in installation
and repair, and some of the individuals hired by Defendant have no previous experience in
telecommunications installation and repair.
28.
Additionally, Plaintiff and others similarly situated were not allowed by Defendant to
hire their own employees and were advised by Defendant that all employees assisting them on
jobs had to be directly hired by and through Knight Enterprises S.E.
29.
All of the telecommunications equipment used by the technicians, including Plaintiff,
must be picked up from a warehouse on Knight Enterprises S.E.’s property, and it is Knight
Enterprises S.E. which informs each contractor of the amount of equipment needed to perform
the jobs for that day.
30.
Many of the technicians, including Plaintiff, have to purchase their tools for their work,
such as compression tools and prep tools, from Defendant’s warehouse and the cost of such
items is taken out of their paycheck by Defendant.
31.
Defendant also requires Plaintiff and others similarly situated to purchase background
checks, Knight Enterprises S.E. truck signs, and Knight Enterprises S.E. work shirts through
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Defendant’s warehouse and Defendant deducts the cost of these items from the paychecks of
Plaintiff and others similarly situated without providing advance written notice of the deductions
or the amounts of the deductions.
32.
Technicians, including Plaintiff, often worked well over 40 hours per week. Typically,
technicians, including Plaintiff, were ordered to work between at least 60 and 75 hours per week
and have been ordered to work six to seven days a week by Defendant Knight Enterprises S.E.
None of these technicians receive any overtime pay for the work performed beyond 40 hours a
33.
For example, during a typical workweek, Plaintiff worked six days per week, Monday
through Saturday, from 7:00 A.M. until 7:00 P.M. Defendant required Plaintiff to arrive at
Defendant’s garage by no later than 7:00 A.M. each morning. If Plaintiff was late arriving at
Defendant’s garage, his pay was deducted for tardiness.
34.
There is virtually no opportunity for technicians, including Plaintiff, to work for any
other cable companies or to perform any other telecommunications work while working for
Knight Enterprises S.E. as Defendant exercises strict control over how their time is spent during
the workday.
35.
The technicians, including Plaintiff, effectively worked for Defendant on a full time and
continuing basis; Plaintiff did not sell or advertise his services to the general public or work as a
contractor for anyone other than Knight Enterprises, S.E.
36.
Further, in the event that Knight Enterprises, S.E. is unsatisfied with work performed by
cable installation technicians, Defendant requires such technicians to go out and correct any
deficiency, and to make any repairs and on such occasions, the technicians, including Plaintiff,
are not paid for their time working to correct such problems.
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37.
Additionally, technicians, including Plaintiff, are not permitted to negotiate the price with
either the customer or the Defendant.
38.
The technicians, including Plaintiff, were paid on a piece rate basis, being paid per job
regardless of how many hours each job took.
39.
Defendant did not keep accurate records of wages earned or of hours worked by Plaintiff
and others similarly situated, nor did Defendant provide Plaintiff and others similarly situated
with itemized statements illustrating their pay or deductions made from their pay.
FIRST CAUSE OF ACTION
Violation of Fair Labor Standards Act 29 U.S.C. § 207
(Brought on behalf of Plaintiff and the FLSA Collective)
40.
Plaintiff realleges each and every allegation contained above as if repeated here verbatim.
41.
This cause of action arises from Defendant’s violations of the FLSA, 29 U.S.C. § 207, for
its failure to pay Plaintiff and other similarly situated employees at the overtime rate for all hours
worked in excess of forty (40) per workweek.
42.
As set forth above, Plaintiff, and all other similarly situated employees, were employed
by Defendant.
43.
At all times pertinent hereto, Defendant engaged in interstate commerce or in the
production of goods for commerce as defined by 29 U.S.C. § 203(r) and 203(s).
44.
At all times pertinent hereto, Defendant’s annual gross volume of sales made or business
done was not less than Five Hundred Thousand and 0/100 ($500,000.00) Dollars. Alternatively,
Plaintiff, and all other similarly situated employees, worked in interstate commerce so as to fall
within the protection of the FLSA.
45.
The business of Defendant was and is an enterprise engaged in commerce as defined by
29 U.S.C. § 203(s)(1) and, as such, Defendant is subject to, and covered by, the FLSA.
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46.
Plaintiff asserts that under the economic realities test of the FLSA, Plaintiff and others
similarly situated are or were improperly classified as independent contractors rather than
employees of Defendant and that Defendant exercised sufficient control over their day to day
activities, and economic circumstances, to make Plaintiff’s statutory employees under the FLSA.
Plaintiff and other similarly situated technicians are therefore covered employees under the
FLSA.
47.
Plaintiff and other similarly situated individuals regularly work or worked well more than
forty (40) hours per week every week, usually sixty (60) or more hours per week.
48.
Defendant failed to pay Plaintiff and other similarly situated employees at the overtime
rate of one and one half times the normal rate of pay for all hours worked over forty (40) per
workweek.
49.
Defendant’s failure to pay compensation at the overtime rate for all hours worked over
forty (40) per workweek, is a willful violation of the FLSA, since the company’s conduct shows
that it either knew that its conduct violated the FLSA or showed reckless disregard for whether
its actions complied with the FLSA.
SECOND CAUSE OF ACTION
Violation of South Carolina Payment of Wages Act S.C. Code § 41-10-10, et. al.
(Brought on behalf of Plaintiff and the SC Rule 23 Class)
50.
Plaintiff realleges each and every allegation contained above as if repeated here verbatim.
51.
At all relevant times, Defendant has employed, and/or continues to employee, Plaintiff
and each of the SC Class members within the meaning of the South Carolina Payment of Wages
Act, S.C. Code Ann. §§ 41-10-10 to 110 (“SCPWA”). Plaintiff and the SC Class members are
“employees” within the meaning of the SCPWA and are not free from the control and direction
of Defendant.
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52.
Defendant is an “employer” as defined by the South Carolina Payment of Wages Act
(“SCPWA”), S.C. Code Ann. § 41-10-10(1), because it employs individuals in the State of South
Carolina.
53.
Pursuant to S.C. Code Ann. § 41-10-40(C) of the SCPWA, “[e]very employer shall notify
each employee in writing at the time of hiring of the normal hours and wages agreed upon, the
time and place of payment . . . .” and the “employer shall furnish each employee with an
itemized statement showing his gross pay and the deductions made from his wages for each pay
period.”
54.
Defendant willfully failed to provide Plaintiff and others similarly situated with proper
notice at the time of their hiring as required by the law nor did Defendant provide them with
compliant wage statements for each of their pay periods as required by the law.
55.
Pursuant to S.C. Code Ann. § 41-10-40(C) of the SCPWA, “[a]n employer shall not
withhold or divert any portion of the employee’s wages unless the employer is required or
permitted to do so by state or federal law . . . .”
56.
Further, “any changes [to] the terms [of wages] must be made in writing at least seven
calendar days before they become effective.” S.C. Code Ann. § 41-10-30(A).
57.
Defendant, however, did not pay Plaintiff and the SC Class members all wages due to
them, nor did Defendant provide Plaintiff and the SC Class members with at least seven days
advance written notice of the deductions or the amounts of the deductions Defendant made to
their paychecks.
58.
For example, Defendant made unauthorized and illegal deductions from the wages of
Plaintiff and the SC Class members for improper reasons and without advance written notice for
items such as failing to arrive at Defendant’s daily garage meetings on time and for performing
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work for Defendant’s customers that Defendant was not fully satisfied with, as well as for items
such as background checks, company work shirts with the Knight Enterprises S.E. name and
logo on them, and magnetic company truck tags with the Knight Enterprises, S.E. name and logo
on them.
59.
Accordingly, Plaintiff and the members of the SC Class are entitled to receive all
compensation of “wages” due and owing to them.
60.
Defendant willfully failed to pay Plaintiff and others similarly situated “wages” as
defined in section 41-10-10(2) of the SCPWA for all work performed, according to the law.
61.
Defendant has withheld wages of the Plaintiff and others similarly situated without
providing advance notice of such amounts and absent any lawfully sufficient reason for such
conduct.
62.
As a direct and proximate result of Defendant’s willful conduct, Plaintiff and others
similarly situated have suffered substantial losses and have been deprived of compensation to
which they are entitled, including monetary damages in the amount of three (3) times the amount
of their unpaid wages and other remedies afforded under state and federal law as well as costs
and reasonable attorneys’ fees pursuant to S.C. Code Ann. § 41-10-80 of the SCPWA.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, individually, and on behalf of all other similarly situated
persons, respectfully requests that this Court grant the following relief:
a.
An order authorizing the sending of appropriate notice to current and
former employees of Defendants who are potential members of the collective action
under the Fair Labor Standards Act;
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b.
A declaratory judgment that Defendants have willfully and in bad faith
violated the minimum wage provisions of the FLSA, and have deprived Plaintiff and the
FLSA Collective Members of their rights to such compensation;
c.
An order requiring Defendants to provide a complete and accurate
accounting of all the minimum wages and overtime wages to which Plaintiffs and the
FLSA Collective Members are entitled;
d.
An award of monetary damages to Plaintiffs and the FLSA Collective
Members in the form of back pay for unpaid minimum wages due, together with
liquidated damages in an equal amount;
e.
Injunctive relief ordering Defendants to amend their wage and hour
policies to comply with applicable laws
f.
Pre-judgment interest;
g.
An order certifying a class action under Rule 23 of the Federal Rules of
Civil Procedure to remedy the class-wide violations of the South Carolina Payment of
Wages Act suffered by the SC Rule 23 Class;
h.
An award of monetary damages to Plaintiff and the members of the SC
Rule 23 Class in the form of back pay for all unpaid wages due, together with treble
damages pursuant to the South Carolina Payment of Wages Act;
i.
Attorneys’ fees and costs; and
j.
Such further relief as the Court deems just and proper.
{signature page follows}
13
FALLS LEGAL, LLC
s/ J. Scott Falls
J. Scott Falls
Federal I.D. No. 10300
E-mail: scott@falls-legal.com
Ashley L. Falls
Federal I.D. No. 12083
E-mail: ashley@falls-legal.com
245 Seven Farms Drive, Suite 250
Telephone: (843) 737-6040
Facsimile: (843) 737-6140
Attorneys for Plaintiff Patrick Weckesser, on behalf
of himself and all others similarly situated
Charleston, South Carolina
June 20, 2016
14
| products liability and mass tort |
6-H2EIcBD5gMZwczTzvw | RACHEL E. KAUFMAN (CAL BAR NO. 259353)
KAUFMAN P.A.
400 NW 26th Street
Miami, FL 33127
Telephone: (305) 469-5881
rachel@kaufmanpa.com
Attorney for Plaintiff and the putative Classes
UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF CALIFORNIA
PARAMJIT LALLI, individually on
behalf of all others similarly situated,
Case No.
Plaintiff,
v.
CLASS ACTION COMPLAINT
JURY DEMAND
FIRST TEAM REAL ESTATE -
ORANGE COUNTY, a California
corporation,
Defendant.
This case addresses a disturbing trend whereby real estate companies such as
Defendant First Team Real Estate - Orange County direct their real estate agents to
cold call consumers without consent using autodialers and prerecorded voice
messages in violation of the Telephone Consumer Protection Act. Plaintiff
Paramjit Lalli (“Plaintiff Lalli” or “Lalli”) brings this Class Action Complaint and
Demand for Jury Trial against Defendant First Team Real Estate - Orange County
(“Defendant” or “First Team”) to stop First Team from directing its agents to
violate the Telephone Consumer Protection Act (“TCPA”), and to obtain injunctive
and monetary relief for all persons injured by First Team’s telemarketing. Plaintiff,
for this Complaint, 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.
PARTIES
1.
Plaintiff Paramjit Lalli is a resident of Tustin, California.
2.
Defendant First Team is a California corporation headquartered at 108
Pacifica Suite 300, Irvine, California. Defendant conducts business throughout this
District, California, and the United States.
JURISDICTION AND VENUE
3.
This Court has federal question subject matter jurisdiction over this
action under 28 U.S.C. § 1331, as the action arises under the TCPA, 47 U.S.C. §
4.
This Court has personal jurisdiction over Defendant and venue is
proper in this District under 28 U.S.C. § 1391(b) because Defendant has its
headquarters in this District and because the wrongful conduct giving rise to this
case was directed from and/or occurred in this District. Additionally, Plaintiff also
resides in this District.
CLASS ACTION COMPLAINT
COMMON ALLEGATIONS
5.
When Congress enacted the TCPA in 1991, it found that telemarketers
called more than 18 million Americans every day. 105 Stat. 2394 at § 2(3) 20. By
2003, due to more powerful autodialing technology, telemarketers were calling 104
million Americans every day. In re Rules and Regulations Implementing the TCPA
of 1991, 18 FCC Rcd. 14014, ¶¶ 2, 8 (2003).
6.
The problems Congress identified when it enacted the TCPA have
only grown exponentially in recent years with the advancement of dialing
technology.
7.
Industry data shows that the number of robocalls made each month
increased from 831 million in September 2015 to 4.7 billion in December 2018—a
466% increase in three years.
8.
According to online robocall tracking service “YouMail,” 5.2 billion
robocalls were placed in March 2019 alone, at a rate of 168.8 million per
day. www.robocallindex.com (last visited Apr. 9, 2019). YouMail estimates that in
2019 robocall totals will exceed 60 billion. See id.
9.
The FCC also has received an increasing number of complaints about
unwanted calls, with 150,000 complaints in 2016, 185,000 complaints in 2017, and
232,000 complaints in 2018. FCC, Consumer Complaint Data
Center, www.fcc.gov/consumer-help-center-data.
CLASS ACTION COMPLAINT
10.
In recent years a troubling trend has surfaced in the real estate
industry where real estate agents are buying lists and cold calling consumers using
autodialing technology to solicit their services without the consumer’s consent.
11.
This trend has resulted in consumers being bombarded by unsolicited
real estate solicitation calls, prerecorded voice messages, and text messages in
violation of the TCPA.
FIRST TEAM REALTY RATIFIES ITS REALTORS’ TCPA VIOLATIONS
12.
First Team is a real estate brokerage that services consumers in
buying and selling homes throughout California.1
13.
First Team is directly involved in the training and business
development of its realtors, providing live and online training to its realtors.2
14.
As First Team states explicitly in its marketing materials and online
through its main website, “First Team was founded with the idea that training and
coaching are key to an agent’s success.”3
15.
An essential part of First Team’s marketing plan involves cold calling
consumers to generate leads for their real estate services with a special emphasis
on placing calls to consumers with expired property listings.
1 https://www.linkedin.com/company/first-team-real-estate/about/
2 https://www.firstteam.com/agent-tool-kit/
CLASS ACTION COMPLAINT
16.
Realtors target consumers with expired property listings since these
consumers previously had a property for sale on the market through the multiple
listing service (MLS) through an agent, but the property did not sell. Realtors hope
that by calling the cell phone numbers associated with these expired property
listings (generated by performing a reverse append for the expired property listing
address to generate cell phone numbers associated with the address) that they can
telemarket their services to this homeowner to list their property with them.
17.
These calls are made to consumers using autodialers, pre-recorded
messages, and autodialed text messages without first obtaining prior written
consent from the consumer.
18.
First Team published a training document to its First Team agents
called “7 Steps to Go From New Agent to Top Producer.”4 The goal of this
training is to develop its agents into “Top Producers” which will result in more
sales and revenue for the Defendant.
4 http://www.firstteamrealestate.net/FT/7-steps/7-steps.pdf
CLASS ACTION COMPLAINT
19.
This training document provides insight into the marketing plan and
direction First Team provides to its own real estate agents.
20.
Under Step 6 “Get Business” First Team explains that there are two
ways to generate real estate leads: Marketing and Prospecting.5
21.
This manual explains that “Prospecting is a more pro-active approach
to lead generation…Prospecting is incredibly important to a real estate agent’s lead
generation system, and is vital to the new agent, as it generally produces faster
results.” One such “Prospecting” method detailed in this manual is “Cold Calling”
and “Working Expired Listings.”
CLASS ACTION COMPLAINT
Figure 1:First Team’s Manual “7 Steps to From New Agent to Top Producer”
22.
First Team provides direct training to its First Team agents both in-
person and online through their training portal First Team University.
23.
First Team University held a training event at its head office in Irvine,
California specifically regarding “Cold Calling.”
6
6 https://www.eventbrite.com/e/training-event-cold-calling-tickets-17987198194
CLASS ACTION COMPLAINT
24.
The description for this training is entitled “Cold Calling: How to
Make it Fun & Effective.” In this training session, First Team presents a First
Team “top producer” to teach its agents how to cold call. In this session, the
trainer demonstrates that making calls to expired listings works and recommends
this marketing method to the First Team agents.
7
CLASS ACTION COMPLAINT
25.
The aforementioned trainer of the event was Mike Patel, a First Team
Realtor. (Patel is also one of the agents that used a prerecorded message to directly
solicit Plaintiff who had an expired listing.) Mike Patel is so good at what he does
that Defendant First Team brought him to their head office to train other First
Team agents how to generate leads through cold calling, thereby ratifying his
conduct and the conduct of other similarly acting realtors.
Mike Patel posted a video presentation he gave to a live audience at First Team
realty on cold calling.
8
8 https://www.youtube.com/watch?v=VdDF453wTn8
CLASS ACTION COMPLAINT
9
26.
The “Mastery: Cold Calling” presentation given by Mike Patel was
given at a First Team’s “Corporate office of First Team Real Estate” and was
introduced by the Senior Vice President of First Team Realty at that time, Terry
LeClaire.
27.
During Patel’s presentation on cold calling, one participant asked
Mike Patel where he obtained the phone numbers to call the expireds. He answered
“for the expireds you can get it yourself…there are 3 or 4 websites we use:
reap007.com - their local, there are other companies called theredx.com,
vulcan7.com…They charge anywhere from $50 all the way up to $300 per
month. The good thing is that they email you every morning expireds in a
certain area...We buy them because I don’t want to spend my time looking
for numbers, I’d rather be calling…You got those websites? did you write
them down? That’s Redx.com and Vulcan7.com. It’s V-U-L-C-A-N and the
number 7.com and that’s $300 per month, and that includes the dialer. Most
CLASS ACTION COMPLAINT
of these include the dialer. It’s an efficient way of doing it. Instead of you
dialing, it will dial the number for you. It’s very fast.” 10
28.
Patel goes on to train the agents that “I want to do my 100 dials. And
your goal is to get a lead out of it.”
29.
Patel himself admits that he calls expireds:
“I’m a business person…and I’m into numbers. One of the most profitable
ways to do business in real estate is over the phone prospecting because it’s
free. It’s totally free. I’ll give you an example, 45 days ago, I called an
expired first thing in the morning 8:00 like I do.”
“It’s a pure numbers games, sometimes you don’t have to be smart, you
don’t have to know all of the objections, it’s strictly a numbers game.”
30.
Another participant asked “On these services that sell the phone
numbers, are they given to a bunch of agents so these customers are getting called
all the time?” Essentially, the participant is asking whether the companies that sell
the expireds like Vulcan7 and RedX sell them to many agents who are all calling
the same expireds at once. Patel answers:
“Everybody gets it, but here’s the secret, not a lot of people call. You know
one of the most common things I get when I call, assuming you are calling
before 9 o’clock in the morning
[Patel Role Playing Prospective Consumer] “You are the 7th or 10th person
calling!”. …
[Patel Answering] “Hey…I appreciate only 10 people called you, did you
know in Orange County there are over 10,000 people and only 10 people
called you. I'm surprised. I tell them and they say what do you mean? Well,
10 https://www.youtube.com/watch?v=VdDF453wTn8 (29 min)
CLASS ACTION COMPLAINT
there are 10,000 agents and only 10 called you. Let me ask you, when you
sell this home where are you going to move to?
[Patel Resume Teaching] It doesn’t matter that they have it, they don’t call.
That is why I work expireds because there are less numbers.”
31.
A realtor audience member asks again for the name of the websites
where one can purchase the expired lead information. Patel goes to the white board
and writes them out;
Reap007.com, theRedx.com, and Vulcan7.com. These include the dialer, it’s
about $300 a month. These are $50 per month and it comes with expireds
and For Sale by Owners….there are other dialers like Arch dialer and all
that…V-U-L-C-A-N 7.com, or just Google Vulcan7 Expireds and it will pop
up.”11
32.
Another participant asks Patel how the dialer works and Patel
responds by describing how he uses his dialer.
“What the dialer does, is when you get the numbers, then let’s say I’m
calling ‘just listed’ so I call my title company or go to
ColeRealtyResource.com…I use ColeRealtyResource.com and what you
will get from them is 2 kinds of numbers and they just started giving you cell
phone numbers. I think it’s $800 per year and $800 for another one…What I
do is if I just listed a property, I go into ColeRealty they have a map. I put
the address and I go a half a mile or a mile and get all the numbers. They
will give me an excel sheet. Once I get the excel sheet, I upload it into
Vulcan. It goes in there. I hit dial and it dials automatically so I don’t have to
dial.”
11 Id. 1hr 7 min
CLASS ACTION COMPLAINT
33.
Patel addresses the fact that many times the expired listings services
provide three or four numbers, many of which are not even the owner’s phone
number and yet he autodials them anyway
“Cole Realty for example gives me 3 or 4 numbers. Let’s say you have a
house and you rented it out. Sometimes it will give me your daughter’s
number or your brother’s number whoever stayed in the house. Sometimes I
call and I say I’m calling about the home for sale, yeah but that’s my Mom’s
house…I noticed it is for sale I’m trying to figure out if your Mom is
accepting offers, what is your Mom’s phone number? They give it to me all
the time.”
34.
Another participant in the class tells Patel about other expired listing
services: Landvoice and Mojo Sells and describes that it is a powerdialer and Patel
writes those on the whiteboard as well.12
35.
Patel goes on to describe the autodialing system he uses:
“I use Vulcan and you can use whatever number you want it to show
(describing spoofing the caller ID).”13
36.
Patel concludes his training on cold calling by bringing up an agent
and running through several role playing scenarios, including calling a consumer
associated with an expired listing.14
37.
Many other First Team trainers and corporate employees similarly
promote and otherwise sanction purchasing lists of expired listings and repeatedly
12 1hr 9min
13 1hr 10 min
14 1:11:56
CLASS ACTION COMPLAINT
calling them in TCPA violative ways. In fact, First Team provides every realtor
with an autodialer capable of sending mass text messages, kvCORE.
TCPA LEGALITY OF AUTODIALED CALLS
38.
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).
39.
Yet in violation of this rule, Defendant and its realtors fail to obtain
any express written consent prior to sending autodialed text messages and
prerecorded communications to cellular telephone numbers such as those of
Plaintiff.
40.
Unsurprisingly, considering the direction First Team provides to its
agents regarding cold calling, there are numerous complaints posted online about
unsolicited calls consumers received from First Team agents:
• “Some guys keeps calling, when asked shy "it's my job" I have told
these dumb fugs to stop calling. If this is a legit real estate firm they r
crazy as I going to l police drpt with harassing phone call complaint,
he calls one min after being told to stop sev days in a row. FIRST
TEAM REALITY OR REAL ESTATE. This has to be a fraud, they
could not be that free ee eking stupid.”15
15 https://800notes.com/Phone.aspx/1-714-368-7255
CLASS ACTION COMPLAINT
• “Pls. Stop calling!!!!”16
• “Constant phone harassment. Extremely obnoxious telemarketing
company that will hang up in your face if you ask how they got your
number.”17
PLAINTIFF LALLI’S ALLEGATIONS
First Team Realtors Called and Texted Plaintiff Lalli’s Cell Phone Number
Without His Consent Using An Autodialer and Prerecorded Voice
41.
Plaintiff Lalli had a property listed for sale, but the listing expired and
was removed from the MLS – Multiple Listing Service.
42.
Lalli began receiving calls and text messages from realtors, including
unsolicited autodialed text messages and a call from First Team agents.
43.
On March 19, 2019 at 8:24 AM, Lalli received an autodialed text
message with a link to a video from Mike Patel, a First Team agent using phone
number 714-470-8600 on his cell phone:
16 Id.
17 https://www.yelp.com/biz/mohamad-lababidi-first-team-real-estate-rancho-cucamonga
CLASS ACTION COMPLAINT
44.
The video is entitled, “Mike Patel commercial 1: What Makes me
Different.” The video is of Patel describing his experience selling homes, and
specifically regarding Patel’s expertise in selling homes with expired listings. In
fact, the video begins with Patel stating, “Hi, my name is Mike Patel with First
Team Real Estate, and if you’re watching this video, unfortunately your house did
not sell” and includes a banner titled “Expired Listing Specialist.”
CLASS ACTION COMPLAINT
45.
Patel himself admits that he uses a dialer to automatically contact
expired listings, and even provides training to other First Team agents on how to
replicate his lead generation method of calling and texting expireds.
46.
Plaintiff Lalli believes this text message from Patel was sent using an
autodialer due to its generic content and pre-rerecorded content.
47.
714-470-8600 is Patel’s direct number.
48.
On March 29, 2019 at 3:25 PM, Plaintiff Lalli received an autodialed
call from David Chase, a realtor with First Team Realty on his cell phone using
phone number 714-481-5459 regarding Lalli’s expired property listing.
49.
When 714-481-5459 is called, the following automated message
“Hello, this is David Chase at First Team Real Estate. I’m part of the Re-
Marketing Team and a luxury agent here at First Team. I’d love to speak to
you about your listing that was previously on the market with another agent
and uh we can discuss the reason why it didn’t sell the first time around, and
the way I would do it differently, which is all I do here at First Team. So
please leave a message and I’ll give you a call right back. Thank you so
much.”
50.
Plaintiff believes the call he received from Chase was autodialed
based on the fact that all First Team agents are provided the kvCORE autodialer by
First Team.
51.
On July 12, 2019 at 10:41 AM, Plaintiff Lalli received an autodialed
text message on his cell phone from a First Team agent:
CLASS ACTION COMPLAINT
52.
When 714-942-1898 is called, Greg Carrescia, a realtor and assistant
regional manager answers.18
53.
Plaintiff Lalli believes this text message, presumably from Carrescia
was sent using an autodialer due to its generic nature.
54.
Plaintiff Lalli has never provided his cellular phone number, or any
phone number to First Team, or otherwise consented to any First Team realtor
placing solicitation telephone calls or sending solicitation text messages to his cell
phone number.
55.
The unauthorized text messages and call sent by First Team harmed
Plaintiff Lalli in the form of annoyance, nuisance, and invasion of privacy, and
disturbed the use and enjoyment of his cell phone, in addition to the wear and tear
18 https://www.firstteam.com/agent/49419-greg-carrescia/
CLASS ACTION COMPLAINT
on the phones’ hardware (including the phones’ battery) and the consumption of
memory on the phone.
56.
Seeking redress for these injuries, Plaintiff Lalli, on behalf of himself
and Classes of similarly situated individuals, brings suit under the Telephone
Consumer Protection Act, 47 U.S.C. § 227, et seq., which prohibits pre-recorded
solicitation calls and unsolicited autodialed calls and text messages to cellular
telephones.
CLASS ALLEGATIONS
Class Treatment Is Appropriate for Plaintiff’s TCPA Claims
57.
Plaintiff Lalli brings this action pursuant to Federal Rules of Civil
Procedure 23(b)(2) and 23(b)(3) and seeks certification of the following Classes:
Prerecorded No Consent Class: All persons in the United States who
from four years prior to the filing of this action through class
certification (1) one or more of Defendant’s realtors called or texted,
(2) for substantially the same reason Defendant’s realtors called or
texted Plaintiff, (3) using a prerecorded voice message, and (4) for
whom Defendant or its realtors claim (a) they obtained prior express
written consent in the same manner as they claim they obtained prior
express written consent to call or text Plaintiff, or (b) they did not obtain
prior express written consent.
Autodialed Call No Consent Class: All persons in the United States
who from four years prior to the filing of this action through class
certification (1) one or more of Defendant’s realtors called or texted,
(2) for substantially the same reason Defendant’s realtors called or
texted Plaintiff, (3) using the same equipment used to call or text
Plaintiff, and (4) for whom Defendant or its realtors claim (a) they
obtained prior express written consent in the same manner as they claim
they obtained prior express written consent to call or text Plaintiff, or
(b) they did not obtain prior express written consent.
CLASS ACTION COMPLAINT
Patel Prerecorded No Consent Class: All persons in the United States
who from four years prior to the filing of this action through class
certification (1) Mike Patel called or texted, (2) for substantially the
same reason Mike Patel called or texted Plaintiff, (3) using a
prerecorded voice message, and (4) for whom Defendant or Mike Patel
claim (a) they obtained prior express written consent in the same
manner as they claim they obtained prior express written consent to call
or text Plaintiff, or (b) they did not obtain prior express written consent.
Patel Autodialed Call No Consent Class: All persons in the United
States who from four years prior to the filing of this action through class
certification (1) Mike Patel called or texted, (2) for substantially the
same reason Mike Patel called or texted Plaintiff, (3) using the same
equipment used to call or text Plaintiff, and (4) for whom Defendant or
Mike Patel claim (a) they obtained prior express written consent in the
same manner as they claim they obtained prior express written consent
to call or text Plaintiff, or (b) they did not obtain prior express written
consent.
58.
The following individuals are excluded from the Classes: (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 Classes; (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 Lalli anticipates the need to amend the Class definitions
following appropriate discovery.
59.
Numerosity: On information and belief, there are hundreds, if not
thousands of members of the Classes such that joinder of all members is
impracticable.
CLASS ACTION COMPLAINT
60.
Commonality and Predominance: There are many questions of law
and fact common to the claims of Plaintiff Lalli 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 real estate agents used an automatic telephone
dialing system to send text messages to Plaintiff Lalli and other consumers;
(b)
whether Defendant’s real estate agents used an automatic telephone
dialing system to place calls to Plaintiff Lalli and other consumers;
(c)
whether Defendant’s real estate agents transmitted pre-recorded
messages by call or text to Plaintiff Lalli and other consumers;
(d)
whether Defendant’s real estate agents placed calls and sent text
messages to Plaintiff Lalli and other consumers without first obtaining their
prior express written consent;
(e)
whether Defendant is vicariously liable for the telemarketing of its
real estate agents, including agent Mike Patel; and
(f)
whether members of the Classes are entitled to treble damages based
on the willfulness of Defendant’s conduct.
61.
Adequate Representation: Plaintiff Lalli will fairly and adequately
represent and protect the interests of the Classes, and has retained counsel
competent and experienced in class actions. Plaintiff Lalli has no interests
antagonistic to those of the Classes, and Defendant has no defenses unique to the
Plaintiff. Plaintiff Lalli, and his 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 Lalli nor his counsel has any interest adverse
to the Classes.
CLASS ACTION COMPLAINT
62.
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 the 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.
FIRST CLAIM FOR RELIEF
Telephone Consumer Protection Act
(Violation of 47 U.S.C. § 227)
(On Behalf of Plaintiff Lalli and the Prerecorded No Consent Class)
63.
Plaintiff Lalli repeats and realleges paragraphs 1 through 62 of this
Complaint and incorporates them by reference.
64.
Defendant’s agents made solicitation calls and sent solicitation
messages using a prerecorded voice to Plaintiff Lalli and the other members of the
Prerecorded No Consent Class.
65.
These prerecorded calls and messages were sent en masse without the
CLASS ACTION COMPLAINT
prior express written consent of Plaintiff Lalli and the other members of the
Prerecorded No Consent Class.
66.
Defendant has, therefore, violated 47 U.S.C. § 227(b)(1). As a result
of Defendant’s conduct, Plaintiff Lalli and the other members of the Prerecorded
No Consent Class are each entitled to a minimum of $500 in damages, and up to
$1,500 in damages, for each violation.
SECOND CLAIM FOR RELIEF
Telephone Consumer Protection Act
(Violation of 47 U.S.C. § 227)
(On Behalf of Plaintiff Lalli and the Autodialed Call No Consent Class)
67.
Plaintiff Lalli repeats and realleges paragraphs 1 through 62 of this
Complaint and incorporates them by reference.
68.
Defendant’s realtors made unwanted solicitation calls to cellular
telephone numbers belonging to Plaintiff Lalli and the other members of the
Autodialed Call No Consent Class using equipment that, upon information and
belief, had the capacity to store or produce telephone numbers to be called, using a
random or sequential number generator.
69.
These solicitation telephone calls were made/sent en masse without
the prior express written consent of Plaintiff Lalli and the other members of the
Autodialed Call No Consent Class.
CLASS ACTION COMPLAINT
70.
Defendant has, therefore, violated 47 U.S.C. § 227(b)(1)(A)(iii). As a
result of Defendant’s conduct, Plaintiff Lalli and the other members of the
Autodialed Call No Consent Class are each entitled to a minimum of $500 in
damages, and up to $1,500 in damages, for each violation.
THIRD CLAIM FOR RELIEF
Telephone Consumer Protection Act
(Violation of 47 U.S.C. § 227)
(On Behalf of Plaintiff Lalli and the Patel Prerecorded No Consent Class)
71.
Plaintiff Lalli repeats and realleges paragraphs 1 through 62 of this
Complaint and incorporates them by reference.
72.
Defendant’s agent Mike Patel made solicitation calls and sent
solicitation messages using a prerecorded voice to Plaintiff Lalli and the other
members of the Patel Prerecorded No Consent Class.
73.
These prerecorded calls and messages were sent en masse without the
prior express written consent of Plaintiff Lalli and the other members of the Patel
Prerecorded No Consent Class.
74.
Defendant has, therefore, violated 47 U.S.C. § 227(b)(1). As a result
of Defendant’s conduct, Plaintiff Lalli and the other members of the Patel
Prerecorded No Consent Class are each entitled to a minimum of $500 in damages,
and up to $1,500 in damages, for each violation.
CLASS ACTION COMPLAINT
FOURTH CLAIM FOR RELIEF
Telephone Consumer Protection Act
(Violation of 47 U.S.C. § 227)
(On Behalf of Plaintiff Lalli and the Patel Autodialed Call No Consent Class)
75.
Plaintiff Lalli repeats and realleges paragraphs 1 through 62 of this
Complaint and incorporates them by reference.
76.
Defendant’s realtor Mike Patel made unwanted solicitation calls and
texts to cellular telephone numbers belonging to Plaintiff Lalli and the other
members of the Patel Autodialed Call No Consent Class using equipment that,
upon information and belief, had the capacity to store or produce telephone
numbers to be called, using a random or sequential number generator.
These solicitation telephone calls were made/sent en masse without the prior
express written consent of Plaintiff Lalli and the other members of the Patel
Autodialed Call No Consent Class.
77.
Defendant has, therefore, violated 47 U.S.C. § 227(b)(1)(A)(iii). As a
result of Defendant’s conduct, Plaintiff Lalli and the other members of the Patel
Autodialed Call No Consent Class are each entitled to a minimum of $500 in
damages, and up to $1,500 in damages, for each violation.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff Lalli, individually and on behalf of the Classes,
prays for the following relief:
CLASS ACTION COMPLAINT
78.
An order certifying this case as a class action on behalf of the Class as
defined above; appointing Plaintiff Lalli as the representative of the Classes; and
appointing his attorneys as Class Counsel;
79.
An award of actual and/or statutory damages and costs;
80.
An order declaring that Defendant’s actions, as set out above, violate
the TCPA;
81.
An injunction requiring Defendant to cease all unsolicited calling
activity, and to otherwise protect the interests of the Classes; and
82.
Such further and other relief as the Court deems just and proper.
JURY TRIAL DEMAND
Plaintiff Lalli requests a jury trial.
Dated: January 7, 2020
By: /s/ Rachel E. Kaufman
Rachel E. Kaufman
rachel@kaufmanpa.com
KAUFMAN P.A.
400 NW 26th Street
Miami, FL 33127
Telephone: (305) 469-5881
Attorney for Plaintiff and the putative
Classes
CLASS ACTION COMPLAINT
| privacy |
RlJTBIkBRpLueGJZGd64 | UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
Case No. 1:21-cv-10051
YUTING AO, individually and on behalf
of all others similarly situated,
Plaintiff,
v.
CLASS ACTION COMPLAINT
FOR VIOLATION OF THE
FEDERAL SECURITIES LAWS
MINERVA NEUROSCIENCES, INC.
and REMY LUTHRINGER,
Jury Trial Demanded
Defendants.
Plaintiff Yuting Ao (“Plaintiff”), by and through Plaintiff’s attorneys, alleges upon personal
knowledge as to 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 documents filed by Defendants (as defined below) with the United States
(“U.S.”) Securities and Exchange Commission (the “SEC”), news reports, press releases issued by
Defendants, and other publicly available documents, as follows:
NATURE OF THE ACTION
1.
This is a federal securities class action on behalf of all investors who purchased or
otherwise acquired Minerva Neurosciences, Inc. (“Minerva” or the “Company”) securities
between May 15, 2017 and November 30, 2020, inclusive (the “Class Period”). This action is
brought on behalf of the Class (as defined below) for violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 (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.
2.
According to its most recent annual report filed on Form 10-K with the SEC,
Minerva purports to be a clinical-stage biopharmaceutical company focused on the development
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1
and commercialization of a portfolio of product candidates to treat patients suffering from central
nervous diseases. The Company’s lead product candidate is roluperidone (also known as MIN-
101). Minerva common stock trades on the NASDAQ stock exchange under the ticker “NERV.”
The Company is headquartered in Waltham, Massachusetts.
3.
Minerva’s drug candidate roluperidone, MIN-101, is in development for the
treatment of negative symptoms in patients with schizophrenia. In October 2016, the Company
had previously reported positive results from a Phase 2b trial of roluperidone for this treatment,
asserting that the “[d]ata show continuous improvement in negative symptoms, stable positive
symptoms and extended safety profile.”1
4.
On May 15, 2017, the start of the Class Period, Minerva announced via press release
that it would proceed to a Phase 3 clinical trial for MIN-101 following a successful “end-of-Phase
2” meeting with the U.S. Food and Drug Administration (“FDA”). In this press release, Defendant
Rémy Luthringer (“Luthringer”) was quoted as saying that “[o]ur discussion with the [FDA] has
helped to confirm our Phase 3 trial design, which is similar to our previous Phase 2b trial design.
We believe that positive data from the Phase 3 trial, along with the positive data from the Phase
2b trial, may form the basis for the future submission of a New Drug Application for [roluperidone]
with the FDA.”
5.
The FDA, however, did not agree with Minerva that positive data from the Phase
2b trial could form the basis of a future New Drug Application (“NDA”) for MIN-101, or that the
Phase 3 trial was a well-designed trial. Thus, Luthringer’s statements about FDA feedback were
materially misleading.
1 https://www.sec.gov/Archives/edgar/data/1598646/000119312516747326/d255045dex991.htm.
{00410302;1 }
2
6.
On May 29, 2020, Minerva released the results of its Phase 3 clinical trial. The
Company announced that the studied “doses were not statistically significantly different from
placebo at Week 12 on the primary endpoint . . . or the key secondary endpoint.” In other words,
the Phase 3 clinical trial failed.
7.
On this news, the Company’s stock price fell from a May 28, 2020 closing price of
$13.47 per share to a May 29, 2020 closing price of just $3.71 per share, representing a one day
drop of approximately 72.5%.
8.
On a November 2, 2020 earnings call, Luthringer, in discussing an upcoming
November 10, 2020 meeting with the FDA to discuss whether the Phase 2b study combined with
the data from the Phase 3 study could form the basis of an NDA, said: “with all the data we have
generated and we put in the briefing book, we are extremely confident that the FDA will
understand that we have really very compelling data as you already have seen, when you combine
the 2 studies, Phase IIb and Phase III . . . .”
9.
On December 1, 2020, before the markets opened, Minerva issued a press release
revealing that it had “received official meeting minutes from the November 10, 2020 Type C
meeting with the” FDA. Minerva disclosed for the first time that the “FDA advised that the Phase
2b study is problematic because it did not use the commercial formulation of roluperidone and was
conducted solely outside of the United States. In addition, FDA commented that the Phase 3 study
does not appear to be capable of supporting substantial evidence of effectiveness . . . .” Indeed,
the “FDA cautioned that an NDA submission based on the current data from the Phase 2b and
Phase 3 studies would be highly unlikely to be filed and that at a minimum, there would be
substantial review issues due to the lack of two adequate and well-controlled trials to support
efficacy claims for this indication.”
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3
10.
On this news, Minerva’s stock price fell from its November 30, 2020 closing price
of $3.89 per share to a December 1, 2020 closing price of $2.89 per share, representing a one day
drop of approximately 25.7%.
11.
Throughout the Class Period, Defendants made materially false and misleading
statements regarding the Company’s business. Specifically, Defendants made false and/or
misleading statements and/or failed to disclose: (i) the truth about the feedback received from the
FDA concerning the “end-of-Phase 2” meeting; (ii) that the Phase 2b study did not use the
commercial formulation of roluperidone and was conducted solely outside of the U.S.; (iii) that
the failure of the Phase 3 study to meet its primary and key secondary endpoints rendered that
study incapable of supporting substantial evidence of effectiveness; (iv) that the Company’s plan
to use the combination of the Phase 2b and Phase 3 studies would be “highly unlikely” to support
the submission of an NDA; (v) that reliance on these two trials in the submission of an NDA would
lead to “substantial review issues” because the trials were inadequate and not well-controlled; and
(vi) that, as a result, the Company’s public statements were materially false and misleading at all
relevant times.
JURISDICTION AND VENUE
12.
The federal law 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, as well as under the common law.
13.
This Court has subject matter jurisdiction over this action pursuant to 28 U.S.C. §
1331 and Section 27 of the Exchange Act, 15 U.S.C. § 78aa.
14.
This Court has jurisdiction over each Defendant named herein because each
Defendant is an individual or corporation who has sufficient minimum contacts with this District
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4
so as to render the exercise of jurisdiction by the District Court permissible under traditional
notions of fair play and substantial justice.
15.
Venue is proper in this District pursuant to Section 27 of the Exchange Act, 15
U.S.C. § 78aa, and 28 U.S.C. § 1391(b), as the Company has its principal executive offices located
in this District and conducts substantial business here.
16.
In connection with the acts, omissions, conduct and other wrongs in this Complaint,
Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,
including but not limited to the U.S. mail, interstate telephone communications and the facilities
of the national securities exchange.
PARTIES
17.
Plaintiff, as set forth in the attached Certification, purchased or otherwise acquired
Minerva securities at artificially inflated prices during the Class Period, and has been damaged by
the revelation of the Company’s material misrepresentations and omissions.
18.
Defendant Minerva purports to be a clinical-stage biopharmaceutical company
focused on the development and commercialization of a portfolio of product candidates to treat
patients suffering from central nervous diseases. The Company’s lead product candidate is
roluperidone, in development for the treatment of negative symptoms in patients with
schizophrenia. Minerva common stock trades in an efficient market on the NASDAQ stock
exchange under the ticker “NERV.” The Company’s headquarters are located at 41601 Trapelo
Rd., Suite 286, Waltham, MA 02451, and the Company is incorporated under the laws of the State
of Delaware.
19.
Defendant Luthringer is Minerva’s Chief Executive Officer (“CEO”). He served
as a consultant for the Company from July 2010, and in May 2014, became an employee. In
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5
November 2014, Dr. Luthringer was named Minerva’s President and CEO, and he served as
President until December 2017.
20.
Defendant Luthringer, because of his position at the Company, possessed the power
and authority to control the content and form of the Company’s annual reports, quarterly reports,
press releases, investor presentations, and other materials provided to the SEC, securities analysts,
money and portfolio managers and investors, i.e., the market. Defendant Luthringer authorized
the publication of the documents, presentations, and materials alleged herein to be misleading prior
to their issuance and had the ability and opportunity to prevent the issuance of these false
statements or to cause them to be corrected. Because of his position with the Company and access
to material non-public information available to him but not to the public, Defendant Luthringer
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 false and misleading.
Defendant Luthringer is liable for the false statements pleaded herein.
21.
Defendants Minerva and Luthringer are collectively referred to herein as
“Defendants.”
SUBSTANTIVE ALLEGATIONS
Background
22.
In November 2013, Cyrenaic Pharmaceuticals, Inc. and Sonkei Pharmaceuticals,
Inc. merged and the combined company was renamed Minerva Neurosciences, Inc. Minerva’s
lead compound candidate is roluperidone, which is in development for the treatment of negative
symptoms in patients with schizophrenia.
23.
In October 2016, the Company reported positive results from a Phase 2b trial of
roluperidone for this treatment, asserting that the “[d]ata show continuous improvement in
negative symptoms, stable positive symptoms and extended safety profile.”
{00410302;1 }
6
Materially False and Misleading Statements Issued During the Class Period
24.
The Class Period begins on May 15, 2017, when, as a result of the purportedly
successful Phase 2b trial, Minerva announced that it would proceed to a Phase 3 trial. Minerva
made this announcement in a press release filed on Form 8-K with the SEC, in which Minerva
stated: “Minerva Announces Outcome of End-of-Phase 2 Meeting with FDA.” The release
continued that:
[F]ollowing a recent “end-of-Phase 2” meeting with the [FDA], Minerva . . .
announced its plans to initiate Phase 3 development of MIN-101, a drug targeting
negative symptoms in schizophrenia patients. A pivotal Phase 3 trial with MIN-101
is expected to be initiated in the second half of 2017.
* * *
The overall design of the planned Phase 3 trial is similar to the Phase 2b trial
completed in 2016, in which improvement was observed in schizophrenic patients
with negative symptoms treated with MIN-101 compared to placebo.
The Company shared pre-clinical and clinical efficacy and safety data at the FDA
meeting, and safety and tolerability of MIN-101 will continue to be assessed during
the duration of the Phase 3 trial . . . .
* * *
“Minerva is finalizing its plan for the Phase 3 development of MIN-101 . . .
following our recent meeting with the FDA,” said [Defendant] Luthringer . . . .
“Our discussion with the agency has helped to confirm our Phase 3 trial design,
which is similar to our previous Phase 2b trial design. We believe that positive data
from the Phase 3 trial, along with the positive data from the Phase 2b trial, may
form the basis for the future submission of a[n] [NDA] for MIN-101 to the FDA.”
25.
On June 29, 2017, Minerva filed a Prospectus Supplement on Form 424B5 with the
SEC, announcing the public offering of five million shares of Minerva common stock at $7.75
each, for total proceeds to the Company, before expenses but after underwriting discounts and
commissions, of $36.425 million.2 This Prospectus Supplement provided, in relevant part:
2 https://www.sec.gov/Archives/edgar/data/1598646/000119312517217594/d382980d424b5.htm.
{00410302;1 }
7
In May 2017, we announced the outcome of an “end of Phase 2” meeting with the
FDA and announced our plans to initiate Phase III development of MIN-101. We
expect that a pivotal Phase III trial with MIN-101 will be initiated in the second
half of 2017.
The Phase III trial design will be a 12-week, double-blind, randomized, placebo-
controlled, monotherapy study testing two doses of MIN-101 in patients with
negative symptoms and a diagnosis of schizophrenia. To be eligible for the study,
patients will be required to have stable negative and positive symptoms over several
months prior to enrollment, with a specified minimum threshold baseline score on
the PANSS negative sub-scale. After the double-blind phase, patients may enter a
36-week open label extension phase in which all patients will receive active
treatment. This multi-center, international trial is expected to enroll approximately
500 patients at approximately 60 clinical sites across the U.S. and Europe.
26.
On August 3, 2017, the Company held an earnings call with analysts to discuss its
second quarter 2017 financial results. On this call, Defendant Luthringer stated:
Informed by feedback from the end of Phase II meeting with the FDA, we have
confirmed the key elements of the Phase III trial design with MIN-101. To a
significant degree, these parameters measure the design of our successful Phase IIb
trial. So Phase III trial will consist of a 3 months randomized double-blind placebo-
controlled core period followed by a 9 months open label extension period.
Approximately 500 patients will be randomized 1 to 1 to 1, to 2 doses of MIN-101
monotherapy versus placebo. The primary outcome will be improvement in
negative symptoms as measured by the Marder score. The Marder score includes a
question from the Positive and Negative Syndrome Scale, or PANSS scale that is
well correlated with functional outcome in patients and not contained in the
pentagonal score utilized in the Phase IIb trial.
In fact, a post-op analysis of our Phase IIb data utilizing the Marder score shows
the improved effect sizes and p-values relative to placebo as compared to the
pentagonal score. Approximately 1/3 of the patients recruited are expected to come
from the U.S. with the remainder from the E.U. A total of approximately 60 clinical
sites will be included in the trial. We plan to recruit patients who have been
symptomatically stable in terms of positive and negative symptoms for 6 months
with moderate-to-severe negative symptoms with a PANSS score of greater than
20. We believe that this eligibility criteria represent a significant portion of
schizophrenic patients suffering from negative symptoms, and thus cover most
patients who are unable to function well during everyday life. We also recently
completed a bridging study in healthy volunteers to identify an improved and final
formulation of MIN-101 to be used in the Phase III trial, and in the CMC scale-up
activities currently ongoing.
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8
In summary, data from this study showed bioequivalent exposed between the
improved formulation and the formulation used in Phase IIb study in terms of the
parent compound. It is important to note that through PK-PD analysis of drug
plasma levels versus negative score performed on our Phase IIb data, shows at
MIN-101 efficacy is driven by exposure of parent compound. Reduction of the
maximum concentration Cmax of the metabolite associated with transient
(inaudible) increases, when a certain level is achieved. We believe this decreased
Cmax of this metabolite confers an improved safety margin to MIN-101 (inaudible)
cerebral fluid effect, which is a key element when MIN-101 is used in an everyday
clinical practice. Following the completion of this study, we’re planning to initiate
the Phase III trial on schedule in the second half of 2017 with the same doses used
in the Phase IIb trial. Again, the improved formulation is expected to show an
improved safety profile at equivalent doses. Coming back to our Phase III study
safety, we continue to be monitored as it was into Phase IIb with specific attention
to the side effects seen in standard of care, which were not observed as MIN-101
in Phase IIb. We expect top line results from the 3 months double blind phase of
this trial in the first half of 2019.
With respect to our request for breakthrough therapy designation from MIN-101,
the initial feedback we received from the FDA, while denying our request
confirmed the treatment of negative symptoms of schizophrenia meets the criteria
for a serious or life-threatening disease and consequently for breakthrough therapy
designation. The FDA advised that they were not able to grant such designation at
this time pending receipt of additional analysis of certain data from the Phase IIb
study. We’re currently in dialogue with the agency to clarify why we believe the
existing data provides the analysis the FDA is seeking.
27.
In December 2017, Minerva initiated the Phase 3 trial for MIN-101.3 In a January
8, 2018 presentation filed with the SEC, the Company stated: “Phase 3 efficacy study:
confirmatory study design guided by insights from Phase 2b and dialogue with FDA.”
28.
On March 12, 2018, Minerva filed its 2017 Annual Report on Form 10-K with the
SEC.4 In this 2017 Annual Report, Minerva stated:
In May 2017, we announced the outcome of an “end-of-Phase 2” meeting with the
FDA and announced our plans to initiate Phase 3 development of roluperidone.
This meeting and additional discussions with the FDA on the Phase 3 trial design
and operational conduct led to the finalization of the protocol and design for that
trial described above.
3 See https://www.sec.gov/Archives/edgar/data/1598646/000119312518005144/d509395dex991.htm (Corporate
Presentation filed with the SEC on Jan. 8, 2018).
4 https://www.sec.gov/Archives/edgar/data/1598646/000156459018005224/nerv-10k_20171231.htm.
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9
29.
Also, on March 12, 2018, Minerva held an earnings call with analysts to discuss its
fourth quarter and full year results for 2017. On this call, Defendant Luthringer stated:
As you know, I mean, we already have a lot of chance because, at the end of Phase
II meeting we had with the FDA, it was clearly discussed that, I mean, the Phase
III should be as close as possible to the Phase IIb study we have run. So obviously,
we could really learn a lot from the Phase IIb in order to design the right Phase III.
This said, as everybody knows, I mean, in the Phase III we will have around 30%
of the patients coming from the U.S. And here, we put a lot of efforts in this part in
order to ensure that the patients who will be enrolled, we have access to their history
because when you’re dealing with negative symptoms in schizophrenia, you really
need to get a good hint about the history of the patient in order to show the stability
of the symptoms. So all this has really focused -- the team has focused a lot on this
and I really think that we have the right sites in place in the U.S. in order to come
up with the right patients, with the same patients as the patients we will include in
Europe. So this is really something very important.
30.
On November 20, 2018, Minerva held a special call with analysts. On that call,
Defendant Luthringer stated:
So basically, as you know, I mean we really had an extremely good exchange
discussion with the FDA at the end of Phase II. And I think we achieved something
which is quite unique, which is that, yes, the Phase IIb, if we are able in Phase III
to reproduce the results with a study design which is extremely similar, this will be
really the ground of moving forward and filing an NDA. So this is what we have
obtained and yes, indeed, I mean the Phase III is really, I would like to say, copy
paste of the Phase IIb.
So this is the study design. So as you know, this is a study in monotherapy. So the
patients who are treated with antipsychotics and have not a good response in terms
of functioning, in terms of negative symptoms, are switched to 2 doses of our
molecule, 32 milligram and 64 milligram, basically the same dose strengths as in
the Phase IIb.
The comparator is placebo, and I will address the reason why in developing a drug
for negative symptoms you need to use placebo and not positive control. Because
there is no basically positive control. And second, because we know very well that
antipsychotics have side effects, which can be picked up. It is not a good control at
the end of the day.
But so clearly, I mean, it is a 12-week double-blind study. And afterwards, the
patients can go into an extension. And this extension is covering 12 months, the
idea being here that, I mean, you need to have around 100 patients exposed for 12
months. So this is the reason why we have this duration of extension. But this is
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10
obviously, also to check again if once a patient is responding, how long the effect
is maintained.
Now so these are the key highlights of the study. And I will address all of these
questions I had over the last few months since, I mean, we have started the study.
So first one is a primary endpoint, yes. As you know, we moved in terms of the
primary endpoint. We use, obviously, always the PANSS scale, which is the gold
standard in assessing schizophrenia and negative symptoms. But we have moved
from the pentagonal score to the model score, and in my next slide will really
elaborate on this in order to just explain you why we came to this agreement with
the FDA to use a model score.
31.
On March 18, 2019, Minerva held an earnings call with analysts to discuss the
Company’s fourth quarter and full year 2018 results. On that call, Defendant Luthringer stated:
Our study design and endpoint selection have been informed by insights gained in
the recent Phase IIb trial and continuous dialogue with the FDA. We are working
closely with approximately 60 clinical sites in the U.S. and Europe to ensure
adherence to critical aspects of the conduct of the study. For example, we are
working to minimize rating variability among clinical sites by carefully assessing
on a regular basis throughout the study intra- and inter-rater variability, which is
kept as low as possible. Achieving this goal, we helped reproduce the same
separation between roluperidone and placebo observed in the Phase IIb study. We
expect completion of enrollment during the first half of 2019 and top line results
from the 12-week, double-blind period in mid-2019.
In parallel with the conduct of the Phase III study, we are working on key activities,
the results of which will be integrated into our NDA submission package. This
include, for example, clinical pharmacology trials and CMC scale-up. Furthermore,
we are working with input of several KOLs on postapproval studies in
schizophrenia and beyond.
32.
On October 1, 2019, Minerva announced that its Phase 3 trial would be delayed
“[d]ue to a cyber-attack on one of the Company’s external contractors that resulted in a disruption
to patient recruitment in the study . . . .” As a result, the Company said it expected to “complete
enrollment at approximately year-end and anticipates results from the 12-week, double-blind
portion of the study to be available in the first half of 2020.”5
5 https://www.sec.gov/Archives/edgar/data/1598646/000119312519259276/d813246dex991.htm.
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11
33.
On January 6, 2020, Minerva issued a press release on Form 8-K with the SEC in
which it announced the completion of patient screening in its Phase 3 trial of roluperidone for the
treatment of negative symptoms in schizophrenia.6 Minerva stated:
A total of 857 patients have been screened, and the enrollment of at least 501
patients is expected to be completed before the end of January 2020. Top-line
results from the 12-week, double-blind portion of the trial are expected in the
second quarter of 2020.
This trial is a multicenter, randomized, double-blind, parallel group, placebo-
controlled, 12-week study to evaluate the efficacy and safety of 32 milligram (mg)
and 64 mg doses of roluperidone as measured by the Positive and Negative
Syndrome Scale Marder negative symptoms factor score, the primary endpoint.
Secondary endpoints include the Personal and Social Performance Scale and
Clinical Global Impression of Severity. Patients are being randomized 1:1:1 to the
32 mg and 64 mg doses of roluperidone and to placebo. The core 12-week phase of
the trial is followed by a 40-week, open-label extension period during which
patients on the drug continue receiving their original dose and patients on placebo
receive one of the two doses of roluperidone.
34.
In addition, Defendant Luthringer stated in the release: “[w]e are pleased to have
achieved the important milestone of having completed patient screening in the Phase 3 trial with
roluperidone . . . . Our consistent objectives throughout the trial have been to ensure the highest
quality of patient selection and the rigorous evaluation of the symptoms of schizophrenia,
including negative symptoms. We look forward to randomizing the last patient in January, 2020
and to having top-line results in the second quarter of 2020.”
35.
On February 5, 2020, Minerva issued a press release on Form 8-K with the SEC in
which it announced the completion of patient enrollment in its Phase 3 trial of roluperidone for the
treatment of negative symptoms in schizophrenia.7 Minerva stated:
A total of 515 patients have been randomized in this trial, compared to the original
goal of 501 patients. The trial, which is being conducted at clinical sites in the U.S.
and Europe, is a randomized, double-blind, parallel-group, placebo-controlled, 12-
week study to evaluate the efficacy and safety of 32 milligram (mg) and 64 mg
6 https://www.sec.gov/Archives/edgar/data/1598646/000119312520002240/d862817dex991.htm.
7 https://www.sec.gov/Archives/edgar/data/1598646/000119312520024917/d884459dex991.htm.
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12
doses of roluperidone as measured by the Marder negative symptoms factor score
of the Positive and Negative Syndrome Scale, the primary endpoint. Secondary
endpoints include the Personal and Social Performance Scale and Clinical Global
Impression of Severity. Patients are being randomized 1:1:1 to the 32 mg and 64
mg doses of roluperidone and placebo. The core 12-week double-blind phase of the
trial is followed by a 40-week, open-label extension period during which patients
on the drug continue receiving their original dose and patients on placebo receive
one of the two doses of roluperidone. Top-line results from the 12-week, double-
blind portion of the trial are expected in the second quarter of 2020.
36.
In addition, Defendant Luthringer stated in the release: “[t]he completion of patient
enrollment marks a major milestone in the Phase 3 trial with roluperidone . . . . We believe the
data from this trial have the potential to lead to a significant new treatment option for
schizophrenia, as no pharmacological agent is approved to treat negative symptoms, which is the
single greatest unmet need for patients with this disease, their families and their physicians.”
37.
On March 6, 2020, Minerva held a special conference call presentation with several
analysts. On this call, Defendant Luthringer stated:
I will not bother you again with our Phase IIb data. But this is coming out from the
publication in the American Journal of Psychiatry. On the left side, you have the
results we obtained during the Phase IIb study, 12-week, double-blind, placebo
monotherapy. So these patients are getting off antipsychotics. They are really
treated in monotherapy. So you see that after 2 weeks, we already see an
improvement of negative symptoms compared to placebo. And the things are
becoming highly significant after 12 weeks. I have read in a paper recently that the
effect sizes are not really very impressive. I think here we have to mention that the
effect size we have here is more than 0.5, yes, I mean, overall. And when you’re
going to the younger population, we have an effect size which are above 1.5. So I
think we have here really a very, very important effect.
38.
Defendant Luthringer added: “[s]o these are the Phase IIb results. Very quickly,
also, we had secondary endpoints, which were focusing on cognition, and we published this as
well. So definitely, there is an effect on cognition. It’s the third line.”
39.
Defendant Luthringer further stated: “We have really not changed the study design
between the Phase IIb and the Phase III. So it’s again monotherapy. It’s again – primary endpoint
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13
will be after 12 weeks. Again, placebo versus 2 doses. The randomization is 1:1:1. The difference
is that, I mean, we have a longer extension, so the possibility to the patients to go into a 9 months
extension to have 12 months exposure.”
40.
Last, Defendant Luthringer stated on this March 6, 2020 call:
I’m coming back from visiting sites in Ukraine last week. A lot of patients have
completed 12 months, and I have a little bit of problem currently because the
clinicians, the caregivers and the patients are telling me, so should I give up this
drug because I’m good. But – so this is how it is in clinical development. But what
I think – my key message here is that we are not reinventing the wheel for the Phase
III. We are really doing something which is in line with what we have done in the
Phase IIb.
41.
In addition, Dr. Philip Harvey, the Leonard M. Miller Professor of Psychiatry and
director of the Division of Psychology at the University of Miami Miller School of Medicine and
a VA Senior Health Scientist, participated in the call. Dr. Harvey was asked: “what treatment
effect would you consider to be clinically meaningful on the PANSS Marder scores?” He
responded, in relevant part:
In terms of a clinically significant improvement on the Marder scale, what the FDA
is going to require is a statistically significant improvement relative to placebo,
which in most of these studies tends to be an effect size of about half a standard
deviation, which is a moderate effect. That converges with other research in other
areas suggesting that an improvement of 0.5 standard deviation in a behavioral trait
is the threshold for observers being able to notice that something is different. So
there is some clinical validity to that. Obviously, there are functional measures that
are being collected in this trial, too. It would be surprising to me if you're seeing
this big and this rapid effect on a reduced emotional experience or avolition in the
sample that you wouldn't see an improvement in social functioning in the same time
frame.
42.
On March 9, 2020, Minerva filed its 2019 Annual Report on Form 10-K with the
SEC (the “2019 10-K”).8 In the 2019 10-K, Minerva stated:
We believe the scientifically supported and innovative mechanisms of roluperidone
may potentially address the unmet needs of schizophrenic patients, which include
negative symptoms and cognitive impairment, without the side effects of existing
8 https://www.sec.gov/Archives/edgar/data/1598646/000156459020009243/nerv-10k_20191231.htm.
{00410302;1 }
14
therapies. Negative symptoms are lifelong debilitating symptoms and include:
asociality, or the lack of motivation to engage in social interactions; anhedonia, or
the inability to experience positive emotions; alogia, or failure to engage in normal
conversation; avolition, or loss of energy and interest in activities; and blunted
affect, or diminished emotional expression. We plan to seek approval of
roluperidone initially as a first line treatment of negative symptoms in patients
diagnosed with schizophrenia, and we also may study its use to treat all aspects of
the disease, including positive symptoms and relapse prevention.
43.
The 2019 10-K continued:
Phase 3 Clinical Trial
In December 2017, the first patient was screened in the pivotal Phase 3 clinical trial
of roluperidone (Study “MIN-101C07”) as monotherapy for negative symptoms in
patients diagnosed with schizophrenia. The trial is a multicenter, randomized,
double-blind, parallel-group, placebo-controlled, 12-week study to evaluate the
efficacy and safety of 32 milligrams (“mg”) and 64 mg of roluperidone as compared
to placebo in adult patients with negative symptoms of schizophrenia. The 12-week
study is being followed by a 40-week, open-label extension period during which
patients on roluperidone will continue receiving their original dose and patients on
placebo will receive either 32 mg or 64 mg doses of roluperidone.
We have completed enrollment and a total of 515 patients were randomized in this
trial at clinical sites in the U.S. and Europe. We anticipate top-line results from the
12-week, double-blind portion of the study to be available in the second quarter of
2020.
The primary endpoint of this trial is improvement in negative symptoms in patients
treated with roluperidone compared to placebo as measured by the change in the
Positive and Negative Syndrome Scale, or PANSS, Marder negative symptoms
factor score (“NSFS”) over the 12-week double-blind treatment period. The key
secondary endpoint is the effect of roluperidone compared to placebo as measured
by the Personal and Social Performance, or PSP, total score over the same period.
Additional secondary endpoints include the effect of roluperidone compared to
placebo on the Clinical Global Impression of Severity (“CGI-S”) score, the PANSS
total and subscale scores, the remaining Marder 4 factor scores, and safety and
tolerability.
Patients admitted into the trial had a documented diagnosis of schizophrenia for at
least one year and been symptomatically stable for at least 6 months with moderate
to severe negative symptoms (>20 on the PANSS negative symptom subscale) and
stable positive symptoms. Patients without moderate to severe symptoms of
excitement/hyperactivity, suspiciousness/persecution, hostility, uncooperativeness,
or poor impulse control were recruited. We believe these eligibility criteria
represent the real-world patient population who may benefit when the drug is used
{00410302;1 }
15
in clinical practice. In addition, patients treated with psychotropic agents needed to
undergo a wash-out period of a few days before receiving study drug. These
parameters were applied in screening the population enrolled in the Phase 2b trial.
Chemistry, Manufacturing and Controls program
The chemistry, manufacturing and controls (“CMC”) scale-up program for
roluperidone is ongoing to ensure consistency between the drug batches used during
Phase 3 testing and those that will be available for potential marketing and
commercialization pending the completion of our Phase 3 trial and subsequent
regulatory submission and review of a[n] [NDA] for roluperidone. The CMC
program requires validation of all aspects of the manufacturing processes required
to result in a drug product that consistently meets approved quality standards.
On September 23, 2019, we announced that we have entered into a long-term
commercial supply agreement for roluperidone with Catalent, Inc. (“Catalent”), a
leading global provider of advanced delivery technologies, development, and
manufacturing solutions for drugs, biologics, gene therapies, and consumer health
products. Under the terms of the agreement, Catalent will manufacture and package
the finished dose form of roluperidone at its facility in Schorndorf, Germany. To
date, Catalent has worked with us to enable the transfer from pilot to commercial-
scale production. This has included analytical methods transfer and validation,
process optimization, stability studies, and registration batch manufacturing, as
well as packaging studies and the assessment of the influence of formulation factors
on the product’s critical quality attributes as required by Quality by Design process.
44.
Moreover, the 2019 10-K stated:
We have completed a prospective, double-blind, placebo-controlled, randomized
single-escalating dose study in healthy subjects to evaluate the investigational drug
roluperidone as monotherapy administered at nine ascending doses (16, 32, 64, 96,
128, 160, 192, 224 and 256 mg). The highest dose tested is 4 multiples of the highest
dose (64 mg) being used in the ongoing Phase 3 trial.
The trial included a total of 90 subjects. 72 received 9 different doses of
roluperidone, and 18 received placebo. All subjects who were dosed completed the
study as planned except for one male subject who received placebo and
subsequently withdrew his consent.
Data from this trial demonstrated the following:
• The pharmacokinetics of roluperidone and its metabolites were dose
proportional.
• No QTcF duration > 480 milliseconds (“msec”) or increases > 60 msec
compared to baseline values were observed in any subject.
{00410302;1 }
16
• 160 mg was the only roluperidone dose to show an adjusted QTcF mean
increase from baseline of 10.7 msec. All other doses showed means below 10
msec that ranged from -1.3 to 5 msec.
• No significant change in repolarization was observed.
• Two subjects (11%) in the placebo group and nine subjects (13%) in the
roluperidone group reported adverse events that were mild to moderate in
severity and resolved without sequelae.
• Doses up to 160 mg or 2.5 multiples of the highest dose being tested in the
ongoing Phase 3 trial had no effect on any cardiac safety parameters.
• Slight but not clinically relevant increases in heart rate were observed in the
placebo group and some of the roluperidone doses.
• No serious adverse events were reported.
We believe these findings suggest an expanded therapeutic window and a
significantly improved safety margin for roluperidone. They provide further
evidence that the formulation being used in the Phase 3 trial has a significantly
reduced maximum concentration (“Cmax”) of the BFB-520 metabolite when
compared to the formulation used in the Phase 2b trial, thereby reducing the
potential for transient QTc increases at the doses currently tested in the Phase 3
trial. Furthermore, we believe these data suggest the potential for future testing of
roluperidone in schizophrenic patients with an exacerbation of psychosis at higher
doses than those being used in the Phase 3 trial.
45.
Defendant Luthringer signed a certification attesting that based on his knowledge,
the 2019 10-K “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.”
46.
In addition, Defendant Luthringer signed a certification stating, in relevant part,
that “[t]he information contained in the [2019 10-K] fairly presents, in all material respects, the
financial condition and results of operations of the Company.”
47.
Also on March 9, 2020, the Company held an earnings call with analysts. During
this call, Defendant Luthringer stated:
So clearly, I mean, to really restate the things extremely well. To get to the stage of
the NDA and to get, hopefully, the things approved by the FDA, what you have to
do is to show that the overall study so from 18 to 55 years of age, that, I mean, you
show a p-value on the Marder negative score out of the PANSS. So this is really
what you need. Yes. So clearly, we will do some additional analysis as we have
{00410302;1 }
17
done post hoc with the Phase IIb in order to see if we confirm the fact that the age
has an effect -- on the effect size, we are not speaking here about p-values, we are
speaking about the effect sizes. And this will obviously be done, but this is not at
all related to what we need in order to get the drug approved. But we will definitely
do it because more speaking with KOLs, more speaking with clinicians, it is true
that, I mean, one of the sweet spots of roluperidone would be to really go after even
adolescents at risk who have not developed as a complete disease. But I mean, we
can also think about the first episode patients, where you have really, I think, with
a drug like roluperidone, an extremely good chance to completely reverse the
course of the disease. So yes, it did, obviously -- if I mean, we reconfirmed that the
effect size in the younger population or the younger part of the patients who are in
the Phase III are showing an effect size. Remember, it was above 1.5 in terms of
effect size in the younger part of the population. We will definitely think about
running a trial, really concentrating on this younger population. So now and more
practically, I mean, to your questions. Definitely, I mean, we are in the study, it’s a
Phase III study, below the 40% dropout. So we are completely, how to say, ticking
the box.
48.
On this March 9, 2020 earnings call, Defendant Luthringer was asked “is there
anything other than the clinical components of the [NDA] submission that would be time gating
following the Phase III results to NDA submission?” He responded:
[T]he short answer is, there is no limiting factor, yes, because we are extremely
advanced in the preparation of the NDA filing. And obviously, we need to have the
clinical data, yes, but for the rest, I mean, the things are really moving according to
plan. We are extremely well advanced in terms of CMC. We are – we did a very,
very, very careful review of all the preclinical data. We have even – because some
data – or the guidelines have changed over time. So we have repeated some data to
be according to the most recent guidelines. So I think I can say this very loud and
clear. We are completely ready outside of waiting for the clinical data.
49.
Luthringer added on this March 9, 2020 call: “obviously, we are in Phase III, so we
cannot provide more than this. But clearly, I mean, incredible feedbacks of some patients who
have really recovered this, basically. So it’s obviously not general. It’s not all the patients. And I
do not know, obviously, that’s history of all the patients, but some of the feedbacks are really,
really very, very positive and very encouraging.”
50.
On March 31, 2020, Minerva held another special call with several analysts. On
this call, Defendant Luthringer stated: “what is clear is that the FDA is definitely clear on it that, I
{00410302;1 }
18
mean, they will approve a drug based on the improvement of the Marder negative score coming
out from the PANSS. But if you can show functional improvement, it would be better . . . . So I
think we will be more precise or we will have more hints towards a functional improvement.”
51.
On this call, Defendant Luthringer continued:
[Y]ou really come to the conclusion that this drug might have not only an effect on
negative symptoms, which is specific, there seem the Phase IIb has shown this, and
hopefully, the Phase III will show this as well. But it shows also that, I mean, you
might be able to control positive symptoms in a way or another. I’m not saying that,
I mean, it will be a first choice drug for an acute episode of psychosis or positive
symptoms and agitation, but what I think it might be able to control positive
symptoms.
52.
On April 1, 2020, the Company filed a presentation with the SEC on Form 8-K,
entitled “Roluperidone: A potential novel mechanism to treat the negative symptoms of
schizophrenia.”9 This presentation provided, inter alia:
• “Roluperidone demonstrated a statistically significant reduction in negative
symptoms and total PANSS score: Results of the Phase 2b trial”
* * *
• “Overall Phase 2b study results: Both doses of Roluperidone demonstrated
statistically significant superiority to placebo in improving negative
symptoms.”
* * *
• “Roluperidone was demonstrated to be superior on both PANSS-derived
negative symptoms sub-scale as well as on the BNSS, a scale specifically
design [sic] to measure negative symptoms”
53.
On May 4, 2020, Minerva issued its financial results from the first quarter of 2020
on Form 10-Q with the SEC (the “1Q20 10-Q”).10 The 1Q20 10-Q contained statements similar
to those in the 2019 10-K. In addition, the Company stated that it had “completed enrollment and
9 https://www.sec.gov/Archives/edgar/data/1598646/000119312520094671/d857702dex991.htm.
10 https://www.sec.gov/Archives/edgar/data/1598646/000156459020020617/nerv-10q_20200331.htm.
{00410302;1 }
19
a total of 515 patients were randomized in th[e Phase 3] trial in the United States and Europe,” and
that “[i]n total, 362 patients have completed the double-blind phase, 333 patients from the double-
blind phase have elected to transition into the open-label extension period, and 932 patients have
completed the extension phase as of April 30, 2020.”
54.
In exhibits to the 1Q20 10-Q, Defendant Luthringer signed a certification similar
to the one he signed that accompanied the 2019 10-K.
55.
Also on May 4, 2020, Minerva held an earnings call with analysts to discuss these
first quarter 2020 financial results. On this call, Minerva discussed that the last patient visit took
place in the Phase III trial, and that the Company “look[ed] forward to the database log and
beginning of data analysis late this month.”
56.
On this May 4, 2020 earnings call, Defendant Luthringer stated:
The design of the Phase III trial has been informed by feedback from the FDA,
beginning with our end of Phase II meeting and subsequent communication with
the agency . . . . We are excited about the possibility of the Phase III data addressing
this significant unmet medical need and pointing the way to a new treatment
paradigm for negative symptoms beginning with schizophrenia.
57.
Luthringer also stated on this May 4, 2020 call: “we shared our statistical analysis
plan with the FDA, yes? And we received a feedback, which already confirmed the way we would
like to analyze the data. We will analyze the data because it’s not becoming clear reality but the
statistical analysis plan is ITT.”
58.
Luthringer further stated:
As you know, the primary objective of this extension is to tick the box of 100
patients exposed to the drug for 1 year. So this is really the safety aspect, but this is
what you have to do to tick the box to go for the NDA – or to go to the FDA. So I
think this is really extremely good news because we still have a lot of patients going
on, and we have already 92 have completed. So I think we are really in good shape
for ticking this box now. We’re obviously following these patients in terms of
safety and efficacy. And without having as much details as for the double blind
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20
phase, I think that the things are behaving in terms of efficacy like it was in the
Phase IIb as well. So far, so good, yes, and very reassuring, yes.
59.
On this May 4, 2020 call, Luthringer was asked if Minerva could give an update on
the baseline characteristics observed in the Phase 3 trial on a blinded basis versus what they saw
in the Phase 2b trial. Luthringer responded:
[W]hat we had in the Phase IIb was for negative symptoms around 25 points at
baseline. And it is true that, I mean, we are monitoring, obviously, the Phase III
completely blinded by merging together all the patients who enter the study. And I
have to say that we are ending up with exactly the same entry score in terms of
negative symptoms, which is obviously great news. And I can even give you a little
bit more granularity, telling you that, I mean, what we see over the first 12 weeks
during the double-blind phase in terms of the behavior and the dynamic of the
negative score is really overlapping between the 2 studies, the Phase IIb and the
Phase III.
60.
The statements described above in ¶¶ 24-31 and 33-59 were materially false and
misleading and failed to disclose material adverse facts about the Company’s business, operations,
and prospects. As discussed below, Defendants misled investors by misrepresenting and/or failing
to disclose: (i) the truth about the feedback received from the FDA concerning the “end-of-Phase
2” meeting; (ii) that the Phase 2b study did not use the commercial formulation of roluperidone
and was conducted solely outside of the U.S.; (iii) that the failure of the Phase 3 study to meet its
primary and key secondary endpoints rendered that study incapable of supporting substantial
evidence of effectiveness; (iv) that the Company’s plan to use the combination of the Phase 2b and
Phase 3 studies would be “highly unlikely” to support the submission of an NDA; (v) that reliance
on these two trials in the submission of an NDA would lead to “substantial review issues” because
the trials were inadequate and not well-controlled; and (vi) that, as a result, the Company’s public
statements were materially false and misleading at all relevant times.
{00410302;1 }
21
The Truth Begins to Emerge
61.
On May 29, 2020, Minerva issued a press release on Form 8-K with the SEC in
which it announced the results of its critical Phase 3 trial of roluperidone for the treatment of
negative symptoms in schizophrenia.11 The Company stated in the release, in relevant part, that
“[t]he 64 mg and 32 mg doses were not statistically significantly different from placebo at Week
12 on the primary endpoint, the PANSS Marder Negative Symptoms Factor Score (p ≤0.064 and
0.259, respectively), or the key secondary endpoint, the Personal and Social Performance Scale
Total Score (p ≤0.021 and p ≤0.542, respectively).”
62.
This release continued:
In total, 515 patients were enrolled into the trial, and 513 patients received treatment
and were included in the safety and Intent-To-Treat population. The trial was
conducted in the USA, Europe and Israel. There were 172 patients who received
placebo, 172 patients who received roluperidone 32 mg, and 171 patients who
received roluperidone 64 mg. Demographic and baseline disease characteristics
were comparable across all treatment arms.
The results for both roluperidone doses versus placebo across both the primary and
the key secondary endpoints to Week 12 were corrected for multiplicity using the
truncated Hochberg procedure.
The primary objective of the trial was to evaluate the change from baseline to Week
12 of NSFS with 32 mg and 64 mg doses of roluperidone compared to placebo in
patients diagnosed with schizophrenia presenting with moderate to severe negative
symptoms. Neither the 32 mg nor 64 mg dose of roluperidone showed a statistically
significant separation from placebo (32 mg: p ≤0.256, effect size [ES]=0.1; 64 mg:
p ≤0.064, ES=0.2).
Furthermore, neither dose showed a statistically significant separation from placebo
on the key secondary endpoint, the change from baseline to Week 12 in PSP (32
mg: p ≤0.542, ES=0.1; 64 mg: nominal p ≤0.021, ES=0.3).
11 https://www.sec.gov/Archives/edgar/data/1598646/000119312520155824/d935488dex991.htm.
{00410302;1 }
22
63.
On this news, the Company’s stock price fell from a May 28, 2020 closing price of
$13.47 per share to a May 29, 2020 closing price of just $3.71 per share, representing a one day
drop of approximately 72.5%.
64.
Yet Defendants continued to mislead the investing public about the viability of
roluperidone to treat negative symptoms of schizophrenia. Indeed, in the very release announcing
the failure of the Phase 3 trial, Defendant Luthringer stated:
We are encouraged by the results obtained in this study which expand upon the
outcome of the Phase 2b study that showed improvements in the primary endpoint
and in multiple secondary endpoints . . . . Even though this study didn’t achieve its
primary and key secondary endpoints, primarily due to a larger than expected
placebo effect at Week 12, results obtained with the 64 mg dose including the early
onset of effect and functional improvement as measured by PSP suggest
roluperidone merits continued investigation for the treatment of primary negative
symptoms. We intend to consult with the US FDA about the next steps in the
development of roluperidone for this indication after we complete the analysis of
the study data. I would like to express our sincere appreciation to all of the patients,
caregivers, the investigators and their staff who participated in this trial.
65.
On June 5, 2020, Minerva held a special call with analysts to discuss the Phase 3
trial results. During this call, Defendant Luthringer stated:
Based on the recent Phase III data and all the data we have accumulated over the
last years, roluperidone has really the potential to be the first approved drug to treat
negative symptoms. Whilst we did not reach the statistical requirements for the
primary endpoint, I’m extremely excited that roluperidone has now shown a real
clinical benefit in 2 late stage trials.
* * *
What is interesting to notice here is that, when you’re looking to the level of
improvement with roluperidone in the 2 studies, I think the level of improvement
is very similar. And the time course is extremely similar as well. So clearly, the 2
doses of roluperidone behave exactly in the same was as what we have seen in the
Phase IIb.
66.
Moreover, Dr. Harvey added:
Now the FDA has required that all treatments that are targeting symptoms of
schizophrenia, other than psychosis, provide evidence of what they would call a co-
{00410302;1 }
23
primary functional outcome. And the FDA has, in fact, approved one major
treatment for major depression, vortioxetine, for improving cognition and everyday
functioning based on changes in a performance-based measure of functioning. So
this is a tremendously important finding. And it is completely congruent with the
observational data published beforehand.
* * *
So let’s talk about the receptivity of the FDA to data like this. The FDA has allowed
other sponsors to combine data from trials to create an aggregate outcome that they
would then consider for approval. The fact that the drug improves everyday
functioning is going to be highly positive in terms of their deliberations.
67.
Again on the June 5, 2020 call, an analyst asked Defendant Luthringer: “can you
just talk about what their guidance view is in terms of approaching the FDA meeting and
specifically for the regulatory consultants, what they think are the likely outcomes?” Luthringer
replied:
So definitely we spoke with them, and we continue to speak with them. And as we
generate additional data, sorry, we will speak with them. So again, and I do not
want to, how to say, to say something, which is not final because, I think what we
have to do here, what is a recommendation is that the data are definitely good
enough to go to approach the FDA. You heard that, because we have a specific
effect on negative symptoms and the functional improvement this will be
considered extremely carefully by the FDA because the mechanism of action is,
how to say, completely innovative, as you know. I think we have to come to the
FDA with an extremely good file and with an extremely good understanding of our
data. So this is what -- this is a recommendation. And afterwards, I cannot decide
and they cannot decide for the agency, but I think we have a fair chance that the
agency will look into this very carefully, with a positive eye. And we discussed
about 2 or 3 different possibilities of outcomes. And I think as of today, it’s too
early to say what would be the best -- not the best, the most probable outcome
because there are several outcomes. And yes, indeed, one outcome is just proceed.
One is do an additional study. You can also discuss is the study before approval or
after approval, all this, I think, again, I do not want to speak in place of the agency
because they have their own view. But I think we have a very robust file to present
that we need to really put all what we know about the drug. As you know, the
company is extremely transparent as well as we are transparent with the FDA. And
as we have already established a very good relationship. And so we will present all
of what we know about the drug and see what comes out. But there is no final
answer from our experts or from our advisers. Because, this is also -- keep in mind,
this is something which is unprecedented, in terms of what we are addressing here.
We’re addressing the huge unmet medical need. And I think this is important. So I
{00410302;1 }
24
cannot give you a better answer. So stay with us a little bit that we see more and we
have more understanding. But at the end of the day, it is the FDA who will decide.
But I think we have a good file.
68.
On August 3, 2020, Minerva released its financial results for the second quarter of
2020 on Form 10-Q with the SEC (the “2Q20 10-Q”). In this Form 10-Q, the Company stated:
Roluperidone (MIN-101)
Phase 3 Clinical Trial
On May 29, 2020, we announced that the Phase 3 trial of roluperidone to treat
negative symptoms in schizophrenia did not meet its primary (reduction in PANSS
Marder Negative Symptoms Factor Score, or NSFS) and key secondary
(improvement in the Personal and Social Performance Scale Total Score, or PSP)
endpoints.
In total, 515 patients were enrolled into the trial, and 513 patients received treatment
and were included in the safety and Intent-To-Treat population. The trial was
conducted in the United States, Europe and Israel. There were 172 patients who
received placebo, 172 patients who received roluperidone 32 mg, and 171 patients
who received roluperidone 64 mg. Demographic and baseline disease
characteristics were comparable across all treatment arms.
The results for both roluperidone doses versus placebo across both the primary and
the key secondary endpoints to Week 12 were corrected for multiplicity using the
truncated Hochberg procedure.
The primary objective of the trial was to evaluate the change from baseline to Week
12 of NSFS with 32 mg and 64 mg doses of roluperidone compared to placebo in
patients diagnosed with schizophrenia presenting with moderate to severe negative
symptoms. Neither the 32 mg nor 64 mg dose of roluperidone showed a statistically
significant separation from placebo at Week 12 (32 mg: p ≤0.256, effect size
[ES]=0.1; 64 mg: p ≤0.064, ES=0.2).
Furthermore, neither dose showed a statistically significant separation from placebo
on the key secondary endpoint, the change from baseline at Week 12 in PSP (32
mg: p ≤0.542, ES=0.1; 64 mg: nominal p ≤0.021, ES=0.3).
Although limited inferences can be drawn from this data, unadjusted statistically
significant separations from placebo were observed in NSFS at Week 4 for both
doses (32 mg: nominal p ≤0.036, ES=0.2; 64 mg: nominal p ≤0.007, ES=0.3), and
at Week 8 for the 64 mg dose (nominal p ≤0.027, ES=0.3), and the 64 mg dose was
statistically significantly different from placebo as measured by change in PSP at
{00410302;1 }
25
all other assessment timepoints (Week 4, nominal p ≤0.005, ES=0.3; Week 8:
nominal p ≤0.018, ES=0.3).
Overall, subgroup analyses by region (United States and rest of the world) and by
age groups were similar.
Roluperidone was generally well tolerated, and the incidences of patients who
reported treatment-emergent adverse events over the duration of 12 weeks of
treatment were 37% for the 64 mg group, 42% for the 32 mg group, and 33% for
placebo. Only 42 patients discontinued from the study due to adverse events, 16
(9%) in 64 mg arm, 18 (10%) in 32 mg arm, and 8 (5%) in placebo arm. Two
treatment-unrelated deaths were reported in the 32 mg treatment arm.
Patients admitted into the trial had a documented diagnosis of schizophrenia for at
least one year and been symptomatically stable for at least six months with
moderate to severe negative symptoms (>20 on the PANSS negative symptom
subscore) and stable positive symptoms. Patients without moderate to severe
symptoms of excitement/hyperactivity, suspiciousness/persecution, hostility,
uncooperativeness, or poor impulse control were recruited. We believe these
eligibility criteria represent the real-world patient population who may benefit
when the drug is used in clinical practice. In addition, patients treated with
psychotropic agents needed to undergo a wash-out period of a few days before
receiving study drug. These parameters were applied in screening the population
enrolled in the Phase 2b trial.
We believe the results obtained in the Phase 3 study expand upon the outcome of
the Phase 2b study that showed improvements in the primary endpoint and in
multiple secondary endpoints. We believe the Phase 3 study’s inability to achieve
statistically significant (adjusted for multiplicity) improvement at Week 12 on its
primary and secondary endpoints may be primarily due to a larger than expected
placebo effect. Results obtained with the 64 mg dose included an early onset of
effect and functional improvement as measured by PSP and suggest that
roluperidone merits continued investigation for the treatment of negative symptoms
in patients with schizophrenia. We are completing additional detailed analyses of
data from this trial, following which we plan to request a meeting with the U.S.
FDA to consult about the potential next steps in the development of roluperidone.
69.
In exhibits to the 2Q20 10-Q, Defendant Luthringer signed a certification similar
to the one he signed that accompanied the 2019 10-K and the 1Q20 10-Q.
70.
Also, on August 3, 2020, Minerva held an earnings call with analysts to discuss the
Company’s second quarter 2020 financial results. During this call, Defendant Luthringer stated:
{00410302;1 }
26
But I think the – so the bottom line is that we are more and more convinced that
this drug is doing what it had to do. It’s clear that in the Phase III, we had this effect
on placebo, which was more important than in the Phase IIb. And it’s basically not
a surprise, yes, because if you have a highly positive Phase IIb study, the
expectation from the PIs, the sites and even the patients or the caregiver is higher.
So this is, obviously, one explanation . . . . I’m very confident that we will have a
good meeting with the FDA.
* * *
But I think the most important of our data, and I think this is something which will
be very helpful when we are going to present all this and what we will put,
obviously, in a briefing book. But all what we will go to present to the FDA is to
really show and demonstrate that between the Phase IIb and the Phase III the
improvement we have seen with 32 and more particularly with 64-milligram is the
same between the 2 studies. We will again demonstrate that avolition is an
extremely important driver. And here, the things are very, very clear when you’re
looking to the data we have today in hand. And obviously, we will also more and
more go into the details about PSP, yes, which, as you know, is a functional
improvement. So all these pieces are fitting extremely well together and are
definitely not influenced as they have been by the placebo effect or by the placebo
inflation as the primary endpoint has been influenced. And you’re right, it's not
really a surprise because as I tried to explain before, negative symptoms is a
construct of different aspects and different dimensions. And when you’re going
more into the details, you see that, I mean, the Phase III is extremely positive and
discriminating very well treatment from placebo. So this will be the full package
we will present to the FDA.
71.
On November 2, 2020, just eight days before the Type C Meeting to be held with
the FDA, Minerva issued its third quarter 2020 financial results on Form 10-Q with the SEC (the
“3Q20 10-Q”). In the 3Q20 10-Q, the Company made similar statements to those contained in the
2Q20 10-Q, as alleged supra. In addition, the Company stated:
We have completed additional detailed analyses of data from this trial, following
which we requested a meeting with the FDA to consult about the potential next
steps in the development of roluperidone. On September 2, 2020, the FDA granted
us a Type C meeting, which is currently scheduled to take place via teleconference
on November 10, 2020. In preparation for this meeting, we have provided the Type
C Meeting Package to the FDA that contains detailed analyses of the Phase 3 trial
results and background information on roluperidone. It is possible that the FDA
could cancel or reschedule this meeting, and we do not expect to receive the official
minutes of the meeting until mid or late December 2020.
{00410302;1 }
27
72.
In exhibits to the 3Q20 10-Q, Defendant Luthringer signed a certification similar
to the one he signed that accompanied the 2019 10-K, the 1Q20 10-Q, and the 2Q20 10-Q.
73.
Also, on November 2, 2020, Minerva held an earnings call with analysts to discuss
the Company’s third quarter 2020 financial results. During this call, Minerva stated that they had
presented their materials to the FDA in September. Then Defendant Luthringer stated:
In summary, the recent Phase III data combined with all of the data accumulated
over the last few years, continue to support our belief that roluperidone can become
an important treatment for schizophrenia patients.
* * *
[W]ith all the data we have generated and we put in the briefing book, we are
extremely confident that the FDA will understand that we have really very
compelling data as you already have seen, when you combine the 2 studies, Phase
IIb and Phase III . . . . But indeed, obviously, we are anticipating any outcome, and
we are also working currently on what would be the next steps if, I mean, the FDA
is requested us to do another study. Again, we don’t expect this or we are doing all
what we can that this will not happen and we have already also anticipated,
obviously, the analysis of the extension phase or the extension part of the study,
which will end in the first quarter of next year.
74.
The statements described above in ¶¶ 64-73 were materially false and misleading
and failed to disclose material adverse facts about the Company’s business, operations, and
prospects. As discussed below, Defendants misled investors by misrepresenting and/or failing to
disclose: (i) the truth about the feedback received from the FDA concerning the “end-of-Phase 2”
meeting; (ii) that the Phase 2b study did not use the commercial formulation of roluperidone and
was conducted solely outside of the U.S.; (iii) that the failure of the Phase 3 study to meet its
primary and key secondary endpoints rendered that study incapable of supporting substantial
evidence of effectiveness; (iv) that the Company’s plan to use the combination of the Phase 2b and
Phase 3 studies would be “highly unlikely” to support the submission of an NDA; (v) that reliance
on these two trials in the submission of an NDA would lead to “substantial review issues” because
{00410302;1 }
28
the trials were inadequate and not well-controlled; and (vi) that, as a result, the Company’s public
statements were materially false and misleading at all relevant times.
The Truth Fully Emerges
75.
Before the markets opened on December 1, 2020, Minerva issued a press release in
which the Company announced the outcome of its Type C Meeting with the FDA concerning
roluperidone. In this announcement, Minerva stated that it had “received official meeting minutes
from the November 10, 2020 Type C meeting with the” FDA. In this release, Minerva disclosed
for the first time that the “FDA advised that the Phase 2b study is problematic because it did not
use the commercial formulation of roluperidone and was conducted solely outside of the United
States. In addition, FDA commented that the Phase 3 study does not appear to be capable of
supporting substantial evidence of effectiveness . . . .” Indeed, the “FDA cautioned that an NDA
submission based on the current data from the Phase 2b and Phase 3 studies would be highly
unlikely to be filed and that at a minimum, there would be substantial review issues due to the lack
of two adequate and well-controlled trials to support efficacy claims for this indication.”
76.
On this news, Minerva’s stock price fell from its November 30, 2020 closing price
of $3.89 per share to a December 1, 2020 closing price of $2.89 per share, representing a one day
drop of approximately 25.7%.
PLAINTIFF’S CLASS ACTION ALLEGATIONS
77.
Plaintiff brings this action as a class action pursuant to Rule 23 of the Federal Rules
of Civil Procedure on behalf of a class consisting of all persons and entities that purchased or
otherwise acquired Minerva securities during the Class Period (the “Class”). Excluded from the
Class are Defendants, directors and officers of the Company, as well as their families and affiliates.
{00410302;1 }
29
78.
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.
79.
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 which
predominate over questions which may affect individual Class members include:
a.
Whether Defendants violated the Exchange Act;
b.
Whether Defendants omitted and/or misrepresented material facts;
c.
Whether Defendants’ statements omitted material facts necessary to make
the statements made, in light of the circumstances under which they were
made, not misleading;
d.
Whether Defendants knew or recklessly disregarded that their statements
were false and misleading;
e.
Whether the price of the Company’s securities was artificially inflated; and
f.
The extent of damage sustained by Class members and the appropriate
measure of damages.
80.
Plaintiff’s claims are typical of those of the Class because Plaintiff and the Class
sustained damages from Defendants’ wrongful conduct alleged herein.
81.
Plaintiff will adequately protect the interests of the Class and has retained counsel
who are experienced in class action securities litigation. Plaintiff has no interests that conflict with
those of the Class.
82.
A class action is superior to other available methods for the fair and efficient
adjudication of this controversy.
FRAUD ON THE MARKET
83.
Plaintiff will rely upon the presumption of reliance established by the fraud-on-the-
market doctrine in that, among other things:
{00410302;1 }
30
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 securities traded in efficient markets;
d.
The misrepresentations alleged herein 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 the Company’s
securities between the time Defendants misrepresented or failed to disclose
material facts and the time that the true facts were disclosed, without
knowledge of the misrepresented or omitted facts.
84.
At all relevant times, the markets for the Company’s securities were efficient for
the following reasons, among others: (i) the Company filed periodic public reports with the SEC;
and (ii) the Company 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.
Plaintiff and the Class relied on the price of the Company’s securities, which reflected all
information in the market, including the misstatements by Defendants.
NO SAFE HARBOR
85.
The statutory safe harbor provided for forward-looking statements under certain
conditions does not apply to any of the allegedly false statements pleaded in this Complaint. The
specific statements pleaded herein were not identified as forward-looking statements when made.
{00410302;1 }
31
86.
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.
LOSS CAUSATION
87.
On December 1, 2020, prior to the commencement of trading, Minerva announced
the results of its November 10, 2020 Type C meeting with the FDA concerning roluperidone. On
this news, Minerva’s stock price fell from its November 30, 2020 closing price of $3.89 per share
to a December 1, 2020 closing price of $2.89 per share. This represents a one day drop of
approximately 25.7%.
88.
These revelations contradicted statements made by Defendants during the Class
Period and were a causal element of the concurrent decline in the Company’s share price.
COUNT I
(Violations of Section 10(b) of the Exchange Act and Rule 10b-5 Promulgated Thereunder
Against All Defendants)
89.
Plaintiff repeats and re-alleges each and every allegation contained above as if fully
set forth herein.
90.
During the Class Period, Defendants 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 to make the statements
made, in light of the circumstances under which they were made, not misleading.
91.
Defendants violated Section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder in that they: (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
{00410302;1 }
32
operated as a fraud and deceit upon those who purchased or otherwise acquired the Company’s
securities during the Class Period.
92.
Plaintiff and the Class have suffered damages in that, in reliance on the integrity of
the market, they paid artificially inflated prices for the Company’s securities. Plaintiff and the
Class would not have purchased the Company’s securities at the price paid, or at all, if they had
been aware that the market prices had been artificially and falsely inflated by Defendants’
misleading statements.
COUNT II
(Violations of Section 20(a) of the Exchange Act Against Defendant Luthringer)
93.
Plaintiff repeats and re-alleges each and every allegation contained above as if fully
set forth herein.
94.
Defendant Luthringer acted as a controlling person of the Company within the
meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of his high-level
positions at the Company, Defendant Luthringer had the power and authority to cause or prevent
the Company from engaging in the wrongful conduct complained of herein. Defendant Luthringer
was provided with or had unlimited access to the documents described above that contained
statements alleged by Plaintiff to be false or misleading both prior to and immediately after their
publication, and had the ability to prevent the issuance of those materials or to cause them to be
corrected so as not to be misleading.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays for relief and judgment, as follows:
A.
Determining that this action is a proper class action pursuant to Rule 23(a) and
23(b)(3) of the Federal Rules of Civil Procedure on behalf of the Class as defined herein, and a
{00410302;1 }
33
certification of Plaintiff as class representative pursuant to Rule 23 of the Federal Rules of Civil
Procedure and appointment of Plaintiff’s counsel as Lead Counsel;
B.
Awarding compensatory and punitive 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 pre-judgment and post-
judgment interest thereon;
C.
Awarding Plaintiff and other members of the Class their costs and expenses in this
litigation, including reasonable attorneys’ fees and experts’ fees and other costs and disbursements;
D.
Awarding Plaintiff and the other Class members such other relief as this Court may
deem just and proper.
{00410302;1 }
34
DEMAND FOR JURY TRIAL
Plaintiff hereby demands a trial by jury in this action of all issues so triable.
Dated: January 11, 2021
Respectfully submitted,
/s/ Daryl Andrews
ANDREWS DEVALERIO LLP
Glen DeValerio (BBO# 122010)
Daryl Andrews (BBO# 658523)
P.O. Box 67101
Chestnut Hill, MA 02467
Telephone: 617-999-6473
glen@andrewsdevalerio.com
daryl@andrewsdevalerio.com
POMERANTZ LLP
Jeremy A. Lieberman*
J. Alexander Hood II*
James M. LoPiano*
600 Third Avenue
New York, New York 10016
Telephone: (212) 661-1100
Facsimile: (212) 661-8665
jalieberman@pomlaw.com
ahood@pomlaw.com
jlopiano@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
pdahlstrom@pomlaw.com
{00410302;1 }
35
BRONSTEIN, GEWIRTZ &
GROSSMAN, LLC
Peretz Bronstein*
60 East 42nd Street, Suite 4600
New York, New York 10165
Telephone: (212) 697-6484
Facsimile: (212) 697-7296
peretz@bgandg.com
(*pro hac vice applications forthcoming)
Attorneys for Plaintiff
{00410302;1 }
36
| securities |
FqxcCocBD5gMZwczXwz2 | IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
Civil Action No.: 1:13-cv-467
CLASS ACTION
JURY TRIAL DEMANDED
§
§
§
§
§
§
§
§
§
§
§
DAVID DEBOARD, JR., individually and on
behalf of all others similarly situated,
Plaintiff,
v.
CIRCLE BLOCK OPERATORS, LLC, d/b/a
CONRAD INDIANAPOLIS,
Defendant.
ORIGINAL COMPLAINT
Comes now, David Deboard, Jr. (“Plaintiff”), on behalf of himself and all others similarly
situated and alleges as follows:
INTRODUCTION
1.
Plaintiff, David Deboard, Jr., brings this action individually and on behalf of all others
similarly situated against Circle Block Operators, LLC, d/b/a Conrad Indianapolis (“Defendant”),
alleging violations of Title III of the Americans with Disabilities Act, 42 U.S.C. § 12101 et seq., (the
“ADA”) and its implementing regulations.
2.
Plaintiff is a veteran who is disabled and requires the use of a powered wheel chair. He
brings this civil rights class action against Defendant for failing to design, construct, and/or own or
operate hotel facilities that are fully accessible to, and independently usable by, disabled people.
Specifically, Defendant's hotel, which is a place of public accommodation, has barriers to use of its pool.
Defendant's pool does not have a fixed pool lift or other acceptable means of entry to the pool for
-1-
declaration that Defendant’s hotel violates federal law and an injunction requiring Defendant to install a
fixed pool lift or other means of access in compliance with ADA requirements so that it is fully
accessible to, and independently usable by, disabled individuals. Plaintiff further requests that, given
Defendant’s historical failure to comply with the ADA’s mandate, the Court retain jurisdiction of this
matter for a period to be determined to ensure that Defendant comes into compliance with the relevant
requirements of the ADA and 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.
THE ADA AND ITS IMPLEMENTING REGULATIONS
3.
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.
4.
The ADA broadly protects the rights of individuals with disabilities in employment,
access to State and local government services, places of public accommodation, transportation, and other
important areas of American life.
5.
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.
6.
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.
7.
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.
-2-
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.
9.
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.
10.
The Access Board issued final publication of revisions to the 1991 ADAAG on July 23,
2004 (“2004 ADAAG”).
11.
On September 30, 2004, the DOJ issued an advance notice of proposed rulemaking to
begin the process of adopting the 2004 ADAAG.
12.
On June 17, 2008, the DOJ published a notice of proposed rulemaking covering Title III
of the ADA.
13.
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 36.1
JURISDICTION AND VENUE
14.
This Court has federal question jurisdiction pursuant to 28 U.S.C. §1331 and 42 U.S.C. §
15.
Plaintiff’s claims asserted herein arose in this judicial district and Defendant does
substantial business in this judicial district.
1
Though the Effective Date of the 2010 Standards was March 15, 2011, the deadline for existing pools to comply did
not become effective until January 31, 2013, at which time the 2010 Standards became enforceable through civil actions by
private plaintiffs.
-3-
judicial district in which a substantial part of the acts and omissions giving rise to the claims occurred.
PARTIES
17.
Plaintiff, David Deboard, Jr., is and, at all times relevant hereto, was a resident of Fayette
County, Indiana. Plaintiff is and, at all times relevant hereto, has been legally disabled 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. Defendant, Circle Block Operators, LLC, d/b/a Conrad
Indianapolis, is headquartered at 30 South Meridian Street, Suite 1100, Indianapolis, Indiana 46204.
Defendant is a public accommodation pursuant to 42 U.S.C. 12181(7)(A) which offers public lodging
VIOLATIONS AT ISSUE
18.
Plaintiff contacted Defendant’s hotel located at 50 West Washington Street, Indianapolis,
Indiana, 46204, on March 10, 2013, at about 5:00p.m. and spoke with George for purposes of booking a
room. Plaintiff inquired whether Defendant's hotel pool had a lift or other means of access for disabled
persons such as Plaintiff. George, Defendant's representative stated that the hotel pool did not have a lift
or other means of access.
19.
The existence of barriers to use the pool at Defendant's hotel deterred Plaintiff from
staying at Defendant's hotel. Upon information and belief, other disabled persons were deterred from
staying there or otherwise precluded from using the pool as guests due to the absence of a pool lift.
20.
As a result of Defendant’s non-compliance with the ADA, Plaintiff and the Class, unlike
persons without disabilities, cannot independently use Defendant’s pool.
21.
In violation of Section 242.2 of the 2010 ADA Standards, Defendant does not have a pool
lift or other acceptable means of entry complying with Section 1009.2.
-4-
hotels, Defendant has never had a plan or policy that is reasonably calculated to make all of its hotels
fully accessible to and independently usable by, disabled people.
23.
Plaintiff has actual knowledge of the fact that Defendant’s hotel lacks the mandatory
elements required by the 2010 Standards to make the pools fully accessible to and independently usable
by disabled people.
24.
As a disabled veteran who is required to use a powered wheelchair, Plaintiff has a keen
interest in whether public accommodations that offer public lodging services are fully accessible to, and
independently usable by, the disabled, specifically including an interest in ensuring that pools possess all
of the features required by the 2010 Standards.
25.
Plaintiff, or an agent of Plaintiff, intends to return to Defendant’s hotel to ascertain
whether it remains in violation of the ADA.
26.
Without injunctive relief, Plaintiff will continue to be unable to independently use
Defendant’s hotel pool in violation of his rights under the ADA.2
CLASS ALLEGATIONS
27.
Plaintiff brings this class action on behalf of himself and all others similarly situated
pursuant to Rules 23(a) and 23(b)(2) of the Federal Rules of Civil Procedure, on behalf of all legally
disabled individuals who have attempted to access, or will in the future attempt to access, Defendant’s
2
Plaintiff, or an agent of Plaintiff, intends to visit Defendant’s hotel periodically to monitor whether Defendant is in
compliance with the ADA’s requirements calculated to confirm that pools are fully accessible to, and independently usable
by, disabled people.
-5-
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.
29.
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.
30.
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 pool fully accessible and independently
usable as above described.
31.
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.
32.
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
33.
The allegations contained in the previous paragraphs are incorporated by reference.
34.
Defendant has discriminated against Plaintiff and the Class in that it has failed to make its
public lodging services fully accessible to, and independently usable by, individuals who are disabled in
-6-
described above.
35.
Defendant has discriminated against Plaintiff and the Class in that it has failed to remove
architectural barriers to make its lodging services fully accessible to, and independently usable by
individuals who are disabled in violation of 42 U.S.C. § 12182(b)(2)(A)(iv) and Section 242 of the 2010
Standards, as described above. Compliance with the requirements of Section 242.2 of the 2010
Standards would neither fundamentally alter the nature of Defendant’s lodging services nor result in an
undue burden to Defendant.
36.
Pursuant to Section 44 of the IRS Code, Defendant may be able to obtain a tax credit and
tax deduction where it complies with the ADA.3 The tax credit is available to businesses that have total
revenues of $1,000,000 or less in the previous tax year or 30 or fewer full-time employees. This credit
can cover 50% of the eligible access expenditures in a year up to $10,250 (maximum credit of $5000).
The tax credit can be used to offset the cost of undertaking barrier removal and alterations to improve
accessibility. The tax deduction is available to all businesses with a maximum deduction of $15,000 per
year. The tax deduction can be claimed for expenses incurred in barrier removal and alterations.4
37.
Compliance with 42 U.S.C. § 12182(b)(2)(A)(iv) and Section 242 of the 2010 Standards,
as described above, is readily achievable by the Defendant due to the low costs of installing a fixed pool
lift or lifts.5
38.
Defendant’s conduct is ongoing, and, given that Defendant has never complied with the
ADA’s requirements that public accommodations make lodging services fully accessible to, and
3 See generally Dep’t of Justice, Questions and Answers: Accessibility Requirements for Existing Swimming Pools at Hotels
and Other Public Accommodations (Mar. 1, 2013), at http://www.ada.gov/qa_existingpools_titleIII.htm.
4 Id.
5 Id. Readily achievable means that providing access is easily accomplishable without much difficulty or expense.
-7-
injunctive relief, as well as costs and attorneys’ fees.
39.
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 hotel pools be fully accessible to, and independently
usable, by disabled people is likely to recur.
PRAYER FOR RELIEF
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, and the relevant
implementing regulations of the ADA, in that Defendant took no action that was reasonably calculated
to ensure that all of its pools were fully accessible to, and independently usable by, disabled individuals;
b.
A permanent injunction pursuant to 42 U.S.C. § 12188(a)(2) and 28 CFR § 36.504 (a)
which directs Defendant to take all steps necessary to brings its pools into full compliance with the
requirements set forth in the ADA, and its implementing regulations, so that the pools are fully
accessible to, and independently usable by, disabled individuals, specifically including a pool lift as
required by Section 242.2 and 1009.2 of the 2010 Standards, and which further directs that the Court
shall retain jurisdiction for a period to be determined after Defendant certifies that all of its pools 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 fully in compliance with
c.
An Order certifying the class proposed by Plaintiff, and naming Plaintiff as a class
representative and appointing his counsel as class counsel;
-8-
e.
Payment of reasonable attorneys’ fees, pursuant to 42 U.S.C. § 12205 and 28 CFR §
36.505; and,
f.
The provision of whatever other relief the Court deems just, equitable and appropriate.
JURY DEMAND
Plaintiff demands a trial by jury of all issues so triable.
Respectfully submitted,
THE FRASHER LAW FIRM, P.C.
By:
s/ Ryan R. Frasher
Ryan R. Frasher
Dated: March 19, 2013
Respectfully Submitted,
TRAVIS & CALHOUN, P.C.
s/ Eric G. Calhoun
Eric G. Calhoun
Texas Bar No. 03638800
1000 Providence Towers East
5001 Spring Valley Road
Dallas, Texas 75244
Tel: 972.934.4100
Fax: 972.934.4101
eric@travislaw.com
THE FRASHER LAW FIRM, P.C.
s/ Ryan R. Frasher
Ryan R. Frasher (27108-49)
450 Barrister Building
155 East Market Street
Indianapolis, IN 46204
Tel: 317.634.5544
-9-
Fax: 317.630.4824
rfrasher@frasherlaw.com
ATTORNEYS FOR PLAINTIFF
AND
PROPOSED CLASS COUNSEL
-10-
| civil rights, immigration, family |
yFE4BIkBRpLueGJZMOx5 |
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
Yekusiel Stesel,
individually and on behalf of all others similarly situated,
Case No.: 7:21-cv-6916
Plaintiff,
CLASS ACTION COMPLAINT
DEMAND FOR JURY TRIAL
-v.-
Nationwide Credit, Inc.,
Defendants.
Plaintiff Yekusiel Stesel (“Plaintiff”) brings this Class Action Complaint by and through
his attorneys, Stein Saks PLLC, against Defendants Nationwide Credit, Inc. (“NCI”), 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” or “Act”) 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). Congress found 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. It 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 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, 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 Rockland.
8.
Defendant NCI is a "debt collector" as the phrase is defined in 15 U.S.C. § 1692(a)(6)
and used in the FDCPA with a service address at C T Corporation System 28 Liberty Street, New
York, NY, 10005.
9.
Upon information and belief, Defendant NCI 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 NCI sent collection letter(s);
c. attempting to collect a consumer debt;
d. showing a changing balance without explanation or reason given for the change;
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 (21) 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 officers, 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 communication to consumers, in the forms attached as Exhibit
A, violate 15 U.S.C. §§ 1692e 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 Defendant’s written communication to consumers, in the
form attached as Exhibit A, violate 15 U.S.C. §§ 1692e 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 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. 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 the above allegations as if set forth here.
20.
Some time prior to April 12, 2021, an obligation was allegedly incurred by Plaintiff
to non-party JP Morgan Chase Bank, N.A. (“Chase Bank”).
21.
The obligation arose out of a transaction in which money, property, insurance or
services of the subject transactions were incurred for personal purposes, specifically personal
22.
The alleged Chase Bank obligation is a "debt" as defined by 15 U.S.C.§ 1692a (5).
23.
Chase Bank is a "creditor" as defined by 15 U.S.C.§ 1692a (4).
24.
It appears from Defendant’s letter(s) described below that Chase Bank referred this
account to NCI for collection.
25.
Plaintiff disputes the balance allegedly owed to Chase Bank.
26.
NCI 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.
Violations – Collection Letters
27.
Defendant sent Plaintiff collection letters on or about April 12, 2021 (“First Letter”),
April 26, 2021 (“Second Letter”) and May 10, 2021 (“Third Letter”), (collectively “Letters”)
regarding the alleged debt owed to Chase Bank. See Letters attached as Exhibit A.
28.
The First Letter states that the balance is $792.38.
29.
The Second Letter states that the balance is $792.38.
30.
The Third Letter states that the balance is $760.85.
31.
None of the Letters note that the balance may change.
32.
None of the Letters explain why the balance has changed.
33.
No reason is given for why these mysterious charges have been deducted from the
account.
34.
Plaintiff did not make payment in the interim.
35.
The amounts listed in the Letters do not add up and therefore do not make sense.
36.
This leaves open the possibility that this mysterious charge could be added back, or
that an additional charge for the same or a different amount could be added for the same reason –
whatever it was – that this mysterious change happened in the first place.
37.
Because of the lack of any information foreclosing this possibility, plaintiff does not
know if the amount of his obligation is static or dynamic.
38.
Plaintiff has therefore been misled as to whether paying $760.85 will close the
account, or whether another charge, previously removed, might be added, so that more than
$760.85 would be needed to close this account.
39.
Plaintiff suspected that there was fraud involved with this collection, or that it was at
least suspect.
40.
The letter is misleading because Plaintiff could conclude that the total amount stated
as due was due at any time, when in fact it was changing.
41.
If Defendant pays the amount stated on the letter, he does not know whether the debt
has been paid in full.
42.
Defendant could still seek the add the charges that had been removed, after the letter
was sent but before the balance was paid, or sell Plaintiff’s debt to a third party, which itself could
seek those addition amounts from Plaintiff.
43.
Alternatively, in light of the amounts stated in the letter and the implication that the
charges could be changing, then if, in fact, the amounts will no longer be changing, Defendant
must so state.
44.
The letter materially misled Plaintiff because a consumer with two equal-amount
debts, one of which is decreasing and one of which will never decrease (static), will pay the static
debt first.
45.
A debt collector cannot imply or suggest that a debt is decreasing, or will continue to
decrease, when this implication is false.
46.
That false advice could incentivize the consumer not to pay the debt at a time when,
if accurately advised, he would do so.
47.
A decreasing balance is the quintessential example of an ambiguity that could cause a
consumer to not to pay as a means of taking advantage of the balance’s continuing downward
descent.
48.
Plaintiff does not know why the mysterious amount was deducted.
49.
Plaintiff does not know whether it might be added or deducted again after some period
of time if the debt remained unpaid.
50.
The letter is therefore deceptive.
51.
Plaintiff was confused by this as the total balance was changing in Defendant’s letters.
52.
Plaintiff was therefore unable to evaluate his options of how to handle this debt.
53.
Because of this, Plaintiff expended time and money in determining the proper course
of action.
54.
Due to Defendant’s actions, the funds Plaintiff could have used to pay all or part of
the alleged debt were therefore spent elsewhere.
55.
Congress is empowered to pass laws and is well-positioned to create laws that will
better society at large.
56.
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.
57.
Plaintiff was injured by Defendant’s fraud-like conduct.
58.
Plaintiff would have pursued a different course of action were it not for Defendant’s
violations.
59.
In addition, Plaintiff suffered emotional harm due to Defendant’s improper acts.
60.
These violations by Defendant were knowing, willful, negligent and/or intentional,
and Defendant did not maintain procedures reasonably adapted to avoid any such violations.
61.
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 to be not to be misled or treated unfairly with respect to
any action for the collection of any consumer debt.
62.
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.
63.
Defendant’s actions created an appreciable risk to Plaintiff of being unable to properly
respond or handle Defendant’s debt collection.
64.
Plaintiff was confused and misled to his detriment by the statements in the dunning
letter, and relied on the contents of the letter to his detriment.
65.
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.
66.
Plaintiff repeats the above allegations as if set forth here.
67.
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.
68.
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.
69.
Defendant violated said section as described above by making a false and misleading
representation and failing to note the balance was changing, in violation of §§ 1692e, 1692e (2),
and 1692e (10);
70.
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.
71.
Plaintiff repeats the above allegations as if set forth here.
72.
Alternatively, 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. §
73.
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.
74.
Defendant violated this section as described above by making false or misleading
representations.
75.
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
76. 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 Yekusiel Stesel, individually and on behalf of all others
similarly situated, demands judgment from Defendant NCI as follows:
i.
Declaring that this action is properly maintainable as a Class Action and certifying
Plaintiff as Class representative, and Eliyahu Babad, 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: August 17, 2021
Respectfully submitted,
/s/ Eliyahu Babad
By: Eliyahu Babad, Esq.
Stein Saks, PLLC
One University Plaza, Suite 620
Hackensack, NJ 07601
(201) 282-6500 ext. 121
Fax: (201) 282-6501
EBabad@SteinSaksLegal.com
Attorneys for Plaintiff
| consumer fraud |
ClfYBIkBRpLueGJZ842P | UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
JOE CHRISTIANA FOOD
DISTRIBUTORS, INC., individually and
on behalf of all other similarly situated,
Plaintiff,
Case No.
CLASS ACTION COMPLAINT
DEMAND FOR JURY TRIAL
v.
Agri Stats, Inc., Clemens Food Group,
LLC, Hormel Foods Corporation, Indiana
Packers Corporation, JBS USA, Seaboard
Foods, LLC, Smithfield Foods, Inc.,
Triumph Foods, LLC, Tyson Foods, Inc.,
Tyson Prepared Foods, Inc., and Tyson
Fresh Meats, Inc.
Defendants.
TABLE OF CONTENTS
Page
I.
NATURE OF ACTION ......................................................................................... 1
II.
JURISDICTION AND VENUE ............................................................................ 4
III.
PARTIES ............................................................................................................... 5
A.
Plaintiff ....................................................................................................... 5
B.
Defendants .................................................................................................. 5
IV.
FACTUAL ALLEGATIONS ................................................................................ 8
A.
Defendants’ anticompetitive scheme started from Agri Stats’
central role in collusion in the broiler industry. ......................................... 9
B.
After success in the broiler industry, Agri Stats markets its collusive
scheme to the swine integrators. .............................................................. 11
C.
Agri Stats provided pork integrators the unparalleled ability to
monitor pricing and production, and to discipline co-conspirators
for not complying with the collusive agreement. ..................................... 13
D.
The pork industry is nearly fully vertically integrated, which
allowed the scheme to succeed. ................................................................ 22
E.
The level of concentration in the pork industry was optimal for
Defendants’ collusive scheme. ................................................................. 23
F.
Abnormal pricing during the Class Period demonstrates the success
of the collusive scheme. ........................................................................... 26
G.
Capacity and supply restraints during the Class Period. .......................... 28
H.
Overcharges due to the cartel were reflected in higher pork prices. ........ 34
I.
Defendants actively concealed the conspiracy. ........................................ 36
V.
CLASS ACTION ALLEGATIONS .................................................................... 38
VI.
ANTITRUST INJURY ........................................................................................ 41
VII.
VIOLATION OF SECTION 1 OF THE SHERMAN ACT ............................... 42
VIII. REQUEST FOR RELIEF .................................................................................... 44
IX.
JURY TRIAL DEMANDED .............................................................................. 46
Plaintiff brings this action on behalf of itself individually and on behalf of a plaintiff
class consisting of all persons and entities who purchased pork directly from a Defendant
or co-conspirator named in this complaint in the United States from at least January 1, 2009
until the present (Class Period). Plaintiff brings this action against Defendants for
injunctive relief and treble damages under the antitrust laws of the United States, and
demands a trial by jury.
I.
NATURE OF ACTION
1.
The pork integrator-Defendants are the leading suppliers of pork in an
industry with approximately $20 billion in annual commerce. The pork industry is highly
concentrated, with a small number of large producers in the United States controlling
supply. Defendants and their co-conspirators collectively control over 80 percent of the
wholesale pork market.
2.
These Defendants, Agri Stats, Inc. (“Agri Stats”), Clemens Food Group, LLC
(“Clemens”), Hormel Foods Corporation (“Hormel”), Indiana Packers Corporation
(“Indiana Packers”), JBS USA, Seaboard Foods LLC (“Seaboard”), Smithfield Foods,
Inc. (“Smithfield”), Triumph Foods, LLC (“Triumph”), Tyson Foods, Inc., Tyson
Prepared Foods, Inc., and Tyson Fresh Meats, Inc. (“Tyson”), entered into a conspiracy
from at least 2009 to the present to fix, raise, maintain, and stabilize the price of pork.1
The principal (but not exclusive) method by which Defendants implemented and
1 For the purposes of this complaint, pork includes pig meat purchased fresh or frozen,
smoked ham, sausage and bacon. From time to time in this complaint, “pork” and “swine”
are used interchangeably, particularly when referring to the pork or swine industry.
executed their conspiracy was by coordinating their output and limiting production with
the intent and expected result of increasing pork prices in the United States. In furtherance
of their conspiracy, Defendants exchanged detailed, competitively sensitive, and closely
guarded non-public information about prices, capacity, sales volume and demand through
their co-conspirator, Defendant Agri Stats.
3.
Beginning in at least 2009, Agri Stats began providing highly sensitive
“benchmarking” reports to the majority of pork integrators. Benchmarking allows
competitors to compare their profits or performance against that of other companies. But
Agri Stats’ reports are unlike those of other lawful industry reports. Agri Stats gathers
detailed financial and production data from each of the pork integrators, standardizes this
information, and produces customized reports and graphs for the co-conspirators. The
type of information available in these reports is not the type of information that
competitors would share with each other in a normal, competitive market. Instead, the
provision of this detailed information acts as the modern equivalent of the proverbial
smoke-filled room of the cartels of yesteryear. Agri Stats collected the pork integrators’
competitively sensitive supply and pricing data and intentionally shared that information
through detailed reports it provided to the pork integrators. On a weekly and monthly
basis, Agri Stats provides the pork integrators with current and forward-looking sensitive
information (such as profits, costs, prices and slaughter information), and regularly
provides the keys to deciphering which data belongs to which producers. The effect of
this information exchange was to allow the pork integrators to monitor each other’s
production and hence control supply and price.
4.
This data exchange through Agri Stats bears all the hallmarks of the
enforcement mechanism of a price-fixing scheme. First, the data is current and forward-
looking – which courts consistently hold has “the greatest potential for generating
anticompetitive effects.”2 Second, information contained in Agri Stats reports is specific
to pork producers, including information on profits, prices, costs and production levels,
instead of being aggregated as industry averages, thus avoiding transactional specificity
and easy identification of specific producers. Third, none of the Agri Stats information
was publicly available. Agri Stats is a subscription service which required the co-
conspirators to pay millions of dollars over the Class Period – far in excess of any other
pricing and production indices. Agri Stats ensured that its detailed, sensitive business
information was available only to the co-conspirators and not to any buyers in the market.
5.
The pork producers admitted in public calls that they had discussed
production cuts at least once, and publicly signaled to each other that no supply increases
would happen.
6.
In addition, there are numerous “plus factors” in the swine industry during
the Class Period, including but not limited to multiple industry characteristics which
facilitate collusion, such as high vertical integration, high barriers to entry, high pork
industry consolidation and concentration, inelastic supply and demand, and a lack of
significant substitutes for pork.
2 Todd v. Exxon Corp., 275 F.3d 191, 2011 (2d Cir. 2001) (Sotomayor, J.) (quoting
United States v. Gypsum Co., 438 U.S. 422, 441 n.16 (1978)).
7.
Defendants’ restriction of pork supply had the intended purpose and effect
of increasing pork prices to Plaintiff and class members. Beginning in 2009, the earnings
of the integrators began to increase as they took an increasing amount of the profits
available in the pork industry. As a result of Defendants’ unlawful conduct, Plaintiff and
the classes paid artificially inflated prices for pork during the Class Period. Such prices
exceeded the amount they would have paid if the price for pork had been determined by
a competitive market. Thus, Plaintiff and class members were injured by Defendants’
conduct.
II.
JURISDICTION AND VENUE
8.
Plaintiff brings this action under Sections 4 and 16 of the Clayton Act, 15
U.S.C. §§15 and 26, for injunctive relief and to recover treble damages and the costs of
this suit, including reasonable attorneys’ fees, against Defendants for the injuries sustained
by Plaintiff and the members of the Plaintiff Class by virtue of Defendants’ violations of
Section 1 of the Sherman Act, 15 U.S.C. §1.
9.
This Court has jurisdiction under 28 U.S.C. §§ 1331, 1337, and Sections 4
and 16 of the Clayton Act, 15 U.S.C. §§15(a) and 26.
10.
Venue is appropriate in this District under Sections 4, 12, and 16 of the
Clayton Act, 15 U.S.C. §§15, 22 and 26 and 28 U.S.C. §1391(b), (c) and (d), because one
or more Defendants resided or transacted business in this District, is licensed to do business
or is doing business in this District, and because a substantial portion of the affected
interstate commerce described herein was carried out in this District.
11.
This Court has personal jurisdiction over each Defendant because, inter alia,
each Defendant: (a) transacted business throughout the United States, including in this
District; (b) manufactured, sold, shipped, and/or delivered substantial quantities of pork
throughout the United States, including this District; (c) had substantial contacts with the
United States, including this District; and/or (d) engaged in an antitrust conspiracy that was
directed at and had a direct, foreseeable, and intended effect of causing injury to the
business or property of persons residing in, located in, or doing business throughout the
United States, including this District.
12.
The activities of the Defendants and all co-conspirators, as described herein,
were within the flow of, were intended to, and did have direct, substantial and reasonably
foreseeable effects on the interstate commerce of the United States.
13. No other forum would be more convenient for the parties and witnesses to
litigate this case.
III.
PARTIES
A.
Plaintiff
14. Plaintiff Joe Christiana Food Distributors, Inc. is a Louisiana corporation
with its principal place of business in Baton Rouge, Louisiana. It purchased pork directly
from one or more Defendants during the Class Period and suffered antitrust injury as a
result of the violations alleged in this Complaint.
B.
Defendants
15. Agri Stats, Inc. is an Indiana corporation located in Fort Wayne, Indiana and
is a subsidiary of Eli Lilly & Co. Throughout the Class Period, Agri Stats acted as a co-
conspirator of Defendant Producers by facilitating the exchange of confidential,
proprietary, and competitively sensitive data among Defendants and their co-
conspirators.
16. Clemens Food Group, LLC is a limited-liability company headquartered in
Hatfield, Pennsylvania. During the Class Period, Clemens and/or its predecessors, wholly
owned or controlled subsidiaries, or affiliates sold pork in interstate commerce, directly
or through its wholly owned or controlled affiliates, to purchasers in the United States.
17. Hormel Foods Corporation is a Delaware corporation engaged in the
production of meat and food products, and the marketing of these products. Hormel
Foods is headquartered in Austin, Minnesota. During the Class Period, Hormel Foods
and/or its predecessors, wholly owned or controlled subsidiaries, or affiliates sold pork
in interstate commerce, directly or through its wholly owned or controlled affiliates, to
purchasers in the United States.
18. Indiana Packers Corporation is an Indiana corporation engaged in the
production of meat and food products, and the marketing of these products. Indiana
Packers is headquartered in Delphi, Indiana. During the Class Period, Indiana Packers
and/or its predecessors, wholly owned or controlled subsidiaries, or affiliates sold pork
in interstate commerce, directly or through its wholly owned or controlled affiliates, to
purchasers in the United States.
19. JBS USA is one of the world’s largest beef and pork processing companies
and an indirect wholly owned subsidiary of Brazilian-based JBS SA. JBS USA is a
wholly owned subsidiary of JBS USA Holdings, Inc., which holds a 78.5 percent
controlling interest in Pilgrim’s Pride Corporation, one of the largest chicken-producing
companies in the world. JBS USA is a Delaware corporation, headquartered in Greeley,
Colorado. During the Class Period, JBS USA and/or its predecessors, wholly owned or
controlled subsidiaries, or affiliates sold pork in interstate commerce, directly or through
its wholly owned or controlled affiliates, to purchasers in the United States.
20. Seaboard Foods LLC is a limited-liability company headquartered in
Shawnee Mission, Kansas. During the Class Period, Seaboard Foods LLC and/or its
predecessors, wholly owned or controlled subsidiaries, or affiliates sold pork in interstate
commerce, directly or through its wholly owned or controlled affiliates, to purchasers in
the United States.
21. Smithfield Foods, Inc. is incorporated in the Commonwealth of Virginia, and
an indirect wholly owned subsidiary of WH Group Limited, the largest pork company in
the world.3 Smithfield Foods is headquartered in Smithfield, Virginia. During the Class
Period, Smithfield Foods, Inc. and/or its predecessors, wholly owned or controlled
subsidiaries, or affiliates sold pork in interstate commerce, directly or through its wholly
owned or controlled affiliates, to purchasers in the United States.
22. Triumph Foods, LLC is a limited-liability company headquartered in St.
Joseph, Missouri. During the Class Period, Triumph Foods and/or its predecessors,
wholly owned or controlled subsidiaries, or affiliates sold pork in interstate commerce,
3
2014
Annual
Report,
WH
Group
at
175,
Smithfield,
https://www.smithfieldfoods.com/investor-relations (last visited June 26, 2018).
directly or through its wholly owned or controlled affiliates, to purchasers in the United
States.
23. Tyson Foods, Inc. is a publicly traded Delaware corporation headquartered
in Springdale, Arkansas. During the Class Period, Tyson Foods, Inc. and/or its
predecessors, wholly owned or controlled subsidiaries, or affiliates sold pork in interstate
commerce, directly or through its wholly owned or controlled affiliates, to purchasers in
the United States.
24. Tyson Prepared Foods, Inc. is a Delaware corporation headquartered in
Springdale, Arkansas and is a wholly-owned subsidiary of Tyson Foods, Inc. During the
Class Period, Tyson Prepared Foods, Inc. sold pork in interstate commerce, directly or
through its wholly-owned or controlled affiliates, to purchasers in the United States.
25. Tyson Fresh Meats, Inc. is a Delaware corporation headquartered in
Springdale, Arkansas and is a wholly-owned subsidiary of Tyson Foods, Inc. During the
Class Period, Tyson Fresh Meats, Inc. sold pork in interstate commerce, directly or
through its wholly-owned or controlled affiliates, to purchasers in the United States.
26.
Defendants Tyson Foods, Inc., Tyson Prepared Foods, Inc., and Tyson Fresh
Meats, Inc. are collectively referred to as “Tyson.”
IV.
FACTUAL ALLEGATIONS
27. Starting in at least 2009 and continuing to the present, Defendants
coordinated to fix, raise, maintain and stabilize pork prices. To effectuate and ensure the
stability of their anticompetitive agreement, Defendants relied on a unique industry data
sharing service known as Agri Stats. Agri Stats provided a means for Defendants to
obtain and monitor critical and competitively sensitive business information regarding
each other’s production metrics, thereby serving as a central and critical part of
Defendants’ price-fixing scheme, resulting in a stable and successful anticompetitive
cartel.
A.
Defendants’ anticompetitive scheme started from Agri Stats’ central role in
collusion in the broiler industry.
28. Agri Stats has played a central role in other industries, including collusion in
the broiler industry.4 As alleged in the In re Broiler Chicken Antitrust Litigation, No. 16-
cv-08637 (N.D. Ill.), the broiler producers used Agri Stats as a part of their conspiracy to
restrain production and inflate prices.
29. In the broiler industry, Agri Stats collected and disseminated to the other
members of the conspiracy disaggregated financial information (such as monthly
operating profit, sales and cost per live pound), production volumes, capacity, slaughter
information, inventory levels, and sales data for finished product form and type, amongst
other pieces of competitively sensitive business information. The Agri Stats reports
contain line-by-line entries for plants, lines, and yields of various broiler facilities. Agri
Stats relied upon (and the co-conspirators agreed to) a detailed audit process to verify the
accuracy of data from each broiler producer’s complex, sometimes directly contacting
the broiler Defendants to verify the data. Agri Stats also provided detailed price reports
to the broiler industry through its subsidiary, Express Markets, Inc. also known as EMI.
4 Broilers are chickens raised to be slaughtered before the age of 13 weeks.
Agri Stats collected data from the broiler producers on a weekly basis and provided its
reports to broiler producers on a weekly and monthly basis.
30. The detail of these reports ensured that competitors could quickly decode the
information of their purported competitors. The Broiler complaints allege it was common
knowledge that the detail of the Agri Stats reports allowed any reasonably informed
producer to discern the identity of the competitors’ individual broiler complexes. The
broiler reports, in parts, contained so few producers participating that the identities were
obvious. Other reports contained such detailed data that it could be matched with the
publicly stated aggregate data for larger broiler defendants such as Tyson. The complaints
allege that Agri Stats purposefully circulated this information to top executives to
facilitate agreement on supply, constraints, and price.
31. In the broiler industry, plaintiffs also alleged that Agri Stats – known to its
co-conspirators to be a willing and informed conduit for illicit information exchanges –
used public and semi-public forums to convey messages to industry participants that
furthered the purposes of the conspiracy by reassuring conspirators that production cuts
would continue, and by inducing them to continue to act in concert to ensure they did.
Agri Stats’ own statements in the broiler industry facilitated the implementation of the
agreement to restrict supply.
32. In denying defendants’ motions to dismiss in the In re Broiler Chicken
Antitrust Litigation, the district court noted that given the nature of the Agri Stats reports,
the defendants are in fact sharing future anticipated production information with one
another, which raise significant antitrust concerns.5
B.
After success in the broiler industry, Agri Stats markets its collusive scheme to
the swine integrators.
33. Beginning in at least 2008, Agri Stats began to propose a series of
benchmarks to the swine industry along the lines of the benchmarks used to restrict
competition in the broiler industry. Benchmarking is the act of comparing practices,
methods or performance against those of other companies.6 Benchmarking of the type
undertaken by Agri Stats and its co-conspirators here reduces strategic uncertainty in the
market and changes the incentives for competitors to compete, thereby enabling
companies to coordinate their market strategies and otherwise restrict competition. This
is especially true where benchmarking involves the exchange of commercially sensitive
information among competitors.
34. In 2008, Greg Bilbrey of Agri Stats told swine industry producers that
“Benchmarking in the swine industry could range from simple production comparisons
to elaborate and sophisticated total production and financial comparisons. Each and
5 Memorandum Opinion and Order at 11, In re Broiler Chicken Antitrust Litigation,
No. 16-cv-08637 (N.D. Ill. Nov. 20, 2017), ECF No. 541.
6 Antitrust Issues Related to Benchmarking and Other Information Exchanges, Federal
Trade
Commission
(May
3,
2011),
available
at
https://www.ftc.gov/sites/default/files/documents/public_statements/antitrust-issues-
related-benchmarking-and-other-information-exchanges/110503roschbenchmarking.pdf.
every commercial swine operation is encouraged to participate in some benchmarking
effort.”7
35. Agri Stats emphasized to pork producers that the goal of the agreement to
share information was profitability, not production, and invited pork producers again to
participate in the benchmarking. Agri Stats emphasized that “We must remember that the
ultimate goal is increasing profitability – not always increasing the level of production.”
Furthermore, Agri Stats told the industry that “[e]ach swine production company should
be participating in some type of benchmarking. To gain maximum benefit, production,
cost and financial performance should all be part of the benchmarking program.”8
36. In April 2009, Agri Stats again invited swine producers to design and operate
their own benchmarking effort. Greg Bilbrey of Agri Stats invited swine producers to
design and operate their own benchmarking effort: “Though all producers may not be
part of or fit into an Agri Stats type benchmarking program, all producers could
participate in benchmarking in some way. Commercial benchmarking opportunities are
available. Producer groups could design and operate their own benchmarking effort.”9
37. The pork producers did accept this offer and, beginning no later than 2009,
created the detailed benchmarking scheme based upon and found in the Agri Stats reports.
Defendants’ agreement was to use the exchanged benchmarking information to
7 Greg Bilbrey, Benchmarking and Cost – Production Relationships, 19 Advances in
Pork Production Journal, 43 (2008).
8 Id. at 41-46.
9 Greg Bilbrey, Benchmarking and Tools to Maximize Profit, London Swine
Conference – Tools of the Trade (April 1-2, 2009).
coordinate supply and stabilize and increase prices of pork sold in the United States, to
provide and receive information from Agri Stats, and to use this detailed sensitive
information for the purposes of monitoring each other’s production and pricing. The
agreement was successful as pork prices rose significantly after the agreement was
reached.
38. The volume of U.S. commerce in the pork industry is enormous. Total pork
sales in the United States for a portion of the Class Period were:
2016 - $18.9 billion
2015 - $21.0 billion
2014 - $26.4 billion
2013 - $23.4 billion
39. Each Defendant’s annual sales of pork products are also very large. For
example, in 2016 Smithfield reported $3.7 billion of fresh pork sales, and an additional
$5 billion in packaged pork product sales. That same year, Tyson reported $4.9 billion
in pork sales. With such enormous revenues, the ability to stabilize or increase the margin
even in small amounts has an enormous impact on profits.
C.
Agri Stats provided pork integrators the unparalleled ability to monitor
pricing and production, and to discipline co-conspirators for not complying
with the collusive agreement.
40. Agri Stats provided pork integrators with an unparalleled ability to share
critical and proprietary information concerning key business metrics, such as production
levels and short and long-term production capacity. Agri Stats was key to the formation,
operation and continuing stability of the Defendants’ anticompetitive scheme. To
effectuate their agreement, the participants had to have confidence that each member was
following through with the agreement by limiting their production and stabilizing prices.
Agri Stats served that function.
41. Each member of the conspiracy, including swine integrators and Defendants
Clemens, Hormel, Indiana Packers, JBS USA, Seaboard, Smithfield, Triumph, and
Tyson, were all Agri Stats subscribers and reported their information to Agri Stats. Agri
Stats’ parent company, Eli Lilly, stated that “over 90% of the poultry and pig market”
uses Agri Stats in the United States.10
42. Agri Stats collects participant financial and production data electronically
each month. Internal auditors convert the data, prepare it for comparison, and perform
the monthly audits. Each company’s financial data is reconciled to its general ledger to
help ensure actual costs are reported. Raw numbers are used in Agri Stats’ standardized
calculations so all company numbers are calculated the same way.11
43. Participants in the scheme received monthly detailed reports and graphs that
allow them to compare their performance and costs to other participants, the average of
all companies, the top 25 percent and the top five companies. Current month, previous
quarter and previous twelve-month periods are reported. As of 2009, each monthly report
contained nine sections for analysis and comparison: Performance Summary, Feed Mill,
Ingredient Purchasing, Weaned Pig Production, Nursery, Finishing, Wean-to-Finish,
10 Transcript, Eli Lilly and Co. at Morgan Stanley Global Healthcare Conference (Sept.
13, 2016).
11 Greg Bilbrey, Implementing Simple and Useful Production Benchmarking, London
Swine Conference – A Time for Change (March 28-29, 2012).
Market Haul, Profit and Sales.12 Participants may also receive an abbreviated Key
Performance Indicator report, as well as, historical graphs.13
44. Because of the nature of the life of a hog, even current and historical
information regarding the production numbers of hogs provides forward-looking supply
information to competitors. The typical hog production cycle lasts about 4 years. This is
a function of the hog biological cycle. Given the length of time needed to breed an
existing sow, choose and retain offspring for breeding, and breed and rear the resulting
crop of piglets, it takes nearly 2 years to substantially increase production.
45. One presentation from Agri Stats shows the level of detail provided to
competitors regarding profits in the pork market:14
12 Greg Bilbrey, Benchmarking and Tools to Maximize Profit, supra note 9.
13 Greg Bilbrey, Benchmarking and Cost-Production Relationships, supra note 8.
14 Greg Bilbrey, Key Drivers to Farm Profitability (2011).
46. The purpose of these reports was not to provide better prices to customers or
to lower the costs of production. Instead, the purpose was to improve the profitability of
the co-conspirators. The particular Agri Stats report referenced above shows the ranking
of each company in profitability, and compares the company to its competitors by
providing the variance from the average. On information and belief, the Agri Stats report
actually circulated to competitors contained even further detail. The same presentation
informed pork integrators that one of the “Advantages for Top 25% in Profit” was the
“Sales Price: $2 - $6/ckg.” (ckg refers to 100 kilograms.) This underlines that the purpose
of these reports was not to allow customers to save more money through lower prices and
more efficient production – in fact, the opposite was true, the purpose was the profitability
of the Defendant companies and the impact was higher prices for pork customers.
47. Much of the information shared by Agri Stats and the other Defendants was
unnecessary to achieve any benefits for customers. Exchanging individual company data
(particularly current data on prices and costs) is not required to achieve major
efficiencies.15
48. Agri Stats knew that it played a central role in this conspiracy. Agri Stats
repeatedly touted its role in standardizing the costs across companies – allowing the
companies to compare the “apples to apples” of its data analysis among competitors. One
presentation from Agri Stats spoke directly on this point, pointing out to industry
participants that they could not undertake such a detailed cost analysis among competitors
without Agri Stats auditing and standardizing the data:16
15 FTC Roundtable on Information Exchanges Between Competitors Under
Competition Law Organization for Economic Cooperation and Development, (Oct. 21,
2010) at 6, https://www.ftc.gov/sites/default/files/attachments/us-submissions-oecd-and-
other-international-competition-fora/1010informationexchanges.pdf.
16
Greg
Bilbrey,
Data
Integrity,
Slideshare.net
(Sept.
21,
2015),
https://www.slideshare.net/trufflemedia/greg-bilbrey-data-integrity-using-records-for-
benchmarking-and-operations.
49. Agri Stats stated that to ensure data contained in the reports was accurate, the
participants had to “agree on calculation and data collection procedures,” they must
“[d]etermine tolerance and outlier status and enforce,” they must “[h]ave an
administrator to compile the data and enforce procedures,” and most importantly, “[e]ach
participant has to commit.”17
50. In addition to these reports, Agri Stats’ account managers conducted on-site
live reviews to assist with report utilization and analysis.18 The information provided by
Agri Stats was so detailed that clients frequently requested the site visits by Agri Stats
employees to assist the co-conspirators in understanding the intricacies and implications
of the data. Agri Stats’ employees each possessed expertise in a specific area of
17 Id.
18 Greg Bilbrey, Benchmarking and Tools to Maximize Profit, supra note 9.
production, and the value added by their insights was as important to the producers as the
data in the books.
51. In May 2015, a subsidiary of Agri Stats, Express Markets, announced that it
was adding its market analysis of pork to its product offerings in order to meet the broad
information and knowledge needs of its customers. Express Markets started providing its
extensive pricing reports to broiler producers in 2003.19
52. By providing detailed production statistics by producer, Agri Stats allowed
each member of the conspiracy to monitor each other’s ongoing adherence to agreed-
upon plans for coordinated production limits. Critically, Agri Stats provided forward-
looking data that allowed the other Defendants to determine each other’s future
production in addition to their current production.
53. Agri Stats reports are organized by company and facility, but the producers’
names are not listed in the reports. Nevertheless, while nominally anonymous, the reports
contain such detailed figures covering every aspect of pork production and sales that
producers can accurately identify the companies behind the metrics. For example, long-
time industry insiders are sufficiently familiar with each other to identify unique but
recurring data points for other companies, as well as identify the other companies by
general metrics and size.
19 Steve Meyer, Paragon Economics Sold to Express Markets, National Hog Farmer,
May 26, 2015, available at http://www.nationalhogfarmer.com/marketing/paragon-
economics-sold-express-markets.
54. Moreover, Agri Stats knew that the anonymity of its system was
compromised by individuals who had gleaned knowledge of competitors’ identification
numbers, but reassigning numbers was an arduous undertaking the company was not
eager to embark on.
55. Suppliers received as many as one dozen books of data at the end of each
quarter, augmented by smaller monthly update books featuring the latest year-to-date
information. Within these smaller monthly books, each supplier’s own rows of year-to-
date numbers were highlighted. In the front of each book, there were also markings
indicating whose numbers were inside the book. The front of the book also included
information indicating which other companies were represented in the data, though which
number represented each competitor was not revealed.
56. Agri Stats mailed the reports to customers. On occasion, Agri Stats shipped
a producer’s book to one of its competitors. At times, suppliers just kept their
competitors’ books for future reference, which as noted above revealed the identity of
that producer given that their numbers were highlighted by Agri Stats in their books.
57. Likewise, mobility within the meat production industries led to a situation
where many workers at most pork production operations knew the numbers of other
regional facilities, removing any anonymization of the data which may have existed. Agri
Stats would hire industry participants to work in its offices, and then they would return
to the industry knowing each of the allegedly “anonymous” numbers. Those working at
Agri Stats were aware of this fact, but did nothing to address it.
58. Agri Stats’ critical importance for a collusive scheme in the pork industry
lies not only in the fact that it supplies the data necessary to coordinate production
limitations and manipulate prices, but also in its stabilizing power. Anticompetitive
cartels are subject to inherent instability in the absence of policing mechanisms, as each
individual member of the cartel may have incentive to cheat on other members of the
cartel, for example by ramping up pork production to capture higher prices as other cartel
members limit production. Agri Stats’ detailed production statistics serve as an
indispensable monitoring function, allowing each member of the cartel to police each
other’s production figures (which were trustworthy because they had been verified) for
signs of cheating.
59. In a February 15, 2017 Bloomberg article relating to Agri Stats’ roles in the
broiler industry, it was reported:
Peter Carstensen, a law professor at the University of
Wisconsin and former Justice Department antitrust lawyer who
has studied Agri Stats while researching the modern poultry
industry, casts the level of plant-by-plant detail in the
company’s reports as “unusual.” He explains that information-
sharing services in other industries tend to deal in averaged-out
aggregated data—for example, insurance rates in a given state.
Such services run afoul of antitrust law, he says, when they
offer projections or provide data so detailed that no competitor
would reasonably share it with another. Getting detailed
information is a particularly useful form of collusion,
Carstensen says, because it allows co-conspirators to make
sure they’re all following through on the agreement. “This is
one of the ways you do it. You make sure that your co-
conspirators have the kind of information that gives them
confidence—so they can trust you, that you’re not cheating on
them,” he says. “That is what creates stability for a cartel.”20
D.
The pork industry is nearly fully vertically integrated, which allowed the
scheme to succeed.
60. The pork production industry is almost completely vertically integrated, with
four major producers controlling 75 percent of pork integration. Very large pork
producers are commonly characterized as “contractors” or “integrators” who contract
production of their hogs out to independent growers.21 Integration is so pervasive that
major producers are commonly called pork or swine integrators by the industry,
government, analysts and academics.
61. In 2014, Smithfield had approximately 500 company-owned farms and
approximately 2,190 contract farms in the United States. Smithfield described its
arrangement with contract farms as follows:
Under our contract farm arrangements, contract farmers
provide the initial facility investment, labor and frontline
management in exchange for fixed service fees to raise hogs
produced from our breeding stock under agreements typically
ranging between five and ten years. We retain ownership of the
hogs raised by our contract farmers. In 2014, approximately
76% of Smithfield’s hogs produced in the U.S. were finished
on contract farms.22
62. Fully integrated companies have broad control over production processes,
and near-total operational discretion in deciding how much to produce and when. As is
20 Christopher Leonard, Is the Chicken Industry Rigged, Bloomberg, (Feb. 15, 2017),
https://www.bloomberg.com/news/features/2017-02-15/is-the-chicken-industry-rigged.
21 Vertical Integration in the Pork Industry, University of Oregon (July 2005).
22 Smithfield Foods Annual Report, at 27 (2014).
clear from Smithfield’s annual report, under these arrangements, the pork integrators pay
only fixed service fees to the farmers, who bear all of the investment costs of the hog-
raising facilities. The pork integrator, here Smithfield, retains ownership of the hogs at
all points in time. This arrangement essentially converts independent farmers that own
their livestock into contract employees that perform services for the pork-packing
industry.
E.
The level of concentration in the pork industry was optimal for Defendants’
collusive scheme.
63. Prior to and in the beginning of the Class Period, the pork industry underwent
a period of unprecedented concentration, resulting in a small number of pork integrators
controlling a large amount of market share. Between 1988 and 2015, the top four pork
integrators (Smithfield, Tyson, JBS and Hormel) increased their market share from 34
percent in 1988 to just under 70 percent by 2015. The top eight integrators had market
share of well over 80 percent for the entire Class Period:
Figure 1: Market Share of Top 8 Pork Integrators 1991 to 2017
64. The hog production sector is horizontally concentrated (only a few
companies buy, slaughter and process the majority of hogs) and vertically integrated
(pork packers have tight contractual relationships with hog producers throughout all
stages of production). Meatpacking concentration levels are among the highest of any
industry in the United States, and well above levels generally considered to elicit non-
competitive behavior and result in adverse economic performance.
65. In July 2015, JBS USA announced it would acquire Cargill’s pork business
for $1.45 billion. The acquisition joined the third and fourth largest pork packing
companies to surpass Tyson and became the second largest hog processor in the United
States, behind only Smithfield.
66. The acquisition was completed in October 2015 and resulted in further
consolidation in the industry. The resulting pork business had pro forma net revenue of
approximately US$6.3 billion, and a processing capacity of about 90,000 hogs per day
and two million pounds of bacon per week.23 After the acquisition closed, the new JBS-
Cargill entity was twice as large as the next largest pork integrator (Hormel) and four
times larger than the fifth and sixth largest firms (Triumph and Seaboard, each with under
five percent of the national slaughter capacity).24
67. Barriers to entry kept competitors out of the pork packing industry. New
entry into pork processing is costly and time consuming. Construction of a large-scale
slaughter facility would take hundreds of millions of dollars and the additional planning,
design and permitting costs are substantial. In 2012, it cost Cargill $25 million just to
expand an existing facility. Building a facility from scratch would be considerably
more.25
68. The concentration level in the pork industry was optimal for collusion. WH
Group Limited, the parent company of Smithfield, characterized the U.S. market pork
23 JBS Concludes Cargill Pork Acquisition (Oct. 30, 2015).
24 Anticompetitive Impacts of Proposed JBS-Cargill Pork Acquisition, at 4 (White
Paper).
25 Id. at 7.
industry as “relatively mature and concentrated.”26 Both of these factors – maturity and
concentration – make an industry more susceptible to collusion.
69. The level of concentration in the pork industry therefore rested in an ideal
zone for collusion. Because the industry was dominated by a relative handful of
integrators, it was feasible to manipulate price through an agreement among the relatively
few dominant players, whose market power greatly simplified the organizational
complexity of the price-fixing agreement. Further, because none of the largest producers
were capable of independently controlling price through their own production, such an
agreement was necessary to inflate price.
F.
Abnormal pricing during the Class Period demonstrates the success of the
collusive scheme.
70. Beginning in 2009, the pork industry showed abnormal price movements.
According to aggregate prices published by the USDA, the hog market year average price
was at or below $50 every year between 1998 and 2009, before increasing to $76.30 in
2015. The following graph shows the unprecedented increase in swine prices beginning
in 2009, and staying elevated through 2018:
26 WH Group Interim Report, at 5 (2017).
Figure 2: Average Hog Wholesale Prices in Cents per lb., 2000-2018
As this figure demonstrates, pork wholesale prices increased in 2009 and 2014, and
continuously remained at this higher level compared to the years prior to 2009.
71. Publicly available (albeit aggregated data) also shows that during this period,
whole price variation/risk was almost entirely shouldered by farmers, while the pork
integrators’ earnings increased steadily over the years 2009 to 2017, with a slight decline
in 2017:
Figure 3: Integrators and Farmers (Growers) Earning per Retail weight, 2000-2017
G.
Capacity and supply restraints during the Class Period.
72. As demonstrated in the following chart, at several points during the Class
Period, the pork integrators acted in a concerted way to decrease supply. In 2009, 2010,
and again in 2013, the pork industry cut production. (The production dip in 2014 reflected
the adverse impacts from the deadly pig disease, porcine epidemic diarrhea virus, which
took place in the spring and summer of 2014.) The decreases in production largely
occurred after decrease in pork wholesale prices:
Figure 4: U.S. Annual Commercial Hog Production by Weight, 2000-2017
73. In public earnings calls, Defendants made statements regarding their
intentions to either stabilize or decrease supply (although gave false reasons for this
stabilization). For example, in May 2009, Larry Pope, the CEO and President of
Smithfield, stated:
In terms of chronology of how I say we proactively managed
this business, in February of last year--February of ‘08, not
February of ‘09--we made the decision with the over-supply
of livestock to take the leadership position and start reducing
our sow herds because we saw the overproduction and the
oversupplies of the hogs into the market, which was driving
our hog market down. We started a reduction of 50,000 sows
and 1 million of our 18 million pigs, we started taking out of
the system.27
74. In May 2009, Hormel confirmed that “[w]e see a contraction in the overall
supply of hogs for the year but not as much as we’d originally anticipated. And I would
expect that prices will be somewhat less than last year, but higher than what we’ve seen
in the first half of the year.”28
75. In June 2009, the CEO of Smithfield stated that the current cuts were not
enough and more were needed to “fix” the hog industry and that “[s]omebody else has
got to do something”:
One of the things that we’re doing is managing what you can
do and the 3% relates to one of our operations and it’s our --
I’ll tell you, it’s our Texas operation that sells pigs to seaboard.
Seaboard knows that. . . . That 3%, let me say that, our 3%
will not fix the hog industry. That part I’m confident of.
Somebody else has got to do something. We cut 13%. The first
10% didn’t fix it. I don’t think us going from 10 to 13 is going
to fix the hog business.29
76. In September 2009, the CEO of Smithfield stated that he had conversations
with “sizable large producers” and that they would be doing some liquidation:
We can’t solve the problem. But the answer to that is yes, I
have had conversations with several sizable, more than
sizable large producers, in fact very large producers, and I
would tell you they are doing some liquidation. But again, I
don’t think they can solve it.
27 Smithfield Foods at BMO Capital Markets Agriculture, Protein & Fertilizer
Conference – Final (May 13, 2009).
28 Q2 2009 Hormel Foods Corporation Earnings Conference Call – Final (May 21,
2009).
29 Q4 2009 Smithfield Foods Earnings Conference Call – Final (June 16, 2009).
I think this industry has got to solve it collectively. I do believe
everyone is now looking, and when I’m talking to people who
are financially extremely strong and they are cutting back,
that’s got to be a statement about those people who are not
financially strong. But the answer is, yes, there are others
cutting back. We’re not the only one.30
77. In March 2010, when asked about fourth quarter and 2011 volumes for pork,
Larry Pope, the CEO of Smithfield, indicated that further cuts were still to come:
Hog volumes for the rest of the fiscal year. That’s going to have
the impact starting next fiscal year when there is going to be
13,000 less. But I think we’ll pick up some of that in our other
operations. But I think 8,000 or 9,000 or 10,000 of those a day
will disappear from our operations and that represents about
8% of our, 8% of the hogs will be down. That’s for also the
fresh pork side.31
78. The pork producers acknowledged access to information that allowed them
to know that the supply of pork would not be increasing. For example, in December 2010,
Larry Pope, the CEO of Smithfield, stated:
We certainly compare ourselves to our competitors as best we
can. Given the information we think we have public plus what
we think we know privately, how many they kill, what their
processing levels are and things like to. This is information
you may not quite have. And we have been certainly impressed
with how our competitors have been able to achieve margins
that we have not been able to achieve because our fresh pork
competes very competitively with theirs.32
30 Event Brief of Q1 2010 Smithfield Foods Earnings Conference Call (Sept. 8, 2009).
31 Event Brief of Q3 2010 Smithfield Foods Earnings Conference Call – Final (Mar.
11, 2010).
32 Event Brief of Q2 2011 Smithfield Foods Earnings Conference Call – Final (Dec.
2010).
Smithfield had access to competitively sensitive information from its competitors through
the Agri Stats reports, which allowed it to know confidential supply information from its
competitors.
79. Supply level information regarding competitors allowed them to know that
supply would not increase in the future, given the lifecycles of the animals. In February
2011, Tyson’s chief operating officer (COO) stated:
I think there is still a widely held belief that our Beef and Pork
profitability isn’t sustainable. I want to again explain why we
don’t believe that is true. If we look at supply, current cattle
and hogs production levels can’t change much in 2011 because
of the limits of the animals’ lifecycles.
Again, the way to know the level of production in the industry would be through the
provision of competitively sensitive information by a competitor of Tyson.
80. In the face of ever-increasing margins, when asked whether the type of
profits would continue, in March 2011, Smithfield publicly signaled to its competitors
that it would not increase capacity, even in the face of the clear profitability:
LARRY POPE: We closed last night at nearly $64 for hogs.
Yet we are projecting over the next 90 days we will be up
another 20% from that. I mean those are big numbers to get the
meat prices in the retail and food service case to cover that. . .
.
HEATHER JONES: So you are just striking a note of caution
because you know it can’t stay this way indefinitely; but it’s
not that you foresee this reversion to that norm over the near
term?
BO MANLY: I don’t see it on the horizon, on the foreseeable
horizon. We are still going to have -- should have good
margins, but I can’t believe --
LARRY POPE: Heather, we are sitting here today, we are
halfway -- closing in on halfway through our fourth quarter,
and we have had very good margins through February and
March, through today. We have got double-digit margins
today.
BO MANLY: It will correct itself over the long run, because
this type of return on investment would attract capital, would
attract expansion, and we kill more pigs and drive the margins
lower. So it will either happen by itself or someone is going to
build a plant.
HEATHER JONES: All right, okay. Thank you.
LARRY POPE: You get two-year visibility on that, though.
You get to know when somebody is building a plant because
they have got to file for a permit and they have actually got to
build the thing. . . . And by the way, we are not going to build
a new plant to expand capacity.33
81. In March 2012, the VP of Finance and chief accounting officer of Smithfield
stated that no one in the industry would be “real excited about adding capacity” when the
losses of 24 to 36 months ago were considered:
Nonetheless, you see some pretty significant fluctuations. Just
two weeks ago, I think we had -- there were rumors the Chinese
buying corn, and boom, all of a sudden the corn market is up
$0.20, $0.30. So there is some volatility there. And what I
would tell you is that keeps a lid on pork production. The pork
guys in the United States have not forgotten 24 or 36 months
ago when there were significant losses in the industry. There
is no one going to be real excited about adding capacity,
adding sows at a time when we've got such volatility.34
33 Event Brief of Q3 2011 Smithfield Foods Earnings Conference Call – Final (Mar.
2011).
34 Smithfield Foods at Barclays Bank High Yield Bond and Syndicated Loan
Conference – Final (Mar. 26, 2012).
H.
Overcharges due to the cartel were reflected in higher pork prices.
82. The USDA has stated that high levels of market concentration allow the
largest participants to extract more of the economic value from food transactions, but
“consumers typically bear the burden, paying higher prices for goods of lower quality.”35
83. The Bureau of Labor Statistics tracks commonly purchased products in its
Consumer Price Index (CPI). Those prices show that the retail price of pork has increased
substantially for consumers over the Class Period. For example, the price of a pound of
bacon has increased from $3.57 at the end of 2009 to $5.60 at the end of 2017:
Figure 5: CPI-Average Price Data for Bacon, Sliced, per pound, from 1995-2017
35 John King (USDA), Concentration and Technology in Agricultural Input Industries,
at 2 (March 2001).
84. Similarly, the CPI index for other pork products, excluding canned ham and
luncheon slices, show a marked increase over the Class Period, moving from $2.05 per
pound at the end of 2009 to $2.65 at the end of 2017:
Figure 6: CPI-Average Price Data for Other Pork, per pound, from 1995-2017
85. And the CPI index for another commonly purchased consumer item, ham,
shows an increase from $2.15 at the end of 2009 to $2.91 at the end of 2017:
Figure 7: CPI-Average Price Data for Ham, per pound, from 1995-2017
86. Given these market conditions, the overcharge due to Defendants’
anticompetitive agreement to stabilize the price and supply of pork was borne in large
part by Plaintiff and the Plaintiff Class.
I.
Defendants actively concealed the conspiracy.
87. Throughout the Class Period, Defendants effectively, affirmatively, and
fraudulently concealed their unlawful combination and conspiracy from Plaintiff and
class members.
88. The combination and conspiracy alleged herein was fraudulently concealed
by Defendants by various means and methods, including, but not limited to secret
meetings, surreptitious communications between Defendants by the use of the telephone
or in-person meetings in order to prevent the existence of written records, limiting any
explicit reference to competitor pricing or supply restraint communications on
documents, communicating competitively sensitive data to one another through Agri
Stats - a “proprietary, privileged, and confidential” system that kept both the content and
participants in the system secret, and concealing the existence and nature of their
competitor supply restraint and price discussions from non-conspirators (including
customers).
89. In 2009, the President of Agri Stats, Bryan Snyder, commented on how
secretive the true nature of Agri Stats was when he stated:
Agri Stats has always been kind of a quiet company. There’s
not a whole lot of people that know a lot about us obviously
due to confidentiality that we try to protect. We don’t
advertise. We don’t talk about what we do. It’s always kind of
just in the background, and really our specialty is working
directly with companies about their opportunities and so
forth.36
90. At the same 2009 presentation, when discussing “bottom line numbers” (a
company’s net earnings), Mr. Snyder declined to display those numbers publicly, stating
“I’m not going to display the actual bottom line to the group here just because of the
confidentiality nature of the information.”37 And yet, despite refusing to show this
information publicly, competitors were provided with the “bottom line numbers” of their
competitors on a regular basis via the reports discussed above. These statements acted
to conceal the true detail and nature of the Agri Stats reports from Plaintiff and the public
in general.
91. At other times, producers attributed the stability in the pork market to other
reasons such as “good programs with our retailers” and “lower grain costs.” As Larry
Pope, the CEO Of Smithfield stated in June 2012:
KEN ZASLOW: What evidence do you have to actually give
you some confidence that fresh pork margins will improve
sequentially throughout the year?
LARRY POPE: Strong exports, $71 hog today, good programs
with our retailers, and lower grain cost in the future and a
futures market that says the hog market's going to be fine. I
guess beyond that, you've got chicken and beef that are going
to be down significantly.
36 Sanderson Farms Investor Day – Final (Oct. 2009).
37 Id.
BO MANLY: And I think there is also some optimism that the
US consumer may have some greater disposable income from
less gasoline prices and improvement in the economy.38
92. By virtue of the fraudulent concealment of their wrongful conduct by
Defendants and all of their co-conspirators, the running of any statute of limitations has
been tolled and suspended with respect to any claims and rights of action that Plaintiff
and the other class members have as a result of the unlawful combination and conspiracy
alleged in this complaint.
V.
CLASS ACTION ALLEGATIONS
93.
Plaintiff brings this action on behalf of itself and as a class action under the
provisions of Rule 23(a), (b)(2) and (b)(3) of the Federal Rules of Civil Procedure on behalf
of the members of the following Plaintiff Class:
All persons who purchased pork directly from any of the Defendants
or any co-conspirator identified in this action, or their respective
subsidiaries or affiliates for use or delivery in the United States from
at least as early as January 1, 2009 until the Present. Specifically
excluded from this Class are the Defendants; the officers, directors or
employees of any Defendant; any entity in which any Defendant has
a controlling interest; and any affiliate, legal representative, heir or
assign of any Defendant. Also excluded from this Class are any
federal, state or local governmental entities, any judicial officer
presiding over this action and the members of his/her immediate
family and judicial staff, any juror assigned to this action, and any co-
conspirator identified in this action.
94.
Class Identity: The Plaintiff Class is readily identifiable and is one for which
records should exist.
38 Event Brief of Q4 2012 Smithfield Foods Earnings Conference Call – Final (June 14,
2012).
95.
Numerosity: Plaintiff does not know the exact number of class members
because such information presently is in the exclusive control of Defendants. Plaintiff
believes that due to the nature of the trade and commerce involved, there are thousands of
Class members geographically dispersed throughout the United States, such that joinder of
all class members is impracticable.
96.
Typicality: Plaintiff’s claims are typical of the claims of the members of the
Plaintiff Class because Plaintiff purchased pork directly from one or more of the
Defendants, and therefore Plaintiff’s claims arise from the same common course of conduct
giving rise to the claims of the members of the Class and the relief sought is common to
the Class.
97.
Common Questions Predominate: There are questions of law and fact
common to the Class, including, but not limited to:
A.
Whether Defendants and their co-conspirators engaged in an
agreement, combination, or conspiracy to fix, raise, elevate, maintain,
or stabilize prices of pork sold in interstate commerce in the United
States;
B.
The identity of the participants of the alleged conspiracy;
C.
The duration of the conspiracy alleged herein and the acts performed
by Defendants and their co-conspirators in furtherance of the
conspiracy;
D.
Whether the alleged conspiracy violated the antitrust laws;
E.
Whether the conduct of Defendants and their co-conspirators, as
alleged in this Complaint, caused injury to the business or property of
the Plaintiff and the other members of the class;
F.
The effect of Defendants’ alleged conspiracy on the prices of pork
sold in the United States during the Class Period;
G.
Whether Plaintiff and other members of the classes are entitled to,
among other things, injunctive relief and if so, the nature and extent
of such injunctive relief; and
H.
The appropriate class-wide measure of damages.
These and other questions of law or fact which are common to the members of the Class
predominate over any questions affecting only individual members of the Plaintiff Class.
98.
Adequacy: Plaintiff will fairly and adequately protect the interests of the
Class in that Plaintiff’s interests are aligned with, and not antagonistic to, those of the other
members of the Class who directly purchased pork and Plaintiff has retained counsel
competent and experienced in the prosecution of class actions and antitrust litigation to
represent itself and the Class.
99.
Superiority: A class action is superior to other available methods for the fair
and efficient adjudication of this controversy since individual joinder of all damaged Class
members is impractical. Prosecution as a class action will eliminate the possibility of
duplicative litigation. The relatively small damages suffered by individual Class members
compared to the expense and burden of individual prosecution of the claims asserted in this
litigation means that, absent a class action, it would not be feasible for Class members to
seek redress for the violations of law herein alleged. Further, individual litigation presents
the potential for inconsistent or contradictory judgments and would greatly magnify the
delay and expense to all parties and to the court system. Therefore, a class action presents
far fewer case management difficulties and will provide the benefits of unitary
adjudication, economy of scale and comprehensive supervision by a single court.
100. The Class is readily definable and is one for which records likely exist in the
files of Defendants and their co-conspirators.
101. The prosecution of separate actions by individual Class members would
create the risk of inconsistent or varying adjudications, establishing incompatible standards
of conduct for Defendants.
102. Defendants have acted on grounds generally applicable to the Class, thereby
making final injunctive relief appropriate with respect to the Class as a whole.
VI.
ANTITRUST INJURY
103. Defendants’ anticompetitive conduct had the following effects, among
others:
A.
Price competition has been restrained or eliminated with respect to
pork;
B.
The prices of pork have been fixed, raised, stabilized, or maintained
at artificially inflated levels;
C.
Direct purchasers of pork have been deprived of free and open
competition; and
D.
Direct purchasers of pork paid artificially inflated prices.
104. The purpose of the conspiratorial conduct of the Defendants and their co-
conspirators was to raise, fix, or maintain the price of pork and, as a direct and foreseeable
result. Plaintiff and the Classes paid supra-competitive prices for pork during the Class
Period.
105. By reason of the alleged violations of the antitrust laws, Plaintiff and the
Classes have sustained injury to their businesses or property, having paid higher prices
for pork than they would have paid in the absence of Defendants’ illegal contract,
combination, or conspiracy and as a result have suffered damages.
106. This is an antitrust injury of the type that the antitrust laws were meant to
punish and prevent.
VII. VIOLATION OF SECTION 1 OF THE SHERMAN ACT
107. Plaintiff incorporates by reference the allegations in the preceding
paragraphs.
108. Defendants and all of their co-conspirators entered into and engaged in a
combination or conspiracy in unreasonable restraint of trade in violation of Section 1 of
the Sherman Act, 15 U.S.C. § 1.
109. Defendants’ acts in furtherance of their combination or conspiracy were
authorized, ordered, or done by their officers, agents, employees, or representatives while
actively engaged in the management of Defendants’ affairs.
110. At least as early as January 1, 2009, and continuing until present, the exact
dates being unknown to Plaintiff, Defendants and all of their co-conspirators entered into
a continuing agreement, understanding and conspiracy in restraint of trade to fix, raise,
stabilize, and maintain prices for pork, thereby creating anticompetitive effects.
111. Defendants’ anticompetitive acts had a direct, substantial, and foreseeable
effect on interstate commerce by raising and fixing prices for pork throughout the United
112. The conspiratorial acts and combinations have caused unreasonable
restraints in the market for pork.
113. As a result of Defendants’ unlawful conduct, Plaintiff and the members of
the Class have been harmed by being forced to pay inflated, supracompetitive prices for
114. In formulating and carrying out the alleged agreement, understanding and
conspiracy, Defendants and all of 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 in this Complaint. Defendants’ conspiracy had the following effects, among
others:
A.
Price competition in the market for pork has been restrained,
suppressed, and/or eliminated in the United States;
B.
Prices for pork sold by Defendants, their divisions, subsidiaries, and
affiliates, and all of their co-conspirators have been fixed, raised,
stabilized, and maintained at artificially high, non-competitive levels
throughout the United States; and
C.
Plaintiff and members of the Class who directly purchased pork from
Defendants, their divisions, subsidiaries, and affiliates, and all of their
co-co-conspirators, have been deprived of the benefits of free and
open competition in the purchase of pork.
115. Defendants took all of the actions alleged in this Complaint with the
knowledge and intended effect that their actions would proximately cause the price of pork
to be higher than it would be but for Defendants’ conduct.
116. As a direct and proximate result of Defendants’ anticompetitive conduct,
Plaintiff and members of the Class have been injured in their business or property and will
continue to be injured in their business and property by paying more for pork than they
would have paid and will pay in the absence of the conspiracy.
117. The alleged contract, combination, or conspiracy is a per se violation of the
federal antitrust laws.
VIII.
REQUEST FOR RELIEF
WHEREFORE, Plaintiff demands judgment against Defendants as follows:
118. 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, appoint
Plaintiff as Class Representative and its counsel of record as Class Counsel, and direct that
at a practicable time notice of this action, as provided by Rule 23(c)(2) of the Federal Rules
of Civil Procedure, be given to the Class;
119. The unlawful conduct, 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; and
B.
A per se violation of Section 1 of the Sherman Act;
120. Plaintiff and the Class recover damages, to the maximum extent allowed
under federal antitrust laws, and that a joint and several judgment in favor of Plaintiff and
the members of the Class be entered against Defendants in an amount to be trebled under
U.S. antitrust laws;
121. 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,
conspiracy, or combination alleged herein, or from entering into any other 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;
122. 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 sharing of highly
sensitive competitive information that permits individual identification of company’s
information;
123. Plaintiff and the members of the Class 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;
124. Plaintiff and the members of the Class recover their costs of suit, including
reasonable attorneys’ fees, as provided by law; and
125. Plaintiff and the members of the Class have such other and further relief as
the case may require and the Court may deem just and proper.
IX. JURY TRIAL DEMANDED
126. Plaintiff demands a trial by jury, pursuant to Rule 38(b) of the Federal Rules
of Civil Procedure, of all issues so triable.
Dated: August 16, 2018
s/ W. Joseph Bruckner
W. Joseph Bruckner (MN #0147758)
Elizabeth R. Odette (MN #0340698)
Brian D. Clark (MN #0390069)
Arielle S. Wagner (MN #0398332)
LOCKRIDGE GRINDAL NAUEN P.L.L.P.
100 Washington Avenue South, Suite 2200
Minneapolis, MN 55401
T: (612) 339-6900
F: (612) 339-0981
wjbruckner@locklaw.com
erodette@locklaw.com
bdclark@locklaw.com
aswagner@locklaw.com
Burton LeBlanc (pro hac vice pending)
BARON & BUDD, P.C.
2600 Citiplace Drive
Baton Rouge, Louisiana 70808
T: (225) 927-5441
bleblanc@baronbudd.com
W. Scott Simmer (pro hac vice pending)
BARON & BUDD, P.C.
600 New Hampshire Avenue NW
Suite 10A
Washington, D.C. 20037
T: (202) 333-4849
ssimmer@baronbudd.com
Robert G. Eisler (pro hac vice pending)
GRANT & EISENHOFER P.A.
485 Lexington Avenue
New York, New York 10017
T: (646) 722-8500
reisler@gelaw.com
Attorneys for Plaintiff Joe Christiana Food
Distributors, Inc. and the proposed direct
purchaser plaintiff class
| antitrust |
4-1-EocBD5gMZwczwpNt | GUTRIDE SAFIER LLP
Seth A. Safier (State Bar No. 197427)
seth@gutridesafier.com
Hayley A. Reynolds (State Bar No. 306427)
hayley@gutridesafier.com
100 Pine Street, Suite 1250
San Francisco, California 94111
Telephone: (415) 789-6390
Facsimile: (415) 449-6469
Attorneys for Plaintiffs
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
SAN JOSE DIVISION
Case No. _______________
EDWARD BREKHUS and
JON HERNANDEZ, on behalf of
themselves and those similarly
situated,
Plaintiffs,
v.
GOOGLE LLC; and ALPHABET
INC.
Class Action Complaint for Violation of
the California Invasion of Privacy Act;
Invasion of Privacy; Violation of the
Consumer Legal Remedies Act; False
Advertising; Fraud, Deceit, and/or
Misrepresentation; Unlawful, Unfair,
and Fraudulent Trade Practices;
Violation of the California Consumer
Privacy Act; Breach of Contract;
Intrusion Upon Seclusion; and Violation
of the Federal Wiretap Act
Defendants.
Jury Trial Demanded
Plaintiffs Edward Brekhus and Jon Hernandez bring this action on behalf
of themselves and all others similarly situated against Google LLC and Alphabet,
Inc. Plaintiffs’ allegations against Google are based upon information and belief
and upon investigation of Plaintiffs’ counsel, except for allegations specifically
pertaining to Plaintiffs, which are based upon Plaintiffs’ personal knowledge.
Introduction
1.
Google markets and sells a popular line of voice-activated hardware
device that enables consumers to get information regarding a range of topics, like
the time, weather, status of traffic, and current news. Consumers can also use
these devices to play music, to play alarms at particular times, and to control
smart devices in their homes, like light bulbs, thermostats, and security systems.
These devices, which include the Google Home, Google Home Hub, Google
Home Mini, and Google Nest (collectively, “Google Home” or “Product”), utilize
the Google Assistant platform, which enables the devices to engage in two-way
conversations with listeners.
2.
The Google Home contains a sensitive microphone that can pick up
sound throughout much of a user’s home. To allay privacy concerns and increase
sales of the device, Google has consistently represented to consumers that it will
not record or process their conversations or other audio unless they use a specific
activation phrase, such as “Hey Google” or “Ok Google.” Google’s
representations left consumers with the impression that their conversations and
other audio would not be recorded and/or sent to Google without their
authorization.
3.
As described in more detail below, Google’s representations were false.
Google, in fact, configured the Google Home to record, retrieve, and process
audio throughout users’ homes—even when users did not do anything to activate
it.
Parties
4.
Plaintiff Edward Brekhus is, and was at all relevant times, an individual
and resident of California. Mr. Brekhus currently resides in Novato, California.
5.
Plaintiff Jon Hernandez is, and was at all relevant times, an individual
and resident of California. Mr. Hernandez currently resides in Long Beach,
California.
6.
Defendant Google LLC is a Delaware limited liability company with its
principal place of business in Mountain View, California. Defendant Alphabet
Inc., is a Delaware corporation with its principal place of business in Mountain
View, California. (Google LLC and Alphabet Inc. are collectively referred to as
“Google” or “Defendants.”)1
Jurisdiction and Venue
7.
This Court has subject matter jurisdiction over this action pursuant to
the Class Action Fairness Act, 28 U.S.C. Section 1332(d)(2)(A) because: (i) there
are 100 or more class members, and (ii) there is an aggregate amount in
controversy exceeding $5,000,000, exclusive of interest and costs.
8.
This Court has supplemental jurisdiction over any state law claims
pursuant to 28 U.S.C. Section 1367.
1 During the 2015 reorganization, certain of Google LLC’s business segments
were spun off and separated into independent entities under the ownership of
Alphabet Inc. At various times during the Class Period, certain of the business
segments re-merged with Google LLC under one corporate structure.
Accordingly, Alphabet Inc. and Google LLC both have been named as defendants
in order to ensure all corporate entities who may be found liable for any portion of
the alleged wrongdoing are part of this lawsuit.
9.
The injuries, damages and/or harm upon which this action is based
occurred or arose out of activities engaged in by Defendants within, affecting, and
emanating from the State of California. Google regularly conducts and/or solicits
business in, engages in other persistent courses of conduct in, and/or derives
substantial revenue from products provided to persons in the State of California.
Google has engaged, and continues to engage, in substantial and continuous
business practices in the State of California. Moreover, Google’s Terms of
Service provides that: “California law will govern all disputes arising out of or
relating to these terms, service specific additional terms, or any related services,
regardless of conflict of laws rules. These disputes will be resolved exclusively in
the federal or state courts of Santa Clara County, California, USA, and you and
Google consent to personal jurisdiction in those courts.”
10.
Venue is proper in this District pursuant to 28 U.S.C. Section
1391(b)(2) because a substantial part of the events or omissions giving rise to the
claims occurred in the state of California, including within this District.
11.
In accordance with California Civil Code Section 1780(d), Plaintiffs
concurrently file herewith declarations establishing that they each purchased and
used one or more Google Home devices in California. (See Exhibits A and B.)
12.
Plaintiffs accordingly allege that jurisdiction and venue are proper in
this Court.
Substantive Allegations
13.
The Google Home contains a sensitive microphone that can pick up
sound throughout much of a user’s home. After a consumer sets up the device, it
perpetually listens and processes the audio inside the user’s home. Google’s
service for processing Google Home audio is called the “Google Assistant.”
14.
Although Google sells the Home devices, the larger benefit that Google
receives occurs when consumers actually enable and use the devices in their
homes. In particular, Google uses the data that consumers provide the Google
Home device in order to supplement their already extensive dossier of user
characteristics, activities, interactions, information and preferences.
15.
To get consumers to use the Google Home—thereby reaping the
benefit of their data—Google has run promotions offering free Google Home
devices to consumers who are paying subscribers of other Google services, at no
additional cost. Professor Douglas Schmidt, who has studied Google’s user data
collection and retention policies, recently stated in Wired magazine that Google’s
“business model is to collect as much data about you as possible and cross-
correlate it so they can try to link your online persona with your offline persona.
This tracking is just absolutely essential to their business. ‘Surveillance
capitalism’ is a perfect phrase for it.” (See Lily Hay Newman, The Privacy Battle
to Save Google from Itself, Wired (Nov. 1, 2018), https://www.wired.com/story/
google-privacy-data/ (last accessed 8/6/20).)
16.
For obvious reasons, many consumers are uncomfortable having a
device in their home that is always listening. To allay those concerns and
encourage consumers to use the devices, Google represents to (and promises)
consumers through multiple channels—including the device packaging, support
channels, advertising, and Google’s YouTube video service—that audio data will
not be recorded, saved or sent to Google unless the consumer uses a
predetermined activation phrase like “Ok Google” or “Hey Google.”
17.
The Google Home packaging itself states that users are to activate the
device by saying “Ok Google”:
18.
Further, Google makes the following statement on their privacy page
for Google Assistant devices (like the Google Home):
(https://support.google.com/googlenest/answer/7072285?hl=en (last accessed
8/6/20).)
19.
Likewise, Google created a number of videos regarding how to
activate the Google Home, including video in January 7, 2020, entitled “Privacy
On Google Assistant.” The voiceover of the video states:
The Google Assistant is built to keep your information
private, safe, and secure. This is a speaker with a Google
Assistant. It’s built to wait in standby mode until it is
activated, like when you say “Hey Google.” And when it’s
in standby mode, Assistant won’t send what you were
saying, to Google or anyone else.
(https://www.youtube.com/watch?v=ZaqZcDOoi-8 (last accessed
8/6/20).)
20.
Google tries to make consumers think that they control when the
Google Home is activated. For example, in response to the frequently asked
question, “What are some types of activation methods,” Google reassures
consumers that “You can activate your assistant in many ways.”
(https://support.google.com/googlenest/answer/7072285?hl=en (last accessed
8/6/20).) Similarly, the Google privacy video referred to above states:
“Occasionally, the assistant may activate when you didn’t intend it to, because it
incorrectly detected that you wanted its help. We have a number of protections
designed to prevent this from occurring.” (https://www.youtube.com/watch?
v=ZaqZcDOoi-8 (last accessed August 6, 2020)
21.
Similarly, on its privacy page, Google tells consumers that the Google
Home might activate when consumers do not intend it to, but only if it hears a
noise that sounds like “Hey, Google”:
(https://support.google.com/googlenest/answer/7072285?hl=en (last accessed
8/6/20).) Google reassures consumers that this happens only “[o]n rare
occasions.” Id.
22.
Google’s online community forum also informs consumers that the
Google Home can accidentally activate “when it hears something similar to ‘Hey
Google.’” Google informs users that they can guard against this by adjusting the
device’s sensitivity:
(https://support.google.com/assistant/thread/44421919?hl=en (last accessed
8/6/20).)
23.
Despite its myriad efforts to persuade consumers that the Google Home
guards their privacy, Google has never informed users that the Google Home can
be activated, record and/or transmit everything in a user’s home even when the
user does not use the activation phrase, and even when there were no sounds in
the house that sounded anything remotely like the activation phrase.
24.
Contrary to its representations (and promises) to consumers, and
without giving consumers any notice, Google configured the Google Home to
record audio from users’ homes, and to transmit that data to Google for
processing, all without any activation command being spoken.
25.
In approximately late July 2020, Google Home users began reporting
that Google was sending them alerts about information that could have been
obtained only by their Google Home devices surreptitiously recording audio
without their consent. For example, one user on a Reddit forum stated that the
user burned something in the kitchen, and then received a notification on the
user’s phone that Google had detected the smoke alarm going off. (See
https://www.reddit.com/r/googlehome/comments/i0v9bf/google_just_made_my_d
umb_smoke_detectors_smart/ (last accessed 8/6/2020).) The user posted the
following screenshot of the phone notification:
(https://imgur.com/gallery/wjRUqmo (last accessed 8/6/20).)
26.
Another user on the same Reddit forum reported that the Google Home
had picked up the sound of breaking glass and had sent the user a notification of
that event. (See https://www.reddit.com/r/googlehome/comments/
i0v9bf/google_just_made_my_dumb_smoke_detectors_smart/ (last accessed
8/6/20).)
27.
After the issue was reported by various media outlets, Google admitted
to the online publication, Protocol, that the Google Home devices were listening
to users and transmitting the data to Google, even when they had not used the
activation command. (See https://www.protocol.com/google-smart-speaker-alarm-
adt (last accessed 8/6/20).) Google claimed that the incident was an accident that
occurred through a software update. (Id.) Google further claimed that the software
update was “rolled back.” (Id.)
28.
Google, however, never informed users that its devices were
surreptitiously recording the sounds in their homes and sending the recordings
back to Google. Nor did Google identify when it started recording these sounds,
what sounds were being recorded, or what exactly Google was doing with the
audio. According to Protocol, Google also declined to state whether it has plans
to engage in the same conduct in the future. (Id.)
29.
The Protocol article correctly observed that Google’s behavior is a
glaring privacy concern, especially given Google’s failure to inform consumers
that sounds other than “Hey Google” could activate the recording:
(Id.)
30.
The surreptitious recording recently discovered by the Reddit user was
not the first time Google had configured its Home devices to record users without
the activation command being spoken. In October 2017, CNN Business revealed
that an early version of the Google Home Mini uploaded everything that the user
said. One journalist reported that the Google Home had made thousands of
recordings of him in his home, without him ever using the activation command.
See https://www.youtube.com/watch?v=H2ZgL3iAlLI (last accessed 8/6/20).)
A. Plaintiffs’ Experience
1.
Jon Hernandez
31.
On or about December 11, 2018, Mr. Hernandez purchased a Google
Home Mini device from a Best Buy store located in Long Beach, California.
32.
Before obtaining the device, Mr. Hernandez saw Google’s
representations that the device was to be activated by saying the phrase, “Ok
Google” and/or “Hey Google.” In particular, Mr. Hernandez saw the packaging
indicating that the device is to be activated by saying the activation phrase, “Ok
Google” and/or “Hey Google.” He also had seen the representations on Google’s
website that the device would not transmit recordings to Google without the
activation phrase.
33.
Based on his reasonable reliance on these representations, Mr.
Hernandez purchased the device. Shortly after ordering the device, Mr.
Hernandez set it up, and since that time has been using it in his home.
34.
Mr. Hernandez would not have purchased the Google Home device,
nor would he have set it up or used it, had he known that any of Google’s
representations in Paragraph 32 above were false.
35.
Mr. Hernandez also has two other Google Home devices, which he
received as gifts, in his home. He has been continuously using both of those
devices for at least the last several months. He would not have set up those
devices or used them, had he known that any of Google’s representations in
Paragraph 32 above were false.
36.
Mr. Hernandez is a reasonably diligent consumer. At no time prior to
August 6, 2020, did Mr. Hernandez realize that Google had configured its Google
Home devices to activate audio recording even when “Ok Google” or other
spoken activation command was not used.
37.
At no time prior to August 6, 2020, did Mr. Hernandez realize that
Google had configured its Google Home devices to send audio data back to
Google even when “Ok Google” or other spoken activation command was not
used.
38.
At no time prior to August 6, 2020, did Mr. Hernandez realize that
Google was processing audio data from its Google Home devices, even when “Ok
Google” or other spoken activation command was not used.
39.
Had Mr. Hernandez realized that Google would enable the Google
Home devices to record, transmit, or process audio even when he did not use a
spoken activation command like “Ok Google” or “Hey Google,” he would not
have purchased, set up, or used any of the devices.
40.
Had Google informed Mr. Hernandez, after he purchased and/or
received the Google Home devices, that Google would enable the devices to
record, transmit, or process audio even when he did not use a spoken activation
command like “Ok Google” or “Hey Google,” he would have stopped using them
or, at the very least, would have taken measures to prevent them from hearing
unwanted audio (like unplugging or muting them at appropriate times).
2.
Edward Brekhus
41.
In October 2019, Mr. Brekhus saw that Spotify was running a
promotion whereby Spotify users could obtain a “free” Google Home Mini
device. But the device was not actually free; rather, it was made available only to
Spotify users with a paid subscription.
42.
Before obtaining the device, Mr. Brekhus was already familiar with
Google’s representations that the device was to be activated by saying the phrase,
“Ok Google” and/or “Hey Google.” In particular, Mr. Brekhus had already seen
the packaging indicating that the device is to be activated by saying the activation
phrase, “Ok Google” and/or “Hey Google.” He also had seen the representations
on Google’s website that the device would not transmit recordings to Google
without the activation phrase. Further, he saw representations from Spotify that
the device would be activate by saying the activation phrase.
43.
Based on his reasonable reliance on these representations, Mr. Brekhus
ordered the Google Home device. Shortly after ordering the device, Mr. Brekhus
set it up, and since that time has been using it in his home, next to his bed.
44.
Mr. Brekhus would not have ordered the Google Home device, nor
would he have set it up and used it, had he known that any of Google’s
representations set forth in Paragraph 42 above were false.
45.
Mr. Brekhus is a reasonably diligent consumer. At no time prior to
August 6, 2020, did Mr. Brekhus realize that Google had configured its Google
Home devices to activate audio recording even when “Ok Google” or other
spoken activation command was not used.
46.
At no time prior to August 6, 2020, did Mr. Brekhus realize that
Google had configured its Google Home devices to send audio data back to
Google even when “Ok Google” or other spoken activation command was not
used.
47.
At no time prior to August 6, 2020, did Mr. Brekhus realize that
Google was processing audio data from its Google Home devices, even when “Ok
Google” or other spoken activation command was not used.
48.
Had Mr. Brekhus realized that Google would enable the Google Home
devices to record, transmit, or process audio even when he did not use a spoken
activation command like “Ok Google” or “Hey Google,” he would not have
ordered, set up, or used the device.
49.
Had Google informed Mr. Brekhus, after he ordered the Google Home
device, that it would enable the device to record, transmit, or process audio even
when he did not use a spoken activation command like “Ok Google” or “Hey
Google,” he would have stopped using it or, at the very least, would have taken
measures to prevent it from hearing unwanted audio (like unplugging it or muting
it at appropriate times).
Class Allegations
50.
In addition to their individual claims, Plaintiffs bring this action
pursuant to Rule 23 of the Federal Rules of Civil Procedure and section 1781 of
the California Civil Code.
51.
Plaintiffs bring this class action lawsuit on behalf of a proposed class of
similarly situated persons, pursuant to Rule 23(b)(2) and (b)(3) of the Federal
Rules of Civil Procedure, defined as follows:
The Class: All natural persons who installed the Google
Home devices in the United States during the time period
of four years prior to the filing of this complaint through
the present.
The California Subclass: All Class Members who reside in
the State of California.
52.
This action has been brought and may properly be maintained as a class
action against Defendants because there is a well-defined community of interest
in the litigation and the proposed class is easily ascertainable.
53.
Numerosity: Plaintiffs do not know the exact size of the Class, but they
estimate it is composed of more than 5,000 persons. The persons in the Class are
so numerous that the joinder of all such persons is impracticable and the
disposition of their claims in a class action rather than in individual actions will
benefit the parties and the courts.
54.
Common Questions Predominate: This action involves common
questions of law and fact to the potential classes because each class member’s
claim derives from the same deceptive, unlawful and/or unfair statements and
omissions. The common questions of law and fact predominate over individual
questions, as proof of a common or single set of facts will establish the right of
each member of the Class to recover. The questions of law and fact common to
the Class including, but are not limited to, the following:
a. whether the packaging, marketing, advertising, and other
promotional materials for the Product are deceptive and/or
unlawful because of misrepresentations and omissions;
b. whether Defendants violated Plaintiffs’ and Class Members’
privacy rights;
c. whether Defendants’ marketing, advertising, and other promotional
materials for the Product was likely to deceive reasonable
consumers;
d. whether Defendants’ representations and omissions are material to
reasonable consumers;
e. the amount of profits and revenues earned by Defendants as a
result of its misconduct;
f. whether Class Members are entitled to restitution, injunctive and
other equitable relief and, if so, what is the nature (and amount) of
such relief; and
g. whether Class Members are entitled to payment of actual,
incidental, consequential, exemplary and/or statutory damages plus
interest thereon, and if so, what is the nature of such relief.
55.
Typicality: Plaintiffs’ claims are typical of the claims of other members
of the Class because, among other things, all such claims arise out of the same
wrongful course of conduct in which the Defendants engaged in violation of law
as described herein. Further, the damages of each member of the Class were
caused directly by Defendants’ wrongful conduct in violation of the law as
alleged herein. Plaintiffs and the Class Members have suffered injury in fact as a
result of Defendants’ false representations. Plaintiffs and the Class Members each
purchased and/or used the Product under the false belief that it had adequate
security measures in place and that Defendants would not misuse their personally
identifiable information (“PII”). Plaintiffs and the Class Members would not have
purchased and/or used the Product if they had known it did not have adequate
security measures in place and that Defendants misuse of personal user PII.
56.
Adequacy of Representation: Plaintiffs will fairly and adequately
protect the interests of all Class Members because it is in their best interests to
prosecute the claims alleged herein to obtain full compensation due to them for
the unfair and illegal conduct of which they complain. Plaintiffs also have no
interests that are in conflict with, or antagonistic to, the interests of class
members. Plaintiffs have retained highly competent and experienced class action
attorneys to represent their interests and those of the classes. By prevailing on
their own claims, Plaintiffs will establish Defendants’ liability to all class
members. Plaintiffs and their counsel have the necessary financial resources to
adequately and vigorously litigate this class action, and Plaintiffs and counsel are
aware of their fiduciary responsibilities to the Class Members and are determined
to diligently discharge those duties by vigorously seeking the maximum possible
recovery for class members.
57.
Superiority: There is no plain, speedy, or adequate remedy other than
by maintenance of this class action. The prosecution of individual remedies by
members of the classes will tend to establish inconsistent standards of conduct for
Defendants and result in the impairment of class members’ rights and the
disposition of their interests through actions to which they were not parties. Class
action 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 effort and expense that numerous
individual actions would engender. Furthermore, as the damages suffered by each
individual member of the class may be relatively small, the expenses and burden
of individual litigation would make it difficult or impossible for individual
members of the class to redress the wrongs done to them, while an important
public interest will be served by addressing the matter as a class action.
58.
California Law Applies to the Entire Class. California’s substantive
laws apply to every member of the Class, regardless of where in the United States
the Class member resides. Google's Terms of Service provides that “California
law will govern all disputes arising out of or relating to these terms, service
specific additional terms, or any related services, regardless of conflict of laws
rules. These disputes will be resolved exclusively in the federal or state courts of
Santa Clara County, California, USA, and you and Google consent to personal
jurisdiction in those courts.” By choosing California law for the resolution of
disputes covered by its Terms of Service, Google concedes that it is appropriate
for this Court to apply California law to the instant dispute. Further, California’s
substantive laws may be constitutionally applied to the claims of Plaintiffs and the
Class under the Due Process Clause, see U.S. CONST. amend. XIV, § 1, and the
Full Faith and Credit Clause, see U.S. CONST. art. IV, § 1, of the U.S.
Constitution. California has significant contact, or significant aggregation of
contacts, to the claims asserted by the Plaintiffs and all Class members, thereby
creating state interests that ensure that the choice of California state law is not
arbitrary or unfair. Defendants’ decision to reside in California and avail itself of
California’s laws, and to engage in the challenged conduct from and emanating
out of California, renders the application of California law to the claims herein
constitutionally permissible. The application of California laws to the Class is also
appropriate under California’s choice of law rules because California has
significant contacts to the claims of Plaintiffs and the proposed Class, and
California has a greatest interest in applying its laws here.
59.
Plaintiffs are unaware of any difficulties that are likely to be
encountered in the management of this action that would preclude its maintenance
as a class action.
CAUSES OF ACTION
PLAINTIFFS’ FIRST CAUSE OF ACTION
(Violation of the California Invasion of Privacy Act (“CIPA”), California
Penal Code §§ 631 and 632, on behalf of Plaintiffs, the Class, and the
California Subclass)
60.
Plaintiffs reallege and incorporate by reference all paragraphs alleged
herein.
61.
The California Invasion of Privacy Act, codified at Cal. Penal Code §§
630 to 638, includes the following statement of purpose:
The Legislature hereby declares that advances in science
and technology have led to the development of new devices
and techniques for the purpose of eavesdropping upon
private communications and that the invasion of privacy
resulting from the continual and increasing use of such
devices and techniques has created a serious threat to the
free exercise of personal liberties and cannot be tolerated in
a free and civilized society.
62.
California Penal Code § 631(a) provides as follows:
Any person who, by means of any machine, instrument, or
contrivance, or in any other manner . . . willfully and
without the consent of all parties to the communication, or
in any unauthorized manner, reads, or attempts to read, or
to learn the contents or meaning of any message, report, or
communication while the same is in transit or passing over
any wire, line, or cable, or is being sent from, or received at
any place within this state; or who uses, or attempts to use,
in any manner, or for any purpose, or to communicate in
any way, any information so obtained, or who aids, agrees
with, employs, or conspires with any person or persons to
lawfully do, or permit, or cause to be done any of the acts
or things mentioned above in this section, is punishable by
a fine not exceeding two thousand five hundred dollars . . . .
63.
California Penal Code § 632(a) provides as follows:
A person who, intentionally and without the consent of all
parties to a confidential communication, uses an electronic
amplifying or recording device to eavesdrop upon or record
the confidential communication, whether the
communication is carried on among the parties in the
presence of one another by means of a telegraph, telephone,
or other device, except a radio, shall be punished by a fine
not exceeding two thousand five hundred dollars….
64.
Under both § 631(a) and § 632(a) of the Privacy Act, a defendant must
show that it had the consent of all parties to a communication.
65.
By enabling the Google Home devices to intercept and record audio
and communications in users’ homes without their consent, and by configuring
the devices to send the audio data over the internet to Google, so that Google
could analyze and read the contents of that audio, Google violated both § 631(a)
and § 632(a) of the Privacy Act.
66.
The following items constitute “machine[s], instrument[s], or
contrivance[s]” under the CIPA, and even if they do not, Google’s deliberate and
purposeful scheme that facilitated its interceptions falls under the broad statutory
catch-all category of “any other manner”: (i) the software and firmware code of
the Google Home devices used to record, read, and learn the contents and
meaning of audio communications inside users’ homes; (ii) the Google servers,
and software code installed on those servers, used to receive, parse, read, and
learn the contents and meaning of audio communications recorded by the Google
Home devices; and (iii) the plan Google carried out to effectuate its recording,
interception, and analysis of Plaintiffs’ audio communications, even though
Plaintiffs had not consented.
67.
Plaintiffs and the Class members have suffered loss by reason of these
violations, including, but not limited to, violation of their rights to privacy and
loss of value in their PII.
68.
Pursuant to California Penal Code § 637.2, Plaintiffs and the Class
members have been injured by the violations of California Penal Code §§ 631 and
632, and each seek damages for the greater of $5,000 or three times the amount of
actual damages, as well as injunctive relief.
PLAINTIFFS’ SECOND CAUSE OF ACTION
(Invasion of Privacy, on behalf of Plaintiffs, the Class, and the California
Subclass)
69.
Plaintiffs reallege and incorporates the paragraphs of this Class Action
Complaint as if set forth herein.
70.
California’s constitution creates a right to privacy, and further creates a
right of action against private entities such as Google.
71.
The principal purpose of this constitutional right is to protect against
unnecessary information gathering, use, and dissemination by public and private
entities, including Google.
72.
To plead a California constitutional privacy claim, a plaintiff must
show an invasion of (i) a legally protected privacy interest; (ii) where the plaintiff
had a reasonable expectation of privacy in the circumstances; and (iii) conduct by
the defendant constituting a serious invasion of privacy.
73.
Google has intruded upon the following legally protected privacy
interests: (i) the California Wiretap Act as alleged above; (ii) the California
Constitution, which guarantees Californians the right to privacy; (iii) a Fourth
Amendment right to privacy, and (iv) Google’s own Privacy Policy and policies
referenced therein, which falsely promise users that the audio in their homes will
not be recorded or transmitted to Google unless and until the user speaks an
activation command like “Hey Google” or “Okay Google.”
74.
Plaintiffs and those similarly situated had a reasonable expectation of
privacy. Plaintiffs could not have reasonably expected that Google would commit
acts in violation of federal and state civil and criminal laws, and Google
affirmatively promised users that the audio in their homes would not be recorded
or transmitted to Google unless and until the user uses an activation command
like “Hey Google” or “Okay Google.”
75.
Google’s actions constituted a serious invasion of privacy in that it
invaded a zone of privacy protected by the Fourth Amendment (i.e., one’s home
and personal communications therein), and violated federal and state criminal
laws on wiretapping and invasion of privacy. These acts constitute an egregious
breach of social norms that is highly offensive.
76.
Google’s intentional intrusion into Plaintiffs’ homes was also highly
offensive to a reasonable person in that Google violated federal and state criminal
and civil laws designed to protect individual privacy and against theft.
77.
Google lacked a legitimate business interest in enabling the Google
Home devices to intercept, record, and transmit audio in consumers’ homes
without their consent.
78.
Plaintiffs and those similarly situated have been damaged by Google’s
invasion of their privacy and are entitled to just compensation and injunctive
relief.
PLAINTIFFS’ THIRD CAUSE OF ACTION
(Violation of the California Consumer Privacy Act
Cal. Civ. Code § 1789.100, et seq., on behalf of Plaintiffs, the Class, and the
California Subclass)
79.
Plaintiffs reallege and incorporate by reference all paragraphs alleged
herein
80.
Defendants have violated California Civil Code Section 1798.100(b) of
the California Consumer Privacy Act (“CCPA”) by failing to inform Plaintiffs or
those similarly situated that it would collect categories of personal data beyond
those that Google had identified in its Privacy Policy as being subject to
collection.
81.
Specifically, without being authorized to do so by its Privacy Policy,
and without informing users, Google enabled the Google Home devices to collect
personal user information as defined in Civil Code Section 1789.140, such as
recordings of communications and activities inside users’ homes, when users did
not speak any activation command.
82.
Defendants have violated California Civil Code Section 1798.150(a).
As a result of Defendants’ inability to implement and maintain reasonable
security procedures and practices, Plaintiffs and those similarly situated were
subjected to a scheme whereby Defendants gained unauthorized access to their
private user information as alleged herein.
83.
Defendants have violated their duty to protect the personal information
of Plaintiffs and the Class.
84.
Defendants’ violation of their duty directly and proximately caused
Plaintiffs and members of the Class to unwittingly expose their personal
information to being recorded, collected, transmitted, and analyzed by
Defendants, without authorization.
85.
Plaintiffs and members of the Class were injured through violations of
legally protected privacy interests, in the form of unauthorized disclosure of
personal user information.
86.
Defendants knew or should have known that they were violating the
CCPA by changing the conditions under which it would take users’ personal
information. Defendants also failed to safeguard private user information and
maintain reasonable security procedures.
87.
Defendants are a corporation and limited liability company that are
organized and operated for the financial benefit of its owners.
88.
On behalf of the Class, Plaintiffs seek an order enjoining Defendants
from continuing to violate the CCPA as alleged herein.
PLAINTIFFS’ FOURTH CAUSE OF ACTION
(Violation of the Consumer Legal Remedies Act (the “CLRA”), California
Civil Code § 1750, et seq., on behalf of Plaintiffs and the California Subclass)
89.
Plaintiffs reallege and incorporate the paragraphs of this Class Action
Complaint as if set forth herein.
90.
Defendants’ actions, representations and conduct have violated, and
continue to violate the CLRA, because they extend to transactions that are
intended to result, or which have resulted, in the sale or lease of goods or services
to consumers.
91.
Plaintiffs and other Class Members are “consumers” as that term is
defined by the CLRA in California Civil Code § 1761(d).
92.
The Product that Plaintiffs (and other similarly situated Class
Members) purchased or used from Defendants were “goods” within the meaning
of California Civil Code § 1761(a).
93.
The practices described herein, specifically Defendants’ acts and
practices described herein were intended to result in the sale and use of the
Product to and by the consuming public and have violated, and continue to
violate, § 1770(a)(5), § 1770(a)(7), § 1770(a)(8), and § 1770(a)(9) of the CLRA.
In violation of California Civil Code §1770(a)(5), Defendants’ acts and practices
constitute improper representations that the Google Home devices have approval,
characteristics, uses and/or benefits that they do not have, (e.g., that the Product
does not save and send information to Google without the predetermined
activation words such as “Hey Google” or “Okay Google.”) In violation of
California Civil Code §1770(a)(7), Defendants’ acts and practices constitute
improper representations that Google Home devices are of a particular standard,
quality, or grade, when they are of another. Finally, in violation of California
Civil Code §1770(a)(9), Defendants have advertised the Google Home devices
with intent not to sell them as advertised.
94.
Plaintiffs request that this Court enjoin Defendants from continuing to
employ the unlawful methods, acts and practices alleged herein pursuant to
California Civil Code § 1780(a)(2). If Defendants are not restrained from
engaging in these types of practices in the future, Plaintiffs and the other members
of the Class will continue to suffer harm. This is particularly true because, as
reported by the publication Protocol, Google has declined to state whether it has
plans to engage in the same conduct in the future (see supra, Paragraph 27).
95.
CIVIL CODE § 1782 NOTICE. Plaintiffs notice and demand that
within thirty (30) days from that date of the filing of this Complaint, Defendants
correct, repair, replace or otherwise rectify the unlawful, unfair, false and or
deceptive practices complained of herein.
96.
Should the violations herein alleged not be corrected or rectified as
required by Civil Code § 1782 within 30 days with respect to all Class Members,
Plaintiffs will seek to amend this Class Action Complaint to seek, on behalf of
each Class Member, actual damages of at least $1,000, punitive damages, an
award of $5,000 for each Class Member who is a disabled person or senior
citizen, and restitution of any ill-gotten gains due to Defendants’ acts and
practices.
97.
Plaintiffs also request that this Court award them costs and reasonable
attorneys’ fees pursuant to California Civil Code § 1780(d).
PLAINTIFFS’ FIFTH CAUSE OF ACTION
(False Advertising, Business and Professions Code § 17500, et seq. (“FAL”),
on behalf of Plaintiffs, the Class, and the California Subclass)
98.
Plaintiffs reallege and incorporate by reference the paragraphs of this
Class Action Complaint as if set forth herein.
99.
Beginning at an exact date unknown to Plaintiffs, but within three (3)
years preceding the filing of the Class Action Complaint, Defendants made
untrue, false, deceptive and/or misleading statements in connection with the
advertising and marketing of the Product.
100. Defendants made representations and statements (by omission and
commission) that led reasonable customers to believe that the Product was
configured to not record audio or send it to Defendants unless and until the user
spoke the activation phrase (e.g., “Ok Google” or “Hey Google”). Defendants
knowingly disseminated misleading claims that the Product adequately protects
user information with secure privacy measures as a means to mislead the public
for financial gain.
101. Plaintiffs and those similarly situated relied to their detriment on
Defendants’ false, misleading and deceptive advertising and marketing practices,
including each of the misrepresentations and omissions set forth above. Had
Plaintiffs and those similarly situated been adequately informed and not
intentionally deceived by Defendants, they would have acted differently by,
without limitation, refraining from using or purchasing the Product.
102. Defendants’ acts and omissions are likely to deceive the general public.
103. Defendants engaged in these false, misleading and deceptive
advertising and marketing practices to increase their profits. Accordingly,
Defendants have engaged in false advertising, as defined and prohibited by
section 17500, et seq. of the California Business and Professions Code.
104. The aforementioned practices, which Defendants used, and continues to
use, to their significant financial gain, also constitute unlawful competition and
provide an unlawful advantage over Defendants’ competitors as well as injury to
the general public.
105. As a direct and proximate result of such actions, Plaintiffs and the other
similarly situated Class Members have suffered, and continue to suffer, injury in
fact and have lost money and/or property as a result of such false, deceptive and
misleading advertising in an amount which will be proven at trial, but which is in
excess of the jurisdictional minimum of this Court.
106. Plaintiffs seek, on behalf of themselves and those similarly situated,
full restitution of monies, as necessary and according to proof, to restore any and
all monies acquired by Defendants from Plaintiffs, the general public, or those
similarly situated by means of the false, misleading and deceptive advertising and
marketing practices complained of herein, plus interest thereon.
107. Plaintiffs seek, on behalf of themselves and those similarly situated, a
declaration that the above-described practices constitute false, misleading and
deceptive advertising.
108. Plaintiffs seek, on behalf of themselves and those similarly situated, an
injunction to prohibit Defendants from continuing to engage in the false,
misleading and deceptive advertising and marketing practices complained of
herein. Such misconduct by Defendants, unless and until enjoined and restrained
by order of this Court, will continue to cause injury in fact to the general public
and the loss of money and property in that Defendants will continue to violate the
laws of California, unless specifically ordered to comply with the same. This
expectation of future violations will require current and future consumers to
repeatedly and continuously seek legal redress in order to recover monies paid to
Defendants to which they are not entitled. Plaintiffs, those similarly situated,
and/or other consumers nationwide have no other adequate remedy at law to
ensure future compliance with the California Business and Professions Code
alleged to have been violated herein.
PLAINTIFFS’ SIXTH CAUSE OF ACTION
(Common Law Fraud, Deceit and/or Misrepresentation, on behalf of
Plaintiffs, the Class, and the California Subclass)
109. Plaintiffs reallege and incorporate by reference the paragraphs of this
Class Action Complaint as if set forth herein.
110. Defendants have fraudulently and deceptively informed Plaintiffs that
the Product had adequate security measures in place and that Defendants would
not misuse their personal information. Further, Defendants failed to disclose that
users’ private information could be shared with Defendants without the use of the
spoken activation phrase.
111. These misrepresentations and omissions were known exclusively to,
and actively concealed by, Defendants, not reasonably known to Plaintiffs, and
material at the time they were made. Defendants knew that users’ private
information would be shared with Defendants. Defendants’ misrepresentations
and omissions concerned material facts that were essential to the analysis
undertaken by Plaintiffs as to whether to use and/or purchase the Product. In
misleading Plaintiffs and not so informing Plaintiffs, Defendants breached their
duty to them. Defendants also gained financially from, and as a result of, their
breach.
112. Plaintiffs and those similarly situated relied to their detriment on
Defendants’ misrepresentations and fraudulent omissions. Had Plaintiffs and
those similarly situated been adequately informed and not intentionally deceived
by Defendants, they would have acted differently by, without limitation: (i)
declining to purchase or use the Product; (ii) purchasing or using the Product less
frequently; (iii) using the Product differently (such as unplugging it or muting it at
appropriate times); and/or (iv) paying less for the Product.
113. By and through such fraud, deceit, misrepresentations and/or
omissions, Defendants intended to induce Plaintiffs and those similarly situated to
alter their position to their detriment. Specifically, Defendants fraudulently and
deceptively induced Plaintiffs and those similarly situated to, without limitation,
purchase and/or use the Product.
114. Plaintiffs and those similarly situated justifiably and reasonably relied
on Defendants’ misrepresentations and omissions, and, accordingly, were
damaged by Defendants.
115. As a direct and proximate result of Defendants’ misrepresentations
and/or omissions, Plaintiffs and those similarly situated have suffered damages,
including, without limitation, the amount they paid to obtain the Product.
116. Defendants’ conduct as described herein was wilful and malicious and
was designed to maximize Defendants’ profits even though Defendants knew that
it would cause loss and harm to Plaintiffs and those similarly situated.
PLAINTIFFS’ SEVENTH CAUSE OF ACTION
(Unlawful, unfair, and fraudulent trade practices violation of Business and
Professions Code § 17200, et seq., on behalf of Plaintiffs, the Class, and the
California Subclass)
117. Plaintiffs reallege and incorporate by reference the paragraphs of this
Class Action Complaint as if set forth herein.
118. Within four (4) years preceding the filing of this lawsuit, and at all
times mentioned herein, Defendants have engaged, and continues to engage, in
unlawful, unfair, and fraudulent trade practices in California by engaging in the
unlawful, unfair, and fraudulent business practices outlined in this complaint.
119. In particular, Defendants have engaged, and continues to engage, in
unlawful practices by, without limitation, violating the following state and federal
laws: (i) the CIPA as described herein; (ii) the CLRA as described herein; (iii) the
FAL as described herein; (iv) the CCPA; and (v) Federal Wiretap Act, as
described herein..
120. In particular, Defendants have engaged, and continues to engage, in
unfair and fraudulent practices by, without limitation, the following: (i)
misrepresenting that the Product had adequate measures in place to protect users’
privacy; (ii) misrepresenting that Defendants would not misuse their personal
information; (iii) failing to disclose known security risks associated with using the
Product; and (iv) failing to disclose that Google had enabled the Product to record
audio and transmit it to Defendants even when consumers did not use the spoken
activation phrase.
121. Plaintiffs and those similarly situated relied to their detriment on
Defendants’ unlawful, unfair, and fraudulent business practices. Had Plaintiffs
and those similarly situated been adequately informed and not deceived by
Defendants, they would have acted differently by, declining to purchase and/or
use the Product.
122. Defendants’ acts and omissions are likely to deceive the general public.
123. Defendants engaged in these deceptive and unlawful practices to
increase their profits. Accordingly, Defendants have engaged in unlawful trade
practices, as defined and prohibited by section 17200, et seq. of the California
Business and Professions Code.
124. The aforementioned practices, which Defendants have used to their
significant financial gain, also constitute unlawful competition and provide an
unlawful advantage over Defendants’ competitors as well as injury to the general
public.
125. As a direct and proximate result of such actions, Plaintiffs and the other
class members, have suffered and continue to suffer injury in fact and have lost
money and/or property as a result of such deceptive and/or unlawful trade
practices and unfair competition in an amount which will be proven at trial, but
which is in excess of the jurisdictional minimum of this Court. Among other
things, Plaintiffs and the Class Members lost the amount they paid to obtain
Product.
126. As a direct and proximate result of such actions, Defendants have
enjoyed, and continues to enjoy, significant financial gain in an amount which
will be proven at trial, but which is in excess of the jurisdictional minimum of this
Court.
127. Plaintiffs seek, on behalf of themselves and those similarly situated,
full restitution of monies, as necessary and according to proof, to restore any and
all monies acquired by Defendants from Plaintiffs, the general public, or those
similarly situated by means of the deceptive and/or unlawful trade practices
complained of herein, plus interest thereon.
128. Plaintiffs seek, on behalf of those similarly situated, a declaration that
the above-described trade practices are fraudulent, unfair, and/or unlawful.
129. Plaintiffs seek, on behalf of those similarly situated, an injunction to
prohibit Defendants from continuing to engage in the deceptive and/or unlawful
trade practices complained of herein. Such misconduct by Defendants, unless and
until enjoined and restrained by order of this Court, will continue to cause injury
in fact to the general public and the loss of money and property in that Defendants
will continue to violate the laws of California, unless specifically ordered to
comply with the same. This expectation of future violations will require current
and future consumers to repeatedly and continuously seek legal redress in order to
recover monies paid to Defendants to which they were not entitled. Plaintiffs,
those similarly situated and/or other consumers nationwide have no other
adequate remedy at law to ensure future compliance with the California Business
and Professions Code alleged to have been violated herein.
PLAINTIFFS’ EIGHTH CAUSE OF ACTION
(Breach of Contract, on behalf of Plaintiffs, the Class, and the California
Subclass)
130. Plaintiffs reallege and incorporate by reference all paragraphs alleged
herein.
131. Plaintiffs entered into contracts with Defendants by purchasing a
Google Home. As part of this contract, each Plaintiff agreed to Defendants’
Terms of Service (“TOS”). Plaintiffs have fully complied with their obligations
under the TOS with regard to their use of Google’s products and services.
132. Plaintiffs and Defendants are subject to Google’s Privacy Policy, which
is incorporated into the contract through the TOS.
133. Google’s Privacy Policy states that “[t]he information Google collects,
and how that information is used, depends on how you use our services and how
you manage your privacy controls.”
134. Google breached the contract because it collected information that was
not identified in their Privacy Policy, and also because it used that information in
ways that were not authorized by the Privacy Policy. The breach was not due to
Plaintiffs’ management or mismanagement of their privacy controls, but rather by
Defendants’ own violative practices, without notice to or consent by Plaintiffs.
135. As a result of Google’s breach of contract, Plaintiffs and those similarly
situated have suffered damages. Specifically, the value that Plaintiffs received
from purchasing and/or using the Product was less than Plaintiffs bargained for
because Google diminished the value of the Products by enabling them to violate
Plaintiffs’ privacy. Plaintiffs and those similarly situated would not used or
purchased—or would not have paid as high of a price for—the Google Home
Device if they had known that Google would breach their own TOS and Privacy
Policy.
PLAINTIFFS’ NINTH CAUSE OF ACTION
(Intrusion Upon Seclusion, on behalf of Plaintiffs, the Class, and the
California Subclass)
136. Plaintiffs reallege and incorporate by reference all paragraphs alleged
herein.
137. To assert a claim for intrusion upon seclusion must plead (i) intrusion
into a private place, conversation, or matter; (ii) in a manner highly offensive to a
reasonable person.
138. In carrying out their scheme to record and transmit the audio in
Plaintiffs’ homes even without an activation command being spoken, in violation
of their own privacy promises, Google intentionally intruded upon the Plaintiffs’
solitude or seclusion in that it effectively placed itself in the middle of
conversations to which it was not an authorized party.
139. Plaintiffs did not authorize Google to enable their Google Home
Devices to record audio in their homes without the activation command being
spoken.
140. Google’s intentional intrusion into Plaintiffs’ was highly offensive to a
reasonable person in that they violated federal and state criminal and civil laws
designed to protect individual privacy and against theft.
141. Google’s surreptitious enabling of the Google Home Devices to record
users’ communications and other audio in their homes without their consent is
highly offensive behavior.
142. Public polling on internet tracking has consistently revealed that the
overwhelming majority of Americans believe it is important or very important to
be in control of who can get information about them; and to not be tracked
without their consent. The desire to control one’s information is only heightened
when a person places a device like the Product in the home.
143. Plaintiffs and the Class members have been damaged by Google’s
invasion of their privacy and are entitled to reasonable compensation including
but not limited to disgorgement of profits related to the unlawful activities.
PLAINTIFFS’ TENTH CAUSE OF ACTION
(Violation of the Federal Wiretap Act, 18 U.S.C. § 2510, ET. SEQ., on behalf
of Plaintiffs, the Class, and the California Subclass)
144. Plaintiffs reallege and incorporate by reference all paragraphs alleged
herein.
145. The Federal Wiretap Act, as amended by the Electronic
Communications Privacy Act of 1986, prohibits the intentional interception of the
contents any wire, oral, or electronic communication through the use of a device.
18 U.S.C. § 2511.
146. The Wiretap Act protects both the sending and receipt of
communications.
147. 18 U.S.C. § 2520(a) provides a private right of action to any person
whose wire, oral or electronic communication is intercepted.
148. Google’s actions in intercepting and tracking user communications
while they were at home, without an activation command being spoken, was
intentional. On information and belief, Google is aware that it is intercepting
communications in these circumstances and has taken no remedial action.
149. Google’s interception of communications that the Plaintiffs were
making while at home, without an activation command being spoken, was done
contemporaneously with the Plaintiffs’ making those communications.
150. On information and belief, the communications intercepted by Google
included “contents” of communications made from the Plaintiffs to other people
other than Google in the form of spoken words.
151. On information and belief, the transmission of information between
Plaintiffs and other persons on which Google tracked and intercepted their
communications without authorization while they were at home, without an
activation command being spoken, were “transfer[s] of signs, signals, writing, . . .
data, [and] intelligence of [some] nature transmitted in whole or in part by a wire,
radio, electromagnetic, photoelectronic, or photooptical system that affects
interstate commerce[,]” and were therefore “electronic communications” within
the meaning of 18 U.S.C. § 2510(12).
152. The following constitute “devices” within the meaning of 18 U.S.C. §
2510(5):
a. communications made without an activation command being
spoken;
b. The computer codes and programs used by Google to effectuate its
tracking and interception of the Plaintiffs’ communications while
using a Google Home Product at home, without an activation
command being spoken; and
c. The plan Google carried out to effectuate its tracking and
interception of the Plaintiffs’ communications while Google Home
product, without an activation command being spoken,
153. Google was not an authorized party to the communication because the
Plaintiffs were unaware of Google’s recording or transmitting of the
communications to Google itself, did not knowingly send any communication to
Google, were communicating in their homes without an activation command
being spoken, Google intercepted the communications between the Plaintiffs and
persons other than Google. Google could not manufacture its own status as a party
to the Plaintiffs’ communications with others by surreptitiously recording,
redirecting or intercepting those communications.
154. As illustrated herein, “the” communications between the Plaintiffs and
other persons were simultaneous to, but separate from, the channel through which
Google acquired the contents of those communications.
155. The Plaintiffs did not consent to Google’s continued gathering of the
user’s communications at home, without an activation command being spoken,
and thus never consented to Google’s interception of their communications.
Indeed, Google represented to Plaintiffs and the public that information would not
be saved, recorded or transmitted unless an activation command was spoken.
Moreover, the communications intercepted by Google were plainly confidential,
which is evidenced by the fact that Plaintiffs were in their homes and were using
the Google Home products in a manner consistent with Google’s own
recommendations to prevent the recording and sharing of information with
Google.
156. After intercepting the communications knowing or having reason to
know that such information was obtained through the interception of electronic
and oral communications in violation of 18 U.S.C. § 2511(1)(a).
157. As a result of the above actions and pursuant to 18 U.S.C. § 2520, the
Court may assess statutory damages to Plaintiffs and the Class members;
injunctive and declaratory relief; punitive damages in an amount to be determined
by a jury, but sufficient to prevent the same or similar conduct by Defendants in
the future, and a reasonable attorney’s fee and other litigation costs reasonably
incurred.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs, on behalf of themselves and those similarly
situated, respectfully request that the Court enter judgment against Defendants as
follows:
A. Certification of the proposed Class, including appointment of
Plaintiffs’ counsel as class counsel;
B. An award of compensatory damages, including statutory damages
where available, to Plaintiffs and the Class members against
Defendants for all damages sustained as a result of Defendants’
wrongdoing, in an amount to be proven at trial, including both pre- and
post-judgment interest thereon;2
C. An order for full restitution;
D. An order requiring Defendants to disgorge revenues and profits
wrongfully obtained;
2 Plaintiffs reserve from their prayer for relief any claim for actual or
compensatory or punitive damages under cause of action number four (CLRA)
and excluded the same from their cause of action number seven (UCL).
E. An order temporarily and permanently enjoining Defendants from
continuing the unlawful, deceptive, fraudulent, and unfair business
practices alleged in this Complaint;
F. For reasonable attorney’s fees and the costs of suit incurred; and
G. For such further relief as this Court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiffs hereby demand a trial by jury.
Dated: August 7, 2020
GUTRIDE SAFIER LLP
Seth A. Safier, Esq.
Hayley A. Reynolds, Esq.
100 Pine Street, Suite 1250
San Francisco, CA 94111
I, Jon Hernandez, declare:
1.
I am the Plaintiff in this action. If called upon to testify, I could and would
competently testify to the matters contained herein based upon my personal knowledge.
2.
I submit this Declaration pursuant to California Code of Civil Procedure section
2215.5 and California Civil Code section 1780(d).
3.
I reside in Long Beach, California. I purchased a Google Home Mini device from
Best Buy in Signal Hill, California. I also received two Google Home Mini devices as gifts. I have
been using all three devices in my home in Long Beach.
I declare under penalty of perjury under the laws of California that the foregoing is true
and correct.
Executed this 6 day of August 2020, in Long Beach, California.
__________________________
Jon Hernandez
| privacy |
wwIdFYcBD5gMZwcz26dC | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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EUGENE DUNCAN AND ON BEHALF OF ALL
OTHER PERSONS SIMILARLY SITUATED,
1:19-cv-3335
Plaintiffs,
v.
ECF CASE
No.: _________________
CLASS ACTION COMPLAINT
JURY TRIAL DEMANDED
JAY SUITES I, LLC AND JAY SUITES II, LLC,
Defendants.
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INTRODUCTION
1.
Plaintiff, EUGENE DUNCAN, on behalf of himself and others similarly
situated, asserts the following claims against Defendants, JAY SUITES I, LLC AND JAY
SUITES II, 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 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 his civil rights action against JAY SUITES I, LLC AND
JAY SUITES II, LLC, (collectively “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 locations, is a violation of Plaintiff’s rights
under the Americans with Disabilities Act (“ADA”).
5.
Plaintiff is being deterred from patronizing the Defendant’s physical
locations due to Defendant’s discrimination by failing to maintain access to the Website
for visually-impaired consumers. Plaintiff intends to return to Defendant’s Website and
rental space location once Defendant ceases its on-going discriminatory practices.
6.
Because Defendant’s website, WWW.JAYSUITES.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.
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.
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,
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(“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 is subject to personal jurisdiction in this District and a substantial
portion of the conduct complained of herein occurred in this 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. A substantial part of the acts and
omissions giving rise to Plaintiff’s claims occurred in the 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 Website while attempting to access the Defendant’s
website from his home. 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 or returning to Defendant’s brick-and mortar
locations and Website. This includes, the ability to view and book daily office space or
reserve event space, learn information about the locations, such as building amenities,
different pricing plan information, access to floor plans and building photos,
transportation options and services available, register and log into the member portal,
learn about the types of workspace offered including private offices, conference rooms,
and dedicated desks, review testimonials, reviews and frequently asked questions, access
contact form and schedule a tour of the spaces, participate in other social interactive
experiences and to learn about other important information.
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11.
The Court is empowered to issue a declaratory judgment under 28 U.S.C.
§§ 2201 and 2202.
THE PARTIES
12.
Plaintiff, EUGENE DUNCAN, at all relevant times, is a resident of
Queens, 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.
13.
On information and belief, Defendant, JAY SUITES I, LLC, is and was, at
all relevant times herein a Domestic Limited Liability Company organized under the laws
of New York with its principal executive office in New York, NY. Defendant jointly
owns and operates multiple rental spaces as well as the WWW.JAYSUITES.COM
website, and those affiliated or directly linked, and advertises, markets, offers and sells its
services and workspaces within the State of New York and throughout the United States.
14.
On information and belief, Defendant, JAY SUITES II, LLC, is and was,
at all relevant times herein a Domestic Limited Liability Company organized under the
laws of New York with its principal executive office in New York, NY. Defendant jointly
owns and operates multiple rental spaces as well as the WWW.JAYSUITES.COM
website, and those affiliated or directly linked, and advertises, markets, offers and sells its
services and workspaces within the State of New York and throughout the United States.
15.
Defendant operates their website across the United States, and also owns
and operates different rental office spaces in New York, New York. These locations
constitute a place of public accommodation. Defendant’s locations provide to the public
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important goods and services. Defendant’s Website provides consumers with access to an
array of goods and services including the ability to view and book daily office space or
reserve event space, learn information about the locations, such as building amenities,
different pricing plan information, access to floor plans and building photos,
transportation options and services available, register and log into the member portal,
learn about the types of workspace offered including private offices, conference rooms,
and dedicated desks, review testimonials, reviews and frequently asked questions, access
contact form and schedule a tour of the spaces, participate in other social interactive
experiences and to learn about other important information.
16.
Defendant’s rental space locations are 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 that is heavily integrated with Defendant’s physical
locations and operates as a gateway thereto.
NATURE OF ACTION
17.
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.
18.
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.
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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.
19.
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.
20.
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.
21.
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.
22.
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:
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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;
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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
23.
Defendant offers the commercial website, WWW.JAYSUITES.COM, to
the public. The website offers features which should allow all consumers to access the
goods and services which Defendant offers in connection with their physical locations.
The goods and services offered by Defendant include, but are not limited to the
following, which allow consumers to: find information about the physical locations, the
ability to view and book daily office space or reserve event space, learn information
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about the locations, such as building amenities, different pricing plan information, access
to floor plans and building photos, transportation options and services available, register
and log into the member portal, learn about the types of workspace offered including
private offices, conference rooms, and dedicated desks, review testimonials, reviews and
frequently asked questions, access contact form and schedule a tour of the spaces,
participate in other social interactive experiences and to learn about other important
information.
24.
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 locations. 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 physical locations and the numerous goods,
services, and benefits offered to the public through the Website.
25.
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.
26.
During Plaintiff’s visits to the Website, the last occurring in March, 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 locations
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in New York by being unable to learn more information about the Defendant’s rental
space locations, the ability to view and book daily office space or reserve event space,
learn information about the locations, such as building amenities, different pricing plan
information, access to floor plans and building photos, transportation options and services
available, register and log into the member portal, learn about the types of workspace
offered including private offices, conference rooms, and dedicated desks, review
testimonials, reviews and frequently asked questions, access contact form and schedule a
tour of the spaces, participate in other social interactive experiences and to learn about
other important information.
27.
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 mouse
moves 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
JAY SUITE customers are unable to determine what is on the website, browse, look for
the rental space locations, check out Defendant’s pricing and programs, or make any
purchases;
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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 users;
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.
e.
Defendant’s website 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, Defendant’s website’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.
Defendant Must Remove Barriers To Its Website
28.
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
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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.
29.
These access barriers on Defendant’s Website have deterred Plaintiff from
visiting or returning to Defendant’s physical locations and Website, and enjoying them
equal to sighted individuals because: Plaintiff was unable to find the location and hours
of operation of Defendant’s physical locations on its Website and other important
information, preventing Plaintiff from visiting or returning to the locations and Website
to purchase items and to view the items.
30.
If the Website was equally accessible to all, Plaintiff could independently
navigate the Website and complete a desired transaction as sighted individuals do.
31.
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.
32.
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 sufficiently
intuitive so as to be equally accessible to visually-impaired individuals, including
Plaintiff; and,
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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.
33.
Defendant therefore uses standards, criteria or methods of administration
that have the effect of discriminating or perpetuating the discrimination of others, as
alleged herein.
34.
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).
35.
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;
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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 Websites, with contact information for users to report accessibility-related
problems.
36.
If the Website was accessible, Plaintiff and similarly situated blind and
visually-impaired people could independently view service items, locate Defendant’s
rental space locations, book and purchase daily office space and otherwise research
related products and services via the Website.
37.
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.
38.
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.
39.
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
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40.
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 offered
in Defendant’s physical locations, during the relevant statutory period.
41.
Plaintiff, on behalf of himself and all others similarly situated, seeks
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 locations, during the relevant statutory period.
42.
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 in Defendant’s physical locations, during the relevant statutory period.
43.
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 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
-15-
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.
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, NYSYRHL 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 their litigation.
47.
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.
-16-
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 rental spaces are a place of public accommodations 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 rental spaces. The Website is a service
that is integrated with this location.
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 goods, 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 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).
-17-
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 NYSHRL
-18-
56.
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.
57.
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.”
58.
Defendant’s physical location is located in State of New York and
throughout the United States 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 these physical locations.
59.
Defendant is subject to New York Human Rights Law because it owns and
operates its physical locations and Website. Defendant is a person within the meaning of
N.Y. Exec. Law § 292(1).
60.
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 locations 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.
61.
Under N.Y. Exec. Law § 296(2)(c)(i), unlawful discriminatory practice
includes, among other things, “a refusal to make reasonable modifications in policies,
-19-
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".
62.
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.”
63.
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.
64.
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 is inaccessible to blind
class members with knowledge of the discrimination; and/or
-20-
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.
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.
67.
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.
68.
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.
69.
Plaintiff is also entitled to reasonable attorneys’ fees and costs.
70.
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.
-21-
THIRD CAUSE OF ACTION
VIOLATION OF THE NEW YORK STATE CIVIL RIGHTS LAW
71.
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.
72.
Plaintiff served notice thereof upon the attorney general as required by
N.Y. Civil Rights Law § 41.
73.
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 . . .”
74.
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.”
75.
Defendant’s New York State physical location is a sales establishment and
place of public accommodation within the definition of N.Y. Civil Rights Law § 40-c(2).
-22-
Defendant’s Website is a service, privilege or advantage of Defendant and its Website is
a service that is by and integrated with these establishments.
76.
Defendant is subject to New York Civil Rights Law because it advertises,
owns and operates its physical location and Website. Defendant is a person within the
meaning of N.Y. Civil Law § 40-c(2).
77.
Defendant is violating N.Y. Civil Rights Law § 40-c(2) in refusing to
update or remove access barriers to its Website, causing its Website and the services
integrated with Defendant’s physical locations 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.
78.
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 . . .”
79.
Under NY 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 ...”
80.
Defendant has failed to take any prompt and equitable steps to remedy its
discriminatory conduct. These violations are ongoing.
-23-
81.
Defendant discriminates, and will continue in the future to discriminate
against Plaintiff and New York State Sub-Class Members on the basis of disability are
being directly or indirectly refused, withheld from, or denied the accommodations,
advantages, facilities and privileges thereof in § 40 et seq. and/or its implementing
regulations.
82.
Plaintiff is entitled to compensatory damages of five hundred dollars per
instance, as well as civil penalties and fines under N.Y. Civil Law § 40 et seq. for each
and every offense.
FOURTH CAUSE OF ACTION
VIOLATIONS OF THE NYCHRL
83.
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.
84.
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.”
85.
Defendant’s location is a sales establishment and a 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.
-24-
86.
Defendant is subject to NYCHRL because it advertises, owns and operates
its physical location and its Website in the City of New York, making it a person within
the meaning of N.Y.C. Admin. Code § 8-102(1).
87.
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.
88.
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).
89.
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.
-25-
90.
Defendant has failed to take any prompt and equitable steps to remedy
their discriminatory conduct. These violations are ongoing.
91.
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.
92.
Defendant’s actions were and are in violation of the NYCHRL and
therefore Plaintiff invokes his right to injunctive relief to remedy the discrimination.
93.
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.
94.
Plaintiff is also entitled to reasonable attorneys’ fees and costs.
95.
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.
FIFTH CAUSE OF ACTION
DECLARATORY RELIEF
96.
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.
-26-
97.
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, 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.
98.
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
-27-
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 for violations of their civil rights under New York State
Human Rights Law and City Law;
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.
-28-
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 11, 2019
THE MARKS LAW FIRM, PC
________________________
Bradly G. Marks
175 Varick St., 3rd Floor
New York, New York 10014
Tel: (646) 770-3775
Fax: (646) 867-2639
brad@markslawpc.com
Jeffrey M. Gottlieb (JG-7905)
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
danalgottlieb@aol.com
-29-
| civil rights, immigration, family |
GMRrDYcBD5gMZwczhrB4 | UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
TRACY FERNANDEZ, individually and on
behalf of all others similarly situated,
Plaintiff,
v.
Case No.
CLASS ACTION COMPLAINT
Jury Trial Demanded
EDGEWELL PERSONAL CARE
COMPANY, SUN PHARMACEUTICALS,
LLC, and PLAYTEX PRODUCTS, LLC,
Defendants.
Plaintiff TRACY FERNANDEZ, individually and on behalf of all others similarly
situated, by and though counsel, brings this class action against EDGEWELL PERSONAL
CARE COMPANY, SUN PHARMACEUTICALS, LLC, and PLAYTEX PRODUCTS, LLC
(collectively "Defendants") as follows:
I. INTRODUCTION
1.
This is a class action lawsuit brought by Plaintiff on behalf herself and all
similarly situated persons who purchased Banana Boat Kids SPF 50 Sunscreen Lotion
(“BBK”).
2.
Defendants are in the business of manufacturing, marketing and distributing
sunscreen products, including BBK.
3.
Defendants represent that BBK has a sun protection factor (“SPF”) of level 50,
which is understood to block approximately 98% of cancer-causing ultraviolet B radiation
(“UVB”) rays.
4.
Plaintiff and the Class purchased BBK, and relied on Defendants’
representations and warranties when buying and applying the product.
1
5.
BBK does not have an SPF level of 50, but instead has an SPF level of 8. SPF
8 is not only understood to block UVB rays at a substantially lower rate than SPF 50, it is
also below the minimum level recommended by experts of SPF 15 for basic UV ray
protection.
6.
Based on its own production process, quality assurance reviews, and consumer
complaints, Defendants knew or should have known that its product was not performing –
and would not perform – as marketed and warranted. Defendants nonetheless continue to
market and sell BBK as a having an SPF level of 50.
7.
Had Plaintiff and the Class known of BBK’s actual SPF level, they would not
have purchased BBK and instead would have purchased a competitor’s product that was SPF
50 and protected from UVB.
8.
Plaintiff and the Class suffered damages as a direct and proximate result of
Defendants’ misrepresentations and omissions. Plaintiff and the Class have lost the purchase
cost of a product they would have not otherwise bought.
III. PARTIES
9.
Plaintiff Tracey Fernandez resides in Bloomfield, New Jersey.
10.
Defendant Edgewell Personal Care Company (“EPC”) is a Missouri
corporation having its principal place of business at 1350 Timberlake Manor Parkway, St.
Louis, Missouri. EPC is a consumer products company in the personal care and hygiene
industry, and owns a family of brand products including Banana Boat protective suncare.
11.
Defendant Sun Pharmaceuticals, LLC is a Delaware limited liability
corporation having its principal place of business in Dover, Del. Sun Pharmaceuticals is
licensed to conduct business, and does conduct business, through the United States, including
in the state of Missouri. Sun Pharmaceuticals has operated in the United States since 1996,
2
and is a developer, manufacturer, wholesaler, distributor and supplier of over-the-counter
healthcare products, including Banana Boat. Banana Boat is a registered trademark of Sun
Pharmaceuticals, and Sun Pharmaceuticals is an EPC subsidiary.
12.
Defendant Playtex Products, LLC (“Playtex”) is a New Jersey corporation
having its principal place of business at 5901 Westside Avenue, Suite 400, North Bergen, New
Jersey, 07047. Playtex is licensed to conduct business, and does conduct business, through the
United States, including in the state of Missouri. Playtex manufactures and sells personal care
products for babies, toddlers, teens and adults. Playtex advertises BBK as a Playtex product,
and Playtex is an EPC subsidiary.
III. JURISDICTION AND VENUE
13.
This Court has original jurisdiction pursuant to 28 U.S.C. § 1332(d)(2). The
matter in controversy, exclusive of interest and costs, exceeds the sum or value of five million
dollars ($5,000,000.00) and is a class action in which Class members are citizens of states
different from Defendant.
14.
This Court has personal jurisdiction over Defendants because they are
authorized to do business, and are conducting business, in this District.
15.
Venue properly lies in this District pursuant 28 U.S.C. §§ 1391 because a
substantial part of the events and omissions giving rise to this claim occurred this District.
Venue is also proper because Defendants are authorized to conduct business in Missouri, have
intentionally availed itself of its laws and markets, and are subject to personal jurisdiction in
this District.
IV. FACTUAL BACKGROUND
16.
Defendants developed, manufacture, advertise and sell Banana Boat Kids SPF
50 Sunscreen Lotion (“BBK”).
3
17.
SPF, or sunscreen protection factor, is a sunscreen rating that refers to its
ability to block ultraviolet B (“UVB”) rays, which cause sunburn and contribute to the risk of
skin cancer. The SPF rating is the measure of the time it would take you to sunburn if you
were not wearing sunscreen as opposed to the time it would take with sunscreen on.
18.
A product with an SPF rating of 50 is expected to block 98% of dangerous
UVB rays. For best protection, experts recommend using a minimum SPF sunscreen of 15,
reapplied every two hours.
A.
Defendants Represented and Marketed Banana Boat Kids Sunscreen Lotion as
SPF 50.
19.
Defendants are in the business of developing, manufacturing, advertising, and
selling sunscreen, including Banana Boat Kids SPF 50 Sunscreen Lotion (“BBK”). As the
name clarifies, the product purportedly has an SPF rating of 50.
20.
BBK is labeled as “Broad Spectrum SPF 50,” and distinguished as a product
recommended by the Skin Cancer Foundation.
4
21.
BBK is a consumer product, and is available nationwide. It can be purchased
at a variety of locations such as supermarkets, drugstores, chain retailers, and online.
B.
Plaintiff and Class Relied on Defendants’ Representation and Purchased BBK.
22.
Plaintiff purchase BBK in approximately April 2016.
23.
Plaintiff is consumer of goods, and purchased BBK as a means to protect from
harmful UV rays when exposed to the sun.
24.
Prior to making the purchase, Plaintiff reviewed BBK and other similar
products. Plaintiff selected BBK based on Defendants’ claim that it had a high SPF rating of
50, as figured prominently on the front label.
25.
Plaintiff reasonably relied on the Defendants’ labeling and advertised rating
when she decided to purchase BBK.
C.
BBK Did Not Have an SPF Level of 50, As Advertised.
26.
Consumer Reports is a non-profit magazine that evaluates various products.
27.
In May 2016, Consumer Reports published a comparative review of various
sunscreen products, including BBK. It found that, despite labeling, Banana Boat Kids SPF 50
Sunscreen Lotion had an actual SPF rating of 8, a mere 16% of the SPF protection advertised
and promised.
5
D.
Defendants Knew or Should Have Known that BBK Did Not Have an SPF Level of
50.
28.
Defendants have been notified that their product is virtually ineffective in
protecting children from harmful sunrays. For example, on its own website and in June 2016,
one reviewer – “Michelle” – complained that she would give the product a rating of zero out
of five given the burns her child sustained after a few hours in the sun and despite twice
applying the product as directed.
6
29.
Upon information and belief, Defendants have otherwise been notified of the
false advertisement, but have not remedied the problem.
E.
Plaintiff Suffered Harm as a Result of Their Reliance and Defendants’
Misrepresentations.
30.
Had Plaintiff known that BBK’s SPF rating was 42 points lower that what
Defendants advertised and otherwise represented, Plaintiff would have never purchased the
product.
31.
Plaintiff suffered harm as a direct result of Defendants’ false representations.
32.
Plaintiff was protected from lower levels of UVB than expected.
33.
Plaintiff paid for less of an SPF concentration than she bargained for.
34.
Plaintiff and the Class suffered a pecuniary loss as they purchased a product
they would have not otherwise bought, but for Defendants’ misrepresentations.
V. CLASS ACTION ALLEGATIONS
35.
Class Definition. Plaintiff seeks to bring the claims below as a class action,
under Rule 23 of the Federal Rules of Civil Procedure, on behalf of herself and all others
similarly situated. The proposed Class (“the Class”) is defined as:
All individuals who have purchased Banana Boat Kids SPF 50 Sunscreen
Lotion.
36.
Excluded from the Class are the Judges assigned to this case, BBK resellers,
7
and Defendants, including employees, officers, directors, and affiliates.
37.
Numerosity. The Class is so numerous that joinder of all members is
impracticable. BBK is a nationwide product, delivered extensively throughout the United
States and within the state of Missouri via drug stores, supermarkets, chain superstores, and
the Internet. Upon information and belief, the number of persons who are members of the
Class is in the hundreds of thousands, if not more.
38.
Commonality. All actions and inactions by the Defendants at issue here are
similarly common. A determination of whether Defendants falsely marketed BBK, or made
material misrepresentations, will apply to all members of the Class. Other questions common
to the class include whether Defendants violated any applicable Missouri laws and pursued the
course of conduct complained of here, whether Defendants acted intentionally or recklessly in
engaging in the conduct described herein, and the extent of the appropriate measure of
injunctive and declaratory relief, damages, and restitution.
39.
Predominance. Questions of law and fact that are common to the Class
predominate over individual questions because the Defendants’ actions complained of herein
are generally applicable to the entire Class These legal and factual questions include, but are
not limited to:
a. Whether BBK contained less SPF than warranted;
b. Whether Defendants falsely labeled and marketed BBK as containing an SPF
level of 50;
c. Whether Defendants violated Missouri Merchandising Practices Act;
d. Whether Defendants breached BBK's express warranty and implied warranty of
fitness for intended purpose;
e. Whether Defendants’ misrepresentations were material to BBK's purchase; and,
f. Whether Plaintiff and the Class suffered harm and are entitled to relief; and, if
so, to what extent.
40.
Typicality. Plaintiff’s claims are typical of the members of the Class. Plaintiff
8
sustained damages as a result of her reliance on Defendants’ misrepresentations, warranties
and unlawful conduct, as did each member of the Class.
41.
Adequacy of Representation. Plaintiff will fully and adequately represent and
protect the interests of the Class because of the common injuries and interests of the members
of the Class and the conduct of Defendants that is or was applicable to all members of the
Class. Plaintiff has retained counsel who are competent and experienced in the prosecution of
class action litigation. Plaintiff has no interests that are contrary to or in conflict with those of
the Class she seeks to represent.
42.
Superiority: A class action is superior to all other available methods for fair
and efficient adjudication of this controversy. Plaintiff knows of no difficulty in managing
this action that would preclude its maintenance as a class action. The prosecution of separate
actions by individual members of the Class would create a risk of inconsistent and varying
adjudications concerning the subject of this action, which adjudications could establish
incompatible standards of conduct for Defendants under the laws alleged herein. The claims
of the Class may be certified under Rule 23(b)(1), (b)(2) and/or (b)(3). The members of the
Class seek declaratory and injunctive relief but also seek sizeable monetary relief.
VI. CLAIMS FOR RELIEF
FIRST CLAIM FOR RELIEF
Violation of the Missouri Merchandising Practices Act (“MMPA”)
(Mo. Ann. Stat. § 407.020.1, et. seq.)
43.
Plaintiff and the Class incorporate by reference the preceding and subsequent
paragraphs as if fully set forth herein.
44.
The MMPA prohibits the “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
9
any merchandise in trade or commerce.” Mo. Ann. Stat. § 407.020.1
45.
Defendants engaged in fraud and made false promises when it advertised and
labeled BBK with an SPF of 50, when in actuality BBK has an SPF rating of 8.
46.
Defendants misrepresented the strength of its product through labeling, which
caused Plaintiff and the Class Members to believe the sunscreen would block 98% of UVB
47.
Due to Defendant’s misrepresentations, BBK was sold directly to consumers
either in store or through the Internet containing false information. If Plaintiff and the Class
Members were fully informed about BBK’s true SPF content, they would have not purchased
BBK or paid substantially less for it.
48.
Defendant’s conduct was prohibited under the MMPA, and caused Plaintiff and
the Class to suffer harm. Plaintiffs and the Class are entitled to relief.
SECOND CLAIM FOR RELIEF
Violation of the New Jersey Consumer Fraud Act (“NJCFA”)
(N.J. Stat. Ann. § 56:8-1, et seq.)
49.
Plaintiff and the Class incorporate by reference the preceding and subsequent
paragraphs as if fully set forth herein.
50.
The NJCFA protects consumers from “any unconscionable commercial
practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing,
concealment, suppression, or omission, in connection with the sale or advertisement of any
merchandise . . . .” N.J. Stat. Ann. § 56:8-2
51.
Defendants used deception, fraud and falsity in marketing BBK. Defendants
marketed and sold BBK as having an SPF level of 50 when in fact its SPF level is 8.
10
Defendants concealed this material fact from consumers through its false advertising and
labelling.
52.
Defendants’ conduct occurred in connection with the sale of BBK, as their
misrepresentation was directly affixed to their product in its place of immediate sale. There
were no intermediary steps between BBK's “on-the-shelf” advertising and consumer purchase.
The marketed information was designed to entice a consumer into removing the product from
the shelf and purchasing it, or ordering it via the Internet.
53.
Defendants’ conduct caused Plaintiff an ascertainable loss and is entitled to
treble damages. Plaintiff is out the cost of a product she would not have purchased had
Defendants not made the false marketing claim. She also paid more for BBK than warranted
by its low level of SPF.
54.
A causal relationship exists between Defendants’ unlawful conduct and the
ascertainable losses suffered by Plaintiffs and the Class Members. Had the true level of SPF in
the BBK been disclosed, Plaintiffs and the Class Members would not have purchased it or
would have paid less for them had they decided to purchase them.
55.
Defendants’ conduct was prohibited under the NJCFA, and caused Plaintiff and
the Class to suffer harm. Plaintiff and the Class are now entitled to relief.
56.
Pursuant to N.J. Stat. Ann. § 56:8-20, Plaintiff have served the New Jersey
Attorney General with a copy of this Complaint.
THIRD CLAIM FOR RELIEF
Breach of Express Warranty
57.
Plaintiff and the Class incorporate by reference the preceding and subsequent
paragraphs as if fully set forth herein.
11
58.
Defendants made and breached express warranties about SPF protection in the
BBK sunscreen sold to Plaintiff.
59.
Through its BBK advertising and labeling, Defendants made a promise to
Plaintiff that she was purchasing sunscreen that had an SPF level of 50.
60.
That promise became the basis of the bargain between Plaintiff and Defendants,
and upon which the Plaintiff reasonably relied.
61.
The BBK did not meet the quality of this promise because it only has an SPF
level of 8.
62.
This defect existed when it left Defendants’ possession, and was
undiscoverable to Plaintiff at the time of purchase.
63.
Defendants knew or should have known of the defect through its own internal
production and quality assurance processes, as well as from consumer complaints.
64.
Plaintiff and the Class suffered damages as a result.
FOURTH CLAIM FOR RELIEF
Breach of Implied Warranty
65.
Plaintiff and the Class incorporate by reference the preceding and subsequent
paragraphs as if fully set forth herein.
66.
Defendants made and breached implied warranties of merchantability when
selling BBK to Plaintiff and the Class.
67.
The implied warranty of merchantability requires BBK to be consistent in
quality and quantity with Defendants’ representations.
68.
Plaintiff and the Class bought BBK from Defendants. At the time of that
purchase, Defendants were in the business of manufacturing, distributing, and selling
consumer goods, BBK specifically.
12
69.
BBK was not fit for its ordinary purpose of protecting users from exposure to
98% of cancer-causing UVB rays.
70.
BBK was not adequately packaged because it represented an SPF level it did
not actually have.
71.
BBK did not measure up to the facts stated on the label, and was not of the
quality that Plaintiff and the Class reasonably expected.
72.
Plaintiff and the Class suffered damages as a result.
FIFTH CLAIM FOR RELIEF
Unjust Enrichment
73.
Plaintiff and the Class incorporate by reference the preceding and subsequent
paragraphs as if fully set forth herein.
74.
Defendants were unjustly enriched through their BBK sales to Plaintiff and the
75.
Plaintiff conferred a benefit on the Defendants by purchasing BBK from
Defendants. By receiving those purchase proceeds, Defendants knew of the benefit conferred
upon them.
76.
Plaintiff unknowingly overpaid for BBK given its underrepresented SPF
protection, and Defendants received and appreciated the benefit of that overpayment.
77.
Defendants were therefore unjustly enriched at the expense of Plaintiff and the
78.
Defendants have no excuse for, or defense to, their actions.
79.
Plaintiff and the Class suffered damages as a result.
13
SIXTH CLAIM FOR RELIEF
Negligent Misrepresentation
80.
Plaintiff and the Class incorporate by reference the preceding and subsequent
paragraphs as if fully set forth herein.
81.
Through the course of business as developers, marketers and sellers of BBK,
Defendants falsely represented to Plaintiff via advertising and labeling that BBK contained a
higher level of SPF than it actually did.
82.
Defendants made the false representation in furtherance of selling BBK to
consumers. The claims were designed to induce consumers to purchase BBK believing it to
provide greater UV protection and meet their sunscreen protection needs.
83.
Defendants’ SPF 50 claim was material in that it was the determining factor in
how much protection a consumer was purchasing and could reasonably expect to receive
against dangerous ultraviolet rays.
84.
Defendants’ representation was false in that BBK had an SPF level of 8, not 50
as advertised.
85.
Defendants failed to use ordinary care, and made a false representation where
they knew or should have known that it was false.
86.
Plaintiff believes the misrepresentation, and reasonably relied on it in choosing
BBK over other available products.
87.
Plaintiff and the Class suffered damages as a result of their reliance.
SEVENTH CLAIM FOR RELIEF
Fraudulent Inducement/Concealment
88.
Plaintiff and the Class incorporate by reference the preceding and subsequent
paragraphs as if fully set forth herein.
14
89.
Defendants, through advertising and labeling, represented that their BBK
product had an SPF level of 50.
90.
Defendants made the representation with the intent that Plaintiff see its product
as superior to other products with lower advertised SPF levels, and therefore believe BBK to
provide greater UVB protection. Defendants intended Plaintiff to rely on their representation
in choosing BBK over other available products.
91.
Defendants’ representation was false in that BBK did not have an SPF level of
50 as advertised, but an SPF level of 8.
92.
Based on its own production process, quality assurance system and customer
complaints, Defendants knew their representation to be false at the time it was made.
93.
Defendants’ SPF 50 claim was material in that it was the determining factor in
how much protection a consumer was purchasing and could reasonably expect to receive from
dangerous ultraviolet rays.
94.
Plaintiff believed the misrepresentation, and under the circumstances
reasonably relied on it to choose BBK over other available products.
95.
Plaintiff and the Class suffered damages as a direct result.
VII. PRAYER FOR RELIEF
WHEREFORE, Plaintiff, individually and on behalf of members of the Class, requests
the following relief:
1.
An order certifying this action as a class action under Rule 23 of the Federal
Rules of Civil Procedure;
2.
An order designating Plaintiff as representative of the Class and her undersigned
counsel as Class Counsel;
3.
Judgment in favor of Plaintiff and the Class, and against Defendant;
15
4.
An award to Plaintiff and the Class for damages equal to the amount of actual
damages that they sustained;
5.
An award to Plaintiff and the Class for attorneys’ fees and costs, including
interest, as allowed or required by law; and,
6.
For such other and further relief, in law or equity, as this Court may deem
appropriate and just.
Dated: July 14, 2016
By:
/s/ Emily J. Kirk
Emily J. Kirk # 65367
MCCUNEWRIGHT LLP
2068 Orange Tree Lane, Suite 216
Redlands, CA 92374
Telephone: (909) 557-1250
Fax: (909) 557-1275
ejk@mccunewright.com
Joseph G. Sauder*
Matthew D. Schelkopf*
Joseph B. Kenney*
MCCUNEWRIGHT, LLP
1055 Westlakes Drive, Suite 300
Berwyn, Pennsylvania 19312
Telephone: (610) 200-0580
jgs@mccunewright.com
mds@mccunewright.com
jbk@mccunewright.com
Counsel for Plaintiff and the putative Class
*Pro Hac Vice Applications to be submitted
16
DEMAND FOR JURY TRIAL
Plaintiff hereby requests trial by jury of all issues triable by jury pursuant to Rule 38 of
the Federal Rules of Civil Procedure.
Dated: July 14, 2016
By:
/s/ Emily J. Kirk
Emily J. Kirk # 65367
MCCUNEWRIGHT LLP
2068 Orange Tree Lane, Suite 216
Redlands, CA 92374
Telephone: (909) 557-1250
Fax: (909) 557-1275
ejk@mccunewright.com
Joseph G. Sauder*
Matthew D. Schelkopf*
Joseph B. Kenney*
MCCUNEWRIGHT, LLP
1055 Westlakes Drive, Suite 300
Berwyn, Pennsylvania 19312
Telephone: (610) 200-0580
jgs@mccunewright.com
mds@mccunewright.com
jbk@mccunewright.com
Counsel for Plaintiff and the putative Class
*Pro Hac Vice Applications to be submitted
17
| consumer fraud |
NtIWD4cBD5gMZwczmyeC | UNITED STATES DISTRICT COURT
DISTRICT OF COLORADO
Macushla Baumann,
Case No.: 1:21-cv-1146
individually and on behalf of all others similarly situated,
Plaintiff,
CLASS ACTION COMPLAINT
-v.-
DEMAND FOR JURY TRIAL
Revenue Enterprises, LLC;
and John Does 1-25;
Defendants.
Plaintiff Macushla Baumann brings this Class Action Complaint by and through his
attorneys, Stein Saks, PLLC, against defendant Revenue Enterprises, LLC (“Revenue”),
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” or “Act”) 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 “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. The Act concludes that “existing laws…are 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), consumers were given a private cause of action
against debt collectors who fail to comply with the Act. Id. at § 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 also has pendant jurisdiction over the 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 this is a
substantial part of the events or omissions giving rise to the claim occurred and where the Plaintiff
resides.
NATURE OF THE ACTION
5.
Plaintiff brings this class action on behalf of a class of Colorado consumers under
Section 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 Colorado, County of Garfield.
8.
Defendant Revenue 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 for service of process at 3131 S. Vaughn Way,
#500, Aurora, CO 80014.
9.
Upon information and belief, Defendant Revenue is a company that uses the mail and
telephone and regularly engages in business the principal purpose of which is to attempt to collect
debts alleged to be due another.
10.
John Does 1-25, are fictitious names of individuals and businesses alleged for the
purpose of substituting names of defendant 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:
a. all individuals with addresses in the State of Colorado;
b. to whom Defendant Revenue sent an initial letter;
c. attempting to collect a consumer debt;
d. in two sub-classes where the letter
1. states in substance:
Unless the consumer, within 30 days after receipt of the notice,
disputes the validity of the debt, or any portion thereof, the debt
will be assumed to be valid by the debt collector. If written dispute
is made within 30 days, then we will obtain verification of the debt
or copy of judgment which we will mail to you, and if so requested,
the name and address of the original creditor, if different from the
current creditor.
or;
2. states that the name of the current creditor is on the “next page” although
the name of the current creditor is not on the next page; and
e. which letter was sent on or after a date one 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 they attempt to collect and/or have
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 communication 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 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 Defendant’s written communication 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. 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 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 November 3, 2020, Plaintiff allegedly incurred an obligation to non-
party Valley View Hospital.
22.
The obligation arose out of transactions incurred primarily for personal, family, or
household purposes, specifically medical services.
23.
The alleged Valley view Hospital obligation is a "debt" as defined by 15 U.S.C.§ 1692a
24.
Revenue is a "creditor" as defined by 15 U.S.C.§ 1692a (4).
25.
Upon information and belief, Valley View Hospital contracted with Defendant Revenue
to collect the alleged debt.
26.
Defendant Revenue 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.
Violation - November 3, 2020 Collection Letter
27.
On or about November 3, 2020, Defendant Revenue sent Plaintiff a collection letter
regarding the alleged debt, originally owed to Valley View hospital. See Letter attached as Exhibit
28.
The Letter seemingly includes the notices required by 15 U.S.C. 1692g.
29.
However, the notices are not compliant with the statute.
30.
The Letter states in relevant part:
Unless the consumer, within 30 days after receipt of the notice, disputes the validity of
the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector.
If written dispute is made within 30 days, then we will obtain verification of the debt or
copy of judgment which we will mail to you, and if so requested, the name and address
of the original creditor, if different from the current creditor.
(hereafter “Faulty Notice”).
31.
Defendant’s letter includes a misleading version of the Section 1692g notices.
32.
Defendant’s notice did not conform to Section 1692g.
33.
First, The Faulty Notice’s first sentence refers to a “debt collector”.
34.
Yet, the following sentence refers to “we”, instead.
35.
The contrasting terms renders the notice misleading and confusing.
36.
In light of the contrasting terms, Plaintiff is confused as to whom the “we” refers if not
Defendant, or alternatively to whom the term “debt collector” refers if not Defendant.
37.
In addition, the Faulty Notice states “if a written dispute is made within 30 days”
without a timeline for when the “30 days” begin.
38.
The statute requires the notice to state “within thirty days after receipt of the notice”.
39.
Plaintiff was unaware how much time she had to dispute the debt.
40.
The Letter could imply that Plaintiff had thirty days from when she sends in her dispute
or thirty days from the date of the letter.
41.
Both of these implications are incorrect.
42.
The statute only provides for thirty days “after receipt of the notice”.
43.
This part of the Faulty Notice improperly truncated Plaintiff’s time for disputing the
debt or falsely appeared to extend it.
44.
Upon information and belief, Defendant would not honor a dispute sent more than thirty
days after receipt of this letter by Plaintiff.
45.
More importantly, Defendant would be under no legal obligation to do so.
46.
The Letter is therefore false, misleading, and deceptive.
47.
15 U.S.C. § 1692g requires a debt collector, in its initial communication, to include:
(4) a statement that if the consumer notifies the debt collector in writing within the
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
(5) 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.
48.
However, the Faulty Notice here does not state this.
49.
The Faulty notice includes the statement, “If written dispute is made within 30 days,
then we will obtain verification of the debt or copy of judgment which we will mail to you, and if
so requested, the name and address of the original creditor, if different from the current creditor.”
50.
The Faulty Notice merged the sub-section (4) and (5) notices into one sentence,
separated by a comma, and then inserted the words “and if so requested”.
51.
The first part of the sentence refers to a dispute but the second half refers to a request.
52.
Because no written requirement is mentioned in the second part of the sentence, it
appears as if Plaintiff could orally request the name and address of the original creditor.
53.
Upon information and belief, Defendant would not honor an oral request for this
information.
54.
More importantly, Defendant would be under no legal obligation to do so.
55.
The Letter is therefore false, misleading, and deceptive.
56.
Due to Defendant’s actions, Plaintiff was confused and thought verbal and written
disputes would present equal rights when, in fact, they did not.
57.
In addition, on the page identified as “Page 1 of 4”, the Letter states, “This account has
been referred to Revenue Enterprises, LLC for collection by your creditors listed on the next page”
(emphasis in original).
58.
Upon information and belief, the next page, identified as “Page 2 of 4” does not list the
creditors for this debt.
59.
The only non-government entity listed on “Page 2 of 4” is Revenue Enterprises.
60.
Upon information and belief, “Revenue Enterprises” listed on “Page 2 of 4” is the same
entity as Defendant “Revenue Enterprises, LLC”, listed on “Page 1 of 4”.
61.
The letter misleadingly implies that Revenue Enterprises is the creditor for this alleged
62.
Upon information and belief, the creditor is, in reality, Valley View Hospital.
63.
Valley View Hospital is only listed on the page identified as “Page 3 of 4”, not “Page 2
of 4” where it should appear as it is the “next page” after “Page 1 of 4”.
64.
Because of this obfuscation by Defendant, the Letter fails to clearly identify, or at least
overshadows, the correct “name of the creditor to whom the debt is owed”. 15 U.S.C. §1692g (2).
65.
Defendant’s actions were false, deceptive, and/or misleading.
66.
Plaintiff was concerned and confused by the Letter.
67.
Plaintiff was therefore unable to evaluate his options of how to handle this debt.
68.
Because of this, Plaintiff expended time, money, and effort in determining the proper
course of action.
69.
In addition, Plaintiff suffered emotional harm due to Defendant’s improper acts.
70.
These violations by Defendant were knowing, willful, negligent and/or intentional, and
Defendant did not maintain procedures reasonably adapted to avoid any such violations.
71.
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 to be not to be misled or treated unfairly with respect to any action
for the collection of any consumer debt.
72.
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.
73.
Defendant’s actions created an appreciable risk to Plaintiff of being unable to properly
respond or handle Defendant’s debt collection.
74.
Plaintiff was confused and misled to his detriment by the statements in the dunning
letter, and relied on the contents of the letter to his detriment.
75.
Plaintiff would have pursued a different course of action were it not for Defendant’s
statutory violations.
76.
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.
77.
Plaintiff repeats the above allegations as if set forth here.
78.
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.
79.
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.
80.
Defendant violated said section, as described above, by making false and misleading
representations in violation of Sections 1692e, 1692e (2), and 1692e (10).
81.
By reason thereof, defendant is liable to Plaintiff for judgment that Defendant’s conduct
violated Section 1692e, et seq. of the FDCPA and Plaintiff 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.
82.
Plaintiff repeats the above allegations as if set forth here.
83.
Alternatively, 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.
84.
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.
85.
Defendant violated this section by unfairly misrepresenting Plaintiff’s rights and
misleading Plaintiff as to the proper course of action.
86.
By reason thereof, Defendant is liable to Plaintiff for judgment that Defendant’s conduct
violated Section 1692f, et seq. of the FDCPA and Plaintiff is entitled to 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.
87.
Plaintiff repeats the above allegations as if set forth here.
88.
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.
89.
Defendant violated this section by failing to provide the proper notice(s) required by
Section 1692g in an initial collection letter.
90.
Defendant is therefore 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
91.
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 Macushla Baumann, individually and on behalf of all others
similarly situated, demands judgment from defendant Revenue 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: April 26, 2021
Respectfully submitted,
Stein Saks PLLC
s/ Eliyahu Babad
By: Eliyahu Babad, Esq.
285 Passaic Street
Hackensack, NJ 07601
Phone: (201) 282-6500 ext. 121
Fax: (201) 282-6501
EBabad@SteinSaksLegal.com
Attorneys for Plaintiff
| consumer fraud |
18H_DIcBD5gMZwczPUd1 | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
KATIRIA RAMOS
individually and on behalf of all
others similarly situated,
CLASS ACTION
Plaintiff,
JURY TRIAL DEMANDED
v.
PAGE BROTHERS ASSOCIATES, INC.
d/b/a CORAL SPRINGS HONDA,
a Florida corporation,
Defendant.
___________________________________/
CLASS ACTION COMPLAINT
Plaintiff, Katiria Ramos, brings this class action against Defendant, Page Brothers
Associates, Inc. d/b/a Coral Springs Honda, and 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.
This putative class action stems from Defendant’s practice of knowing and
willfully violating the Telephone Consumer Protection Act, 47 U.S.C. § 227 et seq., (“TCPA”).
2.
In order to drum up new business, Defendant sent Plaintiff and the putative class
members automated telemarketing text messages without their prior express written consent.
3.
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
4.
Jurisdiction is proper under 28 U.S.C. § 1331 as Plaintiff 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.
5.
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. Further, Defendant’s tortious conduct against Plaintiff occurred within the State of Florida
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 Florida.
PARTIES
6.
Plaintiff is a natural person who, at all times relevant to this action, was a resident
of Broward County, Florida.
7.
Defendant is a Florida corporation whose principal office is located at 9400 W.
Atlantic Blvd., Coral Springs, Florida 333071. Defendant directs, markets, and provides its business
activities throughout the State of Florida.
THE TCPA
8.
The TCPA regulates and restricts the use of automatic telephone equipment.
9.
The TCPA protects consumers from unwanted text messages that are made with
autodialers.
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
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
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 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”).
22.
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 her the text message). (emphasis
23.
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
24.
On or about May 17, 2017, Defendant, using an automated text-messaging
platform, caused the following text messages to be transmitted to Plaintiff’s cellular telephone number
ending in 2365 (the “2365 Number”):
25.
The above text message was transmitted to Plaintiff’s cellular telephone, and within
the time frame relevant to this action.
26.
Defendant’s text message constitutes telemarketing because it encouraged the
future purchase or investment in property, goods, or services. Indeed, Plaintiff’s vehicle was not due
for service, and Defendant, upon information and belief, sent the same generic text message to others
for the purpose of increasing its revenue generated from vehicle maintenance services.
27.
The shortcode (306-29) that transmitted the text messages belongs to and is
operated by Defendant.
28.
The telephone number (754-217-2296) identified in the text message is owned and
operated by Defendant.
29.
Plaintiff received the subject texts 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.
30.
At no point in time did Plaintiff provide Defendant with her express written consent
to be contacted using an ATDS.
31.
Plaintiff is the subscriber and sole user of the 2365 Number, and is financially
responsible for phone service to the 2365 Number.
32.
The impersonal and generic nature of Defendant’s text message, and the fact the
subject text message originated from a short code, demonstrates that Defendant utilized an ATDS in
transmitting the message. 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)).
33.
Specifically, upon information and belief, Defendant utilized a combination of
hardware and software systems to send the text message at issue in this case. The systems utilized by
Defendant have the current capacity or present ability to generate or store random or sequential numbers
or to dial sequentially or randomly at the time the call is made, and to dial such numbers, en masse, in
an automated fashion without human intervention.
34.
Through its telemarketing calls, Defendant violated Plaintiff’s substantive rights
under the TCPA.
35.
Further, Plaintiff suffered the following concrete injuries:
a. Invasion of her privacy;
b. Inconvenience;
c. Unwanted occupation of her time and mental energy;
d. Unwanted occupation of her cellular telephone;
e. Nuisance;
f. Trespass on her cellular telephone; and
g. Aggravation and annoyance.
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 a Class defined as follows:
All persons within the United States who, within the four
years prior to the filing of this Complaint, received a
telephone call or text message made through the use of any
automatic telephone dialing system or an artificial or
prerecorded voice, 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 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 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.
40.
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
41.
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.
42.
The common questions in this case are capable of having common answers. If
Plaintiff’s 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
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)
31.
Plaintiff re-alleges and incorporates the foregoing allegations as if fully set forth
herein.
32.
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).
33.
“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)).
34.
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.
35.
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.
36.
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 consent.
37.
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.
38.
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.
39.
Because Defendant knew or should have known that Plaintiff and the other
members of the putative Class had not given prior express consent to receive its autodialed calls
to their cellular telephones 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.
WHEREFORE, Plaintiff, Katiria Ramos, on behalf of herself and the other members of
the Class, pray 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 automatic telephone dialing
system to text message 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.
COUNT II
Knowing and/or Willful Violation of the TCPA, 47 U.S.C. § 227(b)
(On Behalf of Plaintiffs and the Class)
40.
Plaintiffs re-allege and incorporate the foregoing allegations as if fully set forth
41.
At all times relevant, Defendant knew or should have known that its conduct as
alleged herein violated the TCPA.
42.
Defendant knew that it did not have prior express consent to send these text
messages, and knew or should have known that its conduct was a violation of the TCPA.
43.
Because Defendant knew or should have known that Plaintiffs 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 Plaintiffs and the other members of the putative Class
pursuant to § 227(b)(3) of the TCPA.
44.
As a result of Defendant’s violations, Plaintiffs 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).
WHEREFORE, Plaintiff, Katiria Ramos, on behalf of herself and the other members of
the Class, pray 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 automatic telephone dialing
system to call and text message 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 and Class Members hereby demand a trial by jury.
DOCUMENT PRESERVATION DEMAND
Plaintiff demands that Defendant take affirmative steps to preserve all records, lists,
electronic databases or other itemization of telephone numbers associated with the Defendant and
the communication or transmittal of advertisements as alleged herein.
Date: June 23, 2017
SHAMIS & GENTILE, P.A.
HIRALDO P.A.
/s/ Andrew J. Shamis
/s/ Manuel S. Hiraldo
Manuel S. Hiraldo
Florida Bar No. 030380
401 E. Las Olas Boulevard
Suite 1400
Ft. Lauderdale, Florida 33301
Email: mhiraldo@hiraldolaw.com
Telephone: 954.400.4713
Andrew J. Shamis
Florida Bar No. 101754
efilings@sflinjuryattorneys.com
14 NE 1st Avenue, Suite 400
Miami, Florida 33132
(t) (305) 479-2299
(f) (786) 623-0915
Counsel for Plaintiff
Counsel for Plaintiff
| privacy |
DQxaFocBD5gMZwczg5zF | IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OHIO
)
)
)
)
)
Plaintiff,
)
No.
)
V.
)
)
)
)
Defendants.
)
CLASS ACTION COMPLAINT
Plaintiff, SANDUSKY WELLNESS CENTER, LLC ("Plaintiff"), brings this action on
PRELIMINARY STATEMENT
1.
This case challenges Defendants' practice of sending unsolicited facsimiles.
2.
The federal Telephone Consumer Protection Act, 47 USC § 227, prohibits a
3.
Unsolicited faxes damage their recipients. A junk fax recipient loses the use of its
4.
On behalf of himself and all others similarly situated, Plaintiff brings this case as
5.
Plaintiff seeks an award of statutory damages for each violation of the TCPA and
JURISDICTION AND VENUE
6.
This Court has subject matter jurisdiction under 28 U.S.C. § 1331 and 47 U.S.C. §
7.
Venue is proper in the Northern District of Ohio because Defendants committed a
PARTIES
8.
Plaintiff is an Ohio limited liability company with its principal place of business
9.
On information and belief, Defendant, HEEL, INC., is a New Mexico
10.
John Does 1-10 will be identified through discovery, but are not presently known.
FACTS
11.
On or about December 15, 2009, Defendants transmitted by telephone facsimile
12.
Defendants created or made Exhibit A which Defendants knew or should have
13.
Exhibit A is part of Defendants' work or operations to market Defendants' goods
14.
Plaintiff had not invited or given permission to Defendants to send the faxes.
17.
On information and belief, Defendants faxed the same and similar unsolicited
15.
There is no reasonable means for Plaintiff (or any other class member) to avoid
16.
Defendants' facsimiles did not display a proper opt-out notice as required by 64
TELEPHONE CONSUMER PROTECTION ACT, 47 U.S.C. § 227
17.
In accordance with FRCP 23, Plaintiff brings this action pursuant to the
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 of any property, goods, or
services by or on behalf of Defendants, (3) from whom Defendants
did not obtain prior express permission or invitation to send those
faxes, (4) with whom Defendants did not have an established
business relationship, and (5) did not display a proper opt-out
notice.
18.
Commonality [Fed. R. Civ. P. 23 (A) (2)]: Common questions of law and fact
a)
Whether the Defendants sent unsolicited fax advertisements;
b)
Whether the Defendants' faxes advertised the commercial availability of property,
goods, or services;
c)
The manner and method the Defendants used to compile or obtain the list of fax
numbers to which it sent Exhibit "A" and other unsolicited faxed advertisements;
d)
Whether the Defendants faxed advertisements without first obtaining the
recipient's prior permission or invitation;
e)
Whether the Defendants sent the faxed advertisements knowingly;
f)
Whether the Defendants violated the provisions of 47 U.S.C. § 227;
g)
Whether the Defendants should be enjoined from faxing advertisements in the
future;
h)
Whether the Plaintiff and the other members of the class are entitled to statutory
damages; and
i)
Whether the Court should award treble damages.
19.
Typicality [Fed R. Civ. P. 23 (A) (3)]: The Plaintiff's claims are typical of the20.
Fair and Adequate Representation [Fed. R. Civ. P. 23 (A) (4)]: The Plaintiff will
21.
Need for Consistent Standards and Practical Effect of Adjudication [Fed R. Civ.
22.
Common Conduct [Fed. R. Civ. P. 23 (B) (2)]: Class certification is also
23.
Predominance and Superiority [Fed. R. Civ. P. 23 (B) (3)]: Common questions
a)
Proof of the claims of the Plaintiff 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 the Defendants
may assert and prove will come from the Defendants' records and will not require
individualized or separate inquiries or proceedings;
c)
The Defendants have acted and are 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
protested 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 (1) proceeding based upon common proofs;
e)
This case is inherently managed as a class action in that:
(i)
The Defendants identified persons or entities to receive the fax
transmissions and it is believed that the Defendants' computer and business records will
enable the Plaintiff to readily identify class members and establish liability and
damages;
(ii)
Liability and damages can be established for the 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 the
Defendants' practices; and
(vi)
As a practical matter, the claims of the class are likely to go unaddressed
absent class certification.
24.
The TCPA makes unlawful the "use of any telephone facsimile machine,
"
47 U.S.C. § 227.
25.
The TCPA defines "unsolicited advertisement" as "any material advertising the
26.
The TCPA provides:
"3. 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 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."
27.
The TCPA is a strict liability statute, SO the Defendants are liable to the Plaintiff
28.
The Defendants knew or should have known that a) the Plaintiff and the other
29.
The Defendants' actions caused damages to the Plaintiff and the other class30.
The Defendants violated 47 U.S.C. § 227, et seq., by transmitting advertisements
WHEREFORE, Plaintiff, SANDUSKY WELLNESS CENTER, LLC, individually and
A.
That the Court adjudge and decree that the present case may be properly
B.
That the Court award actual monetary loss from such violations or the sum of five
C.
That Court enjoin the Defendants from additional violations; and
D.
That the Court award costs and such further relief as the Court may deem just and
Respectfully submitted,
SANDUSKY WELLNESS CENTER, LLC,
individually and as the representative of a class of
similarly-situated persons
By: s/Scott D. Simpkins
Scott D. Simpkins
CLIMACO, WILCOX, PECA,
TARANTINO & GAROFOLI CO., LPA
55 Public Square, Suite 1950
Cleveland, OH 44113
Telephone: 216/621-8484
Fax: 216/771-1632
E-mail: sdsimp@climacolaw.com
Brian J. Wanca
Ryan M. Kelly
ANDERSON + WANCA
3701 Algonquin Road, Suite 760
Rolling Meadows, IL 60008
Telephone: 847-368-1500
Fax: 847-368-1501
E-mail: bwanca@andersonwanca.com
EXHIBIT A
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- Heel | privacy |
IdnxD4cBD5gMZwczSQjC | UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
Civil Action No. 3:15-CV-2093
RICHARD J. ISOLDE, Individually and on
Behalf of All Others Similarly Situated,
CLASS ACTION
Plaintiff,
vs.
TRINITY INDUSTRIES, INC., TIMOTHY R.
WALLACE and JAMES E. PERRY,
Defendants.
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DEMAND FOR JURY TRIAL
COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS
Plaintiff, 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 Securities and Exchange Commission (“SEC”) filings by Trinity
Industries, Inc. (“Trinity” or the “Company”), as well as media reports about the Company. Plaintiff
believes that substantial additional evidentiary support will exist for the allegations set forth herein
after a reasonable opportunity for discovery.
INTRODUCTION AND OVERVIEW
1.
This is a securities class action on behalf of all persons who purchased or otherwise
acquired Trinity publicly traded securities between February 16, 2012 and April 29, 2015, inclusive
(the “Class Period”), against Trinity and certain of its officers and/or directors for violations of the
Securities Exchange Act of 1934 (“1934 Act”). These claims are asserted against Trinity and certain
of its officers and/or directors who made materially false and misleading statements during the Class
Period in press releases and filings with the SEC and in oral statements to the media, securities
analysts and investors.
2.
Trinity manufactures transportation, construction and industrial products. The
Company’s products include tank and freight railcars, inland hopper and tank barges, highway
guardrail and safety products, ready-mix concrete, and other products. Trinity also leases railcars
and other products. The Company markets its products in the United States and internationally.
3.
On April 21, 2015, an article was published on Bloomberg News, stating that the U.S.
Justice Department (“DOJ”) was conducting a criminal investigation into the Federal Highway
Administration’s (“FHWA”) continued support of Trinity’s highway guardrail system and that the
Company had engaged in cost-cutting alterations to its ET-Plus System guardrails (“ET-Plus”),
which compromised the safety of its units, which were linked to at least eight deaths.
4.
As a result of this news, the price of Trinity stock plummeted $3.43 per share to close
at $32.82 per share on April 22, 2015, a one-day decline of over 9% on volume of nearly 8.8 million
shares.1
5.
Subsequently, on April 24, 2015, Trinity confirmed that it was the target of a DOJ
investigation.
1
All share prices have been adjusted to reflect the Company’s June 2014 2-for-1 stock split.
6.
On this news, the price of Trinity stock fell $4.66 per share, to close at $28.70 per
share, a one-day decline of nearly 14% on volume of nearly 13.6 million shares.
7.
Then, on April 29, 2015, Bloomberg News reported that Trinity had received a
subpoena from the DOJ regarding “its allegedly defective guardrail safety system” and that the DOJ
sought “documents from 1999 and later regarding Trinity’s guardrail end terminals.”
8.
As a result of this news, the price of Trinity stock dropped another $0.98 per share to
close at $27.09 per share on April 30, 2015, a one-day decline of 3.5% on volume of 4.1 million
9.
As a result of defendants’ false statements, Trinity securities traded at artificially
inflated prices during the Class Period. However, after the above revelations seeped into the market,
the Company’s shares were hammered by massive sales, sending the Company’s stock price down
46% from its Class Period high and causing economic harm and damages to class members.
JURISDICTION AND VENUE
10.
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.
11.
This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C.
§1331 and §27 of the 1934 Act.
12.
Venue is proper in this District pursuant to §27 of the 1934 Act and 28 U.S.C.
§1391(b). Trinity has its headquarters in this District and many of the acts charged herein, including
the preparation and dissemination of materially false and misleading information, occurred in
substantial part in this District.
13.
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 NYSE stock market.
THE PARTIES
14.
Plaintiff Richard J. Isolde purchased Trinity publicly traded securities during the
Class Period as set forth in the attached certification and was damaged thereby.
15.
Defendant Trinity is a diversified industrial company that owns businesses providing
products and services to the energy, transportation, chemical and construction sectors. Trinity’s
principal executive offices are located at 2525 Stemmons Freeway Dallas, Texas 75207-2401.
Trinity’s common stock trades on the NYSE under the ticker symbol “TRN.”
16.
Defendant Timothy R Wallace (“Wallace”) is, and at all relevant times was, the
Company’s Chief Executive Officer (“CEO”), President, and Chairman of the Board.
17.
Defendant James E Perry (“Perry”) is, and at all relevant times was, the Company’s
Chief Financial Officer (“CFO”) and Senior Vice President.
18.
The defendants referenced above in ¶¶16-17 are collectively referred to herein as the
“Individual Defendants.” The Individual Defendants made, or caused to be made, false statements
that caused the prices of Trinity securities to be artificially inflated during the Class Period.
19.
The Individual Defendants, because of their positions with the Company, possessed
the power and authority to control the contents of Trinity’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. 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.
FRAUDULENT SCHEME AND COURSE OF BUSINESS
20.
Defendants are liable for: (i) making false statements; or (ii) failing to disclose
adverse facts known to them about Trinity. Defendants’ fraudulent scheme and course of business
that operated as a fraud or deceit on purchasers of Trinity publicly traded securities was a success, as
it: (i) deceived the investing public regarding Trinity’s prospects and business; (ii) artificially
inflated the prices of Trinity publicly traded securities; (iii) caused plaintiff and other members of the
Class (as defined below) to purchase Trinity publicly traded securities at artificially inflated prices.
SCIENTER ALLEGATIONS
21.
During the Class Period, the defendants had the motive and opportunity to commit the
alleged fraud. Defendants also had actual knowledge of the misleading statements they made and/or
acted in reckless disregard of the true information known to them at the time. In doing so, the
defendants participated in a scheme to defraud and committed acts, practices and participated in a
course of business that operated as a fraud or deceit on purchasers of Trinity securities during the
Class Period.
BACKGROUND
22.
Trinity is a diversified industrial company that, through its operating subsidiaries,
provides products and services to the energy, transportation, chemical, and construction sectors.
Trinity’s businesses provide industrial products and services ranging from railcars, barges, storage
containers, and aggregates to highway products, structural wind towers, railcar parts, and railcar
leasing and management services. Trinity operates through five principal business segments: the Rail
Group, the Railcar Leasing and Management Services Group, the Inland Barge Group, the
Construction Products Group, and the Energy Equipment Group.
23.
One of the Company’s significant products in its Construction Products Group has
been the manufacture and sale of its highway guardrail end terminal product called the ET-Plus. The
ET-Plus is a patented, energy-absorbing, guardrail end terminal system designed by engineers at the
Texas A&M Transportation Institute. The ET-Plus was designed to be used on the termination of w-
beam barriers on the shoulder or median of a roadway. Trinity has long claimed that the ET-Plus
“‘is an NCHRP Report 350 Test Level 2 and Test Level 3 compliant cable anchored system and is
acceptable for use on the National Highway System.’”
24.
The ET-Plus has been manufactured under license, marketed and sold by Trinity
Highway Products, LLC, a wholly owned subsidiary of the Company, since at least 1999. The ET-
Plus has historically typically been purchased by state transportation departments and highway
construction contractors for use along roadways and medians. The federal government, in turn,
helps state transportation departments purchase approved highway products, including Trinity’s end
terminal.
25.
As designed, the ET-Plus was supposed to absorb and dissipate the energy of a
vehicular impact. Upon impact the guardrail was to be extruded through the head and flattened out
into a ribbon, thus absorbing the majority of the errant vehicle’s energy without severe impact forces
that would result in life threatening injuries.
26.
Between 2002 and 2005, Trinity senior executives covertly modified the ET-Plus’s
energy-absorbing end terminal, a steel fixture mounted on the end of a guardrail to cushion the
impact of a crashing car, without telling the FHWA, making the product more dangerous –
sometimes fatally so. Instead of acting like a shock absorber, the revised version jammed up and
behaved more like a giant spear that impaled vehicles in head-on collisions.
DEFENDANTS’ MATERIALLY FALSE AND MISLEADING STATEMENTS
DURING THE CLASS PERIOD
27.
On February 15, 2012, after the market closed, Trinity issued a press release
announcing its fourth quarter and full year 2011 financial results. The Company reported net income
of $56.1 million, or $0.70 diluted earnings per share (“EPS”), and revenue of $941.5 million for the
fourth quarter ended December 31, 2011. Additionally, the Company reported net income of $142.2
million, or $1.77 diluted EPS, and revenue of $3.1 billion for the full year ended December 31, 2011.
The press release stated in pertinent part:
“Our companies are responding well as economic conditions change,” said
Timothy R. Wallace, Trinity’s Chairman, CEO and President. “We continue to see
consistent demand for railcars that resulted in a $2.1 billion increase in order backlog
during 2011 for our railcar manufacturing companies. Our Rail Group achieved
operating leverage associated with higher shipment volumes during the fourth
quarter, while our Railcar Leasing and Management Services Group was successful
in selling railcars from its lease fleet due to strong secondary market demand. I am
pleased with the ability of our Inland Barge Group to quickly recover from the
effects of the Missouri flood and finalize the flood’s financial impact before the end
of the year.”
28.
On February 16, 2012, Trinity filed its Form 10-K with the SEC for the fourth quarter
and full year 2011. The Form 10-K included the same results previously reported in the Company’s
February 15, 2012 press release and contained signed certifications by defendants Wallace and
Perry. The Form 10-K stated in part:
Our highway products businesses are leading U.S. manufacturers of highway
products. We manufacture guardrail, crash cushions, and other protective barriers.
The Federal Highway Administration, which determines which products are eligible
for federal funds for highway projects, has approved most of our products as
acceptable permanent and construction zone highway hardware according to
requirements of the National Cooperative Highway Research Program.
Our crash cushions and other protective barriers include multiple proprietary
products manufactured through various product license agreements with certain
public and private research organizations and inventors. We hold patents and are a
licensee for certain of our guardrail and end-treatment products, which enhances our
competitive position for these products.
29.
On April 25, 2012, Trinity issued a press release announcing its first quarter 2012
financial results. The Company reported net income of $52.9 million, or $0.66 diluted EPS, and
revenue of $925.3 million for the first quarter ended March 31, 2012. The press release stated in
“I am pleased with our consolidated financial performance in the first
quarter,” said Timothy R. Wallace, Trinity’s Chairman, CEO and President. “Our
revenues increased by 46% over the same period in 2011 and our net income
increased by 119%. Our strong first quarter results were driven by a significant
increase in railcar shipments compared to last year, along with improved profitability
and a higher level of railcar sales from the Railcar Leasing business. In addition,
deliveries in our Inland Barge Group increased during the quarter compared to the
prior year. While all of our business segments reported increases in revenues for the
first quarter of 2012 compared to the same quarter last year, our Energy Equipment
Group’s operating performance during the quarter reflects continued challenges in
our structural wind towers business. The balance of our business segments reported
increases in operating margins due to higher volumes and improved operating
leverage.”
30.
On April 26, 2012, Trinity filed its Form 10-Q with the SEC for the first quarter of
2012. The Form 10-Q included the same results previously reported in the Company’s April 25,
2012 press release and contained signed certifications by defendants Wallace and Perry.
31.
On July 25, 2012, the Company issued a press release announcing its second quarter
2012 financial results. The Company reported net income of $67.8 million, or $0.84 diluted EPS,
and revenue of $1.02 billion for the second quarter ended June 30, 2012. The press release stated in
“I am pleased with our accomplishments during the second quarter and the
overall rate of growth that we are experiencing in our company, both in terms of
growing top-line and bottom-line results,” said Timothy R. Wallace, Trinity’s
Chairman, CEO and President. “During the second quarter, our businesses continued
to perform well as they responded to various conditions within their respective
markets.”
Mr. Wallace continued, “During the second half of 2012, we are repositioning
a portion of our production capacity to meet the growing demand for products
serving the oil, gas, and chemicals industries. These products are well aligned with
our core competencies. The repositioning will include, among other things, the
conversion of certain facilities from manufacturing wind towers to railcars. These
initiatives will enhance our ability to meet market demand and achieve additional
operating leverage in the future. As we shift a portion of our production capacity to
pursue these opportunities, there are multiple variables that can influence the timing
of events pertaining to quarterly financial results. As a result, the earnings guidance
we are providing is for the second half of 2012, rather than quarterly guidance.”
32.
On July 26, 2012, the Company filed its Form 10-Q with the SEC for the second
quarter of 2012. The Form 10-Q included the same results previously reported in the Company’s
July 25, 2012 press release and contained signed certifications by defendants Wallace and Perry.
33.
On October 24, 2012, the Company issued a press release announcing it third quarter
2012 financial results. The Company reported net income of $63.2 million, or $0.80 diluted EPS,
and revenue of $937.5 million for the third quarter ended September 30, 2012. The press release
stated in part:
“I am pleased with our third quarter 2012 results, which represent the
Company’s eighth consecutive quarter of combined year-over-year revenue and
earnings growth,” said Timothy R. Wallace, Trinity’s Chairman, CEO and President.
“During the quarter, our portfolio of businesses performed well, especially those
serving the North American oil, gas, and chemical industries.”
“We made solid progress during the quarter leveraging our manufacturing
flexibility to reposition a portion of our production capacity to meet growing demand
in these industries,” Mr. Wallace continued. “During the short term, repositioning
requires up-front investment and causes operating inefficiencies that will impact
results through the end of this year. In the long term, our repositioning enhances our
ability to better serve our customers. Our outlook for 2013 remains optimistic. We
are anticipating long production runs, resulting in additional operating leverage in
our businesses that support the oil, gas, and chemical industries.”
34.
On October 25, 2012, Trinity filed its Form 10-Q with the SEC for the third quarter of
2012. The Form 10-Q included the same results previously reported in the Company’s October 24,
2012 press release and contained signed certifications by defendants Wallace and Perry.
35.
On February 20, 2013, the Company issued a press release announcing its fourth
quarter and full year 2012 financial results. The Company reported net income of $71.3 million, or
$0.90 diluted EPS, and revenue of $1.0 billion for the fourth quarter of 2012. Additionally, the
Company reported net income of $255.2 million, or $3.19 diluted EPS, and revenue of $3.8 billion
for the fiscal year ended December 31, 2012. The press release stated in part:
“I am pleased with our strong financial results for the fourth quarter and our
overall performance during 2012,” said Timothy R. Wallace, Trinity’s Chairman,
CEO and President. “We have worked diligently over the past decade to position our
company to perform well through a variety of economic conditions. Trinity’s
competency in manufacturing flexibility provides us the ability to redirect a portion
of our manufacturing resources towards select areas that have strong demand levels
for our products. In 2012, we achieved significant growth in consolidated revenues
and earnings despite continuing uncertainty within some areas of the economy.”
“During 2013, we will continue to invest resources to position our company
to pursue opportunities for infrastructure-related products that support the growing
needs in the energy, chemical, transportation, and construction industries,” Mr.
Wallace continued. “At this point, we have been successful in obtaining order
backlogs in several of our major businesses that will provide long production runs for
products serving these industries.”
36.
On February 21, 2013, Trinity filed its Form 10-K with the SEC for the fourth quarter
and fiscal year 2012. The Form 10-K included the same results previously reported in the
Company’s February 20, 2013 press release and contained signed certifications by defendants
Wallace and Perry. The Form 10-K also announced that the Company was a defendant in a False
Claims Act lawsuit, stating in pertinent part:
Our highway products businesses are leading U.S. manufacturers of guardrail,
crash cushions, and other protective barriers. The Federal Highway Administration,
which determines product eligibility for cost reimbursement using federal funds, has
approved many of our products as eligible for cost reimbursement based on
requirements set forth by the National Cooperative Highway Research Program. Our
crash cushion, protective barrier, and guardrail products include multiple proprietary
products manufactured under license from certain public and private research
organizations and inventors and Company-held patents. We sell highway products in
Canada, Mexico, and all 50 states in the U.S. We compete against several national
and regional guardrail manufacturers. We also export our proprietary highway
products to more than 60 countries worldwide.
*
*
*
Note 18. Commitments and Contingencies
*
*
*
In a related matter, on January 28, 2013, the Company was advised that the
United States filed a “Notice of Election to Decline Intervention” in a False Claims
Act (Qui Tam) complaint filed under seal on March 6, 2012 in the United States
District Court for the Eastern District of Texas, Marshall Division styled JOSHUA
HARMAN, on behalf of the UNITED STATES OF AMERICA, PLAINTIFF/Relator
(“Mr. Harman”) v. TRINITY INDUSTRIES, INC., DEFENDANT, Case 2:12-cv-
00089-JRG. Although the Company has not received service of process in this
litigation, it has obtained a copy of the complaint. Mr. Harman alleges that the
Company presented false or fraudulent claims, records or statements to the United
States to obtain payment or approval, ostensibly related to the ET-Plus, and seeks
damages equaling the cost to recall and replace all installations of the ET-Plus plus
treble civil penalties, costs, and interest. The Company notes that since its
introduction in 2000, including all improvement modifications thereafter, the ET-
Plus has satisfied the testing criteria required by the governing National Cooperative
Highway Research Program Report 350 and the product approval requirements of the
Federal Highway Administration. The Company intends to vigorously defend Mr.
Harman’s allegations which will likely result in certain legal expenses. We do not
believe that a loss is probable nor can a range of losses be determined. Accordingly,
no accrual or range of loss has been included in the accompanying consolidated
financial statements.
37.
On April 30, 2013, the Company issued a press release announcing its first quarter
2013 financial results. The Company reported net income of $79.1 million, or $0.99 diluted EPS,
and revenue of $932.9 million for the first quarter ended March 31, 2013. The press release stated in
“I am pleased with our strong financial results for the first quarter,” said
Timothy R. Wallace, Trinity’s Chairman, CEO and President. “Our performance was
positively impacted by our ability to align our manufacturing capacity with the strong
demand for our products that serve the oil, gas, and chemical industries. Our
employees are doing an outstanding job of converting production capacity to meet
customer needs for products that support these industries. Demand for railcars that
serve the oil, gas, and chemical industries in North America surged during the first
quarter contributing to a record backlog for the Rail Group of $5.1 billion. We
achieved additional operating efficiencies during the quarter, most noticeably in the
Rail Group. Our Energy Equipment Group continued to show solid improvement
during the first quarter as our wind towers facilities operated at more efficient levels
than last year.”
38.
On May 1, 2013, Trinity filed its Form 10-Q with the SEC for the first quarter of
2013. The Form 10-Q included the same results previously reported in the Company’s April 30,
2013 press release and contained signed certifications by defendants Wallace and Perry. The Form
10-Q stated in pertinent part:
As previously reported, in a related matter, on January 28, 2013, the
Company was advised that the United States filed a “Notice of Election to Decline
Intervention” in a False Claims Act (Qui Tam) complaint filed under seal on March
6, 2012 in the United States District Court for the Eastern District of Texas, Marshall
Division styled JOSHUA HARMAN, on behalf of the UNITED STATES OF
AMERICA, PLAINTIFF/Relator (“Mr. Harman”) v. TRINITY INDUSTRIES, INC.,
DEFENDANT, Case 2:12-cv-00089-JRG. Although the Company has not received
service of process in this litigation, it has obtained a copy of the complaint. Mr.
Harman alleges that the Company presented false or fraudulent claims, records or
statements to the United States to obtain payment or approval, ostensibly related to
the ET-Plus, and seeks damages equaling the cost to recall and replace all
installations of the ET-Plus plus treble civil penalties, costs, and interest. The
Company notes that since its introduction in 2000, including all improvement
modifications thereafter, the ET-Plus has satisfied the testing criteria required by the
governing National Cooperative Highway Research Program Report 350 and the
product approval requirements of the Federal Highway Administration. The
Company intends to vigorously defend against Mr. Harman’s allegations which will
likely result in certain legal expenses. We do not believe that a loss is probable nor
can a range of losses be determined. Accordingly, no accrual or range of loss has
been included in the accompanying consolidated financial statements.
39.
On July 31, 2013, the Company issued a press release announcing its second quarter
2013 financial results. The Company reported net income of $84.0 million, or $1.06 diluted EPS,
and revenue of $1.1 billion for the second quarter ended June 30, 2013. The press release stated in
“As reflected by our consolidated results, Trinity maintained its positive
momentum during the second quarter, and we expect this trend to continue
throughout the year,” said Timothy R. Wallace, Trinity’s Chairman, CEO, and
President. “Our Rail Group, Energy Equipment Group, and Construction Products
Group each recorded solid operating results compared to prior quarters. I am pleased
with their results. We continued to receive orders for products that serve the oil, gas,
and chemical industries. The amount of backlog visibility we have in our major
businesses provides us opportunities to continue to generate additional operating
efficiencies. Our outlook for the future remains positive.”
40.
On August 1, 2013, Trinity filed its Form 10-Q with the SEC for the second quarter
of 2013. The Form 10-Q included the same results previously reported in the Company’s July 31,
2013 press release and contained signed certifications by defendants Wallace and Perry. The Form
10-Q stated in pertinent part:
As previously reported, in a related matter, on January 28, 2013, the
Company was advised that the United States filed a “Notice of Election to Decline
Intervention” in a False Claims Act (Qui Tam) complaint filed under seal on March
6, 2012 in the United States District Court for the Eastern District of Texas, Marshall
Division styled JOSHUA HARMAN, on behalf of the UNITED STATES OF
AMERICA, PLAINTIFF/Relator (“Mr. Harman”) v. TRINITY INDUSTRIES, INC.,
DEFENDANT, Case 2:12-cv-00089-JRG. Although the Company did not receive
service of process with respect to the Original Complaint, the Company was served
with Mr. Harman’s Amended Complaint on May 17, 2013. Mr. Harman alleges that
the Company presented false or fraudulent claims, records or statements to the
United States to obtain payment or approval, ostensibly related to the ET-Plus, and
seeks damages equaling the cost to recall and replace all installations of the ET-Plus
plus treble civil penalties, costs, and interest. The Company notes that since its
introduction in 2000, including all improvement modifications thereafter, the ET-
Plus has satisfied the testing criteria required by the governing National Cooperative
Highway Research Program Report 350 and the product approval requirements of the
Federal Highway Administration. The Company intends to vigorously defend against
Mr. Harman’s allegations which will likely result in certain legal expenses. We do
not believe that a loss is probable nor can a range of losses be determined.
Accordingly, no accrual or range of loss has been included in the accompanying
consolidated financial statements.
41.
On October 30, 2013, the Company issued a press release announcing its third quarter
2013 financial results. The Company reported net income of $99.6 million, or $1.26 diluted EPS,
and revenue of $1.1 billion for the third quarter ended September 30, 2013. The press release stated
“The Company sustained its positive momentum during the quarter, reporting
record net income and EPS and extending consecutive year-over-year growth in
quarterly revenues and net income to twelve quarters,” said Timothy R. Wallace,
Trinity’s Chairman, CEO, and President. “This is a tremendous accomplishment, and
I am very proud of the hard work and talent of our people over the last several years
to align our manufacturing capacity with the strong demand for our products that
serve the oil, gas, and chemical industries.”
Mr. Wallace continued, “During the quarter, the Rail Group maintained its
record $5.1 billion backlog. I am pleased that our structural wind towers business
increased its backlog and now has production visibility through 2015. The amount of
backlog visibility we have in our major businesses provides opportunities to continue
to generate additional operating efficiencies. In addition, our portfolio of businesses
remains well-positioned to serve the fast-growing North American oil, gas, and
chemical industries, and we are prepared to respond to demand increases in other
industries should broader economic activity improve. Our solid financial position,
combined with our extended backlogs, enhances our confidence to seek new growth
opportunities for our portfolio of diversified industrial businesses.”
42.
On October 31, 2013, Trinity filed its Form 10-Q with the SEC for the third quarter of
2013. The Form 10-Q included the same results previously reported in the Company’s October 30,
2013 press release and contained signed certifications by defendants Wallace and Perry.
43.
On February 19, 2014, the Company issued a press release announcing its fourth
quarter and full year 2013 financial results. The Company reported net income of $112.8 million, or
$1.44 diluted EPS, and revenue of $1.3 billion for the fourth quarter ended December 31, 2013.
Additionally, the Company reported net income of $375.5 million, or $4.75 diluted EPS, and
revenue of $4.4 billion for the year ended December 31, 2013. The press release stated in part:
“I am pleased with our strong financial results for the fourth quarter and our
overall performance during 2013,” said Timothy R. Wallace, Trinity’s Chairman,
CEO and President. “We achieved a number of key financial milestones, reporting
record revenues, net income and earnings per share for both the fourth quarter and
the full year. I am very proud of our people, whose capabilities and hard work
enabled us to realign a portion of our manufacturing capacity to serve customers for
products in the oil, gas, and chemical industries. During 2013, we announced two
transactions with institutional investors desiring to invest in a portfolio of leased
railcars, RIV 2013, a $1 billion railcar investment partnership, and Element
Financial, through a $2 billion program agreement. I expect these transactions will
continue to create value for the Company.”
Mr. Wallace added, “During 2014, we will continue to invest resources to
position our company to pursue opportunities for infrastructure-related products that
support the growing needs in the energy, chemical, transportation, and construction
industries. We have a great deal of positive momentum occurring within Trinity.”
44.
On February 20, 2014, Trinity filed its Form 10-K with the SEC for the fourth quarter
and full year 2013. The Form 10-K included the same results previously reported in the Company’s
February 19, 2014 press release and contained signed certifications by defendants Wallace and
45.
On April 29, 2014, the Company issued a press release announcing its first quarter
2014 financial results. The Company reported net income of $226.4 million, or $2.85 diluted EPS,
and revenue of $1.5 billion for the first quarter ended March 31, 2014. The press release stated in
“The Company sustained its positive momentum during the first quarter,
reporting a record level of net income and EPS that exceeded prior record levels by a
wide margin,” said Timothy R. Wallace, Trinity’s Chairman, CEO and President.
“During the first quarter, all of our business groups improved their results, increasing
both operating profit and margin compared to the prior year. Since the fourth quarter
of 2010, we have been successful in extending year-over-year growth in revenue and
net income. These are tremendous accomplishments, and I am very proud of our
people, whose capabilities and hard work enabled us to realign our manufacturing
capacity to meet strong demand for our products and services that support the oil,
gas, and chemicals industries.”
Mr. Wallace added, “I am pleased with the value we are creating from the
strategic railcar leasing transactions we have completed over the last year. Our
leasing platform provides the Company with a tremendous amount of financial
flexibility, creating capital available to invest across our portfolio of businesses and
grow through acquisitions. During the first quarter of 2014, we acquired the assets of
three manufacturing companies that provide us with important competencies as we
grow our presence in the energy markets. We will continue to invest resources to
position our company for continued growth.”
46.
On April 30, 2014, Trinity filed its Form 10-Q with the SEC for the first quarter of
2014. The Form 10-Q included the same results previously reported in the Company’s April 29,
2014 press release and contained signed certifications by defendants Wallace and Perry.
47.
On July 29, 2014, the Company issued a press release announcing its second quarter
2014 financial results. The Company reported net income of $164.2 million, or $1.01 diluted EPS,
and revenue of $1.5 billion for the second quarter ended June 30, 2014. The press release stated in
“I am pleased with our strong results for the second quarter and our ability to
build upon the positive momentum occurring within Trinity over the last several
years,” said Timothy R. Wallace, Trinity’s Chairman, CEO and President.
“Consolidated revenues increased 39% year-over-year and net earnings nearly
doubled, outpacing revenue growth by a wide margin. The amount of operating
leverage we obtained and the record $6.5 billion backlog in our major businesses at
the end of the second quarter were impressive.”
Mr. Wallace added, “We believe this momentum and the investments we
have made in 2014 position us well. Our recently announced agreement to acquire
the assets of Meyer Steel Structures is expected to close in the third quarter, subject
to regulatory approval. Meyer’s strong engineering reputation, manufacturing
capabilities, and products with high steel content align well with Trinity’s existing
competencies and offer opportunities to create additional value. The acquisition will
broaden Trinity’s product portfolio and supports our vision of being a premier,
diversified industrial company.”
48.
On July 30, 2014, Trinity filed its Form 10-Q with the SEC for the second quarter of
2014. The Form 10-Q included the same results previously reported in the Company’s July 29, 2014
press release and contained signed certifications by defendants Wallace and Perry. The Form 10-Q
stated in pertinent part:
As previously reported, on January 28, 2013, the United States filed a “Notice
of Election to Decline Intervention” in a False Claims Act (Qui Tam) complaint filed
under seal on March 6, 2012 in the United States District Court for the Eastern
District of Texas, Marshall Division styled Joshua Harman, on behalf of the United
States of America, Plaintiff/Relator (“Mr. Harman”) v. Trinity Industries, Inc.,
Defendant, Case 2:12-cv-00089-JRG. Although the Company did not receive service
of process with respect to the Original Complaint, the Company was served with Mr.
Harman’s Amended Complaint on May 17, 2013. The trial began on July 14, 2014
and ended in a mistrial on July 18, 2014. The case is expected to be retried in the fall
of 2014. Mr. Harman alleges the Company knowingly presented or caused to be
presented a false or fraudulent claim, record or statement to purchasers of the product
in order for such purchasers to obtain payment or approval (eligibility for Federal-aid
reimbursement) related to the Company’s ET-Plus guardrail end-terminal system.
Mr. Harman is seeking damages equaling the amount the United States paid in
federal-aid reimbursement for ET-Plus systems from March 6, 2006 to December 31,
2013, less the value of the ET-Plus systems received, trebled, plus civil penalties. Mr.
Harman’s most recent damage model calculates this amount at approximately $775.7
million exclusive of attorney’s fees, costs, and interest. The Company intends to
vigorously defend itself against Mr. Harman’s allegations which will result in certain
legal expenses.
Since its introduction in 2000, including all improvement modifications
thereafter, the ET-Plus system has satisfied the testing criteria required by the
governing National Cooperative Highway Research Program Report 350 and the
product approval requirements of the Federal Highway Administration (“FHWA”).
As affirmed in a Memorandum dated June 17, 2014, the FHWA advised its Division
Administrators, Directors of Field Services, Federal Lands Division Engineers, and
Safety Field that “The Trinity ET-Plus with 4-inch guide channels became eligible
for Federal reimbursement under FHWA letter CC-94 on September 2, 2005. In
addition, the device is eligible for reimbursement under FHWA letters CC-94A and
CC-120. Staff confirmed the reimbursement eligibility of the device at heights from
27 3/4 inches to 31 inches. An unbroken chain of eligibility for Federal-aid
reimbursement has existed since September 2, 2005 and the ET-Plus continues to be
eligible today.” This Memorandum is available on the FHWA’s web site at:
http://safety.fhwa.dot.gov/roadway_dept/policy_guide/road_hardware/memo
_etplus_wbeam.cfm
Based upon the unbroken chain of eligibility of the ET-Plus system for
Federal-aid reimbursement, we do not believe that a loss is probable or that a range
of reasonably possible losses exists. Accordingly, no accrual or range of loss has
been included in the accompanying consolidated financial statements.
49.
On October 12, 2014, the New York Times published an article reporting that at least
three states had banned the use of guardrail heads manufactured by Trinity. A few days later, after
the close of trading on October 14, 2014, the New York Times published an article reporting that
Virginia had threatened to remove guardrails sold by Trinity unless it performed additional safety
50.
On October 20, 2014, a jury found that Trinity had deliberately withheld information
from the U.S. government about cost-saving changes made to its highway guardrail system that
made it more dangerous, ruling the Company defrauded the government by $175 million. The
verdict was the result of the whistleblower lawsuit brought by Joshua Harman, which claimed that
Trinity made secret design changes that transformed one of its products into a potentially lethal
highway hazard, falsely passing off the product as eligible for federal funding.
51.
On October 20, 2014, Bloomberg News published an article entitled “Guardrail
Maker’s Secret Changes Defrauded Government,” which stated in part:
Trinity Industries Inc. duped the U.S. government by hiding changes to its guardrail
systems, a jury found, exposing the company to $1 billion in liability and sending
shares plummeting at a time when several states are scrutinizing the safety of the
company’s products.
The verdict comes as scrutiny of Trinity’s ET-Plus device intensifies across
the country after it’s been blamed for multiple deaths. The Federal Highway
Administration this month asked all states to start submitting information on crashes
involving the ET-Plus to the agency’s safety office.
The agency, which approves products for use on federal highways, will
evaluate the findings of the case and “consider whether it affects the continued
eligibility of the ET-Plus,” Brian Farber, a spokesman for the Department of
Transportation, said in an e-mail after yesterday’s verdict by jurors in Marshall,
Texas federal court.
About a decade ago, Trinity changed the design of the ET-Plus, according to
a whistleblower lawsuit filed by competitor Joshua Harman. Instead of acting as a
crash cushion, it can seize up and impale vehicles that hit the end of a guardrail,
Harman claimed. The company didn’t disclose the changes to the federal government
as required and the guardrails remained eligible for federal reimbursements,
according to Harman’s lawyers.
Jurors deliberated for about 3 1/2 hours before finding the guardrail maker
cheated the government of $175 million.
*
*
*
Damages to be awarded against the company will be tripled and added to a
penalty to be determined by the judge, with total liability possibly reaching $1
billion, a company lawyer said in May. The company had $934 million in cash and
equivalents available as of June 30, according to financial reports. The $525 million
jury verdict is the third biggest in the U.S. this year.
52.
Subsequently on October 20, 2014, Trinity issued a press release entitled “Statement
by Trinity Industries, Inc.,” which stated in part:
Earlier today a jury in the U.S. District Court for the Eastern District of Texas
returned a verdict against Trinity Industries, Inc. in a False Claims Act case. The
jury awarded $175 million in damages.
The Company respects the jury’s decision. However, Trinity believes the
decision cannot and will not withstand legal scrutiny. The Company strongly
believes the courts will affirm its position.
53.
After this news, the price of Trinity stock fell $4.45 per share, to close at $31.63 per
share on October 20, 2014, a one-day decline of 12% on volume of 12.8 million shares. This was
the biggest one-day drop in more than five years.
54.
On October 24, 2014, Trinity issued a press release entitled “Trinity Highway
Products to Stop Shipments of ET-Plus® System.” The press release stated in part:
Trinity Highway Products, LLC announced today that it will stop the shipment of the
ET-Plus® System until additional crash testing can be completed.
The Federal Highway Administration (FHWA) recently requested additional
crash testing of the ET-Plus® System in support of its ongoing evaluation of the ET-
Plus® System. The Company will continue working with FHWA related to further
testing and will stop shipment of the product until requested testing is completed.
“In light of FHWA’s request, the right thing to do is to stop shipping the
product until the additional testing has been completed,” said Gregg Mitchell,
President, Trinity Highway Products, LLC. “We have confidence in the ET-Plus®
System as designed and crash tested by Texas A&M Transportation Institute. It has
met all tests previously requested by FHWA. We take the safety of the products we
manufacture very seriously.” Gregg Mitchell said.
55.
On October 28, 2014, the Company issued a press release announcing its third quarter
2014 financial results. The Company reported net income of $149.4 million, or $0.90 diluted EPS,
and revenue of $1.56 billion for the third quarter ended September 30, 2014. The press release
stated in part:
“During the third quarter, Trinity generated record revenues and its 17th
consecutive quarter of year-over-year growth in net earnings,” said Timothy R.
Wallace, Trinity’s Chairman, CEO and President. “Our major businesses reported a
record combined backlog valued at more than $7.1 billion at the end of the third
quarter, representing 15% growth year-over-year. I continue to be impressed with
our team of people and the amount of operating leverage they are obtaining. Their
capabilities and hard work have enabled us to realign our manufacturing capacity to
meet strong demand for our products and services that support the North American
energy renaissance.”
Mr. Wallace added, “In addition to reporting strong financial results during
the quarter, we made continued progress toward achieving our vision of being a
premier, diversified industrial company. This progress is demonstrated by the more
than $700 million we have committed to acquisitions in our Energy Equipment
Group thus far in 2014. The integration of Meyer Steel Structures, which closed in
August, is progressing smoothly.”
56.
On October 29, 2014, Trinity filed its Form 10-Q with the SEC for the third quarter of
2014. The Form 10-Q included the same results previously reported in the Company’s October 28,
2014 press release and contained signed certifications by defendants Wallace and Perry. The Form
10-Q stated in pertinent part:
We previously reported that on January 28, 2013, the United States filed a
“Notice of Election to Decline Intervention” in a False Claims Act (“Act”) complaint
filed under seal on March 6, 2012 in the United States District Court for the Eastern
District of Texas, Marshall Division (“District Court”) styled Joshua Harman, on
behalf of the United States of America, Plaintiff/Relator v. Trinity Industries, Inc.,
Defendant, Case 2:12-cv-00089-JRG. Mr. Harman alleged the Company knowingly
presented or caused to be presented a false or fraudulent claim, record or statement to
purchasers of the Company’s ET-Plus® System, a highway guardrail end-terminal
(“ET-Plus”), in order for such purchasers to obtain federal-aid reimbursement for
payments made on such purchases. On October 20, 2014 a trial of this case
concluded with a jury verdict stating that the Company and its subsidiary, Trinity
Highway Products, LLC, “knowingly made, used or caused to be made or used, a
false record or statement material to a false or fraudulent claim,” awarding $175
million in damages based on such finding. The jury’s damages award, to the extent it
survives the Company’s challenge in post-trial motions or on appeal, is automatically
trebled under the Act to $525 million. Additionally, the District Court is required to
impose civil penalties for each violation of the Act (which penalties are not
automatically trebled). The District Court has the discretion to establish the civil
penalty amount between $5,500 and $11,000 per violation. In this regard, the Relator
contended during trial that certain invoices submitted to purchasers of the ET-Plus
certified that the product was accepted by the Federal Highway Administration
(“FHWA”) and was therefore eligible for federal-aid reimbursement. Based on
Relator’s damages model in this respect, the range of possible civil penalties is
$5,500 (if the District Court determines there has been a single violation) to $184
million (if the District Court determines that each invoice for the product was a
violation).
The District Court has not yet entered a final judgment or determined a civil
penalty amount. While the Company believes the District Court does not have the
evidence required under the law to quantify civil penalties, the range of loss in this
case, based on the jury’s verdict and Mr. Harman’s damage model for civil penalties,
is $525 million to $709 million, exclusive of attorney’s fees, costs, and interest.
*
*
*
On October 21, 2014, the FHWA advised the Company that in light of the
jury’s finding the Company must perform additional crash testing of the ET-Plus to
support the FHWA’s ongoing evaluation of ET-Plus performance. On October 24,
2014, the Company issued a press release stating that it will stop shipments of the
ET-Plus until additional crash testing of the ET-Plus can be completed. Prior to the
Company’s press release, certain states had either removed the ET-Plus from their
respective qualified products list or suspended further purchases of the ET-Plus
pending the outcome of the FHWA-requested crash tests. The state of Virginia is also
evaluating a potential recall of all ET-Plus products installed on Virginia roadways.
Other states could take similar or different actions. While the financial impacts of
such actions are currently unknown, they could be material. The Company is
working with the FHWA to develop a plan for performing the requested crash testing
and analysis.
*
*
*
The Company is currently defending a number of product liability lawsuits in several
different states that are alleged to involve the ET-Plus. These cases are diverse in
light of the randomness of collisions in general and the fact that each accident
involving roadside devices such as an ET-Plus, or any other fixed object along the
highway has its own unique facts and circumstances. Report 350 recognizes that
performance of even the most carefully researched roadside device is subject to
physical laws and the crash worthiness of vehicles. While the Company is
vigorously defending these lawsuits, the recent verdict in the Harman matter may
affect the ultimate outcome in one or more of these cases. Moreover, the Company
expects the recent verdict, coupled with the media attention the verdict has generated,
will prompt the plaintiff’s bar to seek out vehicle accident victims involved in
collisions with an ET-Plus as potential clients, which may result in additional product
liability lawsuits being filed against the Company. The Company carries general
liability insurance to mitigate the impact of adverse verdict exposures in these cases.
57.
On December 12, 2014, Bloomberg News reported that, according to two guardrail
industry professionals, in order to address the allegedly lethal flaw, Trinity began making yet another
undisclosed version of the system.
58.
On February 18, 2015, the Company issued a press release announcing its fourth
quarter and full year 2014 financial results. The Company reported net income of $138.2 million, or
$0.86 diluted EPS, and revenue of $1.7 billion for the fourth quarter of 2014. Additionally, the
Company reported net income of $678.2 million, or $4.19 diluted EPS, and revenue of $6.2 billion
for the year ended December 31, 2014. The press release stated in part:
“During 2014, we utilized the strengths of our integrated business model to
achieve record financial results, with all of our business segments reporting higher
revenue and profit,” said Timothy R. Wallace, Trinity’s Chairman, CEO and
President. “Our Rail Group received a record number of orders in 2014, and its $7.2
billion order backlog provides significant production visibility. Our Leasing Group
achieved record financial results in 2014 and generated strong earnings and cash flow
from strategic railcar leasing transactions completed during the year. We invested
over $700 million in acquisitions within our Energy Equipment Group, which added
complementary product lines that provide long-term growth opportunities.”
59.
On February 19, 2015, Trinity filed its Form 10-K with the SEC for the fourth quarter
and full year ended December 31, 2014. The Form 10-K included the same results previously
reported in the Company’s February 18, 2015 press release and contained signed certifications by
defendants Wallace and Perry. The Form 10-K stated in pertinent part:
We previously reported that on January 28, 2013, the United States filed a
“Notice of Election to Decline Intervention” in a False Claims Act (“Act”) complaint
filed under seal on March 6, 2012 in the United States District Court for the Eastern
District of Texas, Marshall Division (“District Court”) styled Joshua Harman, on
behalf of the United States of America, Plaintiff/Relator v. Trinity Industries, Inc.,
Defendant, Case 2:12-cv-00089-JRG. Mr. Harman alleged the Company knowingly
presented or caused to be presented a false or fraudulent claim, record or statement to
purchasers of the Company’s ET-Plus® System, a highway guardrail end-terminal
(“ET Plus”), in order for such purchasers to obtain Federal-aid reimbursement for
payments made on such purchases. On October 20, 2014 a trial of this case
concluded with a jury verdict stating that the Company and its subsidiary, Trinity
Highway Products, LLC, “knowingly made, used or caused to be made or used, a
false record or statement material to a false or fraudulent claim,” awarding $175
million in damages based on such finding. The jury’s damages award, to the extent it
survives the Company’s challenge in post-trial motions or on appeal, is automatically
trebled under the Act to $525 million. Additionally, the District Court is required to
impose civil penalties for each violation of the Act (which penalties are not
automatically trebled). The District Court has the discretion to establish the civil
penalty amount between $5,500 and $11,000 per violation. In this regard, the Relator
contended during trial that certain invoices submitted to purchasers of the ET Plus
certified that the product was accepted by the Federal Highway Administration
(“FHWA”) and was therefore eligible for Federal-aid reimbursement. Based on
Relator’s damages model in this respect, the range of possible civil penalties is
$5,500 (if the District Court determines there has been a single violation) to $184
million (if the District Court determines that each invoice for the product was a
violation).
The District Court has not yet entered a final judgment or determined a civil
penalty amount. While the Company believes the District Court does not have the
evidence required under the law to quantify civil penalties, the total range of loss in
this case, based on the jury’s verdict and Mr. Harman’s damage model for civil
penalties, is $525 million to $709 million, exclusive of attorney’s fees, costs, and
interest.
*
*
*
On October 21, 2014, in light of the jury’s finding, the FHWA requested that
the Company perform eight (8) additional crash tests of the ET Plus to support the
FHWA’s ongoing evaluation of ET Plus performance. The eight tests were
comprised of four tests at a guardrail height of 27 3/4" and four tests at a guardrail
height of 31". On October 24, 2014, the Company issued a press release stating that
it will stop shipments of the ET Plus until additional crash testing of the ET Plus was
completed. The requested tests were conducted in December 2014 and January 2015,
in accordance with Report 350 at Southwest Research Institute, an FHWA-approved
and independent research facility. Report 350 sets forth the performance evaluation
criteria applicable to the ET Plus and many other roadside safety features used on
U.S. highways. The ET Plus extruder heads tested in all eight tests were randomly
selected by the FHWA from inventory at the California Department of
Transportation. These extruder heads were representative of what is in use on U.S.
and Canadian highways.
60.
On April 21, 2015, Bloomberg News published an article entitled “U.S. Opens
Criminal Probe Into Highway Guardrails Alleged to Turn Into Spears on Impact,” which stated in
The U.S. Justice Department is conducting a criminal investigation into the
use of a highway guardrail system linked to at least eight deaths, according to people
familiar with the matter, signaling a new wave of potential woes for manufacturer
Trinity Industries Inc.
61.
As a result of this news, the price of Trinity stock plummeted $3.43 per share to close
at $32.82 per share on April 22, 2015, a one-day decline of over 9% on volume of nearly 8.8 million
62.
Subsequently, on April 24, 2015, Trinity confirmed that it was the target of a DOJ
investigation.
63.
On this news, the price of Trinity stock fell $4.66 per share, to close at $28.70 per
share, a one-day decline of nearly 14% on volume of nearly 13.6 million shares.
64.
Then, on April 29, 2015, Bloomberg News published an article entitled “Trinity Gets
Subpoena in Probe of Guardrail Safety Device.” The article reported that Trinity had received a
subpoena from the DOJ regarding “its allegedly defective guardrail safety system.” The article
further stated in part:
The subpoena, issued by U.S. Attorney Carmen Ortiz in Boston, seeks
documents from 1999 and later regarding Trinity’s guardrail end terminals, which are
designed to absorb the impact of a crash, the company said in a regulatory filing.
The subpoena, which Trinity said it received on April 28, comes one week after
Bloomberg News first reported a federal criminal investigation involving the
company’s ET-Plus guardrail system.
65.
As a result of this news, the price of Trinity stock dropped another $0.98 per share to
close at $27.09 per share on April 30, 2015, a one-day decline of 3.5% on volume of 4.1 million
66.
As a result of defendants’ false statements, Trinity securities traded at artificially
inflated prices during the Class Period. However, after the above revelations seeped into the market,
the Company’s shares were hammered by massive sales, sending the Company’s stock price down
46% from its Class Period high and causing economic harm and damages to Class members.
LOSS CAUSATION/ECONOMIC LOSS
67.
During the Class Period, defendants made false and misleading statements by
misrepresenting the safety of Trinity’s guardrail systems and engaged in a scheme to deceive the
market. Defendants’ conduct artificially inflated the prices of Trinity securities and operated as a
fraud or deceit on the Class. Later, when defendants’ prior misrepresentations were disclosed to
market participants, the prices of Trinity securities plummeted, as the prior artificial price inflation
came out of the securities. As a result of their purchases of Trinity securities during the Class
Period, plaintiff and 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
68.
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 Trinity 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.
69.
At all relevant times, the market for Trinity securities was efficient for the following
reasons, among others:
(a)
Trinity 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, Trinity filed periodic public reports with the SEC; and
(c)
Trinity 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
70.
Many (if not all) of defendants’ false and misleading statements during the Class
Period were not forward-looking statements (“FLS”) and/or were not identified as such by
defendants, and thus did not fall within any “Safe Harbor.”
71.
Trinity’s verbal “Safe Harbor” warnings accompanying its oral FLS issued during the
Class Period were ineffective to shield those statements from liability.
72.
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 Trinity 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
73.
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 or otherwise acquired Trinity publicly
traded securities 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.
74.
The members of the Class are so numerous that joinder of all members is
impracticable. The Company’s stock is actively traded on the NYSE and there are over 155 million
shares of Trinity 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 Trinity 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.
75.
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 prices of Trinity securities and the
extent and appropriate measure of damages.
76.
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.
77.
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.
78.
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
79.
Plaintiff incorporates ¶¶1-78 by reference.
80.
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.
81.
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 Trinity
securities during the Class Period.
82.
Plaintiff and the Class have suffered damages in that, in reliance on the integrity of
the market, they paid artificially inflated prices for Trinity securities. Plaintiff and the Class would
not have purchased Trinity 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.
83.
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 Trinity
publicly traded securities during the Class Period.
COUNT II
For Violation of §20(a) of the 1934
Act Against All Defendants
84.
Plaintiff incorporates ¶¶1-83 by reference.
85.
During the Class Period, defendants acted as controlling persons of Trinity within the
meaning of §20(a) of the 1934 Act. By virtue of their positions and their power to control public
statements about Trinity, the Individual Defendants had the power and ability to control the actions
of Trinity and its employees. Trinity controlled the Individual Defendants and its other officers and
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 class representative under Rule 23 of the Federal Rules of Civil
Procedure and plaintiff’s counsel as Lead Counsel;
B.
Awarding plaintiff and the members of the Class 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
JURY DEMAND
Plaintiff demands a trial by jury.
DATED: June 19, 2015
THE LAW OFFICE OF BALON B. BRADLEY
BALON B. BRADLEY, Bar No. 02821700
s/ Balon B. Bradley
BALON B. BRADLEY
5473 Blair Road, Suite 100
Dallas, TX 75231
Telephone: 972/991-1582
972/755-0424 (fax)
balon@bbradleylaw.com
ROBBINS GELLER RUDMAN
& DOWD LLP
DAVID C. WALTON
NATHAN R. LINDELL
655 West Broadway, Suite 1900
San Diego, CA 92101-8498
Telephone: 619/231-1058
619/231-7423 (fax)
JOHNSON & WEAVER, LLP
FRANK J. JOHNSON
600 West Broadway, Suite 1540
San Diego, CA 92101
Telephone: 619/230-0063
619/255-1856 (fax)
Attorneys for Plaintiff
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