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_c_GDocBD5gMZwczeZ91 | BRIAN A. VOGEL (No. 167413)
HEATHER A. QUEST (No. 186749)
THE LAW OFFICES OF BRIAN A. VOGEL, PC
770 County Square Drive, Suite 104
Ventura, CA 93003
Telephone: (805) 654-0400
Facsimile: (805) 654-0326
E-Mail: [email protected]; [email protected]
BARRETT S. LITT (No. 45527)
DAVID S. McLANE (No. 124952)
KAYE, McLANE & BEDNARSKI, LLP
234 East Colorado Boulevard, Suite 230
Pasadena, California 91101
Telephone: (626) 844-7660
Facsimile: (626) 844-7670
E-Mail: [email protected]; [email protected]
Attorneys for Plaintiffs
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
M.S., an Individual by and through his
Guardian Ad Litem, MARY RODGERS-
VEY, and O.M., an Individual by and
through his Guardian Ad Litem, ADRIAN
MOJICA, on behalf of themselves and all
others similarly situated,
Plaintiffs,
Case No.
CLASS ACTION
COMPLAINT FOR
DECLARATORY AND
INJUNCTIVE RELIEF UNDER
THE CIVIL RIGHTS ACT, 42
U.S.C. §1983, AND DAMAGES
DEMAND FOR JURY TRIAL
vs.
COUNTY OF VENTURA; VENTURA
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CLASS ACTION COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF AND DAMAGES
COUNTY SHERIFF'S OFFICE;
VENTURA COUNTY SHERIFF GEOFF
DEAN, an Official; CALIFORNIA
FORENSIC MEDICAL GROUP;
TAYLOR FITHIAN, an Official as
Director of California Forensic Medical
Group; PAM AHLIN, an Official as
Director of California Department of State
Hospitals; HARRY OREOL, an Official as
Director of Patton State Hospital; MHM
SERVICES OF CALIFORNIA, INC.;
MARCUS LOPEZ, an Official as Director
of MHM Services of California, Inc; and
DOES 1 through 10, inclusive,
Defendants.
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I.
INTRODUCTION
1.
Under California law, a person accused of a crime cannot be tried or
punished while that person is mentally incompetent. Penal Code § 1367. A court
may find a defendant is mentally incompetent if, as a result of mental disorder or
developmental disability, the defendant is unable to understand the nature of the
criminal proceedings or to assist counsel in the conduct of a defense in a rational
manner. Id. Such a finding triggers a process designed to evaluate, treat and
restore the defendant’s mental health so that judicial proceedings may resume. If a
court determines that a defendant is mentally incompetent, all proceedings in the
criminal prosecution are suspended and civil proceedings are instituted until the
defendant regains mental competence or a finding is made that the detainee is
unlikely to regain competence. Penal Code § 1370(a)(1)(B).
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CLASS ACTION COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF AND DAMAGES
2.
The vast majority of defendants found incompetent to stand trial (“IST”)
have very few resources and are unable to post bail. These detainees generally
remain in the county jail while they are evaluated, adjudicated IST, and then
subsequently placed in a treatment facility.
3.
During the IST evaluation and restoration periods, speedy trial rights are
automatically waived, and detainees lose statutory pre-trial custody credits
applicable to criminal pre-trial detainees. Unfortunately, Defendants have
persistently failed to provide adequate mental health treatment or competency
restoration services on a timely basis to IST detainees. Stays of criminal
proceedings pending the evaluation, placement recommendation, preparation of the
mental health commitment packet, and time spent on the waiting list for placement
in a California Department of State Hospitals (“DSH”) treatment facility often last
for months before any restorative treatment begins. As a result, these individuals
often end up spending more time in jail prior to adjudication than they would if
they had pled guilty. More importantly, the delays have caused individuals with
mental health disabilities to suffer needless deterioration of their mental health as
they sit in jails, frequently in prolonged isolation, for weeks and months before
receiving the mental health treatment and restoration services Defendants are
responsible for providing.
II.
JURISDICTION AND VENUE
4.
This action is brought pursuant to 42 U.S.C. § 1983 and 42 U.S.C. § 12132.
5.
This Court has jurisdiction over the subject matter of this action pursuant to
28 U.S.C. § 1331 (federal question jurisdiction) and 28 U.S.C. § 1343 (civil rights
jurisdiction).
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CLASS ACTION COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF AND DAMAGES
6.
Venue in the United States District Court, Central District of California, is
based upon 28 U.S.C. § 1391(a) (2) in that a substantial part of the events giving
rise to the claims occurred in this district.
III. PARTIES
PLAINTIFF REPRESENTATIVES
7.
Mary Rodgers-Vey is the mother and guardian ad litem of M.S. who has a
lengthy history of mental illness. M.S. was arrested on August 22, 2015, on
suspicion of a felony violation of first degree residential burglary. He was booked
into the Ventura County Jail the same day. On August 24, 2015, the Ventura
County District Attorney filed a complaint alleging a single felony count of
residential burglary as well as several allegations that he had suffered a prior
conviction for a serious felony and had not remained free of prison custody for five
years following his release on parole. Bail was set at $175,000 and he was
remanded to the custody of the Sheriff. On August 25, 2015, M.S. was arraigned
in Ventura Superior Court. He waived arraignment and entered a plea of not
guilty.
8.
On November 5, 2015, M.S.’s attorney declared a doubt as to his
competency to stand trial pursuant to Penal Code section 1368. Criminal
proceedings were suspended and civil proceedings were instituted. That same day,
Dr. Katherine Emerick, Ph.D., Forensic Psychologist, was ordered to perform a
competency evaluation. Dr. Emerick found M.S. to be incompetent to stand trial
and filed a report with the court. On November 30, 2015, M.S. was formally found
to be incompetent to stand trial by the Ventura County Superior Court. The court
made a finding that M.S. consented to the administration of psychotropic
medications and referred the case to MHM Services of California, Inc. ("MHM
Services”), for a placement recommendation.
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CLASS ACTION COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF AND DAMAGES
9.
On December 14, 2015, the court held a hearing on placement. A letter from
MHM Services was filed and the court ordered placement at any state hospital. The
court found that the maximum commitment time was 3 years and awarded custody
credit of 0 actual days and 0 days of Penal Code section 4019 additional credit for
a total of 0 days of custody credit. M.S. was committed to the DSH pursuant to
Penal Code section 1368. M.S. was remanded to the custody of the sheriff and the
sheriff was ordered to transport him to Patton State Hospital (“Patton”). On
December 24, 2015, the mental health commitment packet was sent to the
transportation unit of the VCSO. On April 27, 2016, M.S. was transported to
Patton for treatment 150 days after being found IST.
10.
During his incarceration, M.S. was disciplined numerous times for a variety
of violations of the jail rules. Most of his violations and subsequent discipline
arose because of his mental illness. For example, M.S. believed that he was being
attacked by the devil in his cell. Because he believed that the devil had somehow
changed a part of his plastic armband to metal, he tore it off. He was also in
altercation with another inmate whom M.S. perceived as “acting weird.” He was
also disciplined for throwing feces against the wall of his cell after he ran out of
toilet paper and was not brought another roll by the guards after several requests.
His discipline included loss of commissary, loss of visits, and isolation in a safety
cell.
11.
Adrian Mojica is the brother and guardian ad litem of O.M., who has a
lengthy history of mental illness. O.M. was arrested on April 8, 2014, on suspicion
of a felony violation of attempted robbery. He was booked into the Ventura County
Jail the same day. On April 10, 2014, the Ventura County District Attorney filed a
complaint alleging a single felony count of attempted robbery, as well as several
allegations that he had suffered a prior conviction for a serious felony, and that he
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CLASS ACTION COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF AND DAMAGES
personally used a weapon during the commission of the crime. Bail was set at
$110,000, and he was remanded to the custody of the Sheriff. On May 7, 2014,
O.M. was arraigned in Ventura Superior Court and entered a plea of not guilty.
O.M.’s attorney declared a doubt as to his competency to stand trial pursuant to
Penal Code section 1368. Criminal proceedings were suspended and civil
proceedings were instituted. That same day, Dr. John Nightingale, Ph.D., Clinical
Psychology, was ordered to perform a competency evaluation. On September 10,
2014, after numerous continuances, a second doctor, Dr. Ines Monguio, Clinical
Psychologist, filed a report with the court finding O.M. incompetent to stand trial.
The case was continued to September 24, 2014, and referred for a placement
recommendation.
12.
On September 26, 2014, the court made a finding that O.M. consented to the
administration of psychotropic medications and ordered placement in Patton State
Hospital. The court found that the maximum commitment time was 3 years and
awarded custody credit of 172 actual days and 172 days of Penal Code section
4019 additional credit, for a total of 344 days of custody credit. O.M. was
committed to the DSH pursuant to Penal Code section 1368, and the sheriff was
ordered to transport him to Patton State Hospital. On December 23, 2015, a notice
of admission to DSH was filed. On March 30, 2015, DSH sent the court a
certificate of mental competency. On April 10, O.M. returned to court. The case
was continued to April 17, 2015, and criminal proceedings resumed on that date.
13.
O.M. entered a plea of not guilty. A preliminary hearing was held on May
11, 2015, and O.M. was held to answer the charges and remained in custody with
bail set at $110,000. After several continuances, O.M.’s attorney requested that he
receive mental health treatment, pursuant to Penal Code § 4011.6. The request was
denied. On August 14, 2015, O.M. entered a plea of not guilty by reason of
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CLASS ACTION COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF AND DAMAGES
insanity, and two psychiatrists were appointed to evaluate him. On October 13,
2015, Penal Code § 1026 (not guilty by reason of insanity) evaluations were
received from both doctors.
14.
On November 25, 2015, O.M.’s attorney declared a doubt as to his mental
competence. Criminal proceedings were suspended, civil proceedings were
instituted, and Dr. Thomas Lauren was appointed to examine O.M.. On December
24, 2015, it appears that the court found O.M. incompetent to stand trial and
continued the case to January 6, 2016 for a hearing on placement. On January 6,
2016, a placement recommendation was received from MHM Services and the
court committed O.M. to DSH pursuant to Penal Code section 1368. O.M. was
remanded to the custody of the sheriff, and the court ordered the sheriff to transport
him to Patton State Hospital. The court made a finding that the maximum term was
3 years, and awarded custody credit for 521 actual days, 0 days of Penal Code
section 4019 credit, for a total of 521 days of custody credit. On January 28, 2016,
the mental health commitment packet for Patton State Hospital was sent to the
transportation unit of the VCSO. As of April 28, 2016, O.M. has not yet been
transported to Patton and remains in custody at the VCPTDF.
15.
During his incarceration, O.M. has been disciplined several times for a
variety of violations of the jail rules. Most of his violations and subsequent
discipline arose because of his mental illness. For example, O.M. describes
“hearing voices,” and one of the strongest voices is his former Catholic priest.
O.M. becomes agitated when he hears these voices and was in an altercation with
another inmate early on in his incarceration after hearing the voices. He was also
disciplined for “hoarding” pills which he did not want to take. His discipline
included 5 days in an isolation cell, commonly referred to as “the hole,” loss of
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CLASS ACTION COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF AND DAMAGES
visits, commissary, and a disciplinary diet. O.M. is housed alone and is locked
down 23 hours a day.
PUTATIVE CLASS MEMBERS
16.
Plaintiff has identified a number of putative class members (“Class
Members”) whose factual circumstances raise common questions of fact and law.
17.
Putative class member S.S. was booked into the Ventura County Jail on
October 6, 2015. She was found incompetent to stand trial on November 10, 2015.
The Ventura County Superior Court ordered her transferred to Patton on December
15, 2015. Her “Patton Packet” was sent to the Ventura County Sheriff’s Office
Transportation Unit on December 16, 2015. As of April 29, 2016, S.S. has not yet
been transported to Patton and remains in custody at the VCPTDF.
18.
Putative class member T.C. was booked into Ventura County Jail on
September 10, 2015. He was found incompetent to stand trial on December 22,
2015. The Ventura County Superior Court ordered him transferred to Patton on
January 11, 2016. His “Patton Packet” was sent to the Ventura County Sheriff’s
Office Transportation Unit on January 21, 2016. As of April 29, 2016, T.C. has
not yet been transported to Patton and remains in custody at the VCPTDF.
19.
Putative class member R.O. was booked into Ventura County Jail on
September 2, 2015. He was found incompetent to stand trial on December 4, 2015.
The Ventura County Superior Court ordered him transferred to Patton on
December 11, 2015. His “Patton Packet” was sent to the Ventura County Sheriff’s
Office Transportation Unit on December 24, 2015. As of April 29, 2016, R.O. has
not yet been transported to Patton and remains in custody at the VCPTDF.
20.
Putative class member T.B. was booked into Ventura County Jail on
September 11, 2015. He was found incompetent to stand trial on December 3,
2015. The Ventura County Superior Court ordered him transferred to Patton on
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CLASS ACTION COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF AND DAMAGES
December 17, 2015. His “Patton Packet” was sent to the Ventura County Sheriff’s
Office Transportation Unit on December 24, 2015. As of April 29, 2016, T.B. has
not yet been transported to Patton and remains in custody at the VCPTDF.
21.
Putative class member S.M. was booked into Ventura County Jail on August
5, 2015. He was found incompetent to stand trial on September 30, 2015. The
Ventura County Superior Court ordered him transferred to Patton on February 16,
2015. His “Patton Packet” was sent to the Ventura County Sheriff’s Office
Transportation Unit on December 24, 2015. As of April 29, 2016, S.M. has not yet
been transported to Patton and remains in custody at the VCPTDF.
22.
Several recent IST detainees such as D.D., M.C., J.S., and R.M. were
transported to Patton after several months and the lengths of their incarceration
prior to their transportation to Patton are set forth below in order to provide
concrete examples of the length of pre-treatment delay experienced by members of
the Class.
23.
D.D. was booked into the Ventura County Jail on July 14, 2015. He was
found incompetent to stand trial on October 19, 2015. The Ventura County
Superior Court ordered him transferred to Patton on November 4, 2015. His
“Patton Packet” was sent to the Ventura County Sheriff’s Office Transportation
Unit on November 17, 2015. He was transported to Patton State Hospital on or
about February 18, 2016, (107 days after he was ordered to be transported to
Patton).
24.
M.C. was booked into the Ventura County Jail on September 13, 2015. He
was found incompetent to stand trial on October 21, 2015. The Ventura County
Superior Court ordered him transferred to Patton on November 17, 2015
His “Patton Packet” was sent to the Ventura County Sheriff’s Office
Transportation Unit on November 25, 2015. He was transported to Patton State
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CLASS ACTION COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF AND DAMAGES
Hospital on or about March 3, 2016, (108 days after he was ordered to be
transported to Patton).
25.
J.S. was booked into Ventura County Jail on July 23, 2015. He was found
incompetent to stand trial on October 28, 2015. The Ventura County Superior
Court ordered him transferred to Patton on November 24, 2015. His “Patton
Packet” was sent to the Ventura County Sheriff’s Office Transportation Unit on
December 7, 2015. He was transported to Patton State Hospital on or about
February 25, 2016 (94 days after he was ordered to be transported to Patton).
26.
Putative class member R.M. was booked into Ventura County Jail on
September 25, 2015. He was found incompetent to stand trial on October 29,
2015. The Ventura County Superior Court ordered him transferred to Patton on
November 30, 2015. His “Patton Packet” was sent to the Ventura County Sheriff’s
Office Transportation Unit on December 8, 2015. He was transported to Patton
State Hospital on or about March 18, 2016, (109 days after he was ordered to be
transported to Patton).
COUNTY DEFENDANTS
27.
Defendant County of Ventura (“Ventura County”) is now, and at all times
herein mentioned, was a governmental entity duly organized and existing under the
laws of the State of California and which oversees, owns, operates, manages,
directs and controls Ventura County Sheriff’s Office (“VCSO”), an agency of
Ventura County.
28.
Defendant Ventura County Sheriff Geoff Dean (“Sheriff Dean”) is now, and
at all times herein mentioned, was the Sheriff of Ventura County and was
responsible for the management, supervision, control and policy making at the two
primary custodial facilities in the county, i.e., the Ventura County Pre-Trial
Detention Facility (“VCPTDF”), and the Todd Road Jail (“TRJ”). Sheriff Dean is
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CLASS ACTION COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF AND DAMAGES
also responsible for the supervision and training of deputies employed by VCSO.
Sheriff Dean is further responsible for the care, custody, control and safekeeping of
inmates in his custody. California Government Code §§ 26605, 26610; California
Penal Code § 4006. In sum, Sheriff Dean is responsible for: (1) the management
and control of Ventura County Jail; (2) the selection, promotion, supervision,
training, discipline and retention of agents and employees working at the VCPTDF
and TRJ, including custodial staff, counselors, advisors, nurses, doctors, physician
assistants, medical staff, mental health staff, education staff and supervisors; and
(3) the implementation of policies and procedures at VCPTDF.
29.
California Forensic Medical Group, Inc. (“CFMG”), its agents, deputies,
employees, and independent contractors, at all times mentioned herein was and is
an agent of defendants Ventura County, VCSO and Sheriff Dean, and was and is
under contract with defendants Ventura County, VCSO and Sheriff Dean for the
purpose of providing medical care and treatment on behalf of defendants Ventura
County, VCSO and Sheriff Dean to civil detainees, pre-trial detainees, and
sentenced prisoners under the care and control of defendants Ventura County. At
all times mentioned herein, CFMG and it agents and employees were acting under
color of law and under the direction an agency of Defendants Ventura County,
VCSO and Sheriff Dean to provide such care and treatment to civil detainees, pre-
trial detainees, and sentenced prisoners.
30.
Defendant Taylor Fithian, M.D. ("Fithian"), at all times mentioned herein,
was and is an employee and/or agent of VCSO, SHERIFF DEAN and CFMG,
acting under color of law, who was and is the Medical Director of CFMG and the
physician responsible for establishing policies and practices for CFMG employees
and was and is responsible for training, supervision and management of CFMG
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CLASS ACTION COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF AND DAMAGES
employees including doctors, nurses, and nurse practitioners at VCPTDF.
Defendant Fithian is being sued in his official capacity.
31.
Defendant Paul Adler, M.D. ("Adler"), at all times mentioned herein, was
and is an employee and/or agent of VCSO, SHERIFF DEAN and CFMG, acting
under color of law, who was and is the On-site Medical Director of CFMG at
VCPTDF and the physician hired to provide medical care, attention, and treatment
to civil detainees, pre-trial detainees, and sentenced prisoners at VCPTDF. He was
and is the physician responsible for the hiring, training, supervision and
management of subordinate medical staff providers, including doctors, nurses, and
nurse practitioners at VCPTDF. Defendant Adler is being sued in his official
capacity.
32.
Defendant Ronald Pollack, M.D. ("Pollack"), at all times mentioned herein,
was and is an employee and/or agent of VCSO, SHERIFF DEAN and CFMG,
acting under color of law, who was and is a psychiatrist at VCPTDF and a
physician hired to provide mental health treatment civil detainees, pre-trial
detainees, and sentenced prisoners at VCPTDF. Defendant Pollack is being sued
in his official capacity.
STATE DEFENDANTS
33.
Defendant Pam Ahlin ("Ahlin") is the Director of DSH and is sued in her
official capacity. Defendant Ahlin is ultimately responsible for the administration
of all of the DSH facilities in the state including Patton State Hospital.
34.
California Department of State Hospitals (“DSH”) is the state agency in the
state of California designated to administer or supervise the administration of
competency evaluation and restoration treatment pursuant to Penal Code § 1368 et
seq. (involuntary forensic commitment). As such, DSH utilizes federal and state
funds in operating services in a way that ensures compliance with state and federal
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CLASS ACTION COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF AND DAMAGES
constitutional and statutory protections for people involuntarily detained in order to
receive mental health services. Although IST detainees are regularly sent to Patton
from VCPTDF, there are six other DSH mental health treatment facilities in
California which potentially could house Ventura County IST detainees if there are
no beds available at Patton: DSH-Atascadero, DSH-Coalinga, DSH-Metropolitan
LA, DSH-Napa, DSH-Sacramento, DSH-Salinas Valley, DSH-Stockton and DSH-
Vacaville.
35.
Defendant Harry Oreol ("Oreol") is the Executive Director of Patton and is
sued in his official capacity. As Executive Director, Defendant Oreol is
responsible for oversight, operation, and management of Patton and competency
restoration services for individuals with mental health disabilities in pending
criminal proceedings. Defendant Oreol knows or should know that incarcerated
IST detainees who are ordered to be placed at Patton will not receive appropriate
mental health treatment in in the jail for months while Patton’s “one in, one out”
policy slowly grinds forward.
36.
Patton State Hospital (“Patton”) is a state psychiatric hospital that is charged
with serving the needs of California individuals with pending criminal proceedings
who are ordered to receive competency restoration services.
37.
Defendant MHM Services of California, Inc, ("MHM Services") is a
corporation whose parent company, MHM Services, Inc., is headquartered in
Vienna, Virginia. The State of California and DSH entered into a contract with
MHM Services in 2014 to provide mental health services in Ventura County
including the operation of the Forensic Conditional Release Program or
"CONREP". DSH has also delegated to MHM Services the task of conducting
placement recommendations for IST detainees housed in the Ventura County jails.
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CLASS ACTION COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF AND DAMAGES
38.
Defendant Marcus Lopez ("Lopez") is the CONREP Community Program
Director of MHM Services of California, Inc. As the Community Program
Director, Defendant Lopez is responsible for oversight, operation, and
management of MHM Services’ provision of mental health services in Ventura
County including the operation of the Forensic Conditional Release Program or
"CONREP". Defendant Lopez signs most of the IST placement recommendations
for DHS and the overwhelming majority of the recommendations are for placement
in Patton. Defendant Lopez knows or should know that incarcerated IST detainees
who are ordered to be placed at Patton will not receive appropriate mental health
treatment in in the jail for months while Patton’s “one in, one out” policy slowly
grinds forward.
39.
The true names and capacities, whether individual, corporate, associate, or
otherwise, of Defendants sued herein as Does 1 through 10, inclusive, are unknown
to Plaintiff, who therefore sues said Defendants by such fictitious names. Plaintiff
will amend this complaint to show such true names and capacities when she has
ascertained the same. Plaintiff is informed, believes and thereupon alleges that
each Doe Defendant named herein is, in some manner, legally responsible for the
acts complained of. Does 1 through 10 are VCSO, CFMG, DSH, and MHM
Services employees and/or agents who have not yet been identified, including but
not limited to, executive, management, and/or policy making staff and employees,
and medical and mental health professionals.
40.
At all times herein mentioned Defendants, and each of them, were the
agents, servants and employees of each of the Co-Defendants, and in doing the
things herein mentioned were acting within the purpose, course and scope of their
authorities and employment as such agents, servants and employees, and with the
permission and consent of said Co-Defendants.
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CLASS ACTION COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF AND DAMAGES
IV. CLASS ACTION ALLEGATIONS
41.
Plaintiffs M.S. and O.M. by and through their guardians ad litem,
(collectively, the “Class Plaintiffs”) bring this action pursuant to Civil Rule 23(a)
and (b)(2) on behalf of themselves and all others similarly situated (collectively,
the “Class Members”) as members of the following proposed plaintiff class (the
“Class”):
All persons who have been, during the time period of November 30,
2013, until the present, and/or who will be in the future:
(1) incarcerated at the VCPTDF or TRJ;
(2) charged with a crime in Ventura County, California;
(3) found by a court to be incompetent to stand trial and are held in
custody while awaiting competency restoration services; and,
(4) have waited for court-ordered restoration services for seven or
more days from the date on which the court entered an order for the
Sheriff to transfer the person to a treatment facility.
42.
Class Members seek class-wide equitable, declaratory and injunctive relief
pursuant to Federal Rules of Civil Procedure, Rule 23(a), b(1), and (b)(2).
43.
On information and belief, the Class consists of well over 100 individuals
making individual joinder of all members impractical. The identities of the Class
Members are ascertainable through records held by Defendants and/or the courts
from which the evaluations or restorations of competency were ordered. Members
of the Class may be informed of the pendency of this class action by use of contact
information in the possession of Defendants as well as from court records.
44.
There are questions of law and fact common to the Class.
45.
The questions of law and fact common to all members of the Class include,
but are not limited to: (a) whether IST detainees' 6th and 14th Amendment rights to
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CLASS ACTION COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF AND DAMAGES
a speedy trial are being violated; (b) whether County Defendants’ failure to
provide adequate mental health treatment and restorative services to IST detainees
for weeks or months prior to their admission to a treatment facility which provides
restorative services violates the Fourteenth Amendment; (c) whether County
Defendants’ failure to provide adequate mental health treatment and restorative
services to IST detainees for weeks or months prior to their admission to a
treatment facility which provides restorative services violates the Americans with
Disabilities Act; (d) whether State Defendants’ failure to admit IST detainees to
appropriate restorative treatment facilities within seven days from the date on
which the court entered an order for the Sheriff to transfer the person to a treatment
facility violates the due process clause of the Fourteenth Amendment; and, (e)
whether State Defendants’ failure to admit IST detainees to appropriate restorative
treatment facilities within seven days from the date on which the court entered an
order for the Sheriff to transfer the person to a treatment facility violates the
Americans with Disabilities Act. These common questions of law and fact
predominate over any questions affecting only individual Class Members.
46.
Class Plaintiffs’ claims are typical of the claims of the Class because
Defendants have uniformly failed to provide timely adequate mental health
treatment and competency restoration services to Class Plaintiffs and to the Class
in the same manner.
47.
Class Plaintiffs will fairly and adequately protect interests of the Class.
There are no conflicts of interest between the Class Plaintiffs and other Class
Members. The Class Plaintiffs will vigorously prosecute this action on behalf of
the Class. The Class Plaintiffs are represented by competent counsel with
considerable skill and experience in civil rights and class action litigation, who will
vigorously prosecute this case on behalf of the Class.
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CLASS ACTION COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF AND DAMAGES
48.
Defendants have acted or refused to act on grounds generally applicable to
the entire class, thereby making final injunctive and declaratory relief appropriate
with respect to the Class as a whole.
49.
The claims asserted herein are capable of repetition while evading review.
There is a continuing and substantial public interest in these matters.
50.
The class action is the best available method for the efficient adjudication of
these legal issues because individual litigation of these claims would be
impracticable, and individual litigation would be unduly burdensome to the courts.
Further, individual litigation has the potential to result in inconsistent or
contradictory judgments. A class action in this case presents fewer management
problems and provides the benefits of single-adjudication, economies of scale, and
comprehensive supervision by a single court.
V. FACTS ENTITLING PLAINTIFFS AND
CLASS MEMBERS TO RELIEF
A.
Defendants’ Duty to Provide Adequate Mental Health Care and
Restorative Treatment.
51.
Penal Code § 1367 et. seq. governs procedures for evaluation and restoration
of competency. If, during the pendency of an action a doubt arises in the mind of
the judge as to the mental competence of the defendant, the court shall order a
hearing into the mental competence of the defendant. Penal Code § 1368(a).
When an order for a hearing has been issued, all proceedings in the criminal
prosecution are suspended. Penal Code § 1368(c). The court then appoints a
licensed psychologist or psychiatrist to examine the defendant. Penal Code §
1369. “While the person is confined pursuant to order of the court under this
section, he or she shall be provided with necessary care and treatment.” Penal
Code § 1369(a), emphasis added.
17
CLASS ACTION COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF AND DAMAGES
52.
If the defendant is found mentally competent, the criminal process shall
resume. Penal Code § 1370(a)(1)(A). If the defendant is found mentally
incompetent, [criminal proceedings] shall be suspended until the person becomes
mentally competent. Penal Code § 1370(a)(1)(B).
53.
Once the IST finding is made by the court in a felony case, the court shall
order that the mentally incompetent defendant be delivered by the sheriff to a state
hospital for the care and treatment of the mentally disordered, as directed by the
State Department of State Hospitals, or to any other available public or private
treatment facility, including a county jail treatment facility or the community-based
residential treatment system. . . if the facility has a secured perimeter or a locked
and controlled treatment facility, approved by the community program director that
will promote the defendant's speedy restoration to mental competence, or placed on
outpatient status as specified in Penal Code Section 1600. Penal Code §
1370(B)(i).
54.
Once the IST finding is made by the court in a misdemeanor case, the
defendant shall be delivered by the sheriff to an available public or private
treatment facility approved by the county mental health director that will promote
the defendant's speedy restoration to mental competence, or placed on outpatient
status. Penal Code § 1370.01(a)(1).
55.
Once a defendant is found IST, the court shall order the county mental
health director or his or her designee to evaluate the defendant and to submit to the
court within 15 judicial days of the order a written recommendation as to whether
the defendant should be required to undergo outpatient treatment, or committed to
a treatment facility. No person shall be admitted to a treatment facility or placed on
outpatient status under this section without having been evaluated by the county
mental health director or his or her designee. No person shall be admitted to a state
18
CLASS ACTION COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF AND DAMAGES
hospital under this section unless the county mental health director finds that there
is no less restrictive appropriate placement available and the county mental health
director has a contract with the State Department of State Hospitals for these
placements. Penal Code § 1370.01(a)(2)(a).
56.
If a defendant is charged with a felony and determined to be IST, he or she
may be held for treatment for a maximum of three years from the date of
commitment or for a period equal to the maximum term of imprisonment for the
most serious charge, whichever is shorter. Penal Code § 1370(c)(1). If the person
never regains competence, the criminal charges may be dismissed, and under
certain circumstances, the person may become the subject of a conservatorship.
57.
If a defendant is charged with a misdemeanor and determined to be IST, he
or she may held one year from the date of commitment or a period of commitment
equal to the maximum term of imprisonment provided by law for the most serious
offense charged in the misdemeanor complaint, whichever is shorter. Penal Code
§ 1370.01(c)(1). If the person never regains competence, the criminal charges may
be dismissed, and under certain circumstances, the person may become the subject
of a conservatorship.
58.
No specific time limits for transfer to a treatment facility or release to an
outpatient program are set forth in California’s statutory framework. After the
court makes a formal finding that the defendant is IST, Penal Code section
1370(F)(2)(A) requires the community program director or designee, (MHM
Services in this case), to evaluate the defendant and submit a written
recommendation on placement within 15 judicial days of the IST order. No
placement can be made prior to receipt of the written recommendation. DSH also
refuses to accept an IST detainee in the absence of a fully completed “mental
health commitment packet” (which is often also referred to as a "Patton packet" or
19
CLASS ACTION COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF AND DAMAGES
“transfer packet”). The list of documents required to be included in the transfer
packet is set forth in Penal Code § 1370(a)(3).1
59.
In addition to the list of documents set forth in Penal Code § 1370(a)(3),
DSH requires an order from the court that Patton (or other DSH facility) be
1 Penal Code § 1370(a)(3):
(3) When the court orders that the defendant be committed to the State Department of State
Hospitals or other public or private treatment facility, the court shall provide copies of the
following documents prior to the admission of the defendant to the State Department of State
Hospitals or other treatment facility where the defendant is to be committed:
(A)
The commitment order, including a specification of the charges.
(B) A computation or statement setting forth the maximum term of commitment in
accordance with subdivision (c).
(C) A computation or statement setting forth the amount of credit for time served, if any,
to be deducted from the maximum term of commitment.
(D) State summary criminal history information.
(E) Arrest reports prepared by the police department or other law enforcement agency.
(F) Court-ordered psychiatric examination or evaluation reports.
(G) The community program director's placement recommendation report.
(H) Records of a finding of mental incompetence pursuant to this chapter arising out of a
complaint charging a felony offense specified in Section 290 or a pending Section 1368
proceeding arising out of a charge of a Section 290 offense.
(I) Medical records.
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CLASS ACTION COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF AND DAMAGES
authorized “to administer involuntary antipsychotic medication to the defendant
pursuant to Penal Code section 1370(a)(2)(b),” or a finding by the court that the
detainee “consents to the administration of psychotropic medications.” DSH also
requires that arrest reports be included for each case that the individual is being
held for, including all misdemeanors and all violations of probation. If the
transportation packet is incomplete in any way, DSH will not approve the transfer
and the IST detainee will not be placed on the waiting list for transfer.
60.
After these procedural hurdles are overcome, the IST detainee is placed on
the waiting list for transfer to a treatment facility. The bulk of the delay in
transferring IST detainees in Ventura County begins at this stage. DSH in general
and Patton, in particular, have adopted a policy which has come to be known
colloquially in Ventura County as “the one in, one out rule.” In essence, DSH will
not take a new Ventura County IST detainee “in” until a Ventura County patient
currently being treated at Patton has been restored to competency and sent “out” of
Patton and back to Ventura County. Every Thursday, a small number, (usually
one, two, or three) of IST detainees are brought back from DSH facilities, usually
from Patton. A correspondingly small number of IST detainees at the jail are then
transferred for treatment. However, it is not unusual for no transfers to occur
because no ISTs were returned from DSH that particular week.
61.
California law also allows a county jail to be designated as a “treatment
facility,” upon concurrence of the Board of Supervisors, the county mental health
director, and the county sheriff, but provides that the maximum amount of time
that a defendant may be “treated” in a designated county jail is six months.2
2 Penal Code § 1369.1. (a):
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CLASS ACTION COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF AND DAMAGES
B.
The Ventura County Jail Does Not Evaluate the Competency of
Individuals Charged with Crimes and Does Not Provide Adequate Mental
Health Treatment or Competency Restoration Services.
62.
As noted above, defendant Sheriff Dean contracts with CFMG, a private
corporation to provide all of the medical and mental healthcare to detainees housed
at the VCPTDF and TRJ. Only one psychiatrist is employed full-time by CFMG.
CFMG staff do not perform competency evaluations. These evaluations are
performed by approved, private psychiatrists and licensed psychologists.
As used in this chapter, "treatment facility" includes a county jail. Upon the concurrence
of the county board of supervisors, the county mental health director, and the county sheriff, the
jail may be designated to provide medically approved medication to defendants found to be
mentally incompetent and unable to provide informed consent due to a mental disorder, pursuant
to this chapter. In the case of Madera, Napa, and Santa Clara Counties, the concurrence shall be
with the board of supervisors, the county mental health director, and the county sheriff or the
chief of corrections. The provisions of Sections 1370, 1370.01, and 1370.02 shall apply to
antipsychotic medications provided in a county jail, provided, however, that the maximum
period of time a defendant may be treated in a treatment facility pursuant to this section shall not
exceed six months.
(b) This section does not abrogate or limit any law enacted to ensure the due process
rights set forth in Sell v. United States (2003) 539 U.S. 166.
The Ventura County jail is not licensed as a “treatment facility” under this provision. The
VCPTDF and TRJ have only one psychiatrist on staff to treat the mentally ill in both facilities
and does not provide any competency restorative services.
22
CLASS ACTION COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF AND DAMAGES
63.
Neither the VCPTDF nor the TRJ are facilities which are licensed to
perform competency restoration services. Furthermore, CFMG staff are not
contracted to perform competency restoration services. Accordingly, no
competency restoration services are provided at the VCPTDF or the TRJ, and
therefore, in Ventura County, there is never a Penal Code § 1368 placement
recommendation or court order that an IST detainee be treated in the jail.
64.
While CFMG typically provides medication management for people who are
willing to take medications, they do not administer medication involuntarily,
except in an emergency.
65.
Treatment for IST detainees is generally limited to basic clinical psychiatry
and intervention designed to stabilize an individual’s mental health condition.
66.
People found incompetent are often overtly psychotic and require special
housing or segregation. They are unpredictable and disruptive, taking up valuable
resources needed for the care of other inmates. If they refuse to take medications,
they often decompensate rapidly. Because of their unpredictable or disruptive
behavior, they are often disciplined which can include being locked in their cells
for 23 hours a day, denied visits or phone calls from friends or loved ones, denied
commissary privileges or placed on a disciplinary diet, which further exacerbates
their mental illness.
67.
Incapacitated criminal defendants have a high risk of suicide, and the longer
they are deprived of treatment, the greater the likelihood they will decompensate
and suffer unduly. Because they are often found to be either a danger to
themselves or others, they are often strip searched, placed in safety cells and
housed in isolation. Because they are mentally ill and often incapable of defending
themselves or controlling unusual behaviors, they are at high risk of being beaten,
having their property taken, or otherwise being taken advantage of by fellow
23
CLASS ACTION COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF AND DAMAGES
inmates. Jails are punitive environments and the conditions of confinement
undermine the mental health of these detainees as well as the government’s
interests in competency restoration and trial.
68.
Jails control inmates through discipline. Jail disciplinary systems are
ineffective for individuals with mental health disabilities, and, in fact, are harmful
because many forms of jail discipline may exacerbate their mental health
conditions.
69.
Unlike the VCPTDF and TRJ, DSH hospitals can treat a person’s mental
health disabilities and provide competency restoration services. Their hospitals are
staffed by full-time psychiatrists and psychologists, mental health specialists,
social workers, mental health technicians, and nurses.
70.
In addition to assessment, medication evaluation and management, and
individual and group psychotherapy, DSH hospitals provide individuals with
mental health disabilities with legal skills training to assist them in learning about
the law, the roles of the attorneys, witnesses and the court, and what they can
expect after returning to court. This treatment is designed to restore a person to
competency to stand trial and to otherwise exercise their constitutional rights
meaningfully.
C.
Defendants Have Failed to Evaluate and/or Treat Individuals with
Mental Health Disabilities Who Have Been Charged with a Crime Ventura
County in a Timely Fashion.
71.
According to public records obtained by Plaintiffs’ counsel, there are
currently more than fifteen people waiting in the VCPTDF and TRJ who have been
found incompetent to stand trial, been approved for transportation to Patton or
another facility, but have not yet been transported. Plaintiffs are further informed
and believe that at least ten, and probably more, of these civilly committed
24
CLASS ACTION COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF AND DAMAGES
detainees currently in the custody at VCPTDF or TRJ have been waiting more than
30 days for transportation to a treatment facility after being civilly committed by
the court. Plaintiffs are further informed and believe that at least six, and probably
many more, of these civilly committed detainees currently in the custody at
VCPTDF or TRJ have been waiting more than 120 days for transportation to a
treatment facility after being civilly committed by the court. One female detainee
who is still in custody has been waiting more than six months for transfer to a state
hospital. Plaintiffs are further informed and believe that delays of one to six
months have been commonplace for several years preceding the date of this filing,
and that the class affected by these policies numbers well over 100 individuals.
Defendants have consistently failed to timely admit these individuals to DSH
hospitals for restoration of competency.
72.
Plaintiffs and those similarly situated each have histories of severe mental
health conditions. Most have been ordered by courts presiding over their criminal
proceedings to be transported to a DSH hospital to be restored to competency to
stand trial. Plaintiffs have languished in the jail for weeks and months to the
detriment of their overall mental health, waiting to receive court-ordered
competency restoration services that Defendants are statutorily required to provide.
VI.
EXHAUSTION OF JURISDICTIONAL PREREQUISITES
73.
Plaintiff representatives on behalf of themselves and Class Members
exhausted the administrative remedies required under the Prison Litigation Reform
Act ("PLRA"), 42 U.S.C. § 1997e, prior to filing this Complaint.
74.
Plaintiff representatives on behalf of themselves and Class Members have
filed Government Code section 910 tort claims with the State of California and the
County of Ventura. These claims have not been responded to yet. Plaintiffs will
25
CLASS ACTION COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF AND DAMAGES
amend this Complaint to include state law claims for relief in the event the State
and County reject them.
VII. CLAIMS OF RELIEF
FIRST CLAIM FOR RELIEF
(Violation of the Fourteenth Amendment to the United States Constitution (42
U.S.C. § 1983))
75.
The allegations of paragraphs 1–74 above are incorporated herein.
76.
Due process requires that the nature and duration of confinement must bear a
reasonable relation to the purpose for which a person is committed.
77.
Once an individual is found unable to aid and assist in his own defense, the
only lawful purpose for confinement is to treat so as to return him to competency.
78.
Individuals found unable to aid and assist have a constitutional right to such
individualized treatment as will give each of them a realistic opportunity to be
cured or to improve their mental condition.
79.
The Ventura County Jails do not have the capacity to provide the restorative
mental health treatment required by the United States Constitution.
80.
Acting under color of state law, Defendants have violated and caused
violations of the Class Plaintiffs’ due process rights pursuant to the Fourteenth
Amendment to the United States Constitution.
81.
Unless enjoined by the Court, Defendants will continue to violate and cause
the violation of the constitutional rights of the Class Plaintiffs and the Class
Members.
SECOND CLAIM FOR RELIEF
(Speedy Trial - 42 U.S.C. § 1983, 6th & 14th Amendments)
82.
The allegations of paragraphs 1–81 above are incorporated herein.
26
CLASS ACTION COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF AND DAMAGES
83.
By their actions of unnecessarily prolonging the incarceration of Plaintiffs
and Class Members without trial, Defendants, and each of them, deprived Plaintiffs
and Class Members of their constitutional right to a speedy trial in violation of the
Sixth and Fourteenth Amendments to the United States Constitution. Therefore
Plaintiffs and Class Members are entitled to bring suit and recover damages
pursuant to 42 U.S.C. § 1983.
84.
As a direct and proximate cause of the aforementioned acts of Defendants,
Plaintiffs and those similarly situated have been damaged in amounts to be
determined at trial.
THIRD CLAIM FOR RELIEF
(Violation of the Americans with Disabilities Act (42 U.S.C. § 12132 et seq.))
85.
The allegations of paragraphs 1–84 above are incorporated herein.
86.
Plaintiffs and the Class are qualified disabled persons as defined in the
Americans with Disabilities Act (“ADA”), 42 U.S.C. § 12132 et seq.
87.
Defendants failed to provide reasonable accommodation of the disability of
Plaintiffs and the Class; and furthermore.
88.
Unless enjoined by the Court, Defendants will continue to violate and cause
the violation of the ADA rights of the Class Plaintiffs and the Class Members.
VIII. PRAYER FOR RELIEF
WHEREFORE, Plaintiffs pray for relief as follows:
A.
For certification of a class as defined above;
B.
For a declaration that Defendants are depriving Class Members of their due
process rights pursuant to the Fourteenth Amendment to the United States
Constitution, and the Americans with Disabilities Act;
C.
For the issuance of preliminary and permanent injunctions restraining
Defendants from violating the Sixth and Fourteenth Amendments to the United
27
CLASS ACTION COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF AND DAMAGES
States Constitution and the Americans with Disabilities Act in the confinement of
individuals awaiting competency evaluation and/or restoration treatment;
D.
For general, special and compensatory damages for the named Plaintiffs and
Class Members, to be determined according to proof;
E.
For any applicable statutory penalties;
F.
For an award of Plaintiffs’ costs and attorneys’ fees under 42 U.S.C. § 1988
and other applicable statutes; and,
G.
For such other and further relief as the Court may deem just and proper.
Dated: May 4, 2016
LAW OFFICES OF BRIAN A. VOGEL, PC
By: /s/
BRIAN A. VOGEL
Attorney for Plaintiffs and Class
Members
DEMAND FOR JURY TRIAL
Plaintiffs hereby demand a jury trial.
Dated: May 4, 2016
LAW OFFICES OF BRIAN A. VOGEL, PC
By: /s/
BRIAN A. VOGEL
Attorney for Plaintiffs and Class
Members
28
CLASS ACTION COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF AND DAMAGES
| civil rights, immigration, family |
5VJJBIkBRpLueGJZYoZx | Todd M. Friedman (SBN 216752)
Meghan E. George (SBN 274525)
Adrian R. Bacon (SBN 280332)
LAW OFFICES OF TODD M. FRIEDMAN, P.C.
324 S. Beverly Dr., #725
Beverly Hills, CA 90212
Phone: 877-206-4741
Fax: 866-633-0228
[email protected]
[email protected]
[email protected]
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF CALIFORNIA
JOHN SUTPHEN, individually and on
behalf of all others similarly situated,
Plaintiff,
vs.
Case No. 3:16-cv-465-GPC-BLM
CLASS ACTION
FIRST AMENDED COMPLAINT
FOR VIOLATIONS OF:
DIVERSIFIED ADJUSTMENT
SERVICE, INC., and DOES 1-100,
AND EACH OF THEM,
Defendants.
1.
NEGLIGENT VIOLATIONS
OF THE TELEPHONE
CONSUMER PROTECTION
ACT [47 U.S.C. §227 ET
SEQ.]
2.
WILLFUL VIOLATIONS
OF THE TELEPHONE
CONSUMER PROTECTION
ACT [47 U.S.C. §227 ET
SEQ.]
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
DEMAND FOR JURY TRIAL
Plaintiff JOHN SUTPHEN (“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 DIVERSIFIED ADJUSTMENT
SERVICE, 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 the state
of Minnesota. 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 Southern
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 the Southern
District of California.
PARTIES
4.
Plaintiff, JOHN SUTPHEN (“Plaintiff”), is a natural person residing
in San Diego, California and is a “person” as defined by 47 U.S.C. § 153 (39).
5.
Defendant,
DIVERSIFIED
ADJUSTMENT
SERVICE,
INC.
(“Defendant”), is a company involved in consumer debt buying and
recovery/collection and is a “person” as defined by 47 U.S.C. § 153 (39).
6.
The above named Defendant, and its subsidiaries and agents, are
collectively referred to as “Defendants.” The true names and capacities of the
Defendants sued herein as DOE DEFENDANTS 1 through 10, inclusive, are
currently unknown to Plaintiff, who therefore sues such Defendants by fictitious
names. Each of the Defendants designated herein as a DOE is legally responsible
for the unlawful acts alleged herein. Plaintiff will seek leave of Court to amend the
Complaint to reflect the true names and capacities of the DOE Defendants when
such identities become known.
7.
Plaintiff is informed and believes that at all relevant times, each and
every Defendant was acting as an agent and/or employee of each of the other
Defendants and was acting within the course and scope of said agency and/or
employment with the full knowledge and consent of each of the other Defendants.
Plaintiff is informed and believes that each of the acts and/or omissions complained
of herein was made known to, and ratified by, each of the other Defendants.
FACTUAL ALLEGATIONS
8.
Beginning in and around December 2015, Defendant contacted
Plaintiff on his cellular telephone, ending in -9063, in an attempt to collect an
alleged outstanding debt.
9.
Defendant placed multiple calls to Plaintiff’s cellular telephone
seeking to collect the alleged debt owed.
10.
Based on information and belief, Plaintiff alleges that Defendant used
a predictive dialer to place the calls, a practice common and pervasive throughout
the debt collection industry.
11.
On Defendant’s website under “Automated Debt Recovery”,
Defendant states that it uses “supplementary systems, such as predictive dialing. .
.” (emphasis added). There is also a link heading for “Predictive Dialing
Technology” which links to a no longer existing webpage:1
1 https://www.diversifiedadjustment.com/about/automated_debt_recovery.asp (last visited May 5, 2016) (emphasis
added).
12.
Using the Internet Archive for the “Predictive Dialing Technology”
page, it states that Defendant uses the “CT Center™” predictive dialing technology
to “incorporat[e] powerful digital signal processors, each processing 100 million
instructions per second. Answered calls are detected and transferred in less than a
second . . .”:2
13.
Under the 2003 FCC Order, predictive dialers fall within the meaning
and statutory definition of “automatic telephone dialing equipment.” In the Matter
of Rules and Regulations Implementing the Telephone Consumer Protection Act of
1991, FCC 03-153 at 77-79 (2003).
14.
Defendant used an “automatic telephone dialing system”, as defined
2
https://web.archive.org/web/20061016141736/http://www.diversifiedadjustment.com/about/predictive_dialing_tec
hnology.asp (last visited May 5, 2016).
by 47 U.S.C. § 227(a)(1) to place its daily calls to Plaintiff seeking to collect the
debt allegedly owed.
15.
Defendant’s calls constituted calls that were not for emergency
purposes as defined by 47 U.S.C. § 227(b)(1)(A).
16.
Defendant’s calls were placed to telephone 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).
17.
Plaintiff does not owe the alleged debt Defendant is calling him about
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 his cellular
telephone pursuant to 47 U.S.C. § 227(b)(1)(A).
CLASS ALLEGATIONS
18.
Plaintiff brings this action individually and on behalf of 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
collection telephone calls from Defendant to said
person’s cellular telephone made through the use of any
automatic telephone dialing system or an artificial or
prerecorded voice and such person had not previously
consented to receiving such calls within the four years
prior to the filing of this Complaint
19.
Plaintiff represents, and is a member of, The Class, consisting of All
persons within the United States who received any collection telephone calls from
Defendant to said person’s cellular telephone made through the use of any
automatic telephone dialing system or an artificial or prerecorded voice and such
person had not previously not provided their cellular telephone number to
Defendant within the four years prior to the filing of this Complaint.
20.
Defendant, its employees and agents are excluded from The Class.
Plaintiff does not know the number of members in The Class, but believes the Class
members number in the thousands, if not more. Thus, this matter should be
certified as a Class Action to assist in the expeditious litigation of the matter.
21.
The Class is so numerous that the individual joinder of all of its
members is impractical. While the exact number and identities of The Class
members are unknown to Plaintiff at this time and can only be ascertained through
appropriate discovery, Plaintiff is informed and believes and thereon alleges that
The Class includes thousands of members. Plaintiff alleges that The Class
members may be ascertained by the records maintained by Defendant.
22.
Plaintiff and members of The Class were harmed by the acts of
Defendant in at least the following ways: Defendant illegally contacted Plaintiff
and 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.
23.
Common questions of fact and law exist as to all members of The
Class which predominate over any questions affecting only individual members of
The Class. These common legal and factual questions, which do not vary between
Class members, and which may be determined without reference to the individual
circumstances of any Class members, include, but are not limited to, the following:
a.
Whether, within the four years prior to the filing of this
Complaint, Defendant made any collection call (other than a
call made for emergency purposes or made with the prior
express consent of the called party) to a Class member using
any automatic telephone dialing system or any artificial or
prerecorded voice to any telephone number assigned to a
cellular telephone service;
b.
Whether Plaintiff and the Class members were damages
thereby, and the extent of damages for such violation; and
c.
Whether Defendant should be enjoined from engaging in such
conduct in the future.
24.
As a person that received numerous collection calls from Defendant
using an automatic telephone dialing system or an artificial or prerecorded voice,
without Plaintiff’s prior express consent, Plaintiff is asserting claims that are
typical of The Class.
25.
Plaintiff will fairly and adequately protect the interests of the members
of The Class. Plaintiff has retained attorneys experienced in the prosecution of
class actions.
26.
A class action is superior to other available methods of fair and
efficient adjudication of this controversy, since individual litigation of the claims
of all Class members is impracticable. Even if every Class member could afford
individual litigation, the court system could not. It would be unduly burdensome
to the courts in which individual litigation of numerous issues would proceed.
Individualized litigation would also present the potential for varying, inconsistent,
or contradictory judgments and would magnify the delay and expense to all parties
and to the court system resulting from multiple trials of the same complex factual
issues. By contrast, the conduct of this action as a class action presents fewer
management difficulties, conserves the resources of the parties and of the court
system, and protects the rights of each Class member.
27.
The prosecution of separate actions by individual Class members
would create a risk of adjudications with respect to them that would, as a practical
matter, be dispositive of the interests of the other Class members not parties to such
adjudications or that would substantially impair or impede the ability of such non-
party Class members to protect their interests.
28.
Defendant has acted or refused to act in respects generally applicable
to The Class, thereby making appropriate final and injunctive relief with regard to
the members of the California Class as a whole.
FIRST CAUSE OF ACTION
Negligent Violations of the Telephone Consumer Protection Act
47 U.S.C. §227 et seq.
29.
Plaintiff repeats and incorporates by reference into this cause of
action the allegations set forth above at Paragraphs 1-22.
30.
The foregoing acts and omissions of Defendant constitute numerous
and multiple negligent violations of the TCPA, including but not limited to each
and every one of the above cited provisions of 47 U.S.C. § 227 et seq.
31.
As a result of Defendant’s negligent violations of 47 U.S.C. § 227 et
seq., Plaintiff and the Class Members are entitled an award of $500.00 in statutory
damages, for each and every violation, pursuant to 47 U.S.C. § 227(b)(3)(B).
32.
Plaintiff and the Class members are also entitled to and seek
injunctive relief prohibiting such conduct in the future.
SECOND CAUSE OF ACTION
Knowing and/or Willful Violations of the Telephone Consumer Protection
Act
47 U.S.C. §227 et seq.
33.
Plaintiff repeats and incorporates by reference into this cause of
action the allegations set forth above at Paragraphs 1-26.
34.
The foregoing acts and omissions of Defendant constitute numerous
and multiple knowing and/or willful violations of the TCPA, including but not
limited to each and every one of the above cited provisions of 47 U.S.C. § 227 et
35.
As a result of Defendant’s knowing and/or willful violations of 47
U.S.C. § 227 et seq., Plaintiff and the Class members are entitled an award of
$1,500.00 in statutory damages, for each and every violation, pursuant to 47 U.S.C.
§ 227(b)(3)(B) and 47 U.S.C. § 227(b)(3)(C).
36.
Plaintiff and the Class members are also entitled to and seek
injunctive relief prohibiting such conduct in the future.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff requests judgment against Defendant for the following:
FIRST CAUSE OF ACTION
Negligent Violations of the Telephone Consumer Protection Act
47 U.S.C. §227 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).
• 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).
• Any and all other relief that the Court deems just and proper.
Respectfully Submitted this 5th Day of May, 2016.
LAW OFFICES OF TODD M. FRIEDMAN, P.C.
By: /s/ Todd M. Friedman
Todd M. Friedman
Law Offices of Todd M. Friedman
Attorney for Plaintiff
CERTIFICATE OF SERVICE
Filed electronically on this 5th day of May, 2016, with:
United States District Court CM/ECF system
Notification sent electronically on this 5th day of May, 2016, to:
Honorable Gonzalo P. Curiel
United States District Court
Central District of California
Mark E. Ellis
Andrew M. Steinheimer
Amanda N. Griffith
ELLIS LAW GROUP LLP
Attorneys for Defendant
s/Todd M. Friedman
Todd M. Friedman, Esq.
| privacy |
f-1tEocBD5gMZwczEgVH | UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
___________________________________
Daliana S. Gonzalez on behalf of himself
or herself and all other similarly
situated consumers
Plaintiff(s),
-against-
Aswad & Ingraham, LLP
Defendant.
___________________________________
CLASS ACTION COMPLAINT
JURY TRIAL DEMANDED
1. Plaintiff seeks redress for the illegal practices of Aswad & Ingraham, LLP, concerning
the collection of debts, in violation of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692,
et seq. (“FDCPA”).
Parties
2. Plaintiff is a citizen of the State of New York who resides within this Judicial District.
3. 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 is a consumer debt and the
Plaintiff is a natural person obligated or allegedly obligated to pay the debt.
4. Upon information and belief, Defendant's principal place of business is located in
Binghamton, NY.
5. Defendant is regularly engaged, for profit, in the collection of debts allegedly owed by
consumers.
6. Defendant is a “debt collector” as that term is defined by the FDCPA, 15 U.S.C. §
1692(a)(6), as the defendant is a person who uses any instrumentality of interstate commerce or
the mails in any business the principal purpose of which is the collection of any debts, or who
regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be
owed or due another.
7. The obligation claimed due by the defendant is a “debt” as defined by 15 U.S.C.
§1692a(5), as it is an obligation or alleged obligation of a consumer to pay money arising out of
a transaction in which the money, property, insurance or services which are the subject of the
transaction are primarily for personal, family, or household purposes, whether or not such
obligation has been reduced to judgment.
8. The FDCPA broadly prohibits conduct which harasses, oppresses or abuses any debtor;
any false, deceptive or misleading statements in connection with the collection of a debt; unfair
or unconscionable collection methods; and requires certain disclosures, See: 15 U.S.C. §§1692d,
1692e, 1692f and 1692g.
9. The FDCPA in 15 U.S.C. §1692(e) simultaneously advances two objectives: it protects
vulnerable citizens, while promoting a competitive marketplace. The FDCPA is a strict liability
statute which provides for actual or statutory damages upon the showing of a single violation.
Bentley v Great Lakes Collection Bureau, 6 F.3d 60, 62-3 (2d Cir. 1993). In considering whether
a collection notice violates Section 1692e, the court applies the "least sophisticated consumer"
standard. Clomon v. Jackson, 988 F.2d 1314, 1318 (2d Cir.1993).
10. Congress adopted the FDCPA with the “express purpose to eliminate abusive debt
collection practices by debt collectors, and to insure that those debt collectors who refrain from
using abusive debt collection practices are not competitively disadvantaged.” Jerman v. Carlisle,
McNellie, Rini, Kramer & Ulrich LPA, 559 U.S. 573, 130 S. Ct. 1605,1623, 176 L. Ed. 2d 519
(2010) (internal quotes and ellipsis omitted); Lesher v. Law Offices of Mitchell N. Kay, P.C.,
650 F.3d 993, 996 (3d Cir. 2011).
11. Congress had found abundant evidence of abusive, deceptive, and unfair debt
collection practices by many debt collectors contributed to the number of personal bankruptcies,
marital instability, loss of jobs, and invasions of individual privacy. 15 U.S.C. § 1692(a). It also
found that existing consumer protection laws were inadequate. 15 U.S.C. § 1692(b). Therefore,
“Congress gave consumers a private cause of action against debt collectors who fail to comply
with the Act.” Lesher, 650 F.3d at 997.
12. Thus, the intended effect of these private enforcement actions was not only to reduce
the number of personal bankruptcies, marital instability, loss of jobs, and invasions of individual
privacy caused by abusive, deceptive, and unfair debt collection practices but, simultaneously, to
promote a competitive marketplace for those debt collectors who voluntarily treat consumers
with honesty and respect.
13. “Congress recognized that ‘the vast majority of consumers who obtain credit fully
intend to repay their debts. When default occurs, it is nearly always due to an unforeseen event
such as unemployment, overextension, serious illness or marital difficulties or divorce.’” FTC v.
Check Investors, Inc., 502 F.3d 159, 165 (3d Cir. 2007). Nevertheless, “‘[a] basic tenet of the
Act is that all consumers, even those who have mismanaged their financial affairs resulting in
default on their debt, deserve ‘the right to be treated in a reasonable and civil manner.’” FTC,
supra, 502 F.3d at 165 (emphasis added) quoting Bass v. Stolper, Koritzinsky, Brewster &
Neider, S.C., 111 F.3d 1322, 1324 (7th Cir. 1997).
14. The FDCPA is construed broadly so as to effectuate its remedial purposes and a debt
collector’s conduct is judged from the standpoint of the “least sophisticated consumer,” Brown v.
Card Serv. Ctr, 464 F.3d 450, 453n1 (3d Cir. 2006). Thus, by way of example, “A debt
collection letter is deceptive where it can be reasonably read to have two or more different
meanings, one of which is inaccurate.” Id. at 455.
15. “Congress also intended the FDCPA to be self-enforcing by private attorney
generals.” Weiss v. Regal Collections, 385 F.3d 337, 345 (3d Cir. 2004). “In order to prevail, it
is not necessary for a plaintiff to show that she herself was confused by the communication she
received; it is sufficient for a plaintiff to demonstrate that the least sophisticated consumer would
be confused. In this way, the FDCPA enlists the efforts of sophisticated consumers like Jacobson
as ‘private attorneys general’ to aid their less sophisticated counterparts, who are unlikely
themselves to bring suit under the Act, but who are assumed by the Act to benefit from the
deterrent effect of civil actions brought by others.” Jacobson v. Healthcare Fin. Services, Inc.,
516 F.3d 85, 91 (2d Cir. 2008); and, see, Gonzales v. Arrow Fin. Services, LLC, 660 F.3d 1055
(9th Cir. 2011). Thus, “the FDCPA protects all consumers, the gullible as well as the shrewd.”
Clomon v. Jackson, 988 F.2d 1314, 1318 (2d Cir. 1993).
16. Except where the Act expressly requires knowledge or intent, the “FDCPA is a strict
liability statute to the extent it imposes liability without proof of an intentional violation,” Allen
ex rel. Martin v. LaSalle Bank, N.A., 629 F.3d 364, 368 (3d Cir. 2011) (citing, in footnote 7,
supporting authorities from the Second, Seventh, Ninth and Eleventh Circuits).
17. To prohibit deceptive practices, the FDCPA, at 15 U.S.C. § 1692e, provides that a
debt collector may not use any false, deceptive, or misleading representation or means in
connection with the collection of any debt and, without limiting the generality of the prohibited
conduct, enumerates sixteen acts and omissions which are deemed to be per se violations of that
section. 15 U.S.C. § 1692e(1)-(16).
Jurisdiction and Venue
18. This Court has federal question jurisdiction under 15 U.S.C. § 1692k(d) and 28
U.S.C. § 1331.
19. 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, and the
Defendant does business within this District.
Nature Of The Action
20. Plaintiff brings this class action on behalf of a class of New York consumers seeking
redress for Defendant’s illegal practices, in connection with the collection of a debt allegedly
owed by Plaintiff in violation of the Fair Debt Collection Practices Act, (“FDCPA), 15 U.S.C. §
1692, et seq.
21. Defendant's actions violated § 1692 et seq. of Title 15 of the United States Code,
commonly referred to as the Fair Debt Collections Practices Act (“FDCPA”) which prohibits
debt collectors from engaging in abusive, deceptive and unfair practices.
22. Plaintiff is seeking damages, and declaratory and injunctive relief.
Violations Of The Fair Debt Collection Practices Act
Allegations Particular to Plaintiff
23. Upon information and belief, on a date better known by Defendant, Defendant began
to attempt to collect an alleged consumer debt from the Plaintiff.
24. On or about December 3, 2020, Defendant sent Plaintiff a collection letter attached as
Exhibit A, which was an initial communication sent by the Defendant, and received by the
Plaintiff, seeking to collect a balance allegedly incurred for personal purposes. Said letter states
in part as follows:
Additionally, you should be advised that unless you notify
our office in writing within 30 days of the date you receive
this letter that you dispute the validity of your obligation to
CCTC, or any portion thereof, we will assume the debt to be
valid. However, if we receive a written notice from you
disputing the debt, or any portion of the debt, within the 30-
day period, we will obtain verification of the debt, and a copy
of such verification will be mailed to you. Further, upon your
written request within the 30-day period, we will provide you
with the name and address of the original creditor, if it is
different than the current creditor.
First Count
Violation of 15 U.S.C. §1692g(a)
Defective 1692g Notice
25. Plaintiff re-states, re-alleges, and incorporates herein by reference, all prior
paragraphs as if set forth fully in this cause of action.
26. Section 1692g(a) of the FDCPA requires a debt collector to provide a consumer with
a Validation Rights Notice; herein after referred to as the “Notice.” The Notice provides
information about the alleged debt and a consumer's rights as more specifically set forth in
subsections (a)(1)-(5) as follows:
(a) Within five days after the initial communication with a
consumer in connection with the collection of any debt, a debt
collector shall, unless the following information is contained
in the initial communication or the consumer has paid the
debt, send the consumer a written notice containing:
(1) the amount of the debt;
(2) the name of the creditor to whom the debt is owed;
(3) a statement that unless the consumer, within thirty days
after receipt of the notice, disputes the validity of the debt, or
any portion thereof, the debt will be assumed to be valid by
the debt collector;
(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 30-day period, the debt collector will provide the
consumer with the name and address of the original creditor,
if different from the current creditor.
27. This Notice is an important statutory right which must be effectively and clearly
conveyed to the consumer.
28. The Notice must be sufficiently prominent to be readily noticed. It cannot be
overshadowed by its placement, nor by other language or notices in the letter.
29. The Notice in said letter is inconspicuously placed on same, mixed in with various
other federal and state law notices.
30. The Validation Rights Notice on said letter is not prominent and is overshadowed by
other language in the letter, and is in violation of 15 U.S.C. § 1692g of the FDCPA.
31. The letters are "communications" as defined by 15 U.S.C. § 1692a(2).
32. 15 U.S.C. § 1692g provides that within five days after the initial communication
with a consumer in connection with the collection of any debt, a debt collector shall, unless the
information is contained in the initial communication or the consumer has paid the debt, send the
consumer a written notice containing certain enumerated information.
33. The written notice must contain the amount of the debt.
34. The written notice must contain the name of the creditor to whom the debt is
35. The written notice must contain a statement that unless the consumer, within thirty
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.
36. The written notice must contain 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.
37. The written notice must contain 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.
38. A debt collector has the obligation, not just to convey the required information, but
also to convey such clearly.
39. A debt collector has the obligation, not just to convey the required information, but
also to convey such effectively.
40. A debt collector has the obligation, not just to convey the required information, but
also to convey such clearly, so that the least sophisticated consumer will not be uncertain as to
her rights.
41. A debt collector has the obligation, not just to convey the required information, but
also to convey such effectively, so that the least sophisticated consumer will not be uncertain as
to her rights.
42. 15 U.S.C. § 1692g requires the notice to include a statement that a statement that,
upon the consumer's written request within the 30-day period, the debt collector will provide the
consumer with the name and address of the original creditor, if different from the current
creditor.
43. The language contained in the letter fails to accurately state the 1692G notice that is
required as a matter of law. The letter falsely states that the debt must be disputed in writing.
Debts Need not be disputed in writing, and can be made verbally.
44. 15 U.S.C. § 1692g provides that within five days after the initial communication with
a consumer in connection with the collection of any debt, a debt collector shall, unless the
information is contained in the initial communication or the consumer has paid the debt, send the
consumer a written notice containing certain enumerated information.
45. 15 U.S.C. § 1692g(a)(3) requires the notice to include a statement that unless the
consumer, within thirty days of receipt of the notice, disputes the validity of the debt, or any
portion thereof, the debt will be assumed valid by the debt collector.
46. There is no requirement that the consumer dispute the debt in writing.
47. It is a violation of the FDCPA to require disputes be made in writing.
48. It is a violation of the FDCPA to include language in the letter that overshadows the
required 15 U.S.C. § 1692g(a)(3) statement.
49. It is a violation of the FDCPA to include language in the letter that contradicts the
required 15 U.S.C. § 1692g(a)(3) statement.
50. It is a violation of the FDCPA to include language in the letter that, when
examined from the perspective of the least sophisticated consumer, overshadows the required
§1692g(a)(3) statement.
51. It is a violation of the FDCPA to include language in the letter that, when
examined from the perspective of the least sophisticated consumer, contradicts the required
§1692g(a)(3) statement.
52. It is a violation of the FDCPA to include language in the letter that, when
examined from the perspective of the least sophisticated consumer, leads the least sophisticated
consumer to believe that her dispute must be made in writing.
53. Disputes need not be in writing. Hooks v. Forman, Holt, Eliades & Ravin, LLC, 717
F.3d 282 (2d Cir. 2013).
54. Disputes may be made verbally.
55. The language concerning correspondence with Defendant overshadows the
required 15 U.S.C. § 1692g(a)(3) statement.
56. The language concerning correspondence with Defendant contradicts the required 15
U.S.C. § 1692g(a)(3) statement.
57. The language concerning correspondence with Defendant, when examined from the
perspective of the least sophisticated consumer, overshadows the required § 1692g(a)(3)
statement.
58. The language concerning correspondence with Defendant, when examined from the
perspective of the least sophisticated consumer, contradicts the required § 1692g(a)(3) statement.
59. The language concerning correspondence with Defendant, when examined from the
perspective of the least sophisticated consumer, leads the least sophisticated consumer to believe
that her dispute must be in writing.
60. Defendant has violated § 1692g, as the above-referenced language overshadows the
information required to be provided by that Section. See Vetrano v. CBE Grp., Inc., 2016 WL
4083384 (E.D.N.Y. Aug. 1, 2016).
61. 15 U.S.C. § 1692e prohibits a debt collector from using any false, deceptive, or
misleading representation or means in connection with the collection of any debt.
62. While § 1692e specifically prohibits certain practices, the list is non-exhaustive, and
does not preclude a claim of falsity or deception based on any non-enumerated practice.
63. Collection notices are deceptive if they can be reasonably read to have two or
more different meanings, one of which is inaccurate.
64. The question of whether a collection letter is deceptive is determined from
perspective of the “least sophisticated consumer.”
65. The collection letters could be reasonably interpreted by the least sophisticated
consumer as incorrectly representing that a dispute must be communicated in writing. See
Vetrano v. CBE Grp., Inc., 2016 WL 4083384 (E.D.N.Y. Aug. 1, 2016); Balke v. Alliance One
Receivables Management, Inc., No. 16-CV-5624(ADS)(AKT), 2017 WL 2634653 (E.D.N.Y.
June 19, 2017); Avila v. Riexinger & Assocs., LLC, 817 F.3d 72 (2d Cir. 2016); Pipiles v. Credit
Bureau of Lockport, Inc., 886 F.2d 22, 25 (2d Cir. 1989). (Because the collection notice was
reasonably susceptible to an inaccurate reading, it was deceptive within the meaning of the Act.),
Clomon v. Jackson, 988 F.2d 1314, 1319 (2d Cir. 1993). (Collection notices are deceptive if they
are open to more than one reasonable interpretation, at least one of which is inaccurate.), Russell
v. Equifax A.R.S., 74 F.3d 30, 34 (2d Cir. N.Y. 1996). (A collection notice is deceptive when it
can be reasonably read to have two or more different meanings, one of which is inaccurate. The
fact that the notice's terminology was vague or uncertain will not prevent it from being held
deceptive under §1692e(10) of the Act.)
66. Because the Letter is reasonably susceptible to an inaccurate reading, as described
above, it is deceptive within the meaning of the FDCPA.
67. The least sophisticated consumer would likely be deceived by the Letter.
68. The least sophisticated consumer would likely be deceived in a material way by the
69. Defendant, as a matter of pattern and practice, mails letters, or causes the mailing of
letters, to debtors using language substantially similar or materially identical to that utilized by
Defendant in mailing the above-cited letter to Plaintiff.
70. The letters Defendant mails, or causes to be mailed, are produced by Defendant's
concerted efforts and integrated or shared technologies including computer programs, mailing
houses, and electronic databases. The said letter is a standardized form letter.
71. Section 1692g(a) of the FDCPA requires a debt collector to provide a consumer with
a Validation Rights Notice; herein after referred to as the “Notice.” The Notice provides
information about the alleged debt and a consumer's rights as more specifically set forth in
subsections (a)(1)-(5) as follows:
72. It is a violation of the FDCPA to include language in the Letter that contradicts the
required 15 U.S.C. §1692g(3) statement.
73. It is a violation of the FDCPA to include language in the Letter that, when examined
from the perspective of the least sophisticated consumer, overshadows the required §1692g(a)(3)
statement.
74. It is a violation of the FDCPA to include language in the Letter that, when examined
from the perspective of the least sophisticated consumer, contradicts the required §1692g(a)(3)
statement.
75. It is a violation of the FDCPA to include language in the Letter that, when examined
from the perspective of the least sophisticated consumer, leads the least sophisticated consumer
to believe that her dispute must be in writing, or misleads the debtor regarding the appropriate
time or manner regarding the assertion of a dispute regarding the debt.
76. Defendant’s conduct, as described, violates 15 U.S.C. §1692g(a).
Second Count
15 U.S.C. §1692e, 1692e(2)(A), and 1692e(10)
False and Misleading Representations
False or Misleading Representations as to the Rights of the Consumer
77. Plaintiff re-states, re-alleges, and incorporates herein by reference, all prior
paragraphs as if set forth fully in this cause of action.
78. 15 U.S.C. § 1692e of the FDCPA states:
A debt collector may not use any false, deceptive, or misleading
representation or means in connection with the collection of any debt.
Without limiting the general application of the foregoing, the
following conduct is a violation of this section:
(2) The false representation of—
(A) the character, amount, or legal status of any debt; or
(B) any services rendered or compensation which may be lawfully
received by any debt collector for the collection of a debt.
(10) The use of any false representation or deceptive means to
collect or attempt to collect any debt or to obtain information
concerning a consumer.
79. The Section 1692g(a) written notice must contain 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.
80. The Section 1692g(a) written notice must contain 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.
81. A debt collector has the obligation, not just to convey the required information, but
also to convey such clearly.
82. A debt collector has the obligation, not just to convey the required information, but
also to convey such effectively.
83. A debt collector has the obligation, not just to convey the required information, but
also to convey such clearly, so that the least sophisticated consumer will not be uncertain as to
her rights.
84. A debt collector has the obligation, not just to convey the required information, but
also to convey such effectively, so that the least sophisticated consumer will not be uncertain as
to her rights.
85. The Letter, because of the false and misleading statement, would likely confuse the
least sophisticated consumer.
86. The statement in Defendant’s letter is false and misleading, and is therefore in
violation of 15 U.S.C. §§ 1692e, 1692e(2), and 1692e(10).
SPOKEO STANDING
i. Plaintiff suffered injury in fact by being subjected to unfair and abusive practices of the
Defendant.
ii. Plaintiff suffered actual harm by being the target of the Defendant's misleading debt
collection communications.
iii. Defendant violated the Plaintiff's right not to be the target of misleading debt
collection communications.
iv. Defendant violated the Plaintiff's right to a truthful and fair debt collection process.
v. Defendant used materially false, deceptive, misleading representations and means in its
attempted collection of Plaintiffs alleged debt.
vi. Defendant's communications were designed to cause the debtor to suffer a harmful
disadvantage in charting a course of action in response to Defendant's collection efforts.
vii. The FDCPA ensures that consumers are fully and truthfully apprised of the facts and
of their rights, the act enables them to understand, make informed decisions about, and
participate fully and meaningfully in the debt collection process. The purpose of the FDCPA is to
provide information that helps consumers to choose intelligently. The Defendant's false
representations misled the Plaintiff in a manner that deprived him of his right to enjoy these
benefits, these materially misleading statements trigger liability under the FDCPA.
viii. These deceptive communications additionally violated the FDCPA since they
frustrate the consumer's ability to intelligently choose his or her response.
viv. Plaintiff seeks to end these violations of the FDCPA. Plaintiff has suffered damages
including but not limited to, fear, stress, mental anguish, emotional stress and acute
embarrassment. Plaintiff and putative class members are entitled to preliminary and permanent
injunctive relief, including, declaratory relief, and damages.
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.
A. Plaintiff re-states, re-alleges, and incorporates herein by reference, all prior paragraphs
as if set forth fully in this cause of action.
B. Defendant, as a matter of pattern and practice, mails letters, or causes the mailing of
letters, to debtors using language substantially similar or materially identical to that utilized by
Defendant in mailing the above-cited letter to Plaintiff.
C. The letters Defendant mails, or causes to be mailed, are produced by Defendant's
concerted efforts and integrated or shared technologies including computer programs, mailing
houses, and electronic databases. The said letter is a standardized form letter.
D. This cause of action is brought on behalf of Plaintiff and the members of a class.
E. The class consists of all persons whom Defendant's records reflect resided in the State
of New York and who were sent a collection letter in substantially the same form letter as the
letter sent to the Plaintiff on or about one year prior to the date of the collection letter; and (a) the
collection letter was sent to a consumer seeking payment of a personal debt purportedly owed to
the Defendant; and (b) the collection letter was not returned by the postal service as undelivered;
(c) and the Plaintiff asserts that the letter contained violations of 15 U.S.C. §§ 1692e, 1692e(5),
1692e(10) and 1692e(11).
F. Pursuant to Federal Rule of Civil Procedure 23, a class action is appropriate and
preferable in this case because:
1. Based on the fact that a form collection letter is at the heart of this litigation, the class
is so numerous that joinder of all members is impracticable.
2. There are questions of law and fact common to the class and these questions
predominate over any questions affecting only individual class members. The principal question
presented by this claim is whether the Defendant violated the FDCPA.
3. The only individual issue is the identification of the consumers who received such
collection letters (i.e. the class members), a matter capable of ministerial determination from the
records of Defendant.
4. The claims of the Plaintiff are typical of those of the class members. All are based on
the same facts and legal theories.
5. The Plaintiff will fairly and adequately represent the class members’ interest charges.
The Plaintiff has retained counsel experienced in bringing class actions and collection-abuse
claims. The Plaintiff's interest charges are consistent with those of the members of the class.
G. 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 charges of judicial economy.
H. 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.
I. Collection attempts, such as those made by the Defendant are to be evaluated by the
objective standard of the hypothetical “least sophisticated consumer.”
J. The Defendant's actions as set forth above in the within complaint violates the Fair
Debt Collection Practices Act.
K. Because the Defendant violated 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.
Dated: Nassau, New York
December 7, 2020
/S Jacob Silver
______________________
Jacob Silver
Attorney At Law
237 Club Dr.
Woodmere, NY 11598
(718) 855-3835
(718) 534-0057 – Fax
[email protected]
| consumer fraud |
yOodEocBD5gMZwczioVr | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
Civil Action No. 1:21-cv-421
JORDAN SACKS, individually and on behalf of all
others similarly situated,
Plaintiff,
CLASS ACTION COMPLAINT
JURY TRIAL DEMANDED
v.
AMAZON.COM, INC.,
Defendant.
TABLE OF CONTENTS
I.
INTRODUCTION .............................................................................................................. 1
II.
JURISDICTION AND VENUE ....................................................................................... 13
III.
PARTIES .......................................................................................................................... 13
IV.
STATEMENT OF FACTS ............................................................................................... 15
A.
The Big Five Dominate the Market for the Publication of Trade
Books. ................................................................................................................... 15
B.
Amazon Dominates the Market for the Retail Sale of Trade Books. ................... 17
C.
The Development of E-books Disrupted the Trade Book Industry. ..................... 18
D.
As a Trade Book Publisher, Amazon Benefits from Inflated E-
book Prices. ........................................................................................................... 21
E.
Amazon Uses Anticompetitive Restraints to Immunize Itself from
the Disadvantages of the Big Five’s Inflated E-book Prices. ............................... 22
F.
Amazon is the Subject of Government Investigations for Possible
Antitrust Violations. .............................................................................................. 23
V.
EFFECTS ON INTERSTATE TRADE AND COMMERCE .......................................... 24
VI.
RELEVANT MARKET.................................................................................................... 24
VII.
ANTITRUST IMPACT .................................................................................................... 27
VIII.
ANTITRUST INJURY ..................................................................................................... 27
IX.
CLASS ACTION ALLEGATIONS ................................................................................. 29
X.
CLAIMS FOR RELIEF .................................................................................................... 31
JURY DEMAND .......................................................................................................................... 34
Plaintiff Jordan Sacks (“Plaintiff”), by way of complaint against defendant Amazon.com,
Inc. (“Amazon”), alleges as follows:
I.
INTRODUCTION
1.
Amazon operates Amazon.com, the world’s largest online retail platform. Sales
on its website account for almost half of all retail e-commerce in the United States.1 Amazon is
also the largest retailer of electronic books (“e-books”) in the United States, accounting for 76%
of digital books sold in the U.S. in September of 2020.2 The e-book market is projected to exceed
six billion dollars in 2021. Amazon has used its market power in that market to preclude price
competition. The result is that Plaintiff and members of the Class have paid and continue to pay
supracompetitive prices for e-books.
2.
The domestic book publishing industry is dominated by Hachette Book Group,
Inc. (“Hachette”), HarperCollins Publishers L.L.C. (“HarperCollins”), Macmillan Publishing
Group, LLC (“Macmillan”), Simon & Schuster, Inc. and Simon & Schuster Digital Sales, Inc.
(collectively “Simon & Schuster”); and Penguin Random House LLC (“Penguin”) (collectively
the “Big Five”). The Big Five have been Amazon’s co-conspirators with respect to the violations
described herein over the entire course of that conspiracy. The Big Five publish “trade books,”
among others, which encompass “general interest fiction and non-fiction books,” as opposed to
1 Amazon Now Has Nearly 50% of US Ecommerce Market, Emarketer (Jul. 16, 2018),
https://www.emarketer.com/content/amazon-now-has-nearly-50-of-us-ecommerce-market.
2 Jeffrey A. Trachtenberg and Dana Mattioli, Connecticut Investigating Amazon’s E-Book
Business, Wall Street Journal (Jan. 13, 2021).
“‘non-trade’ books such as academic textbooks, reference materials, and other texts.”3 The Big
Five’s trade books account for about 80% of domestic trade book sales.4
3.
Plaintiff and the Class are consumers who purchased e-books published by the
Big Five. The Big Five generally sell their e-books to consumers through online retail platforms,
such as Amazon, Barnes & Noble, and Apple Books. Their dealings with those platforms are
generally based on the “agency model,” under which every transaction a direct one between the
publisher and the retail consumer. The online platform serves only as the publisher’s sales agent,
and takes a commission on every book sold.5
4.
Plaintiff and Class members purchased one or more e-books directly from the Big
Five through an online retail platform other than Amazon’s. Plaintiff alleges that Amazon and
the Big Five agreed to price restraints that cause Plaintiff and the Class to pay supracompetitive
prices for e-books purchased from the Big Five through a retail platform other than Amazon.
5.
United States and European antitrust authorities have repeatedly investigated e-
book prices in the last ten years, and the Connecticut Attorney General’s office recently
disclosed a new investigation into Amazon’s e-book business in particular.6
6.
The European Commission (“EU Commission”) first investigated potential
collusion among the Big Five and Apple beginning in 2011.7 The Department of Justice (“DOJ”)
3 United States v. Apple Inc., 952 F. Supp. 2d 638, 648 n.4 (S.D.N.Y. 2013).
4 Constance Grady, Milo Yiannopoulos’s book deal with Simon & Schuster, explained, Vox (Jan.
3, 2017), https://www.vox.com/culture/2017/1/3/14119080/milo-yiannopoulos-book-deal-simon-
schuster-dangerous-boycott.
5 CASE AT.40153, EBook MFNs and related matters (Amazon),
https://ec.europa.eu/competition/antitrust/cases/dec_docs/40153/40153_4392_3.pdf, (“5.4.2017 EU
Commission Decision”), at 8.
6 See supra, Trachtenberg and Mattioli.
7 5.4.2017 EU Commission Decision at 8.
and attorneys general from several states filed a civil action against the same entities in this
District in early 2012.8 Both the District Court and the EU Commission determined that the Big
Five had colluded with Apple to raise retail e-book prices.9 At that time, the agreement entailed
switching from a standard wholesale model (wherein the retailer sets retail prices) to an agency
model (wherein the publisher sets retail prices and the retailer acts strictly as its agent).10
Pursuant to that conspiracy, the Big Five agreed to most favored nations (“MFN”) clauses with
Apple that required them to sell their e-books for the same prices via Apple’s online store as they
did via all other e-book retailers, including Amazon.11
7.
The District Court entered two consent decrees against the Big Five.12 The Big
Five also reached settlements with the EU Commission around the same time.13 Both the consent
decrees and the settlements required the Big Five to cease colluding with each other, to refrain
from using MFNs in their agreements with e-book retailers for five years, and to permit e-book
retailers to subtract their own discounts from the retail prices of the Big Five’ e-books for two
years.14
9 Apple, 952 F. Supp. 2d at 648; 5.4.2017 EU Commission Decision at 8.
12 See Department of Justice, U.S. v. Apple, Inc., et al., https://www.justice.gov/atr/case/us-v-
apple-inc-et-al.
13 5.4.2017 EU Commission Decision at 8 n.11.
14 5.4.2017 EU Commission Decision at 8; see, e.g., Final Judgment as to Defendants The
Penguin Group, a Division of Pearson PLC, and Penguin Group (USA), United States v. Apple,
Case No. 12-cv-02826-DLC (S.D.N.Y.), Docket No. 259 (“Final Judgment Penguin”), at 8
https://www.justice.gov/atr/case-document/final-judgment-defendants-penguin-group-division-
pearson-plc-and-penguin-group-usa.
8.
The Big Five’s e-book prices decreased substantially during that two-year period.
But they immediately increased their prices in 2015 after renegotiating their agency agreements
with Amazon, and have continued to maintain supracompetitive prices.
9.
Although Amazon claimed publicly that it was negotiating with the Big Five to
ensure that it could continue to discount their e-books following the term of the consent decree,
that did not transpire. The week after disclosing their respective agency contracts with Amazon,
Penguin increased its e-book prices by 30%, HarperCollins increased its prices by 29%, Simon &
Schuster increased its prices by 16%, Hachette increased its prices by 8%, and Macmillan
increased its prices by 11%.
10.
The Big Five also raised prices specifically by increasing prices for new releases
and reducing the number of price ranges into which they consolidated e-book prices. During the
course of the Apple conspiracy, the Big Five priced 80% of their e-books within four price
ranges. That figure doubled during the course of the DOJ consent decrees. After entering into
their agreements with Amazon in 2015, the Big Five gradually reverted to using three or four
price buckets by 2018, and through the present.
11.
Big Five e-book prices were most varied in 2014, during the course of the consent
decree. After adjusting for inflation, e-book prices clustered around $12 and only about 5% of
titles sold in the $15 range. In 2020, 55% of titles sold for about $15 and less than 5% sold
around $12.
12.
Had Amazon and its Big Five co-conspirators only raised prices on Amazon,
consumers would be free to shop for competitively-priced e-books on other online platforms. But
they agreed to price restraints that prevent that from happening.
13.
The EU Commission commenced another investigation in 2015,15 and determined
that Amazon used MFNs in its agreements with the Big Five, despite their ostensibly being
precluded from agreeing to MFNs by their earlier settlements with the EU Commission.16 The
EU Commission found that the MFNs and analogous provisions in the Big Five’s contracts with
Amazon had probable anticompetitive effects.17 Amazon and the EU Commission reached a
settlement in 2017 that prohibited Amazon from enforcing its MFNs and similar provisions for
five years.18 But that settlement had no effect on Amazon’s agreements with the Big Five in the
United States.
14.
The House Judiciary Committee investigated Amazon starting in 2019 pursuant to
a broader investigation of competition in digital markets.19 After a 16-month investigation, the
Committee issued a report and recommendations. The Committee determined, among other
things, that Amazon’s use of MFN provisions in its agreements with book publishers harms
competition in the retail book market, including the e-book market.20 The House Report
concluded that “Amazon’s dominance in e-books and its anticompetitive application of price
parity clauses to its business relationships in this market eliminates the ability of rivals or new
entrants to gain any meaningful competitive advantage relative to Amazon.”21
15 European Commission Initiates Formal Proceedings Against Amazon,
https://ec.europa.eu/competition/antitrust/cases/dec_docs/40153/40153_1359_6.pdf.
16 5.4.2017 EU Commission Decision at 4-5.
17 Id. at 20-38, 43.
18 Id. at 39, 41-42.
19 House Judiciary Committee, Investigation of Competition in Digital Markets, Oct. 5, 2020, at
6, https://judiciary.house.gov/uploadedfiles/competition_in_digital_markets.pdf (“House
Report”).
20 Id. at 295.
21 Id. at 296.
15.
The pending Connecticut investigation is similarly focused on Amazon’s
agreements with publishers, and each of the Big Five publishers received a subpoena in 2019
pursuant to that investigation.22
16.
Consumers do not sufficiently benefit from the cost reductions resulting from the
low printing and distribution expenses associated with e-books as compared to print books.
Amazon charges high commissions and other costs to publishers, including the Big Five, which
significantly increases retail prices for e-books sold by Amazon.23 Amazon increases the cost of
selling e-books by tying its distribution services (e.g., helping consumers find and purchase e-
books on the Amazon platform, processing payments, delivering e-books) to its advertising
services, which are designed to optimize the placement of advertisements to consumers on its
online platform.24 Amazon further raises the Big Five’s selling costs by manipulating e-book
“discovery tools to make a publisher’s books difficult to find without the purchase of advertising
or refuses distribution unless the publisher also purchases advertising.”25
17.
Moreover, via its MFNs, Amazon has required, and publishers have agreed to
grant Amazon, prices, terms, and conditions equal to or better than those offered to Amazon’s
competitors, and to notify Amazon about such terms, thereby restricting discounts to consumers,
and stifling innovation in the trade e-book market.26
22See Trachtenberg and Mattioli, supra n.2.
23 Letter from Maria A. Pallante, Pres. & CEO, Ass’n of Am. Publishers, Mary E. Rasenberger,
Exec. Dir., Authors Guild, Allison K. Hill, CEO, Am. Booksellers Ass’n, to Hon. David. N.
Cicilline, Chairman, Subcomm. on Antitrust, Commercial and Admin. Law of the H. Comm. on
the Judiciary, 3 (Aug. 17, 2020), https://publishers.org/wp-content/uploads/2020/08/Joint-Letter-
to-Rep-Cicilline-081720.pdf.
24 Id. at 2.
25 Id. at 3.
26 Id. at 7.
18.
In a competitive market, the Big Five could sell e-books at lower prices on their
own websites or through Amazon’s competitors that offer lower commissions and fees. But they
have agreed with Amazon not to do that. This prevents Amazon’s competitors from expanding
their market shares and reduces the incentive for new competitors to enter the market.27 Amazon
and the Big Five entered into these anticompetitive agreements with the purpose and effect of
injuring consumers by eliminating price competition that Amazon would otherwise face, and
raising e-book prices sold through Amazon’s retail rivals above competitive levels.
19.
Because Amazon and its co-conspirators have not made the exact terms of their
agreements public, Plaintiff relies on public disclosures and investigations. These reports
describe in a broader sense the contractual arrangements that Amazon uses in its agreements with
publishers to prevent competition from other online e-book retailers.
20.
MFNs typically entitle a buyer to prices and/or terms equal to or better than those
a seller offers to any other buyer. But Amazon’s contracts with the Big Five are an adaptation of
MFNs to the agency model. The Big Five rely on the agency model to sell e-books, which means
that Amazon is not a buyer and the Big Five are not its suppliers.
21.
Though Amazon has avoided using the term “most favored nation,” the Judiciary
Committee found that Amazon has continuously imposed on book publishers contract provisions
that effectively function as MFNs, even under the current agency model.28 Amazon uses these
provisions to prevent “publishers from partnering with any of Amazon’s competitors” and to
reinforce “Amazon’s ‘stranglehold’ and ‘control’ over book distribution.”29 Because of
27 House Report at 295.
Amazon’s market power in the retail e-book market, these contractual requirements prevent
Amazon’s actual and potential retail competitors from introducing alternative business models,
offering promotional advantages, or offering customers lower prices on their own.30 The House
Judiciary Committee’s findings are consistent with the earlier conclusions of the EU
Commission.31
22.
The EU Commission findings regarding Amazon’s MFN practices divided them
into five categories.
23.
First, the EU Commission determined that Amazon uses “business model parity
clauses” in its contracts with e-book publishers.32 These clauses require the Big Five co-
conspirators to notify Amazon of the distribution of their e-books through alternative business
models, and offer Amazon the same material terms and conditions, even if the competing retailer
itself operates under a different business model.33 Alternative business models include
subscriptions, streaming, rentals, book clubs, bundling of e-books with print books, and reduced
prices for partial downloads.34 This clause creates a debilitating disincentive for the Big Five to
support and invest in innovative business models that might result in greater competition.35 It
likewise disincentivizes Amazon’s e-book retail competitors’ from developing such models.36 It
also deters the entry of new e-book retail competitors or the expansion of Amazon’s existing
30 Id. at 295-96.
31 5.4.2017 EU Commission Decision.
32 Id. at 9, 12, 22-26.
33 Id. at 9, 22.
34 Id. at 9
35 Id. at 22.
36 Id. at 9.
competitors, which reduces competition in the e-book retail market, and strengthens Amazon’s
dominant position in that market.37
24.
Second, Amazon imposed, and its co-conspirators agreed to, “selection parity
clauses.”38 These clauses require the Big Five to offer Amazon parity with all of its competitors
with respect to: (1) any e-book available within a particular geographical territory; (2) any
particular date and time for an e-book’s release; and (3) any feature, functionality, usage rule,
element or content for one or more e-books.39
25.
The EU Commission found such clauses in Amazon’s contracts with the Big Five
posed serious threats to competition in numerous ways.40 They reduced the incentives of
Amazon’s competitors to develop and innovate features and functionalities of e-books.41 They
also thwarted development and innovation in e-books and e-book readers.42 Amazon’s selection
parity clause harms consumers by eliminating publishers’ incentive to develop new e-book
functionalities.43 It harms retail competition because it forecloses a significant avenue for
retailers to compete with Amazon by supporting such functionalities.44
26.
Third, Amazon required, and the Big Five maintained “retail price parity”
provisions in their agency contracts with Amazon.45 These retail price parity clauses included:
38 Id. at 27-31.
39 Id. at 27.
40 Id. at 27-31.
41 Id. at 27.
42 Id. at 28-29.
44 Id. at 31.
45 Id. at 32.
(1) the agency price parity clause; (2) the discount pool provision and (3) the promotion parity
clause.46
27.
The agency price parity clause contractually obligated the Big Five to set retail
prices on Amazon that are no higher than the retail prices charged by Amazon’s competitors.47
28.
The promotion parity clause precludes the possibility that the Big Five might even
temporarily set lower retail prices on the platform of any Amazon e-book competitor, absent
offering an equivalent promotion to Amazon.48
29.
Similarly, the discount pool provision gives Amazon the ability to set discounted
prices which are equal to or less than the cheapest retail price of any e-book distributed by a
publisher to Amazon’s competitors.49
30.
The EU Commission determined that Amazon’s retail price parity provisions in
the contracts with its Big Five co-conspirators limited the ability of Amazon’s competitors “to
attract buyers by offering lower retail prices than those on Amazon. This may discourage
competing E-book Retailers from entering in the first place.”50 The Commission determined that
these arrangements were likely to reduce competition between e-book retailers by reducing the
incentive of Amazon competitors to compete by offering lower rates of agency commissions.51
Further, such arrangements actually incentivize Amazon to charge higher commission rates, as e-
50 Id. at 33.
51 Id. at 34.
book suppliers had no ability to steer customers away from Amazon to its competitors based on
their commission or retail price.52
31.
These retail price parity provisions effectively functioned like MFNs in that they
enabled Amazon to prevent its competitors from undercutting the Big Five’s e-book prices on
Amazon.53 Once notified of the availability of its co-conspirators’ e-books at lower prices,
Amazon typically “requested” that they charge the same prices on Amazon.54 If publishers did
not comply, Amazon retaliated or threatened to retaliate by disabling purchases for one or
several of the publisher’s e-books on its platform, by excluding the publisher’s e-books from all
promotional activity, by removing the pre-order buttons for the publisher’s e-books, or by
prominently displaying banners for other publishers’ e-books.55 Eventually, the Big Five
complied with all of Amazon’s requests, and ceased entering into promotions proposed by
Amazon’s retail competitors.56 These notification provisions are anticompetitive because they
eliminated any incentive for the Big Five to offer lower prices or better terms to any of
Amazon’s existing or potential competitors.57
32.
Upon the conclusion of the European Commission’s investigation, Amazon
agreed not to enforce its MFNs and similar provisions in Europe for the next five years. That
entailed: no longer requiring publishers to provide Amazon with equal or better terms than they
provided to its competitors; and no longer requiring publishers to notify Amazon about its
53 Id. at 36.
55 Id. at n.55.
56 Id. at 37.
competitors’ alternative or new business models, release dates, selections of e-books, features of
their e-books, promotions, agency prices, agency commissions or wholesale prices.58 One
Commissioner remarked that the agreement would “open the way for publishers and
[booksellers] to develop innovative services for e-books, increasing choice and competition to
the benefit of European consumers.”59
33.
Amazon’s and the Big Five’s continued use of MFNs in the United States remains
anticompetitive, and contrary to the European Commission’s well-founded conclusions. Despite
multiple investigations and censures, Amazon and the Big Five continue to engage in a
conspiracy to fix the retail prices of e-books in violation of Section 1 of the Sherman Act.
34.
Amazon’s agreements with its co-conspirators constitute an unreasonable restraint
of trade that prevents competitive pricing, limits innovation, and imposes overcharges on
Plaintiff and other consumers when they purchase the Big Five’s e-books from Amazon’s
competitors. Plaintiff therefore seeks, in addition to compensatory damages, injunctive relief
under the Clayton Act to prevent Amazon and the Big Five from enforcing these restraints.
35.
Amazon maintains monopoly power in the domestic retail trade e-book market.
Amazon has willfully acquired that monopoly power through anticompetitive conduct, fixing the
retail prices of trade e-books at supracompetitive levels on both its own platform and those of its
competitors. Its conduct is an abuse of monopoly power in violation of Section 2 of the Sherman
II.
JURISDICTION AND VENUE
36.
This Court has subject matter jurisdiction over this action pursuant to 28 U.S.C.
§§ 1331 & 1337(a) and Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15(a) & 26. This
Court also has jurisdiction under 28 U.S.C. § 1332 because the amount in controversy for the
Class exceeds $5,000,000 and members of the Class are citizens of different states than
Defendants.
37.
Venue is proper in this District pursuant to Sections 4, 12, & 16 of the Clayton
Act, 15 U.S.C. § 15(a), and 28 U.S.C. § 1391(b), (c), and (d). Amazon resided, transacted
business, were found, or had agents in this District, and a substantial portion of the affected
interstate trade and commerce described in this Complaint was carried out in this District.
III.
PARTIES
38.
Jordan Sacks is a resident of Arlington, Virginia. Mr. Sacks purchased a book
published by co-conspirator Simon & Schuster, Inc. from Apple Books during the proposed class
39.
Amazon.com, Inc. is a Delaware corporation with its principal place of business
in Seattle, Washington. Amazon is active in online retail, e-commerce services, digital content,
and web and infrastructure computing services. Its primary source of revenue is the sale of a
wide range of products and services to consumers. The products Amazon offers include
merchandise and content purchased for resale from vendors, and those offered by third-party
sellers. Amazon also manufactures and sells electronic devices, including Kindle e-book readers,
Fire tablets, Fire TVs, Echo, and Fire phones. It also sells services such as cloud computing
services, fulfillment services (i.e., storing, packing, shipping, and providing customer support for
products sold by others), publishing (including self-publishing services), digital content
subscriptions, and advertising.
40.
Amazon sells e-books and offers e-book reading subscription services to its retail
customers throughout the United States from the Amazon platforms. Amazon also operates
Amazon Publishing, a division that publishes books and ostensibly competes with the co-
conspirator publishers.
Co-Conspirators
41.
Co-conspirator Hachette Book Group, Inc. is a Delaware corporation with its
principal place of business in New York, New York. It is a subsidiary of Lagardère Group, a
French conglomerate. Its imprints include, among others: Center Street; FaithWords; Grand
Central Publishing (formerly Warner Books); Little, Brown and Company; Orbit; Perseus Books;
and Worthy.
42.
Co-conspirator HarperCollins Publishers L.L.C. is a Delaware corporation with its
principal place of business in New York, New York. It is a subsidiary of News Corporation. Its
imprints include, among others: Avon; Caedmon; Ecco; Harlequin Books; Walden Pond Press;
and William Morrow.
43.
Co-conspirator Macmillan Publishing Group, LLC is a New York corporation
with its principal place of business in New York, New York. It is a subsidiary of Holtzbrinck
Publishing Group, a German conglomerate. Macmillan operates eight divisions in the United
States: Celadon Books; Farrar, Straus and Giroux; Flatiron Books; Henry Holt and Company;
Macmillan Audio; Macmillan Children’s Publishing Group; St. Martin’s Press and Tor/Forge.
44.
Co-conspirator Penguin Random House LLC is a Delaware corporation with its
principal place of business in New York, New York. It is a subsidiary of Bertelsmann SE, a
German conglomerate. Its imprints include: Alfred A. Knopf; DK; Doubleday; Penguin; Putnam;
Random House; Viking Books; and Vintage Books.
45.
Co-conspirator Simon & Schuster, Inc. is a New York corporation with its
principal place of business in New York, New York. It is a subsidiary of ViacomCBS Inc. Its
imprints include: Beyond Words Publishing; Folger Editions; Gallery Books; MTV Books;
Pocket Books; and Scribner. On November 25, 2020, ViacomCBS Inc. announced plans to sell
Simon & Schuster to Bertelsmann SE, Penguin’s parent company. The proposed transaction
“would create a publishing behemoth accounting for about a third of all books sold in the U.S.”60
IV.
STATEMENT OF FACTS
A.
The Big Five Dominate the Market for the Publication of Trade Books.
46.
The Big Five generally publish the most popular authors and books in both fiction
and non-fiction, including the vast majority of the New York Times bestsellers.61 Their
dominance is in large part attributable to a long history of mergers and acquisitions that has
resulted in their acquiring vast numbers of subsidiaries and divisions, more commonly known in
the industry as “imprints.” The last decade in particular has seen a wave of major acquisitions.62
47.
HarperCollins was established in 1817 as J. and J. Harper, and eventually became
Harper & Row.63 Hachette’s American division began as Little, Brown and Company,
60 Benjamin Mullin and Jeffrey A. Trachtenberg, Penguin Random House Parent to Buy Simon
& Schuster From ViacomCBS, Wall Street Journal (Nov. 25, 2020).
61 United States v. Apple, Inc., 791 F.3d 290, 298 (2d Cir. 2015).
62 Alexandra Alter and Edmund Lee, Penguin Random House to Buy Simon & Schuster, New
York Times (Nov. 25, 2020).
63 Peter Lee, Reconceptualizing the Role of Intellectual Property Rights in Shaping Industry
Structure, 72 Vand. L. Rev. 1197, 1259 (2019).
established in 1837.64 In the 1920s, Penguin, a leading British publisher, acquired several
formerly independent publishers, including Viking and Putnam.65 Simon & Schuster was
established in 1924, and it has been variously owned by Marshall Field, Gulf + Western,
Viacom, and CBS Corporation. By 1950, publishing was substantially “concentrated in a
relatively few houses.”66
48.
Consolidation accelerated in the 1980s. Between November 1985 and November
1986 alone, there were 57 major publishing acquisitions.67 News Corp. acquired Harper & Row
in 1987, which formed HarperCollins after it acquired William Collins & Sons in 1990.68
Hachette expanded rapidly beyond its French roots into English-language books in the 2000s.69
By 2006, the six largest U.S. trade book publishers accounted for 90 percent of total sales.70 In
2013, Penguin merged with Random House, and now controls approximately 25 percent of the
English-language publishing market.71
49.
Smaller trade publishers are increasingly unable to compete with the Big Five.
Houghton Mifflin Harcourt recently announced that it was exploring a sale of its trade publishing
division, possibly to Macmillan or Hachette.72
65 Id. at 1259-60.
66 Id. at 1260.
71 Id. at 1262.
72 See supra, Alter & Lee.
B.
Amazon Dominates the Market for the Retail Sale of Trade Books.
50.
Amazon sells more books than any other retail outlet in history.73 Prior to
Amazon’s emergence, there were approximately 4,000 independent bookstores in the United
States.74 That number has since been halved, and Amazon’s market power has grown
accordingly.75 Borders Group, Inc., which operated nearly 700 brick-and-mortar outlets at its
peak, ceased operations in 2011.76 Barnes & Noble, currently the second largest retail bookseller,
has long been in decline, closing 150 brick-and-mortar outlets over the past decade.77 Amazon
now controls 76% of the e-book market.78
51.
Unlike brick-and-mortar stores, Amazon relies on massive data to assess its
customers’ existing interests. According to the market research firm Codex Group, readers
browsing in a physical bookstore consider new books at about three times the rate they do while
shopping on Amazon.79 Even though it dominates the book market, Amazon accounts for only
73 Porter Anderson, US Publishers, Authors, Booksellers Call Out Amazon’s ‘Concentrated
Power’ in the Market, Publishing Perspectives (Aug.17, 2020), https://publishingperspectives
.com/2020/08/us-publishers-authors-booksellers-call-out-amazons-concentrated-power-in-
thebook-market/.
74 George Packer, Cheap Words, New Yorker (Feb.17 & 24, 2014), https://www.newyorker.com/
magazine/2014/02/17/cheap-words.
75 Amy Watson, Number of Independent Bookstores in the U.S. 2009-2019, Statista (Oct. 29,
2019), https://www.statista.com/statistics/282808/number-of-independent-bookstores-in-the-us/.
76 Associated Press, Borders Seeks to Liquidate All Stores, Toledo Blade (July 18, 2011).
77 Larry Light, The Barnes & Noble Buyout: A Godsend for Book Readers and Investors, Forbes
(Jun. 24, 2019), https://www.forbes.com/sites/lawrencelight/2019/06/24/the-barnes-noble-
buyout-a-godsend-for-book-readers-and-investors/?sh=70936407ef8f.
78 See supra note 2, Trachtenberg and Mattioli.
79 Stacy Mitchell and Olivia LaVecchia, Report: Amazon’s Monopoly, ILRS (Nov 29. 2016),
https://ilsr.org/amazons-monopoly/ at 27.
seven percent of new book discovery. The corresponding figure for independent bookstores is
C.
The Development of E-books Disrupted the Trade Book Industry.
52.
In 2007, Amazon’s Kindle became the first e-reader to gain widespread
commercial acceptance, and Amazon became the market leader in the sale of e-books and e-book
readers, selling nearly 90% by 2009.81 Amazon gained market share by discounting new releases
and bestsellers, and other e-book retailers frequently matched its prices.82 At that point, the Big
Five distributed both print books and e-books through a standard wholesale pricing model, under
which they only suggested retail prices. They typically discounted their wholesale prices for e-
books by 20% from those for equivalent print books, due to the reduced costs associated with e-
books.83 With those discounts, Amazon’s standard $9.99 retail price roughly matched the
wholesale price of many of its e-books.84
53.
The Big Five feared that Amazon’s $9.99 price point would undermine their
profits, by both reducing unit sales of profitable hard-cover books, and conditioning customers to
expect lower prices for hard-cover books.85 They also feared Amazon’s unprecedented power in
the industry, and that Amazon might bypass them entirely by dealing directly with authors and
literary agents.86
81 Apple, 952 F. Supp. 2d at 649.
54.
In 2009, each of the Big Five separately objected directly to Amazon about its
retail pricing, all to no avail.87 Undeterred, they collectively turned to Apple to address the issue.
Apple complied because it recognized that selling e-books was potentially even more lucrative
than selling digital music, a market that Apple already dominated.88 Apple believed that its iPad,
which was in its final planning stages, would revolutionize the e-reader market by virtue of
technological features vastly superior to those of any existing e-reader.89
55.
Over the course of a few weeks during late 2009 and early 2010, Apple and the
Big Five agreed that the Big Five would have to adopt the agency model in order to raise retail
prices. That model would enable the publishers to set retail prices and sell the books, while
Apple would receive a 30% commission for facilitating the sales.90 When certain Big Five
publishers hesitated to go forward with the plan, Apple put an MFN clause in the proposed
written agreements that would ensure that the Big Five priced their e-books on Apple at or below
the lowest retail price otherwise available in the marketplace. Apple thus enabled the Big Five to
set the retail prices of their books, while at the same time guaranteeing that it would never have
to compete on price.91
56.
The Big Five then forced Amazon to accept the agency model by threatening to
withhold their e-books by seven months after releasing the corresponding print books.92 After
87 Id. at 650.
88 Id. at 654-55.
89 Id. at 655.
90 Id.at 658-62.
92 Id. at 679-80.
unsuccessfully attempting to retaliate, Amazon complied, but filed a complaint with the FTC.93
Amazon entered into agency agreements with each of the Big Five publishers by mid-2010. Each
agreement included a “model parity” clause that gave Amazon the option to re-adopt the
wholesale model if the publisher agreed to such a model with any other e-book retailer.94 The
Big Five subsequently required Google and Barnes & Noble to enter into agency model
agreements for e-books.
57.
E-book prices immediately increased across the market.95Apple and the Big Five
profited in the short term. Apple gained 22% of the retail e-books market in the first two months
of operating its sales platform.96 The Big Five lost revenue as to e-books under the new model,
but offset those losses by raising the prices of their print books.97
58.
However, in late 2011, consumers filed a price-fixing class action in this District,
and the EU Commission opened its own investigation. In 2012, the DOJ and several attorneys
general filed enforcement actions. Rather than proceeding to trial in the federal actions, the Big
Five entered into consent decrees with the DOJ, which required them to terminate their
agreements with Apple and other e-book retailers that restricted the retailers’ ability to discount
e-books.98 Apple proceeded to trial in this District. The court found that Apple and the Big Five
had carried out a per se illegal horizontal price-fixing agreement, with the purpose and effect of
93 Id. at 680-81.
94 Id. at 681.
95 Id. at 683.
96 Marco Tabini, Apple grabs 22 percent of e-book market with iBooks Macworld (Jun. 7, 2010),
https://www.macworld.com/article/1151813/ibooks.html.
97 Apple Inc., 952 F. Supp. 2d at 683.
98 See, e.g., Final Judgment Penguin, at 8-9.
eliminating price competition in the e-book market.99 The court entered a $450 million judgment
against Apple.
59.
The consent decrees required that, for a period of two years, the Big Five would
permit retailers to discount e-book prices and to offer promotions to encourage consumers to
purchase e-books. For a period of five years, they would not enter into agreements with e-book
retailers that contained MFN clauses governing prices.100 They agreed to similar provisions to
resolve the European proceeding.
60.
As a result, competitive pricing prevailed between 2013 and 2015. But prices rose
as soon as the publishers renewed their agency agreements with Amazon.
D.
As a Trade Book Publisher, Amazon Benefits from Inflated E-book Prices.
61.
In part due to the friction between itself and the Big Five, Amazon established
Amazon Publishing, which it now touts as “a leading publisher of commercial and literary
fiction, nonfiction, and children’s books.”101
62.
Amazon claims that at least 36 of its authors have sold at least a million books.102
Best-selling author Dean Koontz has a five-book deal with Amazon Publishing.103 One of
99 Apple Inc., 952 F. Supp. 2d at 694.
100 Final Judgment Penguin, at 11, 18.
101 Amazon Publishing, https://amazonpublishing.amazon/about-us.html.
103 Porter Anderson, Dean Koontz’s Jump to Amazon Publishing: Will Other Authors Follow?,
Publishing Perspectives (July 22, 2019), https://publishingperspectives.com/2019/07/bestseller-
dean-koontz-jumps-to-amazon-publishing-five-book-deal-plus-stories/.
Amazon’s imprints, Amazon Crossing, is the largest publisher of translated fiction in the United
States.104 Amazon currently operates 16 imprints and has nine offices around the world.105
63.
Amazon thus benefits from the Big Five’s high prices, which enable Amazon to
charge higher prices for its own e-books.
E.
Amazon Uses Anticompetitive Restraints to Immunize Itself from the
Disadvantages of the Big Five’s Inflated E-book Prices.
64.
By virtue of its dominance of the retail market for e-books, Amazon’s maintains
substantial bargaining power with the Big Five. It could have maintained its ability to discount
their e-books, but instead agreed to let them set supracompetitive retail prices in exchange for
high commissions and a guarantee that Amazon could not be undersold by its competitors.
65.
According to the House Judiciary Committee, Amazon has at all times used
MFNs or their equivalents in its agreements with trade publishers.106 The EU Commission
determined that even when the Big Five were nominally prohibited from having MFNs in their
contracts, they evaded that restriction in dealing with Amazon by using notification provisions
that had the same effect.107
66.
No matter the means, Amazon’s objective has always been to prevent “publishers
from partnering with any of Amazon’s competitors” and to reinforce “Amazon’s ‘stranglehold’
and ‘control’ over book distribution.”108 Amazon has acquired and maintained its monopoly
104 Ed Nawotka, Translations Pay off For Amazon, (Nov. 8, 2019) Publisher’s Weekly,
https://www.publishersweekly.com/pw/by-topic/industry-news/publisher-news/article/81707-
translations-pay-off-for-amazon.html.
105 Amazon Publishing.
106 House Report at 295-96.
107 5.4.2017 EU Commission Decision at 11.
108 House Report at 295-96.
power in large part through these restraints.109 Its competitors lack any incentive to offer
promotional advantages or alternative business models to gain market share because Amazon
requires that the Big Five grant it whatever opportunities they offer to Amazon’s competitors.110
The result is reduced innovation and supracompetitive retail prices.111
F.
Amazon is the Subject of Government Investigations for Possible Antitrust
Violations.
67.
The EU Commission investigated Amazon’s contracts with e-book publishers
between 2015 and 2017. The Commission cited numerous issues relating to Amazon’s MFNs
and notification clauses, finding that Amazon used these clauses to restrain its competitors’
market shares and discourage potential competitors from entering the market.
68.
The House Judiciary Committee began an investigation in 2019 that entailed
seven hearings on digital markets, addressed to issues including data privacy, innovation, free
speech, and competition. Pursuant to that investigation, the Committee requested documents and
information regarding Amazon’s market share and competitors in numerous markets.112
69.
The Committee issued a report in October 2020. It concluded that Amazon
“serves as a gatekeeper over a key channel of distribution,” the domestic online retail market,113
and that by controlling access to that market, it abuses its tremendous power “by charging
exorbitant fees, imposing oppressive contract terms, and extracting valuable data from the people
110 5.4.2017 EU Commission Decision at 20-38, 43.
112 Letter from U.S. House of Representatives Committee on the Judiciary to Jeff Bezos,
Amazon CEO (Sept. 13, 2019),
https://judiciary.house.gov/sites/democrats.judiciary.house.gov/files/documents/amazon%20rfi%
20-%20signed.pdf.
113 House Report at 6, 15.
and businesses that rely on” it.114 It also “uses its gatekeeper position to maintain its market
power and “to further entrench and expand” its dominance.115 The Committee compared
Amazon’s conduct to “the kinds of monopolies we last saw in the era of oil barons and railroad
tycoons.”116
70.
Amazon also faces an investigation by the Federal Trade Commission and
antitrust scrutiny by state attorneys general offices in California, Washington, and New York,117
in addition to the recently-disclosed Connecticut investigation addressed strictly to e-books.
V.
EFFECTS ON INTERSTATE TRADE AND COMMERCE
71.
Amazon’s and its co-conspirators’ business activities that are the subject of this
Complaint were within the flow of and substantially affect ted interstate trade and commerce.
72.
During the Class Period, Amazon’s and its co-conspirators’ conduct occurred in,
affected, and foreseeably restrained interstate commerce of the United States.
VI.
RELEVANT MARKET
73.
The antitrust injuries alleged herein, including harm to consumers, have occurred
in the United States retail market for trade e-books. Amazon and its co-conspirators’ agreed-
upon price restraints unreasonably restrain these markets. Plaintiff seeks relief individually and
on behalf of other retail purchasers, who purchase trade e-books from one or more of the Big
Five co-conspirators through electronic platforms other than Amazon’s platform.
114 House Report at 6.
117 House Report at 253; Press Release, Fed. Trade Comm’n, FTC to Examine Past Acquisitions
by Large Technology Companies (Feb. 11, 2020), https://www.ftc.gov/news- events/press-
releases/2020/02/ftc-examine-past-acquisitions-large-technology-companies.
74.
Amazon’s restraints on competition directly impact the U.S. retail market for
trade e-books, as alleged herein.
75.
Trade books comprise a product market distinct from non-trade books, such as
reference and academic books.118 They also comprise a product market distinct from self-
published books. Self-published authors incur all costs and are solely responsible for content and
marketing, whereas trade publishers receive the rights to sell authors’ books in exchange for
editing, publishing, marketing, and distributing those books.119 Trade publishers are highly
selective. They do not read 95% of the manuscripts they receive and publish only about 1% of
the manuscripts they do review.120 The selection, editing, and promotional process is expensive,
and trade books reflect publishers’ investment in that process.
76.
Within the market for trade books, there is also a distinct product market for the
retail sale of trade e-books that is separate from the retail sale of trade print books and trade
audio books.121
77.
Products’ functional interchangeability typically depends on their physical
characteristics.122 E-books are digital products. Their physical characteristics differ from those of
print books. They are also different from audio books, which may be physical or digital, but are
118 Apple, 952 F. Supp. 2d at 648 n.4.
119 Leigh Shine, Calculating the Odds of Getting A Traditional Publisher, Medium (Dec. 22,
2016), https://medium.com/publishizer/calculating-the-odds-of-getting-a-traditional-publisher-
798b1c7b94b0.
120 Odds Of Being Published - Fiction Writer’s Mentor, http://www.fiction-writers-
mentor.com/odds-of-being-published.
121 Apple Inc., 952 F. Supp. 2d at 694 n.60 (defining the relevant market as trade e-books in the
United States); 5.4.2017 EU Commission Decision at 14.
122 2 Federal Antitrust Law § 10.2 (2020).
made for listening rather than reading. These distinctive characteristics place print books and
audiobooks outside of the markets for e-books.123
78.
The EU Commission determined that consumers would be unlikely to switch
from e-books to print books in the event of a 5-10% increase in the retail price of e-books,
because e-books would still generally be priced significantly lower than print books.124
Consumer preferences also play an important role in distinguishing the two formats. The EU
Commission’s investigation of the e-books market showed that consumers will purchase e-books
rather than print books for reasons including the following: (i) e-books are easier to carry than
print books, particularly when travelling, (ii) e-books have functionalities unavailable in print
books, such as varying the type and size of fonts; (iii) e-books can support interactive features
such as video or music add-ons, dictionaries, and links to additional information regarding the
text or the author, and (iv) e-books can be purchased, downloaded and read immediately at any
time.125 The EU Commission also noted that a significant number of titles are only, or more
readily, available in the e-book format.126
79.
To find significant supply-side substitutability, print book retailers and e-book
retailers would have to be able to enter each other’s markets quickly and easily. The EU
Commission found that was not possible. The distribution of print books entails substantial
investments in warehousing and logistics, whereas e-book distribution requires establishment
and maintenance of an online distribution platform.127 A standard print bookstore cannot switch
123 5.4.2017 EU Commission Decision at 14.
from selling print books to e-books without acquiring significant tangible and intangible assets,
incurring additional investments and making significant strategic decisions. The same holds true
for an e-book retailer switching to print sales.128
80.
The EU Commission found that audio books are distinct from both print books
and e-books, notably in terms of (i) pricing at the wholesale and retail levels and (ii) their typical
end consumer and mode of consumption.129
81.
The relevant geographic market is the United States.
VII.
ANTITRUST IMPACT
82.
Amazon’s and its co-conspirators’ conduct described herein has substantially
impaired competition in the retail e-book market.
83.
Amazon’s and its co-conspirators’ conduct described herein lacks any
procompetitive justification. Moreover, the harm to competition and the resulting antitrust injury
suffered by Plaintiff and Class members more than offsets any purported procompetitive
justifications Amazon may offer.
VIII. ANTITRUST INJURY
84.
Amazon increases the prices of e-books offered by its competitors, restrains
consumer choice, and otherwise causes antitrust injury to retail book purchasers in the form of
overcharges. Plaintiff and Class members have sustained, and continue to sustain, significant
losses from overcharges directly attributable to Amazon’s anticompetitive activity. Plaintiff will
calculate the full amount of such overcharge damages after discovery and upon proof at trial.
Unless Amazon’s anticompetitive conduct is enjoined, Plaintiff and Class members will continue
to incur overcharges in their direct purchases of the Big Five’s e-books from Amazon’s
competitors.
85.
Plaintiff and Class members are direct purchasers who purchase the Big Five’s e-
books through retail platforms that compete with Amazon, at prices inflated by Amazon and its
co-conspirators’ agreements detailed herein.
86.
Because of the agency model, Plaintiff and Class members overpay whether they
buy the Big Five’s e-books directly from the Big Five on their own websites, or through retail e-
book platforms that compete with Amazon. As required by the MFNs and similar clauses
described herein, the Big Five sell at retail prices that are equal to or higher than the prices for
which they sell their e-books on Amazon. It is in the Big Five co-conspirators’ independent
economic self-interests to expand their market shares of retail sales and diversify their
distribution. It would serve their independent interests to allow Amazon’s competitors to develop
alternative business models that benefit both consumers and the Big Five. Offering Amazon’s
competitors special edition or enhanced e-books would attract new customers, increase sales,
reduce the Big Five’s dependency on Amazon, and limit Amazon’s market power. But Amazon
and the Big Five do not consider those options, so as to preserve the supracompetitive prices of
the Big Five’s e-books. Plaintiff and Class members who purchase directly from the Big Five
through Amazon’s competitors are harmed because they pay prices fixed by Amazon and the Big
Five, without the benefit of discounts, promotions, and potentially lower-cost alternative
business models that would exist in a competitive market.
87.
Because Amazon continues to enforce its anticompetitive MFNs and similar
restrictive provisions, Plaintiff and Class members are will continue to incur overcharges for the
Big Five’s e-books. Both the actual harm and the threat of future harm are cognizable antitrust
injuries directly attributable to Amazon’s violations of antitrust laws as alleged herein.
IX.
CLASS ACTION ALLEGATIONS
88.
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 persons who, on or after January 18, 2017, purchased in the United States one
or more e-books sold by the Big Five Publishers through any online retail
platform in the United States other than Amazon.
89.
Excluded from the Class are Amazon; its officers, directors, management,
employees, subsidiaries, affiliates, and coconspirators. Also excluded are the judge presiding
over this action; his/her law clerks and spouse; any persons within three degrees of relationship
to those living in his/her household; and the spouses of all such persons.
90.
Members of the Class are so numerous and geographically dispersed that joinder
is impracticable.
91.
Plaintiff’s claims are typical of the claims of the members of the Class. Plaintiff
and members of the Class were damaged by the same wrongful conduct of Defendants.
92.
Plaintiff will fairly and adequately protect and represent the interests of members
of the Class. Plaintiff’s interests are coincident with, and not antagonistic to, those of members of
the Class.
93.
Plaintiff is represented by counsel with experience in the prosecution and
leadership of class action antitrust and other complex litigation, including class actions involving
conspiracy and monopolization claims.
94.
Questions of law and fact common to the members of the Class predominate over
questions that may affect only individual Class members, thereby making damages with respect
to members of the Class as a whole appropriate. Questions of law and fact common to members
of the Class include, but are not limited to:
a. Whether Amazon and its co-conspirators unlawfully conspired to unreasonably
restrain trade in violation of federal antitrust laws;
b. Whether Amazon has unlawfully monopolized the domestic retail e-book market,
including by way of the conduct described herein;
c. Whether competition in the domestic retail e-book market has been restrained and
harmed by Amazon’s monopolization of the market;
d. injury suffered by Plaintiff and members of the Class;
e. damages suffered by Plaintiff and members of the Class;
f. whether Amazon has acted or refused to act on grounds generally applicable to
members of the Class, thereby making appropriate final injunctive relief or
corresponding declaratory relief with respect to members of the Class as a whole;
and
g. the nature and scope of injunctive relief necessary to restore a competitive market.
95.
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
require.
96.
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 outweigh potential difficulties in management of this class
action.
97.
Plaintiff knows of no special difficulty to be encountered in the maintenance of
this action that would preclude its maintenance as a class action.
98.
Plaintiff has defined members of the Class based on currently available
information and hereby reserves the right to amend the definition of the Class.
99.
By way of its conduct described in this complaint, Defendant has acted on
grounds that apply generally to the proposed Class. Accordingly, final injunctive relief is
appropriate respecting the Class as a whole.
X.
CLAIMS FOR RELIEF
FIRST CLAIM FOR RELIEF
(Violation of the Sherman Act § 1)
100.
Plaintiff incorporates by reference and re-alleges the preceding allegations as
though fully set forth herein.
101.
Plaintiff brings this claim on his own behalf and on behalf of the proposed Class
described above. Plaintiff seeks damages and injunctive relief.
102.
Amazon, by and through its officers, directors, employees, or other
representatives, entered into and engaged in unlawful agreements in restraint of trade and
commerce in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1. Specifically, Amazon and
its co-conspirators agreed to restrict competition in the price or availability of trade e-books, by
agreeing to various anticompetitive MFNs and anticompetitive provisions that functioned the
same as MFNs, thereby fixing and raising the prices of trade e-books.
103.
Amazon and its co-conspirators’ combinations and conspiracy injured Plaintiff
and the members of the Class by raising the prices of trade e-books and depriving them of free
and fair competition in the retail market for trade e-books.
SECOND CLAIM FOR RELIEF
(Violation of the Sherman Act § 2)
104.
Plaintiff incorporates by reference and re-alleges the preceding allegations as
though fully set forth herein.
105.
Plaintiff brings this claim on his own behalf and on behalf of the proposed Class
described above. Plaintiff seeks damages and injunctive relief.
106.
The relevant product market is the retail market for trade e-books.
107.
The relevant geographic market for the retail sale of trade e-books is the United
108.
Amazon has had and continues to have at least 75% market share in the retail
market for trade e-books.
109.
Amazon has had and continues to have monopoly power in the retail market for
trade e-books.
110.
Amazon has demonstrated its ability to control prices and exclude competition by
raising prices without a corresponding increase in demand and to supracompetitive levels.
111.
Through unlawful, interconnected, and mutually reinforcing anticompetitive and
exclusionary acts and agreements, Amazon has substantially foreclosed competition in the retail
market for trade e-books in the United States in violation of Section 2 of the Sherman Act, 15
U.S.C. § 2.
112.
Amazon entered into a combination or conspiracy with its co-conspirators to
maintain its monopoly power in the retail market for trade e-books. Amazon created and
maintained this conspiracy through a series of agreements with each of the co-conspirators. In
these agreements, Amazon and its co-conspirators agreed, among other things, that Amazon
would act as its co-conspirator’s agent in the retail sale of trade e-books to Plaintiff and members
of the Class.
113.
These agreements foreclosed competition in a substantial portion of the retail
market for trade e-books and unlawfully maintained Amazon’s monopoly, resulting in the
payment of supracompetitive prices for trade e-books by Plaintiff and members of the Class.
114.
Amazon’s monopoly is not due to growth or development because of a superior
product, business acumen, or historic accident.
115.
Amazon’s monopolization conspiracy has injured and will continue to injure
competition in this market.
116.
Amazon has acted with the specific intent of monopolizing the retail market for
trade e-books in the United States.
117.
Amazon’s exclusionary and anticompetitive acts substantially affect interstate
commerce and injure competition nationwide.
118.
The conspiracy raised the retail prices for trade e-books above the competitive
level and otherwise injured competition without any offsetting procompetitive benefit to
consumers.
119.
Plaintiff and members of the Class have been injured in their business or property
by reason of Amazon’s violation of Section 2 of the Sherman Act within the meaning of Section
4 of the Clayton Antitrust Act, 15 U.S.C. § 15.
120.
Plaintiff and members of the Class are threatened with future injury to their
business and property by reason of Amazon’s continuing violation of Section 2 of the Sherman
Act within the meaning of Section 16 of the Clayton Antitrust Act, 15 U.S.C. § 26.
121.
Plaintiff and the Class are entitled to an injunction that terminates the ongoing
violations alleged in this Complaint.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, individually and on behalf the proposed Class of similarly
situated persons, respectfully requests the following:
a.
That the Court certify this lawsuit as a class action under Rules 23(a) and (b) of
the Federal Rules of Civil Procedure, that Plaintiff be designated as class
representative, and that Plaintiff’s counsel be appointed as Class counsel for the
Class;
b.
The conduct alleged herein be declared, adjudged, and/or decreed to be unlawful
under Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2.
c.
Plaintiff and the Class recover their overcharge damages, trebled, and the costs of
the suit, including reasonable attorneys’ fees as provided by law; and
d.
For such other and further relief as the Court may deem just and proper.
JURY DEMAND
Pursuant to Federal Rule of Civil Procedure 38, Plaintiff, individually and on behalf of
the proposed Class, demands a trial by jury on all issues so triable.
Dated: January 18, 2021
Respectfully submitted,
/s/ Linda P. Nussbaum .
Linda P. Nussbaum
Bart D. Cohen
Louis Kessler
Marc Foto
NUSSBAUM LAW GROUP, P.C.
1211 Avenue of the Americas, 40th Floor
New York, NY 10036
(917) 438-9102
[email protected]
[email protected]
[email protected]
[email protected]
Michael E. Criden
Kevin B. Love
Lindsey C. Grossman
CRIDEN & LOVE, P.A.
7301 S.W. 57th Court, Suite 515
South Miami, FL 33143
(305) 357-9000
[email protected]
[email protected]
[email protected]
Counsel for Plaintiff and the Proposed Class
| antitrust |
PQoOFocBD5gMZwczeDY9 | 12-273 Erie
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
RON KOLESAR, individually and on behalf of
all others similarly situated,
Plaintiff,
v.
CNB BANK, d/b/a ERIE BANK
Defendant.
Case No.
Complaint – Class Action
Jury Demanded
CLASS ACTION COMPLAINT – JURY DEMANDED
Comes now Ron Kolesar, (“Plaintiff”), on behalf of himself and all others similarly
situated and alleges as follows:
INTRODUCTION
1.
Plaintiff is a blind individual. As Plaintiff goes about his daily business, he
regularly has occasion to make use of the banking services that are available through Automated
Teller Machines (“ATMs”), so long as those ATMs are accessible to the blind. As discussed at
length below, federal law includes very specific provisions calculated to guarantee that ATMs
are accessible to blind and visually-impaired individuals.1
2.
If a given ATM does not include the accessibility features that are mandated by
federal law, a blind consumer like Plaintiff cannot use the ATM independently and is thus faced
with the prospect of having to share private banking information with other individuals to
complete a banking transaction at the ATM. The mandatory ATM accessibility requirements at
1
Plaintiff invokes the term “accessibility” as a defined term of art. That is, “accessibility”
is specifically defined in the applicable statutes and regulations discussed at length in the text
below and Plaintiff is using the term in the context of those definitions, and not in the abstract.
issue in this lawsuit are calculated to permit blind and visually impaired individuals to use ATMs
independently, without having to divulge private banking information to a third party.
3.
Notwithstanding that federal law mandates very specific ATM accessibility
requirements for the blind, a March 7, 2012 Wall Street Journal article noted the widely
publicized fact that at least 50% of the nation’s ATMs remain inaccessible to blind individuals in
violation of these laws. In that same article, a spokesperson for the National Federation of the
Blind (“NFB”) was quoted as saying: “It is absolutely unacceptable that at this late date there are
hundreds of thousands of ATMs that are still not accessible to blind people.”
4.
As is the case nationally, a significant percentage of the ATMs throughout
Pennsylvania continue to violate accessibility requirements mandated by federal law. Many
inaccessible ATMs are located within the geographic zone that Plaintiff typically travels as part
of his everyday and weekly activities. This shortage of accessible ATMs severely limits the
ability of Plaintiff and other blind and visually impaired individuals to benefit from the banking
services made available to the American consumer public through ATMs.
5.
The NFB and other blind advocacy groups have been fighting to achieve ATM
accessibility since at least as early as 1999, at which time the NFB began to work with the
manufacturers of ATMs and the banking industry to encourage the addition of voice guidance
and universal tactile keypads, inter alia, to ATM machines.
6.
While some financial institutions have worked pro-actively to achieve compliance
with federal ATM accessibility requirements that impact the blind community, the NFB and
other blind advocacy organizations have pursued civil litigation against financial institutions
which remain in violation of accessibility requirements long after those accessibility
requirements were first introduced.2
7.
As noted above, to the extent that a given ATM does not comply with the
accessibility requirements mandated by federal law, it is nearly impossible for Plaintiff and
others similarly situated to independently use that ATM.3
8.
After March 15, 2012, Plaintiff visited an ATM owned and operated by
Defendant CNB Bank, d/b/a Erie Bank (“Defendant”) located at 2615 Asbury Road, Erie,
Pennsylvania, 16506 (the “Subject ATM”). The Subject ATM is inaccessible to the blind in
violation of applicable law, as is described in detail in the text below.
9.
Plaintiff will continue to regularly visit the ATM in the future as part of his effort
to locate accessible ATMs that he personally can use within the geographic zone that he typically
travels as part of his everyday and weekly activities, and on behalf of the blind community,
generally.
10.
Plaintiff alleges violations of Title III of the Americans with Disabilities Act, 42
U.S.C. § 12101 et seq., (the “ADA”) and its implementing regulations.
11.
On behalf of a class of similarly situated individuals, Plaintiff seeks a declaration
that Defendant’s ATMs violate federal law as described and an injunction requiring Defendant to
update or replace its ATMs so that they are fully accessible to, and independently usable by,
2
The history of the specific accessibility requirements applicable to ATMs is discussed in
detail in the text below.
3
To understand how difficult it would be for a blind person to use an ATM that does not
include the accessibility features at issue in this lawsuit, a sighted individual need only close his
or her eyes, approach the ATM and attempt to perform a banking transaction—any transaction.
It is impossible to perform the transaction without vision because the input modalities for the
transaction rely upon visual cues, which are of course meaningless to somebody who is blind.
That is why an ATM is not accessible to a blind individual unless it offers voice guidance and all
of the additional accessibility requirements that are mandated by the laws at issue.
blind individuals. Plaintiff also requests that once Defendant is fully in compliance with the
requirements of the ADA, the Court retain jurisdiction for a period of time to be determined to
ensure that Defendant has adopted and is following an institutional policy that will, in fact, cause
Defendant to remain in compliance with the law.
JURISDICTION AND VENUE
12.
This Court has federal question jurisdiction over the ADA claims asserted herein
pursuant to 28 U.S.C. §1331 and 42 U.S.C. § 12188.
13.
Plaintiff’s claims asserted herein arose in this judicial district and Defendant does
substantial business in this judicial district.
14.
Venue in this judicial district is proper under 28 U.S.C. §1391(b)(1) and (2) in
that this is the judicial district in which a substantial part of the acts and omissions giving rise to
the claims occurred and this is the judicial district in which Defendant resides.
PARTIES
15.
Plaintiff, Ron Kolesar, is and, at all times relevant hereto, was a resident of the
Commonwealth of Pennsylvania. Plaintiff is and, at all times relevant hereto, has been legally
blind and is therefore a member of a protected class under the ADA, 42 U.S.C. § 12102(2); the
regulations implementing the ADA set forth at 28 CFR §§ 36.101 et seq.
16.
Defendant, CNB Bank, d/b/a Erie Bank is a bank organized under the laws of the
Commonwealth of Pennsylvania and is headquartered at One South Second Street, Clearfield,
Pennsylvania, 16830. Defendant is a public accommodation pursuant to 42 U.S.C. 12181(7)(F)
which offers banking services through its ATMs.
TITLE III OF THE ADA
17.
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.
18.
The ADA broadly protects the rights of individuals with disabilities with respect
to employment, access to State and local government services, places of public accommodation,
transportation, and other important areas of American life.
19.
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.
20.
On July 26, 1991, the Department of Justice (“DOJ”) issued rules implementing
Title III of the ADA, which are codified at 28 CFR Part 36.4
21.
Appendix A of the 1991 Title III regulations (republished as Appendix D to 28
CFR part 36) contains the ADA standards for Accessible Design (1991 Standards), which were
based upon the Americans with Disabilities Act Accessibility Guidelines (1991 ADAAG)
published by the Access Board on the same date.5
4
The DOJ is the administrative agency charged by Congress with implementing the
requirements of the ADA.
5
The Access Board was established by section 502 of the Rehabilitation Act of 1973. 29
U.S.C.§792. The Board consists of 13 public members appointed by the President, the majority
of whom must be individuals with disabilities, and the heads of the 12 Federal departments and
agencies specified by statute, including the heads of the Department of Justice and the
Department of Transportation. Originally, the Access Board was established to develop and
maintain accessibility guidelines for facilities designed, constructed, altered, or leased with
Federal dollars under the Architectural Barriers Act of 1968. 42 U.S.C. § 4151 et seq. The
passage of the ADA expanded the Access Board’s responsibilities.
The ADA requires the Access Board to “issue minimum guidelines . . . to ensure that
buildings, facilities, rail passenger cars, and vehicles are accessible, in terms of architecture and
design, transportation, and communication, to individuals with disabilities.” 42 U.S.C. 12204.
22.
In 1994, the Access Board began the process of updating the 1991 ADAAG by
establishing a committee composed of members of the design and construction industries, the
building code community, and State and local government entities, as well as individuals with
disabilities.
23.
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.
24.
The Access Board issued final publication of revisions to the 1991 ADAAG on
July 23, 2004 (“2004 ADAAG”).
25.
On September 30, 2004, the DOJ issued an advance notice of proposed
rulemaking to begin the process of adopting the 2004 ADAAG.
26.
On June 17, 2008, the DOJ published a notice of proposed rulemaking covering
Title III of the ADA.
27.
The long-contemplated revisions to the 1991 ADAAG culminated with the DOJ’s
issuance of The 2010 Standards for Accessible Design (“2010 Standards”). The DOJ published
the Final Rule detailing the 2010 Standards on September 15, 2010. The 2010 Standards consist
of the 2004 ADAAG and the requirements contained in subpart D of 28 CFR part 36.6
The ADA requires the DOJ to issue regulations that include enforceable accessibility standards
applicable to facilities subject to Title III that are consistent with the “minimum guidelines”
issued by the Access Board, 42 U.S.C. § 12134(c), 12186(c), but vests with the Attorney General
sole responsibility for the promulgation of those standards that fall within the DOJ’s jurisdiction
and enforcement of the regulations.
The ADA also requires the DOJ to develop regulations with respect to existing facilities
subject to Title III.
6
Though the Effective Date of the 2010 Standards was March 15, 2011, the
communication elements of Chapter 7 of the Standards—which frame Plaintiff’s allegations in
this case—did not become effective until March 15, 2012, at which time the 2010 Standards
became enforceable through civil actions by private plaintiffs.
THE ADA HAS LONG REQUIRED THAT FINANCIAL INSTITUTIONS
THAT OWN, OPERATE, CONTROL AND/OR LEASE ATMS PROVIDE ATMS THAT
ARE FULLY ACCESSIBLE AND INDEPENDENTLY USABLE BY BLIND PEOPLE
28.
Since the enactment of the ADA in 1991, banks and financial institutions which
provide banking services through ATMs have been required to ensure that all banking services
available at the ATM are fully accessible to, and independently usable by, individuals who are
blind. The 1991 DOJ Standards required that “instructions and all information for use shall be
made accessible to and independently usable by persons with vision impairments.” 28 CFR part
36, App. A. section 4.34.4.
29.
Initially, the ADA and its implementing regulations did not provide technical
details defining the steps required to make an ATM fully accessible to and independently usable
by blind individuals.
30.
However, after a lengthy rulemaking process wherein the Access Board
entertained extensive input from all stakeholders, the 2004 ADAAGs adopted very specific
guidelines calculated to ensure that ATM banking services were, in fact, fully accessible to, and
independently usable by, individuals who are blind.
31.
Section 220.1 of the 2004 ADAAGs stated that “where automatic teller machines
. . . are provided, at least one of each type provided at each location shall comply with Section
32.
In turn, Section 707 of the 2004 ADAAGs delineated very precise accessibility
guidelines for ATMs, including guidelines calculated to ensure that ATMs are fully accessible
to, and independently usable by, visually impaired individuals. These guidelines included, inter
alia, the following elements: ATMs shall be speech enabled (i.e. talking ATMs)—Section
707.5; input controls shall be tactilely discernible—Section 707.6; function keys shall have
specific tactile symbols—Section 707.6.3.2; Braille instructions shall be provided for initiating
the speech mode.
33.
As noted, the 2010 Standards adopt the 2004 ADAAGs. The communication
elements of the 2010 Standards are set forth at Section 7-- including, in relevant part, the
elements which are expressly calculated to make ATMs fully accessible to, and independently
usable by, visually impaired individuals. The Section 7 communication elements became fully
effective on March 15, 2012.7
34.
Defendant owns, operates, controls and/or leases a place of public
accommodation.
35.
Defendant’s ATMs are not fully accessible to, and independently usable by, blind
individuals. Some of Defendant’s ATMs do not include voice guidance and suffer from myriad
additional violations of Section 7 of the 2010 Standards.
36.
Defendant does not have an institutional policy that is reasonably calculated to
ensure that its ATMs be fully accessible to, and independently usable by, visually impaired
individuals, as those terms are informed by Section 7 of the 2010 Standards.
VIOLATIONS AT ISSUE
37.
After March 15, 2012, Plaintiff visited Defendant’s ATM located at 2615 Asbury
Road, Erie, Pennsylvania, 16506.
38.
At the time of this visit, the Subject ATM violated Chapter 7 of the 2010
Standards as follows: there was no functional voice guidance feature (Section 707.5); there were
7
The DOJ has consistently taken the position that the communication-related elements of
ATMs are auxiliary aids and services, rather than structural elements. See 28 CFR part 36, app. B
at 728 (2009). Thus, the 2010 Standards do not provide a safe-harbor provision for
implementation of these requirements unless compliance would cause an “undue hardship” upon
a public accommodation.
no Braille instructions for initiating speech mode (Section 707.8); the function keys did not have
the proper tactile symbols (Section 707.6.3.2); and there were no features calculated to provide
blind and visually-impaired users with the same degree of privacy of input and output as is
provided for sighted individuals (707.4).
39.
An investigation performed on behalf of Plaintiff revealed that many of
Defendant’s ATMs are in violation of Chapter 707 of the 2010 Standards as of the date of filing
this Complaint. Specifically, some of Defendant’s ATMs do not have functional voice guidance
features (Section 707.5 and 707.5.2); there are no Braille instructions for initiating speech mode
(Section 707.8); the function keys do not have the proper tactile symbols (Section 707.6.3.2); and
there are no features calculated to provide blind and visually-impaired users with the same
degree of privacy of input and output as is provided for sighted individuals (707.4).
40.
Though Defendant has centralized policies regarding the management and
operation of its ATMs, Defendant does not have a plan or policy that is reasonably calculated to
cause its ATMs to be in timely compliance with Chapter 7 of the 2010 Standards, as is
demonstrated by the fact that its network remains out of compliance.
41.
Plaintiff is routinely in the immediate vicinity of the Subject ATM.
42.
Plaintiff uses ATMs that meet the accessibility requirements of the 2010
Standards, but these ATMs are often not conveniently located.
43.
To date, Plaintiff has not had the practical ability to use the Subject ATM,
because it is in violation of the 2010 Standards (and prior to the effective date of the 2010
Standards, the Subject ATM was not otherwise readily accessible to or independently usable by
blind individuals).
44.
A significant percentage of the ATMs that are located within the geographic zone
that Plaintiff typically travels as part of his everyday and weekly activities do not comply with
the 2010 Standards and are therefore inaccessible to blind individuals like Plaintiff.
45.
When Plaintiff visited Defendant’s ATM, he had in his possession an ATM card,
and headphones that are compatible with the 2010 Standards, and intended to avail himself of the
banking services offered through Defendant’s ATM.
46.
Plaintiff will continue to attempt to use the Subject ATM because he wants to
identify convenient accessible ATM options within the geographic zone that he typically travels
as part of his everyday and weekly activities, and he wants to increase ATM accessibility for the
blind community, generally.
47.
In contrast to an architectural barrier at a public accommodation, wherein a
remediation of the barrier to cause compliance with the ADA provides a permanent or long-term
solution, the addition of, or repair to, a speech enabling function (and other related accessibility
requirements) provided at the ATM of a public accommodation requires periodic monitoring to
confirm, not only that the public accommodation is in compliance in the first instance, but also
that the public accommodation remains in compliance.
48.
Without injunctive relief, Plaintiff will continue to be unable to independently use
Defendant’s ATM in violation of his rights under the ADA.
CLASS ACTION ALLEGATIONS
49.
Plaintiff brings this action pursuant to Rules 23(a) and 23(b)(2) of the Federal
Rules of Civil Procedure on behalf of himself and all legally blind individuals who have
attempted to access, or will attempt to access, Defendant’s ATMs.
50.
The class described above is so numerous that joinder of all individual members
in one action would be impracticable. The disposition of the individual claims of the respective
class members through this class action will benefit both the parties and this Court.
51.
Typicality: Plaintiff’s claims are typical of the claims of the members of the
class. The claims of the Plaintiff and members of the class are based on the same legal theories
and arise from the same unlawful conduct.
52.
Common Questions of Fact and Law: There is a well-defined community of
interest and common questions of fact and law affecting members of the class in that they all
have been and/or are being denied their civil rights to full and equal access to, and use and
enjoyment of, Defendant’s facilities and/or services due to Defendant’s failure to make its ATMs
fully accessible and independently usable as above described.
53.
The questions of fact and law common to the class include but are not limited to
the following:
a.
Whether Defendant is a “public accommodation” under the ADA;
b.
Whether Defendant’s conduct in failing to make its ATMs fully accessible
and independently usable as above described violated the ADA, 42 U.S.C.
§ 12101 et seq.; and
c.
Whether Plaintiff and members of the class are entitled to declaratory and
injunctive relief, and also costs and/or attorneys’ fees for Defendant’s acts
and conduct.
54.
Adequacy of Representation: Plaintiff is an adequate representative of the class
because his interests do not conflict with the interests of the members of the class. Plaintiff will
fairly, adequately, and vigorously represent and protect the interests of the members of the class
and has no interests antagonistic to the members of the class. Plaintiff has retained counsel who
are competent and experienced in the prosecution of class action litigation.
55.
Class certification is appropriate pursuant to Fed. R. Civ. P. 23(b)(2) because
Defendant has acted or refused to act on grounds generally applicable to the Class, making
appropriate both declaratory and injunctive relief with respect to Plaintiff and the Class as a
whole.
SUBSTANTIVE VIOLATION
56.
The allegations contained in the previous paragraphs are incorporated by
reference.
57.
Defendant has discriminated against Plaintiff and the Class in that it has failed to
make its ATM banking services fully accessible to, and independently usable by, individuals
who are blind in violation of Section 707 of the 2010 Standards, as described above.
58.
Complying with the ADA and Section 707 of the 2010 Standards would neither
fundamentally alter the nature of Defendant’s banking services nor result in an undue burden to
Defendant.
59.
Defendant’s conduct is ongoing, and, given that Defendant has not complied with
the ADA’s requirements that public accommodations make ATM services fully accessible to,
and independently usable by, blind individuals—as specifically defined in Section 707 of the
2010 Standards, Plaintiff invokes his statutory right to declaratory and injunctive relief, as well
as costs and attorneys’ fees.
60.
Without the requested injunctive relief, specifically including the request that the
Court retain jurisdiction of this matter for a period to be determined after the Defendant certifies
that it is fully in compliance with the mandatory requirements of the ADA that are discussed
above, Defendant’s non-compliance with the ADA’s requirements that its ATMs be fully
accessible to, and independently usable, by blind people is likely to recur.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, on behalf of himself and the members of the class, prays for:
a.
A Declaratory Judgment that at the commencement of this action Defendant was
in violation of the specific requirements of Title III of the ADA described above
(specifically including Section 707 of the 2010 Standards);
b.
A permanent injunction which directs Defendant to take all steps necessary to
bring its ATMs into full compliance with the requirements set forth in the ADA,
and its implementing regulations, and which further directs that the Court shall
retain jurisdiction for a period to be determined after Defendant certifies that all
of its ATMs are fully in compliance with the relevant requirements of the ADA to
ensure that Defendant has adopted and is following an institutional policy that
will in fact cause Defendant to remain in compliance with the law;
c.
An Order certifying the class proposed by Plaintiff, and naming Plaintiff as class
representative and appointing his counsel as class counsel;
d.
Payment of costs of suit;
e.
Payment of reasonable attorneys’ fees; and,
f.
The provision of whatever other relief the Court deems just, equitable and
appropriate.
Dated:
November 2, 2012
Respectfully Submitted,
/s/ Carlos R. Diaz
_______
R. Bruce Carlson (PA 56657)
[email protected]
Stephanie K. Goldin (PA 202865)
[email protected]
Carlos R. Diaz (PA 205177)
[email protected]
CARLSON LYNCH LTD
PNC Park
115 Federal Street, Suite 210
Pittsburgh, PA 15212
www.carlsonlynch.com
(p) 412.322.9243
(f) 412.231.0246
| civil rights, immigration, family |
N1JSBIkBRpLueGJZuto8 |
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
MATTHEW MCCORD, for himself and all others
similarly situated,
Plaintiff,
__ Civ. ____________
CLASS ACTION COMPLAINT
Jury Trial Demanded
– against –
TD BANK, N.A., and DOES 1-100, inclusive,
Defendant.
Plaintiff Matthew McCord, individually and on behalf of all others similarly situated,
alleges as follows:
Introduction
1.
Plaintiff brings this class action against Defendant TD Bank, N.A. (“TD Bank” or
“Defendant”) for violating the Equal Credit Opportunity Act (the “ECOA”), 15 U.S.C. § 1691 et
seq. The ECOA entitles credit applicants against whom adverse action is taken to a statement of
reasons for such action from the creditor. 15 U.S.C. § 1691(d). To satisfy this mandate, a creditor
must provide a written notice including the specific reasons for the adverse action or indicating
that an applicant has the right to a statement of reasons. 15 U.S.C. § 1691(d)(2) and (3).
2.
The adverse action notice must also include the creditor’s name and address. See
12 C.F.R. § 1002.9(a)(2).
3.
The adverse action notice must also include a statement of the provisions of
section 701(a) of the ECOA. 12 C.F.R. § 1002.9(a)(2).
4.
The adverse action notice must also include the name and address of the Federal
agency that administers compliance with respect to the creditor. 12 C.F.R. § 1002.9(a)(2).
5.
Defendant failed to provide Plaintiff and class members with the requisite notice
after terminating their credit card accounts. Instead, Defendant sent each Plaintiff and class
member a letter in the form of Exhibit A hereto that gave no closure reason at all, made no
mention of their right to a statement of specific reasons, failed to include TD Bank’s address,
omitted a statement of the provisions of section 701(a) of the ECOA, and failed to include the
name and address of the Federal agency that administers compliance with respect to TD Bank.
6.
Plaintiff and the class seek statutory punitive damages of up to $500,000, a halt to
Defendant’s unlawful practices, and attorneys’ fees and costs.
7.
The allegations herein that relate to Plaintiff’s personal actions are made based on
Plaintiff’s personal knowledge. The balance are made on information and belief based on the
investigation of counsel.
Parties
8.
Plaintiff Matthew McCord is, and at all relevant times was an individual residing
in Orange County, New York.
9.
Defendant TD Bank is a national bank chartered in Delaware. Defendant provides
banking services to consumers throughout New York and the United States.
10. Plaintiff is unaware of the true identities of those Defendants sued herein as
DOES 1 through 100, inclusive, and therefore sues such Defendants by fictitious names. Plaintiff
is informed and believes and thereon alleges that each of the fictitiously named Defendants is
responsible in some manner for the injuries alleged by Plaintiff. Plaintiff will seek leave of Court
to amend this Complaint to show the true names and capacities of the fictitiously named
Defendants if and when they have been ascertained.
Jurisdiction and Venue
11. This Court has subject matter jurisdiction over this action under 28 U.S.C. § 1331
because the Complaint alleges a federal claim against Defendant for violation of the ECOA.
12. This Court has personal jurisdiction over Defendant because Defendant provided
banking services to Plaintiff in New York.
13. Venue lies here pursuant to 28 U.S.C. § 1391(b)(2) because a substantial part of
the events or omissions giving rise to Plaintiff’s claim occurred in this district.
General Allegations
14. Originally enacted in 1974 to prohibit discrimination in credit transactions, the
ECOA was amended in 1976 to require creditors to provide applicants with written notice when
adverse action was taken against them regarding their credit. In addition to discouraging
discriminatory practices, the notice requirement is intended to provide consumers with a
“valuable educational benefit” and to allow for the correction of errors “where the creditor may
have acted on misinformation or inadequate information.” Tyson v. Sterling Rental, Inc., 836
F.3d 571, 576 (6th Cir. 2016) (quoting S. Rep. No. 94–589, at 4 (1976)).
15. The ECOA authorizes the Consumer Financial Protection Bureau (“CFPB”) to
issue regulations “to carry out the [ECOA’s] purposes.” 15 U.S.C. § 1691b(a). Under this
authority, the CFPB issued regulations that are collectively known as Regulation B. 12 C.F.R. §
1002.1(a).
16. The adverse action notice requirement is set forth at 15 U.S.C. § 1691(d), which
provides in relevant part:
(2) Each applicant [for credit] against whom adverse action is
taken shall be entitled to a statement of reasons for such action
from the creditor. A creditor satisfies this obligation by—
(A) providing statements of reasons in writing as a matter of
course to applicants against whom adverse action is taken; or
(B) giving written notification of adverse action which discloses (i)
the applicant’s right to a statement of reasons within thirty days
after receipt by the creditor of a request made within sixty days
after such notification, and (ii) the identity of the person or office
from which such statement may be obtained. Such statement may
be given orally if the written notification advises the applicant of
his right to have the statement of reasons confirmed in writing on
written request.
(3) A statement of reasons meets the requirements of this section
only if it contains the specific reasons for the adverse action taken.
17. Regulation B states: “a creditor shall notify an applicant of action taken within: …
(iii) 30 days after taking adverse action on an existing account….” 12 C.F.R. § 1002.9(a)(1).
18. The notice must include “a statement of specific reasons for the action taken” or
“a disclosure of the applicant's right to a statement of specific reasons within 30 days, if the
statement is requested within 60 days of the creditor's notification.” 12 C.F.R. § 1002.9(a)(2).
19. If a creditor opts to provide the statement of specific reasons in the closure notice,
the statement of reasons “must be specific and indicate the principal reason(s) for adverse
action.” 12 C.F.R. § 1002.9(b)(2).
20. The notice must also include “the name and address of the creditor; a statement of
the provisions of section 701(a) of the Act; and the name and address of the Federal agency that
administers compliance with respect to the creditor….” 12 C.F.R. § 1002.9(a)(2).
21. Regulation B defines “applicant” as “any person who requests or who has
received an extension of credit from a creditor….” 12 C.F.R. § 1002.2(e). Because Plaintiff had a
credit card account with Defendant, Plaintiff is an “applicant.”
22. Regulation B defines “creditor” as “a person who, in the ordinary course of
business, regularly participates in a credit decision, including setting the terms of the credit.” 12
C.F.R. § 1002.2(l). Because Defendant regularly participates in credit decisions, including
setting the terms of credit, in the ordinary course of business, Defendant is a “creditor.”
23. Regulation B defines “adverse action” as:
(i) A refusal to grant credit in substantially the amount or on
substantially the terms requested in an application unless the
creditor makes a counteroffer (to grant credit in a different amount
or on other terms) and the applicant uses or expressly accepts the
credit offered;
(ii) A termination of an account or an unfavorable change in the
terms of an account that does not affect all or substantially all of a
class of the creditor's accounts; or
(iii) A refusal to increase the amount of credit available to an
applicant who has made an application for an increase.
12 C.F.R. § 1002.2(c)(1). Regulation B also excludes several actions from the definition of
“adverse action.” 12 C.F.R. § 1002.2(c)(2). Defendant terminated Plaintiff’s credit card account,
and Defendant’s conduct is not excluded from the definition of “adverse action” under 12 C.F.R.
§ 1002.2(c)(2). Defendant thus took an “adverse action” against Plaintiff.
24. Defendant failed to provide Plaintiff with the notification required by 15 U.S.C. §
1691(d) and 12 C.F.R. § 1002.9.
25. On or around November 20, 2014, Defendant sent a letter to Plaintiff stating that
it had closed his TD Bank Credit Card account (the “Termination Notice”). A copy of the
Termination Notice is attached hereto as Exhibit A.
26. The Termination Notice did not include either: (a) a “statement of specific reasons
for the action taken,” or (b) a disclosure of Plaintiff’s “right to a statement of specific reasons
within 30 days, if the statement is requested within 60 days of the creditor's notification.”
27. The Termination Notice did not include the address of the creditor, as required by
12 C.F.R. § 1002.9(a)(2).
28. The Termination Notice did not include a statement of the provisions of section
701(a) of the Equal Credit Opportunity Act, as required by 12 C.F.R. § 1002.9(a)(2).
29. The Termination Notice did not include the name and address of the Federal
agency that administers compliance with respect to the creditor, as required by 12 C.F.R. §
1002.9(a)(2).
30. No other correspondence was sent to Plaintiff by the Defendant regarding the
closure of the credit card.
Class Action Allegations
31. Defendant violated the ECOA in the same way against other persons similarly
situated to Plaintiff. Plaintiff therefore brings this action on behalf of the following class
pursuant to Fed. R. Civ. P. 23(b)(2) and (3):
All natural persons to whom TD Bank sent or sends a letter, in the
period beginning 5 years before the filing of this action and ending
on the day of class certification, to a person with a United States
address, that: (a) states the addressee’s TD Bank Credit Card
account has been closed or will be closed (or words to that effect),
(b) does not state the reason(s) for the closure, and (c) does not
disclose the right to a statement of specific reasons for the closure.
32. The following individuals are excluded from the class:
33. officers and directors of Defendant and its parents, subsidiaries, affiliates, and any
entity in which Defendant has a controlling interest; and
34. all judges assigned to hear any aspect of this litigation, as well as their immediate
family members.
35. Class certification is appropriate because this action satisfies the applicable
numerosity, commonality, typicality, adequacy, predominance, and superiority requirements.
36. Numerosity: The potential members of the class are so numerous that joinder of
all the members of the class is impracticable. Plaintiff is informed and believes that there are at
least hundreds of class members.
37. Commonality: There are questions of law and fact common to the class that
predominate over any individualized questions, including but not limited to:
a. Whether class members are “applicants” under the ECOA;
b. Whether Defendant is a “creditor” under the ECOA;
c. Whether Defendant’s terminations of Plaintiff’s and class members’ credit
card accounts constitute “adverse actions” under the ECOA;
d. Whether Defendant provided Plaintiff and class members with a
“statement of specific reasons for the action taken” or “a disclosure of the
applicant's right to a statement of specific reasons within 30 days”;
e. Whether Defendant provided Plaintiff and class members with an adverse
action notification containing the “address of the creditor”;
f. Whether Defendant provided Plaintiff and class members with an adverse
action notification containing “a statement of the provisions of section
701(a) of the [ECOA]”;
g. Whether Defendant provided Plaintiff and class members with an adverse
action notification containing “the name and address of the Federal agency
that administers compliance with respect to the creditor”;
h. Whether Plaintiff and the class are entitled to an award of punitive
damages under the ECOA; and
i. Whether Plaintiff and the class are entitled to injunctive relief halting
Defendant’s unlawful practices.
38. Typicality: Plaintiff’s claims are typical of the claims of the class in that Plaintiff
and the other class members each: (a) received an extension of credit from Defendant, (b) had an
adverse action taken against them by Defendant, and (c) received a letter from Defendant that:
(i)
states that the recipient’s TD Bank Credit Card account has been closed or
will be closed (or words to that effect), and
(ii)
does not state the reason(s) for the closure or the recipient’s right to a
statement of specific reasons for the closure.
39. Defendant’s conduct is common to all class members and represents a common
thread of conduct resulting in injury to all members of the class. Plaintiff has suffered the harm
alleged and has no interests antagonistic to any other class member.
40. Adequacy: Plaintiff is a member of the class and will fairly and adequately
represent and protect the interests of the class. Plaintiff’s interests do not conflict with the
interests of other class members. Furthermore, counsel for Plaintiff and the class are competent
and experienced in class action litigation and consumer protection litigation. Plaintiff’s counsel
will fairly and adequately protect and represent the interests of the class.
41. Superiority: A class action is superior to other available means for the fair and
efficient adjudication of this controversy. The claims of individual class members are too small
to warrant individual action. Individual joinder of all class members is impracticable, and
questions of law and fact common to the class predominate over any questions affecting only
individual members of the class. Class treatment will allow those similarly situated persons to
litigate their claims in the manner that is most efficient and economical for the parties and the
judicial system.
42. Federal Rule of Civil Procedure 23(b)(2): In addition to a Rule 23(b)(3) class, a
Rule 23(b)(2) class should be certified because Defendant has acted or refused to act on grounds
that apply generally to the class, so that final injunctive relief or corresponding declaratory relief
is appropriate respecting the class as a whole.
First Claim for Violation of the ECOA’s Notice Requirement
(15 U.S.C. § 1691(d))
43. Plaintiff incorporates the foregoing paragraphs as though repeated here.
44. Plaintiff and class members are “applicants” under 12 C.F.R. § 1002.2(e) because
they received an extension of credit from Defendant in the form of credit card accounts.
45. Defendant is a “creditor” under 12 C.F.R. § 1002.2(e) because it regularly
participates in credit decisions, including setting the terms of credit, in the ordinary course of
business.
46. Plaintiff and class members each had an “adverse action” taken against them by
Defendant under 12 C.F.R. § 1002.2(c) in that Defendant terminated Plaintiff’s and each class
member’s credit account.
47. Defendant failed to provide Plaintiff and class members with a “statement of
specific reasons for the action taken” or “a disclosure of the applicant's right to a statement of
specific reasons” within 30 days of terminating their credit card account.
48. Defendant failed to provide Plaintiff and class members with an adverse action
notification containing the “address of the creditor.”
49. Defendant failed to provide Plaintiff and class members with an adverse action
notification containing a statement of the provisions of section 701(a) of the ECOA.
50. Defendant failed to provide Plaintiff and class members with an adverse action
notification containing the name and address of the Federal agency that administers compliance
with respect to the creditor.
51. Defendant’s conduct violates the ECOA’s notice requirement set forth at 15
U.S.C. § 1691(d) and in the implementing regulations.
Prayer for Relief
WHEREFORE, Plaintiff, individually and on behalf of the class, prays for judgment as follows:
1. For punitive damages of up to $500,000 pursuant to 15 U.S.C. § 1691e(b) in an
amount to be proven at trial;
2. For injunctive relief pursuant to 15 U.S.C. § 1691e(c) including an order halting
Defendant’s unlawful practices;
3. For attorneys’ fees and costs of suit pursuant to applicable law including, without
limitation, 5 U.S.C. § 1691e(d); and
4. For such other and further relief as the Court deems just and proper.
DEMAND FOR JURY TRIAL
Pursuant to Rule 38 of the Federal Rules of Civil Procedure, Plaintiff hereby demands a
trial by jury of all issues, claims, and causes of action so triable.
Dated: August 22, 2019
White Plains, New York
YANKWITT LLP
DARR LAW LLC
GALLO LLC
By: _________________________
Russell M. Yankwitt ([email protected])
Michael H. Reed ([email protected])
YANKWITT LLP
140 Grand Street, Suite 501
White Plains, New York 10601
Tel.: (914) 686-1500
Alexander Darr (pro hac vice motion to be filed)
[email protected]
DARR LAW LLC
1391 W. 5th Ave., Ste. 313
Columbus, OH 43212
Tel.: (312) 857-3277
Ray E. Gallo (pro hac vice motion to be filed)
[email protected]
GALLO LLC
1604 Solano Ave., Suite B
Berkeley, CA 94707
Tel.: (415) 257-8800
| discrimination |
kAYdM4cBD5gMZwczp5l_ |
Case No.
CLASS ACTION COMPLAINT
JURY TRIAL DEMANDED
POMERANTZ LLP
Gustavo F. Bruckner
600 Third Avenue
New York, New York 10016
Telephone: (212) 661-1100
Facsimile: (917) 463-1044
[email protected]
Attorney for Plaintiff
- additional counsel on signature page -
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
KIMBERLY BELTRAN,
Individually and on Behalf of All
Others Similarly Situated,
Plaintiff,
v.
SOS LIMITED, YANDAI WANG,
and ERIC H. YAN,
Defendants.
Plaintiff Kimberly Beltran (“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 SOS Limited (“SOS” 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.
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 SOS American depository shares (“ADSs”) between July 22, 2020 and
February 25, 2021, both dates inclusive (the “Class Period”), seeking to recover
damages caused by Defendants’ violations of the federal securities laws and to
pursue remedies under Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder by the SEC,
against the Company and certain of its top officials.
2.
SOS is a technology company that purportedly provides marketing
data, technology, and solutions for emergency rescue services. When the Company
went public in April 2017, it was known as “China Rapid Finance Limited” and
claimed to focus on a peer-to-peer, micro-lending business. The Company later
changed its name to “SOS Limited” in July 2020 and sold its peer-to-peer, micro-
lending business in August 2020, rebranding itself into an emergency services
business. In January 2021, the Company again shifted its business focus, this time
to cryptocurrency mining.
3.
Critical
to
SOS’s
purportedly
successful
transition
into
a
cryptocurrency mining business were the Company’s claims to have entered into an
agreement with HY International Group New York Inc. (“HY”), which calls itself
the “world’s largest mining machine matchmaker,” to acquire 15,645 mining rigs—
i.e., personal computing machines built specifically for cryptocurrency mining—for
$20 million, and the Company’s plans to purchase FXK Technology Corporation
(“FXK”), a purported Canadian cryptocurrency technology firm.
4.
In addition to rapidly changing its business focus, SOS has also rapidly
changed the location of its headquarters. According to the Company’s SEC filings,
the address of the Company’s principal executive offices has changed no less than
five times since the Company went public in April 2017.
5.
Throughout the Class Period, Defendants made materially false and
misleading statements regarding the Company’s business, operations, and
compliance policies. Specifically, Defendants made false and/or misleading
statements and/or failed to disclose that: (i) SOS had misrepresented the true nature,
location, and/or existence of at least one of the principal executive offices listed in
its SEC filings; (ii) HY and FXK were either undisclosed related parties and/or
entities fabricated by the Company; (iii) the Company had misrepresented the type
and/or existence of the mining rigs that it claimed to have purchased; and (iv) as a
result, the Company’s public statements were materially false and misleading at all
relevant times.
6.
On February 26, 2021, Hindenburg Research (“Hindenburg”) and
Culper Research (“Culper”) released commentary on SOS, claiming that the
Company was an intricate “pump and dump” scheme that used fake addresses and
doctored photos of crypto mining rigs to create an illusion of success. The analysts
noted, for example, that SOS’s SEC filings listed a hotel room as the Company’s
headquarters. The analysts also questioned whether SOS had actually purchased
mining rigs that it claimed to own, as the entity from which SOS purportedly bought
the mining rigs appeared to be a fake shell company. The analysts further alleged
that the photos SOS had published of their purported “mining rigs” were phony.
Culper noted that photographs of SOS’s “miners” did not depict the A10 Pro
machines that the Company claimed to own and instead appeared to show different
devices altogether. Hindenburg, for its part, found that the original images from
SOS’s website actually belonged to another company.
7.
On this news, SOS’s American depositary share (“ADS”) price fell
$1.27 per share, or 21.03%, to close at $4.77 per ADS on February 26, 2021.
8.
After the end of the Class Period, between February 27 and March 3,
2021, Hindenburg subsequently provided additional information on SOS that further
supported its earlier allegations, including pictures, highlighting, inter alia, how
SOS had allegedly taken steps to hide the misconduct noted in the February 26, 2021
corrective disclosures.
9.
As a result of Defendants’ wrongful acts and omissions, and the
precipitous decline in the market value of the Company’s securities, Plaintiff and
other Class members have suffered significant losses and damages.
JURISDICTION AND VENUE
10.
The claims asserted herein arise under and pursuant to Sections 10(b)
and 20(a) of the Exchange Act (15 U.S.C. §§ 78j(b) and 78t(a)) and Rule 10b-5
promulgated thereunder by the SEC (17 C.F.R. § 240.10b-5).
11.
This Court has jurisdiction over the subject matter of this action
pursuant to 28 U.S.C. § 1331 and Section 27 of the Exchange Act.
12.
Venue is proper in this Judicial District pursuant to Section 27 of the
Exchange Act (15 U.S.C. § 78aa) and 28 U.S.C. § 1391(b), as the alleged
misstatements entered and the subsequent damages took place in this Judicial
District. Pursuant to SOS’s most recent annual report on Form 20-F, at the close of
December 31, 2019, there were 104,054,977 of the Company’s Class A ordinary
shares outstanding. SOS’s ADSs, each representing ten of the Company’s Class A
ordinary shares, trade on the New York Stock Exchange (“NYSE”). Accordingly,
there are presumably hundreds, if not thousands, of investors in SOS’s ADSs located
within the U.S., some of whom undoubtedly reside in this Judicial 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 national securities markets.
PARTIES
14.
Plaintiff, as set forth in the attached Certification, acquired SOS
securities at artificially inflated prices during the Class Period and was damaged
upon the revelation of the alleged corrective disclosures.
15.
Defendant SOS is a Cayman Islands corporation with its current
principal executive offices located at Building 6, East Seaview Park, 298 Haijing
Road, Yinzhu Street, West Coast New District, Qingdao City, Shandong Province
266400, People’s Republic of China (“China”). The Company’s ADSs trade in an
efficient market on the NYSE under the ticker symbol “SOS.”
16.
Defendant Yandai Wang (“Wang”) has served as SOS’s Executive
Chairman and Chief Executive Officer at all relevant times.
17.
Defendant Dr. Eric H. Yan (“Yan”) was hired by SOS on January 6,
2021, and was appointed the Company’s Vice President of Operation on January 13,
2021. Currently, Yan serves as Vice President of SOS Information Technology Co.,
Ltd., the Company’s operating subsidiary through which the Company engages in
its cryptocurrency-related business. Yan is primarily responsible for the Company’s
cryptocurrency operations.
18.
Defendants Wang and Yan are sometimes referred to herein as the
“Individual Defendants.”
19.
The Individual Defendants possessed the power and authority to control
the contents of SOS’s SEC filings, press releases, and other market communications.
The Individual Defendants were provided with copies of SOS’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 SOS, and their access to material
information available to them but not to the public, the Individual Defendants knew
that the adverse facts specified herein had not been disclosed to and were being
concealed from the public, and that the positive representations being made were
then materially false and misleading. The Individual Defendants are liable for the
false statements and omissions pleaded herein.
20.
SOS and the Individual Defendants are collectively referred to herein
as “Defendants.”
SUBSTANTIVE ALLEGATIONS
Background
21.
SOS is a technology company that purportedly provides marketing
data, technology, and solutions for emergency rescue services. When the Company
went public in April 2017, it was known as “China Rapid Finance Limited,” which
claimed to focus on a peer-to-peer, micro-lending business. The Company later
changed its name to “SOS Limited” in July 2020, and sold its peer-to-peer, micro-
lending business in August 2020, rebranding itself into an emergency services
business. In January 2021, the Company again shifted its business focus, this time
to cryptocurrency mining.
22.
Critical
to
SOS’s
purportedly
successful
transition
into
a
cryptocurrency mining business were the Company’s claims to have entered into an
agreement with HY, which calls itself the “world’s largest mining machine
matchmaker,” to acquire 15,645 mining rigs for $20 million, and the Company’s
plans to purchase FXK, a purported Canadian cryptocurrency technology firm.
23.
In addition to rapidly changing its business focus, SOS has also rapidly
changed the location of its headquarters. According to the Company’s SEC filings,
the address of the Company’s principal executive offices has changed no less than
five times since the Company went public in April 2017. Specifically, the
Company’s first listed address for its principal executive offices with the SEC was
at 5th Floor, Building D, BenQ Plaza, 207 Songhong Road, Changning District,
Shanghai 200335, China. Before the end of June 2019, the Company had changed
the address of its principal executive offices yet again, to “2th” Floor, Building D,
BenQ Plaza, 207 Songhong Road, Changning District, Shanghai 200335, China. By
the end of April 2020, the Company’s principal executive offices were listed at
Room 7-705, Zhongjidasha Plaza, 819-1 Yinxianglu Road, Nanxiang Township,
Jiading District, Shanghai, 201802, China. By the end of July 2020, the Company’s
principal executive offices were listed at Room 8888, Jiudingfeng Building, 888
Changbaishan Road, Qingdao Area, China (Shandong) Pilot Free Trade Zone,
China. Finally, as recently as March 2021, the Company’s principal executive
offices have changed yet again to Building 6, East Seaview Park, 298 Haijing Road,
Yinzhu Street, West Coast New District, Qingdao City, Shandong Province 266400,
China.
Materially False and Misleading Statements Issued During the Class Period
24.
The Class Period begins on July 22, 2020. On July 21, 2020, post-
market, SOS filed a report of foreign private issuer on Form 6-K with the SEC,
signed by Defendant Wang. This Form 6-K was the Company’s first filing with the
SEC that listed the Company’s “[a]ddress of principal executive office” as Room
8888, Jiudingfeng Building, 888 Changbaishan Road, Qingdao Area, China
(Shandong) Pilot Free Trade Zone, China. As Hindenburg would later find, this
address was actually a hotel room in China. Not long after Hindenburg connected
the address to a Chinese hotel room, the Company changed its principal executive
office address to its currently listed address in a March 3, 2021 filing with the SEC—
i.e., within three business days after Hindenburg published its findings.
25.
On January 6, 2021, SOS issued a press release announcing that it had
hired “Renowned Cryptocurrencies Security Expert” Defendant Yan. That press
release touted that Defendant Yan is an “expert in the blockchain security for
cryptocurrency and digital assets in China,” and, prior to SOS, “founded Shenzhen
eSecureChain Technologies Inc which offered various lines of products and
services” for cryptocurrency and crypto mining. According to that press release,
Yan would “utilize his cryptocurrency mining, protection, insurance expertise and
his industry resources to lead SOS’s efforts to set up a new business to apply
blockchain-based security and insurance technologies in the safeguard of
cryptocurrencies and digital assets, and strategically upgrade SOS’s existing
portfolios of products and services.”
26.
That same press release quoted Defendant Wang, who touted, among
other things, that Defendant “Yan’s technologies have revolutionized the way to
protect our digital assets and cryptocurrencies from being attacked and lost,” and
that “SOS plans to launch the first digital assets insurance company and the first
cryptocurrency bank in the world, backed up by [Defendant] Yan’s technologies,”
calling the venture “urgent” and “highly necessary” for the Company’s
cryptocurrency operations.
27.
On January 13, 2021, SOS issued a press release announcing its “crypto
mining plan,” including heavy investments “in the crypto mining business to take
advantage of the growing investors’ realization of the values and potentials of the
crypto assets.” According to that press release, Defendant Yan, now the Company’s
Vice President of Operation, who was tasked with the Company’s “cryptocurrencies
security and insurance operation,” would “also be responsible for the crypto mining
business” and “lead a team to come up with a detailed plan of setting up a series of
cloud crypto mining sites in the regions where energy costs are much lower and
clean energy resources much more.” That press release also asserted that “SOS
anticipates focusing on the mining of the key mainstream cryptocurrencies, such as
BTC, etc.”; that, if successfully developed, the Company would “expand mining
further to the full coverage of all of mainstream cryptocurrencies”; and that SOS
would “provide a variety of cloud based crypto mining services, such as SOS self-
mining, miner trusteeship, cryptocurrency-related DeFi [decentralized finance],
security and insurance services for cryptocurrencies, etc.”
28.
That same press release also quoted Defendant Wang, who represented
that Defendants “expect that SOS’s planned cloud based crypto mining and crypto
currency security and insurance operation spearheaded by [Defendant] Yan, will
become one of key growth drive of SOS.”
29.
On January 19, 2021, SOS issued a press release announcing that it had
entered into a non-binding letter of intent (“LOI”) to acquire FXK, a purported
“Canadian-based company, specializing in the blockchain technology consulting
and operations and support for cryptocurrency exchanges and cloud crypto
algorithmic power exchanges, to further extend SOS ecosystem of blockchain and
cryptocurrencies, as well as to expand its operations to North America.”
30.
That press release represented, among other things, that SOS and FXK
were distinct entities engaged in the cryptocurrency market, the combination of
which would enhance the Company’s overall cryptocurrency operations:
FXK is a licensed crypto technology provider in Canada. Its current
services and products include the design, construction, operations and
support of exchange platforms of cryptocurrencies and cloud crypto
algorithmic power, and blockchain-based solutions.
SOS is an emerging blockchain-based and big data-driven marketing
and service provider, with a nationwide membership base of
approximately 20 million in China. Recently, SOS has outlined its
strategy in blockchain and cryptocurrencies, which include a series of
initiatives to expand its business into cryptocurrency mining as well as
cryptocurrency security and insurance. The core infrastructure of SOS
rescue, insurance marketing and service supply chain is built on big
date [sic], blockchain-based technology, cloud computing, AI, satellite,
and 5G network, etc.
Pursuant to the [LOI], SOS is expected to acquire 100% of the
outstanding shares of FXK for a combination of Class A ordinary shares
and cash. The Company’s planned acquisition of FXK is aimed to
further expand and upgrade its ecosystem of cryptocurrencies and
digital assets as well as to expand its business to North America. As
the transaction proceeds, the Company will publicly disclose required
information either through press releases or SEC filings, as appropriate.
31.
To further give investors the impression that SOS and FXK were
unrelated entities engaged in arms-length negotiations, the same press release stated,
in relevant part, that “[c]ompletion of the transaction is subject to due diligence
investigations by the relevant parties, the negotiation and execution of a definitive
share exchange agreement, satisfaction of the conditions negotiated therein
including the approval of the Company’s Board of Directors . . . and the satisfaction
of other customary closing conditions.”
32.
Moreover, the same press release quoted the Individual Defendants,
who similarly touted the potential acquisition of FXK. Specifically, Defendant Yan
touted that “with its leading-edge technologies in cryptocurrency exchanges, and
crypto algorithmic power exchanges, acquisition of FXK will further expand our
ecosystem of cryptocurrencies and cloud crypto mining and security and insurance”;
and Defendant Wang asserted that “FXK is a leader in cryptocurrency and crypto
algorithmic power exchange technologies,” the acquisition of which would expand
the Company’s operations “to North America as well as expedite the executions of
our strategy in cryptocurrencies and cloud crypto mining and security and
insurance.”
33.
On January 21, 2021, SOS issued a press release announcing that it had
entered into a purchase agreement with HY to supply the Company with mining rigs.
Specifically, that press release represented that, under the agreement, SOS would
“procure 14238 BTC mining rigs with BTC Hash Power of approximately 527P, as
well as 1408 ETH mining rigs with Hash Power of approximately 1056G as part of
SOS’ plan to execute its strategic plan of cloud cryptocurrency mining in pursuit of
the
rising
cryptocurrency
prices”;
that
the
Company
would
“pay
approximately US$20 million to purchase 14238 PCS built with parts including the
Momentum T2T 37T Double Speed, 1408 Momentum A10 Pro 780M, from HY . .
. a seller of cryptocurrency mining rigs”; that “the pool of harsh power [from these
machines] is projected to create roughly 3.5 BTC and 63 ETH every day, making
about $206,551USD per day, based on the current cryptocurrency prices”; and that
“[t]he shipment is expected to be delivered over three time installments: (1) February
14, 2021, 5000 PCS; (2) March 14, 2021, 5000 PCS; and (3) April 15, 2021, 5646
34.
On February 9, 2021, SOS issued a press release announcing that it had
“received 5000 PCS of mining rigs ahead of schedule on Feb. 9, 2021, five days
earlier than the delivery date set by the purchase agreement with the seller,” HY.
That press release touted, in relevant part, that “[t]he first batch of delivery is
composed of a pool of 5000 PCS of mining rigs, which can generate about BTC
Hash Power 175P and ETH Hash Power 350G”; that “the annual ROI (return on
investment) is projected to be significant based on the current crypto price
momentum” if the machines operate as expected; and that HY “also confirmed that
they have enough inventories of crypto mining rigs and that they can fulfill the next
two batches of shipments as scheduled.”
35.
The same press release also quoted Defendant Wang, who touted that
Defendants “have secured supply of crypto mining equipment that is expected to
generate sufficient crypto hash power to allow us to promptly capture the rising
cryptocurrency price.”
36.
On February 23, 2021, SOS issued a press release announcing “that the
5000 PCS of crypto mining rigs, which were the first batch of delivery received on
February 9, 2021, have gone live today”; that “[t]his batch of 5000 PCS of mining
rigs can generate about BTC Hash Power 175P”; and that, if operating as expected,
“the annual ROI (return on investment) is projected to be significant based on the
current crypto price momentum.” That press release also included a photo of the
purportedly purchased mining rigs on a metal display rack. Attached to the rack was
a piece of paper with the word “SOS” on it. As Culper would later point out, the
machines displayed in the photo did not match the design, shape, or branding of the
mining rigs that SOS stated it had purchased from HY, casting doubt on whether the
machines were ever actually purchased.
37.
Additionally, that press release quoted Defendant Wang, who
represented that “[a]s institutional investors are also jumping on the bandwagon of
cryptocurrencies like BTC, we expect the price momentum of crypto currencies like
BTC and ETH will increase further and we will do our best to capture this
opportunity by creating more cloud crypto mining pools in the near term.”
38.
On February 24, 2021, SOS issued another press release announcing
“the receipt of the second batch of 5000 PCS of crypto mining rigs.” That press
release represented that “[o]n the same date the second batch of 5000 PCS of mining
rigs are received, SOS team kicked off the configurations and installations which are
expected to be completed very soon”; that “[o]nce this batch of mining rigs go live,
we expect the pool of 5000 PCS will be able to generate about BTC Hash Power
175P and ETH Hash Power 350G”; and that, “[i]f the machine operates as expected,
the long-term ROI (return on investment) is projected to be promising, despite of
recent pullbacks of cryptocurrency prices.”
39.
Additionally, that press release quoted Defendant Wang, who touted
that, “although the cryptocurrency prices, such as BTC prices, might continue to
fluctuate, we believe the big general trend for & cycle of cryptocurrencies are still
upward,” and that, “[a]s institutional investors have been becoming one significant
driving force behind cryptocurrencies,” including “BTC and ETH, which will be
utilized as a hedge against ongoing quantitative easing by sovereign currencies,
therefore, we remain committed to be very confident about our long-term strategic
investment in crypto currencies operation.”
40.
The statements referenced in ¶¶ 24-39 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, Defendants made false and/or misleading
statements and/or failed to disclose that: (i) SOS had misrepresented the true nature,
location, and/or existence of at least one of its principal executive offices listed in
its SEC filings; (ii) HY and FXK were either undisclosed related parties and/or
entities fabricated by the Company; (iii) the Company had misrepresented the type
and/or existence of the mining rigs that it claimed to have purchased; and (iv) as a
result, the Company’s public statements were materially false and misleading at all
relevant times.
The Truth Emerges
41.
On February 26, 2021, Hindenburg and Culper released commentary
on SOS, claiming that the Company was an intricate “pump and dump” scheme that
used fake addresses and doctored photos of crypto mining rigs to create an illusion
of success. Hindenburg, for its part, published over twenty posts on Twitter,
including pictures, indicating that SOS’s headquarters, cryptocurrency expert, and
relationships with HY and FXK were all a sham. For example, with respect to SOS’s
headquarters, Hindenburg noted that it “visited the address listed in the company’s
SEC filings”—namely, the address at Room 8888, Jiudingfeng Building, 888
Changbaishan Road, Qingdao Area, China (Shandong) Pilot Free Trade Zone,
China—“and found it was a hotel,” at which “[a] woman who worked for the hotel
told [Hindenburg] there were ‘no companies here.’”
42.
Hindenburg also alleged that SOS’s press release announcing the
Company’s hiring of “Renowned Cryptocurrencies Security Expert” Yan “appeared
to include fabrications related to Yan’s background.” Specifically, Hindenburg
noted that while SOS “claims Yan was the founder of Shenzhen eSecureChain
Technologies,” Hindenburg had found that “the eSecureChain website uses the exact
same ‘/sosbox’ theme that SOS’s website uses” and that “the eSecurechain website
was set up just two days prior to []SOS announcing Yan joining the team.”
43.
With respect to HY, Hindenburg found that the entity “was formed mid
last year, and is registered to the same exact address as an []SOS subsidiary,” and
that “HY claims to have a China office” that Hindenburg “visited and found the
office doesn’t exist.”
44.
With respect to FXK, Hindenburg alleged that the entity “looks to be
an undisclosed related party shell,” citing how FXK’s “website uses photos that
appear to have been stolen from a separate and legitimate Chinese crypto mining
company called RHY” and “only has one news item, announcing the SOS deal”; that
Hindenburg “could find no real office for FXK, no employees on LinkedIn, no
glassdoor reviews, no customer reviews, no social media presence or news articles
(other than press releases about the []SOS announcement)”; that FXK’s website, like
eSecureChain, uses the same specific website theme SOS “uses . . . for its website
labeled Sosbx in its website’s source code,” which “indicat[ed] both sites were set
up by SOS,” in addition to “[]SOS’s fonts and headers match[ing] with FXK’s
website”; that “[t]he FXK deal was announced on January 19th,” and yet “web
crawler WayBackMachine shows no evidence that the site existed prior to February
17th, almost a month later,” and “[t]he most recent web capture prior to February
17th was a Chinese page saying that the domain was for sale, in May 2019”; and that
“FXK included multiple pictures of their supposed mining center on their website,”
but “[a] reverse image search of those pictures reveals the mining operation is not
FXK’s, instead the pictures are lifted off a legitimate Chinese mining company
called RHY,” and Hindenburg’s “investigator contacted RHY and was told that FXY
was fake and copying their website.”
45.
Culper, on the other hand, published a report on SOS entitled “SOS Ltd
(SOS): Nothing to Save Here,” which largely substantiated and added to the
allegations in the Hindenburg Twitter posts. For example, with respect to HY, the
Culper report alleged that the entity “resembles a shell company which SOS has
either created itself or co-opted into its fraud,” citing how “HY’s State of New York
business documents list an address at a virtual office in New York City” that is
“shared by SOS and its lawyers, as indicated by its most recent S-3 filing”; that
“HY’s website is hosted on the same server and shares an IP [Internet Protocol1]
address with FXK . . . HY’s intended acquisition target, as well as with an SOS
executive’s former company”; that “HY’s website claims its CEO is ‘Claire Low,’”
but Culper was “unable to find any outside references to this name that confirm this
person’s existence”; that “HY listed zero principal officers on its State of New York
documents, effectively concealing its true provenance”; and that “HY’s contact
information displays a sole Gmail address,” even though, “[p]resumably, a mining
supplier with the capability to fill a $20 million order at a far faster rate than its peers
would have its own company email address.”
46.
Additionally, the Culper report alleged that SOS had misrepresented
the mining rigs it had purportedly purchased from HY, stating that “SOS’s own
photo displays not A10 Pro or T2T 37T miners, but Avalon A1066 miners,
suggesting that the miners pictured do not belong to SOS,” which was “unsurprising,
given that the ‘A10 Pro 780M’ miner that SOS has claimed is now ‘live’ is still not
1 An “Internet Protocol,” or IP, address is a type of unique identifier that allows
devices to connect to the Internet.
yet even available for delivery from the manufacturer.” In coming to this conclusion,
the Culper report compared SOS’s photo of the mining rigs it had purportedly
purchased from HY with those on the market, finding various inconsistencies with
the branding, shape, and design of both the units and their power supplies. As the
Culper report noted, “SOS claimed to purchase and install ‘Momentum’ brand A10
Pro 780M and T2T 37T miners, yet the very few miners the Company was willing
to picture appear to be totally different, calling into question whether they truly
belong to SOS.”
47.
The Culper report also questioned SOS’s purported dealings with, and
the existence of, FXK, noting that “FXK’s only listed address is a 5-bedroom home
in British Columbia, an apparent ‘rent-an-office’ space shared by at least 4 other
entities”; that “FXK’s website also appears to be a sloppy rip-off of RHY, a well-
known Chinese crypto operator,” and “even appears to have accidentally left RHY
behind in its copied webpages”; that “FXK’s source code contains numerous
references to ‘sosbx’, or SOS’s insurance business, hence suggesting its very origin
ties directly to the Company”; and that “FXK shares a common ICP [Internet
Content Provider2] number with SOS, again suggesting common ownership.”
2 An “Internet Content Provider,” or ICP, number is a type of mandatory and unique
identifier issued by the Chinese government to host a public website or serve content
from a mainland Chinese server that appears on a website’s homepage. The same
ICP number can be used by multiple websites owned by the same company.
48.
Following the release of the Hindenburg Twitter posts and Culper
report, SOS’s ADS price fell $1.27 per share, or 21.03%, to close at $4.77 per ADS
on February 26, 2021.
49.
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.
Post-Class Period Disclosures
50.
Between February 27 and March 3, 2021, Hindenburg documented
additional information on SOS, including pictures, highlighting, inter alia, how SOS
had allegedly taken steps to hide the misconduct noted in the February 26, 2021
corrective disclosures. Specifically, Hindenburg noted that “[i]t appears []SOS is
actively attempting to remove digital traces of its suspect deals”; that “[a]cquisition
target FXK’s website has been intermittently down,” even though “[i]t purports to
be a Canadian company but is displaying [an] error message in Mandarin”; that
eSecureChain’s website “recently used the same ICP as []SOS, but it was removed,”
although “[t]he prior source code is still available via Google cache,” for which
Hindenburg provided “[b]efore and after pictures [to] show the removal”; that after
Hindenburg “pointed out that []SOS’s supposed Canadian acquisition target FXK
seemed to have its website set up by []SOS and hosted on the same []SOS server,
the company moved its server from Hong Kong to California and updated its source
code to remove references to SOS”; that HY similarly “also ported over its server,
masking the relationship with []SOS”; and that “[f]ollowing [Hindenburg’s] work
showing that []SOS’s claimed HQ address didn’t match the HQ in its press release,
the company posted the [current] address for the first time,” after which Hindenburg
visited the location, “found it was a match,” “examined the building and see why the
address wasn’t listed in the first place,” and, including a picture, showed that “[]SOS
has the ground floor, as can be seen by the SoS logo on the windows, but it appeared
completely empty” with “no people or signs of activity on the floor.”
51.
Hindenburg also published a link on Twitter showing that “RHY posted
an official statement corroborating [Hindenburg’s] work and Culper’s work,
accusing FXK of blatantly stealing its website.”
PLAINTIFF’S CLASS ACTION ALLEGATIONS
52.
Plaintiff brings this action as a class action pursuant to Federal Rule of
Civil Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who
purchased or otherwise acquired SOS ADSs during the Class Period (the “Class”);
and were damaged upon the revelation of the alleged corrective disclosures.
Excluded from the Class are Defendants herein, the officers and directors of the
Company, at all relevant times, members of their immediate families and their legal
representatives, heirs, successors or assigns and any entity in which Defendants have
or had a controlling interest.
53.
The members of the Class are so numerous that joinder of all members
is impracticable. Throughout the Class Period, SOS 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 SOS or its transfer agent and may be notified of the pendency of this action by
mail, using the form of notice similar to that customarily used in securities class
actions.
54.
Plaintiff’s claims are typical of the claims of the members of the Class
as all members of the Class are similarly affected by Defendants’ wrongful conduct
in violation of federal law that is complained of herein.
55.
Plaintiff will fairly and adequately protect the interests of the members
of the Class and has retained counsel competent and experienced in class and
securities litigation. Plaintiff has no interests antagonistic to or in conflict with those
of the Class.
56.
Common questions of law and fact exist as to all members of the Class
and predominate over any questions solely affecting individual members of the
Class. Among the questions of law and fact common to the Class are:
whether the federal securities laws were violated by Defendants’ acts
as alleged herein;
whether statements made by Defendants to the investing public during
the Class Period misrepresented material facts about the business,
operations and management of SOS;
whether the Individual Defendants caused SOS to issue false and
misleading financial statements during the Class Period;
whether Defendants acted knowingly or recklessly in issuing false and
misleading financial statements;
whether the prices of SOS 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.
57.
A class action is superior to all other available methods for the fair and
efficient adjudication of this controversy since joinder of all members is
impracticable. Furthermore, as the damages suffered by individual Class members
may be relatively small, the expense and burden of individual litigation make it
impossible for members of the Class to individually redress the wrongs done to them.
There will be no difficulty in the management of this action as a class action.
58.
Plaintiff will rely, in part, upon the presumption of reliance established
by the fraud-on-the-market doctrine in that:
Defendants made public misrepresentations or failed to disclose
material facts during the Class Period;
the omissions and misrepresentations were material;
SOS ADSs are traded in an efficient market;
the Company’s shares were liquid and traded with moderate to heavy
volume during the Class Period;
the Company traded on the NYSE and was covered by multiple
analysts;
the misrepresentations and omissions alleged would tend to induce a
reasonable investor to misjudge the value of the Company’s ADSs;
and
Plaintiff and members of the Class purchased, acquired and/or sold
SOS 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.
59.
Based upon the foregoing, Plaintiff and the members of the Class are
entitled to a presumption of reliance upon the integrity of the market.
60.
Alternatively, Plaintiff and the members of the Class are entitled to the
presumption of reliance established by the Supreme Court in Affiliated Ute Citizens
of the State of Utah v. United States, 406 U.S. 128, 92 S. Ct. 2430 (1972), as
Defendants omitted material information in their Class Period statements in violation
of a duty to disclose such information, as detailed above.
COUNT I
(Violations of Section 10(b) of the Exchange Act and Rule 10b-5 Promulgated
Thereunder Against All Defendants)
61.
Plaintiff repeats and re-alleges each and every allegation contained
above as if fully set forth herein.
62.
This Count is asserted against Defendants and is based upon Section
10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated
thereunder by the SEC.
63.
During the Class Period, Defendants engaged in a plan, scheme,
conspiracy and course of conduct, pursuant to which they knowingly or recklessly
engaged in acts, transactions, practices and courses of business which operated as a
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 SOS ADSs; and (iii) cause Plaintiff and other members
of the Class to purchase or otherwise acquire SOS ADSs at artificially inflated
prices. In furtherance of this unlawful scheme, plan and course of conduct,
Defendants, and each of them, took the actions set forth herein.
64.
Pursuant to the above plan, scheme, conspiracy and course of conduct,
each of the Defendants participated directly or indirectly in the preparation and/or
issuance of the quarterly and annual reports, SEC filings, press releases and other
statements and documents described above, including statements made to securities
analysts and the media that were designed to influence the market for SOS ADSs.
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 SOS’s finances and business prospects.
65.
By virtue of their positions at SOS, Defendants had actual knowledge
of the materially false and misleading statements and material omissions alleged
herein and intended thereby to deceive Plaintiff and the other members of the Class,
or, in the alternative, Defendants acted with reckless disregard for the truth in that
they failed or refused to ascertain and disclose such facts as would reveal the
materially false and misleading nature of the statements made, although such facts
were readily available to Defendants. Said acts and omissions of Defendants were
committed willfully or with reckless disregard for the truth. In addition, each
Defendant knew or recklessly disregarded that material facts were being
misrepresented or omitted as described above.
66.
Information showing that Defendants acted knowingly or with reckless
disregard for the truth is peculiarly within Defendants’ knowledge and control. As
the senior managers and/or directors of SOS, the Individual Defendants had
knowledge of the details of SOS’s internal affairs.
67.
The Individual Defendants are liable both directly and indirectly for the
wrongs complained of herein. Because of their positions of control and authority,
the Individual Defendants were able to and did, directly or indirectly, control the
content of the statements of SOS. As officers and/or directors of a publicly-held
company, the Individual Defendants had a duty to disseminate timely, accurate, and
truthful information with respect to SOS’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 SOS ADSs was artificially inflated throughout the Class Period. In
ignorance of the adverse facts concerning SOS’s business and financial condition
which were concealed by Defendants, Plaintiff and the other members of the Class
purchased or otherwise acquired SOS ADSs at artificially inflated prices and relied
upon the price of the ADSs, the integrity of the market for the ADSs and/or upon
statements disseminated by Defendants, and were damaged thereby.
68.
During the Class Period, SOS ADSs were traded on an active and
efficient market. Plaintiff and the other members of the Class, relying on the
materially false and misleading statements described herein, which the Defendants
made, issued or caused to be disseminated, or relying upon the integrity of the
market, purchased or otherwise acquired shares of SOS ADSs at prices artificially
inflated by Defendants’ wrongful conduct. Had Plaintiff and the other members of
the Class known the truth, they would not have purchased or otherwise acquired said
ADSs, 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 SOS ADSs was substantially lower than the prices paid by
Plaintiff and the other members of the Class. The market price of SOS ADSs
declined sharply upon public disclosure of the facts alleged herein to the injury of
Plaintiff and Class members.
69.
By reason of the conduct alleged herein, Defendants knowingly or
recklessly, directly or indirectly, have violated Section 10(b) of the Exchange Act
and Rule 10b-5 promulgated thereunder.
70.
As a direct and proximate result of Defendants’ wrongful conduct,
Plaintiff and the other members of the Class suffered damages in connection with
their respective purchases, acquisitions and sales of the Company’s ADSs during the
Class Period, upon the disclosure that the Company had been disseminating
misrepresented financial statements to the investing public.
COUNT II
(Violations of Section 20(a) of the Exchange Act Against the Individual
Defendants)
71.
Plaintiff repeats and re-alleges each and every allegation contained in
the foregoing paragraphs as if fully set forth herein.
72.
During the Class Period, the Individual Defendants participated in the
operation and management of SOS, and conducted and participated, directly and
indirectly, in the conduct of SOS’s business affairs. Because of their senior
positions, they knew the adverse non-public information about SOS’s misstatement
of income and expenses and false financial statements.
73.
As officers and/or directors of a publicly owned company, the
Individual Defendants had a duty to disseminate accurate and truthful information
with respect to SOS’s financial condition and results of operations, and to correct
promptly any public statements issued by SOS which had become materially false
or misleading.
74.
Because of their positions of control and authority as senior officers,
the Individual Defendants were able to, and did, control the contents of the various
reports, press releases and public filings which SOS disseminated in the marketplace
during the Class Period concerning SOS’s results of operations. Throughout the
Class Period, the Individual Defendants exercised their power and authority to cause
SOS to engage in the wrongful acts complained of herein. The Individual
Defendants, therefore, were “controlling persons” of SOS 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 SOS ADSs.
75.
Each of the Individual Defendants, therefore, acted as a controlling
person of SOS. By reason of their senior management positions and/or being
directors of SOS, each of the Individual Defendants had the power to direct the
actions of, and exercised the same to cause, SOS to engage in the unlawful acts and
conduct complained of herein. Each of the Individual Defendants exercised control
over the general operations of SOS and possessed the power to control the specific
activities which comprise the primary violations about which Plaintiff and the other
members of the Class complain.
76.
By reason of the above conduct, the Individual Defendants are liable
pursuant to Section 20(a) of the Exchange Act for the violations committed by SOS.
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: March 30, 2021
Respectfully submitted,
POMERANTZ LLP
/s/ Gustavo F. Bruckner
Gustavo F. Bruckner
Jeremy A. Lieberman*
J. Alexander Hood II*
James M. LoPiano*
600 Third Avenue
New York, New York 10016
Telephone: (212) 661-1100
Facsimile: (917) 463-1044
[email protected]
[email protected]
[email protected]
[email protected]
POMERANTZ LLP
Patrick V. Dahlstrom*
10 South La Salle Street, Suite 3505
Chicago, Illinois 60603
Telephone: (312) 377-1181
Facsimile: (312) 377-1184
[email protected]
(*pro hac vice applications forthcoming)
Attorneys for Plaintiff
CERTIFICATION PURSUANT
TO FEDERAL SECURITIES LAWS
1.
I, _
_ Kimberly Beltran, _ ___ " make this declaration pursuant to Section 27(aX2) of
the Securities Act of 1933 (the "Securities Act") and/or Section 21 D(aX2) of the Securities Exchange Act
of 1934 (the "Exchange Act") as amended by the Private Securities Litigation Reform Act of 1995.
2.
I have reviewed a Complaint against SOS Limited ("SOS" or the "Company") and
authorize the filing of a comparable complaint on my behalf.
3.
I did not purchase or acquire SOS securities at the direction of plaintiffs' counselor in
order to participate in any private action arising under the Securities Act or Exchange Act.
4.
I am willing to serve as a representative party on behalf of a Class of investors who
purchased or otherwise acquired SOS securities during the class period, including providing testimony at
deposition and trial, if necessary. I understand that the Court has the authority to select the most adequate
lead plaintiff in this action.
5.
The attached sheet lists all of my transactions in SOS securities during the Class Period as
specified in the Complaint.
. 6.
During the three-year period preceding the date on which this Certification is signed, I have
not served or sought to serve as a representative party on behalf of a class under the federal securities laws.
7.
I agree not to accept any payment for serving as a representative party on behalf of the
class as set forth in the Complaint, beyond my pro rata share of any recovery, except such reasonable costs
and expenses directly relating to the representation of the class as ordered or approved by the Court.
Executed __ 3/10/2021 _________ _
(Date)
_ __ Kimberly Beltran:-:-----, _____ _
(Type or Print Name)
SOS Limited (SOS)
Beltran, Kimberly
List of Purchases and Sales
Transaction
Number of
Price Per
Type
Date
Shares/Unit
Share/Unit
Purchase
2/16/2021
1,000
$9.8900
Purchase
2/16/2021
162
$9.7200
Purchase
2/16/2021
490
$9.7200
Purchase
2/16/2021
312
$9.7200
Purchase
2/16/2021
30
$9.7200
Purchase
2/16/2021
6
$9.7200
Purchase
2/16/2021
1,000
$11.2900
Purchase
2/16/2021
2,000
$11.3401
Purchase
2/16/2021
1,000
$11.7399
Purchase
2/16/2021
1,950
$11.6299
Purchase
2/16/2021
50
$11.6250
Purchase
2/16/2021
2,000
$11.7500
Purchase
2/16/2021
1
$11.6300
Purchase
2/16/2021
216
$11.6300
Purchase
2/16/2021
25
$11.6300
Purchase
2/16/2021
50
$11.6300
Purchase
2/16/2021
100
$11.6300
Purchase
2/16/2021
8
$11.6300
Purchase
2/17/2021
2,880
$15.5000
Purchase
2/17/2021
120
$15.5000
Purchase
2/17/2021
1,000
$14.9000
Purchase
2/17/2021
1,000
$14.5000
Purchase
2/17/2021
80
$14.1900
Purchase
2/17/2021
1,920
$14.2000
Purchase
2/17/2021
200
$14.3500
Purchase
2/17/2021
300
$14.3600
Purchase
2/17/2021
1,000
$14.0900
Purchase
2/17/2021
290
$13.8300
Purchase
2/17/2021
262
$13.8300
Purchase
2/17/2021
848
$13.8300
Purchase
2/17/2021
100
$13.8300
Purchase
2/17/2021
1,000
$14.2599
Purchase
2/17/2021
1,000
$13.9495
Purchase
2/17/2021
1,287
$12.5800
Purchase
2/17/2021
213
$12.5800
Purchase
2/17/2021
300
$13.4600
Purchase
2/17/2021
100
$13.4600
Purchase
2/17/2021
100
$13.4600
Purchase
2/17/2021
100
$13.4600
Purchase
2/17/2021
100
$13.4600
Purchase
2/17/2021
100
$13.4600
Purchase
2/17/2021
100
$13.4600
Purchase
2/17/2021
100
$13.4600
Purchase
2/17/2021
1,000
$12.9194
Purchase
2/17/2021
1,000
$12.9999
Purchase
2/17/2021
298
$11.2600
Purchase
2/17/2021
2
$11.2600
Purchase
2/17/2021
456
$11.2600
Purchase
2/17/2021
44
$11.2600
Purchase
2/17/2021
550
$11.2900
SOS Limited (SOS)
Beltran, Kimberly
List of Purchases and Sales
Transaction
Number of
Price Per
Type
Date
Shares/Unit
Share/Unit
Purchase
2/17/2021
100
$11.2700
Purchase
2/17/2021
50
$11.2900
Purchase
2/17/2021
200
$10.4500
Purchase
2/17/2021
200
$10.4600
Purchase
2/17/2021
200
$10.4600
Purchase
2/17/2021
200
$10.4400
Purchase
2/17/2021
138
$10.5000
Purchase
2/17/2021
86
$10.5000
Purchase
2/17/2021
200
$10.4300
Purchase
2/17/2021
100
$10.4500
Purchase
2/17/2021
50
$10.4700
Purchase
2/17/2021
100
$10.4700
Purchase
2/17/2021
100
$10.5000
Purchase
2/17/2021
126
$10.5000
Purchase
2/17/2021
200
$10.4500
Purchase
2/17/2021
100
$10.4600
Purchase
2/17/2021
1,000
$12.5700
Purchase
2/17/2021
200
$12.7900
Purchase
2/17/2021
800
$12.8000
Purchase
2/17/2021
100
$12.8900
Purchase
2/17/2021
100
$12.8900
Purchase
2/17/2021
100
$12.8900
Purchase
2/17/2021
100
$12.8900
Purchase
2/17/2021
100
$12.8900
Purchase
2/17/2021
51
$12.8694
Purchase
2/17/2021
949
$12.8694
Purchase
2/17/2021
400
$12.8701
Purchase
2/17/2021
200
$13.6500
Purchase
2/18/2021
100
$11.6000
Purchase
2/18/2021
500
$11.6000
Purchase
2/18/2021
100
$11.5900
Purchase
2/18/2021
50
$11.5900
Purchase
2/18/2021
80
$11.5800
Purchase
2/18/2021
600
$11.5600
Purchase
2/18/2021
70
$11.6000
Purchase
2/18/2021
499
$11.2000
Purchase
2/18/2021
15
$11.2000
Purchase
2/18/2021
100
$11.2000
Purchase
2/18/2021
4
$11.2000
Purchase
2/18/2021
89
$11.2000
Purchase
2/18/2021
1,516
$11.2000
Purchase
2/18/2021
200
$11.2000
Purchase
2/18/2021
77
$11.2000
Purchase
2/18/2021
100
$11.3800
Purchase
2/18/2021
100
$11.3800
Purchase
2/18/2021
100
$11.3800
Purchase
2/18/2021
5
$11.3800
Purchase
2/18/2021
100
$11.3800
Purchase
2/18/2021
200
$11.3800
Purchase
2/18/2021
657
$11.3800
SOS Limited (SOS)
Beltran, Kimberly
List of Purchases and Sales
Transaction
Number of
Price Per
Type
Date
Shares/Unit
Share/Unit
Purchase
2/18/2021
84
$11.3800
Purchase
2/18/2021
90
$11.3700
Purchase
2/18/2021
100
$11.3700
Purchase
2/18/2021
100
$11.3700
Purchase
2/18/2021
100
$11.3700
Purchase
2/18/2021
64
$11.3700
Purchase
2/18/2021
100
$11.3800
Purchase
2/18/2021
100
$11.3700
Purchase
2/18/2021
2,000
$11.2300
Purchase
2/18/2021
2,000
$10.3800
Purchase
2/18/2021
910
$11.1000
Purchase
2/18/2021
1,090
$11.1000
Purchase
2/18/2021
500
$10.9790
Purchase
2/18/2021
100
$11.0500
Purchase
2/18/2021
1,628
$11.0500
Purchase
2/18/2021
172
$11.0500
Purchase
2/18/2021
100
$11.0500
Purchase
2/18/2021
1,000
$11.0000
Purchase
2/19/2021
500
$10.9400
Purchase
2/19/2021
1,500
$10.8500
Purchase
2/19/2021
500
$10.8500
Purchase
2/19/2021
449
$11.8500
Purchase
2/19/2021
40
$11.8500
Purchase
2/19/2021
11
$11.8500
Purchase
2/19/2021
100
$11.5400
Purchase
2/19/2021
100
$11.5400
Purchase
2/19/2021
100
$11.5400
Purchase
2/19/2021
100
$11.5400
Purchase
2/19/2021
100
$11.5400
Purchase
2/19/2021
302
$11.0000
Purchase
2/19/2021
893
$11.0000
Purchase
2/19/2021
143
$11.0000
Purchase
2/19/2021
7
$11.0000
Purchase
2/19/2021
355
$11.0000
Purchase
2/19/2021
300
$11.0000
Purchase
2/22/2021
1,000
$10.8400
Purchase
2/22/2021
1,000
$10.5000
Purchase
2/22/2021
2,500
$10.3650
Sale
2/16/2021
(600)
$9.8800
Sale
2/16/2021
(1,000)
$9.8800
Sale
2/16/2021
(400)
$9.8800
Sale
2/16/2021
(16)
$11.3200
Sale
2/16/2021
(10)
$11.3200
Sale
2/16/2021
(500)
$11.3200
Sale
2/16/2021
(24)
$11.3200
Sale
2/16/2021
(300)
$11.3200
Sale
2/16/2021
(100)
$11.3200
Sale
2/16/2021
(2,000)
$12.3500
Sale
2/16/2021
(3,000)
$12.0000
Sale
2/16/2021
(2,400)
$12.2200
SOS Limited (SOS)
Beltran, Kimberly
List of Purchases and Sales
Transaction
Number of
Price Per
Type
Date
Shares/Unit
Share/Unit
Sale
2/17/2021
(3)
$15.7700
Sale
2/17/2021
(2,925)
$15.7600
Sale
2/17/2021
(17)
$15.7700
Sale
2/17/2021
(55)
$15.7700
Sale
2/17/2021
(5)
$15.3100
Sale
2/17/2021
(45)
$15.3100
Sale
2/17/2021
(1,000)
$15.0100
Sale
2/17/2021
(2,000)
$14.4500
Sale
2/17/2021
(1,000)
$14.5000
Sale
2/17/2021
(100)
$14.0000
Sale
2/17/2021
(2,457)
$14.0000
Sale
2/17/2021
(443)
$14.0000
Sale
2/17/2021
(3,500)
$13.7901
Sale
2/17/2021
(50)
$13.3600
Sale
2/17/2021
(15)
$13.3600
Sale
2/17/2021
(700)
$13.3600
Sale
2/17/2021
(1,180)
$13.3600
Sale
2/17/2021
(50)
$13.3600
Sale
2/17/2021
(2)
$13.3600
Sale
2/17/2021
(3)
$13.3600
Sale
2/17/2021
(4,000)
$12.2601
Sale
2/17/2021
(250)
$12.2900
Sale
2/17/2021
(100)
$12.2900
Sale
2/17/2021
(50)
$12.2800
Sale
2/17/2021
(100)
$12.9901
Sale
2/17/2021
(900)
$13.0700
Sale
2/17/2021
(3,000)
$13.5800
Sale
2/18/2021
(4,200)
$11.4700
Sale
2/18/2021
(5,239)
$11.8000
Sale
2/18/2021
(461)
$11.8000
Sale
2/18/2021
(250)
$12.2650
Sale
2/18/2021
(2,500)
$11.8301
Sale
2/19/2021
(5,500)
$11.5000
Sale
2/19/2021
(2,660)
$11.2300
Sale
2/19/2021
(240)
$11.2300
Sale
2/22/2021
(75)
$10.3255
SOS LIMITED, YANDAI WANG, and ERIC H. YAN
KIMBERLY BELTRAN, Individually and on Behalf of All
Others Similarly Situated,
Miami-Dade County, Florida
New Castle County, Delaware
(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)
Gustavo F. Bruckner, Pomerantz LLP, 600 Third Avenue
New York, New York 10016, Telephone: (212) 661-1100
✖
II. BASIS OF JURISDICTION (Place an “X” in One Box Only)
III. CITIZENSHIP OF PRINCIPAL PARTIES (Place an “X” in One Box for Plaintiff
and One Box for Defendant)
(For Diversity Cases Only)
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)
Click here for: Nature of Suit Code Descriptions.
CONTRACT
TORTS
FORFEITURE/PENALTY
BANKRUPTCY
OTHER STATUTES
✖
110 Insurance
PERSONAL INJURY
PERSONAL INJURY
625 Drug Related Seizure
422 Appeal 28 USC 158
375 False Claims Act
120 Marine
310 Airplane
365 Personal Injury -
of Property 21 USC 881
423 Withdrawal
376 Qui Tam (31 USC
130 Miller Act
315 Airplane Product
Product Liability
690 Other
28 USC 157
3729(a))
140 Negotiable Instrument
Liability
367 Health Care/
400 State Reapportionment
150 Recovery of Overpayment
320 Assault, Libel &
Pharmaceutical
PROPERTY RIGHTS
410 Antitrust
& Enforcement of Judgment
Slander
Personal Injury
820 Copyrights
430 Banks and Banking
151 Medicare Act
330 Federal Employers’
Product Liability
830 Patent
450 Commerce
152 Recovery of Defaulted
Liability
368 Asbestos Personal
835 Patent - Abbreviated
460 Deportation
Student Loans
340 Marine
Injury Product
New Drug Application
470 Racketeer Influenced and
(Excludes Veterans)
345 Marine Product
Liability
840 Trademark
Corrupt Organizations
153 Recovery of Overpayment
Liability
PERSONAL PROPERTY
LABOR
880 Defend Trade Secrets
480 Consumer Credit
of Veteran’s Benefits
350 Motor Vehicle
370 Other Fraud
710 Fair Labor Standards
Act of 2016
(15 USC 1681 or 1692)
160 Stockholders’ Suits
355 Motor Vehicle
371 Truth in Lending
Act
485 Telephone Consumer
190 Other Contract
Product Liability
380 Other Personal
720 Labor/Management
SOCIAL SECURITY
Protection Act
195 Contract Product Liability
360 Other Personal
Property Damage
Relations
861 HIA (1395ff)
490 Cable/Sat TV
196 Franchise
Injury
385 Property Damage
740 Railway Labor Act
862 Black Lung (923)
850 Securities/Commodities/
362 Personal Injury -
Product Liability
751 Family and Medical
863 DIWC/DIWW (405(g))
Exchange
Medical Malpractice
Leave Act
864 SSID Title XVI
890 Other Statutory Actions
REAL PROPERTY
CIVIL RIGHTS
PRISONER PETITIONS
790 Other Labor Litigation
865 RSI (405(g))
891 Agricultural Acts
26 USC 7609
210 Land Condemnation
440 Other Civil Rights
Habeas Corpus:
791 Employee Retirement
893 Environmental Matters
220 Foreclosure
441 Voting
463 Alien Detainee
Income Security Act
FEDERAL TAX SUITS
895 Freedom of Information
230 Rent Lease & Ejectment
442 Employment
510 Motions to Vacate
870 Taxes (U.S. Plaintiff
Act
240 Torts to Land
443 Housing/
Sentence
or Defendant)
896 Arbitration
245 Tort Product Liability
Accommodations
530 General
871 IRS—Third Party
899 Administrative Procedure
290 All Other Real Property
445 Amer. w/Disabilities -
535 Death Penalty
IMMIGRATION
Act/Review or Appeal of
Employment
Other:
462 Naturalization Application
Agency Decision
446 Amer. w/Disabilities -
540 Mandamus & Other
465 Other Immigration
950 Constitutionality of
Other
550 Civil Rights
Actions
State Statutes
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)
6 Multidistrict
Litigation -
Transfer
8 Multidistrict
Litigation -
Direct File
Cite the U.S. Civil Statute under which you are filing (Do not cite jurisdictional statutes unless diversity):
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).
VI. CAUSE OF ACTION
Brief description of cause:
Violations of the federal securities laws.
✖
✖
JURY DEMAND:
Yes
No
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:
VIII. RELATED CASE(S)
IF ANY
(See instructions):
JUDGE
DOCKET NUMBER
DATE
SIGNATURE OF ATTORNEY OF RECORD
/s/ Gustavo F. Bruckner
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.
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.
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.
| securities |
wQc1M4cBD5gMZwczIlgh | Joseph R. Saveri (State Bar No. 130064)
Steven N. Williams (State Bar No. 175489)
Kate Malone (State Bar No. 290884)
Chris K.L. Young (State Bar No. 318371)
Kyle P. Quackenbush (State Bar No. 322401)
Anupama K. Reddy (State Bar No. 324873)
JOSEPH SAVERI LAW FIRM, LLP
601 California Street, Suite 1000
San Francisco, California 94108
Telephone: (415) 500-6800
Facsimile: (415) 395-9940
Email: [email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
Counsel for Plaintiff and the Proposed Class
UNITED STATES DISTRICT COURT
NORTHERN DISTRCT OF CALIFORNIA
SAN FRANCISCO DIVISION
Civil Action No.
CLASS ACTION COMPLAINT
DEMAND FOR JURY TRIAL
ADRIAN CENDEJAS, on behalf of himself
and all others similarly situated,
Plaintiff,
v.
SONY INTERACTIVE ENTERTAINMENT
LLC and SONY GROUP CORPORATION,
Defendants.
1.
Plaintiff Adrian Cendejas, on behalf of himself and all others similarly situated,
bring this Class Action Complaint against Sony Interactive Entertainment LLC and Sony Group
Corporation (collectively, “Sony” or “Defendants”) for violations of Sections 2 and 3(b) of the
Sherman Act, 15 U.S.C. §§ 2 and 3(b), and Section 4 of the Clayton Act, 15 U.S.C. § 15(a), as
follows:
INTRODUCTION
2.
Sony, operating from San Mateo, California, is one of the largest consumer
electronics manufacturers in the world, and one of the dominant makers of video game consoles.
In 1994, Sony launched its first video game console, the PlayStation. Sony’s release of the
PlayStation elicited critical acclaim and strong sales; in less than a decade, it became the first
computer entertainment platform to ship over 100 million units. Sony revolutionized the console
industry with its use of optical discs, heralding the console industry’s transition away from
cartridges.
3.
Sony has since released five models of the PlayStation—its latest, the PlayStation
5 (“PS5”) released to much fanfare on November 12, 2020 in the United States. The PS5 comes
in two versions, including a digital-only version, called the PlayStation 5 Digital Edition (“PS5
4.
Both versions of the PS5 include hardware (a specialized gaming computer known
as a console) and software (the operating system that allows users to play video games). Sony’s
operating system runs various applications, including Sony’s PlayStation Store where users can
purchase digital copies of video games.
5.
This action concerns Sony’s antitrust violations in the market for video games
played on the PS5 DE. Among other things, Sony tied the PlayStation Store to the PS5 DE,
relying on its monopoly power in the console market to acquire market share in the PS5 video
game distribution market. In addition, Sony eliminated competition in the PS5 video game
distribution market by refusing to allow retail outlets to sell digital copies of PS5 video games.
This conduct is anticompetitive and violates federal antitrust law.
6.
Before the PS5 DE was released, consumers could purchase PlayStation
video games from game developers and retailers including Amazon, GameStop, Walmart, and
Target, among others, on Blu-ray discs that could be inserted into the PlayStation console or in
the form of digital download codes that allow for downloading the game to the console. Because
the PS5 DE lacks a disc drive, consumers are limited to purchasing digital download codes from
retailers and digital copies of games from the PlayStation Store.
7.
Recognizing the price competition digital download codes poses, Sony made the
anticompetitive decision to refuse to allow retail outlets to sell video games through digital
download codes.
8.
Consumers are thus forced to purchase PS5 games on the PlayStation Store—an
application owned and operated by Sony that is pre-loaded on the PS5 DE. Sony does not allow
other applications that enable consumers to play video games to run on the PS5 DE. Nor does
Sony allow digital download codes sold by retailers to be redeemed through the PlayStation
Store. Consumers that purchase a PS5 DE are left with two choices: purchase games directly
from Sony using the PlayStation Store, or purchase another console for hundreds of dollars. For
those customers who have been in the Sony game console environment for years this is a negative
result personally and economically.
9.
Consumers face major costs to switch between PlayStation and Xbox. For
example, video games available on the PS4 can be played on the PS5, but cannot be played on the
Xbox. Consumers that have built up a library of PS4 games would lose hundreds, if not
thousands, of dollars if they switched to Xbox. Also, consumers that use PlayStation are
accustomed to the use of the PlayStation controller and gameplay, and have developed social
networks within the PlayStation ecosystem that they would lose if they switched to Xbox. Finally,
certain games are available only in the PlayStation ecosystem, not on Xbox.
10.
Sony’s conduct insulates it from price competition and enables it to charge
supracompetitive prices for PS5 video games. Sony charges publishers an approximately 30%
commission for every game purchased through the PlayStation Store. This exorbitant
commission is passed on to consumers, who end up paying higher prices than they otherwise
would have. Sony also effectively quashes the secondary market for PS5 games—consumers can
no longer buy and sell their used games at significantly reduced prices. Instead, each time a
consumer wants to purchase a PS5 video game—whether a recent or older release—it must
purchase a new digital copy from PlayStation through the PlayStation Store.
11.
Sony’s decision to tie the PlayStation Store with the PS5 and to eliminate
competition from retailers and game developers that could sell digital download codes is
anticompetitive. Sony’s decision was made solely to eliminate competition and enable it to
charge supracompetitive prices for PS5 DE video games. There are no procompetitive
justifications for its decision.
12.
As a result of Sony’s unlawful acquisition and maintenance of a monopoly over
the sale of PS5 video games, Plaintiff and the Class have paid and will continue to pay significant
overcharges. Plaintiff seeks damages equal to the amount he has already overpaid, treble
damages, and injunctive relief to end the overcharges he will continue to pay until competition is
restored to the market.
THE PARTIES
13.
Plaintiff Adrian Cendejas is a resident of California. Plaintiff has purchased, and
will continue to purchase, digital copies of video games directly from Sony through the
PlayStation Store to be played on his PS5 DE. Plaintiff has been injured, and will continue to be
injured, in his property by paying supracompetitive prices for these video games.
14.
Defendant Sony Interactive Entertainment LLC (“SIE”) is a corporation
organized and existing under the laws of California, with its headquarters and principal place of
business at 2207 Bridgepointe Parkway, San Mateo, California. SIE undertakes product research,
development, design, marketing, sales, production, distribution and customer service for
PlayStation hardware, software, content, and network services. SIE is a wholly owned subsidiary
of the Japanese consumer electronics and media conglomerate Sony Group Corporation.
15.
Defendant Sony Group Corporation is a corporation organized and existing under
the laws of Japan with its principal place of business at 7-1, Konan 1-Chome, Minato-Ku, Tokyo
108-0075, Japan. Sony Group Corporation is the parent corporation of SIE.
16.
SIE and Sony Group Corporation are collectively referred to as “Sony.”
JURISDICTION AND VENUE
17.
Plaintiff brings this action on his own behalf as well as that of the Class to recover
damages, including treble damages, costs of suit, and reasonable attorneys’ fees arising from
Defendants’ violations of Section 2 and 3(b) of the Sherman Act (15 U.S.C. §§ 2 and 3(b)) and
Section 4 of the Clayton Act, 15 U.S.C. § 15(a), as well as any and all equitable relief afforded
them under the federal laws pled herein.
18.
Jurisdiction and venue are proper in this judicial 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 was carried out in this District, and Sony resides in this
District and is licensed to do business in this District. Sony 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.
INTRADISTRICT ASSIGNMENT
19.
Pursuant to N.D. Cal. Civ. L.R. 3-2(c), (d) & 3-5(b), this action is properly
assigned to the San Francisco division because a substantial part of the events and omissions
which give rise to the claim emanated from California and more specifically San Mateo County.
FACTUAL ALLEGATIONS
A. Video Game Industry
20.
Video games are played on one of four electronic platforms: (i) smartphones; (ii)
personal computers (“PCs”); (iii) arcade game consoles; or (iv) personal game consoles. This
case concerns personal game consoles, specifically the PS5 DE, and video games that are played
on that console.
21.
A personal video game console is an electronic device similar to a personal
computer that outputs a video signal or visual image to display a video game that one or more
people can play through some type of game controller. These may be home consoles which are
generally placed in a permanent location connected to a television or other display device and
controlled with a separate game controller, or handheld consoles that include their own display
unit and controller functions built into the unit and can be played anywhere. Personal game
consoles are small personal computers designed specifically to play video games. They have
limited if any functionality beyond playing video games and streaming movies.
22.
Initial consoles were dedicated units with only a few games fixed into the
electronic circuits of the system (e.g., PacMan at the local arcade). However, video gaming was
revolutionized with the advent of personal consoles that individuals could buy and use in their
homes. Most personal consoles originally utilized ROM cartridges, swappable game media that
enabled users to play separate games simply by inserting a new cartridge.
Figure 1: ROM Cartridge
23.
ROM cartridges allowed the user to rapidly load and access programs and data
without using a floppy drive, which was an expensive peripheral during the home computer era,
and without using slow, sequential, and often unreliable Compact Cassette tape. An advantage
for the manufacturer was the relative security of the software in cartridge form, which was
difficult for end users to replicate. However, cartridges were bulky and expensive to manufacture.
As disc drives became more common and software expanded beyond the practical limits of ROM
size, cartridge slots disappeared from later game consoles and personal computers.
24.
Optical discs replaced ROM cartridges in consoles by the early 2000’s. Optical
discs are direct access storage devices that are written and read by light. The most common types
are CD, DVD and Blu-ray. Optical discs superseded the earlier ROM cartridges because they
weighed less, were cheaper to manufacture, and had higher storage capacities. However, optical
discs have disadvantages as well. They cost more per GB/TB than any other forms of storage
devices. Unless it is a Blu-ray disk, the maximum storage the optical discs can offer is 4.7GB.
Also, they are prone to scratching which makes the disk unusable.
Figure 2: Optical Discs
25.
Then came advances in internet bandwidth. Video on demand and online
streaming replaced the need for the console hardware required for multimedia tasks such as
playing audio and video discs. Game developers and retail outlets began selling digital download
codes that users could purchase online, and console manufacturers began to load digital stores
onto their consoles for instant access to video games.
26.
Streaming and digital downloads offered convenience—a user no longer had to go
to the store to purchase a disc or wait for one to arrive through an online store. Now, video games
could be purchased and played instantly with a click of a button or by entering a code into the
console. Also, theoretically, digital downloads were cheaper. There is virtually no marginal cost
to an additional download, unlike discs which had to be manufactured, loaded with media, and
transported to consumers.
27.
Digital downloads are projected to dominate the market. Minami Munakata, an
analyst at Goldman Sachs, estimated that the ratio of digital game sales compared to disc-based
sales would likely rise from around 51 per cent now to 80 per cent by 2025.
28.
This shift towards digital downloads has presented opportunities for those
companies that can control the digital space. Revenues from video games reached approximately
$170 billion worldwide in 2020.1 These revenues are projected to reach $277.95 billion worldwide
by 2025.2
29.
For the past two decades, three companies have dominated the market for
personal video game consoles: Sony, which manufactures the PlayStation; Microsoft,
manufacturer of the Xbox; and Nintendo. All three companies periodically release new models of
their consoles, with updated hardware and software and new design features.
30.
Nintendo has the longest history of the three, having released a dozen models
since its 1985 debut. Microsoft and Sony have released fewer versions of their home consoles—
four versions of the Xbox have been released since 2001 and five versions of the PlayStation have
been released since 1994.
31.
Sony, Xbox and Nintendo are not limited to manufacturing and selling video game
consoles; each also develops and publishes video games. Most PlayStation games come from
1 Global Video Game Software Market Report 2021, BusinessWire (Mar. 9, 2021),
https://www.businesswire.com/news/home/20210309005558/en/Global-Video-Game-Software-
Market-Report-2021-Long-term-Forecast-to-2025-2030-Featuring-Major-Players---Sony-
Activision-Blizzard-Microsoft-EA-and-Nintendo---ResearchAndMarkets.com
outside developers, while Nintendo develops most of the games for its consoles in-house. The
market for Xbox games is more evenly split, with approximately 30% developed by Microsoft.
32.
Video games are not cross-console compatible. For example, a game developed for
the PlayStation will not run on an Xbox, and vice versa. However, developers often release
versions of their games for all three consoles.
B. Sony PlayStation
33.
Sony is one of the largest manufacturers of video game consoles in the world. In
1994, Sony launched its first video game console, the PlayStation. Sony’s release of the
PlayStation elicited critical acclaim and strong sales; in less than a decade, it became the first
computer entertainment platform to ship over 100 million units. Sony revolutionized the console
industry with its use of optical discs, heralding the console industry’s transition away from
cartridges.
34.
The PlayStation is a computer specially designed for gaming that connects to a
display (either a TV, computer monitor, or projector) to enable users to play video games from
the comfort of their homes. Sony sells the hardware—the physical console—which is preloaded
with the operating system that enables consumers to play games and run various applications,
including the PlayStation Store.
35.
Over the last two and a half decades, Sony has released five updated versions of
the PlayStation—sequentially numbered 1 through 5. Sony’s latest version—the PS5—was
released on November 12, 2020. The new system is available in two versions: a standard model
(“PS5”), available for $499 retail, and the PS5 DE, which sells for $399 retail.
Figure 3: PlayStation 5 and PlayStation 5 Digital Edition
36.
The PS5 includes an optical disc drive, providing users with two option: to (i)
continue purchasing physical disc copies of games, available from retailers or game developers; or
(ii) buy digital-only copies and download them to their consoles. By contrast, the PS5 DE does
not include a disc drive, meaning users can only purchase digital games.
37.
The PS5 is backward compatible with the overwhelming majority of PS4 games.
This means that most PS4 games will play on the PS5.
38.
As of March 31, 2021—just four months after its initial release—Sony had sold 7.8
million PS5 consoles, making it the fastest selling console in U.S. history.3 Through these sales,
Sony has earned over $3 billion in revenue.4 These astronomical sales were achieved despite
Sony’s inability to supply anywhere close to enough units due to supply-chain failures caused by
the coronavirus pandemic.5 Sales are predicted to surpass 200 million units.
3 Sony PS5 now fastest-selling console in US history in both unit and dollar sales, says NPD,
CNET (Apr. 16, 2021), https://www.cnet.com/news/sony-ps5-now-fastest-selling-console-in-us-
history-in-both-unit-and-dollar-sales-says-npd/
4 See N.F. Mendoza, PlayStation rakes in $2.6 billion in PS5 sales, TechRepublic (Feb. 25,
2021), https://www.techrepublic.com/article/playstation-rakes-in-2-6-billion-in-ps5-sales/
(noting PlayStation 5 generated $2.6 billion in sales with 5.21 million counsels sold)
5 Still Looking for a New Gaming Console? Here’s Why, The New York Times (Jan. 29, 2021),
https://www.nytimes.com/2021/01/29/business/ps5-xbox-console-shortage.html
39.
Despite record revenue from the PS5, Sony claims it sells its console at a loss.6
Yet Sony realizes huge profits due to the profit maximizing ecosystem it has built around its
console. Sony has used the console’s popularity to build PlayStation into a multifaceted digital
entertainment brand which includes an online store for purchasing and downloading digital video
games directly to the console (the PlayStation Store), a unified online multiplayer gaming and
digital media delivery service (the PlayStation Network), a subscription-based digital video game
streaming service (PlayStation Now), a digital movie and TV distribution service (PlayStation
Video), and Sony’s video game development arm (SIE Worldwide Studios).
40.
The PlayStation Store launched on November 11, 2006, available on the
PlayStation 3 console. Since the launch of the original PlayStation in 1994, PlayStation games had
been available only on discs. Starting in 2006, users could access the PlayStation Store and
purchase games directly from their console, and then download them through the PlayStation
Network, which launched at the same time to facilitate the delivery of digital content. Users
could also purchase download codes from the same retailers who sell physical games such as
Amazon, GameStop, Walmart, and Target. The codes could be redeemed on the PlayStation
Network for digital copies of PlayStation games. The Network also allowed users to play games
online against their friends in different locations.
41.
Sony generates the bulk of its profits from digital downloads available through the
PlayStation Store. In 2020, digital downloads made up 62% of sales for PlayStation games,
compared to only 43% in 20187 and Sony earned $1.76 billion in revenues in the third quarter of
6 PS5 Is Being Sold At A Loss, Yet Sony Is Posting Record Profits, Forbes (Feb. 3, 2021),
https://www.forbes.com/sites/paultassi/2021/02/03/ps5-is-being-sold-at-a-loss-yet-sony-is-
posting-record-profits/?sh=791c06185fd2
7 Mustafa Mahmoud, 62% of all full PlayStation game sales were digital in 2020, Kitguru (Mar.
12, 202), https://www.kitguru.net/gaming/mustafa-mahmoud/62-of-all-full-playstation-game-
sales-were-digital-in-2020/
fiscal year 2020 alone through digital sales in the PlayStation Store.8 These revenues will
continue to grow as more and more people buy PlayStation 5, and as those who have already
purchased one continue buying new games.
C. Sony Ties the PlayStation Store to the PS5 DE
42.
As discussed above, the PS5 DE includes two components—hardware and
software—that enable consumers to play video games. The hardware comes preloaded with
Sony’s proprietary operating system (“OS”), and users are not able to substitute Sony’s OS for
another company’s OS. This differs from the personal computer market, where Dell, HP,
Lenovo, and others sell the hardware—the PCs—and users can load various OS, such as Apple’s
iOS, Microsoft’s Windows or Linux. You cannot run the Xbox’s OS on a PS5.
43.
Sony’s OS includes the PlayStation Store—an online marketplace from which
users can purchase games on to their device. The PlayStation Store comes pre-loaded onto the
PS5 DE and there is no way to remove it. There is also no other option to purchase games on the
PS5 DE—a user must use the PlayStation Store.
44.
To use the PlayStation Store, a user must create a master account. A log of all
previously purchased items, known as “Download List,” records each PlayStation
Store account’s complete download activity. Each master account is associated with an online
virtual “wallet” to which funds can be added. This wallet is then debited when a purchase is
made from the store. Money can be added to the wallet through different systems of payment,
including credit cards, debit cards, PayPal transfers and prepaid gift cards, but the wallet does not
accept cash.
45.
To purchase digital games through the PlayStation Store, users must use the
PlayStation wallet. Each time a user transacts using the PlayStation wallet, Sony charges
8 Andy Robinson, Sony’s gaming business is on course for its best-ever year in terms of revenue
and profit, its latest financial results have suggested, VGC (Feb. 3, 2021),
https://www.videogameschronicle.com/news/playstation-is-on-course-for-its-best-ever-year-
with-4-5m-ps5s-now-shipped/
publishers a commission fee. Upon information and belief, that commission fee is as high as 30%.
Sony tied the PlayStation Store to the PS5 DE to allow it to charge supracompetitive commission
fees. These supracompetitive commission fees were then passed on to consumers, resulting in
higher prices for digital copies of PS5 video games.
D. Sony Forces Customers to Purchase Games Through the PlayStation Store
46.
Despite Sony’s control over the market for digital copies of PS5 video games
purchased through the PlayStation Store, it faced one potential source of competition.
Historically, consumers could purchase digital download codes for PlayStation games. A
consumer could purchase the digital download code online or instore from a variety of retailers or
visit a game publisher’s website to purchase the code. The consumer could then input the code
on the PlayStation and begin playing a digital copy of the game.
47.
In anticipation of the PlayStation 5 launch, Sony eliminated retailers’ ability to sell
digital download codes for PlayStation video games, thereby entrenching its monopoly power
over the PlayStation Digital Game Distribution market.9 In a statement released on March 26,
2019, Sony confirmed what had been circulating as rumor for a number of days, that as of April 1,
2019, Sony would “no longer offer full games through SIE’s Global Digital at Retail program.”10
In other words, Sony would no longer give retailers the ability to sell digital download codes.
48.
Sony claimed the decision “was made in order to continue to align key businesses
globally.”11 In reality, Sony made this decision to monopolize the PlayStation Digital Game
9 Sony to Stop Retailers Selling PS4 Game Codes on April 1, PCMag (Mar. 26, 2019),
https://www.pcmag.com/news/sony-to-stop-retailers-selling-ps4-game-codes-on-april-
1#:~:text=Sony%20has%20decided%20retailers%20can,from%20sale%20on%20April%201.&t
ext=The%20decision%20impacts%20all%20retailers,PS4%20game%20in%20digital%20form
10 Sony confirms it will no longer provide full game digital download codes to shops, Eurogamer
(Mar. 26, 2019), https://www.eurogamer.net/articles/2019-03-26-sony-confirms-plans-to-stop-
giving-shops-full-game-download-codes-to-sell
Distribution market. For purchasers of the PS5 DE, the only way they can acquire video games
for their system is to purchase them via the PlayStation Store.
49.
Purchasing digital download codes through brick-and-mortar retail outlets has
several distinct advantages. First, retail availability of digital game codes was especially useful for
players who did not or could not use a credit card on the PlayStation Store. Second, consumers
could make use of trade-in credit from physical games and participate in a robust resale network
of buying and selling games second-hand. Third, retail outlets often provided special promotions
to attract customer traffic to their store, offering video games at a lower price compared to the
PlayStation Store. Fourth, retail outlets offered advice and recommendations from in-store
associates, which was particularly useful given the number of games purchased as gifts by
parents, grandparents, and relatives for children and young adults.
50.
Sony’s new restrictions established a monopoly over the PlayStation Digital Game
Distribution market, swiftly and effectively foreclosing all retail price and quality competition on
these games. As a direct and proximate result, purchasers of the PS5 DE are forced to pay
supracompetitive prices for video games, since they have no option to buy games on discs.
Purchasers of the PS5 DE are also unable to benefit from retail outlets’ many benefits, including
knowledgeable sales personnel and the aftermarket resale network.
51.
On information and belief, Sony—through SIE Worldwide Studios—charges a
30% commission to publishers for all content sold on its PlayStation Store, including video games.
Moreover, to sell games on the PlayStation Store developers and publishers of video games must
agree to give Sony complete control over the resale price. By contrast, on information and belief,
Sony charges an 11.5% Platform Royalty Fee for physical games sold at external retailers. Retailers
retain the right to set their resale prices (i.e., the retail markup). Besides the Royalty Fee and the
retail markup, the rest of the purchase price of video games goes to the developer.
52.
Because of the large commission rate, prices for video games available in the
PlayStation Store are higher than they would be if publishers retained the right to set prices and
retailers could dictate the resale markup. When a consumer buys a video game for their PS5 DE,
and they have no choice but to purchase it from the PlayStation Store, they pay the full purchase
price, including Sony’s 30% commission, directly to Sony.
53.
In contrast to Sony, Microsoft and Nintendo each allow consumers to buy
download codes from the same retailers who sell games on disc, which they then use to download
the games directly to their consoles.
E. Sony Attempts to Stack the Deck in its Favor
54.
In 2020, Sony purchased a $250 million stake in Epic Games, the developer
behind the popular game Fortnite.12 Sony invested an additional $200 million in 2021, making a
combined investment of $450 million.13 Fortnite is offered for free on game consoles, including
the PS5, on PCs, and on mobile devices. Fortnite generates all its revenue through in-game
purchases.
55.
In 2020, Epic sued Apple and Google, arguing that the companies violated the
antitrust laws through conduct related to their mobile app stores. Specifically, Epic argued that
Apple and Google unlawfully maintain monopoly power over their application store distribution
markets, “including by imposing technical and contractual restrictions on [their operating
system], which prevents the distribution of [] apps through means other than the App Store and
prevents developers from distributing competing app stores to [] users.”14
56.
Hedging its bets, Epic also introduced legislation to several state legislatures that
would allow developers to avoid paying Apple and Google’s app store fees.15 Curiously, the bills
12 https://www.theverge.com/2020/7/9/21318978/sony-epic-games-fortnite-investment-250-
million-game-development
13 Sony Invests Another $200 Million in Epic’s Latest Billion-Dollar Funding Round,
WCCFTech (Apr. 13, 2021), https://wccftech.com/sony-invests-epic-games-another-200-million/
14 Epic Games is suing Apple, The Verge (Aug. 13, 2020), https://www.theverge.com/2020/8/13/
21367963/epic-fortnite-legal-complaint-apple-ios-app-store-removal-injunctive-relief
15 Epic Games And Match Group Are Pushing States To Pass App Store Regulation That Would
Hurt Apple And Google, Forbes (Mar. 4, 2021), https://www.forbes.com/sites/rachelsandler
/2021/03/04/epic-games-and-match-group-are-pushing-states-to-pass-app-store-regulation-that-
would-hurt-apple-and-google/?sh=7005b84f1dd5
Epic has proposed have a carve out for stores within consoles. This carve out would allow Sony
to continue engaging in conduct that Epic (one of Sony’s investments) argues is anticompetitive.
Sony—through Epic—seeks to protect its monopolistic practices while at the same time
hindering its rivals from engaging in similar conduct.
ANTICOMPETITIVE EFFECTS
57.
Sony’s acquisition and maintenance of a monopoly in the market for PlayStation
Digital Game Distribution causes consumers to pay more for their PS5 DE games and other
content than they would have in a competitive market. It has also caused reduced output of and
lower quality PlayStation games than would exist in a free and unrestrained competitive market.
58.
The lack of a truly competitive environment has also led to reduced output and
supply of PlayStation video games because developers are barred from selling these games at
prices below Sony’s mandated and inflated 30% marked-up price. Under basic economic
principles, lower prices would generate both increased demand and increased supply to meet that
demand in the PlayStation Digital Game Distribution market. Sony’s unlawful monopoly
naturally restricts both supply and demand.
59.
Evidence of the anticompetitive price effect is already manifesting itself as
demonstrated by the current price differences for PlayStation video games across different
retailers. For example, on May 5, 2021, three popular video games were available at lower prices
from retailers, as described in the tables below.
Prices across retailers for NBA 2k21 – PS4 (Standard Edition)
Price Difference to
SIE
SIE
Retailer
Sales Price
PS Store
Commission %
Commission $
PS Store
$59.99
-
30
17.99
Target
$29.99
$30
11.5
3.44
Walmart
$27.93
$32.06
11.5
3.21
BestBuy
$19.99
$40
11.5
2.29
Amazon
$19.99
$40
11.5
2.29
GameStop (new)
$18.99
$41
-
-
eBay (used)
$17.99
$42
-
-
Prices across retailers for Madden NFL 21 - Standard Edition PS4/PS5
Price Difference to
SIE
SIE
Retailer
Sales Price
PS Store
Commission %
Commission $
PS Store
$59.99
-
30
17.99
GameStop
$29.99
$30
11.5
3.44
Amazon
$28.50
$31.49
11.5
3.27
Target
$19.99
$40
11.5
2.29
BestBuy
$19.99
$40
11.5
2.29
Walmart
$19.88
$40.11
11.5
2.28
eBay (used)
$7.00
$52.99
-
-
Prices across retailers for Red Dead Redemption 2 - Standard Edition PS4
Price Difference to
SIE
SIE
Retailer
Sales Price
PS Store
Commission %
Commission $
PS Store
$59.99
-
30
17.99
Amazon
$37.99
$22
11.5
4.36
BestBuy
$29.99
$30
11.5
3.44
Target
$29.99
$30
11.5
3.44
GameStop (used)
$27.99
$32
-
-
Walmart
$27.88
$32.11
11.5
3.20
eBay (used)
$10.50
$49.49
-
-
60.
The market for video games on disc provides a helpful benchmark for what prices
would look like in a competitive market for digital games. There is no legitimate reason digital
video games should be more expensive than their physical counterparts. In fact, given the higher
input costs involved in manufacturing, packaging and distribution, prices for games in a truly
competitive market for digital games would likely be substantially lower than they are for games
on disc. The only explanation for the stark price differences is Sony’s ability to charge
supracompetitive prices by eliminating price competition with retailer outlets.
61.
As game discs are replaced with digital distribution, Sony has positioned itself to
gain an ever-increasing share of the market for all PlayStation games.
62.
The existence of supracompetitive pricing, reduced consumer choice among
market alternatives, and reduced output and supply demonstrate that Sony’s monopolistic
conduct has injured competition generally in the market for digital PlayStation games, precisely
the type of harm the antitrust laws were enacted to remedy.
ANTITRUST IMPACT
63.
Plaintiff has been injured by Sony’s anticompetitive conduct because he paid more
for his PS5 DE video games than he would have paid in a competitive market. Plaintiff has also
been injured because Sony’s unlawful monopolization of the PlayStation Digital Game
Distribution market extinguished Plaintiff’s freedom of choosing between video games sold
through the PlayStation Store and lower cost alternatives that would have been available had
Sony not monopolized the market. Plaintiff is deprived of beneficial aspects of the retail sales
channel, including knowledgeable sales personnel and a robust secondary market to buy and sell
pre-owned video games.
64.
Plaintiff is also harmed by less of innovation. The lost profits to developers caused
by Sony’s monopolization reduces their incentive to create new and innovative games for the PS5
DE, which causes Plaintiff to suffer injury in the form of reduced quality and lower output of PS5
DE games.
EFFECT ON INTERSTATE COMMERCE
65.
During the relevant time period, Sony manufactured, marketed, sold, and shipped
PS5 DE consoles and PlayStation 5 games across state lines in an uninterrupted flow of interstate
commerce.
66.
During the relevant time period, Plaintiff and Class members purchased PS5 DE
consoles, digital videogames, other digital content, and related services from Sony and/or its
agents. As a result of Sony’s illegal and anticompetitive conduct, Plaintiff and Class members
were compelled to pay, and did pay, artificially inflated prices for one or more of the
aforementioned products and services.
67.
During the relevant time period, Sony employed various instrumentalities of
interstate commerce to effectuate the illegal acts alleged herein, including the United States mail,
interstate and foreign travel, and interstate and foreign wire commerce.
68.
Defendants’ conduct was within the flow of and was intended to have and did
have a direct, substantial, and foreseeable effect on interstate commerce.
69.
Sony’s conduct has also had substantial intrastate effects in that, among other
things, consumers paid overcharges in each state. Sony’s conduct materially deprived the
consuming public—including of purchasers in each state—of any choice to purchase more
affordable PS5 DE games from retailers other than Sony. The absence of competition for PS5 DE
games has, and continues to, directly and substantially affect and disrupt commerce within each
RELEVANT MARKETS AND MONPOLY POWER
70.
There are two relevant product markets in this case, and Sony has monopoly
power in each.
71.
First, there is the product market for the PS5 DE console (the “PS5 DE Gaming
Platform” market). As discussed above, the PS5 DE is a console that enables users to play
PlayStation games. Unlike the PS5, the PS5 DE does not have an optical disc drive—users must
purchase digital games to utilize the PS5 DE. The PS5 DE is also sold at a $100 discount
compared to the PS5.
72.
Sony controls 100% of the PS5 DE Gaming Platforms market. No other company
creates a console that can run PlayStation games. The PS5 and the PS5 DE are not
interchangeable because of the large price discount. Consumers faced with a small but significant
and non-transitory increase in price (“SSNIP”) would not transition away from the PS5 DE to
the PS5.
73.
Furthermore, other game consoles are not interchangeable. Due to the high cost
of consoles (anywhere from $300 to $600), the differentiation among them, and the lack of cross-
compatibility of video games, each console creates a separate market for games that can be played
on it. A SSNIP to the price of games for one console will not, therefore, cause a consumer to
switch to one of the other consoles.
74.
There are also high barriers to entry in the console market. As discussed above,
over the last two decades there have only been three competitors in the console market—Sony,
Xbox, and Nintendo. It is unlikely that a new console will come on to the market soon to take
market share away from the three dominant players. Console development is costly and takes
significant time. Popularity derives from network effects (a large enough community of gamers
and game developers to make the console attractive), familiarity with the console and marketing.
75.
Second, digital video games played on the PS5 DE are a relevant market (the
“PlayStation Digital Game Distribution” market). Sony controls 100% of the PlayStation Digital
Game Distribution market after its decision to make inoperable digital download codes sold by
retailers. Today, consumers that purchase a PS5 DE have only one option to play video games—
purchase directly from Sony on the PlayStation Store.
76.
Historically, there was vigorous price competition among retailers within the
PlayStation Digital Game Distribution. Retailers tried to offer the best price and services to
consumers and thereby gain a higher share of the market while maintaining profits. For
PlayStation games, Sony’s only role in this market was to take its Royalty Fee from every game
sold. It had no control over the price of games.
77.
By prohibiting resale of PS5 DE games except through the PlayStation Store, Sony
established a complete monopoly in the market for PlayStation Digital Game Distribution. Sony
has a 100% market share in the relevant market.
78.
Digital distribution of video games sold on other consoles is not substitutable
because video games are not cross-platform compatible. An Xbox digital download code cannot
be used to play video games on a PS5 DE.
79.
Furthermore, consumers would not purchase a new console faced with a SSNIP
on digital PlayStation games. Consoles cost anywhere from $300 to $600, whereas games cost at
most $60.
80.
The relevant geographic market is the United States, its territories, possessions,
and the Commonwealth of Puerto Rico.
CLASS ACTION ALLEGATIONS
81.
Plaintiff brings this action on behalf of himself and all others similarly situated as
an action under Federal Rules of Civil Procedure 23(a), (b)(2) and (3), seeking damages and
injunctive relief on behalf of the following class:
All persons in the United States who purchased a video game through the
PlayStation Store while using the PS5 DE at any time from November 12, 2020
through the present (the “relevant time period”).
This definition specifically excludes the following person or entities:
a.
Sony and its parent companies, subsidiaries, and affiliates;
b.
Any of Sony’s officers, directors, management, employees, subsidiaries,
affiliates or agents;
c.
All governmental entities;
d.
The judges and chambers staff in this case, as well as any members of their
immediate families; and
e.
Any counsel in this litigation.
82.
The Class seeks damages for the overcharges they have paid since Sony
monopolized the relevant market, and permanent injunctive relief to prevent or remedy the
unlawful conduct alleged herein and thereby restore competition in the relevant market.
83.
Members of the Class are so numerous and geographically dispersed that joinder
of all members is impracticable. Upon information and belief, there are at least one million Class
members who reside in and have purchased a video game through the PlayStation Store while
using a PS5 DE in the United States. Moreover, given the costs of complex antitrust litigation, it
would be uneconomic for many class members to bring individual claims and join them together.
The Classes are readily identifiable from information and records in the possession of Defendants
and third parties.
84.
Plaintiff is a member of the Class he seeks to represent, and his claims arise from
the same factual and legal bases as those of the Class; he asserts the same legal theories as do all
Class members.
85.
Plaintiff’s claims are typical of the claims of the members of the Class. Plaintiff’s
claims arise out of the same course of anticompetitive conduct that gives rise to the claims of the
other Class members. Plaintiff and all members of the Class were damaged by the same wrongful
conduct: Sony’s monopolization of PlayStation Digital Game Distribution market. Plaintiff and
all members of the Class paid supracompetitive prices for PS5 DE video games and were
deprived of the benefits of retail competition as a result of Sony’s unlawful monopoly.
86.
Plaintiff will fairly and adequately protect and represent the interests of the Class.
The interests of Plaintiff are aligned with, and not antagonistic to, those of the other members of
the Class.
87.
Plaintiff is represented by counsel who are experienced and competent in the
prosecution of class action antitrust litigation.
88.
Questions of law and fact common to the members of the Class predominate over
questions that may affect only individual Class members. Overcharge damages with respect to
the Class as a whole are appropriate because Sony acted on grounds generally applicable to the
entirety of the Class. Such generally applicable conduct is inherent in Sony’s unlawful creation
and maintenance of a monopoly in the market for PlayStation Digital Game Distribution.
Questions of law and fact common to the Classes include, but are not limited to:
a) Whether Sony unlawfully created, maintained and continues to maintain
monopoly power in the relevant market;
b) Whether Sony’s unlawful monopoly has caused and continues to cause
anticompetitive effects in the relevant market;
c) Whether Sony unlawfully tied its PlayStation Store to its PlayStation console;
d) Whether procompetitive justifications exist, and if they do, whether there
were less restrictive means of achieving them;
e) Whether Sony’s unlawful monopoly has substantially affected intrastate
and/or interstate commerce;
f) Whether Sony’s unlawful monopoly caused antitrust injury through
overcharges to the business or property of Plaintiff and the members of the
Class;
g) Whether injunctive relief is warranted to restore competition in the relevant
market; and
h) The quantum of overcharges paid by the Classes in the aggregate.
89.
The common questions of law and fact are identical for each and every member of
the Class.
90.
Plaintiff will thoroughly and adequately protect the interests of the Class, having
obtained qualified and competent legal counsel to represent himself and those similarly situated.
91.
The prosecution of separate actions by individual class members would create a
risk of inconsistent adjudications and cause needless expenditure of judicial resources.
92.
Plaintiff is typical of the Class in that his claims, like those of the Class, are based
on the same anticompetitive conduct and the same legal theories.
93.
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.
94.
Plaintiff knows of no special difficulty to be encountered in litigating this action
that would preclude its maintenance as a class action.
CAUSES OF ACTION
FIRST CAUSE OF ACTION
Monopolization of the PS5 Distribution Market (15 U.S.C. §§ 2 and 3(b))
(Damages)
95.
Plaintiff realleges and incorporates the allegations elsewhere in the Complaint as if
fully set forth herein.
96.
Sony has willfully acquired and maintained monopoly power in the relevant
markets for PS5 DE Gaming Platforms and PlayStation Digital Game Distribution. Sony has the
power to control prices or exclude competition in the relevant markets.
97.
Sony has a 100% share of the relevant market for PS5 DE Gaming Platforms and
PlayStation Digital Game Distribution, and there are substantial barriers to entry in each relevant
market.
98.
Sony at all relevant times, retained exclusive control over the design, features and
operating software for the PS5 DE.
99.
Sony has willfully acquired and maintained monopoly power in the PlayStation
Digital Game Distribution market by means of predatory, exclusionary, and anticompetitive
conduct, including but not limited to its decision to tie the PlayStation Store to the PS5 DE
Gaming Platform and refusal to allow digital download codes for PS5 to be sold by retailers.
100.
Publishers that would like to publish games enabled for the PS5 DE Gaming
Platform must sell all their games through the PlayStation Store. This constitutes a de-facto tie
involving the PS5 DE Gaming Platform and the PlayStation Store, as publishers cannot avoid the
PlayStation Store if they want access to the PS5 DE Gaming Platform.
101.
Sony specifically intended to eliminate price competition from other digital video
game retailers so that it could monopolize the PlayStation Digital Game Distribution market and
derive supracompetitive profits therefrom.
102.
Sony’s anticompetitive conduct is not justified because its conduct does not
enhance overall efficiency or make the relevant market more efficient.
103.
Sony’s conduct has had a substantial effect on interstate commerce.
104.
Plaintiff and the Class have been or will be injured in their property as a result of
Sony’s conduct.
105.
Plaintiff and members of the Class have suffered and will continue to suffer
economic injury to their property as a direct and proximate result of Sony’s unlawful
monopolization. This injury is of the type that the antitrust laws were intended to prevent.
Plaintiff has been and will be injured by the harm to competition as a result of Sony’s conduct.
Sony is therefore liable for treble damages, costs, and attorneys’ fees in amounts to be proved at
SECOND CAUSE OF ACTION
Sherman Act Section 2—Monopolization of the PS5 Distribution Market (15 U.S.C. §2)
(Declaratory and Injunctive Relief)
106.
Plaintiff realleges and incorporates the allegations elsewhere in the Complaint as if
fully set forth herein.
107.
Plaintiff seeks declaratory and injunctive relief under the federal antitrust laws.
108.
Plaintiff’s allegations described herein constitute a violation of Section 2 of the
Sherman Act.
109.
Sony effectuated a scheme to create and maintain a monopoly in the PlayStation
Digital Game Distribution market. The goal, purpose and/or effect of the scheme was to
eliminate and/or suppress price competition in order to charge supracompetitive prices for video
games that can be played on the PS5 DE.
110.
The anticompetitive conduct alleged herein should be declared illegal.
111.
Plaintiff and the Class have been injured in their business or property by reason of
Sony’s antitrust violations alleged in this Count. Their injury consists of paying higher prices for
PS5 DE video games than they would have paid in the absence of those violations. These injuries
will continue unless halted.
112.
Plaintiff and the Class, pursuant to Fed. R. Civ. P. 57 and 28 U.S.C. § 2201(a),
hereby seek a declaratory judgment that Defendants’ conduct constitutes a violation of § 2 of the
Sherman Act.
113.
Plaintiff and the Class further seek equitable and injunctive relief pursuant to
Section 16 of the Clayton Act, 15 U.S.C. § 26, and other applicable law, to correct the
anticompetitive effects caused by Defendants’ unlawful conduct. Sony’s unlawful conduct is
continuing and will continue unless it is permanently enjoined. The anticompetitive effects of
Sony’s unlawful conduct in the relevant market are continuing and will continue absent an
injunction.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, on behalf of himself, and the proposed Class, pray for judgment
against Sony as to each and every claim made herein and for the following relief:
A.
An order determining 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 direct that
reasonable notice of this action, as provided by Rule 23(c)(2), be given to the Class, and appoint
the Plaintiff as the named representative of the Class;
B.
Injunctive relief restoring competition to the PlayStation Digital Game
Distribution market and permanently enjoining Sony from continuing the unlawful conduct
alleged here, and from engaging in similar or related conduct in the future;
C.
An award to Plaintiff and the Class consisting of treble damages in an amount to
be determined at trial; pre and post-judgment interest; and costs, expenses, and reasonable
attorneys’ fees; and
D.
Any other and further relief the case may require, and the Court may deem just
and proper under the circumstances.
JURY DEMAND
114.
Pursuant to Rule 38 of the Federal Rules of Civil Procedure, Plaintiff, on behalf of
himself and the proposed Classes, demands a trial by jury on all issues so triable.
Dated: May 7, 2021
By:
/s/ Joseph R. Saveri
Joseph R. Saveri
Joseph R. Saveri (State Bar No. 130064)
Steven N. Williams (State Bar No. 175489)
Kate Malone (State Bar No. 290884)
Chris K.L. Young (State Bar No. 318371)
Kyle P. Quackenbush (State Bar No. 322401)
Anupama K. Reddy (State Bar No. 324873)
JOSEPH SAVERI LAW FIRM, LLP
601 California Street, Suite 1000
San Francisco, California 94108
Telephone: (415) 500-6800
Facsimile: (415) 395-9940
Email: [email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
Counsel for Plaintiff and the 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):
| antitrust |
JbkODIcBD5gMZwczT7RW | IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
Civil Action No.:
( % - S- J7 'f
VICTOR FUENTES, individually
and on behalf of all others
similarly situated,
Complaint -- Class Action
Plaintiff,
Jury Trial Demanded
/
ROY AL DUTCH SHELL PLC, SHELL OIL
COMPANY, PENNZOIL-QUAKER STATE
COMP ANY and JIFFY LUBE
INTERNATIONAL, INC.,
Defendants.
INTRODUCTION
I.
Average hourly pay at Jiffy Lube shops in the United States ranges
from approximately $8.14 per hour for an Entry Level Technician to $16. 88 per
hour for an lnspector. 1 In contrast, the United States' "living wage"-the
··approximate income needed to meet a family's basic needs"-is $15.12. ~
2.
Likely contributing to this wage gap, according to a study by two
Princeton economists, are no-poach provisions in franchise agreements which
1 https://www .indeed.com/cmp/Jiffy-Lube/salaries
2 Massachusetts Institute of Technology (MIT), http://bit.ly/20P0QvY.
prohibit one shop owner from offering work to employees of another shop
owner. 3 Jiffy Lube-which has more than 2,000 shops across the country-
imposed such a no-poach clause in both of its standard franchise agreements.
4
Owners of a Jiffy Lube franchise, for example, cannot hire anyone who works
or has worked at another Jiffy Lube within the previous six months. One of the
Princeton study' s authors explains that these no-poach provisions can
"significantly influence pay" by obviating the need for franchise owners to
compete for the best workers. 5
3.
Another study, co-authored by Eric Posner, a professor at the
University of Chicago Law School, found that "[w]hen a franchisor requires the
different franchisees within its chain not to poach each other's workers ... the
no-poaching agreement is anticompetitive, and will tend to suppress the wages
of workers. " 6
4.
Many states, such as California and Oklahoma, prohibit non-
compete clauses in employment agreements. But by facilitating agreements
between franchise owners not to compete for each other's workers, major brands
like Jiffy Lube have been able to effectively utilize and enforce these prohibited
clauses.
3 https://nyti.ms/2Ik0on9.
4 Jiffy Lube has two distinct franchise agreements; one that includes a
"Products Program" requiring use of Pennzoil products, and one that does not.
5 Id.
6 http://bit.ly/2DBGJSE.
5.
Federal courts recognize that these no-poach clauses in franchise
agreements are anticompetitive agreements between and among franchisors and
franchisees to reduce worker wages. For instance, in June 2018 a federal court
upheld a federal antitrust claim against McDonald's for its no-poach clause,
opining that "[e]ven a person with a rudimentary understanding of economics
would understand" that if McDonald's franchises do not compete with each other
for workers, wages "would stagnate. " 7 Another federal court ruled similarly in
an antitrust action pertaining to Jimmy John's no-poach agreements. 8
6.
Many states' attorneys general are investigating franchise
businesses for their no-poach practices, and, as of October 15, 2018, at least 30
national chains have already entered consent decrees with the Washington
Attorney General, pledging to remove no-poach provisions from their franchise
agreements. 9
7.
While eliminating these anticompetitive clauses will help workers
going forward, current and former employees of Jiffy Lube shops-including
Plaintiff Victor Fuentes-are owed antitrust damages for years of wage
suppression. This action seeks to recover these damages and obtain additional
injunctive relief on behalf of Mr. Fuentes and similarly situated Jiffy Lube
7 Deslandes v. McDonald's USA, LLC, No. 17 C 4857, 2018 WL 3105955, at
*5 (N.D.111. June 25, 2018) (citation omitted).
8 Butler v. Jimmy John's Franchise, LLC, No. 18-cv-0133-MJR-RJD, 2018
WL 3631577 (S.D.111. July 31, 2018).
9 https://bit.ly/2SegSm W.
workers.
8.
Jiffy Lube's no-poach provision violates Section 1 of the Sherman
Act, 15 U .S.C. § I. By conspiring with and facilitating franchisees to enter into
agreements not to compete with one another and with Jiffy Lube itself, Jiffy
Lube harmed Plaintiff and the class by suppressing their wages.
JURISDICTION AND VENUE
9.
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 as a result of Defendants' violations of Section 1 of the
Sherman Act, 15 U .S.C. § I and to enjoin further violations.
IO.
Under Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§15 and
26 and Section 4 of the Sherman Act, 15 U .S .C. §4, as well as 28 U .S .C. § § 1331,
1332(d), and 1337, the Court has subject matter jurisdiction to prevent and
restrain the Defendants from violating Section I of the Sherman Act, 15 U.S.C.
11.
Venue is proper in this judicial district under Sections 4, 12, and
16 of the Clayton Act, 15 U.S.C. §§15, 22, and 26, and under 28 U.S.C.
§ 1391 (b)(2) and (c)(2). Jiffy Lube transacts or has transacted business in this
district, and many of the events that gave rise to this action occurred in this
district.
12.
Jiffy Lube is in the business of selling convenient lubrication, oil
change, and light repair services for cars and light trucks to customers through
independently owned and operated franchise shops. These shops may be found
in 4 7 of the 50 states in the U.S. Jiffy Lube has substantial business activities
with each franchised shop, including entering into a contractual franchise
agreement with the owner of the franchise. Jiffy Lube engages in substantial
activities at issue in this Complaint that flow through and substantially affect
interstate commerce.
PLANTIFF
13.
Plaintiff Victor Fuentes is a resident of Greenacres, Florida. He
was employed by Mid-Atlantic Lubes, Inc., a franchisee that owns and operates
approximately 20 Jiffy Lube shops in Pennsylvania and New Jersey. Fuentes was
employed for about three months at the shop located in Montgomeryville,
Pennsylvania, starting as an Entry Level Technician and eventually rising to the
position of Customer Service Advisor. About a year later, Fuentes obtained
employment with Atlantic Coast Enterprises, LLC, a franchisee that owns and
operates approximately 50 Jiffy Lube shops in Florida and South Carolina.
Fuentes was employed for about a year and a half at Jiffy Lube shops owned by
this franchisee in Fort Lauderdale and Boca Raton, Florida.
DEFENDANTS
14.
Defendant Royal Dutch Shell pie ("Shell") is a British-Dutch oil
and gas company headquartered in the Netherlands and incorporated in the
United Kingdom. Shell owns the Jiffy Lube brand through its subsidiaries Shell
Oil Company ("SOC"), Pennzoil-Quaker State Company ("Pennzoil"), and Jiffy
Lube International, Inc. ("JLI", collectively, "Defendants" or "Jiffy Lube").
15.
SOC, a wholly-owned subsidiary of Shell, is a Delaware
corporation headquartered in Houston, Texas.
16.
Pennzoil, a wholly-owned subsidiary of Shell, is a Delaware
corporation headquartered in Houston, Texas.
17.
JLI, a wholly-owned subsidiary of Shell, is a Delaware corporation
headquartered in Houston, Texas.
I 8.
Jiffy Lube is in the business of selling convenient lubrication, oil
change, and light repair services for cars and light trucks to customers through
independently owned and operated franchise shops.
AGENTS AND CO-CONSPIRATORS
19.
The acts alleged against Defendants in this action were authorized,
ordered,
or
conducted
by
Defendants'
officers,
agents,
employees,
or
representatives actively engaged rn
the management and operation of
Defendants' businesses and affairs.
20.
Various other corporations and persons that are not named
defendants in this action, including Jiffy Lube franchisees, participated as co-
conspirators in the violations alleged and performed acts and made statements
in furtherance of the violations alleged.
21.
Each Defendant acted as the principal, agent, or joint venture of, or
for, other Defendants with respect to the acts, violations, and common course of
conduct alleged by Plaintiff.
FACTUAL ALLEGATIONS
The Franchise Model
22.
Jiffy Lube operates under a franchise model which involves the
owner of a business (the franchisor) licensing, in return for a fee, to third parties
(the franchisees) the right to operate a business or distribute goods and/or
services using the franchisor's business name and systems (which varies
depending on the franchisor) for an agreed period of time.
23.
The franchise fee may be an upfront payment by the franchisee to
the franchisor, an ongoing fee (e.g., an agreed percentage of revenue or profit)
or a combination of the two. Franchising is an alternative to the franchisor
building, owning and operating all of the stores or shops in the chain.
The Jiffy Lube System
24.
Founded in 1979, there are now more than 2,000 Jiffy Lube shops
across the United States and Canada, with the vast majority located in the U.S.
Jiffy Lube operates its business on a franchise model. Every Jiffy Lube shop
is owned by an independent franchisee - Jiffy Lube itself does not operate
any shops.
It is the largest "quick lube" chain in the United States. The
primary service provided by Jiffy Lube shops is the "Jiffy Lube Signature
Service® Oil Change," but shops also provide a wide variety of other light
automotive repair services.
25.
In the "Careers" section of its website, Jiffy Lube tells prospective
employees that employment with Jiffy Lube is "[m]ore than just a job, but a step
toward a career that lets you instantly see the results of your hard work ... " and
that "Jiffy Lube provides employees with a safe and enriching work environment
••• " 10 Jiffy Lube further assures applicants that they'll "be working with one of
the most reputable companies in the business, one with a stake in your success
because it enhances our customers' trust in Jiffy Lube." Id.
The No-Poach Clause
26.
To own a Jiffy Lube franchise, an aspiring franchisee must sign a
standard franchise agreement with Jiffy Lube, with a typical term of 20 years.
In addition, a franchisee must pay a franchise fee of approximately $35,000,
training and other fees, and a percentage of monthly gross sales as a royalty to
Jiffy Lube. Franchisees and managers of Jiffy Lube shops are required to attend
training programs at Jiffy Lube training centers, with at least some of the cost
borne by the franchisees. The total investment necessary to begin operating a
Jiffy Lube franchise shop is between approximately $234,000 and $372,650,
exclusive of real estate and construction costs.
27.
Beginning at an unknown date and continuing through at least
March 30, 2016, Jiffy Lube incorporated a clause into its standard franchise
agreements prohibiting Jiffy Lube franchisees from soliciting or hiring existing
employees of Jiffy Lube shops (the "No-Poach Clause"). Specifically, Jiffy Lube
10 https:/ /www.jiffylube.com/careers
and franchisees agreed to the following:
Franchisee covenants that during the term of this Agreement, Franchisee
will not employ or seek to employ any person who is or within the
preceding six months has been an employee of Franchisor or of any System
franchisee of Franchisor, either directly or indirectly, for itself or through,
on behalf of, or in conjunction with any person.
28.
Jiffy Lube franchisees also agreed that Jiffy Lube had the
unilateral power to terminate their franchises upon a franchisee's default, which
includes franchisees' failing to comply with the No-Poach Clause. Jiffy Lube
franchisees, therefore, ignore the No-Poach Clause at their peril and to their
financial detriment.
Jiffy Lube Shops are Independent Businesses that Compete With Each Other
29.
As established by Jiffy Lube's standard franchise agreements,
each Jiffy Lube franchise is operated as an independently owned and managed
business, by an entity that is separate from Jiffy Lube. Specifically, the standard
agreements state that each Jiffy Lube franchisee is:
an independent contractor with the right to complete control and direction
of the Franchised Center, subject only to the conditions and covenants
established within this Agreement, the Manual and the System Manuals.
No agency, employment or partnership is created or implied by the terms
of this Agreement. Franchisee's business is totally separate from
Franchisor.
Jiffy Lube licenses to franchisees the right to use the Jiffy Lube brand and
system in the operation of these independently owned franchise shops.
30.
Jiffy Lube shops are all independently owned and operated
franchises, which compete among each other. In executing a Jiffy Lube franchise
agreement, a franchisee specifically acknowledges and represents that it is an
independent business person or entity.
The No-Poach Clause Benefits Jiffy Lube Shop Owners at the Expense of Employees
and Consumers
31.
Although each Jiffy Lube shop is an independently owned and
operated business that competes with other Jiffy Lube shops-and although each
franchisee contractually is solely responsible for all aspects of the employment
relationship with its employees, with the sole right to hire, discipline, promote,
demote, transfer, discharge, and establish wages, hours, benefits, and
employment policies, among other things-Jiffy Lube and its franchisees have
agreed not to compete among each other for workers. This agreement is expressly
stated in Jiffy Lube franchise agreements.
32.
Jiffy Lube enforced a no-poaching conspiracy among itself and
franchisees for years in order to suppress wages.
3 3.
The Jiffy Lube franchise agreement contains an integration clause.
Franchisees specifically contract that, with limited exceptions, franchises are
governed by the terms of the franchise agreement a franchisee executes and not
by terms later agreed to by other franchisees. Jiffy Lube informs prospective
franchisees that the terms of the contract will govern the franchise.
34.
The Jiffy Lube Franchise Disclosure Document includes a list of
all Jiffy Lube franchisees, organized by state, city, and street address.
Franchisees thus know that these entities are the other franchisees as to whom
the No-Poach Clause memorialized in the franchise agreement applies.
35.
The No-Poach Clause would not be in the independent interest of
Jiffy Lube shop owners if they were acting unilaterally. The profitability of each
shop is critically dependent upon the quality of the workers they employ. It is
therefore in the independent interest of Jiffy Lube and each Jiffy Lube franchisee
to compete for the most conscientious, talented and experienced employees.
36.
The No-Poach Clause artificially restricts the ability of Jiffy Lube
and its franchisees to hire employees in a manner consistent with their individual
economic interests. But by acting in concert, they also protect themselves from
having their own employees poached by other Jiffy Lube shops that may place
value on those employees for their training, experience or work ethic. This
allows Jiffy Lube shop owners to retain their best employees without having to
pay market wages or provide them with attractive working conditions and
opportunities for promotion.
3 7.
The No-Poach Clause does not benefit consumers because it does
not help to incentivize Jiffy Lube or its franchisees to invest in training workers
to improve the services they provide at Jiffy Lube shops.
3 8.
Consumers can gain from competition among employers because a
more competitive workforce may create more or better goods and services.
Further, although unemployment is at record lows, wage growth remains
sluggish. Low-paid workers regularly rely on public assistance to supplement
their income. Higher wages would lessen the strain on public assistance,
benefiting all consumers.
39.
Critically, the No-Poach Clause does not benefit Jiffy Lube shop
employees because it does not spur Jiffy Lube and its franchisees to invest in
higher wages, benefits, and improved working conditions to compete for their
labor. Because employees are not rewarded appropriately for their efforts, they
are not motivated to excel at their jobs. Competition among employers helps
actual and potential employees through higher wages, better benefits, or other
terms of employment.
40.
Jiffy Lube and its franchisees have a shared anticompetitive
motive to keep labor costs low. As noted above, franchisees pay Jiffy Lube
royalties based on a percentage of gross sales. Cost of labor therefore has a
direct impact on franchisees' profitability. By agreeing not to compete for labor,
they act against their unilateral self-interest, but serve and benefit from their
shared interest.
41.
But for the No-Poach Clause, each Jiffy Lube franchise is its own
economic decision-maker with respect to hiring, firing, staffing, promotions and
employee wages. But for the No-Poach Clause, each Jiffy Lube shop would
compete with each other for the best-performing and most qualified employees.
Jiffy Lube Systematically Suppresses Employee Wages and Mobility Through the No-
Poach Clause
42.
Low wages are consistent across Jiffy Lube shops. This has
allowed Jiffy Lube owners and executives, and Jiffy Lube franchisees, to enrich
themselves financially while full-time, hardworking employees often must resort
to government benefits just to survive. A material reason for this is that Jiffy
Lube has orchestrated an agreement among franchisees to stifle employee wages
and mobility.
43.
If Jiffy Lube shop owners had to either pay and promote good
employees, or lose them to competitor locations, they would be forced to pay
competitive wages and provide competitive promotion opportunities. However,
because of the No-Poach Clause-and because their workers' levels of
education, training and experience within Jiffy Lube shops are unique and not
easily transferrable to other shops-franchisees do not compete with each other,
and they do not have to compete with non-Jiffy Lube businesses for their
employees, excepting entry-level positions.
44.
Jiffy Lube and its franchisees are well-versed in no-poaching
efforts as they regularly employ highly restrictive "unfair competition"
agreements binding the franchise owners. Pursuant to the franchise agreements,
both during and after the franchise term, Jiffy Lube franchisees are contractually
prohibited from engaging indirectly or directly in any other business
"substantially similar" to a Jiffy Lube shop.
45.
Jiffy Lube's form employment applications include a specific
inquiry into whether the candidate has previously been employed at a Jiffy Lube
shop. The application requests information about the dates, location, and
supervisor relating to any such employment. The potential employer can use this
information to quickly determine whether the No-Poach Clause is implicated for
an applicant.
Jiffy Lube Employees Cannot Easily Leverage Their Skills to Gain Employment
Elsewhere
46.
Training, education, and experience at Jiffy Lube shops are not
easily transferrable to other shops for a number of reasons.
4 7.
Jiffy Lube reserves for itself the right to specify or require certain
brands or models of communications equipment, computer systems, hardware for
back-office and point-of-sale systems, printers and peripherals, backup systems,
and the like.
48.
Franchisees pay system-support fees for these proprietary systems
and acknowledge that these systems provide access to confidential and
proprietary information. Experience with these systems affords little value to
other brand shops.
49.
Franchisees use approved or mandatory suppliers and vendors
affiliated with Jiffy Lube. Experience with these vendors is of little value to
other shops.
50.
Franchisees
also
utilize
proprietary
operating
procedures,
described in Jiffy Lube proprietary operating materials.
51.
A no-poach agreement like the agreement among Jiffy Lube and
its franchisees reduces employees' outside options and renders them less likely
to quit, thereby increasing the share of net-returns captured by Jiffy Lube
employers. Further, a no-poach agreement among all Jiffy Lube shop owners
increases the specificity and one-off nature of human capital investment, as
training that is productive throughout the chain can be used only by a single
franchisee pursuant to the agreement.
A Competitive Labor Market Would Include Solicitation and Hiring of Jiffy Lube Shop
Employees by Other Jiffy Lube Shop Owners
52.
All Jiffy Lube shops compete with each other. In a free, properly
functioning and lawfully competitive labor market, Jiffy Lube franchisees would
openly compete for labor by soliciting current employees of one or more other
Jiffy Lube shops (i.e., attempting to "poach" other shops' employees).
53.
For all these reasons,
the
fundamental principle of free
competition applies to the labor market as well as to trade. "In terms of
suppressing competition, companies agreeing not to compete for each other's
employees is the same as companies agreeing not to compete for each other's
customers." 11
54.
According to Peter Cappelli, Wharton management professor and
director of Wharton's Center for Human Resources, a no-poaching agreement is
unfair to employees and such a pact "benefits the companies at the expense of
their employees." Mr. Cappelli notes that the reason such agreements are illegal
and violate both antitrust and employment laws is because "[c]ompanies could
achieve the same results by making it attractive enough for employees not to
leave." 12
11 Joseph Harrington, Wharton professor of business economics and public
policy, https :/ /whr. tn/ScKBx2.
12 Id.
55.
The collusion of employers to refrain from hiring each other's
employees restricts employee mobility. This raises employers' power in the
market at the expense of employees and diminishes employees' bargaining
power. This is especially harmful to employees of Jiffy Lube shops as those
employees are frequently paid below a living wage, and the marketable skills
they acquire through their work at such shops primarily have value only to other
such shops and do not easily transfer to other automotive service shops or
businesses. No-poach agreements have anti-competitive impact in labor markets
analogous to that of mergers in product markets.
56.
Although unemployment in the United States is currently very low,
wage growth stagnates. A decade removed from the Great Recession, wage
growth has remained stuck below 3 percent. 13
A growing number of
commentators identify proliferating no-poaching agreements-including those
used within franchise systems-and dubious employee non-compete agreements
as significant contributors to the atrophy in wage growth. 14
Government Action in Response to Illegal No-Poach Agreements
57.
The United States Department of Justice (DOJ) has pursued and
resolved civil antitrust investigations relating to no-poach agreements made
between or among employers. For instance, in 2010, DOJ settlements with six
high-tech
employers
prohibited
those
companies
from
engaging
rn
11 See https://bit.ly/2FEpagY.
14 See, e.g., https://nyti.ms/2Ik0on9; https://nyti.ms/2t04myZ.
anticompetitive no-solicitation agreements relating to their employees on a
going-forward basis.
58.
The 2016 DOJ/FTC Antitrust Guidance for Human Resource
Professionals states: "Naked wage-fixing or no-poaching agreements among
employers, whether entered into directly or through a third party intermediary,
are per se illegal under the antitrust laws."
59.
In July 2018, attorneys general (A Gs) of 11 states announced an
investigation into no-poaching hiring practices at a number of franchise chains.
According to a release from Illinois Attorney General ("AG") Lisa Madigan, the
state is investigating no-poach agreements because those agreements "unfairly
stop[] low-income workers from advancing and depress[] their wages." The state
AGs demanded documents and information from franchisors about their no-
poach practices.
60.
On or about August 12, 2018, State of Washington Attorney
General Bob Ferguson announced that in order to avoid lawsuits, certain
franchisors had reached agreements to discontinue enforcement of no-poach
provisions and to take steps to remove no-poach language from franchise
agreements going forward.
REPRESENTATIVE PLAINTIFF ALLEGATIONS
AND ANTITRUST INJURY
61.
Plaintiff Victor Fuentes began working at the Jiffy Lube shop in
Montgomeryville, Pennsylvania in or around October of 2015. At all relevant
times, Fuentes was an at-will employee.
62.
Fuentes was initially hired as an Entry Level Technician, with an
hourly wage of $8.00. His excellent work quickly earned him promotions to
various roles, including Upper Bay Technician and Customer Service Advisor.
Pay raises associated with these promotions were promised, but never received.
63.
In or around December 2015, Fuentes decided that he would move
to South Florida in 2016 to be closer to family. He requested to be transferred
to a Jiffy Lube shop in South Florida, but was told that this was not possible,
because that would involve employment with a different franchisee than the one
for which he currently worked.
64.
Unable to obtain employment at a South Florida Jiffy Lube shop,
Fuentes gave notice at the Montgomeryville shop where he was working, and
left around January, 2016. He moved to South Florida in or around May of 2016.
65.
Fuentes held various jobs in South Florida during the remainder
of 2016, but wasn't able to find anything satisfactory. Finally, after the waiting
period required by the No-Poach Clause expired, Fuentes was able to obtain
employment as an Entry Level Technician at a Jiffy Lube shop in Fort
Lauderdale, Florida, with an hourly wage of $10.00.
66.
Just as in Montgomeryville, Fuentes's excellent work quickly
earned him promotions to various roles, including Customer Service Advisor and
eventually Shift Manager. He received a raise to $11.00 per hour and
performance-related bonuses. Over the course of his employment, he worked at
the Fort Lauderdale shop, as well as two shops in Boca Raton that were owned
by the same franchisee.
6 7.
In December of 2017, Fuentes decided to move back to
Pennsylvania, and sought a transfer to a Jiffy Lube shop there. Again, he was
denied due to the No-Poach Agreement. In July of 2018, Fuentes left his
employment with Jiffy Lube.
68.
The no-poach agreement among Jiffy Lube and its franchisees
suppressed Plaintiff's wages, inhibited his employment mobility, and lessened
his professional work opportunities.
Antitrust Injury
69.
Plaintiff suffered reduced wages, reduced employment benefits,
loss of professional growth opportunities, and worsened working conditions
because of the express agreement to restrain trade among Jiffy Lube and its
franchisees, as orchestrated, facilitated and enforced by Jiffy Lube itself.
70.
Suppressed wages and employment benefits resulting from
employers' agreement not to compete with each other in the labor market is
injury of the type the antitrust laws were intended to prevent and flows directly
from illegal nature of the No-Poach Clause.
71.
The potential for broader collusion in franchise chains is enhanced
when no-poach agreements are in place. Collusion is promoted when the no-
poach agreements can be easily generated and monitored among a concentrated
group of competitors who all stand to gain profits from the collusion while
maintaining similar costs.
72.
The
Jiffy
Lube
No-Poach
Clause
significantly
restricts
employment opportunities for low-wage workers at all Jiffy Lube shops,
including those who have not sought employment with a competitor shop and
those who have not been contacted by a competitor shop. Such a restriction
causes a wider effect upon all Jiffy Lube shop employees.
73.
Plaintiff was a victim of the No-Poach Clause. By adhering to that
agreement, otherwise independently owned and operated competitor businesses
suppressed wages and stifled labor market competition for improved employment
opportunities.
CLASS ALLEGATIONS
74.
Plaintiff brings this action on behalf of himself, and on behalf of
a nationwide class pursuant to Federal Rules of Civil Procedure, Rules 23(a),
23(b)(2), and/or 23(b)(3) described as follows: "All persons in the United States
who are current or former employees of a Jiffy Lube shop operated by Jiffy Lube
or a franchisee from at least 20 IO forward (the 'Class')."
7 5.
Excluded from the Class are Defendants, their affiliates, officers
and directors, and the Court. Plaintiff reserves the right to modify, change, or
expand the Class definition on discovery and further investigation.
76.
Numerosity: While the exact number of members of the Class is
unknown to Plaintiff at this time, and can only be determined by appropriate
discovery, membership in the Class is ascertainable based upon the records
maintained by Defendants. At this time, Plaintiff is informed and believes that
the Class includes thousands of members. Therefore, the Class is sufficiently
numerous that joinder of all members of the Class in a single action is
impracticable under Federal Rule of Civil Procedure Rule 23(a)(l ), and the
resolution of their claims through a class action will benefit the parties and the
Court.
77.
Existence and Predominance of Common Questions of Fact and
Law: Common questions of fact and law exist as to all members of the Class
(Class Members). These questions predominate over questions affecting
individual Class Members. These common legal and factual questions include,
but are not limited to, whether:
a.
Defendants engaged rn unlawful contracts, combinations, and/or
conspiracies in restraint of trade and commerce;
b.
Defendants violated the Sherman Antitrust Act, 15 U .S .C. § § 1, et
seq.;
c.
Defendants should be required to disclose the existence of such
agreements, contracts, combinations, and/or conspiracies;
d.
P1aintiff and Class Members are entitled to damages, restitution,
disgorgement, equitable relief, and/or other relief; and
e.
The amount and nature of such relief to be awarded to Plaintiff
and the Class.
78.
Typicality: Plaintiff's claims are typical of the claims of the other
members of the Class which he seeks to represent under Federal Rule of Civil
Procedure 23(a)(3) because Plaintiff and each member of the Class have been
subjected to the same unlawful, deceptive, and improper practices and has been
damaged in the same manner thereby.
79.
Adequacy: Plaintiff will fairly and adequately represent and
protect the interests of the Class as required by Federal Rule of Civil Procedure
Rule 23(a)(4). Plaintiff has no interests adverse to those of the Class Members.
Further, Plaintiff is committed to the vigorous prosecution of this action and, to
that end, Plaintiff has retained counsel who are competent and experienced in
handling class action litigation on behalf of consumers.
80.
Superiority: A class action is superior to all other available
methods of the fair and efficient adjudication of the claims asserted in this action
under Federal Rule of Civil Procedure 23(b)(3) because:
a. The expense and burden of individual litigation make it economically
unfeasible for members of the Class to seek to redress their claims other
than through the procedure of a class action;
b. If separate actions were brought by individual members of the Class,
the resulting duplicity of lawsuits would cause members to seek to redress
their claims other than through the procedure of a class action; and
c. Absent a class action, Defendants likely would retain the benefits of
their wrongdoing, and there would be a failure of justice.
81.
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.
FRAUDULENT CONCEALMENT
82.
Plaintiff and Class Members had neither actual nor constructive
knowledge of the unlawful no-poach and no-hiring conspiracy orchestrated by
Defendants, nor would any reasonable amount of diligence by Plaintiff or the
Class have put them on notice of the conspiracy. Any statute of limitations is
therefore tolled by Defendants' intentional concealment of their No-Poach
Clause. Plaintiff and Class members were deceived regarding Defendants'
collusion to suppress wages and employment mobility and could not reasonably
discover the Defendants' anticompetitive conduct.
83.
Neither Defendants nor franchisees disclosed the existence of the
no-poach conspiracy to Plaintiff or Class Members.
84.
Public statements by Jiffy Lube conceal the fact that it
orchestrated and engaged in a no-poach conspiracy with its franchisees.
85.
Plaintiff and the Class would thus have no reason to know of the
No-Poach Clause evidenced by franchisees' contractual undertakings with
Defendants. Plaintiff and the Class are not parties to franchisees' contractual
franchise agreements with Defendants. Nor are these contracts routinely
provided to Plaintiff and Class Members.
86.
Although Defendants provided their form franchise documents to
state regulators, franchise disclosure documents and form franchise agreements
are made available by Defendants only upon request by prospective franchisees.
Obtaining Defendants' historic franchise disclosure documents and form
franchise agreements is even more difficult.
87.
In order to obtain Defendants' current franchise disclosure
documents and form franchise agreement from Jiffy Lube, a prospective
franchisee must submit an application (with supporting documents) seeking to
open a franchise. Only after Jiffy Lube reviews the application to ensure that
the franchisee meets initial qualifications does Jiffy Lube provide the franchise
disclosure document. Prospective franchisees are told that in order to qualify for
consideration, they should have a minimum of $150,000 in liquid assets, a net
worth of $450,000 or greater, and the ability to obtain financing to cover the
cost of opening a location.
88.
Defendants' franchise disclosure documents and form franchise
agreements are not routinely provided to employees (or prospective employees)
of franchisees, whether by Defendants, by franchisee employers, by regulators,
or by anyone else. Historic franchise disclosure documents and form franchise
agreements would never be available to franchisee employees or prospective
employees.
89.
Because
of
Defendants'
successful
deceptions
and
other
concealment efforts described herein, Plaintiff and Class Members had no reason
to know Defendants had conspired to suppress compensation or employee
mobility.
90.
As a result of Defendants' fraudulent concealment of the
conspiracy, the running of any statute of limitations has been tolled with respect
to the claims that Plaintiff and the Class Members have as a result of the
anticompetitive and unlawful conduct alleged herein.
CLAIM FOR RELIEF
COUNT I: VIOLATIONS OF SECTION 1 OF THE SHERMAN ANTITRUST ACT
91.
Plaintiff, on behalf of himself and all others similarly situated, re-
alleges and incorporates by reference the allegations contained in paragraphs 1
through 90 of this Complaint, and further alleges against Defendants as follows:
92.
Defendants 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
Antitrust Act, 15 U .S.C. § 1, et seq.
93.
Defendants engaged in predatory and anti-competitive behavior by
orchestrating an agreement to restrict competition among Jiffy Lube shop
owners, which unfairly suppressed employee wages, and unreasonably restrained
94.
Defendants' conduct included concerted efforts, actions and
undertakings between and among the Defendants and franchise owners with the
intent, purpose, and effect of: (a) artificially suppressing the compensation of
Plaintiff and Class Members; (b) eliminating competition among Jiffy Lube shop
owners for skilled labor; and (c) restraining employees' ability to secure better
compensation, advancement, benefits, and working conditions.
95.
Defendants perpetrated the scheme with the specific intent of
lowering costs to the benefit of Defendants and franchise owners.
96.
Defendants' conduct in furtherance of the no-poach agreement was
authorized, ordered, or executed by their officers, directors, agents, employees,
or representatives while actively engaging in the management of Defendants'
affairs.
97.
Plaintiff and Class Members have received lower compensation
from Jiffy Lube shops than they otherwise would have received in the absence
of Defendants' unlawful conduct and, as a result, have been injured in their
property and have suffered damages in an amount according to proof at trial.
98.
Defendants' contracts, combinations, and/or conspiracies are per
se violations of Section 1 of the Sherman Antitrust Act.
99.
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 question would have an anticompetitive
effect on employees and labor.
100.
Defendants' contracts, combinations, and/or conspiracies have had
a substantial effect on interstate commerce.
IO I.
As a direct and proximate result of Defendants' contracts,
combination, and/or conspiracy to restrain trade and commerce, Plaintiff and
Class Members have suffered injury to their business or property and will
continue to suffer economic injury and deprivation of the benefit of free and fair
competition.
102.
Plaintiff and the Class Members are entitled to treble damages,
attorneys' fees, reasonable expenses, costs of suit, and, pursuant to 15 U.S.C.
§26, injunctive relief, for the violations of the Sherman Antitrust Act and the
threatened continuing violations alleged herein.
PRAYER FOR RELIEF
I 03.
Wherefore, Plaintiff, on behalf of himself and Members of the
Class, requests that this Court:
A. Determine that the claims alleged herein may be maintained as a Class
Action under Rule 23 of the Federal Rules of Civil Procedure, and issue
an order certifying the Class as defined above;
B. Appoint Plaintiff as the representative of the Class and his counsel as
Class Counsel;
C. Declare that Defendants' actions as set forth in this Complaint violate
the law;
D. Award Plaintiff and the Class damages in an amount according to proof
against Defendants for Defendants' violations of 15 U .S .C. § 1, to be
trebled in accordance with those laws;
E. Award all actual, general, special, incidental, statutory, punitive, and
consequential damages and restitution to which Plaintiff and the Class
Members are entitled;
F. Permanently enjoin Defendants from enforcing or adhering to any
existing agreement that unreasonably restricts competition as described
herein;
G. Permanently enjoining and restraining Defendants from establishing
any similar agreement unreasonably restricting competition for employees
except as prescribed by this Court;
H. Order Defendants to notify all Class Members that they have the
unrestricted right to seek employment at any Jiffy Lube shop;
I. Declare Defendants to be financially responsible for the costs and
expenses of a Court-approved notice program by mail, broadcast media,
and publication designed to give immediate notification to Class Members;
J. Award pre-judgment and post-judgment interest on such monetary relief;
K. Award reasonable attorneys' fees, costs and litigation expense; and
L. Grant such further relief that this Court deems just and proper.
JURY DEMAND
Pursuant to Rule 38(b) of the Federal Rules of Civil Procedure, Plaintiff
demands a trial by jury of all issues so triable.
Dated: November 29, 2018
John A. Yanchunis
j yanch [email protected]
Florida Bar No. 324681
Marcio W. Valladares
m val [email protected]
Florida Bar No. 0986917
MORGAN & :MORGAN COMPLEX
LITIGATION GROUP
201 North Franklin Street,
Seventh Floor
Tampa, Florida 33602
l~)ep~: (813) 22:Yft505
x.~ 17,1 CVl ~ r ~,...«------
Isl Kevin Clancy Boylan
Kevin Clancy Boylan
c [email protected]
Pennsylvania Bar No. 314117
MORGAN & MORGAN
1600 John F. Kennedy Blvd,
Suite 900
Philad~l
h' , PA 19102
Telephoe:~
lsfMic ael L. Schrag
Michael L. Schrag
(pro hac vice to be submitted)
[email protected]
Eric H. Gibbs
(pro hac vice to be submitted)
[email protected]
Joshua J. Bloomfield
(pro hac vice to be submitted)
[email protected]
GIBBS LAW GROUP LLP
505 14th Street, Suite 1110
Oakland, California 94612
Telephone:
) 350-9700
Facsimile:
0) 350-9701 ~
ls/fc orge W. Sampson
George W. Sampson
(pro hac vice to be submitted)
[email protected]
SAMPSON DUNLAP LLP
1001 4th Ave., Suite 3200
Seattle, WA 98154
Telephone: (206) 369-3962
Attorneys for Plaintiff Victor Fuentes
and the Proposed Class
ATTORNEY ATTACHMENT
Isl John A. Yanchunis
John A. Yanchunis
jyanch u [email protected] m
Florida Bar No. 324681
Marcia W. Valladares
[email protected]
Florida Bar No. 098691 7
MORGAN & MORGAN COMPLEX
LITIGATION GROUP
201 North Franklin Street,
Seventh Floor
Tampa, Florida 33602
Telephone: (813) 223-5505
Isl Kevin Clancy Bovian
Kevin Clancy Boylan
[email protected]
Pennsylvania Bar No. 314117
MORGAN & MORGAN
1600 John F. Kennedy Blvd,
Suite 900
Philadelphia, PA 19102
Telephone: (215) 446-9795
Isl Michael L. Schrag
Michael L. Schrag
(pro hac vice to be submitted)
[email protected]
Eric H. Gibbs
(pro hac vice to be submitted)
[email protected]
Joshua J. Bloomfield
(pro hac vice to be submitted)
[email protected]
GIBBS LAW GROUP LLP
505 14th Street, Suite 111 o
Oakland, California 94612
Telephone: (510) 350-9700
Facsimile: (510) 350-9701
Isl George W. Sampson
George W. Sampson
(pro hac vice to be submitted)
george@sam psond unlap. com
SAMPSON DUNLAP LLP
1001 4th Ave., Suite 3200
Seattle, WA 98154
Telephone: (206) 369-3962
| antitrust |
IUpkA4kBRpLueGJZR4kN | UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF NORTH CAROLINA
Case No. 1:20-CV-812
JIM CHAPMAN, Individually and On
Behalf of All Others Similarly Situated,
Plaintiff,
v.
CLASS ACTION COMPLAINT FOR
VIOLATIONS OF THE FEDERAL
SECURITIES LAWS
JURY TRIAL DEMANDED
FENNEC PHARMACEUTICALS INC.,
ROSTISLAV RAYKOV, and ROBERT
ANDRADE,
Defendants.
Plaintiff Jim Chapman (“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 Fennec Pharmaceuticals Inc. (“Fennec” 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
Fennec; and (c) review of other publicly available information concerning Fennec.
NATURE OF THE ACTION AND OVERVIEW
1.
This is a class action on behalf of persons and entities that purchased or
otherwise acquired Fennec securities between February 11, 2020 and August 10, 2020,
inclusive (the “Class Period”). Plaintiff pursues claims against the Defendants under the
Securities Exchange Act of 1934 (the “Exchange Act”).
2.
Fennec is a biopharmaceutical company that purportedly focuses on the
development of PEDMARK, a sodium thiosulfate anhydrous injection, for the prevention
of platinum-induced ototoxicity in pediatric cancer patients.
3.
On August 11, 2020, before the market opened, Fennec disclosed that it had
received a Complete Response Letter (“CRL”) from the U.S. Food and Drug
Administration (“FDA”) regarding the Company’s New Drug Application (“NDA”) for
PEDMARK. According to the CRL, “after recent completion of a pre-approval
inspection of the manufacturing facility of [Fennec’s] drug product manufacturer, the
FDA identified deficiencies resulting in a Form 483, which is a list of conditions or
practices that are required to be resolved prior to the approval of PEDMARK.”
4.
On this news, the Company’s share price fell $3.51, or 34%, to close at
$6.66 per share on August 11, 2020, on unusually heavy trading volume.
5.
Throughout the Class Period, Defendants made materially false and/or
misleading statements, as well as failed to disclose material adverse facts about the
Company’s business, operations, and prospects. Specifically, Defendants failed to
disclose to investors: (1) that the manufacturing facilities for PEDMARK, the Company’s
sole product candidate, did not comply with current good manufacturing practices; (2)
that, as a result, regulatory approval for PEDMARK was reasonably likely to be delayed;
and (3) 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 Jim Chapman, as set forth in the accompanying certification,
incorporated by reference herein, purchased Fennec 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 Fennec is incorporated under the laws of British Columbia,
Canada with its principal executive offices located in Research Triangle Park, North
Carolina. Fennec’s common stock trades on the NASDAQ exchange under the symbol
“FENC.”
13.
Defendant Rostislav Raykov (“Raykov”) was the Company’s Chief
Executive Officer (“CEO”) at all relevant times.
14.
Defendant Robert Andrade (“Andrade”) was the Company’s Chief
Financial Officer (“CFO”) at all relevant times.
15.
Defendants
Raykov
and
Andrade
(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.
Fennec is a biopharmaceutical company that purportedly focuses on the
development of PEDMARK, a sodium thiosulfate anhydrous injection, for the prevention
of platinum-induced ototoxicity in pediatric cancer patients.
Materially False and Misleading
Statements Issued During the Class Period
17.
The Class Period begins on February 11, 2020. On that day, Fennec
announced that it had completed its rolling submission of its NDA for PEDMARK.
Specifically, in a press release, the Company stated, in relevant part:
Fennec Pharmaceuticals Inc. (Nasdaq:FENC; TSX: FRX), a specialty
pharmaceutical company, today announced it has completed its rolling
submission of a New Drug Application (NDA) to the U.S. Food and Drug
Administration (FDA) for PEDMARKTM (a unique formulation of sodium
thiosulfate) for intravenous use and submitted a Marketing Authorization
Application (MAA) to the European Medicines Agency (EMA) for sodium
thiosulfate (tradename to be determined). The PEDMARKTM indication
requested is for the prevention of ototoxicity induced by cisplatin
chemotherapy in patients one month to < 18 years of age with localized,
non-metastatic, solid tumors.
Fennec’s PEDMARK regulatory submissions follow: a pre-NDA meeting
with the FDA in December 2018 after which Fennec initiated a rolling
NDA; and pre-submission meetings with the EMA and an approved
pediatric investigation plan (PIP). Both applications are based upon clinical
results from two pivotal Phase 3 clinical trials:
• SIOPEL 6 conducted by the International Childhood Liver Tumor
Strategy Group (SIOPEL) with results published in the New England
Journal of Medicine in June 2018
and
• ACCL0431 conducted by the Children’s Oncology Group (COG)
with results published in Lancet Oncology in 2016.
“At Fennec, we are dedicated to the development of PEDMARK for the
prevention of ototoxicity in children. The completion of these regulatory
submissions to the FDA and EMA are the culmination of many years of
hard work, bringing us one step closer to achieving our mission,” said
Rosty Raykov, chief executive officer of Fennec.
18.
On February 14, 2020, Fennec provided a business update and announced
its fiscal 2019 financial results in a press release that stated, in relevant part:
NDA (New Drug Application) and Marketing Authorization Application
(MAA) completed in February 2020
Commercial readiness activities in U.S. underway for potential launch of
PEDMARKTM, if approved, in the second half of 2020
Solid financial position with $13.7 million and no debt and the option to
access $12.5 million in debt financing upon NDA approval of PEDMARK
*
*
*
"Fennec made great progress in 2019 preparing for some important
milestones in 2020 including the recent announcement of regulatory
submissions in both the U.S. and EU for PEDMARK” said Rosty Raykov,
chief executive officer of Fennec. "During the year we also made solid
progress in preparing for the potential launch of PEDMARK including the
hiring of a chief commercial officer and the preparation and execution of
our commercial readiness plan. We look forward to a number of significant
milestones throughout 2020. If PEDMARK is granted a Priority Review,
the Prescription Drug User Fee Act (PDUFA) action date is expected in the
third quarter of 2020.”
19.
The same day, the Company filed its annual report on Form 10-K with the
SEC for the period ended December 31, 2019 (the “2019 10-K”). Therein, Fennec stated,
in relevant part:
Regulatory approval of our product candidate is time-consuming,
expensive and uncertain, and could result in unexpectedly high expenses
and delay our ability to sell our product.
Development, manufacture and marketing of our product is subject to
extensive regulation by governmental authorities in the United States and
other countries. This regulation could require us to incur significant
unexpected expenses or delay or limit our ability to sell our product
candidate. . . .
*
*
*
We and our third-party manufacturers are also required to comply with
the applicable current FDA Good Manufacturing Practices regulations,
which include requirements relating to quality control and quality
assurance, as well as the corresponding maintenance of records and
documentation. Further, manufacturing facilities, which we outsource to
third parties, must be approved by the FDA before they can be used to
manufacture our product, and they are subject to additional FDA
inspection. If we fail to comply with any of the FDA’s continuing
regulations, we could be subject to reputational harm and sanctions,
including:
• delays, warning letters and fines;
• product recalls or seizures and injunctions on sales;
• refusal of the FDA to review pending applications;
• total or partial suspension of production;
• withdrawals of previously approved marketing applications; and
• civil penalties and criminal prosecutions.
In addition, identification of side effects after a drug is on the market or the
occurrence of manufacturing problems could cause subsequent withdrawal
of approval, reformulation of the drug, additional testing or changes in
labeling of the product.
(Emphasis added.)
20.
Moreover, the 2019 10-K stated, with respect to manufacturing:
If our third-party manufacturers breach or terminate their agreements
with us, or if we are unable to secure arrangements with third party
manufacturers on acceptable terms as needed in the future, we may
suffer significant delays and additional costs.
We have no experience manufacturing products and do not currently have
the resources to manufacture any products that we may develop. We
currently have agreements with contract manufacturers for clinical supplies
of PEDMARKTM, including drug substance providers and drug product
suppliers, but they might not perform as agreed in the future or may
terminate our agreements with them before the end of the required term.
Significant additional time and expense would be required to effect a
transition to a new contract manufacturer.
We plan to continue to rely on contract manufacturers for the foreseeable
future to produce quantities of products and substances necessary for
research and development, preclinical trials, human clinical trials and
product commercialization, and to perform their obligations in a timely
manner and in accordance with applicable government regulations. If we
develop any product with commercial potential, we will need to develop the
facilities to independently manufacture such product or products or secure
arrangements with third parties to manufacture them. We may not be able
to independently develop manufacturing capabilities or obtain favorable
terms for the manufacture of our product. While we intend to contract for
the commercial manufacture of our product candidate, we may not be able
to identify and qualify contractors or obtain favorable contracting terms.
We or our contract manufacturers may also fail to meet required
manufacturing standards, which could result in delays or failures in
product delivery, increased costs, injury or death to patients, product
recalls or withdrawals and other problems that could significantly hurt
our business. We intend to maintain a second source for back-up
commercial manufacturing, wherever feasible. However, if a replacement
to our future internal or contract manufacturers were required, the ability to
establish second-sourcing or find a replacement manufacturer may be
difficult due to the lead times generally required to manufacture drugs and
the need for FDA compliance inspections and approvals of any replacement
manufacturer, all of which factors could result in production delays and
additional commercialization costs. Such lead times would vary based on
the situation but might be twelve months or longer.
(Emphasis added.)
21.
Specifically, with respect to the impact of manufacturing compliance on
FDA approval, the 2019 10-K stated, in relevant part:
The marketing approval processes of the FDA and comparable foreign
authorities are lengthy, time-consuming and inherently unpredictable,
and if we are ultimately unable to obtain marketing approval for our
product candidate, our business will be substantially harmed.
Our current product candidate has not gained marketing approval for sale in
the United States or any other country, and we cannot guarantee that we
will ever have any marketable products. Our business is substantially
dependent on our ability to complete the development of, obtain marketing
approval for, and successfully commercialize our product candidate in a
timely manner. We cannot commercialize our product candidate in the
United States without first obtaining approval from the FDA to market each
product candidate. Similarly, we cannot commercialize our product
candidate outside of the United States without obtaining regulatory
approval from comparable foreign regulatory authorities. Our product
candidate could fail to receive marketing approval for many reasons,
including the following:
• . . .
• the FDA or comparable foreign regulatory authorities may find
inadequate the manufacturing processes or facilities of third-party
manufacturers with which we contract for clinical and commercial
supplies; and
• . . .
Before obtaining marketing approval for the commercial sale of any drug
product for a target indication, we must demonstrate in preclinical studies
and well-controlled clinical trials and, with respect to approval in the
United States, to the satisfaction of the FDA, that the product is safe and
effective for its intended use and that the manufacturing facilities,
processes, and controls are adequate to preserve the drug’s identity,
strength, quality and purity. In the United States, it is necessary to submit
and obtain approval of a New Drug Application, or NDA, from the FDA.
An NDA must include extensive preclinical and clinical data and
supporting information to establish the product’s safety and efficacy for
each desired indication. The NDA must also include significant information
regarding the chemistry, manufacturing, and controls for the product. After
the submission of an NDA, but before approval of the NDA, the
manufacturing facilities used to manufacture a product candidate
generally must be inspected by the FDA to ensure compliance with the
applicable
Current
Good
Manufacturing
Practice,
or
cGMP,
requirements. The FDA and the Competent Authorities of the Member
States of the European Economic Area, or EEA, and comparable foreign
regulatory authorities, may also inspect our clinical trial sites and audit
clinical study data to ensure that our studies are properly conducted in
accordance with the IND regulations, human subject protection
regulations, and good clinical practice, or cGCP.
. . . If the FDA requires additional studies or data, we would incur increased
costs and delays in the marketing approval process, which may require us
to expend more resources than we have available. In addition, the FDA
might not consider any additional information to be complete or sufficient
to support the filing or approval of the NDA.
(Emphases added.)
22.
On April 13, 2020, the Company announced that the FDA has accepted
Fennec’s NDA and granted priority review. Specifically, Fennec’s press release stated, in
relevant part:
Fennec Pharmaceuticals Inc. (Nasdaq: FENC; TSX: FRX), a specialty
pharmaceutical company, announced today that the U.S. Food and Drug
Administration (FDA) has accepted for filing and granted Priority Review
for the company’s New Drug Application (NDA) for PEDMARK™ (a
unique formulation of sodium thiosulfate). PEDMARK is an investigational
drug for the prevention of ototoxicity induced by cisplatin chemotherapy in
patients one month to <18 years of age with localized, non-metastatic, solid
tumors.
"The FDA filing acceptance of our NDA and granting of Priority Review
represents a significant milestone in the development of PEDMARK and
we look forward to working closely with the Agency during this review
process,” said Rosty Raykov, chief executive officer of Fennec.
The FDA grants Priority Review to applications for medicines that treat a
serious condition, and, if approved, would demonstrate the potential to be a
significant improvement in the safety or effectiveness of the treatment,
diagnosis, or prevention of a serious condition. Priority Review designation
shortens the review period from the standard ten months to six months from
the submission of the NDA. The FDA set a Prescription Drug User Fee Act
(PDUFA) target action date of August 10, 2020 for the completion of
FDA’s review.
23.
On May 14, 2020, the Company issued a press release announcing its first
quarter 2020 financial results and providing a business update, which stated, in relevant
“We continue our strong momentum across our operations throughout early
2020,” said Rosty Raykov, chief executive officer of Fennec
Pharmaceuticals. "Following the recent announcement of regulatory
submission in the U.S. in February, we were pleased to have been granted
Priority Review and a PDUFA date of August 10, 2020. Further, we
continue to make progress on our commercial readiness plan in preparation
for the potential launch of PEDMARK, if approved, in the second half of
2020. Finally, we significantly strengthened our balance sheet with an over-
subscribed follow-on public offering that will allow us to support the
commercial launch of PEDMARK and the potential growth period ahead.”
24.
On August 5, 2020, Fennec announced its second quarter 2020 financial
results and provided a business update, stating in a press release, in relevant part:
“We continue to work with the FDA as a part of their review process in
advance of the pending PEDMARKTM PDUFA date of August 10,” said
Rosty Raykov, chief executive officer of Fennec Pharmaceuticals. "Our
organization and commercial team have been actively preparing for launch
readiness, and, as we await the FDA’s decision, we believe that we are well
positioned to commercialize PEDMARK, if approved, during the third
quarter of 2020.”
25.
The above statements identified in ¶¶ 17-24 were materially false and/or
misleading, and failed to disclose material adverse facts about the Company’s business,
operations, and prospects. Specifically, Defendants failed to disclose to investors: (1)
that the manufacturing facilities for PEDMARK, the Company’s sole product candidate,
did not comply with current good manufacturing practices; (2) that, as a result, regulatory
approval for PEDMARK was reasonably likely to be delayed; and (3) 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
26.
On August 11, 2020, before the market opened, Fennec disclosed that it had
received a CRL from the FDA regarding the Company’s NDA for PEDMARK.
According to the press release:
According to the CRL, after recent completion of a pre-approval inspection
of the manufacturing facility of our drug product manufacturer, the FDA
identified deficiencies resulting in a Form 483, which is a list of conditions
or practices that are required to be resolved prior to the approval of
PEDMARK™. The Company plans to request a Type A meeting to discuss
the issues and other matters that were described in the CRL pertaining to
the steps required for the resubmission of the NDA for PEDMARK™.
Importantly, no clinical safety or efficacy issues were identified during the
review and there is no requirement for further clinical data.
27.
On this news, the Company’s share price fell $3.51, or 34%, to close at
$6.66 per share on August 11, 2020, on unusually heavy trading volume.
CLASS ACTION ALLEGATIONS
28.
Plaintiff brings this action as a class action pursuant to Federal Rule of
Civil Procedure 23(a) and (b)(3) on behalf of a class, consisting of all persons and entities
that purchased or otherwise acquired Fennec securities between February 11, 2020 and
August 10, 2020, inclusive, and who were damaged thereby (the “Class”). Excluded
from the Class are Defendants, the officers and directors of the Company, at all relevant
times, members of their immediate families and their legal representatives, heirs,
successors, or assigns, and any entity in which Defendants have or had a controlling
interest.
29.
The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, Fennec’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
Fennec 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 Fennec or its transfer agent and may be notified of the pendency of this
action by mail, using the form of notice similar to that customarily used in securities class
actions.
30.
Plaintiff’s claims are typical of the claims of the members of the Class as
all members of the Class are similarly affected by Defendants’ wrongful conduct in
violation of federal law that is complained of herein.
31.
Plaintiff will fairly and adequately protect the interests of the members of
the Class and has retained counsel competent and experienced in class and securities
litigation.
32.
Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class.
Among the questions of law and fact common to the Class are:
(a)
whether the federal securities laws were violated by Defendants’ acts
as alleged herein;
(b)
whether statements made by Defendants to the investing public
during the Class Period omitted and/or misrepresented material facts about the business,
operations, and prospects of Fennec; and
(c)
to what extent the members of the Class have sustained damages and
the proper measure of damages.
33.
A class action is superior to all other available methods for the fair and
efficient adjudication of this controversy since joinder of all members is impracticable.
Furthermore, as the damages suffered by individual Class members may be relatively
small, the expense and burden of individual litigation makes it impossible for members of
the Class to individually redress the wrongs done to them. There will be no difficulty in
the management of this action as a class action.
UNDISCLOSED ADVERSE FACTS
34.
The market for Fennec’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, Fennec’s securities traded at artificially inflated prices during
the Class Period. Plaintiff and other members of the Class purchased or otherwise
acquired Fennec’s securities relying upon the integrity of the market price of the
Company’s securities and market information relating to Fennec, and have been damaged
thereby.
35.
During the Class Period, Defendants materially misled the investing public,
thereby inflating the price of Fennec’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 Fennec’s business,
operations, and prospects as alleged herein.
36.
At all relevant times, the material misrepresentations and omissions
particularized in this Complaint directly or proximately caused or were a substantial
contributing cause of the damages sustained by Plaintiff and other members of the Class.
As described herein, during the Class Period, Defendants made or caused to be made a
series of materially false and/or misleading statements about Fennec’s financial well-
being and prospects. These material misstatements and/or omissions had the cause and
effect of creating in the market an unrealistically positive assessment of the Company and
its financial well-being and prospects, thus causing the Company’s securities to be
overvalued and artificially inflated at all relevant times. Defendants’ materially false
and/or misleading statements during the Class Period resulted in Plaintiff and other
members of the Class purchasing the Company’s securities at artificially inflated prices,
thus causing the damages complained of herein when the truth was revealed.
LOSS CAUSATION
37.
Defendants’ wrongful conduct, as alleged herein, directly and proximately
caused the economic loss suffered by Plaintiff and the Class.
38.
During the Class Period, Plaintiff and the Class purchased Fennec’s
securities at artificially inflated prices and were damaged thereby. The price of the
Company’s securities significantly declined when the misrepresentations made to the
market, and/or the information alleged herein to have been concealed from the market,
and/or the effects thereof, were revealed, causing investors’ losses.
SCIENTER ALLEGATIONS
39.
As alleged herein, Defendants acted with scienter since Defendants knew
that the public documents and statements issued or disseminated in the name of the
Company were materially false and/or misleading; knew that such statements or
documents would be issued or disseminated to the investing public; and knowingly and
substantially participated or acquiesced in the issuance or dissemination of such
statements or documents as primary violations of the federal securities laws. As set forth
elsewhere herein in detail, the Individual Defendants, by virtue of their receipt of
information reflecting the true facts regarding Fennec, their control over, and/or receipt
and/or modification of Fennec’s allegedly materially misleading misstatements and/or
their associations with the Company which made them privy to confidential proprietary
information concerning Fennec, participated in the fraudulent scheme alleged herein.
APPLICABILITY OF PRESUMPTION OF RELIANCE
(FRAUD-ON-THE-MARKET DOCTRINE)
40.
The market for Fennec’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, Fennec’s securities traded at artificially inflated prices during
the Class Period. On August 10, 2020, the Company’s share price closed at a Class
Period high of $10.17 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 Fennec’s securities and market information relating to Fennec, and have been
damaged thereby.
41.
During the Class Period, the artificial inflation of Fennec’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 Fennec’s business,
prospects, and operations. These material misstatements and/or omissions created an
unrealistically positive assessment of Fennec and its business, operations, and prospects,
thus causing the price of the Company’s securities to be artificially inflated at all relevant
times, and when disclosed, negatively affected the value of the Company shares.
Defendants’ materially false and/or misleading statements during the Class Period
resulted in Plaintiff and other members of the Class purchasing the Company’s securities
at such artificially inflated prices, and each of them has been damaged as a result.
42.
At all relevant times, the market for Fennec’s securities was an efficient
market for the following reasons, among others:
(a)
Fennec 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, Fennec filed periodic public reports with the
SEC and/or the NASDAQ;
(c)
Fennec 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)
Fennec was followed by securities analysts employed by brokerage
firms who wrote reports about the Company, and these reports were distributed to the
sales force and certain customers of their respective brokerage firms. Each of these
reports was publicly available and entered the public marketplace.
43.
As a result of the foregoing, the market for Fennec’s securities promptly
digested current information regarding Fennec from all publicly available sources and
reflected such information in Fennec’s share price. Under these circumstances, all
purchasers of Fennec’s securities during the Class Period suffered similar injury through
their purchase of Fennec’s securities at artificially inflated prices and a presumption of
reliance applies.
44.
A Class-wide presumption of reliance is also appropriate in this action
under the Supreme Court’s holding in Affiliated Ute Citizens of Utah v. United States,
406 U.S. 128 (1972), because the Class’s claims are, in large part, grounded on
Defendants’ material misstatements and/or omissions. Because this action involves
Defendants’ failure to disclose material adverse information regarding the Company’s
business operations and financial prospects—information that Defendants were obligated
to disclose—positive proof of reliance is not a prerequisite to recovery. All that is
necessary is that the facts withheld be material in the sense that a reasonable investor
might have considered them important in making investment decisions. Given the
importance of the Class Period material misstatements and omissions set forth above, that
requirement is satisfied here.
NO SAFE HARBOR
45.
The statutory safe harbor provided for forward-looking statements under
certain circumstances does not apply to any of the allegedly false statements pleaded in
this Complaint. The statements alleged to be false and misleading herein all relate to
then-existing facts and conditions. In addition, to the extent certain of the statements
alleged to be false may be characterized as forward looking, they were not identified as
“forward-looking statements” when made and there were no meaningful cautionary
statements identifying important factors that could cause actual results to differ materially
from those in the purportedly forward-looking statements. In the alternative, to the extent
that the statutory safe harbor is determined to apply to any forward-looking statements
pleaded herein, Defendants are liable for those false forward-looking statements because
at the time each of those forward-looking statements was made, the speaker had actual
knowledge that the forward-looking statement was materially false or misleading, and/or
the forward-looking statement was authorized or approved by an executive officer of
Fennec who knew that the statement was false when made.
FIRST CLAIM
Violation of Section 10(b) of The Exchange Act and
Rule 10b-5 Promulgated Thereunder
Against All Defendants
46.
Plaintiff repeats and re-alleges each and every allegation contained above
as if fully set forth herein.
47.
During the Class Period, Defendants carried out a plan, scheme and course
of conduct which was intended to and, throughout the Class Period, did: (i) deceive the
investing public, including Plaintiff and other Class members, as alleged herein; and (ii)
cause Plaintiff and other members of the Class to purchase Fennec’s securities at
artificially inflated prices. In furtherance of this unlawful scheme, plan and course of
conduct, Defendants, and each defendant, took the actions set forth herein.
48.
Defendants (i) employed devices, schemes, and artifices to defraud; (ii)
made untrue statements of material fact and/or omitted to state material facts necessary to
make the statements not misleading; and (iii) engaged in acts, practices, and a course of
business which operated as a fraud and deceit upon the purchasers of the Company’s
securities in an effort to maintain artificially high market prices for Fennec’s securities in
violation of Section 10(b) of the Exchange Act and Rule 10b-5. All Defendants are sued
either as primary participants in the wrongful and illegal conduct charged herein or as
controlling persons as alleged below.
49.
Defendants, individually and in concert, directly and indirectly, by the use,
means or instrumentalities of interstate commerce and/or of the mails, engaged and
participated in a continuous course of conduct to conceal adverse material information
about Fennec’s financial well-being and prospects, as specified herein.
50.
Defendants employed devices, schemes and artifices to defraud, while in
possession of material adverse non-public information and engaged in acts, practices, and
a course of conduct as alleged herein in an effort to assure investors of Fennec’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 Fennec and its
business operations and future prospects in light of the circumstances under which they
were made, not misleading, as set forth more particularly herein, and engaged in
transactions, practices and a course of business which operated as a fraud and deceit upon
the purchasers of the Company’s securities during the Class Period.
51.
Each of the Individual Defendants’ primary liability and controlling person
liability arises from the following facts: (i) the Individual Defendants were high-level
executives and/or directors at the Company during the Class Period and members of the
Company’s management team or had control thereof; (ii) each of these defendants, by
virtue of their responsibilities and activities as a senior officer and/or director of the
Company, was privy to and participated in the creation, development and reporting of the
Company’s internal budgets, plans, projections and/or reports; (iii) each of these
defendants enjoyed significant personal contact and familiarity with the other defendants
and was advised of, and had access to, other members of the Company’s management
team, internal reports and other data and information about the Company’s finances,
operations, and sales at all relevant times; and (iv) each of these defendants was aware of
the Company’s dissemination of information to the investing public which they knew
and/or recklessly disregarded was materially false and misleading.
52.
Defendants had actual knowledge of the misrepresentations and/or
omissions of material facts set forth herein, or acted with reckless disregard for the truth
in that they failed to ascertain and to disclose such facts, even though such facts were
available to them. Such defendants’ material misrepresentations and/or omissions were
done knowingly or recklessly and for the purpose and effect of concealing Fennec’s
financial well-being and prospects from the investing public and supporting the
artificially inflated price of its securities. As demonstrated by Defendants’ overstatements
and/or misstatements of the Company’s business, operations, financial well-being, and
prospects throughout the Class Period, Defendants, if they did not have actual knowledge
of the misrepresentations and/or omissions alleged, were reckless in failing to obtain such
knowledge by deliberately refraining from taking those steps necessary to discover
whether those statements were false or misleading.
53.
As a result of the dissemination of the materially false and/or misleading
information and/or failure to disclose material facts, as set forth above, the market price
of Fennec’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 Fennec’s securities during the Class Period
at artificially high prices and were damaged thereby.
54.
At the time of said misrepresentations and/or omissions, Plaintiff and other
members of the Class were ignorant of their falsity, and believed them to be true. Had
Plaintiff and the other members of the Class and the marketplace known the truth
regarding the problems that Fennec was experiencing, which were not disclosed by
Defendants, Plaintiff and other members of the Class would not have purchased or
otherwise acquired their Fennec 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
55.
By virtue of the foregoing, Defendants violated Section 10(b) of the
Exchange Act and Rule 10b-5 promulgated thereunder.
56.
As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff
and the other members of the Class suffered damages in connection with their respective
purchases and sales of the Company’s securities during the Class Period.
SECOND CLAIM
Violation of Section 20(a) of The Exchange Act
Against the Individual Defendants
57.
Plaintiff repeats and re-alleges each and every allegation contained above
as if fully set forth herein.
58.
Individual Defendants acted as controlling persons of Fennec within the
meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-
level positions and their ownership and contractual rights, participation in, and/or
awareness of the Company’s operations and intimate knowledge of the false financial
statements filed by the Company with the SEC and disseminated to the investing public,
Individual Defendants had the power to influence and control and did influence and
control, directly or indirectly, the decision-making of the Company, including the content
and dissemination of the various statements which Plaintiff contends are false and
misleading. Individual Defendants were provided with or had unlimited access to copies
of the Company’s reports, press releases, public filings, and other statements alleged by
Plaintiff to be misleading prior to and/or shortly after these statements were issued and
had the ability to prevent the issuance of the statements or cause the statements to be
corrected.
59.
In particular, Individual Defendants had direct and supervisory involvement
in the day-to-day operations of the Company and, therefore, had the power to control or
influence the particular transactions giving rise to the securities violations as alleged
herein, and exercised the same.
60.
As set forth above, Fennec 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: September 3, 2020
BLUE LLP
/s/ Dhamian A. Blue
Dhamian A. Blue
N.C. Bar No. 31405
Daniel T. Blue, III
N.C. Bar No. 27720
205 Fayetteville Street, Suite 300
Raleigh, NC 27601
[email protected]
T: (919) 833-1931
F: (919) 833-809
GLANCY PRONGAY & MURRAY LLP
Robert V. Prongay
Charles H. Linehan
Pavithra Rajesh
1925 Century Park East, Suite 2100
Los Angeles, CA 90067
Telephone: (310) 201-9150
Facsimile: (310) 201-9160
THE LAW OFFICES OF FRANK R. CRUZ
Frank R. Cruz
1999 Avenue of the Stars, Suite 1100
Los Angeles, CA 90067
Telephone: (310) 914-5007
Attorneys for Plaintiff Jim Chapman
| securities |
lOIREYcBD5gMZwcz7Rsx | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-----------------------------------------------------------------X
JOSE TAVERAS, on Behalf of Himself
Case No:
And All Others Similarly Situated,
Plaintiffs,
COLLECTIVE AND
CLASS ACTION
-vs.-
COMPLAINT
WITH JURY DEMAND
SPORTIME CLUBS, LLC d/b/a JOHN MCENROE
TENNIS ACADEMY, ANTHONY DECOO
and RYAN SCHNEIDER,
Defendants.
-----------------------------------------------------------------X
Plaintiff JOSE TAVERAS (hereinafter “Plaintiff) on behalf of himself and all others
similarly situated (collectively as “FLSA Plaintiffs” and/or “Rule 23 Plaintiffs”), by and through
their attorneys, THE LAW OFFICES OF WILLIAM CAFARO, as and for their Complaint against
SPORTIME CLUBS, LLC d/b/a JOHN MCENROE TENNIS ACADEMY (the “Tennis
Academy”), ANTHONY DECOO (“Decoo”) and RYAN SCHNEIDER (“Schneider”) (together
as “Defendants”), alleges upon knowledge as to himself and his own actions and upon information
and belief as to all other matters as follows;
NATURE OF CASE
1.
This is a civil action for damages and equitable relief based upon Defendants’
flagrant and willful violations of Plaintiff’s rights guaranteed to him by: (i) the overtime provisions
of the FLSA, 29 U.S.C. § 207(a); (ii) the overtime provisions of NYLL § 160 and the
corresponding N.Y. Comp. Codes R. & Regs (“NYCCRR”); (iii) the requirement that employers
furnish employees with wage statements on each payday containing specific categories of
information under the NYLL § 195(3); (iv) the requirement that employers furnish employees with
a wage notice at the time of hiring containing specific categories of accurate information, NYLL
§ 195(1); and (v) any other claim(s) that can be inferred from the facts set forth herein.
2.
Plaintiff worked for Defendants - - sports complex training facility and their
owners/managers - - Plaintiff worked for Defendants as a driver for the Defendants from in or
about April 14, 2016 until December 26, 2017. Throughout the majority of his employment,
Defendants required Plaintiff to work, and Plaintiff did work, more than forty hours. However,
Defendants failed to pay Plaintiff at the overtime rate of pay of one and one-half times his regular
rate of pay for each hour that Plaintiff worked per week in excess of forty, as the FLSA and the
NYLL require. Furthermore, Defendants failed to furnish Plaintiff with accurate and/or complete
wage statements on each payday as the NYLL requires or provide Plaintiff with a wage notice
containing the criteria enumerated under the NYLL.
3.
Defendants paid and treated of all their non-managerial employees who worked for
them in the same manner.
4.
Plaintiff brings this lawsuit against Defendants pursuant to the collective action
provisions of the FLSA, 29 U.S.C. § 216(b), on behalf of himself, individually, and on behalf of
all other persons similarly-situated during the applicable FLSA limitations period who suffered
damages as a result of Defendants’ willful violations of the FLSA.
5.
Plaintiff also brings this lawsuit as a class action pursuant to Federal Rule of Civil
Procedure 23, on behalf of himself, individually, and on behalf of all other persons similarly
situated during the applicable NYLL limitations period who suffered damages as a result of the
Defendants’ violations of the NYLL and the supporting New York State Department of Labor
regulations.
JURISDICTION AND VENUE
6.
Plaintiff invokes the jurisdiction of this Court pursuant to 28 U.S.C. § 1331, as this
action arises under 29 U.S.C. § 201, et seq. Plaintiff further invokes the supplemental jurisdiction
of this Court pursuant to 28 U.S.C. § 1367, which confers supplemental jurisdiction on this Court
for claims arising under New York law.
7.
Venue is appropriate in this Court pursuant to 28 U.S.C. § 1391(b)(2), as all actions
comprising the claims for relief occurred within this judicial district.
PARTIES
8.
At all relevant times, Plaintiff is a resident of the State of New York, resides in
Queens County, and was an “employee” entitled to protection as defined by the FLSA, the NYLL,
and the NYCCRR.
9.
At all relevant times herein, Tennis Academy was and is a domestic Limited
Liability Company with its principal place of business located at 1 Randalls Island, New York,
NY 10035.
10.
At all relevant times herein, Defendant Decoo was the president and/or owner
and/or day-to-day overseer of Tennis Academy and Tennis Project.
11.
At all relevant times herein, Defendant Decoo was a resident of the State of New
York and had an actual place of business located at 1 Randalls Island, New York, NY 10035.
12.
At all relevant times herein, Defendant Schneider was the president and/or owner
and/or day-to-day overseer of Tennis Academy and Tennis Project
13.
At all relevant times herein, Defendant Schneider was a resident of the State of New
York and had an actual place of business located at 1 Randalls Island, New York, NY 10035.
14.
At all relevant times herein, Defendants were “employers” within the meaning of
the FLSA, NYLL, and the NYCCRR. Additionally, Defendants’ qualifying annual business
exceeded $500,000, and Defendants were engaged in interstate commerce within the meaning of
the FLSA as they used supplies in the course of business, such as tennis balls, rackets, nets and
other sporting goods, much of which originated in states other than New York and the combination
of which subjects Defendants to the FLSA’s overtime requirements as an enterprise. Furthermore,
all of Defendants’ employees, including Plaintiffs, the FLSA Plaintiffs, and the Rule 23 Plaintiffs,
were individually engaged in interstate commerce as they frequently used goods that have been,
and continue to be, moved in interstate commerce. This independently subjects Defendants to the
overtime wage requirements of the FLSA with respect to Plaintiff and the FLSA Plaintiffs.
COLLECTIVE ACTION ALLEGATIONS
15.
Plaintiff seeks to bring this suit to recover from Defendants his full payment of all
unpaid overtime compensation and liquidated damages under the applicable provisions of the
FLSA, 29 U.S.C. § 216(b), individually, on his own behalf, as well as on behalf of those in the
following collective:
Current and former employees of Defendants who, during the applicable FLSA
limitations period, performed any work for Defendants as non-managerial
employees who give consent to file a claim to recover damages for overtime
compensation that is legally due to them for time worked in excess of forty hours
per week (“FLSA Plaintiffs”).
16.
Defendants treated Plaintiff and all FLSA Plaintiffs similarly in that Plaintiff and
all FLSA Plaintiffs: (1) performed similar tasks, as described in the “Background Facts” section
below; (2) were subject to the same laws and regulations; (3) were paid in the same or similar
manner; (4) were required to work in excess of forty hours each workweek; and (5) were not paid
the required rate of one and one-half times their respective regular rates of pay for all hours worked
over forty in a workweek.
17.
At all relevant times, Defendants were aware of the requirement to pay Plaintiff
and all FLSA Plaintiffs at an amount equal to one and one-half times their respective regular rates
of pay for all hours worked each workweek above forty, yet Defendants purposefully chose not to
do so. Thus, Plaintiff and all FLSA Plaintiffs are victims of Defendants’ pervasive practice of
willfully refusing to pay their employees overtime compensation, in violation of the FLSA
RULE 23 CLASS ALLEGATIONS
18.
In addition, Plaintiff seeks to maintain this action as a class action pursuant to
Federal Rule of Civil Procedure ("FRCP") 23(b)(3), on his own behalf, individually, as well on
behalf of those who are similarly-situated who the Defendants subjected to violations of the NYLL
and the NYCCRR during the applicable statutory period.
19.
Under FRCP 23(b)(3), a plaintiff must plead that:
a. The class is so numerous that joinder is impracticable;
b. There are questions of law or fact common to the class that
predominate over any individual questions of law or fact;
c. Claims or defenses of the representative are typical of the class;
d. The representative will fairly and adequately protect the class; and,
e. A class action is superior to other methods of adjudication.
20.
The Rule 23 Class that Plaintiff seeks to define includes:
Current and former employees of Defendants who, during the applicable NYLL
limitations period, performed any work for Defendants as non-managerial
employees who: (1) worked in excess of forty hours per week without receiving
overtime compensation and/or (2) were not issued accurate and/or any pay
stubs/wage statements on each payday containing the information that N.Y. Lab.
Law § 195(3) requires; and/or (3) were not issued wage notices at the time of their
hire, or at any time thereafter as required by N.Y. Lab. Law § 195(1) ("Rule 23
Plaintiffs").
Numerosity
21.
During the previous six years, Defendants have employed, in total, at least forty
employees that are putative members of this class.
Common Questions of Law and/or Fact
22.
There are common questions of law and fact that govern the claims of each and
every Rule 23 Plaintiff, including but not limited to the following: the duties that the Defendants
required and require each Rule 23 Plaintiff to perform; whether the Defendants required and
require each Rule 23 Plaintiff to work in excess of forty hours per week; whether the Defendants
compensated and compensate the Rule 23 Plaintiffs at the legally-mandated rate of one and one
half times their respective straight-time rates of pay for all hours worked per week over forty;
whether the Defendants furnished and furnish the Rule 23 Plaintiffs with accurate wage statements
on each payday containing the information required by N.Y. Lab. Law § 195(3); whether the
Defendants kept and maintained records with respect to each hour that the Rule 23 Plaintiffs
worked; whether the Defendants kept and maintained records with respect to the compensation
that they paid to the Rule 23 Plaintiffs; whether the Defendants maintain any affirmative defenses
with respect to the Rule 23 Plaintiffs' claims; whether the Defendants’ actions with respect to the
Rule 23 Plaintiffs were in violation of the NYLL and supporting regulations; if so, whether the
Defendants’ violations were in willful violation of the NYLL and supporting regulations; and if
so, what constitutes the proper measure of damages
Typicality of Claims and/or Defenses
23.
As described in the background facts section below, Defendants, despite the title
that it assigned to Plaintiff, employed Plaintiffs as non-managerial, non-exempt employees.
Plaintiff’s claims are typical of the claims of the Rule 23 Plaintiffs whom he seeks to represent, as
the Rule 23 Plaintiffs work, and/or have worked for Defendants in excess of forty hours per week,
as non-managerial employees, and Defendants failed to pay Plaintiff overtime. Plaintiff and the
Rule 23 Plaintiffs enjoy the same statutory rights under the NYLL to be paid at a rate of one and
one-half times their straight time rates for all hours worked per week in excess of forty, and spread
of hours, and to be furnished with accurate wage statements and wage notices. Plaintiff and the
Rule 23 Plaintiffs have all sustained similar types of damages as a result of Defendants’ failure to
comply with the NYLL and supporting regulations. Plaintiff and the Rule 23 Plaintiffs have all
suffered injury, including lack of compensation or under-compensation, due to Defendants’
common policies, practices, and patterns of conduct. Thus, Plaintiff’s claims and/ or the
Defendants’ defenses to those claims are typical of the Rule 23 Plaintiffs' claims and the
Defendants’ defenses to those claims.
Adequacy
24.
Plaintiff, as described below, worked the same or similar hours as the Rule 23
Plaintiffs throughout their employment with Defendants. The Defendants did not pay Plaintiff
overtime pay for his hours worked over forty each week, which is substantially-similar to how the
Defendants paid the Rule 23 Plaintiffs. Plaintiff is no longer employed with the Defendant, and
thus has no fear of retribution for his testimony. Plaintiff fully anticipates testifying under oath as
to all of the matters raised in this Complaint and that will be raised in the Defendants’ Answer.
Thus, Plaintiff would properly and adequately represent the current and former employees whom
the Defendants have subjected to the treatment alleged herein.
Superiority
25.
Plaintiff has no, or few, material facts relating to the Rule 23 Plaintiffs' claims that
are atypical of those of the putative class. Indeed, at all relevant times herein, Defendants treated
Plaintiff identically, or at the very least, substantially similarly, to the Rule 23 Plaintiffs.
26.
Any lawsuit brought by an employee of the Defendants for the same violations
alleged herein would be identical to a suit brought by any other employee for the same violations.
Thus, separate litigation would risk inconsistent results.
27.
Accordingly, this means of protecting the Rule 23 Plaintiffs' rights is superior to
any other method, and this matter is properly maintainable as a Class Action under FRCP 23(b)(3).
28.
Additionally, Plaintiff’s counsel has substantial experience in this field of law.
BACKGROUND FACTS
29.
Defendants own and operate a sports complex training facility.
30.
At all relevant times, Defendants Decoo and Schneider were the owners and day-
to-day overseers of Tennis Academy who in their capacity were responsible for hiring and firing
employees, determining their rates and methods of pay and the hours that employees were required
to work.
31.
Upon information and belief, Defendant Decoo hired Plaintiff on or about April
14, 2016.
32.
From in or about April 14, 2016 until December 26, 2017, Plaintiff worked for
Defendants as a driver. Throughout his employment, his job consisted of transporting kids from
schools to the Tennis Academy and then taking them from the Tennis Academy to their homes.
33.
From in or about May 1, 2016 until on or about January 15, 2017, Defendants
required Plaintiff to work – and he did in fact work - from 2:00 p.m. to 10:00 p.m. Mondays
through Sundays, for a total of 56 hours.
34.
From in or about January 16, 2017 until December 26, 2017, Defendants required
Plaintiff to work – and he did in fact work - from 2:00 p.m. to 10:00 p.m. Mondays through Fridays
and one weekend day per week (alternating between Saturdays and Sundays) from 2:00 p.m. to
10:00 p.m. as well, for a total of 48 hours per week.
35.
From May 1, 2016 through March 31, 2017, Defendants paid Plaintiff a $14.00
per work hour for all hours worked, including those hours he worked over forty per week. From
on or about April 1, 2017 through on or about January 16, 2017, Defendants continued paying
Plaintiff $14.00 per hour for the first forty hours per week, while paying him $16.50 for all hours
he worked over forty per week.
36.
Plaintiff regularly worked more than forty hours workweeks in which Defendants
employed him. For example, from August 7, 2016 through August 13, 2016, Plaintiff worked 56
hours and Defendant paid him $14.00 for all hours worked, including those hours he worked over
37.
Throughout his entire employment, Defendants paid Plaintiff on a weekly basis,
without providing him with any and/or accurate wage statements that reflected the amount of hours
that he actually worked or his regular rate of pay or his overtime rate of pay for each hour he
worked in excess of forty hours in a given workweek, and other statutorily required criteria.
38.
Defendants intentionally did not provide Plaintiff with a wage notice at the time of
his hire, or at any time thereafter, containing any of the following information: his rates of pay and
basis thereof; whether Plaintiff was paid by the hour, shift, day, week, salary, piece, commission,
or other; whether any allowances were claimed as part of the minimum wage, including tip, meal,
or lodging allowances; the regular pay day designated by Defendants; the name and physical
addresses of Defendants; any “doing business as” names used by Defendants; and Defendants’
mailing addresses and telephone numbers.
39.
Defendants acted in the manner described herein so as to maximize their profits
while minimizing their labor costs.
40.
Every hour that Plaintiff worked was for Defendants’ benefit.
41.
Defendants treated all FLSA Plaintiffs and Rule 23 Plaintiffs in the manner
described above.
FIRST CLAIM FOR RELIEF AGAINST DEFENDANTS
Unpaid Overtime under the FLSA
42.
Plaintiff and the FLSA Plaintiffs hereby incorporate all the preceding paragraphs
of this complaint with the same force and effect as if fully set forth at length.
43.
Defendants were required to directly pay the Plaintiff and the FLSA Plaintiffs an
overtime premium of one and one-half times their regular rate of pay for all hours worked over
forty (40) in a given workweek.
44.
As described above, Defendants are employers within the meaning of the FLSA,
while Plaintiff and the FLSA Plaintiffs are employees within the meaning of the FLSA.
45.
As also described above, Plaintiff and the FLSA Plaintiffs worked in excess of forty
(40) hours per week, yet Defendants failed to compensate them in accordance with the FLSA’s
overtime provisions.
46.
The Defendants willfully violated the FLSA.
47.
As such, Plaintiff and the FLSA Plaintiffs are entitled to overtime pay for all hours
worked per week in excess of forty (40) at the rate of one and one-half times their respective
standard rate of pay.
48.
Plaintiff and the FLSA Plaintiffs are also entitled to liquidated damages and
attorneys’ fees for the Defendants’ violation of the FLSA’s overtime provisions.
49.
All of the foregoing constituted willful and repeated violations of the Fair Labor
Standards Act, so the applicable statute of limitations is three years pursuant to 29 U.S.C. § 255(a).
SECOND CLAIM FOR RELIEF AGAINST DEFENDANTS
Unpaid Overtime under the NYLL
50.
Plaintiff and Rule 23 Plaintiffs hereby incorporate all the preceding paragraphs of
this complaint with the same force and effect as if fully set forth at length.
51.
Defendants were required to directly pay the Plaintiff and Rule 23 Plaintiffs an
overtime premium of one and one-half times their regular rate of pay for all hours worked over
forty (40) in a given workweek.
52.
As described above, Defendants are employers within the meaning of the NYLL,
while Plaintiff and Rule 23 Plaintiffs are employees within the meaning of the NYLL.
53.
As also described above, Plaintiff and Rule 23 Plaintiffs worked in excess of forty
(40) hours per week, yet Defendants failed to compensate them in accordance with the NYLL’s
overtime provisions.
54.
Due to Defendants’ violations of the New York Labor Law, Plaintiff and Rule 23
Plaintiffs are entitled to recover from Defendants their unpaid overtime wages, liquidated
damages, reasonable attorneys’ fees and costs of the action, and pre-judgment and post-judgment
interest.
THIRD CLAIM FOR RELIEF AGAINST DEFENDANTS
Failure to Furnish Wage Statements in Violation of the NYLL
55.
Plaintiff and Rule 23 Plaintiffs hereby incorporate all the preceding paragraphs of
this complaint with the same force and effect as if fully set forth at length.
56.
NYLL § 195(3) requires employers to furnish employees with wage statements
containing accurate, specifically enumerated criteria on each occasion when the employer pays
wages to employees.
57.
As described above, the Defendants willfully failed to furnish Plaintiff and Rule 23
Plaintiffs with accurate wage statements containing the criteria required under the NYLL.
58.
Prior to February 27, 2015, pursuant to NYLL § 198(1-d), Defendants are liable to
the Plaintiff and Rule 23 Plaintiffs for each workweek after the violation occurred, up to the
statutory cap of $2,500.
59.
On or after February 27, 2015, pursuant to NYLL § 198(1-d), Defendants are liable
to the Plaintiff and Rule 23 Plaintiffs in the amount of $250 for each workday after the violation
occurred, up to a statutory cap of $5,000.
FOURTH CLAIM FOR RELIEF AGAINST DEFENDANTS
Failure to Furnish Proper Wage Notices in Violation of the NYLL
60.
Plaintiff and Rule 23 Plaintiffs hereby incorporate all the preceding paragraphs of
this complaint with the same force and effect as if fully set forth at length.
61.
The NYLL § 195(1) requires that employers provide employees with a wage notice
at the time of hire containing accurate, specifically enumerated criteria.
62.
Each Defendant is an employer within the meaning of the NYLL and the NYCCRR,
while Plaintiff and Rule 23 Plaintiffs are employees within the meaning of the NYLL and the
NYCCRR.
63.
Defendants willfully failed to provide Plaintiff and Rule 23 Plaintiffs with a wage
notice containing the criteria enumerated under the NYLL.
64.
Prior to February 27, 2015, pursuant to NYLL § 198(1-b), Defendants are liable to
Plaintiff and Rule 23 Plaintiffs in the amount of $50 for each workweek after the violations initially
occurred, up to a statutory cap of $2,500.
65.
On or after February 27, 2015, pursuant to NYLL § 198(1-b), Defendants are liable
to Plaintiff and Rule 23 Plaintiffs in the amount of $50 for each workday after the violations
initially occurred, up to a statutory cap of $5,000.
DEMAND FOR A JURY TRIAL
66.
Pursuant to Federal Rule of Civil Procedure 38(b), Plaintiff demands a trial by jury
in this action.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, FLSA Plaintiffs, and Rule 23 Plaintiffs demand judgment
against the Defendants as follows:
a.
A judgment declaring that the practices complained of herein are unlawful and in
willful violation of the aforementioned United States and New York State laws;
b.
Preliminary and permanent injunctions against Defendants and their agents,
employees, representatives, and any and all persons acting in concert with him, from engaging in
each of the unlawful practices, policies, customs, and usages set forth herein;
c.
An order restraining Defendants from any retaliation against any individual for
participating in any form in this lawsuit;
d.
Designation of this action as a FLSA collective action on behalf of Plaintiff and
FLSA Plaintiffs and prompt issuance of notice pursuant to 29 U.S.C. § 216(b) to the FLSA
Plaintiffs, apprising them of the pendency of this action, permitting them to assert timely FLSA
claims in this action by filing individual Consents to Sue pursuant to 29 U.S.C. § 216(b), and
tolling of the statute of limitations;
e.
Certification of the claims brought in this case under the NYLL as a class action
pursuant to FRCP 23;
f.
All damages that Plaintiff, FLSA Plaintiffs, and Rule 23 Plaintiffs have sustained
as a result of the Defendants’ conduct, including all unpaid wages and any short fall between wages
paid and those due under the law that Plaintiff would have received but for the Defendants’
unlawful payment practices;
g.
Liquidated damages and any other statutory penalties as recoverable under the
FLSA and NYLL;
h.
Awarding Plaintiff, FLSA Plaintiffs, and Rule 23 Plaintiffs their costs and
disbursements incurred regarding this action, including reasonable attorneys' fees, expert witness
fees, and other costs;
i.
Designation of Plaintiff and his counsel as collective/class action representatives
under the FLSA and the FRCP;
j.
Pre-judgment and post-judgment interest, as provided by law; and
k.
Granting Plaintiff other and further relief as this Court finds necessary and proper.
Dated: New York, New York
February 27, 2019
Respectfully submitted,
LAW OFFICES OF WILLIAM CAFARO
________________________
Louis M. Leon (LL 2057)
Attorneys for Plaintiff
14
108 West 39th Street, Suite 602
New York, New York 10018
(212) 583-7400
[email protected]
| employment & labor |
COEIEYcBD5gMZwczYc_X | IN THE UNITED STATES DISTRICT COURT
FILED
MAR 26 2012
DOVI LOWENBEIN
)
on behalf of himself
)
LONG ISLAND OFFICE
and all similarly situated consumers
Plaintiff,
C - 12 1479
-against-
)
SUMMONS ISSUED
ASSOCIATED CREDITORS
)
EXCHANGE, INC.
)
)
)
)
Defendant.
)
COGAN, J.
CLASS ACTION COMPLAINT
Introduction
Plaintiff Dovi Lowenbein seeks redress for the illegal practices of Associated Creditors
Exchange, Inc. concerning the collection of debts, in violation of the Fair Debt
Collection Practices Act, 15 U.S.C. § 1692, et seq. ("FDCPA") and the Telephone
Communications Privacy Act.
Parties
Plaintiff is a 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 while possibly
labeled as a "business" account, was primarily used by the Plaintiff for personal, family
-1-
and/or household purposes, as thus is a "debt" as that term is defined by 15 U.S.C.
$1692a(5).
Defendant's principal place of business is located in Arizona.
Defendant is regularly engaged, for profit, in the collection of debts allegedly owed by
consumers.
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 Dovi Lowenbein
On information and belief, on a date better known by defendant, defendant attempted to
collect alleged consumer debts from the plaintiff.
On 24 occasions within the past year, defendant made 24 calls to an unauthorized
wireless number belonging to plaintiff.
On April 16, 2011, May 31, 2011, and June 7, 2011 and within the one year
immediately preceding this action, the Defendant left the following pre-recorded
messages on the Plaintiff's answering machine on numerous occasions which
did not set forth that the communication was from a debt collector and which stated inter
alia: "Hello, I have an important message for you, Please call (800)-280-3800 ext. 8315
-2-
and speak to the first account representative Thank you"
On March 30, 2011, a representative of ACE left the following message: "This is David
Kara I am with Associated Creditors Exchange. We represent US Bank. They have
retained us to proceed against you in the State of New York,"
Defendant violated §1692d of the FDCPA by engaging in conduct that the natural
consequences of which was to harass, oppress, and abuse Plaintiff in connection with the
collection of an alleged debt.
Defendant violated $1692d(6) of the FDCPA by placing telephone calls without
meaningful disclosure of the caller's identity.
Defendant violated $1692e of the FDCPA by using false, deceptive, and misleading
representations in connection with the collection of any debt.
Defendant violated 1692e(5) of the FDCPA by threatening to take action against
Plaintiff even though Defendant has not and does not intend to take such action.
Defendant violated $1692e(10) of the FDCPA by using deceptive means in an
attempt to collect a debt.
Defendant violated 1692e(3) of the FDCPA by The false representation or implication
that defendant is an attorney and that any communication is from an attorney.
The messages left by the Defendant did not identify the Defendant as a debt collector as
required by 15 USC 1692e(11). The least sophisticated consumer may have believed
that this automated message was from an original creditor or another company.
The messages left by Defendant were deceptive in that the "least sophisticated
consumer" would not recognize that the defendant was a debt collector and the messages
-3-
specifically failed to provide the
notice required by 15 USC 1692e(11).
The message left by Defendant was deceptive and harassing per se in that it secreted the
identity of the Defendant in violation of 15 USC 1692d(6).
The messages left by the Defendant were harassing in that they failed to meaningfully
identify the Defendant as required by 15 USC 1692d(6). The Plaintiff listened to the
messages left by the Defendant.
On information and belief, it is the regular practice of the defendant to leave messages
on consumers' answering machines that do not meaningfully identify themselves, and/or
do not identify themselves as a debt collector.
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 automated messages left for the
Plaintiff.
The actions of the Defendant as described above violate 15 USC 1692e; 15 USC
1692e(10); 15 USC 1692e(11); 15 USC 1692d; 15 USC 1692d(5) and 15 USC 1692d(6).
Plaintiff brings the following class pursuant to Federal Rules of Civil Procedure 23(a)
and 23(b)(3) individually and on behalf of all persons in the State of New York to whom
defendant placed a telephone call and left a message for a consumer in which the
Defendant failed to meaningfully identify themselves and/or failed to state that
Defendant was a debt collector, as identified from Defendant's records, during the one
year period immediately preceding the filing of this action.
-4-The said messages were left at a wireless number where the plaintiff was charged for
each call.
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.
The said telephone messages are in violation of the Fair Debt Collection Practices Act,
15 U.S.C. § 1692f(5).
AS AND FOR A FIRST CAUSE OF ACTION
Violations of the Fair Debt Collection Practices Act brought by plaintiff Dovi Lowenbein on
behalf of himself and the members of a class, as against the defendant.
Plaintiff restates, realleges, and incorporates herein by reference, paragraphs 1-29 as if
set forth fully in this Cause of Action.
This action is brought on behalf of plaintiff and the members of three 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)
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 were left a telephonic message from defendant within one year prior to the date of
-5-
the within complaint up to the date of the filing of the complaint; (a) the telephone
message failed to state that it was a communication from a debt collector, and (c) that
the telephone message was in violation 15 U.S.C. § 1692e(11) and 1692e(10).
Class C 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 failed to state the legal name of the defendant, and (c) that the telephone
message was in violation 15 U.S.C. § 1692d(6).
Class B and Class C may overlap.
Class D consists of all persons whom Defendant's records reflect resided in the State of
New York and who received telephonic messages from defendant's representatives
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 consumer seeking payment of
a consumer debt; and (c) the defendant made a false representation or implication that
defendant is an attorney and that any communication is from an attorney in violation of
15 U.S.C. $1692e(3) and 1692e(5) for engaging in false threats.
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.
-6-
predominate over any questions affecting only individual class members. The principal
question presented by this claim is whether the Defendant violated the FDCPA.
telephonic messages, (i.e. the class members), a matter capable of ministerial
determination from the records of Defendant.
same facts and legal theories.
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.
-7-Telephonic messages, such as those left 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 actions of the defendant violate 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.
(a)
Statutory 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.
-8-
The defendant violated 47 U.S.C. § 227(b)(1)(A)(iii) by initiating 24 telephone calls to
the plaintiff's wireless telephone numbers 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 plaintiffs by defendant also without having
included the proper name of the defendant or any name for that matter.
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 numbers at
issue.
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 agency's 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).
-9-
The defendant has repeatedly violated the TCPA by failing to leave the legal name of
the defendant in the messages left for the plaintiff as states as follows in 47 C.F.R.
64.1200(b)(1) states:
"(b) All artificial or prerecorded telephone messages shall:
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)
-10-
Defendant has repeatedly violated the TCPA by the calls made to plaintiff
specifically the numerous calls by illegally by not stating its legal name in its
prerecorded messages in violation of the Telephone Consumer Protection Act
Violations of the Telephone Communications Privacy Act
The defendant has repeatedly violated the TCPA by failing to leave the legal name of
the defendant in the messages left for the plaintiffs as states as follows in 47 C.F.R.
64.1200(b)(1) states:
"(b) All artificial or prerecorded telephone messages shall:
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
-11-collector failed to leave the legal name of the company. (Sengenberger V. Credit
Control Services, Inc., 2010 U.S. Dist. LEXIS 43874)
Defendant has repeatedly violated the TCPA by the calls made to plaintiffs
specifically the numerous calls by illegally by not stating its legal name in its
prerecorded messages in violation of the Telephone Consumer Protection Act
The actions of the defendant violate the TCPA.
Because the defendant intentionally violated the TCPA, the plaintiffs are entitled to
damages in accordance with the TCPA namely $1500 for each call where the defendant
failed to obtain prior consent from the plaintiffs.
(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
March 21, 2012
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
-12-
Dr
Adam J. Fishbein (AF-9508)
-13- | consumer fraud |
WfaSE4cBD5gMZwcz_UP6 |
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
Case No.:
Vadim Kulakevich, individually and on behalf
of all others similarly situated,
Plaintiff,
CLASS ACTION COMPLAINT
-v.-
DEMAND FOR JURY TRIAL
First National Collection Bureau, Inc.; LVNV
Funding LLC; and John Does 1-25;
Defendants.
Plaintiff Vadim Kulakevich brings this Class Action Complaint by and through his
attorneys, Brubaker Law Group PLLC, against Defendants First National Collection Bureau, Inc.
(“First National”) and LVNV Funding LLC (“LVNV”), 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 concluded that “existing
1 Brubaker Law Group PLLC
14506 NE 184th Pl
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), 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 Washington 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 Washington, County of King.
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8.
Defendant First National is a "debt collector" as the phrase is defined in 15 U.S.C.
§ 1692(a)(6) and used in the FDCPA
9.
First National’s registered agent for service is Corporation Service Company 300
Deschutes Way SW, Suite 208 MC-CSC1, Tumwater, WA 98501.
10.
Upon information and belief, First National 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.
11.
Defendant LVNV is a "debt collector" as the phrase is defined in 15 U.S.C.
§ 1692(a)(6) and used in the FDCPA.
12.
LVNV’s registered agent for service is Corporation Service Company, 80 State
Street, Albany, New York, 12207-2543.
13.
Upon information and belief, LVNV 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 to itself or another.
14.
John Does 1-25, are fictitious names of individuals and businesses alleged for the
purpose of substituting names of Defendants whose identities will be disclosed in discovery and
should be made parties to this action.
CLASS ALLEGATIONS
15.
Plaintiff brings this claim on behalf of the following class, pursuant to Fed. R. Civ.
P. 23(a) and 23(b)(3).
16.
The Class consists of:
a. all individuals with addresses in the State of New York;
b. to whom Defendant First National sent a collection letter;
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c. on behalf of Defendant LVNV;
d. attempting to collect a consumer debt;
e. that has been reduced to judgment;
f. in three sub-classes where the letter states:
i. that the interest rate thereon is zero in amount and/or rate;
ii. that interest amount owed and rate are both zero but also states that
because of interest the amount due may rise; or
iii. states an amount of principal owed that includes interest; and
g. 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.
17.
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.
18.
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.
19.
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 form attached as Exhibit
A, violate 15 U.S.C. §§ 1692e, 1692f and 1692g.
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20.
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.
21.
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,
1692f and 1692g.
c. Typicality: The Plaintiff’s claims are typical of the claims of the class
members. The Plaintiff and all members of the Plaintiff Class have claims
arising out of the Defendants’ common uniform course of conduct complained
of herein.
d. Adequacy: The Plaintiff will fairly and adequately protect the interests of the
class members insofar as Plaintiff has no interests that are adverse to the
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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.
22.
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.
23.
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
24.
Plaintiff repeats the above allegations as if set forth here.
25.
Some time prior to February 2, 2021, Plaintiff allegedly incurred an obligation to
non-party Synchrony Bank (“Synchrony”).
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26.
The obligation arose out of transactions incurred primarily for personal, family, or
household purposes, specifically credit from Synchrony used for those purposes.
27.
The alleged Synchrony obligation is a "debt" as defined by 15 U.S.C.§ 1692a (5).
28.
Synchrony is a "creditor" as defined by 15 U.S.C.§ 1692a (4).
29.
LVNV claims to be the current creditor of the Synchrony debt.
30.
LVNV collects and attempts to collect debts incurred or alleged to have been
incurred for personal, family or household purposes on behalf of itself, or others on its behalf,
using the United States Postal Services, telephone and internet.
31.
According to the Letter described below, LVNV “placed” the Synchrony debt with
First National for collection.
32.
Defendant First National 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 - February 2, 2021 Collection Letter
33.
On or about February 2, 2021, Defendant First National, on behalf of Defendant
LVNV, sent Plaintiff a collection letter regarding the alleged debt. See Letter attached as Exhibit
A.
34.
The letter states that “a judgment has been entered against you”.
35.
The Letter states a “Total Due” of $1,506.42.
36.
The Letter also states that the amount of interest owed is zero.
37.
It further states that the interest rate is zero percent.
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38.
The letter further states, “As of the date of this letter, you owe $1,506.42. Because of
interest 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 check”.
39.
According to one part of the letter, the balance will not increase due to interest
because the interest rate is zero percent.
40.
According to another part of the letter, because of interest the balance may increase.
41.
These two statements contradict each other.
42.
If the interest rate is zero percent, then the balance will never increase due to interest.
43.
If the amount due may increase due to interest, then the rate is not zero percent.
44.
In addition, according to the Letter the alleged judgment was entered on March 28,
2016.
45.
According to the Letter, no interest has been charged since March 28, 2016, as
shown where the amount of interest is listed as zero.
46.
As the Letter implies, Defendants never intended to charge any interest.
47.
Stating that interest may cause the balance to go up is just a deceptive collection
tactic to get Plaintiff to pay.
48.
Alternatively, according to state law (RCW 4.56.110) interest was accruing on the
judgment.
49.
To state that the interest rate is zero percent is therefore false and misleading.
50.
If Defendants were permanently waiving statutory interest, they must so state.
51.
By failing to bindingly waive interest, Defendants leave open the possibility that
they may charge interest at any point or may sell the debt yet again and the new owner can
charge interest.
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52.
Defendants retained the right to charge the statutorily accruing interest at any time
yet simultaneously never intended to collect interest.
53.
This is misleading, false, deceptive, and unfair.
54.
Finally, the statement in the Letter that the principal is $1,270.17 and that interest is
$0.00 is also false misleading, deceptive, and unfair.
55.
Upon information and belief, the principal balance of $1,270.17 actually includes
interest.
56.
This interest was either charged by Synchrony, Defendants, or a prior alleged owner
of the debt.
57.
Upon information and belief, Defendants lumped interest and principal together and
just called it principal.
58.
This was done in an improper attempt to coerce payment from Plaintiff.
59.
Due to Defendants’ actions, Plaintiff was unable to evaluate how much is truly being
alleged as the correct balance, is being misled at to the total owed, and cannot properly evaluate
the demand for payment or how to address it.
60.
The amount stated as due is therefore false, deceptive, misleading, and unfair.
61.
Because of Defendants’ improper collection actions Plaintiff was unable to properly
respond to the letter.
62.
Plaintiff would have pursued a different course of action were it not for Defendants’
violations.
63.
Because of Defendants’ improper collections actions Plaintiff was prevented from
taking certain actions he would have, or could have, otherwise taken had Defendant’s letter not
contained false, deceptive, misleading, or unfair content.
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64.
Defendant was confused as to the debt and the amount involved here and how this
implicates his alleged responsibilities for making payment thereon.
65.
Plaintiff was concerned and confused by the Letter.
66.
Plaintiff was therefore unable to evaluate his options of how to handle this debt.
67.
Because of this, Plaintiff expended time, money, and effort in determining the proper
course of action.
68.
In addition, Plaintiff suffered emotional harm due to Defendants’ improper acts.
69.
These violations by Defendants were knowing, willful, negligent and/or intentional,
and Defendants did not maintain procedures reasonably adapted to avoid any such violations.
70.
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.
71.
Defendants’ false, deceptive, misleading and/or 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.
72.
Defendants’ actions created an appreciable risk to Plaintiff of being unable to
properly respond or handle Defendants’ debt collection.
73.
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.
74.
As a result of Defendants’ deceptive, misleading and false debt collection practices,
Plaintiff has been damaged.
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COUNT I
VIOLATIONS OF THE FAIR DEBT COLLECTION PRACTICES ACT
15 U.S.C. §1692e et seq.
75.
Plaintiff repeats the above allegations as if set forth here.
76.
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.
77.
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.
78.
Defendants violated said section, as described above, by making a false and
misleading representation in violation of §§ 1692e (2), 1692e (5), 1692e (10); and 1692e.
79.
By reason thereof, Defendants are liable to Plaintiff for judgment that Defendants’
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.
80.
Plaintiff repeats the above allegations as if set forth here.
81.
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. §
1692f.
82.
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.
83.
Defendants violated this section as described above.
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84.
By reason thereof, Defendants are liable to Plaintiff for judgment that Defendants’
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.
85.
Plaintiff repeats the above allegations as if set forth here.
86.
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.
87.
In connection with its initial communication with a consumer, a debt collector must,
pursuant to 15 U.S.C. §1692g, send the consumer a written notice containing the amount of the
debt.
88.
Defendant violated 15 U.S.C. §1692g by failing to properly state, pursuant to §
1692g (a)(1), the amount of the debt, and to the extent the amount was stated, it was
overshadowed.
89.
By reason thereof, Defendant is liable to Plaintiff for judgment that Defendant's
conduct violated Section 1692g et seq. of the FDCPA, actual damages, statutory damages, costs
and attorneys’ fees.
DEMAND FOR TRIAL BY JURY
90.
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 Vadim Kulakevich, individually and on behalf of all others
similarly situated, demands judgment from Defendants First National and LVNV as follows:
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1.
Declaring that this action is properly maintainable as a Class Action and
certifying Plaintiff as Class representative, and Michael Brubaker, Esq. as Class Counsel;
2.
Awarding Plaintiff and the Class statutory damages;
3.
Awarding Plaintiff and the Class actual damages;
4.
Awarding Plaintiff costs of this Action, including reasonable attorneys’ fees and
expenses;
5.
Awarding pre-judgment interest and post-judgment interest; and
6.
Awarding Plaintiff and the Class such other and further relief as this Court may
deem just and proper.
Dated: June 11, 2021
Respectfully submitted,
s/ Michael Brubaker
Michael Brubaker, Esq.
WSBA #49804
Brubaker Law Group PLLC
14506 NE 184th Pl
Woodinville, WA 98072
(206) 335-8746
[email protected]
Attorneys for Plaintiff
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| consumer fraud |
09n3D4cBD5gMZwcz2zzT |
KAZEROUNI LAW GROUP, APC
Abbas Kazerounian, Esq. (SBN: 249203)
[email protected]
S. Mohammad Kazerouni, Esq. (SBN: 252835)
[email protected]
Assal Assassi, Esq. (SBN: 274249)
[email protected]
Matthew M. Loker, Esq. (SBN: 279939)
[email protected]
2700 N. Main Street, Ste. 1000
Santa Ana, California 92705
Telephone: (800) 400-6808
Facsimile: (800) 520-5523
HYDE & SWIGART
Robert L. Hyde, Esq. (SBN 227183)
[email protected]
Joshua B. Swigart, Esq. (SBN: 225557)
[email protected]
411 Camino Del Rio South, Suite 301
San Diego, CA 92108
Telephone: (619) 233-7770
Facsimile: (619) 297-1022
Attorneys for Plaintiff,
Brian Anderson
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF CALIFORNIA
'12CV2162
DHB
IEG
BRIAN ANDERSON,
INDIVIDUALLY AND ON BEHALF
OF ALL OTHERS SIMILARLY
SITUATED,
Plaintiffs,
v.
ATG CREDIT LLC,
Case No.:
CLASS ACTION
COMPLAINT FOR DAMAGES AND
INJUNCTIVE RELIEF PURSUANT TO
THE TELEPHONE CONSUMER
PROTECTION ACT, 47 U.S.C. § 227, ET
SEQ.
JURY TRIAL DEMANDED
Defendant.
1. BRIAN ANDERSON (“Plaintiff”) brings this Class Action Complaint for damages,
injunctive relief, and any other available legal or equitable remedies, resulting from the
illegal actions of ATG CREDIT, LLC. (“Defendant”), in negligently 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. Plaintiff alleges
as follows upon personal knowledge as to himself and his own acts and experiences, and,
as to all other matters, upon information and belief, including investigation conducted by
his attorneys.
JURISDICTION AND VENUE
2. This Court has jurisdiction under 28 U.S.C. § 1331, 1337 and 47 U.S.C. § 227.
3. Venue is proper in the United States District Court for the Southern District of California
pursuant to 18 U.S.C. § 1391(b) and 1441(a) because Defendant is subject to personal
jurisdiction in the County of San Diego, State of California.
PARTIES
4. Plaintiff is, and at all times mentioned herein was, a citizen and resident of the State of
California. Plaintiff is, and at all times mentioned herein was, a “person” as defined by
47 U.S.C. § 153 (10).
5. Plaintiff is informed and believes, and thereon alleges, that Defendant is, and at all times
mentioned herein was, a corporation whose primary corporate address is in Chicago,
Illinois. Defendant, is and at all times mentioned herein was, a corporation and is a
“person,” as defined by 47 U.S.C. § 153 (10). Defendant is a third-party accounts
receivable company that attempts to collect alleged debts on behalf of the original
creditor. Plaintiff alleges that at all times relevant herein Defendant conducted business
in the State of California and in the County of San Diego, and within this judicial district.
6. At all times relevant, Plaintiff was a citizen of the State of California. Plaintiff is, and at
all times mentioned herein was, a “person” as defined by 47 U.S.C. § 153 (10).
7. Defendant is, and at all times mentioned herein was, a corporation and a “person,” as
defined by 47 U.S.C. § 153 (10).
8. At all times relevant Defendant conducted business in the State of California and in the
County of San Diego, within this judicial district.
9. At no time did Plaintiff provide Plaintiff’s cellular phone number to Defendant through
any medium.
10. At no time did Plaintiff ever enter in a business relationship with Defendant.
11. Defendant obtained Plaintiff’s contact information through unknown means.
12. Beginning in July 2012, Defendant began contacting Plaintiff on Plaintiff’s cellular
telephone attempting to collect a debt alleged to be owed by Plaintiff 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) in order to
collect an alleged debt alleged to be owed by Plaintiff.
13. This ATDS has the capacity to store or produce telephone numbers to be called, using a
random or sequential number generator.
14. The telephone number Defendant 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).
15. These telephone calls constituted calls that were not for emergency purposes as defined
by 47 U.S.C. § 227(b)(1)(A)(i).
16. To date, Plaintiff has received approximately three calls from Defendant where
Defendant utilizes an “artificial or prerecorded voice” in conjunction with an ATDS.
17. These telephone calls constituted calls that were not for emergency purposes as defined
by 47 U.S.C. § 227 (b)(1)(A)(i).
18. Plaintiff did not provide Defendant or its agent prior express consent to receive
unsolicited phone calls, pursuant to 47 U.S.C. § 227 (b)(1)(A).
CLASS ACTION ALLEGATIONS
20. Plaintiff brings this action on behalf of himself and on behalf of and all others similarly
situated (“the Class”).
21. Plaintiff represents, and is a member of the Class, consisting of all persons within
California who received any unsolicited marketing and artificial or prerecorded voice
messages from Defendant without prior express consent which message by Defendant or
its agents was not made for emergency purposes, within the four years prior to the filing
of this Complaint.
22. 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
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.
23. 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 marketing and
artificial or prerecorded voice messages, 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.
24. 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.
25. 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.
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, Defendant or
its agents sent any marketing and artificial or prerecorded voice 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 and/or SMS texting system to any telephone number assigned to a cellular
phone service;
b)
Whether Plaintiff and the Class members were damaged thereby, and the extent of
damages for such violation; and
c)
Whether Defendant and its agents should be enjoined from engaging in such
conduct in the future.
27. As a person that received at least one marketing and artificial or prerecorded voice
message 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.
28. 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 seek legal redress for the wrongs complained of herein.
29. Plaintiff has retained counsel experienced in handling class action claims and claims
involving violations of the Telephone Consumer Protection Act.
controversy. Class-wide damages are essential to induce Defendant to comply with
federal and California 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.
31. 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.
32. Plaintiff incorporates by reference all of the above paragraphs of this Complaint as
though fully stated herein.
33. 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.
34. As a result of Defendant’s 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).
35. Plaintiff and the Class are also entitled to and seek injunctive relief prohibiting such
conduct in the future.
KNOWING AND/OR WILLFUL VIOLATIONS OF THE
TELEPHONE CONSUMER PROTECTION ACT
47 U.S.C. § 227 ET SEQ.
36. Plaintiff incorporates by reference all of the above paragraphs of this Complaint as
though fully stated herein.
37. 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.
38. 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 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).
39. 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 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.
As a result of Defendant’s negligent violations of 47 U.S.C. § 227(b)(1), Plaintiff
seeks for himself and each Class member $500.00 in statutory damages, for each and
every violation, 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.
THE TCPA, 47 U.S.C. § 227 ET SEQ.
As a result of Defendant’s knowing and/or willful violations of 47 U.S.C. § 227(b)(1),
Plaintiff seeks for himself and each Class member $500.00 in statutory damages, for
each and every violation, 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.
TRIAL BY JURY
40. 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: August 27, 2012
Respectfully submitted,
KAZEROUNI LAW GROUP, APC
By: ____/s/ Abbas Kazerounian___
ABBAS KAZEROUNIAN, ESQ.
ATTORNEY FOR PLAINTIFF
| privacy |
LORtEYcBD5gMZwczx_8d | Marshall Meyers (020584)
WEISBERG & MEYERS, LLC
5025 North Central Ave., #602
Phoenix, AZ 85012
(602) 445-9819
(866) 565-1327 facsimile
[email protected]
Attorney for Plaintiffs
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA
Case No.
ORIGINAL CLASS ACTION
COMPLAINT
Maria Hernandez, on behalf of herself and
and all others similarly situated,
Plaintiff,
vs.
Williams, Zinman & Parham P.C.,
Defendant.
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NATURE OF ACTION
1.
This is class action brought under the Fair Debt Collection Practices Act
(“FDCPA”), 15 U.S.C. § 1692 et seq.
JURISDICTION AND VENUE
2.
This Court has jurisdiction under 15 U.S.C. § 1692k(d) and 28 U.S.C. §
3.
Venue is proper before this Court pursuant to 28 U.S.C. §1391(b), where
the acts and transactions giving rise to Plaintiff’s action occurred in this State and this
transacts business in this State and this district.
PARTIES
4.
Plaintiff Maria Hernandez (“Plaintiff”) is a natural person who at all
relevant times resided in the State of Arizona, County of Maricopa, City of Scottsdale.
5.
Plaintiff is a “consumer” as defined by 15 U.S.C. § 1692a(3).
6.
Defendant Williams, Zinman & Parham P.C. (“Defendant”), is an Arizona
professional corporation with its principal place of business situated at 7701 E. Indian
School Road, Suite J, Scottsdale, AZ 85251. Defendant may be served by and through its
registered agent: Scott E. Williams, 7701 E. Indian School Road, Suite J, Scottsdale, AZ
85251.
7.
Defendant was at all relevant times engaged, by use of the mails and
telephone, in the business of attempting to collect a “debt” from Plaintiff, as defined by
15 U.S.C. §1692a(5).
8.
Defendant is a “debt collector” as defined by 15 U.S.C. § 1692a(6).
FACTUAL ALLEGATIONS
9.
Plaintiff is a natural person obligated, or allegedly obligated, to pay a debt
owed or due, or asserted to be owed or due a creditor – originally A-L Financial Corp.-
other than Defendant.
10.
Plaintiff’s obligation, or alleged obligation, owed or due, or asserted to be
owed or due a creditor other than Defendant, arises from a transaction in which the
money, property, insurance, and/or services that are the subject of the transaction –
household purposes.
11.
Defendant uses instrumentalities of interstate commerce or the mails in a
business the principal purpose of which is the collection of any debts, and/or regularly
collects or attempts to collect, directly or indirectly, debts owed or due, or asserted to be
owed or due another.
12.
In connection with collection of an alleged debt in default, Defendant sent
Plaintiff initial written communication dated December 29, 2011, in which Defendant
stated, in relevant part:
You, the consumer, have thirty (30) days after receipt of this
notice to dispute the validity of the debt, or any portion
thereof. Unless you dispute the validity of this debt within
thirty (30) days, the debt will be assumed to be valid by this
firm. If you do notify us of a dispute, we will obtain
verification of the debt, or a copy of the judgment, and mail it
to you. Also, upon you request within thirty (30) days, we
will provide you with the name and address of the original
creditor, if different from the current creditor. Your right to
dispute the debt is separate from your legal rights and
obligations regarding responding to any Summons and
Complaint or Writ of Garnishment that you may be served
with.”
13.
The December 29, 2011 letter failed to notify Plaintiff that in order for
Plaintiff to require Defendant to obtain verification of the debt and mail such verification
to Plaintiff, Plaintiff must dispute the debt, or any portion thereof, in writing, and as such,
Defendant failed to meaningfully convey the disclosure required pursuant to 15 U.S.C. §
1692g(a)(4).
14.
The December 29, 2011 letter failed to notify Plaintiff that in order for
Plaintiff to require Defendant to provide the name an address of the original creditor, if
Defendant failed to meaningfully convey the disclosure requirement pursuant to 15
U.S.C. § 1692g(a)(5).
15.
Defendant, as a matter of pattern and practice, sends initial written
correspondence to alleged consumer debtors that are substantially similar or materially
identical to the December 29, 2011 written correspondence sent to Plaintiff, which failed
to notify Plaintiff that in order for Plaintiff to require Defendant to obtain verification of
the debt and mail such verification to Plaintiff, Plaintiff must dispute the debt, or any
portion thereof, in writing.
16.
Defendant, as a matter of pattern and practice, sends initial written
correspondence to alleged consumer debtors that are substantially similar or materially
identical to the December 29, 2011 written correspondence sent to Plaintiff, which failed
to notify Plaintiff that in order for Plaintiff to require Defendant to provide the name an
address of the original creditor, if different from the current creditor, Plaintiff must
request the same in writing.
CLASS ALLEGATIONS
17.
Plaintiff repeats and re-alleges each and every allegation contained in
paragraphs 1 through 16.
18.
Plaintiff brings this action on behalf of herself and all others similarly
situated. Specifically, Plaintiff seeks to represent a class of individuals defined as:
All persons located in Arizona who, within one year before
the date of this Complaint, received initial written
correspondence from Defendant in connection with an
attempt to collect any consumer debt, where the initial written
correspondence was substantially similar or materially
identical to the December 29, 2011 written correspondence
sent to Plaintiff.
19.
The proposed class specifically excludes The United States of America, the
State of Arizona, counsel for the parties, the presiding United States District Court Judge,
the Judges of The United States Court of Appeals for the Ninth Circuit and the Justices of
The United States Supreme Court, all officers and agents of Defendant and all persons
related to within the third degree of consanguinity or affection to any of the foregoing
individuals.
20.
The class is averred to be so numerous that joinder of members is
impracticable.
21.
The exact number of class members is unknown to Plaintiff at this time and
can be ascertained only through appropriate discovery.
22.
The class is ascertainable in that the names and addresses of all class
members can be identified in business records maintained by Defendant.
23.
There exists a well-defined community of interest in the questions of law
and fact involved that affect the parties to be represented. These common questions of
law and fact predominate over questions that may affect individual class members. Such
issues include, but are not limited to: (a) The existence of Defendant’s identical conduct
particular to the matters at issue; (b) Defendant’s violations of 15 U.S.C. §1692 et. seq.;
(c) The availability of statutory penalties; and (d) Attorneys’ fees and costs.
24.
The claims of Plaintiff are typical of those of the class she seeks to
represent.
practice, and procedure, on the part of Defendant. Thus, if brought and prosecuted
individually, the claims of each class member would require proof of the same material
and substantive facts.
26.
Plaintiff possesses the same interests and has suffered the same injuries as
each class member. Plaintiff asserts identical claims and seeks identical relief on behalf
of the unnamed class members.
27.
Plaintiff will fairly and adequately protect the interests of the class and has
no interest adverse to or which directly and irrevocably conflicts with the interests of
other members of the class.
28.
Plaintiff is willing and prepared to serve this Court and the proposed class.
29.
The interests of Plaintiff are co-extensive with and not antagonistic to those
of the absent class members.
30.
Plaintiff has retained the services of counsel who are experienced in
consumer protection claims, as well as complex class action litigation, will adequately
prosecute this action, and will assert, protect and otherwise represent Plaintiff and all
absent class members.
31.
Class certification is appropriate under Fed. R. Civ. P. 23(b)(1)(A) and
23(b)(1)(B). The prosecution of separate actions by individual members of the class(es)
would, as a practical matter, be dispositive of the interests of other members of the class
who are not parties to the action or could substantially impair or impede their ability to
protect their interests.
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
parties opposing the class. Such incompatible standards of conduct and varying
adjudications, on what would necessarily be the same essential facts, proof and legal
theories, would also create and allow the existence of inconsistent and incompatible
rights within the class.
33.
Class certification is appropriate under Fed. R. Civ. P. 23(b)(2) in that
Defendant has acted or refused to act on grounds generally applicable to the class,
making final declaratory or injunctive relief appropriate.
34.
Class certification is appropriate under Fed. R. Civ. P. 23(b)(3) in that the
questions of law and fact that are common to members of the class predominate over any
questions affecting only individual members.
35.
Moreover, a class action is superior to other methods for the fair and
efficient adjudication of the controversies raised in this Complaint in that: (a) individual
claims by the class members will be impracticable as the costs of pursuit would far
exceed what any one plaintiff or class member has at stake; (b) as a result, very little
litigation has been commenced over the controversies alleged in this Complaint and
individual members are unlikely to have interest in prosecuting and controlling separate
individual actions; (c) the concentration of litigation of these claims in one forum will
achieve efficiency and promote judicial economy.
COUNT I: VIOLATION OF FAIR DEBT COLLECTION
PRACTICES ACT § 1692g(a)(4)
36.
Plaintiff repeats and re-alleges each and every allegation contained in
paragraphs 1 through 35.
37.
15 U.S.C. § 1692g(a)(4) provides:
Within five days after the initial communication with a
consumer in connection with the collection of any debt, a
debt collector shall, unless the following information is
contained in the initial communication or the consumer has
paid the debt, send the consumer a written notice
containing—
*
*
*
(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;
38.
Defendant violated 15 U.S.C. § 1692g(a)(4) by failing to notify Plaintiff in
its initial communication, or within five (5) days thereof, that in order to require
Defendant to obtain verification of the debt and mail such verification to Plaintiff,
Plaintiff must dispute the debt, or any portion thereof, in writing.
WHEREFORE, Plaintiff prays for relief and judgment, as follows:
a) Determining that this action is a proper class action, certifying Plaintiff as
a class representative under Rule 23 of the Federal Rules of Civil
Procedure and designating this Complaint the operable complaint for class
purposes;
b) Adjudging that Defendant violated 15 U.S.C. § 1692g(a)(4);
pursuant to 15 U.S.C. §1692k, in the amount of $1,000.00 per class
member;
d) Awarding Plaintiff, and all those similarly situated, reasonable attorneys’
fees ands costs incurred in this action, including counsel fees and expert
fees;
e) Awarding Plaintiff, and all those similarly situated, any pre-judgment and
post-judgment interest as may be allowed under the law;
f) Awarding such other and further relief as the Court may deem just and
proper.
COUNT II: VIOLATION OF FAIR DEBT COLLECTION
PRACTICES ACT § 1692g(a)(5)
39.
Plaintiff repeats and re-alleges each and every allegation contained in
paragraphs 1 through 35.
40.
15 U.S.C. § 1692g(a)(5) provides:
Within five days after the initial communication with a
consumer in connection with the collection of any debt, a
debt collector shall, unless the following information is
contained in the initial communication or the consumer has
paid the debt, send the consumer a written notice
containing—
*
*
*
(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.
that in order for Plaintiff to require Defendant to provide the name an address of the
original creditor, if different from the current creditor, Plaintiff must request the same in
writing.
WHEREFORE, Plaintiff prays for relief and judgment, as follows:
a) Determining that this action is a proper class action, certifying Plaintiff as
a class representative under Rule 23 of the Federal Rules of Civil
Procedure and designating this Complaint the operable complaint for class
purposes;
b) Adjudging that Defendant violated 15 U.S.C. § 1692g(a)(5);
c) Awarding Plaintiff, and all those similarly situated, statutory damages,
pursuant to 15 U.S.C. §1692k, in the amount of $1,000.00 per class
member;
d) Awarding Plaintiff, and all those similarly situated, reasonable attorneys’
fees ands costs incurred in this action, including counsel fees and expert
fees;
e) Awarding Plaintiff, and all those similarly situated, any pre-judgment and
post-judgment interest as may be allowed under the law;
f) Awarding such other and further relief as the Court may deem just and
proper.
COUNT III: VIOLATION OF FAIR DEBT COLLECTION
PRACTICES ACT § 1692g(b)
42.
Plaintiff repeats and re-alleges each and every allegation contained in
paragraphs 1 through 35.
43.
15 U.S.C. § 1692g(b) provides:
If the consumer notifies the debt collector in writing within
the thirty-day period described in subsection (a) of this
section that the debt, or any portion thereof, is disputed, or
that the consumer requests the name and address of the
original creditor, the debt collector shall cease collection of
the debt, or any disputed portion thereof, until the debt
collector obtains verification of the debt or a copy of a
judgment, or the name and address of the original creditor,
and a copy of such verification or judgment, or name and
address of the original creditor, is mailed to the consumer by
the debt collector. Collection activities and communications
that do not otherwise violate this subchapter may continue
during the 30-day period referred to in subsection (a) unless
the consumer has notified the debt collector in writing that the
debt, or any portion of the debt, is disputed or that the
consumer requests the name and address of the original
creditor. Any collection activities and communication during
the 30-day period may not overshadow or be inconsistent
with the disclosure of the consumer’s right to dispute the debt
or request the name and address of the original creditor.
44.
Defendant violated 15 U.S.C. § 1692g(b) by making representations
inconsistent with the disclosures required pursuant to 15 U.S.C. § 1692g(a)(4) and 15
U.S.C. § 1692g(a)(5).
WHEREFORE, Plaintiff prays for relief and judgment, as follows:
a) Determining that this action is a proper class action, certifying Plaintiff as
a class representative under Rule 23 of the Federal Rules of Civil
Procedure and designating this Complaint the operable complaint for class
purposes;
c) Awarding Plaintiff, and all those similarly situated, statutory damages,
pursuant to 15 U.S.C. §1692k, in the amount of $1,000.00 per class
member;
d) Awarding Plaintiff, and all those similarly situated, reasonable attorneys’
fees ands costs incurred in this action, including counsel fees and expert
fees;
e) Awarding Plaintiff, and all those similarly situated, any pre-judgment and
post-judgment interest as may be allowed under the law;
f) Awarding such other and further relief as the Court may deem just and
proper.
45.
Plaintiff is entitled to and hereby demands a trial by jury on all counts.
Dated: April 6th, 2012, and respectfully submitted,
By: s/ Marshall Meyers
Marshall Meyers (020584)
WEISBERG & MEYERS, LLC
5025 North Central Ave., #602
Phoenix, Arizona 85012
(602) 445-9819
(866) 565-1327 (fax)
[email protected]
s/ Russell S. Thompson IV
Russell S. Thompson IV (029098)
WEISBERG & MEYERS, LLC
5025 North Central Ave., #602
Phoenix, Arizona 85012
(602) 388-8875
(866) 565-1327 (fax)
[email protected]
Attorneys for Plaintiff
| consumer fraud |
gUyTA4kBRpLueGJZKSvU | STROOCK & STROOCK & LAVAN LLP
STEPHEN J. NEWMAN (State Bar No. 181570)
DUSTIN A. LINDEN (State Bar No. 280524)
GAGANJYOT K. SANDHU (State Bar No. 327379)
2029 Century Park East, 18th Floor
Los Angeles, CA 90067-3086
Telephone: 310.556.5800
Facsimile: 310.556.5959
Email:
[email protected]
DISABILITY RIGHTS LEGAL CENTER
CHRISTOPHER H. KNAUF (State Bar No. 185180)
ALEXANDRA M. ROBERTSON (State Bar No. 298637)
BRENDAN M. HAMME (State Bar No. 285293)
1541 Wilshire Boulevard, Suite 400
Los Angeles, CA 90017
Telephone: 213.736.1031 x1195
Facsimile: 213.736.1428
Email:
[email protected]
[email protected]
[email protected]
Attorneys for Plaintiff
FRANCISCO SERRANO, on behalf of himself and
others similarly situated
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
FRANCISCO SERRANO, on behalf of
himself and others similarly situated,
Plaintiff,
v.
Case No. 2:20-cv-04355
PUTATIVE CLASS ACTION
COMPLAINT
DEMAND FOR JURY TRIAL
FLIXBUS INC.; SCREAMLINE
INVESTMENT CORPORATION D/B/A
TOURCOACH CHARTER & TOURS;
USA COACH SERVICES, INC.; and
DOES 1 THROUGH 10, inclusive,
Defendants.
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Plaintiff Francisco Serrano (“Plaintiff” or “Mr. Serrano”) brings this action on
behalf of himself for damages, and on behalf of himself and others similarly situated
(“Class Members”)1 for injunctive relief under Federal Rule of Civil Procedure
23(b)(2), against defendants FlixBus Inc. (“FlixBus”), Screamline Investment
Corporation d/b/a TourCoach Charter & Tours (“TourCoach”), USA Coach Services,
Inc. (“USA Coach”), and Does 1 through 10, inclusive, (all defendants, collectively,
“Defendants”), demanding a trial by jury, and hereby alleges, either based on
personal knowledge or upon information and belief, as follows:
I.
INTRODUCTION
1.
Plaintiff and the Class Members are wheelchair users who have been
illegally discriminated against on the basis of their disabilities while traveling or
attempting to travel on the transportation services offered to the public by
Defendants.
2.
Plaintiff is a person with disabilities who is unable to walk or drive,
must use a wheelchair for mobility at all times, and relies on mass transit for his daily
transportation needs. Defendants provide intercity bus services throughout
California and the United States. Customers like Plaintiff and the Class Members
use tickets purchased either in person, via the internet or via a mobile application to
ride on Defendants’ buses. FlixBus is a major transportation service provider serving
more than 200,000 riders per month in the United States.
3.
Federal and California law require that Defendants provide accessible
transportation services to their customers with disabilities. FlixBus, for example,
claims on its website that it can accommodate the needs of wheelchair users, states
that its mission is to provide “green and smart mobility for everyone,” and promises
customers “a stress-free ride . . . with experienced drivers that will bring you safely
1 Class Members refers to members of the Classes defined below.
to your destination.” (emphasis added). But as Plaintiff’s experiences demonstrate,
FlixBus and the other Defendants frequently fail to live up to these obligations.
4.
Indeed, on numerous occasions, Plaintiff has been illegally
discriminated against while traveling or attempting to travel with FlixBus and the
other Defendants between Los Angeles and San Diego because their buses had a
broken or malfunctioning wheelchair lift, no lift at all, or no trained personnel to
operate a lift. This caused Plaintiff to feel greatly embarrassed, uncomfortable and
unsafe on numerous occasions, to be left stranded, to miss important travel
engagements with family, and to pay more for alternative travel arrangements when
Defendants failed to reasonably accommodate his disability. At each of these times,
Defendants effectively excluded Plaintiff from Defendants’ transportation services,
solely because Plaintiff has a disability and uses a wheelchair.
5.
Based on the number of incidents at issue, Plaintiff is informed,
believes, and based thereon alleges, that Defendants have and continue to violate the
civil rights of Plaintiff and other Class Members under both federal and California
antidiscrimination laws applicable to persons with disabilities, and it is extremely
likely that, unless enjoined by this Court, Defendants will continue to do so.
Accordingly, Plaintiff brings this class action pursuant to Title III of the Americans
with Disabilities Act, 42 U.S.C. §§ 12101 et seq. (the “ADA”), California’s Unruh
Civil Rights Act, Cal. Civ. Code §§ 51 et. seq. (the “Unruh Act”), and the California
Unfair Competition Law, Cal. Bus. & Prof. Code §§ 17200 et seq. (the “UCL”) to
redress these past and ongoing civil rights violations; to ensure that Plaintiff and the
Class Members have full and equal access to Defendants’ transportation services;
and to correct their advertising that falsely claims to offer their services on an equal
basis to passengers with disabilities until Defendants fully comply with applicable
laws. The Class Members consist of persons with disabilities, like Plaintiff, who use
wheelchairs (or scooters or other similar mobility aids) and experienced similar
discriminatory conduct while using or attempting to use Defendants’ transportation
services.
6.
On behalf of himself and the Class Members, Plaintiff seeks injunctive
and declaratory relief to, among other things, compel Defendants to adopt policies,
procedures, and training to ensure that individuals with disabilities are provided full
and equal access to Defendants’ transportation services. Plaintiff also seeks statutory
and compensatory damages for himself according to proof. Plaintiff also seeks
reasonable attorneys’ fees and costs.
II.
HISTORY AND PURPOSE OF THE ADA
7.
It has been nearly 30 years since the ADA was enacted, establishing the
most important and comprehensive civil rights law for people with disabilities in
American history. In 2010, Congress amended the ADA, finding that society has
continued to segregate and isolate people with disabilities and that such forms of
discrimination continue to be a “serious and pervasive social problem.” 42 U.S.C. §
12101(a)(2). Therefore, the express purpose of the ADA is to provide “a clear and
comprehensive national mandate” for eliminating discrimination against people with
disabilities, and “clear, strong, consistent, enforceable standards addressing
discrimination against individuals with disabilities.” 42 U.S.C. § 12101(b)(1)-(2).
8.
Ensuring that individuals with disabilities have full and equal access to
transportation is at the core of the ADA’s purpose. Indeed, Congress specifically
identified transportation as one of the “critical areas” of discrimination persisting
against such individuals. 42 U.S.C. § 12101(a)(3). Ending transportation-related
discrimination is crucial to achieving the ADA’s goals of assuring “equality of
opportunity, full participation, independent living, and economic self-sufficiency” for
individuals with disabilities. 42 U.S.C. § 12101(a)(7). Without consistent and
reliable access to transportation, people with disabilities are both literally and
figuratively left behind.
9.
California’s Unruh Act has the same purpose and goals as the federal
ADA. For example, the Unruh Act states that “[a]ll persons within the jurisdiction of
this state are free and equal, and no matter what their . . . disability . . . are entitled to
the full and equal accommodations, advantages, facilities, privileges, or services in
all business establishments of every kind whatsoever.” Cal. Civ. Code § 51(b).
10.
As alleged below, Defendants have openly violated, and continue to
violate, the longstanding mandates of the ADA and Unruh Act to eliminate
disability-based discrimination through a pattern and practice of failing to ensure that
passengers with disabilities, like Plaintiff and the Class Members, have full and equal
access to their transportation services.
III.
JURISDICTION AND VENUE
11.
This Court has original federal jurisdiction over this civil rights action
pursuant to 28 U.S.C. §§ 1331 and 1343 because it alleges that Defendants violated
42 U.S.C. § 12101, et seq., of the ADA.
12.
This Court has supplemental jurisdiction pursuant to 28 U.S.C. § 1367
over Plaintiff’s claims under California’s Unruh Act and UCL because they arise
from the same conduct that forms the basis of Plaintiff’s federal ADA claim.
Accordingly, Plaintiff’s state law claims are so related to his federal claim that they
form the same case or controversy.
13.
This Court has jurisdiction over Plaintiff’s claims for injunctive and
declaratory relief pursuant to 28 U.S.C. §§ 2201 and 2202 and Rule 65 of the Federal
Rules of Civil Procedure.
14.
This Court has personal jurisdiction over Defendants because they are
each corporations operating within California, and each systematically and
continuously conduct business in California and/or purposefully direct their business
toward California through their transportation services. Indeed, Defendants have
each voluntarily conducted business and/or solicited customers in California for their
transportation services, including in this judicial district, and continue to commit the
wrongful acts alleged herein against California residents. Additionally, TourCoach
is formed under the laws of California. Thus, Defendants have all purposefully
availed themselves of the benefits and protections of California law such that the
exercise of jurisdiction over them by this Court will not offend traditional notions of
fair play and substantial justice.
15.
Venue is proper in this judicial district pursuant to 28 U.S.C.
§ 1391(b)(2) because it is where a substantial part of the events giving rise to the
claims asserted herein occurred. Each of the bus rides that Plaintiff took or
attempted to take using Defendants’ transportation services that are at issue in this
action originated in, or departed from, Los Angeles, California, which is located in
this judicial district. Plaintiff also purchased the tickets for bus rides online from
FlixBus while at his home in Los Angeles. Defendants also can be found in, have
one or more agents in, and/or transact or have transacted business in Los Angeles.
IV.
PARTIES
A.
Plaintiff Francisco Serrano and the Class Members
16.
Mr. Serrano is a natural person and is and was at all relevant times a
resident of Los Angeles, California.
17.
Plaintiff is an individual with a disability within the meaning of the
ADA and the Unruh Act. 42 U.S.C. § 12102(1); Cal. Civ. Code § 54(b)(1); see Cal.
Gov. Code §§ 12926, 12926.1. He is a full-time wheelchair user who is unable to
walk or drive and, therefore, relies exclusively on mass transit services from
providers like Defendants for his daily transportation needs.
18.
Plaintiff has used the services of Defendants since August 2018. He
frequently takes day trips from his home in Los Angeles to visit family in or around
San Diego and prefers to use FlixBus because it is often the least expensive option
available and is conveniently located by his home. Mr. Serrano would like to
continue using Defendants’ services in the future but is dissuaded from doing so until
he can be reasonably sure he will receive an accessible ride.
19.
The Class Members reside in and are located throughout California and
the United States. Like Plaintiff, the Class Members are also individuals with
disabilities within the meaning of the ADA and Unruh Act, use a wheelchair or other
mobility aid, and use (or would like to use) the mass transit services of Defendants
for their transportation needs.
B.
FlixBus
20.
FlixBus is and was at all relevant times a corporation formed under the
laws of Delaware with its principal place of business in Los Angeles, California.
21.
According to its marketing and promotional materials and documents
filed with the State of California, FlixBus is a private company primarily engaged in
the business of transporting people. Specifically, it offers or arranges intercity bus
services throughout California and the United States.
22.
On its website, FlixBus holds itself out as the “smart choice,” and asks
riders to “[t]ake advantage of [FlixBus’s] affordable prices without compromising
the quality or comfort of your ride.” Indeed, FlixBus advertises as the most
economical way to travel long-distance in Southern California, with fares
considerably cheaper than its competitors. For example, a roundtrip ticket between
Los Angeles and San Diego can be as low as $9.99 from FlixBus, but approximately
$20 on Greyhound and $36 on Amtrak.
23.
As a provider of intercity bus transportation services that attracts
consumers from different U.S. states, provides the public with general or special
transportation services (including charter service) on a regular and continuing basis,
and provides bus services that cross state lines, FlixBus owns, leases (or leases to), or
operates a public accommodation and is subject to Title III of the ADA, and the
regulations promulgated thereunder. See 42 U.S.C. §§ 12181, 12184. On
information and belief, FlixBus is a large operator of a fixed route, over the road bus
(“OTRB”) service. But even if it is deemed a small operator of a fixed route OTRB
service, FlixBus still has violated the law as set forth herein. Additionally, FlixBus is
a business establishment within the meaning of the Unruh Act. See Cal. Civ. Code
§ 51.
C.
TourCoach and USA Coach
24.
TourCoach is and was at all relevant times a corporation formed under
the laws of California with its principal place of business in Commerce, California.
25.
USA Coach is and was at all relevant times a corporation formed under
the laws of Nevada with its principal place of business in Las Vegas, Nevada.
26.
As providers of intercity bus transportation services that attract
consumers from different states, provide the public with general or special
transportation services (including charter service) on a regular and continuing basis,
and provide bus services that cross state lines, TourCoach and USA Coach own,
lease (or lease to), or operate public accommodations and are subject to Title III of
the ADA, and the regulations promulgated thereunder. See 42 U.S.C. §§ 12181,
12184. On information and belief, TourCoach and USA Coach are operators of fixed
route, over the road bus (“OTRB”) services. But even if they are deemed small
operators of fixed route OTRB services, TourCoach and USA Coach still have
violated the law as set forth herein. Additionally, TourCoach and USA Coach are
business establishments within the meaning of the Unruh Act. See Civ. Code § 51.
D.
Does 1 through 10
27.
Plaintiff is currently unaware of the true names and identities of Does 1
through 10 (“Does”) and therefore sues these Defendants by these fictitious names.
Does likely consist of other transportation providers in the FlixBus network. Each of
the Defendants designated herein as a Doe is legally responsible for the unlawful acts
alleged herein. Plaintiff will amend his Complaint to allege the Does’ legal names
and capacities as soon as such information becomes known.
E.
All Defendants
28.
At all relevant times each and every Defendant was the agent, servant,
employee, co-conspirator, and/or representative of each and every other Defendant
and was, in engaging in the conduct complained of herein, acting within the scope of
said agency, service, employment, conspiracy, and/or representation, and that each
and every Defendant was acting within his/her actual or apparent authority with the
full knowledge and consent of each other Defendant.
29.
Defendants are subject to the federal laws governing discrimination
based on disability, including the ADA and the relevant implementing regulations.
30.
Defendants are also subject to California laws governing discrimination
based on disability, including the Unruh Act and any relevant implementing
regulations.
V.
FLIXBUS’S BROKEN PROMISES TO WHEELCHAIR USERS
31.
In 2018, FlixBus launched operations in the United States with 180
connections across California, Arizona and Nevada.2 In 2019, FlixBus increased its
number of connections and expanded its operations to New York and Texas.3
32.
On May 15, 2018, André Schwämmlein, Founder and CEO of
FlixMobility GmbH, the Germany-based parent company of FlixBus, held a press
conference in Los Angeles, California to mark the official launch of FlixBus’s
American operations.4 During the press conference, Mr. Schwämmlein spoke about
how the Company has “one of the largest fleets in the world.” He described the
buses’ modern and premium amenities and how the company is driven by the “vision
of making mobility accessible for millions of people.” As alleged below, FlixBus and
the other Defendants have failed to live up to that vision for wheelchair users like
Plaintiff and the Class Members.
2 The New Way to Travel: FlixBus Routes Begin in US May 31, FLIXBUS (May 31,
2018), https://www.flixbus.com/company/press-room/press-releases/flixbus-starts-
in-usa.
3 FlixBus USA Prepares for Expansion to Texas, New York in 2019. , FLIXBUS
(October 31, 2018), https://www.flixbus.com/company/press-room/press-
releases/flixbus-prepares-us-expansion-to-texas-and-new-york.
4 FlixBus Press conference – Official Launch of FlixBus USA in Los Angeles – 05-
15-2018 (video), FLIXBUS, https://www.flixbus.com/company/press-room/press-
releases/video-launch-flixbus-usa (last visited May 15, 2019).
33.
Pierre Gourdain, FlixBus’s Managing Director, also spoke during the
press conference. He stated that he expects the United States to be the company’s
biggest market, and Los Angeles its second global headquarters. Mr. Gourdain also
stated, “We like regulations,” adding that the company is “happy to abide by them.”
As alleged below, however, Defendants have knowingly and repeatedly violated
federal regulations designed to eliminate discrimination against travelers with
disabilities.
34.
Both Mr. Schwämmlein and Mr. Gourdain touted the significant role
that bus drivers on FlixBus trips have in the company’s business. Mr. Gourdain
described them as FlixBus “ambassadors” and Mr. Schwämmlein said they are key to
providing customers with a positive “personal experience.” As alleged herein, many
of the drivers on Plaintiff’s trips with Defendants are not properly trained to operate
wheelchair lifts. Additionally, the drivers have, at times, left Plaintiff feeling
mistreated and belittled due to his disability.
35.
Mr. Schwämmlein stated during the press conference that he wants
FlixBus to change the bus market in the United States. He remarked, “We’re not
here to be another player in the market. We want to reinvent the market.” But in
pursuing this profit-driven agenda, FlixBus has disregarded its obligations under the
ADA and Unruh Act prohibiting discrimination against persons with disabilities like
Plaintiff and the Class Members.
36.
In sum, Plaintiff’s experiences with Defendants indicates that FlixBus’s
promise to provide “green and smart mobility for everyone” is false. Plaintiff has
repeatedly been denied full and equal access to Defendants’ transportation services
due to his disability, indicating a clear pattern of discriminatory misconduct. These
encounters are detailed below.
A.
Summary of Mr. Serrano’s Problematic Trips with Defendants
37.
On nearly every occasion that Mr. Serrano traveled or attempted to
travel with FlixBus, he complied with the guidance in Section 11 of its General
Conditions of Carriage and informed FlixBus in advance that he uses a wheelchair
for mobility.
38.
Mr. Serrano has repeatedly experienced difficulty in boarding and riding
on vehicles traveling between Los Angeles and San Diego that he booked through
FlixBus. On information and belief, these buses were leased, owned or operated by
TourCoach and/or USA Coach. At least a dozen times the vehicles or personnel
were not equipped to handle Mr. Serrano’s wheelchair because the vehicles either did
not have any wheelchair lift, had a broken or malfunctioning wheelchair lift, or had
no personnel trained to properly operate a wheelchair lift. These instances include,
but are not limited to, the following trips on or about the following dates: 5
During the first week of August 2018, from San Diego to Los
Angeles
October 13, 2018, from Los Angeles to San Diego
October 21, 2018, from Los Angeles to San Diego and back
March 5, 2019, from San Diego to Los Angeles
March 16, 2019, from Los Angeles to San Diego and back
March 29, 2019, from San Diego to Los Angeles
April 17, 2019, from Los Angeles to San Diego
May 17, 2019, from Los Angeles to San Diego
May 31, 2019, from Los Angeles to San Diego and back
5 This is not intended to be an exhaustive list of incidents where Mr. Serrano
experienced discrimination or other unlawful conduct while traveling or attempting
to travel with Defendants. Mr. Serrano intends to complete this list through
discovery.
39.
Although the vehicles used on these problematic trips were all owned,
leased, operated, and/or utilized by one of the Defendants, Mr. Serrano does not
know at this time which vehicle was owned, leased, operated, and/or utilized by
which Defendant. Similarly, all of the non-passenger/non-customer personnel
involved with these problematic trips were the employees or contractors of
Defendants, but Mr. Serrano does not know at this time the identities of the
personnel or which of them were employed with, or contracted by, which of the
Defendants. Mr. Serrano intends to pursue this information in discovery.
40.
All of the vehicles on Mr. Serrano’s problematic trips are classified as
over-the-road buses (“OTRB”) because they are characterized by an elevated
passenger deck located over a baggage compartment. 42 U.S.C. § 12181(5).
B.
Nonexistent, Broken, or Malfunctioning Wheelchair Lifts
41.
Mr. Serrano has repeatedly experienced difficulty while traveling or
attempting to travel with FlixBus and the other Defendants due to broken wheelchair
lifts on their vehicles or the lack of a wheelchair lift altogether.
42.
One result of Defendants’ failure to ensure that their vehicles are
properly equipped with functional wheelchair lifts is that Mr. Serrano has had to rely
on other passengers for help boarding and exiting the vehicle. Such assistance has
involved other passengers physically carrying Mr. Serrano. For example, on a trip in
2018, Mr. Serrano attempted to board one of Defendants’ vehicles on his return trip
from San Diego to Los Angeles but was told by the driver that the wheelchair lift
was not working. The driver stated that Mr. Serrano could either wait for the next
bus with an operational wheelchair lift (though it was unclear whether the next bus
would have one) or be carried onto the bus by other passengers. Having no other
option, Mr. Serrano reluctantly allowed himself to be carried onto the bus because he
urgently needed to return to Los Angeles. In addition to the humiliation and
embarrassment this caused Mr. Serrano, his reliance on helpful but untrained
passengers greatly increased his risk of injury.
43.
Another result of Defendants’ failure to ensure that their vehicles are
properly equipped with functional wheelchair lifts is lengthy delays to Mr. Serrano’s
travel plans—delays that customers without disabilities would not have experienced.
For example, on March 16 and March 29, 2019, Mr. Serrano was forced to wait
several hours after his scheduled departure time because the originally scheduled
buses did not have a working wheelchair lift.
44.
Furthermore, when Defendants cannot accommodate Mr. Serrano’s
wheelchair, he has been unfairly forced to incur additional travel costs, including
purchasing more expensive tickets with Amtrak. For instance, on May 31, 2019, Mr.
Serrano had to purchase an Amtrak ticket to San Diego that cost double the FlixBus
fare amount because Defendants’ vehicle did not have any wheelchair lift at all and,
therefore, he was unable to board. The bus driver did not offer to assist or
accommodate Mr. Serrano in any way. This occurred despite Mr. Serrano calling
FlixBus’s customer service in advance and confirming there would be appropriate
wheelchair access.
45.
Though there have been occasions where FlixBus offered Mr. Serrano
reimbursement if he could not board another vehicle through FlixBus within a
reasonable time, those offers have largely been unsatisfactory and insufficient to
resolve Defendants’ breaches of their legal duties. For example, on the evening of
March 5, 2019, Mr. Serrano was unable to board his scheduled Los Angeles-bound
bus in San Diego due to an inoperable wheelchair lift. The driver asked Mr. Serrano
if he could get up from his wheelchair and walk. When Mr. Serrano indicated that he
could not, the driver said she could not let Mr. Serrano board the bus. The driver
also told Mr. Serrano that no one notified her there would be a passenger in a
wheelchair, despite Mr. Serrano having informed FlixBus through its online booking
system. Prior to the bus departing, Mr. Serrano contacted FlixBus customer service
about the situation. The agent did not attempt to rectify Mr. Serrano being denied
access to the bus, but instead presented him with two less helpful options: take the
next bus, which was scheduled to arrive the following day, or take other
transportation back to Los Angeles and receive reimbursement from FlixBus. The
bus then departed without Mr. Serrano, leaving him stranded overnight while he
awaited alternate transportation. Mr. Serrano eventually took Amtrak to Los
Angeles the following morning.
C.
Lack of Driver Training in Operation of Wheelchair Lift
46.
Mr. Serrano has observed several bus drivers on these problematic trips
fail to properly operate the wheelchair lift.
47.
On October 21, 2018, as Mr. Serrano attempted to board a vehicle from
Los Angeles to San Diego, the driver struggled to operate the wheelchair lift and
needed the help of another employee. This employee provided Mr. Serrano with his
business card and instructed Mr. Serrano to call him at the number provided.
Although the driver and other employee were eventually able to deploy the lift, once
Mr. Serrano was on the bus, the lift malfunctioned and rendered the entire bus
inoperable, forcing the other passengers to board a different vehicle. Mr. Serrano,
however, was left stranded on the bus alone for hours before another employee
later arrived to repair the lift. Even after the employee was able to retract the lift to
its stored position, the driver still did not directly transport Mr. Serrano to San Diego.
Instead, he drove Mr. Serrano to a bus yard, where a technician further inspected the
lift to ensure that it would continue to operate. Though Mr. Serrano eventually
reached San Diego, he arrived at his destination several hours after his fellow
passengers.
48.
After the October 21 incident, Mr. Serrano called the telephone number
provided by the employee. On the call, a FlixBus customer service representative
intimidated Mr. Serrano, accused Mr. Serrano of causing problems for FlixBus, and
told Mr. Serrano not to use the company’s services again.
49.
Similarly, on a return trip from San Diego to Los Angeles on May 31,
2019, the driver initially struggled to operate the wheelchair lift and then failed to
correctly fold down the seats. Mr. Serrano had to request the assistance of other
passengers to fold the seats so he could maneuver his wheelchair on the bus. The
driver also failed to secure the front two wheels of Mr. Serrano’s wheelchair,
resulting in a dangerous travel experience in which he was fortunate to not be
injured.
D.
FlixBus Is Aware of These Problems.
50.
Mr. Serrano has submitted multiple complaints regarding the incidents
described above to FlixBus’s customer service through its website and by telephone.
On April 29, 2019, Daniel Hirsch, Senior Manager of Customer Service at FlixBus,
emailed Mr. Serrano and admitted that the company has not been following proper
wheelchair lift procedures. Specifically, Mr. Hirsch admitted that FlixBus has not
been following United States Department of Transportation (“DOT”) regulations for
pre-trip inspections “as they pertain to testing the safe operation of the lift prior to
beginning their runs.” Mr. Hirsch further stated that he forwarded Mr. Serrano’s
complaint to FlixBus’ Regional Operations Manager. FlixBus provided no further
response to Mr. Serrano and subsequent problematic trips taken by Mr. Serrano
demonstrated that these concerns were not addressed.
51.
Prior to filing this lawsuit, Plaintiff provided FlixBus with ample
opportunity to resolve this matter amicably. Regrettably, those efforts were
unsuccessful, and Plaintiff was left with no choice but to seek the Court’s assistance.
VII. CLASS DEFINITIONS AND ALLEGATIONS
52.
Plaintiff realleges and incorporates by reference each of the preceding
paragraphs of this Complaint, as if fully set forth herein.
53.
Plaintiff brings this action on behalf of himself and others similarly
situated pursuant to Rule 23(a) and Rule 23(b)(2) of the Federal Rules of Civil
Procedure. As set forth below, this action may be maintained as a class action under
Rule 23(b)(2) because Defendants’ violations of the ADA and Unruh Act are
applicable to all members of the Classes (defined below). An injunction requiring
compliance with the ADA and Unruh Act, including all applicable guidelines and
regulations, is therefore appropriate.
A.
Class Definitions
54.
Plaintiff seeks to represent the following national injunctive relief
classes under Rule 23(b)(2) (collectively, the “National Classes”):
FlixBus National Class: All individuals in the United States
who require use of a wheelchair (or other mobility device) as necessary for their
mobility and daily living and are located in an area where FlixBus offers, arranges,
or provides transportation services.
TourCoach National Class: All individuals in the United States
who require use of a wheelchair (or other mobility device) as necessary for their
mobility and daily living and are located in an area where TourCoach offers,
arranges, or provides transportation services.
USA Coach National Class: All individuals in the United States
who require use of a wheelchair (or other mobility device) as necessary for their
mobility and daily living and are located in an area where USA Coach offers,
arranges, or provides transportation services.
55.
Class Members of the National Classes are referred to herein,
collectively, as the “National Class Members.”
56.
Plaintiff also seeks to represent the following California classes
(collectively, the “California Classes”) (together with the National Classes, the
“Classes”):
FlixBus California Class: All individuals in California who
require use of a wheelchair (or other mobility device) as necessary for their mobility
and daily living and are located in an area where FlixBus offers, arranges, or
provides transportation services.
TourCoach California Class: All individuals in California who
require use of a wheelchair (or other mobility device) as necessary for their mobility
and daily living and are located in an area where TourCoach offers, arranges, or
provides transportation services.
USA Coach California Class: All individuals in California who
require use of a wheelchair (or other mobility device) as necessary for their mobility
and daily living and are located in an area where USA Coach offers, arranges, or
provides transportation services.
57.
Class Members of the California Classes are referred to herein,
collectively, as the “California Class Members.”
58.
Plaintiff reserves the right to amend or further define these Classes, or
this Complaint, through additional pleadings, evidentiary hearings, a class
certification motion and/or hearings, and order of this Court. These Classes may be
further sub-classed if necessary, and Plaintiff reserves the right to do so.
B.
Numerosity—Fed. R. Civ. P. 23(a)(1)
59.
Plaintiff does not know the exact size of the Classes nor the identities of
the Class Members since such information is in the exclusive control of Defendants.
It is generally accepted that there are approximately 2.7 million people in the United
States who have disabilities and use wheelchairs or a similar device for mobility.6
Plaintiff believes that due to the millions of customers who, according to FlixBus,
travel or attempt to travel using FlixBus’ transportation service each year in the
United States, there would be thousands who travel or attempt to travel on
Defendants’ vehicles through FlixBus. Together with the potentially hundreds or
thousands of persons who use wheelchairs who may desire to use the FlixBus
transportation service each month in the United States, the number of Class Members
in each of the Classes is sufficiently numerous and dispersed throughout the United
States. Therefore, it is impracticable to bring or join all Class Members before the
6 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4397418/ (last accessed 4/17/20)
Court. The names and addresses of certain Class Members can be obtained from
Defendants’ records.
C.
Existence and Predominance of Common Questions of Fact and Law—
Fed. R. Civ. P. 23(a)(2)
60.
Numerous questions of fact and law are common to the Classes,
including but not limited to the following:
a.
Whether Plaintiff and the Class Members have been denied the
right to full and equal enjoyment of Defendants’ goods, services, facilities,
privileges, advantages, or accommodations in violation of the ADA and Unruh Act.
b.
Whether Defendants are required by the ADA and Unruh Act to
maintain operational wheelchair lifts on vehicles used in their transportation services;
c.
Whether the lack of a wheelchair lift on the vehicles used in
Defendants’ transportation services violates the ADA and Unruh Act;
d.
Whether the broken or malfunctioning wheelchair lifts on the
vehicles used in Defendants’ transportation services violate the ADA and Unruh Act;
e.
Whether Defendants are required by the ADA and Unruh Act to
train personnel to properly operate wheelchair lifts on vehicles used in their
transportation services;
f.
Whether Defendants properly trained their personnel to operate
wheelchair lifts on vehicles used in their transportation services, and whether that
training, or the lack thereof, violated the ADA and Unruh Act;
g.
Whether Defendants had policies and procedures in place
sufficient to ensure compliance with the ADA and Unruh Act;
h.
Whether Defendants otherwise acted properly to ensure sufficient
compliance with the ADA and Unruh Act;
i.
Whether Defendants are individually and/or jointly liable for the
unlawful conduct alleged herein due to their individual and/or joint ownership,
operation, maintenance, development, control, and/or leasing of the property that is
the subject of this litigation;
j.
Defendants’ intent in committing the wrongful acts alleged
herein;
k.
Whether Plaintiff and Class Members are entitled to declaratory,
injunctive, and/or other equitable relief; and
l.
Whether Plaintiff and Class Members are entitled to an award of
attorneys’ fees and costs incurred in bringing this action.
D.
Typicality—Fed. R. Civ. P. 23(a)(3)
61.
Plaintiff’s claims are typical of the claims of Class Members. Plaintiff
is typical of the members of the Classes because he uses a wheelchair for mobility, is
located in at least one of the areas where Defendants offer or provide transportation
services, and during his travels or attempted travels with Defendants was denied
access substantially equal to nondisabled passengers in the manner described above.
Defendants’ unlawful practices, as alleged above, were employed similarly to each
Class Member. Defendants engaged in a common course of conduct involving
similar or identical plans, policies, procedures, intent, design, statutory violations,
and schemes—or systemic lack thereof. The injuries sustained by Plaintiff and the
Class Members arise from a common nucleus of operative facts involving
Defendants’ misconduct.
E.
Adequacy—Fed. R. Civ. P. 23(a)(4)
62.
Plaintiff will fairly and adequately represent and protect the interests of
the Classes and does not have interests that are antagonistic to or in conflict with
those he seeks to represent. Furthermore, Plaintiff has retained counsel with
considerable experience in class actions, disability rights, and other forms of
complex litigation.
63.
Prosecution of separate actions by individual Class Members will create
the risk of adjudications with respect to individual Class Members, which would, as a
practical matter, establish incompatible standards of conduct for Defendants and be
dispositive of the interests of Class Members who are not parties to those
adjudications, and would or could substantially impair or impede their ability to
protect their interests.
G.
Injunctive and Declaratory Relief Is Appropriate—Fed. R. Civ. P.
23(b)(2)
64.
Defendants have acted, failed, or refused to act on grounds generally
applicable to the Classes, thereby making final injunctive relief or declaratory relief
appropriate with respect to the Injunctive Class as a whole.
FIRST CLAIM FOR RELIEF
Violation of Title III of the Americans with Disabilities Act by Defendants
(42 U.S.C. §§ 12101 et seq.)
65.
Plaintiff realleges and incorporates by reference each of the preceding
paragraphs of this Complaint, as if fully set forth herein.
66.
Defendants are private entities subject to Title III of the ADA that own,
lease (or lease to), or operate public accommodations and are primarily engaged in
the business of transporting people. 42 U.S.C. §§ 12181(6), 12182, 12184.
67.
Title III of the ADA 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).
68.
Likewise, 42 U.S.C. § 12184(a) prohibits discrimination against
individuals “on the basis of disability in the full and equal enjoyment of specified
public transportation services provided by a private entity that is primarily engaged
in the business of transporting people and whose operations affect commerce.”
69.
The Attorney General is responsible for implementing the foregoing
statute by promulgating regulations. 42 U.S.C. § 12186(a)(2) and (b).
70.
Entities that provide public accommodations or public transportation
services may not impose “eligibility criteria” that tend to screen out people with
disabilities, 42 U.S.C. §§ 12182(b)(2)(A)(i), 12184(b)(1), 49 C.F.R. § 37.5(f); and
may not purchase or lease an OTRB that does not comply with the U.S. Department
of Transportation (“DOT”) regulations issued under 42 U.S.C. §§ 12182(b)(2)(D),
12184(b)(4)(A) and 12186(a)(2).
71.
Defendants’ conduct, as alleged above, violates Title III of the ADA and
the federal regulations promulgated pursuant thereto, including but not limited to
DOT regulations issued under 42 U.S.C. §§ 12182(b)(2)(D), 12184(b)(4)(A) and
12186(a)(2). See generally 49 C.F.R., part 37.
72.
Defendants have violated Title III of the ADA by, among other things,
failing to operate their services on a nondiscriminatory basis; failing to ensure that
Plaintiffs and the National Class Members who are disabled have full and equal
enjoyment of the services, facilities, privileges, advantages, or accommodations
provided by Defendants; failing to modify practices, policies, and procedures to
ensure that personnel and drivers of FlixBus vehicles are properly trained and do not
deny access to individuals on the basis of disability; and failing to train their
employees to operate their equipment to provide services to those with physical
disabilities. 42 U.S.C. §§ 12182(b)(2)(A)(ii), 12184(b)(2)(A); 49 C.F.R. § 37.5(f);
28 C.F.R. § 36.302(a).
73.
As large operators of fixed route services, Defendants further violated
Title III of the ADA by failing to ensure that one hundred percent of the buses in
their fleets are “readily accessible to and usable by individuals with disabilities,”
particularly those who use wheelchairs or similar mobility aids. 49 C.F.R.
§ 37.185(b). However, even if Defendants are considered small operators of fixed
route OTRBs, Defendants have otherwise violated the ADA by failing to provide
accessible buses given proper notice and as otherwise set forth herein. 49 C.F.R.
§ 37.193(a)(1).
74.
By Defendants administering their transportation services in a manner
that results in individuals with disabilities being denied access to these services on
the basis of disability, Defendants are unlawfully denying Plaintiff and National
Class Members full and equal access to the services, privileges, advantages, and
accommodations of FlixBus. 42 U.S.C. § 12182(b)(1)(D); 28 C.F.R. § 36.204.
75.
Defendants have also failed to “maintain in operative condition those
features of facilities and vehicles that are required to make the vehicles and facilities
readily accessible to and usable by individuals with disabilities,” such as wheelchair
lifts, and violated the ADA by requiring or requesting that Plaintiff and National
Class Members reschedule their trips, or travel at times other than the one requested,
“in order to receive transportation as required” by the regulations. 49 C.F.R.
§§ 37.161, 37.207(c).
76.
Defendants have further failed to “establish a system of regular and
frequent maintenance checks of lifts sufficient to determine if they are operative,” to
“ensure that vehicle operators report [], by the most immediate means available, any
failure of a lift to operate in service,” and to take any “vehicle [with a non-operative
lift] out of service before the beginning of the vehicle’s next trip and ensure that the
lift is repaired before the vehicle returns to service. 49 C.F.R. § 37.203.
77.
Defendants have further violated the ADA by failing to ensure that their
personnel are trained to “proficiency, as appropriate to their duties, so that they
operate vehicles and equipment safely and properly assist and treat individuals with
disabilities who use the service in a respectful and courteous way, with appropriate
attention to the difference among individuals with disabilities.” 49 C.F.R. § 37.173.
78.
By engaging in the actions and omissions described herein, Defendants
have violated the foregoing statutory and regulatory provisions. Pursuant to 42
U.S.C. § 12188 and the remedies, procedures, and rights set forth and/or incorporated
therein, Plaintiff prays for judgment on behalf of himself and the National Class
Members as set forth below.
79.
Defendants’ violations of the ADA as alleged herein entitle Plaintiff and
the National Class Members to declaratory and injunctive relief to compel
Defendants to comply with their obligations under this law. Plaintiff and the
National Class Members have suffered and continue to suffer injuries for which they
have no adequate remedy at law. The injuries of Plaintiff and the National Class
Members are traceable to Defendants’ discriminatory conduct, policies, or lack of
policies alleged herein and will be redressed by the relief requested.
80.
Defendants’ conduct constitutes ongoing and continuous violations of
the ADA. Unless the Court enjoins Defendants from continuing to engage in these
unlawful practices, Plaintiff and the National Class Members will continue to suffer
irreparable harm. Consequently, Plaintiff and National Class Members are entitled to
injunctive relief. 42 U.S.C. § 12188. Defendants’ violations also warrant Plaintiff to
recover reasonable attorneys’ fees and costs incurred in bringing this action. Id.
§ 12205.
SECOND CLAIM FOR RELIEF
Violation of the California Unruh Civil Rights Act by Defendants
(Cal. Civ. Code §§ 51 et seq.)
81.
Plaintiff realleges and incorporates by reference each of the preceding
paragraphs of this Complaint, as if fully set forth herein.
82.
California’s Unruh Act prohibits discrimination against individuals with
disabilities. California Civil Code § 51(b) provides, in pertinent part: “All persons
within the jurisdiction of this state are free and equal, and no matter what their . . .
disability . . . are entitled to the full and equal accommodations, advantages,
facilities, privileges, or services in all business establishments of every kind
whatsoever.”
83.
Each violation of the ADA also constitutes an independent violation of
the Unruh Act. Cal. Civ. Code § 51(f). Therefore, each of Defendants’ ADA
violations against Plaintiff and the California Class Members alleged herein
constitute independent violations of the Unruh Act for those trips departing from, or
arriving to, California.
84.
In committing the acts herein alleged, Defendants have violated the
Unruh Act by discriminating against Plaintiff and the California Class Members on
the basis of their disabilities and use of a wheelchair.
85.
As a direct and proximate result of Defendants’ conduct, Plaintiff has
suffered damages and other harm.
86.
Plaintiff and the California Class Members are entitled to injunctive
relief to prevent Defendants from further violating the Unruh Act. Cal. Civ. Code
§ 52(c)(3). Plaintiff is also entitled to recover up to treble his actual damages
according to proof, as well as to reasonable attorneys’ fees and costs incurred in
bringing this action. Cal. Civ. Code § 52(a).
THIRD CLAIM FOR RELIEF
Violation of the California Unfair Competition Law by Defendants
(Cal. Bus. & Prof. Code §§ 17200 et seq.)
87.
Plaintiff realleges and incorporates by reference each of the preceding
paragraphs of this Complaint, as if fully set forth herein.
88.
The acts of Defendants that are alleged herein constitute unlawful,
unfair, and fraudulent business practices in violation of California Business and
Professions Code §§ 17200 et seq.
89.
As alleged above, Defendants falsely claimed to offer full and equal
access to its transportation services for everyone, including people with disabilities
who use wheelchairs. Defendants’ conduct thus constitutes a fraudulent business
practice because it is likely to mislead or deceive the general public; and indeed, as
the experiences of Plaintiff and the Class Members demonstrate, it already has.
90.
Defendants’ conduct constitutes an unlawful business practice in
violation of California Business and Professions Code §§ 17200 et seq. because it
violates the ADA and Unruh Civil Rights Act. Defendants’ false advertising further
constitutes an unlawful business practice because it violates California Business and
Professions Code §§ 17500 et seq., which prohibits these types of false or misleading
public statements.
91.
Additionally, Defendants’ conduct that discriminates on the basis of
disability constitutes an unfair business practice in violation of California Business
and Professions Code §§ 17200 et seq. because it is immoral, unethical, oppressive,
unscrupulous, and substantially injurious to customers with disabilities. Defendants’
conduct offends established public policies for equal and fair treatment of persons
with disabilities.
92.
Defendants’ conduct constitutes an unfair business practice because the
impact of Defendants’ false statements on Plaintiff and the Class Members far
outweigh whatever reasons, justifications, or motivations Defendants had or could
have had in making such statements. Defendants’ conduct also offends established
public policies prohibiting false and misleading public statements. Defendants’
conduct is immoral, unethical, oppressive, unscrupulous or substantially injurious to
consumers such as Plaintiff and the Class Members.
93.
Plaintiff has no adequate remedy at law in that the continuing nature of
Defendants’ unfair competition will result in ongoing irreparable harm to Plaintiff
and the Class Members. As a direct and proximate result of Defendants’ wrongful
conduct, Plaintiff and the Class Members have been injured in fact, and such harm
will continue unless Defendants’ acts are enjoined.
WHEREFORE, Plaintiff, on behalf of himself and the Class Members, prays
for relief on the Complaint as follows:
1.
An order certifying the National and California classes, pursuant to
Rules 23(a) and 23(b)(2) of the Federal Rules of Civil Procedure;
2.
A declaration that Defendants’ conduct as alleged herein has violated,
and continues to violate, Title III of the ADA, 42 U.S.C. §§ 12181 et seq. (and
applicable regulations) and Cal. Civ. Code §§ 51 et seq.;
3.
Preliminary and permanent orders and judgment enjoining Defendants,
their agents, employees, successors, and all other persons in active concert or
participation with Defendants from violating Title III of the ADA,
42 U.S.C. §§ 12181 et seq. and its implementing regulations, and Cal. Civ. Code
§§ 51 et seq.; and requiring Defendants to undertake remedial measures to mitigate
the effects of Defendants’ past and ongoing failure to provide full and equal access to
persons with disabilities. At a minimum, Plaintiff and the Class Members request
that Defendants be enjoined to take the following actions:
a.
Cease all action against individuals with mobility impairments
that have the effect of discrimination on the basis of their disability;
b.
Ensure that only accessible OTRBs are used in Defendants’
transportation services, or otherwise purchase (or require the purchasing of)
accessible OTRBs that comply with federal and state disability rights laws;
c.
Ensure that any new vehicles purchased for Defendants’
transportation services are accessible and comply with federal and state disability
rights laws;
d.
Perform immediate inspections of all OTRBs used in Defendants’
transportation services to ensure that the vehicles’ accessible features, including
wheelchair lifts, are in operative condition;
e.
Immediately remove from service any OTRBs owned, operated,
and/or utilized by Defendants that have accessibility features that are not in operative
condition;
f.
Establish a system of regular and frequent mandatory
maintenance checks of Defendants’ OTRBs to ensure that:
i.
accessibility features are in operative condition; and
ii.
personnel are promptly informed of vehicles that have non-
operative accessibility features;
g.
Undertake prompt measures to eliminate physical-based, policy-
based, or practice-based barriers to make Defendants accessible to individuals with
disabilities in compliance with federal and state disability rights laws, including the
development of written policies and other guidance documents;
h.
Properly train all personnel to provide access to Defendants’
services to individuals with disabilities and to treat such individuals with courtesy
and respect in accordance with federal and state disability rights laws;
i.
Maintain records of all requests for, and the provision of,
wheelchair accessible vehicles;
j.
Ensure that Defendants’ drivers are informed in advance of each
trip when they will be transporting passengers with disabilities, and in such
instances, ensure that drivers conduct adequate pre-trip inspections of vehicles for
compliance with all relevant federal and state laws and regulations;
k.
Submit to inspection by an independent monitor for a specified
term, to ensure full and adequate implementation of these remedial measures;
l.
Correct their advertising that falsely claims to offer their services
on an equal basis with customers without disabilities (until such time as monitoring
concludes that the statement is reasonably true); and
m.
Remain under this Court’s jurisdiction until Defendants fully
comply with the orders of this Court, and until there are reasonable assurances that
Defendants will continue to comply in the future, absent continuing jurisdiction.
4.
Award Plaintiff up to treble his actual damages in an amount to be
determined by proof, including but not limited to damages under California Civil
Code section 52(a) and as otherwise provided by law;
5.
Award any other damages as may be allowed under the laws set forth
above;
6.
An order awarding Plaintiff’s attorneys’ fees and costs as provided by
law; and
7.
Such other and further relief as the Court may deem just and proper.
Dated: May 14, 2020
Respectfully submitted,
STROOCK & STROOCK & LAVAN LLP
STEPHEN J. NEWMAN
DUSTIN A. LINDEN
GAGANJYOT K. SANDHU
DISABILITY RIGHTS LEGAL CENTER
CHRISTOPHER H. KNAUF
ALEXANDRA M. ROBERTSON
BRENDAN HAMME
By: /s/ Stephen J. Newman______
Stephen J. Newman
Attorneys for Plaintiff
FRANCISCO SERRANO, on behalf of
himself and all others similarly situated
Plaintiff Francisco Serrano and the Class Members demand a jury trial in this
action for all claims so triable.
Dated: May 14, 2020
Respectfully submitted,
STROOCK & STROOCK & LAVAN LLP
STEPHEN J. NEWMAN
DUSTIN A. LINDEN
GAGANJYOT K. SANDHU
DISABILITY RIGHTS LEGAL CENTER
CHRISTOPHER H. KNAUF
ALEXANDRA M. ROBERTSON
BRENDAN HAMME
By: /s/ Stephen J. Newman______
Stephen J. Newman
Attorneys for Plaintiff
FRANCISCO SERRANO, on behalf of
himself and all others similarly situated
| discrimination |
OfaVE4cBD5gMZwczuliB | UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
AT HOUSTON
Daniel Gonzales,
)
On behalf of himself and all others
)
similarly situated,
)
)
Plaintiff,
)
)
Civil No. ________________
v.
)
)
JURY DEMAND
Brand Energy & Infrastructure
)
Services, Inc., f/n/a and/or d/b/a
)
Brand Energy, Inc.,
)
Brand Services, LLC,
)
Brand Energy Solutions, LLC,
)
Brand Scaffold Services, LLC, and
)
Brand Scaffold Rental and Erection, LLC )
)
Defendants.
)
COMPLAINT FOR VIOLATIONS OF THE FAIR LABOR STANDARDS ACT AND
FOR DECLARATORY RELIEF, PERMANENT INJUNCTION, QUANTUM MERUIT
RECOVERY OF UNPAID WAGES AND UNJUST ENRICHMENT UNDER TEXAS
LAW ON BEHALF OF THE PLAINTIFF CLASS
Plaintiff Daniel Gonzales (“Plaintiff”), by his counsel, alleges this class action complaint
for himself and upon all others similarly situated, based upon: (i) his own personal knowledge;
(ii) his own acts and the acts and statements of the above-named defendant in which plaintiff
participated directly, including the communications with, representations made, and
documentation and information provided to plaintiff by defendant in the ordinary course of
business; and (iii) the investigation of his counsel. Counsel's investigation conducted on
plaintiff’s behalf, included, among other things: (i) a thorough analysis of publicly-available
news articles and reports; (ii) a review and analysis of public filings, including but not limited to
any by defendant; and (iii) other matters of public record. The allegations as to all other matters
are based upon investigation by plaintiff’s attorneys and research of the applicable law with
respect to the claims asserted herein.
NATURE OF THE ACTION
1.
Plaintiff brings this action as a collective action, on behalf of all persons similarly
situated, (the “Collective Group”) for violations of the Fair Labor Standards Act (“FLSA”), 29
U.S.C. §201 et seq., by Brand Energy & Infrastructure Services, Inc., f/n/a and/or d/b/a Brand
Energy, Inc., Brand Services, LLC, Brand Energy Solutions, LLC, Brand Scaffold Services,
LLC, and Brand Scaffold Rental and Erection, LLC (“Brand” or “Defendant”). Specifically,
Plaintiff seeks to represent the former and current construction and refinery workers employed
by Brand, for failure to compensate for hours worked in excess of 40 hours per week at the
applicable federal and state mandated rates. This action also brings claims under Texas law on
behalf of a class of employees (the “Texas Class Members”) for recovery of unpaid wages owed
for work performed, but not compensated.
JURISDICTION AND VENUE
2.
This Court has original federal question jurisdiction under 28 U.S.C. § 1331
insofar as this case is brought under the Fair Labor Standards Act, 29 U.S.C. §§ 201, et seq.
(“FLSA”). The Court has supplemental jurisdiction over the Texas state law claims under 28
U.S.C. §1367 because those claims arise out of the same controversy at issue in the federal
claim.
3.
Venue is proper in the Southern District of Texas pursuant to 28 U.S.C. § 1391(b)
and 28 U.S.C. § 1391(c) because 1) Plaintiff resides in this district, 2) a substantial portion of the
events or omissions giving rise to the claim occurred in this district, and 3) Defendant conducts
substantial, continuous and systematic commercial activities in this District.
THE PARTIES
4.
Daniel Gonzales is a citizen of Texas, resides in Houston, Texas, and was
employed by Defendant as a worker at refinery facilities between July 2010 and January 2011.
5.
Defendant Brand is a Delaware corporation and has its Texas location through
Brand Energy Solutions, LLC, which has locations at 10903 Boyt Rd., Beaumont, TX 77705,
and at 1830 Jasmine Drive, Pasadena, TX 77503. Its registered agent is The Corporate Trust
Company, Corporate Trust Center, 1209 Orange Street, Wilmington, DE 19801.
6.
Brand is a diversified provider of specialty multi-craft services to the North
American downstream energy infrastructure market. Its portfolio of services offerings includes
work access, specialty coatings, abrasive blasting, insulation, corrosion protection,
weatherproofing and other related crafts. Brand operates in four key energy sectors: refining,
Canadian oil sands, petrochemical and power generation. Further, Defendant serves the
infrastructure construction markets throughout North America and in strategic international
regions.
7.
At all relevant times, Brand was and is legally responsible for all of the unlawful
conduct, policies, practices, acts and omissions as described in each and all of the foregoing
paragraphs as the employer of Plaintiff, the Collective Group and the Texas Class Members.
8.
At all times material to this action, Defendant was the “employer” of Plaintiff
within the meaning of 29 U.S.C. §203(d). At all times material to this action, Plaintiff was an
“employee” of Defendant as defined by §203(e)(1) of the FLSA, and worked for Defendant
within the territory of the United States within three (3) years preceding the filing of this lawsuit.
9.
At all times material to this action, Defendant was an enterprise engaged in
commerce or in the production of goods for commerce as defined by §203(s)(1) of the FLSA.
10.
At all relevant times, the unlawful conduct against Plaintiff, the Collective Group
and the Texas Class, as alleged herein was actuated, in whole or in part, by a purpose to serve
and benefit Brand to the detriment of its employees. At all relevant times, upon information and
belief, the unlawful conduct alleged herein was reasonably foreseeable and knowingly
disregarded by Brand and committed under actual or apparent authority granted by Brand such
that all of the alleged unlawful conduct is legally attributable to Brand.
11.
The overtime wage provisions set forth in § 206 and § 207 of the FLSA apply to
Brand. Gonzales and similarly-situated employees are or were not in positions of employment
that meet the criteria of any exception or exemption to 29 U.S.C. § 213(a)(1).
FACTUAL BACKGROUND
12.
In July, 2010, Plaintiff Gonzales was hired by Defendant and assigned to the
Exxon Mobil (“Exxon”) facility in Baytown, Texas (the “Exxon Facility”). Gonzales worked for
Defendant as a refinery worker at the Exxon Facility from that time until approximately January
13.
During the course of his employment as a refinery worker at the Exxon Facility,
one of Gonzales’ primary duties was carpentry. Throughout his employment for the Defendant,
Gonzales worked approximately 40 hours per week on most weeks, but also worked overtime
hours up to approximately 55 hours in a given week. Gonzales was not classified as exempt
from overtime, and was paid at the hourly rate of $12.00, and received $18.00 per hour for
overtime. Defendant employed at least 300 employees with job duties and schedules similar to
that of Gonzales during his time employed at Brand.
14.
While employed by the Defendant at the Exxon Facility in Houston, Gonzales and
other similarly situated employees would work the following job schedule during a routine, non-
shutdown week:
a. Between 6:05 AM – 6:10 AM: The employees arrive at the Exxon parking
lot using a personal vehicle.
b. Between 6:07 AM – 6:12 AM: The employees would clear a security
checkpoint utilizing a badge at the gated Shuttle Port in the Exxon parking
lot.
c. 6:12 AM – 6:15 AM: The employees would board the Shuttle for
transportation to the Exxon Facility.
d. 6:20 AM: The Shuttle would arrive at the Exxon Facility and employees
would exit the Shuttle.
e. 6:20 AM – 6:30 AM: The Employees would gather their tools, secure their
hard hats, safety goggles, ear plugs, earmuffs, and work gloves.
Following collection of the necessary tools and safety equipment, the
employees would then meet with the supervisor to review worksite safety,
hazard analysis, and work assignment.
f. 6:30 AM - Noon: The employees would then be transported to the
worksite for the day and work until lunchtime.
g. Noon – 12:30 PM: Unpaid lunch.
h. 12:30 PM – 4:45 PM: After lunch, the employees would return to work at
the worksite.
i. 4:45 PM – 5:00 PM: The employees would leave the worksite for the
Shuttle pickup point.
j. 5:00 PM - 5:15-6:00: The employees would store tools and remove all
safety equipment. After storing all the equipment, the employees would
wait for the Shuttle. Upon its arrival the employees would board the
Shuttle and then transport to the Exxon parking lot.
k. Five to ten minutes after boarding the Shuttle at the end of the day: The
Shuttle arrives at the Shuttle Port and the employees exit the Shuttle.
They pass through the security checkpoint at the gated Shuttle Port and
then are able to enter the parking lot and return to their personal vehicle.
15.
Accordingly, Gonzales and other similarly-situated workers were not properly
compensated for all the hours worked during a given week. Gonzales and other similarly-
situated workers were only compensated for their time beginning with their arrival at their
worksite at the Exxon Facility (approximately 6:30 AM during a non-shutdown week), and
ending when they departed the worksite at the Exxon main facility to return to the Shuttle pick-
up (approximately 5:00 PM during a non-shutdown week). Given that Brand required the
schedule as provided above, the Defendant was aware at all relevant times that its workers were
not being properly compensated for all Unpaid Work Activities (as defined in Paragraph 20
below) and for all hours worked.
16.
Throughout the course of his employment with Defendant, while working at the
Exxon Facility during a shutdown work week where the Exxon Facility was non-operational,
Brand increased the number of employees on the worksite and increased the working hours for
Gonzales and others similarly-situated to approximately 70 hours per week. During a shutdown
week, Gonzales and other similarly-situated employees still were required to perform the same
start-of-workday and end-of-workday routines described in ¶14.
17.
For security reasons, Gonzales and other similarly-situated employees were not
permitted to park their personal vehicles at the Exxon main compound, but rather were required
by Brand to use the Shuttle. Thus, the employees could not access the Exxon Facility, where
their duties were performed, without using the Shuttle.
18.
Gonzales and other similarly-situated employees were instructed that failure to
board the Shuttle for transport to the Exxon Facility by 6:15 AM, would result in the employee
being sent home for the day without pay. Furthermore, employees were warned that repeated
failure to board the Shuttle by the 6:15 AM cut-off would result in the termination of their
employment. Thus, Brand was aware that employees were required to arrive at 6:15 AM to
utilize the Shuttle, and that there was no alternative method of transportation available to the
employees.
19.
Due to the volume of employees exiting the main compound at the end of the
work day, Gonzales and other similarly-situated employees often were forced to wait for periods
of fifteen minutes up to one hour before being able to board the Shuttle. Brand was aware of
such conditions at all relevant times because Brand required the employees utilize the Shuttle.
20.
Gonzales and others similarly-situated routinely worked well over 40 hours per
week. Defendant directed and mandated Gonzales and others similarly-situated to work in
excess of 40 hours per week, but knew that these employees were not being properly
compensated for time spent performing any of the following tasks (collectively referred to
hereinafter as the “Unpaid Work Activities”), which were being performed as part of their job
duties under the direction and control of the Defendant:
a. Badging in at the Shuttle Port security checkpoint and waiting for the
Shuttle;
b. Boarding the Shuttle and transporting to the main compound at Exxon;
c. Unloading from the Shuttle and entering the Exxon main compound;
d. Collecting their tools;
e. Donning their safety gear;
f. Participating in the safety, hazard analysis, and work instruction meeting;
g. Leaving the worksite at the end of the workday and returning to the
Shuttle pick-up point;
h. Storing tools;
i. Doffing safety gear;
j. Boarding the Shuttle and returning to the Exxon parking lot; and,
k. Unloading from the shuttle and badging out of the Shuttle Port security
checkpoint.
21.
Gonzales and all others similarly-situated are entitled to be properly compensated
by Defendant for all hours worked at the Exxon Facility, including all overtime pay for the hours
worked in excess of 40 per week. As a result of the security badging process and the operation
of the Shuttle systems at the Exxon Facility, and the required participation in instructional
meetings and donning and doffing of all safety gear, Defendant knew that Gonzales and all
others similarly-situated were working hours in furtherance of their duties as Brand employees,
as required by Brand, for which they were not being compensated. At all relevant times,
Defendant was aware of the FLSA’s overtime requirements, the hours being worked by
Defendant’s employees, but, nonetheless, willfully elected not to pay Gonzales’s and the other
similarly-situated employees’ overtime owed to them. Consequently, Defendant’s violations of
the FLSA were willful.
22.
Brand required Gonzales and all other similarly-situated employees to purchase
their own equipment, tools and safety gear, including fire retardant covers, hard hat, safety
goggles, ear plugs, earmuffs, work gloves, and steel-toed boots, for use in performing their duties
on the worksite. By requiring Gonzales and other similarly-situated employees to purchase their
own tools and safety gear for use on the worksite, Defendant unlawfully reduced these
employees’ compensation in violation of the FLSA.
COLLECTIVE ACTION ALLEGATIONS UNDER THE FLSA
23.
The First Claim for Relief is properly brought under and maintained as an opt-in
collective action pursuant to § 16(b) of the FLSA, 29 U.S.C. § 216(b).
24.
Gonzales worked for Brand as a refinery worker.
25.
Gonzales’s primary responsibility in this position at Brand was carpentry.
26.
Gonzales brings these FLSA claims on behalf of all similarly-situated employees,
who worked for Brand at any time from three years prior to the filing of the original Complaint
to entry of judgment in this case (collectively the “Class” and each member “Class Members”).
27.
Defendant treated Gonzales, and upon information and belief, and all other
similarly situated construction and refinery workers, similarly in that they refused to properly
compensate them for all hours worked for Brand including overtime. Specifically, Brand failed
to provide any compensation to Gonzales and the Collective Group for time spent on Unpaid
Work Activities.
28.
Since the time spent on the Unpaid Work Activities by the Collective Group
would have been in excess of 40 hours of work per week, Defendant failed to compensate
Gonzales, and upon information and belief, the Collective Group for the hours worked in excess
of 40 per week at a rate of one-and-one-half times their regular rate of pay.
29.
Gonzales and the Collective Group do not qualify as exempt employees, as
defined by the FLSA or the applicable Federal regulations.
30.
Gonzales and the Collective Group are similarly situated, have substantially
similar job requirements and pay provisions, and are subject to Defendant’s common practices
that violate FLSA labor statutes.
31.
Defendant has willfully and intentionally engaged in a widespread, continuous
pattern and practice of violating the provisions of the FLSA, as detailed herein, by failing to
properly compensate Gonzales and the Collective Group for time spent on the Unpaid Work
Activities and for failing and refusing to pay the proper hourly wage compensation of current
and former employees, including Gonzales, and all others similarly situated, in accordance with
§ 206 and § 207 of the FLSA.
32.
As a result of the Defendant’s willful violations of the FLSA in failing to properly
compensate its workers for the time spent on the Unpaid Work Activities and any overtime
accrued as a result, a three-year statute of limitations from the filing of the original Complaint
applies to such violations, pursuant to 29 U.S.C. § 255.
33.
Defendant is liable under the FLSA for failing to properly compensate Gonzales
and the Collective Group.
34.
As a result of Defendant’s FLSA violations, Gonzales, as well as the Collective
Group, have suffered damages by being denied their earned regular-rate wages and overtime
wages in accordance with § 206 and § 207 of the FLSA.
35.
Defendant has not made a good faith effort to ensure its compliance with the
FLSA with respect to its compensation of Gonzales and other similarly situated present and
former construction and refinery workers at the Exxon Facility.
36.
As a result of Defendant’s unlawful acts, Gonzales and the Collective Group have
been deprived of regular rate compensation and overtime compensation in amounts to be
determined at trial, and are entitled to recovery of such amounts, liquidated damages,
prejudgment interest, attorneys’ fees, costs, and other compensation pursuant to 29 U.S.C. §
37.
Notice to the collective class should be issued on the First Claim for Relief under
the FLSA.
CLASS ACTION ALLEGATIONS UNDER FED. R. CIV. P. 23
38.
Gonzales brings the Texas state law claims as a class action pursuant to Fed. R.
Civ. P. 23, on behalf of all persons who were, are, or will be employed by Defendant to work at
the Exxon Facility on or after the date that is four years before the filing of this Complaint (the
"Texas Class Period").
39.
The Texas Class members are readily ascertainable. The number and identity of
the Texas Class members are determinable from the records of Defendant.
40.
Each Texas Class member’s hours assigned and worked, positions held, and rates
of pay are also determinable from Defendant's records. For purposes of notice and other
purposes related to this action, their names and addresses are readily available from Defendant.
Notice can be provided by means permissible under Fed. R. Civ. P. 23.
41.
The proposed Texas Class is so numerous that joinder of all members is
impracticable, and the disposition of their claims as a class will benefit the parties and the court.
Upon information and belief, there are more than 100 members of the Texas Class.
42.
The claims of the Plaintiff are typical of those claims which could be alleged by
any member of the Texas Class, and the relief sought is typical of the relief which would be
sought by each member of the Texas Class in separate actions.
43.
The Texas Class members were all subject to the same corporate practices of
Defendant, as alleged herein, of failing to pay regular wages and overtime compensation.
Defendant's policies and practices at the Exxon Facility affected all Texas Class members
similarly, and Defendant benefited from the same violations and wrongful acts as to each Texas
Class member. The Plaintiff and other Texas Class members sustained similar losses, injuries,
and damages arising from the same unlawful policies, practices and procedures.
44.
The Plaintiff is able to and will fairly and adequately protect the interests of the
Texas Class and has no interests running antagonistic to the class. The Plaintiff is represented by
attorneys who are experienced and competent in both class action litigation and employment
litigation and have previously represented plaintiffs in wage and hour cases.
45.
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 as individuals. 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.
46.
The adjudication of individual litigation claims would result in a great
expenditure of court and public resources. Treating the claims as a class action would result in a
significant savings of these costs. The prosecution of separate actions by individual members of
the Texas Class would create the risk of inconsistent and/or varying adjudications with respect to
the individual members of the Texas Class, establishing incompatible standards of conduct for
Defendant and result in the impairment of class members' rights and the disposition of their
interests through actions to which they were not parties. Rather, because all the issues before the
Court are common and could be fairly determined in a class action context, the class action is
superior to any the other available methods. In addition, if appropriate, the court can, and is
empowered to, fashion methods to efficiently manage this action as a class action.
47.
Upon information and belief, Defendant violates the Texas Labor Law and State
Department of Labor Regulations. Current employees are often afraid to assert their rights out of
fear of direct or indirect retaliation, especially those with questions surrounding their legal status.
Former employees are hesitant to assert claims because doing so could harm their current
employment and future employment prospects. Class actions provide class members who are not
named in the complaint some degree of protection through anonymity, which allows for the
vindication of their rights while eliminating or reducing these risks.
48.
There are questions of law and fact common to the Texas Class, which
predominate over any questions affecting individual class members, including, but not limited to:
a. Whether Defendant employed the Plaintiff and the Texas Class within the
meaning of Texas law;
b. What proof of hours is sufficient where Defendant failed in its duty to maintain
accurate time records;
c. What were the policies, practices, programs, procedures, protocols, and plans of
Defendant regarding payment of overtime wages for employees at the Exxon Facility;
d. What were the policies, practices, programs, procedures, protocols and plans of
Defendant regarding payment of wages for all hours worked for employees at the
Exxon Facility;
e. Whether Defendant failed and/or refused to pay the Plaintiff and the Texas Class
members pay for all hours worked per workweek within the meaning of Texas law;
f. Whether Defendant failed and/or refused to pay the Plaintiff and the Texas Class
members premium pay for hours worked in excess of 40 per workweek within the
meaning of Texas law;
g. What are and were the policies, practices, programs, procedures, protocols and
plans of Defendant regarding the types of work and labor for which Defendant did not
pay the class members at all.
FIRST CLAIM FOR RELIEF
(For FLSA Violations)
49.
Gonzales hereby realleges and incorporates each and every allegation set forth
above as if fully set forth herein.
50.
Gonzales, through both information and belief alleges that at all relevant times,
Defendant has been, and continues to be, an “employer” engaged in interstate "commerce"
within the meaning of the FLSA, 29 U.S.C. § 203. At all relevant times, Defendant has
employed, and continues to employ, the Collective Group as “employee[s]” within the meaning
of the FLSA. At all relevant times, Defendant has had gross operating revenues in excess of
$500,000.
51.
Throughout the statute of limitations period covered by these claims, Gonzales
and the Collective Group regularly spent time on Unpaid Work Activities as directed by Brand,
but were not properly compensated for such time.
52.
Gonzales and the Collective Group do not fall within any exempted class of
employees under 29 U.S.C. § 213 from the minimum wage and overtime requirements of the
FLSA.
53.
At all relevant times, Defendant operated under and continues to operate under a
decision, policy and plan, and under common policies, programs, practices, procedures,
protocols, routines and rules that willfully fail and refuse to pay the Plaintiff and the Collective
Group at the rate mandated by 29 U.S.C. § 206(a)(1).
54.
Brand violated 29 U.S.C. § 206(a)(1) by failing to pay Gonzales and the
Collective Group for arriving to work early and spending extra time on the Unpaid Work
Activities as directed by Brand.
55.
At all times relevant, Brand was required under 29 U.S.C. § 207(a)1) to pay all of
its workers, including Gonzales and the Collective Group, at least one and one-half the normal
rate for time worked in excess of 40 hours per week.
56.
Brand violated 29 U.S.C. § 207(a)(1) by failing to properly pay Gonzales and the
Collective Group one and one-half times the normal rate for time worked in excess of 40 hours
per week, and specifically for time worked on the Unpaid Work Activities.
57.
The extra time that Gonzales and the Collective Group spent at work on the
Unpaid Work Activities was neither preliminary nor postliminary activity. To the contrary, it
was part and parcel of Gonzales’ and Collective Group’s principal employment activity for
Brand, as directed specifically by Brand.
58.
Brand has knowingly and willfully withheld Gonzales’ and the Collective
Group’s wages in violated of 29 U.S.C. § 215(a)(2).
59.
Gonzales and the Collective Group have a private right of action against Brand
under 29 U.S.C. § 216(b) for the amount of their unpaid minimum wages, overtime wages and an
additional equal amount as liquidated damages.
60.
Upon information and belief, Brand possesses records reflecting the hours worked
by Gonzales and the Collective Group throughout the relevant period. These records will clarify
the amount of damages during discovery.
61.
Gonzales and the Collective Group seek damages in the amount of their
respective unpaid regular and overtime compensation, liquidated (double) damages as provided
by the FLSA for overtime violations, attorneys’ fees and costs, injunctive relief requiring
Defendant to cease and desist from its violations of the FLSA described herein and to comply
with the FLSA, and such other legal and equitable relief as this Court deems just and proper.
SECOND CLAIM FOR RELIEF
(For Declaratory Judgment)
62.
Gonzales hereby realleges and incorporates each and every allegation set forth
above as if fully set forth herein.
63.
Brand has knowingly and willfully withheld Gonzales’ and the Collective
Group’s wages in violation of 29 U.S.C. § 215(a)(2).
64.
On information and belief, Brand denies that it has violated the FLSA by failing
to compensate employees for time spent on the Unpaid Work Activities.
65.
This gives rise to an ongoing factual and legal controversy between the parties,
making declaratory relief appropriate.
66.
The Court has power under 28 U.S.C. § 2201(a) and Fed. R. Civ. P. 57 to declare
the rights of the parties with respect to Brand’s timekeeping and payroll practices at the Exxon
Facility.
67.
All persons with an interest in this matter have been made parties or will be given
the opportunity to join as plaintiffs, so declaration will not prejudice the rights of any interested
persons.
68.
The Court should declare that Brand violated the FLSA and continues to violate
the FLSA by denying Gonzales and the Collective Group for time worked and overtime. The
Court should declare that Brand must compensate Gonzales and the Collective Group, at the
appropriate rates mandated by law, for time spent on the job on the Unpaid Work Activities.
THIRD CLAIM FOR RELIEF
(For Permanent Injunction)
69.
Gonzales hereby realleges and incorporates each and every allegation set forth
above as if fully set forth herein.
70.
Brand has knowingly and willfully withheld Gonzales’ and the Collective
Group’s wages in violated of 29 U.S.C. § 215(a)(2).
71.
Pursuant to 29 U.S.C. § 217, the Court should enter a permanent injunction
prohibiting Brand from withholding wages due to its employees under the FLSA.
FOURTH CLAIM FOR RELIEF
(Class action under Texas law For quantum meruit recovery of
unpaid wages on behalf of the Class)
72.
Gonzales hereby realleges and incorporates each and every allegation set forth
above as if fully set forth herein.
73.
Brand had an implied agreement with Gonzales and the Texas Class to pay them
wages for the benefit of their labor at the Exxon Facility, which Brand received and knowingly
accepted.
74.
Gonzales and the Texas Class are entitled to recover in quantum meruit from
Brand all non-payment for the services they rendered at the Exxon Facility, as it would result in
an unjust enrichment to Brand for them to have benefited by the work of the Texas Class without
paying the proper wages.
75.
Gonzales and the Texas Class furnished Brand with valuable services undertaking
for its benefit, i.e. their labor, at the Exxon Facility, which Brand accepted.
76.
Gonzales and the Texas Class of employees which worked for Brand at the Exxon
Facility were notified and had a reasonable expectation that they would be paid hourly and
overtime wages for all time spent providing their labor to Brand at the Exxon Facility.
77.
Although Gonzales and the Texas Class have provided hourly labor to Brand at
the Exxon Facility, Brand has knowingly and willfully refused to pay Gonzales and the Texas
Class for all hours worked, and have unreasonably withheld Gonzales’ and other Texas Class
members’ wages.
FIFTH CLAIM FOR RELIEF
(Unjust enrichment on behalf of the Class)
78.
Gonzales hereby realleges and incorporates each and every allegation set forth
above as if fully set forth herein.
79.
Gonzales and the Texas Class supplied Brand with valuable services undertaking
for its benefit, i.e. their labor, at the Exxon Facility, which Brand received and knowingly
accepted, under circumstances which would render it unjust for Brand not to pay Gonzales and
the Texas Class the full value of that labor.
80.
As a result, Brand has been unjustly enriched in this matter.
81.
Gonzales and the Texas Class have no remedy or recovery against any other
source.
82.
Gonzales and the Texas Class are entitled to recover in equity from Brand all non-
payment for the services they rendered at the Exxon Facility.
PRAYER FOR RELIEF
WHEREFORE, Gonzales, individually and on behalf of all other similarly situated
persons pray for the following relief:
A.
Designation of Gonzales as representative of the Collective Group as to the FLSA
Collective Action;
B.
Designation of Gonzales as representative of the Texas Class as to the Class
Action allegations under Texas law;
C.
Declaratory judgment that the practices complained of herein are unlawful under
FLSA;
D.
Certification of this action as a collective action pursuant to the FLSA § 216(b);
E.
Certification of the Texas Class pursuant to Fed. R. Civ. Pro. 23;
F.
An injunction against Defendant and its officers, agents, successors, employees,
representatives, and any and all persons acting in concert with it, as provided by
law, from engaging in each of the unlawful practices, policies, and patterns set
forth herein;
G.
an award of damages, according to proof, including unpaid wages and liquidated
damages pursuant to 29 U.S.C. § 201 et seq., and the supporting United States
Department of Labor regulations;
H.
recovery in quantum meruit for all unpaid wages earned by the Class;
I.
Penalties available under applicable law;
J.
Pre- and post-judgment interest, as provided by law;
K.
Attorneys’ fees and costs; and
L.
Such other relief as this Court shall deem just and proper.
Dated: May 25, 2012
Respectfully Submitted,
OF COUNSEL:
/s/ Patrick M. Flynn_______________________
Patrick M. Flynn, P.C.
Patrick M. Flynn
1225 North Loop West, Suite 1000
Texas State Bar No. 07199200
Houston, TX 77008
1225 North Loop West, Suite 1000
(713) 861-6163 Fax: (713) 961-5566
Houston, TX 77008
(713) 861-6163 Fax: (713) 961-5566
[email protected]
Attorney in Charge for Gonzales and
The Collective Group and Texas Class
OF COUNSEL:
/s/ James G. Stanch
*
James G. Stranch, III (TN #2542)
BRANSTETTER, STRANCH &
Gerard Stranch, IV (TN #23045)
JENNINGS, PLLC
Joe P. Leniski, Jr. (TN #22891)
227 Second Avenue North, 4th Floor
Benjamin A. Gastel (TN #23699)
Nashville, Tennessee 37201-1631
BRANSTETTER, STRANCH & JENNINGS, PLLC
Telephone: (615) 254-8801
227 Second Avenue North, 4th Floor
Facsimile: (615) 255-5419
Nashville, Tennessee 37201-1631
Telephone: (615) 254-8801
Facsimile: (615) 255-5419
[email protected]
[email protected]
[email protected]
[email protected]
John G. Emerson
Emerson Poynter LLP
830 Apollo Lane
Houston, Texas 77058
Telephone: (281) 488-8854
Facsimile: (281) 488-8867
Scott E. Poynter
Christopher D. Jennings
William T. Crowder
Corey D. McGaha
Emerson Poynter LLP
The Museum Building
500 President Clinton Ave, Suite 305
Little Rock, Arkansas 72201
Telephone: (501) 907-2555
Facsimile: (501) 907-2556
Adam J. Levitt
Wolf Haldenstein Adler Freeman & Herz LLP
55 West Monroe St.
Suite 1111
Chicago, Illinois 60603
Telephone: (312) 984-0000
Facsimile: (312) 984-0001
Attorneys for Gonzales and
the Collective Group and Texas Class
*signed by permission
| employment & labor |
_uxQEocBD5gMZwczmSDo | IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
CITY OF RIVIERA BEACH POLICE
OFFICERS’ PENSION FUND, on
behalf of itself and all others similarly
situated,
Plaintiff,
v.
Case No.: 16-cv-9398
CLASS ACTION COMPLAINT
JURY TRIAL DEMANDED
BANK OF AMERICA, N.A.; MERRILL
LYNCH, PIERCE, FENNER & SMITH
INC.; BANK OF AMERICA MERRILL
LYNCH INTERNATIONAL LTD.;
CRÉDIT AGRICOLE CORPORATE AND
INVESTMENT BANK; CREDIT SUISSE
AG; CREDIT SUISSE GROUP AG;
CREDIT SUISSE INTERNATIONAL;
CREDIT SUISSE SECURITIES (USA)
LLC; DEUTSCHE BANK AG;
DEUTSCHE BANK SECURITIES INC.;
NOMURA INTERNATIONAL PLC;
NOMURA SECURITIES
INTERNATIONAL, INC.; HIREN
GUDKA; AMANDEEP SINGH MANKU;
SHAILEN PAU; and BHARDEEP SINGH
HEER,
Defendants.
1.
Plaintiff City of Riviera Beach Police Officers’ Pension Fund (here, “Plaintiff”),
individually and on behalf of all others similarly situated, as defined below, brings this class action
for violation of the Sherman Act, 15 U.S.C. § 1, arising from Defendants’ conspiracy to fix the
prices of supra-national, sub-sovereign, and agency bonds (collectively referred to in this
Complaint as “SSA bonds”) bought or sold in the secondary market by Plaintiff and other
similarly-situated investors.
NATURE OF THE ACTION
2.
This class action stems from Defendants’ conspiracy to artificially inflate the prices
investors paid for SSA bonds and to artificially lower the prices for which they sold SSA bonds in
transactions with Defendants. Plaintiff brings this action on behalf of itself and a proposed Class
of all persons or entities who, from at least as early as January 1, 2011 through at least December
31, 2014 (the “Class Period”), bought or sold SSA bonds.
3.
Governments and instrumentalities of governments issue bonds as a way of
borrowing money. There are three general types of SSA bonds: (1) “supra-national” bonds, which
are issued by entities that are created by one or more sovereign governments, or by stakeholders
from several different countries, such as the World Bank; (2) “sub-sovereign” bonds, which are
issued by entities like local governments (e.g., Canadian provinces or states in the German
federation, known as “länder”); and (3) “agency” bonds, which are issued by government-
sponsored entities (known as “GSEs”) or agencies, which in the United States includes the Federal
Home Loan Mortgage Association (Freddie Mac) and the Federal Home Loan Mortgage
Association (Fannie Mae), social security funds, highway and bridge authorities, utilities, and
public transportation entities.
1
4.
There is no central exchange for buying or selling SSA bonds, which must be
bought or sold “over-the-counter,” where investors, like Plaintiff, transact with a dealer as the
counter-party to the transaction. Plaintiff and other investors looking to invest in agency bonds
have to do so on the so-called “secondary market,” which is the trading market that exists to buy
and sell the bonds after they are initially issued. Banks, like the Bank Defendants (as defined
below) here, are “market-makers” for SSA bonds, buying or selling the bonds directly in
transactions with investors like Plaintiff and members of the proposed class.
5.
Competition among dealers for investors is based on the “bid-ask spread,” which is
the difference between the prices at which a dealer would buy (the “bid”) or sell (the “ask”) the
bond. Customers looking to buy or sell an SSA bond will ask the dealer, or potentially a range of
dealers, what their “bid-ask spread” is for that particular security. The spread is the dealer’s
revenue on the transaction, and the “tighter,” or narrower, the spread, the more competitive the
dealer’s price is to the investor.
6.
Yet instead of competing with each other by narrowing or “tightening” their bid-
ask spreads, the Defendants conspired, to the detriment of Plaintiff and the proposed class, to
artificially inflate their spreads, boosting their own profits at the expense of Plaintiff and other
investors.
7.
Starting in approximately 2011, the Defendants named below participated in illegal,
conspiratorial discussions about their customers, trading patterns, specific trades and spreads,
intending to, and in fact did, fix the bid-ask spreads quoted to investors seeking to buy or sell SSA
bonds on the secondary market. The Bond Trader Defendants (as defined below) communicated
with each other in person and over the phone, but their primary methods of enacting their
conspiracy was online, using private dealer-to-dealer chatrooms, instant-messaging systems, and
2
e-mail. SSA bond traders often communicate with each other in Bloomberg chatrooms, and,
according to an insider quoted in a press article, “created a new chatroom each day to discuss
activity and prices.”1
8.
Government regulators, including the United States Department of Justice (“DOJ”)
discovered the Defendants’ scheme in late 2015, when Bloomberg reported that the DOJ had begun
a criminal probe focusing on “possible manipulation in the trading of agency bonds,”2 with the
article further reporting that the federal government had obtained transcripts of dealers’ chatroom
conversations that may include evidence of improper communications and other wrongdoing. In
early 2016, about a month after news of the DOJ’s investigation first broke, industry press began
reporting on similar investigations of the Bank Defendants and the Bond Trader Defendants being
conducted by both the European Commission (“EC”) and the United Kingdom’s Financial
Conduct Authority (“FCA,” who, according to one article, may be coordinating their investigation
with the DOJ) for alleged collusive activities in the SSA bond market.3 Within weeks of the news
of the European investigations, all four of the Bond Trader Defendants had been removed from
their trading desks pending the outcome of the investigations.4
1 Abhrinav Ramnarayan &Helene Durand, EXCLUSIVE- DoJ investigates bond traders over
market-rigging, Int’l Financing Rev. (Jan. 6, 2016), http://www.ifre.com/exclusive-doj-
investigates-bond-traders-over-market-rigging/21230385.fullarticle.
2 David McLaughlin & Tom Schoenberg, U.S. Said to Probe Possible Rigging in Agency Bond
Market, Bloomberg (Dec. 9, 2015), www.bloomberg.com/news/articles/2015-12-09/u-s-said-to-
probe-possible-rigging-in-agency-bond-market.
3 Craig McGlashan, Owen Sanderson, Ralph Sinclair, & Toby Fildes, Scandal rocks SSA market,
GlobalCapital, (Jan. 7, 2016), www.globalcapital.com/article/vydmn22frhms/trading-scandal-
rocks-ssa-market; Aoife White & Suzi Ring, EU Said to Investigate Possible Rigging of Agency-
Bonds, Bloomberg (Feb. 10, 2016), www.bloomberg.com/news/articles/2016-02-10/eu-said-to-
investigate-possible-rigging-of-agency-bond-market. Gina Chon, Caroline Binham, & Laura
Noonan, DoJ investigates traders over debt-market rigging, Financial Times (Jan. 6, 2016).
4 Id.
3
9.
The modus operandi adopted by the Defendants here and the focus of global
regulatory probes – dealers regularly and secretly using electronic chat rooms, instant-messaging
and other methods to fix or manipulate prices or rates for securities – is exactly the type of conduct
that has resulted in a wave of governmental investigations about how groups of large, global banks
(including some of the Defendants in this case) have manipulated various financial benchmarks
(such as LIBOR and ISDAfix, detailed below) and the pricing of investment products (such as
trading in the foreign-exchange market and the market for U.S. Treasury securities). These
investigations – many of which have resulted in the targeted banks paying fines collectively
amounting to billions of dollars – have all revealed a pattern of regular, frequent, conspiratorial
communications between dealers via online chat rooms, instant messaging, and email.
10.
As a result of Defendants’ conspiracy, Plaintiff and the proposed Class paid inflated
prices for their SSA bond trades. By inflating their bid-ask spreads, Defendants charged Plaintiff
and the proposed Class more for their SSA purchases, and paid them less for their SSA sales, than
the prices that would have prevailed in a competitive market.
11.
Plaintiff’s allegations are made on personal knowledge as to Plaintiff and Plaintiff’s
own acts and upon information and belief, and the investigation of Plaintiff’s counsel and its
economic consultant, as to all other matters. Except as alleged here, Plaintiff and other members
of the proposed Class currently lack access to all of the underlying facts relating to Defendants’
anticompetitive behavior. Rather, this information is exclusively possessed and controlled by the
Defendants and other insiders, which prevents Plaintiff from further detailing Defendants’
misconduct. Moreover, the pending global regulatory investigations by the DOJ, FCA, and EC of
Defendants’ SSA bond price manipulation could yield information from Defendants’ internal
records or personnel that bears significantly on Plaintiff’s and the Class’s claims. Plaintiff thus
4
believes that further evidentiary support for its allegations will come to light after a reasonable
opportunity for discovery.
JURISDICTION AND VENUE
12.
This Court has subject matter jurisdiction over this action pursuant to Sections 4
and 16 of the Clayton Act (15 U.S.C. §§ 15(a) and 26), and pursuant to 28 U.S.C. §§ 1331 and
1337(a).
13.
Venue is proper in this District pursuant to 15 U.S.C. §§ 15(a) and 22, and pursuant
to 28 U.S.C. § 1391(b), (c), and (d), because during the Class Period, all Defendants resided,
transacted business, were found, or had agents in this District; a substantial part of the events or
omissions giving rise to these claims occurred in this District; and a substantial portion of the
affected interstate trade and commerce discussed herein was carried out in this District.
14.
This Court has personal jurisdiction over Defendants pursuant to the nationwide
contacts test provided for in 15 U.S.C. § 22, because Defendants, as set forth below, were formed
in, have their principal places of business in, have locations in, or have substantial contacts with
the United States in general and this District specifically. In addition, this Court has personal
jurisdiction over Defendants because each Defendant transacted business throughout the United
States, including in this District; bought and sold SSA bonds throughout the United States,
including in this District; had substantial contacts with the United States, including in this District;
committed overt acts in furtherance of their conspiracy in the United States. In addition,
Defendants’ conspiracy was directed at, and had the intended effect of, causing injury to persons
residing in, located in, or doing business throughout the United States, including in this District.
5
15.
The activities of Defendants and their co-conspirators were within the flow of, were
intended to, and did have a substantial effect on the foreign and interstate commerce of the United
PARTIES
16.
Plaintiff City of Riviera Beach Police Officers’ Pension Fund is a pension plan
located in Riviera Beach, Florida. During the Class Period, Plaintiff purchased or sold one or more
U.S.-dollar-denominated SSA bonds, and was harmed as a consequence of Defendants’ unlawful
conduct.
17.
Bank of America. Defendant Bank of America, N.A. is a federally chartered
national banking association with its principal place of business in Charlotte, North Carolina.
18.
Defendant Merrill Lynch, Pierce, Fenner & Smith Inc. is a corporation organized
under the laws of Delaware with its principal place of business in New York, New York.
19.
Defendant Bank of America Merrill Lynch International Ltd. is a subsidiary of
Bank of America, N.A., with its principal place of business located in London, England.
20.
Defendants Bank of America, N.A., Merrill Lynch, Pierce, Fenner & Smith Inc.,
Bank of America Merrill Lynch Int’l Ltd., and their parents, subsidiaries, and affiliates are
referenced collectively in this Complaint as “Bank of America.” During the Class Period, Bank of
America purchased SSA bonds from and sold SSA bonds to members of the Class in the United
States. During a portion of the Class Period, Bank of America employed Bond Trader Defendants
Amandeep Singh Manku and Hiren Gudka, both of whom are SSA bond traders under
investigation by the DOJ. Bond Trader Defendant Manku was also employed by Defendant Crédit
Agricole during another portion of the Class Period, and Bond Trader Defendant Gudka was also
employed by Defendant Deutsche Bank during another portion of the Class Period.
6
21.
Crédit Agricole. Defendant Crédit Agricole Corporate and Investment Bank is a
bank organized and existing under the laws of France with its principal place of business in Paris,
France, and with branch locations in New York, New York.
22.
Defendant Crédit Agricole Corporate and Investment Bank and its parents,
subsidiaries, and affiliates are referenced collectively in this Complaint as “Crédit Agricole.”
During the Class Period, Crédit Agricole purchased SSA bonds from and sold SSA bonds to
members of the Class in the United States. During a portion of the Class Period, Crédit Agricole
employed Bond Trader Defendants Amandeep Singh Manku and Shailen Pau, both of whom are
SSA bond traders under investigation by the DOJ. Bond Trader Defendant Manku was also
employed by Defendant Bank of America during another portion of the Class Period, and Bond
Trader Defendant Pau was also employed by Defendant Credit Suisse during another portion of
the Class Period.
23.
Credit Suisse. Defendant Credit Suisse Group AG is a corporation organized and
existing under the laws of Switzerland with its principal place of business in Zurich, Switzerland.
24.
Defendant Credit Suisse AG is a wholly owned subsidiary of Credit Suisse Group
AG and is a bank organized and existing under the laws of Switzerland with its principal place of
business in Zurich, Switzerland. Credit Suisse AG is licensed by the New York Department of
Financial Services and operates a branch registered in New York, New York.
25.
Defendant Credit Suisse Securities (USA) LLC is a corporation organized and
existing under the laws of the State of Delaware with its principal place of business in New York,
New York, and is a wholly owned subsidiary of Credit Suisse Group AG.
26.
Defendant Credit Suisse International is a wholly owned subsidiary of Credit Suisse
Group AG with its principal place of business in London, England.
7
27.
Defendants Credit Suisse Group AG, Credit Suisse AG, Credit Suisse Securities
(USA) LLC, Credit Suisse International, and their parents, subsidiaries, and affiliates are
referenced collectively in this Complaint as “Credit Suisse.” During the Class Period, Credit Suisse
purchased SSA bonds from and sold SSA bonds to members of the Class in the United States.
During a portion of the Class Period, Credit Suisse employed Defendant Shailen Pau, an SSA bond
trader who is under investigation by the DOJ, who for another portion of the Class Period was also
employed by Defendant Crédit Agricole.
28.
Deutsche Bank. Defendant Deutsche Bank AG is a corporation organized and
existing under the laws of Germany with its principal place of business in Frankfurt, Germany.
Deutsche Bank AG is licensed by the New York Department of Financial Services with a
registered address in New York, New York.
29.
Defendant Deutsche Bank Securities Inc. is a corporation organized and existing
under the laws of the State of Delaware, with its principal place of business in New York, New
York, and is an indirect wholly owned subsidiary of Deutsche Bank AG.
30.
Defendants Deutsche Bank AG, Deutsche Bank Securities Inc., and their parents,
subsidiaries, and affiliates are referenced collectively in this Complaint as “Deutsche Bank.”
During the Class Period, Deutsche Bank purchased SSA bonds from and sold SSA bonds to
members of the Class in the United States. During a portion of the Class Period, Deutsche Bank
employed Defendant Hiren Gudka, who for another portion of the Class Period was also employed
by Defendant Bank of America.
31.
Nomura. Defendant Nomura Securities International, Inc. is a corporation
organized and existing under the laws of the State of New York, with its principal place of business
in New York, New York.
8
32.
Defendant Nomura International plc is a financial services company with its
principal place of business in London, England.
33.
Defendants Nomura Securities International, Inc., Nomura International plc., and
their subsidiaries and affiliates are referenced collectively in this Complaint as “Nomura.” During
the Class Period, Nomura purchased SSA bonds from and sold SSA bonds to members of the Class
in the United States. During the Class Period, Nomura employed Defendant Bhardeep Singh Heer,
an SSA bond trader under investigation by the DOJ.
34.
Hiren Gudka. Defendant Hiren Gudka (“Gudka”) is an individual residing in
Middlesex, England. During the Class Period, Gudka purchased SSA bonds from and sold SSA
bonds to members of the Class in the United States. During the Class Period, Gudka was an SSA
bond trader employed by Defendants Bank of America and, previously, Deutsche Bank. Upon
information and belief, Gudka was terminated by Bank of America as a result of the SSA
investigation.
35.
Amandeep Singh Manku. Defendant Amandeep Singh Manku (“Manku”) is an
individual residing in Essex, England. During the Class Period, Manku purchased SSA bonds from
and sold SSA bonds to members of the Class in the United States. During the Class Period, Manku
was an SSA bond trader employed by Bank of America and Crédit Agricole. Upon information
and belief, Manku was terminated by Crédit Agricole as a result of the SSA investigation.
36.
Shailen Pau. Defendant Shailen Pau (“Pau”) is an individual residing in London,
England. During the Class Period, Pau purchased and sold SSA bond to members of the Class.
During the Class Period, Pau was an SSA bond trader employed by Credit Suisse and Crédit
Agricole.
9
37.
Bhardeep Singh Heer. Defendant Bhardeep Singh Heer (“Heer”) is an individual
residing in Essex, England. During the Class Period, Heer purchased SSA bonds from and sold
SSA bonds to members of the Class in the United States. During the Class Period, Heer was an
SSA bond trader employed by Nomura.
38.
Defendants Bank of America, Crédit Agricole, Credit Suisse, Deutsche Bank, and
Nomura are referenced collectively in this Complaint as the “Bank Defendants.” Defendants
Gudka, Manku, Pau, and Heer are referenced collectively in this Complaint as the “Bond Trader
Defendants.”
39.
Other conspirators. Various other entities, persons, firms, and corporations, that
are unknown and not named as Defendants, have participated as co-conspirators with Defendants
and have performed acts and/or made statements in furtherance of the conspiracy. Defendants are
jointly and severally liable for the acts of their co-conspirators whether named or not named as
Defendants in this Complaint.
FACTUAL ALLEGATIONS
I.
THE SSA BOND MARKET
40.
SSA bonds are issued by different kinds of public entities in the United States and
overseas. The SSA sector of the overall bond market includes supranational, sub-sovereign, and
agency issuers. Supranational issuers are entities created by multiple sovereign governments or
stakeholders from several countries to accomplish social or economic goals affecting numerous
countries; examples of such entities that have issued SSA bonds during the Class Period include
the World Bank’s International Finance Corporation (“IFC”), the African and Asian Development
Banks (“AfDB” and “ADB”), the European Investment Bank (“EIB”), and the European Bank for
Reconstruction and Development (“EBRD”). Sub-sovereign issuers include Canadian provinces
10
and German “länder.” Agency (or “GSE”) issuers include Fannie Mae and Freddie Mac in the
United States, the Kreditanstalt für Wiederaufbau (“KfW”) in Germany, the Caisse
d’Amortissement de la Dette Sociale (“CADES”) in France, the Instituto de Credito Oficial
(“ICO”) in Spain, and the Bank Nederlandse Gemeenten N.V (“BNG”) in Holland.
41.
International issuers, including certain Canadian provinces, the KfW and the EIB,
occasionally issue debt in currencies different from their local currency, including U.S. dollars, to
take advantage of potentially lower funding costs, to reach a broader pool of potential investors,
and to lessen volatility in their local currencies.
42.
The overall size of the SSA market has been estimated to range from roughly $9
trillion to about $15 trillion,5 with U.S.-dollar denominated SSA bonds – which are especially
attractive to investors because they offer higher yields than U.S. Treasury bonds while still offering
a high-quality risk profile – making up slightly over one-third of all SSAs issued globally.6 The
market for SSA bonds is a niche market in the overall bond market, occupying the space between
“sovereign” bonds issued by national governments (such as U.S. Treasuries) and private or
corporate debt (i.e., debt issued by corporations to finance acquisitions or operations).
43.
Somewhat like pure “sovereign” bonds, SSA bonds are typically viewed as highly
secure investments, both because the issuers are generally well-capitalized and because the bonds
are typically backed by guarantees of repayment (sometimes explicit and sometimes implicit) by
the governments associated with the entities issuing the bonds. The entities that invest in SSA
5 McLaughlin & Schoenberg, supra.
6 Ken Miller, “The SSA Market: a Legitimate ‘Safe Spread Alternative?’”, PIMCO Featured
Solution (Nov. 2012), www.pimco.com/insights/investment-strategies/featured-solutions/the-
ssa-market-a-legitimate-safe-spread-alternative.
11
bonds are primarily central banks, insurance and pension plans (such as Plaintiff), and private
The Mechanics of SSA Issuance in the “Primary” Market and the Trading of SSA Bonds in
the “Secondary” Market
44.
SSA bonds are issued in a “syndication” process, whereby a potential issuer
contracts with a bank (or, more typically, a group of banks) to underwrite the bond and also sell
the bonds to investors such as Plaintiff and members of the proposed Class. In a process called
“underwriting,” these banks are tasked with creating a market for the bonds that they underwrite,
a task which involves gauging investor demand for these securities and the price at which they can
be sold, and ultimately, selling the bonds to the public.
45.
After the SSA bonds are initially issued, investors can buy or sell SSA bonds in the
“secondary” market. Because there is no public exchange for SSA bonds, investors trade SSA
bonds “over-the-counter” (sometimes referred to as the “OTC” market) – that is, directly with a
dealer as a counter-party. In the OTC market, bond dealers act as “market-makers,” which is an
entity that is willing to quote a price to buy or sell a bond at any given time, even if the market
maker does not have another buyer lined up. The market-maker therefore stakes its own capital to
provide investors with liquidity (i.e., volume in or inventory of the given bond).
46.
More often than not, the banks that underwrite an issuer’s initial bond issuance are
also acting as market-makers for the same SSA bonds in the secondary market. Among the factors
that dictate issuers’ choices in selecting underwriting banks are those banks’ ability to provide
liquidity (i.e., volume or inventory) in the “secondary” market. How SSA bonds perform in the
“secondary” market is important to the entities issuing the bonds, because the liquidity of their
7 George Richardson, Flora Chao, & Laura Fan, Government Investment Officers Association
(GIOA)
Conference,
“Supranationals”,
at
20-21
(March
2015),
http://www.gioa.us/presentations/2015/15-Richardson_World_Bank_Supras.pdf.
12
existing bonds is likely to affect the price of the bonds they will issue on the “primary” market in
the future. In addition to buying and selling bonds with investors, market-makers also trade bonds
with each other to try and balance their inventories and manage the overall risk of their portfolios.
47.
Dealers make their profits on the difference between the “bid” and “ask” prices
offered by the dealer, and the difference between the two prices is called the “bid-ask spread.”
There is a risk that the bonds a given dealer buys and holds in its inventory will decline in value
before the bond dealer finds a willing buyer, and the “bid-ask spread” is meant to compensate the
dealer for that risk. “Bid-ask spreads” are the main point of competition among the market-making
banks that sell SSA bonds to investors.
48.
When an investor wants to buy or sell an SSA bond, it will solicit a quote from a
dealer; the dealer’s quote is that dealer’s “bid-ask spread” for that particular bond. Potential
customers looking to buy or sell SSA bonds want a “bid-ask spread” that is as narrow as possible
(that is, the customer wants to be able to buy bonds for less and be able to sell them for more). By
quoting narrower “bid-ask spreads,” the Defendants compete by winning sales, gaining customers,
and increasing their market share. Conversely, a Defendant quoting a “wider” spread risks losing
customers to its ostensible competitors, because a customer is looking for the narrowest available
“bid-ask spread” in the OTC market.
49.
SSA trades are executed by customers via telephone and, more prevalently in the
last decade, via electronic means, either through electronic messages to traders at a dealer-bank,
or through dealer-to-client electronic trading platforms.8 Regardless of how customers undertake
8 A dealer-to-client electronic trading platform is a computer system that customers can use to
execute orders with dealers over a network. Examples of electronic trading platforms used for
trading SSA bonds include MarketAxess, TradeWeb, Bloomberg BondTrader, and MTS
Bondvision.
13
their transactions, the process is essentially the same: a potential customer seeks and requests a
quote from one or more dealers, who in turn give the potential customer a “bid-ask” quote for the
given security.
II.
DEFENDANTS CONSPIRE TO FIX THE PRICES OF SSA BONDS SOLD TO OR
BOUGHT FROM PLAINTIFF AND MEMBERS OF THE PROPOSED CLASS
50.
Starting at least as early as 2011, Defendants conspired to fix the prices of SSA
bonds on the “secondary” market – that is, to both (a) raise the prices secondary-market investors
paid for SSA bonds and (b) decrease the prices at which investors sold the bonds.
51.
The Bond Trader Defendants regularly used online chatrooms to communicate with
each other and to effect the conspiracy alleged here. Following high-profile scandals involving
the financial markets (like the foreign-exchange and LIBOR probes), in addition to using e-mails,
in-person meetings and instant-messaging, the Bond Trader Defendants began using private
chatrooms to further mask their communications, and went to great lengths to hide their
conversations, even, according to a report in a financial journal, creating new chatrooms each day
for the purpose of discussing their trading activity and prices.9 As part of its ongoing investigation,
the DOJ has obtained transcripts of these chatroom communications that indicate potential
misconduct, and as part of its inquiry, has asked the Bank Defendants to further investigate the
behavior uncovered by the chatroom transcripts.10
52.
Defendants’ traders regularly shared confidential client information about the
orders that customers were placing with the Defendants’ sales desks. Because most of the
Defendants have a group of regular customers with predictable, large SSA bond transactions,
9 Ramnarayan & Durand, supra.
10 Suzi Ring and Tom Schoenberg, U.K. Said to Open Probe Into Rigging of Agency-Bonds
Market, Bloomberg (Jan. 20, 2016), www.bloomberg.com/news/articles/2016-01-20/agency-
bond-rigging-probe-said-to-expand-as-u-k-opens-inquiry-ijmri0ov.
14
foreknowledge of other traders’ client portfolios and trading patterns allowed the Defendants to
conspire on trading strategies, including “bid-ask spreads” specifically. After getting customers’
requests for quotes, the Defendants shared specific bond and volume information with their
competitors – a practice that is anathema to a truly competitive market where such competitively-
sensitive information is closely-guarded.
53.
Defendants then agreed with each other on who would offer price quotes to
potential buyers and sellers of bonds. As part of these conversations, some Defendants agreed to
withhold offering quotes to customers on certain SSA bonds – and in the process, inhibited their
customers’ ability to “shop around” for better prices.
54.
Besides conspiring on who would offer prices, Defendants also colluded on the
“bid-ask spreads” that were offered to customers. Defendants agreed that they would offer the
same or substantially similar spreads to potential buyers and sellers of SSA bonds. The “bid-ask
spreads” that were quoted to customers were, as a result of these collusive agreements, artificially
inflated – in other words, Defendants quoted artificially high “asks” on certain bonds and
artificially low “bids” on those same bonds in order to maximize their spreads to the detriment of
the Class. According to one SSA bond trader quoted in a financial journal article describing the
method of the alleged conspiracy, “if you can speak to another trader and agree to sell a bond at a
certain price and not below, then that makes a big difference.”11
55.
Absent an agreement to fix bid and ask prices, no one Defendant could afford to
unilaterally widen its “bid-ask spread;” doing so could result in that Defendant losing substantial
trading business to competitors who were offering more competitive pricing. Moreover, that loss
11 Ramnarayan & Durand, supra.
15
could jeopardize a Defendant’s ability to secure future underwriting business from SSA bond
issuers.
56.
The market for SSA bonds is a concentrated one. Defendants’ conspiracy was more
likely to succeed due to the relatively small number of players in the industry, coupled with
repeated interactions between the same traders on specific buy-sell transactions, as well as repeated
interactions between the same banks on syndication deals. SSA bonds are generally regarded as a
niche market, with a limited number of banks offering to serve as “market-makers” for a given
bond. In addition, those dealer banks may transact with each other in that bond in order to mitigate
or balance their risk. As a result, the dealers at some bond trading desks had repeated and ongoing
business relationships, even though they are ostensibly supposed to act as competitors in trying to
attract trading customers. In addition, there is a chummy, collegial atmosphere pervasive in the
industry, aided by longtime and ongoing relationships between banks in the “secondary” market
as well as the intertwined and symbiotic relationships between the trading desks and underwriting
groups (which rely on the traders for information about the secondary market to compete for
issuers) within the banks themselves. Indeed, an industry source was quoted by Bloomberg
acknowledging that “[g]iven the collegial nature [within the industry], people might talk about
things that they shouldn’t.”12
57.
With no public insight into order flow or “bid-ask spreads,” the Defendants’
possession of proprietary, competitively-sensitive client, trading and volume information helped
12 Craig McGlashan, et al., ‘Forced competition’ to generate trading flow under fire for fomenting
SSA
scandal,
Global
Capital
(Jan.
7,
2016),
www.globalcapital.com/article/vz0phyg7g5jt/39forced-competition39-to-generate-trading-flow-
under-fire-for-fomenting-ssa-scandal.
16
their conspiracy succeed, as Defendants’ knowledge of their clients’ portfolios enabled Defendants
to better plan their trading strategies with those customers and set “bid-ask spreads.”
58.
In addition, the paucity of regulatory oversight over the SSA bond “secondary”
market also enabled Defendants’ conspiracy – unlike a highly-regulated public exchange like the
NYSE or Nasdaq, the “secondary” market for SSA bonds is an international, predominantly
electronically-operated, “over-the-counter” market that lacks uniform regulation and regulatory
oversight of pricing.
III.
AT
LEAST
THREE
GOVERNMENT
REGULATORS
LAUNCH
INVESTIGATIONS INTO DEFENDANTS’ COLLUSIVE CONDUCT IN THE SSA
BOND SECONDARY MARKET
59.
Defendants’ illegal activities first came to light on December 9, 2015, when
Bloomberg13 reported that the U.S. Department of Justice had begun a preliminary investigation
into collusive conduct in the market for SSA bonds. A January 6, 2016 article in International
Financing Review14 added more details, including the names of the four London-based traders (the
Bond Trader Defendants) and four banks (the Bank Defendants) under investigation. A January 7,
2016 article in GlobalCapital stated that the DOJ and the FCA were working together on the
investigation.15
13 McLaughlin & Schoenberg, supra.
14 Ramnarayan & Durand, supra.
15 McGlashan, Sanderson, et al., supra.
17
60.
Moreover, Defendants Crédit Agricole16 and Deutsche Bank17 have stated in their
financial disclosures that they are cooperating with unspecified regulators or law enforcement
agencies in their requests for information pertaining to the SSA bond market.
61.
In light of the investigations, all four Bank Defendants removed the Bond Trader
Defendants from their trading desks. Defendants Gudka and Manku left their employers in
November and December, 2014, respectively, and have been inactive on the FCA’s register for
traders since December 2015. Defendants Pau and Heer have been inactive on the FCA register
since March 2016.
IV.
DEFENDANTS’ COLLUSION IN THE SSA BOND SECONDARY MARKET IS
THE LATEST EXAMPLE OF SIMILAR WRONGDOING INVOLVING OTHER
FINANCIAL PRODUCTS
62.
The misconduct under investigation in the “secondary” market for SSA bonds is
very similar to collusion in other financial products (some of which involve the same Defendants
here) that has been uncovered by numerous governmental investigations in the United States and
Europe.
63.
In June 2015, various news publications reported that the DOJ had initiated an
investigation into possible fraudulent manipulation of the $12.7 trillion Treasury market. As part
of its investigation, the DOJ reportedly sent requests for information to many of the Defendants,
who are also heavily involved in trading U.S. Treasury Securities. The DOJ’s investigation is not
an isolated one. Rather, it is the another inquiry into the manipulation of financial markets and
benchmarks by major banks, many of which are the Defendants in this action. As Professor Jill E.
16 Crédit Agricole Group, Annual Financial Report 2015 Registration Document, at 261,
www.credit-agricole.com/en/Investor-and-shareholder/Financial-reporting/Credit-Agricole-S.A.-
financial-results.
17
Deutsche
Bank,
Interim
Report
as
of
March
31,
2016,
at
114,
www.db.com/ir/en/download/DB_Interim_Report_1Q2016.pdf.
18
Fisch of the Institute for Law and Economics at the University of Pennsylvania Law School
observed in a Bloomberg Business article, “[i]t’s not just one investigation after another, it’s one
scandal after another.”18
64.
In March 2011, government regulators and prosecutors from around the world
accused many of the same Defendants named in this Complaint of manipulating LIBOR (i.e., the
London Interbank Offered Rate, used by major lenders around the world to set their own interest
rates). Since then, government investigations have been ongoing in the United States, United
Kingdom, Switzerland, the European Union, Japan, Canada, and Singapore. In the U.S., the DOJ,
the Commodity Futures Trading Commission (“CFTC”), and the Securities and Exchange
Commission have ongoing parallel investigations. Regulators accused the banks of manipulating
LIBOR rates by coordinating submissions and submitting deliberately false quotes for various
LIBOR rates to the British Bankers’ Association, the organization that collected dealer-bank
submissions and calculated the various LIBOR rates. To date, the LIBOR investigations, which
revealed evidence of widespread manipulation of LIBOR through private electronic chatrooms,
have resulted in guilty pleas and fines in the billions of dollars, including on behalf of certain
Defendants or their parent companies. The banks that have been fined thus far include Deutsche
Bank, which, in 2012, was one of several banks which entered into non-prosecution agreements,
barring them from committing crimes in the U.S. for two years.
65.
Subsequent U.S. and foreign investigations into the foreign exchange (“FX”)
markets revealed similar collusions among a similar group of banks to manipulate financial
benchmarks and markets by using closed network chatrooms with incriminating names, such as
18 Keri Geiger & Matthew Leising, Treasuries Collusion Said to Be Hunted in New Wave of
Probes, BLOOMBERG (June 10, 2015), http://www.bloomberg.com/news/articles/2015-06-
10/treasuries-collusion-said-to-be-hunted-in-next-wave-of-probes.
19
“The Cartel,” “The Bandits Club,” and “The Mafia” to coordinate trades and positions. Despite
these significant fines and penalties, regulators’ subsequent investigations revealed continued
collusion by some of the Bank Defendants (including Bank of America and Nomura), to
manipulate the ISDAfix benchmark (the pricing benchmark for the fixed rate portion of interest
rate swaps), including communications between banks’ trading desks and with third party brokers
to request that artificial pressure be exerted on the ISDAfix at specific times to benefit one trading
party at the expense of its counterparty. In conjunction with the CFTC’s investigation of the
ISDAfix conspiracy, the CFTC found that the banks used various code words to communicate with
each other. In connection with the CFTC investigation of ISDAfix, the CFTC released an email
indicating that traders used U.S. Treasury Securities as part of their scheme to manipulate and
influence ISDAfix.
66.
The investigations into collusive activities in the SSA bond market are simply the
latest in an ongoing wave of revelations about corruption in the financial services industry. With
each passing scandal, it becomes clear that these are not isolated events, but rather that “cross-
talk” on electronic platforms, to arrange manipulative trading strategies at key points in the day,
was for years viewed as normal operating procedure by Defendants and others in the banking
industry.
V.
DEFENDANTS’ CONSPIRACY INJURED PLAINTIFF AND THE PROPOSED
CLASS
67.
As a direct and proximate result of Defendants’ conspiracy, Plaintiff and members
of the proposed Class suffered serious financial harm. Defendants’ conduct had the effect of fixing
“bid-ask spreads” at artificially inflated levels. As a result, Plaintiff and the Class paid more for
their purchases of SSA bonds, and/or received less for their sales of SSA bonds, in their
transactions with Defendants.
20
VI.
CLASS ACTION ALLEGATIONS
68.
Plaintiff brings this action as a class action under Rules 23(a) and 23(b)(3) of the
Federal Rules of Civil Procedure, on behalf of itself and all others similarly situated. The “Class”
is defined as:
All persons or entities who, from January 1, 2011 to December 31,
2014, purchased or sold SSA bonds in the “secondary” market in the
United States or its territories. Excluded from the Class are
Defendants, their co-conspirators identified herein, and their
officers, directors, management, employees, current subsidiaries or
affiliates, and all federal governmental entities.
69.
The Class is so numerous that joinder of all members is impracticable. While the
exact number of Class members is unknown at this time, the Class is believed to number at least
in the hundreds,19 if not thousands, and to be dispersed throughout the United States.
70.
Plaintiff’s claims are typical of the claims of the other members of the Class.
Plaintiff and the members of the Class sustained damages arising out of Defendants’ common
unlawful course of conduct. Specifically, Defendants’ wrongdoing caused Plaintiff and members
of the Class to pay inflated bond prices when they were buying or receive unduly low bond prices
when they were selling, giving rise to Plaintiff’s and the Class’s claims for violation of the antitrust
71.
Plaintiff will fairly and adequately protect the interests of members of the Class.
Plaintiff has retained counsel competent and experienced in class action litigation, including
antitrust class action litigation and specifically litigation of claims alleging manipulation of
financial benchmarks, bid-ask spreads on investments, and other financial and investment fraud
19 George Richardson & Daniel Kim, “Demystifying Supranationals”, The World Bank Treasury
&
Jeffries
LLC,
at
17,
www.gioa.us/presentations/2014/2014_World%20Bank_Richardson_Jefferies_Kim.pdf
21
and wrongdoing. Plaintiff and its counsel have the necessary financial resources to adequately and
vigorously litigate this class action. Further, Plaintiff has no interests adverse to or in conflict with
other members of the Class pertaining to the wrongful conduct alleged herein or the relief sought.
72.
Common questions of law and fact exist as to all members of the Class which
predominate over any questions affecting solely individual members of the Class. Among the
questions of law and fact common to the Class are:
a.
Whether Defendants and their co-conspirators engaged in an agreement,
combination, or conspiracy to fix, raise, elevate, maintain, or stabilize SSA
bond bid-ask spreads in interstate commerce in the United States;
b.
The identity of the participants of the conspiracy;
c.
The duration of the conspiracy and the acts performed by Defendants and
their co-conspirators in furtherance thereof;
d.
Whether the alleged conspiracy violated Section 1 of the Sherman Act;
e.
Whether the conduct of Defendants and their co-conspirators, as alleged,
caused injury to the business and property of Plaintiff and other members
of the Class; and
f.
The appropriate measure of damages sustained by Plaintiff and other
members of the Class.
73.
Questions of law and fact common to the members of the Class predominate over
questions that may affect only individual Class members because Defendants have acted on
grounds generally applicable to the entire Class, thereby making a common methodology for
determining class damages as a whole appropriate. Such generally applicable conduct is inherent
in Defendants’ wrongful conduct.
74.
A class action is superior to other available methods for the fair and efficient
adjudication of this controversy. Treatment as a class action will permit a large number of similarly
situated persons to adjudicate their common claims in a single forum simultaneously, efficiently,
22
and without duplication of effort and expense that numerous, separate, individual actions, or
repetitive litigation, would entail. The Class is readily definable and is one for which records
should exist in the files of Defendants and their co-conspirators, Class members, or the public
record. Class treatment will also permit the adjudication of relatively small claims by many Class
members who otherwise could not afford to litigate the claims alleged herein, including those for
antitrust. 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. The
Class has a high degree of cohesion, and prosecution of the action through representatives would
be unobjectionable.
75.
This case presents no special management difficulties that would preclude its
maintenance as a class action.
VII.
EQUITABLE
TOLLING
DUE
TO
DEFENDANTS’
FRAUDULENT
CONCEALMENT
76.
Throughout the Class Period, Defendants affirmatively and fraudulently concealed
their unlawful conduct.
77.
At no time did Defendants inform Plaintiff or other members of the Class that they
were conspiring to fix or manipulate the bid-ask spreads for SSA bonds. Rather, Defendants took
active steps to conceal their conspiracy, including the use of secret modes of communication such
as private chat rooms, instant messaging, email, and private in-person meetings. Defendants even
went as far as setting up new chat rooms on a daily basis to avoid detection.
78.
Reasonable diligence could not have uncovered Defendants’ conspiracy due to the
opaque nature of the SSA bond market. The closed, non-exchange-traded nature of the market at
issue further obscures what Defendants were doing at any particular time. Further, neither
23
Defendants’ SSA bond trading strategies nor their bid-ask pricing methods are public information.
The highly specialized and esoteric nature of the SSA bond market make it extraordinarily difficult
for an ordinary person to assess improprieties.
79.
Furthermore, price-fixing conspiracies are inherently self-concealing. Defendants’
conduct was designed to, and did, endure over a substantial period of time. Revealing the collusion
to customers such as Plaintiff and the Class would have quickly undermined the goals of the
conspiracy, as those customers would have taken their business elsewhere and/or reported
Defendants to the appropriate regulators. Thus, Defendants’ secrecy was necessary to the success
of the conspiracy.
80.
As a result of Defendants’ active concealment, the opaque nature of the SSA bond
marketplace, and the inherently self-concealing nature of antitrust conspiracies, neither Plaintiff
nor the proposed Class knew, or could have discovered through reasonable diligence, that
Defendants were conspiring to fix the bid-ask spreads for SSA bonds until January 6, 2016, when
International Financing Review20 named the specific banks under investigation.
81.
Because of Defendants’ concealment, any applicable statute of limitations affecting
or limiting the rights of action by Plaintiff or members of the Class have been tolled during the
period of concealment.
CLAIM FOR RELIEF
VIOLATION OF SECTION 1 OF THE
SHERMAN ACT, 15 U.S.C. § 1
82.
Plaintiff hereby incorporates each preceding and succeeding paragraph as though
fully set forth herein.
20 Ramnarayan & Durand, supra.
24
83.
Defendants and their unnamed co-conspirators entered into and engaged in a
combination and conspiracy that was an unreasonable and unlawful restraint of trade in violation
of Section 1 of the Sherman Act, 15 U.S.C. § 1. During the Class Period, Defendants entered into
an agreement or series of agreements to reduce competition amongst themselves by fixing,
maintaining, and/or manipulating the prices of SSA bonds.
84.
This conspiracy to manipulate SSA spreads caused injury to both Plaintiff and the
Class by depriving them of the benefit of accurate SSA bond prices reflecting true market
conditions, and by causing Plaintiff and the Class to receive, upon execution of their trades, less
in value than they would have received absent Defendants’ wrongful conduct.
85.
The conspiracy among Defendants, horizontal competitors in the secondary market
for SSA bond trading services, is a per se violation of Section 1 of the Sherman Act. Alternatively,
the conspiracy is an unreasonable restraint of trade that resulted in substantial anticompetitive
effects in the SSA bond market. There is no legitimate business justification for, or pro-competitive
benefits from, Defendants’ conduct. Any ostensible procompetitive benefit was pretextual or could
have been achieved by less restrictive means.
86.
Defendants’ conspiracy, and the resulting impact on the prices of SSA bonds,
occurred in and affected interstate commerce and commerce in and between the Territories of the
United States.
87.
As a direct, intended, foreseeable, and proximate result of Defendants’ violation of
Section 1 of the Sherman Act, Plaintiff and the Class have suffered injury to their business and
property.
88.
Plaintiff and the Class are entitled to treble damages, attorneys’ fees, reasonable
expenses, and cost of suit for the violations of the Sherman Act alleged herein.
25
RELIEF SOUGHT
89.
Plaintiff, on behalf of itself and the proposed Class, respectfully requests that the
a.
Certify this lawsuit as a class action under Federal Rule of Civil Procedure
23(a) and (b)(3), designate Plaintiff as class representative, and appoint
Plaintiff’s counsel as counsel for the Class;
b.
Adjudge and decree that the unlawful conduct alleged herein violates
Section 1 of the Sherman Act;
c.
Find Defendants jointly and severally liable for the damages incurred by
Plaintiff and the Class;
d.
Award Plaintiff and the Class damages against Defendants for their
violations of federal antitrust laws, in an amount to be trebled in accordance
with such laws, plus interest;
e.
Award Plaintiff and the Classes their costs of suit, including reasonable
attorneys’ fees and expenses, as provided by law; and
f.
Order other, further relief it may deem just and proper.
26
DEMAND FOR JURY TRIAL
Pursuant to Rule 38(a) of the Federal Rules of Civil Procedure, Plaintiff demands a jury
trial as to all issues triable by a jury.
Dated: December 6, 2016
Respectfully submitted,
/s/ Robert N. Kaplan
Robert N. Kaplan
Frederic S. Fox
Donald R. Hall
Matthew P. McCahill
Jason A. Uris
KAPLAN FOX & KILSHEIMER LLP
850 Third Avenue, 14th Floor
New York, NY 10022
Telephone: (212) 687-1980
Facsimile: (212) 687-7714
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
Counsel for Plaintiff City of Riviera Beach Police
Officers’ Pension Fund
27
| antitrust |
zdRxD4cBD5gMZwczC_-6 | Todd M. Friedman (SBN 216752)
Adrian R. Bacon (SBN 280332)
Meghan E. George (SBN 274525)
Thomas E. Wheeler (SBN 308789)
LAW OFFICES OF TODD M. FRIEDMAN, P.C.
21550 Oxnard St., Suite 780
Woodland Hills, CA 91367
Phone: 877-206-4741
Fax: 866-633-0228
tfriedman@ toddflaw.com
abacon@ toddflaw.com
[email protected]
[email protected]
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SID NAIMAN, individually and on
behalf of all others similarly situated,
Plaintiff,
vs.
Case No.
CLASS ACTION
COMPLAINT FOR VIOLATIONS
OF:
1.
NEGLIGENT VIOLATIONS
OF THE TELEPHONE
CONSUMER PROTECTION
ACT [47 U.S.C. §227(b)]
ZOEK INC. AKA GOZOEK.COM; and
DOES 1 through 10, inclusive,
Defendant.
2.
WILLFUL VIOLATIONS
OF THE TELEPHONE
CONSUMER PROTECTION
ACT [47 U.S.C. §227(b)]
3.
NEGLIGENT VIOLATIONS
OF THE TELEPHONE
CONSUMER PROTECTION
ACT [47 U.S.C. §227(c)]
4.
WILLFUL VIOLATIONS
OF THE TELEPHONE
CONSUMER PROTECTION
ACT [47 U.S.C. §227(c)]
DEMAND FOR JURY TRIAL
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
Plaintiff SID NAIMAN (“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 ZOEK INC. AKA GOZOEK.COM
(“Defendant”), in negligently, knowingly, and/or willfully contacting Plaintiff on
Plaintiff’s cellular telephone in violation of the Telephone Consumer Protection
Act, 47. U.S.C. § 227 et seq. (“TCPA”) and related regulations, specifically the
National Do-Not-Call provisions, thereby invading Plaintiff’s privacy.
JURISDICTION & VENUE
2.
Jurisdiction is proper under 28 U.S.C. § 1332(d)(2) because Plaintiff,
a California resident of Contra Costa County, seeks relief on behalf of a Class,
which will result in at least one class member belonging to a different state than
that of Defendant, a California company. Plaintiff also seeks up to $1,500.00 in
damages for each call in violation of the TCPA, which, when aggregated among a
proposed class in the thousands, exceeds the $5,000,000.00 threshold for federal
court jurisdiction. Therefore, both diversity jurisdiction and the damages threshold
under the Class Action Fairness Act of 2005 (“CAFA”) are present, and this Court
has jurisdiction.
3.
Venue is proper in the United States District Court for the Northern
District of California pursuant to 28 U.S.C. § 1391(b)(2) because Defendant does
business within the State of California and Plaintiff resides within the County of
Contra Costa.
PARTIES
4.
Plaintiff, SID NAIMAN (“Plaintiff”), is a natural person residing in
Contra Costa County, California and is a “person” as defined by 47 U.S.C. § 153
5.
Defendant, ZOEK INC. AKA GOZOEK.COM (“Defendant”), is a
company engaged in marketing and selling internet marketing services, and is a
“person” as defined by 47 U.S.C. § 153 (39).
6.
The above named Defendant, and its subsidiaries and agents, are
collectively referred to as “Defendants.” The true names and capacities of the
Defendants sued herein as DOE DEFENDANTS 1 through 10, inclusive, are
currently unknown to Plaintiff, who therefore sues such Defendants by fictitious
names. Each of the Defendants designated herein as a DOE is legally responsible
for the unlawful acts alleged herein. Plaintiff will seek leave of Court to amend the
Complaint to reflect the true names and capacities of the DOE Defendants when
such identities become known.
7.
Plaintiff is informed and believes that at all relevant times, each and
every Defendant was acting as an agent and/or employee of each of the other
Defendants and was acting within the course and scope of said agency and/or
employment with the full knowledge and consent of each of the other Defendants.
Plaintiff is informed and believes that each of the acts and/or omissions complained
of herein was made known to, and ratified by, each of the other Defendants.
FACTUAL ALLEGATIONS
8.
Beginning in or around June of 2017 and continuing through July of
2017, Defendant contacted Plaintiff on Plaintiff’s cellular telephone numbers
ending in -5502 and -4991 in an attempt to solicit Plaintiff to purchase Defendant’s
services.
9.
Defendant used an “automatic telephone dialing system” as defined
by 47 U.S.C. § 227(a)(1) to place its calls to Plaintiff seeking to solicit its services.
10.
Defendant contacted or attempted to contact Plaintiff from telephone
numbers belonging to Defendant, including without limitation (631) 557-1812,
(469) 706-8187, and (501) 406-3079.
11.
Defendant’s calls constituted calls that were not for emergency
purposes as defined by 47 U.S.C. § 227(b)(1)(A).
12.
Defendant’s calls were placed to telephone number assigned to a
cellular telephone service for which Plaintiff incurs a charge for incoming calls
pursuant to 47 U.S.C. § 227(b)(1).
13.
During all relevant times, Defendant did not possess Plaintiff’s “prior
express consent” to receive calls using an automatic telephone dialing system or an
artificial or prerecorded voice on its cellular telephones pursuant to 47 U.S.C. §
227(b)(1)(A).
14.
Furthermore, Plaintiff’s cellular telephone number ending in -4991
has been on the National Do-Not-Call Registry well over thirty (30) days prior to
Defendant’s initial calls.
15.
Furthermore, Plaintiff requested numerous times that Defendant put
his cellular telephone numbers ending in -4991 and -5502 on Defendant’s internal
Do-Not-Call list. Despite such requests, Defendant continued to call Plaintiff’s
cellular telephone numbers ending in -4991 and -5502.
16.
Defendant placed multiple calls soliciting its business to Plaintiff on
its cellular telephones beginning in or around June of 2017 and continued until in
or around July of 2017.
17.
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.
18.
Plaintiff received numerous solicitation calls from Defendant within a
12-month period.
19.
Plaintiff requested for Defendant to stop calling Plaintiff during one
of the initial calls from Defendant, thus revoking any prior express consent that had
existed and terminating any established business relationship that had existed, as
defined under 16 C.F.R. 310.4(b)(1)(iii)(B).
20.
Despite this, Defendant continued to call Plaintiff in an attempt to
solicit its services and in violation of the National Do-Not-Call provisions of the
TCPA.
21.
Upon information and belief, and based on Plaintiff’s experiences of
being called by Defendant after requesting they stop calling, and at all relevant
times, Defendant failed to establish and implement reasonable practices and
procedures to effectively prevent telephone solicitations in violation of the
regulations prescribed under 47 U.S.C. § 227(c)(5).
CLASS ALLEGATIONS
22.
Plaintiff brings this action individually and on behalf of all others
similarly situated, as a member the four proposed classes (hereafter, jointly, “The
Classes”). The class concerning the ATDS claim for no prior express consent
(hereafter “The ATDS Class”) is defined as follows:
All persons within the United States who received any
solicitation/telemarketing
telephone
calls
from
Defendant to said person’s cellular telephone made
through the use of any automatic telephone dialing
system or an artificial or prerecorded voice and such
person had not previously consented to receiving such
calls within the four years prior to the filing of this
Complaint
23.
The class concerning the ATDS claim for revocation of consent, to the
extent prior consent existed (hereafter “The ATDS Revocation Class”) is defined
as follows:
All persons within the United States who received any
solicitation/telemarketing
telephone
calls
from
Defendant to said person’s cellular telephone made
through the use of any automatic telephone dialing
system or an artificial or prerecorded voice and such
person had revoked any prior express consent to receive
such calls prior to the calls within the four years prior to
the filing of this Complaint.
24.
The class concerning the National Do-Not-Call violation (hereafter
“The DNC Class”) is defined as follows:
All persons within the United States registered on the
National Do-Not-Call Registry for at least 30 days, who
had not granted Defendant prior express consent nor had
a prior established business relationship, who received
more than one call made by or on behalf of Defendant
that promoted Defendant’s products or services, within
any twelve-month period, within four years prior to the
filing of the complaint.
25.
The class concerning the National Do-Not-Call violation following
revocation of consent and prior business relationship, to the extent they existed
(hereafter “The DNC Revocation Class”) is defined as follows:
All persons within the United States registered on the
National Do-Not-Call Registry for at least 30 days, who
received more than one call made by or on behalf of
Defendant that promoted Defendant’s products or
services, after having revoked consent and any prior
established business relationship, within any twelve-
month period, within four years prior to the filing of the
complaint.
26.
Plaintiff represents, and is a member of, The ATDS Class, consisting
of all persons within the United States who received any solicitation telephone calls
from Defendant to said person’s cellular telephone made through the use of any
automatic telephone dialing system or an artificial or prerecorded voice and such
person had not previously not provided their cellular telephone number to
Defendant within the four years prior to the filing of this Complaint.
27.
Plaintiff represents, and is a member of, The ATDS Revocation Class,
consisting of all persons within the United States who received any
solicitation/telemarketing telephone calls from Defendant to said person’s cellular
telephone made through the use of any automatic telephone dialing system or an
artificial or prerecorded voice and such person had revoked any prior express
consent to receive such calls prior to the calls within the four years prior to the
filing of this Complaint.
28.
Plaintiff represents, and is a member of, The DNC Class, consisting
of all persons within the United States registered on the National Do-Not-Call
Registry for at least 30 days, who had not granted Defendant prior express consent
nor had a prior established business relationship, who received more than one call
made by or on behalf of Defendant that promoted Defendant’s products or services,
within any twelve-month period, within four years prior to the filing of the
complaint.
29.
Plaintiff represents, and is a member of, The DNC Revocation Class,
consisting of all persons within the United States registered on the National Do-
Not-Call Registry for at least 30 days, who received more than one call made by or
on behalf of Defendant that promoted Defendant’s products or services, after
having revoked consent and any prior established business relationship, within any
twelve-month period, within four years prior to the filing of the complaint.
30.
Defendant, their employees and agents are excluded from The
Classes. Plaintiff does not know the number of members in The Classes, but
believes the Classes members number in the thousands, if not more. Thus, this
matter should be certified as a Class Action to assist in the expeditious litigation of
the matter.
31.
The Classes are so numerous that the individual joinder of all of its
members is impractical. While the exact number and identities of The Classes
members are unknown to Plaintiff at this time and can only be ascertained through
appropriate discovery, Plaintiff is informed and believes and thereon alleges that
The Classes includes thousands of members. Plaintiff alleges that The Classes
members may be ascertained by the records maintained by Defendant.
32.
Plaintiff and members of The ATDS Class and The ATDS Revocation
Class were harmed by the acts of Defendant in at least the following ways:
Defendant illegally contacted Plaintiff and ATDS Class members via their cellular
telephones thereby causing Plaintiff and ATDS Class and ATDS Revocation Class
members to incur certain charges or reduced telephone time for which Plaintiff and
ATDS Class and ATDS Revocation Class members had previously paid by having
to retrieve or administer messages left by Defendant during those illegal calls, and
invading the privacy of said Plaintiff and ATDS Class and ATDS Revocation Class
members.
33.
Common questions of fact and law exist as to all members of The
ATDS Class which predominate over any questions affecting only individual
members of The ATDS Class. These common legal and factual questions, which
do not vary between ATDS Class members, and which may be determined without
reference to the individual circumstances of any ATDS Class members, include,
but are not limited to, the following:
a.
Whether, within the four years prior to the filing of this
Complaint, Defendant made any telemarketing/solicitation call
(other than a call made for emergency purposes or made with
the prior express consent of the called party) to a ATDS Class
member using any automatic telephone dialing system or any
artificial or prerecorded voice to any telephone number
assigned to a cellular telephone service;
b.
Whether Plaintiff and the ATDS Class members were damaged
thereby, and the extent of damages for such violation; and
c.
Whether Defendant and their agents should be enjoined from
engaging in such conduct in the future.
34.
As a person that received numerous telemarketing/solicitation calls
from Defendant using an automatic telephone dialing system or an artificial or
prerecorded voice, without Plaintiff’s prior express consent, Plaintiff is asserting
claims that are typical of The ATDS Class.
35.
Common questions of fact and law exist as to all members of The
ATDS Revocation Class which predominate over any questions affecting only
individual members of The ATDS Revocation Class. These common legal and
factual questions, which do not vary between ATDS Revocation Class members,
and which may be determined without reference to the individual circumstances of
any ATDS Revocation Class members, include, but are not limited to, the
following:
a.
Whether, within the four years prior to the filing of this
Complaint, Defendant made any telemarketing/solicitation call
(other than a call made for emergency purposes or made with
the prior express consent of the called party) to an ATDS
Revocation Class member, who had revoked any prior express
consent to be called using an ATDS, using any automatic
telephone dialing system or any artificial or prerecorded voice
to any telephone number assigned to a cellular telephone
service;
b.
Whether Plaintiff and the ATDS Revocation Class members
were damaged thereby, and the extent of damages for such
violation; and
c.
Whether Defendant and their agents should be enjoined from
engaging in such conduct in the future.
36.
As a person that received numerous telemarketing/solicitation calls
from Defendant using an automatic telephone dialing system or an artificial or
prerecorded voice, after Plaintiff had revoked any prior express consent, Plaintiff
is asserting claims that are typical of The ATDS Revocation Class.
37.
Plaintiff and members of The DNC Class and DNC Revocation Class
were harmed by the acts of Defendant in at least the following ways: Defendant
illegally contacted Plaintiff and DNC Class and DNC Revocation Class members
via their telephones for solicitation purposes, thereby invading the privacy of said
Plaintiff and the DNC Class and DNC Revocation Class members whose telephone
numbers were on the National Do-Not-Call Registry. Plaintiff and the DNC Class
and DNC Revocation Class members were damaged thereby.
38.
Common questions of fact and law exist as to all members of The
DNC Class which predominate over any questions affecting only individual
members of The DNC Class. These common legal and factual questions, which do
not vary between DNC Class members, and which may be determined without
reference to the individual circumstances of any DNC Class members, include, but
are not limited to, the following:
a.
Whether, within the four years prior to the filing of this
Complaint, Defendant or its agents placed more than one
solicitation call to the members of the DNC Class whose
telephone numbers were on the National Do-Not-Call Registry
and who had not granted prior express consent to Defendant and
did not have an established business relationship with
Defendant;
b.
Whether Defendant obtained prior express written consent to
place solicitation calls to Plaintiff or the DNC Class members’
telephones;
c.
Whether Plaintiff and the DNC Class member were damaged
thereby, and the extent of damages for such violation; and
d.
Whether Defendant and their agents should be enjoined from
engaging in such conduct in the future.
39.
As a person that received numerous solicitation calls from Defendant
within a 12-month period, who had not granted Defendant prior express consent
and did not have an established business relationship with Defendant, Plaintiff is
asserting claims that are typical of the DNC Class.
40.
Common questions of fact and law exist as to all members of The
DNC Class which predominate over any questions affecting only individual
members of The DNC Revocation Class. These common legal and factual
questions, which do not vary between DNC Revocation Class members, and which
may be determined without reference to the individual circumstances of any DNC
Revocation Class members, include, but are not limited to, the following:
a.
Whether, within the four years prior to the filing of this
Complaint, Defendant or its agents placed more than one
solicitation call to the members of the DNC Class whose
telephone numbers were on the National Do-Not-Call Registry
and who had revoked any prior express consent and any
established business relationship with Defendant;
b.
Whether Plaintiff and the DNC Class member were damaged
thereby, and the extent of damages for such violation; and
c.
Whether Defendant and their agents should be enjoined from
engaging in such conduct in the future.
41.
As a person that received numerous solicitation calls from Defendant
within a 12-month period, who, to the extent one existed, had revoked any prior
express consent and any established business relationship with Defendant, Plaintiff
is asserting claims that are typical of the DNC Revocation Class.
42.
Plaintiff will fairly and adequately protect the interests of the members
of The Classes. Plaintiff has retained attorneys experienced in the prosecution of
class actions.
43.
A class action is superior to other available methods of fair and
efficient adjudication of this controversy, since individual litigation of the claims
of all Classes members is impracticable. Even if every Classes member could
afford individual litigation, the court system could not. It would be unduly
burdensome to the courts in which individual litigation of numerous issues would
proceed. Individualized litigation would also present the potential for varying,
inconsistent, or contradictory judgments and would magnify the delay and expense
to all parties and to the court system resulting from multiple trials of the same
complex factual issues. By contrast, the conduct of this action as a class action
presents fewer management difficulties, conserves the resources of the parties and
of the court system, and protects the rights of each Classes member.
44.
The prosecution of separate actions by individual Classes members
would create a risk of adjudications with respect to them that would, as a practical
matter, be dispositive of the interests of the other Classes members not parties to
such adjudications or that would substantially impair or impede the ability of such
non-party Class members to protect their interests.
45.
Defendant have acted or refused to act in respects generally applicable
to The Classes, thereby making appropriate final and injunctive relief with regard
to the members of the Classes as a whole.
FIRST CAUSE OF ACTION
Negligent Violations of the Telephone Consumer Protection Act
47 U.S.C. §227(b).
On Behalf of the ATDS Class and ATDS Revocation Class
46.
Plaintiff repeats and incorporates by reference into this cause of action
the allegations set forth above at Paragraphs 1-45.
47.
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).
48.
As a result of Defendant’s negligent violations of 47 U.S.C. § 227(b),
Plaintiff and the Class Members are entitled an award of $500.00 in statutory
damages, for each and every violation, pursuant to 47 U.S.C. § 227(b)(3)(B).
49.
Plaintiff and the ATDS Class and ATDS Revocation Class members
are also entitled to and seek injunctive relief prohibiting such conduct in the future.
SECOND CAUSE OF ACTION
Knowing and/or Willful Violations of the Telephone Consumer Protection
Act
47 U.S.C. §227(b)
On Behalf of the ATDS Class and the ATDS Revocation Class
50.
Plaintiff repeats and incorporates by reference into this cause of action
the allegations set forth above at Paragraphs 1-45.
51.
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).
52.
As a result of Defendant’s knowing and/or willful violations of 47
U.S.C. § 227(b), Plaintiff and the ATDS Class and ATDS Revocation Class
members are entitled an award of $1,500.00 in statutory damages, for each and
every violation, pursuant to 47 U.S.C. § 227(b)(3)(B) and 47 U.S.C. § 227(b)(3)(C).
53.
Plaintiff and the Class members are also entitled to and seek injunctive
relief prohibiting such conduct in the future.
THIRD CAUSE OF ACTION
Negligent Violations of the Telephone Consumer Protection Act
47 U.S.C. §227(c)
On Behalf of the DNC Class and the DNC Revocation Class
54.
Plaintiff repeats and incorporates by reference into this cause of action
the allegations set forth above at Paragraphs 1-45.
55.
The foregoing acts and omissions of Defendant constitute numerous
and multiple negligent violations of the TCPA, including but not limited to each
and every one of the above cited provisions of 47 U.S.C. § 227(c), and in particular
47 U.S.C. § 227 (c)(5).
56.
As a result of Defendant’s negligent violations of 47 U.S.C. § 227(c),
Plaintiff and the DNC Class and DNC Revocation Class Members are entitled an
award of $500.00 in statutory damages, for each and every violation, pursuant to
47 U.S.C. § 227(c)(5)(B).
57.
Plaintiff and the DNC Class and DNC Revocation Class members are
also entitled to and seek injunctive relief prohibiting such conduct in the future.
FOURTH CAUSE OF ACTION
Knowing and/or Willful Violations of the Telephone Consumer Protection
Act
47 U.S.C. §227 et seq.
On Behalf of the DNC Class and DNC Revocation Class
58.
Plaintiff repeats and incorporates by reference into this cause of action
the allegations set forth above at Paragraphs 1-45.
59.
The foregoing acts and omissions of Defendant constitute numerous
and multiple knowing and/or willful violations of the TCPA, including but not
limited to each and every one of the above cited provisions of 47 U.S.C. § 227(c),
in particular 47 U.S.C. § 227 (c)(5).
60.
As a result of Defendant’s knowing and/or willful violations of 47
U.S.C. § 227(c), Plaintiff and the DNC Class and DNC Revocation Class members
are entitled an award of $1,500.00 in statutory damages, for each and every
violation, pursuant to 47 U.S.C. § 227(c)(5).
61.
Plaintiff and the DNC Class and DNC Revocation Class members are
also entitled to and seek injunctive relief prohibiting such conduct in the future.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff requests judgment against Defendant for the following:
FIRST CAUSE OF ACTION
Negligent Violations of the Telephone Consumer Protection Act
47 U.S.C. §227(b)
As a result of Defendant’s negligent violations of 47 U.S.C.
§227(b)(1), Plaintiff and the ATDS Class and ATDS Revocation
Class members are entitled to and request $500 in statutory damages,
for each and every violation, pursuant to 47 U.S.C. 227(b)(3)(B).
Any and all other relief that the Court deems just and proper.
SECOND CAUSE OF ACTION
Knowing and/or Willful Violations of the Telephone Consumer Protection
Act
47 U.S.C. §227(b)
As a result of Defendant’s willful and/or knowing violations of 47
U.S.C. §227(b)(1), Plaintiff and the ATDS Class and ATDS
Revocation Class members are entitled to and request treble damages,
as provided by statute, up to $1,500, for each and every violation,
pursuant to 47 U.S.C. §227(b)(3)(B) and 47 U.S.C. §227(b)(3)(C).
Any and all other relief that the Court deems just and proper.
THIRD CAUSE OF ACTION
Negligent Violations of the Telephone Consumer Protection Act
47 U.S.C. §227(c)
As a result of Defendant’s negligent violations of 47 U.S.C.
§227(c)(5), Plaintiff and the DNC Class and DNC Revocation Class
members are entitled to and request $500 in statutory damages, for
each and every violation, pursuant to 47 U.S.C. 227(c)(5).
Any and all other relief that the Court deems just and proper.
FOURTH CAUSE OF ACTION
Knowing and/or Willful Violations of the Telephone Consumer Protection
Act
47 U.S.C. §227(c)
As a result of Defendant’s willful and/or knowing violations of 47
U.S.C. §227(c)(5), Plaintiff and the DNC Class and DNC Revocation
Class members are entitled to and request treble damages, as provided
by statute, up to $1,500, for each and every violation, pursuant to 47
U.S.C. §227(c)(5).
Any and all other relief that the Court deems just and proper.
JURY DEMAND
62.
Pursuant to the Seventh Amendment to the Constitution of the United
States of America, Plaintiff is entitled to, and demands, a trial by jury.
Respectfully Submitted this 19th Day of August, 2017.
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 |
3kuMA4kBRpLueGJZMOy1 | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
ANDREW SALINGER, Individually and
On Behalf of All Others Similarly
Situated,
Plaintiff,
Case No.
CLASS ACTION COMPLAINT
v.
JURY TRIAL DEMANDED
SAREPTA THERAPEUTICS, INC.,
DOUGLAS S. INGRAM, and SANDESH
MAHATME,
Defendants.
Plaintiff Andrew Salinger (“Plaintiff”), individually and on behalf of all other persons
similarly situated, by Plaintiff’s undersigned attorneys, for Plaintiff’s complaint against
Defendants, alleges the following based upon personal knowledge as to Plaintiff and Plaintiff’s
own acts, and information and belief as to all other matters, based upon, inter alia, the investigation
conducted by and through Plaintiff’s attorneys, which included, among other things, a review of
the Defendants’ public documents, conference calls and announcements made by Defendants,
United States (“U.S.”) Securities and Exchange Commission (“SEC”) filings, wire and press
releases published by and regarding Sarepta Therapeutics, Inc. (“Sarepta” 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.
1
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 Sarepta securities between September
6, 2017 and August 19, 2019, both dates inclusive (the “Class Period”), seeking to recover damages
caused by Defendants’ violations of the federal securities laws and to pursue remedies under
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule
10b-5 promulgated thereunder, against the Company and certain of its top officials.
2.
Sarepta was founded in 1980 and is headquartered in Cambridge, Massachusetts.
Sarepta focuses on the discovery and development of ribonucleic acid (“RNA”)-based
therapeutics, gene therapy, and other genetic medicine approaches for the treatment of rare
diseases. Sarepta’s products pipeline includes, among other drug candidates, golodirsen for the
treatment of duchenne muscular dystrophy (“DMD”). Golodirsen purportedly binds to exon 53 of
dystrophin pre-mRNA, which results in exclusion or skipping of exon during mRNA processing
in patients with genetic mutations.
3.
On September 6, 2017, pre-market, Sarepta announced positive muscle biopsy
results from its 4053-101 study, a Phase 1/2 first-in-human study conducted in Europe to assess
the safety, tolerability, pharmacokinetics, and efficacy of golodirsen in twenty-five male subjects
with confirmed deletions of the DMD gene amenable to skipping exon 53 (the “4053-101 Study”).
4.
According to Sarepta, the 4053-101 Study comprised two parts. In Part 1, twelve
patients were randomized to receive a dose titration of golodirsen (eight patients) or placebo (four
patients). At the end of Part 1 (dose titration), all twelve patients continued on golodirsen and an
additional thirteen patients started golodirsen (Part 2). In Part 2, all twenty-five patients were
2
treated for an additional forty-eight weeks at the time of muscle biopsy. The analysis included
biopsies of the bicep muscle at baseline and on-treatment at the Part 2 Week 48 time point.
5.
On February 14, 2019, Sarepta announced that the U.S. Food and Drug
Administration’s (“FDA”) Division of Neurology (the “FDA Neurology Division”) had accepted
the Company’s New Drug Application (“NDA”) “seeking accelerated approval for golodirsen
(SRP-4053) and provided a regulatory action date of August 19, 2019.” According to Sarepta, the
Company completed its NDA at the end of 2018 as part of a rolling submission and requested
priority review, which was granted. Additionally, the NDA included data from the 4053-101
6.
Throughout the Class Period, Defendants made materially false and misleading
statements regarding Sarepta’s business, operational and compliance policies. Specifically,
Defendants made false and/or misleading statements and/or failed to disclose that: (i) golodirsen
posed significant safety risks to patients; (ii) consequently, the NDA package for golodirsen’s
accelerated approval was unlikely to receive FDA approval; and (iii) as a result, Sarepta’s public
statements were materially false and misleading at all relevant times.
7.
On August 19, 2019, post-market, Sarepta announced receipt of a Complete
Response Letter (“CRL”) from the FDA regarding the Company’s NDA seeking accelerated
approval of golodirsen for the treatment of DMD. Sarepta disclosed that “[t]he CRL generally
cites two concerns: the risk of infections related to intravenous infusion ports and renal toxicity
seen in pre-clinical models of golodirsen and observed following administration of other antisense
oligonucleotides.”
8.
On this news, Sarepta’s stock price fell $18.24 per share, or 15.16%, to close at
$102.07 per share on August 20, 2019.
3
9.
As a result of Defendants’ wrongful acts and omissions, and the precipitous decline
in the market value of the Company’s securities, Plaintiff and other Class members have suffered
significant losses and damages.
JURISDICTION AND VENUE
10.
The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of
the Exchange Act (15 U.S.C. §§ 78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder by the
SEC (17 C.F.R. § 240.10b-5).
11.
This Court has jurisdiction over the subject matter of this action pursuant to 28
U.S.C. § 1331 and Section 27 of the Exchange Act.
12.
Venue is proper in this Judicial District pursuant to Section 27 of the Exchange Act
(15 U.S.C. § 78aa) and 28 U.S.C. § 1391(b). Sarepta securities trade on the NASDAQ Stock
Market (“NASDAQ”), located within this Judicial 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 national securities
markets.
PARTIES
14.
Plaintiff, as set forth in the attached Certification, acquired Sarepta securities at
artificially inflated prices during the Class Period and was damaged upon the revelation of the
alleged corrective disclosures.
15.
Sarepta is a Delaware corporation with principal executive offices located at 215
First Street, Suite 415, Cambridge, MA. Sarepta securities trade in an efficient market on the
NASDAQ under the ticker symbol “SRPT”.
4
16.
Defendant Douglas S. Ingram (“Ingram”) has served as Sarepta’s President and
Chief Executive Officer at all relevant times.
17.
Defendant Sandesh Mahatme (“Mahatme”) has served as Sarepta’s Executive Vice
President, Chief Financial Officer at all relevant times.
18.
Defendants Ingram and Mahatme are sometimes referred to herein collectively as
the “Individual Defendants.”
19.
The Individual Defendants possessed the power and authority to control the
contents of Sarepta’s SEC filings, press releases, and other market communications. The
Individual Defendants were provided with copies of Sarepta’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 Sarepta, and their access to material information available to them but not to the public, the
Individual Defendants knew that the adverse facts specified herein had not been disclosed to and
were being concealed from the public, and that the positive representations being made were then
materially false and misleading. The Individual Defendants are liable for the false statements and
omissions pleaded herein.
SUBSTANTIVE ALLEGATIONS
Background
20.
Sarepta was founded in 1980 and is headquartered in Cambridge, Massachusetts.
Sarepta focuses on the discovery and development of RNA-based therapeutics, gene therapy, and
other genetic medicine approaches for the treatment of rare diseases. Sarepta’s products pipeline
includes, among other drug candidates, golodirsen for the treatment of DMD. Golodirsen
5
purportedly binds to exon 53 of dystrophin pre-mRNA, which results in exclusion or skipping of
exon during mRNA processing in patients with genetic mutations.
21.
On September 6, 2017, pre-market, Sarepta announced positive muscle biopsy
results from its 4053-101 study, a Phase 1/2 first-in-human study conducted in Europe to assess
the safety, tolerability, pharmacokinetics, and efficacy of golodirsen in twenty-five male subjects
with confirmed deletions of the DMD gene amenable to skipping exon 53.
22.
According to Sarepta, the 4053-101 Study comprised two parts. In Part 1, twelve
patients were randomized to receive a dose titration of golodirsen (eight patients) or placebo (four
patients). At the end of Part 1 (dose titration), all twelve patients continued on golodirsen and an
additional thirteen patients started golodirsen (Part 2). In Part 2, all twenty-five patients were
treated for an additional forty-eight weeks at the time of muscle biopsy. The analysis included
biopsies of the bicep muscle at baseline and on-treatment at the Part 2 Week 48 time point.
23.
On February 14, 2019, Sarepta announced that the FDA Neurology Division had
accepted the Company’s NDA “seeking accelerated approval for golodirsen (SRP-4053) and
provided a regulatory action date of August 19, 2019.” According to Sarepta, the Company
completed its NDA at the end of 2018 as part of a rolling submission and requested priority review,
which was granted. Additionally, the NDA included data from the 4053-101 Study.
Materially False and Misleading Statements Issued During the Class Period
24.
The Class Period begins on September 6, 2017, when Sarepta issued a press release,
pre-market, announcing positive results from the 4053-101 Study (the “September 2017 Press
Release”). The September 2017 Press Release highlighted that golodirsen’s results from the 4053-
101 Study “achieved statistical significance on all primary and secondary biological endpoints”
and “further validate[d] the Company’s exon-skipping platform for the treatment of DMD[,]”
6
without specifying what, if any, safety concerns were indicated by that study. Specifically, the
September 2018 Press Release stated, in relevant part:
All 25 participants displayed an increase in skipping exon 53 (p < 0.001) over
baseline levels, representing a 100 percent response rate as measured by RT-PCR
and demonstrating proof of mechanism. Mean dystrophin protein increased to
1.019 percent of normal compared to a mean baseline of 0.095 percent of normal
(p < 0.001) as measured by Western blot, the primary biological endpoint in the
study, representing a 10.7 fold increase from baseline. The study also showed a
statistically significant increase in dystrophin immunofluorescence as measured by
immunohistochemistry (IHC), the secondary biological endpoint in the study,
confirming sarcolemma-associated protein expression and distribution.
Francesco Muntoni, principal investigator for this study . . . said, “All treated boys
showed the anticipated exon skipping after treatment and this resulted in a mean
increase of dystrophin protein, as measured by Western blot, from 0.095 percent at
baseline to 1.019 percent of normal after at least one-year of treatment with
golodirsen.”
“These data were also supported by the highly statistically significant increase of
dystrophin expression at the sarcolemma, as measured by recently developed
validated methodology. This is now the second exon-skipping agent to have shown
a statistically significant increase in dystrophin production, validating the exon-
skipping approach to treating DMD boys with amenable mutations.”
25.
The September 2017 Press Release also quoted Defendant Ingram, who touted “the
rigor” with which Defendants designed methods for and executed the 4053-101 Study. Defendant
Ingram also stressed how golodirsen validated Defendants’ broad application of the Company’s
exon-skipping platform. In short, Defendant Ingram vigorously championed golodirsen after
receiving positive indications for its use from the 4053-101 Study, without pausing to address the
potential safety concerns associated with the drug, stating, in relevant part:
These data demonstrate statistically significant exon skipping, dystrophin
production and localization, which further validate the broad application of our
exon-skipping platform and aligns with our strategic imperative to expand and
improve the treatment choices for the majority of patients with DMD . . . .
Additionally, the rigor with which we designed our methods and executed this study
speaks to our commitment to continuous improvement and scientific excellence.
7
26.
Finally, the September 2017 Press Release touted golodirsen’s use of Sarepta’s
proprietary phosphorodiamidate morpholino oligomer (“PMO”) chemistry and exon-skipping
technology, which purportedly allowed golodirsen to skip exon 53 of the gene attributable to
DMD. The September 2017 Press Release also noted that golodirsen was one of the drug
candidates being evaluated in the Company’s ESSENCE study, a global, randomized double-blind,
placebo-controlled study evaluating efficacy and safety in patients amenable to skipping exons 45
or 53. Specifically, the September 2017 Press Release stated, in relevant part:
Golodirsen uses Sarepta’s proprietary phosphorodiamidate morpholino oligomer
(PMO) chemistry and exon-skipping technology to skip exon 53 of the DMD gene.
Golodirsen is designed to bind to exon 53 of dystrophin pre-mRNA, resulting in
exclusion, or “skipping,” of this exon during mRNA processing in patients with
genetic mutations that are amenable to exon 53 skipping. Exon skipping is intended
to allow for production of an internally truncated but functional dystrophin protein.
Golodirsen is one of the investigational candidates currently being evaluated in the
ESSENCE study, a global, randomized double-blind, placebo-controlled study
evaluating efficacy and safety in patients amenable to skipping exons 45 or 53.
27.
On March 1, 2018 Sarepta filed its Annual Report on Form 10-K with the SEC,
reporting the Company’s financial and operating results for the fiscal year ended December 31,
2017 (the “2017 10-K”). The 2017 10-K reiterated the positive results from the 4053-101 Study,
again failing to mention what, if any, safety concerns were associated with drug. Specifically, the
2017 10-K stated, in relevant part:
Golodirsen (SRP-4053). We are enrolling and dosing patients in ESSENCE
(Study 4045-301), our phase 3 placebo controlled confirmatory trial in patients who
have a confirmed mutation of the DMD gene that is amenable to exon 45 or 53
skipping using casimersen and golodirsen, respectively. Golodirsen, an exon 53-
skipping product candidate, is currently in the clinic as part of a Phase 1/2 study.
Part I has been completed, and Part II, an open-label portion of this study, is
ongoing (Study 4053-101). In September 2017, we announced positive results of
an analysis that included biopsies of the bicep muscle at baseline and on-treatment
at the Part II, Week 48 time point. The study results demonstrated statistical
significance on all primary and secondary biological endpoints. Golodirsen will
potentially address one of the most prevalent sets of mutations in DMD that are
8
amenable to exon-skipping. We have recently announced that we are targeting a
meeting with the FDA in the first quarter of 2018 to discuss golodirsen.
28.
The 2017 10-K also contained merely generic, boilerplate representations
concerning the risk that Sarepta’s clinical studies could fail to demonstrate the safety of its product
candidates, stating, in relevant part:
Our pre-clinical and clinical trials may fail to demonstrate acceptable levels of
safety, efficacy, and quality of our product candidates, including those based on
our PMO-based technologies, which could prevent or significantly delay their
regulatory approval.
[. . . .] Ongoing and future pre-clinical and clinical trials of our product candidates
may not show sufficient safety, efficacy or adequate quality to obtain or maintain
regulatory approvals. For example, although the pre-clinical data for PPMO
collected to date is promising, the additional data we collect, including in the clinic,
may not be consistent with the pre-clinical data or show a safe benefit that warrants
further development or pursuit of a regulatory approval for PPMO product
candidates. Furthermore, success in pre-clinical and early clinical trials does not
ensure that the subsequent trials will be successful, nor does it predict final results
of a confirmatory trial. For example, we cannot provide assurances that data from
our EXONDYS 51 ongoing studies will be positive and consistent through the
study periods or that the interpretation by regulators, such as the FDA or EMA, of
the data we collect for our product candidates will be consistent with our
interpretations. If our study data do not consistently or sufficiently demonstrate the
safety or efficacy of any of our product candidates, including for those that are
based on our PMO-based technologies, then the regulatory approvals for such
product candidates could be significantly delayed as we work to meet approval
requirements, or, if we are not able to meet these requirements, such approvals
could be withheld or withdrawn.
(Emphasis in original.) This risk warning was plainly a generic “catch-all” provision that was not
tailored to Sarepta’s actual known risks with respect to golodirsen’s safety profile.
29.
Appended as exhibits to the 2017 10-K were signed certifications pursuant to the
Sarbanes-Oxley Act of 2002 (“SOX”), wherein the Individual Defendants certified that “the [2017
10-K] fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 and that information contained in [the 2017 10-K] fairly presents, in all material
respects, the financial condition and results of operations of Sarepta Therapeutics, Inc.”
9
30.
On March 12, 2018, Sarepta issued a press release announcing the Company’s plan
to submit an NDA to the FDA for accelerated approval of golodirsen in patients with DMD
amenable to skipping exon 53 (the “March 2018 Press Release”). In the March 2018 Press Release,
Sarepta touted the results of the 4053-101 Study, highlighted how “[t]he Company met with
the FDA Division of Neurology Products in February to obtain guidance on the regulatory
pathway for golodirsen,” and utterly failed to mention any possible or known risks related to
golodirsen. Instead, the March 2018 Press Release merely stated that the 4053-101 Study had
“assess[ed] the safety [and] tolerability . . . of golodirsen,” and that, based on the results of that
study and the FDA’s guidance, the Company would move towards completing a rolling submission
of an NDA for golodirsen by year-end 2018. Specifically, the March 2018 Press Release stated,
in relevant part:
Sarepta . . . recently received final minutes from a February 2018 Type C meeting
held with the Division of Neurology Products, United States Food and Drug
Administration (the Division), to solicit the Division’s guidance on the
development pathway for Sarepta’s therapeutic candidate, golodirsen[.]
* * *
As previously announced in the third quarter of 2017, Sarepta’s 4053-101 study –
a Phase 1/2 study to assess the safety, tolerability, pharmacokinetics and efficacy
of golodirsen in 25 boys with confirmed deletions of the DMD gene amenable to
exon 53 skipping – demonstrated statistically significant results in favor of
golodirsen on all biological endpoints[.]
Based on the results of Study 4053-101 and informed now by FDA’s feedback,
Sarepta intends to complete a rolling submission of a golodirsen NDA by year-end
2018, seeking accelerated approval of golodirsen based on an increase in dystrophin
protein as a surrogate endpoint.
31.
The March 2018 Press Release also quoted Defendant Ingram, who touted how the
FDA Neurology Division had essentially outlined Sarepta’s path to success for the proposed
golodirsen NDA, stating that the FDA Neurology Division’s guidance had been “thoughtful and
10
direct . . . regarding golodirsen,” and that the FDA Neurology Division had “engage[d] and
provide[d] clear direction to [Defendants] on the steps necessary to support an NDA submission
for accelerated approval.”
32.
Finally, the March 2018 Press Release noted that the complete submission of
Sarepta’s NDA for golodirsen would require “long-term animal toxicology studies, which will be
completed in the fourth quarter of 2018.”
33.
On December 20, 2018, Sarepta issued a press release announcing that it had
completed submission of its NDA seeking approval of golodirsen in patients with DMD amenable
to skipping exon 53 (the “December 2018 Press Release”). In the December 2018 Press Release,
Sarepta again touted the results of the 4053-101 Study, touted the fact that the 4053-101 Study had
assessed the safety and tolerability of golodirsen, and that the 4053-101 Study had been included
in the Company’s NDA for golodirsen. Specifically, the December 2018 Press Release stated, in
relevant part:
The completion of the rolling submission for golodirsen includes data from the
4053-101 study assessing the safety, tolerability, pharmacokinetics and dystrophin
expression of golodirsen in 25 boys with confirmed deletions of the DMD gene
amenable to exon 53 skipping. The study demonstrated statistically significant
results in favor of golodirsen on all biological endpoints, including properly exon-
skipped RNA transcript using reverse transcription polymerase chain reaction,
increase in quantity of dystrophin expression from baseline using Western blot and
increase in dystrophin intensity as measured by immunohistochemistry.
34.
The December 2018 Press Release also failed to address what, if any, safety issues
were indicated by golodirsen’s use based on prior and ongoing studies, even though the drug’s
safety had been assessed in the 4053-101 Study and was being assessed on an ongoing basis in
Sarepta’s ESSENCE study. Rather, the December 2018 Press Release touted that “[i]f the
golodirsen NDA is filed and granted accelerated approval, the company’s ESSENCE study (4045-
301) could serve as a post-marketing confirmatory study.”
11
35.
Finally, the December 2018 Press Release quoted Defendant Ingram, who used the
completed submission of the golodirsen NDA as another marketing opportunity for the drug and
the PMO technology facilitating it, stating, in relevant part:
We are grateful for the patients and clinicians who have participated in the study
with an aim to advance treatment for all patients with Duchenne . . . . Sarepta is
committed to developing therapies to benefit the greatest possible percentage of
patients affected by Duchenne. Our proprietary PMO technology remains central
to our commitment to patients with Duchenne. Combined, EXONDYS 51®
(eteplirsen), golodirsen, and casimersen, have the potential to treat nearly 30
percent of patients with Duchenne[.]
36.
On February 14, 2019, Sarepta issued a press release announcing that the FDA’s
Neurology Division had accepted the Company’s NDA “seeking accelerated approval for
golodirsen (SRP-4053) and provided a regulatory action date of August 19, 2019” (the “February
2019 Press Release”). As with prior press releases from the Company, discussed above, the
February 2019 Press Release touted the inclusion of Sarepta’s data from the 4053-101 study
assessing the safety and tolerability of golodirsen. Specifically, the February 2019 Press Release
stated, in relevant part:
The company completed its NDA at the end of 2018 as part of a rolling submission
and requested priority review, which was granted. The company previously
received orphan drug designation for golodirsen. The NDA includes data from the
4053-101 study assessing the safety, tolerability, pharmacokinetics and dystrophin
expression of golodirsen in 25 boys with confirmed deletions of the dystrophin gene
amenable to exon 53 skipping. The study demonstrated statistically significant
results in favor of golodirsen on all biological endpoints, including properly exon-
skipped RNA transcript using reverse transcription polymerase chain reaction,
increase in quantity of dystrophin expression from baseline using Western blot and
increase in dystrophin intensity as measured by immunohistochemistry.
37.
The February 2019 Press Release also utterly failed to address what, if any, safety
issues were indicated by golodirsen’s use based on prior and ongoing studies, even though the
drug’s safety had been assessed in the 4053-101 Study and was being assessed on an ongoing
basis in Sarepta’s ESSENCE study. Rather, the February 2019 Press Release touted that
12
“Sarepta’s ongoing ESSENCE study (4045-301), a global, randomized double-blind, placebo-
controlled study assessing the safety and efficacy of golodirsen and casimersen, our exon 45
skipping agent,” could possibly serve as a post-marketing confirmatory study for golodirsen.
38.
On February 28, 2019, Sarepta filed its Annual Report on Form 10-K with the SEC,
reporting the Company’s financial and operating results for the fiscal year ended December 31,
2018 (the “2018 10-K”). The 2018 10-K largely regurgitated the positive information concerning
golodirsen’s regulatory development as described in prior press releases, while again wholly
failing to disclose what, if any, safety concerns were indicated by golodirsen’s use. Specifically,
the 2018 10-K stated, in relevant part:
Golodirsen (SRP-4053) uses our PMO chemistry and exon-skipping technology to
skip exon 53 of the DMD gene. Golodirsen is designed to bind to exon 53 of
dystrophin pre-mRNA, resulting in exclusion, or “skipping”, of this exon during
mRNA processing in patients with genetic mutations that are amenable to exon 53
skipping. We are enrolling and dosing patients in ESSENCE (4045-301), our Phase
3 placebo controlled confirmatory trial in patients who have a confirmed mutation
of the DMD gene that is amenable to exon 45 or 53 skipping using casimersen and
golodirsen, respectively. Golodirsen is also being evaluated in a Phase 1/2 trial
having two parts. Part I of the Phase 1/2 trial has been completed, and Part II, an
open-label portion of the trial, is expected to be completed in 2019 (Study 4053-
101). In September 2017, we announced positive results of an analysis that included
biopsies of the bicep muscle at baseline and on-treatment at the Part II, Week 48
time point. The 4053-101 interim trial results demonstrated statistical significance
on all primary and secondary biological endpoints. In December 2018, we
completed the submission of our rolling NDA to the FDA seeking accelerated
approval for golodirsen. The FDA accepted the NDA and granted priority review
status for golodirsen with a targeted regulatory action date of August 19, 2019. The
FDA also indicated that it does not intend to conduct an advisory board for
golodirsen.
39.
The 2018 10-K also contained merely generic, boilerplate representations
concerning the risk that Sarepta’s pre-clinical and clinical trials could fail to demonstrate
acceptable levels of safety, which could prevent or significantly delay regulatory approval.
Specifically, the 2018 10-K stated, in relevant part:
13
To obtain the requisite regulatory approvals to market and sell any of our product
candidates, we must demonstrate, through extensive pre-clinical and clinical
trials, that the product candidate is safe and effective in humans. [. . . .]
Furthermore, success in pre-clinical and early clinical trials does not ensure that the
subsequent trials will be successful, nor does it predict final results of a
confirmatory trial. Some of our clinical trials were conducted with small patient
populations and were not blinded or placebo-controlled, making it difficult to
predict whether the favorable results that we observed in such trials will be repeated
in larger and more advanced clinical trials . . . . Similarly, we cannot provide
assurances that data from our studies with respect to EXONDYS 51, golodirsen,
casimersen and other gene therapy-based product candidates will be positive and
consistent through the study periods or that the interpretation by regulators, such as
the FDA or EMA, of the data we collect for our product or product candidates will
be consistent with our interpretations.
This risk warning was plainly a generic “catch-all” provision that was not tailored to Sarepta’s
actual known risks with respect to golodirsen’s safety profile.
40.
The 2018 10-K also contained merely generic, boilerplate representations related
to the risk that Sarepta’s product candidates may cause undesirable side effects or have other
properties that could delay or prevent regulatory approval of product candidates. To this end, the
2018 10-K stated, in relevant part:
Our product candidates may cause undesirable side effects. In addition to side
effects caused by product candidates, the administration process or related
procedures also can cause adverse side effects. If any such adverse events occur in
our trials, we may decide, or the FDA, the EMA or other regulatory authorities
could order us, to halt, delay or amend preclinical development or clinical
development of our product candidates or we may be unable to receive regulatory
approval of our product candidates for any or all targeted indications. Even if we
are able to demonstrate that all future serious adverse events are not product-related,
such occurrences could affect patient recruitment or the ability of enrolled patients
to complete the trial. Moreover, if we elect, or are required, to delay, suspend or
terminate any clinical trial of any of our product candidates, the commercial
prospects of such product candidates may be harmed and our ability to generate
product revenues from any of these product candidates may be delayed or
eliminated. Any of these occurrences may harm our ability to develop other product
candidates and may harm our business, financial condition and prospects
significantly.
14
This risk warning, too, was plainly a generic “catch-all” provision that was not tailored to Sarepta’s
actual known risks with respect to golodirsen’s safety profile.
41.
Finally, the 2018 10-K contained merely generic, boilerplate representations
concerning the risk that Sarepta’s drug candidate NDAs could be denied or face significant delays,
which could have a material negative impact on the Company’s business, stating, in relevant part:
Our ability to obtain the government or regulatory approvals required to
commercialize any of our product candidates in any jurisdiction, including in the
U.S. or the EU, cannot be assured, may be significantly delayed or may never be
achieved for various reasons including the following:
* * *
• The regulatory approval process for product candidates targeting orphan
diseases, such as DMD, that use new technologies and processes, such as
antisense oligonucleotide therapies, gene therapy and other alternative
approaches or endpoints for the determination of efficacy is uncertain due
to, among other factors, evolving interpretations of a new therapeutic class,
the broad discretion of regulatory authorities, lack of precedent, small safety
databases, varying levels of applicable expertise of regulators or their
advisory committees, scientific developments, changes in the competitor
landscape, shifting political priorities and changes in applicable laws, rules
or regulations and interpretations of the same. As a result of uncertainty in
the approval process for products intended to treat serious rare diseases, we
may not be able to anticipate, prepare for or satisfy requests or requirements
from regulatory authorities, including completing and submitting planned
NDAs, BLAs and MAAs for our product candidates, in a timely manner, or
at all. Examples of such requests or requirements could include, but are not
limited to, conducting additional or redesigned trials and procedures (e.g.,
additional safety data, patient muscle biopsies, dystrophin analyses and
using different assays), repeating or completing additional analysis of our
data, or providing additional supportive data. In addition, in the U.S., an
FDA advisory committee or regulators may disagree with our data analysis,
interpretations and conclusions at any point in the approval process, which
could negatively impact the approval of our NDA or BLA or result in a
decision by the Company not to proceed with an NDA or BLA submission
for a product candidate based on feedback from regulators.
This risk warning was yet another example of a plainly generic “catch-all” provision that was not
tailored to Sarepta’s actual known risks with respect to golodirsen’s safety profile.
15
42.
Appended as exhibits to the 2018 10-K were signed SOX certifications, wherein
the Individual Defendants certified that “the [2018 10-K] fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in
[the 2018 10-K] fairly presents, in all material respects, the financial condition and results of
operations of Sarepta Therapeutics, Inc.”
43.
The statements referenced in ¶¶ 24-42 were materially false and misleading because
Defendants made false and/or misleading statements, as well as failed to disclose material adverse
facts about the Company’s business, operational and compliance policies. Specifically,
Defendants made false and/or misleading statements and/or failed to disclose that: (i) golodirsen
posed significant safety risks to patients; (ii) consequently, the NDA package for golodirsen’s
accelerated approval was unlikely to receive FDA approval; and (iii) as a result, Sarepta’s public
statements were materially false and misleading at all relevant times.
The Truth Begins to Emerge
44.
On August 19, 2019, post-market, Sarepta issued a press release announcing receipt
of a CRL from the FDA regarding the Company’s NDA seeking accelerated approval of golodirsen
for the treatment of DMD (the “August 2019 Press Release”). Specifically, the August 2019 Press
Release stated, in relevant part:
Sarepta . . . received a Complete Response Letter (CRL) from the U.S. Food and
Drug Administration (FDA) regarding the New Drug Application (NDA) seeking
accelerated approval of golodirsen injection for the treatment of Duchenne
muscular dystrophy (DMD) in patients with a confirmed mutation amenable to
exon 53 skipping.
The CRL generally cites two concerns: the risk of infections related to intravenous
infusion ports and renal toxicity seen in pre-clinical models of golodirsen and
observed following administration of other antisense oligonucleotides. Renal
toxicity with golodirsen was observed in pre-clinical models at doses that were ten-
fold higher than the dose used in clinical studies. Renal toxicity was not observed
in Study 4053-101, on which the application for golodirsen was based.
16
* * *
Sarepta will immediately request a meeting with the FDA to determine next steps.
45.
On this news, Sarepta’s stock price fell $18.24 per share, or 15.16%, to close at
$102.07 per share on August 20, 2019.
46.
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
47.
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 Sarepta securities during the Class Period (the “Class”); and were damaged upon the
revelation of the alleged corrective disclosures. Excluded from the Class are Defendants herein,
the officers and directors of the Company, at all relevant times, members of their immediate
families and their legal representatives, heirs, successors or assigns and any entity in which
Defendants have or had a controlling interest.
48.
The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, Sarepta 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 Sarepta 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.
17
49.
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.
50.
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.
51.
Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
•
whether the federal securities laws were violated by Defendants’ acts as alleged
herein;
•
whether statements made by Defendants to the investing public during the Class
Period misrepresented material facts about the business, operations and
management of Sarepta;
•
whether the Individual Defendants caused Sarepta to issue false and misleading
financial statements during the Class Period;
•
whether Defendants acted knowingly or recklessly in issuing false and misleading
financial statements;
•
whether the prices of Sarepta 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.
52.
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.
18
53.
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;
•
Sarepta 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 Sarepta
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.
54.
Based upon the foregoing, Plaintiff and the members of the Class are entitled to a
presumption of reliance upon the integrity of the market.
55.
Alternatively, Plaintiff and the members of the Class are entitled to the presumption
of reliance established by the Supreme Court in Affiliated Ute Citizens of the State of Utah v.
United States, 406 U.S. 128, 92 S. Ct. 2430 (1972), as Defendants omitted material information in
their Class Period statements in violation of a duty to disclose such information, as detailed above.
COUNT I
(Violations of Section 10(b) of the Exchange Act and Rule 10b-5 Promulgated Thereunder
Against All Defendants)
56.
Plaintiff repeats and re-alleges each and every allegation contained above as if fully
set forth herein.
19
57.
This Count is asserted against Defendants and is based upon Section 10(b) of the
Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder by the SEC.
58.
During the Class Period, Defendants engaged in a plan, scheme, conspiracy and
course of conduct, pursuant to which they knowingly or recklessly engaged in acts, transactions,
practices and courses of business which operated as a fraud and deceit upon Plaintiff and the other
members of the Class; made various untrue statements of material facts and omitted to state
material facts necessary in order to make the statements made, in light of the circumstances under
which they were made, not misleading; and employed devices, schemes and artifices to defraud in
connection with the purchase and sale of securities. Such scheme was intended to, and, throughout
the Class Period, did: (i) deceive the investing public, including Plaintiff and other Class members,
as alleged herein; (ii) artificially inflate and maintain the market price of Sarepta securities; and
(iii) cause Plaintiff and other members of the Class to purchase or otherwise acquire Sarepta
securities and options at artificially inflated prices. In furtherance of this unlawful scheme, plan
and course of conduct, Defendants, and each of them, took the actions set forth herein.
59.
Pursuant to the above plan, scheme, conspiracy and course of conduct, each of the
Defendants participated directly or indirectly in the preparation and/or issuance of the quarterly
and annual reports, SEC filings, press releases and other statements and documents described
above, including statements made to securities analysts and the media that were designed to
influence the market for Sarepta 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 Sarepta’s finances and business prospects.
60.
By virtue of their positions at Sarepta, Defendants had actual knowledge of the
materially false and misleading statements and material omissions alleged herein and intended
20
thereby to deceive Plaintiff and the other members of the Class, or, in the alternative, Defendants
acted with reckless disregard for the truth in that they failed or refused to ascertain and disclose
such facts as would reveal the materially false and misleading nature of the statements made,
although such facts were readily available to Defendants. Said acts and omissions of Defendants
were committed willfully or with reckless disregard for the truth. In addition, each Defendant
knew or recklessly disregarded that material facts were being misrepresented or omitted as
described above.
61.
Information showing that Defendants acted knowingly or with reckless disregard
for the truth is peculiarly within Defendants’ knowledge and control. As the senior managers
and/or directors of Sarepta, the Individual Defendants had knowledge of the details of Sarepta’s
internal affairs.
62.
The Individual Defendants are liable both directly and indirectly for the wrongs
complained of herein. Because of their positions of control and authority, the Individual
Defendants were able to and did, directly or indirectly, control the content of the statements of
Sarepta. As officers and/or directors of a publicly-held company, the Individual Defendants had
a duty to disseminate timely, accurate, and truthful information with respect to Sarepta’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 Sarepta securities was artificially inflated throughout the Class Period. In
ignorance of the adverse facts concerning Sarepta’s business and financial condition which were
concealed by Defendants, Plaintiff and the other members of the Class purchased or otherwise
acquired Sarepta securities at artificially inflated prices and relied upon the price of the securities,
21
the integrity of the market for the securities and/or upon statements disseminated by Defendants,
and were damaged thereby.
63.
During the Class Period, Sarepta securities were traded on an active and efficient
market. Plaintiff and the other members of the Class, relying on the materially false and misleading
statements described herein, which the Defendants made, issued or caused to be disseminated, or
relying upon the integrity of the market, purchased or otherwise acquired shares of Sarepta
securities at prices artificially inflated by Defendants’ wrongful conduct. Had Plaintiff and the
other members of the Class known the truth, they would not have purchased or otherwise acquired
said securities, or would not have purchased or otherwise acquired them at the inflated prices that
were paid. At the time of the purchases and/or acquisitions by Plaintiff and the Class, the true
value of Sarepta securities was substantially lower than the prices paid by Plaintiff and the other
members of the Class. The market price of Sarepta securities declined sharply upon public
disclosure of the facts alleged herein to the injury of Plaintiff and Class members.
64.
By reason of the conduct alleged herein, Defendants knowingly or recklessly,
directly or indirectly, have violated Section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder.
65.
As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff and the
other members of the Class suffered damages in connection with their respective purchases,
acquisitions and sales of the Company’s securities during the Class Period, upon the disclosure
that the Company had been disseminating misrepresented financial statements to the investing
22
COUNT II
(Violations of Section 20(a) of the Exchange Act Against The Individual Defendants)
66.
Plaintiff repeats and re-alleges each and every allegation contained in the foregoing
paragraphs as if fully set forth herein.
67.
During the Class Period, the Individual Defendants participated in the operation
and management of Sarepta, and conducted and participated, directly and indirectly, in the conduct
of Sarepta’s business affairs. Because of their senior positions, they knew the adverse non-public
information about Sarepta’s misstatement of income and expenses and false financial statements.
68.
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 Sarepta’s
financial condition and results of operations, and to correct promptly any public statements issued
by Sarepta which had become materially false or misleading.
69.
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 Sarepta disseminated in the marketplace during the Class Period concerning
Sarepta’s results of operations. Throughout the Class Period, the Individual Defendants exercised
their power and authority to cause Sarepta to engage in the wrongful acts complained of herein.
The Individual Defendants therefore, were “controlling persons” of Sarepta 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 Sarepta securities.
70.
Each of the Individual Defendants, therefore, acted as a controlling person of
Sarepta. By reason of their senior management positions and/or being directors of Sarepta, each
of the Individual Defendants had the power to direct the actions of, and exercised the same to
23
cause, Sarepta to engage in the unlawful acts and conduct complained of herein. Each of the
Individual Defendants exercised control over the general operations of Sarepta 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.
71.
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 Sarepta.
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 30, 2019
Respectfully submitted,
POMERANTZ LLP
/s/ Jeremy A. Lieberman
Jeremy A. Lieberman
J. Alexander Hood II
Jonathan Lindenfeld
600 Third Avenue, 20th Floor
New York, New York 10016
Telephone: (212) 661-1100
24
Facsimile: (212) 661-8665
Email: [email protected]
Email: [email protected]
Email: [email protected]
POMERANTZ LLP
Patrick V. Dahlstrom
10 South La Salle Street, Suite 3505
Chicago, Illinois 60603
Telephone: (312) 377-1181
Facsimile: (312) 377-1184
Email: [email protected]
Attorneys for Plaintiff
25
Sarepta Therapeutics, Inc. (SRPT)
Salinger, Andrew
List of Purchases and Sales
Purchase
Number of
Price Per
Date
or Sale
Shares/Unit
Share/Unit
6/19/2018
Purchase
30
$163.9700
10/2/2018
Purchase
40
$142.3800
4/8/2019
Purchase
44
$124.6400
8/16/2019
Purchase
16
$124.2400
8/16/2019
Purchase
46
$124.3500
8/16/2019
Purchase
50
$125.6900
8/16/2019
Purchase
50
$123.1372
| securities |
vUuJA4kBRpLueGJZ-9ny |
BARSHAY, RIZZO & LOPEZ, PLLC
445 Broadhollow Road | Suite CL18
Melville, New York 11747
Tel: (631) 210-7272
Fax: (516) 706-5055
Attorneys for Plaintiff
Our File No.: BRL21190
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
Case No: 21-cv-00472
Welquis Lopez, individually and on behalf of all others
similarly situated,
Plaintiff,
v.
Portfolio Recovery Associates, LLC,
Defendant.
CLASS ACTION COMPLAINT
JURY TRIAL DEMANDED
Plaintiff Welquis Lopez, individually and on behalf of all others similarly situated, by and
through the undersigned counsel, complains, states, and alleges against defendant Portfolio
Recovery Associates, LLC as follows:
INTRODUCTION
1.
This is an action to recover damages for violations of the Fair Debt Collection
Practices Act, 15 U.S.C. § 1692, et seq. (the “FDCPA”).
JURISDICTION AND VENUE
2.
This Court has federal subject matter jurisdiction pursuant to 28 U.S.C. § 1331, 28
U.S.C. § 1337 and 15 U.S.C. § 1692k(d). The Court has supplemental jurisdiction of any state
law claims pursuant to 28 U.S.C. §1367.
3.
This court has jurisdiction over defendant Portfolio Recovery Associates, LLC
because it regularly conducts and transacts business in this state, and the conduct complained of
herein occurred in this Judicial District.
4.
Venue is proper in this Judicial District under 28 U.S.C. § 1391(b) because a
substantial part of the conduct complained of herein occurred in this Judicial District.
PARTIES
5.
Plaintiff Welquis Lopez (“Plaintiff”) is a natural person who is a citizen of the State
of Texas residing in Medina County, Texas.
6.
Plaintiff is a “consumer” as that term defined by 15 U.S.C. § 1692a(3).
7.
Defendant Portfolio Recovery Associates, LLC (“Defendant”) is a company
existing under the laws of the State of Texas, with its principal place of business in North Richland
Hills, Texas.
8.
Defendant has transacted business within this state as is more fully set forth
hereinafter in this Complaint.
9.
Defendant regularly collects or attempts to collect debts asserted to be owed to
others.
10.
Defendant is regularly engaged, for profit, in the collection of debts allegedly owed
by consumers.
11.
The principal purpose of Defendant’s business is the collection of such debts.
12.
Defendant uses instrumentalities of interstate commerce, including telephones and
the mails, in furtherance of its debt collection business.
13.
Defendant is a “debt collector” as that term is defined by 15 U.S.C. § 1692a(6).
14.
The acts of Defendant as described in this Complaint were performed by Defendant
or on Defendant’s behalf by its owners, officers, agents, and/or employees acting within the scope
of their actual or apparent authority. As such, all references to “Defendant” in this Complaint shall
mean Defendant or its owners, officers, agents, and/or employees.
FACTUAL ALLEGATIONS
15.
Defendant alleges Plaintiff owes it a debt (“the alleged Debt”).
16.
The alleged Debt is an alleged obligation of Plaintiff to pay money arising out of a
transaction in which the money, property, insurance, or services which are the subject of the
transaction are primarily for personal, family, or household purposes.
17.
The alleged Debt does not arise from any business enterprise of Plaintiff.
18.
The alleged Debt is a “debt” as that term is defined by 15 U.S.C. § 1692a(5).
19.
At an exact time known only to Defendant, the alleged Debt was assigned or
otherwise transferred to Defendant for collection.
20.
At the time the alleged Debt was assigned or otherwise transferred to Defendant for
collection, the alleged Debt was in default.
21.
In its efforts to collect the alleged Debt, Defendant decided to contact Plaintiff by
written correspondence.
22.
Rather than preparing and mailing such written correspondence to Plaintiff on its
own, Defendant decided to utilize a third-party vendor to perform such activities on its behalf.
23.
As part of its utilization of the third-party vendor, Defendant conveyed information
regarding the alleged Debt to the third-party vendor.
24.
The information conveyed by Defendant to the third-party vendor included
Plaintiff’s status as a debtor, the precise amount of the alleged Debt, the entity to which Plaintiff
allegedly owed the debt, among other things.
25.
Defendant’s conveyance of the information regarding the alleged Debt to the third-
party vendor is a “communication” as that term is defined by 15 U.S.C. § 1692a(2).
26.
The third-party vendor then populated some or all this information into a prewritten
template, printed, and mailed the letter to Plaintiff at Defendant’s direction.
27.
That letter, dated March 16, 2021, was received and read by Plaintiff. (A true and
accurate copy of that collection letter (the “Letter”) is annexed hereto as “Exhibit 1.”)
28.
The Letter, which conveyed information about the alleged Debt, is a
“communication” as that term is defined by 15 U.S.C. § 1692a(2).
FIRST COUNT
Violation of 15 U.S.C. § 1692c(b) and § 1692f
29.
Plaintiff repeats and realleges the foregoing paragraphs as if fully restated herein.
30.
15 U.S.C. § 1692c(b) provides that, subject to several exceptions not applicable
here, “a debt collector may not communicate, in connection with the collection of any debt,” with
anyone other than the consumer “without the prior consent of the consumer given directly to the
debt collector.”
31.
The third-party vendor does not fall within any of the exceptions provided for in 15
U.S.C. § 1692c(b).
32.
Plaintiff never consented to Defendant’s communication with the third-party
vendor concerning the alleged Debt.
33.
Plaintiff never consented to Defendant’s communication with the third-party
vendor concerning Plaintiff’s personal and/or confidential information.
34.
Plaintiff never consented to Defendant’s communication with anyone concerning
the alleged Debt or concerning Plaintiff’s personal and/or confidential information.
35.
Upon information and belief, Defendant has utilized a third-party vendor for these
purposes thousands of times.
36.
Defendant utilizes a third-party vendor in this regard for the sole purpose of
maximizing its profits.
37.
Defendant utilizes a third-party vendor without regard to the propriety and privacy
of the information which it discloses to such third-party.
38.
Defendant utilizes a third-party vendor with reckless disregard for the harm to
Plaintiff and other consumers that could result from Defendant’s unauthorized disclosure of such
private and sensitive information.
39.
Defendant violated 15 U.S.C. § 1692c(b) when it disclosed information about
Plaintiff’s alleged Debt to the third-party vendor.
40.
15 U.S.C. § 1692f provides that a debt collector may not use unfair or
unconscionable means to collect or attempt to collect any debt.
41.
The unauthorized disclosure of a consumer’s private and sensitive information is
both unfair and unconscionable.
42.
Defendant disclosed Plaintiff’s private and sensitive information to the third-party
vendor.
43.
Defendant violated 15 U.S.C. § 1692f when it disclosed information about
Plaintiff’s alleged Debt to the third-party vendor.
44.
For the foregoing reasons, Defendant violated 15 U.S.C. §§ 1692c(b) and 1692f
and is liable to Plaintiff therefor.
CLASS ALLEGATIONS
45.
Plaintiff brings this action individually and as a class action on behalf of all
consumers similarly situated in the State of Texas.
46.
Plaintiff seeks to certify a class of:
i. All consumers where Defendant sent information concerning the
consumer’s debt to a third-party vendor without obtaining the prior
consent of the consumer, which disclosure was made on or after adate
one year prior to the filing of this action to the present.
47.
This action seeks a finding that Defendant’s conduct violates the FDCPA and asks
that the Court award damages as authorized by 15 U.S.C. § 1692k.
48.
The Class consists of more than thirty-five persons.
49.
Plaintiff’s claims are typical of the claims of the Class. Common questions of law
or fact raised by this action affect all members of the Class and predominate over any individual
issues. Common relief is therefore sought on behalf of all members of the Class. A class action is
superior to other available methods for the fair and efficient adjudication of this controversy.
50.
The prosecution of separate actions by individual members of the Class would
create a risk of inconsistent or varying adjudications with respect to the individual members of the
Class, and a risk that any adjudications with respect to individual members of the Class would, as
a practical matter, either be dispositive of the interests of other members of the Class not party to
the adjudication, or substantially impair or impede their ability to protect their interests. Defendant
has acted in a manner applicable to the Class as a whole such that declaratory relief is warranted.
51.
Plaintiff will fairly and adequately protect and represent the interests of the Class.
The management of the class is not extraordinarily difficult, and the factual and legal issues raised
by this action will not require extended contact with the members of the Class, because Defendant’s
conduct was perpetrated on all members of the Class and will be established by common proof.
Moreover, Plaintiff has retained counsel experienced in actions brought under consumer protection
JURY DEMAND
52.
Plaintiff hereby demands a trial of this action by jury.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff respectfully requests judgment be entered as follows:
a. Certifying this action as a class action; and
b. Appointing Plaintiff as Class Representative and Plaintiff’s
attorneys as Class Counsel; and
c. Finding Defendant’s actions violate the FDCPA; and
d. Awarding damages to Plaintiff and the Class pursuant to 15
U.S.C. § 1692k; and
e. Awarding Plaintiff’s attorneys’ fees pursuant to 15 U.S.C. §
1692k, calculated on a “lodestar” basis; and
f. Awarding the costs of this action to Plaintiff; and
g. Awarding pre-judgment interest and post-judgment interest to
Plaintiff; all together with
h. Such other and further relief that the Court determines is just and
proper.
DATED: May 10, 2021
BARSHAY, RIZZO & LOPEZ, PLLC
By: s/ David M. Barshay
David M. Barshay, Esquire
445 Broadhollow Road | Suite CL18
Melville, New York 11747
Tel: (631) 210-7272
Fax: (516) 706-5055
Our File No.: BRL21190
Attorneys for Plaintiff
| consumer fraud |
lULr_IgBF5pVm5zYiLIr | UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF OKLAHOMA
CIV-18-1074-HE
Civil Action No.: ______
Karalee Eaves, on behalf of herself and all
others similarly situated,
COMPLAINT AND
DEMAND FOR JURY TRIAL
Plaintiff,
v.
CAC Financial Corp.,
CLASS ACTION COMPLAINT
Defendant.
:
:
:
:
:
:
:
:
:
:
:
For her Class Action Complaint, Plaintiff, Karalee Eaves, by and through her
undersigned counsel, pleading on her own behalf and on behalf of all others similarly
situated, states as follows:
INTRODUCTION
1.
Plaintiff, Karalee Eaves (“Plaintiff”), brings this class action for damages
resulting from the illegal actions of CAC Financial Corp. (“CAC” or “Defendant”).
Defendant negligently, knowingly, and/or willfully placed automated and prerecorded
calls to Plaintiff’s cellular phone in violation of the Telephone Consumer Protection Act,
47 U.S.C. § 227, et seq. (the “TCPA”).
2.
CAC is debt collector that operates an aggressive contact schedule which
bombards unsuspecting consumers, with whom it has no relationship, with robocalls and
prerecorded messages.
3.
Plaintiff is such a consumer. She does not owe a debt to CAC directly or
indirectly, yet has been bombarded with autodialed and pre-recorded calls regarding
another individual, made without her consent and over her explicit objection.
4.
Plaintiff seeks relief for herself and all others similarly situated for CAC’s
unlawful behavior.
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.
Jurisdiction in this District is proper pursuant to 28 U.S.C. § 1332(d)(2), as
Plaintiff seeks up to $500 in damages for each violation of the TCPA, which when
aggregated among a proposed class numbering more than a thousand members, exceeds
the $5,000,000.00 threshold for federal court jurisdiction. Plaintiff also alleges a national
class which will result in at least one class member residing in a different state.
7.
The Court has personal jurisdiction over CAC as CAC’s principal place of
business is within this District and because that acts that give rise to Plaintiff’s claims
occurred within this District.
8.
Venue is proper in this District. Defendant regularly, and at all times
relevant herein, conducted business in this District.
PARTIES
9.
Plaintiff is, and at all times mentioned herein was, an adult individual
residing in Heavener, Oklahoma.
10.
CAC is an Oklahoma corporation with its principal place of business
located at 2601 Northwest Expressway, Suite 1000E, Oklahoma City, Oklahoma 73112.
11.
Plaintiff has never had a business relationship with CAC and never
consented to be contacted by CAC on her cellular telephone.
THE TELEPHONE CONSUMER PROTECTION ACT OF 1991
12.
The TCPA regulates, among other things, the use of automated telephone
dialing systems.
13.
47 U.S.C. § 227(a)(1) defines an automatic telephone dialing system
(“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.
14.
47 U.S.C. § 227(b)(1)(A)(iii) prohibits any call using an ATDS or an
artificial or prerecorded voice to a cellular phone without prior express consent by the
person being called.
ALLEGATIONS APPLICABLE TO ALL COUNTS
15.
Defendant has repeatedly placed calls using an ATDS and containing a
prerecorded and/or artificial voice to Plaintiff’s cellular telephone (918) XXX-8474.
16.
Plaintiff’s number was and is assigned to a cellular telephone service as
specified in 47 U.S.C. § 227(b)(1)(A)(iii).
17.
CAC calls Plaintiff from telephone numbers (405) 425-1549 and (405) 425-
18.
CAC has inserted Plaintiff’s telephone number in an automated calling
campaign to further its efforts to contact “Kendall Smith,” a person who Plaintiff does not
have any relationship with and does not know.
19.
CAC has bombarded the Plaintiff with multiple daily automated and
prerecorded voice debt collection calls since January 2018 regarding “Kendall Smith.”
20.
Plaintiff has advised CAC on multiple occasions that she is not Kendall
Smith, she does not know Ms. Smith and that Ms. Smith cannot be reached at her cellular
telephone number.
21.
Plaintiff has asked CAC to stop calling her on multiple occasions regarding.
Ms. Smith.
22.
Nevertheless, the calls to Plaintiff at the -8474 number have persisted and
continued.
23.
At all times mentioned herein, CAC called Plaintiff’s cellular telephone
using an “automatic telephone dialing system” (“autodialer”) as defined by 47 U.S.C. §
227(a)(1). When Plaintiff answered calls from CAC, she often heard a prerecorded
recorded voice before being connected with a live representative. This is indicative of
CAC’s use of a “predictive dialer.”
24.
The Federal Communications Commission has defined ATDS under the
TCPA to include “predictive dialers.” See In the Matter of Rules and Regulations
Implementing the Telephone Consumer Protection Act of 1991, 23 F.C.C.R. 559, at ¶ 12,
2008 WL 65485 (F.C.C.) (2008).
25.
In addition, upon information and belief the hardware and software
combination utilized by CAC has the capacity to store and dial sequentially generated
numbers, randomly generated numbers or numbers from a database of numbers.
26.
Defendant uses prerecorded and artificial messages when it calls the
Plaintiff’s cellular telephone. As noted, when Plaintiff answered CAC’s calls, she heard
an artificial and/or prerecorded voice.
27.
The same prerecorded message has been used by the Defendant on multiple
occasions.
28.
Defendant did not have Plaintiff’s prior express consent to place automated
calls to Plaintiff on her cellular telephone.
29.
Defendant did not have Plaintiff’s prior express consent to call Plaintiff using
an artificial or prerecorded voice.
CLASS ACTION ALLEGATIONS
A. The Class
30.
Plaintiff brings this case as a class action pursuant to Fed. R. Civ. P. 23 on
behalf of herself and all others similarly situated.
31.
Plaintiff represents, and is a member of the following two classes:
Class A
All persons within the United States to whom CAC or its agent/s and/or
employee/s called said person’s cellular telephone through the use of
any automatic telephone dialing system within the four years prior to
the filing of the Complaint where such person was not a customer of
CAC.
Class B
All persons within the United States to whom CAC or its agent/s and/or
employee/s called said person’s cellular telephone with an artificial or
prerecorded voice within the four years prior to the filing of the
Complaint where such person was not a customer of CAC.
32.
Defendant and its employees or agents are excluded from the Classes.
Plaintiff does not know the number of members in the Classes, but believes the class
members number in the several thousands, if not more. Thus, this matter should be
certified as a class action to assist in the expeditious litigation of this matter.
B. Numerosity
33.
Upon information and belief, Defendant has placed automated and/or
prerecorded message calls to cellular telephone numbers belonging to thousands of
consumers, after being informed it was calling the wrong party, throughout the United
States. The members of the Classes, therefore, are believed to be so numerous that
joinder of all members is impracticable.
34.
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.
C. Common Questions of Law and Fact
35.
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 Defendant made calls to Plaintiff and Class members’ cellular
telephones using an ATDS;
b. Whether Defendant made calls to Plaintiff and Class members’ cellular
telephones using an artificial or prerecorded voice;
c. Whether Defendant can meet its burden of showing it obtained prior
express consent to make each call;
d. Whether Defendant’s conduct was knowing willful, and/or negligent;
e. Whether Defendant is liable for damages, and the amount of such
damages; and
f. Whether Defendant should be enjoined from such conduct in the future.
36.
The common questions in this case are capable of having common answers.
If Plaintiff’s claim that Defendant routinely places automated and prerecorded calls to
telephone numbers assigned to cellular telephone services is accurate, Plaintiff and the
Class members will have identical claims capable of being efficiently adjudicated and
administered in this case.
D. Typicality
37.
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
38.
Plaintiff will fairly and adequately protect the interests of the Classes and
has retained counsel experienced in handling class actions and claims involving unlawful
business practices. Neither Plaintiff nor her counsel has any interests which might cause
them not to vigorously pursue this action.
F. Proceeding Via Class Action is Superior and Advisable
39.
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 CAC is small because it is not economically
feasible for Class members to bring individual actions.
40.
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
Negligent Violations of the Telephone Consumer Protection Act,
47 U.S.C. § 227, et seq.
41.
Plaintiff repeats and realleges the above paragraphs of this Complaint and
incorporates them herein by reference.
42.
Defendant negligently placed multiple automated and prerecorded/artificial
voice calls to cellular numbers belonging to Plaintiff and the other members of the
Classes without their prior express consent.
43.
Each of the aforementioned calls by Defendant constitutes a negligent
violation of the TCPA.
44.
Plaintiff and the Classes are entitled to an award of $500.00 in statutory
damages for each call placed in violation of the TCPA pursuant to 47 U.S.C. §
227(b)(3)(B).
45.
Additionally, Plaintiff and the Classes are entitled to and seek injunctive
relief prohibiting such conduct by Defendant in the future.
46.
Plaintiff and the Class are also entitled to and do seek a declaration that:
a. Defendant violated the TCPA;
b. Defendant utilized an ATDS to call Plaintiff and the Classes;
c. Defendant placed artificial and prerecorded voice calls to Plaintiff and
the Classes;
d. Defendant placed automated and artificial and prerecorded voice calls to
the Plaintiff and the Classes without prior express consent.
COUNT II
Knowing and/or Willful Violations of the Telephone Consumer Protection Act,
47 U.S.C. § 227, et seq.
47.
Plaintiff repeats and realleges the above paragraphs of this Complaint and
incorporates them herein by reference.
48.
Defendant knowingly and/or willfully placed multiple automated and
prerecorded/artificial voice calls to cellular numbers belonging to Plaintiff and the other
members of the Classes without their prior express consent.
49.
Each of the aforementioned calls by Defendant constitutes a knowing
and/or willful violation of the TCPA.
50.
As a result of Defendant’s knowing and/or willful violations of the TCPA,
Plaintiff and the Class 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).
51.
Additionally, Plaintiff and the Classes are entitled to and seek injunctive
relief prohibiting such conduct by Defendant in the future.
52.
Plaintiff and the Classes are also entitled to and do seek a declaration that:
a. Defendant knowingly and/or willfully violated the TCPA;
b. Defendant knowingly and/or willfully used an ATDS to call Plaintiff
and the Classes;
c. Defendant knowingly and/or willfully placed artificial and prerecorded
voice calls to Plaintiff and the Classes;
d. Defendant willfully placed artificial and prerecorded voice calls to non-
customers such as Plaintiff and the Classes, knowing it did not have
prior express consent to do so; and
e. It is Defendant’s practice and history to place automated and
artificial/prerecorded voice calls to non-customers without their prior
express consent.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays that the Court grant Plaintiff and the Classes the
following relief against Defendant:
1. Injunctive relief prohibiting such violations of the TCPA by Defendant in the
future;
2. Declaratory relief as requested;
3. 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);
4. 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);
5. An award of attorneys’ fees and costs to counsel for Plaintiff; and
6. Such other relief as the Court deems just and proper.
TRIAL BY JURY DEMANDED ON ALL COUNTS
Dated: October 31, 2018
Respectfully submitted,
By /s/ Sergei Lemberg
Sergei Lemberg, Esq.
LEMBERG LAW, L.L.C.
43 Danbury Road, 3rd Floor
Wilton, CT 06897
Telephone: (203) 653-2250
Facsimile: (203) 653-3424
Attorneys for Plaintiff
| privacy |
uEQn_YgBF5pVm5zYYsVA | UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
ST. LOUIS DIVISION
JASON VAHLE, as parent, guardian
:
and next friend of K.V., a minor,
:
individually and on behalf of
:
CASE NO.:
all others similarly situated
:
:
Plaintiff,
:
:
v.
:
CLASS ACTION COMPLAINT
:
BJC HEALTH SYSTEM
:
JURY TRIAL DEMANDED
:
AS TO ALL COUNTS
:
Serve: CSC-Lawyers Incorporating Service Co.,
:
221 Bolivar Street
:
Jefferson City, MO 65101
:
:
Defendant.
:
__________________________________________:
CLASS ACTION COMPLAINT
1.
Plaintiff JASON VAHLE, as parent, guardian and next friend of K.V., a minor,
individually and on behalf of all others similarly situated, bring this action against Defendant BJC
HEALTH SYSTEM (“BJC” or “Defendant”), a Missouri non-profit corporation, to obtain
damages, restitution, and injunctive relief for the Class, as defined below, from Defendant.
Plaintiff makes the following allegations upon information and belief, except as to their own
actions, the investigation of their counsel, and the facts that are a matter of public record:
JURISDICTION AND VENUE
2.
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 (such as named Plaintiff Vahle)
are citizens of states different from Defendant.
3.
Also, this Court has federal question subject matter jurisdiction over this action
pursuant to 28 U.S.C. § 1331 because the Plaintiffs assert claims that necessarily raise substantial
disputed federal issues under the Health Insurance Portability and Accountability Act of 1996
(“HIPAA”) and the Federal Trade Commission Act (15 U.S.C. § 45). See, e.g., infra at ¶¶ 48-54,
4.
Defendant has sufficient minimum contacts in Missouri, as it is organized as a
nonprofit corporation under the laws of the State of Missouri, and conducts the majority (if not all)
of its business in the State of Missouri, thus rendering the exercise of jurisdiction by this Court
proper and necessary.
5.
Venue is proper in this District under 28 U.S.C. § 1391 because a substantial part
of the events and omissions giving rise to these claims occurred in this District.
NATURE OF THE ACTION
6.
This class action arises out of the recent cyberattack and data breach (“Data
Breach”) at Defendant’s medical facilities. As a result of the Data Breach, Plaintiff and
approximately 287,876 Class Members suffered ascertainable losses in the form of the loss of the
benefit of their bargain, out-of-pocket expenses and the value of their time reasonably incurred to
remedy or mitigate the effects of the attack. In addition, Plaintiffs’ and Class Members’ sensitive
personal information—which was entrusted to Defendant—was compromised and unlawfully
accessed due to the Data Breach. Information compromised in the Data Breach includes names,
demographic information, dates of birth, Social Security numbers, driver’s license or identification
card numbers, employment information, health insurance information, medical information, other
protected health information as defined by the Health Insurance Portability and Accountability Act
of 1996 (“HIPAA”), and additional personally identifiable information (“PII”) and protected
health information (“PHI”) that Defendant collected and maintained (collectively the “Private
Information”).
7.
Plaintiff brings this class action lawsuit to address Defendant’s inadequate
safeguarding of Class Members’ Private Information that it collected and maintained, and for
failing to provide timely and adequate notice to Plaintiff and 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.
8.
Defendant maintained the Private Information in a reckless manner. In particular,
the Private Information was maintained on Defendant’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’ Private Information was a
known risk to Defendant, and thus Defendant was on notice that failing to take steps necessary to
secure the Private Information from those risks left that property in a dangerous condition.
9.
In addition, Defendant and its employees failed to properly monitor the computer
network and systems that housed the Private Information. Had Defendant properly monitored its
property, it would have discovered the intrusion sooner.
10.
Plaintiff’s and Class Members’ identities are now at risk because of Defendant’s
negligent conduct since the Private Information that Defendant collected and maintained is now in
the hands of data thieves.
11.
Armed with the Private Information 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’ names to obtain medical
services, using Class Members’ health information to target other phishing and hacking intrusions
based on their individual health needs, using Class Members’ information to obtain government
benefits, filing fraudulent tax returns 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.
12.
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.
13.
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.
14.
Plaintiff seeks to remedy these harms on behalf of themselves and all similarly
situated individuals whose Private Information was accessed during the Data Breach.
15.
Plaintiff seeks remedies including, but not limited to, compensatory damages,
reimbursement of out-of-pocket costs, and injunctive relief including improvements to
Defendant’s data security systems, future annual audits, and adequate credit monitoring services
funded by Defendant.
PARTIES
16.
Plaintiff Jason Vahle, and the minor K.V., are and, at all times mentioned herein,
were individual citizens of the State of Illinois residing in the City of O’Fallon.
17.
Defendant BJC is a non-profit health system with its principal place of business at
4901 Forest Park Avenue, Suite 1200, St. Louis, Missouri 63108.
DEFENDANT’S BUSINESS
18.
Defendant BJC HealthCare is one of the largest nonprofit health care organizations
in the United States, and is focused on delivering services to residents primarily in the greater St.
Louis, southern Illinois and mid-Missouri regions. 1
19.
Defendant operates 15 hospitals and multiple community health locations.
20.
Defendant provides medical care, treatment, and attendant services, including
inpatient and outpatient care, primary care, community health and wellness, workplace health,
home health, community mental health, rehabilitation, long-term care and hospice.
21.
In the ordinary course of receiving treatment and health care services from BJC,
patients are required to provide sensitive, personal and private information such as:
a.
Name, address, phone number and email address;
b.
Date of birth;
c.
Demographic information;
d.
Social Security number;
e.
Information relating to individual medical history;
f.
Insurance information and coverage;
g.
Information concerning an individual’s doctor, nurse or other medical providers;
h.
Photo identification;
i.
Employer information; and
j.
Other information that may be deemed necessary to provide care.
k.
Defendant also gathers certain medical information about patients and creates
records of the care it provides to them.
1 https://www.bjc.org/About-Us/Facts-Figures
22.
Additionally, Defendant may receive private and personal information from other
individuals and/or organizations that are part of a patient’s “circle of care,” such as referring
physicians, patients’ other doctors, patient’s health plan(s), close friends, and/or family members.
23.
Defendant publishes on its website a page entitled “Patient Rights and
Responsibilities,” which states that patients like Plaintiff and the Class Members have a right to
“privacy of your health information.”2
24.
All of Defendant’s employees, staff, entities, clinics, sites, and locations may share
patient information with each other for various purposes without a written authorization, as
disclosed in the BJC Healthcare Joint Notice of Privacy Practices (the “Privacy Notice”).3 The
current privacy notice has an effective date of April 14, 2003, with the latest revision coming in
July 2015.
25.
The Privacy Notice is provided to every patient upon request and is posted on
Defendant’s website. Defendant also notes that it has a policy “To give you this Notice of our
Privacy Practices and legal duties with respect to protected health information.”4
26.
Because of the highly sensitive and personal nature of the information Defendant
acquires and stores with respect to its patients, BJC promises to, among other things: A) to ensure
that health information that identifies you is kept private; B) to follow the terms of the Privacy
Notice that is currently in effect; C) to make a good faith effort to obtain from patients a written
acknowledgement that they have received or been given an opportunity to receive the Privacy
Notice, and; D) to notify patients in writing within 60 days in the event patient health information
2 https://www.bjc.org/For-Patients-Visitors/Patient-Rights-Responsibilities
3
https://www.bjc.org/Portals/0/Content/HIPAA/BJC22094_BJC%20NPP%20COMMUNITY_fin.
pdf?ver=2016-03-09-144707-350
4 Id.
is compromised by BJC HealthCare, one of its affiliates, or by someone with whom we have
contracted to conduct business on our behalf.5
27.
The Privacy Notice also provides that written authorization will be requested for all
uses and disclosures of protected health information or confidentiality, other than those uses
expressly set out in the Privacy Notice.6
28.
As its Privacy Policy makes clear, Defendant acquires, collects, and stores a
massive amount of personally identifiable information on its patients.
29.
As a condition of receiving medical care and treatment at its hospital and other
facilities, Defendant requires that its patients entrust it with highly sensitive personal information.
30.
By obtaining, collecting, using, and deriving a benefit from Plaintiff’s and Class
Members’ PII, Defendant assumed legal and equitable duties and knew or should have known that
it was responsible for protecting Plaintiff’s and Class Members’ PII from disclosure.
31.
Plaintiff and the Class Members have taken reasonable steps to maintain the
confidentiality of their PII.
32.
Plaintiff and the Class Members relied on Defendant to keep their PII confidential
and securely maintained, to use this information for business purposes only, and to make only
authorized disclosures of this information.
PLAINTIFF’S EXPERIENCE
33.
On the first occasion on which he received medical care and treatment from
Defendant at St. Louis Children’s Hospital7 (the date of which is known to Defendant through its
5 Id.
6 Id.
7 According to Defendant’s breach notice, St. Louis Children’s Hospital was one of BJC’s
facilities whose patients were impacted by the Data Breach.
https://www.bjc.org/Newsroom/Article/ArtMID/5522/ArticleID/4438/Notice-to-Patients
own records), Plaintiff provided BJC with his name and the name of his minor child, address,
phone number and email address; date of birth of the minor K.V.; demographic information (race,
gender, etc.); his and the minor K.V.’s Social Security numbers; information relating to K.V.’s
individual medical history; insurance information and coverage, and Plaintiff’s employer
information.
34.
On the first occasion on which the Plaintiff’s minor K.V. received medical care and
treatment from Defendant at St. Louis Children’s Hospital (the date of which is known to
Defendant through its own records), Plaintiff was shown or given copies of the Privacy Notice
containing the promise to keep the personal and health information of himself and his minor child
private and confidential.
THE CYBERATTACK AND DATA BREACH
35.
On March 6, 2020, BJC learned that an unauthorized person or persons gained
access to three (3) BJC employee email accounts in a targeted cyberattack, expressly designed to
gain access to private and confidential data, including the PII and PHI of patients like Plaintiffs
and Class Members.8
36.
The unauthorized third party gained access to the employee email accounts through
a commonplace phishing attack, which is the most common form of targeted cyberattack.
37.
The email accounts accessed by the Data Breach contained emails and attachment
containing some patients’ names, dates of birth, medical record or patient account numbers, and
limited treatment and/or clinical information, such as visit dates, provider names, medications,
8 https://www.hipaajournal.com/phishing-attack-at-bjc-healthcare-impacts-patients-at-19-
hospitals/
diagnoses, and/or testing information. In some instances, patients’ Social Security numbers and/or
drivers’ license numbers were also found in the accounts.9
38.
The investigation was unable to determine whether the unauthorized person(s)
actually viewed any email or attachment in the employee email accounts.10
39.
The compromised email accounts contained messages and email attachments that
included PII and PHI of at least 287,876 patients.
40.
This data breach was particularly egregious because it was the second major data
breach involving Defendant in approximately two years. On January 23, 2018, BJC performed a
security scan which revealed one of its servers had been misconfigured which allowed sensitive
information to be accessed without authentication. Action was immediately taken to reconfigure
and secure the server to prevent data from being accessed. The investigation revealed an error had
been made configuring the server on May 9, 2017, leaving documents and copies of identification
documents accessible. Highly sensitive information such as Social Security numbers, insurance
cards, and driver’s license numbers were left exposed on the internet for over eight (8) months’
time, along with patients’ names, addresses, contact telephone numbers, dates of birth, and
treatment related information.11
41.
The fact that this Data Breach occurred after Defendant’s prior 2018 breach
demonstrates that Defendant did not correct or improve its data security systems, practices, and
procedures, failed to properly implement basic data security practices, and failed to employ
reasonable and appropriate measures to protect against unauthorized access to patient PII and PHI.
9 https://www.bjc.org/Newsroom/Article/ArtMID/5522/ArticleID/4438/Notice-to-Patients
10 Id.
11 https://www.hipaajournal.com/phi-of-33420-bjc-healthcare-patients-exposed-on-internet-for-
8-months/
42.
Plaintiff believes his Private Information was stolen (and subsequently sold) in the
Data Breach. While BJC stated it was “unable to determine” whether Plaintiff’s and Class
Members’ Private Information was compromised during this unauthorized access, it
acknowledged it could not rule out the possibility.
43.
Defendant has offered persons affected by the Data Breach complimentary credit
monitoring and identity protection services,12 thereby acknowledging that the risk of future injury
is actual, choate, imminent and certainly impending.
44.
Despite being unable to rule out that the personal information of Plaintiffs and the
Class Members was not compromised, Defendant did not begin to notify affected patients until
May 5, 2020, nearly two months after the data breach was discovered.
45.
Defendant had obligations created by HIPAA, contract, industry standards,
common law, and representations made to Plaintiff and Class Members to keep their Private
Information confidential and to protect it from unauthorized access and disclosure.
46.
Plaintiff and Class Members provided their Private Information to Defendant with
the reasonable expectation and mutual understanding that Defendant would comply with its
obligations to keep such information confidential and secure from unauthorized access.
47.
Defendant’s data security obligations were particularly important given the
substantial increase in cyberattacks and/or data breaches in the healthcare industry preceding the
date of the breach.
48.
Indeed, cyberattacks have become so notorious that the Federal Bureau of
Investigation and U.S. Secret Service have issued a warning to potential targets so they are aware
of, and prepared for, a potential attack. As one report explained, “[e]ntities like smaller
municipalities and hospitals are attractive to ransomware criminals . . . because they often have
lesser IT defenses and a high incentive to regain access to their data quickly.”13
49.
Therefore, the increase in such attacks, and attendant risk of future attacks, was
widely known to the public and to anyone in Defendant’s industry, including Defendant.
50.
Phishing attacks of the type that the unauthorized persons used to gain access to
Defendant’s employee email accounts are among the oldest, most common, and well known form
of cyberattacks. “Phishing is a cyber attack that uses disguised email as a weapon. The goal is to
trick the email recipient into believing that the message is something they want or need — a request
from their bank, for instance, or a note from someone in their company — and to click a link or
download an attachment.”14 The fake link will typically mimic a familiar website and require the
input of credentials. Once inputted, the credentials are then used to gain unauthorized access into
a system. “It’s one of the oldest types of cyber-attacks, dating back to the 1990s” and one that
every organization with an internet presence is aware.” 15 It remains the “simplest kind of
cyberattack and, at the same time, the most dangerous and effective.”16
51.
Phishing attacks are generally preventable with the implementation of a variety of
proactive measures such as purchasing and using some sort of commonly available anti-malware
security software (such as the ubiquitous Malwarebites). Most cybersecurity tools have the ability
13 https://www.law360.com/consumerprotection/articles/1220974/fbi-secret-service-warn-of-
targeted-ransomware?nl_pk=3ed44a08-fcc2-4b6c-89f0-
aa0155a8bb51&utm_source=newsletter&utm_medium=email&utm_campaign=consumerprotect
ion (emphasis added).
14 Frulingher, J., “What is phishing? How this cyber attack works and how to prevent it,” CSO
Online, April 7, 2020 https://www.csoonline.com/article/2117843/what-is-phishing-how-this-
cyber-attack-works-and-how-to-prevent-it.html (last visited June 20, 2020)
15 Id.
16 Phishing, Malwarebytes, https://www.malwarebytes.com/phishing/ (last visited June 20,
2020).
to detect when a link or an attachment isn't what it seems.17 Other proactive measures include
sandboxing inbound e-mail (i.e. an automated process that segregates e-mail with attachments and
links to an isolated test environment, or a “sandbox,” wherein a suspicious file or URL may be
executed safely), inspecting and analyzing web traffic, penetration testing (which can be used to
test an organization's security policy, its adherence to compliance requirements, its employees'
security awareness and the organization's ability to identify and respond to security incidents), and
employee education, just to name some of the well-known tools and techniques to prevent phishing
attacks.
DEFENDANT FAILS TO COMPLY WITH FTC GUIDELINES
52.
The Federal Trade Commission (“FTC”) has promulgated numerous guides for
businesses which highlight the importance of implementing reasonable data security practices.
According to the FTC, the need for data security should be factored into all business decision-
making.
53.
In 2016, the FTC updated its publication, Protecting Personal Information: A Guide
for Business, which established cyber-security guidelines for businesses. The guidelines note that
businesses should protect the personal customer information that they keep; properly dispose of
personal information that is no longer needed; encrypt information stored on computer networks;
understand their network’s vulnerabilities; and implement policies to correct any security
problems. The guidelines also recommend that businesses use an intrusion detection system to
expose a breach as soon as it occurs; monitor all incoming traffic for activity indicating someone
is attempting to hack the system; watch for large amounts of data being transmitted from the
system; and have a response plan ready in the event of a breach.
54.
The FTC further recommends that companies not maintain PII longer than is
needed for authorization of a transaction; 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.
55.
The FTC has brought enforcement actions against businesses for failing to
adequately and reasonably protect customer data, 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 (“FTCA”), 15
U.S.C. § 45. Orders resulting from these actions further clarify the measures businesses must take
to meet their data security obligations.
56.
These FTC enforcement actions include actions against healthcare providers like
Defendant. See, e.g., In the Matter of Labmd, Inc., A Corp, 2016-2 Trade Cas. (CCH) ¶ 79708,
2016 WL 4128215, at *32 (MSNET July 28, 2016) (“[T]he Commission concludes that LabMD’s
data security practices were unreasonable and constitute an unfair act or practice in violation of
Section 5 of the FTC Act.”)
57.
Defendant failed to properly implement basic data security practices. Defendant’s
failure to employ reasonable and appropriate measures to protect against unauthorized access to
patient PII and PHI constitutes an unfair act or practice prohibited by Section 5 of the FTC Act,
15 U.S.C. § 45.
58.
Defendant was at all times fully aware of its obligation to protect the PII and PHI
of its patients. Defendant was also aware of the significant repercussions that would result from
its failure to do so.
DEFENDANT FAILS TO COMPLY WITH INDUSTRY STANDARDS
59.
As shown above, experts studying cyber security routinely identify healthcare
providers as being particularly vulnerable to cyberattacks because of the value of the PII and PHI
which they collect and maintain.
60.
Several best practices have been identified that a minimum should be implemented
by healthcare providers like Defendant, including but not limited to: educating all employees;
strong passwords; multi-layer security, including firewalls, anti-virus, and anti-malware software;
encryption, making data unreadable without a key; multi-factor authentication; backup data, and;
limiting which employees can access sensitive data.
61.
A number of industry and national best practices have been published and should
be used as a go-to resource when developing an institution’s cybersecurity standards. The Center
for Internet Security (CIS) released its Critical Security Controls, and all healthcare institutions
are strongly advised to follow these actions. The CIS Benchmarks are the overwhelming option
of choice for auditors worldwide when advising organizations on the adoption of a secure build
standard for any governance and security initiative, including PCI DSS, HIPAA, NIST 800-53,
SOX, FISMA, ISO/IEC 27002, Graham Leach Bliley and ITIL.18
62.
Other best cybersecurity practices that are standard in the healthcare industry
include installing appropriate malware detection software; monitoring and limiting the network
ports; protecting web browsers and email management systems; setting up network systems such
as firewalls, switches and routers; monitoring and protection of physical security systems;
protection against any possible communication system; training staff regarding critical points.
18 https://www.cisecurity.org/cis-benchmarks/cis-benchmarks-faq/
63.
Defendant failed to meet the minimum standards of any of the following
frameworks: the NIST Cybersecurity Framework, NIST Special Publications 800-53, 53A, or 800-
171; General Accounting Office (GAO) standards; the Federal Risk and Authorization
Management Program (FEDRAMP); and the Center for Internet Security’s Critical Security
Controls (CIS CSC), which are all established standards in reasonable cybersecurity readiness.
DEFENDANT’S CONDUCT VIOLATES HIPAA AND
EVIDENCES ITS INSUFFICIENT DATA SECURITY
64.
HIPAA requires covered entities to protect against reasonably anticipated threats
to the security of sensitive patient health information.
65.
Covered entities must implement safeguards to ensure the confidentiality, integrity,
and availability of PHI. Safeguards must include physical, technical, and administrative
components.
66.
Title II of HIPAA contains what are known as the Administrative Simplification
provisions. 42 U.S.C. §§ 1301, et seq. These provisions require, among other things, that the
Department of Health and Human Services (“HHS”) create rules to streamline the standards for
handling PII like the data Defendant left unguarded. The HHS subsequently promulgated multiple
regulations under authority of the Administrative Simplification provisions of HIPAA. These rules
include 45 C.F.R. § 164.306(a)(1-4); 45 C.F.R. § 164.312(a)(1); 45 C.F.R. § 164.308(a)(1)(i); 45
C.F.R. § 164.308(a)(1)(ii)(D), and 45 C.F.R. § 164.530(b).
67.
Defendants’ Data Breach resulted from a combination of insufficiencies that
demonstrate they failed to comply with safeguards mandated by HIPAA regulations.
DEFENDANT’S BREACH
68.
Defendant breached its obligations to Plaintiffs and Class Members and/or was
otherwise negligent and reckless because it failed to properly maintain and safeguard its computer
systems and data. Defendant’s unlawful conduct includes, but is not limited to, the following acts
and/or omissions:
a.
Failing to maintain an adequate data security system19 to reduce the risk of data
breaches and cyber-attacks;
b.
Failing to adequately protect patients’ Private Information;
c.
Failing to properly monitor its own data security systems for existing intrusions;
d.
Failing to implement adequate and reasonable cyber-security procedures and
protocols necessary to protect patient PII; Failing to disclose that they did not have adequately
robust security practices to safeguard patient PHI and PII;
e.
Failing to take standard and reasonably available steps to prevent the Data Breach;
f.
Failing to implement and follow basic security procedures;
g.
Failing to ensure the confidentiality and integrity of electronic PHI it created,
received, maintained, and/or transmitted, in violation of 45 C.F.R. § 164.306(a)(1);
h.
Failing to implement technical policies and procedures for electronic information
systems that maintain electronic PHI 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);
i.
Failing to implement policies and procedures to prevent, detect, contain, and correct
security violations in violation of 45 C.F.R. § 164.308(a)(1)(i);
19 A “data security system” is defined as “Generally, any means (technical, operational, or
managerial) for keeping private the information contained in data that are transmitted, stored, or
processed in a computer system.” https://www.encyclopedia.com/computing/dictionaries-
thesauruses-pictures-and-press-releases/data-security-system “Data security system” thus
includes human factors (i.e. employee behavior, employee supervision, employee training).
j.
Failing to implement 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);
k.
Failing to protect against reasonably anticipated threats or hazards to the security
or integrity of electronic PHI in violation of 45 C.F.R. § 164.306(a)(2);
l.
Failing to protect against reasonably anticipated uses or disclosures of electronic
PHI that are not permitted under the privacy rules regarding individually identifiable health
information in violation of 45 C.F.R. § 164.306(a)(3);
m.
Failing to ensure compliance with HIPAA security standard rules by its workforces
in violation of 45 C.F.R. § 164.306(a)(4);
n.
Failing to train all members of its workforces effectively on the policies and
procedures regarding PHI as necessary and appropriate for the members of its workforces to carry
out their functions and to maintain security of PHI, in violation of 45 C.F.R. § 164.530(b); and/or
o.
Failing to render the electronic PHI it maintained unusable, unreadable, or
indecipherable to unauthorized individuals, as it had not encrypted the electronic PHI as specified
in the HIPAA Security Rule by “the use of an algorithmic process to transform data into a form in
which there is a low probability of assigning meaning without use of a confidential process or key”
(45 CFR § 164.304’s definition of “encryption”)
p.
Failing to comply with FTC guidelines for cybersecurity, in violation of Section 5
of the FTC Act, and;
q.
failing to adhere to industry standards for cybersecurity.
69.
As the result of computer systems in dire need of security upgrading (including
without limitation the failure to implement commonly available cybersecurity tools whose function
includes protection against the well-known threat of phishing attacks), lack of training in the proper
handling of phishing emails, inadequate procedures for handling emails containing viruses or other
malignant computer code, and employees who opened files containing the virus or malignant code
that perpetrated the cyberattack, Defendant negligently and unlawfully failed to safeguard
Plaintiffs’ and Class Members’ Private Information.
70.
Accordingly, as outlined below, Plaintiff’s and Class Members’ suffered multiple
forms of actual damages, and their daily lives were severely disrupted. What’s more, they now
face an increased risk of fraud and identity theft. Plaintiff and the Class Members also lost the
benefit of the bargain they made with Defendant.
PREVALENCE OF CYBER ATTACKS AND SUSCEPTIBILITY OF THE
HEALTHCARE SECTOR
71.
Data breaches, including those perpetrated against the healthcare sector of the
economy, have become widespread. In 2016, the number of U.S. data breaches surpassed 1,000,
a record high and a forty percent increase in the number of data breaches from the previous year.
In 2017, a new record high of 1,579 breaches were reported, representing a 44.7 percent increase
over 2016. In 2018, there was an extreme jump of 126 percent in the number of consumer records
exposed from data breaches. In 2019, there was a 17 percent increase in the number of breaches
(1,473) over 2018, with 164,683,455 sensitive records exposed.
72.
The number of data breaches in the healthcare sector skyrocketed in 2019, with 525
reported breaches exposing nearly 40 million sensitive records (39,378,157), compared to only
369 breaches that exposed just over 10 million sensitive records (10,632,600) in 2018.20
20 https://www.idtheftcenter.org/wp-content/uploads/2020/01/01.28.2020_ITRC_2019-End-of-
Year-Data-Breach-Report_FINAL_Highres-Appendix.pdf
73.
Phishing cyberattacks against healthcare organizations are targeted. According to
the 2019 Health Information Management Systems Society, Inc. (“HIMMS”) Cybersecurity
Survey, “[a] pattern of cybersecurity threats and experiences is discernable across US healthcare
organizations. Significant security incidents are a near-universal experience in US healthcare
organizations with many of the incidents initiated by bad actors, leveraging e-mail as a means to
compromise the integrity of their targets.”21 “Hospitals have emerged as a primary target because
they sit on a gold mine of sensitive personally identifiable information for thousands of patients at
any given time. From Social Security and insurance policies to next of kin and credit cards, no
other organization, including credit bureaus, have so much monetizable information stored in their
data centers.”22
74.
The exposure of highly personal and highly confidential healthcare related data is
of great consequence to patients. As the ID Theft Center notes:
Medical identity theft is costly to consumers. Unlike credit-card fraud, victims of
medical identity theft can suffer significant financial consequences. Sixty-five
percent of medical identity theft victims had to pay an average of $13,500 to resolve
the crime. In some cases, they paid the health care provider, repaid the insurer for
services obtained by the thief, or they engaged an identity-service provider or legal
counsel to help resolve the incident and prevent fraud.
Those who have resolved the crime spent, on average, more than 200 hours on such
activities as working with their insurer or health-care provider.
Medical identity theft can have a negative impact on reputation. Forty-five percent
of respondents said medical identity theft affected their reputation mainly because
of embarrassment due to disclosure of sensitive personal health conditions; 19
percent of respondents believed the theft caused them to miss out on career
opportunities. Three percent said it resulted in the loss of employment.23
21 https://www.himss.org/himss-cybersecurity-survey (last accessed June 20, 2020)
22 https://www.idigitalhealth.com/news/how-to-safeguard-hospital-data-from-email-spoofing-
attacks (last accessed June 20, 2020)
23 https://www.idtheftcenter.org/medical-id-theft-costs-victims-big-
money/#:~:text=Medical%20identity%20theft%20is%20costly,%2413%2C500%20to%20resolv
e%20the%20crime. (last accessed June 20, 2020)
CYBERATTACKS AND DATA BREACHES CAUSE DISRUPTION AND PUT
CONSUMERS AT AN INCREASED RISK OF FRAUD AND IDENTIFY THEFT
75.
Cyberattacks and data breaches at medical facilities like BJC are especially
problematic because of the disruption they cause to the medical treatment and overall daily lives
of patients affected by the attack.
76.
For instance, loss of access to patient histories, charts, images and other information
forces providers to limit or cancel patient treatment because of the disruption of service.
77.
This leads to a deterioration in the quality of overall care patients receive at facilities
affected by cyberattacks and related data breaches.
78.
Researchers have further found that at medical facilities that experienced a data
security incident, the incident was associated with deterioration in timeliness and patient outcomes,
generally.24
79.
Similarly, cyberattacks and related data security incidents inconvenience patients.
The various inconveniences patients encounter as a result of such incidents include, but are not
limited to:
a.
rescheduling medical treatment;
b.
finding alternative medical care and treatment;
c.
delaying or foregoing medical care and treatment;
d.
undergoing medical care and treatment without medical providers having access to
a complete medical history and records; and losing patient medical history.
80.
Cyberattacks are considered a breach under the HIPAA Rules because there is an
access of PHI not permitted under the HIPAA Privacy Rule:
24 See https://onlinelibrary.wiley.com/doi/full/10.1111/1475-6773.13203.
A breach under the HIPAA Rules is defined as “the acquisition, access, use, or
disclosure of PHI in a manner not permitted under the [HIPAA Privacy Rule] which
compromises the security or privacy of the PHI.” See 45 C.F.R. 164.40.25
81.
Data breaches represent yet another problem for patients who have already
experienced inconvenience and disruption associated with a cyberattack.
82.
The United States Government Accountability Office released a report in 2007
regarding data breaches (“GOA 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.”26
83.
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.27
84.
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.
85.
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
25 Id.
26 See “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 Apr. 12, 2019) (“GAO Report”).
27 See https://www.identitytheft.gov/Steps (last visited April 12, 2019).
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:28
86.
Moreover, theft of Private Information is also gravely serious. PII/PHI is a valuable
property right.29 Its value is axiomatic, considering the value of ”big data” in corporate America
and the fact that the consequences of cyber thefts include heavy prison sentences. Even this
28 “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 June 20, 2019).
29 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).
obvious risk to reward analysis illustrates beyond doubt that Private Information has considerable
market value.
87.
Theft of PHI, in particular, is gravely serious: “A thief may use your name or health
insurance numbers to see a doctor, get prescription drugs, file claims with your insurance provider,
or get other care. If the thief’s health information is mixed with yours, your treatment, insurance
and payment records, and credit report may be affected.”30 Drug manufacturers, medical device
manufacturers, pharmacies, hospitals and other healthcare service providers often purchase
PII/PHI on the black market for the purpose of target marketing their products and services to the
physical maladies of the data breach victims themselves. Insurance companies purchase and use
wrongfully disclosed PHI to adjust their insureds’ medical insurance premiums.
88.
It must also be noted there may be a substantial time lag – measured in years --
between when harm occurs and when it is discovered, and also between when Private Information
and/or financial information is stolen and when it 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 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.
89.
Private Information 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.
30 See Federal Trade Commission, Medical Identity Theft,
http://www.consumer.ftc.gov/articles/0171-medical-identity-theft (last visited March 27, 2020).
90.
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 Plaintiffs and
Class Members are at an increased risk of fraud and identity theft for many years into the future.
Thus, Plaintiffs and Class Members must vigilantly monitor their financial and medical accounts
for many years to come.
91.
Medical information is especially valuable to identity thieves. According to account
monitoring company LogDog, coveted Social Security numbers were selling on the dark web for
just $1 in 2016 – the same as a Facebook account. That pales in comparison with the asking price
for medical data, which was selling for $50 and up.31
92.
Because of its value, the medical industry has experienced disproportionally higher
numbers of data theft events than other industries. Defendant therefore knew or should have known
this and strengthened its data systems accordingly. Defendant was put on notice of the substantial
and foreseeable risk of harm from a data breach, yet it failed to properly prepare for that risk.
PLAINTIFF’S AND CLASS MEMBERS’ DAMAGES
93.
To date, Defendant has done absolutely nothing to provide Plaintiff and the Class
Members with relief for the damages they have suffered as a result of the Data Breach.
94.
Plaintiff and Class Members have been damaged by the compromise of their Private
Information in the Data Breach.
95.
Plaintiff’s PII and PHI was compromised as a direct and proximate result of the
Data Breach.
31 https://nakedsecurity.sophos.com/2019/10/03/ransomware-attacks-paralyze-and-sometimes-
crush-hospitals/#content.
96.
As a direct and proximate result of Defendant’s conduct, Plaintiff and Class
Members have been placed at an imminent, immediate, and continuing increased risk of harm from
fraud and identity theft.
97.
As a direct and proximate result of Defendant’s conduct, Plaintiff and Class
Members have been forced to expend time dealing with the effects of the Data Breach.
98.
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.
99.
Plaintiff and Class Members face substantial risk of being targeted for future
phishing, data intrusion, and other illegal schemes based on their Private Information as potential
fraudsters could use that information to more effectively target such schemes to Plaintiff and Class
Members.
100.
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.
101.
Plaintiff and Class Members also suffered a loss of value of their Private
Information when it was acquired by cyber thieves in the Data Breach. Numerous courts have
recognized the propriety of loss of value damages in related cases.
102.
Plaintiff and Class Members were also damaged via benefit-of-the-bargain
damages. Plaintiff and Class Members overpaid for a service that was intended to be accompanied
by adequate data security but was not. Part of the price Plaintiff and Class Members paid to
Defendant was intended to be used by Defendant to fund adequate security of Defendant’s
computer property and protect Plaintiff’s and Class Members’ Private Information. Thus, Plaintiff
and the Class Members did not get what they paid for.
103.
Plaintiff and Class Members have spent and will continue to spend significant
amounts of time to monitor their financial and medical accounts and records for misuse.
104.
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:
a.
Finding fraudulent charges;
b.
Canceling and reissuing credit and debit cards;
c.
Purchasing credit monitoring and identity theft prevention;
d.
Addressing their inability to withdraw funds linked to compromised accounts;
e.
Taking trips to banks and waiting in line to obtain funds held in limited accounts;
f.
Placing “freezes” and “alerts” with credit reporting agencies;
g.
Spending time on the phone with or at a financial institution to dispute fraudulent
charges;
h.
Contacting financial institutions and closing or modifying financial accounts;
i.
Resetting automatic billing and payment instructions from compromised credit and
debit cards to new ones;
j.
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
k.
Closely reviewing and monitoring bank accounts and credit reports for
unauthorized activity for years to come.
105.
Moreover, Plaintiff and Class Members have an interest in ensuring that their
Private 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 but not
limited to, making sure that the storage of data or documents containing personal and financial
information is not accessible online, that access to such data is password-protected, and that such
data is properly encrypted.
106.
Further, as a result of Defendant’s conduct, Plaintiffs and Class Members are forced
to live with the anxiety that their Private Information—which contains the most intimate details
about a person’s life, including what ailments they suffer, whether physical or mental—may be
disclosed to the entire world, thereby subjecting them to embarrassment and depriving them of any
right to privacy whatsoever.
107.
As a direct and proximate result of Defendant’s actions and inactions, Plaintiffs and
Class Members have suffered a loss of privacy and are at an imminent and increased risk of future
108.
Although their PII and PHI was improperly exposed on March 6, 2020, and
allegedly discovered the same day, affected patients were not notified of the Data Breach until
some time after May 5, 2020, depriving them of the ability to promptly mitigate potential adverse
consequences resulting from the Data Breach. As a result of Defendant’s delay in detecting and
notifying consumers of the Data Breach, the risk of fraud for Plaintiffs and Class Members has
been driven even higher.
CLASS ACTION ALLEGATIONS
109.
Plaintiff, in accordance with and pursuant to FRCP Rule 23, brings this action on
behalf of himself and a statewide class of similarly-situated individuals (“the Class”).
110.
Plaintiff proposes the following Class definition, subject to amendment as
appropriate:
All persons whose PII was compromised as a result of the Data Breach announced
by BJC on or about May 5, 2020 (the “Class”).
Excluded from the Class are Defendant’s officers, directors, and employees; any entity in
which Defendant has 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.
111.
Numerosity. The members of the Class 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 287,876 patients of Defendant
whose data was compromised in the Cyberattack.
112.
Commonality. There are questions of law and fact common to the Class, which
predominate over any questions affecting only individual Class Members. These common
questions of law and fact include, without limitation:
a)
Whether Defendant unlawfully used, maintained, lost, or disclosed
Plaintiff’ and Class Members’ Private Information;
b)
Whether Defendant failed to implement and maintain reasonable security
procedures and practices appropriate to the nature and scope of the information
compromised in the cyberattack;
c)
Whether Defendant’s data security systems prior to and during the
cyberattack complied with applicable data security laws and regulations including, e.g.,
HIPAA;
d)
Whether Defendant’s data security systems prior to and during the
cyberattack were consistent with industry standards;
e)
Whether Defendant owed a duty to Class Members to safeguard their
Private Information;
f)
Whether Defendant breached its duty to Class Members to safeguard their
Private Information;
g)
Whether computer hackers obtained Class Members’ Private Information
in the cyberattack;
h)
Whether Defendant knew or should have known that its data security
systems, email handling policies and procedures, and monitoring processes were deficient;
i)
Whether Plaintiff and Class Members suffered legally cognizable damages
as a result of Defendant’s misconduct;
j)
Whether Defendant owed a duty to provide Plaintiff and Class Members
with notice of this data breach, and whether Defendant breached that duty;
k)
Whether Defendant’s conduct was negligent;
l)
Whether Defendant’s conduct was per se negligent;
m)
Whether Defendant’s acts, inactions, and practices complained of herein
amount to acts of intrusion upon seclusion/invasion of privacy,
n)
Whether Defendant violated the Missouri Merchandise Practices Act, and;
o)
Whether Plaintiff and Class Members are entitled to damages, treble
damages, civil penalties, punitive damages, and/or injunctive relief.
113.
Typicality. Plaintiff’ claims are typical of those of other Class Members because
Plaintiff’ information, like that of every other Class member, was compromised in the cyberattack.
114.
Adequacy of Representation. Plaintiff will fairly and adequately represent and
protect the interests of the members of the Class. Plaintiff’ Counsel are competent and experienced
in litigating class actions.
115.
Predominance. Defendant has engaged in a common course of conduct toward
Plaintiff and Class Members, in that all the Plaintiff’ and Class Members’ data was stored on the
same computer systems and unlawfully accessed in the same way. The common issues arising
from Defendant’s 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.
116.
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 claim 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
Defendant. In contrast, the conduct of this action as a class action presents far fewer management
difficulties, conserves judicial resources and the parties’ resources, and protects the rights of each
class member.
117.
Defendant has 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.
FOR A FIRST CAUSE OF ACTION
NEGLIGENCE
(On Behalf of Plaintiff and All Class Members)
118.
Plaintiff re-alleges and incorporates by reference Paragraphs 1 through 117 above,
as if fully set forth herein.
119.
Defendant required Plaintiff and Class Members to submit non-public personal
information in order to obtain medical services.
120.
By collecting and storing this data in its computer property, and sharing it and using
it for commercial gain, Defendant had a duty of care to use reasonable means to secure and
safeguard its computer property—and Plaintiff’s and Class Members’ Private Information held
within it—to prevent disclosure of the information, and to safeguard the information from theft.
Defendant’s duty included a responsibility to implement processes by which it could detect a
breach of its security systems in a reasonably expeditious period of time and to give prompt notice
to those affected in the case of a data breach.
121.
Defendant 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 its systems and networks, and the personnel responsible for them, adequately protected the
Private Information.
122.
Defendant’s duty of care to use reasonable security measures arose as a result of
the special relationship that existed between Defendant and its client patients, which is recognized
by laws and regulations including but not limited to HIPAA, as well as common law. Defendant
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.
123.
Defendant’s duty to use reasonable security measures under HIPAA required
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). Some or all of the
medical information at issue in this case constitutes “protected health information” within the
meaning of HIPAA.
124.
In addition, Defendant had a duty to employ reasonable security measures under
Section 5 of the Federal Trade Commission 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 confidential data.
125.
Defendant’s duty to use reasonable care in protecting confidential data arose not
only as a result of the statutes and regulations described above, but also because Defendant is
bound by industry standards to protect confidential Private Information.
126.
Defendant breached its duties, and thus was negligent, by failing to use reasonable
measures to protect Class Members’ Private Information. The specific negligent acts and
omissions committed by Defendant include, but are not limited to, the following:
a.
Failing to adopt, implement, and maintain adequate security measures to safeguard
Class Members’ Private Information;
b.
Failing to adequately monitor the security of their networks and systems;
c.
Failure to periodically ensure that their email system had plans in place to maintain
reasonable data security safeguards;
d.
Allowing unauthorized access to Class Members’ Private Information;
e.
Failing to detect in a timely manner that Class Members’ Private Information had
been compromised; and
f.
Failing to timely notify Class Members about the cyberattack so that they could
take appropriate steps to mitigate the potential for identity theft and other damages.
127.
It was foreseeable that Defendant’s failure to use reasonable measures to protect
Class Members’ Private Information would result in injury to Class Members. Further, the breach
of security was reasonably foreseeable given the known high frequency of phishing attacks and
data breaches in the medical industry.
128.
It was therefore foreseeable that the failure to adequately safeguard Class Members’
Private Information would result in one or more types of injuries to Class Members.
129.
Plaintiff and Class Members are entitled to compensatory and consequential
damages suffered as a result of the Data Breach.
130.
Plaintiff and Class Members are also entitled to injunctive relief requiring
Defendant to, e.g., (i) strengthen its data security systems and monitoring procedures; (ii) submit
to future annual audits of those systems and monitoring procedures; and (iii) immediately provide
adequate credit monitoring to all Class Members.
FOR A SECOND CAUSE OF ACTION
INTRUSION UPON SECLUSION/INVASTION OF PRIVACY
(On Behalf of Plaintiff and All Class Members)
131.
Plaintiff repeats and re-alleges each and every allegation contained in Paragraphs 1
through 117 as if fully set forth herein.
132.
The State of Missouri recognizes the tort of invasion of privacy and finds that the
Restatement (Second) of Torts’ distinctions among the four types of invasion of privacy are useful
in deciding invasion of privacy claims. Corcoran v. Sw. Bell Tel. Co., 572 S.W.2d 212, 214 (Mo.
App. 1978). One of the four types of invasion of privacy noted by the Restatement is an
unreasonable intrusion upon the seclusion of another.
133.
Plaintiff and Class Members had a reasonable expectation of privacy in the Private
Information Defendant mishandled.
134.
Defendant’s conduct as alleged above intruded upon Plaintiff’s and Class
Members’ seclusion under common law.
135.
By intentionally failing to keep Plaintiff’s and Class Members’ Private Information
safe, and by intentionally misusing and/or disclosing said information to unauthorized parties for
unauthorized use, Defendant intentionally invaded Plaintiff’s and Class Members’ privacy by:
a.
Intentionally and substantially intruding into Plaintiff’ and Class Members’ private
affairs in a manner that identifies Plaintiff and Class Members and that would be highly offensive
and objectionable to an ordinary person; and
b.
Intentionally publicizing private facts about Plaintiff and Class Members, which is
highly offensive and objectionable to an ordinary person; and
c.
Intentionally causing anguish or suffering to Plaintiff and Class Members.
136.
Defendant knew that an ordinary person in Plaintiff’s or a Class Member’s position
would consider Defendant’s intentional actions highly offensive and objectionable.
137.
Defendant invaded Plaintiff’s and Class members’ right to privacy and intruded
into Plaintiff’s and Class Members’ private affairs by intentionally misusing and/or disclosing their
Private Information without their informed, voluntary, affirmative, and clear consent.
138.
Defendant intentionally concealed from Plaintiff and Class Members an incident
that misused and/or disclosed their Private information without their informed, voluntary,
affirmative, and clear consent.
139.
As a proximate result of such intentional misuse and disclosures, Plaintiff’s and
Class Members’ reasonable expectations of privacy in their Private Information was unduly
frustrated and thwarted. Defendant’s conduct, amounting to a substantial and serious invasion of
Plaintiff’s and Class Members’ protected privacy interests causing anguish and suffering such that
an ordinary person would consider Defendant’s intentional actions or inaction highly offensive
and objectionable.
140.
In failing to protect Plaintiff’s and Class Members’ Private Information, and in
intentionally misusing and/or disclosing their Private Information, Defendant 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, seek an award
of damages on behalf of themselves and the Class.
FOR A THIRD CAUSE OF ACTION
BREACH OF EXPRESS CONTRACT
(On Behalf of Plaintiff and All Class Members)
141.
Plaintiff re-alleges and incorporates by reference Paragraphs 1 through 117 above,
as if fully set forth herein.
142.
Plaintiff and members of the Class allege that they entered into valid and
enforceable express contracts, or were third-party beneficiaries of valid and enforceable express
contracts, with Defendant.
143.
The valid and enforceable express contracts that Plaintiff and Class Members
entered into with Defendant include Defendant’s promise to protect nonpublic personal
information given to Defendant or that Defendant gathers on its own from disclosure.
144.
Under these express contracts, Defendant and/or its affiliated healthcare
providers, promised and were obligated to: (a) provide healthcare to Plaintiff and Class Members;
and (b) protect Plaintiff’ and the Class Members’ PII/PHI that was: (i) provided to obtain such
healthcare; and/or (ii) created as a result of providing such healthcare. In exchange, Plaintiff and
members of the Class agreed to pay money for these services.
145.
Both the provision of healthcare and the protection of Plaintiff’ and Class
Members’ PII/PHI were material aspects of these contracts.
146.
At all relevant times, Defendant expressly represented in its Privacy Notice that it
is required by law to: (1) “Keep health information about you private; (2) “Give you this [Privacy]
Notice of our legal duties and privacy practices with respect to health information about you,” and;
(3) “Follow the terms of the notice of privacy practices that is currently in effect.” Defendant
further promises that it must obtain written authorization “for any category of use or disclosure
that is not described above or authorized by law.”32
147.
Defendant’s express representations, including, but not limited to, express
representations found in its Privacy Notice and “Patient Rights” statement, formed an express
contract requiring Defendant to implement data security adequate to safeguard and protect the
privacy of Plaintiff’s and Class Members’ PII/PHI.
148.
Consumers of healthcare value their privacy, the privacy of their dependents, and
the ability to keep their PII/PHI associated with obtaining healthcare private. To customers such
as Plaintiff and Class Members, healthcare that does not adhere to industry standard data security
protocols to protect PII/PHI is fundamentally less useful and less valuable than healthcare that
adheres to industry-standard data security. Plaintiff and Class Members would not have entered
32
https://www.bjc.org/Portals/0/Content/HIPAA/BJC22094_BJC%20NPP%20COMMUNITY_fin.
pdf?ver=2016-03-09-144707-350
into these contracts with Defendant and/or its affiliated healthcare providers as a direct or third-
party beneficiary without an understanding that their PII/PHI would be safeguarded and protected.
149.
A meeting of the minds occurred, as Plaintiff and members of the Class provided
their PII/PHI to Defendant and/or its affiliated healthcare providers, and paid for the provided
healthcare in exchange for, amongst other things, protection of their PII/PHI.
150.
Plaintiff and Class Members performed their obligations under the contract,
including when they paid for their health care services.
151.
Defendant materially breached its contractual obligation to protect the nonpublic
personal information Defendant gathered when the information was accessed or exfiltrated by
unauthorized personnel as part of the Data Breach.
152.
Defendant materially breached the terms of these express contracts, including, but
not limited to, the terms stated in the relevant Privacy Notice. Defendant did not “maintain the
privacy” of Plaintiff’s and Class Members’ PII/PHI as evidenced by their notifications of the Data
Breach to Plaintiff and Class Members. Specifically, Defendant did not comply with industry
standards, or otherwise protect Plaintiff’s and the Class Members’ PII/PHI, as set forth above.
153.
The Data Breach was a reasonably foreseeable consequence of Defendant’s actions
in breach of these contracts.
154.
As a result of Defendant’s failure to fulfill the data security protections promised
in these contracts, Plaintiff and Class Members did not receive the full benefit of the bargain, and
instead received healthcare and other services that were of a diminished value to that described in
the contracts. Plaintiff and Class Members therefore were damaged in an amount at least equal to
the difference in the value of the healthcare with data security protection they paid for and the
healthcare they received.
155.
Had Defendant disclosed that its security was inadequate or that it did not adhere
to industry-standard security measures, the Plaintiff, the Class Members, or any reasonable person
would not have accepted or purchased healthcare from Defendant and/or their affiliated healthcare
providers.
156.
As a direct and proximate result of the data security incident, 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/PHI, the
loss of control of their PII/PHI, the imminent risk of suffering additional damages in the future,
disruption of their medical care and treatment, out-of-pocket expenses, and the loss of the benefit
of the bargain they had struck with Defendant.
157.
Plaintiff and Class Members are entitled to compensatory and consequential
damages suffered as a result of the Data Breach.
FOR A FOURTH CAUSE OF ACTION
BREACH OF IMPLIED CONTRACT
(On Behalf of Plaintiff and All Class Members)
158.
Plaintiff re-alleges and incorporates by reference Paragraphs 1 through 117 above,
as if fully set forth herein.
159.
When Plaintiff and Class Members provided their Private Information to Defendant
SFHS in exchange for Defendant’s services, they entered into implied contracts with Defendant
pursuant to which Defendant agreed to reasonably protect such information.
160.
Defendant solicited and invited Class Members to provide their Private Information
as part of Defendant’s regular business practices. Plaintiff and Class Members accepted
Defendant’s offers and provided their Private Information to Defendant.
161.
In entering into such implied contracts, Plaintiff and Class Members reasonably
believed and expected that Defendant’s data security practices complied with relevant laws and
regulations, including HIPAA, and were consistent with industry standards.
162.
Class Members accepted healthcare from, and paid money to Defendant reasonably
believed and expected that Defendant would use part of those funds to maintain adequate data
security. Defendant failed to do so.
163.
Plaintiff and Class Members would not have entrusted their Private Information to
Defendant in the absence of the implied contract between them and Defendant to keep their
information reasonably secure. Plaintiff and Class Members would not have entrusted their Private
Information to Defendant in the absence of their implied promise to monitor its computer systems
and networks to ensure that it adopted reasonable data security measures.
164.
Plaintiff and Class Members fully and adequately performed their obligations under
the implied contracts with Defendant.
165.
Defendant breached their implied contracts with Class Members by failing to
safeguard and protect their Private Information.
166.
As a direct and proximate result of Defendant’s breaches of the implied contracts,
Class Members sustained damages as alleged herein.
167.
Plaintiff and Class Members are entitled to compensatory and consequential
damages suffered as a result of the Data Breach.
168.
Plaintiff and Class Members are also entitled to injunctive relief requiring
Defendant to, e.g., (i) strengthen their data security systems and monitoring procedures; (ii) submit
to future annual audits of those systems and monitoring procedures; and (iii) immediately provide
adequate credit monitoring to all Class Members.
FOR A FIFTH CAUSE OF ACTION
NEGLIGENCE PER SE
(On Behalf of Plaintiff and All Class Members)
169.
Plaintiff re-alleges and incorporates by reference Paragraphs 1 through 117, above
as if fully set forth herein.
170.
Pursuant to the Federal Trade Commission Act (15 U.S.C. § 45), Defendant had a
duty to provide fair and adequate computer systems and data security practices to safeguard
Plaintiff’ and Class Members’ Private Information.
171.
Pursuant to HIPAA (42 U.S.C. § 1302d, et seq.), Defendant had a duty to
implement reasonable safeguards to protect Plaintiff’ and Class Members’ Private Information.
172.
Pursuant to HIPAA, Defendant had a duty to render the electronic PHI it maintained
unusable, unreadable, or indecipherable to unauthorized individuals, as specified in the HIPAA
Security Rule by “the use of an algorithmic process to transform data into a form in which there is
a low probability of assigning meaning without use of a confidential process or key” (45 CFR
164.304 definition of encryption).
173.
Pursuant to the Gramm-Leach-Bliley Act (15 U.S.C. § 6801), Defendant had a duty
to protect the security and confidentiality of Plaintiff’s and Class Members’ Private Information.
174.
Defendant breached its duties to Plaintiff and Class Members under the Federal
Trade Commission Act, HIPAA, and the Gramm-Leach-Bliley Act by failing to provide fair,
reasonable, or adequate computer systems and data security practices to safeguard Plaintiff’ and
Class Members’ Private Information.
175.
Defendant’s failure to comply with applicable laws and regulations constitutes
negligence per se.
176.
But for Defendant’s wrongful and negligent breach of its duties owed to Plaintiff
and Class Members, Plaintiff and Class Members would not have been injured.
177.
The injury and harm suffered by Plaintiff and Class Members was the reasonably
foreseeable result of Defendant’s breach of its duties. Defendant knew or should have known that
it was failing to meet its duties, and that Defendant’s breach would cause Plaintiff and Class
Members to experience the foreseeable harms associated with the exposure of their Private
Information.
178.
As a direct and proximate result of Defendant’s negligent conduct, Plaintiff and
Class Members have suffered injury and are entitled to compensatory, consequential, and punitive
damages in an amount to be proven at trial.
FOR A SIXTH CAUSE OF ACTION
BREACH OF FIDUCIARY DUTY
(On Behalf of Plaintiff and All Class Members)
179.
Plaintiff re-alleges and incorporates by reference Paragraphs 1 through 117, above
as if fully set forth herein.
180.
In light of the special relationship between Defendant and Plaintiff and Class
Members, whereby Defendant became entrusted with, and the guardian of Plaintiff’ and Class
Members’ Private Information, Defendant became a fiduciary by its undertaking and guardianship
of the Private Information, to act primarily for the benefit of its patients, including Plaintiff and
Class Members, (1) for the safeguarding of Plaintiff’ and Class Members’ Private Information; (2)
to timely notify Plaintiff and Class Members of a data breach and disclosure; and (3) maintain
complete and accurate records of what patient information (and where) Defendant did and does
181.
Defendant has a fiduciary duty to act for the benefit of Plaintiff and Class Members
upon matters within the scope of its patients’ relationship, in particular, to keep secure the Private
Information of its patients.
182.
Defendant breached its fiduciary duties to Plaintiff and Class Members by failing
to diligently discovery, investigate, and give notice of the Data Breach in a reasonable and
practicable period of time.
183.
Defendant breached its fiduciary duties to Plaintiff and Class Members by failing
to encrypt and otherwise protect the integrity of the systems containing Plaintiff’s and Class
Members’ Private Information.
184.
Defendant breached its fiduciary duties owed to Plaintiff and Class Members by
failing to timely notify and/or warn Plaintiff and Class Members of the Data Breach.
185.
Defendant breached its fiduciary duties owed to Plaintiff and Class Members by
failing to ensure the confidentiality and integrity of electronic PHI Defendant created, received,
maintained, and transmitted, in violation of 45 C.F.R. § 164.306(a)(1).
186.
Defendant breached its fiduciary duties owed to Plaintiff and Class Members by
failing to implement technical policies and procedures for electronic information systems that
maintain electronic PHI 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).
187.
Defendant breached its fiduciary duties owed to Plaintiff and Class Members by
failing to implement policies and procedures to prevent, detect, contain, and correct security
violations, in violation of 45 C.F.R. § 164.308(a)(1).
188.
Defendant breached its fiduciary duties owed to Plaintiff and Class Members by
failing to identify and respond to suspected or known security incidents and to mitigate, to the
extent practicable, harmful effects of security incidents that are known to the covered entity in
violation of 45 C.F.R. § 164.308(a)(6)(ii).
189.
Defendant breached its fiduciary duties owed to Plaintiff and Class Members by
failing to protect against any reasonably anticipated threats or hazards to the security or integrity
of electronic PHI in violation of 45 C.F.R. § 164.306(a)(2).
190.
Defendant breached its fiduciary duties owed to Plaintiff and Class Members by
failing to protect against any reasonably anticipated uses or disclosures of electronic PHI that are
not permitted under the privacy rules regarding individually identifiable health information in
violation of 45 C.F.R. § 164.306(a)(3).
191.
Defendant breached its fiduciary duties owed to Plaintiff and Class Members by
failing to ensure compliance with the HIPAA security standard rules by its workforce in violation
of 45 C.F.R. § 164.306(a)(94).
192.
Defendant breached its fiduciary duties owed to Plaintiff and Class Members by
impermissibly and improperly using and disclosing PHI that is and remains accessible to
unauthorized persons in violation of 45 C.F.R. § 164.502, et seq.
193.
Defendant breached its fiduciary duties owed to Plaintiff and Class Members by
failing to effectively train all members of its workforce (including independent contractors) on the
policies and procedures with respect to PHI as necessary and appropriate for the members of its
workforce to carry out their functions and to maintain security of PHI in violation of 45 C.F.R. §
164.530(b) and 45 C.F.R. § 164.308(a)(5).
194.
Defendant breached its fiduciary duties owed to Plaintiff and Class Members by
failing to design, implement, and enforce policies and procedures establishing physical and
administrative safeguards to reasonably safeguard PHI, in compliance with 45 C.F.R. §
164.530(c).
195.
Defendant breached its fiduciary duties to Plaintiff and Class Members by
otherwise failing to safeguard Plaintiff’s and Class Members’ Private Information.
196.
As a direct and proximate result of Defendant’s breaches of its fiduciary duties,
Plaintiff and Class Members have suffered and will suffer injury, including but not limited to: (i)
actual disruption of ongoing medical care and treatment; (ii) actual identity theft; (iii) the
compromise, publication, and/or theft of their Private Information; (iv) out-of-pocket expenses
associated with the prevention, detection, and recovery from identity theft and/or unauthorized use
of their Private Information; (v) 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; (vi) the continued risk to their Private Information, which remains
in Defendant’s possession and is subject to further unauthorized disclosures so long as Defendant
fails to undertake appropriate and adequate measures to protect the Private Information in its
continued possession; (vii) future costs in terms of time, effort, and money that will be expended
as result of the Data Breach for the remainder of the lives of Plaintiff and Class Members; and
(viii) the diminished value of Defendant’s services they received.
197.
As a direct and proximate result of Defendant’s breaches of its fiduciary 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.
FOR A SEVENTH CAUSE OF ACTION
MISSOURI MERCHANDISE PRACTICES ACT
MO. REV. STAT. § 407.101, ET SEQ.
(On Behalf of Plaintiff and Class Members)
198.
Plaintiff re-alleges and incorporates by reference the allegations contained in
Paragraphs 1 through 117 above as if fully restated herein.
199.
Defendant is a “person” as defined by Mo. Rev. Stat. § 407.010(5).
200.
Defendant advertised, offered, or sold goods or services in Missouri and engaged
in trade or commerce directly or indirectly affecting the people of Missouri, as defined by Mo.
Rev. Stat. § 407.010(4), (6) and (7).
201.
Plaintiff and Class Members purchased or leased goods or services primarily for
personal, family, or household purposes from Defendant.
202.
Defendant engaged in unlawful, unfair, and deceptive acts and practices, in
connection with the sale or advertisement of merchandise in trade or commerce, in violation of
Mo. Rev. Stat. § 407.020(1), including:
a.
Failing to implement and maintain reasonable security and privacy measures to
protect Plaintiff’s and Class Members’ Private Information, which was a direct and proximate
cause of the Data Breach;
b.
Failing to identify foreseeable security and privacy risks, which was a direct and
proximate cause of the Data Breach;
c.
Failing to comply with common law and statutory duties pertaining to the security
and privacy of Plaintiff and Class Members’ Sensitive Information, including duties imposed by
the FTC, 15 U.S.C. § 45, HIPAA, 42 U.S.C. § 1302d, et seq., and the GLBA, 15 U.S.C. § 6801,
et seq., which was a direct and proximate cause of the Data Breach
d.
Misrepresenting that it would protect the privacy and confidentiality of Plaintiff’s
and Class Members’ Private Information, including implementing and maintaining reasonable
security measures;
e.
Misrepresenting that it would comply with common law and statutory duties
pertaining to the security and privacy of Plaintiff’ and Class Members’ Private Information,
including duties imposed by Section 5 of the FTC Act, 15 U.S.C. § 45, HIPAA, 42 U.S.C. § 1302d
et seq., and the GLBA, 15 U.S.C. § 6801, et seq.;
f.
Omitting, suppressing, and concealing the material fact that it did not reasonably or
adequately secure Plaintiff’s and Class Members’ Private Information; and
g.
Omitting, suppressing, and concealing the material fact that it did not comply with
common law and statutory duties pertaining to the security and privacy of Plaintiff’s and Class
Members’ Private Information, including duties imposed by the FTC Act, 15 U.S.C. § 45,
HIPAA, 42 U.S.C. § 1302d et seq., and the GLBA, 15 U.S.C. § 6801, et seq.
203.
Defendant’s representations and omissions were material because they were likely
to deceive reasonable consumers about the adequacy of Defendant’s data security and ability to
protect the confidentiality of consumers’ Private Information.
204.
As a direct and proximate result of Defendant’s unlawful, unfair, and deceptive acts
and practices, Plaintiff and Class Members have suffered and will continue to suffer injury,
ascertainable losses of money or property, and monetary and non-monetary damages, including
from fraud and identity theft; time and expenses related to monitoring their financial accounts for
fraudulent activity; an increased, imminent risk of fraud and identity theft; and loss of value of
their Personal Information.
205.
Plaintiff and Class Members seek all monetary and non-monetary relief allowed by
law, including actual damages, attorneys’ fees and costs, injunctive relief, and any other
appropriate relief.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays for judgment as follows:
a) For an Order certifying this action as a class action and appointing Plaintiff and his
Counsel to represent the Class;
b) For equitable relief enjoining Defendant from engaging in the wrongful conduct
complained of herein pertaining to the misuse and/or disclosure of Plaintiff’ and
Class Members’ Private Information, and from refusing to issue prompt, complete
and accurate disclosures to Plaintiff and Class Members;
c) For equitable relief compelling Defendant to utilize appropriate methods and
policies with respect to consumer data collection, storage, and safety, and to
disclose with specificity the type of PII and PHI compromised during the Data
Breach;
d) For equitable relief requiring restitution and disgorgement of the revenues
wrongfully retained as a result of Defendant’s wrongful conduct;
e) Ordering Defendant to pay for not less than three years of credit monitoring services
for Plaintiff and the Class;
f) For an award of actual damages, compensatory damages, statutory damages, and
statutory penalties, in an amount to be determined, as allowable by law;
g) For an award of punitive damages, as allowable by law;
h) For an award of attorneys’ fees and costs, and any other expense, including expert
witness fees;
i) Pre- and post-judgment interest on any amounts awarded; and
j) Such other and further relief as this court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiff demands a trial by jury on all claims so triable.
Dated: June 22, 2020 Respectfully submitted,
PEIFFER WOLF CARR KANE & CONWAY, APLC
By: /s/ Brandon M. Wise
Brandon M. Wise – Mo. Bar #67242
Paul A. Lesko – Mo. Bar #51914
818 Lafayette Ave., Floor 2
St. Louis, MO 63104
Phone: 314.833.4825
[email protected]
[email protected]
MASON LIETZ & KLINGER LLP
Gary E. Mason (pro hac vice forthcoming)
David K. Lietz (pro hac vice forthcoming)
5101 Wisconsin Ave., NW, Ste. 305
Washington, DC 20016
Phone: 202.640.1160
[email protected]
[email protected]
Gary M. Klinger (pro hac vice forthcoming)
MASON LIETZ & KLINGER LLP
227 W. Monroe Street, Suite 2100
Chicago, IL 60630
Tel.: (847) 208-4585
[email protected]
Attorneys for Plaintiff and the Proposed Class
| securities |
hexnEocBD5gMZwczvdpI |
Case No.
JURY TRIAL DEMANDED
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IN THE UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF ILLINOIS
JOHN BAKER, individually and on behalf of
all others similarly situated,
Plaintiff,
v.
CERTIFIED
PAYMENT
PROCESSING
L.P.,
Defendant.
CLASS ACTION COMPLAINT
Plaintiff John Baker (“Plaintiff”) brings this Class Action Complaint against Defendant
Certified Payment Processing, L.P. (“CPP”), on behalf of himself and all others similarly
situated, and complains and alleges 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.
I.
NATURE OF THE ACTION
1.
CPP is a payment processing services company that, in an attempt to drum up
business, harasses individuals and businesses with repeated telephone calls – and even in-person
visits – promoting its products and services and soliciting sales without prior express written
consent, continuing to do so after the called individual has asked them to stop, in many instances
a number of times. CPP conducts its business operations, in part, through the website
“www.cpp-360.com.” See Exhibit A. CPP’s rating with the Better Business Bureau is an “F”
based on hundreds of consumer complaints.1
1 See http://www.bbb.org/dallas/business-reviews/credit-card-processing-service/certified-
payment-processing-lp-in-carrollton-tx-90016633 (last visited December 28, 2015).
2.
In an effort to market its products and services, CPP placed (or directed to be
placed on its behalf) unsolicited, unauthorized calls to the telephones of Plaintiff and each of the
members of the Class without prior express written consent in violation of the Telephone
Consumer Protection Act, 47 U.S.C. § 227, et seq. (“TCPA”).
3.
Neither Plaintiff nor the other Class members ever desired, permitted, authorized,
or consented in writing – as is required under the TCPA – to allow CPP to place calls to their
telephones. In fact, at all relevant times, Plaintiff’s and the Class members’ telephone numbers
were registered with the National Do Not Call Registry (the “DNC List”).
4.
By placing such unauthorized calls, CPP caused Plaintiff and each of the Class
members actual harm, including the aggravation and nuisance that necessarily accompanies the
receipt of numerous unsolicited calls, and the monies paid to their telephone carriers for the
receipt of such messages.
5.
In order to redress these injuries, Plaintiff seeks an injunction requiring CPP to
cease all unsolicited telemarketing calling activities and an award of statutory damages to the
Class members under the TCPA, together with costs and reasonable attorneys’ fees.
II.
JURISDICTION AND VENUE
6.
This Court has original jurisdiction over the claims in this action pursuant to 28
U.S.C. § 1331 because they arise under the laws of the United States and further, under 28
U.S.C. § 1332(d), because (a) at least one member of the putative class is a citizen of a state
different from CPP, (b) the amount in controversy exceeds $5,000,000, exclusive of interest and
costs, and (c) none of the exceptions under that subsection apply to this action.
7.
This Court has personal jurisdiction over CPP under the Illinois long-arm statute,
735 ILCS 5/2-209, because CPP engaged in solicitation or service activities within the State of
Illinois. This Court also has personal jurisdiction over CPP because a substantial a portion of the
wrongdoing alleged in this Complaint took place in and/or was directed toward this State. CPP,
by sending mass text messages into this State soliciting business, has sufficient contacts in this
State to render the exercise of jurisdiction by this Court permissible.
8.
Venue is proper in this District pursuant to 28 U.S.C. § 1391(b) because a
substantial part of the events giving rise to the claim occurred in this District.
III.
PARTIES
Plaintiff
9.
Plaintiff John Baker is an individual domiciled in Sangamon County, Illinois. For
purposes of 28 U.S.C. § 1332, Plaintiff is a citizen of the State of Illinois.
Defendant
10.
Defendant CPP is a limited partnership organized in and existing under the laws
of the State of Texas with its principal place of business located at 3350 Boyington Drive, Suite
110, Carrollton, TX 75006. For purposes of 28 U.S.C. § 1332, CPP is a citizen of the State of
IV.
FACTUAL BACKGROUND
11.
In recent years, companies looking to solicit new customers have employed
advanced technologies making it easier to market their products and services. According to a
recent report examining class actions under the TCPA in the Northern District of Illinois:
Autodialers (also known as robocalls) automatically deliver a prerecorded
message to a list of telephone numbers, and thus remove the need for human
representatives. These predictive dialers were developed to find better pacing
(scheduling of dialing attempts) by collecting and analyzing data on the
proportion of call attempts that are answered, durations of time from call initiation
to answer, and durations of service. The technology was designed to minimize
both the time that telemarketers must spend waiting between conversations and
amount of abandoned calls experienced by consumers.2
12.
As part of just such an advertising campaign, CPP has placed and continues to
place unsolicited calls to Plaintiff’s and the Class members’ telephones without prior express
written consent and in violation of the DNC List.
13.
Plaintiff has been a subscriber of the telephone number ending in 8391 since at
least 2007 and registered that number on the DNC List on October 23, 2007.
14.
From June 2015 to the date of this filing, CPP placed approximately 100 phone
calls to Plaintiff’s telephone number in an attempt to market and promote its payment processing
products and services.
15.
For example, from late August 2015 to late September 2015 alone, Plaintiff
received twenty six (26) unsolicited calls from CPP.
16.
For each of these twenty six calls, Plaintiff’s caller ID displayed the calling
number as “(972) 301-3798” in Richardson, Texas, and the calling party as “CPP.” The calls
occurred on the following dates and times:
August 28, 2015 at 8:52 a.m. CDT
August 31, 2015 at 9:48 a.m. CDT
September 1, 2015 at 10:59 a.m. CDT
September 1, 2015 at 12:47 p.m. CDT
September 2, 2015 at 9:11 a.m. CDT
September 3, 2015 at 10:10 a.m. CDT
2 Institute for Consumer Antitrust Studies, Loyola University Chicago School of Law, THE
TELEPHONE CONSUMER PROTECTION ACT OF 1991: ADAPTING CONSUMER PROTECTION TO CHANGING
TECHNOLOGY 7 (Fall 2013) (emphasis added). The report “was made possible through a cy pres
distribution from a class action involving the TCPA in the Northern District of Illinois under the
supervision of Senior Judge William Hart and Magistrate Judge Morton Denlow.” Id. at 2.
September 3, 2015 at 10:10 a.m. CDT3
September 3, 2015 at 11:24 a.m. CDT
September 4, 2015 at 11:08 a.m. CDT
September 4, 2015 at 2:05 p.m. CDT
September 8, 2015 at 1:51 p.m. CDT
September 8, 2015 at 2:53 p.m. CDT
September 9, 2015 at 1:14 p.m. CDT
September 10 at 11:32 a.m. CDT
September 11, 2015 at 12:16 p.m. CDT
September 11, 2015 at 12:16 p.m. CDT
September 15, 2015 at 1:03 p.m. CDT
September 16, 2015 at 1:36 p.m. CDT
September 16, 2015 at 3:24 p.m. CDT
September 18, 2015 at 2:51 p.m. CDT
September 23, 2015 at 9:40 a.m. CDT
September 23, 2015 at 12:19 p.m. CDT
September 24, 2015 at 11:30 a.m. CDT
September 24, 2015 at 1:30 p.m. CDT
September 24, 2015 at 2:33 p.m. CDT
September 24, 2015 at 4:05 p.m. CDT
3 Calls in this list identified as being placed on the same date at the same time reflect two
successive and independent calls placed within one minute of one another.
17.
At the time he received each and every one of these calls from CPP, from June
2015 through September 2015, Plaintiff’s telephone number ending in 8391 has been registered
with the DNC List.
18.
Then, on or about September 25, 2015, a representative from CPP physically
came to Plaintiff’s home in an attempt to convince Plaintiff to purchase CPP’s products and
services. Plaintiff instructed the representative to leave.
Other Consumer Complaints Regarding CPP’s Unauthorized Telemarketing Practices
19.
Numerous consumers are complaining about receiving the same or substantially
similar calls from CPP from the same (972) 301-3798 number (and others). Below is just a small
sampling of consumer complaints (all sic)
972-301-3798 -aka- 888-415-0004 -aka- 817-317-7392 just called
our business for the 6th time (Six Times!) in two days asking for
the previous owner by name. They have been told repeatedly that
the previous owner is not here, nor has he ever been involved with
the company name that they are asking for. Our secretary, as well
as myself (the Owner) have informed them that we are NOT
interested in their services, and yet they keep calling. Caller ID
shows up as CPP. Company is called Certified Payment
Processing.4
ID = CPP. Didn't answer and noise in background on answer. I
blocked. I block 30 + of these calls per month!5
They have called 8 times today. I consider that harassment. No
one there when I answer. Won't leave msg.6
1st call: Asked to talk to the owner or co-owner. Went into her talk
about processing systems and hung up on me half way through the
first sentence. I thought that was my job.
2nd call: Hang up when someone answered
3rd call: Hang up when someone answered7
4 http://800notes.com/Phone.aspx/1-972-301-3798, posted by “Not Important” on July 8, 2015
(last visited December 28, 2015).
5 Id., posted by “DPW” on July 7, 2015.
6 Id., posted by “BRob” on July 6, 2015.
7 Id., posted by “Michael J.” on July 8, 2015.
CPP calls my number at least once per day. I answer every time
and politely ask them to remove me from their call list, as I have
no affiliation with their interests. They continue to call from
various (301) area code phone numbers. Call operators are often
rude or simply hang up mid-call.8
Darn it! I filed a complaint with the FTC against this CPP place in
February. They were calling me from the number 972-428-5200.
When I filed the complaint, I had accidentally erased all of the
previous calls off from my caller ID and hadn't gotten a chance to
count them, but I did have the count of 36 calls on 2/20 and 14
calls on 2/23! They called me 36 times in one day!!! This is when I
found out about *78 from my phone company, Century Link, to
block a certain number of calls, I think it's 25. Anyway, that was
short lived, now they started calling me from this number on July
6th! [***]!!! I think I will be making another call to the FTC.9
Called at exactly 8:05 am and asked for my wife. We were both in
bed asleep. I told them it was only 8 here and the male voice said
its 9 here in Texas and we can call you. Started into some sales
pitch for I don't know what, finally figured it out, credit card
processing. They called for a business that I only hold real estate
with, that I am closing, and also I am retired. Total pains in the
rear. I don't usually answer long distance calls that early, but
thought it might be a family emergency.10
Keep calling and asking for "the owner" but not by name. Even
though I am the owner, I say he is not available, but can I help
them with something. "No, we need to speak to the owner. We'll
try back." I've blocked their number.11
Answered phone and the person on the other line hung up on me,
they called back 15 min later I just did not answer the phone. I
have a business to run I can not keep answering these types of
calls12
8 Id., posted by “Tom Walker” on July 9, 2015.
9 Id., posted by “Rosa B” on July 10, 2015.
10 Id., posted by “scott” on July 17, 2015.
11 http://www.ruscammer.com/9723013798/index.html, posted by “GDM” on August 13, 2015
(last visited December 28, 2015).
12 https://www.everycaller.com/phone-number/1-972-301-3798/, posted by “Anonymous” on
August 19, 2015 (last visited December 28, 2015).
20.
Indeed, one person claiming to be a former CPP employee asserts that “you sit for
majority of the day in front of your monitor and take outbound calls”13 (emphasis added).
Another employee confirms that “the majority o[f] prospects were acquired through cold calling
or cold visits.”14 And yet another employee states:
typical call center job, clock in have a brief meeting, then straight
to the phones. I gather information on the different ways business's
received there payments (since we were a merchant company), on
the other hand the values of the company from the corporate to the
co-workers the integrity was highly unprofessional. The hardest
part of my job was the continuous calling of the same business's
even if they requested to be on the 'Do not call' list. Yet they'd
come up within the next hour.15
21.
Therefore, on information and belief, CPP has made and continues to make phone
calls to Plaintiff’s and the Class members’ telephones without prior express consent as part of its
advertising campaign.
22.
CPP made, or had made on its behalf, the same or substantially the same calls en
masse to thousands of telephone numbers registered with the DNC List.
23.
CPP made these calls to Plaintiff and the Class for telemarketing purposes;
namely, in an attempt to sell its payment processing products and services.
24.
At all relevant times, Plaintiff’s and the Class members’ numbers were registered
on the National Do Not Call Registry.
13 http://www.indeed.com/cmp/Certified-Payment-Processing/reviews?fcountry=US (last visited
December 28, 2015).
14 http://www.indeed.com/cmp/Certified-Payment-Processing/reviews?fcountry=US&start=40
(last visited December 28, 2015).
15 Id.
CLASS ALLEGATIONS
25.
Plaintiff brings this action, as set forth below, on behalf of himself and as a class
action pursuant to the provisions of Rules 23(a), (b)(2), and (b)(3) of the Federal Rules of Civil
Procedure on behalf of a class (the “Class”) defined as:
All individuals and entities in the United States who, within a 12-
month period, received two or more telemarketing phone calls
from or on behalf of Defendant Certified Payment Processing, L.P.
soliciting its products and services at a time when the called
number was registered on the National Do Not Call Registry.
Excluded from the Class are Defendant and its subsidiaries and
affiliates; all persons who make a timely election to be excluded
from the Class; governmental entities; and the judge to whom this
case is assigned and any immediate family members thereof.
26.
Certification of Plaintiff’s claims for class-wide treatment is appropriate because
Plaintiff can prove the elements of his claims on a class-wide basis using the same evidence as
would be used to prove those elements in individual actions alleging the same claims.
27.
Numerosity – Federal Rule of Civil Procedure 23(a)(1). The members of the
Class are so numerous that individual joinder of all Class members is impracticable. On
information and belief, there are thousands of consumers who have been damaged by CPP’s
wrongful conduct as alleged herein. The precise number of Class members and their addresses is
presently unknown to Plaintiff, but may be ascertained from CPP’s books and records. Class
members may be notified of the pendency of this action by recognized, Court-approved notice
dissemination methods, which may include U.S. mail, electronic mail, Internet postings, and/or
published notice.
28.
Commonality and Predominance – Federal Rule of Civil Procedure 23(a)(2)
and 23(b)(3). This action involves common questions of law and fact, which predominate over
any questions affecting individual Class members, including, without limitation:
a.
whether CPP’s conduct constitutes a violation of the TCPA and its implementing
regulation;
b.
whether the calls CPP placed to Plaintiff and the Class were made for
telemarketing purposes;
c.
whether Plaintiff and the Class are entitled to actual, statutory, or other forms of
damages, and other monetary relief and, in what amount(s);
d.
whether Plaintiff and the Class are entitled to treble damages based on the
willfulness of CPP’s conduct; and
e.
whether Plaintiff and the Class are entitled to equitable relief, including but not
limited to injunctive relief and restitution.
29.
Typicality – Federal Rule of Civil Procedure 23(a)(3). Plaintiff’s claim is
typical of the other Class members’ claims because, among other things, all Class members were
comparably injured through the uniform prohibited conduct described above.
30.
Adequacy of Representation – Federal Rule of Civil Procedure 23(a)(4).
Plaintiff is an adequate representative of the Class because his interests do not conflict with the
interests of the other Class members he seeks to represent; he has retained counsel competent
and experienced in complex commercial and class action litigation; and Plaintiff intends to
prosecute this action vigorously. The interests of the Class members will be fairly and
adequately protected by the Plaintiff and his counsel.
31.
Declaratory and Injunctive Relief – Federal Rule of Civil Procedure 23(b)(2).
CPP 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 as a whole.
32.
Superiority – Federal Rule of Civil Procedure 23(b)(3). A class action is
superior to any other available means for the fair and efficient adjudication of this controversy,
and no unusual difficulties are likely to be encountered in the management of this class action.
The damages or other financial detriment suffered by Plaintiff and the other Class members are
relatively small compared to the burden and expense that would be required to individually
litigate their claims against CPP, so it would be impracticable for Class members to individually
seek redress for CPP’s wrongful conduct. Even if Class members could afford individual
litigation, the court system could not. Individualized litigation creates a potential for inconsistent
or contradictory judgments, and increases the delay and expense to all parties and the court
system. By contrast, the class action device presents far fewer management difficulties, and
provides the benefits of single adjudication, economy of scale, and comprehensive supervision
by a single court.
V.
CLAIM ALLEGED
COUNT I
Violation of the TCPA, 47 U.S.C. § 227
(On behalf of the Class)
33.
Plaintiff incorporates by reference the foregoing allegations as if fully set forth
34.
Pursuant to 47 U.S.C. § 227(c)(1), “[w]ithin 120 days after December 20, 1991,
the Commission shall initiate a rulemaking proceeding concerning the need to protect residential
telephone subscribers’ privacy rights to avoid receiving telephone solicitations to which they
object.” Furthermore, “[n]ot later than 9 months after December 20, 1991, the Commission shall
conclude the rulemaking proceeding initiated under paragraph (1) and shall prescribe regulations
to implement methods and procedures for protecting the privacy rights described in such
paragraph in an efficient, effective, and economic manner and without the imposition of any
additional charge to telephone subscribers.” 47 U.S.C. § 227(c)(2). “The regulations required
by paragraph (2) may require the establishment and operation of a single national database to
compile a list of telephone numbers of residential subscribers who object to receiving telephone
solicitations, and to make that compiled list and parts thereof available for purchase.” 47 U.S.C.
§ 227(c)(3).
35.
The Commission did in fact implement such regulations establishing the DNC
List. See 47 C.F.R. § 64.1200.
36.
Under 47 C.F.R. § 64.1200(c)(2), “[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 [i.e., the DNC List]. Such
do-not-call registrations must be honored indefinitely, or until the registration is cancelled by the
consumer or the telephone number is removed by the database administrator.”
37.
Upon information and belief, and based on the approximately 100 phone calls
CPP placed to Plaintiff after he instructed CPP that his number was registered with the DNC
List, as well as the numerous consumer complaints regarding similar unwanted telemarketing
calls received from CPP, CPP does not maintain the proper standards – including written
procedures, personnel training, recording of numbers not to be contacted, and access to the DNC
List – required by 47 C.F.R. § 64.1200(c)(2)(i).
38.
CPP did not obtain the Plaintiff’s or Class members’ prior express invitation or
permission, evidenced by a signed written agreement, to place these telemarketing calls to
Plaintiff’s and the Class members’ residential telephones.
39.
Plaintiff and the Class members do not have a personal relationship with CPP.
40.
CPP and/or its agents placed unauthorized telephone calls to the telephone
number of Plaintiff and the other Class members en masse without their prior express, written
consent.
41.
CPP placed the calls, or had them placed on its behalf, using equipment that had
the capacity to store or produce telephone numbers to be called using a random or sequential
number generator, and to dial such numbers.
42.
CPP utilized equipment that placed the calls to Plaintiff and other Class members
simultaneously and without human intervention.
43.
By placing the unauthorized calls to Plaintiff and the Class, CPP has violated 47
U.S.C. § 227(c)(5). As a result of CPP’s unlawful conduct, the Class members suffered actual
damages in the form of monies paid to their telephone carriers and under section 227(c)(5) are
each entitled to, inter alia, a minimum of $500.00 in damages for each such violation of the
TCPA. Under that same subsection, Plaintiff and the Class are entitled to injunctive relief
enjoining CPP from placing such unauthorized, illegal calls in the future.
44.
Should the Court determine that CPP’s conduct was willful or knowing, the Court
may, pursuant to section 227(c)(5), treble the amount of statutory damages recoverable by
Plaintiff and the other Class members.
VI.
JURY DEMAND
Pursuant to Federal Rule of Civil Procedure 38(b), Plaintiff demands a trial by jury of all
claims in this Complaint so triable.
VII.
REQUEST FOR RELIEF
WHEREFORE, Plaintiff John Baker, individually and on behalf of the Class, requests
that the Court enter an Order as follows:
A.
Certifying the Class as defined above, appointing Plaintiff John Baker as the
representative of the Class, and appointing his counsel as Class Counsel;
B.
Awarding actual and statutory damages;
C.
Requiring Defendant Certified Payment Processing, L.P. to cease all unsolicited
text message activities, and otherwise protecting the interests of the Class;
D.
Awarding of reasonable attorneys’ fees and costs; and
E.
Awarding such other and further relief that the Court deems reasonable and just.
Dated: January 5, 2016
Respectfully submitted,
JOHN BAKER, individually and on behalf
of all others similarly situated
By:
/s/ Kyle A. Shamberg
One of the Attorneys for Plaintiff
And the Proposed Putative Class
Katrina Carroll
Kyle A. Shamberg
[email protected]
[email protected]
LITE DEPALMA GREENBERG, LLC
211 W. Wacker Drive
Suite 500
Chicago, Illinois 60606
312.750.1265
Attorneys for Plaintiff and the Putative Class
| privacy |
UsovDocBD5gMZwczJdqT | J. Gerard Stranch IV
BRANSTETTER, STRANCH &
JENNINGS
227 Second Avenue North – 4th Floor
Nashville, TN 37201
(615) 254-880
James E. Cecchi
Lindsey H. Taylor
CARELLA, BYRNE, CECCHI
OLSTEIN, BRODY & AGNELLO
5 Becker Farm Road
Roseland, New Jersey 07068
(973) 994-1700
Christopher M. Burke
Walter W. Noss
John T. Jasnoch
SCOTT+SCOTT LLP
707 Broadway, Suite 1000
San Diego, CA 92101
(619) 233-4565
Civil Action No.
COMPLAINT and
DEMAND FOR JURY TRIAL
Attorneys for Plaintiff and the Proposed Classes
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
BRIAN CALEB BATEY, Individually and on
Behalf of Himself and All Others Similarly
Situated,
Plaintiff,
vs.
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 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, Brian Caleb Batey, individually, and on behalf of himself and all those similarly
situated in the United States, by and through his attorneys, based on his personal knowledge as to
his own actions and on the independent investigation of his counsel, by way of Complaint
against Defendants, alleges as follows:
I.
NATURE OF THE CASE
1.
This lawsuit is brought as a proposed class action against Defendants, the world’s
largest manufacturers of Lithium Ion Rechargeable Batteries (defined further below), for
engaging in a conspiracy to unlawfully fix the prices of Lithium Ion Rechargeable Batteries.1
Lithium Ion Rechargeable Batteries are an important source of energy for portable computers,
personal electronic devices, and other products.
2.
Defendants, their parents, subsidiaries, or affiliates have orchestrated some of the
largest global price-fixing conspiracies witnessed in 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 (ODDS). These component part conspiracies – like the conspiracy to fix
Lithium Ion Rechargeable Battery prices – all have very similar features, including: (a) a highly
concentrated market controlled by Asian corporations; (b) pricing pressure exerted on the
conspirators by original equipment manufacturers (“OEMs”) seeking to price their products in a
competitive consumer electronics market; (c) rapid commoditization of new technology; (d) and
pricing behavior inconsistent with a competitive market.
1
The subject of this lawsuit and the Defendants’ conspiracy is Lithium Ion Rechargeable
Batteries, which are further described infra at paragraphs 43 – 56. The products containing
Lithium Ion Rechargeable Batteries and which were purchased by the Plaintiff and the Classes
are cameras, notebook computers, mobile telephones, smartphones, personal digital assistants,
tablet computers, and handheld game consoles (collectively, “Lithium Ion Rechargeable Battery
Products” or “LIB Products”).
3.
Just like these other criminal conspiracies, Defendants’ conspiracy here
successfully targeted yet again another key component of consumer electronic goods by raising
prices for Lithium Ion Rechargeable Batteries, and in turn, the prices of Lithium Ion
Rechargeable Battery Products such as those purchased by Plaintiff. Defendants’ conspiracy
was an illegal and unreasonable restraint of interstate and foreign commerce in violation of
Section One of the Sherman Act, 15 U.S.C. §1 and the laws of Tennessee as set forth herein.
4.
Plaintiff and the proposed classes consist of consumers who (1) indirectly
purchased a stand-alone Lithium Ion Rechargeable Battery containing a cell manufactured by a
Defendant or (2) a Lithium Ion Rechargeable Battery Product containing a Lithium Ion
Rechargeable Battery containing a cell manufactured by a Defendant, during the period from,
and including, January 1, 2002 through the present (the “Class Period”).
5.
“Lithium Ion Rechargeable Batteries” as used in this complaint, are batteries
which are rechargeable and which utilize lithium ion technology.
6.
Defendants LG Chem America, Inc., LG Chem, Ltd., , Panasonic Corporation,
Panasonic Corporation of North America, Sanyo Electric Co., Ltd., Sanyo North American
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 Rechargeable Batteries throughout the United States and the world. The Defendants
collectively controlled approximately two-thirds or more of the worldwide market for Lithium
Ion Rechargeable Batteries throughout this period, and over 80% of the market in the early part
of this period. The manufacture and sale of Lithium Ion Rechargeable Batteries is a multi-billion
dollar industry. In 2011, the worldwide market for Lithium Ion Rechargeable Batteries was
approximately $14 billion. This figure is expected to top $16 billion in 2012.
7.
Defendants and other co-conspirators (as yet unknown) agreed to fix prices of
Lithium Ion Rechargeable Batteries.
8.
As further described below, competition authorities in at least the United States
and the European Union have been investigating a conspiracy in the market for Lithium Ion
Rechargeable Batteries since at least the first half of 2011. The Antitrust Division of the United
States Department of Justice (“DOJ”) is conducting a criminal investigation into anti-competitive
conduct in the market for Lithium Ion Rechargeable Batteries.
9.
As a direct result of the anti-competitive and unlawful conduct alleged herein,
Plaintiff and the Classes paid artificially inflated prices for Lithium Ion Rechargeable Batteries
during the Class Period and have thereby suffered antitrust injury to their business or property.
II.
JURISDICTION AND VENUE
10.
This Court has jurisdiction over the instant matter pursuant to 28 U.S.C. §1332(d)
and the Class Action Fairness Act of 2005 (“CAFA”), 28 U.S.C. §1711, et seq., which vest
original jurisdiction in the district courts of the United States for any multi-state class action
where the aggregate amount in controversy exceeds $5 million and where the citizenship of any
member of the class of plaintiffs is different from that of any defendant. The $5 million amount-
in- controversy and diverse-citizenship requirements of CAFA are satisfied in this case.
11.
Venue is appropriate in this district under 28 U.S.C. §1391(b) and (c), because,
during the Class Period, many of the Defendants transacted business, were found, or had agents
in this district and because a substantial portion of the affected interstate trade and commerce
described below has been carried out in this district.
12.
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)
participated in the sale and distribution of Lithium Ion Rechargeable Batteries throughout the
United States, including in this district; (c) had substantial contacts with the United States,
including in this district; and/or (d) was engaged in an illegal conspiracy that was directed at and
had the intended effect of causing injury to persons residing in, located in, or doing business
throughout the United States, including in this district.
13.
Defendants engaged in conduct both inside and outside the U.S. that caused
direct, substantial, and reasonably foreseeable and intended anti-competitive effects upon
interstate commerce within the United States.
14.
The activities of the 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.
15.
Lithium Ion Rechargeable Batteries manufactured abroad by Defendants and sold
for use in Lithium Ion Rechargeable 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 Rechargeable
Batteries are purchased in the U.S. and such Lithium Ion Rechargeable 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 classes in the U.S.
16.
By reason of the unlawful activities alleged herein, Defendants substantially
affected commerce throughout the U.S., causing injury to Plaintiff and members of the classes.
Defendants, directly and through their agents, engaged in a conspiracy to fix prices of Lithium
Ion Rechargeable Batteries, which unreasonably restrained trade and adversely affected the
market for Lithium Ion Rechargeable Batteries.
17.
Defendants’ conspiracy and wrongdoing described herein adversely affected
persons in the United States who purchased Lithium Ion Rechargeable Batteries or Lithium Ion
Rechargeable Battery Products for personal use and not for resale, including Plaintiff and
members of the classes.
III.
THE PARTIES
A.
Plaintiff
18.
Plaintiff Brian Caleb Batey is a citizen of Tennessee. During the Class Period,
Plaintiff purchased a Lithium Ion Rechargeable Battery for an Asus laptop containing a cell
manufactured by a Defendant. As a result of the antitrust violations alleged in this complaint,
Plaintiff has suffered injury.
B.
Defendants
19.
Defendant LG Chem America, Inc. (“LG Chem America”) is a New Jersey
corporation with its principal place of business at 1000 Sylvan Avenue, Englewood Cliffs, New
Jersey 07632. Defendant LG Chem America is a wholly owned subsidiary of Defendant LG
Chem. Defendant LG Chem America, either directly or through a wholly owned subsidiary,
participated in the conspiracy alleged in this complaint and manufactured, marketed and/or sold
Lithium Ion Rechargeable Batteries that were purchased throughout the United States, including
in this district, during the Class Period.
20.
Defendant LG Chem, Ltd. (‘“LG Chem”) is a Korean corporation with its
principal executive offices at 20 Yeouido-dong, Yeongdeungpo-gu, Seoul, South Korea.
Defendant LG Chem is an affiliate of Seoul-based conglomerate LG Electronics. LG Chem is
one of the world’s leading manufacturers of Lithium Ion Rechargeable Batteries. Defendant LG
Chem, either directly or through a wholly owned subsidiary, participated in the conspiracy
alleged in this complaint and manufactured, marketed and/or sold Lithium Ion Rechargeable
Batteries that were purchased throughout the United States, including in this district, during the
Class Period.
21.
Defendants LG Chem and LG Chem America are referred to collectively herein
as “LG Chem.”
22.
Defendant Panasonic Corporation is a Japanese corporation with its principal
executive offices at 1006 Oaza Kadoma, Osaka 571-8501, Japan. Up until approximately
October 1, 2008, Panasonic Corporation was known as Matsushita Electric Industrial Co., Ltd.
Defendant Panasonic Corporation manufactures and sells Lithium Ion Rechargeable Batteries
under the Panasonic name and also under the name of Defendant and wholly owned subsidiary,
Sanyo Electric Co., Ltd. With respect to those batteries sold under the Panasonic name, they are
produced under Panasonic’s internal division called “Energy Company.” Defendant Panasonic
Corporation is one of the world’s leading manufacturers of Lithium Ion Rechargeable Batteries.
Defendant Panasonic Corporation, either directly or through a wholly owned subsidiary,
participated in the conspiracy alleged in this complaint and manufactured, marketed and/or sold
Lithium Ion Rechargeable Batteries that were distributed throughout the United States, including
in this district, during the Class Period.
23.
Defendant Panasonic Corporation of North America, formerly known as
Matsushita Electric Corporation of America, is a Delaware Corporation with its principal
executive offices at 1 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 a
wholly owned subsidiary, participated in the conspiracy alleged in this complaint and
manufactured, marketed and/or sold Lithium Ion Rechargeable Batteries that were distributed
throughout the United States, including in this district, during the Class Period.
24.
Defendant Sanyo Electric Co., Ltd. (“Sanyo”) is a Japanese corporation with its
principal executive offices at 5-5 Keihan-Hondori, 2-chome, Moriguchi, Osaka 570-8677, Japan.
Defendant Sanyo is one of the largest manufacturers and suppliers of Lithium Ion Rechargeable
Batteries in the world. As of December 9, 2009, Defendant Sanyo became a wholly owned
subsidiary of Defendant Panasonic Corporation. Defendant Sanyo, either directly or through a
wholly owned subsidiary, participated in the conspiracy alleged in this complaint and
manufactured, marketed and/or sold Lithium Ion Rechargeable Batteries that were distributed
throughout the United States, including in this district, during the Class Period.
25.
Defendant Sanyo North America Corporation is a Delaware corporation with its
principal executive offices 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 a wholly
owned subsidiary, participated in the conspiracy alleged in this complaint and manufactured,
marketed and/or sold Lithium Ion Rechargeable Batteries that were distributed throughout the
United States, including in this district, during the Class Period.
26.
Defendants Panasonic Corporation, Panasonic Corporation of North America,
Sanyo Electric, Co., Ltd., and Sanyo North America Corporation are referred to collectively
herein as “Panasonic.”
27.
Defendant Sony Corporation is a Japanese corporation with its principal executive
offices at 7-1 Konan 1-Chome, Minato-Ku, Tokyo 108-0025 Japan. Defendant Sony
Corporation invented the Lithium Ion Rechargeable Battery in 1991 and since then, has been one
of the world’s leading suppliers of Lithium Ion Rechargeable Batteries. Defendant Sony
Corporation, either directly or through a wholly owned subsidiary, participated in the conspiracy
alleged in this complaint and manufactured, marketed and/or sold Lithium Ion Rechargeable
Batteries that were distributed throughout the United States, including in this district, during the
Class Period.
28.
Sony Energy Devices Corporation is a Japanese corporation with its principal
executive offices 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. Sony Corporation manufactures its Lithium Ion Rechargeable
Batteries though its Sony Energy Devices Corporation subsidiary. Sony Energy Devices
Corporation manufactures its Lithium Ion Rechargeable Batteries at plants located in Japan,
Singapore, and China. Defendant Sony Energy Devices Corporation, either directly or through a
wholly owned subsidiary, participated in the conspiracy alleged in this complaint and
manufactured, marketed and/or sold Lithium Ion Rechargeable Batteries that were distributed
throughout the United States, including in this district, during the Class Period.
29.
Defendant Sony Electronics, Inc. is a Delaware corporation with its principal
executive offices at 16530 Via Esprillo, San Diego, CA 92127. Defendant Sony Electronics, Inc.
is a wholly owned subsidiary of defendant Sony Corporation. Defendant Sony Electronics, Inc.,
either directly or through a wholly owned subsidiary, participated in the conspiracy alleged in
this complaint and manufactured, marketed and/or sold Lithium Ion Rechargeable Batteries that
were distributed throughout the United States, including in this district, during the Class Period.
30.
Defendants Sony Corporation, Sony Energy Devices Corporation, and Sony
Electronics, Inc. are referred to collectively herein as “Sony.”
31.
Defendant Samsung SDI Co., Ltd. (“Samsung SDI”) is a Korean corporation with
its principal executive offices at 575 Shin-Dong, Youngtong-Gu, Suwon, Gyeonggi, South
Korea. Defendant Samsung SDI Co., Ltd. is 20% owned by the Korean conglomerate Samsung
Electronics, Inc. Defendant Samsung SDI is the world’s largest manufacturer of Lithium Ion
Rechargeable Batteries. Defendant Samsung SDI, either directly or through a wholly owned
subsidiary, participated in the conspiracy alleged in this complaint and manufactured, marketed
and/or sold Lithium Ion Rechargeable Batteries that were distributed throughout the United
States, including in this district, during the Class Period.
32.
Defendant Samsung SDI America, Inc. (“Samsung SDI America”) is a California
corporation with its principal executive offices at 85 W. Tasman Drive, San Jose, CA 95134.
Samsung SDI America is a wholly owned subsidiary of Defendant Samsung SDI. Defendant
Samsung SDI America, either directly or through a wholly owned subsidiary, participated in the
conspiracy alleged in this complaint and manufactured, marketed and/or sold Lithium Ion
Rechargeable Batteries that were distributed throughout the United States, including in this
district, during the Class Period.
33.
Defendants Samsung SDI and Samsung SDI America are referred to collectively
herein as “Samsung SDI.”
34.
Defendant Hitachi, Ltd. is a Japanese company with its principal executive offices
at 6-6, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-8280, Japan. Defendant Hitachi, Ltd.
manufactures and sells Lithium Ion Rechargeable Batteries through its Components and Devices
Business Unit. Defendant Hitachi, Ltd., either directly or through a wholly owned subsidiary,
participated in the conspiracy alleged in this complaint and manufactured, marketed and/or sold
Lithium Ion Rechargeable Batteries that were distributed throughout the United States, including
in this district, during the Class Period.
35.
Defendant Hitachi Maxell, Ltd. (“Hitachi-Maxell”) is a Japanese corporation with
its principal executive offices at 2-18-2 Iidabashi, Chiyoda-ku, Tokyo 102-8521 Japan.
Defendant Hitachi-Maxell is a wholly owned subsidiary of Defendant Hitachi, Ltd. Hitachi-
Maxell was founded in 1960 and manufactures and sells batteries through its batteries business
unit. Defendant Hitachi-Maxell, either directly or through a wholly owned subsidiary,
participated in the conspiracy alleged in this complaint and manufactured, marketed and/or sold
Lithium Ion Rechargeable Batteries that were distributed throughout the United States, including
in this district, during the Class Period.
36.
Defendant Maxell Corporation of America (‘“Maxell”) is a New Jersey
corporation with its principal executive offices at 3 Garett Mountain Plaza, 3rd Floor, Suite 300,
Woodland Park, New Jersey 07424. Defendant Maxell, either directly or through a wholly
owned subsidiary, participated in the conspiracy alleged in this complaint and manufactured,
marketed and/or sold Lithium Ion Rechargeable Batteries that were distributed throughout the
United States, including in this district, during the Class Period.
37.
Defendants Hitachi, Ltd., Hitachi-Maxell, Ltd., and Maxell Corporation of
America are referred to collectively herein as ‘“Hitachi.”
IV.
STATEMENT OF FACTS
A.
Batteries
38.
Batteries are one of the primary sources of energy which power many different
machines and devices used every day. There are three different categories of batteries: 1)
chemical; 2) physical; and 3) biological. Chemical batteries generate electricity through a
chemical reaction that occurs inside the battery. The batteries at issue in this case – Lithium Ion
Rechargeable Batteries – are within the chemical family of batteries.
39.
Chemical batteries are generally classified as either “primary” or “secondary.”
Primary batteries are disposable batteries that one uses until they are expended and then discards.
Secondary batteries are rechargeable. Rechargeable batteries account for roughly 80% of all
chemical batteries produced worldwide.
40.
There are four types of batteries that account for the vast majority of secondary
batteries: (1) Lithium Ion Rechargeable Batteries; (2) lead-acid; (3) nickel-cadmium: and (4)
nickel-metal hydride. Lithium Ion Rechargeable Batteries are, by far, the most popular type of
rechargeable battery. This complaint and the illegal conduct alleged herein concerns Lithium Ion
Rechargeable Batteries.
41.
Both Lithium Ion Rechargeable Batteries, as well as nickel-metal hydride
rechargeable batteries, were introduced in or around 1991. Since that time, however, Lithium
Ion Rechargeable Batteries have quickly become the most popular type of secondary battery
easily outpacing nickel-metal hydride and nickel-cadmium rechargeable batteries. The following
graph (based on data from the Institute of Information Technology, Ltd.) shows the growth rates
of Lithium Ion Rechargeable Batteries versus nickel-metal hydride and nickel-cadmium
batteries:
B.
Lithium Ion Rechargeable Batteries
42.
A Lithium Ion Rechargeable Battery generally contains three primary
components: (1) the negative electrode (cathode); (2) positive electrode (anode); and (3) the
electrolyte. The negative electrode of a conventional Lithium Ion Rechargeable Battery is made
from carbon, typically graphite. The positive electrode is a metal oxide, usually a layered oxide
(such as lithium cobalt oxide), a polyanion (such as lithium iron phosphate), or a spinel (such as
lithium manganese oxide). The electrolyte is typically a mixture of organic carbonates such as
ethylene carbonate or diethyl carbonate containing complexes of lithium ions (usually lithium
salts, such as lithium hexafluorophosphate, lithium hexafluoroarsenate monohydrate, lithium
percolate, lithium tetrafluoroborate, and lithium triflate).
43.
Internally, the battery has a separator between the cathode and anode and is filled
with the organic electrolyte solution. The separator prevents short circuits that would occur if
there were contact between the anode and cathode. At the same time, the separator protects the
electrolyte solution and preserves the battery’s conductivity. In the recharging process, lithium
ions are released from the cathode into the electrolyte solution where they accumulate between
the anode layers. During the discharge process, the ions return to the cathode. The movement of
lithium ions between the cathode and the anode during the discharge process creates the electric
current from the battery which powers the specific device it is used in.
44.
There are generally two primary steps in the manufacture of Lithium Ion
Rechargeable Batteries. In the first step, the “cell” of the battery is manufactured – which
includes the cathode, anode, and electrolyte. The cell, and in some cases, multiple cells, are then
assembled inside an enclosure. In some cases, certain protection circuitry is also added inside
the enclosure. The assembled product is referred to as the “‘battery” or “module’’ and is the
product that is placed inside a device to supply power to the device. All of the Defendants
named herein manufacture both raw Lithium Ion Rechargeable Battery cells as well as modules.
In addition to the manufacture and sale of raw Lithium Ion Rechargeable Battery cells and
modules, Defendants also sell raw cells to other entities commonly referred to in the industry as
“assemblers.” In these cases, the raw Lithium Ion Rechargeable Battery cells made by
Defendants are incorporated into a module by assemblers who assemble the cells (and if
necessary, circuitry) and then sell the module under their own brand name. Whether
manufactured by a Defendant or an assembler, the raw cells in a finished battery or module make
up the overwhelming cost of a finished Lithium Ion Rechargeable Battery module.
45.
Lithium Ion Rechargeable Batteries are generally divided into four different
types: (1) small cylindrical (solid body without terminals); (2) large cylindrical (solid body with
large threaded terminals); (3) pouch (soft, flat body, such as those used in cell phones); and (4)
prismatic (semi-hard plastic case with large threaded terminals). Each Defendant manufactures
and markets each of these types of Lithium Ion Rechargeable Batteries. Lithium ion cylindrical
or prismatic batteries are used primarily in notebooks, camcorders, mobile phones, and other
electronic devices.
46.
In addition to the four different types of Lithium Ion Rechargeable Batteries
described above, there are also lithium ion polymer batteries. The exterior of the lithium ion
polymer battery is generally made of a laminate film which allows it to be more flexible in terms
of its shape.
47.
One of the primary differences between lithium ion and lithium ion polymer
batteries is that in the latter, the lithium salt electrolyte is not held in an organic solvent, but
rather, in a solid polymer composite such as polyethylene oxide or polyacrylonitrile. The dry
polymer design offers advantages over the traditional lithium ion battery in terms of fabrication
and ruggedness since the electrolyte is a solid polymer as opposed to a gel or liquid electrolyte.
48.
Lithium Ion Rechargeable Batteries, as defined herein, include cylindrical,
prismatic, pouch, and polymer Lithium Ion Rechargeable Batteries.
49.
Lithium Ion Rechargeable Batteries possess certain unique performance qualities
which make them the most popular form of rechargeable battery. In addition, because of these
characteristics, Lithium Ion Rechargeable Batteries are not interchangeable with other types of
secondary or rechargeable batteries such as nickel-cadmium or nickel-metal hydride.
50.
Unlike other forms of rechargeable batteries (such as nickel-cadmium or nickel-
metal hydride), Lithium Ion Rechargeable Batteries are the only rechargeable battery 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% 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 Rechargeable 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.
51.
A second feature which makes Lithium Ion Rechargeable 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 Rechargeable Battery, on the other hand, is 3.7 volts, nearly three times more
powerful.
52.
Lithium Ion Rechargeable Batteries also possess a higher “energy density” than
other types of rechargeable batteries. “Capacity” refers to the volume of electricity that a battery
can hold. The energy volume in a battery is the voltage times the capacity. Lithium Ion
Rechargeable Batteries possess high energy density, both per weight and per volume, as
compared to other types of rechargeable batteries. Essentially, a lighter and smaller Lithium Ion
Rechargeable Battery can generate the same amount of electricity as a heavier and larger battery
of a different type. For example, Lithium Ion Rechargeable Batteries can be as much as 70%
lighter and 60% smaller in volume than nickel-metal hydride batteries but deliver the same
amount of power.
53.
Lithium Ion Rechargeable Batteries also retain their charge better than other types
of rechargeable batteries. For example, Lithium Ion Rechargeable Batteries lose only about 5%
of their charge per month when idle. Other types of rechargeable batteries, like nickel-metal
hydride batteries, lose nearly 20% of their charge per month when idle.
54.
Because of their superior performance characteristics and their small size,
Lithium Ion Rechargeable Batteries have become the standard battery used in consumer
electronic products. It is estimated that about 40%-50% of all Lithium Ion Rechargeable
Batteries used today are used in small consumer electronic products such as cell phones and
notebook computers. The remainder of Lithium Ion Rechargeable Batteries are used in digital
cameras, power tools, and other devices. The following graph (which incorporates information
from the Institute of Information Technology, Ltd.) depicts the various applications that Lithium
Ion Rechargeable Batteries are used in:
55.
Lithium Ion Rechargeable Batteries are also highly standardized products, and
interchangeable among the same type and across manufacturers. International standard-setting
organizations, such as the International Electrotechnical Commission (“IEC”) or the Institute of
Electrical and Electronics Engineers (‘‘IEEE’’) develop standards to be followed by the
manufacturers of Lithium Ion Rechargeable Batteries so that products which utilize Lithium Ion
Rechargeable Batteries can be developed to accommodate a specific Lithium Ion Rechargeable
Battery. For example, a Lithium Ion Rechargeable Battery “18650,” refers to a cylindrical
shaped battery measuring 18.6 millimeters in diameter by 65.2 millimeters in height with a
nominal voltage of 3.6 volts and a capacity of 2250mAh.
A.
Defendants’ Conspiracy Stabilized and Raised Lithium Ion Rechargeable Battery
Prices Above Competitive Levels
1.
A Conspiracy May Be Inferred from Pricing Behavior for Lithium Ion
Rechargeable Batteries During the Class Period
56.
Defendants’ illegal behavior alleged herein artificially stabilized and raised the
prices of Lithium Ion Rechargeable Batteries during the Class Period. Lithium Ion Battery
prices were higher than they would have been absent the conspiracy.
57.
Lithium Ion Rechargeable Batteries were first invented and commercially
produced by Defendant Sony in or around 1991. Between 1991 and late 1999, the market for
Lithium Ion Rechargeable Batteries was dominated, if not exclusively controlled by, the Sony
and Panasonic Defendants located in Japan. During that time, the pricing of Lithium Ion
Rechargeable Batteries was characterized by remarkable stability.
58.
In or around 1999, Defendants Sony and Panasonic faced their first competitive
threat from outside Japan as lower-cost manufacturers from Korea entered the market.
Beginning in or around 1997, the Korean government promoted research and development
centering around battery manufacturers in an effort to foster the secondary battery industry into
the next generation growth industry. As a result, around this same time, Korea established the
second automated mass battery production system in the world. The Korean Battery R&D
Association took the lead in the “small-size secondary battery development project” together
with 11 manufacturers, 10 universities and research centers, investing $54.87 billion over 5 years
from 1997 to 2002.
59.
As a result of this effort, in 1999, Defendant LG Chem became the first Korean
manufacturer of Lithium Ion Rechargeable Batteries followed closely by Defendant Samsung
SDI. With the introduction of competition from the Korean Defendants – LG Chem and
Samsung SDI – worldwide prices for Lithium Ion Rechargeable Batteries fell precipitously. In
fact, during the two-year period from 2000 – 2002, the prices for Lithium Ion Rechargeable
Batteries fell by nearly 50%. Prices fell despite a strong increase in demand for Lithium Ion
Rechargeable Batteries used in devices such as mobile telephones and notebook computers. A
dramatic price decrease for Lithium Ion Rechargeable Batteries at this time is best explained by
the entry of Defendants Samsung SDI and LG Chem into the worldwide market for these
products and their aggressive competition in the marketplace. In fact, as evidence of just how
competitive LG Chem and Samsung SDI were, in just three years, Samsung SDI and LG Chem
went from having 0% market share in 2000 to approximately 20% of the worldwide market in
60.
Defendants Sony, Panasonic, and Hitachi, sought to stem the rapid decline in
Lithium Ion Rechargeable Battery prices and their rapid loss of market share due to the intense
competition from their Korean counterparts – Defendants Samsung SDI and LG Chem. In or
around the end of 2001, or the beginning of 2002, Defendants entered into an illegal conspiracy
to stabilize and raise prices for Lithium Ion Rechargeable Batteries. This is best observed from
the fact that Lithium Ion Rechargeable Batteries prices immediately stabilized after nearly a two-
year period of rapid price decreases. In fact, during the period January 2002 – July 2008, the
dramatic decline of Lithium Ion Rechargeable Batteries prices that took place during 2000-2001
had completely ceased, and the prices of Lithium Ion Rechargeable Batteries prices actually rose
throughout most of 2002 – 2008. The following depicts the prices of Lithium Ion Rechargeable
Batteries during the Class Period:
61.
As a result of the worldwide economic crisis beginning in or around 2007, and the
corresponding decline in demand for Lithium Ion Rechargeable Batteries and electronic devices,
the prices for Lithium Ion Rechargeable Batteries again experienced another decline. Beginning
in or around January 2008, the prices for Lithium Ion Rechargeable Batteries began a steady
decline which ended in or around January 2009 and resulted in a price decline of approximately
62.
Corresponding with the decline in prices during 2008, Defendants dramatically
cut production in an effort to maintain prices. Beginning around 2008, Defendants cut
worldwide production for Lithium Ion Rechargeable Batteries by almost 66%. This dramatic
coordinated cut in production achieved its desired result – the prices for Lithium Ion
Rechargeable Batteries stabilized by the end of 2009.
63.
Lithium Ion Battery prices remained stable – yet again – until Defendants
received notice they were being investigated for price-fixing Lithium Ion Batteries by the DOJ
and the European Union which began in mid-2011. Both Japanese and Korean producer price
indexes for Lithium Ion Rechargeable Batteries fell after Defendants disclosed they were being
investigated. In fact, within 3 months following disclosure of the investigation in 2011, prices
began an approximate 10% decline in a mere 3 months. Such a price decline would be predicted
with the end of a cartel which had artificially raised prices, and supports the allegations of
collusion occurring before this time.
2.
Prices for Lithium Ion Rechargeable Batteries During the Class Period
Defied Industry Expectations
64.
Many analysts predicted that given the economics of the marketplace, prices of
Lithium Ion Rechargeable Batteries would go down during the Class Period. But prices not only
failed to decline throughout most of the Class Period – they actually rose, defying industry
expectations.
65.
Lithium Ion Rechargeable Batteries underwent substantial technological change
that rapidly improved the energy density of the batteries (watt-hours delivered per weight or
volume) and reduced costs. Energy density, measured in watt-hours per kilogram or watt-hours
per liter, more than doubled for Lithium Ion Rechargeable Batteries over the decade from 1991
to 2001. Such technological progress continued unabated over the past decade – today, energy
density is as high as 250 wh/kg, or 620 wh/1, for Lithium Ion Rechargeable Batteries.2
2
“Rechargeable Li-Ion OEM Battery Products.” Panasonic.com.; “Panasonic Develops
New Higher-Capacity 18650 Li-Ion Cells; Application of Silicon-based Alloy in Anode.”
greencarcongress.com.
Figure One
Performance Improvement and Price Decline in Li-Ion Batteries 1991 – 20023
66.
Scientists, engineers, and industry analysts expected to see the declining prices for
Lithium Ion Rechargeable Batteries shown in Figure One to continue their steep descent during
the period following 2002. Numerous technical studies undertaken in early to mid-2000s
predicted that scale economies and learning curves would act to sharply lower cost as production
volumes expanded. Figure Two below is typical of such predictions.
3
Reproduced from R. Brodd, “Factors Affecting U.S. Production Decisions: Why are
There No Volume Lithium-Ion Battery Manufacturers in the United States?” ATP Working
Paper 05-01, National Institute of Standards and Technology, U.S. Department of Commerce,
June 2005, pg. 62.
Figure Two
Reduction in Li-Ion Battery Manufacturing Cost with Scale of Production4
67.
The study cited in Figure Two also notes the rapid pace of continuing
technological improvement: “while the NiMH [nickel metal hydride] battery is nearing
fundamental practical limits … lithium ion batteries are still improving. With continued
improvements in charge storage capability, lithium-ion’s advantage will become more
pronounced with the passage of time ... Though this trend has slowed somewhat in recent years
with the maturation of cobalt- and nickel metal-oxide based lithium-ion batteries, other materials
have the potential to allow for continued growth.5
4
Source: Internal Studies at Ford, taken from presentation by T. Miller, “Hybrid Battery
Technology and Challenges,” MIT Technology Review’s Emerging Technology Conference,
(September 28, 2006), reproduced in M.A. Kromer and J.B. Heywood, “Electric Powertrains:
Opportunities and Challenges in the U.S. Light-Duty Vehicle Fleet,” Publication LFEE 2007-03
RP, Laboratory for Energy and the Environment, MIT, May 2007, pg. 36 (hereafter “Kromer and
Heywood”).
5
Kromer and Heywood, p. 36.
68.
The authors of this 2006 study go on to observe that, “[i]n addition to this
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.”6
69.
As seen in Figure Three below, which represents production figures for Lithium
Ion Rechargeable Battery cells manufactured by Japanese manufacturers (responsible for the
lion’s share of global production throughout this decade), the predicted expansion in the
production volume of Lithium Ion Rechargeable Batteries did indeed materialize. Batteries
produced in Japan more than tripled from just below 34 million units in January 2001, to almost
118 million units in July 2011. The power provided by these technologically improved batteries
increased twice as fast, by a factor of almost six over the same period from just over 34 million
Ah (amp-hours), to over 200 million Ah in July 2011.
6
Id.
Figure Three
Increase in Production Volumes for Li-Ion Batteries in Japan 1000’s of Units and Ah7
70.
Thus, analysts were confident in predicting continuing price declines in Lithium
Ion Batteries at the beginning of this decade. See Figure Four. Basic economics supports the
notion that these rapidly increasing volumes of production should have been associated with
continuing price declines for Lithium Ion Rechargeable Batteries in a competitive market. After
sharp price declines prior to 2002, and flat prices in 2003, industry analysts continued to predict
continued annual 7% declines in Lithium Ion Rechargeable Battery prices after 2003. However,
these continuing price declines predicted by both technologists and market analysts did not
materialize because of the formation of the price-fixing cartel alleged in this complaint. The
interruption of this trend in 2003 was viewed merely as a temporary deviation from the expected
trend, rather than the beginning of a collusive effort by producers to prevent further declines in
prices.
7
Source: Japan, Research and Statistics Department, Ministry of Economy, Trade and
Industry (METI), Yearbook of Machinery Statistics, Monthly Report of Machinery Statistics,
various years.
Figure Four
Historical and Forecast Prices for Batteries, April 20048
71.
These trends in pricing are evident in the official government producer price
index for Lithium Ion Rechargeable Batteries constructed by the Bank of Korea, the second most
important location for Lithium Ion Rechargeable Batteries production (after Japan. which did not
start producing a Lithium Ion Rechargeable Batteries price index until 2010). See Figure Five.
A price index, unlike an average unit value for batteries, controls for changes in mix or size and
qualities of batteries being produced.
8
Source:
International
Association
for
Advanced
Rechargeable
Batteries,
www.rechargebatteries.org/MarketDataRechargeableBatteries.pdf.
Figure Five
Lithium-Ion Battery Price Indexes, January 20109
72.
Figure Five shows that after the sharp decline in prices beginning in early 2000
(triggered by entry of Korean producers into the market as described above in paragraphs 60-61),
the cartel members managed to arrest any continuing decline in Lithium Ion Rechargeable
Battery prices, and, defying industry expectations, even increased prices, over a five year period,
from early 2002 through early 2008. This effort was highly successful in not only reducing the
rate of decline, but actually elevating Lithium Ion Rechargeable Battery prices until the global
recession struck in 2008. At that point, as markets for the mobile consumer electronics and
information technology products reliant on the use of Lithium Ion Rechargeable Batteries
crashed, prices started to tumble sharply once again, at an even steeper rate than had been
triggered by the Korean entry back in early 2000.
9
Source: Bank of Korea, Bank of Japan. Price indexes have been converted to dollar
equivalents using Federal Reserve exchange rate data.
3.
Defendants’ Pricing and Production Levels in Response to the Global
Economic Crisis in 2008 Further Supports the Existence of the Conspiracy
73.
As the global recession reduced demand for the devices which use Lithium Ion
Rechargeable Batteries, prices for these batteries also dropped. In fact, prices for Lithium Ion
rechargeable Batteries would fall roughly 34% from August 2008 through January 2009. Faced
with rapidly decreasing prices during this time, cartel members sharply cut back production of
Lithium Ion Rechargeable Batteries. Figure Five shows that the Japanese cartel members
dramatically cut production from 125 million units per month in September of 2008, to 52
million units per month in January of 2009, engineering a reduction in output of 58%, over a
period of just four months. (Alternatively, if measured by the power capacity – Ah – of the
batteries, the same 58% reduction occurred). Then, just five months later, Japanese production
shot back up to near pre-economic crisis levels to approximately 103 million units per month.
74.
Defendants’ near 60% reduction in output successfully arrested further decline in
prices, while the continuing restraint in not resuming production growth after 2008 successfully
stabilized prices at a roughly constant level and stemmed further price declines.
75.
Economic principles teach that when producers are behaving competitively, they
expand output to where price just covers the incremental or marginal cost of the last unit
produced. Defendants’ reduction in production by 58% – only to increase output five months
later to nearly the same production levels (while holding prices the same) – is not plausibly the
result of competitive forces.
76.
This production and pricing behavior is better (more plausibly) explained by the
existence of an anti-competitive agreement, because when Defendants raised production a mere
five months later, [they maintained prices at the same level as before the reduction in output].
In other words, Defendants’ production and pricing behavior would only be consistent with
competition if incremental production costs had somehow been cut by a huge amount – 34% –
over the intervening five months. This could then possibly support an inference of competitive
prices remaining at the same levels when production returned to nearly the same levels. But as
shown below, input costs for Lithium Ion Rechargeable Batteries do not explain Defendants’
pricing and production behavior.
77.
The two most important raw materials used to manufacture Lithium Ion
Rechargeable Batteries are lithium carbonate and cobalt. However, prices for these raw
materials do not explain Defendants’ changes to Lithium Ion Rechargeable Battery prices and
production levels. Figure Six shows the supply chain for making Lithium Ion Rechargeable
Batteries taken from a recent U.S. government report.10
Figure Six
Supply Chain for Lithium Ion Rechargeable Batteries
78.
Significant increases in cobalt prices in 2004 and 2008 were not mirrored by the
slight rate of increase associated with Lithium Ion Rechargeable Battery prices during the 2002
through early 2008 time period. And when the global recession hit in 2008, cobalt prices, like
10
U.S. Department of Energy, Critical Materials Strategy, December 2010, p. 19.
many other prices (including Lithium Ion Rechargeable Battery prices) fell. But when cobalt
prices rose again from early 2009 through early 2010, Lithium Ion Rechargeable Batteries did
not track these price increases and large declines in cobalt prices in 2004-2005 were not mirrored
by the rate of increase of Lithium Ion Rechargeable Battery prices during that time period.
Id. at p. 46.
79.
Similarly, Lithium Ion Rechargeable Battery price changes are not readily
explained by the price movements for another important raw material – lithium carbonate (LiC).
The period from 2000-2004 basically saw flat LiC prices, while Lithium Ion Rechargeable
Battery prices dropped precipitously through 2002, then grew at a very slow rate. Then, LiC
prices more than doubled from 2005-2007 after this flat 2000-2004 period, whereas Lithium Ion
Rechargeable Battery prices continued with a slight rate of growth very similar to the 2002-2004
period. LiC prices dropped sharply during 2009-2010, while Lithium Ion Rechargeable Battery
prices were basically flat.
Id. at p. 47.
80.
Further, the steep price swings of Lithium Ion Rechargeable Batteries are not
likely explained by changes in costs for capital, labor, and energy. There were no drastic six-
month swings in these costs.
B.
The Structure and Characteristics of the Lithium Ion Rechargeable Batteries
Market Render the Conspiracy More Plausible
81.
In addition to Lithium Ion Rechargeable Battery pricing and production levels
supporting the existence of a conspiracy, the structure and other characteristics of the Lithium
Ion Rechargeable Battery market are conducive to a price-fixing agreement, and have made
collusion particularly attractive in this market. Specifically, the Lithium Ion Rechargeable
Batteries market: (1) has high barriers to entry; (2) has inelasticity of demand; and (3) is highly
concentrated.
1.
The Lithium Ion Rechargeable Batteries Market Has High Barriers to Entry
82.
A collusive arrangement that raises product prices above competitive levels
would, under basic economic principles, attract new entrants seeking to benefit from the supra-
competitive pricing. Where there are significant barriers to entry, however, new entrants are less
likely. Thus, barriers to entry help to facilitate the formation and maintenance of a cartel.
83.
There are substantial barriers that preclude, reduce, or make entry more difficult
into the Lithium Ion Rechargeable Batteries market. A new entrant into the business 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 long-standing customer relationships.
84.
It has been estimated that the cost to build a plant to manufacture Lithium Ion
Rechargeable Batteries that is capable of producing three million cells per month is
approximately $3-$4 per cell. Thus, a plant making three million cells per month would cost
approximately $108-$144 million. This estimate does not include the cost of research,
development, and engineering that produced the technology and equipment designs for the plant.
85.
In addition to the large costs of building a plant, given the nature of the materials
used in Lithium Ion Rechargeable Batteries, any new entrant will be required to comply with
various environmental regulations in whatever jurisdiction such plant is built. Compliance with
such regulations will require extensive testing and the receipt of government approvals, all of
which will take many years.
2.
The Demand for Lithium Ion Rechargeable Batteries Is Inelastic
86.
“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 “elastic” if an increase in the
price of a product results in diminished revenues, with declines in the quantity sold of that
product outweighing the effects of higher prices on the value of sales. For products with a highly
elastic demand, a price increase results in a large drop in the value of sales. In other words,
customers have many feasible alternatives for cheaper products of similar quality, and cut
purchases sharply in the face of even a small price increase.
87.
For a cartel to profit from raising prices above competitive levels, market demand
must be relatively less elastic at competitive prices. That is, an increase in prices should not
cause a huge decline in demand. Otherwise, increased prices would result in sharply declining
sales, as some customers purchased substitute products or declined to buy altogether. A less
elastic demand is a market characteristic that facilitates collusion, allowing producers to raise
their prices without triggering customer substitution and sufficient lost sales revenues as to offset
the beneficial effect of higher prices on profits for products they still continue to sell.
88.
Demand for Lithium Ion Rechargeable Batteries is not very elastic because there
are no close substitutes for these products.
3.
The market for Lithium Ion Rechargeable Batteries is highly concentrated.
89.
Market concentration facilitates collusion. If an industry is divided into a large
number of small firms, the current gain from cheating on a cartel (profits from sales captured
from other cartel members through undercutting of the cartel-fixed price in the current time
period, which risks causing the cartel to fall apart in the future) is large relative to the firm’s
possible gains from the cartel’s continuing future success (the firm’s future share of the total
cartel profits if collusion were to continue successfully). Conversely, with a more concentrated
industry, a greater share for a colluding firm in future cartel profits tips the balance in favor of
continued collusion, and away from any short-term, transitory bump in profits that could be
achieved by undercutting the cartel price and gaining a transitory increase in market share.
90.
Empirical scholarship on cartels has primarily focused on a concentration
measure called the CR4 – the four-firm concentration ratio, the share of product sales accounted
for by the four largest firms – as a diagnostic in analyzing what levels of concentration facilitate
multi-firm collusion.11
91.
A seminal published study of DOJ price-fixing investigations found that 76% of
these cartels occurred in sectors with CR4 of 50% or greater, which was about double the average
CR4 for manufacturing. Fully a quarter of these cartels therefore, were still organized in markets
with a less than 50% share held by the four largest firms.12
92.
The CR4 exceeded 60% in the market for Lithium Ion Rechargeable Batteries for
all of the proposed Class Period, topping 80% in some years. The market share of the alleged
cartel members never fell below 70%, and reached almost 90% in some years.
C.
Government Investigations
93.
A globally coordinated antitrust investigation is taking place in at least the United
States and Europe, aimed at suppliers of Lithium Ion Rechargeable Batteries.
94.
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 DOJ concerning its ‘‘secondary batteries’’ business. Specifically, Sony disclosed
11
The advantage of the CR4 in predicting the relationship between concentration and the
likelihood of collusion is that it does not vary with the degree of asymmetry in an industry
(unlike the Herfindahi-Hirschman index (HHI), which as Motta notes, “confounds two factors –
higher average market share and asymmetry”). Motta observes that if “the measure of
concentration does not vary with asymmetry – as for the concentration ratios, Ck, that sum the
market shares of the k largest firms in the industry – then an increase in measured concentration
should correspond to a higher likelihood of collusion.” M. Motta, Competition Policy, Theory
and Practice (Cambridge: Cambridge University Press), 2004, p. 143.
12
See G.A. Hay & D. Kelley, “An Empirical survey of Price-Fixing Conspiracies,” Journal
of Law and Economics, Vol. 17, 1974.
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
resolution of this matter.
Sony Corporation Form 20-F for fiscal year ending March 31, 2012, p. 114.
95.
Around the same time, according to a Korean news article, a source from the U.S.
DOJ confirmed that it was conducting a criminal investigation into potential price fixing with
respect to the sale of secondary batteries in the U.S. since the first half of 2011. The same article
quoted the source as stating that the investigation is in its final stages and that criminal charges
are likely to be filed.
96.
On or about August 20, 2012, LG Chem confirmed that it also was the target of
the investigation being conducted by the U.S. DOJ.
97.
Other news articles 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.
98.
It is significant that Defendants’ anti-competitive 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.13 Following a review of that
memorandum, the request for a grand jury must be approved by the Assistant Attorney General
13
See Antitrust Grand Jury Practice Manual, Vol. 1, Ch. 1.B.1 (1991) (“If a Division
attorney believes that a criminal violation of the antitrust laws has occurred, he should prepare a
memorandum requesting authority to conduct a grand jury investigation.”) (available at
http://www.justice.gov/atr/public/guidelines/206542.htm) (last accessed October 16, 2012).
for the Antitrust Division, based on the standard that a criminal violation may have occurred. In
addition, the fact that the DOJ Antirust 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 customer and territorial allocations.”14 Accordingly, the
existence of a criminal investigation into the market for Lithium Ion Rechargeable Batteries
supports the existence of the conspiracy alleged in this complaint.
D.
Defendants Have a History of Colluding to Fix Prices for Critical Components of
Consumer Electronics
99.
Many of the Defendants have a long history of criminal collusion and are either
currently involved in worldwide 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 which the Defendants or their affiliates have admitted to
took place during the Class Period identified in this complaint.
100.
A notebook computer contains four key pieces of hardware: a DRAM chip, an
LCD screen, an ODD, and a rechargeable lithium-ion battery. Defendants here have pled guilty
to fixing the prices of the first three of these components, and the DOJ is investigating whether to
bring criminal price-fixing charges for the fourth component – Lithium Ion Rechargeable
Batteries.
101.
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 DRAM market ....” Samsung Electronics Company,
14
See Antitrust Division Manual, Chapter III.C.5, III-20 (2009) (available at
http://www.justice.gov.atr/public/divisionmanual/chapter3.pdf (last accessed October 16, 2012).
Ltd. and Samsung Semiconductor, Inc. admitted that they participated in the conspiracy from
approximately April 1, 1999 through June 15, 2002. In addition, seven Samsung executives (Il
Ung Kim, Sun Woo Lee, Yeongho Kang, Young Woo Lee, Thomas Quinn, Young Hwan Park,
Young Bae Rha) agreed to plead guilty to participating in the conspiracy with respect to DRAM.
Each agreed to pay a $250,000 criminal fine and serve a prison sentence in the United States
ranging from seven to fourteen months.
102.
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.
103.
In November 2008, LG Display Co., Ltd., 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. At the time, the fine paid by LG was the
second highest fine ever imposed by the Antitrust Division of the DOJ. In addition, in April
2009, an executive of LG Display, Bock Kwon, agreed to plead guilty to participating in the
global LCD conspiracy from September 2001 through June 2006. Kwon, a Korean national,
agreed to serve 12 months in a U.S. prison and pay a $30,000 criminal fine. Further, in February
2009, another LG Display executive, Duk Mo Koo, agreed to plead guilty to participating in the
global conspiracy with respect to LCDs from September 2001 through December 2006.
104.
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 April 1, 2001 through March 31, 2004.
105.
In September 2011, an entity which is a joint venture between Hitachi, Ltd. and
LG Electronics, Inc. – Hitachi-LG Data Storage, Inc. – agreed to plead guilty and pay a $21.1
million fine for participating in various conspiracies 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 also agreed to plead guilty for participating in the same conspiracy. In December
2011, Yong Kuen Park, Sang Hun Kim, and Sik Hur agreed to plead guilty for participating in
the conspiracy with respect to ODDs during the period November 2005 through September 2009.
All three agreed to serve prison time in the United States and pay criminal fines.
106.
Defendants have also entered guilty pleas for fixing prices for other high-tech
products.
107.
In or around March 2011, Defendant Samsung SDI 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 ....”15 Samsung SDI admitted it participated in the
conspiracy from approximately January 1997 through at least March 2006.
108.
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 October 14, 2004
through December 31, 2007. USA v. Panasonic Corp., 2:10-cv-20576, Sep. 30, 2010 (E.D.
V.
MANNER AND MEANS OF THE CONSPIRACY
109.
For purposes of forming and carrying out the charged combination and
conspiracy, Defendants did those things that they combined and conspired to do, including,
among other things:
15
Samsung SDI Agrees to Plead Guilty in Color Display Tube Price-Fixing Conspiracy,
DOJ Office of Public Affairs, March 18, 2011.
a.
participating in meetings, conversations and communications in the United
States, Japan, Korea and elsewhere to discuss the prices of Lithium Ion Rechargeable Batteries in
the United States and elsewhere;
b.
agreeing, during those meetings, conversations and communications, on
prices for Lithium Ion Rechargeable Batteries sold in the United States and elsewhere;
c.
agreeing, during those meetings, conversations and communications, to
depress the supply of Lithium Ion Rechargeable Batteries;
d.
agreeing, during those meetings, conversations and communications, to
coordinate prices for Lithium Ion Rechargeable Batteries sold in the United States and
elsewhere;
e.
selling Lithium Ion Rechargeable Batteries in the United States and
elsewhere at collusive and noncompetitive prices;
f.
accepting payment for Lithium Ion Rechargeable Batteries at collusive
and non-competitive prices;
g.
engaging in meetings, conversations and communications in the United
States and elsewhere for the purpose of monitoring and enforcing adherence to the agreed-upon
price-fixing scheme; and
h.
employing measures to keep their conduct secret.
VI.
THE INFLATED PRICES OF LITHIUM ION RECHARGEABLE BATTERIES
WERE PASSED THROUGH TO CONSUMERS
110.
Defendants’ conspiracy to fix the price of Lithium Ion Rechargeable Batteries at
artificial levels resulted in harm to Plaintiff and the classes because it resulted in them paying
higher prices for Lithium Ion Rechargeable Battery Products than they would have in the
absence of Defendants’ conspiracy.
111.
Lithium Ion Rechargeable Batteries are commodity-like products with
functionally equivalent products available from Defendants. Defendants manufacture Lithium
Ion Rechargeable Batteries pursuant to standard specifications.
112.
A Lithium Ion Rechargeable Battery is purchased by a consumer as a stand-alone
product, or as a substantial part of a Lithium Ion Rechargeable Battery Product. When a Lithium
Ion Rechargeable Battery is purchased by consumers as a stand-alone product, the battery or the
cell inside the battery itself is directly traceable to the specific manufacturing defendant. When a
Lithium Ion Rechargeable Battery is purchased as part of a Lithium Ion Rechargeable Battery
Product, it is a distinct, physically discrete element of the end-use product and is identifiable by a
specific, discrete part or model number that permits tracing. Lithium Ion Rechargeable Batteries
are traceable and identifiable throughout the chain of distribution to the end user. They do not
undergo any physical alterations as they move through the chain of distribution.
113.
The purchaser buys a Lithium Ion Rechargeable Battery either from the direct
purchaser OEM or through a reseller such as a retailer. Thus, a Lithium Ion Rechargeable
Battery follows a traceable physical chain from the Defendants to the OEMs, to the purchaser of
the Lithium Ion Rechargeable Battery Product. Tracing can help show that changes in the prices
paid by direct purchasers of Lithium Ion Rechargeable Batteries affect prices paid by indirect
purchasers of the Lithium Ion Rechargeable Batteries themselves, or Lithium Ion Rechargeable
Battery Products.
114.
The OEM and the retail markets of Lithium Ion Rechargeable Batteries and
Lithium Ion Rechargeable Battery Products are subject to vigorous price competition. The direct
purchaser OEMs and retailers have very thin net margins. They are therefore at the mercy of
their component costs, such that increases in the price of Lithium Ion Rechargeable Batteries
lead to quick, corresponding price increases at the OEM and retail levels for Lithium Ion
Rechargeable Batteries and Lithium Ion Rechargeable Battery Products.
115.
As a result, the inflated prices of Lithium Ion Rechargeable Batteries resulting
from Defendants’ price-fixing conspiracy have been passed on to Plaintiff and the classes by
direct purchasers, manufacturers, distributors and retailers.
116.
Lithium Ion Rechargeable Batteries make up a substantial component cost of
Lithium Ion Rechargeable Battery Products. The retail price of a Lithium Ion Rechargeable
Battery Product is determined in substantial part by the cost of the Lithium Ion Rechargeable
Battery it contains.
117.
Thus, Plaintiff and members of the classes have been forced to pay
supra-competitive prices for Lithium Ion Rechargeable Batteries and Lithium Ion Rechargeable
Battery Products. These inflated prices have been passed on to them by direct purchaser
manufacturers, distributors, and retailers.
VII. TRADE AND COMMERCE
118.
During the period covered by this complaint, Defendants sold to manufacturers
located in various states in the United States substantial quantities of Lithium Ion Rechargeable
Battery Products shipped from outside the United States and from other 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
Rechargeable Battery Products, as well as payments for Lithium Ion Rechargeable Battery
Products 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 Rechargeable Battery Products that were the subject of the charged conspiracy were
within the flow of, and substantially affected, interstate and foreign trade and commerce.
VIII. CLASS ACTION ALLEGATIONS
119.
Plaintiff brings this action on behalf of himself and as a class action under Rule
23(a) and (b)(2) of the Federal Rules of Civil Procedure, seeking equitable and injunctive relief
on behalf of the following class (the “‘Nationwide Class”):
All persons residing in the United States that indirectly purchased for their own
use and not for resale either a Lithium Ion Rechargeable Battery containing a cell
manufactured by a Defendant and/or a Lithium Ion Rechargeable Battery Product
containing a Lithium Ion Rechargeable Battery containing a cell manufactured by
a Defendant, during the period January 1, 2002 to the present.
120.
Plaintiff also brings this action on behalf of himself and as a class action under
Rule 23(a) and (b)(3) of the Federal Rules of Civil Procedure seeking damages pursuant to the
state antitrust, unfair competition, and consumer protection laws on behalf of the following class
(the “Tennessee Indirect Purchaser Class”):
All persons residing in Tennessee who indirectly purchased in Tennessee for their
own use and not for resale either a Lithium Ion Rechargeable Battery containing a
cell manufactured by a Defendant and/or a Lithium Ion Rechargeable Battery
Product containing a Lithium Ion Rechargeable Battery containing a cell
manufactured by a Defendant during the period January 1, 2002 through 2011.
121.
The Nationwide Class and the Tennessee Indirect Purchasers Class are referred to
herein as the “Classes.” Excluded from the Classes are Defendants, their parent companies,
subsidiaries
and
affiliates,
any
co-conspirators,
federal
governmental
entities
and
instrumentalities of the federal government, states and their subdivisions, agencies and
instrumentalities, and persons who purchased Lithium Ion Rechargeable Battery Products
directly or for resale.
122.
While Plaintiff does not know the exact number of the members of the Classes,
Plaintiff believes there are hundreds of thousands of members in the Nationwide Class and
thousands of members in the Tennessee Indirect Purchaser Class.
123.
The members of the Classes are so numerous and geographically dispersed that
joinder of all members is impracticable.
124.
There are questions of law and fact common to the Classes, which relate to the
existence of the conspiracies alleged, and the type of common pattern of injury sustained as a
result thereof. These common questions of law and fact predominate over any questions solely
affecting individual members of the Classes Questions of law and fact common to the classes’
members include, but are not limited to:
a.
whether Defendants engaged in agreements to fix the prices of Lithium
Rechargeable Batteries sold in the United States;
b.
the identity of the participants in the conspiracies;
c.
the duration of the alleged conspiracy and the nature and character of the
acts performed by Defendants and their co-conspirators in furtherance of
the conspiracy;
d.
whether the alleged conspiracy violated §1 of the Sherman Act, 15 U.S.C.
§1;
e.
whether the alleged conspiracy violated Tennessee Code Ann. §§47-25-
101, et seq.;
f.
whether Defendants unjustly enriched themselves to the detriment of
Plaintiff and the members of the Classes;
g.
whether the conduct of Defendants and their co-conspirators, as alleged in
this Complaint, caused injury to Plaintiff and other members of the
Classes;
h.
the appropriate measure of damages sustained by Plaintiff and other
members of the Classes; and
i.
the appropriate injunctive relief.
125.
Plaintiff’s claims are typical of the claims of the other members of the Classes,
and Plaintiff will fairly and adequately protect the interests 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 Lithium Ion Rechargeable Batteries or Lithium Ion
Rechargeable Battery Products purchased indirectly from the Defendants.
126.
Plaintiff’s claims arise out of the same common course of conduct giving rise to
the claims of other members of the Classes. Plaintiff’s interest is coincident with and not
antagonistic to those of the other members of the Classes. In addition, Plaintiff is represented by
counsel who are competent and experienced in the prosecution of antitrust and class action
litigation.
127.
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.
128.
A class action is superior to other available methods for the fair and efficient
adjudication of this controversy. The Class is readily definable and is one for which records
should exist in the files of Defendants and their co-conspirators. Prosecution as a class action
will also eliminate the possibility of repetitious litigation. Treatment as a class action will permit
a large number of similarly situated persons to adjudicate their common claims in a single forum
simultaneously, efficiently, and without duplication of effort and expense that numerous
individual actions would engender. Treatment of this case as a class action will also permit the
adjudication of relatively small claims by many Class members who otherwise could not afford
to litigate an antitrust claim such as is asserted in this Complaint. Absent a class action,
Defendants will retain substantial funds received as a result of their wrongdoing, and such
unlawful and improper conduct shall, in large measure, go unremedied. This class action
presents no difficulties of management that would preclude its maintenance as a class action.
129.
The prosecution of separate actions by individual members of the Classes would
create a risk of inconsistent or varying adjudication, establishing incompatible standards of
conduct for Defendants.
IX.
ANTITRUST INJURY
130.
The effect of Defendants’ conduct as described herein has been to artificially
inflate the prices paid by Plaintiff and members of the Classes for Lithium Ion Rechargeable
Batteries and Lithium Ion Rechargeable Battery Products.
X.
FRAUDULENT CONCEALMENT AND TOLLING
131.
Throughout the Class Period, Defendants engaged in a successful, illegal price-
fixing and supply control conspiracy that was self-concealing. Defendants effectively,
affirmatively and fraudulently concealed their unlawful combination, conspiracy and acts in
furtherance thereof from Plaintiff and the members of the Classes.
132.
Plaintiff did not know nor could have known that prices for Lithium Ion
Rechargeable Batteries and Lithium Ion Rechargeable Battery Products were artificially inflated
and maintained by virtue of Defendants’ illegal price-fixing conspiracy, and that Plaintiff and
members of the Classes were paying higher prices. Information concerning the various
government investigations in the Lithium Ion Rechargeable Battery industry did not emerge until
the first half of 2011. It was not until this time that Plaintiff and members of the Classes had any
facts or information concerning Defendants’ illegal conduct.
133.
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.
134.
As a result of Defendants’ fraudulent concealment of their conspiracy, the running
of any statute of limitations has been tolled with respect to any claims that Plaintiff and the
members of the Classes have as a result of the anti-competitive conduct alleged in this complaint.
FIRST COUNT
VIOLATION OF SECTION ONE OF THE SHERMAN ACT
(On Behalf of Plaintiff and the Nationwide Class)
135.
Plaintiff incorporates and realleges, as though fully set forth herein, each of the
paragraphs set forth above.
136.
Defendants and unnamed co-conspirators entered into and engaged in a contract,
combination, or conspiracy in unreasonable restraint of trade in violation of Section One of the
Sherman Act (15 U.S.C. §1).
137.
Beginning as early as 2002 and continuing through the present, the exact date
being unknown to Plaintiff and exclusively within the knowledge of Defendants, Defendants and
their co-conspirators entered into a continuing contract, combination or conspiracy to
unreasonably restrain trade and commerce in violation of Section 1 of the Sherman Act (15
U.S.C. §1) by artificially reducing or eliminating competition in the United States.
138.
In particular, Defendants have combined and conspired to raise, fix, maintain or
stabilize the prices of Lithium Ion Rechargeable Batteries.
139.
As a result of Defendants’ unlawful conduct, prices for Lithium Ion Rechargeable
Batteries were raised, fixed, maintained, and stabilized in the United States.
140.
The contract, combination or conspiracy among Defendants consisted of a
continuing agreement, understanding, and concerted action among Defendants and their co-
conspirators.
141.
For purposes of formulating and effectuating their contract, combination, or
conspiracy, Defendants and their co-conspirators did those things they contracted, combined, or
conspired to do, including:
a.
exchanged information on prices charged for Lithium Ion Rechargeable
Batteries;
b.
agreed to raise, fix, and maintain prices for Lithium Ion Rechargeable
Batteries;
c.
raised, fixed, and maintained prices for Lithium Ion Rechargeable
Batteries;
d.
allocated markets for Lithium Ion Rechargeable Batteries; and
e.
sold Lithium Ion Rechargeable Batteries throughout the U.S. at non-
competitive prices.
142.
As a result of Defendants’ unlawful conduct, Plaintiff and the other members of
the Class have been injured in their businesses and property in that they have paid more for
Lithium Ion Rechargeable Batteries and Lithium Ion Rechargeable Battery Products than they
otherwise would have paid in the absence of Defendants’ unlawful conduct.
143.
The alleged contract, combination or conspiracy is a per se violation of the federal
antitrust laws.
144.
These violations are continuing and will continue unless enjoined by this Court.
145.
Pursuant to Section 16 of the Clayton Act, 15 U.S.C. §26, Plaintiff and the Class
seek the issuance of an injunction against Defendants, preventing and restraining the violations
alleged herein.
SECOND COUNT
VIOLATION OF STATE ANTITRUST AND RESTRAINT OF TRADE LAWS
(On Behalf of Plaintiff and the Tennessee Indirect Purchaser Class)
146.
Plaintiff incorporates and realleges, as though fully set forth herein, each of the
paragraphs set forth above.
147.
Defendants’ combinations or conspiracies had the following effects: (1) Lithium
Ion Rechargeable Batteries price competition was restrained throughout Tennessee; (2) Lithium
Ion Rechargeable Batteries prices were fixed at artificially high levels throughout Tennessee; (3)
Tennessee Plaintiff and members of the Class were deprived of free and open competition; and
(4) Tennessee Plaintiff and members of the Tennessee Indirect Purchaser Class paid
supracompetitive, artificially inflated prices for Lithium Ion Rechargeable Batteries.
148.
During the Class Period, Defendants’ illegal conduct had a substantial effect on
Tennessee commerce as products containing Lithium Ion Rechargeable Batteries were sold in
Tennessee.
149.
As a direct and proximate result of Defendants’ unlawful conduct, Tennessee
Plaintiff and members of the Tennessee Indirect Purchaser Class have been injured in their
business and property and are threatened with further injury.
150.
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of Tennessee Code Ann. §§47-25-101, et seq. Accordingly, Tennessee
Plaintiff and all members of the Tennessee Indirect Purchaser Class seek all relief available
under Tennessee Code Ann. §§47-25-101, et seq.
THIRD COUNT
UNJUST ENRICHMENT
(On Behalf of Plaintiff and the Tennessee Indirect Purchaser Class)
151.
Plaintiff incorporates and realleges, as though fully set forth herein, each of the
paragraphs set forth above.
152.
To the detriment of Plaintiff and Class Members, Defendants have been and
continue to be unjustly enriched as a result of the unlawful and/or wrongful conduct alleged
herein. Defendants have unjustly benefited by receiving higher prices for Lithium Ion
Rechargeable Batteries, which higher prices were passed along to consumers, and would
otherwise not have been possible absent the unlawful and/or wrongful conduct.
153.
Between the parties and under Tennessee law, it would be unjust for Defendants
to retain the benefits attained by their actions. Accordingly, Plaintiff and Class Members seek
full restitution of Defendants’ enrichment, benefits and ill-gotten gains acquired as a result of the
unlawful and/or wrongful conduct alleged herein on behalf of the Tennessee Indirect Purchaser
WHEREFORE, Plaintiff and Class members pray for relief as set forth below:
A.
Certification of the action as a class action pursuant to Federal Rule of Civil
Procedure 23, and appointment of Plaintiff as Class Representative and his counsel of record as
Class Counsel;
B.
A declaration that Defendants’ conduct constituted an unlawful restraint of trade
in violation of the federal and state law alleged herein and that Defendants are liable for the
conduct or damage inflicted by any other co-conspirator.
C.
Restitution and/or damages to members of the Tennessee Indirect Purchaser Class
for their purchases of Lithium Ion Rechargeable Batteries and Lithium Ion Rechargeable Battery
Products at inflated prices;
D.
Actual damages, statutory damages, punitive or treble damages, and such other
relief as provided by the statutes cited herein;
E.
Pre-judgment and post-judgment interest on such monetary relief;
F.
Equitable relief in the form of restitution and/or disgorgement of all unlawful or
illegal profits received by Defendants as a result of the anticompetitive conduct alleged herein;
G.
The costs of bringing this suit, including reasonable attorneys’ fees; and
H.
All other relief to which Plaintiff and Class members may be entitled at law or in
CARELLA, BYRNE, CECCHI,
OLSTEIN BRODY & AGNELLO
Attorneys for Plaintiff and the Proposed Classes
By /s/ James E. Cecchi
JAMES E. CECCHI
Dated: October 17, 2012
Christopher M. Burke
Walter W. Noss
John T. Jasnoch
SCOTT+SCOTT LLP
707 Broadway, Suite 1000
San Diego, CA 92101
(619) 233-4565
Joseph P. Guglielmo
SCOTT+SCOTT LLP
The Chrysler Building
405 Lexington Ave., 40th Floor
New York, NY 10174
(212) 223-6444
J. Gerard Stranch IV
BRANSTETTER, STRANCH & JENNINGS
227 Second Avenue North – 4th Floor
Nashville, TN 37201
(615) 254-8801
Counsel for Plaintiff and the Proposed Classes
DEMAND FOR JURY TRIAL
Plaintiff, on behalf of himself and all others similarly situated, hereby requests a jury trial
on any and all claims so triable.
CARELLA, BYRNE, CECCHI,
OLSTEIN BRODY & AGNELLO
Attorneys for Plaintiff and the Proposed Classes
By /s/ James E. Cecchi
JAMES E. CECCHI
Dated: October 17, 2012
Christopher M. Burke
Walter W. Noss
John T. Jasnoch
SCOTT+SCOTT LLP
707 Broadway, Suite 1000
San Diego, CA 92101
(619) 233-4565
Joseph P. Guglielmo
SCOTT+SCOTT LLP
The Chrysler Building
405 Lexington Ave., 40th Floor
New York, NY 10174
(212) 223-6444
J. Gerard Stranch IV
BRANSTETTER, STRANCH & JENNINGS
227 Second Avenue North – 4th Floor
Nashville, TN 37201
(615) 254-8801
Counsel for Plaintiff and the Proposed Classes
| antitrust |
hGlYrIkBzZV2kahMDVqV | UNITED STATES DISTRICT COURT
DISTRICT OF NEW MEXICO
Civ. Action No. 1:22-CV-00325
CLASS ACTION COMPLAINT
JURY DEMANDED
M.G., a minor and through her mother
Christina Garcia; A.C., a minor, by and through
her mother Alicia Cortez.; C.V., a minor, by and
through his father Jeremy Vaughan.; and
Disability Rights New Mexico, Inc.
Plaintiffs,
v.
DAVID SCRASE, in his official capacity
as Secretary for the Human Services Department;
State of New Mexico HUMAN SERVICES
DEPARTMENT; PRESBYTERIAN HEALTH
PLAN, INC.; HCSC INSURANCE SERVICES
COMPANY operating as Blue Cross and Blue
Shield of New Mexico; and WESTERN SKY
COMMUNITY CARE, INC.
Defendants.
1
INTRODUCTION
1. Plaintiffs are medically fragile children who are eligible to receive medically necessary
private-duty nursing care from three managed care organizations: Defendants Western Sky
Community Care, Inc. Blue Cross and Blue Shield of New Mexico, and Presbyterian Health
Plan. These children receive nursing care through the State’s taxpayer funded Medicaid
Managed Care program. Defendants Human Services Department and Secretary David Scrase
administer the Medicaid Managed Care program, known as Centennial Care 2.0. Western Sky,
Blue Cross, and Presbyterian receive a “capitated payment” from taxpayers to oversee Plaintiffs’
nursing care. When there are many children enrolled in the program but the nursing services are
not provided, Western Sky, Blue Cross, and Presbyterian, keep the capitated payment profits,
resulting in a windfall. When eligible children do receive medically necessary private-duty
nursing care, these same managed care organizations experience a loss of profits. Contrary to
their contracts with the State and applicable law, Western Sky, Blue Cross, and Presbyterian
have declined or refused to provide medically necessary nursing services, in the hours allotted, to
eligible children. These managed care organizations have therefore reaped profits they have not
earned. The New Mexico Human Services Department and Secretary Scrase have failed to
enforce the State’s contracts with the managed care organizations. As the intended beneficiaries
of these State contracts, Plaintiffs therefore bring suit through their parents, on behalf of
themselves and a class of similarly situated children throughout the State, seeking to enforce the
State’s contracts and for nominal and punitive damages.
2. This action, brought by medically-fragile children under the age of 21 in the state of
New Mexico who are Centennial Care 2.0 eligible, and by a non-profit Protection and Advocacy
organization, seeks nominal damages, punitive damages, declaratory relief, and injunctive relief
2
against Defendants Western Sky Community Care Inc., Blue Cross and Blue Shield of New
Mexico, Presbyterian Health Plan Inc., New Mexico’s Human Services Department and its
Secretary David Scrase. This action seeks to remedy the Defendants’ failure to provide medically
necessary private-duty nursing care (in-home nursing care) to children who require it, and to
enjoin Defendants to provide this care to Plaintiffs and other Medicaid-eligible children like
them, as required by law.
3. Defendants HSD and Secretary David Scrase are responsible for administering the
state’s federally and state-funded Medicaid Managed Care program, known as Centennial Care
2.0, a health insurance program to arrange for base medical services to those with income-
maintenance needs and other met eligibility criteria. For the delivery of services under
Centennial Care 2.0, Defendant HSD and Secretary Scrase enter into risk contracts with
Managed Care Organizations (MCOs), whereby the MCOs must provide the medically necessary
covered services in exchange for a monthly fixed payment by HSD on behalf of each Centennial
Care 2.0 enrollee to the MCO’s network of care— a capitated payment. While the MCO may
receive a capitated payment for a member with little to no cost to the MCO when a member does
not utilize or require medical services, where members are in need, the risk of the contract falls
on the MCO which must bear the cost of providing services. Accordingly, when MCO
membership is high and utilization is low, the MCO retains the capitated payment profits. For
instance, in 2020, MCOs saw an increase in Medicaid enrollees. At the same time, the state saw
a decrease in Centennial Care 2.0 enrollee’s utilization of services: HSD payments to MCOs
3
increased while MCOs spent less to cover medical costs of members.1Yet, this lawsuit
demonstrates the immense inequity of when an MCO receives capitated payments from HSD,
but artificially lowers its costs by simply not delivering promised services to vulnerable children
who, through no fault of their own, require medically necessary services to meet their undisputed
needs—deflecting the risk the MCO contractually agreed to bear onto its beneficiaries.
Meanwhile, Defendant HSD and Secretary Scrase failed to account for and take remedial action,
as the department ultimately responsible for the administration of the state’s Medicaid program,
and its compliance with federal and state laws.
4. Defendant Western Sky Community Care Inc. (Western Sky), is one of three MCOs
HSD has contracted with to provide services to Medicaid members of Centennial Care 2.0.
Plaintiff M.G. is a Centennial Care 2.0 enrollee as a child under the age of 21, participating in
Defendant Western Sky’s managed care plan. Plaintiff M.G has a life-threatening chronic
condition and is dependent on skilled nursing care in home, without which she could not take
care of herself. Plaintiff M.G. has met eligibility requirements for private duty nursing services
and a number of needed hours agreed upon by Defendant Western Sky.
5. Defendant Blue Cross Blue Shield of New Mexico (BCBSNM), is an MCO that HSD
has contracted with to provide services to Medicaid members of Centennial Care 2.0. Plaintiff
A.C. is a Centennial Care 2.0 enrollee as a child under the age of 21, participating in Defendant
BCBSNM’s managed care plan. Plaintiff A.C. has a life-threatening chronic condition and is
dependent on skilled nursing care in home, without which she could not take care of herself.
1 2020 Medicaid Accountability Report, presented to the New Mexico Legislative Finance Committee,
April 2021, at Page 2, available at
https://www.nmlegis.gov/Entity/LFC/Documents/Program_Evaluation_Reports/2020%20Medicaid%20Accountabil
ity%20Report.pdf.
4
Plaintiff A.C. has met eligibility requirements for private duty nursing services and a number of
needed hours agreed upon by Defendant BCBSNM.
6. Defendant Presbyterian Health Plan Inc. (Presbyterian), is an MCO that HSD has
contracted with to provide services to Medicaid members of Centennial Care 2.0. Plaintiff C.V.
is a Centennial Care 2.0 enrollee as a child under the age of 21, participating in Defendant
Presbyterian’s managed care plan. Plaintiff C.V. has a life-threatening chronic condition and is
dependent on skilled nursing care in home, without which he could not take care of himself.
Plaintiff C.V. has met eligibility requirements for private duty nursing services and a number of
needed hours agreed upon by Defendant Presbyterian.
7. Defendants HSD and Secretary Scrase, through Defendants Western Sky, BCBSNM,
and Presbyterian, are responsible, under federal law, for ensuring that Plaintiffs and others like
them receive all medically necessary care in the most integrated setting appropriate to their
needs. Additionally, the federal Medicaid Act requires that Defendant HSD “arrang[e] for
(directly or through referral to appropriate agencies, organizations, or individuals) corrective
treatment” explicitly including private-duty nursing services for Medicaid enrollees under the
age of 21. 42 U.S.C. §§ 1396a(a)(43)(C), 1396d(r); 1396d(a)(8).
8. By failing to ensure medically necessary private-duty nursing hours are satisfied,
Defendants have exposed Plaintiffs to the unnecessary isolation and to the risk of
institutionalization or hospitalization—in violation of the Americans with Disabilities Act, 42
U.S.C. § 12132, Section 504 of the federal Rehabilitation Act, 29 U.S.C. § 794(a), and Section
1557of the Patient Protection and Affordable Care Act, 42 U.S.C. § 18116.
5
9. There have been others like Plaintiffs who were left without medically necessary
private- duty nursing hours for months at a time, only to later have been provided adequate hours
after damage had been done.
10. The state contracts between Defendant HSD and the MCOs governing the delivery of
Medicaid managed care services each unlawfully and unconscionably disclaim the rights of
Medicaid beneficiaries to enforce the terms of the contract, and assign the risk of economic loss
where it is due. Accordingly, the contract strips beneficiaries from immediate judicial recourse
and wrongly shields Defendants from liability. In effect, for children and families like Plaintiffs,
the promise of the MCO to deliver critical services and for HSD to hold them accountable is all
smoke and mirrors in times of need.
11. This lawsuit asks the Court to declare, as a matter of law, that third-party
beneficiaries to the state Medicaid managed care agreements have enforceability rights; to
enforce the contract requiring the provision of medically necessary services following the failure
of Defendants Western Sky, BCBSNM, and Presbyterian to meet their contractual obligations to
provide such services; and to award nominal and punitive damages against Defendants Western
Sky, BCBSNM, and Presbyterian.
12. Additionally, this lawsuit asks the Court to order Defendants HSD and Secretary
Scrase to take action necessary to ensure medically necessary private duty nursing hours are
secured to beneficiaries now and in the future, in accordance with federal law.
PARTIES
A. Plaintiffs
i. Plaintiff M.G.
6
13. Plaintiff M.G. is three-year-old and is a Centennial Care 2.0 beneficiary. She
has been diagnosed with a chronic and life threatening medical condition. Because of her
medical needs, a Comprehensive Needs Assessment and Level of Care determination,
conducted through University of New Mexico Center for Development and Disability,
determined that she requires approximately 84 hours per week, of home healthcare
including in-home nursing (private duty nursing) and personal care services. Currently,
M.G. only has access to 79 hours per week of in-home nursing. She currently resides in Rio
Rancho, New Mexico, at home with her mother. Pursuant to Fed. R. Civ. P. 17(c), M.G.
brings this action through her mother.
ii. Plaintiff A.C.
14. Plaintiff A.C. is a nine-year-old and is a Centennial Care 2.0 beneficiary
through BCBSNM’s managed care plan. She has been diagnosed with a chronic and life
threatening medical condition. Because of her medical needs, a Comprehensive Needs
Assessment and Level of Care determination, conducted through University of New
Mexico Center for Development and Disability, determined that she requires 40 hours of
in-home healthcare including private duty nursing services per week or approximately 160
hours per month. Currently, she is receiving no private duty nursing services. Plaintiff A.C.
resides in Albuquerque, New Mexico, at home with her mother and father. Pursuant to Fed.
R. Civ. P. 17(c), A.C. brings this action through her mother.
iii. Plaintiff C.V.
15. Plaintiff C.V. is a three-year-old and is a Centennial Care 2.0 beneficiary
though Presbyterian’s managed care plan. He has been diagnosed with a chronic and life
7
threatening medical condition. Because of his medical needs, a Comprehensive Needs
Assessment and Level of Care determination, conducted through University of New
Mexico Center for Development and Disability Pediatrics, determined that he requires 173
hours per month of in-home private duty nursing care. Currently, C.V. is only provided
access to 19 hours per week (approximately 76 hours per month) of private duty nursing.
He currently resides in Sandia Park, New Mexico, at home with his mother and father.
Pursuant to Fed. R. Civ. P. 17(c), C.V. brings this action through his father.
iv. Disability Rights New Mexico, Inc. (“DRNM”)
16. DRNM is the agency designated by the state of New Mexico as the state’s Protection
and Advocacy organization, authorized by federal statues to pursue legal remedies on behalf of
persons with disabilities. See Developmental Disabilities Assistance and Bill of Rights Act (the
DD Act), 42 U.S.C. §§ 15001 et seq. (2000); the Protection and Advocacy of Individual Rights
(the PAIR Act), 29 U.S.C. § 794e (1994); the Protection and Advocacy for Mentally Ill
Individuals Act (the PAMII Act), 42 U.S.C. §§ 10801 et seq. (1997).
17. DRNM has associational standing to assert the legal rights on behalf of all
Centennial Care 2.0 beneficiaries under the age of 21 in New Mexico who have been approved
for private duty nursing services by Defendants, but are not receiving the nursing services at the
level approved by Defendants.
18. Respecting the causes of action stated in this Complaint, such constituents of DRNM
have standing to sue in their own right.
19. The interests of access to medically necessary services and to be free from
discrimination on the basis of disability are germane to DRNM’s purpose.
8
20. Neither the claim asserted nor the relief requested herein requires the participation of
individual members during the course of this lawsuit.
B. Defendants
i. HSD Defendants
21. Defendant David Scrase is Secretary of the New Mexico Human Services
Department. As such, “[i]t is his duty to manage all operations of the department,” “enforce
the laws with which he or the department is charged,” and exercise “general supervisory
and appointing authority over all department employees.” NMSA 1978, §§ 9-8-6(A), 9-8-
6(B)(1). The Medical Assistance Division of HSD administers New Mexico’s Medicaid
program. 42 U.S.C. § 1396a(a)(5); 42 C.F.R. § 431.10 (2013); NMSA 1978, §§ 9-8-12, 27-
2-16. HSD has its principal place of business in Santa Fe, New Mexico.
22. At all times hereto, Defendant David Scrase was acting under color of state
23. Defendant New Mexico Human Services Department (“HSD”) is the single
state agency responsible for administering New Mexico’s Medicaid program, called
“Centennial Care 2.0.”
ii. Defendants MCOs
24. Defendant Western Sky Community Care, Inc. (“Western Sky”) is a New
Mexico corporation. Its principal place of business is located at 5300 Homestead Rd NE,
Albuquerque, New Mexico 87110.
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25. Defendant Presbyterian Health Plan, Inc. (“Presbyterian”) is a New Mexico
corporation. Its principal place of business is located at 9521 San Mateo Boulevard
Northeast, Albuquerque, New Mexico 87113.
26. Defendant HCSC Insurance Services Company (“HCSC”) is a New Mexico
corporation which does business as Blue Cross & Blue Shield of New Mexico
(“BCBSNM”). Its principal place of business is located at 5701 Balloon Fiesta Parkway,
Albuquerque, New Mexico 87113.
JURISDICTION AND VENUE
27. Jurisdiction is based on 28 U.S.C. §§ 1331 and 1343 for a violation of 42 U.S.C. §
1983, Title II of the ADA, Section 504, and the Patient Protection and Affordable Care Act §
1557, 42 U.S.C. § 18116 (2012) (“Section 1557”).
28. This Court has supplemental jurisdiction over the subject matter of the breach of
contract claims brought under state laws pursuant to 28 U.S.C. § 1367 because the claims are so
related to the claims within this Court's original jurisdiction that they form part of the same case
or controversy under Article III of the United States Constitution.
29. This Court has personal jurisdiction over Defendants because the individual
defendants are domiciled in this district and because Defendants’ acts and omissions took place
within this district.
30. Venue is proper in the District of New Mexico pursuant to 28 U.S.C. § 1391(b)
because Defendants operate and perform their official duties therein and thus reside therein for
purposes of venue, and because a substantial part of the events and omissions giving rise to the
claims herein occur in counties that are part of the District of New Mexico.
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31. This action seeks injunctive relief pursuant to Fed. R. Civ. P. 65, declaratory relief
pursuant to Fed. R. Civ. P. 57 and 28 U.S.C. § 2201, and nominal and punitive damages pursuant
to § 59A-57-9(D) &(E) NMSA.
CLASS ALLEGATIONS
32. Plaintiffs bring this action as a statewide class action pursuant to Fed. R. Civ. P.
23(a), (b)(2) and (b)(3) on behalf of:
All Centennial Care 2.0 beneficiaries under the age of 21 in New Mexico who have
been approved for private duty nursing services by Defendants, but are not
receiving the nursing services at the level approved by Defendants.
33. Plaintiffs seek class certification pursuant to Fed. R. Civ. P. 23(b)(3) for the
causes of action pursuing both nominal and punitive damages—the Second, Third, and
Fourth Causes of Action of the Complaint.
34. Plaintiffs seek class certification pursuant to Fed. R. Civ. P. 23(b)(2) for the
remaining causes of action pursuing declaratory and injunctive relief—the First, Fifth,
Sixth, Seventh, Eighth, and Ninth Causes of Action of this Complaint.
35. There exist questions of law and/or fact common to the Plaintiff Class that
predominate over any individual question. Common questions of fact and law include,
without limitation:
(i)
Whether Plaintiffs and class members have third-party beneficiary standing
to enforce the contract between Defendants MCOs and Defendant HSD;
(ii)
Whether Defendants MCOs are in breach of contract for the failure to
deliver medically necessary and approved private duty nursing services to
Plaintiffs and class members;
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(iii)
Whether Defendants MCOs’ breach of contract was done intentionally and
willfully, done with knowledge of and utter indifference to its harmful
consequences, and done with disregard for the rights of Plaintiffs and Class
members;
(iv)
Whether Defendants David Scrase and HSD have a contractual duty to
demand that Defendants MCOs cure their breach;
(v)
Whether HSD Defendants have violated the ADA and/or Rehabilitation Act
by failing to arrange for Medicaid-covered, medically necessary private duty
nursing services thereby placing them at risk of unnecessary
institutionalization;
(vi)
Whether Defendant Scrase violated Section 1557of the Patient Protection
and Affordable Care Act for failing to take necessary action to arrange for
medically necessary private duty nursing services for Plaintiffs; and
(vii)
Whether HSD Defendants have failed to “arrange for (directly or through
referral to appropriate agencies, organizations, or individuals) corrective
treatment [private duty nursing services]” to Plaintiffs and Class members as
mandated by the EPSDT provisions of the Medicaid Act pursuant to 42
U.S.C. §§ 1396a(a)(10)(A), 1396d(a)(4)(B), and 1396a(a)(43)(C).
36. The Class members are so numerous that joinder of all members is
impracticable. Upon information and belief, there are at least fifty-three (53) children who
are eligible for in-home nursing through Centennial Care 2.0, yet are unable to access all
12
the in-home nursing services they are approved to receive.2Upon information and belief the
class size is in excess of fifty-three (53) members to include unreported denials of services
and such members who may in the future be denied access to approved in-home nursing
services. A current class size will be determined after the plaintiffs have had an opportunity
to conduct discovery.
37. The claims of all named individual Plaintiffs are typical of the claims of
members of the Class. Plaintiffs and class members are Centennial Care 2.0 beneficiaries
who not receiving medically necessary private-duty nursing hours at the level needed to
correct or ameliorate their conditions.
38. Plaintiffs are adequate to represent the Class because they are the deprived of
the same federal rights and state contractual rights, of which they seek to enforce on behalf
other Class members.
39. Plaintiffs are committed to successfully prosecuting the claims made in this
complaint and understand their responsibility to represent both their personal interests and the
interests of other class members.
40. Plaintiffs are represented by experienced counsel who will adequately represent the
interests of the Class.
41. Plaintiffs and Next Friends will fairly and adequately protect the interests of the
2See Anthony Cahill, Ph.D. & Heidi Fredine, MPH, A Report on the 2021 Needs Assessment of Parents
Served by the Medically Fragile Case Management Program at the Center for Development and Disability (July,
2021) (University of New Mexico Center for Development and Disability).
13
42. Plaintiffs’ interests in the relief sought in this Complaint are consistent with and not
antagonistic to those of any person within the Class.
43. Because the claims of the proposed class members are identical, the questions of law
and fact common to all members of the proposed class predominate over any questions affecting
only individual members.
44. As all class members have claims identical to Plaintiffs’, the interest of class
members in individually controlling the prosecution or defense of separate actions is slight.
45. Plaintiffs are not aware of any other similar claims pending by members of the
proposed class in any forum.
46. Plaintiffs are unaware of class members who want to individually prosecute their
47. Class members interested in individually litigating their claims would most likely
have already initiated litigation.
48. If all similarly situated children prosecuted separate actions, there would be a risk of
inconsistent or varying adjudications with respect to individuals that would establish
incompatible standards of conduct for Defendants; and Defendants have acted or refused to act
on grounds that apply generally to numerous similarly situated children. Therefore, nominal
damages, punitive damages, and final injunctive relief with corresponding declaratory relief are
appropriate respecting all such children.
49. A class action is superior to other available methods for fairly and efficiently
adjudicating the controversy because the questions of law or fact common to similarly situated
children predominate over any questions affecting them individually. A multiplicity of suits with
consequent burden on the courts and Defendants should be avoided. It would be virtually
14
impossible or impracticable for all Class members to intervene as parties-plaintiffs in this action,
and there are no other realistic alternatives to adjudicate the class action claims for breaches of
contract seeking nominal and punitive damages;
50. It is desirable to concentrate this litigation in this forum because Plaintiffs are able to
demonstrate personal jurisdiction in this forum and aggregate their claims in this forum, and
Plaintiffs’ claims arose within relative close proximity to Albuquerque, New Mexico, which is
geographically convenient to parties, witnesses, and class counsel.
51. There are no unusual difficulties likely to be encountered in the management of this
litigation as a class action.
52. This case is particularly suitable for adjudication as a class action.
53. Notice to the Class may be accomplished inexpensively, efficiently and in a manner best
designed to protect the due process rights of all Class members by means of written notices
supplied through Defendants’ system of communication with current and past customers as
Defendants maintain databases of their previous customers and their then reported addresses.
Plaintiffs will also institute an internet-based notice system directly accessible through their
counsel’s website: www.drnm.org.
54. Pursuant to Fed. R. Civ. P. 23(c)(5), Plaintiffs propose a class composed of three
subclasses as follows:
55. Subclass 1— All Centennial Care 2.0 beneficiaries under the age of 21 in New Mexico
who receive managed care through Defendant BCBSNM, have been approved for private duty
nursing services by Defendant BCBSNM, but are not receiving the nursing services at the level
approved.
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56. Subclass 2— All Centennial Care 2.0 beneficiaries under the age of 21 in New
Mexico who receive managed care through Defendant Presbyterian, have been approved for
private duty nursing services by Defendant Presbyterian, but are not receiving the nursing
services at the level approved.
57. Subclass 3— All Centennial Care 2.0 beneficiaries under the age of 21 in New
Mexico who receive managed care through Defendant Western Sky, have been approved for
private duty nursing services by Defendant Western Sky, but are not receiving the nursing
services at the level approved.
BACKGROUND
A. The Medicaid Act and EPSDT
58. The Medicaid Act, Title XIX of the Social Security Act, 42 U.S.C. §§ 1396- 1396w-
5, institutes a medical assistance program available to participating states on a voluntary basis.
Once a state elects to participate, it must follow program requirements mandated by the federal
government.
59. The purpose of the Medicaid program is to ensure that persons with limited income or
specific qualifying conditions receive necessary medical services. This medical assistance
program is funded by both the federal and state government. 42 U.S.C. § 1396a.
60. States that choose to participate must administer Medicaid “in the best interests of
recipients.” 42 U.S.C. § 1396a(a)(19).
61. New Mexico has elected to participate in the Medicaid program.
62. Defendant New Mexico Human Services Department (“HSD”) has been designated
as the “single state agency” directly responsible for the administration and supervision of New
Mexico’s Medicaid program under Title XIX of the Social Security Act 42 U.S.C. § 1396 (a)(5).
16
63. The Medicaid Act, Title XIX of the Social Security Act, requires “early and periodic
screening, diagnostic, and treatment services,” sometimes referenced as “EPSDT,” for
individuals under the age of 21. 42 U.S.C. § 1396d(a)(4)(B).
64. Under EPSDT, the designated state agency responsible for administering its
Medicaid program must “arrang[e] for (directly or through referral to appropriate agencies,
organizations, or individuals) corrective treatment” for EPSDT covered individuals, including
medically necessary private duty nursing services. 42 U.S.C. §§ 1396a(a)(43)(C), 1396d(r).
65. Accordingly, oversight of the administration and supervision of the state’s Medicaid
program’s compliance with the EPSDT mandate of the Social Security Act, 42 U.S.C. §§ 1396-
1396w-5 rests with HSD, under the leadership of Defendant Secretary David Scrase. 42 U.S.C. §
1396a(a)(5); 42 C.F.R. § 431.10 (2013); NMSA 1978, §§ 9-8-12, 27-2-16 NMSA 1978, §§ 9-8-
6(A), 9-8-6(B)(1).
66. The state of New Mexico operates its Medicaid program through a managed care
system known as Centennial Care 2.0 through which the delivery of services is managed by three
Managed Care Organizations (“MCOs”): Blue Cross and Blue Shield of New Mexico,
Presbyterian Inc., and Defendant Western Sky Community Care Inc. see 42 U.S.C. § 1396b(m).
B. Service delivery and HCBS Waivers
67. In 1981, Congress authorized the Home and Community Based Services ("HCBS")
waiver system, due to the disproportionate percentage of Medicaid resources being used for
long-term institutional care. The HCBS waiver system permits states to disregard certain
Medicaid requirements to offer varied medically appropriate value added services to the state’s
Medicaid beneficiaries.
17
68. States may apply for HCBS “waivers” to provide services, including in-home nursing
services, to individuals who would otherwise be eligible for placement in an institution,
including nursing homes and hospitals. See 42 U.S.C. § 1396n(c)(1).
69. Under the HCBS waivers, Medicaid-eligible individuals who are entitled to receive
residential care in a Medicaid-funded Intermediate Care Facility for persons with Mental
Retardation (“ICF/MR”), instead, receive their services outside of an ICF/MR, so long as the
aggregate cost of the community-based program is no greater than the aggregate cost of serving
the same people in institutional settings. 42 CFR § 440.150.
70. The state of New Mexico’s HCBS waiver includes services delivery models under
three distinct programs: Mi Via Waiver, Medically Fragile Waiver, and the Developmental
Disabilities Waiver.
71. Under New Mexico’s HCBS waiver, EPSDT requirements are not waived, and
waiver program services are supplementary to EPSDT benefits for Centennial Care 2.0 eligible
beneficiaries.
72. Irrespective of the service delivery model utilized or HCBS waiver participation,
HSD is responsible for ensuring medically necessary services, including EPSDT services, are
provided in accordance with approved plans of treatment. 42 U.S.C. § 1396a(a)(5).
C. ADA, Section 504 of Rehabilitation Act, and Section 1557 of the ACA
73. The Americans with Disabilities Act (ADA) and Section 504 of the Rehabilitation
Act (Section 504) protect qualified individuals with disabilities from discrimination.
74. Under Title II of the ADA, “no qualified individual with a disability shall, by reason
of such disability, be excluded from participation in, or be denied the benefits of the services,
18
programs, or activities of a public entity, or subjected to discrimination by any such entity.” 42
U.S.C. § 12132.
75. Similar to the ADA, Section 504 applies the same anti-discrimination principles to
programs or activities receiving federal funds. See Section 504, 29 U.S.C. §§ 794-794a.
76. Further, Section 1557 of the Affordable Care Act incorporates the same prohibition
from Section 504 as applied to “any health program or activity, any part of which is receiving
Federal financial assistance[.]”42 U.S.C. § 18116. This includes discrimination by a state
Medicaid agency, such as HSD.
77. The ADA recognizes that “[i]ndividuals with disabilities continually encounter
various forms of discrimination, including . . . segregation...” 42 U.S.C. § 12101(a)(5).
78. What has become known as the ADA’s “integration mandate,” is spelled out in
federal regulations implementing Title II of the ADA, requiring that “[a] public entity []
administer services, programs, and activities in the most integrated setting appropriate to the
needs of qualified individuals with disabilities.”28 C.F.R. § 35.130(d).
79. Interpreting the integration mandate, the United States Supreme Court in Olmstead v.
L.C. ex rel. Zimring, 527 U.S. 581 (1999) ruled that the unnecessary segregation of qualified
individuals with disability constitutes a violation of the discrimination prohibition of the ADA.
Unambiguously, the Court held:
States are required to provide community-based treatment for persons with mental
disabilities when the State's treatment professionals determine that such
placement is appropriate, the affected persons do not oppose such treatment, and
the placement can be reasonably accommodated, taking into account the resources
available to the State and the needs of others with mental disabilities.
Olmstead v. L.C. ex rel. Zimring, 527 U.S. 581, 607 (1999).
19
80. Compliance with the integration mandate requires that “[a] public entity shall make
reasonable modifications in policies, practices, or procedures when the modifications are
necessary to avoid discrimination on the basis of disability, unless the public entity can
demonstrate that making the modifications would fundamentally alter the nature of the service,
program, or activity.” See 28 C.F.R. § 35.130(b)(7).
D. New Mexico Managed Care Services Agreement
81. The New Mexico state legislature requires that “[HSD] shall provide for a statewide,
managed care system to provide cost-efficient, preventive, primary and acute care for medicaid
recipients[.]” NMSA 1978 § 27-2-12.6 (emphasis added).To effectuate this mandate, Defendant
David Scrase and Defendant HSD entered into a “risk contract” with Defendants Western Sky,
BCBSNM, and Presbyterian. This risk-based system was explained succinctly in the Starko, Inc.
v. New Mexico Human Services Dept:
The managed care system is a risk-based system, meaning an MCO bears
the risk of loss if the State's fee does not cover all the costs for the healthcare that
the Medicaid program requires MCOs to provide to individuals. In part, states
moved to the new model to get away from the fixed rate imposed by the fee-for-
services model, in an attempt to scale back the costs to states associated with the
Medicaid program.
Starko, 2014-NMSC-033, ¶ 23.
82. Under this system, HSD entered into three identical Medicaid Managed Care
Services Agreements with three distinct MCOs: Blue Cross and Blue Shield of New Mexico;
Presbyterian Health Plan, Inc.; and Western Sky Community Care, Inc.
83. All three contracts are effective for the term of January 19,2018 through
December,31, 2022.
20
84. At various times the contracts were amended and restated until most recently having
been amended and restated for the term of December 27, 202 through December 31, 2023.
85. At all times material hereto, the provisions of these contracts at issue and cited herein
were and are in effect and were not amended at any time prior to the filing of this Complaint.
86. Through these contracts, HSD delegated certain aspects of implementation of the
state’s Medicaid program, including the obligation to provide EPSDT services. See
e.g.,4.5.2.1.4-5, Defendant Western Sky Medicaid Managed Care Services Agreement.
Accordingly, the MCO receives a capitated payment for members in exchange for the promise to
deliver services delegated to it through the contract, such as EPSDT services. However, HSD
remains the single state agency responsible for the supervision of the MCOs compliance with
federal law. See 42 U.S.C. § 1396a(a)(5); see also 42 C.F.R. § 431.10. HSD is ultimately
responsible to “make available a variety of individual and group providers qualified and willing
to provide EPSDT services.” 42 C.F.R. § 441.61(b).
E. Capacity to Provide In-Home Nursing Services
Defendant BCBSNM
87. Defendant BCBSNM is, a division of Health Care Service Corporation (“HCSC”), a
Mutual Legal Reserve Company, an Independent Licensee of the Blue Cross and Blue Shield
Association.
88. In 2019 HCSC had $2,186,256,000.00 in net income. Best’s Credit Report, Health
Care Service Corporation Group (March 24, 2021) p.10, available
at https://www.hcsc.com/pdf/am-best-ratings-report-2021.pdf (last visited April 21, 2022).
21
89. On its website, HCSC reports a total revenue of $50.2 billion in 2021. HCSC, Who
We Are, HCSC by the Numbers (December 31,2021),available at https://www.hcsc.com/who-
we-are/statistics (last visited April 21, 2022).
Defendant Presbyterian
90. Defendant Presbyterian reported $60,176,195.00 in net income for 2019. See
Insurance Department of the State of New Mexico, Quarterly Statement of the Presbyterian
Health Plan Inc., (June 30, 2020) p.4, available at https://www.osi.state.nm.us/wp-
content/uploads/2021/01/Presbyterian-Health-Plan-Inc..pdf (last visited April 21,2022).
91. In its Quarterly Statement as of June 30,2020, Defendant Presbyterian reported
$77,776,492.00 in net income. Id.
92. Presbyterian Healthcare Services is a New Mexico nonprofit corporation exempt
from income taxes under Section 501(c)(3) of the Internal Revenue Code (the Code). One of its
affiliates is Presbyterian Network, Inc. which is the parent organization of its wholly-owned
subsidiary, Defendant Presbyterian Health Plan, Inc. Ernst & Young LLP, Combined Financial
Statements, Supplementary Information, and Reports on Federal Award Programs, Presbyterian
Healthcare Services and Affiliates Years Ended December 31, 2020 and 2019 With Reports of
Independent Auditors, p.7 (2021).
93. In 2019, Presbyterian Health Services had $312,050,000 in excess of revenues over
its expenses, and $240,321,000 in 2020. Id. at p.4.
Defendant Western Sky
94. In 2020, Defendant Western Sky Reported $10,908,268 in net income, with
$51,312,203 in surplus. See Insurance Department of the State of New Mexico, Quarterly
Statement of the Western Sky Community Care Inc.,(March 31,2021) p.4 , available at
22
https://www.osi.state.nm.us/wp-content/uploads/2021/06/Western-Sky-Community-Care-
Inc..pdf (last visited April 21,2021).
95. In 2021, Defendant Western Sky reported $7,698,003 in net income, with
$59,021,105 in surplus. Id. at p.3 and 4.
96. In 2020, Defendant Western Sky’s parent company, Centene Corp., reported $5.5
billion in operating cash flow from $111.1 billion in total revenue. Centene Corporation, 2020
Annual Review, p.1 available at
https://investors.centene.com/_assets/_b69c7d8b8deb55d6922ca8126c828ac3/centene/db/1259/1
0936/annual_report/Centene-2020-Annual-Review_508.pdf (last visited April 21, 2021).
97. Centene Corp. makes the claim: “As the largest Medicaid managed care organization
in the country, Centene supports many of our nation’s most vulnerable citizens.” Id. at p. 16.
98. Although Defendant MCOs bear the risk of financial loss in their Medicaid managed
care contracts with Defendant HSD, the above reflects their immense capacity to support New
Mexico’s medically-fragile children who are Medicaid recipients in need of in-home nursing. It
also reflects their capacity to financially incentivize—to whatever extent needed—the hiring of
local, traveling, or international nurses. Yet Defendants MCOs failed to do so.
99. At the same time, Defendant HSD and Defendant Scrase failed to enforce its
Medicaid managed care contracts with Defendants MCOs upon their failure to provide the
nursing services of which they had agreed to provide.
23
PLAINTIFF FACTS
DRNM
100. Organizational Plaintiff, DRNM, is authorized by law to represent and/or advocate
on behalf of medically fragile Centennial Care 2.0 EPSDT beneficiaries who are not provided
medically necessary private duty nursing services.
Plaintiff A.C.
101. Plaintiff A.C. is a nine-year-old girl diagnosed with Rett Syndrome, epilepsy, and
global developmental delays. She resides at home with her parents and two other siblings, in
Albuquerque, New Mexico.
102. A.C. is a Medically Fragile Waiver participant and Centennial Care 2.0 beneficiary
under Defendant BCBSNM’s managed care plan.
103. She is non-verbal and requires maximum assistance in basic living functions such
as feeding, walking, toileting, and bathing. She also requires regular breathing assessments and
monitoring during night-waking episodes, which are a symptoms of Rett Syndrome.
104. She experiences seizures every day, often requiring oxygen assistance and an
emergency intervention plan for seizure activity lasting longer than 5 minutes.
105. A.C. also experiences “Rett Episodes” during which she loses all motor control for
up to one minute at a time. She will have spastic movements of all muscles in her body and
requires assistance to ensure safety and to regain bodily control.
106. According to Plaintiff A.C.’s treatment plan, or Individualized Service Plan (ISP),
conducted by UNM Center for Development and Disability on March 12, 2020, she required 40
hours of home healthcare, including in-home Private Duty Nursing (“PDN”), per week. This is
24
reflected in her Comprehensive Needs Assessment and Level of Care Determination approved by
Defendant BCBSNM.
107. For this ISP year, A.C. faced an average shortfall of 16.7 hours per week of PDN
hours that had been approved by Defendant BCBSNM.
108. On June 22, 2021, A.C., through her mother, submitted a demand to Defendant
BCBSNM, through A.C.’s case manager, to satisfy the approved PDN hours, pursuant to the
hours Defendant BCBSNM had approved.
109. Defendant BCBSNM failed to furnish the hours requested following this demand.
110. According to Plaintiff A.C.’s most recent treatment plan, or ISP, of December 7,
2021, she requires 40 hours of home healthcare, including in-home Private Duty Nursing
(“PDN”), per week. This is reflected in her Comprehensive Needs Assessment and Level of Care
Determination approved by Defendant BCBSNM.
111. By February 28, 2022, A.C. faced an average shortfall of 23.8 hours per week of
PDN hours approved by Defendant BCBSNM for her ISP.
112. Currently, A.C. is receiving no PDN hours approved by Defendant BCBSNM.
113. When A.C. does not have access to the in-home nursing services she requires,
A.C.’s mother endeavors to provide an approximation of needed nursing care, although she is not
a nurse.
114. A.C. is economically dependent upon the income of her parents. An economic loss
to her parents is a loss to A.C.
115. A.C.’s mother has had to limit her work schedule, and consequently her earning
capacity, to care for A.C. during times when an in-home nurse would be providing that care.
25
116. A.C.’s father must take significant amount of time off from work to care for other
children in the household while A.C.’s mother attends to A.C.’s nursing needs, which an in-
home nurse would otherwise address.
117. By virtue of the fact that Plaintiff A.C. is on a HCBS Waiver, via the Medically-
Fragile Waiver through Defendant HSD, the Defendants have determined that A.C. is at risk of
institutionalization if she does not receive her medically necessary community-based services.
See 8.290.400.10 (C)(2)(a)( Medically fragile waiver requirement that recipient have “a life
threatening condition characterized by reasonably frequent periods of acute exacerbation, which
require frequent medical supervision or physician consultation and which, in the absence of such
supervision or consultation, would require hospitalization”).
118. Under its Medicaid Managed Care Services Agreement with Defendant HSD,
Defendant BCBSNM is required to furnish medically necessary EPSDT services and make them
available 24 hours a day, 7 days a week, to its beneficiaries.
119. Defendant BCBSNM failed to satisfy its contractual obligations to furnish the
requisite private duty nursing services to Plaintiff A.C., which she expects and relies upon for her
medical needs.
120. Should Plaintiff A.C. not receive requisite medically necessary in-home nursing
services, she may need to go to an institution or otherwise face a life-threatening circumstance.
121. Defendants HSD and Secretary Scrase have failed to arrange for Plaintiff A.C.
medically necessary nursing services, putting her at risk of institutionalization or injury.
Plaintiff C.V.
122. Plaintiff C.V. is a three-year-old boy whose medical diagnoses include: Trisomy
21, nonmosaicism (meiotic nondisjunction); Seizure activity refractory to multiple medications;
26
Developmental delay, and Gastrostomy tube dependence. He also attends preschool at the New
Mexico School for the Blind.
123. C.V. lives with his parents in Sandia Park, New Mexico. His mother and father are
dedicated parents who devote themselves not only to C.V.’s care, but also to service to the
community as law enforcement personnel.
124. C.V. is a Medically-Fragile Waiver participant and Centennial Care 2.0 beneficiary
under Defendant Presbyterian’s managed care plan.
125. Based upon his current Comprehensive Needs Assessment and Level of Care
determination, Presbyterian has established that C.V. requires 173 hours per month of private
duty nursing services.
126. On March 25, 2022, C.V. through his parents submitted a request to Defendant
Presbyterian to satisfy its obligation to provide the in-home nursing hours they have approved.
127.Currently, C.V is only able to access approximately 76 hours per month.
128. C.V. has faced denials of expected private duty nursing services in the past.
129. On June, 30, 2020, C.V. was approved by Defendant Presbyterian to receive 30
hours per week of private duty nursing and faced an average shortfall of 11 hours per week.
130. On April 13, 2021, C.V. was approved by Defendant Presbyterian to receive 40
hours per week of private duty nursing and faced an average shortfall of 21 hours per week.
131. On March 25, 2022, C.V., through his mother and father, sent a demand to
Defendant Presbyterian to furnish the PDN hours of which he was being denied and reiterating
Defendant Presbyterian’s obligation to provide the service.
132. On April 7, 2022, Defendant Presbyterian responded to C.V.’s parents by letter
acknowledging that C.V. was not receiving the PDN hours allocated to him, and that he in fact is
27
entitled to 173 hours per month, but simply cited nursing shortages as a reason for the denial and
deemed the matter resolved.
133. When C.V. does not have access to the in-home nursing services he requires, C.V.’s
mother and father endeavor to provide an approximation of needed nursing care, although they
are not nurses.
134. C.V. is economically dependent on the earnings of his parents. An economic loss to
his parents is a loss for C.V.
135. Because medically-necessary nursing hours are not provided, C.V.’s parents have
had to forgo economic opportunities to care for C.V. at home.
136. C.V.’s mother had to give up a high-level position to take a lower paying position
that provides more flexibility for leave, and has since used up all her earned leave.
137. C.V.’s father has taken time off work serving the community as a law enforcement
officer in order to tend to C.V.’s care during times which an in-home nurse would otherwise
138. C.V.’s father may now have no option but to accept an early retirement to care for
C.V. when a nurse otherwise would.
139. Defendant Presbyterian failed to satisfy its contractual obligations to furnish the
requisite private duty nursing services to Plaintiff C.V., services which C.V. expects and relies
upon for his medical needs.
140. Should Plaintiff C.V. not receive requisite medically necessary in-home nursing
services, he may need to go to an institution or otherwise face a life-threatening circumstance.
141. This is also evinced by the fact that he is on a HCBS Waiver, via the Medically
Fragile Waiver program through Defendant HSD. See 8.290.400.10 (C)(2)(a).
28
142. Defendants HSD and Secretary Scrase have failed to arrange for Plaintiff C.V.
medically necessary nursing services, putting him at risk of institutionalization or injury.
Plaintiff M.G.
143. Plaintiff M.G. is a 3-year-old Medically Fragile Waiver participant and Centennial
Care 2.0 beneficiary under Defendant Western Sky’s managed care plan. She is diagnosed with
Chronic Lung Disease, Esophageal Reflux, Global Developmental Delay, Periventricular
Leukomalacia, Generalized Seizure Disorder, for which she requires feeding by gastrostormy
tube, H/O tracheostormy, and ventilator dependency. She resides at home with her mother and
144. According to Plaintiff M.G.’s treatment plan, or Individualized Service Plan,
conducted by UNM Center for Developmental Disability on April 26, 2021, Plaintiff M.G.
requires 84 hours of home healthcare, including in-home Private Duty Nursing (“PDN”), per
week. This is reflected in her Comprehensive Needs Assessment and Level of Care
Determination approved by Defendant Western Sky.
145. Although M.G. was approved to receive the PDN hours by Defendant Western Sky,
she has faced an average short fall of 38.67 hours per week.
146. During May of 2021 Plaintiff M.G.’s mother contacted Defendant Western Sky on
behalf of Plaintiff M.G., informing Defendant Western Sky that Plaintiff M.G. was not receiving
sufficient hours of in-home PDN hours as Plaintiff M.G. was only able to access 80 of the 364
hours approved per month, and requested that Defendant Western Sky furnish the requisite
29
147. On August 13, 2021, Plaintiff M.G.’s mother wrote to Defendant Western Sky on
behalf of Plaintiff M.G. reiterating that Plaintiff M.G. was only able to access 80 of the 364
hours of in-home nursing for the prior eight (8) months and again affirmatively requested that
Defendant Western Sky furnish the requisite medical care, as an approved covered service,
which had been previously requested.
148. On September 3, 2021 Plaintiff M.G.’s mother wrote again to Defendant Western
Sky on behalf of Plaintiff M.G., having not received a response from her prior requests, and
again specified that Plaintiff M.G. was not receiving medically necessary covered services,
specifically the requisite private-duty nursing hours.
149. On October 1, 2021, Defendant Western Sky sent a letter to Plaintiff M.G.’s
mother, in which Defendant Western Sky acknowledged the request for the private-duty nursing
hours. In this letter, Defendant Western Sky indicated their resolution to the request was made by
reaching out to their Provider Relations Department who in turn contacted the private duty
nursing agency which cited nursing shortages.
150. On November 30, 2021, Plaintiff M.G., through counsel, sent a letter to Defendant
Western Sky, reiterating the denial of in-home nursing services and indicating that Plaintiff M.G.
was only receiving 60 hours of in-home nursing per week, when she had been budgeted and
approved for 84 hours.
151. Plaintiff M.G.’s most recent ISP of March 25, 2022, does not change the required
amount of in-home nursing hours from the previous year.
152. As of filing this complaint, Plaintiff M.G. is only provided access to 79 hours per
week of the 84 medically necessary nursing hours of which she is approved for.
30
153. When M.G. does not have access to in-home nursing services, M.G.’s mother must
assume the duties of nursing care, although she is not a nurse.
154. By virtue of the fact that Plaintiff M.G. is on a HCBS Waiver, via the Medically-
Fragile Waiver through Defendant HSD, she is at risk of institutionalization if she does not
receive her medically necessary community-based services. See 8.290.400.10 (C)(2)(a).
155. Under its Medicaid Managed Care Services Agreement with Defendant HSD,
Defendant Western Sky is required to furnish medically necessary EPSDT services and make
them available 24 hours a day, 7 days a week, to its beneficiaries.
156. Defendant Western Sky failed to satisfy its contractual obligations to furnish the
requisite private duty nursing services to Plaintiff M.G., which she expects and relies upon for
her medical needs.
157. Should Plaintiff M.G. not receive requisite medically necessary in-home nursing
services, she may need to go to an institution or otherwise face a life-threatening circumstance.
158. Defendants HSD and Secretary Scrase have failed to arrange for Plaintiff M.G.’s
medically necessary nursing services, putting her at risk of institutionalization or injury.
FIRST CAUSE OF ACTION
(Declaratory judgment action to declare the contract enforcement rights of
Plaintiffs and Class pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201)
159. Plaintiffs hereby re-allege and incorporate by reference the foregoing paragraphs of
this Complaint as though fully set forth herein.
160. Under the Declaratory Judgment Act, “[i]n a case of actual controversy within its
jurisdiction...any court of the United States, upon the filing of an appropriate pleading, may
declare the rights and other legal relations of any interested party.” 28 U.S.C. § 2201(a).
31
161. Within each Defendant MCO’s Managed Care Service Agreement (“Contract”)
with HSD contains a Section 7.12.2, stating: “No Third-Party Beneficiaries Only the Parties to
this Agreement, and their successors in interest and assigns, have any rights or remedies under,
or by reason of, this Agreement.”
162. The federal government is not a party to this contract and the place of contract is the
State of New Mexico. Thus, the applicable law in construing the meaning and validity of this
Contract is state law. See Tucker v. R.A. Hanson Co., Inc., 956 F.2d 215, 217 (10th Cir. 1992).
163. Section 7.12.2 creates an explicit and obvious adverse legal interest for the
enforcement rights of third-party beneficiaries to the exclusive benefit of signatories to the
Contract.
164. The application of this provision threatens the right of Medicaid managed care
beneficiaries, such as Plaintiffs and Class members, to immediate enforcement of the Contract
terms, as intended beneficiaries to the Contract.
165. Section 7.12.2 contravenes the statutory law and public policy of NMSA § 59A-57-
9 (C), which states:
To protect and enforce an enrollee's rights in a managed health care plan, an
individual enrollee participating in or eligible to participate in a managed health
care plan shall be treated as a third-party beneficiary of the managed health care
plan contract between the plan and the party with which the plan directly
contracts. An individual enrollee may sue to enforce the rights provided in the
contract that governs the managed health care plan[.]
NMSA § 59A-57-9 (C)(emphasis added).
166. Section 7.12.2 is unenforceable because it confers benefits at the same time illegally
and exclusively divesting beneficiaries of any remedy under the agreement to enforce its terms.
32
167. Public policy is not served by unlawfully limiting the public’s rights to enforce
receipt of public benefits.
168. Moreover, HSD Defendant lacked contractual authority to disclaim third-party
beneficiary rights under Section 7.12.2.
169. “Subject to the constitution of New Mexico, the human services department has the
power to…make contracts as authorized in Chapter 27 NMSA 1978 to carry out the purposes of
that chapter.” NMSA 1978 § 27-1-2 (B)(4)
170. “The Legislature [] created the New Mexico Human Services Department (HSD),
NMSA 1978, § 27–1–1 (1977), to work with the federal government in administering public
assistance programs.” State ex rel. Taylor v. Johnson, 1998-NMSC-015, ¶ 7, 125 N.M. 343, 347,
961 P.2d 768, 772.
171. Accordingly, the statutory contractual authority “merely recognize[s] that HSD acts
with the federal government to cooperatively administer certain public assistance programs such
as [] Medicaid.” Id. at ¶ 35.
172. No federal requirement or permission exists, for states administering a Medicaid
plan, to limit rights of third-party beneficiaries to a state contract with a managed care
organization.
173. Thus, Section 7.12.2 serves no cognizable purpose towards cooperating with the
federal government, exceeding the authority conferred by the New Mexico state legislature.
174. Because Section 7.12.2 of the Contract is illegal, unconscionable, and made without
legal authority, the provision cannot deprive Plaintiffs and Class members’ rights to enforce the
terms of the Contract.
33
175. Plaintiffs and Class members are entitled to appropriate relief under the Declaratory
Judgment Act, 28 U.S.C. § 2201-2202.
SECOND CAUSE OF ACTION
(Subclass 1 Third-party beneficiary claim against Defendant BCBSNM for breach
of state Medicaid Managed Care Services Agreement)
176. Plaintiffs and Subclass 1 members hereby re-allege and incorporate by reference the
foregoing paragraphs of this Complaint as though fully set forth herein.
177. Defendant BCBSNM entered into a contract with Defendant HSD and Defendant
David Scrase “for the purpose of creating a network of health care Providers to provide services
to Medicaid-eligible Recipients that will or are likely to reduce health care costs, improve quality
of care or improve access to care[.]” See Defendant BCBSNM Medicaid Managed Care Services
Agreement, Recitals,p.5.
178. Pursuant to the Contract, Defendant BCBSNM’s obligation to provide medically
necessary services include:
[T]he delivery of federally mandated EPSDT services as set forth in Section
1902(a)(10) and 1905(r) of the Social Security Act. The CONTRACTOR agrees to
meet all federal requirements of the EPSDT program pursuant to 42 C.F.R.s §
441.61 through § 441.62. The CONTRACTOR shall adhere to the State’s
periodicity schedules (as recommended by the American Academy of Pediatrics
and Bright Futures) for eligible Members under twenty-one (21) years of age; and
Services shall be available twenty-four (24) hours, seven (7) days a week, when
medically necessary.
See 4.5.2.1.4-5, Defendant BCBSNM’s Medicaid Managed Care Services Agreement.
179. The EPSDT benefit includes private duty nursing necessary to ameliorate,
correct, or maintain a child’s condition. see 42 U.S.C. § 1396d(a)(8).
180. Defendant BCBSNM has failed to provide Subclass 1 members medically
necessary private duty nursing services.
34
181. Pursuant to the Contract:
The CONTRACTOR shall be deemed to have breached this Agreement if
any of the following occurs:
The CONTRACTOR fails to perform in accordance with any term or
provision of the Agreement;
The CONTRACTOR renders only partial performance of any term or
provision of the Agreement; or
The CONTRACTOR engages in any act prohibited or restricted by the
Agreement.
See 7.6.2.1, Defendant BCBSNM’s Medicaid Managed Care Services Agreement.
182. Defendant BCBSNM has breached the Contact by failing to satisfy the terms set
forth in section 4.5.2.1.4-5 of the Contract.
183. The Medicaid Managed Care Services Agreement further requires that Defendant
BCBSNM agree to comply with:
Section 504 of the Rehabilitation Act of 1973, 29 U.S.C. 794,
which prohibits discrimination on the basis of handicap in programs
and activities receiving or benefiting from federal financial
assistance, and regulations issued pursuant thereto, 45 C.F.R. § 84;
…
Titles II and III of the Americans with Disabilities Act, 42
U.SC. 12101 et seq., and regulations issued pursuant thereto, 28
C.F.R.s § 35 and § 36; [and]
…
Patient Protection and Affordable Care Act (PPACA)[.]
See Defendant BCBSNM Medicaid Managed Care Services Agreement, 7.5
Applicable Laws and Regulations.
184. For the reasons set forth in this Complaint and by incorporation of
allegations in the Sixth, Seventh, and Eighth Causes of Action of this Complaint,
35
Defendant BCBSNM stands in breach of Section 7.5 of its Medicaid Managed
Care Services Agreement.
185. Defendant BCBSNM’s breach has caused harm to Subclass 1
members.
186. Defendant BCBSNM’s failure to provide in-home nursing to
Subclass 1 members was intentional and willful, done with knowledge of and
utter indifference to its harmful consequences, and done with disregard for the
rights of Subclass 1 members.
187. Subclass 1 members are entitled to declaratory relief, injunctive
relief, nominal damages, and punitive damages.
THIRD CAUSE OF ACTION
(Subclass 2 Third-party beneficiary claim against Defendant Presbyterian for
breach of state Medicaid Managed Care Services Agreement)
188. Plaintiffs and Subclass 2 members hereby re-allege and incorporate by reference the
foregoing paragraphs of this Complaint as though fully set forth herein.
189. Defendant Presbyterian entered into a contract with Defendant HSD and Defendant
David Scrase “for the purpose of creating a network of health care Providers to provide services
to Medicaid-eligible Recipients that will or are likely to reduce health care costs, improve quality
of care or improve access to care[.]” See Defendant Presbyterian Medicaid Managed Care
Services Agreement, Recitals,p.5.
190. Pursuant to the Contract, Defendant Presbyterian’s obligation to provide medically
necessary services include:
[T]he delivery of federally mandated EPSDT services as set forth in
Section 1902(a)(10) and 1905(r) of the Social Security Act. The CONTRACTOR
agrees to meet all federal requirements of the EPSDT program pursuant to 42
36
C.F.R.s § 441.61 through § 441.62. The CONTRACTOR shall adhere to the
State’s periodicity schedules (as recommended by the American Academy of
Pediatrics and Bright Futures) for eligible Members under twenty-one (21) years of
age; and
Services shall be available twenty-four (24) hours, seven (7) days a week,
when medically necessary.
See 4.5.2.1.4-5,Defendant Presbyterian’s Medicaid Managed Care Services Agreement.
191. The EPSDT benefit includes private duty nursing necessary to ameliorate,
correct, or maintain a child’s condition. See 42 U.S.C. § 1396d(a)(8).
192. Defendant Presbyterian has failed to provide Subclass 2 members medically
necessary private duty nursing services.
193. Pursuant to the Contract:
The CONTRACTOR shall be deemed to have breached this Agreement if
any of the following occurs:
The CONTRACTOR fails to perform in accordance with any term or
provision of the Agreement;
The CONTRACTOR renders only partial performance of any term or
provision of the Agreement; or
The CONTRACTOR engages in any act prohibited or restricted by the
Agreement.
See 7.6.2.1, Defendant Presbyterian’s Medicaid Managed Care Services Agreement.
194. Defendant Presbyterian has breached the Contact by failing to satisfy the terms set
forth in section 4.5.2.1.4-5 of the Contract.
195. The Medicaid Managed Care Services Agreement further requires that Defendant
Presbyterian agree to comply with:
Section 504 of the Rehabilitation Act of 1973, 29 U.S.C. 794,
which prohibits discrimination on the basis of handicap in programs
37
and activities receiving or benefiting from federal financial
assistance, and regulations issued pursuant thereto, 45 C.F.R. § 84;
…
Titles II and III of the Americans with Disabilities Act, 42
U.SC. 12101 et seq., and regulations issued pursuant thereto, 28
C.F.R.s § 35 and § 36; [and]
…
Patient Protection and Affordable Care Act (PPACA)[.]
See Defendant Presbyterian Medicaid Managed Care Services Agreement, 7.5
Applicable Laws and Regulations.
196. For the reasons set forth in this Complaint and by incorporation of
allegations in Sixth, Seventh, and Eighth Causes of Action of this Complaint,
Defendant Presbyterian stands in breach of Section 7.5 of its Medicaid Managed
Care Services Agreement.
197. Defendant Presbyterian’s breach has caused harm to Subclass 2
members.
198. Defendant Presbyterian’s failure to provide in-home nursing to
Subclass 2 members was intentional and willful, done with knowledge of and
utter indifference to its harmful consequences, and done with disregard for the
rights of Subclass 2 members.
199. Subclass 2 members are entitled to declaratory relief, injunctive
relief, nominal damages, and punitive damages.
38
FOURTH CAUSE OF ACTION
(Subclass 3 Third-party beneficiary claim against Defendant Western Sky for
breach of state Medicaid Managed Care Services Agreement)
200. Plaintiffs and Subclass 3 members hereby re-allege and incorporate by reference the
foregoing paragraphs of this Complaint as though fully set forth herein.
201. Defendant Western Sky entered into a contract with Defendant HSD and Defendant
David Scrase “for the purpose of creating a network of health care Providers to provide services
to Medicaid-eligible Recipients that will or are likely to reduce health care costs, improve quality
of care or improve access to care[.]” See Defendant Western Sky Medicaid Managed Care
Services Agreement, Recitals,p.5.
202. Pursuant to the Contract, Defendant Western Sky’s obligation to provide medically
necessary services include:
[T]he delivery of federally mandated EPSDT services as set forth in
Section 1902(a)(10) and 1905(r) of the Social Security Act. The CONTRACTOR
agrees to meet all federal requirements of the EPSDT program pursuant to 42
C.F.R.s § 441.61 through § 441.62. The CONTRACTOR shall adhere to the
State’s periodicity schedules (as recommended by the American Academy of
Pediatrics and Bright Futures) for eligible Members under twenty-one (21) years of
age; and
Services shall be available twenty-four (24) hours, seven (7) days a week,
when medically necessary.
See 4.5.2.1.4-5,Defendant Western Sky’s Medicaid Managed Care Services Agreement.
203. The EPSDT benefit includes private duty nursing necessary to ameliorate,
correct, or maintain a child’s condition. See 42 U.S.C. § 1396d(a)(8).
204. Defendant Western Sky has failed to provide Subclass 3 members medically
necessary private duty nursing services.
205. Pursuant to the Contract:
39
The CONTRACTOR shall be deemed to have breached this Agreement if
any of the following occurs:
The CONTRACTOR fails to perform in accordance with any term or
provision of the Agreement;
The CONTRACTOR renders only partial performance of any term or
provision of the Agreement; or
The CONTRACTOR engages in any act prohibited or restricted by the
Agreement.
See 7.6.2.1, Defendant BCBSNM’s Medicaid Managed Care Services Agreement.
206. Defendant Western Sky has breached the Contact by failing to satisfy the terms set
forth in section 4.5.2.1.4-5 of the Contract.
207. The Medicaid Managed Care Services Agreement further requires that Defendant
Western Sky agree to comply with:
Section 504 of the Rehabilitation Act of 1973, 29 U.S.C. 794,
which prohibits discrimination on the basis of handicap in programs
and activities receiving or benefiting from federal financial
assistance, and regulations issued pursuant thereto, 45 C.F.R. § 84;
…
Titles II and III of the Americans with Disabilities Act, 42
U.SC. 12101 et seq., and regulations issued pursuant thereto, 28
C.F.R.s § 35 and § 36; [and]
…
Patient Protection and Affordable Care Act (PPACA)[.]
See Defendant BCBSNM Medicaid Managed Care Services Agreement, 7.5
Applicable Laws and Regulations.
208. For the reasons set forth in this Complaint and by incorporation of
allegations in Sixth, Seventh, and Eighth Causes of Action of this Complaint,
40
Defendant Western Sky stands in breach of Section 7.5 of its Medicaid Managed
Care Services Agreement.
209. Defendant Western Sky’s breach has caused harm to Subclass 3
members.
210. Defendant Western Sky’s failure to provide in-home nursing to
Subclass 3 members was intentional and willful, done with knowledge of and
utter indifference to its harmful consequences, and done with disregard for the
rights of Subclass 3 members.
211. Subclass 3 members are entitled to declaratory relief, injunctive
relief, nominal damages, and punitive damages.
FIFTH CAUSE OF ACTION
(Plaintiffs and Class Third-party beneficiary claim against Defendant Scrase and
Defendant HSD for breach of state Medicaid Managed Care Services Agreement)
212. Plaintiffs hereby re-allege and incorporate by reference the foregoing paragraphs of
this Complaint as though fully set forth herein.
213. Defendant HSD and Defendant David Scrase entered into a contract with
Defendants MCOs “for the purpose of creating a network of health care Providers to provide
services to Medicaid-eligible Recipients that will or are likely to reduce health care costs,
improve quality of care or improve access to care[.]” See Defendants MCOs’ Medicaid Managed
Care Services Agreement, Recitals,p.5.
214. The Contract provides:
In the event of Breach by the CONTRACTOR, HSD shall provide the
CONTRACTOR written notice of the Breach and thirty (30) Calendar Days to
cure the Breach described in the notice. In the event that the CONTRACTOR fails
to cure the Breach within the time period provided, then HSD shall have available
any and all remedies described herein and available at law.
41
See Section 7.6.2.5. Defendants MCOs’ Medicaid Managed Care Services Agreement.
215. By reference and incorporation of the Second, Third, and Fourth cause of action of
this Complaint, Defendants MCOs breached its contract with Defendant HSD and Defendant
216. Upon information and belief, Defendant Scrase and Defendant HSD have failed to
take action under the Contract to provide written notice of the breach to Defendants MCOs.
217. Defendant Scrase and Defendant HSD did not provide Defendants MCO’s thirty
(30) calendar days for Defendants MCOs to cure their breach.
218. Accordingly, Defendant Scrase and Defendant HSD breached the Contract.
219. Defendant Scrase’s and Defendant HSD’s breach has caused harm to Plaintiffs and
Class members.
220. At all times hereto, Defendant David Scrase was acting under color of state
221. Plaintiffs and Class members are entitled to declaratory relief and injunctive relief.
SIXTH CAUSE OF ACTION
(Plaintiffs and Class claim against Defendant Secretary David Scrase for violation of
the Americans with Disabilities Act (ADA), 42 U.S.C. §§ 12131 et seq.)
222. Plaintiffs and Class hereby re-allege and incorporate by reference the foregoing
paragraphs of this Complaint as though fully set forth herein.
223. Pursuant to Title II of the ADA, no qualified person with a disability shall be
subjected to discrimination by a public entity. 42 U.S.C. §§ 12131-32.
42
224. This requires that “[a] public entity [] administer services, programs, and activities
in the most integrated setting appropriate to the needs of qualified individuals with
disabilities.”28 C.F.R. § 35.130(d).
225. Plaintiffs and Class are “qualified individuals with a disability” under the ADA
because they have physical and/or mental impairment which substantially limits one or more
major life activities.
226. Plaintiffs and Class are substantially limited in their ability to live independently
without support.
227. Plaintiffs and Class meet eligibility standards for Centennial Care 2.0 community-
based services necessary to maintain living within their homes.
228. Defendant Secretary Scrase oversees HSD which is a state government entity
responsible for administering New Mexico’s Medicaid program.
229. Accordingly, HSD is a “public entity” within the meaning of Title II of the ADA. 42
U.S.C. §§ 12131(1)(A) and (B) (1990).
230. The ADA requires Defendant Scrase to administer HSD’s programs to enable
qualified individuals with disabilities to live in the most integrated setting suitable to their needs.
231. Defendant Scrase’s failure to arrange for (directly or through referral to appropriate
agencies, organizations, or individuals) corrective treatment (private duty nursing services) for
qualified individuals with disabilities has placed Plaintiffs and Class at risk of institutionalization
in violation of the ADA’s integration mandate.
232. By failing to take necessary action to arrange for medically necessary private duty
nursing services, Defendant Scrase has discriminated against qualified individuals with
disabilities, such as Plaintiffs and Class members.
43
233. Defendant Scrase’s administration of HSD has led to its failure to take necessary
action to arrange for medically necessary private duty nursing services. This has subjected
Plaintiffs, Class, and other qualified individuals with disabilities to the risk of unnecessary
institutionalization.
234. Defendant Scrase’s actions are in violation of Title II of the ADA.
235. Plaintiffs and Class are entitled to declaratory relief, injunctive relief, and reasonable
attorneys’ fees and costs incurred in bringing this action pursuant to 42 U.S.C. § 12133
SEVENTH CAUSE OF ACTION
(Plaintiffs and Class claim against Defendants HSD and Secretary David Scrase for
violation of Section 504 of the Rehabilitation Act, 29 U.S.C. § 794 et seq.)
236. Plaintiffs and Class hereby re-allege and incorporate by reference the foregoing
paragraphs of this Complaint as though fully set forth herein.
237. Section 504 of the Rehabilitation Act, 29 U.S.C. § 794 (“Section 504”), prohibits
public entities and recipients of federal funds from discriminating against any individual by
reason of disability.
238. Pursuant to Section 504, public and federally-funded entities must administer
programs and activities “in the most integrated setting appropriate to the needs of the qualified
individual with a disability.” See 28 C.F.R. § 41.51(d) (1981).
239. Plaintiffs and Class are “qualified individuals with a disability” under Section 504 of
the Rehabilitation Act of 1973 because they have physical and/or mental impairment which
substantially limits one or more major life activities.
240. Plaintiffs and Class members meet eligibility standards for Centennial Care 2.0
community-based services necessary to maintain living within their homes.
44
241. Defendant HSD is a recipient of federal funds under the Rehabilitation Act and is
therefore a government entity subject to Section 504. 29 U.S.C. § 794(b) (2014).
242. Defendant Scrase’s failure to arrange for (directly or through referral to appropriate
agencies, organizations, or individuals) corrective treatment (private duty nursing services) for
qualified individuals with disabilities such as Plaintiffs and Class has placed them at risk of
institutionalization in violation of the Section 504’s integration mandate.
243. By failing to take necessary action to arrange for medically necessary private duty
nursing services, Defendant Scrase has discriminated against qualified individuals with
disabilities, such as Plaintiffs.
244. Defendant Scrase’s administration of HSD has led to its failure to take necessary
action to arrange for medically necessary private duty nursing services and has subjected
Plaintiffs, Class, and other qualified individuals with disabilities to the risk of unnecessary
institutionalization.
245. Defendant Scrase’s actions are in violation of Section 504 of the Rehabilitation Act,
29 U.S.C. § 794.
246. Plaintiffs and Class members are entitled to declaratory relief and injunctive relief.
EIGHTH CAUSE OF ACTION
(Plaintiffs and Class claim against Defendants HSD and Secretary David Scrase for
violation of Section 1557of the Patient Protection and Affordable Care Act, 42 U.S.C. §
18116)
247. Plaintiffs and Class hereby re-allege and incorporate by reference the foregoing
paragraphs of this Complaint as though fully set forth herein.
248. Section 1557 of the Patient Protection and Affordable Care Act provides that:
Except as otherwise provided for in this title (or an amendment made by
this title), an individual shall not, on the ground prohibited under …
45
section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 794) … be
excluded from participation in, be denied the benefits of, or be subjected
to discrimination under, any health program or activity, any part of which
is receiving Federal financial assistance, including credits, subsidies, or
contracts of insurance, or under any program or activity that is
administered by an Executive Agency or any entity established under this
title (or amendments). The enforcement mechanisms provided for and
available under … section 504 … shall apply for purposes of violations of
this subsection.
249. Section 504 of the Rehabilitation Act, 29 U.S.C. § 794 (“Section 504”), prohibits
public entities and recipients of federal funds from discriminating against any individual by
reason of disability.
250. Pursuant to Section 504, public and federally-funded entities must administer
programs and activities “in the most integrated setting appropriate to the needs of the qualified
individual with a disability.” See 28 C.F.R. § 41.51(d) (1981).
251. Plaintiffs and Class are “qualified individuals with a disability” under Section 504
of the Rehabilitation Act of 1973 because they have physical and/or mental impairment that
substantially limits one or more major life activities.
252. Plaintiffs and Class members meet eligibility standards for Centennial Care 2.0
community-based services necessary to maintain living within their homes.
253. Defendant HSD is a recipient of federal funds under the Rehabilitation Act and is
therefore a government entity subject to Section 504 and, thus, subject to Section 1557.
254. Defendant Scrase’s failure to arrange for (directly or through referral to appropriate
agencies, organizations, or individuals) corrective treatment (private duty nursing services) for
qualified individuals with disabilities such as Plaintiffs and Class members has placed them at
risk of institutionalization in violation of Section 504’s integration mandate.
46
255. By failing to take necessary action to arrange for medically necessary private duty
nursing services, Defendant Scrase has discriminated against qualified individuals with
disabilities, such as Plaintiffs and Class members.
256. Defendant Scrase’s administration of HSD has led to its failure to take necessary
action to arrange for medically necessary private duty nursing services and has subjected
Plaintiffs, Class members and other qualified individuals with disabilities to the risk of
unnecessary institutionalization.
257. Defendant Scrase’s actions are in violation of Section 504 of the Rehabilitation Act,
29 U.S.C. § 794.
258. Because Defendant Scrase violated Section 504 through his administrative methods
and actions, HSD is in violation of Section 1557 of the ACA.
259. Plaintiffs and Class are entitled to declaratory relief and injunctive relief.
NINTH CAUSE OF ACTION
(Plaintiffs and Class claim against Defendant Scrase for Violation of the Medicaid
Act, Early and Periodic Screening, Diagnostic and Treatment (EPSDT) Services, 42 U.S.C.
§ 1396 et seq.)
260. Plaintiffs and Class hereby re-allege and incorporate by reference the foregoing
paragraphs of this Complaint as though fully set forth herein.
261. Defendant Scrase, while acting under color of state law, has failed to supervise and
correct practices of HSD that deprive Plaintiffs and Class members statutory rights found in
EPSDT provisions of the Medicaid Act, 42 U.S.C. §§ 1396a(a)(10)(A), 1396d(a)(4)(B), and
1396a(a)(43)(C).
47
262. Defendant Scrase has failed to “arrange for (directly or through referral to
appropriate agencies, organizations, or individuals) corrective treatment [in-home shift nursing
services]” to Plaintiffs and Class, per 42 U.S.C. § 1396a(a)(43)(C).
263. Defendants Scrase’s violations are knowing, and having acquiesced to the
deprivation of Plaintiffs’ and Class members’ statutory rights, Plaintiffs are entitled to relief
under of 42 U.S.C. § 1983.
DEMAND FOR A JURY TRIAL
264. Pursuant to Fed. R. Civ. P. 38, Plaintiffs and Class members demand a trial by jury
of all issues herein triable to a jury.
REQUEST FOR RELIEF
265. WHEREFORE, Plaintiffs and Class request the following relief and remedies:
266. Certify the proposed Class and Subclasses;
267. Declare unlawful the provision of Defendants’ Medicaid Managed Care Services
Agreement disclaiming third-party beneficiary enforcement rights;
268. Declare in favor of the Plaintiffs and the Class that they are the intended
beneficiaries of the Defendants’ Medicaid Managed Care Services Agreements, and Defendants
MCOs have breached their respective agreements by failing to furnish and fulfill authorized
private-duty nursing hours, directly or through referral to appropriate agencies, organizations, or
individuals, to Plaintiffs and Class members;
269. Declare in favor of Plaintiffs and the Class that Defendants MCOs in failing to
furnish and fulfill authorized private-duty nursing hours to Plaintiffs and Class members, acted
intentionally, willfully, with knowledge of and utter indifference to its harmful consequences,
and did so with disregard for the rights of Plaintiffs and Class members;
48
270. Declare in favor of Plaintiffs and the Class that HSD Defendants are failing to
comply with the requirements of the Medicaid Act, the Americans with Disabilities Act, the
Rehabilitation Act, and the Patient Protection and Affordable Care Act;
271. Issue preliminary and permanent injunctive relief requiring Defendants to furnish
and fulfill authorized private-duty nursing hours, directly or through referral to appropriate
agencies, organizations, or individuals, to Plaintiffs and Class members;
272. Order equitable relief requiring Defendants to calculate for each Class member the
appropriate private duty nursing hours which Defendants have failed to fulfill within two (2)
years preceding this action, and further requiring Defendants to implement procedures that will
allow class members to utilize those unfulfilled nursing hours at their discretion;
273. Assume continuing jurisdiction as may be necessary to monitor and enforce any
relief granted;
274. Award nominal damages pursuant to § 59A-57-9(D) &(E) NMSA with respect to
the Second, Third, and Fourth Causes of Action in this Complaint;
275. Award punitive damages against Defendants MCOs with respect to Second, Third,
and Fourth Causes of Action in this Complaint, in an amount to be determined at trial;
276. Award costs and attorneys’ fees and expenses pursuant to 42 U.S.C. § 12205; Sec.
504 of the Rehabilitation Act, 29 U.S.C. § 794a, 42 U.S.C. § 1988, and any other applicable
provisions of law; and
277. Such other relief as this Court deems just and proper.
49
DATED: April 28, 2022 Respectfully Submitted,
DISABILITY RIGHTS NEW MEXICO
/s/ Maxwell Kauffman
Maxwell Kauffman
Laurel Nesbitt
Jason C. Gordon
Jesse D. Clifton
Holly J. Mell
3916 Juan Tabo Blvd., NE
Albuquerque, NM 87111
(505) 256-3100
(505) 256-3184 (Fax)
Attorneys for Disability Rights New Mexico
Attorneys for Plaintiffs
NEW MEXICO CENTER ON LAW AND POVERTY
/s/ Stephanie Welch
Stephanie Welch
301 Edith Blvd NE
Albuquerque, NM 87102
(505) 255-2840
(505) 300-2785 (fax)
Attorney for Plaintiffs
50
| civil rights, immigration, family |
dPtGFIcBD5gMZwczVOTT | IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
DR. WILLIAM M. POLLACK,
)
on behalf of plaintiff and
)
the class members defined herein,
)
)
Plaintiff,
)
)
v.
)
)
BBCN BANK
)
and JOHN DOES 1-10,
)
)
Defendants.
)
COMPLAINT – CLASS ACTION
MATTERS COMMON TO MULTIPLE COUNTS
INTRODUCTION
1.
Plaintiff Dr. William M. Pollack brings this action to secure redress for the
actions of defendant BBCN Bank 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 Dr. William M. Pollack is an individual with offices at 20566 N.
Milwaukee Avenue, Deerfield, IL 60015, where he maintains telephone facsimile equipment.
4.
Defendant BBCN Bank is a federally-chartered corporation with its headquarters
1
located at 3731 Wilshire Blvd., Suite 1000, Los Angeles, California 90010.
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 (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.
8.
Venue in this District is proper for the same reason.
FACTS
9.
On March 21, 2014, plaintiff Dr. William M. Pollack received the unsolicited
fax advertisement attached as Exhibit A on his facsimile machine.
10.
Discovery may reveal the transmission of additional faxes as well.
11.
Defendant BBCN Bank is responsible for sending or causing the sending of the
12.
Defendant BBCN Bank, as the entity whose products or services were advertised
in the faxes, derived economic benefit from the sending of the faxes.
13.
Defendant BBCN Bank either negligently or wilfully violated the rights of
plaintiff and other recipients in sending the faxes.
14.
Plaintiff had no prior relationship with defendant and had not authorized the
sending of fax advertisements to plaintiff.
15.
The fax did not contain an “opt out” notice in the form required by 47 U.S.C. §
2
16.
On information and belief, the faxes attached hereto were sent as part of a mass
broadcasting of faxes.
17.
On information and belief, defendants have transmitted similar unsolicited fax
advertisements to at least 40 other persons in Illinois.
18.
BBCN Bank is the registrant of the website, bbcnbank.com.
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.
COUNT I – TCPA
20.
Plaintiff incorporates ¶¶ 1-19.
21.
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).
22.
The TCPA, 47 U.S.C. §227(b)(3), provides:
Private right of action.
A person or entity may, if otherwise permitted by the laws or rules of court
of a State, bring in an appropriate court of that State–
(A) an action based on a violation of this subsection or the regulations
prescribed under this subsection to enjoin such violation,
(B) an action to recover for actual monetary loss from such a
violation, or to receive $500 in damages for each such violation,
whichever is greater, or
(C) both such actions.
If the Court finds that the defendant willfully or knowingly violated this
subsection or the regulations prescribed under this subsection, the court
may, in its discretion, increase the amount of the award to an amount equal
to not more than 3 times the amount available under the subparagraph (B) of
this paragraph.
23.
Plaintiff and each class member suffered damages as a result of receipt of the
3
unsolicited faxes, in the form of paper and ink or toner consumed as a result. Furthermore,
plaintiff’s statutory right of privacy was invaded.
24.
Plaintiff and each class member is entitled to statutory damages.
25.
Defendants violated the TCPA even if their actions were only negligent.
26.
Defendants should be enjoined from committing similar violations in the future.
CLASS ALLEGATIONS
27.
Pursuant to Fed.R.Civ.P. 23(a) and (b)(3), plaintiff brings this claim on behalf of a
class, consisting of (a) all persons with fax numbers (b) who, on or after a date four years prior to
the filing of this action (28 U.S.C. §1658), (c) were sent faxes by or on behalf of defendant
BBCN Bank, 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.
28.
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.
29.
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.
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.
4
30.
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.
31.
Plaintiff’s claims are typical of the claims of the class members. All are based on
the same factual and legal theories.
32.
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.
33.
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); CE Design Ltd.
v Cy's Crabhouse North, Inc., 259 F.R.D. 135 (N.D.Ill. 2009); Targin Sign Sys. v Preferred
Chiropractic Ctr., Ltd., 679 F. Supp. 2d 894 (N.D.Ill. 2010); Garrett v. Ragle Dental Lab, Inc.,
10 C 1315, 2010 U.S. Dist. LEXIS 108339, 2010 WL 4074379 (N.D.Ill., Oct. 12, 2010);
Hinman v. M & M Rental Ctr., 545 F.Supp. 2d 802 (N.D.Ill. 2008); Clearbrook v. Rooflifters,
LLC, 08 C 3276, 2010 U.S. Dist. LEXIS 72902 (N.D. Ill. July 20, 2010) (Cox, M.J.); G.M. Sign,
Inc. v. Group C Communs., Inc., 08 C 4521, 2010 U.S. Dist. LEXIS 17843 (N.D. Ill. Feb. 25,
2010); Holtzman v. Turza, 08 C 2014, 2009 U.S. Dist. LEXIS 95620 (N.D.Ill., Oct. 14, 2009);
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
5
(Mo. App. 2010); Travel 100 Group, Inc. v. Empire Cooler Service, Inc., 03 CH 14510 (Cook
Co. Cir. Ct., Oct. 19, 2004); Rawson v. C.P. Partners LLC, 03 CH 14510 (Cook Co. Cir. Ct.,
Sept. 30, 2005); Nicholson v. Hooters of Augusta, Inc., 245 Ga.App. 363, 537 S.E.2d 468 (2000).
34.
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
35.
Plaintiff incorporates ¶¶ 1-19.
36.
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.
37.
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.
38.
Defendants engaged in an unfair practice by engaging in conduct that is contrary
to public policy, unscrupulous, and caused injury to recipients of their advertising.
39.
Plaintiff and each class member suffered damages as a result of receipt of the
unsolicited faxes, in the form of paper and ink or toner consumed as a result.
40.
Defendants engaged in such conduct in the course of trade and commerce.
41.
Defendants’ conduct caused recipients of their advertising to bear the cost thereof.
6
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.
42.
Defendants’ shifting of advertising costs to plaintiff and the class members in this
manner makes such practice unfair. In addition, defendants’ conduct was contrary to public
policy, as established by the TCPA and Illinois statutory and common law.
43.
Defendants should be enjoined from committing similar violations in the future.
CLASS ALLEGATIONS
44.
Pursuant to Fed.R.Civ.P. 23(a) and (b)(3), plaintiff brings this claim on behalf of a
class, consisting of (a) all persons with Illinois fax numbers (b) who, on or after a date three
years prior to the filing of this action, (c) were sent faxes by or on behalf of defendant BBCN
Bank, 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.
45.
The class is so numerous that joinder of all members is impractical. Plaintiff
alleges on information and belief that there are more than 40 members of the class.
46.
There are questions of law and fact common to the class that predominate over
any questions affecting only individual class members. The predominant common questions
include:
a.
Whether defendants engaged in a pattern of sending unsolicited fax
advertisements;
b.
Whether defendants thereby violated the TCPA;
c.
Whether defendants thereby engaged in unfair acts and practices, in
7
violation of the ICFA.
d.
Whether defendants thereby converted the property of plaintiff.
e.
Whether defendants thereby created a private nuisance.
f.
Whether defendants thereby committed a trespass to chattels.
47.
Plaintiff will fairly and adequately protect the interests of the class. Plaintiff has
retained counsel experienced in handling class actions and claims involving unlawful business
practices. Neither plaintiff nor plaintiff's counsel have any interests which might cause them not
to vigorously pursue this action.
48.
Plaintiff’s claims are typical of the claims of the class members. All are based on
the same factual and legal theories.
49.
A class action is the superior method for the fair and efficient adjudication of this
controversy. The interest of class members in individually controlling the prosecution of
separate claims against defendants is small because it is not economically feasible to bring
individual actions.
50.
Management of this class action is likely to present significantly fewer difficulties
that those presented in many class actions, e.g. for securities fraud.
WHEREFORE, plaintiff requests that the Court enter judgment in favor of plaintiff and
the class and against defendants for:
a.
Appropriate damages;
b.
An injunction against the further transmission of 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
51.
Plaintiff incorporates ¶¶ 1-19.
52.
By sending plaintiff and the class members unsolicited faxes, defendants
8
converted to their own use ink or toner and paper belonging to plaintiff and the class members.
53.
Immediately prior to the sending of the 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.
54.
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.
55.
Defendants knew or should have known that such appropriation of the paper and
ink or toner was wrongful and without authorization.
56.
Plaintiff and the class members were deprived of the paper and ink or toner,
which could no longer be used for any other purpose. Plaintiff and each class member thereby
suffered damages as a result of receipt of the unsolicited faxes.
57.
Defendants should be enjoined from committing similar violations in the future.
CLASS ALLEGATIONS
58.
Pursuant to Fed.R.Civ.P. 23(a) and (b)(3), plaintiff brings this claim on behalf of a
class, consisting of (a) all persons with Illinois fax numbers (b) who, on or after a date five years
prior to the filing of this action, (c) were sent faxes by or on behalf of defendant BBCN Bank,
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.
59.
The class is so numerous that joinder of all members is impractical. Plaintiff
alleges on information and belief that there are more than 40 members of the class.
60.
There are questions of law and fact common to the class that predominate over
any questions affecting only individual class members. The predominant common questions
include:
a.
Whether defendants engaged in a pattern of sending unsolicited fax
advertisements;
9
b.
Whether defendants thereby violated the TCPA;
c.
Whether defendants thereby engaged in unfair acts and practices, in
violation of the ICFA.
d.
Whether defendants thereby converted the property of plaintiff.
e.
Whether defendants thereby created a private nuisance.
f.
Whether defendants thereby committed a trespass to chattels.
61.
Plaintiff will fairly and adequately protect the interests of the class. Plaintiff has
retained counsel experienced in handling class actions and claims involving unlawful business
practices. Neither plaintiff nor plaintiff’s counsel have any interests which might cause them not
to vigorously pursue this action.
62.
Plaintiff’s claims are typical of the claims of the class members. All are
based on the same factual and legal theories.
63.
A class action is the superior method for the fair and efficient adjudication of this
controversy. The interest of class members in individually controlling the prosecution of
separate claims against defendants is small because it is not economically feasible to bring
individual actions.
64.
Management of this class action is likely to present significantly fewer difficulties
that those presented in many class actions, e.g. for securities fraud.
WHEREFORE, plaintiff requests that the Court enter judgment in favor of plaintiff and
the class and against defendants for:
a.
Appropriate damages;
b.
An injunction against the further transmission of unsolicited fax
advertising;
c.
Costs of suit;
d.
Such other or further relief as the Court deems just and proper.
10
COUNT IV – PRIVATE NUISANCE
65.
Plaintiff incorporates ¶¶ 1-19.
66.
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.
67.
Congress determined, in enacting the TCPA, that the prohibited conduct was a
“nuisance.” Universal Underwriters Ins. Co. v. Lou Fusz Automotive Network, Inc., 401 F.3d
876, 882 (8 Cir. 2005).
th
68.
Defendants acted either intentionally or negligently in creating the nuisance.
69.
Plaintiff and each class member suffered damages as a result of receipt of the
unsolicited faxes.
70.
Defendants should be enjoined from continuing its nuisance.
CLASS ALLEGATIONS
71.
Pursuant to Fed.R.Civ.P. 23(a) and (b)(3), plaintiff brings this claim on behalf of a
class, consisting of (a) all persons with Illinois fax numbers, (b) who, on or after a date five years
prior to the filing of this action, (c) were sent faxes by or on behalf of defendant BBCN Bank,
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.
72.
The class is so numerous that joinder of all members is impractical. Plaintiff
alleges on information and belief that there are more than 40 members of the class.
73.
There are questions of law and fact common to the class that predominate over
any questions affecting only individual class members. The predominant common questions
include:
a.
Whether defendants engaged in a pattern of sending unsolicited fax
advertisements;
b.
Whether defendants thereby violated the TCPA;
11
c.
Whether defendants thereby engaged in unfair acts and practices, in
violation of the ICFA.
d.
Whether defendants thereby converted the property of plaintiff.
e.
Whether defendants thereby created a private nuisance.
f.
Whether defendants thereby committed a trespass to chattels.
74.
Plaintiff will fairly and adequately protect the interests of the class. Plaintiff has
retained counsel experienced in handling class actions and claims involving unlawful business
practices. Neither plaintiff nor plaintiff’s counsel have any interests which might cause them not
to vigorously pursue this action.
75.
Plaintiff’s claims are typical of the claims of the class members. All are based on
the same factual and legal theories.
76.
A class action is the superior method for the fair and efficient adjudication of this
controversy. The interest of class members in individually controlling the prosecution of
separate claims against defendants is small because it is not economically feasible to bring
individual actions.
77.
Management of this class action is likely to present significantly fewer difficulties
that those presented in many class actions, e.g. for securities fraud.
WHEREFORE, plaintiff requests that the Court enter judgment in favor of plaintiff and
the class and against defendants for:
a.
Appropriate damages;
b.
An injunction against the further transmission of unsolicited fax
advertising;
c.
Costs of suit;
d.
Such other or further relief as the Court deems just and proper.
12
COUNT V – TRESPASS TO CHATTELS
78.
Plaintiff incorporates ¶¶ 1-19.
79.
Plaintiff and the class members were entitled to possession of the equipment they
used to receive faxes.
80.
Defendants’ sending plaintiff and the class members 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).
81.
Defendants acted either intentionally or negligently in engaging in such conduct.
82.
Plaintiff and each class member suffered damages as a result of receipt of the
unsolicited faxes.
83.
Defendants should be enjoined from continuing trespasses.
CLASS ALLEGATIONS
84.
Pursuant to Fed.R.Civ.P. 23(a) and (b)(3), plaintiff brings this claim on behalf of a
class, consisting of (a) all persons with Illinois fax numbers (b) who, on or after a date five years
prior to the filing of this action, (c) were sent faxes by or on behalf of defendant BBCN Bank,
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.
85.
The class is so numerous that joinder of all members is impractical. Plaintiff
alleges on information and belief that there are more than 40 members of the class.
86.
There are questions of law and fact common to the class that predominate over
any questions affecting only individual class members. The predominant common questions
include:
a.
Whether defendants engaged in a pattern of sending unsolicited fax
advertisements;
13
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.
87.
Plaintiff will fairly and adequately protect the interests of the class. Plaintiff has
retained counsel experienced in handling class actions and claims involving unlawful business
practices. Neither plaintiff nor plaintiff’s counsel have any interests which might cause them not
to vigorously pursue this action.
88.
Plaintiff’s claims are typical of the claims of the class members. All are based on
the same factual and legal theories.
89.
A class action is the superior method for the fair and efficient adjudication of this
controversy. The interest of class members in individually controlling the prosecution of
separate claims against defendants is small because it is not economically feasible to bring
individual actions.
90.
Management of this class action is likely to present significantly fewer difficulties
that those presented in many class actions, e.g. for securities fraud.
WHEREFORE, plaintiff requests that the Court enter judgment in favor of plaintiff and
the class and against defendants for:
a.
Appropriate damages;
b.
An injunction against the further transmission of unsolicited fax
advertising;
c.
Costs of suit;
d.
Such other or further relief as the Court deems just and proper.
14
s/ Daniel A. Edelman
Daniel A. Edelman
Daniel A. Edelman
Cathleen M. Combs
James O. Latturner
Heather A. Kolbus
EDELMAN, COMBS, LATTURNER & GOODWIN, LLC
120 S. LaSalle Street, 18th floor
Chicago, Illinois 60603
(312) 739-4200
(312) 419-0379 (FAX)
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)
T:\29799\Pleading\Complaint_Pleading.wpd
16
| privacy |
JU9P_ogBF5pVm5zYMQqd | UNITED STATES DISTRICT COURT
DISTRICT OF COLORADO
CASE NO. 22-CV-01034
CLASS ACTION
JURY TRIAL DEMANDED
Kimberly Johnson, individually and on
behalf all others similarly situated,
Plaintiff,
v.
Pingora Asset Management, LLC, and
Pingora Loan Servicing, LLC,
Defendant(s).
)
)
)
)
)
)
)
)
)
)
)
)
CLASS ACTION COMPLAINT
Plaintiff Kimberly Johnson (“Plaintiff”) brings this action on behalf of herself and all others
similarly situated against Defendant Pingora Asset Management, LLC, and Pingora Loan
Servicing, LLC (collectively “Pingora” or “Defendant”). Plaintiff seeks to obtain damages,
restitution, and injunctive relief for a class of individuals (“Class” or “Class Members”) who also
received notices of the data breach from Pingora. Plaintiff makes the following allegations upon
information and belief, except as to her own actions, the investigation of her counsel, and the facts
that are a matter of public record.
I.
NATURE OF THE ACTION
1.
This class action arises out of the recent cyberattack and data breach (“Data
Breach”) that was perpetrated against Defendant Pingora, a company that holds itself out as “a
specialized asset manager focused on investing in and servicing of new production performing
mortgage servicing right (MSR) portfolios.”1
1 https://pingorafund.com/about-us/ (last accessed on April 26, 2022).
2.
According to its website, Pingora uses a third-party subservicer to provide the loan
servicing and explains that mortgage subservicers perform the day-to-day servicing activities on
loans, such as collecting payments and administering escrow accounts. On its computer network,
Pingora holds and stores certain personally identifiable information (“PII”) of the Plaintiff and the
putative Class Members, who are individuals whose mortgage servicing rights Pingora either
“currently or previously owned.”2
3.
Pingora emphasizes on its website that the “subservicers companies’ computer
networks were not involved in this incident.”3
4.
As a result of Pingora’s Data Breach, Plaintiff and thousands of Class Members,
suffered ascertainable losses in the form of the loss of the benefit of their bargain, out-of-pocket
expenses and the value of their time reasonably incurred to remedy or mitigate the effects of the
5.
In addition, Plaintiff’s and Class Members’ sensitive personal information—which
was entrusted to Defendant—was compromised and unlawfully accessed due to the Data Breach.
6.
The private information compromised in the Data Breach included names,
addresses, dates of birth, Social Security numbers (the holy grail for identity thieves), loan
numbers, and for some, the accessed files included information provided for a mortgage loan
application, loan modification, or other items related to mortgage loan servicing (collectively, the
“Private Information”).4 On notices to certain State Attorneys General, Pingora states that the
stolen data also includes driver’s license numbers, state identification cards, and financial and
2 Id.
3 Id. (emphasis original).
4 See Notice Letter, attached as Exhibit A.
banking information.5
7.
The Private Information compromised in the Data Breach was exfiltrated by the
cyber-criminals who perpetrated the attack and remains in the hands of those cyber-criminals.
8.
The Data Breach was a direct result of Defendant’s failure to implement adequate
and reasonable cyber-security procedures and protocols necessary to protect Class Members’
Private Information.
9.
Plaintiff brings this class action lawsuit on behalf of those similarly situated to
address Defendant’s inadequate safeguarding of Class Members’ Private Information 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.
10.
Defendant maintained the Private Information in a reckless manner. In particular,
the Private Information was maintained on Defendant’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’ Private Information was a
known risk to Defendant and thus Defendant was on notice that failing to take steps necessary to
secure the Private Information from those risks left that property in a dangerous condition.
11.
Defendant 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 its data systems were protected against unauthorized intrusions;
failing to disclose that they did not have adequately robust computer systems and security practices
5 See, e.g., https://www.atg.wa.gov/pingora-loan-servicing-llc (last accessed on April 27, 2022).
to safeguard Class Members’ Private Information; failing to take standard and reasonably available
steps to prevent the Data Breach; and failing to provide Plaintiff and Class Members prompt and
accurate notice of the Data Breach.
12.
In addition, Defendant and its employees failed to properly monitor the computer
network and systems that housed the Private Information. Had Defendant properly monitored its
property, it would have discovered the intrusion sooner.
13.
Plaintiff’s and Class Members’ identities are now at risk because of Defendant’s
negligent conduct since the Private Information that Defendant collected and maintained is now in
the hands of data thieves.
14.
Armed with the Private Information 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
15.
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.
16.
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.
17.
Through this Complaint, Plaintiff seeks to remedy these harms on behalf of herself
and all similarly situated individuals whose Private Information was accessed during the Data
Breach.
18.
Plaintiff seeks remedies including, but not limited to, compensatory damages,
reimbursement of out-of-pocket costs, and injunctive relief including improvements to
Defendant’s data security systems, future annual audits, and adequate credit monitoring services
funded by Defendant.
19.
Accordingly, Plaintiff brings this action against Defendant seeking redress for its
unlawful conduct.
II.
PARTIES
23.
Plaintiff Kimberly Johnson is and at all times mentioned herein was an individual
citizen of the State of Alabama, residing in the city of Hoover. Pingora Loan Servicing, LLC
currently or in the past owned the servicing rights to Plaintiff Johnson’s current or a former
mortgage. Pingora used a third party to provide servicing of that loan. As a condition of Plaintiff’s
loan servicing, she was required to provide her PII to Defendant either directly or indirectly.
Plaintiff received notice of the Data Breach on or about April 6, 2022. A copy of the notice she
received is attached as Exhibit A (the “Notice Letter”).
24.
Defendants Pingora Asset Management, LLC and Pingora Loan Servicing, LLC
are Limited Liability Companies registered in Wilmington, Delaware. Both maintain their
principal place of business at 1819 Wazee Street, 2nd Floor, Denver, Colorado, 80202. Defendants
can be served through their registered agent at: Corporation Service Company, 1900 W. Littleton
Blvd., Littleton, Colorado 80120.
25.
All of Plaintiff’s claims stated herein are asserted against Defendant Pingora and
any of its owners, predecessors, successors, subsidiaries, agents and/or assigns.
26.
The names and capacities of persons, entities, associates, and/or corporations who
may be responsible for some of the claims alleged in this Complaint are currently unknown to
Plaintiff. If necessary, Plaintiff will seek leave of Court to amend this complaint to reflect the true
names and capacities of other responsible parties as their identities are learned.
III.
JURISDICTION AND VENUE
17.
This Court has subject matter jurisdiction over this action under 28 U.S.C.
§ 1332(d) because this is a class action wherein the amount in controversy exceeds the sum or
value of $5,000,000, exclusive of interest and costs, there are more than 100 members in the
proposed class, and at least one member of the class is a citizen of a state different from Defendant.
18.
The Court has general personal jurisdiction over Defendant because, personally
or through its agents, Defendant operated, conducted, engaged in, or carried on a business or
business venture in Colorado; has its headquarters in Colorado; committed tortious acts in
Colorado; and/or breached a contract in Colorado by failing to perform acts required by the
contract to be performed in Colorado. Venue is proper because a substantial portion of the events
complained of occurred in this District.
IV.
STATEMENT OF FACTS
A.
Nature of Defendant’s Business.
27.
Defendant is a “specialized asset manager focused on investing in and servicing of
new production performing mortgage servicing right (“MSR”) portfolios.”6
28.
According to Defendant’s website, “Pingora Asset Management LLC is led by a
team of mortgage industry executives with market leading experience in sourcing and executing
MSR transactions and navigating key regulatory and business relationships in the mortgage
industry.”7
6 https://pingorafund.com/about-us/ (last accessed April 27, 2022).
7 Id.
29.
Defendant boasts about using a “tech-enabled and human assisted digital solutions”
to assist its clients with strengthening its customer relationships.
30.
According to Defendant, it has “partnered with global brands for over 3 decades
now —working with them across their consumer value chain and providing new age customer
experience solutions and insights that are helping them define and reach their target audiences with
greater efficiency and better value for every dollar spent.”
31.
Defendant “is led by a team of industry veterans who have over 60 years’ collective
experience evaluating, acquiring and selling Mortgage Servicing Rights; performing valuations,
trading and hedging, ensuring compliance with regulatory requirements and performing servicer
oversight.”8 Upon information and belief, Plaintiff and Class Member’s Mortgage Servicing
Rights were either acquired or acquired and sold by Pingora.
32.
On information and belief, in the course of collecting Private Information from or
about mortgage holders, including Plaintiff and Class Members, Pingora promised to provide
confidentiality and adequate security for Private Information through its applicable privacy policy
and in compliance with statutory privacy requirements applicable to the mortgage servicing
industry.
33.
In its notice letters to Plaintiff and Class Members, Pingora admits that it
“understands the importance of protecting the information [it] maintain[s]”. 9
34.
Plaintiff and the Class Members, as former and current mortgage holders, relied on
the promises and duties of Pingora and their mortgage subservicers in this sophisticated business
entity to keep their sensitive PII confidential and securely maintained, to use this information for
8 https://pingorafund.com/ (last accessed April 27, 2022).
9 See Notice Letter, Exhibit A.
business purposes only, and to make only authorized disclosures of this information. Mortgage
holders, in general, demand security to safeguard their PII, especially when Social Security
numbers and other sensitive PII is involved.
35.
In the course of their mortgage applications and servicing, including Plaintiff and
Class Members, provided Pingora with at least the following Private Information:
a. names;
b. addresses;
c. mortgage application information;
d. credit information;
e. dates of birth; and
f. Social Security numbers.
36.
Pingora had a duty to adopt reasonable measures to protect Plaintiff’s and Class
Members’ PII from involuntary disclosure to third parties.
B.
The Data Breach.
37.
According to its Notice Letters, in early December 2021, a “security incident
involving unauthorized access to Pingora file servers” was discovered. Pingora indicates that it
took steps to “contain the incident, notify law enforcement, and [engage] a forensic investigation
firm.” The investigation determined that Pingora’s file storage servers were accessed for over a
month—from October 27, 2021 to December 7, 2022 before the Data Breach was noticed.10
38.
Finally, on or about March 7, 2022, Pingora was able to narrow down the list of
individuals, including Plaintiff and Class Members, “whose name, address, loan number, and
Social Security number were included in the [accessed] files.” Pingora also admits that “for some”
(without divulging to Plaintiff or Class Members whether they were in the “some”) the stolen data
also includes Private Information provided “in connection with a loan application, loan
modification, or other items regarding loan servicing.”11
39.
Upon information and belief, the cyberattack was targeted at Defendant, due to its
status as mortgage servicing entity that collects, creates, and maintains PII.
40.
Because of this targeted cyberattack, data thieves were able to gain access to and
obtain data from Pingora that included the Private Information of Plaintiff and Class Members.
41.
The files stolen from Pingora contained at least the following information of
Plaintiff and Class Members: first names, last names, addresses, loan numbers, and Social Security
numbers.
42.
The Private Information contained in Pingora’s network was not encrypted.
43.
Plaintiff’s Private Information was accessed and stolen in the Data Breach. Plaintiff
believes her stolen Private Information is currently available for sale on the Dark Web because
that is the modus operandi of cybercriminals.
44.
As a result of the Data Breach, Pingora is informing Plaintiff and Class Members
of “additional steps you can take in response to the incident” and also encouraging Class Members
to enroll in credit monitoring, fraud consultation, and identity theft restoration services.12
45.
That Pingora is encouraging Plaintiff and Class Members to enroll in credit
monitoring and identity theft restoration services is an acknowledgment that the impacted
consumers are subject to a substantial and imminent threat of fraud and identity theft.
46.
Pingora had obligations created by contract, industry standards, and common law
to keep Plaintiff’s and Class Members’ Private Information confidential and to protect it from
unauthorized access and disclosure.
47.
Pingora could have prevented this Data Breach by, among other things, properly
encrypting or otherwise protecting their equipment and computer files containing PII.
Defendant Acquires, Collects, and Stores Plaintiff’s and Class Members’ PII.
48.
Pingora acquires, collects, and stores a massive amount of personally identifiable
information (“PII”) of the mortgage holders, including Plaintiff and Class, whose servicing rights
it buys and sells for profit.
49.
By obtaining, collecting, and using Plaintiff’s and Class Members’ PII, Defendant
assumed legal and equitable duties and knew that it was responsible for protecting Plaintiff’s and
Class Members’ PII from disclosure.
50.
Plaintiff and the Class Members have taken reasonable steps to maintain the
confidentiality of their PII.
51.
Plaintiff and the Class Members relied on Defendant to keep their PII confidential
and securely maintained, to use this information for business purposes only, and to make only
authorized disclosures of this information.
The Data Breach was a
Foreseeable Risk of which Defendant was on Notice
48.
It is well known that PII, including social security numbers in particular, is an
invaluable commodity and a frequent target of hackers.
49.
Individuals 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.
50.
Individuals are particularly concerned with protecting the privacy of their Social
Security numbers, which are the “secret sauce” that is “as good as your DNA to hackers.”
51.
Data Breach victims suffer long-term consequences when their social security
numbers are taken and used by hackers. Even if they know their social security numbers are being
misused, Plaintiff and Class Members cannot obtain new numbers unless they become a victim of
social security number misuse.
52.
The Social Security Administration has warned that “a new number probably won’t
solve all your problems. This is because other governmental agencies (such as the IRS and state
motor vehicle agencies) and private businesses (such as banks and credit reporting companies) will
have records under your old number. Along with other personal information, credit reporting
companies use the number to identify your credit record. So using a new number won’t guarantee
you a fresh start. This is especially true if your other personal information, such as your name and
address, remains the same.”13
53.
In 2021, there were a record 1,862 data breaches last year, surpassing both 2020's
total of 1,108 and the previous record of 1,506 set in 2017.14
54.
In light of recent high profile data breaches at other industry leading companies,
including, Microsoft (250 million records, December 2019), Wattpad (268 million records, June
2020), Facebook (267 million users, April 2020), Estee Lauder (440 million records, January
2020), Whisper (900 million records, March 2020), and Advanced Info Service (8.3 billion
records, May 2020), Pingora knew or should have known that its electronic mortgage servicing
records would be targeted by cybercriminals.
55.
Indeed, cyberattacks have become so notorious that the FBI and U.S. Secret Service
have issued a warning to potential targets so they are aware of, and prepared for, a cyber-attack.
56.
Despite the prevalence of public announcements of data breach and data security
compromises, and despite its own acknowledgments of data security compromises, and despite its
13 https://www.ssa.gov/pubs/EN-05-10064.pdf (last accessed April 27, 2022).
14 https://www.cnet.com/tech/services-and-software/record-number-of-data-breaches-reported-
in-2021-new-report-says/ (last accessed April 27, 2022).
own acknowledgment of its duties to keep PII private and secure, Pingora failed to take appropriate
steps to protect the PII of Plaintiff and the proposed Class from being compromised.
At All Relevant Times Pingora Had a Duty to Plaintiff and Class Members
to Properly Secure their Private Information
57.
At all relevant times, Pingora had a duty to Plaintiff and Class Members to properly
secure their PII, encrypt and maintain such information using industry standard methods, train its
employees, utilize available technology to defend its systems from invasion, act reasonably to
prevent foreseeable harm to Plaintiff and Class Members, and to promptly notify Plaintiff and
Class Members when Pingora became aware that their PII may have been compromised.
58.
Pingora’s duty to use reasonable security measures arose as a result of the special
relationship that existed between Pingora, on the one hand, and Plaintiff and the Class Members,
on the other hand. The special relationship arose because Plaintiff and the Members of the Class
entrusted Pingora with their PII as a condition of their mortgages being serviced by Pingora.
59.
Pingora had the resources necessary to prevent the Data Breach but neglected to
adequately invest in security measures, despite its obligation to protect such information.
Accordingly, Pingora breached its common law, statutory, and other duties owed to Plaintiff and
Class Members.
60.
Security standards commonly accepted among businesses that store PII using the
internet include, without limitation:
a. Maintaining a secure firewall configuration;
b. Maintaining appropriate design, systems, and controls to limit user access to
certain information as necessary;
c. Monitoring for suspicious or irregular traffic to servers;
d. Monitoring for suspicious credentials used to access servers;
e. Monitoring for suspicious or irregular activity by known users;
f. Monitoring for suspicious or unknown users;
g. Monitoring for suspicious or irregular server requests;
h. Monitoring for server requests for PII;
i. Monitoring for server requests from VPNs; and
j. Monitoring for server requests from Tor exit nodes.
61.
The Federal Trade Commission (“FTC”) defines identity theft as “a fraud
committed or attempted using the identifying information of another person without authority.”15
The FTC describes “identifying information” as “any name or number that may be used, alone or
in conjunction with any other information, to identify a specific person,” including, among other
things, “[n]ame, Social Security number, date of birth, official State or government issued driver’s
license or identification number, alien registration number, government passport number,
employer or taxpayer identification number.”16
62.
The ramifications of Pingora’s failure to keep consumers’ PII secure are long
lasting and severe. Once PII is stolen, particularly Social Security and driver’s license numbers,
fraudulent use of that information and damage to victims may continue for years.
The Value of Personal Identifiable Information
63.
The PII of consumers remains of high value to criminals, as evidenced by the prices
they will pay through the dark web. Numerous sources cite dark web pricing for stolen identity
credentials. For example, personal information can be sold at a price ranging from $40 to $200.17
64.
Criminals can also purchase access to entire company data breaches from $900 to
$4,500.18
65.
Social Security numbers, for example, are among the worst kind of personal
information to have stolen because they may be put to a variety of fraudulent uses and are difficult
for an individual to change. The Social Security Administration stresses that the loss of an
15 17 C.F.R. § 248.201 (2013).
16 Id.
17 Your personal data is for sale on the dark web. Here’s how much it costs, Digital Trends, Oct.
16, 2019, available at: https://www.digitaltrends.com/computing/personal-data-sold-on-the-dark-
web-how-much-it-costs/.
18 In the Dark, VPNOverview, 2019, available at: https://vpnoverview.com/privacy/anonymous-
browsing/in-the-dark/.
individual’s Social Security number, as is the case here, can lead to identity theft and extensive
financial fraud:
A dishonest person who has your Social Security number can use it to get other
personal information about you. Identity thieves can use your number and your
good credit to apply for more credit in your name. Then, they use the credit cards
and don’t pay the bills, it damages your credit. You may not find out that someone
is using your number until you’re turned down for credit, or you begin to get calls
from unknown creditors demanding payment for items you never bought. Someone
illegally using your Social Security number and assuming your identity can cause
a lot of problems.19
66.
What’s more, it is no easy task to change or cancel a stolen Social Security number.
An individual cannot obtain a new Social Security number without significant paperwork and
evidence of actual misuse. In other words, preventive action to defend against the possibility of
misuse of a Social Security number is not permitted; an individual must show evidence of actual,
ongoing fraud activity to obtain a new number.
67.
Even then, a new Social Security number may not be effective, as “[t]he credit
bureaus and banks are able to link the new number very quickly to the old number, so all of that
old bad information is quickly inherited into the new Social Security number.”20
68.
This data, as one would expect, demands a much higher price on the black market.
Martin Walter, senior director at cybersecurity firm RedSeal, explained, “[c]ompared to credit card
information, personally identifiable information and Social Security Numbers are worth more than
10x on the black market.”21
69.
PII can be used to distinguish, identify, or trace an individual’s identity, such as
their name and Social Security number. This can be accomplished alone, or in combination with
19 Social Security Administration, Identity Theft and Your Social Security Number, available at:
https://www.ssa.gov/pubs/EN-05-10064.pdf.
20 Brian Naylor, Victims of Social Security Number Theft Find It’s Hard to Bounce Back, NPR
(Feb. 9, 2015), http://www.npr.org/2015/02/09/384875839/data-stolen-by-anthem-s-hackers-has-
millions-worrying-about-identity-theft.
21 Tim Greene, Anthem Hack: Personal Data Stolen Sells for 10x Price of Stolen Credit Card
Numbers, Computer World (Feb. 6, 2015), http://www.itworld.com/article/2880960/anthem-
hack-personal-data-stolen-sells-for-10x-price-of-stolen-credit-card-numbers.html.
other personal or identifying information that is connected or linked to an individual, such as their
birthdate, birthplace, and mother’s maiden name.22
70.
Given the nature of the Data Breach, it is foreseeable that the compromised PII can
be used by hackers and cybercriminals in a variety of devastating ways. Indeed, the cybercriminals
who possess Class Members’ PII can easily obtain Class Members’ tax returns or open fraudulent
credit card accounts in Class Members’ names.
71.
The information compromised in this Data Breach is static and difficult, if not
impossible, to change (such as Social Security numbers).
72.
To date, Pingora has offered Plaintiff and Class Members only one year of identity
monitoring service. The offered services are inadequate to protect Plaintiff and Class Members
from the threats they face for years to come, particularly in light of the PII at issue here.
73.
The injuries to Plaintiff and Class Members were directly and proximately caused
by Pingora’s failure to implement or maintain adequate data security measures for its current and
former customers.
Pingora Failed to Comply with FTC Guidelines
74.
Federal and State governments have likewise established security standards and
issued recommendations to temper data breaches and the resulting harm to consumers and financial
institutions. The Federal Trade Commission (“FTC”) has issued numerous guides for business
highlighting the importance of reasonable data security practices. According to the FTC, the need
for data security should be factored into all business decision-making.23
75.
In 2016, the FTC updated its publication, Protecting Personal Information: A
Guide for Business, which established guidelines for fundamental data security principles and
practices for business.24 The guidelines note businesses should protect the personal consumer and
22 See OFFICE OF MGMT. & BUDGET, OMB MEMORANDUM M-07-16 n. 1.
23 Federal Trade Commission, Start With Security, available at:
https://www.ftc.gov/system/files/documents/plain-language/pdf0205-startwithsecurity.pdf
24Federal Trade Commission, Protecting Personal Information: A Guide for Business, available at:
https://www.ftc.gov/tips-advice/business-center/guidance/protecting-personal-information-guide-business
consumer information that they keep, as well as properly dispose of personal information that is
no longer needed; encrypt information stored on computer networks; understand their network’s
vulnerabilities; and implement policies to correct security problems.
76.
The FTC recommends that companies verify that third-party service providers have
implemented reasonable security measures.25
77.
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.
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
25 FTC, Start With Security, supra note 23.
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.
78.
The FTC has brought enforcement actions against businesses for failing to protect
consumer and consumer data adequately and reasonably, 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 (“FTCA”),
15 U.S.C. § 45. Orders resulting from these actions further clarify the measures businesses must
take to meet their data security obligations.
79.
Because Class Members entrusted Pingora with their PII, Pingora had, and has, a
duty to the Class Members to keep their PII secure.
80.
Plaintiff and the other Class Members reasonably expected that when they provide
PII to Pingora, Pingora would safeguard their PII.
81.
Pingora was at all times fully aware of its obligation to protect the personal and
financial data of mortgage holders, including Plaintiff and members of the Class. Pingora was also
aware of the significant repercussions if it failed to do so.
82.
Pingora’s failure to employ reasonable and appropriate measures to protect against
unauthorized access to confidential consumer data—including Plaintiff’s and Class Members’ first
names, last names, addresses, loan numbers, and Social Security numbers, and other highly
sensitive and confidential information—constitutes an unfair act or practice prohibited by Section
5 of the FTC Act, 15 U.S.C. § 45.
Plaintiff and Class Members Have Suffered Concrete Injury As A Result Of Defendant’s
Inadequate Security And The Data Breach It Allowed.
83.
Plaintiff and Class Members reasonably expected that Defendant would provide
adequate security protections for their PII, and Class Members provided Defendant with sensitive
personal information, including their names, addresses, loan numbers, and Social Security
numbers.
84.
Defendant’s poor data security deprived Plaintiff and Class Members of the benefit
of their bargain. Plaintiff and other reasonable former and current mortgage holders understood
and expected that, as part of that business relationship, they would receive data security, when in
fact Defendant did not provide the expected data security. Accordingly, Plaintiff and Class
Members received data security that was of a lesser value than what they reasonably expected. As
such, Plaintiff and the Class Members suffered pecuniary injury.
85.
Cybercriminals capture PII to exploit it; the Class Members are now, and for the
rest of their lives will be, at a heightened and substantial risk of identity theft. Plaintiff has also
incurred (and will continue to incur) damages in the form of, inter alia, loss of privacy and costs
of engaging adequate credit monitoring and identity theft protection services.
86.
The cybercriminals who obtained the Class Members’ PII may exploit the
information they obtained by selling the data in so-called “dark markets.” Having obtained these
names, addresses, Social Security numbers, and other PII, cybercriminals can pair the data with
other available information to commit a broad range of fraud in a Class Member’s name, including
but not limited to:
• obtaining employment;
• obtaining a loan;
• applying for credit cards or spending money;
• filing false tax returns;
• stealing Social Security and other government benefits; and
• applying for a driver’s license, birth certificate, or other public document.
87.
In addition, if a Class Member’s Social Security number is used to create false
identification for someone who commits a crime, the Class Member may become entangled in the
criminal justice system, impairing the person’s ability to gain employment or obtain a loan.
88.
As a direct and/or proximate result of Defendant’s wrongful actions and/or inaction
and the resulting Data Breach, Plaintiff and the other Class Members have been deprived of the
value of their PII, for which there is a well-established national and international market.
89.
Furthermore, PII has a long shelf-life because it contains different forms of personal
information, it can be used in more ways than one, and it typically takes time for an information
breach to be detected.
90.
Accordingly, Defendant’s wrongful actions and/or inaction and the resulting Data
Breach have also placed Plaintiff and the other Class Members at an imminent, immediate, and
continuing increased risk of identity theft and identity fraud.26 Indeed, “[t]he level of risk is
growing for anyone whose information is stolen in a data breach.”27 Javelin Strategy & Research,
a leading provider of quantitative and qualitative research, notes that “[t]he theft of SSNs places
consumers at a substantial risk of fraud.”28 Moreover, there is a high likelihood that significant
identity fraud and/or identity theft has not yet been discovered or reported. Even data that have
not yet been exploited by cybercriminals bears a high risk that the cybercriminals who now possess
26 Data Breach Victims More Likely To Suffer Identity Fraud, INSURANCE INFORMATION INSTITUTE BLOG
(February 23, 2012), http://www.iii.org/insuranceindustryblog/?p=267.
27 Susan Ladika, Study: Data Breaches Pose A Greater Risk, CREDITCARDS.COM (July 23, 2014),
http://www.creditcards.com/credit-card-news/data-breach-id-theft-risk-increase-study-1282.php.
28 THE CONSUMER DATA INSECURITY REPORT: EXAMINING THE DATA BREACH- IDENTITY FRAUD
PARADIGM IN FOUR MAJOR METROPOLITAN AREAS, (available at
https://www.it.northwestern.edu/bin/docs/TheConsumerDataInsecurityReport_byNCL.pdf).
Class Members’ PII will do so at a later date or re-sell it.
91.
As a result of the Data Breach, Plaintiff and Class Members have already suffered
damages.
92.
Defendant openly admits that the cybercriminals “acquired” and “obtained”
Plaintiff’s and Class Members’ data in the Breach.
Plaintiff Johnson’s Experience
93.
Prior to the Data Breach Plaintiff Johnson had a mortgage that, upon information
and belief, is or was being serviced by Pingora or for which Pingora owned the servicing rights.
Prior to receiving the Notice of Data Breach Letter (attached as Exhibit A), Ms. Johnson was not
aware that Pingora was involved with her mortgage servicing.
94.
In the course of applying for her mortgage and as a condition of her loan, Plaintiff
Johnson was required to supply with her PII, including but not limited to her name, address, date
of birth, Social Security number, and other financial information. At the time that she provided
this private information, she was assumed and assured her information would be protected by
mortgage lender and any other business entity, including Pingora, that later serviced her mortgage.
95.
Plaintiff Johnson received the Notice of Data Breach on or about April 11, 2022,
over 5 months after cyber criminals first had access to Pingora’s computer network.
96.
Since the Data Breach, Plaintiff Johnson has experienced an increase in the number
of spam emails and texts, which appear to be placed with the intent of obtaining personal
information to commit identity theft by way of a social engineering attack. As a result, Plaintiff
Johnson was required to spend time obtaining a credit report and monitoring her credit history and
financial accounts for suspicious activity.
97.
In response to the Notice of Data Breach, Plaintiff spent time dealing with the
consequences of the Data Breach, which included and will include time spent verifying the
legitimacy of the Notice of Data Breach, exploring credit monitoring and identity theft insurance
options, and self-monitoring her accounts. In addition, she contacted all three credit agencies and
placed freezes on her credit to hopefully prevent or reduce the risk of fraudulent activities on her
accounts. She now spends about an hour per week monitoring her financial accounts. The time she
is forced to spend monitoring and securing her accounts has been lost forever and cannot be
recaptured.
98.
Plaintiff is very careful about sharing PII and has never knowingly transmitted
unencrypted PII over the internet or any other unsecured source.
99.
Plaintiff suffered actual injury and damages as a result of the Data Breach. Implied
in her mortgage servicing contract owned by or sold to Pingora was the requirement that it
adequately safeguard her PII. Plaintiff would not have permitted Pingora’s loan servicing had her
mortgage company or Pingora disclosed that it lacked data security practices adequate to safeguard
100.
Plaintiff suffered actual injury in the form of damages and diminution in the value
of her PII—a form of intangible property that she entrusted to Pingora for the purpose of securing
a mortgage which was compromised by the Data Breach.
101.
Plaintiff suffered lost time, annoyance, interference, and inconvenience as a result
of the Data Breach and has anxiety and increased concerns for the loss of her privacy, especially
her Social Security number. She has been notified by Facebook and when paying bills that her
Private Information and Social Security number have been found on the Dark Web. In addition,
she has received notices of “suspicious activity” related to some of her financial accounts.
102.
Plaintiff has suffered imminent and impending injury arising from the substantially
increased risk of fraud, identity theft, and misuse resulting from her stolen PII, especially her Social
Security number, being placed in the hands of unauthorized third-parties and possibly criminals.
103.
Plaintiff has a continuing interest in ensuring that her PII, which, upon
information and belief, remains backed up in Pingora’s possession, is protected and safeguarded
from future breaches.
V.
CLASS ACTION ALLEGATIONS
104.
Plaintiff brings this action on behalf of herself and on behalf of all other persons
similarly situated (“the Class”).
105.
Plaintiff proposes the following Class definition, subject to amendment as
appropriate:
All persons whose Private Information was maintained on Defendant
Pingora’s computer systems that were compromised in the Data Breach, and
who were sent Notice of the Data Breach.
106.
Excluded from the Class are Defendant’s officers and directors, and any entity in
which Defendant has 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.
107.
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.
108.
Numerosity. The Members of the Class 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 thousands of persons whose data was
compromised in Data Breach.
109.
Commonality. There are questions of law and fact common to the Class, which
predominate over any questions affecting only individual Class Members. These common
questions of law and fact include, without limitation:
A. Whether Defendant unlawfully used, maintained, lost, or disclosed Plaintiff’s
and Class Members’ Private Information;
B. Whether Defendant failed to implement and maintain reasonable security
procedures and practices appropriate to the nature and scope of the information
compromised in the Data Breach;
C. Whether Defendant’s data security systems prior to and during the Data Breach
complied with applicable data security laws and regulations;
D. Whether Defendant’s data security systems prior to and during the Data Breach
were consistent with industry standards;
E. Whether Defendant owed a duty to Class Members to safeguard their Private
Information;
F. Whether Defendant breached its duty to Class Members to safeguard their
Private Information;
G. Whether computer hackers obtained Class Members’ Private Information in the
Data Breach;
H. Whether Defendant knew or should have known that its data security systems
and monitoring processes were deficient;
I. Whether Plaintiff and Class Members suffered legally cognizable damages as a
result of Defendant’s misconduct;
J. Whether Defendant’s conduct was negligent;
K. Whether Defendant’s acts, inactions, and practices complained of herein
amount to acts of intrusion upon seclusion under the law;
L. Whether Defendant’s acts, inactions, and practices complained of herein
violated the Colorado data protection laws invoked below;
M. Whether Defendant failed to provide notice of the Data Breach in a timely
manner; and
N. Whether Plaintiff and Class Members are entitled to damages, civil penalties,
punitive damages, and/or injunctive relief.
110.
Typicality. Plaintiff’s claims are typical of those of other Class Members because
Plaintiff’s Private Information, like that of every other Class member, was compromised in the
Data Breach.
111.
Adequacy of Representation. Plaintiff will fairly and adequately represent and
protect the interests of the Members of the Class. Plaintiff’s Counsel are competent and
experienced in litigating Class actions.
112.
Predominance. Defendant has engaged in a common course of conduct toward
Plaintiff and Class Members, in that all the Plaintiff’s and Class Members’ Private Information
was stored on the same computer systems and unlawfully accessed in the same way. The common
issues arising from Defendant’s 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.
113.
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
Defendant. In contrast, the conduct of this action as a Class action presents far fewer management
difficulties, conserves judicial resources and the parties’ resources, and protects the rights of each
Class member.
114.
Defendant has 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.
115.
Likewise, particular issues under Fed. R. Civ. P. 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:
O. Whether Defendant owed a legal duty to Plaintiff and the Class to exercise due
care in collecting, storing, and safeguarding their Private Information;
P. Whether Defendant’s security measures to protect its data systems were
reasonable in light of best practices recommended by data security experts;
Q. Whether Defendant’s failure to institute adequate protective security measures
amounted to negligence;
R. Whether Defendant failed to take commercially reasonable steps to safeguard
consumer Private Information; and
S. Whether adherence to FTC data security recommendations, and measures
recommended by data security experts would have reasonably prevented the
Data Breach.
116.
Finally, all members of the proposed Class are readily ascertainable. Defendant has
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 Pingora.
CAUSES OF ACTION
FIRST COUNT
Negligence
(On behalf of Plaintiff and All Class Members)
117.
Plaintiff re-alleges and incorporates by reference the paragraphs above as if fully
set forth herein.
118.
Defendant required Plaintiff and Class Members to submit non-public PII as a
condition of receiving a mortgage loan, or alternatively, Defendant purchased mortgage servicing
rights from a third-party knowing that as a condition of that purchase it would receive non-public
PII that it must protect from disclosure.
119.
Plaintiff and the Class Members entrusted their PII to Defendant with the
understanding that Defendant would safeguard their information.
120.
Defendant had full knowledge of the sensitivity of the PII and the types of harm
that Plaintiff and Class Members could and would suffer if the PII were wrongfully disclosed.
121.
By assuming the responsibility to collect and store this data, and in fact doing so,
and sharing it and using it for commercial gain, Defendant had a duty of care to use reasonable
means to secure and safeguard their computer network—and Class Members’ PII held within it—
to prevent disclosure of the information, and to safeguard the information from theft. Defendant’s
duty included a responsibility to implement processes by which they could detect a breach of its
security systems in a reasonably expeditious period of time and to give prompt notice to those
affected in the case of a data breach.
122.
Defendant had a duty to employ reasonable security measures under Section 5 of
the Federal Trade Commission 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 confidential data.
123.
Defendant had a duty to employ reasonable security measures and otherwise protect
the PII of Plaintiff and Class Members pursuant to Colo. Rev. Stat. § 6-1-713.5.
124.
Defendant’s duty to use reasonable care in protecting confidential data arose not
only as a result of the statutes and regulations described above, but also because Defendant is
bound by industry standards to protect confidential PII.
125.
Defendant 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 include, but are not limited to, the following:
a. Failing to adopt, implement, and maintain adequate security measures to
safeguard Class Members’ PII;
b. Failing to adequately monitor the security of its networks and systems;
c. Failing to periodically ensure that its email system had plans in place to
maintain reasonable data security safeguards;
d. Allowing unauthorized access to Class Members’ PII; and
e. Failing to detect in a timely manner that Class Members’ PII had been
compromised.
126.
It was foreseeable that Defendant’s 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
industry.
127.
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.
128.
There is a temporal and close causal connection between Defendant’s failure to
implement security measures to protect the PII and the harm suffered, or the imminent risk of harm
suffered by Plaintiff and the Class.
129.
As a result of Defendant’s negligence, Plaintiff and the Class Members have
suffered and will continue to suffer damages and injury including, but not limited to: out-of-pocket
expenses associated with procuring robust identity protection and restoration services; increased
risk of future identity theft and fraud, the costs associated therewith; time spent monitoring,
addressing and correcting the current and future consequences of the Data Breach; and the
necessity to engage legal counsel and incur attorneys’ fees, costs and expenses.
130.
Plaintiff and Class Members are entitled to compensatory and consequential
damages suffered as a result of the Data Breach.
131.
Plaintiff and Class Members are also entitled to injunctive relief requiring
Defendant to, e.g., (i) strengthen its data security systems and monitoring procedures; (ii) submit
to 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 Implied Contract
(On Behalf of Plaintiff and All Class Members)
132.
Plaintiff re-alleges and incorporates by the paragraphs above as if fully set forth
133.
Plaintiff and Class Members were required to provide their PII to Defendant as a
condition of their mortgage applications and servicing by Defendant.
134.
Plaintiff and Class Members provided mortgage payments and servicing profits to
Defendant in exchange for (among other things) Defendant’s promise to protect their PII from
unauthorized disclosure.
135.
On information and belief, at all relevant times Defendant promulgated, adopted,
and implemented written privacy policies whereby it expressly promised Plaintiff and Class
Members that it would only disclose PII under certain circumstances, none of which relate to the
Data Breach.
136.
On information and belief, Defendant further promised to comply with industry
standards and to make sure that Plaintiff’s and Class Members’ PII would remain protected.
137.
Implicit in the agreement between Plaintiff and Class Members and the Defendant
to provide PII, was the latter’s obligation to: (a) use such PII for business purposes only, (b) take
reasonable steps to safeguard that PII, (c) prevent unauthorized disclosures of the PII, (d) provide
Plaintiff and Class Members with prompt and sufficient notice of any and all unauthorized access
and/or theft of their PII, (e) reasonably safeguard and protect the PII of Plaintiff and Class
Members from unauthorized disclosure or uses, (f) retain the PII only under conditions that kept
such information secure and confidential.
138.
When Plaintiff and Class Members provided their PII to Defendant as a condition
of their mortgages, they entered into implied contracts with Defendant pursuant to which
Defendant agreed to reasonably protect such information.
139.
Defendant required Class Members to provide their PII as part of Defendant’s
regular business practices. Plaintiff and Class Members whose loans were purchased by Defendant
accepted Defendant’s offers and provided their PII to Defendant.
140.
In entering into such implied contracts, Plaintiff and Class Members reasonably
believed and expected that Defendant’s data security practices complied with relevant laws and
regulations and were consistent with industry standards.
141.
Plaintiff and Class Members would not have entrusted their PII to Defendant in the
absence of the implied contract between them and Defendant to keep their information reasonably
secure. Plaintiff and Class Members would not have entrusted their PII to Defendant in the absence
of its implied promise to monitor its computer systems and networks to ensure that it adopted
reasonable data security measures.
142.
Plaintiff and Class Members fully and adequately performed their obligations under
the implied contracts with Defendant.
143.
Defendant breached its implied contracts with Class Members by failing to
safeguard and protect their PII.
144.
As a direct and proximate result of Defendant’s breaches of the implied contracts,
Class Members sustained damages as alleged herein.
145.
Plaintiff and Class Members are entitled to compensatory and consequential
damages suffered as a result of the Data Breach.
146.
Plaintiff and Class Members are also entitled to nominal damages for the breach of
implied contract.
147.
Plaintiff and Class Members are also entitled to injunctive relief requiring
Defendant to, e.g., (i) strengthen its data security systems and monitoring procedures; (ii) submit
to future annual audits of those systems and monitoring procedures; and (iii) immediately provide
adequate credit monitoring to all Class Members for a period longer than the inadequate one-year
currently offered.
THIRD COUNT
Unjust Enrichment
(On Behalf of Plaintiff and All Class Members)
148.
Plaintiff restates and realleges the paragraphs above as if fully set forth herein.
149.
Plaintiff alleges Count III (unjust enrichment) solely in the alternative to Count II
(breach of implied contract).
150.
Plaintiff and Class Members conferred a monetary benefit on Defendant by
providing Defendant with profits from the servicing of their mortgages.
151.
Defendant appreciated that a monetary benefit was being conferred upon it by
Plaintiff and Class Members and accepted that monetary benefit.
152.
However, acceptance of the benefit under the facts and circumstances outlined
above make it inequitable for Defendant to retain that benefit without payment of the value thereof.
Specifically, Defendant enriched itself by saving the costs it reasonably should have expended on
data security measures to secure Plaintiff’s and Class Members’ Personal Information. Instead of
providing a reasonable level of security that would have prevented the Data Breach, Defendant
instead calculated to increase its own profits at the expense of Plaintiff and Class Members by
utilizing cheaper, ineffective security measures. Plaintiff and Class Members, on the other hand,
suffered as a direct and proximate result of Defendant’s decision to prioritize its own profits over
the requisite data security.
153.
Under the principles of equity and good conscience, Defendant should not be
permitted to retain the monetary benefit belonging to Plaintiff and Class Members, because
Defendant failed to implement appropriate data management and security measures.
154.
Defendant acquired the PII through inequitable means in that it failed to disclose
the inadequate security practices previously alleged.
155.
If Plaintiff and Class Members knew that Defendant had not secured their PII, they
would not have agreed to provide their PII to Defendant.
156.
Plaintiff and Class Members have no adequate remedy at law.
157.
As a direct and proximate result of Defendant’s conduct, Plaintiff and Class
Members have suffered or will suffer injury, including but not limited to: (i) actual identity theft;
(ii) the loss of the opportunity how their PII is used; (iii) the compromise, publication, and/or theft
of their PII; (iv) out-of-pocket expenses associated with the prevention, detection, and recovery
from identity theft, and/or unauthorized use of their PII; (v) 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; (vi) the continued risk to their PII, which
remain in Defendant’s possession and is subject to further unauthorized disclosures so long as
Defendant fails to undertake appropriate and adequate measures to protect PII in their continued
possession; and (vii) future costs in terms of time, effort, and money that will be expended to
prevent, detect, contest, and repair the impact of the PII compromised as a result of the Data Breach
for the remainder of the lives of Plaintiff and Class Members.
158.
As a direct and proximate result of Defendant’s conduct, Plaintiff and Class
Members have suffered and will continue to suffer other forms of injury and/or harm.
159.
Defendant should be compelled to disgorge into a common fund or constructive
trust, for the benefit of Plaintiff and Class Members, proceeds that they unjustly received from
FOURTH COUNT
Negligence Per Se
(On Behalf of Plaintiff and All Class Members)
160.
Plaintiff re-alleges and incorporates by reference the paragraphs above as if fully
set forth herein.
161.
Pursuant to the Federal Trade Commission Act (15 U.S.C. § 45), Defendant had a
duty to provide fair and adequate computer systems and data security practices to safeguard
Plaintiff’s and Class Members’ PII.
162.
Section 5 of 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.
163.
Defendant violated Section 5 of the FTC Act by failing to use reasonable measures
to protect consumers PII and not complying with applicable industry standards, as described in
detail herein. Defendant’s conduct was particularly unreasonable given the nature and amount of
PII it obtained and stored, and the foreseeable consequences of a data breach including,
specifically, the damages that would result to Plaintiff and Class Members.
164.
Defendant’s violation of Section 5 of the FTC Act constitutes negligence per se as
Defendant’s violation of the FTC Act establishes the duty and breach elements of negligence.
165.
Plaintiff and Class Members are within the class of persons that the FTC Act was
intended to protect.
166.
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 the Class.
167.
In addition, Defendant’s conduct violated Colo. Rev. Stat. § 6-1-713.5. Colo. Rev.
Stat. § 6-1-713.5 requires commercial entities who maintain, own, or license “personal identifying
information of an individual residing in the state” to “implement and maintain reasonable security
procedures and practices that are appropriate to the nature of the personal identifying information
and the nature and size of the business and its operations.”
168.
Defendant failed to comply with Colo. Rev. Stat. § 6-1-713.5. Specifically,
Defendant voluntarily undertook the act of maintaining and storing Plaintiff’s PII, but Defendant
failed to implement safety and security procedures and practices sufficient to protect from the data
breach that it should have anticipated. Defendant should have known and anticipated that data
breaches—especially mortgage loan data—were on the rise, and that mortgage banking institutions
were lucrative or likely targets of cybercriminals looking to steal PII. Correspondingly, Defendant
should have implemented and maintained procedures and practices appropriate to the nature and
scope of information compromised in the data breach.
169.
Plaintiff and Class Members are within the class of persons that Colo. Rev. Stat.
§ 6-1-713.5 was intended to protect.
170.
Defendant’s failure to comply with applicable laws and regulations constitutes
negligence per se.
171.
But for Defendant’s wrongful and negligent breach of its duties owed to Plaintiff
and Class Members, Plaintiff and Class Members would not have been injured.
172.
The injury and harm suffered by Plaintiff and Class Members was the reasonably
foreseeable result of Defendant’s breach of their duties. Defendant knew or should have known
that they were failing to meet their duties, and that Defendant’s breach would cause Plaintiff and
Class Members to experience the foreseeable harms associated with the exposure of their PII.
173.
As a direct and proximate result of Defendant’s negligent conduct, Plaintiff and
Class Members have suffered injury and are entitled to compensatory, consequential, and punitive
damages in an amount to be proven at trial.
FIFTH COUNT
Invasion of Privacy by Intrusion
(On Behalf of Plaintiff and All Class Members)
174.
Plaintiff repeats and re-alleges each and every allegation contained in the
paragraphs above as if fully set forth herein.
175.
The State of Colorado recognizes the tort of Invasion of Privacy by Intrusion, and
adopts the formulation of that tort found in the Restatement (Second) of Torts, which 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).
176.
Plaintiff and the Class Members had a reasonable expectation of privacy in the
Private Information Defendant mishandled.
177.
By intentionally failing to keep Plaintiff’s and the Class Members’ Private
Information safe, and by intentionally misusing and/or disclosing said information to unauthorized
parties for unauthorized use, Defendant intentionally invaded Plaintiff’s and Class Members’
privacy by intrusion.
178.
Defendant knew that ordinary persons in Plaintiff’s or the Class Members’
positions would consider this an invasion of privacy and Defendant’s intentional actions highly
offensive and objectionable.
179.
Defendant invaded Plaintiff’s and the Class Members’ right to privacy and intruded
into Plaintiff’s and the Class Members’ private affairs by intentionally misusing and/or disclosing
their Private Information without their informed, voluntary, affirmative, and clear consent.
180.
Defendant intentionally concealed from Plaintiff and the Class Members an
incident that misused and/or disclosed their Private Information without their informed, voluntary,
affirmative, and clear consent.
181.
In failing to protect Plaintiff’s and the Class Members’ Private Information, and in
intentionally misusing and/or disclosing their Private Information, Defendant acted with
intentional malice and oppression and in conscious disregard of Plaintiff’s and the Class Members’
rights to have such information kept confidential and private.
182.
Plaintiff and the Class Members sustained damages (as outline above) as a direct
and proximate consequence of the invasion of their privacy by intrusion, and therefore seek an
award of damages.
SIXTH COUNT
Breach of Fiduciary Duty
(On Behalf of Plaintiff and All Class Members)
183.
Plaintiff re-alleges and incorporates by reference the paragraphs above as if fully
set forth herein.
184.
In providing their Private Information to apply for a mortgage and for its servicing,
Plaintiff and Class Members justifiably placed special confidence in Defendant to act in good faith
and with due regard to interests of Plaintiff and Class Members to safeguard and keep confidential
that Private Information.
185.
Defendant Pingora accepted the special confidence placed in it by Plaintiff and
Class Members, as evidenced by its admission in the Notice letter that it “understand the
importance of protecting the information [it] maintain[s].”
186.
Defendant also notes in its Privacy Notice that it “want[s] to pledge our
commitment, at the outset, to respect your personal medical information.”
187.
There was an understanding between the parties that Pingora, as a mortgage
servicer, would act for the benefit of Plaintiff and Class Members in preserving the confidentiality
of their Private Information.
188.
In light of the special relationship between Defendant and Plaintiff and Class
Members, whereby Defendant became guardians of Plaintiff’s and Class Members’ Private
Information, Defendant became a fiduciary by its undertaking and guardianship of the Private
Information, to act primarily for the benefit of consumer mortgagees, including Plaintiff and Class
Members, for the safeguarding of Plaintiff’s and Class Members’ Private Information.
189.
Defendant has a fiduciary duty to act for the benefit of Plaintiff and Class Members
upon matters within the scope of its business relationship, in particular, to keep secure the Private
Information of past and current mortgage holders.
190.
Defendant breached its fiduciary duties to Plaintiff and Class Members by failing
to diligently discovery, investigate, and give notice of the Cyber-Attack and data breach in a
reasonable and practicable period of time.
191.
Defendant breached its fiduciary duties to Plaintiff and Class Members by failing
to encrypt and otherwise protect the integrity of the systems containing Plaintiff’s and Class
Members’ Private Information.
192.
Defendant breached its fiduciary duties owed to Plaintiff and Class Members by
failing to timely notify and/or warn Plaintiff and Class Members of the Cyber-Attack and data
breach.
193.
Defendant breached its fiduciary duties owed to Plaintiff and Class Members by
failing to implement technical policies and procedures for electronic information systems that
maintain electronic PHI to allow access only to those persons or software programs that have been
granted access rights.
194.
Defendant breached its fiduciary duties owed to Plaintiff and Class Members by
failing to implement policies and procedures to prevent, detect, contain, and correct security
violations.
195.
Defendant breached its fiduciary duties owed to Plaintiff and Class Members by
failing to identify and respond to suspected or known security incidents and to mitigate, to the
extent practicable, harmful effects of security incidents.
196.
Defendant breached its fiduciary duties owed to Plaintiff and Class Members by
failing to protect against any reasonably-anticipated threats or hazards to the security or integrity
of electronic PHI.
197.
Defendant breached its fiduciary duties owed to Plaintiff and Class Members by
failing to ensure compliance with standard security rules.
198.
Defendant breached its fiduciary duties owed to Plaintiff and Class Members by
impermissibly and improperly using and disclosing PHI that is and remains accessible to
unauthorized persons.
199.
Defendant breached its fiduciary duties to Plaintiff and Class Members by
otherwise failing to safeguard Plaintiff’s and Class Members’ Private Information.
200.
As a direct and proximate result of Defendant’s breaches of its fiduciary duties,
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 Private Information;
(iii) out-of-pocket expenses associated with the prevention, detection, and recovery from identity
theft and/or unauthorized use of their Private Information; (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 Cyber-Attack and 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 Private Information, which remains in Defendant’s possession and is subject to further
unauthorized disclosures so long as Defendant fails to undertake appropriate and adequate
measures to protect the Private Information in its continued possession; (vi) future costs in terms
of time, effort, and money that will be expended as result of the Cyber-Attack and data breach for
the remainder of the lives of Plaintiff and Class Members; and (vii) the diminished value of
Defendant’s services they received.
201.
As a direct and proximate result of Defendant’s breaches of its fiduciary 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 prays for judgment as follows:
A.
For an Order certifying this action as a class action and appointing Plaintiff
and her counsel to represent the Class;
B.
For equitable relief enjoining Defendant from engaging in the wrongful
conduct complained of herein pertaining to the misuse and/or disclosure of
Plaintiff’s and Class Members’ Private Information, and from refusing to
issue prompt, complete and accurate disclosures to Plaintiff and Class
Members;
C.
For equitable relief compelling Defendant to utilize appropriate methods
and policies with respect to consumer data collection, storage, and safety,
and to disclose with specificity the type of Private Information
compromised during the Data Breach;
D.
For equitable relief requiring restitution and disgorgement of the revenues
wrongfully retained as a result of Defendant’s wrongful conduct;
E.
Ordering Defendant to pay for lifetime credit monitoring services for
Plaintiff and the Class;
F.
For an award of actual damages, compensatory damages, statutory
damages, and statutory penalties, in an amount to be determined, as
allowable by law;
G.
For an award of punitive damages, as allowable by law;
H.
For an award of attorneys’ fees and costs, and any other expense, including
expert witness fees;
I.
Pre- and post-judgment interest on any amounts awarded; and
J.
Such other and further relief as this court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiff demands a trial by jury on all claims so triable.
Dated: April 28, 2022
Respectfully submitted,
/s/ Rick D. Bailey
Rick D. Bailey, Esq.
Atty. Reg. #26554
Law Office of Rick D. Bailey, Esq.
1801 Broadway, Ste. 528
Denver, Colorado 80202
Phone: (720) 676-6023
Email: [email protected]
Gary E. Mason
Danielle L. Perry*
Lisa A. White*
MASON LLP
5301 Wisconsin Avenue, NW, Suite 305
Washington, DC 20016
Tel: (202) 429-2290
Email: [email protected]
Email: [email protected]
Email: [email protected]
*pro hac vice to be filed
Attorneys for Plaintiff
| consumer fraud |
Q717DIcBD5gMZwcz2yZY | PIERCE BAINBRIDGE BECK
PRICE & HECHT LLP
YAVAR BATHAEE (CA 282388)
[email protected]
MICHAEL POMERANTZ (NY 2920932) (pro hac vice forthcoming)
[email protected]
DAVID L. HECHT (NY 4695961) (pro hac vice forthcoming)
[email protected]
ADAM C. LUDEMANN (NY 5352323) (pro hac vice forthcoming)
[email protected]
277 Park Ave. 45th Floor
New York, NY 10172
(212) 484-9866
BRIAN J. DUNNE (CA 275689)
[email protected]
355 S. Grand Ave. 44th Floor
Los Angeles, CA 90071
(213) 262-9333
Attorneys for Plaintiffs
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
Case No. 3:20-cv-363
CLASS ACTION COMPLAINT
REVEAL CHAT HOLDCO LLC, a
Delaware limited liability company, USA
TECHNOLOGY AND MANAGEMENT
SERVICES, INC. (d/b/a Lenddo USA), a
Delaware corporation, CIR.CL, INC., a
dissolved Delaware corporation, and
BEEHIVE BIOMETRIC, INC., a
dissolved Delaware corporation,
Plaintiffs,
v.
Jury Trial Demanded
FACEBOOK, INC., a Delaware
corporation,
Defendant.
TABLE OF CONTENTS
INTRODUCTION ......................................................................................................................... 1
PARTIES ....................................................................................................................................... 5
I.
PLAINTIFFS ..................................................................................................................... 5
II.
DEFENDANT .................................................................................................................... 7
JURISDICTION AND VENUE .................................................................................................... 8
FACTS ........................................................................................................................................... 9
I.
FACEBOOK EMERGES AS THE DOMINANT SOCIAL NETWORK ........................ 9
A.
The Last Social Network Standing ........................................................................ 9
B.
A New Market of Its Own Creation ..................................................................... 11
C.
The Social Data Barrier to Entry ......................................................................... 14
D.
Google’s Failed Entry into the Social Data Market ............................................. 16
II.
A THREAT TO FACEBOOK’S MONOPOLY:
THE RISE OF SMART PHONES AND MOBILE APPS ............................................... 19
A.
The Mobile App Revolution ................................................................................ 19
B.
Facebook Recognizes the Looming Threat Presented by
Mobile Applications.............................................................................................. 23
C.
The Facebook Platform ........................................................................................ 25
D.
The Profitable Open Graph Platform and Mobile Install Business ..................... 27
III. FACEBOOK WEAPONIZES ITS PLATFORM TO
DESTROY COMPETITION ........................................................................................... 30
A.
Facebook Makes Plans to Remove Vital Friends and News Feed APIs and
Refuses to Sell Social Data to Competing Application Developers .................... 30
B.
Facebook’s Social-Data Heist .............................................................................. 32
C.
Facebook Targets Its Competitors for Reciprocity or Denial of API Access ...... 37
D.
The Decision to Remove Developer Access to the Friends, News
Feed and Other Crucial APIs Lacked Any Legitimate Justification .................... 41
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TABLE OF CONTENTS
(continued)
E.
Facebook Prepares to Announce Removal of the APIs ....................................... 46
F.
The Announcement at F8 ..................................................................................... 50
IV. THE WHITELIST AND DATA SHARING AGREEMENTS ....................................... 51
V.
THE SURVEILLANCE AND ACQUISITION OF
COMPETITIVE THREATS ............................................................................................. 55
A.
Facebook Relies on Onavo’s Surveillance of Facebook’s Competitors, and
Acquires and Uses Onavo’s Assets ...................................................................... 56
B.
Facebook Identifies Instagram as a Threat and
Acquires the Company ......................................................................................... 60
C.
Facebook Acquires WhatsApp ............................................................................ 66
VI. FACEBOOK’S INTEGRATION OF INSTAGRAM AND WHATSAPP
WITH ITS FACEBOOK PRODUCT .............................................................................. 71
VII. THE RELEVANT MARKETS......................................................................................... 77
A.
The Social Data Market ....................................................................................... 77
B.
The Social Advertising Market ............................................................................ 83
C.
Barriers to Entry ................................................................................................... 85
D.
Relevant Geographic Markets ............................................................................... 87
VIII. HARM TO COMPETITION AND ANTITRUST INJURY ............................................ 88
CONCEALMENT AND TOLLING ............................................................................................ 94
CLASS ACTION ALLEGATIONS ............................................................................................. 94
CLAIMS FOR RELIEF ................................................................................................................ 99
PRAYER FOR RELIEF ............................................................................................................. 106
JURY DEMAND ........................................................................................................................ 107
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1.
Plaintiffs allege the following on behalf of themselves and others similarly situated
on information and belief based on the review of only public documents and information. All
references to internal Facebook documents are exclusively to those published by news
organizations and other public sources, particularly NBC News.1 Neither Plaintiffs nor the
undersigned counsel viewed or received, or even had access to, any confidential information about
Facebook at the time this complaint was filed.
INTRODUCTION
2.
This action seeks to halt the most brazen, willful anticompetitive scheme in a
generation—a scheme that verges on final, irreparable completion as of the date of this Complaint.
3.
Facebook stands today as a paragon of unbridled market power. A company with
unprecedented reach, Facebook collects and monetizes the activity of more than two billion active
users around the world. Facebook’s advertising juggernaut produces almost $55 billion in revenue
in a year, and its founder and CEO, Mark Zuckerberg, enjoys incontestable control over the
company and its board. Facebook owns some of the most valuable social networks other than
Facebook itself, including Instagram and WhatsApp. As 2020 begins in earnest, Facebook has no
serious rival in its key markets—nor any prospect of one.
4.
It was not always so. In 2010, when Facebook defeated rivals MySpace and
Friendster and emerged as the winner of the social network wars, the company was caught
flatfooted by a new technology that threatened its dominance—smartphones.
5.
Facebook’s dominance had been fortified by powerful network effects—the more
data it collected on users, the more attractive its social network became to users. As a result, a
social data barrier to entry (“SDBE”) emerged, protecting Facebook’s business. This SDBE
1 As of the date of this complaint, NBC’s documents were available at
https://dataviz.nbcnews.com/projects/20191104-facebook-leaked-documents/as
https://dataviz.nbcnews.com/projects/20191104-facebook-leaked-documents/assets/facebook-
exhibits.pdfsets/facebook-sealed-exhibits.pdf; and
https://dataviz.nbcnews.com/projects/20191104-facebook-leaked-documents/assets/facebook-
exhibits.pdf.
-1-
allowed Facebook to fend off a frontal assault by Google’s polished social network, Google+.
Google, with its massive resources and user base, failed to penetrate the SDBE, and Google
abandoned the project after it was clear that users were not engaging on its platform.
6.
Smartphones, however, were different. Significant advances in mobile technology
allowed users to access the internet from any location, on user interfaces controlled by touch,
providing a distinct experience from desktop or laptop computers. Special-purpose apps designed
specifically for smart phones could not only access the Internet, but also users’ address books—a
ready-made social network from which apps could draw.
7.
These apps had become direct competitors to Facebook, providing overlapping
functionality such as messaging, photo sharing, dating, check-ins, and payments. Facebook failed
to create its own viable mobile app, and by 2011, found its dominance threatened. Zuckerberg
told Fortune, “[i]t was probably one of the biggest mistakes we've ever made.” Facebook’s own
mobile app was buggy and slow, garnering one-star ratings in the Apple App Store and crashing
more often than it worked.
8.
This existential threat to Facebook’s monopoly in social data and social advertising
came as the company was barreling towards an initial public offering (“IPO”) worth billions.
Facebook had successfully built a developer platform upon which third-party developers could
build social applications, driving engagement on Facebook’s Platform and thereby Facebook’s
revenue. It was clear, however, that the very same Platform was providing Facebook’s competitors
with access to Facebook’s network of users. Third-party developers began using Facebook’s
Platform in more novel and creative ways than Facebook itself was doing. Facebook found itself
lagging behind these third-party social applications in the mobile arena.
9.
With its market dominance in imminent danger, Facebook moved to extinguish the
mobile threat, to obtain a sustaining foothold in the Social Data and Social Advertising Markets,2
2 Defined terms are set forth elsewhere in the body of the Complaint.
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and to prevent any newcomers from building rival social networks. To do so, Zuckerberg and
Facebook’s most senior executives hatched an anticompetitive scheme of unprecedented scale.
10.
The scheme spanned several fronts:
11.
First, Facebook moved to crush or co-opt competition that existed on its own
Platform. Facebook identified and categorized potential market threats, then extinguished those
threats by cutting them off from key application program interfaces (“APIs”) in Facebook’s
Platform—functionality that provided social applications with user data that fueled their growth.
As Facebook’s own executives and engineers acknowledged, the company’s decision to remove
core functionality from its Platform not only lacked any legitimate or technical justification, but
Facebook sacrificed massive amounts of additional social data, engagement, and advertising that
it received from its Platform to do it.
12.
Second, Facebook collected valuable user data from competing platforms, growing
its own mobile footprint and constraining the growth of rivals. Facebook accomplished this with a
network of Whitelist and Data Sharing agreements with direct competitors, including rival social
networks (such as Pinterest and Foursquare) and apps that generated large amounts of user data
from engagement (such as Tinder). Facebook coerced these competitors into handing over their
central assets—their social data—by again leveraging its Platform, threatening the apps with
extinction by starving them of access to core Platform APIs if they did not join Facebook’s so-
called “reciprocity” scheme. Those who did join received not only access to social data, but the
data of others that had joined Facebook’s scheme, with Facebook acting as a hub for the exchange
of user data among competitors.
13.
Third, Facebook moved aggressively to shut out entirely direct competitors that
had built independent social networks of their own and did not rely on Facebook for their social
data and user base. Facebook revoked the ability of competitors, such as WeChat and Line, to use
Facebook’s Platform, and even banned them from buying Facebook’s social data through
advertising, forgoing significant profits to do so.
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14.
Fourth, Facebook monitored the market for nascent threats to its business, and then
extinguished these threats through anticompetitive conduct or by targeted acquisition. Facebook
did so using mobile surveillance technology it acquired from Onavo, a company that cloaked
spyware in legitimate-looking utility apps. For example, in 2012-13, Facebook’s surveillance
warned it that both Instagram and WhatsApp were imminent threats to Facebook’s core business,
with each app having accumulated staggering user bases and levels of engagement while directly
competing with Facebook. Facebook moved forcibly to acquire both companies, and with each
acquisition, it dramatically increased its share of the Social Data and Social Advertising markets—
not only maintaining its market power and the SDBE but, expanding and strengthening them.
15.
Today, Facebook is rapidly working to integrate the backends of its acquired
WhatsApp and Instagram assets in the face of regulatory concern over Facebook’s unchecked
market power and anticompetitive conduct. This is no coincidence. Facebook’s integration efforts
are deliberately intended to avoid regulatory divestiture of assets, to consolidate the geographic
regions it controls through its various apps, and to finally flex the market power it acquired through
those mergers. This last piece of Facebook’s monopolization scheme is on the verge of
completion—and once culminated, the backend integration will imbue Facebook with unrivaled
global dominance of the Social Data and Social Advertising Markets.
16.
The net effect of Facebook’s anticompetitive scheme is one of the largest unlawful
monopolies ever seen in the United States—one protected by a far-reaching and effectively
impenetrable barrier to entry arising from feedback loops and powerful network effects. Facebook
not only has the power to raise prices and keep them high, it can do so without suffering any
decrease in demand, and without having to provide more value to users to obtain their data. This
is the very definition of market power. Facebook has sought to bury the story of how it acquired,
maintained and abused that market power for years, but ultimately it cannot avoid the truth.
17.
This lawsuit seeks to hold Facebook accountable for its overtly anticompetitive
conduct. The company, its executives, and its engineers worked together over years to execute the
-4-
anticompetitive scheme described in this Complaint. They did so with flagrant disregard for
competition, for Facebook users, or for the law. Plaintiffs seek trebled damages and injunctive
relief under the federal antitrust laws to remedy Facebook’s brazen play for dominance—and to
stop the company from further solidifying its unlawful monopoly, barrier to entry, and market
power.
PARTIES
I.
PLAINTIFFS
18.
Plaintiff Reveal Chat HoldCo LLC (“Reveal Chat”) is a Delaware limited liability
company headquartered in Bainbridge Island, WA. Reveal Chat is the successor in interest to
Reveal Chat, Inc. (f/k/a LikeBright, Inc. (“LikeBright”)), pursuant to an April 2015 merger
between Reveal Chat and Reveal Chat, Inc.
19.
LikeBright was founded in 2011 and launched the dating site LikeBright.com that
same year. LikeBright was designed as a platform to make dating safe and fun for women. Unlike
most other matchmaking platforms during that time period, Likebright was designed to incorporate
users’ social media data to help facilitate better matches, drawing on second-degree friend
connections and shared interests. LikeBright also featured a system in which women could vouch
for their male friends. In order to facilitate these and other features essential to its business model,
LikeBright was designed to incorporate—and relied heavily on—social media data made available
by Facebook to developers (during the time LikeBright operated) through its Open Graph APIs.
Such social data included friends, photos, likes, groups, pages and other data that facilitated pairing
members to matches with similar interests and shared friends.
20.
Plaintiff USA Technology and Management Services, Inc. (d/b/a Lenddo USA)
(and together with its affiliates, referred to herein as “Lenddo”) is a Delaware corporation with its
principal place of business in New York, NY.
21.
Lenddo is a market leader in alternative credit scoring and identity verification,
allowing individuals and small enterprises in emerging markets to leverage their digital footprints,
-5-
including social media data, to unlock access to financial and credit services to which they might
not have access through traditional means. Founded in 2011, Lenddo first began underwriting and
making loans to customers in the Philippines. It then entered the Columbian market in 2012,
followed shortly thereafter by its entry into the Mexican market in 2013. By 2014, Lenddo had
originated over 10,000 loans using its proprietary LenddoScore algorithm and was able to provide
customers the world’s first Facebook-only loan origination process. Lenddo’s origination
algorithm was designed to incorporate and analyze social media data provided by Facebook to its
developers, including through its Open Graph APIs, in order to accurately measure credit risk
based on factors such as friend networks, frequency and consistency of social interactions, and the
social media characteristics of applicants’ friend connections. In 2015, Lenddo first made available
to third parties its proprietary data scoring system and began offering identity verification services.
22.
Plaintiff Cir.cl, Inc. (“Cir.cl”) is a dissolved Delaware corporation formerly
headquartered in New York, NY. Plaintiff Cir.cl’s claims are brought by and through Carol
Davidsen, who has been appointed as a receiver by the Delaware Court of Chancery pursuant to 8
Del. C. § 279 for purposes of pursing Cir.cl’s claims in this action.
23.
Cir.cl was founded in 2013 and designed an online platform for individuals and
communities to manage peer-to-peer marketplace transactions, with the goal of allowing real-time
integration of users’ various online communities. This allowed them to use their digital presence
and social connections to complete real-life peer-scale marketing and fulfilment goals. Cir.cl’s
platform was designed around and incorporated its user’s social media data, including data made
available by Facebook through its Open Graph APIs.
24.
Plaintiff Beehive Biometric, Inc. (a/k/a Beehive ID) (“Beehive”) is a dissolved
Delaware corporation formerly headquartered in Austin, TX. Plaintiff Beehive’s claims are
brought by and through Mary Haskett, who has been appointed as a receiver by the Delaware Court
of Chancery pursuant to 8 Del. C. § 279 for purposes of pursing Beehive’s claims in this action.
-6-
25.
Beehive was founded in 2013 and designed an identity verification system drawing
heavily on social media data through a trademarked and proprietary Social Authentication
Technology (“SAT”). Beehive’s SAT leveraged social media data, including data made available
through Facebook’s Open Graph APIs, to identify fraud risks based on unique digital patterns and
online social interactions.
II.
DEFENDANT
26.
Defendant Facebook, Inc. (“Facebook”) is a publicly traded company, incorporated
in Delaware. Facebook’s principal place of business and headquarters is located at 1601 Willow
Road in Menlo Park, California.
27.
Founded in 2004 by Mark Zuckerberg, Facebook is a social media company that
provides online services to two billion users around the world. In exchange for providing services,
Facebook collects user data, which it uses to create and sell targeted advertising services.
Facebook’s principal revenue is from targeted social media advertising that it provides to
advertisers as a data broker.
28.
Facebook also operates as a platform for third-party applications and hardware, and
owns and operates several business divisions:
Facebook. Facebook’s core application, which bears the Company’s name, is,
according to Facebook’s filing with shareholders, designed to enable “people to
connect, share, discover, and communicate with each other on mobile devices and
personal computers.” The Facebook core product contains a “News Feed” that
displays an algorithmically ranked series of stories and advertisements
individualized for each person.
Instagram. Instagram is a photo sharing application, which allows users to share
photos, videos and messages on mobile devices. Instagram was acquired in April
2012 and at present, Facebook operates Instagram as a separate application from its
core Facebook product—but that is about to change, absent relief from this Court.
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Messenger. Facebook’s Messenger application is a multimedia messaging
application, allowing messages that include photos and videos to be sent from
person to person across platforms and devices.
WhatsApp. WhatsApp is a secure messaging application used by individuals and
businesses. WhatsApp was acquired by Facebook in 2014 for $21.8 billion, and at
the time had approximately 450 million users worldwide. Facebook operates
WhatsApp as its own application, separate from its Messenger and Facebook
products and lines of business—but that is about to change, absent relief from this
Court.
Oculus. Oculus is Facebook’s virtual reality hardware line of business, which
Facebook acquired in March 2014 for approximately $2 billion.
29.
Facebook’s revenue as of year-end 2018 was $55.84 billion, with net income from
operations of $21.11 billion. Almost all of this revenue ($55 billion) came from advertising. As of
year-end 2018, Facebook maintained $41.11 billion in cash and cash-equivalent securities.
Facebook employed 35,587 people around the world at the end of 2018.
30.
Across all of its lines of business, Facebook reported to investors in 2018 that it had
1.52 billion daily active users (“DAU”) on average for the year. Facebook reported 2.32 billion
monthly active users (“MAU”) on average during the same period.
JURISDICTION AND VENUE
31.
This action arises under sections 1 and 2 of the Sherman Antitrust Act (15 U.S.C.
§§ 1 and 2) and sections 4, 7, and 16 of the Clayton Act (15 U.S.C. §§ 15(a), 18, and 26). The
action seeks to recover treble damages, interest, costs of suit, equitable relief, and reasonable
attorneys’ fees for damages to Plaintiffs and members of the Class resulting from Defendant’s
restraints of trade and monopolization of the Social Data and/or Social Advertising Markets
described herein.
-8-
32.
This Court has subject matter jurisdiction under 28 U.S.C. §§ 1331 (federal
question), 1332 (class action diversity jurisdiction), and 1337(a) (antitrust); and under 15 U.S.C.
§ 15 (antitrust).
33.
Venue is appropriate in this district under 15 U.S.C. § 15(a) (Clayton Act), 15
U.S.C. § 22 (nationwide venue for antitrust matters), and 28 U.S.C. § 1391(b) (general venue
provision). Facebook transacts business within this district, and it transacts its affairs and carries
out interstate trade and commerce, in substantial part, in this district.
34.
The Court has personal jurisdiction over Facebook as it is subject to general
jurisdiction in the State of California, where it maintains its headquarters and its principal place of
business. The scheme, conspiracy, and monopolization alleged in this Complaint was targeted at
individuals throughout the world and the United States, causing injury to persons not only
throughout the world, but in the United States, including in this district.
FACTS
I.
FACEBOOK EMERGES AS THE DOMINANT SOCIAL NETWORK
A.
The Last Social Network Standing
35.
Facebook’s meteoric rise since its founding in 2004 is well documented. The
company—started in the dorm room of its CEO Mark Zuckerberg (“Zuckerberg”) as “the
facebook”—rose to prominence in the face of fierce competition from several social networks.
Initially an exclusive service for elite universities throughout the United States, Facebook
eventually expanded its network to encompass a general audience of users throughout the United
States and worldwide.
36.
Between 2004 and 2010, Facebook vanquished a number of rivals to emerge as the
dominant social network in the United States.
37.
Facebook’s first chief competitor was MySpace. Founded in 2003—a year before
Facebook—MySpace targeted the same audience, provided largely the same services, and rapidly
attracted an enormous number of users. By 2005, MySpace had 25 million active users, and was
-9-
acquired by NewsCorp for $580 million. In 2006, MySpace registered 100 million users, passing
Google as the most visited website in the United States.
38.
However, the next three years featured a steady downward spiral for MySpace—
and countervailing growth by Facebook. In 2008, Facebook passed MySpace in worldwide active
users, and continued to grow, reaching 307 million active users across the globe by April 2009. In
May 2009, Facebook passed MySpace in United States, 70.28 million to 70.26 million monthly
active users.
39.
MySpace never came close to Facebook again. By 2010, MySpace had mostly
exited the market, leaving the business of social media for good. MySpace’s CEO capitulated in
November of 2010: “MySpace is not a social network anymore. It is now a social entertainment
destination.” In September 2010, MySpace reported that it had lost $126 million, and in June 2011,
NewsCorp sold the company for $35 million—$545 million less than it had paid for MySpace just
six years earlier. By then, its user base had dwindled to just 3 million monthly visitors.
40.
During the same time period, several other social networks also met their demise,
including Google’s Orkut, AOL’s Bebo, and Friendster, which failed to scale rapidly enough to
compete with MySpace and Facebook.
41.
By 2009 and through 2010, Facebook emerged as the only peer-to-peer social
media network to exist at scale, and no other network or company rivaled Facebook’s massive user
base. On March 2, 2010, Adweek reported that Facebook had booked revenues of up to $700
million in 2009 and was on track for $1.1 Billion in 2010—almost all from advertising to its newly
won users. Facebook had been roughly doubling its revenues every year up until that point—$150
million in 2007; $280-300 million in 2008; and $700 million in 2009.
-10-
42.
Time Magazine heralded Zuckerberg as its 2010 Person of the Year.
43.
Time’s cover story set out the stakes—the scope of the newly assembled social
network was unprecedented and staggering:
What just happened? In less than seven years, Zuckerberg wired
together a twelfth of humanity into a single network, thereby
creating a social entity almost twice as large as the U.S. If Facebook
were a country it would be the third largest, behind only China and
India. It started out as a lark, a diversion, but it has turned into
something real, something that has changed the way human beings
relate to one another on a species-wide scale. We are now running
our social lives through a for-profit network that, on paper at least,
has made Zuckerberg a billionaire six times over.
44.
By 2010, Facebook was unrivaled and dominant in a way no company since
Microsoft had been in post-personal-computer history. And it had done so by riding the currents
of powerful network effects.
B.
A New Market of Its Own Creation
45.
By the beginning of the millennium’s second decade, Facebook was the
indisputable king of an entirely new market—a market built not on hardware or operating system
dominance, but one built on a network of people, with its power and value directly derived from
-11-
their engagement with that network. The more data users fed into Facebook by communicating
and interacting with each other, posting their pictures, and publishing their content, the more
valuable the Facebook network became to third parties, who could advertise to Facebook’s users
by targeting them using the very information they provided to Facebook’s network.
46.
Data about what information users shared on their personal pages; the photos and
profiles they viewed; their connections to others; what they shared with others; and even what they
put in messages to other users all allowed targeted advertising on a scale that had never before
existed. Unlike search advertising, Facebook’s advertising platform allowed advertisers to target
Facebook’s user base by their attributes and behavior, not by a query entered into a search box.
More importantly, unlike in search, user identity was not only discoverable, it was willingly
provided by users—as was the identity of those users’ closest friends and family members. These
identities could be tracked and targeted throughout the Internet.
47.
This social data created by Facebook’s network of engaged users could be
monetized in a number of ways. The data could be resold for targeted advertising and machine
learning; Facebook’s machine learning algorithms mined patterns in the data for advertisers, which
allowed advertisers to reach precisely the right audience to convert into sales, user signups, or the
generation of sales leads. The data also could be sold by commercializing access—for example,
by providing application developers, content generators, and advertisers with direct access to the
information embedded in Facebook’s network, such as the interconnection between users, user
attributes, and user behavior. That data then could be mined by these third parties.
48.
All of the methods of monetizing social data were based on selling that data, but
such data could be packaged, structured, or mined differently depending on the application for
which it was being sold. For advertisers, Facebook’s network presented advertisers and Facebook
itself with entirely new social signals, such as relationships, events, friendships, and granular
interests. Movies, music, books were inherent parts of a user’s profile. The amount of information
-12-
in Facebook’s network that could be mined as social data was unprecedented—and Facebook
received all of that data daily from its millions of users in the United States and worldwide.
49.
The data Facebook collected was uniquely social, derived from the engaged
interactions and strong identity of Facebook’s users. Twitter, a public-facing social network,
loosely enforced identity, and never required users to disclose granular details about themselves.
Facebook stood alone in this regard, with a clear product emphasis on individuals and their
connections to others. In 2010, Google, Yahoo!, and the other major online advertising sources
competed in an entirely different market—one based on search data. The data Facebook had at its
disposal was not fungible with search data—it was actionable data about individual users, with
their identities fully ascertainable.
50.
By 2010, Facebook stood alone as the dominant player in the newly emergent
market for social data (the “Social Data Market”)—a market in which Facebook’s own users
provided Facebook with a constant stream of uniquely valuable information, which Facebook in
turn monetized through the sale of social data (for example, through advertising, monetizing APIs,
or other forms of commercializing access to Facebook’s network). Advertisers, finding no
substitute from any other company, paid top dollar for Facebook’s powerful targeting and
actionable data, and some of those advertisers—wittingly or not—even fed crucial data about
themselves, their products, and the efficacy of their targeting back to Facebook’s network.
51.
As Facebook itself explained to third-party developers in May 2007, Facebook’s
core value proposition and business model was “providing access to a new kind of data—social
data, which enables you to build applications that are relevant to users.” With respect to that data,
Facebook told developers: “You are on a level playing field with us. You can build robust apps,
not just widgets. Complete integration into the Facebook site.” By 2010, it was clear that
Facebook’s entire business was selling this new form of “social data” and that it would do so by
selling access to developers and selling advertisements targeting Facebook’s network of engaged
and active users.
-13-
C.
The Social Data Barrier to Entry
52.
As Facebook’s dominant position in the Social Data Market emerged in 2010,
powerful network effects and feedback loops took hold and solidified that position. Data provided
by users made Facebook’s network more valuable, thereby attracting more users to the network.
As a typical use case, a Facebook user would invite his closest friends and family, who would then
invite and engage with other friends and family members who existed on the network. A familiar
feedback loop—a virtuous circle—emerged, rapidly growing Facebook’s user base.
53.
The content generated by this user base, in turn, increased the value of the Facebook
network. With each photograph, relationship status, check-in, or post by a Facebook user, the
Facebook network became more valuable, not just as a means of communicating with directly
connected acquaintances, but as a means of learning about more remotely connected ones.
54.
As Samuel Lessin, then Facebook’s VP of Product Management, explained to Mark
Zuckerberg in an internal email on October 26, 2012, the data Facebook collects makes Facebook
progressively more proficient at collecting and monetizing data:
One of the things that puts us currently in a very defensible place is
the relationship we have created between the people using Facebook
all the time, and us having the information we need to make
Facebook a better product. This is the fundamental insight in
something like coefficient. We know more about what people want
to see because people look at more stuff on our platform. In this
respect, while there are other ways to get close, it feels viscerally
correct that there is an ROS dynamic at play, the more people that
use the system, the more information we have on how to make
more people use the systems.
(emphasis added).
55.
A barrier to entry emerged from this feedback loop. To compete with Facebook, a
new entrant would have to rapidly replicate both the breadth and value of the Facebook network—
a task a mere clone of that network could not accomplish. Indeed, to compete with Facebook, a
competitor would not only have to build its own vast network, but would have to draw active social
engagement on a massive scale—which likely would require drawing a vast quantity of Facebook
users away from that platform. The costs to switch would be massive: an entrant-competitor would
-14-
have to present an overall value proposition to users that not only exceeded that of Facebook’s
entrenched network, but one that did so handily. Moreover, to compete with Facebook’s virtuous
circle, the value delivered by an entrant-competitor platform would have to facilitate social data
mining that would create even more value for users, developers, and advertisers. This barrier to
entry is referred to throughout this Complaint as the Social Data Barrier to Entry (“SDBE”).
56.
The SDBE allows Facebook to control and increase prices in the Social Data and
Social Advertising Markets without the pressures of price competition from existing competitors
or new entrants. Because of the SDBE, Facebook has been able to consistently increase the price
it charges for social data through advertising or direct access to its social data (e.g., through APIs).
And this is exactly what Facebook has done since it obtained its dominant position in 2010.
57.
From 2011 to 2012, for example, Facebook massively increased the prices it
charged for its advertisements—one of the primary sales channels for its social data. That year,
costs per thousand impressions (CPM) on Facebook increased by 41%, with a 15% increase in the
last quarter of 2011 alone. Cost per click, which is a measure of advertising costs paid on a by-
click basis, rose 23% that same year. Facebook increased prices as it also grew the number of
advertisements it displayed on its site, indicating direct market power over social data prices,
particularly through the advertising channel for selling social data.
-15-
58.
Facebook maintained that power over its prices through 2013, with a 2.9x increase
in CPMs year over year. The increase came as overall advertising revenues increased yet again—
that year by a staggering 83% over the last.
59.
These price increases would not be possible without the SDBE. If a rival network
existed with comparable Social Data available for sale through advertising, Facebook’s price
increases would have been met with customer migration to the comparable rival. But Facebook
had no such rival and was unfettered in its ability to increase prices, even while rapidly increasing
its supply of data for sale through advertisement or directly through its developer platform.
60.
Once Facebook had achieved dominance in the Social Data market, its position
only improved—and became more entrenched. The more advertising Facebook sold, and the more
social data Facebook collected and packaged for sale, the more effective Facebook became at
selling advertising, targeting users, and commercializing direct access to its users’ social data (e.g.,
through APIs). This, in turn, made entry by a new rival impossible or prohibitively costly, thereby
allowing Facebook to increase prices and make additional investments that deepened the SDBE
moat surrounding its business.
D.
Google’s Failed Entry into the Social Data Market
61.
In 2010, Google became desperate to enter the Social Data and Social Advertising
Markets. It had tried several times to do so before, but each foray was met with failure. Google’s
Orkut social network, which was launched days before Facebook, was quickly overtaken. Wave,
Google’s social communication platform, never achieved any traction with users. And Google’s
Buzz social network—built on the back of its highly successful Gmail product—imploded quickly
in early 2010.
62.
Google’s next attempt to enter the market attacked Facebook’s functionality head
on, which meant attempting to penetrate the powerful SDBE protecting Facebook’s business.
Google made a massive, unprecedented investment of resources into building a product with
enough value to lure users away from Facebook’s broad, highly-engaged social network.
-16-
63.
In 2010, Google’s Vic Gundotra became the company’s Chief Architect. Gundotra
pitched a new social network to Larry Page, Google’s cofounder, who returned as CEO of the
company in 2011. Gundotra repeated an ominous refrain, “Facebook is going to kill us. Facebook
is going to kill us,” which frightened Page into action.
64.
Page greenlit a new product, Google+. Initially, Google+ sought to leverage
Google’s YouTube product to build its social network, requiring a Google+ account for access to
certain key features of YouTube. In the face of significant user resistance, Google backed away
from that requirement. Nonetheless, Google attempted, through Google+, to build out a “social
graph” that would leverage a common user identity across Google products, including YouTube
and Gmail.
65.
In early 2011, Google began what insiders now refer to as “the 100-day march”
toward launch of Google+. The product Google planned to deliver was, by any fair account, largely
undifferentiated from what Facebook offered in terms of product features and functionality. By
Summer 2011, the planned features for Google+ included a continuous scroll product called the
“stream” (a clone of Facebook’s “feed” product); a companion feature called “sparks,” which
related the “stream” to users’ individual interests; and a sharing app called “Circles,” a purportedly
improved way to share information with one’s friends, family, contacts, and the public at large.
66.
Unlike Google’s past products, Google+ was not designed to organically grow and
scale from small beginnings. From the outset, Google invested massive amounts of resources to
bring a finished, full-scale social network to market. Developed under the code name Emerald Sea,
Google conscripted almost all of the company’s products to help build Google+. Hundreds of
engineers were involved in the effort, which remained a flagship project for Page, who had recently
re-assumed the Google CEO role. Google’s Gundotra was quoted explaining that the product that
would become Google+ was a transformation of Google itself: “We’re transforming Google itself
into a social destination at a level and scale that we’ve never attempted—orders of magnitude more
investment, in terms of people, than any previous project.”
-17-
67.
The amount of resources Google brought to bear stood in stark contrast to its
previous attempts at penetrating the Social Data and Social Advertising Markets. Google had
dedicated barely a dozen staff members to its previous failed social network product, Buzz. At its
peak, Google+ involved 1000 employees from divisions across the country. Google, for example,
ripped out its elaborate internal video conferencing system and forced employees to use the
Google+ Hangouts video chat feature, which one internal employee described as “janky.”
Employee bonuses were tied to the success of Google+. And, the entire project was confined to a
level of secrecy never before seen at Google.
68.
Google+ was released on June 28, 2011. The product included the “stream,” the
“Circles” app, the “Hangout” video chat and messaging product, and a photo sharing product. The
resemblance to Facebook was striking. As one internal Google employee commented: “this looks
just like Facebook. What was the big deal? It’s just a social network.” Another Google employee
was quoted as saying, “All this fanfare and then we developed something that in the end was quite
ordinary.” One thing was indisputable: with the release of Google+, Google had challenged
Facebook head-on by effectively cloning Facebook’s product.
69.
Because Google’s user base was already massive, the Google+ product attracted
millions of users shortly after launch. But although these users signed up for Google+, Google
quickly found out that they were not using the product. As one former Google employee explained:
It was clear if you looked at the per user metrics, people weren’t
posting, weren’t returning and weren’t really engaging with the
product. Six months in, there started to be a feeling that this isn’t
really working.
70.
The problem for Google+ was the powerful network effect that reinforced the
SDBE that protected Facebook. Google’s clone of Facebook did not present enough new value to
overcome massive network-based switching costs—the cost to Facebook users of shifting away
from an existing networked product that the users had actively invested their social data in for
years.
-18-
71.
Paul Adams, a former Google+ user-experience team member, summed it up
succinctly when asked why Google+ had failed:
What people failed to understand was Facebook and network
effects. . . . It’s like you have this grungy night club and people are
having a good time and you build something next door that’s shiny
and new, and technically better in some ways, but who wants to
leave? People didn’t need another version of Facebook.
72.
By 2014, Google+ was declared a failure and Gundotra, its founder, eventually left
Google. Within just a few years, Google—with all of its resources, developers, and existing user
base—failed entirely to overcome the SDBE protecting Facebook. As long as Facebook controlled
the data derived from an engaged and active user base, it could continue to keep that user base
active and engaged.
73.
The only way to disrupt this virtuous circle was with a rival product that provided
significantly more or different value than Facebook, and that itself was propelled to scale by
powerful network effects. By attempting to clone Facebook’s functionality and failing to garner
user engagement that could erode the SDBE protecting Facebook, Google+’s failure was virtually
ensured at launch.
II.
A THREAT TO FACEBOOK’S MONOPOLY: THE RISE OF SMART PHONES
AND MOBILE APPS
A.
The Mobile App Revolution
74.
In 2009 and 2010, as Facebook emerged the undisputed winner of the newly formed
Social Data and Social Advertising Markets, another new market had begun to take hold. The
launch of the Apple iPhone in 2007 created a market for a new type of cellular phone—one with
a user interface capable of robust Internet connectivity and messaging. No longer constrained by
numeric keypads for texting—or clunky, permanent alphanumeric keyboards attached to phones,
such as with the Treo or Sidekick cellular phones—the iPhone dynamically displayed a multi-
touch keyboard and came equipped with a full-featured web browser that rendered complete
webpages.
-19-
75.
By the summer of 2008, Apple’s newest iPhone, the iPhone 3G, was released with
onboard GPS, as well as other hardware upgrades. Accompanying the release of the new iPhone
was a new store for third-party applications that would run natively on the iPhone: the Apple App
Store, which opened for business on July 10, 2008, the day before the release of the iPhone 3G.
76.
Developers who launched their third-party applications via the App Store reaped
huge rewards. There were approximately 500 apps available at the App Store’s initial launch.
Games using the iPhones accelerometer became immediate successes, some quickly earning
hundreds of thousands of dollars by selling downloads for just a few dollars each. Applications
that exploited the new GPS functionality in the iPhone also quickly became popular. By September
2008, the Apple App Store had racked up 100 million downloads, and by 2009, it hit 1 billion.
iPhone Apps had become a new means to deliver scaled value to countless users.
77.
Google also launched what became its Play Store (initially known as Android
Market) in 2008. It soon thereafter overtook Apple’s App Store in terms of overall volume, with
82% growth. The mobile app revolution had begun.
78.
Mobile apps rapidly proliferated, with huge opportunities for further growth—as
the lion’s share of cell phone activity by 2010 had become something other than making phone
calls. For example, a 2010 Pew Research survey showed that taking pictures and sending text
messages had become the most common uses for cellular phones among adults, with more than a
third of adult cell phone users accessing the Internet, playing games, emailing, recording video, or
-20-
playing music through their cell phones. At the same time, 29% of adult cell phone users had used
a downloaded app.
79.
A 2010 Nielsen survey showed that games, news/weather, maps and navigation,
and social networking were the most popular apps on cellular phones.
-21-
80.
Notably, mobile apps resonated most strongly with the demographics that had
recently adopted social media and were providing their data to Facebook in droves. App users
among cell phone owners were disproportionately younger, with 44% of app users in 2010 under
the age of 20, and another 41% between the ages of 30 and 49. These were the same demographics
that were rapidly adopting social media as part of their lives, and were providing Facebook with
the social data that built and maintained the SDBE that protected its business.
81.
Many of the mobile apps that were rapidly attracting users were doing so because
they presented their own specialized value propositions. These apps had to be specialized because
cellular phone screens were smaller, particularly in 2010, and mobile traffic was driven by
specialty software, often designed for a single purpose. Users signed up for these apps with their
e-mail addresses and personal information—and interacted directly with the apps.
82.
As WIRED Magazine described in 2010, a typical user moved from app to app, each
with some specialized use:
You wake up and check your email on your bedside iPad—that’s
one app. During breakfast you browse Facebook, Twitter, and the
New York Times—three more apps. On the way to the office you
listen to a podcast on your smartphone. Another app. At work, you
scroll through RSS feeds in a reader and have Skype and IM
conversations. More apps. At the end of the day, you come home,
-22-
make dinner while listening to Pandora, play some games on Xbox
Live, and watch a movie on Netflix’s streaming service.
83.
In 2010, Morgan Stanley projected that within five years, the number of users who
accessed the Internet from mobile devices would surpass the number who accessed it from PCs.
The Internet was at an inflection point—the World Wide Web was no longer the dominant way to
access information. Users were obtaining their information from specialized walled gardens, and
Facebook’s own walled garden was one app away from being superseded.
84.
The years leading up to 2010 saw the rise of streaming apps, such as Netflix and
Pandora, and e-book readers, such as Kindle and iBooks. Apple’s 2010 list of top-grossing iPhone
apps included mobile games such as Angry Birds, Doodle Jump, Skee-Ball, Bejeweled 2 + Blitz,
Fruit Ninja, Cut the Rope, All-in-1 GameBox, the Moron Test, Plants vs. Zombies, and Pocket
God. Facebook’s mobile app topped the list of free downloads in the App Store, along with Words
with Friends, Skype, and the Weather Channel App.
B.
Facebook Recognizes the Looming Threat Presented by Mobile Applications
85.
By 2011, Facebook realized that it had fallen behind. Facebook had just debuted its
new “Timeline” product, a controversial modification of the Facebook feed that generated dynamic
content for each user rather than a static series of posts visible to the user. Facebook had spent the
last eight months prioritizing its desktop experience and its new Timeline product. But while it did
so, mobile applications continued their meteoric rise.
86.
Facebook’s own mobile application was built on a technology called HTML5,
which at the time was good for building web pages, but not for building mobile apps native to iOS
and Android smartphones. As a result, Facebook’s mobile app was buggy, prone to crashes, and
painfully slow. As Zuckerberg would lament years later about HTML5, “we took a bad bet.”
87.
Zuckerberg reflected in 2018 that Facebook had fallen behind when mobile apps
emerged:
One of my great regrets in how we’ve run the company so far is I
feel like we didn’t get to shape the way that mobile platforms
developed as much as would be good, because they were developed
contemporaneously with Facebook early on. I mean, iOS and
-23-
Android, they came out around 2007, we were a really small
company at that point—so that just wasn’t a thing that we were
working on.
88.
As mobile apps rose, Facebook’s desktop product acquired users at a slower pace.
All of this occurred as Facebook was planning its initial public offering (“IPO”). Facebook knew
that its position was eroding and that if mobile growth continued, its IPO debut would be in the
midst of material changes to its business, undermining Facebook’s financial and qualitative
disclosures to public investors.
89.
But there was no avoiding the issue. After the IPO, when Facebook released
statistics in its first major shareholder filing with the SEC in 2012, the trend was unmistakable—
the transition to mobile devices from desktop web-based applications posed an existential threat
to Facebook’s business. Facebook disclosed this risk to shareholders as one of the factors that
affected its bottom line:
Growth in the use of Facebook through our mobile products as a
substitute for use on personal computers may negatively affect our
revenue and financial results.
We had 680 million mobile MAUs in December 2012. While most
of our mobile users also access Facebook through personal
computers, we anticipate that the rate of growth in mobile usage will
exceed the growth in usage through personal computers for the
foreseeable future and that the usage through personal computers
may decline or continue to decline in certain markets, in part due to
our focus on developing mobile products to encourage mobile usage
of Facebook. For example, during the fourth quarter of 2012, the
number of daily active users (DAUs) using personal computers
declined modestly compared to the third quarter of 2012, including
declines in key markets such as the United States, while mobile
DAUs continued to increase. While we began showing ads in users’
mobile News Feeds in early 2012, we have generated only a small
portion of our revenue from the use of Facebook mobile products to
date. In addition, we do not currently offer our Payments
infrastructure to applications on mobile devices. If users
increasingly access Facebook mobile products as a substitute for
access through personal computers, and if we are unable to continue
to grow mobile revenues, or if we incur excessive expenses in this
effort, our financial performance and ability to grow revenue would
be negatively affected.
(some emphasis added).
-24-
C.
The Facebook Platform
90.
Although Facebook faced a looming threat from mobile applications, it maintained
an important source of leverage: its social data. Facebook possessed (and continued to receive)
vast quantities of information about its massive user base, including how each user was connected
to others. This information was valuable to both new and existing mobile applications, which could
leverage Facebook’s social data to obtain new users and to build novel social features, functions,
and apps.
91.
Facebook referred to its network as its “Graph,” coined after a mathematical
construct that models connections between individual nodes. The Facebook Graph contained user
“nodes,” with connections and information exchanged among nodes as “edges.” Facebook coined
the term “Open Graph” to describe a set of tools developers could use to traverse Facebook’s
network of users, including the social data that resulted from user engagement.
92.
Importantly, Open Graph contained a set of Application Programming Interfaces
(“APIs”) that allowed those creating their own social applications to query the Facebook network
for information. As Facebook explained in its 2012 10K:
Open Graph. Our underlying Platform is a set of APIs that
developers can use to build apps and websites that enable users to
share their activities with friends on Facebook. As Open Graph
connected apps and websites become an important part of how users
express themselves, activities such as the books people are reading,
the movies people want to watch and the songs they are listening to
are more prominently displayed throughout Facebook’s Timeline
and News Feed. This enables developer apps and websites to
become a key part of the Facebook experience for users and can
increase growth and engagement for developers.
93.
Open Graph, along with other Facebook products, such as its NEKO advertising
and Payments products, comprised Facebook’s Platform. The Platform was vital to Facebook’s
business, because it ensured that engagement continued on Facebook. Without the Platform,
Facebook would be required to build applications that increased the value of its network itself—
meaning that Facebook would have to try to predict what applications users wanted; design, code,
-25-
and scale those applications across its user base and network; and bear the risk and resource drain
of guessing wrong and making mistakes.
94.
Facebook did not have the resources to do this, so it decided instead to allow third
parties to build applications for the Facebook Platform. As Mark Zuckerberg observed in a
February 2008 email to Facebook’s VP Engineering for Platform Michael Vernal, a senior
Zuckerberg Lieutenant who was in part responsible for creating Open Graph:
Platform is a key to our strategy because we believe that there will
be a lot of different social applications . . . . And we believe we can’t
develop all of them ourselves. Therefore . . . . It’s important for us
to focus on it because the company that defines this social platform
will be in the best position to offer the most good ways for people
to communicate and succeed in the long term.
95.
Put simply, Facebook could either speculate on new social applications by building
them itself, or it could provide a platform for others to do so. For years, Facebook opted to provide
a platform until it was able to develop its own social applications.
96.
But Facebook also recognized that developers on Facebook’s platform could
potentially pose a competitive threat. In its 2012 Annual Report, Facebook disclosed the following
significant risk factor to its operations:
In addition, Platform partners may use information shared by our
users through the Facebook Platform in order to develop products or
features that compete with us. . . . As a result, our competitors may
acquire and engage users at the expense of the growth or
engagement of our user base, which may negatively affect our
business and financial results.
97.
Thus, Facebook knew that competition could come from its own third-party
application developers. But Facebook nevertheless actively sought developers to build
applications on its Platform because of the potential to extract profits from the applications these
developers built and the users they attracted to, and engaged on, Facebook’s Platform.
98.
As Facebook explained to its investors in 2012, maintaining a Platform on which
developers could build applications meant more engagement and therefore greater ad revenues for
Facebook:
-26-
Engagement with our Platform developers’ apps and websites can
create value for Facebook in multiple ways: our Platform supports
our advertising business because apps on Facebook create
engagement that enables us to show ads; our Platform developers
may purchase advertising on Facebook to drive traffic to their apps
and websites; Platform developers use our Payment infrastructure to
facilitate transactions with users on personal computers; Platform
apps share content with Facebook that makes our products more
engaging; and engagement with Platform apps and websites
contributes to our understanding of people’s interests and
preferences, improving our ability to personalize content. We
continue to invest in tools and APIs that enhance the ability of
Platform developers to deliver products that are more social and
personalized and better engaged people on Facebook, on mobile
decides and across the web.
99.
Facebook’s Platform was valuable to Facebook in several important ways.
100.
First, the Platform meant that new applications would be built on Facebook’s
network, increasing the value of Facebook’s network as the applications became more popular.
The increased engagement with Facebook as a result of these new applications translated to better-
targeted content and higher advertising revenues.
101.
Second, Facebook would not need to spend significant resources to develop new
applications or test new business models—third parties would do that instead. Facebook could
merely wait for an application built for its Platform to gain widespread adoption, then either build
a competing application or passively glean the benefits of that popular application’s user
engagement, including valuable new social data for Facebook and its network.
102.
Third, access to Facebook’s network was itself valuable to third-party developers,
so Facebook could charge developers—most notably, through API access and advertising
purchases—to access Facebook’s Platform and the social data it collected from Facebook’s
massive number of engaged users.
D.
The Profitable Open Graph Platform and Mobile Install Business
103.
Facebook continued to struggle to catch up with the new onslaught of mobile
applications, but it recognized that the new apps required aggressive user growth to be profitable.
Among other things, Facebook’s APIs allowed mobile app developers to query the friends of a
-27-
person’s friends, which allowed mobile applications to find other users that might be interested in
using their apps.
104.
Mobile apps also could use Facebook to communicate across Facebook’s network,
either directly with a user’s friends, or with others not directly connected with the user. A mobile
payment application, for example, could enable two strangers to pay each other, even if they were
not directly connected on Facebook—so long as both of them existed somewhere on Facebook’s
Platform. A user of a dating application, such as Tinder, could use Facebook’s API to find a
compatible date, either in the extended network of one’s friends or beyond—anywhere on
Facebook’s platform.
105.
Facebook quickly realized that it could monetize the value of its network through
third-party mobile applications, and it moved aggressively to do so, beginning with games built to
run on Facebook’s Platform. Those games, many of which were social games that allowed users
to play with and against each other, sought above all else new users to increase their adoption.
Facebook’s Vernal sought to obtain a beachhead with these applications, monetizing each
additional game install that resulted from the use of Facebook’s Platform or from Facebook’s
advertising product, NEKO.
106.
For example, Facebook included ads as “stories” on user timelines that indicated
whether the user knew other users who were playing a particular game. Facebook then monetized
such advertisements when the game obtained new users from them. As Vernal explained in the
same May 2012 e-mail:
The biggest/most efficient market segment for advertising on mobile
today is driving app installs. This is at least partly because it’s the
most measurable—if you know that you get $0.7 from every game
you sell, then in theory you can afford to pay up to $0.69/install.
This kind of measurability allows for maximal bidding.
So, what we’re trying to do is kickstart our sponsored stories
business on mobile by focusing on one particular type of story (is-
playing stories) and one market segment (games), make that work
really well, and then expand from there.
-28-
107.
Facebook thus leveraged its most valuable asset—the information it had about its
users, their interests, and most importantly, their friends—to make money from the proliferation
of mobile games.
108.
Games like Farmville, a mobile application that allowed players to create their own
simulated farms, quickly took off because of Facebook’s Platform. Facebook increasingly
recognized that it could obtain engagement from users through the game itself.
109.
This strategy led to a broader one, in which Facebook drove app installs by allowing
developers to advertise to its userbase and traverse Facebook’s social network through the
Facebook API. Facebook collected a fee for each app install that resulted from its network. Vernal
outlined the plan in detail:
Roughly, the plan:
1/ Create new iOS + Android SDKs, because the current ones are
terrible. Ship Thunderhill so we get even broader adoption of our
stuff.
2/ Wire them up to make sure we know when you’re playing a game
(so we can generate the same kind of is-playing stories we can on
canvas).
3/ Generate a bunch of effective, organic distribution for these
games via our existing channels (news feed, net ego on both desktop
+ mobile). Ship send-to-mobile, which allows us to leverage our
desktop audience to drive mobile app traffic.
4/ Create an even better app store than the native app stores (our app
center) and make a lot of noise about it, so developers know that
they should be thinking about us to get traffic to their mobile apps.
5/ Introduce a paid offering, probably cost-per-install (CPI) based,
where you can pay us to get installs from your mobile app. Primary
channels for this paid distribution are News Feed and App Center
(on desktop + mobile) as well as RHC on desktop.
(emphasis in original).
110.
The strategy was clear, not just for gaming, but for mobile apps. Facebook would
make money by allowing app developers to leverage its user base. Facebook would advertise social
games to its users by plumbing their social data—including data about when they played games
and which of their friends played them—and in exchange, Facebook would receive some amount
-29-
of money per install, which would be the app developer’s cost-per-install (CPI). The same plan
would work for mobile applications generally.
111.
By the end of 2011 and the beginning of 2012, Facebook began discussing other
ways to monetize its Platform, including its Open Graph APIs. One way was to sell API access
based on usage. Zuckerberg and top executives at Facebook extensively debated a tiered approach
to API access. Facebook deliberated over a pricing model for API access, and internally decided
that it would be possible to sell API access to third-party developers. Facebook also decided that
it could bundle API access with the ability to advertise on Facebook. However, as explained below,
Facebook gave up the profits it could glean from API access for the chance to dominate the Social
Data and Social Advertising Markets entirely, excluding competitors (both actual and potential)
and leveraging network effects to achieve and maintain monopoly power.
III.
FACEBOOK WEAPONIZES ITS PLATFORM TO DESTROY COMPETITION.
A.
Facebook Makes Plans to Remove Vital Friends and News Feed APIs and
Refuses to Sell Social Data to Competing Application Developers.
112.
Although Facebook had made significant amounts of revenue and profit selling
access to its social data through its APIs and its NEKO advertising system and had planned to
expand that business, it chose not to, sacrificing those significant profits.
113.
By the end of 2011 and the beginning of 2012, Zuckerberg along with Facebook’s
Vice President of Growth, Javier Olivan, its VP of Product Management, Samuel Lessin, and
Michael Vernal internally debated a plan to prevent third-party developers from building their own
competing social networks that could be capable of generating engagement and social data
independent of Facebook’s Platform.
114.
Emerging mobile applications, such as Line, WeChat, and Instagram were creating
their own vast user bases with identity and login features separate from the Facebook Platform.
Their increasing ubiquity posed an existential threat to Facebook’s core business, which relied
heavily on engagement from its user base. These applications provided quintessentially social
-30-
applications, such as image sharing, messaging, and payments—a direct threat to Facebook’s own
applications, including Facebook’s own fledgling Messenger application.
115.
Mobile applications were rapidly eating away at Facebook’s dominance, which
relied heavily on its web-based desktop product. Zuckerberg openly acknowledged that its desktop
applications were not the future and that native phone apps would dominate the mobile web in the
future.
116.
Zuckerberg therefore sought to consolidate core applications into its own
centralized Facebook application, noting in a March 2012 Q&A with employees that Facebook
was “building towards social Facebook versions where you can use the individual app or the
Facebook version.” That is, users could “replace whole parts of your phone with these Facebook
apps and [they] will be a whole package for people.”
117.
Beginning in the fall of 2011 and well into 2012, Mark Zuckerberg and his chief
lieutenants, Lessin and Vernal, planned to address the looming mobile applications threat. Their
solution was a scheme to disrupt the massive growth of mobile applications by attracting third-
party developers to build for Facebook’s Platform and then remove their access to the APIs that
were most central to their applications. They would accomplish this by leveraging Facebook’s
“Friends” and “Timeline” APIs, as well as other vital APIs, including those relating to messaging.
118.
The Friends APIs let third-party developers traverse the Facebook Graph, searching
through a user’s friends, as well as their friends of friends. Zuckerberg and his executives proposed
modifying the API to deny third-party developers access to information about a user’s friends (and
the friends of their friends) unless that developer’s application was already installed by a user’s
friends to begin with. This ensured that new applications could not obtain new users or use
Facebook’s social data to increase the value of their application.
119.
Facebook also foreclosed developers from continuing to extract information about
a user’s friends from their timeline or news feed. Thus, third-party applications that relied on the
stream of information that flowed through a user’s news feed, such as a post about a friend of the
-31-
user getting engaged or sharing a news article, would be abruptly left with none of the social data
they needed to function.
120.
Removing access to these APIs halted the growth of tens of thousands of third-
party applications that relied on these essential APIs and were, in Facebook’s view, threatening
Facebook’s dominance by eroding the SDBE that protected Facebook’s business.
121.
Facebook’s plan prevented any competitive third-party application from buying
social data from Facebook, either through its Platform APIs or through its advertising Platform.
As Vernal explained to Lessin in August of 2012, Facebook would “not allow things which are
at all competitive to ‘buy’ this data from us.” (emphasis added).
122.
Facebook thus refused to sell its social data to any competitive third-party
developer, sacrificing significant profits in exchange for a competitive advantage in the Social
Data and Social Advertising markets. If not for the prospect of driving these competitors out of
the markets in which Facebook competed, the decision to refuse to sell social data to third-party
developers made no economic, technical, or business sense.
123.
Third-party developers with successful applications increased the value of
Facebook’s overall network by increasing engagement and generating the very Social Data
Facebook sold through its targeted advertising channels, including to developers. As Zuckerberg
had observed years earlier, Facebook itself could not broadly develop new third-party apps or
anticipate what apps would be successful, so it relied on third parties to do so. Refusing API and
social data access to third parties meant that they could not develop the applications that were vital
to Facebook’s growth, engagement, and advertising revenue. Facebook decided to deliberately
sacrifice the value its third-party developers provided to secure dominance in the Relevant
Markets.
B.
Facebook’s Social-Data Heist
124.
In May 2012, Zuckerberg decided to use the threat of blacklisting from its Platform
to extract precious social data from some of Facebook’s competitors. He instructed his executives
-32-
to quietly require “reciprocity” from major competitors that used Facebook’s Platform. The
reciprocity Zuckerberg demanded was the very lifeblood of these competitors’ businesses—the
social data harvested from user engagement on their competing networks.
125.
By the middle of 2012, Facebook began to block some of its competitors from using
its Platform and thereby obtaining Facebook’s social data. Facebook had already blocked Google,
including its competing social network Google+, from access to Facebook’s APIs and advertising
platform. With respect to Twitter, Instagram, Pinterest, and Foursquare, Facebook would demand
“reciprocity” or blacklist them. Reciprocity, of course, meant that these competing social networks
would have to hand over their most valuable asset—their social data—to their rival Facebook.
126.
If rivals did not comply with Zuckerberg’s demands to hand over their social data
to Facebook, Facebook would simply take it. In May 2012, Vernal directed his subordinates,
Douglas Purdy (Director of Engineering for Platform) and Justin Osofsky (VP of Global
Operations), to build “our own hacky scraper” and a “bunch of scrapers” to crawl rival sites like
Twitter and Instagram and harvest their social data—with or without their consent. If Twitter or
Instagram refused to agree to Zuckerberg’s “reciprocity” proposition, Facebook would use the
scrapers to obtain the data instead.
127.
In August 2012, Facebook considered broadening its list of companies to shake
down for social data—or to block entirely from Facebook’s Platform. That month, Facebook’s
then VP of Business and Marketing Partnerships, David Fischer identified other potential product
categories and competitive companies in each category to block:
I’d expect that a large part of the market for our network will come
from current and potential competitors. Here’s the list that Jud
worked up of what we’d likely prohibit if we were to adopt a ban on
“competitors” using a broad definition:
Social network apps (Google+, Twitter, Path, etc.)
Photo sharing apps (Picasa, Flickr, LiveShare, Shutterfly,
etc.)
Messaging apps (WhatsApp, Viber, Imo, KakaoTalk, etc.)
-33-
Local apps (Google+ local, Google Offers, Yelp, yp, etc.)
Social search apps (HeyStaks, Wajam, etc.)
Platforms (Google Play, Amazon, etc.)
128.
Facebook thus identified its direct, horizontal competitors in the Social Data and
Social Advertising Markets. These categories of competing applications, particularly on mobile
platforms, threatened Facebook’s business because they created social networks independent of
Facebook, each capable of generating their own valuable social data. If Facebook lost control over
these companies, it would lose access to the social data they generated, which meant Facebook’s
own product could not drive engagement and sell advertising.
129.
In August 2012, Facebook gave a presentation to its Board of Directors that
included various revenue models to monetize its Platform, including its APIs. The Board
understood that Facebook could monetize its platform by charging per company, per application,
per user, or per API call.
130.
But Facebook opted to do none of those things. Instead, it decided to sacrifice those
profits to obtain complete control over the growing mobile application and advertising markets,
thereby maintaining and furthering its dominance of the Social Data and Social Advertising
Markets.
131.
Facebook’s plan was to instead block competitors from using its Platform, thereby
preventing them from eroding the SDBE that protected Facebook’s business. In the case of a select
few companies with social data that Facebook needed to maintain and grow its own business,
however, Facebook would coerce them into agreements to share their most valuable social data
with Facebook. If they refused, Facebook would blacklist them and take it from them anyway with
its own crawling software that would scrape their public-facing site for information.
132.
In September 2012, Zuckerberg formalized his order to shut down the Friends and
News Feed/Timeline APIs and to coerce rivals into providing their valuable data to Facebook on
pain of blacklisting. On October 30, 2012, Vernal notified his subordinates of Zuckerberg’s
decision:
-34-
We are going to dramatically reduce the data we expose via the Read
API . . . . We are going to change friends.get to only return friends
that are also using the app . . . . Since friends.get will only returned
other TOSed users’ data [data from users that agreed to an
application’s terms of service], that means we no longer need the
friends_* permissions. We are going to remove/whitelist access to
the Stream APIs [the News Feed API]. We are going to limit the
ability for competitive networks to use our platform without a
formal deal in place . . . . We are going to require that all platform
partners agree to data reciprocity.
133.
This decision meant several things: (1) when a third-party application called the
Friends APIs, it could not obtain information about a user’s other friends unless those friends
already had installed the application; (2) the News Feed APIs would no longer provide information
about a user’s connections; (3) access to those API could be “whitelisted” for third-party
developers that were offered—and agreed to—data reciprocity; and (4) reciprocity would be
required for any access to the APIs.
134.
In November 2012, Osofsky, who was then head of Facebook’s Platform,
summarized the policy changes required by the decision:
Policy changes: define competitive networks + require they have a
deal with us, regardless of size. Maintain size-based thresholds for
all other developers to force business deals. Require data reciprocity
for user extended info to ensure we have richest identity.
135.
Facebook knew that these changes would eliminate the “growth channel used by
23% of all Facebook apps” and that 89% of the top 1,000 iPhone apps relied on the full friends list
API, with 75% of the top 1,000 iPhone apps relying on the Friends permissions APIs. Facebook
determined that popular applications on its platform with millions of customers would break as a
result of the decision, including FarmVille, ChefVille, CityVille, Skype, Spotify, Xobni, Texas
Holdem, Yahoo!, Trip Advisor, Microsoft’s Birthday Reminders, Samsung’s clients, Glassdoor
and dozens of others.
136.
On November 19, 2012, Zuckerberg broadly announced his decision to block
competitors or require full data reciprocity for continued access. Facebook’s COO Sheryl
Sandberg immediately ratified the decision, adding that “we are trying to maximize sharing on
-35-
Facebook, not just sharing in the world,” with the note that the distinction was a “critical one” and
the “heart of why.”
137.
Facebook began preparing its 2013 plan for its mobile advertising business, which
included the launch of a new version of its Platform, version 3.0. Platform 3.0 would (according
to Facebook) facilitate Facebook’s transition from its desktop advertising business to a mobile
advertising business. A central element of the transition plan was the implementation of
Zuckerberg’s decision to remove the Friends and News Feed APIs.
138.
Vernal explained Zuckerberg’s decision to other Facebook employees in November
2012, noting that he believed the amount of data that Facebook required from competitors was
“crazy”:
[A company must share] every piece of content by that user that can
be seen by another user. What Mark is saying is he wants certain
partners (I assume not all) to give us news feeds on behalf of their
users, which is kind of crazy.
139.
Facebook continued to formalize its plan to require the right to crawl the sites of its
competitors as a condition of access to its Platform. In November 2012, Facebook’s Group Product
Manager, Rose Yao explained the scheme:
We also reserve the right to crawl a partner website for the user’s
data. Partners cannot blacklist or block Facebook from crawling
your site or using the API. If they do, Facebook reserves the right to
block the partner from using our APIs . . . . The theory behind
Action Importers was that we needed to balance the leverage. You
can call our APIs and access our data, as long as we can call your
APIs (if you have them) or crawl your web site (if not) and access
your data. It’s one thing to drag your heels, but if we’re the ones
doing the work then we force you to make a decision—either you
allow us access to your data, or you block us. If you block us, then
it’s really easy/straightforward for us to decide to block you. What’s
changed? When we first started discussing this, we were talking
about doing this only for top partners. I think a lot of folks
interpreted this as just a negotiation tactic—we’d just threaten to
do this if they didn’t cooperate. What’s changed between then and
now is that this is now very clearly not a negotiation tactic—this is
literally the strategy for the read-side platform.
(emphasis added).
-36-
140.
Thus, what began as a negotiation strategy to extract social data from rivals became
the foundation of Facebook’s Platform strategy. For competitors that posed enough of a threat to
create their own rival network, Facebook required them to hand over the only leverage they had—
the social data they derived from their users’ engagement.
141.
For some rivals that directly competed, no amount of data would justify access to
Facebook’s Platform, and for nascent threats that relied on Facebook’s platform that did not have
any useful data to extract, Facebook’s decision was to simply cut off their access to the Friends
and Newsfeed APIs, killing their businesses almost immediately.
142.
Vernal expressed concern about the strategy to Zuckerberg in November 2012,
noting that he was skeptical that competitors such as Pinterest would allow Facebook to take their
social data. If they, as well as others, did, Facebook would become a central exchange for data
collected among competitors. That is, competitors would share the data to Facebook and Facebook
would then share that data back to the competitors that participated in the scheme. Facebook would
become a data-passthrough mechanism.
143.
In December 2012, despite recognizing that API access, particularly when bundled
with Facebook’s NEKO advertising platform, was profitable, Facebook decided not to charge for
API access and began full implementation of Zuckerberg’s decision.
144.
Although Facebook had planned to announce its decision not to allow access to
Friends data through its Friends and News Feed APIs in a public blog post, Zuckerberg vetoed that
decision in December 2012. Instead, Zuckerberg decided to enforce the decision selectively and
covertly after deliberately analyzing Facebook’s competitors. Some competitors would be blocked
entirely from the APIs, while some select few would be blocked only if they did not provide their
own social data to Facebook.
C.
Facebook Targets Its Competitors for Reciprocity or Denial of API Access.
145.
Beginning in January 2013, Facebook began an internal audit of all of the
applications that relied on its Platform. It immediately identified competitors to shutdown entirely
-37-
from accessing Facebook’s APIs or advertising platform. Specifically, Zuckerberg ordered that
WeChat, Kakao and Line be restricted from using the Friends and NewsFeed APIs and even from
advertising on Facebook’s NEKO and other platforms.
146.
Facebook’s David Fischer balked at the decision, noting that blocking competitors
even from the advertising platform was irrational and unworkable:
I continue to believe we should allow ads from competitors for
several reasons: We should be secure enough in the quality of our
products to enable them to compete effectively in the open
marketplace . . . . It looks weak to be so defensive. This will be a
challenge to enforce. We have many competitors and the list will
grow in time. How will we judge retailers and e-commerce sites as
we grow Gifts, since they arguably are competitors too?
147.
Fischer was right. The decision made no rational economic or business sense. The
sole purpose of refusing to sell social data as part of the Facebook Platform or through advertising
was to shut out competition and allow Facebook to dominate the Social Data and Social Network
Markets. Aside from that anticompetitive purpose, the decision to refuse to sell social data or
advertisements even at full price was so facially irrational that Facebook’s own employees who
may not have been fully privy to the anticompetitive scheme protested at the irrationality of the
decision.
148.
That same month Facebook’s Osofsky pleaded with Vernal to make an
announcement that would send a clear signal to developers, but Vernal responded that Zuckerberg
had already rejected that approach. As Vernal explained, telling developers about the decision
means bearing the “very real cost” of “changing the rules,” including the “PR cost” of betraying
developers that Facebook had induced to build for Facebook’s APIs and Platform.
149.
That same month, Facebook continued to implement Zuckerberg’s decision to
blacklist competitors. He ordered that Facebook competitor Vine be “shut down” from Facebook’s
API and Platform, including from advertising. Facebook had again sacrificed the profits it would
glean from increased engagement and advertising revenue as a result of Vine’s use of Facebook’s
Platform in exchange for the exclusion of Vine from the competitive landscape.
-38-
150.
Indeed, Facebook’s mobile advertising platform was growing rapidly, and blocking
large companies from using it made no economic sense other than to effectuate Zuckerberg’s
scheme to prevent rivals from competing with Facebook. In a January 20, 2013 email, Facebook’s
then-Director of Product Management and Platform Monetization team, Deborah Liu reported:
“Neko grew another 50% this week! Hit a high of $725k Friday (see charge below). We are now
5% of total Ads revenue and 21% of mobile ads revenue.”
151.
Lessin responded to the news: “The neko growth is just freaking awesome.
Completely exceeding my expectations re what is possible re ramping up paid products.”
152.
Liu was clear, however, that the increased revenues occurred notwithstanding the
blacklisting of formerly large spenders, such as WeChat: “WeChat and other competitive networks
are no longer advertising on Neko based on policy.”
153.
In February of 2013, Facebook shut down Yahoo!’s access to key APIs, resulting
in direct negotiations between Yahoo!’s Marissa Mayer and Facebook’s Sheryl Sandberg in order
to restore Yahoo!’s access to the Facebook Platform.
154.
In March 2013, Facebook’s key Platform employees began to voice concern that
the approach taken by Facebook of shutting down access and then coercing “data reciprocity” was
problematic. They instead encouraged making an upfront announcement that the APIs would be
unavailable and then negotiating a deal for access to Facebook’s Platform. In an e-mail that month
from Purdy to other Facebook employees and executives, he wrote:
I have been thinking about the challenges around reciprocity and
competitive enforcement (friends.get, etc.) and fact that it is all post
facto. The way we are structured today, you build an app on FB and
then launch and then we may just shut you down, harming users and
the developer. I wonder if we should move as quickly as possible to
a model in product where all you get from platform is login (basic
info) and sharing without approval. All other APIs are available in
development, but have to be approved before the app launches to
real users (basically all apps using friends.get have to have that
capability approved). We are roughly on course to deliver this as
part of unified review, save for the more granular approval for things
like friends.get? What I love about this too is we could make our
whitelists so much cleaner by making each capability an approval
-39-
thing. Marie: I think makes your “deprecations” much easier.
Thoughts?
155.
Although Facebook moved towards full deprecation of the APIs with the exception
of those with whitelisting agreements, it continued its campaign of quietly shutting down
competitors’ access to the APIs and then asking them to make a reciprocity deal. Indeed, Facebook
soon thereafter shut down three competing Amazon apps, resulting in Amazon protesting that the
decision “will break 3 of our live integrations.”
156.
That same March in 2013, Facebook used API and Platform access as leverage to
acquire rival Refresh.io. Facebook internally decided that it would threaten Refresh.io with denial
of access to the APIs unless it sold its business to Facebook. That same form of leverage would be
used to acquire other rivals—either they sold to Facebook or they saw their business ejected from
Facebook’s Platform.
157.
In 2013, Facebook also began using mobile spyware company Onavo to secretly
track application usage on customers’ phones. Onavo, through deceptive terms of service, tracked
app usage in real time, and Facebook used that data to target specific competitors. By April 2013,
Olivan was using Onavo to track Snapchat, Pinterest, WhatsApp, Tumblr, Foursquare, Google,
Path, vine, Kik, Voxer, MessageMe, Viber, GroupMe, Skype, Line, and Tango. One internal
Olivan presentation contained detailed usage data for these applications from August 2012 to
March 2013.
158.
By July 2013, Onavo data was providing detailed intelligence to Facebook on 30
million Onavo users. Among all of the apps, the data showed the meteoric rise of WhatsApp, a
direct competitor to Facebook’s own fledgling product, Messenger.
159.
Armed with detailed intelligence about its competitors—both on and off the
Facebook Platform—Facebook ordered a detailed audit of Facebook applications that relied on the
Friends and News Feed APIs.
-40-
160.
Facebook’s Director of Developer Platforms & Programs, Konstantinos
Papamiltiadis, reported back that there were 40,000 apps using the APIs that were to be restricted,
with 7% of them being photo or video sharing apps.
161.
Facebook then began to categorize these third-party applications into three general
categories: (1) developers that “may cause negative press” if their access to APIs were shut down;
(2) applications that “provide strategic value”; and (3) applications that were “competitive” or “not
useful to FB. Application developers that would experience “a Major Business Disruption/Kill” as
a result of the restriction of API access received a “PR flag.”
162.
In response to the categorization, Lessin immediately ordered his subordinates to
“shut down access to friends on lifestyle apps . . . because we are ultimately competitive with all
of them.” (emphasis added).
163.
As Facebook continued its analysis of the applications that relied on the Friends
and Newsfeed APIs, it became clear that Facebook’s plan would result in the deprecation of the
“majority of the API surface”—namely, the APIs that were the most essential parts of the Facebook
Platform.
D.
The Decision to Remove Developer Access to the Friends, News Feed and
Other Crucial APIs Lacked Any Legitimate Justification.
164.
The engineers tasked with implementing Zuckerberg’s decision to restrict access to
the APIs were baffled. The decision made no technical sense whatsoever. Indeed, there was no
justification for it other than to squelch competitors who threatened Facebook’s dominant position
and SDBE.
165.
As Facebook engineer, David Poll, had written to all Platform Engineers earlier in
2011, the decision would mean gutting the Facebook Platform of functionality used—and
needed—by some of the most important mobile apps built on Facebook’s Platform:
I was thinking about the Platform 3.0 friend list change a bit as I was
using my Android phone tonight and realized that two for the apps
that most impact my day-to-day mobile experience will be
completely, irrevocably broken by this change . . . . In both of these
cases, the apps are adding real value to my experience, and in both
-41-
of those cases, I have zero expectation that any of my friends will
be using the app. The fundamental problem I’m having with this
change is that my friend list is my information—it’s part of who I
am, and for Facebook to shut down this access primarily comes
across to me as FB intruding upon and shutting down my own access
to my own information.
166.
Poll concluded, “No matter how you slice it, this change is going to have a
significant negative impact on my day-to-day smartphone experience.”
167.
Poll was correct. The change meant breaking applications that added significant
value to Facebook’s network and increased valuable user engagement on Facebook’s core product.
The decision to deliberately break these applications had only one plausible purpose—to
strengthen the SDBE and to ensure that competitors could not create rival social networks that
could compete with Facebook.
168.
That proposition was entirely obvious to those responsible for Facebook’s
Platform. In an August 2013 e-mail, senior Platform engineer Bryan Klimt wrote to Ilya Sukhar,
Facebook’s Head of Developer Products and Senior Engineer working on its APIs, and others
working on Facebook’s Platform, stating that the reason for the decision to block access to the
Friends and News Feed APIs was to exclude competitors and that all other reasons were simply
false and pretextual. To begin with, Klimt was clear that the removal of the APIs was “ridiculous”
because they were so essential to the Facebook Platform:
I’m trying to write a post about how bad an idea it would be to
remove the api that lets you get a list of user’s friends from Facebook
Platform. In order to illustrate my point, I’d like to satirically
suggest removing some API that is so core to the developer
experience and that removing it would be ridiculous on its face. For
example, removing the Windows API method that lets you create a
new window. Or removing the Twilio API method that lets you send
a text message. Both suggestions are utterly insane. The problem is,
for Facebook Platform, removing the method to let you get a list of
friends literally is already that ridiculous. I can’t think of an example
more ridiculous to parody it with.
169.
Klimt then dispelled any notion that the APIs were being removed for any technical
or functionality-driven reason:
Before we discuss in more detail, I’d like to clear up some
misconceptions about the deprecations. I’ve heard some rumors
-42-
floating around about why we are doing this. But many of them are
clearly pablum designed to make engineers think this decision has
solid technical reasons. It does not. 1/ This API can be abused so we
can remove it. False. That is a non-sequitur. Lots of APIs can be
abused. Our whole product can be abused. That’s why we have one
of the best teams in the industry at detecting and stemming abuse.
That team, plus Unified Review, is more than sufficient to deal with
any theoretical abuse coming from this API. Even if this were true,
who wants to be in that classroom where the whole class is punished
for transgressions of a few?
170.
Klimt also was clear that the APIs were not being removed in favor of new or
different APIs providing the same features:
2/ It’s okay to remove because we’ve provided alternatives for
common uses. False. If you think that’s true, then I don’t think you
realize why developer platforms exist. If we wanted to limit
Facebook to the set of use cases we’ve already imagined, we could
just do that ourselves, and not even have a Platform. The purpose of
a Platform is to let people build new things on top of it. It’s to enable
the whole universe of ideas that anyone in the world could think of.
Developers out there will have all sorts of crazy ideas. We want
them to build those crazy ideas on top of Facebook. Do you know
why Facebook was originally built for the WWW instead of being
part of CompuServe or AOL’s proprietary networks? It’s because
the web is an open and extensible platform. It lets developers make
their craziest become reality.
171.
Klimt then explained that the real reason was to hurt Facebook’s competitors and
prevent them from competing with Facebook:
So, if neither of those reasons explains why we are doing this, what’s
driving it? The only reason I’ve heard that makes sense is that we
are worried about people “stealing the graph”, we are doing this as
a protectionist grab to make sure no one else can make a
competing social network by bootstrapping with our social graph.
Okay, so let’s assume for a minute that the social graph does belong
to us, and not to our users. And let’s even go so far as to assume that
this is a real problem, although, I’m not convinced it is. I mean,
concerns that other companies will steal our friend graph may just
be paranoia. But for the sake of argument, let’s say it’s not. Then
what? We’re removing the core API in our developer platform. Out
of concerns that someone will steal our social network product.
That sends a clear message to developers: Facebook Platform comes
second to Facebook the Social Network Product. This has been a
criticism all along with our Platform. When you go read the blog
posts critical of our Platform, they all hit on this same point. When
our APIs are subjugated to the whims of our other products, they
can’t be stable. And an unstable platform isn’t really a platform at
all. So then you are left with 2 big problems. 1/ How do you
convince external developers to build on a platform where the most
-43-
basic core APIs may be removed at any time? I mean, the only big
value we bring to the table right now is in distribution and discovery,
and that’s going to encourage developers to do only the most
superficial integration with Facebook. Basically, they’re going to do
just enough to be able to use Neko ads. 2/ How do you convince
internal developers to work on Platform knowing it’s only ever
going to play second fiddle to the rest of the company? I mean why
should any of us work on a product that could be crippled at any
time to benefit another team? If I worked on Platform, I would be
seriously reconsidering my options if this API gets deprecated.
(emphasis added).
172.
Klimt was clear—the decision to remove the APIs lacked any technical or business
justification other than to prevent a competitor from creating a competing social network, eroding
the SDBE protecting Facebook’s business. Any proffered justification by anyone at Facebook to
the contrary was entirely pretextual.
173.
Moreover, the decision to remove the APIs permanently destroyed the value of
Facebook’s Platform. If developers could not trust Facebook to maintain the APIs as stable parts
of its Platform, they would not risk writing apps for the Platform in the future. The decision meant
scuttling Facebook’s valuable Platform for the ability to prevent a rival social network from taking
hold.
174.
Sukhar responded to Klimt, noting that he agreed and that he “talks about this every
single meeting.” His pleas to Vernal, Purdy and Zuckerberg to reverse their decision fell on deaf
ears. The decision had been made and Klimt and Sukhar would have to implement it.
175.
Facebook continued its audit of apps that relied on the APIs. Most of the Apps were
important to the Facebook ecosystem. Indeed, Facebook acknowledged they “are not spammy or
crap, but apps users like a lot.” Nonetheless, Facebook’s Papamiltiadis concluded that, among
others, apps like Sunrise, Yahoo!, IFTT, Friendcaster, MyLife, Sync.me, YouTube, Contacts+,
and Bitly “overlap with Facebook products” and “could compromise our success in those areas.”
176.
Facebook’s careful monitoring of competitive apps continued well into 2013, and
given its heavy reliance on data secretly collected by Onavo, Facebook purchased Onavo on
October 14, 2013. Facebook used that data to determine which apps competed with its social
-44-
network and thus posed a threat to the SDBE. It then targeted those companies for withdrawal of
API access and coerced data reciprocity agreements.
177.
In October 2013, Facebook’s Purdy reported that Facebook was dividing apps into
“three buckets: existing competitors, possible future competitors, developers that we have
alignment with on business model.” Facebook’s Eddie O’Neil believed that the “separation
between those categories doesn’t feel clean” and that the overlap was problematic. As O’Neil
observed, “apps can transition from aligned to competitive and will ultimately make us sad that
we leaked a bunch of data to them when they were aligned.”
178.
Sukhar objected to the entire exercise, noting that he had been speaking to many
dozens of developers “who will get totally fucked by this and it won’t even be for the right reason.”
Sukhar explained that his “engineers think this plan is insane and I’m not going to support an all
hands [meeting] to convince them otherwise.” (emphasis added).
179.
As Sukhar noted, the decision to withdraw the Friends and News Feed APIs from
the Platform made no technical sense whatsoever, and Sukhar could not bring himself to tell his
engineers—who saw through the ruse—otherwise. It was obvious that Facebook was seeking to
squelch potential competition—namely, by preventing user growth and engagement for
competitive apps. As one Facebook engineer commented about the obvious purpose of the plan to
remove the APIs: “I understand we want to make it hard for a developer to grow a new app.”
180.
The review of apps continued and specific decisions with respect to certain highly
sensitive competitors were escalated to Mark Zuckerberg. As one internal Facebook e-mail
explained:
We maintain a small list of strategic competitors that Mark
personally reviewed. Apps produced by the companies on the list
are subject to a number of restrictions outlined below. Any usage
beyond that specified is not permitted without Mark level signoff.
181.
In December 2013, Klimt complained to Sukhar about the audit and categorization
process:
-45-
So we are literally going to group apps into buckets based on how
scared we are of them and give them different APIs? How do we
ever hope to document this? Put a link at the top of the page that
says “Going to be building a messenger app? Click here to filter out
the APIs we won’t let you use!”
And what if an app adds a feature that moves them from 2 to 1. Shit
just breaks? And messaging app can’t use Facebook login? So the
message is, “if you’re going to compete with us at all, make sure
you don’t integrate with us at all.”? I am just dumbfounded.
182.
As Poll recognized in response to Klimt’s complaint, the changes to Facebook’s
Platform were “more than complicated, it’s sort of unethical.” Klimt agreed with the assessment,
noting that the API removal “feels unethical somehow . . . . It just makes me feel like a bad
person.”
E.
Facebook Prepares to Announce Removal of the APIs.
183.
Zuckerberg decided to announce the API removal under the cover of a major
change to the Facebook Platform, codenamed PS12N, which would be announced at the next
Facebook F8 Developer Conference. Facebook’s engineers were accordingly instructed in
September 2013 to bury the changes to the API and announce them quietly along with the changes
that would be announced at the conference.
184.
In the run-up to its API withdrawal announcement, Facebook continued its audit of
applications on its platform that were using the APIs. During that process Facebook continued to
classify potential competitors, including LinkedIn and AirBnB, as companies that would be denied
access with no whitelist exception.
185.
Although Facebook knew that the APIs were going to be removed by the next F8
conference, it continued to tell developers to rely on them. As a Facebook Platform evangelist
noted about one particular document frequently shared with developers, “the language in here
around friend permissions is very counter to our upcoming platform simplification efforts” and
“feels against the spirit of where we are headed.”
186.
That was, however, precisely what Facebook wanted—to continue to entice
developers to build their software and their businesses on APIs that made them dependent on
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Facebook. The use of the APIs meant that competitors could be abruptly shut out of the market,
useful apps could be extorted for valuable social data, and the rest could simply be destroyed.
187.
By October 2013, Facebook required certain application developers it chose to
whitelist to sign Private Extended API Agreements, which obligated them to purchase certain
amounts of social data through advertising or to provide their own valuable social data to Facebook
in exchange for continued access. That month, for example, Facebook whitelisted Royal Bank of
Canada’s application in exchange for the purchase of social data through Facebook’s NEKO
advertising platform.
188.
Facebook catalogued and tracked developers on its platform that would likely
complain about the decision, creating negative press. Facebook’s internal employees tasked with
crafting a PR message explained the undertaking in a December 2013 e-mail:
In prep for Platform Simplification, we’re putting together a list of
developers who we think could be noisy and negative in press about
the changes we’re making: Primarily we think it will be a list of the
usual suspects from past policy enforcements. We’d love to pull
from your historic knowledge on the topic. Is there anybody you’d
add to the list below? We’re going to build plans around how we
manage and communicate with each of these developers. There are
also comms plans in the works for working with developers who are
high ad spenders and friends of Mark/Sheryl.”
189.
Facebook planned to manage its message carefully, as its decision likely would
alienate even those developers who were making large purchases of social data from Facebook
through ads and/or who were friends of Facebook’s two most senior executives, Zuckerberg and
Sandberg. Those developers were identified and the message to them was carefully crafted to avoid
a PR disaster. For most application developers, however, the decision would result in the complete
exclusion of their applications from Facebook’s ecosystem—which would likely be fatal to their
businesses.
190.
Facebook targeted potentially “noisy” or “negative” developers individually,
including, but not limited to, the following applications and developers: iLike, Rock You, Zynga,
Path, Flipboard, Slide, Social, Fixer, SocialCam, Viddy, BranchOut, Vince, Voxer, Message Me,
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Lulu, Anil Dash, Super Cell, Kabam, Washington Post, Guardian, The Wall Street Journal, Jason
Calacanis, Cir.cl, Bang with Friends, Tinder, Social Roulette, App Wonder, Ark, Vintage Camera,
and Girls Around Me.
191.
Facebook also used call-log data secretly collected by Android users to target
developers and applications to be shut down.
192.
The entire process led Facebook engineer George Lee to lament:
We sold developers a bill of goods around implicit OG [Open
Graph] 2 years ago and have been telling them ever since that one
of the best things they could do is to a/b/ test and optimize the
content and creative. Now that we have successes. . . . We’re talking
about taking it away . . . . [Developers] have invested a lot of time
to establish that traffic in our system . . . . The more I think about
this, the more concern I have over the pile of asks were [sic] making
of our developers this year. PS12N is going to require them to alter
how they deal with APIs (and for limited value).
193.
Thus, as Facebook continued to prepare its API withdrawal announcement,
Facebook’s own executives recognized that Platform developers had been conned into relying on
Facebook’s APIs. Facebook knew full well that it intended to remove the APIs, but it allowed and
encouraged developers to build entire businesses on and around them. As Lee put it, they were
sold a “bill of goods.”
194.
By 2014, it was clear that with the exception of a few apps and developers, most
would be denied access entirely to the Friend and News Feed APIs.
195.
In January 2014, Zuckerberg debated denying API access to dating apps. Facebook
decided that it would whitelist Tinder and other anointed dating apps and shut down the rest,
clearing the way for the selected apps to dominate the dating market. Zuckerberg reasoned that
although Facebook would ultimately create its own dating app, it would let Tinder and a select few
others to survive until Facebook’s competing app was ready:
I’ve been thinking a lot about Tinder and other people
recommendation apps since about 10% of people in many countries
are using a Tinder now. People recommendations seems like
something that should be right up our alley, but it’s currently
something we’re not very good at. Tinder’s growth is especially
alarming to me because their product is built completely on
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Facebook data, and it’s much better than anything we’ve built for
recommendations using the same corpus . . . . I think this is a big
and important space and it’s something we should have a team
working on—probably to develop people recommendation Hunch
sections for now.
196.
Zuckerberg became increasingly involved in assessing whether individual apps
would be whitelisted when the APIs were removed. Facebook’s senior-most executives
accordingly prepared recommendations for his consideration. In a January 2014 presentation
entitled, “Slides for Mark,” for example, Facebook employees summarized the results of the
ongoing app audit. The presentation observed that the changes would make it “impossible to build”
an app without a whitelist agreement with Facebook. The presentation made special
recommendations for apps that purchased large amounts of social data through Facebook’s NEKO
platform or whose developers were friends with Zuckerberg or Sandberg. The bulk of the 41,191
apps that relied on the Friends or News Feed APIs, however, would be shut out and, as a result,
completely destroyed.
197.
Although the effect on these apps was clear, Facebook continued to evangelize the
APIs to developers. In January 2014, Facebook’s George Lee sounded the alarm to Purdy and
Vernal, which fell on willfully deaf ears:
[P]artner managers are still selling products that we ask them to sell,
so when it comes to feed integration, we’re still telling people to use
[Open Graph]. The last f8 was all about implicit [Open Graph], so
while we may have decided amongst ourselves that this is no longer
the future without an alternative we don’t have anything to tell
current [developers] (so partners continue to tell them to use [Open
Graph] and they continue to integrate it).
198.
The plan to quietly take away the APIs in favor of a new crippled developer
platform was called the “switcharoo plan” by Facebook’s engineers. It was clear to all involved
that the announcement of the changes to the platform at the upcoming F8 conference was cover
for the radical changes Facebook planned to make to its platform—namely, the removal of the
Friends and News Feed APIs.
199.
During March 2014, Facebook’s engineers and employees continued to be baffled
by the upcoming decision. As one employee noted:
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It seems a bit odd that we block other developers from doing things
on our platform that we’re ok with doing ourselves. Do we consider
ourselves exempted? That seems a little unfair especially when our
stance on some of these policies is that they’re about ensuring trusts
and a great experience. My mental model on how platform is a level
playing field could be way off though.
200.
The decision made no sense to Facebook’s own employees, particularly because
Facebook itself needed the APIs to make their own competing applications, including Facebook’s
Messenger application. Facebook’s executives ignored all of the concerns raised by their
employees, including their API engineers, and continued to drive towards the announcement of
the removal of the APIs at F8.
201.
The real reason for the removal of the APIs was kept tightly under wraps. In April
2014, right before the announcement, Vernal warned Sukhar that if any mention was made of the
competitive reasons for the removal of the APIs (as Sukhar wanted), there would be a “high
likelihood of breaking into jail.”
F.
The Announcement at F8
202.
On April 30, 2014, Facebook announced “The New Facebook Login and Graph
API 2.0” on Facebook’s website. Facebook heralded changes to its new Login system for several
pages. Buried in the announcement was a quiet statement about the Platform’s most important
APIs—the Friend and News Feed APIs: “In addition to the above, we are removing several rarely
used API endpoints; visit our changelog for details.”
203.
These APIs were not rarely used at all. Tens of thousands of third-party apps were
actively using and building on the APIs. Internal Facebook engineers likened them to essential
APIs in Microsoft’s Windows and were outraged at the removal. Five of the top ten Facebook
Apps surveyed in December 2012 relied heavily on them. The announcement was entirely false
and was deliberately buried beneath other API announcements to avoid drawing attention to the
competition-crippling effect of the decision. In fact, today, the changelog referred to in the
announcement is no longer accessible on Facebook’s page even though years of other changes are.
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204.
When Mark Zuckerberg took the stage at F8 days later for his keynote speech, there
was no mention of the removed APIs. Instead, Zuckerberg emphasized the “stability” of
Facebook’s mobile platform just as Facebook quietly removed some of the most heavily relied-
upon and necessary APIs in Facebook’s Platform.
205.
At the twenty developer sessions preceding the announcement, not one mention
was made of the API removal or that the upcoming changes would simply break nearly all of the
more than 40,000 third-party apps that relied on the APIs. After April 30, 2015, the APIs were no
longer part of any available version of Facebook’s Platform.
206.
Facebook thus had successfully destroyed any application that could possibly create
a product that could threaten the SDBE that protected Facebook’s dominant position and market
power. A select few would be required to hand over their most valuable resource—their social
data—to their behemoth competitor in exchange for continued access.
IV.
THE WHITELIST AND DATA SHARING AGREEMENTS
207.
After the announcement and through the full removal of the APIs in April 2015,
Facebook continued to make a series of agreements that forced certain competitors to hand their
data over to Facebook. For example, Facebook forced certain third-party developers that it
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identified as competitive threats with valuable social data to sign Private Extended API
agreements—referred to throughout this Complaint as “Whitelist and Data Sharing Agreements”
or simply “the Agreements”—in order to obtain access to the Friends and/or News Feed APIs.
208.
Facebook’s Whitelist and Data Sharing Agreements, as of January 2015, included
a provision that acknowledged that the APIs they covered are not available to the general public.
An exhibit to each Whitelist and Data Sharing Agreement listed the specific Facebook APIs to
which a particular developer was being granted access.
209.
These Agreements were only offered in exchange for massive purchases of
Facebook’s social data through mobile advertising and/or through the provision of the developer’s
own social data back to Facebook (so-called “reciprocity”).
210.
As Facebook executives and engineers understood and acknowledged in internal
communications, this scheme allowed Facebook to serve as a “data pass-through” among
competitors. Competitors with Whitelist and Data Sharing Agreements provided social data to
Facebook, which served as a hub that sold data obtained from one competitor to another whitelisted
competitor.
211.
The result of the network of Whitelist and Data Sharing Agreements was a hub-
and-spoke agreement to control the supply of social data. Those who obtained access to the
Facebook APIs were required to both provide social data to the hub (Facebook) and to purchase
social data from it. If a developer refused to participate in the scheme, it was excluded entirely
from Facebook’s Platform because the most important APIs—the Friends and News Feed APIs—
would not be available to it.
212.
In January 2015, Facebook provided Whitelist and Data Sharing Agreements to the
dating apps Tinder and Hinge, because of the value of the social data those applications produced.
213.
In February 2015, when Airbiquity (another third-party developer) sought a
Whitelist and Data Sharing Agreement, Facebook lied to them, telling Airbiquity that the specified
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APIs “won’t be available to anyone” after April 30, 2015, and that “all similar integrations will be
subject to the same deprecations/restrictions.”
214.
That same month (February 2015), Facebook secretly signed Whitelist and Data
Sharing agreements with other third-party developers, including Netflix, Nissan, and Lyft.
215.
In April 2015, Facebook’s manager of strategic partnerships, Ime Archibong,
internally celebrated the fruition of Facebook’s three-year plan to eliminate its competition through
Platform changes: “Three years coming, but the ‘Platform Simplification’ initiative finally lands
this week.”
216.
Also in April 2015—as Facebook finally cut off all public access to the Friends and
News Feed APIs—Facebook continued to receive requests for Whitelist and Data Sharing
Agreements from companies such as Microsoft, Hootsuite, and Walgreens.
217.
Facebook had already extracted valuable social data from dozens of competitors,
including Foursquare and Pinterest, in the run-up to the announcement and ultimate removal of
the APIs. Without discovery, the precise number and identity of those who entered into Whitelist
and Data Sharing Agreements with Facebook cannot be known for certain, but publicly available
information indicates that dozens of app developers entered into such Agreements with Facebook.
Pursuant to these Agreements, dozens of app developers agreed to provide social data to Facebook
and to purchase competitor and/or Facebook social data back through advertising. Together, these
companies formed a hub and spoke scheme to restrict competition in the Social Data and Social
Advertising Markets.
218.
There was no pro-competitive benefit to the Agreements, as they were naked
restrictions on the supply of Social Data. The anticompetitive effects, however, were staggering
and facially apparent. Absent the Agreements and Facebook’s overall anticompetitive scheme to
exclude third-party developers, other companies would have created their own social data through
the proliferation of their own competing social networks. The engagement on their competing
networks and the social data generated from that engagement would have increased the value of
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their networks because of network effects. As the amount of social data generated and monetized
on these competing networks increased, Facebook’s SDBE would erode, potentially driving more
users to new platforms.
219.
None of that could happen as long as Facebook could coercively demand all of the
valuable social data generated on any competing platform. The Whitelist and Data Sharing
Agreements ensured that competitive threats such as Foursquare could not accumulate enough
social data to create their own feedback loop in—and perhaps come to dominate, through network
effects—any market in which Facebook anticipated competing or actually competed.
220.
The Agreements also ensured that Facebook’s decision to destroy forty thousand
applications built on the Friends and News Feed APIs would be effective—and remain so. If
Facebook did not control the supply and sale of social data, excluded developers could simply
build their applications on another platform. But by entering into a network of Whitelist and Data
Sharing agreements, Facebook ensured that no such competing platform could arise. The
Agreements strengthened and preserved the SDBE and/or prevented the proliferation of rival
generators of social data and third-party developer platforms.
221.
The Whitelist and Data Sharing Agreements were thus both in and of themselves
anticompetitive and part and parcel of Facebook’s overall anticompetitive scheme to maintain and
expand its dominant position in the Social Data and Social Advertising markets described in this
Complaint.
222.
In a world where no such Agreements existed, a rival such as Pinterest or
Foursquare would obtain more engaged users, resulting in more social data that those competitors
could monetize through their third-party or advertising platforms. The thousands of developers
denied access to Facebook’s Platform would therefore build their applications on Foursquare or
Pinterest instead of simply going out of business or changing their products/businesses
dramatically to survive. By forcing those and other similarly situated companies to hand over their
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social data, Facebook made sure its Platform would be the only viable platform upon which a third-
party social application could be built.
223.
As explained in the next section, the only remaining threat to Facebook’s Social
Data and Social Advertising dominance was from a completely independent competitor that did
not rely on Facebook’s Platform, and thus could not be extorted into handing over its data in
exchange for API access. For such companies, Facebook would pay any price to remove them
from the market—and use their assets to strengthen Facebook’s SDBE.
224.
But first, Facebook had to identify such threats to its market dominance. Enter
Onavo.
V.
THE SURVEILLANCE AND ACQUISITION OF COMPETITIVE THREATS
225.
To ensure that its scheme to maintain and expand its market power would work,
Facebook had to control an important source of competition: independent social networks and
producers of social data. Although Facebook could simply destroy any competition that relied on
its Platform by denying access to essential APIs, this would do nothing to stop a competitor that
was growing its network of engaged users entirely independent of Facebook.
226.
To detect such threats before they became too formidable, Facebook sought a way
covertly surveil millions of mobile users to determine what applications they were using, and how.
Mobile applications were particularly important—and concerning—to Facebook, as desktop
engagement was shrinking while mobile apps rapidly proliferated. By 2012, it was clear to
Zuckerberg and to Facebook that any threat to its dominance would come from a mobile
application. As explained in this section, Facebook used mobile spyware on an unprecedented
scale to surveil, identify, and eventually remove from the market through acquisition competitors
that independently threatened Facebook’s dominance and/or the SDBE protecting its monopoly,
market power and business.
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A.
Facebook Relies on Onavo’s Surveillance of Facebook’s Competitors, and
Acquires and Uses Onavo’s Assets
227.
Onavo was an Israeli mobile web analytics company founded by Roi Tiger and Guy
Rosen in 2010. The company designed spyware designed to surveil users as they used their mobile
devices. To obtain extensive information on a user’s usage of mobile applications and of
bandwidth, Onavo cloaked its spyware in virtual private networks (“VPNs”), data compression,
and even in mobile privacy apps.
228.
Onavo sold the mobile usage data it collected to Facebook, which in turn used the
real-time information it received from Onavo to determine which mobile applications posed a
threat to Facebook’s dominance and to the SDBE protecting Facebook from new entrants and
competition. Facebook used Onavo data to: (a) identify and target competitors from which
Facebook could demand Whitelist and Data Sharing Agreements; (b) identify and target
competitors to whom Facebook would completely deny Platform access; and (c) identify and target
competitors that Facebook would remove from the competitive landscape entirely through
acquisition.
229.
Facebook received Onavo information in real time, which included the two most
important metrics for competing mobile applications—their reach and engagement. Reach
measures the size of an application’s user base, and “engagement” measures the extent to which
users actively engage with the application. An application with high reach but low engagement
cannot generate the sort of social data that Facebook needs to feed its advertising platform with
actionable targeting data. Conversely, an application with high engagement but low reach doesn’t
generate social data from enough people to attract a broad base of advertisers. The greatest threat
to Facebook’s business would come from an application that exhibited strong reach and strong
engagement—and especially one that showed rapid growth in both metrics, indicating the
development of network effects.
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230.
As the potential threat to its market dominance from mobile applications continued
to grow, Facebook sought to obtain exclusive control over Onavo’s surveillance data—and over
its mobile spyware code and installed base. On October 13, 2013, Facebook acquired Onavo.
231.
On its blog, Onavo’s CEO Guy Rosen and CTO Roi Tiger, announced that Onavo
would continue as a standalone brand: “When the transaction closes, we plan to continue running
the Onavo mobile utility apps as a standalone brand. As always, we remain committed to the
privacy of people who use our application and that commitment will not change.”
232.
Facebook, however, had other plans. It immediately began integrating Onavo’s
applications into both its business operations and its acquisition strategy. Facebook, for example,
began analyzing data secretly collected from Onavo’s Protect software, which was a massive
surveillance and data collection scheme disguised as VPN software. Billed as a way to “keep you
and your data safe,” Onavo Protect in fact monitored all web and mobile application traffic on a
user’s mobile device.
233.
When an Onavo Protect user opened a mobile app or website, Onavo software
secretly redirected the traffic to Facebook’s servers, where the action was logged in a massive
database. Facebook product teams then analyzed the aggregated Onavo data to determine which
apps and features people were using in real time, how frequently they used the apps, and for how
long. If the data in an app was not encrypted, this information was as specific as (for example) the
number of photos the average user likes or posts in a week in that app.
234.
Based on a 2017 estimate, Onavo’s mobile apps were downloaded an estimated
twenty-four million times, and Facebook collected, compiled, and leveraged all of the collected
data. By February 2018, Onavo apps had been downloaded thirty-three million times across both
iOS and Android.
235.
As the former chief technologist for the Federal Trade Commission remarked to the
press, Onavo was being leveraged against user interests to stifle competitive innovation:
Instead of converting data for the purpose of advertising, they’re
converting it to competitive intelligence . . . . Essentially this
-57-
approach takes data generated by consumers and uses it in ways that
directly hurts their interests—for example, to impede competitive
innovation.
236.
Since 2011 and through the present, Onavo products have provided Facebook with
real time data about mobile users on a breadth and scale not available through any other service or
app. Using Onavo data, Facebook was able to determine which potential competitors it could target
for its Whitelist and Data Sharing agreements; which competitors it could destroy by denying
access to crucial APIs; and which competitors is needed to remove from the market through
acquisition to preserve its monopoly position and SDBE.
237.
Moreover, by monitoring potential threats, Facebook ensured that it had no blind
spot—any application that posed a threat to its dominance was dealt with through anticompetitive
and unlawful Whitelist and Data Sharing Agreements, destruction by denial of access to vital APIs
on Facebook’s platform, or by acquisition.
238.
By acquiring Onavo, Facebook obtained exclusive access to the only real-time and
high-quality source for mobile app user metrics at scale. Because of the acquisition of Onavo,
Facebook strengthened the SDBE by ensuring that any threat to its dominance of the Social Data
and Social Advertising Markets was dealt with at the earliest possible stage. Indeed, through
Onavo, Facebook was able to (and did) track mobile app usage and trends essentially from launch.
If a potential Facebook killer was on the rise, Facebook had a unique tool to identify it before
anyone else could—and Facebook used it.
239.
In the years after it acquired Onavo, Facebook continued to aggressively leverage
the company’s codebase in deceptively-labeled apps that facilitated maximum surveillance and
data collection of mobile users. For example, Facebook placed Onavo spyware in apps whose
stated purposes required privileged access to user’s mobile devices (in some cases, super-user
privileges), allowing Facebook to gather data on virtually every aspect of a user’s mobile device
usage.
240.
The abuses by Facebook were so flagrant that on August 22, 2018, Apple banned
Facebook’s Onavo app from its App Store. Apple ejected Facebook’s app from its marketplace
-58-
because it violated Apple’s rules prohibiting apps from using data in ways far beyond what is
required to run the app and provide advertising. In other words, because Onavo Protect was
leveraging far more data than any VPN could conceivably need, it was clear that the true purpose
of the app was to spy on Onavo users, and Apple would not allow it.
241.
Indeed, the amount of surveillance was jaw-dropping. Facebook’s Onavo Protect
app reported on users’ activities whether their screens were on or off; whether they used WiFi or
cellular data; and even when the VPN was turned off. There was simply no rational relationship
between the data collected and the purported purpose of the application. Put simply, a VPN that
collected data even when the VPN was off was an obvious subterfuge for blatant spying on user
behavior.
242.
Undeterred, Facebook repackaged its Onavo spyware as a Facebook Research VPN
app. Facebook sidestepped the App Store by rewarding teenagers and adults when they
downloaded the Research app and gave it root—superuser—access to network traffic on their
mobile devices. Facebook has been leveraging its Onavo code in similar ways since at least 2016,
administering the program under the codename “Project Atlas”—a name suited to its goal of
surveilling app usage on mobile devices in real time.
243.
When the news broke in January 2019 that Facebook’s Research apps were
repackaged Onavo apps designed to spy on users, Facebook immediately withdrew the programs
from the Apple App store.
244.
Apple again concluded that Facebook had tried to violate its policies. Using Apple’s
Enterprise Developer Program, which allows the installation of a certificate or policy that provides
root access to an iPhone or iPad, Facebook obtained a level of administrative privilege designed
for a company’s internal IT department. Thus, using a system that allowed organizations to manage
their internal mobile devices, Facebook provided its spyware super user access to regular people’s
iPhones and iPads. Apple balked at the abuse. An Apple spokesman stated:
We designed our Enterprise Developer Program solely for the
internal distribution of apps within an organization. Facebook has
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been using their membership to distribute a data-collecting app to
customers, which is a clear breach of their agreement with Apple.
Any developer using their enterprise certificates to distribute apps
to consumers will have their certificates revoked, which is what we
did in this case to protect our users and their data.
245.
U.S. Senator Mark Warner immediately called for new legislation to prevent the
sort of abuse which Facebook had engaged in. U.S. Senator Richard Blumenthal issued a fierce
statement rebuking Facebook’s repackaging of the Onavo spyware app as “research”:
“Wiretapping teens is not research, and it should never be permissible.”
246.
In addition to Onavo’s Protect app, Facebook has attempted to deploy its
surveillance software as other forms of utility applications that require extensive or privileged
access to mobile devices. For example, Facebook released the Onavo Bolt app, which locked apps
behind a passcode or fingerprint while it covertly surveilled users—and sent Facebook the results.
Facebook also shut that app down the very day that its surveillance functionality was discovered.
The Onavo Bolt app had been installed approximately 10 million times.
247.
Facebook continues to possess Onavo’s code base and is likely, as it has done
before, to repackage its surveillance software into yet another app. Facebook can also easily
incorporate surveillance code into any of its mobile applications that enjoy massive installed bases
and reach, including Instagram and WhatsApp. Without deterrence or divestiture, Facebook will
continue leveraging the surveillance software, infrastructure, and analysis that it acquired as part
of its acquisition of Onavo.
B.
Facebook Identifies Instagram as a Threat and Acquires the Company.
248.
Data from Onavo reported a significant threat on the horizon likely as early as 2011
(and certainly by 2012): a photo-sharing mobile application called Instagram. That app had its
origins when founder Kevin Systrom, then 27, learned to code over nights and weekends. Systrom
developed an app called Burbn, which allowed users to check in, post plans and share photos. The
photo sharing feature immediately became the app’s most popular.
-60-
249.
After meeting venture capitalists from Baseline Ventures and Andreesen Horowitz,
Systrom received $500,000 of funding. Systrom soon after met co-founder Mike Krieger—then
25 years old—who focused on the user experience of the app.
250.
Seeing the positive reception to the photo sharing aspect of the Burbn app, Krieger
and Systrom decided to pivot their business to focus on that feature. They studied their rivals in
the category, including an app called Hipstamatic, which included photo-editing features,
including the ability to add filters to photos. Hipstamatic, however, had no social capabilities.
251.
Seeking to bridge the gap between Hipstamatic photo features and Facebook’s
elements, Systrom and Krieger stripped Burbn down to its photo, comment, and like capabilities.
They then renamed the app Instagram, containing the words “instant” and “telegram.”
252.
Systrom and Krieger worked tirelessly to polish the user experience of their new
application, designing Instagram to streamline the process of taking photos on mobile devices and
uploading them to a social platform. The app had a minimalist focus, requiring as few actions as
possible from the user. After eight weeks of fine-tuning, the app entered its beta phase and the
founders prepared to launch it on iOS.
253.
On October 6, 2010, Instagram launched on iOS. That very day it became the top
free photo-sharing app on Apple’s App Store, racking up twenty-five thousand downloads.
Instagram’s founders were stunned at the response. As Systrom noted after the launch: “First off,
we have to say that we never expected the overwhelming response that we’ve seen. We went from
literally a handful of users to the #1 free photography app in a matter of hours.”
254.
By the end of the first week, Instagram had been downloaded 100,000 times, and
by mid-December 2010, its total downloads had reached one million. The timing of the app was
impeccable, as the iPhone 4, with its improved camera, had launched just a few months earlier in
June 2010.
255.
With Instagram on the rise, investors clamored for a stake. In February 2011,
Instagram raised $7 million in Series A funding from a variety of investors, including Benchmark
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Capital, which valued the company at around $25 million. In March 2011, Jack Dorsey, the CEO
of Twitter, pursued the idea of acquiring Instagram, and Twitter made an offer of approximately
$500 million dollars for the company. Systrom declined.
256.
By March 2012, the app’s user base had swelled to 27 million. That April,
Instagram was released on Android phones and was downloaded more than one million times in
less than one day. At the time, the company was also in talks to receive another $500 million
funding round.
257.
Internally, Facebook carefully tracked Instagram’s meteoric rise, including through
the intelligence it received from Onavo’s data collection. Instagram clearly posed a competitive
threat to Facebook’s dominant position, including in the rapidly expanding market for mobile-
based social applications.
258.
Unlike Instagram’s streamlined approach to photo sharing, Facebook’s photo-
sharing was onerous. As Facebook internally recognized, mobile devices were changing how users
uploaded and shared photos and it was causing severe problems for Facebook’s business. As an
internal Facebook presentation explained:
Before phones, people would take their digital cameras out for
special events, vacations, etc. Then, they would post a bunch of
photos at once—after uploading them to their computer. With
phones, people take and share more photos more often. They share
them individually (rather than waiting to upload a bunch at once).
259.
This resulted in a large drop in bulk photo uploads on Facebook’s core social
networking product—a 29% decline from 2012 to 2014. Facebook also observed that text posts
were “tanking” 26% because of “migration to phones with cameras.” The data was clear—
Facebook had to shut down the looming threat from the new photo-sharing app. If Facebook did
nothing, Instagram’s user base would imminently eclipse Facebook’s at its current growth rate,
eroding and perhaps even destroying Facebook’s SDBE. An independent app with no ties or
reliance on Facebook, Instagram could become not only a competing mobile-based social app, but
a social network unto itself that could rival Facebook in the amount of engagement and social data
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it could produce and monetize.
260.
After direct talks with Mark Zuckerberg, Facebook made Instagram an offer to
purchase the company for $1 billion in April 2012, with the express promise that the company
would remain independently managed. Facebook consummated the deal immediately prior to its
IPO.
261.
Facebook’s own Onavo data, which was obtained and published by Buzzfeed, made
clear that Instagram posed an existential threat to Facebook. By February 2013, Instagram had
grown to 34% of the total user reach among all social apps.
262.
With its Instagram acquisition, Facebook’s share of mobile photo sharing app users
ballooned as Facebook added Instagram’s 34% user reach to Facebook’s own 72% user reach.
263.
Although Instagram had not at the time of the merger meaningfully monetized its
user engagement and social data, Facebook quickly did so. By the end of 2013, Facebook had
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begun showing ads on Instagram. Since then, Instagram has become an ever-increasing proportion
of Facebook’s advertising revenue and a large share of Facebook’s user growth.
264.
In 2017, Instagram generated $2 billion, or about 15 percent, of Facebook’s $13
billion in ad revenue.
265.
By the end of 2018, Instagram had a billion users and was estimated to generate $8
billion to $9 billion in revenue for Facebook in 2018.
266.
Instagram also accounts for the bulk of Facebook’s new revenue since the
acquisition.
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267.
Instagram allowed Facebook to grow its social network as Facebook’s desktop and
core mobile application began to stagnate. Together, Facebook and Instagram captured and
monetized the social data generated across both apps.
268.
The Instagram acquisition ensured that Instagram could not become a rival social
network that could generate enough social data to erode the SDBE protecting Facebook’s business.
It also ensured that Instagram could not build and grow its own developer platform, which would
threaten Facebook’s scheme to dominate the Social Data and Social Advertising Markets by
denying and/or leveraging social-data dependent applications’ access to essential APIs. The
acquisition accordingly also ensured that Facebook rivals required to enter into Whitelist and Data
Sharing Agreements had no other platform choice—and thus no option but to hand over their social
data to Facebook.
269.
At the time of its IPO in 2012, Facebook struggled to grow its mobile product, let
alone to meaningfully monetize the social data it collected through advertising. By 2019, Facebook
had achieved an 83% share of the Social Advertising Market by leveraging its Instagram mobile
application and its Facebook mobile and desktop applications. No other company comes close in
market share.
270.
Instagram was instrumental to Facebook’s explosive growth in the Social Data and
Social Advertising Markets. From the fourth quarter of 2010 until the first quarter of 2011,
Facebook’s revenue was flat. From 2011’s holiday cycle to 2012’s opening three months (right
before its IPO), Facebook actually shrunk. Facebook then experienced a sudden reversal after its
acquisition of Instagram, as mobile revenue began to account for a significant share of revenues,
and Instagram allowed Facebook to grow with the rise of mobile applications.
271.
Notably, Facebook’s acquisition of Instagram also allowed Facebook to exclude
third-party apps that provided photo and video sharing functionality from its Platform. If an image
sharing or video app contained an important feature, Facebook cloned it, thus paving the way for
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excluding a competitive rival from its Platform, while simultaneously taking away that rival’s
share of users.
272.
For example, when Snap, the maker of the app SnapChat, rejected Zuckerberg and
Facebook’s $3 billion offer to purchase the company and its product, Facebook flagrantly copied
key features from Snap and built it into its Instagram product. Thus, when the SnapChat’s “stories”
feature—which allows a user to post a connected series of images and video—rapidly grew in
popularity, Instagram simply cloned it. By late 2016, Instagram had launched a product that
mooted one of Snapchat’s most popular features.
273.
Facebook’s own clunky mobile app’s clone of the “stories” feature did not have
nearly the same traction with users. It was Instagram that provided Facebook the platform to
compete head-on with a looming threat among social photo- and video-sharing apps. Without
Instagram, Facebook would have faced direct competition. Instead, it leveraged Instagram to
obtain and maintain its dominance among social mobile apps and the lucrative social data they
generated.
274.
Put simply, the acquisition of Instagram dramatically increased Facebook’s market
share of the Social Data and Social Advertising Markets and strengthened the SDBE protecting
Facebook’s business.
C.
Facebook Acquires WhatsApp.
275.
In February 2009, Jan Koum and Brian Acton left Yahoo! and founded a new
company called WhatsApp. Koum had an idea for a mobile application that displayed user statuses
in an address book on a smartphone—indicating, for example, whether a user was on a call, had
low battery, or was at the gym. The pair enlisted the help of a Russian developer, Igor
Solomennikov, to build the app. Koum spent days writing backend code for the app to allow it to
sync with any phone number in the world.
276.
Although the app—named WhatsApp—was initially unsuccessful, a June 2009
development changed everything. That month, Apple introduced “push notifications” for iPhone,
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allowing developers to ping app users even when they weren’t using the app. Koum immediately
updated WhatsApp to ping a user’s entire network of friends when their status changed.
277.
The feature eventually became a form of instant messaging. Because messages sent
through WhatsApp instantaneously notified other users even if the phone was not running the app
in the foreground, it became ideal for broadcasting messages to connections within a user’s social
network, which was built on their phone’s contact list.
278.
At the time, WhatsApp’s only significant competition for this sort of instant
messaging was BlackBerry’s BBM—which was exclusive to BlackBerry’s proprietary hardware
platform. WhatsApp, on the other hand, tapped into the vast network of app-enabled consumer
smartphones that had emerged, particularly Apple’s iPhone.
279.
WhatsApp continued to innovate, including by introducing a double checkmark
that showed when a message was read by another user. Wanting more from text messaging,
including the limited MMS protocol used by cellular networks, WhatsApp set out to build a
multimedia messenger system to send messages across a social network in real time to mobile
devices.
280.
Because WhatsApp’s messaging used the mobile phone’s internet connection
rather than text messages, the app allowed users to avoid text messaging fees entirely. In some
countries, text messages through cellular providers were metered. WhatsApp’s ability to send
messages to any user with a phone using the internet was its most sought-after feature.
281.
In December 2009, WhatsApp updated its app for the iPhone to send photos. User
growth spiked, even when WhatsApp charged users for its service. Having created a unique
combination of image and messaging apps as one socially powered app, WhatsApp decided to stay
a paid service and grew while generating revenue.
282.
By early 2011, WhatsApp was one of the top twenty paid apps in Apple’s U.S. App
Store. The company attracted the attention of venture capital firm Sequoia, and WhatsApp agreed
to take $8 million of additional funding in addition to its original $250,000 seed funding.
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283.
Two years later, in February 2013, WhatsApp’s user base had ballooned to 200
million active users. That moth, WhatsApp raised additional funds—another $50 million from
Sequoia, at a valuation of $1.5 billion.
284.
Internally, Facebook had carefully tracked WhatsApp’s rapid rise. Engagement
data from Facebook’s Onavo spyware reported that WhatsApp was rivaling Facebook’s own
Messenger product, and held third place in terms of user reach among mobile messenger apps for
iPhone in the U.S as of April 2013.
285.
The broader picture was even more threatening to Facebook. As Buzzfeed recently
reported, Onavo had tracked messages sent through WhatsApp and the number dwarfed
Fakebook’s own mobile product by more than twofold.
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286.
The same Onavo data reported by Buzzfeed showed massive engagement among
WhatsApp users, placing it in fifth place behind Facebook’s own core product; Facebook’s newly-
acquired Instagram; Twitter; Foursquare; and Snapchat.
287.
WhatsApp, although lacking Facebook’s market reach, was drawing from the same
pool of limited attention. Given Facebook’s own fledgling Messenger App, WhatsApp exposed a
massive vulnerability in Facebook’s business model. WhatsApp was built on a social network
derived directly from a smartphone user’s contact list. It did not require Facebook’s graph network
for growth and could not therefore be shut down by revoking access to Facebook’s APIs. Nor
could Facebook demand that WhatsApp enter into a Whitelist and Data Sharing agreement.
288.
WhatsApp posed a direct threat to Facebook’s business, including the SDBE
protecting its dominance. WhatsApp allowed for statuses, image sharing, and texting—all of the
principal features of Facebook’s core products. By 2013, the size of WhatsApp’s network and the
user engagement in that network made WhatsApp the most direct threat to Facebook’s market
dominance—and because of Onavo, Facebook knew it.
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289.
To ensure that it maintained its SDBE, and thereby its dominance of the Social Data
and Social Advertising Markets, Facebook sought to remove WhatsApp as a competitor. As The
Wall Street Journal reported, Facebook’s Vernal internally commented in 2013: “Whats App
launching a competing platform is definitely something I’m super-paranoid about.” Vernal
understood that if WhatsApp created a rival platform, Facebook’s own scheme to exclude rivals
by leveraging its Platform would fail—developers would migrate to the competing platform
provided by WhatsApp.
290.
Knowing about WhatsApp’s size, its engagement, and its unique potential to erode
the SDBE protecting Facebook market dominance, Facebook moved aggressively to remove this
existential threat from the competitive landscape. In late 2013, Facebook made an initial bid of
$16 billion in stock for WhatsApp. During negotiations in early 2014, Facebook raised its price to
$19.6 billion—adding $3.6 billion to the original price as compensation to WhatsApp employees
for staying on board at Facebook. When all was said and done, Facebook ultimately paid close to
$22 billion for WhatsApp.
291.
But for the value of containing and shutting down the growth of WhatsApp’s
competing social network and platform, the transaction made no possible economic sense to
Facebook. WhatsApp’s revenues were a meager $10.2 million in 2013. Its six-month revenue for
the first half of 2014 totaled $15.9 million, and the company had incurred a staggering net loss of
$232 million in that same period. Facebook had paid twenty billion dollars—thousands of times
WhatsApp’s revenues—to acquire a money-losing company that created software functionality
Facebook itself already had as part of its own products, and could easily build from scratch for a
fraction of the cost of the acquisition if it wanted to.
292.
At the time of the WhatsApp acquisition, Facebook’s user reach and user base and
engagement was already massive—and unrivaled by any competing messaging app—but the
addition of WhatsApp’s user base further solidified Facebook’s dominance in the Social Data and
Social Advertising Markets. More importantly, however, Facebook had removed a serious threat
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to its SDBE. If WhatsApp and its nascent social platform were allowed to compete on the merits,
Facebook would not have been able to leverage its Platform into continued dominance of the Social
Data and Social Advertising Markets, including by using API access to shut down competing third-
party apps and to demanding access to other apps’ most valuable social data as a condition for
their existence.
293.
Moreover, because the reach and engagement on WhatsApp generated (and
generates) significant social data that Facebook could (and can) leverage and monetize through its
mobile advertising channel, Facebook’s SDBE strengthened as a result of the WhatsApp
acquisition, fortifying Facebook’s unrivaled dominance in the Social Data and Social Advertising
Markets, and strengthening Facebook’s ability to exclude potential entrants to these markets from
gaining a foothold with a rival messaging or photo-sharing app.
VI.
FACEBOOK’S INTEGRATION OF INSTAGRAM AND WHATSAPP WITH ITS
FACEBOOK PRODUCT
294.
Based on media reports, Facebook is as of the date of this Complaint scrambling to
integrate the backends of its Facebook products with its acquired products, WhatsApp and
Instagram. Until recently, Facebook has largely maintained the separateness of the products, but
in response to threats of divestiture from antitrust regulators, Facebook has begun an aggressive
effort to integrate the backends—the brains of each product—so that divestiture and other
equitable relief will be impossible. The integration process is slated to be complete in the first few
months of 2020. Unless restrained, Facebook may impair the ability of Plaintiffs to obtain
necessary relief in this action.
*
*
*
295.
When it acquired WhatsApp, Facebook publicly stated that it would operate
WhatsApp independently from its other Facebook properties, but that turned out not to be the case.
Indeed, the European Union found Facebook lied to regulators about its integration plans for
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WhatsApp and fined Facebook €110 million. The EC regulator explained the reasons for its fine
in a press release, dated May 17, 2017:
The European Commission has fined Facebook €110 million for
providing incorrect or misleading information during the
Commission’s 2014 investigation under the EU Merger Regulation
of Facebook’s acquisition of WhatsApp. . . .
When Facebook noticed the acquisition of WhatsApp in 2014, it
informed the Commission that it would be unable to establish
reliable automated matching between Facebook’s users’ accounts
and WhatsApp users’ accounts. It stated this both in the notification
form and in a reply to a request for information from the
Commission. However, in August 2016, WhatsApp announced
updates to its terms of service and privacy policy, including the
possibility of linking WhatsApp users’ phone numbers with
Facebook users’ identities.
On 20 December 2016, the Commission addressed a Statement of
Objections to Facebook detailing its concerns.
The commission has found that, contrary to Facebook’s statements
in the 2014 merger review process, the technical possibility of
automatically matching Facebook and WhatsApp users’ identities
already existed in 2014, and that Facebook staff were aware of such
a possibility.
296.
Facebook had lied to regulators. It was always capable of integrating its advertising
targeting systems and in fact had done so. After the acquisition, WhatsApp’s founder Brian Acton
quit in protest in March 2018, stating on Twitter: “It is time. #deletefacebook.”
297.
Consistent with the EC’s finding, Acton believed Facebook misled European Union
regulators about its plans to commingle WhatsApp and Facebook data for use in its ad targeting
system. And despite Zuckerberg’s promise that he would not try to monetize WhatsApp for five
years, Facebook almost immediately began exploring the monetization of WhatsApp without its
founders’ consent. Acton left behind $850 million in stock when he quit in protest.
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298.
WhatsApp’s other co-founder, Jan Koum, left in April of 2018. Instagram’s
founders Kevin Systrom and Mike Krieger followed suit shortly after, resigning from Facebook in
the Fall of 2018.
299.
With the founders of its two acquired competitors—Instagram and WhatsApp—
gone, by late 2018 Facebook had unfettered internal license to integrate two of the most powerful
rival social networks with Facebook’s core business.
300.
Facebook, however, knew it was vulnerable to divesture of the acquired assets if it
continued to operate them independently. In the face of backlash for its abusive privacy practices,
Facebook became alarmed at calls to break up the company.
301.
Zuckerberg and Facebook immediately devised a plan to integrate the backends of
the WhatsApp, Instagram and Facebook products. On March 6, 2019, Zuckerberg announced a
plan to integrate the apps on his blog, cloaking the maneuver as a privacy-related decision to
frustrate regulators. Facebook’s announced plan would implement a unitary form of end-to-end
encryption across its messaging and photo sharing apps, and would integrate the acquired assets
(WhatsApp, Instagram, and their respective social data) to make them interoperable with—and
inextricable from—Facebook’s core product.
302.
Although Facebook has already begun the process of integrating its advertising
tracking and surveillance infrastructure across applications, the full integration of the so-called
backend would give Facebook surveillance, advertising targeting, and market power incomparable
from any other social network (and likely any other private entity) on Earth. Once fully integrated,
those Instagram and WhatsApp networks can also never become viable platform alternatives to
Facebook’s Platform. Indeed, once integrated, Instagram and WhatsApp would be not alternatives,
but part and parcel of the very Facebook’s Graph API and Platform the company has
anticompetitively leveraged for dominance in the Social Data and Social Advertising markets to
the detriment of thousands of third-party developers, including Plaintiffs and Class Members
herein.
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303.
The back-end integration of Instagram and WhatsApp would also affect the ability
of regulators to regulate how user data is shared and stored across the platform. By integrating the
data, Facebook would be free to mine it, sell it, and monetize it through advertising, regardless of
its source. As the former Chief Technologist for the FCC, Ashkan Soltani, commented: “While
positioned as a privacy-friendly play, its timing suggests a competition play to head off any
potential regulatory efforts to limit data sharing across services.”
304.
The back-end integration would be a game changer, bringing together the three
largest messaging networks. Once the backend is integrated, the 2.6 billion users across Facebook,
WhatsApp and Instagram will be able to communicate across platforms for the first time, creating
a massive and unprecedented concentration of market power. Facebook plans to complete its
integration efforts imminently, reportedly in early 2020.
305.
The integration effort requires the efforts of thousands of Facebook employees to
reconfigure how WhatsApp, Instagram and Facebook Messenger function at their most basic
levels, according to a person involved in the effort who spoke anonymously to the press.
306.
Internally, some of Facebook’s staff working on the integration balked, demanding
answers to questions about the purpose of the initiative. When pressed in on December 7, 2019 for
answers, Zuckerberg gave vague and meandering answers to questions about the reasons for the
integration. As a result, several WhatsApp employees have left or plan to leave because of
Zuckerberg’s plans.
307.
The merger of the platforms would increase the cost of switching to a rival social
network—to the extent any viable rival exists outside of the platforms Facebook imminently seeks
to integrate (Instagram and WhatsApp). A user making a switch to a non-Facebook rival would
have to abandon the largest social network in in the world, which exists as a result of the
combination of the three Facebook-owned products. The SDBE protecting this amalgamation of
Facebook, Instagram, and WhatsApp would be terrifyingly high, as the social data of billions of
users across years of heavy engagement is integrated into a conjoined hurdle blocking new entrants
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or would-be entrants to the United States and worldwide Social Data and Social Advertising
Markets.
308.
The integration of the three products also poses changes to the level of anonymity
enjoyed by WhatsApp’s users. WhatsApp currently requires only a phone number when new users
sign up. In contrast, Facebook and Facebook Messenger ask users to provide their true identities
and will ban users who fail to do so. Integration would mean matching WhatsApp handles to
Facebook and Instagram user accounts, allowing for unprecedented level of surveillance and
advertising targeting.
309.
Lawmakers saw the move to integrate the WhatsApp, Instagram, and Facebook
back-ends as flagrantly anticompetitive. United States Congressman Ro Khanna, for example, took
to Twitter to lament the fact that Facebook’s horizontal mergers with WhatsApp and Instagram
were not blocked when they occurred:
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310.
If those mergers had been blocked, it was clear, as Khanna observed, that Facebook
would have had to compete directly with Instagram and WhatsApp:
311.
The integration would also connect Facebook-owned products that are dominant in
particular geographic region, greatly increasing Facebook’s worldwide dominance in Social Data
and Social Advertising. Users in Southeast Asia, for example, where WhatsApp is dominant,
would be able to directly communicate with users in regions dominated by Facebook’s Messenger
or Instagram. This would massively increase Facebook’s engagement in global messaging and
photo sharing, further growing the company’s SDBE.
312.
Indeed, as reported recently by one source in February 2019, 82% of Indian Internet
users use WhatsApp; in Mexico, 91%; in Brazil, 66%; and in the UK, 84% of 25-34 year-olds and
80% of 18-24 year-olds. After integration, these WhatsApp users would all be able to communicate
directly with U.S. users of Facebook’s other products, meaning Facebook would achieve a
significant increase in market share globally in the Social Data and Social Advertising markets.
313.
Regulators are aware of this risk. For example, as of the date of this Complaint, the
FTC is reportedly considering seeking an injunction to halt Facebook’s integration efforts.
Antitrust officials, including those at the FTC, are concerned that integration would prevent
divestiture should regulators take action against Facebook. Without some means of halting
Facebook’s integration gambit, the ability to obtain an injunction preventing Facebook from
continuing its anticompetitive conduct and to remediate Facebook’s anticompetitive acquisitions
may be impaired or eliminated.
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314.
In other words, Facebook’s acquisitions are being presently used to reinforce the
SDBE, prevent regulatory enforcement, prevent entry by new competitors, expand Facebook’s
reach, and to maintain its dominance and market power. The integration, if completed, will not
only substantially lessen competition, it may allow Facebook to destroy it—for a very long time.
VII.
THE RELEVANT MARKETS
315.
There are two relevant, or alternatively relevant, markets in this case—the market
for social data (the “Social Data Market”) and the market for social advertising (the “Social
Advertising Market”). Both markets are protected by the Social Data Barrier to Entry described
above and in this section.
A.
The Social Data Market
316.
Facebook and other Social Data market participants acquire social data from their
users in exchange for the value they provide to those users. Specifically, social networks provide
users with, among other things, the ability to send each other messages, signals, such as “likes” or
“pokes,” photos and video, view information about others in their network, and the ability to
explore other connections among their friends. In exchange, Facebook and other social networks
collect data about the interaction among users, including what they share, what they send each
other, what they view or find interesting, and even their web and mobile traffic outside of the social
network.
317.
All of this data is then used to sell targeted advertising on an advertising platform.
The advertising Facebook and other social networks provide is unique. It allows fine-tuned
targeting of individuals by granular attributes. To achieve the level of granularity that can provide
advertisers direct access to targeted demographics, advertising based on social data requires
extensive data from a social network’s users—data that a social network can only obtain when its
users engage on its platform with each other or with content posted to the network.
318.
Put simply, Facebook—and other market participants in the Social Data market—
sell user data. They obtain that data from user engagement and sell that data to advertisers or third-
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party developers. That is, profits in the market can be obtained by selling the data acquired for the
least amount of value the market will bear, and then selling that data through an advertising sales
channel at a higher price.
319.
Because social data is obtained by providing users with mostly free services,
participants in the Social Data Market compete for user data based on features, the value and
breadth of their network, and other non-price bases. Thus, in a competitive market, social networks
compete on the merits to obtain social data by innovating with new products, providing heightened
privacy to their users, or increasing the value of their overall social networks.
320.
Because social interactions are used to target users for advertisement, the sort of
data valuable to participants in the Social Data Market is data resulting from user-to-user or user-
to-content interactions that reveal the preferences, affiliations, proclivities, political leanings, or
other attributes of the user. Social networks that encourage users to engage with their platform can
obtain such user data in a number of ways, including photo and video sharing, messaging, gaming,
or other forms of content relying on interactions among users. While a user’s interaction with a
news article, for example, may be valuable for advertising targeting, that user’s decision to share
that news article with his friends is the sort of social data for which participants in the Social Data
Market compete.
321.
Not all data is social data. A person’s credit card statement may reveal a user’s
preferences and spending habits, but because that data is not shared among a network of users, it
is not the sort of social data that is acquired and sold in the Social Data Market. In contrast, a user’s
decision to like a product or share a review of a product with his friends is social data. In other
words, social data arises from engagement within a social network among its users.
322.
Message boards and video sharing sites may not be market participants because
user interactions are not through a network, but instead may be broadcasted for general
consumption of anyone who accesses the site. The data obtained is derived from unilateral user
conduct, not the propagation of a user’s actions through a network.
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323.
The ability to obtain social data from users thus depends on the ability to keep users
engaged on a platform. A social network, such as the failed Google+ social network, for example,
obtained a large user base, but as described above, ultimately failed because users did not engage
on the platform.
324.
Because engagement is the source of the social data for which Social Data Market
participants compete and which they ultimately sell through a sales channel such as advertising or
API access, a Social Data Market participant’s share of the market is best measured by the share
of active users on the social network’s platform.
325.
Indeed, not all participants in the Social Data Market monetize their social data,
either because they have nascent businesses or because they have not yet developed a business
model, but the data their network generates is valuable in the hands of a competitor capable of
monetizing that data. For such firms that compete for social data but do not—or have not yet—
monetized that data through a sales channel, their share of the market can only be measured by
examining the level of engagement on their platform.
326.
Social networks can form in many contexts. As Facebook itself has recognized,
messaging, photo sharing, gaming, dating, and other apps may produce social data that Facebook
competes for and monetizes. Facebook thus horizontally competes with companies that produce
social data in the Social Data Market, regardless of the what specific value is provided to the
members of the social network, be it, for example, messaging or photo sharing.
327.
Unlike a typical website, video streaming site (e.g., YouTube), or message board
(e.g., reddit), wherein users post comments on content for strangers and the general public to see,
a social network’s value is solely in the data derived from its network—namely, from the strength
and value of the specific connections among users. Thus, user-networks built on friendships and
familial relationships are stronger than networks of strangers with common interests. A competing
entrant that can build a network of highly interrelated users can therefore create enough value to
extract valuable and monetizable social data.
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328.
Since at least as early as 2010, Facebook has occupied a dominant position in the
Social Data Market, with a user share worldwide during the relevant period of more than 60% of
users on comparable social networks when user shares of its WhatsApp, Instagram, Facebook, and
Messenger products are aggregated.
329.
As of October 2019, Facebook’s share of users worldwide, when aggregating all of
its properties, including Instagram, WhatsApp, Facebook Messenger, and Facebook’s core product
is approximately 66%.
330.
The market is highly concentrated both in the United States and globally. Using the
Herfindahl-Hirschman Index (“HHI”), a metric that measures market concentration by squaring
market participants’ shares of the market, it is clear that the Social Data market is highly
concentrated—with an HHI of approximately 4586. The Department of Justice’s merger
guidelines deem markets with HHIs in excess of 2500 as “highly concentrated.” See U.S.
DEPARTMENT OF JUSTICE & FTC, HORIZONTAL MERGER GUIDELINES § 5.3 (2010).
331.
Of course, if Facebook never acquired those properties, the WhatsApp and
Instagram shares may have been significantly higher and there may have also been more entrants
in the market, thus reducing concentration. Nonetheless, the contrast between HHIs before and
after aggregating Facebook’s properties is striking and makes clear that Facebook has a dominant
share of the global user share in the Social Data Market.
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332.
When social networks such as WeChat—which serves Asian countries with
stringent regulatory schemes and high barriers for entry for non-state affiliated companies or
foreign companies—are excluded from the market, the market is even more concentrated. In the
United States, Facebook’s share of users is unquestionably dominant. Between Facebook and
Instagram, both of which are highly popular in the United States, Facebook is virtually unrivaled
and unparalleled in its share of social data generated in the Social Data Market.
333.
Even setting aside WhatsApp and Instagram, Facebook’s core product’s users have
grown in number almost monotonically every year since 2008.
334.
Facebook, WhatsApp, and Instagram have managed to capture not just large user
bases, but large numbers of active users.
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335.
WhatsApp’s Monthly Active Users have increased every year since April 2013,
from 200 million MAUs to approximately 1.5 billion MAUs since 2017.
336.
Instagram has grown from approximately 90 million monthly active users in
January 2013 to approximately 1 billion users since June of 2018.
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337.
Facebook’s Messenger product has also grown rapidly in terms of MAUs, with 200
million in April 2014, and more than approximately 1.3 billion since September 2017. Facebook
itself has 2.7 billion MAUs in all.
338.
That each product’s user base is engaged on a monthly basis is a clear sign that each
one generates staggering amounts of Social Data that is in proportion to its number of total users.
Indeed, for Instagram, Facebook, and WhatsApp, the global number of MAUs is in line with each
product’s overall user share.
339.
Facebook’s competitors cannot match even one of Facebook’s products. Twitter’s
MAUs have never exceeded 70 million since 2010 and maintains approximately 68 million as of
Q1 2019. WeChat, which has the second largest share to the Facebook’s aggregated products with
a share of 12% of worldwide users, has approximately 1.151 billion active users as of Q2 2019.
340.
Facebook has maintained its dominance ever since 2010 when it emerged as the
winner among social network websites such as MySpace and Friendster. It expanded its share
further and maintained its dominance after its acquisitions of Instagram and WhatsApp.
B.
The Social Advertising Market
341.
In the alternative, Facebook’s dominance can be viewed through its sales in its
advertising channel. Advertising sold on social networks is not fungible or interchangeable with
advertising on other digital platforms. Because of the extensive ability to target advertisements to
users on social media sites like Facebook, search and banner advertising are not reasonable
substitutes.
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342.
Facebook’s revenue share of the social advertising market is approximately 80%.
Its share has been above 70% since 2015.
343.
Facebook’s advertising revenue has steadily grown both in the United States and
globally. Facebook reported advertising revenues totaling $17.383 billion as of Q3 2019.
Approximately $8.3 billion of that advertising revenue came from the United States.
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344.
From 2014, through 2016, Facebook’s advertising revenues grew from $2.9 billion
to $6.436 billion. During that period, and even before then, Facebook was one of the few social
networks that significantly monetized its network by selling advertising. Other competitors did not
come close, and Facebook established unrivaled dominance in the Social Advertising Market and
maintains that dominance to this day.
345.
Twitter, one of Facebook’s only competitors to sell significant social advertising
during the same period Facebook generated revenue in the Social Advertising Market, has never
exceeded $800 million in advertising revenues. Revenues in Q1 2012 were approximately $45
million, growing to $432 million in Q4 2014, and standing at $702 million as of Q3 2019.
346.
LinkedIn, another competitor that sells social advertising, generates roughly $2
billion in overall annual revenue by the end of 2018, with some lesser proportion of that coming
from advertising.
347.
Considering the revenue generated by LinkedIn and Twitter, Facebook’s
advertising revenue accounts for approximately 86% of the total revenue share across the three
largest firms competing in the Social Advertising market. Excluding the contributions from minor
competitors that monetize their social networks, the HHI of the Social Advertising Market is
approximately 7,685, well beyond what the DOJ considers a highly concentrated market.
C.
Barriers to Entry
348.
Both markets are protected by the Social Data Barrier to Entry that prevents
Facebook’s competitors from entering the market. Without a critical mass of social data, market
participants in both the Social Data and Social Advertising Markets cannot generate revenue.
349.
Moreover, without adequate social data and engagement with the social network,
market participants cannot display content to users that would provide enough value to generate
engagement and additional social data.
350.
Likewise, without a critical mass of social data, advertising targeting will not be
possible or will be substantially diminished in effectiveness, thus reducing revenues in the
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advertising sales channel of the Social Data Market and social advertising revenue in the Social
Advertising Market.
351.
A firm’s market power in both markets therefore depends on obtaining a critical
mass of social data. Because of network effects, users will not use a social network that lacks
enough social data to provide targeted content or to provide valuable connections to other users.
However, once a certain amount of social data is obtained by a market participant, a feedback loop
may form as a result of network effects, further increasing the amount of social data generated by
the social network.
352.
A new entrant must therefore expend significant amounts of investments in capital,
technology and labor to create a network large enough to create the network effects necessary to
compete with dominant firms in the market.
353.
Because of the large amount of capital and social data required to successfully enter
the Social Data and Social Advertising markets, the SDBE effectively excludes entry by a new
competitor, even a well-funded one. Indeed, the SDBE prevented Google from successfully
entering both the Social Data and Social Advertising markets with its Google+ social networking
product.
354.
Although Google+ had successfully replicated Facebook’s core functionality and
even added additional functionality to its software, its entry failed because it lacked the critical
mass of Social Data that is required to reverse the network effects protecting Facebook. Without
that critical mass, users will not incur the costs of switching from Facebook’s social network to a
new entrant’s social network. That is, a new entrant will not be able to provide a valuable network
of engaged users upon entry to justify a Facebook user to change social networks.
355.
That is precisely what happened to Google. Although it had a massive user base, it
lacked engagement, which meant it did not provide a sufficient amount of social data that could
be used to target content and advertising to users. This, in turn, reduced the value of the entrant
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social network and accordingly the attraction of switching from Facebook’s social network to
Google’s.
356.
The SDBE continues to reinforce Facebook’s dominant position. In fact, by
excluding rivals and potentially competing social networks through the anticompetitive scheme
described in this Complaint, Facebook strengthened the SDBE, providing it a larger share of social
data and a stronger monetization channel through social advertising. The additional amount of
social data increases the value of its network, and the revenue from social advertising increases
the cost of entry for a new rival.
357.
Other barriers to entry in both the Social Data and Social Advertising Markets
include, but are not limited to, the high cost of development, data management, talent acquisition
and retention, server infrastructure, development infrastructure, software technology, software
libraries, and a brand and marketing presence sufficient enough to attract an engaged user base.
358.
In certain countries in the global markets for Social Data and Advertising Markets
(described below), regulatory barriers to entry may exist in the form of government surveillance
and other monitoring, government content restrictions and prior restraints on speech, and onerous
or complex regulatory schemes. A new entrant would be required, for example, to ensure
compliance with EU data privacy laws, which may require it to incur high entry costs, particularly
for entry at scale.
D.
Relevant Geographic Markets
359.
There are two relevant geographic markets for the Social Data and Social
Advertising product markets: the U.S. and Global Social Data and Social Advertising markets.
Both markets can be viewed in the alternative as U.S. markets or as markets extending across
several countries.
360.
For the Social Data Market, social data must be compatible with the customers
purchasing that data. Thus, social data about a foreign market may be of little use for a U.S. based
advertiser. The data may be collected in a different language, may involve interests more pertinent
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to a particular geographic region (e.g., American Football vs. Rugby), and may contain a
demographic of users that share a common culture or merely a close proximity.
361.
The same is true for the Social Advertising Market. An advertiser seeking to sell
products designed for consumption in the United States may not have any use for a platform’s
advertising targeting capabilities outside of the United States. In the U.S., Facebook enjoys higher
market shares of the Social Advertising Market than the global shares described above. Thus,
Facebook enjoys an even more dominant share of the U.S. Social Advertising Market than it does
globally.
362.
In the U.S., Facebook’s market share of the Social Data Market is even greater than
its global market share. Services such as WeChat are geared towards Asian markets, particularly
China, and do not generally compete in the U.S. market with Facebook’s Messenger, Instagram,
and core social networking product. Thus, Facebook’s U.S.-based market share is even higher than
its global market share referenced above, which is already a dominant share of the market.
363.
In the global markets, Facebook’s product does not face competition in every
country, and not every country is part of the market. Certain countries, such as Russia, China, Iran,
and North Korea have extensive Internet monitoring and restriction programs run by governmental
or quasi-governmental entities. Because of regulation in these countries, no social network is free
to enter those markets and compete on the merits. Those countries, and others like them, are
therefore not part of the Social Data Market or Social Advertising Market. Indeed, it may be
unlawful for Facebook to monetize social data or social advertising in those countries.
VIII. HARM TO COMPETITION AND ANTITRUST INJURY
364.
Facebook’s anticompetitive scheme had the purpose and effect of monopolizing
the Social Data and/or Social Advertising markets in the United States and/or globally. Facebook’s
conduct allowed it to maintain the monopoly and market power it had obtained by 2010 in the
Social Data and Social Advertising Markets, and/or Facebook intended and attempted to acquire
such a monopoly through its anticompetitive scheme. Facebook also entered into unlawful and
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unduly restrictive agreements to restrain trade in the Social Data and/or Social Advertising Markets
(the “Relevant Markets”).
365.
Specifically, Facebook engaged in a series of conduct in furtherance of its scheme,
including, but not limited to: (a) the removal of important and necessary APIs from its Facebook
Platform for the intended purpose of destroying competition in the Relevant Markets; (b) the
targeting of competitors for coercive Whitelist and Data Sharing Agreements on pain of denial of
access to Facebook’s Platform and APIs; (c) the use of secret surveillance software to identify and
destroy potential competitive threats; (d) the acquisition of rivals with the purpose and effect of
strengthening the SDBE and increasing Facebook’s market share and market power in the Relevant
Markets; (e) integrating its separate products to prevent antitrust enforcement, obtain a dominant
share of the global Relevant Markets, and to frustrate any prospect of divestiture; and (f)
misleading developers about the stability of Facebook’s Platform to induce them to become
dependent on Facebook’s social data.
366.
Facebook engaged in this conduct while possessing market power in both the Social
Data and Social Advertising Markets, both in the United States and globally. Facebook enhanced
and/or maintained its market power and monopoly through this scheme and then used it to exclude
rivals and potential entrants. Facebook’s anticompetitive scheme also reduced consumer choice by
stifling innovation among nascent and established competitors that relied on Facebook’s Platform
for their products and business and by entering into agreements that strengthened the SDBE.
367.
In the alternative, Facebook’s scheme had the purpose and effect of achieving a
dangerous probability of a monopoly in the U.S. and/or Global Social Data and Social Advertising
markets.
368.
Facebook’s decision to remove the Friend and Newsfeed APIs excluded horizontal
and/or direct competitors from the Social Data market. Once a potential threat to Facebook or
Facebook’s SDBE is eliminated, it cannot (a) monetize social data by selling advertising; (b)
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accumulate social data sufficient to create a competing platform; and/or (c) even purchase social
data from Facebook at full price.
369.
That same decision also excluded competition in the Social Advertising Market
because the competing third-party applications could not become rival sources of advertising, nor
could they become rival social advertising platforms using the social data their applications
generated. Moreover, because Facebook eliminated the applications relying on the APIs—
including the Friend and News Feed APIs—from the market, the developers of those applications
could no longer purchase advertising from Facebook in the Social Advertising Market, even at full
price.
370.
Facebook sacrificed profits in the Social Data and Social Advertising Markets for
the sole purpose of executing its scheme an excluding competition. It would make no rational sense
to exclude a competitor that would also be a purchaser of social data or social advertising if they
were permitted to exist. It would also make no sense to exclude a third-party app that Facebook
could have charged for API or social data access. Put simply, Facebook put anticompetitive
conduct ahead of profits.
371.
Facebook knew that once its competitors were foreclosed from the Social Data
and/or Social Advertising markets by its anticompetitive scheme, Facebook would be free to
charge monopoly prices for social data and social advertising without facing any competitive price
or quality pressure. In fact, Facebook has reduced the value it provides to users through privacy
and feature innovation throughout and after it executed its anticompetitive scheme without
sacrificing any significant marginal demand—a clear sign of its market power in the Social Data
and Social Advertising Markets. Likewise, Facebook has increased the price of its targeted
advertising throughout the period of its anticompetitive scheme and to the present, also a sign of
its market power in the Social Data and Social Advertising Markets.
372.
Facebook’s Whitelist and Data Sharing agreements ensured that Facebook would
control competitive threats to its platform and extract their most valuable asset—their social data.
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Facebook, by requiring Whitelist and Data Sharing agreements by competitors, ensured that these
competitors, some of which were competing social networks, could not become alternative
platforms for developers. That meant that when Facebook excluded other developers from the
market, they were completely foreclosed and would have no reasonable alternative.
373.
After excluding applications that competed with it from the Social Data and/or
Social Advertising Markets, Facebook was left with competition from entirely independent apps,
which did not rely on Facebook’s social data, APIs, or advertising. Rather than compete on the
merits with these competitors, Facebook secretly spied on users using the Onavo data and the
Onavo assets that it acquired to target potentially competitive threats and then acquired the
companies that built the threatening products, even at economically irrational prices.
374.
Facebook accordingly used the Onavo data and Onavo-based spyware it owned or
had in its possession to track Instagram use. When Instagram’s engagement and user reach
indicated that it was a potential competitive threat to Facebook, Facebook acquired Instagram and
operated it alongside its products, and presently seeks to complete integration of the product with
all of its other Facebook properties.
375.
Likewise, Facebook secretly tracked mobile users’ use of WhatsApp, and when
Facebook determined that WhatsApp threatened to become a platform entirely independent of
Facebook’s network and social data, it purchased WhatsApp at an irrational price of thousands of
times the company’s revenue.
376.
By acquiring potential threats independent of its platform, particularly WhatsApp
and Instagram, Facebook ensured that such companies could not be (a) alternative platforms upon
which developers excluded by Facebook’s API removal could build their apps; (b) alternative
sources of social data that could be monetized; or (c) alternative social networks that would attract
users, developers, and advertisers, thereby weakening the SDBE protecting Facebook’s business.
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377.
Facebook’s past integration of these acquired assets and its continuing effort to
integrate these acquired assets has continuing anticompetitive effect and threatens to increase
and/or maintain Facebook’s dominance in the Social Data and Social Advertising markets.
378.
Facebook also used Onavo and the Onavo assets to maintain a real-time view of
users’ mobile application use and mobile traffic. Facebook used that real-time information to
monitor, punish, or acquire any competitive threats. Indeed, Facebook used Onavo surveillance
data to target threats for denial of access to crucial APIs; for Whitelist and Data Sharing
Agreements; or for targeted removal from the market through acquisition.
379.
The net effect of Facebook’s scheme was to, inter alia, strengthen and maintain the
SDBE, protect its monopoly in the Relevant Markets, prevent market entry by a potential rival,
and reduce consumer choice.
380.
The scheme also ensured that there would be no competition by a rival social
network or application on non-price bases, such as, for example, increased privacy, more features,
higher quality features, new features, more valuable social connections, reduced advertising to
users, or new use cases. The scheme also foreclosed new or alternate business models by
competitors or potential competitors, including the business model Facebook itself forwent and
sacrificed for anticompetitive purposes—charging developers and competitors for API / Platform
access or advertising.
381.
Facebook’s anticompetitive scheme has also allowed it to raise prices for social
data and for social advertising during and after the execution of the scheme. Facebook continues
to be one of the only sources for targeted social data or advertising in the United States and in most
of the world. As evidence of its market power in the Social Data and Social Advertising Markets,
Facebook has raised prices for social data without sacrificing any demand.
382.
Facebook’s acquisitions of Instagram and WhatsApp continue to harm competition
in the Relevant Markets, reduce consumer choice, prevent entry by a potential competitor, and
allow Facebook to evade regulators. These assets are being integrated, which will unify global and
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domestic U.S. markets, resulting in a significant increase in global market share, preventing a rival
from attracting enough users to reach a critical mass of social data, preventing a rival from starting
a competing social network, and strengthening the SDBE.
383.
If allowed to integrate its products, Facebook’s dominance of the Relevant Markets
will be virtually impossible to reverse. Facebook’s network will have grown to such a size that a
new entrant could not build a network large enough to coax Facebook’s users to change platforms.
Once integration is complete, a new entrant would have to rival Facebook’s more than 2-billion-
person network of users. Such an entry would be cost prohibitive and require an unprecedented
amount of economic and human capital. No competitor or potential entrant exists that at the time
of this complaint to successfully attempt such an entry.
384.
Facebook’s anticompetitive scheme excludes developers, including Plaintiffs, from
the Relevant Markets; prevents entry by a competitor in the relevant markets; and strengthens the
SDBE protecting Facebook’s business.
385.
Plaintiffs are therefore harmed in their business and property because they have
been excluded from the Relevant Markets; had their business and assets destroyed by Facebook’s
anticompetitive scheme; and are presently, as a result of Facebook’s exclusionary conduct,
prevented from entry/reentry in the Relevant Markets or from staging an entry that could threaten
Facebook’s dominant position in the Relevant Markets.
CONCEALMENT AND TOLLING
386.
For many years, Facebook and its executives took great pains to hide the truth about
the Platform API withdrawal; the reciprocity agreements; and the rest of the anticompetitive
scheme. Through NDAs; through overbroad and/or improper assertions of privilege and
confidentiality; through lies to regulators, to the press, to developers, and to the public; and through
other means and mechanisms of intentionally suppressing and concealing from public view the
true nature, motivation, mechanisms, and intent of Facebook’s actions, Defendant managed to hide
the specific facts of its anticompetitive conduct from Plaintiffs until November 6, 2019, when NBC
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News published a trove of internal Facebook documents and communications that laid bare the
truth about Defendants’ scheme.
387.
Until no earlier than November 6, 2019, Plaintiffs did not know, and could not
reasonably have known, the truth about Facebook’s anticompetitive conduct, including its purpose
and intent to engage in anticompetitive conduct, as alleged in this Complaint.
CLASS ACTION ALLEGATIONS
388.
The class’s claims all derive directly from a course of conduct by Facebook.
Facebook has engaged in uniform and standardized conduct toward the class. Facebook did not
materially differentiate in its actions or inactions toward members of the class. The objective facts
on these subjects are the same for all class members. Within each Claim for Relief asserted by the
class, the same legal standards govern. Accordingly, Plaintiffs bring this lawsuit as a class action
on their own behalf and on behalf of all other persons similarly situated as members of the
proposed class pursuant to Federal Rules of Civil Procedure 23(a) and (b)(3) and/or (b)(2) and/or
(c)(4). This action satisfies the numerosity, commonality, typicality, adequacy, predominance, and
superiority requirements of those provisions.
The Nationwide Developer Class
389.
Plaintiffs bring this action and seek to certify and maintain it as a class action under
Rules 23(a); (b)(2); and/or (b)(3); and/or (c)(4) of the Federal Rules of Civil Procedure on behalf
of themselves and a Nationwide Developer Class defined as follows:
All persons, entities, corporations in the United States who were
excluded from the Social Data Market or injured by Facebook’s
decision to withdraw the Graph APIs, for the period beginning May
24, 2010 until April 30, 2015 (the “Class Period”).
390.
Excluded from the Nationwide Developer Class is Facebook, its employees,
officers, directors, legal representatives, heirs, successors, and wholly or partly owned subsidiaries
or affiliates; and the judicial officers and their immediate family members and associated court
staff assigned to this case.
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Numerosity and Ascertainability
391.
This action satisfies the requirements of Fed. R. Civ. P. 23(a)(1). There are tens of
thousands of developers nationwide and throughout the world that relied on Facebook’s Open
Graph API during the Class Period. Individual joinder of all Class members is impracticable.
392.
The Class is ascertainable because its members can be readily identified using API
tokens, developer registrations, and other records and information kept by Facebook or third
parties in the usual course of business and within their control. Plaintiffs anticipate providing
appropriate notice to the certified Class, in compliance with Fed. R. Civ. P. 23(c)(1)(2)(A) and/or
(B), to be approved by the Court after class certification, or pursuant to court order under Fed. R.
Civ. P. 23(d).
Predominance of Common Issues
393.
This action satisfies the requirements of Fed. R. Civ. P. 23(a)(2) and 23(b)(3)
because questions of law and fact that have common answers that are the same for the Class
predominate over questions affecting only individual Class members. These include, without
limitation, the following:
a. Whether Defendant monopolized the Social Data Market.
b. Whether Defendant, its employees or affiliates, intended to monopolize the Social Data
Market.
c. Whether Defendant attempted to monopolize the Social Data Market.
d. Whether Defendant possessed monopoly or market power in the Social Data Market.
e. Whether user data and data obtained by third parties created a Social Data Barrier to
Entry that protected Facebook’s market position and/or monopoly, reduced
competition or entry in the Social Data Market, and/or increased prices for products in
that market, including, but not limited to, advertising and API access.
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f. Whether Defendant’s decision to withdraw the Friend and Feed Graph APIs lacked any
justification and/or whether the procompetitive effects of the decision to do so, if any,
was outweighed by the anticompetitive effects.
g. Whether Defendant sacrificed profits to monopolize, or attempt to monopolize, the
Social Data Market.
h. Whether the procompetitive effects of the decision to withdraw the Friend and Feed
Graph APIs, if any at all existed, could have been accomplished by less restrictive
means.
i. Whether the procompetitive effects of Defendant’s agreements with whitelisted
developers, if any, could have been achieved by less restrictive means.
j. Whether Defendant’s agreements with whitelisted developers violated Sections 1 and
2 of the Sherman Act, including whether the agreements restrained trade or
strengthened the Social Data Barrier to Entry.
k. Whether the procompetitive effects of Defendant’s agreements with whitelisted
developers, if any, were outweighed by the anticompetitive effect.
l. Whether the procompetitive effects of Defendant’s agreements with whitelisted
developers, if any, could have been achieved by less restrictive means.
m. Whether Defendant’s purchase of WhatsApp violated Sections 2 of the Sherman Act
and 7 of the Clayton Act.
n. Whether Defendant’s purchase of Instagram violated Section 2 of the Sherman Act and
7 of the Clayton Act.
o. Whether injunctive relief, prospective relief, or divestiture of WhatsApp, Instagram,
Messenger, or any other Facebook line of business is required to remedy the
anticompetitive effects of Defendant’s conduct and/or Defendant’s violations of the
antitrust laws.
p. Whether Defendant’s conduct harmed competition in the Social Data Market.
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q. Whether Defendant’s conduct caused price increases or the reduction of consumer or
developer choice in the Social Data Market.
r. Whether Defendant’s unlawful conduct was a substantial contributing factor in the
injury to members of the Class.
Typicality
394.
This action satisfies the requirements of Fed. R. Civ. P. 23(a)(3) because Plaintiffs’
claims are typical of the claims of other Class members and arise from the same course of conduct
by Defendant. The relief Plaintiffs seek is typical of the relief sought for the absent Class members.
Adequate Representation
395.
Plaintiffs will fairly and adequately represent and protect the interests of the Class.
Plaintiffs have retained counsel with substantial experience in prosecuting consumer class actions,
including actions involving defective products.
396.
Plaintiffs and their counsel are committed to vigorously prosecuting this action on
behalf of the Class and have the financial resources to do so. Neither Plaintiffs nor their counsel
have interests adverse to those of the Class.
Superiority
397.
This action satisfies the requirements of Fed. R. Civ. P. 23(b)(2) because Defendant
has acted and refused to act on grounds generally applicable to the Class, thereby making
appropriate final injunctive and/or corresponding declaratory relief with respect to the Class as a
whole.
398.
This action satisfies the requirements of Fed. R. Civ. P. 23(b)(3) because a class
action is superior to other available methods for the fair and efficient adjudication of this
controversy. The common questions of law and fact regarding Defendant’s conduct and
responsibility predominate over any question affecting only individual Class members.
399.
Because the damages suffered by each individual Class member may be relatively
smaller than the costs of litigation, the expense and burden of individual litigation would make it
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very difficult or impossible for individual Class members to redress the wrongs done to each of
them individually, such that most or all Class members would have no rational economic interest
in individually controlling the prosecution of specific actions, and the burden imposed on the
judicial system by individual litigation by even a small fraction of the Class would be enormous,
making class adjudication the superior alternative under Fed. R. Civ. P. 23(b)(3)(A).
400.
The conduct of this action as a class action presents far fewer management
difficulties, far better conserves judicial resources and the parties’ resources, and far more
effectively protects the rights of each Class member than would piecemeal litigation. Compared
to the expense, burdens, inconsistencies, economic infeasibility, and inefficiencies of
individualized litigation, the challenges of managing this action as a class action are substantially
outweighed by the benefits to the legitimate interests of the parties, the court, and the public of
class treatment in this Court, making class adjudication superior to other alternatives, under Fed.
R. Civ. P. 23(b)(3)(D).
401.
Plaintiffs are not aware of any obstacles likely to be encountered in the management
of this action that would preclude its maintenance as a class action. Rule 23 provides the Court
with authority and flexibility to maximize the efficiencies and benefits of the class mechanism and
reduce management challenges. The Court may, on motion of Plaintiffs or on its own
determination, certify nationwide, statewide, and/or multistate classes for claims sharing common
legal questions; utilize the provisions of Rule 23(c)(4) to certify any particular claims, issues, or
common questions of fact or law for class-wide adjudication; certify and adjudicate bellwether
class claims; and utilize Rule 23(c)(5) to divide any class into subclasses.
REALLEGATION AND INCORPORATION BY REFERENCE
402.
Plaintiffs reallege and incorporate by reference all the preceding paragraphs and
allegations of this Complaint, as though fully set forth in each of the following Claims for Relief
asserted on behalf of the Class.
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CLAIMS FOR RELIEF
COUNT I
SECTION 2 SHERMAN ACT:
MONOPOLIZATION
403.
Defendant has willfully acquired and maintained monopoly power for Facebook in
the relevant markets for Social Data and Social Advertising.
404.
Facebook possesses monopoly power in the relevant markets for Social Data and
Social Advertising. Facebook has the power to control prices or exclude competition in the relevant
markets.
405.
Since at least as early as 2010, Facebook has occupied a dominant position in the
Social Data Market, with a user share worldwide during the relevant period of more than 60% of
users on comparable social networks when user shares of its WhatsApp, Instagram, Facebook, and
Messenger products are aggregated. As of October 2019, Facebook controlled approximately 66%
of worldwide users in the Social Data Market.
406.
Facebook’s revenue share of the Social Advertising Market is approximately 80%;
its share has been above 70% since 2015.
407.
Defendant has willfully acquired and maintained monopoly power for Facebook in
the relevant markets for Social Data and Social Advertising. As alleged herein Defendant has
accomplished this by means of predatory, exclusionary, and anticompetitive conduct, including
but not limited to: removing friends, news feed, and other crucial APIs; refusing to sell social data
to competing applications developers; extracting social data from competitors through threats of
blacklisting and/or through nonconsensual data scraping; targeting competitors for reciprocity or
denial of API access; entering into whitelisting and data sharing agreements with competitors; and
engaging in covert surveillance of competitors’ users in order to detect and ultimately acquire
competitive threats before they became too formidable.
408.
Defendant’s conduct alleged above has had an anticompetitive effect in the relevant
markets for Social Data and Social Advertising.
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409.
Defendant’s conduct alleged herein has no legitimate business purpose or
procompetitive effect.
410.
Defendant’s conduct has had a substantial effect on interstate commerce.
411.
Plaintiffs and the Nationwide Developer Class have been and will be injured in
their business or property as a result of Defendant’s conduct alleged herein.
412.
Plaintiffs and the Nationwide Developer Class have suffered and will suffer injury
of the type that the antitrust laws were intended to prevent. Plaintiffs and the Nationwide Developer
Class have been and will be injured by the harm to competition as a result of Defendant’s conduct.
COUNT II
SECTION 2 SHERMAN ACT:
ATTEMPTED MONOPOLIZATION
413.
As alleged herein, Defendant has engaged in predatory, exclusionary, and
anticompetitive conduct, including but not limited to: removing friends, news feed, and other
crucial APIs; refusing to sell social data to competing applications developers; extracting social
data from competitors through threats of blacklisting and/or through nonconsensual data scraping;
targeting competitors for reciprocity or denial of API access; entering into whitelisting and data
sharing agreements with competitors; and engaging in covert surveillance of competitors’ users in
order to detect and ultimately acquire competitive threats before they became too formidable.
414.
Defendant’s conduct alleged above has had an anticompetitive effect in the relevant
markets for Social Data and Social Advertising.
415.
Defendant’s conduct alleged herein has no legitimate business purpose or
procompetitive effect.
416.
Defendant has engaged in that conduct with the specific intent of monopolizing the
relevant markets for Social Data and Social Advertising.
417.
Defendant has engaged in that conduct with a dangerous probability of
monopolizing the relevant markets for Social Data and Social Advertising.
418.
Defendant’s conduct has had a substantial effect on interstate commerce.
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419.
Plaintiffs and the Nationwide Developer Class have been and will be injured in
their business or property as a result of Defendant’s conduct alleged herein.
420.
Plaintiffs and the Nationwide Developer Class have suffered and will suffer injury
of the type that the antitrust laws were intended to prevent. Plaintiffs and the Nationwide Developer
Class have been and will be injured by the harm to competition as a result of Defendant’s conduct
COUNT III
SECTION 1 SHERMAN ACT:
WHITELIST AND DATA SHARING AGREEMNTS
421.
As alleged above, Facebook forced certain third-party developers that it identified
as competitive threats that had valuable social data to sign Private Extended API agreements, or
as referred to throughout this Complaint as “Whitelist and Data Sharing Agreements,” in order to
obtain access to the Friend or Newsfeed APIs. In those agreements, Facebook conditioned the
provision of social data and/or access to vital Facebook APIs upon massive purchases of
Facebook’s social data through mobile advertising and/or the provision of the developer’s own
sensitive social data back to Facebook. The result of the network of Whitelist agreements was a
hub-and-spoke agreement to control the supply of social data. Those who obtained access to the
Facebook APIs were required to both provide data to the hub (Facebook) and to purchase data
from it.
422.
As such, Defendant has induced or coerced various software developers, social
networks, and other enterprises to enter into one or more contracts, combinations, or conspiracies
to unreasonably restrain trade, to control prices or exclude competition, and to willfully acquire
and maintain monopoly power for Facebook in the relevant market for markets for Social Data
and Social Advertising.
423.
Defendant’s conduct with respect to the Whitelist and Data Sharing Agreements,
as alleged herein, has had an anticompetitive effect in the relevant markets for Social Data and
Social Advertising.
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424.
Defendant’s conduct with respect to the Whitelist and Data Sharing Agreements,
as alleged herein, has no legitimate business purpose or procompetitive effect.
425.
Defendant’s conduct with respect to the Whitelist and Data Sharing Agreements,
as alleged herein, has had a substantial effect on interstate commerce.
426.
Plaintiffs and the Nationwide Developer Class have been and will be injured in
their business or property as a result of Defendant’s conduct, alleged herein, with respect to the
Whitelist and Data Sharing Agreements.
427.
Plaintiffs and the Nationwide Developer Class have suffered and will suffer injury
of the type that the antitrust laws were intended to prevent. Plaintiffs and the Nationwide Developer
Class have been and will be injured by the harm to competition as a result of Defendant’s conduct,
alleged herein, with respect to the Whitelist and Data Sharing Agreements.
COUNT IV
SECTION 7 CLAYTON ACT:
ACQUISITION AND INTEGRATION OF INSTAGRAM
428.
Facebook’s acquisition and integration of Instagram and WhatsApp has had, and
will have, the effect of substantially lessening competition and tending to create a monopoly in the
relevant markets for Social Data and Social Advertising.
429.
As alleged herein, Defendant has, dating to the departures of the founders of
WhatsApp and Instagram in 2018, begun to put the Instagram and WhatsApp assets to new and
anticompetitive purposes.
430.
Facebook’s acquisition and integration of Instagram and WhatsApp, and
Defendant’s conduct related thereto, as alleged herein, has had a substantial effect on interstate
commerce.
431.
Plaintiffs and the Nationwide Developer Class have been and will be injured in
their business or property as a result of Defendant’s conduct, alleged herein, with respect to the
acquisition and integration of Instagram and WhatsApp.
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432.
Plaintiffs and the Nationwide Developer Class have suffered and will suffer injury
of the type that the antitrust laws were intended to prevent. Plaintiffs and the Nationwide Developer
Class have been and will be injured by the substantial lessening of competition and tendency to
create a monopoly as a result of the acquisition and integration of Instagram and WhatsApp.
COUNT V
SECTION 2 SHERMAN ACT:
ACQUISITION AND INTEGRATION OF WHATSAPP
433.
Through Facebook’s acquisition and integration of Instagram and WhatsApp,
Defendant has willfully acquired and maintained monopoly power for Facebook in the relevant
markets for Social Data and Social Advertising.
434.
In part through its acquisition of Instagram and WhatsApp, Facebook possesses
monopoly power in the relevant markets for Social Data and Social Advertising. Facebook has—
and will continue to consolidate—the power to control prices or exclude competition in the
relevant markets.
435.
Through their acquisition of WhatsApp and Instagram, and through their nearly-
complete plan to integrate the backends of the WhatsApp, Instagram and Facebook products,
Defendant has acquired, maintained, and consolidated, and continues to willfully acquire,
maintain, and consolidate, monopoly power for Facebook in the relevant markets for Social Data
and Social Advertising.
436.
Once the backend of the three platforms is integrated—an event which reportedly
will occur early in 2020—the 2.6 billion users across Facebook, WhatsApp and Instagram will be
able to communicate across platforms for the first time, creating a massive and unprecedented
concentration of market power.
437.
Defendant’s conduct alleged herein with respect to the acquisition and integration
of Instagram and WhatsApp has had, and will continue to have, an anticompetitive effect in the
relevant markets for Social Data and Social Advertising.
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438.
Defendant’s conduct alleged herein with respect to the acquisition and integration
of Instagram and WhatsApp has had, and will continue to have, has no legitimate business purpose
or procompetitive effect.
439.
Facebook’s acquisition and integration of Instagram and WhatsApp, and
Defendant’s conduct related thereto, as alleged herein, have had a substantial effect on interstate
commerce.
440.
Plaintiffs and the Nationwide Developer Class have been and will be injured in
their business or property as a result of Defendant’s conduct, alleged herein, with respect to the
acquisition and integration of Instagram and WhatsApp.
441.
Plaintiffs and the Nationwide Developer Class have suffered and will suffer injury
of the type that the antitrust laws were intended to prevent. Plaintiffs and the Nationwide Developer
Class have been and will be injured by the substantial lessening of competition and tendency to
create a monopoly as a result of the acquisition and integration of Instagram and WhatsApp.
COUNT VI
INJUNCTIVE RELIEF AND DIVESTITURE
442.
Plaintiffs seek preliminary and permanent relief against Facebook. To begin with,
in the absence of such relief, developers and other competitors will not be able to enter into the
Social Data or Social Advertising markets without having to penetrate the SDBE protecting
Facebook’s business. Even upon entry, Facebook can use its considerable market power, as it has
in the past (including as described in this Complaint) to destroy the entrant.
443.
Plaintiffs and members of the Class are irreparably harmed by Facebook’s
maintenance of its unlawful monopoly and market power in the Relevant Markets, including, inter
alia, because they are prevented from competing on the merits in those markets or re-entering those
markets after having been excluded as a result of Facebook’s anticompetitive conduct.
444.
Facebook’s market share has increased dramatically. As described above, it now
has a dominant share in both the Social Data and Social Advertising Markets, as well as the power
to raise and/or control the price of advertising or the cost of user data acquisition. Absent injunctive
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relief, Facebook’s market share is likely going to remain high in the concentrated Relevant
Markets, if not grow further.
445.
Absent injunctive relief, Facebook’s users will lack any viable choices for the
services Facebook provides to them in exchange for their data. Because Facebook can control the
amount of user data and privacy controls that a user of social networks can demand, other networks
could not compete with Facebook simply by increasing the value they provide to users or
increasing their costs of social data acquisition.
446.
Moreover, Facebook’s market power and the SDBE protecting its business
continue to foreclose consumer choice because users lack a competitive platform to which they
can move if they are unsatisfied with Facebook’s demands of them, including the level of privacy
provided to them to obtain their social data.
447.
In the absence of preliminary and final injunctive relief, the increase in Facebook’s
position that will result from its continuing illegal conduct, including its imminent integration of
its WhatsApp and Instagram products, will so entrench it (and so weaken its competitors) that the
cost of reversing Facebook’s imminent domination of the Relevant Markets could be prohibitive.
448.
Plaintiffs and members of the class have no adequate remedy at law to prohibit
Facebook from its continuing abuse of power.
449.
Indeed, absent divesture of Facebook’s WhatsApp and Instagram assets, Facebook
can integrate the apps at any time, consolidating its market power across the globe, likely
permanently foreclosing competition in the Relevant Markets for decades to come.
450.
Moreover, because Zuckerberg controls all of the voting rights associated with
Facebook’s common stock, he will likely exert significant control over the company, its assets, its
executives, and its partners unless he is divested of such control. There is no adequate remedy of
law to prevent the irreparable harm that has—and will continue—to result from Zuckerberg’s
continued control of Facebook. Plaintiffs and Class Members accordingly request that the Court
order Zuckerberg to divest himself of incontestable control over the company.
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451.
Plaintiffs and Class members respectfully request that the Court immediately
appoint a monitor to oversee Facebook’s conduct, including its imminent integration of its
WhatsApp and Instagram products. Such preliminary relief is the only way to prevent Facebook
from impairing the Court’s ability to enter a final injunction in this case.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs request that judgment be entered against Defendant and that the
Court grant the following:
A.
Determine that this action may be maintained as a class action pursuant to Rules
23(a), (b)(2), (b)(3) and/or (c)(4) of the Federal Rules of Civil Procedure, and
direct that reasonable notice of this action, as provided by Rule 23(c)(2), be given
to the Class, and declare Plaintiffs as the representatives of the Class;
B.
Enter a judgment against Defendant in favor of Plaintiffs and the Class;
C.
Award the Class damages (i.e., three times their damages) in amount to be
determined at trial;
D.
Award actual, compensatory, statutory, and consequential damages;
E.
Award equitable monetary relief, including restitution and disgorgement of all ill-
gotten gains, and the imposition of a constructive trust upon, or otherwise
restricting the proceeds of Defendant’s ill-gotten gains, to ensure an effective
remedy.
F.
Grant permanent injunctive relief pursuant to Section 16 of the Clayton Act to
remedy the ongoing anticompetitive effects of Defendant’s unlawful conduct.
G.
Award pre-judgment and post-judgment interest at the highest rate allowed by
law;
H.
Award Plaintiffs and the Class their costs of suit, including reasonable attorneys’
fees as provided by law; and
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I.
Award such further and additional relief as the case may require and the Court
may deem just and proper under the circumstances.
JURY DEMAND
Plaintiffs demand a trial by jury on all claims so triable as a matter of right.
Respectfully submitted,
Dated: January 16, 2020
/s/ Brian J. Dunne
/s/ Yavar Bathaee
Brian J. Dunne (SBN 275689)
[email protected]
PIERCE BAINBRIDGE BECK
PRICE & HECHT LLP
355 S. Grand Ave. 45th Floor
Los Angeles, CA 90071
(213) 262-9866
Yavar Bathaee (SBN 282388)
[email protected]
Michael M. Pomerantz (NY 2920932)
(pro hac vice forthcoming)
[email protected]
David L. Hecht (NY 4695961)
(pro hac vice forthcoming)
[email protected]
Adam C. Ludemann (NY 5352323)
[email protected]
(pro hac vice forthcoming)
PIERCE BAINBRIDGE BECK
PRICE & HECHT LLP
277 Park Ave. 45th Floor
New York, NY 10172
(212) 484-9866
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| antitrust |
DqRkCYcBD5gMZwcz60YM |
Case No.:
CLASS ACTION COMPLAINT
JURY TRIAL DEMANDED
Lionel Z. Glancy (#134180)
Michael Goldberg (#188669)
Robert V. Prongay (#270796)
GLANCY BINKOW & GOLDBERG LLP
1925 Century Park East, suite 2100
Los Angeles, CA 90067
Telephone: (310) 201-9150
Facsimile: (310) 201-9160
Email: [email protected]
Counsel for Plaintiff Edward Todd
[Additional Counsel on Signature page]
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
EDWARD TODD, Individually and on
Behalf of All Others Similarly Situated,
Plaintiff,
vs.
STAAR SURGICAL COMPANY,
BARRY G. CALDWELL, DEBORAH
ANDREWS, and STEPHEN P.
BROWN,
Defendants.
Plaintiff Edward Todd (“Plaintiff”) brings this securities class action pursuant to
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”)
and Rule 10b-5 promulgated thereunder on behalf of all investors who purchased or
otherwise acquired STAAR Surgical Company (“STAAR” or the “Company”) securities
between February 27, 2013 and June 30, 2014, inclusive (the “Class Period”). The
allegations herein are based upon Plaintiff’s knowledge as to itself and its own acts and
upon information and belief as to all other matters. Plaintiff’s information and belief is
based on, inter alia, the investigation conducted by and through Plaintiff’s attorneys,
which included, but was not limited to review of: (i) STAAR’s public filings with the
United States Securities and Exchange Commission (“SEC”); (ii) research reports and
advisories by securities and financial analysis; (iii) publicly available presentations,
reports, and press releases issued by STAAR; (iv) press releases and media reports; (v)
publicly available presentations and reports about STAAR; and (vi) other publicly
available information. 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.
STAAR designs, develops, manufactures and sells implantable lenses for
the eye and delivery systems used to deliver lenses into the eye. The Company purports
to be the leading maker of lenses used worldwide in corrective or “refractive” surgery,
and also makes lenses for use in surgery that treats cataracts. All of the lenses
a small incision during minimally invasive surgery.
2.
This action arises from STAAR’s nondisclosure and concealment of the
significant regulatory violations at STAAR’s Monrovia, California manufacturing
facility (the “Monrovia Facility”). In 2011, the Company developed and initiated a
project to consolidate STAAR’s global manufacturing into a single site at the Monrovia
Facility. However, throughout the Class Period, STAAR – along with defendants Barry
G. Caldwell (“Caldwell”), Deborah Andrews (“Andrews”), and Stephen P. Brown
(“Brown”) (collectively, with STAAR “Defendants”) – made false and/or misleading
statements and/or failed to disclose that the Company’s Monrovia Facility: (i) lacked
adequate methodologies and facilities for the manufacture, packing, storage and
installation of the Company’s implantable lenses; (ii) lacked adequate procedures for
documenting complaints, sterility testing, and maintaining required records; and (iii) as a
result of the foregoing, the Monrovia Facility was not in conformity with current good
manufacturing practice requirements at all relevant times.
3.
On June 30, 2014, the U.S. Food and Drug Administration (“FDA”)
publicly released a Warning Letter, dated May 21, 2014, concerning an inspection of
STAAR’s Monrovia Facility which took place from February 10, 2014 to March 21,
2014. The FDA letter noted several regulatory violations at the facility and stated that,
among other things, “the methods used in, or the facilities or controls used for”
manufacture, packing, storage or installation of the Company’s implantable lenses are
FDA further advised STAAR that “failure to promptly correct these violations may
result in regulatory action being initiated by the FDA without further notice.”
4.
On this news, STAAR shares declined $1.89 or nearly 11.25%, to close at
$14.91 on July 1, 2014.
5.
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 damages.
JURISDICTION AND VENUE
6.
The claims asserted herein arise under and pursuant to Sections 10(b) and
20(a) of the Exchange Act, (15 U.S.C. §78j (b) and 78t (a)), and Rule 10b-5 promulgated
thereunder (17 C.F.R. §240.10b-5).
7.
This Court has jurisdiction over the subject matter of this action pursuant to
§27 of the Exchange Act (15 U.S.C. §78aa) and 28 U.S.C. § 1331.
8.
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).
9.
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 mails, interstate
telephone communications and the facilities of the national securities exchange.
10.
Plaintiff, as set forth in the accompanying certification, incorporated by
reference herein, purchased STAAR common stock at artificially inflated prices during
the Class Period and was damaged upon the revelation of the alleged corrective
disclosure.
11.
Defendant STAAR Surgical Company is a Delaware corporation that
purports to design, develop, manufacture and sell implantable lenses for the eye and
delivery systems used to deliver lenses into the eye. STAAR operates its global
administrative headquarters and the manufacturing facility in Monrovia, California. The
Monrovia Facility principally makes Collamer and silicone intraocular lenses (“IOL”),
and injector systems for its IOLs. During the Class Period, the Company’s stock traded
on the NASDAQ Stock Market under the symbol “STAA.”
12.
Defendant Barry G. Caldwell was, at all relevant times, the President, Chief
Executive Officer and a director of STAAR.
13.
Defendant Deborah Andrews served as the Company’s Chief Financial
Officer until September 2013.
14.
Defendant Stephen P. Brown was appointed as the Chief Financial Officer
of STAAR in September 2013.
15.
Defendants Caldwell, Andrews, and Brown are referred to herein,
collectively, as the “Individual Defendants.”
Background
16.
STAAR designs, develops, manufactures and sells implantable lenses for
the eye and delivery systems used to deliver lenses into the eye. The Company purports
to be the leading maker of lenses used worldwide in corrective or “refractive” surgery,
and also manufactures lenses for use in surgery that treats cataracts. All of the lenses the
Company manufactures are foldable, which permits the surgeon to insert them through a
small incision during minimally invasive surgery.
17.
STAAR operates its global administrative headquarters, primary research
facility, and chief manufacturing facility in Monrovia, California. The Monrovia
Facility principally makes Collamer and IOLs, and injector systems for its IOLs. The
Company also manufactures the Visian implantable Collamer lenses (“ICL”) and
preloaded IOL injectors at the Monrovia Facility.
18.
STAAR currently manufactures its products in four facilities worldwide. In
2011, the Company developed and initiated a project to consolidate STAAR’s global
manufacturing into a single site at the Monrovia Facility, known as “Project Comet.”
Throughout the consolidation process, the Company has transferred parts from its global
operations into a 26,000 square foot facility contiguous to the existing Monrovia
Facility, which the Company leased in August 2012.
completing STAAR’s development of preloaded ICL product, while purportedly
obtaining additional regulatory approvals for its products.
20.
Also in 2013, STAAR completed transferring IOL manufacturing from
Japan to the Monrovia Facility.
21.
The Company expects to complete Project Comet by the middle of 2014.
Materially False and Misleading
Statements Issued During the Class Period
22.
On February 27, 2013, STAAR issued a press release announcing the
financial and operating results for the fourth quarter and year ended December 28, 2012.
The Company reported revenue for the fourth quarter of $16.5 million compared to
$16.4 million reported for the fourth quarter of 2011.
23.
The press release also updated the key developments in Project Comet,
specifically noting that the Company had (i) successfully initiated manufacturing at the
Monrovia Facility and shipped the first U.S. manufactured Visian ICL to customers on
January 24, 2013; (ii) obtained regulatory approval for U.S. manufactured ICLs in
Europe, Japan, Korea and China, representing approximately 70% of ICL unit volume;
(iii) completed requirements and transferred to the Monrovia Facility cartridge
manufacturing and final inspection, assembly, and pouching for Preloaded Silicone
IOLs; and (iv) received commitments from several key employees from Japan and
Switzerland to relocate either temporarily or permanently to the U.S.
Form 10-K for the fourth quarter and year ended December 28, 2012 (the “2012 Form
10-K”), which was signed by, among others, defendants Caldwell and Andrews, and
reiterated the Company’s previously reported financial and operational results and
position. In addition, the 2012 Form 10-K also contained certifications pursuant to
Sarbanes-Oxley Act of 2002 (“SOX”) signed by defendants Caldwell and Andrews,
stating that the financial information contained in the Form 10-K was accurate and
disclosed any material changes to the Company’s internal control over financial
reporting.
25.
Moreover, the 2012 Form 10-K specifically noted that the Company
“believes that it is substantially in compliance with the FDA’s Quality System
Regulations and Medical Device Reporting regulations.”
26.
On May 1, 2013, the Company issued a press release announcing financial
and operational results for the first quarter of 2013, reporting record revenue of $18.0
million compared to $15.5 million reported for the first quarter of 2012. The press
release also provided an update on the status of Project Comet, representing in relevant
part: (i) the project continues to progress on plan; (ii) the Company shipped the first
U.S. manufactured ICLs during the first quarter of 2013; (iii) some Visian ICLs are now
being supplied by product manufactured in Monrovia to approved markets outside the
U.S; (iv) all non-sterile preloaded silicone IOLs for Japan are shipping out of the U.S;
manufacture Collamer buttons from Aliso Viejo, California to the Monrovia Facility.
27.
On May 3, 2013, the Company filed a quarterly report for the first quarter
of 2013 on Form 10-Q with the SEC (“2013 1Q Form 10-Q”), which was signed by
defendant Andrews, and reiterated the Company’s previously reported financial and
operational results and position. In addition, the 2013 1Q Form 10-Q also contained
SOX certifications signed by defendants Caldwell and Andrews, stating that the financial
information contained in the Form 10-Q was accurate and disclosed any material
changes to the Company’s internal control over financial reporting.
28.
The 2013 1Q Form 10-Q also noted that the Company “expects to yield
significant savings in cost of goods, lower our global administrative and regulatory costs
and reduce income taxes” as a result of the implementation of Project Comet.
29.
On July 31, 2013, the Company issued a press release announcing financial
and operational results for the second quarter of 2013, reporting revenue of $18.2
million, which represented 14% growth compared to $15.9 million reported for the
second quarter of 2012. The press release also updated the status of Project Comet,
representing in relevant part: (i) the project “continued to be basically on plan through
the first half of the year,” though the Company decided to extend the project’s
completion date until the first half of 2014; (ii) validations were successfully completed
for the Visian Toric ICLs as expected and the Company plans to ship the first TICLs
from Monrovia during the third quarter; (iii) sterile IOLs began shipping from Monrovia
globally being manufactured in Monrovia.
30.
Moreover, defendant Caldwell specifically commented on Project Comet in
the press release, noting that the “manufacturing consolidation project remained
basically on schedule as all IOLs and 21% of myopic ICLs through final inspection were
manufactured in Monrovia during June. Throughout this three year process, supply and
product quality have remained our priority.”
31.
On August 6, 2013, the Company filed a quarterly report for the second
quarter of 2013 on Form 10-Q with the SEC (“2013 2Q Form 10-Q”), which was signed
by defendant Andrews, and reiterated the Company’s previously reported financial and
operational results. In addition, the 2013 2Q Form 10-Q also contained SOX
certifications signed by defendants Caldwell and Andrews, stating that the financial
information contained in the Form 10-Q was accurate and disclosed any material
changes to the Company’s internal control over financial reporting.
32.
The 2013 2Q Form 10-Q also noted that STAAR “continues its
manufacturing consolidation efforts in the second quarter of 2013”, which the Company
“expects to yield significant savings in cost of goods, lower our global administrative
and regulatory costs and reduce income taxes.”
33.
On October 30, 2013, the Company issued a press release announcing
financial and operational results for the third quarter of 2013, reporting revenue of $17.1
quarter of 2012. With regard to Project Comet, the Company stated, in relevant part:
During the quarter the Company continued to make progress toward
completing the manufacturing consolidation project by mid-2014. At the
end of the second quarter the Company had approximately 7,500 ICLs in
finished goods inventory. At the end of the third quarter the Company has
approximately 11,400 ICLs in inventory held in both Europe and the
U.S. This represents a 50% increase of ICLs in finished goods inventory
during the quarter while shipping 15% more units from stock compared to
the third quarter of 2012. This inventory build is consistent with
management's plan to assure adequate supply and quality of product
throughout this consolidation project.
34.
On November 1, 2013, the Company filed a quarterly report for the third
quarter of 2013 on Form 10-Q with the SEC (“2013 3Q Form 10-Q”), which was signed
by defendant Brown, and reiterated the Company’s previously reported financial results.
In addition, the 2013 3Q Form 10-Q also contained SOX certifications signed by
defendants Caldwell and Brown, stating that the financial information contained in the
Form 10-Q was accurate and disclosed any material changes to the Company’s internal
control over financial reporting.
35.
The 2013 3Q Form 10-Q also noted that STAAR “continues its
manufacturing consolidation efforts in the third quarter of 2013”, which the Company
“expects to yield significant savings in cost of goods, lower our global administrative
and regulatory costs and reduce income taxes.”
36.
On February 26, 2014, the Company issued a press release announcing
financial and operational results for the fourth quarter and full year 2013, reporting
the fourth quarter of 2012. With regard to Project Comet, the Company stated, in
relevant part:
During the quarter, the Company continued to make progress toward
completing the manufacturing consolidation project by mid-2014. At the
end of the fourth quarter the Company had approximately 17,100 ICLs in
finished goods inventory, compared to approximately 11,400 ICLs in
inventory held in both Europe and the U.S. at the end of the third
quarter. This represents a 50% increase of ICLs in finished goods inventory
during the quarter while shipping 29% more units from stock compared to
the fourth quarter of 2012. This inventory build is consistent with
management’s plan to assure adequate supply and quality of product
throughout this consolidation project. Manufacturing yields of the ICL in
the U.S. continue to increase. The Company will officially close its
manufacturing capabilities in Switzerland in June 2014, and expects to add
headcount in U.S. as it transfers manufacturing from Switzerland.
37.
On March 12, 2014, the Company filed an annual report with the SEC on
Form 10-K for the fourth quarter and year ended December 28, 2013 (the “2013 Form
10-K”), which was signed by, among others, defendants Caldwell and Brown, and
reiterated the Company’s previously reported financial and operational results. In
addition, the 2013 Form 10-K also contained SOX certifications signed by defendants
Caldwell and Brown, stating that the financial information contained in the Form 10-K
was accurate and disclosed any material changes to the Company’s internal control over
financial reporting.
38.
Moreover, the 2013 Form 10-K specifically noted that the Company
“believes that it is substantially in compliance with the FDA’s Quality System
Regulations and Medical Device Reporting regulations.”
financial and operational results for the first quarter of 2014, reporting revenue of $20.2
million, a 12% increase over $18.0 million reported for the first quarter of 2013. The
press release also stated STAAR “continued to make progress toward completing the
manufacturing consolidation project by mid-2014”, representing in relevant part that: (i)
the quarter’s inventory buildup was consistent with management's plan to assure
adequate supply and quality of product throughout the consolidation project process and
to prepare for the potential U.S. launch for the TICL; (ii) manufacturing yields of the
ICL and TICL in the U.S. continued to improve during the quarter; and (iii) the
Company will officially close its manufacturing capabilities in Switzerland in June 2014.
40.
On May 13, 2014, the Company filed a quarterly report for the first quarter
of 2014 on Form 10-Q with the SEC (“2014 1Q Form 10-Q”), which was signed by
defendant Brown, and reiterated the Company’s previously reported financial and
operational results. In addition, the 2014 1Q Form 10-Q also contained SOX
certifications signed by defendants Caldwell and Brown, stating that the financial
information contained in the Form 10-Q was accurate and disclosed any material
changes to the Company’s internal control over financial reporting.
41.
The 2014 1Q Form 10-Q also noted that the “consolidation efforts are
proceeding according to plans and we expect this to continue through completion in the
middle of 2014.”
and/or misleading because they misrepresented and failed to disclose that the Company’s
Monrovia Facility: (i) lacked adequate methodologies and facilities for the manufacture,
packing, storage and installation of the Company’s implantable lenses; (ii) lacked
adequate procedures for documenting complaints, sterility testing, and maintaining
required records; and (iii) as a result of the foregoing, the Monrovia Facility was not in
conformity with current good manufacturing practice requirements at all relevant times.
The Truth Begins to Emerge
43.
On June 30, 2014, the FDA publicly released a Warning Letter, dated May
21, 2014, concerning an inspection of STAAR’s Monrovia Facility that took place from
February 10, 2014 to March 21, 2014. The FDA letter noted several regulatory
violations at the Monrovia Facility, resulting in “adultered” lenses.
44.
Specifically, the FDA Warning Letter stated that the Monrovia Facility
lacks adequate “methods used in, or the facilities or controls used for” manufacture,
packing, storage or installation of the Company’s implantable lenses, such as the Visian
ICL and Collamer IOL.
45.
Moreover, the Warning letter noted the Monrovia Facility had failed to
(i) establish procedures for receiving, reviewing, and evaluating complaints by a
formally designated unit, in violation of FDA regulations; and (ii) establish and maintain
a “Design History File” for each type of device to demonstrate that the design was
developed in accordance with the approved design plan, as required by the FDA.
Monrovia Facility was “not in conformity with [] current good manufacturing practice
requirements” . The FDA further advised STAAR that “failure to promptly correct these
violations may result in regulatory action being initiated by the FDA without further
notice.”
47.
These adverse facts caused the value of STAAR shares to decline $1.89 or
nearly 11.25%, to close at $14.91 on July 1, 2014.
PLAINTIFF’S CLASS ACTION ALLEGATIONS
48.
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 STAAR securities during the Class Period (the “Class”); and were
damaged upon the revelation of the alleged corrective disclosures. Excluded from the
Class are Defendants herein, the officers and directors of the Company, at all relevant
times, members of their immediate families and their legal representatives, heirs,
successors or assigns and any entity in which Defendants have or had a controlling
interest.
49.
The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, STAAR 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
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.
50.
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.
51.
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.
52.
Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class.
Among the questions of law and fact common to the Class are:
whether the federal securities laws were violated by Defendants’ acts
as alleged herein;
whether statements made by Defendants to the investing public during
the Class Period misrepresented material facts about the business,
operations and management of STAAR;
whether the Individual Defendants caused STAAR to issue false and
misleading financial statements during the Class Period;
whether Defendants acted knowingly or recklessly in issuing false and
misleading financial statements;
whether the prices of STAAR 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.
53.
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.
54.
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;
STAAR securities are traded in efficient markets;
the Company’s shares were liquid and traded with moderate to heavy
volume during the Class Period;
the Company traded on the NASDAQ, and was covered by multiple
analysts;
the misrepresentations and omissions alleged would tend to induce a
reasonable investor to misjudge the value of the Company’s
securities; and
Plaintiff and members of the Class purchased and/or sold STAAR
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.
55.
Based upon the foregoing, Plaintiff and the members of the Class are
entitled to a presumption of reliance upon the integrity of the market.
56.
Alternatively, Plaintiffs and the members of the Class are entitled to the
presumption of reliance established by the Supreme Court in Affiliated Ute Citizens of
the State of Utah v. United States, 406 U.S. 128, 92 S. Ct. 2430 (1972), as Defendants
omitted material information in their Class Period statements in violation of a duty to
disclose such information, as detailed above.
FIRST CLAIM
Violation of Section 10(b) of
The Exchange Act and Rule 10b-5
Against All Defendants
57.
Plaintiff repeats and realleges each and every allegation contained above as
if fully set forth herein.
58.
During the Class Period, Defendants carried out a plan, scheme and course
of conduct which was intended to and, throughout the Class Period, did: (1) deceive the
investing public, including Plaintiff and other Class members, as alleged herein; and (2)
cause Plaintiff and other members of the Class to purchase STAAR securities at
artificially inflated prices. In furtherance of this unlawful scheme, plan and course of
conduct, each of the Defendants took the actions set forth herein.
made untrue statements of material fact and/or omitted to state material facts necessary
to make the statements not misleading; and (c) engaged in acts, practices, and a course of
business that operated as a fraud and deceit upon the purchasers of the Company’s
securities in an effort to maintain artificially high market prices for STAAR securities in
violation of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder.
All Defendants are sued either as primary participants in the wrongful and illegal
conduct charged herein or as controlling persons as alleged below.
60.
Defendants, individually and in concert, directly and indirectly, by the use,
means or instrumentalities of interstate commerce and/or of the mails, engaged and
participated in a continuous course of conduct to conceal adverse material information
about the business, operations and future prospects of STAAR as specified herein.
61.
These Defendants employed devices, schemes, and artifices to defraud
while in possession of material adverse non-public information, and engaged in acts,
practices, and a course of conduct as alleged herein in an effort to assure investors of
STAAR’s value and performance and continued substantial growth, which included the
making of, or participation in the making of, untrue statements of material facts and
omitting to state material facts necessary in order to make the statements made about
STAAR and its business operations and future prospects in the light of the circumstances
under which they were made, not misleading, as set forth more particularly herein, and
deceit upon the purchasers of STAAR securities during the Class Period.
62.
Caldwell’s, Andrews’, and Brown’s primary liability, and controlling
person liability, arises from the following facts: (1) Caldwell, Andrews, and Brown were
high-level executives, directors, and/or agents at the Company during the Class Period
and members of the Company’s management team or had control thereof; (2) Caldwell,
Andrews, and Brown, by virtue of their responsibilities and activities as senior officers
and/or directors of the Company, were privy to and participated in the creation,
development and reporting of the Company’s financial condition; (3) Caldwell,
Andrews, and Brown enjoyed significant personal contact and familiarity with the other
Defendants and were advised of and had access to other members of the Company’s
management team, internal reports and other data and information about the Company’s
finances, operations, and sales at all relevant times; and (4) Caldwell, Andrews, and
Brown were aware of the Company’s dissemination of information to the investing
public which they knew or recklessly disregarded was materially false and misleading.
63.
Defendants had actual knowledge of the misrepresentations and omissions
of material facts set forth herein, or acted with reckless disregard for the truth in that they
failed to ascertain and to disclose such facts, even though such facts were available to
them. Such Defendants’ material misrepresentations and/or omissions were done
knowingly or recklessly and for the purpose and effect of concealing STAAR’s true
operating condition at the Monrovia Facility and future business prospects from the
demonstrated by Defendants’ misstatements and omissions regarding the Company’s
operational condition at the Monrovia Facility throughout the Class Period, Defendants,
if they did not have actual knowledge of the misrepresentations and omissions alleged,
were reckless in failing to obtain such knowledge by deliberately refraining from taking
those steps necessary to discover whether those statements were false or misleading.
64.
As a result of the dissemination of the materially false and misleading
information and failure to disclose material facts, as set forth above, the market price of
STAAR securities was artificially inflated during the Class Period. In ignorance of the
fact that market prices of STAAR’s publicly-traded 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 common stock trades,
and/or on the absence of material adverse information that was known to or recklessly
disregarded by Defendants but not disclosed in public statements by Defendants during
the Class Period, Plaintiff and the other members of the Class acquired STAAR
securities during the Class Period at artificially high prices and were or will be damaged
thereby.
65.
At the time of said misrepresentations and omissions, Plaintiff and other
members of the Class were ignorant of their falsity, and believed them to be true. Had
Plaintiff and the other members of the Class and the marketplace known the truth
regarding STAAR’s true operational condition, which was not disclosed by Defendants,
acquired their STAAR’s securities, or, if they had acquired such securities during the
Class Period, they would not have done so at the artificially inflated prices that they paid.
66.
By virtue of the foregoing, Defendants have violated Section 10(b) of the
Exchange Act, and Rule 10b-5 promulgated thereunder.
67.
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.
68.
This action was filed within two years of discovery of the fraud and within
five years of each plaintiff’s purchases of securities giving rise to the cause of action.
SECOND CLAIM
Violation of Section 20(a) of
The Exchange Act Against The Individual Defendants
69.
Plaintiff repeats and realleges each and every allegation contained above as
if fully set forth herein.
70.
Caldwell, Andrews, and Brown acted as controlling persons of STAAR
within the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of
their high-level positions, agency, ownership and contractual rights, and participation in
and/or awareness of the Company’s operations and/or intimate knowledge of the false
financial statements filed by the Company with the SEC and disseminated to the
investing public, Caldwell, Andrews, and Brown had the power to influence and control,
Company, including the content and dissemination of the various statements that
Plaintiff contends are false and misleading. Caldwell, Andrews, and Brown 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 have been misleading prior to
and/or shortly after these statements were issued and had the ability to prevent the
issuance of the statements or to cause the statements to be corrected.
71.
In particular, Caldwell, Andrews, and Brown had direct and supervisory
involvement in the day-to-day operations of the Company and, therefore, are presumed
to have had the power to control or influence the particular transactions giving rise to the
securities violations as alleged herein, and exercised the same.
72.
As set forth above, STAAR, Caldwell, Andrews, and Brown each violated
Section 10(b), and Rule 10b-5 promulgated thereunder, by their acts and omissions as
alleged in this Complaint.
73.
By virtue of their positions as controlling persons, Caldwell, Andrews, and
Brown 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.
74.
This action was filed within two years of discovery of the fraud and within
five years of each Plaintiff’s purchases of securities giving rise to the cause of action.
a)
Determining that this action is a proper class action, designating Plaintiff as
Lead Plaintiff and certifying Plaintiff as a class representative under Rule 23 of the
Federal Rules of Civil Procedure and Plaintiff’s counsel as Lead Counsel;
b)
Awarding compensatory damages in favor of Plaintiff and the other Class
members against all Defendants, jointly and severally, for all damages sustained as a
result of Defendants’ wrongdoing, in an amount to be proven at trial, including interest
thereon;
c)
Awarding Plaintiff and the Class their reasonable costs and expenses
incurred in this action, including counsel fees and expert fees; and
d)
Such other and further relief as the Court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
Dated: July 8, 2014
GLANCY BINKOW & GOLDBERG LLP
By: s/ Lionel Z. Glancy
Lionel Z. Glancy
Michael Goldberg
Robert V. Prongay
1925 Century Park East, Suite 2100
Los Angeles, CA 90067
Telephone: (310) 201-9150
Facsimile: (310) 201-9160
Email: [email protected]
POMERANTZ LLP
Jeremy A. Lieberman
Francis P. McConville
600 Third Avenue, 20th Floor
New York, New York 10016
Telephone: 212-661-1100
Facsimile: 212-661-8665
POMERANTZ LLP
Patrick V. Dahlstrom
10 South La Salle Street, Suite 3505
Chicago, Illinois 60603
Telephone: (312) 377-1181
Facsimile: (312) 377-1184
[email protected]
Counsel for Plaintiff Edward Todd
STAAR Surgical Company (STAA)
Todd, Edward
LIST OF PURCHASES AND SALES
PURCHASE
NUMBER OF
PRICE PER
DATE
OR SALE
SHS/UTS
SH/UT
4/23/2014
PUR
200
$19.3220
| securities |
Pcn1DYcBD5gMZwcz5Azj | BURSOR & FISHER, P.A.
L. Timothy Fisher (State Bar No. 191626)
Annick M. Persinger (State Bar No. 272996)
Yeremey O. Krivoshey (State Bar No. 295032)
1990 North California Blvd., Suite 940
Walnut Creek, CA 94596
Telephone: (925) 300-4455
Facsimile: (925) 407-2700
E-Mail: [email protected]
[email protected]
[email protected]
BURSOR & FISHER, P.A.
Scott A. Bursor (State Bar No. 276006)
888 Seventh Avenue
New York, NY 10019
Telephone: (212) 989-9113
Facsimile: (212) 989-9163
E-Mail: [email protected]
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
DANIEL GLANTZ, on Behalf of Himself and
all Others Similarly Situated,
Case No.
CLASS ACTION COMPLAINT
JURY TRIAL DEMANDED
Plaintiff,
v.
LOBEL FINANCIAL CORP.,
Defendant.
Plaintiff Daniel Glantz (“Plaintiff”), individually and on behalf of all others similarly
situated, alleges the following on information and belief, except that Plaintiff’s allegations as to his
own actions are based on personal knowledge.
NATURE OF THE ACTION
1.
Between December 29, 2015 and January 15, 2016, Defendant Lobel Financial
Corporation (“Lobel” or “Defendant”) made 8 calls to Plaintiff on his cellular telephone using an
autodialer and/or an artificial or prerecorded voice to collect a debt owed by Rodrigo, the previous
owner of her cellular telephone number. Plaintiff did not give Lobel prior express written consent
to make these calls.
2.
Plaintiff brings this action for injunctive relief and statutory damages arising out of
and relating to the conduct of Lobel in negligently, knowingly, and willfully contacting Plaintiff
and class members on their telephones using an artificial or prerecorded voice without their prior
express written consent within the meaning of the Telephone Consumer Protection Act, 47 U.S.C.
§ 227 et seq. (“TCPA”).
PARTIES
3.
Plaintiff Daniel Glantz is, and at all times mentioned herein was, a resident of Napa,
California and a citizen of the State of California.
4.
Defendant Lobel Financial Corporation is a California corporation with its principal
place of business at 1150 N. Magnolia Ave., Anaheim, CA 92801. Defendant is a debt collector.
JURISDICTION AND VENUE
5.
This Court has subject matter jurisdiction over this action pursuant to the Class
Action Fairness Act of 2005, Pub. L. No. 109-2 Stat. 4 (“CAFA”), which, inter alia, amends 28
U.S.C. § 1332, at new subsection (d), conferring federal jurisdiction over class actions where, as
here: (a) there are 100 or more members in the proposed classes; (b) some members of the
proposed classes have a different citizenship from Defendant; and (c) the claims of the proposed
class members exceed the sum or value of five million dollars ($5,000,000) in aggregate. See 28
U.S.C. § 1332(d)(2) and (6).
6.
This Court also has federal question jurisdiction pursuant to 28 U.S.C. § 1331
because this action involves violations of a federal statute, the TCPA.
7.
Venue is proper in this Court under 28 U.S.C. § 1391 because Defendant transacts
significant business within this District, and because a substantial part of the events giving rise to
Plaintiff’s claims took place within this District.
FACTS COMMON TO ALL CAUSES OF ACTION
A.
The Telephone Consumer Protection Act Of 1991
8.
In 1991, Congress enacted the TCPA in response to a growing number of consumer
complaints regarding certain telemarketing practices.
9.
Among other things, the TCPA prohibits “initiat[ing] any telephone call to any
residential telephone line using an artificial or prerecorded voice to deliver a message without the
prior express consent of the called party. . . .”
10.
According to findings by the Federal Communications Commission (“FCC”), such
calls are prohibited because prerecorded telephone calls are a greater nuisance and invasion of
privacy than live solicitation calls, and such calls are costly and inconvenient.
11.
The FCC has issued rulings clarifying that in order to obtain an individual’s consent,
a clear, unambiguous, and conspicuous written disclosure must be provided by the individual.
2012 FCC Order, 27 FCC Rcd. at 1839 (“[R]equiring prior written consent will better protect
consumer privacy because such consent requires conspicuous action by the consumer—providing
permission in writing—to authorize autodialed or prerecorded telemarketing calls. . . .”).
B.
Defendant’s Robocalls to Plaintiff and Class Members
12.
Prior to the calls at issue in this action, Plaintiff had never had any contact with
Defendant. Plaintiff has never consented in writing, or otherwise, to receive telephone calls from
Defendant. Plaintiff has never provided Defendant with his telephone number.
13.
The following chart shows each date and time that Defendant called Plaintiff on his
cellular telephone number:
Defendant’s Calls to Plaintiff
Date
Time
Number Calling
12/19/15
7:20 AM
(714) 995-33331
12/31/15
7:27 AM
(714) 995-3333
01/04/16
7:27 AM
(714) 995-3333
01/07/16
2:57 PM
(714) 995-3333
01/07/16
3:04 PM
(714) 995-3333
01/08/16
7:19 AM
(714) 995-3333
01/14/16
2:29 PM
(714) 995-3333
01/15/16
7:44 AM
(714) 995-3333
14.
In total, Defendant called Plaintiff at least eight times using an autodialer and/or an
artificial or prerecorded voice without his prior express written consent.
15.
When Mr. Glantz answered these calls, he heard a momentary pause before
someone started speaking to him.
16.
Mr. Glantz repeatedly told Defendant that he was not Rodrigo, the person they were
looking for, and asked that he not be called anymore, but Defendant kept calling.
17.
Online consumer complaints regarding Defendant’s unsolicited telemarketing
robocalls from this same number are legion:
“They are calling my number for someone else. They called with a different
number before but I was away from my phone so they left a message on my phone
for someone else.” (dated January 1, 2016).2
“I have called this number back several times telling they are calling someone else
and that this is new number to me. I have them blocked and they hang up on me.”
(dated November 15, 2015).3
“They are calling this number for someone else.” (dated December 12, 2015).4
1 This 714-995-3333 number is listed on Defendant’s website as its Customer Service Center. See
http://www.lobelfinancial.com/make-a-payment (“Please contact our Customer Service Center at
714-995-3333 to make a payment using your routing and checking account number or a debit card
with a Visa or MasterCard logo.”).
2 http://www.411.com/phone/1-714-995-3333 (last visited February 17, 2016).
3 Id.
4 Id.
“SCAM. Received a call from this number SIMULTANEOUSLY on my home
phone, cell phone and Google voice number. Caller looking for someone named
Irene and claimed to be Dell Financial Services (even though app on my cell phone
identified them as Lobel Financial).” (dated September 4, 2014).5
“I've gotten a number of calls from them looking for a William, caller speaks in
such a thick Hispanic accent that I have trouble identifying her name, and she gives
a call-back number speaking so quickly that I only hear part of the number. When I
finally got it (different than the number identified) I called and told them that the
person they are calling no longer has this number (I've only had it for a few weeks)
and was told they would email their agents to try to identify which account it
was.....but they still call. Have now figured out how to auto reject the calls on my
new phone.” (dated October 31, 2014).6
“They're calling again - currently, the genius is sitting on hold. I could hear ‘lobel!’
from the others in the room, but this guy said nothing. Will see how many times
they call back this time, sigh.”7 (dated November 9, 2015).
“Keeps calling to collect from previous owner of phone #. I've told them dozens of
times it's a wrong # yet they keep calling.” (dated May 29, 2015).8
“714-995-3333 Call for someone that does not live here. Asked them to quit calling
but calls continued. Last time told them that the person still is not here and quit
calling. They said that they would remove my number. If it happens again I guess
that I will be contacting my attorney and state AG office.” (dated December 2015).9
“I don't owe this debt and I have told them they have the wrong number they still
call my phone and won't stop I am going to call a lawyer to file charges.” (dated
August 15, 2015).10
“They are looking for someone by the name of Marvin I have told them this was not
his phone number but they still keep calling.” (dated August 12, 2015).11
“They keep calling e[v]en after being t[o]ld [I’m] not the person their looking for.”
(dated August 21, 2015).12
“The person they asked for I told them I don’t know that person I asked the debtor
to stop calling they continue you call.” (dated December 24, 2014).13
5 http://800notes.com/Phone.aspx/1-714-995-3333 (last visited February 17, 2016).
6 Id.
7 Id.
8 https://www.shouldianswer.com/phone-number/7149953333 (last visited February 17, 2016).
9 http://dncl.me/7149953333.tel (last visited February 17, 2016).
10 http://findwhocallsyou.com/1-714-995-3333 (last visited February 17, 2016).
11 Id.
12 http://www.whytheycalled.com/714-995-3333/ (last visited February 17, 2016).
13 Id.
CLASS ACTION ALLEGATIONS
18.
Plaintiff brings this action on behalf of himself and on behalf of all other persons
similarly situated.
19.
Plaintiff proposes the following Robocall Class definition, subject to amendment as
appropriate:
All persons within the United States who (a) received a non-
emergency telephone call; (b) on his or her cellular telephone or
residential telephone line; (c) made by or on behalf of Defendant in
order to promote its products or services; (d) for whom Defendant
had no record of prior express written consent; (e) and such phone
call was made with the use of an artificial or prerecorded voice; (f)
at any time in the period that begins four years before the filing of
the complaint in this action to the date that class notice is
disseminated.
Collectively, all these persons will be referred to as the “Robocall Class.” Plaintiff represents, and
is a member of, this proposed class. Excluded from the Robocall Class are Defendant and any
entities in which Defendant has a controlling interest, Defendant’s agents and employees, any
Judge and/or Magistrate Judge to whom this action is assigned and any member of such Judges’
staffs and immediate families.
20.
Plaintiff also proposes the following Autodialer Class definition:
All persons within the United States who (a) received a non-
emergency telephone call; (b) on his or her cellular telephone or
residential telephone line; (c) made by or on behalf of Defendant in
order to promote its products or services; (d) for whom Defendant
had no record of prior express written consent; (e) and such phone
call was made with the use of an automatic telephone dialing
system as defined under the TCPA; (f) at any time in the period
that begins four years before the filing of the complaint in this
action to the date that class notice is disseminated.
21.
Collectively, all these persons will be referred to as the “Autodialer Class.” Plaintiff
represents, and is a member of, this proposed class. Excluded from the Autodialer Class are
Defendant and any entities in which Defendant has a controlling interest, Defendant’s agents and
employees, any Judge and/or Magistrate Judge to whom this action is assigned and any member of
such Judges’ staffs and immediate families.
22.
Plaintiff does not know the exact number of members in the proposed classes, but
reasonably believes based on the scale of Defendant’s business, and the number of autodialed
robocalls that he received, that the classes are so numerous that individual joinder would be
impracticable.
23.
Plaintiff and all members of the proposed classes have been harmed by the acts of
Defendant in the form of multiple involuntary telephone and electrical charges, the aggravation,
nuisance, and invasion of privacy that necessarily accompanies the receipt of unsolicited and
harassing telephone calls, and violations of their statutory rights.
24.
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 proposed classes can be
identified easily through records maintained by Defendant.
25.
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 members of the proposed classes. Those common question of law and fact
include, but are not limited to, the following:
a. Whether Defendant made telephone calls to class members using an artificial or
prerecorded voice without their prior express written consent;
b. Whether Defendant’s conduct was knowing and/or willful;
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.
26.
As a person who received numerous and repeated calls on his telephone using an
artificial or prerecorded voice, without his prior express written consent, Plaintiff asserts claims
that are typical of each member of the classes. Plaintiff will fairly and adequately represent and
protect the interests of the proposed classes, and has no interests which are antagonistic to any
member of the proposed classes.
27.
Plaintiff has retained counsel experienced in handling class action claims involving
violations of federal and state consumer protection statutes.
28.
A class action is the superior method for the fair and efficient adjudication of this
controversy. Class wide relief is essential to compel Defendant to comply with the TCPA. The
interest of the members of the proposed classes in individually controlling the prosecution of
separate claims against Defendant is small because the statutory damages in an individual action
for violation of the TCPA are relatively small. Management of these claims is likely to present
significantly fewer difficulties than are presented in many class claims because the calls at issue are
all automated and the members of the classes, by definition, did not provide the prior express
consent required under the statute to authorize calls to their telephones.
29.
Defendant has acted on grounds generally applicable to the proposed classes,
thereby making final injunctive relief and corresponding declaratory relief with respect to the
proposed classes as a whole appropriate. Moreover, on information and belief, Plaintiff alleges
that the TCPA violations complained of herein are substantially likely to continue in the future if
an injunction is not entered.
CAUSES OF ACTION
FIRST COUNT
KNOWING AND/OR WILLFUL VIOLATIONS OF THE TELEPHONE CONSUMER
PROTECTION ACT, 47 U.S.C. § 227, et seq.
30.
Plaintiff incorporates by reference the foregoing paragraphs of this Complaint as if
fully stated herein.
31.
The foregoing acts and omissions of Defendant constitute numerous and multiple
knowing and/or willful violations of the TCPA, including but not limited to each of the above-cited
provisions of 47 U.S.C. § 227 et seq.
32.
As a result of Defendant’s knowing and/or willful violations of 47 U.S.C. § 227 et
seq., Plaintiff and members of the proposed classes are entitled to treble damages of up to
$1,500.00 for each and every call in violation of the statute, pursuant to 47 U.S.C. § 227(b)(3)(C).
33.
Plaintiff and members of the proposed classes are also entitled to and do seek
injunctive relief prohibiting such conduct violating the TCPA by Defendant in the future.
34.
Plaintiff and members of the proposed classes are also entitled to an award of
attorneys’ fees and costs.
SECOND COUNT
VIOLATIONS OF THE TELEPHONE CONSUMER PROTECTION ACT, 47 U.S.C. § 227,
et seq.
35.
Plaintiff incorporates by reference the foregoing paragraphs of this Complaint as if
fully stated herein.
36.
The foregoing acts and omissions of Defendant constitute numerous and multiple
violations of the TCPA, including but not limited to each of the above-cited provisions of 47
U.S.C. § 227 et seq.
37.
As a result of Defendant’s violations of 47 U.S.C. § 227 et seq., Plaintiff and
members of the classes are entitled to an award of $500.00 in statutory damages for each and every
call in violation of the statute, pursuant to 47 U.S.C. § 227(b)(3)(B).
38.
Plaintiff and members of the proposed classes are also entitled to and do seek
injunctive relief prohibiting such conduct violating the TCPA by Defendant in the future.
39.
Plaintiff and members of the proposed classes are also entitled to an award of
attorneys’ fees and costs.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff respectfully requests that the Court grant Plaintiff and all members of the
proposed classes the following relief against Defendant:
a. Injunctive relief prohibiting such violations of the TCPA by Defendant in the future;
b. As a result of Defendant’s willful and/or knowing violations of the TCPA, Plaintiff
seeks for himself and each member of the proposed classes treble damages, as
provided by statute, of up to $1,500.00 for each and every call that violated the
TCPA;
c. As a result of Defendant’s violations of the TCPA, Plaintiff seeks for himself and
each member of the proposed classes $500.00 in statutory damages for each and
every call that violated the TCPA;
d. An award of attorneys’ fees and costs to counsel for Plaintiff and the proposed
classes;
e. An order certifying this action to be a proper class action pursuant to Federal Rule
of Civil Procedure 23, establishing appropriate classes, finding that Plaintiff is a
proper representative of the classes, and appointing the lawyers and law firm
representing Plaintiff as counsel for the classes;
f. Such other relief as the Court deems 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 issues in this action so triable of right.
Dated: February 17, 2016
Respectfully submitted,
BURSOR & FISHER, P.A.
By:
/s/ L. Timothy Fisher
L. Timothy Fisher
L. Timothy Fisher (State Bar No. 191626)
Annick M. Persinger (State Bar No. 272996)
Yeremey O. Krivoshey (State Bar No.295032)
1990 North California Blvd., Suite 940
Walnut Creek, CA 94596
Telephone: (925) 300-4455
Email: [email protected]
[email protected]
[email protected]
BURSOR & FISHER, P.A.
Scott A. Bursor (State Bar No. 276006)
888 Seventh Avenue
New York, NY 10019
Telephone: (212) 989-9113
Facsimile: (212) 989-9163
E-Mail: [email protected]
Attorneys for Plaintiff
| privacy |
yFWdBIkBRpLueGJZnXnM | UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
CIVIL ACTION NO.
JUSTIN TUSSEY, Individually and on Behalf
of All Others Similarly Situated,
3:22-CV-00186
Plaintiff,
CLASS ACTION COMPLAINT
vs.
PRATT & WHITNEY DIVISION,
RAYTHEON TECHNOLOGIES
CORPORATION, QUEST GLOBAL
SERVICES-NA, INC., BELCAN
ENGINEERING GROUP, LLC, CYIENT,
INC., PARAMETRIC SOLUTIONS, INC.,
AGILIS ENGINEERING, INC., MAHESH
PATEL, ROBERT HARVEY, HARPREET
WASAN, STEVEN HOUGHTALING,
THOMAS EDWARDS, and GARY PRUS,
Defendants.
DEMAND FOR JURY TRIAL
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Plaintiff Justin Tussey, individually and on behalf of a class of similarly situated individuals,
brings this action for damages and injunctive relief under the antitrust laws of the United States for
actual damages, treble damages declaratory and injunctive relief, costs of suit, pre- and post-
judgment interest, and other relief and alleges as follows.
INTRODUCTION
1.
This is a class action under the Sherman Act which challenges an illegal conspiracy
among Raytheon Technologies Corporation (defined below) and several outsource engineering
suppliers (i.e., the Supplier Defendants as defined below) to restrict the hiring and recruiting of
engineers and other skilled laborers working on aerospace projects (“Engineers”) among their
respective companies (the “No-Poach Agreement”).
2.
The Defendants (defined below) entered into and maintained this No-Poach
Agreement at least as early as 2011 and continued it until at least 2019. Throughout this time, and
indeed until just recently when indictments against several of the Individual Defendants (defined
below) were unsealed, Defendants concealed their No-Poach Agreement from their employees and
independent contractors.
3.
The scope of the No-Poach Agreement was broad, covering at least all Engineers
employed by (or working as an independent contractor for) Defendants to work on P&W (defined
below) projects and statements of work in the United States and its territories.
4.
This No-Poach Agreement was intended to, and did, reduce competition for
Engineers’ services and, as a result, suppressed the job mobility of and compensation to Plaintiff and
the members of the proposed Class (defined herein) below the levels that would have prevailed but
for the illegal No-Poach Agreement.
5.
Defendants reached their unlawful horizontal agreement at the highest levels of their
organizations, through verbal agreements that were later confirmed by Defendants, by their conduct
and in their emails, which they agreed to conceal from outsiders, from their respective employees
who make up the proposed Class, and from the public. As described below, Defendants’ senior
executives periodically reaffirmed, monitored, and policed the No-Poach Agreement.
6.
The No-Poach Agreement was exposed on December 9, 2021, when the United States
Department of Justice (“DOJ”) partially unsealed a criminal antitrust action against the former
Director of Global Engineering Sourcing at P&W, Mahesh Patel. In a supporting affidavit filed by
the Defense Criminal Investigative Service of the United States Department of Defense, Office of
Inspector General (“DCIS”), the DOJ (and DCIS) alleged that Patel conspired with the Supplier
Defendants to restrict the hiring and recruiting of Engineers with the goal and effect of suppressing
Engineers’ compensation wages. See Aff. in Supp. of Criminal Compl. and Arrest Warrant, United
States v. Patel, No. 3:21-mj-1189, ECF No. 15 (D. Conn. Dec. 9, 2021) (“DCIS Affidavit”).
7.
Then, on December 15, 2021, the DOJ filed an indictment, naming Patel, as well as
Robert Harvey, Harpreet Wasan, Steven Houghtaling, Thomas Edwards, and Gary Prus as
defendants (all of which are named as Individual Defendants herein), and charging them with one
count of violating §1 of the Sherman Act, 15 U.S.C. §1. The indictment quotes extensively from
email correspondence among the Individual Defendants, in which they discuss, memorialize and
police the No-Poach Agreement alleged in this Complaint (hereafter the “December 15 Indictment”).
8.
The DCIS Affidavit and the December 15 Indictment outline how Defendants,
through their officers, directors, agents, employees, or representatives, agreed not to compete for the
services of each other’s Engineers, specifically by agreeing to restrict the hiring and recruiting of
Engineers between and among Suppliers in the United States and its territories.
9.
The No-Poach Agreement resulted in hiring and recruiting restrictions, which had the
common purpose of limiting competition for, and thereby restricting the free movement and
compensation of, Engineers within the aerospace engineering industry. The No-Poach Agreement
artificially reduced or eliminated Engineers’ ability to obtain better terms of employment, including
compensation, at current and future employers.
10.
The hiring and recruiting restrictions that make up the No-Poach Agreement resulted
from Defendants’ shared financial motivations, specifically a desire to suppress wages and thereby
lessen their own labor costs in fulfillment of aerospace contracts.
11.
Defendants monitored each other’s compliance with the unlawful No-Poach
Agreement and communicated to enforce compliance. For instance, Defendants repeatedly reported
perceived rule breaking by their co-conspirators to Patel. And as Patel had the ability to punish
violators by withholding future lucrative work from the violator, he was integral in ensuring that any
violations of the No-Poach Agreement cease forthwith.
12.
Defendants directly linked the operations of the No-Poach Agreement to the financial
benefits that would accrue to them from suppressing wages, noting, for example, that discipline in
“‘not hir[ing] any partners employee’” was essential to “‘pre[v]ent poaching and price war.’” DCIS
Affidavit, ¶24.
13.
Given that the No-Poach Agreement was made and enforced confidentially and at the
highest levels of the organizations, Defendants succeeded in concealing it from Plaintiff and the
members of the Class. Not until the DOJ’s criminal investigation of Patel, and the resulting filing of
the DCIS Affidavit and December 15 Indictment exposing the No-Poach Agreement became public
did the existence of the anticompetitive No-Poach Agreement come to light.
14.
Defendants were aware that their conduct was illegal. On multiple occasions, they
internally raised concerns that restricting the hiring of employees under the No-Poach Agreement
was illegal.
15.
The No-Poach Agreement at issue in this case reduced competition for aerospace
Engineers and, as a result, it reduced Plaintiff’s job mobility and enabled Defendants to pay their
employees, including Plaintiff and members of the Class, less than they would have been paid absent
the No-Poach Agreement. The No-Poach Agreement is thus a per se unlawful restraint of trade
under the federal antitrust laws and injured Plaintiff and the members of the Class. Plaintiff seeks
injunctive relief and damages for violations of §1 of the Sherman Act, 15 U.S.C. §1.
THE PARTIES
A.
Plaintiff
16.
Plaintiff Justin Tussey (“Plaintiff”) is a citizen and resident of the State of Florida.
Plaintiff was employed as an Engineer for PSI beginning in February 2017 and continuing through
November 2021, working on P&W projects during the 2017-2019 time period. Plaintiff applied for
engineering positions at another Defendant during the time period at issue, and was never contacted
about those employment opportunities. As a result, Plaintiff was injured in his business or property
by the illegal conduct alleged in this Complaint.
B.
Defendants
17.
Defendant Pratt & Whitney Division (“Pratt & Whitney” or “P&W”) is a subsidiary
of defendant Raytheon Technologies Corporation (“Raytheon Technologies”) and is incorporated in
Delaware with its principal place of business in East Hartford, Connecticut. Pratt & Whitney is one
of the largest aerospace engine design, manufacture, and service companies in the United States.
During the Class Period, Pratt & Whitney and/or its predecessors, wholly owned or controlled
subsidiaries, or other affiliates employed and paid wages, salaries, and/or benefits to Class members
in the United States. Pratt & Whitney is, on information and belief, identified as “Company A” as
alleged in the DCIS Affidavit. See DCIS Affidavit, ¶5.
18.
Defendant QuEST Global Services-NA, Inc. (“QuEST”) is incorporated in Ohio with
its principal place of business in East Hartford, Connecticut. During the Class Period, QuEST and/or
its predecessors, wholly owned or controlled subsidiaries, or other affiliates employed and paid
wages, salaries, and/or benefits to Class members in the United States. QuEST is, on information
and belief, identified as “Company B” in the DCIS Affidavit. See DCIS Affidavit, ¶6(a).
19.
Defendant Belcan Engineering Group, LLC (“Belcan”) is incorporated in Ohio with
its principal place of business in Windsor, Connecticut. During the Class Period, Belcan and/or its
predecessors, wholly owned or controlled subsidiaries, or other affiliates employed and paid wages,
salaries, and/or benefits to Class members in the United States. Belcan is, on information and belief,
identified as “Company C” in the DCIS Affidavit. See DCIS Affidavit, ¶6(b).
20.
Defendant Cyient, Inc. (“Cyient”) is incorporated in California with its principal place
of business in East Hartford, Connecticut. Prior to 2014, Cyient was known under a different
corporate name, Infotech Enterprises, Limited. During the Class Period, Cyient and/or its
predecessors, wholly owned or controlled subsidiaries, or other affiliates employed and paid wages,
salaries, and/or benefits to Class members in the United States. Cyient is, on information and belief,
identified as “Company D” in the DCIS Affidavit. See DCIS Affidavit, ¶6(c).
21.
Defendant Parametric Solutions, Inc. (“PSI”) is incorporated in Florida with its
principal place of business in Jupiter, Florida. During the Class Period, PSI and/or its predecessors,
wholly owned or controlled subsidiaries, or other affiliates employed and paid wages, salaries,
and/or benefits to Class members in the United States. PSI is, on information and belief, identified
as “Company E” in the DCIS Affidavit. See DCIS Affidavit, ¶6(d).
22.
Defendant Agilis Engineering, Inc. (“Agilis”) is incorporated in Florida with its
principal place of business in Palm Beach Gardens, Florida. During the Class Period, Agilis and/or
its predecessors, wholly owned or controlled subsidiaries, or other affiliates employed and paid
wages, salaries, and/or benefits to Class members in the United States. Agilis is, on information and
belief, identified as “Company F” in the DCIS Affidavit. See DCIS Affidavit, ¶6(e).
23.
Defendants QuEST, Belcan, Cyient, PSI, and Agilis are referred to collectively as the
“Suppliers” or “Supplier Defendants.”
24.
Defendant Mahesh Patel (“Patel”) is a natural person who resides in Glastonbury,
Connecticut. Patel was the Manager and Director of the Pratt & Whitney unit that managed the
relationship between Pratt & Whitney and its suppliers. He was the highest-ranking employee
within that unit and managed a team of associates from his office in East Hartford, Connecticut.
Patel was the main enforcer of Defendants’ illegal agreement and served as an intermediary for
communications between co-conspirators. Patel left Pratt & Whitney in March 2020.
25.
Defendant Robert (Bob) Harvey (“Harvey”) is natural person residing in Farmington,
Connecticut. Beginning in 2010, Harvey worked for QuEST as Senior V.P., then President-
Strategic Accounts, and, as of 2019, President-Global Business Head. Harvey worked principally
from an office in East Hartford, Connecticut. From 1998 to 2000, Harvey worked for Pratt &
Whitney as a Senior V.P. Harvey, on information and belief, is identified in the DCIS Affidavit as
“Co-Conspirator 1.” See DCIS Affidavit, ¶8(a).
26.
Defendant Harpreet Wasan (“Wasan”) is a natural person residing in South
Glastonbury, Connecticut. Beginning in early 2015, Wasan was V.P./Strategic Client Partner at
QuEST, and worked principally from offices in East Hartford, Connecticut and Tokyo, Japan. He
left QuEST in early 2021. Prior to his roles at QuEST, Wasan worked at Pratt & Whitney for
approximately ten years. Wasan, on information and belief, is identified in the DCIS Affidavit as
“Co-Conspirator 3.” See DCIS Affidavit, ¶8(c).
27.
Defendant Steven Houghtaling (“Houghtaling”) is a natural person and resident of
Connecticut. In 2013, he began working for Belcan as a General Manager, and was promoted to
V.P. in 2015. Since 2019, he has served as Belcan’s Senior V.P., working principally from an office
in Windsor, Connecticut. Houghtaling, on information and belief, is identified in the DCIS Affidavit
as “Co-Conspirator 5.” See DCIS Affidavit, ¶8(e).
28.
Defendant Thomas Edwards (“Edwards”) is a natural person and resident of
Connecticut. Starting in or around 2010, Edwards was employed at the company now known as
Cyient, and since around 2013, has been President for Cyient’s North America operations. He
worked principally from an office in East Hartford, Connecticut. Edwards, on information and
belief, is identified in the DCIS Affidavit as “Co-Conspirator 6.” See DCIS Affidavit, ¶8(f).
29.
Defendant Gary Prus (“Prus”) is a natural person and resident of Florida. Beginning
at least as early as 2015, Prus was Chief Operating Officer (“COO”)/Executive V.P. and part owner
of PSI, and worked principally from an office in Jupiter, Florida. Prior to his employment with PSI,
Prus worked for 18 years at Pratt & Whitney. Prus, on information and belief, is identified in the
DCIS Affidavit as “Co-Conspirator 7.” See DCIS Affidavit, ¶8(g).
30.
Defendants Patel, Harvey, Wasan, Houghtaling, Edwards, and Prus are referred to
collectively as the “Individual Defendants.”
31.
Defendants Pratt & Whitney, Raytheon Technologies, the Supplier Defendants, and
the Individual Defendants are referred to collectively as “Defendants.”
JURISDICTION AND VENUE
32.
Plaintiff brings this action to recover treble damages, costs of suit, and reasonable
attorneys’ fees, arising from Defendants’ violations of §1 of the Sherman Act, 15 U.S.C. §1.
33.
The Court has subject matter jurisdiction pursuant to §§4 and 16 of the Clayton Act,
15 U.S.C. §§15 and 26, and 28 U.S.C. §§1331 and 1337.
34.
Venue is proper in this judicial district pursuant to §12 of the Clayton Act, 15 U.S.C.
§22, and 28 U.S.C. §1391(b) because a substantial part of the events giving rise to Plaintiff’s claims
occurred in this District and a substantial portion of the affected interstate trade and commerce was
carried out in this District.
FACTUAL ALLEGATIONS
35.
In 2016, the DOJ and United States Federal Trade Commission (“FTC”) issued
guidance about the anticompetitive effects of no-poach agreements like the one at issue in this case.
The guidance made clear that agreements between employers not to solicit or hire each other’s
employees “eliminate competition in the same irredeemable way as agreements to fix product prices
or allocate customers, which have traditionally been criminally investigated and prosecuted as
hardcore cartel conduct.”1
36.
Defendants’ No-Poach Agreement has substantially affected interstate commerce and
has caused antitrust injury throughout the United States. The No-Poach Agreement is per se illegal
under the federal antitrust laws, and thus, there is no requirement to define the relevant product or
geographic markets. As the DOJ made clear in guidance it issued in 2016: “Naked wage-fixing or
no-poaching agreements among employers, whether entered into directly or through a third-party
intermediary, are per se illegal under the antitrust laws.”2 For avoidance of doubt, the relevant
market is the services of aerospace Engineers in the United States and its territories.
37.
The aerospace companies are characterized by high barriers to entry and specialized
work. In a competitive labor market, Defendants would aggressively compete for Engineers by
recruiting and hiring from each other and the small pool of candidates would result in higher wages
and better benefits. This includes lateral recruiting, as a company seeking to hire a new employee
will lessen the risks associated with that hire by seeking to hire a rival’s employee.
1
See Dep’t of Justice Antitrust Div. and Fed. Trade Comm’n, Antitrust Guidance for Human
Resource Professionals, at 4 (Oct. 2016), https://www.justice.gov/atr/file/903511/download (last
visited Jan. 31, 2022).
2
Dep’t of Justice Antitrust Div. and Fed. Trade Comm’n, supra n.1 at 3.
38.
Absent their No-Poach Agreement, Defendants would have retained their Engineers
by paying a wage which would have reduced the necessity of seeking other employment.
Preemptive retention measures would naturally have led to increased compensation for all Engineers.
39.
Beginning at least as early as 2011 and continuing through the present, Defendants
agreed not to compete for each other’s Engineers in the aerospace industry working on projects for
P&W, specifically by agreeing to restrict the hiring and recruiting of Engineers between and among
Suppliers in the United States.
40.
As the ultimate client, P&W enforced and mediated the illegal agreement. P&W did
so largely through defendant Patel – a manager and later the director of the unit within P&W in
charge of managing relationships with Suppliers.
41.
The No-Poach Agreement restricted the free movement of Engineers within the
aerospace engineering industry. The No-Poach Agreement thus artificially extended Engineers’
length of work at a given employer and/or reduced or eliminated their ability to advocate and obtain
better terms of employment, including compensation.
42.
The hiring and recruiting restrictions that make up the No-Poach Agreement were
shaped by Defendants’ shared financial motivations, specifically a desire to suppress wages and
thereby lessen labor costs.
43.
Patel instructed managers and executives at Suppliers that P&W’s Suppliers should
not be recruiting and hiring one another’s Engineers.
44.
The Suppliers understood that these restrictions applied mutually among the Suppliers
themselves.
45.
Patel made these communications with each of the Suppliers directly, communicating
the restriction and that other Suppliers were observing it as well.
46.
For example, in 2017, Patel emailed the COO, Executive V.P. and part owner of PSI
(“Co-Conspirator 7” from the DCIS Affidavit). He stated: “‘Last time we talked you assured me that
you will not hire any [P&W] partners employee. This must stop, otherwise others will also start
poaching your employees.’” DCIS Affidavit, ¶29.
47.
Patel also discussed these restrictions on Suppliers’ recruiting and hiring when
multiple Suppliers were present. For example, in December 2015, P&W hosted a dinner that was
attended by Patel and senior representatives from Suppliers for P&W, including QuEST, Belcan, and
Cyient. December 15 Indictment, ¶22(a). Patel addressed the Supplier representatives at the dinner,
during which he instructed the attendees that there should be no poaching of one another’s
Engineers. These instructions were disseminated to others at the Supplier companies. For example,
following the meeting, an executive of Belcan, who was in attendance at the dinner, sent an email to
defendant Houghtaling and other Belcan employees, summarizing Patel’s remarks: “‘Mahesh did
take the stage at the end . . . no poaching of each others’ [sic] employees.’” December 15
Indictment, ¶22(a).
48.
Defendants discussed the No-Poach Agreement directly with one another. For
example, in September 2019, after Agilis had hired four Cyient employees, the President for
Cyient’s North America Operations reached out to the Founder, President, and Chief Executive
Officer of Agilis, and asked him to stop “‘actively recruiting’” Cyient’s employees. DCIS Affidavit,
¶34. Agilis’s CEO agreed, telling Cyient’s President of North America Operations that Agilis’s
“‘general aim is NOT to recruit from the local “competition” because no one wins; salaries rise, the
workforce get unstable, and our margins all get hurt.’” Id. In response, Cyient’s head of North
America Operations thanked Agilis’s CEO and noted “‘I flat out ask our teams not to hire people
from the other [P&W] suppliers.’” Id.
49.
P&W threatened to cut off Defendants from P&W’s business if they violated the
Agreement. December 15 Indictment, ¶26. For example, in June 2018, a series of emails and
conversations between defendant Patel and individuals from Belcan, including defendant
Houghtaling, discussing Belcan’s employment offer to an engineer at QuEST. Id. The discussion
concluded with a Belcan executive telling Patel “‘[p]er our conversation yesterday, this email is to
confirm that we have rescinded the offer letter for’” the engineer being discussed. Id.
50.
Defendants’ joint interest in suppressing labor costs was effectuated by the
conspiracy. In January 2017, after chastising Prus for PSI making an employment offer to an
employee of Cyient, Patel contacted another representative of PSI, copying Prus, and instructed:
“‘Please do not hire any partners [sic] employee, whether they approached or you approached. That
is the only way we can pre[v]ent poaching and price war.’” December 15 Indictment, ¶27(b); DCIS
Affidavit, ¶24.
51.
In March of 2016, that individual discussed P&W’s hiring restrictions with an
executive of another Supplier, noting that ‘“MAHESH says he does not want the salaries to
increase.’” DCIS Affidavit, ¶24.
52.
In April of 2017, a General Manager from QuEST sent an email warning that Cyient
had hired an Engineer who was employed with QuEST, noting that “‘[t]his is against our agreements
with our employees and against our known expectations of [P&W] for the cooperation of the
outsource companies’” and complaining that if such hiring does not stop, it will “‘drive the price
structure up.’” December 15 Indictment, ¶27(c); DCIS Affidavit, ¶25. Defendant Patel
subsequently contacted executives of the two Suppliers involved – the General Manager from
QuEST and the President of North America Operations from Cyient – and invited them for a
“‘private discussion’” in his office the next day. DCIS Affidavit, ¶25; December 15 Indictment,
53.
A September 2019 example shows that in addition to using Patel as a conduit,
Defendants discussed the No-Poach Agreement directly with each other. After learning that Agilis
hired employees from Cyient, defendant Edwards emailed the CEO of Agilis to request adherence to
the hiring and recruiting restrictions. December 15 Indictment, ¶27(a). In the email, Edwards stated,
“‘I wanted to ask if your team could refrain from actively recruiting our [Cyient] employees going
forward.’” Id. Edwards further assured Agilis’s CEO, “‘I flat out ask our teams not to hire people
from the other [P&W] suppliers.’” Id. The Agilis CEO assured Edwards, “‘[o]ur general aim is
NOT to recruit from the local “competition” because no one wins; salaries rise, the workforce get
[sic] unstable, and our margins all get hurt.’” Id.
54.
The Defendants and their co-conspirators monitored and enforced compliance with
their illegal agreement by among other means: (1) investigating whether employees were seeking
employment with or had been offered employment by another co-conspirator; (2) alerting co-
conspirators, through direct communications in which Patel served as an intermediary, to instances
in which those co-conspirators hired and recruited in a manner that violated the agreement; and
(3) demanding through direct communications and communications in which Patel served as an
intermediary, that co-conspirators cease hiring and recruiting in a manner that violated the
agreement. December 15 Indictment, ¶28.
55.
For example, in February 2015, after Cyient hired an employee of QuEST, defendant
Edwards emailed another Cyient executive, stating, “‘I let Mahesh know this happened – [a]nd we
are still looking into how exactly this happened.’” December 15 Indictment, ¶25(c). Edwards
continued, “‘can you let Mahesh know the actions we’re taking to prevent this from happening
again?’” Id.
56.
As another example, in May 2016, defendant Houghtaling was informed by a
colleague that “‘[a]nother employee’” had been hired by PSI to work on an outsourcing project for a
company other than P&W. December 15 Indictment, ¶22(c); DCIS Affidavit, ¶27. The colleague
asked Houghtaling if he “‘ever discuss[ed] the last one with Mahesh.’” December 15 Indictment,
¶22(c); DCIS Affidavit, ¶27. Houghtaling assured the colleague that he had spoken to Patel and that
Patel “‘said he’d talk to [PSI] about it.’” December 15 Indictment, ¶22(c); DCIS Affidavit, ¶27.
Houghtaling subsequently emailed defendant Patel to complain that his company was “‘losing
another employee to [PSI],’” and named the employee. December 15 Indictment, ¶22(c); DCIS
Affidavit, ¶27.
57.
In September 2016, a Belcan executive alerted Patel to a recent poaching by PSI.
December 15 Indictment, ¶28(e). An email from Patel to defendant Prus followed in which Patel
stated, “‘[y]ou had assured me that [PSI] will never soliciting [sic] [P&W’s] long term partners [sic]
employees. . . . Please send me in writing that proper steps has [sic] taken place to curtail this
practice.’” December 15 Indictment, ¶28(e) (emphasis in original). In response to Patel’s
reprimand, Prus instructed a PSI employee by email to “‘[p]lease stop speaking to any [Belcan] or
other [P&W] supplier companies about transitioning to a [PSI] Office immediately.’” December 15
Indictment, ¶28(e).
58.
A few months later, the reverse unfolded. In November 2016, defendant Prus
emailed Patel complaining about Belcan “‘actively [r]ecruiting [PSI] employees.’” December 15
Indictment, ¶22(d); DCIS Affidavit, ¶27. Patel forwarded Prus’s email to defendant Houghtaling
and another Belcan manager, saying, “‘[w]e must not poach each other partners employee. Please
communicate to [Belcan] HR not to interview or hire active employees working on [P&W] work.’”
December 15 Indictment, ¶22(c); DCIS Affidavit, ¶27. In another November 2016 email, Prus wrote
to another executive at PSI, “‘[n]eed to have a conversation with [a [Belcan] manager] about them
actively recruiting [PSI] employees. We do not EVER call their employees.’” December 15
Indictment, ¶28(g). Later that day, the PSI executive responded to Prus, “‘I talked to him. He will
talk to recruiting . . . .’” Id.
59.
As another example, in a February 2017 email, defendant Wasan responded to the
news that Belcan had made an employment offer to a QuEST engineer by stating: “‘[Belcan] is not
allowed to poach any of our employees and I will plan to block this immediately. I will send this to
Mahesh today.’” December 15 Indictment, ¶22(b). Defendant Wasan forwarded the information
about Belcan’s offer directly to defendant Patel, adding, “‘I am very concerned that [Belcan]
believes they can hire any of our employees. . . . Could you please stop this person from being hired
by Belcan?’” December 15 Indictment, ¶22(b); DCIS Affidavit, ¶28.
60.
Further, in January 2017, a representative from Cyient emailed Patel to inform him
that PSI had hired a Cyient Engineer and Patel forwarded this email to defendant Prus. December 15
Indictment, ¶25(b); DCIS Affidavit, ¶29. Patel wrote: “‘Last time we talked you assured me that
you will not hire any [P&W] partners employee [sic]. This must stop, otherwise others will also start
poaching your employees. Please advise.’” December 15 Indictment, ¶25(b); DCIS Affidavit, ¶29.
Defendant Prus subsequently forwarded the email to a PSI recruiting employee and said, “‘[p]lease
make sure we stay away from [Belcan], [Cyient], [Agilis] personnel moving forward.’” December
15 Indictment, ¶25(b).
61.
In December 2017, a V.P. from QuEST emailed defendant Houghtaling complaining
about Belcan’s reported employment offers to two QuEST employees in Illinois and stated, “‘I
would like to understand if you are planning to address this immediately, or I will be forced to
escalate to our mutual customers.’” December 15 Indictment, ¶28(f). Defendant Harvey responded,
“‘[s]pot on. This cannot be tolerated! We need to move quickly and forcibly when this is about to
happen.’” Id. Later, he added, speaking to QuEST’s management and executive team: “‘[p]ush hard
to have it reversed and consequences for [Belcan].’” Id.
62.
Patel’s enforcement of the agreement on behalf of the Suppliers was effective in
ensuring that the Suppliers adhered to the terms of the agreement.
63.
For example, after a Belcan executive notified Patel that PSI was recruiting and hiring
Engineers in violation of the agreement, Patel sent an email to the Executive V.P. and part owner of
PSI. Referencing Belcan, Patel wrote: “‘You had assured me that [PSI] will never soliciting [sic]
[P&W’s] long term partners [sic] employees . . . Please send me in writing that proper steps has
[sic] taken place to curtail this practice.’” DCIS Affidavit, ¶31. In a later email, the Executive V.P.
and part owner of PSI indicated that he understood Belcan was the source of this complaint, writing
that Belcan “‘is making a big stink right now over any solicitations.’” Id. The Executive V.P. and
part owner of PSI subsequently instructed another employee of PSI to “‘[p]lease stop speaking to
any [Belcan] or other [P&W] supplier companies about transitioning to [a PSI] Office
immediately.’” Id.
64.
At least as early as January 2016, well before several of the examples of unlawful
conduct described herein, certain managers and executives at Belcan began raising concerns with
Patel that the conduct of P&W and the Suppliers was unlawful, specifically because they violated the
antitrust laws.
65.
Early in January 2016, a General Manager for Belcan received an email describing a
civil lawsuit in which several major companies were accused of (as the Belcan employee forwarding
the email put it) “‘engaging in illegal anti-poaching agreements . . . . . . the companies involved had
promised each other not to actively recruit employees from one another.’” Id., ¶35. The General
Manager subsequently planned a meeting with Patel in which one of the items for discussion was
“‘[i]nformal poaching agreement between outsource suppliers. Recent Apple lawsuit because these
agreements are illegal.’” Id., ¶36.
66.
In a series of emails, Belcan’s Human Resources Director and the General Manager
discussed an upcoming call with Patel, which was planned concerning a recent allegation that Belcan
had hired an Engineer from QuEST in violation of the No-Poach Agreement. The HR Director
noted her concern that “‘there is an anti-trust issue by us turning people away solely based on their
previous employer.’” DCIS Affidavit, ¶37. The General Manager acknowledged these concerns
about illegality in a subsequent email to the HR Director, noting “‘[P&W] (Mahesh Patel) is asking
(insisting) that we not interview anyone currently employed by our competitors . . . I’m not sure if
this is legal, but that is what they are requesting we do.’” DCIS Affidavit, ¶37. The next day,
Belcan’s HR Director reported that she and another Belcan manager “‘spoke with Mahesh this
afternoon. He understands our concern with antitrust compliance, however, he still requested that
our recruiters not speak with applicants who are current[ly] employed with [Belcan] competitors.’”
DCIS Affidavit, ¶37.
67.
As part of and to effectuate the No-Poach Agreement, P&W and QuEST agreed to
restrict P&W’s hiring and recruiting of Engineers from QuEST. P&W and QuEST did so through
two primary means: (1) setting a two-year tenure restriction for any QuEST Engineers hired by
P&W; and (2) hiring freezes.
68.
In September 2011, defendant Harvey, along with a QuEST account manager,
attended a dinner with Patel and a P&W V.P. to whom Patel directly reported. December 15
Indictment, ¶24(a); DCIS Affidavit, ¶42. The objectives of the dinner included a discussion of the
QuEST executive’s proposal concerning tenure. December 15 Indictment, ¶24(a); DCIS Affidavit,
69.
The day following that dinner, defendant Harvey sent an email to the attendees,
stating: “‘We truly appreciate and value our strategic relationship. . . . I thought I would take the
lead in summarizing what we discussed last night and proposed next steps . . . .’” DCIS Affidavit,
¶42; December 15 Indictment, ¶24(a). The first item on the list was “‘personnel transfers.’”
December 15 Indictment, ¶24(a); DCIS Affidavit, ¶42. Defendant Harvey described this as “‘the
new policy/guidelines’” that the P&W V.P. had reviewed at the dinner, which set a “‘min. 24
months’” period for such “‘personnel transfers.’” December 15 Indictment, ¶24(a); DCIS Affidavit,
¶42. Harvey further indicated that Patel had advised that he limit the written record on this
agreement, noting that, “‘[f]ollowing Mahesh’s previous counsel, [he would] not go[] into detail in
writing on this subject.’” DCIS Affidavit, ¶42.
70.
Subsequently, starting in late 2011, managers and executives from QuEST
communicated with Patel and others in his outsourcing management group at P&W concerning
maintenance and enforcement of this agreement. December 15 Indictment, ¶24(a); DCIS Affidavit,
¶43. Specifically, these managers and executives worked to reconfirm, maintain, and enforce this
agreement and to block or attempt to block P&W’s recruiting and hiring of those QuEST employees
covered by the agreement. DCIS Affidavit, ¶43.
71.
By way of example, in October 2012, one QuEST employee wrote to Patel
concerning an employee about whom Patel had inquired, stating: “‘[Employee’s] tenure at [QuEST]
dates to May 2011. Based on our agreement of two year minimum tenure, we would ask that [P&W]
not pursue employment of [him] at this time.’” DCIS Affidavit, ¶44.
72.
In June 2015, Patel emailed managers from QuEST, stating that P&W “‘is interested
in interviewing and hiring’” two QuEST Engineers and asking that QuEST “‘[p]lease provide your
concurrence.’” DCIS Affidavit, ¶45. One of the QuEST managers responded that, while one of the
Engineers had worked at QuEST for four and a half years and “‘meets requirements,’” the other
“‘only has 8 months and does not meet obligation, so [QuEST] cannot provide concurrence.’” Id.
73.
Additionally, in April 2017, two QuEST managers, discussing a P&W request to hire
a certain QuEST Engineer, noted in an internal email that this employee “‘wouldn’t meet our
requirements for two years.’” DCIS Affidavit, ¶46; December 15 Indictment, ¶24(b). Two days
later, one of those managers emailed Patel to inform him that the employee “‘does not meet tenure
requirements.’” DCIS Affidavit, ¶46; December 15 Indictment, ¶24(b). Patel in turn told a P&W
employee: “‘[QuEST] will not release him . . . He has not completed 2 [y]ears as our verbal
agreements.’” DCIS Affidavit, ¶46; December 15 Indictment, ¶24(b).
74.
In furtherance of the conspiracy, representatives of QuEST and Patel also agreed
upon periodic freezes of P&W’s recruiting and hiring of any QuEST employees, with limited
exceptions.
75.
These hiring freezes took place from approximately 2015 through 2017 and ranged
from several months to nearly an entire year in 2016. Each began when QuEST managers and
executives petitioned Patel to limit or stop hiring from QuEST. DCIS Affidavit, ¶47.
76.
For example, in January 2016, Wasan reported to QuEST’s Chief Engineer/Account
Manager and another colleague that “‘I am planning to meet with Mahesh later this week to discuss
the hiring matrix I developed to limit the hiring. Also I am going to tell him that he needs to block’”
two QuEST Engineers “‘from being hired until we come to an agreement on the acceptable limit to
hire [from] our team.’” December 15 Indictment, ¶23(a); DCIS Affidavit, ¶49.
77.
Defendants’ conspiracy suppressed the compensation (including salaries, wages, and
benefits) offered and paid to their employees while restricting the employment opportunities
available to them.
78.
All Defendants competed for a limited supply of qualified aerospace Engineers.
Absent the conspiracy, Defendants would compete to recruit, hire, and retain top aerospace
Engineers, including by directly soliciting competitors’ employees with better offers.
79.
Defendants’ conspiracy cut off the free flow of information within the aerospace
engineering labor market, allowing Defendants to keep costs down by obscuring or eliminating the
availability of better opportunities elsewhere.
80.
Direct solicitation from competing employers benefits individual employees because
competing employers may make offers that exceed an employee’s current compensation. That
employee can then secure additional compensation by either changing employers or negotiating
increased compensation from their current employer. In addition, employees often share information
about offers, which can incent other employees to negotiate with their employers or seek similar or
better terms from their current employers.
81.
Defendants’ conspiracy also cut off the free flow of information to employers who
might otherwise have increased compensation to compete in the labor market. Firms that directly
solicit competitors’ employees will learn whether their offered compensation is sufficient to lure its
competitors’ employees or not, and they are likely to increase compensation offers to ensure they
remain competitive. Similarly, firms that learn that their compensation is lower than competitors
may preemptively increase compensation in order to avoid losing employees to poaching.
82.
Defendants’ conspiracy successfully controlled labor costs by stifling competition for
engineering and other skilled labor, suppressing compensation to their employees, and restricting the
free movement of those employees by eliminating new employment opportunities.
83.
Defendants actively concealed their illegal No-Poach Agreement from the public and
the proposed Class. Defendants did not disclose the existence of the No-Poach Agreement to their
Engineers or to the public. As further alleged above, however, Defendants would monitor and
enforce each other’s compliance with the No-Poach Agreement.
84.
The nature of the No-Poach Agreement ensures it would remain largely undetected by
Engineers and the public. Defendants entered into the No-Poach Agreement orally (the existence of
which various emails confirm), affirmatively avoiding memorializing the No-Poach Agreement in a
written agreement despite its broad application and multi-year duration, opting instead to inform new
executives about the No-Poach Agreement’s existence on a primarily oral basis. The reason for this
practice was to avoid alerting the public and the proposed Class of the No-Poach Agreement’s
existence and, thus, to deter potential investigations, litigation, and to perpetuate the Agreement’s
illegal effects.
85.
Defendants took affirmative steps to conceal the existence and operation of the
conspiracy. December 15 Indictment, ¶29. Among other things, the Defendants agreed that their
conspiracy remain an unwritten understanding and not reflected in master terms agreements or other
formal written agreements between P&W and co-conspirators. December 15 Indictment, ¶29.
Further, with respect to defendant Wasan and other Defendants, they often provided false and
misleading information to Engineers and other skilled-labor workers regarding the existence of the
agreement and the worker’s ability to obtain employment at other co-conspirator companies,
including by communicating that employment at other co-conspirator companies was unavailable to
them because of noncompete agreements rather than the conspiratorial agreement. Id.
86.
For example, in a September 2011 email from defendant Harvey to Patel and co-
conspirators, Harvey stated, “‘[f]ollowing Mahesh’s previous counsel, I am not going into detail in
writing’” on the subject of the agreement by P&W not to hire certain employees from QuEST.
December 15 Indictment, ¶29(e).
87.
In a January 2015 statement by a QuEST manager to defendant Harvey and two other
QuEST executives regarding his recent discussion with defendant Houghtaling about ceasing
poaching between QuEST and Belcan, the QuEST manager stated, “‘[w]hile I want you to be
informed, I would rather not have any other folks know where this info came from. I request that
this email not be forwarded.’” December 15 Indictment, ¶29(f).
88.
Indeed, the DCIS Affidavit found that, although some individuals heard rumors of the
agreement, in many instances even victim-witnesses were unaware of the actions taken by
Defendants to block their job applications. DCIS Affidavit, ¶54. Moreover, the far-reaching impact
of the restrictions on recruiting and hiring, which extends to those Engineers who had not directly
applied for employment with another one of Defendants, ensures that the vast majority of the Class,
including Plaintiff, were unaware of the No-Poach Agreement and could not learn of its existence
through reasonable inquiry because of Defendants’ active concealment of the agreement.
89.
But for information made public in the DCIS Affidavit, Plaintiff would have
remained unaware that the No-Poach Agreement existed. Because of the secrecy of the No-Poach
Agreement and Defendants’ acts of concealment, Plaintiff and the Class did not and could not have
known before December 9, 2021, when the DOJ filed its partially unsealed criminal complaint and
arrest warrant for defendant Patel, that Defendants were engaged in an illegal conspiracy to suppress
Engineers’ wages by restraining recruitment and hiring of one another’s Engineers. Further, the
secrecy of the No-Poach Agreement and Supplier Defendants’ acts of concealment would have
thwarted any reasonable effort to discover the No-Poach Agreement before that date.
CLASS ACTION ALLEGATIONS
90.
Plaintiff brings this action individually and as a class action pursuant to Federal Rules
of Civil Procedure 23(a), 23(b)(2), and 23(b)(3) on behalf of the following Class (the “Class”). The
Class is defined as:
All natural persons who worked at one or more of the Defendants as Engineers from
January 2011 through such time as Defendants’ anticompetitive conduct ceased
(“Class Period”). Excluded from the Class are Defendants and their affiliates,
parents, subsidiaries, and co-conspirators, whether or not named in this Complaint,
and the United States government.
91.
Plaintiff does not yet know the exact size of the Class because such information is in
the exclusive control of Defendants. Based upon publicly available information, there are thousands
of Class members. Joinder of all members of the Class is therefore impracticable.
92.
Class members are easily ascertainable based on, among other things, the Defendants’
employment records.
93.
Members of the Class are so numerous that joinder is impracticable. Further, the
Class is readily identifiable from information and records in Defendants’ possession.
94.
Plaintiff’s claims are typical of the claims of the members of the Class. Plaintiff and
all members of the Class were damaged by the same wrongful conduct by Defendants as a result of
Defendants’ wrongful conduct.
95.
Plaintiff will fairly and adequately protect and represent the interests of the Class.
Plaintiff’s interests are coincident with, and not antagonistic to, those of the Class.
96.
Plaintiff is represented by counsel who are experienced and competent in the
prosecution of class action antitrust litigation and have particular experience with class action
antitrust litigation in the online advertising industry.
97.
Questions of law and fact common to the members of the Class predominate over
questions, if any, that may affect only individual Class members because Defendants have acted on
grounds generally applicable to the entire Class. Such generally applicable conduct is inherent in
Defendants’ wrongful conduct. Questions common to the members of the Class include:
(a)
whether Defendants entered into a No-Poach Agreement to restrict
competition in the labor market in which Plaintiff and other Class members sold their services;
(b)
the identity of the participants in the conspiracy;
(c)
whether Defendants violated §1 of the Sherman Act, 15 U.S.C. §1;
(d)
whether Plaintiff and the Class have suffered antitrust injury;
(e)
whether the activities of Defendants as alleged herein have substantially
affected interstate commerce; and
(f)
the appropriate measure of damages and relief.
98.
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 on claims that it might not
be practicable to pursue individually, substantially outweigh any difficulties that may arise in
management of this class action.
99.
Plaintiff knows of no difficulty to be encountered in the maintenance of this action
that would preclude its maintenance as a class action.
COUNT
(For Violation of §1 of the Sherman Act, 15 U.S.C. §1, Against All Defendants)
100.
Plaintiff incorporates the preceding paragraphs by reference.
101.
Defendants knowingly, intentionally, and cooperatively engaged in a contract,
combination, or conspiracy in unreasonable restraint of trade, in violation of §1 of the Sherman Act,
15 U.S.C. §1. Specifically, Defendants agreed to restrict competition for Class members’ services
through a No-Poach Agreement with the purpose and effect of suppressing Class members’
compensation and potential job opportunities and restraining competition in the market for Class
members’ services.
102.
Defendants’ conduct injured Plaintiff and other Class members by depriving them of
free and fair competition in the market for their services.
103.
Defendants’ No-Poach Agreement is a per se violation of §1 of the Sherman Act.
104.
As a direct and proximate result of Defendants’ violations of §1 of the Sherman Act,
15 U.S.C. §1, Plaintiff and the Class have received compensation that is less than they would have
received had the market for their services been competitive.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays that the Court enter a final judgment against each of the
Defendants as follows:
A.
That the Court certify this lawsuit as a class action under Rules 23(a), (b)(2), and
(b)(3) of the Federal Rules of Civil Procedure, that Plaintiff be designated as a representative for the
Class, and that Plaintiff’s counsel be appointed as counsel for the Class;
B.
That the unlawful conduct alleged herein be adjudged and decreed to violate §1 of the
Sherman Act, 15 U.S.C. §1;
C.
That Defendants, their affiliates, successors, transferees, assignees and other officers,
directors, and partners, 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 alleged herein, or from entering into any other contract or engaging in any
other conduct having a similar purpose or effect, and from adopting or following any practice, plan,
program, or device having a similar purpose or effect;
D.
An award of monetary damages, including treble damages, punitive damages, the
costs of this action, and reasonable attorneys’ fees pursuant to §§4 and 16 of the Clayton Act, 15
U.S.C. §§15 and 26;
E.
An award of 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; and
F.
An award of such other relief as may be appropriate and as the Court may deem
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: February 1, 2022
DISERIO MARTIN O’CONNOR
& CASTIGLIONI LLP
JONATHAN P. WHITCOMB (CT 15014)
s/ Jonathan P. Whitcomb
JONATHAN P. WHITCOMB
1010 Washington Boulevard, Suite 800
Stamford, CT 06901
Telephone: 203/358-0800
203/348-2321 (fax)
[email protected]
Liaison Counsel
ROBBINS GELLER RUDMAN
& DOWD LLP
DAVID W. MITCHELL
BRIAN O. O’MARA
STEVEN M. JODLOWSKI
LONNIE A. BROWNE
655 West Broadway, Suite 1900
San Diego, CA 92101
Telephone: 619/231-1058
619/231-7423 (fax)
[email protected]
[email protected]
[email protected]
[email protected]
Attorneys for Plaintiff
| antitrust |
cQ2AFocBD5gMZwcz79G- | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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MARY WEST, on behalf of herself and all others
similarly situated,
CLASS ACTION COMPLAINT
AND
Plaintiffs,
v.
DEMAND FOR JURY TRIAL
1:20-cv-3596
FAB DOG INCORPORATED,
Defendant.
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INTRODUCTION
1.
Plaintiff MARY WEST, on behalf of herself and others similarly situated, asserts
the following claims against Defendant FAB DOG INCORPORATED as follows.
2.
Plaintiff is a visually-impaired and legally blind person who requires screen-
reading software to read website content using her computer. Plaintiff uses the
terms “blind” or “visually-impaired” to refer to all people with visual impairments
who meet the legal definition of blindness in that they have a visual acuity with
correction of less than or equal to 20 x 200. Some blind people who meet this
definition have limited vision. Others have no vision.
3.
Based on a 2010 U.S. Census Bureau report, approximately 8.1 million people in
the United States are visually impaired, including 2.0 million who are blind, and
according to the American Foundation for the Blind’s 2015 report, approximately
400,000 visually impaired persons live in the State of New York.
4.
Plaintiff brings this civil rights action against Defendant for its failure to design,
construct, maintain, and operate its website to be fully accessible to and
independently usable by Plaintiff and other blind or visually-impaired people.
Defendant’s denial of full and equal access to its website, and therefore denial of
its goods and services offered thereby, is a violation of Plaintiff’s rights under the
Americans with Disabilities Act (“ADA”).
5.
Because Defendant’s website, www.fabdog.com (the “Website”), is not equally
accessible to blind and visually impaired consumers, it violates the ADA. Plaintiff
seeks a permanent injunction to cause a change in Defendant’s corporate policies,
practices, and procedures so that Defendant’s website will become and remain
accessible to blind and visually-impaired consumers.
JURISDICTION AND VENUE
6.
This Court has subject-matter jurisdiction over this action under 28 U.S.C. § 1331
and 42 U.S.C. § 12181, as Plaintiff’s claims arise under Title III of the ADA, 42
U.S.C. § 12181, et seq., and 28 U.S.C. § 1332.
7.
This Court has supplemental jurisdiction under 28 U.S.C. § 1367 over Plaintiff’s
New York City Human Rights Law, N.Y.C. Admin. Code § 8-101 et seq.,
(“NYCHRL”) claims.
8.
Venue is proper in this district under 28 U.S.C. §1391(b)(1) and (2) because
Defendant conducts and continues to conduct a substantial and significant amount
of business in this District, and a substantial portion of the conduct complained of
herein occurred in this District because Plaintiff attempted to utilize, on a number
of occasions, the subject Website within this Judicial District.
9.
Defendant is subject to personal jurisdiction in this District. Defendant has been
and is committing the acts or omissions alleged herein in the Southern District of
New York that caused injury and violated rights the ADA prescribes to Plaintiff
and to other blind and other visually impaired-consumers. A substantial part of the
acts and omissions giving rise to Plaintiff’s claims occurred in this District: on
several separate occasions, Plaintiff has been denied the full use and enjoyment of
the facilities, goods and services offered to the general public, on Defendant’s
Website in New York County. These access barriers that Plaintiff encountered have
caused a denial of Plaintiff’s full and equal access multiple times in the past, and
now deter Plaintiff on a regular basis from accessing the Defendant’s Website in
the future.
10.
This Court is empowered to issue a declaratory judgment under 28 U.S.C. §§ 2201
and 2202.
THE PARTIES
11.
Plaintiff MARY WEST, at all relevant times, is and was a resident of Kings County,
New York.
12.
Plaintiff is a blind, visually-impaired handicapped person and a member of a
protected class of individuals under the ADA, under 42 U.S.C. § 12102(1)-(2), and
the regulations implementing the ADA set forth at 28 CFR §§ 36.101 et seq., and
NYCHRL.
13.
Defendant is and was at all relevant times a New York 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 dog apparel and accessories company that owns and operates
www.fabdog.com (its “Website”), offering features which should allow all
consumers to access the goods and services and which Defendant ensures the
delivery of such goods throughout the United States, including New York State.
22.
Defendant’s Website offers products and services for online sale and general
delivery to the public. The Website offers features which ought to allow users to
browse for items, access navigation bar descriptions, inquire about pricing, and
avail consumers of the ability to peruse the numerous items offered for sale.
23.
Plaintiff is a visually-impaired and legally blind person, who cannot use a computer
without the assistance of screen-reading software. Plaintiff is, however, a proficient
NVDA screen-reader user and uses it to access the Internet. Plaintiff has visited the
Website on separate occasions using a screen-reader.
24.
On multiple occasions, the last occurring in March of 2020, Plaintiff visited
Defendant’s website, www.fabdog.com, to make a purchase. Despite her efforts,
however, Plaintiff was denied a shopping experience similar to that of a sighted
individual due to the website’s lack of a variety of features and accommodations,
which effectively barred Plaintiff from being able to determine what specific
products were offered for sale.
25.
Many features on the Website lacks alt. text, which is the invisible code
embedded beneath a graphical image. As a result, Plaintiff was unable to
differentiate what products were on the screen due to the failure of the Website to
adequately describe its content. Such issues were predominant in the section where
Plaintiff was attempting, but was unsuccessful, in making a purchase.
26.
Many features on the Website also fail to Add a label element or title attribute for
each field. This is a problem for the visually impaired because the screen reader
fails to communicate the purpose of the page element. It also leads to the user not
being able to understand what he or she is expected to insert into the subject field.
As a result, Plaintiff and similarly situated visually impaired users of Defendant’s
Website are unable to enjoy the privileges and benefits of the Website equally to
sighted users.
27.
Many pages on the Website also contain the same title elements. This is a problem
for the visually impaired because the screen reader fails to distinguish one page
from another. In order to fix this problem, Defendant must change the title elements
for each page.
28.
The Website also contained a host of broken links, which is a hyperlink to a non-
existent or empty webpage. For the visually impaired this is especially paralyzing
due to the inability to navigate or otherwise determine where one is on the website
once a broken link is encountered. For example, upon coming across a link of
interest, Plaintiff was redirected to an error page. However, the screen-reader failed
to communicate that the link was broken. As a result, Plaintiff could not get back
to her original search.
29.
These access barriers effectively denied Plaintiff the ability to use and enjoy
Defendant’s website the same way sighted individuals do.
30.
It is, upon information and belief, Defendant’s policy and practice to deny Plaintiff,
along with other blind or visually-impaired users, access to Defendant’s website,
and to therefore specifically deny the goods and services that are offered to the
general public. Due to Defendant’s failure and refusal to remove access barriers to
its website, Plaintiff and visually-impaired persons have been and are still being
denied equal access to Defendant’s Website, and the numerous goods and services
and benefits offered to the public through the Website.
31.
Due to the inaccessibility of Defendant’s Website, blind and visually-impaired
customers such as Plaintiff, who need screen-readers, cannot fully and equally use
or enjoy the facilities, products, and services Defendant offers to the public on its
Website. The access barriers Plaintiff encountered have caused a denial of
Plaintiff’s full and equal access in the past, and now deter Plaintiff on a regular
basis from equal access to the Website.
32.
If the Website were equally accessible to all, Plaintiff could independently navigate
the Website and complete a desired transaction as sighted individuals do.
33.
Through her attempts to use the Website, Plaintiff has actual knowledge of the
access barriers that make these services inaccessible and independently unusable
by blind and visually-impaired people.
34.
Because simple compliance with the WCAG 2.1 Guidelines would provide Plaintiff
and other visually-impaired consumers with equal access to the Website, Plaintiff
alleges that Defendant has engaged in acts of intentional discrimination, including
but not limited to the following policies or practices:
a.
Constructing and maintaining a website that is inaccessible to
visually-impaired individuals, including Plaintiff;
b.
Failure to construct and maintain a website that is sufficiently intuitive
so as to be equally accessible to visually impaired individuals, including
Plaintiff; and,
c.
Failing to take actions to correct these access barriers in the face of
substantial harm and discrimination to blind and visually-impaired
consumers, such as Plaintiff, as a member of a protected class.
35.
Defendant therefore uses standards, criteria or methods of administration that have the
effect of discriminating or perpetuating the discrimination of others, as alleged herein.
36.
The ADA expressly contemplates the injunctive relief that Plaintiff seeks in this
action. In relevant part, the ADA requires:
In the case of violations of . . . this title, injunctive relief shall include an order to
alter facilities to make such facilities readily accessible to and usable by individuals
with disabilities . . . Where appropriate, injunctive relief shall also include requiring
the . . . modification of a policy . . .
42 U.S.C. § 12188(a)(2).
37.
Because Defendant’s Website has never been equally accessible, and because
Defendant lacks a corporate policy that is reasonably calculated to cause its Website
to become and remain accessible, Plaintiff invokes 42 U.S.C. § 12188(a)(2) and
seeks a permanent injunction requiring Defendant to retain a qualified consultant
acceptable to Plaintiff (“Agreed Upon Consultant”) to assist Defendant to comply
with WCAG 2.1 guidelines for Defendant’s Website. Plaintiff seeks that this
permanent injunction requires Defendant to cooperate with the Agreed Upon
Consultant to:
a.
Train Defendant’s employees and agents who develop the Website
on accessibility compliance under the WCAG 2.1 guidelines;
b.
Regularly check the accessibility of the Website under the WCAG
2.1 guidelines;
c.
Regularly test user accessibility by blind or vision-impaired persons
to ensure that Defendant’s Website complies under the WCAG 2.1
guidelines; and,
d.
Develop an accessibility policy that is clearly disclosed on Defendant’s
Websites, with contact information for users to report accessibility-related
problems.
38.
Although Defendant may currently have centralized policies regarding maintaining
and operating its Website, Defendant lacks a plan and policy reasonably calculated
to make them fully and equally accessible to, and independently usable by, blind
and other visually-impaired consumers.
39.
Defendant has, upon information and belief, invested substantial sums in
developing and maintaining their Website and has generated significant revenue
from the Website. These amounts are far greater than the associated cost of making
their Website equally accessible to visually impaired customers.
40.
Without injunctive relief, Plaintiff and other visually-impaired consumers will
continue to be unable to independently use the Website, violating their rights.
CLASS ACTION ALLEGATIONS
41.
Plaintiff, on behalf of herself and all others similarly situated, seeks to certify a
nationwide class under Fed. R. Civ. P. 23(a) and 23(b)(2): all legally blind
individuals in the United States who have attempted to access Defendant’s Website
and as a result have been denied access to the equal enjoyment of goods and services,
during the relevant statutory period.
42.
Plaintiff, on behalf of herself and all others similarly situated, seeks to certify a New
York City subclass under Fed. R. Civ. P. 23(a) and 23(b)(2): all legally blind
individuals in the City of New York who have attempted to access Defendant’s
Website and as a result have been denied access to the equal enjoyment of goods and
services offered, during the relevant statutory period.
43.
Common questions of law and fact exist amongst the Class, including:
a.
Whether Defendant’s Website is a “public accommodation” under
the ADA;
b.
Whether Defendant’s Website is a “place or provider of public
accommodation” under the NYCHRL;
c.
Whether Defendant’s Website denies the full and equal enjoyment
of
its
products,
services,
facilities,
privileges,
advantages,
or
accommodations to people with visual disabilities, violating the ADA; and
d.
Whether Defendant’s Website denies the full and equal enjoyment
of
its
products,
services,
facilities,
privileges,
advantages,
or
accommodations to people with visual disabilities, violating the NYCHRL.
44.
Plaintiff’s claims are typical of the Class. The Class, similarly to the Plaintiff, are
severely visually impaired or otherwise blind, and claim that Defendant has
violated the ADA or NYCHRL by failing to update or remove access barriers on
its Website so either can be independently accessible to the Class.
45.
Plaintiff will fairly and adequately represent and protect the interests of the Class
Members because Plaintiff has retained and is represented by counsel competent
and experienced in complex class action litigation, and because Plaintiff has no
interests antagonistic to the Class Members. Class certification of the claims is
appropriate under Fed. R. Civ. P. 23(b)(2) because Defendant has acted or refused
to act on grounds generally applicable to the Class, making appropriate both
declaratory and injunctive relief with respect to Plaintiff and the Class as a whole.
46.
Alternatively, class certification is appropriate under Fed. R. Civ. P. 23(b)(3) because
fact and legal questions common to Class Members predominate over questions
affecting only individual Class Members, and because a class action is superior to
other available methods for the fair and efficient adjudication of this litigation.
47.
Judicial economy will be served by maintaining this lawsuit as a class action in that
it is likely to avoid the burden that would be otherwise placed upon the judicial
system by the filing of numerous similar suits by people with visual disabilities
throughout the United States.
FIRST CAUSE OF ACTION
VIOLATIONS OF THE ADA, 42 U.S.C. § 12181 et seq.
48.
Plaintiff, on behalf of herself and the Class Members, repeats and realleges every
allegation of the preceding paragraphs as if fully set forth herein.
49.
Section 302(a) of Title III of the ADA, 42 U.S.C. § 12101 et seq., provides:
No individual shall be discriminated against on the basis of disability in the full and
equal enjoyment of the goods, services, facilities, privileges, advantages, or
accommodations of any place of public accommodation by any person who owns,
leases (or leases to), or operates a place of public accommodation.
42 U.S.C. § 12182(a).
50.
Defendant’s Website is a public accommodations within the definition of Title III
of the ADA, 42 U.S.C. § 12181(7). The Website is a service that is offered to the
general public, and as such, must be equally accessible to all potential consumers.
51.
Under Section 302(b)(1) of Title III of the ADA, it is unlawful discrimination to
deny individuals with disabilities the opportunity to participate in or benefit from
the products, services, facilities, privileges, advantages, or accommodations of an
entity. 42 U.S.C. § 12182(b)(1)(A)(i).
52.
Under Section 302(b)(1) of Title III of the ADA, it is unlawful discrimination to
deny individuals with disabilities an opportunity to participate in or benefit from
the products, services, facilities, privileges, advantages, or accommodation, which
is equal to the opportunities afforded to other individuals. 42 U.S.C. §
12182(b)(1)(A)(ii).
53.
Under Section 302(b)(2) of Title III of the ADA, unlawful discrimination also
includes, among other things:
[A] failure to make reasonable modifications in policies, practices, or procedures,
when such modifications are necessary to afford such goods, services, facilities,
privileges, advantages, or accommodations to individuals with disabilities, unless
the entity can demonstrate that making such modifications would fundamentally
alter the nature of such goods, services, facilities, privileges, advantages or
accommodations; and a failure to take such steps as may be necessary to ensure that
no individual with a disability is excluded, denied services, segregated or otherwise
treated differently than other individuals because of the absence of auxiliary aids
and services, unless the entity can demonstrate that taking such steps would
fundamentally alter the nature of the good, service, facility, privilege, advantage,
or accommodation being offered or would result in an undue burden.
42 U.S.C. § 12182(b)(2)(A)(ii)-(iii).
54.
The acts alleged herein constitute violations of Title III of the ADA, and the
regulations promulgated thereunder. Plaintiff, who is a member of a protected class
of persons under the ADA, has a physical disability that substantially limits the
major life activity of sight within the meaning of 42 U.S.C. §§ 12102(1)(A)-(2)(A).
Furthermore, Plaintiff has been denied full and equal access to the Website, has not
been provided services that are provided to other patrons who are not disabled, and
has been provided services that are inferior to the services provided to non-disabled
persons. Defendant has failed to take any prompt and equitable steps to remedy its
discriminatory conduct. These violations are ongoing.
55.
Under 42 U.S.C. § 12188 and the remedies, procedures, and rights set forth and
incorporated therein, Plaintiff, requests relief as set forth below.
SECOND CAUSE OF ACTION
VIOLATIONS OF THE NYCHRL
56.
Plaintiff, on behalf of herself and the New York City Sub-Class Members, repeats
and realleges every allegation of the preceding paragraphs as if fully set forth herein.
57.
N.Y.C. Administrative Code § 8-107(4)(a) provides that “It shall be an unlawful
discriminatory practice for any person, being the owner, lessee, proprietor,
manager, superintendent, agent or employee of any place or provider of public
accommodation, because of . . . disability . . . directly or indirectly, to refuse,
withhold from or deny to such person, any of the accommodations, advantages,
facilities or privileges thereof.”
58.
Defendant’s Website is a sales establishment and public accommodations within
the definition of N.Y.C. Admin. Code § 8-102(9).
59.
Defendant is subject to NYCHRL because it owns and operates its Website, making
it a person within the meaning of N.Y.C. Admin. Code § 8-102(1).
60.
Defendant is violating N.Y.C. Administrative Code § 8-107(4)(a) in refusing to
update or remove access barriers to Website, causing its Website and the services
integrated with such Website to be completely inaccessible to the blind. This
inaccessibility denies blind patrons full and equal access to the facilities, products,
and services that Defendant makes available to the non-disabled public.
61.
Defendant is required to “make reasonable accommodation to the needs of persons
with disabilities . . . any person prohibited by the provisions of [§ 8-107 et seq.]
from discriminating on the basis of disability shall make reasonable
accommodation to enable a person with a disability to . . . enjoy the right or rights
in question provided that the disability is known or should have been known by the
covered entity.” N.Y.C. Admin. Code § 8-107(15)(a).
62.
Defendant’s actions constitute willful intentional discrimination against the Sub-
Class on the basis of a disability in violation of the N.Y.C. Administrative Code §
8-107(4)(a) and § 8-107(15)(a) in that Defendant has:
a.
constructed and maintained a website that is inaccessible to blind
class members with knowledge of the discrimination; and/or
b.
constructed and maintained a website that is sufficiently intuitive
and/or obvious that is inaccessible to blind class members; and/or
c.
failed to take actions to correct these access barriers in the face of
substantial harm and discrimination to blind class members.
63.
Defendant has failed to take any prompt and equitable steps to remedy their
discriminatory conduct. These violations are ongoing.
64.
As such, Defendant discriminates, and will continue in the future to discriminate
against Plaintiff and members of the proposed class and subclass on the basis of
disability in the full and equal enjoyment of the products, services, facilities,
privileges, advantages, accommodations and/or opportunities of its Website under
§ 8-107(4)(a) and/or its implementing regulations. Unless the Court enjoins
Defendant from continuing to engage in these unlawful practices, Plaintiff and
members of the class will continue to suffer irreparable harm.
65.
Defendant’s actions were and are in violation of the NYCHRL and therefore
Plaintiff invokes her right to injunctive relief to remedy the discrimination.
66.
Plaintiff is also entitled to compensatory damages, as well as civil penalties and
fines under N.Y.C. Administrative Code § 8-120(8) and § 8-126(a) for each offense
as well as punitive damages pursuant to § 8-502.
67.
Plaintiff is also entitled to reasonable attorneys’ fees and costs.
68.
Under N.Y.C. Administrative Code § 8-120 and § 8-126 and the remedies,
procedures, and rights set forth and incorporated therein Plaintiff prays for
judgment as set forth below.
THIRD CAUSE OF ACTION
DECLARATORY RELIEF
69.
Plaintiff, on behalf of herself and the Class and New York City Sub-Classes
Members, repeats and realleges every allegation of the preceding paragraphs as if
fully set forth herein.
70.
An actual controversy has arisen and now exists between the parties in that Plaintiff
contends, and is informed and believes that Defendant denies, that its Website
contains access barriers denying blind customers the full and equal access to the
products, services and facilities of its Website, which Defendant owns, operates and
controls, fails to comply with applicable laws including, but not limited to, Title III
of the Americans with Disabilities Act, 42 U.S.C. §§ 12182, et seq., and N.Y.C.
Admin. Code § 8-107, et seq. prohibiting discrimination against the blind.
71.
A judicial declaration is necessary and appropriate at this time in order that each of
the parties may know their respective rights and duties and act accordingly.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff respectfully requests this Court grant the following relief:
a.
A preliminary and permanent injunction to prohibit Defendant from
violating the Americans with Disabilities Act, 42 U.S.C. §§ 12182, et seq.,
N.Y.C. Administrative Code § 8-107, et seq., and the laws of New York;
b.
A preliminary and permanent injunction requiring Defendant to take
all the steps necessary to make its Website into full compliance with the
requirements set forth in the ADA, and its implementing regulations, so that
the Website is readily accessible to and usable by blind individuals;
c.
A declaration that Defendant owns, maintains and/or operates its
Website in a manner that discriminates against the blind and which fails to
provide access for persons with disabilities as required by Americans with
Disabilities Act, 42 U.S.C. §§ 12182, et seq., N.Y.C. Administrative Code
§ 8-107, et seq., and the laws of New York
d.
An order certifying the Class and Sub-Classes under Fed. R. Civ. P.
23(a) & (b)(2) and/or (b)(3), appointing Plaintiff as Class Representative,
and her attorneys as Class Counsel;
e.
Compensatory damages in an amount to be determined by proof,
including all applicable statutory and punitive damages and fines, to
Plaintiff and the proposed class and subclasses for violations of their civil
rights under New York City Human Rights Law and City Law;
f.
Pre- and post-judgment interest;
g.
An award of costs and expenses of this action together with
reasonable attorneys’ and expert fees; and
h.
Such other and further relief as this Court deems just and proper.
DEMAND FOR TRIAL BY JURY
Pursuant to Fed. R. Civ. P. 38(b), Plaintiff demands a trial by jury on all questions
of fact the Complaint raises.
Dated: Hackensack, New Jersey
May 8, 2020
STEIN SAKS, PLLC
By: /s/ David P. Force
David P. Force, Esq.
[email protected]
285 Passaic Street
Hackensack, NJ 07601
Tel: (201) 282-6500
Fax: (201) 282-6501
ATTORNEYS FOR PLAINTIFF
| civil rights, immigration, family |
3hIjF4cBD5gMZwcziO08 |
CLASS ACTION
Case No.
JURY TRIAL DEMANDED
LUCINDA JACKSON, individually and on behalf of
all others similarly situated,
Plaintiff,
vs.
GREEN GENIE INC., a Michigan corporation,
Defendant.
______________________________________/
CLASS ACTION COMPLAINT
1.
Plaintiff, Lucinda Jackson, brings this action against Defendant, Green Genie Inc.,
to secure redress for violations of the Telephone Consumer Protection Act (“TCPA”), 47 U.S.C.
NATURE OF THE ACTION
2.
This is a putative class action pursuant to the Telephone Consumer Protection Act, 47
U.S.C. § 227 et seq., (the “TCPA”).
3.
Defendant is a cannabis dispensary. To promote its services, Defendant engages in
unsolicited marketing, harming thousands of consumers in the process.
4.
Through this action, Plaintiff seeks injunctive relief to halt Defendant’s illegal conduct,
which has resulted in the invasion of privacy, harassment, aggravation, and disruption of the daily life
of thousands of individuals. Plaintiff also seeks statutory damages on behalf of herself and members of
the class, and any other available legal or equitable remedies.
JURISDICTION AND VENUE
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,
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 Eastern District of Michigan
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
Michigan 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
Michigan.
PARTIES
7.
Plaintiff is a natural person who, at all times relevant to this action, was a resident of
Summit County, Ohio.
8.
Defendant is a Michigan corporation whose principal office is located at 24600 West
McNichols, Detroit, Michigan 48219. Defendant directs, markets, and provides its business activities
throughout the State of Florida.
THE TCPA
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).
that has the capacity - (A) to store or produce telephone numbers to be called, using a random or
sequential number generator; and (B) to dial such numbers.” 47 U.S.C. § 227(a)(1).
11.
In an action under the TCPA, a plaintiff must only show that the defendant “called a
number assigned to a cellular telephone service using an automatic dialing system or prerecorded
voice.” Breslow v. Wells Fargo Bank, N.A., 857 F. Supp. 2d 1316, 1319 (S.D. Fla. 2012), aff'd, 755
F.3d 1265 (11th Cir. 2014).
12.
The Federal Communications Commission (“FCC”) is empowered to issue rules and
regulations implementing the TCPA. According to the FCC’s findings, calls in violation of the TCPA
are prohibited because, as Congress found, automated or prerecorded telephone calls are a greater
nuisance and invasion of privacy than live solicitation calls, and such calls can be costly and
inconvenient. The FCC also recognized that wireless customers are charged for incoming calls whether
they pay in advance or after the minutes are used. Rules and Regulations Implementing the Telephone
Consumer Protection Act of 1991, CG Docket No. 02-278, Report and Order, 18 FCC Rcd 14014
13.
In 2012, the FCC issued an order tightening the restrictions for automated telemarketing
calls, requiring “prior express written consent” for such calls to wireless numbers. See In the Matter of
Rules & Regulations Implementing the Tel. Consumer Prot. Act of 1991, 27 F.C.C.R. 1830, 1838 ¶ 20
(Feb. 15, 2012) (emphasis supplied).
14.
To obtain express written consent for telemarketing calls, a defendant must establish
that it secured the plaintiff’s signature in a form that gives the plaintiff a “‘clear and conspicuous
disclosure’ of the consequences of providing the requested consent….and having received this
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).
initiation of a telephone call or message for the purpose of encouraging the purchase or rental of, or
investment in, property, goods, or services.” 47 C.F.R. § 64.1200(f)(12). In determining whether a
communication constitutes telemarketing, a court must evaluate the ultimate purpose of the
communication. See Golan v. Veritas Entm't, LLC, 788 F.3d 814, 820 (8th Cir. 2015).
16.
“Neither the TCPA nor its implementing regulations ‘require an explicit mention of a
good, product, or service’ where the implication of an improper purpose is ‘clear from the context.’”
Id. (citing Chesbro v. Best Buy Stores, L.P., 705 F.3d 913, 918 (9th Cir. 2012)).
17.
“‘Telemarketing’ occurs when the context of a call indicates that it was initiated and
transmitted to a person for the purpose of promoting property, goods, or services.” Golan, 788 F.3d at
820 (citing 47 C.F.R. § 64.1200(a)(2)(iii); 47 C.F.R. § 64.1200(f)(12); In re Rules and Regulations
Implementing the Telephone Consumer Protection Act of 1991, 18 F.C.C. Rcd at 14098 ¶ 141, 2003
WL 21517853, at *49).
18.
The FCC has explained that calls motivated in part by the intent to sell property, goods,
or services are considered telemarketing under the TCPA. See In re Rules and Regulations
Implementing the Telephone Consumer Protection Act of 1991, 18 FCC Rcd. 14014, ¶¶ 139-142 (2003).
This is true whether call recipients are encouraged to purchase, rent, or invest in property, goods, or
services during the call or in the future. Id.
19.
In other words, offers “that are part of an overall marketing campaign to sell
property, goods, or services constitute” telemarketing under the TCPA. See In re Rules and
Regulations Implementing the Telephone Consumer Protection Act of 1991, 18 FCC Rcd. 14014, ¶ 136
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
“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.
Over the past year, Defendant sent numerous telemarketing text messages to Plaintiff’s
cellular telephone number ending in 0970 (the “0970 Number”) including but not limited to the
following sent on April 20, 2020:
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., selling Plaintiff cannabis products.
26.
The information contained in the text message advertises various discounts, which
Defendant sends to promote its business.
27.
Defendant sent the subject texts from 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 0970 Number, and is financially
responsible for phone service to the 0970 Number.
30.
The impersonal and generic nature of Defendant’s text message demonstrates that
Defendant utilized an ATDS in transmitting the messages. See Jenkins v. LL Atlanta, LLC, No. 1:14-
cv-2791-WSD, 2016 U.S. Dist. LEXIS 30051, at *11 (N.D. Ga. Mar. 9, 2016) (“These assertions,
combined with the generic, impersonal nature of the text message advertisements and the use of a short
code, support an inference that the text messages were sent using an ATDS.”) (citing Legg v. Voice
Media Grp., Inc., 20 F. Supp. 3d 1370, 1354 (S.D. Fla. 2014) (plaintiff alleged facts sufficient to infer
text messages were sent using ATDS; use of a short code and volume of mass messaging alleged would
be impractical without use of an ATDS); Kramer v. Autobytel, Inc., 759 F. Supp. 2d 1165, 1171 (N.D.
Cal. 2010) (finding it "plausible" that defendants used an ATDS where messages were advertisements
written in an impersonal manner and sent from short code); Hickey v. Voxernet LLC, 887 F. Supp. 2d
1125, 1130; Robbins v. Coca-Cola Co., No. 13-CV-132-IEG NLS, 2013 U.S. Dist. LEXIS 72725, 2013
WL 2252646, at *3 (S.D. Cal. May 22, 2013) (observing that mass messaging would be impracticable
without use of an ATDS)).
31.
The text messages originated from telephone number 833-424-0890 a number which
upon information and belief are owned and operated by or on behalf of Defendant.
32.
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.
33.
Long codes work as follows: Private companies known as SMS gateway providers
have contractual arrangements with mobile carriers to transmit two-way SMS traffic. These SMS
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.
34.
Specifically, upon information and belief, Defendant utilized a combination of hardware
and software systems to send the text messages at issue in this case. The systems utilized by Defendant
have the capacity to store telephone numbers using a random or sequential generator, and to dial such
numbers from a list without human intervention.
35.
To send the text messages, Defendant used a messaging platform (the “Platform”)
that permitted Defendant to transmit thousands of automated text messages without any human
involvement.
36.
The Platform has the capacity to store telephone numbers, which capacity was in
fact utilized by Defendant.
37.
The Platform has the capacity to generate sequential numbers, which capacity was
in fact utilized by Defendant.
38.
The Platform has the capacity to dial numbers in sequential order, which capacity
was in fact utilized by Defendant.
39.
The Platform has the capacity to dial numbers from a list of numbers, which
capacity was in fact utilized by Defendant.
40.
The Platform has the capacity to dial numbers without human intervention, which
capacity was in fact utilized by Defendant.
41.
The Platform has the capacity to schedule the time and date for future transmission
of text messages, which occurs without any human involvement.
42.
To transmit the messages at issue, the Platform automatically executed the
following steps:
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.
43.
The above execution these instructions occurred seamlessly, with no human
intervention, and almost instantaneously. Indeed, the Platform is capable of transmitting thousands
of text messages following the above steps in minutes, if not less.
44.
Further, the Platform “throttles” the transmission of the text messages depending
on feedback it receives from the mobile carrier networks. In other words, the platform controls
how quickly messages are transmitted depending on network congestion. The platform performs
this throttling function automatically and does not allow a human to control the function.
45.
The following graphic summarizes the above steps and demonstrates that the
dialing of the text messages at issue was done by the Platform automatically and without any
human intervention:
46.
Defendant’s unsolicited text messages caused Plaintiff actual harm, including invasion
of her privacy, aggravation, annoyance, intrusion on seclusion, trespass, and conversion. Defendant’s
text messages also inconvenienced Plaintiff and caused disruption to her daily life.
47.
Defendant’s unsolicited text messages caused Plaintiff actual harm. Specifically,
Plaintiff estimates that she has wasted approximately 15 minutes reviewing all of Defendant’s
unwanted messages and retaining counsel for this case in order to stop Defendant’s unwanted
messages.
48.
Furthermore, Defendant’s text messages took up memory on Plaintiff’s cellular
phone. The cumulative effect of unsolicited text messages like Defendant’s poses a real risk of
ultimately rendering the phone unusable for text messaging purposes as a result of the phone’s
memory being taken up. See https://www.consumer.ftc.gov/articles/0350-text-message-spam#text
(finding that text message solicitations like the ones sent by Defendant present a “triple threat” of
identity theft, unwanted cell phone charges, and slower cell phone performance).
49.
Defendant’s text messages also can slow cell phone performance by taking up space
on the recipient phone’s memory. See https://www.consumer.ftc.gov/articles/0350-text-message-
spam#text (finding that spam text messages can slow cell phone performance by taking up phone
memory space).
CLASS ALLEGATIONS
PROPOSED CLASS
herself and all others similarly situated.
51.
Plaintiff brings this case on behalf of a Class defined as follows:
No Consent Class: All persons who from four years prior
to the filing of this action (1) were sent a text message by or
on behalf of Defendant, (2) using an automatic telephone
dialing system, (3) for the purpose of soliciting Defendant’s
goods and services, and (4) for whom Defendant claims (a)
it did not obtain prior express written consent, or (b) it
obtained prior express written consent in the same manner
as Defendant claims it supposedly obtained prior express
written consent to call the Plaintiff.
52.
Defendant and its employees or agents are excluded from the Class. Plaintiff does not
know the number of members in the Class, but believes the Class members number in the several
thousands, if not more.
NUMEROSITY
53.
Upon information and belief, Defendant has placed automated and/or prerecorded calls
to cellular telephone numbers belonging to thousands of consumers throughout the United States
without their prior express consent. The members of the Class, therefore, are believed to be so numerous
that joinder of all members is impracticable.
54.
The exact number and identities of the Class members are unknown at this time and can
only be ascertained through discovery. Identification of the Class members is a matter capable of
ministerial determination from Defendant’s call records.
COMMON QUESTIONS OF LAW AND FACT
55.
There are numerous questions of law and fact common to the Class which predominate
over any questions affecting only individual members of the Class. Among the questions of law and
fact common to the Class are:
(1) Whether Defendant made non-emergency calls to Plaintiff’s and Class
members’ cellular telephones using an ATDS;
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.
56.
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
57.
Plaintiff’s claims are typical of the claims of the Class members, as they are all based
on the same factual and legal theories.
PROTECTING THE INTERESTS OF THE CLASS MEMBERS
58.
Plaintiff is a representative who will fully and adequately assert and protect the interests
of the Class, and has retained competent counsel. Accordingly, Plaintiff is an adequate representative
and will fairly and adequately protect the interests of the Class.
PROCEEDING VIA CLASS ACTION IS SUPERIOR AND ADVISABLE
59.
A class action is superior to all other available methods for the fair and efficient
adjudication of this lawsuit, because individual litigation of the claims of all members of the Class is
economically unfeasible and procedurally impracticable. While the aggregate damages sustained by the
Class are in the millions of dollars, the individual damages incurred by each member of the Class
resulting from Defendant’s wrongful conduct are too small to warrant the expense of individual
lawsuits. The likelihood of individual Class members prosecuting their own separate claims is remote,
and, even if every member of the Class could afford individual litigation, the court system would be
unduly burdened by individual litigation of such cases.
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)
61.
Plaintiff re-alleges and incorporates the foregoing allegations as if fully set forth
herein.
62.
It is a violation of the TCPA to make “any call (other than a call made for
emergency purposes or made with the prior express consent of the called party) using any
automatic telephone dialing system … to any telephone number assigned to a … cellular telephone
service ….” 47 U.S.C. § 227(b)(1)(A)(iii).
63.
Defendant – or third parties directed by Defendant – used equipment having the
capacity to dial numbers without human intervention to make non-emergency telephone calls to
the cellular telephones of Plaintiff and the other members of the Class defined below.
64.
These calls were made without regard to whether or not Defendant had first
obtained express permission from the called party to make such calls. In fact, Defendant did not
have prior express consent to call the cell phones of Plaintiff and the other members of the putative
Class when its calls were made.
65.
Defendant has, therefore, violated § 227(b)(1)(A)(iii) of the TCPA by using an
automatic telephone dialing system to make non-emergency telephone calls to the cell phones of
Plaintiff and the other members of the putative Class without their prior express written consent.
knew or should have known that it was using equipment that at constituted an automatic telephone
dialing system. The violations were therefore willful or knowing.
67.
As a result of Defendant’s conduct and pursuant to § 227(b)(3) of the TCPA,
Plaintiff and the other members of the putative Class were harmed and are each entitled to a
minimum of $500.00 in damages for each violation. Plaintiff and the class are also entitled to an
injunction against future calls. Id.
COUNT II
Knowing and/or Willful Violation of the TCPA, 47 U.S.C. § 227(b)
(On Behalf of Plaintiff and the Class)
68.
Plaintiff re-allege and incorporate paragraphs 1-60 as if fully set forth herein.
69.
At all times relevant, Defendant knew or should have known that its conduct as
alleged herein violated the TCPA.
70.
Defendant knew that it did not have prior express consent to make these calls, and
knew or should have known that its conduct was a violation of the TCPA.
71.
Because Defendant knew or should have known that Plaintiff and Class Members
had not given prior express consent to receive its autodialed calls, the Court should treble the
amount of statutory damages available to Plaintiff and the other members of the putative Class
pursuant to § 227(b)(3) of the TCPA.
72.
As a result of Defendant’s violations, Plaintiff and the Class Members are entitled
to an award of $1,500.00 in statutory damages, for each and every violation, pursuant to 47 U.S.C.
§ 227(b)(3)(B) and 47 U.S.C. § 227(b)(3)(C).
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, individually and on behalf of the Classes, prays for the following
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;
e)
An injunction prohibiting Defendant from using, or contracting the use of, an automatic
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.
DOCUMENT PRESERVATION DEMAND
Plaintiff demands that Defendant take affirmative steps to preserve all records, lists, electronic
databases or other itemizations associated with the allegations herein, including all records, lists,
electronic databases or other itemizations in the possession of any vendors, individuals, and/or
companies contracted, hired, or directed by Defendant to assist in sending the alleged communications.
Dated: January 27, 2021
Shamis & Gentile, P.A.
/s/ Andrew J. Shamis
Andrew J. Shamis, Esq.
Florida Bar No. 101754
[email protected]
14 NE 1st Avenue, Suite 705
Miami, FL 33132
Telephone: 305-479-2299
Counsel for Plaintiff and the Class
| privacy |
f8aZDYcBD5gMZwczOh9Q |
Dena C. Sharp (State Bar No. 245869)
Jordan Elias (State Bar No. 228731)
Adam E. Polk (State Bar No. 273000)
Scott M. Grzenczyk (State Bar No. 279309)
GIRARD SHARP LLP
601 California Street, Suite 1400
San Francisco, CA 94108
Tel: (415) 981-4800
Fax: (415) 981-4846
[email protected]
[email protected]
[email protected]
[email protected]
John D. Radice (pro hac vice forthcoming)
April Lambert (pro hac vice forthcoming)
RADICE LAW FIRM, PC
475 Wall Street
Princeton, NJ 08540
Tel: (646) 245-8502
Fax: (609) 385-0745
[email protected]
[email protected]
Attorneys for Plaintiff
[Additional Counsel Listed on Signature Page]
Case No.
CLASS ACTION COMPLAINT
DEMAND FOR JURY TRIAL
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN JOSE DIVISION
MARK J. ASTARITA, individually and
behalf of all others similarly situated,
Plaintiff,
v.
GOOGLE LLC and ALPHABET INC.,
Defendants.
CLASS ACTION COMPLAINT
Plaintiff Mark J. Astarita, on behalf of himself and all others similarly situated, bring this first
amended consolidated class action complaint for equitable relief and treble damages under the Sherman
Antitrust Act, 15 U.S.C. § 2, and the Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 et seq.
I.
NATURE OF THE ACTION
1.
Over the past several years, Google leveraged its monopoly in online search and search
advertising to acquire an illegal monopoly in brokering display advertising—the placement of
advertisements on other companies’ websites. Google gained this market dominance in part by
acquiring rivals in the online advertising space, conditioning access to its search-results data and
YouTube video advertising platform upon the purchase of its separate display advertising services, and
making its intermediation systems incompatible with those of its competitors. Google’s scheme to
monopolize the market for brokering display advertising has vastly reduced competition in the purchase
and placement of this advertising and resulted in economic harm to advertisers and publishers alike.
2.
Forty-nine state attorneys general are currently conducting antitrust investigations of
Google’s conduct in digital advertising markets. Ten states, led by Texas, filed a civil antitrust action
against Google on December 16, 2020 based on the conduct and violations described in this complaint.
The United States Department of Justice and eleven state attorneys general also filed a civil antitrust
action against Google on October 20, 2020 for unlawfully maintaining monopolies in the markets for
online search and search advertising.
3.
Because of its pervasive monopoly conduct, Google now controls the “ad tech stack”
comprising the intermediary services between advertisers, which pay to place digital advertisements,
and publishers paid to publish those ads on their websites. Companies that wish to place or publish
online advertisements have little choice but to pay Google for its advertising services, including
instantaneous auctions, and Google’s exclusion of competition in this intermediation market has
enabled it to favor its own advertising platforms. Google’s extraction of monopoly rents through fees
charged to both advertisers and publishers has resulted in higher prices paid by advertisers, higher
consumer prices, and lower payments to publishers of online display advertisements.
4.
Like the other class members, Plaintiff dealt directly with Google in its capacity as
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display advertising broker, having published online display advertisements using Google’s services, and
having been paid by Google for running those ads. Plaintiff, like the other class members, suffered
economic losses as a result of Google’s monopolization and seeks appropriate equitable relief and
damages through this action.
II.
JURISDICTION AND VENUE
5.
This Court has original jurisdiction over Plaintiff’s federal antitrust claim under the
Clayton Act, 15 U.S.C. § 15. The Court also has diversity jurisdiction over this action under the Class
Action Fairness Act of 2005, 28 U.S.C. § 1332(d), because at least one class member is of diverse
citizenship from Defendants, there are more than 100 class members nationally, and the aggregate
amount in controversy exceeds $5,000,000.
6.
Venue is proper in this District under 28 U.S.C. § 1391. Google’s principal place of
business is in this District, and it regularly conducts business here. A substantial part of the events
giving rise to Plaintiff’s causes of action occurred in or emanated from this District.
7.
Assignment to the San Jose Division is appropriate under Local Rule 3-2(c) because a
substantial part of the conduct at issue in this case occurred in Santa Clara County. In addition, this case
arises out of the same operative facts as a related action pending in this division, In re Google Digital
Advertising Antitrust Litigation, No. 5:20-cv-03556-BLF.
III.
PARTIES
A.
Plaintiff
8.
Plaintiff Mark J. Astarita is a citizen and resident of Florida and an attorney who owns
and operates the website seclaw.com.
9.
During each year from 2016 to 2020, Google brokered the placements of display
advertisements that appeared on this website, and Google directly paid Plaintiff for making this
advertising space available.
10.
Plaintiff sustained antitrust injury by being paid sub-competitive prices by Google in
exchange for making space on his website available to publish display advertisements that Google
brokered. These anticompetitive underpayments directly and proximately resulted from Google’s
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CLASS ACTION COMPLAINT
monopolization of the relevant market, defined in Part VI below.
B.
Defendants
11.
Defendant Google LLC is a limited liability company organized under the laws of
Delaware with its principal place of business in Mountain View, California. Google LLC is a
technology company that provides internet-related services and products, including online advertising
technologies and a search engine.
12.
Defendant Alphabet Inc. is a corporation organized under the laws of Delaware with its
principal place of business in Mountain View, California. Google LLC is a wholly-owned subsidiary
of Alphabet.
13.
Google LLC and Alphabet Inc. are collectively referred to herein as “Google.”
IV.
FACTUAL ALLEGATIONS
A.
Overview of Digital Advertising
14.
Businesses have long relied on advertising to promote their products, generate brand
awareness, and increase sales. Before the internet age, advertising campaigns were planned and
managed by media buyers. If a media buyer needed to help a toy manufacturer reach parents of
children, she might place an ad in Parents Magazine, or in the family section of the local newspaper.
15.
Digital advertising today works differently. The internet allows businesses to target
potential customers with greater precision. Digital advertising is the promotion of products and services
via the internet through search engines, websites, social media, and other platforms that can be accessed
online. It is automated and data-driven, involving data scientists, mathematicians, and computer
programmers who, behind the scenes, use advanced statistical tools to optimize advertising campaigns,
micro-targeting users and constantly tweaking algorithms.
16.
Digital advertising is now the fastest growing segment of the advertising business in the
United States. More than half of all advertising money in the United States is now spent on digital
advertising—approximately $129 billion in 2019.
17.
The two overarching markets in digital advertising are search advertising and display
advertising.
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CLASS ACTION COMPLAINT
18.
Search advertising is the placement of advertisements above or alongside the organic
search results generated by a search engine, predominately Google Search. The advertisement targets
those who are actually searching for a product or service; the advertisement appears when a consumer
performs a search that has a connection to the product or service offered by company sponsoring the
advertisement. The advertiser pays when the user clicks on the advertisement, based on a cost per click.
For example, if a user searches for sandwich delivery, the search advertising results may look like this:
19.
Search advertising is designed to reach customers who have already shown an interest in
purchasing a product or service and may be close to making a purchasing decision. If, for example, a
person finds herself locked out of her house and searches for nearby locksmiths on Google Search,
search advertising will place ads for local locksmith services above the organic search results.
20.
Search advertising is limited, however, to prospective customers who affirmatively
search for the advertiser’s product or service or for something similar, or who input a related term.
21.
Display advertising, in contrast, is the advertising that appears next to content on
websites. Unlike search advertising, which is generally limited to text, display advertising comes in
many forms, including banners, images, and videos. For instance, an ad for Dove soap might appear as
a banner or sidebar on the cooking website “myrecipes”:
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CLASS ACTION COMPLAINT
22.
With display advertising, the internet user need not perform a specific search for the
particular product or service. Instead, the key to effective display ads is placing them on websites likely
to be viewed by the advertiser’s target audience or by those most likely to purchase the advertised
products or services. A running shoe company, for example, would prefer to have its advertisements
appear on sporting goods websites rather than websites selling car parts. In that scenario, even users
who have not searched for running shoes will see the running shoe company’s advertisement if they visit
a website that publishes it.
23.
Suppliers of display advertising are website operators and are known as publishers (e.g.,
providers of online news sites and other content creators). Publishers employ third-party tools to find
advertisers willing to purchase advertising space available on their websites.
24.
In 2019, $69.9 billion was spent on digital display advertising in the United States; 85%
of that display marketing was advertising, 90% of which was executed through “programmatic,” or
automated, real-time bidding. In 2020, spending on display media is expected to reach $81.3 billion, a
14% year-over-year increase.
25.
Display advertising accounts for approximately half of the digital advertising market,
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CLASS ACTION COMPLAINT
and many web publishers rely on display advertising for a major source of their revenue.
26.
As discussed in further detail below, search advertising and display advertising serve
different purposes, and advertisers do not regard them as substitutes for each other. The Interactive
Advertising Bureau—an advertising organization that develops industry standards and conducts research
for the advertising industry—separates display and search for purposes of gathering and reporting
annual revenues in these two advertising markets.
B.
Google Dominates and Controls Digital Advertising Services Markets
27.
Google is the dominant supplier in the search advertising market and has moved rapidly
to control all stages of the display advertising market, as well. In 2019, Google’s corporate parent
Alphabet earned $135 billion, 84% of its total revenue, from search and display advertising.
28.
Google’s revenue derived from display advertising comes from ads placed on Google’s
own properties (Google Maps, Gmail, etc.) and from acting as an intermediary in the sale of ad space on
third-party websites to advertisers.
29.
One of Google’s key sources of revenue derives from its activities as the broker between
publishers and advertisers in programmatic display advertising. When an ad is viewed on a third-party
publisher’s site, such as the New York Times website, Google pays the publisher a share of the amount
the advertiser paid to Google. The amount of revenue Google earns from display advertising is
dependent on the number of ads it sells, the price of those ads, and Google’s percentage margin or “cut”
of the deal, also known as the “take rate.”
30.
The “take rate” is the difference between what an advertiser pays for an ad and what
portion of that payment the publisher of the ad receives for placing the ad on its website. Google’s take
rate as an intermediary is typically 54-61%. When ads are presented on Google products, such as
Google Search or YouTube, Google keeps the entire price of the ad.
31.
Google has a strong economic incentive to increase the number of ads placed on its
proprietary sites, to charge advertisers higher prices, and to pay as little as possible to publishers
displaying ads placed through Google on their websites.
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CLASS ACTION COMPLAINT
1.
Google’s Search Advertising Practices and Market Share
32.
As the owner of the dominant online search platform, Google is by far the largest
supplier of digital search advertising in the United States. Over the last ten years, Google’s share of the
digital search advertising supply has ranged between 89% and 93%.
33.
Google makes space on its search results pages available to advertisers through an
auction process that occurs each time a user runs a search. Google starts the auction by first finding all
the ads with keywords matching the search. It then excludes ads that are considered ineligible based on
certain criteria, such as country restrictions. Google then only displays ads with a sufficiently high
“rank” based on a combination of factors, such as the advertiser’s bid, the quality of the ad, user
location, and the device the user is using. Because the auction process is repeated for every search
performed on Google Search, different auctions may lead to different advertisements being displayed.
34.
Although Google claims that it prices its search advertising through an auction, Google
controls (and frequently raises) the price of its search advertising by setting a high reserve price. Doing
so enables Google to directly set the price of its search advertisements because an ad will not sell unless
its price meets or exceeds the reserve price, which thus operates as a floor. A majority of the winning
bids for Google Search ads are at the reserve price.
2.
Google’s Dominance in the Ad Tech Stack and Display Advertising
35.
Google is also a major supplier of programmatic display advertising and owns multiple
products that supply it. Google captures well over 50% of the market across the ad tech stack—the set
of intermediary exchanges and platforms that advertisers and publishers use to buy, sell, and place
display ads (“intermediation” services). Google runs the leading ad exchange, while also running buy-
side and sell-side intermediary platforms trading on this exchange.
36.
YouTube, owned by Google, alone accounts for about 10% of the entire supply of display
advertising. Other major Google products, such as Google Maps and Google Play, also offer display
advertisements.
7
CLASS ACTION COMPLAINT
37.
Approximately 86% of online display advertising space in the United States is bought
and sold in real time on electronic trading venues, referred to in the industry as “advertising exchanges”
or programmatic real-time bidding. Google owns and operates the dominant ad exchanges.
38.
The role of the ad exchange is critical in display advertising. Exchange transactions are
the means by which website publishers monetize the attention they earn from web users and advertisers
can maximize the impact of their ad spend. A competitive and transparent ad exchange is therefore
essential to parties on both sides of the ad stack.
39.
Relying on intermediaries like Google that route buy and sell orders from advertisers and
publishers, the structure of the ad market resembles the structure of electronically traded financial
markets. Just as individual investors trade on financial exchanges through an intermediary brokerage
firm, so must publishers and advertisers go through a computerized intermediary to trade on advertising
exchanges. But in display advertising, a single company, Google, simultaneously functions as the key
intermediary through which buyers (advertisers) and suppliers (publishers) of display advertising trade,
and as a leading publisher of advertisements in its own right.
40.
On the buy-side, advertisers use specialized software made either for small or large
advertisers. Smaller advertisers, such as a local dry cleaner, typically use Google Ads, a self-serve
online buying tool. Google Ads will bid on and buy ad space, including available inventory trading on
Google’s exchange, in an automated fashion on the dry cleaner’s behalf. But in this process, Google can
ultimately be the advertiser’s counterparty instead of its neutral agent.
41.
When an internet user clicks to visit a web page, in the milliseconds that it takes for that
page to load, real-time auctions are occurring in the background to determine which ads will display
on the web page that particular user will see. These auctions are run by supply-side platforms (SSPs),
exchanges, and demand-side platforms (DSPs) in the ad tech stack.
42.
On the supply side of the exchange, suppliers—online publishers—of display advertising
employ publisher ad servers (PAS) to accept, store, and manage ads; choose where and when ads
appear; and track the effectiveness of ad campaigns. Each specific ad placement is determined based on
bids from advertisers and/or preexisting arrangements between publishers and advertisers. Publishers
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CLASS ACTION COMPLAINT
rely on supply-side platforms (SSPs) to run auctions, interface directly with their demand-side
equivalents, and optimize available inventory.
43.
The demand side is comprised of advertisers and media agencies running advertising
campaigns for businesses. Advertisers and media agencies rely on advertiser ad servers (AAS) to store
ads, deliver them to publishers, and record transactions. Advertisers and media agencies also employ
demand-side platforms (DSPs) to purchase digital advertising by bidding in auctions and to manage their
44.
The DSP connects to an ad exchange, which combines inventory from ad networks and
SSPs with third-party data from a data management platform or data broker. When an ad space on a
publisher’s site becomes available, the ad exchange holds an auction in which the DSP bids on the
impression submitted by the ad network or SSP.
45.
Together, the publisher ad servers (PAS), supply-side platforms (SSP), advertiser ad
servers (AAS), and demand-side platforms (DSP) comprise what is known as the “ad tech stack.” By
connecting publishers and advertisers, an ad tech provider functions as an intermediary broker. The
U.K.’s Competition and Markets Authority (CMA) depicted this market as follows:
46.
Until fairly recently, different firms provided the various services in the ad tech stack,
and intermediaries did not own publishers or advertisers. Google lagged behind the pace of innovation
and was not a key player in the development of online ad exchanges. Early players in virtual ad
auctions recognized it was most efficient to interoperate with competitors and maintain a level playing
field so that customers could mix and match products. During Senate testimony on September 15,
2020, digital marketing expert Adam Heimlich compared transacting in those earlier auctions to
“owning a stall in a vast open air market”—transparency was at a level where market participants could
9
CLASS ACTION COMPLAINT
easily compare features, quality, and price with those of other participants within reach, and could use
ad stack services provided by a variety of providers. This is no longer the case. After a series of
acquisitions, Google now dominates and controls the ad stack as a whole.
47.
Before Google’s entry, ad exchanges generally operated as disinterested brokers, similar
to stock exchanges. Google saw the market efficiency of these early exchanges as a threat to its
primary business of selling ads. It soon turned to a sustained mergers and acquisitions strategy to gain
market dominance. Google’s acquisitions gave it access to and made it a major player at every level of
the display advertising service industry, and have enabled Google to exclude competition through a
variety of anticompetitive policies and activities.
48.
Since 2007, Google has made numerous key acquisitions in the interest of taking control
of the entire ad tech stack. Through these acquisitions, Google absorbed competing firms to avoid
competing with them with the purpose and effect of building and consolidating its monopoly.
49.
In 2007, Google purchased the leading ad server, DoubleClick, which provided the basic
technology for Google’s current PAS. In 2009, Google acquired AdMob, the largest ad server for the
then-nascent mobile application market, which has since grown exponentially. The technology from
Invite Media, which Google acquired in 2010, was re-launched in 2012 as DoubleClick Bid Manager
and eventually converted into Google’s main DSP, Display & Video 360. In 2011, Google purchased
AdMeld, one of the largest SSPs in the display advertising industry, which it integrated into AdX,
Google’s existing exchange. And in 2014, Google bought Adometry, an analytics and attribution
provider it then integrated into Google Analytics. Together, these acquisitions reveal a business
objective of occupying the entire ad stack and the connected analytics market through buying up the
competition.
50.
When Google purchased DoubleClick, the Federal Trade Commission accepted Google’s
representations that it would not leverage its control of publishers’ primary ad server to distort
competition in the electronic ad-trading market. Google promised to manage the conflicts of interest,
including from enhanced access to user data, that would result from the acquisition. Google’s general
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CLASS ACTION COMPLAINT
counsel assured Congress that DoubleClick “data is owned by the customers, publishers and advertisers,
and DoubleClick or Google cannot do anything with it.”
51.
FTC Commissioner Pamela Jones Harbour dissented from the FTC’s approval of the
acquisition, warning in part that if Google and DoubleClick were permitted to merge without conditions,
the new combination could merge Google and DoubleClick data to the detriment of consumer privacy
and competition. Commissioner Harbour stated that the merger could “profoundly alter the 21st century
Internet-based economy—in ways we can imagine, and in ways we cannot.” She expressed concern
about “the privacy interests of consumers” and wrote that she was “uncomfortable accepting the
merging parties’ nonbinding representations at face value.”
52.
In approving Google’s acquisition of DoubleClick, the FTC rejected prescient concerns
about data and competition raised by Commissioner Harbour and public interest groups. An April 14,
2007 news article in the New York Times noted that Google’s DoubleClick division would have conflicts
of interest with Google’s exchange, but suggested publishers and advertisers might simply “jump ship”
if Google leveraged the acquisition “to further its own ad network.”
53.
When Google did leverage the DoubleClick acquisition to further its ad network, instead
of turning to other ad tech providers, increasing numbers of publishers and advertisers concluded they
had no choice but to rely on Google to broker display-ad placement.
54.
In 2009, Google restricted the ability of publishers and advertisers participating in its
exchange to access their DoubleClick data, reserving an essential information advantage for its own
trading divisions.
55.
In 2016, moreover, Google broke a key promise it made to the FTC to push through the
DoubleClick acquisition: Google began merging DoubleClick web-browsing data with personal
information collected through other Google services, combining information linked to a user’s personal
identity with their location on Google Maps, information from their Gmail records, and their Google
search histories, along with user information obtained from other Google products. With this step,
Google eliminated the barrier between the data that Google gathered from cookies tracking users’ online
behavior and the personal information Google held from its users’ accounts. Its digital advertising
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CLASS ACTION COMPLAINT
monopolies enabled Google to make this momentous shift in data policy without risk of losing business
to rivals more protective of consumer privacy.
56.
In approving Google’s 2010 acquisition of AdMob, the leading mobile ad network at the
time, the FTC acknowledged that “the combination of the two leading mobile advertising networks
raised serious antitrust issues.” Yet the FTC deemed those concerns “overshadowed by recent
developments in the market,” in particular a move by Apple to “launch its own, competing mobile ad
network.” The FTC approved Google’s acquisition of AdMob based on the assumption that Apple
would continue to build its presence in the mobile ad market. But that assumption was incorrect—
Apple’s product failed to gain traction and in 2016 Apple abandoned its attempt to develop a competing
mobile ad network.
57.
By 2015, Google’s acquisitions had given it monopoly power in the display advertising
services market, and the early exchanges that had initially outperformed Google were selling at a
discount price or had folded. The market shares of the DSPs that once led that market segment
declined in parallel.
58.
Documents that Google produced to the House Subcommittee on Antitrust, Commercial,
and Administrative Law show that Google acquired companies to absorb its competition and combine
products along the ad stack instead of competing on the merits. An internal Google presentation from
July 2006 included a slide titled “Build a Self-Reinforcing Online Ads Ecosystem,” which noted in part
that acquiring DoubleClick or Atlas could create “self-reinforcing benefits” for Google’s integrated ad
business. The slide asked, “[I]s there some framework we have to demonstrate the synergies/inter-
relationships from owning all these pieces?”
59.
In an internal email from 2010, discussing Google’s potential development of a demand-
side platform for advertising agencies (a “bidder”), the executive in charge of Google’s display
business wrote: “The primary benefits on having a bidder are eliminating the disintermediation risk and
substantially increasing display spend with Google from agencies (through the combined use of DFA –
bidder – AdX). . . . We are looking at options to accelerate this (potentially through M&A for
example).”
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CLASS ACTION COMPLAINT
60.
DFA refers to Google’s ad server; AdX was Google’s exchange. The “disintermediation
risk” that Google sought to eliminate resulted from the competitive, transparent conditions in the
display advertising exchange market at the time, which diverted ad money away from Google. Thus,
Google’s plan was to combine products to increase its revenue from “display spend” and lock in
bidders to its new and consolidated intermediation services.
61.
Google’s merge-to-monopolize strategy worked. On the supply side, Google now holds
at least 90% of the PAS submarket through multiple products such as Google Ad Manager and Google
DoubleClick for Publishers. Since taking the dominant position in the PAS submarket, Google began
merging its supply-side intermediation products with its PAS offering. The composite product “Google
Ad Manager” combined Google’s PAS with its associated ad exchange. For the SSP and associated ad
exchange submarket, Google holds a 50-60% share. On the demand side, Google also controls a
substantial majority of the DSP submarket. Google has a 55% market share of the ad-exchange
submarket, far more than the second-place company, AppNexus, which has a 11% share of that
submarket. And Google’s DSP holds a 50% share of the DSP submarket, with AOL a distant second at
12%. Google holds an 80-90% share of the AAS submarket as well.
62.
Because of Google’s market dominance, publishers and advertisers have little choice but
to use Google’s intermediation services. Nexstar Media Group, Inc., the nation’s largest local news
company, tested what would happen if it stopped using Google’s technology to place ads on its
websites. Over just a few days, the company’s video-ad sales plummeted.
63.
Google further consolidated its monopoly across the ad tech stack through a series of
product mergers, whereby it bundled two distinct products together and rebranded the integrated entity
as a single product. Google blurred the distinction between its ad server and exchange by reclassifying
its ad-serving revenues in its shareholder reports and by merging the two into a single new product that
it named Google Ad Manager. Google then merged its AAS with its DSP to create Display & Video
360. Each of these mergers increased switching costs for advertisers—and barriers to entry for
competitors—for services that already carried high switching costs.
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C.
Google Used Its Market Power to Acquire and Maintain a Monopoly for Display
Advertising Services
1.
Google Leveraged Its Dominance in Search and Search Advertising and Its
Control of User Data to Gain a Monopoly in Brokering Display Advertising
64.
Google operates the default internet search platform in the United States. More than 90%
of all internet searches are conducted through Google Search. Further, Google’s web browser, Google
Chrome, occupies about half of the U.S. browser market.
65.
Google has long monetized its monopoly in search by selling search advertising—digital
ads responsive to user searches. The data that Google has acquired from search and Google Chrome
users allowed Google to leverage its monopoly in the digital search market into the related but separate
market of display advertising.
66.
General online search services in the United States constitutes a distinct antitrust market.
Search services allow consumers to find responsive information on the internet by entering keyword
queries into search engines such as Google. These general search services are unique because they offer
consumers access to an extremely large and diverse volume of information from many sources across
the internet.
67.
There are no reasonable substitutes for general online search services. Other search tools,
platforms, and information sources are not reasonably interchangeable with general online search
services because they do not provide access to a wide range of information from one search inquiry.
Few consumers would find alternative sources a suitable substitute for general search services.
68.
Google has monopoly power in the United States general online search services market.
Google dominates this market with an approximately 90% market share. And nearly 95% of all search
queries on mobile devices are performed using Google’s search engine.
69.
There are significant barriers to entering the market for general online search services,
including large capital investment, highly complex technology, access to effective distribution, and
adequate scale.
70.
Google’s anticompetitive conduct has effectively eliminated rivals’ ability to compete in
the general search services market. Google used exclusionary agreements, tying arrangements, and
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payoffs to barricade its general search monopoly such that competitors are denied vital distribution,
scale, and product recognition—preventing them from realistically challenging Google in this market.
As one example, Google ensured that its search engine would be the preset default general search engine
on hugely popular devices like Apple’s iPhone and the devices running on Google’s Android operating
system.
71.
Online search advertising in the United States also constitutes a distinct antitrust market.
Search advertising enables advertisers to target their ads in real time in response to search queries.
72.
Other forms of advertising are not reasonably interchangeable with online search
advertising. The capability of search advertising to respond to consumers’ inquiries at the moment they
are looking for information to make a potential purchase makes these ads highly valuable to advertisers
and distinguishes them from other types of advertising that cannot be targeted in this way, whether
online or offline. Display advertising is no substitute for search advertising, including because display
advertising is not responsive to a consumer’s specific inquiry and is further removed from the point of
purchase. Few advertisers would find alternative sources a suitable substitute for search advertising.
73.
Google has monopoly power in the United States online search advertising market.
Google holds more than a 70% share of that market.
74.
Barriers to entry in the search advertising market, among other factors, protect Google’s
monopoly in that market. Most critically, search advertising requires a search engine with sufficient
scale to make the advertising profitable. Hence the same entry barriers that fortify Google’s general
search services monopoly also protect Google’s search advertising monopoly.
75.
Google’s monopolies in search and search advertising—and the data they generate about
individual users—give Google an enormous advantage over online advertisers and publishers owing to
the sheer volume of information Google acquires about consumers through its integrated panoply of
products and services. This data include browsing histories from Google Search and Google’s Chrome
web browser, and location data from Google Maps, Waze, and Google’s Android operating system
embedded in hundreds of millions of smartphones. As Google’s former CEO Eric Schmidt boasted,
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“We know where you are. We know where you’ve been. We can more or less know what you’ve been
thinking about.”
76.
Online advertising is more effective when it is targeted, displaying products or services a
user is more likely to want. Accordingly, user data—including gender, age, location, and browsing
history—influence not just the types of ads a user will see, but also the prices advertisers are willing to
pay. “The exact same ad, on the same website, at the same time, could be worth vastly different
amounts to two different buyers depending on how much they know about the consumer being
targeted,” explained Ari Paparo, a former Google executive who founded the advertising company
Beeswax. “User data is everything.”
77.
The prices that any company is able to fetch for ads that it displays online depend on two
crucial factors: the ability to identify who is loading the page or mobile application, and the ability to
connect that user’s identity with more information about them.
78.
The targeting of display ads begins the moment a user clicks to visit a web page.
Typically, the user’s IP address and location, along with the URL of the web page, are swiped from the
user’s browser without their explicit knowledge. This data then informs the instantaneous ad auctions
that occur in the split second before the web page appears to the user. The goal is to build and deploy as
specific a portrait about the user as possible, primarily by linking their device with their identity. Web
cookies, tags, and “fingerprinting” of mobile devices are common tools for doing so.
79.
If a publisher or company that sells online ads can know what a user is viewing
on other sites, the publisher can target the user based on that information when the user returns to the
publisher’s site. Because of its dominance, including in search, Google can track users’ visits to at least
70% of the top one million sites on the internet. Google has tags (including as a third party) tracking
user behavior on over 80% of popular websites.
80.
Due to Google’s monopoly in search and its unrivalled ability to gather, aggregate, and
analyze user data, which it does not share, no potential competitor to Google can offer an advertising
product that comes close to the individualized targeting that Google can offer. Without access to search
data, potential rivals are effectively excluded from competing in digital advertising.
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81.
To illustrate Google’s vast advantage over any other publisher in accessing and
monetizing data, consider two hypothetical online publishers, CNBC and the New York Times. Suppose,
for example, that a user named Mary visits CNBC’s website in the mornings, where she reads about
financial markets, and visits the New York Times in the evenings to read the book review section.
CNBC knows that Mary follows financial markets and might monetize her view at a $30 CPM (cost per
thousand impressions). The Times knows that Mary likes to read books and might only monetize her at
a $10 CPM. If the Times can somehow find out that Mary is reading CNBC in the mornings, then when
Mary visits the Times book review section in the evening, the Times can target her as someone who
follows the markets and monetize her at $30, too.
82.
Since the two are competitors in the supply side of the display advertising market,
CNBC would not want to share with the Times what Mary reads on cnbc.com. If CNBC is selling ads
to its audience of financial readers at a $30 CPM, and the Times can access CNBC’s readers and their
reading patterns, then the Times could undercut CNBC and sell ads targeted to CNBC financial readers
for, say, $25 instead of $30.
83.
Google uses its ability to track users across the web to extract such a large advantage in
display advertising markets that rivals are effectively excluded. Google tracks users through its
analytics and ad-serving products, which it combined and rebranded as the Google Marketing Platform.
While publishers like CNBC and the Times would never share with each other user information that
gave each a competitive advantage, they have no choice but to share user tracking information with
Google, which acts as both their ad broker and supply-side competitor.
84.
Google’s exclusive access to its proprietary data from Chrome and Android further
widens its substantial advantage over other publishers. Google relies on this data, which is generally
unavailable to competing bidders, when bidding on its own ad exchanges to win contracts to display ads.
Potential rivals for display advertising contracts cannot compete to win business without access to this
85.
Furthermore, while digital ads trade on several auction markets, Google ensures that its
own display advertising inventory can only be purchased through its proprietary auctions. Thus, the
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most effective, data-driven inventory stays within Google’s control and potential competitors are
excluded.
86.
Having consolidated key portions of the ad tech stack for display advertising, Google
now readily brokers transactions on both sides of this market, and can steer advertisers to its own display
supply platforms like YouTube. As the U.K.’s CMA concluded in a report issued on July 1, 2020,
“Google’s strong position at each level of the intermediation value chain creates clear conflicts of
interest, as it has the ability and incentive to exploit its position on both sides of a transaction to favour
its own sources of supply and demand.”
2.
Google Harms Purchasers and Sellers of Online Advertising by Coercing the
Purchase of Display Advertising Through Tying Arrangements
87.
With about nine out of ten internet searches using Google’s search engine, Google is the
dominant source for search advertising. As a result, companies seeking to promote their products or
services online have little or no choice but to purchase search advertising space from Google. Google
has taken advantage of this dominance in the search advertising market to drive out competition in the
separate market for display advertising services, tying its display advertising services to its search
advertising services to extend its monopoly power.
88.
Because search advertising targets users who have already shown some interest in the
product or service from their search, few online advertising campaigns bypass online search as a
platform for marketing. Search advertising accounts for at least part of the ad spend of nearly every
advertiser engaged in online advertising.
89.
When a Google Ads account is established for use in placing search advertisements,
Google Ads is set as the default account for placing both search and display advertisements. Google
also blocks advertisers from using third-party DSPs to purchase Google Search inventory, which is sold
primarily through Google AdWords. And, to further disadvantage rivals, Google restricts access to data
relating to web searches performed on Google Search.
90.
When consumers run Google searches, Google collects and retains data related to the
searches. For example, Google Ads (a DSP) relies on algorithms that match keywords selected by
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advertisers to user search terms to determine which search ads pop up after which searches.
91.
DSPs and advertisers use this data to craft more effective advertising campaigns.
Google, however, withholds this data from rival DSPs and advertisers using rival service providers. As
a result, an advertiser running both search and display ads cannot track the performance of its search ads
unless it relies only on Google to place its display ads.
92.
The effect of this policy is that, to access the search data over which Google has
monopoly control and which is vital to effective online advertising, an advertiser is coerced into using
Google’s products in the separate market for display advertising services.
93.
Advertisers that open a Google Ads account are required to buy Google search
advertising. Thus, Google Ads does not merely steer advertisers to Google search advertising but
conditions their ability to bid for publisher display space upon their purchase and use of Google search
advertising.
94.
Google’s restrictive practices coerce any advertiser whose marketing pairs online search
advertising with online display advertising to rely only on Google’s intermediation services to place its
display advertisements.
95.
Exacerbating this tying conduct, Google pressures many advertisers to use only one
Google buy-side intermediary to purchase ad space. This pressure results from Google’s decision to
scramble user IDs across multiple bidding tools instead of assigning and disclosing a single user ID to a
particular advertiser. Because Google obscures DoubleClick IDs for all parties other than Google,
advertisers that use more than one buying tool at a time risk inadvertently bidding against themselves in
exchange transactions, driving up the price they would pay.
96.
Google’s Ads Data Hub (ADH) allows advertisers to view data from ad campaigns,
including which users their search advertising campaigns reached, and to combine that data with internal
or third-party data to set or adjust display advertising strategy. Nevertheless, the ability to use Google’s
ADH data comes with a built-in restriction: the data can only be sent to another Google service and
cannot otherwise be exported.
97.
In 2018, Google stopped allowing advertisers to access the encrypted user IDs from ad
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campaign reports. Advertisers need this information to hire non-Google ad campaign measurement
firms. Advertisers that stay within Google’s “walled garden” and use its ADH product can still access
these IDs.
98.
Google’s restrictive policies have made it virtually impossible for an online marketer to
operate independently from the Google ad stack, particularly given Google’s dominance in the DSP, ad
server, site analytics, and other submarket segments.
99.
Likewise, on the supply side, Google restricts publishers’ ability to access the bid data
required to compare the performance of Google’s exchange with rival exchanges. And Google does not
reveal to other market participants its own fees and commissions on transactions. As discussed further
below, this lack of transparency that Google has unilaterally imposed across the ad stack undermines the
ability of both advertisers and publishers to make the informed decisions necessary to drive competition.
100.
Google similarly uses its dominance in the video-ad publishing market segment to coerce
advertisers to use Google’s display advertising services.
101.
Google-owned YouTube is Google’s most valuable display property. YouTube is by far
the most visited website in the United States, drawing more than three times the traffic of Twitter and
Facebook, respectively. Nearly every business that advertises with online videos buys advertising space
on YouTube, and about half of all video ads not appearing on Facebook and Amazon appear on
YouTube.
102.
Video has become increasingly important to online advertising campaigns because of its
compelling nature and the exponential increase in user traffic that it generates. In 2019, 81% of
businesses used video as a marketing tool—up from 63% in 2018. By 2022, online videos will account
for more than 82% of all consumer internet traffic—15 times higher than the corresponding percentage
in 2017.
103.
After Google purchased YouTube, it initially made YouTube’s inventory of display
advertising available to any advertising service provider. But in 2015, Google took YouTube off the
digital ad exchanges, restricting its ad inventory to being purchased only through Google’s brokering
channels and bidding tools.
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104.
Consequently, advertisers can no longer purchase YouTube inventory using a third-party
DSP. If an advertiser wants to purchase any of the valuable advertising space on YouTube, it must use
Google’s advertising services and cannot use any of Google’s rivals’ advertising services.
105.
One erstwhile competitor described Google’s requirement that Google services be used to
place ads on YouTube as “the beginning of the end,” noting that “Google used its monopoly on
YouTube to put its hand on the scale” unfairly. Sen. Amy Klobuchar (D-MN) observed that this change
“of course had a crippling effect on Google’s rivals” and “not only forces YouTube’s ad inventory into
Google DSP, it also had the effect of driving non-YouTube ad volume to Google and away from the
rival DSPs.”
106.
In 2018, Google also began restricting third-party ad servers from tracking viewing
activity on YouTube, leaving Google-owned Display & Video 360 as the only product available to
collect and analyze YouTube advertising data. This action effectively tied YouTube to Google Ads and
Display & Video 360, preventing advertisers from using competitors’ products to serve or analyze ads
on YouTube.
107.
Google’s leveraging of its position in forums like YouTube in which it is the dominant ad
publisher restrains competition with an enhanced effect because advertisers almost always use a single
DSP for a given advertising campaign. Advertisers use a single DSP for a campaign largely because
doing so allows them to manage frequency caps (limits on the number of times the same user is shown
an ad) during the campaign and facilitates audience management and reporting. Thus, if an advertiser
wished to advertise on YouTube, Google Search, and other publisher websites, the advertiser would
bear significant costs and inefficiencies from using a different advertising service provider to broker
distribution of the ad campaign into each forum.
108.
Even if an advertiser preferred to use multiple DSPs, Google does not permit it to use
third-party DSPs to purchase Google Search inventory (sold primarily through Google AdWords) or
Google’s YouTube inventory. Because Google Search and YouTube, in addition to digital display, are
essential to many online ad campaigns, Google is able to capitalize on its “must-have” inventory to
tether advertisers to its DSP. And because advertisers typically use one DSP per ad campaign, a display
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advertiser that wants any of its ads to appear on Google Search or YouTube must use Google’s DSP for
the entire ad campaign. In short, Google enlisted its dominance in search and search advertising to
pursue and secure a monopoly in display advertising.
109.
Google has also combined ad tech stack products that were once technically separate but
interdependent, reinforcing that they were effectively tied within the relevant market all along. For
instance, using Google’s ad server, formerly called DoubleClick for Publishers, was for many years the
only way to obtain full access to Google’s AdX exchange. That access was critical for publishers
because AdX connected to AdWords, and the ability to access AdWords greatly expanded publishers’
access to advertisers because of Google’s dominance in search. As the Wall Street Journal reported,
“[f]or many years, Google’s AdX was the only ad exchange that had access to” Google’s AdWords
platform and its many advertisers. Thus, for example, when News Corp considered switching from
Google to a different company to facilitate its ad-serving business, it reportedly “felt it would jeopardize
the 40% to 60% of advertising demand it gets from Google’s ad marketplaces . . . .” According to the
Journal, Google in 2018 merged DoubleClick for Publishers and AdX “into a single product called
Google Ad Manager, making it plain to the industry that they are indeed linked . . . .”
110.
Advertisers have suffered harm by paying higher prices due to Google’s display
advertising monopoly. During the class period, increases in the prices paid by advertisers to place
online display ads have outpaced the rate of inflation as a result of Google’s ability to charge supra-
competitive prices free from any realistic competitive threat.
111.
The investigation conducted by the House Subcommittee on Antitrust, Commercial, and
Administrative Law revealed that many companies pay Google most of their online ad expenditures.
For example, one major company paid well over half of its total ad spend to Google each year from
2016 to 2019, with the second top provider receiving less than 15%.
112.
A 2018 study by eMarketer, which focused on programmatically purchased ads across
the open internet, found that programmatic ad prices have risen meaningfully across all major display
categories: desktop, mobile, mobile app, and video. In 2018, the average digital advertisement sold for
12% more than it did in 2016, an increase approximately five times the prevailing rate of inflation.
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These price increases resulted in substantial part from Google’s consolidation of the intermediation
services market and Google’s price increases for those services, and were largely borne by advertisers
who paid Google for those services to broker the placement of their display ads.
113.
Bloomberg also reported that as of 2019, Google had increased the price of search ads by
about 5% annually, a rate more than three times greater than the 1.6% inflation rate during the same time
period.
114.
Google’s power in the relevant market enabled it to raise the prices of its brokering
services to supra-competitive levels. The higher prices have increased Google’s profits, but advertisers
now receive less for each dollar they spend, with trading costs now accounting for half the cost of every
trade on average.
115.
A substantial portion of Google’s trading fees are monopoly rents. Competitive market
conditions would serve to reduce these fees.
116.
Advertisers have seen progressively lower returns on their digital advertising investments
as Google built and reinforced its monopoly in the relevant market. And publishers have lost ad revenue
because Google’s entrenched monopoly has enabled it to take a comparatively larger cut of advertisers’
payments for the placement of ads.
117.
The higher prices have greatly benefited Google. Google has consistently reaped profits
at margins greater than 20%—almost three times more than the average profit margin for an American
business. Financial analysts predict that Google is well positioned to maintain its dominance in digital
advertising, noting that “Alphabet has established unusually deep competitive moats around its
business.”
118.
Google’s reserve-price practices also have caused advertisers to pay higher prices. In its
online ad auctions, Google sets a reserve or floor price, which corresponds to a minimum bid that is
needed to win a particular ad placement. If none of the bids exceeds this reserve price, the winning
bidder must pay the reserve price—a price that, by definition, is higher than the price that would have
won the placement in an auction in which Google had not set a floor price. In fact, the majority of
winning bids by advertisers are at the reserve price. The lack of competition from other ad auctions has
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allowed Google to impose these supra-competitive floor prices. At the same time, Google denies
advertisers access to data they would need to accurately measure the success of their advertising
campaigns and negotiate for lower prices.
119.
Market participants such as advertisers and newspapers also lack visibility into the fees
charged along the supply chain, which limits their ability to make optimal choices about how to buy or
to sell advertising inventory. A market participant observed in congressional testimony that “Google
could make the process ‘more transparent,’ but given Google’s financial stake in maintaining secrecy,
‘there is no incentive to do so.’”
120.
The foreclosure of competition in digital advertising markets resulting from Google’s
monopoly has harmed the public at large. When advertisers pay supra-competitive fees to brokers like
Google for placing ads, they pass on a portion of those costs to their customers by marking up the prices
of their goods and services. And when publishers receive anticompetitive underpayments for running
ads, they are often forced to cut costs, including through layoffs, and hence cannot produce content of
the same quality or variety. Finally, by eliminating competition, Google’s display advertising monopoly
also has reduced the incentive to innovate in these markets and thereby deprived the public of the benefit
of improvements in advertising services and delivery.
D.
Google Created and Has Maintained Its Monopoly in Display Advertising Services
by Restricting the Ability of Rivals to Compete on Equal Footing
121.
Google has engaged in a host of anticompetitive practices, including the leveraging of its
monopoly in search and search advertising and the multiple tying arrangements discussed above, to
disadvantage its rivals and cement its dominance in the display advertising services market.
122.
Another key monopolistic practice that Google employs is denying interoperability—that
is, Google denies the ability of its own advertising service systems to interface with the systems of rival
advertising service providers, where those systems once were compatible.
123.
Google’s set of anticompetitive acts described in this complaint, including its monopoly
leveraging, tying, exploitation of user data, and foreclosure of technological compatibility, were part of a
unified, long-term strategy to exclude competition in the relevant market. While each component of that
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strategy, by itself, may not have sufficed to allow Google to monopolize the relevant market, their
combined effect was to roll back competition, giving Google untrammeled power across the ad tech
stack connecting advertisers and publishers of display advertising.
124.
Although Google has publicly claimed that publishers can “mix and match technology
partners,” that claim is false in several important respects. Google changed its practices to deny
interoperability with its rivals to squelch competition that would otherwise occur within Google’s SSP
system. When accepting bids from advertising services, Google’s SSP operates more efficiently with
Google’s own advertising service. Although Google’s SSP can accept bids from non-Google
advertising services, Google’s SSP is inefficient by design at processing those bids, and they are
therefore disadvantaged as compared to bids submitted by Google’s own advertising service. As the
U.K.’s CMA explained in its July 1, 2020 report, if a publisher “uses a non-Google ad server, AdX
would not participate in a real-time auction with other SSPs, but would compete with an ‘expected’
price, which determines the order in which SSPs are sent an ad request” and “is inefficient for the
publisher.”
125.
Google, in short, runs an auction that includes its own bids, which are prioritized by the
auction system that Google designed in such a way that non-Google-based bids cannot effectively
compete. Imagine if this were a live, in-person auction: Google would be the auctioneer as well as a
bidder; and it would have designed the process so that the other bidders could not hear the live bids, but
instead would need to submit in advance bids based on guesses about what the other bids were going to
be. Exacerbating these conflicts, Google is also a seller of a portion of the inventory up for bid.
126.
Google also imposed new restrictions on publishers’ ability to set differential price floors,
preventing them from calibrating different pricing for different SSPs or DSPs. This change had its
intended result of driving more brokering business to Google on the sell side because publishers could
no longer set higher floor prices for Google than for other sources of demand.
127.
Moreover, Google’s asymmetric approach to sharing websites’ DoubleClick user IDs has
distorted competition among buying tools seeking to purchase ad space from Google’s exchange—i.e.,
the limited number of buying tools that still compete with Display & Video 360 and Google Ads.
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Google’s exchange shares users’ DoubleClick IDs with Google-owned buying tools. But, when sending
bid requests to non-Google intermediaries, Google’s exchange shares a different ID value that is
obscured from view.
128.
Google’s scrambling of IDs in this manner has directly interfered with competition. An
advertiser that uses Google’s DoubleClick ad server now has a much harder time using a non-Google
buying tool because the two tools operate on different user IDs.
129.
Still another example of Google’s exclusionary conduct involves technology called
header bidding, a system designed by Google’s competitors on the sell side to compete with Google’s
display advertising exchange. Google responded to header bidding not by accepting the free and open
competition it otherwise would have fostered, but by preventing its systems from working with the
javascript code that publishers usually placed on their websites to enable header bidding. The result of
this lack of compatibility was that the publisher would first notify non-Google exchanges and the
winning bid would be sent to Google as if it were a pre-existing contract price. Thus, instead of
submitting a blind bid to the publisher for how much the publisher would be paid to place an ad on its
website, Google would separately receive the bids submitted by other service providers and then submit
its own bid, knowing the minimum price it would need to outbid its rivals. This rigging gave Google a
significant advantage over its rival brokers because, unlike Google, they would need to submit
aggressive bids to ensure their bid was the most attractive—and even then Google could outbid them to
win display advertising business.
130.
Google’s rivals lacked Google’s market dominance and therefore could not make their
systems incompatible with header bidding as Google did. Had they done so, a publisher simply would
not have received bids from them. Even after Google permitted non-Google service providers to
integrate with Google’s “Open Bidding” system—its exclusionary response to header bidding— Google
charged the winning bidder 5-10% of the winning bid, driving up the costs to Google’s rivals of merely
attempting to compete with Google. This structure also gives Google a systematic advantage in bidding
to place ads because it does not charge itself these fees.
131.
Similarly, when Google launched its Accelerated Mobile Pages, or “AMP,” it made the
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pages incompatible with header bidding, coercing publishers to use Google’s Open Bidding system.
And to further repel competition created by header bidding, Google began conditioning premium
treatment on Google Search (i.e., being featured at the top of search results) upon publishers migrating
to AMP and forgoing the use of header bidding.
132.
As Mr. Heimlich, the digital marketing expert, described in his Senate testimony,
“Google became the only display company not hobbled by the exclusions and restrictions it’d placed on
everyone else. The power to interoperate among buy-side, sell-side and measurement software went
from being a feature of the exchange ecosystem to a capability exclusive to Google.” That exclusive
capability fortified Google’s power to exclude rivals and allowed it to further boost its share of the
display advertising services market, unfettered by any meaningful competition.
E.
Google Maintains Its Display Advertising Monopoly with Harmful Anticompetitive
Conduct
133.
Google maintains a culture of secrecy around its advertising services, a culture made
possible by its market power. When acting as an intermediary, Google conceals from publishers and
advertisers the price actually paid to Google for an ad placement. Even so, the consensus among
knowledgeable publishers and advertisers is that Google’s “ad tech tax” is high, particularly in
comparison to fees charged in non-programmatic ad markets.
134.
Google is competing with other sellers of display advertising, yet because it is also acting
as the broker for these sales, Google has unique information which it denies to the buyers and other
sellers to protect its monopoly. Google refuses to disclose even basic information, including the fees it
charges for each transaction, to other participants in the ad tech stack, causing market-distorting
inefficiencies that solidify its grip on display advertising.
135.
Google redacts its take rate from trading or auction records on both the buy-side and the
sell-side. Service providers in competitive markets, by contrast, generally must furnish their customers
detailed accounts of the services they are providing to justify the prices they charge. Studies have
shown that about 15% of display advertising transaction costs are unaccounted for: these are Google’s
monopoly rents.
136.
In surveys conducted by the Association of National Advertisers estimating take rates,
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participants reported it was impossible or very difficult to obtain transaction-level pricing data related to
Google’s brokering services. This lack of transparency makes it harder for publishers to negotiate with
advertisers, and for potential competitors to compete with Google.
137.
Google also removes time-stamp information on bids, which publishers previously had
used to optimize their pricing. Moreover, Google conceals information about the performance of the
digital ads it brokers, such as how many impressions are shown to actual users, as opposed to bots.
Google’s multiple failures of transparency reinforce its power in the display-ad market and prevent
advertisers from knowing if they are wasting some of their spend.
138.
Google’s lack of transparency is strong evidence of its monopoly power. If Google were
subjected to competition in the relevant market, it could not conceal from advertisers and publishers
information that Google collects related to their transactions for the placement of display ads. In a
competitive market, Google would risk losing business to more transparent rivals, as both advertisers
and publishers have an interest in learning, assessing, and modulating their advertising efforts in
response to information related to those transactions.
139.
Google’s lack of transparency is not limited to withholding of information. When
advertisers use the Google Ads tool to bid on ad space belonging to third-party publishers from Google’s
exchange, Google does not disclose to them the price at which the ad space actually cleared. Google can
thus arbitrage advertisers’ bids across two Google-controlled marketplaces—a fact that may go
unnoticed by small-business and other advertisers due to the sheer complexity of Google’s terms,
including in its various “Help” documents. Read as a whole, the terms appear to permit Google to
process bids that advertisers submit via Google’s buying tool for smaller advertisers (known as Google
Ads) through two different Google marketplaces (auctions). In other words, Google Ads hosts a first
auction, and then Google Ads acts as the “buyer” in Google’s exchange, so that Google simultaneously
acts on the buy-side and the sell-side. Google implicitly confirmed this practice to Australia’s
competition authority.
140.
Google has claimed implausibly that the conflicts of interest now present in its digital
advertising business should lead to market efficiencies rather than distortions, asserting that “the
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combination of Google’s search business and its vertical ad tech integration should give it incentives to
balance the interests of all ecosystem participants.” But market data tell a different story. Google’s
public filings show that the differential in allocation of advertising revenues between Google and non-
Google properties has consistently increased. In 2007, the share going to Google properties increased to
64%, in 2008 to 68%, eventually to 71% (2011), then 75% (2014), 77% (2015), 80% (2016), 81%
(2017), and 82% (2018). This percentage increased again in 2019, with just 16% of the $134 billion that
advertisers spent through Google going to the more than 2 million non-Google properties that sell their
ad space through Google’s exchange and buying tools. These widening percentages well demonstrate
the market distortions now favoring Google, and they correspond to—and resulted from—Google’s
steady acquisition of monopoly power in the ad tech stack.
141.
As discussed above, Google has ready access to enormous amounts of consumer data, yet
it has also acted to prevent competitors from obtaining similar information. In January 2020, for
instance, Google announced that it would “phase out” the third-party cookies in its Chrome browser that
help advertisers target consumers based on demographics, past browsing history, and other information.
As a result, competing exchanges and buying tools soon will no longer be able to use cookies to assign
user IDs for the purpose of buying and selling ads. Without access to third-party cookies, it will be
much harder for advertisers and competing service providers to bid rationally on ads. Yet that is not so
for Google, which will continue to have other sources for gleaning robust data on consumers. Google
Chrome has begun tracking users’ web activity directly at the browser level, obviating Google’s need to
rely on cookies for identity information.
142.
In 2016, Google launched AMP for the stated purpose of loading web pages faster on
mobile devices. AMP is a framework that websites can use to create fast-loading mobile web pages. By
limiting the types of programming codes that can be used on a page, AMP pages load faster than they
otherwise would. When a user clicks on an AMP link from Google Search, instead of being routed to
the page on the third-party site’s server, the user sees a cached version stored on Google’s own servers
via its Content Delivery Network.
143.
Google encourages publishers to use AMP web pages and lists them first in a search.
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But, because the pages are Google pages, publishers are unable to gather data about their own users as
they normally would. For example, in the below image, the left side shows a Newsweek article on its
own server. The right side shows the same article, but on a Google-hosted page the user would see after
clicking on the AMP-loaded link via Google Search:
144.
Google’s strategy to host more and more content on its own servers demonstrates that
Google views content providers themselves as long-term competitors for the capture of ad dollars.
More than half of the desktop searches on Google keep users on Google properties rather than
prompting clicks to the rest of the web. For mobile searches, 70% of Google searches keep users on
Google properties. The percent of Google’s revenue from advertising dollars spent on its own
properties increased from 64% in 2007 to 85% in 2020.
145.
The report issued on October 6, 2020 by the House Subcommittee on Antitrust,
Commercial, and Administrative Law notes that, “in the context of Google’s placement of news on
accelerated mobile pages (AMP) . . . publishers raised concerns that ‘Google effectively gave news
publishers little choice but to adopt it,’ requiring the creation of parallel websites ‘that are hosted, stored
and served from Google’s servers rather than their own.’”
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146.
A recent study by the News Media Alliance found that in 2018, Google gained over $4
billion in revenue from crawling and scraping news content, and running associated display ads,
without paying the publishers for that use. Google was able to take these steps because of its monopoly
power over display advertising.
147.
Considered as a whole, Google’s activity in the ad tech stack reflects a long-term
strategy to monopolize display advertising. Through acquiring rivals, leveraging its monopoly in
search, tying display advertising to search advertising, denying the interoperability of its products with
others, exploiting conflicts of interest, and withholding information from other market participants,
Google has effectively created a “walled garden” for display advertising. Google sells its own display
advertising inventory even as it brokers a large majority of all display advertising sales, inhibits
potential rivals from competing by denying them information and equal footing in the intermediation
process it controls, and has acquired any company that threatens its display advertising services
monopoly. Google profits illegally from its walled garden by plucking the fruit every step of the way.
F.
Government Investigations and Actions Regarding Google’s Monopolistic Activities
148.
In July 2019, the United States Department of Justice announced that it had opened an
investigation into whether Google is committing illegal monopolistic acts. The DOJ stated that its
probe would focus on whether and how Google and other leading online platforms “have achieved
market power and are engaging in practices that have reduced competition, stifled innovation, or
otherwise harmed consumers.”
149.
DOJ’s ensuing civil action—joined by eleven state attorneys general and filed on October
20, 2020 in the United States District Court for the District of Columbia—focuses on Google’s
monopoly conduct in the markets for online search, search advertising, and search text advertising. The
complaint of these governmental enforcers alleges that Google acted unlawfully to preserve these
monopolies after having “created continuous and self-reinforcing monopolies in multiple markets.”
150.
As a result of Google’s monopoly conduct, the enforcers allege, consumers are “forced to
accept Google’s policies, privacy practices, and use of personal data; and new companies with
innovative business models cannot emerge from Google’s long shadow.”
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151.
The governmental enforcers further note that Google’s conduct and internal messaging
demonstrate its executives’ awareness that Google has used its monopoly power to restrain competition:
“Google employees were instructed to avoid using terms such as ‘bundle,’ ‘tie,’ ‘crush,’ ‘kill,’ ‘hurt,’ or
‘block’ competition, and to avoid observing that Google has ‘market power’ in any market.”
152.
The governmental enforcers seek, among other relief, “structural relief as needed to cure
any anticompetitive harm” and an injunction forbidding Google’s anticompetitive practices: “Absent a
court order, Google will continue executing its anticompetitive strategy, crippling the competitive
process, reducing consumer choice, and stifling innovation.”
153.
The attorneys general of every state except Alabama are separately investigating Google
for monopolization. In September 2019, the attorneys general of 48 states, and of the District of
Columbia and Puerto Rico, led by Texas Attorney General Ken Paxton, disclosed that they had opened
an investigation into whether Google is violating the antitrust laws. In announcing the investigation,
Mr. Paxton referred to “evidence that Google’s business practices may have undermined consumer
choice, stifled innovation, violated users’ privacy, and put Google in control of the flow and
dissemination of online information.”
154.
On July 9, 2020, news media reported that the California Attorney General’s Office had
opened its own independent antitrust investigation of Google.
155.
On July 29, 2020, the House Subcommittee on Antitrust, Commercial, and
Administrative Law of the House Judiciary Committee held hearings on the subject of “Online
Platforms and Market Power: Examining the Dominance of Amazon, Apple, Facebook, and Google.”
Google CEO Sundar Pichai appeared for questioning by members of Congress, including regarding
whether Google has abused its position as the default web gateway with its dominant search engine.
The Subcommittee Chair, Rep. David N. Cicilline (D-RI), noted the “harmful economic effects” of the
market dominance of Google and the other companies under scrutiny for monopoly conduct: “They
discourage entrepreneurship, destroy jobs, hike costs, and degrade quality.”
156.
On October 6, 2020, the House Subcommittee issued a report entitled “Investigation of
Competition in Digital Markets.” The report finds that, “[w]ith a sizeable share in the ad exchange
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market, ad intermediary market, and as a leading supplier of ad space, Google simultaneously acts on
behalf of publishers and advertisers, while also trading for itself—a set of conflicting interests that
market participants say enable Google to favor itself and create significant information asymmetries
from which Google benefits.”
157.
The House report recognizes that Google’s series of acquisitions in the relevant market
“enabled it to gain a controlling position across an entire supply chain or ecosystem. Google’s
acquisitions of DoubleClick, AdMeld, and AdMob . . . let Google achieve a commanding position across
the digital ad tech market.”
158.
On September 15, 2020, the Subcommittee on Antitrust, Competition Policy, and
Consumer Rights of the Senate Judiciary Committee held a hearing on the subject of “Stacking the
Tech: Has Google Harmed Competition in Online Advertising?” Questioning Google’s witness, Sen.
Josh Hawley (R-MO) took note of its “enormous advantage in this ad stack that you control every
single layer of.” Google controls “the entire ad stack from top to bottom,” he further explained.
And you’re using your position in search and YouTube in order to give
yourselves a dominant position in the ad stack, and not just on the demand
side . . . but also on the supply side. . . . I think the concern is, is that you control
YouTube and search, which are the dominant platforms; you control massive
amounts of consumer data that you have harvested from your other consumer-
facing platforms—Gmail, Google Maps, G-Suite, etcetera. You then use those
advantages in the ad stack at every single layer, every layer of which you
exercise dominance in.
Senator Hawley concluded: “This looks like monopoly upon monopoly, in a classic case of tying.”
159.
Senator Klobuchar added that “Google may be taking between 30 and 70 percent of
every advertising dollar spent by advertisers using its services, depriving publishers of that revenue.”
She also stated that, “[w]ith the benefit of hindsight, it seems obvious that [Google’s] acquisitions were
undertaken by the company in order to add to its market share and without explanation . . . other than
for Google to establish and maintain the monopoly power it currently has.”
160.
Sen. Richard Blumenthal (D-CT) stated that Google has committed “quite simply a
stunning abuse of market power.” Senator Blumenthal termed Google’s position in regard to its digital
advertising monopoly “indefensible,” noting that
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in no other market does the same party represent the seller, the buyer, make
the rules and conduct the auction. . . . Given that Google operates the exchange
and it competes with publishers on that exchange, that is a classic risk of
insider trading. If you compare it as Google has to the stock market, Google
would have been prosecuted long ago for insider trading.
161.
On December 16, 2020, the State of Texas, joined by nine other states, filed a civil
antitrust action against Google for the conduct alleged herein. See Texas, et al. v. Google LLC, No.
4:20-cv-00957-SDJ (E.D. Tex. filed Dec. 16, 2020). Like Plaintiff in this action, the state plaintiffs in
the State of Texas action claim that Google illegally acquired and maintained a monopoly in online
display advertising services, alleging “Google uses its powerful position on every side of the online
display markets to unlawfully exclude competition.” And like Plaintiffs here, the state plaintiffs assert
causes of action against Google for violations of Section 2 of the Sherman Act, as well as the antitrust
and unfair competition laws of their respective states, seeking a range of civil remedies and penalties to
restore competition.
162.
Google has already met with significant regulatory action in Europe. The European
Commission fined Google $2.7 billion in 2017 for rigging search results to favor its own online
shopping portal and $1.7 billion in 2019 for dictating to other websites how they can display search
results from Google’s competitors.
163.
In December 2019, France’s competition authority fined Google $166 million following
a lengthy investigation into Google’s online advertising practices. France sanctioned Google for
adopting “opaque and difficult to understand” rules for its ad platform and for applying them in an
“unfair and random manner.” According to TechCrunch, the French governing body also found that
“another element of Google ad rules could lead sites to favor a content policy aligned with its own ad-
funded services—thereby pushing online publishers to adopt an economic model that deeds and
benefits its own.” The French governing body summarized its bases for fining Google as follows:
[T]he French Competition Authority considers that the Google Ads operating
rules imposed by Google on advertisers are established and applied under non-
objective, non-transparent and discriminatory conditions. The opacity and lack
of objectivity of these rules make it very difficult for advertisers to apply them,
while Google has all the discretion to modify its interpretation of the rules in a
way that is difficult to predict, and decide accordingly whether the sites comply
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with them or not. This allows Google to apply them in a discriminatory or
inconsistent manner. This leads to damage both for advertisers and for search
engine users.
164.
On July 1, 2020, the U.K.’s Competition and Markets Authority released a 437-page
report entitled “Online Platforms and Digital Advertising: Market Study Final Report.” The CMA
found that Google has dominant market share positions at each level within the ad tech ecosystem, with
particularly high shares of at least 80% in both the publisher ad server and advertising markets. The
CMA further found that Google “has been able to leverage the market power from its owned-and-
operated advertising inventory into the open display market and within the ad tech stack, making it
harder for third-party intermediaries to compete,” and that “greater competition and transparency would
put downward pressure on” fees borne by advertisers and publishers. Additionally, the CMA found
that Google has deployed its dominant market positions by engaging in “self-preferencing behaviour,”
such as precluding publishers using Google Ad Manager from setting different floor prices for different
buyers, a policy shift that substantially increased “Google demand’s win rate.”
165.
In response to Google’s attempts to justify its lack of transparency and other practices by
invoking data privacy laws, the CMA observed that “Google itself” has proposed technologies “to
allow targeted advertising without user profiling,” and that Google has an obvious incentive to interpret
data protection laws in a self-serving way to “entrench[] its own competitive advantage, including by
denying third parties access to data that is necessary for targeting, attribution, verification and fee or
price assessment” while preserving its own right to use that data within its “walled garden.”
V.
INTERSTATE TRADE AND COMMERCE
166.
Google’s conduct as alleged herein has had a substantial effect on interstate and
intrastate commerce.
167.
At all material times, Google participated in the marketing, promotion, distribution, and
sale of publication and advertising services for display advertisements in a continuous and
uninterrupted flow of commerce across state and national lines and throughout the United States.
168.
Google’s conduct also had substantial intrastate effects in that, among other things,
Google’s publication and advertising services for display advertisements were sold in each state,
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including California. At least thousands of individuals in each state, including California, were
impacted by Google’s anticompetitive conduct. As alleged below, absent Google’s unlawful conduct,
Plaintiff and class members within each state would have paid less or received more money for digital
advertising services.
VI.
RELEVANT MARKET
169.
Google’s anticompetitive conduct has restrained competition in the market for online
display advertising services, encompassing the overall system or process that connects online display
advertisers and publishers (including Google). This market, colloquially known as the “ad tech stack”
or “ad stack,” comprises various segments and is the relevant market that Google monopolized for
purposes of this action.
170.
The relevant geographic market is the United States. Market participants recognize this
in the ordinary course of business. For example, Google offers display advertisers the ability to target
and deliver ads based on the location of publishers or consumers in the United States. Google also
separately tracks display advertising revenue for the United States.
171.
Google is the dominant provider of online search and search advertising in the United
States—over 90% of internet searches are performed on Google’s search engine—and used its
dominant position in those markets to restrain trade in the separate market for display advertising
services.
172.
The display advertising services market comprises advertising services and platforms,
and publishing services and platforms. Google has monopolized each of the relevant submarkets of the
overall market for display advertising services, including the subsidiary markets for publisher ad
servers, supply-side platforms, demand-side platforms, and advertiser ad servers. Google’s conduct
had the intent and effect of suppressing competition in the display advertising services market as well
as in each of its component submarkets, and converting those submarkets into a single intermediation
market under its control.
173.
Google controls well over 90% of the PAS submarket and more than half of the SSP and
associated ad exchange submarket. Likewise, on the demand side, Google controls 80-90% of the AAS
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submarket and at least 60% of the DSP submarket.
174.
Google has wielded its market power to integrate each submarket of the ad stack into a
single set of bundled services, with the intent and effect of preventing and discouraging competitors
(other display advertising services providers), publishers, and advertisers from relying on advertising
service providers on a product-by-product basis. Google’s anticompetitive conduct has foreclosed
competition, eliminating the ability of each segment of the display advertising services process, and the
process as a whole, to function as a free and independent market. As a result of Google’s conduct
detailed in this complaint, Google has succeeded in combining the various subcomponents of the
intermediation market for display advertising into one market—and a large and continually increasing
majority of advertisers and publishers recognize and submit to this economic reality by paying only
Google for display advertising brokering services.
175.
Digital display advertising on the open web is a “market” under antitrust law even
though advertisers may engage in other forms of digital advertising as well. Online display advertising
is at base a matching problem. On one side are publishers who produce content, and earn revenue by
displaying ads to users. On the other side are advertisers who are interested in displaying ads to
particular users (e.g., based on demographics or market segments). The online user population is
fragmented across hundreds of thousands of publishers, preventing advertisers from reaching desired
customers without assistance from an intermediary. Likewise, given the vast number of advertisers
interested in displaying their ads, most publishers would find it very difficult to maintain the
corresponding business relationships.
176.
Display advertising brokering services have no reasonable substitute for purposes of
marketing goods or services in today’s economy. While it is theoretically possible for an advertiser to
connect directly with a publisher to negotiate the placement of advertisements onto the publisher’s
supply of advertising space, for the vast majority of advertisers doing so is impractical and very rare.
At least 90% of all online display advertising space in the United States is bought and sold on ad
exchanges in the electronic real-time bidding market.
177.
Nearly all advertisers lack the resources and access to be able to negotiate directly with
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particular publishers to place their display advertisements, and even advertisers with the ability to do so
prefer not to limit their placement of display advertisements to discrete websites. Publishers and
advertisers thus generally rely on third-party display advertising services to facilitate the placement of
online display advertisements.
178.
In the rare instances where select advertisers can purchase “directly from the publisher”
they can do so via manual media buying, programmatic direct buying, or a private, invite-only
marketplace (PMP). Manual media buying is antiquated and now seldomly if ever done. Programmatic
direct and private auctions are the only current ways to purchase advertising directly from publishers.
Programmatic direct buying is done under extremely limited circumstances of either specific invite from
the publisher to participate in a private auction, or directly, without an auction, at ultra-premium prices
most advertisers cannot afford. Ads sold through programmatic direct are typically tied to premium
publishers (e.g., Forbes) that reserve a limited percentage of their inventory for which they can demand
a premium price from well-capitalized advertisers, which receive guaranteed ad space in return.
Similarly with PMP, the participants are large enterprise advertisers and marketers, and only a handful
of large advertisers (e.g., Nike, Barclays) are invited to bid on a publisher’s inventory. PMP is typically
offered by publishers with premium, expensive inventory, such as major media sites like Forbes, the
Wall Street Journal, or the New York Times.
179.
For small- and medium-sized advertisers, it is essentially impossible to access such
exclusive inventory directly—not only are they not invited by the publisher, but even if they were, they
could not pay the high prices set by the publisher. Together, private invite-only auctions and direct
purchase are so exclusive that they account for a very low percentage of the display advertising market,
and they are no substitute for real-time bidding on the open web.
180.
In fact, Google often is involved in these limited invite-only and premium ad-buying
processes where they occur. Google offers these options for transacting in Display & Video 360
(reserved for enterprise advertising customers), and DoubleClick Ad Exchange offers services to
facilitate invite-only exchanges. As such, despite these processes’ “private” label, Google’s
participation is frequently still required to complete the underlying transactions.
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181.
Online display advertising is not substitutable with traditional forms of advertising, such
a print, television, radio, or billboard advertisements. None of those platforms rely on individual
targeting based on individual user data and profiles—the entire driver of programmatic or automated
display advertising. Recent pricing and bid data from various exchanges illustrate the point. For
example, a 2018 Google study reported that the prices for ad space trading on Google’s exchange drop
by half or more when advertisers cannot identify users associated with the ad space for sale. Relatedly,
according to Index Exchange, the number of bids for ad space on Mozilla Firefox pages declined by
38% after that internet browser started blocking cookies. In short, unless they can know the identity of
the users being targeted, advertisers often avoid ad auctions altogether.
182.
Regardless of whether certain traditional forms of advertising may be reasonably
interchangeable for each other, digital advertising is not. Digital advertising is different in kind from
traditional forms of advertising, including because it reaches targeted customers individually and
because digital advertisements can be continuously updated and improved based on data showing how
consumers are responding.
183.
With the broad category of digital advertising, display advertising is not reasonably
interchangeable with search advertising. These two forms of digital advertising perform different roles,
serve different purposes in marketing campaigns, and are treated by advertisers and marketing firms as
distinct. Search is intent-based advertising that seeks to induce consumers who have already shown an
interest in buying a product or service to make a purchase. Display, in contrast, is suitable for raising
awareness about a product, service, or brand and reaching new audiences that may not yet have shown
an interest. Because of this basic difference in how the two forms of advertising function in relation to
potential customers, they are not reasonable substitutes for each other.
184.
During the class period, display advertising also performed a unique function in
advertisers’ re-marketing campaigns. When a user visited a website selling goods or services, or
clicked on a certain online advertisement, a “cookie” (or small file) capturing that user’s action would
be stored on their browser. Then, as the user continued to browse the web, the cookie enabled the
placement of display advertisements on other websites from the company whose website the user had
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visited or on whose advertisement the user had clicked. Numerous class members relied on display
advertising brokered by Google to carry out such re-marketing aiming to increase user “conversion”
into paying clients or customers. These campaigns also resulted in the placement of display
advertisements to users who carried a similar “cookie” profile as users who visited the advertiser’s
website and/or clicked on its advertisement. Search advertising cannot accomplish this re-marketing
given that the purpose of this strategy is to target a discrete set of users with display advertising.
185.
The government enforcers note in their complaint that display advertising, in contrast to
search advertising, does “not enable advertisers to target customers based on specific queries and are
generally aimed at consumers who are further from the point of purchase.” The enforcers’ complaint
also quotes the statement of Google’s Chief Economist that “[o]ne way to think about the difference
between search and display/brand advertising is to say that ‘search ads help satisfy demand’ while
‘brand advertising helps to create demand,’” and “[d]isplay and search advertising are complementary
tools, not competing ones.” Thus, given that search and display advertising, by Google’s own
admission, do not compete for the same business, they occupy distinct antitrust markets.
186.
Additionally, the market for display advertising services is separate and distinct from the
market for advertisement inventory—i.e., the spaces on websites that publishers make available for
advertisers to purchase. At least thousands of companies act as publishers with display advertisement
inventory, but in general, these companies do not offer the services that facilitate placement of
advertisements into the supply of display advertising space. Only a few companies—Google chief
among them—now provide display advertising services.
187.
There are high barriers to entry for the display advertising market and its component
submarkets. Entering any of these markets requires a substantial investment to develop and implement
the technology necessary to compete. Consequently, “advertisers and publishers alike have few options
when deciding how to buy and sell online ad space,” concludes the 2020 House Subcommittee report
on competition in digital markets.
188.
Google’s overall conduct, including leveraging its internet search platform dominance
and denying interoperability in several respects, as described above, has made it exponentially more
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difficult for would-be market participants to effectively enter these markets and compete with Google.
Google has used its market dominance to ensure that market entry by would-be competitors is
infeasible. And Google’s conduct, moreover, has made it impractical for existing market participants
to compete—which has resulted in large numbers of companies exiting the relevant market.
189.
Programmatic display advertising—the subject of this action—serves a different purpose
and is not reasonably interchangeable with social-media display advertising. Google’s automated
display advertising services connect independent entities—advertisers and publishers. In other words,
advertisers use display advertising services to access a range of publication options and thereby reach a
broader group of users. Publishers, in turn, use display advertising services to access many potential
advertisers. Google operates in an open-ended market in which it facilitates the transactions between
these advertisers and publishers.
190.
By contrast, companies like Facebook, Twitter, and Snapchat primarily host social
media content, while Amazon primarily operates an online market for goods. These web businesses are
suppliers of their own ad inventory and have close-ended, in-house display advertising systems that
they use to publish advertisements on their own sites. Those services are not available to other
publishers, and advertisements that appear on these close-ended websites only reach visitors to those
websites. To advertise across the open web—rather than, for example, on Facebook or Amazon
specifically—an advertiser must engage with the ad tech stack that Google dominates.
191.
As the House Subcommittee report explains:
Within display advertising there are two separate “ad tech” markets . . . first-
party and third-party. “First-party” platforms refer to companies such as
Facebook, Twitter, and Snap which sell ad space on their own platforms
directly to advertisers. . . . Third-party display ad tech platforms are run by
intermediary vendors and facilitate the transaction between third-party
advertisers, such as the local dry cleaner or a Fortune 500 company, and
third-party publishers, such as The Washington Post or a blog.
192.
The close-ended advertising services offered by Facebook, Amazon, Twitter, and
Snapchat (among other web businesses) are not, therefore, reasonable substitutes for the open-ended
system Google offers and do not compete for the same business. “Programmatic” CPM ads are thus
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distinguished from “social media” CPM ads among participants in the digital advertising industry.
VII.
ANTITRUST IMPACT
193.
Google’s conduct set forth herein had the purpose and effect of excluding competition in
the relevant market. Absent Google’s conduct, each segment of the display advertising market would
have been significantly more competitive and class members would have financially benefited from
that increased competition.
194.
Google’s monopoly conduct has caused ongoing and durable harm to competition in the
display advertising market. Google’s monopoly power has enabled it to raise its prices above the
competitive level to advertisers and, in turn, pay lower than competitive prices to publishers. Google
has extracted monopoly rents in the form of fees it does not fairly disclose to other market participants.
195.
A competitive market would have benefited both the advertisers and the publishers that
use display advertising services. Firms that provide display advertising services make money in a
variety of ways, including by retaining the difference between (1) what an advertiser pays the provider
to place ads, and (2) the portion of that payment that the provider remits to a publisher for placing the
ads on its website. In a competitive market, advertisers would have paid less to have their ads placed,
and publishers would have received more for placing the ads on their websites.
196.
With Google stifling competition and extracting monopoly rents as the dominant
intermediary, both advertisers and publishers lost money. The antitrust economist Fiona Scott Morton
noted that,
[i]f advertisers had more choices in the but-for world about where and
through whom to place their ads, they would not continue to give their
business to Google in the face of an overcharge. Google would have to
choose between losing advertisers’ business to rivals whose auctions were
fair, or adopting an auction design that generated competitive (lower)
prices for advertisers.
197.
In sum, the marked decrease in competition that has resulted from Google’s conduct has
caused economic injury to Plaintiff and class members because publishers have been paid less than they
otherwise would have been paid, and advertisers have paid more than they otherwise would have paid.
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VIII. TOLLING OF THE STATUTE OF LIMITATIONS
A.
The Statutes of Limitations Did Not Begin to Run Because Plaintiff Did Not and
Could Not Discover His Claims
198.
Plaintiff and class members had no knowledge of Google’s anticompetitive conduct, or of
facts sufficient to place them on inquiry notice of the claims asserted herein, during the class period and
continuing thereafter.
199.
As described herein, Plaintiff and class members suffered antitrust injury in the form of
economic losses as a result of Google’s wrongful exercise of monopoly power in the relevant market.
Other than dealing directly with Google when using its digital advertising services, Plaintiff had no
direct contact or interaction with Google and no means from which Plaintiff could have discovered these
injuries and the other bases for his causes of action set forth in this complaint.
200.
Throughout the class period, and continuing thereafter, there was no information in the
public domain sufficient to put Plaintiff on notice that Google had wrongfully acquired a display
advertising monopoly or was using its monopoly power to pay sub-competitive prices to publishers of
such advertising and to charge advertisers supra-competitive prices for display advertising.
201.
It was reasonable for Plaintiff and class members not to suspect that Google was
engaging in any unlawful and injurious anticompetitive behavior.
202.
While certain of Google’s anticompetitive acts occurred before the applicable limitations
periods, not until recently, with the announcement of governmental investigations into Google’s
monopolization of the market for intermediation services in the online display advertising market, could
Plaintiff have discovered his antitrust injuries and causes of action set forth in this complaint. At the
time it occurred, no reasonable class member had any basis to discern the anticompetitive nature of
Google’s conduct described in this complaint that occurred before the applicable limitations periods.
203.
Plaintiff alleges a continuing course of unlawful conduct by Google, including conduct
within the applicable limitations periods. That conduct has inflicted continuing and accumulating harm
to Plaintiff and class members within the applicable statutes of limitations.
204.
For these reasons, the statutes of limitations applicable to Plaintiff’s and class members’
43
CLASS ACTION COMPLAINT
claims have been tolled with respect to the claims asserted herein.
B.
Google’s Fraudulent Concealment Tolled the Statute of Limitations
205.
Additionally or alternatively, application of the doctrine of fraudulent concealment tolled
the statutes of limitations on Plaintiff’s claims. Plaintiff had no knowledge of Google’s wrongful
acquisition and maintenance of monopoly power in the relevant market, or of facts sufficient to place
Plaintiff on inquiry notice of his injuries or the other bases for his causes of action, during the class
period and continuing thereafter. No information in the public domain or otherwise available to Plaintiff
during the class period suggested that Google had wrongfully acquired a digital advertising monopoly or
was using its monopoly power to pay sub-competitive prices to publishers of such advertising and to
charge advertisers supra-competitive prices for display advertising.
206.
Google concealed its illicit and harmful conduct, both by failing to disclose its wrongful
acquisition and maintenance of a digital advertising monopoly through exclusionary acts in the relevant
market, and by affirmatively denying that it was engaged in such conduct. Google has (repeatedly)
publicly denied allegations by American and foreign regulators that it has abused its power in digital
advertising markets. These affirmative statements, and Google’s nondisclosure that it had acted to
forestall competition, served to fraudulently conceal Google’s unlawful monopoly in brokering online
display advertising.
207.
When the French Competition Authority fined Google $167 million in late 2019, Google
publicly defended its advertising policies in a statement issued on December 20, 2019, as purportedly
needed to “protect[ people] from exploitative and abusive ads.” In fact, as discussed above, Google
adopted those policies to protect its monopoly power by heading off competition. Similarly, in response
to news reports in 2019 that federal and state officials had opened antitrust investigations into Google’s
advertising business, a Google vice-president for product management, Sissie Hsiao, released a public
statement on September 11, 2019 asserting that “[c]ompetition is flourishing, and publishers and
marketers have enormous choice” when that was false.
208.
In addition to its affirmative fraud and nondisclosure, Google’s anticompetitive conduct
also was inherently self-concealing because revealing the true facts concerning Google’s monopolistic
44
CLASS ACTION COMPLAINT
behavior would have prompted governmental enforcement activity and/or class action litigation. Digital
advertising is subject to antitrust regulation, so it was reasonable for Plaintiff and class members not to
suspect that digital advertising services were being sold in a noncompetitive market. A reasonable
person under the circumstances would not have had occasion to suspect Google was brokering display
advertising at supra-competitive prices (for advertisers) and sub-competitive prices (for publishers) at
any time during the class period.
209.
Because Google’s antitrust violations were self-concealing and affirmatively concealed
by Google, Plaintiff and class members had no knowledge of Google’s antitrust violations or of any
facts or information that would have caused a reasonably diligent person to suspect Google of having
wrongfully acquired and maintained monopoly power during the class period.
210.
Therefore, by operation of Google’s fraudulent concealment, the statutes of limitations
applicable to Plaintiff’s and class members’ claims were tolled throughout the class period.
IX.
CLASS ACTION ALLEGATIONS
211.
Plaintiff brings this action on behalf of himself and, under Federal Rules of Civil
Procedure 23(a), (b)(2), (b)(3) and/or (c)(4), as the representative of the following class:
All persons and entities in the United States that, from January 1, 2016 to
the present, used Google’s display advertising services to (1) place an ad
on a website operated by another entity (advertisers) or (2) place an ad from
a third party on their own website (publishers).
Excluded from the proposed class are: Defendants, their employees, co-conspirators, officers, directors,
legal representatives, heirs, successors and wholly or partly owned subsidiaries or affiliated companies;
class counsel and their employees; and the judicial officers and their immediate family members and
court staff assigned to this case.
212.
The proposed class meets the requirements of Federal Rules of Civil Procedure 23(a),
(b)(1), (b)(2), and/or (b)(3).
213.
The members of the class are so numerous that joinder is impracticable. The class
includes at least hundreds of thousands of members that are widely dispersed throughout the country.
214.
Plaintiff’s claims are typical of the claims of all class members. Plaintiff’s claims arise
45
CLASS ACTION COMPLAINT
out of a common course of conduct that gives rise to the claims of all other class members. Plaintiff and
all class members were and will continue to be damaged in the same manner by the same wrongful
conduct, namely Google’s unfair business practices and monopolization of the market for display
advertising services.
215.
Plaintiff will fairly and adequately protect and represent the interests of the class.
Plaintiff’s interests are coincident with, and not antagonistic to, those of the class.
216.
Plaintiff is represented by counsel who are experienced and competent in the prosecution
of class action litigation and have particular expertise with antitrust litigation.
217.
Numerous questions of law or fact common to the class arise from Google’s course of
conduct to exclude competition in the relevant market, including:
a.
Whether Google holds monopoly power in the relevant market;
b.
Whether Google unlawfully acquired and maintained monopoly power in the
relevant market;
c.
Whether Google engaged in unfair business practices that reduced competition in
the relevant market;
d.
The form and content of injunctive relief to restore competition; and
e.
The amount of damages owed the class as a result of Google’s illegal activity.
218.
Questions of law and fact common to members of the class will predominate over any
questions that may affect only individual class members because Google acted on grounds generally
applicable to the class as a whole. For the same reason, class certification for purposes of adjudicating
Plaintiff’s claims for injunctive and declaratory relief is appropriate.
219.
This class action is superior to other alternatives for the fair and efficient adjudication of
this controversy. Prosecuting the claims pleaded herein as a class action will eliminate the possibility of
repetitive litigation. There will be no material difficulty in the management of this action as a class
220.
The prosecution of separate actions by individual class members would create the risk of
inconsistent or varying adjudications, establishing incompatible standards of conduct for Google.
46
CLASS ACTION COMPLAINT
221.
Plaintiff reserves the right to seek class certification with respect to common issues,
including issues related to Google’s duties or conduct.
X.
CAUSES OF ACTION
FIRST CAUSE OF ACTION
VIOLATIONS OF THE SHERMAN ANTITRUST ACT
15 U.S.C. § 2
222.
Plaintiff incorporates the allegations set forth above as if fully set forth herein.
223.
The market for programmatic display advertising services in the United States is a
relevant antitrust market, and Google has monopoly power in that market.
224.
Google wrongfully acquired and unlawfully maintained monopoly power in the relevant
market through the overall scheme and conduct alleged herein, including by leveraging its monopoly
power in the online search and other markets to coerce the purchase and use of its display advertising
services (an unlawful tying arrangement), acquiring rivals, denying interoperability on several
technological fronts, restricting competing firms’ access to information, and rigging auctions that it
controlled to its own advantage.
225.
Google’s actions were carried out willfully and with the specific intent to acquire and
maintain monopoly power in the relevant market through anticompetitive conduct and not through a
superior product, business acumen, or a historic accident.
226.
Google’s exclusionary conduct has foreclosed a substantial share of the market for
programmatic display advertising services.
227.
As a direct and proximate cause of Google’s conduct, Plaintiff and members of the class
have suffered antitrust injury in the form of economic losses. Those losses constitute antitrust injury, as
they are an injury of the type the antitrust laws were intended to prevent and that flows from what makes
Google’s monopolistic acts unlawful. But for Google’s unlawful exclusionary conduct, competition
would have prevailed in the relevant market and Plaintiff and class members would not have sustained
these losses. Google’s conduct also deprived Plaintiff and class members of improved quality and
innovation in the relevant market.
228.
There is no legitimate pro-competitive justification for Google’s anticompetitive conduct,
47
CLASS ACTION COMPLAINT
and even if there were, less restrictive alternatives to achieve it would exist.
229.
Plaintiff and members of the class are entitled to equitable relief as appropriate to halt
Google’s monopoly conduct and restore competition in the relevant market. Members of the class are
regular users of display advertising services and will continue to purchase such services and suffer
further injury if Google’s monopoly is not ended. The primary purpose of such injunctive relief will be
to benefit the public from the lower prices and greater innovation that will prevail in competitive digital
advertising markets in the absence of Google’s monopoly.
230.
Plaintiff and members of the class are entitled to damages, including treble damages,
sustained as a result of Google’s monopolistic acts and practices.
SECOND CAUSE OF ACTION
VIOLATIONS OF THE UNFAIR COMPETITION LAW
Cal. Bus. & Prof. Code § 17200 et seq. (UCL)
231.
Plaintiff incorporates the allegations set forth above as if fully set forth herein.
232.
Google’s conduct is unlawful in violation of the UCL because it violates the Sherman
Antitrust Act, 15 U.S.C. § 2.
233.
Google has engaged in unfair business practices through the overall scheme and conduct
alleged herein, which has restrained competition. Google’s conduct is unfair, in violation of the UCL,
because it violates California’s clearly established public policy forbidding monopolistic acts. Google
wrongfully acquired and unlawfully maintained monopoly power in the relevant market through the
conduct alleged herein, including by leveraging its monopoly power in the online search and other
markets to coerce the purchase and use of its display advertising services (an unlawful tying
arrangement), acquiring rivals, denying interoperability on several technological fronts, restricting
competing firms’ access to information, and rigging auctions that it controlled to its own advantage.
234.
Google’s practices also are unfair in violation of the UCL because they offend public
policy; are immoral, unethical, oppressive, outrageous, unscrupulous, and substantially injurious; and
caused substantial harm, including from Google’s supra-competitive prices that advertisers paid and
Google’s anticompetitive underpayments to publishers, that outweighs by a wide margin any possible
utility from the practices.
48
CLASS ACTION COMPLAINT
235.
Google’s unlawful and unfair business practices actually and proximately caused Plaintiff
and class members to lose money or property.
236.
Plaintiff and class members lack an adequate remedy at law to redress certain conduct of
Google that violates the unfair prong of the UCL. Through the practices described herein, Google
suppressed competition in its incipiency, violated well-established antitrust policies, and significantly
harmed and threatened competition in the relevant market.
237.
Accordingly, on behalf of the class, Plaintiff seeks injunctive relief, restitution, and
reasonable attorneys’ fees, as well as any other relief the Court may deem just or proper. The primary
purpose of such injunctive relief will be to benefit the public from the lower prices and greater
innovation that will prevail in competitive digital advertising markets in the absence of Google’s
monopoly.
XI.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, on behalf of himself and the class defined herein, respectfully request
that this Court:
A.
Determine that this action may be maintained as a class action pursuant to Fed. R.
Civ. P. 23(a), (b)(2), and (b)(3), direct that reasonable notice of this action be given to the class, appoint
Plaintiff as the named representative of the class, and appoint the undersigned Plaintiff’s counsel as class
counsel;
B.
Enter judgment against Google and in favor of Plaintiff and the class;
C.
Enter injunctive relief to restore competition in the relevant market and its
constituent submarkets;
D.
Award damages, including treble damages, and/or restitution to the class in an
amount to be determined at trial, plus interest in accordance with law;
E.
Award Plaintiff and the class their costs of suit, including reasonable attorneys’
fees, as provided by law; and
49
CLASS ACTION COMPLAINT
F.
Award such further and additional relief as is necessary to redress the harm
caused by Google’s unlawful conduct and as the Court may deem just and proper under the
circumstances.
XII.
DEMAND FOR JURY TRIAL
Pursuant to Federal Rule of Civil Procedure 38, Plaintiff demands a trial by jury on all issues so
Dated: January 4, 2021
Respectfully submitted,
By:
/s/ Dena C. Sharp
Dena C. Sharp (State Bar No. 245869)
Jordan Elias (State Bar No. 228731)
Adam E. Polk (State Bar No. 273000)
Scott M. Grzenczyk (State Bar No. 279309)
GIRARD SHARP LLP
601 California Street, Suite 1400
San Francisco, CA 94108
Tel: (415) 981-4800
Fax: (415) 981-4846
[email protected]
[email protected]
[email protected]
[email protected]
John D. Radice (pro hac vice forthcoming)
April Lambert (pro hac vice forthcoming)
RADICE LAW FIRM, PC
475 Wall Street
Princeton, NJ 08540
Tel: (646) 245-8502
Fax: (609) 385-0745
[email protected]
[email protected]
Scott L. Silver (pro hac vice forthcoming)
SILVER LAW GROUP
11780 W. Sample Road
Coral Springs, FL 33065
Tel: (954) 755-4799
50
CLASS ACTION COMPLAINT
[email protected]
Attorneys for Plaintiff
51
CLASS ACTION COMPLAINT
| antitrust |
mlSABIkBRpLueGJZxnYw | UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
IN RE LIBERTY TAX, INC. SECURITIES
LITIGATION
)
) Case No. 2:17-CV-07327-NGG-RML
)
)
CONSOLIDATED AMENDED CLASS ACTION COMPLAINT
TABLE OF CONTENTS
I.
NATURE OF ACTION ...................................................................................................... 1
II.
JURISDICTION AND VENUE ......................................................................................... 7
III.
PARTIES ............................................................................................................................ 8
IV.
CONFIDENTIAL WITNESSES ...................................................................................... 11
V.
SUBSTANTIVE ALLEGATIONS .................................................................................. 11
A.
Background ........................................................................................................... 11
B.
The Skadden Report .............................................................................................. 13
C.
Hewitt Treated the Company as his “Playground” ............................................... 14
“John Hires” .................................................................................................... 16
Fraudulent Franchise Sales and Loans ............................................................ 17
Hewitt’s Sexual Activity in the Office and Resulting Litigation .................... 18
Hewitt’s Use of Corporate Funds for His Lavish Vacations ........................... 20
La Bella Italia .................................................................................................. 21
Hewitt’s Behavior Created a Hostile Work Environment that Devastated
Company Morale and Resulted in High Employee Turnover and Risk ......... 22
D.
Hewitt’s Firing and Aftermath .............................................................................. 24
E.
False and Misleading Statements and Omissions ................................................. 27
2013 ................................................................................................................. 28
2014 ................................................................................................................. 30
2015 ................................................................................................................. 35
2016 ................................................................................................................. 41
2017 ................................................................................................................. 53
F.
Applicable SEC Regulations ................................................................................. 62
Item 303 of SEC Regulation S-K, 17 C.F.R. § 229.303 ................................. 62
Item 402 of SEC Regulation S-K, 17 C.F.R. § 229.402 ................................. 63
G.
The Truth Begins to Emerge ................................................................................. 64
H.
Post-Class Period Developments .......................................................................... 78
I.
Additional Scienter Allegations ............................................................................ 80
VI.
CLASS ACTION ALLEGATIONS ................................................................................. 82
VII.
LOSS CAUSATION AND ECONOMIC LOSS .............................................................. 83
VIII.
APPLICABILITY OF PRESUMPTION OF RELIANCE—FRAUD ON THE MARKET
DOCTRINE AND AFFILIATED UTE ALLEGATIONS ................................................ 85
IX.
NO SAFE HARBOR ........................................................................................................ 85
X.
CAUSES OF ACTION ..................................................................................................... 87
XI.
JURY TRIAL DEMAND ................................................................................................. 89
XII.
PRAYER FOR RELIEF ................................................................................................... 89
Lead Plaintiff IBEW Local 98 Pension Fund (“Lead Plaintiff”), through its undersigned
attorneys, makes the following allegations against Liberty Tax, Inc. (“Liberty Tax” or the
“Company”), John T. Hewitt (“Hewitt”), the Company’s former Chief Executive Officer (“CEO”)
and current Chairman of the Board, and Kathleen E. Donovan (“Donovan”), the Company’s Chief
Financial Officer (“CFO”) (Donovan and Hewitt are the “Individual Defendants,” and, together
with Liberty Tax, “Defendants”), based on its personal knowledge, on information and belief, and
on the investigation of Lead Plaintiff’s counsel, which included a review of relevant U.S. Securities
and Exchange Commission (“SEC”) filings by the Company, records of judicial proceedings in
the United States District Court for the Eastern District of New York, regulatory filings and reports,
press releases, public statements, interviews with former employees of Liberty Tax (referred to
herein as “Confidential Witnesses” or “CWs”), news articles, other publications, securities
analysts’ reports and advisories about Liberty Tax, and other readily obtainable information. Local
98 believes that substantial, additional evidentiary support will exist for the allegations set forth
herein after a reasonable opportunity for discovery.
I.
NATURE OF ACTION
1.
This is a securities class action on behalf of purchasers of Liberty Tax securities
during the period between October 1, 2013 through and including February 23, 2018 (the “Class
Period”) that seeks to recover damages caused by Defendants’ violations of federal securities laws
pursuant to remedies under the Securities Exchange Act of 1934 (“Exchange Act”). Throughout
the Class Period, Defendants made a series of false and misleading statements and omissions of
material fact concerning the effectiveness of the Company’s internal controls and its active efforts
to root out fraud and other misconduct so as to conceal from investors the Company’s ongoing
funding of Defendant John Hewitt’s reckless conduct that placed the Company at risk, permitted
the loss of millions of dollars of Company funds, and created a detrimental “Tone at the Top” and
hostile work environment that reduced productivity and weakened the Company’s financial
condition. Defendants further misled investors by warning that Hewitt’s interests and actions
“may” be adverse to shareholders, while knowing full well that, in fact, Hewitt’s interests and
actions were actively and severely damaging to shareholder interests.
2.
As explained in detail below, Hewitt, as the CEO and Chairman who was the sole
holder of Class B voting stock, treated the Company as his “playground,” with the Company
knowingly condoning and footing the bill for his reckless escapades that included dating countless
employees; routinely having sex with employees in his office; using Company resources to further
his romantic relationships by, among other things, directing the Company to hire countless of his
girlfriends’ friends and relatives to “made up” positions for which they were nevertheless
unqualified, causing the Company to often exceed its annual “new hire” budget by at least $1
million; billing the Company for lavish vacations with his girlfriends at least every other weekend;
and creating a hostile work environment which exposed the Company to significant financial risk
and liability, including a $500,000 payment to settle employees’ hostile work environment
charges.
3.
The Company permitted Hewitt to sap millions of dollars from Company coffers,
all unbeknownst to shareholders. The Company’s business model is premised upon selling
franchises throughout the country to expand its markets and drive revenue. Defendants, however,
purposefully took a loss on at least one franchise just so Hewitt’s girlfriend could purchase it for
no money down, and then Hewitt later forced the Company to repurchase the very same franchise
at a drastically inflated value plus hundreds of thousands of dollars in cash and stock. Hewitt had
the Company extend one of his girlfriends a Company loan which a Company employee had
previously denied her. Hewitt also directed Company funds to his unrelated business, La Bella
Italia, an Italian restaurant, which he used a Company employee to run for him and where he
charged the Company for open bar events.
4.
Hewitt’s spending and general misconduct cost the Company millions of dollars
and wreaked havoc on the Company’s bottom line and overall performance. Indeed, during the
Class Period, and as a result of Hewitt’s misconduct, the Company’s financial performance
suffered immensely, with annual net income never exceeding $21.98 million and dropping to as
low as $8.69 million, and with other key metrics such as number of tax returns prepared and top-
line revenue experiencing prolonged stagnation or decline as well, all of which led to a steady
stream of stock-price declines, as discussed in more detail below.
5.
By 2017, the Board of Directors (“Board”) must have recognized that millions of
unreported dollars were benefiting Hewitt and the internal audits were nothing more than shams
incapable of accurately reporting internal control deficiencies because Hewitt “ruled by fear” and
created a hostile “Tone at the Top.” Finally, in response to a disturbing complaint of Hewitt’s
sexual activity in his office that was made to the Company’s hotline in July 2017 that simply could
not be ignored, the Audit Committee hired the law firm Skadden, Arps, Slate, Meagher & Flom,
LLP (“Skadden”) to investigate Hewitt. Skadden ultimately concluded in a written report (the
“Skadden Report”) that the Company had a “good faith basis” to fire Hewitt “for cause” due to the
misconduct detailed herein. The Board, pursuant to Skadden’s recommendation, removed Hewitt
as CEO on September 5, 2017, but Defendants did not disclose to the market the true reason for
the termination or the existence of the Skadden Report. Rather, the Company issued a Form 8-K
that falsely suggested Hewitt’s departure was part of a “deliberate succession plan.”
6.
Each Defendant actively concealed the foregoing from investors. Defendant
Donovan, for example, was “well in the know” regarding Hewitt’s misconduct, and took it upon
herself as CFO to conceal it, regularly “spinning [Hewitt’s misconduct] for the Street,” by which
she meant Wall Street—i.e. investors—and the general public. Donovan’s “spin” is readily
apparent in the false and misleading statements Defendants repeatedly made to investors in the
quarterly periodic filings with the Securities Exchange Commission (“SEC”) that she signed
and/or participated in the preparation of during the Class Period. For example, Defendants
repeatedly assured investors that the Company’s internal controls were effective, and that the
Company was actively engaged in efforts to root out fraud and other misconduct, with Hewitt
specifically stating that the Company’s “compliance task force” was “taking appropriate action to
ensure that the standards of the Liberty brand are upheld and that those who do not uphold Liberty
standards are exited from the Liberty system.” Defendants also told investors Hewitt’s interests
and actions “may” be adverse to shareholders, while Defendants knew for a fact that for years
Hewitt was engaged in the reckless conduct and fraud that was partially memorialized in the
Skadden Report.
7.
Within two months of Hewitt’s ouster, the Company was plunged into turmoil as
Hewitt began to wield his Class B control and investors began to learn the scope of what
Defendants concealed from them.
8.
On November 7, 2017, after the market closed, the Company abruptly announced
the resignation of Defendant Donovan, without explanation, and despite the six-figure retention
bonus the Company had offered her. In response to this news, the Company’s share price dropped
16.98% the next day, dropping from a close of $13.25 per share on November 7 to close at $11.00
per share on November 8.
9.
Two days later, on November 9, 2017, The Virginian-Pilot released a bombshell
report titled “Ex-CEO of Liberty Tax likely had sex in his office and dated employees, report says”
(the “November 9 Article”), containing salacious details from the Skadden Report, which had
apparently been leaked.
10.
Within days of information from the Skadden Report becoming public on
November 9, 2017, Hewitt exercised his Class B common stock rights to elect two new directors
to the Board. The same day the November 9 Article was published, Board member John Garel
announced his resignation, stating that Hewitt’s exercise of his power “has resulted in problems
for the Company and disagreements on the Board.” The Company, however, did not disclose
Garel’s resignation until later.
11.
On December 11, 2017, before the market opened, the Company announced that its
accounting firm, KPMG LLP (“KPMG”), resigned, causing the Company to delay filing its
Quarterly Report on Form 10-Q. Notably, the announcement stated that KPMG had expressed
“concern that the actions of [Hewitt] . . . have created an inappropriate tone at the top which leads
to ineffective entity level controls over the organization.”1 KPMG further revealed that Hewitt’s
“involvement in the Company’s business and operations” caused it to question the reliability of
“past” management representations:
KPMG informed the Audit Committee and management that Mr. Hewitt’s past and
continued involvement in the Company’s business and operations . . . has led it to
no longer be able to rely on management’s representations, and therefore has
caused KPMG to be unwilling to be associated with the Company’s consolidated
financial statements.
12.
In response to this partial corrective disclosure, the Company’s share price on
December 11, 2017 dropped 6.69% from the prior trading day’s closing price.
1 Unless otherwise indicated, all emphasis is added.
13.
Over the next two months, the Company announced the replacement of several
senior executives and Board members. On December 18, 2017, for instance, the Company
announced the resignation of Board members Steven Ibbotson and John Garel, with the latter
writing that “[t]he Class B Directors are acting in unison through Mr. Hewitt’s Class B rights and
are . . . unwilling to consider input that interferes with their objectives, with which I materially
disagree.”
14.
On February 19, 2018, after the market closed, Liberty Tax announced the
appointment of director and Company franchisee, Nicole Ossenfort, as CEO, replacing Edward L.
Brunot, who had been appointed by the Board after it ousted Hewitt. The Company also
announced the appointment of a new Chief Operating Officer and Chief Strategy Officer. The
next day, on February 20, 2018, the Company’s share price plunged 17.65%, with media reactions
noting that the Company had fired its second CEO in 6 months, that Ossenfort had been
“handpicked” by Hewitt, and that Hewitt would be “serv[ing] in an advisory role and remain
chairman of the board.” Analysts noted that the move “appears to be a continuation of the control
that Chairman John Hewitt refuses to relinquish despite his firing as CEO,” and it prompted
Barrington Research to downgrade Liberty Tax.
15.
On February 21, 2018, the Company announced the resignation of its sole
remaining Class A board member, Ross Longfeld, who stated in his resignation letter that “[t]he
Tone at The Top issue [identified by KPMG] remains, and has greatly impeded the company in
finding a national audit firm to accept an engagement, which is critical to our status as a publicly
traded company.” Longfeld also noted:
[I]t has quickly become apparent to me that the board and the new senior executives
[appointed by Hewitt] are making it virtually impossible for the Chief Financial Officer
and the General Counsel to do their jobs effectively, particularly as these three new
executives are not qualified to hold these positions in a public company and they are all
beholden to John Hewitt.
Longfeld’s observation that Hewitt’s hires were not qualified for their positions is a continuation
of Hewitt’s practice of hiring his girlfriends’ friends and relatives, the vast majority of whom were
completely unqualified. In response to this news, on February 22, 2018, the Company’s share
price dropped an additional 3.88% to close at $8.65 per share.
16.
Finally, on February 23, 2018, after the market closed, the Company filed a Form
8-K and issued a press release announcing the appointment of the new Chief Operating Officer,
Chief Strategy Officer, Ossenfort as CEO, a new Board member, and the termination of the
consulting agreement the Company had with Defendant Donovan (who had resigned in
November), as well as the departure of officers Vanessa M. Szajnoga, Vice President and General
Counsel, and Rich Artese, Chief Information Officer. On this news, the next day Liberty Tax’s
share price dropped an additional 3.15% to close at $8.28 per share.
II.
JURISDICTION AND VENUE
17.
The claims asserted herein arise under Sections 10(b), 14(a) and 20(a) of the
Exchange Act, 15 U.S.C. §§ 78j(b), 78n(a) and 78t(a), and Rules 10b-5, 14a-3, and 14a-9
promulgated thereunder by the SEC, 17 C.F.R. §§ 240.10b-5, 240.14a-3, 240.14a-9.
18.
This Court has jurisdiction over the subject matter of the federal securities claims
pursuant to 28 U.S.C. §§ 1331 and 1337 and Section 27 of the Exchange Act.
19.
Venue is proper in this District pursuant to Section 27 of the Exchange Act and 28
U.S.C. §1391(b) and (c) because one or more Defendants may be found or resides here or had
agents in this district, transacted or is licensed to transact business in this district through the
Company’s 44 franchise locations within this district.
20.
In connection with the acts and conduct alleged in this Consolidated Amended
Class Action Complaint (“Amended Complaint”), defendants, directly or indirectly, used the
means and instrumentalities of interstate commerce, including, but not limited to, the mail,
interstate telephone communications, and the facilities of the national securities markets.
III.
PARTIES
21.
Lead Plaintiff Local 98 is a multi-employer defined benefit retirement plan for
approximately 5,000 employees. During the Class Period, Lead Plaintiff purchased 10,300 shares
of Liberty Class A stock and lost more than $42,542 as a result of such purchases.2
22.
Defendant Liberty Tax is a publicly traded Delaware corporation headquartered in
Virginia Beach, Virginia. Liberty Tax is one of the leading providers of tax preparation services
in the United States and Canada, primarily offering tax preparation services and products through
franchised locations. Liberty Tax is the holding company for JTH Tax, Inc. d/b/a Liberty Tax
Service, its largest subsidiary, which was incorporated in Delaware in October 1996. The
Company has two classes of common stock, Class A common stock and Class B common stock.
Hewitt is the sole owner of Class B common stock which, pursuant to the Company’s Certificate
of Incorporation, permits Hewitt to elect a majority of the members of the Board. Shares of Liberty
Tax’s Class A common stock trade on the Nasdaq stock exchange under the ticker “TAX.”
23.
Defendant Hewitt founded the Company in 1996. He served as CEO and President
of the Company from October 1996 to September 2017, when a majority of the Company’s Board
of Directors voted to remove him as an officer following an investigation into his misconduct that
2 While the Class Period in the Consolidated Amended Complaint is longer than that alleged in the
original complaint (Dkt. No. 1), Lead Plaintiff has no additional trades during the Class Period
other than those reported in Schedule A to the PSLRA Certification it filed on February 13, 2018
(Dkt. No. 17-2 at 4).
was conducted by independent counsel Skadden. Hewitt has served as Chairman of the Board
since October 1996. From August 1982 to June 1996, Hewitt was the Founder, President, CEO
and Chairman of Jackson Hewitt Inc. Hewitt, as CEO of the Company, signed all of the
Company’s Forms 10-Ks for the fiscal years ended 2013, 2014, 2015, 2016, and 2017, and all of
the Company’s 10-Qs during his tenure as CEO.
24.
Defendant Donovan served as CFO of the Company from January 23, 2014 until
her resignation from the Company on November 7, 2017. Defendant Donovan signed all of the
Company’s Form 10-Ks for the fiscal years ended 2014, 2015, 2016, and 2017, and all of the
Company’s 10-Qs during her tenure as CFO.
25.
Because of the Individual Defendants’ respective positions with the Company, they
had access to adverse undisclosed information about the Company’s business, operations, internal
audits, present and future business prospects via access to internal corporate documents,
conversations and connections with other corporate officers and employees, attendance at
management, sales and Board of Directors meetings and committees thereof, and via reports and
other information provided to them in connection therewith.
26.
It is appropriate to treat the Individual Defendants as a group for pleading purposes
and to presume that the false, misleading and incomplete information conveyed in Liberty Tax’s
public filings, press releases and earnings calls, as alleged herein, are the collective actions of the
narrowly defined group of defendants defined above as the Individual Defendants. Each of the
Individual Defendants, as officers of Liberty Tax, by virtue of their high-level positions with the
Company, directly participated in the management of the Company, were directly involved in the
day-to-day operations of the Company at the highest levels, and were privy to confidential
proprietary information concerning the Company and its business and operations as alleged herein.
Each acted on behalf of the Company and the actions of each, as alleged herein, can be imputed to
Liberty Tax. The Individual Defendants were involved in drafting, producing, reviewing and/or
disseminating the false and misleading statements and information alleged herein, knew or
recklessly disregarded that the false and misleading statements described herein were being issued
regarding the Company, and approved or ratified these statements, in violation of the federal
securities laws.
27.
As officers and controlling persons of a publicly held company whose common
stock was and is registered with the SEC pursuant to the Exchange Act, and was and is traded on
the Nasdaq, and governed by the provisions of the federal securities laws, the Individual
Defendants each had a duty to promptly disseminate accurate and truthful information with respect
to the Company’s financial condition and performance, growth, operations, financial statements,
business, markets, management, earnings and present and future business prospects, and to correct
any previously-issued statements that had become materially misleading or untrue, so that the
market price of Liberty Tax’s publicly-traded securities would be based on truthful and accurate
information. The Individual Defendants’ misrepresentations and omissions during the Class
Period violated these specific requirements and obligations.
28.
The Individual Defendants, because of their positions of control and authority as
officers and/or directors of the Company, were able to and did control the content of the various
SEC filings, press releases and other public statements pertaining to the Company during the Class
Period. The Individual Defendants would have each been provided with copies of the documents
alleged herein to be misleading, including the Company’s quarterly and annual filings and the
prepared remarks for each of the Company’s quarterly earnings conference calls, prior to or shortly
after their issuance and had the ability or opportunity to prevent their issuance or cause them to be
corrected. Accordingly, the Individual Defendants are responsible for the accuracy of the public
reports and releases detailed herein and are therefore primarily liable for the representations
contained therein.
IV.
CONFIDENTIAL WITNESSES
29.
Confidential Witness 1 (“CW1”) worked at Liberty Tax from February 2007 until
November 2012, beginning in sales support and ending as Executive Assistant to the Chief
Information Officer. In these roles, CW1’s responsibilities included scheduling appointments,
answering phones, and ordering supplies. During this time period and for a few years after, CW1
had a personal relationship with Hewitt such that CW1 has personal knowledge of the various
romantic relationships Hewitt had with then current and former female employees of the Company.
30.
Confidential Witness 2 (“CW2”) worked at the Company’s Virginia Beach,
Virginia corporate headquarters from March 2014 until December 2015 as a Human Resources
Manager in the Company’s Human Resources (“HR”) department. CW2’s responsibilities
included recommending and implementing personnel policies and procedures, managing
employee benefits, approving invoices, and annually re-evaluating policies for cost-effectiveness,
as well as managing HR staff. CW2 reported to Kelly McKinney, Vice President of Human
Resources, and CW2 regularly interacted with Defendant Donovan and occasionally interacted
with Hewitt.
V.
SUBSTANTIVE ALLEGATIONS
A.
Background
31.
Hewitt, who is 68 years old, has been in the tax preparation business for most of
his life. He got his start in 1969 when, while still a student at the University of Buffalo, he attended
a tax-preparation course offered by H&R Block. He then worked for H&R Block as a tax preparer,
and worked his way up the corporate ladder until he was ultimately running over 250 offices for
the company.3
32.
Sensing a need for tax preparation software to make preparation more efficient,
Hewitt pitched the idea to H&R Block. When H&R Block rejected his idea, Hewitt resigned from
the company, developed his own tax software with his father, and then founded Jackson Hewitt
Tax Service Inc. (“Jackson Hewitt”) in 1982. Jackson Hewitt grew to become the second largest
tax preparation company in the United States, behind H&R block.4
33.
Jackson Hewitt went public in 1994. In 1997, the company’s board of directors
decided to sell the company for $483 million, and Hewitt lost control of the company and was
forced into a noncompete contract in the United States until 2000.
34.
Looking to get back into the tax preparation business, Hewitt founded Liberty Tax
Service in 1996 after acquiring a Canadian tax preparation firm. The Company has grown to more
than 4,000 offices across North America, and is the third-largest assisted tax preparation company
in the United States.
35.
In March 2017, just months before his departure from the Company, Hewitt wrote
a revealing article for Inc.com . The article was regarding his “billion-dollar mistake” in losing
control of Jackson Hewitt, and that he vowed never to let it happen again. Hewitt wrote that “[m]y
billion-dollar lesson is to keep control of your dream and don’t let anyone take it away from you.”5
3 James Dornbrook, Competitor fires Hewitt, a tax visionary and former H&R Block employee,
Kansas
City
Business
Journal,
Sept.
7,
2017,
https://www.bizjournals.com/kansascity/news/2017/09/07/liberty-tax-ceo-john-hewitt-fired.html
4 Id.
5 John Hewitt, What This Founder Wishes He Had Known Before Starting His First Company (It
Cost Him $1 Billion), Inc., March 27, 2017, https://www.inc.com/john-hewitt/notes-to-my-
younger-self-what-this-founder-wishes-he-knew-before-starting-first-company.html
36.
To ensure that he would never again be ousted from his own company, Hewitt
structured Liberty Tax with a dual class stock structure, with Hewitt alone holding all of Liberty
Tax’s Class B common stock. Hewitt wrote that “[w]hen I established Liberty Tax Service, I set
it up so I choose the majority of the members of the board of directors to prevent anyone from
taking over the company.”6 According to the Company’s SEC filings, Liberty Tax’s “Class B
common stock has the power to elect, voting as a separate class, the minimum number of directors
that constitute a majority of the Board of Directors.”7 Hewitt’s candor demonstrates that regardless
of the fact that the Company had public shareholders, he viewed Liberty Tax as his. Accordingly,
Hewitt elected a majority of board members, all of whom were loyal to him.
B.
The Skadden Report
37.
According to former Board member John Garel, on July 12, 2017, employees
reported a complaint to the Company’s ethics hotline regarding Hewitt.8 The complaint was
referred to the Board’s Audit Committee, which hired Skadden to investigate the complaint. In
addition to interviewing employees, Skadden reviewed calendar entries and about 1,000 emails
between Hewitt and several female employees and franchisees. Skadden also scrutinized company
credit card charges, including expenses at a New York racetrack.9
38.
At the conclusion of the investigation, the Board received an oral report and the
Audit Committee received a written report, i.e., the Skadden Report, regarding the findings of the
6 Id.
7 Liberty Tax, Inc., Annual Report (Form 10-K), at 24 (July 7, 2017).
8 See Liberty Tax, Inc., Press Release (Form 8-K/A, Ex. 99.1) (Nov. 13, 2017); See also Kimberly
Pierceall, “Mr. Hewitt’s conduct … has left me in a very difficult position”: 4th Liberty Tax board
member
leaves.,
The
Virginian-Pilot
(Nov.
13,
2017)
https://pilotonline.com/business/stocks/article_0abfca83-01b5-5798-8d1b-2811fbfca720.html.
9 Kimberly Pierceall, Ex-CEO of Liberty Tax likely had sex in his office and dated employees,
report
says,
The
Virginian-Pilot,
Nov.
9,
2017,
https://pilotonline.com/business/consumer/article_90141e98-cf88-56a8-afcd-e1170fef68c6.html
investigation, which, according to Garel, included credible evidence that Hewitt had engaged in
an array of inappropriate conduct, both personally and involving business matters, while serving
as the Company’s CEO and Chairman. Hewitt refused to cooperate in the investigation and failed,
in any way, to attempt to address or alleviate the concerns of employees. Rather, Hewitt continued
to engage in the same underlying behavior.
39.
The Skadden Report concluded the Company had a “good faith basis” to fire Hewitt
“for cause.” Based on this report, the Board also determined the Company had a “good faith basis”
to terminate Hewitt as CEO, and did so on September 5, 2017.
40.
The Skadden Report demonstrated that, given the scope and duration of Hewitt’s
misconduct and Defendants’ concealment of it from the investing public, the Company’s internal
controls were entirely ineffective in identifying and preventing enterprise risk and fraud.
41.
As explained below, the existence and substance of the Skadden Report were not
disclosed until months after the Board ousted Hewitt. Even now, Defendants have continued to
conceal from investors the full details of the Skadden Report.
C.
Hewitt Treated the Company as his “Playground”
42.
The Skadden Report and CWs reveal that, for years, Hewitt has engaged in a pattern
of reckless conduct, including dating countless employees and franchisees, routinely having sex
with employees in his office, using millions of dollars of Company resources to further his
romantic relationships, making the Company hire his girlfriends’ friends and relatives to “made
up” positions for which they were nevertheless unqualified, using Company resources for his own
personal matters and to benefit his unrelated business, failing to disclose the other compensation
or perquisites he received from the Company, and creating a hostile work environment—all of
which Defendants concealed from shareholders.
43.
As described by The Virginian-Pilot, the Skadden Report confirmed that Hewitt
had a romantic relationship with at least one employee, but the investigators were told of possible
relationships with 10 others. This report is corroborated by CW1 and CW2, who described
Hewitt’s romantic relationships with countless of his female employees. CW1 confirmed that
Hewitt dates employees and franchisees. CW2 notes that Hewitt had so many employee-lovers
that people at the Company simply called them “his women.” According to CW2, Hewitt even
fathered a child with one of his employees or franchisees. According to CW2, because the child
was around 7-10 years old in 2014, this suggests Hewitt’s pattern of dating employees and
franchisees goes back to at least 2004-2007.10
44.
Unbeknownst to shareholders, Hewitt—with Donovan’s knowledge—used the
Company and its finances as his personal vehicle to further his romantic interests. The Skadden
Report concluded the Company had a “good faith basis” to fire Hewitt for cause after investigating,
among other things, accusations that “Hewitt gave preferential treatment to employees and
franchisees he was believed to be involved with romantically, and that he placed his personal
interests above the company’s.”11 Notably, the Skadden Report’s use of the past tense in the
foregoing sentence demonstrates that, contrary to Defendants’ Class Period statements, described
in detail below, Hewitt’s systematic subordination of Company and investor interests to his own
had long been a historical fact. Indeed, unbeknownst to investors, and in the words of CW2, Hewitt
treated the Company as his “playground.”
10 CW2 learned of this child because his/her duties in the HR department included assisting Hewitt
with annual benefits enrollment, leading CW2 to learn that Hewitt had a dependent, whom another
employee told CW2 was with a current or former franchisee/employee living in Florida.
11
Pierceall,
Ex-CEO
of
Liberty
Tax
likely
had
sex
in
his
office,
https://pilotonline.com/business/consumer/article_90141e98-cf88-56a8-afcd-e1170fef68c6.html
“John Hires”
45.
Skadden investigated allegations that Hewitt hired relatives of female employees
he was apparently seeing romantically, and concluded the Company had a “good faith basis” to
fire Hewitt for cause. CW1 and CW2 substantiate and expand upon these allegations. CW2, who
worked in the Company’s HR department, confirms that Hewitt routinely made HR hire friends
and relatives of women Hewitt was dating. Hewitt hired these friends and relatives and other
people he met so often that they were known in the HR department as “John Hires.”
46.
CW2 recalls that the vast majority of John Hires were not qualified for the positions
for which Hewitt hired them, and that they were regularly given “outrageous” salaries that were
substantially higher than what was paid to other employees. CW2 recalls that Hewitt would often
“make up” positions for John Hires. CW2 specifically recalls one John Hire who was given a
$75,000 salary yet could not operate his computer, despite this being a job requirement.
47.
CW2 recalls another instance in late 2014/early 2015 when HR suspended a female
employee on the sales team for 45 days without pay due to an infraction. After her suspension,
the employee, who was rumored to be dating Hewitt, was upset and complained to Hewitt that she
could not pay her bills. Hewitt yelled at and reprimanded Kelly McKinney, Vice President of
Human Resources, for suspending the employee, and forced HR to pay the employee during her
suspension. According to CW2, this “punishment,” which amounted to paid time off, became
known amongst other employees and had a detrimental effect on morale.
48.
CW1 confirms that, ever since he/she started working at the Company in 2007, it
was common knowledge that Hewitt routinely hired friends and relatives of women he was dating.
In 2007, for instance, shortly after Hewitt hired Karen Peck, with whom he was romantically
involved, he hired Peck’s mother and three children to work in the call center.
49.
The John Hires had a material adverse impact on the Company’s finances. CW2,
who worked at the Company between 2014 and 2015, stated that the Company creates new budgets
that go into effect every June, at the beginning of the Company’s fiscal year. A portion of each
budget would be allocated for new hires, and would include a list of positions to be filled and a
salary for each open position. One summer, McKinney and CW2 calculated the financial impact
of John Hires, and determined that, in just the approximately two-month period since the beginning
of the fiscal year, John Hires alone caused the Company to exceed its annual new hire budget by
over $1 million.
50.
Liberty Tax’s net income for fiscal year ended April 30, 2015 totaled only $8.69
million, and its net income for fiscal year ended April 30, 2016 totaled only $19.42 million. Thus,
in just the approximately two-month period since the beginning of the 2015 or 2016 fiscal year
when CW2 performed his/her calculations, John Hires alone decreased Liberty Tax’s net income
by 10.3% or 4.9%, respectively. In addition to her specific knowledge of John Hires detailed
below, because of the magnitude of the impact of John Hires on the Company’s finances,
Defendant Donovan, as the Company’s CFO, either knew of or recklessly disregarded the John
Hires and their adverse effect on the Company’s finances.
Fraudulent Franchise Sales and Loans
51.
Hewitt’s reckless handling of Company resources does not end with spending
untold millions of Company money hiring his girlfriends’ friends and relatives. The Virginian-
Pilot reports that one incident Skadden investigated involved Hewitt allowing a Company sales
employee with whom he was romantically involved to buy a Liberty Tax franchise for a multiple
of four times the revenue, and for no money down.
52.
After the relationship ended, Hewitt directed the Company to quickly buy the
franchise back, paying his ex-girlfriend more than seven times the revenue plus $120,000 in cash
and $100,000 worth of stock. These financial terms were contrary to the Company’s typical
practice of buying back franchises for wholesale or less than for what they sold it. Indeed, the
Company’s standard franchise agreement allows the Company to buy back a franchise for only the
greater of $150,000 or 200% of annual gross receipts, clearly showing the terms of this buyback
were egregiously out of line with Company practice and caused the Company to lose money on
the franchise.12
53.
The Virginian-Pilot also reports that another female employee and franchisee
sought a business loan from the Company and, after a Company employee refused her the loan,
she reached out directly to Hewitt, telling him “I love you” and “I miss you” in her emails to him.
The employee ultimately received the loan from the Company.
Hewitt’s Sexual Activity in the Office and Resulting Litigation
54.
CW2 recalls that in Fall 2015, there was a period of time when some employees
were required to work on Saturdays. One Monday during this period, an operations manager who
worked down the hall from Hewitt’s office came to Kelly McKinney, Vice President of Human
Resources, to complain that he and several other employees had overheard Hewitt having sex with
a female employee in his office multiple Saturdays in a row. The operations manager filed a formal
complaint regarding the sexual activity with HR.13
55.
Because Hewitt “ruled by fear” and “everyone was terrified of him,” CW2 and
McKinney had several conversations regarding how best to approach Hewitt about his
inappropriate sexual activity in the office. McKinney told CW2 that she had spoken with
12
Liberty
Tax,
Inc.,
Franchise
Agreement,
at
4
(Sept.
2013),
available
at
https://www.sec.gov/Archives/edgar/data/1528930/000152893014000029/jth-
4302014ex1021.htm
13
Pierceall,
Ex-CEO
of
Liberty
Tax
likely
had
sex
in
his
office,
https://pilotonline.com/business/consumer/article_90141e98-cf88-56a8-afcd-e1170fef68c6.html
Defendant Donovan and Jim Wheaton,14 and the three decided the best person to approach Hewitt
was Gordon D’Angelo, a longtime friend of Hewitt’s whom Hewitt had put on the Board in 2011.
56.
After D’Angelo spoke with Hewitt regarding the sexual activity, CW2 recalls that
Hewitt’s and McKinney’s relationship deteriorated, with Hewitt demoting McKinney to report
directly to Defendant Donovan, who had previously been McKinney’s peer.
57.
The Virginian-Pilot reports that in December 2015, three former employees alleged
a hostile work environment relating to Hewitt’s sexual activity, and settled with the Company for
$500,000. CW2 recalls that one of these employees was McKinney.
58.
The Company did not disclose this threatened litigation or the details surrounding
it, despite that Liberty Tax’s net income for fiscal year ended April 30, 2016 was only $19.42
million, and thus this settlement decreased the Company’s income that year by 2.5%. Nor did the
Company report this settlement amount as other compensation or a perquisite to Hewitt.
59.
Remarkably, even after this shameful—and costly—episode, the Company
implemented no controls or protocols to prevent Hewitt’s creation of a hostile work environment.
The Virginian-Pilot reports that in July 2017, employees reported to the Company’s ethics hotline
that Hewitt was again having sex in his office. This complaint prompted the Board’s Audit
Committee to hire Skadden to conduct an investigation. Hewitt’s audacity apparently knowing no
bounds, employees continued to overhear Hewitt having sex in his office during Skadden’s
investigation.15
14
Jim
Wheaton
was,
at
the
time,
the
Company’s
General
Counsel.
See
https://ir.libertytax.com/news-releases/news-release-details/liberty-tax-service-names-james-j-
wheaton-chief-compliance
15
Pierceall,
Ex-CEO
of
Liberty
Tax
likely
had
sex
in
his
office,
https://pilotonline.com/business/consumer/article_90141e98-cf88-56a8-afcd-e1170fef68c6.html
(reports of Hewitt having sex in his office “were first reported in November 2015 and as recently
as August of [2017,]” which was during Skadden’s investigation).
Hewitt’s Use of Corporate Funds for His Lavish Vacations
60.
Hewitt’s flagrant abuse of his position and appalling misuse of Company resources
was not just limited to workdays. CW1 stated Hewitt went on weekend getaways with girlfriends
at least once every other weekend from 2009/2010 until March 2017. CW1 stated that these trips
were for Hewitt’s personal entertainment, but that Hewitt always scheduled a meeting with a
franchisee or other Company employee at the destination in order to bill the entire trip to the
Company. These trips included visits to Las Vegas at least three times a year, where Hewitt had
the Company foot the bill for stays at lavish resorts such as the Wynn Las Vegas or Caesars Palace.
CW1 stated that Hewitt and his girlfriends visited New York City at least four times a year, where
Hewitt would book a nice hotel in Midtown Manhattan.
61.
Hewitt also often scheduled out-out-town meetings in cities where the New York
Yankees were playing, so that Hewitt could attend the baseball games. The Skadden Report stated
that “[t]he correlation between Yankee games and trainings is so well known throughout the
organization that a franchisee once emailed Mr. Hewitt to tell him that a Yankee game was
scheduled in his city in the hopes of convincing Mr. Hewitt to agree to conduct a training session
in that city.”16 CW1 corroborates that Hewitt scheduled out-of-town meetings to see Yankees
games, and that Hewitt always made sure to have a franchisee or Company employee at the game
and expensed charges to the Company.
62.
According to The Virginian-Pilot, Skadden also scrutinized Hewitt’s Company
credit card charges, including expenses at a New York racetrack. That the Skadden Report
concluded the Company had a “good faith basis” to fire Hewitt for cause suggests the scrutiny of
Hewitt’s Company credit card charges resulted in Skadden finding, consistent with the other
16 Id.
allegations herein, that Hewitt had inappropriately expensed personal matters to the Company.
CW1 also corroborates this report, stating that Hewitt often went to the New York racetrack with
girlfriends and a franchisee or some person associated with the Company and expensed charges to
the Company.
La Bella Italia
63.
In October 2015, Hewitt, through his personal company JTHJR Inc., bought an
Italian restaurant called La Bella Italia. He used the restaurant to hold Liberty Tax business
lunches and mixers for prospective franchisees, “a situation one ethics academic says was a clear
conflict of interest. The implication being: Liberty Tax could have been billed for the meals and
Hewitt would have personally benefitted.”17 Chris MacDonald, author of The Business Ethics
Blog and fellow at Duke University’s Kenan Institute for Ethics, stated that Hewitt’s “judgment
(in things like choosing restaurants) ought to be determined by what’s best for the company. And
yet in this situation, any reasonable observer . . . could reasonably worry that the CEO’s judgment
would be swayed by his or her financial interest in the restaurant.”18
64.
Though the Company denied any conflict, it appears Hewitt fraudulently used
Liberty Tax resources to run La Bella Italia. The Virginian-Pilot reports that, as of October 2017,
JTHJR Inc.’s president was Liza Malinis, who was concurrently one of Hewitt’s direct reports at
Liberty Tax. CW2 corroborates that Hewitt had a Liberty Tax employee running and managing
La Bella Italia for Hewitt. CW2 confirms that that employee was Liza Malinis.
17 Kimberly Pierceall, Liberty Tax ex-CEO bought restaurant while leading company. Was it a
conflict
of
interest?,
The
Virginian-Plot
(Oct.
31,
2017),
https://pilotonline.com/business/consumer/liberty-tax-ex-ceo-bought-restaurant-while-leading-
company-was/article_a82ff66c-f57b-5989-aa25-6adf1bd7ad60.html
18 Id.
65.
The Virginian-Pilot reports that Becky Elder, an ex-Company contractor and
franchisee from Georgia “recalled going to the restaurant often before and after Hewitt bought it.”
Ms. Elder stated that “[t]he whole [marketing] department would be there” and that the company
would sometimes host cocktail hours for prospective franchisees the night before sales seminars.19
66.
Hewitt told CW1 that Hewitt specifically bought La Bella Italia to hold Company
gatherings. CW1 confirms that the Company was charged for these gatherings, which were held
every week from March/April through December/January, during “sales season.” The gatherings
were well attended, generally with 40 or so attendees whom Hewitt provided an open bar and
heavy hors d’oeuvres. On an annual basis, the Company paid tens of thousands of dollars to
Hewitt’s restaurant.
67.
As The Virginian-Pilot notes, the SEC “requires a company to note when it has paid
a related party, including an executive officer of the company, more than $120,000 in a fiscal year,
unrelated to executive compensation.”20 Despite Hewitt’s use of a Liberty Tax employee to run
his own personal business, and that Hewitt used Liberty Tax to pay for Company events and meals
at La Bella Italia, “[n]one of Liberty Tax’s financial filings note related party transactions with
Hewitt related to La Bella Italia.”21
Hewitt’s Behavior Created a Hostile Work Environment that
Devastated Company Morale and Resulted in High Employee
Turnover and Risk
68.
The John Hires and Hewitt’s other reckless conduct were devastating to employee
morale. CW2 described Liberty Tax as “cash poor” and noted that in 2015 the Company was
19 Id.
20 Id.; see 17 CFR 229.404 - (Item 404) Transactions with related persons, promoters and certain
control persons.
21
Pierceall,
Liberty
Tax
ex-CEO
bought
restaurant,
https://pilotonline.com/business/consumer/liberty-tax-ex-ceo-bought-restaurant-while-leading-
company-was/article_a82ff66c-f57b-5989-aa25-6adf1bd7ad60.html
unable to pay end-of-year bonuses or give full annual merit increases. CW2 stated that employees
were particularly upset by this situation because “everyone knew” Hewitt was “wastefully
spending money” on John Hires, among other things.
69.
Moreover, CW2 described multiple complaints she received of Hewitt’s cruelty and
meanness to employees, and recalled that several employees “literally cried” when complaining
of Hewitt’s treatment of them.
70.
This account of Hewitt’s character is in line with allegations that Hewitt verbally
threatened and physically assaulted one of the women with whom he was romantically involved.
In early 2017, Tiffany Klein Glenn, one of Hewitt’s ex-girlfriends who had also worked at Liberty
Tax, sued Hewitt in Virginia state court, alleging that on the night of May 26, 2015, he grabbed
her by the throat and pushed her down the stairs inside the house they shared. He also allegedly
threw her boots into a lake near their home and threatened to do the same with her dog. Hewitt
countersued, alleging he was the one injured in the altercation. Glenn’s attorney said Hewitt was
arrested and criminally charged at the time, but that Glenn dropped the charges at the urging of
Hewitt and his then-attorney.22
71.
Given this and the other allegations herein, it is no wonder that CW2 described
turnover in the HR department as “outrageous,” and noted that anyone who came to Liberty Tax
to make positive change at the Company was “public enemy number one” and either left or was
22 Kimberly Pierceall, CEO of Virginia Beach-based Liberty Tax denies injuring ex-girlfriend in
2015,
says
he
was
one
hurt,
The
Virginian-Pilot
(June
27,
2017),
https://pilotonline.com/business/article_7c82dba6-28c3-518e-85ec-98e1e96ad139.html;
Kimberly Pierceall, Liberty Tax CEO sued by ex-girlfriend claiming he shoved her down stairs,
(June 20, 2017), https://pilotonline.com/news/local/crime/article_1af7fb4f-d4b8-5745-a071-
43241099f230.html
72.
High employee turnover is counterproductive to operations. CW2’s recollection of
the high turnover rate is confirmed by the Company’s SEC filings:
a. On October 10, 2013, for instance, the Company filed a Form 8-K
announcing that on October 7, 2013, Liberty Tax’s Chief Operating Officer
T. Rufe Vanderpool had resigned from the Company;
b. On August 18, 2014, the Company filed a Form 8-K announcing that on
August 15, 2014, Mark Baumgartner, Chief Investment Officer and CEO of
JTH Financial, LLC, a subsidiary of Liberty Tax, resigned from the
Company and “will receive the payments to which he is entitled in
accordance with the terms of his employment agreement”;
c. On October 10, 2014, the Company filed a Form 8-K announcing it had
hired Robert Lougen as Vice President of Operations, but then just months
later, and without explanation, announced that Lougen “ceased to be
employed by the Company” as of June 4, 2015; 23
d. On October 16, 2013, during a call with investors, Hewitt noted the
Company had hired Kelly McKinney, who “will help us focus on programs
to both retain our top talent and attract new talent as we grow.” As detailed
above, after Hewitt retaliated against McKinney for raising Hewitt’s
inappropriate sexual activity, McKinney left the company in December
2015 after settling a threatened suit against Hewitt;
e. On July 12, 2017—the same day the Company’s Ethics Hotline received
the complaint regarding Hewitt that led to the Skadden investigation—
Thomas Daniels, the Company’s Chief Accounting Officer, advised the
Company he would retire; 24 and
f. On September 5, 2017, the same day the Board fired Hewitt, Michael S.
Piper, Vice President of Financial Products, provided notice of his
retirement. 25
D.
Hewitt’s Firing and Aftermath
73.
As noted above, the Skadden Report concluded the Company had a “good faith
basis” to fire Hewitt “for cause,” but if Hewitt was fired “without cause,” he was eligible for
severance. On September 5, 2017, the Board of Directors, the majority of which were handpicked
by Hewitt, fired Hewitt “without cause,” effective immediately, which entitled Hewitt to a
23 Liberty Tax, Inc., Press Release (Form 8-K) (Aug. 18, 2014)
24 Liberty Tax, Inc., Press Release (Form 8-K) (July 12, 2017)
25 Liberty Tax, Inc., Press Release (Form 8-K) (Sept. 5, 2017)
severance amounting to $801,005 in a lump-sum payment, 18 months of health benefits and
$471,210 in unvested stock awards that had been accelerated
74.
The Company announced Hewitt’s firing on September 6, 2017. In that
announcement, the Company stated that it was negotiating with Hewitt to repurchase his Class B
shares, which permit him to appoint a majority of the Board. The Company did not disclose the
reason for Hewitt’s termination or that Skadden had conducted an investigation, but instead
misleadingly stated that Liberty Tax “had engaged in a deliberate succession planning process,
which resulted in Ed Brunot joining the Company as Chief Operating Officer as an interim step
before assuming the role of CEO.”26
75.
The proffered reason for Hewitt’s termination was contrary to Hewitt’s prior
statements concerning a succession plan. During the March 8, 2017 earnings call with investors,
Hewitt mentioned that the Company was considering succession planning and, in response to
questioning, he clarified that “it is time that I have a backup in the Company that can help me and
make my life easier,” and had the following exchange with Alexander Paris Jr., an analyst for
Barrington Research Associates:
Paris: Okay. So you have no current plans to retire, nor does the Board have any
plans to retire you in the near term?
Hewitt: Well, as you remember, I have controlling shares, so—and I do not plan
on retiring. I don’t know anything else I could do that would be more fun than what
I do, even under any difficult times.
Paris: Okay. So it’s just as you said; it’s the natural succession planning for a 67-
year old.
Hewitt: Exactly, exactly.
26 Liberty Tax, Inc., Press Release (Form 8-K) (Sept. 8, 2017)
76.
Given this exchange with Hewitt just months prior to the termination
announcement, analyst Paris speculated that the Company’s announcement of Hewitt’s
termination meant “something happened to accelerate” the succession plan, and that Hewitt’s
departure “happened a little sooner than anyone really expected,” but he was nevertheless
confident about the company’s future, stating “[t]here’s not going to be any radical changes.”27
77.
News reports regarding Hewitt’s firing were quick to note that the Company had
gone “from fast-growing to troubled” recently.28
78.
In an apparent move to retain its officers, the Company announced on September
6, 2017 that retention bonuses were awarded to Donovan ($172,526), Vanessa M. Szajnoga
(“Szajnoga”), Vice President and General Counsel ($131,532), and Artese, Chief Information
Officer ($67,980). The bonuses were to be paid in two installments, in March and September
2018.29
79.
On September 8, 2017, the Company announced the appointment of Ed Brunot as
CEO.30
80.
On September 15, 2017, General Counsel Szajnoga, referring to Hewitt’s firing
while holding all Class B shares, stated to a Franchise Times reporter: “I don’t believe it poses a
problem for the company. Just to be clear, when you talk about the Class B shares, what that
means is essentially [Hewitt] gets to appoint a majority of the board, but obviously our board is a
27 Kimberly Pierceall, Founder and CEO of Virginia Beach-based Liberty Tax is fired by a board
he
controlled,
The
Virginian-Pilot
(Sept.
6,
2017),
https://pilotonline.com/business/consumer/article_3957cc1d-5fe0-52b1-8d86-
10db04d93816.html
28 Bob Scott, Liberty Tax Ends Hewitt’s Tenure, The Progressive Accountant (n.d.),
http://www.theprogressiveaccountant.com/Tax/liberty-tax-ends-hewitt-s-tenure
29 Liberty Tax, Inc., Press Release (Form 8-K) (Sept. 5, 2017)
30 Liberty Tax, Inc., Press Release (Form 8-K) (Sept. 8, 2017)
group of hard-working board members that share the same responsibilities whether they’re
appointed by the B shares or the A shares.” Szajnoga went on to say the Company’s 500
employees and 2,000 franchisees are “truly a group of pretty dedicated folks whose interest is
ensuring that our franchisees have success. They represent the shareholders’ interests” and will
continue to make decisions based on that.31
81.
On September 28, 2017, unbeknownst to shareholders, a special committee of the
Board offered Hewitt its final approved proposal for repurchase of his Class B shares, which
Hewitt rejected. The Company did not disclose the final proposal or Hewitt’s rejection of it.
82.
On November 6, 2017, Hewitt unexpectedly removed two Board members, Robert
Howard and Thomas Kerskovits, and replaced them with Nicole Ossenfort and John Seal. Mr.
Howard had served on the Audit Committee. The same day, George Robson, another Board
member, announced his retirement effective immediately. Mr. Robson had served as the chair of
the Audit Committee.
83.
Hewitt’s removal and election of directors demonstrated that despite being ousted
as CEO, he was going to attempt to maintain control of the Company through the Board.
E.
False and Misleading Statements and Omissions
84.
Throughout the Class Period, Defendants knew that Hewitt’s misconduct and
Donovan’s “spin” rendered false and misleading the Company’s public statements concerning the
effectiveness of the Company’s internal controls, that there was a “risk” that Hewitt’s personal
interests “may” be adverse to the Company, and that the Company was actively focused on
identifying and correcting fraudulent and inappropriate conduct that devalued the Company.
31 Beth Ewen, Liberty Tax Situation Not a Problem, General Counsel Says, Franchise Times (Sept.
9, 2017), http://www.franchisetimes.com/news/September-2017/Liberty-Tax-Situation-Not-a-
Problem-General-Counsel-Says/
2013
85.
On October 1, 2013, Liberty Tax filed with the SEC its Form 10-K for fiscal year
2013 (“2013 10-K”), which was signed by Defendant Hewitt. The 2013 10-K states:
We are controlled by our Chairman and Chief Executive Officer, whose interests in our
business may be different from those of our stockholders. John Hewitt, our Chairman
and Chief Executive Officer, currently owns all outstanding shares of our Class B common
stock. Our Class B common stock has the power to elect, voting as a separate class, the
minimum number of directors that constitute a majority of the Board of Directors. As a
result, Mr. Hewitt will, for the foreseeable future, have significant influence over our
management and affairs, given the Board’s authority to appoint or replace our senior
management, cause us to issue additional shares of our Class A common stock or
repurchase Class A common stock, declare dividends, or take other actions. . . . Mr. Hewitt
may make decisions regarding our Company and business that are opposed to other
stockholders’ interests or with which they disagree. . . . To the extent that the interests
of our other stockholders are harmed by the actions of Mr. Hewitt, the price of our Class
A common stock may be harmed.
86.
The bold and italicized statements in the risk disclosure in paragraph 85 were each
false and misleading and omitted material facts concerning the possibility of Hewitt’s interests
conflicting with stockholder interests and his actions possibly damaging Class A common stock
value. At the time these statements were made: (1) Hewitt’s actions and interests in the Company’s
business were, in fact, harming other stockholders because Hewitt’s actions and interests included,
among other things, furthering his romantic relationships and other personal interests by expending
millions of dollars of Company funds; (2) Hewitt made grossly reckless decisions, detailed above,
to the detriment of the Company; (3) the interests of Class A stockholders were, in fact, being
harmed by Hewitt’s actions, ultimately damaging the price of Class A common stock; and (4)
Hewitt thwarted the internal audits to test the effectiveness of the Company’s internal controls by
instilling fear in his employees and setting an unhealthy “Tone at the Top.” Hewitt and the
Company knew the foregoing statements were false and misleading at the time they were made,
because:
a.
Hewitt hired countless friends and relatives of female employees he was
seeing romantically, who were often given “outrageous” salaries and were
often hired to made up positions, despite being unqualified. These
expenditures, as described by CW2, caused the Company to exceed its new
hire budget by millions of dollars;
b.
Hewitt routinely promoted his lovers’ friends and relatives, despite their
lack of qualifications. These promotions adversely affected employee
morale;
c.
Hewitt routinely gave other preferential treatment to his girlfriends,
including extending Company business loans, selling franchises, and then
buying those franchises back at substantially inflated values, thereby
damaging shareholder value;
d.
Hewitt scheduled out-of-town meetings in cities where the New York
Yankees were playing, so that Hewitt could attend the baseball games;
e.
Hewitt engaged in other inappropriate use of Company funds, including
expensing to the Company lavish vacations with his girlfriends and
expensing charges at a New York racetrack to his Company credit card;
f.
Hewitt’s tyrannical behavior detailed herein was devastating to employee
morale, led to high turnover and created a damaging “Tone at the Top” that
prevented management from making reliable representations that its
independent auditor could rely upon for purposes of evaluating the
effectiveness of the Company’s internal controls;
g.
The Company’s internal controls were ineffective in detecting and
preventing enterprise risk and reporting fraudulent payments and benefits
to Hewitt;
h.
Hewitt had actual knowledge of his own misconduct alleged herein; and
i.
Hewitt was the CEO and controlling shareholder and his knowledge can be
imputed to the Company.
87.
On October 11, 2013, the Company filed a Form DEF 14A, authorized by Hewitt,
which included the “2013 Summary Compensation Table” for the directors and officers of the
Company. In this Table, it is reported that Hewitt received $5,835 in “Other Compensation”
regarding which the Company notes: “These amounts reflect the Company’s matching
contribution under the Company’s 401(k) plan.”
88.
The Summary Compensation Table referenced in Paragraph 87 is false and
misleading and omits material facts as to Hewitt’s “Other Compensation” because it grossly
underreports amounts received by him. As required by Item 402, see infra Section V.F.2, the
Company must report any “other” compensation as defined by the SEC or “perquisites” that confer
a direct or indirect benefit on Hewitt. Hewitt and the Company knew or recklessly disregarded
that these statements were false and misleading at the time they were made because:
a. To further his personal relationships, Hewitt directed the Company to
expend millions of dollars on unnecessary and unqualified “John Hires,”
from which he indirectly benefited;
b. To further his personal relationships, Hewitt routinely gave preferential
treatment to his girlfriends, including giving them promotions, extending
them Company business loans, selling them franchises, and then buying
those franchises back at substantially inflated values, from which he
indirectly benefited;
c. Hewitt purposefully scheduled out-of-town meetings in cities where the
New York Yankees were playing, so that Hewitt could attend the baseball
games at the Company’s expense, and he also expensed charges at a New
York racetrack, thereby directly benefitting Hewitt;
d. Hewitt expensed to the Company lavish weekend vacations with his
girlfriends that occurred at least twice a month from 2009/2010 through
March 2017, thereby directly benefitting Hewitt;
e. Hewitt had actual knowledge of his own misconduct alleged herein; and
f. Hewitt was the CEO and controlling shareholder and his knowledge can be
imputed to the Company.
2014
89.
On June 26, 2014, the Company filed with the SEC its Form 10-K for fiscal year
ended April 30, 2014 (“2014 10-K”), which is the first Class Period SEC filing that Defendant
Donovan signed. Defendant Hewitt also signed the 2014 10-K. The 2014 10-K states:
We are controlled by our Chairman and Chief Executive Officer, whose interests in our
business may be different from those of our stockholders. John Hewitt, our Chairman
and Chief Executive Officer, currently owns all outstanding shares of our Class B common
stock. Our Class B common stock has the power to elect, voting as a separate class, the
minimum number of directors that constitute a majority of the Board of Directors. As a
result, Mr. Hewitt will, for the foreseeable future, have significant influence over our
management and affairs, given the Board’s authority to appoint or replace our senior
management, cause us to issue additional shares of our Class A common stock or
repurchase Class A common stock, declare dividends, or take other actions. . . . Mr. Hewitt
may make decisions regarding our Company and business that are opposed to other
stockholders’ interests or with which they disagree. . . . To the extent that the interests
of our other stockholders are harmed by the actions of Mr. Hewitt, the price of our Class
A common stock may be harmed.
90.
The bold and italicized statements in the risk disclosure in paragraph 89 were each
false and misleading and omitted material facts concerning the possibility of Hewitt’s interests
conflicting with stockholder interests and his actions possibly damaging Class A common stock
value. At the time these statements were made: (1) Hewitt’s actions and interests in the Company’s
business were, in fact, harming other stockholders because Hewitt’s actions and interests included,
among other things, furthering his romantic relationships and other personal interests by expending
millions of dollars of Company funds; (2) Hewitt made grossly reckless decisions, detailed above,
to the detriment of the Company; (3) the interests of Class A stockholders were, in fact, being
harmed by Hewitt’s actions, ultimately damaging the price of Class A common stock; and (4)
Hewitt thwarted the internal audits to test the effectiveness of the Company’s internal controls by
instilling fear in his employees and setting an unhealthy “Tone at the Top.” Defendants knew the
foregoing statements were false and misleading at the time they were made, because:
a. Hewitt hired countless friends and relatives of female employees he was
seeing romantically, who were often given “outrageous” salaries and were
often hired to made up positions, despite being unqualified. These
expenditures, as described by CW2, caused the Company to exceed its new
hire budget by millions of dollars;
b. Hewitt routinely promoted his lovers’ friends and relatives, despite their
lack of qualifications. These promotions adversely affected employee
morale;
c. Hewitt routinely gave other preferential treatment to his girlfriends,
including extending Company business loans, selling franchises, and then
buying those franchises back at substantially inflated values, thereby
damaging shareholder value;
d. Hewitt scheduled out-of-town meetings in cities where the New York
Yankees were playing, so that Hewitt could attend the baseball games;
e. Hewitt engaged in other inappropriate use of Company funds, including
expensing to the Company lavish vacations with his girlfriends and
expensing charges at a New York racetrack to his Company credit card;
f. Hewitt’s tyrannical behavior detailed herein was devastating to employee
morale, led to high turnover, and created a damaging “Tone at the Top” that
prevented management from making reliable representations that its
independent auditor could rely upon for purposes of evaluating the
effectiveness of the Company’s internal controls;
g. The Company’s internal controls were ineffective in detecting and
preventing enterprise risk and reporting fraudulent payments and benefits
to Hewitt;
h. Hewitt had actual knowledge of his own misconduct alleged herein;
i. Hewitt was the CEO and controlling shareholder and his knowledge can be
imputed to the Company; and
j. CW2 stated that senior executives were “well aware” of Hewitt’s
misconduct. As described in detail herein, CW2 specifically noted that
Defendant Donovan was “well in the know” and regularly talked to CW2
about “spinning [Hewitt’s misconduct] for the Street,” by which she meant
Wall Street—i.e. investors—and the general public.
91.
The 2014 10-K also states:
Evaluation of Disclosure Controls and Procedures
The Company, under the supervision and with the participation of the
Company’s management, including the Company’s Chief Executive Officer and
the Chief Financial Officer, has evaluated the effectiveness of the Company’s
disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
under the Exchange Act) as of April 30, 2014. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that, as of April 30,
2014, the Company’s disclosure controls and procedures were effective in
providing reasonable assurance that material information is recorded, processed,
summarized, and reported by management of the Company on a timely basis in
order to comply with the Company’s disclosure obligations under the Exchange
Act and the rules and regulations promulgated thereunder.
Management’s Report on Internal Control Over Financial Reporting
[. . .]
Management assessed the effectiveness of the Company’s internal control
over financial reporting as of April 30, 2014. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control – Integrated
Framework (1992). Based on this assessment, management believes that, as of
April 30, 2014, the Company’s internal control over financial reporting was
effective based on those criteria.
Changes in Internal Control over Financial Reporting
During the year ended April 30, 2014, we implemented changes to our
internal controls over financial reporting to fully remediate the material weakness
identified in our evaluation of the effectiveness of our internal controls based on
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control – Integrated Framework (1992) over our
April 30, 2013 financial reporting.
The plan to remediate the material weakness was presented to our Audit
Committee and we executed our plan during fiscal 2014. The remediation plan
consisted of modifications and improvements to our internal controls in the areas
of staffing, policies and procedures, and training.
Our efforts to remediate the material weakness identified in our 2013
Annual Report on Form 10-K and to enhance our overall control environment
have been regularly reviewed with, and monitored by, our Audit Committee. We
believe the remediation measures described above have been successful in
correcting and remediating the material weakness previously identified and have
strengthened and enhanced our internal control over financial reporting.
92.
The bold and italicized statements in Paragraph 91 regarding the Company’s
internal controls were false and misleading and omitted material facts concerning Hewitt’s actions,
as described herein. At the time these statements were made, Hewitt created a “Tone at the Top”
that prevented management from: (1) correcting the systemic problems that Hewitt’s reckless and
abusive conduct caused in staffing, policies, procedures and training; (2) conducting accurate
internal audits of the Company’s internal controls; (3) and making reliable representations to its
independent auditor concerning the effectiveness of the Company’s internal controls. Defendants
knew or recklessly disregarded that these statements were false and misleading at the time they
were made for the reasons detailed in sub-parts a.–j. of Paragraph 90.
93.
On August 15, 2014, the Company filed a Form DEF 14A, authorized by the
Individual Defendants, which included the “2014 Summary Compensation Table” for the directors
and officers of the Company. In this Table, it is reported that Hewitt received $7,035 in “Other
Compensation” regarding which the Company notes: “These amounts reflect the Company’s
matching contribution under the Company’s 401(k) plan.”
94.
The Summary Compensation Table referenced in Paragraph 93 is false and
misleading and omits material facts as to Hewitt’s “Other Compensation” because it grossly
underreports amounts received by him. As required by Item 402, see infra Section V.F.2, the
Company must report any “other” compensation as defined by the SEC or perquisites that confer
a direct or indirect benefit on Hewitt. Defendants knew or recklessly disregarded that these
statements were false and misleading at the time they were made because:
a. To further his personal relationships, Hewitt directed the Company to
expend millions of dollars on unnecessary and unqualified “John Hires,”
from which he indirectly benefited;
b. To further his personal relationships, Hewitt routinely gave preferential
treatment to his girlfriends, including giving them promotions, extending
them Company business loans, selling them franchises, and then buying
those franchises back at substantially inflated values, from which he
indirectly benefited;
c. Hewitt purposefully scheduled out-of-town meetings in cities where the
New York Yankees were playing, so that Hewitt could attend the baseball
games at the Company’s expense, and he also expensed charges at a New
York racetrack, thereby directly benefitting Hewitt;
d. Hewitt expensed to the Company lavish weekend vacations with his
girlfriends that occurred at least twice a month from 2009/2010 through
March 2017, thereby directly benefitting Hewitt;
e. Hewitt had actual knowledge of his own misconduct alleged herein;
f. Hewitt was the CEO and controlling shareholder and his knowledge can be
imputed to the Company; and
g. CW2 stated that senior executives were “well aware” of Hewitt’s
misconduct. As described in detail herein, CW2 specifically noted that
Defendant Donovan was “well in the know” and regularly talked to CW2
about “spinning [Hewitt’s misconduct] for the Street,” by which she meant
Wall Street—i.e. investors—and the general public.
95.
On December 8, 2014, the Company filed with the SEC its Form 10-Q for the
quarterly period ended October 31, 2014 (“Q2 2015 10-Q”), which was signed by the Individual
Defendants. The Q2 2015 10-Q states:
RISK FACTORS
There have been no material changes in our risk factors from those reported in
our Annual Report on Form 10-K for the year ended April 30, 2014.
[…]
Evaluation of Disclosure Controls and Procedures
The Company, under the supervision and with the participation of the Company’s
management, including the Company’s Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of the Company’s disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the
Exchange Act) as of October 31, 2014. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that, as of October
31, 2014, the Company’s disclosure controls and procedures were effective in
providing reasonable assurance that information is recorded, processed,
summarized and reported by management of the Company on a timely basis in
order to comply with the Company’s disclosure obligations under the Exchange
Act and the rules and regulations promulgated thereunder.
Changes in Internal Control over Financial Reporting
During our most recent fiscal quarter, there has not occurred any change in our
internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
96.
The bold and italicized statements in Paragraph 95 regarding the Company’s risk
factors and internal controls were false and misleading and omitted material facts concerning
Hewitt’s actions, as described herein. At the time these statements were made, Hewitt created a
“Tone at the Top” that prevented management from: (1) correcting the systemic problems that
Hewitt’s reckless and abusive conduct caused in staffing, policies, procedures and training; (2)
conducting accurate internal audits of the Company’s internal controls; (3) and making reliable
representations to its independent auditor concerning the effectiveness of the Company’s internal
controls. Defendants knew or recklessly disregarded that these statements were false and
misleading at the time they were made for the reasons detailed in sub-parts a.–j. of Paragraph 90.
2015
97.
On March 6, 2015, the Company filed with the SEC its Form 10-Q for the quarterly
period ended January 31, 2015 (“Q3 2015 10-Q”), which was signed by the Individual Defendants.
The Q3 2015 10-Q states:
RISK FACTORS
There have been no material changes in our risk factors from those reported in
our Annual Report on Form 10-K for the year ended April 30, 2014.
[…]
Evaluation of Disclosure Controls and Procedures
The Company, under the supervision and with the participation of the Company’s
management, including the Company’s Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of the Company’s disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the
Exchange Act) as of January 31, 2015. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that, as of
January 31, 2015, the Company’s disclosure controls and procedures were
effective in providing reasonable assurance that information is recorded,
processed, summarized and reported by management of the Company on a timely
basis in order to comply with the Company’s disclosure obligations under the
Exchange Act and the rules and regulations promulgated thereunder.
Changes in Internal Control over Financial Reporting
During our most recent fiscal quarter, there has not occurred any change in our
internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
98.
The bold and italicized statements in Paragraph 97 regarding the Company’s risk
factors and internal controls were false and misleading and omitted material facts concerning
Hewitt’s actions, as described herein. At the time these statements were made, Hewitt created a
“Tone at the Top” that prevented management from: (1) correcting the systemic problems that
Hewitt’s reckless and abusive conduct caused in staffing, policies, procedures and training; (2)
conducting accurate internal audits of the Company’s internal controls; (3) and making reliable
representations to its independent auditor concerning the effectiveness of the Company’s internal
controls. Defendants knew or recklessly disregarded that these statements were false and
misleading at the time they were made for the reasons detailed in sub-parts a.–j. of Paragraph 90.
99.
On July 1, 2015, the Company filed with the SEC its Form 10-K for fiscal year
ended April 30, 2015 (“2015 10-K”), which was signed by the Individual Defendants. The 2015
10-K states:
We are controlled by our Chairman and Chief Executive Officer, whose interests in our
business may be different from those of our stockholders. John Hewitt, our Chairman
and Chief Executive Officer, currently owns all outstanding shares of our Class B common
stock. Our Class B common stock has the power to elect, voting as a separate class, the
minimum number of directors that constitute a majority of the Board of Directors. As a
result, Mr. Hewitt will, for the foreseeable future, have significant influence over our
management and affairs, given the Board’s authority to appoint or replace our senior
management, cause us to issue additional shares of our Class A common stock or
repurchase Class A common stock, declare dividends, or take other actions. . . . Mr. Hewitt
may make decisions regarding our Company and business that are opposed to other
stockholders’ interests or with which they disagree. . . . To the extent that the interests
of our other stockholders are harmed by the actions of Mr. Hewitt, the price of our Class
A common stock may be harmed.
100.
The bold and italicized statements in the risk disclosure in paragraph 99 were each
false and misleading and omitted material facts concerning the possibility of Hewitt’s interests
conflicting with stockholder interests and his actions possibly damaging Class A common stock
value. At the time these statements were made: (1) Hewitt’s actions and interests in the Company’s
business were, in fact, harming other stockholders because Hewitt’s actions and interests included,
among other things, furthering his romantic relationships and other personal interests by expending
millions of dollars of Company funds; (2) Hewitt made grossly reckless decisions, detailed above,
to the detriment of the Company; (3) the interests of Class A stockholders were, in fact, being
harmed by Hewitt’s actions, ultimately damaging the price of Class A common stock; and (4)
Hewitt thwarted the internal audits to test the effectiveness of the Company’s internal controls by
instilling fear in his employees and setting an unhealthy “Tone at the Top.” Defendants knew the
foregoing statements were false and misleading at the time they were made, for the reasons detailed
in sub-parts a.–j. of Paragraph 90.
101.
The 2015 10-K also states:
Evaluation of Disclosure Controls and Procedures
The Company, under the supervision and with the participation of the
Company’s management, including the Company’s Chief Executive Officer and
the Chief Financial Officer, has evaluated the effectiveness of the Company’s
disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
under the Exchange Act) as of April 30, 2015. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that, as of April 30,
2015, the Company’s disclosure controls and procedures were effective in
providing reasonable assurance that material information is recorded, processed,
summarized, and reported by management of the Company on a timely basis in
order to comply with the Company’s disclosure obligations under the Exchange
Act and the rules and regulations promulgated thereunder.
Management’s Report on Internal Control Over Financial Reporting
[. . .]
Management assessed the effectiveness of the Company’s internal control
over financial reporting as of April 30, 2015. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control – Integrated
Framework (1992). Based on this assessment, management believes that, as of
April 30, 2015, the Company’s internal control over financial reporting was
effective based on those criteria.
Changes in Internal Control over Financial Reporting
During the quarter ended April 30, 2015, there were no changes that
materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
102.
The bold and italicized statements in Paragraph 101 regarding the Company’s
internal controls were false and misleading and omitted material facts concerning Hewitt’s actions,
as described herein. At the time these statements were made, Hewitt created a “Tone at the Top”
that prevented management from: (1) correcting the systemic problems that Hewitt’s reckless and
abusive conduct caused in staffing, policies, procedures and training; (2) conducting accurate
internal audits of the Company’s internal controls; (3) and making reliable representations to its
independent auditor concerning the effectiveness of the Company’s internal controls. Defendants
knew or recklessly disregarded that these statements were false and misleading at the time they
were made for the reasons detailed in sub-parts a.–j. of Paragraph 90.
103.
On August 10, 2015, the Company filed a Form DEF 14A, authorized by the
Individual Defendants, which included the “2015 Summary Compensation Table” for the directors
and officers of the Company. In this Table, it is reported that Hewitt received $3,321 in “Other
Compensation” regarding which the Company notes: “These amounts reflect the Company’s
matching contribution under the Company’s 401(k) plan.”
104.
The Summary Compensation Table referenced in Paragraph 103 is false and
misleading and omits material facts as to Hewitt’s “Other Compensation” because it grossly
underreports amounts received by him. As required by Item 402, see infra Section V.F.2, the
Company must report any “other” compensation as defined by the SEC and perquisites that confer
a direct or indirect benefit on Hewitt. Defendants knew or recklessly disregarded that these
statements were false and misleading at the time they were made for the reasons detailed in sub-
parts a.–g. of Paragraph 94.
105.
On September 3, 2015, the Company filed with the SEC its Form 10-Q for the
quarterly period ended July 31, 2015 (“Q1 2016 10-Q”), which was signed by the Individual
Defendants. The Q1 2016 10-Q states:
RISK FACTORS
There have been no material changes in our risk factors from those reported in
our Annual Report on Form 10-K for the year ended April 30, 2015 filed on July
1, 2015.
[…]
Evaluation of Disclosure Controls and Procedures
We, under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, have evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rule 13a-
15(e) and 15d-15(e) under the Exchange Act) as of July 31, 2015. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that, as of July 31, 2015, our disclosure controls and procedures were
effective in providing reasonable assurance that information is recorded,
processed, summarized and reported by our management on a timely basis in
order to comply with our disclosure obligations under the Exchange Act and the
rules and regulations promulgated thereunder.
Changes in Internal Control over Financial Reporting
During our most recent fiscal quarter, there has not occurred any change in our
internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
106.
The bold and italicized statements in Paragraph 105 regarding the Company’s risk
factors and internal controls were false and misleading and omitted material facts concerning
Hewitt’s actions, as described herein. At the time these statements were made, Hewitt created a
“Tone at the Top” that prevented management from: (1) correcting the systemic problems that
Hewitt’s reckless and abusive conduct caused in staffing, policies, procedures and training; (2)
conducting accurate internal audits of the Company’s internal controls; (3) and making reliable
representations to its independent auditor concerning the effectiveness of the Company’s internal
controls. Defendants knew or recklessly disregarded that these statements were false and
misleading at the time they were made for the reasons detailed in sub-parts a.–j. of Paragraph 90.
107.
On December 9, 2015, the Company filed with the SEC its Form 10-Q for the
quarterly period ended October 31, 2015 (“Q2 2016 10-Q”), which was signed by the Individual
Defendants. The Q2 2016 10-Q states:
RISK FACTORS
There have been no material changes in our risk factors from those reported in
our Annual Report on Form 10-K for the year ended April 30, 2015 filed on July
1, 2015.
[…]
Evaluation of Disclosure Controls and Procedures
We, under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, have evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rule 13a-
15(e) and 15d-15(e) under the Exchange Act) as of October 31, 2015. Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that, as of October 31, 2015, our disclosure controls and procedures
were effective in providing reasonable assurance that information is recorded,
processed, summarized and reported by our management on a timely basis in
order to comply with our disclosure obligations under the Exchange Act and the
rules and regulations promulgated thereunder.
Changes in Internal Control over Financial Reporting
During our most recent fiscal quarter, there has not occurred any change in our
internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
108.
The bold and italicized statements in Paragraph 107 regarding the Company’s risk
factors and internal controls were false and misleading and omitted material facts concerning
Hewitt’s actions, as described herein. At the time these statements were made, Hewitt created a
“Tone at the Top” that prevented management from: (1) correcting the systemic problems that
Hewitt’s reckless and abusive conduct caused in staffing, policies, procedures and training; (2)
conducting accurate internal audits of the Company’s internal controls; (3) and making reliable
representations to its independent auditor concerning the effectiveness of the Company’s internal
controls. Defendants knew or recklessly disregarded that these statements were false and
misleading at the time they were made for the reasons detailed in sub-parts a.–j. of Paragraph 90,
and also because:
a. In October 2015, Hewitt bought La Bella Italia and directed Liberty Tax
resources to La Bella Italia by hosting Liberty Tax corporate events at the
restaurant and using Liza Milinis, a Liberty Tax employee, to run La Bella
Italia rather than performing her duties at Liberty Tax.
2016
109.
On March 3, 2016, the Company filed with the SEC its Form 10-Q for the quarterly
period ended January 31, 2016 (“Q3 2016 10-Q”), which was signed by the Individual Defendants.
The Q3 2016 10-Q states:
RISK FACTORS
There have been no material changes in our risk factors from those reported in
our Annual Report on Form 10-K for the year ended April 30, 2015 filed on July
1, 2015.
[…]
Evaluation of Disclosure Controls and Procedures
We, under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, have evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rule 13a-
15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") as of January 31, 2016. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that, as of
January 31, 2016, our disclosure controls and procedures were effective in
providing reasonable assurance that information required to be disclosed by us
in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported by our management on a timely basis in
order to comply with our disclosure obligations under the Exchange Act and the
rules and regulations promulgated thereunder.
Changes in Internal Control over Financial Reporting
During our most recent fiscal quarter ended January 31, 2016, there has not
occurred any change in our internal control over financial reporting that has
materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
110.
The bold and italicized statements in Paragraph 109 regarding the Company’s risk
factors and internal controls were false and misleading and omitted material facts concerning
Hewitt’s actions, as described herein. At the time these statements were made, Hewitt created a
“Tone at the Top” that prevented management from: (1) correcting the systemic problems that
Hewitt’s reckless and abusive conduct caused in staffing, policies, procedures and training; (2)
conducting accurate internal audits of the Company’s internal controls; (3) and making reliable
representations to its independent auditor concerning the effectiveness of the Company’s internal
controls. Defendants knew or recklessly disregarded that these statements were false and
misleading at the time they were made for the reasons detailed in sub-parts a.–j. of Paragraph 90,
and also because:
a. In October 2015, Hewitt bought La Bella Italia and directed Liberty Tax
resources to La Bella Italia by hosting Liberty Tax corporate events at the
restaurant and using Liza Milinis, a Liberty Tax employee, to run La Bella
Italia rather than performing her duties at Liberty Tax; and
b. In November 2015, Hewitt was overheard having sex with a female
employee in his office multiple Saturdays in a row, leading to employee
complaints, and ultimately led to the threat of a lawsuit based on hostile
work environment relating to his sexual activity. To the benefit of Hewitt,
the Company settled the claim for $500,000. This settlement represented
over 2.5% of the Company’s income that fiscal year.
111.
On March 4, 2016, the Company conducted a quarterly earnings call to discuss its
third quarter 2016 financial results. During the call, Hewitt emphasized the Company’s
commitment to rooting out fraud and other misconduct at the Company, stating that “[p]revention
of fraud remains a fundamental goal of our Company,” and that “any inappropriate behavior
affects our brand and the integrity of the tax system.”32
112.
The bold and italicized statement in Paragraph 111 regarding the importance of
preventing fraud and inappropriate behavior at the Company was false and misleading and omitted
material facts concerning Hewitt’s reckless and “inappropriate behavior” that at the time the
statement was made, his acts were negatively “affect[ing] our brand and the integrity of the tax
system.” Further, by his own actions, Hewitt knew that Defendants were not actively aspiring to
achieve this “fundamental goal” and in fact were taking no meaningful actions toward it. Hewitt
knew or recklessly disregarded that these statements were false and misleading at the time they
were made for the reasons detailed in sub-parts a.–i. of Paragraph 90, and also because:
a. In October 2015, Hewitt bought La Bella Italia and directed Liberty Tax
resources to La Bella Italia by hosting Liberty Tax corporate events at the
restaurant and used Liza Milinis, a Liberty Tax employee, to run La Bella
Italia rather than performing her duties at Liberty Tax; and
b. In November 2015, Hewitt was overheard having sex with a female
employee in his office multiple Saturdays in a row, leading to employee
complaints, and ultimately led to the threat of a lawsuit based on hostile
work environment relating to his sexual activity, which the Company settled
for $500,000. This settlement represented over 2.5% of the Company’s
income that fiscal year.
32 Liberty Tax, Inc., Q3 2016 Earnings Call Transcript (March 4, 2016)
113.
On June 29, 2016, the Company filed with the SEC its Form 10-K for fiscal year
ended April 30, 2016 (“2016 10-K”), which was signed by the Individual Defendants. The 2016
10-K states:
We are controlled by our Chairman and Chief Executive Officer, whose interests in our
business may be different from those of our stockholders. John Hewitt, our Chairman
and Chief Executive Officer, currently owns all outstanding shares of our Class B common
stock. Our Class B common stock has the power to elect, voting as a separate class, the
minimum number of directors that constitute a majority of the Board of Directors. As a
result, Mr. Hewitt will, for the foreseeable future, have significant influence over our
management and affairs, given the Board’s authority to appoint or replace our senior
management, cause us to issue additional shares of our Class A common stock or
repurchase Class A common stock, declare dividends, or take other actions. . . . Mr. Hewitt
may make decisions regarding our Company and business that are opposed to other
stockholders’ interests or with which they disagree. . . . To the extent that the interests
of our other stockholders are harmed by the actions of Mr. Hewitt, the price of our Class
A common stock may be harmed.
114.
The bold and italicized statements in the risk disclosure in paragraph 113 were each
false and misleading and omitted material facts concerning the possibility of Hewitt’s interests
conflicting with stockholder interests and his actions possibly damaging Class A common stock
value. At the time these statements were made: (1) Hewitt’s actions and interests in the Company’s
business were, in fact, harming other stockholders because Hewitt’s actions and interests included,
among other things, furthering his romantic relationships and other personal interests by expending
millions of dollars of Company funds; (2) Hewitt made grossly reckless decisions, detailed above,
to the detriment of the Company; (3) the interests of Class A stockholders were, in fact, being
harmed by Hewitt’s actions, ultimately damaging the price of Class A common stock; and (4)
Hewitt thwarted the internal audits to test the effectiveness of the Company’s internal controls by
instilling fear in his employees and setting an unhealthy “Tone at the Top.” Defendants knew the
foregoing statements were false and misleading at the time they were made for the reasons detailed
in sub-parts a.–j. of Paragraph 90, and also because:
a. In October 2015, Hewitt bought La Bella Italia and directed Liberty Tax
resources to La Bella Italia by hosting Liberty Tax corporate events at the
restaurant and used Liza Milinis, a Liberty Tax employee, to run La Bella
Italia rather than performing her duties at Liberty Tax; and
b. In November 2015, Hewitt was overheard having sex with a female
employee in his office multiple Saturdays in a row, leading to employee
complaints, and ultimately led to the threat of a lawsuit based on hostile
work environment relating to his sexual activity, which the Company settled
for $500,000. This settlement represented over 2.5% of the Company’s
income that fiscal year.
115.
The 2016 10-K also states:
Evaluation of Disclosure Controls and Procedures
The Company, under the supervision and with the participation of the
Company’s management, including the Company’s Chief Executive Officer and
the Chief Financial Officer, has evaluated the effectiveness of the Company’s
disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
under the Exchange Act) as of April 30, 2016. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that, as of April 30,
2016, the Company’s disclosure controls and procedures were effective in
providing reasonable assurance that material information is recorded, processed,
summarized, and reported by management of the Company on a timely basis in
order to comply with the Company’s disclosure obligations under the Exchange
Act and the rules and regulations promulgated thereunder.
Management’s Report on Internal Control Over Financial Reporting
[. . .]
Management assessed the effectiveness of the Company’s internal control
over financial reporting as of April 30, 2016. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control – Integrated
Framework (2013). Based on this assessment, management believes that, as of
April 30, 2016, the Company’s internal control over financial reporting was
effective based on those criteria.
Changes in Internal Control over Financial Reporting
During the quarter ended April 30, 2016, there were no changes that
materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
116.
The bold and italicized statements in Paragraph 115 regarding the Company’s
internal controls were false and misleading and omitted material facts concerning Hewitt’s actions,
as described herein. At the time these statements were made, Hewitt created a “Tone at the Top”
that prevented management from: (1) correcting the systemic problems that Hewitt’s reckless and
abusive conduct caused in staffing, policies, procedures and training; (2) conducting accurate
internal audits of the Company’s internal controls; (3) and making reliable representations to its
independent auditor concerning the effectiveness of the Company’s internal controls. Defendants
knew or recklessly disregarded that these statements were false and misleading at the time they
were made for the reasons detailed in sub-parts a.–j. of Paragraph 90, and also because:
a. In October 2015, Hewitt bought La Bella Italia and directed Liberty Tax
resources to La Bella Italia by hosting Liberty Tax corporate events at the
restaurant and used Liza Milinis, a Liberty Tax employee, to run La Bella
Italia rather than performing her duties at Liberty Tax; and
b. In November 2015, Hewitt was overheard having sex with a female
employee in his office multiple Saturdays in a row, leading to employee
complaints, and ultimately led to the threat of a lawsuit based on hostile
work environment relating to his sexual activity, which the Company settled
for $500,000. This settlement represented over 2.5% of the Company’s
income that fiscal year.
117.
The 2016 10-K also states:
We also use a variety of means in an attempt to identify potential compliance issues
and require franchisees to address any concerns, including the creation of a
Compliance Task Force to examine and prevent non-compliance, fraud and other
misconduct among our franchisees and employees.
[. . .]
Our stock price has been, and may continue to be, subject to wide fluctuations in
response to many risk factors listed in this section . . . including: . . . fraud and other
misconduct by our franchisees and/or employees[.]
118.
The quoted statements in Paragraph 117 regarding the Company’s specific efforts
to prevent non-compliance, fraud, and other misconduct among employees and the risks such fraud
and misconduct pose to the Company’s stock price were false and misleading and omitted material
facts concerning Hewitt’s inappropriate “Tone at the Top” that prevented the Compliance Task
Force from performing its stated purpose and reporting the fraud described herein. Defendants
knew or recklessly disregarded that these statements were false and misleading at the time they
were made for the reasons detailed in sub-parts a.–j. of Paragraph 90, and also because:
a. In October 2015, Hewitt bought La Bella Italia and directed Liberty Tax
resources to La Bella Italia by hosting Liberty Tax corporate events at the
restaurant and used Liza Milinis, a Liberty Tax employee, to run La Bella
Italia rather than performing her duties at Liberty Tax; and
b. In November 2015, Hewitt was overheard having sex with a female
employee in his office multiple Saturdays in a row, leading to employee
complaints, and ultimately led to the threat of a lawsuit based on hostile
work environment relating to his sexual activity, which the Company settled
for $500,000. This settlement represented over 2.5% of the Company’s
income that fiscal year.
119.
On August 8, 2016, the Company filed a Form DEF 14A, authorized by the
Individual Defendants, which included the “2016 Summary Compensation Table” for the directors
and officers of the Company. In this Table, it is reported that Hewitt received no “Other
Compensation.”
120.
The Summary Compensation Table referenced in Paragraph 119 is false and
misleading and omits material facts as to Hewitt’s “Other Compensation” because it does not
report amounts received by him. As required by Item 402, see infra Section V.F.2, the Company
must report any “other” compensation as defined by the SEC and perquisites that confer a direct
or indirect benefit on Hewitt. Defendants knew or recklessly disregarded that these statements
were false and misleading at the time they were made for the reasons detailed in sub-parts a.–g. of
Paragraph 94, and also because:
a. Hewitt directed Liberty Tax money and resources to his restaurant La Bella
Italia by hosting Company events at the restaurant and by using Liza
Milinis, a Liberty Tax employee, to run La Bella Italia rather than
performing her duties at Liberty Tax, thereby directly benefitting Hewitt;
and
b. The Company paid $500,000 to settle a threatened lawsuit based on hostile
work environment relating to Hewitt’s sexual activity in the office, thereby
directly benefiting Hewitt.
121.
On September 2, 2016, the Company filed with the SEC its Form 10-Q for the
quarterly period ended July 31, 2016 (“Q1 2017 10-Q”), which was signed by the Individual
Defendants. The Q1 2017 10-Q states:
RISK FACTORS
There have been no material changes in our risk factors from those reported in
our Annual Report on Form 10-K for the year ended April 30, 2016 filed with the
SEC.
[…]
Evaluation of Disclosure Controls and Procedures
We, under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, have evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rule 13a-
15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") as of July 31, 2016. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that, as of July
31, 2016, our disclosure controls and procedures were effective in providing
reasonable assurance that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported by our management on a timely basis in order to
comply with our disclosure obligations under the Exchange Act and the rules and
regulations promulgated thereunder.
Changes in Internal Control over Financial Reporting
During our most recent fiscal quarter ended July 31, 2016, there has not occurred
any change in our internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
122.
The bold and italicized statements in Paragraph 121 regarding the Company’s risk
factors and internal controls were false and misleading and omitted material facts concerning
Hewitt’s actions, as described herein. At the time these statements were made, Hewitt created a
“Tone at the Top” that prevented management from: (1) correcting the systemic problems that
Hewitt’s reckless and abusive conduct caused in staffing, policies, procedures and training; (2)
conducting accurate internal audits of the Company’s internal controls; (3) and making reliable
representations to its independent auditor concerning the effectiveness of the Company’s internal
controls. Defendants knew or recklessly disregarded that these statements were false and
misleading at the time they were made for the reasons detailed in sub-parts a.–j. of Paragraph 90,
and also because:
a. In October 2015, Hewitt bought La Bella Italia and directed Liberty Tax
resources to La Bella Italia by hosting Liberty Tax corporate events at the
restaurant and using Liza Milinis, a Liberty Tax employee, to run La Bella
Italia rather than performing her duties at Liberty Tax; and
b. In November 2015, Hewitt was overheard having sex with a female
employee in his office multiple Saturdays in a row, leading to employee
complaints, and ultimately led to the threat of a lawsuit based on hostile
work environment relating to his sexual activity, which the Company settled
for $500,000. This settlement represented over 2.5% of the Company’s
income that fiscal year.
123.
On September 2, 2016, the Company also conducted a quarterly earnings call to
discuss its Q1 2017 financial results. During the call, Hewitt again emphasized the Company’s
commitment to rooting out fraud and other misconduct at the Company, stating that “we have
continued to intensify our compliance efforts and are committed to a full review in association
with the external consultants to ensure all of our franchisees, area developers and employees
are held to the highest standards.”33
124.
The bold and italicized language in Paragraph 123 was false and misleading and
omitted material facts because management was failing to hold Hewitt to the “highest standard”
but rather was knowingly or recklessly permitting him to engage in reckless and fraudulent
conduct. Further, by his own actions, Hewitt knew that Defendants were not actively aspiring to
“hold” employees “to the highest standards” and in fact were taking no meaningful actions toward
33 Liberty Tax, Inc., Q1 2017 Earnings Call Transcript (Sept. 2, 2016)
doing so. Hewitt knew or recklessly disregarded that these statements were false and misleading
at the time they were made for the reasons detailed in sub-parts a.–j. of Paragraph 90, and also
because:
a. In October 2015, Hewitt bought La Bella Italia and directed Liberty Tax
resources to La Bella Italia by hosting Liberty Tax corporate events at the
restaurant and using Liza Milinis, a Liberty Tax employee, to run La Bella
Italia rather than performing her duties at Liberty Tax; and
b. In November 2015, Hewitt was overheard having sex with a female
employee in his office multiple Saturdays in a row, leading to employee
complaints, and ultimately led to the threat of a lawsuit based on hostile
work environment relating to his sexual activity, which the Company settled
for $500,000. This settlement represented over 2.5% of the Company’s
income that fiscal year.
125.
On December 8, 2016, the Company conducted a quarterly earnings call to discuss
its Q2 2017 financial results. During the call, Hewitt again emphasized the Company’s
commitment to rooting out fraud and other misconduct at the Company, stating that “[w]e are
focused on compliance . . . [and l]ast year worked to put in place measures to ensure we will be
a stronger company built on a foundation of integrity.” Hewitt further stated that “Our
compliance task force was very successful in analyzing, reviewing and evaluating the work of
our compliance department and taking appropriate action to ensure that the standards of the
Liberty brand are upheld and that those who do not uphold Liberty standards are exited from
the Liberty system.” Hewitt went to state that the Company is “committed to being proactive . . .
to protect our brand and the integrity of tax preparation in general. We are focused
on . . . working to ensure that those we bring on to represent the Liberty brand are upholding our
standards.”34
34 Liberty Tax, Inc., Q2 2017 Earnings Call Transcript (Dec. 8, 2016)
126.
The bold and italicized language in Paragraph 125 regarding specific efforts
undertaken to ensure the integrity of the Company, the compliance task force’s work to ensure the
Company’s standards are upheld and to remove those not meeting standards of conduct was false
and misleading and omitted material facts because Hewitt engaged in the egregious misconduct
and fraud described herein and the inappropriate “Tone at the Top” he set prevented the
compliance task force from fulfilling its intended purpose. Further, by his own actions, Hewitt
knew that Defendants were not actively “protecting [the Company’s] brand and the integrity of tax
preparations in general.” Hewitt knew or recklessly disregarded that these statements were false
and misleading at the time they were made for the reasons detailed in sub-parts a.–j. of Paragraph
90, and also because:
a. In October 2015, Hewitt bought La Bella Italia and directed Liberty Tax
resources to La Bella Italia by hosting Liberty Tax corporate events at the
restaurant and using Liza Milinis, a Liberty Tax employee, to run La Bella
Italia rather than performing her duties at Liberty Tax; and
b. In November 2015, Hewitt was overheard having sex with a female
employee in his office multiple Saturdays in a row, leading to employee
complaints, and ultimately led to the threat of a lawsuit based on hostile
work environment relating to his sexual activity, which the Company settled
for $500,000. This settlement represented over 2.5% of the Company’s
income that fiscal year.
127.
On December 9, 2016, the Company filed with the SEC its Form 10-Q for the
quarterly period ended October 31, 2016 (“Q2 2017 10-Q”), which was signed by the Individual
Defendants. The Q2 2017 10-Q states:
RISK FACTORS
There have been no material changes in our risk factors from those previously
disclosed in Part I. Item 1A of our Annual Report on Form 10-K for the year
ended April 30, 2016.
[…]
Evaluation of Disclosure Controls and Procedures
We, under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, have evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rules 13a-
15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as of October 31, 2016. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that, as of October
31, 2016, our disclosure controls and procedures were effective in providing
reasonable assurance that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported by our management on a timely basis in order to
comply with our disclosure obligations under the Exchange Act and the rules and
regulations promulgated thereunder.
Changes in Internal Control over Financial Reporting
During our most recent fiscal quarter ended October 31, 2016, there were no
changes in our internal control over financial reporting (as defined in Rules 13a-
15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
128.
The bold and italicized statements in Paragraph 127 regarding the Company’s risk
factors and internal controls were false and misleading and omitted material facts concerning
Hewitt’s actions, as described herein. At the time these statements were made, Hewitt created a
“Tone at the Top” that prevented management from: (1) correcting the systemic problems that
Hewitt’s reckless and abusive conduct caused in staffing, policies, procedures and training; (2)
conducting accurate internal audits of the Company’s internal controls; (3) and making reliable
representations to its independent auditor concerning the effectiveness of the Company’s internal
controls. Defendants knew or recklessly disregarded that these statements were false and
misleading at the time they were made for the reasons detailed in sub-parts a.–j. of Paragraph 90,
and also because:
a. In October 2015, Hewitt bought La Bella Italia and directed Liberty Tax
resources to La Bella Italia by hosting Liberty Tax corporate events at the
restaurant and using Liza Milinis, a Liberty Tax employee, to run La Bella
Italia rather than performing her duties at Liberty Tax; and
b. In November 2015, Hewitt was overheard having sex with a female
employee in his office multiple Saturdays in a row, leading to employee
complaints, and ultimately led to the threat of a lawsuit based on hostile
work environment relating to his sexual activity, which the Company settled
for $500,000. This settlement represented over 2.5% of the Company’s
income that fiscal year.
2017
129.
On March 8, 2017, the Company conducted a quarterly earnings call to discuss its
Q3 2017 financial results. During the call, Hewitt again emphasized the Company’s commitment
to rooting out fraud and other misconduct at the Company, stating:
In addition to engaging outside industry experts, we have continued to expand the
size and scope of our internal compliance efforts, as well as invested in the
development of enhanced internal processes and procedures. As we stated before,
there is no place in the Liberty system for those who do not uphold our standards
or abide by the law. And we feel the investments we made are key to maintaining
the integrity of the Liberty brand.35
130.
The entire quoted text in Paragraph 129 regarding specific efforts undertaken to
ensure compliance, maintain the integrity of the Liberty Tax brand, and to remove Liberty Tax
employees who do not uphold Company standards and abide by the law was false and misleading
and omitted material facts because Hewitt engaged in the egregious misconduct and fraud
described herein, including by engaging in illegal conduct including retaliating against employees
for protected activity, and by creating an inappropriate “Tone at the Top” which prevented the
Company’s internal compliance task force from fulfilling its intended purpose. Hewitt knew or
recklessly disregarded that these statements were false and misleading at the time they were made
for the reasons detailed in sub-parts a.–j. of Paragraph 90, and also because:
a. In October 2015, Hewitt bought La Bella Italia and directed Liberty Tax
resources to La Bella Italia by hosting Liberty Tax corporate events at the
restaurant and using Liza Milinis, a Liberty Tax employee, to run La Bella
Italia rather than performing her duties at Liberty Tax; and
b. In November 2015, Hewitt was overheard having sex with a female
employee in his office multiple Saturdays in a row, leading to employee
complaints, and ultimately led to the threat of a lawsuit based on hostile
work environment relating to his sexual activity, which the Company settled
35 Liberty Tax, Inc., Q3 2017 Earnings Call Transcript (March 8, 2017)
for $500,000. This settlement represented over 2.5% of the Company’s
income that fiscal year.
131.
On March 9, 2017, the Company filed with the SEC its Form 10-Q for the quarterly
period ended January 31, 2017 (“Q3 2017 10-Q”), which was signed by the Individual Defendants.
The Q3 2017 10-Q states:
RISK FACTORS
There have been no material changes in our risk factors from those previously
disclosed in Part I. Item 1A of our Annual Report on Form 10-K for the year
ended April 30, 2016.
[…]
Evaluation of Disclosure Controls and Procedures
We, under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, have evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rules 13a-
15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as of January 31, 2017. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that, as of
January 31, 2017, our disclosure controls and procedures were effective in
providing reasonable assurance that information required to be disclosed by us
in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported by our management on a timely basis in
order to comply with our disclosure obligations under the Exchange Act and the
rules and regulations promulgated thereunder.
Changes in Internal Control over Financial Reporting
During our most recent fiscal quarter ended January 31, 2017, there were no
changes in our internal control over financial reporting (as defined in Rules 13a-
15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
132.
The bold and italicized statements in Paragraph 131 regarding the Company’s risk
factors and internal controls were false and misleading because they omitted material facts
concerning Hewitt’s actions, as described herein. At the time these statements were made, Hewitt
created a “Tone at the Top” that prevented management from: (1) correcting the systemic problems
that Hewitt’s reckless and abusive conduct caused in staffing, policies, procedures and training;
(2) conducting accurate internal audits of the Company’s internal controls; and (3) making reliable
representations to its independent auditor concerning the effectiveness of the Company’s internal
controls. Defendants knew or recklessly disregarded that these statements were false and
misleading at the time they were made for the reasons detailed in sub-parts a.–j. of Paragraph 90,
and also because:
a. In October 2015, Hewitt bought La Bella Italia and directed Liberty Tax
resources to La Bella Italia by hosting Liberty Tax corporate events at the
restaurant and using Liza Milinis, a Liberty Tax employee, to run La Bella
Italia rather than performing her duties at Liberty Tax; and
b. In November 2015, Hewitt was overheard having sex with a female
employee in his office multiple Saturdays in a row, leading to employee
complaints, and ultimately led to the threat of a lawsuit based on hostile
work environment relating to his sexual activity, which the Company settled
for $500,000. This settlement represented over 2.5% of the Company’s
income that fiscal year.
133.
On June 14, 2017, the Company conducted a quarterly earnings call to discuss its
year end 2017 financial results. During the call, Hewitt again emphasized the Company’s
commitment to rooting out fraud and other misconduct at the Company, stating: “[w]e have said
and will continue to say there is no room in the Liberty system for individuals who do not meet
our standards and follow the law. We look forward to upholding these values.”36
134.
The bold and italicized language in Paragraph 133 regarding removing Liberty Tax
employees who do not uphold Company standards and abide by the law was false and misleading
and omitted material facts because Hewitt engaged in the egregious misconduct and fraud
described herein, including by engaging in illegal conduct including retaliating against employees
for protected activity, and by creating an inappropriate “Tone at the Top” which prevented the
Company’s internal compliance task force from fulfilling its intended purpose. Hewitt knew or
36 Liberty Tax, Inc., Year End 2017 Earnings Call Transcript (June 14, 2017)
recklessly disregarded that these statements were false and misleading for the reasons detailed in
sub-parts a.–j. of Paragraph 90, and also because:
a. In October 2015, Hewitt bought La Bella Italia and directed Liberty Tax
resources to La Bella Italia by hosting Liberty Tax corporate events at the
restaurant and using Liza Milinis, a Liberty Tax employee, to run La Bella
Italia rather than performing her duties at Liberty Tax; and
b. In November 2015, Hewitt was overheard having sex with a female
employee in his office multiple Saturdays in a row, leading to employee
complaints, and ultimately led to the threat of a lawsuit based on hostile
work environment relating to his sexual activity, which the Company settled
for $500,000. This settlement represented over 2.5% of the Company’s
income that fiscal year.
135.
On July 7, 2017, the Company filed with the SEC its Form 10-K for fiscal year
ended April 30, 2017 (“2017 10-K”), which was signed by the Individual Defendants. The 2017
10-K states:
We are controlled by our Chairman and Chief Executive Officer, whose interests in our
business may be different from those of our stockholders. John Hewitt, our Chairman
and Chief Executive Officer, currently owns all outstanding shares of our Class B common
stock. Our Class B common stock has the power to elect, voting as a separate class, the
minimum number of directors that constitute a majority of the Board of Directors. As a
result, Mr. Hewitt will, for the foreseeable future, have significant influence over our
management and affairs, given the Board’s authority to appoint or replace our senior
management, cause us to issue additional shares of our Class A common stock or
repurchase Class A common stock, declare dividends, or take other actions. . . . Mr. Hewitt
may make decisions regarding our Company and business that are opposed to other
stockholders’ interests or with which they disagree. . . . To the extent that the interests
of our other stockholders are harmed by the actions of Mr. Hewitt, the price of our Class
A common stock may be harmed.
136.
The bold and italicized statements in the risk disclosure in paragraph 135 were each
false and misleading and omitted material facts concerning the possibility of Hewitt’s interests
conflicting with stockholder interests and his actions possibly damaging Class A common stock
value. At the time these statements were made: (1) Hewitt’s actions and interests in the Company’s
business were, in fact, harming other stockholders because Hewitt’s actions and interests included,
among other things, furthering his romantic relationships and other personal interests by expending
millions of dollars of Company funds; (2) Hewitt made grossly reckless decisions, detailed above,
to the detriment of the Company; (3) the interests of Class A stockholders were, in fact, being
harmed by Hewitt’s actions, ultimately damaging the price of Class A common stock; and (4)
Hewitt thwarted the internal audits to test the effectiveness of the Company’s internal controls by
instilling fear in his employees and setting an unhealthy “Tone at the Top.” Defendants knew the
foregoing statements were false and misleading at the time they were made for the reasons detailed
in sub-parts a.–j. of Paragraph 90, and also because:
a. In October 2015, Hewitt bought La Bella Italia and directed Liberty Tax
resources to La Bella Italia by hosting Liberty Tax corporate events at the
restaurant and using Liza Milinis, a Liberty Tax employee, to run La Bella
Italia rather than performing her duties at Liberty Tax; and
b. In November 2015, Hewitt was overheard having sex with a female
employee in his office multiple Saturdays in a row, leading to employee
complaints, and ultimately led to the threat of a lawsuit based on hostile
work environment relating to his sexual activity, which the Company settled
for $500,000. This settlement represented over 2.5% of the Company’s
income that fiscal year.
137.
The 2017 10-K also states:
Evaluation of Disclosure Controls and Procedures
The Company, under the supervision and with the participation of the
Company’s management, including the Company’s Chief Executive Officer and
the Chief Financial Officer, has evaluated the effectiveness of the Company’s
disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
under the Exchange Act) as of April 30, 2017. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that, as of April 30,
2016, the Company’s disclosure controls and procedures were effective in
providing reasonable assurance that material information is recorded, processed,
summarized, and reported by management of the Company on a timely basis in
order to comply with the Company’s disclosure obligations under the Exchange
Act and the rules and regulations promulgated thereunder.
Management’s Report on Internal Control Over Financial Reporting
[. . .]
Management assessed the effectiveness of the Company’s internal control
over financial reporting as of April 30, 2017. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control – Integrated
Framework (2013). Based on this assessment, management believes that, as of
April 30, 2017, the Company’s internal control over financial reporting was
effective based on those criteria.
Changes in Internal Control over Financial Reporting
During the quarter ended April 30, 2017, there were no changes that
materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
138.
The bold and italicized statements in Paragraph 137 regarding the Company’s
internal controls were false and misleading and omitted material facts concerning Hewitt’s actions,
as described herein. At the time these statements were made, Hewitt created a “Tone at the Top”
that prevented management from: (1) correcting the systemic problems that Hewitt’s reckless and
abusive conduct caused in staffing, policies, procedures and training; (2) conducting accurate
internal audits of the Company’s internal controls; and (3) making reliable representations to its
independent auditor concerning the effectiveness of the Company’s internal controls. Defendants
knew or recklessly disregarded that these statements were false and misleading at the time they
were made for the reasons detailed in sub-parts a.–j. of Paragraph 90, and also because:
a. In October 2015, Hewitt bought La Bella Italia and directed Liberty Tax
resources to La Bella Italia by hosting Liberty Tax corporate events at the
restaurant and using Liza Milinis, a Liberty Tax employee, to run La Bella
Italia rather than performing her duties at Liberty Tax; and
b. In November 2015, Hewitt was overheard having sex with a female
employee in his office multiple Saturdays in a row, leading to employee
complaints, and ultimately led to the threat of a lawsuit based on hostile
work environment relating to his sexual activity, which the Company settled
for $500,000. This settlement represented over 2.5% of the Company’s
income that fiscal year.
139.
The 2017 10-K also stated:
We also use a variety of means in an attempt to identify potential compliance issues and
require franchisees to address any concerns, including the creation of a Compliance Task
Force to examine and prevent non-compliance, fraud and other misconduct among our
franchisees and employees.
[. . .]
Our stock price has been, and may continue to be, subject to wide fluctuations in
response to many risk factors listed in this section . . . including: . . . fraud and other
misconduct by our franchisees and/or employees[.]
140.
The quoted text in Paragraph 139 regarding the Company’s specific efforts to
prevent non-compliance, fraud, and other misconduct among employees and the risks such fraud
and misconduct pose to the Company’s stock price was false and misleading and omitted material
facts because Hewitt engaged in the egregious misconduct and fraud described herein. Defendants
knew or recklessly disregarded that these statements were false and misleading for the reasons
detailed in sub-parts a.–j. of Paragraph 90, and also because:
a. In October 2015, Hewitt bought La Bella Italia and directed Liberty Tax
resources to La Bella Italia by hosting Liberty Tax corporate events at the
restaurant and using Liza Milinis, a Liberty Tax employee, to run La Bella
Italia rather than performing her duties at Liberty Tax; and
b. In November 2015, Hewitt was overheard having sex with a female
employee in his office multiple Saturdays in a row, leading to employee
complaints, and ultimately led to the threat of a lawsuit based on hostile
work environment relating to his sexual activity, which the Company settled
for $500,000. This settlement represented over 2.5% of the Company’s
income that fiscal year.
141.
On August 14, 2017, the Company filed a Form DEF 14A, authorized by the
Individual Defendants, which included the “2017 Summary Compensation Table” for the directors
and officers of the Company. In this Table, it is reported that Hewitt received $15,731 in “Other
Compensation” regarding which the Company notes: “These amounts reflect the Company’s
matching contribution under the Company’s 401(k) plan.”
142.
The Summary Compensation Table referenced in Paragraph 141 is false and
misleading and omits material facts as to Hewitt’s “Other Compensation” because it grossly
underreports amounts received by him. As required by Item 402, see infra Section V.F.2, the
Company must report any “other” compensation as defined by the SEC and perquisites that confer
a direct or indirect benefit on Hewitt. Defendants knew or recklessly disregarded that these
statements were false and misleading at the time they were made for the reasons detailed in sub-
parts a.–g. of Paragraph 94, and also because:
a. Hewitt directed Liberty Tax money and resources to his restaurant La Bella
Italia by hosting Company events at the restaurant and by using Liza
Milinis, a Liberty Tax employee, to run La Bella Italia rather than
performing her duties at Liberty Tax, thereby directly benefitting Hewitt;
and
b. The Company paid $500,000 to settle a threatened lawsuit based on hostile
work environment relating to Hewitt’s sexual activity in the office, thereby
directly benefiting Hewitt.
143.
On September 6, 2017, the Company issued a press release stating:
. . . John T. Hewitt, the Company’s Chief Executive Officer and Chairman, was
terminated yesterday by the Company’s Board of Directors (the “Board”), effective
immediately. Mr. Hewitt, who is the sole holder of the Company’s Class B common
stock (“Class B Shares”), currently remains on the Board.
The Company had engaged in a deliberate succession planning process, which
resulted in Ed Brunot joining the Company as Chief Operating Officer as an
interim step before assuming the role of CEO. The Company is currently
finalizing its succession plans, however, the Board has determined that it is in the
Company’s best interests to terminate Mr. Hewitt at this time. The Company
intends to announce the new CEO appointment in the coming days.
144.
The bold and italicized statement in Paragraph 143 is false and misleading and
omitted material facts because (1) the Company failed to inform investors of the reasons for the
Board’s termination of Hewitt that was at least premised upon the Skadden investigation; and (2)
the statement suggests Hewitt’s termination was related to the “deliberate succession planning
process” as opposed to his egregious misconduct detailed herein.
145.
On September 11, 2017, the Company filed with the SEC its Form 10-Q for the
quarterly period ended July 31, 2017 (“Q1 2018 10-Q”), which was signed by Defendant Donovan.
The Q1 2018 10-Q states:
RISK FACTORS
There have been no material changes to our risk factors previously disclosed in
Part I. Item 1A of our Annual Report on Form 10-K for the year ended April 30,
2017.
[…]
Evaluation of Disclosure Controls and Procedures
We, under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, have evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rules 13a-
15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as of July 31, 2017. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that, as of July
31, 2017, our disclosure controls and procedures were effective in providing
reasonable assurance that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported by our management on a timely basis in order to
comply with our disclosure obligations under the Exchange Act and the rules and
regulations promulgated thereunder.
Changes in Internal Control over Financial Reporting
During our most recent fiscal quarter ended July 31, 2017, there were no changes
in our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
146.
The bold and italicized statements in Paragraph 145 regarding the Company’s
internal controls were false and misleading and omitted material facts concerning Hewitt’s actions,
as described herein. At the time these statements were made, Hewitt created a “Tone at the Top”
that prevented management from: (1) correcting the systemic problems that Hewitt’s reckless and
abusive conduct caused in staffing, policies, procedures and training; (2) conducting accurate
internal audits of the Company’s internal controls; and (3) making reliable representations to its
independent auditor concerning the effectiveness of the Company’s internal controls. The
Company and Defendant Donovan knew or recklessly disregarded that these statements were false
and misleading at the time they were made for the reasons detailed in sub-parts a.–g. of Paragraph
90, and also because:
a. In October 2015, Hewitt bought La Bella Italia and directed Liberty Tax
resources to La Bella Italia by hosting Liberty Tax corporate events at the
restaurant and using Liza Milinis, a Liberty Tax employee, to run La Bella
Italia rather than performing her duties at Liberty Tax;
b. In November 2015, Hewitt was overheard having sex with a female
employee in his office multiple Saturdays in a row, leading to employee
complaints, and ultimately led to the threat of a lawsuit based on hostile
work environment relating to his sexual activity, which the Company settled
for $500,000. This settlement represented over 2.5% of the Company’s
income that fiscal year;
c. On July 12, 2017, the Company received a report that Hewitt was again
having sex in his office, prompting the Board to hire Skadden to investigate
the complaint; and
d. CW2 stated that senior executives were “well aware” of Hewitt’s
misconduct. As described in detail herein, CW2 specifically noted that
Defendant Donovan was “well in the know” and regularly talked to CW2
about “spinning [Hewitt’s misconduct] for the Street,” by which she meant
Wall Street—i.e. investors—and the general public.
F.
Applicable SEC Regulations
Item 303 of SEC Regulation S-K, 17 C.F.R. § 229.303
147.
Pursuant to Item 303 and the SEC’s related interpretive guidance, an issuer is
required to disclose known trends, uncertainties or risks that have had, or are reasonably likely to
have, a materially adverse impact on net sales or revenues or income from continuing operations.
Such disclosure is required by an issuer in the management’s discussion and analysis section of
annual and quarterly filings, such as Form 10-K and 10-Q filings for domestic issuers.
148.
In May 1989, the SEC issued an interpretive release on Item 303 which set forth
the following test to determine if disclosure under Item 303(a) is required:
Where a trend, demand, commitment, event or uncertainty is known, management must
make two assessments:
(1) Is the known trend, demand, commitment, event or uncertainty likely to come to
fruition? If management determines that it is not reasonably likely to occur, no disclosure
is required.
(2) If management cannot make that determination, it must evaluate objectively the
consequences of the known trend, demand, commitment, event or uncertainty, on the
assumption that it will come to fruition. Disclosure is then required unless management
determines that a material effect on the registrant’s financial condition or results is not
reasonably likely to occur.
149.
Throughout the Class Period, Item 303 required Defendants to disclose Hewitt’s
misconduct described herein, which constituted a known trend which had a material adverse
impact on the Company’s finances, including through fraudulent and frivolous spending, reduced
productivity due to high turnover, unqualified hires and redundant or unnecessary job creation,
creation and perpetuation of a hostile work environment, and a damaging “Tone at the Top” that
prevented accurate audits of the Company’s internal controls and management from making
reliable representations to the Company’s independent auditor.
Item 402 of SEC Regulation S-K, 17 C.F.R. § 229.402
150.
Item 402 requires a company to disclose all “perquisites and other personal
benefits” provided to senior executives, including a company CEO, “unless the aggregate amount
of such compensation is less than $10,000[.]” SEC guidance provides that “an item is a perquisite
if it confers a direct or indirect benefit that has a personal aspect,” unless it “is integrally and
directly related to the performance of the executive’s duties” or is “generally available on a non-
discriminatory basis to all employees.” SEC Release Nos. 33-8732 (Aug. 11, 2006).
151.
Item 402 required the disclosure of at least the following “perquisites and other
personal benefits” provided to John Hewitt: (1) using millions of dollars in Company funds to
advance his personal relationships by hiring countless friends and relatives of his lovers who were
not qualified for the positions for which they were hired and/or were unneeded by the Company;
(2) using Company funds to give preferential treatment to his girlfriends, including by extending
Company business loans to them, selling them franchises with no money down and then buying
those franchises back at substantially inflated values plus hundreds of thousands of dollars in cash
and Company stock thereby causing a financial loss to the Company; (3) scheduling out-of-town
meetings in cities where the New York Yankees were playing, so that Hewitt could attend baseball
games, and expensing charges at a New York racetrack to his Company credit card; (4) directing
Company resources to La Bella Italia by hosting weekly Liberty Tax corporate events at the
restaurant and using Liza Milinis, a Liberty Tax employee, to run La Bella Italia for Hewitt; (5)
using $500,000 of Company money to settle a threatened lawsuit based on hostile work
environment caused by Hewitt’s sexual activity in the office; and (6) charging the Company for
personal trips with his girlfriends which Hewitt took at least every other weekend from 2009/2010
through March 2017, including to stay at lavish resorts in Las Vegas. Each of these foregoing
items, individually and in the aggregate, conferred either a direct or indirect benefit on Hewitt that
had a personal aspect and had an annual value greater than $10,000, and thus was required to be
disclosed by the Company.
G.
The Truth Begins to Emerge
152.
During the Class Period, Hewitt’s misconduct as alleged herein caused a series of
significant stock price declines.
153.
On February 23, 2015, after the market closed, Liberty Tax filed a Form 8-K and
issued a press release announcing declines in customers served and tax returns prepared, and
Hewitt was quoted as saying “We are disappointed with our results so far this year.”37
154.
On and around this day, and on this news, risks or truth concealed by, or effects
associated with, Defendants’ fraud were partially revealed, leaked out, or materialized, and, as a
result, the Company’s share price dropped 17.20%, or $5.38, from a close of $34.04 on February
23, 2015, to a close of $28.66 on February 24, 2015, on unusually heaving trading volume.
37 Liberty Tax, Inc., Press Release (Form 8-K) (Feb. 23, 2015)
155.
This decrease in customers served and tax returns prepared was directly caused by
diminished productivity due to Hewitt’s creation of a hostile work environment and diminished
morale, damaging “Tone at the Top,” high turnover rate within the Company, and unqualified John
156.
On April 30, 2015, after the market closed, Liberty Tax filed a Form 8-K and issued
a press release announcing fewer tax returns prepared and smaller pricing increases than expected,
though Hewitt was quoted as blaming the fact that “The 2015 tax season was disappointing.”38
157.
On and around this day, and on this news, risks or truth concealed by, or effects
associated with, Defendants’ fraud were partially revealed, leaked out, or materialized, and, as a
result, the Company’s share price dropped 21.46%, or $5.35, from a close of $27.70 on April 30,
2015, to a close of $23.35 on May 1, 2015, and then dropped another 6.33%, or $1.37, to a close
of $20.98 on May 4, 2015, all on unusually heaving trading volume.
158.
This decrease in tax returns prepared and smaller pricing increases was directly
caused by diminished productivity due to Hewitt’s creation of a hostile work environment and
diminished morale, damaging “Tone at the Top,” high turnover rate within the Company, and
unqualified John Hires.
159.
On April 27, 2016, after the market closed, Liberty Tax issued a press release again
announcing fewer tax returns prepared than expected, though Hewitt was quoted as blaming
“industry-wide challenges.”39
160.
On and around this day, and on this news, risks or truth concealed by, or effects
associated with, Defendants’ fraud were partially revealed, leaked out, or materialized, and, as a
38 Liberty Tax, Inc., Press Release (Form 8-K) (Apr. 30, 2015)
39 Liberty Tax, Inc., Press Release (Form 8-K) (Apr. 27, 2016)
result, the Company’s share price dropped 13.37%, or $1.84, from a close of $14.70 on April 27,
2016, to a close of $12.86 on April 28, 2016, and then dropped another 7.34%, or $0.91, to a close
of $11.95 on April 29, 2016, all on unusually heaving trading volume.
161.
This decrease in tax returns prepared was directly caused by diminished
productivity due to Hewitt’s creation of a hostile work environment and diminished morale,
damaging “Tone at the Top,” high turnover rate within the Company, and unqualified John Hires.
162.
On September 2, 2016, before the market opened, Liberty Tax filed a Form 8-K
and issued a press release announcing results for the quarter ending July 31, 2016. The press
release revealed that, compared to the prior year’s first quarter, the Company’s revenues and fee
income were lower, while losses were higher, as were the Company’s debts on its revolving credit
facility. The Company also held a conference call that morning. On that call, Defendants
downplayed the negative results, blaming them on, among other things, investments in various
endeavors and one-off expenses. For example, Defendant Donavan stated that expense increases
were driven by, among other things, “separation costs for a former executive,” and by “increased
employee compensation and benefits,” while failing to disclose the financial impact of John
Hires.40
163.
On and around this day, and on this news, risks or truth concealed by, or effects
associated with, Defendants’ fraud were partially revealed, leaked out, or materialized, and, as a
result, the Company’s share price dropped 5.33%, or $0.70, from a close of $13.48 on September
1, 2016, to a close of $12.78 on September 2, 2016, on unusually heavy trading volume.
164.
The Company’s diminished revenues and increased losses were directly caused by
diminished productivity due to Hewitt’s creation of a hostile work environment and diminished
40 Liberty Tax, Inc., Q1 2017 Earnings Call Transcript (Sept. 2, 2016)
morale, damaging “Tone at the Top,” high turnover rate within the Company, unqualified John
Hires and other diversion of millions in Company money to further Hewitt’s personal interests.
165.
On December 8, 2016, before the market opened, Liberty Tax filed a Form 8-K and
issued a press release announcing earnings for the quarter ending October 31, 2016. The Company
again announced disappointing results compared to the prior year period, with lower revenues,
larger losses, and increased GAAP expenses, as well as increased reliance of the Company’s
revolving credit facility.
166.
On and around this day, and on this news, risks or truth concealed by, or effects
associated with, Defendants’ fraud were partially revealed, leaked out, or materialized, and, as a
result, the Company’s share price dropped 4.6%, or $0.60 from a close of $13.35 on December 7,
2016, to a close of $12.75 on December 8, 2016, on unusually heaving trading volume.
167.
The Company’s diminished revenues, increased losses, and increased GAAP
expenses were directly caused by diminished productivity due to Hewitt’s creation of a hostile
work environment and diminished morale, damaging “Tone at the Top,” high turnover rate within
the Company, unqualified John Hires and other diversion of millions in Company money to further
Hewitt’s personal interests.
168.
On June 14, 2017, before the market opened, Liberty Tax filed a Form 8-K and
issued a press release announcing results for fiscal year 2017. The Company again announced
disappointing results compared to the prior year, with fewer tax returns prepared, increased
operating expenses, and decreased net income. The press release quoted Hewitt as saying “This
season’s results were clearly disappointing.”41
41 Liberty Tax, Inc., Press Release (Form 8-K) (June 14, 2017)
169.
On and around this day, and on this news, risks or truth concealed by, or effects
associated with, Defendants’ fraud were partially revealed, leaked out, or materialized, and, as a
result, the Company’s share price dropped 11.87%, or $1.45, from a close of $12.95 on June 13,
2017, to a close of $11.50 on June 14, 2017, on unusually heaving trading volume.
170.
The Company’s decrease in tax returns prepared, increased operating expenses, and
decreased net income were directly caused by diminished productivity due to Hewitt’s creation of
a hostile work environment and diminished morale, damaging “Tone at the Top,” high turnover
rate within the Company, unqualified John Hires and other diversion of millions in Company
money to further Hewitt’s personal interests.
171.
On November 7, 2017, after the market closed, the Company announced the sudden
resignation of Defendant Donovan, without explanation.
172.
As reported in the press, Donovan’s departure “came a day after ex-CEO John T.
Hewitt, who was fired in September but maintained control of the board with his class of shares,
replaced two members of the nine-member board. Another board member retired the same day.”
The same news report noted that “Donovan would have been eligible for a $172,526 retention
bonus after Hewitt’s firing if she had stayed with the company until at least September 2018.”42
173.
On and around this day, and on this news, risks or truth concealed by, or effects
associated with, Defendants’ fraud were partially revealed, leaked out, or materialized, and, as a
result, the Company’s share price dropped 16.98% the next day, dropping from a close of $13.25
per share on November 7 to close at $11.00 per share on November 8.
42 Kimberly Pierceall, Day After ex Ceo shakes up Liberty Tax board, CFO announces resignation,
The Virginian-Pilot (Nov. 7, 2017), https://pilotonline.com/business/jobs/article_244577b3-a89e-
576e-acce-9d582afc286c.html
174.
On November 9, 2017, The Virginian-Pilot released a bombshell report titled “Ex-
CEO of Liberty Tax likely had sex in his office and dated employees, report says” containing
salacious details from the Skadden Report, which had apparently been leaked.43 The November 9
Article revealed, among other things, that Hewitt gave preferential treatment to employees and
franchisees he was believed to be involved with romantically, and placed his personal interests
above the Company’s.
175.
The same day, the Company filed a Form 8-K announcing that John Garel would
not stand for re-election “due to his concerns about recent Company events[.]”44
176.
On November 13, 2017, the Company filed Garel’s resignation letter, dated
November 10. The letter states, in pertinent part:
I believe that one of my important functions as an Independent Director on the
Board was to speak up on behalf of the Company and the common stockholders
and act as a counterbalance when Mr. Hewitt exerted his position in a manner I
thought may not be in the best interests of all stockholders or the Company. I have
done my best to perform this function at all times.
In this regard, I want to express that, in my view, Mr. Hewitt’s exercise of his class
B rights has resulted in problems for the Company and disagreements on the Board.
These concerns have become exacerbated over the past several months.
On July 12, 2017, the Company received an Ethics Hotline complaint regarding
Mr. Hewitt. This complaint was referred to the Audit Committee who determined
that an inquiry into the report be conducted by Skadden, Arps, Slate, Meagher &
Flom, LLP (“Skadden”). The Audit Committee and the full Board received an oral
report and the Audit Committee received a written report regarding the findings of
this investigation, which included credible evidence that Mr. Hewitt had engaged
in an array of inappropriate conduct, both personally and involving business
matters, while serving as Liberty Tax’s CEO and Chairman. Mr. Hewitt refused to
cooperate in the investigation and failed to, in any way, attempt to address or
alleviate the concerns of employees. Rather, Mr. Hewitt continued to engage in the
43 Because, according to former Board member Garel, the written report was provided only to the
Audit Committee, and because two members of the Audit Committee had resigned or been fired
just three days before, it is reasonable to infer that one of the two departed Audit Committee
directors leaked the Skadden Report.
44 Liberty Tax, Inc., Press Release (Form 8-K) (Nov. 9, 2017)
same underlying behavior. The board determined that Liberty had a good faith basis
to terminate Mr. Hewitt as CEO, and he was in fact terminated on September 5,
2017. Aspects of this report have now been disclosed through the press.
On September 6th, 2017, the Company publicly announced the following: “The
Company has been in negotiations to enter into agreements for Mr. Hewitt’s
separation and the repurchase of his Class B Shares, which permit him to appoint a
majority of the Board. No such agreements have been reached, and whether the
Company will enter into such agreements with Mr. Hewitt remains uncertain at this
time.”
The successful completion of those negotiations would have alleviated my personal
concerns regarding continued participation on a company Board with Mr. Hewitt.
Since late July 2017, I participated on a Special Committee of the Board comprised
of the Company’s Independently-elected Directors and authorized by the full Board
to negotiate with Mr. Hewitt for said purchase of his class B control shares, and his
full separation from any Board or managerial activities. This Special Committee
worked with management, advisors, and the Company’s lenders. On September
28th, 2017, the Special Committee offered Mr. Hewitt its final approved proposal,
which Mr. Hewitt rejected.
Most recently, two directors were removed on November 5th, 2017, one resigned
on November 6th, 2017, the Chief Financial Officer resigned on November 7th,
2017, and Vice President Financial Products resigned on September 5, 2017. These
changes contravene the Board’s decision to terminate Mr. Hewitt and allow him via
his class B rights to, in effect, manage the Company. In the face of these
developments, the Class A Independent Directors on the Board made the following
requests of Mr. Hewitt, which we believe would be in the best interests of the
stockholders: namely, that Mr. Hewitt (i) be removed immediately as Chairman by
the Board, (ii) voluntarily agree to resign from the Board, (iii) agree to the
Company’s September 28 offer to purchase his Class B shares, and (iv) issue a press
release about the Audit Committee report concerning Mr. Hewitt’s conduct in order
to best position the Company to deal with the ramifications of any press coverage
about the report and protect its reputation. Mr. Hewitt, with the support of the other
Class B directors, rejected these requests.
At this point, after careful consideration and knowing that I have put a tremendous
amount of effort into serving the Liberty Tax stockholders in addressing what I
have described above, I have decided I can no longer remain as a director of Liberty
Tax, Inc., and I hereby tender my notice that I will not seek re-election at the next
annual shareholders meeting.
177.
The same day, law.com published an article45 describing the situation at Liberty
Tax as follows:
The brouhaha has led to dissension on the board; the departures of three directors, plus
the chief financial officer and a vice president; and the resignation of a fourth director in
a letter of protest made public on Monday.
“That’s a disaster,” said one lawyer who works on corporate governance issues . . . . If
Hewitt were listening to an advisor, the attorney said, “someone should advise him that
the entire company could implode.”
178.
On December 11, 2017, before the market opened, the Company filed a Form 8-K
and issued a press release announcing that on December 8, 2017, KPMG resigned as the
Company’s independent registered public accounting firm, and as a result the Company would
delay the filing of its Quarterly Report on Form 10-Q for the quarter ended October 31, 2017. The
8-K stated:
KPMG expressed to the Audit Committee and Company management its concern
that the actions of former Chief Executive Officer John T. Hewitt, who remains
the Chairman of the Board and controlling stockholder as the sole holder of the
Company’s outstanding Class B common stock, have created an inappropriate
tone at the top which leads to ineffective entity level controls over the
organization. Prior to the termination of Mr. Hewitt’s employment as Chief
Executive Officer of the Company on September 5, 2017, the Audit Committee
oversaw an investigation of allegations of misconduct by Mr. Hewitt. In particular,
KPMG noted that Mr. Hewitt took actions to replace two independent members of
the Board around the time information relating to this investigation appeared in
media reports. KPMG also noted that following the replacement by Mr. Hewitt of
two Class B directors, the chair of the Audit Committee retired from the Board, the
Company’s Chief Financial Officer announced her intention to resign from the
Company, and another independent member of the Board announced that he would
not stand for reelection at the Company’s next annual meeting. Further, KPMG was
made aware that following his termination as Chief Executive Officer, Mr.
Hewitt may have continued to interact with franchisees and area developers of
the Company. Although Mr. Hewitt stated to KPMG during a meeting on
November 9, 2017 that he would not reinsert himself into the management of the
45 Sue Reisinger, Sex in the Office, Dual Stock Structure Make for a Corporate Governance
‘Disaster’,
Corporate
Counsel
Powered
by
Law.com
(Nov.
13,
2017),
https://www.law.com/corpcounsel/sites/corpcounsel/2017/11/13/sex-in-the-office-dual-stock-
structure-make-for-a-corporate-governance-disaster/
Company, in light of Mr. Hewitt’s actions and his ability to control the Board as
the sole holder of the Class B common stock, KPMG informed the Audit
Committee and management that it has concerns regarding the Company’s
internal control over financial reporting as related to integrity and tone at the top
and such matters should be evaluated as potential material weaknesses.
Specifically, KPMG informed the Audit Committee and management that Mr.
Hewitt’s past and continued involvement in the Company’s business and
operations, including his continued interactions with franchisees and area
developers of the Company, has led it to no longer be able to rely on
management’s representations, and therefore has caused KPMG to be unwilling
to be associated with the Company’s consolidated financial statements. In
notifying the Company of its resignation, KPMG advised the Audit Committee and
management that it is not aware of any information that cause it to question the
integrity of current management, but rather that the structural arrangement by
which Mr. Hewitt controls the Company is the cause of KPMG’s concerns. KPMG
also noted that because certain information known to the Board regarding the
reasons that the Board terminated Mr. Hewitt as Chief Executive Officer had not
been disclosed to the current Chief Executive Officer and Chief Financial Officer,
KPMG was uncertain as to whether it could continue to rely on management’s
representations.46
179.
On and around this day, and on this news, risks or truth concealed by, or effects
associated with, Defendants’ fraud were partially revealed, leaked out, or materialized, and, as a
result, the Company’s share price dropped 5.4% before the market opened, to open at $11.30 per
share, down from the prior trading day’s closing price of $11.95. Liberty Tax’s shares continued
to drop throughout the trading day on December 11, 2017, ultimately closing at 11.15, a 6.69%
drop from the prior trading day’s closing price on volume of 170,000 shares.
180.
On December 14, 2017, the Company filed a Form 8-K announcing the
appointment of Nicholas Bates as CFO, effective January 1, 2018.
181.
On December 18, 2017, the Company filed a Form 8-K announcing the resignation
of Board member Steven Ibbotson, effective immediately. In his resignation letter, dated
December 15, 2017, Ibbotston stated that he was resigning “because I materially disagree with
46 Liberty Tax, Inc., Press Release (Form 8-K) (Dec. 11, 2017)
certain aspects of how the Company is being managed by Mr. Hewitt. . . . I no longer believe that
I can have a meaningful influence on the management of the company, and accordingly, I no longer
believe that I can be an effective member of the Board of Directors in serving the interests of
shareholders and therefore am compelled to resign.”47
182.
The same day, the Company filed a Form 8-K announcing the resignation of John
Garel, effective immediately. Garel had previously stated he would not seek reelection, but
resigned because “[t]he Class B Directors are acting in unison through Mr. Hewitt’s Class B rights
and are, in my judgment, unwilling to consider input that interferes with their objectives, with
which I materially disagree.”48
183.
On December 19, 2017, Liberty Tax filed a Form 8-K attaching a press release
announcing that the Company had received a notice of delinquent filing from Nasdaq for failing
to file its Form 10-Q. The Company stated that it “continues to work expeditiously to secure
representation from a new independent public accounting firm and to file its Form 10-Q as soon
as practicable.”49
184.
On January 8, 2018, Liberty Tax filed a Form 8-K attaching a press release
announcing that the Company had received a notice of delisting or failure to satisfy a continued
listing rule or standard. The notice stated that, because of the resignations of Garel and Ibbotson
as directors, both of whom served on the Audit Committee, the Company is no longer in
compliance with Nasdaq Listing Rule 5605(c)(2), which requires that audit committees consist of
at least three members, each of whom must be independent.
47 Liberty Tax, Inc., Press Release (Form 8-K, Ex. 17.1) (Dec. 18, 2017)
48 Liberty Tax, Inc., Press Release (Form 8-K, Ex. 17.1) (Dec. 18, 2017) (Second 8-K filed Dec.
18, 2017)
49 Liberty Tax, Inc., Press Release (Form 8-K, Ex. 99.1) (Dec. 19, 2017)
185.
On February 19, 2018, after the market closed, Liberty Tax released a statement
announcing “the appointment of Nicole Ossenfort as President and Chief Executive Officer of the
Company, effective immediately. Ms. Ossenfort replaces Edward L. Brunot, whose employment
was terminated by the Company’s Board of Directors on February 19, 2018.”50 The statement
noted that “[i]n connection with her appointment as President and Chief Executive Officer of the
Company, Ms. Ossenfort resigned as a director of the Company at the request of the Board.” The
Company did not file the statement with the SEC. The Company also released statements
announcing the appointment of Shaun York as the Company’s Chief Operating Officer, effective
immediately,51 and the appointment of Ryan Dodson as Chief Strategy Officer, effective
immediately.52
186.
Media reactions the same day emphasized the unusual timing of the drastic change.
One article, titled “Liberty Tax fires latest CEO mid-tax season, 6 months after firing founder John
Hewitt,” noted that “Liberty Tax has fired its CEO—in the thick of tax season and after only six
months on the job—replacing him with a board member handpicked by founder John T. Hewitt[.]”
The same news report revealed that, “[i]n an email obtained by The Pilot and purportedly sent
from Ossenfort to Liberty [Tax] staff and franchisees, the new CEO notes that Hewitt will serve
in an advisory role and remain chairman of the board.” The report further noted that Ossenfort’s
50 Liberty Tax, Inc., Liberty Tax Service Inc. Taps Nicole Ossenfort to be CEO, Globe Newswire
(Feb. 19, 2018), https://globenewswire.com/news-release/2018/02/19/1361484/0/en/Liberty-Tax-
Service-Inc-Taps-Nicole-Ossenfort-to-be-CEO.html
51 Liberty Tax, Inc., Shaun York to be the Chief Operating Officer for Liberty Tax Service, Liberty
Tax, Inc. (Feb. 19, 2018), https://ir.libertytax.com/news-releases/news-release-details/shaun-york-
be-chief-operating-officer-liberty-tax-service
52 Liberty Tax, Inc., Liberty Tax Names Ryan Dodson Chief Strategy Officer, Liberty Tax, Inc.
(Feb. 19, 2018), https://ir.libertytax.com/news-releases/news-release-details/liberty-tax-names-
ryan-dodson-chief-strategy-officer
existing ties to Liberty Tax could pose a conflict of interest, including because, at the time she was
brought onto the Board, she and her husband, owners of Liberty Tax franchises in South Dakota
and Wyoming since 2002, still owed the Company $10,932 in royalties, advertising and fees.53
187.
On and around this day, and on this news, risks or truth concealed by, or effects
associated with, Defendants’ fraud were partially revealed, leaked out, or materialized, and, as a
result, on February 20, 2018, the Company’s share price plunged 17.65% over the course of the
trading day to close at $8.40 per share, down from a close of $10.20 per share the prior trading
day, on volume of 228,500.
188.
As Liberty Tax’s stock plunged on February 20, 2018, the Associated Press picked
up the story of Brunot’s firing and at 10:13 a.m. published an article titled “Liberty Tax Fires
Second Chief Executive in 6 Months.”54 Later the same day, at 3:43 p.m., Bloomberg published
an article titled “Liberty Tax Plunges to Record on CEO Ouster; Barrington Cuts.” The Bloomberg
article noted that the Company’s stock fell to “the lowest price on record, on more than three times
the average daily trading volume over the past three months after the company’s board of directors
fired CEO Edward Brunot.”55
189.
Another news report published on February 20, 2018 quoted analyst Lee Jogoda
with CJS Securities as stating that the recent management changes, while billed as bringing
53 Kimberly Pierceall, Liberty Tax fires latest CEO mid-tax season, 6 months after firing founder
John
Hewitt,
The
Virginian-Pilot
(Feb.
19,
2018),
https://pilotonline.com/business/consumer/article_aca42b52-4d4e-5a22-88ed-
bddaa49a22e0.html
54 Associated Press, Liberty Tax fires second chief executive in 6 months, The Washington Post
(Feb.
20,
2018),
https://www.washingtonpost.com/national/liberty-tax-fires-second-chief-
executive-in-6-months/2018/02/20/e3e380d0-1650-11e8-930c-
45838ad0d77a_story.html?utm_term=.1f7cd52987fb
55 Lisa Fu, Liberty Tax Plunges to Record on CEO Ouster; Barrington Cuts, Bloomberg First
Word (Feb. 20, 2018)
franchisee experience into the executive offices, “appears to be a continuation of the control that
Chairman John Hewitt refuses to relinquish despite his firing as CEO.” Jagoda also stated that the
hiring of York and Dodson “also appear to strengthen Hewitt’s influence in the C-suite,” referring
to the executive positions that typically have a “chief” in their titles.56 Jagoda stated that he
foresaw “one of two things happening: Liberty gets delisted from the Nasdaq exchange because
it is unable to find two willing independent board members or, less likely, Hewitt finds a financial
partner that keeps him in control but takes the company private.” The news report noted that
Barrington Research downgraded Liberty Tax to market perform from outperform after the
management shakeup on February 19, and quoted analyst Alexander Paris as stating that his firm
could not in good conscience rate Liberty Tax’s stock “outperform” anymore, “given the war in
the Board Room, the changes in the c-suite and the delinquent financial filings” due to the
resignation of KPMG in December. Barrington Research stated it would reconsider its rating once
the Company was stable and compliant in its financial filings.57
190.
On February 21, 2018, after the market closed, the Company filed a Form 8-K
announcing the resignation of Ross Longfeld, the sole remaining Class A board member.
Longfeld’s resignation letter, filed with the Form 8-K, stated:
Please consider this my resignation as a board member effective March 21, 2018.
Until now, I have remained on the board even after the recent departure of all of
the other Class A independent directors, despite my complete agreement and
understanding of the reasons given for their leaving as stated in their resignation
letters.
My purpose in staying on the board was to represent the Class A shareholders as
best I could as the last remaining independent director. I felt that I could do this by
staffing, albeit as the only member, the Independent Committees of the board.
56 Kimberly Pierceall, Virginia Beach-based Liberty Tax’s stock drops 18 percent day after CEO
was
fired,
The
Virginian-Pilot
(Feb.
20,
2018),
https://pilotonline.com/business/stocks/article_e458d048-c918-51c8-bb8f-baf265b84a4c.html
57 Id.
Also, as Audit Committee chair, I could work with management and the board to
resolve “Tone At The Top” and other issues that led to the recent resignation of our
long time auditors, KPMG. The Tone at The Top issue remains, and has greatly
impeded the company in finding a national audit firm to accept an engagement,
which is critical to our status as a publicly traded company.
Further, in my role as chair of the Nominating and Governance Committee I have
worked closely with management and the board to identify highly qualified
candidates for the three open Class A directorships.
However, the results of the Board meeting held on February 19th have made it clear
that my efforts have been to no avail. At that meeting, as detailed in the written
resolutions, John Hewitt, in his role as Chairman of the Board and sole Class B
shareholder, proposed and had passed by his majority Class B board members, the
following actions:
The immediate termination of CEO Edward Brunot.
The immediate termination of the short-term consulting agreement with former
CFO Kathy Donovan who was assisting the company in many areas.
The appointment of Class B director Nicole Ossenfort as CEO, along with two other
Hewitt associates, in the roles of Chief Operating Officer and Chief Strategy
Officer, further strengthening his influence and control as demonstrated in an
email from Ossenfort stating that Hewitt will act in an advisory role.
The replacement of the Company’s law firm Skadden Arps, a highly regarded firm
with deep experience in corporate governance matters. Further, the appointment of
the law firm of Williams Mullen, John Hewitt’s personal counsel, to serve as the
company’s Corporate General Counsel.
The appointment of William Minner to replace Nicole Ossenfort as a class B
director, and further, his appointment as chair of the Audit and Compensation
committees.
The termination of the previously board-approved process already well underway
with the National Association of Corporate Directors to identify and recruit highly
qualified Independent Directors. (Several were in the process of personal
interviews during the week of February 20th)
In place of the above nominating process, John Hewitt would immediately submit
three candidates for consideration to fill the three Class A vacancies with the
intention of electing all of these new directors as Class A directors at a special
shareholders meeting to be held no later than April 16th 2018.
All of these actions further undermine any semblance of an independent
representation for Class A shareholders in Liberty Tax Service. Furthermore, it
has quickly become apparent to me that the board and the new senior executives
are making it virtually impossible for the Chief Financial Officer and the General
Counsel to do their jobs effectively, particularly as these three new executives are
not qualified to hold these positions in a public company and they are all
beholden to John Hewitt. 58
191.
On and around this day, and on this news, risks or truth concealed by, or effects
associated with, Defendants’ fraud were partially revealed, leaked out, or materialized, and, as a
result, on February 22, 2018, the Company’s share price dropped 3.88% to close at $8.65 per share,
down from a close of $9.00 per share the prior trading day.
192.
On February 23, 2018, after the market closed, the Company filed a Form 8-K and
issued a press release announcing the appointment of Ossenfort as CEO, York as Chief Operating
Officer, Dodson as Chief Strategy Officer, Minner as a Board member, and the termination of the
consulting agreement with Donovan, the departure of officers Szajnoga and Artese.
193.
On and around this day, and on this news, risks or truth concealed by, or effects
associated with, Defendants’ fraud were partially revealed, leaked out, or materialized, and, as a
result, on February 24, 2018, the Company’s share price dropped 3.15% to close at $8.28 per share,
down from a close of $8.55 per share the prior trading day.
H.
Post-Class Period Developments
194.
On March 16, 2018, the Company filed a Form 8-K announcing that, the previous
day, it had received an additional notice of delinquent filing from Nasdaq for failing to file its
Form 10-Q. The notice granted an extension of time until June 11, 2018 to file the Form 10-Qs
for quarters ended October 31, 2017 and January 31, 2018 to regain compliance with Nasdaq
Listing Rule 5250(c)(1).
58 Liberty Tax, Inc., Press Release (Form 8-K, Ex. 17.1) (Feb. 21, 2018)
195.
On April 19, 2018, the Company filed a Form 8-K announcing that the Audit
Committee of the Board engaged Carr Riggs and Ingram LLC (“CRI”) as its independent
registered public accounting firm for the fiscal year ending April 30, 2018, effective immediately.
196.
On May 15, 2018, the Company announced that Nicholas Bates, the CFO who
replaced Donovan, provided notice of his resignation, effective June 15, 2018 following the
anticipated filing of the Company’s delinquent Form 10-Qs. On May 21, 2018, the Company filed
a Form 8-K/A to note that Mr. Bates will be paid $300,000 in severance and the value of 1/3 of
his outstanding restricted stock.
197.
On June 7, 2018, the Company filed a Form 8-K announcing that, on June 5, 2018,
CRI, its new accounting firm that replaced KPMG, “provided notice of its resignation as the
independent registered public accounting firm” of the Company, “effective as of the same date.”59
The Company further stated that “CRI’s decision to resign was not recommended or approved by
either the Audit Committee or the Board of Directors of the Company.”60 CRI’s resignation letter,
attached to the Form 8-K, does not provide a reason for its resignation.
198.
Notably, CRI’s resignation came just days before it was due to provide its opinion
of the Company’s financial statements based on its audits in connection with the Company’s
delinquent Form 10-Qs by the June 11, 2018 deadline set by Nasdaq.
199.
On this news, on June 8, 2018, the Company’s share price dropped 13.89% to close
at $9.30 per share, down from a close of $10.80 per share the prior trading day.
200.
As of June 12, 2018, the date of this Amended Complaint, Liberty Tax had not filed
its delinquent Form 10-Qs, nor had it offered investors any explanation for its failure to meet the
59 Liberty Tax, Inc., Press Release (Form 8-K) (June 7, 2018)
60 Id.
June 11, 2018 deadline set by Nasdaq. Having missed the June 11, 2018 deadline, on June 12,
2018, the Company’s share price dropped 6.74% to close at $8.65 per share.
I.
Additional Scienter Allegations
201.
Because Hewitt engaged in the conduct described herein, which rendered the
statements alleged herein false and misleading, he made the statements knowing them to be false
and misleading, or, at the very least, with reckless disregard for their truth or falsity.
202.
CW2 stated that senior executives were “well aware” of Hewitt’s misconduct.
CW2 specifically noted that Defendant Donovan was “well in the know.” CW2 and McKinney
would often meet with Donovan to discuss issues relating to Hewitt, including problems with John
Hires and Hewitt’s general cruelty and meanness to several employees. CW2 recalls these
meetings happened dozens of times throughout his/her time with Liberty Tax. CW2 stated that
CW2 and McKinney would figure out the best way to bring these issues up with Hewitt. As
detailed above, in Fall 2015, CW2 discussed with McKinney the complaints of Hewitt’s sexual
activity in the office, and McKinney told CW2 she reported these complaints to Donovan, and
together with Jim Wheaton the three suggested then-Board member D’Angelo raise the issue with
Hewitt.
203.
CW2 also recalled specific conversations he/she had with Donovan regarding
Hewitt’s “frivolous spending and budgeting.” CW2 recalled what he/she interpreted as a
“concerted effort” by Donovan to conceal these activities from investors. CW2 recalled specific
conversations with Donovan in which Donovan regularly talked about “spinning things for the
Street,” by which she meant Wall Street—i.e. investors—and the general public. The things
Donovan was “spinning for the street” were, among other things, the fact that Liberty Tax was
cash poor and concealing from investors John Hewitt’s misconduct, including the John Hires and
inappropriate sexual relations with employees.
204.
Furthermore, the timing of Donovan’s resignation—merely two days before The
Virginian-Pilot’s November 9 Article—raises a strong inference that Donovan left the Company
in part because she had been contacted by The Virginian-Pilot for comment, such that she knew
Hewitt’s misconduct, which she had helped conceal from investors for years, would come to light
imminently.
205.
Events subsequent to the Class Period also support a finding that Defendants acted
with scienter. Specifically, it took Liberty Tax four months after KPMG’s resignation to secure
CRI to serve as independent registered public accounting firm to the Company. Then, less than
two months later, and just days before the Company was due to file its delinquent Form 10-Qs, on
June 5, 2018, CRI provided notice of its resignation effective immediately, without explanation.
According to Liberty Tax’s Form 8-K filing, CRI’s decision to resign was not recommended or
approved by either the Audit Committee or the Board of Directors of the Company.
206.
Additionally, due to the Company’s inability to secure an independent registered
public accounting firm, the Company has been unable to file its periodic filings with the SEC and
has been notified by Nasdaq that it will be delisted unless it satisfies its disclosure requirements
and files its outstanding Form 10-Qs by June 11, 2018. The Company’s failure to secure an
accounting firm that will rely upon the representations of management while Hewitt continues to
control Liberty Tax supports a finding that Defendants historically provided unreliable
representations to KMPG, Defendants did so knowingly or with a reckless disregard for the truth,
and that in fact statements concerning the effectiveness of the Company’s internal controls made
during the Class Period were false and misleading.
VI.
CLASS ACTION ALLEGATIONS
180.
Lead Plaintiff brings this class action pursuant to Federal Rules of Civil Procedure
23(a) and 23(b) on its own behalf and on behalf of:
All persons and entities, their agents, successors in interest, assigns,
heirs, executors, and administrators who purchased Liberty Tax
securities during the period between October 1, 2013 through and
including February 23, 2018, and who were damaged thereby (the
“Class”). Excluded from the Class are defendants and their families,
the officers and directors and affiliates of defendants, 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.
207.
The members of the Class are so numerous that joinder of all members is
impracticable. While the exact number of members of the Class is unknown to Lead Plaintiff at
this time and can only be ascertained through appropriate discovery, Lead 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 Liberty Tax 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.
208.
Lead Plaintiff’s claims are typical of the claims of the Class in that all Class
members were damaged by the same wrongful conduct of Defendants as alleged herein, and the
relief sought is common to the Class.
209.
Numerous questions of law or fact arise from Defendants’ conduct that is common
to the Class, including but not limited to:
a. whether the federal securities laws were violated by Defendants’ acts during
the Class Period, as alleged herein;
b. whether statements made by Defendants to the investing public during the
Class Period misrepresented material facts about the business and
operations of Liberty Tax;
c. whether the price of Liberty Tax Class A common stock was artificially
inflated and/or maintained during the Class Period; and
d. to what extent the members of the Class have sustained damages and the
proper measure of damages.
210.
These and other questions of law and fact are common to the Class and predominate
over any questions affecting only individual Class members.
211.
Lead Plaintiff will fairly and adequately represent the interests of the Class in that
it has no conflict with any other members of the Class. Furthermore, Lead Plaintiff has retained
competent counsel experienced in class action and other complex litigation.
212.
Defendants have acted on grounds generally applicable to the Class, thereby
making final injunctive relief appropriate with respect to the Class as a whole.
213.
This class action is superior to the alternatives, if any, for the fair and efficient
adjudication of this controversy. Prosecution as a class action will eliminate the possibility of
repetitive litigation. There will be no material difficulty in the management of this action as a
class action.
214.
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.
VII.
LOSS CAUSATION AND ECONOMIC LOSS
215.
During the Class Period, as detailed herein, Defendants engaged in a scheme to
deceive the market and a course of conduct that artificially inflated and/or maintained the price of
Liberty Tax securities and operated as a fraud or deceit on Class Period purchasers of Liberty Tax
securities by failing to disclose and misrepresenting the adverse facts detailed herein. As
Defendants’ prior misrepresentations, omissions, and fraudulent conduct were disclosed through
a series of partial corrective disclosures and became apparent to the market, the price of Liberty
Tax Class A common stock declined significantly as the prior artificial inflation came out of
Liberty Tax’s Class A common stock price.
216.
As a result of their purchases of Liberty Tax securities during the Class Period,
Lead Plaintiff and the other Class members suffered economic loss, i.e. damages, under the federal
securities laws.
217.
By concealing from investors the adverse facts detailed herein, Defendants
presented a misleading picture of the Company, including Hewitt’s use of the Company, the
Company’s finances, the Company’s internal controls, and the Company’s supposed efforts
to root out fraud and other misconduct. When the truth about Liberty Tax was revealed to
the market through a series of partial corrective disclosures, the price of Liberty Tax Class A
common stock fell significantly. This decline removed the inflation from the price of Liberty
Tax securities, causing real economic loss to investors who had purchased Liberty Tax securities
during the Class Period.
218.
The economic loss, i.e. damages, suffered by Lead Plaintiff and the other Class
members was a direct result of Defendants’ fraudulent scheme to artificially inflate and/or maintain
the price of Liberty Tax securities and the subsequent decline in the value of the securities when
Defendants’ prior misrepresentations and other fraudulent conduct were revealed.
219.
Independently, and in addition to the foregoing, Lead Plaintiff and the other Class
members were directly harmed by the false and misleading statements in the DEF 14A filings
alleged herein, because, among other reasons, those false and misleading statements concealed
from shareholders the direct and indirect benefits Hewitt extracted from the Company, depriving
shareholders of an informed vote, and allowing Defendants to continue to conceal Hewitt’s
reckless misconduct from investors and allowing him to continue to harm shareholders throughout
the Class Period, and thus contributing to the Company’s artificially inflated stock price
throughout the Class Period.
VIII.
APPLICABILITY OF PRESUMPTION OF RELIANCE—FRAUD ON THE
MARKET DOCTRINE AND AFFILIATED UTE ALLEGATIONS
220.
Lead Plaintiff is entitled to a presumption of reliance under Affiliated Ute Citizens
of Utah v. U.S., 406 U.S. 128 (1972), because the claims asserted herein against Defendants are
predicated in part upon material omissions of fact that Defendants had a duty to disclose.
221.
In the alternative, Lead Plaintiff is entitled to a presumption of reliance on
Defendants’ material misrepresentations and omissions pursuant to the fraud-on-the-market
doctrine because, at all relevant times, the market for Liberty Tax securities was an efficient market
for the following reasons, among others:
a. Liberty Tax Class A common stock met the requirements for listing, and
was listed and actively traded, on the Nasdaq, a highly efficient, electronic
stock market;
b. As a regulated issuer, Liberty Tax filed periodic public reports with Nasdaq;
c. Liberty Tax 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. Liberty Tax was followed by securities analysts employed by major
brokerage
firms,
including
Barrington
Research,
ValueEngine,
BuySellSignals, and SADIF Investment Analytics, 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.
IX.
NO SAFE HARBOR
222.
The statutory safe harbor applicable to forward-looking statements under certain
circumstances does not apply to any of the false and misleading statements pled in this Amended
Complaint.
223.
Either the statements complained of herein were not forward-looking statements,
but rather were historical statements or statements of purportedly current facts and conditions at
the time the statements were made, or to the extent there were any forward-looking statements,
Liberty Tax’s verbal “Safe Harbor” warnings accompanying its oral forward-looking statements
issued during the Class Period were ineffective to shield those statements from liability.
224.
Furthermore, the statutory safe harbor does not apply to statements included in
financial statements that purportedly were made in accordance with GAAP, such as Liberty Tax’s
Form 10-Ks and 10-Qs issued throughout the Class Period.
225.
To the extent that any of the false and misleading statements alleged herein can be
construed as forward-looking, those statements were not accompanied by meaningful cautionary
language identifying important facts that could cause actual results to differ materially from those
in the statements.
226.
To the extent that any of the false and misleading statements alleged herein can be
construed as forward-looking, Defendants are liable for those false or misleading statements
because, at the time each such statement was made, the speaker knew the forward-looking
statement was false or misleading and the forward-looking statement was authorized and/or
approved by an executive officer of Liberty Tax who knew that the forward-looking statement 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.
X.
CAUSES OF ACTION
COUNT ONE
Violation of Section 10(b) of the Exchange Act and
Rule 10b-5 Promulgated Thereunder
(Against All Defendants)
227.
Lead Plaintiff repeats and re-alleges the above paragraphs as though fully set forth
228.
During the Class Period, Defendants disseminated or approved the materially false
and misleading 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.
229.
Defendants:
a. employed devices, schemes, and artifices to defraud;
b. made untrue statements of material fact and/or omitted to state material facts
necessary to make the statements no misleading; and
c. engaged in acts, practices, and a course of business which operated as a
fraud and deceit upon the purchasers of the Company’s Class A common
stock during the Class Period.
230.
Lead Plaintiff and the Class have suffered damages in that, in reliance on the
integrity of the market, they paid artificially inflated prices for Liberty Tax securities. Lead
Plaintiff and the Class would not have purchased Liberty Tax 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.
231.
As a direct and proximate result of Defendants’ wrongful conduct, Lead Plaintiff
and the other members of the Class suffered damages in connection with their purchases of Liberty
Tax securities during the Class Period.
COUNT TWO
Violation of Section 14(a) of the Exchange Act and
Rules 14a-3 and 14a-9 Promulgated Thereunder
(Against All Defendants)
232.
Lead Plaintiff repeats and re-alleges the above paragraphs as though fully set forth
233.
This count does not sound in fraud. All of the preceding allegations of fraud or
fraudulent conduct and/or motive are specifically excluded from this Count.
234.
Section 14(a) of the Exchange Act requires registrants that solicit any proxy or
consent or authorization in connection with any security registered pursuant to Section 12 of the
Exchange Act (other than an exempted security), to comply with such rules as the SEC may
promulgate. Rule 14a-3 provides that no solicitation of a proxy may occur unless each person
solicited is concurrently furnished or has previously been furnished with a proxy statement
containing the information specified in Schedule 14A. Rule 14a-9 prohibits, among other things,
the use of proxy statements which omit to state any material fact necessary in order to make the
statements therein not false or misleading.
235.
As alleged herein, during the Class Period Defendants filed and solicited proxy
statements on SEC Form DEF 14A for years 2013-2017 that contained material misrepresentations
and omissions in that Defendants failed to report the full amount of Defendant Hewitt’s “Other
Compensation,” which far exceeded $10,000 per year.
236.
Throughout the Class Period, Defendants requested that Lead Plaintiff and the
Class, among others, vote in person, or by proxy, on various corporate matters put to vote in the
proxies.
237.
Defendants’ solicited proxy statements failed to provide the requisite information
concerning Hewitt’s total compensation from the Company. As a result of the foregoing, the
Defendants have violated Section 14(a).
238.
As a direct and proximate result of Defendants’ wrongful conduct, Lead Plaintiff
and the other members of the Class suffered damages.
COUNT THREE
Violation of Section 20(a) of the Exchange Act
(Against the Individual Defendants)
239.
Lead Plaintiff repeats and re-alleges the above paragraphs as though fully set forth
240.
The Individual Defendants acted as controlling persons of Liberty Tax within the
meaning of Section 20(a) of the Exchange Act as alleged herein. By reason of their positions as
officers and/or directors of Liberty Tax, and their ownership of Liberty Tax securities, and in
particular Defendant Hewitt’s ownership of both Class A and Class B common stock, and their
culpable participation, as alleged above, the Individual Defendants had the power and authority to
cause Liberty Tax to engage in the wrongful conduct complained of herein.
241.
By reason of such conduct, the Individual Defendants are liable pursuant to Section
20(a) of the Exchange Act.
XI.
JURY TRIAL DEMAND
242.
Pursuant to Federal Rule of Civil Procedure 38(b), Lead Plaintiff demands a trial
by jury of all of the claims asserted in this Amended Complaint so triable.
XII.
PRAYER FOR RELIEF
WHEREFORE, Lead Plaintiff prays that the Court enter judgment on their behalf and on
behalf of the Class herein, adjudging and decreeing that:
A.
This action may proceed as a class action, with Lead Plaintiff as the designated
Class representative and Lead Plaintiff’s counsel designated as Class Counsel;
B.
Lead Plaintiff and the members of the Class recover damages sustained by them, as
provided by law, and that a judgment in favor of Lead Plaintiff and the Class be entered against
the Defendants, jointly and severally, in an amount permitted pursuant to such law;
C.
Defendants, their subsidiaries, affiliates, successors, transferees, assignees, and the
respective officers, directors, partners, agents, and employees thereof and all other persons acting
or claiming to act on their behalf be permanently enjoined and restrained from continuing and
maintaining the conduct alleged herein;
D.
Lead Plaintiff and members of the Class be awarded pre-judgment and post-
judgment interest, and that such interest be awarded at the highest legal rate from and after the date
of service of the initial complaint in this action;
E.
Lead Plaintiff and members of the Class recover their costs of this suit, including
reasonable attorneys’ fees as provided by law; and
F.
Lead Plaintiff and members of the Class receive such other and further relief as
may be just and proper.
Dated: June 12, 2018
COHEN MILSTEIN SELLERS & TOLL PLLC
By: /s/ Christina D. Saler
Christina D. Saler (pro hac vice)
Three Logan Square
1717 Arch Street
Suite 3610
Philadelphia, PA 19103
Telephone: (267) 479-5700
[email protected]
Steven J. Toll (pro hac vice pending)
Times Wang (pro hac vice)
Eric S. Berelovich
1100 New York Avenue, N.W., Suite 500
Washington, DC 20005
Telephone: (202) 408-4600
[email protected]
[email protected]
[email protected]
Counsel for Lead Plaintiff
| securities |
Ik_nA4kBRpLueGJZGhlw | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
NINA M. COOK, on behalf of herself
and all others similarly situated,
Plaintiff,
v.
Civil Action No. __________
CLASS ACTION COMPLAINT
DEMAND FOR JURY TRIAL
ABBVIE INC., ALLERGAN, INC.,
ALLERGAN SALES, LLC, ALLERGAN USA,
INC., FOREST LABORATORIES, INC.,
FOREST LABORATORIES HOLDINGS,
LTD., FOREST LABORATORIES
IRELAND, LTD., and FOREST
LABORATORIES, LLC,
Defendants.
Plaintiff Nina M. Cook (“Plaintiff”), on behalf of herself and all others similarly situated,
brings this Class Action Complaint against AbbVie, Inc. (“AbbVie”); Allergan, Inc., Allergan
Sales, LLC, and Allergan USA, Inc. (collectively, “Allergan”); and Forest Laboratories, Inc.,
Forest Laboratories Holdings, Ltd., Forest Laboratories, LLC, and Forest Laboratories Ireland
Ltd. (collectively, “Forest”) (together with AbbVie and Allergan, “Defendants”) for Defendants’
violations of federal and state antitrust, consumer protection and unjust enrichment laws
concerning the pharmaceutical drug Bystolic® (nebivolol hydrochloride) (“Bystolic”). Based
upon the investigation of counsel, information and belief, and personal knowledge as to the
allegations contained in paragraph 16, Plaintiff alleges as follows:
I.
INTRODUCTION
1.
This is a civil antitrust action seeking treble damages and declaratory and
injunctive relief brought under state antitrust, consumer protection and unjust enrichment law,
and federal antitrust law, concerning Defendants’ unlawful exclusion of generic substitutes for
the branded drug Bystolic, which contains the active pharmaceutical ingredient nebivolol
hydrochloride or nebivolol HCl. Bystolic is an important cardiovascular prescription drug used
to treat high blood pressure. It is commonly referred to as a “beta blocker” or a beta-adrenergic
blocking agent that reduces blood pressure. Beta-blockers block hormone epinephrine
(adrenaline) and cause the heart to beat more slowly with less force, thereby lowering blood
pressure.
2.
Defendant Forest and its successors-in-interest manufacture, market and sell the
branded version of Bystolic, which is a “blockbuster” prescription drug with annual U.S. sales
exceeding $1billion.1 Potential new generic market entrants filed Abbreviated New Drug
Applications (“ANDA”) with the United States Food and Drug Administration (the “FDA”) to
manufacture, market and sell generic versions of Bystolic on December 17, 2011.2 Despite
these ANDAs filed nearly nine years ago, no generic competitor has or will enter the market
until September 17, 2021.
3.
Generic prescription drugs are typically less expensive than their branded
counterparts, and perform 99.8% the same as the branded product in order to obtain FDA
1 Glenmark Pharmaceuticals receives ANDA approval for Nebivolol Tablets, 2.5 mg, 5 mg, 10
mg and 20 mg, https://www.glenmarkpharma.com/sites/default/files/Glenmark-receives-
ANDA-approval-for-Nebivolol-Tablets%2C2.5-mg%2C5-mg%2C10-mg-and-20-mg.pdf, May
29, 2017.
2 See, e.g., 11/27/2015 Letter from Food and Drug Administration (“FDA”) to Watson,
https://www.accessdata.fda.gov/drugsatfda docs/appletter/2015/203683Orig1s000Ltr.pdf.
“bioequivalence” or “AB rated” status to enter the U.S. market. Access to less expensive
generic prescription drugs is extremely important to society as they cause consumers and the
health industry to save billions of dollars in prescription drug expenditures.3 Notably, generic
drugs typically cost 50% less than the branded product and capture 80% or more market share
of the branded product within the first six to nine months upon entry. This rapid erosion is the
result of generic substitution laws which generally require pharmacists to dispense the AB-
rated generic product when available. The loss of market share causes the branded company of
a “blockbuster” drug to lose millions of dollars in sales each day.
4.
To avoid or delay these market realities, Defendant Forest entered into a series
of unlawful reverse-payment agreements with potential generic competitors, including Hetero,4
Torrent,5 Alkem,6 Indchemie,7 Glenmark,8 Amerigen9 and Watson10 (collectively, the “Generic
Competitors”). From October 2012 through November 2013, Forest entered agreements with
the generics to: (i) not compete with Forest or enter the market prior to September 17, 2021,
unless another generic competitor entered the market earlier; and in exchange (ii) upon
information and belief, provide consideration to the generics, through “side-deals,” and cash
3 Generic Drugs Undergo Rigorous FDA Scrutiny, U.S. Food & Drug Admin. (Oct. 8, 2014),
https://www.fda.gov/consumers/consumer-updates/generic-drugs-undergo-rigorous-fda-
scrutiny.
4 Hetero USA, Inc. and Hetero Labs Ltd. (collectively, “Hetero”).
5Torrent Pharmaceuticals Ltd., and Torrent Pharma, Inc. (collectively “Torrent”).
6 Alkem Laboratories Ltd. (“Alkem”).
7 Indchemie Health Specialties Private Ltd. (“Indchemie”).
8 Glenmark Generics Inc., USA, Glenmark Generics Ltd., and Glenmark Pharmaceuticals S.A.
(collectively “Glenmark”).
9 Amerigen Pharmaceuticals, Inc. and Amerigen Pharmaceuticals, Ltd. (collectively,
“Amerigen”).
10 Watson Pharma, Inc. and Watson Pharmaceuticals, Inc. (“Watson”).
payments. As corporate successors-in-interest to one or more of the Defendants, Allergan and
then AbbVie have perpetuated this illegal conduct11 in the market for nebivolol HCl, all at the
expense of consumers and health insurers.
5.
Beginning on December 17, 2011,12 Forest filed patent infringement actions
against the generic companies that Filed ANDA applications accusing them of allegedly
infringing U.S. Patent No. 6,545,040 (the “’040 Patent”), which Forest successfully submitted
for listing in the FDA Orange Book by certifying that the patent covered Bystolic. These suits,
filed in mid-March 2012, automatically triggered 30-month stays under the Hatch-Waxman
Act. 21 U.S.C. § 355(j)(5)(B)(iii). This prevented the FDA from granting final approval to any
of the Generic Competitors to launch a generic product before June 18, 2015, absent an earlier
favorable decision for the Generic Competitors or a dismissal of the actions.
6.
Between March 2012 through November 2013, while the stays were in effect,
the Generic Competitors fought the patent infringement suits and prepared to bring their
generic Bystolic to market to compete with Forest’s branded Bystolic. At least six of the seven
Generic Competitors would have been ready to launch well before September 17, 2021, as each
had final FDA approval to enter the market.
7.
The ’040 Patent litigation would likely have concluded by mid-2015, including
any appeals, in favor of the generic because the ‘040 Patent was weak. The Generic
11 FTC v. Actavis, 570 U.S. 136 (2013).
12 See, e.g., 11/27/2015 Letter from FDA to Watson,
https://www.accessdata.fda.gov/drugsatfda_docs/appletter/2015/203683Orig1s000Ltr.pdf;
5/27/2017 Letter from FDA to Glenmark,
https://www.accessdata.fda.gov/drugsatfda_docs/appletter/2017/203821Orig1s000ltr.pdf;
6/24/2015 Letter from FDA to Alkem,
https://www.accessdata.fda.gov/drugsatfda docs/appletter/2015/203741Orig1s000ltr.pdf.
Competitors would have won and launched by the later of: (i) June 2015, which was the expiry
of the only other patent that Forest contended covered Bystolic, U.S. Patent No. 5,759,580 (the
“’580 Patent”), or (i) the date their ANDAs were finally approved. Rather than risk facing
competition from the Generic Competitors as early as June 2015 and the subsequent reduction
in Bystolic brand sales and revenues, Forest entered into a prototypical “reverse-payment
agreement” with the generics by sharing monopoly profits with them to induce them to stay
out of the market until September 21, 2021. The result: the pharmaceutical companies won and
health insurers and consumers, the intended victims of the anticompetitive scheme, were the
biggest financial losers.
8.
On February 18, 2014 Actavis PLC and Forest announced an equity and cash
merger.13 Forest’s outside lawyers at Weil, Gotshal & Manges LLP conducted due diligence
and reviewed Forest’s documents as part of their “work on the Actavis merger agreement.”14
On March 4, 2014, Forest’s outside lawyers identified the existence of “side deal” reverse-
payment settlements with the generics noting that “[b]efore we engage in any discussions with
the FTC . . . we think it would be prudent for us to review all of the Bystolic settlement and
licensing agreements as well as the side agreements with those generic companies.”15 The
email exchange provided the following details:
We entered into settlement agreements with the following defendants:
1) Hetero
2) Torrent
3) Alkem
13 See Actavis to Acquire Forest Laboratories, Inc. for ~$25 Billion in an Equity and Cash
Transaction, https://www.businesswire.com/news/home/20140218005877/en/Actavis-
Acquire-Forest-Laboratories-25-Billion-Equity.
14 In re Namenda Direct Purchaser Antitrust Litig., 15-cv-07488-CM-RWL (S.D.N.Y. Mar. 7,
2019) (ECF No. 680-44 at 332).
15 Id. (emphasis added).
4) Indchemie
5) Glenmark
6) Amerigen
7) Actavis [Watson’s successor]
All had side-deals (one was struck with Alkem, which is a related company with
Indchemie).16
9.
Forest’s Agreement and Plan of Merger with Actavis PLC (the “Merger
Agreement”), dated February 17, 2014 disclosed “material contracts,” which are defined to
include “any Contract involving the settlement of any action or threatened action (or series of
related actions) (A) which will (x) involve payments after the date hereof of consideration in
excess of $15,000,000 or (y) impose monitoring or reporting obligations to any other Person
outside the ordinary course of business or (B) with respect to which material conditions
precedent to the settlement have not been satisfied.”17
10.
Forest listed each of the side-deals as a “material contract” “in connection with
the settlement of BYSTOLIC patent dispute” because it was a “Contract involving the
settlement of any action or threatened action (or series of related actions) (A) which will (x)
involve payments after the date hereof of consideration in excess of $15,000,000 or (y) impose
monitoring or reporting obligations to any other Person outside the ordinary course of
business or (B) with respect to which material conditions precedent to the settlement have not
been satisfied.” A succinct summary of the relevant provisions follows:
Hetero: “SETTLEMENT AGREEMENT between Forest Laboratories, Inc. and
Forest Laboratories Holdings, Ltd, and Hetero USA Inc. and Hetero Labs Ltd. dated
October 24, 2012 . . . together with the FINAL TERM SHEET between Hetero Drugs
16 Id. (emphasis added).
17 In re Namenda Direct Purchaser Antitrust Litig., 15-cv-07488-CM-RWL (S.D.N.Y. Mar. 7,
2019) (ECF No. 680-22 at 69).
Ltd. and Forest Laboratories Ireland Ltd. dated October 5, 2012, in connection with the
settlement of BYSTOLIC patent dispute.”18
Torrent: “SETTLEMENT AGREEMENT between Forest Laboratories, Inc. and
Forest Laboratories Holdings, Ltd., and Torrent Pharmaceuticals Ltd. and Torrent
Pharma Inc. dated November 21, 2012 . . . together with the PATENT ASSIGNMENT
AGREEMENT between Torrent Pharmaceuticals Ltd and Forest Laboratories
Holdings Ltd. dated November 21, 2012, in connection with the settlement of
BYSTOLIC patent dispute.”19
Alkem/Indchemie: “SETTLEMENT AGREEMENT between Forest Laboratories, Inc.
and Forest Laboratories Holdings, Ltd., and Alkem Laboratories Ltd. dated November
27, 2012 . . . together with the TERM SHEET between Alkem Laboratories Ltd.,
Indchemie Health Specialties Private Ltd., and Forest Laboratories Ireland Ltd. dated
November 28, 2012, in connection with the settlement of BYSTOLIC patent dispute.
AMENDMENT NO. 1 TO SETTLEMENT AGREEMENT was executed on January 9,
2013” and “SETTLEMENT AGREEMENT between Forest Laboratories, Inc. and
Forest Laboratories Holdings, Ltd, and Indchemie Health Specialties Private Ltd. dated
November 27, 2012 . . . together with the TERM SHEET between Alkem Laboratories
Ltd, Indchemie Health Specialties Private Ltd, and Forest Laboratories Ireland Ltd. dated
November 28, 2012, in connection with the settlement of BYSTOLIC patent dispute.”20
Glenmark: “SETTLEMENT AGREEMENT between Forest Laboratories, Inc. and
Forest Laboratories Holdings, Ltd, and Glenmark Generics Inc., USA and Glenmark
18 Id. at 179.
Generics Ltd. dated December 21, 2012 . . . together with the COLLABORATION
AND OPTION AGREEMENT between Glenmark Pharmaceuticals S.A. and Forest
Laboratories Holdings Ltd. dated December 21, 2012, in connection with the settlement
of BYSTOLIC patent dispute.”21
Amerigen: “SETTLEMENT AGREEMENT between Forest Laboratories, Inc. and
Forest Laboratories Holdings, Ltd., and Amerigen Pharmaceuticals, Inc. and Amerigen
Pharmaceuticals, Ltd. dated July 18, 2013 . . . together with the BINDING TERM
SHEET COLLABORATION AGREEMENT between Forest Laboratories, Inc. and
Amerigen Pharmaceuticals, Ltd. dated July 18, 2013, in connection with the settlement
of BYSTOLIC patent dispute.”22
Watson: “SETTLEMENT AGREEMENT between Forest Laboratories, Inc. and
Forest Laboratories Holdings, Ltd., and Watson Laboratories, Inc. (NV), Watson
Laboratories, Inc. (DE), Watson Laboratories, Inc. (NY), Watson Laboratories, Inc.
(CT), Watson Pharma, Inc., and Actavis, Inc. dated November 6, 2013 . . . together with
(a) the LETTER from Forest Laboratories, Inc. to Moksha8, Inc. dated November 1,
2013 and (b) TERMINATION AND RELEASE AGREEMENT between Actavis, Inc.
and Moksha8, Inc. dated November 4, 2013, in connection with the settlement of
BYSTOLIC patent dispute.”23
11.
As Forest publicly acknowledged, the side-deals were entered into as part and
parcel of Forest’s patent settlement agreements with the Generic Competitors in the Bystolic
patent litigation.
21 Id.
22 Id. at 180.
12.
In addition to the consideration Forest provided each Generic Competitor in the
form of a side-deal, Forest “agreed to reimburse certain of the Settling Defendants’ legal costs
in connection with the patent litigation.”24
13.
Forest also disclosed that its settlement agreements with the Generic
Competitors “provide[d] a license to each of the Settling Defendants that will permit them to
launch their respective generic versions of Bystolic as of the date that is the later of (a) three
calendar months prior to the expiration of the ’040 patent, including any extensions and/or
pediatric exclusivities or (b) the date that each Settling Defendant receives final FDA approval
of its ANDA, or earlier in certain circumstances.”25 The bolded language typically refers to
what is known as a “contingent launch provision” (“CLP”), or an “acceleration clause.” CLPs
ensure a settling generic that it will not be competitively disadvantaged should a later settling
generic negotiate an earlier licensed entry date or otherwise come to market earlier: pursuant
to the CLPs, the entry date may be “accelerated” permitting the settling generic to enter the
market at the same time as any of its competitors. CLPs ensure settling generic ANDA filers
that, if any other ANDA filer somehow makes it to market before the agreed-upon licensed
entry date that ANDA filer’s licensed entry date would be accelerated so that it could launch at
the same time.
14.
When CLPs are used, they generally operate the same way in each ANDA filer’s
settlement agreement. Under a CLP, the first-filing ANDA filer (or, as here, filers) obtains
protection from other first filers by agreeing to delay the launch of their generic products from
the date of settlement until a date certain (here, exactly three months before the expiration of
24 https://www.sec.gov/Archives/edgar/containers/fix010/38074/
000003807413000024/ R17.htm.
25 Id. (emphasis added).
the ’040 Patent),26 but if and only if all other first-filer generic companies follow suit. By
brokering the agreements, Forest ensured that, without regard to the strength of the Generic
Competitors’ challenges to the ’040 Patent, Bystolic would have no generic competitors and
Forest would maintain patent-generated monopoly profits until at least September 17, 2021,
and none of its generic competitors would come to market earlier.
15.
As a direct and proximate result of Defendants’ conduct, Plaintiff and other class
members have been injured in their business and property because they would have been able to
purchase less expensive generic Bystolic instead of branded Bystolic at artificially inflated
II.
PARTIES
16.
Plaintiff Nina M. Cook (“Plaintiff”) is an individual residing in West Virginia.
Plaintiff purchased and paid for Bystolic, other than for resale, in the state of West Virginia
during the Class Period. Absent the unlawful conduct alleged herein, Plaintiff would have
purchased less expensive generic alternatives rather than branded Bystolic. During the Class
Period, Plaintiff paid more than she would have absent Defendants’ unlawful anticompetitive
scheme to prevent and delay generic entry and was injured as a result of the illegal and
wrongful conduct alleged herein. Plaintiff intends to purchase Bystolic in the future and will be
injured if injunctive relief is not granted.
17.
Defendant Forest Laboratories, Inc. is a corporation organized and existing
under the laws of the State of Delaware, with its principal place of business at 909 Third
Avenue, New York, New York 10022.
26 Id.
18.
Defendant Forest Laboratories Ireland, Ltd. is an Irish Corporation with a place
of business at Clonshaugh Industrial Estate, Dublin 17, Ireland.
19.
Defendant Forest Laboratories Holdings, Ltd. is a Bermudian corporation
having a principal place of business at 18 Parliament Street, Hamilton HM 11, Bermuda. In or
around February 2006, Defendant Forest Laboratories Ireland, Ltd. changed its name to Forest
Laboratories Holdings, Ltd. and changed its residence from Ireland to Bermuda.27
20.
Defendant Forest Laboratories, LLC is a company organized and existing under
the laws of Delaware, with its principal place of business at Morris Corporate Center III, 400
Interpace Parkway, Parsippany, New Jersey 07054. On July 1, 2014, in a series of transactions,
Forest Laboratories, Inc. became a limited liability company named Forest Laboratories, LLC.
On July 1, 2014, Actavis PLC (“Actavis”) acquired Defendant Forest. On May 17, 2015 Actavis
acquired Defendant Allergan, Inc. but maintained the name Allergan for its ongoing
operations. Subsequently, on January 1, 2018, Forest Laboratories, LLC was merged with and
into Defendant Allergan Sales, LLC, a Delaware limited liability company. As a result of these
corporate consolidations, the Forest Defendants are predecessors in interest to Allergan Sales,
21.
Defendant Allergan Sales, LLC is a company organized and existing under the
laws of Delaware, with its principal place of business at 5 Giralda Farms, Madison, New Jersey
22.
Defendant Allergan, Inc. is a Delaware corporation with its principal place of
business located at Morris Corporate Center III, 400 Interpace Parkway, Parsippany, New
Jersey 07054.
27 See, e.g., Notice and Stipulation of Name Change, Forest Laboratories, et al. v. Ivax
Pharmaceuticals, Inc., et al, 03-cv-00891 (D. Del. Feb. 8, 2006) (ECF No. 536).
23.
Defendant Allergan USA, Inc. is a Delaware corporation with its principal place
of business at 5 Giralda Farms, Madison, New Jersey 07940.
24.
Allergan, through its merger with Forest, assumed responsibility for
performance of the challenged provisions in the agreements, continued to perform those
provisions, and benefited from making indirect sales of Bystolic to Plaintiff and members of the
proposed Class at the supracompetitive prices made possible by the delay those challenged
provisions produced.28
25.
On information and belief, Forest assigned the reverse-payment agreements to
Allergan, and Allergan never withdrew from them.
26.
On information and belief, Allergan joined the ongoing unlawful course of
conduct – and joined the unlawful reverse-payment agreements – with respect to the
suppression of generic competition for Bystolic. Allergan did not withdraw from those
conspiracies and instead continued to participate in them.
27.
Defendant AbbVie, Inc. is a corporation organized and existing under the laws of
Delaware with its corporate headquarters at 1 North Waukegan Road, North Chicago, Illinois
60064. AbbVie is the corporate successor to Allergan and Forest, having completed its
purchase of Allergan on May 8, 2020.
28.
Defendant AbbVie, through its merger with Allergan, assumed responsibility for
performance of the challenged provisions in the agreements, continued to perform those
provisions, and benefited from making indirect sales of Bystolic to Plaintiff and members of the
28 See, e.g., Bystolic label, available at https://www.dailymed.nlm.nih.gov/dailymed/
fda/fdaDrugXsl.cfm?setid=8b8ad213-1dc8-454e-a524-075685c0e1a8&type=display (listing
Allergan USA Inc. as the distributor of Bystolic).
proposed Class at the supracompetitive prices made possible by the delay those challenged
provisions produced.
29.
On information and belief, Allergan assigned the reverse-payment agreements to
AbbVie, and AbbVie never withdrew from them.
30.
On information and belief, AbbVie joined the ongoing unlawful course of
conduct – and joined the unlawful reverse-payment agreements – with respect to the
suppression of generic competition for Bystolic. AbbVie did not withdraw from those
conspiracies and instead continued to participate in them.
31.
Although not named as a Defendant, Watson Pharma, Inc. was an initiator of
and is a participant in the unlawful conspiracy described in this complaint. Watson Pharma,
Inc. is a corporation organized and existing under the laws of Delaware, having a place of
business at Morris Corporate Center III, 400 Interpace Parkway, Parsippany, New Jersey
32.
Although not named as a Defendant, Watson Pharmaceuticals, Inc. was an
initiator of and is a participant in the unlawful conspiracy described in this complaint. Watson
Pharmaceuticals, Inc. is a corporation organized and existing under the laws of the State of
Nevada, having places of business at 311 Bonnie Circle, Corona, California 92880 and 360
Mount Kemble Avenue, Morristown, New Jersey 07962, and its corporate headquarters at
Morris Corporate Center III, 400 Interpace Parkway, Parsippany, New Jersey 07054.
33.
Although not named as a Defendant, Torrent Pharmaceuticals Ltd. was an
initiator of and is a participant in the unlawful conspiracy described in this complaint. Torrent
Pharmaceuticals Ltd. is an Indian corporation having a principal place of business at Off.
Ashram Road, Ahmedabad - 380 009, Gujarat, India.
34.
Although not named as a Defendant, Torrent Pharma Inc. was an initiator of
and is a participant in the unlawful conspiracy described in this complaint. Torrent Pharma
Inc. is a corporation organized and existing under the laws of the State of Delaware, having a
principal place of business at 5380 Holiday Terrace, Suite 40, Kalamazoo, Michigan 49009. On
information and belief, Torrent Pharma Inc. is a wholly-owned subsidiary of Torrent
Pharmaceuticals Ltd. On information and belief, Torrent Pharma Inc. acts as the agent of
Torrent Pharmaceuticals Ltd.
35.
Although not named as a Defendant, Amerigen Pharmaceuticals Ltd. was an
initiator of and is a participant in the unlawful conspiracy described in this complaint.
Amerigen Pharmaceuticals Ltd. is a Chinese company having places of business at 197 State
Route 18S, Suite 306N, East Brunswick, New Jersey 08816 and No. 58, Qunxing Yi Road,
Suzhou Industrial Park, PRC, 215006.
36.
Although not named as a Defendant, Amerigen Pharmaceuticals Inc. was an
initiator of and is a participant in the unlawful conspiracy described in this complaint. Amerigen
Pharmaceuticals Inc. is a corporation organized and existing under the laws of the State of
Delaware, having a principal place of business at 197 State Route 18S, Suite 306N, East
Brunswick, New Jersey 08816. On information and belief, Amerigen Pharmaceuticals Inc. is a
wholly-owned subsidiary of Amerigen Pharmaceuticals Ltd. On information and belief,
Amerigen Pharmaceuticals Inc. acts as the agent of Amerigen Pharmaceuticals Ltd.
37.
Although not named as a Defendant, Glenmark Generics Inc., USA was an
initiator of and is a participant in the unlawful conspiracy described in this complaint.
Glenmark Generics Inc. is a corporation organized and existing under the laws of the State of
Delaware, having a principal place of business at 750 Corporate Drive, Mahwah, New Jersey
07430. Glenmark Generics Inc. is the same entity as Glenmark Generics Inc., USA. To the
extent Glenmark Generics Inc. is an entity separate and apart from Glenmark Generics Inc.,
USA, any allegations in this Complaint relating to Glenmark Generics Inc., USA shall apply
equally to Glenmark Generics Inc.
38.
Although not named as a Defendant, Glenmark Generics Ltd. was an initiator of
and is a participant in the unlawful conspiracy described in this complaint. Glenmark Generics
Ltd. is an Indian company having a place of business at Glenmark House, HDO-Corporate
Building, Wing -A, B D Sawant Marg, Chakala, Off Western Express Highway, Mumbai 400099,
Maharashtra, India.
39.
Although not named as a Defendant, Defendant Glenmark Pharmaceuticals Ltd.
was an initiator of and is a participant in the unlawful conspiracy described in this complaint.
Glenmark Pharmaceuticals Ltd. is an Indian corporation having a principal place of business at
Glenmark House, HDO-Corporate Building, Wing -A, B D Sawant Marg, Chakala, Off
Western Express Highway, Mumbai 400099, Maharashtra, India. On information and belief
Glenmark Generics Inc., USA and Glenmark Generics Ltd. are wholly-owned subsidiaries of
Glenmark Pharmaceuticals Ltd. On information and belief, Glenmark Generics Inc., USA is
the North American division of Glenmark Generics Ltd. On information and belief, Glenmark
Generics Inc., USA, Glenmark Generics Ltd., and Glenmark Pharmaceuticals Ltd. have officers
and directors in common. On information and belief, Glenmark Generics Inc., USA acts as the
agent of Glenmark Generics Ltd. and Glenmark Pharmaceuticals Ltd.
40.
Although not named as a Defendant, Hetero Labs Ltd. was an initiator of and is
a participant in the unlawful conspiracy described in this complaint. Hetero Labs Ltd. is an
Indian corporation having a principal place of business at 7-2-A2, Hetero Corporate Industrial
Estate, Sanathnagar Hyderabad 500018 Andhra Pradesh, India.
41.
Although not named as a Defendant, Hetero USA Inc. was an initiator of and is a
participant in the unlawful conspiracy described in this complaint. Hetero USA Inc. is a
corporation organized and existing under the laws of the State of Delaware, having a principal
place of business at 1031 Centennial Avenue, Piscataway, New Jersey 08854. On information
and belief, Hetero USA Inc. is a wholly-owned subsidiary of Hetero Labs Ltd. On information
and belief, Hetero USA Inc. acts as the agent of Hetero Labs Ltd.
42.
Although not named as a Defendant, Indchemie Health Specialties Private Ltd.
was an initiator of and is a participant in the unlawful conspiracy described in this complaint.
Indchemie Health Specialties Private Ltd. is an Indian company having a place of business at
510, Shah & Nahar Industrila Estate, Dr. E. Moses Road, Worli-Mumbai 400018, India.
43.
Although not named as a Defendant, Alkem Laboratories Ltd. was an initiator of
and is a participant in the unlawful conspiracy described in this complaint. Alkem Laboratories
Ltd. is an Indian company having a place of business at Alkem House, Devashish, Senapati
Bapat Marg, Lower Parel (West), Mumbai 400013, Maharashtra, India.
44.
All of the Defendants’ and unnamed (as defendants) co-conspirators’ actions
described in this complaint are part of, and in furtherance of, the unlawful conduct alleged
herein, and were authorized, ordered, and/or done by the Defendants’ and unnamed co-
conspirators’ various officers, agents, employees, or other representatives while actively
engaged in the management of the Defendants’ and unnamed co-conspirators’ affairs (or that of
their predecessors-in-interest) within the course and scope of their duties and employment,
and/or with the actual, apparent, and/or ostensible authority of the Defendants and unnamed
co-conspirators.
III.
JURISDICTION AND VENUE
45.
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 Class members, and at least one member of the putative Class is a citizen of a state
different from that of one of the Defendants. This Court also has jurisdiction under Section 16
of the Clayton Act, 15 U.S.C. § 26, and Sections 1 and 2 of the Sherman Act 15 U.S.C. §§ 1 and
46.
Venue is appropriate within this district under 28 U.S.C. §1391 and Section 12 of
the Clayton Act 15 U.S.C. § 22 because, at all relevant times, Defendants transacted business
within this district, and the interstate trade and commerce described hereinafter is carried out,
in substantial part, in this district. Further, Defendants and/or their agents may be found in
this district. Upon information and belief, the anticompetitive agreement emanated from
Forest’s New York headquarters.
47.
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.
48.
During the class period, Forest manufactured, sold and shipped Bystolic in a
continuous and uninterrupted flow of interstate commerce. Defendants’ anticompetitive
conduct had a direct, substantial, and reasonably foreseeable effect on interstate commerce.
49.
During the class period, each Defendant, or one or more of its affiliates, used the
instrumentalities of interstate commerce to join or effectuate their scheme.
50.
This Court has personal jurisdiction over each Defendant, because each
Defendant has – throughout the United States and including in this District – transacted
business, maintained substantial contacts, and/or committed overt acts in furtherance of its
illegal scheme and conspiracy. 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.
51.
This Court has personal jurisdiction over each Defendant under 15 U.S.C. § 22
because each transacts business in this District. Personal jurisdiction lies under Fed. R. Civ. P.
4(k)(2) over the foreign domiciliary defendants.
IV.
CLASS ACTION ALLEGATIONS
52.
Plaintiff brings this action on behalf of herself and, under Federal Rule of Civil
Procedure 23(a), (b)(2) and (b)(3), as a representative of a class of End Payors (the “Class”)
defined as follows:
All persons and entities in the United States and its territories that indirectly
purchased, paid and/or provided reimbursement for some or all of the purchase price of
Bystolic in any form, other than for resale, from June 2, 2015 through and until the
anticompetitive effects of Defendants’ unlawful conduct cease (the “Class Period”).
53.
The following persons and entities are excluded from the Class:
(a) Defendants and their counsel, officers, directors, management, employees,
subsidiaries, and affiliates;
(b) All federal and state governmental entities except for cities, towns,
municipalities or counties with self-funded prescription drug plans;
(c) All persons or entities who purchased Bystolic for purposes of resale or
directly from Defendants or their affiliates;
(d) Fully-insured health plans (i.e., health plans that purchased insurance from
another third-party payor covering 100 percent of the plan’s reimbursement
obligations to its members);
(e) Any “flat co-pay” consumers whose purchases of Bystolic were paid in part
by a third-party payor and whose co-payment was the same regardless of the
retail purchase price;
(f) Pharmacy benefit managers; and
(g) All judges assigned to this case and any members of their immediate families.
54.
The Class is so numerous and widely geographically dispersed throughout the
United States that joinder of all members is impracticable. Moreover, given the costs of
complex antitrust litigation, it would be uneconomic for many plaintiffs to bring individual
claims and join them together. The identities of Class members will be readily ascertainable
through business records kept in regular order. Plaintiff’s claims are typical of Class members.
Plaintiff and all Class members were damaged by the same wrongful conduct by Defendants.
Defendants’ anticompetitive conduct deprived the Class members of the benefits of competition
from less-expensive generic versions of Bystolic, causing them to pay artificially inflated,
supracompetitive prices for Bystolic.
55.
Plaintiff will fairly and adequately protect and represent the interests of the
Class. The interests of Plaintiff are aligned with, and not antagonistic to, those of the other
Class members.
56.
Plaintiff is represented by counsel who are experienced and competent in the
prosecution of class action antitrust litigation and have particular experience with class action
antitrust litigation involving pharmaceutical products.
57.
Questions of law and fact common to Class members predominate over
questions, if any, that may affect only individual Class members, because Defendants have acted
on grounds generally applicable to the entire Class. Such generally applicable questions are
inherent in Defendants’ wrongful conduct.
58.
Questions of law and fact common to the Class include:
(a) Whether the conduct alleged herein constitutes a violation of the antitrust
laws;
(b) Whether Defendants conspired to suppress generic competition to Bystolic;
(c) Whether Defendants’ challenged conduct suppressed generic competition to
Bystolic;
(d) Whether a relevant antitrust market needs to be defined in this case in light
of the existence of direct proof of Defendants’ power to exclude generic
competition and charge supracompetitive prices for Bystolic;
(e) If a relevant antitrust market needs to be defined, what the definition of the
relevant antitrust market for analyzing Defendants’ monopoly power is, and
whether Defendants had monopoly power in the relevant antitrust market;
(f) Whether Defendants illegally obtained or maintained monopoly power in the
relevant market;
(g) Whether Defendants’ actions were, on balance, unreasonable restraints of
trade;
(h) Whether the Patent Settlements included large and unjustified payments in
exchange for promises from the generic manufacturers to delay generic
entry;
(i) Whether the activities of Defendants as alleged herein have substantially
affected interstate commerce;
(j) Whether, and to what extent, Defendants’ conduct caused antitrust injury
(overcharges) to Plaintiff and the Class; and
(k) The quantum of overcharge damages paid by the Class in the aggregate.
59.
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.
60.
Plaintiff knows of no difficulty to be encountered in the maintenance of this
action that would preclude its maintenance as a class action.
V.
REGULATORY BACKGROUND
A.
The Regulatory Structure for Approval of Drugs
61.
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).
62.
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), (c)(2).
63.
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 for accuracy or product
or its use. In listing patents in the Orange Book, the FDA merely performs a ministerial act.
1. The Hatch-Waxman Amendments
64.
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. See generally Drug Price Competition and Patent Term
Restoration Act, Pub. L. No. 98-417, 98 Stat. 1585 (1984).
65.
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. 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.29 In 1985, prescription drug revenue for brand and generic drugs totaled $21.6 billion; by
2018, total prescription drug revenue had climbed to more than $344 billion, with generic
drugs accounting for 90% of prescriptions.30 Generics are now dispensed 97% of the time when
a generic form is available.31
29 Congressional Budget Office, How Increased Competition From Generic Drugs Has Affected
Prices and Returns in the Pharmaceutical Industry 37 (July 1998),
https://www.cbo.gov/sites/default/files/105th-congress-1997-1998/reports/pharm.pdf.
30 See IQVIA Institute, Medicine Use and Spending in the U.S. 2, 5 (May 2019),
https://www.iqvia.com/-/media/iqvia/pdfs/institute-reports/medicine-use-and-spending-in-
the-us---a-review-of-2018-outlook-to-2023.pdf?_=1591811126454.
31 Id.; see also IMS Institute for Healthcare Informatics, Medicine Use and Shifting Costs of
Healthcare 30, 51 (Apr. 2014),
66.
The Hatch-Waxman Amendments simplified the regulatory hurdles for
prospective generic manufacturers by eliminating the need for them to file lengthy and costly
NDAs. 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 brand manufacturer’s NDA. 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 brand
counterpart, 21 U.S.C. § 355(j)(8)(B)), 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 brand drug). Generic drugs that are both bioequivalent and pharmaceutically equivalent
are considered “therapeutically equivalent” to the brand drug. See generally 21 U.S.C. §355(j) et
67.
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.
2. Paragraph IV Certifications
68.
Under the Hatch-Waxman Amendments, 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”);
https://oversight.house.gov/sites/democrats.oversight.house.gov/files/documents/IMS-
Medicine%20use%20and%20shifting%20cost%20of%20healthcare.pdf.
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”).
21 U.S.C. § 355(j)(2)(A)(vii).
69.
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). 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.
3. First-Filer’s 180-Day Exclusivity Period
70.
Generics may be classified as (1) first-filer generics, (2) later-filing generics, or
(3) the brand’s own authorized generic.
71.
To encourage manufacturers to seek approval of generic versions of brand
drugs, the Hatch-Waxman Amendments grant the first generic manufacturer who files an
ANDA with a Paragraph IV certification (the “first-filer”) a 180-day period to market the
generic version of the drug, during which the FDA may not grant final approval to any other
later-filing generic manufacturer’s ANDA for the same brand drug. 21 U.S.C. § 355(j)(5)(B)(iv)
and 21 U.S.C. § 355(j)(5)(D). That is, when a first-filer files a substantially complete ANDA
with the FDA and certifies that at least one unexpired patent listed in the Orange Book as
covering the brand product is either invalid, unenforceable, or not infringed by the generic’s
product, the FDA cannot approve a later-filing generic company’s ANDA until that first-filer
generic has been on the market for 180-days, or until the first-filer’s 180-day exclusivity has
been forfeited. The 180-day window is referred to as the first-filer’s 180-day “exclusivity” or
“exclusivity period.”
72.
By contrast, a first-filer that informs the FDA that it intends to wait until all
Orange Book listed patents expire before marketing its product (e.g., one that files a Paragraph
III certification as to all Orange Book-listed patents) will not receive a 180-day exclusivity
period. Congress created the 180-day exclusivity period to incentivize generic manufacturers
to file Paragraph IV certifications challenging weak patents, or to invent around such patents
by creating non-infringing generics.
73.
The Supreme Court has recognized that “this 180-day period of exclusivity can
prove valuable, possibly worth several hundred million dollars” to the first-filer.32
32 FTC v. Actavis, Inc., 570 U.S. 136, 133 S. Ct. 2223, 2229 (2013) (internal citation and
quotation marks omitted).
74.
An authorized generic, or AG, is simply the brand product, sold or licensed by
the brand for sale, under generic trade dress, at a cheaper price than the brand price. Because
the AG is already approved under the brand manufacturer’s NDA, it can be marketed at any
time, including during the first-filer’s 180-day exclusivity period.33
75.
A brand can also license a first-filer generic competitor to launch an authorized
generic. The first-filer’s launch of an authorized generic triggers its 180-day exclusivity
B.
The Benefits of AB-Rated Generic Competition
76.
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.
77.
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.
78.
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.34 That is because, once
33 See, e.g., FDA, Guidance for Industry, 180-Day Exclusivity: Questions and Answers at 13,
https://www.fda.gov/media/102650/download.
34 See FTC, Pay-For-Delay: How Drug Company Pay-Offs Cost Consumers Billions at 8 (Jan.
2010) (“FTC Pay-for-Delay Study”),
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.35 As a result, competition from generic drugs is
viewed by brand drug companies, such as AbbVie, as a grave financial threat.
79.
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.
80.
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.
“According to the Congressional Budget Office, generic drugs save consumers an estimated $8
http://www.ftc.gov/sites/default/files/documents/reports/pay-delay-how-drug-company-
payoffs-cost-consumers-billions-federal-trade-commission-staff-
study/100112payfordelayrpt.pdf.
35 See, e.g., Patricia Danzon & Li-Wei Chao, Does Regulation Drive Out Competition in
Pharmaceutical Markets?, 43 J.L. & Econ. 311, 314, 339-41, 354-55 (2000).
to $10 billion a year at retail pharmacies. Billions more are saved when hospitals use
generics.”36
C.
Brand and Generic Companies Have Strong Financial Incentives to Agree
to Anticompetitive Terms
81.
Until a generic version of the brand drug enters the market, there is no
bioequivalent generic drug to substitute for and compete with the brand drug, and therefore
the brand manufacturer can continue to profitably charge supracompetitive prices. Brand
manufacturers, such as Defendants, are well aware of generics’ rapid erosion of their brand
sales, and thus seek to delay and stall the impact of generic competition for as long as possible,
sometimes (as here) resorting to illegal means.
82.
One way that brand manufacturers game the system, causing an anticompetitive
effect, is by paying generic manufacturers to delay entering the market. These agreements not
to compete are sometimes referred to as or “pay-for-delay agreements,” and they have long
concerned the FTC. Brand and generic manufacturers execute pay-for-delay agreements to
take advantage of the regulatory consequences associated with the generic manufacturers’
Paragraph IV certifications.
83.
In a typical pay-for-delay agreement, the brand manufacturer pays a generic
manufacturer to delay or abandon market entry. The brand manufacturer preserves its
monopoly by effectively paying some of its monopoly profits to the generic manufacturer,
which in turn agrees to delay marketing its product. Because of the sharp price drop that
would result from generic competition, both the brand and the generic manufacturer can make
36 Generic Drugs Undergo Rigorous FDA Scrutiny, U.S. Food & Drug Admin. (Oct. 8, 2014),
https://www.fda.gov/consumers/consumer-updates/generic-drugs-undergo-rigorous-fda-
scrutiny.
more money from this arrangement than from competing against each other for increasingly
smaller margins.
84.
Pay-for-delay agreements often take the form of settlement agreements to end
patent infringement suits filed by brand manufacturers when they get notice of an ANDA with
a Paragraph IV certification concerning one or more of their patents. Instead of defending
their patents in court, as the Hatch-Waxman Act’s drafters intended, the brand company pays
the generic manufacturer to stay off the market, allowing both companies to benefit from
monopoly profits. These agreements are also called “reverse-payment agreement,” because the
plaintiff pays the defendant to end the suit—the opposite of what normally happens in a civil
settlement.
D.
Pay-for-Delay Agreements with First-Filers Can Create Bottlenecks for
Later-Filing Generics
85.
An anticompetitive agreement entered into between the brand and the first-filer
generic often creates a bottleneck preventing the later ANDA filers from launching, since the
later ANDA filers cannot launch earlier than 180 days after the first-filer’s launch.
86.
Later ANDA filers have more modest financial prospects than the first-filer
generic because the later filers have no expectation of any form of market exclusivity, such as
the first-filer’s 180-day exclusivity. By the time the later ANDA filers enter the market, they
typically must compete with the brand, the first-filer, an authorized generic, and other later
87.
Nevertheless, in the absence of an anticompetitive agreement between the brand
company and the first-filer, the later ANDA filers have procompetitive incentives. They are
motivated to enter the market as early as possible because the sooner they enter, the sooner
they can earn profits by competing for sales in the market, which results in lower prices.
88.
However, later ANDA filers cannot obtain final FDA approval to enter the
market until the first-filer’s 180-day exclusivity has run or been forfeited. An agreement
between the brand and the first-filer that delays the first-filer’s entry thus creates a bottleneck
that, by delaying the first filer’s 180-day exclusivity, consequently delays the later ANDA filers’
entry as well.
89.
Agreements causing such bottlenecks are fundamentally anticompetitive and are
contrary to the goals of the Hatch-Waxman statutory scheme. In particular, they extend the
brand manufacturer’s monopoly profits by blocking and delaying access to more affordable
generic drugs, forcing purchasers to buy the more expensive brand drug instead.
VI.
FACTUAL ALLEGATIONS
A.
Basic Chemistry Relating to the Active Pharmaceutical Ingredient in
the Drug Product Bystolic
90.
Molecules are composed of atoms (e.g., carbon, nitrogen or hydrogen) that are
bonded to each other through the sharing of electrons. The atom carbon forms four bonds and
tends to adopt a tetrahedral structure. That three-dimensional arrangement can be envisioned
as a tetrahedron with the carbon atom at the center and the four substituents at the four
vertices of the tetrahedron.
91.
The chemical symbol for a carbon atom is “C.” The figure below depicts a
carbon atom (labeled as “C”) bonded to four different chemical substituents (labeled as “X1,”
“X2,” “X3,” and “X4”). The straight lines from the carbon atom (at the center) to “X1” and
“X4” are
intended to convey that they are in the plane of the page. The solid wedge from the carbon
atom to “X3” is intended to convey that it is coming out of the page towards the reader. And
the hashed wedge from the carbon atom to “X2” is intended to convey that it is coming out of
the page but away from the reader. Thus, the above figure reflects a three-dimensional
tetrahedral structure with a carbon atom at its center.
92.
When a carbon atom is attached to four different substituents in a tetrahedral
arrangement such as that shown above, the substituents can be arranged in either of two
conformations, as depicted below, with a mirror line between them. Note that, much like one’s
left and right hands, these two arrangements are mirror images of one another. And, much like
one’s left and right hands, they cannot be superimposed on one another by rotation. A carbon
atom bonded to four different substituents can thus exist as either of two “stereoisomers” and
such a carbon atom is referred to as a “chiral center.” Naming conventions exist to distinguish
these two stereoisomers from one another, and a commonly used terminology refers to one
configuration as the “R” configuration and the other as the “S” configuration.
93.
Distinguishing between stereoisomers can be particularly important in
biological systems because many active pharmaceutical ingredients (“APIs”) in drugs interact
with naturally occurring receptors in the human body by fitting into a three-dimensional site
on the receptor, much like a left hand fits into a left-handed glove. Just as a left hand would not
fit properly into a right-handed glove, the wrong stereoisomer often will not fit into the
intended receptor site. Thus, it is not uncommon for one stereoisomer to exhibit a desired
pharmacological activity in biological systems while the other does not.
94.
Carbon is so ubiquitous in organic chemicals that a carbon atom in chemical
structures is often abbreviated as a vertex, rather than as a “C,” with the understanding that such
vertices are carbon. The chemical symbol for hydrogen is “H” and hydrogen only forms one
bond. Because hydrogen is also ubiquitous and the number of chemical bonds that carbon and
hydrogen make (i.e., 4 and 1, respectively) is so well known, hydrogen is often omitted from
chemical structures and its presence is assumed when a carbon has less than four bonded
substituents.
95.
On March 31, 1987, the United States Patent and Trademark Office (“PTO”)
issued United States Patent No. 4,654,362 (“the ’362 Patent”). The ’362 Patent disclosed a
number of different chemical compounds, including the following chemical compound:
96.
The unlabeled vertices above correspond to a carbon atom and each of those
carbon atoms (vertices) is connected to other atoms. To the extent a particular carbon atom
has less than four bonds depicted, the remainder are hydrogen atoms. With this understanding
in mind, each asterisk in the above chemical structure corresponds to a chiral center – i.e., a
carbon atom bonded to four different substituents – that can adopt either of two configurations
that can be labeled as either an “R” or “S” configuration. As a result, the above chemical
structure discloses ten different possible stereoisomers with the following configurations:
1. SRRR
6. SRSS
2.
RSSS
7. RSRR
3.
SRRS
8. RRSS
4.
RSSR
9. SSSS
5.
SRSR
10. RRRR
97.
Forest was, and its successor in interest Allergan is, the holder of NDA No. 21-
742 for Bystolic. The active ingredient in Bystolic is a mixture of two of the above ten
stereoisomers: the SRRR and RSSS stereoisomers (i.e., nos. 1 and 2, above). The mixture of
these two stereoisomers is referred to as nebivolol, and both are present in Bystolic as a
hydrochloride salt.
B.
Forest’s Bystolic Patents
98.
Forest certified to the FDA that the ’040 and ’580 Patents covered Bystolic, and
FDA listed those patents in the Orange Book. The ’580 Patent was issued on June 2, 1998 and
expired seventeen years later, on June 2, 2015. Accordingly, the ’580 Patent afforded Forest no
protection from generic competition for Bystolic beyond June 2, 2015.
99.
The ’040 Patent issued from United States Application Serial No. 07/825,488
(“the ’488 Application”) was filed on January 24, 1992. To understand the impact of the
prosecution of the ’488 Application at the PTO on the scope of the issued claims in the ’040
Patent, it is important to understand the effect of the choice of transition in a patent claim. “A
patent claim typically has three parts: the preamble, the transition, and the body.” Donald S.
Chisum, CHISUM ON PATENTS § 8.06[1](b) (2003). “The preamble is an introductory
phrase that may summarize the invention, its relation to the prior art, or its intended use or
properties.” Id. § 8.06[1](b)[i]. “The transition is a phrase connecting the preamble to the
body of the claim. The content of the phrase may indicate whether the elements stated in the
body are ‘open’ or ‘closed.’” Id. § 8.06[1](b)[ii]. “The body of the claim is the recitation or
listing of the elements and limitations which define the product or process to be encompassed
within the patent monopoly.” Id. § 8.06[1](b)[iii].
100.
There are three commonly used transitional phrases: “comprising,” “consisting
of,” and “consisting essentially of.” Id. § 8.06[1](b)[ii]; Conoco, Inc. v. Energy & Envtl. Int’l,
L.C., 460 F.3d 1349, 1360 (Fed. Cir. 2006). These are “terms of art in patent law that ‘define
the scope of the claim with respect to what unrecited additional components or steps, if any, are
excluded from the scope of the claim.’” Id. (quoting the Manual of Patent Examining
Procedures). At one end of the spectrum, the phrase “comprising” signifies that the claim is
“open” to the addition of unrecited components or steps. CIAS, Inc. v. Alliance Gaming Corp.,
504 F.3d 1356, 1360 (Fed. Cir. 2007). For example, a claim reciting a product “comprising”
three ingredients A, B and C encompasses a product composed of A, B, C and D (i.e., the
addition of D to the A-B-C combination does not avoid infringement).
101.
The originally-filed claims in the application that issued as the ’040 Patent
employed the open transition “comprising.” For example, originally-filed claim 19 covered
pharmaceutical compositions “comprising” a “pharmaceutically acceptable carrier” and the
SRRR and RSSS stereoisomers of nebivolol. The use of the open transition “comprising” meant
that original claim 19 covered formulations having the SRRR and RSSS stereoisomers of
nebivolol, even if the formulations also included some or all of the other eight unclaimed
stereoisomers of nebivolol. The PTO examiner therefore rejected those claims based upon the
prior art ’362 Patent described above. The examiner reasoned that the ’362 Patent taught
mixtures of various of the stereoisomers described above, and thus were covered by pending
claim 19.
102.
In response, the applicants admitted that the ’362 Patent taught “undefined
mixtures that may include the presently claimed compounds in admixture with other
stereoisomers of the Base Compound. . . .” More specifically, the applicants admitted that
“Compound 84 . . . is an undefined mixture of the RSRR, RSSS, SRSS and SRRR isomers, and
Compound 87 . . . is an undefined mixture of the RSRS, RSSR, and SRRS isomers.” In an
attempt to overcome the rejection, the applicants narrowed the claims by substituting new
claims utilizing the transition “consisting essentially of” rather than “comprising.” In doing so,
the applicants emphasized that the purpose of the amendment was to distinguish their claims
from the undefined mixtures of other nebivolol isomers disclosed in the Prior Art ’362 Patent:
Claims 18 and 19 have been rewritten as new Claims 25 and 26. Claim 25 recites
“A composition consisting essentially of the compound . . .”, and Claim 26 recites
“A pharmaceutical composition consisting essentially of . . . [the two compounds
(a) and (b)]”. This amendment is being made to more clearly distinguish the
claimed invention over the prior art [’362 Patent] which, as is explained in
detail below, discloses undefined mixtures that may include the presently
claimed compounds in admixture with other stereoisomers of [nebivolol].
Favorable consideration of the amended claims is respectfully requested.
103.
The transition “consisting essentially of” in a patent claim narrows the claim
relative to “comprising.” AK Steel Corp. v. Sollac and Ugine, 344 F.3d 1234, 1239 (Fed. Cir.
2003). “[W]ith respect to a ‘consisting essentially of’ claim, there is no infringement where the
accused product contains additional, unclaimed ingredients that materially affect the basic and
novel properties of the invention.” Yoon Ja Kim v. Conagra Foods, Inc., 465 F.3d 1312, 1320-21
(Fed. Cir. 2006). Thus, for a claim reciting a product “consisting essentially of” ingredients A,
B and C, the addition of unrecited ingredient D will avoid infringement if D has a material
effect on the basic and novel properties of the claimed invention.
104.
The PTO examiner, however, was not persuaded that the use of the “consisting
essentially of” transition distinguished the then-pending claims from the ’362 Patent. He
therefore maintained his rejection of the claims. The applicants for the ’040 Patent again
argued that it was impossible to tell from the ’362 Patent which stereoisomers, and in what
amounts, were definitely present in the disclosed mixtures:
There is no way that one can determine from the teachings of the patent the
specific stereoisomeric configuration of [the prior art ’362 Patent’s] compound
Nos. 84 and 87.
The Examiner continued to maintain his rejections and ultimately issued a final rejection of
the “consisting essentially of” Claims 25 and 26, as anticipated by the ’362 Patent. He also
rejected the claims as obvious.
105.
The applicants for the ’040 Patent appealed the examiner’s final anticipation and
obviousness rejections to the Board of Patent Appeals and Interferences (“the Board”). In their
brief, the applicants continued to argue that it was impossible to say exactly which
stereoisomers (and how much of them) were present in Compound 84 of the prior art ’362
Patent, but that the “possible” stereoisomers present in unknown amounts were RSRR, RSSS,
SRRR and SRSS. During the course of briefing the appeal to the Board, the Examiner dropped
the anticipation rejection.
106.
The Board nevertheless addressed the anticipation issue and made certain
findings and conclusions regarding the relationship between then-pending Claim 26 and
Compound 84 of the ’362 Patent. Specifically, the Board concluded:
[The ’362 Patent’s] disclosure of compound 84, together with its designation “AB,”
appears to describe the individual RSSS, SRRR, RSRR and SRSS stereoisomers
“just as surely as if they were identified in the reference by name.”
107.
The Board then determined that the “consisting essentially of” transition in
then-pending Claim 26 caused the claim to cover the undefined mixture of isomers in the Prior
Art ’362 Patent:
It is well settled that “the phrase ‘consisting essentially of’ limits the scope of a
claim to the specified ingredients and those that do not materially affect the basic
and novel characteristic(s) of a composition.” Here, a basic and novel
characteristic of the pharmaceutical composition of claim 26 is its blood pressure
reducing or antihypertensive effect. Thus, claim 26 is open to ingredients that
do not materially affect its antihypertensive activity. [The prior art ’362
Patent’s] antihypertensive compound 84 is a mixture of four stereoisomers:
RSSS, SRRR, RSRR and SRSS. Because the RSSR and SRSS stereoisomers
do not materially affect blood pressure reducing or antihypertensive
activity, it appears that they are not excluded from the composition of
claim 26.
(internal citation omitted and emphasis added). Accordingly, the Board ordered the
Examiner to reconsider his withdrawal of the anticipation rejection based on the Prior Art
’362 Patent:
Specifically, the examiner should consider whether claim 26 ‘reads on’ [the ’362
Patent’s] compound 84 taking into account the appropriate principles of claim
interpretation and the foregoing remarks.
The very clear upshot of the Board’s decision was that the claims of the ’488 Application were
not patentable unless the claims excluded the unclaimed stereoisomers, particularly the RSSR
and SRSS stereoisomers.
108.
On remand from the Board, the applicants for the ’040 Patent did not even
attempt to argue against anticipation in view of the Board’s opinion. Instead, they further
narrowed their claims by replacing “consisting essentially of” with “consisting of,” in new
Claims 27 and 28. And based on that change, applicants argued that the new “consisting of”
limitation excluded the undefined mixture of possible stereoisomers in the ’362 Patent:
Applicants respectfully submit that the claims, as amended, are patentable over
[the prior art ’362 Patent]. Applicants submit that neither a composition
consisting of the RSSS enantiomer, nor a composition consisting of the RSSS
enantiomer and its enantiomer the SRRR enantiomer, are disclosed in [the ’362
Patent]. [The ’362 Patent] discloses the base compound, as an undefined
mixture of stereoisomers, as compound 84 (designated as “AB”) and 87
(designated as “AA”), shown in the table in Col. 21 of the patent.
109.
Once again, the applicants expressly noted that “Compound 84 [of the prior art
’362 Patent] is an undefined mixture of the RSRR, RSSS, SRSS and SRRR isomers, and
Compound 87 [] is an undefined mixture of the RSRS, RSSR, and SRRS isomers.” They
argued that the new “consisting of” language excluded compounds containing such additional
isomers:
[I]t is clear that the cited [the ’362 Patent] discloses neither a composition
consisting of the RSSS enantiomer of the base compound, nor a composition
consisting of the RSSS and SRRR enantiomers.
110.
And again, applicants did not distinguish their claims based on any particular
amount or source of possible unrecited stereoisomers in the “undefined mixture” of the ’362
111.
The phrase “consisting of” is the narrowest of the transitions and it “signifies
restriction and exclusion of unrecited steps or components.” Manual of Patent Examining
Procedures § 2111.03; Norian Corp. v. Stryker Corp., 363 F.3d 1321, 1331 (Fed. Cir. 2004). In
light of the Board’s reasoning and the applicants’ comments and amendments, it is clear that
the narrowing amendment was intended to and did exclude the presence of the unclaimed
stereoisomers, particularly the RSSR and SRSS stereoisomers (i.e., the claims do not cover
formulations containing the unclaimed stereoisomers, especially the RSSR and SRSS
stereoisomers).
112.
The Examiner then allowed the “consisting of” Claims 27 and 28, which
ultimately issued as Claims 2 and 3 of the ’040 Patent in 2003.
113.
Subsequently, the ’040 Patent was subjected to reexamination proceedings and a
reexamination certificate issued in 2009.
C.
Forest’s Bystolic Patents
114.
Alkem, Amerigen, Glenmark, Indchemie, Hetero, Torrent and Watson were the
first generic manufacturers to file ANDAs with the FDA containing Paragraph IV
certifications regarding Bystolic patents. For example, in letters granting final approval to
their ANDAs, the FDA noted that each was “one of the first ANDA applicants to submit a
substantially complete ANDA with a paragraph IV certification for Nebivolol Tablets.”37
115.
Because the Generic Competitors were the first companies to file substantially
complete ANDAs with Paragraph IV certifications, they each stood to receive 180 days of
marketing exclusivity during which the FDA would not give final approval to any later ANDA
filer’s generic equivalent of Bystolic.
116.
Forest received the Generic Competitors’ Paragraph IV notice letters on the
following dates:
37 See, e.g., 11/27/2015 Letter from FDA to Watson, https://www.accessdata.fda.gov/
drugsatfda_docs/appletter/2015/203683Orig1s000Ltr.pdf; 5/27/2017 Letter from FDA to
Glenmark, https://www.accessdata.fda.gov/drugsatfda_docs/appletter/2017/
203821Orig1s000ltr.pdf; 6/24/2015 Letter from FDA to Alkem,
https://www.accessdata.fda.gov/drugsatfda_docs/appletter/2015/ 203741Orig1s000ltr.pdf.
• Torrent: February 2, 201238
• Indchemie: February 3, 201239
• Alkem: February 3, 201240
• Watson: February 13, 201241
• Amerigen: February 16, 201242
• Glenmark: February 20, 201243
• Hetero: February 17, 201244
117.
Because they contained Paragraph IV certifications, these notice letters were
required to include a detailed statement of the factual and legal bases as to why the ’040 Patent
was invalid, unenforceable, and/or not infringed by their ANDA products. The Paragraph IV
notice letters were required to include an offer of confidential access to each Generic
Competitor’s ANDA under the Hatch-Waxman Act. The notice letters gave rise to a potential
cause of action for patent infringement, thereby allowing Forest to file suit against the Generic
Competitors under the Hatch-Waxman Act (if Forest otherwise had a basis to sue under Rule
38 Forest Laboratories, et al., v. Torrent Pharmaceuticals Ltd. et al., 12-cv-05030 (D. Del. Mar. 13,
2012) (ECF No. 1 ¶ 93).
39 Forest Laboratories, et al. v. Indchemie Health Specialties PVT et al., 12-cv-01855 (N.D. Ill. Mar.
14, 2012) (ECF No. 1 ¶ 22).
40 Id. ¶ 38.
41 Forest Laboratories, et al., v. Torrent Pharmaceuticals Ltd. et al., 12-cv-05030 (D. Del. Mar. 13,
2012) (ECF No. 1 ¶ 108).
42 Id. ¶ 123.
43 Id. ¶ 138.
44 Id. ¶ 153.
D.
The Bystolic Patent Litigation
118.
On March 13, 2012, in response to their Paragraph IV certification letters,
Forest filed a patent infringement lawsuit in the United States District Court for the District of
Delaware against Torrent, Watson, Amerigen, Glenmark, and Hetero.45
119.
On March 14, 2012, in response to their Paragraph IV certification letters,
Forest filed a patent infringement lawsuit in the United States District Court for the Northern
District of Illinois against Indchemie and Alkem.46
120.
By order of the Judicial Panel for Multidistrict Litigation, these cases
were consolidated into In re Nebivolol Patent (’040) Litigation, 12-cv-5026 (N.D. Ill. June 12,
2012) (ECF No. 1) (hereafter referred to as the “Nebivolol Patent Litigation”).
121.
Forest could not prevail in the Nebivolol Patent Litigation. The sole
independent claim asserted by Forest in the Bystolic Patent Litigation was claim 2, as shown
2. A pharmaceutical composition consisting of a pharmaceutically acceptable
carrier and, as active ingredients:
(a) the blood pressure reducing compound [2S,αR, 2′R,α′R]-α,α′
[iminobismethylene]bis[6-fluoro-3,4-dihydro-2H-1-benzopyran-2-methanol]
having the formula:
45 Forest Laboratories, et al., v. Torrent Pharmaceuticals Ltd. et al., 12-cv-05030 (D. Del. Mar. 13,
2012) (ECF No. 1).
46 Forest Laboratories, et al. v. Indchemie Health Specialties PVT et al., 12-cv-01855 (N.D. Ill. Mar.
14, 2012) (ECF No. 1).
or a pharmaceutically acceptable acid addition salt thereof; and
(b) the compound [2R,αS,2′S,α′S]-α,α′-[iminobismethylene]bis[6-fluoro-3,4-
dihydro-2H-1-benzopyran-2-methanol] having the formula:
or a pharmaceutically acceptable acid addition salt thereof.
’040 Patent at 11:33-12:22. Thus, claim 2 is limited to a pharmaceutical composition
consisting of a pharmaceutically acceptable carrier and, as active ingredients, SRRR-nebivolol
and RSSS-nebivolol (or pharmaceutically acceptable acid addition salts).
122.
The Generic Competitors were well aware of the prosecution history of the ’040
Patent and the narrowing amendments the applicants had made. During claim construction
proceedings in the Nebivolol Patent Litigation, they correctly argued that the term “consisting
of” in claim 2 of the ’040 Patent “excludes any unrecited stereoisomers of nebivolol.” The
Generic Competitors’ products did not infringe because they included at least small amounts of
the unrecited stereoisomers of nebivolol, including the RSSR and SRSS stereoisomers.
123.
Early on in the Bystolic Patent Litigation, the Generic Competitors pressed the
argument that the “consisting of” transition precluded the use of a plurality of inactive
ingredients. Their position was premised on the argument that (1) a “pharmaceutically
acceptable carrier” referred to an individual inactive ingredient in a pharmaceutical formulation;
(2) the “consisting of” transition “closed” the claim to unrecited inactive ingredients; and (3)
therefore, the claims did not cover formulations having two or more inactive ingredients. At
least one other court has construed “pharmaceutically acceptable carrier” to mean “a
conventional pharmaceutically acceptable excipient or additive. . . .” Schering Corp. v. Mylan
Pharms., Inc., 2011 U.S. Dist. LEXIS 63825, at *36 (D.N.J. Jun. 15, 2011). To the extent this
interpretation applied in the Nebivolol Patent Litigation, the Generics’ products did not
infringe for this additional reason.
124.
As a result of the foregoing, Forest could not prevail in proving literal
infringement of the asserted claims of the ’040 Patent. And, in light of the prosecution
history of the ’040 Patent, Forest could not prevail based on the doctrine of equivalents. In
addition, Forest’s invalidity defenses concerning the asserted claims of the ’040 Patent were
weak and it could not have prevailed against the Generics’ invalidity arguments. As the
Board explained during the prosecution of the ’040 Patent:
[The ’362 Patent’s] disclosure of compound 84, together with its designation “AB,”
appears to describe the individual RSSS, SRRR, RSRR and SRSS stereoisomers “just as
surely as if they were identified in the reference by name.”
The ’362 Patent was prior art to the ’040 Patent. In light of the ’362 Patent’s essentially
explicit teaching of a mixture of “the individual RSSS, SRRR, RSRR and SRSS stereoisomers”
of nebivolol, the asserted compositions in the ’040 Patent were anticipated by, or obvious in
view of, the prior art, including other pertinent prior art such as Van de Water et al.,
Pharmacological and Hemodynamic Profile of Nebivolol, a Chemically Novel, Potent, and
Selective B1-Adrenergic Antagonist, Journal of Cardiovascular Pharmacology, 11, No. 5, 552-
563 (1988). Any purported evidence of secondary indicia of nonobviousness was insufficient
to overcome the clear prima facie obviousness of the claims.
E.
Forest Enters into Unlawful Reverse-Payment Agreements with the
Generic Competitors
125.
Starting on October 24, 2012, Forest began entering into settlements with
Generic Competitors to resolve the Nebivolol Patent Litigation. Forest’s internal and external
counsel have conceded that each of these settlements also included “side-deals”:
126.
These side-deals were also listed in Forest’s Merger Agreement with Actavis, as
“material contracts” that on information and belief “involve payments . . . of consideration in
excess of $15,000,000.”47 In addition, Forest has also admitted that it reimbursed “certain of
the Settling Defendants’ legal costs in connection with the patent litigation.”48 Accordingly, on
information and belief, Forest paid each Generic Competitor at least $15,000,000 but likely
more, in reverse-payments to resolve the Nebivolol Patent Litigation and induce the Generic
Competitors to quit the patent fight.
47 In re Namenda Direct Purchaser Antitrust Litig., 15-cv-07488-CM-RWL (S.D.N.Y. Mar. 7,
2019) (ECF No. 680-22 at 69).
48 https://www.sec.gov/Archives/edgar/containers/fix010/38074/000003807413000024/
R17.htm.
127.
The Hetero reverse-payment included the “SETTLEMENT AGREEMENT
between Forest Laboratories, Inc. and Forest Laboratories Holdings, Ltd, and Hetero USA Inc.
and Hetero Labs Ltd. dated October 24, 2012,” plus payment for Hetero’s expended litigation
costs, and a “FINAL TERM SHEET between Hetero Drugs Ltd. and Forest Laboratories
Ireland Ltd. dated October 5, 2012, in connection with the settlement of BYSTOLIC patent
dispute.”49
128.
On information and belief, in addition to the monies Forest paid Hetero for
Hetero’s expended litigation costs, pursuant to the “FINAL TERM SHEET,” Forest paid
Hetero more than $15,000,000.
129.
The Torrent reverse-payment included the “SETTLEMENT AGREEMENT
between Forest Laboratories, Inc. and Forest Laboratories Holdings, Ltd., and Torrent
Pharmaceuticals Ltd. and Torrent Pharma Inc. dated November 21, 2012,” plus payment for
Torrent’s expended litigation costs, and a “PATENT ASSIGNMENT AGREEMENT
between Torrent Pharmaceuticals Ltd and Forest Laboratories Holdings Ltd. dated November
21, 2012, in connection with the settlement of BYSTOLIC patent dispute.”50
130.
On information and belief, in addition to the monies Forest paid Torrent for
Torrent’s expended litigation costs, pursuant to the “PATENT ASSIGNMENT
AGREEMENT,” Forest paid Torrent more than $15,000,000.
131.
The Alkem reverse-payment included the “SETTLEMENT AGREEMENT
between Forest Laboratories, Inc. and Forest Laboratories Holdings, Ltd., and Alkem
Laboratories Ltd. dated November 27, 2012,” plus payment for Alkem’s expended litigation
49 In re Namenda Direct Purchaser Antitrust Litig., 15-cv-07488-CM-RWL (S.D.N.Y. Mar. 7,
2019) (ECF No. 680-22 at 179).
costs, and a “TERM SHEET between Alkem Laboratories Ltd., Indchemie Health Specialties
Private Ltd., and Forest Laboratories Ireland Ltd. dated November 28, 2012, in connection
with the settlement of BYSTOLIC patent dispute.” Alkem and Forest also entered into an
“AMENDMENT NO. 1 TO SETTLEMENT AGREEMENT . . . on January 9, 2013.”51
132.
On information and belief, in addition to the monies Forest paid Alkem for
Alkem’s expended litigation costs, pursuant to the Alkem “TERM SHEET,” Forest paid Alkem
more than $15,000,000.
133.
The Indchemie reverse-payment included the “SETTLEMENT
AGREEMENT between Forest Laboratories, Inc. and Forest Laboratories Holdings, Ltd., and
Indchemie Health Specialties Private Ltd. dated November 27, 2012,” plus payment for
Indchemie’s expended litigation costs, and a “TERM SHEET between Alkem Laboratories Ltd,
Indchemie Health Specialties Private Ltd, and Forest Laboratories Ireland Ltd. dated
November 28, 2012, in connection with the settlement of BYSTOLIC patent dispute.”52
134.
On information and belief, in addition to the monies Forest paid Indchemie for
Indchemie’s expended litigation costs, pursuant to the Indchemie “TERM SHEET,” Forest
paid Indchemie more than $15,000,000.
135.
The Glenmark reverse-payment included the “SETTLEMENT AGREEMENT
between Forest Laboratories, Inc. and Forest Laboratories Holdings, Ltd, and Glenmark
Generics Inc., USA and Glenmark Generics Ltd. dated December 21, 2012,” plus payment for
Glenmark’s expended litigation costs, and a “COLLABORATION AND OPTION
AGREEMENT between Glenmark Pharmaceuticals S.A. and Forest Laboratories Holdings
51 Id.
Ltd. dated December 21, 2012, in connection with the settlement of BYSTOLIC patent
dispute.”53
136.
On information and belief, in addition to the monies Forest paid Glenmark for
Glenmark’s expended litigation costs, pursuant to the “COLLABORATION AND OPTION
AGREEMENT,” Forest paid Glenmark more than $15,000,000.
137.
The Amerigen reverse-payment included the “SETTLEMENT AGREEMENT
between Forest Laboratories, Inc. and Forest Laboratories Holdings, Ltd., and Amerigen
Pharmaceuticals, Inc. and Amerigen Pharmaceuticals, Ltd. dated July 18, 2013,” plus payment for
Amerigen’s expended litigation costs, and a “BINDING TERM SHEET COLLABORATION
AGREEMENT between Forest Laboratories, Inc. and Amerigen Pharmaceuticals, Ltd. dated
July 18, 2013, in connection with the settlement of BYSTOLIC patent dispute.”54
138.
On information and belief, in addition to the monies Forest paid Amerigen for
Amerigen’s expended litigation costs, pursuant to the “BINDING TERM SHEET
COLLABORATION AGREEMENT,” Forest paid Amerigen more than $15,000,000.
139.
The Watson reverse-payment included the “SETTLEMENT AGREEMENT
between Forest Laboratories, Inc. and Forest Laboratories Holdings, Ltd., and Watson
Laboratories, Inc. (NV), Watson Laboratories, Inc. (DE), Watson Laboratories, Inc. (NY),
Watson Laboratories, Inc. (CT), Watson Pharma, Inc., and Actavis, Inc. dated November 6,
2013,” plus payment for Watson expended litigation costs, and “(a) the LETTER from Forest
Laboratories, Inc. to Moksha8, Inc. dated November 1, 2013 and (b) TERMINATION AND
53 Id.
54 Id. at 180.
RELEASE AGREEMENT between [Watson] and Moksha8, Inc. dated November 4, 2013, in
connection with the settlement of BYSTOLIC patent dispute.”55
140.
On information and belief, in addition to the monies Forest paid Watson for
Watson’s expended litigation costs, pursuant to the “(a) the LETTER from Forest Laboratories,
Inc. to Moksha8, Inc. dated November 1, 2013 and (b) TERMINATION AND RELEASE
AGREEMENT between [Watson] and Moksha8, Inc.,” Forest paid Watson more than
$15,000,000.
141.
On information and belief, the value of each reverse-payment exceeded Forest’s
avoided litigation costs.
142.
In exchange for these reverse-payments, each Generic Competitor agreed not to
compete with Forest in the market for nebivolol HCl, in which Forest had a monopoly, for so
long as all others did so also, until September 17, 2021 (a mere three months prior to expiry of
the ’040 Patent).56
143.
The purpose and effect of the reverse-payment agreements were to delay Forest
from having to face lower-priced generic competition for years.
144.
But for the reverse-payment agreements, the Generic Competitors would have
been ready, able, and willing to launch their generic versions of Bystolic much earlier.
145.
Specifically, the Generic Competitors would have launched by the later of: (a)
June 2015, which was the expiry of the only other patent that Forest contended covered
Bystolic (the ’580 Patent), or (b) the date their ANDAs were finally approved.
55 Id.
56 https://www.sec.gov/Archives/edgar/containers/fix010/38074
/000003807413000024/ R17.htm
146.
By operation of the CLPs, if just one Generic Competitor launched a generic
version of Bystolic prior to September 17, 2021 pursuant to any of the three above scenarios, all
of the other Generic Competitors would have entered the market.
147.
By about October 2012, when Forest and the Generic Competitors began
entering into the reverse-payment agreements, Bystolic was generating hundreds of millions of
dollars per year in revenues for Forest. Losing a substantial portion of that revenue stream in
the event any of the Generic Competitors were to prevail on non-infringement or other
defenses – or in the event that Forest had not induced the Generic Competitors with reverse-
payments to agree to delay launching generic Bystolic – would have drastically reduced
Forest’s profits. Thus, Forest had enormous incentives to avoid competition from the Generic
Competitors by entering into reverse-payment agreements.
148.
Forest’s willingness to provide large payments to each Generic Competitor in
exchange for a multi-year delay in competition amounted to an agreement to share with the
Generic Competitors the monopoly profits from sales of branded Bystolic at supracompetitive
VII.
EFFECTS OF THE SCHEME ON COMPETITION AND DAMAGES TO THE
PLAINTIFFS AND THE CLASS
149.
U.S. sales of Bystolic were approximately $1 billion in 2017. Forest received
millions of dollars more in sales than it would have achieved absent Defendants’ unlawful
scheme to prevent and delay generic competition. Generic Bystolic products would have been
priced at a fraction of the cost of brand Bystolic and would have quickly captured the vast
majority of the market for nebivolol HCl.
150.
Defendants’ unlawful agreement prevented and delayed the sale of generic
Bystolic in the United States and unlawfully enabled Forest to sell its branded Bystolic at
artificially inflated prices. But for Defendants’ unlawful conduct, generic competitors would
have been able to compete, unimpeded, with their own generic versions of Bystolic.
151.
Were it not for Defendants’ anticompetitive conduct, Plaintiff and other
members of the Class would have purchased lower-priced generic Bystolic, instead of the
higher-priced brand Bystolic, during the Class Period.
152.
As a consequence, Plaintiff and other members of the Class have sustained
substantial losses and damage to their business and property in the form of overcharges, the
exact amount of which will be the subject of proof at trial.
VIII. MONOPOLY POWER AND MARKET DEFINITION
153.
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 Bystolic, 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 patient (and in most cases his
or her insurer) has the obligation to pay for the product.
154.
Brand manufacturers, including Forest, 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.
155.
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 Bystolic.
156.
At all relevant times, Defendants had monopoly power over nebivolol HCl
products because they had the power to exclude competition and/or raise or maintain the price
of the drug they sold as Bystolic at supracompetitive levels without losing enough sales to
make supracompetitive prices unprofitable.
157.
“[T]he ‘size of the payment from a branded drug manufacturer to a prospective
generic is itself a strong indicator of power’—namely, the power to charge prices higher than
the competitive level.”57 And a firm that lacks monopoly power is not “likely to pay ‘large
sums’ to induce ‘others to stay out of its market.’”58
158.
A small but significant, non-transitory price increase for Bystolic by Defendants
would not have caused a significant loss of sales to non-nebivolol HCl products.
159.
Bystolic does not exhibit significant, positive cross-elasticity of demand with
respect to price with any non-nebivolol HCl product. Indeed, Defendants have never lowered
the price of Bystolic in response to the pricing of any non-nebivolol HCl treatments for high
57 Actavis, 570 U.S. at 157 (citation omitted).
blood pressure. In fact, Defendants substantially increased the price of Bystolic – by more than
60% – over the last five years.
160.
Because of its labeling, Bystolic is differentiated from all non-nebivolol HCl
products.
161.
Defendants needed to control only nebivolol HCl, and no other products, in
order to maintain the price of Bystolic profitably at supracompetitive prices. No non-nebivolol
HCl product ever rendered Defendants unable to profitably maintain or raise their prices of
Bystolic without losing substantial sales. Only the market entry of competing, AB-rated
generic versions would render Defendants unable to profitably maintain their prices for
Bystolic without losing substantial sales.
162.
Defendants also sold Bystolic at prices well in excess of marginal costs, and in
excess of the competitive price, and enjoyed high profit margins.
163.
Defendants have had, and exercised, the power to exclude and restrict
competition to nebivolol HCl.
164.
Defendants, at all relevant times, enjoyed high barriers to entry with respect to
competition to the relevant product market due to patent and other regulatory protections and
high costs of entry and expansion, which protects brand Bystolic from the forces of price
competition.
165.
There is direct evidence of market power and anticompetitive effects available in
this case sufficient to show Defendants’ ability to control the price of Bystolic, and to exclude
relevant competitors, without the need to show the relevant antitrust markets. The direct
evidence consists of, inter alia, the following facts: (i) generic Bystolic would have entered the
market at a much earlier date, at a substantial discount to brand Bystolic, but for Defendants’
anticompetitive conduct; (ii) Forest’s gross margin on Bystolic (including the costs of ongoing
research/development and marketing) at all relevant times was very high; and (iii) Forest never
lowered the price of Bystolic to the competitive level in response to the pricing of non-nebivolol
HCl product.
166.
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 nebivolol HCl.
During the period relevant to this case, Defendants have been able to profitably maintain the
price of nebivolol HCl well above competitive levels.
167.
The relevant geographic market is the United States, the District of Columbia,
and the U.S. territories.
168.
At all relevant times, Defendants’ market share in the relevant market was and
remains 100%, implying a substantial amount of monopoly power.
IX.
MARKET EFFECTS
169.
Defendants willfully and unlawfully maintained their market power by engaging
in an overarching scheme to exclude competition. Defendants designed a scheme to prevent
and delay competition on the products’ merits, to further Forest’s anticompetitive purpose of
forestalling generic competition against Bystolic, in which the Generic Competitors cooperated
in order to increase their own profits. Defendants carried out the scheme with the
anticompetitive intent and effect of maintaining supracompetitive prices for nebivolol HCl.
170.
The reverse-payments enabled Defendants to: (a) prevent and delay until
September 17, 2021 the entry of less-expensive generic versions of Bystolic in the United
States; (b) fix, raise, maintain, or stabilize the price of Bystolic products; and (c) allocate to
themselves 100% of the U.S. market for Bystolic and its generic equivalents until September 17,
171.
But for the unlawful reverse-payment agreements, the Generic Competitors
would have begun selling a less expensive generic version of Bystolic much earlier than
September 17, 2021. Such sales would have occurred via market entry by any of the Generic
Competitors upon a Generic Competitor litigation victory, at risk (that is, while the patent
litigation remained pending), or via a licensed entry in a settlement with Forest that did not
include a side-deal or any other unlawful reverse-payments from Forest to any Generic
Competitor.
172.
An increasingly competitive market for Bystolic and its generic equivalents, with
lower prices, would have thereafter emerged as additional generic versions of Bystolic
(including, on information and belief, an authorized generic59 version of Bystolic) entered the
market. Plaintiff would have purchased generic Bystolic had it been available.
173.
Defendants’ acts and practices had the purpose and effect of restraining
competition unreasonably and injuring competition by protecting brand Bystolic from
competition. These actions allowed Defendants to maintain a monopoly and prevent and
exclude competition in the market for nebivolol HCl, to the detriment of Plaintiff and all other
members of the Class.
174.
Defendants’ exclusionary conduct prevented and delayed generic competition and
unlawfully enabled Forest to sell Bystolic without further generic competition. Were it not for
Defendants’ illegal conduct, one or more additional generic versions of Bystolic would have
entered the market.
175.
Defendants’ unlawful concerted action has (a) delayed and suppressed the sale of
generic versions of Bystolic in the United States, (b) enabled Defendants to sell Bystolic at
59 An authorized generic is a drug manufactured under the brand’s New Drug Application and
licensed or sold by the brand name manufacturer with generic trade dress.
artificially inflated, supracompetitive prices, and (c) caused Plaintiff and the Class to pay
supracompetitive prices for nebivolol HCl tablets.
176.
Defendants’ illegal acts and conspiracy to delay generic competition for Bystolic
caused Plaintiff and all members of the Class to pay more than they would have paid for
nebivolol HCl absent this illegal conduct.
177.
If generic competitors had not been unlawfully prevented from entering and
competing in the relevant market, End Payors, such as Plaintiff and members of the Class,
would have paid less for nebivolol HCl by: (i) paying lower prices on their brand purchases of
Bystolic, (ii) substituting purchases of less expensive generic Bystolic for their purchases of
more expensive brand Bystolic, and/or (iii) purchasing generic Bystolic at lower prices sooner.
178.
Thus, Defendants’ unlawful conduct deprived Plaintiff and the Class of the
benefits of competition that the antitrust laws were designed to ensure.
X.
ANTITRUST IMPACT
179.
During the class period, Plaintiff and members of the Class purchased
substantial amounts of Bystolic indirectly from Forest and others at supracompetitive prices.
As a result of Defendants’ illegal conduct, Plaintiff and members of the Class were compelled to
pay and did pay artificially inflated prices for their nebivolol HCl purchase requirements.
Those prices were substantially greater than the prices that Plaintiff and members of the Class
would have paid absent the illegal conduct alleged herein, because: (i) the price of branded
Bystolic was artificially inflated by Defendants’ illegal conduct; (ii) Plaintiff and Class members
were deprived of the opportunity to purchase lower-priced generic versions of Bystolic instead
of branded Bystolic sooner, which they would have done had they had the opportunity; and/or
(3) Plaintiff and Class members would have paid lower prices for generic Bystolic.
180.
As a consequence, Plaintiff and members of the Class have sustained substantial
losses and damage to their business and property in the form of overcharges. The full amount
and forms and components of such damages will be calculated after discovery and upon proof at
181.
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 End Payors and members of the Class.
182.
General economic theory recognizes that any overcharge at a higher level of
distribution in the chain of distribution for Bystolic results in higher prices at every level
below. Herbert Hovenkamp, FEDERAL ANTITRUST POLICY, THE LAW OF
COMPETITION AND ITS PRACTICE (1994) at 624. Professor Herbert Hovenkamp goes
on to state that “[e]very person at every stage in the chain will be poorer as a result of the
monopoly price at the top.” He also acknowledges that “[t]heoretically, one can calculate the
percentage of any overcharge that a firm at one distribution level will pass on to those at the
next level.”
183.
The institutional structure of pricing and regulation in the pharmaceutical drug
industry assures that overcharges at the higher level of distribution are passed on to End-
Payors. Wholesalers and retailers passed on the inflated prices of Bystolic to Plaintiff and
members of the Class. Further, the delayed entry of generic competition at the direct purchaser
level similarly injured End Payors who were equally denied, and continue to be denied, the
opportunity to purchase less expensive generic Bystolic.
184.
Thus, Defendants’ unlawful conduct deprived Plaintiff and the Class of the
benefits of competition that the antitrust laws were designed to ensure.
185.
Defendants’ unlawful anticompetitive conduct alleged herein enabled Forest and
others to indirectly charge End Payors prices in excess of what they otherwise would have been
able to charge absent their unlawful actions.
186.
Prices of Bystolic were artificially inflated as a direct and foreseeable result of
Defendants’ anticompetitive conduct.
187.
The supracompetitive prices Plaintiff and members of the Class paid are
traceable to, and the direct, proximate, and foreseeable result of, Defendants’ anticompetitive
conduct.
188.
The overcharges Plaintiff and members of the Class paid are traceable to, and
the direct, proximate, and foreseeable result of, Defendants’ supracompetitive pricing.
XI.
INTERSTATE AND INTRASTATE COMMERCE
189.
Defendants’ anticompetitive conduct has substantially affected intrastate,
interstate and foreign commerce.
190.
Defendants’ anticompetitive conduct has substantial intrastate effects in that,
inter alia, it deprived retailers within each state of access to less expensive generic Bystolic that
they could sell to End-Payors within each respective state. The delayed entry of generic
Bystolic, has directly affected and disrupted commerce for End-Payors within each state.
191.
During the relevant time period, Bystolic was shipped into each state, and End-
Payors paid for Bystolic in each state.
192.
During the relevant time period, Defendants manufactured, promoted,
distributed, and/or sold substantial amounts of Bystolic in a continuous and uninterrupted flow
of commerce across state and national lines and throughout the United States.
193.
As a direct result of the unlawful reverse-payment agreements, the Generic
Competitors refrained from selling generic versions of Bystolic when they otherwise would
have done so.
194.
During the relevant time period, in connection with the purchase and sale of
Bystolic, Defendants transmitted funds 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 sale of Bystolic.
195.
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 telephone commerce. The activities of Defendants as alleged in this
Complaint were within the flow of, and have substantially affected, intrastate, interstate and
foreign commerce.
XII.
CLAIMS FOR RELIEF
FIRST CLAIM FOR RELIEF
Conspiracy and Combination in Restraint of Trade Under State Law
196.
Plaintiff incorporates the allegations set forth above as if fully set forth herein.
197.
During the Class Period, Defendants and Generic Competitors engaged in a
continuing contract, combination or conspiracy with respect to the sale of Bystolic in
unreasonable restraint of trade and commerce, in violation of the various state antitrust
statutes set forth below.
198.
During the Class Period, Defendants and Generic Competitors entered into
illegal contracts, combinations and conspiracies in restraint of trade under which Forest agreed
to make large reverse payments to Generic Competitors in exchange for their agreement to
delay bringing generic Bystolic to the market until September 17, 2021. The purpose and
effect of these reverse-payment agreements were to: (a) allocate to Forest 100% of the U.S.
sales of nebivolol HCl until September 17, 2021; (b) delay the availability of generic Bystolic in
the United States, thereby protecting Bystolic from any generic competition until September
17, 2021; and (c) fix and maintain, at supracompetitive levels, the price Plaintiff and Class
members paid for nebivolol HCl.
199.
The Defendants and Generic Competitors’ reverse-payment agreements were
unlawful and the reverse payments were large and unjustified.
200.
The Defendants and Generic Competitors’ reverse-payment agreements harmed
Plaintiff and the Class as set forth above.
201.
There is and was no legitimate, non-pretextual, procompetitive justification for
the reverse payments from Forest to Generic Competitors that outweighs their harmful effect.
Even if there were some conceivable such justification, the payments were not necessary to
achieve, nor the least restrictive means of achieving, such a purpose.
202.
As a direct, proximate, foreseeable, and intended result of the Defendants and
Generic Competitors’ reverse-payment agreements in restraint of trade, as alleged herein,
Plaintiff and the Class were harmed and suffered overcharge damages as aforesaid. Specifically,
without a reverse-payment, Generic Competitors would have launched their generic versions of
Bystolic upon receiving final FDA approval, or via a lawful, separate, and independent
settlement agreement whereby reasonable parties in the position of Forest and Generic
Competitors would have agreed upon earlier entry dates untainted by delay associated with the
unlawful side deals and reverse payments. In addition, by operation of the CLPs, any earlier
license date agreed to between any Generic Competitor and Forest would also have applied to
all earlier-settling Generic Competitors, if any.
203.
By engaging in the foregoing conduct, Defendants and Generic Competitors
intentionally and wrongfully engaged in a contract, combination or conspiracy in restraint of
trade in violation of the following state antitrust laws:
a. Ariz. Rev. Stat. §§ 44-1402, et seq., with respect to purchases of Bystolic in
Arizona by Class members and/or purchases by Arizona residents.
b. Cal. Bus. and Prof. Code §§ 16720, et seq., with respect to purchases of Bystolic in
California by Class members and/or purchases by California residents.
c. Conn. Gen. Stat. § 35-26, et seq., with respect to purchases of Bystolic in
Connecticut by Class members and/or purchases by Connecticut residents.
d. D.C. Code §§ 28-4502, et seq., with respect to purchases of Bystolic in the District
of Columbia by Class members and/or purchases by D.C. residents.
e. Haw. Rev. Stat §§ 480-1, et seq., with respect to purchases of Bystolic in Hawaii
by Class members and/or purchases by Hawaii residents.
f. 740 Ill. Comp. Stat. 10/3, et seq., with respect to purchases of Bystolic in Illinois
by Class members and/or purchases by Illinois residents.
g. Iowa Code §§ 553.4 et seq., with respect to purchases of Bystolic in Iowa by Class
members and/or purchases by Iowa residents.
h. Kan. Stat. Ann. §§ 50-101, et seq., with respect to purchases of Bystolic in Kansas
by Class members and/or purchases by Kansas residents.
i. Md. Code, Com. Law, Section 11-204, et seq., with respect to purchases of
Bystolic in Maryland by Class members and/or purchases by Maryland
residents.
j. Me. Stat. tit. 10 § 1101, et seq., with respect to purchases of Bystolic in Maine by
Class members and/or purchases by Maine residents.
k. Mich. Comp. Laws §§ 445.772, et seq., with respect to purchases of Bystolic in
Michigan by Class members and/or purchases by Michigan residents.
l. Minn. Stat. §§ 325D.51, et seq., with respect to purchases of Bystolic in
Minnesota by Class members and/or purchases by Minnesota residents.
m. Miss. Code Ann. §§ 75-21-3, et seq., with respect to purchases of Bystolic in
Mississippi by Class members and/or purchases by Mississippi residents.
n. Neb. Rev. Stat. §§ 59-801, et seq., with respect to purchases of Bystolic in
Nebraska by Class members and/or purchases by Nebraska residents.
o. Nev. Rev. Stat. §§ 598A.060, et seq., with respect to purchases of Bystolic in
Nevada by Class members and/or purchases by Nevada residents.
p. N.H. Rev. Stat. Ann. §§ 356:2, et. seq., with respect to purchases of Bystolic in
New Hampshire by Class members and/or purchases by New Hampshire
residents.
q. N.M. Stat. Ann. §§ 57-1-1, et seq., with respect to purchases of Bystolic in New
Mexico by Class members and/or purchases by New Mexico residents.
r. N.Y. Gen. Bus. Law §§ 340, et seq., with respect to purchases of Bystolic in New
York by Class members and/or purchases by New York residents.
s. N.C. Gen. Stat. §§ 75-1, et seq., with respect to purchases of Bystolic in North
Carolina by Class members and/or purchases by North Carolina residents.
t. N.D. Cent. Code §§ 51-08.1-02, et seq., with respect to purchases of Bystolic in
North Dakota by Class members and/or purchases by North Dakota residents.
u. Or. Rev. Stat. §§ 646.725, et seq., with respect to purchases of Bystolic in Oregon
by Class members and/or purchases by Oregon residents.
v. P.R. Laws Ann. tit. 10 §§ 258, et seq., with respect to purchases of Bystolic in
Puerto Rico by Class members and/or purchases by Puerto Rico residents.
w. R.I. Gen. Laws §§ 6-36-4, et seq., with respect to purchases of Bystolic in Rhode
Is-land by Class members and/or purchases by Rhode Island residents.
x. S.D. Codified Laws §§ 37-1-3.1, et seq., with respect to purchases of Bystolic in
South Dakota by Class members and/or purchases by South Dakota residents.
y. Tenn. Code Ann. §§ 47-25-101, et seq., with respect to purchases of Bystolic in
Tennessee by Class members and/or purchases by Tennessee residents.
z. Utah Code Ann. §§ 76-10-3104, et seq., with respect to purchases of Bystolic in
Utah by Class members and/or purchases by Utah residents.
aa. W.Va. Code §§ 47-18-43, et seq., with respect to purchases of Bystolic in West
Virginia by Class members and/or purchases by West Virginia residents.
bb. Wis. Stat. §§ 133.03, et seq., with respect to purchases of Bystolic in Wisconsin
by Class members and/or purchases by Wisconsin residents.
204.
Plaintiff and Class members have been injured in their business or property by
reason of Defendants’ violations of the laws set forth above, in that Plaintiff and Class members
were: (i) denied the opportunity to purchase lower-priced generic Bystolic; and (ii) paid higher
prices for Bystolic than they would have paid but for Defendants’ unlawful conduct. These
injuries are of the type that the above laws were designed to prevent and flow from that which
makes Defendants’ conduct unlawful.
205.
Plaintiff and Class members accordingly seek damages and multiple damages as
permitted by law.
SECOND CLAIM FOR RELIEF
Monopolization and Monopolistic Scheme Under State Law
206.
Plaintiff incorporates the allegations set forth above as if fully set forth herein.
207.
As described above, at all relevant times prior to September 17, 2021,
Defendants had and will continue to have monopoly power in the relevant market.
208.
By entering into the reverse-payment agreements with the Generic Competitors,
Defendants willfully and intentionally maintained, enhanced, and extended their monopoly
power using restrictive or exclusionary conduct, rather than by means of greater business
acumen, and injured Plaintiffs and the Class thereby. Specifically, Defendants (a) allocated to
themselves 100% of the market for nebivolol HCl in all strengths in the United States until
September 17, 2021; (b) delayed the availability of generic versions of Bystolic in the United
States, thereby protecting Bystolic from any generic competition until September 17, 2021; and
(c) fixed and maintained, at supracompetitive levels, the price Plaintiff and Class members paid
for nebivolol HCl.
209.
It was Defendants’ conscious object to further their dominance in the relevant
market by and through the anticompetitive conduct alleged herein.
210.
The goal, purpose, and effect of Defendants and the Generic Competitors’
reverse-payment agreements was to maintain and extend Defendants’ monopoly power in
violation of numerous state laws. Forest and the Generic Competitors’ reverse-payment
agreements were intended to and did prevent and/or delay generic competition to Bystolic and
enabled Defendants to continue charging supracompetitive prices for Bystolic without a
substantial loss of sales.
211.
Defendants and Generic Competitors specifically intended that the reverse-
payment agreements would maintain Defendants’ monopoly power in the relevant market, and
injure Plaintiff and the Class thereby.
212.
Defendants and Generic Competitors knowingly and intentionally conspired to
maintain, enhance, and extend Defendants’ monopoly power in the relevant market.
213.
Defendants and Generic Competitors each committed at least one overt act in
furtherance of the conspiracy.
214.
As a direct, proximate, foreseeable, and intended result of Defendants’
monopolistic scheme and concerted monopolistic conduct, as alleged herein, Defendants
unlawfully maintained, enhanced, and extended its monopoly power and Plaintiff and the Class
were harmed and suffered overcharge damages as a result, as alleged herein. Specifically,
without a reverse-payment, Generic Competitors would have launched their generic versions of
Bystolic upon receiving final FDA approval, or via a lawful, separate, and independent
settlement agreement whereby reasonable parties in the position of Generic Competitors would
have agreed upon earlier entry dates untainted by delay associated with the unlawful side-deals
and reverse-payments.
215.
All of Forest’s corporate successors adopted Defendants’ monopolistic scheme
and took actions in furtherance thereof.
216.
By engaging in the foregoing conduct, Defendants intentionally, willfully, and
wrongfully monopolized the relevant market in violation of the following state laws:
a. Ariz. Rev. Stat. Ann. §§ 44-1403, et seq., with respect to purchases of Bystolic in
Arizona by Class members and/or purchases by Arizona residents.
b. Cal. Bus. & Prof. Code §§ 16720, et seq., with respect to purchases of Bystolic in
California by Class members and/or purchases by California residents.
c. Conn. Gen. Stat. §§ 35-27, et seq., with respect to purchases of Bystolic in
Connecticut by Class members and/or purchases by Connecticut residents.
d. D.C. Code §§ 28-4503, et seq., with respect to purchases of Bystolic in the District
of Columbia by Class members and/or purchases by D.C. residents.
e. Haw. Rev. Stat. §§ 480-9, et seq., with respect to purchases of Bystolic in Hawaii
by Class members and/or purchases by Hawaii residents.
f. 740 Ill. Comp. Stat. 10/3, et seq., with respect to purchases of Bystolic in Illinois
by Class members and/or purchases by Illinois residents.
g. Iowa Code §§ 553.5 et seq., with respect to purchases of Bystolic in Iowa by Class
members and/or purchases by Iowa residents.
h. Kan. Stat. Ann. §§ 50-101, et seq., with respect to purchases of Bystolic in Kansas
by Class members and/or purchases by Kansas residents.
i. Me. Stat. tit. 10, § 1102, et seq., with respect to purchases of Bystolic in Maine by
Class members and/or purchases by Maine residents.
j. Md. Code, Com Law, Section 11-204, et seq. with respect to purchases of Bystolic
in Maryland by Class members and/or purchases by Maryland residents.
k. Mich. Comp. Laws §§ 445.773, et seq., with respect to purchases of Bystolic in
Michigan by Class members and/or purchases by Michigan residents.
l. Minn. Stat. §§ 325D.52, et seq., with respect to purchases of Bystolic in
Minnesota by Class members and/or purchases by Minnesota residents.
m. Miss. Code Ann. §§ 75-21-3, et seq., with respect to purchases of Bystolic in
Mississippi by Class members and/or purchases by Mississippi residents.
n. Neb. Rev. Stat. §§ 59-802, et seq., with respect to purchases of Bystolic in
Nebraska by Class members and/or purchases by Nebraska residents.
o. N.H. Rev. Stat. Ann. §§ 356:3, et. seq., with respect to purchases of Bystolic in
New Hampshire by Class members and/or purchases by New Hampshire
residents.
p. Nev. Rev. Stat. §§ 598A.060, et seq., with respect to purchases of Bystolic in
Nevada by Class members and/or purchases by Nevada residents.
q. N.M. Stat. Ann. §§ 57-1-2, et seq., with respect to purchases of Bystolic in New
Mexico by Class members and/or purchases by New Mexico residents.
r. N.Y. Gen. Bus. Law §§ 340, et seq., with respect to purchases of Bystolic in New
York by Class members and/or purchases by New York residents.
s. N.C. Gen. Stat. §§ 75-2.1, et seq., with respect to purchases of Bystolic in North
Carolina by Class members and/or purchases by North Carolina residents.
t. N.D. Cent. Code §§ 51-08.1-03, et seq., with respect to purchases of Bystolic in
North Dakota by Class members and/or purchases by North Dakota residents.
u. Or. Rev. Stat. §§ 646.730, et seq., with respect to purchases of Bystolic in Oregon
by Class members and/or purchases by Oregon residents.
v. P.R. Laws Ann. tit. 10, §§ 260, et seq., with respect to purchases of Bystolic in
Puerto Rico by Class members and/or purchases by Puerto Rico residents.
w. R.I. Gen. Laws §§ 6-36-7 et seq., with respect to purchases of Bystolic in Rhode
Island by Class members and/or purchases by Rhode Island residents.
x. S.D. Codified Laws §§ 37-1-3.2, et seq., with respect to purchases of Bystolic in
South Dakota by Class members and/or purchases by South Dakota residents.
y. Tenn. Code Ann. §§ 47-25-101, et seq., with respect to purchases of Bystolic in
Tennessee by Class members and/or purchases by Tennessee residents.
z. Utah Code Ann. §§ 76-10-3104, et seq., with respect to purchases of Bystolic in
Utah by Class members and/or purchases by Utah residents.
aa. W. Va. Code §§ 47-18-4, et seq., with respect to purchases of Bystolic in West
Virginia by Class members and/or purchases by West Virginia residents.
bb. Wis. Stat. § 133.03, et seq., with respect to purchases of Bystolic in Wisconsin by
Class members and/or purchases by Wisconsin residents.
217.
Plaintiff and Class members have been injured in their business or property by
reason of Defendants’ violations of the laws set forth above, in that Plaintiff and Class members
were: (i) denied the opportunity to purchase lower-priced generic Bystolic; and (ii) paid higher
prices for Bystolic than they would have paid but for Defendants’ unlawful conduct. These
injuries are of the type that the above laws were designed to prevent and flow from that which
makes Defendants’ conduct unlawful.
218.
Plaintiff and Class members accordingly seek damages and multiple damages as
permitted by law.
THIRD CLAIM FOR RELIEF
Unfair Methods of Competition, and Unfair and Deceptive Acts
In Violation of State Consumer Protection Laws
219.
Plaintiff incorporates the allegations set forth above as if fully set forth herein.
220.
Defendants engaged in unfair methods of competition and unfair,
unconscionable, and/or deceptive acts or practices to wrongfully perpetuate their concerted
conduct to restrain trade in the relevant market.
221.
As a direct and proximate result of Defendants’ unfair, unconscionable, and/or
deceptive conduct, Plaintiff and Class members were: (i) denied the opportunity to purchase
lower-priced generic Bystolic; and (ii) paid higher prices for Bystolic than they would have paid
but for Defendants’ unlawful conduct.
222.
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.
223.
There was and is a gross disparity between the price that Plaintiff and the Class
members paid for Bystolic and the value they received. Much more affordable generic Bystolic
would have been and would be available, and prices for Bystolic would have been and would be
far lower, but for Defendants’ unfair, unconscionable, and deceptive conduct.
224.
As a direct and proximate result of Defendants’ anticompetitive, unfair,
unconscionable, and/or deceptive conduct, Plaintiff and Class members were denied the
opportunity to purchase generic Bystolic and forced to pay higher prices for Bystolic.
225.
By engaging in such conduct, Defendants violated the following consumer
protection laws:
a. Ariz. Rev. Stat. Ann. §§ 44-1521, et seq., with respect to purchases of Bystolic
in Arizona by Class members and/or purchases by Arizona residents.
b. Ark. Code Ann. §§ 4-88-101, et seq., with respect to purchases of Bystolic in
Arkansas by Class members and/or purchases by Arkansas residents.
c. Cal. Bus. & Prof Code §§ 17200, et seq., with respect to purchases of Bystolic
in California by Class members and/or purchases by California residents.
d. Conn. Gen. Stat. §§ 42-110b, et seq., with respect to purchases of Bystolic in
California by Class members and/or purchases by Connecticut residents.
e. D.C. Code §§ 28-3901, et seq., with respect to purchases of Bystolic in D.C. by
Class members and/or purchases by D.C. residents.
f. Fla. Stat. §§ 501.201, et seq., with respect to purchases of Bystolic in Florida
by Class members and/or purchases by Florida residents.
g. Haw. Rev. Stat. §§ 481-1, et seq., with respect to purchases of Bystolic in
Hawaii by Class members and/or purchases by Hawaii residents.
h. Idaho Code §§ 48-601, et seq., with respect to purchases of Bystolic in Idaho
by Class members and/or purchases by Idaho residents.
i. 815 Ill. Comp. Stat. 505/1, et seq., with respect to purchases of Bystolic in
Illinois by Class members and/or purchases by Illinois residents.
j. Kan. Stat. Ann. §§ 50-623, et seq., with respect to purchases of Bystolic in
Kansas by Class members and/or purchases by Kansas residents.
k. Me. Stat. tit. 5, §§ 207, et seq., with respect to purchases of Bystolic in Maine
by Class members and/or purchases by Maine residents.
l. Mass. Gen. Laws ch. 93A, §§ 1 et seq., with respect to purchases of Bystolic in
Massachusetts by Class members and/or purchases by Massachusetts
residents.
m. Mich. Comp. Laws §§ 445.901, et seq., with respect to purchases of Bystolic in
Michigan by Class members and/or purchases by Michigan residents.
n. Minn. Stat. §§ 325F.68, et seq., and Minn. Stat. § 8.31, et seq., with respect to
purchases of Bystolic in Minnesota by Class members and/or purchases by
Minnesota residents.
o. Mo. Rev. Stat. §§ 407.010, et seq., with respect to purchases of Bystolic in
Missouri by Class members and/or purchases by Missouri residents.
p. Neb. Rev. Stat. §§ 59-1601, et seq., with respect to purchases of Bystolic in
Nebraska by Class members and/or purchases by Nebraska residents.
q. Nev. Rev. Stat. Ann. §§ 598.0903, et seq., with respect to purchases of Bystolic
in Nevada by Class members and/or purchases by Nevada residents.
r. N.H. Rev. Stat. Ann. §§ 358-A:1, et seq., with respect to purchases of Bystolic
in New Hampshire by Class members and/or purchases by New Hampshire
residents.
s. N.M. Stat. Ann. §§ 57-12-1, et seq., with respect to purchases of Bystolic in
New Mexico by Class members and/or purchases by New Mexico residents.
t. N.Y. Gen. Bus. Law §§ 349, et seq., with respect to purchases of Bystolic in
New York by Class members and/or purchases by New York residents.
u. N.C. Gen. Stat. §§ 75-1.1, et seq., with respect to purchases of Bystolic in
North Carolina by Class members and/or purchases by North Carolina
residents.
v. Or. Rev. Stat. §§ 646.605, et seq., with respect to purchases of Bystolic in
Oregon by Class members and/or purchases by Oregon residents.
w. R.I. Gen. Laws §§ 6-13.1-1, et seq., with respect to purchases of Bystolic in
Rhode Island by Class members and/or purchases by Rhode Island residents.
x. S.D. Codified Laws §§ 37-24-6, et seq., with respect to purchases of Bystolic in
South Dakota by Class members and/or purchases by South Dakota
residents.
y. Tenn. Code Ann. §§ 47-18-101, et seq., with respect to purchases of Bystolic
in Tennessee by Class members and/or purchases by Tennessee residents.
z. Utah Code Ann. §§ 13-11-1, et seq., with respect to purchases of Bystolic in
Utah by Class members and/or purchases by Utah residents.
aa. Vt. Stat Ann. tit. 9, § 2453, et seq., with respect to purchases of Bystolic in
Vermont by Class members and/or purchases by Vermont residents.
bb. W. Va. Code §§ 46A-6-101, et seq., with respect to purchases of Bystolic in
West Virginia by Class members and/or purchases by West Virginia
residents.
cc. Wis. Stat. § 100.20, et seq., with respect to purchases of Bystolic in Wisconsin
by Class members and/or purchases by Wisconsin residents.
226.
Plaintiff and Class members have been injured in their business and property by
reason of Defendants’ anticompetitive, unfair, unconscionable, and/or deceptive conduct. Their
injury consists of paying higher prices for Bystolic 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.
227.
On behalf of itself and the Class, Plaintiff seeks all appropriate relief provided for
under the foregoing statutes.
FOURTH CLAIM FOR RELIEF
Unjust Enrichment
228.
Plaintiff incorporates the above paragraphs by reference.
229.
To the extent required, this claim is pleaded in the alternative to the other
claims in this Complaint.
230.
Defendants have reaped and retained substantially higher profits due to their
unlawful scheme.
231.
Plaintiff and Class members have conferred and continue to confer an economic
benefit upon Defendants in the form of profits resulting from the unlawful overcharges from
Bystolic sales described herein, to the economic detriment of Plaintiff and Class members.
232.
Defendants’ financial gain from their unlawful conduct is traceable to
overpayments for Bystolic by Plaintiff and Class members.
233.
Plaintiff and Class members have no adequate remedy at law.
234.
It would be futile for Plaintiff and Class members to seek to exhaust any remedy
against the immediate intermediary in the chain of distribution from which they indirectly
purchased Bystolic, as those intermediaries are not liable and would not compensate Plaintiff
and Class members for Defendants’ unlawful conduct.
235.
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 Class members for Bystolic sold by Defendants during
the Class Period.
236.
The financial benefits Defendants derived from overcharging Plaintiff and Class
members for Bystolic is a direct and proximate result of Defendants’ unlawful practices
described herein.
237.
The financial benefits Defendants derived are ill-gotten gains that rightfully
belong to Plaintiff and Class members, who paid and continue to pay artificially inflated prices
that inured to Defendants’ benefit.
238.
It would be inequitable under unjust enrichment principles under the laws of
each state in the United States as well as the District of Columbia, except for Indiana and Ohio,
for Defendants to be permitted to retain any of the overcharges that Plaintiff and members of
the Class paid for Bystolic that were derived from Defendants’ unlawful practices described
239.
Defendants are aware of and appreciate the benefits that Plaintiff and Class
members have bestowed upon them.
240.
Defendants should be compelled to disgorge all unlawful or inequitable proceeds
they received in a common fund for the benefit of Plaintiff and Class members.
241.
Plaintiff and Class members are entitled to the amount of Defendants’ ill-gotten
gains resulting from their unlawful, unjust, and inequitable conduct, and to the establishment of
a constructive trust consisting of such amount, from which Plaintiff and Class members may
make claims on a pro rata basis.
FIFTH CLAIM FOR RELIEF
Declaratory and Injunctive Relief Under Sections 1 and 2 of the Sherman Act and
Section 16 of the Clayton Act (15 U.S.C. §§ 1-2, 26)
242.
Plaintiff incorporates the allegations set forth above as if fully set forth herein.
243.
Plaintiff seeks declaratory and injunctive relief under the federal antitrust laws.
244.
Plaintiff’s allegations described herein constitute violations of Sections 1 and 2 of
the Sherman Act.
245.
Defendants effectuated a concerted scheme to unreasonably restrain trade and
monopolize a market.
246.
There is and was no legitimate, non-pretextual, procompetitive business
justification for Defendants’ conduct that outweighs its harmful effect.
247.
As a direct and proximate result of Defendants’ anticompetitive scheme, as
alleged herein, Plaintiff and the Class were harmed as aforesaid.
248.
The goal, purpose and/or effect of the scheme was to prevent and/or delay
competition to continue charging supracompetitive prices for Bystolic without a substantial
loss of sales.
249.
Plaintiff and the Class have been injured in their business or property by reason
of Defendants’ antitrust violations alleged in this Count. Their injury consists of paying higher
prices for Bystolic than they would have paid in the absence of those violations. These injuries
will continue unless halted.
250.
Plaintiff and the Class, pursuant to Fed. R. Civ. P. 57 and 28 U.S.C. § 2201(a),
hereby seek a declaratory judgment that Defendants’ conduct constitutes a violation of §§ 1 and
2 of the Sherman Act.
251.
Plaintiff and the Class further seek equitable and injunctive relief pursuant to §
16 of the Clayton Act, 15 U.S.C. § 26, and other applicable law, to correct the anticompetitive
effects caused by Defendants’ unlawful conduct in the market for Bystolic.
XIII. PRAYER FOR RELIEF
252.
WHEREFORE, Plaintiff, on behalf of herself and the proposed Class, prays for
judgment against all Defendants, jointly and severally, as follows:
a.
Determine 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 direct that reasonable
notice of this action, as provided by Rule 23(c)(2), be given to the Class, and appoint the
Plaintiff as the named representative of the Class;
b.
Grant injunctive relief that restores Defendants’ incentives to compete in the
relevant market;
c.
Enter joint and several judgments against each of the Defendants and in favor of
Plaintiff and the proposed Class;
d.
Award Plaintiff and the Class damages (i.e., three times overcharges) in an
amount to be determined at trial, plus interest in accordance with law;
e.
Grant Plaintiff and the Class equitable relief in the nature of disgorgement,
restitution, and the creation of a constructive trust to remedy Defendants’ unjust
enrichment;
f.
Award Plaintiff and the Class their costs of suit, including reasonable attorneys’
fees, as provided by law; and
g.
Award such further and additional relief as the case may require and the Court
may deem just and proper under the circumstances.
XIV. JURY DEMAND
Pursuant to Rule 38 of the Federal Rules of Civil Procedure, Plaintiff, on behalf of
herself and the proposed Class, demands a trial by jury on all issues so triable.
Dated: September 9, 2020
Respectfully submitted,
By: /s/ Michael M. Buchman
Michael M. Buchman
Michelle C. Clerkin
Jacob Onile-Ere
MOTLEY RICE LLC
777 Third Avenue, 27th Floor
New York, New York 10017
Tel.: (212) 577-0040
Fax: (212) 577-0044
[email protected]
[email protected]
[email protected]
Local Counsel for Plaintiff
John Alden Meade (Pro Hac Vice forthcoming)
MEADE YOUNG LLC
909 Poydras St. Suite 1600
New Orleans, La. 70112
Tel: (504) 799-3102
Fax: (504) 717-2846
[email protected]
Counsel for Plaintiff
| antitrust |
Lq2YCocBD5gMZwczlfER | UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TENNESSEE
KNOXVILLE DIVISION
LEWIS COSBY, on behalf of himself
)
and all others similarly situated,
)
CLASS ACTION
)
Plaintiff,
)
)
v.
)
No. ___________________
)
DELOY MILLER, SCOTT M. BORUFF,
)
JURY TRIAL DEMANDED
PAUL W. BOYD, CHARLES M. STIVERS,
)
DAVID M. HALL, MERRILL A. McPEAK,
)
JONATHAN S. GROSS, DAVID J. VOYTlCKY,
)
DON A. TURKLESON, GERALD HANNAHS,
)
MARCEAU N. SCHLUMBERGER, BOB G. GOWER,
)
JOSEPH T. LEARY, WILLIAM B. RICHARDSON,
)
CARL E. GIESLER, JR., A. HAIG SHERMAN,
)
and KPMG, LLP,
)
)
Defendants.
)
______________________________________________________________________________
CLASS ACTION COMPLAINT
______________________________________________________________________________
Gordon Ball
TN BPR#001135
GORDON BALL PLLC
Ste. 600, 550 Main Street
Knoxville, TN 37902
Tel: (865) 525-7028
Fax: (865) 525-4679
Email: [email protected]
Counsel for Plaintiff
TABLE OF CONTENTS
I.
NATURE OF ACTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II.
PARTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
A.
Plaintiff. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
B.
Individual Defendants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
C.
Auditor Defendant - KPMG, LLP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
D.
Non-Parties and Co-Conspirators. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
III.
JURISDICTION AND VENUE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
IV.
PERTINENT FACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
A.
Background of Miller and Purchase of Alaska Assets.. . . . . . . . . . . . . . . . . . . . . 13
B.
The False and Misleading Registration Statement. . . . . . . . . . . . . . . . . . . . . . . 16
C.
Under Generally Accepted Accounting Principles, Miller Was Required to
Record the Alaska Assets Acquisition at Fair Value. . . . . . . . . . . . . . . . . . . . . . 18
D.
Miller’s Reserve Report Failed to Represent the Fair Value of Alaska Assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
E.
The Fair Value of the Acquired Fixed Assets Was Double-Counted and
Overstated. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
F.
Miller Writes Down the Value of the Alaska Assets.. . . . . . . . . . . . . . . . . . . . . 27
G.
SEC Enforcement Action Accuses Miller, Boyd, and Hall of Knowingly
Artificially Inflating Value of Alaska Assets.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
H.
Miller Settles With SEC, Files for Bankruptcy Protection, and Sees Shares
De-listed.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
I.
Allegations Against Outside Independent Auditor KPMG. . . . . . . . . . . . . . . . . . 35
V. CLASS ACTION ALLEGATIONS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
-ii-
VI. CAUSES OF ACTION.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
VII. JURY TRIAL DEMAND.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
VIII. PRAYER FOR RELIEF. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
-iii-
NOW INTO COURT comes the Plaintiff, Lewis Cosby (“Plaintiff”), through the
undersigned attorneys, and on behalf of himself and all others similarly situated (the “Class”), brings
this action for damages against the Defendants, pursuant to federal and common law.
This Complaint is alleged upon information and belief, and investigation of counsel, except
as to those allegations which pertain to the named Plaintiff, which are alleged on Plaintiff’s personal
knowledge.1
I. NATURE OF ACTION
1.
This case involves financial accounting and reporting fraud and/or persistent audit
failures by the Defendants, all of which is related to the grossly overstated valuation of certain oil
and gas assets acquired by Miller Energy Resources, Inc. (“Miller Energy”).
2.
Plaintiff, Lewis Cosby (“Plaintiff”) brings this federal securities class action under
§§ 11, 12(a)(2) and 15 of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §§
77k, 771(a)(2) and 77o on behalf of himself and all other purchasers of Miller Energy common
shares traceable to the September 6, 2012 Registration Statement and Prospectuses.
1This includes a review of U.S. Securities and Exchange Commission (“SEC”) filings by Miller
Energy Resources, Inc. (“Miller” or the “Company”), regulatory filings and reports, securities
analysts’ reports and advisories about the Company, press releases and other public statements
issued by Miller, media reports about Miller and court filings, the SEC’s Order Instituting Public
Administrative and Cease-and-Desist Proceedings Pursuant to Section 8a of the Securities Act of
1933, Sections 4c and 2lc of the Securities Exchange Act of 1934, and Rule 102(e) of the
Commission’s Rules of Practice, In the Matter of Miller Resources, Inc., et al., SEC Admin.
Proc. File No. 3-16729 (Aug. 6, 2015), the SEC’s Order Making Findings and Imposing a
Cease-and-Desist Order and Penalties Pursuant to Section 8a of the Securities Act of 1933 and
Section 21c of the Securities Exchange Act of 1934 As to Miller Energy Resources, Inc., In the
Matter of Miller Resources, Inc., et al., SEC Admin. Proc. File No. 3-16729 (Jan. 12, 2016),
filings in ln re Miller Energy Resources, Inc., et al., No. 15-00313 (D. Alaska Bankr. Ct.), and
media reports about the Company.
-1-
3.
Miller Energy purchased assets located in Alaska for $2.25 million in cash – and
assumed certain liabilities it valued at approximately $2 million – during a competitive bid in a
bankruptcy proceeding in December 2009 (hereinafter, the “Alaska Assets”). For the succeeding five
years, Miller Energy, its officers, managers, Board of Directors, along with Sherb & Co., LLP
(“Sherb”) and KPMG, LLP (“KPMG”), Miller Energy’s auditors, used a plethora of false statements,
fraudulent accounting, and other fraudulent reporting devices to falsify the financial results of Miller
Energy, conspiring to perpetrate a massive fraud on Plaintiff and others in members of the investing
public. Among other things:
# Miller Energy’s officers, managers, and Board of Directors
reported those assets at a substantially overstated value of $480
million;
# Miller Energy’s officers, managers, and Board of Directors
recognized a one-time “bargain purchase” gain of $277 million for its
fiscal third quarter ended January 2010 and fiscal year ended April
2010;
# Miller Energy’s officers, managers, and Board of Directors failed
to fairly account for the acquisition of the Alaska Assets in
accordance with generally accepted accounting principles (“GAAP”);
# Miller Energy’s officers, managers, and Board of Directors used a
reserve report that contained expense numbers that were knowingly
understated by the CEO of Miller Energy’s Alaska operations;
# Miller Energy’s officers, managers, and Board of Directors double-
counted $110 million of certain fixed assets that were already
included in the reserve report;
# Miller Energy’s officers, managers, and Board of Directors filed a
Form S-3 Registration Statement with the SEC on or about
September 6, 2012, incorporating by reference previously filed
materials that contained false or otherwise untrue statements of
material facts or omissions and were not prepared in accordance with
the rules and regulations governing their preparation;
-2-
# the outside directors also bear legal responsibility for the success
and extent of the fraudulent scheme, as they utterly failed to carry out
their duties as members of the Audit Committee of the Board of
Directors, blinding themselves to the possibility of improper acts by
Miller Energy management;
# after Miller Energy’s previous auditor, Sherb & Co., LLP
(“Sherb”), had issued an unqualified opinion of Miller Energy’s 2010
annual report that falsely stated that its audit was conducted in
accordance with the standards of the Public Company Accounting
Oversight Board and that Miller Energy’s financial statements were
presented fairly and conformed with GAAP, KPMG issued
unqualified reports that Miller Energy’s financial statements were
fairly presented, in all material respects, disregarding overwhelming
evidence of egregious over-valuations and massive accounting errors;
and
# Sherb and KPMG, who were outside auditors for Miller Energy at
different times during the Class Period, knew, but never reported to
the relevant authorities, that Miller Energy had falsely reported its
financial results for years.
4.
Financial statement information is the cornerstone of investment decisions. All of
Miller Energy’s interim and annual financial reports issued between 2010 and 2015, relying upon
a Reserve Report not prepared for the purpose,2 overstated the value of the Alaska Assets by
hundreds of millions of dollars by failing to record the Alaska Assets at fair value as required by law.
2Reserve reports are commonly used in the oil and gas industry to estimate quantities of oil and
gas (the reserves) expected to be recovered from existing properties. Generally, these reports list
reserves in categories based on a minimum estimated percentage probability of eventual recovery
and production, i.e., proved, probable, and possible. Information in reserve reports that are
prepared in accordance with SEC regulations is frequently used, for among other purposes, to
satisfy supplemental accounting disclosure requirements concerning estimates of future oil and
gas production. However, the numbers used in reserve reports for this purpose are expressly not
considered “an estimate of fair market value.” See Paragraph 77 of the Basis for Conclusion of
SFAS 69 (“Although it cannot be considered an estimate of fair market value, the standardized
measure of discounted net cash flows should be responsive to some of the key variables that
affect fair market value, namely, changes in reserve quantities, selling prices, production costs,
and tax rates.”).
-3-
As a result, all of Miller Energy’s interim and fiscal financial reports issued between 2010 and 2015,
the Form S-3 filed on September 6, 2012, and each of the final prospectuses described herein were
false and misleading.
5.
The grossly-inflated value helped Miller Energy transform itself from a penny stock
into a New York Stock Exchange-listed company valued in 2013 at $393 million. Its stock reached
a 2013 high of nearly $9 per share.
6.
On August 6, 2015, the United States Securities and Exchange Commission (“SEC”)
charged Miller Energy, former Chief Financial Officer Paul Boyd, and Chief Operating Officer
David Hall with accounting fraud for overstating the value of Alaska Assets by more than $400
million. Not only did Miller Energy falsify financial statement information and grossly overstate the
value of the Alaska Assets, but its independent auditors, initially the now-defunct Sherb firm and
later KPMG, also repeatedly failed to conduct audits that complied with professional standards.
7.
In its fiscal 2010 audit of Miller Energy’s financial statements, Sherb issued an
unqualified opinion of Miller Energy’s 2010 annual report and falsely stated that the audit was
conducted in accordance with the standards of the Public Company Accounting Oversight Board and
that Miller Energy’s financial statements were presented fairly and conformed with GAAP. KPMG
followed these gross auditing deficiencies by issuing its own unqualified opinion that Miller
Energy’s 2011, 2012, 2013, and 2014 financial statements were fairly represented in all material
respects, certifying statements that KPMG should known, exercising appropriate diligence, were
substantially false and misleading to Miller Energy’s shareholders.
8.
The false financial statements, followed by unqualified reports by auditors that those
financial statements were fairly represented in all material respects, misled and deprived Plaintiff and
-4-
other shareholders of material information about Miller Energy’s financial position, causing Plaintiff
and those other shareholders to suffer injury to their property. Plaintiff alleges that two distinct
groups are primarily culpable for the fraudulent, false, and grossly negligent repeated misstatements
of Miller Energy’s financial position between 2009 and 2015.
9.
First, Plaintiff alleges that Miller Energy,3 members of Miller Energy’s senior
management, Board of Directors, and Audit Committee, including Scott M. Boruff, Deloy Miller,
Charles M. Stivers, David M. Hall, Merrill A. Mcpeak, Jonathan S. Gross, David J. Voytlcky, Don
A. Turkleson, Gerald Hannahs, Marceau N. Schlumberger, Bob G. Gower, Joseph T. Leary, William
B. Richardson, Carl E. Giesler, Jr., and A. Haig Sherman (collectively, the “Individual Defendants”)
repeatedly made false and misleading statements relating to Miller Energy’s business and financial
condition and the value of its assets, and violated GAAP in reporting and accounting for Miller
Energy’s assets, liabilities, revenues, expenses, net income and cash flow, which artificially-inflated
the price of Miller Energy’s common stock during the Class Period.
10.
Second, Plaintiff alleges that Miller Energy’s auditors, first Sherb, who served as
Miller Energy’s independent registered public accounting firm from August 2008 until February
2011, and later KPMG, committed a litany of errors and did little else but rubber-stamp Miller
Energy management’s gross over-valuations of the Alaska Assets, certifying Miller Energy’s false
and misleading financial statements and rendering unqualified opinions that those statements were
3Miller Energy sought protection under federal bankruptcy laws on October 1, 2015. Therefore, it
is not named as a Defendant in this action.
-5-
fairly presented, in all material respects. Sherb, a small firm that primarily audited micro-capital
companies, presented 2009 and 2010 audits which confirmed Miller Energy’s financial statements
for those years.
11.
Public investors, creditors and others rely on independent, registered public
accounting firms to audit financial statements and assess internal controls when deciding whether
to invest in or do business with a public company. As part of Miller Energy’s bid to be listed on the
New York Stock Exchange, Miller Energy retained the services of KPMG to audit its financial
statements for the fiscal year ended April 30, 2011. KPMG, a leading accounting firm in the oil and
gas sector, had an opportunity with the restatement to protect the shareholders and investment
community and to correct Miller Energy’s rampant misstatements and untruths from previous years.
However, given that chance, and notwithstanding the benefit of a year’s worth of hindsight, KPMG
methodically became, in many respects, even more culpable than Sherb, issuing unqualified reports
that Miller Energy financial statements for the years ended April 30, 2011 through 2014 were fairly
presented, in all material respects, the highest level of an audit report that a CPA can issue.
12.
Even in the face of the SEC orders revealing that the financial statements of Miller
Energy were fraudulent and materially misstated and Miller Energy’s acknowledgment of vast
accounting errors involving its valuation of the Alaska Assets, KPMG has never withdrawn,
amended, or otherwise altered its reports. Nor has KPMG alerted the SEC or Miller Energy’s
shareholders that its earlier reports were in error.
-6-
II. PARTIES
A.
Plaintiff
13.
Plaintiff, Lewis Cosby (“Plaintiff”), purchased Miller Energy common shares
traceable to the September 6, 2012 Registration Statement and was injured as a proximate result
thereof. Plaintiff purchased 500 common shares, at $3.53 per share, on October 27, 2014. Plaintiff
sold those common shares, at $1.73 per share, on December 2, 2014.
B.
Individual Defendants
14.
Defendant Scott M. Boruff (“Boruff”) has served as the Executive Chairman of the
Board since September 14, 2014. Previously, Boruff served as Miller Energy’s Chief Executive
Officer (“CEO”) from August 6, 2008 to September 14, 2014 and as its President from June 2010
until June 9, 2011.
15.
Defendant Deloy Miller (“Miller”) founded Miller Energy and served as the Chairman
of its Board of Directors (the “Board”) until September 14, 2014.
16.
Defendant Paul W. Boyd (“Boyd”) served as the CFO and treasurer of Miller Energy
from 2008 to 2011 and as Miller Energy’s Director of Risk Management from 2011 until 2014.
John Brawley is the new CFO.
17.
Defendant Charles M. Stivers (“Stivers”) served as CFO from 2004 until 2006 and
served as a member of the Board of Directors from 2004 until June 18, 2015.
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18.
Defendant David M. Hall (“Hall”) served as the Chief Operating Officer (“COO”)
of Miller Energy from July 18, 2013 until August 6, 2015. Hall also served as a member of the
Board of Directors from December 10, 2009 until August 6, 2015. Hall also served as Chief
Executive Officer of the Company’s Cook Inlet Energy subsidiary.
19.
Defendant Merrill A. McPeak (“McPeak”) served as a member of the Board of
Directors from April 2010 until April 16, 2014.
20.
Defendant Jonathan S. Gross (“Gross”) served as a member of the Board of Directors
from April 2010 until 2012. Gross has 29 years of experience in domestic and international oil and
gas exploration.
21.
Defendant David J. Voyticky (“Voyticky”) served as the President of Miller Energy
from June 9, 2011 until August 12, 2014, as its Acting CFO from September 2011 until February
2014, and was a director from April 2010 to April 2014. Voyticky has over 15 years of domestic
and international mergers and acquisitions, restructuring and financing experience, including stints
witth Goldman, Sachs & Co. and J.P. Morgan.
22.
Defendant Don A. Turkleson (“Turkleson””) served as a member of the Board of
Directors from January 2011 to April 16, 2014 and was chair of the Audit Committee. Turkleson
has over 35 years of accounting and financial experience with emphasis in the oil and gas business.
Turkleson is a Certified Public Accountant.
23.
Defendant Gerald Hannahs (“Hannahs”) has served as a member of the Board of
Directors since July, 2012 and was appointed to serve a member of the Audit Committee on August
2013. Hannahs has over 30 years of experience in the investments and the oil and gas industry.
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24.
Defendant Marceau N. Schlumberger (“Schlumberger”) served as a member of the
Board of Directors from July 2013 until August 28, 2014. He has nearly 20 years of investment
banking experience, including international and domestic mergers and acquisitions, restructuring,
strategic analysis, and financing experience.
25.
Defendant Bob G. Gower (“Gower”) has served as a member of the Board of
Directors since 2014. Dr. Gower has more than 50 years of business and senior management
experience across a range of industries, including energy, chemical, and technology.
26.
Defendant Joseph T. Leary (“Leary”) served as a member of the Board of Directors
from 2014 until August 28, 2014. Leary has more than 40 years of experience in banking and
finance with over 25 years in the energy business.
27
Defendant William B. Richardson (“Richardson”) served as a member of the Board
of Directors from April 2014 until September 11, 2015.
28.
Defendant Carl E. Giesler, Jr. (“Giesler”) was appointed as Chief Executive Officer
in September 2014. He has served as a member of the Board of Directors since October 1, 2014.
29.
Defendant A. Haig Sherman (“Sherman”) has served as a member of the Board of
Directors since September 14, 2014. Has diverse business experience, including roles as a practicing
attorney, accountant, registered investment advisor and businessman. He is also a Certified Public
Accountant.
30.
Defendants McPeak, Hannahs, Stivers and Turkleson served as directors of Miller
Energy as of September 6, 2012 and signed the September 6, 2012 Registration Statement
(“Registration Statement”).
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31.
Defendants Gower, Leary, Richardson and Schlumberger served as directors of Miller
Energy during the Class Period, and engaged in actions that proximately resulted in injuries to
Plaintiff and Class members, as described below.
C.
Auditor Defendant – KPMG LLP
32.
Defendant KPMG LLP (“KPMG”) is one of the “Big 4” international accounting
firms with 179 offices across 19 countries and an employee base of 25,000. KPMG is duly
organized and existing under the laws of the State of Delaware, and has its main office located at 345
Park Avenue, New York, New York, and it maintains an office located in Melville, New York.
33.
KPMG has an office in Knoxville, Tennessee. According to KPMG literature, the
firm is a leader in the field of oil and gas with a goal to be the leading provider of professional
services to the oil and gas sector. Specifically, KPMG provides professional services to:
# 76% of the top 50 oil and gas companies in the Forbes 2000;
# 69% of oil and gas companies in the FT Global 500;
# 70% of the largest refining companies on the Fortune Global 500
KPMG’s U.S.-based clients include Haliburton, Occidental Petroleum, and Valero Energy.
34.
KPMG was retained as Miller Energy’s independent auditor on February 1, 2011.
KPMG issued unqualified reports on Miller Energy’s financial statements for the years ending April
30, 2011, April 30, 2012, April 30, 2013 and April 30, 2014, certifying, inter alia, that it had audited
the financial statements in accordance with generally accepted auditing standards (“GAAS”) and
that, in its opinion, the financial statements presented the financial position of Miller Energy fairly
and in conformity with GAAP. Fees billed to Miller Energy by KPMG for its audits of Miller
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Energy’s financial statements were in excess of $3,296,470 through the period ending April 30,
2014. KPMG also submitted an unsecured claim against Miller Energy in the bankruptcy, seeking
$448,000.00.
35.
Every report by KPMG’s of its audits of Miller Energy’s financial statements for the
foregoing periods was a “clean opinion,” an unqualified report that Miller Energy’s financial
statements were fairly presented, in all material respects. This is the highest level of an audit report
that a CPA can issue.
D.
Non-Parties and Co-Conspirators
36.
Non-party Miller Energy Resources, Inc. (a/k/a Miller Petroleum, Inc.) (“Miller
Energy”) is an independent exploration and production company that explores for, develops, and
operates oil and gas wells in south-central Alaska and in Tennessee. At all times relevant to this
action, Miller Energy common stock traded on the NYSE under the ticker symbol “MILL”; the
Series C traded on the NYSE under the ticker symbol “MILLP”; and the Series D traded on the
NYSE under the ticker symbol “MILLO.”
37.
As of September 29, 2015, Miller Energy had approximately 46.7 million shares of
common stock, 3.25 million shares of Series C and 3.5 million shares of Series D issued and
outstanding. On September 11, 2015, Miller Energy caused its common stock, Series C and Series
D to be de-listed from the NYSE. On October 1, 2015, Miller Energy filed a petition seeking relief
under the federal bankruptcy statutes. In light of the automatic stay in the bankruptcy proceedings,
Miller Energy is not named as a Defendant herein.
38.
Non-party Carlton W. Vogt, III (“Vogt”) was the audit team leader at Miller Energy’s
former independent outside auditing firm, non-party Sherb, a now defunct CPA firm that was
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suspended by the SEC in 2013 for improper professional conduct unrelated to its work for Miller
Energy, which had served as Miller Energy’s outside audit firm since 2008. Vogt led an audit team
that audited Miller Energy’s financial statements for fiscal years ended 2009 and 2010. Vogt led the
Sherb audit team that audited Miller Energy’s financial statements for the 2009 and 2010 fiscal
39.
Various entities not named as Defendants in this lawsuit have participated as
co-conspirators with the named Defendants in the violations alleged in this Complaint and have
performed acts and made statements in furtherance of the conspiracy. Plaintiff reserves the right to
name some or all of these persons as Defendants at a later date. Plaintiff believes that there is a finite
number of co-conspirators whose identities can be ascertained through Defendants’ own records.
III. JURISDICTION AND VENUE
40.
This Court has jurisdiction over this action pursuant to 28 U.S.C. §§ 1331 and
1337(a). The Court has supplemental jurisdiction over any claims brought under state law pursuant
to 28 U.S.C. §1367, as such claims are so related to claims in the action within the original
jurisdiction of this Court that they form part of the same case or controversy under Article III of the
United States Constitution.
41.
This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C.
§§ 1331 and 1337, and § 27 of the Exchange Act, 15 U.S.C. §78aa, §§ 10(b) and of 20(a) of the
Exchange Act, 15 U.S.C. §§ 78j(b), 78t and SEC Rule 10b-5, 17 C.F.R. §240.10b-5.
42.
Venue is proper in this judicial district pursuant to 28 U.S.C. § 1391(b) and (c),
because one or more of the Defendants is found or resides in this judicial district or had agents in
this judicial district, transacted or is licensed to transact business in this judicial district, and because
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a substantial portion of the affected trade and commerce described below has been carried out in this
judicial district. Also in connection with the acts and omissions 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.
43.
This Court has personal jurisdiction over each of the Defendants named herein
because they conducted substantial business in, were citizens of the State of Tennessee at during the
Class Period (including Miller Energy, which maintained its principal place of business and offices
throughout this State at the time). The violations of law complained of herein occurred in
Tennessee, including the preparation and dissemination of the materially false and misleading
Registration Statement complained of herein, which was disseminated into this State.
IV. PERTINENT FACTS
A.
Background of Miller Energy and Purchase of Alaska Assets
44.
Miller Energy was founded in 1967 as an independent oil and gas exploration and
production company. Miller Energy, whose focus was originally on Tennessee’s Appalachian Basin,
initially became a publicly-traded company in connection with a reverse merger in 1996. Between
early 2002 and December 2009, Miller Energy was a small player operating on the fringes of the oil
and gas exploration and production industry, as its stock price regularly traded below one dollar per
share, falling to a low of $0.04 per share in December 2007. In August 2008, Miller Energy named
a new CEO. Soon thereafter, facing collapse, Miller Energy began acquiring additional oil and gas
properties.
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45.
In the fall of 2009, Miller Energy became aware of certain oil and gas properties in
Alaska that were in the process of being “abandoned” as part of the bankruptcy proceedings of
California-based Pacific Energy Resources (“PER”). Beginning in December 2008, PER, with the
help of a leading financial advisory and asset management firm, unsuccessfully marketed its
operating assets in Alaska to 40 potential buyers. The assets were auctioned by the bankruptcy court
in July 2009, but neither the winning bid ($8 million) nor the second bid( $7 million) ultimately
closed. As a result, PER sought an order from the bankruptcy court allowing it to abandon title to
the assets.
46.
Due to renewed interest in the assets from Miller Energy, the bankruptcy court
permitted PER to reacquire it’s the assets and sell them to Miller Energy’s operating subsidiary,
Cook Inlet Energy (“CIE”), in a competitive auction for $2.25 million in cash and the assumption
of certain limited liabilities. The transaction closed on December I0, 2009.4
47.
On December 16, 2009, Miller Energy announced that it had acquired certain oil and
gas reserves and related assets in Alaska (the “Alaska Assets”), which it claimed were valued at more
than $479 million, including oil and gas assets that included onshore and offshore production
4In its 2011 annual report, Miller Energy reported that on December 10, 2009, it had acquired
100% of the membership interests in Cook Inlet Energy, LLC, an Alaska limited liability
company and had also acquired the former Alaskan operations of Pacific Energy Resources
(“Pacific Energy”), “valued at more than $479 million through a Delaware Chapter 11
Bankruptcy proceeding.” Miller Energy reported that the acquired Alaska Assets included
“onshore and offshore production facilities, $215 million in proven energy reserves, $122 million
in probable energy reserves and $31 million in possible energy reserves, providing total reserves
of $368 million.” Miller Energy reported the purchase of the West McArthur River oil field, the
West Foreland natural gas field, and the Redoubt unit with the Osprey offshore platform, all
located along the west side of the Cook Inlet, along with 602,000 acres of oil and gas leases,
which includes 471,474 acres under the Susitna Basin Exploration License.
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facilities, $215 million in proven energy reserves, $122 million in probable energy reserves, and $31
million in possible energy reserves, providing total reserves of $368 million.
48.
Shares of Miller Energy’s common stock soared 93%, increasing in two days from
$0.70 per share to a closing price of $1.35 per share. On December 10, 2009, the date of the
transaction, Miller Energy’s stock closed at $0.61 per share. By March 31, 2010, Miller Energy’s
stock closed 982% higher at $6.60 per share. Weeks later, its stock began trading on NASDAQ and,
after moving to the NYSE a year later, reached an all-time high price on December 9, 2013 of $8.83
per share.
49.
On March 22, 2010, Miller Energy filed its quarterly report on Form 10-Q for its
fiscal third quarter ended January 31, 2010 and reported a value of $480 million for the Alaska
Assets, which amount was comprised of $368 million for oil and gas properties and $110 million
for fixed assets. Miller Energy also reported an after-tax $277 million “bargain purchase gain,”
which boosted net income for the quarter to $272 million – an enormous increase over the $556,097
loss reported for the same period the previous year. The newly-booked value of the Alaska Assets,
which resulted in a nearly 5,000% increase in Miller Energy’s total assets, had a significant impact
on Miller Energy’s stock price.5
50.
As it turned out, however, the claimed values for the Alaska Assets were vastly
overstated, as they were based on (1) false values assigned to supposed “fixed assets” Miller Energy
5On July 25, 2010, Sherb announced the results of its audit of Miller Energy’s balance sheets and
related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for
the year ended April 30, 2010, certifying the financial position of Miller Energy as of April 30,
2010.
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acquired; and (2) enormous overstatement of the value of the oil and gas reserves. Miller Energy
materially overstated the value of its Alaska Assets by more than four hundred million dollars.
These inflated balance sheet and income statement numbers were repeated over the next year and
a half in numerous documents touting the success and high value of the Alaska Assets subsequently
filed with the SEC.6
51.
Miller Energy’s overstatement of the Alaska Assets enabled it to overstate assets on
its balance sheet by $479 million and overstate shareholders’ equity by $267 million. This made
Miller Energy appear larger, cumulatively more profitable, and inherently less risky to the investing
B.
The False and Misleading Registration Statement
52.
On or about September 6, 2012, Miller Energy filed with the SEC a Form S-3
Registration Statement and prospectus using a “shelf” registration, or continuous offering process.7
Under the shelf registration, Miller Energy would sell securities described in various future
prospectus supplements in one or more offerings. The prospectus supplements would form part of
6In Miller Energy’s 2011 annual report, it reported that on March 17, 2011, the Audit Committee
of Miller Energy’s Board of Directors had determined that its unaudited consolidated balance
sheet at July 31, 2010, unaudited consolidated statement of operations for the three-month period
ended July 31, 2010, unaudited consolidated balance sheet at October 31, 2010, and unaudited
consolidated statement of operations for the three and six month periods ended October 31, 2010
could no longer be relied upon as a result of misstatements in those financial statements.
7A shelf registration is a regulation that a corporation can evoke to comply with SEC registration
requirements for a new stock offering up to three years before doing the actual public offering.
The corporation must still file the required annual and quarterly reports with the SEC.
Sometimes current market conditions are not favorable for a specific firm to issue a public
offering. By using shelf registration, firms can fulfill all registration-related procedures
beforehand and go to market quickly when conditions become more favorable.
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the registration statement for each offering. The securities were to be issued by Miller Energy. This
Form S-3, which would later be utilized for all of the stock offerings, expressly incorporated by
reference certain filings Miller Energy had previously made with the SEC and all future filings until
any offering conducted under the shelf registration statement was completed.
53.
The SEC declared the shelf registration statement effective on September 18, 2012.
54.
The Registration Statement, including the materials incorporated therein by reference
(which expressly incorporated Miller Energy’s Annual Report on Form 10-K for the year ended
April 30, 2012, as well as various Current Reports on Form 8-K), and the final Prospectuses, were
negligently prepared and, as a result, contained untrue statements of material facts 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.
55.
All of Miller Energy’s interim and annual financial reports issued between 2010 and
2015, relying upon the Reserve Report, overstated the value of the Alaska Assets by hundreds of
millions of dollars by failing to record the Alaska Assets at fair value as required by Accounting
Standards Codification (“ASC”) 805, Business Combinations, and the federal securities laws,
because they “used as fair value a reserve report that was prepared by a petroleum engineer firm
using the rules for supplemental oil and gas disclosures,” “the reserve report . . . expressly disclaimed
that the numbers therein represented the engineer firm's opinion of fair value,” “[t]he reserve report
. . . also contained expense numbers that were knowingly understated,” and the Reserve Report
“double counted $110 million of certain fixed assets that were already included in the reserve
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56.
As a result, all of Miller Energy’s interim and fiscal financial reports issued between
20IO and 2015, the Form S-3 filed on September 6, 2012, and each of the relevant final Prospectuses
were false and misleading.8
C.
Under Generally Accepted Accounting Principles (“GAAP”), Miller
Energy Was Required to Record the Alaska Assets at Fair Value.
57.
ASC 805, Business Combinations – formerly Statement of Financial Accounting
Standards (“SFAS”) 14l ® – became effective in December 2008. Among its principal revisions,
ASC 805 requires acquisitions that result in a “bargain purchase,” e.g., entities purchased at fire sales
prices in non-orderly transactions, to be measured at fair value, with any resulting gain recorded
on the income statement.
58.
ASC 820, Fair Value Measurements (formerly SFAS 157), provides the framework
for measuring fair value. “Fair value” is defined in ASC 820 as “the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at
the measurement date.” A reporting entity must determine an appropriate fair value using one or
more of the valuation techniques described in accounting literature.
59.
ASC 820 outlines three broad approaches to measuring fair value: the market
approach, income approach, and cost approach. Under the market approach, prices and other
relevant information generated by market transactions involving identical or comparable assets or
liabilities are used to measure fair value. The income approach utilizes valuation techniques to
8Miller Energy’s false and misleading reports filed with SEC included: Forms 10-Q for the 3Q
2010 and all interim quarters for 2011-201 5; Forms 10-K for 2010 - 2014; the Form S-1 filed on
August 8, 2010; the Forms S-3 filed on September 6, 2012 and October 5, 2012; and
prospectuses filed between August 25, 2010 through August 21, 2014 pursuant to Rule 424; and
15 Forms 8-K filed between March 2010 through at least December 2014.
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convert future amounts to a single discounted present value amount. Finally, the cost approach is
based on the amount that currently would be required to replace the assets in service, i.e., current
replacement cost.
60.
ASC 820 emphasizes that fair value is a market-based measurement, not an entity
specific measurement, and should be determined based on the assumptions market participants
would use in pricing the asset or liability.
61.
ASC 820 emphasizes that when a price for an identical asset or liability is not
observable, entities should use a “valuation technique that maximizes the use of relevant observable
inputs and minimizes the use of unobservable inputs” and entities may not ignore assumptions
market participants would use.9
62.
When computing their estimate of fair value, Defendants Miller and Boyd failed to
consider the existence of numerous, readily apparent data points strongly indicating that the Alaska
Assets were worth substantially less than the $480 million value Miller Energy recorded. In failing
to do so, Defendants Miller and Boyd materially overstated the value of the newly acquired Alaska
Assets. As described detailed below, Miller Energy purported to value the Alaska Assets using the
income approach for the oil and gas reserves and the cost approach for certain fixed assets.
9ASC 820 defines “unobservable inputs” as “inputs that reflect the reporting entity’s own
assumptions about the assumptions market participants would use in pricing the asset or liability
developed based on the best information available in the circumstances,” and “observable inputs”
as “inputs that reflect the assumptions market participants would use in pricing the asset or
liability developed based on market data obtained from sources independent of the reporting
entity.”
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D.
Miller Energy’s Reserve Report Failed to Represent the Fair Value of
Alaska Assets.
63.
Shortly after the acquisition, Defendant Boyd asked Defendant Hall – a
non-accountant with no formal accounting training – to obtain a reserve report for the Alaska Assets
in order to determine the fair value of the acquired assets to be reported on Miller Energy’s Form
10-Q for the quarter ended January 31, 2010.
64.
To record the value of the Alaska Assets, Defendants Miller and Boyd requested and
improperly valued the Alaska Assets based on a reserve estimates report prepared by Ralph E. Davis
& Associates, an independent petroleum engineering firm (the “Reserve Report”). Ralph E. Davis
& Associates did not know that Miller Energy intended to use the Reserve Report for fair value
purposes and believed that its purpose was for use as supplemental data in Miller Energy’s SEC
disclosures.10
10Oil and gas reporting companies are subject to two principal authoritative pronouncements
governing financial accounting and reporting for oil and gas activities: Rule 4-10 of Regulation
S-X (17 C.F.R. 210.4-10), Financial Accounting and Reporting for Oil and Gas Producing
Activities Pursuant to the Federal Securities Laws and the Energy Policy and Conservation Act
of 1975 (“Rule 4-10”); and ASC 932-235-50-29 through 33 (formerly SFAS 19, Financial
Accounting and Reporting by Oil and Gas Producing Companies, and SFAS 69, Disclosures
About Oil and Gas Producing Activities ). ASC 932 establishes disclosure requirements for
significant oil and gas activities, including disclosure of the “standardized measure,”which is the
future after-tax net cash flows discounted at 10%.
A non-GAAP measure, known as “PV- 10,” is similar to the standardized measure but is
typically presented on a pretax basis. The Financial Accounting Standards Board has noted that
the standardized measure supplies investors with useful information, however, they also noted
their concern “that users of financial statements understand that it is neither fair market value nor
the present value of future cash flows. It is a rough surrogate for such measures, a tool to allow
for a reasonable comparison of mineral reserves and changes through the use of a standardized
method that recognizes qualitative, quantitative, geographic, and temporal characteristics.”
Paragraph 83 of the Basis for Conclusions of SFAS 69.
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65.
The Reserve Report was finalized in February 2010 and reflected a pre-tax present
value of net cash flows discounted at 10% (“PV-10 ”) of $368 million. The Reserve Report itself
clearly stated that the numbers therein were not an estimate of fair market value. Specifically, on
page 3 of the report, it states that “[t]he discounted values shown are for your information and should
not be construed as our estimate of fair market value.” Defendant Boyd never reviewed or
questioned any of the Reserve Report’s assumptions or calculations, nor did he communicate with
the engineer firm about the Reserve Report. Rather, upon receiving the Reserve Report, Defendant
Boyd merely recorded as the fair value of the acquired oil and gas properties the sum of the PV-10
estimates for 100% of the proved, probable, and possible reserves, which artificially increased the
book value of Miller Energy’s oil and gas properties on its balance sheet by $368 million.
66.
The use of the PV-10 numbers as fair value conflicted with contemporaneous
representations Miller Energy had made to its investors, including those incorporated by reference
into the Registration Statement. Specifically, in its fiscal 2010 Form 10-K, the first annual report
to include the inflated values, Miller Energy expressly told investors that “[o]ur PV-10 measure and
the standardized measure of discounted future net cash flows do not purport to present the fair value
of our natural gas and oil reserves.” Notwithstanding that disclosure, Miller Energy had actually
used its PV-10 measure in that very same report as the fair value of its acquired properties.
67.
The $368 million Reserve Report value failed to represent fair value for several
reasons. Despite showing years of net profit that market participants would expect to be taxable, the
Reserve Report did not make adjustments for income taxes. It also used a 10% discount rate that
was inappropriate under GAAP for determining fair value. And by failing to consider the discount
rate using assumptions that market participants would use, Miller Energy materially overstated the
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value of the Alaska Assets. The valuation also overstated cash flows from certain categories of
reserve estimates (e.g., “probable” and “possible” reserves) by failing to apply any risk weight to
such reserves and the resulting cash flows. Nor did the Reserve Report include amounts for certain
asset retirement obligations, i.e., the legal obligations associated with the retirement of tangible
long-lived assets. Finally, the $237 million of projected operating and capital expenses in the
Reserve Report, provided by Miller Energy and the Alaska CEO, were intentionally understated,
resulting in an overstated valuation.
68.
The CFO was aware that Miller Energy chose the new firm because a prior firm
refused to assign any value to a property known as the Redoubt Shoal field, because it was
uneconomical – i.e., expected future expenses exceeded expected future cash flows – and the prior
firm had explained that it would not put its “name on a report that implies value exists where it likely
does not.” The Redoubt Shoal field – which represented $291 million of the $368 million in fair
value recorded by Miller Energy – showed positive future cash flows in the Reserve Report primarily
because the Alaska CEO gave Ralph E. Davis & Associates understated and unsubstantiated expense
numbers. The CFO had previously been advised by Miller Energy’s independent auditor that the
lack of any controls over the Alaska CEO’s expense estimates was a “concerning void.”
69.
Defendants Miller and Hall provided expense projections that, in many cases, were
significantly lower than past actual experience. For example, internal documents maintained by
Defendant Hall indicate that the cost to drill a new well in the Redoubt Shoal field was roughly $13
million. However, Defendant Hall told Ralph E. Davis & Associates to use a cost of $4.6 million
per well in its Reserve Report. And instead of using recent expense data, Defendant Hall gave Ralph
E. Davis & Associates nearly three-year old operating expense data, which he revised down on the
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pretext that Miller Energy could run a leaner operation than former operators of the properties.
Overall, the Reserve Report implied operating expenses of $4 per barrel of oil equivalent (“boe”)
for all categories of reserves. That level of operating expenses was unreasonable in light its
predecessor’s actual operating expenses of $32.50/boe in 2008 and $55.42/boe in the first half of
2009 before the wells were shut-in.
70.
By understating the expense numbers, Miller Energy overvalued its Alaska Assets
by tens of millions of dollars.
E.
The Fair Value of the Acquired Fixed Assets Was Double-Counted and
Overstated.
71.
In addition to the $368 million value recorded for the oil and gas properties,
Defendant Miller Energy also erroneously recorded a separate value of $110 million for acquired
fixed assets, such as facilities and pipelines ancillary to the oil and gas reserves.
72.
In a February 8, 2010 email, Defendant Boyd informed Defendant Hall that he needed
an amount to use as fair value for the fixed assets obtained as part of the Alaska Assets acquisition.
He noted that, ideally, the value should be what a willing buyer would pay for the assets, but “[i]n
the absence of that, replacement values or something similar would probably work.” Two days
later, Defendant Boyd was sent an “asset replacement cost study,” purportedly provided by an
independent insurance broker, which appeared to list the replacement cost for the assets as $110
million. The “study” was dated September 5, 2008, but “revised” on February 9, 2010.
73.
With no additional analysis, Defendant Boyd recorded the amount in the revised
insurance study on Miller Energy’s balance sheet.
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74.
The recording of assets at a value of $110 million was improper for several reasons.
Miller Energy’s use of the values in the insurance study resulted in counting the value of the fixed
assets twice, thereby overstating the value of those assets. The Reserve Report, which Miller Energy
relied on to value the acquired Alaskan Assets, used a discounted cash flow model. Valuation
specialists use such models to estimate the value of an enterprise’s “operating assets” – i.e., the
assets employed to generate future cash flows – by converting future benefit streams into a net
present value. In Miller Energy's case, the fixed assets in the insurance study were the same
operating assets that were expected to generate the future cash flows discussed in the Reserve
Report. Accordingly, they should not have been separately valued.
75.
Prior to the acquisition, all of the production from the offshore Redoubt Shoal field
ran through the Osprey platform, which had no processing facilities or power generating capability
of its own. Power was sent from generators housed within the Kustatan Production Facility (“KPF”)
to the platform via a sub-sea line, which was connected to an underground power grid that ran
throughout the acquired properties. Moreover, production from the offshore platform was sent
onshore for processing through pipes to the KPF. Without the platform, there would have been no
way to obtain oil and gas from the Redoubt Shoal field without incurring up-front capital
expenditures to replace the platform and related infrastructure. Similarly, minus the other production
facilities, the platform would have lacked power and a place to process its oil and gas.
76.
The Reserve Report recognized the interconnectedness of the properties, as it
expressly listed the facilities and the offshore platform as assets used to generate future cash flows.
77.
In short, because the fixed assets were integral to the operations of the acquired
properties, their values were captured in the Reserve Report’s cash flows. Consequently, by
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separately valuing the same operating assets, Miller Energy overstated the value of the Alaska Assets
by as much as $110 million.
78.
The insurance study also did not reflect fair value because the version of the insurance
study used by Defendant Boyd purported to show “asset replacement cost.” Absent further
adjustments, replacement cost does not qualify as fair value under GAAP.
79.
Miller Energy, at the direction of Defendants Boyd and Hall, also refashioned a
preexisting insurance study to make it appear that its own value of $110 million was derived from
a third party. The numbers in the fixed asset study were given to the insurance broker and its
predecessor by its clients (i.e., Miller Energy and the previous owners of the fixed assets) as long ago
as 2007 and were used as starting points for other types of estimates, such as estimates for possible
losses resulting from fire or natural disasters. Two employees at the insurance broker who were the
most familiar with the original “Loss Estimates Study” confirmed to the SEC that they never tested
or in any way double-checked the values provided.
80.
Defendants Boyd and Hall either knew or knowingly disregarded the fact that the
insurance study did not reflect fair value or any analysis by the insurance broker.
81.
February 8, 2010, Defendant Hall directed Alaska personnel to contact the insurance
broker and another oil and gas consulting company to ask them for a report reflecting fair value or
replacement cost. The insurance broker responded on February 9, 20I0, and told Miller Energy in
an email copied to Defendant Hall that it could not provide a report showing replacement costs.
82.
Miller Energy also contacted a separate consulting firm and sent it the insurance
broker’s original 2008 insurance report. Late on February 8, 2010, the consulting firm informed
Miller Energy that the insurance study was a “good reference” but did not state “value or
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replacement cost.” The firm offered to conduct its own analysis, but advised that the estimate would
take “approximately 2-3 weeks to complete” and “cost around $15,000-$18,000.”
83.
Upon hearing the news that a new report might take two to three weeks, Alaska
personnel, including Defendant Hall, called Defendant Boyd. Defendant Boyd said that he could not
wait weeks for a new report, but “needed it quickly and he needed to base it on something . . . a
professional had to sign off on it, not us, some third party.” During the call, Defendants Boyd and
Hall decided to rely on numbers in the insurance report as replacement costs, despite Defendant Hall
having been explicitly informed that it could not provide Miller Energy with replacement costs.
84.
With the aim of making the report appear as though it reflected replacement costs,
Defendant Hall provided a subordinate with edits to the 2008 insurance report that significantly
altered its appearance, including changing its name from “Loss Estimates Study” to “Asset
replacement cost study.” The revised report, which Miller Energy provided Sherb, omitted the
insurance broker’s methodology and analysis. As a result, the only numbers reflected in the Revised
Report were the ones provided to the broker by Defendant Miller Energy and its predecessors.
85.
As a result of the foregoing, Miller Energy overvalued the Alaska Assets by more
than $400 million.
86.
As a result of the fraudulent valuation, Miller Energy filed with the SEC financial
reports that materially misstated the value of its assets, including the SEC filings incorporated by
reference in the Registration Statement.
87.
Under the rules and regulations governing the preparation of the Registration
Statement, Miller Energy was required to disclose that the value of the Alaska Assets was materially
overstated in its financial statements.
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88.
The Registration Statement, however, contained no such disclosures. Pursuant to
Item 303 of Regulation S-K (17 C.F.R. §229.303) and the SEC’s related interpretive releases thereto,
issuers are required to disclose events or uncertainties, including any known trends, that have had
or are reasonably likely to cause the registrant’s financial information not to be indicative of future
operating results. This is particularly true for issuers utilizing shelf registration statements, which
require continuous updating and incorporate those continuous disclosures into the registration
statement.
89.
When Plaintiff and other Class members purchased their common stock, the Alaska
Assets were materially overstated in Miller Energy’s financial statements, which materially
understated its true expenses and materially overstated its profits. The adverse events and
uncertainties associated with these declining trends were reasonably likely to have a material impact
on Miller Energy’s profitability, and, therefore, were required to be disclosed in the Registration
Statement.
F.
Miller Energy Writes Down the Value of the Alaska Assets.
90.
The following series of disclosures revealed that the Registration Statement was false
and misleading in that it overstated the value of the Alaska Assets on Miller Energy’s books by
hundreds of millions of dollars.
91.
On December 10, 2014, Miller Energy disclosed that it was taking a $265.3 million
impairment charge on the Alaska Assets, specifically the Redoubt Shoal field. On March 12, 2015,
Miller Energy disclosed that it was taking another $150 million impairment charge on the Alaska
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92.
On April 29, 2015, Miller Energy disclosed that the SEC had notified it that the
agency staff had made a preliminary determination to recommend civil action against Miller Energy
related to its accounting for the 2009 Alaska Asset acquisition.
93.
On May 12, 2015, Miller Energy disclosed that the NYSE had notified Miller Energy
that its shares were subject to de-listing due to its having failed to maintain listing requirements.
94.
On July 14, 2015, Miller Energy included a “going concern” disclosure in its 2014
Annual Report filed with the SEC on Form 10-K.
95.
On July 30, 2015, Miller Energy disclosed that its common stock would be de-listed
from the NYSE.
G.
SEC Enforcement Action Accuses Miller Energy, Boyd, and Hall of
Knowingly Artificially Inflating Value of Alaska Assets.
96.
On August 6, 2015, the SEC initiated civil administrative proceedings against Miller
Energy (the “SEC Enforcement Action”) accusing the Miller Energy and Defendants Boyd and Hall
of knowingly artificially inflating the value of the Alaska Assets acquired in 2009 and then
knowingly misstating Miller Energy’s financial statements for the ensuing five-plus year period
through and including July 2015 when Miller Energy’s stock was de-listed. Non-party Vogt was also
charged in the SEC Enforcement Action.
97.
In its Order Instituting Public Administrative and Cease-and-Desist Proceedings filed
that day, the SEC’s Division of Enforcement alleged that after acquiring the Alaska Assets in late
2009, Miller Energy overstated their value by more than $400 million, boosting Miller Energy’s net
income and total assets. According to the SEC, the allegedly inflated valuation had a significant
impact, turning a penny-stock company into one that was eventually listed on the NYSE, where its
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common stock had reached a 2013 high of nearly $9 per share. In a statement issued that day,
William P. Hicks, Associate Regional Director of the SEC’s Atlanta office, stated in pertinent part
as follows:
“Financial statement information is the cornerstone of investment
decisions. We’ve charged that Miller Energy falsified financial
statement information and grossly overstated the value of its Alaska
assets and that the company’s independent auditor failed to conduct
an audit that complied with professional standards . . . . The SEC will
aggressively prosecute such conduct.”
98.
According to the SEC, Miller Energy had paid $2.25 million and assumed certain
liabilities to purchase the Alaska Assets. It later reported them at a value of $480 million. While
accounting standards required Miller Energy to record the properties at “fair value,” then-CFO
Defendant Boyd allegedly relied on the Reserve Report, which did not reflect fair value for the
assets, and he also was alleged to have double counted $110 million of fixed assets already included
in the Reserve Report. The Reserve Report allegedly contained expense numbers that were
knowingly understated by defendant Hall, then serving as the CEO of Miller Energy’s Alaska
subsidiary, CIE, and as Miller Energy’s COO since July 2013. Defendant Hall was also alleged to
have altered a second report to make it appear as though it reflected an outside party’s estimate of
99.
The SEC alleged that the fiscal 2010 audit of Miller Energy’s financial statements
was deficient due to the failure of non-party Vogt, the Sherb partner in charge of the Miller Energy
audits, who issued an unqualified opinion of Miller Energy’s 2010 annual report and was alleged to
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have falsely stated that the audit was conducted in accordance with the standards of the Public
Company Accounting Oversight Board and that Miller Energy's financial statements were presented
fairly and conformed with GAAP.
100.
As the partner in charge of the fiscal year 2010 Miller Energy audit, Vogt failed to
perform the 2010 Miller Energy audit in accordance with PCAOB Auditing Standards. These
deficiencies included, among other items, failing properly to audit the fair value measurements, use
the work of a specialist, plan, staff and supervise the audit, obtain sufficient competent audit
evidence, exercise due care and professional skepticism, and perform required audit testing.
101.
Vogt’s failures related to the auditing of the Alaska Asset acquisition. Despite the
materiality of the transaction on Miller Energy’s financial statements, Vogt failed to adequately test
the valuation of the assets and the related calculation of the gain on acquisition. Instead, he
inappropriately relied on the aforementioned reserve report and the so-called asset replacement cost
study to justify Miller Energy’s $480 million valuation of the Alaska Assets. Vogt also erred as
follows:
# Vogt did not perform the necessary procedures to enable him to use
the findings of the reserve report.
# Vogt knew at the time of the accounting for the acquisition that
Miller Energy had insufficient accounting staff and that any
accounting was suspect. In a December 22, 2009 email to Miller
Energy’s senior management, Vogt indicated that he believed the
Miller Energy’s accounting staff was deficient, and that Defendant
Boyd cut too many corners on the accounting documentation.
Furthermore, Vogt stated that Hall’s modeling of cash flows and
expenses was “concerning” because there was no one taking a
detailed look at his estimates.
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# Vogt also knew that the reserve report used suspect data and was
completed on what he described as a “rushed basis,” as Miller
Energy “had very little time if none for any true due diligence of
much depth into what [it] purchased.”
# Vogt, on behalf of Sherb, issued an audit report containing an
unqualified opinion for use in Miller Energy’s 2010 Form 10-K that
stated falsely that the audit had been conducted in accordance with
the PCAOB’s standards and that Miller Energy’s financial statements
were presented fairly, in all material respects, in conformity with
GAAP.
# While Vogt performed some testing on the data used to create the
Reserve Report, he failed to test key elements such as the discount
rate utilized, the risk weighting of the probable and possible reserves,
estimated oil prices, and operating and capital expenses. Vogt also
never properly considered the relevancy of the reserve report,
improperly relying exclusively on the report since the specialist, a
petroleum engineer, was not engaged to estimate a fair valuation, as
expressly indicated in the report. Nor did he consider the consistency
of the evidence in light of the other evidence, such as Miller Energy’s
actual purchase price of the assets (reported at less than $5 million),
and the fact that the assets had previously been abandoned during a
bankruptcy proceeding. While Vogt and his staff reviewed some
aspects of the specialist’s valuation model, they failed to sufficiently
review and evaluate the reasonableness of assumptions such as the
discount rate, risk weighting of certain reserves, future oil prices, and
operating and capital expenses.
# Vogt also failed to obtain sufficient audit evidence to support the
fair value of the fixed assets.
# Vogt did not properly consider the petroleum engineer’s experience
in fair valuation of assets, which was nonexistent.
# Vogt also failed to obtain an understanding of the objectives and
scope and intended purpose of the petroleum engineer’s engagement
for Miller Energy, which was to produce a reserve report for reserve
disclosure purposes, not a fair valuation of acquired assets.
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# Vogt, despite alerting Boyd and Miller Energy’s then CEO of the
lack of sufficient review and inquiry, failed to adequately test the
operating and capital expense estimates provided to the specialist by
Miller Energy, and took few audit steps, other than inquiry, to assess
the reasonableness of the expense estimates.
# Vogt performed no steps to evaluate the qualifications of the
authors of the asset replacement cost study, or understand the
methods or assumptions they used or the appropriateness of using the
Asset replacement cost study to support the valuation of the fixed
assets at $110 million.
# Vogt failed to exercise due professional care regarding the audit of
the Alaska acquisition valuation during the 2010 Miller Energy audit.
Miller Energy had valued the assets purchased for a few million
dollars at $480 million and had recorded a corresponding $277
million bargain purchase gain. Given the size of the transaction, Vogt
should have focused more closely on the diligence required to gather
and objectively evaluate the evidence supporting the fair value of the
oil and gas properties acquired to comply with ASC 805 and common
industry practice. He failed to adequately consider the competency
and sufficiency of the Reserve Report as evidence of the fair value of
the acquired oil and gas properties. Vogt also performed limited
procedures and failed to sufficiently evaluate the evidentiary value of
the asset replacement cost study, including failing to understand the
source of the fixed asset values therein and the competency of the
report authors.
# Vogt’s audit program to test Miller Energy’s fair value assessment
of the Alaska acquisition was insufficient. The planned procedures
largely consisted of verifying the credentials of a specialist.
# Vogt’s supervision of his staff was also deficient. Vogt spent little
time on-site while the field work was conducted, and he knew the
staff auditors had insufficient oil and gas industry experience.
# Vogt’s knowledge of the magnitude of the Alaska acquisition, and
his knowledge of the inadequacy of Miller Energy’s accounting
personnel, including Boyd, should have resulted in increased scrutiny
of Miller Energy’s valuation of the Alaska Assets. Yet Vogt assigned
crucial audit procedures to staff who lacked appropriate industry and
auditing experience, and did not sufficiently supervise their work.
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# Vogt over-relied on a reserve report and the asset replacement cost
study, and took limited to no additional audit steps to test that audit
evidence, Vogt failed to obtain sufficient evidence for the fair value
of the Alaska acquisition.
102.
As a result of the forgoing misconduct, the SEC alleged that:
# Miller Energy violated §l7(a) of the Securities Act, § 10(b) of the
Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5
thereunder, which prohibit fraudulent conduct in the offer or sale of
securities and in connection with the purchase or sale of securities;
# Defendant Boyd willfully aided and abetted and caused, and
defendant Hall caused, Miller Energy’s violations of § 17(a) of the
Securities Act, § 10(b) of the Exchange Act and Rule 10b-5
thereunder;
# Defendant Boyd willfully violated, and defendant Hall violated, §
17(a) of the Securities Act, § 10(b) of the Exchange Act and Rule
10b-5 thereunder, which prohibit fraudulent conduct in the offer or
sale of securities and in connection with the purchase or sale of
securities;
# Miller Energy violated §13(a) of the Exchange Act and Rules 13a-l
, 13a- 11 and 13a-13 thereunder, which require that every issuer of a
security registered pursuant to §12 of the Exchange Act file with the
SEC, among other things, annual, current, and quarterly reports as the
SEC may require;
# Defendant Boyd willfully aided and abetted and caused, and
defendant Hall caused, Miller Energy’s violations of §13(a) of the
Exchange Act and Rules 13a-l, 13a-11 and 13a-13 thereunder;
# Miller Energy violated § 13(b)(2)(A) of the Exchange Act, which
requires reporting companies to make and keep books, records and
accounts which, in reasonable detail, accurately and fairly reflect
their transactions and dispositions of their assets;
# Defendant Boyd willfully aided and abetted and caused, and
Defendant Hall caused, Miller Energy’s violations of § 13(b)(2)(A)
of the Exchange Act;
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# Miller Energy violated § 13(b)(2)(B) of the Exchange Act, which
requires all reporting companies to devise and maintain a system of
internal accounting controls sufficient to provide reasonable
assurances that transactions are recorded as necessary to permit
preparation of financial statements m accordance with GAAP;
# Defendant Boyd willfully aided and abetted and caused, and
Defendant Hall caused, Miller Energy’s violations of § 13(b)(2)(B)
of the Exchange Act;
# Defendant Boyd willfully violated, and defendant Hall violated, §
13(b)(5) of the Exchange Act, which prohibits any person from
knowingly circumventing or knowingly failing to implement a system
of internal accounting controls or knowingly falsifying any book,
record, or account described in § 13(b)(2) of the Exchange Act;
# Miller Energy violated Rule 12b-20 under the Exchange Act which
requires that, in addition to the information expressly required to be
included in a statement or report filed with the SEC, there shall be
added such further material information, if any, as may be necessary
to make the required statements, in light of the circumstances under
which they are made not misleading;
# Defendant Boyd willfully aided and abetted and caused, and
Defendant Hall caused, Miller Energy’s violations of Rule 12b-20
under the Exchange Act; and
# Defendant Boyd willfully violated Rule 13a-14 of the Exchange
Act, which requires that an issuer's principal executive and principal
financial officers certify each periodic report.
103.
The SEC sought and obtained, among other things, cease-and-desist orders, civil
monetary penalties, and return of alleged ill-gotten gains from Defendants Miller, Boyd and Hall.
104.
During August 2015, various of Miller Energy’s creditors called for Miller Energy
to file bankruptcy.
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H.
Miller Energy Settles With SEC, Files for Bankruptcy Protection, and
Sees Shares De-listed.
105.
On August 20, 2015, Miller Energy disclosed that it had settled with the SEC,
agreeing to pay a $5 million fine and to restate all periodic financial reports back to 2010. Miller
Energy’s restatement of its previously reported financial results was an admission that those results
were false when filed.11
106.
On October 1, 2015, Miller Energy filed for protection under Chapter 11 of the
federal bankruptcy statutes, citing in large part the filing of the SEC Enforcement Action, which
Miller Energy’s senior executives stated had torpedoed its ability to obtain $165 million in outside
financing, along with the filing of an involuntary bankruptcy petition against its subsidiary CIE in
August 2015 by creditors Baker Hughes Oilfield Operations, Inc. and Schlumberger Technology
Corp., with total claims of $2.79 million, which filing Miller Energy said was precipitated by the
SEC Enforcement Action.
I.
Allegations Against Outside Independent Auditor KPMG
107.
As part of Miller Energy’s bid to be listed on the NYSE, Miller Energy dismissed the
Sherb firm as its auditor and retained the services of KPMG, LLP (“KPMG”) to audit its financial
statements for the fiscal year ended April 30, 2011.12
11As part of Miller Energy’s settlement with the SEC, Miller Energy agreed to restate and correct
all of these previously issued reports and financial statements. That has not been done.
12The valuation errors identified by the SEC in its August 6, 2015 action (for which Sherb was
responsible), ¶ 101, infra, apply equally to KPMG.
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108.
KPMG had an opportunity to protect Plaintiff and other shareholders and the
investment community by correcting Miller Energy’s rampant misstatements of previous years with
the re-statement. However, KPMG quickly became even more culpable than the defunct Sherb firm.
109.
In its August 6, 2015 Order Instituting Public Administrative and Cease-and Desist
Proceedings, the SEC stated that all quarterly and annual filings with the SEC from the third quarter
2010 through third quarter 2015 – many given unqualified approval by KPMG – were based on
fraudulent valuations and material misstatements of the assets and net income of Miller Energy.
110.
In fact, the fraudulent valuations rendered no fewer than 15 Form 8-K’s filed between
March 2010 through at least December 201413 materially false and misleading.14 Those filings – all
of which passed audit scrutiny by Sherb and then KPMG – were relied upon by the public.
13KPMG was the outside auditor for the majority of that 57-month period.
14Specifically, according to the SEC, as a result of the fraudulent valuation, Miller Energy filed
financial reports that materially misstated the value of its assets, as follows:
# Forms 10-Q for the third quarter of fiscal year 2010 and all three
quarters of fiscal years 2011 through 2015;
# Forms 10-K for fiscal years ended 2010 through 2014;
# the Form S-1 filed on August 8, 2010;
# the Forms S-3 filed on September 6, 2012 and October 5, 2012;
and
# prospectuses filed between August 25, 2010 through August 21,
2014 pursuant to Rule 424.
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112.
The fraudulent valuation also resulted in Miller Energy filing financial reports with
the SEC that materially misstated its net income.15
113.
Miller Energy’s prior year’s audited financial statements had been audited by Sherb.
However, as part of its review of prior financial statements, KPMG required that Miller Energy re-
state and correct previously issued quarterly reports and filings with the SEC and its shareholders,
including the previously audited year-end April 30, 2010 financial statements in which the fraudulent
and inflated value of the bargain purchase of the Alaska oil properties was initially recorded. As
reported in the April 30, 2011 Form 10-K, KPMG’s reinstatement and correction of earlier certified
financial statements had the net impact of decreasing Miller Energy’s total assets by only
$110,184.00, actually increasing Miller Energy’s net income for the year by $1,487,386 to
$250,940,566.00.
114.
Significantly, there was no revision or alteration to the previously fraudulent reported
gain on acquisition of $461,111,924. In fact the only thing KPMG required Miller Energy to do was
to reclassify $107,585,556 of the $110,000,000 double-count of the equipment acquired in the
15Those reports included:
# Forms 10-Q for the third quarter of fiscal year 2010, all three
quarters of fiscal 2011, and the first two quarter of 2012;
# Forms 10-K for fiscal years ended 2010 through 2012;
# the Form S-1 filed on August 8, 2010;
# the Forms S-3 filed on September 6, 2012 and October 5, 2012;
and
# prospectus supplements filed between August 25, 2010 through
August 21, 2014 pursuant to Rule 424.
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Alaskan purchase to net oil and gas properties. In effect, KPMG’s work resulted in an actual
increase in the value of the already grossly inflated value of the Alaskan oil and gas reserves by still
another 29%.
115.
KPMG, audited, certified and issued a “clean opinion” of Miller Energy’s financial
statements that were included in SEC Form 10-K for the years ended April 30, 2011, 2012, 2013,
and 2014.16 The fraudulent valuations of the Alaska Assets rendered by Miller Energy during those
periods was never corrected.
116.
On July 29, 2011, instead of correcting the over-valuations and misstatements
associated with the Alaska Assets, KPMG restated and re-certified the December 2009 Cook Inlet
purchase. On that date, KPMG announced the results of its audit of the consolidated balance sheet
of Miller Energy and its subsidiaries as of April 30, 2011, along with the related consolidated
statements of operations, stockholders' equity, and cash flows for the previous year. The KPMG
audit purportedly examined the balance sheets and statements to determine whether the financial
statements were free of material misstatement, assessed the accounting principles used and
significant estimates made by Miller Energy’s management, and evaluated Miller Energy’s overall
financial statement presentation. KPMG concluded that the consolidated financial statements
“present fairly, in all material respects, the financial position of Miller Energy as of April 30, 2011,
and the results of their operations and cash flows for the year ended April 30, 2011, in conformity
with GAAP.
16KPMG’s audit of the financial statements of Miller Energy for the year ended April 30, 2015
has never been issued.
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117.
KPMG’s July 15, 2013 audit report covering the three years ending April 30, 2013.
KPMG concluded that its audit confirmed that Miller Energy’s financial statements present fairly
the financial position of Miller Energy’s financial status in conformity with U.S. generally accepted
accounting principles. However, KPMG’s audit of Miller Energy’s internal control over financial
reporting expressed an adverse opinion on the effectiveness of Miller Energy's internal control over
financial reporting.
118.
KPMG reported no going concern issues and no impairment charges for the year
ending April 30, 2014. Miller Energy lost $42,000,000 in 2014 and lesser amounts in 2013 and
119.
Miller Energy’s Form 10-Q, filed on December 10, 2014 for the second quarter
ending October 31, 2014, was the first indication noted by Miller Energy that there was an issue
related to carrying value of their oil and gas valuation. They took an Impairment Charge citing the
decrease in global oil and gas prices. During the third quarter ended January 31, 2015, for the Form
10-Q filed March 12, 2015, Miller Energy took yet another Impairment Charge citing the continuing
decrease in global oil and gas prices. As of January 31, 2015, the carrying value of net oil and gas
properties on Miller Energy’s financial statements had been reduced from $ 644,827,000 on April
30, 2014 to $189,720,000 on January 31, 2015. There are no other financial statements available and
issued by Miller Energy. There were no indications by either Miller Energy nor KPMG that the
valuation changes were related to a fraudulent and or material misstatement.
120.
KPMG has never withdrawn, changed or alerted the SEC or the Company
shareholders that their earlier reports were in error, even after the SEC investigation said that the
financial statements of Miller Energy were fraudulent and materially misstated.
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121.
KPMG’s accounting practices were so deficient that their audits of Miller Energy’s
financial statements amounted to no audits at all, or at least an egregious refusal to see the obvious
and to investigate the doubtful. KPMG’s accounting judgments, described herein, were such that
no reasonable accountant would have made the same decisions if confronted with the same facts.
KPMG disregarded “red flags” and failed to adhere to generally accepted accounting principles and
generally accepted auditing standards. These “red flags,” identified specifically herein, should have
placed a reasonable auditor on notice that Miller Energy was engaged in wrongdoing to the detriment
of its investors.
122.
By certifying the public reports that collectively depicted Miller Energy’s financial
status, KPMG assumed a public responsibility transcending any employment relationship with Miller
Energy. KPMG should not have been content with Miller Energy’s representations that its financial
statements were adequate, as the KPMG was ethically and professionally obligated to ascertain for
itself as far as possible whether Miller Energy’s financial statements had been accurately stated.
V. CLASS ACTION ALLEGATIONS
123.
Plaintiff brings this action both on behalf of himself and as a class action pursuant
to Federal Rules of Civil Procedure 23(a) and (b) (3), on behalf of the following class (the “Class”):
All those who purchased Miller Energy common shares traceable to
the December 6, 2012 Registration Statement (the “Class”).
Excluded from the Class are defendants and their families, the
officers and directors and affiliates of defendants, 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, defendants’ parent
companies, subsidiaries, and affiliates, any co-conspirators, all
governmental entities, and any judges or justices assigned to hear any
aspect of this action.
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124.
Plaintiff does not know the exact number of Class members because such information
is in the exclusive control of Defendants. Plaintiff believes that, due to the nature of the trade and
commerce involved, there are most likely hundreds of Class members, geographically dispersed
throughout the United States such that joinder of all Class members is impracticable. Record owners
and other members of the Class may be identified from records maintained by Miller Energy 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.
125.
Plaintiff’s claims are typical of the claims of the Class in that all Class members were
damaged by the same wrongful conduct of Defendants and their co-conspirators as alleged herein,
and the relief sought is common to the class.
126.
Numerous questions of law or fact arise from Defendants’ conduct that is common
to the Class, including but not limited to:
(a)
whether Defendants violated the Securities Act;
(b)
whether the Registration Statement was negligently prepared
and contained inaccurate statements of material fact and
omitted material information required to be stated therein; and
(c)
to what extent the members of the Class have sustained
damages and the proper measure of damages.
127.
These and other questions of law and fact are common to the Class and predominate
over any questions affecting only individual Class members.
128.
Plaintiff will fairly and adequately represent the interests of the Class in that he has
no conflict with any other members of the Class. Furthermore, Plaintiff has retained competent
counsel experienced in class action and other complex litigation.
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129.
Defendants have acted on grounds generally applicable to the Class, thereby making
final injunctive relief appropriate with respect to the Class as a whole.
130.
This class action is superior to the alternatives, if any, for the fair and efficient
adjudication of this controversy. Prosecution as a class action will eliminate the possibility of
repetitive litigation. There will be no material difficulty in the management of this action as a class
131.
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.
VI. CAUSES OF ACTION
COUNT ONE
Violation of §11 of the Securities Act, 15 U.S.C. § 77k
(Against All Defendants, Except Boyd)
132.
Plaintiff incorporates by reference and re-alleges each allegation contained above as
though fully set forth herein.
133.
This Cause of Action is brought pursuant to § 11 of the Securities Act, 15 U.S.C.
§77k, on behalf of the Class, against all Defendants except Boyd.
134.
The Registration Statement was inaccurate and misleading, contained untrue
statements of material facts, omitted to state other facts necessary in order to make the statements
made not misleading, and omitted to state material facts required to be stated therein.
135.
Defendants named in the Cause of Action are strictly liable to Plaintiff and the Class
for the misstatements and omissions.
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136.
None of the Defendants named herein made a reasonable investigation or possessed
reasonable grounds for the belief that the statements contained in the Registration Statement were
true and without omissions of any material facts and were not misleading.
137.
By reason of the conduct herein alleged, each of these Defendants violated, and/or
controlled a person who violated, §11 of the Securities Act.
138.
Plaintiff acquired Miller Energy common shares traceable to the September 6, 2012
Registration Statement.
139.
Plaintiff and the Class have sustained damages.
140.
At the time of their purchases of Miller Energy common shares, Plaintiff and other
members of the Class were without knowledge of the facts concerning the wrongful conduct alleged
herein and could not have reasonably discovered those facts prior to the disclosures herein. Less
than one year has elapsed from the time that Plaintiff discovered or reasonably could have discovered
the facts upon which this Complaint is based to the time that Plaintiff commenced this action. Less
than three years has elapsed between the time that the securities upon which this Cause of Action
is brought were offered to the public and the time Plaintiff commenced this action.
COUNT TWO
Violation of §15 of the Securities Act
(Against the Individual Defendants)
141.
Plaintiff incorporates by reference and re-alleges each allegation contained above as
though fully set forth herein.
142.
This Cause of Action is brought pursuant to §15 of the Securities Act against the
Individual Defendants.
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143.
The Individual Defendants each were control persons of Miller Energy by virtue of
their positions as directors and/or senior officers of Miller Energy. The Individual Defendants each
had a series of direct and/or indirect business and/or personal relationships with other directors
and/or officers and/or major shareholders of Miller Energy. Miller Energy controlled the Individual
Defendants and all of Miller Energy’s employees.
144.
The Individual Defendants each were culpable participants in the violations of § 11
of the Securities Act alleged in the Cause of Action above, based on their having signed or
authorized the signing of the Registration Statement and having otherwise participated in the
process..
COUNT THREE
Breach of Fiduciary Duty
(Against the Individual Defendants)
145.
Plaintiff incorporates by reference and re-alleges each allegation contained above as
though fully set forth herein.
146.
The Individual Defendants owed and owe Plaintiff and other Miller Energy
shareholders the highest fiduciary obligations of good faith, fair dealing, loyalty, and due care in
managing Miller Energy’s affairs.
147.
The Individual Defendants, individually and collectively, violated and breached their
fiduciary duties of care, loyalty, reasonable inquiry, oversight, good faith, and supervision by:
(a) approving and subscribing knowingly false and misleading
financial statements filed with the SEC;
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(b) allowing Miller Energy to maintain insufficient internal controls,
which, in turn, caused Miller Energy to misstate material facts about
the Alaska Assets to the investing public, and file financial statements
that violated statutory requirements and GAAP; and
(c) participating in the continued obfuscation of the actual facts
regarding the health of Miller Energy’s business and/or ignoring
obfuscation by management, knowing full well that Miller Energy's
open and significant control deficiencies meant that Miller Energy
was unable to accurately gauge the nature of its performance.
148.
As a direct and proximate result of the Individual Defendants’ failure to perform their
fiduciary obligations, Plaintiff and other Class members sustained significant damages.
COUNT FOUR
Violation of § 10(b) of the Securities Exchange Act of 1934
(Against KPMG)
149.
Plaintiff incorporates by reference and re-alleges each allegation contained above as
though fully set forth herein.
150.
This Count is asserted on behalf of purchasers of Miller Energy common stock as a
result of KPMG’s unqualified audit reports rendered on Miller Energy’s financial statements for the
years ended April 30, 2011 through 2014.
151.
KPMG, alone, and acting in concert with others, directly and indirectly, by the use
and means of instrumentalities of interstate commerce and of the mails, engaged and participated in
a continuous course of conduct to conceal adverse material information about Miller Energy which
resulted in misstatements and omissions of material facts in Miller Energy’s financial reporting.
KPMG 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 that included the
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making of, or participation in the making of, untrue and misleading statements of material facts and
omitting to state material facts necessary in order to make the statements made about Miller Energy
not misleading.
152.
Specifically, KPMG knew or was reckless in not knowing that Miller Energy’s
reported annual financial results for fiscal years ended April 30, 2011 through April 30, 2014, which
were disseminated to the investing public, were materially overstated and were not presented in
accordance with GAAP; and that the audits were not performed in accordance with GAAS and,
therefore, KPMG’s unqualified audit reports were materially false and misleading.
153.
As KPMG knew, or should have known, Miller Energy’s financial statements for the
relevant period were materially false and misleading. KPMG failed to perform audits and reviews
in accordance with accepted accounting principles and procedures. KPMG
(a) failed to meet professional obligations to obtain sufficient
competent evidential matter necessary to satisfy an auditor that
financial statements fairly presented Miller Energy’s financial
condition in all material respects;
(b) misrepresented that audits were performed in accordance with
generally accepted auditing standards and were complete when they
issued unqualified opinions on Miller Energy’s financial statements
even though KPMG failed to exercise professional care and
skepticism and knew, or were reckless in not knowing, that Miller
Energy’s financial statements failed to comply with generally
accepted accounting principles and were otherwise misleading and
misstated; and
(c) failed to properly investigate or test Miller Energy’s accounting
practices, recorded transactions and controls and were easily satisfied
and untested, self-serving, management explanations and
representations with respect thereto, turning a blind eye to apparent
discrepancies and deficiencies.
-46-
153.
As a result of KPMG’s deceptive practices and false and misleading statements and
omissions in its unqualified audit reports, the market price of Miller Energy’s common stock was
artificially inflated throughout the Class Period. Plaintiff and other members of the Class were
ignorant of the fact that the market price of Miller Energy’s publicly-traded securities was
artificially-inflated during the Class Period. KPMG relied, directly or indirectly, on the false and
misleading statements made by Miller Energy, or upon the integrity of the market in which the
securities trade, and/or on the absence of material adverse information that was known to or
recklessly disregarded by Miller Energy but not disclosed in public statements by Miller Energy
during the Class Period. As a result, Plaintiff and other members of the Class acquired Miller
Energy securities during the Class Period at artificially-high prices and were damaged thereby.
154.
All quarterly and annual filings by Miller Energy with the SEC (on which the public
relies) from the third quarter, 2010, through the third quarter, 2015, were not only based on
fraudulent valuations, but also materially-misstated the assets and net income of Miller Energy. In
addition, the fraudulent valuations rendered no fewer than fifteen (15) Form 8-K’s filed between
March 2010 through at least December 2014 materially false and misleading. KPMG was the
outside independent auditor for most of that period.
155.
KPMG’s failure to detect these discrepancies and irregularities, and to take reasonable
actions to correct them, demonstrates an extreme departure from the standards of ordinary care
common to auditors, presenting an obvious danger of misleading investors that was known to KPMG
or was so obvious that the inference that KPMG knew of the danger is inescapable.
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156.
Had KPMG not violated generally accepted accounting principles and generally
accepted auditing standards, it would have detected the fraudulent valuations and material
misstatements in Miller Energy’s 2011-2014 financial statements.
157.
KPMG acted with knowledge or reckless disregard as to (a) the false and misleading
nature of the certifications it provided, (b) the false and misleading nature of the financial statements
and its failure to conduct proper audit tests and examinations of the books, records and financial
statements of Miller Energy, and (c) the false representations that the financial statements had been
properly audited in accordance with generally accepted auditing standards.
158.
As detailed herein, Miller Energy’s disclosures with respect to its accounting practices
were woefully inadequate. In violation of generally accepted auditing standards, KPMG failed to
expand the scope of its audits in light of the fact that it actually knew about many of these issues or
recklessly ignored the many inconsistencies, lack of documentation and red flags that would have
put it on notice of the massive over-valuation and misstatements.
159.
In accordance with generally accepted auditing standards, KPMG was required to
consider whether Miller Energy’s disclosures accompanying its financial statements were adequate.
SAS No. 32, as set forth in AU §431.02-03.
160.
In accordance with SAS No. 1 (AU § 230) and SAS No. 82 (effective Dec. 15, 1997)
KPMG had “a responsibility to plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether caused by error or fraud.”
If there is a material misstatement, whether by fraud or mistake, the auditors’ procedures need to be
designed and performed to detect it. Further, the auditor is required to view the audit evidence with
professional skepticism.
-48-
161.
KPMG knowingly or recklessly failed to obtain reasonable assurances about whether
Miller Energy’s financial statements were free of material misstatements caused by fraud. KPMG
closed its eyes to the massive fraud detailed above. Instead, the fraud was detected by the SEC.
162.
One of KPMG’s responsibilities as Miller Energy’s independent auditor was to obtain
“[s]ufficient competent evidential matter . . . to afford a reasonable basis for an opinion regarding
the financial statements under audit” as to the fairness with which they present, in all material
respects, financial position, results of operations, and its cash flows in conformity with generally
accepted accounting principles.” AU §§ 150,110.
163.
SAS No. 85, Client Representations, and AU § 333, Client Representations, state that
representations from management are not a substitute for the application of these auditing procedures
necessary to afford a reasonable basis for an opinion regarding the financial statements under audit.
164.
In violation of GAAS, and contrary to the representations in its report on Miller
Energy’s financial statements, KPMG did not obtain sufficient, competent, evidential matter to
support Miller Energy’s assertions regarding the valuation of the Alaska Assets. Moreover, the
auditors deliberately or recklessly ignored information indicating that Miller Energy’s financial
statements did not “present fairly” the Miller Energy’s true financial position.
165.
In carrying out its engagement to audit the financial statements of Miller Energy and
in rendering its unqualified report on those financial statements, KPMG violated, among others, the
following generally accepted auditing standards:
(a) The second general standard that the auditors should maintain an
independence in mental attitude in all matters relating to the
engagement;
-49-
(b) The third general standard that due professional care is to be
exercised in the performance of the audit and preparation of the
report;
(c) The second standard of field work that the auditor should obtain
a sufficient understanding of internal controls so as to plan the audit
and determine the nature, timing and extent of tests to be performed;
and
(d) The third standard of field work that sufficient, competent,
evidential matter is to be obtained to afford a reasonable basis for an
opinion on the financial statements under audit.
166.
KPMG’s conduct represents an extreme departure from the professional standards
that should have been applied. SAS No. 80, Consideration of Fraud in a Financial Statement Audit,
declares that “[d]ue professional care requires the auditor to exercise professional skepticism – that
is, an attitude that includes a questioning mind and critical assessment of audit evidence.” Had the
auditors exercised due professional care and professional skepticism, they could have determined
that Miller Energy’s valuation of the Alaska Assets were based on fiction and that Miller Energy’s
books and records were consistently falsified to conceal the true value of the Alaska Assets.
167.
KPMG knew that its reports would be relied upon by present and potential investors
in Miller Energy securities.
168.
By virtue of the foregoing, KPMG violated Section 10(b) of the Exchange Act and
Rule 10b-5 promulgated thereunder.
169.
For the reasons set forth herein, KPMG is liable in whole or in part for the damages
suffered by Plaintiff and Class members.
-50-
VII. JURY TRIAL DEMAND
170.
Pursuant to Federal Rule of Civil Procedure 38(b), Plaintiff demands a trial by jury
of all of the claims asserted in this Complaint so triable.
VIII. PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays that the Court enter judgment on its behalf and on behalf of
the Class herein, adjudging and decreeing that:
A.
This action may proceed as a class action, with Plaintiff as the designated Class
representative (and where appropriate, subclass representative) and Plaintiff’s counsel designated
as Interim Class Counsel;
B.
Plaintiff and the members of the Class recover damages sustained by them, as
provided by law, and that a judgment in favor of Plaintiff and the Class be entered against the
Defendants, jointly and severally, in an amount permitted pursuant to such law;
C.
Defendants, their subsidiaries, affiliates, successors, transferees, assignees, and the
respective officers, directors, partners, agents, and employees thereof and all other persons acting
or claiming to act on their behalf be permanently enjoined and restrained from continuing and
maintaining the conduct alleged herein;
D.
Plaintiff and members of the Class be awarded pre-judgment and post-judgment
interest, and that such interest be awarded at the highest legal rate from and after the date of service
of the initial complaint in this action;
E.
Plaintiff and members of the Class recover their costs of this suit, including
reasonable attorneys’ fees as provided by law; and
-51-
F.
Plaintiff and members of the Class receive such other and further relief as may be just
and proper.
Respectfully submitted, this 14th day of March, 2016.
/s/ Gordon Ball
Gordon Ball
TN BPR#001135
GORDON BALL PLLC
Ste. 600, 550 Main Street
Knoxville, TN 37902
Tel: (865) 525-7028
Fax: (865) 525-4679
Email: [email protected]
Counsel for Plaintiff
-52-
| securities |
TdWAD4cBD5gMZwczlH1B | LAW OFFICES OF TODD M. FRIEDMAN, P.C.
Todd M. Friedman (SBN 216752)
Adrian R. Bacon (SBN 280332)
Meghan E. George (SBN 274525)
324 S. Beverly Dr., #725
Beverly Hills, CA 90212
Phone: 877-206-4741
Fax: 866-633-0228
[email protected]
[email protected]
[email protected]
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
STEPHANIE ROBINSON, individually
and on behalf of all others similarly
situated,
Plaintiff,
vs.
ACCOUNT DISCOVERY SYSTEMS,
LLC, and DOES 1-10, inclusive, and
each of them,
Defendants.
Case No.
CLASS ACTION
COMPLAINT FOR VIOLATIONS
OF:
1.
NEGLIGENT VIOLATIONS
OF THE TELEPHONE
CONSUMER PROTECTION
ACT [47 U.S.C. §227 ET
SEQ.]
2.
WILLFUL VIOLATIONS
OF THE TELEPHONE
CONSUMER PROTECTION
ACT [47 U.S.C. §227 ET
SEQ.]
3.
VIOLATIONS OF THE
ROSENTHAL FAIR DEBT
COLLECTION PRACTICES
ACT [CAL. CIV. CODE
§1788 ET SEQ.]
DEMAND FOR JURY TRIAL
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Plaintiff STEPHANIE ROBINSON (“Plaintiff”), individually and on
behalf of all others similarly situated, alleges the following against Defendant
ACCOUNT DISCOVERY SYSTEMS, LLC 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 ACCOUNT DISCOVERY
SYSTEMS, LLC, (“Defendant”), in negligently, knowingly, and/or willfully
contacting Plaintiff on Plaintiff’s cellular telephone in violation of the Telephone
Consumer Protection Act, 47. U.S.C. § 227 et seq. (“TCPA”), thereby invading
Plaintiff’s privacy. Ancillary to the claims above, Plaintiff further alleges claims
for Defendant’s violations of the Rosenthal Fair Debt Collection Practices Act
(“RFDCPA”), which prohibits debt collectors from engaging in abusive,
deceptive, and unfair practices.
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 headquartered in New York. Plaintiff also seeks up to $1,500.00 in
damages for each call in violation of the TCPA, which, when aggregated among a
proposed class in the thousands, exceeds the $5,000,000.00 threshold for federal
court jurisdiction. Therefore, both diversity jurisdiction and the damages
threshold under the Class Action Fairness Act of 2005 (“CAFA”) are present, and
this Court has jurisdiction.
3. Venue is proper in the United States District Court for the Central
District of California pursuant to 18 U.S.C. 1391(b) and 18 U.S.C. § 1441(a)
because Defendant does business within the state of California and the county of
Riverside.
PARTIES
4.
Plaintiff, STEPHANIE ROBINSON (“Plaintiff”), is a natural person
residing in Perris, California and is a “person” as defined by 47 U.S.C. § 153 (39).
5.
Defendant,
ACCOUNT
DISCOVERY
SYSTEMS,
LLC,
(“Defendant”), is a leader in the debt collection business, and is a “person” as
defined by 47 U.S.C. § 153 (39).
6.
The above named Defendant, and its subsidiaries and agents, are
collectively referred to as “Defendants.” The true names and capacities of the
Defendants sued herein as DOE DEFENDANTS 1 through 10, inclusive, are
currently unknown to Plaintiff, who therefore sues such Defendants by fictitious
names. Each of the Defendants designated herein as a DOE is legally responsible
for the unlawful acts alleged herein. Plaintiff will seek leave of Court to amend
the Complaint to reflect the true names and capacities of the DOE Defendants
when such identities become known.
7.
Plaintiff is informed and believes that at all relevant times, each and
every Defendant was acting as an agent and/or employee of each of the other
Defendants and was acting within the course and scope of said agency and/or
employment with the full knowledge and consent of each of the other Defendants.
Plaintiff is informed and believes that each of the acts and/or omissions
complained of herein was made known to, and ratified by, each of the other
Defendants.
FACTUAL ALLEGATIONS
8.
Beginning in or around October of 2015, Defendant contacted
Plaintiff on her cellular telephone, (951) 490-1772, in an attempt to collect an
alleged outstanding.
9.
Since October of 2015, Defendant has placed numerous calls and left
numerous messages to Plaintiff’s cellular telephone seeking to collect the alleged
10.
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 collect the debt
allegedly owed by her parents.
11.
Defendant’s calls constituted calls that were not for emergency
purposes as defined by 47 U.S.C. § 227(b)(1)(A).
12.
Defendant’s calls were placed to telephone number assigned to a
cellular telephone service for which Plaintiff incurs a charge for incoming calls
pursuant to 47 U.S.C. § 227(b)(1).
13.
On several occasions, Plaintiff answered Defendant’s telephone call
and informed an agent for Defendant that Defendant must cease placing such
calls to Plaintiff, including one such instance on October 20, 2015.
14.
Despite receiving this information on numerous occasions,
Defendant continued to place calls to Plaintiff, on her cellular telephone, using an
“automated telephone dialing system.”
15.
During all relevant times, Defendant did not possess Plaintiff’s
“prior express consent” to receive calls using an automatic telephone dialing
system or an artificial or prerecorded voice on his cellular telephone pursuant to
47 U.S.C. § 227(b)(1)(A). Furthermore, Plaintiff orally revoked any and all
consent to be contacted using an automated telephone dialing system, to the
extent any ever existed.
16.
Defendant called Plaintiff on her cellular telephone with enough
frequency to constitute harassment and a clear invasion of privacy under the
circumstance.
17.
§ 1788.17 of the RFDCPA mandates that every debt collector
collecting or attempting to collect a consumer debt shall comply with the
provisions of Sections 1692b to 1692j, inclusive of, and shall be subject to the
remedies in Section 1692k or, Title 15 of the United States Code statutory
regulations contained within the federal Fair Debt Collection Practices Act
(“FDCPA”), 15 U.S.C. §1692d, and §1692d(5).
18.
Defendant’s conduct violated the RFDCPA in multiple ways,
including but not limited to:
a) Causing Plaintiff’s telephone to ring repeatedly or
continuously with intent to harass, annoy or abuse
Plaintiff (15 U.S.C. §1692d(5));
b) Communicating with Plaintiff at times or places which
were known or should have been known to be
inconvenient for Plaintiff (15 U.S.C. § 1692c(a)(1));
c) Causing a telephone to ring repeatedly or continuously
to annoy Plaintiff (Cal. Civ. Code §1788.11(d));
d) Communicating, by telephone or in person, with
Plaintiff with such frequency as to be unreasonable and
to constitute an harassment to Plaintiff under the
circumstances (Cal. Civ. Code §1788.11(e));
e) Engaging in conduct the natural consequence of which
is to harass, oppress, or abuse Plaintiff (15 U.S.C.
§1692d));
19. Defendant’s conduct violated the TCPA by:
a) using any automatic telephone dialing system or an
artificial or pre-recorded voice 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 (47
U.S.C. §227(b)(A)(iii)).
20.
As a result of the above violations of the RFDCPA and TCPA,
Plaintiff suffered and continues to suffer injury to Plaintiff’s feelings, invasion of
privacy, personal humiliation, embarrassment, mental anguish and emotional
distress, and Defendant is liable to Plaintiff for Plaintiff’s actual damages,
statutory damages, and costs and attorney’s fees.
CLASS ALLEGATIONS
21.
Plaintiff brings this action on behalf of herself 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
collection 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
22.
Plaintiff represents, and is a member of, The Class, consisting of All
persons within the United States who received any collection telephone calls from
Defendant to said person’s cellular telephone made through the use of any
automatic telephone dialing system and such person had not previously not
provided their cellular telephone number to Defendant within the four years prior
to the filing of this Complaint.
23.
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.
24.
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.
25.
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.
26.
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 collection 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.
27.
As a person that received numerous collection 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.
28.
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.
29.
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.
30.
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.
31.
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.
32.
Plaintiff repeats and incorporates by reference into this cause of
action the allegations set forth above at Paragraphs 1-31.
33.
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.
34.
As a result of Defendant’s negligent violations of 47 U.S.C. § 227 et
seq., Plaintiff and the Class Members 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).
35.
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.
(Against All Defendants)
36.
Plaintiff repeats and incorporates by reference into this cause of
action the allegations set forth above at Paragraphs 1-35.
37.
The foregoing acts and omissions of Defendant constitute numerous
and multiple 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
38.
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 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).
39.
Plaintiff and the Class members are also entitled to and seek
injunctive relief prohibiting such conduct in the future.
THIRD CAUSE OF ACTION
Violations of the Rosenthal Fair Debt Collection Practices Act
Cal. Civ. Code § 1788 et seq.
40.
Plaintiff repeats and reincorporates by reference into this cause of
action allegations set forth above at paragraphs 1-39.
41.
To the extent that Defendant’s actions, counted above, violated the
RFDCPA, those actions were done knowingly and willfully.
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).
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).
Any and all other relief that the Court deems just and proper.
THIRD CAUSE OF ACTION
Violations of the Rosenthal Fair Debt Collection Practices Act
Cal. Civ. Code § 1788 et seq.
WHEREFORE, Plaintiff respectfully prays that judgment be entered against
Defendant for the following:
A.
Actual damages;
B.
Statutory damages for willful and negligent violations;
C.
Costs and reasonable attorney’s fees,
D.
For such other and further relief as may be just and proper.
Respectfully Submitted this 18th Day of May, 2016.
42.
Pursuant to the Seventh Amendment to the Constitution of the
United States of America, Plaintiff is entitled to, and demands, a trial by jury.
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 |
wse9DYcBD5gMZwczNkGB | THE LAW OFFICE OF
JACK FITZGERALD, PC
JACK FITZGERALD (SBN 257370)
[email protected]
TREVOR M. FLYNN (SBN 253362)
[email protected]
MELANIE PERSINGER (SBN 275423)
[email protected]
Hillcrest Professional Building
3636 Fourth Avenue, Suite 202
San Diego, California 92103
Phone: (619) 692-3840
Fax: (619) 362-9555
JACKSON & FOSTER, LLC
SIDNEY W. JACKSON, III (phv application to be filed)
75 St. Michael Street
Mobile, Alabama 36602
Phone: (251) 433-6699
Fax: (251) 433-6127
Counsel for Plaintiffs and the Proposed Class
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
Case No: 5:16-cv-2168
NATIONWIDE CLASS ACTION
COMPLAINT FOR VIOLATIONS OF:
15 U.S.C. §§ 2301, ET SEQ.;
ELISABETH MARTIN, on behalf of herself,
all others similarly situated, and the general
public,
CAL. CIV. CODE §§ 1750 ET SEQ.;
Plaintiff,
v.
CAL. BUS. & PROF. CODE §§17500
ET SEQ.;
MONSANTO COMPANY,
CAL. BUS. & PROF. CODE §§17200
ET SEQ.; AND
Defendant.
FOR BREACH OF EXPRESS &
IMPLIED WARRANTIES.
DEMAND FOR JURY TRIAL
Plaintiff Elisabeth Martin, on behalf of herself, all others similarly situated, and the
general public, by and through her undersigned counsel, hereby brings this action against
Monsanto Company, and alleges the following upon her own personal knowledge or, where
she lacks personal knowledge, upon information and belief, including the investigation of her
SUMMARY OF CASE
1.
Monsanto is the manufacturer of the ubiquitous herbicide known as Roundup.
Among other Roundup products, Monsanto manufactures, markets, and sells Roundup Weed
& Grass Killer Concentrate Plus (“Roundup Concentrate Plus”) and Roundup Weed & Grass
Killer Super Concentrate (“Roundup Super Concentrate,” together with Roundup
Concentrate Plus, the “Roundup Concentrates”). Unlike “Ready-to-Use” Roundup, the
Roundup Concentrates are intended to be diluted with water prior to use, so that the diluted
product will have the same weed-killing power as Ready-to-Use Roundup
2.
During at least the preceding four years, Monsanto advertised the Roundup
Concentrates as being capable of making a certain number of gallons. For example,
prominently at the top of the container in bold numbers on a red background, the 32 oz. size
advertises it makes 10 gallons of Roundup, the 36.8 oz. size advertises it makes 12 gallons of
Roundup and the 64 oz. size advertises it makes 21 gallons of Roundup, as pictured below.
3.
These advertisements were false, however, because the Roundup Concentrates
were in fact only capable of making half the number of gallons represented when diluted to
the same strength as “Ready-to use” Roundup according to Monsanto’s own instructions. The
32 oz. size makes only 5 gallons of Roundup, the 36.8 oz. size makes only 6 gallons of
Roundup, and the 64 oz. size makes only 10.5 gallons of Roundup. The same holds true for
all sizes and variations of the Roundup Concentrates.
4.
Plaintiff brings this action to enjoin Monsanto from continuing to falsely
advertise the Roundup Concentrates in this manner, and to recover damages for herself and
other purchasers.
JURISDICTION & VENUE
5.
This Court has jurisdiction over this action pursuant to 28 U.S.C. §
1332(d)(2)(A), the Class Action Fairness Act, because the matter in controversy exceeds the
sum or value of $5,000,000 exclusive of interest and costs, and at least one member of the
class of plaintiffs is a citizen of a state different from Monsanto. In addition, more than two-
thirds of the members of the class reside in states other than the state in which Monsanto is a
citizen and in which this case is filed, and therefore any exceptions to jurisdiction under 28
U.S.C. § 1332(d) do not apply. In addition, the Court has federal question jurisdiction under
the Magnuson-Moss Warranty Act, 15 U.S.C. § 2301 et seq. The Court also has supplemental
jurisdiction over plaintiff’s state law claims pursuant to 28 U.S.C. § 1367.
6.
The Court has personal jurisdiction over Monsanto pursuant to Cal. Code Civ.
P. § 410.10, as a result of Monsanto’s substantial, continuous and systematic contacts with
the state and because Monsanto has purposely availed itself of the benefits and privileges of
conducting business activities within the state.
7.
Venue is proper in this Central District of California pursuant to 28 U.S.C. §
1391(b) and (c), because Monsanto resides (i.e., is subject to personal jurisdiction) in this
district, and a substantial part of the events or omissions giving rise to the claims occurred in
this district.
PARTIES
8.
Plaintiff Elisabeth Martin is a resident of Highland, California.
9.
Defendant Monsanto Company is a Delaware corporation with its principal
place of business in St. Louis, Missouri.
FACTS
10.
Monsanto is one of the world’s largest agricultural companies, and has long been
manufacturing and selling herbicides to control weeds. Monsanto’s leading herbicide is called
Roundup, whose active ingredient is called glyphosate. Monsanto first introduced Roundup
in the mid-1970s for the agricultural community, and then in the mid-1980s for residential
use. Roundup has been a dramatically successful product, and is one of the most widely-used
herbicides in the world for residential use.
11.
Monsanto manufactures, markets, and sells Roundup in various formulations,
including Roundup Ready-to-Use (“Ready-to-Use”) formulations, which are intended simply
to be sprayed directly out of the bottle in which the product is purchased; and concentrated
versions of the Roundup, such as the Roundup Concentrates, which the purchaser must first
dilute with water before using with a tank sprayer.
12.
Specifically, Monsanto manufactures, markets and sells Roundup Concentrate
Plus in 32-, 36.8- and 64-ounce bottles (as pictured in the introduction above), and Roundup
Super Concentrate in 35.2-, 64-, and 128-ounce bottles, as pictured below.
13.
The principal display panel of each of the Roundup Concentrates prominently
claims that that product “Makes Up to” a stated number of gallons, as follows.
Roundup Concentrate Plus – 32 Fl. Oz. (1 Qt.)
“Makes Up to 10 Gallons”
Roundup Concentrate Plus – 36.8 Fl. Oz.
“Makes Up to 12 Gallons”
Roundup Concentrate Plus – 64 Fl. Oz. (1/2 Gallon)
“Makes Up to 21 Gallons”
Roundup Super Concentrate – 35.2 Fl. Oz.
“Makes Up to 23 Gallons”
Roundup Super Concentrate – 64 Fl. Oz. (1/2 Gallon)
“Makes Up to 42 Gallons”
Roundup Super Concentrate – 128 Fl. Oz. (1 Gallon)
“Makes Up to 85 Gallons”
14.
Directly under the Roundup name, each Roundup Concentrate label states
“WEED & GRASS KILLER.” Further, directly under the Roundup name and within a
prominent geometric design with an eye-catching illustration, each Roundup Concentrate
label also states claims the product “KILLS THE ROOTS GUARANTEED.” A close-up of
a Roundup Super Concentrate label illustrating these elements is depicted below.
15.
Given the price of the Roundup Concentrates in comparison to Ready-to-Use
Roundup, together with the purported number of gallons each Roundup Concentrate makes,
16.
A glossy several-page pamphlet is taped over the back label of each Roundup
Concentrate bottle, with its front page showing a graphic providing information under three
headings, “Where to Use,” “What to Know,” and “How to Use.” The back of the bottle of the
Roundup Super Concentrate and Roundup Concentrate Plus, respectively, with the taped
pamphlet, is depicted below.
17.
Close-up exemplars of this graphic for Roundup Concentrate Plus, and Roundup
Super Concentrate, respectively, are depicted below.
Roundup Concentrate Plus
Roundup Super Concentrate
18.
As depicted above, the specific statements within each section of the graphic are
as follows:
How to Use
• “Add 6 fl oz Per Gallon of Water” [Roundup Concentrate Plus]
• “Add 2 1/2 fl oz Per Gallon of Water” [Roundup Super Concentrate]
• “Use a Tank Sprayer”
Where to Use
• “Along Fences”
• “Driveways & Walkways”
• “Around Trees”
• “Around Flower Beds”
What to Know
• “Rainproof in 30 Minutes”
• “Visible Results in 12 Hours” [Roundup Concentrate Plus]
• “Visible Results in 2 to 4 Days” [Roundup Super Concentrate]
• “Plant 1 to 3 Days After Application (See booklet for details)”
19.
Given the dilutions set forth on the back panel of each Roundup Concentrate,
the specified number of gallons that Monsanto represents the Roundup Concentrates are
capable of making is double what they are actually capable of making when mixed with water
according to Monsanto’s own instructions. Thus, the Roundup Concentrates actually make
about half the amount Monsanto claims, as demonstrated in the table below.
Product
“Makes Up
to” Gallon
Claim
Back Label Instruction
(Amount to Mix with 1
Gallon Water)
Amount Made
Following
Instructions
Concentrate Plus
(32 oz.)
10 gallons
6 fl. oz
5.3 gallons
Concentrate Plus
(36.8 oz.)
12 gallons
6 fl. oz
6.1 gallons
Product
“Makes Up
to” Gallon
Claim
Back Label Instruction
(Amount to Mix with 1
Gallon Water)
Amount Made
Following
Instructions
Concentrate Plus
(64 oz.)
21 gallons
6 fl. oz
10.7 gallons
Super Concentrate
(35.2 oz.)
23 gallons
2.5 fl. oz
14.1 gallons
Super Concentrate
(64 oz.)
42 gallons
2.5 fl. oz
25.6 gallons
Super Concentrate
(128 oz.)
85 gallons
2.5 fl. oz
34 gallons
20.
Sealed underneath the back-panel label page is the remainder of the pamphlet
that also includes instructions for use.
21.
But the pamphlet as taped to the back label of the bottles is sealed tightly and
only with careful effort is the pamphlet able to be removed and opened without being torn.
22.
As a result, most reasonable consumers would not feel permitted to unseal the
pamphlet prior to purchase. Thus, the vast majority of purchasers do not rely on any of the
information contained within the pamphlet, and would not even see that information, prior to
purchase.
23.
Even for those who have already purchased the product and then succeeded in
removing the pamphlet, generally they do not feel the need to review the instructions on
several pages of fine print before actual use, particularly since they have already seen the
easy-to-read diagram with mixing instructions on the cover of the pamphlet prior to purchase.
24.
And even for those who do read the remainder of the pamphlet after purchase, it
is only through a careful review of this pamphlet, including noticing a buried “fine print”
instruction, that the customer may see the inconsistent statement from Monsanto that accounts
for the prominent misrepresentation that overstates the number of gallons made.
25.
As an example, two internal pages of the several-page pamphlet for the1/2 gallon
Super Concentrate are depicted below:
26.
Notably, the pamphlet falsely restates, as the very first item under the heading,
“PRODUCT FACTS - KILLS ALL TYPES OF WEEDS & GRASSES,” that the product
“Makes up to 42 Gallons.” The pamphlet further falsely states, as the first bullet under
“Mixing Instructions,” that, “For best results, add 2-1/2 fl oz (5 Tbs) to 1 gallon of water.”
27.
Only when a purchaser reads further down into “Mixing Instructions” is the very
first and only reference to the possibility of using a greater dilution, wherein it states “For
easy to kill weeds such as seedlings, add 1-1/2 fl oz (3 Tbs) to 1 gallon of water.”
28.
A reasonable purchaser – for example, an ordinary homeowner interested in
removing weeds along a fence, on a driveway, or around trees or flower beds – does not have
the professional understanding of what constitutes an “easy to kill weed,” and does not have
the technical expertise to discern when it would be appropriate to use less concentrate per this
instruction. To the contrary, a reasonable consumer would instead rely on Monsanto’s
representation that “for best results, add 2-1/2 fl oz (5 Tbs) to 1 gallon of water,” especially
inasmuch as this is consistent with the prominent graphic on the product’s rear panel (which
is also the cover to the pamphlet).
29.
Reasonable consumers read and understand “up to” representations – like the
“Makes Up to” a specific number of “Gallons” representations on the Roundup Concentrates
– as providing, under normal and reasonable conditions for use, the maximum results
promised. Indeed, the U.S. Federal Trade Commission has explicitly determined this to be
the case, stating that its “view” is “that advertisers using these claims should be able to
substantiate that consumers are likely to achieve the maximum results promised under normal
circumstances.”
30.
As demonstrated by the pamphlet itself, including its cover, use of the product
only on “weeds such as seedlings” is not normal use. Rather, normal use is as represented on
the pamphlet’s cover, and of course on the front of the bottle: as a “WEED AND GRASS
KILLER,” that “KILLS ALL TYPES OF WEEDS & GRASSES,” and is to be used “Along
Fences,” on “Driveways & Walkways,” “Around Trees,” and “Around Flower Beds,”
wherein the use is “GUARANTEED” to “KILL[] THE ROOTS.”
31.
This is especially true where, as here, the products at issue are concentrated
forms of a Ready-to-Use product. In other words, reasonable consumers understand that they
will obtain the same degree of efficacy, indeed the same formulation and therefore the same
concentration of active ingredient, as Monsanto’s Ready-to-Use Roundup product, the only
difference being that for a higher price paid, the consumer receives a better value: more
product at the same concentration for less money.
32.
Indeed, this is what Monsanto intends a consumer to understand about the
Roundup Concentrates, this is a fundamental aspect of Monsanto’s marketing of these
concentrate products, this is what consumers reasonably rely on in purchasing these
concentrate products, and this is what consumers reasonably expect upon purchasing and
using these concentrate products..
33.
When diluting to the maximum number of gallons promised by Monsanto,
however, purchasers achieve concentrations that are well below Ready-to-Use Roundup,
which contains a 2.0% concentration of glyphosate.
34.
For example, the 64-ounce bottle of Roundup Concentrate Plus states on the
front of the bottle that it “Makes Up to 21 Gallons.” The back of the bottle instructs “Add 6
fl oz per Gallon of water.” At 6 fluid ounces per gallon, a 64-fluid ounce bottle makes only
10 2/3 gallons, not 21 (64 ÷ 6 = 10.67).
35.
To achieve 21 gallons, the 64-ounce bottle needs to be diluted in a ratio of 3
fluid ounces Roundup Concentrate Plus to one gallon (or 128 fluid ounces) of water (64 ÷ 21
= 3.05, and 64 ÷ 3 = 21.33).
36.
However, at a dilution sufficient to realize the maximum amount of gallons
promised by Monsanto, the glyphosate concentration of both products falls well below that
of Ready-to-Use Roundup and becomes less effective, or not effective at all, and will not kill
the weeds and their roots as depicted and represented on the label.
37.
A 64-ounce bottle of Roundup Concentrate Plus contains 18% glyphosate, or
11.52 ounces. Divided among 21 gallons of water, each gallon would contain 0.55 ounces of
glyphosate. A gallon of water contains 128 fluid ounces, and mixing requires adding 3 ounces
of Roundup Concentrate Plus, for a total of 131 fluid ounces. Thus, the 0.55 ounces of
glyphosate represent just a 0.4% concentration (0.55 ÷ 131 = 0.0042)—just 20% the
concentration of Roundup Ready-to-Use Weed & Grass Killer III, which has a glyphosate
concentration of 2.0%.
38.
This math holds for each size of Roundup Concentrate Plus that Monsanto
offers, as demonstrated in the table below.
Product
“Makes Up
to” Gallon
Claim
Amount Made
Following
Back
Instructions
Glyphosate
Concentration
in Dilution
Needed for
Max Gallons
Back Label
Instruction
(Amount to
Mix with 1
Gallon Water)
Concentrate Plus
(32 oz.)
10 gallons
6 fl. oz
5.3 gallons
0.44%
Concentrate Plus
(36.8 oz.)
12 gallons
6 fl. oz
6.1 gallons
0.42%
Concentrate Plus
(64 oz.)
21 gallons
6 fl. oz
10.7 gallons
0.42%
39.
Despite its higher concentration of glyphosate at 50.2%, the same is true of
Roundup Super Concentrate.
40.
For example, the 64-ounce bottle of Roundup Super Concentrate states that it
“Makes Up to 42 Gallons,” and the back instructs the purchaser to use “2 1/2 fl. oz Per Gallon
of Water.” At that dilution, the 64-ounce bottle of Roundup Super Concentrate makes only
25.6 gallons, not 42 (64 ÷ 2.5 = 25.6).
41.
To achieve 42 gallons, the 64-ounce bottle needs to be diluted in a ratio of 1.5
fluid ounces Roundup Super Concentrate to one gallon (or 128 fluid ounces) of water (64 ÷
42 = 1.52, and 64 ÷ 1.5 = 42.67).
42.
A 64-ounce bottle of Roundup Super Concentrate contains 50.2% glyphosate,
or 32.128 ounces. Divided among 42 gallons of water, each gallon would contain 0.76 ounces
of glyphosate. A gallon of water contains 128 fluid ounces, and mixing requires adding 1.5
ounces of Roundup Super Concentrate Plus, for a total of 129.5 fluid ounces. Thus, the 0.76
ounces of glyphosate is a mere 0.6% concentration (0.76 ÷ 129.5 = 0.0059)—just 30% the
strength of Roundup Ready-to-Use Weed & Grass Killer III, which has a glyphosate
concentration of 2.0%.
43.
This math holds for each size of Roundup Super Concentrate that Monsanto
offers, as demonstrated in the table below.
Product
“Makes Up
to” Gallon
Claim
Amount Made
Following
Back
Instructions
Glyphosate
Concentration
in Dilution
Needed for
Max Gallons
Back Label
Instruction
(Amount to
Mix with 1
Gallon Water)
Super Concentrate
(35.2 oz.)
23 gallons
2.5 fl. oz
14.1 gallons
0.59%
Super Concentrate
(64 oz.)
42 gallons
2.5 fl. oz
25.6 gallons
0.59%
Super Concentrate
(128 oz.)
85 gallons
2.5 fl. oz
34 gallons
0.59%
44.
It is common industry practice to assess the efficacy of a glyphosate product in
its weed killing power by measuring the pounds of glyphosate acid equivalent per US gallon
(referred to as “acid equivalent” or “AE”). Being familiar with this practice, Monsanto
includes this measurement on the front of each Roundup Product’s label (for the Roundup
Concentrates, this number is pre-dilution). The higher the number, the higher the acid content,
meaning the more efficacious the product is at killing weeds. The chart below demonstrates
that, when diluted to the specified number of gallons, the AE falls well below what is
considered efficacious and below Monsanto’s Ready-to-Use Roundup products:
AE Value When
Diluted According to
Instructions
Product
Undiluted AE
Value (lbs. per
US Gallon)
AE Value When
Diluted to Yield the
“Makes Up to”
Number of Gallons
Roundup Ready to
Use Weed Killer III
0.1
-
-
Concentrate Plus
1.2
0.05
0.11
Super Concentrate
3.6
0.08
0.14
45.
Reasonable consumers should not be expected to notice, and then engage in the
math necessary to determine that, following the dilution instructions provided on the back of
the label of each Roundup Concentrate, the product only makes half the amount stated
effective than Ready-to-Use Roundup, and perhaps altogether ineffective, especially for
certain applications.
46.
Moreover, even for the rare consumer that might engage in the math and notice
the discrepancy, no explanation is provided except the single, small-print sentence buried in
the pamphlet, and thus the labeling remains confusing, and at best ambiguous as to whether,
and under what circumstances, the product “Makes Up to” the amount stated, and at what
point the efficacy of the product becomes less than what the consumer believes it to be, or
not efficacious at all.
47.
Further, even if a consumer did the math, noticed the discrepancy, and assumed
the truth was the lower of the two values, the consumer would still need to engage in a number
of additional math steps—and to know that the equivalent Ready-to-Use Roundup product
contains a 2.0% concentrate of glyphosate and a 0.1 AE in order to understand that the
concentrated product contains a significantly lower concentration, whether made at full- or
half- strength.
48.
By diluting the Roundup Concentrates according to the prominent instructions
on the back panel and cover of the instruction pamphlet, to concentrations well below what
the Ready-to-Use Roundup contains, purchasers unknowingly create a product that is
substantially less effective than Ready-to-Use, and which may be altogether ineffective,
especially for certain applications.
PLAINTIFF’S PURCHASE, RELIANCE, AND INJURY
49.
Plaintiff Elisabeth Martin purchased Roundup Super Concentrate on at least
three occasions, from the Wal-Mart located at 4210 East Highland Avenue, in Highland,
California, or the Lowes located at 27847 Greenspot Road, in Highland, California.
50.
Ms. Martin most recently purchased the product in January or February of 2016.
Ms. Martin believes she purchased the 35.2- and/or 64-ounce sizes.
51.
Plaintiff (and other members of her family) use the Roundup Super Concentrate
with a handheld sprayer, along her sidewalk and driveway, and to kill weeds that come up
diluted the product according to the instructions prominently displayed on the front page of
the pamphlet taped to the back panel of the product’s label, which states, “For best results,
add 2-1/2 fl oz (5 Tbs) to 1 gallon of water.” Plaintiff opened and reviewed the inside pages
of the pamphlet only after purchasing the product, and even then relied upon and followed
the most prominently displayed mixing instruction, i.e., the first bullet under the heading
“MIXING INSTRUCTIONS”, stating the same thing.
52.
In purchasing Roundup Super Concentrate, plaintiff relied on the prominent
labeling claim near the top of the front of the bottle stating that the product makes “Up to 23
Gallons,” or “Up to 42 Gallons,” which she took to mean would, in fact, make 23 gallons or
42 gallons when used as directed.
53.
When purchasing Roundup Super Concentrate, plaintiff was seeking a product
that was effective at killing all unwanted weeds and grass, and which was more affordable
than the Roundup Ready-to-Use products, and understood that she was purchasing a
concentrate with a substantially better dollar-per-gallon value than the Ready-to-Use
alternative (i.e., the value that would be had if the product supplied the maximum number of
gallons). Moreover, plaintiff was seeking a product that would yield the number of gallons
represented, and, at the dilution that resulted in that amount of gallons, would kill all
unwanted weeds and grass, including being “GUARANTEED” to “KILL[] THE ROOTS.”
54.
These representations, upon all of which plaintiff relied in purchasing these
products, however, were false and misleading, and had the capacity, tendency, and likelihood
to confuse or confound plaintiff and other consumers acting reasonably. This is because, as
described in detail herein, the Roundup Concentrates do not yield the volume, in gallons, as
promised on the label, if following the instructions prominently stated on the product’s back
panel (i.e., on the instruction pamphlet’s cover).
55.
These representations were also false and misleading because the Roundup
Concentrates yield the volume, in gallons, of a product that is not as effective at killing all
types of weed and grass, such as the Ready-to-Use Roundup products, and, diluted to the
56.
The Roundup Concentrates cost more than similar products without misleading
labeling, and would have cost less absent the false and misleading statements complained of
57.
Plaintiff paid more for Roundup Super Concentrate, and would only have been
willing to pay less, or unwilling to purchase it at all, absent the false and misleading labeling
complained of herein.
58.
For these reasons, Roundup Super Concentrate was worth less than what
plaintiff paid for it, and may have been worth nothing if diluted to yield, by volume, the
number of gallons promised on the label.
59.
By use of its misleading labeling, Monsanto created increased marketplace
demand for the Roundup Concentrates, and increased its market share, relative to what its
demand and share would have been had Monsanto labeled the Roundup Concentrate products
truthfully.
60.
Plaintiff lost money as a result of Monsanto’s deceptive claims and practices in
that she did not receive what she paid for when purchasing Roundup Super Concentrate.
61.
Plaintiff detrimentally altered her position and suffered damages in an amount
equal to the amount she paid for Roundup Super Concentrate, or at least some portion thereof.
62.
If plaintiff could be assured that claims regarding the amount yielded when
mixing according to instructions was accurate, and that the product was effective at killing
all weeds and grass as a result, and was not otherwise false or misleading, she would consider
purchasing the product in the future.
CLASS ACTION ALLEGATIONS
63.
While reserving the right to redefine or amend the class definition prior to
seeking class certification, pursuant to Federal Rule of Civil Procedure 23, plaintiff seeks to
represent a class of all persons in the United States who, on or after October 13, 2012 (the
“Class Period”), purchased the Roundup Concentrates for personal or household use (the
“Class” or “Nationwide Class”).
64.
While reserving the right to redefine or amend the class definition prior to
seeking class certification, pursuant to Federal Rule of Civil Procedure 23, plaintiff also seeks
to represent a subclass of all persons who, during the Class Period, purchased the Roundup
Concentrates for personal or household use (the “Subclass” or “California Subclass”).
65.
The members in the proposed Class and Subclass are so numerous that
individual joinder of all members is impracticable, and the disposition of the claims of all
Class and Subclass members in a single action will provide substantial benefits to the parties
and Court.
66.
Questions of law and fact common to plaintiffs and the Class and Subclass
a.
whether by mixing according to the instructions on the back label of the
Roundup Concentrates, the products would result in the “Makes Up To” amount of
gallons stated on the principal display panel and in the first bullet point under the
heading “MIXING INSTURCTIONS” in the taped, sealed pamphlet;
b.
whether the claimed “Makes up to” amount of gallons was material to
purchasers;
c.
Whether a reasonable consumer believes that “Makes Up To” actually
means the product will make that amount when used under normal, reasonable
conditions;
d.
Whether a reasonable consumer would remove the sealed pamphlet before
purchasing any Roundup Concentrate products;
e.
Whether a reasonable consumer would understand what “easy to kill
weeds such as seedlings” means;
f.
Whether a reasonable consumer would be likely to deviate from the
instructions included on the back panel of Concentrate Plus and/or in the pamphlet to
“Add 6 fl oz per Gallon of Water” in light of Monsanto’s representation “for best
results, add 6 fl oz (12 Tbs) per gallon of water.”
g.
Whether a reasonable consumer would be likely to deviate from the
instructions included on the back panel of Super Concentrate and/or in the pamphlet to
“Add 2 1/2 fl oz per Gallon of Water” in light of Monsanto’s representation “for best
results, add 2-1/2 fl oz (5 Tbs) to 1 gallon of water.”
h.
Whether by diluting the Roundup Concentrates to actually obtain the
“Makes Up To” amount of gallons claimed, the products are less effective than
Monsanto’s Ready-to-Use products;
i.
Whether by diluting the Roundup Concentrates to actually obtain the
“Makes Up To” amount of gallons claimed, the products are ineffective;
j.
Whether Monsanto’s conduct violates public policy;
k.
The proper amount of damages, including punitive damages;
l.
The proper amount of restitution;
m.
The proper scope of injunctive relief, including corrective advertising and
recall from the marketplace; and
n.
The proper amount of attorneys’ fees.
67.
These common questions of law and fact predominate over questions that affect
only individual Class or Subclass members.
68.
Plaintiff’s claims are typical of Class and Subclass members’ claims because
they are based on the same underlying facts, events, and circumstances relating to Monsanto’s
conduct. Specifically, all Class and Subclass members, including plaintiff, were subjected to
the same misleading and deceptive conduct when they purchased the Roundup Concentrates,
and suffered economic injury because Roundup Concentrates are misrepresented. Absent
Monsanto’s business practice of deceptively and unlawfully labeling the Roundup
Concentrates, plaintiff and other Class and Subclass members would not have purchased the
Roundup Concentrates, or would have paid less for the products.
69.
Plaintiff will fairly and adequately represent and protect the interests of the Class
and Subclass, have no interests incompatible with the interests of the Class and Subclass, and
have retained counsel competent and experienced in class action litigation, and specifically
in litigation involving false and misleading advertising.
70.
Class treatment is superior to other options for resolution of the controversy
because the relief sought for each Class and Subclass member is small, such that, absent
representative litigation, it would be infeasible for Class and Subclass members to redress the
wrongs done to them.
71.
Monsanto has acted on grounds applicable to the Class and Subclass, thereby
making appropriate final injunctive and declaratory relief concerning the Class and Subclass
as a whole.
72.
As a result of the foregoing, class treatment is appropriate under Fed. R. Civ. P.
23(a), 23(b)(2), and 23(b)(3).
73.
In addition, it may be appropriate, pursuant to Fed. R. Civ. P. 23(c)(4), to
maintain this action as a class action with respect to particular issues.
CAUSES OF ACTION
FIRST CAUSE OF ACTION
VIOLATIONS OF THE MAGNUSON-MOSS WARRANTY ACT,
15 U.S.C. §§ 2301 ET SEQ.
(By the Nationwide Class)
74.
Plaintiff realleges and incorporates the allegations elsewhere in the Complaint
as if fully set forth herein.
75.
The Roundup Concentrates are consumer products within the meaning of 15
U.S.C. § 2301(1).
76.
Plaintiff and the Class members are consumers within the meaning of 15 U.S.C.
§ 2301(3).
77.
Monsanto is a supplier and warrantor as defined in 15 U.S.C. §§ 2301(4) & (5).
78.
The Magnuson-Moss Warranty Act permits a consumer to recover damages
caused “by the failure of a supplier, warrantor, or service contractor to comply with any
obligation under his [Act], or under a written warranty, implied warranty, or service contract.”
15 U.S.C. § 2310(d)(1).
79.
Monsanto’s claims that the Roundup Concentrates “Make[] Up to” a certain
number of gallons is a “written warranty” within the meaning of the Act because it is an
“affirmation of fact or written promise made in connection with the sale of” the product,
“which relates to the nature of the material . . . and affirms or promises that such material . .
. is defect free or will meet a specified level of performance . . . .” 15 U.S.C. § 2301(6)(A).
80.
As set forth herein, the Roundup Concentrates do not “Make[] Up to” the
number of gallons claimed, unless so diluted as to make the product either ineffective, or
substantially less effective than a reasonable consumer would expect based on other claims
on the label, such as the statements about the applications for which the products can be used.
81.
Although the Roundup Concentrates do not meet the “Make[s] Up to”
specification, Monsanto has so far failed to refund Roundup Concentrate purchasers their
82.
By reason of Monsanto’s breach of these express warranties, Monsanto has
violated the statutory rights due plaintiff and the class members pursuant to the Magnuson-
Moss Warranty Act, thereby damaging plaintiffs and the class members. 15 U.S.C. §§ 2301
83.
Plaintiff and the class were injured as a direct and proximate result of
Monsanto’s breach because: (a) they would not have purchased the Roundup Concentrates
on the same terms if they had known the true facts concerning the amount the products make;
(b) they paid a price premium due to Monsanto’s misleading representations, and (c) the
Roundup Concentrates do not perform as promised when diluted to make the maximum
number of gallons claimed.
84.
Plaintiff, on behalf of herself and the class members, seeks damages, equitable
relief, and attorney’s fees and costs pursuant to 15 U.S.C. §§ 2310(d)(1)-(2).
SECOND CAUSE OF ACTION
Violations of the California Consumers Legal Remedies Act,
Cal. Civ. Code §§ 1750 et seq.
(By the California Subclass)
85.
Plaintiff realleges and incorporates the allegations elsewhere in the Complaint
as if set forth in full herein.
86.
The CLRA prohibits deceptive practices in connection with the conduct of a
business that provides goods, property, or services primarily for personal, family, or
household purposes.
87.
Monsanto’s false and misleading labeling and other policies, acts, and practices
described herein were designed to, and did, induce the purchase and use of Monsanto’s
Roundup Concentrates for personal, family, or household purposes by plaintiff and other
Subclass members, and violated and continue to violate at least the following sections of the
a.
§ 1770(a)(5): Representing that goods or services have characteristics,
ingredients, uses, benefits, or quantities which they do not have;
b.
§ 1770(a)(7): Representing that goods or services are of a particular
standard, quality, or grade, or that goods are of a particular style or model, if they are
of another;
c.
§ 1770(a)(9): Advertising goods with intent not to sell them as advertised;
and
d.
§ 1770(a)(16): Representing the subject of a transaction has been supplied
in accordance with a previous representation when it has not.
88.
Monsanto profited from its sales of the falsely, deceptively, and unlawfully
advertised Roundup Concentrates to unwary consumers.
89.
Monsanto’s wrongful business practices regarding the Roundup Concentrate
constituted, and constitute, a continuing course of conduct in violation of the CLRA.
90.
Plaintiff, on behalf of herself and the Subclass, seeks injunctive relief under Civil
Code § 1782(d).
91.
In compliance with Cal. Civ. Code § 1782, plaintiff sent written notice to
Monsanto of her claims. Although plaintiff does not currently seek damages for her claims
under the CLRA, if Monsanto refuses to remedy the violation within 30 days of receiving the
notice letter, plaintiff may thereafter amend this Complaint to seek damages.
92.
In compliance with Cal. Civ. Code § 1782(d), an affidavit of venue is filed
concurrently herewith.
THIRD CAUSE OF ACTION
Violations of the False Advertising Law,
Cal. Bus. & Prof. Code §§ 17500 et seq.
(By the California Subclass)
93.
Plaintiff realleges and incorporates the allegations elsewhere in the Complaint
as if set forth in full herein.
94.
Under the FAL, “[i]t is unlawful for any person, firm, corporation or association,
or any employee thereof with intent directly or indirectly to dispose of real or personal
property or to perform services” to disseminate any statement “which is untrue or misleading,
and which is known, or which by the exercise of reasonable care should be known, to be
untrue or misleading.” Cal. Bus. & Prof. Code § 17500.
95.
As alleged herein, the advertisements, labeling, policies, acts, and practices of
Monsanto relating to its Roundup Concentrates misled consumers acting reasonably as to the
amount purchased and efficacy of Roundup Concentrates.
96.
Plaintiff suffered injury in fact as a result of Monsanto’s actions as set forth
herein because plaintiffs purchased Roundup Super Concentrate in reliance on Monsanto’s
false and misleading marketing claims that the products “Make Up to” a certain volume when
the instructions on the back panel are followed and/or when a purchaser seeks to obtain “best
results” as instructed and advertised by Monsanto.
97.
Plaintiff suffered injury in fact as a result of Monsanto’s actions as set forth
herein because plaintiff purchased Roundup Super Concentrate in reliance on Monsanto’s
false and misleading marketing claims that the products “Make Up To” a certain volume, by
gallons, of product that is efficacious at killing all weeds and grass.
98.
Monsanto’s business practices as alleged herein constitute unfair, deceptive,
untrue, and misleading advertising pursuant to the FAL because Monsanto has advertised
the Roundup Concentrates in a manner that is untrue and misleading, which Monsanto knew
or reasonably should have known.
99.
Monsanto profited from its sales of the falsely and deceptively advertised
Roundup Concentrates to unwary consumers.
100. As a result, pursuant to Cal. Bus. & Prof. Code § 17535, plaintiff and the
Subclass are entitled to injunctive and equitable relief and restitution.
FOURTH CAUSE OF ACTION
Violations of the Unfair Competition Law,
Cal. Bus. & Prof. Code § 17200 et seq.
(By the California Subclass)
101. Plaintiff realleges and incorporates the allegations elsewhere in the Complaint
as if set forth in full herein.
102. The UCL prohibits any “unlawful, unfair or fraudulent business act or practice.”
Cal. Bus. & Prof. Code § 17200.
103. The acts, omissions, misrepresentations, practices, and non-disclosures of
Monsanto as alleged herein constitute business acts and practices.
Fraudulent
104. A statement or practice is fraudulent under the UCL if it is likely to deceive the
public, applying a reasonable consumer test.
105. As set forth herein, the Monsanto’s claims relating to the Roundup Concentrate
products are likely to deceive reasonable consumers and the public.
Unlawful
106. The acts alleged herein are “unlawful” under the UCL in that they violate at least
the following laws:
•
The False Advertising Law, Cal. Bus. & Prof. Code §§ 17500 et seq.; and
•
The Consumers Legal Remedies Act, Cal. Civ. Code §§ 1750 et seq.
Unfair
107. Monsanto’s conduct with respect to the labeling, advertising, and sale of the
Roundup Concentrates was unfair because Monsanto’s conduct was immoral, unethical,
unscrupulous, or substantially injurious to consumers and the utility of its conduct, if any,
does not outweigh the gravity of the harm to its victims.
108. Monsanto’s conduct with respect to the labeling, advertising, and sale of
Roundup Concentrates was also unfair because it violated public policy as declared by
specific constitutional, statutory or regulatory provisions, including but not limited to the
False Advertising Law.
109. Monsanto’s conduct with respect to the labeling, advertising, and sale of
Roundup Concentrates was also unfair because the consumer injury was substantial, not
outweighed by benefits to consumers or competition, and not one consumers themselves
could reasonably have avoided.
*
*
*
110. Monsanto profited from its sale of the falsely, deceptively, and unlawfully
advertised Roundup Concentrate to unwary consumers.
111. Plaintiff and Subclass members are likely to be damaged by Monsanto’s
deceptive trade practices, as Monsanto continues to disseminate, and is otherwise free to
continue to disseminate misleading information. Thus, injunctive relief enjoining this
deceptive practice is proper.
112. Monsanto’s conduct caused and continues to cause substantial injury to plaintiffs
and the other Subclass Members, who have suffered injury in fact as a result of Monsanto’s
113. In accordance with Bus. & Prof. Code § 17203, plaintiff, on behalf of herself,
the Subclass, and the general public, seeks an order enjoining Monsanto from continuing to
conduct business through unlawful, unfair, and/or fraudulent acts and practices, and to
commence a corrective advertising campaign.
114. Plaintiff, on behalf of herself and the Subclass also seeks an order for the
restitution of all monies from the sale of the Roundup Concentrates that Monsanto unjustly
acquired through acts of unlawful competition.
FOURTH CAUSE OF ACTION
Breaches of Express Warranties,
Cal. Com. Code § 2313(1)
(By the Subclass)
115. Plaintiff realleges and incorporates the allegations elsewhere in the Complaint
as if set forth in full herein.
116. Through the Roundup Concentrates’ labels, Monsanto made affirmations of fact
or promises, or description of goods, that, inter alia, the products will yield a certain number
of gallons in volume when used in an ordinary and reasonable manner, that the products will
yield a certain number of gallons in volume if the instructions for mixing on the back panel
were followed, and that the products would be effective in killing all weeds and grass. These
and other representations were part of the basis of the bargain, in that plaintiff and the
Subclass purchased the Roundup Concentrates in reasonable reliance on those statements.
Cal. Com. Code § 2313(1).
117. Monsanto breached its express warranties by selling Roundup Concentrates that
cannot yield the promised volume in gallons when used reasonably and ordinarily, cannot
yield the promised volume in gallons when mixed according to the instructions on the back
panel or by a purchaser seeking “best results” as instructed by Monsanto, and which is not
effective at killing weeds and grass when mixed to the stated volume on the labels and/or
pamphlets.
118. That breach actually and proximately caused injury in the form of the lost
purchase price, or some portion thereof, that plaintiff and Subclass members paid for
Roundup Concentrates.
119. As a result, plaintiff seeks, on behalf of herself and other Subclass members,
actual damages arising as a result of Monsanto’s breaches of express warranty.
FIFTH CAUSE OF ACTION
Breach of Implied Warranty of Merchantability,
Cal. Com. Code § 2314
(By the California Subclass)
120. Plaintiff realleges and incorporates the allegations elsewhere in the Complaint
as if set forth in full herein.
121. Monsanto, through its acts set forth herein, in the sale, marketing, and promotion
of the Roundup Concentrates, made representations to plaintiff and the Subclass that, among
other things, the products yield a certain volume by gallons of product that is effective at
killing all weeds and grass.
122. Monsanto is a merchant with respect to the goods of this kind which were sold
to plaintiff and the Subclass, and there was, in the sale to plaintiff and other consumers, an
implied warranty that those goods were merchantable.
123. However, Monsanto breached that implied warranty in that Roundup
Concentrates do not yield the volume by gallons and are not effective at killing all weeds and
grass to the extent claimed, as set forth in detail herein.
124. As an actual and proximate result of Monsanto’s conduct, plaintiff and the
Subclass did not receive goods as impliedly warranted by Monsanto to be merchantable in
that they did not conform to promises and affirmations made on the container or label of the
125. Plaintiff and the Subclass have sustained damages as a proximate result of the
foregoing breach of implied warranty in the amount of Roundup Concentrates’ purchase
PRAYER FOR RELIEF
126. Wherefore, plaintiff, on behalf of herself, all others similarly situated, and the
general public, prays for judgment against Monsanto as to each and every cause of action,
and the following remedies:
a.
An Order declaring this action to be a proper class action, appointing
plaintiff as class representative, and appointing her undersigned counsel as class
counsel;
b.
An Order requiring Monsanto to bear the cost of class notice;
c.
An Order enjoining Monsanto from engaging in the unfair, unlawful, and
deceptive business practices and false advertising complained of herein;
d.
An Order compelling Monsanto to conduct a corrective advertising
campaign;
e.
An Order compelling Monsanto to recall and destroy all misleading and
deceptive advertising materials and product labels;
f.
An Order requiring Monsanto to disgorge all monies, revenues, and
profits obtained by means of any wrongful act or practice;
g.
An Order requiring Monsanto to pay restitution to restore all funds
acquired by means of any act or practice declared by this Court to be an unlawful,
unfair, or fraudulent business act or practice, untrue or misleading advertising, plus
pre-and post-judgment interest thereon;
h.
An Order requiring Monsanto to pay all actual and statutory damages
permitted under the causes of action alleged herein;
i.
An award of attorneys’ fees and costs; and
j.
Any other and further relief that Court deems necessary, just, or proper.
JURY DEMAND
Plaintiff hereby demands a trial by jury on all issues so triable.
Dated: October 13, 2016
/s/ Jack Fitzgerald
THE LAW OFFICE OF JACK FITZGERALD, PC
JACK FITZGERALD
[email protected]
TREVOR M. FLYNN
[email protected]
MELANIE PERSINGER
[email protected]
Hillcrest Professional Building
3636 Fourth Avenue, Suite 202
San Diego, California 92103
Phone: (619) 692-3840
Fax: (619) 362-9555
JACKSON & FOSTER, LLC
SIDNEY W. JACKSON, III (phv application to be filed)
75 St. Michael Street
Mobile, Alabama 36602
Phone: (251) 433-6699
Fax: (251) 433-6127
Attorneys for Plaintiffs and the Proposed Class
| products liability and mass tort |
1UQa_YgBF5pVm5zYBk9a | IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
DEANNA BETRAS, on behalf of herself and all
others similarly situated,
Case No.
2:21-cv-872
PLAINTIFF,
CLASS ACTION COMPLAINT
CM THOMPSON ENTERPRISE, LLC DIBI Al THE
HIDEOUT,
DEFENDANT.
CLASS ACTION COMPLAINT
Plaintiff, Deanna Betras ("Plaintiff'), brings this Class Action Complaint, on behalf of
herself and all other similarly situated employees ( the "Class"), against Defendant, CM Thompson
Enterprise, LLC d/b/a/ The Hideout ("Defendant"), seeking to recover for Defendant's violations
of the Fair Labor Standards Act, 29 U.S.C. §§ 201 et seq., the Pennsylvania Wage Payment and
Collection Law, 43 Pa. C.S. § 206.1, and common law, and alleges as follows:
INTRODUCTION
1.
As explained herein, under applicable federal and state employment laws, all
employees are entitled to fair compensation, overtime compensation, and the retention of
tips/gratuities received from customers, unless statutorily exempt. Because they are plainly
"employees" under the applicable laws, Plaintiff and the class members should have been paid
fair wages, given overtime compensation, and allowed to retain all tips/gratuities provided by
customers. To avoid complying with these laws designed to protect employees from employer
| employment & labor |
I6o2CocBD5gMZwcz8N9J | COHN LIFLAND PEARLMAN
HERMANN & KNOPF LLP
PETER S. PEARLMAN
Park 80 West - Plaza One
250 Pehle Avenue, Suite 401
Saddle Brook, N.J. 07663
(201) 845-9600
(201) 845-9423 (fax)
[email protected]
Attorneys for Plaintiff
Additional Counsel Appear on Signature Page
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
Civil Action No.
ROCHESTER DRUG CO-OPERATIVE,
INC., on behalf of itself and all others
similarly situated,
Plaintiff,
v.
CLASS ACTION
JURY TRIAL DEMANDED
SMITHKLINE BEECHAM
CORPORATION d/b/a
GLAXOSMITHKLINE, TEVA
PHARMACEUTICAL INDUSTRIES LTD.,
and TEVA PHAMACEUTICALS,
Defendants.
CLASS ACTION COMPLAINT
Plaintiff Rochester Drug Co-Operative, Inc. (“RDC” or “Plaintiff”), maintaining its
principal place of business at the address set forth in paragraph 32, on behalf of itself and all
others similarly situated, against Defendants SmithKline Beecham Corporation d/b/a
GlaxoSmithKline (“GSK”), Teva Pharmaceutical Industries Ltd. (“Teva Ltd.”) and its subsidiary
Teva Pharmaceuticals USA, Inc. (“Teva USA”) (jointly, “Teva”) (all defendants collectively,
“Defendants”), alleges as follows based on: (a) personal knowledge; (b) the investigations of
counsel, including review of various pleadings and rulings in SmithKline Beecham Corp. v. Teva
Pharmaceuticals USA, Inc., United States District Court, District of New Jersey, Nos. 02-cv-
3779 and 02-cv-4537, and Teva Pharmaceutical Industries Ltd., et. al v. SmithKline Beecham
Corporation, United States District Court, District of New Jersey, No. 08-cv-03706, discussed
herein; and (c) information and belief.
I.
NATURE OF THE ACTION
1.
This antitrust action challenges Defendants’ anticompetitive conduct that delayed
generic competition in the markets for Lamictal Tablets and Lamictal Chewables,
prescription drugs used to treat epilepsy, bipolar disorder and other medical conditions, and
improperly manipulated the Hatch-Waxman Act to impede, rather than promote, generic
competition as intended by the statute.
2.
Under the Federal Food, Drug and Cosmetics Act of 1938, 21 U.S.C. §§ 301-392
(“FD&C Act”), a manufacturer that creates a new drug must obtain Food and Drug
Administration (“FDA”) approval to sell the new drug by filing a New Drug Application
(“NDA”) which includes, among other things, submission of clinical studies concerning the
safety and efficacy of the drug, as well as any information on applicable patents.
3.
Recognizing the great savings available to purchasers by the presence of generic
drugs, Congress in 1984 passed the “Hatch-Waxman Act” (officially called the Drug Price
Competition and Patent Term Restoration Act, Pub. L. No. 98-417, 98 Stat. 1585 (1984))
(“Hatch-Waxman”), which amended the FD&C Act to facilitate and expedite the approval
of generic drugs. Prior to these amendments, competitors seeking to sell a generic version of a
brand name drug needed to go through the lengthy and costly process of filing their own NDA to
obtain FDA approval. Hatch-Waxman simplified the regulatory hurdles for prospective generic
manufacturers by providing an expedited review process by which generic manufacturers may
file an Abbreviated New Drug Application (“ANDA”). A proposed generic’s ANDA is not
required to contain the same type of independent clinical studies to demonstrate safety and
efficacy as contained in an NDA, but is allowed to make that showing by demonstrating
that it is therapeutically and pharmaceutically equivalent to the corresponding brand drug.
4.
“AB-rated” generic versions (“generics”) of brand name drugs contain the same
active ingredient, and are determined by the FDA to be just as safe and effective, as their brand
name counterparts. Specifically, the FDA has determined that an AB-rated generic product is
therapeutically and pharmaceutically equivalent to the brand-name counterpart. This means that
the generic version has the same active ingredient, strength, route of administration, and dosage
form as the branded counterpart, and that the active ingredient of the generic drug remains in the
bloodstream of the patient for the same relative amount of time in the same relative proportion as
the branded drug.
5.
The only material difference between generics and brand name drugs is their
price. Generics are typically at least 30% 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. As a result, generics constitute both: (a) an
opportunity for drug purchasers and consumers to obtain enormous cost savings; and (b) a
serious threat to the monopoly power and profits of the manufacturer of a brand name drug
facing generic competition. Because of the significant price savings from the use of generics, in
most states the laws and regulations allow (and many states require) pharmacists to automatically
substitute an AB-rated generic version of a drug for the brand name drug in most instances.
6.
As part of the ANDA process a generic manufacturer must certify that the
proposed generic drug does not violate any patents that claim the brand name drug, which are
identified in an FDA publication called the Orange Book. When the ANDA applicant takes the
position that any listed patent(s) is invalid or will not be infringed by the generic product, it must
file a Paragraph IV certification. This is especially significant, because if a generic files a
Paragraph IV certification, the brand-name manufacturer has the opportunity to slow down the
approval process of the generic drug. If the patent owner files a patent infringement action
within 45 days after receiving notice of the generic manufacturer’s Paragraph IV certification,
then the FDA is automatically enjoined from granting final approval to the ANDA until the
earlier of either 30 months or the issuance of a district court decision that the patent is invalid,
unenforceable, or not infringed by the generic manufacturer’s ANDA. 21 U.S.C.
§355(j)(5)(B)(iii).
7.
The Hatch-Waxman Act encourages challenges to branded drug patents by
granting the first Paragraph IV ANDA filer up to 180 days to exclusively market the generic
version of the drug, during which time the FDA will not grant final approval to any other generic
manufacturer’s ANDA for the same generic drug. As explained in paragraph 12 below, the 180
days of marketing exclusivity granted to the first Paragraph IV ANDA filer is a significant and
potentially highly profitable benefit.
8.
Until an AB-rated generic enters the market, there is no drug or other product that
price competes with the branded drug, and therefore, the brand manufacturer can continue to
charge supra-competitive prices profitably without losing all or a substantial portion of its
branded sales. Consequently, brand manufacturers have a strong incentive to engage in conduct,
including the conduct alleged herein, to delay generic competition.
9.
One tactic that brand manufacturers use to delay generic competition is to file a
patent infringement suit against the generic (even if it is likely that the patent at issue is invalid,
unenforceable, or not infringed) to trigger the automatic injunction that prevents the FDA from
approving a generic ANDA for up to 30 months. Then, upon recognizing the significant risk that
the patent infringement claims will not succeed, the branded manufacturer will give the
generic manufacturer significant financial inducements to accept a settlement in which the
generic agrees to stay off the market for a much longer time than the strength of the patent
warrants. In such instances, the generic’s agreement to stay off the market is not due to the
patent’s scope or strength but simply because the generic has agreed to not compete for a period
of time in exchange for valuable financial inducements that the brand-name company gives.
10.
This suit concerns GSK’s use of such improper tactics (and others) to prevent
and/or impede generic competition for Lamictal tablet products (“Lamictal Tablets”), and for
Lamictal chewable dispersible tablets (“Lamictal Chewables”), both of which contain the active
ingredient lamotrigine. Shortly after GSK launched Lamictal Tablets in or about 1994, the drug
quickly became one of GSK’s top-grossing products. GSK’s sales of Lamictal Tablets in the
United States were in excess of $2 billion during the twelve months ending March 2008. GSK’s
annual domestic sales of the low-dosage strength Lamictal Chewables product were about
$50 million in the twelve months preceding the market entry of generic chewables in 2005.1
11.
Teva, the largest generic pharmaceutical manufacturer in the world, recognized
the huge market potential for Lamictal, and in April 2002, was the first generic firm to file
ANDAs with the FDA seeking approval to market generic versions of Lamictal Tablets and
1 In addition to Lamictal Tablets and Lamictal Chewables (also referred to as “Lamictal CD”),
GSK also markets lamotrigine in two other forms: Lamictal ODT (orally disintegrating tablets)
and Lamictal XR (extended release). The vast majority of prescriptions are written for Lamictal
Tablets. Lamictal Tablets, Chewables, ODT, and XR are not AB-rated to one another.
Lamictal Chewables. Teva’s ANDAs contained Paragraph IV certifications that Teva’s
proposed generics did not infringe any valid or otherwise enforceable patent(s) listed in the
Orange Book as covering Lamictal Tablets or Lamictal Chewables, including specifically U.S.
Patent No. 4,602,017 (“the ‘017 patent”). GSK is the assignee of the ‘017 patent, which claims
3,5-Diamino-6(2,3-dichlorophenyl)-1,2,4- triazine, the active ingredient in Lamictal Tablets and
Lamictal Chewables (which is also referred to as “lamotrigine”) as well as certain methods of
using lamotrigine. The ’017 patent had an expiration date of July 22, 2008.
12.
As the first Paragraph IV ANDA filer, Teva stood to receive a significant and
potentially highly profitable benefit under 21 U.S.C. §355(j)(5)(B)(iv): 180 days of marketing
exclusivity during which the FDA would not give final approval to any other ANDA filer’s
generic Lamictal product. The 180-day exclusivity period could potentially provide Teva with
an extremely valuable competitive advantage versus other generics which would enable Teva to
have 100% of the generic sales during this 180-day period and charge higher generic prices
during this period than in a market with multiple generics. Furthermore, it is well-known in the
industry that those generics which are able to take advantage of the 180-day exclusivity periods
are able to get a “first mover advantage” resulting in the permanent retention of a larger
market share than later entrants, even after other generics enter the market. However, the 180-
day exclusivity period does not bar an NDA holder from selling an “authorized generic” or
licensing their product to another company to sell an “authorized generic.”2 If a brand company
chooses to counter or preempt the initial generic entry with an authorized generic, it could
greatly diminish the profit potential of the first ANDA filers’ product, which otherwise could
have been the sole generic on the market.
2 An authorized generic is simply the brand product sold under generic trade dress at a cheaper
price than the brand.
13.
In August 2002, GSK sued Teva for infringement of the ‘017 patent based on
Teva’s Paragraph IV ANDAs seeking approval to market generic versions of Lamictal Tablets
and Lamictal Chewables. The filing of these suits triggered an automatic stay of approval of
Teva’s ANDAs for up to 30 months. The cases were subsequently consolidated (the “Patent
Litigation”) and eventually proceeded to a five-day bench trial before the Honorable John W.
Bissell in January 2005. On the final day of trial, Judge Bissell ruled that Teva “prove[d] by
clear and convincing evidence that Claim 1 [of the ‘017 patent], the alleged invention of
lamotrigine, is invalid,” and informed the parties that he would deliberate over the course of the
next week on the remaining claims, and that a ruling on those claims would be forthcoming.
14.
Having already invalidated the claim of the ‘017 patent that covered the active
ingredient of Lamictal, i.e., lamotrigine, it was highly likely that Teva would prevail with respect
to the remaining patent claims. These claims were extremely weak in view of Judge Bissell’s
ruling that claim 1 was invalid. However, both GSK and Teva faced the loss of significant future
profits if the court invalidated the ‘017 patent’s remaining claims at issue. GSK stood to lose its
patent protection preventing generic competition for Lamictal Tablets and Lamictal Chewables,
which would result in a dramatic reduction in GSK’s future revenue for both products.
15.
Teva also faced a quandary because it knew that its ANDAs for both Lamictal
Tablets and Lamictal Chewables were not ready for final approval from the FDA. A final
decision in its favor on the ‘017 patent would have been a Pyrrhic victory for Teva, because it
would trigger the running of its 180-day exclusivity period before Teva was ready to profit from
its success. Under Hatch-Waxman, Teva’s 180-day exclusivity period for generic versions of
Lamictal Tablets and Lamictal Chewables would be triggered by the earlier of either: (a) Teva’s
market entry or (b) a court-entered final decision that the patent(s) subject to the Paragraph IV
certification was invalid, unenforceable, and/or not infringed. While Hatch-Waxman creates an
opportunity for the first-filer of a Paragraph IV certification (the “first filer”) to have up to 180
days of exclusivity versus other generics, Hatch-Waxman does not guarantee a first filer the right
to profit from all (or any) of the 180-day exclusivity period. That is so because, if, for instance,
the 180-day period is triggered by a final court decision, but the first filer has not yet obtained
final approval from the FDA to market its generic product, the 180-day period may begin and
end before the first filer can enjoy any actual sales of its product during that time.
16.
Because the FDA had not yet granted Teva approval to market generic versions of
Lamictal Tablets or Lamictal Chewables in January 2005, Teva faced the risk that it would not
be able to reap any of the monetary rewards that come with being the first ANDA filer before the
180-day exclusivity period expired. If Teva’s 180-day exclusivity period expired before its
generic Lamictal Tablet and Lamictal Chewable products were approved for sale, other
competing generic firms with approved AB-rated products might be able to enter the market at
the same time as (or even before) Teva. This would mean that not only would Teva not be able to
garner the full profits of the 180-day period, but another generic could gain the long-term “first-
mover” advantage.
17.
Thus, faced with the risk that the court would invalidate the remaining claims of
the ‘017 patent, GSK had an interest in delaying Teva’s entry for as long as possible so that GSK
could continue to earn monopoly profits on both Lamictal Tablets and Lamictal Chewables.
Teva also had an interest in delaying a final court decision finding the ‘017 patent invalid until it
was ready to take advantage of its valuable 180-day period.
18.
Recognizing the severe financial risks to both parties, on February 16, 2005 the
Defendants entered into a Settlement Agreement and a License and Supply Agreement (“License
Agreement”) (jointly, the “Agreements”). Under the Agreements, Teva agreed to not enter the
market with a generic version of GSK’s $2 billion-a-year Lamictal Tablets product until the July
2008 expiration date of the ‘017 patent. Thus, even though in January 2005, Teva had already
succeeded in invalidating Claim 1 of the ‘017 patent covering the active ingredient of Lamictal,
and even though the remaining claims of the patent at issue were extremely weak and highly
likely to be held invalid, the Agreements provided no procompetitive benefit because they
delayed Teva’s market entry of generic versions of Lamictal Tablets until after the expiration of
the ‘017 patent. As to Lamictal Chewables, GSK granted Teva permission to market a certain
quantity of GSK-supplied Lamictal Chewables product beginning June 2005, and an
exclusive license to market generic Lamictal Chewables upon receiving final FDA approval for
the entire term of the ‘017 patent including any period of Pediatric Exclusivity GSK would
obtain. Also, during the period after the expiration of the ‘017 patent and any GSK-held
regulatory exclusivities that could have prevented Teva from coming to market, GSK agreed not
to launch less expensive authorized generics of Lamictal Tablets and Lamictal Chewables in
competition with Teva, which was well beyond any powers (exclusionary or otherwise) of the
expired ‘017 patent, and as such constitutes a naked market allocation agreement.
19.
The Agreements benefitted GSK by delaying market entry of less-
expensive generic versions of Lamictal Tablets until the expiration of the ‘017 patent, ensuring
that Teva would not enter upon final FDA approval of its ANDA in the event that occurred prior
to the end of the patent term, and benefitted Teva by ensuring that there would not be a final
court decision invalidating the patent before Teva was ready to use its 180-day exclusivity for
generic Lamictal Tablets (along with other benefits discussed below). This would enable Teva
to charge higher generic prices during the first 180 days and to maximize its longer-term profits
by obtaining the “first mover advantage” noted above. This also benefitted GSK because the
higher prices Teva would charge during the first 180 days meant that there would be less
competitive pressure on GSK to reduce prices during this period, such that it would lose less
market share during this period than if there were multiple generics in the market. GSK also
benefitted in a broader sense in that the Agreements as a whole delayed not only the entry of
Teva’s generic Lamictal Tablet products, but other generics as well because without a court
ruling holding the patent invalid or not infringed, no other generic could enter until Teva
exercised its 180-day exclusivity period. Thus, by and through these Agreements, Teva and
GSK afforded themselves a guarantee of higher revenues during these periods of time which
resulted in anticompetitive overcharges being thrust upon purchasers.
20.
In exchange for its agreement to delay entry of its generic Lamictal
Tablets, Teva received substantial financial inducements that went beyond what Teva could have
achieved if it was fully successful in the patent litigation. GSK and Teva have expressly stated
that the inducements discussed below were part of the “consideration” that GSK offered Teva “in
reaching agreement to settle.”
21.
First, Teva was permitted to sell limited amounts of a generic version of the
Lamictal Chewable product, starting on June 1, 2005. In pleadings from a subsequent litigation
between the Defendants, GSK acknowledged that permitting Teva to market a generic version of
the Lamictal Chewable product beginning in June 2005 was a benefit given to Teva in exchange
for Teva’s agreement to delay marketing of its generic version of the far more lucrative Lamictal
Tablets product until the expiration date of the ‘017 patent in July 2008. In effect, even though
claim 1 of the ‘017 patent was held invalid and Teva was very likely to prevail as to the
remaining asserted claims, Teva agreed not to market a competing generic for the entire patent
term. As indicated below, any Pediatric Exclusivity GSK obtained could not further delay
Teva’s generic entry unless there was a ruling by Judge Bissell that the ‘017 patent was valid and
infringed by Teva’s proposed generics.3
22.
Significantly, even though both the Lamictal Tablet and Lamictal Chewable
products were subject to the same patent claims (and Teva’s chances of litigation success were
the same for both products) Teva and GSK agreed that Teva would enter the market for the less
profitable Lamictal Chewable product three months after the settlement, but that Teva would
wait the entire patent term – which amounted to three or more years – to launch a generic version
of the exponentially more profitable Lamictal Tablet product. The disparate treatment and entry
dates that GSK and Teva negotiated for the two products (both of which were subject to the
exact same patent claims and litigation risks) reflects the fact that the parties did not choose (or
even attempt to choose) entry dates for the two products that reasonably reflected the probability
that the asserted claims of the ‘017 patent were invalid. Rather, the disparate entry dates reflect
the reality that Teva was given financial inducements to delay entry of its generic Lamictal
Tablet product. While the negotiated deal benefitted Teva and GSK, the deal was not structured
with any concern or interest for purchasers or consumers who need treatment for epilepsy,
bipolar disorder, and other medical conditions at lower prices. The purchaser/consumer benefits
gained by the entry of Teva’s generic Lamictal Chewable in June 2005 pale in comparison to the
3 Pediatric Exclusivity attaches on an ANDA-by-ANDA basis. See paragraph 49 below. Thus,
even though Pediatric Exclusivity would not delay entry of Teva’s proposed generics, that
exclusivity (depending on the circumstances) could delay final approval of other generic
manufacturers’ ANDAs.
purchaser/consumer harm incurred by the anticompetitive three-year delay in the entry of Teva’s
less-expensive generic version of Lamictal Tablets.
23.
Upon information and belief, Teva sought (and GSK gave) a second inducement
to Teva to delay its entry of generic Lamictal Tablets: that GSK agreed to refrain from
launching its own competing authorized generic versions of Lamictal Tablets and Lamictal
Chewables until January 2009 (i.e., 180 days after Teva was on the market with a generic version
of Lamictal Tablets, and over three years after Teva was on the market with a generic version of
Lamictal Chewables). This inducement was unquestionably beyond the exclusionary scope of
the patent because Teva and GSK agreed not to compete with respect to generic products during
a period when: (a) the ‘017 patent had expired and there were no GSK-held regulatory
exclusivities that could bar Teva from coming to market; and (b) there were no patents or
regulatory exclusivities that would bar GSK from launching an authorized generic product.
Nothing in Hatch-Waxman would allow Teva’s first-filer exclusivity to bar GSK from launching
its own authorized generic versions of Lamictal Tablets and Lamictal Chewables during Teva’s
exclusivity periods. Furthermore, because Teva filed and maintained a Paragraph IV
certification, any Pediatric Exclusivity that GSK later obtained could not delay Teva’s ability to
market Lamictal Tablets or Chewables after the expiration of the ‘017 patent term. As alleged
below, but for the Agreements, GSK had an incentive to launch its own authorized generic
versions of tablets and chewables, and has a history of launching authorized generic versions of
its own blockbuster branded products in the face of actual or impending competition from
ANDA-based generics.
24.
A 2012 FDA list of authorized generics shows that between January 1, 1999 and
January 9, 2012, GSK launched authorized generics when faced with generic competition to at
least ten of its branded pharmaceuticals products, including: Augmentin and Cutivate in 2003;
Amoxil, Paxil, and Wellbutrin SR in 2004; Retrovir in 2005; Flonase and Zantac in 2006;
Imitrex
in
2007;
and
Paxil
CR
in
2010.
Available
at
http://www.fda.gov/downloads/AboutFDA/CentersOffices/CDER/UCM183605.pdf.
25.
The Federal Trade Commission (“FTC”) and other government entities have
recognized that the presence of an authorized generic significantly benefits purchasers by both
increasing purchaser choices and also creating price competition which reduces generic prices
during the 180-day period. By agreeing to not exercise its lawful right to launch authorized
generics until January 2009, GSK was illegally agreeing to restrain or limit its ability to
compete during this period.
26.
As to Lamictal Tablets, absent the anticompetitive inducements that GSK gave to
Teva to delay Teva’s launch of its generic version of Lamictal Tablets, Teva would have pressed
for (and the parties would have agreed to) a settlement allowing Teva to come to market with its
generic Lamictal Tablets earlier than the Agreements allowed. Alternatively, without the
provision wherein GSK agreed not to launch authorized generics in competition with Teva until
January 2009, the parties would have entered an agreement that provided for entry of Teva’s
generic version of Lamictal Tablets earlier than the Agreements allowed. As alleged in more
detail below, Teva has admitted that the agreement that GSK would not launch its own
authorized generic was “critical here because the benefit conferred to Teva from this Settlement
was of such a short duration.” Further, assuming there would have been no settlement between
the Defendants, the parties would have continued to litigate and either: (1) Teva would have
prevailed allowing for an even earlier launch of generic versions of Lamictal Tablets as well as
triggering Teva’s 180-day marketing exclusivity, or (2) Teva would have launched its generic
version of Lamictal Tablets “at risk” during the course of the patent litigation after expiration of
the 30-month stay and after Teva received final approval from FDA. In sum, “but for” the
anticompetitive Agreements between the Defendants, generic competition in the market for
Lamictal Tablets would have occurred sooner and would have resulted in substantial savings to
the Plaintiff.
27.
As to Lamictal Chewables, absent the Agreements, GSK would have launched an
authorized generic in competition with Teva’s generic Lamictal Chewable product, and but for
GSK’s agreement not to compete, price competition between Teva’s generic Lamictal
Chewables product and GSK’s own authorized generic Lamictal Chewables product would have
resulted in lower prices for Lamictal Chewables to the Plaintiff.
28.
The Agreements caused illegal anticompetitive harm to the direct purchasers
of Lamictal Tablets and/or Teva’s generic version of Lamictal Tablet by causing them to pay
higher, artificially-inflated prices for those products than they otherwise would have absent the
conduct alleged herein. Plaintiff, and all others similarly situated, was injured and sustained
damages in the form of overcharges for branded and generic forms of Lamictal Tablets as a
direct result of GSK and Teva’s unlawful Agreements that accompanied the settlement of the
‘017 patent litigation. This civil antitrust case seeks overcharges (trebled) paid by Plaintiff and a
class of all other persons or entities in the United States and its territories who purchased
Lamictal Tablets directly from GSK and/or generic lamotrigine tablets directly from Teva at any
time during the Class Period of from at least February 17, 2008 until the effects of Defendants’
conduct cease.
29.
In addition, the Agreements caused illegal anticompetitive harm to the direct
purchasers of Lamictal Chewables and/or Teva’s generic version of Lamictal Chewables by
causing them to pay higher, artificially-inflated prices for those products than they otherwise
would have absent the conduct alleged herein. Plaintiff, and all others similarly situated, were
injured and sustained damages in the form of overcharges for branded and generic forms of
Lamictal Chewables as a direct result of GSK and Teva’s unlawful Agreements that
accompanied the settlement of the ‘017 patent litigation. This civil antitrust case seeks
overcharges (trebled) paid by Plaintiff and a class of all other persons or entities in the United
States and its territories who purchased Lamictal Chewables directly from GSK and/or generic
lamotrigine chewables directly from Teva at any time during the Class Period of from at least
February 17, 2008 until the effects of Defendants’ conduct cease.
II.
JURISDICTION AND VENUE
30.
This Complaint is filed and these proceedings are instituted under Section 4 of the
Clayton Act, 15 U.S.C. §§ 15 and 26, to recover treble damages and the costs of suit, including a
reasonable attorneys’ fee, for the injuries sustained by Plaintiff and members of the Class
resulting from violations by Defendants, as hereinafter alleged, of Sections 1 and 2 of the
Sherman Act, 15 U.S.C. §§1 and 2. The jurisdiction of this Court is based upon 28 U.S.C. §§
1331 and 1337(a) and 15 U.S.C. § 15.
31.
The Defendants named herein are found or transact business within this judicial
district, and the interstate trade and commerce hereinafter described is carried out, in substantial
part, in this district. Venue, therefore, is appropriate within this district under 15 U.S.C. § 22 and
28 U.S.C. § 1391(b) and (c).
III.
PARTIES
32.
Plaintiff, RDC, is a stock corporation duly formed and existing under the New
York Cooperative Corporations Law, with its principal place of business located at 50 Jet View
Drive, Rochester, New York 14624. During the class period, as defined below, RDC purchased
branded and generic Lamictal Tablets and Lamictal Chewables directly from GSK and Teva
during the Class Period as defined below, and was injured by the illegal conduct described
33.
On information and belief, Defendant SmithKline Beecham Corporation is a
public corporation organized and existing under the laws of the Commonwealth of Pennsylvania
and having a registered office at One Franklin Plaza, Philadelphia, Pennsylvania 19102.
SmithKline Beecham Corporation operates under the business name GlaxoSmithKline. GSK
is in the business of, among other things, developing, manufacturing, distributing, advertising,
and selling branded Lamictal Tablets and Lamictal Chewables products throughout the United
34.
Defendant Teva Ltd. is a corporation organized and existing under the laws of the
State of Israel and having registered office at 5 Basel Street, P.O. Box 3190, Petach Tikva 49131,
Israel. Teva Ltd. is the ultimate parent company of Teva USA.
35.
Defendant Teva USA is incorporated under the laws of the State of
Delaware, with its principal place of business in North Wales, Pennsylvania. Teva USA
develops, manufactures, and sells generic products in the United States. Teva USA is an indirect
wholly-owned subsidiary of Teva Ltd.
36.
Teva Ltd. manufactures the generic lamotrigine tablet product that Teva USA
began selling in the United States in July 2008, and has sold generic lamotrigine chewables in
the United States beginning in June 2005.
IV.
CLASS ACTION ALLEGATIONS
37.
Plaintiff brings this action on behalf of itself and, under Rule 23 of the Federal
Rules of Civil Procedure, as representative of a class defined as follows:
All persons or entities in the United States and its territories who purchased
Lamictal Tablets directly from GSK, or who purchased a generic version of
lamotrigine tablets directly from Teva, at any time during the Class Period from at
least February 17, 2008 until the effects of Defendants’ conduct ceases (the
“Class”). Excluded from the Class are Defendants and their officers, directors,
management and employees, predecessors, subsidiaries and affiliates, and all
federal governmental entities.
Additionally, Plaintiff brings this action on behalf of itself and, under Rule 23 of the
Federal Rules of Civil Procedure, as representative of a class defined as follows:
All persons or entities in the United States and its territories who purchased
Lamictal Chewables directly from GSK, or who purchased a generic version of
lamotrigine chewables directly from Teva, at any time during the Class Period
from at least February 17, 2008 until the effects of Defendants’ conduct
ceases (the “Class”). Excluded from the Class are Defendants and their officers,
directors, management and employees, predecessors, subsidiaries and affiliates,
and all federal governmental entities.
38.
Members of the Class are so numerous that joinder is impracticable. While the
exact number of Class members is unknown to Plaintiff, it is believed to be between
approximately fifty and one-hundred fifty. Furthermore, the Class is readily identifiable from
information and records in the possession of Defendants.
39.
Plaintiff’s claims are typical of the members of the Class. Plaintiff and all
members of the Class were damaged by the same wrongful conduct by the Defendants,
i.e., they paid artificially inflated prices for Lamictal Tablets and/or Lamictal Chewables and
were deprived of the benefits of competition from less-expensive generic versions of Lamictal
Tablets and/or Lamictal Chewables as a result of Defendants’ anticompetitive conduct.
40.
Plaintiff will fairly and adequately protect and represent the interests of the Class.
Plaintiff’s interests are coincident with, and not antagonistic to, those of the Class.
41.
Plaintiff is represented by counsel who are experienced and competent in the
prosecution of class action antitrust litigation, particularly class action antitrust litigation in the
pharmaceutical industry.
42.
Questions of law and fact common to the members of the Class
predominate over questions, if any, that may affect only individual Class members
because the Defendants have acted on grounds generally applicable to the entire Class. Such
generally applicable questions are inherent in Defendants’ wrongful conduct.
43.
Questions of law and fact common to the Class include:
a. whether the conduct alleged herein constitutes a violation of the antitrust laws;
b. whether a relevant market needs to be defined in this case in light of the existence
of direct evidence of GSK’s power to exclude generic competition and charge
supra-competitive prices for Lamictal Tablets;
c. if a relevant market needs to be defined, the definition of the relevant market for
analyzing GSK’s monopoly power, and whether GSK had monopoly power in the
relevant market;
d. whether Defendants’ actions illegally maintained Defendants’ monopoly power in
the relevant market;
e. whether Defendants’ actions constituted an illegal market allocation agreement;
f. whether the activities of Defendants as alleged herein have substantially affected
interstate commerce; and
g. whether, and to what extent, Defendants’ conduct caused antitrust injury to the
business or property of its direct purchaser customers and if so, the appropriate
measure of damages.
44.
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
on claims that may not be practicable to pursue individually, substantially outweigh any
difficulties that may arise in management of this class action.
45.
Plaintiff knows of no difficulty to be encountered in the maintenance of this
action that would preclude its maintenance as a class action.
V.
FACTUAL ALLEGATIONS
A.
The Defendants’ Products and the Nature of Sales of Generic
Equivalent Products
46.
GSK sells Lamictal Tablets in strengths of 25 mg, 100 mg, 150 mg, and 200 mg
pursuant to New Drug Application No. 20-241, which was approved by the FDA in 1994. GSK
sells Lamictal Chewables in strengths of 2 mg, 5 mg and 25 mg pursuant to New Drug
Application No. 20-764, which was approved by the FDA in August 1998. For the twelve
months ending March 2008, GSK’s sales of Lamictal Tablets in the United States exceeded $2
billion, according to IMS data. The low-dosage strength Lamictal Chewable products had
annual domestic sales of about $50 million in the twelve months preceding the market entry of
generic chewables in 2005.
47.
Upon receiving FDA approval of its NDA for Lamictal Tablets on
December 27, 1994, GSK was awarded a five-year new chemical entity (“NCE”) exclusivity,
which expired on or about December 27, 1999. During this five-year period, the FDA could not
grant final approval to any ANDA, meaning GSK’s Lamictal Tablets would be free from generic
competition for at least a five-year period. Subsequently, GSK received approval for a new
label indication for the adjunctive treatment of Lennox-Gastaut syndrome in pediatric and adult
populations. As part of that approval, Lamictal Tablets were awarded a seven-year orphan drug
exclusivity (“ODE”), commencing on August 24, 1998. Congress enacted the Orphan Drug Act,
Pub. L. No. 97-414, 96 Stat. 2049 (1982), in order to encourage firms to develop
pharmaceuticals to treat rare diseases and conditions. The Orphan Drug Act establishes a seven-
year ODE period during which no ANDA for the same use of a generic version of the drug can
be approved. 21 U.S.C. §360cc. However, ODE is indication-specific, meaning that the FDA
can approve an ANDA for non-ODE protected uses during the seven-year period. The ODE for
Lamictal Tablets expired on or about August 24, 2005, although since Lamictal Tablets were
approved for other non-ODE protected indications, ANDAs could be approved for the non-ODE
protected indications prior to August 24, 2005.
48.
GSK received FDA approval of its NDA for Lamictal Chewables in August
1998, and received a three-year marketing exclusivity for this drug. During this three-year
period, generic versions of this drug could not receive ANDA approval. ODE also applied to
Lamictal Chewables, but was subject to the same restrictions as concerns Lamictal Tablets noted
49.
The ‘017 patent, which expired on July 22, 2008, was (and has been) the only
patent listed in the Orange Book for Lamictal Tablets. The ‘017 patent, along with another
patent (U.S. Patent No. 5,698,226), were listed in the Orange Book as pertaining to Lamictal
Chewables, although as alleged below, this second patent played no role in the Patent Litigation
between GSK and Teva. In addition, in 2007 (well after execution of the Agreements between
GSK and Teva at issue here) GSK received a 6-month Pediatric Exclusivity, which is a
regulatory exclusivity that prevents the FDA from approving the generic product until six
months after (1) the expiration of the last-expiring valid, infringed, and enforceable patent listed
in the Orange Book, or (2) regulatory exclusivity in existence at the time of the granting of the
Pediatric Exclusivity, whichever is later. The application of Pediatric Exclusivity is determined
on an ANDA-by-ANDA basis in the following respects: (a) Pediatric Exclusivity will not attach
to the end of a patent as concerns any ANDA that contains a Paragraph IV certification to the
patent; and (b) Pediatric Exclusivity will not attach to the end of a patent as concerns any ANDA
that has been found not to infringe the patent. Here, with the granting of Pediatric Exclusivity,
the total exclusivity for Lamictal Tablets ended in January 22, 2009, but only as concerns those
ANDAs that (unlike Teva’s) did not contain Paragraph IV certifications to the ‘017 patent. As to
Teva’s ANDA for Lamictal Tablets, the Pediatric Exclusivity was not a bar to the FDA granting
final approval on August 30, 2006 (see below), even though the ‘017 patent expired in July 2008.
50.
On or about April 1, 2002, Teva filed ANDA No. 76-388, seeking approval
to manufacture and sell a generic version of Lamictal Tablets. A short time later, Teva filed
ANDA No. 76-420, seeking approval to manufacture and sell a generic version of Lamictal
Chewables. Teva’s ANDAs were accompanied by Paragraph IV certifications which stated that
every claim, except claim 5, of the ‘017 patent was invalid, unenforceable, and/or not infringed
by Teva’s proposed generic lamotrigine products. Claim 5, which purported to cover an
injectable solution containing lamotrigine, was not at issue since Teva was not seeking FDA
approval to sell an injectable version of lamotrigine. Teva also filed a Paragraph IV certification
to the second patent listed in the Orange Book regarding Lamictal Chewables. Since Teva was
the first generic firm to file substantially complete ANDAs for AB-rated generic equivalents to
Lamictal Tablets and Lamictal Chewables with Paragraph IV certifications to the ‘017 patent,
Teva was entitled to separate 180-day exclusivities for generic versions of Lamictal Tablets
and Lamictal Chewables, during which time no other generic manufacturers could sell generic
versions of Lamictal Tablets or Lamictal Chewables pursuant to an ANDA (although GSK had
the legal right to sell authorized generic versions of the products through its NDAs).
51.
The FDA ultimately approved Teva’s ANDA for lamotrigine chewables on June
21, 2006 and Teva’s ANDA application for lamotrigine tablets on August 30, 2006. In so
doing, the FDA found that: (a) Teva’s lamotrigine chewables are bioequivalent to GSK’s
Lamictal Chewables – i.e., that Teva’s lamotrigine chewables have the same safety and efficacy
as, and are AB-rated to GSK’s Lamictal Chewables of the same dosage strengths; and (b) Teva’s
lamotrigine tablets have the same safety and efficacy as, and are AB-rated to GSK’s Lamictal
Tablets of the same dosage strengths.
52.
On information and belief, in addition to Teva, at least four other companies filed
ANDAs to sell generic Lamictal Tablets by the time Defendants entered into the Agreements in
February 2005. On information and belief, by February 2008, that number had increased to at
least twenty-two.
53.
Further, on information and belief, by February 2008, at least 9 ANDAs for
generic Lamictal Tablets (other than Teva’s) received tentative approval.4 Two of them
received tentative approval in June 2006, even before Teva’s product was approved.
4 Tentative approval is granted to ANDAs that have satisfied FDA’s safety and efficacy
requirements, but are not eligible for final approval due to the existence of patent or regulatory
exclusivities held by other companies, such as the 30 month stay held by GSK or the 180-day
period held by Teva.
Consequently, had Teva launched its Lamictal Tablets by August of 2006, there would have been
numerous generic Lamictal Tablet products on the market by February 2008.
B.
The Patent Litigation and Settlement
54.
Soon after filing its ANDAs and Paragraph IV certifications, Teva sent GSK
notifications of the Paragraph IV certifications as required by the regulations. Within 45
days of receiving Teva’s Paragraph IV certifications to the ‘017 patent, GSK filed Civil Action
No. 02-3779 and Civil Action No. 02-4537 against Teva in federal court in New Jersey in 2002,
alleging that Teva’s two ANDAs infringed the ‘017 Patent. The two patent lawsuits were
consolidated in November 2002. Both suits were filed within 45 days of receipt of the
Paragraph IV notices from Teva, entitling GSK to automatic 30-month stays of approval of both
of Teva’s ANDAs. GSK did not sue Teva with respect to the second patent listed for Lamictal
Chewables.
55.
Following discovery, the Patent Litigation proceeded to a bench trial before Judge
Bissell from January 18 to January 27, 2005. By this time, the 30-month stays of regulatory
approval on both of Teva’s ANDAs had either expired or were about to expire, i.e., the stay on
Teva’s tablet ANDA expired on December 26, 2004, while the stay on Teva’s chewable ANDA
was set to expire on February 16, 2005. Teva, however, still had not received final approval for
either of its Lamictal ANDAs due ostensibly to outstanding safety and efficacy issues that
had yet to be resolved to the FDA’s satisfaction.
56.
On the final day of trial, Judge Bissell ruled from the bench that Teva succeeded
in establishing — by clear and convincing evidence — that claim 1 of the ‘017 patent, which
claimed the chemical compound 3,5-diamino-6-(2,3-dichlorophenyl)-l,2,4-triazine, was invalid
as anticipated by the prior art.
57.
In light of Judge Bissell’s invalidity ruling, Teva was highly likely to succeed in
invalidating the remaining asserted claims of the ‘017 patent, which included claims 3, 4 and 6-
12, based on its obviousness-type double patenting theory. That is, Judge Bissell’s ruling that
the chemical compound recited in claim 1 was anticipated by the prior art, severely weakened
GSK’s validity positions with respect to the remaining asserted claims, as explained further
58.
Before Judge Bissell, Teva argued that each of the remaining asserted claims were
invalid because of GSK’s “double patenting” of the claimed subject matter. Obviousness-type
double patenting prohibits a party (such as GSK) from obtaining an improper extension of its
patent rights by obtaining claims in a later patent that are not patentably distinct from claims in
an earlier patent. In essence, Teva’s obviousness-type double patenting theory alleged that the
remaining asserted claims of the ‘017 patent were not patentably distinct from another GSK-
owned patent that issued four years before the ‘017 patent. The earlier GSK patent, U.S.
Patent No. 4,311,701 (“the Roth patent”), similarly claimed, inter alia, “[a] method of treatment
of convulsions” using a related chemical compound (i.e., 3,5-diamino-6-(2-chlorophenyl)-
1,2,4-triazine). The Roth patent, however, expired on August 16, 1999, many years before the
expiration of the ‘017 patent. The remaining asserted claims of the ‘017 patent could not
be considered patentably distinct from the claims of the earlier Roth patent, if the remaining
asserted claims were determined to be obvious in view of the Roth claims. Each of the
remaining asserted claims of the ‘017 patent recited a method of treating convulsions or epilepsy
using the chemical compound recited in claim 1, or recited “an effective anticonvulsant amount”
of the chemical compound recited in claim 1. After the Court ruled that claim 1 of the ‘017
patent was invalid as anticipated (and accordingly, the chemical compound 3,5-diamino-6-(2,3-
dichlorophenyl)-l,2,4-triazine was in the prior art), then it was highly likely that the remaining
asserted claims would have been obvious in view of the Roth claims.
59.
Prior to the Court’s ruling, both GSK and Teva recognized the significant impact
a ruling that claim 1 was anticipated would have on the validity (or lack thereof) of the
remaining asserted claims. In fact, during closing arguments, GSK itself told the Court that
Teva’s “double patenting defense is premised on the fact that it wins on anticipation of Claim 1,”
a position which GSK described as “Teva’s position pretrial.” GSK further acknowledged that
Teva’s double patenting defense as to the remaining asserted claims required that “Teva passed
the first hurdle on anticipation.” Once that first hurdle on anticipation was surmounted by the
Court’s ruling, GSK and Teva should have known that an invalidity ruling as to each of the
remaining asserted claims was highly likely.
60.
On the final day of trial, Judge Bissell also indicated that he would
endeavor “in the course of the next week” to reach a determination on the validity of the
remaining asserted claims. An imminent ruling on the remaining asserted claims raised
concerns for both parties: (1) for Teva, that a final court decision could lead to the triggering of
its 180-day exclusivity period for its generic version of Lamictal Tablets and Lamictal
Chewables before Teva had received final FDA approval; and (2) for GSK, that generic entry
may be imminent for Lamictal Tablets and Lamictal Chewables.
(1)
A Court Decision Would Dramatically Affect the Market Conditions
61.
Assuming, as the parties must have in light of the Court’s invalidation of claim 1,
it was highly likely that Teva would prevail in demonstrating the asserted claims of the ‘017
patent were invalid, then Teva would have been permitted to start selling its products
immediately upon FDA approval, which was ultimately granted in 2006. Notably, because Teva
was sued under the same patent claims and patent infringement theories for its generic versions
of both Lamictal Tablets and Lamictal Chewables, its chances of invalidating the asserted claims
were the same for its generic versions of both products.
62.
Moreover, the successful invalidation of the asserted claims of the ‘017 patent
would dramatically change the competitive landscape for both GSK and Teva. Under the
applicable statutory regime, Teva’s 180-day exclusivity period would begin to run from the
earlier of either: (1) Teva’s first commercial marketing of either generic product (although a
launch of generic Lamictal Tablets would not trigger the 180-day period on generic Lamictal
Chewables, and vice versa); or (2) a final court decision holding the ‘017 patent invalid,
unenforceable, or not infringed regardless of whether Teva had commenced sales. Thus, the
entry of a final court decision invalidating the asserted claims of the ‘017 patent would start the
clock on Teva’s 180-day exclusivity period for that patent even if Teva did not have FDA-
approval to sell the product(s).
63.
Moreover, the invalidation of the asserted claims of the ‘017 patent would open
the floodgates of competition for Lamictal Tablets and Lamictal Chewables because within six
months after such final decision invalidating the asserted claims other generics would be
permitted to start selling their AB-rated generic products upon receiving FDA final approval.
Also, if the asserted claims of the ‘017 patent were invalid, Pediatric Exclusivity would not apply
to prevent FDA approval of all ANDA applications by other generic manufacturers of either
Lamictal Tablets or Chewables. The Pediatric Exclusivity does not attach to the end of any
patent that has been found to be invalid or unenforceable, and it does not apply to any ANDA
applications that are accompanied by a Paragraph IV certification that the patent is invalid or not
infringed by the proposed ANDA product unless and until there is a court decision which
affirmatively holds that the patent is both valid and infringed by the ANDA product at issue.
64.
In the alternative, even if there was no final decision in the Patent
Litigation by August 2006 (when Teva had received final approval on both of its
ANDAs, and after the 30-month approval stay had expired), then Teva could have entered the
market “at-risk” for both tablets and chewables, thus triggering the start of its 180-day periods
and allowing any other approved ANDA filers to come to market six months later.
65.
It is well known in the industry that Teva is the most prolific launcher of generic
versions of brand-name drugs “at-risk,” that launching at-risk is a core part of its business
strategy, that Teva possesses insurance covering portions of this risk, and that as a multibillion-
dollar-a-year company Teva possesses the financial wherewithal above and beyond “at-risk”
insurance to cover potentially non-insured losses stemming from at-risk launches. It is also well
known that most “at-risk” launches, or threats of them, generally give rise to settlements of the
associated patent litigation that allow the less expensive generic product to remain on the market.
Here, Teva would have been motivated to launch “at-risk” because, after successfully
invalidating claim 1 of the ‘017 patent, it would have had a high level of confidence that it would
win the patent suit.
(2)
It Would Be to Teva and GSK’s Financial Disadvantage If The Court
Invalidated the Patent
66.
The invalidation of all of the asserted ‘017 patent claims posed risks to both GSK
and Teva. GSK faced the danger that if the court invalidated the other patent claims (which was
highly likely), there would be a dramatic reduction in future revenue due to the loss of patent
exclusivity of Lamictal Tablets and Lamictal Chewables. The highly likely probability that Teva
might win the trial also placed Teva in a quandary because a successful final court decision
would trigger the beginning of Teva’s 180-day exclusivity period for its generic Lamictal Tablets
and Lamictal Chewables prior to receiving FDA approval, which meant that Teva would lose
some (if not all) of its valuable exclusivity. As alleged above, Teva’s ANDA application
for generic lamotrigine chewables did not receive final approval until June 21, 2006 and its
ANDA application for generic lamotrigine tablets did not receive Final Approval until August
30, 2006. Accordingly, if the January 2005 bench trial resulted in a final court decision before
December 2005, then Teva’s 180-day exclusivity would be triggered by a court decision and
expire for both generic Lamictal Tablets and generic Lamictal Chewables before Teva could
even bring those products to market. Any other competing generic that had final approval of
their ANDAs for generic versions of Lamictal Tablets or Lamictal Chewables as of June 2006
(after Teva’s exclusivity period had expired) could enter the market before (or at the same time)
as Teva. As alleged above, when the Defendants entered into their illegal agreement, four other
companies had already filed ANDAs to sell generic Lamictal Tablets, and over the next two
years 20 more generics filed ANDAs. Moreover, at least one generic rival received tentative
approval in June 2006 for its generic Lamictal Tablets, even before Teva’s product was
approved. So, Teva faced the risk that if its 180-day exclusivity ended before its product was
approved another rival’s product might enter the market before Teva’s, thereby gaining not only
the significant profits during that period but also the long-term “first-mover” advantage.
67.
Thus, GSK had an interest in delaying Teva’s entry for as long as possible so that
GSK could continue to earn monopoly profits on both Lamictal Tablets and Lamictal Chewables,
and Teva had an interest delaying a final court decision until it would be in a position to take
advantage of its valuable 180-day exclusivity for generic Lamictal Tablets and Lamictal
Chewables.
68.
Recognizing the risks to both parties (i.e., that it was highly likely that GSK
would lose its patent protection entirely and that Teva might not be permitted to take full
advantage of its success), the parties immediately started settlement negotiations, and on
February 2, 2005, the parties had a conference with the Court during which they asked the Court
to refrain from ruling on the validity of the remaining claims.
69.
Two weeks following that conference, GSK and Teva reached a settlement, the
terms of which are set forth in the Agreements. The Settlement Agreement expressly provides
that the inducements set forth in the Agreements are part of the “consideration” that GSK offered
Teva “in reaching agreement to settle.”
70.
The settlement permitted Teva to sell limited amounts of generic lamotrigine
chewables in the U.S., by no later than June 1, 2005 – approximately 37 months prior to the
expiration of the ‘017 patent. Even though Teva’s ANDA to sell its generic version of Lamictal
Chewables did not receive final approval from the FDA until June 2006, GSK supplied Teva
with chewable lamotrigine product, which Teva began selling as an authorized generic on May
25, 2005.
71.
Under the Agreements, GSK additionally granted Teva: (a) a royalty-free, non-
transferable license under the ‘017 patent to import, manufacture, have manufactured and have
sold Teva’s generic version of Lamictal Tablets in the United States5, starting on July 21, 2008,
at 5:00 p.m. Pacific time, which was when the ‘017 patent expired; and (b) a waiver of any
potential Pediatric Exclusivity applicable to Teva’s generic version of Lamictal Tablets. Even if
GSK ultimately received Pediatric Exclusivity, it would have little or no value – such exclusivity
5 Includes Puerto Rico.
would not apply against Teva unless Judge Bissell found the ‘017 patent valid and infringed by
Teva’s ANDA products prior to Teva entering the market (which it could have done at risk
upon receiving final FDA approval). Thus Pediatric Exclusivity as to Teva’s ANDA was at
best a conditional, theoretical right which could not ripen, because at the time of the Agreements,
the court did not enter a judgment finding the ‘017 patent valid and infringed. In fact, at the time
of the Agreements, no Pediatric Exclusivity had been granted to GSK by the FDA (it was
received in 2007 after the FDA finally approved Teva’s generic Lamictal Tablet, and after
Teva’s generic Lamictal Tablet could have been on the market “at risk” but for the Agreements –
and it could not have applied to Teva). Thus, even though Teva had already succeeded in
invalidating the claim covering the chemical compound lamotrigine, which is the active
ingredient of Lamictal, and even though it was highly likely that the Court would invalidate the
patent’s other asserted claims, the settlement had no procompetitive benefit because it gave little
or no discount or reduction to the patent’s exclusionary power (i.e., Teva agreed to settle without
gaining any right to enter with its generic version of Lamictal Tablets prior to the patent’s
expiration).
72.
Furthermore, even though Teva’s generic versions of both Lamictal Tablets
and Lamictal Chewables were subject to the same patent claims (and thus, Teva’s chances of
litigation success were the same for both products), Teva was allowed to start selling a generic
version of the significantly smaller product within three months after the settlement, while it
agreed to wait at least three years (until the expiration of the patent term) to start selling a generic
version of the more than $2 billion a year product. The significantly different entry dates reflect
the fact that the parties did not structure the settlement to reasonably reflect the probability that
Teva would successfully invalidate all asserted claims of the patent. Rather, it reflects the reality
that Teva was given financial inducements to delay entry of its generic Lamictal Tablet product.
73.
Because Teva’s generic versions of Lamictal Chewables were AB-rated only to
the low-dosage strength branded Lamictal Chewables and were not AB-rated to Lamictal
Tablets, the generic versions Lamictal Chewables that Teva sold could not be substituted for
branded Lamictal Tablets, and thus prior to July 2008 Teva could not provide lower-priced
generic substitutes for Lamictal Tablets that would: (a) be broadly substituted for the higher-
priced Lamictal Tablets, or (b) otherwise efficiently compete with branded Lamictal Tablets.
Furthermore, the agreement to delay Teva’s generic version of Lamictal Tablets from entering
the market until after the close of business on July 21, 2008 and GSK’s agreement to refrain
from launching its own authorized generic Lamictal Tablet until January 2009 had no
procompetitive benefit because GSK was conferring rights under the Agreements which were
beyond the exclusionary scope of the ‘017 patent, which expired in July 2008.
74.
Teva received significant consideration, incentives, and benefits in exchange
for its agreement to delay generic entry by: (a) abandoning its efforts to invalidate the asserted
claims of the ‘017 patent; and (b) not competing against GSK’s Lamictal Tablets with a less-
expensive generic version until the ‘017 patent expired. First, Teva was permitted to enter the
U.S. market within a few months with an authorized generic version of the much smaller
Lamictal Chewables product. In pleadings from a subsequent Teva-GSK litigation, GSK
acknowledged that its agreement allowing Teva to enter in three months with a generic version
of the smaller Lamictal Chewable product “formed part of the bargain between GSK and Teva”
and was one of the “benefits” that Teva received for agreeing to abandon its efforts to invalidate
the ‘017 patent.
75.
Second, because Teva was not ready to take advantage of its 180-day marketing
exclusivity in January 2005, the agreement to delay entry virtually guaranteed Teva the right to
use all or most of its 180-day exclusivity periods for Lamictal Tablets. GSK also benefitted
because the Agreements delayed not only the entry of Teva but other generics as well. Thus, by
and through these Agreements, Teva and GSK afforded themselves a mutually beneficial
guarantee of higher revenues at the expense of their customers.
76.
In addition to the above incentives provided to Teva for its agreement to delay
launch of a Lamictal Tablet generic, GSK further agreed to not to launch an authorized generic
until January 2009, (i.e., 180 days after Teva was on the market with Lamictal Tablets, and over
three years after Teva was on the market with Lamictal Chewables). This constituted a naked
agreement not to compete, which extended beyond the exclusionary scope of the patent,
which was due to expire in July 2008. At the time these Agreements were drafted, a
pharmaceutical company such as GSK that marketed a brand-name drug under an NDA would
often introduce – either by itself or through an affiliate – an authorized generic at the same time
or just before generic entry was anticipated. As of 2005, GSK had a history of launching
authorized generic versions of its own blockbuster branded products in the face of actual or
impending competition from ANDA-based generics. See supra at paragraph 24.
77.
A brand company’s launch of an authorized generic is extremely damaging
to any first-filer generic, such as Teva, because it results in lost market share (i.e., fewer units
sold), reduced profits because price competition between the generic and authorized generic
forces down prices, and a reduction in the generic’s long-term “first mover advantage.” As the
FTC noted in a June 2009 report on Authorized Generics, “consumers benefit and the
healthcare system saves money during the 180-day exclusivity period when an [Authorized
Generic] enters the market, due to the greater discounting that accompanies the added
competition provided by the [Authorized Generic].”
78.
Notably, while a brand company can lower the prices on its brand products
instead of launching an authorized generic (which was an option left open to GSK under the
Settlement), that option does not present the same danger to a generic such as Teva, and does not
result in the same savings to purchasers. This is because many states have regulations that either
require or strongly encourage pharmacists to automatically fill prescriptions with only an AB-
rated generic version of a drug in most situations. Thus, even if an NDA holder (such as GSK)
lowers the price of its brand drug, state regulations are a barrier that prevent or impede the
branded drug from being used for most prescriptions. The result is that most of a generic’s sales
volume is unaffected by a reduction in the brand price and the generic does not feel the
competitive pressure to lower its prices in response to a drop in the branded price (in contrast to
the situation where a branded company launches an authorized generic). Thus, while an NDA
holder can try to compete against a generic drug through various means other than launching an
authorized generic, those competitive options are far weaker and do not provide nearly the
consumer savings and benefits as the launch of a true authorized generic. Consequently, GSK’s
agreement to restrict its competitive responses to far less effective, secondary options was an
illegal, anticompetitive agreement by which the parties agreed to restrict until January 2009
competition that would undermine Teva’s prices, and consequently resulted in overcharges to
purchasers.
79.
Indeed, in its June 2009 report regarding Authorized Generics, the FTC expressly
concluded that a generic manufacturer might agree to delay the sale of its generic product in
exchange for a brand company’s agreement (such as the one involved here) to not launch an
authorized generic to consumers’ detriment:
To prevent this loss of revenue, a generic may be willing to delay its entry in
return for a brand’s agreement not to launch an authorized generic – that is, a
brand’s agreement not to compete with the generic through an AG – during the
generic’s 180 days of marketing exclusivity…Such agreements can harm
consumers . . . .
80.
According to Teva’s pleadings in a 2008 litigation regarding these products,
during the settlement negotiations GSK and Teva specifically considered the possibility that
GSK might want to sell an authorized generic during Teva’s six-month exclusivity periods, but
the parties agreed that GSK would not be permitted to do so. According to Teva, GSK’s
agreement to not launch an authorized generic until January 2009 was a critical and central
consideration for Teva’s acceptance of the settlement and delayed entry dates for generic
Lamictal Tablets. For example, Teva stated in the 2008 litigation, that GSK’s agreement to not
compete against Teva by selling an authorized generic during the first 180 days in which Teva
was selling generic Lamictal Tablets was:
[A]n important component of the settlement between the parties and formed
part of the inducement to Teva to relinquish the rights and defenses it was
asserting against GSK in the Patent Litigation.
* * *
. . . the key consideration Teva bargained for in [the License and Supply
Agreement]. (Emphasis added).
81.
GSK's agreement to not launch its own authorized generic Lamictal product(s)
before January 2009 was not a legitimate independent, self-standing, bona fide business
transaction. As Teva has admitted, GSK agreed to the provision to induce Teva to relinquish the
rights and defenses it was asserting against GSK in the Patent Litigation and to get Teva to agree
to delayed entry dates for its generic Lamictal Tablets. GSK believed it would be profitable to
launch its own authorized generic Lamictal product(s), as evidenced by GSK's long-standing
practice of launching such authorized generic products. Thus, aside from inducing Teva to
agree to relinquish its patent defenses and delay its market entry, GSK had no financial or
economic interest in agreeing to not launch its own authorized generic Lamictal product(s)
before January 2009 and it would not have done so.
82.
Thus, according to Teva, GSK’s agreement to not launch an authorized generic
was a “key” and “important” consideration of Teva’s decision to relinquish its attacks on the
‘017 patent’s validity. Indeed, Teva received more from the settlement than it would have
received if it had won the patent litigation. That is, Teva extracted a market allocation
agreement that entitled it to the entire generic market for Lamictal Tablets for its 180-day
exclusivity period and restrained competition in the generic market for Lamictal Chewables.
83.
Absent GSK’s illegal agreement to refrain from competing against Teva by
selling an authorized generic prior to January 2009 (and absent the valuable financial
inducements alleged above), Teva would have sought an entry date for its generic version of
Lamictal Tablets earlier than the entry date it accepted in the Settlement. As Teva
acknowledged in its pleadings in the subsequent litigation, Teva believed that GSK’s
agreement to not launch an authorized generic was critical because Teva was only getting a short
period of time to sell its generic Lamictal Tablet product before other generics were free to enter
the market. As Teva stated, GSK’s agreement to refrain from competing against Teva by selling
an authorized generic prior to January 2009 was:
critical here, because the benefit conferred to Teva from this License
Agreement was of such a short duration. GSK’s pediatric exclusivity under its
patent was to expire on January 22, 2009. . . . Thus, the benefit to Teva of the
License Agreement was a brief, six-month window in which it would be the
first and only supplier of generic lamotrigine.
(emphasis added).
84.
On April 4, 2005, the parties filed a Stipulation and Order of Dismissal in the
Patent Litigation seeking the dismissal of all claims and counterclaims. On the same day the
Court signed the dismissal, it also entered an order withdrawing the bench ruling that invalidated
claim 1 of the ‘017 patent.
C.
Teva’s Exclusive Launch of Generic Lamotrigine Tablets.
85.
Despite having received FDA approval to launch lamotrigine tablets almost
two years earlier, Teva delayed launching its generic version of Lamictal Tablets until after the
close of business on July 21, 2008 (the earliest date permitted under the terms of the Agreements
with GSK).
86.
Pursuant to the Agreements between GSK and Teva, GSK did not launch its own
authorized generic of either Lamictal Tablets or Lamictal Chewables in competition with Teva
prior to January 2009.
87.
Although Teva has alleged in the subsequent litigation that GSK
implemented a scheme to slow Teva’s market penetration for its generic version of Lamictal
Tablets, none of GSK’s conduct had the effect of constraining or reducing the pricing of Teva’s
generic Lamictal Tablets during the exclusivity period in the same way that competition from an
authorized generic would.
88.
On information and belief, Teva’s 180-day market exclusivity period enabled
it to generate many millions of dollars of additional revenue at the expense of purchasers who
would have paid lower prices for Teva’s generic lamotrigine tablets had GSK launched an
authorized generic.
89.
Because of Teva’s 180-day exclusivity on generic versions of Lamictal Tablets,
which was secured by and through the anticompetitive Agreements at issue, no other generic was
allowed to launch, and none in fact did launch, prior to January 22, 2009. By the end of January
2009, at least three other firms (i.e., Mylan, Watson, and Dr. Reddy’s) launched generic versions
of Lamictal Tablets.
D.
Defendants’ Conduct Delayed Generic Competition and Enabled Defendants
To Wrongfully Charge Supra-Competitive Prices for Lamotrigine Tablets and
Lamotrigine Chewables.
90.
Teva’s 180-day exclusivity period for its generic version of Lamictal
Tablets would have been triggered earlier if GSK and Teva had not agreed to delay entry of
Teva’s generic Lamictal Tablets product until July 22, 2008 because (a) absent the inducements
GSK gave Teva, the settlement would have provided for an earlier entry of Teva’s less expensive
generic version of Lamictal Tablets; and/or (b) Teva would have launched its generic Lamictal
Tablet product upon receipt of final FDA approval in August 2006, either “at-risk” or after
successfully invalidating the asserted claims of the ‘017 patent (which was highly likely).
Instead, because of the unlawful Agreements, Teva did not enter until July 2008, leaving their
180-day exclusivity in place and thereby blocking final FDA approval and entry of other generic
versions of Lamictal Tablets until January 2009.
91.
The Agreements between Teva and GSK guaranteed that Teva’s generic
exclusivity period for generic Lamictal Tablets would not be triggered by a final court decision
before Teva received FDA approval of that ANDA, and provided Teva with the full 180 days of
exclusive generic sales on that product.
92.
The Agreements between Teva and GSK guaranteed that GSK would have three
more years of exclusivity on the blockbuster Lamictal Tablet product with no generic
competition for the entire patent term even though it was highly likely that the remaining patent
claims would have been invalidated in 2005.
93.
In exchange for Teva’s delaying its launch of its generic version of the Lamictal
Tablet until close of business on July 21, 2008, Teva secured: (1) the right to almost immediately
launch a generic equivalent of the Lamictal Chewable product, which generated some limited
profit for Teva, but created much smaller consumer savings and benefits than an earlier launch of
the Lamictal Tablet product (i.e., any consumer welfare generated by the earlier launch of
generic lamotrigine chewables pales in comparison to the consumer harm created by the
anticompetitive delay in entry of the generic lamotrigine tablets); (2) a guarantee on its
ability to fully exploit its 180-day exclusivity period relating to its generic version of Lamictal
Tablets; and (3) GSK’s agreement not to compete with Teva by not marketing an authorized
generic for both Lamictal Tablets and Lamictal Chewables until January 2009.
94.
Defendants’ unlawful conduct, therefore, delayed not only the launch of less
expensive generic versions of Lamictal Tablets, but prevented GSK’s launch of authorized
generic products in competition with Teva’s generic versions of Lamictal Tablets and Lamictal
Chewables prior to January 2009.
95.
Moreover, the Agreements between GSK and Teva which delayed Teva’s launch
of the generic Lamictal Tablets and guaranteed Teva’s exclusivity period on that product without
competition from a GSK authorized generic were not necessary for the settlement of the Patent
Litigation and constitute ancillary restraint of trade.
VI.
EFFECT ON INTERSTATE COMMERCE
96.
At all material times, Lamictal Tablets and Lamictal Chewables, manufactured
and sold by GSK, and generic versions of Lamictal tablets manufactured by Teva, were shipped
across state lines and sold to customers located outside its state of manufacture.
97.
During the relevant time period, in connection with the purchase and sale of
Lamictal Tablets and Lamictal Chewables (and Teva’s generic versions of those products),
monies as well as contracts, bills and other forms of business communication and transactions
were transmitted in a continuous and uninterrupted flow across state lines.
98.
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 telephone commerce. The activities of Defendants, as charged in this
Complaint, were within the flow of, and have substantially affected, interstate commerce.
VII.
RELEVANT MARKET
99.
Direct proof exists that GSK had monopoly power over the price of lamotrigine
tablets and their AB-rated generic equivalents. Such direct evidence will include, inter alia: (a)
manufacturers’ and/or market-wide transactional data that will show a significant, non-transitory
decline in lamotrigine tablet prices upon entry of AB- rated generic lamotrigine tablets that had
not occurred until generic entry; and (b) abnormally high price-cost margins enjoyed by GSK
prior to the entry of such generic competition. This direct evidence of monopoly power obviates
the need to define a relevant product market in assessing whether GSK had monopoly power.
100.
Even at their monopoly price, Lamictal Tablet products do not exhibit significant,
positive cross-elasticity of demand with respect to price with any products other than AB rated
generic versions of Lamictal Tablets.
101.
Lamotrigine Tablets – i.e. Lamictal Tablets (in all its forms and dosage strengths),
and AB-rated equivalent lamotrigine tablets – constitute a separate and distinct product market.
The relevant geographic market is the United States and its territories. A firm that was the only
seller of such products in the United States could and would impose a significant, non-
transitory price increase without losing sufficient sales to render the price increase
unprofitable, as demonstrated by GSK’s ability to profitably charge supra-competitive prices
during the period in which it lacked generic competition. There are no reasonably
interchangeable drug products that are available to prescribing physicians for the indications for
which lamotrigine tablets are prescribed.
102.
At all relevant times, GSK enjoyed high barriers to entry with respect to the
above-defined relevant market due to patent and other regulatory protections, and high costs of
entry and expansion.
103.
Through the anticompetitive conduct alleged herein, Defendants were able to
profitably charge supra-competitive prices for lamotrigine tablet products without losing
substantial sales, and thus, by definition, maintained monopoly power with respect to lamotrigine
tablet products sold in the United States.
104.
GSK’s market share in the relevant market was 100% until the entry of AB-rated
generics.
105.
Lamotrigine chewable products – i.e., Lamictal Chewables (in all its forms and
dosage strengths), and AB-rated equivalent lamotrigine chewable products – constitute a separate
and distinct relevant product market. The relevant geographic market is the United States
and its territories. A firm that was the only seller of such products in the United States could and
would impose a significant, non-transitory price increase without losing sufficient sales to render
the price increase unprofitable, as demonstrated by GSK’s ability to profitably charge supra-
competitive prices during the period in which it lacked generic competition. There are no
reasonably interchangeable drug products that are available to prescribing physicians for the
indications for which lamotrigine chewables are prescribed.
106.
At all relevant times, there have been high barriers to entry with respect to the
above-defined relevant market due to patent and other regulatory protections, and high costs of
entry and expansion.
107.
Through the anticompetitive conduct alleged herein, Defendants were able to
profitably charge supra-competitive prices for lamotrigine chewable products.
VIII. FIRST CAUSE OF ACTION
VIOLATION OF SECTION 1 OF THE SHERMAN ACT (15 U.S.C. §1)
(CONSPIRACY TO DELAY GENERIC COMPETITION
FOR LAMICTAL TABLETS)
108.
Plaintiff incorporates and re-alleges 1 to 107 of the foregoing Paragraphs herein,
as though fully set forth below.
109.
Beginning in or about February 2005 and continuing through January 2009, GSK
and Teva engaged in a continuing illegal contract, combination and conspiracy in restraint
of trade, the purpose and effect of which was to: (a) allocate all sales of lamotrigine tablets in the
United States to GSK until July 21, 2008; (b) fix the price at which Plaintiff and the other
members of the Class would pay for lamotrigine tablets at the higher, branded price during that
period; and (c) prevent the sale of generic versions of lamotrigine tablets other than Teva’s
(including GSK’s authorized generic versions) in the United States until at least January 22,
110.
GSK's agreement to not launch its own authorized generic Lamictal Tablets
before January 2009 was not a legitimate independent, self-standing, bona fide business
transaction. As Teva has admitted, GSK agreed to the provision to induce Teva to relinquish the
rights and defenses it was asserting against GSK in the Patent Litigation and to get Teva to agree
to delayed entry dates for its generic Lamictal Tablet. GSK believed it would be profitable to
launch its own authorized generic Lamictal Tablets, as evidenced by GSK's long-standing
practice of launching such authorized generic products. Thus, aside from inducing Teva to
agree to relinquish its patent defenses and delay its market entry, GSK had no financial or
economic interest in agreeing to not launch its own authorized generic Lamictal Tablets before
January 2009 and it would not have done so.
111.
By entering into these unlawful conspiracies, Defendants have unlawfully
conspired in restraint of trade and committed a violation of Section 1 of the Sherman Act, 15
U.S.C. §1. Defendants’ Agreements are horizontal market allocation and price fixing
agreements between actual or potential competitors and thus are per se violations of Section 1.
In the alternative, Defendants’ Agreements are unreasonable restraints of trade in violation of
Section 1 when viewed under a “quick look” or “rule of reason” mode of analysis.
112.
Plaintiff and all members of the Class have been injured in their business and
property by reason of Defendants’ unlawful contract, combination and conspiracy. Plaintiff and
the Class members have paid more for their purchases of Lamictal Tablets and/or Teva’s generic
lamotrigine tablets than they would have paid absent Defendants’ illegal conduct, and/or were
prevented from substituting a cheaper generic alternative for their purchases of the more
expensive Lamictal Tablets and/or Teva’s generic equivalent.
113.
As a result of Defendants’ illegal conduct, Plaintiff and the Class paid more than
they would have paid for lamotrigine tablets, absent Defendants’ illegal conduct. But for
Defendants’ illegal conduct, competitors would have begun marketing AB-rated generic versions
of lamotrigine tablets well before July 2008 (including GSK through the launch of an authorized
generic), and/or would have been able to market such versions more successfully.
114.
If manufacturers of AB-rated generic lamotrigine tablets entered the market
and competed with Lamictal Tablets in a full and timely fashion (including GSK through the
launch of an authorized generic), Plaintiff and other Class members would have substituted
lower-priced generic lamotrigine tablets for the higher-priced brand- name Lamictal Tablets for
some or all of their lamotrigine requirements, and/or would have paid lower prices on some or all
of their remaining purchases of GSK’s Lamictal Tablets and/or Teva’s generic equivalent.
115.
During the relevant period, Plaintiff and the other Class members purchased
substantial amounts of Lamictal Tablets directly from GSK and/or their generic equivalent
directly from Teva. As a result of the Defendants’ illegal conduct alleged herein, Plaintiff and the
other Class members were compelled to pay, and did pay, artificially inflated prices for their
lamotrigine tablet requirements. Plaintiff and the other Class members paid prices for
lamotrigine tablets that were substantially greater than the prices they would have paid absent the
illegal conduct alleged herein because: (1) Class members were deprived of the opportunity to
purchase lower-priced generic lamotrigine tablets instead of expensive brand-name Lamictal
Tablets; (2) Class members were forced to pay artificially inflated prices for generic lamotrigine
tablets; and/or (3) the price of brand-name Lamictal Tablets was artificially inflated by
Defendants’ illegal conduct.
IX.
SECOND CAUSE OF ACTION
VIOLATION OF SECTION 1 OF THE SHERMAN ACT (15 U.S.C. §1)
(CONSPIRACY NOT TO COMPETE WITH GENERIC LAMICTAL TABLETS)
116.
Plaintiff incorporates and re-alleges 1 to 107 of the foregoing Paragraphs herein,
as though fully set forth below.
117.
Beginning in or about February 2005 and continuing through January 2009, GSK
and Teva engaged in a continuing illegal contract, combination and conspiracy in restraint
of trade, in which GSK agreed to not sell its competing authorized generic version of lamotrigine
tablets until at least January 22, 2009.
118.
As alleged above, as of 2005, GSK had a history of launching authorized generic
versions of its own blockbuster branded products in the face of actual or impending competition
from ANDA-based generics. Moreover, while GSK’s use of DAW5 codes and discounts to
certain retailers did not significantly constrain or reduce the price of Teva’s generic Lamictal
Tablets, the fact that GSK used DAW5 discounts to ineffectively compete against Teva’s generic
Lamictal tablets evidences that GSK was motivated, but for the anticompetitive Agreements, to
price compete against Teva’s generic product. Consequently, but for Defendants’ illegal
conduct, GSK would have sold its authorized generic version of Lamictal Tablets starting in July
2008 (or earlier if Teva had started selling its generic version of Lamictal tablets earlier).
119.
GSK's agreement to not launch its own authorized generic Lamictal tablets
before January 2009 was not a legitimate independent, self-standing, bona fide business
transaction. As Teva has admitted, GSK agreed to the provision to induce Teva to relinquish the
rights and defenses it was asserting against GSK in the Patent Litigation and to get Teva to agree
to delayed entry dates for its generic versions of Lamictal tablets. GSK believed it would be
profitable to launch its own authorized generic Lamictal tablets, as evidenced by GSK's long-
standing practice of launching such authorized generic products. Thus, aside from inducing
Teva to agree to relinquish its patent defenses and delay its market entry, GSK had no financial
or economic interest in agreeing to not launch its own authorized generic Lamictal tablets before
January 2009 and it would not have done so.
120.
By entering into this unlawful conspiracy, Defendants have unlawfully conspired
in restraint of trade and committed a violation of Section 1 of the Sherman Act, 15 U.S.C. § 1.
Defendants’ Agreement is a horizontal market allocation agreement between actual or potential
competitors and thus are per se violations of Section 1. In the alternative, Defendants’
Agreements are unreasonable restraints of trade in violation of Section 1 when viewed under a
“quick look” or “rule of reason” mode of analysis.
121.
Defendants’ agreement that GSK would not launch an authorized generic version
of Lamictal Tablets until after January 2009 did not constitute GSK’s unilateral exercise of any
legitimate patent power. As an initial matter, GSK’s decision not to launch an authorized
generic was not the result of GSK’s unilateral decision but one that was made at a rival’s request
as consideration for the rival’s agreement to stay off the market until July 2008. Furthermore,
GSK’s collusive agreement to constrain how it competed against Teva was not an exercise of
any patent power GSK had to exclude Teva, but rather GSK’s agreement to exclude its own
generic product that it would have otherwise sold. Thus, the agreement has nothing to do with
whether or how GSK exercised its patent powers but its agreement to limit its ability/willingness
to compete. Moreover, the agreement that GSK would not launch an authorized generic to
compete against Teva encompassed the period from July 2008 through January 2009, after the
‘017 patent had expired and during a period in which no other GSK exclusivities barred Teva
from the market. So pursuant to the illegal agreement, GSK withheld its authorized generic from
the market during a period that was outside the temporal scope of the ‘017 patent and/or any
other exclusivities that applied to Teva.
122.
Plaintiff and all members of the Class have been injured in their business and
property by reason of Defendants’ unlawful contract, combination, and conspiracy. Plaintiff and
the Class members have paid more for their purchases of Lamictal Tablets and/or Teva’s generic
lamotrigine tablets than they would have paid absent Defendants’ illegal conduct, and/or were
prevented from substituting a cheaper generic alternative for their purchases of the more
expensive Lamictal Tablets and/or Teva’s generic equivalents.
123.
As a result of Defendants’ illegal conduct, Plaintiff and the Class paid more than
they would have paid for lamotrigine tablets, absent Defendants’ illegal conduct. Had GSK
launched an authorized generic version of Lamictal Tablets (as it was motivated to do), Plaintiff
and other Class members would have substituted lower-priced generic lamotrigine tablets for the
higher-priced brand-name Lamictal Tablets for some or all of their lamotrigine requirements,
and/or would have paid lower prices on some or all of their remaining purchases of GSK’s
Lamictal and/or Teva’s generic equivalents.
124.
During the relevant period, Plaintiff and the other Class members purchased
substantial amounts of Lamictal Tablets directly from GSK and/or their generic equivalent
directly from Teva. As a result of the Defendants’ illegal conduct alleged herein, Plaintiff and the
other Class members were compelled to pay, and did pay, artificially inflated prices for their
lamotrigine tablet. Plaintiff and the other Class members paid prices for lamotrigine tablets that
were substantially greater than the prices they would have paid absent the illegal conduct
alleged herein because: (1) Class members were deprived of the opportunity to purchase
lower-priced generic lamotrigine tablets instead of expensive brand-name Lamictal Tablets;
(2) Class members were forced to pay artificially inflated prices for generic lamotrigine tablets;
and/or (3) the price of brand-name Lamictal Tablets were artificially inflated by Defendants’
illegal conduct.
X.
THIRD CAUSE OF ACTION
VIOLATION OF SECTION 2 OF THE SHERMAN ACT (15 U.S.C. § 2) AGAINST
GSK
(MONOPOLIZATION OF LAMICTAL TABLETS MARKET)
125.
Plaintiff incorporates and re-alleges 1 to 107 of the foregoing Paragraphs in this
Complaint, as though fully set forth below.
126.
Defendant GSK used various willful and exclusionary means as part of a scheme
described herein to improperly maintain and extend its monopoly power in the lamotrigine tablet
market, as detailed above.
127.
GSK combined, conspired and contracted with Teva to unreasonably and
unlawfully restrain and monopolize trade and to attempt to monopolize trade with specific
intent, and GSK did in fact monopolize trade in the United States in the market for lamotrigine
tablets, and to eliminate competition in the sale of Lamictal Tablets and their generic equivalents
in the United States.
128.
The goal, purpose and/or effect of GSK’s scheme was also to maintain and extend
GSK’s monopoly power with respect to lamotrigine tablets. GSK’s illegal scheme to
prevent, delay and/or minimize the success of the introduction into the United States marketplace
of any generic version of Lamictal Tablets enabled GSK to continue charging supra-competitive
prices for lamotrigine tablets without a substantial loss of sales.
129.
GSK's agreement to not launch its own authorized generic Lamictal tablets
before January 2009 was not a legitimate independent, self-standing, bona fide business
transaction. As Teva has admitted, GSK agreed to the provision to induce Teva to relinquish the
rights and defenses it was asserting against GSK in the Patent Litigation and to get Teva to agree
to delayed entry dates for its generic Lamictal tablets. GSK believed it would be profitable to
launch its own authorized generic Lamictal tablets, as evidenced by GSK's long-standing
practice of launching such authorized generic products. Thus, aside from inducing Teva to
agree to relinquish its patent defenses and delay its market entry for generic versions of Lamictal
Tablets, GSK had no financial or economic interest in agreeing to not launch its own authorized
generic Lamictal tablets before January 2009 and it would not have done so.
130.
As a result of GSK’s illegal conduct, Plaintiff and the Class paid more than they
would have paid for lamotrigine tablets, absent GSK’s illegal conduct. But for GSK’s illegal
conduct, competitors would have begun marketing AB-rated generic versions of Lamictal
Tablets well before July 2008 (including GSK through the launch of an authorized generic),
and/or would have been able to market such versions more successfully.
131.
If manufacturers of AB-rated generic lamotrigine tablets entered the market
and competed with Lamictal Tablets in a full and timely fashion (including GSK through the
launch of an authorized generic), Plaintiff and other Class members would have substituted
lower-priced generic lamotrigine tablets for the higher-priced brand-name Lamictal Tablets for
some or all of their lamotrigine tablet requirements, and/or would have received lower prices on
some or all of their remaining purchases of GSK’s Lamictal Tablets and/or Teva’s generic
equivalents.
132.
During the relevant period, Plaintiff and the other Class members purchased
substantial amounts of Lamictal Tablets directly from GSK and/or their generic equivalents
directly from Teva. As a result of GSK’s illegal conduct alleged herein, Plaintiff and the other
Class members were compelled to pay, and did pay, artificially inflated prices for their
lamotrigine tablet requirements. Plaintiff and all of the other Class members paid prices for
lamotrigine tablets that were substantially greater than the prices that they would have paid
absent the illegal conduct alleged herein because: (1) Class members were deprived of the
opportunity to purchase lower priced generic lamotrigine tablets instead of expensive brand-
name Lamictal Tablets; (2) Class members were forced to pay artificially inflated prices for
generic lamotrigine tablets; and/or (3) the price of branded Lamictal Tablets were artificially
inflated by GSK’s illegal conduct.
133.
GSK’s scheme was in the aggregate an act of monopolization undertaken with the
specific intent to monopolize the market for lamotrigine tablets in the United States, in violation
of Section 2 of the Sherman Act, 15 U.S.C. §2.
XI.
FOURTH CAUSE OF ACTION
VIOLATION OF SECTION 2 OF THE SHERMAN ACT (15 U.S.C. § 2)
(CONSPIRACY TO MONOPOLIZE LAMICTAL TABLETS MARKET)
134.
Plaintiff incorporates and re-alleges 1 to 107 and 125 to 133 of the
foregoing Paragraphs in this Complaint, as though fully set forth below.
135.
GSK and Teva combined, conspired and contracted to unreasonably and
unlawfully restrain and monopolize trade and to attempt to monopolize trade with specific intent,
and GSK and Teva did in fact conspire to monopolize trade in the United States in the market for
lamotrigine tablets, and to eliminate competition in the sale of Lamictal Tablets and their generic
equivalents in the United States.
136.
The goal, purpose and/or effect of GSK and Teva’s conspiracy was also to
maintain and extend GSK’s monopoly power with respect to lamotrigine tablets. GSK and
Teva’s illegal conspiracy to prevent, delay and/or minimize the success of the introduction into
the United States marketplace of any generic version of Lamictal Tablets enabled GSK to
continue charging supra-competitive prices for lamotrigine tablets without a substantial loss
of sales.
137.
GSK and Teva committed overt acts in furtherance of the conspiracy including,
inter alia, GSK's agreement to not launch its own authorized generic Lamictal tablets before
January 2009, which was not a legitimate independent, self-standing, bona fide business
transaction. As Teva has admitted, GSK agreed to the provision to induce Teva to relinquish the
rights and defenses it was asserting against GSK in the Patent Litigation and to get Teva to agree
to delayed entry dates for its generic Lamictal tablet. GSK believed it would be profitable to
launch its own authorized generic Lamictal tablets, as evidenced by GSK's long-standing
practice of launching such authorized generic products. Thus, aside from inducing Teva to
agree to relinquish its patent defenses and delay its market entry, GSK had no financial or
economic interest in agreeing to not launch its own authorized generic Lamictal tablets before
January 2009 and it would not have done so.
138.
As a result of GSK and Teva’s illegal conduct, Plaintiff and the Class paid more
than they would have paid for lamotrigine tablets, absent Defendants’ illegal conduct. But for
GSK and Teva’s illegal conduct, competitors would have begun marketing AB-rated generic
versions of Lamictal Tablets well before July 2008 (including GSK through the launch of an
authorized generic), and/or would have been able to market such versions more successfully.
139.
If manufacturers of AB-rated generic lamotrigine tablets entered the market
and competed with Lamictal Tablets in a full and timely fashion (including GSK through the
launch of an authorized generic), Plaintiff and other Class members would have substituted
lower-priced generic lamotrigine tablets for the higher-priced brand- name Lamictal Tablets for
some or all of their lamotrigine tablet requirements, and/or would have received lower prices on
some or all of their remaining purchases of GSK’s Lamictal Tablets and/or Teva’s generic
equivalents.
140.
During the relevant period, Plaintiff and the other Class members purchased
substantial amounts of Lamictal Tablets directly from GSK and/or their generic equivalents
directly from Teva. As a result of GSK and Teva’s illegal conduct alleged herein, Plaintiff and
the other Class members were compelled to pay, and did pay, artificially inflated prices for their
lamotrigine tablet and lamotrigine chewable requirements. Plaintiff and all of the other Class
members paid prices for lamotrigine tablets that were substantially greater than the prices that
they would have paid absent the illegal conduct alleged herein because: (1) Class members were
deprived of the opportunity to purchase lower priced generic lamotrigine tablets instead of
expensive brand-name Lamictal Tablets; (2) Class members were forced to pay artificially
inflated prices for generic lamotrigine tablets; and/or (3) the price of branded Lamictal Tablets
were artificially inflated by GSK and Teva’s illegal conduct.
141.
GSK and Teva’s illegal conduct had an effect on interstate commerce as alleged
in paragraphs 96 to 98 above.
142.
GSK and Teva’s conduct was in the aggregate a conspiracy undertaken with the
specific intent to monopolize the market for lamotrigine tablets in the United States, in violation
of Section 2 of the Sherman Act, 15 U.S.C. §2.
XII.
FIFTH CAUSE OF ACTION
VIOLATION OF SECTION 1 OF THE SHERMAN ACT (15 U.S.C. §1)
(CONSPIRACY NOT TO COMPETE WITH GENERIC LAMICTAL
CHEWABLES)
143.
Plaintiff incorporates and re-alleges 1 to 107 of the foregoing Paragraphs herein,
as though fully set forth below.
144.
Beginning in or about February 2005 and continuing through January 2009, GSK
and Teva engaged in a continuing illegal contract, combination and conspiracy in restraint
of trade, in which GSK agreed to not sell its competing authorized generic version of lamotrigine
chewables until at least January 22, 2009.
145.
As alleged above, as of 2005, GSK had a history of launching authorized generic
versions of its own blockbuster branded products in the face of actual or impending competition
from ANDA-based generics. Moreover, while GSK’s use of DAW5 codes and discounts to
certain retailers did not significantly constrain or reduce the price of Teva’s generic Lamictal
tablets, the fact that GSK used DAW5 discounts to ineffectively compete against Teva’s generic
Lamictal tablets evidences that GSK was motivated, but for the anticompetitive Agreements, to
price compete against Teva’s generic product. Consequently, but for Defendants’ illegal
conduct, GSK would have sold its authorized generic version of Lamictal Chewables starting in
June 2006 (or earlier if Teva had started selling its generic version of Lamictal Chewables
earlier).
146.
GSK's agreement to not launch its own authorized generic Lamictal Chewables
before January 2009 was not a legitimate independent, self-standing, bona fide business
transaction. As Teva has admitted, GSK agreed to the provision to induce Teva to relinquish the
rights and defenses it was asserting against GSK in the Patent Litigation and to get Teva to agree
to delayed entry dates for its generic versions of Lamictal Tablets and Lamictal Chewables. GSK
believed it would be profitable to launch its own authorized generic Lamictal Chewables, as
evidenced by GSK's long-standing practice of launching such authorized generic products.
Thus, aside from inducing Teva to agree to relinquish its patent defenses and delay its market
entry, GSK had no financial or economic interest in agreeing to not launch its own authorized
generic Lamictal Chewables before January 2009 and it would not have done so.
147.
By entering into this unlawful conspiracy, Defendants have unlawfully conspired
in restraint of trade and committed a violation of Section 1 of the Sherman Act, 15 U.S.C. §1.
Defendants’ Agreement is a horizontal market allocation agreement between actual or potential
competitors and thus are per se violations of Section 1. In the alternative, Defendants’
Agreements are unreasonable restraints of trade in violation of Section 1 when viewed under a
“quick look” or “rule of reason” mode of analysis.
148.
Defendants’ agreement that GSK would not launch an authorized generic version
of Lamictal Chewables until after January 2009 did not constitute GSK’s unilateral
exercise of any legitimate patent power. As an initial matter, GSK’s decision not to launch an
authorized generic was not the result of GSK’s unilateral decision but one that was made at a
rivals’ request as consideration for, among other things, the rivals’ agreement to stay off the
market for more than three months on the Lamictal Chewables product. Furthermore, GSK’s
collusive agreement to constrain how it competed against Teva was not an exercise of any patent
power GSK had to exclude Teva, but rather GSK’s agreement to exclude its own generic product
that it would have otherwise sold. Thus, the agreement has nothing to do with whether or how
GSK exercised its patent powers but its agreement to limit its ability/willingness to compete.
Moreover, the agreement that GSK would not launch an authorized generic to compete against
Teva encompassed the period from at least June 2006 through January 2009, after the ‘017 patent
had expired and during a period in which no other GSK exclusivities barred Teva from the
market. So pursuant to the illegal agreement, GSK withheld its authorized generic from the
market during a period that was outside the temporal scope of the ‘017 patent and/or any other
exclusivities that applied to Teva.
149.
Plaintiff and all members of the Class have been injured in their business and
property by reason of Defendants’ unlawful contract, combination, and conspiracy. Plaintiff and
the Class members have paid more for their purchases of Lamictal Chewables and/or Teva’s
generic lamotrigine chewables than they would have paid absent Defendants’ illegal
conduct, and/or were prevented from substituting a cheaper generic alternative for their
purchases of the more expensive Lamictal Chewables and/or Teva’s generic equivalents.
150.
As a result of Defendants’ illegal conduct, Plaintiff and the Class paid more than
they would have paid for lamotrigine chewables, absent Defendants’ illegal conduct. Had GSK
launched an authorized generic version of Lamictal Chewables (as it was motivated to do),
Plaintiff and other Class members would have substituted lower- priced generic lamotrigine
chewables for the higher-priced brand-name Lamictal Chewables for some or all of their
lamotrigine requirements, and/or would have paid lower prices on some or all of their remaining
purchases of GSK’s Lamictal Chewables and/or Teva’s generic equivalents.
151.
During the relevant period, Plaintiff and the other Class members purchased
substantial amounts of Lamictal Chewables directly from GSK and/or their generic equivalent
directly from Teva. As a result of the Defendants’ illegal conduct alleged herein, Plaintiff and the
other Class members were compelled to pay, and did pay, artificially inflated prices for their
lamotrigine chewable requirements. Plaintiff and the other Class members paid prices for
lamotrigine chewables that were substantially greater than the prices they would have paid
absent the illegal conduct alleged herein because: (1) Class members were deprived of the
opportunity to purchase lower-priced generic lamotrigine chewables instead of expensive brand-
name Lamictal Chewables; (2) Class members were forced to pay artificially inflated prices for
generic lamotrigine chewables; and/or (3) the price of brand-name Lamictal Chewables were
artificially inflated by Defendants’ illegal conduct.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, on behalf of itself and the proposed class, respectfully prays for
judgment against all Defendants, jointly and severally, as follows:
1.
That the Court adjudge and decree that the Defendants and each of them have
violated Sections 1 and 2 of the Sherman Antitrust Act;
2.
That the Plaintiff, and all others similarly situated, be awarded damages suffered
by reason of these violations and that those damages be trebled in accordance with the law;
3.
That the Plaintiff be awarded reasonable attorney’s fees and costs; and
4.
That any and all rights that Teva may have under the Hatch-Waxman Act be
declared null and void and of no further effect; and
5.
Such other and further relief as the Court may deem just and proper.
JURY TRIAL DEMANDED
Pursuant to Federal Rule of Civil Procedure 38(b), Plaintiff demands a trial by jury of all
claims and complaints in this Complaint so triable.
Respectfully Submitted,
COHN LIFLAND PEARLMAN
HERMANN & KNOPF LLP
Dated: November 12, 2015
/s/ Peter S. Pearlman
Peter Pearlman
Park 80 West - Plaza One
250 Pehle Avenue, Suite 401
Saddle Brook, N.J. 07663
(201) 845-9600
(201) 845-9423 (fax)
[email protected]
David F. Sorensen
BERGER & MONTAGUE, P.C.
1622 Locust Street
Philadelphia, PA 19103
(215) 875-3000
(215) 875-4604 (fax)
[email protected]
Peter R. Kohn
Joseph T. Lukens
FARUQI & FARUQI, LLP
101 Greenwood Avenue
Suite 600
Jenkintown, PA 19046
(215) 277-5770
(215) 277-5771 (fax)
[email protected]
Counsel for Rochester Drug Co-Operative, Inc. and the Proposed Class
CERTIFICATE OF NON-ARBITRABILITY
PURSUANT TO L.CIV.R. 201.1(d)(3)
I certify, pursuant to L.Civ.R. 201.1(d)(3), that the above-captioned matter is not
arbitrable because the damages recoverable exceed the sum of $150,000 exclusive of
interest and costs and any claim for punitive damages.
I certify under penalty of perjury that the foregoing is true and correct. Executed
On this 12th day of November, 2015
COHN LIFLAND PEARLMAN
HERRMANN & KNOPF LLP
By: /s/ Peter S. Pearlman
CERTIFICATION PURSUANT TO L. CIV. R. 11.2
I certify that to the best of my knowledge, the matter in controversy is the subject another
action pending in this court: In re: Lamictal Direct Purchaser Antitrust Litigation, Civil Action
No.: 12-995 (WHW/MCA).
I certify under penalty of perjury that the foregoing is true and correct. Executed
on this 12th day of November, 2015
COHN LIFLAND PEARLMAN
HERRMANN & KNOPF LLP
By: s/ Jeffrey W. Herrmann
| antitrust |
P0MF_YgBF5pVm5zYE5YJ | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
TAMMY RAUL, Individually and on Behalf of
All Others Similarly Situated,
Plaintiff,
v.
Civil Action No.
CLASS ACTION COMPLAINT FOR
VIOLATIONS OF THE FEDERAL
SECURITIES LAWS
JURY TRIAL DEMANDED
AMTRUST FINANCIAL SERVICES, INC.,
BARRY ZYSKIND, GEORGE KARFUNKEL,
LEAH KARFUNKEL, DONALD T.
DECARLO, ABRAHAM GULKOWITZ,
SUSAN C. FISCH, RAUL RIVERA, and
MARK SEROCK,
Defendants.
Plaintiff Tammy Raul (“Plaintiff”) by and through her undersigned attorneys, brings this
class action on behalf of herself and all others similarly situated, and alleges the following based
upon personal knowledge as to those allegations concerning Plaintiff and, as to all other matters,
upon the investigation of counsel, which includes, without limitation: (a) review and analysis of
public filings made by AmTrust Financial Services, Inc. (“AmTrust” or the “Company”) and
other related parties and non-parties with the United States Securities and Exchange Commission
(“SEC”); (b) review and analysis of press releases and other publications disseminated by certain
of the Defendants (defined below) and other related non-parties; (c) review of news articles,
shareholder communications, and postings on AmTrust’s website concerning the Company’s
public statements; and (d) review of other publicly available information concerning AmTrust
and the Defendants
NATURE OF THE ACTION
1.
Plaintiff brings this class action on behalf of the public shareholders of AmTrust
against the Company’s Board of Directors (the “Board” or the “Individual Defendants”) for their
violations of Section 14(a) and 20(a) of the Securities Exchange Act of 1934, 15.U.S.C. §§
78n(a), 78t(a), and SEC Rule 14a-9, 17 C.F.R. 240.14a-9, in connection with the proposed
merger of the Company in a cash transaction with Evergreen Parent, L.P. (“Evergreen” or
“Parent”) (the “Proposed Transaction”).
2.
On March 1, 2018, AmTrust announced that the Company had entered into an
Agreement and Plan of Merger (the “Merger Agreement” or “the Proposed Transaction”) with
Evergreen, a Delaware limited partnership owned by Trident VII, L.P. and its affiliated funds
(“Trident”), K-Z LLC, Defendant Barry D. Zyskind, Chairman and CEO of the Company,
George Karfunkel and Leah Karfunkel (such individuals, collectively, the “Karfunkel Family” or
the “Controlling Shareholders”), and Evergreen Merger Sub, Inc. (“Merger Sub”), pursuant to
which Evergreen will acquire all of the outstanding common shares, par value $0.01 per share
(the “Common Stock”), of the Company that are not currently owned or controlled by the
Karfunkel Family and its affiliates and certain related parties. The Karfunkel Family and its
affiliates and certain related parties currently own or control approximately 55% of the
outstanding shares of Common Stock of the Company.
3.
The Merger Agreement provides for the merger of Merger Sub with and into the
Company, with the Company surviving the merger as a subsidiary of Evergreen (the “Merger”).
Pursuant to the transactions contemplated by the Merger Agreement, each outstanding share of
Common Stock of the Company (other than shares owned by the Company, any wholly-owned
subsidiary of the Company, Merger Sub, Parent, or holders who have properly exercised
dissenters’ rights under Delaware law) will be converted into the right to receive $13.50 per
share of Common Stock in cash, without interest and less any required withholding taxes (the
“Merger Consideration”).
4.
The Proposed Transaction also contains restrictive deal protection devices that
preclude the defendants from being able to adequately shop the Company in the best interests of
the shareholders. The deal protection devices include: (i) a “no-shop” provision that restricts the
Company’s ability to solicit alternative acquisition proposals for third parties; and (ii) a
termination fee of $33 million that AmTrust must pay to Evergreen.
5.
On April 9, 2018 the Company filed with the SEC an incomplete and misleading
Proxy Statement (the “Proxy Statement”) in connection with the Proposed Transaction. The
Proxy Statement omits material information regarding the Proposed Transaction. Accordingly,
Plaintiff alleges that Defendants have violated Sections 14(a) and 20(a) of the Securities
Exchange Act of 1934 in connection with the Proxy Statement.
6.
As set forth more fully herein, Plaintiff seeks to enjoin Defendants from
proceeding with the Proposed Transaction.
JURISDICTION AND VENUE
7.
This Court has subject matter jurisdiction over all claims asserted herein pursuant
to Section 27 of the Exchange Act, 15 U.S.C § 78aa, and 28 U.S.C. § 1331, as Plaintiff alleges
violations of Sections 14(a) and 20(a) of the Exchange Act.
8.
This Court has personal jurisdiction over all of the Defendants because each is
either a corporation that conducts business in, solicits shareholders in, and/or maintains
operations within, this District, or is an individual who is either present in this District for
jurisdictional purposes or has 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.
9.
Venue is proper under 28 U.S.C. § 1391 because a substantial portion of the
transactions and wrongs complained of herein occurred in this District. Further, the Company’s
principal executive offices are located in this District.
THE PARTIES
10.
Plaintiff has been the owner of the common stock of AmTrust since prior to the
transaction herein complained of and continuously to date.
11.
Defendant AmTrust is a Delaware corporation with its principal executive offices
located at 59 Maiden Lane, 43rd Floor, New York, NY 10038. The Company’s stock trades on
the NASDAQ under the ticker “AFSI.”
12.
Defendant Barry Zyskind (“Zyskind”) has been a member of the Board since
1998 and Chairman of the Board since May 2016. Defendant Zyskind has also been the
Company’s CEO and President since 2000. As of March 31, 2018, Defendant Zyskind
beneficially owns 44,864,556 shares of the Company’s common stock, representing 22.9% of the
Company’s issued and outstanding shares. In his role as the Company’s CEO, President, and
director for fiscal year 2017, Defendant Zyskind received $1,980,104 in total compensation.1
13.
Defendant George Karfunkel (“G. Karfunkel”) has been a member of the Board
since 1998. Defendant G. Karfunkel is a founding stockholder of the Company. As of March
31, 2018, Defendant G. Karfunkel beneficially owns 32,438,408 shares of the Company’s
common stock, representing 16.5% of the Company’s issued and outstanding shares. Defendant
G. Karfunkel is the brother-in-law of Leah Karfunkel.
1 Includes salary, bonus, stock awards and all other compensation.
14.
Defendant Leah Karfunkel (“L. Karfunkel”) has been a member of the Board
since May 2016. As of March 31, 2018, Defendant L. Karfunkel beneficially owns 22,101,025
shares of the Company’s common stock, representing 11.3% of the Company’s issued and
outstanding shares.
15.
Defendant Donald T. Decarlo (“Decarlo”) has been a member of the Board since
2006. Defendant DeCarlo is a member of the Boards Audit Committee, Nominating and
Corporate Governance Committee, and Chair of the Compensation Committee.
16.
Defendant Abraham Gulkowitz (“Gulkowitz”) has been a member of the Board
since 2006. Defendant Gulkowitz is a member of the Company’s Nominating and Corporate
Governance Committee, and Chair of the Audit Committee.
17.
Defendant Susan C. Fisch (“Fisch”) has been a member of the Board since 2010.
Defendant Fisch is a member of the Company’s Audit Committee, Nominating and Corporate
Governance Committee, and Compensation Committee.
18.
Defendant Raul Rivera (“Rivera”) has been a member of the Board since August
2016. Defendant Rivera is a member of the Company’s Compensation Committee.
19.
Defendant Mark Serock (“Serock”) has been a member of the Board since March
20.
Defendants Zyskind, G. Karfunkel, L. Karfunkel, Decarlo, Fisch, Gulkowitz,
Rivera, and Serock are collectively referred to herein as the “Individual Defendants.”
CLASS ACTION ALLEGATIONS
21.
Plaintiff brings this class action pursuant to Fed. R. Civ. P. 23 on behalf of herself
and the other public stockholders of AmTrust (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 because.
a.
The Class is so numerous that joinder of all members is impracticable. As
of March 1, 2018, there were 196,091,789 shares of AmTrust common stock outstanding, held
by hundreds to thousands of individuals and entities scattered throughout the country. The actual
number of public stockholders of AmTrust will be ascertained through discovery;
b.
There are questions of law and fact that are common to the Class that
predominate over any questions affecting only individual members, including the following:
i. whether Defendants have misrepresented or omitted material information
concerning the Proposed Transaction in the Proxy Statement in violation
of Section 14(a) of the Exchange Act;
ii. whether the Individual Defendants have violated Section 20(a) of the
Exchange Act; and
iii. whether Plaintiff and other members of the Class will suffer irreparable
harm if compelled to vote their shares regarding the Proposed Transaction
based on the materially incomplete and misleading Proxy Statement.
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
f.
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; and
g.
A class action is superior to other available methods for fairly and
efficiently adjudicating the controversy.
SUBSTANTIVE ALLEGATIONS
Background of the Company
23.
AmTrust is an insurance holding company incorporated in New Jersey, with its
principal executive offices located in New York.
24.
The Company provides specialty property and casualty insurance products,
including, but not limited to workers’ compensation, commercial automobile, general liability,
and extended service and warranty coverage through its primary insurance subsidiaries rated “A”
by A.M. Best, a U.S.-based rating agency that focuses on the insurance industry.
The Company Announces the Proposed Transaction
25.
On March 1, 2018, AmTrust issued a press release announcing that that the
Company had entered into the Merger Agreement. Pursuant to the terms of the Merger
Agreement, AmTrust will be acquired by Evergreen, an entity formed by private equity funds
managed by Stone Point, together with the Karfunkel Family. The public shareholders of
AmTrust will receive $13.50 per share in cash upon consummation of the Proposed Transaction.
26.
The March 1, 2018 press release stated, in pertinent part:
NEW YORK, March 01, 2018 (GLOBE NEWSWIRE) -- AmTrust Financial
Services, Inc. (Nasdaq:AFSI) (“AmTrust” or the “Company”) announced today
that it has entered into a definitive agreement with Evergreen Parent, L.P., an
entity formed by private equity funds managed by Stone Point Capital LLC
(“Stone Point”), together with Barry D. Zyskind, Chairman and CEO of AmTrust,
George Karfunkel and Leah Karfunkel (collectively, the “Karfunkel-Zyskind
Family”), in which Evergreen Parent will acquire the approximately 45% of the
Company’s issued and outstanding common shares that the Karfunkel-Zyskind
Family and certain of its affiliates and related parties do not presently own or
control. The transaction values the fully diluted equity of the Company at
approximately $2.7 billion, excluding the Company’s outstanding preferred stock.
Under the terms of the proposed merger, AmTrust common shareholders who are
not affiliated with the Karfunkel-Zyskind Family (the “Public Shareholders”) will
receive $13.50 in cash for each share of AmTrust common stock they hold. This
represents a premium of 33% to the Company’s unaffected closing common stock
price on January 9, 2018, the last trading day before Stone Point and the
Karfunkel-Zyskind Family announced their proposal to acquire all of the
outstanding common shares of AmTrust that the Karfunkel-Zyskind Family did
not already own or control. The Karfunkel-Zyskind Family and certain of its
affiliates and related parties will rollover their shares in the Company for interests
in Evergreen Parent. Each share of the Company’s currently outstanding
preferred stock will remain outstanding and it is expected that they will continue
to be listed on the New York Stock Exchange following the consummation of the
transaction.
The proposed merger is anticipated to close in the second half of 2018, subject to
satisfaction or waiver of the closing conditions, including approval by regulatory
authorities and the Company’s shareholders, including approval by a majority of
the shares of the Company not owned or controlled by the Karfunkel-Zyskind
Family, their children, senior management or their respective affiliates and certain
related parties. The Company will file a Current Report on Form 8-K with the
Securities and Exchange Commission which will more fully describe the terms
and conditions of the proposed merger.
AmTrust’s Board of Directors has unanimously approved the proposed merger
based upon the unanimous recommendation of a Special Committee of the Board
of Directors, which was composed of independent directors not affiliated with the
Karfunkel-Zyskind Family and advised by its own financial and legal advisors.
The Special Committee and the Board each recommend that the Company’s
Public Shareholders approve the merger and adopt the merger agreement.
Background of the Proposed Transaction
27.
On November 9, 2017, the very day that the price of Company stock hit its
historic all time low, Defendants claim that representatives from Stone Point contacted
Defendant Zyskind, in order to inquire as to whether the Karfunkel Family would consider
sponsoring a going private transaction of the Company in partnership with Stone Point.
28.
Defendant Zyskind advised the Board of Stone Point’s interest at meeting of the
Board on November 16, 2017, where the Board determined to permit Stone Point to conduct due
diligence in connection with a potential going private transaction.
29.
On November 17, 2017, Stone Point entered into a confidentiality agreement with
the Company and thereafter commenced its due diligence investigation.
30.
On December 27, 2017, Defendant Zyskind indicated to the Board that, at the
request of certain representatives of Stone Point, Defendant Zyskind was seeking the Board’s
approval to permit Stone Point to discuss a potential transaction with the Karfunkel Family,
including the possible submission of a joint indication of interest to the Board regarding a
potential acquisition of the outstanding shares of common stock of the Company not held or
controlled by the Karfunkel Family and its affiliates and certain related parties.
31.
On December 28, 2017, the Board held a conference call to discuss the formation
of a special committee to consider any indication of interest that may be submitted by Stone
Point and the Karfunkel Family. The Board designated the Special Committee and appointed as
its members Defendants DeCarlo, Fisch, Gulkowitz and Rivera, with the expectation that the
Special Committee would engage an independent financial advisor and independent counsel to
assist the Special Committee and, to evaluate any such proposal.
32.
On January 2, 2018, the Special Committee interviewed several law firms,
including Willkie Farr & Gallagher LLP (“Wilkie Farr”), to consider the retention of a legal
advisor to the Special Committee. After discussion, the Special Committee retained Willkie Farr
to represent the Special Committee.
33.
On January 4, 2018, the Special Committee interviewed representatives of several
potential financial advisors to the Special Committee, including Deutsche Bank Securities, Inc.
(“Deutsche Bank”). In early January, representatives of Willkie Farr met representatives of the
Company to discuss the legal due diligence process in respect of the potential proposal.
34.
On January 8, 2018, the Special Committee met and resolved to permit funds
managed by Stone Point and the Karfunkel Family to make an acquisition proposal to the Board.
Willkie Farr reviewed with the Special Committee the responses to independence questionnaires
(which had been circulated to the Special Committee by Willkie Farr) submitted by Defendants
DeCarlo, Fisch, Gulkowitz and Rivera. Following discussion, the Special Committee
determined that each was independent with respect to a potential proposal from funds managed
by Stone Point and the Karfunkel Family.
35.
The Special Committee instructed Willkie Farr to deliver to the Company
proposed resolutions of the Board further authorizing the Special Committee to consider any
such proposal and enumerating its general and specific powers in that regard for approval and
ratification by the full Board.
36.
On January 9, 2018, the Board adopted the resolutions proposed by the Special
Committee. Among other things, the resolutions ratified the appointment of Defendants
DeCarlo, Fisch, Gulkowitz and Rivera as members of the Special Committee, including the
appointment of DeCarlo as chairman of the Special Committee, and authorized the Special
Committee to evaluate a proposal from the Karfunkel Family and any other bidder affiliated or
working with the Karfunkel Family and, if the Special Committee were to deem it appropriate
and advisable, to negotiate and make recommendations to the Board with respect to such a
proposal and a potential transaction with the Karfunkel Family and any such other bidder. In
addition, the resolutions authorized the Special Committee to consult with and advise
management, on behalf of the Board, in connection with discussions and negotiations concerning
potential terms and conditions of such a proposal, consider such other matters as may be
requested by the Board, make any recommendations to the Board concerning such a proposal
that the Special Committee deemed appropriate, and determine to elect to pursue or not to pursue
such a proposal.
37.
On January 9, 2018, the Special Committee met with Willkie Farr to discuss the
results of the Special Committee’s interviews of potential financial advisors. After discussion,
the Special Committee determined to retain Deutsche Bank as its financial advisor.
38.
In the late afternoon of January 9, 2018, Trident Pine and the Karfunkel Family
submitted to the Board a letter (the “Proposal Letter”) containing a proposal to acquire all of the
shares of Common Stock that were not then owned or controlled by the Karfunkel Family and its
affiliates and certain related parties at a purchase price of $12.25 per share in cash (the “Initial
Proposal”).
39.
On January 12, 2018, management of the Company provided to the Special
Committee and Deutsche Bank a copy of the Company’s financial projections which had been
prepared by management in connection with management’s annual budgeting process. These
projections (the “Budget Projections”) had also previously been delivered to the Board by
Company management on December 20, 2017.
40.
On January 19, 2018, the Company issued a press release announcing that the
Special Committee had engaged Deutsche Bank as its financial advisor in connection with the
potential transaction. The press release also noted that the Company had engaged Bank of
America Merrill Lynch (“BofA Merrill Lynch”) as its financial advisor.
41.
On January 24, 2018, the Special Committee met with representatives of its
financial and legal advisors and received a general status update, including….“various pre-
existing derivative and class action shareholder lawsuits and other proceedings involving the
Company, including the shareholder derivative lawsuit commenced in April 2015 on behalf of
the Company by Cambridge Retirement System. Among other issues, the Special Committee
discussed with its legal advisors’ analysis concerning the value of the 2017 Derivative Actions
asserted on behalf of the Company that, if successful, could result in judgments in the
Company’s favor and are, therefore, assets of the Company to be considered by the Special
Committee as part of its review of a potential sale of the Company.”
42.
Also on January 24, 2018, members of the Company’s management provided the
Special Committee and representatives of Deutsche Bank with Company management’s updated
estimates of the future financial performance of the Company (the “Case 1 Projections”),
reflecting certain adjustments to the Budget Projections as a result of the Tax Cuts and Jobs Act
of 2017, recent transactions involving the Company, and updated estimates of the Company’s
operating results for the fourth quarter of 2017 and the full year 2017.
43.
On January 29, 2018, the Special Committee met with its financial and legal
advisors, noting that the Case 1 Projections were inconsistent with the financial analysts’
consensus estimates for the Company and the Company’s peer group. The Special Committee
members also discussed the fact that the Case 1 Projections did not appear to reflect certain
adverse industry trends and Company issues.
44.
On January 31, 2018, upon the request of the Special Committee, the Company’s
management provided the Special Committee and representatives of Deutsche Bank with
Company management’s alternate case of the future financial performance of the Company (the
“Case 2 Projections”) reflecting alternate estimates for gross written premiums, combined ratio,
underwriting profits and operating earnings. The Case 2 Projections had been prepared as
requested by the Special Committee as an alternate case reflecting a more challenging operating
environment as well as the reputational and business pressures faced by the Company and slower
growth. The result was a lower valuation for the Company.
45.
On February 1, 2018, the Special Committee met with Willkie Farr to receive a
review and analysis by Willkie Farr and the Special Committee’s Delaware counsel, Richards
Layton & Finger, P.A. (“Richards Layton”), concerning the valuation of the 2015 Derivative
Action, and the 2017 Derivative Actions, asserted on the Company’s behalf.
46.
Based upon the review and analysis by Willkie Farr and Richards Layton, the
Special Committee estimated the present value of the derivative actions as an asset of the
Company, to be “on the high end of an estimated range of $15 million to $25 million.”
47.
On February 7, 2018, the Special Committee directed representatives of Deutsche
Bank to deliver a counterproposal of $17.50 per share to Stone Point and the Karfunkel Family.
48.
On February 14, 2018, the Special Committee and representatives of its financial
and legal advisors met with certain representatives of Stone Point and the Karfunkel Family, as
well as their respective counsel. Following discussion among the parties, representatives of
Stone Point and the Karfunkel Family indicated that they expected to submit a revised proposal
within the range of $12.85 to $12.90 per share. Later that day, an initial draft of the Merger
Agreement relating to the potential transaction was circulated.
49.
On February 22, 2018, the Special Committee and its legal and financial advisors
met to review draft Special Committee Case Projections. Following discussion, at the direction
of the Special Committee, representatives of Deutsche Bank delivered a revised counteroffer of
$15.10 per share to representatives of Stone Point and the Karfunkel Family. The following day,
representatives of Stone Point and the Karfunkel Family contacted representatives of Deutsche
Bank to communicate a revised “best and final” counteroffer of $13.00 per share.
50.
On February 26, 2018, the Special Committee was informed of a revised
counteroffer by the Company of $14.00 to be communicated to Defendant Zyskind. Following
discussion with Stone Point, Trident Pine and the Karfunkel Family agreed on a “best and final”
offer of $13.50 per share and Defendant Zyskind communicated this offer to the Special
Committee.
51.
On February 28, 2018, the Special Committee again met with representatives of
its financial and legal advisors to consider the proposed transaction, including the Merger
Agreement and related ancillary agreements. After discussion, the Special Committee
unanimously determined that the Merger Agreement, the merger and the other transactions
contemplated by the Merger Agreement were fair, advisable and in the best interests of the
Company and the Public Stockholders and recommended that the Board approve the merger, the
Merger Agreement and the related ancillary agreements and the transactions contemplated
thereby.
52.
Following the Special Committee meeting, the full Board, based in part on the
recommendation of the Special Committee, unanimously approved the merger, the Merger
Agreement and the related ancillary agreements and the transactions contemplated thereby. The
following day, on March 1, 2018, the Company issued a press release announcing the entry into
the Merger Agreement.
The Proposed Transaction is Unfair to Shareholders
53.
The Proposed Transaction, as currently contemplated, is unfair to the Company’s
shareholders.
54.
Throughout negotiations, Defendants took actions that were to the detriment of
the Company’s shareholders. For instance, despite the lengthy negotiation process, consisting of
several offers that the Board deemed inadequate, the Board made no attempt during that period
to seek a superior offer from a suitor other than Evergreen.
55.
Moreover, when entering into the Merger Agreement, the Company’s Board
agreed to preclusive deal protection devices that ensure that no competing offers for AmTrust
will be forthcoming.
56.
Specifically, pursuant to the Merger Agreement, Defendants agreed to: (i) a “no-
shop” provision that restricts the Company’s ability to solicit alternative acquisition proposals for
third parties; and (ii) a termination fee of $33 million that AmTrust must pay to Evergreen in
cash, essentially requiring an unsolicited bidder to pay a premium to provide a superior offer to
the Company and its shareholders.
57.
These deal protection provisions, particularly when considered collectively,
substantially and improperly limited the Board’s ability to act with respect to investigating and
pursuing superior proposals and alternatives, including a sale of all or part of AmTrust. Given
that the preclusive deal protection provisions in the Merger Agreement impede a superior bidder
from emerging, it is imperative that the Company’s shareholders receive all material information
necessary for them to cast a fully informed vote at the shareholder meeting concerning the
Proposed Transaction
FALSE AND MISLEADING STATEMENTS
AND/OR MATERIAL OMISSIONS IN THE PROXY STATEMENT
58.
On April 9, 2018, the Company filed the Proxy Statement with the SEC. The
Proxy Statement recommends that the Company’s stockholders vote in favor of the Proposed
Transaction.
59.
Defendants were obligated to carefully review the Proxy Statement prior to its
filing with the SEC and dissemination to the Company’s unitholders to ensure that it did not
contain any material misrepresentations or omissions. However, the Proxy Statement
misrepresents and/or omits material information that is necessary for the Company’s
shareholders to make informed decisions concerning whether to vote in favor of the Proposed
Transaction.
60.
Specifically, the Proxy Statement contains materially incomplete and/or
misleading information regarding, among others: (i) information regarding the Company’s
financial projections; (ii) potential conflicts of interest of the financial advisor to the Special
Committee, as well as the Company’s financial advisor; (iii) potential conflicts of interest of the
Company’s executive officers and Board members; (iv) interests of management and the Special
Committee; and (v) the process leading up the Proposed Transaction.
Material False and Misleading Statements or Material
Misrepresentations or Omissions Regarding AmTrust’s Financial Projections
61.
First, the Proxy Statement fails to provide material information concerning the
Company’s financial projections. Specifically, while the Proxy Statement discloses the Special
Committee Case Projections (Case 1, Case 2, and Downside Projections), the Proxy Statement
fails to disclose the Budget Projections prepared by management in connection with
management’s annual budgeting process.
62.
Disclosure of the above information is material, as it would provide the
Company’s shareholders with information regarding the Company’s potential future financial
performance, allowing shareholders to be fully informed when deciding whether to vote in favor
or against the Proposed Transaction.
Material False and Misleading Statements or Material Misrepresentations
or Omissions Regarding Potential Conflicts of Interest of the Financial Advisors
63.
Next, the Proxy Statement omits material information concerning potential
conflicts of interest of Deutsche Bank and BofA Merrill Lynch. The Proxy Statement provides,
in pertinent part:
One or more members of the DB [Deutsche Bank] Group have, from time to time,
provided investment banking, commercial banking (including extension of credit)
and other financial services to Stone Point, affiliates of which are equity holders
of Parent, and its affiliates and portfolio companies for which they have received,
and in the future may receive, compensation, including acting as sole bookrunner
on a $22 million follow-on offering of shares for Eagle Point Credit Company,
Inc., a portfolio company of Stone Point, in May 2016. One or more members of
the DB Group have, from time to time, provided commercial banking (including
extension of credit) and other financial services to the Company and its affiliates
for which they have received, and in the future may receive, compensation,
including serving as a counterparty to a Dutch trade finance facility of National
Borge, a subsidiary of the Company, and certain affiliates in December 2017.
Proxy Statement, at 43.
64.
Despite noting that Deutsche Bank has provided services for the Company, the
Proxy Statement does not disclose the amount of compensation received in rendering such
services.
65.
In addition, the Proxy Statement does not disclose the time and nature of
discussions BofA Merrill Lynch’s affiliates had with the Controlling Shareholders regarding debt
financing for the Proposed Transaction.
66.
Lastly, the Proxy Statement does not disclose: (i) the nature of the participation in
coverage activities regarding BofA Merrill Lynch’s relationship with Stone Point and affiliates
and investees of the Controlling Shareholders by the senior member of the BofA Merrill Lynch
deal team advising the Company in connection with the Proposed Transaction; (ii) the nature of
said senior member’s relationship with Stone Point; and (iii) whether Defendants considered and
evaluated the potential conflicts of interest mentioned.
67.
Disclosure of the above information concerning potential conflicts of an
investment banker is material, as it is required for the Company’s shareholders to cast a fully-
informed vote on the Proposed Transaction.
Material False and Misleading Statements or Material
Misrepresentations or Omissions Regarding Potential Conflicts
of Interest of the Company’s Executive Officers and Board Members
68.
The Proxy Statement does not disclose material information regarding potential
conflicts of interest of the Company’s executive officers and Board members.
69.
In particular, the Proxy Statement does not disclose the details of any employment
related negotiations that occurred between Evergreen and the Company’s executive officers and
Board members.
70.
Communications regarding post-transaction employment during the negotiation
processes of the underlying transaction must be disclosed to stockholders, as this information is
material for shareholders to understand potential conflicts of interest of management and the
members of the Board and whether they have motivations that would prevent them (as
fiduciaries) from acting solely in the best interests of the Company’s shareholders.
Material Misrepresentations or Omissions Regarding
Interests of Management and the Special Committee in the Proposed Transaction
71.
At the time of the negotiation of the Proposed Transaction there were three active
shareholder derivative actions pending against the members of the Special Committee regarding
(1) AmTrust’s accounting manipulation resulting in the Company restating three years worth of
financial statements,2 and, (2) permitting ACP RE Ltd. (“ACP”), a private company solely
owned by the Karfunkel family to usurp a corporate opportunity from AmTrust when it acquired
Tower Group International, Ltd. (“Tower”) after AmTrust had already performed due diligence
on Tower and submitted an acquisition offer.
72.
Defendants have estimated the combined value of the 2015 Derivative Action and
2017 Derivative Action to be between $15 to $25 million: “the present value of a contingent
litigation asset of the Company, based on the high end of an estimated range of $15 million to
$25 million.” Proxy Statement, at 47.
73.
The Company failed to disclose that as a result of the Proposed Transaction the
members of the Special Committee would benefit by the extinguishment of derivative actions
naming them as personal defendants, with an exposure of personal liability estimated by the
Company to be in the $15 to $25 million range.
2 The Company’s financial misreporting resulting in the 2017 financial restatement arose from
the long running, systemic practice of understating the Company’s loss reserves, overstating its
revenue and net income, and misrepresenting its loss reserve practices and financial results
(which also resulted in securities fraud class actions against the Company and three ongoing
government investigations).
Material False and Misleading Statements or Material
Misrepresentations or Omissions Regarding the Background of the Proposed Transaction
74.
Finally, the Proxy Statement fails to disclose material information concerning the
process leading up to the Proposed Transaction.
75.
The Proxy Statement does not disclose what sort of the discussions took place
between the Company and strategic and financial sponsor parties in November and December
2017 regarding the potential of a going-private transaction, including the number of parties
engaged in discussion, number of confidentiality agreements (and the terms of such agreements)
entered into with such parties, and the terms of any expressions of interest in potential going-
private transactions.
76.
The Company’s failure to disclose the above material information renders the
following sections of the Proxy Statement false and misleading: (i) Projected Financial
Information; (ii) Recommendation of the Board of Directors; Fairness of the Merger; (iii)
Opinion of Deutsche Bank; (iv) BofA Merrill Lynch; (v) Interests of Certain of the Company’s
Directors and Executive Officers in the Merger; (vi) Reasons for the Merger; Recommendation
of the Special Committee and (vii) Background of the Merger.
77.
The omission of the above materials renders the Proxy Statement materially
incomplete and misleading, as shareholders will be unable to make a fully informed decision
regarding whether to tender their shares in favor of the Proposed Transaction without proper
disclosures. As such, shareholders are threatened irreparable harm, warranting the injunctive
relief sought herein.
COUNT I
(Against All Defendants for Violations of Section 14(a)
of the Exchange Act and Rule 14a-9 Promulgated Thereunder)
78.
Plaintiff incorporates each and every allegation set forth above as if fully set forth
79.
Section 14(a)(1) of the Exchange Act makes it “unlawful for any person, by the
use of the mails or by any means or instrumentality of interstate commerce or of any facility of a
national securities exchange or otherwise, in contravention of such rules and regulations as the
Commission may prescribe as necessary or appropriate in the public interest or for the protection
of investors, to solicit or to permit the use of his name to solicit any proxy or consent or
authorization in respect of any security (other than an exempted security) registered pursuant to
section 78l of this title.” 15 U.S.C. § 78n(a)(1).
80.
Rule 14a-9, promulgated by the SEC pursuant to Section 14(a) of the Exchange
Act, provides that communications with stockholders in a recommendation statement shall not
contain “any statement which, at the time and in the light of the circumstances under which it is
made, is false or misleading with respect to any material fact, or which omits to state any
material fact necessary in order to make the statements therein not false or misleading.” 17
C.F.R. § 240.14a-9.
81.
The Defendants have issued the Proxy Statement with the intention of soliciting
shareholders support for the Proposed Transaction. Each of the Defendants reviewed and
authorized the dissemination of the Proxy Statement, which fails to provide critical information
regarding, among other things, the financial projections for the Company.
82.
In so doing, Defendants made untrue statements of fact and/or omitted material
facts necessary to make the statements made not misleading. Each of the Defendants, by virtue
of their roles as officers and/or directors, were aware of the omitted information but failed to
disclose such information, in violation of Section 14(a). The Defendants were therefore
negligent, as they had reasonable grounds to believe material facts existed that were misstated or
omitted from the Proxy Statement, but nonetheless failed to obtain and disclose such information
to shareholders although they could have done so without extraordinary effort.
83.
The Defendants knew or were negligent in not knowing that the Proxy Statement
is materially misleading and omits material facts that are necessary to render it not misleading.
The Defendants undoubtedly reviewed and relied upon the omitted information identified above
in connection with their decision to approve and recommend the Proposed Transaction.
84.
The Defendants knew or were negligent in not knowing that the material
information identified above has been omitted from the Proxy Statement, rendering the sections
of the Proxy Statement identified above to be materially incomplete and misleading. Indeed, the
Defendants were required to be particularly attentive to the procedures followed in preparing the
Proxy Statement and review it carefully before it was disseminated, to corroborate that there are
no material misstatements or omissions.
85.
The Defendants were, at the very least, negligent in preparing and reviewing the
Proxy Statement. The preparation of a proxy statement by corporate insiders containing
materially false or misleading statements or omitting a material fact constitutes negligence. The
Defendants were negligent in choosing to omit material information from the Proxy Statement or
failing to notice the material omissions in the Proxy Statement upon reviewing it, which they
were required to do carefully as the Company’s directors. Indeed, the Defendants were
intricately involved in the process leading up to the signing of the Merger Agreement and the
preparation of the Company’s financial projections.
86.
The misrepresentations and omissions in the Proxy Statement are material to
Plaintiff and the Class, who will be deprived of their right to cast an informed vote if such
misrepresentations and omissions are not corrected prior to the vote on the Proposed Transaction.
87.
Plaintiff and 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 that Defendants’ actions threaten to inflict.
COUNT II
(Against the Individual Defendants for
Violations of Section 20(a) of the Exchange Act)
88.
Plaintiff incorporates each and every allegation set forth above as if fully set forth
89.
The Individual Defendants acted as controlling persons of AmTrust within the
meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their positions as
officers and/or directors of AmTrust, and participation in and/or awareness of the Company’s
operations and/or intimate knowledge of the incomplete and misleading statements contained in
the Proxy Statement filed with the SEC, 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 materially
incomplete and misleading.
90.
Each of the Individual Defendants was provided with, or had unlimited access to,
copies of the Proxy Statement 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.
91.
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 or influence the particular transactions giving rise to the Exchange Act
violations alleged herein, and exercised the same. The Proxy Statement at issue contains the
unanimous recommendation of each of the Individual Defendants to approve the Proposed
Transaction. They were thus directly involved in preparing this document.
92.
In addition, as set forth in the Proxy Statement sets forth at length and described
herein, the Individual Defendants were involved in negotiating, reviewing, and approving the
Merger Agreement. The Proxy Statement purports to describe the various issues and information
that the Individual Defendants reviewed and considered. The Individual Defendants participated
in drafting and/or gave their input on the content of those descriptions.
93.
By virtue of the foregoing, the Individual Defendants have violated Section 20(a)
of the Exchange Act.
94.
As set forth above, the Individual Defendants had the ability to exercise control
over and did control a person or persons who have each violated Section 14(a) 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 Exchange Act. As a direct and
proximate result of Individual Defendants’ conduct, Plaintiff and the Class will be irreparably
harmed.
95.
Plaintiff and 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 that Defendants’ actions threaten to inflict.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays for judgment and relief as follows:
A.
Ordering that this action may be maintained as a class action and certifying
Plaintiff as the Class Representative and Plaintiff’s counsel as Class Counsel;
B.
Preliminarily and permanently enjoining Defendants and all persons acting in
concert with them from proceeding with, consummating, or closing the Proposed Transaction;
C.
Directing the Individual Defendants to disseminate an Amendment to its 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.
Directing Defendants to account to Plaintiff and the Class for their damages
sustained because of the wrongs complained of herein;
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.
DEMAND FOR TRIAL BY JURY
Plaintiff hereby demands a trial by jury.
Dated: May 18, 2018
Respectfully submitted,
By: ___________________________
Joshua M. Lifshitz
Email: [email protected]
Edward W. Miller
Email: [email protected]
LIFSHITZ & MILLER LLP
821 Franklin Avenue, Suite 209
Garden City, New York 11530
Telephone: (516) 493-9780
Facsimile: (516) 280-7376
Attorneys for Plaintiff
I, Tammy Raul, hereby certify that:
1. Plaintiff has reviewed the complaint and authorized the commencement of a lead plaintiff
motion and/or filing of a complaint on plaintiff's behalf.
2. I did not purchase the security that is the subject of this action at the direction of plaintiff's
counsel or in order to participate in any private action arising under this title.
3. I am willing to serve as a representative party on behalf of a class and will testify at
deposition and trial, if necessary.
4. My transactions in AFSI securities that are the subject of this litigation during the Class
Period are attached hereto as Exhibit A.
5. I have not served as or sought to serve as a representative party on behalf of a Class under
this title during the last three years.
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 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.
Executed on 05/18/2018
Signature
Exhibit A
My transactions in AmTrust Financial Services, Inc. (AFSI) securities that are the subject
of this litigation during the class period set forth in the complaint are as follows (“P” indicates a
purchase, “S” indicates a sale):
Security
Date
Sale
Purchase
Number of
Price per
Shares
Share
AFSI
11/10/2017
P
51
$10.53
| securities |
qkb7AokBRpLueGJZLt2S | IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
EASTERN DIVISION
JUAN MANUEL HERNANDEZ-MARTINEZ, on
)
behalf of himself and themselves and )
all other similarly situated persons, )
)
Second Amended
)
Complaint
Plaintiffs,
)
)
v.
)
)
CLASS ACTION
)
Speight Seed Farms, Inc., John Milton )
Beamon, and Emma Ortega,
)
)
Defendants.
)
______________________________________ )
I.
PRELIMINARY STATEMENT
1.
Plaintiff Juan Manuel Hernandez-Martinez (“Plaintiff”)
and the workers Plaintiff seeks to represent were H-2A workers who
were recruited by defendants’ authorized agents in Mexico in all
or some of the years 2010 through 2013 to work on defendants’
tobacco farm under the H-2A guestworker program in and around Pitt
County, North Carolina. Plaintiff files this action as a
collective action under 29 U.S.C. §216(b) of the Fair Labor
Standards Act (“FLSA”), as a class action under the North Carolina
Wage and Hour Act (“NCWHA”), N.C.Gen.Stat. §§ 95-25.1 et seq., and
as a class action under the common law of contracts.
2.
Defendants violated the FLSA, the NCWHA and the AWPA by
failing to pay the Plaintiff, the class the Plaintiff seeks to
represent, and the members of the collective action the Plaintiff
seeks to represent at least the required minimum and promised
hourly wage when due on the promised regular payday for every
compensable hour of labor performed in the first workweek that the
Defendants employed the Plaintiff and the workers that he seeks to
represent
by
failing
to
timely
reimburse
Plaintiff’s
pre-
employment expenses that were required by law, and by withholding
hundreds of dollars of weekly wages that were due as part of an
alleged wage savings plan.
3.
Defendants also breached their employment contracts
with Plaintiff Hernandez and the class that Plaintiff seeks to
represent by failing to pay Plaintiff and that class at least the
required minimum hourly wage under the adverse effect wage rate
(“AEWR”) promulgated by the U.S. Department of Labor (“DOL”)
pursuant
to
20
C.F.R.
§§
655.104(l),
655.105(g),
and
655.108(a)(2009) and 20 C.F.R. §§ 655.120, 655.122(l), and
655.122(p)(1)-(2)(2010) by failing to reimburse the pre-employment
expenses of those Plaintiffs and that class as required by law,
and by withholding hundreds of dollars of weekly wages that were
due under the work contract as part of an alleged wage savings
plan in violation of that work contract and 20 C.F.R. §§
655.122(m) and 655.122(p)(1).
4.
Plaintiff,
the
classes
the
Plaintiff
seeks
to
represent, and the members of the collective action that the
Plaintiff requests leave to represent seek their unpaid wages,
statutory damages, and liquidated damages under 29 U.S.C. §
216(b), 29 U.S.C. § 1854(c)(1), and N.C.Gen.Stat. §§ 95-25.22(a)
and (a1). They also seek actual, incidental, consequential, and
compensatory
damages,
pre-
and
post-judgment
interest,
and
declaratory relief as alleged.
II.
JURISDICTION
5.
Jurisdiction is conferred upon this Court over all
defendants named in this action pursuant to 28 U.S.C. §§1331 and
1337, 29 U.S.C. § 216(b) and 1854(a), and 28 U.S.C. §1367(a).
6.
This Court has the power to grant declaratory relief
pursuant to 28 U.S.C. §§2201 and 2202.
III. VENUE
7.
Venue over this action lies in this Court pursuant to
28 U.S.C. §§1391(b)(2), and 29 U.S.C. §216(b). In the time period
from January 1, 2009 to the date on which this action was filed,
the defendants jointly and/or severally employed the Plaintiff and
a substantial number of the member of the classes of persons and
collective action that the Plaintiff seeks to represent in or
around Pitt County, North Carolina or one of the other counties
specified in 28 U.S.C. § 113(a) for each of the pay periods that
the Plaintiff and the members of the classes and collective action
that the Plaintiff seeks to represent were employed to perform any
work at any time in those same workweeks. Therefore, a
substantial part of the events or omissions giving rise to the
claims of the Plaintiff and the classes and collective action that
the Plaintiff seeks to represent occurred in the judicial district
of the U.S. District Court for the Eastern District of North
Carolina.
8.
Venue over this action also lies in this Court pursuant
to 28 U.S.C. §§1391(b)(1), and 29 U.S.C. §216(b). On the date on
which this action was filed and in the time period from January 1,
2009 immediately preceding that same date, the principal place of
business and residence of the defendants were and are located in
one or more of the counties listed in 28 U.S.C. § 113(a).
IV.
NAMED PLAINTIFF
9.
For many of the workweeks that occurred in the time
period from January 1, 2012 to December 31, 2012, the named
Plaintiff was jointly and severally employed by defendants John
Milton Beamon, Speight Seed Farms, Inc., and Emma Ortega
(hereinafter referred to collectively as the “Speight defendants”)
in and around Pitt County, North Carolina and/or one or more other
counties in North Carolina listed in 28 U.S.C. § 113(a) as
follows:
(a)
Plaintiff
Juan
Manuel
Hernandez-Martinez
(“Hernandez”) was jointly and severally employed with an H-2A visa
by the Speight defendants in all phases of the production of
tobacco in and around Pitt County, North Carolina for the entire
“period of employment” in the H-2A job order(s) filed by
defendants Speight Seed Farms, Inc. and John Milton Beamon in
2012.
10.
In order to obtain the employment that is described in
¶9(a) above and in ¶¶55 and 57 below, the Plaintiff, the class of
H-2A workers that Plaintiff Hernandez seeks to represent in
connection with the defendants’ failure to timely reimburse for
all pre-employment expenses, and the members of the collective
action that Plaintiff Hernandez seeks to represent were jointly
and severally recruited in Mexico and transported directly from
Mexico to North Carolina by or at the direction of or by
arrangements made by one or more of the Speight defendants or one
or more of their authorized agents to begin that same employment.
11.
At all times relevant to this complaint, Plaintiff
Hernandez and the class of H-2A workers that Plaintiff seeks to
represent, and the members of the collective action that Plaintiff
seeks to represent were H-2A agricultural guestworkers admitted
into the United States to work for defendants pursuant to the
authority
of
the
H-2A
program
codified
at
8
U.S.C.
§§
1101(a)(15)(H)(ii)(A), 1184(c), and 1188(a)(1).
V.
DEFENDANTS
12.
At all times on and after January 1, 2005 up to and
including July 21, 2011, defendant Speight Seed Farms, Inc.
(“Speight”) was and is a corporation in good standing under the
laws of the State of North Carolina that was duly formed in
October 1971 under and in accordance with those same laws.
Speight Seed Farms, Inc. may be served with process through
service on the President of Speight Seed Farms, Inc., John Milton
Beamon, 3719 Speight Seed Farm Road, Winterville, North Carolina
28590.
13.
At all times on and after January 1, 2009 to the
present date, defendant John Milton Beamon (“Beamon”) was and
continues to be the President or Vice-President and owner of
defendant Speight Seed Farms, Inc., and did and does business as
Speight Seeds Farms, Inc., a North Carolina corporation that has
been administratively dissolved by the North Carolina Secretary of
State since July 21, 2011. During that period of time, the
principal place of business of was and is located at 3719 Speight
Seed Farm Road, Winterville, North Carolina 28590, tel: (252)756-
0718.
14.
Upon information and belief, at all times relevant to
this action, defendant John Milton Beamon (hereinafter “Beamon”)
was and is the owner of the majority interest of the business
entity defendant Speight. Upon information and belief, defendant
Beamon resides at the following address: (a) John Milton Beamon –
3929 Sterling Pointe Drive, Winterville, NC 28590, tel: (252)439-
8521.
15.
At all times on or after January 1, 2007, defendant
Emma Ortega was and is the chief field supervisor or field manager
for all of the H-2A workers that one or both of the defendants
employed during that same time period. Defendant Ortega acted and
continues to act as the authorized agent of one or both defendants
Beamon and Speight with respect to each action(s) that is
specifically attributed to her in this complaint.
16.
At all times relevant to this action, defendant John
Milton Beamon, defendant Speight Seed Farms, Inc. and defendant
Emma Ortega had the power to hire and fire Plaintiff, the classes
of H-2A workers and non-H-2A workers that Plaintiff seeks to
represent, and the members of the collective action that Plaintiff
Hernandez seeks to represent.
17.
At all times relevant to this action, defendant John
Milton Beamon, defendant Speight Seed Farms, Inc. and defendant
Emma Ortega were day to day managers with operational control over
the employment operations of defendant John Milton Beamon and
defendant Speight Seed Farms, Inc.
18.
At all times relevant to this action, defendant John
Milton Beamon, defendant Speight Seed Farms, Inc. and defendant
Emma Ortega were the employers of the Plaintiff, the classes of H-
2A workers and non-H-2A workers that the Plaintiff seeks to
represent, and the members of the collective action that Plaintiff
Hernandez seeks to represent as defined by 29 U.S.C. § 203(d) and
N.C.Gen.Stat. § 95-25.2.
19.
At all times relevant to this action, defendant John
Milton Beamon, defendant Speight Seed Farms, Inc. and defendant
Emma Ortega were the employers and joint employers of the
Plaintiff, the members of the collective action, and classes of H-
2A workers that Plaintiff seeks to represent as defined by the
terms of federal regulations set forth in 655.102-103(2008), 20
C.F.R. §§ 655.100(c)(2009), and 20 C.F.R. §§ 655.103(b)(2010).
20.
At all times relevant to this action in the time period
from January 1, 2007 through the present date, both the individual
and corporate defendants were and are engaged in the production of
tobacco and other agricultural products in and around Pitt County,
North Carolina for sale in interstate commerce.
21.
For each calendar year in the time period starting with
January 1, 2007 and continuing through and including all of 2013
to date, the employment of the Plaintiff and/or the members of the
classes of H-2A and/or non H-2A workers that the Plaintiff seeks
to represent, and the members of the collective action that
Plaintiff Hernandez seeks to represent were and are part of an
enterprise operated by defendant Beamon and/or defendant Speight.
More than one of these same persons that the Speight defendants so
employed in that same enterprise described handled, sold, or
otherwise worked on goods or materials that had been moved in or
produced in interstate commerce. For each year in that same time
period, that enterprise had and has an annual gross volume of
sales or business done was not less than $500,000.00 (exclusive of
excise taxes at the retail level that were separately stated)
within the meaning of 29 U.S.C. § 203(s)(1)(A)(ii).
VI.
FLSA FIRST COLLECTIVE ACTION ALLEGATIONS
22.
Pursuant to the collective action procedure specified
at 29 U.S.C. §216(b) and the Fourth Claim for Relief, named
Plaintiff Hernandez files this collective action for each
similarly situated person employed by defendants Beamon, Speight,
and Ortega at any time in the time period starting with the first
date in the three (3) year time period immediately preceding the
date on which such person files a Consent to Sue in this action
pursuant to 29 U.S.C. §216(b), and ending with the date final
judgment is entered in this action.
23.
This FLSA action for the Fourth Claim for Relief is on
behalf of those members of the FLSA collective action for each
workweek in that same time period Plaintiff Hernandez and the
members of the FLSA collective action performed or will perform
any work in North Carolina for defendants Beamon, Speight, and
Ortega when that worker suffered an illegal wage deduction
pursuant to the Speight defendants’ illegal wage savings plan in
violation of the requirements of 29 U.S.C. §§ 206(a)(1) and
216(b), N.C.Gen.Stat. §§ 95-25.6 and 95-25.8, 13 NCAC Tit.12 §§
.0305(b)-(c) and .0305(g), and/or 20 C.F.R. §§ 655.104(m) and
655.104(1)(2009), 20 C.F.R. §§ 655.122(m) and 655.122(p)(1)(2010).
24.
The Speight defendants jointly or severally employed
the named Plaintiff and/or jointly severally employed or will
jointly and severally employ an unspecified number of other
workers to perform manual labor in the form of agricultural labor
in
the
production
and
harvest
of
tobacco
and/or
other
agricultural products for one or more of the Speight defendants.
25.
This collective action by similarly situated persons
under 29 U.S.C. §216(b) is based upon the Speight defendants’
willful use of an illegal wage deduction involuntary savings plan
they imposed upon the Plaintiff and all other persons the Speight
defendants employed to perform the same type of work as the
Plaintiff performed in violation of 29 U.S.C. §§ 206(a)(1) and
216(b), N.C.Gen.Stat. §§ 95-25.6 and 95-25.8, 13 NCAC Tit.12 §§
.0305(b)-(c) and .0305(g), and/or 20 C.F.R. §§ 655.104(m) and
655.104(1)(2009), 20 C.F.R. §§ 655.122(m) and 655.122(p)(1)(2010).
26.
As a result of the Speight defendants’ willful use of
this illegal wage deduction involuntary savings plan, the wages
that the Plaintiff and the members of this second collective
action received or will receive free and clear from the Speight
defendants on or before each regularly scheduled payday for each
workweek that the named Plaintiff and the members of this second
collective action performed or will perform work in North Carolina
for the Speight defendants were or will be less than the minimum
wage required by 29 U.S.C. §206(a) on a weekly basis for each hour
or part of an hour of actual work that the named Plaintiff and
each such similarly situated person was employed or will be
employed by the Speight defendants in each of those same workweeks
that each such person was or will be so employed.
VII. RULE 23(b)(3) CLASS #1 (NCWHA H-2A reimbursement claim)
27.
Both claims set forth in the First Claim for Relief
and Second Claim for Relief are brought by Plaintiff Hernandez on
behalf of himself and all other similarly situated persons
pursuant to Rule 23(b)(3) of the Federal Rules of Civil
Procedure.
28.
In the Second Claim for Relief based in contract,
named Plaintiff Hernandez seeks to represent a class consisting
of all H-2A workers who traveled directly from Mexico to North
Carolina to perform temporary or seasonal work in agriculture as
an employee of the Speight defendants at any time in the three
(3) year time period immediately preceding the date on which this
action was filed and continuing thereafter until the date on
which final judgment is filed in this action, and/or who traveled
directly from North Carolina to Mexico to return to their place
of residence in Mexico as part of their compliance with the exit
date specified in their H-2A visa after they had completed 50% of
the work period of their H-2A job contract with the Speight
defendants. In the First Claim for Relief based on the NCWHA,
the named Plaintiff seeks to represent the same class of workers
but limit that class to only the two (2) year time period
immediately preceding the date on which this action is filed and
continuing through the date final judgment is entered in this
action.
29.
Each class alleged in ¶28 above is so numerous and so
geographically dispersed as to make joinder impractical. The
precise number of individuals in each class is known only to the
Speight defendants. However, each class is believed to include
over fifty (50) individuals. Each class is comprised of indigent
H-2A workers who maintain their permanent homes in or around
central or northern Mexico. The class members of each class are
not fluent in the English language and are unfamiliar with the
American judicial system. The relatively small size of the
individual claims and the indigence of the class members of each
class make the maintenance of separate actions by the class
members of each class infeasible.
30. There are questions of law and fact common to each class
alleged in ¶28 above. These common legal and factual questions
are, among others:
(a) Did the Speight defendants violate the minimum wage or
wage payment provisions of N.C.Gen.Stat. §§ 95-25.3 and 95-25.6 of
the North Carolina Wage and Hour Act (“NCWHA”) by requiring
Plaintiff Hernandez and each member of the class defined in ¶28
above to make the payments described in ¶¶78-82, inclusive, below
as a condition of employment?
(b)
Were each of the payments described in ¶30(a) above
“primarily for the benefit of” one or more of the defendants
within the meaning of 29 C.F.R. §§ 531.3(d)(1), 532.32(a), and
532.32(c), and 13 NCAC Tit.12 § .0301(d) of the NCWHA?
(c)
Pursuant to N.C.Gen.Stat. § 95-25.6, did the Speight
defendants pay all wages due, free and clear, to the named
Plaintiff and the each member of the classes defined in ¶28 above
on the regular weekly payday when those wages were due at the
hourly wage rate they agreed to pay each of those workers for all
hours worked?
31.
The claim of Plaintiff Hernandez is typical of the
claims of the members of each class defined in ¶28 above, and
those typical, common claims predominate over any questions
affecting only individual class members. Plaintiff Hernandez has
the same interests as to other members of each class defined in
¶28 above and will vigorously prosecute these interests on behalf
of each class defined in ¶28 above.
32.
Plaintiff
Hernandez
will
fairly
and
adequately
represent the interests of each class defined in ¶28 above.
33.
The undersigned counsel Robert J. Willis of the Law
Office of Robert J. Willis, P.A. for Plaintiff Hernandez is an
experienced litigator who has been named counsel for several class
actions. Counsel for Plaintiff Hernandez is prepared to advance
litigation costs necessary to vigorously litigate this action and
to provide notice to the members of each class defined in ¶28
above under Rule 23(b)(3).
34.
A class action under Rule 23(b)(3) is superior to other
available methods of adjudicating this controversy because, inter
alia:
(a)
The common issues of law and fact, as well as the
relatively small size of the individual claims of each member of
the two (2) classes defined in ¶28 above, substantially diminish
the interest of members of each of the two classes defined in ¶28
above in individually controlling the prosecution of separate
actions;
(b)
Many members of each of the two (2) classes defined in
¶28 are unaware of their rights to prosecute these claims and lack
the means or resources to secure legal assistance;
(c)
There has been no litigation already commenced against
any of the defendants by the members of either of the two (2)
classes defined in ¶28 above to determine the questions presented;
(d)
It is desirable that the claims be heard in this forum
because the Speight defendants all reside in this district and the
cause of action arose in this district;
(e)
A class action can be managed without undue difficulty
because the Speight defendants regularly committed the violations
complained of herein, and were required to maintain detailed
records concerning each member of the class.
VIII. RULE 23(b)(3) CLASS #2 (NCWHA wage deduction claim)
35.
The Third Claim for Relief is brought under the NCWHA
by all Plaintiffs on behalf of themselves and all other similarly
situated persons pursuant to Rule 23(b)(3) of the Federal Rules
of Civil Procedure.
36.
In the Third Claim for Relief based on the NCWHA,
named Plaintiff seeks to represent a class consisting of all
employees of one or more of the Speight defendants who performed
temporary or seasonal work in agriculture as a employee of one or
more of the Speight defendants at any time in the two (2) year
time period immediately preceding the date on which this action
was filed and continuing thereafter until the date on which final
judgment is filed in this action, and from whom one or more of
the Speight defendants withheld weekly wages that were due during
that same time period as part of an alleged wage savings plan.
This class also contains a subclass of named Plaintiff Hernandez
and all persons employed by one or more of those same Speight
defendants under the H-2A program at any time during that same
time period.
37.
The class and subclass alleged in ¶36 above are so
numerous and so geographically dispersed as to make joinder
impractical. The precise number of individuals in this class and
subclass are known only to the Speight defendants. However, the
class and subclass are both believed to include over fifty (50)
individuals. This class and subclass are comprised of low wage
and/or indigent workers who maintain their permanent homes in or
around central or northern Mexico or other isolated locations in
eastern North Carolina. The overwhelming majority of the members
of this class and subclass are not fluent in the English language
and are unfamiliar with the American judicial system. The
relatively small size of the individual claims and the indigence
and/or low income of the members of this class and subclass make
the maintenance of separate actions by each class member of this
class and subclass infeasible.
38. There are questions of law and fact common to each class
and subclass alleged in ¶36 above. These common legal and factual
questions are, among others:
(a) Did the Speight defendants violate any of the wage
payment provisions of N.C.Gen.Stat. §§ 95-25.6 and 95-25.8(a) and
13 N.C.A.C. Tit. 12 §§ .0305(a)-(c) of the North Carolina Wage and
Hour Act (“NCWHA”) applicable to all of the named Plaintiff and
the class and subclass defined in ¶36 above by making involuntary
and/or voluntary wage deductions from the weekly wages that were
due each of the named Plaintiff and the members of the class and
subclass defined in ¶36 above as part of an alleged wage savings
plan?
(b)
Were the involuntary and/or voluntary wage deductions
that the Speight defendants made from the weekly wages that were
due the named Plaintiff Hernandez and the members of the subclass
defined in ¶36 above made in violation of N.C.Gen.Stat. § 95-25.6
and 95-25.8(a), 13 N.C.A.C. Tit. 12 §§ .0305(a)-(c) and .0305(g),
and/or
20
C.F.R.
§
655.122(m),
and
20
C.F.R.
§
655.122(p)(1)(2010)?
(c)
Did any of the weekly wage deductions that the Speight
defendants made from the weekly wages paid free and clear to the
named Plaintiff and each member of the class and subclass defined
in ¶36 above reduce the net weekly wage paid to those same workers
below the minimum rate required by 29 U.S.C. § 206(a) or the
minimum rate required by 20 C.F.R. § 655.120 for the hours worked
in the relevant workweek by each such worker?
39.
The claim in the Third Claim for Relief of the named
Plaintiff is typical of the claims of the members of the class
defined in ¶36 above, and those typical, common claims predominate
over any questions affecting only individual class members. The
same is true with respect to the Third Claim for Relief by named
Plaintiff Hernandez for the claims of the members of the subclass
defined in ¶36 above. The named Plaintiff has the same interests
as to other members of the class defined in ¶36 above and will
vigorously prosecute these interests on behalf of the class
defined in ¶36 above. The same is and will be true with respect
to the interests and vigorous prosecution by named plaintiff
Hernandez as to the interests of the subclass defined in ¶36
above.
40.
The
named
plaintiff
will
fairly
and
adequately
represent the interests of the class and subclass defined in ¶36
above.
41.
The undersigned counsel Robert J. Willis of the Law
Office of Robert J. Willis, P.A. for all Plaintiffs is an
experienced litigator who has been named counsel for several class
actions. Plaintiff’s counsel is prepared to advance litigation
costs necessary to vigorously litigate this action and to provide
notice to the members of the class and subclass defined in ¶36
above under Rule 23(b)(3).
42.
A class action under Rule 23(b)(3) is superior to other
available methods of adjudicating this controversy because, inter
alia:
(a)
The common issues of law and fact, as well as the
relatively small size of the individual claims of each member of
the class and subclass defined in ¶36 above, substantially
diminish the interest of members of the class and subclass defined
in ¶36 above in individually controlling the prosecution of
separate actions;
(b)
Many members of each of the class and subclass defined
in ¶36 are unaware of their rights to prosecute these claims and
lack the means or resources to secure legal assistance;
(c)
There has been no litigation already commenced against
any of the Speight defendants by the members of either the class
or subclass defined in ¶36 above to determine the questions
presented;
(d)
It is desirable that the claims be heard in this forum
because the Speight defendants all reside in this district and the
cause of action arose in this district;
(e)
A class action can be managed without undue difficulty
because the Speight defendants regularly committed the violations
complained of herein, and were required to maintain detailed
records concerning each member of the class and subclass defined
in ¶36 above.
IX.
STATUTORY AND REGULATORY STRUCTURE - H-2A PROGRAM
43.
The
H-2A
program
was
created
by
8
U.S.C.
§§
1101(a)(15)(H)(ii)(A),
1184(c),
and
1188(a)(1),
and
was
implemented pursuant to regulations found at 20 C.F.R. §§ 655.0-
655.119 (2009), and 20 C.F.R. §§ 655.100-655.185 (2010). The H-2A
program authorizes the lawful admission of temporary, non-
immigrant workers to perform agricultural labor or services of a
temporary nature.
44.
Because of the lack of available documented workers in
the areas of the operations of the Speight defendants, the Speight
defendants applied for temporary certification by the U.S.
Department of Labor (“DOL”) to employ temporary foreign workers
through the H-2A program, including applications submitted seeking
workers for employment in each year from 2005 through 2012.
45.
Depending upon the date of application, each such
application must include a job offer that complies with the
requirements of 20 C.F.R. §§ 655.102 and 653.501(2008), 20 C.F.R.
§§ 655.104 (2009) and 653.501 (2009), and 20 C.F.R. §§ 655.122 and
653.501 (2010), and must include an agreement to abide by the
assurances required by 20 C.F.R. § 655.103(2008), 20 C.F.R. §
655.105 (2009), and 20 C.F.R. § 655.135 (2010). 20 C.F.R. §
655.101(b)(2008), 20 C.F.R. § 655.105 (2009), and 20 C.F.R. §
655.131 (2010). The job offer, commonly referred to as a
“clearance order” or “job order”, is used to recruit both United
States and foreign nationals for H-2A visas.
46.
In the years from 2007 to and including 2013 for those
years in which the named Plaintiff was employed as H-2A workers by
one or more of the Speight defendants, the terms and conditions in
the job order became the employment contract between one or more
of the Speight defendants, the named Plaintiff, and the members of
the classes, subclass, and two collective actions.
47.
As
a
condition
of
receiving
temporary
labor
certification for the importation of H-2A workers, agricultural
employers like one or more of the Speight defendants are required
to pay the highest of the “adverse effect wage rate”, or the
federal or state minimum wage. 20 C.F.R. § 655.202(b)(9)(i)(2008),
20 C.F.R. §§ 655.104(l)(1), 655.105(g), and 655.108(a) (2009), and
20 C.F.R. §§ 655.120 and 655.122(l)(2010).
48.
At all times during the time period from January 1,
2005 to the present, agricultural employers like one or more of
the Speight defendants who employed H-2A workers were and are
required to “keep accurate and adequate records” of workers’
earnings.
20
C.F.R.
§
655.102(b)(7)(2008),
20
C.F.R.
§
655.104(j)(1)(2009), and 20 C.F.R. § 655.122(j)(1).
49.
In each of their H-2A contracts in at least calendar
years 2005 through and including 2013, the Speight defendants
promised that each worker would be paid free and clear at least
the minimum wage rate required by 29 U.S.C. § 206(a), the
prevailing rate for the crop activity, or the AEWR, whichever was
higher. Exhibits A-I attached at sections entitled “Wage Rates,
Special Pay Information and Deductions” or “Wage Rates/Pay
Information”.
50.
In each of their H-2A contracts contained in the H-2A
labor certification applications that they made in at least
calendar years 2005 through and including 2013, the Speight
defendants promised that each worker would be paid all wages due
on a weekly basis. Exhibits A-I attached at sections entitled
“Wage Rates, Special Pay Information and Deductions” or “Wage
Rates/Pay Information”.
51.
In each of their H-2A contracts contained in the H-2A
labor certification applications that they made in at least
calendar years 2005 through and including 2013, the Speight
defendants also promised that the weekly wages to be paid each
worker would not be subject to any wage deduction other than as
required by law or for advances and/or loans to workers by pre-
authorized payroll deductions, and that any wage deductions that
were made would be made in accordance with FLSA regulations.
Exhibits A-I attached at sections entitled “Wage Rates, Special
Pay Information and Deductions” or “Wage Rates/Pay Information”.
52.
In their H-2A contract for calendar years 2005-06, the
Speight defendants promised to reimburse H-2A workers who complete
50 percent of the work contract period and who are not reasonably
able to return the same day to their place of residence for the
reasonable cost of transportation and subsistence from the place
of recruitment to the place of employment. Exhibits A, B, and C
attached at section entitled “Transportation”.
53.
In each of their H-2A contracts for calendar years
after 2006 through 2013 to date, those same Speight defendants
promised to reimburse H-2A workers for the reasonable cost of
inbound transportation on or before the first payday to the extent
necessary to insure that the wages of those same workers’ in the
first workweek of work performed for the Speight defendants in
North Carolina did not fall below the minimum hourly wage rate
required by 29 U.S.C. § 206(a). Exhibits D through I attached at
section entitled “Transportation”.
54.
In each of their H-2A contracts from at least calendar
years 2005 through the present, the Speight defendants promised to
abide by the assurance regulations at 20 C.F.R. § 655.103 (2008),
20 C.F.R. § 655.105 (2009), or 20 C.F.R. § 655.135(2010), and at
20 C.F.R. § 653.501 (2008), which govern the labor certification
process for H-2A “employers” and “joint employers” as those terms
are defined by 20 C.F.R. § 655.100 (2008), 20 C.F.R. §
655.100(c)(2009), and/or 20 C.F.R. 655.103(b)(2010). Exhibits A-H
attached at section entitled “Other Conditions of Employment”.
X.
STATEMENT OF FACTS
55. For each tobacco planting and harvest season that
occurred in calendar years 2010 through and including the date the
Court enters final judgment in this action, one or more of the
Speight defendants imported and employed the classes of H-2A
workers that Plaintiff Hernandez seek to represent, and the
members of the first collective action that named Plaintiff
Hernandez seeks to represent under job order contracts to perform
that same planting and harvest agricultural work for one or more
of the Speight defendants. During each of those same seasons in
that same time period, the Speight defendants also hired and
employed and will hire and employ substantial number of persons
who did not have an H-2A visa to perform the same type of work.
56.
A true and correct copy of the job order contracts
referred to in ¶55 above for those same harvest or planting
seasons in calendar years 2005-2013, inclusive, are attached
marked as Exhibits A through I.
57.
For the time periods alleged in ¶9(a) above, plaintiff
Juan Manuel Hernandez-Martinez (“Plaintiff”) was employed under
the terms of the job order contracts that existed for each of the
respective years described in ¶9(a) above.
58.
In each calendar year from 2005 through and including
2013, each employment contract of defendants Beamon and Speight
under the H-2A program contained an “Employer’s Certification”
that stated: “this job order describes the actual terms and
conditions of the employment being offered by me and contains all
the material terms and conditions of the job.” Exhibits A-I
attached.
59.
In calendar year 2005, the “Employer’s Certification”
for both contracts for that agricultural season were signed by
Craig Stan Eury, Jr. in his capacity as the “Executive Director”
of The North Carolina Grower’s Association, Inc. (“NCGA”), the
Association to which the Speight defendants belonged for much if
not all of the 2005 agricultural season and several seasons before
that in North Carolina. Exhibits A-B attached in section marked
“Declarations”.
60.
In each calendar year from 2006 through and including
2013, the “Employer’s Certification” in each employment contract
of those same defendants was signed by defendant John Milton
Beamon as “Owner VP”, “President”, or as the President and owner
of
Speight.
Exhibits
C-I
attached
in
section
marked
“Declarations”.
61.
In each calendar year from 2006 through and including
2013, each employment contract of the Speight defendants contained
a “Declaration of Employer” swearing “under penalty of perjury the
foregoing is true and correct.” Exhibits C-I attached.
62.
In each calendar year from 2006 through and including
2013, the “Declaration of Employer” in each employment contract of
the defendants was signed by defendant John Milton Beamon.
Exhibits C-I attached.
63.
In the 2006 planting and/or harvest season employment
contract of one or more of the Speight defendants promised to pay
free and clear the applicable AEWR which was $8.51 per hour.
64.
In the 2007 planting and/or harvest season employment
contract of one or more of the Speight defendants promised to pay
free and clear the applicable AEWR which was $9.02 per hour.
65.
In the 2008 planting and/or harvest season employment
contract of one or more of the Speight defendants promised to pay
free and clear the applicable AEWR which was $8.85 per hour.
66.
In the 2009 planting and/or harvest season employment
contract of one or more of the Speight defendants promised to pay
free and clear the applicable AEWR which was $7.25 per hour.
67.
In the 2010 planting and/or harvest season employment
contract of one or more of the Speight defendants promised to pay
free and clear the applicable AEWR which was $7.50 per hour.
68.
In the 2011 planting and/or harvest season employment
contract of one or more of the Speight defendants promised to pay
free and clear the applicable AEWR which was $9.30 per hour.
69.
In the 2012 planting and/or harvest season employment
contract of one or more of the Speight defendants promised to pay
free and clear the applicable AEWR which was $9.70 per hour.
70.
In the 2013 planting and/or harvest season employment
contract of one or more of the Speight defendants promised to pay
free and clear the applicable AEWR which was $9.68 per hour.
71.
Upon information and belief, for each harvesting and
planting season that occurred in calendar years 2006 through and
including 2013, the individual and corporate Speight defendants
contracted with MAS Labor H-2A, LLC as its agent in the United
States of America to:
(a)
craft/modify all aspects of the employment contracts
for H-2A workers with those same defendants,
(b)
to conduct all interaction with the various branches of
government
involved
in
the
certification
of
an
application for alien employment under the H-2A program
visa application either directly or indirectly through
the use of the private employment service agency in
Mexico to be designated by MAS Labor H-2A, LLC,
(c)
track the status of the H-2A workers that those same
defendants preferred to employ with the assistance of
the labor contractor or recruiter in Mexico that made
available to those same defendants,
(d)
make adjustments to the status of the H-2A workers that
those same defendants preferred to employ based upon
the information that Mas Labor H-2A, LLC received from
the labor contractor or recruiter in Mexico that Mas
Labor H-2A, LLC made available,
(e)
provide all necessary recruitment services, including
but not limited to, visa processing assistance for the
H-2A workers that those same defendants preferred to
employ after those workers had been identified by those
same defendants for Mas Labor H-2A, LLC through the use
of the labor contractor or recruiter in Mexico that Mas
Labor
H-2A,
LLC
made
available
to
those
same
defendants,
(f)
provide all necessary recruitment for the timely
replacement of H-2A workers that those same defendants
preferred to employ if it was determined that any of
those worker(s) were not available for employment with
one or more of those same defendants in any particular
season through the use of the labor contractor or
recruiter in Mexico that Mas Labor H-2A, LLC made
available to those same defendants,
(g)
provide consulting services as to relevant developments
in the laws and court decisions affecting those same
defendants’ employment of H-2A workers.
72.
At all times that one or more of the individual Speight
defendants and/or defendant Speight used the services of Mas Labor
H-2A, LLC, Inc., Elizabeth D. Whitley owned and operated Mas Labor
H-2A, LLC, Inc.
73.
For each harvest and planting season that occurred in
calendar years 2006 through and including 2013 one or more of the
Speight
defendants
authorized
Mas
Labor
H-2A,
LLC,
and/or
Elizabeth Whitley, either directly or indirectly through its
designated representatives or agents in Mexico, to maintain and
carry out all contacts with any government agency, office, and/or
Consulate of the United States located in Mexico necessary to
obtain the number of H-2A workers that the Speight defendants
needed for each of those same seasons.
74.
At all times relevant to this action, Mas Labor H-2A,
LLC, (“Mas”) is and has been a closely held, for-profit
corporation organized under the laws of the State of Virginia to
provide labor consulting, recruiting, hiring, referral, transfer,
and transportation services for any agricultural employers who
desire to employ one or more H-2A workers under the H-2A program.
75.
At all times relevant to this complaint, Elizabeth
Whitley has been and continues to be the President of Mas.
76.
In calendar years 2006 through 2013, the Speight
defendants did not pay any person(s) or entity for any of the
services that any person(s) or entity provided in Mexico to
Plaintiff Hernandez and all of the other prospective H-2A
employees of one or more of the Speight defendants to assist those
prospective H-2A employees of the Speight defendants to obtain an
H-2A visa.
77.
For each season in 2010, 2011, 2012, 2013, and any
season after 2013 until the date that the Court enters judgment in
this action that named Plaintiff Hernandez, the members of the
classes defined in ¶28 above that Plaintiff Hernandez seek to
represent traveled directly from Mexico to North Carolina, by way
of Monterrey, Mexico, to work for one or more of the Speight
defendants under the H-2A program, the named Plaintiff and those
other same H-2A workers paid for transportation from the place
where they were recruited to Monterrey, Mexico, from Monterrey,
Mexico to the border of the United States and Mexico at Laredo,
Texas, and from Laredo, Texas to their place of employment by the
Speight defendants in North Carolina.
78.
For each season described in ¶77 above before 2013,
named Plaintiff Hernandez and those same other H-2A workers
described in ¶77 above paid for transportation from the place
where they were recruited to the place of residence for the visa
processing agent they were required to use as a condition of
employment by the Speight defendants in 2010 and 2011 to deliver
their passports to that same visa processing agent to obtain their
H-2A visa to work for the Speight defendants.
79.
For each season described in ¶77 above, named Plaintiff
Hernandez and those same other H-2A workers described in ¶77 above
returned directly from North Carolina to their home village in
Mexico, by way of Laredo, Texas and Monterrey, Mexico, by the exit
date specified in their H-2A visas after they had completed
working 50% of the contract period specified in their H-2A job
contract for each such season in order to comply with the
expiration date of their H-2A visas that allowed them to work for
the Speight defendants. For each return trip so described, the
named Plaintiff and the other workers described in this paragraph
paid for the cost of transportation out of their pockets.
80.
For each season that Plaintiff Hernandez and each H-2A
worker described in ¶77 of the complaint reported to Monterrey,
Mexico to complete their H-2A visa processing at the U.S.
Consulate on the date indicated by defendant Ortega and/or one or
more
the
authorized
and
express
agent(s)
of
the
Speight
defendants, named Plaintiff Hernandez and those same other H-2A
workers were required to obtain and pay for lodging in Monterrey
in the night before the date of scheduled by one or more of the
Speight defendants, MAS, and/or their agents in Mexico for the H-
2A visa interview and processing of those same workers by the U.S.
Consulate in Monterrey.
81.
For reasons that were not the fault of Plaintiff
Hernandez and each H-2A worker described in ¶77 above of the
complaint, the U.S. Consulate delayed the interview and/or
processing of the H-2A visas for the named Plaintiff and each H-2A
worker described in ¶¶77 and 80 above at least one day so that the
H-2A visa interview and/or processing by the U.S. Consulate did
not occur on the date scheduled by the Speight defendants, MAS,
and/or their agents in Mexico. As a result, the named Plaintiff
and those same other H-2A workers described in ¶¶77 and 80 above
incurred expenses for lodging during the period that they were
required to wait more than one night in Monterrey for their H-2A
visa applications to be processed.
82.
For each season that Plaintiff Hernandez and each H-2A
worker described in ¶77 of the complaint traveled directly from
Mexico to North Carolina to work for one or more of the Speight
defendants under the H-2A program, the named Plaintiff and those
same other H-2A workers paid $6.00 for the issuance of the Customs
and Border Patrol Form I-94 required to enter the United States.
83.
The expenditures described in ¶¶78-82 above of this
complaint by named Plaintiff Hernandez and the other H-2A workers
described in ¶77 above that named Plaintiff Hernandez seeks to
represent were primarily for the benefit of the Speight defendants
within the meaning of 29 C.F.R. §§ 531.3(d)(1), 531.32(a),
531.32(c), and 778.217, and 13 N.C.A.C. Title 12 § .0301(d).
84.
The inbound expenditures set out in ¶¶78 and 80-82,
inclusive, above were made before the receipt of the first
workweek’s paycheck from one or more of the Speight defendants by
named Plaintiff Hernandez, the members of the class of H-2A
workers defined in ¶28 that the named Plaintiff seeks to represent
began their H-2A employment by one or more of the Speight
defendants in 2010, 2011, 2012, and 2013.
85.
The first regular payday for the wages due the named
Plaintiff and other H-2A workers described in ¶84 above for the
first workweek in 2010, 2011, 2012, 2013, and years thereafter
pursuant to the job contract that the named Plaintiff and other H-
2A workers described in ¶84 above had with the Speight defendants
in 2010, 2011, 2012, and 2013 and years thereafter.
86.
For
calendar
years
2010,
2011,
2012,
2013,
and
thereafter, the Speight defendants failed to reimburse named
Plaintiff Hernandez and the other H-2A workers described in ¶77
above an amount that was equal to or exceeded the expenditures
described in ¶¶78 and 80-82, inclusive, above to the extent that
those costs reduced the first workweek’s wages of the named
Plaintiff and those other H-2A workers below the federal minimum
wage rate applicable for each of those years and contract periods.
With this failure to reimburse, the Speight defendants also
breached their contract of employment with the named Plaintiff and
those other H-2A workers to pay them at the AEWR rate specified in
their job contract for each of those same contract periods in
2010, 2011, 2012, 2013, and thereafter.
87.
In 2011, 2012, 2013, and thereafter, the Speight
defendants also failed to reimburse named Plaintiff Hernandez and
the H-2A workers described in ¶79 above for the expenditures
described in ¶79 to the extent that those costs reduced the last
workweek’s wages of the named Plaintiff and those same other H-2A
workers below the AEWR. With this failure to reimburse, the
Speight defendants also breached their contract of employment with
the named Plaintiff and those same other H-2A workers.
88.
For 2010, 2011, 2012, and 2013, the Speight defendants
did not prohibit Mas Labor H-2A, LLC, Inc. or any of their agents
in Mexico from charging and collecting any visa processing fee
and/or recruiting fee in addition to the money that was required
to pay the U.S. Consulate in Monterrey, Mexico for the visa fee
and any applicable visa reciprocity/interview fee.
89.
In 2010, 2011, 2012, and 2013, the Speight defendants
did not instruct Mas Labor H-2A, LLC, Inc. to prohibit any of the
agents of the Speight defendants and/or Mas who operated in Mexico
in one or more of those same years from charging and collecting
any visa processing fee and/or recruiting fee in addition to the
money that was required to pay the U.S. Consulate in Monterrey,
Mexico
for
the
visa
fee
and
any
applicable
visa
reciprocity/interview fee.
90.
In
2010,
2011,
2012,
and
2013,
pursuant
to
N.C.Gen.Stat. §§ 95-25.13(1)-(2), the Speight defendants disclosed
to named Plaintiff Hernandez and the other H-2A workers that they
employed in the contract periods for each of those same years that
the Speight defendants would pay them free and clear the minimum
hourly wage rate required by 20 C.F.R. § 655.120 for all hours
worked.
91.
In
2010,
2011,
2012,
and
2013,
pursuant
to
N.C.Gen.Stat. §§ 95-25.13(1)-(2), the Speight defendants disclosed
to named Plaintiff Hernandez and all workers that they employed in
the contract periods for each of those same years that the Speight
defendants would pay them free and clear at the minimum hourly
wage rate required by 29 U.S.C. § 206(a) for all hours worked.
92.
For the entire contract period specified in the job
contracts that defendants Speight and Beamon filed in 2010, 2011,
2012, and 2013, the Speight defendants made wage deductions for an
alleged savings plan from the weekly wages that were due the
named Plaintiff and each member of the collective action and
classes and subclass defined in ¶¶23 and 36 above during the
periods of employment alleged in those same paragraphs and ¶9(a)
above.
93.
For entire time period that defendants Speight and
Beamon made the wage deductions that are described in ¶92 above
from the weekly wages due the named plaintiff and the members of
the class, subclass, and collective action defined in ¶¶23 and 36
above, the named plaintiff and those same workers did not freely
and voluntarily consent to any of those wage deductions.
94.
For the contract period covered by the job orders that
defendants Speight and Beamon filed in 2010 and 2011, when the
Speight defendants made the wage deductions that are described in
¶92 above, one or more of the Speight defendants labeled them as
wage deductions for a “cash advance” made to the workers
described in ¶92 above.
95.
For the contract period covered by the job order that
defendants Speight and Beamon filed in 2012, when the Speight
defendants made the wage deductions that are described in ¶92
above, one or more of the Speight defendants labeled them as wage
deductions for a “employee advance repayment” and “savings
adjustment” made to the named Plaintiff and the workers described
in ¶92 above.
96.
In 2010, 2011, 2012, and 2013, the Speight defendants
did not disclose their intent to make these wage deductions to
named Plaintiff Hernandez and each member of the collective
action and subclass defined in ¶¶23 and 36 above in the H-2A job
order
in
violation
of
20
C.F.R.
§§
655.104(m)
and
655.104(1)(2009),
20
C.F.R.
§§
655.122(m)
and
655.122(p)(1)(2010).
97.
In 2010, 2011, 2012, and 2013, the Speight defendants
did not obtain a wage deduction authorization of the type
described
in
N.C.Gen.Stat.
§
95-25.8(a)(2)-(3)
from
named
Plaintiff Hernandez nor from any member of the class, subclass,
and collective actions defined in ¶¶23 and 36 above which was
signed by the named Plaintiff and each such member on or before
the payday(s) for the pay period(s) that the Speight defendants
made the wage deduction(s) that are described in ¶92 above for
each of those same years.
98.
In 2010, 2011, 2012, and 2013, on a substantial number
of weekly paydays in each of the time periods covered by the H-2A
contracts for each of those same years for workweeks which
included one or more workdays falling on or after April 8, 2010,
defendants Speight and Beamon made wage deductions for an alleged
“savings plan” from the wages they paid free and clear to the
named Plaintiff and the members of the collective action defined
in ¶23 above which reduced the net wages paid to those same
workers below the minimum rate required by 29 U.S.C. § 206(a).
99.
In 2011, 2012, and 2013, on a substantial number of
weekly paydays in each of the time periods covered by the H-2A
contracts for each of those same years for workweeks which
included one or more workdays falling on or after April 8, 2011,
defendants Speight and Beamon made wage deductions for an alleged
“savings plan” from the wages they paid free and clear to the
named Plaintiff and the members of the collective action defined
in ¶23 above which reduced the net wages paid to those same
workers below the minimum rate required by 29 U.S.C. § 206(a).
100. In 2010, 2011, 2012, and 2013, on a substantial number
of weekly paydays in each of the time periods covered by the H-2A
contracts for each of those same years for workweeks which
included one or more workdays falling on or after April 8, 2010,
defendants Speight and Beamon made wage deductions for an alleged
“savings plan” from the wages they paid free and clear to the
named Plaintiff and the members of the subclass action defined in
¶36 above which reduced the net wages paid to those same workers
below the minimum hourly rate that the Beamon defendants had
disclosed to them pursuant to N.C.Gen.Stat. §§ 95-25.13(1)-(2).
101. In 2010, 2011, 2012, and 2013, on a substantial number
of weekly paydays in each of the time periods covered by the H-2A
contracts for each of those same years for workweeks which
included one or more workdays falling on or after April 8, 2011,
defendants Speight and Beamon made wage deductions for an alleged
“savings plan” from the wages they paid free and clear to the
named Plaintiff and the members of the subclass action defined in
¶36 above which reduced the net wages paid to those same workers
below the minimum hourly rate that the Beamon defendants had
disclosed to them pursuant to N.C.Gen.Stat. §§ 95-25.13(1)-(2).
102. In 2010, 2011, 2012, and 2013, on a substantial number
of weekly paydays in each of the time periods covered by the H-2A
contracts for each of those same years for workweeks which
included one or more workdays falling on or after April 8, 2011,
defendants Speight and Beamon made wage deductions for an alleged
“savings plan” from the wages they paid free and clear to the
named Plaintiff and the members of the class action defined in
¶36 above which reduced the net wages paid to those same workers
below the minimum hourly rate that the Beamon defendants had
disclosed to them pursuant to N.C.Gen.Stat. §§ 95-25.13(1)-(2).
103. As a condition of any reimbursement or payment by the
Speight defendants to the named Plaintiff and/or any member of
the collective action, class, and/or subclass referred to in ¶92
above from the “savings plan” fund created by the wage deductions
described in ¶92 above, it was and continues to be the policy and
practice of the Speight defendants to require that the worker
involved sign an authorization which purported to give the
Speight defendants permission to make the wage deductions
described in ¶95 above well after the payday(s) on which
defendants
Speight
and
Beamon
actually
made
those
wage
deductions.
104. In 2010, 2011, 2012, and 2013, the Speight defendants
did not provide any disclosure or notice in advance of the date
on which wages were actually paid to the named Plaintiff and the
members of the collective action and subclasses and subclass
defined in ¶¶23 and 36 above as to the rate or amount of the wage
deduction that one or more of the Speight defendants actually
intended to and did make from the wages due those same employees
for any particular pay period in those same years.
105. All defendants were on notice of their obligations
under the FLSA and the NCWHA and acted in reckless disregard of
those obligations in 2010, 2011, 2012, and 2013 as they were
members of a defendant class that was previously sued in José
Manuel Garcia-Alvarez, et al. v. NCGA, et al., Civil Action No.
CV601-56 (Wake County Superior Court Complaint filed October 28,
2004), alleging, inter alia, that defendants Speight and John
Milton Beamon had violated the NCWHA by failing to reimburse H-2A
worker plaintiffs in that case for costs incurred that were
primarily for the benefit of those same two (2) defendants, and
thereby reduced the earnings of the H-2A worker plaintiffs in that
case below the then applicable AEWR. The Speight defendants were
also members of The North Carolina Grower’s Association, Inc.
(“NCGA”) when a federal court decided a similar FLSA action
against the NCGA in De Luna-Guerrero v. NCGA, 338 F.Supp.2d 649
(E.D.N.C. 2004).
106. In
addition,
upon
information
and
believe,
all
defendants were on notice of their obligations under the FLSA and
the NCWHA and acted in reckless disregard of those obligations in
2010, 2011, 2012, and 2013 based upon the information and advice
provided to them by MAS Labor H-2A, LLC.
XI.
FIRST CLAIM FOR RELIEF (NCWHA)
107. Paragraphs 5 through 21, 27-34, 43-89, and 105-106,
inclusive,
above
are
realleged
and
incorporated
herein
by
reference by Plaintiff Hernandez and each member of the class
defined in ¶28 of this complaint that named Plaintiff Hernandez
seeks to represent pursuant to Rule 23(b)(3), Fed.R.Civ.P.,
against the Speight defendants under the North Carolina Wage and
Hour Act, N.C.Gen.Stat. §§ 95-25.1 et seq.
108. The Speight defendants violated their duty to Plaintiff
Hernandez and the class defined in ¶28 to pay all wages under
N.C.Gen.Stat. § 95-25.6 when those wages were due at the AEWR or
contract rate on the first and last regular paydays for the work
performed by Plaintiff Hernandez and the class defined in ¶28 in
each time period specified in the H-2A job orders filed by
defendants Speight and Beamon in 2011, 2012, and 2013 and
thereafter when the Speight defendants did not pay and will not
pay all those same wages in the manner that is alleged in ¶¶86-87
above based upon the de facto wage deductions described in ¶¶78-82
and 86-87 above.
109. As a result of the actions or omissions of the Speight
defendants that are described or referred to in ¶¶43-89 above of
this complaint, Plaintiff Hernandez and each person who is a
member of the class defined in ¶28 above of this complaint have
suffered damages in the form of unpaid wages and liquidated
damages that may be recovered under N.C.Gen.Stat. §§ 95-25.6, 95-
25.22(a), and 95-25.22(a1).
XII. SECOND CLAIM FOR RELIEF (Contract AEWR wage)
110. Paragraphs 5 through 21, 27-34, and 43-89, inclusive,
above are realleged and incorporated herein by reference by
Plaintiff Hernandez and each member of the class defined in ¶28 of
this complaint that the named Plaintiff seeks to represent
pursuant to Rule 23(b)(3), Fed.R.Civ.P., against the Speight
defendants under the common law of employment contracts.
111. The Speight defendants breached their express, implied,
and/or constructive job order contracts of 2010, 2011, 2012, and
2013 in when those same named defendants did not pay and will not
pay all wages due when those wages were and will be due under the
terms of those same job order contracts to plaintiff Hernandez and
the members of the contract AEWR wage class defined in ¶28 above
of this complaint that those same Plaintiffs seek to represent
under Rule 23(b)(3), Fed.R.Civ.P., for the first and last
workweeks of the work described in ¶¶9-11, 55, and 57 above of
this Complaint based upon the actions or omissions described in
¶¶78-82 and 86-87 above of this Complaint.
112. As a result of the actions or omissions of the Speight
defendants that are described or referred to in ¶¶43-89 above of
this complaint, Plaintiff Hernandez and each person who is a
member of the contract AEWR wage class defined in ¶28 above of
this complaint have suffered damages in the form of unpaid wages
that may be recovered under the common law of contracts.
XIII. THIRD CLAIM FOR RELIEF (NCWHA against all defendants)
113. Paragraphs 5 through 21, and 35-70, and 90-104,
inclusive,
above
are
realleged
and
incorporated
herein
by
reference by named Plaintiff Hernandez and each member of the
class and subclass defined in ¶36 of this complaint that the named
Plaintiff
seeks
to
represent
pursuant
to
Rule
23(b)(3),
Fed.R.Civ.P., against the Speight defendants under the North
Carolina Wage and Hour Act, N.C.Gen.Stat. §§ 95-25.1 et seq.
114. The Speight defendants violated their duty to named
Plaintiff Hernandez and the class and subclass defined in ¶36 to
pay all wages free and clear when those wages were due on each
such employee’s regular payday pursuant to N.C.Gen.Stat. §§ 95-
25.6 and 95-25.8 by failing to pay them wages free and clear
through the use of the wage deduction “savings plan” that is
described in ¶¶90-104 above.
115. As a result of the actions or omissions of the Speight
defendants that are described or referred to in ¶¶35-70 and 90-
104,
inclusive,
above
of
this
complaint
in
violation
of
N.C.Gen.Stat. §§ 95-25.6 and 95-25.8, 13 N.C.A.C. Tit.12 §§ .0103
and .03005(g), and 29 C.F.R. § 531.35, Plaintiff Hernandez and
each person who is a member of the class and subclass defined in
¶36 above of this complaint have suffered damages in the form of
untimely payment of wages and liquidated damages that may be
recovered under N.C.Gen.Stat. §§ 95-25.6, 95-25.8, 95-25.22(a),
and 95-25.22(a1).
XIV. FOURTH CLAIM FOR RELIEF (FLSA Wage Payment Claim)
116. Paragraphs 5 through 21, 22-26, 43-70, 90-106, and 113-
115, inclusive, above are realleged and incorporated herein by
reference by named Plaintiff Hernandez and each member of the
collective action defined in ¶¶22-23 of this complaint that the
named Plaintiff seeks to represent pursuant to 29 U.S.C. § 216(b)
against the Speight defendants under the FLSA.
117. The Speight defendants breached their duty to pay all
wages due when those wages were and will be due at the minimum
rate required by the FLSA to the named Plaintiff and the members
of the collective FLSA action defined in ¶¶22-23 above of this
complaint that the named Plaintiff seeks to represent under 29
U.S.C. § 216(b) for each workweek of the work described in ¶¶9-11,
55, and 57 above of this Complaint based upon certain illegal wage
deductions that the defendants made pursuant to the illegal
savings plan alleged in ¶¶22-26, 43-70 and 90-104 above in
violation of the provisions of 29 U.S.C. 206(a), 29 C.F.R. §
531.35, and/or 20 C.F.R. §§ 655.122(m) and 655.122(p)(1).
118. As a result of the actions or omissions of the Speight
defendants that are described or referred to in ¶¶5-21, 22-26, 43-
70, 90-106, and 113-115, inclusive, above of this complaint, all
Plaintiffs and each person who is a member of the collective FLSA
action defined in ¶¶22-23 above of this complaint have suffered
damages in the form of untimely payment of wages and liquidated
damages that may be recovered under 29 U.S.C. § 216(b).
XV.
CLAIM FOR DECLARATORY RELIEF
119. Paragraphs 4 through 118 above are realleged and
incorporated herein by reference by the Plaintiffs, the classes
and subclass of persons defined in ¶¶28 and 36 above, and the
members of the collective actions defined in ¶¶22-23 above that
the named Plaintiff seeks to represent against the Speight
defendants.
120. The parties named in this action and the classes,
subclass, and members of the collective actions that the named
Plaintiff seeks to represent are in dispute as to their respective
rights, privileges, obligations, and liabilities under the Fair
Labor Standards Act, the North Carolina Wage and Hour Act, and the
common law of contracts, and require declaratory relief as to what
those respective rights, privileges, obligations, and liabilities
are.
WHEREFORE Plaintiff respectfully requests that the Court:
(a)
Grant a jury trial on all issues so triable;
(b)
Pursuant to Rule 23(b)(3), Fed.R.Civ.P., certify the
one or more of the named Plaintiffs as the representative of the
classes and subclass alleged in ¶¶28 and 36 above with respect to
both the First, Second, Third Claims for Relief based upon the
factors alleged in ¶¶27-50, inclusive, above of this Complaint;
(c)
Pursuant to 29 U.S.C. § 216(b), certify all named
Plaintiffs as the representatives of the collective action alleged
in ¶¶22-23 above with respect to the Fourth Claim for Relief;
(d)
Enter judgment against each of the Speight defendants,
jointly and severally, and in favor of each named Plaintiff Juan
Manuel Hernandez-Martinez and each member of the classes and
subclass defined in ¶¶28 and 36 above for compensatory damages,
contract damages, liquidated damages where allowed by law, and
unpaid back wages, plus pre- and post-judgment interest at the
full amount allowed by law under the First, Second, and Third
Claims for Relief;
(e)
Enter judgment against each of the Speight defendants,
jointly and severally, and in favor of named Plaintiff Juan Manuel
Hernandez-Martinez, and each member of the collective action
defined in ¶¶22-23 above for an amount in liquidated damages equal
to the amount of wages that the Speight defendants did not pay on
the regular payday of those same workers when those wages were due
in the amount required by 29 U.S.C. §206(a) pursuant to 29 U.S.C.
§§206 and 216(b) against each of the Speight defendants, jointly
and severally, under the Fourth Claim for Relief for the work
described in ¶¶9-11, 55 and 57 above by and for the Plaintiff and
the members of the collective action alleged in ¶¶22-23 above;
(f)
Enter judgment against each of the Speight defendants,
jointly and severally, and in favor of all of the named Plaintiff
and each member of the class and subclass and collective actions
defined in ¶¶22-23, 28, and 36 above for costs and a reasonable
attorney’s fee pursuant to 29 U.S.C. § 216(b) and N.C.Gen.Stat. §
95-25.22(d);
(g)
Grant the named Plaintiffs and the members of the
collective action and classes and subclass that the named
Plaintiff seeks to represent declaratory relief that the Speight
defendants have violated the rights of the named Plaintiff and
those other employees under the FLSA, the AWPA, the NCWHA, and the
common law of contracts;
(h)
Award such other relief as may be just and proper in
this action.
This the 4th day of September 2013.
LAW OFFICE OF ROBERT J. WILLIS, P.A.
BY:
/s/ Robert J. Willis
Robert J. Willis
Attorney at Law
NC Bar #10730
(mailing address)
P.O. Box 1269
Raleigh, NC 27602
tel: (919) 821-9031
fax: (919)821-1763
[email protected]
(street address)
5. W. Hargett Street
Suite 404
Raleigh, NC 27601
Counsel for Plaintiffs
CERTIFICATE OF SERVICE
I hereby certify that on September 4, 2013 I electronically filed the foregoing with
the Clerk of Court using the CM/ECF system which will send notification of such filing to
the following: William A. Oden, III.
Dated: September 4, 2013.
Respectfully submitted,
/s/ Robert J. Willis
Robert J. Willis
Attorney for Plaintiffs
P.O. Box 1269
Raleigh, NC 27602
Telephone: (919)821-9031
Fax: (919)821-1763
E-mail: [email protected]
| employment & labor |
N7IiC4cBD5gMZwczxEoU | FOR THE DISTRICT OF CONNECTICUT
Civil Action No. ______________
WILLIAM SHUMAKER, individually
and on behalf of all others similarly
situated,
Plaintiff,
CLASS ACTION COMPLAINT
FOR BREACH OF FIDUCIARY
DUTIES AND VIOLATIONS OF
SECTIONS 14(a) AND 20(a) OF
THE SECURITIES EXCHANGE
ACT OF 1934
JURY TRIAL DEMAND
v.
BLUE BUFFALO PET PRODUCTS,
INC., WILLIAM BISHOP, BILLY
BISHOP, PHILIPPE AMOUYAL,
EVREN BILIMER, RAYMOND
DEBBANE, MICHAEL A. ECK,
FRANCES FREI, AFLALO
GUIMARAES, AMY SCHULMAN,
GENERAL MILLS, INC., and BRAVO
MERGER CORP.,
Defendants.
Plaintiff William Shumaker (“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 Blue Buffalo Pet Products, Inc. (“Blue Buffalo” or the “Company”), against
Blue Buffalo, and the Company’s Board of Directors (the “Board” or the “Individual
Defendants”)(collectively with the Company, the “Defendants”), for violations of Sections 14(a)
and 20(a) of the Securities and Exchange Act of 1934 (the “Exchange Act”) and for breaches of
fiduciary duty as a result of Defendants’ efforts to sell the Company to General Mills, Inc.
(“Parent”) and Bravo Merger Corp. (the “Merger Sub” and collectively with Parent, “General
Mills”) as a result of an unfair process for an unfair price, and to enjoin the consummation of a
proposed all-cash transaction valued at approximately $8.0 Billion (the “Proposed Transaction”).
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, Blue Buffalo will become an indirect wholly-owned subsidiary of General Mills, and
Blue Buffalo stockholders will receive $40.00 per share in cash for each share of Blue Buffalo
common stock they own.
3.
Thereafter, on March 19, 2018, Blue Buffalo filed a Preliminary Information
Statement on Schedule Prem14C (the “Preliminary Information Statement”) with the United States
Securities and Exchange Commission (the “SEC”) in support of the Proposed Transaction.
4.
Blue Buffalo is, by its own admission, a controlled company, with approximately
55% of its outstanding stock owned by either equity funds associated with Invus, L.P. (“Invus”),
a longtime financial investor in the Company, or by members of the Bishop family, the founders
of the Company (together, the “Majority Stockholders”). This clear conflict of interest between
the Majority Stockholders who control the Company and Plaintiff and other minority holders has
most definitely played a role in the failure to ensure an adequate process and has trampled on the
rights of Plaintiff and other Company stockholders.
5.
The Proposed Transaction is unfair and undervalued for a number of reasons.
Significantly, the Majority Stockholders have pledged all such shares in a support agreement to
vote in favor of the Proposed Transaction; no vote of any minority shareholders is required to
consummate the Proposed Transaction. Furthermore, as is made clear in the Preliminary
Information Statement, the Company does not intend for any such vote to take place. Rather, the
Proposed Transaction can be consummated at any moment.
6.
Most telling of the above fact is that, despite engaging in a several month sales
process, the Board did not engage in any effort whatsoever to perform any type of market check
for potentially interested third parties, at any point in the process. Moreover, the Board did not
even require a go-shop period, accepting, instead, a weak “window shop” period of thirty days.
7.
Instead, the Board has entered into the Proposed Transaction to procure for
themselves and senior management of the Company significant and immediate benefits with no
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. Moreover, certain Directors and other insiders will also be the recipients of
lucrative change-in-control agreements, triggered upon the termination of their employment as a
consequence of the consummation of the Proposed Transaction.
8.
In fact, Defendant Billy Bishop, CEO of Blue Buffalo, negotiated not only retention
of employment with the surviving entity, but a substantial pay raise as well, all while negotiations
to achieve the best possible deal for the stockholders of the Company should have been happening.
9.
Defendants breached their fiduciary duties to the Company’s stockholders by
agreeing to the Proposed Transaction which undervalues Blue Buffalo and is the result of a flawed
sales process.
10.
As part of such a process, the Board and Company agreed to an onerous and
preclusive no solicitation clause, that, after a short 30-day “window shop period”, the Company
cannot terminate the Proposed Transaction should a third party offer a deal that the Board considers
to be a superior offer. This is particularly prejudicial given the lack of any actual market check
prior to the Merger Agreement being signed.
11.
In violation of sections 14(a) and 20(a) of the Securities and Exchange Act of 1934
(the “Exchange Act”), and in violation of their fiduciary duties, Defendants caused to be filed the
materially deficient Preliminary Information Statement on March 19, 2018 with the SEC. The
Preliminary Information Statement is materially deficient and deprives Blue Buffalo stockholders
of the information they need to make an intelligent, informed and rational decision of whether to
seek appraisal of their shares in lieu of the consideration offered under the terms of the Proposed
Transaction.
12.
As detailed below, the Preliminary Information Statement omits and/or
misrepresents material information concerning, among other things: (a) the sales process leading
up to the Proposed Transaction; (b) the financial projections for Blue Buffalo, provided by Blue
Buffalo’s management to the Company’s financial advisors J.P. Morgan Securities LLC (“J.P.
the data and inputs underlying the financial valuation analyses that purport to support the fairness
opinions provided by the Company’s financial advisors, J.P. Morgan and Centerview.
13.
Given that the Preliminary Information Statement failed to disclose information
material to an informed shareholder’s decision whether or not to seek appraisal, Plaintiff, on behalf
of the minority Blue Buffalo stockholders, seeks an injunction to prevent consummation of the
Proposed Transaction to afford Plaintiff a reasonable opportunity to obtain a “quasi-appraisal” so
that Plaintiff can make an ultimate determination whether to request an appraisal.
14.
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
15.
Plaintiff is a citizen of New York and, at all times relevant hereto, has been a Blue
Buffalo stockholder.
16.
Defendant Blue Buffalo through its subsidiary, Blue Buffalo Company, Ltd.,
operates as a pet food company in the United States, Canada, Japan, and Mexico. Blue Buffalo is
organized under the laws of Delaware and has its principal place of business at 11 River Road,
Suite 103, Wilton, CT 06897. Shares of Blue Buffalo common stock are traded on the NasdaqGS
under the symbol “BUFF.”
17.
Defendant William Bishop has been a director of the Company at all relevant times.
In addition, Defendant William Bishop is a co-founder of the Company and serves as the Chairman
of the Board.
18.
Defendant Billy Bishop has been a director of the Company at all relevant times.
In addition, Billy Bishop is a co-founder of the Company and serves as the Company’s Chief
Executive Officer (“CEO”).
at all relevant times. In addition, Amouyal serves as a member of the Board’s Compensation
Committee.
20.
Defendant Evren Bilimer (“Bilimer”) has been a director of the Company at all
relevant times. In addition, Bilimer serves as the Chair of the Board’s Compensation Committee.
21.
Defendant Raymond Debbane (“Debbane”) has been a director of the Company at
all relevant times. Notably, Debbane is the President and CEO of Invus.
22.
Defendant Michael A. Eck (“Eck”) has been a director of the Company at all
relevant times. In addition, Defendant Eck serves as the Chair of the Board’s Audit Committee
and is designated as a being a ‘Financial Expert’ by the Company.
23.
Defendant Frances Frei (“Frei”) has been a director of the Company at all relevant
times. In addition, Frei serves on the Board’s Audit and Compensation Committees.
24.
Defendant Alfalo Guimaraes (“Guimaraes”) has been a director of the Company at
all relevant times. Notably, Guimaraes is a Managing Director of Invus.
25.
Defendant Amy Schulman (“Schulman”) has been a director of the Company at all
relevant times. In addition, Schulman serves as on the Board’s Audit Committee.
26.
Defendants William Bishop, Billy Bishop, Amouyal, Bilimer, Debbane, Eck, Frei,
Guimaraes and Schulman identified in ¶¶ 17 – 25 are collectively referred to as the “Individual
Defendants.”
27.
Parent manufactures and markets branded consumer foods in the United States.
Parent company operates in four segments: North America Retail; Convenience Stores &
Foodservice; Europe & Australia; and Asia & Latin America. Parent is a corporation organized
under the laws of Delaware and has its principal place of business at Number One General Mills
Blvd, Minneapolis, MN 55426. Parent common stock is traded on the New York Stock Exchange
(“NYSE”) under the ticker symbol “GIS.”
28.
Merger Sub is a Delaware corporation and a wholly owned subsidiary of Parent, and
can be served care of Parent.
JURISDICTION AND VENUE
Act (15 U.S.C. § 78aa) and 28 U.S.C. § 1331 (federal question jurisdiction) as Plaintiff alleges
violations of Sections 14(a) and Section 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.
30.
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.
31.
Venue is proper in this District pursuant to 28 U.S.C. § 1391, because Blue Buffalo
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
32.
Plaintiff brings this action pursuant to Federal Rule of Civil Procedure 23,
individually and on behalf of the stockholders of Blue Buffalo 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.
33.
This action is properly maintainable as a class action because:
a. The Class is so numerous that joinder of all members is impracticable. As of
February 26, 2018, there were more than 195 million common shares of Blue
Buffalo stock outstanding. The actual number of public stockholders of Blue
Buffalo 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;
material facts in the Preliminary Information 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;
iv.
whether Defendants failed to furnish factual information material to
an informed shareholder decision as to fair value of Blue Buffalo and
whether or not to seek appraisal.
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.
34.
By reason of the Individual Defendants’ positions with the Company as officers
and/or directors, said individuals are in a fiduciary relationship with Blue Buffalo and owe the
Company the duties of due care, loyalty, and good faith.
35.
By virtue of their positions as directors and/or officers of Blue Buffalo, the
Individual Defendants, at all relevant times, had the power to control and influence, and did control
and influence and cause Blue Buffalo to engage in the practices complained of herein.
36.
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.
37.
In accordance with their duties of loyalty and good faith, the Individual Defendants,
as directors and/or officers of Blue Buffalo, are obligated to refrain from:
a. participating in any transaction where the directors’ or officers’ loyalties are
divided;
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.
38.
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 Blue Buffalo, Plaintiff and the other public stockholders of Blue Buffalo, including their
duties of loyalty, good faith, and due care.
39.
As a result of the Individual Defendants’ divided loyalties, Plaintiff and Class
members will not receive adequate, fair or maximum value for their Blue Buffalo common stock
in the Proposed Transaction.
SUBSTANTIVE ALLEGATIONS
Company Background
40.
Blue Buffalo, through its subsidiary, Blue Buffalo Company, Ltd., operates as a pet
food company in the United States, Canada, Japan, and Mexico. The Company develops,
produces, markets, and sells dog and cat food under the BLUE Life Protection Formula, BLUE
Wilderness, BLUE Basics, BLUE Freedom, and BLUE Natural Veterinary Diet lines.
41.
The Company sells its products to retail partners and distributors in specialty
channels, including national pet superstore chains, regional pet store chains, neighborhood pet
stores, farm and feed stores, e-commerce retailers, military outlets, hardware stores, and veterinary
clinics and hospitals.
42.
The Company’s most recent financial performance press release indicates sustained
and solid financial performance. For example, in a February 23, 2018 press release announcing
its Full Year and Q4 financial results, the Company noted such full year financial highlights as an
increase of net sales of 10.9% year-on-year, an increase in net income of 48.6% year-on-year,
and an increase in adjusted EBITDA of 15.8% year-on-year. Q4 results were likewise,
54.1% year-on-year, and Adjusted EBITDA of 22.4% year-on-year.
43.
Speaking on these positive results, Defendant CEO Billy Bishop stated, “I’m
pleased to say that 2017 was a strong year.” Bishop continued, “Blue Buffalo’s momentum
continues to be strong as we gained share, broadened our distribution footprint and built two new
plants to fuel our growth. Looking ahead, we’re very optimistic about the future.”
44.
These positive results are not an anomaly, but rather, are indicative of a trend of
continued financial success by Blue Buffalo. For example, in a November 7, 2017 press release
announcing the Company’s 2017 Q3 financial results, Blue Buffalo reported such positive results
as an increase in net sales of 18.4% year-on-year, an increase in net income of 147.4% year-on-
year, and an increase in adjusted EBITDA of 20.0% year-on-year.
45.
Speaking on these results, Defendant Billy Bishop stated, “We are excited about
the progress of our launch of BLUE Life Protection Formula into the mass and grocery channel
and look forward to growing our business as we expand distribution over the next few years.”
Bishop continued, “In addition, we are continuing to invest behind our exclusive specialty lines to
maintain our leadership position in the specialty channel.”
46.
Clearly, based upon these extremely positive financial results, the Company is
likely to have tremendous future success and should command a much higher consideration than
the amount contained within the Proposed Transaction.
47.
Despite this upward trajectory and continually increasing financial results, the
Individual Defendants have caused Blue Buffalo to enter into the Proposed Transaction for
insufficient consideration, thereby depriving Plaintiff and other public shareholders of the
Company the opportunity to reap the benefits of Blue Buffalo present and future success and to
make a determination whether to seek appraisal.
The Flawed Sales Process
48.
As detailed in the Preliminary Information Statement, the process deployed by the
Individual Defendants was flawed and inadequate, was conducted out of the self-interest of the
the Company to General Mills.
49.
First and foremost, the Preliminary Information Statement reveals the major flaw
with the sales process – that there was no ‘process’ at all. Rather, from the moment the possibility
of a merger between General Mills and Blue Buffalo was raised, by General Mills, the Company
and the Board worked only to further that goal. The most telling indicator that supports this pattern
is that the Board did not conduct any sort of market check whatsoever for any potentially interested
third party, at any point in the sales process, despite the sales ‘process’ with General Mills
occurring over a five-month period.
50.
This lack of a market check is especially alarming when considering that the
Preliminary Information Statement indicates that, at least, Defendant Billy Bishop thought that the
Company could be valued at more than $40.00 per share. Specifically, when faced with the $40.00
per share offer from General Mills, Defendant Bishop attempted to increase the price - he
“emphasized the strong financial performance for the Company, including its plans for stronger
earnings guidance.” Despite this fact, the Company chose not even to test the waters at any point
in the sales process to determine if another bidder would be forthcoming, or if a bidding war could
emerge.
51.
This lack of a market check is even more inexplicable when considering the
Company’s extraordinary financial performance in the past financial year.
52.
The Preliminary Information Statement is silent as to whether any special
committee of Independent Board members was created to oversee the sales process leading up to
the Proposed Transaction. This silence is tantamount to acquiescence that no such committee was
created or utilized in the lead up to the merger agreement, and presents significant issues as to the
inherent fairness of the Proposed Transaction and the manner in which it was negotiated.
53.
Even absent the creation and utilization of a committee of independent Board
members to run the sales process, the Company should have allowed the majority of the operational
control of the sales process to fall to the hand of one or more independent Board members. Again,
this was not the case, as all operational aspects of the sales process seemed to be run either by
Bilimer.
54.
Considering Defendants Billy Bishop and William Bishop, together with third co-
founder and family member Christopher T. Bishop own, individually or through other entities,
approximately 15% of the outstanding stock of Blue Buffalo, and that Invus owns approximately
45% of the outstanding stock of Blue Buffalo, this complete control over the sales process by the
Bishop Family and Invus is highly problematic, and indicates that their own interests were the
overriding concerns for these parties, not the public stockholders of the Company.
55.
This flawed management of the sales process also led to the entry into the Proposed
Transaction which contained an incredibly onerous ‘no-solicitation’ provision that does not allow
Blue Buffalo to consider unsolicited third party offers that the Board believes to be superior offers,
after a brief “window-shop” time period.
56.
The Preliminary Information Statement also reveals that during the sales process
the Board, including Billy Bishop, negotiated for the continuation of the employment for the
management team, and even a substantial raise for Billy Bishop himself. Such a substantial
conflict of interest of inside parties in mind over that of the public stockholders cannot be ignored.
57.
Moreover, the Preliminary Information Statement is also unclear as to the nature of
non-disclosure agreement entered into between General Mills and Blue Buffalo during the sales
process. Specifically, the Preliminary Information Statement is unclear as to what the specific
conditions are that would cause the included standstill provisions preventing the Company from
communicating with interested third parties to fall away.
The Proposed Transaction
58.
On January 31, 2018, Blue Buffalo and General Mills issued a press release
announcing the Proposed Transaction. The press release stated, in relevant part:
MINNEAPOLIS, Minn. and WILTON, Conn., Feb. 23, 2018 – General Mills,
Inc. (NYSE: GIS) and Blue Buffalo Pet Products, Inc. (NASDAQ: BUFF) today
announced that they have entered into a definitive agreement under which General
Mills will acquire Blue Buffalo for $40.00 per share in cash, representing an
enterprise value of approximately $8.0 billion. The transaction establishes General
Mills as the leader in the U.S. Wholesome Natural pet food category, the fastest
growing portion of the overall pet food market, and accelerates its portfolio
reshaping strategy.
Founded in 2002, Blue Buffalo is the fastest growing major pet food company
making natural foods and treats for dogs and cats under the BLUE brand, which
includes BLUE Life Protection Formula, BLUE Wilderness, BLUE Basics, BLUE
Freedom and BLUE Natural Veterinary Diet. BLUE is the #1 Wholesome Natural
pet food brand in the U.S. with $1.275 billion in net sales and $319 million in
Adjusted EBITDA for fiscal year 2017, representing an Adjusted EBITDA margin
of 25%. Over the past three years, Blue Buffalo has delivered compound annual net
sales growth of 12% and Adjusted EBITDA growth of 18%.
“The addition of BLUE to our family of well-loved brands provides General Mills
with the leading position in the large and growing Wholesome Natural pet food
category and represents a significant milestone as we reshape our portfolio to drive
additional growth and value creation for our shareholders,” said General Mills
Chairman and Chief Executive Officer, Jeff Harmening.
“We are competing more effectively in our existing categories by really listening
to consumers and providing a variety of options that meet their needs,” Harmening
continued. “In pet food, as in human food, consumers are seeking more natural and
premium products and we have tremendous respect for how attentive Blue Buffalo
has been to the needs of their consumers, pet parents and pets, as they have built
their brand. As we have done with Annie’s, Lärabar and EPIC, we expect to help
Blue Buffalo by leveraging our extensive supply chain, R&D and sales &
marketing resources. We will in turn benefit from their experience building one of
the strongest pull brands in the CPG world.”
“I have been impressed by General Mills’ strong track record of accelerating
growth for its natural and organic brands, while giving them the freedom to
maintain their own unique culture and identity. General Mills will be a tremendous
home for our BLUE brand as our talented team of over 1,700 ‘Buffs’ joins this new
extended family,” said Billy Bishop, Blue Buffalo Chief Executive Officer. “From
the first meeting Jeff and I had, I felt a strong cultural fit between our two
companies and believe they will be a great partner in our mission to reach more pet
parents and feed more pets. This transaction creates significant, immediate value
for our shareholders, as it recognizes the strength of our competitively advantaged
business model. Along with our leadership team, we look forward to working with
General Mills to continue growing the BLUE brand for many years to come.”
Compelling Strategic and Financial Benefits
• Addition of Attractive Growth Category. The $30 billion U.S. pet food
market is generating consistent 3-4% growth and is highly attractive for
retailers based on continued market growth, premiumization and
subscription-like purchase patterns that drive traffic and repeat purchases.
Blue Buffalo is the leader in the fastest-growing Wholesome Natural
category with double-digit growth over each of the last three years. The
Wholesome Natural market represents approximately 10% of the pet food
market in volume and approximately 20% in value.1 Based on the strong
consumer tailwinds, the Wholesome Natural market is poised to continue to
grow, propelling BLUE’s
• Leading Brand with Loyal Consumer Base in Early Innings of its
Growth. BLUE has one of the strongest brand equities in the pet food
market and is the #1 brand in the Wholesome Natural category with retail
sales of four-times the next largest Wholesome Natural pet food brand. Blue
Buffalo has built a loyal consumer base, particularly amongst millennials,
and is well positioned to capitalize on the pet humanization and the pet food
premiumization trends, which are poised to continue for the foreseeable
future. With all its success, BLUE still feeds only 3% of pets in the U.S. and
has significant opportunities to convert more pets to BLUE.
• Success in Existing and Emerging Channels. BLUE is the #1 pet food
brand in the pet specialty channel at approximately twice the size of the next
largest brand. BLUE is also the #1 pet food brand in the rapidly growing E-
Commerce channel, where Blue Buffalo generated over $250 million of net
revenues in 2017 growing over 75% versus prior year. BLUE has generated
early success in the food, drug and mass (FDM) channel which, in
conjunction with General Mills’ capabilities, represents a significant growth
opportunity through strengthening BLUE’s distribution.
• Platform with Strong Growth and Operational Efficiency Poised to
Benefit from the Transaction. General Mills’ scale and decades of
experience will support greater effectiveness and efficiency for Blue
Buffalo across key business areas, including: sales, marketing, advertising,
supply chain, R&D, innovation, and environmental stewardship. These
capabilities are expected to contribute to meaningful revenue synergies over
time, in addition to $50 million in anticipated cost savings opportunities.
• Meaningful Improvement to General Mills’ Growth and Margin
Profile. The transaction will be immediately accretive to General Mills net
sales growth and operating margin profile, and is expected to be neutral to
cash EPS in fiscal 2019 and accretive in fiscal 2020.
General Mills is the third-largest natural and organic food producer in the U.S. with
leading brands including Annie’s, Lärabar, Liberté, Cascadian Farm, Muir Glen,
and EPIC. Upon completion of the transaction, General Mills will operate Blue
Buffalo as a new Pet operating segment alongside its four current operating
segments: North American Retail, Convenience Stores & Foodservice, Europe &
Australia, and Asia & Latin America. General Mills expects to maintain Blue
Buffalo’s Wilton, Connecticut headquarters and its Joplin, Missouri and Richmond,
Indiana manufacturing and R&D facilities. Blue Buffalo’s CEO, Billy Bishop, will
continue to lead the business and report to Jeff Harmening.
Transaction Details
The all-cash purchase price of $40.00 per share represents a 23% premium to Blue
Buffalo’s 60-day volume weighted average price (VWAP), and a 2017 Adjusted
EBITDA multiple of approximately 22x, including synergies.3 General Mills
expects to finance the transaction with a combination of debt, cash on hand and
approximately $1.0 billion in equity.
Following the transaction, General Mills’ pro forma net debt-to-EBITDA ratio is
expected to be approximately 4.2x. General Mills is committed to maintaining an
investment grade rating and expects to deleverage to approximately 3.5x by the end
of fiscal 2020. General Mills expects to maintain its $0.49/share quarterly dividend
and suspend its current share repurchase program while it prioritizes achieving its
leverage target.
The transaction, which has been approved by the Boards of Directors of General
Mills and Blue Buffalo, is subject to regulatory approvals and other customary
closing conditions, and is expected to close by the end of General Mills’ fiscal 2018.
Invus, LP (Invus) and founding Bishop family shareholders, representing more than
50% of Blue Buffalo’s outstanding shares, have approved the transaction and no
other approval of Blue Buffalo’s Board of Directors or shareholders is required to
complete the transaction.
Advisors
Goldman Sachs & Co. LLC acted as financial advisor to General Mills and Cleary
Gottlieb Steen & Hamilton LLP acted as legal counsel. J.P. Morgan Securities LLC
and Centerview Partners LLC acted as financial advisors to Blue Buffalo and
Simpson Thacher & Bartlett LLP acted as legal counsel to Blue Buffalo.
The Inadequate Merger Consideration
59.
Significantly, the Company’s extraordinary financial results in the past year, its
future financial prospects and opportunities for future growth, and synergies with General Mills
establish the inadequacy of the merger consideration.
60.
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 how the Company is performing, considering its astronomical increases in several
key financial metrics in the past year.
as high as $41.00 per share two months before the announcement of the Proposed Transaction, a
value indicating the stockholders of the Company received no premium on their shares.
62.
Additionally, Blue Buffalo’s future success is extremely likely, given the consistent
increases in net sales and net income figures. Obviously, the opportunity to invest in such a
company on the rise is a great coup for General Mills; however, it undercuts the investment of
Plaintiff and all other public stockholders.
63.
In fact, many in the financial world are high on Blue Buffalo’s ability to continue
to achieve financial success as a standalone Company. For example, Miguel Kauffman at Simply
Wall St., noted in an article titled ‘Is Blue Buffalo Pet Products Inc Undervalued?’ that, “With
profit expected to grow by 74.57% over the next couple of years, the future seems bright for Blue
Buffalo Pet Products. It looks like higher cash flows is on the cards for the stock, which should
feed into a higher share valuation.” Clearly such amazing praise by those in the financial media
underscore at just how cheap a price General Mills is paying in the Proposed Transaction, and the
large amount of money left on the table by the Board.
64.
Finally, the Proposed Transaction represents a significant synergistic benefit to
General Mills. Specifically, the Merger Agreement takes care to point out that “The transaction
will be immediately accretive to General Mills net sales growth and operating margin profile, and
is expected to be neutral to cash EPS in fiscal 2019 and accretive in fiscal 2020.”
65.
Additionally, CEO of General Mills Jeff Harmening noted in the merger
announcement that the Proposed Transaction “represents a significant milestone as we reshape our
portfolio to drive additional growth and value creation for our shareholders”.
66.
Clearly, while the deal will be beneficial to General Mills, it comes at great expense
to Plaintiff and other public stockholders of the Company.
67.
Moreover, post-closure, Blue Buffalo stockholders will be cashed out, and will fail
to reap any benefits of their investment as the Company continues on its path of future success.
68.
It is clear from these statements and the facts set forth herein that this deal is
designed to maximize benefits for General Mills at the expense of Blue Buffalo stockholders,
formation of the Proposed Transaction.
Preclusive Deal Mechanisms
69.
The Merger Agreement contains certain provisions that unduly benefit General
Mills by making an alternative transaction either prohibitively expensive or otherwise impossible.
Significantly, the Merger Agreement contains a termination fee provision that requires, under
certain circumstances, for Blue Buffalo pay up to $234 million to General Mills if the Merger
Agreement is terminated under certain circumstances. Moreover, under one circumstance, Blue
Buffalo must pay this termination fee even if it consummates any competing Acquisition 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.
70.
The Merger Agreement also contains a “No Solicitation” provision that restricts
Blue Buffalo from considering alternative acquisition proposals by, inter alia, constraining Blue
Buffalo’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. Notably, this provision is especially onerous in
that it permits the Board to consider an unsolicited bona fide “Acquisition Proposal” if it
constitutes or is reasonably calculated to lead to a “Superior Proposal” as defined in the Merger
Agreement only within thirty days.
71.
Specifically, this “window shop” period ended on March 24, 2018, which means,
as of the date of this filing, the Company is constrained from terminating this agreement in favor
of any unsolicited offer, even if the Board deems it to be a superior proposal for Company
stockholders.
72.
Moreover, the Agreement further reduces the possibility of a topping offer from an
unsolicited purchaser. Here, the Individual Defendants agreed to provide General Mills
information in order to match any other offer, thus providing General Mills access to the
offer. Thus, a rival bidder is not likely to emerge with the cards stacked so much in favor of
General Mills.
73.
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.
74.
Finally, at the same time that the Company entered into the Merger Agreement,
certain large shareholders of Blue Buffalo, entered into an agreement with General Mills pursuant
to which such individuals and entities have agreed, among other things, to vote their shares of
common stock of the Company in favor of the approval of the Merger Agreement at a meeting of
the Company’s stockholders to be held for the purpose of approving the Merger Agreement.
Collectively, the signatories of the Voting and Support Agreement own approximately 51.8% of
all Blue Buffalo outstanding shares, thus ensuring that the Proposed Transaction will be pushed
through. Significantly, the Merger agreement does not contain any “majority of the minority
provision” in order to protect Plaintiff and other public stockholders. As such, no vote of the
stockholders of the Company will even take place.
75.
Accordingly, the Company’s true value is compromised by the consideration
offered in the Proposed Transaction.
Potential Conflicts of Interest
76.
The sales process as indicated in the Preliminary Information Statement leading up
to the Proposed Transaction shows serious flaws in the supposed unbiased nature of the decision
to enter into the Proposed Transaction.
77.
In addition to the clearly flawed objective nature of the Board members who ran
and voted on the Proposed Transaction, the breakdown of the benefits of the deal indicate that Blue
Buffalo 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
Plaintiff and the public stockholders of Blue Buffalo.
78.
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 significant stakes in the
combined corporation upon the consummation of the Proposed Transaction as follows:
Number of
Outstanding
Percentage of
Outstanding
Shares of
Company
Common Stock
Shares of
Company
Name and Address of Beneficial Owner (1)
Owned (2)
Common Stock
Greater than 5% Stockholders:
Invus, L.P. (3)
87,460,875
44.7 %
Christopher T. Bishop (4)(5)(9)(10)
14,722,439
7.5 %
The Bishop Family Limited Partnership (5)
12,147,914
6.2 %
Wellington Management Group LLP (11)
12,981,942
6.6 %
Named Executive Officers and
Directors:
William W. Bishop, Jr. (5)(6)(9)
14,130,149
7.2 %
Michael Nathenson (7)
489,762
*
William W. Bishop
27,318
*
Raymond Debbane (8)
10,569
*
Philippe Amouyal (8)
10,569
*
Evren Bilimer (8)
10,569
*
Aflalo Guimarães (8)
10,569
*
Michael A. Eck
14,819
*
Frances Frei
14,819
*
Amy Schulman
14,819
*
All directors and executive officers as a
group (10 persons)
14,733,962
7.5 %
79.
Furthermore, upon the consummation of the Proposed Transaction, each
outstanding Company option, restricted stock unit (“RSU”), or restricted stock, whether vested or
unvested, will be canceled and converted into the right to the merger consideration. As detailed
below, certain of the Individual Defendants and Company insiders own hundreds of thousands of
Company options for which they will receive consideration
80.
Based on equity compensation holdings as of March 15, 2018, the number of vested
and unvested Options held by the executive officers are as follows: William Bishop, Jr.,
119,819.00 (unvested); Mike Nathenson, 489,762.00 (vested), 69,525.00 (unvested).
unvested RSUs held by the executive officers are as follows: William Bishop, Jr., 17,998.00; Mike
Nathenson, 10,461.00. None of the RSUs granted to the executive officers have vested.
82.
Based on equity compensation holdings as of March 15, 2018, the number of fully
vested shares of Restricted Stock held by our non-employee directors (as a group) are 114,051.00.
83.
Moreover, certain employment agreements with Blue Buffalo executives, including
certain directors, are entitled 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 Blue Buffalo’s
common stockholders. Specifically, they will grant large cash payouts as follows:
Cash(1)
Equity(2)
Perquisites/
Benefits(3)
Total
Name
($)
($)
($)
($)
Billy Bishop
2,000,000
3,470,293
N/A
5,460,293
Michael Nathenson
0
1,507,313
29,439
1,536,752
84.
Additionally, at least one known Company Board member, CEO and Individual
Defendant Billy Bishop, will continue in his role with the combined entity. Such employment
carries with it significant compensation, including a base salary of $650,000 and bonuses and
equity awards totaling well over $2 million, not shared amongst Plaintiff or Blue Buffalo public
stockholders.
85.
It is no wonder that, in light of the extremely lucrative profits for themselves, the
Board allowed the Company to be sold far under its proper value in order to secure a quick sale.
86.
Moreover, the retention of two financial advisors by the Company in the Proposed
Transaction raises serious conflict related questions, especially as the Preliminary Information
Statement does not give any reasoning as to why multiple financial advisors were hired, or, more
specifically, why it was necessary to hire Centerview given that J.P. Morgan was already retained
by the Company to act as a financial advisor.
87.
The hiring of two financial advisors when one would have sufficed, and/or the
Preliminary Information Statement’s lack of clarity on the issue, is especially important when
considering that both financial firms will be paid $22 million each (for a total of $44 million). The
the lack of proper process leading up to the Proposed Transaction.
88.
Thus, while the Proposed Transaction is not in the best interests of Blue Buffalo
stockholders, it will produce lucrative benefits for the Company’s officers and directors.
The Materially Misleading and/or Incomplete Preliminary Information Statement
89.
On March 19, 2018, Blue Buffalo filed with the SEC a materially misleading and
incomplete Preliminary Information Statement that 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, and therefore is unable to be relied upon by
Plaintiff and other Blue Buffalo shareholders to determine whether they should seek appraisal for
their Blue Buffalo stock.
Omissions and/or Material Misrepresentations Concerning the Sales Process leading up
to the Proposed Transaction
90.
Specifically, the Preliminary Information 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 Preliminary Information Statement fails to disclose:
a. The Preliminary Information Statement fails to disclose the basis for the Board
not establishing a special committee of the Board, consisting of independent
Board members, was created to run the sales process;
b. The Preliminary Information Statement fails to disclose the basis for the Board
allowing the sales process to be run by Billy Bishop and/or agents of the Bishop
Family and Invus, who together control the Company;
c. The Preliminary Information Statement fails to why no market check was
carried out at any point during the sales process;
d. The Preliminary Information Statement fails to disclose whether any third
parties was ever contacted by the Company or by anyone on the Company’s
third party or their agents contacted the Company about any such transaction;
e. The Preliminary Information Statement fails to disclose why the Board allowed
employment matters related to Billy Bishop to be addressed before the Merger
Agreement was finalized;
f. The Preliminary Information Statement fails to disclose the specific reasoning
for the Board’s decision to hire to financial advisors rather than one;
g. The Preliminary Information Statement fails to disclose the specific criteria that
would cause the standstill provisions contained in the non-disclosure agreement
between General Mills and Blue Buffalo to fall away; and
h. The Preliminary Information Statement fails to disclose the basis for the
Company agreeing to the onerous terms of the Non-Solicitation provision in the
merger agreement.
Omissions and/or Material Misrepresentations Concerning Blue Buffalo’s Financial
Projections
91.
The Preliminary Information Statement fails to provide material information
concerning financial projections provided by Blue Buffalo’s management and relied upon by J.P.
Morgan and Centerview in their analyses. The Preliminary Information Statement discloses
management-prepared financial projections for the Company that are materially misleading. The
Preliminary Information Statement indicates that the financial projections were provided to J.P.
Morgan and Centerview for use in connection with performing their respective financial analyses.
Accordingly, the Preliminary Information Statement should have, but fails to provide, certain
information in the projections that Blue Buffalo’s management provided to the Board and J.P.
Morgan 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).
concerning the financial projections prepared by Blue Buffalo management. Specifically, the
Preliminary Information Statement fails to disclose the material line items for the following
metrics:
a. Net Revenue;
b. Adjusted Operating Income;
c. Net interest expense;
d. Income before taxes;
e. Adjusted Net Income;
f. Adjusted EBITDA;
g. Depreciation and Amortization
h. Stock-based compensation
i. Capital Expenditures
93.
Additionally, the Preliminary Information Statement provides several non-
Generally Accepted Accounting Principles (“GAAP”) financial metrics, adjusted operating
income, adjusted net income, adjusted EBITDA, and unlevered free cash flows, but fails disclose
a reconciliation of all non-GAAP to GAAP metrics.
94.
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. And, without all material information, Blue Buffalo
stockholders are unable to make a fully informed decision in connection with the Proposed
Transaction and their appraisal rights, and face irreparable harm, warranting the injunctive relief
sought herein.
95.
Without accurate projection data presented in the Preliminary Information
Statement, Plaintiff and other stockholders of Blue Buffalo are unable to properly evaluate the
Company’s true worth, the accuracy of J.P. Morgan or Centerview’s financial analyses, or make
under the terms of the Proposed Transaction.
96.
In addition, the Individual Defendants knew or recklessly disregarded that the
Preliminary Information Statement omits the material information concerning the Proposed
Transaction and contains the materially incomplete and misleading information discussed above
depriving the stockholders of an informed decision regarding whether to seek appraisal.
97.
By the acts, transactions, and courses of conduct alleged herein, the Individual
Defendants, individually and as part of a common plan or scheme, and in breach of their fiduciary
duties to Plaintiff, unfairly deprived Plaintiff of his ability to make intelligent and informed
decisions about whether seek appraisal, and deceived Plaintiff.
98.
Plaintiff is immediately threatened by the wrongs complained of herein and lacks
an adequate remedy at law. Accordingly, Plaintiff seeks injunctive and other equitable relief to
prevent the irreparable injury that she and the Company’s other stockholders will continue to suffer
absent judicial intervention.
99.
Without accurate projection data presented in the Preliminary Information
Statement, Plaintiff and other shareholders of Blue Buffalo are unable to properly evaluate the
Company’s true worth, the accuracy of J.P. Morgan and Centerview’s financial analyses, or make
an informed decision whether to seek appraisal for their Company stock in lieu of the consideration
offered in the Proposed Transaction.
Omissions and/or Material Misrepresentations Concerning the Financial Analyses by J.P.
Morgan
100.
In the Preliminary Information Statement, J.P. Morgan 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.
101.
With respect to the Public Trading Multiples Analysis, the Preliminary Information
Statement fails to disclose the following:
each company analyzed;
b. The objective selection criteria for each of the selected companies, including
the reason for including only one comparable company that operates in the same
industry as Blue Buffalo, while the remaining five operate in disparate
industries such as clothing and apparel; and
c. Whether J.P. Morgan performed any type of benchmarking analysis in relation
to the companies analyzed.
102.
With respect to the Discounted Cash Flow Analysis, the Preliminary Information
Statement fails to disclose the following:
a. The specific inputs and assumptions used to calculate the perpetuity growth rate
of 2.5% to 3.5% applied to the unlevered free cash flow of the Company during
Calendar year 2022;
b. The specific inputs and assumptions used to calculate the discount rate range of
8.25% to 9.25%;
c. The quantity and source of the WACC assumptions and value of the weighted
average cost of capital used in the analysis;
d. The value of the unlevered free cash flows used in the analysis; and
e. How J.P. Morgan treated stock-based compensation expense in its analysis.
103.
With respect to the Selected Transactions Analysis, the Preliminary Information
Statement fails to disclose the following:
a. The specific multiples used to calculate the FV/Adjusted EBITDA value for
each compared transaction;
b. The date on which each selected transaction closed;
c. The value of each selected transaction; and
d. Whether J.P. Morgan performed any type of benchmarking analysis in relation
to the transactions analyzed
decision on whether to seek appraisal of their shares in lieu of the consideration offered under the
terms of the Proposed Transaction.
105.
Without the omitted information identified above, Blue Buffalo’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, Blue Buffalo’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, and therefore cannot make an informed decision as to whether to seek
appraisal for their shares of Blue Buffalo stock in lieu of the consideration offered in the Proposed
Transaction.
Omissions and/or Material Misrepresentations Concerning the Financial Analyses by
Centerview
106.
In the Preliminary Information 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.
107.
With respect to the Selected Public Company Analysis, the Preliminary Information
Statement fails to disclose the following:
a. The specific multiples used to calculate the Enterprise Value/2018E Adjusted
EBITDA of each selected company;
b. The objective selection criteria for each of the selected companies, including
the reason for including only one comparable company that operates in the same
industry as Blue Buffalo; and
c. Whether Centerview performed any type of benchmarking analysis in relation
to the companies analyzed.
Statement fails to disclose the following:
a. The specific inputs and assumptions used to calculate the perpetuity growth
rates range of 2.5% to 3.5% to the Company’s fully taxed unlevered free cash
flows for the terminal year;
b. The specific inputs and assumptions used to calculate the discount rate range of
8.5% to 9.5%;
c. The quantity and source of the WACC assumptions and value of the weighted
average cost of capital used in the analysis; and
d. The value of the unlevered free cash flows used in the analysis.
109.
With respect to the Selected Transactions Analysis, the Preliminary Information
Statement fails to disclose the following:
a. The specific multiples used to calculate the Enterprise Value/Adjusted
EBITDA value for each compared transaction;
b. The date on which each selected transaction closed;
c. The value of each selected transaction;
d. Whether Centerview performed any type of benchmarking analysis in relation
to the transactions analyzed.
110.
These disclosures are critical for stockholders to be able to make an informed
decision on whether to seek appraisal of their shares in lieu of the consideration offered under the
terms of the Proposed Transaction.
111.
Without the omitted information identified above, Blue Buffalo’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, Blue Buffalo’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, and therefore cannot make an informed decision as to whether to seek
Transaction.
FIRST COUNT
Claim for Breach of Fiduciary Duties
(Against the Individual Defendants)
112.
Plaintiff repeats all previous allegations as if set forth in full herein.
113.
The Individual Defendants have violated their fiduciary duties of care, loyalty and
good faith owed to Plaintiff and the Company’s public stockholders.
114.
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 Blue Buffalo.
115.
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 Blue Buffalo by entering into the Proposed Transaction through a flawed and
unfair process and failing to take steps to maximize the value of Blue Buffalo to its public
stockholders.
116.
Indeed, Defendants have accepted an offer to sell Blue Buffalo 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.
117.
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 as to whether to seek appraisal for their shares of Blue Buffalo stock in lieu
of the consideration offered in the Proposed Transaction.
118.
The Individual Defendants dominate and control the business and corporate affairs
of Blue Buffalo, and are in possession of private corporate information concerning Blue Buffalo’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 Blue Buffalo which makes it
119.
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.
120.
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
Blue Buffalo’s assets and have been and will be prevented from obtaining a fair price for their
common stock.
121.
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.
122.
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
Violations of Section 14(a) of the Exchange Act
(Against All Defendants)
123.
Plaintiff repeats all previous allegations as if set forth in full herein.
124.
Defendants have disseminated the Preliminary Information Statement with the
intention of soliciting stockholders in favor of the Proposed Transaction.
125.
Section 14(a) of the Exchange Act requires full and fair disclosure in connection
with the Proposed Transaction. Specifically, Section 14(a) provides that:
It shall be unlawful for any person, by the use of the mails or by any means or instrumentality of
interstate commerce or of any facility of a national securities exchange or otherwise, in
contravention of such rules and regulations as the [SEC] may prescribe as necessary or appropriate
in the public interest or for the protection of investors, to solicit or to permit the use of his name to
security) registered pursuant to section 78l of this title.
126.
As such, SEC Rule 14a-9, 17 C.F.R. 240.14a-9, states the following:
No solicitation subject to this regulation shall be made by means of any proxy statement, form of
proxy, notice of meeting or other communication, written or oral, containing any statement which,
at the time and in the light of the circumstances under which it is made, is false or misleading with
respect to any material fact, or which omits to state any material fact necessary in order to make
the statements therein not false or misleading or necessary to correct any statement in any earlier
communication with respect to the solicitation of a proxy for the same meeting or subject matter
which has become false or misleading.
127.
The Preliminary Information Statement was prepared in violation of Section 14(a)
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 Preliminary Information Statement is materially misleading and omits material
facts that are necessary to render them non-misleading.
128.
The Individual Defendants had actual knowledge or should have known of the
misrepresentations and omissions of material facts set forth herein.
129.
The Individual Defendants were at least negligent in filing the Preliminary
Information Statement that was materially misleading and/or omitted material facts necessary to
make the Preliminary Information Statement not misleading.
130.
The misrepresentations and omissions in the Preliminary Information Statement are
material to Plaintiff and the Class, and Plaintiff and the Class will be deprived of its entitlement to
decide whether to seek appraisal of their shares in lieu of the consideration offered under the terms
of the Proposed Transaction on the basis of complete information if such misrepresentations and
omissions are not corrected prior to the consummation of the Proposed Transaction.
Violations of Section 20(a) of the Exchange Act
(Against all Individual Defendants)
131.
Plaintiff repeats all previous allegations as if set forth in full herein.
132.
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 Preliminary Information Statement was materially misleading
to Company stockholders.
133.
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 Preliminary Information 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 Preliminary
Information Statement. The Individual Defendants were provided with copies of, reviewed and
approved, and/or signed the Preliminary Information Statement before its issuance and had the
ability or opportunity to prevent its issuance or to cause it to be corrected.
134.
The Individual Defendants also were able to, and did, directly or indirectly, control
the conduct of Blue Buffalo’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
misleading. As a result, the Individual Defendants are responsible for the accuracy of the
Preliminary Information Statement and are therefore responsible and liable for the
misrepresentations contained herein.
135.
The Individual Defendants acted as controlling persons of Blue Buffalo 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 Blue Buffalo to engage in the wrongful
conduct complained of herein. The Individual Defendants controlled Blue Buffalo and all of its
employees. As alleged above, Blue Buffalo is a primary violator of Section 14 of the Exchange
Act and SEC Rule Preliminary Information 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 its 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 Blue
Buffalo and obtain a transaction which is in the best interests of Blue Buffalo and its
stockholders;
F.
Directing defendants to account to Plaintiff and the Class for damages sustained
because of the wrongs complained of herein;
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: March 29, 2018
Respectfully submitted,
LAW OFFICE OF NICOLE A. VENO, LLC
By:
/s/ Nicole A. Veno
Nicole A. Veno (ct29373)
573 Hopmeadow Street
Simsbury, CT 06070
Telephone: (860) 474-4024
Facsimile: (860) 717-3207
[email protected]
BRODSKY & SMITH, LLC
Evan J. Smith (pro hac vice forthcoming)
Marc L. Ackerman (pro hac vice forthcoming)
Two Bala Plaza, Ste. 510
Bala Cynwyd, PA 19004
Phone: (610) 667-6200
Facsimile (610) 667-9029
[email protected]
[email protected]
Attorneys for Plaintiff
| securities |
_wswFocBD5gMZwczy0tY | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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FRANCES KALENDER, on behalf of herself and
all others similarly situated,
CLASS ACTION COMPLAINT
AND
Plaintiffs,
v.
DEMAND FOR JURY TRIAL
1:20-cv-3400
MIIR INC.,
Defendant.
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INTRODUCTION
1.
Plaintiff FRANCES KALENDER, on behalf of herself and others similarly
situated, asserts the following claims against Defendant MIIR INC. as follows.
2.
Plaintiff is a visually-impaired and legally blind person who requires screen-
reading software to read website content using her computer. Plaintiff uses the
terms “blind” or “visually-impaired” to refer to all people with visual impairments
who meet the legal definition of blindness in that they have a visual acuity with
correction of less than or equal to 20 x 200. Some blind people who meet this
definition have limited vision. Others have no vision.
3.
Based on a 2010 U.S. Census Bureau report, approximately 8.1 million people in
the United States are visually impaired, including 2.0 million who are blind, and
according to the American Foundation for the Blind’s 2015 report, approximately
400,000 visually impaired persons live in the State of New York.
4.
Plaintiff brings this civil rights action against Defendant for its failure to design,
construct, maintain, and operate its website to be fully accessible to and
independently usable by Plaintiff and other blind or visually-impaired people.
Defendant’s denial of full and equal access to its website, and therefore denial of
its goods and services offered thereby, is a violation of Plaintiff’s rights under the
Americans with Disabilities Act (“ADA”).
5.
Because Defendant’s website, www.miir.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 FRANCES KALENDER, 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 Washington 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 drinkware and bottle company that owns and operates
www.miir.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 January of 2020, Plaintiff visited
Defendant’s website, www.miir.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 1, 2020
STEIN SAKS, PLLC
By: /s/ David P. Force
David P. Force, Esq.
[email protected]
285 Passaic Street
Hackensack, NJ 07601
Tel: (201) 282-6500 ext 107
Fax: (201) 282-6501
ATTORNEYS FOR PLAINTIFF
| civil rights, immigration, family |
QlJHBIkBRpLueGJZHXIn | UNITED STATES DISTRICT COURT EASTERN DISTRICT OF TENNESSEE
AT CHATTANOOGA
BENJAMIN SMITH, Individually and on Behalf
of All Others Similarly Situated,
Plaintiff,
Civil Action No. 1:19-cv-78
CLASS ACTION
v.
U.S. XPRESS ENTERPRISES, INC., ERIC
FULLER, ERIC PETERSON, JASON GREAR,
MAX
FULLER,
LISA
QUINN
PATE,
MERRILL LYNCH, PIERCE, FENNER &
SMITH
INCORPORATED,
MORGAN
STANLEY & CO. LLC, J.P. MORGAN
SECURITIES
LLC,
WELLS
FARGO
SECURITIES, LLC, STEPHENS INC., STIFEL,
NICOLAUS & COMPANY, INCORPORATED
and WR SECURITIES, LLC,
COMPLAINT FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAWS
DEMAND FOR JURY TRIAL
Defendants.
INTRODUCTION
Plaintiff Benjamin Smith (“Plaintiff”), by and through his undersigned attorneys, individually
and on behalf of all other persons similarly situated, 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 the U.S. Securities and Exchange Commission (“SEC”) filings by
U.S. Xpress Enterprises, Inc. (“U.S. Xpress” or the “Company”), media and analyst reports about
the Company, as well as 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.
Plaintiff brings this action under §§ 11 and 15 of the Securities Act of 1933 (the
“Securities Act”), on behalf of all persons and entities, other than Defendants (defined herein),
who purchased or otherwise acquired the publicly traded common stock of U.S. Xpress pursuant
and/or traceable to the Company’s initial public offering completed in June 2018 (the “IPO”)
seeking to recover compensable damages caused by Defendants’ violations of the Securities Act.
2.
This action asserts strict liability claims under §§ 11 and 15 of the Securities Act
against U.S. Xpress, certain current and/or former U.S. Xpress officers and directors, and the
underwriters of the IPO. These claims specifically exclude any allegations of fraud, knowledge,
recklessness or scienter, do not “sound in fraud” and are based solely on strict liability and
negligence.
3.
The claims in this action arise from the materially misleading Registration
Statement and Prospectus (collectively the “Offering Documents”), defined infra, issued in
connection with the IPO. In the IPO, Defendants offered and sold 16,668,000 shares of U.S. Xpress
common stock to the public at a price of $16.00 per share. The Company received net proceeds
from the IPO of approximately $245.2 million after deducting underwriting discounts and
commissions and offering expenses.
4.
To the detriment of Plaintiff and all those that bought shares in or traceable to the
IPO, the negligently prepared Offering Documents omitted material information regarding the
Company’s business prospects and financial health. As such, the Offering Documents contained
untrue statements of material facts or omitted to state the facts necessary to make the statements
made therein not misleading, thus violating the rules and regulations governing its preparation.
Specifically, the Offering Documents failed to disclose:
2
(1) that a shortage of trucks was negatively impacting U.S. Xpress’s dedicated division;
(2) that: (a) certain account shipping patterns had been performing differently than
expected; and that, as a result (b) utilization and driver retention and hiring were
being negatively affected; and that, as a result (c) U.S. Xpress’s dedicated accounts,
including one large account, were being negatively impacted; and that, as a result
(d) U.S. Xpress’s OTR division was providing continued support to the dedicated
division;
(3) that: (a) U.S. Xpress failed to stay informed regarding two large liability events;
and that, as a result (b) U.S. Xpress’s insurance claim expense was understated;
(4) and that U.S. Xpress’s cost per mile for driver wages and independent contractors
was exceeding the Company’s internal expectations.
5.
As a result of the foregoing, the statements contained in the Offering Documents
were materially false and/or misleading and failed to state information required to be stated therein.
6.
On November 1, 2018, U.S. Xpress issued a press release, also attached as exhibit
99.1 to the Form 8-K filed with the SEC, announcing the Company’s financial and operating
results for the third fiscal quarter and nine months ending September 30, 2018. Therein, as well as
during a conference call to discuss the results, U.S. Xpress disclosed how unusual shipping patterns
were impacting its segments and how market challenges for drivers resulted in a year-to-year
tractor count decrease. The Company and its executives also disclosed higher driver wages and
independent contractor costs, lower than expected recruitment levels, and a higher insurance
expense.
3
7.
On this news, the price of U.S. Xpress’s common stock declined from a close of
$10.14 per share on November 1, 2018 to a close of $7.10 per share on November 2, 2018, a drop
of approximately 29.98%.
8.
At the date of the filing of this action, less than a year after the IPO, U.S. Xpress’s
common stock trades around $7.87 per share, a decline of $8.13 per share or 50.81% from the
$16 IPO public price.
JURISDICTION AND VENUE
9.
The claims asserted herein arise under §§ 11 and 15 of the Securities Act, 15 U.S.C.
§§ 77k and 77o. This Court has jurisdiction over this action pursuant to 28 U.S.C. § 1331 and § 22
of the Securities Act, 15 U.S.C. §77v. In connection with the acts, conduct and other wrongs
alleged herein, Defendants, directly or indirectly, used the means and instrumentalities of interstate
commerce, including the U.S. mails, and interstate telephone communications.
10.
Venue is proper in this court pursuant to § 22 of the Securities Act, 15 U.S.C. §
77v. The Company maintains its principal executive offices in this District. The dissemination of
the materially false and misleading statements occurred in this District.
PARTIES
A. Plaintiff
11.
Plaintiff Benjamin Smith purchased U.S. Xpress securities pursuant and/or
traceable to the Company’s Offering Documents for the IPO and was damaged thereby.
B. The Company
12.
Defendant U.S. Xpress is a publicly traded company incorporated in Nevada with
its principal executive offices located at 4080 Jenkins Road, Chattanooga, Tennessee 37421.
4
Following the U.S. Xpress IPO, the Company’s common stock began trading on the New York
Stock Exchange (“NYSE”) under the ticker symbol “USX.”
C. The Individual Defendants
13.
Defendant Eric Fuller was, at all relevant times, the President, Chief Executive
Officer (“CEO”) and a director of U.S. Xpress. Defendant Eric Fuller signed or authorized the
signing of the Registration Statemen filed with the SEC.
14.
Defendant Eric Peterson (“Peterson”) was, at all relevant times, U.S. Xpress’s Chief
Financial Officer (“CFO”), Treasurer and Secretary. Defendant Peterson signed or authorized the
signing of the Registration Statement filed with the SEC.
15.
Defendant Jason Grear (“Grear”) was, at all relevant times, a Director of U.S.
Xpress. Defendant Grear signed or authorized the signing of the Registration Statement filed with
the SEC.
16.
Defendant Max Fuller was, at all relevant times, a Director of U.S. Xpress.
Defendant Fuller signed or authorized the signing of the Registration Statement filed with the SEC.
17.
Defendant Lisa Quinn Pate (“Pate”) was, at all relevant times, a Director of U.S.
Xpress. Defendant Pate signed or authorized the signing of the Registration Statement filed with
the SEC.
18.
Defendants Eric Fuller, Peterson, Grear, Max Fuller, and Pate are collectively
referred to herein as the “Individual Defendants” and together with U.S. Xpress as the
“Defendants.”
19.
The Individual Defendants are strictly liable for the materially untrue and
misleading statements contained in the Offering Documents. By virtue of their positions with the
Company, the Individual Defendants possessed the power and authority to control the contents of
5
U.S. Xpress’s Offering Documents, reports to the SEC, press releases, and presentations to
securities analysts, money and portfolio managers, and market investors.
D. The Underwriters Defendants
20.
Under the terms and subject to the conditions in an underwriting agreement, the
underwriters named below (the “Underwriter Defendants”) severally agreed to purchase, and U.S.
Xpress and certain pre-IPO stockholders agreed to sell to them, the number of shares indicated
below, for which the Underwriter Defendants collectively were paid approximately $16.7 million
in discounts and commissions, excluding exercise of any over-allotment option:
Number of
Underwriter
Shares
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
5,348,644
Morgan Stanley & Co. LLC
5,348,664
J.P. Morgan Securities LLC
2,452,891
Wells Fargo Securities, LLC
2,452,891
Stephens Inc.
817,630
Stifel, Nicolaus & Company, Incorporated
817,630
WR Securities, LLC
817,630
Total
18,056,000
21.
Defendant Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”)
served as an underwriter for the IPO.
22.
Defendant Morgan Stanley & Co. LLC (“Morgan Stanley”) served as an
underwriter for the IPO.
23.
Defendant J.P. Morgan Securities LLC (“J.P. Morgan”) served as an underwriter
for the IPO.
24.
Defendant Wells Fargo Securities, LLC (“Wells Fargo”) served as an underwriter
for the IPO.
25.
Defendant Stephens Inc. (“Stephens”) served as an underwriter for the IPO.
6
26.
Defendant Stifel, Nicolaus & Company, Incorporated (“Stifel”) served as an
underwriter for the IPO.
27.
Defendant WR Securities, LLC (“WR”) served as an underwriter for the IPO.
28.
The Underwriter Defendants are liable for the false and misleading statements in
the Offering Documents. The Underwriter Defendants assisted the Defendants in planning the IPO
and were required to conduct an adequate and reasonable investigation into the business and
operations of U.S. Xpress — a process known as a “due diligence” investigation. The Underwriter
Defendants were required to conduct a due diligence investigation in order to participate in the
IPO. During the course of their investigation, the Underwriter Defendants had continual access to
confidential corporate information concerning U.S. Xpress’s operations and financial prospects.
29.
In addition to availing themselves of virtually unlimited access to internal corporate
documents, agents of the Underwriter Defendants met with U.S. Xpress’s lawyers, management
and top executives and engaged in “drafting sessions” between at least March 2018 and May 2018.
During these sessions, the Underwriter Defendants and the Defendants made joint decisions
regarding: (i) the terms of the IPO, including the price at which U.S. Xpress shares would be sold
to the public; (ii) the strategy to best accomplish the IPO; (iii) the information to be included in
the Offering Documents; and (iv) what responses would be made to the SEC in connection with
its review of the Offering Documents. As a result of those constant contacts and communications
between the Underwriter Defendants’ representatives and U.S. Xpress’s management and top
executives, the Underwriter Defendants knew of, or in the exercise of reasonable care should have
known of, U.S. Xpress’s existing problems as alleged herein.
30.
The Offering Documents, including documents incorporated by reference,
contained materially untrue and misleading statements and/or omissions. Defendants negligently
7
allowed the Offering Documents to contain materially untrue and misleading statements and/or
omissions to the extent that they knew or should have known that the Offering Documents were
materially misleading, but failed to act in a reasonable manner to prevent the Offering Documents
from being disseminated.
31.
Plaintiff’s claims brought under §§ 11 and 15 of the Securities Act, 15 U.S.C. §§
77k and 77o are based solely on claims of strict liability and/or the absence of any affirmative
defense based on the reasonableness of the pertinent Defendants’ investigation into the true facts.
These claims are not based on any allegation of fraud, intentional wrongdoing, or severe
recklessness.
SUBSTANTIVE ALLEGATIONS
A.
Background
32.
U.S. Xpress describes itself as the fifth largest asset-based truckload carrier in the
U.S. by revenue. The Company provides services using both its own truckload fleet and third-
party carriers. U.S. Xpress’s fleet consists of more than 6,800 tractors and approximately 16,000
trailers.
33.
U.S. Xpress divides its services into two reportable segments: the truckload
segment and the brokerage segment. The truckload segment consists of asset-based truckload
services which includes over-the-road (sometimes referred to as “OTR”) and dedicated contracts
that as of March 31, 2018, represented 87% of U.S. Xpress’s revenues. The brokerage segment
consists of non-asset-based freight brokerage services and as of the same date, represented 12% of
the Company’s revenues.
34.
U.S. Xpress describes the over-the-road contracts as the transport of a trailer of
freight for a single customer, pursuant to a short-term contract, operated by one or two drivers for
8
a route between 450 and 1,050 miles in length. Opposingly, the dedicated contracts are
contractually assigned drivers and equipment in multi-year contracts designed for customers’
35.
On May 7, 2018, the U.S. Xpress filed a registration statement on Form S-1 with
the SEC. The registration statement was subsequently amended, with the final amended
registration statement on Form S-1/A filed on June 11, 2018 (collectively, the “Registration
Statement”). The Registration Statement was declared effected by the SEC on June 13, 2018. U.S.
Xpress filed its final prospectus with the SEC on June 15, 2018 (the “Prospectus”).
36.
In June 2018, U.S. Xpress completed its IPO. Defendants offered and sold
16,668,000 shares of U.S. Xpress common stock at a price to the public of $16.00 per share. The
Company received net proceeds of approximately $245.2 million after deducting underwriting
discounts, commissions, and offering expenses.
B. The Company Goes Public by Means of the Materially Misleading Offering
Documents
37.
The Registration Statement, which was signed by each of the Individual
Defendants, emphasizes the Company’s “improved performance” due to “asset optimization”:
• Asset Optimization.
• In 2015, we began to redesign our fleet renewal and maintenance programs
with the goal of improving reliability, reducing downtime for all tractors and
reducing maintenance costs on the older tractors in our fleet. These initiatives,
among others, were intended to improve the quality of our assets by purchasing,
maintaining and trading our tractors in a manner designed to optimize life cycle
costs.
• In addition, in early 2016 we began enhancing our asset utilization by
analyzing our consolidated Truckload and Brokerage freight demand using
optimization software, allocating the most profitable freight to our Truckload assets
and outsourcing the remainder to third-party carriers. With more loads to choose
from, we have more options for improving the pricing and miles on our company
tractor and trailer assets.
9
38.
Throughout the Registration Statement, Defendants also describe U.S. Xpress’s
growth strategy to “capitalize on current favorable truckload environment”, stating in relevant
Grow profitably as appropriate to the market cycle
• Continue to leverage our service mix to manage through all market cycles
• Grow our revenue base prudently with a focus on dedicated
contract service and brokerage by cross-selling our services with existing
customers and pursuing new customer opportunities
• Maximize profitability for new freight across OTR and brokerage
operations by selectively allocating freight to company assets
• Seek favorable dedicated service contracts and brokerage freight
to manage
• Capitalize on current favorable truckload environment
• Continue to secure rate increases in all of our service offerings
• Strategically expand our fleet based on expected profitability and
driver
availability,
including
through
our
company-sponsored
independent contractor lease program (which has grown from zero
drivers in the second quarter of 2017 to approximately 485 drivers at
March 31, 2018)
• Leverage current market conditions to accelerate timeline for
enhancement of network
Emphasis added.
39.
The Registration Statement identifies U.S. Xpress’s “competitive strengths” and
emphasize a “complementary mix of services to afford flexibility and stability.” In relevant part:
Complementary mix of services to afford flexibility and stability throughout
economic cycles
Our service offerings have unique characteristics and are subject to
differing market forces, which we believe allows us to respond effectively through
economic cycles.
10
OTR
OTR business involves short-term customer contracts without pricing or
volume guarantees that allow us to benefit from periods of supply and demand
imbalance and price volatility. This is the largest part of our business and the overall
truckload market, which is currently benefiting from strength in pricing and
volumes described under “—Truckload Market.”
Dedicated
Dedicated business features committed rates, lanes and volumes under
contracts that generally afford us greater revenue predictability over the contract
period and help smooth the impact of market cycles. Additionally, our dedicated
contract service offering generally has higher driver retention rates than our OTR
service offering, which we believe is because our professional drivers prefer the
more predictable time at home that dedicated routes offer. In addition, this
increased visibility allows us to commit and invest fleet resources with a more
predictable return profile.
40.
The Registration Statement further describes how the Company seeks to “maintain
flexibility through long-term enterprise planning” by “prioritizing growth in dedicated contract
services.” In pertinent part:
Maintain flexibility through long-term enterprise planning and conservative
financial policies
• Maximize our free cash flow generation by managing expenses,
taxes and capital expenditures
• Prioritize growth in dedicated contract services, which offers more
predictable revenue streams and greater asset productivity
• Prioritize growth in brokerage, which requires limited capital
investment and affords network-balancing freight volumes
• Monitor capital allocation to improve long-term return on invested
capital
• Maintain a conservative leverage profile after this offering.
41.
In the risks section, the Registration Statement describes certain risks related to
high deductibles on claims exposure that “may” occur, stating in relevant part:
11
We retain high deductibles on a significant portion of our claims exposure, which
could significantly increase the volatility of, and decrease the amount of, our
earnings and materially adversely affect our results of operations.
We retain high deductibles on a significant portion of our claims exposure
and related expenses associated with third-party bodily injury and property damage,
employee medical expenses, workers’ compensation, physical damage to our
equipment and cargo loss. We retain a deductible of approximately $5.0 million per
occurrence for automobile bodily injury and property damage through our captive
risk retention group and up to $500,000 per occurrence for workers’ compensation
claims, both of which can make our insurance and claims expense higher or more
volatile than if we maintained lower retentions. We are also responsible for the first
$5.0 million aggregate in the $5.0 million to $10.0 million layer of excess insurance
coverage for automobile bodily injury and property damage. Additionally, with
respect to our third-party insurance, reduced capacity in the insurance market for
trucking risks can make it more difficult to obtain both primary and excess
insurance, can necessitate procuring insurance offshore, and could result in
increases in collateral requirements on those primary lines that require
securitization.
42.
To the detriment of Plaintiff and all those that bought shares in or traceable to the
IPO, the negligently prepared Registration Statement omitted material information regarding the
Company’s business prospects and financial health. As such, the Registration Statement contained
untrue statements of material facts or omitted to state the facts necessary to make the statements
made therein not misleading, thus violating the rules and regulations governing its preparation.
43.
More specifically, the statements identified above were materially false and/or
misleading because they failed to disclose:
(1) that a shortage of trucks was negatively impacting U.S. Xpress’s dedicated
division;
(2) that: (a) certain account shipping patterns had been performing differently
than expected; and that, as a result (b) utilization and driver retention and
hiring were being negatively affected; and that, as a result (c) U.S. Xpress’s
dedicated accounts, including one large account, were being negatively
12
impacted; and that, as a result (d) U.S. Xpress’s OTR division was providing
continued support to the dedicated division;
(3) that: (a) U.S. Xpress failed to stay informed regarding two large liability
events; and that, as a result (b) U.S. Xpress’s insurance claim expense was
understated;
(4) and that U.S. Xpress’s cost per mile for driver wages and independent
contractors was exceeding the Company’s internal expectations.
44.
The Offering Documents were also materially untrue and misleading because they
failed to meet the requirements of Item 303 of Regulation S-K. 17 C.F.R. § 229.303(a)(3)(ii). Item
303 requires the disclosure of known trends that have had or are reasonably expected to have a
material impact on a company’s business. As set forth in detail above, all of these trends were
reasonably likely to have a negative impact on U.S. Xpress’s financial condition, and thus were
required to be disclosed under Item 303.
C. The Truth Begins to Emerge
45.
On November 1, 2018, U.S. Xpress issued a press release, also attached as exhibit
99.1 to the Form 8-K filed with the SEC, announcing the Company’s financial and operating
results for the third fiscal quarter and nine months ending September 30, 2018 (“Q3 2018 Press
Release”). Therein, U.S. Xpress stated in relevant part:
Eric Fuller, CEO and President, commented, “We continued to see the results of
our initiatives and cultural overhaul in the third quarter of 2018 as we experienced
our fifth consecutive quarter of year over year improvements in our operating ratio
while generating the largest amount of net income during a single quarter in our
Company’s history, a testament to our team’s efforts and dedication. However, we
are far from satisfied with our operating performance for the third quarter, as we
believe our seated truck count and miles per tractor could have performed better
had we executed more effectively during the quarter. We have taken steps
internally to address the relevant issues and both average seated truck count and
average miles per tractor per working day have increased in October compared with
the third quarter. Based on the strong freight volumes, rate environment and the
13
capacity currently being requested from our customers for the upcoming peak
season during the fourth quarter, we feel well positioned to make 2018 the most
profitable year in our history.”
*
*
*
Operating income for the third quarter of 2018 was $22.9 million which compares
favorably to the $11.5 million achieved in the third quarter of 2017. This
improvement was achieved despite incurring $7.6 million of incremental insurance
and claims expense in the third quarter of 2018, as compared to the prior year
period, partially offset by a $4.0 million gain on life insurance reflected in a
reduction in salaries, wages, and benefits, or a net negative impact of approximately
$0.05 to earnings per share.
*
*
*
Mr. Fuller said, “Market conditions remained strong in the third quarter as we saw
our rates increase sequentially from the second quarter and are continuing to
experience further increases into the fourth quarter. Market conditions for drivers,
however, remained challenging during the quarter as we were unable to increase
our tractor count despite improvements in our turnover percentage. The modest
decline was primarily due to a deceleration in the pace of hiring through the first
half of the quarter which has since reversed. We continue to execute on our
initiatives that are focused on being a valued partner to our professional drivers by
offering them increased miles, modern equipment, and a driver centric operations
team.”
*
*
*
The dedicated division’s average revenue per tractor per week increased 5.0% in
the third quarter of 2018 as compared to the third quarter of 2017. The increase was
primarily the result of a 10.3% increase in the division’s revenue per mile partially
offset by a 4.9% decrease in the division’s revenue miles per tractor per week. The
division’s results continue to be impacted by certain accounts’ shipping patterns
performing differently than expected which was first experienced in the second
quarter of 2018. The Company made progress addressing the issue which resulted
in a sequential improvement in utilization to a decline of 5.0% in the third quarter
of 2018 from the 9.8% decline in utilization experienced in the second quarter of
2018.
Emphasis added.
46.
During a conference call to discuss the Company’s financial and operating results
for the third fiscal quarter and nine months ending September 30, 2018 (“Q3 2018 Conf. Call”),
Defendant Fuller stated in relevant part:
14
During the quarter, our over the road division supported contractual commitments
in our dedicated division, which adversely impacted this division’s utilization.
Initially, we thought the support would be reduced toward the beginning of the third
quarter. However, it progressively increased and peaked during the quarter. Over
the last 6 weeks, the support provided to our dedicated division by our over the road
division has been reduced significantly due to increased traction in our recruiting
efforts to fill these dedicated positions. Additionally, the market for drivers
remained challenging through the third quarter, which resulted in a slight
decline in our average tractor count as compared to the second quarter of 2018.
Tractor count in our over the road division troughed in the back half of the third
quarter as we experienced a slight deceleration in the pace of hiring, which has
since reversed.
Emphasis added.
47.
During the conference call, regarding insurance claims, driver wages and
independent contractor costs, Defendant Peterson stated in relevant part:
To conclude, I thought it would be helpful to provide further insight into the
variance of our results relative to our expectations as you think about modeling our
business looking to the fourth quarter. Overall, when I think about the third
quarter relative to our initiatives and where we thought we would be had you
asked me two quarters ago, we are essentially in line with operating income
expectations with the exception of the excess insurance and claims expense we
incurred during the quarter, which we consider to be $3.6 million net of the life
insurance benefit.
When developing initial expectations prior to our IPO, we analyzed our rate per
mile from our customers in conjunction with our cost per mile for driver wages and
independent contractors as these line items have an interdependent relationship.
Our rates, driver wages and independent contractor costs are all higher than
expectations. Importantly, our rate has outpaced the increase in our driver and
independent contractor costs and has been a net tailwind to our financial results.
During the quarter, tractor utilization was approximately 100 basis points lower
than expected in our over the road division and around 450 basis points lower in
our dedicated division. However, a portion of this unanticipated shortfall in the
dedicated utilization has been covered with incremental rate increases implemented
during the third quarter. This is a component of our year-over-year increase in our
dedicated division’s revenue per mile of 10.3%. Our average tractor count was
slightly lower than expected for the third quarter due to slightly lower recruiting
levels than expected. We have seen an improvement in both hiring and retention
thus far in the fourth quarter, which we expect will increase our overall tractor count
to levels slightly above second quarter levels. All other costs, except insurance and
claims were essentially in line with expectations. Fuel and maintenance were
slightly higher, while equipment and other general expenses were lower.
15
Emphasis added.
48.
On this news, the price of U.S. Xpress’s common stock declined from a close of
$10.14 per share on November 1, 2018 to a close of $7.10 per share on November 2, 2018, a drop
of approximately 29.98%.
49.
At the date of the filing of this action, less than a year after the IPO, U.S. Xpress’s
common stock trades around $7.78 per share, a decline of $8.13 per share or 50.81% from the
$16 IPO public price.
CLASS ACTION ALLEGATIONS
50.
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 the Company’s
common stock pursuant or traceable to the Offering Documents issued in connection with the IPO
(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.
51.
The members of the Class are so numerous that joinder of all members is
impracticable. Following the IPO, U.S. Xpress’s common stock was 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 U.S. Xpress 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. Upon information and belief, these shares are held by hundreds if not
16
thousands of individuals located geographically throughout the country and possibly the world.
Joinder would be highly impracticable.
52.
Plaintiff’s claims are typical of the claims of the members of the Class as all
members of the Class are similarly affected by the Defendants’ respective wrongful conduct in
violation of the federal laws complained of herein.
53.
Plaintiff has and will continue to 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.
54.
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, including:
(a)
Whether the Securities Act was violated by the Defendants;
(b)
Whether the Offering Documents contained false and misleading
statements of material fact and omitted material information required to be stated therein;
(c)
To what extent the members of the Class have sustained damages and the
proper measure of damages.
55.
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.
17
CLAIMS FOR RELIEF
COUNT I
Violation of § 11 of the Securities Act Against U.S. Xpress, the Individual Defendants, and the
Underwriter Defendants
56.
Plaintiff incorporates by reference each and every preceding paragraph as though
fully set forth herein.
57.
This Count is asserted by Plaintiff on behalf of himself and the Class against all
Defendants and is based upon § 11 of the Securities Act, 15 U.S.C. § 77k.
58.
The Offering Documents 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.
59.
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 complete, such as to render them not false and misleading.
60.
By reason of the conduct herein alleged, each Defendant violated § 11 of the
Securities Act.
61.
Plaintiff acquired the Company’s stock pursuant and/or traceable to the IPO.
Plaintiff and the Class have sustained damages. The value of the Company’s stock has declined
substantially subsequent to and due to Defendants’ violations.
62.
At the time of their purchases of the Company’s stock, Plaintiff and other members
of the Class were without knowledge of the facts concerning the wrongful conduct alleged herein
and could not have reasonably discovered those facts prior to the disclosures alleged herein. Less
than one year has elapsed from the time that Plaintiff discovered or reasonably could have
discovered the facts upon which this Complaint is based to the time that Plaintiff commenced this
18
action. Less than three years has elapsed between the time that the securities upon which this Count
is brought were offered to the public and the time Plaintiff commenced this action.
63.
By reason of the foregoing, Plaintiff and the other members of the Class are entitled
to damages as measured by the provisions of § 11(e), 15 U.S.C. 77k(e), from the Defendants and
each of them, jointly and severally.
COUNT II
For Violation of § 15 of the Securities Act Against U.S. Xpress and the Individual Defendants
64.
Plaintiff incorporates by reference and realleges each and every allegation above as
though fully set forth herein. This Count is brought pursuant to § 15 of the Securities Act against
U.S. Xpress and the Individual Defendants.
65.
The Individual Defendants each were control persons of the Company by virtue of
their positions as directors and/or senior officers of the Company.
66.
The Individual Defendants were each culpable participants in the violation of § 11
of the Securities Act, alleged in Count I above, based on their having signed or authorized the
signing of the Registration Statement and having otherwise participated in the process that allowed
the IPO to be successfully completed.
67.
None of the Individual Defendants made reasonable investigation or possessed
reasonable grounds for the belief that the statements contained in the Offering Documents were
accurate and complete in all material respects. Had they exercised reasonable care, they would
have known of the material misstatements and omissions alleged herein.
68.
This claim was brought within one year after the discovery of the untrue statements
and omissions in the Offering Documents and within three years after the Company’s securities
were sold to the Class in connection with the IPO.
19
69.
The Company and the Individual Defendants are primarily liable, joint and
severally, by reason of the above conduct pursuant to § 15 of the Securities Action, 15 U.S.C. §
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays for relief and judgment as follows:
(a)
Determining that this action is a proper class action, certifying Plaintiff as
class representative under Federal Rule of Civil Procedure 23 and Plaintiff’s
counsel as class counsel;
(b)
Awarding compensatory damages in favor of Plaintiff and the other
members of the Class against all Defendants, jointly and severally, for all
damages sustained as a result of the 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 attorneys fees and expert fees;
(d)
Granting extraordinary equitable and/or injunctive relief as permitted by
law; and
(e)
Such other and further relief as the Court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiff hereby demands a jury trial.
20
Dated: March 8, 2019
HOLIFIELD JANICH RACHAL FERRERA,
PLLC
/s/ Sarah R. Johnson _
Al Holifield (BPR# 015494)
Sarah R. Johnson (BPR# 030781)
11907 Kingston Pike Suite 201
Knoxville, Tennessee 37934
Telephone: (865) 566-0115
Fax: (865) 566-0119
Email: [email protected]
Email: [email protected]
Liaison Counsel for Plaintiff
-and-
LEVI & KORSINSKY, LLP
Shannon L. Hopkins (Pro hac vice to be submitted)
1111 Summer Street, Suite 403
Stamford, CT 06905
Tel.: (203) 992-4523
Fax: (212) 363-7171
[email protected]
Counsel for Plaintiff
21
| securities |
q8jVDYcBD5gMZwczYgUa | IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
NICOLE RAWLEY, AMANDA
FARNSWORTH, and HEATHER
WHITLOW, individually and on
behalf of all others similarly
situated who consent to their
inclusion in a collective action,
Plaintiffs,
v.
Civil Action No.
TATTLE TAIL, INC. d/b/a Tattletale
Lounge, a corporation; and DENIS
G. KAUFMAN and CARLEEN J.
BARNES, individuals,
Defendants.
COMPLAINT
NOW COME Plaintiffs Nicole Rawley, Amanda Farnsworth, and Heather
Whitlow, individually, and on behalf of all others similarly situated who consent to
their inclusion in a collective action, by and through her attorneys, against Tattle
Tail, Inc. d/b/a Tattletale Lounge (hereinafter “Tattletale”), Denis G. Kaufman, and
Carleen J. Barnes (collectively the “Defendants”), and allege as follows:
NATURE OF THE ACTION
1.
Minimum wage and overtime laws mark the boundary between a humane
society and its Industrial Era precursor of child labor, company scrip and eighteen
hour work days. In recognition of this distinction, the United States Congress has
enacted and enforced wage and hour laws. This collective action arises from an
ongoing wrongful scheme to turn back the clock by denying its employees any
wage at all. Defendants’ scheme is so far removed from the modern era that it
involves requiring its employees to work without any wage at all. Indeed, it
involves the Defendants requiring their employees to pay for the privilege of
working, a practice unheard of in modern times.
2.
Plaintiffs Nicole Rawley, Amanda Farnsworth, and Heather Whitlow, on
behalf of themselves and all other employees similarly situated, hereby allege that
Defendants have maintained a pattern and practice of not paying employees wages,
not paying for overtime wages, failing to provide proper time for required lunch
and rest breaks and otherwise failing to provide statutorily mandated wages and
compensation. These violations were, and are, so egregious that Defendants go so
far as to require each and every similarly situated employee to pay out of pocket
costs prior to receiving any compensation. These employees include, but are not
limited to each and every employee categorized as a “dancer” or “entertainer” at
Defendants’ adult nightclub, Tattletale Lounge.
3.
This is brought as a collective action under the Fair Labor Standards Act
(“FLSA”) 29. U.S.C. §§ 201, 207, and 216(b) to recover unpaid wages, unpaid
overtime wages and other wages for which Plaintiffs were not paid in violation of
the laws of the United States.
JURISDICTION AND VENUE
4.
This Court has subject matter jurisdiction under 28 U.S.C. §1331, as this
civil action is brought pursuant to 42 U.S.C. §201, et seq., commonly known as the
FLSA. Plaintiffs do not assert any cause of action that is subject to any collective
bargaining agreement.
5.
This court has personal jurisdiction over the parties to this action as a result
of the location of Defendants’ wrongful acts. Additionally, Defendant Tattletale is
a business incorporated and existing under the laws of the State of Georgia and the
jurisdiction of this Court.
6.
Upon information and belief, venue is proper in the Northern District of
Georgia, Atlanta Division, pursuant to 28 U.S. C. §1391(b) because, inter alia, all
Defendants reside within the State of Georgia and/or a substantial part of the
events or omissions giving rise to the claim occurred in this district.
THE PARTIES
7.
Plaintiff Nicole Rawley is an individual residing in Atlanta, Fulton County,
Georgia. Rawley is a former employee of Defendants. Rawley worked as an
entertainer and dancer for Defendants from approximately 2004 through March
2013. Defendants never paid her any wage of any kind. In fact, Rawley, and all
other individuals similarly situated, were required to pay to work for Defendants.
Plaintiff Rawley has given her consent to join this lawsuit in writing.
8.
Plaintiff Amanda Farnsworth is an individual residing in Atlanta, DeKalb
County, Georgia. Rawley is a former employee of Defendants. Farnsworth worked
as an entertainer and dancer for Defendants from approximately 2006 or 2007
through mid-November 2012. Defendants never paid her any wage of any kind.
Like Rawley and all other individuals similarly situated, Farnsworth was required
to pay to work for Defendants. Plaintiff Farnsworth has given her consent to join
this lawsuit in writing.
9.
Plaintiff Heather Whitlow is an individual residing in Saint Petersburg,
Pinellas County, Florida. Whitlow is a former employee of Defendants. Whitlow
worked as an entertainer and dancer for Defendants from approximately February
2007 until June 30, 2012. Defendants never paid her any wage of any kind. Like
Rawley and all other individuals similarly situated, Whitlow was required to pay to
work for Defendants. Plaintiff Whitlow has given her consent to join this lawsuit in
writing.
10.
Defendant Tattle Tail, Inc. is a Georgia corporation; Defendant Denis G.
Kaufman is its CEO and CFO, and Defendant Carleen J. Barnes is its secretary.
Defendants have acted together in a conspiracy to carry out their illegal enterprise
since at least 2004. All Defendants can be served at their corporate headquarters
located at 2075-B Piedmont Road NE, Atlanta, Georgia 30324 or wherever else
they may be found.
FACTUAL ALLEGATIONS
11.
Defendants own and operate a successful and long-lived strip club. The
business of Defendants is to provide nude dancers and other entertainment to
customers of the club. Defendants have at relevant all times done business in the
State of Georgia.
12.
The minimum wage, overtime wage and tip credit policies have applied and
been controlling on Defendants at all times. Specifically, Defendants are an
enterprise engaging in commerce and have sales or do business transaction in
excess of $500,000 a year. Furthermore, Plaintiffs’ “entertainer” or “dancer” jobs
are not positions involving work which would fall under the exemptions provided
to 29 U.S.C. § 213(a)(1) of the FLSA.
13.
Defendants have at all times relevant falsely classified the “dancers” or
“entertainers” (hereinafter “Dancers”) employed in the club as independent
contractors. This false classification has been occurring for at least the past three
years (the “Collective Period”).
14.
Despite the fact that the Defendants have classified the Dancers as
independent contractors, Defendants have exercised at least the following controls
over all the Dancers:
(1)
Defendants have set the number of hours and shift that all Dancers at
Tattletale Lounge (“Tattletale”) are required to work, and have
enforced this requirement with threats of suspension and/or
termination of employment;
(2)
Defendants have required all Dancers at Tattletale to work specific
shifts when the shifts requested by the Dancers conflicted with the
staffing needs of Tattletale, and have enforced this requirement with
threats of suspension and/or termination of employment;
(3)
Defendants approve and ban the names that the Dancers can work
under while employed at Tattletale;
(4)
Defendants have the power and authority to approve or disapprove of
costumes worn by Dancers at Tattletale;
(5)
Defendants require Dancers to attend staff meetings, without payment,
and enforce this requirement with threats of suspension for failure to
attend;
(6)
Defendants maintain strict control over the content of Dancers’
performances on the club’s stages;
(7)
Defendants have sole control over which guests Dancers can entertain
in the club’s V.I.P. rooms, the rates that the Dancers must charge
V.I.P. clients, and the distribution of monies from V.I.P room sales;
(8)
Defendants require Dancers to take and pass a “breathalyzer test”
before they are allowed to leave the premises. Defendants also require
the Dancers to pay 50¢ per attempt to take the breathalyzer test.
15.
In addition to the above listed controls, Defendants require the following
fees to be paid by Plaintiffs, and all similarly situated employee–Dancers:
(1)
All Dancers are required to pay a per-shift fee to Defendants, which
has varied from $30–50 per shift or 10% of tips received by Dancers;
(2)
All Dancers are required to pay a late fee of $25 for every hour they
arrive late to their scheduled shifts;
(3)
Dancers are required to pay the DJ at least 20% of their tips per shift;
(4)
Defendants require that Dancers pay a $20 fee each shift to the “house
mom”;
(5)
Defendants require that Dancers pay a $10 fee each shift to the “door
guy”;
(6)
Defendants require that dancers pay an early-leave fee for leaving a
scheduled shift early. The rate of this fee was highly variable and
inconsistent, but ranged from $50 to upwards of $200;
(7)
Defendants require that Dancers pay a fee of $100 to $150 for each
scheduled shift missed;
(8)
Defendants require that Dancers pay a “champagne fee” of $10 per
glass of a set number of champagne or other specified alcoholic drinks
not sold to customers over the course of a shift;
(9)
Other various, and often arbitrary, fees are regularly added to this total
at the discretion of Defendants and their managerial employees.
16.
In addition to the illegal “kickback fees” described above, Defendants have
recklessly and maliciously failed to pay Plaintiff and other similarly situated
employees any wages at all, including minimum wage or overtime wages as
required by 29 U.S.C. § 201 et seq.
COUNT I
VIOLATION OF THE MINIMUM WAGE PROVISIONS OF 29 U.S.C. §206
17.
Plaintiffs hereby incorporates Paragraphs 1–16 of this Complaint as if fully
restated herein.
18.
At all times relevant herein, Plaintiffs and all similarly situated employees
performed work for which the minimum wage should have been paid by
Defendants, but have been paid no wages of any kind by Defendants in violation of
the FLSA provisions requiring the payment of minimum wage.
19.
At all relevant times, Defendants were and are legally responsible for all of
the wrongful conduct, policies, practices, acts and omissions as described in each
and all of the foregoing paragraphs as the employer of Plaintiffs and all similarly
situated employees.
20.
At all relevant time, the unlawful conduct against Plaintiffs and all similarly
situated employees, as described in each and all of the foregoing paragraphs, was
actuated, in whole, in such a way as to bring benefit to Defendants at the expense
of their employees. The unlawful conduct described in each and all of the
foregoing paragraphs was at all relevant times reasonably foreseeable by
Defendants and committed under the actual or apparent authority of Defendants
Denis G. Kaufman and Carleen J. Barnes, as well as their managerial and
supervisory employees.
21.
These actions were compounded by Defendants’ failure to provide notice to
their employee Dancers that they intended to utilize the tip-credit provisions of the
FLSA and Defendants' requirement that said Dancers surrender large portions of
their tips to Defendants for the personal enrichment of Defendants.
22.
Upon information and belief, since at least three years before the time of this
filing, the practices and policies that are complained of herein have been enforced
against approximately 250 Dancers employed by Defendants. Each and every one
of these employees has been denied proper minimum wage compensation in
violation of 29 U.S.C. § 206. There has been no good faith attempt on the part of
Defendants to comply with the provisions of the FLSA. Therefore, these violations
constitute a willful violation of the minimum wage provisions in violation of the
FLSA as provided for in 29 U.S.C. §255.
23.
Plaintiff has consented in writing to be part of this action pursuant to 29
U.S.C. § 216(b). Upon issuance of proper notice by this Court, there is a
substantial likelihood that other similarly situated employees will join this action as
Plaintiffs.
24.
Defendants’ wrongful and illegal conduct has deprived Plaintiffs, and all
similarly situated employees, of the minimum wage to which they are statutorily
entitled in an amount to be determined. Additionally, Plaintiffs, and all similarly
situated employees, are entitled to their attorney’s fees, expenses and costs
incurred in bringing this action as provided by 29 U.S.C. § 216(b).
COUNT II
VIOLATION OF THE OVERTIME WAGE PROVISIONS OF 29 U.S.C.
§207
25.
Plaintiffs hereby incorporates by reference all of the allegations contained in
paragraphs 1-24, as if specifically set forth herein.
26.
Pursuant to 29 U.S.C. § 207, Plaintiffs, and all similarly situated employees,
are entitled to be compensated at one and one half times their regular wage for
each and every hour worked over forty hours in any given workweek.
27.
The overtime provisions of the FLSA apply to Plaintiffs and all similarly
situated employees.
28.
Defendants have committed prima facia violations of 29 U.S.C. § 207 by
failing to pay Plaintiffs, and any and all similarly situated employees, any wage
whatsoever.
29.
Defendants’ violations of these provisions are intentional. No good faith
attempt to comply with the FLSA has been made. Defendants have paid no wages
to Plaintiffs, or to any and all similarly situated employees, much less required
overtime wages. Defendants are liable to Plaintiffs, and any and all similarly
situated employees, for their respective unpaid wages, liquidated damages,
attorney’s fees and costs, interest and other such relief as provided in 29 U.S.C.
§ 216(b).
COUNT III
COLLECTIVE ACTION ALLEGATIONS
PURSUANT TO 29 U.S.C. §216(B)
30.
Plaintiffs hereby incorporates Paragraphs 1-29 of this Complaint as if fully
restated herein.
31.
Defendants have intentionally and repeatedly violated 29 U.S.C. §§ 206 and
207 by failing to pay required minimum and overtime wages to Plaintiffs, and any
and all similarly situated employees. Defendants have engaged in these behaviors
for their own benefit and in an attempt to deprive Plaintiffs, and any and all
similarly situated employees, of their lawful wages.
32.
Defendants are liable pursuant to 29 U.S.C. § 201 et seq., to Plaintiffs, and
to all similarly situated employees, for unpaid minimum and overtimes wages,
interest, attorney’s fees and costs and other such equitable and legal relief that this
Court finds proper.
33.
There are approximately 250 similarly-situated current and former
employee–Dancers who have been misclassified by Defendants in the past three
years and have worked without being paid minimum or overtime wages in
violation of 29 U.S.C. §201, et. seq. These Dancers would benefit from the
issuance of a Court supervised Notice of Present Lawsuit and opportunity to join
pursuant to 29 U.S.C. § 216(b). These similarly situated employees are known to
Defendants, are readily identifiable and can be located through the records of
Defendants and various local governmental entities.
WHEREFORE, Plaintiffs pray that this Court:
(a)
Enjoin Defendants from continuing to violate 29 U.S.C. §201, et seq.,
and from withholding payment of minimum and overtime wages from
Plaintiffs, and any and all similarly situated employees, pursuant to
this Court's authority provided for in 29 U.S.C. § 217;
(b)
Find that Defendants have willfully violated 29 U.S.C. §§ 206-207 by
failing to pay Plaintiffs, and any and all similarly situated employees,
minimum and overtime wages;
(c)
Issue a judgment against Defendants for all unpaid wages, illegal
kickback payments, interest, attorney’s fees and costs and all other
allowed forms of relief as provided by 29 U.S.C. § 216(b);
(d)
Issue a judgment for liquidated damages in an amount equal to the
above mentioned judgment as provided in 29 U.S.C. § 216(b);
(e)
Issue a Notice of the Present Action to all persons who are presently,
or have been at any time during the three years immediately preceding
this suit, up through an including the date of this Court's issuance of
Court-Supervised Notice, employed by the Defendants as Dancers or
Entertainers as described above;
(f)
That each such person shall be informed of this civil action, the nature
of the action, and of their right to join this lawsuit if they have worked
for Defendants and have not been paid minimum or overtime wages
and have been forced to pay illegal kickbacks to Defendants.
Additionally, the Notice shall inform all current and past employees
that Defendants are not allowed to retaliate against them for
participating in this action;
(g)
for such other and further relief as is just and equitable.
Plaintiffs hereby demands a TRIAL BY JURY.
Respectfully submitted this 13th day of January 2014.
/s/ W. Anthony Collins, Jr.
W. Anthony Collins, Jr.
Georgia Bar No. 141712
SMITH COLLINS, LLC
8565 Dunwoody Place
Building 15, Suite B
Atlanta, GA 30350
(770) 378-1408
[email protected]
/s/ James R. Fletcher II
James R. Fletcher II
Georgia Bar No. 232541
MERRITT & FLETCHER, LLC
1265 West Spring St., Ste. A
Smyrna, GA 30080
(678) 607-6053
[email protected]
Attorneys for Plaintiffs
| employment & labor |
4v6RFIcBD5gMZwczw0Gn | UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
---------------------------------------------------------
ESTHER REIZES on behalf of herself and
all other similarly situated consumers
Plaintiff,
12 CV 3092 (ILG) (CLP)
-against-
PALISADES COLLECTION L.L.C.
Defendant.
-----------------------------------------------------------
AMENDED CLASS ACTION COMPLAINT
Introduction
1.
Plaintiff Esther Reizes seeks redress for the illegal practices of Palisades Collection
L.L.C. in which it unlawfully engaged in the collection of consumer debts in violation of
the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (“FDCPA”).
2.
Plaintiff is a citizen of the State of New York who resides within this District.
3.
Plaintiff is a consumer as that term is defined by Section 1692(a)(3) of the FDCPA.
4.
The alleged debt that Defendant sought to collect from the Plaintiff involves a consumer
debt.
5.
Upon information and belief, Defendant’s principal place of business is located within
Engelwood Cliffs, New Jersey.
6.
Defendant is regularly engaged, for profit, in the collection of debts allegedly owed by
consumers.
-1-
7.
Defendant is a “debt collector” as that term is defined by the FDCPA, 15 U.S.C. §
1692(a)(6).
Jurisdiction and Venue
8.
This Court has federal question jurisdiction under 15 U.S.C. § 1692k(d) and 28 U.S.C. §
1331.
9.
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, within this district.
Allegations Particular to Esther Reizes
10.
Upon information and belief, on a date better known by Defendant, Defendant began to
attempt to collect an alleged consumer debt from the Plaintiff.
11.
On or about June 29, 2011, Plaintiff called Northland Group Inc. and spoke to a
representative regarding a Palisades Collection L.L.C. account on the credit report, and
attempted to dispute the debt over the phone.
12.
Defendant informed the Plaintiff that all disputes must be made with Palisades
Collection.
13.
Subsequent to that communication, on or about June 29, 2011, Plaintiff ordered her
credit report and called the contact number on the credit report for Palisades Collection
L.L.C.
14.
Plaintiff and her husband spoke to Manual, a representative from Palisades Collection.
15.
The representative informed the Plaintiff that she could not dispute the debt because the
debt was not paid.
16.
In addition, the representative said that although Palisades Collection L.L.C. is reporting
-2-
it to the credit bureaus, the file is locked since it is being serviced by someone else.
17.
Plaintiff was also told that she is required to put the reason for her dispute in a letter,
however she should send that letter to Northland Group Inc. and she must pay the debt
before she can call back Palisades Collection L.L.C. and dispute it.
18.
The FDCPA does not require the consumer to provide any reason at all in order
to dispute a debt. Sambor v. Omnia Credit Servs., 183 F. Supp. 2d 1234 (D. Haw. 2002);
Mendez v. M.R.S. Assoc., 2004 WL 1745779 *2 (N.D. Ill. Aug. 3, 2004)
(a consumer is entitled to dispute the validity of a debt for a good reason, a bad reason,
or no reason at all); Whitten v. ARS National Servs. Inc., 2002 WL 1050320 *4 (N.D.
111. May 23, 2002) (imposing a requirement that a consumer have a `valid' reason to
dispute the debt is inconsistent with FDCPA); Castro v. ARS National Servs., Inc., 2000
WL 264310 (S.D.N.Y. Mar. 8, 2000); Frey v. Satter, Beyer & Spires., 1999 WL 301650
(N.D. Ill. May 3, 1999); DeSantis v. Computer Credit, Inc., 269 f.3d 159 (2nd Cir.
2001); Mejia v. Marauder Corporation., 2007 WL 806486 (N.D. Cal. 2007) (unlawful to
suggest that proof of payment required for dispute).
The FDCPA allows the consumer to orally dispute a debt. Brady v. The Credit Recovery
Company, Inc., 160 F.3d 64 (1st Cir. 1998). The FDCPA does not limit the time period
for disputing a debt. A consumer can always dispute a debt with a debt collector,
regardless of the passage of time. Credit reporting constitutes an attempt to collect a
debt. See, e.g., Rivera v. Bank One., 145 F.R.D. 614, 623 (D.P.R. 1993) (a creditor's
report of a debt to a consumer reporting agency is a "powerful tool, designed, in part, to
wrench compliance with payment terms from its cardholder"); Matter of Sommersdorf.,
-3-
139 B.R. 700, 701 (Bankr.S.D. Ohio 1991); Ditty v. CheckRite, Ltd., 973 F.Supp. 1320,
1331 (D.Utah 1997).
A consumer is entitled to dispute a debt orally and need not seek validation to overcome
the debt collector’s assumption of validity. See. Rosado v. Taylor., 324 F. Supp. 2d 917
(N.D. Ind. 2004). (The collection attorney violated § § 1692g(a)(3) by requiring that
disputes be in writing to prevent the collector from considering the debt valid. The court
noted that oral disputes overcome the assumption of validity and impose a requirement
under § 1692e(8) that the debt collector report the dispute if reporting the debt to third
parties).
It is well settled that § 1692g(a)(3) does not impose a writing requirement on a
consumer See. Register v. Reiner, Reiner & Bendett, P.C., 488 F.Supp.2d 143 (D.Conn.
2007); Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, 464 F.Supp.2d 720 (N.D.
Ohio 2006); Baez v. Wagner & Hunt, P.A., 442 F.Supp.2d 1273 (S.D.Fla. 2006); Turner
v. Shenandoah Legal Group, P.C., No. 3:06CV045, 2006 WL 1685698 (E.D. Va.
2006); Vega v. Credit Bureau Enters., No. CIVA02CV1550, 2005 WL 711657
(E.D.N.Y. Mar. 29, 2005); Nasca v. GC Servs. Ltd. P'ship, No 01CIV10127, 2002 WL
31040647 (S.D.N.Y. Sept. 12, 2002); In re Risk Mgmt. Alternatives, Inc., Fair Debt
Collection Practices Act Litig., 208 F.R.D. 493 (S.D.N.Y. June 14, 2002); Sambor v.
Omnia Credit Servs., Inc., 183 F.Supp.2d 1234 (D.Haw. 2002); Sanchez v. Robert E.
Weiss, Inc., 173 F.Supp.2d 1029 (N.D. Cal. 2001); Castro v. ARS Nat'l Servs., Inc., No.
99 CIV. 4596, 2000 WL 264310 (S.D.N.Y. Mar. 8, 2000); Ong v. Am. Collections
Enter., No. 98-CV-5117, 1999 WL 51816 (E.D.N.Y. Jan. 15, 1999); Reed v. Smith,
-4-
Smith & Smith, No. Civ. A. 93-956, 1995 WL 907764 (M.D.La. Feb. 8, 1995); Harvey
v. United Adjusters, 509 F.Supp.1218 (D.Or. 1981).
19.
Upon information and belief, Palisades Collection L.L.C. and its employee as a matter
of procedural practice and pattern never intend to follow through with the validation
rights they purportedly provide in the initial communication.
20.
Upon information and belief, Palisades Collection L.L.C. and its employees when
receiving written disputes as a matter of procedural practice and pattern, do not provide
verification of debts since they maintain all disputes in writing must be submitted with a
valid reason.
21.
Upon information and belief, Palisades Collection L.L.C. and its employee intentionally
denied the Plaintiff her dispute rights afforded to her under the FDCPA.
22.
Upon information and belief, Palisades Collection L.L.C. and its employee wrongfully
stated to the Plaintiff that she could not orally dispute the debt directly with Palisades
Collection L.L.C.
23.
Upon information and belief, Palisades Collection L.L.C. and its employee wrongfully
stated to the Plaintiff that she could only dispute a debt in writing.
24.
Upon information and belief, Palisades Collection L.L.C. and its employee wrongfully
stated to the Plaintiff that she must have a reason to dispute a debt.
25.
Upon information and belief, Palisades Collection L.L.C. and its employee by
intentionally denying the Plaintiff and any other debtor to dispute the debt orally and
without a valid reason unfairly intimidate and force debtors into paying disputed debts.
26.
The Palisades Collection L.L.C. employee who spoke with Esther Reizes intended to
-5-
speak the said words to the Plaintiff.
27.
The acts and omissions of Palisades Collection L.L.C. and its employee done in
connection with efforts to collect a debt from the Plaintiff were done intentionally and
willfully.
28.
Upon information and belief, Palisades Collection L.L.C. and its employees
intentionally and willfully violated the FDCPA and do so as a matter of pattern and
practice by not letting any of the class members orally dispute the debt and by
maintaining that the debtors have a valid reason to dispute any debt contrary to the
FDCPA and the rights given by the Defendant purportedly in the validation notice.
29.
As an actual and proximate result of the acts and omissions of Palisades Collection
L.L.C. and its employees, Plaintiff has suffered actual damages and injury, including but
not limited to, fear, stress, mental anguish, emotional stress, acute embarrassment and
suffering for which she should be compensated in an amount to be established by a jury
at trial.
30.
The Defendant’s said statement also constitutes a deceptive and misleading
representation or means used in connection with the collection of a debt, in violation of
the FDCPA, §§1692e and 1692e(10).
31.
The Defendant, a foreign New Jersey LLC, filed an application for authority to do
business in New York with the New York Department of State on a date better known to
Defendant. The Dept. of corporations in New York confirmed that as of February 21,
2012, Palisades Collection L.L.C. has not filed any affidavits or certificate of publication
which leads them to be suspended from doing business in New York.
-6-
32.
Foreign LLC's are required to publish their formation, and file proof of publication of
their LLC within 120 days of the filing of their application for authority.
33.
At the time of Plaintiff's commencement of the action against Defendant, Defendant
has failed to publish, and has failed to file any certificate of publication and/or failed
to file any sort of proof or affidavit of publication, as required.
34.
Pursuant to the New York Limited Liability Company Law, failure to file the
certificate of publication results in suspension of authority to do business in New
York State, and a prohibition of bringing any legal proceedings in New York State
during the period of noncompliance.
35.
At the time of Plaintiffs commencement of the action against Defendant,
Defendant's authority to do business had been suspended.
36.
During the period of noncompliance, Defendant was prohibited from conducting business
in New York State.
37.
At the time of the mailing of the collection letters, Defendant's authority to do
business had been suspended.
38.
The least sophisticated consumer is unlikely to search and/or to have the ability or
knowledge to search Department of State records to determine whether Defendant's
authority to do business is suspended.
39.
Doing business in New York when Defendant's authority to do business had been suspended
violates 15 U.S.C. §§1692, 1692e, 1692e(2)(a), 1692e(5), 1692e(10), 1692f.
40.
Section 1692e provides: § 1692e. False or misleading representations. A debt
collector may not use any false, deceptive, or misleading representation or means in
-7-
connection with the collection of any debt. Without limiting the general application of
the foregoing, the following conduct is a violation of this section:
(2) The false representation of-
(A) the character, amount, or legal status of any debt;
(10) The use of any false representation or deceptive means to collect or attempt to
collect any debt § 1692f.
Unfair Practices: A debt collector may not use unfair or unconscionable means to
collect or attempt to collect any debt.
41.
Defendant violated the above provisions of the statute because they had no right to
collect this debt.
42.
Defendant's activities in collecting this debt were deceptive, misleading and/or
false.
43.
Defendant's collection techniques involved asking consumers to pay debts when
they had no legal ability to ask for payment.
44.
Defendant did not inform the consumer that the debt owed was to a defendant which
had no authority to do business in New York and/or that Defendant had no right to
collect any money or to sue in New York.
45.
Any judgment obtained during Defendant's period of noncompliance is a nullity and
of no legal force or effect.
46.
The conduct of Defendant in collecting and attempting to collect monies owed
when it was not allowed to pursuant to the New York Limited Liability Law
constitutes deceptive or materially misleading activity that is directed at consumers
-8-
and the public at large and caused consumers to suffer financial injuries of having
increased debt and having money extracted from them.
47.
As a result of the unlawful collection activity which the defendant engaged in, Plaintiff
is entitled to damages pursuant to GBL §349.
AS AND FOR A FIRST CAUSE OF ACTION
Violations of the Fair Debt Collection Practices Act brought by Plaintiff on behalf of herself
and the members of a class, as against the Defendant.
48.
Plaintiff re-states, re-alleges, and incorporates herein by reference, paragraphs one
through forty seven as if set forth fully in this cause of action.
49.
This cause of action is brought on behalf of Plaintiff and the members of two classes.
50.
Class A consists of all persons whom Defendant’s records reflect resided in the State of
New York and who made a telephonic communication to the Defendant’s representative
within one year prior to the date of the within complaint up to the date of the filing of
the complaint; (a) that the Defendant denied the Plaintiff the right to dispute the debt
orally and required the Plaintiff to provide a valid reason to dispute.
51.
Class B consists of all persons whom Defendant’s records reflect resided in the State of
New York and who made a telephonic communication to the Defendant’s representative
within one year prior to the date of the within complaint up to the date of the filing of
the complaint; (a) and the plaintiff asserts that the letter contained violations of 15
U.S.C. §§1692, 1692e, 1692e(2)(a), 1692e(5), 1692e(10) and1692f, for doing business
when its authority to do so in New York had been suspended.
-9-
52.
Pursuant to Federal Rule of Civil Procedure 23, a class action is appropriate and
preferable in this case because:
(a) Based on the fact that form telephonic messages are at the heart of this litigation,
the class is so numerous that joinder of all members is impracticable.
(b)
There are questions of law and fact common to the class and these questions
predominate over any question(s) affecting only individual class members. The
principal question presented by this claim is whether the Defendant violated the
FDCPA.
(c)
The only individual issue involves the identification of the consumers engaged in
such telephonic calls (i.e. the class members). This is purely a matter capable of
ministerial determination from the records of the Defendant.
(d)
The claims of the Plaintiff are typical of those of the class members. All of
the respective class claims are based on substantially similar facts and legal
theories.
(e) The Plaintiff will fairly and adequately represent the class members’
interests. The 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.
53.
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.
-10-
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.
54.
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.
55.
Collection attempts, such as those made 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
56.
The Defendant’s actions as set forth above in the within complaint violates the Fair Debt
Collection Practices Act.
57.
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.
WHEREFORE, Plaintiff, respectfully requests that this Court enter judgment in Plaintiff's favor and
against the Defendant and award damages as follows:
(a) Statutory and actual damages provided under the FDCPA, 15 U.S.C. 1692(k);
And
(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.
-11-
Dated: Cedarhurst, New York
June 28, 2012
/s/
__________________________
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
Plaintiff requests trial by jury on all issues so triable.
/s/
__________________________
Adam J. Fishbein (AF-9508)
-12-
| consumer fraud |
XlfkBIkBRpLueGJZLPC4 | 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: [email protected]
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: [email protected]
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: [email protected]
Email: [email protected]
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: [email protected]
Email: [email protected]
Email: [email protected]
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: [email protected]
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: [email protected]
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: [email protected]
Email: [email protected]
Email: [email protected]
Email: [email protected]
Counsel for Plaintiff and the Proposed Classes
| antitrust |
ucxmDocBD5gMZwczjpm8 | UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORI(
CHRISTOPHER HART, JEFFREY BEYER, MARlA
SARGENT,
TAYLOR
RAMSEY,
ANDREA
RANDLETT and SHELLY CARRERA,
on behalfof themselves and all other employees similarly
situated,
CLASS AND COLLECTIVE ACTION
COMPLAINT
AND DEMAND FOR JURY TRIAL
Plaintiffs,
v.
Civil Action
No. 13-cv-6458
CRAB ADDISON, INC. d/b/a JOE'S CRAB SHACK,
IGNITE RESTAURANT GROUP, INC., RAYMOND
A. BLANCHETTE HI, KEVIN COTTINGIM and
RODNEY MORRIS,
Defendants.
Plaintiffs Christopher Hart, Jeffrey Beyer, Maria Sargent, Taylor Ramsey, Andrea
Randlett and Shelly Carrera ("Named Plaintiffs"), on behalf of themselves and all other
persons similarly situated (collectively, "Plaintiffs"), by and through their attorneys Thomas
& Solomon LLP, bring this class and collective action complaint against Defendants Crab
Addison, Inc. d/b/a Joe's Crab Shack, Ignite Restaurant Group, Inc., Raymond A. Blanchette
III, Kevin Cottingim and Rodney Morris (collectively, "Defendants").
NATURE OF ACTION
1.
This lawsuit seeks to recover minimum wages, injunctive relief and declaratOlY
relief to redrcss the deprivation of rights secured to Named Plaintiffs and Similarly situated
co-workers (servers, bartenders, bussers, hosts and all other tipped employees) who worked or
have worked at Defendants' Joe's Crab Shack rcstaurants.
2.
Named Plaintiffs bring this action on behalf of themselves and similarly
situated current and former tipped hourly food service workers who elect to opt-in to this
action pursuant to the Fair Labor Standards Act of 1938 as amended, 29 USc. § 20 I et seq.
("FLSA"), specifically, the collective action provision of 29 USc. § 216(b).
To date, in
addition to the six Named Plaintiffs, forty-one individuals have already opted-in into this
3.
Named Plaintiffs also bring this action on behalf of themselves and similarly
situated current and former tipped hourly food service workers pursuant to Federal Rule of
Civil Procedure 23 to remedy the violations of applicable state labor laws and regulations
including: New York Minimum Wage Act, Article 19, § 650 et seq., New York State
Department of Labor Regulations, including, but not limited to, 12 N.Y.C.R.R. §137-2.2 and
§146.2-2, New York Labor Law ("NYLL") § 195(3) as amended by the New York Wage
Theft Prevention Act, Maryland Labor and Employment Code §§3-413, 3-507.2, Missouri's
Minimum Wage Law, §290.502, et seq., Arizona's Minimum Wage Act §23-363, et seq.,
Illinois Minimum Wage Law - 820 ILCS 105/! et seq., and Illinois Wage Payment and
Collection Act - 820 ILCS 115/1 et seq. (collectively "State Labor Laws").
4.
Defendants have a policy to pay Plaintiffs
subminimum wage rates as
described in more detail in Plaintiffs' Mfirmations submitted contemporaneously with this
Complaint in support of Plaintiffs' Motion for Expedited Notice Pursuant to the FLSA.
5.
Defendants' policy is to not pay Plaintiffs the legally required minimum wage
even though the Plaintiffs are performing jobs unrelated to their tipped job.
6.
Instead, Defendants, as matter of policy, pay Plaintiffs subminimum wage rates
and require they perform non tip producing duties such as washing dishes, kitchen prep and
janitorial tasks which Defendants refer to as "back of the house" duties.
7.
Accordingly, Defendants cannot meet the FLSA's tip credit requirements
codified at 29 USc. §203(m).
8.
Therefore Defendants are not entitled to a tip credit against the minimum
wage owed to the tipped employees.
As a result, like the Named Plaintiffs, Defendants'
tipped employees are entitled to at least $7.25 for each hour worked.
9.
Further, none of the Defendants nor any of the managers of Defendants'
business provided requisite notice to Plaintiffs regarding the tip credit as required by the
FLSA, NYLL codified at NYC.R.R §§137-2.2, 146.2-2 and Arizona's Administrative Code §
R20-5-1207(c).
JURISDICTION AND VENUE
10.
The jurisdiction of this Court is invoked pursuant to 28 USc. §1331, 28
USc. §1343 (3) and (4) conferring original jurisdiction upon this Court of any civil action
to recover damages or to secure equitable relief under any Act of Congress providing for the
protection of civil rights; under 28 USc. § 1337 conferring jurisdiction of any civil action
arising under any Act of Congress regulating interstate commercc; under the Declaratory
Judgment Statute, 28 USc. § 2201; and under 29 USc. § 216(b).
II.
The Court has jurisdiction over Plaintiffs' State Labor Law claims under the
Class Action Fairness Act of 2005, 28 USc. § 1332(d).
Plaintiffs' claims for violations of
the State Labor Laws have a value in excess of $5,000,000 exclusive of fees and costs.
Citizenship of the members of the proposed subclasses is dispersed among a number of states.
Upon information and belief, greater than two-thirds of the members of all proposed
subclasses in the aggregate are not citizens of the same state.
The number of putative
subclass members exceeds 100. At least one member of the proposed subclasses is a citizen of
a state different from that of at least one defendant.
Plaintiffs' claims involve matters of
national or interstate interest.
12.
This Court also has supplemental jurisdiction over the State Labor Laws under
28 USc. § 1367(a) because the Plaintiffs' allegations of State Labor Laws are related and
arise from the same core of operative facts as Plaintiffs' allegations for violations of the FLSA.
COLLECTIVE ACTION ALLEGATIONS
13.
Named Plaintiffs bring this action on behalf of themselves and all other
similarly situated employees as authorized under 29 U.S.c. § 216(b).
The employees
similarly situated for purposes of the collective action are:
All Defendants' current and former employees who in the last three years have
worked as tipped hourly food service workers and were paid subminimum
wages at Defendants' Joe's Crab Shack restaurants, who elect to opt-in to this
action.
14.
In addition, at all times relevant to the litigation, Defendants' policy and
pattern or practice did not notify the Named Plaintiffs and similarly situated employees of
the FLSA's tip credit provision 29 USc. § 203(m) and supporting Federal Regulations,
including, but not limited to, 29 C.F.R. §516.4. Accordingly, Defendants are not entitled to
pay Plaintiffs' subminimum wages under the FLSA.
15.
Defendants knowingly and willfully operate their business with a policy of not
paying the FLSA minimum wage to the Named Plaintiffs and other similarly situated
employees.
Moreover, Defendants were sued for minimum wage violations, and thus were
properly put on notice of their invalid compensation schemes.
However, Defendants
continued to ignore the law and failed to properly compensate the Named Plaintiffs and
other similarly situated employees even though they were put on notice that they had
violated employees' rights.
16.
Moreover, Defendants are aware or should have been aware that federal law
required them to pay employees minimum wage for performing non tip producing work.
17.
Further, Defendants are aware or should have been aware that federal law
required them to provide requisite notice to tipped employees as required by the FLSA.
18.
Plaintiffs are similarly situated in that they have similar job duties and similar
pay provisions based on Defendants' illegal pay policy requiring they perform non-tip
producing duties and are paid subminimum wages.
19.
There are numerous similarly situated current and former tipped employees of
Defendants who work or worked at Joe's Crab Shack restaurants who would benefit from
issuance of a Court supervised notice of the instant lawsuit and the opportunity to join in the
present lawsuit.
20.
Similarly situated employees are known to Defendants and readily identifiable
by Defendants through Defendants' payroll records.
21.
Therefore, Named Plaintiffs should be permitted to bring this action as a
collective action for and on behalf of those employees similarly situated pursuant to the opt-
in provision of the FLSA, 29 USc. § 216(b).
22.
Annexed hereto as Exhibit A are the written consents to filing this complaint
duly executed by the six Named Plaintiffs pursuant to 29 USc. §216(b).
23.
Annexed hereto as Exhibit B are the written consents to filing this complaint
duly executed by forty-one additional Plaintiffs pursuant to 29 U.s.c. §216(b).
CLASS ACTION ALLEGATIONS
24.
The claims arising under the State Labor Laws of New York, Maryland,
Missouri, Arizona and Illinois are properly maintainable as a class action under Federal Rule
of Civil Procedure 23 ("Rule 23").
25.
The Rule 23 class consists of the following five subclasses:
1. New York Subclass: All persons who have worked as tipped, hourly food
service workers at Joe's Crab Shack restaurants in New York, between August
28,2007 and the date of final judgment in this matter ("New York Subclass").
2. Maryland Subclass: All persons who have worked as tipped, hourly food
service workers at Joe's Crab Shack restaurants in Maryland between August
28,2010 and the date of final judgment in this matter ("Maryland Subclass").
3. Missouri Subclass: All persons who have worked as tipped, hourly food
service workers at Joe's Crab Shack restaurants in Missouri between August 28,
2011 and the date of final judgment in this matter ("Missouri Subclass").
4. Arizona Subclass: All persons who have worked as tipped, hourly food
service workers at Joe's Crab Shack restaurants in Arizona between August 28,
2010 and the date of final judgment in this matter (Arizona Subclass").
5. lllinois Subclass: All persons who have worked as tipped, hourly food
service workers at Joe's Crab Shack restaurants in Illinois between August 28,
2003 and the date of final judgment in this matter ("lllinois Subclass").
26.
The class action is maintainable under subsections (1), (2), (3) and (4) of Rule
27.
The number of putative subclass members is over 100.
28.
The Named Plaintiffs claims share common issues of law and fact as to
whether they were paid properly and have common claims that are typical of the claims of
the subclass members because they are employed by Defendants, paid subminimum wages
and required to perform non tip producing duties including "back of the house" duties such
as washing dishes, kitchen prep and janitorial tasks.
29.
Common issues of law and fact predominate in this action because resolution
of them will resolve a significant aspect of this litigation for each subclass member in one
stroke including, but are not limited to, the following:
•
Whether Defendants violated the respective State Labor Laws and supporting
regulations by paying employees subminimum wages and requiring tipped
employees to perfonn non tip producing duties such as washing dishes, kitchen
prep and janitorial tasks;
•
Whether Defendants correctly compensated the Named Plaintiffs and the
members of the subclasses for all hours worked;
•
Whether Defendants knew or should have known that tipped employees were
performing non-tip producing duties, including, but not limited to, kitchen and
janitorial duties;
•
Whether Named Plaintiffs and subclass members were systematically not paid
minimum wage for performing non-tip producing duties, including, but not
limited to, janitorial and kitchen related jobs;
•
The minimum wage rate to which the subclasses are entitled;
•
Whether Defendants' policy of failing to pay Named Plaintiffs and the
subclass members was willful or in reckless disregard of the law;
•
Whether Defendants violated the NYLL and supporting regulations by failing
to provide the requisite notice to New York Subclass regarding the tip credit;
and
•
Whether Defendants violated the Arizona Administrative Code by failing to
provide the requisite notice to the Arizona Subclass regarding the tip credit.
30.
Further, there are no known conflicts of interest between the Named Plaintiffs
and the subclass members.
Moreover, the Named Plaintiffs will adequately represent the
interests of the subclass members because they are similarly situated to the subclass members.
31.
The Class Counsel, Thomas & Solomon LLP, is qualified and able to litigate
the Named Plaintiffs' and subclass members' claims.
32.
The Class Counsel concentrates its practice in employment litigation, and its
attorneys are experienced in class action litigation, including class actions arising under wage
and hour laws.
33.
The class action is also maintainable under subsection (2) of Rule 23(b)
because the Named Plaintiffs and subclass members seek injunctive relief against Defendants
and their officer, agents, successors, employees, representatives and any all persons acting in
concert with them as provided by law, from engaging in each of the unlawful practices,
policies and patterns set forth herein.
34.
Moreover, the class action is maintainable under subsection (3) of Rule 23(b)
because the Named Plaintiffs and subclass members seek to resolve common questions of law
and fact (see supra 1129) that predominate among the Named Plaintiffs and subclass members
and the class action is superior to other available methods for the fair and efficient
adjudication of the controversy.
35.
The subclasses are also maintainable under Rule 23(c)(4) because resolution of
common issues will significantly advance the litigation or entitle Plaintiffs to injunctive relief.
PARTIES
A.
Plaintiffs
36.
Christopher Hart, Jeffrey Beyer, Taylor Ramsey, Maria
Sargent, Andrea
Randlett and Shelly Carrera were tipped hourly employees of Defendants under the FLSA
and the relevant State Labor Laws.
37.
Christopher Hart worked for Defendants as a server from approximately
August 2011 to January 2013 at the Henrietta, New York location. Mr. Hart resides within
this District.
38.
Jeffrey Beyer worked for Defendants as a server from approximately August
2011 to December 2012 at the Henrietta, New York location. Mr. Beyer resides witl1in this
39.
Taylor Ramsey worked for Defendants as a hostess from approximately July
2012 to September 2012 at the Branson, Missouri location. Ms. Ramsey resides in Illinois.
40.
Maria Sargent worked for Defendants as a server from approximately May
20 II to June 2012 at the Greenbelt, Maryland location. Ms. Sargent resides in Maryland.
41.
Andrea Randlett worked for Defendants as a server from approximately May
2012 to August 2012 at the Tempe, Arizona location. Ms. Randlett resides in Arizona.
42.
Shelly Carrera worked for
Defendants as a server and bartender from
approximately June 2011 to June 2012 at the Fairview Heights, Illinois location. Ms. Carrera
resides in Illinois.
43.
The Named Plaintiffs, along with other tipped employees, were subject to
Defendants' policy which paid them subminimum wages for work in jobs that were unrelated
to their tipped jobs or were jobs that were not direeted towards producing tips.
44.
Some examples of the
jobs Named
Plaintiffs,
along with
other tipped
employees, had to perform under Defendant's policy at subminimum wages were:
•
cleaning the dining room,
•
dusting the pietures on the walls,
•
windexing all the interior ,,~ndows and picture frames,
•
scrubbing the legs of all the chairs,
•
degreasing and shining exposed metal including tables, garage doors and
window sills,
•
cleaning the cracks of the booths,
•
cleaning, cutting and portioning out vegetables, noodles and rice for cooks,
•
preparing sanitation buckets for prep and expo areas,
•
setting up the expo line,
•
breaking apart and cleaning the soda machines, tea dispensers and expo line,
•
removing, then cleaning the light fixtures,
•
scrapping gum from under every table in the store,
•
cleaning and wiping down all the shelves in the kitchen after removing all the
items on the shelves,
•
cleaning every window in the store and moving furniture to clean underneath,
•
deck brushing the floors,
•
cleaning and sanitizing sinks,
•
sweeping the entire restaurant,
•
emptying garbage and replacing liners,
•
taking garbage to the dumpsters,
•
washing dishes,
•
stocking beverage stations,
•
keeping ice bins full,
•
sorting and polishing silverware and placing it in racks,
•
sweeping the floor of the expo line,
•
cleaning the keg cooler,
•
wiping down the bar stools,
•
cleaning the blinds,
•
cleaning every display bottle at the bar and the display surfaces and
•
stocking lemons, creamers and "to go" containers.
45.
Plaintiffs performed these jobs at subminimum wages with great frequency.
46.
Moreover, Named Plaintiffs were not informed of the tip credit as required by
the FLSA.
Christopher Hart
47.
Pursuant to Defendants'
policy,
Named Plaintiff Christopher Hart was
regularly scheduled to work an 8 hour shift and would spend more than half of his shift (4.5
hours) performing non tip producing duties and was paid a subminimum wage.
48.
Depending on the shift, Mr. Hart was assigned "opener duties" or "closer
duties" in addition to "running sidework".
Defendants required that Mr. Hart complete the
following "opener duties": cleaning the dining room and all the wood work with a bucket
filled with sanitizer solution; dusting the pictures on the walls and \¥indexing the interior
windows and picture frames; scrubbing the legs of all the chairs; degreasing and shining
exposed metal including: tables, garage doors and window sills; cleaning out the cracks of the
booths; cleaning, cutting and portioning out vegetables, noodles and rice for cooks; preparing
sanitation buckets for prep and expo areas and setting up the expo line. Mr. Hart spent one
hour per shift performing these "opener duties" for which he was paid a subminimum wage.
49.
Depending on the shift, Defendants also required that Mr. Hart complete the
following "closer duties" which included: breaking apart and cleaning the soda machines, tea
dispensers and expo line; removing, then cleaning the light fixtures; scraping the gum from
under every table in the store; cleaning and wiping down all the shelves in the kitchen after
removing all the items on the shelves; cleaning every window in the store; moving furniture to
clean underneath; deck brushing the floors; cleaning and sanitizing sinks; sweeping the entire
restaurant; emptying garbage and replacing liners then taking the garbage to the dumpsters.
Mr. Hart would spend one hour per shift performing these"closer duties" for which he was
paid a subminimum wage.
SO.
When he was assigned opener or closer duties, Defendants also required Mr.
Hart to complete "running sidework" for the entire restaurant which consisted of: washing
dishes because often the restaurant did not have a dishwasher; emptying trash cans and
replacing liners; hand wiping all plates and silverware; sweeping, dusting, sanitizing and
bleaching coffee cups, mugs, pots and tea kettles. Mr. Hart would spend 3.5 hours
completing "running sidework" for which he was paid a subminimum wage.
5!.
Together with opener or closer duties, Mr. Hart spent more than half of his
shift (4.5 hours) performing non tip producing duties and was paid a subminimum wage.
52.
Defendants failed to provide Mr. Hart with wage statements that contained
allowances claimed by Defendants including the tip credit as required by the NYLL.
Jeffrey Beyer
53.
Pursuant to Defendants' policy, Named Plaintiff Jeffrey Beyer was regularly
scheduled to work 6 and 8 hour shifts and would spend more than half of his shift (3.5 hours
or 4.5 hours) performing non tip producing duties and was paid a subminimum wage.
54.
Depending on the shift, Mr. Beyer was assigned "opener duties" or "closer
duties" in addition to "running sidework".
Defendants required Mr. Beyer to complete the
following "opener duties": cleaning the dining room and all the wood work with a bucket
filled
V\~th sanitizer solution; dusting the pictures on the wall and windexing the interior
windows and picture frames; scrubbing the legs of all the chairs; degreasing and shining
exposed metal tables, garage doors and window sills; cleaning out the cracks of the booths;
cleaning, cutting and portioning out vegetables, noodles and rice for cooks; preparing
sanitation buckets for prep and expo areas and setting up the expo line. Mr. Beyer spent one
hour per shift performing these "opener duties" for which he was paid a subminimum wage.
55.
Depending on the shift, Defendants also required Mr. Beyer to complete the
following "closer duties": breaking apart and cleaning the soda machines, tea dispensers and
expo line; removing, then cleaning the light fixtures; scraping the gum from under every table
in the store; cleaning and wiping down all the shelves in the kitchen after removing all the
items on the shelves; cleaning every window in the store; moving furniture to clean
underneath; deck brushing the floors; cleaning and sanitizing sinks; svveeping the entire
restaurant; emptying garbage and replacing liners then taking tbe garbage to the dumpsters.
Mr. Beyer spent. one hour per shift performing these"eloser duties" for which he was paid a
subminimum wage.
56.
When he was assigned opener or closer duties,
during the same shift
Defendants also required Mr. Beyer to complete "running sidework" for the entire restaurant
which consisted of: washing dishes because the restaurant often did not have a dishwasher;
empting trash cans and replacing liners; hand wiping all plates and silverware; sweeping,
dusting, sanitizing and bleaching coffee cups, mugs, pots and tea kettles; performing
expediter duties; stocking beverage stations; keeping ice bins full; sorting and polishing
silverware and placing it in racks; sweeping the floor of the expo line and stocking lemons,
creamers and "to go" containers.
Depending on the shift he worked, Jeffrey Beyer would
spend 2.5 hours (6 hour shift) or 3.5 hours (8 hour shift) completing "running sidework" for
which he was paid a subminimum wage.
57.
Together with the opener or closer duties, Mr. Beyer spent more than half of
his shift (3.5 or 4.5 hours) performing non tip producing duties and was paid a subminimum
58.
Defendants failed to provide Mr. Beyer with wage statements that contained
allowances claimed by Defendants including the tip credit as required by the NYLL.
Taylor Ramsry
59.
Pursuant to Defendants' policy, Named Plaintiff Taylor Ramsey was regularly
scheduled to work 8 hour shifts and would spend more than half of her shift (4.5 hours)
performing non tip producing duties and was paid a subminimum wage.
60.
Ms. Ramsey was assigned "closer duties" in addition to "running sidework".
Defendants required Ms. Ramsey to complete the following "closer duties", breaking apart
and cleaning the soda machines, tea dispensers and expo line; cleaning and wiping down all
the shelves in the retail area; cleaning every window in the store and moving furniture to
clean underneath. Ms. Ramsey spent one hour per shift performing these"closer duties" for
which she was paid a subminimum wage.
61.
When she was assigned closer duties, during the same shift Defendants also
required Ms. Ramsey to complete "running sidework"for the entire restaurant which
consisted of: vacuuming, sweeping, dusting, sanitizing and replacing all paper products in the
bathrooms; cleaning the bathroom floors; washing the store's windows; rolling silverware and
filling salt and pepper shakers.
Ms. Ramsey would spend 3.5 hours completing "running
sidework" for which she was paid a subminimum wage.
62.
Together with the closer duties, Ms. Ramsey spent more than half of her shift
(4.5 hours) performing non tip producing duties and was paid a subminimum wage.
Maria Sargent
63.
Pursuant to Defendants' policy, Named Plaintiff Maria Sargent was regularly
scheduled to work 6 hour shifts and would spend more than half of her shift (3.5 hours)
performing non tip producing duties and was paid a subminimum wage.
64.
Depending on the shift, Ms. Sargent was assigned "opener duties" or "closer
duties" in addition to "running sidework". Defendants required Ms. Sargent to complete the
following "opener duties": cleaning the dining room with a bucket filled with sanitizer
solution; dusting the pictures on the wall and windexing the interior windows and picture
frames; scrubbing the legs of all the chairs; degreasing and shining exposed metal including:
tables, garage doors and window sills; cleaning out the cracks of the booths; portioning out
sugar for iced tea; preparing sanitation buckets for prep and expo areas; setting up the expo
line.
Ms. Sargent spent one hour per shift performing these "opener duties" for which she
was paid a subminimum wage.
65.
Depending on the shift, Defendants also required Ms. Sargent to complete the
following "closer duties": breaking apart and cleaning the soda machines, tea dispensers and
expo line; removing, then cleaning the light fixtures; scraping the gum from under every table
in the store; cleaning and wiping down all the shelves in the kitchen after removing all the
items on the shelves; cleaning every window in the store; moving furniture to clean
underneath; cleaning and sanitizing sinks; sweeping the entire restaurant; emptying garbage
and replacing liners.
Ms. Sargent spent one hour per shift performing these "closer duties"
for which she was paid a subminimum wage.
66.
When she was assigned opener or closer duties, during the same shift,
Defendants also required Ms.
Sargent to complete "running sidework" for the entire
restaurant which consisted of: washing the dishes for the entire store because often the store
did not have a dishwasher present to clean the dishes; emptying trash cans and replacing
liners; hand wiping all plates and silverware before they left the kitchen; sweeping, dusting,
sanitizing and washing the store's windows; bleaching coffee cups, mugs, pots and tea kettles;
performing expediter duties; stocking beverage stations; keeping ice bins full; sorting and
polishing silverware and placing it in racks; sweeping the floor of the expo line and stocking
lemons, creamers and "to-go" containers.
Ms. Sargent would spend 2.5 hours completing
"running sidework" for which she was paid a subminimum wage.
67.
Together with the opener or closer duties, Ms. Sargent spent more than half of
her shift (3.5 hours) performing non tip producing duties and was paid a subminimum wage.
Andrea Randlett
68.
Pursuant to Defendants' policy, Named Plaintiff Andrea Randlett was regularly
scheduled to work 8 hour shifts and would spend more than half of her shift (4.5 hours)
performing non tip producing duties and was paid a subminimum wage.
69.
Depending on the shift, Ms. Randlett was assigned "opener duties" or "closer
duties" in addition to "running sidework".
Defendants required Ms. Randlett to complete
the following "opener duties": cleaning the dining room with sanitizer; dusting the artifacts
and memorabilia hanging on the walls; windexing all photos on the walls; scrubbing the legs
of all the chairs; dusting all TVs; wiping down all the wrought iron; cleaning out the cracks of
the booths; preparing sanitation buckets; preparing desserts for the entire store; setting up
the salad bar and expo line.
Ms. Randlett spent at least one hour performing these "opener
duties" for which she was paid a subminimum wage.
70.
Depending on the shift, Defendants required Ms. Randlett complete the
following "closer duties": brealdng apart and cleaning the soda machine and expo line;
removing, then cleaning the light fixtures; scrapping the gum from under every table in the
store; cleaning and wiping down all the shelves in the kitchen after removing all the items on
the shelves; cleaning every window in the store and moving furniture to clean underneath.
Ms. Randlett spent at least one hour performing these "closer duties" for which she was paid
a subminimum wage.
71.
When she was assigned opener or closer duties, during the same shift
Defendants required Ms. Randlett to complete "running sidework" for the entire restaurant
which consisted of: washing dishes; sweeping, dusting, sanitizing; replacing all paper products
in the bathrooms; cleaning the bathroom floors; washing the store's windows; bleaching
coffee cups, mugs, pots and tea kettles; cleaning crackers and zippers.
Ms. Randlett would
spend at least 3.5
hours completing "running sidework"
for which
she was paid a
subminimum wage.
72.
Together with the opener or closer duties, Ms. Randlett spent more than half
of her shift (4.5 hours) performing non tip producing duties and was paid a subminimum
73.
Defendants failed to provide Ms. Randlett with a wage statement that included
the amount the Defendants took as a tip credit as required by the Arizona Administrative
Shelly Carrera
74.
Pursuant to Defendants' policy, Named Plaintiff Shelly Carrera was regularly
scheduled to work 8 hour shifts and would half of her shift (4 hours) performing non tip
producing duties and was paid a subminimum wage.
75.
Depending on the shift, Ms. Carrera was assigned "opener duties" or "closer
duties" in addition to "running sidework". Defendants required Ms. Carrera to complete the
following "opener duties": cleaning the dining room and all the wood work with sanitizer;
cleaning the mats in the beverage area; taldng out the trash and cleaning the cracks in the
booths; prepping desserts; making ice cream balls; plating up desserts; washing dishes;
preparing sanitation buckets; stocking ice; slicing lemons and stocking fmit. Ms. Carrera
spent at least one hour per shift performing these "opener duties" for which she was paid a
subminimum wage.
76.
Defendants also required that Ms. Carrera complete the following "closer
duties"; breaking apart and cleaning the soda machine and expo line; removing tben cleaning
the light fixtures; stock and clean silverware; scrapping the gum from under every table in the
store; clean and wipe down all the shelves in the kitcben after removing all tbe items on the
shelves; moving furniture to clean underneath; wiping down the bar stools; cleaning the keg
cooler; cleaning the blinds and cleaning every display bottle at the bar and the display
surfaces. Ms. Carrera spent at least one hour per shift performing these "closer duties" for
which she was paid a subminimum wage.
77.
When she was assigned opener or closer duties, during the same shift
Defendants required Ms. Carrera to complete "mnning sidework" for the entire restaurant
which consisted of: sweeping, dusting, sanitizing and washing the store's windows; bleaching
coffee cups, mugs, pots and tea kettles; cleaning the zippers and crackers. Ms. Carrera would
spend at least 3 hours completing "mnning sidework" for which she was paid a subminimum
78.
Together with the opener or closer duties, Ms. Carrera spent half of her shift (4
hours) performing non tip producing duties and was paid a subminimum wage.
B.
Defendants
79.
At all times relevant hereto, Plaintiffs were "employees" of Defendants within
the meaning of the FLSA and the respective State Labor Laws.
80.
At all times relevant hereto, Defendants are a covered employer within the
meaning of the FLSA and the respective State Labor Laws.
81.
Defendants are engaged in interstate commerce, and their annual gross volume
of sales made or business done exceeds $500,000, exclusive of excise taxes.
82.
During the course of their employment by Defendants, Plaintiffs handled
goods, including perishable produce and other food products that moved in interstate
commerce.
Ignite Restaurant Group, Inc.
83.
Defendant Ignite owns and operates 135 Joe's Crab Shack restaurants in 34
states and are known as "come as you are" family-friendly seafood restaurants.
Joe's Crab
Shack restaurants vary somewhat in size and dimensions, but, on average, the typical
restaurant averages 8,000 square feet and can serve over 200 guests at one time.
84.
Ignite is one of the nation's largest full service restaurant companies.
Along
with owning and operating Joe's Crab Shack restaurants, Ignite owns and operates other well-
known chain restaurants nationwide including: Romano's Macaroni Grill and Brick House
Tavern + Tap.
85.
Ignite is a publicly traded company on the NASDAQ (ticker symbol IRG).
Ignite is incorporated in the State of Delaware and maintains corporate offices loeated at
9900 Westpark Drive, Suite 300, Houston, Texas 77063.
Information for Ignite can be
found at www.igniterestaurants.com.
86.
Ignite reported total revenues of over $400 million for fiscal year 2012.
87.
Ignite's corporate address is listed on Plaintiffs paystubs and Ignite is listed as
the employer on Plaintiffs' W-2 Wage and Tax Statements.
88.
Ignite is the employer of the Plaintiffs as it maintains control, oversight and
direction over Plaintiffs and Class Members including time keeping, payroll and other
employment practices that applied to them.
89.
For
example,
Ignite
manages
Plaintiffs'
work schedules
by
using
"Hot
Schedules" at its Joe's Crab Shack restaurants. Employees access their work schedule on-line
through "Hot Schedules". Accordingly, Ignite maintains Plaintiffs' employment records.
90.
Moreover, Ignite's management team includes a Chief Executive Officer and
Senior Vice President of Human Resources who manage the conditions of Plaintiffs'
employment and exercises financial control over all Joe's Crab Shack restaurants throughout
the nation. Additionally, Ignite's Board of Directors maintains management control over all
Joe's Crab Shack restaurants.
91.
Further, Ignite hires employees by posting job vacancies throughout Joe's Crab
Shack restaurants across the nation on their website, www.igniterestaurants.com.
92.
In addition, Ignite's employees are permitted to transfer to any Ignite owned
restaurant.
93.
Based in part on these facts, Ignite can be held liable as an employer of the
Plaintiffs for the violations complained of in this matter.
Crab Addison, Inc. d/b/a Joe's Crab Shack
94.
Crab Addison, Inc. ("Crab Addison") is a wholly-owned subsidiary of Ignite
that is responsible for the lease purchases and facilities maintenance of Joe's Crab Shack
restaurants.
95.
Crab Addison is a Texas Corporation and shares the same corporate office as
96.
Crab Addison is separately incorporated in every state where Joe's Crab Shack
restaurants are operated.
97.
Crab Addison in conjunction with the other Defendants maintains control,
oversight and direction over the Plaintiffs including time keeping, payroll and other
employment practices that are applied to them.
98.
Crab Addison has admitted that it is an employer of employees who work at
Joe's Crab Shack restaurants in other litigation.
99.
Based in part on these facts, Crab Addison can be held liable as an employer of
the Plaintiffs for the violations complained of in this matter.
RaymondA. Blanchette III
100.
Raymond A. Blanchette III is longtime food executive who has served as the
Chief Executive Officer of Ignite since 2007.
In terms of his ownership interest, Mr.
Blanchette owns stock options in Ignite valued at $170,000.
101.
Defendant Raymond A. Blanchette III is directly in charge of the overall
operations of Ignite.
As such, Raymond A. Blanchette III is primarily responsible for
enforcing the business decisions as they pertain to Joe's Crab Shack restaurants including the
illegal policies complained of in this case.
102.
For example, Mr. Blanchette has the authority to, and does, make decisions
that concern Defendants' operations, including functions related to employment, human
resources, training, payroll, and benefits.
For example, when Joe's Crab Shack restaurants
were acquired in 2007 by JCS Holdings LLC (later renamed Ignite) Mr. Blanchette decided
to not layoff any employees and instead decided to hire additional staff to shore up
operations at tl1e restaurants.
103.
Moreover, Mr. Blanchette has made several human resource policy decisions
that affect Plaintiffs including requiring that they sing and dance while working to enhance
the fun image of Joe's Crab Shack restaurants.
Further, Mr. Blanchette decides Plaintiffs'
benefit issues, such as how his employees at Joe's Crab Shack restaurants will afford employer
provided healthcare through the federal government's recent mandate.
In fact, Mr.
Blanchette is leading efforts to create opportunities for his employees at Joe's Crab Shack
restaurants to have health care for the first time.
104.
In addition, Mr. Blanchette manages Ignite's branding activities to gain market
share and increase sales by constantly looking to introduce new ideas like Joe's Crab Shack
"100% Shore" campaign by focusing on the restaurant's Gulf Coast roots.
As part of this
branding campaign, Mr. Blanchette made the decision that his employces need to do a better
job facilitating the "Joe's Experience", which includes eating food that is shareable, wearing
bibs, and eating with your hands while haVing a drink that looks like you're on vacation.
Accordingly, under Mr. Blanchette's direction Ignite regularly runs contests for the Plaintiffs
to see who can sell the most tropical drinks or most crab legs on a particular day, week or
month to improve the "Joe's Experience".
105.
Moreover, Mr.
Blanchette makes record-keeping decisions, including the
decision to outsource accounting and payroll at the time of the acquisition in 2007.
106.
Further, with respect to his financial control, Mr. Blanchette took personal
responsibility when Ignite "stumbled out of the gate" and significantly misstated its revenues
in it first earning statement as a publically traded company and needed to file revised earning
statements.
107.
Based in part on these facts, Raymond A. Blanchette III is actively involved in
the illegal policies complained of in this case and can be held liable as an employer of the
Plaintiffs for the violations complained of in this matter.
Kevin Cottingim
108.
Kevin
Cottingim
served
as
Ignite's
Senior
Vice
President
&
Chief
Administrative Officer responsible for human resources and payroll from 2008 until April
2013.
Currently, Mr. Cottingim consults exclusively with Ignite.
In terms of ownership
interest, Mr. Cottingim owns stock options in Ignite valued at approximately $40,000.
109.
Defendant Kevin Cottingim was directly in charge of overseeing human
resources and payroll and ensuring Defendants' compliance or non-compliance with the
Federal and State Labor Laws where Defendants operate Joe's Crab Shack restaurants.
As
such, Kevin Cottingim was responsible for the creation and application of the illegal policies
complained of in this case.
1l0.
For example, Mr. Cottingim was actively involved in the determination and
drafting of human resources policies, the resolution of issues and disputes regarding hiring
and firing Plaintiffs, determining rates of pay and maintaining employment records.
For
example, Mr. Cottingim would directly email Plaintiffs who complain about Defendants'
human resource policies.
Mr.
Cottingim personally encouraged employees at Joe's Crab
Shack restaurants to have open dialogue with himself and Ignite's HR team concerning
working conditions and pay rates.
II I.
Mr. Cottingim oversaw a team of human resource professionals based at
Defendants' headquarters in Houston, Texas that includes Patti Simpson and Robyn Martin.
Mr. Cottingim's HR team travelled to Joe's Crab Shack restaurant locations to meet with
Plaintiffs to counsel them on their working conditions and pay rates.
112.
Mr. Cottingim was actively involved in Defendants' payroll functions.
For
instance, when Plaintiffs lodge complaints about their compensation, Me. Cottingim and his
HR team would immediately respond directly.
113.
Me. Cottingim was actively involved in Defendants' system for keeping and
maintaining employees' payroll records, the timing and method with which payment is
conveyed to employees, and the manner and method in which employees receive payroll
information including their payroll checks. For example, Me. Cottingim directed Defendants'
payroll department issue checks to Plaintiffs to resolve pay discrepancies
114.
Based in part on these facts, Kevin Cottingim can be held liable as an employer
of the Plaintiffs for the violations complained of in this matter.
Rodney Morris
115.
Rodney Morris is Ignite's current Senior Vice President of Human Resources
responsible for all facets of human capital including human resources and payroll at Joes'
Crab Shack restaurants.
As part of Ignite's recent acquisition of Romano's Macaroni Grill,
Me. Morris was hired to replace Me. Cottingim who resigned in March 2013.
Me. Morris
continues Me.
Cottingim's active approach to human resource management, including
developing human resource training, benefits and employee incentive programs at Ignite.
116.
For instance, defendant Rodney Morris is directly in charge of overseeing
human resources and payroll and ensuring Defendants' compliance or non-compliance with
the Federal and State Labor Laws where Defendants operate Joe's Crab Shack restaurants.
As such, Rodney Morris is responsible for the maintenance and application of the illegal
policies complained of in this case.
117.
Further, Me. Morris's responsibilities include the determination and drafting of
human resources policies, the resolution of issues and disputes regarding hiring and firing
Plaintiffs, determining rates of pay and maintaining employment records.
Similar to his
predecessor, Mr.
Cottingim, Mr. Morris is responsible for resolving complaints from
employees about Defendants' human resource policies.
Further, given his specialty in
bUilding organizational relationships from the dish room to the board room, Mr. Morris is
responsible for the management of the work environment at Joe's Crab Shack restaurants.
118.
Mr.
Morris
oversees
a
team of human resource professionals based at
Defendants' headquarters in Houston, Texas that includes Patti Simpson and Robyn Martin.
119.
Given that Mr. Morris assumed Mr. Cottingim responsibilities he is involved
in
Defendants'
payroll
functions
including
resolving
issues
concerning
employee
compensation.
120.
Mr. Morris is also carrying out his predecessor's responsibilities with respect to
Defendants' system for keeping and maintaining employees' payroll records, the timing and
method with which payment is conveyed to employees, and the manner and method in
which employees receive payroll information including their payroll cheeks.
121.
Based in part on these facts, Rodney Morris can be held liable as an employer
of the Plaintiffs for the violations complained of in this matter
COUNT I
Violation of the Fair Labor Standards Act - Minimum Wages
Section 2 I 6(b) Collective Action
122.
Named Plaintiffs hereby re-allege and incorporate the allegations set forth
123.
This count arises from Defendants' willful violation of the FLSA, 29 USc.
§20 I, et seq., for their failure to pay minimum wages to the Plaintiffs.
Plaintiffs bring this
claim as a collective action under Section 16(b) of the Act. 29 USc. §216(b).
124.
Defendants have a practice of paying Named Plaintiffs and similarly situated
employees subminimum wages.
125.
Plaintiffs are not exempt from the minimum wage provisions of the FLSA
126.
Defendants' policy is not to pay Plaintiffs the legally required minimum wage
even though the Plaintiffs are performing jobs unrelated to their tipped job (see supra '11'1144,
127.
Defendants' policy is also to not pay Plaintiffs the legally required minimum
wage even though the Plaintiffs are spending more than 20% of their time on jobs that are
related to, but not themselves, their tipped jobs.
128.
Specifically, Defendants' polic)' is to utilize the Named Plaintiffs and similarly
situated employees to perform "back of the house" duties and other jobs that are not tipped
jobs (see supra '11'1144, 47-78).
129.
Additionally, Defendants are not eligible to avail themselves of the federal
tipped minimum wage rate under the FLSA, 29 USc. §203(m), because Defendants failed
to provide notice of the tip credit to Named Plaintiffs as required under Federal law.
130.
Defendants' practices violate the minimum wage provisions of the FLSA
131.
Because the Plaintiffs were all deprived minimum wage payments by the
Defendants' policy, Plaintiffs are similarly situated to each other pursuant to 29 USc. §
WHEREFORE, Named Plaintiffs and those similarly situated employees pray for
judgment against Defendants as follows:
(a)
judgment in the amount of the owed minimum wages for all time
worked by Named Plaintiffs and those employees who join this lawsuit;
(b)
an injunction against Defendants and their officers, agents, successors,
employees, representatives and any and all persons acting in concert
with them as provided by law from engaging in each of the unlawful
practices, policies and patterns set forth herein;
(c)
liquidated damages in an amount equal to the amount of unpaid
mimmum wages;
(d)
an award crediting Named Plaintiffs and those employees who join the
lawsuit all hours worked;
(e)
an award of reasonable attorneys' fees, expenses, expert fees and costs
incurred in vindicating Named Plaintiffs and those whose joint the
lawsuit rights;
(f)
an award of pre- and post-judgment interest; and
(g)
such other and further legal or equitable relief as this Court deems to be
just and appropriate.
COUNT II
Violation of the New York Labor Law - Minimum Wages
Class Action - New York Subclass
132.
Christopher Hart and Jeffrey Beyer bring this count as a Rule 23 class action
on behalf of themselves and the New York Subclass.
133.
Christopher Hart and Jeffrey Beyer hereby re-allege and incorporate the
allegations set forth above.
134.
This count arises from Defendants' willful violation of the NYLL, New York
Minimum Wage Act, Article 19, § 650 et seq., for Defendants' failure to pay Mr. Hart, Mr.
Beyer and the New York Subclass their earned minimum wages.
Mr. Hart, Mr. Beyer and
the New York Subclass are current and former tipped employees of Defendants who are due,
and who have not been paid, minimum wages under the provisions of the NYLL.
135.
Defendants have a practice of paying Mr. Hart, Mr. Beyer and the New York
Subclass subminimum wages.
136.
Defendants pay Mr. Hart, Mr. Beyer and the New York Subclass these wages
even though they perform jobs that are not within the scope of the "Food service worker"
definition under the NYLL or associated regulations.
137.
For example, Defendants' policy is to pay Mr. Hart, Mr. Beyer and the New
York Subclass subminimum wages even though they are performing jobs unrclated to their
tipped jobs (see supra 111147-58).
138.
Additionally, Defendants' policy is to pay Mr. Hart, Mr. Beyer and the New
York Subclass subminimum wages even on days in which they spend more than 20% of their
work day performing non-tipped occupations.
139.
Further, Defendants' policy is to pay Mr. Hart, Mr. Beyer and the New York
Subclass subminimum wages even on days in which the Plaintiffs are assigned to work in an
occupation in which tips are not customarily received.
140.
Specifically, Defendants' policy is to utilize Mr. Hart, Mr. Beyer and the New
York Subclass to perform "back of the house" duties and other jobs that are not tipped jobs
(see supra 111147-58).
141.
Thus, as described above, Defendants regularly r",quire Mr. Hart, Mr. Beyer
and the New York Subclass to perform such jobs as food preparation and general restaurant
cleaning, but continued to pay Plaintiffs subminimum wages while the employees are engaged
in those jobs.
142.
Defendants also failed to provide written notice of the tip eredit or allowanee
to Mr. Hart, Mr. Beyer and the New York Subclass as required under New York State law.
143.
At all relevant times relevant to the litigation, Defendants did not comply with
NYLL's tip credit provision and the supporting New York State Department of Labor
Regulations, including, but not limited to 12 NYC.R.R. §137-2.2 and 146.2-2.
144.
Moreover, the Defendants failed to provide Mr. Hart, Mr. Beyer and those
similarly situated with wage statements that complied with the requirements of NYLL.
For
example, Mr. Hart, Mr. Beyer and the New York Subclass were not given wage statements
that contained allowances claimed by Defendants including the tip credit as required by
NYLL § 195(3) as amended by the New York Wage Theft Prevention Act.
145.
Accordingly, Defendants are not entitled to pay Mr. Hart, Mr. Beyer and the
New York Subclass subminimum wages under the NYLL.
146.
Mr. Hart and Mr. Beyer will seek to certify Count II as a class action, and ask
the Court to determine the rights of the class, enjoin the illegal conduct, order the payment
of other damages due, and to direct Defendants to account for all back wages, penalties and
prejudgment interest thereon due to them and the New York Subclass.
147.
Count II is brought as a class action because the New York Subclass is similarly
situated to Mr. Hart and Mr. Beyer, and is so numerous that joinder of all members is
impracticable.
Mr. Hart and Mr. Beyer therefore bring this action on their own behalf as
aggrieved employees, and in their representative capacities, against Defendants.
Mr. Hart,
Mr. Beyer and similarly situated persons are equally affected by the minimum wage violations
of Defendants and the relief sought is for the benefit of Mr. Hart, Mr. Beyer and the New
York Subclass they seek to represent.
148.
The issues involved in this lawsuit present common questions of law and fact
(see supra 1129).
These common questions of law and fact predominate over the variations
which may exist between the New York Subclass, if any. Mr. Hart, Mr. Beyer and the New
York Subclass have a commonality of interest in the subject matter and remedy sought,
namely owed minimum wages plus penalties, interest, attorneys' fees and the cost of this
lawsuit.
Mr. Hart and Mr. Beyer believe and assert that they are able to fairly and
adequately represent and protect the interests of the New York Subclass.
If individual
actions were required to be brought by each of the similarly situated persons injured or
affected, it would necessarily result in multiplicity of lawsuits, creating a hardship to the
individuals, to the Court, and to Defendants.
Accordingly, a class action is an appropriate
method for the fair and efficient adjudication of this lawsuit and distribution of the common
fund to which the New York Subclass is entitled.
149.
The books and records of Defendants are material to the action as they
disclose certain of the hours worked by each employee and the rate of pay for that work.
150.
Defendants violated the NYLL by failing to compensate Mr. Hart, Mr. Beyer
and the New York Subclass consistent with the minimum wage provisions.
WHEREFORE, Mr. Hart, Mr. Beyer and the New York Subclass pray for
judgment against Defendants as follows:
(a)
an order preliminarily and permanently restrammg Defendants from
engaging in the aforementioned pay violations;
(b)
An award of the value of Mr. Hart, Mr. Beyer and the New York
Subclass members' unpaid wages;
(c)
an award crediting Mr. Hart, Mr. Beyer and the New York Subclass
members for all hours worked;
(d)
an additional amount as liquidated damages in an amount equal to the
amount of unpaid minimum wages;
(e)
an award of one hundred dollars for each work week that violations
occurred for Mr. Hart, Mr. Beyer and each New York Subclass member
not to exceed a total of twenty five hundred dollars pursuant to the
New York Wage Theft Prevention Act;
(f)
an award of reasonable attorneys' fees, expenses, expert fees and costs
incurred in vindicating Mr. Hart, Mr. Beyer and the New York Subclass
members' rights;
(g)
an award of pre- and post-judgment interest;
(h)
The amount equal to the value which would make Mr. Hart, Mr. Beyer
and the New York Subclass members whole for the violations; and
(i)
such other and further legal or equitable rclief as this Court deems to be
just and appropriate.
COUNT III
Violation of the Missouri Minimum Wage Law - Minimum Wages
Class Action - Missouri Subclass
151.
Plaintiff Taylor Ramsey brings this count as a Rule 23 class action on behalf of
herself and the Missouri Subclass.
152.
Plaintiff Taylor Ramsey hereby re-alleges and incorporates the allegations set
forth above.
153.
This count arises from Defendants' willful violation of the Missouri Minimum
Wage Law § 290.502, et seq., for Defendants' failure to pay Ms. Ramsey and the Missouri
Subclass all their earned minimum wages.
Plaintiffs and the class are current and former
tipped employees of Defendants who are due, and who have not been paid, minimum wages
under the provisions of the Missouri Minimum Wage Law.
154.
Defendants have a practice of paying Ms. Ramsey and the Missouri Subclass
subminimum wages.
155.
For example, Defendants' policy is to pay Ms. Ramsey and the Missouri
Subclass subminimum wages even though they are performing jobs unrelated to their tipped
jobs (see supra ~~59-62).
156.
Further, Defendants' policy is to pay Ms. Ramsey and the Missouri Subclass
subminimum wages even on days in which the Plaintiffs are assigned to work in an
occupation in which tips are not customarily received.
157.
Specifically, Defendants' policy is to utilize Ms. Ramsey and the Missouri
Subclass to perform "back of the house" duties and other jobs that are not tipped jobs (see
supra \[\[59-62).
158.
Thus, as described above, Defendants regularly required Ms. Ramsey and the
Missouri Subclass to perform such jobs as food preparation and general restaurant cleaning,
but continued to pay subminimum wages while the employees were engaged in those jobs.
159.
Defendants' practices violate the minimum wage provisions of the Missouri
Minimum Wage Law.
160.
Ms. Ramsey will seek to certify Count III as a class action, and asks the Court
to determine the rights of the Missouri Subclass, enjoin the illegal conduct, order the
payment of other damages due, and to direct Defendants to account for all back wages,
penalties and prejudgment interest thereon due to her and the class that she seeks to
represent.
161.
Count III is brought as a class action because the Missouri Subclass is similarly
situated to Ms. Ramsey and is so numerous that joinder of all members is impracticable. Ms.
Ramsey therefore brings this action on her own behalf as an aggrieved employee, and in her
representative capacity, against Defendants.
Ms. Ramsey and similarly-situated persons are
equally affected by the minimum wage violations of Defendants, and the relief sought is for
her benefit and the Missouri Subclass that she seeks to represent.
162.
The issues involved in this lawsuit present common questions of law and fact
(see supra 1129).
These common questions of law and fact predominate over the variations
which may exist between members of the Missouri subclass, if any.
Ms. Ramsey and the
Missouri Subclass have a commonality of interest in the subject matter and remedy sought,
namely owed minimum wages plus penalties, interest, attomeys' fees and the cost of this
lawsuit. Ms.
Ramsey believes and asserts that she is able to fairly and adequately represent
and protect the interests of the Missouri Subclass. If individual actions were required to be
brought by each of the similarly-situated persons injured or affected, it would necessarily
result in multiplicity of lawsuits, creating a hardship to the individuals, to the Court, and to
Defendants.
Accordingly, a class action is an appropriate method for the fair and efficient
adjudication of this lawsuit and distribution of the common fund to which the class is
entitled.
163.
The books and records of Defendants are material to the action as they
disclose certain of the hours worked by each employee and the rate of pay for that work.
164.
Defendants
violated
the
Missouri
Minimum
Wage
Law
by
failing
to
compensate Ms. Ramsey and the Missouri Subclass consistent with the minimum wage
provisions.
WHEREFORE, Ms. Ramsey and the Missouri Subclass pray for judgment
against Defendants as follows:
(a)
an order preliminarily and permanently restrammg Defendants from
engaging in the aforementioned pay violations;
(b)
An award of the value of Taylor Ramsey and the Missouri Subclass
members' unpaid wages;
(c)
an award crediting Taylor Ramsey and the Missouri Subclass members
for all hours worked;
(d)
an additional amount as liquidated damages in an amount equal to the
amount of unpaid minimum wages;
(e)
an award of reasonable attorneys' fees, expenses, expert fees and costs
incurred in vindicating Taylor Ramsey and the Missouri Subclass
members' rights;
(f)
an award of pre- and post-judgment interest;
(g)
The amount equal to the value which would make Taylor Ramsey and
the Missouri Subclass members whole for the violations; and
(h)
such other and further legal or equitable relief as this Court deems to be
just and appropriate.
COUNTrY
Violation of the Maryland Labor & Employment Code - Minimum Wages
Class Action - Maryland Subclass
165.
Plaintiff Maria Sargent brings this count as a Rule 23 class action on behalf of
herself and the Maryland Subclass.
166.
Plaintiff Ms. Sargent hereby re-alleges and incorporates the allegations set
forth above.
167.
This count arises from Defendants' willful violations of the Maryland Labor
and Employment Code §§ 3-413, 3-507.2 for Defendants' failure to pay Ms. Sargent and the
Maryland Subclass.
Ms. Sargent and the Maryland Subclass are current and former tipped
employees of Defendants who are due, and who have not been paid, minimum wages under
the provisions of the Maryland Labor and Employment Code.
168.
Defendants have a practice of paying Ms. Sargent and the Maryland Subclass
subminimum wages.
169.
For example, Defendants' polic.y is to pay Ms. Sargent and the Maryland
Subclass subminimum wages even though the Plaintiffs are performing jobs unrelated to their
tipped jobs (see supra 111163-67).
170.
Further, Defendants' policy is to pay Ms. Sargent and the Maryland Subclass
subminimum wages even on days in which Maria Sargent and the Maryland Subclass are
assigned Lo work in an occupation in which tips are not customarily received.
171.
Specifically, Defendants' policy is to utilize Ms. Sargent and thc Maryland
Subclass to perform "back of the house" duties and other jobs that are not tippcd jobs (see
supra 111163-67).
172.
Thus, as dcscribed above, Defendants regularly required Ms. Sargent and the
Maryland Subclass to perform such jobs as food preparation and general restaurant cleaning,
but continued to pay subminimum wages while the employees were engaged in those jobs.
Defendants unlawfully withheld minimum wage payments from Ms.
Sargent and the
Maryland Subclass by improperly relying on the tip credit for their minimum wage
obligation.
Defendants' policy to pay Ms. Sargent and the Maryland Subclass subminimum
wages was not the result of a bona fide dispute.
173.
Defendants' practices violate the minimum wage provisions of the Maryland
Labor and Employment Code.
174.
Ms. Sargent will seek to certify Count N as a class action, and asks the Court
to determine the rights of the class, enjoin the illegal conduct, order the payment of other
damages due, and to direct Defendants to account for all
bacl~ wages, penalties and
prejudgment interest thereon due to her and the Maryland Subclass.
175.
Count IV is brought as a class action because the Maryland Subclass is
similarly situated to Ms. Sargent and is so numerous that joinder of all members is
impracticable.
Ms. Sargent therefore brings this action on their own behalf as an aggrieved
employee, and in her representative capacity, against Defendants. Ms. Sargent and similarly
situated persons are equally affected by the minimum wage violations of Defendants, and the
relief sought is for her benefit and the Maryland Subclass that she seeks to represent.
176.
The issues involved in this lawsuit present common questions of law and fact
(see supra 1129).
These common questions of law and fact predominate over the variations
which may exist between members of the classes, if any.
Ms. Sargent and the Maryland
Subclass have a commonality of interest in the subject matter and remedy sought, namely
owed minimum wages plus penalties, interest, attorneys' fees and the cost of this lawsuit.
Ms. Sargent believes and asserts that she is able to fairly and adequately represent and
protect the interests of the Maryland Subclass.
If individual actions were required to be
brought by each of the similarly-situated persons injured or affected, it would necessarily
result in multiplicity of lawsuits, creating a hardship to the individuals, to the Court, and to
Defendants.
Accordingly, a class action is an appropriate method for the fair and efficient
adjudication of this lawsuit and distribution of the common fund to which the class is
entitled.
177.
The books and records of Defendants are material to this action as they
disclose certain of the hours worked by each employee and the rate of pay for that work.
178.
Defendants violated the Maryland Labor and Employment Code by failing to
compensate Ms. Sargent and the Maryland Subclass consistent with the minimum wage
provisIOns.
WHEREFORE, Ms. Sargent and the Maryland Subclass pray for judgment against
Defendants as follows:
(a)
an order preliminarily and permanently restraining Defendants from
engaging in the aforementioned pay violations;
(b)
an award of the value of Ms. Sargent and the Maryland Subclass
members' unpaid wages;
(c)
an award crediting Ms. Sargent and the Matyland Subclass members for
all hours worked;
(d)
an additional amount in an amount equal to three times the unpaid
wages;
(e)
an award of reasonable attorneys' fees, expenses, expert fees and costs
incurred
in vindicating Ms.
Sargent and
the
Maryland
Subclass
members' rights;
(f)
an award of pre- and post-judgment interest;
(g)
The amount equal to the value which would make Ms. Sargent and the
Maryland Subclass members whole for the violations; and
(h)
such other and further legal or equitable relief as this Court deems to be
just and appropriate.
COUNT V
Violation of the Arizona Minimum Wage Act - Minimum Wages
Class Action - Arizona Subclass
179.
Named Plaintiff Andrea Randlett brings this count as a Rule 23 class action on
behalf of herself and the Arizona Subclass.
180.
Named
Plaintiff
Ms.
Randlett
hereby
re-alleges
and
incorporates
the
allegations set forth above.
181.
This count arises from Defendants' willful violation of the Arizona Minimum
Wage Act §23-363 et seq., for Defendants' failure to pay Plaintiffs and the Arizona Subclass
Members all their earned minimum wages.
Ms. Randlett and the Arizona Subclass are
current and former employees of Defendants who have not been paid minimum wages under
the provisions of the Arizona Minimum Wage Act.
182.
Defendants have a practice of paying Ms. Randlett and the Arizona Subclass
subminimum wages.
183.
For example, Defendants' policy is to pay Ms. Randlett and the Arizona
Subclass subminimum wages even though the Plaintiffs are performing jobs unrelated to their
tipped jobs (see supra 111168-73).
184.
Further, Defendants' policy is to pay Ms. Randlett and the Arizona Subclass
subminimum wages even on days in which the Plaintiffs are assigned to work in an
occupation in which tips are not customarily received.
185.
Specifically, Defendants' policy is to utilize Ms. Randlett and the Arizona
Subclass to perform "back of the house" duties and other jobs that are not tipped jobs (see
supra 111168-73).
186.
Thus, as described above, Defendants regularly required Ms. Randlett and the
Arizona Subclass to perform such jobs as food preparation and general restaurant cleaning,
but continued to pay subminimum wages while the employees were engaged in those jobs.
187.
Defendants also failed to provide written notice of the tip credit or allowance
to Ms. Randlett and the Arizona Subclass as required by the Arizona Administrative Code §
R20-S-1207(c).
188.
At all rclevant times relevant to the litigation, Defendants failed to provide
Plaintiffs and those similarly situated with wage statements that complied with the
requirements of Arizona Administrative Code § R20-S-1207(c).
For example, Ms. Randlett
and the Arizona Subclass were not given wage statements that contained the amount per
hour that Defendants withheld as a tip credit as required by Arizona Administrative Code §
R20-S-1207 (c).
189.
Defendants' practices violate the minimum wage provisions of the Arizona
Minimum Wage Act.
190.
Ms. Randlett will seek to certify Count V as a class action, and asks the Court
to determine the rights of the class, enjoin the illegal conduct, order the payment of other
damages due, and to direct Defendants to account for all back wages, penalties and interest
thereon due to her and the Arizona Subclass.
191.
Count V is brought as a class action because the Arizona Subclass members are
similarly situated to Ms. Randlett and is so numerous that joinder of all members is
impracticable.
Ms. Randlett therefore brings this action On her own behalf as an aggrieved
employee, and in her representative capacity, against Defendants. Ms. Randlett and similarly
situated persons are equally affected by the minimum wage violations of Defendants, and the
relief sought is for the benefit of herself and the Arizona Subclass that she seeks to represent.
192.
The issues involved in this lawsuit present common questions of law and fact
(see supra 1129).
These common questions of law and fact predominate over the variations
which may exist between members of the classes, if any.
Ms. Randlett and the Arizona
Subclass have a commonality of interest in the subject matter and remedy sought, namely
owed minimum wages plus penalties, interest, attorneys' fees and the cost of this lawsuit.
Ms. Randlett believes and asserts that she is able to fairly and adequately represent and
protect the interests of the class. If individual actions were required to be brought by each of
the similarly situated persons injured or affected, it would necessarily result in multiplicity of
lawsuits,
creating a hardship
to
the
individuals,
to the
Court,
and
to
Defendants.
Accordingly, a class action is an appropriate method for the fair and efficient adjudication of
this lawsuit and distribution of the common fund to which the class is entitled.
193.
The books and records of Defendants are material to this action as they
disclose certain of tl1e hours worked by each employee and ilie rate of pay for iliat work.
194.
Defendants violated the Arizona Minimum Wage Act by failing to compensate
Plaintiffs and members of the class consistent with the minimum wage provisions.
WHEREFORE, Ms. Randlett and the Arizona Subclass pray for judgment against
Defendants as follows:
(a)
judgment in the amount of the owed mInImUm wages for all time
worked by Ms. Randlett and the Atizona Subclass;
(b)
an injunction against Defendants and their officers, agents, successors,
employees, representatives and any and all persons acting in concert
with them as provided by law, from engaging in each of the unlawful
practices, policies and patterns set forth herein;
(c)
damages in an amount equal to the amount of unpaid minimum wages;
(d)
an award crediting Ms. Randlett and the Arizona Subclass for all hours
worked;
(e)
an award of reasonable attorneys' fees, expenses, expert fees and costs
incurred
in vindicating
Ms.
Randlett
and
the
Arizona
Subclass
members'rights;
(f)
an award of two hundred dollars for the first violation and $1,000 for
each subsequent violation of Arizona Administrative Code § R20-5-
l207(c) pursuant to Arizona Statute § 23-364, Arizona Administrative
Code § R20-5-l21O;
(g)
an award of pre- and post-judgment interest; and
(h)
such other and further legal or equitable relief as this Court deems to be
just and appropriate.
COUNT VI
Violation of the Illinois Minimum Wage Act - Minimum Wages
Class Action - Illinois Subclass
195.
Named Plaintiff Shelly Carrera brings this count as a Rule 23 class action on
behalf of herself and the Arizona Subclass.
196.
Named Plaintiff Ms. Carrera hereby re-alleges and incorporates the allegations
set forth above.
197.
This count arises from Defendants' willful violation of the Illinois Minimum
Wage Law - 820 ILCS 105/1 et seq., and Illinois Wage Payment and Colleetion Act - 820
ILCS 115/1 et seq., for Defendants' failure to pay Ms. Carrera and the Illinois Subclass s all
their earned minimum wages. Ms. Carrera brings Count VI as a class action under 735 ILCS
5/2-801.
Ms. Carrera and the Illinois Subclass are current and former employees of
Defendants who have not been paid minimum wages under the provisions of the Illinois
Minimum Wage Law and Illinois Wage Payment and Colleetion Act.
198.
Defendants have a practice of paying Plaintiffs subminimum wages.
199.
For example, Defendants' policy is to pay Ms. Carrera and the Illinois Subclass
subminimum wages cven though thc Plaintiffs are performing jobs unrelated to thcir tipped
200.
Specifically, Defendants' policy is to utilize Ms. Carrera and the Illinois
Subclass to perform "back of the house" duties and other jobs that are not tipped jobs (see
supra 111174-78).
201.
Thus, as described above, Defendants regularly required Ms. Carrera to
perform such jobs as food preparation and general restaurant cleaning, but continued to pay
Plaintiffs subminimum wages while the employees are engaged in those jobs.
202.
Defendants agreed to properly compensate Ms.
Carrera and the Illinois
Subclass for all hours worked. However, Defendants' policies resulted in Ms. Carrera and the
Illinois Subclass performing non-tip producing jobs (see supra 111174-78) but were only paid
subminimum wages.
203.
Defendants' practices violate the minimum wage provisions of the Illinois
Minimum Wage Act and Illinois Wage Payment and Collection Act.
204.
Ms. Carrera will seek to certify Count VI as a class action, and asks the Court
to determine the rights of the class, enjoin the illegal conduct, order the payment of other
damages due, and to direct Defendants to account for all back wages, penalties and interest
thereon due to her and the Illinois Subclass.
205.
Count VI is brought as a class action because the Illinois Subclass members are
similarly situated to Ms. Carrera and is so numerous that joinder of all members is
impracticable.
Ms. Carrera therefore brings this action on her own behalf as an aggrieved
employee, and in her representative capacity, against Defendants.
Ms. Carrera and the
Illinois Subclass are equally affected by the minimum wage violations of Defendants, and the
relief sought is for the benefit of herself and the Illinois Subclass that she seeks to represent.
206.
The issues involved in this lawsuit present common questions of law and fact
(see supra 1129).
These common questions of law and fact predominate over the variations
which may exist between members of the classes, if any.
Ms. Carrera and the Illinois
Subclass have a commonality of interest in the subject matter and remedy sought, namely
owed minimum wages plus penalties, interest, attorneys' fees and the eost of this lawsuit.
Ms. Carrera believes and asserts tbat she is able to fairly and adequately represent and
proteet the interests of the class. If individual actions were required to be brought by each of
the similarly-situated persons injured or affected, it would necessarily result in multiplicity of
lawsuits,
creating a hardship
to the
individuals,
to
the
Court,
and to Defendants.
Accordingly, a class action is an appropriate method for the fair and efficient adjudication of
this lawsuit and distribution of the common fund to which the class is entitled.
207.
The books and records of Defendants are material to this action as they
disclose certain of the hours worked by each employee and the rate of pay for that work.
208.
Defendants violated the Illinois Minimum Wage Act and the Illinois Wage
Payment and Collection Act by failing to compensate Ms. Carrera and the Illinois Subclass
consistent with the minimum wage provisions.
WHEREFORE, Ms. Carrera and the Illinois Subclass pray for judgment against
Defendants as follows:
(a)
judgment in the amount of the owed minnnum wages for all time
worked by Ms. Carrera and the Illinois Subclass;
(b)
an injunction against Defendants and their officers, agents, successors,
employees, representatives and any and all persons acting in concert
with
them as provided by law, from engaging in each of the unlawful
practices, policies and patterns set forth herein;
(c)
damages in an amount equal to the amount of unpaid minimum wages;
(d)
an award crediting Ms. Carrera and the Illinois Subclass for all hours
worked;
(e)
an award of reasonable attorneys' fees, expenses, expert fees and costs
incurred in vindicating Ms. Carrera and the Illinois Subclass members'
rights;
(f)
an award of pre- and post-judgment interest; and
(g)
such other and further legal or equitable relief as this Court deems to be
just and appropriate.
TURYDEMAND
Plaintiffs demand a jury to hear and decide all issues of fact in accordance "With
Federal Rule of Civil Procedure 38 (b).
Dated: August 28, 2013
THOMAS&SOLOM~NL1P~
0'-f-~((~
By:
elson Thomas, Esq.
ichael J. Lingle, Esq.
Justin M. Cordello, Esq.
Jared K. Cook, Esq.
Attol7leyfor Plaintiffs
693 East Avenue
Rochester, New York 14607
Telephone: (585) 272-0540
[email protected]
[email protected]
[email protected]
[email protected]
| employment & labor |
dLkIDIcBD5gMZwczgYX2 | Daniel G. Shay, Esq. (SBN: 250548)
[email protected]
LAW OFFICE OF DANIEL G. SHAY
409 Camino Del Rio S, Ste 101B
San Diego, CA 92108
Telephone: (619) 222-7429
Facsimile: (866) 431-3292
Joshua B. Swigart, Esq. (SBN: 225557)
[email protected]
Veronica McKnight, Esq. (SBN: 306562)
[email protected]
HYDE & SWIGART
2221 Camino Del Rio South, Suite 101
San Diego, CA 92108
Telephone: (619) 233-7770
Facsimile: (619) 297-1022
Abbas Kazerounian, Esq. (SBN: 249203)
[email protected]
KAZEROUNI LAW GROUP, APC
245 Fischer Avenue, Unit D1
Costa Mesa, CA 92626
Telephone: (800) 400-6808
Facsimile: (800) 520-5523
Attorneys for Plaintiff,
Florence Morris
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF CALIFORNIA
'16CV2835
DHB
LAB
Case No: ________________
Florence Morris, individually, and
on behalf of others similarly
situated,
Plaintiffs,
v.
Hunter Warfield Inc.,
COMPLAINT FOR DAMAGES
AND INJUNCTIVE RELIEF
UNDER THE TELEPHONE
CONSUMER PROTECTION
ACT, 47 U.S.C. §§ 227, ET. SEQ.
Defendant.
CLASS ACTION
JURY TRIAL DEMANDED
Introduction
1.
Florence Morris, (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 Hunter
Warfield, Inc. (“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 herself and her 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.
Jurisdiction of this Court arises pursuant to 28 U.S.C. § 1331, 15
U.S.C. §1692(k), and 28 U.S.C. § 1367 for supplemental state claims.
7.
This action arises out of Defendant's violations of the Telephone
Consumer Protection Act, 47 U.S.C. § 227 et seq., (“TCPA”).
8.
Plaintiff is a natural person who resides in the City of San Diego,
County of San Diego, State of California.
9.
Because Defendant does business within the State of California,
personal jurisdiction is established.
10.
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.
11.
At all times relevant, Defendant conducted business within the State of
California.
Parties
12.
Plaintiff is a natural person who resides in the City of San Diego, State
of California.
13.
Plaintiff is, and at all times mentioned herein was, a “person” as
defined by 47 U.S.C. § 153 (39).
14.
Defendant is incorporated and registered in the State of Florida.
15.
Defendant, is and at all times mentioned herein was, a corporation and
is a “person,” as defined by 47 U.S.C. § 153 (39). Defendant collects
on alleged defaulted debts.
16.
Plaintiff alleges that at all times relevant herein Defendant conducted
business in the State of California and in the County of San Diego,
within this judicial district.
Factual Allegations
17.
Sometime around March 1, 2016, Defendant began calling Plaintiff
for debt collection purposes to her land line ending in 9148.
18.
During one of the calls, Defendant’s agent asked Plaintiff for a second
contact number.
19.
Plaintiff told Defendant’s agent that she would not provide him with
another contact number.
20.
On April 22, 2016, the Law Office of Daniel Shay mailed and faxed
Defendant cease and desist letters that were also from Plaintiff and
included a signed power of attorney. These letters revoked any prior
express consent for the calls and any established business relationship
that may have existed.
21.
Despite Plaintiff not providing Defendant with her cellular telephone
number and having her attorney send cease and desist letters to
Defendant for her, Defendant then called Plaintiff on her cellular
telephone ending in 1230 from the number 813-283-4016 on or about
March 28, 2016 at 2:43 p.m.
22.
At some point, Plaintiff asked how Defendant obtained her cellular
number, but Defendant’s agent refused to answer her question.
23.
Plaintiff was injured because her privacy rights were infringed upon in
the form of harassment by Defendant through these calls.
24.
The telephone calls Defendant made to Plaintiff’s cellular telephone
ending in 1230 were made via an “automatic telephone dialing
system” (“ATDS”), as defined by 47 U.S.C. § 227(a)(1), and/or by
using “an artificial or prerecorded voice” as prohibited by 47 U.S.C. §
227(b)(1)(A).
25.
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).
26.
Further, Plaintiff revoked any prior express consent which Defendant
may have mistakenly believed it had, when through her counsel she
informed Defendant to cease and desist contacting Plaintiff.
27.
The ATDS at issue has the capacity to store or produce telephone
numbers to be called, using a random or sequential number generator.
28.
The ATDS used by Defendant to call Plaintiff cell also has the capacity
to, and does, dial telephone numbers stored as a list or in a database
without human intervention.
29.
Defendant’s calls were placed to a cellular telephone number assigned
to a telephone service for which Plaintiff incurs a charge for incoming
calls pursuant to 47 U.S.C.(b)(1).
30.
These telephone calls constitute calls that were not for emergency
purposes as defined by 47 U.S.C. § 227(b)(1)(A)(i).
31.
This telephonic communication by Defendant violated 47 U.S.C. § 227
(b)(1).
32.
Through this action, Plaintiff suffered an invasion of her legally
protected interest in privacy, which is specifically addressed and
protected by the TCPA.
33.
She was personally affected because she was frustrated and distressed
that Defendant harassed Plaintiff with calls using an ATDS.
33.
Defendant’s calls force Plaintiff and class members to live without the
utility of Plaintiff’s cell phone by forcing her to silence her cell phone
and/or block incoming numbers.
34.
Defendant’s calls to Plaintiff’s cellular telephone number were
unsolicited by Plaintiff and without Plaintiff’s permission or consent.
35.
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.
Causes of Action
Class Action Allegations
36.
Plaintiff brings this action on behalf of herself and on behalf of and all
others similarly situated (the “Class”). The proposed Class that
Plaintiff seeks to represent are defined as follows:
All persons within the United States who received
any telephone call/s from Defendant or its agent/s
and/or employee/s, not for emergency purposes, to
said person’s cellular telephone made through the
use of any automatic telephone dialing system
and/or with an artificial or prerecorded voice
within the four years prior to the filing of this
Complaint.
37.
Plaintiff represents, and is a member of, the Class, because Plaintiff
received telephone calls from Defendant on Plaintiff’s cellular
telephone by way of an ATDS and/or an artificial or recorded voice
some or all of which Plaintiff was billed for receiving such calls.
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. Thus, this matter should be certified as a Class action to assist in
the expeditious litigation of this matter.
39.
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.
40.
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.
41.
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.
42.
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 limited to, the
following:
• 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 members using any automatic telephone dialing system
or an artificial or prerecorded voice to any telephone number
assigned to a cellular telephone service.
• Whether Plaintiff and the Classes were damaged thereby, and the
extent of damages for such violation; and
• Whether Defendant should be enjoined from engaging in such
conduct in the future.
43.
As a person that received numerous calls using an automatic telephone
dialing system and/or an artificial or prerecorded voice, without
Plaintiff’s prior express prior 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.
44.
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 seek legal redress
for the wrongs complained of herein.
45.
Plaintiff has retained counsel experienced in handling class action
claims and claims involving consumer actions and violations of the
Telephone Consumer Protection Act.
46.
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 and California 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.
47.
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.
Causes of Action
Count I
Negligent Violations Of The
Telephone Consumer Protection Act (TCPA)
47 U.S.C. 227
48.
Plaintiff repeats, re-alleges, and incorporates by reference, all other
paragraphs.
49.
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.
50.
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).
Count II
Knowing and/or Willful Of The
Telephone Consumer Protection Act (TCPA)
47 U.S.C. 227
51.
Plaintiff repeats, re-alleges, and incorporates by reference, all other
paragraphs.
52.
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.
53.
As a result of Defendant's knowing and/or willful violations of 47
U.S.C. § 227 et seq., Plaintiff is 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).
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) for each plaintiff and
putative class member;
• Statutory damages of $1,500.00 for each knowing and/or willful
violation of the TCPA pursuant to 47 U.S.C. § 227(b)(3)(B) and 47
U.S.C. § 227(b)(3)(C);
• Pursuant to 47 U.S.C § 227(b)(3)(A), injunctive relief prohibiting
such conduct in the future;
• Any and all other relief that this Court deems just and proper;
54.
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: November 18, 2016
By: s/ Joshua B. Swigart
Joshua B. Swigart, Esq.
[email protected]
Attorneys for Plaintiff
| privacy |
JAjJFYcBD5gMZwczGQhn |
Laurence M. Rosen (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: [email protected]
Counsel for Plaintiff
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
No.
CLASS ACTION COMPLAINT
FOR VIOLATIONS OF THE
FEDERAL SECURITIES LAWS
CLASS ACTION
JURY TRIAL DEMANDED
JASON J. HAMLIN, Individually and
on behalf of all others similarly
situated,
Plaintiff,
v.
YAYYO, INC., RAMY
EL-BATRAWI, JONATHAN ROSEN,
KEVIN PICKARD, HARBANT S.
SIDHU, JEFFREY GUZY,
CHRISTOPHER MIGLINO, PAUL
RICHTER, AEGIS CAPITAL CORP.,
and WESTPARK CAPITAL, INC.,
Defendants.
Plaintiff Jason J. Hamlin (“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 his attorneys, which included, among other things, a review of the
Defendants’ public documents, announcements, public filings, wire and press
releases published by and regarding YayYo, Inc. (“YayYo,” or 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 class action on behalf of persons or entities who purchased
or otherwise acquired publicly traded YayYo securities pursuant and/or traceable
to the registration statement and related prospectus (collectively, the “Registration
Statement”) issued in connection with YayYo’s November 14, 2019 initial public
offering (the “IPO” or “Offering”), seeking to recover compensable damages
caused by Defendants’ violations of the Securities Act of 1933 (the “Securities
Act”).
2.
In November 2019, Defendants held the IPO, issuing approximately
2,625,000 shares to the investing public at $4.00 per share, pursuant to the
Registration Statement.
3.
By the commencement of this action, the Company’s shares trade
significantly below the IPO price. As a result, investors were damaged.
JURISDICTION AND VENUE
4.
The claims alleged herein arise under and pursuant to Sections 11,
12(a)(2) and 15 of the Securities Act, 15 U.S.C. §§77k, 771(a)(2) and 77o.
1
5.
This Court has jurisdiction over the subject matter of this action
pursuant to 28 U.S.C. §1331 and Section 22 of the Securities Act (15 U.S.C. §77v).
6.
This Court has jurisdiction over each defendant named herein because
each defendant has sufficient minimum contacts with this District so as to render
the exercise of jurisdiction by this Court permissible under traditional notions of
fair play and substantial justice. The Company is also headquartered in this District.
7.
Venue is proper in this District pursuant to 28 U.S.C. § 1391(b) and
§22(a) of the Securities Act (15 U.S.C. §77v(a)) as a significant portion of the
Defendants’ actions, and the subsequent damages took place within this District.
8.
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 mails,
interstate telephone communications and the facilities of a national securities
exchange. Defendants disseminated the statements alleged to be false and
misleading herein into this District, and Defendants solicited purchasers of YayYo
securities in this District.
PARTIES
9.
Plaintiff, as set forth in the accompanying Certification, purchased the
Company’s securities at artificially inflated prices during the Class Period and was
damaged upon the revelation of the corrective disclosure.
10.
Defendant YayYo purports to, through its subsidiaries, operate an
online peer-to-peer booking platform that rents standard passenger vehicles to self-
employed ridesharing drivers and manages a fleet of standard passenger vehicles
to be rented directly to drivers in the ridesharing economy.
11.
The Company is incorporated in Delaware and its head office is
located at 433 N. Camden Drive, Suite 600, Beverly Hills, California 90210.
YayYo securities traded on the NASDAQ exchange from the IPO until February
2
20, 2020 under the ticker symbol “YAYO.” Following its delisting from the
NASDAQ exchange, YayYo securities have traded on the OTC Pink market since
February 20, 2020 under the ticker symbol “YAYO.”
12.
Defendant Ramy El-Batrawi (“El-Batrawi”) founded YayYo and
served as its Chief Executive Officer (“CEO”) from the inception of the Company
until October 4, 2018, then as Acting CEO from November 17, 2018 to February
1, 2019, and as a member of the Company’s Board of Directors (the “Board”)
between November 2016 and September 2019. Due to his checkered past, at the
insistence of the NASDAQ Defendant El-Batrawi resigned all positions at YayYo
in September 2019 so that the Company could be taken public. On January 26,
2020, Defendant El-Batrawi purports to have been reappointed CEO of YayYo and
as a member of its Board.
13.
Defendant Jonathan Rosen (“Rosen”) was at the time of the IPO
YayYo's CEO.
14.
Defendant Kevin F. Pickard (“Pickard”) was at the time of the IPO
YayYo's Chief Financial Officer, Secretary, and a member of its Board.
15.
Defendant Jeffrey J. Guzy (“Guzy”) was at the time of the IPO a
member of the Company’s Board.
16.
Defendant Christopher Miglino (“Miglino”) was at the time of the IPO
a member of the Company’s Board.
17.
Defendant Harbant S. Sidhu (“Sidhu”) was at the time of the IPO a
member of the Company’s Board.
18.
Defendant Paul Richter (“Richter”) was at the time of the IPO a
member of the Company’s Board.
19.
Defendants El-Batrawi, Rosen, Pickard, Guzy, Miglino, Sidhu, and
Richter are sometimes referred to herein as the “Individual Defendants.”
3
20.
Each of the Individual Defendants signed or authorized the signing of
the Registration Statement, solicited the investing public to purchase securities
issued pursuant thereto, hired and assisted the underwriters, planned and
contributed to the IPO and Registration Statement, and attended road shows and
other promotions to meet with and present favorable information to potential
YayYo investors, all motivated by their own and the Company’s financial interests.
21.
Defendant Westpark Capital, Inc. (“Westpark”) is an investment
banking firm that acted as an underwriter of the Company’s IPO, helping to draft
and disseminate the IPO documents. Westpark’s corporate headquarters is located
at 1900 Avenue of The Stars, Third Floor, Los Angeles, CA 90067.
22.
Defendant Aegis Capital Corp. (“Aegis”) is an investment banking
firm that acted as an underwriter of the Company’s IPO, helping to draft and
disseminate the IPO documents. Aegis’ address is 810 7th Avenue, New York, NY
10019.
23.
Defendants Westpark and Aegis are referred to herein as the
“Underwriter Defendants.”
24.
Pursuant to the Securities Act, the Underwriter Defendants are liable
for the false and misleading statements in the Registration Statement as follows:
(a)
The Underwriter Defendants are investment banking houses that
specialize in, among other things, underwriting public offerings of securities. They
served as the underwriters of the IPO and shared substantial fees from the IPO
collectively. The Underwriter Defendants arranged a roadshow prior to the IPO
during which they, and representatives from the Company, met with potential
investors and presented highly favorable information about the Company, its
operations and its financial prospects.
(b)
The Underwriter Defendants also obtained an agreement from the
Company and the Individual Defendants that YayYo would indemnify and hold
4
the Underwriter Defendants harmless from any liability under the federal securities
laws.
(c)
Representatives of the Underwriter Defendants also assisted the
Company and the Individual Defendants in planning the IPO, and purportedly
conducted an adequate and reasonable investigation into the business and
operations of the Company, an undertaking known as a “due diligence”
investigation. The due diligence investigation was required of the Underwriter
Defendants in order to engage in the IPO. During the course of their “due
diligence,” the Underwriter Defendants had continual access to internal,
confidential, current corporate information concerning the Company’s most up-to-
date operational and financial results and prospects.
(d)
In addition to availing themselves of virtually unlimited access to
internal corporate documents, agents of the Underwriter Defendants met with the
Company’s lawyers, management and top executives and engaged in “drafting
sessions.” During these sessions, understandings were reached as to: (i) the strategy
to best accomplish the IPO; (ii) the terms of the IPO, including the price at which
the Company’s securities would be sold; (iii) the language to be used in the
Registration Statement; what disclosures about the Company’s would be made in
the Registration Statement; and (iv) what responses would be made to the SEC in
connection with its review of the Registration Statement. As a result of those
constant contacts and communications between the Underwriter Defendants’
representatives and the Company’s management and top executives, the
Underwriter Defendants knew of, or in the exercise of reasonable care should have
known of, the Company’s existing problems as detailed herein.
25.
The Underwriter Defendants caused the Registration Statement to be
filed with the SEC and declared effective in connection with the offers and sales of
5
securities registered thereby, including those to Plaintiff and the other members of
the Class
26.
The Company, the Individual Defendants, and the Underwriter
Defendants are referred to herein, collectively, as the “Defendants.”
SUBSTANTIVE ALLEGATIONS
Background
27.
In June 2016, Defendant El-Batrawi incorporated YayYo in Delaware.
28.
Defendant El-Batrawi has a checkered past. On April 13, 2006,
Defendant El-Batrawi was named, along with other officers, directors, and/or
associates of Genesis Intermedia, Inc., as defendants in a SEC enforcement action.
In the SEC's complaint filed in SEC v. El-Batrawi, et al., Case No. 2:06-cv-02247-
CAS-VBK (C.D. Cal.), the SEC charged Defendant El-Batrawi with violations of
Section 17(a) of the Securities Act and Section 10(b) and Rule 10b-5 of the
Securities and Exchange Act of 1934, in connection with a stock loan and
manipulation scheme. The SEC enforcement action alleged, among other things,
that the defendants had violated antifraud provisions of federal securities laws by
orchestrating a scheme to manipulate the stock price of Genesis Intermedia, Inc., a
now-defunct public company that was also based in California. On April 1, 2010,
Defendant El-Batrawi settled the SEC enforcement action by entering into a final
judgment by consent with the SEC. In connection with the settlement of the SEC
enforcement action charges, the U.S. District Court for the Central District of
California entered a consent decree against Defendant El-Batrawi, which, among
other things, barred him from acting as an officer or director of a public company
for a period of five years following the date of entry of the final judgment by
consent.
29.
As Defendants prepared to take YayYo public in the IPO, given
6
Defendant El-Batrawi's history of securities law violations, the NASDAQ refused
to permit a listing of the Company's shares unless Defendant El-Batrawi resigned
from his positions and relinquished all authority and control over YayYo prior to
the effective date of the IPO. Defendant Rosen was hired by the Company in
February 2019 and appointed as CEO in October 2019.
YayYo’s False and/or Misleading Registration Statement
30.
On April 30, 2018, YayYo filed with the SEC a registration statement
on Form S-1, which in combination with subsequent amendments on Forms S-1/A
and filed pursuant to Rule 424(b)(4), are collectively referred to the Registration
Statement and issued in connection with the IPO.
31.
On November 14, 2019, YayYo filed with the SEC the final prospectus
for the IPO of common stock on Form 424B4 (the “Prospectus”), which forms part
of the Registration Statement. In the IPO, YayYo sold 2,625,000 shares at $4.00
per share, purportedly the “[t]otal gross proceeds from the offering were
$10,500,000[.]”
32.
The Registration Statement was negligently prepared and, as a result,
contained untrue statements of material facts or omitted to state other facts
necessary to make the statements made not misleading, and was not prepared in
accordance with the rules and regulations governing its preparation.
33.
The Registration Statement stated the following, in pertinent part,
regarding Defendant El-Batrawi’s role with the Company:
On October 4, 2018, Mr. El-Batrawi resigned as Chief Executive
Officer. He then was appointed Acting Chief Executive Officer on
November 17, 2018. On February 1, 2019, Mr. El-Batrawi resigned
from his position as Acting Chief Executive Officer of the Company
upon the appointment of Jonathan Rosen as Chief Executive Officer.
Mr. El-Batrawi resigned as our director effective as of September 1,
2019.
7
(Emphasis added.)
34.
The Registration Statement claimed that Defendant Rosen was
operating independently as CEO and stated, in pertinent part:
We depend on a small number of executive officers and other members
of management to work effectively as a team, to execute our business
strategy and operating business segments, and to manage employees
and consultants. Our success will be dependent on the personal
efforts of our Chief Executive Officer, our directors and such other
key personnel. Any of our officers or employees can terminate his or
her employment relationship at any time, and the loss of the services
of such individuals could have a material adverse effect on our
business and prospects. Mr. El-Batrawi, the founder and original
Chairman of the Board and original Chief Executive Officer of the
Company from its incorporation of the Company, resigned from all
positions with the Company as a condition for being approved for
listing on The Nasdaq Capital Market.
(Emphasis added.)
35.
The Registration Statement stated the following, in pertinent part,
regarding the purported sale of Defendant El-Batrawi's equity ownership:
As a condition to approving the Company’s common stock for listing
on The Nasdaq Capital Market, X, LLC, an entity that is wholly-
owned and controlled by Ramy El-Batrawi, our founder and former
Chief Executive Officer and former director, agreed to sell
12,525,000 of its 15,425,000 shares of common stock. The
12,525,000 shares (the “Private Shares”) were sold pursuant to an
exemption from registration to four existing Company shareholders
who qualify as accredited investors (as that term is defined in
Securities Act Rule 501(a)). The Private Shares were sold at $3.00 per
share in exchange for non-recourse, non-interest-bearing promissory
notes with maturities ranging from one year to eighteen months. As a
result of the sale, X, LLC’s beneficial ownership shall be reduced to
9.9% of the shares outstanding after the completion of this Offering.
We will not receive any proceeds from the sale of the Private Shares.
If the offering contemplated by this registration statement is not
consummated by January 31, 2020, the parties have agreed to unwind
8
the sale of the Private Shares transaction in compliance with applicable
law. Mr. El-Batrawi has also entered into a Voting Trust Agreement
(the “Trust”) pursuant to which the voting power of all of his
remaining 2,900,000 shares of common stock will be controlled by a
trustee who will use the voting power of the common stock held in the
Trust to vote on all matters presented for a vote of stockholders in the
same proportion that the shares of common stock not subject to the
Trust voted on such matters.
*
*
*
Mr. El-Batrawi has entered into a Voting Trust Agreement (the
“Trust”) pursuant to which the voting power of all of his outstanding
common stock will be controlled by a trustee who will use the voting
power of the common stock held in the Trust to vote on all matters
presented for a vote of stockholders in the same proportion that the
shares of common stock not subject to the Trust voted on such matters.
The Trust shall be irrevocable, and shall terminate upon the earlier of
(a) the written agreement of the Company, the trustee and a duly
authorized representative of Nasdaq, or (b) the date upon which the
Company is not listed on a security exchange controlled by Nasdaq.
*
*
*
Voting Trust
Mr. El-Batrawi has entered into a Voting Trust Agreement pursuant
to which the voting power of all of his outstanding common stock
will be controlled by a trustee who will use the voting power of the
common stock held in the Trust to vote on all matters, other than
certain extraordinary matters, presented for a vote of stockholders in
the same proportion that the shares of common stock not subject to the
Trust voted on such matters. Mr. El-Batrawi’s entrance into the Voting
Trust Agreement is a condition for the Company’s approval for listing
on The Nasdaq Capital Market.
The Trust shall be irrevocable, and shall terminate upon the earlier of
(a) the written agreement of the Company, the trustee and a duly
authorized representative of Nasdaq, or (b) the date upon which the
Company is not listed on a security exchange controlled by Nasdaq.
9
The trustee, initially one of our directors, Harbant S. Sidhu, shall
have discretion to vote the Trust’s shares on all extraordinary
matters which shall include any merger, consolidation, business
combination, share exchange, restructuring, recapitalization or
acquisition involving the Company or any similar transaction or the
sale, lease, exchange, pledge, mortgage or transfer of all or a
material portion of the Company’s assets.
*
*
*
To the best of our knowledge, except as otherwise indicated, each of
the persons named in the table has sole voting and investment power
with respect to the shares of our common stock beneficially owned
by such person, except to the extent such power may be shared with a
spouse. To our knowledge, none of the shares listed below are held
under a voting trust or similar agreement, except as noted. To our
knowledge, there is no arrangement, including any pledge by any
person of securities of the Company, the operation of which may at
a subsequent date result in a change in control of the Company.
10
(Emphasis added.)
36.
The Registration Statement stated the following, in pertinent part,
regarding “Use of Proceeds'” from the IPO:
We currently intend to use the net proceeds to us from this primary
offering to purchase vehicles to add to our fleet of passenger vehicles
made available for rent through our wholly-owned subsidiary, Distinct
Cars, and for general corporate purposes, including working capital
and sales and marketing activities.
*
*
*
The principal purposes of this primary offering are to increase our
capitalization and financial flexibility, increase our visibility in the
marketplace and create a public market for our common stock. As of
the date of this prospectus, we cannot specify with certainty all of the
particular uses for the net proceeds to us from this primary offering.
However, we currently intend to use the net proceeds to us from this
primary offering to add to our fleet of passenger vehicles made
available for rent through the Company’s wholly-owned subsidiary,
Distinct Cars, and for general corporate purposes, including working
capital, sales and marketing activities. We may also use a portion of
the net proceeds for the acquisition of, or investment in, technologies,
solutions or businesses that complement our business, although we
have no present commitments or agreements to enter into any
acquisitions or investments.
37.
The Registration Statement stated the following, in pertinent part,
regarding Anthony Davis, its former President, CEO, and Director of YayYo:
• Anthony Davis was the “Former President, Chief Executive
Officer, Director[,]” having served in those capacities between
2017 and 2018 and was paid $20,000 in salary;
• That “[o]n December 1, 2016 . . . Mr. Davis . . . received non-
qualified stock options expiring on December 31, 2018, entitling
[him] to purchase 100.000 shares of Company common stock at
an exercise price of $1.00 per share at any time on or after June
1, 2017”; and
11
• That “[o]n November 29, 2016, the Company and Mr. Davis, a
former executive officer of the Company, entered into an offer
of employment agreement with the Company setting forth an
initial base salary for Mr. Davis's first three months of service
and performance under his term of employment with the
Company. As set forth under the employment offer, Mr. Davis
was entitled to receive (i) $15,000 for his service in the month
of December 2016, (ii) $10,000 for service performed during the
month of January, 2017 and an additional $10,000 for service
performed by Mr. Davis during the month of February 2017.”
38.
The Registration Statement downplayed and underreported its
indebtedness to the social media company Social Reality, Inc., which changed its
name to “SRAX, Inc.” in August 2019 (“SRAX”). Specifically, the Registration
Statement stated, in pertinent part, that “[d]uring the year ended December 31,
2018, the Company incurred $334,471 for advertising and digital media services
from Social Reality” and that “[a]t December 31, 2018, the Company had an amount
due of $334,471 to Social Reality.” In addition to failing to disclose the full amount
owed to SRAX at the time of the IPO, the Registration Statement failed to disclose
that the debt was then overdue and that YayYo had been delaying making the
payment while it carried out its IPO.
39.
The statements contained in ¶¶ 31-38 were materially false and/or
misleading because they misrepresented and failed to disclose the following adverse
facts pertaining to the Company’s business, operations and prospects, which were
known to Defendants or recklessly disregarded by them. Specifically, the
Registration Statement was false and/or misleading and/or failed to disclose that:
(1) Defendant El-Batrawi continued to exercise supervision, authority, and control
over YayYo, and was intimately involved, on a day-to-day basis, with the business,
operations, and finances of the Company, including assisting the Underwriter
Defendants in marketing YayYo's IPO; (2) Defendant El-Batrawi never sold the
12
12,525,000 “Private Shares” and continued to own a controlling interest in YayYo
despite the NASDAQ’s insistence that he retain less than a 10% equity ownership
interest in connection with the listing agreement; (3) Defendants promised certain
creditors of YayYo that in exchange to their agreeing to purchase shares in the IPO
– in order to permit the Underwriter Defendants to close the IPO – YayYo would
repurchase those shares after the IPO; (4) Defendants intended to repurchase shares
purchased by creditors of YayYo in the IPO using IPO proceeds; (5) YayYo owed
its former President, CEO, and Director a half of million dollars at the time of the
IPO; (6) YayYo owed SRAX $426,286 in unpaid social media costs, most of which
was more than a year overdue as payment had been delayed while YayYo attempted
to complete its IPO; and (7) as a result, Defendants’ statements about the
Company’s business, operations, and prospects were materially false and
misleading and/or lacked a reasonable basis at all relevant times.
THE TRUTH EMERGES
40.
On January 13, 2020, YayYo filed with the SEC a Form 8-K
announcing that “[o]n January 10, 2020, YayYo Inc. [] entered into an Executive
Employment Agreement [] with the Company's Chief Executive Officer, Jonathan
Rosen, pursuant to which Mr. Rosen will continue to serve as the Company’s Chief
Executive Officer for one year or until terminated in accordance with the
Agreement.”
41.
On January 24, 2020, YayYo filed an action for declaratory judgement
and permanent injunction against Defendant El-Batrawi in the Superior Court of
the State of California, County of Los Angeles, Case No. 20STCP00309, alleging
in pertinent part:
Despite leaving the Company following concerns from NASDAQ
regarding his involvement in the day-to-day operations of YayYo in
September 2019, Defendant [El-Batrawi] has engaged in a
continuous course of actions misrepresenting himself as affiliated
13
with, speaking on behalf of, and authorized or empowered by YayYo.
In so doing, Defendant [El-Batrawi] has purported to bind the
Company to contracts, direct its employees, change its website, and
event to attempted to sell the Company to its competitors.
(Emphasis added.)
42.
In a declaration filed with YayYo’s complaint in support of a
temporary restraining order, Defendant Rosen testified that despite having
promised in September 2019 in connection with his resignation to have “no formal
or informal affiliation between the Company and [El-Batrawi], expect [sic] for
[his] minority ownership (less than 10%) in the Company” (emphasis in original),
“[Defendant El-Batrawi] [had] continue[d] to operate and hold himself out as if a
director or officer of YayYo, or as an otherwise authorized representative of the
same.” Defendant Rosen further testified that despite the Registration Statement
having expressly stated that Defendant El-Batrawi had already sold the 12,525,000
shares of YayYo prior to the IPO, in reality “Defendant El-Batrawi ha[d] failed
and/or refused to sell his shares of stock in the Company . . .” Defendant Rosen
further admitted this had all been going on since September 2019, well before the
IPO, including testifying in pertinent part that “[s]ince [September 2019],
Defendant El-Batrawi has engaged in a continuous and escalating pattern of
behavior destructive to YayYo. . . .” Defendant Rosen testified that Defendant El-
Batrawi’s misconduct between September 2019 and January 2020 had included,
among other things, contacting competitors, suppliers, and vendors of YayYo and
negotiating with them as a representative of YayYo; meeting with financiers and
investment firms about investing in YayYo and claiming to represent YayYo;
hiring a public relations firm for YayYo and producing and airing commercials for
YayYo on the Fox Business Channel; attempting to hire two marketing firms for
YayYo; and directing that changes be made to YayYo’s website.
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43.
On January 27, 2020, YayYo filed a Form 8-K with the SEC
announcing that Defendants Guzy, Miglino, and Richter had been replaced as
Board members and that Defendant Rosen was no longer the CEO of YayYo. The
8-K stated in pertinent part:
By the written consent of the holders of more than a majority of the
shares of YayYo, Inc. (the “Company”) then entitled to vote at an
election of directors, Messrs. Jeffrey J. Guzy, Christopher Miglino
and Paul Richter were removed as directors of the Company,
effective January 22, 2020. On January 24, 2020, the remaining
directors of the Company elected Douglas M. Mox, John P. O’Neill
and Stephen M. Sanchez as directors to fill such vacancies, each to
hold office until the earlier of the expiration of the term of office of the
director whom he has replaced, a successor is duly elected and
qualified or the earlier of such director’s death, resignation,
disqualification or removal. Stephen M. Sanchez was elected as the
Chairman of the Board of Directors (the “Board”).
*
*
*
In addition to the above, on January 26, 2020, Jonathan Rosen
resigned from his position as the Company’s Chief Executive
Officer. Mr. Rosen informed the Board that his resignation was for
“Good Reason,” as that term is defined in Mr. Rosen’s employment
agreement with the Company dated January 10, 2020. The Company
disagrees with Mr. Rosen’s characterization of the circumstances
surrounding his resignation and does not believe that “Good Reason”
exists for Mr. Rosen’s resignation.
(Emphasis added.)
44.
On February 10, 2020, YayYo issued a press release entitled “YayYo,
Inc. Announces Intention to Voluntarily Delist Its Common Stock From the
NASDAQ Capital Market Effective February 20, 2020” disclosing that the new
Board would delist YayYo common stock from the NASDAQ, stating:
BEVERLY HILLS, Calif., Feb. 10, 2020 (GLOBE NEWSWIRE) --
YayYo, Inc. (NASDAQ: YAYO) (the “Company” or “YayYo”) today
15
announced its intention to voluntarily delist its common stock from
the NASDAQ Stock Market (“NASDAQ”) effective on February 20,
2020. The Company expects that its common stock will be approved
for quotation on the OTCQB from and after that date. The Company
has elected to effect the voluntary delisting of its common stock after
discussions with NASDAQ’s staff and based on the determination of
the Company’s board of directors that voluntarily delisting the
common stock from the NASDAQ is in the best interests of the
Company and its stockholders. NASDAQ has advised the Company
that it believes that the Company has failed the conditions for
continued listing of its common stock set forth in Listing Rule
5250(a). The voluntary delisting will permit the Company to operate
its business free from restrictions imposed by NASDAQ rules and the
conditions applicable to the listing of the Company’s common stock
on the NASDAQ.
The Company has notified NASDAQ of its intent to voluntarily delist
its common stock from the NASDAQ. The Company currently
anticipates that it will file with the Securities and Exchange
Commission a Form 25 relating to the delisting of its common stock
on or about February 20, 2020 and expects the delisting of its common
stock to be effective ten days thereafter. The purpose of the Form 25
filing is to effect the voluntary delisting from the NASDAQ of the
Company’s outstanding common stock. The Company does not
expect the delisting to have any adverse effects on its business
operations.
(Emphasis added.)
45.
On February 11, 2020, SRAX filed a collection action against YayYo
in the Superior Court of the State of California for the County of Los Angeles, Case
No. 20STVV05559, alleging that SRAX had provided media services to the
Company dating back to 2018, claiming breach of contract and related causes of
action. SRAX alleged that YayYo then owed it $645,286 – including $426,286 for
services rendered prior to time of the IPO. In its complaint, SRAX alleged that
YayYo claimed to be “unable to pay” for the services prior to the IPO “apparently
16
due to a delay in its [IPO].” Though the invoices for the services attached to the
complaint filed by SRAX were signed by Defendant El-Batrawi, an email attached
to the complaint dated January 24, 2020 from Defendant Rosen stated that other
than $50,000 that had apparently been paid to SRAX from the IPO proceeds on
January 23, 2020, YayYo would be unable to pay the rest of the outstanding bill
until it obtained additional outside financing.
46.
On March 3, 2020, YayYo filed a with the SEC a Form 8-K
announcing the following:
On February 28, 2020, the Board of Directors (the “Board”) of
YayYo Inc. (the “Company”) appointed Ramy El-Batrawi as the
Company’s Chief Executive Officer and as a member of the Board,
effective immediately. Mr. El-Batrawi has not been appointed to serve
on any committees of the Board at this time and will receive no
compensation in connection with his appointment as Chief Executive
Officer or his service on the Board.
Mr. El-Batrawi, 58, is a founder of the Company and previously served
as its Chief Executive Officer from June 2016 until February 2019 and
as a director from June 2016 until September 2019. Mr. El-Batrawi is
the founder and sole owner of PDQ Pickup LLC, a moving and
logistics company, which he founded in December 2018. Since May
2015, he has been the owner of X, LLC, a private investment firm.
Prior thereto, Mr. El-Batrawi was the owner and chief executive
officer of Growth Strategy Investments, LLC, a private investment
firm.
There are no family relationships, as defined in Item 401 of Regulation
S-K, between Mr. El-Batrawi and any of the Company’s executive
officers or directors or persons nominated or chosen to become a
director or executive officer. There is no arrangement or
understanding between Mr. El-Batrawi and any other person
pursuant to which Mr. El-Batrawi was appointed as Chief Executive
Officer.
During the year ended December 31, 2018, the Company paid
management fees of $205,000, to a company that is owned by Mr. El-
17
Batrawi. Beginning on February 1, 2019, the Company entered into a
consulting agreement with Mr. El-Batrawi and paid $167,000 under
the consulting agreement. The consulting agreement was terminated
effective September 1, 2019.
(Emphasis added.)
47.
On March 3, 2020, former YayYo President, CEO, and Director
Anthony Davis filed a complaint for damages, declaratory relief, failure to pay
wages in violation of labor code 201, et. seq., violation of California's Unfair
Competition Laws (Business & Professions Code § 17200, et seq.), breach of
contract, intentional misrepresentation and fraud, and promissory fraud against
YayYo, alleging in pertinent part:
Plaintiff Anthony Davis is an experienced, c-suite level executive that
agreed to join Yayyo [sic], a ridesharing startup company, as its CEO,
for a salary well below his market rate in exchange for the written
promise of stock options made by Yayyo founder and then CEO Ramy
El-Batrawi.
After only five (5) months of service and in accordance with his
responsibilities under an employment agreement, Plaintiff determined
that Ramy El-Batrawi could not be trusted because he regularly
ignored legal counsel regarding SEC matters and flouted Board
protocols and industry norms for corporate compliance. Specifically,
El-Batrawi filed fraudulent and materially misleading documents with
the SEC that Yayyo continues to use to deny Plaintiff the
compensation he is owed.
Instead of remaining in an untenable position due to El-Batrawi's
illegal and fraudulent conduct, Plaintiff negotiated a separation written
agreement through a consulting agreement that described the agreed
upon compensation owed to Plaintiff, including specific language
regarding payment from the stock options and other cash owed. To
date, despite numerous good faith attempts to be paid pursuant to the
written agreements, Yayyo refuses to honor its obligations thereunder.
*
*
*
18
Based on the written agreements, Yayyo and El-Batrawi caused
damages to Davis in the amount of at least $454,086.39 for losses
related to cash compensation, expenses and the stock options value,
plus attorney's fees and costs. Plaintiff also seeks injunctive relief
requiring Yayyo to amend the SEC filings (Form S-1/A) so as to not
mislead the public.
(Emphasis in original.)
48.
On April 13, 2020, the Company filed with the SEC a Form 8-K
announcing the following:
On April 2, 2020, X, LLC, a company wholly-owned and controlled
by Ramy El-Batrawi, the Chief Executive Officer and a Director of
YayYo, Inc. (the “Company”), loaned $50,000 to the Company, and
on April 6, 2020, X, LLC, loaned an additional $100,000 to the
Company. These loans were made under an oral agreement, are
secured by all of the assets of the Company and its subsidiaries, bear
no interest, and are payable 30 days after the date of the loan. The
Company will use the proceeds of these loans for general working
capital purposes.
(Emphasis added.)
49.
On April 28, 2020, FirstFire Global Opportunities Fund, LLC
(“FirstFire”) filed a complaint against the Underwriter Defendants in the U.S.
District Court for the Southern District of New York, Case No. l:20-cv-03327.
Among other things, FirstFire alleges that the Registration Statement used to
conduct the IPO was materially false and misleading because it concealed
Defendant El-Batrawi's ongoing control over the company and its IPO process.
FirstFire further alleges that when the Underwriter Defendants were unable to raise
the full $10 million required by NASDAQ to close the IPO, Defendant El-Batrawi
fabricated a $1.2 million commitment purportedly from a trust, which turned out
to be a lie. FirstFire also alleges that the Underwriter Defendants and Defendant
19
El-Batrawi solicited creditors and shareholders to invest more money to close the
IPO, and “sought to sweeten the attraction of such further investment” by agreeing
that YayYo would “immediately” pay them back from the IPO proceeds, an
“unlawful act” that would “materially misrepresent the Offering and fraudulently
mislead investors[.]” FirstFire further alleges that the Underwriter Defendants told
investors that YayYo planned to use the IPO proceeds to purchase vehicles, as well
as for general corporate purposes, including working capital and sales and
marketing activities, but that in reality YayYo had no intention to do so.
50.
Since the IPO, and as a result of the disclosure of material adverse facts
omitted from the Company’s Registration Statement, YayYo’s stock price has
fallen significantly below its IPO price, damaging Plaintiff and Class members.
51.
As of the filing of this Complaint, YayYo’s stock trades at
approximately 40¢ per share, a 90% decline from the price the stock was offered at
the IPO.
52.
Additionally, due to the materially deficient Registration Statement,
Defendants have also violated their independent, affirmative duty to provide
adequate disclosures about adverse conditions, risk and uncertainties. Item 303 of
SEC Reg. S-K, 17 C.F.R. §229.303(a)(3)(ii) requires that the materials incorporated
in a registration statement disclose all “known trends or uncertainties” reasonably
expected to have a material unfavorable impact on the Company’s operations.
53.
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
54.
Plaintiff brings this action as a class action on behalf of all those who
purchased the Company’s securities pursuant and/or traceable to the Registration
Statement (the “Class”). Excluded from the Class are Defendants and their
20
families, the officers and directors and affiliates of Defendants, 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.
55.
The members of the Class are so numerous that joinder of all members
is impracticable. While the exact number of Class members is unknown to Plaintiff
at this time and can only be ascertained through appropriate discovery, Plaintiff
believes that there are at least 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.
56.
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.
57.
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.
58.
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 Defendants violated the Securities Act;
(b)
whether the Registration Statement contained false or misleading
statements of material fact and omitted material information required to be stated
therein; and to what extent the members of the Class have sustained damages and
the proper measure of damages.
21
59.
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 Violations of Section 11 of the Securities Act
Against All Defendants
60.
Plaintiff incorporates all the foregoing by reference.
61.
This Count is brought pursuant to §11 of the Securities Act, 15 U.S.C.
§77k, on behalf of the Class, against all Defendants.
62.
The Registration Statement 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.
63.
Defendants are strictly liable to Plaintiff and the Class for the
misstatements and omissions.
64.
None of the Defendants named herein made a reasonable investigation
or possessed reasonable grounds for the belief that the statements contained in the
Registration Statement were true and without omissions of any material facts and
were not misleading.
65.
By reason of the conduct herein alleged, each Defendant violated or
controlled a person who violated §11 of the Securities Act.
66.
Plaintiff acquired the Company’s securities pursuant to the
Registration Statement.
67.
At the time of their purchases of YayYo securities, Plaintiff and other
members of the Class were without knowledge of the facts concerning the wrongful
22
conduct alleged herein and could not have reasonably discovered those facts prior
to the disclosures herein.
68.
This claim is brought within one year after discovery of the untrue
statements and/or omissions in the Offering that should have been made and/or
corrected through the exercise of reasonable diligence, and within three years of
the effective date of the Offering. It is therefore timely.
COUNT II
Violations of Section 12(a)(2) of the Securities Act
Against All Defendants
69.
Plaintiff incorporates all the foregoing by reference.
70.
By means of the defective Prospectus, Defendants promoted,
solicited, and sold YayYo securities to Plaintiff and other members of the Class.
71.
The Prospectus for the IPO contained untrue statements of material
fact, and concealed and failed to disclose material facts, as detailed above.
Defendants owed Plaintiff and the other members of the Class who purchased the
Company’s securities pursuant to the Prospectus the duty to make a reasonable and
diligent investigation of the statements contained in the Prospectus to ensure that
such statements were true and that there was no omission to state a material fact
required to be stated in order to make the statements contained therein not
misleading. Defendants, in the exercise of reasonable care, should have known of
the misstatements and omissions contained in the Prospectus as set forth above.
72.
Plaintiff did not know, nor in the exercise of reasonable diligence
could Plaintiff have known, of the untruths and omissions contained in the
Prospectus at the time Plaintiff acquired YayYo securities.
73.
By reason of the conduct alleged herein, Defendants violated
§12(a)(2) of the Securities Act, 15 U.S.C. §77l(a)(2). As a direct and proximate
result of such violations, Plaintiff and the other members of the Class who
23
purchased YayYo securities pursuant to the Prospectus sustained substantial
damages in connection with their purchases of the shares. Accordingly, Plaintiff
and the other members of the Class who hold the securities issued pursuant to the
Prospectus have the right to rescind and recover the consideration paid for their
shares, and hereby tender their securities to Defendants sued herein. Class members
who have sold their securities seek damages to the extent permitted by law.
74.
This claim is brought within one year after discovery of the untrue
statements and/or omissions in the Offering that should have been made and/or
corrected through the exercise of reasonable diligence, and within three years of
the effective date of the Offering. It is therefore timely.
COUNT III
Violations of Section 15 of the Securities Act
Against the Individual Defendants
75.
Plaintiff incorporates all the foregoing by reference.
76.
This cause of action is brought pursuant to §15 of the Securities Act,
15 U.S.C. §77o against all Defendants except the Underwriter Defendants.
77.
The Individual Defendants were controlling persons of YayYo by
virtue of their positions as directors and/or senior officers of the Company. The
Individual Defendants each had a series of direct and indirect business and personal
relationships with other directors and officers and major shareholders of the
Company. The Company controlled the Individual Defendants and all of YayYo
employees.
78.
The Company and the Individual Defendants were culpable
participants in the violations of §§11 and 12(a)(2) of the Securities Act as alleged
above, based on their having signed or authorized the signing of the Registration
Statement and having otherwise participated in the process which allowed the IPO
to be successfully completed.
24
79.
This claim is brought within one year after discovery of the untrue
statements and/or omissions in the Offering that should have been made and/or
corrected through the exercise of reasonable diligence, and within three years of
the effective date of the Offering. It is therefore timely.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, on behalf of himself and the Class, prays for
judgment and relief as follows:
(a)
declaring this action to be 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 designating Plaintiff’s counsel as Lead
Counsel;
(b)
awarding damages in favor of Plaintiff and the other Class members
against all Defendants, jointly and severally, together with interest thereon;
(c)
awarding Plaintiff and the Class reasonable costs and expenses
incurred in this action, including counsel fees and expert fees; and
(d)
awarding Plaintiff and other members of the Class such other and
further relief as the Court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
Dated: September 9, 2020
THE ROSEN LAW FIRM, P.A.
/s/Laurence M. Rosen
Laurence M. Rosen (SBN 219683)
355 South Grand Avenue, Suite 2450
Los Angeles, CA 90071
Telephone: (213) 785-2610
Facsimile: (213) 226-4684
Email: [email protected]
Counsel for Plaintiff
25
| securities |
U-afEYcBD5gMZwcz4pNW | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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LESHAWN DAWSON, on behalf of himself and
all others similarly situated,
Plaintiffs,
CLASS ACTION COMPLAINT
v.
AND
DEMAND FOR JURY TRIAL
CIGAR.COM, INC.,
Defendant.
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INTRODUCTION
1.
Plaintiff LESHAWN DAWSON, on behalf of himself and others similarly situated,
asserts the following claims against Defendant CIGAR.COM, INC. 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.cigar.com (the “Website” or “Defendant’s
website”), is not equally accessible to blind and visually-impaired consumers, it
violates the ADA. Plaintiff seeks a permanent injunction to cause a change in
Defendant’s corporate policies, practices, and procedures so that Defendant’s
website will become and remain accessible to blind and visually-impaired
consumers.
JURISDICTION AND VENUE
6.
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. § 1281, 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 State Human Rights Law, N.Y. Exec. Law Article 15, (“NYSHRL”) and
New York City Human Rights Law, N.Y.C. Admin. Code § 8-101 et seq.,
(“NYCHRL”) claims.
8.
Venue is proper in this district under 28 U.S.C. §1391(b)(1) and (2) because
Defendant conducts and continues to conduct a substantial and significant amount
of business in this District, 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 LESHAWN DAWSON, at all relevant times, is a resident of Brooklyn,
New York. Plaintiff is a blind, visually-impaired handicapped person and a member
of member of a protected class of individuals under the ADA, under 42 U.S.C. §
12102(1)-(2), and the regulations implementing the ADA set forth at 28 CFR §§
36.101 et seq., the NYSHRL and NYCHRL.
12.
Defendant is and was at all relevant times a Delaware Corporation doing business
in the United States, including New York.
13.
Defendant’s Website, and its facilities, goods, and services offered thereupon, is a
public accommodation within the definition of Title III of the ADA, 42 U.S.C. §
12181(7).
NATURE OF ACTION
14.
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.
15.
In today’s tech-savvy world, blind and visually-impaired people have the ability to
access websites using keyboards in conjunction with screen access software that
vocalizes the visual information found on a computer screen or displays the content
on a refreshable Braille display. This technology is known as screen-reading
software. Screen-reading software is currently the only method a blind or visually-
impaired person may independently access the internet. Unless websites are
designed to be read by screen-reading software, blind and visually-impaired
persons are unable to fully access websites, and the information, products, goods
and contained thereon.
16.
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.
17.
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.
18.
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.
19.
Non-compliant websites pose common access barriers to blind and visually-
impaired persons. Common barriers encountered by blind and visually impaired
persons include, but are not limited to, the following:
a.
A text equivalent for every non-text element is not provided;
b.
Title frames with text are not provided for identification and
navigation;
c.
Equivalent text is not provided when using scripts;
d.
Forms with the same information and functionality as for sighted
persons are not provided;
e.
Information about the meaning and structure of content is not
conveyed by more than the visual presentation of content;
f.
Text cannot be resized without assistive technology up to 200%
without losing content or functionality;
g.
If the content enforces a time limit, the user is not able to extend,
adjust or disable it;
h.
Web pages do not have titles that describe the topic or purpose;
i.
The purpose of each link cannot be determined from the link text
alone or from the link text and its programmatically determined link
context;
j.
One or more keyboard operable user interface lacks a mode of
operation where the keyboard focus indicator is discernible;
k.
The default human language of each web page cannot be
programmatically determined;
l.
When a component receives focus, it may initiate a change in
context;
m.
Changing the setting of a user interface component may
automatically cause a change of context where the user has not been advised
before using the component;
n.
Labels or instructions are not provided when content requires user
input, which include captcha prompts that require the user to verify that he
or she is not a robot;
o.
In content which is implemented by using markup languages,
elements do not have complete start and end tags, elements are not nested
according to their specifications, elements may contain duplicate attributes,
and/or any IDs are not unique;
p.
Inaccessible Portable Document Format (PDFs); and,
q.
The name and role of all User Interface elements cannot be
programmatically determined; items that can be set by the user cannot be
programmatically set; and/or notification of changes to these items is not
available to user agents, including assistive technology.
STATEMENT OF FACTS
Defendant’s Barriers on Its Website
20.
Defendant is a cigar retail company that operates www.cigar.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.
21.
Defendant operates and distributes its products throughout the United States,
including New York.
22.
Defendant’s Website provides consumers with access to an array of goods and
services, including the ability to browse products for delivery, including cigar and
related tobacco products, find information on promotions, as well as related goods
and services available online.
23.
Defendant offers the commercial website, www.cigar.com, to the public. The
website offers features which should allow all consumers to access the goods and
services whereby Defendant allows for the delivery of those ordered goods to
consumers throughout the United States, including New York State. The goods and
services offered by Defendant include, but are not limited to the following: the
ability to browse specific cigar and related tobacco products available for purchase
and delivery, find information on promotions, and related goods and services
available online.
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 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.
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 February 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, by being unable to learn more information, the ability to
browse cigar and related tobacco products available for delivery, find information
on promotions, and related goods and services available online.
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 prospective customers are unable to determine what is on the
website, browse, look for Station locations and hours, the ability to browse
the products, find information on promotions, and related goods and
services available both in Website and online.
b.
Empty Links That Contain No Text causing the function or purpose
of the link to not be presented to the user. This 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.
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, products, and services Defendant offers to the public on its
Website. The access barriers Plaintiff encountered have caused a denial of
Plaintiff’s full and equal access in the past, and now deter Plaintiff on a regular
basis from visiting the Website, presently and in the future.
29.
These access barriers on Defendant’s Website have deterred Plaintiff from learning
about those specific Cigar and related tobacco products available for purchase and
delivery, and enjoying them equal to sighted individuals because: Plaintiff was
unable to determine and or purchase items from its Website, among other things.
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,
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 . . . 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).
35.
Because Defendant’s Website have 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 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 2.0 guidelines;
b.
Regularly check the accessibility of the Website under the WCAG
2.0 guidelines;
c.
Regularly test user accessibility by blind or vision-impaired persons
to ensure that Defendant’s Website complies under the WCAG 2.0
guidelines; and,
d.
Develop an accessibility policy that is clearly disclosed on Defendant’s
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, shop for and otherwise
research related goods and services available 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
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,
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 those
services, 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, 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
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 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 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. § 1281 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 NYSHRL
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 Website and its’ sale of goods to the general public, constitute sales
establishments and public accommodations within the definition of N.Y. Exec. Law
§ 292(9). Defendant’s Website is a service, privilege or advantage of Defendant.
59.
Defendant is subject to New York Human Rights Law because it owns and operates
its 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 to be completely inaccessible to
the blind. This inaccessibility denies blind patrons full and equal access to the
facilities, 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,
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
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 products, services, facilities, privileges, advantages,
accommodations and/or opportunities of Defendant’s Website 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.
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 Website is a service, privilege or advantage of Defendant and its
Website which offers such goods and services to the general public is required to
be equally accessible to all.
76.
Defendant is subject to New York Civil Rights Law because it owns and operates
their Website, and 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 goods and
services integrated with such 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.
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.
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 Website is a sales establishment and public accommodations within
the definition of N.Y.C. Admin. Code § 8-102(9).
86.
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).
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 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.
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.
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 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.
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.
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
products, services and facilities of its Website, which Defendant owns, operations
and controls, fails to comply with applicable laws including, but not limited to, Title
III of the Americans with Disabilities Act, 42 U.S.C. §§ 12182, et seq., N.Y. Exec.
Law § 296, et seq., and N.Y.C. Admin. Code § 8-107, et seq. prohibiting
discrimination against the blind.
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 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. Exec. Law § 296, et seq., N.Y.C. Administrative Code § 8-107, et seq.,
and the laws of New York;
b.
A preliminary and permanent injunction requiring Defendant to take
all the steps necessary to make its Website into full compliance with the
requirements set forth in the ADA, and its implementing regulations, so that
the Website is readily accessible to and usable by blind individuals;
c.
A declaration that Defendant owns, maintains and/or operates its
Website in a manner that discriminates against the blind and which fails to
provide access for persons with disabilities as required by Americans with
Disabilities Act, 42 U.S.C. §§ 12182, et seq., N.Y. Exec. Law § 296, et seq.,
N.Y.C. Administrative Code § 8-107, et seq., and the laws of New York
d.
An order certifying the Class and Sub-Classes under Fed. R. Civ. P.
23(a) & (b)(2) and/or (b)(3), appointing Plaintiff as Class Representative,
and 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 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: Brooklyn, New York
February 12, 2019
COHEN & MIZRAHI LLP
By: ___________________
Joseph H. Mizrahi, Esq.
[email protected]
300 Cadman Plaza West, 12th Fl.
Brooklyn, New York 11201
Tel: (929) 575-4175
Fax: (929) 575-4195
GOTTLIEB & ASSOCIATES
Jeffrey M. Gottlieb (JG7905)
[email protected]
Dana L. Gottlieb (DG6151)
[email protected]
150 East 18th Street, Suite PHR
New York, N.Y. 10003-2461
Telephone: (212) 228-9795
ATTORNEYS FOR PLAINTIFF
| civil rights, immigration, family |
0rtVDIcBD5gMZwczmvER | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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JAMES MURPHY, AND ON BEHALF OF ALL
OTHER PERSONS SIMILARLY SITUATED
Plaintiffs,
v.
ECF CASE
No.: 1:19-cv- 7845
CLASS ACTION COMPLAINT
JURY TRIAL DEMANDED
OLD POST AND PONY LLC,
Defendant.
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INTRODUCTION
1.
Plaintiff, JAMES MURPHY, and on behalf of all other persons similarly
situated (“Plaintiff”), asserts the following claims against Defendant, OLD POST AND
PONY LLC (“Defendant” or “Bedford Post Inn”), as follows.
2.
Plaintiff is a visually-impaired and legally blind person who requires
screen-reading software to read website content using his computer. Plaintiff uses the terms
“blind” or “visually-impaired” to refer to all people with visual impairments who meet the
legal definition of blindness in that they have a visual acuity with correction of less than or
equal to 20 x 200. Some blind people who meet their definition have limited vision. Others
have no vision.
3.
Based on a 2010 U.S. Census Bureau report, approximately 8.1 million
people in the United States are visually impaired, including 2.0 million who are blind, and
according to the American Foundation for the Blind’s 2015 report, approximately 400,000
visually impaired persons live in the State of New York.
4.
Plaintiff asserts claims under the Americans With Disabilities Act
(“ADA”), New York State Human Rights Law (“NYSHRL”) and New York City Human
Rights Law (“NYCHRL”) against Defendant.
5.
Because Defendant’s website https://www.bedfordpostinn.com/, (the
“Website” or “Defendant’s Website”) is not equally accessible to blind and visually-
impaired consumers and violates the ADA for its failure to design, construct, maintain, and
operate its website to be fully accessible to and independently usable by Plaintiff and other
blind or visually-impaired people. Defendant’s denial of full and equal access to its
website, and therefore denial of its products and services offered thereby and in conjunction
with its physical location, is a violation of Plaintiff’s rights under the Americans with
Disabilities Act (“ADA”).
6.
The 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.
7.
Because Defendant’s Website, https://www.bedfordpostinn.com/, is not
equally accessible to blind and visually-impaired consumers because it violates the ADA
and fails to identify and describe accessible features in the hotel and guest rooms offered
through its reservations service on its Website in enough detail to reasonably permit
individuals with disabilities such as the Plaintiff to assess independently whether a given
hotel or guest room meets his or her accessibility needs, it violates the provisions of the
ADA including certain regulations promulgated thereunder (28 C.F.R. § 36.302(e)(1)).
8.
Plaintiff seeks a permanent injunction to cause a change in Defendant’s
corporate policies, practices, and procedures so that Defendant’s Website will include
information as to accessibility features in their hotel and guest rooms to reasonably permit
individuals with disabilities, including Plaintiff, to assess independently whether
Defendant’s hotel or guest rooms meet his or her accessibility needs so that Defendant’s
hotel becomes and remains accessible to blind and visually-impaired consumers. See,
Poschmann v. Coral Reef of Key Biscayne Developers, Inc., (U.S.D.C. SDFL, May 23,
2108), WL 3387679, Lexis 87457.
JURISDICTION AND VENUE
9.
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.
10.
The Court has supplemental jurisdiction under 28 U.S.C. § 1367 over
Plaintiff’s New York State Human Rights Law, N.Y. Exec. Law Article 15, (“NYSHRL”)
and New York City Human Rights Law, N.Y.C. Admin. Code § 8-101 et seq.,
(“NYCHRL”) claims.
11.
Venue is proper in this District under 28 U.S.C. §1391(b)(1) and (2) because
Defendant’s does business by owning, managing, operating and/or marketing a hotel in
New York to residents in this District and would thereby be considered a resident of this
District if it were a separate state and 28 U.S.C. §1391(d) because a substantial part of the
events giving rise to this claim occurred in this District due to the Plaintiff attempting to
access the Defendant’s website from his home in New York county.
12.
Defendant is subject to personal jurisdiction in this District. Defendant has
been and is committing the acts or omissions alleged herein in the Southern District of New
York that caused injury, and violated rights the ADA prescribes to Plaintiff and to other
blind and other visually impaired-consumers. Plaintiff has been denied the full use and
enjoyment of the Defendant’s facilities, goods, and services of Defendant’s physical hotel
as a result of Defendant’s failure to include information relating to the accessibility features
of its facilities and information relating to its accessible guest rooms in enough detail on
its reservation system to permit Plaintiff to assess whether the facility and/or the guest room
meets its individual needs. The lack of information on the Website reservation system has
caused a denial of Plaintiff’s full and equal access to Defendant’s hotel.
13.
Plaintiff has been denied the full use and enjoyment of the facilities, goods,
and services of Defendant’s Website with respect to Defendant’s hotel located in New
York. These access barriers that Plaintiff encountered have caused a denial of Plaintiff’s
full and equal access multiple times in the past, and now deter Plaintiff on a regular basis
from visiting Defendant’s brick-and mortar hotel location. This includes, Plaintiff
attempting to obtain information about Defendant’s hotel (location and hours and other
important information) in New York County.
14.
The Court is empowered to issue a declaratory judgment under 28 U.S.C.
§§ 2201 and 2202.
THE PARTIES
15.
Plaintiff, at all relevant times, is a resident of New York county. Plaintiff
is a blind, visually-impaired handicapped person and a member of a protected class of
individuals under the ADA, under 42 U.S.C. § 12102(1)-(2), and the regulations
implementing the ADA set forth at 28 CFR §§ 36.101 et seq., the NYSHRL and NYCHRL.
16.
Defendant, Old Post and Pony LLC, is and was, at all relevant times herein,
registered to do business in New York State and is a New York Domestic Limited Liability
Company that owns, operates and manages the Bedford Post Inn located at 954 Old Post
Road, Bedford, NY 10506. Defendant’s principal executive offices are located at 954 Old
Post Road, Bedford, NY 10506.
17.
The Bedford Post Inn is a hotel in New York that offers a unique lodging
experience to tourists visiting the Bedford, New York area and markets to residents of the
City of New York, as well as to residents throughout New York.
18.
The Defendant gives access to their hotel’s reservation system by way of
offering a link on their website. These links on the Defendant’s Website, connect its users
with the reservation of system of their hotel so that users may make a reservation and/or
contact the property for more information, such as amenities, special offers, and property
location.
NATURE OF ACTION
19.
The Internet has become a significant source of information, a portal, and a
tool for conducting business, doing everyday activities such as shopping, learning, banking,
researching, choosing hotel accommodations, as well as many other activities for sighted,
blind and visually-impaired persons alike.
20.
Blind and visually-impaired people have the ability to access websites using
keyboards in conjunction with screen access software that vocalizes the visual information
found on a computer screen or displays the content on a refreshable Braille display. Their
technology is known as screen-reading software. Screen-reading software is currently the
only method a blind or visually-impaired person may independently access the Internet.
Unless websites are designed to be read by screen-reading software, blind and visually-
impaired persons are unable to fully access websites, and the information, products, and
services contained thereon.
21.
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.
22.
For screen-reading software to function, the information on a website must
be capable of being rendered into text. If the website content is not capable of being
rendered into text, the blind or visually-impaired user is unable to access the same content
available to sighted users.
23.
The international website standards organization, the World Wide Web
Consortium, known throughout the world as W3C, has published version 2.0 of the Web
Content Accessibility Guidelines (“WCAG 2.0”). WCAG 2.0 are well-established
guidelines for making websites accessible to blind and visually-impaired people. These
guidelines are universally followed by most large business entities, most Courts and
government agencies to ensure their websites are accessible.
24.
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
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.
25.
On March 15, 2012, the revised regulations implementing Title III of the
ADA took effect, imposing significant new obligations on inns, motels, hotels and other
“places of lodging,” specifically, 28 C.F.R. § 36.302(e)(i) provides that:
Reservations made by places of lodging. A public accommodation that owns, leases (or
leases to), or operates a place of lodging shall, with respect to reservations made by any
means, including by telephone, in person, or by a third party ---
(i)
Modify its policies, practices, or procedures to ensure that
individuals with disabilities can make reservations for accessible
guest rooms during the same hours and in the same manner as
individuals who do not need accessible rooms;
(ii)
Identify and describe accessible features in the hotels and guest
rooms offered through its reservations service in enough detail to
reasonably
permit individuals with disabilities to assess
independently whether a given hotel or guest room meets his or her
accessibility needs;
(iii)
Ensure that accessible guest rooms are held for use by individuals
with disabilities until all other guest rooms of that type;
(iv)
Reserve, upon request, accessible guest rooms or specific types of
guest rooms and ensure that the guest rooms requested are blocked
and removed from all reservation systems; and
(v)
Guarantee that the specific accessible guest room or guest rooms
reserved through its reservations service is held for the reserving
customer, regardless of whether a specific room is held in response
to reservations made by others
26.
Hotels are required to identify and describe all accessible features in the
hotel and guest rooms; “[t]his requirement is essential to ensure individuals with
disabilities receive information they need to benefit from the services offered by the place
of lodging.” 28 C.F.R. Part 36, Appx. A. Moreover, “a public accommodation’s
designation of a guest room as ‘accessible’ does not ensure necessarily that the room
complies with all of the 1991 Standards.” 28 C.F.R. Part 36, Appx. A. Labeling a guest
room as “accessible” or “ADA” is not sufficient. Accordingly, Defendant is required to
set forth specific accessible features and not merely recite that a guest room is “accessible”
or “ADA compliant” or list accessibility features that may (or may not) be offered within
a particular room.
27.
For hotels in buildings constructed after the effective date of 1991, such as
many of Defendant’s hotels the regulations provide that it is sufficient to advise that the
hotel itself is fully ADA compliant, and for each accessible guest room, to specify the room
type, the type of accessible bathing facility in the room, and the communications features
in the room. 28 C.F.R. Part 36, Appx. A. For hotels built before the effective date in 1991,
there is detailed information relating to the description of individual accessibility features
that the hotel is also required to disclose.
28.
In promulgating these new requirements, it is clear that the intention of the
Department of Justice is to ensure that individuals with disabilities should be able to reserve
hotel rooms with the same efficiency, immediacy, and convenience as those who do not
need accessible guest rooms. 28 C.F.R. Part 36, Appx. A.
STATEMENT OF FACTS
Defendant’s Barriers on Its Website
29.
Defendant offers the commercial website https://www.bedfordpostinn.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 location. The
goods and services offered by Defendant include, but are not limited to the following,
which allow consumers to: find information about hotel location and hours of operation,
various promotions, dining and entertainment options, including on-site restaurants, pool
access, yoga workshops, private group events and access to various other goods and
services.
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 and integrated
with Defendant’s hotel. 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’ hotel and the numerous goods, services, and benefits offered
to the public through the Website.
31.
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.
32.
During Plaintiff’s visits to the Website, the last occurring in August, 2019,
Plaintiff encountered multiple access barriers that denied Plaintiff full and equal access to
the facilities, goods and services offered to the public and made available to the public; and
that denied Plaintiff the full enjoyment of the facilities, goods, and services of the Website,
as well as to the facilities, goods, and services of Defendant’s physical location in New
York by being unable to learn more information on the hotel location and hours,
information about Defendant’s products and services like the different types of dining and
entertainment options, on-site restaurants, pool access, yoga workshops, private group
events, and access to various other goods and services.
33.
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 Bativia
Downs’ customers are unable to determine what is on the website, browse, look for hotel
location and hours of operation, various promotions, and access to various other goods and
services;
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;
d.
Linked Images Missing Alt-text, which causes problems if an image
within a link contains no text and that image does not provide alt-text. A screen reader then
has no content to present the user as to the function of the link, including information
contained in PDFs.
Defendant Must Remove Barriers To Its Website
34.
Due to the inaccessibility of Defendant’s Website, blind and visually-
impaired customers such as Plaintiff, who need screen-readers, cannot fully and equally
use or enjoy the facilities, goods, and services Defendant offers to the public on its Website.
The access barriers Plaintiff encountered have caused a denial of Plaintiff’s full and equal
access in the past, and now deter Plaintiff on a regular basis from accessing the Website.
35.
These access barriers on Defendant’s Website have deterred Plaintiff from
visiting Defendant’s physical hotel location, and enjoying them equal to sighted individuals
because: Plaintiff was unable to find the location and hours of operation of Defendant’s
physical hotel on its Website and other important information, preventing Plaintiff from
visiting the location, access to promotions, and access to various other goods and services
such as finding information about dining and entertainment options, its on-site restaurants,
pool access, yoga workshops, and private group events.
36.
If the Website was equally accessible to all, Plaintiff could independently
navigate the Website and complete a desired transaction as sighted individuals do.
37.
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.
38.
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;
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.
39.
Defendant therefore uses standards, criteria or methods of administration
that have the effect of discriminating or perpetuating the discrimination of others, as
alleged herein.
40.
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).
41.
Because Defendant’s Website has never been equally accessible, and
because Defendant lacks a corporate policy that is reasonably calculated to cause its
Website to become and remain accessible, Plaintiff invokes 42 U.S.C. § 12188(a)(2) and
seeks a permanent injunction requiring Defendant to retain a qualified consultant
acceptable to Plaintiff (“Agreed Upon Consultant”) to assist Defendant to comply with
WCAG 2.0 guidelines for Defendant’s Website. Plaintiff seeks that their permanent
injunction requires Defendant to cooperate with the Agreed Upon Consultant to:
a.
Train Defendant’s employees and agents who develop the Website
on accessibility compliance under the WCAG 2.0 guidelines;
b.
Regularly check the accessibility of the Website under the WCAG
2.0 guidelines;
c.
Regularly test user accessibility by blind or vision-impaired persons
to ensure that Defendant’s Website complies under the WCAG 2.0 guidelines; and,
d.
Develop an accessibility policy that is clearly disclosed on
Defendant’s Websites, with contact information for users to report accessibility-related
problems.
42.
If the Website was accessible, Plaintiff and similarly situated blind and
visually-impaired people could independently view the different types of various
promotions, access various other goods and services, locate Defendant’s hotel location and
hours of operation, and shop for and otherwise research related goods and services
available via the Website such as dining and entertainment options, including on-site
restaurants, pool access, yoga workshops, and private group events.
43.
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.
44.
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.
45.
Without injunctive relief, Plaintiff and other visually-impaired consumers
will continue to be unable to independently use the Website, violating their rights.
Defendant’s Website and Compliance with
Requirement to Describe Accessibility Features
46.
Defendant owns and operates a hotel in New York. This location also offers
dining and entertainment options and other amenities, including on-site restaurants, pool
access, yoga workshops, and private group events.
47.
Defendant’s Website offers features to the public that should allow all
consumers to access the facilities and services that it offers about their hotel. The Website
is heavily integrated with their hotel, serving as their gateway.
48.
It is, upon information and belief, Defendant’s policy and practice to deny
Plaintiff, along with other blind or visually-impaired users, using Defendant’s Website
access to information through their reservation system relating to the availability of ADA
compliant rooms and handicap accessible features of the hotel, and to therefore specifically
deny the goods and services that are offered and integrated with Defendant’s hotel. Due
to Defendant’s failure and refusal to add information through their reservation system
relating to its accessibility for visually-impaired persons on their Website, Plaintiff and
visually-impaired persons have been and are still being denied equal access to Defendant’s
hotel and the numerous goods, services, and benefits offered to the public at Defendant’s
49.
Plaintiff is a visually-impaired and legally blind person, who cannot use a
computer without the assistance of screen-reading software. Plaintiff is, however, a
proficient JAWS screen-reader user and uses it to access the Internet. Plaintiff has visited
the Defendant’s Website on separate occasions using the JAWS screen-reader.
50.
During Plaintiff’s visits to the Website, last occurring in August, 2019,
Plaintiff was not able to determine from the reservation system on the Website what ADA
compliant features, if any, the hotel offers and whether the guest rooms have handicap
accessible facilities or communications equipment in the guest rooms suitable to blind or
visually-impaired persons. As a result, Plaintiff has been denied full and equal access to
the facilities, goods and services offered to the public and made available to the public; and
that denied Plaintiff the full enjoyment of the facilities, goods, and services of Defendant’s
physical location in New York State by being unable to learn any information about the
accessibility features of the hotel or its guest rooms.
Defendant Must Include Information Relating to ADA Compliant Rooms
and Handicap Accessibility Features Through Its Website Reservation System
51.
Due to the lack of information relating to the accessibility features of
Defendant’s hotel through the reservation system on the Website, blind and visually-
impaired customers such as Plaintiff, who need screen-readers, cannot fully and equally
use or enjoy the facilities, goods, and services Defendant offers to the public in their hotel.
The access barriers Plaintiff encountered have caused a denial of Plaintiff’s full and equal
access in the past, and now deter Plaintiff on a regular basis using the services that the hotel
offers to the public because of the lack of information on accessibility through the
reservation system on the Website. Plaintiff intends to visit Defendant’s hotel or book
rooms in Defendant’s hotel in the future if the Plaintiff was able to learn about the
accessibility of Defendant’s hotel and guest rooms for blind and vision-impaired persons
through the reservation system on their website and those accessibility features meet the
needs of the Plaintiff.
52.
These access barriers on Defendant’s Website reservation system have
deterred Plaintiff from visiting Defendant’s physical location, and enjoying them equal to
sighted individuals because: Plaintiff was unable to find information on the Website
reservation system relating to the accessibility of the hotel guest rooms for blind and
visually-impaired people and other important information, preventing Plaintiff from
reserving a room at the hotel, staying at the hotel and using the facilities of the hotel
including its dining and entertainment options, including on-site restaurants, pool access,
yoga workshops, and private group events.
53.
If the hotel and the Website reservation system were equally accessible to
all, Plaintiff could independently navigate the Website and complete a desired transaction
as sighted individuals do.
54.
Through visiting the Website, Plaintiff has actual knowledge of the lack of
information on accessibility features available on the reservation system on the Website
that result in making the services and facilities of the hotel inaccessible and independently
unusable by blind and visually-impaired people.
55.
Because simple compliance with the provisions of the ADA relating to
providing information about accessibility features of the hotel and the guest rooms on its
Website reservation system would provide Plaintiff and other visually-impaired consumers
with equal access to the services and facilities at Defendant’s hotel, Plaintiff alleges that
Defendant has engaged in acts of intentional discrimination, including, but not limited to,
the failure to provide information on its Website reservation system sufficient to advise
that the hotel is fully ADA compliant, and for each accessible guest room, to specify the
room type, the type of accessible facility in the room, and the communications features in
the room.
56.
Defendant therefore use standards, criteria or methods of administration that
have the effect of discriminating or perpetuating the discrimination of others, as alleged
57.
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).
58.
Because Defendant’s Website reservation system has never included the
required information, and because Defendant lacks a corporate policy that is reasonably
calculated to cause the Website reservation system to include the required information
relating to accessibility, Plaintiff invokes 42 U.S.C. § 12188(a)(2) and seeks a permanent
injunction requiring Defendant to retain a qualified consultant acceptable to Plaintiff
(“Agreed Upon Consultant”) to assist Defendant to comply with the ADA regulations
requiring certain accessibility information to be included on Defendant’s Website
reservation system. Plaintiff seeks that their permanent injunction requires Defendant to
cooperate with the Agreed Upon Consultant to:
a.
Train Defendant’s employees and agents who develop the Website
for accessibility and compliance to identify and describe accessible features in the hotel
and guest rooms on the Website reservation system and a statement that the hotel is fully
ADA compliant, and for each accessible guest room, to specify the room type, the type of
accessible facility in the room including a detailed description of the features of such
facility so that a blind or visually-impaired person can determine if the features meet such
person’s needs, and the communications features in the room including a detailed
description of the communications features so that a blind or visually-impaired person can
independently determine if the features meet such person’s needs, including, but not
limited to:
1. Whether Defendant’s employees and agents such as managers, bell staff,
doormen, concierges, transportation providers, security personnel, front desk
and other staff are trained to assist blind and vision-impaired guests with basic
needs such as: completing the hotel registration; learning about and completing
service requests like laundry, dry cleaning, valet, shipping, etc.; reviewing the
hotel bill and charges; counting and identifying currency; using a signature
guide or template in conjunction with their credit card; using a passcard-type of
key; luggage rooms, business center, pool, rest rooms; orienting guests to hotel
and guest room layouts; location of fire alarms, emergency exits and equipment;
heating and air conditioning controls; TV remote controls; message retrieval
system; automated wake-up systems; and safe deposit box.
2. Whether Defendant accepts guide dogs and, if so, if there are any charges
associated with the guide dogs, their policies with respect to guide dogs and if
there are any rest areas for guide dogs.
3. Whether the hotel provides a braille and/or large print menu for restaurants
and, in the alternative, if they have trained staff to read the menu to blind or
vision-impaired guests.
4. Whether or not emergency exit signs are compliant with ADAAG1
requirements and emergency evacuation plans and information are provided in
braille and large print.
1 ADA Accessibility Guidelines promulgated by the United States Access Board
5. Whether or not all accessible signage complies with the requirements of the
ADAAG.
6. Whether or not the stairs, escalators and elevators comply with ADAAG
standards, such as braille for floor numbers in the elevator and a verbal
annunciator for each floor.
7. Whether or not the hotel has removed or protected protruding objects which
protrude more than 4” into walkways and hallways such as drinking fountains,
fire extinguishers, and planters and if they provide cane detectable warnings for
the underside of stairways.
8. Whether or not the guest rooms contain tactile and large print thermostat
controls and talking/large print clocks.
9. Whether or not signage in the hotel can be easily located by blind and
vision-impaired persons with 2” minimum height raised letters and braille
characters centered at 60” above the finished floor to indicate floor numbers,
rest rooms, lobby, vending and ice machines and all other hotel facilities and
amenities.
b.
Regularly check the accessibility of the Website and its reservation
system under the WCAG 2.0 guidelines;
c.
Regularly test user accessibility by blind or vision-impaired persons
to ensure that Defendant’s Website and the reservation system complies under the WCAG
2.0 guidelines; and
d.
Regularly check the hotel and the guest rooms to ensure that the
accessibility features that they describe on its website reservation system are in fact
available and properly maintained.
59.
If the ADA-required information is included on the Website reservation
system, Plaintiff and similarly situated blind and visually-impaired people could
independently determine through use of the Website if Defendant’s hotel and guest rooms
are ADA compliant and if the facilities described relating the facilities and communications
equipment in guest rooms are acceptable to the Plaintiff and similarly situated blind and
visually-impaired people
60.
Although Defendant may currently have centralized policies regarding
maintaining and operating its Website and the inclusion of information on the Website,
Defendant lacks a plan and policy reasonably calculated to include the ADA-required
information on the Website reservation system to make such information fully and equally
accessible to, and independently usable by, blind and other visually-impaired consumers.
61.
Defendant has, upon information and belief, invested substantial sums in
developing and maintaining the Website and has generated significant revenue from the
Website. These amounts are far greater than the associated cost of including the
information required under the ADA regulations on the Website reservation system in
order to make its facilities and guest rooms equally accessible to visually impaired
customers.
62.
Without injunctive relief, Plaintiff and other visually-impaired consumers
will continue to be unable to independently use the Website reservation system to obtain
information relating to ADA accessibility of the hotel and their guest rooms, violating their
CLASS ACTION ALLEGATIONS
63.
Plaintiff, on behalf of himself and all others similarly situated, seeks to
certify a nationwide class under Fed. R. Civ. P. 23(a) and 23(b)(2): all legally blind
individuals in the United States who have attempted to access Defendant’s Website to
obtain the ADA-required accessibility information and as a result have been denied access
to the equal enjoyment of goods and services offered in Defendant’s physical location,
during the relevant statutory period.
64.
Plaintiff, on behalf of himself and all others similarly situated, seeks to
certify a New York State subclass under Fed. R. Civ. P. 23(a) and 23(b)(2): all legally blind
individuals in the State of New York who have attempted to access Defendant’s Website
to obtain the ADA-required information and as a result have been denied access to the
equal enjoyment of goods and services offered in Defendant’s physical location, during the
relevant statutory period.
65.
Plaintiff, on behalf of himself and all others similarly situated, seeks to
certify a New York City subclass under Fed. R. Civ. P. 23(a) and 23(b)(2): all legally blind
individuals in the City of New York who have attempted to access Defendant’s Website to
obtain the ADA-required information and as a result have been denied access to the equal
enjoyment of goods and services offered in Defendant’s physical location, during the
relevant statutory period.
66.
Common questions of law and fact exist amongst Class, including:
a.
Whether Defendant’s Website reservation system contains the
information on accessibility required under the ADA regulations;
b.
Whether Defendant’s Website is a “place or provider of public
accommodation” under the NYSHRL or NYCHRL;
c.
Whether Defendant’s Website denies the full and equal enjoyment
of its goods, services, facilities, privileges, advantages, or accommodations to people with
visual disabilities, violating the ADA; and
d.
Whether Defendant’s Website denies the full and equal enjoyment
of its goods, services, facilities, privileges, advantages, or accommodations to people with
visual disabilities, violating the NYSHRL or NYCHRL.
67.
Plaintiff’s claims are typical of the Class. The Class, similarly to the
Plaintiff, are severely visually impaired or otherwise blind, and claim that Defendant has
violated the ADA, NYSHRL or NYCHRL by failing to include the ADA-required
information on the Website reservation system so individuals with disabilities can
independently assess if Defendant’s hotel or guest rooms meet the accessibility needs of
the Plaintiff and the Class.
68.
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.
69.
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.
70.
Judicial economy will be served by maintaining their lawsuit as a class
action in that it is likely to avoid the burden that would be otherwise placed upon the
judicial system by the filing of numerous similar suits by people with visual disabilities
throughout the United States.
FIRST CAUSE OF ACTION
VIOLATIONS OF THE ADA, 42 U.S.C. § 12181 et seq.
71.
Plaintiff, on behalf of himself and the Class Members, repeats and realleges
every allegation of the preceding paragraphs as if fully set forth herein.
72.
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).
73.
Defendant’s hotel is a place of public accommodation within the definition
of Title III of the ADA, 42 U.S.C. § 12181(7)(A). Defendant’s Website is a service,
privilege, or advantage of Defendant’s hotel. The Website is a service that is integrated
with the Defendant’s hotel and is a gateway thereto.
74.
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).
75.
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).
76.
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).
77.
The acts alleged herein constitute violations of Title III of the ADA, and the
regulations promulgated thereunder. Plaintiff, who is a member of a protected class of
persons under the ADA, has a physical disability that substantially limits the major life
activity of sight within the meaning of 42 U.S.C. §§ 12102(1)(A)-(2)(A). Furthermore,
Plaintiff has been denied full and equal access to the ADA-required information on the
Website reservation system, and, as a result, has not been provided services that are
provided to other patrons who are not disabled, and has been provided services that are
inferior to the services provided to non-disabled persons. Defendant has failed to take any
prompt and equitable steps to remedy its discriminatory conduct. These violations are
ongoing.
78.
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
79.
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
80.
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.”
81.
Defendant’s physical hotel is located in the State of New York and
constitute a 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 heavily integrated with the physical location and is a gateway
thereto.
82.
Defendant is subject to New York Human Rights Law because it owns and
operates its physical location and Website. The Defendant is a person within the meaning
of N.Y. Exec. Law § 292(1).
83.
Defendant is violating N.Y. Exec. Law § 296(2)(a) in refusing to include
the ADA-required information on the Website reservation system, causing the Website and
the services integrated with Defendant’s physical location 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.
84.
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."
85.
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.”
86.
Readily available, well-established guidelines exist on the Internet for
including the ADA-required information on websites making such websites accessible to
the blind and visually impaired. Incorporating the basic components to make the Website
reservation system include the ADA-required information would neither fundamentally
alter the nature of Defendant’s business nor result in an undue burden to Defendant.
87.
Defendant’s actions constitute willful intentional discrimination against the
class on the basis of a disability in violation of the NYSHRL, N.Y. Exec. Law § 296(2) in
that Defendant has:
a.
constructed and maintained a website that does not contain the
ADA-required information on its reservation system making their hotel inaccessible to
blind class members with knowledge of the discrimination; and/or
b.
failed to take actions to correct the lack of the ADA-required
information in the face of substantial harm and discrimination to blind class members.
88.
Defendant has failed to take any prompt and equitable steps to remedy their
discriminatory conduct. These violations are ongoing.
89.
Defendant discriminates, and will continue in the future to discriminate
against Plaintiff and New York State Sub-Class Members on the basis of disability in the
full and equal enjoyment of the goods, services, facilities, privileges, advantages,
accommodations and/or opportunities of Defendant’s Website and their physical location
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.
90.
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.
91.
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.
92.
Plaintiff is also entitled to reasonable attorneys’ fees and costs.
93.
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
94.
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
95.
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.”
96.
Defendant’s hotel is a place of public accommodation within the definition
of N.Y.C. Admin. Code § 8-102(9), and the Website is a service that is integrated with
their establishments.
97.
Defendant is subject to NYCHRL because it owns and operates a physical
location in New York and the Website, making the Defendant a person within the meaning
of N.Y.C. Admin. Code § 8-102(1).
98.
Defendant is violating N.Y.C. Administrative Code § 8-107(4)(a) in
refusing to update the Website and remove access barriers to its hotel by failing to include
the ADA-required information on its reservation system, causing the services integrated
with their 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.
99.
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).
100.
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 does not contain the
ADA-required information on its reservation system making their hotel inaccessible to
blind class members with knowledge of the discrimination; and/or
b.
constructed and maintained a website that is inaccessible to blind
class members with knowledge of the discrimination; and/or
c.
constructed and maintained a website that is not sufficiently
intuitive and/or obvious that is inaccessible to blind class members; and/or
d.
failed to take actions to correct the lack of the ADA-required
information in the face of substantial harm and discrimination to blind class members.
101.
Defendant has failed to take any prompt and equitable steps to remedy their
discriminatory conduct. These violations are ongoing.
102.
As such, Defendant discriminates, and will continue in the future to
discriminate against Plaintiff and members of the proposed class and subclass on the basis
of disability in the full and equal enjoyment of the goods, services, facilities, privileges,
advantages, accommodations and/or opportunities of the Website and their establishments
under § 8-107(4)(a) and/or its implementing regulations. Unless the Court enjoins
Defendant from continuing to engage in these unlawful practices, Plaintiff and members
of the class will continue to suffer irreparable harm.
103.
Defendant’s actions were and are in violation of the NYCHRL and therefore
Plaintiff invokes his right to injunctive relief to remedy the discrimination.
104.
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.
105.
Plaintiff is also entitled to reasonable attorneys’ fees and costs.
106.
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.
FOURTH CAUSE OF ACTION
DECLARATORY RELIEF
107.
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.
108.
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 and that the
Website does not contain the ADA-required information on its reservation system denying
blind customers the full and equal access to the goods, services and facilities of the Website
and by extension their physical 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.
109.
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 preliminary and permanent injunction requiring Defendant to take
all the steps necessary to make the Website reservation system into full compliance with
the requirements set forth in the ADA, and its implementing regulations, so that the
Website contains the ADA-required information making their hotel and guest rooms
accessible to and usable by blind and vision-impaired individuals;
d.
A declaration that Defendant owns, maintains and/or operates the
Website and the Website reservation system in a manner that discriminates against the
blind and vision-impaired and which fails to provide access for persons with disabilities as
required by 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
e.
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;
f.
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;
g.
Pre- and post-judgment interest;
h.
An award of costs and expenses of the action together with
reasonable attorneys’ and expert fees; and
i.
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: Fort Lee, New Jersey
August 21, 2019
ZARE KHOROZIAN LAW LLC
s/Zare Khorozian, Esq.
1047 Anderson Avenue
Fort Lee, NJ 07024
Tel: 201.957.7269
Fax: 201.224.9841
[email protected]
GOTTLIEB & ASSOCIATES
s/Jeffrey M. Gottlieb
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
[email protected]
[email protected]
[email protected]
| civil rights, immigration, family |
DLe9C4cBD5gMZwczMiVB | DECEIVE
N
FEB 06 2015
D
X
U.S.D.C. S.D. N.Y.
CASHIERS
Case No.
:
:
Plaintiffs,
:
FLSA COLLECTIVE
:
ACTION and RULE
-against-
:
23 CLASS ACTION
:
COMPLAINT
:
:
Jury Trial
:
Demanded
:
Defendants.
:
X
Plaintiffs CAMILO MARTINEZ and ZANATIEL FLORES (hereinafter,
1.
Plaintiffs allege that, pursuant to the Fair Labor Standards Act, as
2.
Plaintiffs further allege that, pursuant to the New York Labor Law, they
JURISDICTION AND VENUE
3.
This Court has jurisdiction over this controversy pursuant to 29 U.S.C.
4.
Venue is proper in the Southern District pursuant to 28 U.S.C. § 1391
PARTIES
5.
Plaintiffs are each residents of Bronx County, New York.
6.
Defendant ZON-BRONX is a domestic business corporation organized
2
8.
Defendant ZON-WESTCHESTER is a domestic limited liability company
9.
The Corporate Defendants operate multiple restaurants in New York City
10.
At all relevant times, defendant ROBERTO PACIULLO has been the
11.
At all relevant times, defendant TONY DORMA has been a manager
3
12.
The Individual Defendants each exercised control over the terms and
13.
The Individual Defendants are present on the premises of the Corporate
14.
Upon information and belief, at all times relevant to the allegations in this
15.
Defendants employed Plaintiff, CAMILO MARTINEZ, in both Bronx
416.
Defendants employed Plaintiff, ZANATIEL FLORES, in both New York
17.
The work performed by Plaintiffs was directly essential to the business
18.
Defendants knowingly and willfully failed to pay Plaintiffs their lawfully
19.
Defendants knowingly and willfully failed to pay Plaintiffs their lawfully
20.
Plaintiffs have satisfied all conditions precedent to the institution of this
STATEMENT OF FACTS
21.
The Individual Defendants actively participate in the day-to-day operation
the
Corporate Defendants. For instance, the Individual Defendants personally
22.
The Individual Defendants must approve all crucial business decisions,
5
23.
Upon information and belief, the Corporate Defendants are associated as a
24.
Upon information and belief, the Corporate Defendants each engage in
25.
Upon information and belief, the Corporate Defendants are controlled by
26.
The performance of Plaintiffs' job responsibilities, as well as the
27.
Defendants employed Plaintiff CAMILO MARTINEZ as a non-exempt
28.
In or about May 2010, the Individual Defendants transferred Plaintiff to
6
29.
In or about September 2013, Defendants re-hired Plaintiff to work as a
30.
Plaintiff continued to work in such capacity until his employment came to
31.
Plaintiff worked over forty (40) hours per week.
32.
During the entirety of the relevant employment period, Plaintiff worked
33.
Throughout the entirety of the relevant employment period, Plaintiff was
34.
Beginning in or about January 2013 and continuing through in or about on
735.
Upon being re-hired in or about September 2013 and continuing through
36.
Defendants hired Plaintiff ZANATIEL FLORES on or about January 10,
37.
In or about 2011, Defendants promoted Plaintiff to the non-exempt
38.
In or about August 2014, Defendants transferred Plaintiff to work as a
39.
Plaintiff continuously worked for the Defendants in such capacity until his
40.
Plaintiff worked over forty (40) hours per week.
41.
Throughout the entirety of his employment, Plaintiff worked six (6) days
8
42.
Throughout the entirety of his employment, Plaintiff was not paid proper
43.
Beginning in or about January 2011 and continuing through in or about
44.
Beginning in or about May 2011 and continuing through in or about
9
46.
Beginning in or about June 2012 and continuing through in or about
47.
Beginning in or about January 2013 and continuing through the remainder
48.
Defendants knowingly and willfully operated their business with a policy
1050.
At all relevant times, upon information and belief, and during the course
COLLECTIVE ACTION ALLEGATIONS
51.
Plaintiffs bring this action individually and as class representatives on
52.
The collective action class is SO numerous that joinder of all members is
11
53.
Plaintiffs will fairly and adequately protect the interests of the Collective
54.
This action should be certified as a collective action because the
55.
A collective action is superior to other available methods for the fair and
56.
Questions of law and fact common to the members of the collective action
12
Action Members within the meaning of the FLSA;
b.
Whether the Defendants failed to keep true and accurate wage and
hour records for all hours worked by Plaintiffs and the Collective
Action Members;
c.
What proof of hours worked and pay received is sufficient where
the employer fails in its duty to maintain wage and hour records;
d.
Whether the Defendants failed to pay Plaintiffs and the Collective
Action Members overtime compensation for all hours worked in
excess of forty (40) hours per workweek, in violation of the FLSA
and the regulations promulgated thereunder;
e.
Whether the Defendants' violations of the FLSA are willful as that
terms is used within the context of the FLSA; and,
f.
Whether the Defendants are liable for all damages claimed
hereunder, including but not limited to compensatory, liquidated
and statutory damages, interest, attorneys' fees, and costs and
disbursements.
57.
Plaintiffs know of no difficulty that will be encountered in the
58.
Plaintiffs and others similarly situated have been substantially damaged by
13
59.
Plaintiffs sue on their own behalf and on behalf of a class of persons under
60.
Plaintiffs bring their New York Labor Law claims on behalf of all persons
61.
The persons in the Class identified herein are SO numerous that joinder of
62.
The claims of Plaintiffs are typical of the claims of the Class, and a class
1464.
Plaintiffs have committed themselves to pursuing this action and have
65.
Plaintiffs will fairly and adequately protect the interests of the NY Class
66.
Plaintiffs recognize that any resolution of a class action lawsuit, including
67.
Plaintiffs have the same interests in this matter as all other members of the
68.
There are questions of law and fact common to the Class which
15
members within the meaning of the New York Labor Law;
b.
Whether the Defendants failed to keep true and accurate wage and
hour records for all hours worked by Plaintiffs and the Class
members;
c.
What proof of hours worked and pay received is sufficient where
the employer fails in its duty to maintain wage and hour records;
d.
Whether the Defendants failed to pay Plaintiffs and the Class
members overtime compensation for all hours worked in excess of
forty (40) hours per workweek, in violation of the New York Labor
Law and the regulations promulgated thereunder;
e.
Whether the Defendants failed to pay Plaintiffs and the Class
members "spread of hours" premium for each day their shift
exceeded ten (10) hours, in violation of the New York Labor Law
and the regulations promulgated thereunder;
f.
Whether the Defendants' violations of the New York Labor Law
are willful as that terms is used within the context of the New York
Labor Law; and,
g.
Whether the Defendants are liable for all damages claimed
hereunder, including but not limited to compensatory, liquidated
and statutory damages, interest, costs, attorneys' fees, and costs
and disbursements.
16
COUNT I
[Violation of the Fair Labor Standards Act]
69.
Plaintiffs re-allege and re-aver each and every allegation and statement
70.
At all relevant times, upon information and belief, the Corporate
71.
At all relevant times, Defendants employed Plaintiffs and the Collective
72.
Upon information and belief, the Corporate Defendants, individually and
73.
Plaintiffs and the Collective Action Members were entitled to be paid at
74.
Defendants failed to pay Plaintiffs and the Collective Action Members
75.
At all relevant times, Defendants had, and continue to have a policy and
1776.
Defendants knowingly and willfully disregarded the provisions of the
77.
As a result of the Defendants' failure to properly record, report, credit
78.
Defendants failed to properly disclose or apprise Plaintiffs and the
79.
As a direct and proximate result of Defendants' violation of the FLSA,
80.
Due to the reckless, willful and unlawful acts of the Defendants, Plaintiffs
18
COUNT II
[Violation of the New York Labor Law]
82.
Plaintiffs re-allege and re-aver each and every allegation and statement
83.
At all relevant times, the Defendants employed Plaintiffs and the Class
84.
Defendants knowingly and willfully violated the rights of Plaintiffs and
85.
Employers are required to pay a "spread of hours" premium of one (1)
86.
Defendants knowingly and willfully violated the rights of Plaintiffs and
87.
Defendants failed to properly disclose or apprise Plaintiffs and the Class
88.
Defendants failed to furnish Plaintiffs and the Class members with a
19
89.
Defendants failed to keep true and accurate records of hours worked by
90.
Defendants failed to establish, maintain, and preserve for not less than six
91.
At the time of their hiring, Defendants failed to notify Plaintiffs and the
92.
Due to the Defendants' New York Labor Law violations, Plaintiffs and the
93.
Plaintiffs and the Class members are also entitled to liquidated damages
20
WHEREFORE, Plaintiffs CAMILO MARTINEZ and ZANATIEL FLORES, on
(a)
An award of unpaid overtime compensation due under the FLSA and New
York Labor Law;
(b)
An award of unpaid "spread of hours" premium due under the New York
Labor Law;
(c)
An award of liquidated damages as a result of Defendants' failure to pay
overtime compensation pursuant to 29 U.S.C. § 216;
(d)
An award of liquidated damages as a result of Defendants' failure to pay
overtime compensation and "spread of hours" premium pursuant to the
New York Labor Law and the New York State Wage Theft Prevention
Act;
(e)
An award of civil penalties pursuant to the New York State Wage Theft
Prevention Act;
(f)
An award of prejudgment and post-judgment interest;
(g)
An award of costs and expenses associated with this action, together with
reasonable attorneys' and expert fees; and
(h)
Such other and further relief as this Court determines to be just and proper.
21Pursuant to Rule 38(b) of the Federal Rules of Civil Procedure, Plaintiff demands
February 6, 2015
Respectfully submitted,
CILENTI & COOPER, PLLC
Attorneys for Plaintiffs
708 Third Avenue - 6th Floor
New York, NY 10017
T. (212) 209-3933
F. (212) 209-7102
By:
M
Giustino (Justin) Cilenti (GC2321)
22
I, Camilo Martinez, am an employee formerly employed by
01/21 , ,2015
Camilo Martinee
s
GIUSTINO CILENTI
Notary Public, State of New York
No. 02CI6240824
Qualified in New York County
Commission Expires May 9, 2015
I, Zanatiel Cloves Gomez am an employee formerly employed by
01/21 ,2015 ,
Zanated F Gome
GIUSTINO CILENTI
Notary Public, State of New York
No. 02CI6240824
Qualified in New York County
Commission Expires May 9, 2015 | employment & labor |
T-HvEIcBD5gMZwczagQA | IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
LAURA BRISCOE AND KRISTIN
MAGIERSKI, on behalf of themselves and all
others similarly situated,
No.
JURY TRIAL DEMANDED
Plaintiffs,
v.
HEALTH CARE SERVICE CORPORATION;
and BLUE CROSS AND BLUE SHIELD OF
ILLINOIS.
Defendants.
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CLASS ACTION COMPLAINT
Plaintiffs Laura Briscoe and Kristin Magierski (collectively, the “Plaintiffs”), on behalf
of themselves and all others similarly situated persons (“Class,” defined below), by and through
undersigned counsel, bring this Class Action Complaint against Health Care Service Corporation
(“HCSC”) and its operating division Blue Cross and Blue Shield of Illinois (“BCBSIL”)
(collectively referred to as “HCSC” or “Defendants”). Plaintiffs hereby allege upon personal
knowledge as to themselves and their own acts, and upon information and belief as to all other
matters, based upon, inter alia, the investigation undertaken by their attorneys, as follows:
SUMMARY OF THE CASE
1.
Defendants have wrongfully denied and continue to deny Plaintiffs and the
members of the Class access to and coverage for a vital women’s preventive service –
breastfeeding support, supplies and counseling – which coverage is mandated by The Patient
Protection and Affordable Care Act (the “ACA”) (as amended by the Health Care and Education
Reconciliation Act of 2010 (“HCERA”) and other laws).
2.
A key directive of the ACA was that all individual and group health plans would
provide access to and coverage for preventive health care benefits.1 As stated by the U.S.
Department of Health & Human Services (“HHS”), prior to the enactment of the ACA “too
many Americans did not get the preventive care they need to stay healthy, avoid or delay the
onset of disease, and reduce health care costs, [and,] [o]ften because of cost, Americans used
preventive
services
at
about
half
the
recommended
rate.”
See
http://www.hhs.gov/healthcare/facts-and-features/fact-sheets/aca-rules-on-expanding-access-to-
preventive-services-for-women/index.html (last visited 9/7/16).
3.
In addition to the policy of promoting preventive health benefits for all, the ACA
specifically recognized the need to address the unique preventive health needs of women
throughout their lives. Id. Building upon the ACA’s women’s preventive health service
mandate, on August 1, 2011 HHS adopted its Health Resources and Services Administration’s
1 The only exception is health insurance plans that are grandfathered. To be classified as a
“Grandfathered Plan” plans must have (1) been in existence prior to March 23, 2010; (2)
refrained from making significant changes to the benefits or plan participants’ costs since that
time; and (3) had at least one person enrolled in the plan on March 23, 2010 and continually
covered at least one individual since that date. While there is no specific termination date for
grandfathered status, it is expected that eventually all plans will lose their grandfathered status.
As of 2014, only about a quarter of workers with employer sponsored coverage participated in
Grandfathered Plans.
H0059257.10
2
(“HRSA”) Health Plan Guidelines for Women’s Preventive Services (“HHS Guidelines”) which
require access to and coverage for certain women’s preventive services by most non-
Grandfathered Health Plans starting with the first plan or policy year beginning on or after
August 1, 2012.
4.
The HHS Guidelines, which were recommended by the independent Institute of
Medicine (“IOM”) and based on scientific evidence, ensure women’s accessibility to a
comprehensive set of preventive services, including health services related to breastfeeding
support, supplies and counseling. Under the HHS Guidelines, pregnant and postpartum women
must have access to comprehensive lactation support and counseling provided by a trained
provider during pregnancy and/or in the postpartum period (“Comprehensive Lactation
Benefits”),
as
well
as
breastfeeding
equipment.
See
HHS
Guidelines,
http://hrsa.gov/womensguidelines/ (last visited 9/21/2016).
5.
According to the Centers for Disease Control and Prevention (“CDC”),
“[b]reastfeeding, with its many known health benefits for infants, children, and mothers, is a
key
strategy
to
improve
public
health.”
http://www.cdc.gov/breastfeeding/
pdf/
2016breastfeedingreportcard.pdf (emphasis added).
6.
While the protection, promotion and support of breastfeeding have been a national
public policy for over 25 years, the CDC, the American Academy of Pediatrics and the
enactment of the ACA with its Comprehensive Lactation Benefits coverage have brought
breastfeeding to the forefront of women’s health issues.
7.
As the then HHS Secretary Kathleen Sebelius announced in July 2012:
Aug. 1, 2012 ushers in a new day for women’s health when, for the first
time ever, women will have access to eight new services at no out-of-
pocket cost to keep them healthier…..This benefit will take effect for
millions of adult and adolescent women over the course of the next year—
H0059257.10
3
and it’s just one of many benefits of the health care law that let women
and their doctors, not insurance companies, make decisions about a
woman’s care.
…. Instead of letting insurance companies decide what care women
receive, the health care law requires insurers to cover these preventive
services in new plans beginning Aug. 1.
…Women’s health decisions shouldn’t be made by politicians or
insurance companies. Rather than wasting time refighting old political
battles, this Administration is moving forward and putting women in
control of their own health care. If women are going to take care of their
families and friends, they have to take care of themselves. The Affordable
Care Act is making it easier for women to do that by making health care
more accessible and affordable for millions of American women and
families.
“Giving Women Control Over Their Health Care,” Posted July 31, 2012, By Kathleen Sebelius,
Secretary
of
Health
and
Human
Services,
http://wayback.archive-it.org/3909/
20150925141312/http://www.hhs.gov/healthcare/facts/blog/2012/07/prevention073112.html (last
visited 9-7-2016) (emphasis added).
8.
Contrary to the ACA, the HHS Guidelines, and Secretary Sebelius’ expressed
confidence that insurance companies could no longer dictate women’s health decisions,
Defendants are denying Plaintiffs and the members of the Class, the ACA mandated access to
and coverage for Comprehensive Lactation Benefits from trained providers for insured pregnant
and postpartum women.
9.
Instead, Defendants (in their capacities as both insurers and third-party
administrators of self-insured plans) have employed the following scheme to circumvent the
ACA mandates:
H0059257.10
4
(A)
Defendants do not establish a network of trained providers of
Comprehensive Lactation Benefits.2
(B)
Why? If Defendants do not establish a network and women are not
provided a network as part of their insurance plan, one of three things occurs:
i. Women forego Comprehensive Lactation Benefits because they are
unable to pay out-of-pocket, ergo, Defendants never have to
administer and pay for the preventive service; or,
ii. Women pay out-of-pocket for Comprehensive Lactation Benefits,
never seek reimbursement from Defendants, ergo, Defendants never
have to administer or pay for the preventive service; or,
iii. Women pay out-of-pocket for Comprehensive Lactation Benefits, seek
reimbursement, and get either no or partial reimbursement, ergo,
Defendants minimize their cost related to the preventive service, and
force women to pay out-of-pocket.
(C)
Because of Defendants’ failure to provide in-network trained providers,
Plaintiffs and the members of the Class are forced to either forego the Comprehensive
Lactation Benefits preventive service or go out-of-network to get it. It is not by
Plaintiffs’ and the Class members’ own choosing to go “out-of-network.” It is of
2
Comprehensive Lactation Support is unlike other preventive services. For example, prior
to the ACA’s enactment, medical services such as male prostate exams were typically not
covered by insurers even when such services were provided by in-network urologists. After the
ACA’s enactment, such services were deemed preventive services that are covered at no cost
when provided by in-network providers. For Comprehensive Lactation Support, such services
were not, prior to the ACA, covered health benefits and there were no established networks of
trained providers. Defendants failed to establish networks of trained providers in the wake of the
ACA’s mandate thereby circumventing the ACA’s preventive service provisions requiring
women access to and coverage for Comprehensive Lactation Support.
H0059257.10
5
Defendants’ making. Yet, Defendants exploit their wrongful conduct by, at best,
reimbursing only a portion of the out-of-pocket costs or flatly denying any
reimbursement or coverage for Comprehensive Lactation Benefits, because Plaintiffs and
the members of the Class used “out-of-network” providers.
10.
The scheme, coupled with the Defendants’ other tactics to avoid giving women
access to and coverage for Comprehensive Lactation Benefits, violates the ACA and their duties
to Plaintiffs and the members of the Class.
11.
Plaintiffs are enrolled in health care plans (“health care plans” or “plans”) insured
or administered by Defendants, which health care plans include Employee Welfare Benefit Plans
as that term is defined in 29 U.S.C. § 1002(1)(A), as well as individual and family health care
plans offered directly by Defendant, or on an insurance exchange pursuant to the applicable
provisions of the ACA (“ACA Exchanges”). Based on the Defendants’ conduct and the claims
alleged herein, Plaintiffs on behalf of themselves and the members of the Class seek to put an
end to, and secure monetary redress for, Defendants’ wrongful and harmful conduct. Such
conduct is done in flagrant disregard of the ACA and the right it created for women to access
preventive health benefits.
12.
Such conduct violates: the ACA; the ACA’s anti-discrimination provisions
prohibiting discrimination on the basis of gender; the plan documents which incorporate by
reference the ACA’s preventive service provisions; and, the Employee Retirement Income
Security Act (“ERISA”). Defendants also have been unjustly enriched at Plaintiffs’ and the
Class’s expense. Plaintiffs seek monetary and injunctive relief for themselves and the members
of the Class to stop and redress the substantial harms inflicted by Defendants.
H0059257.10
6
PARTIES
Plaintiffs.
13.
Plaintiff Laura Briscoe (“Briscoe”) is an adult individual residing in Chicago, IL.
Plaintiff Briscoe is, and was, at all relevant times, insured by a non-grandfathered BCBSIL plan
through her employer, The Field Museum. After the birth of her child in November 2014,
Plaintiff Briscoe sought coverage from BCBSIL for comprehensive lactation support, supplies
and counseling, but was issued only partial reimbursement resulting in an out-of-pocket
expenditure of $40.
14.
Plaintiff Kristin Magierski (“Magierski”) is an adult individual residing in
Chicago, IL. Plaintiff Magierski is, and was, at all relevant times, insured by a non-
grandfathered individual BCBSIL Preferred Gold PPOSM plan that she purchased directly
through BCBSIL. After the birth of her child in April 2016, Plaintiff Magierski sought coverage
from BCBSIL for comprehensive lactation support, supplies and counseling, but was denied
coverage and not issued any reimbursement, resulting in an out-of-pocket expenditure of $245.
Defendants.
15.
Defendant Health Care Service Corporation (“HCSC”) is an Illinois Mutual Legal
Reserve Company and independent licensee of the Blue Cross and Blue Shield Association with
its headquarters located at 300 East Randolph Street, Chicago, Illinois. HCSC states that it is the
largest customer-owned health insurer in the United States and fourth largest overall insurer
operating through “our Blue Cross and Blue Shield® Plans in Illinois, Montana, New Mexico,
Oklahoma and Texas.” See http://www.hcsc.com/overview.html (last visited 10/25/2016). HCSC
also states that it serves more than 15 million members across five states, Illinois, Montana, New
Mexico, Oklahoma and Texas. HCSC’s employer group market segment makes up 12 million
H0059257.10
7
of HCSC’s more than 15 million members. http://www.hcsc.com/leadership.html (last visited
10/28/2016).
16.
Defendant Blue Cross and Blue Shield of Illinois (“BCBSIL”), a division of
Defendant HCSC, is a health insurance company with its principal place of business is located at
300 East Randolph Street, Chicago, Illinois. BCBSIL states that it is the largest health insurance
company in Illinois with offices statewide including in Downtown Chicago, Rockford, Quincy,
Danville, Naperville, Springfield, Jacksonville, Downers Grove and Marion. BCBSIL states that
it provides more than 8.1 million members with health plans. http://www.bcbsil.com/company-
info (last visited 10/28/2016).
17.
In addition to Defendant BCBSIL, Defendant HCSC also operates through four
other insurance divisions:
(a) Blue Cross and Blue Shield of Texas (“BCBSTX”), a division of
Defendant HCSC, is a health insurance company with its headquarters in
Richardson, TX. BCBSTX states that it is Texas’ largest health insurer,
and in addition to its headquarters in Richardson, TX, it maintains regional
offices in Houston, Austin and Lubbock and 22 customer service centers
throughout TX. See http://www.bcbstx.com/company-info/who-we-are;
http://www.bcbstx.com/company-info/who-we-are/customer-service
(last
visited 10/29/2016). BCBSTX provides more than 5.1 million members
with health plans. See http://www.hcsc.com/statistics.html (last visited
10/29/2016).
(b) Blue Cross and Blue Shield of Montana (“BCBSMT”), a division of
Defendant HCSC, is a health insurer and benefits administrator in
H0059257.10
8
Montana, with its headquarters at 3645 Alice Street, Helena, MT.
BCBSMT states that it is the largest insurer in Montana, provides more
than 250,000 members with health plans statewide, and, in addition to its
headquarters in Helena, has six regional offices in Billings, Missoula,
Bozeman,
Great
Falls,
Butte,
and
Kalispell.
See
https://www.bcbsmt.com/company-info/who-we-are
(last
visited
10/28/2016).
(c) Blue Cross and Blue Shield of Oklahoma (“BCBSOK”), a division of
Defendant HCSC, is a health insurer and benefits administrator in
Oklahoma, with its headquarters at 1400 S. Boston, Tulsa, OK. BCBSMT
states that it has more than 700,000 members with health plans statewide,
and, in addition to its headquarters in Tulsa, it has a regional office in
Oklahoma City. See http://www.bcbsok.com/company-info (last visited
10/29/2016).
(d) Blue Cross and Blue Shield of New Mexico (“BCBSNM”), a division of
Defendant HCSC, is a health insurance company in New Mexico with its
headquarters at 4373 Alexander Blvd NE, Albuquerque, NM (Mailing
Address: 5701 Balloon Fiesta Parkway NE, Albuquerque, NM 87113). See
http://www.bcbsnm.com/contact-us (last visited 10/29/2016). BCBSNM
provides more than 462,000 members with health plans. See
http://www.hcsc.com/statistics.html (last visited 10/29/2016).
18.
Defendant HCSC, operating through its Blue Cross and Blue Shield® Plans in
Illinois, Montana, New Mexico, Oklahoma and Texas (BCBSIL, BCBSTX, BCBSMT,
H0059257.10
9
BCBSOK, BCBSNM) provides group and individual health insurance plans that are subject to
the ACA.
19.
Defendant HCSC, operating through BCBSIL, BCBSTX, BCBSMT, and
BCBSOK, also offers and administers health insurance plans directly to individuals through the
Exchanges,3 including the following ACA Exchange Plans in 2016, among others:
(a) Defendant BCBSIL: Blue Choice Preferred Bronze PPOSM ; Blue Choice
Preferred Silver PPOSM; Blue Choice Preferred Gold PPOSM; Blue Choice
Preferred Security PPOSM; Blue Cross Blue Shield Basic, a Multi-State
PlanSM; Blue Cross Blue Shield Solution, a Multi-State PlanSM; Blue Cross
Blue Shield Premier, a Multi-State PlanSM; Blue FocusCare BronzeSM;
Blue FocusCare SilverSM; Blue FocusCare GoldSM; Blue Precision Bronze
HMOSM; Blue Precision Silver HMOSM; Blue Precision Gold HMOSM;
Blue Precision Platinum HMOSM; BlueCare Direct BronzeSM; BlueCare
Direct SilverSM; BlueCare Direct GoldSM
(b) BCBSTX: Blue Advantage Plus BronzeSM; Blue Advantage Plus SilverSM;
Blue Advantage Plus GoldSM; Blue Advantage Bronze HMOSM; Blue
Advantage Silver HMOSM; Blue Advantage Gold HMOSM
3 Under the ACA, starting in 2014, individuals were required to buy health insurance or face
penalties. To facilitate that, the ACA requires every state to offer a public marketplace for its
residents to research and purchase health insurance, the Exchange. States have a few options: a
state may choose to create and run its own exchange; or, if a state decides not to run its own
exchange, residents of that state may shop on an exchange that will be run by the federal
government; or, a state may partner with the federal government, and the state and federal
government share responsibility for operating that state’s exchange. No matter what each state
decides to do, an Exchange is available to residents in every state and the health insurance plans
that are made available on the Exchange are ACA Exchange Plans. Among other things, the
ACA provides tax credits and subsidies for individuals who qualify, to help make insurance
more affordable to them, when they purchase insurance on the Exchange.
H0059257.10
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(c) BCBSMT: Blue Preferred Bronze PPOSM; Blue Preferred Silver PPOSM;
Blue Preferred Gold PPOSM; Blue Focus Bronze POSSM; Blue Focus Silver
POSSM; Blue Focus Gold POSSM
(d) BCBSOK: Blue Preferred Bronze PPOSM; Blue Preferred Silver PPOSM;
Blue Advantage Bronze PPOSM; Blue Advantage Silver PPOSM; Blue
Advantage Gold PPOSM
20.
Defendant HCSC, operating through BCBSIL and BCBSNM, provides health
care plans for the Federal Employees Health Benefits Program (“FEHBP”), including the
following plans:
(a) Defendant BCBSIL’s Health Maintenance Organization Plan, provided
under BCBSIL’s contract (CS 2929) with the United States Office of
Personnel Management (“OPM”). See https://www.opm.gov/healthcare-
insurance/
healthcare/plan-information/plan-codes/2016/brochures/73-
869.pdf (last visited 10/28/2016).
(b) BCBSNM’s BlueHMO Preferred (Formerly Lovelace Health Plan
administered by BCBSNM), provided under BCBSNM’s contract (CS
1911) with OPM.
21.
Whenever in this Complaint reference is made to any act, deed or transaction of a
Defendant, the allegation is imputed to its officers, directors, agents, employees or
representatives.
JURISDICTION AND VENUE
22.
This Court has subject matter jurisdiction over this action based on diversity of
citizenship under the Class Action Fairness Act and 28 U.S.C. § 1332(d)(2). The amount in
H0059257.10
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controversy, exclusive of interest and costs, exceeds the sum or value of five million dollars
($5,000,000) and is a class action in which members of the Class are citizens of states different
from Defendants. Further, greater than two-thirds of the members of the Class reside in states
other than the state in which Defendants are citizens.
23.
The Court also has federal question subject matter jurisdiction based on the ACA
claims asserted herein.
24.
In addition, this action is brought by Plaintiffs pursuant to ERISA § 502(a)(3), 29
U.S.C. § 1132(a)(3), to remedy Defendants’ violations of ERISA §§ 404(a) and 405(a), 29
U.S.C. §1104(a) and § 1105(a). This Court has subject matter jurisdiction pursuant to 28 U.S.C.
§ 1331 and ERISA § 502(e)(1), 29 U.S.C. § 1132(e)(1). Moreover, ERISA § 502(e)(2), 29
U.S.C. § 1132(e)(2), provides for nationwide service of process. All Defendants are residents of
the United States and subject to service in the United States, and this Court therefore has
personal jurisdiction over them. Venue is proper in this district pursuant to ERISA § 502(e)(2),
29 U.S.C. § 1132(e)(2) and 28 U.S.C. § 1391(b), because Defendants reside or may be found in
this district.
25.
This Court also has personal jurisdiction over Defendants pursuant to Fed. R. Civ.
P. 4(k)(1)(A) because they would all be subject to the jurisdiction of a court of general
jurisdiction in this District. Each Defendant systematically and continuously conducts business
in Illinois and otherwise has minimum contacts with Illinois sufficient to establish personal
jurisdiction. Each Defendant is authorized to do business and is conducting business throughout
the United States, including in this District, authorized to market and sell, and have in fact
marketed and sold health insurance and healthcare products to citizens in this District, has
sufficient minimum contacts with the various states of the United States, including this District,
H0059257.10
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and/or sufficiently avails itself of the markets of the various states of the United States, including
in this District, through its promotion, sales, and marketing within the United States, including in
this District, to render the exercise of personal jurisdiction by this Court permissible.
26.
Venue is proper in this District under 28 U.S.C. § 1391(b) because a substantial
part of the events giving rise to this action occurred in this District and Defendants regularly
conduct and transact business in this District and are therefore subject to personal jurisdiction in
this District. Venue is also proper because Defendants are authorized to conduct business in this
District and have intentionally availed themselves of the laws and markets within this District
through promotion, marketing, and sales in this District.
FACTUAL ALLEGATIONS
A.
Breastfeeding is a National Public Health Policy.
27.
The protection, promotion and support of breastfeeding have been a national
public policy for over 25 years. In October 2000, former Surgeon General David Satcher, M.D.,
Ph.D. issued the HHS Blueprint for Action on Breastfeeding, then reiterating the commitment of
previous Surgeons General to support breastfeeding as a public health goal. See
http://www.pnmc-hsr.org/wp-content/uploads/2011/01/BreastfeedingBlueprint.pdf (last visited
9/21/2016).
28.
Breastfeeding, with its many known health benefits for infants, children, and
mothers, is a key strategy to improve public health. According to the CDC, breastfeeding is one
of the most effective preventive measures mothers can take to protect their health and that of
their children. CDC, Strategies to Prevent Obesity and Other Chronic Diseases: The CDC Guide
to Strategies to Support Breastfeeding Mothers and Babies. Atlanta: U.S. Department of Health
H0059257.10
13
and Human Services, 2013, available at: http://www.cdc.gov/breastfeeding/pdf/BF-Guide-
508.PDF (last visited 9/7/2016).
29.
In 2011, Regina M. Benjamin, M D., M.B.A. Vice Admiral U.S. Public Health
Service Surgeon General and Kathleen Sebelius the then HHS Secretary jointly issued the HHS
Call to Action specifying the society-wide responsibilities to encourage and support
breastfeeding (“HHS Call to Action”). HHS, The Surgeon General's Call to Action to Support
U.S. Department of Health and Human Services. The Surgeon General's Call to Action to
Support Breastfeeding. 2011, available at: http://www.ncbi.nlm.nih.gov/books/NBK52682/pdf/
Bookshelf_NBK52682.pdf (last visited 9/7/2016).
30.
Further, numerous prominent medical organizations, including but not limited to,
the American Academy of Pediatrics, the American Academy of Family Physicians, the
American College of Obstetricians and Gynecologists, the American College of Nurse-
Midwives, the American Dietetic Association, and the American Public Health Association,
recommend that breastfeeding commence immediately upon birth and continue uninterrupted
until the child’s first birthday. HHS Call to Action, supra, p. 4.
31.
Therefore, access to and coverage for Comprehensive Lactation Benefits
advances the long held public policy goal to improve the health of Americans by increasing
access and diminishing the cost barriers to sustained breastfeeding during the first year of a
child’s life. As detailed in the HHS Call to Action:
(a)
the American Academy of Pediatrics stated, "Human milk is species-
specific, and all substitute feeding preparations differ markedly from it, making
human milk uniquely superior for infant feeding. Exclusive breastfeeding is the
reference or normative model against which all alternative feeding methods must
H0059257.10
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be measured with regard to growth, health, development, and all other short- and
long-term outcomes." HHS Call to Action, supra, p. 5.
(b)
“The health effects of breastfeeding are well recognized and apply to
mothers and children in developed nations such as the United States as well as to
those in developing countries. Breast milk is uniquely suited to the human infant's
nutritional needs and is a live substance with unparalleled immunological and
anti-inflammatory properties that protect against a host of illnesses and diseases
for both mothers and children.” Id. at p. 1.
(c)
Quality sustained breastfeeding provides health benefits to the mother,
including lowered risk of breast and ovarian cancers, and long term health
benefits to the infant, which in turn enhance the health of society and decrease
costs due to poor childhood and adult health. Breast-fed babies suffer lower rates
of hospitalizations for lower respiratory tract diseases in the first year,
gastrointestinal infection, acute ear infection, Sudden Infant Death Syndrome,
childhood leukemia, asthma, type 2 diabetes, and childhood obesity. Id. at p. 2.
32.
The HHS Call to Action also cited psychological, economic and environmental
benefits attributed to breastfeeding. Specifically that: breastfeeding may reduce the risk of
postpartum depression; families who follow optimal breastfeeding practices could save more
than $1,200 to $1,500 a year in expenditures for infant formula in the first year alone; If 90% of
the US families followed guidelines to breastfeed exclusively for six months, the US would save
$13 billion annually from reduced direct medical and indirect costs4 and the cost of premature
4 Costs related to illnesses reduced or avoided through breast-feeding include: sudden infant
death syndrome, hospitalizations for lower respiratory tract infection in infancy, atopic
H0059257.10
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death; if 80% of families followed the guidelines, $10.5 billion a year would be saved; and,
environmentally, breastfeeding requires minimal additional resources (a small amount of
additional calories is all that is required) compared to infant formula that requires a significant
carbon footprint of energy to produce formula, paper containers to store and ship that largely end
up in landfills and fuel to prepare, ship and store. Id. at pp. 3-4.
33.
The importance of education is a central theme in the HHS Call to Action:
“Unfortunately, education about breastfeeding is not always readily available
to mothers nor easily understood by them. Many women rely on books,
leaflets, and other written materials as their only source of information on
breastfeeding, but using these sources to gain knowledge about breastfeeding
can be ineffective, especially for low income women, who may have more
success relying on role models. The goals for educating mothers include
increasing their knowledge and skills relative to breastfeeding and positively
influencing their attitudes about it.”
HHS Call to Action, supra, p. 11 (emphasis added).
34.
The HHS Call to Action also highlighted that mothers need “access to trained
individuals who have established relationships with members of the health care community, are
flexible enough to meet mother’s needs outside of the traditional work hours and locations, and
provide consistent information.” Id. Yet, outside of the hospital setting, mothers “may have no
means of identifying or obtaining the skilled support needed to address their concerns about
lactation and breastfeeding; further, there may be barriers to reimbursement for needed lactation
care and services.” HHS, Call to Action, supra, p. 25.
35.
According to the HHS Call to Action, International Board Certified Lactation
Consultants (“IBCLCs”) are credentialed health care professionals specializing in the clinical
management of breastfeeding, are the “only health care professionals certified in lactation
dermatitis, childhood leukemia, childhood obesity, childhood asthma and type 1 diabetes
mellitus.
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management,” and are certificated by the International Board of Lactation Consultant Examiners
which operates “under the direction of the U.S. National Commission for Certifying Agencies
and maintains rigorous professional standards.” Id. at p. 27. IBCLCs work in many health care
settings, such as hospitals, birth centers, physicians’ offices, public health clinics, and their own
offices. There are over 15,000 certified IBCLCs in the United States; average charges range
from $120 - $350 per session, based on location.
36.
In 2013, the CDC set objectives, illustrated in the chart below, to promote,
support, and ultimately increase breastfeeding rates in the United States by 2020. See CDC,
Strategies to Prevent Obesity and Other Chronic Diseases: The CDC Guide to Strategies to
Support
Breastfeeding
Mothers
and
Babies.
Atlanta:
HHS;
2013,
available
at:
http://www.cdc.gov/breastfeeding/pdf/BF-Guide-508.PDF (last visited 9/7/2016).
37.
Over the past few decades, the rate of breastfeeding has increased, but disparities
have persisted. “Research suggests that 1) race and ethnicity are associated with breastfeeding
regardless of income, and 2) income is associated with breastfeeding regardless of race or
ethnicity.” Id. at p. 9.
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Wall Street Journal, 5 Reasons American Women Won’t Breastfeed, April 14, 2014, available at:
http://blogs.wsj.com/briefly/2014/04/14/5-reasons-american-women-wont-breastfeed/ (last
visited 9/21/ 2016).
38.
As reported on September 3, 2016 by The New York Times Editorial Board, in
“America’s Shocking Maternal Deaths,” the rate at which women die during pregnancy or
shortly after childbirth has risen materially in the United States, with the United States having
the second-highest maternal mortality rate among 31 members of the Organization for Economic
Cooperation and Development; only Mexico had a higher rate. For example, in Texas “the
maternal mortality rate doubled from 17.7 per 100,000 live births in 2000 to 35.8 in 2014.
Compare that with Germany, which had 4.1 deaths per 100,000 live births in 2014.” As the
article asserted: “A big part of the problem is the inequality embedded in America’s health care
system. The [ACA] made health insurance more available, but millions of families still cannot
afford the care they need.” The inequality of the United States health care system exists directly
because of conduct of the type alleged herein: insurers’ bolstering their bottom lines by avoiding
costs of mandated women’s health care services and shifting the cost, which is more than just
dollars and cents, to women.
H0059257.10
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39.
Addressing the pervasive disparities that existed in the American health care
system (and continue to) and securing for all women and families the immense health benefits of
breastfeeding are the impetuses of the preventive service mandates of the ACA and its inclusion
of providing access to and coverage of Comprehensive Lactation Benefits.
B.
Breastfeeding and Comprehensive Lactation Benefits Are Time-Sensitive.
40.
Importantly, and obviously, breastfeeding is an extremely time-sensitive event.
Initiating breastfeeding within the first hours and days of a newborn’s life can significantly
impact its success. HHS Call to Action, supra, pp. 21-22.
41.
Moreover, the need for Comprehensive Lactation Benefits often arises days after
birth, when the mother and child are home, and during this postpartum period the provision of
Comprehensive Lactation Benefits is essential to the continuation of successful breastfeeding. Id.
at p. 13. Further, continuation of breastfeeding upon illness or a mother’s return to work presents
another critical milestone; it is at such times that a mother may seek Comprehensive Lactation
Benefits, as well as access to breastfeeding pumps. Id. at pp. 29-32.
42.
Lactation support, encouragement, education and counseling must be timely and
occur during pregnancy, at the time of birth and until the child is weaned. Lactation equipment
may be necessary immediately following birth, at one or several times during the first year, or
continuously during the first year. Immediate access to lactation services and products is critical
because the window to address such needs is narrow.
C.
Comprehensive Lactation Benefits Are a Preventive Service Required by the
ACA.
43.
The ACA provides the following in relevant part:
A group health plan and a health insurance issuer offering group or
individual health insurance coverage shall, at a minimum provide
coverage for and shall not impose any cost sharing requirements
for . . . (4) with respect to women, such additional preventive care
H0059257.10
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and screenings . . . as provided for in comprehensive guidelines
supported by the Health Resources and Services Administration for
purposes of this paragraph...
42 U.S.C. § 300gg-13(a)(4).
44.
The required preventive services derive from recommendations made by four
expert medical and scientific bodies – the U.S. Preventive Services Task Force (“USPSTF”), the
Advisory Committee on Immunization Practices, the HRSA, and the Institute of Medicine
committee on women’s clinical preventive services. The USPSTF is an independent panel of
sixteen nationally recognized experts in primary care and prevention who systematically reviews
the evidence of effectiveness and develops recommendations for clinical preventive services.
The panel is convened by the Agency for Healthcare Research and Quality, which is part of
HHS. Recommendations issued by the USPSTF are considered to be the "gold standard" for
clinical preventive services. When analyzing a particular preventive service, the USPSTF
evaluates the balance of potential benefits against harms, and then assigns a letter grade to the
service. A letter grade of "A" or "B" means the service is recommended.5 In its Final
Recommendation Statement issued in October 2008, USPSTF recommended “intervention
during pregnancy and after birth to promote and support breastfeeding” with a grade B.6
45.
Section 2713 of the Public Health Service Act states:
“Non-grandfathered group health plans and health insurance coverage offered in
the individual or group market are required to cover without the imposition of any
cost-sharing requirements, the following items or services:
Evidenced-based items or services that have in effect a rating of “A” or
“B” in the current recommendations of the United States Preventive
Services Task Force (USPSTF) with respect to the individual involved,
5 See USPSTF, available at http://www.uspreventiveservicestaskforce.org/ (last visited 5/
11/2016).
6 See USPSTF, available at http://www.uspreventiveservicestaskforce.org/Page/Document/
UpdateSummaryFinal/breastfeeding-counseling (last visited 10/26/2016).
H0059257.10
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except for the recommendations of the USPSTF regarding breast cancer
screening, mammography, and prevention issued in or around November
2009, which are not considered in effect for this purpose;
*
*
*
With respect to women, evidence-informed preventive care and screening
provided for in comprehensive guidelines supported by HRSA, to the
extent not included in certain recommendations of the USPSTF….”
46.
The comprehensive HRSA Guidelines, Women’s Preventive Services: Required
Health Plan Coverage Guidelines, were adopted and released on August 1, 2012, and expanded
the previously required intervention to promote and support breastfeeding by requiring new
plans, as of August 1, 2012, to cover comprehensive prenatal and postnatal lactation
support and counseling, and breastfeeding equipment and supplies, such as breast pumps,
for the duration of breastfeeding without co-payments, deductibles, or co-insurance.7
47.
Section 1001 of the ACA amends § 2713 of the Public Health Services Act to
provide that all non-grandfathered group health plans and health insurance issuers offering group
or individual coverage are required to cover one hundred percent (100%) of the costs of certain
recommended preventive services for women, including “comprehensive lactation support and
counseling and costs of renting or purchasing breastfeeding equipment for the duration of
breastfeeding.”8
48.
The ACA requirement mandating comprehensive prenatal and postnatal lactation
support, supplies, and counseling applies to all private plans – including individual, small group,
7See HHS, Women’s Preventive Services Guidelines, available at http://www.hrsa.gov/
womensguidelines/ (last visited 10/26/2016).
8 See FAQs About Affordable Care Act Implementation (Part XII), Q20, which states that
“coverage of comprehensive lactation support and counseling and costs of renting or purchasing
breastfeeding equipment extends for the duration of breastfeeding,” available at
www.dol.gov/ebsa/faqs/faq-aca12.html and www.cms.gov/CCIIO/Resources/Fact-Sheets-and-
FAQs/aca_implementation_faqs12.html (last visited 10/10/2016).
H0059257.10
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large group, and self-insured plans in which employers contract administrative services to a third
party payer – with the exception of those plans that maintain “grandfathered” status.9
49.
The DOL, HHS, and the Treasury Department (the “Departments”) are charged
with establishing regulations and guidelines that specify the implementation of the ACA. The
Departments have jointly prepared Frequently Asked Questions (“FAQs”) regarding the
implementation of the ACA, including FAQs regarding preventive services and Comprehensive
Lactation Benefits. These FAQs are publicly available, including through the DOL and CMS
websites.
50.
In the FAQs Part XXIX, dated October 23, 2015, the Departments reiterated
previous guidance and “answer questions from stakeholders to help people understand the laws
and benefit from them, as intended.” See https://www.dol.gov/sites/default/files/ebsa/about-
ebsa/our-activities/resource-center/faqs/aca-part-xxix.pdf (last visited 10/18/2016).
51.
Questions 1 through 5 of the FAQs Part XXIX, which specifically address
Comprehensive Lactation Benefits under the ACA are provided here (emphasis added):
Q1: Are plans and issuers required to provide a list of the lactation
counseling providers within the network?
Yes. The HRSA guidelines provide for coverage of comprehensive prenatal and
postnatal lactation support, counseling, and equipment rental as part of their
preventive service recommendations, including lactation counseling…group
health plans subject to the Employee Retirement Income Security Act
(ERISA)…must provide a Summary Plan Description (SPD) that describes
provisions governing the use of network providers, the composition of the
provider network, and whether, and under what circumstances, coverage is
9 To be classified as “grandfathered,” plans must have (1) been in existence prior to March 23,
2010; (2) refrained from making significant changes to the benefits or plan participants’ costs
since that time; and (3) had at least one person enrolled in the plan on March 23, 2010 and
continually covered at least one individual since that date. While there is no specific termination
date for grandfathered status, it is expected that eventually all plans will lose their grandfathered
status. As of 2014, only about a quarter of workers with employer sponsored coverage
participated in grandfathered plans.
H0059257.10
22
provided for out-of-network services …issuers of qualified health plans (QHPs) in
the individual market Exchanges and the SHOPs currently must make their
provider directories available online.
Q2: My group health plan has a network of providers and covers recommended
preventive services without cost sharing when such services are obtained in-
network. However, the network does not include lactation counseling
providers. Is it permissible for the plan to impose cost sharing with respect to
lactation counseling services obtained outside the network?
No. As stated in a previous FAQ, while nothing in the preventive services
requirements under section 2713 of the PHS Act or its implementing regulations
requires a plan or issuer that has a network of providers to provide benefits for
preventive services provided out-of-network, these requirements are premised on
enrollees being able to access the required preventive services from in-network
providers…if a plan or issuer does not have in its network a provider who can
provide a particular service, then the plan or issuer must cover the item or service
when performed by an out-of-network provider and not impose cost sharing with
respect to the item or service. Therefore, if a plan or issuer does not have in its
network a provider who can provide lactation counseling services, the plan or
issuer must cover the item or service when performed by an out-of-network
provider without cost sharing.
Q3: The State where I live does not license lactation counseling providers and
my plan or issuer will only cover services received from providers licensed by
the State. Does that mean that I cannot receive coverage of lactation
counseling without cost sharing?
No. Subject to reasonable medical management techniques, lactation counseling
must be covered without cost sharing by the plan or issuer when it is performed
by any provider acting within the scope of his or her license or certification under
applicable State law. Lactation counseling could be provided by another provider
type acting within the scope of his or her license or certification (for example, a
registered nurse), and the plan or issuer would be required to provide coverage for
the services without cost sharing.
Q4: A plan or issuer provides coverage for lactation counseling without cost
sharing only on an inpatient basis. Is it permissible for the plan or issuer to
impose cost sharing with respect to lactation counseling received on an
outpatient basis?
No. If a recommendation or guideline does not specify the frequency, method,
treatment, or setting for the provision of a recommended preventive service, then
the plan or issuer may use reasonable medical management techniques to
determine any such coverage limitations. However, it is not a reasonable medical
H0059257.10
23
management technique to limit coverage for lactation counseling to services
provided on an in-patient basis. Some births are never associated with a hospital
admission (e.g., home births assisted by a nurse midwife), and it is not
permissible to deny coverage without cost sharing for lactation support services in
this case. Moreover, coverage for lactation support services without cost sharing
must extend for the duration of the breastfeeding which, in many cases, extends
beyond the in-patient setting for births that are associated with a hospital
admission.
Q5: Are plans and issuers permitted to require individuals to obtain
breastfeeding equipment within a specified time period (for example, within
6 months of delivery) in order for the breastfeeding equipment to be covered
without cost sharing?
No. The requirement to cover the rental or purchase of breastfeeding equipment
without cost sharing extends for the duration of breastfeeding, provided the
individual remains continuously enrolled in the plan or coverage.10
52.
Among other things, the FAQs confirm that:
(a) Defendants are required to provide a list of network lactation consultants.
(b) If a plan does not have in-network lactation consultant providers, the plan may
not impose cost sharing for lactation consulting services obtained out of
network.
(c) Plans may not limit lactation counseling services without cost sharing to an
inpatient basis.
(d) Coverage for lactation support services must extend for the duration of
breastfeeding.
(e) Plans may not require individuals to obtain equipment within a specified time
period, such as within six months of delivery, in order for it to be covered
without cost sharing.
10 See CMS, “FAQs About Affordable Care Act Implementation (Part XXIX) And Mental Health
Parity Implementation” (10/23/2015), Q1-5, available at:
https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-
XXIX.pdf (last visited 10/14/2016) (emphasis added).
H0059257.10
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53.
Having in-network providers of the required preventive service is key and is
highlighted in the following relevant subsections of 29 CFR 2590.715-2713(a)(3) ((titled
“Coverage of preventive health services”)(emphasis added)):
(3) Out-of-network providers - (i) Subject to paragraph (a)(3)(ii) of this section,
nothing in this section requires a plan or issuer that has a network of providers to
provide benefits for items or services described in paragraph (a)(1) of this section
that are delivered by an out-of-network provider. Moreover, nothing in this section
precludes a plan or issuer that has a network of providers from imposing cost-sharing
requirements for items or services described in paragraph (a)(1) of this section that
are delivered by an out-of-network provider. (ii) If a plan or issuer does not have in
its network a provider who can provide an item or service described in paragraph
(a)(1) of this section, the plan or issuer must cover the item or service when performed
by an out-of-network provider, and may not impose cost sharing with respect to the
item or service.
54.
Plainly, if an insurer maintains a network of providers for Comprehensive
Lactation Benefits, then an insured who elects or prefers to go to an out-of-network provider may
have a cost imposed on her. Plaintiffs and the members of the Class, however, had no such
choice. Yet, Defendants have forced Plaintiffs and the members of the Class to either forego the
preventive services or go out-of-network and pay the price. That violates the ACA, the anti-
discrimination provisions of the ACA, the terms of the plan documents and ERISA.
D.
Defendants Have Engaged in a Systemic Practice With Respect to
Comprehensive Lactation Benefits that Violates the Preventive Service
Mandates of the ACA.
55.
Defendants provide, and serve as an administrator for, non-grandfathered health
plans that are required to cover certain preventive health services and screenings mandated by
the ACA, including Comprehensive Lactation Benefits, as alleged supra.
H0059257.10
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56.
Defendants acknowledge that the ACA preventive services are to be provided at
no out-of-pocket costs11:
57.
In addition, HCSC’s health plans and plan documents set forth, in substantially
the same manner, that each health plan provides preventive care benefits in accordance with the
provisions of the ACA, including for breastfeeding support, supplies and consultation. For
example, BCBSIL’s Small Group (1-50) PPO Plan, tracks specifically the ACA Preventive
Services mandate, and lists breastfeeding comprehensive support as a preventive care service:
11 Source: http://hcsc2015srr.com/online-community-connect/; https://connect.bcbsil.com/cfs-
file/__key/communityserver-blogs-components-weblogfiles/00-00-00-00-04/5008.What-Is-
ACA_5F00_IL-_2800_1_2900_.png;
https://connect.bcbstx.com/getting-health-insurance/b/
weblog/archive/2015/03/04/what-is-the-affordable-care-act-aca;
http://bcbsmt2015srr.com/
online-community-connect/; http://bcbsok2015srr.com/online-community-connect/ (All last
visited 10/29/2016).
H0059257.10
26
58.
With the expansion of women’s preventive services beginning August 1, 2012,
“about 47 million women gained guaranteed access to additional preventive services without
paying more at the doctor's office.” HHS, Affordable Care Act Rules on Expanding Access to
H0059257.10
27
Preventive
Services
for
Women,
http://www.hhs.gov/healthcare/facts-and-features/fact-
sheets/aca-rules-on-expanding-access-to-preventive-services-for-women/index.html (last visited
9/7/2016) (emphasis added). And, under the ACA provisions, the nearly 4 million children born
annually in the United States and their mothers are entitled to timely, comprehensive lactation
education and support. CDC, National Vital Statistics Report, Vol. 4, number 1, at p. 1 (Jan. 1,
2015) (available at: http://www.cdc.gov/nchs/data/nvsr/nvsr64/nvsr64_01.pdf (last visited
9/7/2016)).
59.
Defendants, however, have prevented women from getting the guaranteed access
to timely Comprehensive Lactation Benefits by circumventing the clear requirement that health
plans provide, at no cost, Comprehensive Lactation Benefits as a preventive service, just like all
other preventive services.
60.
In contravention of the ACA’s preventive health services mandate and the
Defendants’ plan documents, Defendants have failed to provide mandated preventive benefits
coverage for Comprehensive Lactation Benefits to the detriment of plan members including by
(among other things):
(a)
failing to establish a network of lactation consultants;
(b)
improperly attributing an out-of-network characterization to
Comprehensive Lactation Benefits in response to insureds’ inquires and when
such benefits are sought;
(c)
imposing major administrative barriers to insureds seeking to
receive information about and access to Comprehensive Lactation Benefits;
(d)
failing
to
construct
a
list
of
in-network
providers
of
Comprehensive Lactation Benefits;
H0059257.10
28
(e)
failing to provide any list of in-network providers of
Comprehensive Lactation Benefits including failing to provide such list either
by mail, through customer representatives that provide phone consultation to
members, or through the Defendants’ website; and
(f)
providing inaccurate information to insureds, including through the
Explanation of Benefits (“EOBs”), with respect to the cost of Comprehensive
Lactation Benefits, stating a denial of coverage for 100% of the cost of
Comprehensive Lactation Benefits, treating lactation as an out-of-network
benefit, and advising the member that the provider may balance bill the
member for the difference between (i) the cost charged by the provider and
(ii) the amount allowed by the out of network benefit.
61.
Defendants have, contrary to the plain intent and purpose of the ACA’s
imposition of no-cost preventive services and the inclusion of Comprehensive Lactation Benefits
as a preventive service, improperly shifted costs to the insured by failing to establish a network
of providers of Comprehensive Lactation Benefits.
62.
In addition to general administrative burdens, Defendants have exhibited a pattern
of conduct intentionally designed to: (1) frustrate women’s exercise of the appeal rights and to
encourage women to give up seeking reimbursement and (2) deny providers guidance that would
aid other plan beneficiaries in seeking coverage or reimbursement. Such abuses include:
inconsistent guidance from Defendants’ representatives, lack of timely responsiveness for pre-
authorization or provider requests and changing purportedly applicable codes for Comprehensive
Lactation Benefits.
H0059257.10
29
63.
Defendants have also wrongly erected significant administrative barriers that
prevent and deter women from obtaining timely Comprehensive Lactation Benefits. Among
these barriers, Defendants have failed to establish a network of providers and failed to provide
plan participants with any list or directory that clearly disclose the in-network providers (if any)
of Comprehensive Lactation Benefits.12
64.
For example, HCSC’s division websites purportedly give insureds the ability to
find providers via an online tool called Provider Finder®. However, Provider Finder® does not
offer lactation, breastfeeding, IBCLC or other lactation consultation/breastfeeding counseling
descriptions as a searchable “Provider Type” or “Provider Specialty,” as depicted on the
following screenshots:
12 As alleged infra, insureds seeking the identity of a covered Comprehensive Lactation Benefit
provider have been told to try to find one in a hospital or clinical practice group (obstetricians –
gynecologists, pediatricians, and other providers of maternal and child care) without disclosure
as to which hospital or clinical practice group, if any, provide lactation services. Physicians and
clinicians who “are ambivalent about breastfeeding or who feel inadequately trained to assist
patients with breastfeeding may be unable to properly counsel their patients on specifics about
breastfeeding techniques, current health recommendations on breastfeeding, and strategies to
combine breastfeeding and work.” HHS, Call to Action, supra, p. 15. In a recent study of
obstetricians’ attitudes, 75% admitted they had either inadequate or no training in how to
appropriately educate mothers about breastfeeding. The information on breastfeeding included in
medical texts is often incomplete, inconsistent, and inaccurate.” Id. at p. 26.
H0059257.10
30
Search
performed
at
https://public.hcsc.net/providerfinder/search.do?corpEntCd=IL1&
nextPage=networkplan&residencestate= (last visited 10/28/2016).
H0059257.10
31
H0059257.10
32
Search
performed
at
https://public.hcsc.net/providerfinder/search.do?corpEntCd=
IL1&nextPage=networkplan&residencestate= (last visited 10/28/2016).
65.
In addition, a search on Provider Finder of “all networks and plans” in each state
in which each HCSC division operates for, for example, hospitals or obstetrics-gynecology,
results in a list of thousands of providers and facilities (4,997 for BCBSIL “obstetrics-
gynecology”) but with no indication of whether or not they are lactation consultants,
breastfeeding counselors or IBCLCs, or provide any aspect of the Comprehensive Lactation
Benefit ACA mandated preventive service:
H0059257.10
33
Search
performed
at
https://public.hcsc.net/providerfinder/search.do?corpEntCd=IL1&
nextPage=networkplan&residencestate= (last visited 10/29/2016).
66.
Even if an insured were to try to focus a search on a possible lactation consultant
by searching specialties such as “Certified Nurse Midwife,” “Certified Nurse Practitioner,” or
H0059257.10
34
“Certified Nurse Specialist” for “Ages 18-64 Postpartum Issues,” the results show “no results”
for the entire state of Illinois, as depicted in the following screenshots.
Search
performed
at
https://public.hcsc.net/providerfinder/search.do?corpEntCd=IL1&
nextPage=networkplan&residencestate= (last visited 10/29/2016).
H0059257.10
35
Search
performed
at
https://public.hcsc.net/providerfinder/search.do?corpEntCd=IL1&
nextPage=networkplan&residencestate= (last visited 10/29/2016).
H0059257.10
36
Search
performed
at
https://public.hcsc.net/providerfinder/search.do?corpEntCd=IL1&
nextPage=networkplan&residencestate= (last visited 10/29/2016).
67.
On information and belief, on or around April 8, 2016, Defendant HCSC put the
below information on its divisions’ websites for the first time:
H0059257.10
37
68.
In effect, women are told by Defendants that they may be able to receive
breastfeeding support and lactation counseling services but only if, like a needle in a haystack,
they are successful in sifting through and evaluating the thousands of providers listed under the
enumerated categories of providers. As alleged supra, and as experienced by the Plaintiffs and
members of the Class, that task is impossible, and places an unrealistic burden on new mothers in
need of a highly time sensitive medical service. Such information is a mere artifice.
69.
Presently, the following message appears, and differs from the previous
information in one respect: women are now told that the “Blue Distinction Centers (BDC) for
Maternity Care offer breastfeeding support.”
H0059257.10
38
http://www.bcbsil.com/provider_finder/breastfeeding-counseling.html (last visited 10/30/2016).
70.
The link, however, is to an 80-page manual from BlueCross Blue Shield
Association:
http://www.bcbs.com/why-bcbs/blue-distinction/blue-distinction-maternity-care/maternity-
providers.pdf (last visited 10/28/2016).
71.
The Directory of Providers lists, by State and City, the names of Maternity Care
Facilities (hospitals and centers) in every state in the United States; it lists over 60 Facilities for
H0059257.10
39
Illinois, including 13 for Chicago. There is no mention of the services provided by any of the
facilities listed, and there is no mention of the words lactation, breastfeeding or breastfeeding
consultation in the Directory of Providers. No one can identify from the Directory of Providers
the identity of a single in-network (or even out-of-network) lactation counselor. As alleged
supra and as experienced by the Plaintiffs and members of the Class, identification of in-network
providers of Comprehensive Lactation Benefits is rendered impossible by the failure of
Defendants to provide any information.13
72.
It appears that BCBSMT (but not BCBSIL, BCBSTX, BCBSNM or BCBSOK),
has the following additional limited, yet still uninformative, statement about getting “assistance
with breast feeding”:
https://www.bcbsmt.com/member/advantages-of-membership/new-mothers
(last
visited
10/29/2016).
13 The websites for each of Defendant HCSC’s divisions are identical in this regard. See
BCBSTX: http://www.bcbstx.com/provider_finder/breastfeeding-counseling.html;
BCBSMT: https://www.bcbsmt.com/provider_finder/breastfeeding-counseling.html;
BCBSOK: http://www.bcbsok.com/provider_finder/breastfeeding-counseling.html;
BCBSNM: http://www.bcbsnm.com/provider_finder/breastfeeding-counseling.html
(All last visited 10/29/16).
H0059257.10
40
73.
In addition, in response to requests by insureds for the identity of in-network
providers of Comprehensive Lactation Benefits, Defendants take several weeks to issue a
response that there are no in-network providers.
74.
Also, Defendants typically instruct insureds who are seeking Comprehensive
Lactation Benefits to obtain “prior authorization” for the preventive service. It typically takes
Defendants several weeks to provide such authorization. Therefore, the insureds are left waiting
for authorization from Defendants to obtain Comprehensive Lactations Benefits during the
weeks following birth, when insureds most need these services.
75.
Time is of the essence with respect to breastfeeding. Mothers who seek out and
need guaranteed no-cost women’s preventive services pursuant to the ACA, are victims of
Defendants’ barriers. Defendants have erected these barriers to prevent their insureds from
timely receiving, if they receive it at all, Comprehensive Lactation Support. Defendants then
illegally force their insureds, who obtain such support, to pay for it, by failing to provide full
reimbursement.
76.
Each named Plaintiff, like the members of the Class, has been denied through
Defendants’ wrongful conduct the women’s preventive service benefit for Comprehensive
Lactation Benefits that is required by the ACA.
Plaintiff Briscoe
77.
Following the birth of her child on November 20, 2014, Plaintiff Briscoe sought
lactation support, supplies and counseling. Prior to receiving the services, Plaintiff Briscoe
accessed BCBSIL’s online tool called Provider Finder® to find in-network providers for
Comprehensive Lactation Benefits. However, Plaintiff Briscoe was unsuccessful in identifying
such providers because the Provider Finder® did not give lactation, breastfeeding, IBCLC or any
H0059257.10
41
other lactation consultation/breastfeeding counseling description as a searchable “Provider Type”
or “Provider Specialty”.
78.
Thereafter, on December 1, 2014, Plaintiff Briscoe had an in-home lactation
consultation provided by an IBCLC from Chicagoland Breastfeeding for which she paid $200
out-of-pocket. Plaintiff Briscoe submitted the lactation consultation claim to BCBSIL for
coverage. On or around January 9, 2015, Plaintiff Briscoe received an EOB from BCBSIL
which stated that the lactation consultation was an excluded service under her plan, therefore the
claim was denied and she was responsible for the full $200 service fee.
79.
Plaintiff Briscoe submitted a written appeal contesting the denial of her claim. On
or around February 6, 2015, Plaintiff Briscoe received another EOB from BCBSIL that now
reflected that of the $200 lactation service fee, only $160 was considered “covered” and BCBSIL
issued Plaintiff Briscoe a check for that amount. However, BCBSIL held Plaintiff Briscoe
responsible for $40 which was applied to coinsurance.
80.
Plaintiff Briscoe estimates that she spent approximately 6-8 hours trying to have
her claim for lactation support processed and paid by BCBSIL, only to be reimbursed $160. She
did not receive any additional reimbursements from BCBSIL for her lactation consultation.
Accordingly, because of Defendants’ wrongdoing, Plaintiff Briscoe was denied the no-cost ACA
preventive service to which she was entitled.
Plaintiff Magierski
81.
Following the birth of her child on April 8, 2016, Plaintiff Magierski sought
lactation support, supplies and counseling. Prior to receiving the services, Plaintiff Magierski
contacted BCBSIL to ask about coverage for in-home lactation services. The BCBSIL
representative who she spoke with confirmed that BCBSIL did not have any preferred providers
H0059257.10
42
for in-home lactation services. The BCBSIL representative informed Plaintiff Magierski that
since there were no “in-network” providers, she could seek the service from any provider and it
would be covered as “in-network”.
82.
On April 13, 2016 Plaintiff Magierski had an in-home lactation consultation
provided by an IBCLC from Mother’s Milk Companysm and paid $235 for the consultation and
$10.20 for a breast shield for a total out-of-pocket expenditure of $245.20. Plaintiff Magierski
submitted the lactation consultation and supplies claim for coverage to BCBSIL. Plaintiff
Magierski received an EOB from BCBSIL which indicated that of the $180 lactation service fee,
only $137.59 was considered “covered”. The EOB did not offer any explanation as how the
covered amount was calculated. Furthermore, the EOB applied the covered amount to Plaintiff
Magierski’s out-of-network deductible because she had not reached her annual deductible.
Plaintiff Magierski submitted a written appeal contesting the denial of her claims. On or around
May 11, 2016, Plaintiff Magierski received another EOB from BCBSIL which, like the first
EOB, reflected that $137.59 was “covered” and applied that amount to Plaintiff Magierski’s out-
of-network deductible because she had not reached her annual deductible. Therefore, Plaintiff
Magierski was responsible for the entire $245.20 lactation services fee.
83.
Plaintiff Magierski estimates that she spent approximately 5 hours trying to have
her claims for lactation support and supplies processed and paid by BCBSIL, only to be fully
denied reimbursement, resulting in an outstanding out-of-pocket expenditure of $245.20.
Accordingly, because of Defendants’ wrongful conduct, Plaintiff Magierski was denied the no-
cost ACA preventive service to which she was entitled.
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E.
Defendants’ Conduct Violates the Non-Discrimination Provision of the ACA.
84.
Section 1557(a) of the ACA contains a “nondiscrimination” provision that
provides, in relevant part:
[A]n individual shall not, on the ground prohibited under . . . title
IX of the Education Amendments of 1972 (20 U.S.C. 1681 et seq.)
. . . be excluded from participation in, be denied the benefits of, or
be subjected to discrimination under, any health program or
activity, any part of which is receiving Federal financial assistance,
including credits, subsidies, or contracts of insurance, or under any
program or activity that is administered by an Executive Agency or
any entity established under this title (or amendments). The
enforcement mechanisms provided for and available under … title
IX … shall apply for purposes of violations of this subsection.
42 U.S.C. § 18116(a).
85.
The ACA nondiscrimination provision specifically prohibits discrimination on the
basis of those grounds that are prohibited under other federal laws, including Title IX of the
Education Amendments of 1972, 20 U.S.C. § 1681(a) (“Title IX”).
86.
Title IX prohibits discrimination on the basis of sex. Plaintiffs and the members
of the Class are being excluded from participation in, being denied the benefits of, and being
subjected to discrimination by Defendants (in Defendants’ capacity as insurers and
administrators of insurance plans) on the basis of their sex.
87.
By their conduct alleged herein, Defendants are providing disparate levels of
health benefits, and specifically ACA mandated preventive services, for women.
88.
Defendants are subject to Section 18116 because Defendants are health programs
and activities which are “receiving Federal financial assistance, including credits, subsidies, or
contracts of insurance” may not discriminate on the basis of sex. See 42 U.S.C. § 18116(a)
(incorporating Title IX by reference).
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89.
Defendants are health programs and activities because they provide and
administer health insurance and plans.
90.
Defendants are receiving Federal financial assistance, including credits, subsidies
and contracts of insurance, at least in the following ways.
91.
As alleged in ¶20 supra, Defendants have entered into agreements or contracts of
insurance with the federal government. Defendants provide health plans to federal employees
who are covered through the FEHBP.
92.
Defendants also provide health plans through the ACA Exchanges (see ¶19 supra)
and thereby receive Federal financial assistance in the form of the direct and/or indirect
subsidies, including the “premium tax credit,” provided for under the ACA for qualified
individuals who purchase health insurance from Defendants through the Exchange. A premium
tax credit is a refundable tax credit designed to help eligible individuals and families with low or
moderate income afford health insurance purchased through the Exchange. When enrolled in an
Exchange plan, the insured can choose to have the Exchange compute an estimated credit that is
paid to the insurance company to lower what the insured pays for monthly premiums (advance
payments of the premium tax credit, or APTC). See http://fas.org/sgp/crs/misc/R41137.pdf (last
visited 10/25/2016). On information and belief, Defendants have received such credits.
93.
In addition to the premium credits, ACA establishes subsidies that are applicable
to cost-sharing expenses. The HHS Secretary will provide full reimbursements to exchange plans
that provide cost-sharing subsidies. It was estimated in early 2014, that such cost-sharing
subsidies would increase federal outlays from FY2015 through FY2024 by $167 billion. See
http://fas.org/sgp/crs/misc/R41137.pdf (last visited 10/26/2016). On information and belief,
Defendants have received such credits.
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94.
Furthermore, the federal government routinely provides grants and/or other
financial assistance to HCSC. A review of the federal-government-run www.USASpending.gov
– a website mandated by the Federal Funding Accountability and Transparency Act of 2006 (S.
2590) to give the American public access to information on how their tax dollars are spent –
indicates that HCSC received over $13 million in 2016 and $6.4 million in 2015 from the federal
government (HHS).14
95.
Defendants violated and continue to violate Section 1557(a) of the ACA on the
basis of sex discrimination because, as set forth herein, Defendants refuse and otherwise fails to
comply with the ACA’s provisions with respect to preventive women’s care for Comprehensive
Lactation Benefits.
96.
By violating the women’s preventive services requirements under the ACA, plan
participants have been and continue to be denied mandated access to coverage for breastfeeding
benefits. Defendants’ denial of benefits and unlawful cost sharing has – in addition to violating
the ACA – unjustly enriched Defendants and deprived thousands of women of their mandated
lactation benefits. If Defendants’ unlawful and discriminatory conduct is not foreclosed, many
more mothers will be wrongfully denied the benefits they are entitled to receive under the ACA.
F.
Defendants’ Status as, and Duties of, ERISA Fiduciaries.
97.
ERISA fiduciaries include not only parties explicitly named as fiduciaries in the
governing plan documents or those to whom there has been a formal delegation of fiduciary
responsibility, but also any other parties who in fact performs fiduciary functions. Under ERISA,
a person is a fiduciary “to the extent . . . . he exercises any discretionary authority or
14https://www.usaspending.gov/transparency/Pages/RecipientProfile.aspx?DUNSNumber=03089
0891&FiscalYear=2015; and, https://www.usaspending.gov/transparency/Pages/
RecipientProfile.aspx?DUNSNumber=030890891&FiscalYear=2016 (last visited 10/30/2016).
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discretionary control respecting management of such plan or exercises any authority or control
respecting management or disposition of its assets. . . .,” ERISA § 3(21)(A)(i), 29 U.S.C. §
1002(21)(A)(i), or “he has any discretionary authority or discretionary responsibility in the
administration of such plan.” ERISA § 3(21)(A)(iii), 29 U.S.C. § 1002(21)(A)(iii). Thus, if a
Defendant exercises discretionary authority or control in managing or administering the plan, or,
if it exercises any authority or control (discretionary or not) with respect to management or
disposition of plan assets, it is an ERISA fiduciary.
98.
At all relevant times, Defendants have been fiduciaries of the Defendants’ health
plans because: (a) they had the authority with respect to the Defendants’ health plans’
compliance with the ACA requirements; (b) they exercised discretionary authority and/or
discretionary control with respect to the Defendants’ compliance with the ACA requirements for
their health plans; (c) they had the authority to establish a network of providers for
Comprehensive Lactation Benefits for the Defendants’ health plans; (d) they exercised
discretionary authority and/or discretionary control with regard to establishing a network of
providers for Comprehensive Lactation Benefits for Defendants’ health plans; (e) they had the
authority and/or discretionary responsibility over the management and administration of
preventive services as required by the ACA for the Defendants’ health plans; and/or, (f) they
exercised discretion over provider lists for Defendants’ plans with respect to providers of
Comprehensive Lactation Benefits, and, on information and belief, failed to establish a network
of providers in order to maximize its profits and minimize its costs of coverage for ACA
women’s preventive services.
99.
ERISA §§ 404(a)(1)(A) and (B), 29 U.S.C. §§ 1104(a)(1)(A) & (B), provide, in
pertinent part, that a fiduciary shall discharge its duties with respect to a plan solely in the
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interest of the participants and beneficiaries, for the exclusive purpose of providing benefits to
participants and their beneficiaries, and with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent 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.
These fiduciary duties under ERISA §§ 404(a)(1), 404(a)(1)(A), and (B) are referred to as the
duties of loyalty and prudence and are the “highest known to the law.” Donovan v. Bierwirth,
680 F.2d 263, 272 n.8 (2d Cir. 1982).
100.
In addition, a fiduciary that appoints another person to fulfill all or part of its
duties, by formal or informal hiring, subcontracting, or delegation, assumes the duty to monitor
that appointee to protect the interests of the ERISA plans and their participants. An appointing
fiduciary must take prudent and reasonable action to determine whether the appointees are
fulfilling their fiduciary obligations.
101.
ERISA also holds fiduciaries liable for the misconduct of co-fiduciaries. ERISA §
405(a), 29 U.S.C. § 1105(a). Co-fiduciary liability is an important part of ERISA’s regulation of
fiduciary responsibility. Because ERISA permits the fractionalization of the fiduciary duty, there
may be, as in this case, more than one ERISA fiduciary involved in a given issue. Even if a
fiduciary merely knows of a breach with which it had no connection, it must take steps to remedy
that breach. See 1974 U.S.C.C.A.N. 5038, 1974 WL 11542, at 5080 (“[I]f a fiduciary knows that
another fiduciary of the plan has committed a breach, and the first fiduciary knows that this is a
breach, the first fiduciary must take reasonable steps under the circumstances to remedy the
breach. . . .[T]he most appropriate steps in the circumstances may be to notify the plan sponsor
of the breach, or to proceed to an appropriate Federal court for instructions, or bring the matter to
the attention of the Secretary of Labor. The proper remedy is to be determined by the facts and
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circumstances of the particular case, and it may be affected by the relationship of the fiduciary to
the plan and to the co- fiduciary, the duties and responsibilities of the fiduciary in question, and
the nature of the breach.”).
102.
ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3), authorizes individual participants and
fiduciaries to bring suit “(A) to enjoin any act or practice which violates any provision of this
subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to
redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the
plan.” The remedies set forth in § 502(a)(3) include remedies for breaches of the fiduciary duties
set forth in ERISA § 404, 29 U.S.C. §1104.
103.
In addition, each Plaintiff has either exhausted the administrative remedies
available to her and/or further pursuit of the administrative remedies would be futile. Futility
here is clear because pursuit of administrative remedies could not address Defendants’ failure to
provide, cover, and administer Comprehensive Lactation Benefits as a no-cost preventive service
in accordance with the ACA. Defendants’ health plans fail to comply with the provisions of the
ACA with respect to preventive services, the redress for which could not be accomplished by
pursuit of administrative remedies. Since the action concerns Defendants’ violations with
respect to the fundamental constructs of the Defendants’ plans and networks, and does not evoke
Defendants’ discretion with respect to the payment of an individual claim, any effort to exhaust
administrative remedies would be futile and is not required as a matter of law.
104.
Plaintiffs therefore bring this action under the authority of ERISA § 502(a)(3), 29
U.S.C. § 1132(a)(3), for appropriate equitable relief from Defendants as fiduciaries (and, in the
alternative, from Defendants as knowing participants in breaches of any of ERISA’s fiduciary
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responsibility provisions), including without limitation, injunctive relief and, as available under
applicable law, imposition of a constructive trust, equitable surcharge, and restitution.
CLASS ACTION ALLEGATIONS
105.
Plaintiffs bring this action on behalf of themselves and the proposed Class
pursuant to FED. R. CIV. P. 23(a), 23(b)(2), and/or 23(b)(3). Specifically, Plaintiffs seek to
represent the following Class:
All persons who, on or after August 1, 2012, are or were
participants in or beneficiaries of any non-Grandfathered
Health Plan sold, underwritten or administered by
Defendants in their capacity as insurer or administrator, who
did not receive full coverage and/or reimbursement for
Comprehensive Lactation Benefits.
106.
Excluded from the Class are Defendants, their subsidiaries or affiliate companies,
their legal representatives, assigns, successors, and employees.
107.
The members of the Class are so numerous that joinder of all members is
impracticable. Thousands of members are enrolled in Defendants’ health care plans. Although
information is not publicly available at the present time as to the number of women who paid for
Comprehensive Lactation Benefits, Plaintiffs allege on information and belief that discovery will
show that the putative Class include at least hundreds if not thousands of geographically
dispersed women, making joinder of all class members impracticable. Plaintiffs allege on
information and belief that the identities and contact information of the members of the Class can
be readily ascertained from Defendants’ records which include the identities of the Damages
Class members who paid for Comprehensive Lactation Benefits.
108.
There are common questions or law and fact within the meaning of Fed. Rule of
Civ. P. 23(a)(2). These common legal and factual questions include, but are not limited to:
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a. Whether Defendants have violated the ACA’s mandate of providing access to and
coverage for Comprehensive Lactation Benefits to the members of the Class;
b. Whether Defendants unlawfully discriminated on the basis of sex in violation of
the ACA by virtue of the conduct described herein;
c. Whether Defendants owed ERISA fiduciary duties to Plaintiffs and the members
of the Class and breached such duties under ERISA and/or in violation of ERISA;
d. Whether Defendants have been unjustly enriched (and if so, in what amount);
e. Whether Plaintiffs and the members of the Class are entitled to equitable relief,
including but not limited to surcharge, disgorgement of profits, and/or restitution;
f. Whether Plaintiffs and the members of the Class are entitled to a declaration
regarding their rights under ERISA;
g. Whether Plaintiffs and the members of the Class are entitled to a declaration
regarding their rights under the ACA and/or ERISA;
h. Whether Plaintiffs and the members of the Class are entitled to an Order enjoining
Defendants from violating the ACA requirements related to Comprehensive
Lactation Benefits and compelling compliance with the ACA; and
i. The extent and measurement of damages to the Damages Class members for out-
of-pocket payments for Comprehensive Lactation Benefits and the nature of other
appropriate relief.
109.
Plaintiffs’ claims are typical of the claims of the members of the Class within the
meaning of Fed. R. Civ. P. 23(a)(3) because Defendants have breached the ACA, the terms of
the plans, and their obligations to Plaintiffs and the Class in a uniform manner. Defendants
failed to establish a network of providers of Comprehensive Lactation Benefits and thereby
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caused Plaintiffs and the members of the Class to pay out-of-pocket for Comprehensive
Lactation Benefits. Defendants unjustly enriched themselves to the detriment of Plaintiffs and
the members of the Class who sustained economic injuries arising from the same wrongful and
unlawful conduct of the Defendants.
110.
Plaintiffs will fairly and adequately protect the interests of the members of the
Class, and none have interests antagonistic to them. Plaintiffs have retained attorneys
experienced in the prosecution of class actions, including healthcare, antitrust, and consumer
protection matters, and Plaintiffs and their counsel intend to prosecute this action vigorously.
111.
Plaintiffs and the members of the Class have all suffered, and will continue to
suffer harm, and damages as a result of Defendants’ unlawful and wrongful conduct. A class
action is superior to any other available methods for the fair and efficient adjudication of this
controversy, since joinder of all members of the Class is impracticable and the cost of litigation
would far outweigh the likely value of individual class member claims.
112.
Because of the relatively small size of the individual Class members’ claims, it is
likely that only a few Class members could afford to seek legal redress for Defendants’
misconduct. Further, if individual Class members were required to bring separate actions, this
and other courts would be confronted with a multiplicity of lawsuits that would burden the
judicial system and risk inconsistent rulings and contradictory judgments. And, in contrast to the
shared and unitary costs of a class action, case-by-case adjudication would greatly magnify the
expense and time incurred by the parties and the courts.
113.
Class certification is appropriate because Defendants engaged in a uniform and
common practice, and all Class Members have the same legal right to, and interest in, redress for
damages associated with violations of the ACA’s lactation coverage requirements.
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CLAIMS FOR RELIEF
COUNT I
Equitable Relief Pursuant to ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3)
for Breach of Fiduciary Duties Under ERISA § 404(a), 29 U.S.C. § 1104(a)
Against Defendants
114.
Plaintiffs incorporate by reference each of the preceding paragraphs as if fully set
forth herein.
115.
Defendants are fiduciaries of the ERISA-governed health care plans in which
Plaintiffs and the members of the Class are participants.
116.
Defendants breached their fiduciary duties of prudence under ERISA §
404(a)(1)(B) by, as alleged herein, failing to provide and to administer their health plans in
compliance with the preventive services provisions of the ACA with respect to Comprehensive
Lactation Benefits thereby causing Plaintiffs and members of the Class to wrongfully pay for
Comprehensive Lactation Benefits and/or to forego Comprehensive Lactation Benefits.
117.
Defendants also breached their duty of loyalty under ERISA § 404(a)(1)(A) by, as
alleged herein, failing to provide and to administer their health plans in compliance with the
preventive services provisions of the ACA with respect to Comprehensive Lactation Benefits
thereby causing Plaintiffs and members of the Class to wrongfully pay for Comprehensive
Lactation Benefits and/or to forego Comprehensive Lactation Benefits in order to maximize their
profits and cost-shift the ACA preventive service coverage requirement to the Plaintiffs and the
members of the Class.
118.
Defendants’ breaches of fiduciary duty caused direct injury and losses to
Plaintiffs and each member of the Class.
119.
Plaintiffs and the Class seek appropriate equitable relief along with such other and
additional relief set forth in the Prayer and/or as may otherwise be available.
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COUNT II
Claim for Equitable Relief under ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3)
for Co-Fiduciary Liability Under ERISA § 405(a), 29 U.S.C. § 1105(a)
Against Defendants
120.
Plaintiffs incorporate by reference each of the preceding paragraphs as if fully set
forth herein.
121.
As Defendants are fiduciaries under ERISA, they are liable under ERISA § 405(a)
for each other’s violations of ERISA.
122.
Under ERISA § 405(a), 29 U.S.C. § 1105(a), a fiduciary with respect to a plan
shall be liable for a breach of fiduciary responsibility of another fiduciary with respect to the
same plan in the following circumstances:
(1) if he participates knowingly in, or knowingly undertakes to conceal, an act or
omission of such other fiduciary, knowing such act or omission is a breach;
(2) if, by his failure to comply with [ERISA § 404(a)(1)] in the administration of
his specific responsibilities which give rise to his status as a fiduciary, he has
enabled such other fiduciary to commit a breach; or
(3) if he has knowledge of a breach by such other fiduciary, unless he makes
reasonable efforts under the circumstances to remedy the breach.
ERISA §§ 405(a)(1)-(3), 29 U.S.C. §§ 1105(a)(1)-(3).
123.
Each Defendant knowingly participated in and enabled the other Defendants’
breaches of fiduciary duty by allowing Defendants to, as alleged herein, provide and administer
health plans that were not in compliance with the preventive services provisions of the ACA with
respect to Comprehensive Lactation Benefits thereby causing Plaintiffs and members of the
Class to wrongfully pay for Comprehensive Lactation Benefits and/or to forego Comprehensive
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Lactation Benefits, and by failing to monitor Defendants’ compliance with the ACA and plan
documents.
124.
Defendants failed to fulfill their ongoing and continuing duty to determine
whether their health plans were being established and administered in accordance with the ACA,
and in the best interests of Plaintiffs and the members of the Class.
125.
Co-fiduciary liability is joint and several under ERISA, and thus Defendants are
jointly and severally liable to Plaintiffs and the members of the Class for the others’ breaches of
ERISA’s fiduciary responsibility provisions.
COUNT III
Discrimination in Violation of Section 1557(a), 42 U.S.C. § 18116(a),
of the Patient Protection and Affordable Care Act
Against Defendants
126.
Plaintiffs incorporate by reference each of the preceding paragraphs as if fully set
forth herein.
127.
Section 1557(a) of the ACA contains a “nondiscrimination” provision that
provides, in relevant part:
[A]n individual shall not, on the ground prohibited under . .
. title IX of the Education Amendments of 1972 (20 U.S.C.
1681 et seq.) . . . be excluded from participation in, be
denied the benefits of, or be subjected to discrimination
under, any health program or activity, any part of which is
receiving Federal financial assistance, including credits,
subsidies, or contracts of insurance, or under any program
or activity that is administered by an Executive Agency or
any entity established under this title (or amendments). The
enforcement mechanisms provided for and available under
… title IX … shall apply for purposes of violations of this
subsection.
42 U.S.C. § 18116(a).
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128.
The ACA nondiscrimination provision specifically prohibits discrimination on the
basis of those grounds that are prohibited under other federal laws, including Title IX of the
Education Amendments of 1972, 20 U.S.C. § 1681(a) (“Title IX”).
129.
Defendants are subject to Section 18116 because Defendants are health programs
and activities which are “receiving Federal financial assistance, including credits, subsidies, or
contracts of insurance” may not discriminate on the basis of sex. See 42 U.S.C. § 18116(a)
(incorporating Title IX by reference), as alleged in ¶¶19-20, 94, supra.
130.
Title IX prohibits discrimination on the basis of sex. Plaintiffs and the members
of the Class, who are necessarily all women, are being excluded from participation in, being
denied the benefits of, and being subjected to discrimination by Defendants (in Defendants’
capacity as insurers and administrators of insurance plans) on the basis of their sex.
131.
Defendants have violated and continue to violate Section 1557(a) of the ACA on
the basis of sex discrimination because, as alleged herein, Defendants refuse and otherwise fail to
provide parity in coverage for women’s preventive services required under the ACA.
132.
Defendants have violated and continue to violate the ACA by discriminating on
the basis of sex in Defendants’ failure to provide Comprehensive Lactation Benefits as a no-cost
preventive service as mandated by the ACA; failure to provide a listing of in-network providers
for Comprehensive Lactation Benefits; denial of coverage for Comprehensive Lactation Benefits
secured by purported out-of-network providers in the absence of the availability of in-network
providers; imposition of cost and unreasonable administrative burdens intended to deter
Plaintiffs and the members of the Class from seeking Comprehensive Lactation Benefits; and
placing of other restrictions or limitations on Comprehensive Lactation Benefits, all of which
causes widespread detrimental consequences to women.
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133.
By violating the women’s preventive services requirements under the ACA,
Plaintiffs and the members of the Class have been and continue to be denied mandated access to
coverage for Comprehensive Lactation Benefits. Defendants’ unlawful conduct violates the
ACA and unjustly enriches Defendants, depriving thousands of women of their ACA- mandated
women’s preventive services.
134.
If Defendants unlawful and discriminatory conduct is not foreclosed, many more
of their female insureds will be wrongfully foreclosed from receiving benefits, and/or
reimbursement for covered services, to which they are entitled under the ACA.
135.
Plaintiffs and members of the Class have been aggrieved and damaged by this
violation of Section 1557 of the ACA.
COUNT IV
Violation of the Patient Protection and Affordable Care Act
through Incorporation by Reference in HSCS Plan Documents
Against Defendants
136.
Plaintiffs incorporate by reference each of the preceding paragraphs as if fully set
forth herein.
137.
Plaintiffs’ and the Class members’ plan documents describe the plan's terms and
conditions related to the operation and administration of the plans.
138.
The plan documents incorporate by reference the provisions of the ACA,
including the women’s preventive care provisions set forth in 42 U.S.C. § 300gg-13(a)(4).
139.
Accordingly, as plan participants, Plaintiffs have the right to seek to enforce the
provisions of the ACA, and in particular, as alleged herein, the provisions of the ACA requiring
the provision of Comprehensive Lactation Benefits as a no cost women’s preventive service.
140.
As a result of Defendants’ failure to provide Comprehensive Lactation Benefits to
Plaintiffs and the members of the Class, Plaintiffs and the members of the Class have sustained
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monetary damages and, if Defendants’ conduct is not stopped, continue to be harmed by
Defendants’ misconduct.
COUNT V
Unjust Enrichment
Against Defendants
141.
Plaintiffs incorporate by reference each of the preceding paragraphs as if fully set
forth herein.
142.
Defendants have been unjustly enriched by the conduct alleged herein, including
by (a) withholding money due to Plaintiffs and the members of the Class paid for
Comprehensive Lactation Benefits; (b) implementing a course of conduct that prevents Plaintiffs
and Class members from seeking Comprehensive Lactation Benefits (or makes them pay out-of-
pocket), including by their failure to establish a network of providers for Comprehensive
Lactation Benefits; and (c) shifting the cost of ACA-mandated no-cost women’s preventive
services to Plaintiffs and Class members.
143.
Although it is part of Defendants’ responsibilities and duties to provide and
administer health insurance coverage that satisfies the ACA mandated preventive care
requirements, including for Comprehensive Lactation Benefits, Defendants have failed to fulfill
such responsibilities.
144.
As a result, Plaintiffs and members of the Class conferred an unearned tangible
economic benefit upon Defendants by paying out-of-pocket for a preventive service, namely,
Comprehensive Lactation Benefits.
145.
Equity weighs against Defendants retaining these economic benefits, which
should be returned to Plaintiffs and members of the Class.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs, individually, and on behalf of the members of the Class, pray
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for relief as follows as applicable for the particular cause of action:
A.
An order certifying this action to proceed on behalf of the Class, and appointing
Plaintiffs and their counsel to represent the Class;
B.
An order finding that Defendants violated their fiduciary duties to Class Members
and awarding Plaintiffs and Class members such relief as the Court deems proper;
C.
An order finding that Defendants violated the preventive services provisions of
the ACA, and awarding Plaintiffs and members of the Class such relief as the Court deems
D.
An order finding that Defendants violated the ACA “nondiscrimination”
provision, Section 1557(a), 42 U.S.C. § 18116(a), and awarding Plaintiffs and members of the
Class such relief as the Court deems proper;
E.
An order finding that Defendants were unjustly enriched and awarding Plaintiffs
and members of the Class such relief as the Court deems proper;
F.
Declaratory and injunctive relief as necessary and appropriate, including
enjoining Defendants from further violating the duties, responsibilities, and obligations imposed
on it by the ACA and ERISA with respect to Comprehensive Lactation Benefits;
G.
An order awarding, declaring or otherwise providing Plaintiffs and members of the
Class all relief under ERISA, that the Court deems proper and such appropriate equitable relief as
the Court may order, including damages, an accounting, equitable surcharge, disgorgement of
profits, equitable lien, constructive trust, or other remedy;
H.
An order finding that Defendants are jointly and severally liable as co-fiduciaries
in violations of ERISA;
I.
An order awarding Plaintiffs and the members of the Class other appropriate
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equitable and injunctive relief to the extent permitted by the above claims;
J.
An order awarding Plaintiffs’ counsel attorneys’ fees, litigation expenses, expert
witness fees and other costs pursuant to ERISA § 502(g)(1), 29 U.S.C. 1132(g)(1), and/or the
common fund doctrine; and
K.
Such other and further relief as may be just and proper.
JURY DEMAND
Plaintiffs demand a trial by jury for all claims asserted in this Complaint so triable.
Dated: November 2, 2016
By: /s/ Paul D. Malmfeldt
Paul D. Malmfeldt, Esq.
BLAU & MALMFELDT
203 North LaSalle Street, Suite 1620
Chicago, Illinois 60601-1218
Tel: (312) 443-1600
Fax: (312) 443-1665
[email protected]
Nicholas E. Chimicles (to seek admission pro hac vice)
Kimberly Donaldson Smith (to seek admission pro hac vice)
Stephanie E. Saunders (to seek admission pro hac vice)
CHIMICLES & TIKELLIS LLP
361 W. Lancaster Avenue
Haverford, PA 19041
(610) 642-8500
[email protected]
[email protected]
[email protected]
Jonathan W. Cuneo (to seek admission pro hac vice)
Pamela B. Gilbert (to seek admission pro hac vice)
Matthew E. Miller (to seek admission pro hac vice)
Katherine Van Dyck (to seek admission pro hac vice)
CUNEO GILBERT & LADUCA, LLP
4725 Wisconsin Ave. NW, Suite 200
Washington, DC 20016
Phone: (202) 789-3960
Fax: (202) 789-1813
Attorneys for Plaintiffs and the proposed Class
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| healthcare |
UMjZDYcBD5gMZwczJyNT | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF ILLINOIS
NO. 3:12-cv-00660-WDS-PMF
Judge William D. Stiehl
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
MARK HALE, TODD SHADLE and
CARLY VICKERS MORSE, on
behalf of themselves and all others
similarly situated,
Plaintiffs,
v.
STATE FARM MUTUAL
AUTOMOBILE INSURANCE
COMPANY, ED MURNANE,
WILLIAM G. SHEPHERD and
CITIZENS FOR KARMEIER,
Defendants.
CLASS ACTION COMPLAINT
COME the Plaintiffs, Mark Hale, Todd Shadle and Carly Vickers Morse (“Plaintiffs”),
on behalf of themselves and all others similarly situated, by and through the undersigned
attorneys, and bring this Class Action Complaint against Defendants, State Farm Mutual
Automobile Insurance Company, Ed Murnane, William G. Shepherd and Citizens for Karmeier.
Based upon personal knowledge with respect to their own acts, and as to all other matters
based upon the investigation of counsel, for their Complaint, Plaintiffs state as follows:
INTRODUCTION AND NATURE OF ACTION
1.
From 2003 to the present, State Farm, Murnane, Shepherd and Citizens for
Karmeier (collectively, “Defendants”) created and conducted the RICO enterprise described
below to enable State Farm to evade payment of a $1.05 billion judgment affirmed in favor of
approximately 4.7 million State Farm policyholders by the Illinois Appellate Court.
2.
Plaintiffs bring this class action for damages against Defendants for violation of
the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961 et seq., in
particular, §§ 1962(c), (d); and 1964 for perpetrating a scheme through an enterprise specifically
designed to defraud Plaintiffs and Class out of a $1.05 billion judgment.
3.
Plaintiffs were each named plaintiffs, class representatives and class members in
Avery v. State Farm Mutual Automobile Insurance Company (“Avery Action”), a class action
litigated in the Illinois state court system. The Avery Action was certified as a class action, tried
to jury verdict on a breach of contract claim, and tried to the Court on a claim under the Illinois
Consumer Fraud Act (“ICFA”), resulting in a judgment of $1.18 billion.
4.
The Illinois Appellate Court upheld a $1.05 billion judgment, sustaining the
compensatory and punitive damages, and disallowing disgorgement damages as duplicative. See
Avery v. State Farm Mut. Auto. Ins. Co., 321 Ill. App. 3d 269, 275, 292 (Ill. App. Ct. 5th Dist.
2001). (A true copy of the Avery Appellate Court decision is attached hereto as Exhibit “A”).
5.
On October 2, 2002, the Illinois Supreme Court accepted State Farm’s appeal.
The appeal was fully-briefed, argued and submitted as of May 2003, yet the matter remained
under submission without a decision until August 18, 2005.
6.
From the fall of 2003 until November 2004, Trial Judge Lloyd Karmeier
(“Karmeier”) and Appellate Judge Gordon Maag waged a judicial campaign for a vacant seat on
the Illinois Supreme Court, ultimately resulting in Karmeier’s election. In January 2005, having
received reliable information that State Farm had exerted financial and political influence to
achieve Karmeier’s election, the Avery plaintiffs moved to disqualify Karmeier him from
participating in the appeal of the Avery Action.
7.
On or about January 31, 2005, State Farm filed its response to the disqualification
motion, grossly misrepresenting the magnitude of State Farm’s financial support (and the degree
of participation by its executives, surrogates, lawyers and employees) of Karmeier’s campaign.
8.
Plaintiffs’ motion was denied, and on August 18, 2005, with now-Justice
Karmeier participating in the Court’s deliberations and casting his vote in State Farm’s favor, the
Illinois Supreme Court issued a decision overturning the $1.05 billion judgment. See Avery v.
State Farm Mut. Auto. Ins. Co., 216 Ill.2d 100, 835 N.E.2d 801 (Ill. 2005). (A true copy of this
decision is attached hereto as Exhibit “B”).
9.
In December 2010, spurred in part by a recent United States Supreme Court
decision vacating a West Virginia Supreme Court ruling in a case which featured similar facts,
i.e., involving a party’s political and financial influence to elect a justice whose vote it sought for
its appeal, Plaintiffs’ counsel launched an investigation into State Farm’s covert involvement in
the Karmeier campaign. The investigation, led by a retired FBI Special Agent, uncovered
evidence that to gain reversal of the $1.05 billion judgment in the Avery Action, State Farm -
acting through Murnane, Shepherd and the Illinois Civil Justice League (“ICJL”) - recruited
Karmeier, directed his campaign, had developed a vast network of contributors and funneled as
much as $4 million to the campaign. Then, after achieving Karmeier’s election, State Farm
deliberately concealed all of this from the Illinois Supreme Court while its appeal was pending.
10.
On September 9, 2011, based on information uncovered in the Reece
investigation, the Avery plaintiffs petitioned the Illinois Supreme Court to vacate its decision
overturning the $1.05 billion judgment. Responding on September 19, 2011, State Farm again
deliberately misrepresented its role in directing and financing Karmeier’s campaign. On
November 17, 2011, the Illinois Supreme Court denied Plaintiffs’ petition, without comment.
11.
Reece’s investigation had revealed, among other things, that, having been ordered
on April 5, 2001 by the Appellate Court to pay a $1.05 billion judgment to the Avery class, and
having succeeded in persuading the Illinois Supreme Court to accept its appeal, State Farm had
next developed an elaborate plan to obtain reversal of the judgment. The initial component of
the plan was to recruit a candidate for the open Fifth District seat on the Illinois Supreme Court
for the November 2004 election who would support State Farm once its appeal came before the
Court for disposition. Of course, there was no guarantee for State Farm that the appeal would
not be decided before the November 2004 election, but the risk – a $2 to $4 million investment
for a possible $1.05 billion return – was sufficiently minimal to make it a worthwhile gamble.
12.
Defendants’ scheme was developed and implemented in two distinct but related
phases. In the first phase, State Farm sought to recruit, finance, direct, and elect a candidate to
the Illinois Supreme Court who, once elected, would vote to overturn the $1.05 billion judgment.
As Plaintiffs describe below, Defendants ultimately succeeded in achieving this objective. Nine
months after his election, Karmeier voted in favor of State Farm to overturn the $1.05 billion
judgment of the Appellate Court.
13.
Once the initial phase of the scheme had succeeded, the second phase featured
two spirits of affirmative fraudulent activity, each furthered by use of the U.S. mails: the 2005
and 2011 written misrepresentations to the Illinois Supreme Court. Specifically, this phase
consisted of: (a) a continuing concealment of these facts to permit Karmeier to participate in the
deliberations and cast his vote to overturn the judgment in 2005 (this was accomplished, in part,
by State Farm’s January 31, 2005 filing), and (b) withholding information from the Illinois
Supreme Court that would have conceivably led it to vacate the decision in 2011 (this was
accomplished, in part, by State Farm’s September 19, 2011 filing). Again, both filings were
made through the U.S. mail, having been mailed to the Clerk of the Illinois Supreme Court and
to Plaintiffs’ counsel in several states, including Illinois, Louisiana, Mississippi and Tennessee.
14.
From its inception, Plaintiffs and other Class members in the Avery Action were
the targets of and ultimate victims of the racketeering acts and the RICO enterprise - stripped of
hundreds or even thousands of dollars each, seized of a class-wide judgment totaling $1.05
billion which compensated them for their losses - as a proximate result of Defendants’ actions
and the actions of the Enterprise participants.
15.
In both the 2005 and 2011 filings, State Farm continued to hide and conceal its
role in Karmeier’s campaign, and deliberately misled the Court by omitting and concealing
material facts regarding State Farm’s role in Karmeier’s campaign, which it directed through
Shepherd, Murnane, the ICJL and Citizens for Karmeier, including: (a) recruiting Karmeier to be
a candidate; (b) selecting Murnane to direct Karmeier’s campaign; (c) creating Karmeier’s
judicial campaign contribution network; and (d) funding Karmeier’s campaign.
16.
To carry out and conceal this elaborate and covert scheme, Defendants created
and conducted a continuing pattern and practice of activity through an association-in-fact
Enterprise consisting of, among others, the following: Shepherd; Murnane; Murnane’s non-profit
organization, the ICJL; the Shepherd-led ICJL Executive Committee (“Executive Committee”);
Citizens for Karmeier (the campaign committee of Karmeier); JUSTPAC (the ICJL’s political
action committee); and the United States Chamber of Commerce (“US Chamber”).
17.
The ICJL and Executive Committee, through Murnane and Shepherd,
respectively, aided by Citizens for Karmeier, functioned collectively as State Farm’s vehicle to:
(a) recruit Karmeier as a candidate, (b) direct Karmeier’s campaign, (c) lend credibility to that
campaign via endorsement, and (d) assure that Karmeier’s campaign was well-funded.
Campaign finance disclosures show that State Farm secretly funneled to Karmeier’s campaign as
much as $4 million (over 80%) of Karmeier’s total $4.8 million campaign contributions. Led by
Murnane and Shepherd, the ICJL and its Executive Committee were the “glue” that held together
the many pieces of State Farm’s judicial campaign contribution network.
18.
The utilization of the U.S. mail throughout every stage of Defendants’ scheme - to
solicit, receive and direct contributions, to conduct conferences and disseminate communications
and campaign strategies, and to conceal the extent of State Farm’s role in Karmeier’s campaign -
was essential to the conduct of this Enterprise.
19.
Various Enterprise participants and co-conspirators also used electronic mail to
carry out the initial phase of Defendants’ scheme throughout 2003-2004 to communicate details
regarding the direction, management and financing of the campaign to fellow Enterprise
participants.
20.
As the following paragraphs illustrate, the motivation for this seven-year-long
cover-up is both plausible and demonstrable. State Farm’s misrepresentations and deception
directed toward the Illinois Supreme Court by its mailed court-filings, and the continuing use of
the mails by Defendants and Enterprise participants to carry out the scheme (to evade payment of
the $1.05 billion judgment) constitutes a pattern and practice of knowing and deceptive conduct
employed to effectuate and then to conceal State Farm’s extraordinary support of Karmeier.
PARTIES
A.
Plaintiffs
21.
Mark Hale a citizen of the State of New York. Carly Vickers Morse is a citizen of
the State of Maryland. Todd Shadle is a citizen of the State of Texas. Plaintiffs are natural
persons who were auto policyholders of State Farm, and named Plaintiffs and members of the
Class of policyholders certified in the Avery Action.
Defendants
B.
22.
State Farm Mutual Automobile Insurance Company is a mutual non-stock
company, organized and existing under the laws of the State of Illinois, and having its principal
office at One State Farm Plaza, Bloomington, Illinois 61710.
23.
William G. Shepherd is, upon information and belief, a citizen and resident of the
State of Illinois, with his principal office at One State Farm Plaza, Corporate Law A3,
Bloomington, Illinois 61710-0001. At all times relevant to this action, Shepherd was employed
by State Farm. On information and belief, Shepherd violated 18 U.S.C. §§ 1962(c) and (d) by
actively participating in State Farm’s scheme to recruit, finance and elect Karmeier to the Illinois
Supreme Court and fraudulently conceal State Farm’s true role in Karmeier’s campaign from the
Illinois Supreme Court, which had the intended result of defrauding Plaintiffs and the Class and
causing damage to their business and property.
24.
Ed Murnane is, upon information and belief, a citizen and resident of the State of
Illinois, residing at 436 S. Belmont Avenue, Arlington Heights, Illinois 60005 in Cook County,
and having his principal office at 330 N. Wabash Street, Suite 2800, Chicago, Illinois 60611. At
all times relevant to this action, Murnane was President of the Illinois Civil Justice League. On
information and belief, Murnane violated 18 U.S.C. §§ 1962(c) and (d) by actively participating
in the association-in-fact conducted by State Farm to recruit, finance and elect Karmeier to the
Illinois Supreme Court and fraudulently conceal State Farm’s true role in Karmeier’s campaign
from that Court, which had the intended result of defrauding Plaintiffs and the Class and causing
damage to their business and property.
25.
Citizens for Karmeier is an Illinois organization and the political committee for
Illinois Supreme Court Justice Lloyd Karmeier. Its principal address listed in official reports
filed with the Illinois Board of Elections is 181 E. Saint Louis St., P. O. Box 303, Nashville,
Illinois 62263-0303. Officers are listed on Illinois Board of Election filings as David
Luechtefeld, 700 N. Front, Okawville, Illinois 62271, “Chairman,” and Gary S. Malawy, 181 E.
St. Louis St., Nashville, Illinois 62263, as “Treasurer.” Service of process may be had upon
Citizens for Karmeier through Malawy at the forgoing address. On information and belief,
Citizens for Karmeier violated 18 U.S.C. §§ 1962(c) and (d) by actively participating in the
association-in-fact conducted by State Farm, Murnane and Shepherd to recruit, finance and elect
Karmeier to the Illinois Supreme Court and fraudulently conceal State Farm’s true role in
Karmeier’s campaign from that Court, which had the intended result of defrauding Plaintiffs and
the Class and causing damage to their business and property. For purposes of Plaintiffs’ claims
under 18 U.S.C. § 1962(c) and (d), Citizens for Karmeier participated in the enterprise through
which Defendants conducted their racketeering activity.
UNNAMED CO-CONSPIRATORS
26.
Although not named as a party herein, the ICJL is a 501(c)(6) not-for-profit
corporation, incorporated under the laws of the State of Illinois, with its principal place of
business in Arlington Heights, Illinois. On information and belief, the ICJL violated 18 U.S.C.
§§ 1962(c) and (d) by actively participating in State Farm’s scheme to recruit, finance and elect
Karmeier and fraudulently conceal State Farm’s role in Karmeier’s campaign from the Illinois
Supreme Court, which had the intended result of defrauding Plaintiffs and the Class and causing
them damage to their business and property.
27.
Although not named as a party herein, the US Chamber is a non-profit corporation
incorporated under the laws of the District of Columbia with its principal place of business
located at 1615 H High Street, NW, Washington, D.C. 20062-2000. For purposes of Plaintiffs’
claims under 18 U.S.C. § 1962(c) and (d), the US Chamber participated in the enterprise through
which Defendants conducted their racketeering activity.
28.
Various other persons, firms, organizations, corporations and business entities,
some unknown and others known, have participated as co-conspirators in the violations and
conduct alleged herein and performed acts in furtherance of the conspiracy described herein.
THE RICO ENTERPRISE
29.
Defendants and their above-named co-conspirators conducted or actively
participated in the conduct of an enterprise through a pattern of racketeering activity in violation
of 18 U.S.C. § 1962(c). Alternatively, Defendants, co-conspirators and Enterprise participants
identified herein, through an agreement to commit two or more predicate acts, conspired to
conduct or participate in the conduct of an enterprise through a pattern of racketeering activity in
violation of 18 U.S.C. § 1962(d). The actions of Defendants, co-conspirators and Enterprise
participants were in furtherance of the Enterprise and in violation of 18 U.S.C. § 1962(d).
30.
The Enterprise is an association-in-fact of State Farm executives and employees,
including Shepherd, as well as Murnane, Citizens for Karmeier, political operatives, a political
action committee, political organizations, an Executive Committee of one such organization
which wields significant political influence in Illinois, a political campaign committee, insurance
and business lobbyists and the US Chamber. The Enterprise is distinct from, albeit conducted
by, State Farm, through Shepherd, Murnane and the ICJL, and has an ongoing existence.
Specifically, participants in the Enterprise include:
•
William G. Shepherd
, a State Farm corporate lawyer and lobbyist.
Shepherd helped found the ICJL, hired Ed Murnane as the ICJL’s
President, and is a member of the ICJL’s “Executive Committee.”
•
Ed Murnane
is the President of the ICJL and treasurer of JUSTPAC. He
was hired by Shepherd and co-founding ICJL-member and Executive
Committee member, Karen Melchert. Murnane recruited Karmeier as a
candidate and directed all phases of the Karmeier campaign.
•
The Illinois Civil Justice League describes itself as “a coalition of Illinois
citizens, small and large businesses, associations, professional societies,
not-for-profit organizations and local governments that have joined
together to work for fairness in the Illinois civil justice system.” Through
Murnane and Shepherd, the ICJL played an essential and vital role in
Karmeier’s campaign as the conduit between State Farm and Karmeier.
•
The ICJL Executive Committee
vetted Karmeier as a candidate, then
endorsed Karmeier’s candidacy, and was the ICJL’s governing committee
during the 2004 campaign.
•
JUSTPAC
is the ICJL’s PAC. It contributed $1,191,453 directly to Judge
Karmeier’s campaign. 90% of all contributions made to JUSTPAC in
2004 went to Karmeier’s campaign. Dwight Kay, Karmeier’s finance
chair, equated a contribution to JUSTPAC with a contribution to Citizens
for Karmeier.
•
Citizens for Karmeier
is the official political committee for Karmeier and
the recipient of most of the cash campaign contributions.
•
US Chamber
is a non-profit corporation incorporated under the laws of the
District of Columbia, targeted the Karmeier-Maag race in 2004 and
contributed millions of dollars to elect Karmeier.
•
Ed Rust
is State Farm’s CEO and played an important role in the US
Chamber committee that targeted the Karmeier-Maag race in 2004 and
steered millions of dollars to Illinois to help elect Karmeier.
•
Al Adomite
was hired by Murnane as consultant to Karmeier’s campaign,
paid by the campaign. Currently, he is Vice President and Director of
Government Relations. Adomite confirmed Murnane’s control over
Karmeier’s campaign and that Murnane had provided a substantial portion
of the funding for the campaign – $1.19 million – through JUSTPAC.
•
Karen Melchert
is Director of State Government Relations for CNA
Insurance Companies (“CNA”). Along with Shepherd, she is a founding
member of the ICJL Executive Committee, and partly responsible for
hiring Murnane as ICJL President.
•
Todd Maisch
is an Executive Committee member of the ICJL and
chairman of JUSTPAC.
•
Kim Maisch
is Illinois Director of the National Federation of Independent
Businesses and served on the ICJL Executive Committee for many years,
including during the 2004 election cycle.
•
Dwight Kay
was Karmeier’s finance chairman in 2004.
•
David Leuchtefeld was “chairman” of “Citizens for Karmeier” whose
discarded emails evidence the inner-workings of the Karmeier campaign.
•
Lloyd Karmeier
was an Illinois trial judge recruited in 2003 by, among
others, Murnane and Shepherd, to be the Republican candidate for the
vacant seat on the Illinois Supreme Court in the 2004 election.
JURISDICTION
31.
The subject matter jurisdiction of this Court is conferred and invoked pursuant to
28 § 1331, and the Racketeer Influenced and Corrupt Organizations Act (“RICO”) 18 § 1961 et
seq. (specifically 18 U.S.C. § 1964(c)).
32.
This Court also has jurisdiction over this action as a class action pursuant to the
Class Action Fairness Act of 2005, 28 U.S.C. § 1332(d), providing for jurisdiction where, as
here, “any member of a class of plaintiffs is a citizen of a State different from any defendant”
and the aggregated amount in controversy exceeds five million dollars ($5,000,000), exclusive of
interests and costs. See 28 U.S.C. §§ 1332(d)(2) and (6).
VENUE
33.
Venue is proper in this judicial district under 18 U.S.C. § 1965(a) and 28 U.S.C. §
1391(a), (b) and (c) because a substantial part of the events and omissions giving rise to this
action occurred in the Southern District of Illinois and because Defendants transacted business in
this district.
34.
The Enterprise was formed in the Southern District of Illinois and a substantial
part of the conduct surrounding Defendants’ scheme occurred in the Southern District of Illinois.
35.
The Southern District of Illinois is the appropriate venue for this action because
the Avery Action, brought in the Circuit Court for Williamson County, Illinois (situated within
this district), was the genesis of the conduct described here. Also, the Fifth Appellate District of
the State of Illinois, situated within the Southern District of Illinois, was the epicenter of the
Citizens for Karmeier campaign. What’s more, the foundation of the relationships between these
Defendants, their co-conspirators and Enterprise participants was Karmeier’s candidacy for the
Fifth District seat on the Illinois Supreme Court. Finally, two acts of mail-fraud, separated by
six years – the August 18, 2005 and the September 19, 2011 mailings by State Farm to the
Illinois Supreme Court – were transacted in Edwardsville, Illinois, located in Madison County,
also situated within the Southern District of Illinois. These circumstances are sufficient to
demonstrate that a substantial part of the events or omissions giving rise to this action occurred
in the Southern District of Illinois.
36.
Venue is also proper in this district because Defendant State Farm is engaged in
substantial business here and has minimum contacts with this district, such that it is subject to
personal jurisdiction here.
37.
Venue is proper in this district because the ends of justice require it.
CLASS ACTION ALLEGATIONS
38.
Under Rule 23 of the Federal Rules of Civil Procedure, Plaintiffs bring this action
on behalf of themselves and a Class defined as:
all persons who were members of the Certified Class in Avery v. State Farm Mut.
Auto. Ins. Co., No. 97-L-114 (First Jud. Cir. Williamson County, Ill.), more
specifically described as:
All persons in the United States, except those residing in Arkansas
and Tennessee, who, between July 28, 1987, and February 24,
1998, (1) were insured by a vehicle casualty insurance policy
issued by Defendant State Farm and (2) made a claim for vehicle
repairs pursuant to their policy and had non-factory authorized
and/or non-OEM (Original Equipment Manufacturer) ‘crash parts’
installed on their vehicles or else received monetary compensation
determined in relation to the cost of such parts. Excluded from the
class are employees of Defendant State Farm, its officers, its
directors, its subsidiaries, or its affiliates.
The following persons are excluded from the class: (1) persons
who resided or garaged their vehicles in Illinois and whose Illinois
insurance policies were issued/executed prior to April 16, 1994,
and (2) persons who resided in California and whose policies were
issued/executed prior to September 26, 1996.
39.
The Class consists of approximately 4.7 million State Farm policyholders,
geographically dispersed throughout the United States, making the Class so numerous that
individual joinder is impractical under Rule 23(a)(1). The Class is ascertainable, being identical
to the class previously defined, certified and notified in the Avery Action.
40.
Numerous questions of law and fact exist that are common to Plaintiffs and the
Class. The answers to these common questions are significant and will substantially advance the
adjudication and resolution of this case, and predominate over any questions that may affect only
individual Class members, thereby satisfying Rule 23(a)(2) and 23(b)(3). These common
question/common answer issues include:
a.
Whether State Farm misrepresented and concealed material information in
its mailings to and filings with the Illinois Supreme Court concerning
State Farm’s support of Karmeier’s campaign in 2005 and 2011;
b.
Whether State Farm engaged in a fraudulent and/or deceptive scheme to
deceive the Illinois Supreme Court;
c.
Whether Defendants engaged in a pattern and practice of materially false
information, misrepresentations, omissions and concealment regarding
State Farm’s support of Karmeier’s campaign;
d.
Whether this conduct continues to the present;
e.
Whether Defendants’ conduct injured Class members in their business or
property within the meaning of the RICO statute;
f.
Whether State Farm, Murnane, Shepherd and Citizens for Karmeier
violated and conspired with others to violate RICO by the conduct of an
association-in-fact Enterprise, through a pattern of racketeering activity
involving mail fraud;
g.
Whether Class members are entitled to compensatory damages and, if so,
the nature and extent of such damages; and
h.
Whether Class members are entitled to treble damages under Civil RICO.
41.
The claims of the Plaintiffs are typical of the claims of the Class, as required by
Rule 23(a)(3), in that Plaintiffs are persons or entities who, like all Class members, were
members of the certified class in the Avery Action and “were insured by a vehicle casualty
insurance policy issued by State Farm” and “made a claim for vehicle repairs pursuant to their
policy and had non-factory authorized and/or non-OEM (Original Equipment Manufacturer)
‘crash parts’ installed on their vehicles or else received monetary compensation determined in
relation to the cost of such parts.” Plaintiffs, like all Class members, have been damaged by
Defendants’ misconduct, in that, among other things, they have lost the value and benefit of the
$1.05 billion judgment entered against State Farm by the Illinois Appellate Court on April 5,
2001 as a direct result of Defendants’ continuing pattern of fraudulent conduct.
42.
The factual and legal bases of Defendants’ misconduct are common to all
members of the Class and represent a common thread of fraud, deceit, and other misconduct
resulting in injury to Plaintiffs and Class members.
43.
Plaintiffs will fairly and adequately represent and protect the interests of Class
members, as required by Rule 23(a)(4). Plaintiffs have retained counsel with substantial
experience in the prosecution of nationwide class actions. Plaintiffs and their counsel are
committed to the vigorous prosecution of this action on behalf of the Class and have the financial
resources to do so. Neither Plaintiffs nor their counsel have interests adverse to the Class.
44.
A class action is superior to other available methods for the fair and efficient
adjudication of this controversy under Rule 23(b)(3). Absent a class action, most Class members
would certainly find the cost of litigating their claims to be prohibitive, and would thus have no
effective access to the courts or remedy at law. State Farm’s wrongdoing in the underlying
Avery Action (breach of contract and consumer fraud) was proved at a month-long trial through
evidence, documentary proof, live testimony, and multiple experts’ testimony. The dedication of
time, effort, and money to the case was considerable, beyond the resources of any single class
member. The Avery Action was economically feasible only as a class action. Typical damage to
an individual Class member in the Avery Action ranged from several hundred to less than $2500,
an amount that unfairly damaged each Class member, and enriched State Farm, but that would
not warrant the substantive costs of an individual action. The same is true with respect to the
efforts and expertise that have gone into tracing State Farm’s subsequent cause of fraudulent
conduct and its pattern of RICO-violative activity, by which Plaintiffs allege Defendants
defrauded a Court and deprived the Class of its property. The class treatment of common
questions of law and fact is thus superior to multiple individual actions or piecemeal litigation in
that it conserves the resources of the courts and the litigants, makes access to the court and
redress on the merits possible, and promotes consistency and efficiency of adjudication.
45.
Plaintiffs seek the certification of a nationwide Class under their civil RICO
claims, asserted for violations of 18 U.S.C. §1962(c) and 1962(d) under 1964(c) in this
Complaint. All questions of law and fact are common to the civil RICO counts and predominate
over individual questions. This case also presents common issues of fact and law that are each
appropriate for issue-class certification under Rule 23 (c)(4) and the management of this action
may be facilitated through the certification of additional subclasses under Rule 23(c)(5), if
necessary and appropriate.
FACTUAL ALLEGATIONS APPLICABLE TO ALL CLAIMS
A.
Trial and Appellate Court Proceedings in the Avery Action
46.
The named Plaintiffs in this action were also named plaintiffs in Avery v. State
Farm Mut. Auto. Ins. Co., 321 Ill. App. 3d 269, 275 (Ill. App. Ct. 5th Dist. 2001), the largest
class action judgment in Illinois history. Plaintiffs in the Avery Action filed their class action
complaint in July 1997. At trial, a Williamson County jury found that State Farm had breached
its contracts with 4.7 million policyholders in 48 states by specifying the use of inferior non-
OEM parts. The Trial Court agreed and issued its Judgment on October 4, 1999, confirming a
total award of $456,636,180 in breach of contract damages. The Trial Court also found that
State Farm had willfully violated the Illinois Consumer Fraud Act (“ICFA”) and awarded
punitive damages in the sum of $600,000,000 to the ICFA Class. The Trial Court also awarded
disgorgement damages of $130,000,000. See Avery, 321 Ill. App. 3d at 275.
47.
Following an appeal by State Farm, on April 05, 2001, the Illinois Appellate
Court affirmed a $1.05 billion judgment, but disallowed, as duplicative of the damage award, the
award of disgorgement damages.
B.
Proceedings in Illinois Supreme Court from October 2, 2002 to August 18,
2005
48.
On October 2, 2002, the Illinois Supreme Court granted State Farm leave to
appeal. In May 2003, the Court heard oral argument. From May 2003 until August 2005, the
Avery appeal lingered - without explanation - before the Court without a decision.
49.
During this period, Trial Judge Lloyd Karmeier waged a campaign to be elected
to the Illinois Supreme Court against Appellate Court Judge Gordon Maag. In November 2004,
Karmeier was elected to the Illinois Supreme Court.
50.
On January 26, 2005, plaintiffs in the Avery Action filed a “Conditional Motion
for Non-Participation” asking Karmeier to recuse himself because an investigation by counsel
had uncovered that about $350,000 of the $4.8 million he spent to get elected came directly from
State Farm employees, lawyers, and others involved with State Farm and its appeal.
51.
State Farm responded on January 31, 2005 in a court-filing opposing the motion
for recusal, materially understating its support of Karmeier’s campaign. See State Farm’s
Opposition to Plaintiffs-Appellees’ Conditional Motion for Non-Participation, at pp. 10-18
(attached hereto as Exhibit C). State Farm represented (falsely) that its support of Karmeier
consisted of “quite modest contributions” and characterized as “incorrect and meritless” the
claim that State Farm had funneled $350,000 to Karmeier. See State Farm’s Opposition, at pp.
12-13. State Farm denied (falsely) “engineering contributions” to Karmeier’s campaign “for the
purpose of impacting the outcome of this case” (see State Farm’s Opposition, at p. 11) and
downplayed the charge that it was responsible for $350,000 in direct contributions to Karmeier’s
campaign, suggesting that plaintiffs’ counsel had presented “no evidence whatsoever to back up”
their claim that those contributions were made by State Farm “front groups.” See State Farm’s
Opposition, at p. 11.
52.
However, State Farm failed to inform the Court that its own employee, Defendant
Shepherd, was a founding member of the ICJL Executive Committee that recruited and “vetted”
Karmeier, and, through Murnane and the ICJL, that State Farm had organized, directed and
funded the Karmeier campaign.
53.
State Farm’s brief was rife with misleading statements and omissions. Most
notably, State Farm failed to disclose the prominent role played by Shepherd in forming the
ICJL, as a member of the ICJL Executive Committee (which engineered Karmeier’s candidacy,
endorsed him, and insured a substantial flow of cash from State Farm executives, employees, and
corporate and political partners), and as a central figure in Karmeier’s campaign.
54.
Second, State Farm falsely denied Murnane’s involvement in Karmeier’s
campaign and declared “Mr. Murnane . . . was not Karmeier’s campaign manager or campaign
finance chairman and was not employed by Karmeier’s campaign . . . .” See State Farm’s
Opposition, at pp. 15-16.
55.
On March 16, 2005, with Karmeier taking no action on the motion to recuse, the
Illinois Supreme Court denied plaintiffs’ motion, ruling that the subject of recusal was up to
Karmeier, and not subject to further review by the Illinois Supreme Court.
56.
On May 20, 2005, the Illinois Supreme Court issued still a second order, which
stated that, because Karmeier had declined to recuse himself, the recusal motion was “moot.”
57.
On August 18, 2005, Karmeier cast a vote to overturn the $1.05 billion judgment.
This vote was decisive. Absent Karmeier’s participation, only those portions of the Illinois
Supreme Court’s opinion which were joined by one of the two dissenting Justices would have
had the votes required by law to overturn the judgment, and at least part of the judgment would
have stood. However, Karmeier’s participation in the deliberations of the Court tainted every
part of the Court’s opinion.
58.
On September 8, 2005, plaintiffs in the Avery Action moved for a rehearing and
again challenged Karmeier’s participation. However, on September 26, 2005, their petition was
denied, without comment, with Karmeier participating.
59.
Plaintiffs ultimately sought review by the U.S. Supreme Court, based upon
information then available to them. On March, 2006, that Court denied the petition for certiorari.
60.
As time would tell, a significant amount of evidence that would have buttressed
Plaintiffs’ 2005 claims was concealed and suppressed until recently.
C.
Plaintiffs’ Counsel’s 2010 Investigation Into State Farm’s Involvement in
Karmeier’s 2004 Campaign
61.
In December 2010, prompted by a recent U.S. Supreme Court decision addressing
due process concerns in a similar case, see Caperton v. A.T. Massey Coal Co., 129 S. Ct. 2252
(2009), Plaintiffs’ counsel enlisted the services of retired FBI Special Agent Daniel L. Reece
(“Reece”) to investigate State Farm’s involvement in Karmeier’s campaign.
62.
Information obtained in that investigation, combined with previously known
information, revealed the extent to which individuals and entities aided State Farm in enabling
the election of Karmeier and in concealing its actions from the Illinois Supreme Court.
1.
State Farm and CNA formed the ICJL
63.
According to CNA’s Karen Melchert, State Farm, through Shepherd, and CNA,
through Melchert, organized the ICJL in the early 1990’s. Together, Shepherd and Melchert
hired Murnane in 1993 as President of the ICJL.
2.
Recruitment of Lloyd Karmeier as State Farm’s Candidate for the
Illinois Supreme Court
64.
A July 2003 Forbes Magazine article quoted Murnane as saying the Illinois
Supreme Court is 4-3 “anti-business” and that the ICJL would target the 2004 Fifth District race
to change the composition of the Court. The article cites the Avery Action – which was already
pending before the Illinois Supreme Court. (See Forbes article, Exhibit D hereto). A second
article from 2004 stated that Murnane viewed the Avery verdict against State Farm as part of the
problem with courts in the Fifth District.
65.
While State Farm’s appeal was pending, Murnane evaluated possible candidates
for the open Supreme Court seat. Working at the direction of Shepherd and the Executive
Committee, Murnane served as the principal recruiter of Karmeier. Murnane, Shepherd and
other members of the Executive Committee placed the considerable support of the State Farm-
backed ICJL and its political action committee, JUSTPAC, behind Karmeier.
3.
Campaign Emails Reveal Murnane and the ICJL’s Involvement in the
Management, Direction and Financing of the Campaign
66.
E-mails generated within Karmeier’s campaign organization unmistakably show
that Murnane directed Karmeier’s fund-raising, his media relations and his speeches.
67.
In or about January 2004, Doug Wojcieszak was working for a group of trial
lawyers involved in an appeal pending before the Illinois Supreme Court (Price v. Philip
Morris). His company was doing background research on Illinois Republican State Senator
David Luechtefeld, Karmeier’s campaign chairman. An investigator routinely checked Sen.
Luechtefeld’s discarded outdoor trash for any papers relevant to their investigation. Several
discarded emails surfaced which provide insight into the Karmeier campaign.
68.
The emails also show: (1) Murnane was – by any reasonable account – fully in-
charge of Karmeier’s campaign; (2) the ICJL Executive Committee played a dominant role in
recruiting Karmeier, vetting him and supporting his campaign; and (3) a contribution to the
ICJL’s PAC - JUSTPAC - was viewed as a contribution to Karmeier’s campaign.
69.
In one email, Murnane told Karmeier, “You’ve passed all the tryouts we need.”
70.
Another email by Murnane refers to the Executive Committee’s support of
Karmeier’s candidacy from “Day One,” as well as an endorsement by the Executive Committee.
71.
Yet another email reveals that the Executive Committee endorsed Karmeier. That
State Farm had a prominent seat on the Executive Committee (Shepherd) during its appeal when
the Executive Committee recruited and endorsed Karmeier is a strong and direct link between
State Farm and Karmeier, a link State Farm concealed from the Illinois Supreme Court in its
January 31, 2005 filing.
72.
An April 29, 2004 e-mail from Murnane to Dwight Kay, Karmeier’s finance
chairman, shows Murnane telling Kay that it is not a “good idea” to send out press releases about
fund-raising events. Kay deferred to Murnane, who was acting as de facto head of the campaign.
73.
A March 15, 2004 email from Murnane to campaign aide Steve Tomaszewski and
Kay, with a copy to Karmeier and others, refers to a direct-mail piece, and credits JUSTPAC.
This email demonstrates the support – here, financing a direct mail piece – given to Karmeier’s
campaign by JUSTPAC.
74.
An email dated January 22, 2004 from Kay says that a contributor “committed
$5,000 to the judge today” and would “either send it directly to the campaign or to JUSTPAC,”
confirming that a contribution to JUSTPAC was viewed as a contribution to Karmeier.
75.
A January 20, 2004 email from Murnane to Karmeier, Kay and Tomaszewski
refers to two contributors, including JUSTPAC, and tells Karmeier, “close your eyes, Judge,” in
response to an email from Karmeier in which he writes about getting lawyers to contribute by not
disclosing their names. This email shows that Murnane provided information to Karmeier
regarding contributors.
4.
State Farm’s Financing of Karmeier’s Campaign
76.
During the course of the Reece investigation, three Illinois tort reform-insiders –
Karmeier’s 2004 campaign consultant, Al Adomite, and Executive Committee members Karen
Melchert and Kim Maisch – told Reece that State Farm’s support of Karmeier was “significant”
and “tremendous.”
77.
Citizens for Karmeier’s official campaign disclosure reports identified
contributions and expenditures. The contributions – direct and in-kind – now known to have
originated from State Farm or its political partners, include, as described below:
•
$350,000 in contributions originally described by Avery’s counsel in their
January 2005 recusal motion, see Appellees’ Conditional Motion for Non-
Participation (“Recusal Motion”), pp. 11-21;
•
$1,190,452.72 in contributions raised by the ICJL through its fundraising
vehicle, JUSTPAC, to Citizens for Karmeier;
•
$1,000,000 State Farm contribution to the U.S. Chamber; and
•
$719,000 in undisclosed in-kind contributions from the ICJL to Citizens
for Karmeier
a.
State Farm Funnels Nearly $1.2 Million to Citizens for
Karmeier Through JUSTPAC
78.
Publicly-available records from the Illinois Board of Elections show that
JUSTPAC provided nearly $1.2 million in reported contributions to Karmeier’s campaign for the
period beginning September 26, 2003 and ending October 27, 2004. In view of Shepherd’s
prominent role with the ICJL, those funds can now be attributed to State Farm, as it controlled
the ICJL and JUSTPAC.
79.
Shepherd’s affiliation with the ICJL was not confirmed until September 19, 2011,
when State Farm submitted and served its response to the petition to recall the mandate and
vacate the August 18, 2005 judgment, admitting Shepherd’s affiliation with the Executive
Committee. (See State Farm’s Response, ¶ 34, attached as Exhibit E). Plaintiffs’ counsel did not
know that Shepherd had helped choose Murnane – JUSTPAC’s treasurer – as ICJL President
until or about on or about December 2010, when it was uncovered by Reece.
80.
State Farm steered JUSTPAC contributions to Citizens of Karmeier. State Farm
and CNA founded the ICJL. Shepherd helped hire Murnane to head the ICJL and was State
Farm’s representative on the Executive Committee. The Executive Committee recruited and
vetted Karmeier, and the Executive Committee officially-endorsed and raised funds for him.
81.
Karmeier’s finance chairman, Dwight Kay, confirmed the connection between
JUSTPAC and Karmeier in an email from January 22, 2004 in which he equated a contribution
to JUSTPAC as a contribution to Karmeier.
b.
State Farm Funnels $1 Million to Citizens for Karmeier
through U.S. Chamber of Commerce
82.
In deposition testimony in unrelated litigation, Voters Educ. Comm. v.
Washington State Pub. Disclosure Comm'n, No. 04- 2-23551-1 (Wash. Super. Ct.), on January
11, 2005, Robert Engstrom, Jr., Vice President of Political Affairs for the US Chamber’s
Institute for Legal Reform, identified Edward Rust, State Farm CEO, as part of the US
Chamber’s leadership team that selected judicial campaigns to target in 2004. Illinois was
prioritized as a “Tier I” race. The Karmeier-Maag race was the only major judicial race in
Illinois that year, thus making that race the “Tier I” priority race.
83.
State Farm contributed $1 million to the US Chamber, which then contributed
$2.05 million to the Illinois Republican Party, which then contributed nearly twice that amount
to Karmeier. Thus, State Farm’s $1 million donation to the US Chamber in Washington DC
wound up back in Illinois after the US Chamber contributed more than twice that sum to the
Illinois Republican Party, which, in turn, promptly paid for nearly $2 million in media
advertisements for Karmeier. Yet, the $1 million donation was never disclosed by State Farm as
part of its “quite modest” support.
84.
With State Farm’s $1 million in-hand, on October 20, 2004, the US Chamber
contributed another $950,000 to the Illinois Republican Party, followed by $350,000 two days
later. From September 30, 2004 to the end of the campaign, the Republican Party contributed
$1,940,000 to Citizens for Karmeier, consisting of media “buys” in the St. Louis market.
85.
In its September 19, 2011 filing with the Illinois Supreme Court, State Farm did
not dispute that it gave the US Chamber $1 million or, for that matter, that the Chamber
contributed that sum (and more) to the Illinois Republican Party. See State Farm’s Response, at
¶¶ 42-44. While it may not have been a State Farm-endorsed check that wound up in the bank
account of Citizens for Karmeier, $1 million of those funds originated from State Farm.
c.
Murnane and the ICJL’s unreported in-kind contribution of
$718,965 to Citizens for Karmeier
86.
While Murnane was “running the campaign” of Karmeier, and using his official
ICJL e-mail address – [email protected] – for campaign-related activities, his professional time
and expenses were not reported or disclosed as in-kind contributions to the Karmeier campaign.
87.
IRS Form 990 report from 2004 for the ICJL shows a grand total of $718,965 in
expenditures, which included Murnane’s salary, benefits, and expenses ($177,749), as well as
media, advertising and fundraising, and other managerial expenses that almost exclusively
benefitted the Karmeier campaign. None of the expenses were reported as in-kind donations by
Citizens for Karmeier in the reports it mailed to and filed with the Board.
88.
Including these unreported in-kind contributions from the ICJL to Karmeier’s
campaign increases the State Farm-influenced contributions to over $3.2 million.
d.
Other State Farm-influenced contributions
89.
State Farm-influenced contributions to Citizens for Karmeier exceed the
$3,260,452 accounted for above. State Farm CEO Rust, in his US Chamber leadership post, was
able to insure that State Farm’s $1 million was steered back to Karmeier. Rust was also in a
position to steer money from other corporate donors to the campaign, increasing the total State
Farm-related contributions to Karmeier to $4,200,417, or over eighty-seven percent (87%) of the
$4,800,000 reportedly raised by the Karmeier campaign.
5.
Karmeier Was Aware of State Farm’s Support
90.
Karmeier knew the sources of his contributions. First, Karmeier campaign aide
Adomite stated that Murnane informed Karmeier of day-to-day campaign operations, along with
its fund-raising, and that Karmeier was on the office e-mail list, very active in his campaign, and
aware of campaign activities. Adomite concluded he did not see how Karmeier “could not have
known the source of all campaign funds.” Second, Karmeier is a prominent sender/recipient of
several emails that discussed fundraising and/or expenditures. And third, State Farm conceded
that the Illinois Judicial Ethics Committee has advised judges that it is “desirable” for them to
know their contributors. See State Farm’s Response, at ¶55.
ONGOING PATTERN, FRAUDULENT CONCEALMENT AND EQUITABLE
TOLLING OF STATUTES OF LIMITATIONS
91.
Plaintiffs incorporate by reference all preceding paragraphs.
92.
The pattern and practices of RICO violations are continuous and ongoing.
93.
The Enterprise and Defendants’ RICO violations – specifically, the concealment
of State Farm’s support of Karmeier - continue. Plaintiffs were not and could not have been
aware of Defendants’ pattern of misconduct before September 19, 2011, when State Farm
submitted to the Illinois Supreme Court and served its response to the petition to recall the
mandate and vacate the August 18, 2005 judgment.
94.
From 2003 to the present, State Farm concealed the nature and extent of its
support of Karmeier by lying to and misleading the Illinois Supreme Court about that support,
first in January 2005 and again in September 2011.
95.
From 2004 to the present, Citizens for Karmeier concealed the nature and extent
of State Farm’s support of Karmeier by submitting campaign finance disclosures which failed to
list the direct and in-kind contributions for which State Farm was responsible, including, but not
limited to, contributions from ICJL, JUSTPAC and Murnane.
96.
As a result, Plaintiffs could not have discovered State Farm’s conduct, its control
of the Enterprise or the structure and success of that Enterprise, by exercising reasonable
diligence.
97.
Any applicable statutes of limitations have been tolled by Defendants’ knowing,
ongoing and active concealment and denial of the facts alleged herein. Plaintiffs and Class
members were kept ignorant of vital information essential to pursue their claims, without any
fault or lack of diligence on their part. Plaintiffs and Class members could not reasonably have
discovered the nature of Defendants’ conduct. Accordingly, Defendants are estopped from
relying on any statute of limitations to defeat the claim asserted herein.
DEFENDANTS’ MOTIVE, FRAUDULENT INTENT AND DAMAGES TO THE
CLASS
98.
Defendants’ motive in conducting the Enterprise described herein with respect to
the pattern and practice of affirmative fraud and the ongoing concealment of wrongdoing from
2004 to the present, was to deceive the Illinois Supreme Court into believing that State Farm’s
support of Karmeier’s campaign was minimal. The scheme was designed and implemented for
the purpose of recruiting a candidate, financing that candidate, electing that candidate and
effectively concealing its support for the candidate. State Farm’s efforts to escape liability to pay
the $1.05 billion judgment rested on the continued success of every aspect of this scheme.
99.
The scheme was designed to achieve, and did achieve, its intended result:
approximately 4.7 million State Farm policyholders suffered damage to their business and
property, seized of the rightful damages awarded to them by the Avery Action judgment.
USE OF THE MAILS IN FURTHERANCE OF THE SCHEME TO DEFRAUD
State Farm’s 2005 and 2011 Misrepresentations and Misleading Statements via the
United States Mail to the Illinois Supreme Court and Plaintiffs’ Counsel to Defraud
Plaintiffs and the Class Out of the $1.05 Billion Judgment.
100.
State Farm used the U.S. mail to create, execute and manage the second phase of
the fraudulent scheme: concealing the true extent of its support of Karmeier from the Illinois
Supreme Court. Specifically, State Farm, in 2005 and 2011, mailed documents to that Court for
filing, serving them upon Plaintiffs’ counsel, containing lies, misleading statements and material
omissions representing that its support of Karmeier was minimal and that it exerted no control
over Karmeier’s candidacy, his campaign or his fundraising.
A.
State Farm’s January 31, 2005 Mailing and Court-Filing
101.
On January 31, 2005, State Farm made a court-filing opposing Plaintiffs’ motion
for recusal which grossly understated its “tremendous” support of Karmeier’s campaign. See
State Farm’s Opposition to Plaintiffs-Appellees’ Conditional Motion for Non-Participation, at
pp. 10-18. This brief was mailed to the Court from Edwardsville and served via U.S. mail on
Plaintiffs’ counsel in several states, including Illinois, Louisiana, Mississippi and Tennessee.
102.
In the January 31, 2005 mailing and filing, State Farm falsely represented its
support of Karmeier as consisting of “quite modest contributions” and characterized as “incorrect
and meritless” Plaintiffs’ claim that State Farm had funneled $350,000 to and peddled its
enormous political influence to Karmeier’s benefit. See State Farm’s Opposition, at pp. 12-13.
State Farm flatly denied “engineering contributions” to Karmeier’s campaign “for the purpose of
impacting the outcome of this case” (see State Farm’s Opposition, at p. 11) and downplayed the
charge that it was responsible for $350,000 in direct contributions to Karmeier’s campaign by
suggesting that Plaintiffs’ counsel had presented “no evidence whatsoever to back up” their
claim that those contributions were made by State Farm “front groups.” See State Farm’s
Opposition, at p. 11. State Farm also failed to inform the Court that its employee, Shepherd, was
a member of the ICJL Executive Committee which recruited and vetted Karmeier, and, through
Murnane, it had organized, funded and directed Karmeier’s campaign.
103.
In its January 31, 2005 mailing and filing, State Farm falsely denied that Murnane
ran all phases of Karmeier’s campaign. Not only did State Farm deny Murnane’s involvement in
Karmeier’s campaign, but it also declared “Mr. Murnane . . . was not Karmeier’s campaign
manager or campaign finance chairman and was not employed by Karmeier’s campaign . . . .”
See State Farm’s Opposition, at pp. 15-16.
State Farm’s September 19, 2011 Mailing and Court-Filing
B.
104.
Plaintiffs asked the Illinois Supreme Court to recall the mandate of and vacate the
August 18, 2005 judgment on September 9, 2011. Facing serious and unprecedented charges of
unscrupulous conduct and that it had perpetrated a fraud on that Court in 2005, State Farm
responded on September 19, 2011 in a 38-page, 75-paragraph brief mailed to Plaintiff’s counsel.
105.
In its brief, State Farm again denied Murnane’s true role in Karmeier’s campaign,
see State Farm’s Response, at ¶ 27 (“Murnane was not Karmeier’s campaign manager . . . .”),
and failed to produce evidence to counter Murnane’s statement that “I’m running this campaign.”
106.
For the first time, however, State Farm conceded that Shepherd was a charter
member of the Executive Committee, thus unveiling the missing connecting State Farm to the
ICJL, to JUSTPAC, to Murnane, to the discarded emails, and finally, to Karmeier’s campaign.
107.
Shepherd’s position explains Murnane’s role in Karmeier’s campaign, how State
Farm was able to use the ICJL and JUSTPAC as vehicles to raise nearly $1.2 million and funnel
it to Citizens for Karmeier, and why the Executive Committee supported Karmeier’s candidacy
from “Day One” and gave him its “official endorsement,” signaling other ICJL members that
Karmeier was State Farm’s choice.
108.
Not only did State Farm fail to utter a single word about Shepherd’s position on
the Executive Committee until September 19, 2011, it also failed to explain why it did not do so.
CLAIMS FOR RELIEF
COUNT ONE: VIOLATION OF 18 U.S.C. §1962(c)
A.
109.
Plaintiffs incorporate by reference all preceding paragraphs.
110.
Section 1962(c) of RICO provides that “it shall be unlawful for any person
employed by . . . 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. . . .”
111.
Defendants and their co-conspirators, as identified herein, are “persons” within
the meaning of 18 U.S.C. § 1961(3), who conducted the affairs of the Enterprise through a
pattern of racketeering activity in violation of 18 U.S.C. § 1962(c).
112.
The Enterprise was engaged in, and the activities of the Enterprise affect,
interstate commerce, as Class members in forty-eight (48) states were the ultimate beneficiaries
of and claimants to the property targeted by Defendants: the $1.05 billion judgment in the Avery
Action. Furthermore, a substantial part of the acts described herein, including the predicate acts
of mailing and acts of various Enterprise participants, affected interstate commerce.
THE ENTERPRISE
113.
The association-in-fact Enterprise consists of Defendants State Farm, Shepherd,
Murnane and Citizens for Karmeier, along with the ICJL, JUSTPAC, the US Chamber, and their
officers, employees, and agents, among others, as identified in Section IV of this Complaint.
State Farm created, controlled and conducted the Enterprise to develop and effectuate every
aspect of its scheme, as alleged above. State Farm created and/or used this association-in-fact
Enterprise – an ongoing organization functioning as a continuing unit – as a separate entity and
tool to effectuate the pattern of racketeering activity that damaged the Class.
114.
State Farm, acting through Shepherd and Murnane, exerted ongoing and
continuous control over the Enterprise, and participated in the operation or management of the
affairs of the Enterprise, through the following actions:
a.
asserting direct control over false, deceptive, and misleading information
disseminated to the Illinois Supreme Court regarding its support of
Karmeier;
b.
asserting direct control over the creation and operation of the elaborate
cover-up scheme used to conceal its support of Karmeier from the Illinois
Supreme Court;
c.
placing employees and/or agents in positions of authority and control in
the Enterprise; and
d.
mailing documents containing misrepresentations and omissions to the
Illinois Supreme Court on January 31, 2005 and September 19, 2011.
115.
From its inception, the Enterprise had a clear decision-making hierarchy or
structure, with State Farm, acting through Shepherd and Murnane, positioned at the top. State
Farm paid Shepherd, not simply as an employee, but rather as a co-conspirator, intent on helping
the Enterprise succeed in electing Karmeier to the Illinois Supreme Court and concealing, by
misrepresentations and omissions, its extraordinary support of Karmeier’s campaign.
116.
Though State Farm, through Shepherd and Murnane, exercised and continues to
exercise maximal control of the Enterprise, all of the Enterprise’s members are distinct from the
Enterprise and its activity and each exercised and continues to exercise control over various
functions of the Enterprise.
117.
The persons and entities comprising the Enterprise have associated together for
the common purpose of allowing State Farm to evade the $1.05 billion judgment, plus post-
judgment interest since October 1999 entered by the Appellate Court and defrauding Plaintiffs
and the Class out of those funds.
118.
The contribution network developed by State Farm, through Shepherd and
Murnane, to advocate the election of Karmeier (i.e., the first phase of State Farm’s scheme to
defraud the Plaintiffs and Class) and to conceal the breadth of State Farm’s support of Karmeier
(the second phase of the scheme to defraud the Plaintiffs and Class) was and is the passive
instrument of Defendants’ racketeering activity, and together, constitutes an alternative
“enterprise” as that term is defined in 18 U.S.C. § 1961(4).
PATTERN OF RACKETEERING
119.
This Complaint details the ongoing pattern of racketeering based on facts that are
known to Plaintiffs and their counsel. It is filed without the benefit of discovery, which will
likely uncover many more predicate acts and further demonstrate the breadth and scope of the
Enterprise’s racketeering.
120.
The Enterprise - with State Farm at the hub, acting through Shepherd and
Murnane - engaged in a pattern of racketeering activity. From approximately November 2003 at
least through September 19, 2011, Defendants and the Enterprise, as well as others known or
unknown, being persons employed by and associated with State Farm, the ICJL, JUSTPAC,
Citizens for Karmeier, the US Chamber, and others identified herein, engaged in activities which
affected and affect interstate commerce, unlawfully and knowingly conducted or participated,
directly or indirectly, in the affairs of the Enterprise through a pattern of racketeering activity,
that is, through the commission of two or more racketeering acts, as set forth herein.
121.
The foregoing pattern of racketeering activity is distinct from the Enterprise itself,
which does not solely engage in the above-described acts.
122.
Defendants have conducted and participated in the affairs of the Enterprise
through a pattern of racketeering activity that includes predicate acts indictable under 18 U.S.C.
§ 1341 (mail fraud), 18 U.S.C. § 1343 (wire fraud), and 18 U.S.C. § 1346 (deprivation of honest
services through bribes and kickbacks) through the aforementioned actions.
123.
In implementing the fraudulent scheme, State Farm was aware that the Illinois
Supreme Court depended on the honesty of State Farm to represent truthfully the facts of its
support of Karmeier.
124.
As detailed above, the fraudulent scheme consisted of, inter alia: using mail fraud
to enable State Farm (a) to obtain, exert, and deliberately misrepresent its control over and
extraordinary financial support of Karmeier’s campaign; and (b) suppress and conceal the level
of such control and support from the Illinois Supreme Court.
125.
The unlawful predicate acts of racketeering activity committed by Defendants had
a common purpose, were related and had continuity. From its inception, Defendants’ scheme
depended upon concealing the breadth of State Farm’s support of Karmeier from the Illinois
Supreme Court. Without accomplishing that critical final component of the scheme, the scheme
was doomed to fail in its purpose, as State Farm needed the Karmeier vote in order to gain
reversal of the $1.05 billion judgment.
126.
The Enterprise used the mail to create, execute and manage their scheme, acting
in violation of 18 U.S.C. § 1341. By misrepresenting State Farm’s support of Karmeier’s
campaign to the Illinois Supreme Court via the U.S. mail, the Enterprise perpetrated these
unlawful predicate acts.
127.
The predicate acts committed by the Enterprise were and are similar, continuous,
and related. State Farm’s support of Karmeier was “extraordinary” and “tremendous,” rising to
as much as $4 million. Nevertheless, State Farm actively concealed from the Illinois Supreme
Court the true facts of its support. This consistent message - denying the breadth of its true
involvement in Karmeier’s campaign - illustrates how the predicate acts of mail fraud were
similar, continuous, and related.
128.
The scheme was calculated to ensure that Plaintiffs and the Class would not
recover any of the $1.05 billion judgment entered in their favor. The targets of the Enterprise
and the ultimate victims of State Farm’s scheme and predicate acts of mail fraud number
approximately 4.7 million.
129.
Each of the fraudulent mailings constitutes “racketeering activity” within the
meaning of 18 U.S.C. § 1961(1). Collectively, these violations, occurring over several years, are
a “pattern of racketeering activity” within the meaning of 18 U.S.C. § 1961(5).
130.
Each activity was related, had similar purposes, involved the same or similar
participants and methods of commission, and had similar results affecting similar victims,
including Plaintiffs and the Class.
131.
All predicate acts committed by Defendants and the Enterprise are related and
were committed with a common scheme in mind: to support and elect Karmeier to the Illinois
Supreme Court and conceal that support to insure Karmeier participated in the Avery decision
.
The final part of the scheme was to use the U.S. mail to deliver court-filings to the Illinois
Supreme Court and Plaintiffs’ counsel on January 31, 2005 and September 19, 2011 in a
continuing effort to conceal material facts related to State Farm’s support for Karmeier, in
violation of 18 U.S.C. § 1341.
132.
Defendants’ conduct of the Enterprise was designed to, and succeeded in,
defrauding the Illinois Supreme Court and in ultimately depriving Plaintiffs and the Class of the
individual and aggregate benefits of the $1.05 billion judgment awarded to them in the Avery
Action, and enabling State Farm to evade its obligations to the Class.
B.
COUNT TWO: VIOLATION OF 18 U.S.C. §1962(d) BY CONSPIRING TO
VIOLATE 18 U.S.C. §1962(c)
133.
Plaintiffs incorporate by reference all preceding paragraphs.
134.
Section 1962(d) of RICO provides that it “shall be unlawful for any person to
conspire to violate any of the provisions of subsection (a), (b) or (c) of this section.”
135.
Defendants violated § 1962(d) by conspiring to violate 18 U.S.C. § 1962(c). The
object of this conspiracy has been and is to conduct or participate in, directly or indirectly, the
conduct of the affairs of the § 1962(c) Enterprise described previously through a pattern of
racketeering activity. Defendants, co-conspirators and Enterprise participants agreed to join the
conspiracy, agreed to commit and did commit the acts described herein, and knew that these acts
were part of a pattern of racketeering activity.
136.
Defendants and their co-conspirators have engaged in numerous overt and
predicate fraudulent racketeering acts in furtherance of the conspiracy, including material
misrepresentations and omissions designed to defraud Plaintiffs and the Class of money.
137.
The nature of the above-described acts, material misrepresentations and omissions
in furtherance of the conspiracy gives rise to an inference that Defendant, co-conspirators and
Enterprise participants not only agreed to the objective of an 18 U.S.C. § 1962(d) violation of
RICO by conspiring to violate 18 U.S.C. § 1962(c), but they were aware that their ongoing
fraudulent acts have been and are part of an overall pattern of racketeering activity.
138.
As a direct and proximate result of Defendants’ overt acts and predicate acts in
furtherance of violating 18 U.S.C. § 1962(d) by conspiring to violate 18 U.S.C. § 1962(c),
Plaintiffs and the Class have been and are continuing to be injured in their business or property,
as set forth more fully above.
PRAYER
WHEREFORE, Plaintiffs and members of the Class demand judgment on each claim
for relief, jointly and severally, as follows:
1.
Authorizing directing and supervising the conduct of early and expedited
discovery on the allegations of this Complaint;
2.
Awarding Plaintiffs and the Class treble (three times) their actual damages on one
or both of their RICO claims, together with costs and reasonable attorneys’ fees;
3.
Awarding Plaintiffs and the Class their costs and expenses in this litigation,
including reasonable attorneys’ fees and expert fees; and
4.
Awarding Plaintiffs and the Class such other and further relief as may be just and
proper under the circumstances.
DEMAND FOR JURY TRIAL
Plaintiffs demand a trial by jury on all claims so triable.
Respectfully submitted, this 29th day of May, 2012.
Charles F. Barrett
/s/ Charles F. Barrett
CHARLES BARRETT, P.C.
6518 Highway 100
Suite 210
Nashville, TN 37205
Tel: 615.515.3393
Don Barrett
BARRETT LAW GROUP, P.A.
404 Court Square North
Lexington, MS 39095-0927
Tel: 662.834.9168
[email protected]
Gordon Ball (TN BPR# 1135)
Email: [email protected]
Thomas S. Scott, Jr. (TN. BPR# 1086)
Email: [email protected]
Christopher T. Cain (TN BPR# 19997)
Email: [email protected]
BALL & SCOTT LAW OFFICES
Bank of America Center, Suite 601
550 Main Street
Knoxville, Tennessee 37902
Tel: 865.525.7028
Fax: 865.525.4679
Patrick W. Pendley (LABA # 10421)
Email: [email protected]
Nicholas R. Rockforte (LABA # 31305
Email: [email protected]
PENDLEY, BAUDIN &
COFFIN, L.L.P.
Post Office Drawer 71
24110 Eden Street
Plaquemine, Louisiana 70765
Tel: 888.725.2477
Fax: 225.687.6398
| criminal & enforcement |
-MEIDYcBD5gMZwczoJN3 | BARSHAY SANDERS, PLLC
100 Garden City Plaza, Suite 500
Garden City, New York 11530
Tel: (516) 203-7600
Fax: (516) 706-5055
Email: [email protected]
Attorneys for Plaintiff
Our File No.: 113346
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
Nuria Torres, individually and on behalf of all others
similarly situated,
Docket No:
CLASS ACTION COMPLAINT
Plaintiff,
JURY TRIAL DEMANDED
vs.
Midland Credit Management, Inc.,
Defendant.
Nuria Torres, individually and on behalf of all others similarly situated (hereinafter
referred to as “Plaintiff”), by and through the undersigned counsel, complains, states and alleges
against Midland Credit Management, Inc. (hereinafter referred to as “Defendant”), as follows:
INTRODUCTION
1.
This action seeks to recover for violations of the Fair Debt Collection Practices
Act, 15 U.S.C. § 1692, et seq., (“FDCPA”).
JURISDICTION AND VENUE
2.
This Court has federal subject matter jurisdiction pursuant to 28 U.S.C. § 1331
and 15 U.S.C. § 1692k(d).
3.
Venue is proper under 28 U.S.C. § 1391(b) because a substantial part of the
events or omissions giving rise to the claim occurred in this Judicial District.
4.
At all relevant times, Defendant conducted business within the State of New
PARTIES
5.
Plaintiff Nuria Torres is an individual who is a citizen of the State of New York
residing in Suffolk County, New York.
6.
Plaintiff is a “consumer” as defined by 15 U.S.C. § 1692a(3).
7.
On information and belief, Defendant Midland Credit Management, Inc., is a
California Corporation with a principal place of business in San Diego County, California.
8.
Defendant is regularly engaged, for profit, in the collection of debts allegedly
owed by consumers.
9.
Defendant is a “debt collector” as defined by 15 U.S.C. § 1692a(6).
ALLEGATIONS
10.
Defendant alleges Plaintiff owes a debt (“the Debt”).
11.
The Debt was incurred on an account with Verizon New York, Inc.
12.
The account was for a personal cellular telephone.
13.
Plaintiff’s last payment on the account was prior to 2011.
14.
The statute of limitations for the Debt, pursuant to 47 U.S.C. § 415(a), is two
15.
The statute of limitations for the Debt began to accrue prior to 2011.
16.
In its efforts to collect the debt, Defendant contacted Plaintiff by letter (“the
Letter”) dated May 25, 2016. (“Exhibit 1.”)
17.
The Letter was sent after the statute of limitations expired.
18.
The Letter demands payment.
19.
The Letter offers a partial payment settlement.
20.
Making any payment on a time-barred debt may result in revival of Plaintiff’s
otherwise time-barred debt.
21.
22 N.Y.C.R.R. § 1.3 requires debt collectors to notify consumers that 1) the debt
collector believes that the statute of limitations applicable to the debt may be expired; 2) suing on
a debt for which the statute of limitations has expired is a violation of the Fair Debt Collection
Practices Act, 15 U.S.C. § 1692 et seq.; 3) if the consumer is sued on a debt for which the statute
of limitations has expired, the consumer may be able to stop the lawsuit by responding to the
court that the statute of limitations has expired; 4) the consumer is not required to provide the
debt collector with an admission, affirmation, or acknowledgment of the debt, a promise to pay
the debt, or a waiver of the statute of limitations; and 5) if the consumer makes any payment on a
debt for which the statute of limitations has expired or admits, affirms, acknowledges, or
promises to pay such debt, the statute of limitations may restart.
22.
Notwithstanding the expiration of the statute of limitations to sue to recover the
debt prior to the time Defendant sent Plaintiff the Letter, the Letter fails to provide any indication
to Plaintiff that no legal action could be undertaken to attempt to recover the debt.
23.
Notwithstanding the expiration of the statute of limitations to sue to recover the
debt prior to the time Defendant sent Plaintiff the Letter, the Letter fails to inform Plaintiff that
any partial payment by Plaintiff may result in the revival of Plaintiff’s otherwise time-barred
24.
Notwithstanding the expiration of the statute of limitations to sue to recover the
debt prior to the time Defendant sent Plaintiff the Letter, the Letter fails to provide the
notifications required by 22 N.Y.C.R.R. § 1.3.
25.
15 U.S.C. § 1692e(2)(A) prohibits the false representation of the character,
amount, or legal status of any debt.
26.
15 U.S.C. § 1692e(10) prohibits the use of any false representation or deceptive
means to collect or attempt to collect any debt or to obtain information concerning a consumer.
27.
As a result of the omissions set forth above, the Letter would mislead the least
sophisticated consumer to believe that the time-barred debt is legally enforceable; and therefore,
Defendant violated 15 U.S.C. § 1692e(2)(A).
28.
As a result of the omissions set forth above, the Letter would mislead the least
sophisticated consumer to believe that making a partial payment would not revive the otherwise
time-barred debt; and therefore, Defendant violated 15 U.S.C. § 1692e.
29.
For the foregoing reasons, Defendant violated 15 U.S.C. § 1692e, 15 U.S.C. §
1692e(2)(A) and 15 U.S.C. § 1692e(10).
CLASS ALLEGATIONS
30.
Plaintiff brings this action individually and as a class action on behalf of all
persons similarly situated in the State of New York from whom Defendant attempted to collect a
time-barred consumer debt incurred for cellular telephone services, without advising the
consumer that no legal action could be undertaken to attempt to recover the debt and/or that any
partial payment by the consumer may result in the revival of the consumer’s otherwise time-
barred debt, from one year before the date of this Complaint to the present.
31.
This action seeks a finding that Defendant’s conduct violates the FDCPA, and
asks that the Court award damages as authorized by 15 U.S.C. § 1692k.
32.
Defendant regularly engages in debt collection.
33.
The Class consists of more than 35 persons from whom Defendant attempted to
collect a time-barred consumer debt incurred for cellular telephone services, without advising the
consumer that no legal action could be undertaken to attempt to recover the debt and/or that any
partial payment by the consumer may result in the revival of the consumer’s otherwise time-
barred debt.
34.
Plaintiff’s claims are typical of the claims of the Class. Common questions of law
or fact raised by this class action complaint affect all members of the Class and predominate over
any individual issues. Common relief is therefore sought on behalf of all members of the Class.
This class action is superior to other available methods for the fair and efficient adjudication of
this controversy.
35.
The prosecution of separate actions by individual members of the Class would
create a risk of inconsistent or varying adjudications with respect to the individual members of
the Class, and a risk that any adjudications with respect to individual members of the Class
would, as a practical matter, either be dispositive of the interests of other members of the Class
not party to the adjudication, or substantially impair or impede their ability to protect their
interests. Defendant has acted in a manner applicable to the Class as a whole such that
declaratory relief is warranted.
36.
Plaintiff will fairly and adequately protect and represent the interests of the Class.
The management of the class action proposed is not extraordinarily difficult, and the factual and
legal issues raised by this class action complaint will not require extended contact with the
members of the Class, because Defendant’s conduct was perpetrated on all members of the Class
and will be established by common proof. Moreover, Plaintiff has retained counsel experienced
in actions brought under consumer protection laws.
JURY DEMAND
37.
Plaintiff hereby demands a trial of this action by jury.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff respectfully requests judgment as follows:
a. Certify this action as a class action; and
b. Appoint Plaintiff as Class Representative of the Class, and
Plaintiff’s attorneys as Class Counsel; and
c. Find that Defendant’s actions violate the FDCPA; and
d. Grant damages against Defendant pursuant to 15 U.S.C. § 1692k;
and
e. Grant Plaintiff’s attorneys’ fees pursuant to 15 U.S.C. § 1692k;
and
f. Grant Plaintiff’s costs; together with
g. Such other relief that the Court determines is just and proper.
DATED: May 2, 2017
BARSHAY SANDERS, PLLC
By: _/s/ Craig B. Sanders ____________
Craig B. Sanders, Esq.
100 Garden City Plaza, Suite 500
Garden City, New York 11530
Tel: (516) 203-7600
Fax: (516) 706-5055
[email protected]
Attorneys for Plaintiff
Our File No.: 113346
| consumer fraud |
v0iH_YgBF5pVm5zYXRpF | IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA
CHARLESTON DIVISION
BENNY FITZWATER, CLARENCE BRIGHT,
and TERRY PRATER, on behalf of themselves
and others similarly situated,
Plaintiffs,
v.
No. 2:16-cv-9849
CONSOL ENERGY, INC., CONSOLIDATION
(Hon. John T. Copenhaver)
COAL CO., FOLA COAL CO., LLC, CONSOL
OF KENTUCKY, INC. and KURT SALVATORI,
Defendants.
EMMETT CASEY, JR.,
CONNIE Z. GILBERT,
ALLAN H. JACK SR., and
ROBERT H. LONG,
on behalf of themselves and others similarly situated,
Plaintiffs,
v.
No. 1:17-cv-3861
CONSOL ENERGY, INC.,
(Hon. John T. Copenhaver)
CONSOLIDATION COAL CO.,
CONSOL PENNSYLVANIA COAL CO., LLC,
and KURT SALVATORI,
Defendants.
AMENDED COMPLAINT OF EMMETT CASEY, JR., ET AL. (No. 1:17-cv-3861)
1.
This case arises out of the Defendants’ breach of their fiduciary duties, material
misrepresentations, and termination of critical welfare benefits for a class of retired non-union coal
miners, in violation of the Employee Retirement Income Security Act of 1974 (“ERISA”), 29
U.S.C. Sec. 1001, et seq. Plaintiffs Emmett Casey Jr., Connie Z. Gilbert, Allan H. Jack Sr., and
Robert H. Long, plan participants, bring this action pursuant to ERISA against CONSOL Energy,
1
Inc., Consolidation Coal Co., Consol Pennsylvania Coal Co., LLC (collectively, “Consol”) and
Kurt Salvatori, to recover premiums wrongfully charged by Defendants, to remedy Defendants’
withholding of retiree welfare benefits (which the Defendants offered, and their employees
accepted and paid for), to remedy the Defendants’ breach of their fiduciary duties, and to prevent
Defendants from discriminating against retired miners based on their health status or claims
experience.
Plaintiffs, Messrs. Casey, Jack, and Long, and Ms. Gilbert, as well as other similarly-
situated plan participants and beneficiaries, are entitled to continue receiving retiree welfare
benefits (i.e. medical, prescription drug, dental, vision, and life insurance) under the applicable
benefits plans because the Defendants offered lifetime retiree welfare benefits if the Plaintiffs
worked for at least ten years of credited service and reached the age of fifty-five. The Plaintiffs
accepted that offer by working the requisite years and reaching age fifty-five, and they paid
premiums to the Defendants in order to secure those benefits.
Plaintiffs seek declaratory, injunctive, and equitable relief, as appropriate, reinstating
their benefits and remedying the breach of fiduciary duties, including surcharge for the return of
the premiums that Plaintiffs paid with the intent of purchasing lifetime coverage that they did not
receive, and restitution to provide Plaintiffs with the same lump sum transition payment that the
Defendants provided to active (non-retired) employees when they terminated the retiree benefits,
but which the Defendants withheld from those miners who had been on the plans longer (i.e. had
a lengthier “claims experience”) and had already retired.
2. The Defendants established a group welfare benefits plan, referred to as the
“Lifetime Plan,” which covered both active and retired workers at the subsidiaries and entities
controlled by Defendant CONSOL Energy. The Defendants contractually entered into that group
2
welfare benefits plan with the workforce, including with the Plaintiffs, based on the written and
oral representations that the Defendants made to the Plaintiffs prior to their retirement.
3. The Lifetime Plan, which is the first welfare plan at issue in this matter, was also
periodically referred to by Defendants as being either part of or related to the CONSOL Energy
Inc. Retiree Health and Welfare Plan, the Consolidation Coal Company Comprehensive Medical
Expense Benefits Plan For Production And Maintenance Employees of Buchanan Mine and/or the
CONSOL Energy Inc. Health and Welfare Plan. The Lifetime Plan included medical, prescription
drug, dental, vision, and life insurance for participants and certain beneficiaries.
4. The second welfare plan at issue in this matter, which is referred to herein as the
Retiree Plan, was also referred to on certain plan documents as the CONSOL Energy Inc. Retiree
Health and Welfare Plan. This plan also included medical, prescription drug, dental, vision, and
life insurance for participants and certain beneficiaries.
5. In 2014, the Defendants substantially modified the Lifetime and the Retiree Plans,
causing a curtailment of coverage for plan participants, including the Plaintiffs.
6. On or about December 31, 2015, the Defendants terminated coverage of all retirees
under the Lifetime and the Retiree Plans. In curtailing and terminating the plans, Defendants
allocated the plans’ assets for the benefit of persons other than the plan participants and
beneficiaries – and the Defendants provided transition payments only to the plan participants who
were still actively working, thus depriving the retired plan participants from receiving a transition
benefit comparable to that received by the active workers. Each of those actions separately violate
ERISA, as set forth in more detail below.
3
JURISDICTION AND VENUE
7.
Jurisdiction over Plaintiffs’ ERISA claims is founded on the existence of a federal
question. This action arises under ERISA, 29 U.S.C. § 1001, et seq., and jurisdiction is conferred
pursuant to 29 U.S.C. § 1132.
8.
Venue is proper in this District pursuant to ERISA, 29 U.S.C. § 1132(e)(2), because
this District is where the actions that form the basis for this Complaint took place.
PARTIES
9. Plaintiff Emmett Casey is a resident of Bluefield, West Virginia.
10. Plaintiff Connie Gilbert is a resident of Richlands, Virginia.
11. Plaintiff Allan Jack Sr. is a resident of Washington, Pennsylvania.
12. Plaintiff Robert Long is a resident of McMurray, Pennsylvania.
13.
Upon information and belief, over 12,000 similarly-situated, non-union retirees of
the Defendants had their retiree welfare benefits terminated by the Defendants in a similar fashion
as the named Plaintiffs---including both hourly workers and salaried workers who were directly
engaged in coal production (the Defendants referred to these production-oriented salaried workers
as “essential” salaried workers, as distinct from corporate staff who were not personally involved
in the physical labor of producing coal).
14. The CONSOL retirees affected by the termination of benefits includes three
principal subgroups by geographic region: over 900 similarly-situated, non-union retirees of
CONSOL Energy, Inc.’s operations in and around the Buchanan Mine and nearby facilities in
southwestern Virginia and southern West Virginia; at least 10,000 similarly-situated non-union
hourly and salaried retirees of CONSOL Energy, Inc.’s operations in northern West Virginia,
western Pennsylvania, and affiliated locations; and at least 400 similarly-situated non-union hourly
4
and salaried retirees of CONSOL Energy, Inc.’s operations known as the Amvest and Consol of
Kentucky operations (represented in the consolidated matter, Fitzwater, No. 2:16-cv-9849).
15. Each of the regional subgroups is comprised of two subgroups by employment
classification: hourly and salaried.
16. Each of the aforementioned subgroups had their healthcare benefits terminated by
the Defendants in a similar fashion as did the named Plaintiffs.
STATEMENT OF FACTS
17.
Beginning in or around 2001 and thereafter at all relevant times, Defendant
CONSOL Energy, Inc. was a Delaware corporation with its principal place of business located at
1000 CONSOL Energy Drive Canonsburg, Pennsylvania 15317.
18.
At all relevant times, Defendant Consolidation Coal Company (“Consolidation
Coal”) was a Delaware corporation with its principal place of business located at 1000 CONSOL
Energy Drive Canonsburg, Pennsylvania 15317. During the years 2014 and 2015, Consolidation
Coal did business as Consol Buchanan Mining Company, LLC in reference to the Buchanan Mine.
19. Beginning in or around 2008, Defendant Consol Pennsylvania Coal Company, LLC
(“Consol Pennsylvania”), which is the successor to Consol Pennsylvania Coal Company, was a
Delaware corporation and was (as its predecessor had been at all relevant times) a wholly-owned
subsidiary of CONSOL Energy. The principal place of business of Consol Pennsylvania is located
at 1000 CONSOL Energy Drive Canonsburg, Pennsylvania 15317.
20.
Defendant Kurt Salvatori was at all relevant times designated as the administrator
of all of the employee welfare benefit plans at issue in this matter, exercised final judgment on
behalf of those plans as their administrator, and conducted business at 1000 CONSOL Energy
Drive Canonsburg, Pennsylvania 15317.
5
21. At all relevant times, Consolidation Coal Co., Consol Pennsylvania Coal Company,
LLC, and Consol Buchanan Mining Co. LLC were wholly-owned subsidiaries of CONSOL
Energy.
22.
At all relevant times, Defendants on their own, or in concert, operated underground
mines and surface plants and facilities for the extraction, preparation, and transportation of coal,
at which the Plaintiffs were employed.
23. At all relevant times, Defendants controlled and/or operated the Buchanan Mine in
Buchanan County, Virginia, at which the Plaintiffs were employed, and Defendants also jointly
controlled certain other known and unknown non-union employees at operations in Virginia and
West Virginia.
24. During their employment for the Defendants, Emmett Casey and Bob Long were
part of a class of employees referred to by Defendants as the “essential” salaried employees. These
employees consisted of salaried employees who were involved in the production of coal---
including section foreman, construction foreman, belt foreman, superintendent, assistant
superintendents, and mine foremen, among others.
25. “Non-essential” salaried employees included corporate safety and office staffers.
26. During their employment by the Defendants, Connie Gilbert and Allan Jack worked
as hourly coal miners at the Buchanan and Enlow Fork Mines, respectively.
Connie Gilbert accepted the offer of lifetime welfare benefits that Consol extended to its
non-union hourly workers (known as Production and Maintenance employees).
27. Ms. Gilbert began working for Island Creek Coal Company at the VP3 Mine in
Vansant, Virginia in 1978, which was a union operation, and she was laid off from that site in
6
28. In 1994, Ms. Gilbert exercised her “panel rights” through the union to go to work
for Consolidation Coal Company at the VP3 Mine in Vansant, Virginia. She worked there until
1997, and then went on the union seniority panel in non-working status.
29.
In 2005, CONSOL Energy called Ms. Gilbert off the panel to go to work at the non-
union Buchanan Mine, where the Defendants nonetheless recognized the union seniority panel for
purposes of recalling workers from VP3, despite Buchanan being a non-union operation.
30. The non-union, non-management employees of the Defendants are known as
“Production & Maintenance” or “P&M” employees.
31. When Ms. Gilbert went to work at the Buchanan Mine, Consol’s representative
Terry Mason gave an orientation to Ms. Gilbert, along with about ten other new miners, in the
upstairs office at the Buchanan Mine. At that orientation, Mr. Mason handed out materials
regarding the insurance benefits for the P&M workers at Buchanan. Mr. Mason stated that if the
miners worked for ten years and reached age fifty-five, they would receive retirement benefits for
their lives and the lives of their spouses.
32. At that orientation, Mr. Mason gave the new hires Consol’s customary “union
speech,” saying that the miners should not join the union because they could represent themselves
without a union and their retirement benefits would be better than union retirements benefits,
which most notably included a Congressionally-backed guarantee of lifetime duration.
33. When miners were approaching the age of fifty-five (55) years of age, Consol
customarily sent them a letter in the mail notifying them about their right at that time, as
participants in the insurance plan providing retirement insurance benefits (the Lifetime Plan), to
attend a seminar free of charge to provide comprehensive information about the retirement
benefits.
7
34.
On or about September 26-27, 2006, having received such a letter, Connie and her
husband Dana went to a retirement seminar in or around Pittsburgh, Pennsylvania to learn about
their rights as participants in the retirement plan. Consol did not distribute to Connie any additional
binders or other thick documents regarding retirement benefits, such as a summary plan
description, either at that seminar or afterwards.
35. Thereafter, Consol’s representative Nancy M. Johnson informed Ms. Gilbert that
she could claims her lifetime retirement benefits upon attaining the age of fifty-five and the years
ten years of service.
36.
Consol made pre-tax deductions from each of Ms. Gilbert’s paychecks throughout
her working life, which upon information and belief Consol used to pay for retiree benefits or for
the funds, securities, and/or bonds that secured the retiree benefits.
37. On September 30, 2014, Ms. Gilbert retired from Consol and claimed her retirement
benefits.
38. On June 16, 2015, Consol sent Ms. Gilbert a letter stating that her retirement benefits
would terminate at the end of 2015. In Sept. 2015, Consol sent Ms. Gilbert a letter purporting to
offer her a payment to compensate her fully for the loss of her retirement benefits.
Emmett Casey accepted Consol’s offer of lifetime retirement benefits for essential salaried
employees.
39. On or about January 22, 1973, Mr. Emmett Casey began employment for
Consolidation Coal Company through the Bishop Coal Company at Bishop, West Virginia. Mr.
Casey worked as a general laborer and a union member for three years, running production
equipment at the face of the mine. After three years, Mr. Casey was offered a job as section
foreman – a salaried position involved in the production of coal underground.
8
40. On or about February 1, 1976, Consol called all the prospective foreman trainees,
including Mr. Casey, to a class at a restaurant in Bluewell. A personnel official from Consol,
named Ray Phillips, conducted an orientation about the guidelines and benefits of becoming a
salaried employee.
41. At the time that Mr. Casey considered becoming salaried, the union was engaging in
strikes frequently. Mr. Casey had saved up a substantial sum of money, and then had to spend
everything he had saved to cover his bills during the strike. Consol told him that he would have a
lower wage but would have benefits by working for the company.
42. On or about February 1, 1976, Consol called Mr. Casey to attend a foreman’s class.
The class took place at the old Crane Creek School in Crystal, West Virginia. The instructors were
Consol employees Jim Jones, Archie Maynard, and Gerald Nicholson, who worked out of Consol’s
Pocahontas, Virginia main office. The training was six weeks in length. Consol paid Mr. Casey
to attend the training for eight hours per day. Consol executives spoke to Mr. Casey and the other
trainees about coming to work as foremen, including a detailed description of retirement benefits.
43. During that training, Consol officials represented that, once you retired as a non-
union foreman, you would have lifetime welfare benefits, a pension check, and various other
benefits.
44. During the training, Consol offered supervisors that they could always return to
serving as hourly employees in union operations if they were unsatisfied with their benefits as
supervisors.
45. Mr. Casey repeatedly viewed written materials presented by Consol that offered Mr.
Casey and the other non-union foreman a lifelong retirement healthcare and related benefit
package including medical, prescription drug, vision, dental, and life insurance.
9
46. Archie Maynard, who was the head of the safety and industrial relations departments
during the time that Mr. Casey worked for Pocahontas Fuel Division of Consol, presented a slide
show to Mr. Casey and other foreman regarding that offer of lifetime welfare benefits. Anne
Sharpenberger, along with other Consol officials, also presented a benefit class for the salaried
employees at the Bishop Mine that Mr. Casey attended, in which the non-union foremen were
invited to designate beneficiaries for their lifetime welfare benefit plans.
47. From 1976 through 1991, Mr. Casey worked as a non-union foreman for various
Consol operations including: Pocahontas Fuel, Bishop Mine, Rowland No. 9, Jekinjones, Itmann
No. 2, Matthews No. 2 Mine, and Amonate.
48. After Consol closed down the section of the Amonate Mine where Mr. Caser worked
in late 1991, Consol transferred Mr. Casey to the Buchanan Mine where he worked for the
following twenty years.
49. On or about April 19, 1992 Mr. Casey began working as an hourly employee
underground producing coal. He held that job until November 1, 1992 when he began to serve as
a salaried production foreman at the Buchanan Mine.
50. Throughout Mr. Casey’s working life, Consol made annual presentations stating
that he was entitled to the retirement benefits for him and his family until he passed away, including
slide shows and presentations by senior Consol officials such as chief executive officers Brett
Harvey or Bobby Brown. Gerald Kowzan, Nancy Johnson, and Gene Bailey would assist in
making presentations, reading the written slides shows and printed materials out loud to Mr. Casey
and his fellow workers, and answering questions from those workers under the apparent authority
of Consol.
10
51. Consol uniformly explained to Mr. Casey and other non-union workers that, as a
non-union foreman or a non-union hourly worker, a miner’s spouse would have retirement benefits
until the spouse passed away or remarried. Children who were at home or in college would have
healthcare up to age 26 or employed by a company that offered them insurance. In all explanations
provided Mr. Casey and other non-union workers, Consol never represented that benefits were
subject to being eliminated.
52. During the annual trainings, Consol stated that it cared an immense amount for its
workers and that any changes to the policy would be made in the best interest of the beneficiaries.
53. Consol made several changes to their benefits plans over the years, but never once
did Consol indicate that the lifetime benefits eligibility could be rescinded after a worker had
accepted the offer and the eligibility had vested.
54. On February 1, 2013, Mr. Casey retired from Consol. By that time, he had attained
the necessary age to retire under the Lifetime Plan.
Allan Jack and Bob Long accepted Consol’s offers of lifetime retirement benefits for hourly and
essential salaried employees.
55.
Robert “Bob” Long. In 1967, Mr. Bob Long began working for Consolidation
Coal Co. as a union miner. However, in 1969, he was promoted to serve as an “essential” salaried
employee—that is, a mine foreman directly engaged in the production of coal underground.
56. Mr. Long worked for Consol for more than ten years.
57. In 2003, having reached the age of fifty-five, Mr. Long exercised his retirement
through the Defendants.
58. Allan Jack. In July 1991, Allan Jack Sr. began working for Consol Pennsylvania
as a non-union hourly miner at the Enlow Fork Mine in Washington County, Pennsylvania.
59. Mr. Jack worked for Consol for more than ten years.
11
60. In 2009, having reached the age of fifty-five, Mr. Jack exercised his retirement
through the Defendants.
Common experience of Plaintiffs as plan participants
61. At the times that Plaintiffs began their jobs as non-union employees of Consol, the
Defendants presented each of them with written materials, as part of a formal orientation for all
new non-union miners, regarding the retiree welfare benefits for which the new hires became
eligible.
62. The Plaintiffs observed that the Defendants routinely made this presentation for
their newly-hired, non-union miners.
63. The Defendants’ orientations materials and presentations for new non-union miners
stated that, if a Consol employee garnered ten years of service and reached the age of fifty-five, he
or she would receive retiree welfare benefits (medical, prescription drug, dental, vision, and life
insurance) for that employee, and his or her dependents, for the remainder of their lives.
64. In addition to reaching those thresholds for age and years of service, the employee
had to pay premiums to the Defendants while they worked and also after they retired, in order to
secure eligibility for the lifetime retiree welfare benefits.
65. Consol’s retiree benefits provided primary coverage through age 65 and then
reverted to secondary coverage after the retiree became eligible for Medicare.
66. Each year, during an annual “refresher” training, the Defendants and their agents,
including Mr. Luke Gianato and Gerald Kowzan, reviewed the retiree benefits with the Plaintiffs
and all of their co-workers together in groups, and specifically stated that the miners would not
lose their retiree benefits once they had vested based on their age, years of service, and payment
of premiums.
12
67.
Routinely throughout the entire working lives of the Plaintiffs and their co-workers,
the Defendants and their agents created, supervised, and/or delivered annual written presentations
stating that their employees would receive the retiree welfare benefits for them and their dependent
family members as promised, so long as the miner satisfied the eligibility criteria of age and tenure,
and paid the specified premiums.
68. During their retirement, the Plaintiffs were receiving retiree welfare insurance
coverage from the Defendants---medical, prescription drug, dental, vision, and life insurance.
69. The Defendants never told the Plaintiffs that the retiree welfare benefits were subject
to being eliminated for those retirees who had already paid in and exercised their right to retire.
70. The Defendants stated that any changes to the retiree welfare benefits would be made
in the best interest of the participants and beneficiaries.
The Defendants’ representations about the retiree welfare benefits were significant for
the Plaintiffs and substantially inflated the value that the Plaintiffs were willing to pay
for premiums during their active working lives and during their retirement, in order to
secure the promised access to the retiree welfare benefits.
71. The retiree welfare benefits induced the employees of the Defendants, including the
Plaintiffs, to rely on those Defendants’ promises by continuing to work for the Defendants despite
their inability to form a union.
72.
Defendants also used the lifetime benefits to induce their employees to accept
lower-wage and lower-salary positions in exchange for the promise of lifetime benefits.
73.
Plaintiffs relied on the Defendants’ promises by paying premiums and working for
Defendants for at least ten years---that is, foregoing wage increases within the company, retiring
earlier than they otherwise might have, and/or rejecting other more lucrative job opportunities.
74.
These promises of lifetime benefits induced the employees of the Defendants, and
of their affiliated employers, to work for Defendants until they became eligible for retirement--a
13
process that the Defendants told the workers required at least ten years of service to the Defendants
and the attainment of age fifty-five.
75. The Defendants’ promises regarding lifetime benefits constituted a welfare benefits
plan enforceable under ERISA (the “Lifetime Plan”).
76.
The Defendants’ employees, including the Plaintiffs, were not provided with a copy
of a so-called “Retirement SPD”---that informed the employees that there were any differences in
the welfare benefits of retirees vis-a-vis those of active employees---at any time before those
employees reached the age and tenure necessary for retirement.
77.
At no point before they became eligible for retirement were employees provided
with the information or resources necessary to access the Retirement SPD. Defendants did not
inform their employees about the Retirement SPD or the Retirement Plan until after they reached
fifty-five and had worked at least ten years with Defendants.
78.
The Retirement SPD, which the Defendants withheld during the course of
Plaintiffs’ employment and first provided to employees---if at all---only after the employees had
become eligible for retirement, included language purporting to reserve the right for the
Defendants to terminate the CONSOL Energy, Inc. Retiree Medical and Prescription Drug
Expense Benefits Plan (the “Retiree Plan”) at any time.
79. The Retirement SPD described the Retiree Plan, which constituted a separate and
distinct plan, unaffiliated with the Lifetime Plan. To the extent that the Retiree Plan contained
reservations of rights to terminate, those reservations of rights applied to the Retiree Plan and not
to the Lifetime Plan.
80.
The first time that Plaintiffs were able to see the terms of the Retirement SPD, they
had already worked for Defendants for over ten years, and paid premiums throughout that time, in
14
order to secure eligibility for lifetime retiree welfare benefits, in reliance on the Defendants’
representations concerning lifetime benefits made repeatedly over the course of decades.
81.
The Defendants, through their misrepresentation of the terms of the retiree benefits
and their regular, repeated, and material misrepresentations about the lifetime nature of benefits,
have induced employees to accept lower wages, discontinue labor organizing efforts, continue
working for Defendants for many years, and finally to retire and relinquish their earning power as
active Consol employees earlier than they otherwise might have retired.
82.
On or about the time in 2014 that the Defendants sought to curtail and to commence
a termination process for the retiree welfare benefits, the Plaintiffs learned for the first time that
the Defendants were then asserting that they had two distinct plans---an Active Employee Plan
and a Retiree Plan---which the Defendants then asserted to contain reservations of rights to alter
or terminate benefits even after a person had retired.
83. This newly-asserted right to terminate the receipt of benefits, after a worker had
already exercised his or her retirement option, comprised a new term that Defendants had not
previously presented to the Plaintiffs.
The Defendants’ SPDs misled participants by promoting the perception that there was a single
Lifetime Plan
84. When identifying plans under ERISA, the Department of Labor has established that
each distinct plan is required to have its own unique plan number.
85.
Despite Defendants’ representations to employees that the Active Employee Plan
and Retiree Plan were distinct, the SPDs for those plans shared a common plan number, 581.
86. The Defendants persistently represented the welfare benefits to the workforce---
including to the Plaintiffs---as being a single, unified employee welfare benefits plan (the
“Lifetime Plan”).
15
87. The Defendants contractually entered into those benefits as a plan between the
Defendants and the Plaintiffs, in a mutual understanding that was comprised of the written and
oral representations that the Defendants made to the Plaintiffs prior to their retirement.
88.
The Defendants understood that distinct employee welfare benefit plans should be
uniquely and separately identified by distinct Plan Numbers.
89.
Yet, the SPD and the Retirement SPD--the plan documents that were actually
shared with the beneficiaries---all shared the same Plan Number (581), the same Plan
Administrator, the same effective start date of January 1, 2006, and the same underlying welfare
benefits.
90.
The Defendants’ use of the same Plan Number, Plan Administrator, and effective
start date in both the Employee SPD and the Retirement SPD further indicated that the Defendants
were not truly presenting their workers with those two distinct plans, but rather a single Lifetime
Plan---promising lifetime welfare benefits, which could not be terminated after retirement.
91.
If the Defendants intended that the Employee and Retiree Plans were to operate as
distinct plans, they misrepresented that intention by the aforementioned conduct.
92. In misrepresenting the relationship between the Active Employee Plan, the
Lifetime Plan, and the Retiree Plan, Defendants fraudulently misrepresented the terms, eligibility
requirements, and rights and obligations included within the Lifetime Plan that had already been
offered to and accepted by employees and retirees, including the Plaintiffs, prior to the presentation
of the Retirement SPD.
93.
Upon information and belief, the above misrepresentations offered significant
potential for financial gain to Defendants. By offering incomplete, inaccurate, and misleading
disclosures, Defendants were able to induce employees to reject unionization, accept lower wages,
16
continue working for Defendants, and pay higher premiums to secure their welfare benefits as both
active workers and retirees---all of which redounded to the Defendants’ financial advantage by
decreasing the amount of Defendants’ assets that had to be devoted to financing the welfare
benefits of the Plaintiffs and the other retired and active workers.
94.
In the fall of 2014, the Defendants informed retirees--that is, the elderly subset of
the individuals who were covered under the single Lifetime Plan--that their welfare benefits would
be terminated no later than December 31, 2019. This change eliminated all or substantially all of
the benefits available to those retirees under the Plan in outlying years after 2019, and upon
information and belief it decreased the contribution rate required of the Defendants to maintain the
residual benefits plans.
95. Indeed, the annual reports on retiree benefits maintained by the Department of Labor
indicate that as many as 16,000 plan participants lost the welfare benefits that they were receiving
from the Defendants under the Lifetime Plan and related plans during 2014 alone.
96.
In or around June of 2015, the Defendants contacted retirees, including the
Plaintiffs, to inform them that their welfare benefits would be terminated by December 31, 2015.
97.
The Defendants did not simply terminate the benefits of all active non-union
employees in this same manner. Instead, the Defendants allowed those active employees to choose
between two options. First, they could retire and continue receiving the same benefits for five
years. Second, they could continue working and receive a lump sum payout from Defendants in
lieu of further benefits.
98. For workers with between ten and twenty years of service to the Defendants, the
lump sum payout made available to each worker was $25,000. For workers with twenty or more
years of such service, the lump sum payout was $50,000.
17
99.
Defendants did not offer retired employees the opportunity to accept such lump
sum payouts when the Defendants cancelled their benefits.
100. Over 12,000 non-union, retired employees---and perhaps as many as 16,000---were
affected by Defendants’ unlawful conduct.
101. The class seeking relief consists of all of the non-union, retired employees of
Defendants whose benefits were terminated as described herein. The class is comprised of three
regional subclasses, each containing two subgroups by employment status---i.e. the hourly non-
union retirees, and the “essential” salaried non-union retirees.
102. The assets of the relevant plan or plans include the participant contributions, the
plan investments, and any security or bonds that are or were put in place to balance the Defendants’
financial condition based upon an analysis of audited financial statements and the full accrued
value of current liability for future claim payments based upon generally accepted actuarial and
accounting principles of the Defendants’ existing and expected liability.
103. At all relevant times, CONSOL Energy Inc. has been the Plan Sponsor of the
Lifetime Plan, within the meaning of ERISA, 29 U.S.C. § 1002(16)(b) because it has been so
designated in the governing plan instruments.
104. At all relevant times, the Vice President of Human Resources at CONSOL has been
the Plan Administrator of the Lifetime Plan within the meaning of ERISA, 29 U.S.C. §
1002(16)(a), because he has been so designated in the governing plan instruments.
105. Plaintiffs are entitled to bring this civil action to restore their welfare benefits, to
enjoin any act or practice which violates any provision of ERISA or the terms of the Plan, to
disgorge the financial benefits of the Defendants’ breach of their fiduciary duty, to disgorge the
18
profits therefrom, and/or to obtain other appropriate equitable relief. See 29 U.S.C. § 1132(a)(1),
(2), (3).
CLASS ALLEGATIONS
106. Plaintiffs bring this action on their own behalf and on behalf of all other similarly
situated individuals, pursuant to Rule 23 of the Federal Rules of Civil Procedure. The class
consists of all non-union retirees from CONSOL Energy, and its subsidiaries and affiliated entities,
whose retiree welfare benefits were curtailed or terminated in 2014 or 2015.
107. The requirements of Rule 23 are satisfied as follows:
(a)
The class is numerous, with over 12,000 members, and joinder is
impracticable due to the high number of plaintiffs that would frustrate the coordination of multi-
plaintiff litigation involving so many affected individuals;
(b)
There are questions of law and fact common to all members of the class,
which predominate over any questions affecting only individual members, regarding the ERISA
plans and the facts surrounding the entry of those plans and the conditions of their curtailment or
termination; and
(c)
The named Plaintiffs’ claims are typical of those of the class as a whole
because the named Plaintiffs were subject to the same curtailments and terminations, and were
injured as a result, in the same manner as were the rest of the putative class members.
108. The Plaintiffs have displayed an interest in vindicating the rights of the class
members, will fairly and adequately protect and represent the interests of the class, and are
represented by skillful and knowledgeable counsel. The relief sought by the named Plaintiffs will
inure to the benefit of the class generally.
FIRST CAUSE OF ACTION
Breach of Fiduciary Duty
19
29 U.S.C. § 1104(a)(1)(A)(i)
109.
Plaintiffs incorporate the preceding paragraphs by reference.
110.
At all relevant times, Defendants were fiduciaries as to the Lifetime Plan, as defined
in 29 U.S.C. § 1002(21).
111. The Defendants are fiduciaries with respect to the terms of enrollment and the scope
of benefits in the applicable plans, including the Lifetime Plan, because they exerted control or
authority over the management, administration, and/or disposition of the terms or assets of the plan
or plans, and because they appointed other fiduciaries, including Luke Gianato, Terry Mason,
Nancy M. Johnson, and Gerald Kowzan, among others, to exert control with respect to those same
112.
29 U.S.C. § 1104(a)(1) requires that a fiduciary must discharge his or her duties
with respect to a plan solely in the interest of the participants and beneficiaries, and for the
exclusive purpose of providing benefits to participants and beneficiaries and defraying reasonable
expenses of plan administration.
113.
Defendants breached their fiduciary duty and induced participants to make choices
that were financially valuable for Defendants and detrimental to the participants by overstating
and misrepresenting the value of the welfare benefits that the Plaintiffs earned by their labor and
purchased by paying premiums, by releasing inaccurate SPDs to employees and retirees, by
providing active workers with greater benefits than retired workers, and by not adhering to the
terms of the Lifetime Plan.
114. When the Defendants represented to the Plaintiffs that the Lifetime Plan would
provide welfare benefits for the lifetimes of the Plaintiffs and their dependents, the Defendants
misrepresented the Lifetime Plan.
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115. When the Defendants accepted the Plaintiffs’ continued employment in exchange
for the promise to provide the Lifetime Plan, the Defendants fraudulently induced the Plaintiffs
into accepting the Lifetime Plan.
116. When the Defendants accepted premiums from the Plaintiffs as consideration for
enrollment in the plan on the basis of the promise of lifetime welfare benefits, the Defendants
became bound by their promise to provide lifetime welfare benefits.
117.
Defendants thus violated ERISA, 29 U.S.C. § 1104(a)(1) by breaching their
fiduciary duties when they took actions to increase revenue for the corporate sponsor of the plan
by misrepresenting the benefits to the plan beneficiaries – thus acting not exclusively for the
purpose of providing benefits to participants and their beneficiaries.
SECOND CAUSE OF ACTION
Enforcement of the ERISA Plan Entered into by Defendants’ Representations
29 U.S.C. 1132(a)(1), (2), and (3)
118. Plaintiffs incorporate the preceding paragraphs by reference.
119.
At all times relevant, the Plaintiffs were participants in an enforceable ERISA plan
arising from the written representations, and consistent oral representations, made by the
Defendants regarding the lifetime availability of the medical, prescription drug, vision, dental, and
life insurance benefits as set forth above.
120. The Plaintiffs were participants in the Lifetime Plan (separate from any plan that
reserved the right to terminate benefits after a participant earned their retirement) at the time that
Defendants, by their agents, including Luke Gianato, Terry Mason, and Gerald Kowzan, among
others, made representations to the Plaintiffs concerning the lifetime nature of their welfare
benefits, and at the time that the Plaintiffs detrimentally relied on those representations by paying
21
premiums and working for Defendants at least ten years---thus foregoing other job opportunities,
retiring earlier than they otherwise might have, and/or foregoing union representations.
121.
The Active Employee Plan expressly excluded and disclaimed any authority over
the benefits provided to inactive (that is, retired) or non-full time employees, so any reservations
of rights asserted in the Active Employee Plan, or by the SPD, could not have applied to the
Lifetime Plan.
122.
Since the time that they retired, the Plaintiffs have not been active, full-time
employees as defined by the Active Employee Plan.
123.
Oral representations to Plaintiffs concerning the lifetime nature of their welfare
benefits as participants in the Lifetime Plan did not conflict with any terms of the Active Employee
Plan (or of the Lifetime Plan), and such oral representations fell entirely outside of the scope of
the Active Employee Plan.
124.
The Plaintiffs were not participants in any contradictory ERISA plan at the time
that they relied on the Defendants’ representations. Accordingly, the Defendants’ representations
of lifetime welfare benefits were not an amendment to any other ERISA plan to which Plaintiffs
were participants, and the promise of lifetime welfare benefits created the Lifetime Plan based on
the oral representations made by Defendants. If the representations were amendments to another
plan, they were not inconsistent with the terms of such other plan. The Lifetime Plan was and
remains an enforceable plan under ERISA.
125.
The terms of the Lifetime Plan entered into by Defendants are plain on their face
and should be interpreted to entitle Plaintiffs to the lifetime welfare benefits which the Defendants
regularly and repeatedly described and promised to the Plaintiffs.
THIRD CAUSE OF ACTION
Discrimination Against Individual Participants and Beneficiaries in the Retiree Plan
22
Based on Health Status-Related Factors
29 U.S.C. § 1182
126.
Plaintiffs incorporate the preceding paragraphs by reference.
127.
29 U.S.C. § 1182(a)(1) prohibits a group health plan from establishing rules for
eligibility (including continued eligibility) based on health status-related factors.
128. 29 U.S.C. § 1182(b) prohibits a group health plan from requiring an individual (as
a condition of enrollment or continued enrollment under the plan) to pay a premium or contribution
which is greater than such premium or contribution for a similarly situated individual enrolled in
the plan on the basis of any health status-related factor.
129.
Included among the prohibited health status-related factors are health status,
medical condition, claims experience, receipt of healthcare, medical history, and disability.
130. Individuals who had already retired as of September 30, 2014 necessarily had a
lengthier history of filing claims under the applicable Plan, and receiving healthcare under that
Plan (i.e., they had a lengthier claims experience), and also tended to be less healthy due to their
advanced age relative to the active workers.
131.
In deciding to terminate benefits without a cash transition payment for the
individuals who had already retired as of September 30, 2014, the Defendants unlawfully
established and enforced rules for eligibility for the cash transition payment under the Lifetime
Plan and/or the Retiree Plan based on the health status-related factors of health status, medical
condition, claims experience, receipt of healthcare, medical history, and/or disability.
132. Defendants’ establishment of rules limiting and then terminating welfare benefits
only for those retired employees over the age of fifty-five – while offering no offsetting payout to
those employees, as they had offered to those younger, active employees with superior health
status – was based on health status. The rules were based on health status because they
23
distinguished between those who were entitled to receive the payout and those who were not based
on the retirement status of those individuals, and because those individuals who were retired were
known to have a health status that was inferior to that of the other younger workers whose benefits
were not terminated in the same fashion.
133. Insofar as the Defendants provided a cash transition payment to the non-retired
participants in the Lifetime Plan, but required the retired participants to continue paying larger
premiums or contributions after the curtailment in 2014, the Defendants violated 29 U.S.C. §
1182(b).
134.
In establishing and enforcing rules that limited the Plaintiffs’ eligibility or
continued eligibility for benefits, Defendants did not comply with the requirements established in
29 U.S.C. § 1182(a)(1) and thus acted unlawfully under ERISA.
FOURTH CAUSE OF ACTION
Failure to Meet Duty of Disclosure with Respect to Summary Plan Descriptions
29 U.S.C § 1021(a)(1)
135. Plaintiffs incorporate the preceding paragraphs by reference.
136.
ERISA, 29 U.S.C. § 1021, requires that plan administrators provide all plan
participants and beneficiaries with accurate SPDs, conforming to the requirements of 29 U.S.C. §
1022(a).
137. 29 U.S.C. § 1022(a)(1) requires that SPDs be sufficiently accurate and
comprehensive to reasonably apprise participants of their rights and obligations under the plan.
138.
Defendants provided Plaintiffs with no SPDs or with incomplete SPDs for many
years. Those SPDs did not mention important benefits and obligations under the Lifetime Plan.
24
139.
The Plaintiffs did not receive the Retirement SPD, with the additional inconsistent
terms, until those Lifetime Plan participants had reached at least age fifty-five and had worked for
Defendants for a minimum of ten years.
140.
By excluding information about benefits that the plan confers upon retirement,
Defendants provided inaccurate and incomplete SPDs to plan participants and beneficiaries,
making it impossible for them to adequately be aware of their rights and obligations under the
Lifetime Plan.
141.
By failing to provide accurate or comprehensive SPDs, Defendants violated their
duty of disclosure under 29 U.S.C. § 1021.
142.
Plaintiffs are entitled to bring this civil action to enjoin any act or practice which
violates any provision of ERISA or the terms of the Plan, and/or to obtain other appropriate
equitable relief. See 29 U.S.C. § 1132(a)(3).
FIFTH CAUSE OF ACTION
Failure to Provide Accurate and Comprehensive Summary Plan Description
29 U.S.C § 1022(a)
143.
Plaintiffs incorporate the preceding paragraphs by reference.
144.
Defendants’ knowing and willful distribution of inaccurate and non-comprehensive
Plan descriptions violates 29 U.S.C. § 1022(a) and the SPD requirements contained therein.
145.
SPDs provided by Defendants were neither accurate nor comprehensive, as set forth
in preceding paragraphs, based on the inaccurate Plan Number, and the exclusion of information
about benefits that the plan confers upon retirement.
SIXTH CAUSE OF ACTION
Failure to Accurately State the Plan’s Requirements with Respect to Eligibility
29 U.S.C § 1022(b)
146.
Plaintiffs incorporate the preceding paragraphs by reference.
25
147.
To the extent that the Defendants did make available an SPD to certain of the
Plaintiffs and the class, the Defendants only gave the Plaintiffs a single SPD, which the Defendants
represented to apply to all benefits, including for both active and retired workers.
148. Because the text of that SPD did not address any potential limitations on the
promise of lifetime benefits under the Lifetime Plan, the only terms that the Plaintiffs could rely
on as to the terms, scope, or duration of the Lifetime Plan were the oral representations made by
the Defendants and their agents.
149. Accordingly, insofar as the Defendants assert that they had a right to refuse
eligibility for the Lifetime Plan, the SPDs that the Defendants offered to the Plaintiffs did not
accurately state those terms, in violation of 29 U.S.C § 1022(b).
150.
The text of the SPD provided to the Plaintiffs and the other putative class members
stated that only active, full-time employees were eligible to receive benefits.
151.
In reality, even though the SPD did not address retirees, the Defendants’ oral
representations indicated that the Plaintiffs were also enrolling in the Lifetime Plan at the time that
they enrolled in the medical benefits plan as active workers, and consequently the SPD that the
Plaintiffs received did not accurately state all of the plan’s requirements with respect to eligibility
for lifetime benefits.
152.
This misrepresentation was a violation of ERISA which prejudiced the Plaintiffs
by depriving them of adequate notice of their benefits.
SEVENTH CAUSE OF ACTION
Failure to Provide an Adequate Summary Plan Description in a Timely Manner
29 U.S.C. § 1024(b)(1)
153.
Plaintiffs incorporate the preceding paragraphs by reference.
26
154.
ERISA at 29 U.S.C. § 1024(b)(1) requires that plan administrators and sponsors
produce an accurate copy of the Summary Plan Description to plan participants and beneficiaries
in a timely manner.
155.
Defendants failed to provide an accurate Summary Plan Description to plan
participants and beneficiaries for many years after they were covered by the Lifetime Plan – or
after they were covered by the Active Employee Plan and by the Retiree Plan, if those were
separate plans.
156.
Because Defendants failed to provide an accurate Summary Plan Description
within the required 90-day or 120-day period, they violated § 1024(b)(1) of ERISA.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs pray that the Court would:
I.
Enjoin Defendants from any further violation of their ERISA fiduciary
responsibilities, duties and obligations;
II.
Compel the Defendants to honor the terms of the Lifetime Plan entered into by
Defendants, requiring Defendants to provide Plaintiffs and their beneficiaries with the specified
lifetime welfare benefits;
III.
Compel the Defendants to treat the retirees the same as they treated the active
employees by allowing the retirees either to maintain their terminated benefits or to receive the
same lump sum payouts that the Defendants’ active workers could elect to receive in lieu of
ongoing benefits;
IV.
Issue an order of surcharge, accounting for profits, and restitution, compelling
Defendants to return the value of the premiums paid by the Plaintiffs during their working lives
and their retirement;
27
V.
Direct the Department of Labor to assess all appropriate civil penalties pursuant to
29 U.S.C. 1132, et seq., 29 C.F.R. § 2560.502c-7.
VI.
Award such other equitable or remedial relief as may be appropriate, including
disgorgement of the financial benefit obtained by the Defendants through their breach of their
fiduciary duties;
VII.
Award to the Plaintiffs their reasonable costs and attorney fees, pursuant to 29
U.S.C. § 1132(g); and
VIII. Grant any such other and further relief as this Court may deem just and proper.
Emmett Casey Jr., Connie Z. Gilbert,
Allan H. Jack Sr., and Robert H. Long,
on behalf of themselves and all others similarly situated,
PLAINTIFFS,
BY COUNSEL,
__/s/ Samuel B. Petsonk_________________
Samuel B. Petsonk (W. Va. Bar ID No. 12418)
Bren J. Pomponio (W. Va. Bar ID No. 7774)
Mountain State Justice, Inc.
1031 Quarrier Street, Suite 200
Charleston, West Virginia 25301
(304) 344-3144
(304) 344-3145 (fax)
[email protected]
Counsel Plaintiffs
28
| consumer fraud |
CAxlFocBD5gMZwczKPKf | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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RAYMOND GONZALEZ, on behalf of himself
and all others similarly situated,
CLASS ACTION COMPLAINT
Plaintiffs,
AND
v.
DEMAND FOR JURY TRIAL
ARTSANA USA, INC.,
Defendant.
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INTRODUCTION
1.
Plaintiff RAYMOND GONZALEZ, on behalf of himself and others similarly
situated, asserts the following claims against Defendant ARTSANA USA, INC. as
follows.
2.
Based on a 2010 U.S. Census Bureau report, approximately 8.1 million people in
the United States are visually impaired, including 2.0 million who are blind, and
according to the American Foundation for the Blind’s 2016 report, approximately
420,000 visually impaired persons live in the State of New York.
3.
Plaintiff brings this civil rights action against Defendant for its failure to design,
construct, maintain, and operate its website to be fully accessible to and
independently usable by Plaintiff and other blind or visually-impaired people.
4.
Plaintiff uses the terms “blind” or “visually-impaired” to refer to all people with
visual impairments who meet the legal definition of blindness in that they have a
visual acuity with correction of less than or equal to 20 x 200.
5.
Defendant’s denial of full and equal access to its website, and therefore denial of
its goods and services offered thereby, is a violation of Plaintiff’s rights under the
Americans with Disabilities Act (“ADA”).
6.
Because
Defendant’s
website,
www.chiccousa.com
(the
“Website”
or
“Defendant’s website”), is not equally accessible to blind and visually-impaired
consumers, it violates the ADA. Plaintiff seeks a permanent injunction to cause a
change in Defendant’s corporate policies, practices, and procedures so that
Defendant’s website will become and remain accessible to blind and visually-
impaired consumers.
JURISDICTION AND VENUE
7.
This Court has subject-matter jurisdiction over this action under 28 U.S.C. § 1331
and 42 U.S.C. § 12181, as Plaintiff’s claims arise under Title III of the ADA, 42
U.S.C. § 12181, et seq., and 28 U.S.C. § 1332.
8.
This Court has supplemental jurisdiction under 28 U.S.C. § 1367 over Plaintiff’s
New York City Human Rights Law, N.Y.C. Admin. Code § 8-101 et seq.,
(“NYCHRL”) claims.
9.
Venue is proper in this district under 28 U.S.C. §1391(b)(1) and (2) because
Defendant conducts and continues to conduct a substantial and significant amount
of business in this District, and a substantial portion of the conduct complained of
herein occurred in this District because Plaintiff attempted to utilize, on a number
of occasions, the subject Website within this Judicial District.
10.
Defendant is subject to personal jurisdiction in this District. Defendant has been
and is committing the acts or omissions alleged herein in the Southern District of
New York that caused injury, and violated rights the ADA prescribes to Plaintiff
and to other blind and other visually impaired-consumers in this District. A
substantial part of the acts and omissions giving rise to Plaintiff’s claims occurred
in this District: Plaintiff has been denied the full use and enjoyment of the facilities,
goods and services offered to the general public, on Defendant’s Website in New
York County. These access barriers that Plaintiff encountered have caused a denial
of Plaintiff’s full and equal access multiple times in the past, and now deter Plaintiff
on a regular basis from accessing the Defendant’s Website in the future.
11.
This Court is empowered to issue a declaratory judgment under 28 U.S.C. §§ 2201
and 2202.
THE PARTIES
12.
Plaintiff RAYMOND GONZALEZ, at all relevant times, is and was a resident of
New York, New York.
13.
Plaintiff is a blind, visually-impaired handicapped person and a member of member
of a protected class of individuals under the ADA, under 42 U.S.C. § 12102(1)-(2),
and the regulations implementing the ADA set forth at 28 CFR § 36.101 et seq.,
and NYCHRL.
14.
Defendant is and was at all relevant times a New Jersey Corporation doing business
in New York.
15.
Defendant’s Website, and its goods and services offered thereupon, is a public
accommodation within the definition of Title III of the ADA, 42 U.S.C. § 12181(7).
NATURE OF ACTION
16.
The Internet has become a significant source of information, a portal, and a tool for
conducting business, doing everyday activities such as shopping, learning, banking,
researching, as well as many other activities for sighted, blind and visually-
impaired persons alike.
17.
In today’s tech-savvy world, blind and visually-impaired people have the ability to
access websites using keyboards in conjunction with screen access software that
vocalizes the visual information found on a computer screen or displays the content
on a refreshable Braille display. This technology is known as screen-reading
software. Screen-reading software is currently the only method a blind or visually-
impaired person may independently access the internet. Unless websites are
designed to be read by screen-reading software, blind and visually-impaired
persons are unable to fully access websites, and the information, products, goods
and contained thereon.
18.
Blind and visually-impaired users of Windows operating system-enabled
computers and devices have several screen reading software programs available to
them. Some of these programs are available for purchase and other programs are
available without the user having to purchase the program separately. NonVisual
Desktop Access, otherwise known as “NVDA” is a popular, screen-reading
software program available for a Windows computer.
19.
For screen-reading software to function, the information on a website must be
capable of being rendered into text. If the website content is not capable of being
rendered into text, the blind or visually-impaired user is unable to access the same
content available to sighted users.
20.
The international website standards organization, the World Wide Web
Consortium, known throughout the world as W3C, has published version 2.1 of the
Web Content Accessibility Guidelines (“WCAG 2.1”). WCAG 2.1 are well-
established guidelines for making websites accessible to blind and visually-
impaired people. These guidelines are universally followed by most large business
entities and government agencies to ensure their websites are accessible.
STATEMENT OF FACTS
21.
Defendant is an infant products and accessories company that owns and operates
the website, www.chiccousa.com (its “Website”), offering features which should
allow all consumers to access the goods and services which Defendant ensures the
delivery of throughout the United States, including New York State.
22.
Defendant’s Website offers its products and services for online sale and general
delivery to the public. The Website offers features which ought to allow users to
browse for items, access navigation bar descriptions and prices, and avail
consumers of the ability to peruse the numerous items offered for sale.
23.
Plaintiff is a visually-impaired and legally blind person, who cannot use a computer
without the assistance of screen-reading software. Plaintiff is, however, a proficient
NVDA screen-reader user and uses it to access the Internet. Plaintiff has visited the
Website using a screen-reader.
24.
Plaintiff most recently visited Defendant’s website in March of 2020 to browse and
potentially make a purchase. Despite his efforts, however, Plaintiff was denied a
user experience similar to that of a sighted individual due to the website’s lack of a
variety of features and accommodations, which effectively barred Plaintiff from
being able to enjoy the privileges and benefits of Defendant’s public
accommodation.
25.
For example, many features on the Website lacks alt. text, which is the invisible
code embedded beneath a graphical image. As a result, Plaintiff was unable to
differentiate what products were on the screen due to the failure of the Website to
adequately describe its content.
26.
Many features on the Website also fail to contain a proper label element or title
attribute for each field. This is a problem for the visually impaired because the
screen reader fails to communicate the purpose of the page element. It also leads to
the user not being able to understand what he or she is expected to insert into the
subject field. As a result, Plaintiff was unable to enjoy the privileges and benefits
of the Website equally to sighted users.
27.
Many pages on the Website also contain the same title elements. This was a
problem for Plaintiff because in certain instances the screen reader failed to
distinguish one page from another. In order to fix this problem, Defendant must
change the title elements for each page.
28.
The Website also contains a host of broken links, which is a hyperlink to a non-
existent or empty webpage. For the visually impaired this is especially paralyzing
due to the inability to navigate or otherwise determine where one is on the website
once a broken link is encountered. For example, upon coming across a link of
interest, Plaintiff was redirected to an error page. However, the screen-reader failed
to communicate that the link was broken. As a result, Plaintiff could not get back
to his original search.
29.
As a result of visiting Defendant’s Website and from investigations performed on
his behalf, Plaintiff is aware that the Website includes at least the following
additional barriers blocking his full and equal use:
a. The Website does not provide a text equivalent for every non-text element;
b. The purpose of each link cannot be determined from the link text alone or from
the link text and its programmatically determined link context;
c. Web pages lack titles that describe their topic or purpose;
d. Headings and labels do not describe topic or purpose;
e. Keyboard user interfaces lack a mode of operation where the keyboard focus
indicator is visible;
f. The default human language of each web page cannot be programmatically
determined;
g. The human language of each passage or phrase in the content cannot be
programmatically determined;
h. Labels or instructions are not always provided when content requires user input;
i. Text cannot be resized up to 200 percent without assistive technology so that it
may still be viewed without loss of content or functionality;
j. A mechanism is not always available to bypass blocks of content that are
repeated on multiple web pages;
k. A correct reading sequence is not provided on pages where the sequence in
which content is presented affects its meaning;
l. In content implemented using markup languages, elements do not always have
complete start and end tags, are not nested according to their specifications,
may contain duplicate attributes, and IDs are not always unique; and
m. The name and role of all UI elements cannot be programmatically determined;
things that can be set by the user cannot be programmatically set; and/or
notification of changes to these items is not available to user agents, including
assistive technology.
30.
These access barriers effectively denied Plaintiff the ability to use and enjoy
Defendant’s website the same way sighted individuals do.
31.
It is, upon information and belief, Defendant’s policy and practice to deny Plaintiff,
along with other blind or visually-impaired users, access to Defendant’s website,
and to therefore specifically deny the goods and services that are offered to the
general public. Due to Defendant’s failure and refusal to remove access barriers to
its website, Plaintiff and visually-impaired persons have been and are still being
denied equal access to Defendant’s Website, and the numerous goods and services
and benefits offered to the public through the Website.
32.
Due to the inaccessibility of Defendant’s Website, blind and visually-impaired
customers such as Plaintiff, who need screen-readers, cannot fully and equally use
or enjoy the facilities, products, and services Defendant offers to the public on its
Website. The access barriers Plaintiff encountered have caused a denial of
Plaintiff’s full and equal access in the past, and now deter Plaintiff on a regular
basis from visiting the Website, presently and in the future.
33.
If the Website were equally accessible to all, Plaintiff could independently navigate
the Website and complete a desired transaction as sighted individuals do.
34.
Through his attempts to use the Website, Plaintiff has actual knowledge of the
access barriers that make these services inaccessible and independently unusable
by blind and visually-impaired people.
35.
Because simple compliance with the WCAG 2.1 Guidelines would provide Plaintiff
and other visually-impaired consumers with equal access to the Website, Plaintiff
alleges that Defendant has engaged in acts of intentional discrimination, including
but not limited to the following policies or practices:
a.
Constructing and maintaining a website that is inaccessible to
visually-impaired individuals, including Plaintiff;
b.
Failure to construct and maintain a website that is sufficiently intuitive
so as to be equally accessible to visually-impaired individuals, including
Plaintiff; and,
c.
Failing to take actions to correct these access barriers in the face of
substantial harm and discrimination to blind and visually-impaired
consumers, such as Plaintiff, as a member of a protected class.
36.
Defendant therefore uses standards, criteria or methods of administration that have the
effect of discriminating or perpetuating the discrimination of others, as alleged herein.
37.
The ADA expressly contemplates the injunctive relief that Plaintiff seeks in this
action. In relevant part, the ADA requires:
In the case of violations of . . . this title, injunctive relief shall include an order to
alter facilities to make such facilities readily accessible to and usable by individuals
with disabilities . . . Where appropriate, injunctive relief shall also include requiring
the . . . modification of a policy . . .
42 U.S.C. § 12188(a)(2).
38.
Upon information and belief, because ARTSANA USA, INC.’s Website has never
been accessible and because ARTSANA USA, INC. does not have, and has never
had, an adequate corporate policy that is reasonably calculated to cause its Website
to become and remain accessible, Plaintiff invokes 42 U.S.C. § 12188(a)(2) and
seeks a permanent injunction requiring:
a. that ARTSANA USA, INC. retain a qualified consultant acceptable to Plaintiff
(“Mutually Agreed Upon Consultant”) who shall assist it in improving the
accessibility of its Website so the goods and services on them may be equally
accessed and enjoyed by individuals with vision related disabilities;
b. that ARTSANA USA, INC. work with the Mutually Agreed Upon Consultant
to ensure that all employees involved in website development and content
development be given web accessibility training on a periodic basis, including
onsite training to create accessible content at the design and development
stages;
c. that ARTSANA USA, INC. work with the Mutually Agreed Upon Consultant
to perform an automated accessibility audit on a periodic basis to evaluate
whether its Website may be equally accessed and enjoyed by individuals with
vision related disabilities on an ongoing basis;
d. that ARTSANA USA, INC. work with the Mutually Agreed Upon Consultant
to perform end-user accessibility/usability testing on a periodic basis with said
testing to be performed by individuals with various disabilities to evaluate
whether its Website may be equally accessed and enjoyed by individuals with
vision related disabilities on an ongoing basis;
e. that ARTSANA USA, INC. work with the Mutually Agreed Upon Consultant
to create an accessibility policy that will be posted on its Website, along with
an e-mail address and tollfree phone number to report accessibility-related
problems; and
f. that Plaintiff, their counsel and its experts monitor Defendant’s Website for up
to two years after the Mutually Agreed Upon Consultant validates it is free of
accessibility errors/violations to ensure it has adopted and implemented
adequate accessibility policies.
39.
Web-based technologies have features and content that are modified on a daily, and
in some instances, an hourly, basis, and a one time “fix” to an inaccessible website
will not cause the website to remain accessible without a corresponding change in
corporate policies related to those web-based technologies. To evaluate whether an
inaccessible website has been rendered accessible, and whether corporate policies
related to web-based technologies have been changed in a meaningful manner that
will cause the website to remain accessible, the website must be reviewed on a
periodic basis using both automated accessibility screening tools and end user
testing by disabled individuals.
40.
Although Defendant may currently have centralized policies regarding maintaining
and operating its Website, Defendant lacks a plan and policy reasonably calculated
to make them fully and equally accessible to, and independently usable by, blind
and other visually-impaired consumers.
41.
Defendant has, upon information and belief, invested substantial sums in
developing and maintaining their Website and has generated significant revenue
from the Website. These amounts are far greater than the associated cost of making
their Website equally accessible to visually impaired customers.
42.
Without injunctive relief, Plaintiff and other visually-impaired consumers will
continue to be unable to independently use the Website, violating their rights.
CLASS ACTION ALLEGATIONS
43.
Plaintiff, on behalf of himself and all others similarly situated, seeks to certify a
nationwide class under Fed. R. Civ. P. 23(a) and 23(b)(2): all legally blind
individuals in the United States who have attempted to access Defendant’s Website
and as a result have been denied access to the equal enjoyment of goods and services,
during the relevant statutory period.
44.
Plaintiff, on behalf of himself and all others similarly situated, seeks certify a New
York City subclass under Fed. R. Civ. P. 23(a) and 23(b)(2): all legally blind
individuals in the City of New York who have attempted to access Defendant’s
Website and as a result have been denied access to the equal enjoyment of goods and
services offered, during the relevant statutory period.
45.
Common questions of law and fact exist amongst Class, including:
a.
Whether Defendant’s Website is a “public accommodation” under
the ADA;
b.
Whether Defendant’s Website is a “place or provider of public
accommodation” under the NYCHRL;
c.
Whether Defendant’s Website denies the full and equal enjoyment
of
its
products,
services,
facilities,
privileges,
advantages,
or
accommodations to people with visual disabilities, violating the ADA; and
d.
Whether Defendant’s Website denies the full and equal enjoyment
of
its
products,
services,
facilities,
privileges,
advantages,
or
accommodations to people with visual disabilities, violating the NYCHRL.
46.
Plaintiff’s claims are typical of the Class. The Class, similarly to the Plaintiff, are
severely visually impaired or otherwise blind, and claim that Defendant has
violated the ADA or NYCHRL by failing to update or remove access barriers on
its Website so either can be independently accessible to the Class.
47.
Plaintiff will fairly and adequately represent and protect the interests of the Class
Members because Plaintiff has retained and is represented by counsel competent
and experienced in complex class action litigation, and because Plaintiff has no
interests antagonistic to the Class Members. Class certification of the claims is
appropriate under Fed. R. Civ. P. 23(b)(2) because Defendant has acted or refused
to act on grounds generally applicable to the Class, making appropriate both
declaratory and injunctive relief with respect to Plaintiff and the Class as a whole.
48.
Alternatively, class certification is appropriate under Fed. R. Civ. P. 23(b)(3) because
fact and legal questions common to Class Members predominate over questions
affecting only individual Class Members, and because a class action is superior to
other available methods for the fair and efficient adjudication of this litigation.
49.
Judicial economy will be served by maintaining this lawsuit as a class action in that
it is likely to avoid the burden that would be otherwise placed upon the judicial
system by the filing of numerous similar suits by people with visual disabilities
throughout the United States.
FIRST CAUSE OF ACTION
VIOLATIONS OF THE ADA, 42 U.S.C. § 12181 et seq.
50.
Plaintiff, on behalf of himself and the Class Members, repeats and realleges every
allegation of the preceding paragraphs as if fully set forth herein.
51.
Section 302(a) of Title III of the ADA, 42 U.S.C. § 12101 et seq., provides:
No individual shall be discriminated against on the basis of disability in the full and
equal enjoyment of the goods, services, facilities, privileges, advantages, or
accommodations of any place of public accommodation by any person who owns,
leases (or leases to), or operates a place of public accommodation.
42 U.S.C. § 12182(a).
52.
Defendant’s Website is a public accommodations within the definition of Title III
of the ADA, 42 U.S.C. § 12181(7). The Website is a service that is offered to the
general public, and as such, must be equally accessible to all potential consumers.
53.
Under Section 302(b)(1) of Title III of the ADA, it is unlawful discrimination to
deny individuals with disabilities the opportunity to participate in or benefit from
the products, services, facilities, privileges, advantages, or accommodations of an
entity. 42 U.S.C. § 12182(b)(1)(A)(i).
54.
Under Section 302(b)(1) of Title III of the ADA, it is unlawful discrimination to
deny individuals with disabilities an opportunity to participate in or benefit from
the products, services, facilities, privileges, advantages, or accommodation, which
is equal to the opportunities afforded to other individuals. 42 U.S.C. §
12182(b)(1)(A)(ii).
55.
Under Section 302(b)(2) of Title III of the ADA, unlawful discrimination also
includes, among other things:
[A] failure to make reasonable modifications in policies, practices, or procedures,
when such modifications are necessary to afford such goods, services, facilities,
privileges, advantages, or accommodations to individuals with disabilities, unless
the entity can demonstrate that making such modifications would fundamentally
alter the nature of such goods, services, facilities, privileges, advantages or
accommodations; and a failure to take such steps as may be necessary to ensure that
no individual with a disability is excluded, denied services, segregated or otherwise
treated differently than other individuals because of the absence of auxiliary aids
and services, unless the entity can demonstrate that taking such steps would
fundamentally alter the nature of the good, service, facility, privilege, advantage,
or accommodation being offered or would result in an undue burden.
42 U.S.C. § 12182(b)(2)(A)(ii)-(iii).
56.
The acts alleged herein constitute violations of Title III of the ADA, and the
regulations promulgated thereunder. Plaintiff, who is a member of a protected class
of persons under the ADA, has a physical disability that substantially limits the
major life activity of sight within the meaning of 42 U.S.C. §§ 12102(1)(A)-(2)(A).
Furthermore, Plaintiff has been denied full and equal access to the Website, has not
been provided services that are provided to other patrons who are not disabled, and
has been provided services that are inferior to the services provided to non-disabled
persons. Defendant has failed to take any prompt and equitable steps to remedy its
discriminatory conduct. These violations are ongoing.
57.
Under 42 U.S.C. § 12188 and the remedies, procedures, and rights set forth and
incorporated therein, Plaintiff, requests relief as set forth below.
SECOND CAUSE OF ACTION
VIOLATIONS OF THE NYCHRL
58.
Plaintiff, on behalf of himself and the New York City Sub-Class Members, repeats
and realleges every allegation of the preceding paragraphs as if fully set forth herein.
59.
N.Y.C. Administrative Code § 8-107(4)(a) provides that “It shall be an unlawful
discriminatory practice for any person, being the owner, lessee, proprietor,
manager, superintendent, agent or employee of any place or provider of public
accommodation, because of . . . disability . . . directly or indirectly, to refuse,
withhold from or deny to such person, any of the accommodations, advantages,
facilities or privileges thereof.”
60.
Defendant’s Website is a sales establishment and public accommodations within
the definition of N.Y.C. Admin. Code § 8-102(9).
61.
Defendant is subject to NYCHRL because it owns and operates its Website, making
it a person within the meaning of N.Y.C. Admin. Code § 8-102(1).
62.
Defendant is violating N.Y.C. Administrative Code § 8-107(4)(a) in refusing to
update or remove access barriers to Website, causing its Website and the services
integrated with such Website to be completely inaccessible to the blind. This
inaccessibility denies blind patrons full and equal access to the facilities, products,
and services that Defendant makes available to the non-disabled public.
63.
Defendant is required to “make reasonable accommodation to the needs of persons
with disabilities . . . any person prohibited by the provisions of [§ 8-107 et seq.]
from discriminating on the basis of disability shall make reasonable
accommodation to enable a person with a disability to . . . enjoy the right or rights
in question provided that the disability is known or should have been known by the
covered entity.” N.Y.C. Admin. Code § 8-107(15)(a).
64.
Defendant’s actions constitute willful intentional discrimination against the Sub-
Class on the basis of a disability in violation of the N.Y.C. Administrative Code §
8-107(4)(a) and § 8-107(15)(a) in that Defendant has:
a.
constructed and maintained a website that is inaccessible to blind
class members with knowledge of the discrimination; and/or
b.
constructed and maintained a website that is sufficiently intuitive
and/or obvious that is inaccessible to blind class members; and/or
c.
failed to take actions to correct these access barriers in the face of
substantial harm and discrimination to blind class members.
65.
Defendant has failed to take any prompt and equitable steps to remedy their
discriminatory conduct. These violations are ongoing.
66.
As such, Defendant discriminates, and will continue in the future to discriminate
against Plaintiff and members of the proposed class and subclass on the basis of
disability in the full and equal enjoyment of the products, services, facilities,
privileges, advantages, accommodations and/or opportunities of its Website under
§ 8-107(4)(a) and/or its implementing regulations. Unless the Court enjoins
Defendant from continuing to engage in these unlawful practices, Plaintiff and
members of the class will continue to suffer irreparable harm.
67.
Defendant’s actions were and are in violation of the NYCHRL and therefore
Plaintiff invokes his right to injunctive relief to remedy the discrimination.
68.
Plaintiff is also entitled to compensatory damages, as well as civil penalties and
fines under N.Y.C. Administrative Code § 8-120(8) and § 8-126(a) for each offense
as well as punitive damages pursuant to § 8-502.
69.
Plaintiff is also entitled to reasonable attorneys’ fees and costs.
70.
Under N.Y.C. Administrative Code § 8-120 and § 8-126 and the remedies,
procedures, and rights set forth and incorporated therein Plaintiff prays for
judgment as set forth below.
THIRD CAUSE OF ACTION
DECLARATORY RELIEF
71.
Plaintiff, on behalf of himself and the Class and New York City Sub-Classes
Members, repeats and realleges every allegation of the preceding paragraphs as if
fully set forth herein.
72.
An actual controversy has arisen and now exists between the parties in that Plaintiff
contends, and is informed and believes that Defendant denies, that its Website
contains access barriers denying blind customers the full and equal access to the
products, services and facilities of its Website, which Defendant owns, operations
and controls, fails to comply with applicable laws including, but not limited to, Title
III of the Americans with Disabilities Act, 42 U.S.C. §§ 12182, et seq., and N.Y.C.
Admin. Code § 8-107, et seq. prohibiting discrimination against the blind.
73.
A judicial declaration is necessary and appropriate at this time in order that each of
the parties may know their respective rights and duties and act accordingly.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff respectfully requests this Court grant the following relief:
a.
A preliminary and permanent injunction to prohibit Defendant from
violating the Americans with Disabilities Act, 42 U.S.C. §§ 12182, et seq.,
N.Y.C. Administrative Code § 8-107, et seq., and the laws of New York;
b.
A preliminary and permanent injunction requiring Defendant to take
all the steps necessary to make its Website into full compliance with the
requirements set forth in the ADA, and its implementing regulations, so that
the Website is readily accessible to and usable by blind individuals;
c.
A declaration that Defendant owns, maintains and/or operates its
Website in a manner that discriminates against the blind and which fails to
provide access for persons with disabilities as required by Americans with
Disabilities Act, 42 U.S.C. §§ 12182, et seq., N.Y.C. Administrative Code
§ 8-107, et seq., and the laws of New York
d.
An order certifying the Class and Sub-Classes under Fed. R. Civ. P.
23(a) & (b)(2) and/or (b)(3), appointing Plaintiff as Class Representative,
and his attorneys as Class Counsel;
e.
Compensatory damages in an amount to be determined by proof,
including all applicable statutory and punitive damages and fines, to
Plaintiff and the proposed class and subclasses for violations of their civil
rights under New York City Human Rights Law and City Law;
f.
Pre- and post-judgment interest;
g.
An award of costs and expenses of this action together with
reasonable attorneys’ and expert fees; and
h.
Such other and further relief as this Court deems just and proper.
DEMAND FOR TRIAL BY JURY
Pursuant to Fed. R. Civ. P. 38(b), Plaintiff demands a trial by jury on all questions
of fact the Complaint raises.
Dated: Queens, New York
May 15, 2020
MARS KHAIMOV LAW, PLLC
By: /s/ Mars Khaimov
Mars Khaimov, Esq.
[email protected]
10826 64th Avenue, Second Floor
Forest Hills, New York 11375
Tel: (929) 324-0717
Attorneys for Plaintiff
| civil rights, immigration, family |
wq-9CocBD5gMZwczqxvD |
Case No.:
CLASS ACTION COMPLAINT FOR
VIOLATIONS OF THE FEDERAL
SECURITIES LAWS
JURY TRIAL DEMANDED
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
JAMES GLAVAN, Individually and On
Behalf of All Others Similarly Situated,
Plaintiff,
v.
REVOLUTION LIGHTING
TECHNOLOGIES, INC., ROBERT V.
LAPENTA, CHARLES J. SCHAFER, and
JAMES A. DEPALMA,
Defendants.
Plaintiff James Glavan (“Plaintiff”), by and through his attorneys, alleges the following
upon information and belief, except as to those allegations concerning Plaintiff, which are
alleged upon personal knowledge. Plaintiff’s information and belief is based upon, among other
things, his counsel’s investigation, which includes without limitation: (a) review and analysis of
regulatory filings made by Revolution Lighting Technologies, Inc. (“Revolution Lighting” 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
Revolution Lighting; and (c) review of other publicly available information concerning
Revolution Lighting.
NATURE OF THE ACTION AND OVERVIEW
1.
This is a class action on behalf of persons and entities that purchased or otherwise
acquired Revolution Lighting securities between March 14, 2014, and November 14, 2018,
inclusive (the “Class Period”), seeking to pursue remedies under the Securities Exchange Act of
1934 (the “Exchange Act”).
2.
Revolution Lighting purports to design and manufacture light-emitting diode
(“LED”) lighting solutions for industrial, commercial, and government markets.
3.
On October 17, 2018, the Company reported preliminary financial results for third
quarter 2018 with revenue expected to be $33 million, compared to guidance of $40-$41 million.
The Company also announced that its CEO had offered to acquire all of the common stock of the
Company for a price of $2.00 per share.
4.
On this news, the Company’s stock price fell $0.98 per share, or over 38%, to
close at $1.58 per share on October 17, 2018, on unusually heavy trading volume.1
5.
On October 19, 2018, the Company disclosed “an ongoing investigation by the
SEC regarding certain revenue recognition practices, including bill and hold transactions that
occurred between 2014 through the second quarter of 2018.”
1 The Company’s stock traded on a split-adjusted basis following a one-for-ten reverse stock
split, effective March 11, 2016. All references to the stock price herein reflect the post-split
price.
6.
On this news, the Company’s stock price fell $0.16 per share, or over 10%, to
close at $1.43 per share on October 22, 2018, on unusually heavy trading volume.
7.
Then, on November 14, 2018, the Company announced that its Transaction
Committee was considering an updated proposal from Defendant LaPenta to acquire all of the
Company’s outstanding stock for $1.50 per share, referring in part to the SEC investigation as
part of the reason Mr. La Penta wished to take the Company private.
8.
On this news, the Company’s stock price fell $0.55 per share, or nearly 40%, to
close at $0.85 per share on November 15, 2018, on unusually heavy trading volume.
9.
Throughout the Class Period, Defendants made false and/or misleading
statements, as well as failed to disclose material adverse facts about the Company’s business,
operations, and prospects. Specifically, Defendants made false and/or misleading statements
and/or failed to disclose: (1) that the Company was improperly recognizing revenue for certain
transactions; (2) that, as a result, the Company’s financial statements were misstated; (3) that the
Company lacked adequate internal controls over financial reporting; (4) that, as a result,
Company would be subject to regulatory scrutiny and incur substantial costs; and (5) that, as a
result of the foregoing, Defendants’ positive statements about the Company’s business,
operations, and prospects and prospects were materially misleading and/or lacked a reasonable
10.
As a result of Defendants’ wrongful acts and omissions, and the precipitous
decline in the market value of the Company’s securities, Plaintiff and other Class members have
suffered significant losses and damages.
JURISDICTION AND VENUE
11.
The claims asserted herein arise under 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).
12.
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).
13.
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.
14.
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
15.
Plaintiff James Glavan, as set forth in the accompanying certification,
incorporated by reference herein, purchased Revolution Lighting 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.
16.
Defendant Revolution Lighting is incorporated under the laws of Delaware with
its principal executive offices located in Stamford, Connecticut. Revolution Lighting’s common
stock trades on the NASDAQ exchange under the symbol “RVLT.”
17.
Defendant Robert V. LaPenta (“LaPenta”) was the Chief Executive Officer
(“CEO”) and Chairman of the Board of Directors of the Company at all relevant times.
18.
Defendant Charles J. Schafer (“Schafer”) was the Chief Financial Officer
(“CFO”) of the Company from January 2013 to July 10, 2015.
19.
Defendant James A. DePalma (“DePalma”) has been the CFO of the Company
since July 10, 2015.
20.
Defendants LaPenta, Schafer, and DePalma are collectively referred to hereinafter
as the “Individual Defendants.” The Individual Defendants, because of their positions with the
Company, possessed the power and authority to control the contents of Revolution Lighting’s
reports to the SEC, press releases and presentations to securities analysts, money and portfolio
managers and institutional investors, i.e., the market. Each defendant was provided with copies
of the Company’s reports and press releases alleged herein to be misleading prior to, or shortly
after, their issuance and had the ability and opportunity to prevent their issuance or cause them to
be corrected. Because of their positions and access to material non-public information available
to them, each of these defendants knew that the adverse facts specified herein had not been
disclosed to, and were being concealed from, the public, and that the positive representations
which were being made were then materially false and/or misleading. The Individual
Defendants are liable for the false statements pleaded herein, as those statements were each
“group-published” information, the result of the collective actions of the Individual Defendants.
SUBSTANTIVE ALLEGATIONS
Background
21.
Revolution Lighting purports to design and manufacture light-emitting diode
(“LED”) lighting solutions for industrial, commercial, and government markets.
22.
In August 2013, the Company acquired Relume Technologies (“Relume”), a
manufacturer of LED lighting products and control systems.
23.
In April 2014, the Company acquired Value Lighting Inc. (“Value Lighting”), a
supplier of lighting solutions to the multifamily residential market.
Materially False and Misleading
Statements Issued During the Class Period
24.
The Class Period begins on March 14, 2014. On that day, the Company filed its
annual report on Form 10-K for the period ended December 31, 2013 (the “2013 10-K”). It
reported revenue of $26.06 million. Regarding the Company’s revenue recognition policy, the
2013 10-K stated:
We recognize revenue for our products upon shipment or delivery to customers in
accordance with the respective contractual arrangements, provided no significant
obligations remain and collection is probable. For sales that include customer
acceptance terms, revenue is recorded after customer acceptance. It is our policy
that all sales are final. Requests for returns are reviewed on a case by case basis.
As revenue is recorded, we accrue an estimated amount for product returns as a
reduction of revenue.
Revenues from merchandise shipped to a logistics supplier for Seesmart, who had
the contractual right to return merchandise in inventory, was recognized when the
merchandise was delivered by the logistics supplier to the end user. Payments
received from the logistics supplier prior to recognizing the related revenue are
recorded as customer deposits. During the first quarter of 2013, this arrangement
was terminated.
Pursuant to agreements with distributors, which provide the distributors with the
rights to purchase and resell inventory, we receive up front licensing fees for
ongoing support obligations during the term of the agreement. Such fees are
amortized by us over the term of the contracts which range from three to
ten years. Unamortized licensing fees are included in deferred revenue in the
accompanying consolidated balance sheets.
Sales taxes billed to customers are recorded on a gross basis as revenues. From
time to time, we enter into multiple element arrangements to provide products and
installation services. Revenues are allocated to each element based on our best
estimate of the selling prices of each element.
25.
The 2013 10-K contained certifications by defendants LaPenta and Schafer to
attest that the financial information contained therein was accurate and that it disclosed any
material changes to the Company’s internal controls over financial reporting.
26.
However, the 2013 10-K disclaimed any assessment of the internal controls with
respect to Relume. The Company stated, in relevant part:
In conducting the Company’s evaluation of the effectiveness of its internal control
over financial reporting, management determined that the internal control systems
of Relume Technologies, Inc. and Tri-State DE LLC, wholly owned subsidiaries
acquired on August 22, 2013 and November 15, 2013, respectively, would be
excluded from its internal control assessment, as permitted by guidance issued by
the Securities and Exchange Commission. Accordingly, as of and for the year
ended December 31, 2013, internal control systems underlying to approximately
24% of consolidated revenues and 14% of consolidated assets have been excluded
from management’s evaluation of internal control over financial reporting.
27.
On May 12, 2014, the Company filed its quarterly report on Form 10-Q for the
period ended March 31, 2014 (the “1Q14 10-Q”) and reported revenue of $4.95 million.
28.
The 1Q14 10-Q contained certifications by defendants LaPenta and Schafer to
attest that the financial information contained therein was accurate and that it disclosed any
material changes to the Company’s internal controls over financial reporting. Moreover, the
report stated that “[t]here was no change in [the Company’s] internal controls over financial
reporting that occurred during the quarter ended March 31, 2014 that has materially affected, or
is reasonably likely to materially affect, our internal control over financial reporting.”
29.
On August 7, 2014, the Company filed its quarterly report on Form 10-Q for the
period ended June 30, 2014 (the “2Q14 10-Q”) and reported revenue of $17.52 million.
30.
The 2Q14 10-Q contained certifications by defendants LaPenta and Schafer to
attest that the financial information contained therein was accurate and that it disclosed any
material changes to the Company’s internal controls over financial reporting. Under the heading
“Controls and Procedures,” the report stated, in relevant part:
During the second quarter of 2014, the Company implemented new accounting
systems and related modifications of processes and controls at its Relume and
Lumificient subsidiaries. The Company also hired Directors of Finance at its
Relume, Seesmart and newly acquired Value Lighting subsidiaries and expanded
its accounting resources at its corporate headquarters and Value Lighting
subsidiaries.
31.
On November 6, 2014, the Company filed its quarterly report on Form 10-Q for
the period ended September 30, 2014 (the “3Q14 10-Q”) and reported revenue of $26.88 million.
32.
The 3Q14 10-Q contained certifications by defendants LaPenta and Schafer to
attest that the financial information contained therein was accurate and that it disclosed any
material changes to the Company’s internal controls over financial reporting. Moreover, the
report stated that “[t]here was no change in [the Company’s] internal controls over financial
reporting that occurred during the quarter ended September 30, 2014 that has materially affected,
or is reasonably likely to materially affect, our internal control over financial reporting.”
33.
On March 16, 2015, the Company filed its annual report on Form 10-K for the
period ended December 31, 2014 (the “2014 10-K”). For 2014, the Company reported revenue of
$76.85 million.
34.
The 2014 10-K contained certifications by defendants LaPenta and Schafer to
attest that the financial information contained therein was accurate and that it disclosed any
material changes to the Company’s internal controls over financial reporting.
35.
However, the 2014 10-K disclaimed any assessment of the internal controls with
respect to Value Lighting. The Company stated, in relevant part:
In conducting the Company’s evaluation of the effectiveness of its internal control
over financial reporting, management determined that the internal control systems
of Value Lighting and All Around, wholly-owned subsidiaries acquired on April
17, 2014 and December 18, 2014, respectively, would be excluded from its
internal control assessment, as permitted by guidance issued by the Securities and
Exchange Commission. Accordingly, as of and for the year ended December 31,
2014, internal control systems underlying to approximately 60% of consolidated
revenues and 24% of consolidated assets (excluding goodwill and identifiable
intangible assets), have been excluded from management’s evaluation of internal
control over financial reporting.
36.
On November 5, 2015, the Company filed its quarterly report on Form 10-Q for
the period ended September 30, 2015 (the “3Q15 10-Q”). This report contained certifications by
defendants LaPenta and DePalma to attest that the financial information contained therein was
accurate and that it disclosed any material changes to the Company’s internal controls over
financial reporting.
37.
The 3Q15 10-Q reported revenue of $37.73 million for the quarter. It also
disclosed a different revenue recognition policy than in prior periods as identified in ¶24. The
Company, in relevant part, stated:
The Company recognizes revenue for its products upon shipment or delivery to
customers in accordance with the respective contractual arrangements, provided
no significant obligations remain and collection is probable. For sales that include
customer acceptance terms, revenue is recorded after customer acceptance. It is
the Company’s policy that all sales are final. Requests for returns are reviewed on
a case-by-case basis. As revenue is recorded, the Company accrues an estimated
amount for product returns as a reduction of revenue.
The Company recognizes revenue from fixed-price and modified fixed-price
contracts for turnkey energy conservation projects using the percentage-of-
completion method of accounting. The percentage-of-completion is computed by
dividing the actual incurred cost to date by the most recent estimated total cost to
complete the project. The computed percentage is applied to the expected revenue
for the project to calculate the contract revenue to be recognized in the current
period. This method is used because management considers total cost to be the
best available measure of progress on these contracts. Contract costs include all
direct material and labor costs and indirect costs related to contract performance.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined.
38.
On March 10, 2016, the Company filed its annual report on Form 10-K for the
period ended December 31, 2015 and reported revenue of $129.66 million. This report contained
certifications by defendants LaPenta and DePalma to attest that the financial information
contained therein was accurate and that it disclosed any material changes to the Company’s
internal controls over financial reporting.
39.
On March 9, 2017, the Company filed its annual report on Form 10-K for the
period ended December 31, 2016 and reported revenue of $172.12 million. This report contained
certifications by defendants LaPenta and DePalma to attest that the financial information
contained therein was accurate and that it disclosed any material changes to the Company’s
internal controls over financial reporting.
40.
On March 8, 2018, the Company filed its annual report on Form 10-K for the
period ended December 31, 2017 and reported revenue of $152.31 million. This report contained
certifications by defendants LaPenta and DePalma to attest that the financial information
contained therein was accurate and that it disclosed any material changes to the Company’s
internal controls over financial reporting. Moreover, the report stated that “management
concluded that [the Company’s] disclosure controls and procedures were effective at a
reasonable assurance level as of the end of the period covered by the report.”
41.
On May 1, 2018, the Company filed its quarterly report on Form 10-Q for the
period ended March 31, 2018 and reported revenue of $33.74 million. This report contained
certifications by defendants LaPenta and DePalma to attest that the financial information
contained therein was accurate and that it disclosed any material changes to the Company’s
internal controls over financial reporting. Moreover, the report stated, in relevant part:
[M]anagement concluded that [the Company’s] disclosure controls and
procedures were effective at a reasonable assurance level as of the end of the
period covered by the report.
* * *
Beginning January 1, 2018, we implemented ASC 606, “Revenue from Contracts
with Customers.” Although the new revenue standard had an immaterial impact
on our ongoing net income, we did implement changes to our processes related to
revenue recognition and the control activities within them. These included the
development of new policies based on the five-step model provided in the new
revenue standard, new training, ongoing contract review requirements, and
gathering of information provided for disclosures.
42.
On August 13, 2018, the Company filed its quarterly report on Form 10-Q for the
period ended June 30, 2018 (the “2Q18 10-Q”) and reported revenue of $36.44 million.
43.
The 2Q18 10-Q reported a material weakness in the Company’s financial
reporting. Under the heading “Controls and Procedures,” the Company stated, in relevant part:
As of December 31, 2017, our management conducted an evaluation of our
internal control over financial reporting and determined that our internal control
over financial reporting was effective. At such date we identified a significant
deficiency related to the controls over the proper identification of certain
collection patterns relevant for bill and hold revenue recognition. Since
December 31, 2017, our management has implemented changes in internal control
over financial reporting to address this significant deficiency, including changing
the design of existing controls and implementing additional transaction level and
review controls. In addition, corporate management is strengthening the internal
accounting functions at the divisional or subsidiary level, where appropriate.
At June 30, 2018, we have determined that certain of the transaction level and
review controls over revenue recognition have not operated effectively.
Specifically, our management has identified control deficiencies related to the
proper identification of certain collection patterns and the finalization and review
of executed contracts related to bill and hold arrangements and controls over the
recording of material costs. We have determined that these control deficiencies
aggregate to a material weakness at June 30, 2018.
44.
The above statements identified in ¶¶24-43 were materially false and/or
misleading, as well as failed to disclose material adverse facts about the Company’s business,
operations, and prospects. Specifically, Defendants made false and/or misleading statements
and/or failed to disclose: (1) that the Company was improperly recognizing revenue for certain
transactions; (2) that, as a result, the Company’s financial statements were misstated; (3) that the
Company lacked adequate internal controls over financial reporting; (4) that, as a result,
Company would be subject to regulatory scrutiny and incur substantial costs; and (5) that, as a
result of the foregoing, Defendants’ positive statements about the Company’s business,
operations, and prospects and prospects were materially misleading and/or lacked a reasonable
Disclosures at the End of the Class Period
45.
On October 17, 2018, the Company reported preliminary financial results for third
quarter 2018 with revenue expected to be $33 million, compared to previously-announced
guidance of $40-$41 million. The Company also announced that its CEO had offered to acquire
all of the common stock of the Company for a price of $2.00 per share. In a press release entitled
“Revolution Lighting Technologies (RVLT) Provides Preliminary Third Quarter Update and
Revises Full Year Guidance,” the Company stated, in relevant part:
While the company has been successful in winning a number of important
projects, it continues to experience delays in starting and or shipping against these
projects particularly at our multifamily and Tri-State divisions. As a result, we
expect revenue of approximately $33 million for the third quarter versus prior
third quarter guidance of $40-$41 million. Due to the decline in expected third
quarter revenue and our current outlook for the fourth quarter, total revenue for
the full year 2018 is expected to approximate $140-$145 million versus our
previous full year guidance of $160-$170 million.
We are disappointed in our results and recognize that we need to address our
overall business structure, reduce operating costs to a level more aligned with our
revenue expectations and address our level of outstanding debt. Over the past six
months, our CEO and Chairman, Robert LaPenta, has provided approximately
$15 million of capital to fund operations, bringing our total debt, including bank
financing, to over $60 million. Mr. LaPenta believes additional capital
requirements cannot presently be addressed through third party financing.
Mr. LaPenta has proposed to acquire all of the common stock of the Company
that he and his affiliates do not currently own. The text of Mr. LaPenta’s letter to
the Company’s independent directors appears in full below:
We write to you in connection with your roles as independent,
disinterested members of the Board of Directors . . .
* * *
Without additional funding, we believe that the Company may be
forced to consider various restructuring alternatives in the near
term.
Simply put, we do not believe that it is in the best interests of the
Company and its stockholders to continue as a publicly traded
enterprise, as we believe it currently lacks sufficient scale and the
ongoing costs of maintaining the reporting and related
infrastructure necessary for public reporting are a significant
financial burden on the Company. In addition, we believe the
constant pressure to meet quarterly earnings targets has been a
significant distraction to the Company’s management and has
prevented management from appropriately focusing on the long
term growth and the development of the Company’s business.
As a result of the above factors, we propose to acquire all of the
common stock of the Company that we do not currently own
for a price of $2.00 per share. Given our familiarity with the
Company, we would not need to conduct any further due diligence
on the Company and would be in a position to sign a definitive
transaction agreement quickly.
46.
On this news, the Company’s stock price fell $0.98 per share, or over 38%, to
close at $1.58 per share on October 17, 2018, on unusually heavy trading volume.
47.
On October 19, 2018, the Company disclosed “an ongoing investigation by the
SEC regarding certain revenue recognition practices, including bill and hold transactions that
occurred between 2014 through the second quarter of 2018.” In a press release entitled
“Revolution Lighting Provides Additional Clarity Regarding its Recent Preliminary Third
Quarter Results Issued on October 17, 2018,” the Company stated the estimated impact on
revenue of an accounting policy “based on shipment of products, as opposed to bill and hold
revenue recognition.” The Company stated, in relevant part:
Management does not believe that revenue reduction described in the release is
due to any loss or deterioration of the Company’s business or from the
discontinuation of bill and hold transactions that are the subject of an
investigation by the Securities and Exchange Commission (“SEC”), as described
below, but rather resulted from the timing of the start and completion of programs
during the third quarter at the Company’s Value and Tristate divisions. These
delays, plus a revised more conservative outlook regarding the fourth quarter
revenue guidance, resulted in the reduced outlook for the year.
There is currently an ongoing investigation by the SEC regarding certain revenue
recognition practices, including bill and hold transactions that occurred between
2014 through the second quarter of 2018. The Company estimates that the net
effect on the reported revenue as a result of, among other things, recording
revenue based on shipments of products, as opposed to bill and hold revenue
recognition used by the Company, would have been to reduce revenue by $5.0
million, $6.3 million and $6.3 million in each of 2014, 2015 and 2016,
respectively, and increase revenue by $11.6 million and $5.1 million in 2017 and
2018, respectively. In connection with the results of the investigation to date, the
Company is in the process of assessing its revenue recognition policies and the
resulting effects on its financial results, and adopting remedial measures to
improve its internal controls as described in its Form 10-Q for the second quarter
of 2018. The SEC investigation is ongoing and there can be no assurance as to
whether additional remedial measures will be required. The Company will
continue to cooperate with the SEC regarding the investigation.
48.
On this news, the Company’s stock price fell $0.16 per share, or over 10%, to
close at $1.43 per share on October 22, 2018, on unusually heavy trading volume.
49.
On November 13, 2018, the Company filed a Notice of Late Filing on Form 12b-
25 with the SEC. Therein, the Company stated that it was unable to file its quarterly report for
the period ended September 30, 2018 due to a review by the Company’s Audit Committee of the
previously filed financial statements, and the Company provided detail regarding the incorrect
recognition of revenue. The Company stated, in relevant part:
Beginning in 2014, the Company used bill and hold revenue accounting
principally for certain contracts in its Multi-family division between its Value
Lighting subsidiary and its customers. Upon satisfaction of specific requirements
imposed by accounting principles and interpretations of the SEC staff, bill and
hold revenue accounting permits a company to record revenue on products
segregated for delivery within its own warehouse. Absent satisfaction of these
requirements, revenue recognition generally should await delivery of products to
customers.
The Company’s Audit Committee also is conducting a review to assess the
accuracy of the Company’s previously filed financial statements, the current focus
of which is to review the extent to which the Company incorrectly recognized
revenue with respect to bill and hold transactions from 2014 until the second
quarter of fiscal 2018, and whether the Company’s accounting for those
transactions led to material errors in its financial statements. If this ongoing
review results in a conclusion that the Company made material errors in its
financial statements, the Company would restate the affected financial statements
to the extent required. In any such restatement, some revenue recognized in prior
periods would be recognized in later periods. While the Audit Committee review
is ongoing, the Company will not be able to provide financial statements for the
fiscal quarter ended September 30, 2018.
50.
On November 14, 2018, the Company announced that its Transaction Committee
was considering an updated proposal from Defendant LaPenta to acquire all of the Company’s
outstanding stock for $1.50 per share. The Company stated, in relevant part:
Revolution Lighting Technologies, Inc. (NASDAQ: RVLT) (“Revolution
Lighting” or the “Company”), a global provider of advanced LED lighting
solutions announced today that on November 14, 2018, the Transaction
Committee of the Board of Directors of the Company received a revised proposal
from RVL I LLC, an affiliate of the Company’s Chairman and CEO, Robert V.
LaPenta, to acquire all of the outstanding common stock of the Company. The
Transaction Committee is in the process of considering the proposal with
assistance from its advisors and will have no comment until its evaluation is
complete. The text of the letter to the Transaction Committee of the Company’s
Board of Directors appears in full below:
We write in connection with our October 16, 2018 letter (the
“Offer Letter”) regarding our offer to acquire all of the common
stock of Revolution Lighting Technologies, Inc. (the “Company”)
on behalf of RVL 1, LLC (together with its affiliates and certain
related persons, “we” or “us”) that we do not own.
* * *
Over the last month, we have provided the Company with $7.5
million in debt financing, and we may be required to provide up to
an additional $7.0 million in debt financing to fund the Company’s
operations in the ordinary course through the end of 2018. We
further understand that the Company may require additional
funding in 2018 in the event of unforeseen circumstances, and we
expect the Company to require additional funds to continue its
operations beyond 2018, with the extent of such additional
required funds depending upon the Company’s future results of
operation and the amount of time and expense necessary to
complete the previously disclosed SEC investigation and the Audit
Committee’s review of the Company’s historical financial
statements and other related costs. We intend to continue to fund
the Company through continued periodic loans to the extent
consistent with what we believe to be the best interests of the
Company and its stockholders.
The Company’s overall debt as of November 12, 2018 was $65.0
million and, as noted above, will rise further as additional debt
financing is provided. This increased amount of debt, which
exceeds the amount that we expected the Company to have at the
time of our Offer Letter, as well as an anticipated delay in
completing a going private transaction and the developments in
the Company’s business that it has disclosed, including the SEC
investigation and the Audit Committee’s review, will necessitate a
decrease from the $2.00 per share offer contained in our Offer
Letter to a revised offer of $1.50 per share.
51.
On this news, the Company’s stock price fell $0.55 per share, or nearly 40%, to
close at $0.85 per share on November 15, 2018, on unusually heavy trading volume.
CLASS ACTION ALLEGATIONS
52.
Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(3) on behalf of a class, consisting of all persons and entities that
purchased or otherwise acquired Revolution Lighting securities between March 14, 2014, and
November 14, 2018, inclusive (collectively, 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.
53.
The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, Revolution Lighting’s securities were actively
traded on the NASDAQ exchange. While the exact number of Class members is unknown to
Plaintiff at this time and can only be ascertained through appropriate discovery, Plaintiff believes
that there are hundreds or thousands of members in the proposed Class. Millions of Revolution
Lighting 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 Revolution
Lighting or its transfer agent and may be notified of the pendency of this action by mail, using
the form of notice similar to that customarily used in securities class actions.
54.
Plaintiff’s claims are typical of the claims of the members of the Class as all
members of the Class are similarly affected by Defendants’ wrongful conduct in violation of
federal law that is complained of herein.
55.
Plaintiff will fairly and adequately protect the interests of the members of the
Class and has retained counsel competent and experienced in class and securities litigation.
56.
Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
(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 Revolution Lighting; and
(c)
to what extent the members of the Class have sustained damages and the
proper measure of damages
57.
A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as
the damages suffered by individual Class members may be relatively small, the expense and
burden of individual litigation 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
58.
The market for Revolution Lighting’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, Revolution Lighting’s securities traded at artificially inflated prices
during the Class Period. Plaintiff and other members of the Class purchased or otherwise
acquired Revolution Lighting’s securities relying upon the integrity of the market price of the
Company’s securities and market information relating to Revolution Lighting, and have been
damaged thereby.
59.
During the Class Period, Defendants materially misled the investing public,
thereby inflating the price of Revolution Lighting’s securities, by publicly issuing false and/or
misleading statements and/or omitting to disclose material facts necessary to make Defendants’
statements, as set forth herein, not false and/or misleading. Said statements and omissions were
materially false and/or misleading in that they failed to disclose material adverse information
and/or misrepresented the truth about Revolution Lighting’s business, operations, and prospects
as alleged herein.
60.
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 Revolution Lighting’s financial well-being and prospects. These
material misstatements and/or omissions had the cause and effect of creating in the market an
unrealistically positive assessment of the Company and its financial well-being and prospects,
thus causing the Company’s securities to be overvalued and artificially inflated at all relevant
times. Defendants’ materially false and/or misleading statements during the Class Period
resulted in Plaintiff and other members of the Class purchasing the Company’s securities at
artificially inflated prices, thus causing the damages complained of herein.
LOSS CAUSATION
61.
Defendants’ wrongful conduct, as alleged herein, directly and proximately caused
the economic loss suffered by Plaintiff and the Class.
62.
During the Class Period, Plaintiff and the Class purchased Revolution Lighting’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
63.
As alleged herein, Defendants acted with scienter in that Defendants knew that
the public documents and statements issued or disseminated in the name of the Company were
materially false and/or misleading; knew that such statements or documents would be issued or
disseminated to the investing public; and knowingly and substantially participated or acquiesced
in the issuance or dissemination of such statements or documents as primary violations of the
federal securities laws. As set forth elsewhere herein in detail, Defendants, by virtue of their
receipt of information reflecting the true facts regarding Revolution Lighting, his/her control
over, and/or receipt and/or modification of Revolution Lighting’s allegedly materially
misleading misstatements and/or their associations with the Company which made them privy to
confidential proprietary information concerning Revolution Lighting, participated in the
fraudulent scheme alleged herein.
APPLICABILITY OF PRESUMPTION OF RELIANCE
(FRAUD-ON-THE-MARKET DOCTRINE)
64.
The market for Revolution Lighting’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, Revolution Lighting’s securities traded at artificially inflated prices
during the Class Period. On March 17, 2014, the Company’s common stock closed at a Class
Period high of $38.10 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
Revolution Lighting’s securities and market information relating to Revolution Lighting, and
have been damaged thereby.
65.
During the Class Period, the artificial inflation of Revolution Lighting’s stock was
caused by the material misrepresentations and/or omissions particularized in this Complaint
causing the damages sustained by Plaintiff and other members of the Class. As described herein,
during the Class Period, Defendants made or caused to be made a series of materially false
and/or misleading statements about Revolution Lighting’s business, prospects, and operations.
These material misstatements and/or omissions created an unrealistically positive assessment of
Revolution Lighting 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.
66.
At all relevant times, the market for Revolution Lighting’s securities was an
efficient market for the following reasons, among others:
(a)
Revolution Lighting 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, Revolution Lighting filed periodic public reports
with the SEC and/or the NASDAQ;
(c)
Revolution Lighting 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)
Revolution Lighting 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
67.
As a result of the foregoing, the market for Revolution Lighting’s securities
promptly digested current information regarding Revolution Lighting from all publicly available
sources and reflected such information in Revolution Lighting’s stock price. Under these
circumstances, all purchasers of Revolution Lighting’s securities during the Class Period
suffered similar injury through their purchase of Revolution Lighting’s securities at artificially
inflated prices and a presumption of reliance applies.
68.
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
69.
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 Revolution Lighting 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
70.
Plaintiff repeats and re-alleges each and every allegation contained above as if
fully set forth herein.
71.
During the Class Period, the Company and the Individual Defendants carried out
a plan, scheme and course of conduct which was intended to and, throughout the Class Period,
did: (i) deceive the investing public, including Plaintiff and other Class members, as alleged
herein; and (ii) cause Plaintiff and other members of the Class to purchase Revolution Lighting’s
securities at artificially inflated prices. In furtherance of this unlawful scheme, plan and course
of conduct, the Company and the Individual Defendants, and each of them, took the actions set
forth herein.
72.
The Company and the Individual Defendants (i) employed devices, schemes, and
artifices to defraud; (ii) made untrue statements of material fact and/or omitted to state material
facts necessary to make the statements not misleading; and (iii) engaged in acts, practices, and a
course of business which operated as a fraud and deceit upon the purchasers of the Company’s
securities in an effort to maintain artificially high market prices for Revolution Lighting’s
securities in violation of Section 10(b) of the Exchange Act and Rule 10b-5. The Company and
the Individual Defendants are sued either as primary participants in the wrongful and illegal
conduct charged herein or as controlling persons as alleged below.
73.
The Company and the Individual Defendants, individually and in concert, directly
and indirectly, by the use, means or instrumentalities of interstate commerce and/or of the mails,
engaged and participated in a continuous course of conduct to conceal adverse material
information about Revolution Lighting’s financial well-being and prospects, as specified herein.
74.
These defendants employed devices, schemes and artifices to defraud, while in
possession of material adverse non-public information and engaged in acts, practices, and a
course of conduct as alleged herein in an effort to assure investors of Revolution Lighting’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 Revolution Lighting 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.
75.
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.
76.
The Company and the Individual Defendants had actual knowledge of the
misrepresentations and/or omissions of material facts set forth herein, or acted with reckless
disregard for the truth in that they failed to ascertain and to disclose such facts, even though such
facts were available to them. Such defendants’ material misrepresentations and/or omissions
were done knowingly or recklessly and for the purpose and effect of concealing Revolution
Lighting’s financial well-being and prospects from the investing public and supporting the
artificially inflated price of its securities. As demonstrated by the Company and the Individual
Defendants’ overstatements and/or misstatements of the Company’s business, operations,
financial well-being, and prospects throughout the Class Period, these defendants, if they did not
have actual knowledge of the misrepresentations and/or omissions alleged, were reckless in
failing to obtain such knowledge by deliberately refraining from taking those steps necessary to
discover whether those statements were false or misleading.
77.
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
Revolution Lighting’s securities was artificially inflated during the Class Period. In ignorance of
the fact that market prices of the Company’s securities were artificially inflated, and relying
directly or indirectly on the false and misleading statements made by the Company and the
Individual Defendants, or upon the integrity of the market in which the securities trades, and/or
in the absence of material adverse information that was known to or recklessly disregarded by
the Company and the Individual Defendants, but not disclosed in public statements by these
defendants during the Class Period, Plaintiff and the other members of the Class acquired
Revolution Lighting’s securities during the Class Period at artificially high prices and were
damaged thereby.
78.
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 Revolution Lighting was experiencing, which were not disclosed by the Company and the
Individual Defendants, Plaintiff and other members of the Class would not have purchased or
otherwise acquired their Revolution Lighting 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
79.
By virtue of the foregoing, the Company and the Individual Defendants have
violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder.
80.
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)
81.
Plaintiff repeats and re-alleges each and every allegation contained above as if
fully set forth herein.
82.
The Individual Defendants acted as controlling persons of Revolution Lighting
within the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their
high-level positions, and their ownership and contractual rights, participation in and/or
awareness of the Company’s operations and/or intimate knowledge of the false financial
statements filed by the Company with the SEC and disseminated to the investing public, the
Individual Defendants had the power to influence and control and did influence and control,
directly or indirectly, the decision-making of the Company, including the content and
dissemination of the various statements which Plaintiff contends are false and misleading. The
Individual Defendants were provided with or had unlimited access to copies of the Company’s
reports, press releases, public filings and other statements alleged by Plaintiff to be misleading
prior to and/or shortly after these statements were issued and had the ability to prevent the
issuance of the statements or cause the statements to be corrected.
83.
In particular, each of these Defendants had direct and supervisory involvement in
the day-to-day operations of the Company and, therefore, is presumed to have had the power to
control or influence the particular transactions giving rise to the securities violations as alleged
herein, and exercised the same.
84.
As set forth above, Revolution Lighting and the Individual Defendants each
violated Section 10(b) and Rule 10b-5 by their acts and/or omissions as alleged in this
Complaint. By virtue of their positions as controlling persons, the Individual Defendants are
liable pursuant to Section 20(a) of the Exchange Act. As a direct and proximate result of
Defendants’ wrongful conduct, Plaintiff and other members of the Class suffered damages in
connection with their purchases of the Company’s securities during the Class Period.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays for relief and judgment, as follows:
(a)
Determining that this action is a proper class action under Rule 23 of the Federal
Rules of Civil Procedure;
(b)
Awarding compensatory damages in favor of Plaintiff and the other Class
members against all defendants, jointly and severally, for all damages sustained as a result of
Defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon;
(c)
Awarding Plaintiff and the Class their reasonable costs and expenses incurred in
this action, including counsel fees and expert fees; and
(d)
Such other and further relief as the Court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
Dated: January 31, 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
[email protected]
-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
LAW OFFICES OF HOWARD G. SMITH
Howard G. Smith
3070 Bristol Pike, Suite 112
Bensalem, PA 19020
Telephone: (215) 638-4847
Facsimile: (215) 638-4867
Attorneys for Plaintiff
(REDACTED)
James Glavan's Transactions in Revolution Lighting
Technologies, Inc. (RVLT)
Date
Transaction Type
Quantity
Unit Price
3/24/2014
Bought
500
$32.0990
3/26/2014
Bought
500
$32.0000
3/28/2014
Bought
310
$30.6800
3/28/2014
Bought
190
$30.6900
4/7/2014
Bought
60
$29.6500
4/7/2014
Bought
440
$29.7000
5/8/2014
Bought
500
$26.3990
9/1/2015
Bought
155
$10.5990
1/13/2016
Bought
200
$7.7750
3/17/2016
Bought
300
$6.6000
5/3/2016
Bought
500
$5.4624
11/10/2016
Bought
500
$5.7858
10/26/2017
Bought
2,000
$5.2500
12/5/2017
Bought
100
$3.8699
12/5/2017
Bought
200
$3.8650
12/5/2017
Bought
299
$3.8700
12/5/2017
Bought
901
$3.8701
8/6/2018
Bought
2,000
$2.7450
| securities |
6rxkDIcBD5gMZwcz922F | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
Civil Action No. 1:21-cv-3411
JANET ACKERMAN, individually and on behalf
of all others similarly situated,
Plaintiff,
CLASS ACTION COMPLAINT
DEMAND FOR JURY TRIAL
v.
AMAZON.COM, INC.; HACHETTE BOOK
GROUP, INC.; HARPERCOLLINS
PUBLISHERS L.L.C.; MACMILLAN
PUBLISHING GROUP, LLC; SIMON &
SCHUSTER, INC.; AND PENGUIN RANDOM
HOUSE LLC.
Defendants.
Plaintiff Janet Ackerman, individually and on behalf of all others similarly situated, brings
this action against Defendant Amazon.com, Inc. (“Amazon”) and alleges as follows:
I.
INTRODUCTION
1.
Amazon operates Amazon.com, the world’s largest online retail platform and largest
e-book seller in the United States. Amazon sells at least 76% of all e-books sold—a market that is
expected to surpass six billion dollars in 2021. Amazon has used its dominant power in the e-book
market to preclude price competition. As a result, Plaintiff and class members have paid and
continue to pay supracompetitive prices for e-books.
2.
The U.S. book publishing industry is dominated by the “Big Five”: Defendants
Hachette Book Group, Inc. (“Hachette”); HarperCollins Publishers L.L.C. (“HarperCollins”);
Macmillan Publishing Group, LLC (“Macmillan”); Simon & Schuster, Inc. ( “Simon & Schuster”);
and Penguin Random House LLC (“Penguin”). The Big Five have conspired with Amazon with
respect to the violations described herein during the entire conspiracy. The Big Five publish “trade
books,” among others, which encompass general interest fiction and non-fiction books, as opposed
to “non-trade” books such as academic textbooks, reference materials, and other texts. The Big
Five’s trade books account for about 80% of domestic trade book sales.
3.
The Big Five generally sell their e-books to consumers through online retail
platforms such as Amazon, Barnes & Noble, and Apple Books. Their dealings with those platforms
are based on the “agency model,” under which the publisher sets the price and retailers—as agents
for the publisher—take a commission on the sale to consumers like Plaintiff and class members.
4.
Amazon and the Big Five agreed to price restraints that caused Plaintiff and the
Class to pay supracompetitive prices for e-books purchased from the Big Five through a retail
platform other than Amazon.
5.
United States and European antitrust authorities have repeatedly investigated e-book
prices in the last ten years, and the Connecticut Attorney General’s office recently disclosed a new
investigation into Amazon’s e-book business.
6.
The European Commission (“EU Commission”) first investigated potential
collusion among the Big Five and Apple beginning in 2011. The Department of Justice (“DOJ”)
and attorneys general from several states filed a civil action against the same entities in this District
in early 2012.1 Both the District Court and the EU Commission determined that the Big Five had
colluded with Apple to raise retail e-book prices.2 At that time, the agreement entailed switching
from a standard wholesale model (wherein the retailer sets retail prices) to an agency model
(wherein the publisher sets retail prices and the retailer acts strictly as its agent). Pursuant to that
1 House Judiciary Committee, Investigation of Competition in Digital Markets (Oct. 5, 2020), at
333, https://judiciary.house.gov/uploadedfiles/competition_in_digital_markets.pdf (“House
Report”); 5.4.2017 EU Commission Decision at 8.
2 United States v. Apple Inc., 952 F. Supp. 2d 638, 648 (S.D.N.Y. 2013); 5.4.2017 EU
Commission Decision at 8.
conspiracy, the Big Five agreed to most favored nations clauses (“MFNs”) with Apple that required
them to sell their e-books for the same prices via Apple’s online store as they did via all other e-
book retailers, including Amazon.
7.
The District Court entered two consent decrees against the Big Five.3 The Big Five
reached settlements with the EU Commission around the same time.4 Both the consent decrees and
the settlements required the Big Five to cease colluding with each other, to refrain from using MFNs
in their agreements with e-book retailers for five years, and to permit e-book retailers to subtract
their own discounts from the retail prices of the Big Five’ e-books for two years.5
8.
The Big Five’s e-book prices decreased substantially during that two-year period,
but immediately thereafter, in 2015, they renegotiated their agency agreements with Amazon and
increased their prices. They have continued to maintain supracompetitive prices.
9.
Although Amazon claimed publicly that it was negotiating with the Big Five to
ensure that it could continue to discount their e-books following the term of the consent decree, that
did not transpire. The week after disclosing their agency contracts with Amazon, Penguin increased
its e-book prices by 30%, HarperCollins increased its prices by 29%, Simon & Schuster increased
its prices by 16%, Hachette increased its prices by 8%, and Macmillan increased its prices by 11%.
10.
The Big Five also raised prices for new releases and reduced the number of price
ranges into which they consolidated e-book prices. During the Apple conspiracy, the Big Five
3 See Department of Justice, U.S. v. Apple, Inc., et al., https://www.justice.gov/atr/case/us-v-
apple-inc-et-al.
4 5.4.2017 EU Commission Decision at 8 n.11.
5 5.4.2017 EU Commission Decision at 8; see, e.g., Final Judgment as to Defendants The
Penguin Group, a Division of Pearson PLC, and Penguin Group (USA), United States v. Apple,
Case No. 12-cv-02826-DLC (S.D.N.Y.), Docket No. 259 (“Final Judgment Penguin”), at 8
https://www.justice.gov/atr/case-document/final-judgment-defendants-penguin-group-division-
pearson-plc-and-penguin-group-usa.
priced 80% of their e-books within four price ranges. The proliferation of additional price ranges
increased substantially during the period of time covered by the DOJ consent decrees. After entering
into their agreements with Amazon in 2015, by 2018, the Big Five gradually reverted to using three
or four price buckets, which has continued through the present.
11.
The Big Five’s e-book prices were most varied in 2014, during the consent decree
term. After adjusting for inflation, e-book prices clustered around $12 and only about 5% of titles
sold were in the $15 range. In 2020, 55% of titles sold for about $15 and less than 5% sold around
12.
Had Amazon and the Big Five raised prices only on Amazon, consumers would be
free to shop for competitively priced e-books on other online platforms; however, they agreed to
price restraints that prevented that from happening.
13.
The EU Commission commenced another investigation in 2015,6 and determined
that Amazon used MFNs in its agreements with the Big Five, despite their ostensibly being
precluded from agreeing to MFNs by their earlier settlements with the EU Commission.7 The EU
Commission found that the MFNs and analogous provisions in the Big Five’s contracts with
Amazon had probable anticompetitive effects.8 Amazon and the EU Commission reached a
settlement in 2017 that prohibited Amazon from enforcing its MFNs and similar provisions for five
years.9 But that settlement had no effect on Amazon’s agreements with the Big Five in the United
14.
Starting in 2019, the House Judiciary Committee investigated Amazon pursuant to
6 European Commission Initiates Formal Proceedings Against Amazon,
https://ec.europa.eu/competition/antitrust/cases/dec_docs/40153/40153_1359_6.pdf.
7 5.4.2017 EU Commission Decision at 4-5.
8 Id. at 20-38, 43.
9 Id. at 39, 41-42.
a broader investigation of competition in digital markets.10 After a 16-month investigation, the
Committee issued a report and recommendations. The Committee determined, among other things,
that Amazon’s use of MFN provisions in its agreements with publishers harms competition in the
retail book market, including the e-book market.11 The House Report concluded that “Amazon’s
dominance in e-books and its anticompetitive application of price parity clauses to its business
relationships in this market eliminates the ability of rivals or new entrants to gain any meaningful
competitive advantage relative to Amazon.”12
15.
The pending Connecticut investigation is similarly focused on Amazon’s
agreements with publishers, and each Big Five publisher received a subpoena in 2019 pursuant to
that investigation.
16.
Consumers do not sufficiently benefit from the cost reductions resulting from the
low printing and distribution expenses associated with e-books as compared to print books. Amazon
charges high commissions and other costs to publishers, including the Big Five, which significantly
increases retail prices for e-books sold by Amazon. Amazon increases the cost of selling e-books
by tying its distribution services (e.g., helping consumers find and purchase e-books on the Amazon
platform, processing payments, delivering e-books) to its advertising services, which are designed
to optimize the placement of advertisements to consumers on its online platform. Amazon further
raises the Big Five’s selling costs by manipulating e-book discovery tools to make a publisher’s
books difficult to find without the purchase of advertising or refusing distribution unless the
publisher also purchases advertising.
17.
Moreover, via its MFNs, Amazon has required, and publishers have agreed to grant
10 House Report at 6.
11 Id. at 295.
12 Id. at 296.
Amazon, prices, terms, and conditions equal to or better than those offered to Amazon’s
competitors, and to notify Amazon about such terms, thereby restricting discounts to consumers
and stifling innovation in the trade e-book market.
18.
In a competitive market, the Big Five could sell e-books at lower prices on their own
websites or through Amazon’s competitors that offer lower commissions and fees. But they have
agreed with Amazon not to do that. This prevents Amazon’s competitors from expanding their
market shares and reduces the incentive for new competitors to enter the market.
19.
Amazon and the Big Five entered into these anticompetitive agreements with the
purpose and effect of injuring consumers by eliminating price competition that Amazon would
otherwise face and raising e-book prices sold through Amazon’s retail rivals above competitive
20.
Because Amazon and the Big Five have not made the exact terms of their
agreements public, Plaintiff relies on public disclosures and investigations. These reports describe
in a broader sense the contractual arrangements that Amazon uses in its agreements with publishers
to prevent competition from other online e-book retailers.
21.
MFNs typically entitle a buyer to prices and/or terms equal to or better than those a
seller offers to any other buyer. But Amazon’s contracts with the Big Five are an adaptation of
MFNs to the agency model. The Big Five rely on the agency model to sell e-books, which means
that Amazon is not a buyer and the Big Five are not its suppliers.
22.
Though Amazon has avoided using the term “most favored nation,” the Judiciary
Committee found that Amazon has continuously imposed on book publishers contract provisions
that effectively function as MFNs, even under the current agency model.13 Amazon uses these
13 House Report at 295.
provisions to prevent publishers from partnering with any of Amazon’s competitors and to reinforce
Amazon’s stranglehold and control over book distribution. Because of Amazon’s market power in
the retail e-book market, these contractual requirements prevent Amazon’s actual and potential
retail competitors from introducing alternative business models, offering promotional advantages,
or offering customers lower prices on their own. The House Judiciary Committee’s findings are
consistent with the EU Commission’s earlier conclusions.14
23.
The EU Commission divided Amazon’s MFN practices into five categories.
24.
First, the EU Commission determined that Amazon uses business model parity
clauses in its contracts with e-book publishers. These clauses require the Big Five to notify Amazon
of the distribution of their e-books through alternative business models, and offer Amazon the same
material terms and conditions, even if the competing retailer itself operates under a different
business model. Alternative business models include subscriptions, streaming, rentals, book clubs,
bundling of e-books with print books, and reduced prices for partial downloads. This clause creates
a debilitating disincentive for the Big Five to support and invest in innovative business models that
might result in greater competition. It likewise disincentivizes Amazon’s e-book retail competitors
from developing such models. It also deters the entry of new e-book retail competitors or the
expansion of Amazon’s existing competitors, which reduces competition in the e-book retail market
and strengthens Amazon’s dominant position in that market.15
25.
Second, Amazon imposed, and the Big Five agreed to, “selection parity clauses.”
These clauses require the Big Five to offer Amazon parity with all its competitors with respect to:
(1) any e-book available within a particular geographical territory; (2) any date and time for an e-
14 Id. at 295-96; 5.4.2017 EU Commission Decision.
15 5.4.2017 EU Commission Decision at 9, 12, 22-26.
book’s release; and (3) any feature, functionality, usage rule, element or content for one or more e-
books.16
26.
The EU Commission found that such clauses in Amazon’s contracts with the Big
Five posed serious threats to competition in numerous ways. They reduced the incentives of
Amazon’s competitors to develop and innovate features and functionalities of e-books. They also
thwarted development and innovation in e-books and e-book readers. Amazon’s selection parity
clauses harm consumers by eliminating publishers’ incentive to develop new e-book functionalities.
It harms retail competition because it forecloses a significant avenue for retailers to compete with
Amazon by supporting such functionalities.17
27.
Third, Amazon required, and the Big Five maintained, “retail price parity”
provisions in their agency contracts with Amazon. These retail price parity clauses included: (1) the
agency price parity clause; (2) the discount pool provision; and (3) the promotion parity clause.18
28.
The agency price parity clause contractually obligated the Big Five to set retail
prices on Amazon that are no higher than the retail prices charged by Amazon’s competitors.
29.
The promotion parity clause precludes the possibility that the Big Five might even
temporarily set lower retail prices on the platform of any Amazon e-book competitor, absent
offering an equivalent promotion to Amazon.
30.
Similarly, the discount pool provision gives Amazon the ability to set discounted
prices which are equal to or less than the cheapest retail price of any e-book distributed by a
publisher to Amazon’s competitors.
31.
The EU Commission determined that Amazon’s retail price parity provisions in the
16 Id. at 27-31.
17 Id.
18 Id. at 32.
contracts with the Big Five limited the ability of Amazon’s competitors “to attract buyers by
offering lower retail prices than those on Amazon. This may discourage competing E-book
Retailers from entering in the first place.”19 The Commission determined that these arrangements
were likely to reduce competition between e-book retailers by reducing the incentive of Amazon
competitors to compete by offering lower rates of agency commissions. Further, such arrangements
actually incentivize Amazon to charge higher commission rates, as e-book suppliers had no ability
to steer customers away from Amazon to its competitors based on their commission or retail price..20
32.
These retail price parity provisions functioned like MFNs in that they enabled
Amazon to prevent its competitors from undercutting the Big Five’s e-book prices on Amazon.
Once notified of the availability of the Big Five’s e-books at lower prices, Amazon typically
“requested” that they charge the same prices on Amazon.21 In the rare case a publisher did not
comply, Amazon retaliated or threatened to retaliate by disabling purchases for one or several of
the publisher’s e-books on its platform, excluding the publisher’s e-books from all promotional
activity, removing the pre-order buttons for the publisher’s e-books, or by prominently displaying
banners for other publishers’ e-books.22 Eventually, the Big Five complied with all of Amazon’s
requests and ceased entering into promotions proposed by Amazon’s retail competitors.23 These
notification provisions are anticompetitive because they eliminated any incentive for the Big Five
to offer lower prices or better terms to any of Amazon’s existing or potential competitors.
33.
After the European Commission’s investigation concluded, Amazon agreed not to
enforce its MFNs and similar provisions in Europe for the next five years. That entailed no longer
19 Id. at 33.
20 Id. at 34.
21 Id. at 36.
22 Id. at n.55.
23 Id. at 37.
requiring publishers to provide Amazon with equal or better terms than they provided to its
competitors; and no longer requiring publishers to notify Amazon about its competitors’ alternative
or new business models, release dates, selections of e-books, features of their e-books, promotions,
agency prices, agency commissions or wholesale prices. One Commissioner remarked that the
agreement would “open the way for publishers and [booksellers] to develop innovative services for
e-books, increasing choice and competition to the benefit of European consumers.”24
34.
Amazon’s and the Big Five’s continued use of MFNs in the United States remains
anticompetitive and contrary to the European Commission’s well-founded conclusions. Despite
multiple investigations and censures, Amazon and the Big Five continue to engage in a conspiracy
to fix the retail prices of e-books in violation of Section 1 of the Sherman Act.
35.
Amazon’s agreements with the Big Five constitute an unreasonable restraint of trade
that prevents competitive pricing, limits innovation, and imposes overcharges on Plaintiff and other
consumers when they purchase the Big Five’s e-books from Amazon’s competitors. Plaintiff
therefore seeks, in addition to compensatory damages, injunctive relief under the Clayton Act to
prevent Amazon and the Big Five from enforcing these restraints.
36.
Amazon maintains monopoly power in the domestic retail trade e-book market.
Amazon has willfully acquired that monopoly power through anticompetitive conduct, fixing the
retail prices of trade e-books at supracompetitive levels on both its own platform and those of its
competitors. Its conduct is an abuse of monopoly power in violation of Section 2 of the Sherman
II.
JURISDICTION AND VENUE
37.
This Court has subject matter jurisdiction over this action pursuant to 28 U.S.C. §§
1331 & 1337(a) and Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15(a) & 26. This Court
also has jurisdiction under 28 U.S.C. § 1332 because the amount in controversy for the Class
exceeds $5,000,000 and class members are citizens of different states than Defendants.
38.
Venue is proper in this District pursuant to Sections 4, 12, & 16 of the Clayton Act,
15 U.S.C. § 15(a), and 28 U.S.C. § 1391(b), (c), and (d). Amazon resided, transacted business, was
found, or had agents in this District, and a substantial portion of the affected interstate trade and
commerce described in this Complaint was carried out in this District.
III.
PARTIES
A.
Plaintiff
39.
Janet Ackerman is a resident of Brooklyn, New York. Ms. Ackerman purchased
multiple e-books published by one or more defendants via Apple Inc.’s app store during the
proposed class period.
B.
Defendants
40.
Amazon.com, Inc. is a Delaware corporation with its principal place of business in
Seattle, Washington. Amazon is active in online retail, e-commerce services, digital content, and
web and infrastructure computing services. Amazon sells e-books and offers e-book reading
subscription services to its retail customers throughout the United States from the Amazon
platforms. Amazon also operates Amazon Publishing, a division that publishes books and competes
with the Big Five.
41.
Hachette Book Group, Inc. is a Delaware corporation with its principal place of
business in New York, New York. Its imprints include, among others: Center Street; FaithWords;
Grand Central Publishing (formerly Warner Books); Little, Brown and Company; Orbit; Perseus
Books; and Worthy.
42.
HarperCollins Publishers L.L.C. is a Delaware corporation with its principal place
of business in New York, New York. Its imprints include, among others: Avon; Caedmon; Ecco;
Harlequin Books; Walden Pond Press; and William Morrow.
43.
Macmillan Publishing Group, LLC is a New York corporation with its principal
place of business in New York, New York. Macmillan operates eight divisions in the United States:
Celadon Books; Farrar, Straus and Giroux; Flatiron Books; Henry Holt and Company; Macmillan
Audio; Macmillan Children’s Publishing Group; St. Martin’s Press and Tor/Forge.
44.
Penguin Random House LLC is a Delaware corporation with its principal place of
business in New York, New York. Its imprints include: Alfred A. Knopf; DK; Doubleday; Penguin;
Putnam; Random House; Viking Books; and Vintage Books.
45.
Simon & Schuster, Inc. is a New York corporation with its principal place of
business in New York, New York. Its imprints include: Beyond Words Publishing; Folger Editions;
Gallery Books; MTV Books; Pocket Books; and Scribner.
IV.
STATEMENT OF FACTS
A.
The Big Five Dominate the Market for the Publication of Trade Books.
46.
The Big Five generally publish the most popular authors and books in both fiction
and non-fiction, including most New York Times bestsellers. Their dominance is in large part
attributable to a long history of mergers and acquisitions that has resulted in their acquiring vast
numbers of subsidiaries and divisions, more commonly known in the industry as “imprints.” The
last decade in particular has seen a wave of major acquisitions.
47.
HarperCollins was established in 1817 as J. and J. Harper, and eventually became
Harper & Row. Hachette’s American division began as Little, Brown and Company, established in
1837. In the 1920s, Penguin, a leading British publisher, acquired several formerly independent
publishers, including Viking and Putnam. Simon & Schuster was established in 1924, and it has
been previously owned by Marshall Field, Gulf + Western, Viacom, and CBS Corporation. By
1950, publishing was substantially “concentrated in a relatively few houses.”25
48.
Consolidation accelerated in the 1980s. By 2006, the six largest U.S. trade book
publishers accounted for 90 percent of total sales. In 2013, Penguin merged with Random House,
and now controls approximately 25% of the English-language publishing market.26
49.
Smaller trade publishers are increasingly unable to compete with the Big Five.
Houghton Mifflin Harcourt recently announced that it was exploring a sale of its trade publishing
division, possibly to Macmillan or Hachette.
B.
Amazon Dominates the Market for the Retail Sale of Trade Books.
50.
Amazon sells more books than any other retail outlet in history. Prior to Amazon’s
emergence, there were approximately 4,000 independent bookstores in the United States. That
number has since halved, and Amazon now controls 76% of the e-book market.
51.
Unlike brick-and-mortar stores, Amazon relies on massive data to assess its
customers’ existing interests. According to the market research firm Codex Group, readers
browsing in a physical bookstore consider new books at about three times the rate they do while
shopping on Amazon. Even though it dominates the book market, Amazon accounts for only seven
percent of new book discovery. The corresponding figure for independent bookstores is 20%.27
C.
The Development of E-books Disrupted the Trade Book Industry.
25 Peter Lee, Reconceptualizing the Role of Intellectual Property Rights in Shaping Industry
Structure, 72 Vand. L. Rev. 1197, 1260 (2019).
26 Id. at 1260, 1262.
27 Stacy Mitchell and Olivia LaVecchia, Report: Amazon’s Monopoly, ILRS (Nov 29. 2016),
https://ilsr.org/amazons-monopoly/ at 27.
52.
In 2007, Amazon’s Kindle became the first e-reader to gain widespread commercial
acceptance, and Amazon became the market leader in the sale of e-books and e-book readers, selling
nearly 90% by 2009. Amazon gained market share by discounting new releases and bestsellers, and
other e-book retailers frequently matched its prices.
53.
At that point, the Big Five distributed both print books and e-books through a
standard wholesale pricing model, under which they only suggested retail prices. They typically
discounted their wholesale prices for e-books by 20% from those for equivalent print books, due to
the reduced costs associated with e-books. With those discounts, Amazon’s standard $9.99 retail
price roughly matched the wholesale price of many of its e-books.
54.
The Big Five feared that Amazon’s $9.99 price point would undermine their profits,
by both reducing unit sales of profitable hard-cover books, and conditioning customers to expect
lower prices for hard-cover books. They also feared Amazon’s unprecedented power in the industry
and the possibility that Amazon might bypass them entirely by dealing directly with authors and
literary agents.
55.
In 2009, each Big Five publisher separately objected to Amazon about its retail
pricing, all to no avail. Undeterred, they collectively turned to Apple to address the issue. Apple
complied because it recognized that selling e-books was potentially even more lucrative than selling
digital music. Apple believed that its iPad, which was in its final planning stages, would
revolutionize the e-reader market by virtue of technological features vastly superior to those of any
existing e-reader.
56.
Over the course of a few weeks during late 2009 and early 2010, Apple and the Big
Five agreed that the Big Five would have to adopt the agency model in order to raise retail prices.
That model would enable the publishers to set retail prices and sell the books, while Apple would
receive a 30% commission for facilitating the sales. When certain Big Five publishers hesitated to
go forward with the plan, Apple put a MFN clause in the proposed written agreements that would
ensure that the Big Five priced their e-books on Apple at or below the lowest retail price otherwise
available in the marketplace. Apple thus enabled the Big Five to set their e-books’ retail prices,
while at the same time guaranteeing that it would never have to compete on price.
57.
The Big Five then forced Amazon to accept the agency model by threatening to
withhold their e-books by seven months after releasing the corresponding print books. After
unsuccessfully attempting to retaliate, Amazon complied, but filed a complaint with the FTC.
Amazon entered into agency agreements with each Big Five publisher by mid-2010. Each
agreement included a “model parity” clause that gave Amazon the option to re-adopt the wholesale
model if the publisher agreed to such a model with any other e-book retailer. The Big Five
subsequently required Google and Barnes & Noble to enter into agency model agreements for e-
58.
E-book prices immediately increased across the market. Apple and the Big Five
profited in the short term. Apple gained 22% of the retail e-books market in the first two months of
operating its sales platform.28 The Big Five lost revenue as to e-books under the new model, but
offset those losses by raising the prices of their print books.29
59.
However, in late 2011, consumers filed a price-fixing class action in this District,
and the EU Commission opened its own investigation. In 2012, the DOJ and several attorneys
general filed enforcement actions. Rather than proceeding to trial in the federal actions, the Big Five
28 Marco Tabini, Apple grabs 22 percent of e-book market with iBooks Macworld (Jun. 7, 2010),
https://www.macworld.com/article/1151813/ibooks.html.
29 Apple Inc., 952 F. Supp. 2d at 683.
entered into consent decrees with the DOJ, which required them to terminate their agreements with
Apple and other e-book retailers that restricted the retailers’ ability to discount e-books.30 Apple
proceeded to trial in this District. The court found that Apple and the Big Five had carried out a per
se illegal horizontal price-fixing agreement, with the purpose and effect of eliminating price
competition in the e-book market.31 The court entered a $450 million judgment against Apple.
60.
The consent decrees required that, for a period of two years, the Big Five would
permit retailers to discount e-book prices and to offer promotions to encourage consumers to
purchase e-books. For a period of five years, they would not enter into agreements with e-book
retailers that contained MFN clauses governing prices.32 They agreed to similar provisions to
resolve the European proceeding.
61.
As a result, competitive pricing prevailed between 2013 and 2015. But prices rose
as soon as the publishers renewed their agency agreements with Amazon.
D.
As a Trade Book Publisher, Amazon Benefits from Inflated E-book Prices.
62.
In part due to the friction between itself and the Big Five, Amazon established
Amazon Publishing, which touts itself as a leading publisher of commercial and literary fiction,
nonfiction, and children’s books.
63.
Amazon claims that at least 36 of its authors have sold at least a million books.33
Amazon’s imprint, Amazon Crossing, is the largest publisher of translated fiction in the United
States.34 Amazon currently operates 16 imprints and has nine offices around the world.
30 See, e.g., Final Judgment Penguin, at 8-9.
31 Apple Inc., 952 F. Supp. 2d at 694.
32 Final Judgment Penguin, at 11, 18.
33 Amazon Publishing, https://amazonpublishing.amazon/about-us.html.
34 Ed Nawotka, Translations Pay off For Amazon, (Nov. 8, 2019) Publisher’s Weekly,
https://www.publishersweekly.com/pw/by-topic/industry-news/publisher-news/article/81707-
translations-pay-off-for-amazon.html.
64.
Amazon thus benefits from the Big Five’s high prices, which enable Amazon to
charge higher prices for its own e-books.
E.
Amazon Uses Anticompetitive Restraints to Immunize Itself from the
Disadvantages of the Big Five’s Inflated E-book Prices.
65.
Through its dominance of the e-books retail market, Amazon maintains substantial
bargaining power with the Big Five. Amazon could have maintained its ability to discount their e-
books, but instead agreed to let them set supracompetitive retail prices in exchange for high
commissions and a guarantee that Amazon could not be undersold by its competitors.
66.
According to the House Judiciary Committee, Amazon has at all times used MFNs
or their equivalents in its agreements with trade publishers.35 The EU Commission determined that
even when the Big Five were nominally prohibited from having MFNs in their contracts, they
evaded that restriction in dealing with Amazon by using notification provisions that had the same
effect.36
67.
No matter the means, Amazon’s objective has always been to prevent publishers
from partnering with any of Amazon’s competitors and to reinforce its control over book
distribution. Amazon has acquired and maintained its monopoly power in large part through these
restraints.37 Its competitors lack any incentive to offer promotional advantages or alternative
business models to gain market share because Amazon requires that the Big Five grant it whatever
opportunities they offer to Amazon’s competitors. The result is reduced innovation and
supracompetitive retail prices.38
F.
Amazon is the Subject of Government Investigations for Possible Antitrust
Violations.
35 House Report at 295-96.
36 5.4.2017 EU Commission Decision at 11.
37 House Report at 295-96.
38 5.4.2017 EU Commission Decision at 20-38, 43.
68.
The EU Commission investigated Amazon’s contracts with e-book publishers
between 2015 and 2017. The Commission cited numerous issues relating to Amazon’s MFNs and
notification clauses, finding that Amazon used these clauses to restrain its competitors’ market
shares and discourage potential competitors from entering the market.
69.
The House Judiciary Committee began an investigation in 2019 that entailed seven
hearings on digital markets, addressing issues that included data privacy, innovation, free speech,
and competition. Pursuant to that investigation, the Committee requested documents and
information regarding Amazon’s market share and competitors in numerous markets.39
70.
The Committee issued a report in October 2020. It concluded that Amazon serves
as a gatekeeper over a key channel of distribution, the domestic online retail market, and by
controlling access to that market, Amazon is able to abuse its tremendous power by charging
exorbitant fees, imposing oppressive contract terms, and extracting valuable data from the people
and businesses that rely on it. 40 It also uses its gatekeeper position to maintain its market power and
“to further entrench and expand” its dominance. The Committee compared Amazon’s conduct to
“the kinds of monopolies we last saw in the era of oil barons and railroad tycoons.”41
71.
Amazon also faces an investigation by the Federal Trade Commission and antitrust
scrutiny by state attorneys general offices in California, Washington, and New York, in addition to
39 Letter from U.S. House of Representatives Committee on the Judiciary to Jeff Bezos, Amazon
CEO (Sept. 13, 2019),
https://judiciary.house.gov/sites/democrats.judiciary.house.gov/files/documents/amazon%20rfi%
20-%20signed.pdf.
40 House Report at 6, 15.
41 Id. at 6.
the recently disclosed Connecticut investigation addressed strictly to e-books. 42
V.
EFFECTS ON INTERSTATE TRADE AND COMMERCE
72.
Defendants’ alleged business activities are within the flow of, and substantially
affect, interstate trade and commerce.
73.
During the Class Period, Amazon’s and the Big Five co-conspirators published,
sold, or facilitated the sale of trade eBooks across state lines. Their conduct occurred in, affected,
and foreseeably restrained interstate commerce of the United States.
VI.
RELEVANT MARKET
74.
The antitrust injuries alleged herein, including harm to consumers, have occurred in
the United States retail market for trade e-books. Amazon and the Big Five co-conspirators’ agreed-
upon price restraints unreasonably restrain these markets. Plaintiff seeks relief individually and on
behalf of other retail purchasers of trade e-books from one or more of the Big Five co-conspirators
through electronic platforms other than Amazon’s platform.
75.
Amazon’s restraints on competition directly impact the U.S. retail market for trade
e-books, as alleged herein.
76.
Trade books comprise a product market distinct from non-trade books, such as
reference and academic books. They also comprise a product market distinct from self-published
books. Self-published authors incur all costs and are solely responsible for content and marketing,
whereas trade publishers receive the rights to sell authors’ books in exchange for editing,
publishing, marketing, and distributing those books. Trade publishers are highly selective. They do
42 House Report at 253; Press Release, Fed. Trade Comm’n, FTC to Examine Past Acquisitions
by Large Technology Companies (Feb. 11, 2020), https://www.ftc.gov/news- events/press-
releases/2020/02/ftc-examine-past-acquisitions-large-technology-companies.
not read 95% of the manuscripts they receive and publish only about 1% of the manuscripts they
do review.43 The selection, editing, and promotional process is expensive, and trade books reflect
publishers’ investment in that process.
77.
Within the market for trade books, there is also a distinct product market for the
retail sale of trade e-books that is separate from the retail sale of trade print books and trade audio
78.
Products’ functional interchangeability typically depends on their physical
characteristics. E-books are digital products. Their physical characteristics differ from those of print
books. They are also different from audio books, which may be physical or digital, but are made
for listening rather than reading. These distinctive characteristics place print books and audiobooks
outside of the markets for e-books.
79.
The EU Commission determined that consumers would be unlikely to switch from
e-books to print books in the event of a 5-10% increase in the retail price of e-books, because e-
books would still generally be priced significantly lower than print books.44 Consumer preferences
also play an important role in distinguishing the two formats. The EU Commission’s investigation
of the e-books market showed that consumers will purchase e-books rather than print books for
reasons including the following: (i) e-books are easier to carry, particularly when travelling; (ii) e-
books have functionalities unavailable in print books, such as the ability to vary the type and size
of fonts; (iii) e-books have interactive features such as video or music add-ons, dictionaries, and
links to additional information regarding the text or the author; and (iv) e-books can be purchased,
downloaded and read immediately at any time. The EU Commission also noted that a significant
43 Fiction Writer’s Mentor: Odds Of Being Published, http://www.fiction-writers-
mentor.com/odds-of-being-published (last accessed Feb. 15, 2021).
44 5.4.2017 EU Commission Decision at 14.
number of titles are only, or more readily, available in the e-book format.45
80.
To find significant supply-side substitutability, print book retailers and e-book
retailers would have to be able to enter each other’s markets quickly and easily. The EU
Commission found that was not possible. The distribution of print books entails substantial
investments in warehousing and logistics, whereas e-book distribution requires establishment and
maintenance of an online distribution platform. A standard print bookstore cannot switch from
selling print books to e-books without acquiring significant tangible and intangible assets, incurring
additional investments and making significant strategic decisions. The same holds true for an e-
book retailer switching to print sales.
81.
The EU Commission found that audio books are distinct from both print books and
e-books, notably in terms of (i) pricing at the wholesale and retail levels and (ii) their typical end
consumer and mode of consumption.46
82.
The relevant geographic market is the United States.
VII.
ANTITRUST IMPACT AND INJURY
83.
Amazon’s and the Big Five co-conspirators’ conduct described herein has
substantially impaired competition in the retail e-book market.
84.
Amazon’s and the Big Five co-conspirators’ conduct described herein lacks any
procompetitive justification. Moreover, the harm to competition and the resulting antitrust injury
suffered by Plaintiff and class members more than offsets any purported procompetitive
justifications Amazon may offer.
85.
Amazon increases the prices of e-books offered by its competitors, restrains
consumer choice, and otherwise causes antitrust injury to retail book purchasers in the form of
overcharges. Plaintiff and class members have sustained, and continue to sustain, significant losses
from overcharges directly attributable to Amazon’s anticompetitive activity. Plaintiff will calculate
the full amount of such overcharge damages after discovery and upon proof at trial. Unless
Amazon’s anticompetitive conduct is enjoined, Plaintiff and class members will continue to incur
overcharges in their direct purchases of the Big Five’s e-books from Amazon’s competitors.
86.
Plaintiff and class members are direct purchasers who purchased the Big Five’s e-
books from Amazon’s competitors, at prices inflated by Amazon and the Big Five co-conspirators’
agreements detailed herein.
87.
Because of the agency model, Plaintiff and class members overpay whether they
buy the Big Five’s e-books directly from the Big Five on their own websites, or through retail e-
book platforms that compete with Amazon. As required by the MFNs and similar clauses described
herein, the Big Five sell at retail prices that are equal to or higher than the prices for which they sell
their e-books on Amazon.
88.
It is in the Big Five co-conspirators’ independent economic self-interests to expand
their market shares of retail sales and diversify their distribution. It would serve their independent
interests to allow Amazon’s competitors to develop alternative business models that benefit both
consumers and the Big Five. Offering Amazon’s competitors special edition or enhanced e-books
would attract new customers, increase sales, reduce the Big Five’s dependency on Amazon, and
limit Amazon’s market power. But Amazon and the Big Five did not and do not consider those
options, so as to preserve the supracompetitive prices of the Big Five’s e-books. Plaintiff and class
members who purchase directly from the Big Five through Amazon’s competitors are harmed
because they pay prices fixed by Amazon and the Big Five, without the benefit of discounts,
promotions, and potentially lower-cost alternative business models that would exist in a competitive
market.
89.
Because Amazon continues to enforce its anticompetitive MFNs and similar
restrictive provisions, Plaintiff and class members will continue to incur overcharges for the Big
Five’s e-books. Both the actual harm and the threat of future harm are cognizable antitrust injuries
directly attributable to Amazon’s violations of antitrust laws as alleged herein.
VIII. CLASS ACTION ALLEGATIONS
90.
Plaintiff brings this action on behalf of herself and, under Rules 23(a) and (b) of the
Federal Rules of Civil Procedure, on behalf of:
All persons in the United States who, on or after January 18, 2017, purchased one
or more e-books sold by the Big Five Publishers through a U.S. online retail
platform other than Amazon.
91.
Excluded from the Class are Amazon; its officers, directors, management,
employees, subsidiaries, affiliates, and coconspirators. Also excluded are the judge presiding over
this action; his/her law clerks and spouse; any persons within three degrees of relationship to those
living in his/her household; and the spouses of all such persons.
92.
Class members are so numerous and geographically dispersed that joinder is
impracticable.
93.
Plaintiff’s claims are typical of the claims of class members. Plaintiff and class
members were damaged by the same wrongful conduct of Defendants.
94.
Plaintiff will fairly and adequately protect and represent the interests of class
members. Plaintiff’s interests are coincident with, and not antagonistic to, those of class members.
95.
Plaintiff is represented by counsel with experience in the prosecution and leadership
of class action antitrust and other complex litigation, including class actions involving the claims at
issue here.
96.
Questions of law and fact common to class members predominate over questions
that may affect only individual class members, thereby making damages with respect to class
members as a whole appropriate. Questions of law and fact common to class members include, but
are not limited to:
a.
Whether Defendants unlawfully conspired to unreasonably restrain trade in
violation of federal antitrust laws;
b.
Whether Defendants have unlawfully monopolized the domestic retail e-
book market, including by way of the conduct described herein;
c.
Whether competition in the domestic retail e-book market has been
restrained and harmed by Amazon’s monopolization of the market;
d.
The amount of damages suffered by Plaintiff and class members; and
e.
the nature and scope of injunctive relief necessary to restore a competitive
market.
97.
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
require.
98.
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 outweigh potential difficulties in management of this class
99.
Plaintiff knows of no special difficulty to be encountered in the maintenance of this
action that would preclude its maintenance as a class action.
100.
By way of its conduct described in this complaint, Defendant has acted on grounds
that apply generally to the proposed Class. Accordingly, final injunctive relief is appropriate
respecting the Class as a whole.
IX.
CLAIMS FOR RELIEF
FIRST CLAIM FOR RELIEF
(Violation of the Sherman Act ‘ 1)
101.
Plaintiff incorporates by reference and re-alleges the preceding allegations as though
fully set forth herein.
102.
Plaintiff brings this claim on her own behalf and on behalf of the proposed Class
described above. Plaintiff seeks damages and injunctive relief.
103.
Amazon, by and through its officers, directors, employees, or other representatives,
entered into and engaged in unlawful agreements in restraint of trade and commerce in violation of
Section 1 of the Sherman Act, 15 U.S.C. § 1. Specifically, Defendants agreed to restrict competition
in the price or availability of trade e-books, by agreeing to various anticompetitive MFNs and
anticompetitive provisions that functioned the same as MFNs, thereby fixing and raising the prices
of trade e-books.
104.
Defendants’ combinations and conspiracy injured Plaintiff and class members by
raising the prices of trade e-books and depriving them of free and fair competition in the retail
market for trade e-books.
SECOND CLAIM FOR RELIEF
(Violation of the Sherman Act § 2)
105.
Plaintiff incorporates by reference and re-alleges the preceding allegations as though
fully set forth herein.
106.
Plaintiff brings this claim on her own behalf and on behalf of the proposed Class
described above. Plaintiff seeks damages and injunctive relief.
107.
The relevant product market is the retail market for trade e-books.
108.
The relevant geographic market for the retail sale of trade e-books is the United
109.
Amazon has had and continues to have at least 76% market share in the retail market
for trade e-books.
110.
Amazon has had and continues to have monopoly power in the retail market for
trade e-books.
111.
Amazon has demonstrated its ability to control prices and exclude competition by
raising prices without a corresponding increase in demand and to supracompetitive levels.
112.
Through unlawful, interconnected, and mutually reinforcing anticompetitive and
exclusionary acts and agreements, Amazon has substantially foreclosed competition in the retail
market for trade e-books in the United States in violation of Section 2 of the Sherman Act, 15 U.S.C.
113.
Defendants’ combination or conspiracy allowed Amazon to maintain its monopoly
power in the retail market for trade e-books. Defendants created and maintained this conspiracy
through a series of agreements. In these agreements, Amazon and the Big Five co-conspirators
agreed, among other things, that Amazon would act as the Big Five co-conspirator’s agent in the
retail sale of trade e-books to Plaintiff and class members.
114.
These agreements foreclosed competition in a substantial portion of the retail market
for trade e-books and unlawfully maintained Amazon’s monopoly, resulting in the payment of
supracompetitive prices for trade e-books by Plaintiff and class members.
115.
Amazon’s monopoly is not due to growth or development because of a superior
product, business acumen, or historic accident.
116.
Amazon’s monopolization conspiracy has injured and will continue to injure
competition in this market.
117.
Amazon has acted with the specific intent of monopolizing the retail market for trade
e-books in the United States.
118.
Amazon’s exclusionary and anticompetitive acts substantially affect interstate
commerce and injure competition nationwide.
119.
The conspiracy raised the retail prices for trade e-books above the competitive level
and otherwise injured competition without any offsetting procompetitive benefit to consumers.
120.
Plaintiff and class members have been injured in their business or property by reason
of Amazon’s violation of Section 2 of the Sherman Act within the meaning of Section 4 of the
Clayton Antitrust Act, 15 U.S.C. § 15.
121.
Plaintiff and class members are threatened with future injury to their business and
property by reason of Amazon’s continuing violation of Section 2 of the Sherman Act within the
meaning of Section 16 of the Clayton Antitrust Act, 15 U.S.C. § 26.
122.
Plaintiff and the Class are entitled to an injunction that terminates the ongoing
violations alleged in this Complaint.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, individually and on behalf the proposed Class, respectfully
requests the following:
a.
That the Court certify this lawsuit as a class action under Rules 23(a) and (b) of the
Federal Rules of Civil Procedure, that Plaintiff be designated as class
representative, and that Plaintiff’s counsel be appointed as Class Counsel;
b.
That the conduct alleged herein be declared, adjudged, and/or decreed to be unlawful
under Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2;
c.
That Plaintiff and the Class recover their overcharge damages, trebled, and the costs
of the suit, including reasonable attorneys’ fees as provided by law; and
d.
That the Court award such other and further relief as the Court may deem just and
proper.
JURY DEMAND
Plaintiff hereby demands a trial by jury on all issues so triable.
DATED: April 19, 2021
Respectfully submitted,
/s/ Kevin Landau
Kevin Landau
Brett Cebulash
TAUS, CEBULASH & LANDAU, LLP
80 Maiden Lane, Suite 1204
New York, NY 10038
Telephone: (646) 873-7654
Facsimile: (212) 931-0703
[email protected]
[email protected]
Daniel E. Gustafson
Daniel C. Hedlund
Daniel J. Nordin
Ling S. Wang
GUSTAFSON GLUEK PLLC
Canadian Pacific Plaza
120 South Sixth Street, Suite 2600
Minneapolis, MN 55402
Telephone: (612) 333-8844
Fax: (612) 339-6622
[email protected]
[email protected]
[email protected]
[email protected]
Dianne M. Nast
NASTLAW LLC
1101 Market Street, Suite 2801
Philadelphia, PA 19107
Telephone: (215) 923-9300
Fax: (215) 923-9302
[email protected]
Simon Bahne Paris, Esquire
Patrick Howard, Esquire
SALTZ, MONGELUZZI & BENDESKY, P.C.
One Liberty Place, 52nd Floor
1650 Market Street
Philadelphia, PA 19103
Telephone: (215) 496-8282
Fax: (215) 496-0999
[email protected]
[email protected]
| antitrust |
h9tIEIcBD5gMZwczdcQR | Jamin S. Soderstrom, Bar No. 261054
[email protected]
SODERSTROM LAW PC
3 Park Plaza, Suite 100
Irvine, California 92614
Tel: (949) 667-4700
Fax: (949) 424-8091
Counsel for Plaintiff and the Proposed Class
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
Case No. 2:17-CV01941
GRANT MCKEE, individually and on
behalf of all others similarly situated,
Plaintiff,
CLASS ACTION COMPLAINT
DEMAND FOR JURY TRIAL
AUDIBLE, INC. and AMAZON.COM,
INC.,
Defendants.
Complaint Filed: ___________
Trial Date:
None Set
I.
NATURE OF THE ACTION
1.
Plaintiff Grant McKee brings this lawsuit on behalf of a proposed Class of
consumers who find themselves trapped in a shell game created by the online audiobook
seller Audible, Inc. (Audible), and its parent company Amazon.com, Inc. (Amazon)
(collectively, Defendants). When he and other consumers signed up for an audiobook
purchasing plan with Audible, styled a “membership,” Mr. McKee and other consumers
relied on Defendants’ representations and believed that, on a monthly or annual basis,
they would purchase a certain number of prepaid “credits” that could be redeemed with
Audible for an equivalent number of audiobooks. Plaintiff and these consumers also
believed Defendants’ representations that “one credit equals one audiobook,” that
audiobook credits would “never expire,” and that a member can cancel any time with “no
strings attached.” But Defendants’ advertisements represent almost the exact opposite of
how Audible membership plans really work.
2.
In reality, once members accrue a certain number of prepaid credits, their
credits begin to expire to “make room” for new credits. Effectively, members stop
receiving additional credits for their payments but are still charged as if they were.
Members also forfeit all previously purchased credits if they ever cancel their plans. This
makes Defendants’ advertisements demonstrably false: one credit does not equal one
audiobook; audiobook credits do expire; and a major string attached to cancelling a plan
is complete and immediate forfeiture of all unredeemed, prepaid credits. Every expired
or forfeited credit is a cash loss for the consumer and an equivalent cash windfall for
Audible.
3.
Defendants’ unlawful and unfair business practices do not stop there.
Defendants lure consumers to sign up for Audible membership plans with an advertising
tactic where members join for a free trial membership and a free audiobook credit but are
then are charged in perpetuity thereafter according to an “automatic renewal” policy. But
Audible and Amazon do not properly disclose to consumers all of the required “automatic
renewal” payment and cancellation terms at the point of sale (e.g., the online “purchase”
box consumers are asked to click). As a result, Plaintiff and Class members have been
charged regularly and automatically without being fully informed of the consequences
and related cancellation policy as required by law.
4.
Defendants also include unconscionable and unlawful provisions in the
terms and conditions of use they impose on consumers. For example, the terms imposed
on Audible members authorize Audible to charge any credit card linked to a member’s
separate Amazon account if the credit card given directly to Audible is declined for any
reason. Defendants assert this authorization and make such charges without notice, even
if the other cards on the member’s Amazon account belong to a non-Audible member
(e.g., spouse, relative, friend, business). Based on this alleged authorization, potentially
thousands of Amazon customers have had credit cards unlawfully charged by Audible
without notice simply because they use a common Amazon account that stores
information for multiple credit cards.
5.
Ultimately, there is no legal or business justification for Defendants’ bait-
and-switch tactics, which begin the moment a consumer first views their websites and
which continue through cancellation of the consumer’s membership plan. Plaintiff
respectfully asks this Court to certify this lawsuit as a nationwide class action with
specified subclasses; appoint him as class representative; appoint Soderstrom Law PC as
class counsel; and award damages, restitution, and all other relief to which Plaintiff and
class members are entitled.
II.
PARTIES
A.
Plaintiffs
i.
Named Plaintiff Grant McKee
6.
Grant McKee is a citizen of California and resident of Los Angeles County,
California.
7.
Mr. McKee signed up for a Free Trial membership with Audible in June
2016, which gave him a free credit to redeem for an audiobook. After 30-days, he started
purchasing a prepaid credit each month under an Audible “Gold Monthly” membership
plan. As a Gold Monthly plan member, Mr. McKee designated one credit card for
Audible to charge for monthly payments of $14.95. His plan was automatically renewed
each month, and the payments were charged to his credit card.
8.
Mr. McKee signed up for an Audible membership relying on Audible’s and
Amazon’s marketing and advertisements, including representations that one credit equals
one audiobook, his membership plan included one audiobook each month, credits do not
expire, and there are no strings attached if he cancels his membership plan. Based on
Audible’s and Amazon’s representations, Mr. McKee believed that, in exchange for his
payments, he would accrue one credit each month and that each of these prepaid credits
was the equivalent of purchasing an equal number of audiobooks. Mr. McKee made
payments on his plan even though he never received full disclosure of Defendants’
automatic renewal payment policy and cancellation policy.
9.
Mr. McKee redeemed multiple prepaid credits he purchased during his
membership with Audible in exchange for audiobooks. However, he decided to cancel
his Audible membership plan in December 2016 before he had redeemed all of the
prepaid credits that he had accrued on his Audible account. Mr. McKee intended to
redeem his two remaining prepaid credits as soon as he found a new audiobook that
interested him. But upon cancelling his membership plan, he learned that—contrary to
Audible’s and Amazon’s representations—the credits he had purchased but not yet
redeemed had automatically and immediately expired and that, due to his cancellation,
he had forfeited the money he paid for the credits without receiving audiobooks.
10.
Mr. McKee was not refunded any of the money he paid for unredeemed
credits when he cancelled his membership plan.
11.
Mr. McKee’s reliance on Defendants’ representations caused him to
maintain his Audible membership plan from June 2016 to December 2016. Defendants’
false, misleading, and unfair representations have directly caused Mr. McKee to suffer
harm because he would not have purchased or maintained his membership plan, or he
would not have paid the same amount of money for his plan, had he known the truth
about Defendants’ advertisements and related policies and practices.
ii.
Unnamed Class Members
12.
Plaintiff brings this action on behalf of thousands of consumers in California
and nationwide that are similarly situated and subject to Audible’s and Amazon’s same
unlawful advertisements, business practices, and online terms and conditions of use.
13.
Defendants’ business records contain the information necessary to
determine the specific facts and circumstances of class members’ Audible membership
plans, the expiration or forfeiture of their prepaid credits, the unconscionable terms and
conditions imposed on them, and any unauthorized credit card charges.
B.
Defendants
i.
Defendant Audible, Inc.
14.
Audible, Inc. is a corporation formed and existing under the laws of the State
of Delaware, with its principal place of business in the State of New Jersey.
15.
Audible is a subsidiary of Amazon.
16.
Audible describes itself as a leading provider of spoken audio entertainment,
information, and educational programming on the Internet. Audible markets and
advertises its audiobook services on its website—www.audible.com—among other
places.
ii.
Defendant Amazon.com, Inc.
17.
Amazon.com, Inc. is a corporation formed and existing under the laws of
the State of Delaware, with its principal place of business in the State of Washington.
18.
Amazon is the parent corporation of Audible.
19.
Amazon markets and advertises Audible’s services on Amazon’s website—
www.amazon.com—among other places.
III.
JURISDICTION AND VENUE
20.
This Court has jurisdiction over the subject matter of this action under 28
U.S.C. §§ 1331 (federal question jurisdiction), 1332 (diversity jurisdiction), and 1367
(supplemental jurisdiction).
21.
This Court also has jurisdiction under the Class Action Fairness Act of 2005,
28 U.S.C. §§ 1332(d) and 1453, because the amount put in controversy by this class
action exceeds $5,000,000, there are more than 100 proposed class members, and at least
one member of the proposed class and one of the Defendants are citizens of different
states (CAFA jurisdiction).
22.
This Court has personal jurisdiction over Defendants because (a) a
substantial portion of the wrongdoing alleged in this Complaint took place in California,
(b) both Defendants are authorized to do business in California, have sufficient minimum
contacts with California, and have intentionally availed themselves of the markets in
California through the promotion, marketing, and sale of products and services in
California, and (c) the exercise of jurisdiction by this Court is permissible under
traditional notions of fair play and substantial justice.
23.
Venue is proper in this District under 28 U.S.C. §§ 1391(b)(1) and (2)
because both Defendants have a significant presence in California and a substantial part
of the events and omissions that give rise to Plaintiff’s and Class members’ claims
occurred in this District. Venue is also proper under California Code of Civil Procedure
section 395.5 and California Business and Professions Code section 17203.
IV.
DEFENDANTS’ WRONGFUL CONDUCT
A.
Defendants’ Misrepresentations
24.
Audible offers consumers so-called “membership plans” where consumers
sign up for free and then start making monthly or annual payments in exchange for credits
which they can later redeem for audiobooks.
25.
Across all of their advertising efforts, Defendants represent to consumers
that:
a.
Under any of the Audible membership plans, “one credit equals one
audiobook”;
b.
An Audible membership plan “includes 1 audiobook each month”;
c.
“Membership credits do not expire as long as you have a
membership . . . and stored credits are ‘rolled over’ to your next
billing cycle, either monthly or yearly”; and
d.
There are “no strings attached” if a consumer wants to cancel an
Audible membership plan because “you can cancel anytime” and
“your audiobooks stay in your Audible library” even after you cancel.
26.
Plaintiff and proposed Class members relied on the above representations
and similar ones displayed on Defendants’ websites, among other places, when signing
up for membership plans and purchasing prepaid credits redeemable with Audible for
audiobooks. And Defendants specifically and intentionally used these representations to
induce consumers like Plaintiff to sign up for automatically renewing membership plans.
But in Defendants’ inconspicuous fine print, they concede that the plans do not work as
advertised. Defendants’ own words prove that their representations to consumers are
demonstrably false or, at the very least, misleading and deceptive.
27.
Defendants represent to consumers that their credits will never expire, while
stating the exact opposite in the fine print: “Once you have reached the roll over limit for
your membership plan, your oldest credit(s) will expire in order for you to receive new
credits.” Defendants justify this policy by explaining that consumers “lose” their credits
to “make room” for new credits. They further caution consumers (again in an
inconspicuous disclosure) that “if you accrue too many credits and do not use them, you
may lose some.”
28.
But like any shell game, Defendants’ justification is sleight-of-hand.
Audible’s storage of consumers’ prepaid credits takes up no physical inventory space;
accruing prepaid credits is purely a matter of digital accounting. Thus, Defendants’ “use
‘em or lose ‘em” explanation is just a convenient, deceptive euphemism. Defendants use
this explanation to avoid calling the prepaid credits what they really are: prepaid gift
certificates or gift cards that are redeemable for audiobooks but that have unlawfully
short expiration periods.
29.
Defendants likewise represent to consumers that there are “no strings
attached” to changing or cancelling a membership plan. Defendants do not explain up
front, however, that membership credits immediately expire when consumers cancel their
memberships (or when Audible cancels them itself). Audible simply notes in fine print
that “membership credits do not expire as long as you have a membership . . . .”
Defendants’ practices seek to bind consumers to a perpetual membership plan while
concealing the harsh consequences of cancellation: immediate and automatic expiration
and forfeiture of all prepaid, unredeemed credits.
30.
These facts show how each of Defendants’ advertisements is demonstrably
false or, at a bare minimum, highly misleading and unfair. One credit does not equal one
audiobook because a credit can expire before it is redeemed. Membership does not
include one audiobook each month; rather, it includes a prepaid credit that can expire or
be forfeited for various reasons. And at least one major string attached to the
cancellation policy (a noose, really) is that a consumer forfeits all prepaid but
unredeemed credits immediately and automatically simply by cancelling his or her
membership plan.
31.
Defendants’ representations and related practices wrongly compel
consumers to continue paying for plans and prepaid credits that they no longer want or
maintain a higher membership level than they would prefer (e.g., a “Platinum Monthly”
membership wherein a consumer purchases two prepaid credits each month), under the
threat of losing the credits for which they had already paid.
B.
Defendants’ Violations of Gift Card Laws
32.
Defendants further exploit consumers by attempting to circumvent state and
federal laws governing the distribution of gift certificates or gift cards. Such laws either
prohibit expiration dates outright or require gift cards and gift certificates to remain valid
for at least five years.
33.
Audible purports to sell its members prepaid “credits” redeemable for
audiobooks. But despite their label, Audible credits are actually subject to gift card or
gift certificate laws because: they are redeemable only by Audible; they are issued in a
specified amount (e.g., “one credit equals one audiobook”);1 they are purchased by
consumers on a prepaid basis in exchange for payment (e.g., a monthly or annual
membership plan payment); and they are honored by Audible for audiobooks upon
presentation of the credits by consumers.
34.
In violation of state and federal gift card laws, Audible’s cancellation and
“roll-over” policies cause prepaid credits to expire or be forfeited within months of
purchase (and in some cases within days or hours depending on the timing of a
consumer’s membership cancellation notice). For example, if a Gold Monthly plan
member pays for one credit every month but does not redeem any of his or her credits for
seven months, the first unredeemed credit expires at seven months to “make room” for a
new credit that appears in the member’s account. If the member does not redeem any of
his or her credits for 12 months, the first six credits will automatically expire and can
never be redeemed for an audiobook. The Gold Monthly member is limited to only
accruing six credits in his or her account regardless of how many credits he or she pays
for. A member whose first credit expired will have lost $14.95, and a member whose first
six credits expired will have lost $89.70. Audible keeps those same amounts as windfall
profits.
35.
Similarly, if a plan member changes or cancels his or her plan, any prepaid
credits the member has accrued are immediately and automatically forfeited. Audible
does not refund unredeemed credits upon cancellation. Thus, even if a consumer cancels
her membership plan the day after she purchases a new credit, that new credit expires
after being in the consumer’s account for only one day. In Mr. McKee’s case, his prepaid
credits automatically expired within one week and six weeks from their dates of purchase,
respectively, when he cancelled his plan.
36.
Like Defendants’ other misrepresentations concealing key facts about
Audible’s plans, Audible uses the label of “credit” to conceal what is otherwise an
1 Audible actually has two tiers of audiobooks: those redeemable for one credit, and others
redeemable for two credits.
illegal gift card scheme.
C.
Defendants’ Insufficient Disclosures
37.
Audible and Amazon try to get consumers to sign up for and continue paying
for membership plans indefinitely whether or not members ever redeem their prepaid
credits for audiobooks. Many of Defendants’ advertisements offer one free month of
membership—and one free audiobook credit—before a consumer is ever charged for a
plan. In this way, Audible obtains consumers’ credit card information up front and relies
on consumer inertia (i.e., the low likelihood a consumer takes the time to cancel a plan
that started for free) to let it start and keep charging the consumers’ credit cards every
month or year thereafter in perpetuity until the consumers affirmatively cancel their
plans.
38.
In violation of state law, however, Audible and Amazon do not present
consumers with the automatic renewal payment terms in a clear and conspicuous manner
or in close visual proximity to the “purchase your order” box consumers are asked to
click to confirm their consent to sign up for a membership plan. More specifically,
consumers are not:
a.
told that the credit card they provide to sign up for a membership plan
will automatically be charged every month in perpetuity;
b.
told that Audible claims the right to access and charge, without notice,
any credit card (theirs or someone else’s) linked to a separate Amazon
account if the credit card they give directly to Audible is declined for
any reason, nor are they told that the other credit card will continue
to be charged automatically for future payments;
c.
provided sufficient “automatic renewal” language in text that is larger
than surrounding text, in contrasting type, font, or color, or otherwise
set off from the surrounding text;
d.
affirmatively asked to assent to material cancellation terms that cause
them, among other things, to forfeit all prepaid, unredeemed credits
if they cancel their membership plan; or
e.
provided an appropriate acknowledgement of the relevant terms,
policies, and related information in a form that is easily retained by
the consumer.
39.
Instead of providing these crucial disclosures, Audible and Amazon make
vague and inconspicuous references to membership continuing at the price of
“$14.95/month” after an initial free trial period, and they suggest that members can easily
“cancel anytime” (presumably without a penalty) simply by “visiting” their online
account.
40.
Defendants’ acts and practices constitute intentional concealment and
withholding of material payment and cancellation terms in violation of state law.
Moreover, Defendants’ insufficient disclosures have caused Plaintiff and thousands of
other consumers to rely to their detriment on incomplete information and disclosures
when making their sign up and purchasing decisions.
D.
Defendants’ Unlawful Credit Card Policies
41.
Finally, Defendants’ unfair practices are not limited solely to Audible
members. Audible also brazenly asserts in its online fine print the right to access and
charge credit cards that a member never gave to it and that are not necessarily even owned
by the member.
42.
Audible declares in fine print that if a consumer’s credit card is “declined
for any reason,” Audible may access and charge “any payment instrument on file with
[the consumer’s] Amazon account,” i.e., any credit card linked to the consumer and
stored by Amazon.
43.
This means Audible asserts a right (in collusion with its parent company
Amazon) to access and charge any credit card stored in a member’s separate Amazon
account, including credit cards that have never been given to Audible and credit cards
that are not even owned by the Audible member. Many Audible consumers store multiple
credit cards with Amazon for convenience and share their Amazon accounts with
spouses, parents, kids, roommates, friends, or companies. According to Audible and
Amazon (and possibly many other Amazon subsidiaries and affiliates), any credit cards
stored on an Amazon account are fair game. This results in a modern form of conversion
that is unlawful nationwide and that affects unsuspecting consumers like Plaintiff without
notice.
V.
CLASS ACTION ALLEGATIONS
44.
Plaintiff brings this case as a proposed nationwide class action pursuant to
Rule 23 of the Federal Rules of Civil Procedure, individually and on behalf of all
members of the following Class and Subclasses. Plaintiff reserves the right to amend the
following definitions before the Court determines whether class certification is
appropriate or thereafter upon leave of Court.
Proposed Class
All individual consumers in the United States who have been
charged for an Audible membership plan at any time within
four years from the date this Class Action Complaint was filed.
Proposed False Advertising Subclass
All individual consumers in the United States who paid for an
Audible membership plan in reliance on Defendants’
representations regarding credits, credit expiration/forfeiture,
credits equaling audiobooks, or membership cancellation.
Proposed Unlawful Gift Certificate Subclass
All individual consumers in the United States who paid for an
Audible membership plan and received a credit that was
capable of expiring within five years from the date of purchase.
Proposed Expired or Forfeited “Credits” Subclass
All individual consumers in the United States who paid for an
Audible membership plan and received a credit that expired
based on a roll-over policy or a cancellation policy.
Proposed Unlawful Automatic Renewal Payments Subclass
All individual consumers in California who paid for an Audible
membership plan and whose payment method was subject to
Audible’s automatic renewal payment policy.
Proposed Unlawful Amazon Credit Card Charges Subclass
All individual consumers in the United States, whether or not
they were an Audible member, who had a payment method on
account with Amazon that was charged by Audible because the
payment method provided directly to Audible was declined.
45.
Excluded from the proposed Class and Subclasses are Audible and Amazon
and their parents, subsidiaries, affiliates, officers, directors, and current and former
employees; all individuals who make a timely election to be excluded from this
proceeding using the correct opt-out protocol; any and all federal, state or local
governments, including but not limited to their departments, agencies, divisions, bureaus,
boards, sections, groups, counsels, and/or subdivisions; and all judges assigned to hear
any aspect of this litigation, as well as their immediate family members.
46.
Numerosity. The members of the proposed Class and Subclasses are so
numerous that joinder is impracticable. Thousands of consumers in California and
throughout the United States have relied on Audible’s and Amazon’s representations,
purchased Audible plans and credits during the relevant period, and therefore have been
subjected to and harmed by Defendants’ unlawful acts. The number and identity of
individuals who fall within the proposed Class and Subclass definitions are easily
identifiable and ascertainable based on Defendants’ business records.
47.
Commonality and Predominance. Common questions of law or fact that
will drive the resolution of this case include, but are not limited to:
a.
Whether Defendants made false, misleading, deceptive, untrue, or
unfair statements in their advertisements related to membership plans,
credits, cancellation, automatic renewal payments, and credit card
charges;
b.
Whether Audible credits are governed by gift certificate or gift card
laws;
c.
Whether Audible’s credit expiration and forfeiture policies comply
with relevant laws;
d.
Whether Defendants’ automatic renewal payment policies and
cancellation policies are properly disclosed to consumers; and
e.
Whether Defendants’ practice of accessing and charging any credit
card stored on an Amazon account whenever an Audible member’s
default payment method is declined is authorized by the credit card
holder’s informed consent.
48.
In addition to the common questions of law and fact that will drive this case,
Defendants engaged in a common course of conduct giving rise to violations of the legal
rights sought to be enforced by Plaintiff and proposed Class members. Similar or
identical statutory and common law violations, business practices, and injuries are
involved in this case and are applicable to Plaintiff and most, if not all, of the proposed
Class and Subclass members. Any individual questions that may arise in this case will
pale in comparison to the numerous common questions.
49.
Typicality. Plaintiff’s claims are typical of the proposed Class and Subclass
members’ claims because:
a.
Plaintiff and proposed Class members are subject to and detrimentally
relied on Defendants’ uniform advertisements and related
representations;
b.
Plaintiff and proposed Class members are harmed by Audible’s
uniform policy that causes credits to expire or be forfeited without a
refund;
c.
Plaintiff and proposed Class members are prevented from obtaining
the full value of their prepaid credits;
d.
Plaintiff and proposed Class members are subject to Defendants’
uniform automatic renewal payment terms, policies, and disclosures;
e.
Plaintiff and proposed Class members are subject to Defendants’
uniform policies concerning accessing and charging credit cards;
f.
Defendants are unjustly enriched by Plaintiff’s and proposed Class
members’ purchases, the expiration and forfeiture of credits, and
charging credit cards without authorization; and
g.
Plaintiff’s and proposed Class members’ injuries flow from a
common nucleus of operative facts, can be determined from
Defendants’ business records, and can be calculated in an identical or
substantially similar manner.
50.
Given the similar nature of Plaintiff’s and proposed Class members’ claims,
and given the absence of material differences in the relevant statutes and common laws
on which the claims are based, a nationwide Class and various Subclasses may be easily
managed by the Court and the parties.
51.
Adequacy of Representation. Plaintiff will fairly and adequately protect
the interests of all proposed Class and Subclass members. Moreover, Plaintiff has
retained counsel experienced in complex commercial litigation and consumer class
actions, and Plaintiff and his counsel intend to prosecute this action vigorously. Plaintiff
has no interests that are adverse or antagonistic to those of the Class members. Plaintiff’s
claims are typical of Class members’ claims, and all Class members have been similarly
affected by Defendants’ unlawful conduct.
52.
Ascertainability. Defendants sell membership plans and prepaid credits
through their websites and have collected detailed personal and financial information
associated with each transaction. Accordingly, the precise number and identity of Class
and Subclass members can easily be determined by reference to Defendants’ business
records. As such, Class and Subclass members are easily ascertainable and can be
personally notified of the pendency of this action by first class mail, electronic mail,
and/or published notice calculated to reach all such members.
53.
Superiority of a Class Action. The proposed Class and each of the
proposed Subclasses should be certified pursuant to Rule 23 of the Federal Rules of Civil
Procedure because:
a.
Prosecution of separate actions by individual Class members would
create a risk of inconsistent or varying adjudication with respect to
individual Class members that would establish incompatible
standards of conduct for Defendants;
b.
Prosecution of separate actions by individual Class members would
create a risk of adjudications that would, as a practical matter, be
dispositive of the interests of other Class members who are not parties
to the adjudications, or would substantially impair or impede their
ability to protect their interests;
c.
Individualized litigation would increase the delay and expense to all
parties and the court system from the issues raised by this action; by
contrast, the class action procedure provides the benefits of
adjudicating these issues in a single proceeding, economies of scale,
and comprehensive supervision by a single court, and it presents no
unusual management difficulties;
d.
Unless a class-wide injunction is issued, Defendants will continue to
commit the violations described herein, and the members of the Class
and the general public will continue to be misled and injured;
e.
Because of the relatively small size of the individual Class members’
claims, no Class member could afford to seek legal redress on an
individual basis, making the class action procedure superior to
alternative means of prosecution; and
f.
Defendants have acted and failed to act on grounds generally
applicable to Plaintiff and Class members, thereby supporting the
imposition of uniform relief to ensure compatible standards of
conduct toward all Class members.
54.
For these reasons, this case should be certified as a nationwide class action.
VI.
CAUSES OF ACTION
First Cause of Action
Violation of the Lanham Act, 15 U.S.C. § 1125
55.
All of the foregoing paragraphs are incorporated herein.
56.
Defendants have both engaged in false, misleading, deceptive, unfair, and
untrue advertising and marketing tactics that Plaintiff and Class members have relied on
to their detriment.
57.
The specific advertisements and related statements and representations
made by Defendants and relied on by Plaintiff and Class members include, but are not
limited to:
a.
The representation that “one credit equals one audiobook;”
b.
The representation that membership “includes 1 audiobook each
month;”
c.
The representation that prepaid credits “do not expire;” and
d.
The representation that there are “no strings attached” to cancelling a
membership plan and consumers can “cancel anytime.”
58.
Defendants have made these representations on their websites, among other
places. Defendants intentionally used in commerce the representations described above.
These representations were representations of fact used in commercial advertising or
promotion. These representations misrepresent the nature, characteristics, and qualities
of Audible’s services. Accordingly, these representations each constitute a false and
misleading advertisement under the federal Lanham Act, 15 U.S.C. § 1125(a).
59.
In addition to the specific representations described above which are
literally false as well as grossly misleading, Defendants’ false and misleading
representations include but are not limited to other representations regarding: (i) the use
and value of prepaid credits sold as part of an Audible membership plan; (ii) the terms of
expiration and/or forfeiture of prepaid credits; and (iii) the terms of cancellation of a
consumer’s membership plan.
60.
These representations actually deceived Plaintiff and Class members, and
they have a tendency to deceive a substantial segment of consumers nationwide. These
representations are material because they influenced Plaintiff’s and Class members’ sign-
up and purchasing decisions. Defendants caused these representations to enter interstate
commerce via the Internet and other advertising means and methods.
61.
Plaintiff and other Class members have been injured as a result of these
representations.
62.
Plaintiff, individually and on behalf of all Class members similarly situated,
seeks an injunction and any other necessary orders or judgments that will prevent
Defendants from continuing with their false and misleading representations, including
but not limited to an order requiring corrective advertising and restitution. He also seeks
disgorgement of Defendants’ profits, an award of all damages suffered, an award of the
costs of the action, treble damages, and attorneys’ fees.
Second Cause of Action
Violation of False Advertising Law, Cal. Bus. & Prof. Code § 17500 et seq.
63.
All of the foregoing paragraphs are incorporated herein.
64.
Defendants have intentionally made and disseminated statements to
Plaintiff, Class members in California, and the general public concerning Audible’s
services, as well as circumstances and facts connected to such services, which are untrue
and misleading, and which are known (or which by the exercise of reasonable care should
be known) to be untrue or misleading. Defendants have also intentionally made or
disseminated such untrue or misleading statements to Plaintiff, Class members in
California, and the public as part of a plan or scheme with intent not to sell those services
as advertised.
65.
Defendants’ statements include but are not limited to representations
regarding (i) the use and value of prepaid “credits” sold to consumers as part of an
Audible “membership plan,” (ii) the terms of expiration and/or forfeiture of prepaid
“credits,” and (iii) the terms of cancellation of a consumer’s “membership plan.”
Specifically, the representations that “one credit equals one audiobook,” membership
“includes 1 audiobook each month,” credits “do not expire,” and members may “cancel
anytime” with “no strings attached” constitute false and deceptive advertisements under
California’s False Advertising Law, Cal. Bus. & Prof. Code § 17500 et seq. (FAL).
66.
Plaintiff was deceived by Defendants’ statements, and there is a strong
probability that Class members in California and members of the public were also or are
likely to be deceived as well. Indeed, any reasonable consumer would be misled by
Defendants’ false and misleading statements.
67.
Plaintiff, individually and on behalf of all Class members in California,
seeks an injunction and any other necessary orders or judgments that will prevent
Defendants from continuing with their false and deceptive advertisements; restitution that
will restore the full amount of their money or property; and disgorgement of Defendants’
relevant profits and proceeds. Plaintiff also seeks an award of costs and reasonable
attorneys’ fees.
Third Cause of Action
Violation of the CARD Act and EFTA, 15 U.S.C. § 1693l-1(a)(2)(B)
68.
All of the foregoing paragraphs are incorporated herein.
69.
The federal Credit Card Accountability Responsibility and Disclosure Act,
15 U.S.C. § 1693l-1(a)(2)(B) (CARD Act), which amends the federal Electronic Funds
Transfer Act, 15 U.S.C. § 1693 (EFTA), prohibits the sale or issuance of gift certificates
or gift cards that feature and are subject to expiration dates that are earlier than five years
after the date on which a gift certificate or gift card is issued.
70.
Defendants market Audible “membership plans” and Audible sells “credits”
which, both in form and substance, constitute “gift certificates” or “store gift cards” as
defined by the CARD Act, 15 U.S.C. §1693l-1(a)(2)(B) and (C), because:
a.
Audible credits are redeemable only by Audible;
b.
Audible credits are issued in a specified amount, e.g., “one credit
equals one audiobook;”2
c.
Audible credits are purchased by consumers on a prepaid basis in
exchange for payment, e.g., a monthly or annual membership plan
payment; and
d.
Audible credits are honored by Audible for audiobook services upon
presentation of the credits by consumers.
71.
Defendants’ sale of Audible credits violates the CARD Act because the
credits can expire or be forfeited earlier than five years after they are sold to a consumer.
For example, a consumer like Mr. McKee who purchases a Gold Monthly membership
plan can have his prepaid credits start expiring within seven months if he has not
redeemed any credits for an audiobook during the first six months of his membership.
Instead of making it clear that prepaid credits will expire if not redeemed within six
months, Audible euphemistically and misleadingly calls the process a “roll over” policy.
Other membership levels have similar expiration terms, all of which end earlier than five
years from the date a prepaid credit is purchased.
72.
In fact, based on Audible’s cancellation policy, all prepaid credits are
capable of expiring or being forfeited immediately after being purchased. For example,
the credits that expired or were forfeited when Mr. McKee cancelled his plan had been
purchased approximately one week and six weeks before.
73.
Audible admits on its website that prepaid credits can only be applied to the
purchase of an Audible audiobook and that prepaid credits will expire within a set
2 Audible actually maintains two tiers of audiobooks: those that can be redeemed for one
credit, and those that can be redeemed for two credits.
number of months of purchase based on the applicable roll-over policy, or immediately
upon a consumer’s cancellation of plan membership.
74.
Audible plans and credits are sold and issued to consumers through
electronic fund transfer systems established, facilitated, and monitored by Audible (and
in certain cases Amazon). Prepaid credits are issued in electronic form. Audible provides
an electronic means by which consumers can access their Audible accounts, view and
redeem their credits, and download and listen to Audible audiobooks. The Audible
prepaid credits underlying this lawsuit are issued and used independent of a loyalty,
award, or promotional program. Audible markets and sells its prepaid credits to the
general public throughout the United States.
75.
Additionally, under the regulations implementing the CARD Act and EFTA,
no person may sell or issue gift certificates with expiration dates unless there are policies
and procedures in place to provide consumers with a reasonable opportunity to purchase
a certificate with at least five years remaining until the certificate expiration date. See 12
C.F.R. § 205.20(e)(1). Defendants thus further violate the CARD Act and EFTA by
failing to provide consumers with a reasonable opportunity to purchase credits with five
years remaining until the expiration date.
76.
Because of their unlawful acts and conduct, Defendants have deprived
Plaintiff and all Class members of the use of the money Defendants have collected
through the sale of credits with illegal expiration dates.
77.
As authorized by 15 U.S.C. § 1693m, Plaintiff, on behalf of himself and all
Class members, seeks actual and statutory damages to be determined by the Court,
injunctive relief, the cost of this action, reasonable attorneys’ fees, and all other available
relief.
Fourth Cause of Action
Violation of Gift Certificate Law, Cal. Civ. Code § 1749.45 et seq.
78.
All of the foregoing paragraphs are incorporated herein.
79.
Defendants’ sale and issuance of Audible membership plans and prepaid
credits to consumers in California violate California’s Gift Certificate Law, Cal. Civ.
Code § 1749.45 et seq., which prohibits sale of a gift certificate (including a gift card)
subject to an expiration date.
80.
Defendants advertise and sell Audible membership plans and credits to
consumers in California, including Plaintiff and Class members.
81.
Defendants violate California’s Gift Certificate Law by selling and issuing
and/or agreeing to sell and issue to Plaintiff and Class members in California “credits”
that, in both form and substance, constitute gift certificates with explicit and implicit
expiration dates. The explicit dates are governed by Audible’s “roll-over” policy; the
implicit dates are governed by Audible’s cancellation policy. The fact that Audible
credits can expire harms Plaintiff and Class members in California in several ways,
including by forcing them to either redeem their credits on an expedited schedule or
forfeit their credits without any refund.
82.
As a result of Audible’s unlawful acts and conduct, Plaintiff and Class
members in California have been deprived of the use of their money that was charged
and collected by Defendants through the sale of Audible membership plans that provided
prepaid credits with illegal expiration dates.
83.
Plaintiff, on behalf of himself and Class members in California, seeks
compensatory damages, including actual and statutory damages, injunctive and
declaratory relief, the cost of this action, and reasonable attorneys’ fees.
Fifth Cause of Action
Violation of California’s Automatic Purchase Renewals Law
Cal. Bus. & Prof. Code § 17600 et seq.
84.
All of the foregoing paragraphs are incorporated herein.
85.
Defendants impose “automatically renewable” monthly or annual payment
terms on Audible members. Consequently, under California’s Automatic Purchase
Renewals Law, Audible and Amazon are required to disclose such terms, and any related
terms such as a cancellation policy, to consumers in a clear and conspicuous manner
when the consumer is making his or her purchase decision (e.g., clicking the “purchase
your order” box). Plaintiff and Class members rely on such disclosures (or lack thereof)
when making their purchasing decisions.
86.
When they sign up for an Audible membership plan, Plaintiff and other
similarly situated consumers are not:
a.
expressly told that the credit card they use to set up the membership
plan will automatically be charged every month (or annually) in
perpetuity;
b.
expressly informed that any credit card attached to the consumers’
separate Amazon accounts can be charged automatically and in
perpetuity without notice if the payment method given directly to
Audible is declined for any reason;
c.
provided sufficient “automatic renewal” language in a clear and
conspicuous manner using text that is larger than surrounding text, in
contrasting type, font, or color, or otherwise set off from the
surrounding text;
d.
expressly informed of the cancellation policy which provides that
they will forfeit all unredeemed credits if they decide to cancel their
membership;
e.
affirmatively asked to consent to relevant terms and conditions, such
as cancellation terms, which Defendants only provide passively and
inconspicuously elsewhere on their websites;
f.
provided notice of any changes to the underlying terms during the
course of their membership; or
g.
provided all of the relevant disclosures, representations, and other
terms in a tangible form that they can easily store.
87.
Defendants’ failure to disclose all required terms and information to
88.
Plaintiff and Class members in California violates California’s Automatic
89.
Renewal Law, Cal. Bus. & Prof. Code § 17600 et seq.
90.
Consequently, Plaintiff, individually and on behalf of all Class members in
California, seeks an order enjoining Defendants’ unlawful automatic renewal payment
policies and practices; actual damages; restitution of their membership plan payments;
the cost of this action; reasonable attorneys’ fees; and all other available relief.
Sixth Cause of Action
Conversion
91.
All of the foregoing paragraphs are incorporated herein.
92.
All consumers who establish an account with Amazon, whether or not they
are Audible members, have clear legal ownership and/or right to possession and exclusive
use of the credit cards they provide to Amazon and store on their Amazon account.
93.
Defendants have colluded and conspired to interfere intentionally and
substantially with Plaintiff’s and other Class members’ rights related to owning,
possessing, and using their credit cards.
94.
Amazon provides Audible with access to all credit cards stored by an
Audible member on his or her separate Amazon account. Any time a credit card a
consumer gives to Audible for payment is declined for any reason, Audible accesses the
credit cards stored on the member’s separate Amazon account. Audible then selects and
charges one of the credit cards stored on the Amazon account and charges it for the
Audible payment immediately and without notice to the member or card holder. Such
charges continue under the automatic renewal payment policy until the consumer and/or
cardholder takes some affirmative action (e.g., provides a new credit card to Audible or
cancels his or her membership plan). Defendants claim authorization to provide such
access and make such charges based on fine print buried and never conspicuously and
directly disclosed to Audible consumers or others who share the same Amazon account
on which they store credit card information.
95.
Audible’s and Amazon’s actions have actually and substantially interfered
with the ownership and possession of such credit cards.
96.
Neither Audible nor Amazon obtained Plaintiff’s or Class members’ express
or implied consent or authorization to make such charges on credit cards that were not
provided directly to Audible for purposes of making membership plan payments.
97.
Plaintiff and other Class members have suffered harm in the amount charged
on credit cards that were stored by Amazon but never given to Audible for payment.
Audible’s and Amazon’s actions directly caused such harm.
98.
Plaintiff, individually and on behalf of all Class members similarly situated,
seeks an injunction and any other necessary orders or judgments that will prevent
Defendants from continuing to allow access to and charges to be made on credit cards
stored on a consumer’s Amazon account but not given directly to Audible for payment;
damages in an amount that would fully compensate them; restitution that restores the full
amount of their money or property; and disgorgement of Defendants’ related profits and
proceeds.
Seventh Cause of Action
Violation of Consumers Legal Remedies Act, Cal. Civ. Code § 1750 et seq.
99.
All of the foregoing paragraphs are incorporated herein.
100. Defendants have violated California’s Consumers Legal Remedies Act, Cal.
Civ. Code § 1750 et seq. (CLRA) in multiple ways.
101. False and Misleading Advertising. Defendants, through their use of the
representations described above and below, have engaged in unfair and deceptive acts
and practices that constitute false and misleading advertising under the CLRA.
102. The unlawful acts and practices include but are not limited to representations
regarding (i) the use and value of prepaid “credits” sold to consumers as part of an
Audible “membership plan,” (ii) the terms of expiration and/or forfeiture of prepaid
“credits,” and (iii) the terms of cancellation of a consumer’s “membership plan.”
Specifically, the representations that “one credit equals one audiobook,” membership
“includes 1 audiobook each month,” credits “do not expire,” and members may “cancel
anytime” with “no strings attached” constitute false and misleading advertising, and
Defendants violate the CLRA by:
a.
Representing that Audible’s and Amazon’s services have
characteristics, uses, and benefits which they do not have, in violation
of Section 1770(a)(5);
b.
Representing that Audible’s and Amazon’s services are of a particular
standard, quality, or grade, or that goods are of a particular style or
model, if they are of another, in violation of Section 1770(a)(7);
c.
Advertising Audible’s and Amazon’s services with intent not to sell
them as advertised, in violation of Section 1770(a)(9);
d.
Representing that a transaction with Amazon and/or Audible confers
or involves rights, remedies, or obligations which it does not have or
involve, in violation of Section 1770(a)(14);
e.
Representing that the subject of a transaction with Amazon and/or
Audible has been supplied in accordance with a previous
representation when it has not, in violation of Section 1770(a)(16);
and
f.
Representing that the consumer will receive a rebate, discount, or
other economic benefit from Amazon and/or Audible, when the
earning of the benefit is contingent on an event to occur subsequent
to the consummation of the transaction, in violation of Section
1770(a)(17).
103. Audible’s and Amazon’s acts and practices were intentional.
104. Plaintiff and all Class members in California relied on these advertisements
and related statements to their detriment and suffered damages as a result.
105. Unlawful Gift Certificates or Gift Cards. As alleged above, Audible’s
prepaid “credits” constitute illegal gift certificates or gift cards under the federal CARD
Act and under California’s Gift Certificate Law.
106. The same provisions which provide for an unlawful expiration date on all
credits purchased by Plaintiff and other Class members in California also violate the
CLRA because such terms and provisions:
a.
Represent that Audible’s and Amazon’s services have characteristics,
uses, and benefits which they do not have, in violation of Section
1770(a)(5);
b.
Advertise Audible’s and Amazon’s services with intent not to sell
them as advertised, in violation of Section 1770(a)(9);
c.
Represent that the membership plan transaction confers or involves
rights, remedies, or obligations which are prohibited by law, in
violation of Section 1770(a)(14); and
d.
Constitute unconscionable contractual provisions, in violation of
Section 1770(a)(19).
107. Audible’s and Amazon’s acts and practices were intentional.
108. Plaintiff and all Class members in California suffered harm as a result of
Defendants’ sale and issuance of credits that, in both form and substance, constitute
illegal gift certificates or gift cards. The harm includes having credits expire or be
forfeited, being compelled to maintain a more expensive membership plan to avoid losing
prepaid credits, and being compelled to use credits on a shorter time frame than otherwise
preferred.
109. Prohibited and unconscionable terms. Defendants’ prepaid credit
expiration or forfeiture policies, as well as their credit card access and charging policy,
also violate Section 1770(a)(14) and Section 1770(a)(19) of CLRA because they
constitute terms and conditions that are unconscionable and prohibited by law.
110. Specifically, under Audible’s fine print terms and conditions, when Plaintiff
and other consumers cancel an Audible plan before they have redeemed all of their
prepaid credits, all such credits expire automatically and immediately and all money paid
for such credits is forfeited without a refund.
111. Defendants’ forced expiration or forfeiture of all unused prepaid credits
immediately upon cancellation of a membership plan without a full or partial refund is a
prohibited and unconscionable term.
112. Similarly, the policy where Amazon permits access to credit cards stored by
consumers on Amazon’s system and Audible charges such credit cards even though
members never provided them to Audible directly is a prohibited and unconscionable
term.
113. Plaintiff and all Class members in California each suffered harm as a result
of Defendants’ use of prohibited and unconscionable terms and conditions of use and
related policies.
114. Under Sections 1780 and 1781 of the CLRA, Plaintiff, individually and on
behalf of all California Class members similarly situated, seeks to recover or obtain actual
damages; an order enjoining Audible’s and Amazon’s unlawful methods, acts, and
practices; restitution of membership plan payments; punitive damages; costs and
reasonable attorneys’ fees; and any other relief that the Court deems proper.
115. Plaintiff has given Defendants written notice by certified mail, return receipt
requested, directed to the addresses provided by Audible and Amazon in their online
terms and conditions, of the alleged violations of Section 1770 of the CLRA and
demanded that Defendants correct or otherwise rectify the services alleged to be in
violation of Section 1770. See Exhibit A. However, Defendants have not identified or
made a reasonable effort to identify all similarly situated consumers; they have not
notified such consumers that they will correct or otherwise remedy the unlawful acts and
practices upon request; they have not agreed to make such correction or offer such
remedy within a reasonable time; and they have not ceased from engaging in the unlawful
acts and practices.
116. Concurrently with the filing of this Complaint, Plaintiff has filed an affidavit
in support of this Complaint stating facts showing that the action has been commenced
in a county or judicial district that constitutes a proper place for the trial of this action.
See Exhibit B.
Eighth Cause of Action
Violation of California’s Unfair Competition Law (UCL),
Cal. Bus. & Prof. Code § 17200 et seq.
117. All of the foregoing paragraphs are incorporated herein.
118. Defendants have engaged in unlawful, unfair, and fraudulent business acts
and practices, and unfair, deceptive, untrue, and misleading advertising that constitute
false and misleading advertising under California’s Unfair Competition Law, Cal. Bus.
& Prof. Code § 17200 et seq. (UCL).
119. These unlawful acts, practices, and advertisements include but are not
limited to representations regarding (i) the use and value of prepaid “credits” sold to
consumers as part of an Audible “membership plan,” (ii) the terms of expiration and/or
forfeiture of prepaid “credits,” and (iii) the terms of cancellation of a consumer’s
“membership plan.” Specifically, the representations that “one credit equals one
audiobook,” membership “includes 1 audiobook each month,” credits “do not expire,”
and members may “cancel anytime” with “no strings attached” all violate the UCL.
120. These unlawful acts and practices also include (i) selling and issuing credits
which constitute unlawful gift certificates or gift cards, (ii) utilizing unlawful automatic
renewal payment policies, and (iii) providing access and making unauthorized charges to
credit cards stored on Amazon’s system but not provided by consumers directly to
Audible.
121. Defendants’ acts, practices, and advertisements were intentional.
122. Plaintiff and Class members in California each relied on these statements to
their detriment, each suffered actual injuries, and each lost money or property as a result.
This harm includes but is not limited to being deceived into purchasing or maintaining a
membership plan, having credits expire or be forfeited, being compelled to maintain a
more expensive membership plan to avoid losing prepaid credits, being compelled to use
credits on a shorter time frame than otherwise preferred, being subject to automatically
renewed credit card charges without full disclosure of relevant terms and conditions, and
having credit cards other than the one provided directly to Audible be accessed and
charged.
123. Plaintiff, individually and on behalf of all Class members in California
similarly situated, seeks an injunction and any other necessary orders or judgments that
will prevent Defendants from continuing with their unlawful acts, practices, and
advertisements; restitution that restores the full amount of their money or property; and
disgorgement of their related profits and proceeds. Plaintiff also seeks an award of costs
and reasonable attorneys’ fees.
Ninth Cause of Action
(Restitution, Unjust Enrichment, and Money Had and Received)
124. All of the foregoing paragraphs are incorporated herein.
125. Alternatively to the claims stated above, Plaintiff and Class members are
equitably entitled to recover from Defendants based on Defendants’ inequitable and
deceptive acts and practices that included falsely advertising the benefits and cancellation
terms of Audible membership plans and credits, forcing consumers to forfeit the value of
prepaid credits, failing to disclose the automatic renewal payment policies, and charging
unauthorized credit cards of Audible and non-Audible members alike.
126. Plaintiff and Class members conferred specific economic benefits upon
Defendants in the form of payments for credits and for refraining from cancelling or
reducing the level of membership plans. Defendants knowingly accepted and retained
such benefits, but they failed to provide the products and services as advertised and as
required by law. Plaintiff and Class members expected to receive the products and
services as advertised and not be subjected to unlawful terms, conditions, policies, and
practices.
127. Defendants were unjustly enriched by the benefits they received from
Plaintiff and Class members, and it would be unjust and unconscionable to permit
Defendants to be so enriched and continue to be enriched in the future. Defendants should
therefore be required to disgorge all amounts that they have been unjustly enriched, and
Plaintiff and Class members should recover such amounts, with interest, as restitution.
128. Alternatively, Defendants owe Plaintiff and similarly situated Class
members money in the amount that was charged on any credit card that was stored on an
Amazon account but never given directly to Audible or another Amazon subsidiary or
affiliate for authorized payments under the common count of money had and received.
Defendants received money from Plaintiff and similarly situated Class members and such
money was intended to be used for the benefit of Plaintiff and similarly situated Class
members. But the money Defendants received was not used for the benefit of Plaintiff
and similarly situated Class members; rather, it was used for Defendants’ own benefit to
obtain unauthorized payment for a product or service that may not have even been
requested or purchased by the credit card holder. Defendants have not returned the
amount of money charged without authorization on Plaintiff’s and similarly situated
Class members’ credit cards.
129. Plaintiff, individually and on behalf of all Class members similarly situated,
seeks an injunction and any other necessary orders or judgments that will prevent
Defendants from continuing to allow access to and charges on credit cards stored on a
consumer’s Amazon account but not given directly to Audible or another Amazon
subsidiary or affiliate for payment; restitution that restores the full amount of their money
or property; and disgorgement of Defendants’ related profits and proceeds.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, on behalf of himself and all proposed Class members,
request the following relief against Defendants:
(1)
Certification of this action as a class action under Federal Rule of Civil
Procedure 23, appointing Plaintiff as class representative and Soderstrom
Law PC as class counsel;
(2)
An award of actual, consequential, and punitive damages to Plaintiff and
(3)
Class members in an amount sufficient to make them whole, compensate
them for all harm, and punish and deter Defendants’ wrongful conduct;
(4)
An award of restitution and/or disgorgement of profits and revenues to make
Plaintiff and Class members whole and to avoid unjust enrichment by
Defendants;
(5)
An award of declaratory and injunctive relief stating that Defendants’ acts
and practices are unlawful and requiring corrective action as permitted by
law, including but not limited to corrective advertising, correcting the
expiration and forfeiture terms related to Audible “credits,” correcting the
disclosures related to the automatic renewal payment policies, and
prohibiting the practice of allowing access and charges to credit cards not
provided directly to Audible or other Amazon subsidiaries and affiliates for
payment; and
(6)
An award to Plaintiff and Class counsel of reasonable litigation costs,
expenses, and attorneys’ fees under California Code of Civil Procedure
section 1021.5, under the Lanham Act, under the CLRA, or under any other
applicable rule or statute;
(7)
An award to Plaintiff and Class members of pre-judgment and post-
judgment interest, to the extent allowed by law; and
(8)
Any and all other relief as equity and justice requires.
Dated: March 10, 2017
SODERSTROM LAW PC
By: /s/ Jamin S. Soderstrom
Jamin S. Soderstrom
Counsel for Plaintiff and the Proposed Class
JURY TRIAL DEMANDED
Plaintiff demands a trial by jury of all issues triable by jury.
Dated: March 10, 2017
SODERSTROM LAW PC
By: /s/ Jamin S. Soderstrom
Jamin S. Soderstrom
Counsel for Plaintiff and the Proposed Class
| intellectual property & communication |
YhaSF4cBD5gMZwcz4W5O | POMERANTZ LLP
Jennifer Pafiti (SBN 282790)
468 North Camden Drive
Beverly Hills, CA 90210
Telephone:
(818) 532-6499
E-mail: [email protected]
Attorney for Plaintiff
- additional counsel on signature page -
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
ADAM WICKS, Individually and On
Behalf of All Others Similarly Situated,
Plaintiff,
v.
Case No.
CLASS ACTION COMPLAINT
FOR VIOLATION OF FEDERAL
SECURITIES LAWS
JURY TRIAL DEMANDED
ALPHABET, INC., LAWRENCE E.
PAGE, SUNDAR PICHAI and RUTH M.
PORAT,
Defendants.
)
)
)
)
)
)
)
)
)
Plaintiff Adam Wicks (“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, wire and
press releases published by and regarding Alphabet, Inc. (“Alphabet” or the “Company”),
1
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 common shares of Alphabet
between April 23, 2018 and October 7, 2018, 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.
Alphabet was incorporated in 2015 and is the parent company of its leading
subsidiary Google Inc. (“Google”), among others. Google was founded in 1998. Alphabet and
Google are headquartered in Mountain View, California. The Company’s common stock trades
on the NASDAQ Global Select Market (“NASDAQ”) under the ticker symbol “GOOG.”
3.
Alphabet, through its subsidiary Google, operates a social networking website
called “Google+” that allows people to communicate with their family, friends, and coworkers.
Google+ users ostensibly have the ability to share and restrict the sharing of personal information
according to their preferences by changing privacy settings.
4.
Between 2015 and March 2018, a software glitch in the Google+ website
permitted outside developers to access the personal profile data of Google+ members who had
not opted to permit their data to be shared publicly. Defendants discovered this glitch in March
2018, ran tests to determine the impact of the glitch, and determined that the data of nearly half
of a million users had been exposed to third parties. Google’s legal and policy staff drafted a
memorandum regarding the security failure and shared it with senior executives. The
interest.” Google’s CEO, Defendant Pichai, was briefed on the plan not to notify users after an
internal committee had reached that decision.
5.
Throughout the Class Period, Defendants repeatedly made materially false and
misleading statements regarding the security failure affecting users personal data. Specifically,
Defendants made false and/or misleading statements and/or failed to disclose that: (1) the
Company’s security measures had failed recently and massively, as Google had exposed the
private data of hundreds of thousands of users of Google+ to third parties; (2) damage to the
Company’s reputation and operating results and loss of customers from this failure of the
Company’s security measures were imminent and inevitable; (3) the Company’s security
protections did not shield personal user data against theft and security breaches; and (4) the
Company’s security measures had been breached due to employee error, malfeasance, system
errors or vulnerabilities.
6.
On October 8, 2018, citing “people briefed on the incident and documents
reviewed,” The Wall Street Journal reported that in March 2018, Google discovered a software
glitch in its Google+ social network that had exposed users’ personal data to third parties, but
“opted not to disclose the issue . . . in part because of fears that doing so would draw regulatory
scrutiny and cause reputational damage.” Following this news, Google’s stock price fell $67.75
per share, or 5.9%, over the following two trading sessions, to close at $1,081.22 per share on
October 10, 2018.
7.
As a result of Defendants’ wrongful acts and omissions, and the precipitous decline in
the market value of the Company’s common shares, Plaintiff and other Class members have suffered
significant losses and damages.
JURISDICTION AND VENUE
8.
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).
9.
This Court has jurisdiction over the subject matter of this action under 28 U.S.C.
§1331 and §27 of the Exchange Act.
10.
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). Alphabet is headquartered in this Judicial District.
11.
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
12.
Plaintiff, as set forth in the accompanying Certification, purchased common
shares of Alphabet at artificially inflated prices during the Class Period and was damaged upon
the revelation of the alleged corrective disclosure.
13.
Defendant Alphabet, Inc. is incorporated in Delaware, and the Company’s
principal executive offices are located at 1600 Amphitheatre Parkway Mountain View, CA
94043. Alphabet’s securities trade on the NASDAQ under the ticker symbol “GOOG.”
14.
Defendant Lawrence E. Page (“Page”) has served at all relevant times as the
Company’s Chief Executive Officer (“CEO”).
15.
Defendant Sundar Pichai has served at all relevant times as Google’s Chief
Executive Officer (“CEO”).
Company’s CFO.
17.
Defendants Page, Pichai and Porat are sometimes referred to herein collectively as
the “Individual Defendants.”
18.
The Individual Defendants possessed the power and authority to control the
contents of Alphabet’s SEC filings, press releases, and other market communications. The
Individual Defendants were provided with copies of the Company’s SEC filings and press
releases alleged herein to be misleading prior to or shortly after their issuance and had the ability
and opportunity to prevent their issuance or to cause them to be corrected. Because of their
positions with the Company, and their access to material information available to them but not to
the public, the Individual Defendants knew that the adverse facts specified herein had not been
disclosed to and were being concealed from the public, and that the positive representations
being made were then materially false and misleading. The Individual Defendants are liable for
the false statements and omissions pleaded herein.
SUBSTANTIVE ALLEGATIONS
Background
19.
Alphabet, through its subsidiary Google, operates a social networking website
called “Google+” that allows people to communicate with their family, friends, and coworkers.
Google+ users ostensibly have the ability to share and restrict the sharing of personal information
according to their preferences by changing privacy settings.
20.
In developing Google+, Google created an application programming interface
(“API”) (a software intermediary that allows two applications to talk to each other) to help
smartphone app developers to access profile information of users who, through their privacy
settings, had permitted such information to be shared. This profile information included personal
connected on Google+.
21.
Between 2015 and March 2018, a software glitch in this Google+ API permitted
outside developers to access the personal profile data of Google+ members who had not opted to
permit their data to be shared publicly. Indeed, the glitch permitted third parties to access the
personal data of users that the users had expressly marked as nonpublic in the Google+ privacy
settings.
22.
In March 2018, Googled discovered this glitch in the API. Google ran tests for
two weeks to determine the impact of the glitch, and found that the personal data of 496, 951
users had been exposed to third parties. The exposed user data included full names, email
addresses, birth dates, gender, profile photos, places lived, occupation and relationship status.
Some of the individuals whose data was exposed included paying users of Google’s “G Suite,” a
set of applications including Google Docs and Googe Drive, and these users include institutions
such as governments, businesses, and schools. As many as 438 third-party applications had
access to the unauthorized Google+ data.
23.
Google’s legal and policy staff drafted a memo regarding the security failure and
shared it with senior executives. The memo warned that disclosing the incident would likely
trigger “immediate regulatory interest.” The memo further stated that the incident would likely
result “in us coming into the spotlight alongside or even instead of Facebook despite having
stayed under the radar throughout the Cambridge Analytica scandal,” referring to the recent
scandal in which a British consulting firm acquired and used personal data from Facebook
without authorization. The memo also noted that disclosure “almost guarantees Sundar [Pichai]
will testify before Congress.”
Pichai, was briefed on the plan not to notify users after an internal committee had reached that
decision.
Materially False and Misleading Statements Issued During the Class Period
25.
On February 1, 2018, the Company issued its SEC Annual Report on Form 10-K
for the fiscal year ending December 31, 2017 (the “1Q 2017 10-K”), in which the Company
stated, in Part I, Item 1A “Risk Factors”:
Privacy concerns relating to our technology could damage our reputation and deter
current and potential users or customers from using our products and services. If our
security measures are breached resulting in the improper use and disclosure of user
data, or if our services are subject to attacks that degrade or deny the ability of users to
access our products and services, our products and services may be perceived as not
being secure, users and customers may curtail or stop using our products and services,
and we may incur significant legal and financial exposure.
From time to time, concerns have been expressed about whether our products, services,
or processes compromise the privacy of users, customers, and others. Concerns about our
practices with regard to the collection, use, disclosure, or security of personal information
or other privacy related matters, even if unfounded, could damage our reputation and
adversely affect our operating results.
Our products and services involve the storage and transmission of users’ and customers’
proprietary information, and theft and security breaches expose us to a risk of loss of this
information, improper use and disclosure of such information, litigation, and potential
liability. Any systems failure or compromise of our security that results in the release of
our users’ data, or in our or our users’ ability to access such data, could seriously harm
our reputation and brand and, therefore, our business, and impair our ability to attract and
retain users. We expect to continue to expend significant resources to maintain state-of-
the-art security protections that shield against theft and security breaches.
[. . .]
Our security measures may also be breached due to employee error, malfeasance, system
errors or vulnerabilities, including vulnerabilities of our vendors, suppliers, their
products, or otherwise. Such breach or unauthorized access, increased government
surveillance, or attempts by outside parties to fraudulently induce employees, users, or
customers to disclose sensitive information in order to gain access to our data or our
users’ or customers’ data could result in significant legal and financial exposure, damage
to our reputation, and a loss of confidence in the security of our products and services
that could potentially have an adverse effect on our business.
[. . .]
If an actual or perceived breach of our security occurs, the market perception of the
effectiveness of our security measures could be harmed and we could lose users and
customers.
26.
On April 23, 2018, the Company issued its SEC Quarterly Report on Form 10-Q
for the period ending March 31, 2018 (the “1Q 2018 10-Q”), in which the Company stated:
Our operations and financial results are subject to various risks and uncertainties,
including those described in Part I, Item 1A, "Risk Factors" in our Annual Report on
Form 10-K for the year ended December 31, 2017, which could adversely affect our
business, financial condition, results of operations, cash flows, and the trading price of
our common and capital stock. There have been no material changes to our risk factors
since our Annual Report on Form 10-K for the year ended December 31, 2017
27.
On July 23, 2018, the Company issued its SEC Quarterly Report on Form 10-Q
for the period ending June 30, 2018 (the “2Q 2018 10-Q”), in which the Company stated:
Our operations and financial results are subject to various risks and uncertainties,
including those described in Part I, Item 1A, "Risk Factors" in our Annual Report on
Form 10-K for the year ended December 31, 2017, which could adversely affect our
business, financial condition, results of operations, cash flows, and the trading price of
our common and capital stock. There have been no material changes to our risk factors
since our Annual Report on Form 10-K for the year ended December 31, 2017
28.
The statements referenced in ¶¶ 25-27 above were materially false and/or
misleading because: (1) the statements failed to disclose that the Company’s security measures
already had failed recently and massively, as Google had exposed the private data of hundreds of
thousands of users of Google+ to third parties; (2) damage to the Company’s reputation and
operating results and loss of customers from this failure of the Company’s security measures
were imminent and inevitable; (3) the Company did not maintain state-of-the-art security
protections, and its protection did not shield personal user data against theft and security
breaches; and (4) the Company’s security measures already had been breached due to employee
error, malfeasance, system errors or vulnerabilities.
Sarbanes-Oxley Act of 2002 by Defendants Page and Porat, stating that “the information
contained in the [Q1 2018 10-Q and 2Q 2018 10-Q] fairly presents, in all material respects, the
financial condition and results of operations of the Company for the periods presented therein.”
30.
The statements referenced in ¶ 29 above were materially false and/or misleading
because the Q1 2018 10-Q and 2Q 2018 10-Q did not fairly present, in all material respects, the
financial condition and results of operations of the Company for the periods presented therein,
for the reasons articulated above.
The Truth Begins To Emerge
31.
On October 8, 2018, citing “people briefed on the incident and documents
reviewed,” The Wall Street Journal reported that in March 2018, Alphabet’s subsidiary Google
discovered a software glitch in its Google+ social network that had exposed users’ personal data
to third parties, but “opted not to disclose the issue . . . in part because of fears that doing so
would draw regulatory scrutiny and cause reputational damage.” Following this news,
Alphabet’s stock price fell $67.75 per share, or 5.9%, over the following two trading sessions, to
close at $1,081.22 per share on October 10, 2018.
32.
Following revelation of the security breach, Google announced plans to shut
down Google+.
33.
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
34.
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
(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.
35.
The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, Alphabet common shares 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 Alphabet 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.
36.
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.
37.
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.
38.
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 Alphabet;
whether Defendants caused Alphabet to issue false and misleading
financial statements during the Class Period;
whether Defendants acted knowingly or recklessly in issuing false and
misleading financial statements;
whether the prices of Alphabet securities during the Class Period were
artificially inflated because of Defendants’ conduct complained of herein;
and
whether the members of the Class have sustained damages and, if so, what
is the proper measure of damages.
39.
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.
40.
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;
Alphabet common shares are traded in efficient markets;
the Company’s shares were liquid and traded with moderate to heavy
volume during the Class Period;
the Company traded on the NASDAQ, and was covered by multiple
analysts;
the misrepresentations and omissions alleged would tend to induce a
reasonable investor to misjudge the value of the Company’s common
shares; and
Plaintiff and members of the Class purchased and/or sold Alphabet
common shares 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.
41.
Based upon the foregoing, Plaintiff and the members of the Class are entitled to a
presumption of reliance upon the integrity of the market.
42.
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
43.
Plaintiff repeats and realleges each and every allegation contained above as if
fully set forth herein.
44.
This Count is asserted against Alphabet 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.
45.
During the Class Period, Alphabet 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.
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 Alphabet common shares during the Class Period.
47.
Alphabet and the Individual Defendants acted with scienter in that they knew that
the public documents and statements issued or disseminated in the name of Alphabet 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 Alphabet, their control over, and/or receipt and/or modification of Alphabet allegedly
materially misleading statements, and/or their associations with the Company which made them
privy to confidential proprietary information concerning Alphabet, participated in the fraudulent
scheme alleged herein.
48.
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 Alphabet personnel to members of
the investing public, including Plaintiff and the Class.
49.
As a result of the foregoing, the market price of Alphabet common shares was
artificially inflated during the Class Period. In ignorance of the falsity of Alphabet’s and the
statements described above and/or the integrity of the market price of Alphabet common shares
during the Class Period in purchasing Alphabet common shares at prices that were artificially
inflated as a result of Alphabet’s and the Individual Defendants’ false and misleading statements.
50.
Had Plaintiff and the other members of the Class been aware that the market price
of Alphabet common shares had been artificially and falsely inflated by Alphabet’s and the
Individual Defendants’ misleading statements and by the material adverse information which
Alphabet’s and the Individual Defendants did not disclose, they would not have purchased
Alphabet’s common shares at the artificially inflated prices that they did, or at all.
51.
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.
52.
By reason of the foregoing, Alphabet 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 Alphabet common shares during the Class Period.
COUNT II
Violation of Section 20(a) of The Exchange Act
Against The Individual Defendants
53.
Plaintiff repeats and realleges each and every allegation contained in the
foregoing paragraphs as if fully set forth herein.
54.
During the Class Period, the Individual Defendants participated in the operation
and management of Alphabet, and conducted and participated, directly and indirectly, in the
conduct of Alphabet’s business affairs. Because of their senior positions, they knew the adverse
non-public information regarding the Company’s inadequate internal safeguards in data security
protocols.
Defendants had a duty to disseminate accurate and truthful information with respect to
Alphabet’s financial condition and results of operations, and to correct promptly any public
statements issued by Alphabet which had become materially false or misleading.
56.
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 Alphabet disseminated in the marketplace during the Class
Period. Throughout the Class Period, the Individual Defendants exercised their power and
authority to cause Alphabet to engage in the wrongful acts complained of herein. The Individual
Defendants therefore, were “controlling persons” of Alphabet 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 Alphabet common shares.
57.
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 Alphabet.
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: October 11, 2018
Respectfully submitted,
POMERANTZ LLP
By: /s/ Jennifer Pafiti
Jennifer Pafiti (SBN 282790)
468 North Camden Drive
Beverly Hills, CA 90210
Telephone: (818) 532-6499
E-mail: [email protected]
POMERANTZ, LLP
Jeremy A. Lieberman
Austin P. Van
600 Third Avenue, 20th Floor
New York, New York 10016
Telephone: (212) 661-1100
Facsimile: (212) 661-8665
E-mail: [email protected]
E-mail: [email protected]
POMERANTZ LLP
Patrick V. Dahlstrom
Ten South La Salle Street, Suite 3505
Chicago, Illinois 60603
Telephone: (312) 377-1181
Facsimile: (312) 377-1184
E-mail: [email protected]
Attorneys for Plaintiff
| securities |
ftezD4cBD5gMZwcz2xnA | Mitchell Segal, Esq. MS4878
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
_________________________________________X
YAROSLAV SURIS, on behalf of himself and all
others similarly situated,
Case No.:
Plaintiff,
CLASS ACTION COMPLAINT
-against-
THE WEATHER CHANNEL, LLC and THE
WEATHER COMPANY, LLC,
Defendant.
____________________________________________X
1. Plaintiff, YAROSLAV SURIS (hereinafter "Plaintiff”), on behalf of himself and all
others similarly situated, by their attorney, the Law Offices of Mitchell S. Segal, P.C.,
hereby file this Class Action Complaint against the Defendants, THE WEATHER
CHANNEL, LLC and THE WEATHER COMPANY, LLC INC. (hereinafter each
individually "Defendant" and collectively the “Defendants”) and state as follows:
2. This Class Action seeks to seek retribution for the Defendants actions against deaf and
hard of hearing individuals residing in New York and within the United States. Defendants
have denied deaf and hard-of-hearing individuals’ access to goods and services provided to
non-disabled individuals through its website www.weather.com. (hereinafter the "Website").
3. Defendant provides a wide array of goods and services to the public through its Website.
However, due to barriers that make it difficult for deaf and hard-of-hearing individuals to use the
Website, the Plaintiff, and other deaf and hard of hearing individuals cannot understand the audio
portion of videos on the Website. Defendants exclude the deaf and hard of hearing from the full
and equal participation on their Website, and therefore denial of its products and services offered
thereby and in conjunction with its physical locations and is a violation of Plaintiffs rights under
the ADA.
4. Plaintiff, lives in Kings County, New York State and is a deaf individual. He brings this civil
rights class action against the Defendants for failing to design, construct, and/or own or operate a
website that is fully accessible to and usable by deaf and hard-of- hearing people without the help
of others in violation of Title III of the American Disabilities Act (“ADA”); the New York Human
Rights Law (“NYHRL”); the New York City Human Rights Law (“NYCHRL”) and Article 15 of
the N.Y. Executive Law §§ 290, et. seq..
5. Deaf or hard of hearing individuals require closed captioning to understand audio components
of video content. Closed captioning displays text on videos, television programming, or DVD
movies in addition to online websites allowing deaf and hard-of-hearing individuals the same and
equally accessible experience as non- deaf or hard of hearing individuals to watch videos by
reading the captioned text.
6. Without closed captioning deaf and hard-of-hearing people cannot enjoy video content on
Websites while the general public can.
7. The Defendant has videos on its Website without closed captioning, or with limited closed
captioning, which are inaccessible to deaf and hard-of-hearing individuals. Without closed
captioning, deaf and hard-of-hearing people cannot understand the audio portion of the videos on
the Website.
8. By failing to make the Website accessible to deaf and hard-of-hearing persons, Defendant is
violating equality requirements under both state and federal law.
9. The American Disabilities Act provides for the non-discrimination against people with
disabilities. Discrimination includes barriers displayed by websites and other public
accommodations that are inaccessible to deaf and hard of hearing individuals. New York State
also requires access to goods, services, and facilities by making reasonable accommodations for
persons with disabilities.
10. The Plaintiff in this matter was on the Defendants’ Website in order to determine the weather
predictions and watch weather related news stories on the day of January 21, 2019 and subsequent
days. However, due to access barriers, the Plaintiff could not watch the content and Plaintiff and
Class members will continue to be unable to watch video content on the Website unlessthe
Defendants corrects the existing barriers on the Website.
11. The failure of the Defendants to provide access to the millions of deaf and hard of hearing
individuals in the United Sates violates the American with Disabilities Act (“ADA”) goal of
providing “full and equal enjoyment” of a public accommodation’s goods, services, facilities and
privileges. Places of public accommodation include but are not limited to “place[s] of exhibition
and entertainment”, “place[s] of recreation”. “sales or rental establishment[s]” and “service
establishments”. 28 CFR § 36.201(a); 42 U.S.C. § 12181(7). The Defendants website is a “place
of public accommodation” which denies equal access to its video content which is available to
hearing individuals and violates the ADA.
JURISDICTION AND VENUE
12. This Court has subject matter jurisdiction of this action pursuant to 28 U.S.C. § 1331 and 42
U.S.C. § 12188, for Plaintiff's claims which arise under Title III of the Americans with
disabilities Act, 42 U.S.C. § 12181, et seq., ("ADA"); and 28 U.S.C. § 1332, because this is a
class action, as defined by 28 U.S.C § 1332(d)(l)(B), in which a member of the presumed Class
is a citizen of a state different than Defendant, and the amount in controversy exceeds the sum or
value of $5,000,000, excluding interest and costs. See 28 U.S.C. § 1332(d)(2).
13. 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. ("City
14. Venue is proper in the Eastern District of New York pursuant to 28 U.S.C. §§ 1391(b)-(c) and
144l(a).
15. The Defendants actions occurred while the Plaintiff attempted to watch videos on the
Defendants Website at his home located in the Eastern District.
PARTIES
16. The Plaintiff is and has been at all times material hereto a resident of Kings County, New
17. Plaintiff is legally deaf and is disabled as defined in the American Disability Act (“ADA”)
under 42 U.S.C. § 12102(1)-(2), 28 CFR §§ 36.101 ·et seq., the New York State Human Rights
Law, and the New York City Human Rights Law.
18. The Plaintiff has been denied equal access of the facilities, goods, and services of the
Defendants’ Website due to its the lack of accessibility. The Plaintiff attempted to watch various
videos on www.weather.com, including but not limited to a video entitled “Coldest Arctic
Outbreak in at Least Two Decades is Expected This Week in Parts of the Midwest” but was
unable to do so due to its lack of closed captioning. Plaintiff and Class members cannot watch
videos on the Website and have been prevented from accessing the Website and are deterred
from visiting the Website.
19. The Defendant, The Weather Channel, LLC is a foreign limited liability company for-
profit corporation organized under the laws of the State of Georgia and is registered in the
State of New York as a foreign limited liability company and is authorized to conduct
business in New York.
20. The Defendant, The Weather Company, LLC is a foreign limited liability company for-
profit corporation organized under the laws of the State of Georgia and is registered in the
State of New York as a foreign limited liability company and is authorized to conduct
business in New York.
21. The Defendants own, manage, control and maintain the website with the domain name
of www.weather.com (the “Website”).
22. The Defendants barriers to accessibility affect millions of deaf and hard-of-hearing
individuals throughout the county by preventing full and equal access and enjoyment of a public
accommodation's goods, services, facilities, and privileges.
23. A website is a place of public accommodation defined as a "place[s] of exhibition and
entertainment," "places[s] of recreation," and "service establishments." 28 C.F.R. § 36.201 (a);
42 U.S.C. §12181 (7).
24. The Plaintiff seeks injunctive and declaratory relief requiring the Defendants to correct the
barriers which prevent access for death and hard of hearing individuals so that they can enjoy the
Defendants Website as non-deaf and hard-of-hearing individuals are able to do.
CLASS ACTION ALLEGATIONS
25. 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 deaf
and hard of hearing individuals in the United States who have been denied equal access to goods
and services of the Defendant’s Website.
26. 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); all
deaf and hard of hearing individuals in the State of New York who have been denied equal
access to goods and services of the Defendant’s Website.
27. 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); all
deaf and hard of hearing individuals in the City of New York who have been denied equal access
to goods and services of the Defendant’s Website.
28. The Class is so numerous, being composed of millions of deaf and hard of hearing
individuals, that joinder of all members is impracticable; there are questions of law and/or fact
common to the Class and the claims of the Plaintiff are typical of the Class claims.
29. Common questions of law and fact exist amongst the Class including:
a. Whether the Website is a "public accommodation" under the ADA and
New York laws;
b. Whether there was a violation under the ADA due to the barriers that exist
on the Defendants 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 Defendants Website and whether the Plaintiff and the Class
were denied full and equal enjoyment of the goods, services, facilities,
privileges, advantages, or accommodations.
30. 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 its Website accessible.
31. Plaintiff will fairly and adequately represent and protect the interests of the Class members
as the Plaintiff and the Class are both deaf or hard of hearing individuals having the same claims
in the instant matter.
32. 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.
33. 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.
34. Counsel for the Plaintiff is experienced representing both Plaintiffs and Defendants in Class
actions. As such the Class will be properly represented.
35. Judicial economy will be served by maintaining this lawsuit as a class action as it will
prevent the filing of a multitude of individual lawsuits by people who are deaf or hard of hearing
throughout the United States.
FACTUAL ALLEGATIONS
36. Defendants’ own, operate, control and maintain the Website, which provides important
weather related stories on video, articles and information displays as well as weather predictions.
This content is delivered to millions of people across the United States.
37. 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.
38. In order for the deaf and hard of hearing to access video content, a Website must have the
ability to turn voice content into readable content. Closed captioning is the process by which this
is done. Without the use of closed captioning, a deaf or hard of hearing individual would have to
have someone present while they are watching a video to interpret and explain the audio content
for them.
39. Various recommendations and guidelines exist in order to make a website compliant with
the ADA. Web Content Accessibility Guidelines (“WCAG”) are one of those guidelines.
WCAG 2.1 Section 1.2.2 states that “Captions are provided for all prerecorded audio content in
synchronized media, except when the media is a media alternative for text and is clearly labeled
as such”. Section 508, an amendment to the United States Workforce Rehabilitation Act of
1973, requires all electronic and information technology be accessible to individuals with
disabilities and requires closed captioning for video content.
40. The Website’s numerous videos which cannot be accessed by deaf and hard of hearing
individuals are in violation of the ADA and New York laws. Videos include most of the
Website’s trending stories daily in addition to the video the Plaintiff tried to access mentioned
herein.
41. The Plaintiff desired and attempted to watch a video by www.weather.com meteorologists
entitled “Coldest Artic Outbreak in at Least Two Decades is Expected This Week in Parts of the
Midwest. There was no closed captioning on the video. The Defendants access barriers
prevented the Plaintiff from enjoying the goods, services and benefits offered by the Website and
as such denied the Plaintiff equal access.
42. This lack of closed captioning by the Defendants on their Website prevents not only the
Plaintiff but also the deaf and hard of hearing located in New York State and nationally from
having equal access as non-deaf and hard of earing individuals preventing them from enjoying
the goods, services and benefits offered by the Website.
43. Defendants have intentionally failed and refused to remove the Website’s barriers of access
by failing to use closed captioning thereby denying equal access to the Plaintiff and the Class and
discriminates against the Plaintiff and the Class in violation of the ADA and New York laws.
FIRST CAUSE OF ACTION ON BEHALF OF
THE PLAINTIFF, THE CLASS AND THE SUBCLASS
Violation of Title III of the Americans with Disabilities Act
44. The Plaintiff realleges and incorporates by reference the allegations contained in paragraphs
“1” to “43” as if set forth fully herein.
45. The Plaintiff is deaf and requires closed captioning to have full and equal access to
audio and audiovisual content and 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).
46. 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.
47. 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").
48. Defendant has failed to provide closed captioning on its Website making videos contained
on its Website non-accessible to deaf and hard of hearing individuals.
49. Discrimination under Title III includes the denial of an opportunity for the person who is
deaf or hard of hearing 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).
50. Discrimination specifically includes the failure to provide auxiliary aids and services
such as closed captioning to ensure effective communication to deaf and hard-of-hearing
individuals. 42 U.S.C. § 12182(b)(l)(A)(III); 28 C.F.R. § 36.303(c); 28 C.F.R. § 36.303
(b)(1).
51. Discrimination also 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.
52. Defendants discriminate against the Plaintiff on the basis of his disability by denying him an
equal opportunity to participate in and benefit from Defendants’ 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).
53. 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.
54. Failure to make reasonable modifications 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 the entity can prove
that implementing 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).
55. "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).
56. The Defendants actions or lack of actions are discriminatory acts against the Plaintiff,
the Class and the Subclass as they have denied deaf and hard of hearing individuals (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); and
failing to take necessary steps to ensure that the Plaintiff and other deaf and hard of hearing
individuals are not excluded, denied services, segregated or treated differently than others
because of the absence of auxiliary aids and services, including the use of closed captioning
on its Website.
57. The Defendants have denied full and equal access to deaf and hard of hearing
individuals to its Website by having barriers to their services and accommodations while
providing access to their services and accommodations to non-deaf and hard of hearing
individuals.
58. By making the necessary modification of adding closed captioning to its Website, the
Defendants would not alter the nature of its goods, services, privileges, advantages or
accommodations nor would it result in an undue burden to the Defendants.
59. 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.
60. Absent injunctive relief, there is a clear and imminent risk that the Defendants
discriminatory actions will continue against the Plaintiff, the Class and Subclass causing
irreparable harm.
61. 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, THE CLASS AND THE SUBCLASS
Violation of New York State Human Rights Law
62. The Plaintiff realleges and incorporates by reference the allegations contained in paragraphs
“1” to “61” as if set forth fully herein.
63. 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 Defendants.
64. The Plaintiff, at all times relevant to this action, has a substantial impairment to a major
life activity of hearing and is an individual with a disability under Article 15 of the N.Y.
Executive Law § 292(21).
65. The Defendant, at all relevant times to this action, owns and operates a place of
accommodation, the Website, 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).
66. 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."
67. 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).
68. Defendants actions violate Article 15 of the N.Y. Exec. Law§ 296(2)(a) by discriminating
against the Plaintiff and the Class, including the Subclass by (i) owning and operating the
Website that is inaccessible to deaf and hard of hearing persons; and (ii) by not removing access
barriers to its Website in order to make its videos accessible to the deaf and hard of hearing when
such modifications are necessary to afford facilities, privileges, advantages or accommodations
to individuals with disabilities. This inaccessibility denies the deaf and hard-of-hearing full and
equal access to the facilities, goods and services that the Defendants make available to
individuals who are not deaf or hard of hearing. Article 15 of the N.Y. Exec. Law§ 296(2)(c).
69. The Defendants 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).
70. Defendants’ have intentionally and willfully discriminated against the Plaintiff and the
Class in violation of the New York State Human Rights Law, Article 15 of the N.Y. Exe.
Law § 296(2) and this discrimination continues to date.
71. Absent injunctive relief, Defendants discrimination will continue against the Plaintiff, the
Class and Subclass causing irreparable harm.
72. Plaintiff is 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, THE CLASS AND THE SUBCLASS
Violation of New York State Civil Rights Law
73. The Plaintiff realleges and incorporates by reference the allegations contained in paragraphs
“1” to “72” as if set forth fully herein.
74. Plaintiff served notice thereof upon the attorney general as required by N.Y. Civil
Rights Law § 41.
75. 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.
76. No person because of disability, as defined in § 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.
77. § 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.
78. Defendants’ discriminate against the Plaintiff and the Class under CVR § 40 as
Defendants’ Website is a public accommodation that does not provide full and equal
accommodations, advantages, facilities and privileges to all persons and discriminates
against the deaf and hard of hearing due to its lack of closed captioning for the death and
hard of hearing.
79. Defendants intentionally and willfully failed to remove the barriers on their Website
discriminating against the Plaintiff, Class and Sub-Class preventing access in violation of
CVR §40.
80. 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.
81. Plaintiff hereby demands compensatory damages of five hundred dollars for each of the
Defendants 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, THE CLASS AND THE SUBCLASS
Violation of New York City Human Rights Law
82. The Plaintiff realleges and incorporates by reference the allegations contained in paragraphs
“1” to “81” as if set forth fully herein.
83. 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 Defendants as the
Defendants’ own and operate the Website and are persons under the law.
84. At all times concerning this action the Plaintiff has had a substantial impairment to a
major life activity of hearing and is an individual with a disability under N.Y.C.
Administrative Code § 8-102(16).
85. At all times concerning this action the Defendants’ Website is a place of public
accommodation as defined in N.Y.C. Administrative Code § 8-102(9).
86. “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).
87. The willfull and intentional non-removal of the Website’s barriers of access for the
Plaintiff, the Class and the Subclass by the Defendants discriminate against the deaf and hard of
hearing by denying them full and equal access to the facilities, goods, and services that
Defendants make available to the non-deaf and hard of hearing individuals.
88. It is discriminatory for the Defendants “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).
89. Defendants actions will continue to prevent the Plaintiff, the Class and Subclass from
accessing the Website as the remaining public can and the Plaintiff requests injunctive relief.
90. Plaintiff is 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 SUB-CLASS FOR DECLARATORY RELIEF
91. The Plaintiff realleges and incorporates by reference the allegations contained in paragraphs
“1” to “90” as if set forth fully herein.
92. The Plaintiff claims that the Website contains barriers denying deaf and hard-of-hearing
individuals full and equal access to the goods and services of the Website.
93. Defendants’ Website fails to comply with applicable laws and the Defendants’ discriminate
against the Plaintiff, the Class and Sub-Class 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.
94. The Defendants deny these claims.
95. 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
Defendants 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 Defendants’ from actions that deny deaf and hard of hearing individuals access
to the full and equal enjoyment of Defendants’ Website 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 Defendants to make the Website fully compliant with the
requirements set forth in the ADA, and its regulations, so that the Website is readily accessible to
and usable by deaf and hard-of-hearing individuals;
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 New York State Human Rights Law and New York City
Human Rights Law;
f. Punitive damages pursuant to the New York City Human Rights Law;
g. 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;
h. For pre-judgment and post-judgment interest to the highest extent permitted by law; and
i. Such other and further relief as the Court deems just and proper.
DEMAND FOR JURY TRIAL
Plaintiff, on behalf of himself the Class and Sub-Class demands a trial by jury on all issues and
requested relief.
Dated: Great Neck, New York
January 30, 2019 /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 |
pfe4E4cBD5gMZwcz3nMs | James E. Cecchi
Lindsey H. Taylor
Zach Bower
CARELLA, BYRNE, CECCHI,
OLSTEIN, BRODY & AGNELLO PC
5 Becker Farm Road
Roseland, New Jersey 07068
(973) 994-1700
Hollis Salzman
Bernard Persky
Kellie Lerner
ROBINS, KAPLAN, MILLER
& CIRESI L.L.P.
601 Lexington Avenue
New York, NY 10022
(212) 910-7400
Attorneys for Plaintiffs and the Proposed Classes
(Additional Counsel on signature page)
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
Civil Action No.
COMPLAINT and
DEMAND FOR TRIAL BY JURY
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F. RUGGIERO & SONS, INC., and ROBERT
O’ROURKE on Behalf of Themselves and all
Others Similarly Situated,
Plaintiffs,
vs.
NYK LINE (NORTH AMERICA) INC., NIPPON
YUSEN KABUSHIKI KAISHA, WILH.
WILHELMSEN HOLDING ASA, WILH.
WILHELMSEN ASA, MITSUI O.S.K. LINES,
LTD., KAWASAKI KISEN KAISHA, LTD., “K”
LINE AMERICA, INC., EUKOR VEHICLE
CARRIERS INC., WALLENIUS WILHELMSEN
LOGISTICS AS, WALLENIUS WILHELMSEN
LOGISTICS AMERICAS LLC, WALLENIUS
LINES AB, COMPAÑÍA SUD AMERICANA DE
VAPORES S.A., TOYOFUJI SHIPPING CO.,
LTD. and NISSAN MOTOR CAR CARRIER
CO., LTD.,
Defendants.
TABLE OF CONTENTS
Page(s)
NATURE OF ACTION ...................................................................................................................1
JURISDICTION AND VENUE ......................................................................................................3
PARTIES .........................................................................................................................................6
AGENTS AND CO-CONSPIRATORS ..........................................................................................8
FACTUAL ALLEGATIONS ..........................................................................................................9
CLASS ACTION ALLEGATIONS ..............................................................................................25
PLAINTIFFS AND THE CLASSES SUFFERED ANTITRUST INJURY .................................29
PLAINTIFFS' CLAIMS ARE NOT BARRED BY THE STATUTE OF
LIMITATIONS ..................................................................................................................31
A.
The Statute of Limitations Did Not Begin to Run Because Plaintiffs
Did Not and Could Not Discover Their Claims.................................................................31
B.
Fraudulent Concealment Tolled the Statute of Limitations ...............................................32
FIRST COUNT FOR RELIEF
Violation of Section 1 of the Sherman Act
(on behalf of Plaintiffs and the Nationwide Class) ........................................................................34
SECOND COUNT FOR RELIEF
Violation of State Antitrust Statutes
(on behalf of Plaintiffs and the Damages Class) ............................................................................35
THIRD COUNT FOR RELIEF
Violation of State Consumer Protection Statutes
(on behalf of Plaintiffs and the Damages Class) ............................................................................56
FOURTH COUNT FOR RELIEF
Unjust Enrichment
(on behalf of Plaintiffs and the Damages Class) ............................................................................74
PRAYER FOR RELIEF ................................................................................................................74
JURY DEMAND ...........................................................................................................................78
Plaintiffs F. Ruggiero & Sons, Inc. and Robert O’Rourke (“Plaintiffs”), on behalf of
themselves and all others similarly situated (the “Classes” as defined below), upon personal
knowledge as to the facts pertaining to themselves and upon information and belief as to all other
matters, and based on the investigation of counsel, bring this class action for damages, injunctive
relief and other relief pursuant to federal antitrust laws and state antitrust, unfair competition, and
consumer protection laws, and the common law of unjust enrichment, demand a trial by jury, and
allege as follows:
I.
NATURE OF ACTION
1.
This lawsuit is brought as a proposed class action against Defendants NYK Line
(North America) Inc. (“NYK America”), Nippon Yusen Kabushiki Kaisha (“NYK Line”), Mitsui
O.S.K. Lines, Ltd. (“MOL”), Kawasaki Kisen Kaisha, Ltd. (““K” Line”), “K” Line America, Inc.
(““K” Line America”), EUKOR Vehicle Carriers Inc. (“EUKOR”), Wallenius Wilhelmsen
Logistics AS (“WWL”), Wilh. Wilhelmsen Holding ASA (“WW Holding”), Wilh. Wilhelmsen
ASA (“WW ASA”), Wallenius Wilhelmsen Logistics Americas LLC (“WWL America”),
Wallenius Lines AB (“Wallenius”), Compañía Sud Americana De Vapores S.A. (“CSAV”),
Toyofuji Shipping Co., Ltd. (“Toyofuji”) and Nissan Motor Car Carrier Co., Ltd. (“Nissan”) (all
as defined below, and collectively the “Defendants”), and unnamed co-conspirators, providers of
Vehicle Carrier Services (defined below) globally and in the United States, for engaging in at
least a five-year-long conspiracy to fix, raise, maintain and/or stabilize prices, and allocate the
market and customers in the United States for Vehicle Carrier Services.
2.
“Vehicle Carriers” transport large numbers of cars, trucks, or other automotive
vehicles including agriculture and construction equipment (collectively “Vehicles”) across large
bodies of water using specialized cargo ships known as Roll On/Roll Off vessels (“RoRos”). As
used herein, “Vehicle Carrier Services” refers to the paid ocean transportation of Vehicles by
RoRo. According to its website, the Port of New York and New Jersey, with its principal
activities at the Port of Newark and the adjacent Elizabeth-Port Authority Marine Terminal, is
“the leading North American port for automobile imports and exports.”
3.
Plaintiffs seek to represent all persons and entities in the United States who
indirectly purchased from any Defendant or any current or former subsidiary or affiliate thereof,
or any co-conspirator, Vehicle Carrier Services for personal use and not for resale, incorporated
into the price of a new Vehicle purchased or leased during the period from and including January
2008 through such time as the anticompetitive effects of Defendants’ conduct ceased (the “Class
Period”).
4.
The Defendants provide, market, and/or sell Vehicle Carrier Services throughout
the United States.
5.
The Defendants, and their co-conspirators (as yet unknown), agreed, combined,
and conspired to fix, raise, maintain and/or stabilize prices and allocate the market and customers
in the United States for Vehicle Carrier Services.
6.
Competition authorities in the United States, the European Union, Canada and
Japan have been investigating a possible global cartel among Vehicle Carriers since at least
September 2012. Both the United States Department of Justice’s Antitrust Division (“DOJ”) and
Canada’s Competition Bureau (“CCB”) are investigating unlawful, anticompetitive conduct in
the market for ocean shipping of cars, trucks, construction equipment and other products. The
Japanese Fair Trade Commission (“JFTC”) and European Commission Competition Authority
(“EC”) have also conducted coordinated dawn raids at the Tokyo and European offices of several
of the Defendants.
7.
Defendants and their co-conspirators participated in a combination and conspiracy
to suppress and eliminate competition in the Vehicle Carrier Services market by agreeing to fix,
stabilize and maintain the prices of, Vehicle Carrier Services sold to Vehicle manufacturers and
others in the United States. The combination and conspiracy engaged in by the Defendants and
their co-conspirators was in unreasonable restraint of interstate and foreign trade and commerce
in violation of the Sherman Antitrust Act, 15 U.S.C. § 1, state antitrust, unfair competition, and
consumer protection laws and the common law of unjust enrichment.
8.
As a direct result of the anticompetitive and unlawful conduct alleged herein,
Plaintiffs and the Classes paid artificially inflated prices for Vehicle Carrier Services
incorporated into the price of a new Vehicle purchased or leased during the Class Period, and
have thereby suffered antitrust injury to their business or property.
II.
JURISDICTION AND VENUE
9.
Plaintiffs bring this action under Section 16 of the Clayton Act (15 U.S.C. § 26) to
secure equitable and injunctive relief against Defendants for violating Section 1 of the Sherman
Act (15 U.S.C. § 1). Plaintiffs also allege claims for actual and exemplary damages pursuant to
state antitrust, unfair competition, and consumer protection laws, and the common law of unjust
enrichment, and seek to obtain restitution, recover damages and secure other relief against the
Defendants for violations of those state laws and common law. Plaintiffs and the Classes also
seek attorneys’ fees, costs, and other expenses under federal and state law.
10.
This Court has jurisdiction over the subject matter of this action pursuant to
Section 16 of the Clayton Act (15 U.S.C. § 26), Section 1 of the Sherman Act (15 U.S.C. § 1),
and Title 28, United States Code, Sections 1331 and 1337. This Court has subject matter
jurisdiction of the state law claims pursuant to 28 U.S.C. §§ 1332(d) and 1367, in that (i) this is a
class action in which the matter or controversy exceeds the sum of $5,000,000, exclusive of
interests and costs, and in which some members of the proposed Classes are citizens of a state
different from some of the Defendants; and (ii) Plaintiffs’ state law claims form part of the same
case or controversy as their federal claims under Article III of the United States Constitution.
11.
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 Plaintiffs’ claims occurred in this District, a substantial portion of the affected
interstate trade and commerce discussed below has been carried out in this District, and one or
more of the Defendants reside, are licensed to do business in, are doing business in, had agents
in, or are found or transact business in this District.
12.
This Court has in personam jurisdiction over the Defendants because each, either
directly or through the ownership and/or control of its subsidiaries, inter alia: (a) transacted
business in the United States, including in this District; (b) directly or indirectly sold or marketed
Vehicle Carrier Services throughout the United States, including in this District; (c) had
substantial aggregate contacts with the United States as a whole, including in this District; or (d)
were engaged in an illegal price-fixing conspiracy that was directed at, and had a direct,
substantial, reasonably foreseeable and intended effect of causing injury to, the business or
property of persons and entities residing in, located in, or doing business throughout the United
States, including in this District. The Defendants also conduct business throughout the United
States, including in this District, and they have purposefully availed themselves of the laws of
the United States.
13.
The Defendants engaged in conduct both inside and outside of the United States
that caused direct, substantial and reasonably foreseeable and intended anticompetitive effects
upon interstate commerce within the United States.
14.
The activities of the 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.
The Defendants’ Vehicle Carrier Services are sold in the flow of interstate commerce.
15.
Vehicles, the prices of which include Vehicle Carrier Services, transported from
abroad by the Defendants and sold for use within the United States are goods brought into the
United States for sale, and therefore constitute import commerce. To the extent any such
Vehicles and the related Vehicle Carrier Services are purchased in the United States, and such
Vehicles or Vehicle Carrier Services do not constitute import commerce, the 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 anticompetitive conduct, and its effect on United States commerce described
herein, proximately caused antitrust injury to Plaintiffs and members of the Classes in the United
16.
By reason of the unlawful activities hereinafter alleged, Defendants substantially
affected commerce throughout the United States, causing injury to Plaintiffs and members of the
Classes. The Defendants, directly and through their agents, engaged in activities affecting all
states, to fix, raise, maintain and/or stabilize prices, and allocate the market and customers in the
United States for Vehicle Carrier Services, which conspiracy unreasonably restrained trade and
adversely affected the market for Vehicle Carrier Services.
17.
The Defendants’ conspiracy and unlawful conduct described herein adversely
affected persons and entities in the United States who purchased Vehicle Carrier Services for
personal use and not for resale, including Plaintiffs and the members of the Classes.
III. PARTIES
Plaintiffs
18.
Plaintiff F. Ruggiero & Sons, Inc. is a New York corporation that purchased
Vehicle Carrier Services indirectly from one or more Defendants.
19.
Plaintiff Robert O’Rourke is a New York resident who purchased Vehicle Carrier
Services indirectly from one or more Defendants.
Defendants
20.
Defendant NYK America is a New Jersey company with its principal place of
business located at 300 Lighting Way, Secaucus, New Jersey, 07094. NYK Line America is a
wholly owned subsidiary of NYK Line. NYK America provided, marketed and/or sold Vehicle
Carrier Services throughout the United States, including in this District, during the Class Period.
21.
Defendant NYK Line is a Japanese company. NYK Line – directly and/or
through its subsidiaries, which it wholly owned and/or controlled – provided, marketed and/or
sold Vehicle Carrier Services throughout the United States, including in this District, during the
Class Period.
22.
Defendant MOL is a Japanese company. MOL – directly and/or through its
subsidiaries, which it wholly owned and/or controlled – provided, marketed and/or sold Vehicle
Carrier Services throughout the United States, including in this District, during the Class Period.
23.
Defendant “K” Line is a Japanese company. “K” Line – directly and/or through
its subsidiaries, which it wholly owned and/or controlled – provided, marketed and/or sold
Vehicle Carrier Services throughout the United States, including in this District, during the Class
Period.
24.
Defendant “K” Line America is a wholly owned subsidiary of “K” Line and a
Virginia company. “K” Line America provided, marketed and/or sold Vehicle Carrier Services
throughout the United States, including in this District, during the Class Period.
25.
Defendant WW Holding is a Norwegian company. WW Holding – directly
and/or through its subsidiaries, which it wholly owned and/or controlled – provided, marketed
and/or sold Vehicle Carrier Services throughout the United States, including in this District,
during the Class Period.
26.
Defendant WW ASA is a Norwegian company. WW ASA – directly and/or
through its subsidiaries, which it wholly owned and/or controlled – provided, marketed and/or
sold Vehicle Carrier Services throughout the United States, including in this District, during the
Class Period.
27.
Defendant EUKOR is a South Korean company. EUKOR – directly and/or
through its subsidiaries, which it wholly owned and/or controlled – provided, marketed and/or
sold Vehicle Carrier Services throughout the United States, including in this District, during the
Class Period.
28.
Defendant WWL is a Norwegian company. WWL – directly and/or through its
subsidiaries, which it wholly owned and/or controlled – provided, marketed and/or sold Vehicle
Carrier Services throughout the United States, including in this District, during the Class Period.
29.
Defendant WWL America is a wholly owned subsidiary of WWL and a Florida
company. WWL America provided, marketed and/or sold vehicle Carrier Services throughout
the United States, including in this District, during the Class Period.
30.
Defendant Wallenius is a Swedish Company. Wallenius – directly and/or through
its subsidiaries, which it wholly owned and/or controlled – provided, marketed and/or sold
vehicle Carrier Services throughout the United States, including in this District, during the Class
31.
Defendant CSAV is a Chilean company. CSAV – directly and/or through its
subsidiaries, which it wholly owned and/or controlled – provided, marketed and/or sold Vehicle
Carrier Services throughout the United States, including in this District, during the Class Period.
32.
Defendant Toyofuji is a Japanese company. Toyofuji – directly and/or through its
subsidiaries, which it wholly owned and/or controlled – provided, marketed and/or sold Vehicle
Carrier Services throughout the United States, including in this District, during the Class Period.
33.
Defendant Nissan is a Japanese company. Nissan – directly and/or through its
subsidiaries, which it wholly owned and/or controlled – provided, marketed and/or sold Vehicle
Carrier Services throughout the United States, including in this District, during the Class Period.
IV.
AGENTS AND CO-CONSPIRATORS
34.
Each Defendant acted as the principal of or agent for the other Defendants with
respect to the acts, violations, and common course of conduct alleged herein.
35.
Various persons, partnerships, sole proprietors, firms, corporations and
individuals not named as Defendants in this lawsuit, and individuals, the identities of which are
presently unknown, have participated as co-conspirators with the 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.
36.
Whenever in this Complaint reference is made to any act, deed or transaction of
any corporation or limited liability entity, the allegation means that the corporation or limited
liability entity engaged in the act, deed or transaction by or through its officers, directors, agents,
employees or representatives while they were actively engaged in the management, direction,
control or transaction of the corporation’s or limited liability entity’s business or affairs.
FACTUAL ALLEGATIONS
A.
The Vehicle Carrier Industry
37.
A RoRo ship is a special type of ocean vessel that allows wheeled Vehicles to be
driven and parked on its decks for long voyages. These ships, also known as Vehicle Carriers,
have special ramps to permit easy access, high sides to protect the cargo during transport, and
numerous decks to allow storage of a large number and variety of Vehicles.
38.
There are different types of RoRo ships. A Pure Vehicle Carrier (PCC) transports
only cars and a Pure Car and Truck Carrier (PCTC) transports cars, trucks, and other four
wheeled vehicles. Although a RoRo ship cannot transport containers, some hybrid
RoRo/container ships have been built.
WW ASA’s MV Tønsberg RoRo vessel
39.
Vehicle Carriers are a defined submarket of the larger bulk shipping market.
World trade exploded after the proliferation of container ships. These ships allow a large range
of goods, such as food and consumer electronics, to be packed in standard-sized containers for
quick loading and delivery. However, cars, trucks, and heavy machinery, due to their larger and
more irregular shapes, are not easily shipped in containers. Furthermore, there are no reasonable
substitutes for the shipment of Vehicles by sea because any alternatives, such as air
transportation, would be too costly.
40.
For new Vehicles, the original equipment manufacturers (“OEMs”) – mostly large
automotive, construction and agricultural manufacturers – purchase Vehicle Carrier Services
directly from the Defendants. The OEMs and Vehicle Carriers generally enter into long-term
shipping arrangements.
41.
The Defendants and their co-conspirators provided Vehicle Carrier Services to
OEMs for transportation of Vehicles sold in the United States and elsewhere. The Defendants
and their co-conspirators provided Vehicle Carrier Services (a) in the United States for the
transportation of Vehicles manufactured elsewhere for export to and sale in the United States,
and (b) in other countries for the transportation of Vehicles manufactured elsewhere for export to
and sale in the United States.
42.
Plaintiffs and members of the proposed Classes purchased Vehicle Carrier
Services indirectly from one or more of the Defendants by virtue of their purchase or lease of a
new Vehicle during the Class Period.
43.
The annual market for Vehicle Carrier Services in the United States is nearly a
billion dollars. Specifically, for the transportation of new, imported motor vehicles
manufactured elsewhere for export to and sale in the United States, the market is between $600
and $800 million each year.
B.
The Market Structure and Characteristics Support the Existence of a Conspiracy
44.
The structure and other characteristics of the market for Vehicle Carrier Services
are conducive to a price-fixing agreement and have made collusion particularly attractive.
Specifically, the Vehicle Carrier Services market: (1) has high barriers to entry; (2) has
inelasticity of demand; (3) is highly concentrated; (4) is highly homogenized; (5) is rife with
opportunities to meet and conspire; and (6) has excess capacity.
1.
The Market for Vehicle Carrier Services Has High Barriers to Entry
45.
A collusive arrangement that raises product prices above competitive levels
would, under basic economic principles, attract new entrants seeking to benefit from the supra-
competitive pricing. When, however, there are significant barriers to entry, new entrants are
much less likely to enter the market. Thus, barriers to entry help facilitate the formation and
maintenance of a cartel.
46.
There are substantial barriers that preclude, reduce, or make more difficult entry
into the Vehicle Carrier Services market. Transporting Vehicles without damage across oceans
requires highly specialized and sophisticated equipment, resources, and industry knowledge.
The ships that make such transport possible are highly specialized. Such ships are purposely
built to an unusual design that includes high sides, multiple interior decks, and no container
cargo space. These characteristics restrict the use of the ships to the Vehicle Carrier Services
market. A new entrant into the business would face costly and lengthy start-up costs, including
multi-million dollar costs associated with manufacturing or acquiring a fleet of Vehicle Carriers
and other equipment, energy, transportation, distribution infrastructure and skilled labor. It is
estimated that the capital cost of a RoRo is at least $95 million.1
47.
Additionally, the nature of the Vehicle Carrier Services industry requires the
establishment of a network of routes to serve a particular set of customers with whom
Defendants establish long-term relationships. The existence of these established routes and long-
term contracts increases switching costs for shippers and present an additional barrier to entry.
48.
The Vehicle Carrier Services market also involves economies of scale and scope,
which present additional barriers to entry.
(a)
Economies of scale exist where firms can lower the average cost per unit
through increased production, since fixed costs are shared over a larger number of units. Fuel
accounts for nearly 50% of all operational costs for Vehicle Carriers. However Vehicle Carriers
are less sensitive to fuel prices than other modes of transportation, providing opportunities to
exploit economies of scale. As fuel prices increased in the last 5-10 years, market participants
were incentivized to increase the average size of vessels. This reflects the presence of economies
of scale, because fuel costs did not increase proportionally as vessel size grew.
(b)
Economies of scope exist where firms achieve a cost advantage from
providing a wide variety of products or services. The major Vehicle Carriers, including
Defendants, own related shipping or transportation businesses they can utilize to provide
additional services to clients, such as the operation of dedicated shipping terminals and inland
transportation of Vehicles.
2.
There is Inelasticity of Demand for Vehicle Carrier Services
1 Asaf Ashar, Marine Highways’ New Direction, J. OF COM. 38 (Nov. 21, 2011).
49.
“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.
50.
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.
51.
Demand for Vehicle Carrier Services is highly inelastic. This is because there are
no close substitutes for this service. A Vehicle Carrier is the only ocean vessel that has the
carrying capacity for a large number of Vehicles. A Vehicle Carrier is also more versatile than
other substitutes because it is built to adjust to various shapes and sizes. Because a container
ship functions based on the uniformity of the cargo—everything must fit within the standardized
containers—it is not conducive to transporting larger and more irregularly-shaped goods, such as
cars, trucks, and agricultural and construction equipment. Foreign OEMs must employ Vehicle
Carrier Services to facilitate the sale of their Vehicles in North America, regardless of whether
prices are kept at supra-competitive levels. There is simply no alternative for high volume
transoceanic transportation of Vehicles to the United States.
3.
The Market for Vehicle Carriers Is Highly Concentrated
52.
A concentrated market is more susceptible to collusion and other anticompetitive
practices.
53.
The Defendants dominate the global Vehicle Carrier Services market. Defendants
controlled over 70 percent of the Vehicle Carrier Services market during the Class Period.2
Source: Hesnes Shipping AS, The Car Carrier Market 2010
4.
The Services Provided by Vehicle Carriers Are Highly Homogeneous
54.
Vehicle Carrier Services are a commodity-like service, which is interchangeable
among Vehicle Carriers.
55.
When products or services offered by different suppliers are viewed as
interchangeable by purchasers, it is easier for suppliers to unlawfully agree on the price for the
2 Source: Hesnes Shipping AS, The Car Carrier Market 2010
product or service in question, and it is easier to effectively police the collusively set prices.
This makes it easier to form and sustain an unlawful cartel.
56.
Vehicle Carrier Services are qualitatively the same across different carriers. Each
Defendant has the capability to provide the same or similar Vehicle Carrier Services and Vehicle
Carrier Service customers make purchase decisions based primarily on price. The core
considerations for a purchaser will be where, when, and how much. This commoditization and
interchangeability of Vehicle Carrier Services facilitated Defendants’ conspiracy by making
coordination on price much simpler than if Defendants had numerous distinct products or
services with varying features.
5.
Defendants Had Ample Opportunities to Meet and Conspire
57.
Defendants attended industry events where they had the opportunity to meet, have
improper discussions under the guise of legitimate business contacts, and perform acts necessary
for the operation and furtherance of the conspiracy. For example, there are frequent trade shows
for shipping companies around the globe, such as the Breakbulk conferences3 and the biennial
RoRo trade show in Europe.
58.
Defendants “K” Line and NYK Line are also members of the Transpacific
Stabilization Agreement (TSA), which consists of “major ocean container shipping lines that
3 Breakbulk Magazine provides its readers with project cargo, heavy lift and RoRo logistics
intelligence including news, trending, data and metrics. Breakbulk Magazine’s global events
include Breakbulk Transportation Conferences & Exhibitions, which “are the largest
international events focused on traditional breakbulk logistics, heavy-lift transportation and
project cargo trade issues.” The conferences provide opportunities to “meet with specialized
cargo carriers, ports, terminals, freight forwarders, heavy equipment transportation companies
and packers.” Source: http://www.breakbulk.com/breakbulk-global-events/.
carry cargo from Asia to ports and inland points in the U.S.” According to the TSA website, it
provides a forum for its members to, inter alia,:
• Meet, exchange market information, and jointly conduct market research; .
. . and
• Develop voluntary, non-binding guidelines for rates and charges.
See About TSA at http://www.tsacarriers.org/about.html. TSA meetings, which are ostensibly
held to set rates for container shipping, provide an opportunity for its members, including
Defendants “K” Line and NYK Line, to discuss Vehicle shipping markets, routes, and rates and
engage in illegal price fixing, customer allocation and bid rigging conspiracies. In fact,
Defendants “K” Line, NYK Line, and MOL have already been fined by the DOJ, JFTC, EC, the
Competition Bureau of Canada (“CCB”), and various other antitrust organizations for their roles
in a conspiracy to fix air freight forwarding fees across several continents.
59.
Additionally, the Defendants routinely enter into joint “vessel sharing” or “space
charter” agreements. These agreements allow shipping lines to reserve amounts of space or
“slots” on one another’s ships. Vessel sharing agreements are very common in the international
maritime shipping industry, comprising approximately 79% of all agreements registered with the
Federal Maritime Commission (“FMC”). While allegedly entered into for space charter
purposes, these agreements provide an opportunity for Defendants to discuss Vehicle shipping
markets, routes, and rates and engage in illegal price fixing and bid rigging conspiracies.
60.
The very nature of the negotiations between Vehicle Carriers and OEMs also
facilitates collusion among Vehicle Carriers. Soren Tousgaard Jensen, Managing Director of
WWL Russia has explained, using Japan as an example,
[T]he manufacturers there, in order to get the right frequency, the
right market coverage and the right ports, have often called in two,
three, sometimes four shipping lines around the table and said that
they would spread their volumes between them, depending on how
competitive they were. The shipping lines have to work together
to find ways of not having ships in the same position and ways of
having one line deliver at the beginning of the month and another
mid-month.4
6.
The Market for Vehicle Carrier Services Has Excess Capacity
61.
Excess capacity occurs when a market is capable of supplying more of a product
or service than is needed. This often means that demand is less than the output the market has
the capability to produce. Academic literature suggests, and courts have found, that the presence
of excess capacity can facilitate collusion.5 Significantly, the market for Vehicle Carrier
Services has operated in a state of excess capacity since 2008. The tables below demonstrate
that while the capacity of Vehicle Carriers to transport Vehicles has increased since 2007, the
utilization rate of Vehicle Carriers has fallen, and remained stable at a rate of approximately 83%
since 2010.
4 Profitability the key issue for RoRo carriers, AUTO. SUPPLY CHAIN (Oct. 4, 2012), available at
http://www.automotivesupplychain.org/features/133/77/Profitability-the-key-issue-for-RoRo-
carriers/
5 See Benoit, J. and V. Krishna, Dynamic Duopoly: Prices and Quantities, REV. OF ECON.
STUDIES, 54, 23-36 (1987); Davidson, Carl & Raymond Deneckere, Excess Capacity and
Collusion, INT’L ECON. REV., 31(3), 521-41 (1990); In re High Fructose Corn Syrup Antitrust
Litig., 295 F.3d 651, 657 (7th Cir. 2002)
62.
In the face of such excess capacity, Defendants agreed to reduce capacity and
increase prices through coordinated “slow steaming.” Slow steaming involves lowering a
carrier’s speed to conserve on fuel costs. NYK Line, for example, has used slow steaming for
container ships and Vehicle Carriers since 2010. By elongating the time it takes to make ocean
crossings, Vehicle Carriers are able to use more ships at the same time, thereby decreasing
capacity and creating artificial capacity shortages.
63.
In 2011, the Federal Maritime Commission (“FMC”) opened an investigation into
slow steaming after reportedly receiving complaints from shippers.6 Roy Pearson, deputy
director of the FMC’s Bureau of Trade Analysis, told the FMC that academic studies of slow
steaming showed carriers could save $3 billion per year in fuel costs.7 As part of its
investigation, the FMC issued a Notice of Inquiry soliciting public comment on the impact of
slow steaming on United States ocean liner commerce. In response, the National Industrial
Transportation League, an association representing shippers, commented that despite the cost
savings generated by slow steaming, many League members had actually “experienced increased
shipping costs . . . .”8
64.
Defendants’ practices of slow steaming and vessel sharing represent concerted,
collusive efforts to reduce output in order to increase prices despite overcapacity in the Vehicle
6 Specifically, the FMC is investigating the “economic effects” of slow steaming to determine
whether it is causing “unreasonable constraints” on the international supply chain.
7 R.G. Edmonson, FMC to Review Slow Steaming, J. OF COM. (Jan. 7, 2011), available at
http://www.joc.com/maritime-news/fmc-review-slow-steaming_20110107.html.
8 Comments of The National Industrial Transportation League to the FMC’s Notice of Inquiry
Solicitation of Views on the Impact of Slow Steaming (Apr. 5, 2011), available at
http://www.fmc.gov/noi-slow_steaming/.
Carrier Services market. By acting in concert pursuant to their conspiracy, Defendants decreased
the availability of Vehicle Carrier Services in the market, which caused prices to rise artificially
during the Class Period.
C.
There Is Strong Evidence of Collusion in the Vehicle Carrier Services Market
1.
Defendants Raised Prices at a Rate that Far Exceeded Demand
65.
Prices for Vehicle Carrier Services have been generally increasing since 2006.
66.
As the graph above demonstrates, pricing for Vehicle Carrier Services (per
vehicle) remained relatively flat from 2001 to 2006. In 2001, the per vehicle price was
approximately $301.30, while in 2006 the per vehicle price was $305.79, an increase of less than
67.
Beginning just prior to the Class Period, the price of Vehicle Carrier Services has
increased by 23%.
68.
The increase in the price of Vehicle Carrier Services far outpaced any increase in
demand during the Class Period.
69.
In the absence of an unlawful price-fixing conspiracy, according to the laws of
supply and demand, prices would not increase at a rate greater than the rate of demand, yet that is
exactly what happened in the Vehicle Carrier Services market during the Class Period.
2.
Defendants Previously Colluded in Different Markets
70.
The affiliates and subsidiaries of certain Defendants have recently pled guilty and
agreed to pay millions of dollars in fines for violating the antitrust laws in other markets.
71.
In 2007, the DOJ and EC launched an investigation into price fixing among
international air freight forwarders, including certain affiliates and subsidiaries of Defendants.
On October 10 of that year, the EC launched unannounced inspections at the premises of various
international air freight forwarding companies with the help and coordination of various other
nations’ antitrust enforcement groups.
72.
On March 19, 2009, the JFTC ordered 12 companies to pay $94.7 million in fines
for violations of the Japanese Antimonopoly Act (“AMA”). Included among the 12 companies
were “K” Line Logistics, Ltd., a subsidiary of Defendant “K” Line, Yusen Air & Sea Services
Co., Ltd., a subsidiary of Defendant NYK Line, and MOL Logistics (Japan) Co., Ltd., a
subsidiary of Defendant MOL.
73.
The JFTC concluded that the companies had, over a five-year period, met and
agreed to, among other things, the amount of fuel surcharges, security charges, and explosive
inspection charges that they would charge their international air freight forwarding customers.
The agreements were, according to the JFTC, negotiated at meetings of the Japan Aircargo
Forwarders Association.
74.
Yusen Logistics Co., Ltd.9 filed a complaint in April 2009 requesting a hearing to
review the JFTC’s orders, and the Tokyo High Court upheld the orders on November 9, 2012.
75.
On September 30, 2011, MOL Logistics (Japan) Co., Ltd. pleaded guilty to a
Criminal Information in the United States District Court for the District of Columbia charging it
with Sherman Act violations related to price fixing. MOL is one of 16 companies that agreed to
plead guilty or have pled guilty as a result of the DOJ’s freight forwarding investigation, which
has resulted in more than $120 million in criminal fines to date. According to the Criminal
Information filed against MOL Logistics (Japan) Co. Ltd., it and its co-conspirators
accomplished their conspiracy by:
(a)
Participating in meetings, conversations, and communications to discuss
certain components of freight forwarding service fees to be charged on air cargo shipments from
Japan to the United States;
(b)
Agreeing, during those meetings, conversations, and communications, on
one or more components of the freight forwarding service fees to be charged on air cargo
shipments from Japan to the United States;
(c)
Levying freight forwarding service fees, and accepting payments for
services provided for, air cargo shipments from Japan to the United States, in accordance with
the agreements reached; and
(d)
Engaging in meetings, conversations, and communications for the purpose
of monitoring and enforcing adherence to the agreed-upon freight forwarding service fees.
9 On October 1, 2010, Yusen Air & Sea Services Co., Ltd. and NYK Logistics merged under the
name Yusen Logistics Co., Ltd..
76.
On March 28, 2012, the EC fined 14 international groups of companies, including
Yusen Shenda Air & Sea Service (Shanghai) Ltd., a subsidiary of Defendant NYK Line, a total
of $219 million for their participation in the air cargo cartels and violating European Union
antitrust rules. According to the EC, “[i]n four distinct cartels, the cartelists established and
coordinated four different surcharges and charging mechanisms, which are component elements
of the final price billed to customers for these services.”
77.
On March 8, 2013, the DOJ announced that “K” Line Logistics, Ltd. and Yusen
Logistics Co., Ltd., a subsidiary of Defendant NYK Line, agreed to pay criminal fines of
$3,507,246 and $15,428,207, respectively, for their roles in a conspiracy to fix certain freight-
forwarding fees for cargo shipped by air from the United States to Japan. As with MOL
Logistics (Japan) Co. Ltd., “K” Line Logistics, Ltd. and Yusen Logistics Co., Ltd. pleaded guilty
to meeting with co-conspirators, agreeing to what freight forwarding service fees should be
charged on air cargo shipments, and actually levying those fees on its customers from about
September 2002 until at least November 2007.
3.
Competition Authorities Have Launched and Coordinated a Global
Government Investigation into Price-Fixing in the Market for Vehicle
Carrier Services
78.
United States, Canadian, Japanese, and European competition authorities have
initiated a global, coordinated antitrust investigation concerning the unlawful conspiracy alleged
herein. The investigation originated in the United States after an American shipping company
complained of Defendants’ conspiracy to the DOJ.
79.
On September 6, 2012, the JFTC executed raids at the Japanese offices of NYK
Line, MOL, “K” Line, WWL, and EUKOR as part of an investigation into anticompetitive
conduct related to Vehicle Carrier Services. Defendant “K” Line confirmed in a statement to its
shareholders, as part of its FY2012 2nd Quarter report, that it was visited by a JFTC
investigation team on suspicion of violating Japan’s Antimonopoly Act in terms of transporting
cars and wheeled construction machinery. Defendants NYK Line and MOL further confirmed
that their Japanese offices had been searched.
80.
The Japan Daily Press reported that a JFTC official said the cartel “was formed to
deal with the rising fuel charges, personnel costs and shipbuilding expenses.” According to the
article, “apparently some companies formed smaller groups for specific shipping routes, such as
for Europe, North America and other Asian nations” and the three major Japanese firms – NYK
Line, “K” Line and MOL – played “a big role in this setup.” “The scrupulous companies were
controlling the competition and manipulating transport orders from carmakers.”
81.
Defendant WW ASA confirmed in a press release on September 7, 2012 that it
had received a request for information from the CCB, and that (i) its subsidiaries, WWL and
EUKOR had been visited by the JFTC as part of an investigation related to the Japan
Antimonopoly Act; (ii) WWL had received requests for information from the EC, DOJ and
CCB; and (iii) EUKOR had received requests for information from the DOJ and the CCB.
According to Defendant WW ASA, the purpose of the requests made to WWL and EUKOR “is
to ascertain whether there is evidence of any infringement of competition law related to possible
price cooperation between carriers and allocation of customers.”
82.
On the same day, in coordination with United States and Japanese authorities, the
EC carried out additional unannounced inspections at the European offices of several maritime
shipping companies suspected of operating a cartel. According to the EC, it carried out the
inspections in coordination with United States and Japanese competition authorities, and “ha[d]
reasons to believe that the companies concerned may have violated Article 101 of the [Treaty on
the functioning of the European Union] TFEU prohibiting cartels and restrictive business
practices.”
83.
The Japanese Business Daily reported that the shipping affiliates of Toyota Motor
Corp. and Nissan Motor Co. were also among the companies raided by the JFTC. Toyota Motor
Corp.’s shipping affiliate is Defendant ToyoFuji, and Nissan Motor Co.’s is Defendant Nissan.
84.
Defendant CSAV issued a statement in mid-September revealing that its
employees had received subpoenas from the DOJ and CCB in connection with the suspected
Vehicle Carrier Services cartel. Defendant CSAV stated, “[t]he investigation seeks to inquire
into the existence of antitrust law violations related to cooperation agreements on prices and
allocation of clients between car carriers.”
85.
The DOJ, through spokesperson Gina Talamona, confirmed to the media shortly
after the September 2012 raids, "We are coordinating with the European Commission, the
Japanese Fair Trade Commission and other international competition authorities.” Ms.
Talamona explained that “[t]he antitrust division is investigating the possibility of
anticompetitive practices involving the ocean shipping of cars, trucks, construction equipment,
and other products.”
CLASS ACTION ALLEGATIONS
86.
Plaintiffs 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 persons and entities in the United States who indirectly purchased from any
Defendant or any current or former subsidiary or affiliate thereof, or any co-
conspirator, Vehicle Carrier Services for personal use and not for resale,
incorporated into the price of a new Vehicle purchased or leased during the Class
Period.
87.
Plaintiffs also bring 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 listed below (the “Plaintiffs’ States”) on behalf of the following
class (the “Damages Class”):
All persons and entities in the Plaintiffs’ States who indirectly purchased, from
any Defendant or any current or former subsidiary or affiliate thereof, or any co-
conspirator, Vehicle Carrier Services for personal use and not for resale,
incorporated into the price of a new Vehicle purchased or leased during the Class
Period.
88.
The Nationwide Class and the Damages Class are referred to herein as the
“Classes.” Excluded from the Classes are Defendants, their parent companies, subsidiaries and
affiliates, any co-conspirators, federal governmental entities and instrumentalities of the federal
government, states and their subdivisions, agencies and instrumentalities, and persons who
purchased Vehicle Carrier Services directly.
89.
While Plaintiffs do not know the exact number of the members of the Classes,
Plaintiffs believe there are (at least) thousands of members in each Class.
90.
Common questions of law and fact exist as to all members of the Classes. This is
particularly true given the nature of Defendants’ conspiracy, which was generally applicable to
all the members of both Classes, thereby making appropriate relief with respect to the Classes as
a whole. Such questions of law and fact common to the Classes include, but are not limited to:
(a)
Whether the Defendants and their co-conspirators engaged in a combination and
conspiracy among themselves to fix, raise, maintain or stabilize the prices of Vehicle
Carrier Services sold in the United States;
(b)
The identity of the participants of the alleged conspiracy;
(c)
The duration of the alleged conspiracy and the acts carried out by Defendants and
their co-conspirators in furtherance of the conspiracy;
(d)
Whether the alleged conspiracy violated the Sherman Act, as alleged in the First
Claim for Relief;
(e)
Whether the alleged conspiracy violated state antitrust and unfair competition
law, and/or state consumer protection law, as alleged in the Second and Third Claims for
Relief;
(f)
Whether the Defendants unjustly enriched themselves to the detriment of the
Plaintiffs and the members of the Classes, thereby entitling Plaintiffs and the members of
the Classes to disgorgement of all benefits derived by Defendants, as alleged in the
Fourth Claim for Relief;
(g)
Whether the conduct of the Defendants and their co-conspirators, as alleged in
this Complaint, caused injury to the business or property of Plaintiffs and the members of
the Classes;
(h)
The effect of the alleged conspiracy on the prices of Vehicle Carrier Services sold
in the United States during the Class Period;
(i)
Whether Plaintiffs and members of the Classes had any reason to know or suspect
the conspiracy, or any means to discover the conspiracy;
(j)
Whether the Defendants and their co-conspirators fraudulently concealed the
conspiracy’s existence from the Plaintiffs and the members of the Classes;
(k)
The appropriate injunctive and related equitable relief for the Nationwide Class;
and
(l)
The appropriate class-wide measure of damages for the Damages Class.
91.
Plaintiffs’ claims are typical of the claims of the members of the Classes, and
Plaintiffs will fairly and adequately protect the interests of the Classes. Plaintiffs and all
members of the Classes are similarly affected by Defendants’ wrongful conduct in that they paid
artificially inflated prices for Vehicle Carrier Services purchased indirectly from the Defendants
and/or their co-conspirators.
92.
Plaintiffs’ claims arise out of the same common course of conduct giving rise to
the claims of the other members of the Classes. Plaintiffs’ interests are coincident with, and not
antagonistic to, those of the other members of the Classes. Plaintiffs are represented by counsel
who are competent and experienced in the prosecution of antitrust and class action litigation.
93.
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.
94.
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.
95.
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.
PLAINTIFFS AND THE CLASSES SUFFERED ANTITRUST INJURY
96.
The Defendants’ price-fixing conspiracy had the following effects, among others:
(a)
Price competition has been restrained or eliminated with respect to Vehicle
Carrier Services;
(b)
The prices of Vehicle Carrier Services have been fixed, raised, maintained, or
stabilized at artificially inflated levels;
(c)
Indirect purchasers of Vehicle Carrier Services have been deprived of free and
open competition;
(d)
Indirect purchasers of Vehicle Carrier Services paid artificially inflated prices.
97.
During the Class Period, Plaintiffs and the members of the Classes paid supra-
competitive prices for Vehicle Carrier Services. OEMs and automobile dealers passed on the
inflated charges to purchasers and lessees of new Vehicles. Those overcharges have unjustly
enriched Defendants.
98.
The market for Vehicle Carrier Services and the market for Vehicles are
inextricably linked and intertwined because the market for Vehicle Carrier Services exists to
serve the Vehicle market. Without the Vehicles, the Vehicle Carrier Services have little to no
value because they have no independent utility. Indeed, the demand for Vehicles creates the
demand for Vehicle Carrier Services.
99.
While even a monopolist would increase its prices when the cost of its inputs
increased, the economic necessity of passing through cost changes increases with the degree of
competition a firm faces. The OEM and dealer markets for new Vehicles are subject to vigorous
price competition. The OEMs and dealers have thin net margins, and are therefore at the mercy
of their input costs, such that increases in the price of Vehicle Carrier Services lead to
corresponding increases in prices for new Vehicles at the OEM and dealer levels. When
downstream distribution markets are highly competitive, as they are in the case of new Vehicles
shipped by Vehicle Carrier, overcharges are passed through to ultimate consumers, such as the
indirect-purchaser Plaintiffs and the members of the Classes.
100.
Hence, the inflated prices of Vehicle Carrier Services in new Vehicles resulting
from Defendants’ price-fixing conspiracy have been passed on to Plaintiffs and the other
members of the Classes by OEMs and dealers.
101.
The purpose of the conspiratorial conduct of the Defendants and their co-
conspirators was to raise, fix, rig or stabilize the price of Vehicle Carrier Services and, as a direct
and foreseeable result, the price of new Vehicles shipped by Vehicle Carriers.
102.
Economists have developed techniques to isolate and understand the relationship
between one “explanatory” variable and a “dependent” variable in those cases when changes in
the dependent variable are explained by changes in a multitude of variables, even when all such
variables may be changing simultaneously. That analysis - called regression analysis - is
commonly used in the real world and in litigation to determine the impact of a price increase on
one cost in a product (or service) that is an assemblage of costs.
103.
Regression analysis is one potential method by which to isolate and identify only
the impact of an increase in the price of Vehicle Carrier Services on prices for new purchased or
leased Vehicles even though such products contain a number of other inputs whose prices may
be changing over time. A regression model can explain how variation in the price of Vehicle
Carrier Services affects changes in the price of new purchased or leased Vehicles. In such
models, the price of Vehicle Carrier Services would be treated as an independent or explanatory
variable. The model can isolate how changes in the price of Vehicle Carrier Services impact the
price of new Vehicles shipped by Vehicle Carrier while controlling for the impact of other price-
determining factors.
104.
The precise amount of the overcharge impacting the prices of new Vehicles
shipped by Vehicle Carrier can be measured and quantified. Commonly used and well-accepted
economic models can be used to measure both the extent and the amount of the supra-
competitive charge passed-through the chain of distribution. Thus, the economic harm to
Plaintiffs and the members of the Classes can be quantified.
105.
By reason of the alleged violations of the antitrust laws and other laws alleged
herein, Plaintiffs and the members of the Classes have sustained injury to their businesses or
property, having paid higher prices for Vehicle Carrier Services than they would have paid in the
absence of the Defendants’ illegal contract, combination, or conspiracy, and, as a result, have
suffered damages in an amount presently undetermined. This is an antitrust injury of the type
that the antitrust laws were meant to punish and prevent.
PLAINTIFFS’ CLAIMS ARE NOT BARRED BY THE STATUTE OF LIMITATIONS
A.
The Statute of Limitations Did Not Begin to Run Because Plaintiffs Did Not and
Could Not Discover Their Claims
106.
Plaintiffs repeat and re-allege the allegations set forth above.
107.
Plaintiffs and members of the Classes had no knowledge of the combination or
conspiracy alleged herein, or of facts sufficient to place them on inquiry notice of the claims set
forth herein, until shortly before the filing of this Complaint. Plaintiffs and members of the
Classes did not discover, and could not have discovered through the exercise of reasonable
diligence, the existence of the conspiracy alleged herein until September 6, 2012, the date the
JFTC announced raids of certain Defendants’ offices for their role in the criminal price-fixing
conspiracy alleged herein.
108.
Plaintiffs and members of the Classes are consumers who had no direct contact or
interaction with the Defendants, and had no means from which they could have discovered the
combination and conspiracy described in this Complaint before the September 6, 2012 raids
alleged above.
109.
No information in the public domain was available to Plaintiffs and members of
the Classes prior to the announced raids on September 6, 2012 that revealed sufficient
information to suggest that the Defendants were involved in a criminal conspiracy to fix the
prices charged for Vehicle Carrier Services. Plaintiffs and members of the Classes had no means
of obtaining any facts or information concerning any aspect of Defendants’ dealings with OEMs
or other direct purchasers, much less the fact that they had engaged in the combination and
conspiracy alleged herein.
110.
For these reasons, the statute of limitations as to Plaintiffs and the Classes’ claims
did not begin to run, and has been tolled with respect to the claims that Plaintiffs and members of
the Classes have alleged in this Complaint.
B.
Fraudulent Concealment Tolled the Statute of Limitations
111.
In the alternative, application of the doctrine of fraudulent concealment tolled the
statute of limitations as to the claims asserted herein by Plaintiffs and the Classes. Plaintiffs and
members of the Classes did not know and could not have known of the existence of the
conspiracy and unlawful combination alleged herein until September 6, 2012, at the earliest, the
date the JFTC announced raids of certain Defendants’ offices for their role in the criminal price-
fixing conspiracy alleged herein.
112.
Before that time, Plaintiffs and members of the Classes were unaware of
Defendants’ unlawful conduct, and did not know before then that they were paying supra-
competitive prices for Vehicle Carrier Services throughout the United States during the Class
Period. No information, actual or constructive, was ever made available to Plaintiffs and
members of the Classes that even hinted to Plaintiffs and the members of the Classes that they
were being injured by Defendants’ unlawful conduct.
113.
The affirmative acts of the Defendants alleged herein, including acts in
furtherance of the conspiracy, were wrongfully concealed and carried out in a manner that
precluded detection.
114.
By its very nature, the Defendants’ anticompetitive conspiracy and unlawful
combinations were inherently self-concealing. Defendants met and communicated in secret and
agreed to keep the facts about their collusive conduct from being discovered by any member of
the public or by the OEMs and other direct purchasers with whom they did business.
115.
Plaintiffs and members of the Classes could not have discovered the alleged
combination or conspiracy at an earlier date by the exercise of reasonable diligence because of
the deceptive practices and techniques of secrecy employed by the Defendants and their co-
conspirators to avoid detection of, and fraudulently conceal, their conduct.
116.
Because the alleged conspiracy was both self-concealing and affirmatively
concealed by Defendants and their co-conspirators, Plaintiffs and members of the Classes had no
knowledge of the alleged conspiracy, or of any facts or information that would have caused a
reasonably diligent person to investigate whether a conspiracy existed, until September 6, 2012,
when the JFTC announced raids of certain Defendants’ offices for their role in the criminal
price-fixing conspiracy alleged herein.
117.
For these reasons, the statute of limitations applicable to Plaintiffs’ and the
Classes’ claims was tolled and did not begin to run until September 6, 2012.
FIRST COUNT FOR RELIEF
Violation of Section 1 of the Sherman Act
(on behalf of Plaintiffs and the Nationwide Class)
118.
Plaintiffs repeat and re-allege the allegations set forth above.
119.
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).
120.
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.
121.
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 Vehicle Carrier Services, thereby creating anticompetitive
effects.
122.
The anticompetitive acts were intentionally directed at the United States market
for Vehicle Carrier Services and had a substantial and foreseeable effect on interstate commerce
by raising and fixing prices for Vehicle Carrier Services throughout the United States.
123.
The conspiratorial acts and combinations have caused unreasonable restraints in
the market for Vehicle Carrier Services.
124.
As a result of Defendants’ unlawful conduct, Plaintiffs and other similarly
situated indirect purchasers in the Nationwide Class who purchased Vehicle Carrier Services
have been harmed by being forced to pay inflated, supra-competitive prices for Vehicle Carrier
Services.
125.
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.
126.
Defendants’ conspiracy had the following effects, among others:
(a)
Price competition in the market for Vehicle Carrier Services has been restrained,
suppressed, and/or eliminated in the United States;
(b)
Prices for Vehicle Carrier Services 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)
Plaintiffs and members of the Nationwide Class who purchased Vehicle Carrier
Services indirectly from Defendants and their co-conspirators have been deprived of the
benefits of free and open competition.
127.
Plaintiffs and members of the Nationwide Class have been injured and will
continue to be injured in their business and property by paying more for Vehicle Carrier Services
purchased indirectly from Defendants and the co-conspirators than they would have paid and
will pay in the absence of the conspiracy.
128.
The alleged contract, combination, or conspiracy is a per se violation of the
federal antitrust laws.
129.
Plaintiffs and members of the Nationwide Class are entitled to an injunction
against Defendants, preventing and restraining the violations alleged herein.
SECOND COUNT FOR RELIEF
Violation of State Antitrust Statutes
(on behalf of Plaintiffs and the Damages Class)
130.
Plaintiffs repeat and re-allege the allegations set forth above.
131.
During the Class Period, Defendants and their co-conspirators engaged in a
continuing contract, combination or conspiracy with respect to the provision of Vehicle Carrier
Services in unreasonable restraint of trade and commerce and in violation of the various state
antitrust and other statutes set forth below.
132.
The contract, combination, or conspiracy consisted of an agreement among the
Defendants and their co-conspirators to fix, raise, inflate, stabilize, and/or maintain at artificially
supra-competitive prices for Vehicle Carrier Services and to allocate customers for Vehicle
Carrier Services in the United States.
133.
In formulating and effectuating this conspiracy, Defendants and their co-
conspirators performed acts in furtherance of the combination and conspiracy, including:
(a)
participating in meetings and conversations among themselves in the United
States and elsewhere during which they agreed to price Vehicle Carrier Services at
certain levels, and otherwise to fix, increase, inflate, maintain, or stabilize effective prices
paid by Plaintiffs and members of the Damages Class with respect to Vehicle Carrier
Services provided in the United States;
(b)
allocating customers and markets for Vehicle Carrier Services provided in the
United States in furtherance of their agreements; and
(c)
participating in meetings and conversations among themselves in the United
States and elsewhere to implement, adhere to, and police the unlawful agreements they
reached.
134.
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 and to allocate customers with respect to Vehicle Carrier Services.
135.
Defendants’ anticompetitive acts described above were knowing, willful and
constitute violations or flagrant violations of the following state antitrust statutes.
136.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Arizona Revised Statutes, §§ 44-1401, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Vehicle
Carrier Services price competition was restrained, suppressed, and eliminated throughout
Arizona; (2) Vehicle Carrier Services prices were raised, fixed, maintained and stabilized
at artificially high levels throughout Arizona; (3) Plaintiffs and members of the Damages
Class were deprived of free and open competition; and (4) Plaintiffs and members of the
Damages Class paid supra-competitive, artificially inflated prices for Vehicle Carrier
Services.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected
Arizona commerce.
(c)
As a direct and proximate result of defendants’ unlawful conduct, Plaintiffs and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants entered into agreements in restraint of
trade in violation of Ariz. Rev. Stat. §§ 44-1401, et seq. Accordingly, Plaintiffs and
members of the Damages Class seek all forms of relief available under Ariz. Rev. Stat. §§
44-1401, et seq.
137.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the California Business and Professions Code, §§ 16700, et seq.
(a)
During the Class Period, Defendants and their co-conspirators entered into and
engaged in a continuing unlawful trust in restraint of the trade and commerce described
above in violation of Section 16720, California Business and Professions Code.
Defendants, and each of them, have acted in violation of Section 16720 to fix, raise,
stabilize, and maintain prices of, and allocate markets for, Vehicle Carrier Services at
supra-competitive levels.
(b)
The aforesaid violations of Section 16720, California Business and Professions
Code, consisted, without limitation, of a continuing unlawful trust and concert of action
among the Defendants and their co-conspirators, the substantial terms of which were to
fix, raise, maintain, and stabilize the prices of, and to allocate markets for, Vehicle
Carrier Services.
(c)
For the purpose of forming and effectuating the unlawful trust, the Defendants
and their co-conspirators have done those things which they combined and conspired to
do, including but not limited to the acts, practices and course of conduct set forth above
and the following: (1) Fixing, raising, stabilizing, and pegging the price of Vehicle
Carrier Services; and (2) Allocating among themselves the provision of Vehicle Carrier
Services.
(d)
The combination and conspiracy alleged herein has had, inter alia, the following
effects: (1) Price competition in the provision of Vehicle Carrier Services has been
restrained, suppressed, and/or eliminated in the State of California; (2) Prices for Vehicle
Carrier Services provided by Defendants and their co-conspirators have been fixed,
raised, stabilized, and pegged at artificially high, non-competitive levels in the State of
California and throughout the United States; and (3) Those who purchased Vehicle
Carrier Services directly or indirectly from Defendants and their co-conspirators have
been deprived of the benefit of free and open competition.
(e)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiffs and
members of the Damages Class have been injured in their business and property in that
they paid more for Vehicle Carrier Services than they otherwise would have paid in the
absence of Defendants’ unlawful conduct. As a result of Defendants’ violation of Section
16720 of the California Business and Professions Code, Plaintiffs and members of the
Damages Class seek treble damages and their cost of suit, including a reasonable
attorney’s fee, pursuant to Section 16750(a) of the California Business and Professions
Code.
138.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the District of Columbia Code Annotated §§ 28-4501, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Vehicle
Carrier Services price competition was restrained, suppressed, and eliminated throughout
the District of Columbia; (2) Vehicle Carrier Services prices were raised, fixed,
maintained and stabilized at artificially high levels throughout the District of Columbia;
(3) Plaintiffs and members of the Damages Class were deprived of free and open
competition; and (4) Plaintiffs and members of the Damages Class paid supra-
competitive, artificially inflated prices for Vehicle Carrier Services.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected
District of Columbia commerce.
(c)
As a direct and proximate result of defendants’ unlawful conduct, Plaintiffs and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of District of Columbia Code Ann. §§ 28-4501, et seq. Accordingly,
Plaintiffs and members of the Damages Class seek all forms of relief available under
District of Columbia Code Ann. §§ 28-4501, et seq.
139.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Iowa Code §§ 553.1, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Vehicle
Carrier Services price competition was restrained, suppressed, and eliminated throughout
Iowa; (2) Vehicle Carrier Services prices were raised, fixed, maintained and stabilized at
artificially high levels throughout Iowa; (3) Plaintiffs and members of the Damages Class
were deprived of free and open competition; and (4) Plaintiffs and members of the
Damages Class paid supra-competitive, artificially inflated prices for Vehicle Carrier
Services.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected Iowa
commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiffs and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of Iowa Code §§ 553.1, et seq. Accordingly, Plaintiffs and members
of the Damages Class seek all forms of relief available under Iowa Code §§ 553.1, et
seq..
140.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Kansas Statutes Annotated, §§ 50-101, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Vehicle
Carrier Services price competition was restrained, suppressed, and eliminated throughout
Kansas; (2) Vehicle Carrier Services prices were raised, fixed, maintained and stabilized
at artificially high levels throughout Kansas; (3) Plaintiffs and members of the Damages
Class were deprived of free and open competition; and (4) Plaintiffs and members of the
Damages Class paid supra-competitive, artificially inflated prices for Vehicle Carrier
Services.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected
Kansas commerce.
(c)
As a direct and proximate result of defendants’ unlawful conduct, Plaintiffs and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of Kansas Stat. Ann. §§ 50-101, et seq. Accordingly, Plaintiffs and
members of the Damages Class seek all forms of relief available under Kansas Stat. Ann.
§§ 50-101, et seq.
141.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Maine Revised Statutes, Maine Rev. Stat. Ann. 10, §§ 1101, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Vehicle
Carrier Services price competition was restrained, suppressed, and eliminated throughout
Maine; (2) Vehicle Carrier Services prices were raised, fixed, maintained and stabilized
at artificially high levels throughout Maine; (3) Plaintiffs and members of the Damages
Class were deprived of free and open competition; and (4) Plaintiffs and members of the
Damages Class paid supra-competitive, artificially inflated prices for Vehicle Carrier
Services.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected Maine
commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiffs and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of Maine Rev. Stat. Ann. 10, §§ 1101, et seq. Accordingly, Plaintiffs
and members of the Damages Class seek all relief available under Maine Rev. Stat. Ann.
10, §§ 1101, et seq.
142.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Michigan Compiled Laws Annotated §§ 445.771, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Vehicle
Carrier Services price competition was restrained, suppressed, and eliminated throughout
Michigan; (2) Vehicle Carrier Services prices were raised, fixed, maintained and
stabilized at artificially high levels throughout Michigan; (3) Plaintiffs and members of
the Damages Class were deprived of free and open competition; and (4) Plaintiffs and
members of the Damages Class paid supra-competitive, artificially inflated prices for
Vehicle Carrier Services.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected
Michigan commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiffs and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of Michigan Comp. Laws Ann. §§ 445.771, et seq. Accordingly,
Plaintiffs and members of the Damages Class seek all relief available under Michigan
Comp. Laws Ann. §§ 445.771, et seq.
143.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Minnesota Annotated Statutes §§ 325D.49, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Vehicle
Carrier Services price competition was restrained, suppressed, and eliminated throughout
Minnesota; (2) Vehicle Carrier Services prices were raised, fixed, maintained and
stabilized at artificially high levels throughout Minnesota; (3) Plaintiffs and members of
the Damages Class were deprived of free and open competition; and (4) Plaintiffs and
members of the Damages Class paid supra-competitive, artificially inflated prices for
Vehicle Carrier Services.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected
Minnesota commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiffs and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of Minnesota Stat. §§ 325D.49, et seq. Accordingly, Plaintiffs and
members of the Damages Class seek all relief available under Minnesota Stat. §§
325D.49, et seq.
144.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Mississippi Code Annotated §§ 75-21-1, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Vehicle
Carrier Services price competition was restrained, suppressed, and eliminated throughout
Mississippi; (2) Vehicle Carrier Services prices were raised, fixed, maintained and
stabilized at artificially high levels throughout Mississippi; (3) Plaintiffs and members of
the Damages Class were deprived of free and open competition; and (4) Plaintiffs and
members of the Damages Class paid supra-competitive, artificially inflated prices for
Vehicle Carrier Services.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected
Mississippi commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiffs and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of Mississippi Code Ann. § 75-21-1, et seq. Accordingly, Plaintiffs
and members of the Damages Class seek all relief available under Mississippi Code Ann.
§ 75-21-1, et seq.
145.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Nebraska Revised Statutes §§ 59-801, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Vehicle
Carrier Services price competition was restrained, suppressed, and eliminated throughout
Nebraska; (2) Vehicle Carrier Services prices were raised, fixed, maintained and
stabilized at artificially high levels throughout Nebraska; (3) Plaintiffs and members of
the Damages Class were deprived of free and open competition; and (4) Plaintiffs and
members of the Damages Class paid supra-competitive, artificially inflated prices for
Vehicle Carrier Services.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected
Nebraska commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiffs and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of Nebraska Revised Statutes §§ 59-801, et seq. Accordingly,
Plaintiffs and members of the Damages Class seek all relief available under Nebraska
Revised Statutes §§ 59-801, et seq.
146.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Nevada Revised Statutes Annotated §§ 598A.010, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Vehicle
Carrier Services price competition was restrained, suppressed, and eliminated throughout
Nevada; (2) Vehicle Carrier Services prices were raised, fixed, maintained and stabilized
at artificially high levels throughout Nevada; (3) Plaintiffs and members of the Damages
Class were deprived of free and open competition; and (4) Plaintiffs and members of the
Damages Class paid supra-competitive, artificially inflated prices for Vehicle Carrier
Services.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected
Nevada commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiffs and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of Nevada Rev. Stat. Ann. §§ 598A, et seq. Accordingly, Plaintiffs
and members of the Damages Class seek all relief available under Nevada Rev. Stat.
Ann. §§ 598A, et seq.
147.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the New Hampshire Revised Statutes §§ 356:1, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Vehicle
Carrier Services price competition was restrained, suppressed, and eliminated throughout
New Hampshire; (2) Vehicle Carrier Services prices were raised, fixed, maintained and
stabilized at artificially high levels throughout New Hampshire; (3) Plaintiffs and
members of the Damages Class were deprived of free and open competition; and (4)
Plaintiffs and members of the Damages Class paid supra-competitive, artificially inflated
prices for Vehicle Carrier Services.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected New
Hampshire commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiffs and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of New Hampshire Revised Statutes §§ 356:1, et seq. Accordingly,
Plaintiffs and members of the Damages Class seek all relief available under New
Hampshire Revised Statutes §§ 356:1, et seq.
148.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the New Mexico Statutes Annotated §§ 57-1-1, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Vehicle
Carrier Services price competition was restrained, suppressed, and eliminated throughout
New Mexico; (2) Vehicle Carrier Services prices were raised, fixed, maintained and
stabilized at artificially high levels throughout New Mexico; (3) Plaintiffs and members
of the Damages Class were deprived of free and open competition; and (4) Plaintiffs and
members of the Damages Class paid supra-competitive, artificially inflated prices for
Vehicle Carrier Services.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected New
Mexico commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiffs and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of New Mexico Stat. Ann. §§ 57-1-1, et seq. Accordingly, Plaintiffs
and members of the Damages Class seek all relief available under New Mexico Stat.
Ann. §§ 57-1-1, et seq.
149.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the New York General Business Laws §§ 340, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Vehicle
Carrier Services price competition was restrained, suppressed, and eliminated throughout
New York; (2) Vehicle Carrier Services prices were raised, fixed, maintained and
stabilized at artificially high levels throughout New York; (3) Plaintiffs and members of
the Damages Class were deprived of free and open competition; and (4) Plaintiffs and
members of the Damages Class paid supra-competitive, artificially inflated prices for
Vehicle Carrier Services when they purchased Vehicles transported by Vehicle Carrier
Services, or purchased products that were otherwise of lower quality, than would have
been absent the Defendants’ illegal acts, or were unable to purchase products that they
would have otherwise have purchased absent the illegal conduct.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected New
York commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiffs and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of the New York Donnelly Act, §§ 340, et seq. The conduct set forth
above is a per se violation of the Act. Accordingly, Plaintiffs and members of the
Damages Class seek all relief available under New York Gen. Bus. Law §§ 340, et seq.
150.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the North Carolina General Statutes §§ 75-1, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Vehicle
Carrier Services price competition was restrained, suppressed, and eliminated throughout
North Carolina; (2) Vehicle Carrier Services prices were raised, fixed, maintained and
stabilized at artificially high levels throughout North Carolina; (3) Plaintiffs and members
of the Damages Class were deprived of free and open competition; and (4) Plaintiffs and
members of the Damages Class paid supra-competitive, artificially inflated prices for
Vehicle Carrier Services.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected North
Carolina commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiffs and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of North Carolina Gen. Stat. §§ 75-1, et seq. Accordingly, Plaintiffs
and members of the Damages Class seek all relief available under North Carolina Gen.
Stat. §§ 75-1, et. seq.
151.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the North Dakota Century Code §§ 51-08.1-01, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Vehicle
Carrier Services price competition was restrained, suppressed, and eliminated throughout
North Dakota; (2) Vehicle Carrier Services prices were raised, fixed, maintained and
stabilized at artificially high levels throughout North Dakota; (3) Plaintiffs and members
of the Damages Class were deprived of free and open competition; and (4) Plaintiffs and
members of the Damages Class paid supra-competitive, artificially inflated prices for
Vehicle Carrier Services.
(b)
During the Class Period, Defendants’ illegal conduct had a substantial effect on
North Dakota commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiffs and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of North Dakota Cent. Code §§ 51-08.1-01, et seq. Accordingly,
Plaintiffs and members of the Damages Class seek all relief available under North Dakota
Cent. Code §§ 51-08.1-01, et seq.
152.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Oregon Revised Statutes §§ 646.705, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Vehicle
Carrier Services price competition was restrained, suppressed, and eliminated throughout
Oregon; (2) Vehicle Carrier Services prices were raised, fixed, maintained and stabilized
at artificially high levels throughout Oregon; (3) Plaintiffs and members of the Damages
Class were deprived of free and open competition; and (4) Plaintiffs and members of the
Damages Class paid supra-competitive, artificially inflated prices for Vehicle Carrier
Services.
(b)
During the Class Period, Defendants’ illegal conduct had a substantial effect on
Oregon commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiffs and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of Oregon Revised Statutes §§ 646.705, et seq. Accordingly,
Plaintiffs and members of the Damages Class seek all relief available under Oregon
Revised Statutes §§ 646.705, et seq.
153.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the South Dakota Codified Laws §§ 37-1-3.1, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Vehicle
Carrier Services price competition was restrained, suppressed, and eliminated throughout
South Dakota; (2) Vehicle Carrier Services prices were raised, fixed, maintained and
stabilized at artificially high levels throughout South Dakota; (3) Plaintiffs and members
of the Damages Class were deprived of free and open competition; and (4) Plaintiffs and
members of the Damages Class paid supra-competitive, artificially inflated prices for
Vehicle Carrier Services.
(b)
During the Class Period, Defendants’ illegal conduct had a substantial effect on
South Dakota commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiffs and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of South Dakota Codified Laws Ann. §§ 37-1, et seq. Accordingly,
Plaintiffs and members of the Damages Class seek all relief available under South Dakota
Codified Laws Ann. §§ 37-1, et seq.
154.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Tennessee Code Annotated §§ 47-25-101, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Vehicle
Carrier Services price competition was restrained, suppressed, and eliminated throughout
Tennessee; (2) Vehicle Carrier Services prices were raised, fixed, maintained and
stabilized at artificially high levels throughout Tennessee; (3) Plaintiffs and members of
the Damages Class were deprived of free and open competition; and (4) Plaintiffs and
members of the Damages Class paid supra-competitive, artificially inflated prices for
Vehicle Carrier Services.
(b)
During the Class Period, Defendants’ illegal conduct had a substantial effect on
Tennessee commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiffs and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of Tennessee Code Ann. §§ 47-25-101, et seq. Accordingly,
Plaintiffs and members of the Damages Class seek all relief available under Tennessee
Code Ann. §§ 47-25-101, et seq.
155.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Utah Code Annotated §§ 76-10-911, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Vehicle
Carrier Services price competition was restrained, suppressed, and eliminated throughout
Utah; (2) Vehicle Carrier Services prices were raised, fixed, maintained and stabilized at
artificially high levels throughout Utah; (3) Plaintiffs and members of the Damages Class
were deprived of free and open competition; and (4) Plaintiffs and members of the
Damages Class paid supra-competitive, artificially inflated prices for Vehicle Carrier
Services.
(b)
During the Class Period, Defendants’ illegal conduct had a substantial effect on
Utah commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiffs and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of Utah Code Annotated §§ 76-10-911, et seq. Accordingly,
Plaintiffs and members of the Damages Class seek all relief available under Utah Code
Annotated §§ 76-10-911, et seq.
156.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Vermont Stat. Ann. 9 §§ 2453, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Vehicle
Carrier Services price competition was restrained, suppressed, and eliminated throughout
Vermont; (2) Vehicle Carrier Services prices were raised, fixed, maintained and
stabilized at artificially high levels throughout Vermont; (3) Plaintiffs and members of
the Damages Class were deprived of free and open competition; and (4) Plaintiffs and
members of the Damages Class paid supra-competitive, artificially inflated prices for
Vehicle Carrier Services.
(b)
During the Class Period, Defendants’ illegal conduct had a substantial effect on
Vermont commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiffs and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of Vermont Stat. Ann. 9 §§ 2453, et seq. Accordingly, Plaintiffs and
members of the Damages Class seek all relief available under Vermont Stat. Ann. 9 §§
2453, et seq.
157.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the West Virginia Code §§ 47-18-1, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Vehicle
Carrier Services price competition was restrained, suppressed, and eliminated throughout
West Virginia; (2) Vehicle Carrier Services prices were raised, fixed, maintained and
stabilized at artificially high levels throughout West Virginia; (3) Plaintiffs and members
of the Damages Class were deprived of free and open competition; and (4) Plaintiffs and
members of the Damages Class paid supra-competitive, artificially inflated prices for
Vehicle Carrier Services.
(b)
During the Class Period, Defendants’ illegal conduct had a substantial effect on
West Virginia commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiffs and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of West Virginia Code §§ 47-18-1, et seq. Accordingly, Plaintiffs
and members of the Damages Class seek all relief available under West Virginia Code §§
47-18-1, et seq.
158.
Defendants have entered into an unlawful agreement in restraint of trade in
violation of the Wisconsin Statutes §§ 133.01, et seq.
(a)
Defendants’ combinations or conspiracies had the following effects: (1) Vehicle
Carrier Services price competition was restrained, suppressed, and eliminated throughout
Wisconsin; (2) Vehicle Carrier Services prices were raised, fixed, maintained and
stabilized at artificially high levels throughout Wisconsin; (3) Plaintiffs and members of
the Damages Class were deprived of free and open competition; and (4) Plaintiffs and
members of the Damages Class paid supra-competitive, artificially inflated prices for
Vehicle Carrier Services.
(b)
During the Class Period, Defendants’ illegal conduct had a substantial effect on
Wisconsin commerce.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiffs and
members of the Damages Class have been injured in their business and property and are
threatened with further injury.
(d)
By reason of the foregoing, Defendants have entered into agreements in restraint
of trade in violation of Wisconsin Stat. §§ 133.01, et seq. Accordingly, Plaintiffs and
members of the Damages Class seek all relief available under Wisconsin Stat. §§ 133.01,
et seq.
159.
Plaintiffs and members of the Damages Class in each of the above states have
been injured in their business and property by reason of Defendants’ unlawful combination,
contract, conspiracy and agreement. Plaintiffs and members of the Damages Class have paid
more for Vehicle Carrier Services than they otherwise would have paid in the absence of
Defendants’ unlawful conduct. This injury is of the type the antitrust laws of the above states
were designed to prevent and flows from that which makes Defendants’ conduct unlawful.
160.
In addition, Defendants have profited significantly from the aforesaid conspiracy.
Defendants’ profits derived from their anticompetitive conduct come at the expense and
detriment of members of the Plaintiffs and the members of the Damages Class.
161.
Accordingly, Plaintiffs and the members of the Damages Class in each of the
above jurisdictions seek damages (including statutory damages where applicable), to be trebled
or otherwise increased as permitted by a particular jurisdiction’s antitrust law, and costs of suit,
including reasonable attorneys’ fees, to the extent permitted by the above state laws.
THIRD COUNT FOR RELIEF
Violation of State Consumer Protection Statutes
(on behalf of Plaintiffs and the Damages Class)
162.
Plaintiffs repeat and re-allege the allegations set forth above.
163.
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.
164.
Defendants have engaged in unfair competition or unfair, unconscionable,
deceptive or fraudulent acts or practices in violation of California Business and Professions Code
§ 17200, et seq.
(a)
During the Class Period, Defendants marketed, sold, or distributed Vehicle
Carrier Services in California, and committed and continue to commit acts of unfair
competition, as defined by Sections 17200, et seq. of the California Business and
Professions Code, by engaging in the acts and practices specified above.
(b)
This claim is instituted pursuant to Sections 17203 and 17204 of the California
Business and Professions Code, to obtain restitution from these Defendants for acts, as
alleged herein, that violated Section 17200 of the California Business and Professions
Code, commonly known as the Unfair Competition Law.
(c)
The Defendants’ conduct as alleged herein violated Section 17200. The acts,
omissions, misrepresentations, practices and non-disclosures of Defendants, as alleged
herein, constituted a common, continuous, and continuing course of conduct of unfair
competition by means of unfair, unlawful, and/or fraudulent business acts or practices
within the meaning of California Business and Professions Code, Section 17200, et seq.,
including, but not limited to, the following: (1) the violations of Section 1 of the
Sherman Act, as set forth above; (2) the violations of Section 16720, et seq., of the
California Business and Professions Code, set forth above;
(d)
Defendants’ acts, omissions, misrepresentations, practices, and non-disclosures,
as described above, whether or not in violation of Section 16720, et seq., of the California
Business and Professions Code, and whether or not concerted or independent acts, are
otherwise unfair, unconscionable, unlawful or fraudulent;
(e)
Defendants’ acts or practices are unfair to purchasers of Vehicle Carrier Services
(or Vehicles transported by them) in the State of California within the meaning of Section
17200, California Business and Professions Code; and
(f)
Defendants’ acts and practices are fraudulent or deceptive within the meaning of
Section 17200 of the California Business and Professions Code.
(g)
Plaintiffs and members of the Damages Class are entitled to full restitution and/or
disgorgement of all revenues, earnings, profits, compensation, and benefits that may have
been obtained by Defendants as a result of such business acts or practices.
(h)
The illegal conduct alleged herein is continuing and there is no indication that
Defendants will not continue such activity into the future.
(i)
The unlawful and unfair business practices of Defendants, and each of them, as
described above, have caused and continue to cause Plaintiffs and the members of the
Damages Class to pay supra-competitive and artificially-inflated prices for Vehicle
Carrier Services (or Vehicles transported by them). Plaintiffs and the members of the
Damages Class suffered injury in fact and lost money or property as a result of such
unfair competition.
(j)
The conduct of Defendants as alleged in this Complaint violates Section 17200 of
the California Business and Professions Code.
(k)
As alleged in this Complaint, Defendants and their co-conspirators have been
unjustly enriched as a result of their wrongful conduct and by Defendants’ unfair
competition. Plaintiffs and the members of the Damages Class are accordingly entitled to
equitable relief including restitution and/or disgorgement of all revenues, earnings,
profits, compensation, and benefits that may have been obtained by Defendants as a
result of such business practices, pursuant to the California Business and Professions
Code, Sections 17203 and 17204.
165.
Defendants have engaged in unfair competition or unfair, unconscionable, or
deceptive acts or practices in violation of District of Columbia Code § 28-3901, et seq.
(a)
Defendants agreed to, and did in fact, act in restraint of trade or commerce by
affecting, fixing, controlling and/or maintaining, at artificial and/or non-competitive
levels, the prices at which Vehicle Carrier Services were sold, distributed or obtained in
the District of Columbia
(b)
The foregoing conduct constitutes “unlawful trade practices,” within the meaning
of D.C. Code § 28-3904. Plaintiffs were not aware of Defendants’ price-fixing
conspiracy and were therefore unaware that they were being unfairly and illegally
overcharged. There was a gross disparity of bargaining power between the parties with
respect to the price charged by Defendants for Vehicle Carrier Services. Defendants had
the sole power to set that price and Plaintiffs had no power to negotiate a lower price.
Moreover, Plaintiffs lacked any meaningful choice in purchasing Vehicle Carrier
Services because they were unaware of the unlawful overcharge and there was no
alternative source of supply through which Plaintiffs could avoid the overcharges.
Defendants’ conduct with regard to sales of Vehicle Carrier Services, including their
illegal conspiracy to secretly fix the price of Vehicle Carrier Services at supra-
competitive levels and overcharge consumers, was substantively unconscionable because
it was one-sided and unfairly benefited Defendants at the expense of Plaintiffs and the
public. Defendants took grossly unfair advantage of Plaintiffs. The suppression of
competition that has resulted from Defendants’ conspiracy has ultimately resulted in
unconscionably higher prices for purchasers so that there was a gross disparity between
the price paid and the value received for Vehicle Carrier Services.
(c)
Defendants’ unlawful conduct had the following effects: (1) Vehicle Carrier
Services price competition was restrained, suppressed, and eliminated throughout the
District of Columbia; (2) Vehicle Carrier Services prices were raised, fixed, maintained,
and stabilized at artificially high levels throughout the District of Columbia; (3) Plaintiffs
and the Damages Class were deprived of free and open competition; and (4) Plaintiffs
and the Damages Class paid supra-competitive, artificially inflated prices for Vehicle
Carrier Services.
(d)
As a direct and proximate result of the Defendants’ conduct, Plaintiffs and
members of the Damages Class have been injured and are threatened with further injury.
Defendants have engaged in unfair competition or unfair or deceptive acts or practices in
violation of District of Columbia Code § 28-3901, et seq., and, accordingly, Plaintiffs and
members of the Damages Class seek all relief available under that statute.
166.
Defendants have engaged in unfair competition or unfair, unconscionable, or
deceptive acts or practices in violation of the Florida Deceptive and Unfair Trade Practices Act,
Fla. Stat. §§ 501.201, et seq.
(a)
Defendants’ unlawful conduct had the following effects: (1) Vehicle Carrier
Services price competition was restrained, suppressed, and eliminated throughout
Florida; (2) Vehicle Carrier Services prices were raised, fixed, maintained, and stabilized
at artificially high levels throughout Florida; (3) Plaintiffs and members of the Damages
Class were deprived of free and open competition; and (4) Plaintiffs and members of the
Damages Class paid supra-competitive, artificially inflated prices for Vehicle Carrier
Services.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected
Florida commerce and consumers.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiffs and
members of the Damages Class have been injured and are threatened with further injury.
(d)
Defendants have engaged in unfair competition or unfair or deceptive acts or
practices in violation of Florida Stat. § 501.201, et seq., and, accordingly, Plaintiffs and
members of the Damages Class seek all relief available under that statute.
167.
Defendants have engaged in unfair competition or unfair, unconscionable, or
deceptive acts or practices in violation of the Hawaii Revised Statutes Annotated §§ 480-1, et
(a)
Defendants’ unlawful conduct had the following effects: (1) Vehicle Carrier
Services price competition was restrained, suppressed, and eliminated throughout
Hawaii; (2) Vehicle Carrier Services prices were raised, fixed, maintained, and stabilized
at artificially high levels throughout Hawaii; (3) Plaintiffs and members of the Damages
Class were deprived of free and open competition; and (4) Plaintiffs and members of the
Damages Class paid supra-competitive, artificially inflated prices for Vehicle Carrier
Services.
(b)
During the Class Period, Defendants’ illegal conduct substantially affected
Hawaii commerce and consumers.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiffs and
members of the Damages Class have been injured and are threatened with further injury.
(d)
Defendants have engaged in unfair competition or unfair or deceptive acts or
practices in violation of Hawaii Rev. Stat. § 480, et seq., and, accordingly, Plaintiffs and
members of the Damages Class seek all relief available under that statute.
168.
Defendants have engaged in unfair competition or unfair, unconscionable, or
deceptive acts or practices in violation of the Missouri Merchandising Practices Act, Mo. Rev.
Stat. § 407.010, et. seq.
(a)
Missouri Plaintiffs and members of this Damages Class purchased Vehicle Carrier
Services for personal, family, or household purposes.
(b)
Defendants engaged in the conduct described herein in connection with the sale of
Vehicle Carrier Services in trade or commerce in a market that includes Missouri.
(c)
Defendants agreed to, and did in fact affect, fix, control, and/or maintain, at
artificial and non-competitive levels, the prices at which Vehicle Carrier Services were
sold, distributed, or obtained in Missouri, which conduct constituted unfair practices in
that it was unlawful under federal and state law, violated public policy, was unethical,
oppressive and unscrupulous, and caused substantial injury to Plaintiffs and members of
the Damages Class.
(d)
Defendants concealed, suppressed, and omitted to disclose material facts to
Plaintiffs and members of the Damages Class concerning Defendants’ unlawful activities
and artificially inflated prices for Vehicle Carrier Services. The concealed, suppressed,
and omitted facts would have been important to Plaintiffs and members of the Damages
Class as they related to the cost of Vehicle Carrier Services they purchased.
(e)
Defendants misrepresented the real cause of price increases and/or the absence of
price reductions in Vehicle Carrier Services by making public statements that were not in
accord with the facts.
(f)
Defendants’ statements and conduct concerning the price of Vehicle Carrier
Services were deceptive as they had the tendency or capacity to mislead Plaintiffs and
members of the Damages Class to believe that they were purchasing Vehicle Carrier
Services at prices established by a free and fair market.
(g)
Defendants’ unlawful conduct had the following effects: (1) Vehicle Carrier
Services price competition was restrained, suppressed, and eliminated throughout
Missouri; (2) Vehicle Carrier Services prices were raised, fixed, maintained, and
stabilized at artificially high levels throughout Missouri; (3) Plaintiffs and members of
the Damages Class were deprived of free and open competition; and (4) Plaintiffs and
members of the Damages Class paid supra-competitive, artificially inflated prices for
Vehicle Carrier Services.
(h)
The foregoing acts and practices constituted unlawful practices in violation of the
Missouri Merchandising Practices Act.
(i)
As a direct and proximate result of the above-described unlawful practices,
Plaintiffs and members of the Damages Class suffered ascertainable loss of money or
property.
(j)
Accordingly, Plaintiffs and members of the Damages Class seek all relief
available under Missouri’s Merchandising Practices Act, specifically Mo. Rev. Stat. §
407.020, which prohibits “the act, use or employment by any person of any deception,
fraud, false pretense, false promise, misrepresentation, unfair practice or the concealment,
suppression, or omission of any material fact in connection with the sale or advertisement
of any merchandise in trade or commerce…,” as further interpreted by the Missouri Code
of State Regulations, 15 CSR 60-7.010, et seq., 15 CSR 60-8.010, et seq., and 15 CSR
60-9.010, et seq., and Mo. Rev. Stat. § 407.025, which provides for the relief sought in
this count.
169.
Defendants have engaged in unfair competition or unfair, unconscionable, or
deceptive acts or practices in violation of the Montana Unfair Trade Practices and Consumer
Protection Act of 1970, Mont. Code, §§ 30-14-103, et seq., and §§ 30-14-201, et. seq.
(a)
Defendants’ unlawful conduct had the following effects: (1) Vehicle Carrier
Services price competition was restrained, suppressed, and eliminated throughout
Montana; (2) Vehicle Carrier Services prices were raised, fixed, maintained, and
stabilized at artificially high levels throughout Montana; (3) Plaintiffs and members of
the Damages Class were deprived of free and open competition; and (4) Plaintiffs and
members of the Damages Class paid supra-competitive, artificially inflated prices for
Vehicle Carrier Services.
(b)
During the Class Period, Defendants marketed, sold, or distributed Vehicle
Carrier Services in Montana, and Defendants’ illegal conduct substantially affected
Montana commerce and consumers.
(c)
As a direct and proximate result of Defendants’ unlawful conduct, Plaintiffs and
members of the Damages Class have been injured and are threatened with further injury.
(d)
Defendants have engaged in unfair competition or unfair or deceptive acts or
practices in violation of Mont. Code, §§ 30-14-103, et seq., and §§ 30-14-201, et. seq.,
and, accordingly, Plaintiffs and members of the Damages Class seek all relief available
under that statute.
170.
Defendants have engaged in unfair competition or unfair, unconscionable, or
deceptive acts or practices in violation of the New Mexico Stat. § 57-12-1, et seq.
(a)
Defendants agreed to, and did in fact, act in restraint of trade or commerce by
affecting, fixing, controlling and/or maintaining at non-competitive and artificially
inflated levels, the prices at which Vehicle Carrier Services were sold, distributed or
obtained in New Mexico and took efforts to conceal their agreements from Plaintiffs and
members of the Damages Class.
(b)
The aforementioned conduct on the part of the Defendants constituted
“unconscionable trade practices,” in violation of N.M.S.A. Stat. § 57-12-3, in that such
conduct, inter alia, resulted in a gross disparity between the value received by Plaintiffs
and the members of the Damages Class and the prices paid by them for Vehicle Carrier
Services as set forth in N.M.S.A., § 57-12-2E. Plaintiffs were not aware of Defendants’
price-fixing conspiracy and were therefore unaware that they were being unfairly and
illegally overcharged. There was a gross disparity of bargaining power between the
parties with respect to the price charged by Defendants for Vehicle Carrier Services.
Defendants had the sole power to set that price and Plaintiffs had no power to negotiate a
lower price. Moreover, Plaintiffs lacked any meaningful choice in purchasing Vehicle
Carrier Services because they were unaware of the unlawful overcharge and there was no
alternative source of supply through which Plaintiffs could avoid the overcharges.
Defendants’ conduct with regard to sales of Vehicle Carrier Services, including their
illegal conspiracy to secretly fix the price of Vehicle Carrier Services at supra-
competitive levels and overcharge consumers, was substantively unconscionable because
it was one-sided and unfairly benefited Defendants at the expense of Plaintiffs and the
public. Defendants took grossly unfair advantage of Plaintiffs. The suppression of
competition that has resulted from Defendants’ conspiracy has ultimately resulted in
unconscionably higher prices for consumers so that there was a gross disparity between
the price paid and the value received for Vehicle Carrier Services.
(c)
Defendants’ unlawful conduct had the following effects: (1) Vehicle Carrier
Services price competition was restrained, suppressed, and eliminated throughout New
Mexico; (2) Vehicle Carrier Services prices were raised, fixed, maintained, and stabilized
at artificially high levels throughout New Mexico; (3) Plaintiffs and the members of the
Damages Class were deprived of free and open competition; and (4) Plaintiffs and the
members of the Damages Class paid supra-competitive, artificially inflated prices for
Vehicle Carrier Services.
(d)
During the Class Period, Defendants’ illegal conduct substantially affected New
Mexico commerce and consumers.
(e)
As a direct and proximate result of the unlawful conduct of the Defendants,
Plaintiffs and the members of the Damages Class have been injured and are threatened
with further injury.
(f)
Defendants have engaged in unfair competition or unfair or deceptive acts or
practices in violation of New Mexico Stat. § 57-12-1, et seq., and, accordingly, Plaintiffs
and the members of the Damages Class seek all relief available under that statute.
171.
Defendants have engaged in unfair competition or unfair, unconscionable, or
deceptive acts or practices in violation of N.Y. Gen. Bus. Law § 349, et seq.
(a)
Defendants agree to, and did in fact, act in restraint of trade or commerce by
affecting, fixing, controlling and/or maintaining, at artificial and non-competitive levels,
the prices at which Vehicle Carrier Services were sold, distributed or obtained in New
York and took efforts to conceal their agreements from Plaintiffs and members of the
Damages Class.
(b)
Defendants and their co-conspirators made public statements about the prices of
Vehicle Carrier Services that either omitted material information that rendered the
statements that they made materially misleading or affirmatively misrepresented the real
cause of price increases for Vehicle Carrier Services; and Defendants alone possessed
material information that was relevant to consumers, but failed to provide the
information.
(c)
Because of Defendants’ unlawful trade practices in the State of New York, New
York consumer class members who indirectly purchased Vehicle Carrier Services were
misled to believe that they were paying a fair price for Vehicle Carrier Services or the
price increases for Vehicle Carrier Services were for valid business reasons; and similarly
situated consumers were potentially affected by Defendants’ conspiracy.
(d)
Defendants knew that their unlawful trade practices with respect to pricing
Vehicle Carrier Services would have an impact on New York consumers and not just the
Defendants’ direct customers.
(e)
Defendants knew that their unlawful trade practices with respect to pricing
Vehicle Carrier Services would have a broad impact, causing consumer class members
who indirectly purchased Vehicle Carrier Services to be injured by paying more for
Vehicle Carrier Services than they would have paid in the absence of Defendants’
unlawful trade acts and practices.
(f)
The conduct of the Defendants described herein constitutes consumer-oriented
deceptive acts or practices within the meaning of N.Y. Gen. Bus. Law § 349, which
resulted in consumer injury and broad adverse impact on the public at large, and harmed
the public interest of New York State in an honest marketplace in which economic
activity is conducted in a competitive manner.
(g)
Defendants’ unlawful conduct had the following effects: (1) Vehicle Carrier
Services price competition was restrained, suppressed, and eliminated throughout New
York; (2) Vehicle Carrier Services prices were raised, fixed, maintained, and stabilized at
artificially high levels throughout New York; (3) Plaintiffs and members of the Damages
Class were deprived of free and open competition; and (4) Plaintiffs and members of the
Damages Class paid supra-competitive, artificially inflated prices for Vehicle Carrier
Services.
(h)
During the Class Period, Defendants marketed, sold, or distributed Vehicle
Carrier Services in New York, and Defendants’ illegal conduct substantially affected
New York commerce and consumers.
(i)
During the Class Period, each of the Defendants named herein, directly, or
indirectly and through affiliates they dominated and controlled, manufactured, sold
and/or distributed Vehicle Carrier Services in New York.
(j)
Plaintiffs and members of the Damages Class seek all relief available pursuant to
N.Y. Gen. Bus. Law § 349 (h).
172.
Defendants have engaged in unfair competition or unfair, unconscionable, or
deceptive acts or practices in violation of North Carolina Gen. Stat. § 75-1.1, et seq.
(a)
Defendants agree to, and did in fact, act in restraint of trade or commerce by
affecting, fixing, controlling and/or maintaining, at artificial and non-competitive levels,
the prices at which Vehicle Carrier Services were sold, distributed or obtained in North
Carolina and took efforts to conceal their agreements from Plaintiffs and members of the
Damages Class.
(b)
Defendants’ price-fixing conspiracy could not have succeeded absent deceptive
conduct by Defendants to cover up their illegal acts. Secrecy was integral to the
formation, implementation and maintenance of Defendants’ price-fixing conspiracy.
Defendants committed inherently deceptive and self-concealing actions, of which
Plaintiffs could not possibly have been aware. Defendants and their co-conspirators
publicly provided pre-textual and false justifications regarding their price increases.
Defendants’ public statements concerning the price of Vehicle Carrier Services created
the illusion of competitive pricing controlled by market forces rather than supra-
competitive pricing driven by Defendants’ illegal conspiracy. Moreover, Defendants
deceptively concealed their unlawful activities by mutually agreeing not to divulge the
existence of the conspiracy to outsiders.
(c)
The conduct of the Defendants described herein constitutes consumer-oriented
deceptive acts or practices within the meaning of North Carolina law, which resulted in
consumer injury and broad adverse impact on the public at large, and harmed the public
interest of North Carolina consumers in an honest marketplace in which economic
activity is conducted in a competitive manner.
(d)
Defendants’ unlawful conduct had the following effects: (1) Vehicle Carrier
Services price competition was restrained, suppressed, and eliminated throughout North
Carolina; (2) Vehicle Carrier Services prices were raised, fixed, maintained, and
stabilized at artificially high levels throughout North Carolina; (3) Plaintiffs and members
of the Damages Class were deprived of free and open competition; and (4) Plaintiffs and
members of the Damages Class paid supra-competitive, artificially inflated prices for
Vehicle Carrier Services.
(e)
During the Class Period, Defendants marketed, sold, or distributed Vehicle
Carrier Services in North Carolina, and Defendants’ illegal conduct substantially affected
North Carolina commerce and consumers.
(f)
During the Class Period, each of the Defendants named herein, directly, or
indirectly and through affiliates they dominated and controlled, manufactured, sold
and/or distributed Vehicle Carrier Services in North Carolina.
(g)
Plaintiffs and members of the Damages Class seek actual damages for their
injuries caused by these violations in an amount to be determined at trial and are
threatened with further injury. Defendants have engaged in unfair competition or unfair
or deceptive acts or practices in violation of North Carolina Gen. Stat. § 75-1.1, et seq.,
and, accordingly, Plaintiffs and members of the Damages Class seek all relief available
under that statute.
173.
Defendants have engaged in unfair competition or unfair, unconscionable, or
deceptive acts or practices in violation of the Rhode Island Unfair Trade Practice and Consumer
Protection Act, R.I. Gen. Laws §§ 6-13.1-1, et seq.
(a)
Members of this Damages Class purchased Vehicle Carrier Services for personal,
family, or household purposes.
(b)
Defendants agreed to, and did in fact, act in restraint of trade or commerce in a
market that includes Rhode Island, by affecting, fixing, controlling, and/or maintaining,
at artificial and non-competitive levels, the prices at which Vehicle Carrier Services were
sold, distributed, or obtained in Rhode Island.
(c)
Defendants deliberately failed to disclose material facts to Plaintiffs and members
of the Damages Class concerning Defendants’ unlawful activities and artificially inflated
prices for Vehicle Carrier Services. 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’ Vehicle Carrier Services prices were
competitive and fair.
(d)
Defendants’ unlawful conduct had the following effects: (1) Vehicle Carrier
Services price competition was restrained, suppressed, and eliminated throughout Rhode
Island; (2) Vehicle Carrier Services prices were raised, fixed, maintained, and stabilized
at artificially high levels throughout Rhode Island; (3) Plaintiffs and members of the
Damages Class were deprived of free and open competition; and (4) Plaintiffs and
members of the Damages Class paid supra-competitive, artificially inflated prices for
Vehicle Carrier Services.
(e)
As a direct and proximate result of the Defendants’ violations of law, Plaintiffs
and members of the Damages Class suffered an ascertainable loss of money or property
as a result of Defendants’ use or employment of unconscionable and deceptive
commercial practices as set forth above. That loss was caused by Defendants’ willful and
deceptive conduct, as described herein.
(f)
Defendants’ deception, including their affirmative misrepresentations and
omissions concerning the price of Vehicle Carrier Services, likely misled all purchasers
acting reasonably under the circumstances to believe that they were purchasing Vehicle
Carrier Services at prices set by a free and fair market. Defendants’ affirmative
misrepresentations and omissions constitute information important to Plaintiffs and
members of the Damages Class as they related to the cost of Vehicle Carrier Services
they purchased.
(g)
Defendants have engaged in unfair competition or unfair or deceptive acts or
practices in violation of Rhode Island Gen. Laws. § 6-13.1-1, et seq., and, accordingly,
Plaintiffs and members of the Damages Class seek all relief available under that statute.
174.
Defendants have engaged in unfair competition or unfair, unconscionable, or
deceptive acts or practices in violation of 9 Vermont § 2451, et seq.
(a)
Defendants agreed to, and did in fact, act in restraint of trade or commerce in a
market that includes Vermont, by affecting, fixing, controlling, and/or maintaining, at
artificial and non-competitive levels, the prices at which Vehicle Carrier Services were
sold, distributed, or obtained in Vermont.
(b)
Defendants deliberately failed to disclose material facts to Plaintiffs and members
of the Damages Class concerning Defendants’ unlawful activities and artificially inflated
prices for Vehicle Carrier Services. 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’ Vehicle Carrier Services prices were
competitive and fair.
(c)
Defendants’ unlawful conduct had the following effects: (1) Vehicle Carrier
Services price competition was restrained, suppressed, and eliminated throughout
Vermont; (2) Vehicle Carrier Services prices were raised, fixed, maintained, and
stabilized at artificially high levels throughout Vermont; (3) Plaintiffs and members of
the Damages Class were deprived of free and open competition; and (4) Plaintiffs and
members of the Damages Class paid supra-competitive, artificially inflated prices for
Vehicle Carrier Services.
(d)
As a direct and proximate result of the Defendants’ violations of law, Plaintiffs
and members of the Damages Class suffered an ascertainable loss of money or property
as a result of Defendants’ use or employment of unconscionable and deceptive
commercial practices as set forth above. That loss was caused by Defendants’ willful and
deceptive conduct, as described herein.
(e)
Defendants’ deception, including their affirmative misrepresentations and
omissions concerning the price of Vehicle Carrier Services, likely misled all purchasers
acting reasonably under the circumstances to believe that they were purchasing Vehicle
Carrier Services 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, Plaintiffs and
members of the Damages Class seek all relief available under that statute.
FOURTH COUNT FOR RELIEF
Unjust Enrichment
(on behalf of Plaintiffs and the Damages Class)
175.
Plaintiffs repeat and reallege the allegations set forth above.
176.
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 Vehicle Carrier Services.
177.
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 Plaintiffs and the members of the Damages Class for Vehicle Carrier
Services.
178.
Plaintiffs and the members of the Damages Class are entitled to the amount of
Defendants’ ill-gotten gains resulting from their unlawful, unjust, and inequitable conduct.
Plaintiffs and the members of the Damages Class are entitled to the establishment of a
constructive trust consisting of all ill-gotten gains from which Plaintiffs and the members of the
Damages Class may make claims on a pro rata basis.
PRAYER FOR RELIEF
Accordingly, Plaintiffs respectfully request that:
1.
The Court determine that this action may be maintained as a class action under
Rule 23(a), (b)(2) and (b)(3) of the Federal Rules of Civil Procedure, and direct that reasonable
notice of this action, as provided by Rule 23(c)(2) of the Federal Rules of Civil Procedure, be
given to each and every member of the Classes;
2.
That the unlawful conduct, contract, conspiracy, or combination alleged herein be
adjudged and decreed:
(a)
An unreasonable restraint of trade or commerce in violation of Section 1 of the
Sherman Act;
(b)
A per se violation of Section 1 of the Sherman Act;
(c)
An unlawful combination, trust, agreement, understanding and/or concert of
action in violation of the state antitrust and unfair competition and consumer protection
laws as set forth herein; and
(d)
Acts of unjust enrichment by Defendants as set forth herein.
3.
Plaintiffs and the members of the Damages Class recover damages, to the
maximum extent allowed under such laws, and that a joint and several judgment in favor of
Plaintiffs and the members of the Damages Class be entered against Defendants in an amount to
be trebled to the extent such laws permit;
4.
Plaintiffs and the members of the Damages Class recover damages, to the
maximum extent allowed by such laws, in the form of restitution and/or disgorgement of profits
unlawfully gained from them;
5.
Defendants, their affiliates, successors, transferees, assignees and other officers,
directors, partners, agents and employees thereof, and all other persons acting or claiming to act
on their behalf or in concert with them, be permanently enjoined and restrained from in any
manner continuing, maintaining or renewing the conduct, contract, conspiracy, or combination
alleged herein, or from entering into any other contract, conspiracy, or combination having a
similar purpose or effect, and from adopting or following any practice, plan, program, or device
having a similar purpose or effect;
6.
Plaintiffs and the members of the Damages Class be awarded restitution,
including disgorgement of profits Defendants obtained as a result of their acts of unfair
competition and acts of unjust enrichment;
7.
Plaintiffs and the members of the Classes be awarded pre- and post- judgment
interest as provided by law, and that such interest be awarded at the highest legal rate from and
after the date of service of this Complaint;
8.
Plaintiffs and the members of the Classes recover their costs of suit, including
reasonable attorneys’ fees, as provided by law; and
9.
Plaintiffs and members of the Classes have such other and further relief as the
case may require and the Court may deem just and proper.
CARELLA, BRYNE, CECCHI,
OLSTEIN, BRODY & AGNELLO PC
Attorneys for Plaintiffs and the Proposed
Classes
By
/s/ James E. Cecchi
JAMES E. CECCHI
Dated: May 24, 2012
Hollis Salzman
Bernard Persky
Kellie Lerner
ROBINS, KAPLAN, MILLER
& CIRESI L.L.P.
601 Lexington Avenue
New York, NY 10022
Telephone: (212) 980-7410
Facsimile: (212) 980-7400
[email protected]
[email protected]
[email protected]
K. Craig Wildfang
Thomas J. Undlin
Ryan W. Marth
ROBINS, KAPLAN, MILLER
& CIRESI L.L.P.
800 LaSalle Avenue
2800 LaSalle Plaza
Minneapolis, MN 55402-2015
Telephone: (612) 349-8500
Facsimile: (612) 339-4181
[email protected]
[email protected]
[email protected]
M. Stephen Dampier
THE DAMPIER LAW FIRM, P.C.
55 N. Section Street
P.O. Box 161 (36533)
Fairhope, AL 36532
Telephone: (251) 929-0900
Facsimile: (251) 929-0800
[email protected]
Doug G. Thompson, Jr.
Michael G. McLellan
FINKELSTEIN THOMPSON LLP
James Place
1077 30th Street, N.W.
Suite #150
Washington, DC 20007
Telephone: (202) 337-8000
Facsimile: (202) 337-8090
[email protected]
[email protected]
JURY DEMAND
Plaintiffs demand a trial by jury, pursuant to Rule 38(b) of the Federal Rules of Civil
Procedure, of all issues so triable.
CARELLA, BRYNE, CECCHI,
OLSTEIN, BRODY & AGNELLO PC
Attorneys for Plaintiffs and the Proposed
Classes
By
/s/ James E. Cecchi
JAMES E. CECCHI
Dated: May 24, 2012
Hollis Salzman
Bernard Persky
Kellie Lerner
ROBINS, KAPLAN, MILLER
& CIRESI L.L.P.
601 Lexington Avenue
New York, NY 10022
Telephone: (212) 980-7410
Facsimile: (212) 980-7400
[email protected]
[email protected]
[email protected]
K. Craig Wildfang
Thomas J. Undlin
Ryan W. Marth
ROBINS, KAPLAN, MILLER
& CIRESI L.L.P.
800 LaSalle Avenue
2800 LaSalle Plaza
Minneapolis, MN 55402-2015
Telephone: (612) 349-8500
Facsimile: (612) 339-4181
[email protected]
[email protected]
[email protected]
M. Stephen Dampier
THE DAMPIER LAW FIRM, P.C.
55 N. Section Street
P.O. Box 161 (36533)
Fairhope, AL 36532
Telephone: (251) 929-0900
Facsimile: (251) 929-0800
[email protected]
Doug G. Thompson, Jr.
Michael G. McLellan
FINKELSTEIN THOMPSON LLP
James Place
1077 30th Street, N.W.
Suite #150
Washington, DC 20007
Telephone: (202) 337-8000
Facsimile: (202) 337-8090
[email protected]
[email protected]
| antitrust |
XlR7BIkBRpLueGJZw0nA | IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
MICHAEL SCHWARTZ, Individually and
on Behalf of All Others Similarly Situated,
Plaintiff,
v.
NORTHSTAR REALTY EUROPE CORP.,
RICHARD BRETT SALTZMAN, JUDITH
A.
HANNAWAY,
MAHBOD
NIA,
THOMAS J. BARRACK, JR., WESLEY D.
MINAMI,
OSCAR
J.
JUNQUERA,
DIANNE
HURLEY,
and
MARIO
Case No. 1:19-cv-7915
CLASS ACTION COMPLAINT FOR
VIOLATIONS OF SECTIONS 14(a) AND
20(a) OF THE SECURITIES EXCHANGE
ACT OF 1934
JURY TRIAL DEMANDED
CHISHOLM,
Defendants.
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Plaintiff Michael Schwartz (“Plaintiff”), by his undersigned attorneys, alleges upon
personal knowledge with respect to himself, and 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 is brought as a class action by Plaintiff on behalf of himself and the
other public holders of the common stock of NorthStar Realty Europe Corp. (“NRE” or the
“Company”) against the Company and the members of the Company’s board of directors
(collectively, the “Board” or “Individual Defendants,” and, together with NRE, the “Defendants”)
for their violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 (the
“Exchange Act”), 15 U.S.C. §§ 78n(a), 78t(a), SEC Rule 14a-9, 17 C.F.R. § 240.14a-9, and
Regulation G, 17 C.F.R. § 244.100, in connection with the proposed merger (the “Proposed
Transaction”) between NRE and AXA Investment Managers – Real Assets (“AXA”).
2.
On July 3, 2019, the Board caused the Company to enter into an agreement and
plan of merger (“Merger Agreement”), pursuant to which the Company’s shareholders stand to
receive $17.03 in cash for each share of NRE stock they own (the “Merger Consideration”).
3.
On August 1, 2019, in order to convince NRE shareholders to vote in favor of the
Proposed Transaction, the Board authorized the filing of a materially incomplete and misleading
Form PREM14A Preliminary Proxy Statement with the Securities and Exchange Commission
(“SEC”), in violation of Sections 14(a) and 20(a) of the Exchange Act. The materially incomplete
and misleading Proxy violates both Regulation G (17 C.F.R. § 244.100) and SEC Rule 14a-9 (17
C.F.R. § 240.14a-9), each of which constitutes a violation of Section 14(a) and 20(a) of the
Exchange Act. On August 14, 2019, the Company filed a Form DEFM14A Definitive Proxy
Statement (the “Proxy”) that did not correct the materially incomplete and misleading nature of
the preliminary proxy. The Board has scheduled a special meeting of the Company’s shareholders
on September 25, 2019 to vote on the Proposed Transaction.
4.
While touting the fairness of the Merger Consideration to the Company’s
shareholders in the Proxy, Defendants have failed to disclose certain material information that is
necessary for shareholders to properly assess the fairness of the Proposed Transaction, thereby
violating SEC rules and regulations and rendering certain statements in the Proxy materially
incomplete and misleading.
5.
In particular, the Proxy contains materially incomplete and misleading information
concerning: (i) the financial projections for the Company that were prepared by the Company and
relied on by Defendants in recommending that NRE shareholders vote in favor of the Proposed
Transaction; and (ii) the summary of certain valuation analyses conducted by NRE’s financial
advisor, Goldman Sachs & Co. LLC (“Goldman Sachs”) in support of its opinion that the Merger
Consideration is fair to shareholders, on which the Board relied.
6.
It is imperative that the material information that has been omitted from the Proxy
is disclosed prior to the forthcoming vote to allow the Company’s shareholders to make an
informed decision regarding the Proposed Transaction.
7.
For these reasons, and as set forth in detail herein, Plaintiff asserts claims against
Defendants for violations of Sections 14(a) and 20(a) of the Exchange Act, based on Defendants’
violation of: (i) Regulation G (17 C.F.R. § 244.100); and (ii) Rule 14a-9 (17 C.F.R. § 240.14a-9).
Plaintiff seeks to enjoin Defendants from holding the shareholder vote on the Proposed Transaction
and taking any steps to consummate the Proposed Transaction unless, and until, the material
information discussed below is disclosed to NRE shareholders sufficiently in advance of the vote
on the Proposed Transaction or, in the event the Proposed Transaction is consummated, to recover
damages resulting from Defendants’ violations of the Exchange Act.
JURISDICTION AND VENUE
8.
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 Section 14(a) and 20(a) of the Exchange Act.
9.
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.
10.
Venue is proper in this District under Section 27 of the Exchange Act, 15 U.S.C. §
78aa, as well as under 28 U.S.C. § 1391, because NRE maintains its principal executive offices in
this District.
PARTIES
11.
Plaintiff is, and at all relevant times has been, a holder of NRE common stock.
12.
Defendant NRE is incorporated in Maryland and maintains its principal executive
offices at 590 Madison Avenue, 34th Floor, New York, NY 10022. The Company’s common stock
trades on the NYSE under the ticker symbol “NRE.”
13.
Individual Defendant Richard Brett Saltzman is NRE’s Chairman and has been a
director of NRE at all relevant times.
14.
Individual Defendant Judith A. Hannaway is NRE’s Lead Director and has been a
director of NRE at all relevant times.
15.
Individual Defendant Mahbod Nia is NRE’s President and Chief Executive Officer
and has been a director of NRE at all relevant times.
16.
Individual Defendant Thomas J. Barrack, Jr. has been a director of NRE at all
relevant times.
17.
Individual Defendant Wesley D. Minami has been a director of NRE at all relevant
18.
Individual Defendant Oscar J. Junquera has been a director of NRE at all relevant
19.
Individual Defendant Dianne Hurley has been a director of NRE at all relevant
20.
Individual Defendant Mario Chisholm has been a director of NRE at all relevant
21.
The Individual Defendants referred to in paragraphs 13-20 are collectively referred
to herein as the “Individual Defendants” and/or the “Board.”
CLASS ACTION ALLEGATIONS
22.
Plaintiff brings this class action pursuant to Fed. R. Civ. P. 23 on behalf of himself
and the other public shareholders of NRE (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.
23.
This action is properly maintainable as a class action because:
a.
The Class is so numerous that joinder of all members is impracticable. As
of August 12, 2019, there were approximately 50,000,000 shares of NRE common stock
outstanding, held by hundreds of individuals and entities scattered throughout the country.
The actual number of public shareholders of NRE will be ascertained through discovery;
b.
There are questions of law and fact that are common to the Class that
predominate over any questions affecting only individual members, including the
following:
i)
whether Defendants disclosed material information that includes
non-GAAP financial measures without providing a reconciliation of
the same non-GAAP financial measures to their most directly
comparable GAAP equivalent in violation of Section 14(a) of the
Exchange Act;
ii)
whether Defendants have misrepresented or omitted material
information concerning the Proposed Transaction in the Proxy in
violation of Section 14(a) of the Exchange Act;
iii)
whether the Individual Defendants have violated Section 20(a) of
the Exchange Act; and
iv)
whether Plaintiff and other members of the Class will suffer
irreparable harm if compelled to vote their shares regarding the
Proposed Transaction based on the materially incomplete and
misleading Proxy.
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.
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; and
g.
A class action is superior to other available methods for fairly and
efficiently adjudicating the controversy.
SUBSTANTIVE ALLEGATIONS
I.
The Proposed Transaction
24.
NRE is a publicly traded real estate investment trust focused on European
commercial real estate. The Company maintains prime office properties in key cities within
Germany, the United Kingdom and France.
25.
On July 3, 2019, NRE and AXA issued a joint press release announcing the
Proposed Transaction, which states in pertinent part:
NEW YORK--(BUSINESS WIRE)--NorthStar Realty Europe Corp. (NYSE: NRE)
(the “Company” or “NRE”) today announced that following a comprehensive
strategic review it has entered into a definitive merger agreement with AXA
Investment Managers - Real Assets (“AXA IM - Real Assets”), a global leader in
real asset investments, acting on behalf of a client, for the acquisition of all of the
outstanding shares of common stock of the Company. The estimated per share
merger consideration of US$17.03 is based on the three-month forward foreign
exchange rates and represents a 16.4% premium to the Company’s unaffected
closing stock price of US$14.63 on November 6, 2018, the last reporting day before
NRE announced its strategic review process. Since NorthStar Realty Europe
completed its spin-off on November 2, 2015, stockholders will realize an
approximate 16% IRR on their investment assuming the estimated per share merger
consideration of US$17.03.
The estimated merger consideration reflects a gross asset value for the Company’s
assets in line with the Company’s most recently reported independent portfolio
valuationii by Cushman & Wakefield LLP, which was reflected in the March 31,
2019 EPRAiii Net Asset Value (“EPRA NAV”) per share of NRE. The Company’s
March 31, 2019 EPRA NAV per share of US$20.48 per share is reduced to reflect
(i) approximately $1.54 per share related to the remaining portion of the termination
payment to our external manager and transaction related costs, (ii) approximately
$0.21 per share related to the issuance of annual compensation and retention shares
subsequent to March 31, 2019, (iii) approximately $0.57 per share related to the
accelerated vesting of performance shares in connection with the Merger, (iv)
approximately $0.13 per share related to currency changes since March 31, 2019,
(v) approximately $0.23 per share due to dividends net of projected cash flows, and
(vi) approximately $0.58 per share related to local jurisdiction latent capital gains
taxes and net working capital adjustments. Pro forma for these adjustments and
assuming a transaction close at September 30, 2019, the Company’s Adjusted
EPRA NAV per share is approximately US$17.22. For more information and a
reconciliation of the Company’s March 31, 2019 EPRA NAV, please refer to the
tables on the following pages.
Under the terms of the merger agreement, NRE stockholders will receive in cash at
closing, for each share of common stock, US$1.68 plus the U.S. Dollar equivalent
of €9.26 and £3.82, representing an estimated per share merger consideration of
US$17.03 based on three month forward foreign exchange rates.iv This reflects the
geographic location of assets across the U.K., France and Germany. Based on spot
foreign exchange rates of 1.1290 EUR/USD and 1.2595 GBP/USD as of July 2,
2019, per Bloomberg, the estimated per share merger consideration is US$16.95
per share, implying a 15.8% premium to the Company’s unaffected closing stock
price.
In connection with the transaction, NRE has entered into six-month forward
contracts for the purchase of U.S. Dollars for €482 million and £199 million, the
approximate aggregate amount of the merger consideration denominated in Euros
and Pound Sterling. In connection with the closing of the merger, these forward
contracts will be settled and the portion of the merger consideration denominated
in Euro and Pound Sterling will be paid to NRE stockholders in U.S. Dollars
reflecting the final exchange rate received in settlement of the forward contracts
(which may be at rates greater or less than the currently estimated exchange rates,
depending on the closing date). Assuming an early fourth quarter 2019 closing,
stockholders are expected to receive the equivalent of the three month forward
foreign exchange rate consideration of US$17.03 with an additional nominal
adjustment to proceeds to account for the interest rate differential from the period
of original settlement date to the closing date.
The announcement follows a comprehensive review of strategic alternatives by the
Strategic Review Committee (the “SRC”) of the Company’s Board of Directors
(the “NRE Board”). The SRC, comprised solely of independent directors, has
unanimously recommended the transaction to the Board of Directors, which
has unanimously approved the transaction.
Mahbod Nia, Chief Executive Officer and President of the Company, stated, “The
SRC ran a comprehensive strategic review process, considering all options and
engaging with a wide group of potential buyers. We are pleased that the process
has culminated in a transaction that unlocks the significant value we have created
for NRE stockholders since inception, realizing an approximate 16% IRR assuming
the estimated per share merger consideration of $17.03.”
John O’Driscoll, European Head of Transactions at AXA IM – Real Assets, stated,
“The acquisition of NRE through this public to private transaction is a rare
opportunity to secure a significant portfolio of prime modern offices located in the
major cities of Europe’s largest economies of France, the U.K. and Germany, in a
single transaction. The properties have high occupancy and produce strong levels
of income that are ideally suited to our clients and we look forward to utilizing our
extensive European network of expert real estate managers to create further value
from the portfolio in the future.”
The Client of AXA IM -- Real Assets will finance the transaction through the
arrangement of equity financing and the Company’s available cash at closing. The
transaction is not subject to any financing condition.
Pursuant to the merger agreement executed by the parties, the closing of the
transaction is subject to customary closing conditions, including approval by a
majority of the Company’s stockholders. The closing is expected to occur in the
fourth quarter of 2019, subject to satisfaction of all closing conditions. Prior to
closing, NRE expects to pay its final quarterly dividend of $0.15 per share in
August 2019.
Process Background:
•
On March 23, 2017, the Board of Directors established the SRC, consisting
solely of independent directors of NRE to negotiate on behalf of NRE
amendments to the Company’s management agreement with its external
manager, an affiliate of Colony Capital, Inc. (NYSE:CLNY) (the “Asset
Manager” or “CLNY”). The management agreement then provided for a 20
year term from October 31, 2015 with automatic renewals for additional 20 year
terms and no right on the part of the Company to terminate other than for
“cause.”
•
On November 9, 2017, NRE and CLNY entered into an amended management
agreement allowing NRE to terminate the agreement on December 31, 2022.
This amended agreement provided for a minimum term of 5 years. It also
provided for payment of a termination fee of three times (3x) the base
management fee plus potential incentive fees in connection with a change of
control transaction, which could only occur after the minimum term.
•
On November 7, 2018, NRE and CLNY entered into a further amendment to
the management agreement allowing NRE to terminate the management
agreement upon a sale of the Company (or in connection with the internalization
of the management of NRE) in exchange for a payment to CLNY of $70
million, minus the amount of any incentive fee previously paid to CLNY. In
connection with this amendment, NRE announced that the SRC was conducting
a process to review strategic alternatives in an effort to maximize stockholder
value.
•
As part of the strategic review process, NRE and its advisors conducted detailed
discussions with a broad group of potential counterparties starting in December
2018 to ascertain their interest in a potential transaction. In addition to a sale of
the Company as a whole, the SRC explored in detail, with the assistance of its
advisors, the feasibility of selling the Company’s different asset portfolios in
separate transactions (followed by a wind-down of the Company), as well the
internalization of the management of NRE. Based on its extensive analysis, the
SRC concluded that the proposed sale of NRE would deliver superior
stockholder value compared to the other alternatives potentially available to the
Company.
Advisors
The Strategic Review Committee is being advised by Goldman Sachs & Co. LLC
and is receiving legal counsel from Fried, Frank, Harris, Shriver & Jacobson LLP.
The Company is receiving legal counsel from Sullivan & Cromwell LLP, Clifford
Chance LLP and Venable LLP, compensation and benefits counsel from Goodwin
Procter LLP and tax counsel from Vinson & Elkins LLP.
AXA IM -- Real Assets is being advised by Deutsche Bank Securities Inc. and is
receiving legal counsel from DLA Piper LLP. In addition, KPMG provided
accounting, financial, and tax due diligence advisory services and CBRE provided
real estate advisory services.
About NorthStar Realty Europe
NorthStar Realty Europe Corp. (NYSE: NRE) is a European-focused commercial
real estate company with predominantly high quality office properties in Germany,
the United Kingdom and France, organized as a REIT and managed by an affiliate
of Colony Capital, Inc. (NYSE:CLNY), a leading global real estate and investment
management firm. For more information about NorthStar Realty Europe Corp.,
please visit www.nrecorp.com.
26.
NRE is well-positioned for financial growth and the Merger Consideration fails to
adequately compensate the Company’s shareholders. It is imperative that Defendants disclose the
material information they have omitted from the Proxy, discussed in detail below, so that the
Company’s shareholders can properly assess the fairness of the Merger Consideration for
themselves and make an informed decision concerning whether or not to vote in favor of the
Proposed Transaction.
27.
If the false and/or misleading Proxy is not remedied and the Proposed Transaction
is consummated, Defendants will directly and proximately have caused damages and actual
economic loss (i.e. the difference between the value to be received as a result of the Proposed
Transaction and the true value of their shares prior to the merger), in an amount to be determined
at trial, to Plaintiff and the Class.
II.
The Materially Incomplete and Misleading Proxy
28.
On August 1, 2019, Defendants caused the preliminary proxy to be filed with the
SEC in connection with the Proposed Transaction. The preliminary proxy solicits the Company’s
shareholders to vote in favor of the Proposed Transaction. Defendants were obligated to carefully
review the proxy before it was filed with the SEC and disseminated to the Company’s shareholders
to ensure that it did not contain any material misrepresentations or omissions. However, the
preliminary proxy misrepresents and/or omits material information that is necessary for the
Company’s shareholders to make an informed decision concerning whether to vote in favor of the
Proposed Transaction, in violation of Sections 14(a) and 20(a) of the Exchange Act. On August
14, 2019, Defendants caused the Proxy to be filed. The Proxy did not correct the materially
incomplete and misleading nature of the preliminary proxy and thus continues to violate Sections
14(a) and 20(a) of the Exchange Act.
The Materiality of Financial Projections
29.
A company’s financial forecasts are material information a board relies on to
determine whether to approve a merger transaction and recommend that shareholders vote to
approve the transaction. Here, the Proxy discloses that “in connection with the evaluation of a
possible transaction involving NRE, NRE provided to the [strategic review committee]’s financial
advisor, Goldman Sachs, certain non-public unaudited financial forecasts covering multiple years
that were prepared by the management of NRE and not for public disclosure.” Proxy 62.
30.
The Proxy further discloses that the assumptions used in the financial projections
were “reasonable as of the respective dates when such projections were finalized.” Id. at 62-63.
31.
When soliciting proxies from shareholders, a company must furnish the
information found in Schedule 14A (codified as 17 C.F.R. § 240.14a-101). Item 14 of Schedule
14A sets forth the information a company must disclose when soliciting proxies regarding mergers
and acquisitions. In regard to financial information, companies are required to disclose “financial
information required by Article 11 of Regulation S-X[,]” which includes Item 10 of Regulation S-
K. See Item 14(7)(b)(11) of 17 C.F.R. § 240.14a-101.
32.
Under Item 10 of Regulation S-K, companies are encouraged to disclose
“management’s projections of future economic performance that have a reasonable basis and are
presented in an appropriate format.” 17 C.F.R. § 229.10(b). Although the SEC recognizes the
usefulness of disclosing projected financial metrics, the SEC cautions companies to “take care to
assure that the choice of items projected is not susceptible of misleading inferences through
selective projection of only favorable items.” 17 C.F.R. § 229.10(b)(2).
33.
In order to facilitate investor understanding of the Company’s financial projections,
the SEC provides companies with certain factors “to be considered in formulating and disclosing
such projections[,]” including:
(i) When management chooses to include its projections in a Commission filing,
the disclosures accompanying the projections should facilitate investor
understanding of the basis for and limitations of projections. In this regard investors
should be cautioned against attributing undue certainty to management’s
assessment, and the Commission believes that investors would be aided by a
statement indicating management’s intention regarding the furnishing of updated
projections. The Commission also believes that investor understanding would be
enhanced by disclosure of the assumptions which in management’s opinion are
most significant to the projections or are the key factors upon which the financial
results of the enterprise depend and encourages disclosure of assumptions in a
manner that will provide a framework for analysis of the projection.
(ii) Management also should consider whether disclosure of the accuracy or
inaccuracy of previous projections would provide investors with important insights
into the limitations of projections. In this regard, consideration should be given to
presenting the projections in a format that will facilitate subsequent analysis of the
reasons for differences between actual and forecast results. An important benefit
may arise from the systematic analysis of variances between projected and actual
results on a continuing basis, since such disclosure may highlight for investors the
most significant risk and profit-sensitive areas in a business operation.
17 C.F.R. § 229.10(b)(3) (emphasis added).
34.
Here, NRE shareholders would clearly find complete and non-misleading financial
projections material in deciding how to vote, considering that in making its recommendation that
shareholders vote in favor of the Proposed Transaction, the Board specifically relied on the
financial forecasts in forming the belief that “the merger agreement and all related agreements and
documents [are] advisable and in the best interest of NRE . . . .” Proxy 51.
35.
As discussed further below, the non-GAAP financial projections here do not
provide NRE shareholders with a materially complete understanding of the assumptions and key
factors considered in developing financial projections, which assumptions, factors and other inputs
the Board reviewed.
The Financial Projections Relied on by the Board
36.
The Proxy discloses that, “in connection with the evaluation of a possible
transaction involving NRE, NRE provided to the [strategic review committee]’s financial advisor,
Goldman Sachs, certain non-public unaudited financial forecasts covering multiple years that were
prepared by the management of NRE and not for public disclosure.” Id. at 62.
37.
The Proxy goes on to disclose, inter alia, forecasted values for projected non-
GAAP (Generally Accepted Accounting Principles) financial metrics for 2019 through 2023 for:
(1) Property Net Operating Income; (2) EBITDA; (3) Funds From Operations; (4) Adjusted Funds
From Operations; (5) Cash Available for Distribution; and (6) Levered Free Cash Flow, but fails
to provide (i) the line items used to calculate these non-GAAP metrics nor (ii) a reconciliation of
these non-GAAP projections to the most comparable GAAP measures. Id. at 64.
38.
The Proxy defines Property Net Operating Income (“Property NOI”), “a non-
GAAP measure . . . as the total cash net operating income for NRE’s current operating portfolio,
plus the total net operating income for NRE’s incremental direct equity investments.” Id. at 64
n.1. Nevertheless, the Proxy fails to disclose the line items used to calculate Property NOI,
rendering the Proxy materially false and/or misleading. Id.
39.
The Proxy defines EBITDA, “a non-GAAP measure, as Property NOI, adjusted to
include interest income from preferred equity investments, straight line rental income, NRE’s
share of income from joint venture investments, plus various fees from joint venture partners on
an amortized basis, less corporate general and administrative expenses and other expenses.” Id. at
64 n.2. Nevertheless, the Proxy fails to disclose the line items used to calculate EBITDA, rendering
the Proxy materially false and/or misleading. Id.
40.
The Proxy defines Funds From Operations (“FFO”), “a non-GAAP measure . . . as
EBITDA adjusted to include interest expense and current tax expense.” Id. at 64 n.3. Nevertheless,
the Proxy fails to disclose the line items used to calculate FFO, rendering the Proxy materially
false and/or misleading. Id.
41.
The Proxy defines Adjusted Funds From Operations (“AFFO”), “a non-
GAAP measure . . . as FFO, adjusted to exclude straight line rental income, recurring maintenance
capital expenditures and adjusted to actual cash received during the period related to various fees
from joint venture partners.” Id. at 64 n.4. Nevertheless, the Proxy fails to disclose the line items
used to calculate AFFO, rendering the Proxy materially false and/or misleading. Id.
42.
The Proxy defines Cash Available for Distribution (“CAD”), “a non-
GAAP measure . . . as FFO adjusting to include gains or losses on settlement of foreign currency
derivatives and to exclude stock based compensation expense.” Id. at 64 n.5. Nevertheless, the
Proxy fails to disclose the line items used to calculate CAD, rendering the Proxy materially false
and/or misleading. Id.
43.
The Proxy defines Levered Free Cash Flow (“LFCF”) “as EBITDA less interest
expense, less current tax expense, less straight line rental income, less recurring maintenance
capital expenditures and adjusted to actual cash received during the period related to various fees
from joint venture partners, less new investments net of debt financing and less other cash flow
items.” Id. at 64 n.6. Nevertheless, the Proxy fails to disclose the line items used to calculate LFCF,
rendering the Proxy materially false and/or misleading. Id.
44.
Thus, the Proxy’s disclosure of these non-GAAP financial forecasts provides an
incomplete and materially misleading understanding of the Company’s future financial prospects
and the inputs and assumptions for which those prospects are based upon. It is clear that those
inputs and assumptions were in fact forecasted and utilized in calculating the non-GAAP measures
disclosed and relied on by the Board to recommend the Proposed Transaction in violation of
Section 14(a) of the Exchange Act.
45.
The financial projections disclosed on page 64 of the Proxy violate Section 14(a)
of the Exchange Act because: (i) the use of such forecasted non-GAAP financial measures alone
violates SEC Regulation G as a result of Defendants’ failure to reconcile those non-GAAP
measures to their closest GAAP equivalent or otherwise disclose the specific financial assumptions
and inputs used to calculate the non-GAAP measures; and (ii) they violate SEC Regulation 14a-9
because they are materially misleading, as shareholders are unable to discern the veracity of the
financial projections.
46.
As such, this information must be disclosed in order to cure the materially
misleading disclosures regarding both the financial projections developed by the Company as well
as the projections relied upon by the Company’s financial advisor.
The Financial Projections Violate Regulation G
47.
The SEC has acknowledged that potential “misleading inferences” are exacerbated
when the disclosed information contains non-GAAP financial measures1 and adopted Regulation
G2 “to ensure that investors and others are not misled by the use of non-GAAP financial
measures.”3
48.
Defendants must comply with Regulation G. More specifically, the company must
disclose the most directly comparable GAAP financial measure and a reconciliation (by schedule
or other clearly understandable method) of the differences between the non-GAAP financial
measure disclosed or released with the most comparable financial measure or measures calculated
and presented in accordance with GAAP. 17 C.F.R. § 244.100. This is because the SEC believes
“this reconciliation will help investors . . . to better evaluate the non-GAAP financial measures
. . . . [and] more accurately evaluate companies’ securities and, in turn, result in a more accurate
pricing of securities.”4
49.
Moreover, the SEC has publicly stated that the use of non-GAAP financial
measures can be misleading.5 Former SEC Chairwoman Mary Jo White has stated that the
1
Non-GAAP financial measures are numerical measures of future financial performance
that exclude amounts or are adjusted to effectively exclude amounts that are included in the most
directly comparable GAAP measure. 17 C.F.R. § 244.101(a)(1).
2
Item 10 of Regulations S-K and S-B were amended to reflect the requirements of
Regulation G.
3
SEC, Final Rule: Conditions for Use of Non-GAAP Financial Measures (Jan. 22, 2003),
available at https://www.sec.gov/rules/final/33-8176.htm (“SEC, Final Rule”).
4
SEC, Final Rule.
5
See, e.g., Nicolas Grabar and Sandra Flow, Non-GAAP Financial Measures: The SEC’s
Evolving Views, Harvard Law School Forum on Corporate Governance and Financial Regulation
(June 24, 2016), available at https://corpgov.law.harvard.edu/2016/06/24/non-gaap-financial-
measures-the-secs-evolving-views/; Gretchen Morgenson, Fantasy Math Is Helping Companies
Spin Losses Into Profits, N.Y. Times, Apr. 22, 2016, available at http://www.nytimes.com
/2016/04/24/business/fantasy-math-is-helping-companies-spin-losses-into-profits.html?_r=0.
frequent use by publicly traded companies of unique company-specific non-GAAP financial
measures (as NRE included in the Proxy here) implicates the centerpiece of the SEC’s disclosures
regime:
In too many cases, the non-GAAP information, which is meant to supplement the
GAAP information, has become the key message to investors, crowding out and
effectively supplanting the GAAP presentation. Jim Schnurr, our Chief Accountant,
Mark Kronforst, our Chief Accountant in the Division of Corporation Finance and
I, along with other members of the staff, have spoken out frequently about our
concerns to raise the awareness of boards, management and investors. And last
month, the staff issued guidance addressing a number of troublesome practices
which can make non-GAAP disclosures misleading: the lack of equal or greater
prominence for GAAP measures; exclusion of normal, recurring cash operating
expenses; individually tailored non-GAAP revenues; lack of consistency; cherry-
picking; and the use of cash per share data. I strongly urge companies to carefully
consider this guidance and revisit their approach to non-GAAP disclosures. I also
urge again, as I did last December, that appropriate controls be considered and that
audit committees carefully oversee their company’s use of non-GAAP measures
and disclosures.6
50.
The SEC has required compliance with Regulation G, including reconciliation
requirements, in other merger transactions. Compare Youku Tudou Inc., et al., Correspondence 5
(Jan. 11, 2016) (Issuer arguing that Rule 100(d) of Regulation G does not apply to non-GAAP
financials relating to a business combination),7 with Youku Tudou Inc., et al., SEC Staff Comment
Letter 1 (Jan. 20, 2016) (“[The SEC] note[s] that your disclosure of projected financial information
is not in response to the requirements of, or pursuant to, Item 1015 of Regulation M-A and is thus
not excepted from Rule 100 of Regulation G.”);8 see Harbin Electric, Inc., Correspondence 29
(Aug. 12, 2011) (“Pursuant to the requirements of Regulation G, we have added a reconciliation
6
Mary Jo White, Keynote Address, International Corporate Governance Network Annual
Conference: Focusing the Lens of Disclosure to Set the Path Forward on Board Diversity, Non-
GAAP, and Sustainability (June 27, 2016), available at https://www.sec.gov/news/speech/chair-
white-icgn-speech.html (emphasis added) (footnotes omitted).
7
Available at https://www.sec.gov/Archives/edgar/data/1442596/000110465916089133/
filename1.htm.
8
Available at https://www.sec.gov/Archives/edgar/data/1442596/000000000016062042/
filename1.pdf.
of actual and projected EBIT to GAAP net income . . . .”).9
51.
Compliance with Regulation G is mandatory under Section 14(a), and non-
compliance constitutes a violation of Section 14(a). Thus, in order to bring the Proxy into
compliance with Regulation G, Defendants must provide a reconciliation of the non-GAAP
financial measures to their respective most comparable GAAP financial measures.
The Financial Projections are Materially Misleading and Violate SEC Rule 14a-9
52.
In addition to the Proxy’s violation of Regulation G, the lack of reconciliation or,
at the very least, the line items utilized in calculating the non-GAAP measures render the financial
forecasts disclosed materially misleading as shareholders are unable to understand the differences
between the non-GAAP financial measures and their respective most comparable GAAP financial
measures. Nor can shareholders compare the Company’s financial prospects with similarly
situated companies.
53.
Such projections are necessary to make the non-GAAP projections included in the
Proxy not misleading for the reasons discussed above. Indeed, Defendants acknowledge that
9
Available at https://www.sec.gov/Archives/edgar/data/1266719/000114420411046281/
filename1.htm. See also Actel Corporation, SEC Staff Comment Letter 2 (Oct. 13, 2010)
(“Opinion of Actel’s Financial Advisor, page 24 . . . This section includes non-GAAP financial
measures. Please revise to provide the disclosure required by Rule 100 of Regulation G.”),
available at https://www.sec.gov/Archives/edgar/data/907687/000000000010060087/filename
1.pdf. See also The Spectranetics Corp., SEC Staff Comment Letter 1 (July 18, 2017) (“Item 4.
The Solicitation or Recommendation Certain Spectranetics Forecasts, page 39 . . . [P]rovide the
reconciliation
required
under
Rule
100(a)
of
Regulation
G”),
available
at
https://www.sec.gov/Archives/edgar/data/789132/000000000017025180/filename1.pdf.
The
SEC Office of Mergers and Acquisitions applied Regulation G in these transactions which reflect
the SEC’s official position. Any claim that the SEC has officially sanctioned the use of non-GAAP
financial forecasts for business combinations when the Board itself created and relied on such non-
GAAP forecasts to recommend a transaction such as the Proposed Transaction is incorrect. The
SEC’s website provides certain unofficial guidance for certain matters, called Compliance and
Disclosure Interpretations (“C&DI’s”) which through the use of Q&As reflect the views of
particular SEC staff and on which certain issuers have in the past claimed an exemption from
Regulation G. The SEC itself expressly disclaims C&DI’s as they are not regulations that have
been reviewed by the SEC, and the SEC expressly states that they are not binding and should not
be relied on. See www.sec.gov/divisions/corpfin/cfguidance.shtml.
“[n]on-GAAP financial measures should not be considered in isolation from, or as a substitute for
financial information presented in compliance with GAAP, and non-GAAP financial measures as
presented in this proxy statement may not be comparable to similarly titled amounts used by NRE
or other companies.” Proxy 62.
54.
Moreover, the disclosed EBITDA and CAD were calculated using a different
methodology than traditionally utilized by NRE. Id. at 64 nn.2 & 5.
55.
As such, financial projections are plainly material, and shareholders would clearly
want a complete and non-misleading understanding of those projections.
56.
In order to cure the materially misleading nature of the projections under SEC Rule
14a-9 as a result of the omitted information on page 64, Defendants must provide a reconciliation
table of the non-GAAP financial measures to the most comparable GAAP measures.
The Materially Misleading Financial Analyses
57.
The summary of the valuation methodologies utilized by Goldman Sachs, including
the utilization of certain of the non-GAAP financial projections described above by Goldman
Sachs in connection with its valuation analyses, (id. at 55) is misleading and in violation of
Regulation 14a-9. The opacity concerning the Company’s internal projections renders the
valuation analyses described below materially incomplete and misleading, particularly as
companies formulate non-GAAP metrics differently. Once a proxy discloses internal projections
relied upon by the Board, those projections must be complete and accurate.
58.
With respect to Goldman Sachs’s compensation, the Proxy fails to disclose how
much is contingent on the consummation of the merger. Id. at 61.
59.
With respect to Goldman Sachs’s Illustrative Present Value of Future Share Price
Analysis, the Proxy states that Goldman Sachs calculated the theoretical present value of NRE’s
stock price based on a premium or discount to the Company’s projected net asset value (“NAV”).
Id. at 57. Goldman Sachs estimated the Company’s NAV as of December 31, 2019, 2020, 2021
and 2022, and then applied a discount rate ranging from 10% to 30%. Id. Goldman Sachs then
discounted those values using a discount rate of 6.1%, reflecting the cost of equity as derived by
the capital asset pricing model. Id. at 58.
60.
Goldman Sachs also performed an analysis on the implied present value of a future
value per share of NRE common stock based on the next 12 months FFO multiples. Id. Goldman
Sachs calculated the range of theoretical future values per share as of December 31, 2019, 2020,
2021 and 2022 by multiplying the next twelve months FFO multiples ranging from 14.0x to 18.0x
by the estimates of NRE’s FFO for each period. Id. Goldman Sachs then discounted those values
using a discount rate of 6.1%, reflecting the cost of equity as derived by the capital asset pricing
model. Id.
61.
The Proxy fails to disclose the projected NAVs and the inputs that went into the
cost of equity, including the company-specific beta.
62.
With respect to Goldman Sachs’s Illustrative Discounted Cash Flow Analysis, the
Proxy states that Goldman Sachs calculated the estimated levered free cash flows that NRE was
forecasted to generate for the years 2019 through 2023 and a range of terminal values calculated
by applying a perpetuity growth rate ranging from 1.0% to 2.0% to a terminal year estimate of the
levered free cash flow. Id. Goldman Sachs used a 6.0% to 7.0% discount rate, which reflected
NRE’s cost of equity using the capital asset pricing model. Id. Goldman Sachs then divided by the
number of fully diluted shares outstanding as of June 26, 2019 to get the implied per share equity
value. Id.
63.
The Proxy does not disclose the line items used to calculate the Company’s levered
free cash flows, the range of terminal values, any of the inputs that went into calculating the
Company’s cost of equity, how stock-based compensation was treated, what, if any, enterprise
adjustments were made nor the number of fully diluted shares of NRE outstanding.
64.
Since information was omitted, shareholders are unable to discern the veracity of
Goldman Sachs’s Illustrative Discounted Cash Flow Analysis. Without further disclosure,
shareholders are unable to compare Goldman Sachs’s calculations with the Company’s financial
projections. The absence of any single piece of the above information renders Goldman Sachs’s
Illustrative Discounted Cash Flow Analysis incomplete and misleading. Thus, the Company’s
shareholders are being materially misled regarding the value of the Company.
65.
As a highly-respected professor explained in one of the most thorough law review
articles regarding the fundamental flaws with the valuation analyses bankers perform in support
of fairness opinions, in a discounted cash flow analysis a banker takes management’s projections
and then makes several key choices “each of which can significantly affect the final valuation.”
Steven M. Davidoff, Fairness Opinions, 55 Am. U.L. Rev. 1557, 1576 (2006). Such choices
include “the appropriate discount rate, and the terminal value . . . .” Id. (footnote omitted). As
Professor Davidoff explains:
There is substantial leeway to determine each of these, and any change can
markedly affect the discounted cash flow value . . . The substantial discretion and
lack of guidelines and standards also makes the process vulnerable to manipulation
to arrive at the “right” answer for fairness. This raises a further dilemma in light of
the conflicted nature of the investment banks who often provide these opinions[.]
Id. at 1577-78 (footnotes omitted).
66.
Thus, in order for NRE shareholders to become fully informed regarding the
fairness of the Merger Consideration, the material omitted information must be disclosed to
shareholders.
67.
In sum, the Proxy independently violates both: (i) Regulation G, which requires a
presentation and reconciliation of any non-GAAP financial to their most directly comparable
GAAP equivalent; and (ii) Rule 14a-9, since the material omitted information renders certain
statements, discussed above, materially incomplete and misleading. As the Proxy independently
contravenes the SEC rules and regulations, Defendants violated Section 14(a) and Section 20(a)
of the Exchange Act by filing the Proxy to garner votes in support of the Proposed Transaction
from NRE shareholders.
68.
Absent disclosure of the foregoing material information prior to the special
shareholder meeting to vote on the Proposed Transaction, Plaintiff and the other members of the
Class will not be able to make a fully-informed decision regarding whether to vote in favor of the
Proposed Transaction, and they are thus threatened with irreparable harm, warranting the
injunctive relief sought herein.
69.
Further, failure to remedy the deficient Proxy and consummate the Proposed
Transaction will directly and proximately cause damages and actual economic loss to shareholders
(i.e. the difference between the value to be received as a result of the Proposed Transaction and
the true value of their shares prior to the merger), in an amount to be determined at trial, to Plaintiff
and the Class.
COUNT I
(Against All Defendants for Violations of Section 14(a) of the Exchange Act and
17 C.F.R. § 244.100 Promulgated Thereunder)
70.
Plaintiff incorporates each and every allegation set forth above as if fully set forth
71.
Section 14(a)(1) of the Exchange Act makes it “unlawful for any person, by the use
of the mails or by any means or instrumentality of interstate commerce or of any facility of a
national securities exchange or otherwise, in contravention of such rules and regulations as the
Commission may prescribe as necessary or appropriate in the public interest or for the protection
of investors, to solicit or to permit the use of his name to solicit any proxy or consent or
authorization in respect of any security (other than an exempted security) registered pursuant to
section 78l of this title.” 15 U.S.C. § 78n(a)(1).
72.
As set forth above, the Proxy omits information required by SEC Regulation G, 17
C.F.R. § 244.100, which independently violates Section 14(a). SEC Regulation G, among other
things, requires an issuer that chooses to disclose a non-GAAP measure to provide a presentation
of the “most directly comparable” GAAP measure and a reconciliation “by schedule or other
clearly understandable method” of the non-GAAP measure to the “most comparable” GAAP
measure. 17 C.F.R. § 244.100(a).
73.
The failure to reconcile the non-GAAP financial measures included in the Proxy
violates Regulation G and constitutes a violation of Section 14(a).
74.
As a direct and proximate result of the dissemination of the false and/or misleading
Proxy Defendants used to recommend that shareholders approve the Proposed Transaction,
Plaintiff and the Class will suffer damages and actual economic losses (i.e. the difference between
the value they will receive as a result of the Proposed Transaction and the true value of their shares
prior to the merger) in an amount to be determined at trial and are entitled to such equitable relief
as the Court deems appropriate, including rescissory damages.
COUNT II
(Against All Defendants for Violations of Section 14(a) of the Exchange Act and
Rule 14a-9 Promulgated Thereunder)
75.
Plaintiff incorporates each and every allegation set forth above as if fully set forth
76.
SEC Rule 14a-9 prohibits the solicitation of shareholder votes in registration
statements that contain “any statement which, at the time and in the light of the circumstances
under which it is made, is false or misleading with respect to any material fact, or which omits to
state any material fact necessary in order to make the statements therein not false or misleading[.]”
17 C.F.R. § 240.14a-9(a).
77.
Regulation G similarly prohibits the solicitation of shareholder votes by “mak[ing]
public a non-GAAP financial measure that, taken together with the information accompanying that
measure . . . contains an untrue statement of a material fact or omits to state a material fact
necessary in order to make the presentation of the non-GAAP financial measure . . . not
misleading.” 17 C.F.R. § 244.100(b) (emphasis added).
78.
Defendants have issued the Proxy with the intention of soliciting shareholder
support for the Proposed Transaction. Each of the Defendants reviewed and authorized the
dissemination of the Proxy, which fails to provide critical information regarding, amongst other
things, the financial projections for the Company.
79.
In so doing, Defendants made untrue statements of fact and/or omitted material
facts necessary to make the statements made not misleading. Each of the Individual Defendants,
by virtue of their roles as directors and/or officers, were aware of the omitted information but failed
to disclose such information, in violation of Section 14(a). The Individual Defendants were
therefore negligent, as they had reasonable grounds to believe material facts existed that were
misstated or omitted from the Proxy but nonetheless failed to obtain and disclose such information
to shareholders although they could have done so without extraordinary effort.
80.
The Individual Defendants knew or were negligent in not knowing that the Proxy
is materially misleading and omits material facts that are necessary to render it not misleading.
The Individual Defendants undoubtedly reviewed and relied upon the omitted information
identified above in connection with their decision to approve and recommend the Proposed
Transaction.
81.
The Individual Defendants knew or were negligent in not knowing that the material
information identified above has been omitted from the Proxy, rendering the sections of the Proxy
identified above to be materially incomplete and misleading.
82.
The Individual Defendants were, at the very least, negligent in preparing and
reviewing the Proxy. The preparation of a registration statement by corporate insiders containing
materially false or misleading statements or omitting a material fact constitutes negligence. The
Individual Defendants were negligent in choosing to omit material information from the Proxy or
failing to notice the material omissions in the Proxy upon reviewing it, which they were required
to do carefully as the Company’s directors. Indeed, the Individual Defendants were intricately
involved in the process leading up to the signing of the Merger Agreement and the preparation of
the Company’s financial projections.
83.
NRE is also deemed negligent as a result of the Individual Defendants’ negligence
in preparing and reviewing the Proxy.
84.
The misrepresentations and omissions in the Proxy are material to Plaintiff and the
Class, who will be deprived of their right to cast an informed vote if such misrepresentations and
omissions are not corrected prior to the vote on the Proposed Transaction.
85.
As a direct and proximate result of the dissemination of the false and/or misleading
Proxy Defendants used to recommend that shareholders approve the Proposed Transaction,
Plaintiff and the Class will suffer damages and actual economic losses (i.e. the difference between
the value they will receive as a result of the Proposed Transaction and the true value of their shares
prior to the merger) in an amount to be determined at trial and are entitled to such equitable relief
as the Court deems appropriate, including rescissory damages.
COUNT III
(Against the Individual Defendants for Violations
of Section 20(a) of the Exchange Act)
86.
Plaintiff incorporates each and every allegation set forth above as if fully set forth
87.
The Individual Defendants acted as controlling persons of NRE within the meaning
of Section 20(a) of the Exchange Act as alleged herein. By virtue of their positions as directors
and/or officers of NRE, and participation in and/or awareness of the Company’s operations and/or
intimate knowledge of the incomplete and misleading statements contained in the Proxy filed with
the SEC, 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 materially incomplete and misleading.
88.
Each of the Individual Defendants was provided with or had unlimited access to
copies of the Proxy 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.
89.
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 or influence the particular transactions giving rise to the Exchange Act
violations alleged herein and exercised the same. The Proxy at issue contains the unanimous
recommendation of each of the Individual Defendants to approve the Proposed Transaction. They
were thus directly involved in preparing the Proxy.
90.
In addition, as the Proxy sets forth at length, and as described herein, the Individual
Defendants were involved in negotiating, reviewing, and approving the Merger Agreement. The
Proxy purports to describe the various issues and information that the Individual Defendants
reviewed and considered. The Individual Defendants participated in drafting and/or gave their
input on the content of those descriptions.
91.
By virtue of the foregoing, the Individual Defendants have violated Section 20(a)
of the Exchange Act.
92.
As set forth above, the Individual Defendants had the ability to exercise control
over and did control a person or persons who have each violated Section 14(a) 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 Exchange Act. As a direct and proximate
result of Individual Defendants’ conduct, Plaintiff and the Class will be irreparably harmed.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays for judgment and relief as follows:
A.
Declaring that this action is properly maintainable as a Class Action and certifying
Plaintiff as Class Representative and his counsel as Class Counsel;
B.
Enjoining Defendants and all persons acting in concert with them from proceeding
with the shareholder vote on the Proposed Transaction or consummating the Proposed Transaction,
unless and until the Company discloses the material information discussed above which has been
omitted from the Proxy;
C.
Directing Defendants to account to Plaintiff and the Class for all damages sustained
as a result of their wrongdoing and to award damages arising from proceeding with the Proposed
Transaction;
D.
Awarding Plaintiff the costs and disbursements of this action, including reasonable
attorneys’ and expert fees and expenses; and
E.
Granting such other and further relief as this Court may deem just and proper.
JURY DEMAND
Plaintiff demands a trial by jury on all issues so triable.
Dated: August 23, 2019
Respectfully submitted,
FARUQI & FARUQI, LLP
By: /s/ James M. Wilson, Jr.
Nadeem Faruqi
James M. Wilson, Jr.
685 Third Avenue, 26th Floor
New York, NY 10017
Tel.: (212) 983-9330
Fax: (212) 983-9331
Email: [email protected]
[email protected]
Counsel for Plaintiff
| securities |
s0bsAokBRpLueGJZe1pA | UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
MILTON ROBLES and DAYRA
RIVERA, individually and on behalf
of all others similarly situated,
Plaintiff,
v.
Case No.: 8:19-cv-2713-T-02AAS
LOWE’S HOME CENTERS, LLC,
Defendant.
____________________________________/
FIRST AMENDED CLASS ACTION COMPLAINT
1.
Pursuant to Fed.R.Civ.P. 15(a)(1)(B), Named Plaintiffs Milton Robles and Dayra
Rivera (“Plaintiffs”), file this First Amended Class Action Complaint alleging Defendant Lowe’s
Home Centers, LLC (“Lowe’s” or “Defendant”) violated the Employee Retirement Income Security
Act of 1974 (“ERISA”), as amended by the Consolidated Omnibus Budget Reconciliation Act of
1985 (“COBRA”), by failing to provide them with a COBRA notice that complies with the law.
2.
Despite having access to the Department of Labor’s Model COBRA form, a copy of
which is attached as Exhibit A, Lowe’s chose not to use the model form— presumably to save
Lowe’s money by pushing terminated employees away from electing COBRA.1
3.
Put another way, instead of utilizing the DOL Model Notice and sending a single
COBRA notice “written in a manner calculated to be understood by the average plan participant”
containing all required by law, to save money Lowe’s instead opted to break the information into
1 In fact, according to one Congressional research service study, “…[The] average claim costs for COBRA beneficiaries
exceeded the average claim for an active employee by 53%. The average annual health insurance cost per active
employee was $7,190, and the COBRA cost was $10,988.14. The Spencer & Associates analysts contend that this
indicates that the COBRA population is sicker than active-covered employees and that the 2% administrative fee
allowed in the law is insufficient to offset the difference in actual claims costs.” Health Insurance Continuation Coverage
Under COBRA, Congressional Research Service, Janet Kinzer, July 11, 2013.
1
multiple documents, mailed separately under different cover, containing bits and pieces of
information on COBRA, both of which are still missing critical information. In fact, the DOL Model
Notice was designed to avoid precisely the issues caused by Lowe’s confusing and piecemeal
COBRA rights notification process.
4.
The deficient COBRA notices at issue in this lawsuit both confused and misled
Plaintiffs. It also caused Plaintiffs economic injuries in the form of lost health insurance and unpaid
medical bills, as well as informational injuries.
5.
Lowe’s, the plan sponsor and plan administrator of the Lowe’s Welfare Plan
(“Plan”), has repeatedly violated ERISA by failing to provide participants and beneficiaries in the
Plan with adequate notice, as prescribed by COBRA, of their right to continue their health coverage
upon the occurrence of a “qualifying event” as defined by the statute.
6.
Defendant’s COBRA notice and process violates the law. Rather than including all
information required by law in a single notice, written in a manner calculated to be understood by
the average plan participant, Defendant’s COBRA notification process instead offers only part of
the legally required information in haphazard and piece-meal fashion.
7.
For example, Defendant’s “COBRA Continuation Coverage Enrollment Notice,”
sent to Named Plaintiff Milton Robles on May 15, 2019 and attached as Exhibit B, violates 29
C.F.R. § 2590.606-4(b)(4)(v) because Exhibit B itself never actually explains how to enroll in
COBRA, nor does it bother including a physical election form (both of which the model Department
of Labor form includes).
8.
Instead, Exhibit B merely directs plan participants to a “catch-all” general H.R.
phone number to enroll in COBRA, and website, operated by a third-party guised as Lowe’s benefits
department, rather than explaining how to actually enroll in COBRA. But Exhibit B contains no
instructions on how to actually enroll if one calls the phone number, or when one visits the website.
2
This is particularly problematic considering Exhibit B actually does, in fact, contain specific
instructions on how to use the website to access the Summary of Benefits and Coverage available
on the same website. Thus, it defies logic for the same document -- which purports to be a “COBRA
enrollment notice” -- not to also contain instructions on how to enroll in COBRA.
9.
Additionally, Exhibit B violates 29 C.F.R. § 2590.606–4(b)(4)(xii) because it fails
to include an address indicating where COBRA payments should be mailed. It also violates 29
C.F.R. § 2590.606-4(b)(4)(i) because it fails to identify the plan administrator. And, Exhibit B
violates 29 C.F.R. § 2590.606–4(b)(4)(xii) because it fails to include information on how COBRA
coverage can be lost prematurely, including, for example, because of late payments. Furthermore,
Exhibit B violates 29 C.F.R. § 2590.606-4(b)(4)(vi) because it fails to provide all required
explanatory information.
10.
Because Exhibit B omits the above critical pieces of information, it collectively
violates 29 C.F.R. § 2590.606–4(b)(4), which requires the plan administrator of a group-health plan
to provide a COBRA notice “written in a manner calculated to be understood by the average plan
participant.” Without information on how to elect COBRA, or where to send payments, or who is
the Plan Administrator, or what happens if timely payments are not made, Defendant’s COBRA
enrollment notice simply is not written in a manner calculated to be understood by the average plan
participant.
11.
To compound the confusion, Defendant sent Plaintiffs a second letter, attached as
Exhibit C, containing information on COBRA in a document labeled “Important Information About
Your COBRA Continuation Coverage.” The two documents were mailed under separate cover,
only further adding to the confusion. And, while Exhibit C contains some of the information missing
from Exhibit B, it does not contain all of it.
12.
As a result of receiving the COBRA enrollment notice, and the subsequent letter
3
attached as Exhibit C, Plaintiffs failed to understand the notice and, thus, Plaintiffs could not make
an informed decision about their health insurance and lost health coverage.
13.
Plaintiffs suffered a tangible injury in the form of economic loss, specifically the loss
of insurance coverage and incurred medical bills, due to Lowe’s deficient COBRA forms. In
addition to a paycheck, health insurance is one of the most valuable things employees get in
exchange for working for an employer like Lowe’s. Insurance coverage has a monetary value, the
loss of which is a tangible and an economic injury.
14.
And, not only did Plaintiffs lose their insurance coverage, not only did Plaintiffs lose
their insurance coverage, after Plaintiff Dayra Rivera lost her insurance she incurred medical bills
resulting in further economic injury. Likewise, because Plaintiff Milton Robles lost his health
insurance due to Defendant’s deficient COBRA notice, he endured sickness without receiving
much-needed medical care because he had no health insurance to pay for treatment.
15.
Lowe’s deficient COBRA notice also caused Plaintiffs an informational injury when
Lowe’s failed to provide them with information to which they were entitled to by statute, namely a
compliant COBRA election notice containing all information required by 29 C.F.R. § 2590.606-
4(b)(4) and 29 U.S.C. § 1166(a). Through ERISA and then COBRA, Congress created a right—the
right to receive the required COBRA election notice—and an injury—not receiving a proper election
notice with information required by 29 C.F.R. § 2590.606-4(b)(4) and 29 U.S.C. § 1166(a). Lowe’s
injured Plaintiffs and the class members they seek to represent by failing to provide all information
in its notice required by COBRA.
16.
As a result of these violations, which threaten Class Members’ ability to maintain
their health coverage, Plaintiffs seek statutory penalties, injunctive relief, attorneys’ fees, costs and
expenses, and other appropriate relief as set forth herein and provided by law.
4
JURISDICTION, VENUE, AND PARTIES
17.
This Court has jurisdiction over this action pursuant to 29 U.S.C. § 1132(e) and (f),
and also pursuant to 28 U.S.C. §§ 1331 and 1355.
18.
Venue is proper in this District pursuant to 29 U.S.C. § 1132(e)(2). Additionally,
ERISA § 502(e)(2) provides that venue is proper “where the plan is administered, where the breach
took place, or where a defendant resides or may be found.” 29 U.S.C. § 1132(e)(2). Because the
breach at issue took place in this District, venue is also proper.
19.
Plaintiffs are former employees of Defendant. Both were covered under Defendant’s
Health Plan, making both participants/beneficiaries under the Plan.
20.
Both Plaintiffs experienced a qualifying event within the meaning of 29 U.S.C. §
1163(2), rendering them qualified beneficiaries of the Plan pursuant to 29 U.S.C. § 1167(3).
21.
Defendant is a foreign corporation but is registered to do business in the State of
Florida. Defendant employed more than 20 employees who were members of the Plan in each year
from 2012 to 2018.
22.
Defendant is the Plan sponsor within the meaning of 29 U.S.C. §1002(16)(B), and
the administrator of the Plan within the meaning of 29 U.S.C. § 1002(16)(A). The Plan provides
medical benefits to employees and their beneficiaries, and is an employee welfare benefit plan
within the meaning of 29 U.S.C. § 1002(1) and a group health plan within the meaning of 29 U.S.C.
§ 1167(1).
FACTUAL ALLEGATIONS
COBRA Notice Requirements
23.
The COBRA amendments to ERISA included certain provisions relating to
continuation of health coverage upon termination of employment or another “qualifying event” as
5
defined by the statute.
24.
Among other things, COBRA requires the plan sponsor of each group health plan
normally employing more than 20 employees on a typical business day during the preceding year
to provide “each qualified beneficiary who would lose coverage under the plan as a result of a
qualifying event … to elect, within the election period, continuation coverage under the plan.” 29
U.S.C. § 1161.
25.
Notice is of enormous importance. The COBRA notification requirement exists
because employees are not expected to know instinctively of their right to continue their healthcare
coverage.
26.
Moreover, existing case law makes it ostensibly clear that notice is not only required
to be delivered to covered employees but to qualifying beneficiaries, as well.
27.
COBRA further requires the administrator of such a group health plan to provide
notice to any qualified beneficiary of their continuation of coverage rights under COBRA upon the
occurrence of a qualifying event. 29 U.S.C. § 1166(a)(4). This notice must be “[i]n accordance with
the regulations prescribed by the Secretary” of Labor. 29 U.S.C. § 1166(a).
29.
To facilitate compliance with notice obligations, the United States Department
of Labor (“DOL”) has issued a Model COBRA Continuation Coverage Election Notice (“Model
Notice”), which is included in the Appendix to 29 C.F.R. § 2590.606-4. A copy of this Model
Notice is attached hereto as Exhibit A. The DOL website states that the DOL “will consider use
of the model election notice, appropriately completed, good faith compliance with the election
notice content requirements of COBRA.”
30.
In the event that a plan administrator declines to use the Model Notice and fails
to meet the notice requirements of 29 U.S.C. § 1166 and 29 C.F.R. § 2590.606-4, the
administrator is subject to statutory penalties of up to $110 per participant or beneficiary per day
6
from the date of such failure. 29 U.S.C. § 1132(c)(1). In addition, the Court may order such
other relief as it deems proper, including but not limited to injunctive relief pursuant to 29 U.S.C.
§ 1132(a)(3) and payment of attorneys’ fees and expenses pursuant to 29 U.S.C. § 1132(g)(1).
Such is the case here. Defendant failed to use the Model Notice and failed to meet the notice
requirements of 29 U.S.C. § 1166 and 29 C.F.R. § 2590.606-4, as set forth below.
Defendant’s Notice Is Inadequate and Fails to Comply with COBRA
31.
Defendant partially adhered to the Model Notice provided by the Secretary of Labor,
but only to the extent that served Defendant’s best interests, as critical parts are omitted or altered
in violation of 29 C.F.R. § 2590.606-4. Among other things:
a.
Defendant’s COBRA forms violate 29 C.F.R. § 2590.606-4(b)(4)(v)
because the notice itself never actually explains how to enroll in COBRA,
nor does it bother including a physical election form (both of which the
model Department of Labor form includes);
b.
Exhibit B violates 29 C.F.R. § 2590.606-4(b)(4)(xii) because it fails to
provide the address to which payments should be sent;
c.
Defendant’s COBRA forms violate 29 C.F.R. § 2590.606-4(b)(4)(i)
because they fail to provide the name, address and telephone number of
the party responsible under the plan for administration of continuation
coverage benefits, including as to both the Plan Administrator and
COBRA Administrator;
d.
Defendant’s COBRA forms violate 29 C.F.R. § 2590.606-4(b)(4)(xii)
because it fails to include information stating that a participant may
prematurely lose COBRA coverage (if, for instance, the participant
becomes covered under another group health plan, becomes Medicare
eligible or fails to make timely payment);
e.
Defendant’s COBRA forms violate 29 C.F.R. § 2590.606-4(b)(4)(vi)
because it fails to provide all required explanatory information. For
example, there is no explanation that a qualified beneficiary’s decision
whether to elect continuation coverage will affect the future rights of
qualified beneficiaries to portability of group health coverage,
guaranteed access to individual health coverage, and special enrollment
under part 7 of title I of the Act; and, finally,
f.
Defendant’s COBRA forms violate 29 C.F.R. § 2590.606-4(b)(4)
because Defendant has failed to provide a notice written in a manner
7
calculated to be understood by the average plan participant.
32.
Defendant’s COBRA notice confused Plaintiffs and resulted in their inability to make
an informed decision as to electing COBRA continuation coverage. In fact, Plaintiffs did not
understand the notice and, further, Plaintiffs were unable to elect COBRA because of the confusing
and incomplete Lowe’s COBRA notice. For example, the COBRA’s notice omission of a payment
address left them without information on where to mail payment if elected. Similarly, Exhibit B
failed to sufficiently explain how to enroll in COBRA.
33.
Defendant’s attempt to cure the above deficiencies with a separate COBRA form,
attached as Exhibit C, only adds to the confusion. As a result, Plaintiffs could not make an informed
decision about their health insurance and lost health coverage.
Plaintiff Milton Robles
34.
Named Plaintiff Milton Robles is a former long-time employee of Defendant and
father of three children.
35.
He began working for Defendant on October 26, 209, until his abrupt termination on
May 6, 2019, when he was fired missing work while taking care of his sick fifteen year-old daughter.
Plaintiff Robles was not fired for gross misconduct.
36.
Importantly, while Plaintiff Robles was a participant in Defendant’s insurance Plan,
his wife and three young daughters (ages 2, 13, and 15 at the time) were also covered by part of the
plan, making them Plan beneficiaries.
37.
As a result of his termination on May 6, 2019, Plaintiff Robles experienced a
qualifying event as defined by 29 U.S.C. § 1163(2).
38.
Following this qualifying event, Defendant caused its COBRA Administrator, Alight
Solutions, to mail Plaintiff Robles the deficient COBRA enrollment notice attached hereto as
Exhibit B. Also, Defendant mailed to Plaintiff its “Important Information About Your COBRA
8
Continuation Coverage”, containing some – but not all – of the information missing from its
COBRA enrollment notice.
39.
The deficient COBRA notice that Plaintiff Robles received was violative of
COBRA’s mandates for the reasons set forth herein.
40.
Defendant has in place no administrative remedies Plaintiff Robles was required to
exhaust prior to bringing suit.
41.
Additionally, because no such administrative remedies exist, any attempt to exhaust
the same would have been futile.
42.
Plaintiff Robles suffered a tangible injury in the form of economic loss, specifically
the loss of insurance coverage, due to Defendant’s deficient COBRA election notice.
43.
Additionally, after Plaintiff Robles lost his health insurance he suffered further injury
when he refrained from seeking medical treatment – despite having an illness requiring medical
treatment – because he lost his health insurance due to Defendant’s deficient COBRA notice.
44.
Finally, Plaintiff Robles suffered an informational injury as a result of Defendant’s
COBRA notice because he was never provided all information to which she was entitled by 29
C.F.R. § 2590.606-4(b).
Plaintiff Dayra Rivera
45.
Plaintiff Dayra Rivera worked for Defendant beginning in March 2018, and, during
that time, was also a participant in Defendant’s health plan.
46.
During her employment with Defendant, Plaintiff Dayra Rivera suffered an injury
on the job and was unable to continue working. Importantly, she was not terminated for gross
misconduct.
47.
Thus, when she was injured, Defendant cancelled her health plan benefits and
Plaintiff experienced a qualifying event per 29 U.S.C. § 1163(2).
9
48.
Following this qualifying event, Defendant caused its COBRA Administrator, Alight
Solutions, to mail Plaintiff the deficient COBRA enrollment notice attached hereto as Exhibit B.
Also, Defendant mailed to Plaintiff Dayra Rivera the attached “Important Information About Your
COBRA Continuation Coverage”, containing some – but not all – of the information missing from
its COBRA enrollment notice.
49.
The deficient COBRA notice that Plaintiff Dayra Rivera received was violative of
COBRA’s mandates for the reasons set forth herein.
50.
Defendant has in place no administrative remedies Plaintiff were required to exhaust
prior to bringing suit.
51.
Additionally, because no such administrative remedies exist, any attempt to exhaust
the same would have been futile.
52.
Plaintiff Dayra Rivera suffered a tangible injury in the form of economic loss,
specifically the loss of insurance coverage and incurred medical bills, due to Defendant’s deficient
COBRA election notice.
53.
Additionally, after Plaintiff Dayra Rivera lost her insurance because of Defendant’s
deficient COBRA notice she incurred medical bills resulting in further economic injury.
54.
Finally, Plaintiff Dayra Rivera suffered an informational injury as a result of
Defendant’s COBRA notice because she was never provided all information to which she was
entitled by 29 C.F.R. § 2590.606-4(b).
55.
Defendant has in place no administrative remedies Plaintiffs were required to exhaust
prior to bringing suit.
56.
Additionally, because no such administrative remedies exist, any attempt to exhaust
the same would have been futile.
10
Violation of 29 C.F.R. 29 C.F.R. § 2590.606-4(b)(4)(v)
Failure to explain how to enroll in COBRA
57.
The governing statute clearly requires that “[t]he notice … shall be written in a
manner calculated to be understood by the average plan participant and shall contain the following
information:…(v) [a]n explanation of the plan's procedures for electing continuation coverage,
including an explanation of the time period during which the election must be made, and the date by
which the election must be made.” 29 C.F.R. § 2590.606-4(b)(4)(v).
58.
As a threshold matter, Exhibit B, Defendant’s COBRA enrollment notices fail to
adequately explain the procedures for electing coverage. Neither does Exhibit C. By failing to
including explain the procedures for electing coverage, Defendant interfered with Plaintiffs’ ability
to elect COBRA continuation coverage. And, furthermore, by failing to adequately explain the
procedures for electing coverage, Lowe’s prevented Plaintiffs from understanding their rights under
COBRA and how to make an informed decision about continuation coverage.
59.
Instead, Defendant’s COBRA enrollment notice merely directs plan participants to
a general phone number, and website, rather than explaining how to actually enroll in COBRA. To
further compound the confusion, the Lowe’s COBRA enrollment notice contains no instructions on
how to actually enroll if one calls the phone number, or visits the website. The telephone number
provided by Lowe’s in its COBRA enrollment notice is a “catch-all” number individuals can call
with questions about anything benefit-related, including retirement funds, etc., as is the website.
60.
This “catch-all” number is actually a phone number to a third-party administrator,
Alight Solutions (an entity never identified in the COBRA notice), as is the website.
61.
A “catch-all” number provided by Defendant and then routed to a third-party call
center designed to answer anything HR-related simply cannot meet the strict informational statutory
requirements of 29 C.F.R. § 2590.606-4(b)(4)(v) required of all COBRA notices as to enrollment.
11
The same is true as to the generic website link provided. Merely directing individuals to a website
link and assuming he/she will be able to figure out how to enroll in COBRA once the website is
visited simply is very different than actually explaining how to enroll in COBRA.
62.
Unlike the Lowe’s COBRA notice, the Model DOL notice provides a near fool-proof
way to elect COBRA coverage by providing a physical election form to mail in, the date it is due,
the name and address to where election forms should be sent, spaces for the names, social security
numbers, and type of coverage elected by each plan participant or beneficiary. (Exhibit A, p. 7).
63.
Lowe’s COBRA enrollment notice simply does not contain “an explanation of the
plan’s procedures for electing continuation coverage, including an explanation of the time period
during which the election must be made, and the date by which the election must be made” as
required by 29 C.F.R. § 2590.606-4(b)(4)(v). Merely telling Plaintiffs and the putative class
members to call a generic 1-800 number, or visit a catch-all website, operated by a third-party and
hope they are able to figure out how to enroll after they call is not what is legally required in a
COBRA notice. Instead, the notice itself must contain information on how to enroll. Lowe’s simply
does not.
Violation of 29 C.F.R. § 2590.606-4(b)(4)(xii) – Failure to provide the address to which
payments should be sent
64.
Defendant is specifically required to include in its notice the address to which
payments should be sent. 29 C.F.R. § 2590.606-4(b)(4)(xii). Exhibit B simply does not include
this information.
65.
The COBRA enrollment notice provided to Plaintiff states “Once enrolled, you’ll
receive your first bill for the cost of continuing coverage from the date your coverage ended
through the end of the month in which you make your COBRA/continuation coverage election.
You must submit your first payment within 45 days of when you elected COBRA/continuation
12
coverage.” (Exhibit B, p. 4). Remarkably, however, the notice fails to actually state where
payments are to be sent. This is a per se violation of 29 C.F.R. § 2590.606-4(b)(4)(xii), which
on its face requires all COBRA notices include “the address to which payments should be sent.”
66.
Defendant’s attempt to cure this deficiency by providing a mailing address for
payment in Exhibit C only demonstrates that Defendant knows this information must be
disclosed. But this piecemeal strategy for separating COBRA information does not comport
with the law. Rather, as demonstrated by the Model DOL COBRA notice, which is a single
cohesive document, 29 C.F.R. § 2590.606-4(b)(4)(xii) contemplates providing the statutorily
required information in “a” COBRA “notice” (singular), rather than in multiple documents
which must be read in conjunction with one another for plan participants/beneficiaries to glean
the necessary information from.
67.
Without this information Plaintiffs are left ready and willing, but unable, to
properly enroll and maintain continuation coverage.
68.
A misrepresentation is material if there is a substantial likelihood that it would
mislead a reasonable employee in making an adequately informed decision. Without knowing
where to send payment in Exhibit B, Plaintiffs were misled as to how to enroll in COBRA.
69.
Because of the foregoing deficiencies, Defendant’s COBRA notice is
insufficient. Defendant has misled Plaintiffs about the material parameters and procedures
surrounding their right to elect Cobra coverage, failing to comply with the requirements made
clear by the Code of Federal Regulations.
Violation of 29 C.F.R. § 2590.606-4(b)(4)(xii) – Failure to Include Information On
Prematurely Losing COBRA coverage
70.
Defendant is specifically required to include in its notice the consequences of
delayed payment and non-payment, as well as information on what happens if a participant becomes
13
covered under another group health plan, becomes Medicare eligible. 29 C.F.R. § 2590.606-
4(b)(4)(xii).
71.
Exhibit B fails to include this information. This is particularly problematic here
considering that Exhibit B also fails to include where to mail payment. Thus, not only were
Plaintiffs and the putative class members not provided with information on where to send payment
in Exhibit B, they were deprived of the statutorily-required information on the consequences of not
making the timely payments for which they had no mailing address.
72.
Providing this information piece-meal in a separate follow-up letter, attached as
Exhibit C, does not comport with the law as Plaintiffs and the putative class members should not be
required to read multiple letters in conjunction with each other in order to understand their rights,
including where to send payment.
Violation of 29 C.F.R. § 2590.606-4(b)(4)(vi) – Failure to Include Explanatory Information
73.
Exhibit B violates 29 C.F.R. § 2590.606-4(b)(4)(vi) because it fails to provide all
required explanatory information.
74.
For example, there is simply no explanation that a qualified beneficiary’s decision
whether to elect continuation coverage will affect the future rights of qualified beneficiaries to
portability of group health coverage, guaranteed access to individual health coverage, and special
enrollment under part 7 of title I of the Act.
Violation of 29 C.F.R. § 2590.606-4(b)(4)(i) – Failure to Identify Plan Administrator
75.
Plaintiffs were unable -- based on the content or Exhibits B and/or C -- to
ascertain the name, address and telephone number of the party responsible under the plan for
the administration of continuation coverage benefits.
76.
Defendant was required to provide “in a manner calculated to be understood by
the average plan participant ... the name, address and telephone number of the party responsible
14
under the plan for administration of continuation coverage benefits.” 29 C.F.R. § 2590.606-
4(b)(4)(i).
77.
Defendant’s Notice, Exhibit B, fails to comply with this straightforward
requirement. Nor does Exhibit C contain this information.
78.
Identifying who acted is the Plan Administrator is absolutely critical to know because
“the plan administrator bears the burden of proving that adequate COBRA notification was given to
the employee.” Griffin v. Neptune Tech. Group, 2015 U.S. Dist. LEXIS 48000, 2015 WL 1635939,
*9 (M.D. Ala. Apr. 13, 2015); (citing to Hoffman v. R.F. Group, 2015 U.S. Dist. LEXIS 88598, *12,
2015 WL 4139084 (M.D. Fla. May 20, 2015). Lowe’s notice omits this critical and legally required
information.
Violation of 29 C.F.R. § 2590.606-4(b)(4) – Failure to Provide COBRA Notice Written in a
Manner Calculated “To Be Understood By the Average Plan Participant”
79.
By failing to adequately explain the procedures for electing coverage, as required by
29 C.F.R. § 2590.606-4(b)(4)(v), coupled with the complete omission from Exhibit B of how to
actually enroll in COBRA, where to send payment, the consequences for untimely payments, failure
to include all required explanatory information, and even who the Plan Administrator is/was,
Defendant cumulatively violated 29 C.F.R. § 2590.606- 4(b)(4). This particular section mandates
that employers, like Defendant, must provide a notice of continuation coverage written in a manner
calculated “to be understood by the average plan participant.” Without the aforementioned critical
pieces of, Defendant’s COBRA notice cannot be said to be written in a manner calculated “to be
understood by the average plan participant.” Thus, Defendant violated 29 C.F.R. § 2590.606-
4(b)(4)(v).
CLASS ACTION ALLEGATIONS
80.
Plaintiffs bring this action as a class action pursuant to the Federal Rules of Civil
15
Procedure on behalf of the following persons:
All participants and beneficiaries in the Defendant’s Health Plan who
were sent a COBRA notice by Defendant, in the form attached as Exhibit
B, during the applicable statute of limitations period as a result of a
qualifying event, as determined by Defendant’s records, and did not
elect continuation coverage.
81.
No administrative remedies exist as a prerequisite to Plaintiffs’ claims on behalf of
the Putative Class. As such, any efforts related to exhausting such non-existent remedies would be
82.
Numerosity: The Class is so numerous that joinder of all Class members is
impracticable. On information and belief thousands of individuals satisfy the definition of the
83.
Typicality: Plaintiffs’ claims are typical of the Class. The COBRA notice that
Defendant sent to Plaintiffs was a form notice that was uniformly provided to all Class members.
As such, the COBRA notice that Plaintiffs received were typical of the COBRA notices that
other Class Members received and suffered from the same deficiencies.
84.
Adequacy: Plaintiffs will fairly and adequately protect the interests of the Class
members, he has no interests antagonistic to the class, and has retained counsel experienced in
complex class action litigation.
85.
Commonality: 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,
including but not limited to:
a. Whether the Plan is a group health plan within the meaning of 29 U.S.C. §
1167(1).
b. Whether Defendant’s COBRA notice complied with the requirements of 29
16
U.S.C. § 1166(a) and 29 C.F.R. § 2590.606-4;
c. Whether statutory penalties should be imposed against Defendant under 29
U.S.C. § 1132(c)(1) for failing to comply with COBRA notice requirements,
and if so, in what amount;
d. The appropriateness and proper form of any injunctive relief or other
equitable relief pursuant to 29 U.S.C. § 1132(a)(3); and
e. Whether (and the extent to which) other relief should be granted based on
Defendant’s failure to comply with COBRA notice requirements.
86.
Class Members do not have an interest in pursuing separate individual actions
against Defendant, as the amount of each Class Member’s individual claims is relatively small
compared to the expense and burden of individual prosecution. Class certification also will
obviate the need for unduly duplicative litigation that might result in inconsistent judgments
concerning Defendant’s practices and the adequacy of its COBRA notice. Moreover,
management of this action as a class action will not present any likely difficulties. In the interests
of justice and judicial efficiency, it would be desirable to concentrate the litigation of all Class
Members’ claims in a single action.
87.
Plaintiffs intend to send notice to all Class Members to the extent required the
Federal Rules of Civil Procedure. The names and addresses of the Class Members are available
from Defendant’s records, as well as from Defendant’s third-party administrator, Alight
Solutions.
CLASS CLAIM I FOR RELIEF
Violation of 29 U.S.C. § 1166(a) and 29 C.F.R. § 2590.606-4
88.
Plaintiff reincorporates by reference paragraphs 1-16, 17-22, 31-87 from above.
89.
The Plan is a group health plan within the meaning of 29 U.S.C. § 1167(1).
17
90.
Defendant is the plan sponsor and plan administrator of the Plan and was subject to
the continuation of coverage and notice requirements of COBRA.
91.
Plaintiffs and the other members of the Class experienced a “qualifying event” as
defined by 29 U.S.C. § 1163, and Defendant was aware that they had experienced such a qualifying
92.
On account of such qualifying event, Defendant sent Plaintiffs and the Class
Members a COBRA notice in the form attached hereto.
93.
The COBRA notice that Defendant sent to Plaintiffs and other Class Members
violated 29 U.S.C. § 1166(a) and 29 C.F.R. § 2590.606-4 for the reasons set forth above (among
other reasons).
94.
These violations were material and willful.
95.
Defendant knew that its notice was inconsistent with the Secretary of Labor’s Model
Notice and failed to comply with 29 U.S.C. § 1166(a) and 29 C.F.R. § 2590.606-4, but chose to use
a non-compliant notice in deliberate or reckless disregard of the rights of Plaintiffs and other Class
Members.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs, individually and on behalf of the Class, pray for relief as follows:
a.
Designating Plaintiffs’ counsel as counsel for the Class;
b.
Issuing proper notice to the Class at Defendant’s expense;
c.
Declaring that the COBRA notice sent by Defendant to Plaintiffs and other Class
Members violated 29 U.S.C. § 1166(a) and 29 C.F.R. § 2590.606-4;
d.
Awarding appropriate equitable relief pursuant to 29 U.S.C. § 1132(a)(3),
including but not limited to an order enjoining Defendant from continuing to use its defective
COBRA notice and requiring Defendant to send corrective notices;
18
e.
Awarding statutory penalties to the Class pursuant to 29 U.S.C. § 1132(c)(1) and
29 C.F.R. § 2575.502c-1 in the amount of $110 per day for each Class Member who was sent
a defective COBRA notice by Defendant;
f.
Awarding attorneys’ fees, costs and expenses to Plaintiffs’ counsel as provided
by 29 U.S.C. § 1132(g)(1) and other applicable law; and
g.
Granting such other and further relief, in law or equity, as this Court deems
appropriate.
h.
Designating Plaintiffs’ counsel as counsel for the Class;
i.
Issuing proper notice to the Class at Defendant’s expense;
j.
Declaring that the COBRA notice sent by Defendant to Plaintiffs and other Class
Members violated 29 U.S.C. § 1166(a) and 29 C.F.R. § 2590.606-4;
k.
Awarding appropriate equitable relief pursuant to 29 U.S.C. § 1132(a)(3),
including but not limited to an order enjoining Defendant from continuing to use its defective
COBRA notice and requiring Defendant to send corrective notices;
l.
Awarding statutory penalties to the Class pursuant to 29 U.S.C. § 1132(c)(1)
and 29 C.F.R. § 2575.502c-1 in the amount of $110 per day for each Class Member who was
sent a defective COBRA notice by Defendant;
m.
Awarding attorneys’ fees, costs and expenses to Plaintiffs’ counsel as provided
by 29 U.S.C. § 1132(g)(1) and other applicable law; and
n.
Granting such other and further relief, in law or equity, as this Court deems
appropriate.
19
Dated this 6th day of January, 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: [email protected]
Email: [email protected]
Email: [email protected]
Email: [email protected]
Attorneys for Plaintiff and the Class
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 6th day of January, 2020, the foregoing was
electronically filed with the Clerk of the Court via the CM/ECF system, which will send a notice of
electronic filing to all counsel of record.
/s/ Brandon J. Hill
BRANDON J. HILL
20
| employment & labor |
ukynA4kBRpLueGJZ3uQH | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE NO.
INEZ K. MCKENNA,
on behalf of herself and
all others similarly situated,
Plaintiff,
POLLACK & ROSEN, P.A.,
Defendant.
_________________________________________/
CLASS ACTION COMPLAINT
JURY DEMAND
1.
Plaintiff alleges violation of the Fair Debt Collection Practices Act, 15
U.S.C. §1692 et seq. (“FDCPA”).
JURISDICTION AND VENUE
2.
This Court has jurisdiction under 28 U.S.C. §§1331, 1337, 1367 and
15 U.S.C. §1692k. Venue in this District is proper because Plaintiff resides here
and Defendant placed telephone calls into this District.
PARTIES
3.
Plaintiff, INEZ K. MCKENNA, is a natural person, and citizen of the
State of Florida, residing in Broward County, Florida. Ms. McKenna was formerly
known as Inez K. Wooley.
4.
Defendant, POLLACK & ROSEN, P.A., is a professional association
and citizen of the State of Florida with its principal place of business at North
Tower Suite 450, 800 Douglas Road, Coral Gables, Florida 33134.
5.
Defendant regularly uses the mail and telephone in a business the
principal purpose of which is the collection of debts.
6.
Defendant regularly collects or attempts to collect debts for other
parties.
7.
Defendant is a “debt collector” as defined in the FDCPA.
8.
Defendant was acting as a debt collector with respect to the collection
of Plaintiff’s alleged debt.
FACTUAL ALLEGATIONS
9.
Defendant sought to collect from Plaintiff an alleged debt arising from
transactions incurred for personal, family or household purposes.
10.
Defendant left the following messages on Plaintiff’s residential voice
mail on or about the dates stated:
April 3, 2010 – Pre-Recorded Message
This confidential and important message is meant solely for I. K. Wooley.
The law requires I notify you that I’m calling from a debt collection law
firm. This is an attempt to collect a debt and any information obtained will
be used for that purpose. Please call our offices back at 888-448-1557 and
quote reference number 1718190. Thank you, goodbye.
April 5, 2010 – Pre-Recorded Message
This confidential and important message is meant solely for I. K. Wooley.
The law requires I notify you that I’m calling from a debt collection law
firm. This is an attempt to collect a debt and any information obtained will
be used for that purpose. Please call our offices back at 888-448-1557 and
quote reference number 1718190. Thank you, goodbye.
April 12, 2010 – Pre-Recorded Message
This confidential and important message is meant solely for I. K. Wooley.
The law requires I notify you that I’m calling from a debt collection law
firm. This is an attempt to collect a debt and any information obtained will
be used for that purpose. Please call our offices back at 888-448-1557 and
quote reference number 1718190. Thank you, goodbye.
April 14, 2010 – Pre-Recorded Message
This confidential and important message is meant solely for I. K. Wooley.
The law requires I notify you that I’m calling from a debt collection law
firm. This is an attempt to collect a debt and any information obtained will
be used for that purpose. Please call our offices back at 888-448-1557 and
quote reference number 1718190. Thank you, goodbye.
April 17, 2010 – Pre-Recorded Message
This confidential and important message is meant solely for I. K. Wooley.
The law requires I notify you that I’m calling from a debt collection law
firm. This is an attempt to collect a debt and any information obtained will
be used for that purpose. Please call our offices back at 888-448-1557 and
quote reference number 1718190. Thank you, goodbye.
April 24, 2010 – Pre-Recorded Message
This confidential and important message is meant solely for I. K. Wooley.
The law requires I notify you that I’m calling from a debt collection law
firm. This is an attempt to collect a debt and any information obtained will
be used for that purpose. Please call our offices back at 888-448-1557 and
quote reference number 1718190. Thank you, goodbye.
May 1, 2010 – Pre-Recorded Message
This confidential and important message is meant solely for I. K. Wooley.
The law requires I notify you that I’m calling from a debt collection law
firm. This is an attempt to collect a debt and any information obtained will
be used for that purpose. Please call our offices back at 888-448-1557 and
quote reference number 1718190. Thank you, goodbye.
May 15, 2010 – Pre-Recorded Message
This confidential and important message is meant solely for I. K. Wooley.
The law requires I notify you that I’m calling from a debt collection law
firm. This is an attempt to collect a debt and any information obtained will
be used for that purpose. Please call our offices back at 888-448-1557 and
quote reference number 1718190. Thank you, goodbye.
June 5, 2010 – Pre-Recorded Message
This confidential and important message is meant solely for I. K. Wooley.
The law requires I notify you that I’m calling from a debt collection law
firm. This is an attempt to collect a debt and any information obtained will
be used for that purpose. Please call our offices back at 888-448-1557 and
quote reference number 1718190. Thank you, goodbye.
June 13, 2010 – Pre-Recorded Message
This confidential and important message is meant solely for I. K. Wooley.
The law requires I notify you that I’m calling from a debt collection law
firm. This is an attempt to collect a debt and any information obtained will
be used for that purpose. Please call our offices back at 888-448-1557 and
quote reference number 1718190. Thank you, goodbye.
June 19, 2010 – Pre-Recorded Message
This confidential and important message is meant solely for I. K. Wooley.
The law requires I notify you that I’m calling from a debt collection law
firm. This is an attempt to collect a debt and any information obtained will
be used for that purpose. Please call our offices back at 888-448-1557 and
quote reference number 1718190. Thank you, goodbye.
June 26, 2010 – Pre-Recorded Message
This confidential and important message is meant solely for I. K. Wooley.
The law requires I notify you that I’m calling from a debt collection law
firm. This is an attempt to collect a debt and any information obtained will
be used for that purpose. Please call our offices back at 888-448-1557 and
quote reference number 1718190. Thank you, goodbye.
July 10, 2010 - Pre-Recorded Message
This confidential and important message is meant solely for I. K. Wooley.
The law requires I notify you that I’m calling from a debt collection law
firm. This is an attempt to collect a debt and any information obtained will
be used for that purpose. Please call our offices back at 888-448-1557 and
quote reference number 1718190. Thank you, goodbye.
July 17, 2010 – Pre-Recorded Message
This confidential and important message is meant solely for I. K. Wooley.
The law requires I notify you that I’m calling from a debt collection law
firm. This is an attempt to collect a debt and any information obtained will
be used for that purpose. Please call our offices back at 888-448-1557 and
quote reference number 1718190. Thank you, goodbye.
July 24, 2010 – Pre-Recorded Message
This confidential and important message is meant solely for I. K. Wooley.
The law requires I notify you that I’m calling from a debt collection law
firm. This is an attempt to collect a debt and any information obtained will
be used for that purpose. Please call our offices back at 888-448-1557 and
quote reference number 1718190. Thank you, goodbye.
July 31, 2010 – Pre-Recorded Message
This confidential and important message is meant solely for I. K. Wooley.
The law requires I notify you that I’m calling from a debt collection law
firm. This is an attempt to collect a debt and any information obtained will
be used for that purpose. Please call our offices back at 888-448-1557 and
quote reference number 1718190. Thank you, goodbye.
August 7, 2010 – Pre-Recorded Message
This confidential and important message is meant solely for I. K. Wooley.
The law requires I notify you that I’m calling from a debt collection law
firm. This is an attempt to collect a debt and any information obtained will
be used for that purpose. Please call our offices back at 888-448-1557 and
quote reference number 1718190. Thank you, goodbye.
August 14, 2010 – Pre-Recorded Message
This confidential and important message is meant solely for I. K. Wooley.
The law requires I notify you that I’m calling from a debt collection law
firm. This is an attempt to collect a debt and any information obtained will
be used for that purpose. Please call our offices back at 888-448-1557 and
quote reference number 1718190. Thank you, goodbye.
August 21, 2010 – Pre-Recorded Message
This confidential and important message is meant solely for I. K. Wooley.
The law requires I notify you that I’m calling from a debt collection law
firm. This is an attempt to collect a debt and any information obtained will
be used for that purpose. Please call our offices back at 888-448-1557 and
quote reference number 1718190. Thank you, goodbye.
August 28, 2010 – Pre-Recorded Message
This confidential and important message is meant solely for I. K. Wooley.
The law requires I notify you that I’m calling from a debt collection law
firm. This is an attempt to collect a debt and any information obtained will
be used for that purpose. Please call our offices back at 888-448-1557 and
quote reference number 1718190. Thank you, goodbye.
September 11, 2010 – Pre-Recorded Message
This confidential and important message is meant solely for I. K. Wooley.
The law requires I notify you that I’m calling from a debt collection law
firm. This is an attempt to collect a debt and any information obtained will
be used for that purpose. Please call our offices back at 888-448-1557 and
quote reference number 1718190. Thank you, goodbye.
September 25, 2010 – Pre-Recorded Message
This confidential and important message is meant solely for I. K. Wooley.
The law requires I notify you that I’m calling from a debt collection law
firm. This is an attempt to collect a debt and any information obtained will
be used for that purpose. Please call our offices back at 888-448-1557 and
quote reference number 1718190. Thank you, goodbye.
October 2, 2010 – Pre-Recorded Message
This confidential and important message is meant solely for I. K. Wooley.
The law requires I notify you that I’m calling from a debt collection law
firm. This is an attempt to collect a debt and any information obtained will
be used for that purpose. Please call our offices back at 888-448-1557 and
quote reference number 1718190. Thank you, goodbye.
11.
Defendant left similar or identical messages on other occasions.
(Collectively, “the telephone messages”).
12.
The messages are “communications” as defined by 15 U.S.C.
§1692a(2). See Berg v. Merchs. Ass'n Collection Div., Case No. 08-60660-Civ-
Dimitrouleas/Rosenbaum, 2008 U.S. Dist. LEXIS 94023 (S.D. Fla. Oct. 31, 2008).
13.
Defendant failed to disclose Defendant’s name to Plaintiff in the
messages.
COUNT I
FAILURE TO MAKE MEANINGFUL DISCLOSURE OF IDENTITY
14.
Plaintiff incorporates Paragraphs 1 through 13.
15.
Defendant placed telephone calls to Plaintiff without making
meaningful disclosure of its identity when it failed to disclose its name in the
telephone messages in violation of 15 U.S.C §1692d(6). See Valencia v The
Affiliated Group, Inc., Case No. 07-61381-Civ-Marra/Johnson, 2008 U. S. Dist.
LEXIS 73008, (S.D.Fla., September 23, 2008); Wright v. Credit Bureau of
Georgia, Inc., 548 F. Supp. 591, 593 (D. Ga. 1982); and Hosseinzadeh v. M.R.S.
Assocs., 387 F. Supp. 2d 1104 (D. Cal. 2005).
CLASS ACTION ALLEGATIONS
16.
Plaintiff incorporates the foregoing paragraphs.
17.
This action is brought on behalf of one FDCPA class.
18.
The class is defined as:
a.
all Florida residents for whom Defendant left a telephone
message in which it failed to disclose its name,
b.
in an attempt to collect a debt incurred for personal, family,
or household purposes,
c.
then due the creditor of INEZ K. MCKENNA,
d.
during the one-year period prior to the filing of the
complaint.
19.
Plaintiff alleges on information and belief based on the use of uniform
telephone messages that the class is so numerous that joinder of all members is
impractical.
20.
There are questions of law and fact common to the class, which
common issues predominate over any issues involving only individual class
members. The principal issues are:
a.
whether Defendant’s messages violate the FDCPA
b.
whether Defendant is a debt collector.
21.
The claims of Plaintiff are typical of those of the class members. All
are based on the same facts and legal theories.
22.
Plaintiff will fairly and adequately protect the interests of the class.
Plaintiff has retained counsel experienced in handling actions involving unlawful
debt collection practices under the FDCPA and class actions. Neither Plaintiff nor
her counsel have any interests which might cause them not to vigorously pursue
this action.
23.
Certification of the class under Rule 23(b)(3) of the Federal Rules of
Civil Procedure is appropriate in that:
a.
The questions of law or fact common to the members of the
classes predominate over any questions affecting an individual member.
b.
A class action is superior to other available methods for the fair
and efficient adjudication of the controversy.
WHEREFORE, Plaintiff, INEZ K. MCKENNA, requests that the Court
enter judgment in favor of herself and the classes and against Defendant,
POLLACK & ROSEN, P.A.
a.
Certification of this matter to proceed as a class action;
b.
Statutory damages pursuant to 15 U.S.C. §1692k(a)(2)(B)
for the FDCPA classes;
c.
Attorney’s fees, litigation expenses and costs of suit; and
d.
Such other or further relief as the Court deems proper.
JURY DEMAND
Plaintiff demands trial by jury.
Respectfully submitted,
DONALD A. YARBROUGH, ESQ.
Attorney for Plaintiff
Post Office Box 11842
Fort Lauderdale, Florida 33339
Telephone: (954) 537-2000
Facsimile: (954) 566-2235
[email protected]
s/Donald A. Yarbrough
Donald A. Yarbrough, Esq.
Florida Bar No. 0158658
| consumer fraud |
OlJHBIkBRpLueGJZBnJ4 | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
Abraham Sabel, individually and on behalf of all others
similarly situated;
Civil Action No:
Plaintiff,
CLASS ACTION COMPLAINT
DEMAND FOR JURY TRIAL
-v.-
Halsted Financial Services, LLC and LVNV Funding LLC
and John Does 1-25.
Defendant(s).
Plaintiff Abraham Sabel ("Plaintiff") by and through his attorneys, Stein Saks PLLC as and
for his Complaint against Defendant Halsted Financial Services, LLC ("Defendant Halsted” ) and
Defendant LVNV Funding LLC (“Defendant LVNV”) individually and on behalf of a class of all
others similarly situated, pursuant to Rule 23 of the Federal Rules of Civil Procedure, based upon
information and belief of Plaintiff’s counsel, except for allegations specifically pertaining to
Plaintiff, which are based upon Plaintiff's personal knowledge.
INTRODUCTION/PRELIMINARY STATEMENT
1.
Congress enacted the Fair Debt Collection Practices Act (the “FDCPA”) in 1977 in
response to the “abundant evidence of the use of abusive, deceptive, and unfair debt collection
practices by many debt collectors.” 15 U.S.C. §1692(a). At that time, Congress was concerned
that “abusive debt collection practices contribute to the number of personal bankruptcies, to
1
material instability, to the loss of jobs, and to invasions of individual privacy.” Id. Congress
concluded that “existing laws…[we]re inadequate to protect consumers,” and that “‘the effective
collection of debts’ does not require ‘misrepresentation or other abusive debt collection
practices.’” 15 U.S.C. §§ 1692(b) & (c).
2.
Congress explained that the purpose of the Act was not only to eliminate abusive
debt collection practices, but also to “insure that those debt collectors who refrain from using
abusive debt collection practices are not competitively disadvantaged.” Id. § 1692(e). “After
determining that the existing consumer protection laws ·were inadequate.” Id. § l692(b),
Congress gave consumers a private cause of action against debt collectors who fail to comply
with the Act. Id. § 1692k.
JURISDICTION AND VENUE
3.
The Court has jurisdiction over this class action pursuant to 15 U.S.C. § 1692 et. seq.
and 28 U.S.C. § 2201. The Court has pendent jurisdiction over the State law claims in this action
pursuant to 28 U.S.C. § 1367(a).
4.
Venue is proper in this judicial district pursuant to 28 U.S.C. § 1391(b)(2) as this is
where the Plaintiff resides as well as where a substantial part of the events or omissions giving
rise to this claim occurred.
NATURE OF THE ACTION
5.
Plaintiff brings this class action on behalf of a class of New York consumers under
§1692 et seq. of Title 15 of the United States Code, commonly referred to as the Fair Debt
Collections Practices Act (“FDCPA”), and
6.
Plaintiff is seeking damages and declaratory relief.
PARTIES
7.
Plaintiff is a resident of the State of New York, County of Rockland, with
an address of 4 Lizensk Boulevard, Unit 203, Monroe, NY 10950.
8.
Defendant Halsted, is a "debt collector" as the phrase is defined in 15 U.S.C. §
1692(a)(6) and used in the FDCPA and may be served with process upon the Corporation
Service Company, its registered agent for service of process, at 80 State Street, Albany, New
York 12207-2543.
9.
Upon information and belief, Defendant Halsted., 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 LVNV Funding LLC is a "debt collector" as the phrase is defined in 15
U.S.C. § 1692(a)(6) and used in the FDCPA and may be served with process upon the
Corporation Service Company, its registered agent for service of process, at 80 State Street,
Albany, New York 12207-2543.
11.
Upon information and belief, Defendant LVNV Funding LLC is a company that uses
the mail, telephone, and facsimile and regularly engages in business the principal purpose of
which is to attempt to collect debts alleged to be due another.
12.
John Does l-25, are fictitious names of individuals and businesses alleged for the
purpose of substituting names of Defendants whose identities will be disclosed in discovery and
should be made parties to this action.
CLASS ALLEGATIONS
13.
Plaintiff brings this claim on behalf of the following case, pursuant to Fed. R. Civ.
P. 23(a) and 23(b)(3).
14.
The Class consists of:
a. all individuals with addresses in the State of New York;
b. to whom Defendant sent a collection letter attempting to collect a consumer debt;
c. that included threats that the Defendant may submit a negative credit bureau
report, overshadowing the “g-notice”;
d. which letter was sent on or after a date one (1) year prior to the filing of this
action and on or before a date twenty-one (2l) days after the filing of this action.
15.
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.
16.
Excluded from the Plaintiff Class are the Defendants and all officer, members,
partners, managers, directors and employees of the Defendants and their respective immediate
families, and legal counsel for all parties to this action, and all members of their immediate
families.
17.
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 communications to consumers, in the forms attached as
Exhibit A, violate 15 U.S.C. §§ l692g, 1692e.
18.
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.
19.
This action has been brought, and may properly be maintained, as a class action
pursuant to the provisions of Rule 23 of the Federal Rules of Civil Procedure because there is a
well-defined community interest in the litigation:
a. Numerosity: The Plaintiff is informed and believes, and on that basis alleges,
that the Plaintiff Class defined above is so numerous that joinder of all members
would be impractical.
b. Common Questions Predominate: Common questions of law and fact exist as
to all members of the Plaintiff Class and those questions predominance over any
questions or issues involving only individual class members. The principal issue
is whether the Defendants’ written communications to consumers, in the forms
attached as Exhibit A violate 15 USC §l692g, 1692e.
c. Typicality: The Plaintiff’s claims are typical of the claims of the class members.
The Plaintiffs 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 have no interests that are adverse to the absent
class members. The Plaintiff is committed to vigorously litigating this matter.
Plaintiff has also retained counsel experienced in handling consumer lawsuits,
complex legal issues, and class actions. Neither the Plaintiff nor his counsel have
any interests which might cause them not to vigorously pursue the instant class
action lawsuit.
e. Superiority: A class action is superior to the other available means for the fair
and efficient adjudication of this controversy because individual joinder of all
members would be impracticable. Class action treatment will permit a large
number of similarly situated persons to prosecute their common claims in a single
forum efficiently and without unnecessary duplication of effort and expense that
individual actions would engender.
20.
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.
21.
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
22.
Plaintiff repeats, reiterates and incorporates the allegations contained in paragraphs
numbered above herein with the same force and effect as if the same were set forth at length
herein.
23.
Some time prior to April 4, 2019, an obligation was allegedly incurred to Citibank,
N.A. by the Plaintiff.
24.
The Citibank, N.A. obligation arose out of transactions in which money, property,
insurance or services which are the subject of the transactions were primarily for personal,
family or household purposes.
25.
The alleged Citibank, N.A. obligation is a “debt” as defined by 15 U.S.C. §1692a(5).
26.
Citibank, N.A. is a “creditor” as defined by 15 U.S.C. §1692a(4).
27.
Defendant Halsted, a debt collector, was contracted by Defendant LVNV Funding
LLC, the current owner of the debt and also a debt collector, to collect the alleged debt which
originated with Citibank, N.A.
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 I – April 4, 2019 Collection Letter
29.
On or about April 4, 2019, Defendant Halsted sent Plaintiff a collection letter (the
“Letter”) regarding the alleged debt currently owed to Defendant Citibank, N.A. See Exhibit A.
30.
When a debt collector solicits payment from a consumer, it must, within five days
of an initial communication
(1) the amount of the debt;
(2) the name of the creditor to whom the debt is owed;
(3) a statement that unless the consumer, within thirty days after receipt of the notice,
disputes the validity of the debt, or any portion thereof, the debt will be assumed to be
valid by the debt collector;
(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 the 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. 15 U.S.C. § 1692g(a).
31.
The FDCPA further provides 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 shall cease collection . . . until the debt collector obtains verification of the
debt . . . and a copy of such verification is mailed to the consumer by the debt collector.'' 15
U.S.C. § 1692g(b).
32.
Although a collection letter may track the statutory language, ''the collector
nevertheless violates the Act if it conveys that information in a confusing or contradictory
fashion so as to cloud the required message with uncertainty.'' Russell v. EQUIFAX A.R.S., 74
F.3d 30, 35 (2d Cir. 1996) (''It is not enough for a debt collection agency to simply include the
proper debt validation notice in a mailing to a consumer-- Congress intended that such notice
be clearly conveyed.''). Put differently, a notice containing ''language that 'overshadows or
contradicts' other language informing a consumer of her rights . . . violates the Act.'' Russell,
74 F.3d at 34.
33.
The letter states “Please note that a negative credit bureau report reflecting on your
credit record may be submitted to a credit reporting agency by the current account owner if you
fail to fulfill the terms of your credit obligations. This notice in no way affects any rights you
may have.”
34.
This language completely overshadows the “G-Notice” by scaring Plaintiff into
making payment immediately to avoid negative credit reporting instead of exercising his
statutory right to dispute the debt as provided by the FDCPA.
35.
This language is threatening to the consumer and coerces payment from the
consumer by making threats during the initial thirty-day period.
36.
Although, Defendants’ Letter states that the notice does not affect the rights of the
consumer, the damage is done and the consumer is threatened by the prospect of imminent credit
reporting.
37.
The Defendants have failed to provide the consumer with a statutorily compliant
initial communication letter.
38.
Plaintiff has suffered an informational injury as he was not provided with the
information statutorily required to be included in the initial communication letter from
Defendant.
39.
As a result, Plaintiff could not make an informed decision regarding his rights and
options involving the alleged debt.
40.
As a result of Defendant's deceptive, misleading and unfair debt collection practices,
Plaintiff has been damaged.
COUNT I
VIOLATIONS OF THE FAIR DEBT COLLECTION PRACTICES ACT 15 U.S.C. §1692e
et seq.
41.
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.
42.
Defendant’s debt collection efforts attempted and/or directed towards the Plaintiff
violated various provisions of the FDCPA, including but not limited to 15 U.S.C. § 1692e.
43.
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.
44.
Defendant violated §1692e :
a. As the Letter it is open to more than one reasonable interpretation, at least one of
which is inaccurate.
b. By making a false and misleading representation in violation of §1692e(10).
45.
By reason thereof, Defendant is liable to Plaintiff for judgment that Defendant's
conduct violated Section 1692e et seq. of the FDCPA, actual damages, statutory damages, costs
and attorneys’ fees.
COUNT II
VIOLATIONS OF THE FAIR DEBT COLLECTION PRACTICES ACT 15 U.S.C.
§1692g et seq.
46.
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.
47.
Defendant’s debt collection efforts attempted and/or directed towards the Plaintiff
violated various provisions of the FDCPA, including but not limited to 15 U.S.C. § 1692g.
48.
Pursuant to 15 USC §1692g, a debt collector:
Within five days after the initial communication with a consumer in connection with
the collection of any debt, a debt collector shall, unless the following information is
contained in the initial communication or the consumer has paid the debt, send the consumer
a written notice containing –
1. The amount of the debt;
2. The name of the creditor to whom the debt is owed;
3. A statement that unless the consumer, within thirty days after receipt of
the notice, disputes the validity of the debt, or any portion thereof, the
debt will be assumed to be valid by the debt-collector;
4. A statement that the consumer notifies the debt collector in writing within
thirty-day period that the debt, or any portion thereof, is disputed, the debt
collector will obtain verification of the debt or a copy of a judgment
against the consumer and a copy of such verification or judgment will be
mailed to the consumer by the debt collector; and
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.
49.
The Defendant violated 15 U.S.C. §1692g, by threatening negative credit reporting,
which overshadows the ''g-notice'' language and coerces the consumer not to exert its rights
under the FDCPA.
50.
By reason thereof, Defendant is liable to Plaintiff for judgment that Defendant's
conduct violated Section 1692g et seq. of the FDCPA, actual damages, statutory damages, costs
and attorneys’ fees.
DEMAND FOR TRIAL BY JURY
51.
Pursuant to Rule 38 of the Federal Rules of Civil Procedure, Plaintiff hereby requests
a trial by jury on all issues so triable.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff Abraham Sabel, individually and on behalf of all others similarly
situated, demands judgment from Defendant Halsted and Defendant LVNV, as follows:
1.
Declaring that this action is properly maintainable as a Class Action and certifying
Plaintiff as Class representative, and Raphael Deutsch, Esq. as Class Counsel;
2.
Awarding Plaintiff and the Class statutory damages;
3.
Awarding Plaintiff and the Class actual damages;
4.
Awarding Plaintiff costs of this Action, including reasonable attorneys’ fees and
expenses;
5.
Awarding pre-judgment interest and post-judgment interest; and
6.
Awarding Plaintiff and the Class such other and further relief as this Court may deem
just and proper.
DATED, this 27th day of November, 2019
/s/Raphael Deutsch
Raphael Deutsch, Esq.
Stein Saks, PLLC
Attorneys for Plaintiff
285 Passaic Street
Hackensack, NJ 07601
(P): (201) 282-6500 ext. 107
(F): (201) 282-6501
(E) [email protected]
Attorneys For Plaintiff
| consumer fraud |
bcNHDYcBD5gMZwczDYoo | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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DONALD NIXON, on behalf of himself and
all others similarly situated,
No.: ___________________
Plaintiffs,
CLASS ACTION COMPLAINT
v.
JURY TRIAL DEMANDED
PERFORMANCE APPAREL CORP,
Defendant.
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INTRODUCTION
1.
Plaintiff DONALD NIXON (hereinafter “Plaintiff”), on behalf of himself and
others similarly situated, asserts the following claims against Defendant
PERFORMANCE APPAREL CORP, for its failure to design, construct, maintain,
and operate its website to be fully accessible to and independently usable by
Plaintiff and other blind or visually-impaired people.
2.
Plaintiff is a visually-impaired and legally blind person who suffers from what
constitutes a “qualified disability” under the Americans with Disabilities Act of
1990 (“ADA”) and thus requires screen-reading software to read website content
using his computer. Plaintiff uses the terms “blind” or “visually-impaired” to refer
to all people with visual impairments who meet the legal definition of blindness in
that they have a visual acuity with correction of less than or equal to 20 x 200. Some
blind people who meet this definition have limited vision while others are
completely impaired and have no vision.
3.
Defendant’s denial of full and equal access to its website, and therefore denial of
its goods and services offered thereby, is a violation of Plaintiff’s rights under the
ADA.
4.
Because
Defendant’s
website,
www.hotchillys.com
(the
“Website”
or
“Defendant’s website”), is not equally accessible to blind and visually-impaired
consumers, it violates the ADA. Defendant’s website contains various and multiple
access barriers that make it difficult if not impossible for blind and visually-
impaired consumers to attempt to complete a transaction.
5.
Plaintiff seeks a permanent injunction to initiate a change in Defendant’s corporate
policies, practices, and procedures so that Defendant’s website will become and
remain accessible to blind and visually-impaired consumers.
JURISDICTION AND VENUE
6.
This Court has subject-matter jurisdiction over this action under 28 U.S.C. § 1331
and 42 U.S.C. § 12181, as Plaintiff’s claims arise under Title III of the ADA, 42
U.S.C. § 12181, et seq., and 28 U.S.C. § 1332.
7.
This Court has supplemental jurisdiction under 28 U.S.C. § 1367 over Plaintiff’s
New York City Human Rights Law, N.Y.C. Admin. Code § 8-101 et seq.,
(“NYCHRL”) claims.
8.
Venue is proper in this district under 28 U.S.C. §1391(a)(2) because a substantial
part of the acts and/or omissions giving rise to Plaintiff’s claims occurred in this
District. Defendant have also been and is continuing to commit the alleged acts
and/or omissions in this District that caused injury and violated Plaintiff’s rights
and the rights of other disabled individuals.
9.
Defendant is subject to personal jurisdiction in this District. Defendant has been
and is committing the acts or omissions alleged herein in the Southern District of
New York that caused injury and violated rights the ADA prescribes to Plaintiff
and to other blind and other visually impaired-consumers. A substantial part of the
acts and omissions giving rise to Plaintiff’s claims occurred in this District: on
several separate occasions, Plaintiff has been denied the full use and enjoyment of
the facilities, goods and services offered to the general public, on Defendant’s
Website in Queens County. These access barriers that Plaintiff encountered have
caused a denial of Plaintiff’s full and equal access multiple times in the past, and
now deter Plaintiff on a regular basis from accessing the Defendant’s Website in
the future.
10.
This Court is empowered to issue a declaratory judgment under 28 U.S.C. §§ 2201
and 2202.
PARTIES
11.
Plaintiff DONALD NIXON, at all relevant times, is and was a resident of Queens,
New York.
12.
Plaintiff is a blind, visually-impaired handicapped person and a member of a
protected class of individuals under the ADA, under 42 U.S.C. § 12102(1)-(2), and
the regulations implementing the ADA set forth at 28 CFR §§ 36.101 et seq., and
the NYCHRL.
13.
Defendant is and was at all relevant times a North Carolina Corporation doing
business in New York.
14.
Defendant owns, manages, controls and maintains the Website, and its facilities,
goods, and services offered thereupon, is a public accommodation within the
definition of Title III of the ADA, 42 U.S.C. § 12181(7).
15.
A Website is a place of accommodation defined as “places of exhibition and
entertainment,” places of recreation,” and “service establishments.” 28 CFR §§
36.201 (a); 42 U.S.C. § 12181 (7).
NATURE OF ACTION
16.
The Internet has become a significant source of information, a portal, and a tool for
conducting business, doing everyday activities such as shopping, learning, banking,
researching, as well as many other activities for sighted, blind and visually-
impaired persons alike.
17.
Blind and visually impaired users of Windows operating system computers and
devices have several screen-reading software programs available to them. Some of
these programs are available for purchase and other programs are available without
the user having to purchase the program separately. Job Access With Speech
(“JAWS”), and NonVisual Desktop Access (“NVDA”) are among the most
popular.
18.
In today’s world, blind and visually-impaired people have the ability to access
websites using keyboards in conjunction with screen access software that vocalizes
the visual information found on a computer screen or displays the content on a
refreshable Braille display. This technology is known as screen-reading software.
Screen-reading software is currently the only method a blind or visually-impaired
person may independently access the internet. Unless websites are designed to be
read by screen-reading software, blind and visually-impaired persons are unable to
fully access websites, and the information, products, goods and contained thereon.
19.
For screen-reading software to function, the information on a website must be
capable of being rendered into text. If the website content is not capable of being
rendered into text, the blind or visually-impaired user is unable to access the same
content available to sighted users.
20.
The international website standards organization, the World Wide Web
Consortium, known throughout the world as W3C, has published version 2.1 of the
Web Content Accessibility Guidelines (“WCAG 2.1”). WCAG 2.1 are well-
established guidelines for making websites accessible to blind and visually-
impaired people. These guidelines are universally followed by most large business
entities and government agencies to ensure their websites are accessible.
21.
Non-compliant websites pose common access barriers to blind and visually-
impaired persons. Common barriers encountered by blind and visually impaired
persons include, but are not limited to, the following:
a.
Alternative text (“alt-text”) or text equivalent for every non-text
element. Alt-text is an invisible code embedded beneath a graphical image on a website.
Web accessibility requires that alt-text be coded with each picture so that screen-reading
software can speak the alt-text where a sighted user sees pictures, which includes captcha
prompts. Alt-text does not change the visual presentation, but instead a text box shows
when the mouse moves over the picture;
b.
Videos that do not maintain audio descriptions;
c.
Title frames with text are not provided for identification and
navigation;
d.
Equivalent text is not provided when using scripts;
e.
Forms with the same information and functionality as for sighted
persons are not provided;
f.
Information about the meaning and structure of content is not
conveyed by more than the visual presentation of content;
g.
Text cannot be resized without assistive technology up to 200%
without losing content or functionality;
h.
If the content enforces a time limit, the user is not able to extend,
adjust or disable it;
i.
Web pages do not have titles that describe the topic or purpose;
j.
The purpose of each link cannot be determined from the link text
alone or from the link text and its programmatically determined link
context;
k.
One or more keyboard operable user interface lacks a mode of
operation where the keyboard focus indicator is discernible;
l.
The default human language of each web page cannot be
programmatically determined;
m.
When a component receives focus, it may initiate a change in
context;
n.
Changing the setting of a user interface component may
automatically cause a change of context where the user has not been advised
before using the component;
o.
Labels or instructions are not provided when content requires user
input, which include captcha prompts that require the user to verify that he
or she is not a robot;
p.
In content which is implemented by using markup languages,
elements do not have complete start and end tags, elements are not nested
according to their specifications, elements may contain duplicate attributes,
and/or any IDs are not unique;
q.
Inaccessible Portable Document Format (PDFs); and,
r.
The name and role of all User Interface elements cannot be
programmatically determined; items that can be set by the user cannot be
programmatically set; and/or notification of changes to these items is not
available to user agents, including assistive technology.
STATEMENT OF FACTS
22.
Defendant is a cold-weather clothing and accessories company. Defendant is an
online retailer of base layers for men, women and children. Defendant owns,
operates, manages and controls the website, www.hotchillys.com (its “Website”),
which is a cold weather apparel retailer. The Website offers 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.
23.
Defendant’s Website is integrated with its retail business operations, serving as its
gateway. The Website offers products and services for online sale and general
delivery to the public. The Website offers features which ought to allow users to
learn about Defendant’s products and services, browse for items, information,
access navigation bar descriptions, prices, savings and/or coupons and sale discount
items, and avail consumers of the ability to peruse the numerous items offered for
sale. The features offered by www.hotchillys.com include learning about the
products and/or items, about the company, read reviews, and make purchases.
24.
It is, upon information and belief, Defendant’s policy and practice to deny Plaintiff
and other blind or visually-impaired users access to its Website, thereby denying
the facilities and services that are offered and integrated with its retail operations.
Due to its failure and refusal to remove access barriers to its Website, Plaintiff and
visually-impaired persons have been and are still being denied equal access to
Defendant’s retail operations and the numerous facilities, goods, services, and
benefits offered to the public through its Website.
25.
Defendant’s Website is a commercial marketplace without any physical location.
Thus, Defendant’s Website is the main point of sale for its business operation.
26.
Plaintiff is a visually-impaired and legally blind person, who cannot use a computer
without the assistance of screen-reading software. Plaintiff has visited the Website
on separate occasions using a screen-reader.
27.
During Plaintiff’s visits to the Website, www.hotchillys.com, the last occurring in
March of 2020, Plaintiff encountered multiple access barriers which effectively
denied him the full enjoyment of the goods and services of the Website. Plaintiff
visited Defendant’s Website with an intent to browse for available socks and
underwear for men. 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 range of features and accommodations, which effectively barred Plaintiff
from being able to make his desired purchase.
28.
Many features on the Website lacks alt. text, which is the invisible code embedded
beneath a graphical image. As a result, Plaintiff was unable to differentiate what
products were on the screen due to the failure of the Website to adequately describe
its content.
29.
Many features on the Website also fail to add a label element or title attribute for
each field. This is a problem for the visually impaired because the screen reader
fails to communicate the purpose of the page element. It also leads to the user not
being able to understand what he or she is expected to insert into the subject field.
This was an issue on Defendant’s Website particularly in the select style section.
As a result, Plaintiff and similarly situated visually impaired users of Defendant’s
Website are unable to enjoy the privileges and benefits of the Website equally to
sighted users.
30.
Plaintiff
has
made
multiple
attempts
to
complete
a
purchase
on
www.hotchillys.com, most recently in March of 2020, but was unable to do so
independently because of the many access barriers on Defendant’s website. These
access barriers have caused www.hotchillys.com to be inaccessible to, and not
independently usable by, blind and visually-impaired persons.
31.
The Website also contained a host of broken links, which is a hyperlink to a non-
existent or empty webpage. For the visually impaired this is especially paralyzing
due to the inability to navigate or otherwise determine where one is on the website
once a broken link is encountered. For example, upon coming across a link of
interest, Plaintiff was redirected to an error page. However, the screen-reader failed
to communicate that the link was broken. As a result, Plaintiff could not get back
to his original search.
32.
These access barriers effectively denied Plaintiff the ability to use and enjoy
Defendant’s website the same way sighted individuals do. The access barriers
Plaintiff encountered have caused a denial of Plaintiff’s full and equal access in the
past, and now deter Plaintiff on a regular basis from accessing the Website.
33.
Due to the inaccessibility of Defendant’s Website, blind and visually-impaired
customers such as Plaintiff, who need screen-readers, cannot fully and equally use
or enjoy the facilities, products, and services Defendant offers to the public on its
Website. The access barriers Plaintiff encountered have caused a denial of
Plaintiff’s full and equal access in the past, and now deter Plaintiff on a regular
basis from visiting the Website, presently and in the future.
34.
If the Website was equally accessible to all, Plaintiff could independently navigate
the Website and complete a desired transaction as sighted individuals do.
35.
Through his attempts to use the Website, Plaintiff has actual knowledge of the
access barriers that make these services inaccessible and independently unusable
by blind and visually-impaired people.
36.
Because simple compliance with the WCAG 2.1 Guidelines would provide Plaintiff
and other visually-impaired consumers with equal access to the Website, Plaintiff
alleges that Defendant has engaged in acts of intentional discrimination, including
but not limited to the following policies or practices:
a.
Constructing and maintaining a website that is inaccessible to
visually-impaired individuals, including Plaintiff;
b.
Failure to construct and maintain a website that is sufficiently intuitive
so as to be equally accessible to visually-impaired individuals, including
Plaintiff; and,
c.
Failing to take actions to correct these access barriers in the face of
substantial harm and discrimination to blind and visually-impaired
consumers, such as Plaintiff, as a member of a protected class.
37.
Defendant therefore uses standards, criteria or methods of administration that have the
effect of discriminating or perpetuating the discrimination of others, as alleged herein.
38.
The ADA expressly contemplates the injunctive relief that Plaintiff seeks in this
action. In relevant part, the ADA requires:
In the case of violations of . . . this title, injunctive relief shall include an order to
alter facilities to make such facilities readily accessible to and usable by individuals
with disabilities . . . Where appropriate, injunctive relief shall also include requiring
the . . . modification of a policy . . .
42 U.S.C. § 12188(a)(2).
39.
Because Defendant’s Website has never been equally accessible, and because
Defendant lacks a corporate policy that is reasonably calculated to cause its Website
to become and remain accessible, Plaintiff invokes 42 U.S.C. § 12188(a)(2) and
seeks a permanent injunction requiring Defendant to retain a qualified consultant
acceptable to Plaintiff (“Agreed Upon Consultant”) to assist Defendant to comply
with WCAG 2.1 guidelines for Defendant’s Website. Plaintiff seeks that this
permanent injunction requires Defendant to cooperate with the Agreed Upon
Consultant to:
a.
Train Defendant’s employees and agents who develop the Website
on accessibility compliance under the WCAG 2.1 guidelines;
b.
Regularly check the accessibility of the Website under the WCAG
2.1 guidelines;
c.
Regularly test user accessibility by blind or vision-impaired persons
to ensure that Defendant’s Website complies under the WCAG 2.1
guidelines; and,
d.
Develop an accessibility policy that is clearly disclosed on Defendant’s
Websites, with contact information for users to report accessibility-related
problems.
40.
Although Defendant may currently have centralized policies regarding maintaining
and operating its Website, Defendant lacks a plan and policy reasonably calculated
to make them fully and equally accessible to, and independently usable by, blind
and other visually-impaired consumers.
41.
Without injunctive relief, Plaintiff and other visually-impaired consumers will
continue to be unable to independently use the Website, violating their rights.
42.
Defendant has, upon information and belief, invested substantial sums in
developing and maintaining its Website and has generated significant revenue from
the Website. These amounts are far greater than the associated cost of making its
Website equally accessible to visually impaired customers.
CLASS ACTION ALLEGATIONS
43.
Plaintiff, on behalf of himself and all others similarly situated, seeks to certify a
nationwide class under Fed. R. Civ. P. 23(a) and 23(b)(2): all legally blind
individuals in the United States who have attempted to access Defendant’s Website
and as a result have been denied access to the equal enjoyment of goods and services,
during the relevant statutory period.
44.
Plaintiff, on behalf of himself and all others similarly situated, seeks certify a New
York City subclass under Fed. R. Civ. P. 23(a) and 23(b)(2): all legally blind
individuals in the City of New York who have attempted to access Defendant’s
Website and as a result have been denied access to the equal enjoyment of goods and
services offered, during the relevant statutory period.
45.
Common questions of law and fact exist amongst Class, including:
a.
Whether Defendant’s Website is a “public accommodation” under
the ADA;
b.
Whether Defendant’s Website is a “place or provider of public
accommodation” under the NYCHRL;
c.
Whether Defendant’s Website denies the full and equal enjoyment
of
its
products,
services,
facilities,
privileges,
advantages,
or
accommodations to people with visual disabilities, violating the ADA; and
d.
Whether Defendant’s Website denies the full and equal enjoyment
of
its
products,
services,
facilities,
privileges,
advantages,
or
accommodations to people with visual disabilities, violating the NYCHRL.
46.
Plaintiff’s claims are typical of the Class. The Class, similarly, to the Plaintiff, are
severely visually impaired or otherwise blind, and claim that Defendant has
violated the ADA or NYCHRL by failing to update or remove access barriers on
its Website so either can be independently accessible to the Class.
47.
Plaintiff will fairly and adequately represent and protect the interests of the Class
Members because Plaintiff has retained and is represented by counsel competent
and experienced in complex class action litigation, and because Plaintiff has no
interests antagonistic to the Class Members. Class certification of the claims is
appropriate under Fed. R. Civ. P. 23(b)(2) because Defendant has acted or refused
to act on grounds generally applicable to the Class, making appropriate both
declaratory and injunctive relief with respect to Plaintiff and the Class as a whole.
48.
Alternatively, class certification is appropriate under Fed. R. Civ. P. 23(b)(3) because
fact and legal questions common to Class Members predominate over questions
affecting only individual Class Members, and because a class action is superior to
other available methods for the fair and efficient adjudication of this litigation.
49.
Judicial economy will be served by maintaining this lawsuit as a class action in that
it is likely to avoid the burden that would be otherwise placed upon the judicial
system by the filing of numerous similar suits by people with visual disabilities
throughout the United States.
FIRST CAUSE OF ACTION
VIOLATIONS OF THE ADA, 42 U.S.C. § 12181 et seq.
50.
Plaintiff, on behalf of himself and the Class Members, repeats and realleges every
allegation of the preceding paragraphs as if fully set forth herein.
51.
Section 302(a) of Title III of the ADA, 42 U.S.C. § 12101 et seq., provides:
No individual shall be discriminated against on the basis of disability in the full and
equal enjoyment of the goods, services, facilities, privileges, advantages, or
accommodations of any place of public accommodation by any person who owns,
leases (or leases to), or operates a place of public accommodation.
42 U.S.C. § 12182(a).
52.
Defendant’s Website is a public accommodation within the definition of Title III of
the ADA, 42 U.S.C. § 12181(7). The Website is a service that is offered to the
general public, and as such, must be equally accessible to all potential consumers.
53.
Under Section 302(b)(1) of Title III of the ADA, it is unlawful discrimination to
deny individuals with disabilities the opportunity to participate in or benefit from
the products, services, facilities, privileges, advantages, or accommodations of an
entity. 42 U.S.C. § 12182(b)(1)(A)(i).
54.
Under Section 302(b)(1) of Title III of the ADA, it is unlawful discrimination to
deny individuals with disabilities an opportunity to participate in or benefit from
the products, services, facilities, privileges, advantages, or accommodation, which
is equal to the opportunities afforded to other individuals. 42 U.S.C. §
12182(b)(1)(A)(ii).
55.
Under Section 302(b)(2) of Title III of the ADA, unlawful discrimination also
includes, among other things:
[A] failure to make reasonable modifications in policies, practices, or procedures,
when such modifications are necessary to afford such goods, services, facilities,
privileges, advantages, or accommodations to individuals with disabilities, unless
the entity can demonstrate that making such modifications would fundamentally
alter the nature of such goods, services, facilities, privileges, advantages or
accommodations; and a failure to take such steps as may be necessary to ensure that
no individual with a disability is excluded, denied services, segregated or otherwise
treated differently than other individuals because of the absence of auxiliary aids
and services, unless the entity can demonstrate that taking such steps would
fundamentally alter the nature of the good, service, facility, privilege, advantage,
or accommodation being offered or would result in an undue burden.
42 U.S.C. § 12182(b)(2)(A)(ii)-(iii).
56.
The acts alleged herein constitute violations of Title III of the ADA, and the
regulations promulgated thereunder. Plaintiff, who is a member of a protected class
of persons under the ADA, has a physical disability that substantially limits the
major life activity of sight within the meaning of 42 U.S.C. §§ 12102(1)(A)-(2)(A).
Furthermore, Plaintiff has been denied full and equal access to the Website, has not
been provided services that are provided to other patrons who are not disabled, and
has been provided services that are inferior to the services provided to non-disabled
persons. Defendant has failed to take any prompt and equitable steps to remedy its
discriminatory conduct. These violations are ongoing.
57.
Under 42 U.S.C. § 12188 and the remedies, procedures, and rights set forth and
incorporated therein, Plaintiff, requests relief as set forth below.
SECOND CAUSE OF ACTION
VIOLATIONS OF THE NYCHRL
58.
Plaintiff, on behalf of himself and the New York City Sub-Class Members, repeats
and realleges every allegation of the preceding paragraphs as if fully set forth herein.
59.
N.Y.C. Administrative Code § 8-107(4)(a) provides that “It shall be an unlawful
discriminatory practice for any person, being the owner, lessee, proprietor,
manager, superintendent, agent or employee of any place or provider of public
accommodation, because of . . . disability . . . directly or indirectly, to refuse,
withhold from or deny to such person, any of the accommodations, advantages,
facilities or privileges thereof.”
60.
Defendant’s Website is a sales establishment and public accommodations within
the definition of N.Y.C. Admin. Code § 8-102(9).
61.
Defendant is subject to NYCHRL because it owns and operates its Website, making
it a person within the meaning of N.Y.C. Admin. Code § 8-102(1).
62.
Defendant is violating N.Y.C. Administrative Code § 8-107(4)(a) in refusing to
update or remove access barriers to Website, causing its Website and the services
integrated with such Website to be completely inaccessible to the blind. This
inaccessibility denies blind patrons full and equal access to the facilities, products,
and services that Defendant makes available to the non-disabled public.
63.
Defendant is required to “make reasonable accommodation to the needs of persons
with disabilities . . . any person prohibited by the provisions of [§ 8-107 et seq.]
from discriminating on the basis of disability shall make reasonable
accommodation to enable a person with a disability to . . . enjoy the right or rights
in question provided that the disability is known or should have been known by the
covered entity.” N.Y.C. Admin. Code § 8-107(15)(a).
64.
Defendant’s actions constitute willful intentional discrimination against the Sub-
Class on the basis of a disability in violation of the N.Y.C. Administrative Code §
8-107(4)(a) and § 8-107(15)(a) in that Defendant has:
a.
constructed and maintained a website that is inaccessible to blind
class members with knowledge of the discrimination; and/or
b.
constructed and maintained a website that is sufficiently intuitive
and/or obvious that is inaccessible to blind class members; and/or
c.
failed to take actions to correct these access barriers in the face of
substantial harm and discrimination to blind class members.
65.
Defendant has failed to take any prompt and equitable steps to remedy their
discriminatory conduct. These violations are ongoing.
66.
As such, Defendant discriminates, and will continue in the future to discriminate
against Plaintiff and members of the proposed class and subclass on the basis of
disability in the full and equal enjoyment of the products, services, facilities,
privileges, advantages, accommodations and/or opportunities of its Website under
§ 8-107(4)(a) and/or its implementing regulations. Unless the Court enjoins
Defendant from continuing to engage in these unlawful practices, Plaintiff and
members of the class will continue to suffer irreparable harm.
67.
Defendant’s actions were and are in violation of the NYCHRL and therefore
Plaintiff invokes his right to injunctive relief to remedy the discrimination.
68.
Plaintiff is also entitled to compensatory damages, as well as civil penalties and
fines under N.Y.C. Administrative Code § 8-120(8) and § 8-126(a) for each offense
as well as punitive damages pursuant to § 8-502.
69.
Plaintiff is also entitled to reasonable attorneys’ fees and costs.
70.
Under N.Y.C. Administrative Code § 8-120 and § 8-126 and the remedies,
procedures, and rights set forth and incorporated therein Plaintiff prays for
judgment as set forth below.
THIRD CAUSE OF ACTION
DECLARATORY RELIEF
71.
Plaintiff, on behalf of himself and the Class and New York City Sub-Classes
Members, repeats and realleges every allegation of the preceding paragraphs as if
fully set forth herein.
72.
An actual controversy has arisen and now exists between the parties in that Plaintiff
contends, and is informed and believes that Defendant denies, that its Website
contains access barriers denying blind customers the full and equal access to the
products, services and facilities of its Website, which Defendant owns, operations
and controls, fails to comply with applicable laws including, but not limited to, Title
III of the Americans with Disabilities Act, 42 U.S.C. §§ 12182, et seq., N.Y. Exec.
Law § 296, et seq., and N.Y.C. Admin. Code § 8-107, et seq. prohibiting
discrimination against the blind.
73.
A judicial declaration is necessary and appropriate at this time in order that each of
the parties may know their respective rights and duties and act accordingly.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff respectfully requests this Court grant the following relief:
a.
A preliminary and permanent injunction to prohibit Defendant from
violating the Americans with Disabilities Act, 42 U.S.C. §§ 12182, et seq.,
N.Y.C. Administrative Code § 8-107, et seq., and the laws of New York;
b.
A preliminary and permanent injunction requiring Defendant to take
all the steps necessary to make its Website into full compliance with the
requirements set forth in the ADA, and its implementing regulations, so that
the Website is readily accessible to and usable by blind individuals;
c.
A declaration that Defendant owns, maintains and/or operates its
Website in a manner that discriminates against the blind and which fails to
provide access for persons with disabilities as required by Americans with
Disabilities Act, 42 U.S.C. §§ 12182, et seq., N.Y.C. Administrative Code
§ 8-107, et seq., and the laws of New York
d.
An order certifying the Class and Sub-Classes under Fed. R. Civ. P.
23(a) & (b)(2) and/or (b)(3), appointing Plaintiff as Class Representative,
and his attorneys as Class Counsel;
e.
Compensatory damages in an amount to be determined by proof,
including all applicable statutory and punitive damages and fines, to
Plaintiff and the proposed class and subclasses for violations of their civil
rights under New York City Human Rights Law;
f.
Pre- and post-judgment interest;
g.
An award of costs and expenses of this action together with
reasonable attorneys’ and expert fees; and
h.
Such other and further relief as this Court deems just and proper.
DEMAND FOR TRIAL BY JURY
Pursuant to Fed. R. Civ. P. 38(b), Plaintiff demands a trial by jury on all questions
of fact the Complaint raises.
Dated: Forest Hills, New York
March 13, 2020
SHALOM LAW, PLLC.
By: /s/Jonathan Shalom
Jonathan Shalom, Esq.
105-13 Metropolitan Avenue
Forest Hills, New York 11375
Tel: (718) 971-9474
Email: [email protected]
ATTORNEYS FOR PLAINTIFF
| civil rights, immigration, family |
o7fAC4cBD5gMZwczUT2K |
JOHN P. KRISTENSEN (SBN 224132)
DAVID L. WEISBERG (SBN 211675)
MATTHEW T. HALE (SBN 303826)
KRISTENSEN WEISBERG, LLP
12304 Santa Monica Blvd., Suite 100
Los Angeles, California 90025
Telephone: 310-507-7924
Fax: 310-507-7906
[email protected]
[email protected]
W. CRAFT HUGHES (PRO HAC VICE PENDING)
JARRETT L. ELLZEY (PRO HAC VICE PENDING)
HUGHES ELLZEY, LLP
Galleria Tower I
2700 Post Oak Boulevard, Suite 1120
Houston, Texas 77056
Telephone: 713-544-2377
Fax: 888-995-3335
[email protected]
[email protected]
Attorneys for Plaintiff and all others similarly
situated
THE UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF CALIFORNIA
'16CV1033
BLM
AJB
BENJAMIN CIOTTI, on behalf of
himself and all others similarly
situated,
Plaintiff,
vs.
SYNCHRONY FINANCIAL, a
Delaware Corporation; and DOES 1
through 20, inclusive, and each of
them,
Defendants.
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Case No.
CLASS ACTION
COMPLAINT FOR DAMAGES &
INJUNCTIVE RELIEF
FORVIOLATIONS OF:
(1) Violations of the Telephone
Consumer Protection Act, 47
U.S.C. § 227, et seq.
(2) Willful Violations of the
Telephone Consumer Protection
Act, 47 U.S.C. § 227, et seq.
DEMAND FOR JURY TRIAL
Plaintiff Benjamin Ciotti (“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.
Defendant is the largest provider of private label credit cards in the
United States. In an effort to collect alleged delinquent balances from consumers,
Defendant Synchrony Financial (“Defendant”) engages in reckless and
aggressive debt collection practices which outright ignore the Telephone
Consumer Protection Act, 47 U.S.C. § 227 (the “TCPA”) and the rights of the
called parties.
2.
Defendant conducted (and continues to conduct) collections call
campaigns and repeatedly made unsolicited calls to consumers’ telephones
without consent, in violation of the TCPA. Defendant made one or more
unauthorized calls to Plaintiff’s cell phone using an automatic telephone dialing
system (“ATDS”) or pre-recorded voice for the purpose of soliciting business
from Plaintiff. Defendant also called Plaintiff after he told Defendant it had the
wrong party, clearly stated he did not wish to be called again. Defendant should
have placed Plaintiff’s name on its federally-mandated Internal Do-Not-Call List,
but failed to do so. Furthermore, to the extent Defendant called a re-assigned
number, Defendant should have scrubbed its customer database against the
numerous publicly available reassigned number databases prior to placing the
calls to Plaintiff and members of the Class.
3.
The TCPA was enacted to protect consumers from unsolicited
telephone calls exactly 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 ATDS calling activities to
consumers and an award of statutory damages to the members of the Class under
the TCPA equal to $500.00 per violation, together with court costs, reasonable
attorneys’ fees, and treble damages (for knowing and/or willful violations).
4.
By making the telephone calls at issue in this Complaint, Defendant
caused Plaintiff and the members of a putative Class of consumers (defined
below) actual harm, including the aggravation, nuisance, and invasion of privacy
that necessarily accompanies the receipt of unsolicited and harassing telephone
calls, as well as the monies paid to their carriers for the receipt of such telephone
calls.
JURISDICTION & VENUE
5.
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 at Stamford,
Connecticut. Plaintiff also seeks up to $1,500.00 in damages for each unsolicited
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.
6.
The Court has personal jurisdiction over Defendant because it
conducts significant business in this District, and the unlawful conduct alleged in
this Complaint occurred in, was directed to, and/or emanated from this District.
Furthermore, Defendant has purposefully availed itself of the protections of
California law, and the exercise of personal jurisdiction over Defendant in this
District does not offend traditional notions of fair play or substantial justice. For
these same reasons, venue is proper in this District.
PARTIES
7.
Plaintiff, Benjamin Ciotti (“Plaintiff”), is a natural person residing
in San Diego, California.
8.
Defendant Synchrony Financial (“Defendant”) is a Delaware
corporation with its principal place of business in Stamford, Connecticut.
Defendant may be served via its registered agent, the Corporation Trust
Company, Corporation Trust Center, 1209 Orange Street, Wilmington, DE
19801.
9.
The above named Defendant, and its subsidiaries and agents, are
collectively referred to as “Defendant.” The true names and capacities of the
Defendant sued herein as DOES 1 through 20, inclusive, are currently unknown
to Plaintiff, who therefore sues such Defendant by fictitious names. Each of the
Defendant 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 Defendant when such identities
become known.
10.
Plaintiff is informed and believes and thereon alleges that at all
relevant times, each and every Defendant was acting as an agent and/or
employee of each of the other Defendant and was the owner, agent, servant, joint
venturer and employee, each of the other and each was acting within the course
and scope of its ownership, agency, service, joint venture and employment with
the full knowledge and consent of each of the other Defendant. Plaintiff is
informed and believes and thereon alleges that each of the acts and/or omissions
complained of herein was made known to, and ratified by, each of the other
Defendant.
11.
At all times mentioned herein, each and every Defendant was the
successor of the other and each assumes the responsibility for each other’s acts
and omissions.
LEGAL BASIS FOR CLAIMS
12.
Congress enacted the TCPA in 1991 to address certain practices
thought to be an invasion of consumer privacy and a risk to public safety. The
TCPA and the Federal Communications Commission’s (“FCC”) implemented
rules prohibit: (1) making telemarketing calls using an artificial or prerecorded
voice to residential telephones without prior express consent; and (2) making any
non-emergency call using an automatic telephone dialing system (“ATDS”) or an
artificial or prerecorded voice to a wireless telephone number without prior
express consent. If the call includes or introduces an advertisement, or
constitutes telemarketing, consent must be in writing.1 Calls that include non-
marketing messages require consent, but not written consent. The TCPA grants
consumers a private right of action, with a provision for $500 or the actual
monetary loss in damages for each violation, whichever is greater, and treble
damages for each willful or knowing violation, as well as injunctive relief.
13.
Since the TCPA’s passage in 1991, the FCC has taken multiple
actions implementing and interpreting the TCPA, and has issued numerous
Declaratory Rulings clarifying specific aspects of the TCPA. The most recent,
FCC Omnibus Order of July 10, 2015, (the “Order”) provided further protection
to consumers by, among other things, clarifying that ATDS is broadly defined,
confirming liability attaches to calls made to the wrong number or reassigned
number, and clarifying consumers may revoke consent through reasonable
methods. In the Matter of Rules and Regulations Implementing the Tel.
Consumer Prot. Act of 1991, FCC 15–72, 30 F.C.C.R. 7961, (July 10, 2015),
available at https://www.fcc.gov/document/tcpa-omnibus-declaratory-ruling-and-
order. The Order defines an “autodialer” as equipment/software that has the
future capacity to dial randomly or sequentially. “In other words, the capacity of
an autodialer is not limited to its current configuration but also includes its
1 Prior express written consent means “an agreement, in writing, bearing the signature of the person
called that clearly authorizes the seller to deliver or cause to be delivered to the person called
advertisements or telemarketing messages using an automatic telephone dialing system or an artificial
or prerecorded voice, and the telephone number to which the signatory authorizes such advertisements
or telemarketing messages to be delivered. 47 C.F.R. § 64.1200(f)(8).
potential functionalities.” The Order clarifies the meaning of “capacity” and that
“any call” made using a device with the capacity to serve as an ATDS requires
consent under the TCPA, even if the caller is not “actually…using those
functionalities to place calls” at the time. Derby v. AOL, Inc., No. 5:15-CV-
00452-RMW, 2015 WL 5316403, at *3 (N.D. Cal. Sept. 11, 2015).
14.
The Order also states that calls placed to the wrong number or a
reassigned number are made with knowledge of the error after the first call; and
consumers may revoke consent through any reasonable method, including orally:
“[w]e clarify, however, that callers who make calls without knowledge of
reassignment and with a reasonable basis to believe that they have valid consent
to make the call should be able to initiate one call after reassignment as an
additional opportunity to gain actual or constructive knowledge of the
reassignment and cease future calls to the new subscriber. If this one additional
call does not yield actual knowledge of reassignment, we deem the caller to have
constructive knowledge of such;” “[c]onsumers generally may revoke, for
example, by way of a consumer-initiated call, directly in response to a call
initiated or made by a caller, or at an in-store bill payment location, among other
possibilities.”
15.
Furthermore, the TCPA established the National Do-Not-Call List,
and also mandates all businesses that place calls for marketing purposes maintain
an “internal” do-not-call list (“IDNC”). See 47 C.F.R. § 64.1200(d). The IDNC
is “a list of persons who request not to receive telemarketing calls made by or on
behalf of that [seller].” Id. The TCPA prohibits a company from calling
individuals on its IDNC list or on the IDNC list of a seller on whose behalf the
telemarketer calls, even if those individuals’ phone numbers are not on the
National Do-Not-Call Registry. Id. at § 64.1200(d)(3),(6). Any company, or
someone on the company’s behalf, who calls a member of the company IDNC is
liable to that person under the TCPA. The called party is then entitled to bring a
private action under the TCPA for monetary and injunctive relief.
16.
Finally, in 2008, the FCC held that “a creditor on whose behalf an
autodialed or prerecorded message call is made to a wireless number bears the
responsibility for any violation of the Commission’s rules.” In re Rules and
Regulations Implementing the Telephone Consumer Protection Act, Declaratory
Ruling on Motion by ACA International for Reconsideration, 23 FCC Rcd. 559,
565, ¶ 10 (Jan. 4, 2008); Birchmeier v. Caribbean Cruise Line, Inc., 2012 WL
7062748 (Dec. 31, 2012).
17.
Accordingly, the entity can be liable under the TCPA for a call
made on its behalf, even if the entity did not directly place the call. Under those
circumstances, the entity is deemed to have initiated the call through the person
or entity.
COMMON FACTUAL ALLEGATIONS
18.
Defendant is the largest provider of private label credit cards in the
United States. In an effort to collect alleged delinquent balances from
consumers, Defendant engages in reckless and aggressive debt collection
practices which outright ignore the TCPA and the rights of the called parties.
19.
Plaintiff brings the present action because Defendant has repeatedly
violated the TCPA by calling Plaintiff and the Class via ATDS and using an
artificial or prerecorded voice without prior express written consent. Defendant
also violated the TCPA by contacting individuals listed on its IDNC; or
Defendant has simply ignored the TCPA and failed to implement a legally
compliant IDNC altogether. As further detailed herein, Plaintiff was not a
customer of, or enrolled with, Defendant when Defendant began making
unsolicited calls to his cell phone. Plaintiff would show that Defendant
knowingly and willfully engaged in this conduct because Defendant continued to
place calls to Plaintiff’s cell phone and the cell phone numbers of the Proposed
Class despite the fact that he was listed (or should have been listed) on
Defendant’s IDNC.
20.
Not surprisingly, these practices have led to significant backlash
from consumers:2
• “I have gotten daily robo calls in Spanish from this number. I
don't speak Spanish. Since it's not an actual person I cannot
figure out what they want or how to stop it.”
• “ENDLESS calls from these people which I DO NOT
answer. WHO ARE THEY????? hateful.”
• “Annoying daily calls from Synchrony Bank - no outstanding
debt so not sure why they are calling. Just annoying ...”
• “i [sic] keep getting call from this phone Numbers [sic] daily and
at all hrs of the day and night! I'm sick and tired but I'm not sure
where to report them other then [sic] here. I just want them to
stop calling me.”
• “I received numerous of [sic] calls during one day early AM and
late PM on a daily basis. I have told them to "STOP CALLING
ME" but they have continued for the past month. I need a
resolution to this matter because is [sic] very disturbing, I am
very ill and can not [sic] be constantly harass [sic] by this people
[sic]. Is not even for me they are looking for [sic].”
21.
Defendant ignored Plaintiff’s and the Class members’ requests,
failed to observe its IDNC (to the extent it has one), and continued to call
Plaintiff and the Class members. Accordingly, Plaintiff, on behalf of himself and
all others similarly situated, bring this action to prevent Defendant from
engaging in this continued course of conduct, and seek compensation for himself
and the Class of $500.00 for each negligent violation by Defendant, treble
2 See, e.g., 800Notes for (877) 822-2015, http://800notes.com/Phone.aspx/1-800-822-2015.
damages of $1,500.00 for each knowing and willful violation, and injunctive
relief.
FACTS SPECIFIC TO PLAINTIFF BENJAMIN CIOTTI
22.
Beginning around December 1, 2015, Ciotti began to receive calls
from the number 877-822-2015, which is associated with Defendant. At the time
Ciotti filed this lawsuit, he had received at least 10 calls from Defendant.
23.
Ciotti received all calls described above on his cellular telephone
assigned a number ending in 8205.
24.
Defendant and/or third parties on Defendant’s behalf, placed all the
calls described above using an ATDS, as defined by 47 U.S.C. § 227(a)(1)
without first obtaining Ciotti’s prior express written consent.
25.
Ciotti was able to answer several of these calls and interact with the
caller’s live representative after being transferred by the dialing system. On
several occasions, Ciotti was contacted by a pre-recorded voice, stating “If this is
Gloria Eucenia (or a similar name), please press 1…”
26.
When Ciotti answered the calls when he was able to eventually
speak with a live representative, there was a momentary pause (“dead air”)
before Defendant’s live representative engaged on the other end of the line.
27.
Defendant’s representatives always asked for another individual –
Gloria Eucencia (or a similar name) – not Ciotti.
28.
Ciotti repeatedly told Defendant that it had the wrong party. Yet,
Defendant continued to call. Ciotto told Defendant every time they had the
wrong person. One of Defendant’s employees even admitted that it made no
difference and the calls would not stop.
29.
Ciotti never provided Defendant consent to call his cellular
telephone for any purpose.
30.
At the time of the calls, Ciotti did not have a business relationship
with Defendant.
31.
Ciotti was a PhD candidate at the time Defendant was placing the
calls to his cellular phone. The calls were disruptive, unwanted, and distracted
Ciotti from his studies and daily routine.
32.
Ciotti felt the calls were an invasion of his privacy and wanted
Defendant to stop calling. Defendant ignored Ciotti’s multiple requests and
continued to call his cellular phone.
33.
Based on the circumstances of the calls (e.g. dead air, large volume
of calls, pre-recorded messages, seeming inability to remove his number from
Defendant’s call list), Ciotti believed Defendant called his cellular telephone
using an ATDS that mechanically selected his number from a computer database.
34.
On information and belief, Defendant’s ATDS called Ciotti on
every occasion.
35.
The telephone number Defendant called was assigned to a cellular
telephone service for which charges incur for incoming calls pursuant to 47
U.S.C. § 227(b)(1).
36.
Ciotti is the regular carrier and exclusive user of the cellular
telephone assigned the number ending in 8205.
37.
Defendant’s calls constituted calls that were not for emergency
purposes as defined by 47 U.S.C. § 227(b)(1(A)(i).
38.
Ciotti did not provide Defendant with prior express written consent
to place calls to his cellular telephone utilizing an ATDS or artificial or pre-
recorded voice, pursuant to 47 U.S.C. § 227 (b)(1)(A) and 47 C.F.R. §
64.1200(a)(3).
39.
All calls Defendant made to Ciotti violate 47 U.S.C. § 227(b)(1).
40.
Plaintiff has reason to believe Defendant has called, and continues
to call, thousands of wireless telephone consumers to collect delinquent debts.
41.
Plaintiff’s overriding interest is ensuring Defendant ceases all illegal
telemarketing practices and compensates all members of the Class for invading
their privacy in the manner the TCPA was contemplated to prevent.
42.
In order to redress injuries caused by Defendant’s violations of the
TCPA, Plaintiff, on behalf of themselves and a class of similarly situated
individuals, bring suit under the TCPA, 47 U.S.C. § 227, et seq., which prohibits
certain unsolicited voice and text calls to cell phones.
43.
On behalf of the Plaintiff Class, Plaintiff seeks an injunction
requiring Defendant to cease all wireless telemarketing and spam activities and
an award of statutory damages to the class members, together with costs and
reasonable attorneys’ fees.
CLASS ACTION ALLEGATIONS
A.
Class Allegations
44.
Plaintiff brings this action pursuant to Federal Rule of Civil
Procedure 23(a), (b)(2), and (b)(3) on behalf of himself and the following Classes
defined as follows (the “Class”):
Autodialer Class: All individuals in the United States who received a call made
by or on behalf of Defendant to the individual’s cellular telephone through the
use of an automatic telephone dialing system or any other device having the
capacity to dial numbers without human intervention, from October 16, 2013 to
the date that class notice is disseminated, where Defendant’s records fail to
indicate prior express written consent from the recipient to make such call.
IDNC Class: All persons within the United States who, 30 days or more after
requesting Defendant cease all calls, received any calls from Defendant, from
October 16, 2013 to the date that class notice is disseminated.
Artificial & Prerecorded Voice Class: All individuals in the United States who
received a call made by or on behalf of Defendant to the individual’s cellular or
residential telephone through the use of an artificial or pre-recorded voice, from
October 16, 2013 to the date that class notice is disseminated, where Defendant’s
records fail to indicate prior express written consent from the recipient to make
such call.
Wrong Number Class: All persons in the United States whose (1) cellular
telephone number has been called by Defendant; (2) more than once; (3) with an
artificial or prerecorded voice and/or an automatic telephone dialing system; and
(4) such calls were “wrong numbers” where the person subscribing to the number
called was not the same person Defendant’s records show it intended to call, (5)
from October 16, 2013 to the date that class notice is disseminated.
45.
The following individuals 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 Defendant or its parents have a controlling interest, and its
current or former employees, officers, and directors; (3) Plaintiff’s counsel and
Defendant’s counsel; (4) persons who properly execute and file a timely request
for exclusion from the Class; (5) the legal representatives, successors or assigns
of any such excluded persons; and (6) persons whose claims against Defendant
have been fully and finally adjudicated and/or released.
46.
This suit seeks only damages, statutory penalties, and injunctive
relief for recovery of economic injury on behalf of the Class, and it expressly is
not intended to request any recovery for personal injury and claims related
thereto.
47.
Plaintiff reserves the right to expand the Class definitions to seek
recovery on behalf of additional persons as warranted as facts are learned in
further investigation and discovery.
48.
Plaintiff and members of the Class were harmed by Defendant’s acts
in at least the following ways: Defendant, either directly or through agents,
illegally contacted 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; continuing to call Class
members after they requested the calls cease or to be placed on Defendant’s
IDNC list; and invading the privacy of Plaintiff and the Class members.
B.
Numerosity
49.
The exact sizes of the Class are unknown and not available to
Plaintiff at this time, but it is clear individual joinder is impracticable.
50.
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 easily identified through Defendant’s records.
C.
Commonality and Predominance
51.
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.
52.
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 auto-dialed or
pre-recorded calls to consumers who did not previously provide
Defendant and/or its agents with prior express written consent to
receive such phone calls after October 16, 2013;
c.
Whether members of the Class are entitled to treble
damages based on the willfulness of Defendant’ conduct;
d.
Whether Defendant called consumers with re-assigned
numbers that appear on publicly available databases or re-assigned
numbers.
e.
Whether Defendant placed calls to consumers after
those consumers requested Defendant stop calling; and
f.
Whether Defendant and its agents should be enjoined
from engaging in such conduct in the future.
D.
Typicality
53.
Plaintiff’s claims are typical of the claims of the other members of
the Class.
54.
Plaintiff and the Class sustained damages as a result of Defendant’s
uniform wrongful conduct during transactions with Plaintiff and the Class.
E.
Adequate Representation
55.
Plaintiff will fairly and adequately represent and protect the interests
of the Class, and has retained counsel competent and experienced in complex
class actions.
56.
Plaintiff have no interest antagonistic to those of the Class, and
Defendant has no defenses unique to Plaintiff.
F.
Policies Generally Applicable to the Class
57.
This class action is appropriate for certification because Defendant
has 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 respect to the Class as a whole.
58.
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 whole, not on facts or law
applicable only to Plaintiff.
G.
Superiority
59.
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.
60.
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.
61.
Thus, it would be virtually impossible for the individual members of
the Class to obtain effective relief from Defendant’s misconduct.
62.
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.
63.
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 the Telephone Consumer Protection Act,
47 U.S.C. § 227, et seq.)
64.
Plaintiff hereby incorporates by reference and re-alleges each and
every allegation set forth in each and every preceding paragraph of this
Complaint, as though fully set forth herein.
65.
The foregoing acts and omission of Defendant constitute numerous
and multiple violations of the TCPA, including but not limited to each and every
one of the above cited provisions of 47 U.S.C. § 227, et seq. and 47 C.F.R.
§64.1200, et seq.
66.
As a result of Defendant’s violations of 47 U.S.C. § 227, et seq., and
47 C.F.R. §64.1200, et seq., Plaintiff and the Class Members 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).
67.
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 Violation of
the Telephone Consumer Protection Act, 47 U.S.C. § 227, et seq.)
68.
Plaintiff hereby incorporates by reference and re-alleges each and
every allegation set forth in each and every preceding paragraph of this
Complaint, as though fully set forth herein.
69.
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. and 47 C.F.R. §64.1200, et seq.
70.
As a result of Defendant’s violations of 47 U.S.C. § 227, et seq., and
47 C.F.R. §64.1200, et seq. Plaintiff and the Class Members are entitled to an
award of $1,500.00 in statutory damages, for each and every violation, pursuant
to 47 U.S.C. § 227(b)(3)(B) and 47 U.S.C. § 227(b)(3)(C).
71.
Plaintiff and the Class members are also entitled to and seek
injunctive relief prohibiting such conduct in the future.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, individually and on behalf of the Class, prays for
relief and judgment as follows:
1.
An order certifying this action as a class action and appointing
Plaintiff and his counsel to represent the Class;
2.
For the first cause of action:
• Plaintiff and Class members are entitled to and request $500.00
in statutory damages, for each and every violation, pursuant to 47
U.S.C. § 227, et seq.;
• Preliminary and permanent injunctive relief enjoining Defendant,
its agents, servants and employees, and all persons acting in
concert with them, from engaging in, and continuing to engage
in, the unlawful calls and text messages made with automated
dialing systems to cellular phones without prior express consent;
• Attorneys’ fees, costs and any and all other relief that the Court
deems just and proper.
3.
For the second cause of action:
• Plaintiff and Class members are entitled to and request $1,500.00
in statutory damages, for each and every violation , pursuant to
47 U.S.C. § 227, et seq.;
• Preliminary and permanent injunctive relief enjoining
Defendant(s), their agents, servants and employees, and all
persons acting in concert with them, from engaging in, and
continuing to engage in, the unlawful calls made with automated
dialing systems to cellular phones without prior express consent;
• Attorneys’ fees, costs and any and all other relief that the Court
deems just and proper.
Dated: April 27, 2016
Respectfully submitted,
By: /s/ John P. Kristensen
John P. Kristensen (SBN 224132)
[email protected]
David L. Weisberg (SBN 211675)
[email protected]
KRISTENSEN WEISBERG, LLP
12304 Santa Monica Blvd., Suite 100
Los Angeles, California 90025
Telephone: (310) 507-7924
Fax: (310) 507-7906
W. Craft Hughes (Pro Hac Vice Pending)
[email protected]
Jarrett L. Ellzey (Pro Hac Vice Pending)
[email protected]
HUGHES ELLZEY, LLP
Galleria Tower I
2700 Post Oak Boulevard, Suite 1120
Houston, Texas 77056
Telephone: 713-544-2377
Fax: 888-995-3335
DEMAND FOR JURY TRIAL
Plaintiff hereby demands a trial by jury for all such triable claims.
Dated: April 27, 2016
Respectfully submitted,
By: /s/ John P. Kristensen
John P. Kristensen (SBN 224132)
[email protected]
David L. Weisberg (SBN 211675)
[email protected]
KRISTENSEN WEISBERG, LLP
12304 Santa Monica Blvd., Suite 100
Los Angeles, California 90025
Telephone: (310) 507-7924
Fax: (310) 507-7906
W. Craft Hughes (Pro Hac Vice Pending)
[email protected]
Jarrett L. Ellzey (Pro Hac Vice Pending)
[email protected]
HUGHES ELLZEY, LLP
Galleria Tower I
2700 Post Oak Boulevard, Suite 1120
Houston, Texas 77056
Telephone: 713-544-2377
Fax: 888-995-3335
| privacy |
W6_UCocBD5gMZwczGtBo | UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
CASSO'S WELLNESS STORE &
GYM, L.L.C.
CIVIL ACTION NO.:
V.
SPECTRUM PHARMACY
PRODUCTS, INC.
CLASS ACTION COMPLAINT
Plaintiff, Casso's Wellness Store & Gym L.L.C. (hereinafter referred to as "Plaintiff"),
Introduction
More than two decades ago, the Telephone Consumer Protection Act of 1991, 47 U.S.C. §
227 (hereinafter referred to as "TCPA") was enacted into law. The law responded to
countless complaints by American consumers and businesses about the cost, disruption and
nuisance imposed by junk faxes. The law prohibited the transmission of facsimile
advertising without prior express invitation or permission of the recipient. In 2005, because
consumers and businesses continued to be besieged with junk faxes, Congress strengthened
the law by amending it through the Junk Fax Prevention Act of 2005 (hereinafter referred
to as "JFPA"). As amended, the law requires senders to include in their faxed advertisements
a clear and conspicuous notice that discloses to recipients their right to stop future junk faxes
and explains how to exercise that right.
Plaintiff brings this class action to recover damages for and to enjoin massive junk faxing by
defendant, Spectrum Pharmacy Products, Inc. (hereinafter referred to as "Spectrum" or
Page 1 of 13
"Defendant") in direct violation of the TCPA. Upon information and belief, Plaintiff avers
that Defendant has blasted thousands of junk faxes nationwide in direct violation of the
TCPA and the regulations promulgated under the act by the Federal Communications
Commission (hereinafter referred to as "FCC"). Defendant's violations include, but are
not limited to, the facsimile transmission of advertisements to Plaintiff's facsimile
telephone number on December 21, 2016; February 14, 2017; February 17, 2017; and
February 24, 2017, copies of which are attached hereto as Exhibit 1 through Exhibit 4.
Standing and Jurisdiction
This Court has federal question subject matter jurisdiction pursuant to 28 U.S.C. § 1331. See
Mims V. Arrow Financial Services, Inc., 132 S.Ct. 740 (2012).
Venue is proper in this Court under 28 U.S.C. § 1391(b) and (c) because a substantial portion
of the facts and circumstances that give rise to the cause of action occurred in this District.
The Parties
Individual Plaintiff/Class Representative. Plaintiff is, and at all times relevant hereto was,
a limited liability company duly organized and existing under the laws of the State of
Louisiana, with its principal place of business in Metairie, Louisiana.
Defendant: Upon information and belief, Defendant is, and at all times relevant hereto was,
a corporation organized and existing under the laws of the State of New Jersey, having its
principal place of business at 777 Jersey Ave, New Brunswick, NJ 08901.
The JFPA's Prohibition Against Junk Faxing
By the early 1990s, advertisers had exploited facsimile telephone technology to blanket the
country with junk fax advertisements. This practice imposed tremendous disruption,
annoyance, and cost on the recipients. Among other things, junk faxes tie up recipients'
telephone lines and facsimile machines, misappropriate and convert recipients' fax paper
Page 2 of 13
and toner, require recipients to sort through faxes to separate legitimate
fax
communications from junk advertisements and to discard the latter. Congress responded to
the problem by passing the TCPA. The TCPA made it unlawful for any person "to use any
telephone facsimile machine, computer, or other device to send, a telephone facsimile
machine, an unsolicited advertisement." 47 U.S.C. $227(b)(1)(C). The anti-junk fax law
was enacted to eradicate "the explosive growth in unsolicited facsimile advertising, or junk
fax." H.R. Rep. No. 102-317 (1991).
In the decade following the law's enactment, however, American consumers and
businesses continued to be "besieged" by junk faxes because senders refused to honor
requests by recipients to stop. FCC, Report and Order on Reconsideration of Rules and
Regulations Implementing the TCPA of 1991, 29 Comm. Reg. 830 1 186 (2003). Congress
responded by strengthening the law through the JFPA of 2005. The JFPA continues the
prohibition against sending unsolicited advertisements via facsimile transmission, and also
implemented the additional requirement that all facsimile advertisements include specific
opt-out notices. The FCC has defined a "sender" to include any "person or entity on whose
behalf a facsimile unsolicited advertisement is sent or whose goods or services are
advertised or promoted in the unsolicited advertisement." 47 C.F.R. § 64.1200(a)(3), (f)(8).
The TCPA defines an "advertisement" as "any material advertising the commercial
availability or quality of any property, goods, or services which is transmitted to any person
without that person's prior express invitation or permission, in writing or otherwise." 47
U.S.C. $227(a)(5).
In 2005, the JFPA for the first time required senders to disclose to recipients their right and
ability to stop future junk faxes (hereinafter collectively the "Opt-Out Notice
Requirements"). 47 U.S.C. $227(b)(1)(C)(iii), (b)(2)(D), (b)(2)(E), (d)(2); 47 CFR §
Page 3 of 13
64.1200(a)(4)(iii)-(vii). Advertisers must place the notice clearly and conspicuously on the
first page of the fax transmission and include prescribed information that Congress believed
essential to enable junk fax recipients to opt-out of future faxes. Compliance with the Opt-
Out Notice Requirements is neither difficult nor costly, and these requirements provide
important consumer protections bestowed by Congress upon American consumers and
businesses. These protections include giving the consumers and businesses the right to stop
unwanted junk faxes, requiring the senders to disclose the right and explain how to exercise
that right, and providing statutory damages for violations. Further, the TCPA requires that
even facsimile advertisements being sent to consumers who consented to receipt, or with
whom the advertiser has an established business relationship, must include language on the
facsimile which fully complies with the Opt-Out Notice Requirements. 47 C.F.R. §
64.1200(a)(4)(iii)-(vii).
Defendant's Junk Fax Campaign
Defendant claims to be a customer-focused global supplier of high quality chemicals,
pharmacy supplies and equipment. Defendant further claims to be committed to being their
customers' main pharmacy compounding resource.
Upon information and belief, Plaintiff alleges that to advertise their goods and/or services,
Defendant has blasted thousands of junk faxes to businesses. Plaintiff further alleges that
Defendant has blasted junk faxes without complying with the Opt-Out Notice
Requirements, in direct violation of the TCPA, JFPA and the FCC's regulations
promulgated thereunder.
The unsolicited junk faxes sent to Plaintiff were part of Defendant's junk fax marketing
campaign. Exhibit 1 exclaims "YEAR-END EQUIPMENT SPECIALS" across the top and
provides a promo code promising up to 30% in savings. Exhibit 1 also includes a list
Page 4 of 13advertising twenty-six (26) products with corresponding catalog numbers, descriptions,
and special prices.
Exhibit 2 exclaims "WE [heart symbol] OUR CUSTOMERS" and offers the opportunity
for the recipient to "earn" a "FREE LUNCH" for their pharmacy. The advertisement goes
on to promote two special events, one on February 14th (the day of the fax) and a second
on February 22nd, each requiring the recipient to call Spectrum and use a promocode
provided on the fax.
Exhibit 3 states "Essentials of Sterile Compounding" and then advertises Spectrum's
"Inaugural Course Price" at a discounted rate. The advertisement goes on to describe the
inaugural course and other classes available through Spectrum's facility.
Exhibit 4 again exclaims "Essentials of Sterile Compounding" and then advertises
Spectrum's "Inaugural Course Price" at a further discounted rate. The advertisement goes
on to describe the inaugural course and other classes available through Spectrum's facility.
As a result of Defendant's unsolicited faxes, Defendant has imposed disruption,
annoyance, and cost on Plaintiff. Among other things, these faxes tie up Plaintiff's
telephone lines and facsimile machines, misappropriate and convert Plaintiff's fax paper
and toner, require Plaintiff to sort through faxes to separate legitimate fax communications
from junk fax advertisements and to discard the latter.
Failing to provide a compliant opt-out notice on a facsimile advertisement is a separate and
distinct violation of the TCPA as well as the regulations promulgated by the FCC. The
TCPA statute provides for a private right of action "based on violations of regulations
prescribed under the TCPA." See 47 U.S.C. § 227(b)(3)(A). See also Mims V. Arrow
Financial Services, LLC, 132 S.Ct. 740, 746 (2012) (TCPA "authorizes a private right of
action for violation of the FCC's implementing regulations."). In addition to the damages
Page 5 of 13
stated above, Plaintiff has suffered an injury in that it has also been deprived of its right,
created by Congress, to receive the required opt-out notice disclosures on facsimile
advertisements governed by the TCPA.
Class Action Allegations
Statutory Reference. This action is properly maintainable as a class action under authority
of Federal Rule Civil Procedure 23 because: (a) the class is SO numerous that joinder of all
members is impracticable; (b) there are questions of fact or law common to the class, which
common questions predominate over questions affecting only individual members; (c) the
representative parties will fairly and adequately protect the interest of the class; and (d) the
class action is an appropriate method for the fair and efficient adjudication of the
controversy.
Class Definition. The Plaintiff Class (hereinafter referred to as "Plaintiff Class") consists
of all persons and entities that are subscribers of telephone numbers to which within four
years of the filing of this Complaint, Defendant sent facsimile transmissions with content
that discusses, describes, promotes products and/or services offered by Defendant, and
does not contain the opt-out notice required by 47 U.S.C. § 227(b)(1)(C)(iii), (b)(2)(D),
(b)(2)(E), (d)(2) or 47 C.F.R. § 64.1200(a)(4)(iii)-(vii).
Class Size. Upon information and belief, Plaintiff avers that the Plaintiff Class numbers are
in the thousands of persons or entities.
Adequacy of Representation. The Plaintiff Class will be well represented by the class
representative and class counsel. Plaintiff appreciates the responsibility of a class
representative and understands the nature and significance of the claims made in this case.
Plaintiff can fairly and adequately represent and protect the interests of the Plaintiff Class
because there is no conflict between its interests and the interests of other class members.
Page 6 of 13
Proposed class counsel has the necessary resources, experience and ability to prosecute this
case on a class action basis.
Impracticability of Joinder. Joinder of all Plaintiff Class members is impracticable due to
the class' size and due to the relatively small potential monetary recovery for each Plaintiff
Class member, in comparison to the time and costs associated with joinder in the litigation
on and individual basis.
Common Questions of Law and Fact are Predominant. Questions of law and fact common
to the class predominate over questions affecting only individual class members. Numerous
questions may be jointly tried and would not require each member individually to litigate
numerous and substantial questions to determine his or her right of recover following the
class judgment.
Common Questions of Fact. This case presents numerous questions of fact that are common
to all class members' claims. Defendant has engaged in a standardized course of conduct
vis-à-vis class members, and Plaintiff's injuries arise out of that conduct. Plaintiff is
informed and believes and upon such information and belief avers that the case arises out
of a common nucleus of fact because, among other things, all junk faxes advertised
Defendant's goods and services; all junk faxes were prepared, developed and sent by
Defendant in the same manner for all recipients; and the faxes are the product of an
organized fax-blasting campaign targeted to the class.
Common Questions of Law. The case presents numerous common questions of law,
including, but not limited to:
(1)
Whether the faxes at issue advertise the commercial availability or quality of
property, goods or services and therefore fall within the ambit of the TCPA, JFPA
and the FCC's regulations promulgated thereunder;
Page 7 of 13(2)
Defendant's mode and method of obtaining the telephone numbers to which the
junk faxes were sent and whether the mode and method complied with the
requirements of subsection 47 U.S.C. §227 (b)(1)(C)(ii) and the FCC's regulations
promulgated thereunder;
(3)
Whether Defendant complied with the Opt-Out Notice Requirements of the TCPA,
JFPA and the FCC's regulations promulgated thereunder, and the legal
consequences of the failure to comply with those requirements;
(4)
What constitutes a knowing or willful violation of the TCPA within the meaning of
section (b)(3);
(5)
Whether Defendant committed knowing or willful violations of the TCPA;
(6)
Whether damages should be increased on account of Defendant's knowing or
willful violations of the TCPA and, if so, by what amount; and
(7)
Whether injunctive relief is warranted to enjoin Defendant from further violations
of the TCPA and JFPA.
Appropriate Method for Fair and Efficient Resolution of the Controversy. A class action is
an appropriate method for the fair and efficient adjudication of the controversy for several
reasons:
(1)
Prosecuting separate actions by individual class members would create a risk
inconsistent or varying adjudications that would establish incompatible standards
of conduct for Defendant;
(2)
Because Defendant has acted on grounds that apply generally to the class, final
injunctive relief is appropriate respecting the class as a whole;
Page 8 of 13
(3)
Questions of law and fact common to members of the class predominate over any
questions affecting only individual members, and a class action is superior to other
available methods for the fair and efficient adjudication of the controversy;
(4)
Absent class certification, there is a possibility of multiple individual cases and,
therefore, class adjudication will conserve judicial resources and will avoid the
possibility of inconsistent rulings.
(5)
Most members of the Plaintiff Class are not likely to join or bring an individual
action due to, among other reasons, the small amount to be recovered relative to the
time, effort and expense necessary to join or bring an individual action. Because
the statutory minimum damage is $500 per violation and the TCPA and JFPA does
not authorize an award of attorneys' fees to a successful plaintiff, individual action
to remedy Defendant's violations of the TCPA would be grossly uneconomical. As
a practical matter, the claims of the vast majority of the Plaintiff Class are not likely
to be redressed absent class certification.
(6)
Equity dictates that all persons who stand to benefit from the relief sought herein
should be subject to the lawsuit and, hence, subject to an order spreading the cost
of litigation among class members in relationship to the benefits received.
Cause of Action for Violation of 47 U.S.C. § 227
Defendant's Violation of the Act. Within four years of the filing of this Complaint and
including, without limitation, December 21, 2016; February 14, 2017; February 17, 2017;
and February 24, 2017, Defendant violated the TCPA, JFPA and the FCC's regulations
promulgated under the TCPA by sending unsolicited facsimile advertisements, and such
unsolicited facsimile advertisements were sent with non-compliant opt-out notices from
telephone facsimile machines, computers, or other devices to telephone facsimile numbers
Page 9 of 13
of Plaintiff and members of the Plaintiff Class. Among other things, Defendant violated
the TCPA, JFPA and the FCC's regulations because it failed to comply with the mandatory
Opt-Out-Notice Requirements set forth in 47 U.S.C. § 227(b)(1)(C)(iii), (b)(2)(D) and
(b)(2)(E), and by 47 C.F.R. § 64.1200(a)(4)(iii)-(vii); thus, causing Plaintiff and Plaintiff
Class to sustain statutory damages, in addition to actual damages, including but not limited
to those contemplated by Congress and the FCC.
Defendant is a sender of the junk faxes alleged in this Complaint because (1) it is the person
or entity on whose behalf the facsimile advertisements were sent, and (2) its property, goods
and services are advertised or promoted as commercially available in the advertisement.
To the extent facsimile advertisements were transmitted by Defendant to consumers who
had given consent, had solicited the advertisements, or had an established business
relationship with Defendant, the facsimile advertisements are still in violation of the TCPA
as they did not contain the compliant opt-out notice required by law, making individual
issues of consent, prior express permission, or an established business relationship, legally
irrelevant.
Right of Private Action. Under section (b)(3) of the TCPA, Plaintiff has a private right of
action to bring this action on behalf of itself and on behalf of the Plaintiff Class to redress
Defendant's violations of the TCPA.
Injunctive Relief. Subsection (b)(3)(A) of the TCPA authorizes Plaintiff to bring an action
to enjoin a violation of the TCPA. Plaintiff requests that a permanent injunction issue to:
(1)
Prohibit Defendant, their employees, agents, representatives, contractors, affiliates
and all persons and entities acting in concert with Defendant, from committing further
violations of the TCPA, and thereby prohibiting Defendant, their employees, agents,
representatives, contractors, affiliates, and all persons and entities acting with
Page 10 of 13Defendant, from sending any further noncompliant faxed l'advertisements to any
person or entity;
(2)
Require Defendant to deliver to Plaintiff all records of facsimile advertisements
since four years of the filing of this Complaint, including all content sent via
facsimile, transmission lists, and fax confirmation lists;
(3)
Require Defendant to adopt ongoing educational, training and monitoring programs
to ensure compliance with the TCPA and JFPA, and limiting facsimile advertising
activity to personnel who have undergone such training;
(4)
Require Defendant to provide written notice to all persons and entities to whom
Defendant sent via facsimile transmission advertisements, warning such persons
and entities that the facsimile transmission of noncompliant advertisements is in
violation of the TCPA and JFPA and that they should not be led or encouraged in
any way by Defendant's facsimile transmissions to fax noncompliant
advertisements of their own; and
(5)
Require Defendant to conspicuously place on the homepage of their respective
websites the warnings contained in (4) of this Paragraph 28.
Damages. Subsection (b)(3)(B) of the TCPA provides for the recovery of damages in the
minimum amount of $500 for each violation of the TCPA by Defendant. In addition,
Plaintiff is informed and believes and upon such information and belief avers that Defendant
committed its violations willfully or knowingly and that the amount of statutory damages should be
trebled, as also authorized by subjection (b)(3) of the TCPA.
Prayer for Relief
WHEREFORE, Plaintiff and the Plaintiff Class pray for judgment against Defendant:
Page 11 of 13
(1)
Certifying a class consisting of all persons and entities that are subscribers of
telephone numbers to which within four years of the filing of this Complaint,
Defendant sent facsimile transmissions with content that discusses, describes, or
promotes products and/or services offered by Defendant, and does not contain the
notice required by 47 U.S.C. § 227(b)(1)(C)(iii), (b)(2)(D) and (b)(2)(E), and by 47
C.F.R. § 64.1200(a)(4)(iii)-(vii).
(2)
Appointing Plaintiff as representative for the Plaintiff Class and awarding Plaintiff
an incentive award for its efforts as class representative;
(3)
Appointing Plaintiff's counsel as counsel for the Plaintiff Class;
(4)
In accordance with subsection (b)(3)(B) of the TCPA and JFPA, for an award of
statutory damages in the amount of $500 for each violation of the Act and the
trebling of such statutory damages, exclusive of interest costs, according to proof;
(5)
For injunctive relief in accordance with subsection (b)(3)(A) of the TCPA and JFPA,
(1) prohibiting Defendant, their employees, agents, representatives, contractors,
affiliates and all persons and entities acting in concert with Defendant, from
committing further violations of the TCPA, and thereby prohibiting Defendant, their
employees, agents, representatives, contractors, affiliates, and all persons and entities
acting in concert with Defendant, from sending any further noncompliant faxed
advertisements to any person or entity; (2) requiring Defendant to deliver to Plaintiff
all records of facsimile advertisements since four years of the filing of this
Complaint, including all content sent via facsimile, transmission lists, and fax
confirmation lists; (3) requiring Defendant to adopt ongoing educational, training
and monitoring activity to personnel who have undergone such training; (4)
requiring Defendant to provide written notice to all persons and entities to whom
Page 12 of 13
Defendant sent via facsimile transmission noncompliant advertisements, informing
such persons and entities that Defendant's facsimile transmission of advertisements
mislead recipients to fax advertisements of their own; and (5) requiring Defendant
to conspicuously place on the homepage of their respective websites the warnings
contained in (4) of this subparagraph 5;
(6)
Ordering payment of costs of litigation, including without limitation costs of suit
and attorneys' fees, spread among the members of the Plaintiff Class in relation to
the benefits received by the Plaintiff Class;
(7)
For pre-judgment interest;
(8)
For costs of suit herein from Defendant;
(9)
For such other and further relief as the Court shall deem just and proper.
Respectfully Submitted:
/s/ Preston L. Hayes
GEORGE B. RECILE (#11414)
PRESTON L. HAYES (#29898)
RYAN P. MONSOUR (#33286)
MATTHEW A. SHERMAN (#32687)
PATRICK R. FOLLETTE (#34547)
Chehardy, Sherman, Williams, Murray,
Recile, Stakelum & Hayes, L.L.P.
One Galleria Boulevard, Suite 1100
Metairie, Louisiana 70001
Telephone: (504) 833-5600
Facsimile: (504) 613-4528
Counsel for Plaintiff
Page 13 of 13 | privacy |
akz7_YgBF5pVm5zYJR8w | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE NO. 0:22-cv-61956
CHRISTA SIMMONS,
individually and
on behalf of all others similarly situated,
CLASS ACTION
Plaintiff,
JURY TRIAL DEMANDED
v.
THE PROCTER & GAMBLE COMPANY
D/B/A ORAL-B,
Defendant.
________________________________________/
CLASS ACTION COMPLAINT
Plaintiff Christa Simmons brings this class action against Defendant THE PROCTER &
GAMBLE COMPANY D/B/A ORAL-B, and alleges as follows upon personal knowledge as to
Plaintiff and Plaintiff’s own acts and experiences, and, as to all other matters, upon information and
belief, including investigation conducted by Plaintiff’s attorneys.
NATURE OF THE ACTION
1.
This is a putative class action pursuant to the Telephone Consumer Protection Act,
47 U.S.C. §§ 227, et seq. (the “TCPA”), and the Florida Telephone Solicitation Act (“FTSA”),
Fla. Stat. § 501.059.
2.
To promote its goods and services, Defendant engages in unsolicited text
messaging to those who have not provided Defendant with their prior express written consent as
required by the FTSA.
3.
Defendant also engages in telemarketing without the requisite policies and
procedures and training required under the TCPA and its implementing regulations.
4.
Defendant’s telephonic sales calls have caused Plaintiff and the Class members
harm, including violations of their statutory rights, statutory damages, annoyance, nuisance, and
invasion of their privacy.
5.
Through this action, Plaintiff seeks an injunction and statutory damages on behalf
of Plaintiff and the Class members, as defined below, and any other available legal or equitable
remedies resulting from the unlawful actions of Defendant.
PARTIES
6.
Plaintiff is, and at all times relevant hereto was, a citizen and resident of Broward
County, Florida.
7.
Plaintiff is, and at all times relevant hereto was, an individual and a “called party”
as defined by Fla. Stat. § 501.059(1)(a) in that Plaintiff was the regular user of cellular telephone
number that received Defendant’s telephonic sales calls.
8.
Defendant is, and at all times relevant hereto was, a foreign corporation and a
“telephone solicitor” as defined by Fla. Stat. § 501.059(f).
JURISDICTION AND VENUE
9.
This Court has federal question subject matter jurisdiction over Plaintiff’s TCPA
claims pursuant to 28 U.S.C. § 1331.
10.
This Court has supplemental jurisdiction over Plaintiff’s FTSA claims pursuant to
28 U.S.C. § 1367.
11.
Defendant is subject to personal jurisdiction in Florida because this suit arises out
of and relates to Defendant’s contacts with this state. Defendant initiated and directed
telemarketing and/or advertising text messages into Florida. Specifically, Defendant initiated and
directed the transmission of unsolicited advertisement or telemarketing text messages to Plaintiff’s
cellular telephone number to sell goods, services or products in Florida. Plaintiff’s telephone
number has an area code that specifically coincides with locations in Florida, and Plaintiff received
such messages while residing in and physically present in Florida.
12.
Venue is proper in this District 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 personal jurisdiction,
and because a substantial part of the events or omissions giving rise to the claim occurred in this
District
FACTS
13.
On multiple occasions including March 31, 2022, Defendant sent telephonic sales
call to Plaintiff’s cellular telephone number, including the following:
14.
As demonstrated by the above screenshots, the purpose of Defendant’s telephonic
sales call was to solicit the sale of consumer goods and/or services.
15.
As demonstrated by the above screenshots, when it sent its text message
solicitations to Plaintiff, Defendant failed to identify (1) the name of the individual caller; (2) the
name of the legal entity on whose behalf the call was being made; and (3) a telephone number or
address at which Defendant may be contacted.
16.
Plaintiff is the regular user of the telephone number that received the above
telephonic sales calls.
17.
Plaintiff utilizes the cellular telephone number for personal purposes and the
number is Plaintiff’s residential telephone line.
18.
Plaintiff was in Florida when Plaintiff received the above text message call, and
Defendant’s violative conduct occurred in substantial part in Florida.
19.
Upon information and belief, Defendant maintains and/or has access to outbound
transmission reports for all text messages sent advertising/promoting its services and goods. These
reports show the dates, times, target telephone numbers, and content of each message sent to
Plaintiff and the Class members.
20.
As demonstrated by the text message screenshots above, Defendant did not provide
Plaintiff and the Class members with instructions on how to opt-out of future text messages by,
for example, advising them that they could text “Stop” to get the messages to stop, which is a
standard requirement outlined in the Principles and Best Practices manual published by CTIA, the
trade association that represents every major wireless carrier in the country. See 190719-CTIA-
Messaging-Principles-and-Best-Practices-FINAL.pdf at 15 (“Message Senders should state in the
message how and what words effect an opt-out. Standardized ‘STOP’ wording should be used for
opt-out instructions, however opt-out requests with normal language (i.e., stop, end, unsubscribe,
cancel, quit, ‘please opt me out’) should also be read and acted upon by a Message Sender except
where a specific word can result in unintentional opt-out. The validity of a Consumer opt-out
should not be impacted by any de minimis variances in the Consumer opt-out response, such as
capitalization, punctuation, or any letter-case sensitivities.”).
21.
Defendant’s failure to provide opt-out instructions to Plaintiff and the Class
members is indicative of Defendant’s failure to 1) maintain written policies and procedures
regarding its text messaging marketing; (2) provide training to its personnel engaged in
telemarketing; and (3) maintain a standalone do-not-call list.
22.
To transmit the above telephonic sales text message call, Defendant utilized a
computer software system that automatically selected and dialed Plaintiff’s and the Class
members’ telephone numbers.
23.
The number used by Defendant to transmit the subject text message solicitations
(71883) is known as a “short code.” Short codes are short digit sequences, shorter than telephone
numbers, that are used to address messages in the Multimedia Messaging System and short
message service systems of mobile network operators.
24.
Text messages using a short code can only be sent using a computer, and cannot be
sent using a standard telephone.
25.
The impersonal and generic nature of Defendant’s text message and the fact that it
originated from a short-code demonstrates that Defendant utilized a computer software system that
automatically selected and dialed Plaintiff’s and the Class members’ telephone numbers.
26.
To send the text messages, Defendant used a messaging platform (the “Platform”),
which permitted Defendant to transmit blasts of text messages automatically and without any
human involvement. The Platform automatically made a series of calls to Plaintiff’s and the Class
members’ stored telephone numbers with no human involvement after the series of calls were
initiated utilizing the Platform.
27.
Defendant was not required to and did not need to utilize the Platform to send
messages to Plaintiff and the Class members. Instead, Defendant opted to use the Platform to
maximize the reach of its text message advertisements at a nominal cost to Defendant.
28.
Defendant would be able to conduct its business operations without sending
automated text messages to consumers.
29.
Defendant would be able to send automated text messages to consumers, and in
compliance with the FTSA, by securing the proper consent from consumers prior to sending text
messages.
30.
Defendant would be able to send text messages to consumers without consent by
utilizing a non-automated text messaging system.
31.
Accordingly, it is not impossible for Defendant to comply with the FTSA in the
context of transmitting text messages.
32.
The burden and cost to Defendant of securing consent from consumers that
complies with the FTSA is nominal.
33.
Compliance with the FTSA will not result in Defendant having to cease its business
operations.
34.
Compliance with the FTSA will not result in Defendant having the alter the prices
of any goods or services it provides in the marketplace.
35.
Compliance with the FTSA will not force Defendant to seek regulatory approval
from the State of Florida before undertaking any type of commercial transaction.
36.
Because a substantial part of Defendant’s FTSA violations occurred in Florida,
requiring Defendant’s compliance with the FTSA will not have the practical effect of regulating
commerce occurring wholly outside of Florida.
37.
The Platform has the capacity to select and dial numbers automatically from a list
of numbers, which was in fact utilized by Defendant.
38.
The Platform has the capacity to schedule the time and date for future transmission
of text messages, which was in fact utilized by Defendant.
39.
The Platform also has an auto-reply function that results in the automatic
transmission of text messages.
40.
Plaintiff never provided Defendant with express written consent authorizing
Defendant to transmit telephonic sales calls to Plaintiff’s cellular telephone number utilizing an
automated system for the selection and dialing of telephone numbers.
41.
More specifically, Plaintiff never signed any type of authorization permitting or
allowing the placement of a telephonic sales call by text message using an automated system for
the selection and dialing of telephone numbers.
42.
Since July 1, 2021, on information and belief, Defendant sent at least 50 text
message solicitations to as many consumers in Florida.
43.
Defendant’s failure to (1) maintain the required written policies and procedures, (2)
provide training to its personnel engaged in telemarketing, (3) maintain a standalone do-not-call
list, (4) provide Plaintiff and the Class members with instructions on how to opt out of Defendant’s
text message solicitations, (5) identify the individual caller, (6) identify the legal name of the entity
calling, and (7) identify a telephone number or address at which the caller may be contacted, caused
Plaintiff and the Class members harm, including because they had no idea how to stop Defendant’s
unsolicited text message calls or who to contact to get the messages to stop.
44.
Defendant’s telephonic sales calls caused Plaintiff and the Class members harm,
including statutory damages, inconvenience, invasion of privacy, aggravation, annoyance, and
violation of their statutory privacy rights.
CLASS ALLEGATIONS
PROPOSED CLASSES
45.
Plaintiff brings this lawsuit as a class action on behalf of Plaintiff individually and
on behalf of all other similarly situated persons as a class action pursuant to Federal Rule of Civil
Procedure 23. The Classes that Plaintiff seeks to represent are defined as:
IDNC Class: All persons within the United States who, within the
four years prior to the filing of this Complaint through the date
of class certification, (1) received two or more text messages
within any 12-month period, (2) regarding Defendant’s
property, goods, and/or services, (3) to said person’s residential
telephone number.
FTSA Class: All persons in Florida who, (1) were sent a telephonic
sales call regarding Defendant’s property, goods, and/or services,
(2) using the same equipment or type of equipment utilized to call
Plaintiff.
Seller Identification Class: All persons within the United States
who, within the four years prior to the filing of this Complaint
through the date of class certification, (1) received two or more
text messages within any 12-month period, (2) regarding
Defendant’s property, goods, and/or services, (3) to said
person’s residential telephone number, (4) that did not disclose
the name of the individual caller, the name of the person or entity
on whose behalf the call is being made, or a telephone number or
address at which the person or entity may be contacted.
46.
Defendant and its employees or agents are excluded from the Class.
NUMEROSITY
47.
Upon information and belief, Defendant has placed telephonic sales calls to
telephone numbers belonging to at least 50 persons. The members of the Class, therefore, are
believed to be so numerous that joinder of all members is impracticable.
48.
The exact number and identities of the Class members are unknown at this time and
can be ascertained only 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
49.
There are numerous questions of law and fact common to the Classes which
predominate over any questions affecting only individual members of the Classes. Among the
questions of law and fact common to the Class are:
(a) Whether Defendant initiated telephonic sales calls to Plaintiff and the Class
members;
(b) Whether Defendant can meet its burden of showing that it had prior express written
consent to make such calls;
(c) Whether Defendants maintain an internal do-not-call list and instruct their
employees on how to use the list; and
(d) Whether Defendant is liable for damages, and the amount of such damages.
50.
The common questions in this case are capable of having common answers. If
Plaintiff’s claim that Defendant routinely transmits telephonic sales calls 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.
TYPICALITY
51.
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
52.
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.
SUPERIORITY
53.
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.
54.
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
VIOLATION OF FLA. STAT. § 501.059
(On Behalf of Plaintiff and the FTSA Class)
55.
Plaintiff re-alleges and incorporates the foregoing allegations as if fully set forth
56.
It is a violation of the FTSA to “make or knowingly allow a telephonic sales call to
be made if such call involves an automated system for the selection or dialing of telephone numbers
or the playing of a recorded message when a connection is completed to a number called without
the prior express written consent of the called party.” Fla. Stat. § 501.059(8)(a).
57.
A “telephonic sales call” is defined as a “telephone call, text message, or voicemail
transmission to a consumer for the purpose of soliciting a sale of any consumer goods or services,
soliciting an extension of credit for consumer goods or services, or obtaining information that will
or may be used for the direct solicitation of a sale of consumer goods or services or an extension
of credit for such purposes.” Fla. Stat. § 501.059(1)(i).
58.
“Prior express written consent” means an agreement in writing that:
1. Bears the signature of the called party;
2. Clearly authorizes the person making or allowing the placement of a telephonic
sales call by telephone call, text message, or voicemail transmission to deliver
or cause to be delivered to the called party a telephonic sales call using an
automated system for the selection or dialing of telephone numbers, the playing
of a recorded message when a connection is completed to a number called, or
the transmission of a prerecorded voicemail;
3. Includes the telephone number to which the signatory authorizes a telephonic
sales call to be delivered; and
4. Includes a clear and conspicuous disclosure informing the called party that:
a. By executing the agreement, the called party authorizes the person
making or allowing the placement of a telephonic sales call to deliver or
cause to be delivered a telephonic sales call to the called party using an
automated system for the selection or dialing of telephone numbers or
the playing of a recorded message when a connection is completed to a
number called; and
b. He or she is not required to directly or indirectly sign the written
agreement or to agree to enter into such an agreement as a condition of
purchasing any property, goods, or services. Fla. Stat. § 501.059(1)(g).
59.
Defendant failed to secure prior express written consent from Plaintiff and the Class
members.
60.
In violation of the FTSA, Defendant made and/or knowingly allowed telephonic
sales calls to be made to Plaintiff and the Class members without Plaintiff’s and the Class
members’ prior express written consent.
61.
Defendant made and/or knowingly allowed the telephonic sales calls to Plaintiff
and the Class members to be made utilizing an automated system for the selection and dialing of
telephone numbers.
62.
As a result of Defendant’s conduct, and pursuant to § 501.059(10)(a) of the FTSA,
Plaintiff and Class members were harmed and are each entitled to a minimum of $500.00 in
damages for each violation. Plaintiff and the Class members are also entitled to an injunction
against future calls. Id.
63.
Plaintiff requests for this Court to enter an Order granting the relief outlined in the
Prayer for Relief below.
COUNT II
Violations of 47 U.S.C. § 227(c) and 47 C.F.R. § 64.1200(d)
(On Behalf of Plaintiff and the IDNC Class)
64.
Plaintiff re-alleges and incorporates the allegations set forth in paragraphs 1 through
54 as if fully set forth herein.
65.
In pertinent part, 47 C.F.R. § 64.1200(d) provides:
No person or entity shall initiate any call for telemarketing purposes
to a residential telephone subscriber unless such person or entity has
instituted procedures for maintaining a list of persons who request
not to receive telemarketing calls made by or on behalf of that
person or entity. The procedures instituted must meet the following
minimum standards:
(1) Written policy. Persons or entities making calls for telemarketing
purposes must have a written policy, available upon demand, for
maintaining a do-not-call list.
(2) Training of personnel engaged in telemarketing. Personnel
engaged in any aspect of telemarketing must be informed and
trained in the existence and use of the do-not-call list.
(3) Recording, disclosure of do-not-call requests. If a person or entity
making a call for telemarketing purposes (or on whose behalf such a call
is made) receives a request from a residential telephone subscriber not
to receive calls from that person or entity, the person or entity must
record the request and place the subscriber's name, if provided, and
telephone number on the do-not-call list at the time the request is made.
Persons or entities making calls for telemarketing purposes (or on
whose behalf such calls are made) must honor a residential subscriber's
do-not-call request within a reasonable time from the date such request
is made. This period may not exceed thirty days from the date of such
request. If such requests are recorded or maintained by a party other than
the person or entity on whose behalf the telemarketing call is made, the
person or entity on whose behalf the telemarketing call is made will be
liable for any failures to honor the do-not-call request. A person or entity
making a call for telemarketing purposes must obtain a consumer's prior
express permission to share or forward the consumer's request not to be
called to a party other than the person or entity on whose behalf a
telemarketing call is made or an affiliated entity.
66.
Pursuant to 47 C.F.R § 64.1200(e), the rules set forth in 47 C.F.R. § 64.1200(d) are
applicable to any person or entity making telephone solicitations or telemarketing calls to wireless
telephone numbers.
67.
Defendant violated the requirements of section 64.1200(d) by failing to (1)
maintain the required written policies; (2) provide training to its personnel engaged in
telemarketing; and (3) maintain a standalone do-not-call list.
68.
Pursuant to section 227(c)(5) of the TCPA, Plaintiff and the IDNC Class members
are entitled to an award of $500.00 in statutory damages, for each text message sent by Defendant.
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 IDNC Class.
69.
Plaintiff requests for this Court to enter an Order granting the relief outlined in the
Prayer for Relief below.
COUNT III
Injunctive Relief Pursuant to 47 U.S.C. § 227(c) and 47 C.F.R. § 64.1200(d)
(On Behalf of Plaintiff and the IDNC Class)
70.
Plaintiff re-alleges and incorporates the allegations set forth in paragraphs 1 through
54 as if fully set forth herein.
71.
Pursuant to section 227(c)(5)(A), Plaintiff seeks injunctive relief prohibiting
Defendant’s unlawful conduct in the future to protect Plaintiff and the IDNC Class members from
Defendant’s unsolicited calls and practices.
72.
Defendant’s ongoing and continuing violations have caused, and in the absence of
an injunction will continue to cause, harm to Plaintiff and the IDNC Class members.
73.
Plaintiff and the IDNC Class members suffer irreparable harm if Defendant is
permitted to continue its practice of violating 47 C.F.R. § 64.1200(d).
74.
The injuries that the Plaintiff and the IDNC Class members will suffer if Defendant
is not prohibited from continuing to engage in the unlawful practices described herein far outweigh
the harm that Defendant will suffer if it is enjoined from continuing this conduct.
75.
The public interest will be served by an injunction prohibiting Defendant from
continuing to engage in the unlawful practices described herein.
76.
Accordingly, Plaintiff and the IDNC Class members seek an injunction requiring
Defendant to (1) implement policies and procedures as required under the TCPA and its
implementing regulations; (2) honor consumer opt-out requests; (3) to implement a standalone
internal do-not-call list; and (4) train its personnel on use of the list and abide by the list.
77.
Plaintiff requests for this Court to enter an Order granting the relief outlined in the
Prayer for Relief below.
COUNT IV
Injunctive Relief Pursuant to Fla. Stat. § 501.059(10)(a)
(On Behalf of Plaintiff and the FTSA Class)
78.
Plaintiff re-alleges and incorporates the allegations set forth in paragraphs 1 through
54 as if fully set forth herein.
79.
Pursuant to section 501.059(10)(a), Plaintiff seeks injunctive relief prohibiting
Defendant’s unlawful conduct in the future to protect Plaintiff and the FTSA Class members from
Defendant’s unsolicited calls and practices.
80.
Defendant’s ongoing and continuing violations have caused, and in the absence of
an injunction will continue to cause, harm to Plaintiff and the FTSA Class members.
81.
Plaintiff and the FTSA Class members suffer irreparable harm if Defendant is
permitted to continue its practice of violating the FTSA.
82.
The injuries that the Plaintiff and the FTSA Class members will suffer if Defendant
is not prohibited from continuing to engage in the unlawful practices described herein far outweigh
the harm that Defendant will suffer if it is enjoined from continuing this conduct.
83.
The public interest will be served by an injunction prohibiting Defendant from
continuing to engage in the unlawful practices described herein.
84.
Accordingly, Plaintiff and the FTSA Class members seek an injunction requiring
Defendant to implement policies and procedures to secure express written consent before engaging
in any text message solicitations, and to follow such consent requirements.
85.
Plaintiff requests for this Court to enter an Order granting the relief outlined in the
Prayer for Relief below.
COUNT V
Violations of 47 U.S.C. § 227(c) and 47 C.F.R. § 64.1200(d)
(On Behalf of Plaintiff and the Seller Identification Class)
86.
Plaintiff re-alleges and incorporates the allegations set forth in paragraphs 1 through
54 as if fully set forth herein.
87.
In pertinent part, 47 C.F.R. § 64.1200(d) provides:
(4) Identification of sellers and telemarketers. A person or entity
making a call for telemarketing purposes must provide the called party
with the name of the individual caller, the name of the person or entity
on whose behalf the call is being made, and a telephone number or
address at which the person or entity may be contacted. The telephone
number provided may not be a 900 number or any other number for
which charges exceed local or long distance transmission charges.
88.
Pursuant to 47 C.F.R § 64.1200(e), the rules set forth in 47 C.F.R. § 64.1200(d) are
applicable to any person or entity making telephone solicitations or telemarketing calls to wireless
telephone numbers.
89.
Defendant violated the requirements of section 64.1200(d)(4) by failing to identify
(1) the name of the individual caller; (2) the name of the legal entity on whose behalf the call was
being made; and (3) a telephone number or address at which Defendant may be contacted.
90.
Pursuant to section 227(c)(5) of the TCPA, Plaintiff and the IDNC Class members
are entitled to an award of $500.00 in statutory damages, for each text message sent by Defendant.
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 IDNC Class.
91.
Plaintiff requests for this Court to enter an Order granting the relief outlined in the
Prayer for Relief below.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff, individually and on behalf of the Class, 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 Plaintiff’s counsel as
Class Counsel;
b) An award of statutory damages for Plaintiff and each member of the Classes as
applicable under the FTSA and/or TCPA;
c) An order declaring that Defendant’s actions, as set out above, violate the FTSA and
TCPA;
d) An injunction requiring Defendant to cease all telephonic sales calls made without
express written consent, and to otherwise protect the interests of the Class;
e) An injunction requiring Defendant to comply with 47 C.F.R. § 64.1200(d) by (1)
maintaining the required written policies; (2) providing training to their personnel
engaged in telemarketing; and (3) maintaining a do-not-call list
f) Such further and other relief as the Court deems necessary.
JURY DEMAND
Plaintiff, individually and on behalf of the Class, 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 communications or transmittal
of the calls as alleged herein.
DATED: October 20, 2022
Respectfully Submitted,
DAPEER LAW, P.A.
/s/ Rachel Dapeer
Rachel Dapeer
Florida Bar No. 108039
20900 NE 30th Ave., Suite 417
Aventura, FL 33180
T: 305-610-5223
[email protected]
HIRALDO P.A.
/s/ Manuel S. Hiraldo
Manuel S. Hiraldo, Esq.
Florida Bar No. 030380
401 E. Las Olas Boulevard
Suite 1400
Ft. Lauderdale, Florida 33301
Email: [email protected]
Telephone: 954.400.4713
| privacy |
IMtCDocBD5gMZwczD3NY | DeUNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
Case No.:
COMPLAINT FOR DAMAGES
CLASS ACTION
DEMAND FOR JURY TRIAL
ANDREA STRINGER, on behalf of
herself and all others similarly situated,
Plaintiff,
vs.
JH PORTFOLIO DEBT EQUITIES LLC.,
OLIPHANT FINANCIAL
CORPORATION and DOES 1-10,
Defendant.
INTRODUCTION
1.
Andrea Stringer (“Plaintiff”) seeks redress in this action for Oliphant
Financial Corporation’s (“Oliphant” or “Defendant” or “Defendants” for all
defendants) for and on behalf of JH Portfolio Debt Equities LLC. (“JH Portfolio”
or “Defendant” or “Defendants” for all defendants) practice of making
unauthorized phone calls to cellular telephones under the Telephone Consumer
Protection Act, 47 U.S.C. §227, et seq. (“TCPA”). The TCPA prohibits
unsolicited voice calls to cellular telephones without prior express written consent
within the meaning of the TCPA.
JURISDICTION AND VENUE
1
U.S.C. §227 (TCPA). Venue in this district is proper because Defendant JH
Portfolio Debt Equities LLC. is located in this district.
3.
In addition to subject matter jurisdiction under the TCPA, this matter
in controversy exceeds $5,000,000, as each member of the proposed Class is
entitled to up to $500.00 and up to $1,500 in statutory damages for each call to
cellular telephones, which has violated the TCPA. Based on the calls to Plaintiff
and the size of Defendants, Plaintiff alleges on information and belief that it has
used an automatic telephone system to make in excess of 10,000 calls to putative
class members. None of the exceptions to the Class Action Fairness Act of 2005
applies. Accordingly, this Court has jurisdiction pursuant to 28 U.S.C.
§1332(d)(2).
PARTIES
4.
At all times relevant, Plaintiff was an individual residing in
Riverside County, California. Plaintiff is, and at all times mentioned herein was,
a “person” as defined by 47 U.S.C. §153(39).
5.
Defendant JH Portfolio, a debt buyer, and Oliphant, a debt collector,
at all times mentioned herein, were each a “person”, as defined by 47 U.S.C.
§153(39).
6.
Defendant JH Portfolio, is located at 5757 Phantom Drive, Suite 225
2
served through its registered agent: CT Corporation Systems, 120 South Central
Ave, Clayton, MO 63105.
7.
JH Portfolio is the owner of the underlying Debt and retained
Oliphant to make robocalls on its behalf.
8.
Defendant Oliphant is a Florida corporation with offices at 1800
Second Street, Suite 603, Sarasota, Florida 34236. Defendant is registered to do
business in the State of Missouri and may be served through its registered agent:
CSC-Lawyers Incorporating Service Company, 221 Bolivar, Jefferson City, Mo
65101.
9.
Plaintiff makes the following allegations on information and belief,
with the exception of those allegations that pertain to Plaintiff, or to plaintiff’s
counsel, which Plaintiff alleges on personal knowledge.
10.
The true names and capacities of parties sued herein as DOES 1
through 10, inclusive, are currently unknown to Plaintiff, who therefore sues such
Defendant 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 this Complaint to reflect the true names and capacities of
the DOE Defendants if and when such identities become known.
11.
Plaintiff is informed and believes that at all relevant times, each and
3
other Defendants and was acting within the course and scope of said agency
and/or employment with the full knowledge and consent of one or more 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.
12.
To the extent that one or more Defendant was not the agent of
another, that Defendant acted with reckless disregard as to the violations
described herein and was complicit with one or more of the other Defendants in
violating the law and undermining the protections of the relevant statutory
framework.
13.
While many violations are described below with specificity, this
Complaint alleges violations of the statutes cited in their entirety.
TELEPHONE CONSUMER PROTECTION ACT, 47 U.S.C. §227 (TCPA)
14.
In 1991, Congress enacted the Telephone Consumer Protection Act,
47 U.S.C. §227 (TCPA), in response to a growing number of consumer
complaints regarding certain telemarketing practices.
15.
The TCPA regulates, among other things, the use of automated
telephone equipment, or “auto-dialers.” Specifically, the plain language of section
227(b)(1)(A)(iii) prohibits the use of auto-dialers to make any call to a wireless
4
16.
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.
17.
On January 4, 2008, the FCC released a Declaratory Ruling wherein
it confirmed that autodialed and prerecorded message calls to a wireless number
by a creditor (or on behalf of a creditor) are permitted only if the calls are made
with the “prior express consent” of the called party. The FCC “emphasize[d] that
prior express consent is deemed to be granted only if the wireless number was
provided by the consumer to the creditor, and that such number was provided
during the transaction that resulted in the debt owed.”
FACTS
18.
Plaintiff had a cell phone number ending in 7032 (“Cell number”).
19.
Plaintiff never gave her cell number to any entity that either acquired
or attempted to collect the debt Defendants were attempting to collect from her.
5
any time during the transaction that resulted in the debt owed, nor did she
verbally provide her phone number to or consent to any calls on her cell number
by Defendants.
21.
The debt that Defendants were attempting to collect, by calling
Plaintiff, was not Plaintiffs debt.
22.
Notwithstanding the fact Plaintiff did not provide Defendants with
her cell number, Defendants repeatedly called Plaintiff’s cell number. Plaintiff
received numerous calls on her cell number from Defendants.
23.
The calls were automatically placed to her cell number, and when
she answered, there was a long pause on the other end, and then on some calls she
was transferred to a live person.
24.
All telephone contact by Defendants to Plaintiff on her cell number
occurred via an “automatic telephone dialing system,” as defined by 47 U.S.C.
§227(a)(1), and all calls that are the subject of this Complaint occurred on or after
the date that is four years prior to the filing of this action and 20 days following
the filing of this Complaint.
25.
The telephone calls placed by Defendants to Plaintiff’s cell number
used an automatic telephone dialing system and/or “an artificial or prerecorded
voice” as described in 47 U.S.C. §227(b)(1)(A).
6
artificial or prerecorded voice” and/or made by an “automatic telephone dialing
system,” was assigned to a cellular telephone service as specified in 47 U.S.C.
§227(b)(1)(A)(iii).
27.
The complained of telephone calls constituted calls not for
emergency purposes as defined by 47 U.S.C. §227(b)(1)(A)(i).
28.
Plaintiff did not provide “express consent,” and in the alternative, if
she did initially provide it, which she denies, she revoked that consent before
some or all of the calls herein occurred, allowing Defendants to place telephone
calls to Plaintiff’s cell number utilizing an “artificial or prerecorded voice” or
placed by an “automatic telephone dialing system,” within the meaning of 47
U.S.C. §227(b)(1)(A).
29.
Defendants did not make telephone calls to Plaintiff’s cell number
“for emergency purposes” utilizing an “artificial or prerecorded voice” or placed
by an “automatic telephone dialing system,” as described in 47 U.S.C.
§227(b)(1)(A).
30.
Defendants telephone calls to Plaintiff’s cell number utilizing an
“artificial or prerecorded voice” or placed by an “automatic telephone dialing
system” for non-emergency purposes and in the absence of Plaintiff’s prior
express consent violated 47 U.S.C. §227(b)(1)(A).
7
Declaratory Ruling, the burden is on Defendants to demonstrate that Plaintiff
provided express consent within the meaning of the statute, because it is the best
entity to determine how numbers were attained.
COUNT I – TCPA (CELLULAR CALLS)
32.
Plaintiff incorporates the above factual allegations herein.
33.
Defendants made unsolicited commercial phone calls to the wireless
telephone number of Plaintiff and the other members of the 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.
34.
These phone calls were made without the prior express consent of
Plaintiff or the class.
35.
Defendants have therefore violated the TCPA, 47 U.S.C.
§227(b)(1)(A)(iii), which makes it unlawful for any person within the United
States . . . 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 . . . .” As a result
of Defendants illegal conduct, the members of the class suffered actual damages
and, under section 227(b)(3)(B), are each entitled to, inter alia, a minimum of
$500.00 in damages for each such violation of the TCPA.
8
should pursuant to section 227(b)(3)(C), treble the amount of statutory damages
recoverable by the Plaintiff and the class.
37.
Plaintiff and Class members are also entitled to and do seek
injunctive relief prohibiting Defendants violation of the TCPA in the future.
CLASS ALLEGATIONS
38.
Plaintiff proposes the following TCPA class definitions, subject to
amendment as appropriate:
All persons within the United States to whose cellular telephone number
Defendants placed a non-emergency telephone call using the same dialing
system used to call Plaintiff or an artificial or prerecorded voice without
prior express consent, on or after the date that is four years prior to the
filing of this action until the date that is 20 days following the filing of this
action.
All persons within the United States to whose cellular telephone number
Defendants placed a non-emergency telephone call using the same dialing
system used to call Plaintiff or an artificial or prerecorded voice where the
person called was not the debtor, on or after the date that is four years prior
to the filing of this action until the date that is 20 days following the filing
of this action.
9
39.
Collectively, all these persons will be referred to as “Plaintiffs” or
“Class members.” Plaintiff represents, and is a member of, the Class. Excluded
from the Class are Defendants and any entities in which Defendants has a
controlling interest, Defendants agents and member of the Judge’s staff and
immediate family, and claims for personal injury, wrongful death and/or
emotional distress.
40.
The class is so numerous that joinder is impracticable. On
information and belief, there are more than 50 members of the class. The joinder
of all Class members is impracticable due to the size and relatively modest value
of each individual claim. The disposition of the claims in a class action will
provide substantial benefit the parties and the Court in avoiding a multiplicity of
identical suits. The Class can be identified easily through records maintained by
Defendants.
41.
There are questions of law and fact common to the members of the
classes, which common questions predominate over any questions that affect only
individual class members. Those common questions of law and fact include, but
are not limited to, the following:
a. Whether, beginning on or after the date that is four years prior to
the filing of this action until the date that is 20 days following the
filing of this action, Defendants made nonemergency calls to
Plaintiff and Class members’ cellular telephones using an
10
automatic telephone dialing system or an artificial or prerecorded
voice;
b. Whether Defendants can meet its burden of showing it obtained
prior express consent (i.e., consent that is clearly and
unmistakably stated), during the transaction that resulted in the
debt owed, to make such calls;
c. Whether Defendants’ conduct was knowing and/or willful;
d. Whether Defendants is liable for damages, and the amount of
such damages; and
e. Whether Defendants should be enjoined from engaging in such
conduct in the future.
42.
Plaintiff’s claims are typical of the claims of the class members. All
are based on the same factual and legal theories.
43.
Plaintiff will fairly and adequately represent the interests of the class
members. Plaintiff has retained counsel experienced in handling class action
claims involving violations of federal and state consumer protection statutes
including TCPA class actions.
44.
A class action is superior to other alternative methods of adjudicating
this dispute. Class wide relief is essential to compel Defendants to comply with
the TCPA. The interest of Class members in individually controlling the
prosecution of separate claims against Defendants is small because the statutory
damages in an individual action for violation of the TCPA are small.
Management of these claims is likely to present significantly fewer difficulties
than are presented in many class claims because the calls at issue are all
automated and the Class members, by definition, did not provide the prior express
11
45.
Defendants has acted on grounds generally applicable to the Class,
thereby making final injunctive relief and corresponding declaratory relief with
respect to the Class as a whole appropriate. Moreover, on information and belief,
Plaintiff alleges that the TCPA violations complained of herein are substantially
likely to continue in the future if an injunction is not entered.
WHEREFORE, Plaintiff requests that the Court enter judgment in
favor of Plaintiff and the class members and against Defendants:
A.
As a result of Defendants’ negligent violations of 47 U.S.C.
§227(b)(1), Plaintiff seeks for himself and each Class member $500.00 in statutory
damages for each and every call that violated the TCPA;
B.
Injunctive relief prohibiting such violations of the TCPA by
Defendants in the future;
C.
An award of attorneys’ fees and costs to counsel for Plaintiff and the
Class as awarded by the Court;
D.
An order certifying this action to be a proper class action pursuant to
Federal Rule of Civil Procedure 23, establishing an appropriate Class and any
Subclasses the Court deems appropriate, finding that Plaintiff is a proper
representative of the Class, and appointing the lawyers and law firms representing
Plaintiff as counsel for the Class; and
12
TRIAL BY JURY
Pursuant to the seventh amendment to the Constitution of the United States
of America, Plaintiff is entitled to, and demands, a trial by Jury.
/s/ Patric A. Lester
Patric A. Lester, # 32840MO
Lester & Associates
5694 Mission Center Road, #358
San Diego, California 92108
(619) 665-3888
(314) 241-5777 Fax
Attorney for Plaintiff
ANDREA STRINGER
13
| privacy |
oeRTEYcBD5gMZwczzC4Y | IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
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) Case No.
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CLASS ACTION COMPLAINT AND DEMAND FOR TRIAL BY JURY
INTRODUCTION
1.
Plaintiffs Mark and Lori Fuehrer bring this class action complaint against
2.
Through its operation of the Facility, Defendant released, and continues to release,
PARTIES
3.
At all times relevant hereto, Plaintiffs Mark and Lori Fuehrer have been citizens of
4.
Defendant Nestle Purina Petcare Co. is a for-profit company incorporated in the
5.
Defendant's pet food manufacturing facility is located in Lehigh County, 2050
6.
Upon information and belief, Defendant, including its predecessors and agents,
JURISDICTION AND VENUE
7.
This Court has jurisdiction pursuant to 28 U.S.C. $1332(d)(2)(a). Jurisdiction is
GENERAL ALLEGATIONS
8.
Defendant operates an industrial pet food manufacturing facility surrounded by
9.
Plaintiffs reside within 1.75 miles of the Facility's property boundary.
10.
Plaintiffs' property has been and continues to be physically invaded by noxious
11.
The noxious odors which entered Plaintiffs' property originated from Defendant's
Defendant's Industrial Pet Food Manufacturing Process
12.
Defendant's industrial operations at the Facility include the production of pet food
13.
Defendant's pet food products include animal-derived raw proteins and animal fats,
2
14.
Defendant mixes the raw ingredients according to numerous pet food recipes,
15.
The dough for each pet food product is then cooked and extruded into its kibble
16.
Defendant's cooking process produces highly odiferous emissions.
17.
In July 2017, Defendant began utilizing a new cooking operation that caused a
18.
The pet food products then undergo a drying process prior to being packaged and
19.
Defendant's facility has discharge stacks, through which its emissions are released
20.
Defendant's industrial operations also produce substantial quantities of organic
21.
The waste products are initially disposed on-site.
22.
Defendant's industrial operations produce substantial quantities of excess
23.
Defendant maintains an on-site wastewater treatment operation, which is a
Defendant's Noxious Fumes and Emissions
24.
The emissions produced by Defendant's cooking process and wastewater treatment
25.
Defendant has acknowledged on multiple occasions that the Facility, specifically
3
26.
Defendant has represented to the media and to the public that its Facility is the
27.
The odors caused by the Facility have been and continue to be dispersed across all
28.
A properly designed, operated, and maintained pet food manufacturing Facility will
29.
A properly designed, operated, managed, and maintained industrial wastewater
30.
Defendant is required to control its odorous emissions by, among other things,
31.
Defendant has failed to install, maintain, operate, develop, and/or implement
32.
Defendant's failures to prevent noxious off-site odors included, but are not limited
4Impacts of Defendant's Actions and Omissions on Plaintiff and the Putative Class
33.
The Facility and its odorous emissions have been the subject of frequent complaints
34.
More than 60 households within the proposed Class Area have contacted Plaintiffs'
35.
Plaintiffs Mark and Lori Fuehrer reported that because of Defendant's odors "it
36.
Below is a small sampling of the factual allegations made by putative class
a.
Putative class member Cesar Abourjado reported that "[i]t's horrible when
we smell it make us sick and our kids they have to stay inside instead
of
enjoying the outside[.] [I]nstead of enjoying the outside weather and
activities sometimes we have to leave the house to take the kids somewhere
where they can enjoy outdoor activities."
b.
Putative class member Lina Ackerman reported that "[t]he smells that
carries from Purina are absolutely horrible! They are of dead animal
smelling. You cannot at times sit outside on the porch & in the house if you
have windows opened hope you can find a way to have this horrible odor
disappear SO we can enjoy our neighborhood!"
C.
Putative class members Brenda and Mark Adam reported that "[i]t is awful!
Smells like dead animals/sewer
We love the outdoors and it makes me
sick to my stomach."
5
d.
Putative class member Cindy Smith reported that "[f]or years a smell of
decaying or rotting material has come from the plant. On days that it is BAD
we must close the windows and come inside. It is hard to have outside
parties and hope there is no smell."
e.
Putative class member Mark Benedict reported that they "cannot keep
windows open in spring or fall. Cannot sit on deck."
37.
Defendant's well documented pattern of failing to control its emissions is further
a.
Numerous resident complaints to South Whitehall Township and the
Pennsylvania Department of Environmental Protection directly attributing
noxious odors to Defendant's Facility.
b.
Numerous media reports regarding Defendant's odors and emissions.
C.
Multiple public hearings held before the South Whitehall Township Board
of Commissioners where residents complained regarding Defendant's
odors. Defendant's representatives, including Gopi Sandhu, Defendant's
Director of Engineering and Sustainable Operations, and Factory Manager
Winston Silva, have both publicly acknowledged at such meetings that the
Facility had odor problems. At one such hearing, Mr. Sandhu attributed the
odor problem to a new cooking operation that Defendant began in July 2017
and Defendant's wastewater treatment process.
38.
Defendant's Facility has emitted, and continues to emit, objectionable odors that
39.
The Facility has emitted objectionable odors that have caused negative impacts to
40.
Plaintiffs and members of the putative class suffer serious discomfort because of
41.
The foul odors emitted from the Facility are offensive, would be offensive to a
42.
The invasion of Plaintiffs' property and that of the Class by noxious odors has
6
43.
The Class Area is home to a wide range of commercial and recreational activities,
44.
Plaintiff and the Class are a limited subset of individuals in Lehigh County, and the
45.
Members the public, including but not limited to businesses, employees,
46.
Defendant negligently and knowingly failed to properly design, operate, repair,
CLASS ALLEGATIONS
Definition of the Class
47.
Plaintiffs bring this action individually and on behalf of all persons as the Court
All owner/occupants and renters of residential property residing within one
and three quarters of a mile (1.75) of the Facility's property boundary.
748.
This case is properly maintainable as a class action pursuant to and in accordance
a.
The Class, which includes thousands of members, is SO numerous that
joinder of all members is impracticable;
b.
There are substantial questions of law and fact common to the Class
including those set forth in greater particularity herein;
C.
Questions of law and fact such as those enumerated below, which are all
common to the Class, predominate over any questions of law or fact
affecting only individual members of the Class;
d.
The claims of the representative parties are typical of the claims of the
Class;
e.
A class action provides a fair and efficient method for adjudication of the
controversy;
f.
The relief sought in this class action will effectively and efficiently provide
relief to all members of the Class;
g.
There are no unusual difficulties foreseen in the management of this class
action; and
h.
Plaintiffs, whose claims are typical of those of the Class, through their
experienced counsel, will zealously and adequately represent the Class.
Numerosity
49.
The approximate number of residential households within the Class Area is over
8
50.
The Class consists of thousands of members and therefore is SO numerous that
Commonality
51.
Numerous common questions of law and fact predominate over any individual
a.
whether and how Defendant negligently and knowingly failed to design,
operate, and maintain the Facility and its operations;
b.
whether Defendant owed any duties to Plaintiffs;
C.
which duties Defendant owed to Plaintiffs;
d.
which steps Defendant has and has not taken in order to control the emission
of noxious odors through the design, operation, and maintenance of its
Facility and its respective operations;
e.
whether Defendant met its standard of care with respect to its operation,
design, and maintenance of the Facility and its operations;
f.
whether and to what extent the Facility's noxious odors were dispersed over
the Class Area;
g.
whether it was reasonably foreseeable that Defendant's failure to properly
design, operate, and maintain the Facility and its operations would result in
an invasion of Plaintiffs' property interests;
h.
whether the degree of harm suffered by Plaintiffs and the Class constitutes
a substantial annoyance or interference; and
i.
the proper measure of damages incurred by Plaintiffs and the Class.
Typicality
52.
Plaintiffs have the same interests in this matter as all the other members of the
9
53.
The claims of Plaintiffs and the other Class Members have a common cause and
54.
All Class Members have suffered injury in fact as a result of the invasion of their
Adequacy of Representation
55.
Plaintiffs' claims are sufficiently aligned with the interests of the absent Class
56.
Plaintiffs have retained the services of counsel who are experienced in complex
Class Treatment Is a Fair and Efficient Method of Adjudication
57.
A class action is a fair and efficient method of adjudication of the controversies
a.
Individual claims by the Class Members would be impracticable as the costs
of pursuit would far exceed what any one Class Member has at stake;
b.
Individual claims by class members would create a risk of inconsistent or
varying adjudications with respect to individual members of the class that
would present Defendant with incompatible standards of conduct;
C.
Individual claims by individual members of the class would create a risk of
adjudications which would as a practical matter be dispositive of the
10interests of other members not parties to the adjudications or substantially
impair or impede their ability to protect their interests;
d.
Little or no individual litigation has been commenced over the controversies
alleged in this Complaint and individual Class Members are unlikely to
have an interest in separately prosecuting and controlling individual actions;
e.
In view of the complexity of the issues or the expenses of litigation, the
separate claims of individual members are likely insufficient in amount to
support the costs of filing and litigating separate actions;
f.
Plaintiffs seek equitable relief relating to Defendant's common actions and
failures to act, and the equitable relief sought would commonly benefit the
class as a whole;
g.
The concentration of litigation of these claims in one action will achieve
efficiency and promote judicial economy; and
h.
The proposed class action is manageable.
58.
The prosecution of separate actions by or against individual members of the Class
59.
Notice can be provided to members of the Class by U.S. Mail and/or publication.
I. CAUSES OF ACTION ONE AND TWO
PUBLIC AND PRIVATE NUISANCE
60.
Plaintiffs restate the allegations set forth in all previous paragraphs of this
61.
Plaintiffs utilized their property as a residence and reside within the Class Area.
62.
The noxious odors which entered Plaintiffs' property originated from Defendant's
11
63.
By failing to reasonably design, operate, repair, and maintain its Facility, Defendant
64.
The noxious fumes and odors invading Plaintiffs' property are indecent and
65.
Defendant knew that it was emitting noxious odors onto neighboring properties, yet
66.
Defendant owed and continue to owe a duty to Plaintiffs and the Class to prevent
67.
Defendant owed and continues to owe a duty to the public to prevent and abate the
68.
As a foreseeable, direct and proximate result of the foregoing conduct of Defendant,
69.
By causing noxious odors that physically invaded Plaintiffs' property, Defendant
70.
Such substantial and unreasonable interference includes, but is not limited to:
a.
loss of use and ability to enjoy the outside areas of Plaintiffs' property or to open
windows due to the presence of noxious odors;
b.
decrease in the value of Plaintiffs' property; and
12
C.
annoyance, inconvenience, and discomfort, including but not limited to, inability
to open windows when odors are present, inability to use outdoor spaces, and the
inability to invite guests to Plaintiffs' residence due to the embarrassment and
annoyance of the noxious odors invade Plaintiffs' property.
71.
Apart from the private property damage incurred by Plaintiffs and the Class,
72.
Plaintiffs suffered and continue to suffer special harm relating to the use and
73.
Plaintiffs did not consent to noxious odors entering upon their property.
74.
Whatever social utility provided by the Facility is clearly outweighed by the harm
75.
Defendant's substantial and unreasonable interferences with Plaintiffs' property
II. CAUSE OF ACTION THREE
NEGLIGENCE
76.
Plaintiffs restate the allegations set forth in all previous paragraphs of this
77.
On occasions too numerous to mention, Defendant negligently and improperly
1378.
Defendant owed Plaintiffs, as neighboring landowners, a duty of care with regard
79. As a direct, proximate, and foreseeable result of Defendant's negligence in
80.
As a further direct, proximate, and foreseeable result of the foregoing conduct of
81.
By failing to properly operate and/or maintain its Facility, and its concomitant
82.
By failing to maintain and operate its Facility, and its concomitant operations and
83.
Defendant knowingly breached its duty to exercise ordinary care and diligence
84.
As a direct and proximate result of the failure of Defendant to exercise ordinary
85.
After learning about its noxious emissions, Defendant failed to take reasonably
14
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs, individually and on behalf of the proposed Class, pray for
A.
Certification of the proposed Class by order pursuant to Federal Rule of Civil
B.
Designation of Plaintiffs as representatives of the proposed Class and designation
C.
Judgment in favor of Plaintiffs and the Class Members and against Defendant;
D.
An award, to Plaintiffs and the Class, of compensatory and punitive damages and
E.
An Order holding that entrance of the aforementioned noxious odors upon
F.
An award to Plaintiffs and the Class Members of injunctive relief not inconsistent
G.
Such further relief both general and specific as the Court deems just and proper.
15
JURY DEMAND
Plaintiffs hereby demands a trial by jury on all issues raised in this Complaint.
Respectfully submitted,
L Ruhle
Kevin S. Riechelson
KAMENSKY COHEN & RIECHELSON
194 South Broad Street
Trenton, New Jersey, 08608
Tel: (609) 394-8585 Fax: (609) 394-8620
[email protected]
Steven D. Liddle*
Laura Sheets*
Matthew Z. Robb*
*Pro Hac Vice Motions to be Submitted
LIDDLE & DUBIN PC
975 E. Jefferson Avenue
Detroit, Michigan 48207-3101
Tel: (313) 392-0015/Fax: (313) (313) 392-0025
[email protected]
[email protected]
[email protected]
Attorneys for Plaintiff and the putative Class
16 | products liability and mass tort |
YULq_IgBF5pVm5zYhaoW | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
Case No.: 19-cv-02900
MAYOR AND CITY COUNCIL OF
BALTIMORE, on behalf of themselves and all
others similarly situated,
Plaintiff,
v.
JURY TRIAL DEMANDED
BANK OF AMERICA, N.A.; BARCLAYS BANK
PLC; BARCLAYS CAPITAL INC.; BNP
PARIBAS SECURITIES CORP.; CITIGROUP
GLOBAL MARKETS INC.; CREDIT SUISSE AG;
CREDIT SUISSE SECURITIES (USA) LLC;
DEUTSCHE BANK AG; DEUTSCHE BANK
SECURITIES INC.; FIRST TENNESSEE BANK,
N.A.; FTN FINANCIAL SECURITIES CORP.;
GOLDMAN SACHS & CO. LLC; JEFFERIES
GROUP LLC; JPMORGAN CHASE BANK, N.A.;
J. P. MORGAN SECURITIES LLC; MERRILL
LYNCH, PIERCE, FENNER & SMITH INC; AND
UBS SECURITIES LLC; and UNNAMED CO-
CONSPIRATORS;
Defendants.
Plaintiff Mayor and City Council of Baltimore (the “City of Baltimore”), on behalf of
itself and all others similarly situated, by its counsel, asserts claims for violations of federal
antitrust law against the Defendants identified below (collectively, “Defendants”) arising from
the collusion among Defendants to fix the prices of bonds sold to investors from January 1, 2009
through April 27, 2014 (the “Class Period”). The bonds were issued by the Federal National
Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation
(“Freddie Mac”) (collectively, these bonds are called “FFBs”).
1
INTRODUCTION
1.
The City of Baltimore paid almost $1 billion for 108 FFBs during the Class
Period, and therefore suffered enormous monetary losses when it was overcharged in these
transactions, as a direct result of Defendant’s price fixing conspiracy.
2.
Defendants are horizontal competitors and the leading dealers of FFBs. FFBs are
unsecured debt securities and do not include the mortgage-backed securities issued by Fannie
Mae and Freddie Mac.
3.
Defendants were the biggest purchasers of FFBs issued by Fannie Mae and
Freddie Mac during the Class Period. Defendants therefore had control over the supply of FFBs
available to investors on the primary and secondary market.
4.
The United States Department of Justice (“DOJ”) has opened a criminal
investigation into price manipulation by bank traders in the FFB market. Several confidential
sources, cited in various press reports, have indicated that DOJ investigators are evaluating
potential fraud and antitrust violations.
5.
The secondary market for FFBs is an “over-the-counter” (“OTC”) market. In
other words, the FFBs are traded through a network of broker-dealers, rather than on a
centralized, formal exchange such as the New York Stock Exchange.
Unlike trading on the
stock market, in which price information is publicly available and updated in real-time during
trading, investors receive price quotes directly from the dealer when buying or selling FFBs.
Therefore, this OTC market is structured to permit a limited set of dealers with exclusive access
to price information to coordinate pricing at the expense of investors.
6.
Economic analysis of available price data and market information show that
Defendants fixed the prices of FFBs during the Class Period. As a result, the City of Baltimore
2
and the Class overpaid when purchasing FFBs and were underpaid when selling FFBs when
transacting with Defendants.
7.
The City of Baltimore obtained price data for 2,437 unique FFBs and 140,114
daily FFB observations from Bloomberg. This data, along with other market information,
demonstrates abnormal FFB pricing during the Class Period which is consistent with a scheme
by Defendants to fix the prices of the FFBs they traded.
8.
First, that data indicates that Defendants made an agreement to overcharge
investors when selling FFBs newly issued by Fannie Mae or Freddie Mac. Defendants typically
made a substantial number of FFB sales during the week following an FFB issuance. Therefore,
after acquiring FFBs from Fannie Mae or Freddie Mac, Defendants possessed a common motive
to inflate the prices of these FFBs and to agree upon supracompetitive prices to charge investors.
9.
Second, the data indicates that Defendants agreed to inflate the prices of older
FFBs in the days prior to a new FFB issuance. By inflating the price of existing FFBs,
Defendants also caused artificial inflation of the price of new FFBs, allowing Defendants to
overcharge investors and therefore earn illegal, excessive profits by selling their newly-acquired
10.
Third, the data indicates that during the Class Period, Defendants agreed to sell
and purchase FFBs in the secondary market at fixed prices, rather than compete with one another
for FFB investor transactions. Specifically, Defendants sold FFBs at inflated prices (the “ask”
price) and purchased FFBs from investors at deflated prices (the “bid” price). A comparison
between the bid-ask spreads charged by Defendants during the Class Period and the bid-ask
spreads charged by Defendants after the Class Period illustrates that the bid-ask spreads
3
noticeably decreased, without any clear economic basis. Therefore, the data shows that the FFB
secondary market during the Class Period was not competitive.
11.
Notably, the data also shows that the above three tactics by Defendants markedly
decreased after April 2014. Around that time, as a result of the LIBOR and Forex scandals,
publicity regarding and government oversight of banks’ anticompetitive trading and sales
conduct increased.1
12.
Accordingly, Defendants conspired to fix prices in the secondary FFB market by
overcharging investors purchasing Defendants’ FFBs and underpaying investors selling their
FFBs to Defendants. Through this conspiracy, Defendants received supracompetitive profits at
the expense of the City of Baltimore and Class Members.
13.
This conspiracy injured investors like the City of Baltimore, which were attracted
to FFBs because they are generally considered safe, liquid investments. Instead, these investors
were financially harmed by overpaying for FFB purchases and being underpaid by their FFB
14.
Like the LIBOR and Forex scandals, this alleged conspiracy—by some of the
same Defendants and during the same time period—is another attempt to collude, fix prices, and
restrain trade and competition in financial markets. Because of the ongoing DOJ investigation
into Defendants’ misconduct and the systematic, secretive nature of Defendants’ conspiracy, the
City of Baltimore maintains, on information and belief, that they will obtain further evidence to
support their claims after a reasonable opportunity for discovery.
1 The LIBOR scandal refers to a scheme by several banks to manipulate of the London InterBank
Offered Rate, which has been the subject of prolonged litigation. The Forex scandal refers to a
scheme by banks to manipulate foreign exchange rates, which has resulted in several
investigations and criminal proceedings.
4
JURISDICTION AND VENUE
15.
This Court has subject matter jurisdiction over this action pursuant to Section 1 of
the Sherman Antitrust Act, 15 U.S.C. § 1, Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15
and 26, and 28 U.S.C. § 1331.
16.
Venue is proper in the Southern District of New York pursuant to Sections 4, 12,
and 16 of the Clayton Act, 15 U.S.C. §§ 15, 22, and 26, and 28 U.S.C. § 1391(b)-(d). During the
Class Period: each Defendant resided, transacted business, was found, or had agents in the
District; a substantial portion of the events or omissions giving rise to the City of Baltimore’s
claims occurred in the District; and a substantial portion of the affected interstate trade and
commerce was carried out in the District, as alleged in detail below.
17.
This Court has personal jurisdiction over each Defendant. All of Defendants were
formed in or have their principal place of business in the United States, and/or are found or
transact business in this District. Therefore this Court has personal jurisdiction under the
nationwide contacts test in 15 U.S.C. § 22. As alleged more specifically below, each Defendant
had substantial contacts with this District, and a substantial portion of the events giving rise to
the City of Baltimore’s claims occurred in this District and in the United States: Defendants
agreed to fix prices of FFBs they traded in this District and with investors located in the United
States. This anticompetitive conspiracy harmed investors in this District and in the United States
by overcharging them for FFB purchases and underpaying them for FFB sales.
18.
Defendants purposefully availed themselves of entering into FFB transactions in
this District and in the United States, themselves or through their subsidiaries, by: (1) acting in
furtherance of their conspiracy by charging fixed, inflated or deflated prices in FFB transactions
5
in this District and in the United States; and (2) accepting illegal, excessive payments from
investors in this District and in the United States.
PARTIES
A.
Plaintiff
19.
Plaintiff is the Mayor and the City Council of Baltimore, a municipal corporation
organized and existing under the laws of the State of Maryland.
20.
Throughout the Class Period, the City of Baltimore participated in FFB
transactions directly with Defendants Citigroup Global Markets, Inc., UBS Securities LLC, FTN
Financial, and Jefferies Group LLC. The City of Baltimore paid almost $1 billion for 108 FFBs
during the Class Period, and therefore suffered monetary losses when it was overcharged in these
transactions, as a direct result of Defendant’s price fixing conspiracy.
B.
Defendants2
21.
Bank of America/Merrill Lynch: Defendant Bank of America, N.A. is a
federally chartered national banking association with its principal place of business in Charlotte,
North Carolina. Bank of America, N.A. is an indirect, wholly-owned subsidiary of Bank of
America Corporation, a Delaware corporation headquartered in Charlotte, North Carolina. One
of Bank of America, N.A.’s largest branches is located in New York, New York. At all times
during the Class Period, Bank of America, N.A. employed traders in New York who facilitated
and executed FFB transactions with the Class. Bank of America, N.A. directed its FFB
transactions to the United States, and in particular New York, and engaged in these transactions,
2 Any reference to any Defendant entity herein includes that entity, its parent companies,
subsidiaries, affiliates, predecessors, and successors. Similarly, any reference to any act or
transaction of any entity means that the entity engaged in the act or transaction by or through its
officers, directors, agents, employees, or representatives.
6
including by serving as a trading broker. Bank of America, N.A. purposefully engaged in FFB
transactions with Class members at artificial prices.
22.
Defendant Merrill Lynch, Pierce, Fenner & Smith Inc. is incorporated in
Delaware and has its principal place of business in New York, New York. Merrill Lynch is a
wholly incorporated indirect subsidiary of Bank of America Corporation.3 At all times during
the Class Period, Merrill Lynch employed traders in New York who facilitated and executed
FFB transactions with the Class. Merrill Lynch directed its FFB transactions to the United
States, and in particular New York, and engaged in these transactions, including by serving as a
trading broker. Merrill Lynch purposefully engaged in FFB transactions with Class members at
artificial prices.
23.
Barclays: Defendant Barclays Bank PLC, operating as “Barclays Investment
Bank,” is headquartered in London, England and maintains at least three offices in the United
States through which it provides investment banking advisory services and loan syndication
services, including its New York office, located in this District. Barclays Bank PLC is a direct,
wholly owned subsidiary of Barclays PLC, a British public limited company headquartered in
London, England. At all times during the Class Period, Barclays Bank PLC employed traders in
New York who facilitated and executed FFB transactions with the Class. Barclays Bank PLC
directed its FFB transactions to the United States, and in particular New York, and engaged in
these transactions, including by serving as a trading broker. Barclays Bank PLC purposefully
engaged in FFB transactions with Class members at artificial prices.
24.
Defendant Barclays Capital Inc. is a wholly owned subsidiary of Barclays Bank
PLC. It is incorporated in Connecticut, with headquarters in New York, New York and branch
3 Bank of America Corporation purchased Merrill Lynch and merged it with Bank of America
Corporation’s former broker-dealer subsidiary, Banc of America Securities LLC. Banc of
America Securities LLC no longer exists as an entity.
7
offices in at least 15 other U.S. cities. At all times during the Class Period, Barclays Capital Inc.
employed traders in New York who facilitated and executed FFB transactions with the Class.
Barclays Capital Inc. directed its FFB transactions to the United States, and in particular New
York, and engaged in these transactions, including by serving as a trading broker. Barclays
Capital Inc. purposefully engaged in FFB transactions with Class members at artificial prices.
25.
BNP Paribas: Defendant BNP Paribas Securities Corp. is a banking organization
incorporated in Delaware with its principal place of business in New York, New York. At all
times during the Class Period, BNP Paribas Securities Corp. employed traders in New York who
facilitated and executed FFB transactions with the Class. BNP Securities Corp. directed its FFB
transactions to the United States, and in particular New York, and engaged in these transactions,
including by serving as a trading broker. BNP Securities Corp. purposefully engaged in FFB
transactions with Class members at artificial prices.
26.
Citi: Defendant Citigroup Global Markets Inc. is incorporated in New York with
its principal place of business in New York, New York. At all times during the Class Period,
Citigroup Global Markets Inc. employed traders in New York who facilitated and executed FFB
transactions with the Class. Citigroup Global Markets Inc. directed its FFB transactions to the
United States, and in particular New York, and engaged in these transactions, including by
serving as a trading broker. Citigroup Global Markets Inc. purposefully engaged in FFB
transactions with Class members at artificial prices, including with the City of Baltimore.
27.
Credit Suisse: Defendant Credit Suisse AG is a Swiss company headquartered in
Zurich, Switzerland. Its primary U.S. office—“Credit Suisse Ag, New York Branch”—is
located in New York, New York. Defendant Credit Suisse Securities (USA) LLC is a wholly
owned subsidiary of Credit Suisse. It is incorporated in Delaware with its principal place of
8
business in New York, New York. At all times during the Class Period, Credit Suisse AG and
Credit Suisse Securities (USA) LLC (collectively, “Credit Suisse”) employed traders in New
York who facilitated and executed FFB transactions with the Class. Credit Suisse directed its
FFB transactions to the United States, and in particular New York, and engaged in these
transactions, including by serving as a trading broker. Credit Suisse purposefully engaged in
FFB transactions with Class members at artificial prices.
28.
Deutsche Bank: Defendant Deutsche Bank AG is a German financial services
company headquartered in Frankfurt, Germany. Deutsche Bank AG engages in U.S. banking
activities directly through its New York branch, based in this District. Defendant Deutsche Bank
Securities Inc. is a wholly owned subsidiary of Deutsche Bank AG. It is incorporated in
Delaware with its principal place of business in New York, New York. At all times during the
Class Period, Deutsche Bank AG and Deutsche Bank Securities Inc. (collectively, “Deutsche
Bank”) employed traders in New York who facilitated and executed FFB transactions with the
Class. Deutsche Bank directed its FFB transactions to the United States, and in particular New
York, and engaged in these transactions, including by serving as a trading broker. Deutsche
Bank purposefully engaged in FFB transactions with Class members at artificial prices.
29.
First Tennessee: Defendant First Tennessee Bank, N.A. is a financial services
company based in Memphis, Tennessee. Defendant FTN Financial Securities Corp. is a wholly
owned subsidiary of First Tennessee Bank, N.A. These two entities operate as a single unit,
advertising their operations using the same trade name and on First Tennessee Bank, N.A.’s
website. Their holding company, First Horizon, consolidates revenues generated by First
Tennessee Bank, N.A. and FTN Financial Securities Corp. in its financial reports. At all times
during the Class Period, First Tennessee Bank, N.A. and FTN Financial Securities Corp.
9
(collectively, “First Tennessee”) employed traders in New York who facilitated and executed
FFB transactions with the Class. First Tennessee directed its FFB transactions to the United
States, and in particular New York, and engaged in these transactions, including by serving as a
trading broker. First Tennessee purposefully engaged in FFB transactions with Class members at
artificial prices, including the City of Baltimore.
30.
Goldman Sachs: Defendant Goldman Sachs & Co. LLC is incorporated in New
York with its principal place of business in New York, New York. It is a subsidiary of the
Goldman Sachs Group, Inc. At all times during the Class Period, Goldman Sachs & Co. LLC
employed traders in New York who facilitated and executed FFB transactions with the Class.
Goldman Sachs & Co. LLC directed its FFB transactions to the United States, and in particular
New York, and engaged in these transactions, including by serving as a trading broker. Goldman
Sachs & Co. LLC purposefully engaged in FFB transactions with Class members at artificial
31.
Jefferies Group LLC: Defendant Jefferies Group LLC is the largest independent
full-service global investment banking firm headquartered in the U.S, with its headquarters in
New York, New York. Previously, Jefferies Group LLC was named Jefferies & Co and was a
wholly owned subsidiary of Jefferies Group, Inc.. However, Jefferies Group Inc. merged with
Leucadia National Corporation on March 1, 2013, and Jefferies Group Inc. was subsequently
renamed Jefferies Group LLC as a subsidiary. Leucadia National Corporation was eventually
renamed as Jefferies Financial Group LLC in 2018, and Defendant Jefferies Group LLC is now
the largest subsidiary of Jeffries Financial Group Inc., which is incorporated in New York. At all
times during the Class Period, while operating as Jefferies & Co., Jefferies Group LLC employed
traders in New York who facilitated and executed FFB transactions with the Class. Jefferies
10
Group LLC directed its FFB transactions to the United States, and in particular New York, and
engaged in these transactions, including by serving as a trading broker. Jefferies Group LLC
purposefully engaged in FFB transactions with Class members at artificial prices, including the
City of Baltimore.
32.
JPMorgan: Defendant JP Morgan Chase Bank, N.A. is a wholly owned
“principal” subsidiary of JPMorgan Chase & Co., headquartered in New York, New York.
Defendant J.P. Morgan Securities LLC, which acquired J.P Morgan Clearing Corp. in 2016, is
also a wholly owned and “principal” subsidiary of JPMorgan Chase & Co. It is incorporated in
Delaware with its principal place of business in New York. At all times during the Class Period,
JP Morgan Chase Bank, N.A. and J.P. Morgan Securities LLC (“JPMorgan”) employed traders
in New York who facilitated and executed FFB transactions with the Class. JPMorgan directed
its FFB transactions to the United States, and in particular New York, and engaged in these
transactions, including by serving as a trading broker. JPMorgan purposefully engaged in FFB
transactions with Class members at artificial prices.
33.
UBS: Defendant UBS Securities LLC is an indirect, wholly owned subsidiary of
UBS AG, which is a Swiss company based in Basel and Zurich, Switzerland. Its principal place
of business is in New York, New York. At all times during the Class Period, UBS Securities
LLC employed traders in New York who facilitated and executed FFB transactions with the
Class. UBS Securities LLC directed its FFB transactions to the United States, and in particular
New York, and engaged in these transactions, including by serving as a trading broker. UBS
Securities LLC purposefully engaged in FFB transactions with Class members at artificial prices,
including the City of Baltimore.
11
C.
Unnamed Co-Conspirators
34.
Various other entities and individuals not named as Defendants in this Complaint
participated as co-conspirators in the acts complained of and performed acts and made
statements that aided and abetted and furthered the unlawful conduct alleged herein.
FACTUAL ALLEGATIONS
I.
BACKGROUND
A.
Fannie Mae and Freddie Mac Bonds (“FFBs”)
35.
Fannie Mae and Freddie Mac are “government-sponsored enterprises” that play a
significant role in the mortgage industry. They were initially created by Congress to stabilize the
U.S. residential mortgage market and expand opportunities for affordable housing and
homeownership. Accordingly, to make consumer mortgage loans more affordable, Fannie Mae
and Freddie Mac guarantee and purchase loans from mortgage lenders, such as banks, that in
turn provide mortgage loans to consumers. In other words, Fannie Mae and Freddie Mac
provide liquidity to mortgage lenders, who can then issue loans to consumers at lower rates.
36.
Fannie Mae and Freddie Mac obtain the funds to finance their mortgage purchases
and other business activities by selling debt securities such as FFBs. FFB issuances occur at
least monthly, often on dates set forth in a calendar published by Fannie Mae and Freddie Mac.
Newly issued FFBs are very similar, if not identical, to existing FFBs, except that they mature on
a later date.
37.
Each FFB receives a distinct nine-digit, alphanumeric identifying number called a
Committee on Uniform Security Identification Procedures (“CUSIP”) number. This number
provides identifying information about the FFB, including the bond issuer, type of security, and
bond maturity.
12
38.
All FFBs bear common characteristics and are considered part of a single class of
issuances.
39.
All FFBs are unsecured debt securities issued by Fannie Mae and Freddie Mac,
and are not backed by the full faith and credit of the U.S. government. In other words, FFBs are
not guaranteed by the federal government. However, the risk that Fannie Mae or Freddie Mac
defaults on its repayment obligations—also known as its “credit risk”—is still relatively low,
because Fannie Mae and Freddie Mac are “government sponsored enterprises” established by
Congress and therefore regarded as closely related to the U.S. government. In the wake of the
financial crisis in 2008, a government agency, the Federal Housing Finance Agency, became the
conservator of Fannie Mae and Freddie Mac. Therefore, the subordinated debt of these
institutions, like most “government sponsored enterprises,” receives a high credit rating.
40.
FFBs are exempt from the federal securities laws, because they are unregulated,
unregistered OTC issuances.
41.
Each Defendant employs a trading team that conducts all of its FFB trading. The
employees on this team set the prices that Defendants charge investors for all types of FFBs in
the secondary market.
42.
FFBs all have certain characteristics, including face value, maturity, and coupon
payment, which determine the annual return earned on the FFB, or its “yield to maturity.”
43.
The “face value” of an FFB means the amount owed to its holder by Fannie Mae
or Freddie Mac upon maturity of the bond. “Maturity,” in turn, is the set date after the FFB is
issued when its principal amount is to be paid in full. Within FFBs all of a specific maturity, the
most recently issued FFBs are called “on-the-run” FFBs, while older FFBs are called “off-the-
run” FFBs.
13
44.
Most FFBs pay a fixed-rate of interest for their entire term, or a fixed coupon rate
on a semi-annual basis. Some FFBs pay rates that are set to adjust based on a specified index,
such as a variable or floating coupon rate. Fixed-rate FFBs have fixed maturities that guarantee
their principal amounts at maturity. However, the market value of these FFBs will change with
interest rates: if interest rates rise, prices will fall and FFBs will lose value if sold prior to
maturity; but, if interest rates fall, FFB values will increase, allowing for capital gains.
45.
FFBs with longer maturities—meaning maturities between 2 and 10 years
(medium-term FFBs) and longer than 10 years (long-term FFBs)—also sometimes offer
“coupon” payments. Coupon payments are semi-annual interest payments which are based on a
set percentage of the FFB’s face value. For example, an FFB with a face value of $1,000 with a
5% coupon rate will pay a $25 coupon semi-annually, each year until maturity. Once the FFB
reaches maturity, Fannie Mae or Freddie Mac then pays the holder the face value of the FFB.
46.
FFBs with shorter securities—meaning those under 2 years—do not offer coupon
payments, but instead are issued below face value. These FFBs permit the FFB purchaser to
earn, and Fannie Mae and Freddie Mac to pay, interest based on the difference between the lower
price paid for the FFB and the higher value due upon maturity. For example, if a purchaser pays
$950 for a short-term FFB with a face value of $1,000 that matures in 1 year, that purchaser will
receive 5% interest—or, $50 more than it paid for the FFB—which is the amount Fannie Mae or
Freddie Mac paid to borrow $1,000 for 1 year.
47.
Most FFBs cannot be redeemed early by Fannie Mae or Freddie Mac, the issuers.
However, Fannie Mae and Freddie Mac also issue some FFBs that can be redeemed by them
prior to maturity.
14
B.
FFB Transactions
48.
Fannie Mae and Freddie Mac issue FFBs by selling them to a select group of
securities dealers, referred to as “Approved Dealers.” The Approved Dealers then trade the
FFBs they acquire from Fannie Mae and Freddie Mac with investors, such as the City of
Baltimore and the Class, typically in the Secondary Market.
49.
Accordingly, the FFB market has a three-tier structure: Fannie Mae and Freddie
Mac sit at the first tier, issuing FFBs; Approved Dealers, like Defendants, are at the second tier,
purchasing FFBs at issuance and trading them with investors, like the City of Baltimore, and
other non-Defendant dealer banks; and investors, also like the City of Baltimore, are at the
bottom tier, selling and buying FFBs from Approved Dealers.
50.
Fannie Mae and Freddie Mac issue FFBs in two ways. Collectively, these two
ways of issuing FFBs are referred to throughout this Complaint as the “Issuance Process.”
51.
First, Fannie Mae and Freddie Mac issue most medium and long-term FFBs
through “syndication.” A syndication occurs when a group of Approved Dealers (the
“syndicate”) underwrites the FFB issuance, meaning that they agree to purchase the FFBs issued
by Fannie Mae or Freddie Mac.
52.
Second, Fannie Mae and Freddie Mac issue FFBs through private auctions, in
which only Approved Dealers can purchase FFBs.
53.
Accordingly, the Issuance Process gives Defendants, the largest Approved
Dealers, control over the supply of newly-issued FFBs. These Approved Dealers then profit
from this control by selling their newly-acquired FFB inventory to investors.
54.
Typically, investors like the City of Baltimore do not participate in the Issuance
Process, but instead trade FFBs with Approved Dealers.
15
55.
When Approved Dealers first sell their newly-acquired FFBs on the day they were
issued, these sales are considered to occur in the primary market. After a syndicate is
terminated, any subsequent FFB sales are considered to occur in the secondary market.
Additionally, when investors sell older issued FFBs rather than hold them until maturity, or
purchase such older issued FFBs from dealers, these transactions are considered to occur in the
secondary market.
56.
The above-referenced DOJ investigation involves a conspiracy by dealers to fix
prices of FFBs they traded with investors in the secondary market.
C.
Defendants’ Control of the Supply of FFBs
57.
As explained above, Approved Dealers acquire a substantial portion of issued
FFBs by underwriting them during a syndication. The Approved Dealers in turn use these
newly-acquired FFBs to transact with investors like the City of Baltimore. Therefore, an
Approved Dealer’s share of FFB underwriting during a syndication corresponds to the amount of
its FFB inventory available to trade with investors in the secondary market.
58.
Table 1 below depicts the amount of FFBs, with maturities less than or equal to 1
year and maturities of 2 and 3 years, underwritten by various entities during the Class Period,
based on available data. As shown in the Table, Defendants together underwrote approximately
$509 billion of FFBs during the Class Period, comprising approximately 74% of total FFB
issuance.
59.
Defendants were some of the largest FFB underwriters in the United States, with
all Defendants but two in the top twenty-five underwriters and at least seven Defendants in the
top ten underwriters.
16
60.
Accordingly, Defendants together controlled FFB supply and were capable of
using that control to fix FFB prices in the secondary market, including in transactions with the
City of Baltimore and the Class.
TABLE 1
Share of FFB Underwriting During Class Period
% of Total
Amount
Underwriter
Underwritten
in Class
Period
Barclays Capital
$113,394,008,290
16.45%
UBS Securities
$82,666,333,320
11.99%
Goldman Sachs
$55,327,566,630
8.03%
JP Morgan Securities
$53,904,082,620
7.82%
Citigroup Global Markets Inc
$51,880,833,300
7.53%
Deutsche Bank Securities Inc
$50,241,845,330
7.29%
Bank of America
$26,128,166,630
3.79%
Credit Suisse
$19,527,785,000
2.83%
Jefferies & Co
$14,356,400,000
2.08%
BNP Paribas Securities Corp
$14,308,500,000
2.08%
Credit Suisse Securities USA
$13,439,166,660
1.95%
Merrill Lynch & Co
$5,475,833,330
0.79%
FTN Financial
$4,041,002,000
0.59%
JP Morgan Chase Bank NA
$3,250,000,000
0.47%
First Tennessee Bank NA
$953,000,000
0.14%
Deutsche Bank AG London
$250,000,000
0.04%
Total underwritten by
Defendants
$509,144,523,110
73.86%
Total underwritten
$689,295,201,660
61.
The Federal Reserve Bank of New York recently published a report supporting
the contention that FFB supply is controlled by the biggest FFB dealers. This report evaluates
the percentage of market share owned by the top 10 dealers of “agency debt securities,” which
include FFBs. The report concluded that these top 10 dealers engaged in 98.90% of all reported
non-coupon agency debt security transactions, which include short-term FFBs, and 81.35% of all
reported coupon agency debt security transactions, which include medium and long-term FFBs.
17
62.
Accordingly, this report demonstrates that the primary FFB market is highly
concentrated amongst Defendants, the largest FFB dealers. This concentration in turn gave
Defendants great control over the available FFB supply and pricing in the secondary market as
well as the motive and opportunity to fix prices in order to obtain excessive profits on secondary
FFB transactions.
D.
Pricing of FFBs
63.
FFB prices are inversely related to market interest rates. When interest rates
increase, existing FFB prices decrease, because investors would have to sell their existing FFBs
at a discount in order to generate the same interest rate now available to a new buyer. And, when
interest rates decrease, existing FFB prices increase, because investors are less likely to purchase
newly issued FFBs with lower interest rates instead of older FFBs promising to pay an above-
market interest rates.
64.
Because FFBs are OTC securities, their prices are not made publically available.
Rather, FFB traders employed by an Approved Dealer determine the FFP price quotes offered to
investors, which are delivered one-on-one, typically through phone or message.
65.
Consequently, the FFB market is not transparent to investors. Investors cannot
quickly compare price quotes received from multiple Approved Dealers because they do not
possess real-time information.
66.
Defendants, the largest Approved Dealers, can exploit this opaque market for
profit by selling FFBs to investors in the primary and secondary markets at a lower price than the
Approved Dealers paid to purchase the FFBs.
67.
FFB price quotes are typically provided as a “bid-ask spread.” The “bid” is the
price the dealer is willing to pay to purchase an FFB, and the “ask” is the price at which the
dealer is willing to sell that same FFB. If the bid price is lower or the ask price is higher than
18
Defendants paid to purchase the FFB, Defendants earn a profit. The greater the bid-ask spread,
the higher profit that Defendants earn, and the higher cost that customers like the City of
Baltimore pay.
68.
For example, if a Defendant quoted a bid-ask spread of $999.60/$1000.10 for an
FFB, the bid-ask spread would be $.50.
Defendant is willing to purchase the FFB from the
investor at $999.60 (the bid price), and Defendant is willing to sell the FFB to the investor at
$1000.10 (the ask price).
69.
Bid-ask spreads in competitive OTC bond markets are kept to a relatively
confined range, because dealers must compete with one another for customers. If a dealer quotes
prices to customers that are inferior to the prices offered by its competitors, that dealer should
lose business.
II.
DEFENDANTS’ CONSPIRACY TO FIX FFB PRICES
A.
The DOJ Criminal Price-Fixing Investigation
70.
On June 1, 2018, Bloomberg reported that four confidential sources had disclosed
that the DOJ had opened a criminal investigation into whether traders manipulated prices in the
$550 billion market for unsecured bonds issued by Fannie Mae and Freddie Mac.
71.
The inquiry reportedly focuses on whether traders at banks coordinated with one
another in order to benefit the banks that they worked for, by fixing prices offered to investors in
the secondary FFB market, such as the City of Baltimore. Investigators are looking at potential
fraud and antitrust violations.
B.
The Structure of the FFB Market Permitted Defendants to Collude
72.
Defendants had means to coordinate their price quotes through secret channels of
communication such as electronic chat rooms. The ability to communicate in real-time permitted
traders to discuss particular customers and to ensure they were offering the same prices.
19
Publications such as the Wall Street Journal and MarketWatch have noted that “chat rooms have
become integral to the way traders communicate with one another and clients,” including with
respect to “possible manipulation of . . . markets.” For example, electronic chats were utilized in
perpetrating the LIBOR scandal.
73.
Defendants also possessed a motive to collude in fixing secondary market FFB
prices. Fannie Mae and Freddie Mac determined which Approved Dealers received underwriting
privileges based upon their performance in the secondary market, thereby giving Defendants an
incentive to increase profits in the secondary market.
74.
The fact that the FFB market is an OTC market further facilitated Defendants’
price-fixing conspiracy.
75.
First, as described above, an OTC market lacks transparency in pricing. Because
dealers provide price quotes on a one-on-one, non-public basis, investors like the City of
Baltimore and the Class cannot check prices in real-time to determine if better prices exist in the
market. Accordingly, Defendants were able to successfully fix prices without risk that their
investors would discover their conspiracy.
76.
Second, and relatedly, investors interact with only a finite number of dealers,
before conducting a secondary FFB transaction. As a result, investors lack the information
necessary to uncover a wide-reaching price-fixing conspiracy, and Defendants can easily
coordinate prices amongst only a few dealers.
77.
Third, OTC transactions are time-consuming and often complex, thereby giving
dealers time to coordinate their pricing quotes before an FFB transaction is completed.
78.
The Treasury Market Practices Group (“TMPG”), which describes itself as a
group of “senior business managers and legal professionals from a variety of institutions . . .
20
sponsored by the Federal Reserve Bank of New York” whose mission is “supporting the integrity
and efficiency of the Treasury, agency debt, and agency mortgage-backed securities markets,”
has issued best practices recommendations for the FFB market which recognize the market’s
potential for collusion and price manipulation.4
79.
Since 2010, TMPG has published best practice recommendations relating to the
FFB market. In its most recent recommendations, issued in January 2018, TMPG warned
against “illegal activities such as price manipulation” in the introduction. In discussing market
integrity and transparency, TMPG noted the potential for manipulative trading strategies that
falsely convey or affect market price, such as improperly using confidential information or
“painting the tape” by creating an inaccurate appearance of trading activity.
80.
The misuse of confidential information is particularly harmful to competition in
OTC markets like the FFB market.
FFB investors must disclose confidential information,
including their identity and details regarding the transaction they want to enter into, to a dealer
rather than trade on a public exchange. TMPG explicitly acknowledges the potential for market
manipulation when traders share such confidential information with competing traders, and states
that misappropriation of confidential information, along with illegal communications amongst
competing traders, permitted dealers to perpetrate the anti-competitive conspiracies to
manipulate Forex prices and LIBOR. The FFB market is similarly structured to permit this
sharing of confidential information, and resulting price fixing, amongst dealers, permitting an
inference of an unlawful agreement amongst Defendants to unreasonably restrain competition in
the secondary market.
4 These best practices recommendations are entitled “Best Practices for Treasury, Agency Debt,
and Agency Mortgage-Backed Securities Markets,” which encompass the FFB market as a
market for “agency debt” securities.
21
81.
As TMPG acknowledges, the FFB market is also structured to permit “painting
the tape” by dealers. As discussed above, this practice is a form of market manipulation whereby
dealers attempt to influence the price of a security by trading it amongst themselves to create the
appearance of substantial trading activity. In doing so, dealers can create an artificial price for an
FFB, because high trading volumes often attract the attention of investors. The dealers can then
sell the FFB at this inflated price and earn a profit compared to the lower price they paid to
initially purchase the FFB.
82.
All dealers who are member firms of the Financial Industry Regulatory Authority,
Inc. (“FINRA”) are required to report eligible OTC secondary market bond transactions to the
Trade Reporting and Compliance Engine (“TRACE”). Therefore, by looking at TRACE data,
Defendants could easily confirm that the other members of the conspiracy were abiding by the
agreement to fix prices in their secondary FFB transactions.
83.
The nature of employment in the FFB market is also conducive to collusion. The
individuals working in this field comprise a small group of traders and salespersons who
repeatedly work with or interact with each other in the same market. Consequently, many of the
FFB traders employed by each of the Defendants had established relationships, and sometimes
even prior employment, with traders employed by the other Defendants. For example, on May
17, 2010, Deutsche Bank Securities announced that it had hired several individuals employed by
other Defendants to join its FFB sales and trading team: Jared Dolce from Citigroup Inc., Nick
Blewitt from UBS Securities, and John Raveche from Barclays Capital. Raveche then joined
UBS later during the Class Period, serving as an Executive Director for bonds sales. Similarly,
in 2009, UBS Securities hired Anatoly Nakum from Defendant Barclays Capital Inc. (who had
previously also worked as a trader at Defendant Deutsche Bank AG) to work as a credit trader.
22
84.
As discussed above, the primary FFB market is highly concentrated amongst
Defendants, a limited number of competitors, due to their underwriting during the Issuance
Process. Defendants in turn control the supply of FFBs available to investors in the secondary
market and, accordingly, can easily manipulate the prices of FFBs in that market.
85.
Furthermore, multiple barriers to entry preclude others, such as smaller banks,
from entering the FFB market and challenging Defendants. It is both expensive and risky to
become an Approved Dealer, because banks must be willing and capable of holding and trading
a significant inventory of FFBs subject to market changes, including fluctuations in interest rates.
The Bank for International Settlements, a research organization owned by 60 central banks from
around the world, described some of these barriers to entry as including: “a sufficiently large
client base to ensure access to sizeable order flow information; the balance sheet capacity to take
on large principal positions; continuous access to multiple markets, including those for funding
and hedging instruments; the capacity to manage inventory and other risks; and market expertise
to provide competitive quotes, including during times of elevated financial market volatility.”
These barriers to entry prevented competitors from entering the FFB secondary market on equal
footing such that they could compete with Defendants by offering better price quotations.
C.
Economic Data Confirms the Defendants’ Conspiracy
86.
The publically available economic data for FFB prices during the Class Period
strongly suggests that Defendants operated a price-fixing conspiracy in the FFB market which
inflated the prices of FFBs purchased by investors, both at issuance and in the secondary market,
and deflated the prices of FFBs sold by investors in the secondary market.
87.
The City of Baltimore conducted an economic analysis of FFP pricing during the
Class Period. This analysis revealed statistically significant anomalies in FFB prices during the
23
class period that are not reflective of a competitive market.5
Specifically, the economic data
shows indicates that: (1) the issuance prices of newly-issued FFBs were artificially high at
issuance relative to the price at which Defendants purchased the FFBs during the Issuance
Process; (2) the prices of on-the-run FFBs were artificially high in the time period before a new
FFB issuance; and (3) the bid-ask spreads were artificially wide during the Class Period. This
data suggests that the FFB market was not competitive during the Class Period, which is
consistent with the concerns of the DOJ’s antitrust investigation.
88.
However, this anti-competitive pricing ceased after April 2014, when the
investigations into the Forex and LIBOR scandals regarding other price fixing conspiracies,
beginning as early as 2012, came to a head.
Specifically, during that month, multiple news
outlets reported that DOJ prosecutors were going to question Forex traders, and that criminal
prosecutions would extend beyond the LIBOR scandal. Eventually, these various investigations
uncovered numerous deficiencies in Defendants’ compliance and oversight procedures in their
trading and sales divisions during the Class Period. As a result of these investigations and the
subsequent fines and prosecutions, Defendants implemented new compliance and oversight
measures. Noticeably, FFB prices around this time drastically changed.
1.
Price Fixing of Newly-Issued FFBs
89.
The City of Baltimore evaluated the prices that Defendants charged investors for
newly-issued FFBs at issuance.
The data shows that the prices for newly-issued FFBs were
inflated, causing investors like the City of Baltimore and the Class to overpay for these FFBs.
90.
As underwriters, Defendants pay a price to Fannie Mae and Freddie Mac to obtain
the FFBs (the “underwriter price”). Defendants in turn sell these FFBs to investors at the time of
5 Statistical significance here means that these results are at least 95% likely to be caused by
market factors rather than pure chance or randomness.
24
issuance, for a different, typically higher price (the “issue price”). The difference between the
issue price and the underwriter price represents a form of compensation to the underwriter for
providing a service (the “dealer discount”).
91.
In a competitive market, an investor can go to a different underwriter and ask for
a price quote for an issuance if the first quote the investor receives is too high. However, in an
anti-competitive market in which dealers are colluding to artificially inflate the issue prices, all
colluding dealers will be more likely to provide the same, marked-up price quotes. Accordingly,
if Defendants conspired to fix issue prices of new FFBs, the data should exhibit higher dealer
discounts, and therefore issue prices, during the Class Period as compared to those prices after
the Class Period.
92.
Data that is publicly available supports the inference that Defendants were
colluding to increase dealer discounts, and thus issue prices, for newly-issued FFBs. As shown
below in Figure 1, the average dealer discount for this data set was approximately 2 basis points
higher (a 25% difference) during the Class Period than after the Class Period.
FIGURE 1
Dealer discount charged above issue price for newly-issued FFBs
25
93.
For example, the City of Baltimore compared the dealer discounts for FFBs with
maturities of 1 year. As shown below in Figure 2, the data indicates a similar pattern to that in
Figure 1: the dealer discounts are higher on average during the Class Period than after the Class
Period. This is consistent with collusion by Defendants to increase dealer discounts, and thereby
issue prices, in the FFB primary market.
FIGURE 2
Dealer discount charged above issue price for newly-issued 1-year FFBs
2.
Price Fixing of “On-The-Run” FFBs Before They Went “Off-The-
Run”
94.
The City of Baltimore also evaluated the prices that Defendants charged for on-
the-run FFBs in the period leading up to a new FFB issuance, when they would become off-the-
run FFBs.
95.
FFB issuances usually occur on a predictable, set schedule, as explained in Part I.
Newly-issued FFBs are priced similarly to previously issued FFBs of the same type. The only
difference between newly-issued and previously-issued FFBs of the same type is the maturity
date, which is later for a newly-issued FFB.
26
96.
Accordingly, Defendants could exploit this pricing relationship by inflating the
value of existing FFBs that were about to go “off-the-run,” which in turn would inflate the price
they could charge investors for newly-issued FFBs of the same type.
97.
After the government investigations came to a head at the end of April 2014,
prices for FFBs that were about to go “off-the-run”—for example, the 5 days before a new
issuance of the same type—were lower than prices for newly-issued FFBs of the same type.
98.
This price difference makes economic sense, because demand is higher for on-
the-run FFBs than for off-the run FFBs, driving up the price for on-the-run FFBs. Demand is
higher for on-the-run FFBs because they are more liquid than off-the run FFBs, and therefore
easier to sell at market price. Accordingly, demand and price of FFBs about to go off-the-run in
a competitive market should be lower in the five days before an issuance of new FFBs of the
same type than the demand and price for the newly issued FFBs in the 5 days following a new
issuance, because investors would rather purchase the newly-issued FFBs.
99.
However, before April 27, 2014, this did not happen, which supports the inference
that the secondary FFB market was not competitive. The City of Baltimore’s evaluation of the
relevant data revealed a statistically significant increase in the price of FFBs that were about to
go off-the-run in the five days preceding the issuance of new FFBs of the same type.6
100.
Figure 5 below shows the difference between the average price of all FFBs in a
five-day period leading up to a new issuance and the average price of all FFBs in a five-day
period following a new issuance. In the period after April 27, 2014, the data is consistent with a
competitive market: the average price of FFBs in the five days leading up to a new issuance was
lower, due to low demand, than the average price of FFBs in the five days following a new
6 The City of Baltimore removed data on and after June 1, 2017 due to abnormal patters in the
closing price observed during that period.
27
issuance (the blue bar). However, this relationship does not hold during the Class Period: the
average price of FFBs in a five-day period leading up to a new issuance was actually higher than
the average price of FFBs in a five-day period following a new issuance (the red bar). These
results are consistent with collusive conduct by Defendants to manipulate FFB prices.
FIGURE 3
Price change from five days before new issuance to five days after (all FFBs)
101.
As a robustness test, the City of Baltimore performed the same analysis,
separately, for FFBs with maturities of two and three years, respectively. These results are
consistent with artificial inflation in FFB prices in the days leading up to a new issuance during
the Class Period.
102.
First, Figure 4 shows that for FFBs with a maturity of two years during the Class
Period, the average price of FFBs in a five-day period leading up to a new issuance was almost
identical to the average price of FFBs in a five-day period following a new issuance. By
contrast, after the Class Period, the average price of FFBs in a five-day period leading up to a
28
new issuance was about 7 basis points lower than the average price of FFBs in a five-day period
following a new issuance.
FIGURE 4
Price change from five days before new issuance to five days after (FFBs with 2 year
maturity)
103.
Second, Figure 5 shows that for FFBs with a maturity of three years during the
Class Period, the average price of FFBs in a five-day period leading up to a new issuance was
almost 4 basis points higher than the average price of FFBs in a five-day period following a new
issuance. By contrast, after the Class Period, the average price of FFBs in a five-day period
leading up to a new issuance was about 11 basis points lower than the average price of FBs in a
five-day period following a new issuance.
29
FIGURE 5
Price change from five days before new issuance to five days after (FFBs with 3 year
maturity)
3.
Price Fixing of Bid-Ask Spreads
104.
The City of Baltimore also examined the bid-ask spreads offered to investors in
the secondary FFB market during the Class Period and after April 27, 2014.7 The results were
statistically significant: bid-ask spreads were wider during the Class Period than in the post-class
Period.
105.
As explained above in Part I, bid-ask spreads generally narrow in a competitive
market, because dealers offering wider spreads (on either or both sides of the spread) will lose
customers to competitors who charge narrower spreads.
106.
For example, FFB Dealer A quotes a bid-ask spread of $999.60/$1000.10 for an
FFB. The bid-ask spread would be $.50. FFB Dealer A is willing to purchase the FFB from the
investor at $999.60 (the bid price), and FFB Dealer A is willing to sell the FFB to the investor at
7 To ensure that the results were not skewed by outliers in the data, Plaintiff removed the highest
5% of bid-ask spreads and the lowest 5% of bid-ask spreads for its sample set. Plaintiff also
removed data from on and after June 1, 2017 due to abnormal patterns observed in that data.
30
$1000.10 (the ask price). In a competitive market, competing FFB Dealer B may respond by
offering that investor a $999.70/$1000.00 for the same FFB. This bid-ask spread is narrower, by
$.20, and less profitable for FFB Dealer B, because it offers a higher purchase price and a lower
selling price than FFB Dealer A offers.
However, offering this bid-ask spread makes FFB
Dealer B more likely to secure the customer’s business for that FFB.
107.
By contrast, under a conspiracy to fix bid-ask pricing, dealers may agree with one
another to artificially alter FFB prices: by deflating the bid price, inflating the ask price, or both,
or offering a set bid-ask spread or a minimum bid-ask spread. Under any of these scenarios, the
dealers are in a financially superior position than they would be if they competed. They do not
risk losing business to competitors offering narrower bid-ask spreads or better pricing, and they
can ensure they receive a profit on every transaction. In other words, Defendants had a
motivation to fix the bid-ask spreads offered to investors in the secondary FFB market during the
Class Period: it ensured that they would receive artificially inflated profits at the expense of the
City of Baltimore and the Class, who overpaid or were underpaid in these FFB sales.
108.
As shown below in Figure 6, the average bid-ask spread across all FFBs was
higher during the Class Period than after the Class Period, consistent with collusion among
Defendants to fix prices.
31
FIGURE 6
Average bid-ask spread for all FFBs
D.
Defendants’ Deficient Oversight and Supervision of FFB Trading
109.
As described above in Part I, government investigations have already revealed
that Defendants have engaged in anti-competitive price-fixing conspiracies in other financial
markets during the Class Period, including the LIBOR and Forex scandals, perpetrated in part as
a result of Defendants’ deficient oversight and compliance policies. These investigations
resulted in criminal convictions, billions of dollars in fines, and successful civil lawsuits brought
by investors.
110.
These facts provide further support for the inference that Defendants committed
the price fixing conspiracy in the FFB market alleged here, because they show that Defendants
had inadequate compliance and oversight systems in place for their trading and sales divisions
during the Class Period.
111.
Forex: In the fall of 2013, news outlets began reporting that the U.S. government
officials (and eventually, international authorities) were investigating potential manipulation of
32
the foreign exchange market. These suspicions were confirmed by conducting economic
analysis of trading patterns and price changes like the analysis employed above for FFBs.
Accordingly, Defendants Barclays, Citi, JPMorgan, and UBS pled guilty to criminal conspiracy
to manipulate Forex rates, and, recently, Defendant BNP Paribas pled guilty to an antitrust
conspiracy to fix prices in the Forex market, in violation of the Sherman Act.
Multiple
Defendants here were also fined in millions and billions of dollars by various government
institutions, including by: the DOJ (Barclays, Citi, JPMorgan, and UBS); the Commodity Futures
Trading Commission (Citi, JPMorgan, and UBS); the Office of the Comptroller of the Currency
(Bank of America, Citi, JPMorgan); and the Financial Market Supervisory Authority (UBS).
The settlements between these Defendants and the listed government authorities describe how
the banks conspired to fix Forex prices: they “used private electronic chat rooms to communicate
and plan their attempts to manipulate the Forex benchmark prices,” to “coordinate[] their trading
with certain FX traders at other banks,” to “disclose[] confidential customer order information
and trading positions, alter[] trading positions to accommodate the interests of the collective
group, and agree[] on trading strategies.” These chatrooms were called names such as “The
Cartel” and “The Mafia.”
112.
LIBOR: Multiple government investigations and civil lawsuits have revealed a
conspiracy amongst various banks to manipulate the London Interbank Offered Rate (“LIBOR”),
a benchmark interest rate at which banks would borrow funds in the interbank market. Traders
employed by various banks and brokers perpetrated this scheme by using electronic
communications to collude and submit deliberately false price quotes in order to manipulate the
published LIBOR rate. As a result of these investigations and lawsuits, multiple Defendant
banks have been criminally charged and fined by U.S. and international authorities, including
33
Barclays, UBS, Deutsche Bank, Citigroup, and JPMorgan. Regulators and prosecutors
determined through these investigations that these banks engaged in widespread anticompetitive
conduct during the Class Period, including sharing confidential customer and order information
and manipulating market prices.
113.
ISDAfix: In 2013, it was reported that several regulators, including the CFTC, the
U.K. Financial Conduct Authority, and Germany’s BaFin were investigating manipulation of
ISDAfix rates. These rates represent interest-rate benchmarks for market fixed rates for certain
interest rate swaps. Media outlets reported that the CFTC was evaluating emails and instant
messages, as well as interviewing bank and dealer employees, in its investigation. In 2014, it
was reported that the CFTC had “found evidence of criminal behavior” and referred this
information to prosecutors, resulting in the DOJ and other regulators starting their own
investigations. Subsequently, several of Defendants here reached settlements for their alleged
manipulation of ISDAfix: Barclays agreed to pay the CFTC $115 million; Citi agreed to pay the
CFTC $250 million; and BNP Paribas, Deutsche Bank, and Wells Fargo agreed to pay hundreds
of millions in private settlements.
114.
SSA Bonds: In late 2015, media outlets began reporting that the DOJ was
investigating possible collusion in the supranational, sovereign, agency bonds market (“SSA
bonds”). The DOJ investigation was confirmed in January 2016 by multiple news stories,
including one in the International Financing Review which stated that the investigation related to
“possible manipulation of bond prices.” Specifically, that report stated that the DOJ was
investigating whether “SSA traders at different banks agreed [on] prices and shared information
on certain US dollar bonds in chat rooms they established for the purpose.” According to other
news stories, the DOJ had obtained transcripts from these online chatrooms. Meanwhile, shortly
34
afterwards in January and February 2016, the U.K. Financial Conduct Authority and then the
European Commission began separate investigations into potential collusion in the SSA market.
In December 2018, the European Commission issued Statements of Objection to four banks
relating to their trading of SSA Bonds, including Defendants Deutsche Bank and Bank of
America, which indicated that these banks “breached EU antitrust rules” by distorting
competition in the SSA bond secondary market, primarily by using online chatrooms to
exchange confidential information and to coordinate pricing. To date, Defendants Bank of
America and Deutsche Bank, along with other banks, have agreed to pay almost $100 million to
settle antitrust claims that they conspired to fix prices of SSA bonds.
115.
Mexican Government Bonds:
In April 2017, the Comisión Federal de
Competencia Económica, Mexico’s antitrust regulating body, announced that it had discovered
evidence of anticompetitive behavior by dealers in the Mexican Government Bond market.
These dealers included subsidiaries of Defendants Barclays Bank PLC, Citigroup Inc., JPMorgan
Chase & Co., and Bank of America Corp. At least one bank admitted participation in a
conspiracy to fix these bond prices, resulting in its acceptance into a cartel leniency program.
116.
Swiss Franc Interest Rate Derivatives: Defendants UBS AG, JPMorgan Chase &
Co., and Credit Suisse AG were fined approximately 32.3 million euros by the European
Commission for engaging in a conspiracy to fix bid-ask spreads in the interest rate derivatives
market for Swiss francs. Like the conspiracy in the FFB market alleged here, this conspiracy
involved an agreement among traders employed by competitors in the OTC market to charge
inflated bid-ask spreads to customers, and it was not detected by Defendants’ compliance
policies.
35
III.
ANTITRUST INJURY
1.
Defendants agreed to fix the prices of FFBs during the Class Period to generate a
profit at investors’ expense.
2.
The City of Baltimore purchased almost a billion dollars’ worth of FFBs during
the Class Period. In particular, they bought 108 FFBs, directly from Defendants Citigroup Inc.,
UBS Securities LLC, FTN Financial, and Jefferies Group LLC, all priced artificially high due to
Defendants’ conspiracy.
3.
Specifically, the City of Baltimore was overcharged each time it purchased FFBs
from Defendants during the Class Period, and therefore was directly injured in each of these
transactions as a result of Defendants’ conduct.
4.
The City of Baltimore’s FFB transactions include purchase of 108 FFBs,
including purchases of FFBs at inflated ask prices Defendant agreed to charge investors during
the Class Period (secondary market), and purchases of newly-issued FFBs following FFB
issuances (primary market). As a direct result, the City of Baltimore was injured by overpaying
for its FFB purchases from Defendants during the Class Period.
EQUITABLE TOLLING AND FRAUDULENT CONCEALMENT
1.
During the Class Period, Defendants actively, fraudulently, and effectively
concealed their conspiracy from the City of Baltimore and the Class.
2.
Defendants’ conspiracy was inherently self-concealing, because its success was
dependent on secrecy. Had Defendants openly fixed prices in the FFB market, the Class would
not have continued purchasing and selling FFBs in transactions with Defendants, undermining
the very purpose of the conspiracy.
3.
The structure of the FFB market is also inherently secretive. FFBs are traded in
the OTC market, and thus are not based on publically available or real-time pricing information.
36
Therefore, reasonable due diligence could not have uncovered Defendant’s conspiracy behind
closed doors to fix FFB prices.
4.
Defendants fraudulently concealed their anticompetitive conduct by, among other
things, using secret communications to further the conspiracy. These communications occurred
through non-public chat rooms, instant messages, e-mails, telephone calls, and in-person
meetings. None of these communications were reasonably available to the City of Baltimore or
the Class, nor could they be discovered through exercise of reasonable diligence.
5.
Defendants actively and jointly concealed the conspiracy by, for example,
agreeing not to publicly discuss or reveal any acts or communications in furtherance of the
conspiracy and by representing that FFB pricing quotes provided to the City of Baltimore and the
Class were the product of a competitive market, not fixed by a conspiracy.
6.
The City of Baltimore and members of the Class did not know, nor could they
have known, about Defendants’ conspiracy until Bloomberg published the article on June 1,
2018 revealing the DOJ investigation into price-fixing in the FFB market.
7.
Accordingly, because of Defendants’ fraudulent concealment, any applicable
statute of limitations governing the City of Baltimore’s or the Class’s claims were tolled during
the period of concealment, until at least June 2018.
37
CLASS ACTION ALLEGATIONS
8.
The City of Baltimore brings this action on behalf of itself and as a class action
under Federal Rule of Civil Procedure 23(a) and (b)(3), on behalf of a similarly situated Class
defined as follows:8
All persons or entities who transacted in Fannie Mae or Freddie Mac bonds
during the period of at least January 1, 2009 through April 27, 2014 (the “Class
Period”) with a Defendant, where such persons or entities were domiciled in the
United States or its territories. Excluded from the Class are the Defendants and
any parent, subsidiary, affiliate, employee, agent or co-conspirator of any
Defendant.9
9.
Numerosity: Members of the Class are so numerous that joinder is impracticable.
The exact size of the Class is currently unknown, but the City of Baltimore believes that there are
at least thousands of Class members geographically located throughout the United States.
10.
Typicality: The City of Baltimore’s claims are typical of the claims of the other
Class members. The City of Baltimore and all Class members were damaged by the same
common course of conduct by Defendants.
11.
Adequacy of Representation: The City of Baltimore will fairly and adequately
protect and represent the interests of the Class. The City of Baltimore’s interests are aligned
with, and not adverse to, those of the Class. The City of Baltimore is also represented by
competent counsel who are experienced in class action litigation, including antitrust litigation
relating to the manipulation of financial markets. The City of Baltimore and its counsel possess
the financial resources necessary to successfully litigate this class action.
8 The City of Baltimore reserves the right to amend the definition of the Class, including the
Class Period, in the event that the City of Baltimore obtains additional information.
9 The Class definition does not include FFB transactions in which a party purchased an FFB
directly from Fannie Mae or Freddie Mac.
38
12.
Commonality: There are questions of law and fact common to the Class, which
predominate over any questions solely affecting individual Class members. These common
questions include, but are not limited to:
(a)
whether Defendants and their co-conspirators entered an agreement,
combination, or conspiracy to fix or alter FFB prices during the Class Period;
(b)
the duration of the alleged conspiracy and the acts carried out by
Defendants and their co-conspirators in furtherance of the conspiracy;
(c)
whether the alleged conspiracy violated section 1 of the Sherman Act;
(d)
whether the conduct of Defendants and their co-conspirators caused injury
to the business and property of the City of Baltimore and the other Class members;
(e)
the appropriate measure of damages sustained by the City of Baltimore
and other Class members.
13.
Superiority: A class action is superior to other available methods for fair and
efficient adjudication of this controversy. Joinder of all Class members is impracticable. The
Class is easily definable. Prosecution as a class action will permit a large number of similarly
situated persons to prosecute their common claims in a single forum simultaneously, efficiently,
and without unnecessary duplication of evidence, effort, or expense that numerous individual
actions would require. Prosecution of separate individual actions by Class members would be
costly to the court system, and prosecution of separate individual actions by Class members
would create a risk of inconsistent or varying adjudications, establishing incompatible standards
of conduct for Defendants. By contrast, proceeding as a class action with a cohesive class poses
no management issues known to the City of Baltimore, and avoids the costs of individual
actions.
39
CLAIMS FOR RELIEF
FIRST CLAIM FOR RELIEF
VIOLATION OF SECTION 1 OF THE SHERMAN ACT, 15 U.S.C. § 1, et. seq.
14.
The City of Baltimore incorporates by reference the preceding allegations.
15.
Defendants and their unnamed co-conspirators entered into and engaged in a
conspiracy in unreasonable restraint of trade in violation of Section 1 of the Sherman Act and
Section 4 of the Clayton Act.
16.
During the Class Period, Defendants were horizontal competitors that controlled
the supply of, and therefore the prices quoted for, FFBs traded in the secondary market.
17.
The conspiracy consisted of a continuing agreement, understanding or concerted
action between and among Defendants and their co-conspirators in furtherance of which
Defendants fixed, maintained and/or otherwise made artificial prices for FFBs sold and
purchased by them in transactions with investors. Defendants’ conspiracy is a per se violation of
the federal antitrust laws and is, in any event, an unreasonable restraint of trade and commerce.
18.
Defendants’ conspiracy, and the resulting impact on the market for FFBs,
occurred in or affected interstate commerce.
19.
As a proximate result of Defendants’ unlawful conduct, the City of Baltimore and
members of the Class have suffered injury to their business or property, including paying
artificial prices for FFBs. The City of Baltimore and members of the Class are each entitled to
treble damages for the violations of the Sherman Act alleged herein.
SECOND CLAIM FOR RELIEF
UNJUST ENRICHMENT
20.
The City of Baltimore incorporates by reference the preceding allegations.
40
21.
Defendants’ conspiracy permitted them to collect supra-competitive profits on all
transactions of FFBs with the City of Baltimore and the Class, while causing the City of
Baltimore and the Class to pay more for FFB purchases and receive less in FFB sales on all of
these transactions.
22.
It would be inequitable for Defendants to be permitted to retain the benefit which
Defendants obtained from their manipulative acts at the expense of the City of Baltimore and
members of the Class.
23.
The City of Baltimore and members of the Class are entitled to the establishment
of a constructive trust over the benefits Defendants received from their unjust enrichment and
inequitable conduct.
24.
Alternatively or additionally, each Defendant should pay restitution or its own
unjust enrichment to the City of Baltimore and members of the Class.
RELIEF SOUGHT
Accordingly, the City of Baltimore demands relief as follows:
1.
That the Court determine that this action may be maintained as a class action
under Rule 23(b)(3) of the Federal Rules of Civil Procedure, that the City of Baltimore be
appointed as class representative, and that the City of Baltimore’s counsel be appointed as
counsel for the class;
2.
That the unlawful conduct alleged herein be adjudged and decreed to be an
unlawful restraint of trade in violation of Section 1 of the Sherman Act and Section 4 of the
Clayton Act;
3.
That Defendants, their subsidiaries, affiliates, successors, transferees, assignees
and the respective officers, directors, partners, agents, and employees and all other persons
41
acting or claiming to act on their behalf, be permanently enjoined and restrained from continuing
and maintaining the conspiracy alleged in the Complaint;
4.
That the City of Baltimore and the Class recover damages, as provided under
federal antitrust laws;
5.
That the City of Baltimore and the Class recover damages or other relief
permitted by law or equity for unjust enrichment;
6.
That the City of Baltimore and the Class recover their costs of the suit, including
attorneys’ fees, as provided by law; and
7.
That the Court direct such further relief it may deem just and proper.
DEMAND FOR JURY TRIAL
8.
Pursuant to Rule 38(a) of the Federal Rules of Civil Procedure, The City of
Baltimore respectfully demands a trial by jury of all issues so triable.
Dated: April 1, 2019
Respectfully submitted,
________________________
William Christopher Carmody (WC8478)
Arun Subramanian (AS2096)
Seth Ard (SA1817)
Stephanie Spies (5537873)
Susman Godfrey L.L.P.
1301 Avenue of the Americas, 32nd Floor
New York, NY 10019
Telephone: (212) 336-3330
Facsimile: (212) 336-8340
[email protected]
[email protected]
[email protected]
[email protected]
42
Attorneys for The City of Baltimore Mayor
and City Council of Baltimore, itself and on
behalf of all others similarly situated
43
| securities |
m-xbEocBD5gMZwczCnRm | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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HENRY TUCKER, on behalf of himself and all
others similarly situated,
Plaintiffs,
v.
CLASS ACTION COMPLAINT
AND
DEMAND FOR JURY TRIAL
SOULCYCLE, INC.,
Defendant.
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INTRODUCTION
1.
Plaintiff HENRY TUCKER, on behalf of himself and others similarly situated,
asserts the following claims against Defendant SOULCYCLE, INC. (hereinafter,
“SOULCYCLE”) 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 SOULCYCLE (“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 and in conjunction with its physical
locations, is a violation of Plaintiff’s rights under the Americans with Disabilities
Act (“ADA”).
5.
Because Defendant’s website, www.soulcycle.com (the “Website” or “Defendant’s
website”), is not equally accessible to blind and visually-impaired consumers, it
violates the ADA. Plaintiff seeks a permanent injunction to cause a change in
Defendant’s corporate policies, practices, and procedures so that Defendant’s
website will become and remain accessible to blind and visually-impaired
consumers.
JURISDICTION AND VENUE
6.
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. § 1281, 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 State Human Rights Law, N.Y. Exec. Law Article 15, (“NYSHRL”) and
New York City Human Rights Law, N.Y.C. Admin. Code § 8-101 et seq.,
(“NYCHRL”) claims.
8.
Venue is proper in this district under 28 U.S.C. §1391(b)(1) and (2) because
Defendant conducts and continues to conduct a substantial and significant amount
of business in this District, and a substantial portion of the conduct complained of
herein occurred in this District.
9.
Defendant is subject to personal jurisdiction in this District. Defendant has been
and is committing the acts or omissions alleged herein in the Southern District of
New York that caused injury, and violated rights the ADA prescribes to Plaintiff
and to other blind and other visually impaired-consumers. A substantial part of the
acts and omissions giving rise to Plaintiff’s claims occurred in 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 physical locations and/or
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 visiting Defendant’s brick-and mortar
physical locations.
10.
This Court is empowered to issue a declaratory judgment under 28 U.S.C. §§ 2201
and 2202.
THE PARTIES
11.
Plaintiff HENRY TUCKER, at all relevant times, is a resident of New York, New
York. Plaintiff is a blind, visually-impaired handicapped person and a member of
member of a protected class of individuals under the ADA, under 42 U.S.C. §
12102(1)-(2), and the regulations implementing the ADA set forth at 28 CFR §§
36.101 et seq., the NYSHRL and NYCHRL.
12.
Defendant SOULCYCLE is and was at all relevant times a Delaware Corporation
doing business in New York.
13.
Defendant’s Centers are 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 Centers.
NATURE OF ACTION
14.
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.
15.
In today’s tech-savvy world, blind and visually-impaired people have the ability to
access websites using keyboards in conjunction with screen access software that
vocalizes the visual information found on a computer screen or displays the content
on a refreshable Braille display. This technology is known as screen-reading
software. Screen-reading software is currently the only method a blind or visually-
impaired person may independently access the internet. Unless websites are
designed to be read by screen-reading software, blind and visually-impaired
persons are unable to fully access websites, and the information, products, goods
and contained thereon.
16.
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.
17.
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.
18.
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.
19.
Non-compliant websites pose common access barriers to blind and visually-
impaired persons. Common barriers encountered by blind and visually impaired
persons include, but are not limited to, the following:
a.
A text equivalent for every non-text element is not provided;
b.
Title frames with text are not provided for identification and
navigation;
c.
Equivalent text is not provided when using scripts;
d.
Forms with the same information and functionality as for sighted
persons are not provided;
e.
Information about the meaning and structure of content is not
conveyed by more than the visual presentation of content;
f.
Text cannot be resized without assistive technology up to 200%
without losing content or functionality;
g.
If the content enforces a time limit, the user is not able to extend,
adjust or disable it;
h.
Web pages do not have titles that describe the topic or purpose;
i.
The purpose of each link cannot be determined from the link text
alone or from the link text and its programmatically determined link
context;
j.
One or more keyboard operable user interface lacks a mode of
operation where the keyboard focus indicator is discernible;
k.
The default human language of each web page cannot be
programmatically determined;
l.
When a component receives focus, it may initiate a change in
context;
m.
Changing the setting of a user interface component may
automatically cause a change of context where the user has not been advised
before using the component;
n.
Labels or instructions are not provided when content requires user
input, which include captcha prompts that require the user to verify that he
or she is not a robot;
o.
In content which is implemented by using markup languages,
elements do not have complete start and end tags, elements are not nested
according to their specifications, elements may contain duplicate attributes,
and/or any IDs are not unique;
p.
Inaccessible Portable Document Format (PDFs); and,
q.
The name and role of all User Interface elements cannot be
programmatically determined; items that can be set by the user cannot be
programmatically set; and/or notification of changes to these items is not
available to user agents, including assistive technology.
STATEMENT OF FACTS
Defendant’s Barriers on Its Website
20.
Defendant is a fitness center chain and apparel manufacturer and retailer that
operates SOULCYCLE centers (hereinafter its “Centers”) as well as the
SOULCYCLE website, offering features which should allow all consumers to
access the goods and services which Defendant offers in connection with their
physical locations.
21.
Defendant operates SOULCYCLE Centers across the United States. At least one of
these Centers is located in New York City, including its Center located at 103
Warren Street, New York, NY 10282.
22.
These Centers constitute places of public accommodation. Defendant’s Centers
provide to the public important goods and services. Defendant’s Website provides
consumers with access to an array of goods and services including Center locations
and hours, the ability to browse and purchase apparel, fitness packages, and related
goods and services.
23.
Defendant offers the commercial website, www.soulcycle.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: Center locations and hours, the ability to browse and purchase apparel,
fitness packages, and related goods and services.
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 Centers. 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 Centers and the
numerous goods and 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 June 2018, 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 in New York by being unable to learn more
information about Center locations and hours, the ability to browse and purchase
apparel, fitness packages, and related goods and services.
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 SOULCYCLE customers are unable to determine what is on the
website, browse, look for Center locations and hours, the ability to browse
and purchase apparel, fitness packages, and related goods and services.
b.
Empty Links That Contain No Text causing the function or purpose
of the link to not be presented to the user. This 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.
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, 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 accessing the Website.
29.
These access barriers on Defendant’s Website have deterred Plaintiff from visiting
Defendant’s physical locations and enjoying them equal to sighted individuals
because: Plaintiff was unable to find the location and hours of operation of
Defendant’s physical Centers on its Website and other important information,
preventing Plaintiff from visiting the locations to take advantage of the goods and
services that it provides to the public.
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,
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 . . . 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).
35.
Because Defendant’s Website have 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 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 2.0 guidelines;
b.
Regularly check the accessibility of the Website under the WCAG
2.0 guidelines;
c.
Regularly test user accessibility by blind or vision-impaired persons
to ensure that Defendant’s Website complies under the WCAG 2.0
guidelines; and,
d.
Develop an accessibility policy that is clearly disclosed on Defendant’s
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
physical locations and hours of operation, shop for and otherwise research related
goods and services available 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
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
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 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 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. § 1281 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 Centers are 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 Centers. The Website is a service that is integrated with
these locations.
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 NYSHRL
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 locations are located in State of New York and throughout
the United States and constitute sales establishments and public accommodations
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. This
inaccessibility denies blind patrons full and equal access to the facilities, 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,
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
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 products, 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.
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 locations are sales establishments and public
accommodations within the definition of N.Y. Civil Rights Law § 40-c(2).
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 owns and operates
its physical locations 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 goods and
services integrated with Defendant’s physical locations to be completely
inaccessible to the blind. This inaccessibility denies blind patrons full and equal
access to the facilities, goods and services that Defendant makes available to the
non-disabled public.
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.
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 locations are sales establishments and public accommodations within
the definition of N.Y.C. Admin. Code § 8-102(9), and its Website is a service that
is integrated with its establishments.
86.
Defendant is subject to NYCHRL because it owns and operates its physical
locations in the City of New York and its Website, making it a person within the
meaning of N.Y.C. Admin. Code § 8-102(1).
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 locations 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.
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.
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 products, 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.
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
products, services and facilities of its Website and by extension its physical
locations, which Defendant owns, operations and controls, fails to comply with
applicable laws including, but not limited to, Title III of the Americans with
Disabilities Act, 42 U.S.C. §§ 12182, et seq., N.Y. Exec. Law § 296, et seq., and
N.Y.C. Admin. Code § 8-107, et seq. prohibiting discrimination against the blind.
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 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. Exec. Law § 296, et seq., N.Y.C. Administrative Code § 8-107, et seq.,
and the laws of New York;
b.
A preliminary and permanent injunction requiring Defendant to take
all the steps necessary to make its Website into full compliance with the
requirements set forth in the ADA, and its implementing regulations, so that
the Website is readily accessible to and usable by blind individuals;
c.
A declaration that Defendant owns, maintains and/or operates its
Website in a manner that discriminates against the blind and which fails to
provide access for persons with disabilities as required by Americans with
Disabilities Act, 42 U.S.C. §§ 12182, et seq., N.Y. Exec. Law § 296, et seq.,
N.Y.C. Administrative Code § 8-107, et seq., and the laws of New York
d.
An order certifying the Class and Sub-Classes under Fed. R. Civ. P.
23(a) & (b)(2) and/or (b)(3), appointing Plaintiff as Class Representative,
and 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 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: Brooklyn, New York
June 6, 2018
COHEN & MIZRAHI LLP
By: ___________________
Joseph H. Mizrahi, Esq.
300 Cadman Plaza West, 12th Fl.
Brooklyn, New York 11201
Tel: (929) 575-4175
Fax: (929) 575-4195
[email protected]
GOTTLIEB & ASSOCIATES
Jeffrey M. Gottlieb (JG7905)
[email protected]
Dana L. Gottlieb (DG6151)
[email protected]
150 East 18th Street, Suite PHR
New York, N.Y. 10003-2461
Telephone: (212) 228-9795
ATTORNEYS FOR PLAINTIFF
| products liability and mass tort |
DKWaCYcBD5gMZwczUfMP | UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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DERRICK U DENNIS, on behalf of himself and
all others similarly situated,
Plaintiffs,
CLASS ACTION COMPLAINT
v.
SAMUEL HUBBARD SHOE COMPANY, LLC.,
Defendant.
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INTRODUCTION
1. This putative class action seeks to put an end to systemic civil rights violations
committed by Defendant, SAMUEL HUBBARD SHOE COMPANY, LLC.
(hereafter “Defendant”), against sight-impaired, disabled individuals, as is under
Title III of the Americans with Disability Act (“ADA”), within the State of New
York and across the United States.
2. The Plaintiff, DERRICK U DENNIS, on behalf of himself and all other
similarly situated individuals, asserts the following claims against the Defendants,
SAMUEL HUBBARD SHOE COMPANY, LLC.
3. The Plaintiff is a visually-impaired and legally blind person who requires
screen-reading software to access and read website content using his computer.
The Plaintiff uses the terms “blind” or “visually-impaired” to refer to all
individuals 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 20/200.
Some blind individuals who meet this definition have limited vision. Others have
no vision.
4. Based on a 2010 U.S. Census Bureau report, approximately 8.1 million
individuals 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.
5. The Plaintiff commences this civil rights action against the Defendants for the
Defendants' failure to design, construct, maintain, and operate its website to be
fully accessible to and independently usable by the Plaintiff and other similarly
situated blind or visually-impaired persons. The Defendants' 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
the Plaintiff’s rights under the Americans with Disabilities Act (ADA).
6. Because the Defendants' website is not equally accessible to blind and
visually-impaired individuals, it violates the ADA. The Plaintiff seeks a
permanent injunction to cause a change in the Defendants' corporate policies,
practices, and procedures so that the Defendants' website will thus become and
remain accessible to blind and visually-impaired persons.
JURISDICTION AND VENUE
7. This Court has subject-matter jurisdiction over this action under 28 U.S.C. §
1331 and 42 U.S.C. § 12181, as the Plaintiff’s claims arise under Title III of the
ADA, 42 U.S.C. § 12181, et seq., and 28 U.S.C. § 1332.
8. This Court has supplemental jurisdiction under 28 U.S.C. § 1367 over the
Plaintiff’s New York State Human Rights Law, N.Y. Exec. Law article 15,
(NYSHRL), New York State Civil Rights Law article 4 (NYSCRL), 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 the
Plaintiff resides in this district, the Defendants conducted and continue to conduct
a substantial and significant amount of business in this district, the Defendants
are subject to personal jurisdiction in this district, and a substantial portion of the
conduct complained of herein occurred in this district.
10. The Defendants are subject to personal jurisdiction in this district. The Defendants
committed and continue to commit the acts or omissions alleged herein in this
district that caused injury, and violated rights the ADA prescribes to the Plaintiff
and to other blind and visually-impaired persons. A substantial part of the acts
and omissions giving rise to the Plaintiff’s claims occurred in this district: on
separate occasions, the Plaintiff has been denied the full use and enjoyment of
the facilities, goods, products and services of the Defendants' website in this district.
These access barriers that the Plaintiff encountered have caused a denial of the
Plaintiff’s full and equal access in the past, and now deter the Plaintiff on a
regular basis from visiting the Defendants' premises. This includes the Plaintiff
attempting to obtain information about the Defendants' location(s) (address and
hours) in this district as well as those services, accommodations, privileges, and
other important information.
11. These access barriers have deterred Plaintiff from revisiting Defendant’s
website and/or visiting its physical locations, despite an intention to do so.
12. This Court is empowered to issue a declaratory judgment under 28 U.S.C. §§ 2201
and 2202.
PARTIES
13. The Plaintiff, DERRICK U DENNIS, at all relevant times, was a resident of Queens
County. The Plaintiff is a legally blind, visually-impaired, handicapped person
and a member of a protected class of individuals under the ADA, 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.
14. Defendant is and was at all relevant times a Delaware business corporation doing
business in New York.
15. Defendant operates SAMUEL HUBBARD SHOE COMPANY, LLC., along with
multiple stores and a website, www.samuelhubbard.com, offering features which
should allow all consumers to access the goods and services which Defendant
offers in connection with its store.
16. The Defendant operates a store in New York, which is located at 630 Old Country
Rd Garden City, NY 11530.
17. Defendant’s website provides consumers with access to luxury comfort men’s and
women’s footwear and accessories, primarily specializing in leather shoes.
Defendant offers shoes and accessories such as, boots, casual shoes, dress shoes,
waterproof shoes, golf shoes, hiking shoes, loafers and leather belts. Defendant’s
website also offers information and services about store locations and order status
service.
18. These stores constitute places of public accommodation. The Defendants' stores
are public accommodations within the definition of Title III of the ADA, 42
U.S.C. § 12181(7). The Defendants' website is a service, privilege, or advantage
that is heavily integrated with the Defendants' physical locations and operates as a
gateway thereto.
CLASS ACTION ALLEGATIONS
19. The 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 persons in the City of New York who have attempted to access the
Defendants' website and as a result have been denied access to the equal enjoyment
of goods and services offered in the Defendants' physical locations, during the
relevant statutory period.
20. Common questions of law and fact exist among the class, including: whether the
Defendants' website is a “public accommodation” under the ADA; whether the
Defendant’s website is a “place or provider of public accommodation” under the
NYSHRL or NYCHRL; whether the Defendants' website denies the full and equal
enjoyment of its goods, services, facilities, privileges, advantages, or
accommodations to individuals with visual disabilities, violating the ADA; and
whether the Defendants' website denies the full and equal enjoyment of its goods,
services, facilities, privileges, advantages, or accommodations to individuals with
visual disabilities, violating the NYSHRL or NYCHRL.
21. There are common questions of law and fact common to the class, including
without limitation, the following:
a.
Whether www.samuelhubbard.com is a “public accommodation” under the
ADA;
b.
Whether www.samuelhubbard.com is a “place or provider of public
accommodation” under the laws of the New York;
c.
Whether Defendant through its website www.samuelhubbard.com denies the
full and equal enjoyment of its goods, services, facilities, privileges,
advantages, or accommodations to people with visual disabilities in violation
of the ADA; and
d.
Whether Defendant through its website www.samuelhubbard.com denies the
full and equal enjoyment of its goods, services, facilities, privileges,
advantages, or accommodations to people with visual disabilities in violation
of the laws of New York.
22. The Plaintiff’s claims are typical of the class. The class, similarly to the Plaintiff,
are severely visually impaired or otherwise blind, claim that the Defendants
violated the ADA, NYSHRL, and NYCHRL by failing to update or remove access
barriers on the Defendants' website so it can be independently accessible to the
class.
23. The Plaintiff will fairly and adequately represent and protect the interests of the
class because the Plaintiff has retained and is represented by counsel. Class
certification of the claims is appropriate under Fed. R. Civ. P. 23(b)(2) because the
Defendants has acted or refused to act on grounds generally applicable to the class,
making appropriate both declaratory and injunctive relief with respect to the
Plaintiff and the class as a whole.
24. Alternatively, class certification is appropriate under Fed. R. Civ. P. 23(b)(3)
because fact and legal questions common to the class 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.
25. 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 individuals with visual disabilities
throughout the United States.
26. References to Plaintiff shall be deemed to include the named Plaintiff and each
member of the class, unless otherwise indicated.
NATURE OF ACTION
27. 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.
28. The blind and visually-impaired persons can access websites using keyboards in
conjunction with screen access software that vocalizes the visual information
found on a computer screen or displays the content on a refreshable Braille display.
This technology is known as screen-reading software. Screen-reading software is
currently the only method a blind or visually-impaired person may independently
access the internet. Unless websites are designed to be read by screen-reading
software, blind and visually-impaired persons are unable to fully access websites,
and the information, Products, and services contained thereon. An accessibility
notice is put on a website by the creator thereof to showcase that the website is
working diligently to create a better experience for low-vision or blind users.
29. 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, like NVDA.
Moreover, also available is the Job Access With Speech (“JAWS”), which is
currently the most popular, separately purchased and downloaded screen-reading
software program available for a Windows computer.
30. 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.
31. 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 individuals. These guidelines are universally followed by most large
business entities and government agencies to ensure their websites are accessible.
Many Courts have also established WCAG 2.0 as the standard guideline for
accessibility.
32. There are well-established guidelines for making websites accessible to blind
persons. These guidelines have been in place for at least several years and have
been followed successfully by other large business entities in making their
websites accessible. The Web Accessibility Initiative (WAI), a project of the
World Wide Web Consortium which is the leading standards organization of the
Web, has developed guidelines for website accessibility. The federal government
has also promulgated website accessibility standards under Section 508 of the
Rehabilitation Act. These guidelines are readily available via the Internet, so that
a business designing a website can easily access them. These guidelines
recommend several basic components for making websites accessible, including,
but not limited to: adding invisible alt-text to graphics; ensuring that all functions
can be performed using a keyboard and not just a mouse; ensuring that image maps
are accessible, and adding headings so that blind people can easily navigate the
site. Without these very basic components a website will be inaccessible to a blind
person using a screen reader.
33. Noncompliant 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 text equivalent for every
non-text element is not provided; title frames with text are not provided for
identification and navigation; equivalent text is not provided when using scripts;
forms with the same information and functionality as for sighted persons are not
provided; information about the meaning and structure of content is not conveyed
by more than the visual presentation of content; text cannot be resized without
assistive technology up to 200% without losing content or functionality; if the
content enforces a time limit, the user is not able to extend, adjust or disable it; web
pages do not have titles that describe the topic or purpose; the purpose of each link
cannot be determined from the link text alone or from the link text and its
programmatically determined link context; one or more keyboard operable user
interface lacks a mode of operation where the keyboard focus indicator is
discernible; the default human language of each web page cannot be
programmatically determined; when a component receives focus, it may initiate a
change in context; 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; 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; 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; inaccessible Portable Document Format (PDF) files; the
name and role of all user interface elements cannot be programmatically
determined; and 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
34. The Defendants website is offered to the public. The website offers features that
should allow all individuals to access the Products, goods and services that the
Defendants offers through their physical locations. Defendant’s website provides
consumers with access to luxury comfort men’s and women’s footwear and
accessories, primarily specializing in leather shoes. Defendant offers shoes and
accessories such as, boots, casual shoes, dress shoes, waterproof shoes, golf shoes,
hiking shoes, loafers and leather belts. Defendant’s website also offers
information and services about store locations and order status service.
35. Plaintiff was in the market for a casual shoes. Plaintiff was browsing the internet
and came across Defendant’s website. It is, upon information and belief, the
Defendants' policy and practice to deny the Plaintiff, along with other blind or
visually-impaired users, access to the Defendants' website, and to therefore
specifically deny the Products, goods and services that are offered and are
heavily integrated with the Defendants' locations. Due to the Defendants' failure
and refusal to remove access barriers to its website, the Plaintiff and other
visually-impaired persons have been and are still being denied equal access to
Defendant’s store locations, information pertaining to Products and good
availability, information about store amenities, including hours of operation, and
related goods and services.
36. The Plaintiff is a visually-impaired and legally blind person, who cannot use
a computer without the assistance of screen-reading software. The Plaintiff is,
however, a proficient NVDA screen-reader user and uses it to access the Internet.
The Plaintiff has visited the website on separate occasions using the NVDA
screen-reader.
37. During the Plaintiff’s visits to the website, the last occurring in January 2019,
the Plaintiff encountered multiple access barriers that denied the Plaintiff full
and equal access to the Products, goods and services offered to the public and
made available to the public; and that denied the Plaintiff the full enjoyment of
the Products, goods, and services of the website, as well as to the Products, goods,
and services of the Defendants' locations in New York by being unable to learn
more information about store locations, information pertaining to Products and
good availability, information about store amenities, including hours of operation,
and related goods and services, among other things readily available to sighted
individuals.
38. While attempting to navigate the website, the Plaintiff encountered multiple
accessibility barriers for blind or visually-impaired individuals that include, but
are not limited to: (1) 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, the Defendant’s visually-impaired
customers are unable to determine what is on the website, browse, look for store
locations, information about store amenities, including hours of operation, and
related goods and services. (2) Empty links that contain no text causing the
function or purpose of the link to not be presented to the user. This can introduce
confusion for keyboard and screen-reader users. (3) Redundant links where
adjacent links go to the same URL address which results in additional navigation
and repetition for keyboard and screen-reader users. (4) 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.
39. Due to the inaccessibility of the Defendants' website, blind and visually-impaired
customers such as the Plaintiff, who need screen-readers, cannot fully and
equally use or enjoy the facilities, goods, and services the Defendant offers to
the public on its website. The access barriers the Plaintiff encountered have
caused a denial of the Plaintiff’s full and equal access in the past, and now deter
the Plaintiff on a regular basis from accessing the website.
40. These access barriers on the Defendants' website have deterred the Plaintiff from
visiting the Defendant’s physical store locations and enjoying them equal to
sighted individuals because: the Plaintiff was unable to find the location and hours
of operation of the Defendants' locations on its website, preventing the Plaintiff
from visiting the locations to view and purchase Products and/or services.
The Plaintiff intends to visit the Defendants' website and physical locations in
the near future if the Plaintiff could access the Defendants' website.
41. If the website was equally accessible to all, the Plaintiff could independently
navigate the website and complete a desired transaction, as sighted individuals do.
42. The Plaintiff, through the Plaintiff’s attempts to use the website, has actual
knowledge of the access barriers that make these services inaccessible and
independently unusable by blind and visually-impaired persons.
43. Because basic compliance with WCAG 2.0 would provide the Plaintiff and other
visually-impaired persons with equal access to the website, the Plaintiff alleges
that the Defendants engaged in acts of intentional discrimination, including,
but not limited to, the following policies or practices: constructing and
maintaining a website that is inaccessible to visually-impaired persons, including
the Plaintiff; failing to construct and maintain a website that is sufficiently intuitive
so as to be equally accessible to visually-impaired persons, including the Plaintiff;
and failing to take actions to correct these access barriers in the face of substantial
harm and discrimination to blind and visually-impaired persons , such as the
Plaintiff, as a member of a protected class.
44. The Defendants therefore use standards, criteria or methods of administration
that have the effect of discriminating or perpetuating the discrimination against
others, as alleged herein.
45. The ADA expressly contemplates the injunctive relief that the 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).
46. Because the Defendants' website has never been equally accessible, and because
the Defendants lack a corporate policy that is reasonably calculated to cause the
Defendants' website to become and remain accessible, the Plaintiff invokes 42
U.S.C. § 12188(a)(2) and seeks a permanent injunction requiring the Defendants
to retain a qualified consultant acceptable to the Plaintiff to assist the Defendants
to comply with WCAG 2.0 guidelines for the Defendants' website. The website
must be accessible for individuals with disabilities who use desktop
computers, laptops, tablets, and smartphones. The Plaintiff seeks that this
permanent injunction require the Defendants to cooperate with the agreed-upon
consultant to: train the Defendants' employees and agents who develop the
website on accessibility compliance under the WCAG 2.0 guidelines; regularly
check the accessibility of the website under the WCAG 2.0 guidelines; regularly
test user accessibility by blind or vision-impaired persons to ensure that the
Defendants' website complies under the WCAG 2.0 guidelines; and develop an
accessibility policy that is clearly disclosed on the Defendants' website, with
contact information for users to report accessibility-related problems and require
that any third-party vendors who participate on the Defendants' website to be
fully accessible to the disabled by conforming with WCAG 2.0.
47. If the Defendants' website were accessible, the Plaintiff and similarly situated
blind and visually-impaired persons could independently access information about
store locations, information about store amenities, including hours of operation,
and related goods and services.
48. Although the Defendants may currently have centralized policies regarding
maintaining and operating the Defendants' website, the Defendants lack a plan
and policy reasonably calculated to make the Defendants' website fully and
equally accessible to, and independently usable by, blind and other visually-
impaired persons.
49. The Defendants have, upon information and belief, invested substantial sums in
developing and maintaining the Defendants' website and the Defendants have
generated significant revenue from the Defendants' website. These amounts are
far greater than the associated cost of making the Defendants' website equally
accessible to visually impaired customers.
50. Without injunctive relief, the Plaintiff and other visually-impaired persons will
continue to be unable to independently use the Defendants' website, violating their
rights.
FIRST CAUSE OF ACTION
VIOLATIONS OF THE ADA, 42 U.S.C. § 1281 et seq.
51. Plaintiff, on behalf of himself and the Class Members, repeats and realleges every
allegation of the preceding paragraphs as if fully set forth herein.
52. 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).
53. Defendant’s stores are 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 stores. The Website is a service that is integrated with
these locations.
54. 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).
55. 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).
56. 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).
57. 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.
58. 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
59. 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.
60. 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.”
61. Defendant’s physical locations are located in State of New York and throughout
the United States and constitute sales establishments and public accommodations
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.
62. 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).
63. 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. This
inaccessibility denies blind patrons full and equal access to the facilities, services
that Defendant makes available to the non-disabled public.
64. 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".
65. 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.”
66. 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.
67. 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
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. Defendant has failed to take any prompt and equitable steps to remedy their
discriminatory conduct. These violations are ongoing.
69. 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 products, 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.
70. 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.
71. 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.
72. Plaintiff is also entitled to reasonable attorneys’ fees and costs.
73. 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
VIOLATION OF THE NEW YORK STATE CIVIL RIGHTS LAW
74. 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.
75. Plaintiff served notice thereof upon the attorney general as required by N.Y.
Civil Rights Law § 41.
76. 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 . . .”
77. 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.”
78. Defendant’s New York State physical locations are sales establishments and
public accommodations within the definition of N.Y. Civil Rights Law § 40-c(2).
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.
79. Defendant is subject to New York Civil Rights Law because it owns and operates
its physical locations and Website. Defendant is a person within the meaning of
N.Y. Civil Law § 40-c(2).
80. 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 goods and
services integrated with Defendant’s physical locations to be completely
inaccessible to the blind. This inaccessibility denies blind patrons full and equal
access to the facilities, goods and services that Defendant makes available to the
non-disabled public.
81. 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 . . .”
82. 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 ...”
83. Defendant has failed to take any prompt and equitable steps to remedy its
discriminatory conduct. These violations are ongoing.
84. 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.
85. 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
86. 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.
87. 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.”
88. Defendant’s locations are sales establishments and public accommodations within
the definition of N.Y.C. Admin. Code § 8-102(9), and its Website is a service that
is integrated with its establishments.
89. Defendant is subject to NYCHRL because it owns and operates its physical
locations in the City of New York and its Website, making it a person within the
meaning of N.Y.C. Admin. Code § 8-102(1).
90. 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 locations 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.
91. 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).
92. 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.
93. Defendant has failed to take any prompt and equitable steps to remedy their
discriminatory conduct. These violations are ongoing.
94. 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 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.
95. Defendant’s actions were and are in violation of the NYCHRL and therefore
Plaintiff invokes his right to injunctive relief to remedy the discrimination.
96. 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.
97. Plaintiff is also entitled to reasonable attorneys’ fees and costs.
98. 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
99. 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.
100. 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 and by extension its physical
locations, which Defendant owns, operations and controls, fails to comply with
applicable laws including, but not limited to, Title III of the Americans with
Disabilities Act, 42 U.S.C. §§ 12182, et seq., N.Y. Exec. Law § 296, et seq., and
N.Y.C. Admin. Code § 8-107, et seq. prohibiting discrimination against the blind.
101. 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. Exec. Law § 296, et seq., N.Y.C. Administrative Code § 8-107, et
seq., and the laws of New York;
b.
A preliminary and permanent injunction requiring Defendant to take all
the steps necessary to make its Website into full compliance with the
requirements set forth in the ADA, and its implementing regulations, so
that the Website is readily accessible to and usable by blind individuals;
c.
A declaration that Defendant owns, maintains and/or operates its Website
in a manner that discriminates against the blind and which fails to provide
access for persons with disabilities as required by Americans with
Disabilities Act, 42 U.S.C. §§ 12182, et seq., N.Y. Exec. Law § 296, et
seq., N.Y.C. Administrative Code § 8-107, et seq., and the laws of New
York;
d.
An order certifying the Class and Sub-Classes under Fed. R. Civ. P. 23(a)
& (b)(2) and/or (b)(3), appointing Plaintiff as Class Representative, and
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 this action together with reasonable
attorneys’ and expert fees; and
h.
Such other and further relief as this Court deems just and proper.
DEMAND FOR TRIAL BY JURY
Pursuant to Fed. R. Civ. P. 38(b), Plaintiff demands a trial by jury on all questions
of fact the Complaint raises.
Dated: Queens, New York
February 4, 2019
SHALOM LAW, PLLC
By: /s/Jonathan Shalom
Jonathan Shalom, Esq.
[email protected]
124-04 Metropolitan Avenue
Kew Gardens, NY 11415
Telephone: (718) 971-9474
Facsimile: (718) 865-0943
ATTORNEYS FOR PLAINTIFF
| civil rights, immigration, family |
PM6vDocBD5gMZwczmejU | '13CV2106
DHB
DMS
Case No.:
CLASS ACTION
COMPLAINT FOR DAMAGES
AND EQUITABLE RELIEF
JURY TRIAL DEMANDED
KAZEROUNI LAW GROUP, APC
Abbas Kazerounian, Esq. (SBN: 249203)
[email protected]
Jason A. Ibey, Esq. (SBN: 284607)
[email protected]
245 Fischer Avenue, Suite D1
Costa Mesa, California 92626
Telephone: (800) 400-6808
Facsimile: (800) 520-5523
HYDE & SWIGART
Joshua B. Swigart, Esq. (SBN: 225557)
[email protected]
2221 Camino Del Rio South, Suite 101
San Diego, CA 92108-3551
Telephone: (619) 233-7770
Facsimile: (619) 297-1022
Attorneys for Plaintiff,
HAROLD J. GREEN
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF CALIFORNIA
HAROLD J. GREEN, Individually
and On Behalf of All Others
Similarly Situated,
Plaintiff,
v.
CHOBANI, INC., formerly known
as AGRO-FARMA, INC.,
Defendant.
1. Plaintiff, Harold J. Green (hereinafter “Mr. Green” or “Plaintiff”), through
his undersigned attorneys, brings this class action complaint against
Defendant Chobani, Inc., formerly known as Agro-Farms, Inc., (hereinafter,
“Chobani” or “Defendant”) due to the negligent manufacturing and
distribution of mold-tainted Greek yogurt, and in breach of the implied
warranty of merchantability for its Greek yogurt. 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. Plaintiff brings this action on
behalf of a national class and sub-class of California consumers who, within
the last year, purchased and/or consumed recalled Chobani Greek Yogurt
which contained a harmful strain of mold that has caused numerous
customers and consumers of Chobani to fall sick and ill after consumption
and to lose money as a result of the recalled product. Affected product has a
manufacturing code of “16-012” and a “best by” date between September
11, 2013 and October 7, 2013.
2. Chobani is a corporation registered in the State of New York. Chobani’s
business consists of the manufacturing and distribution of “Greek yogurt,”
sales of which are made both domestically and internationally.
3. Chobani has been known in the past as Agro-Farma, Inc. Agro-Farma, Inc.
changed its name to Chobani in January 2012. According to Business Week,
Chobani holds the largest share of the overall U.S. yogurt market with 17
percent, more than double its closest competitor, Yoplait. Chobani also
enjoys maintaining a hold on 50% of the Greek yogurt market.
4. Chobani expected gross sales to reach $1 billion in 2012.
5. Chobani markets itself as a producer of natural Greek yogurt. On its
website, it states: “Chobani contains only natural ingredients so it’s a
serving than regular yogurt. Plus, our authentic straining process results in a
rich and creamy yogurt, so it’s a good-for-you-way to satisfy your
cravings.”
6. Consumers of Chobani are typically those that live a healthy lifestyle and
tend to consume a healthier diet than the average consumer due to
Chobani’s claims of providing a completely natural and healthy form of
Greek Yogurt (i.e. no sugar or artificial preservatives).
7. Chobani’s website, www.Chobani.com, promotes health and wellness to its
consumers throughout the website’s various pages.
II.
BACKGROUND INFORMATION
8. On September 5, 2013, after receiving numerous complaints from its
customers regarding customers falling sick after eating various flavors of
Chobani Greek Yogurt, Chobani issued a formal recall of its Greek yogurt
product with manufacturing code “16-012” and a “best by” date between
9/11/2013 and 10/7/2013 (hereinafter the “Yogurt”).
9. On September 5, 2013, the U.S. Food and Drug Administration issued the
following statement regarding Chobani’s recall:
The company has ceased the distribution of the product
due to reports of product bloating and swelling and some
claims of illness as the company continues its
investigation to identify the root cause. The potentially
affected product was distributed nationwide from its
Twin Falls, Idaho facility and was delivered to consumers
through retail and club stores.
10. On September 5, 2013, an unidentified spokesman for Chobani stated:
We [Chobani] won’t sugar coat it --- this type of mold is
not pleasant. While unlikely to have ill health effects
upon consumption, nothing is more important to us than
the health and safety of our consumers, and we are taking
all of the necessary steps to uphold our very rigid quality
standard.
11. To date, Chobani has not publically identified the actual strain of mold
found within the Yogurt subject to the recall. All that has been provided by
Chobani regarding the specific type of mold is a general statement from
Chobani’s founder and company CEO Hamdi Ulukaya, who stated that,
“While this type of mold is common in the dairy environment, particularly
when using only natural ingredients that are absent of artificial
preservatives, it’s still unacceptable to me and all of our yogurt makers.”
12. This vague and generalized statement does nothing to alleviate the concerns
of thousands of customers who potentially could get sick, and many whom
already have, as a result of consuming the Yogurt that contained a harmful
or potentially harmful strain of mold.
13. According to the U.S. Department of Agriculture, “some molds cause
allergic reactions and respiratory problems. And a few molds, in the right
conditions, produce “mycotoxins, poisonous substances that can make you
sick.”
14. Potentially hundreds, or even thousands, of Chobani consumers are now left
in the dark with information that is extremely relevant to the health and
safety of not only themselves, but friends, family members, and even
children, whom have all consumed mold tainted cups of Yogurt. Such
information is relevant to Plaintiff and the putative class members who may
need to know the type of mold they ingested in order to notify their
respective treating physicians.
15. On or about September 5, 2013, Chobani’s CEO, Mr. Ulukaya, told the
Associated Press: “everybody in the company took this hard. It shook us
up.”
16. As a result of Chobani manufacturing and distributing moldy Yogurt
commerce product that is unusable, unsafe, and has caused purchasers and
consumers of Yogurt to suffer or potentially suffer illness, as well as the
loss of monies.
III. JURISDICTION AND VENUE
17. This Court has original jurisdiction over this action under 28 U.S.C. § 1332
(d) because this is a class action in which: (1) there are over 100 members
in the proposed class; (2) the named Plaintiff has a different citizenship
from that of Defendant; and (3) the claims of the Plaintiff and proposed
class members exceed $5,000,000 in the aggregate.
18. Alternatively, the Court has jurisdiction over all claims alleged herein
pursuant to 28 U.S.C. § 1332 because the matter in controversy exceeds the
sum or value of $75,000 and the Plaintiff and Defendant are citizens of
different states.
19. The Court has personal jurisdiction over Defendant because a substantial
portion of the wrongdoing alleged in this Complaint occurred in California,
Defendant is authorized to do business in California, has sufficient
minimum contacts with California, and otherwise intentionally avails itself
of the markets in California and the United States through the promotion,
marketing and sale of consumer goods, sufficient to render the exercise of
jurisdiction by this Court permissible under traditional notions of fair play
and substantial justice.
20. Because a substantial part of the events or omissions giving rise to these
claims occurred in this District, and since the Court has personal
jurisdiction over Defendant, venue is proper in the Southern District of
California pursuant to 28 U.S.C. § 1391(a) and (b).
21. Plaintiff is, and at all times mentioned herein was, a citizen and resident of
the State of California. Plaintiff is, and at all times mentioned herein was, a
“person” as defined by 47 U.S.C. § 153 (39).
22. Plaintiff is informed and believes, and thereon alleges, that Defendant is, and
at all times mentioned herein was, a corporation whose primary corporate
address is in New York, California, and incorporated under the laws of New
York. Defendant, is and at all times mentioned herein was, a corporation
and is a “person,” as defined by 47 U.S.C. § 153 (39). Defendant is the top
producer of consumer/retail Greek yogurt products. Plaintiff alleges that at
all times relevant herein Defendant conducted business in the State of
California and within this judicial district.
V. FACTUAL ALLEGATIONS
23. On August 12, 2013, Plaintiff purchased four (4) cups of Yogurt from the
grocery store chain, Albertsons, at a cost of $1.39 per cup.
24. On August 16, 2013, Plaintiff purchased four (4) cups of Yogurt from the
grocery store chain, Albertsons, Albertsons, at a cost of $1.39 per cup.
25. On August 19, 2013, Plaintiff purchased five (5) cups of Yogurt from the
grocery store chain, Albertsons, Albertsons, at a cost of $1.39 per cup.
26. On August 26, 2013 Plaintiff purchased two (2) cups of Yogurt from the
grocery store chain, Albertsons, Albertsons, at a cost of $1.39 per cup.
27. On September 4, 2013 Plaintiff purchased six (6) cups of Yogurt from the
grocery store chain, Albertsons, Albertsons, at a cost of $1.00 per cup.
28. Plaintiff purchased all of the subject Yogurt from the grocery store chain
Albertsons located at 1800 W. Whittier Boulevard, La Habra, California
90631.
29. Plaintiff purchased approximately, at a minimum, sixteen (16) cups of
Yogurt since August 12, 2013.
product packaging and related advertising of the Chobani Greek Yogurt.
31. Had Plaintiff known that the Chobani Yogurts he purchased was defective
and inconsumable, Plaintiff would not have purchased the product.
32. Subsequently, but prior to September 5, 2013, Plaintiff and all members of
his household (Plaintiff, his wife, and his two daughters) consumed the
Yogurt.
33. At all times, Plaintiff, like all class members, consumed the Chobani
Yogurt in a foreseeable manner, pursuant to instructions, and in the manner
in which it was intended to be consumed.
34. On September 5, 2013, upon notification of the recall instituted by Chobani,
Plaintiff returned approximately six (6) containers of Yogurt to the above-
referenced Albertsons grocery store.
VI. CLASS ACTION ALLEGATIONS
35. Plaintiff brings this action on behalf of himself and on behalf of all others
similarly situated (the “Class”).
36. Plaintiff represents and is a member of the Class, defined as:
All persons within the United States who purchased
Chobani
Greek
Yogurt
from
Defendant
with
manufacturing code “16-012” and a “Best By” date
between September 11, 2013 and October 7, 2013, since
one year prior to the filing of this Complaint.
37. Plaintiff also brings this action on behalf of himself and on behalf of
California sub-class (“”Sub-Class”).
38. Plaintiff represents and is a member of the Sub-Class, defined as:
All persons within the State of California who purchased
Chobani
Greek
Yogurt
from
Defendant
with
manufacturing code “16-012” and a “Best By” date
between September 11, 2013 and October 7, 2013, since
one year prior to the filing of this Complaint.
39. Defendant, and its employees and agents are excluded from the Class and
Sub-Class. Plaintiff does not know the number of members in the Class and
Sub-Class, but believes the Class and Sub-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.
40. This suit seeks only damages and equitable relief for recovery of economic
injury on behalf of the Class and Sub-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 definition of the Class
and Sub-Class to seek recovery on behalf of additional persons as warranted
as facts are learned in further investigation and discovery.
41. Plaintiff and members of the Class and Sub-Class were harmed by the acts
of Defendant in at least the following ways: Defendant, due to the negligent
manufacturing of its Greek yogurt, manufactured and distributed to the
public products which left Defendant’s manufacturing facilities containing
a defect that poses a health threat to the public. That defect is a stain of
mold that the Defendant has acknowledged has been discovered, but which
Defendant refuses to disclose to the public. The presence of a harmful or
potentially harmful strain of mold its yogurt is a direct result of the failure
of Chobani to manufacture its Greek yogurt within the industry standards.
As a result of Chobani’s actions, Plaintiff and members of the Class and
Sub-Class were harmed financially and physically, and suffered damages as
a result. Plaintiff and members of the Class and Sub-Class have therefore
been subjected to substantially the same wrongdoing as all other class
members. Plaintiff and members of the Class and Sub-Class have sustained
similar monetary damages due to the purchase of the defective, moldy and
42. The joinder of the Class and Sub-Class members is impractical and the
disposition of their claims in this Class action will provide substantial
benefits both to the parties and to the Court. The Class and Sub-Class can
be identified through Defendants’ records and/or Defendants’ agent’s
records and by public notice.
43. 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 and Sub-Class predominate over questions which may
affect individual Class and Sub-Class members, including, but not limited
to, the following:
a. Whether Defendant was negligent in the design, manufacturing,
and/or distribution of its Yogurt;
b. Whether Defendant breached any warranties (such as the implied
warranty of merchantability) in selling its Yogurt to Plaintiff and the
public at large; and
c. Whether Plaintiff, the Class and Sub-Class members were damaged
thereby, and the extent of damages for such violations.
44. As a person who purchased and consumed the Yogurt, 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 or Sub-Class.
45. Plaintiff has no interests antagonistic to the Class and Sub-Class and is
subject to no unique defenses.
46. Plaintiff will fairly and adequately protect the interests of the Class and
Sub-Class.
47. Plaintiff has retained counsel experienced in handling class action claims
and claims involving consumer litigation.
this controversy. Class-wide damages are essential to induce Defendant to
comply with federal and California law. The interest of Class and Sub-Class
members in individually controlling the prosecution of separate claims
against Defendant is small because the cost to purchase a cup of Chobani
Greek Yogurt is minimal. Management of these claims is likely to present
significantly fewer difficulties than those presented in many class claims, as
the Class action concerns a product voluntarily recalled by Defendant with a
specific manufacturing code and “best by” date.
VII. CAUSES OF ACTION
FIRST CAUSE OF ACTION
BREACH OF THE IMPLIED WARRANTY OF MERCHANTABILITY FOR FOOD
49. Plaintiff hereby re-alleges and incorporates the above allegations by
reference as if set fully herein.
50. Plaintiff brings this cause of action on behalf of himself and on behalf of the
Class. Plaintiff and the Class members have suffered injury in fact and lost
money or property as a result of the actions (and inactions) of Defendant.
51. California Civil Code section 1791.1(a) states in pertinent part, “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.
52. California Civil Code section 1791.1(b) states in pertinent part “Implied
warranty of fitness” means (1) that when the retailer, distributor, or
manufacturer has reason to know any particular purpose for which the
consumer goods are required, and further, that the buyer is relying on the
there is an implied warranty that the goods shall be fit for such purpose and
(2) that when there is a sale of an assistive device sold at retail in this state,
then there is an implied warranty by the retailer that the device is specifically
fit for the particular needs of the buyer.
53. California Civil Code section 1791.1(d) states in pertinent part “[a]ny buyer
of consumer goods injured by a breach of the implied warranty of
merchantability and where applicable by a breach of the implied warranty of
fitness has the remedies provided in Chapter 6 (commencing with Section
2601) and Chapter 7 (commencing with Section 2701) of Division 2 of the
Commercial Code, and, in any action brought under such provisions, Section
1794 of this chapter shall apply.”
54. California Civil Code section 1792 states in pertinent part “[u]nless
disclaimed in the manner prescribed by this chapter, every sale of consumer
goods that are sold at retail in this state shall be accompanied by the
manufacturer's and the retail seller's implied warranty that the goods are
merchantable. The retail seller shall have a right of indemnity against the
manufacturer in the amount of any liability under this section.”
55. Defendant is, and at all relevant time was, a merchant engaged in the
business of manufacturing and distributing, among other things, Chobani
Greek Yogurt (i.e., the recalled Yogurt).
56. Plaintiff and class members purchased the recalled Yogurt.
57. Defendant, as the manufacturer, distributer, and seller of the recalled
Yogurt warranted, both expressly and impliedly, as set forth more fully
above, that the recalled Yogurt would, among other things, meet federal and
state standards for human consumption, be consumable by humans under
ordinary and expected usage, were free from defects, and were fit for their
ordinary purpose.
Yogurt in a manner that did not conform to the promises or affirmations of
fact made by Defendant, set forth above, including those made on the
labeling and packaging because they were defective.
59. By virtue of the aforementioned acts of Defendant, Defendant has breached
its implied warranty of merchantability for food. Defendant impliedly
warranted that its Chobani Greek Yogurt (i.e., the recalled Yogurt) marketed
and sold to consumers was of merchantable quality and would be
consumable under ordinary and expected usage.
60. Plaintiff, on or about August 12, 2013, August 16, 2013, August 19, 2013,
August 26, 2013 and September 4, 2013, purchased Chobani Greek Yogurt
from Albertsons, which was manufactured by Defendant with a “Best By”
date between September 11, 2013 and October 7, 2013.
61. At the time of Plaintiff’s purchase of the Yogurt, Chobani, as previously
mentioned, was and is in the business of selling “Greek Yogurt” to retail
consumers and also held itself out as having special knowledge and skill
regarding Greek yogurt.
62. Chobani Greek Yogurt, which falls within the manufacturing code of “16-
012” with a “Best By” date between September 11, 2013 and October 7,
2013, is defective and unsafe, in that it was distributed to the public
containing a harmful strain of mold. As a result, the Yogurt was not
consumable as would be expected under ordinary and expected
consumption, thus rendering the yogurt inconsumable, and in fact,
dangerous to the health of Chobani’s consumers. Some of which whom
have allergies to specific types of mold.
63. The subject Yogurt was not of the same quality as those generally accepted
in the yogurt trade.
64. The Yogurt was harmful to ones’ health when consumed by Plaintiff and the
65. The subject Yogurt did not measure up to the promises and facts contained
on the container/label in that the yogurt itself was not consumable, and
contained an unidentified potentially dangerous mold.
66. The harmful condition (i.e., a harmful strain of mold) was not, and could
not, have been reasonably expected by the average consumer to be found in
Defendant’s Yogurt.
67. As a direct and proximate result of the aforementioned acts of Defendant,
Defendant has been unjustly enriched, in that Defendant sold harmful or
potentially harmful product to Plaintiff and the Class.
68. As a direct and proximate result of the aforementioned acts of Defendant,
Plaintiff and the Class members have all been harmed.
69. As a direct and proximate result of these misrepresentations, Plaintiff and
class members have been damaged in an amount to be proven at trial. The
damages suffered by Plaintiff and class members include, but are not limited
to, the monies paid to Defendants for recalled Yogurt.
SECOND CAUSE OF ACTION
NEGLIGENCE
70. Plaintiff hereby re-alleges and incorporates the above allegations by
reference as if set fully herein.
71. Plaintiff brings this cause of action on behalf of himself and on behalf of the
Sub-Class. Plaintiff and the Sub-Class members have suffered injury in fact
and lost money or property as a result of such negligence.
72. Defendant owed a duty of care to Plaintiff, individually, and to the Sub-
Class he seeks to represent, such as the duty to use reasonable care in
manufacturing and distributing of its Greek Yogurt that was free of a
harmful or potentially harmful strain of mold, including the duty owed by
California Civil Code § 1714(a).
reasonable steps to identify and prevent harmful or potentially harmful
mold from being introduced to, or growing within, its Greek Yogurt (i.e.,
the recalled Yogurt) before selling such product to consumers.
74. Had the Defendant exercised reasonable care and skill in the manufacturing
and of its Greek Yogurt, Plaintiff and Sub-Class would not have purchased
and/or ingested harmful or potentially harmful moldy yogurt.
75. The harmful or potentially harmful moldy yogurt manufactured, distributed
and sold by Chobani, was a substantial factor in causing Plaintiff’s and the
Sub-Class members’ harm.
76. Plaintiff and the Sub-Class have suffered damages, including, but not
limited to, economic damages, according to proof at trial.
VIII. PRAYER FOR RELIEF
Wherefore, Plaintiff, on behalf of himself, and on behalf of the Class and Sub-
Class, prays for judgment against Defendant as follows:
a) An order certifying the Class and Sub-Class as requested herein;
b) Restitution and disgorgement of all amounts obtained by Defendant as a
result of its conduct alleged herein, together with interest thereon from the
date of payment, to the victims of such violations;
c) Compensatory money damages according to proof;
d) Costs of this suit;
e) Reasonable attorneys’ fees pursuant to, inter alia, California Code of Civil
Procedure § 1021.5; and
f) For such other relief as this Court may deem just and proper.
77. 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: September 9, 2013 Respectfully submitted,
KAZEROUNI LAW GROUP, APC
By: __/s/ Abbas Kazerounian, Esq.
ABBAS KAZEROUNIAN
ATTORNEY FOR PLAINTIFF
| products liability and mass tort |
MrWCC4cBD5gMZwczbEuj | UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
--------------------------------------------------------------------X Case No.
ROSEMARY GLASER, on behalf of herself
individually and all others similarly situated,
Plaintiff,
CLASS ACTION
-against- COMPLAINT
PENTAGROUP FINANCIAL, LLC.
Defendant.
---------------------------------------------------------------------X
Plaintiff, by and through her attorneys, FAGENSON & PUGLISI, upon
knowledge as to herself and her own acts, and as to all other matters upon information
and belief, brings this complaint against above-named defendant and in support thereof
alleges the following:
INTRODUCTION
1. This is an action for damages brought by an individual consumer
and on behalf of a class for defendant’s violations of the Fair Debt Collection Practices
Act (“FDCPA”), 15 U.S.C. § 1692, et seq. which prohibits debt collectors from engaging
in abusive, deceptive and unfair acts and practices.
2.
That, further, this is an action for damages and injunctive relief
brought by an individual consumer against defendant pursuant to New York General
Business Law (“NYGBL”) § 349 regarding defendant’s deceptive acts and practices.
1
JURISDICTION AND VENUE
3.
That this Court has federal question jurisdiction pursuant to 15
U.S.C. § 1692k(d) and 28 U.S.C. § 1331 and supplemental jurisdiction exists over the
NYGBL § 349 claims pursuant to 28 U.S.C. § 1367.
4.
That this Court has venue pursuant to 28 U.S.C. § 1391(b), in that
plaintiff resides in this District and a substantial portion of the events or omissions giving
rise to this action occurred in this District.
PARTIES
5.
That plaintiff is a natural person who resides in this District.
6.
That plaintiff is a consumer as defined by 15 U.S.C. § 1692a(3)
in that defendant alleged that plaintiff was obligated to pay a debt that defendant sought
to collect from plaintiff which was originally incurred for personal, family or household
purposes to Kia Motors.
7.
That the debt defendant sought to collect is a consumer debt within
the meaning of 15 U.S.C. § 1692a(5).
8.
That plaintiff is a reasonable consumer who acted reasonably
under the circumstances alleged herein.
9.
That defendant is a debt collector as defined pursuant to 15 U.S.C.
§ 1692a(6).
10.
That defendant uses the mail to collect defaulted consumer debts
owed or due or alleged to be owed or due to others.
11.
That upon information and belief, defendant is a foreign limited
liability company incorporated in Texas.
2
FACTUAL ALLEGATIONS
12.
That plaintiff re-alleges paragraphs 1-11 as if fully re-stated herein.
13.
That at some point in time plaintiff incurred a debt to Kia Motors
for a Kia automobile.
14.
That at some subsequent point in time plaintiff communicated
directly with Kia regarding her deteriorated financial circumstances and received
assurances from Kia that the account with Kia was resolved with plaintiff owing no
outstanding balance.
15.
That subsequent thereto Kia alleged that the debt fell into default.
16.
That thereafter a certain debt collector communicated with plaintiff
in an attempt to collect the debt.
17.
That plaintiff consulted with her attorneys at Fagenson & Puglisi
concerning said debt collector’s communications.
18.
That in or around May 2012, Ms. Puglisi wrote a letter to said debt
collector on behalf of plaintiff.
19.
That in said letter Ms. Puglisi informed the debt collector that
Fagenson & Puglisi represents plaintiff and that plaintiff was disputing the debt.
20.
That on information and belief, said debt collector informed the
creditor of Fagenson & Puglisi’s representation of plaintiff and that plaintiff was disputing
the debt.
21.
That, thereafter, on or about December 12, 2012, defendant, by its
employee Russell James, telephoned plaintiff on her cell phone in an attempt to collect
the said debt.
3
22.
That during the telephone call, plaintiff informed Mr. James that she
had an attorney regarding the matter and gave Mr. James the name of her attorney.
23.
That thereafter, by letters dated December 13, 2012 and January 5,
2013, defendant wrote to plaintiff at her home in an attempt to collect the same debt.
24.
That in said letters defendant stated that the current creditor of the
debt was Hyundai Motor Finance Company.
25.
That the letter dated January 5, 2013 states, in pertinent part:
“There is a convenience fee of $9.95 charged for each check by phone or ACH
transaction.”
AS AND FOR A FIRST CAUSE OF ACTION
FDCPA, §§ 1692c(a)(2), 1692e and 1692e(10)
26.
That plaintiff re-alleges paragraphs 1-25 as if fully re-stated herein.
27.
That on information and belief, at the time the creditor placed the
Kia debt with defendant for collection, the creditor did inform defendant that plaintiff was
represented by counsel in the matter of the collection of the debt.
28.
That in any event defendant had an affirmative duty to inquire of the
creditor whether plaintiff was represented by counsel before defendant placed its
telephone call to plaintiff and sent its letters to plaintiff.
29.
That defendant did not inquire of the creditor whether plaintiff was
represented by counsel before defendant communicated with plaintiff directly.
30.
That defendant breached its affirmative duty by not inquiring of the
creditor whether plaintiff was represented by counsel before defendant communicated
with plaintiff directly.
4
31.
That, notwithstanding defendant’s knowledge, gained from the
creditor, that plaintiff was represented by counsel, defendant placed its telephone call to
plaintiff and sent its letters to plaintiff.
32.
That, notwithstanding defendant’s affirmative duty to inquire of the
creditor whether plaintiff was represented by counsel before it communicated with
plaintiff, defendant placed its telephone call to plaintiff and sent its letters to plaintiff.
33.
That defendant’s conduct in communicating with plaintiff directly
despite knowledge that she is represented by counsel is a violation of the FDCPA,
including but not limited to § 1692c(a)(2).
34.
That defendant’s conduct in communicating with plaintiff directly
despite knowledge that she is represented by counsel constitutes a false, deceptive and
misleading representation and means used by defendant in an attempt to collect the
debt, and is a violation of the FDCPA, including but not limited to §§ 1692e and
1692e(10).
AS AND FOR A SECOND CAUSE OF ACTION
FDCPA, §§ 1692f, 1692f(1), 1692e, 1692e(2)(B), 1692e(5) and 1692e(10)
35.
That plaintiff re-alleges paragraphs 1-34 as if fully re-stated herein.
36.
That defendant’s statement in its letter dated January 5, 2013 that
“[t]there is a convenience fee of $9.95 charged for each check by phone or ACH
transaction.”
is improper.
37.
That the convenience fee of $9.95 charged by defendant is not
expressly authorized by any agreement that plaintiff has with Kia Motors.
5
38.
That the convenience fee of $9.95 charged by defendant is not
permitted by any governing law.
39.
That defendant retains the convenience fee of $9.95 it charges for
each check by phone or ACH transaction.
40.
That defendant retains at least a portion of the convenience fee of
$9.95 it charges for each check by phone or ACH transaction.
41.
That defendant’s statement in its collection letters of a convenience
fee of $9.95 charged by defendant for each check by phone or ACH transaction is an
attempt to collect an amount which is not expressly authorized by the agreement
between plaintiff and Kia Motors or permitted by governing law, in contravention of the
FDCPA, § 1692f(1).
42.
That defendant’s statement in its collection letters of a convenience
fee of $9.95 charged by defendant for each check by phone or ACH transaction
constitutes an unfair and unconscionable means used by defendant in its attempt to
collect a debt, in violation of the FDCPA, including but not limited to § 1692f.
43.
That, further, defendant’s statement in its collection letters of a
convenience fee of $9.95 charged by defendant for each check by phone or ACH
transaction also falsely represents the compensation which may be lawfully received by
defendant for the collection of the debt, in violation of the FDCPA, including but not
limited to § 1692e(2)(B).
44.
That, further, defendant’s statement in its collection letters of a
convenience fee of $9.95 charged by defendant for each check by phone or ACH
transaction constitutes a false, deceptive and misleading representation or means used
6
by defendant in connection with the collection of a debt, in violation of the FDCPA, §§
1692e and 1692e(10).
45.
That, further, defendant’s statement in its collection letters of a
convenience fee of $9.95 charged by defendant for each check by phone or ACH
transaction is a threat to take an action that cannot be legally taken, viz., to charge a
$9.95 fee for each check by phone or ACH transaction that is not authorized by any
governing law or by the agreement between plaintiff and Kia Motors which created the
alleged debt, and is therefore a violation of the FDCPA, § 1692e(5).
AS AND FOR A THIRD CAUSE OF ACTION
NYGBL § 349
46.
That plaintiff re-alleges paragraphs 1 to 45 as if fully re-stated
herein.
47.
That defendant owed a duty to plaintiff to effect its collection of
plaintiff’s alleged debt with reasonable care.
48.
That each of defendant’s statements and actions above-mentioned
shows a lack of exercise of reasonable care in defendant’s collection of the alleged
49.
That, in particular, defendant’s violation of plaintiff’s right to counsel
and defendant’s false, deceptive and misleading statement regarding the collection of
an unauthorized fee all demonstrate a failure on the part of defendant to exercise
reasonable care in the collection of plaintiff’s alleged debt.
50.
That defendant breached its duty to collect plaintiff’s debt with
reasonable care.
7
51.
That said deceptive and misleading acts and practices were
committed by defendant in the conduct of a business, trade or commerce or the
furnishing of a service in New York State and constitutes a violation of NYGBL § 349.
52.
That defendant’s deceptive and misleading acts and practices were
consumer-oriented, in that defendant has a practice of contacting consumers directly
despite knowledge that the consumers are represented by counsel.
53.
That, further, each of the letters in which defendant included the
improper statement regarding an unauthorized convenience fee of $9.95 is a form
collection letter which defendant sends to hundreds, if not thousands, of consumers in
New York State each month.
54.
That defendant’s said conduct has a broad impact on consumers at
large whose accounts are placed with defendant for collection.
55.
That defendant’s conduct of contacting plaintiff directly despite
knowledge that she is represented by counsel and defendant’s statements in its letters
to plaintiff regarding an unauthorized convenience fee of $9.95 are deceptive and
misleading in a material way.
56.
That plaintiff is a reasonable consumer within the meaning of the
NYGBL and acted reasonably under the circumstances of this case.
57.
That plaintiff suffered emotional distress, anxiety, upset, irritation,
annoyance, a disturbance of her peace and tranquility, sleeplessness and confusion
upon receiving defendant’s telephone call and letters.
58.
That defendant violated NYGBL § 349(a) and is liable to plaintiff
pursuant to NYGBL § 349(h).
8
CLASS ALLEGATIONS
59.
That plaintiff re-alleges paragraphs 1-58 as if fully re-stated herein.
60.
That this action is brought on behalf of plaintiff and the members of
a class. The class consists of all persons who defendant’s records reflect were sent
debt collection letters within the State of New York within the period of time
commencing one year before the filing of this complaint up to and including the date of
the filing of the complaint and who were sent a collection letter (a) in substantially the
same form as the letter defendant sent to plaintiff dated January 5, 2013; (b) the
collection letter was sent to a consumer seeking payment of a consumer debt; (c) the
collection letter was not returned by the postal service as undelivered; and (d) the letter
contained violations of 15 U.S.C. §§1692e, 1692e(2)(B), 1692e(5), 1692e(10), 1692f
and 1692f(1). The class does not include defendant or persons who are officers,
directors or employees of defendant.
61.
That the class shall be defined as follows:
All natural persons residing within the State of New York to whom defendant sent
a letter in an attempt to collect a consumer debt on behalf of Kia Motors or
Hyundai Motor Finance Company, which letter contains a statement that there is
a convenience fee of $9.95 charged for each check by phone or ACH
transaction.
9
62.
That pursuant to Federal Rule of Civil Procedure 23, a class action
is appropriate and preferable in this case because:
(A)
Based on the fact that the collection letter that is the gravamen of
this litigation is a mass-mailed form letter, the class is so numerous
that joinder of all members is impracticable. Upon information and
belief, thousands of persons have received similar debt collection
letters from defendant which violate the various provisions of the
FDCPA.
(B)
There are questions of law and fact common to the class and these
questions predominate over any questions affecting only individual
class members. The principal question presented by this claim is
whether defendant violated the FDCPA by including an improper
statement in its collection letters regarding the collection of an
unauthorized fee, in contravention of §§ 1692e, 1692e(2)(B),
1692e(5), 1692e(10), 1692f and 1692f(1).
(C)
The only individual issue is the identification of the consumers who
received the letters (the class members), a matter capable of
ministerial determination from the records of defendant.
(D)
The claims of plaintiff 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 experienced counsel. Plaintiff’s
interests are consistent with those of the members of the class.
10
63.
That 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 in 15 U.S.C. § 1692k. 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
class 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.
64.
That if the facts are discovered to be appropriate, plaintiff will seek
to certify a class action pursuant to Rule 23(b)(3) of the Federal Rules of Civil
Procedure.
65.
That communications from debt collectors, such as those sent by
defendant, are to be evaluated by the objective standard of the hypothetical “least
sophisticated consumer”.
66.
That as a result of the above violations, defendant is liable to
plaintiff and the members of the class for damages in an amount to be determined at
the time of trial, plus costs and attorneys’ fees.
11
WHEREFORE, plaintiff respectfully prays that judgment be entered
against defendant as follows:
(a)
certifying a class action pursuant to Rule 23 of the Federal Rules of
Civil Procedure;
(b)
awarding class members the maximum statutory damages
pursuant to 15 U.S.C. § 1692k;
(c)
statutory damages pursuant to 15 U.S.C. § 1692k in an amount to
be determined at time of trial;
(d)
reasonable attorneys’ fees, costs and disbursements pursuant to
15 U.S.C. § 1692k;
(e)
enjoining defendant from committing further deceptive and
misleading acts and practices against plaintiff, pursuant to NYGBL
§ 349;
(f)
statutory damages pursuant to NYGBL § 349 in an amount to be
determined at time of trial;
(g)
actual damages pursuant to NYGBL § 349 in an amount to be
determined at time of trial;
(h) reasonable attorneys’ fees, costs and disbursements pursuant to
NYGBL § 349(h); and
(i)
for such other and further relief as may be just and proper.
12
DEMAND FOR TRIAL BY JURY
Plaintiff requests trial by jury on all issues so triable.
Dated: New York, New York
May 31, 2013.
/s/_Novlette R. Kidd___________
NOVLETTE R. KIDD, ESQ.
FAGENSON & PUGLISI
Attorneys for Plaintiff
450 Seventh Avenue, Suite 704
New York, New York 10123
Telephone: (212)268-2128
[email protected]
13
| consumer fraud |
m9DpDocBD5gMZwcz0r2W | Plaintiffs Emily Hogan and Pamela Rubeo (“Plaintiffs”), individually and on
behalf of all others similarly situated, allege the following against ADT, LLC d/b/a
ADT Security Services (“ADT”) upon personal knowledge as to their own acts and,
as to all other allegations, upon information and belief, and upon investigation by
counsel.
OVERVIEW OF THE ACTION
1.
Plaintiffs bring this class action to redress Defendant’s deceptive and
unlawful business acts and practices in the sale of alarm equipment and home
security monitoring services. These unlawful business practices are intended to
accomplish one goal: keep customers tethered to ADT’s services for as long as
possible. This goal is unlawfully accomplished by, among other things: requiring the
payment of significant early termination fees - even when customers terminate for
inadequate service. In addition, ADT seeks to maximize its profits by luring
customers into multi-year contracts with the promise of a flat monthly fee for
monitoring services while ADT in fact retains and exercises a purported unilateral
“right” to increase fees at will – even while customers are still under contract and
without providing any prior notice.
2.
The lynchpin of ADT’s “never let them go” strategy is the early
termination penalty. This class action is intended to redress Plaintiffs’ wrongful
practice of imposing early termination fees, which are unlawful penalties used
simply as an anti-competitive device and not to compensate ADT for any true costs
of breach. These penalties, which are unilaterally imposed by Defendant – even
when Defendant fails to perform the services promised - also violate the consumer
protection statutes of California and Illinois and similar laws nationwide.
3.
The early termination penalty is extracted under circumstances which
cannot be justified, for example, as with Plaintiff Emily Hogan, when Defendant has
failed to perform the very services that form the basis of ADT’s obligation. This
penalty is also extracted from customers who contracted with ADT to simply
monitor a system that was previously installed, requiring no equipment to be
installed and resulting in a windfall to ADT upon termination. By charging the early
termination fee ADT gets paid for years of monitoring, without doing any
monitoring to earn those fees.
4.
In addition, Plaintiffs seek redress for Defendant’s actions in
unilaterally increasing alarm monitoring fees (referred to herein as “Unilateral Price
Increases” or “UPI”). ADT increases customer’s rates while customers are under
contract for lesser fees, without adequate prior notice and without providing the
appropriate and required disclosures necessary to ensure that customers consent to
these increases in advance of their institution. ADT bases its “right” to do so on
small print boilerplate in the contract that is not signed or highlighted for the
customer in any way and that simply declares ADT’s right to increase fees
unilaterally.
5.
The proposed class consists of two groups of consumers: (1) all
consumer subscribers who have home security monitoring accounts with Defendant
and whose contracts contain an early termination fee provision (also called an Early
Termination Fee or Early Cancellation Fee, collectively “ETF”, and comprising the
“ETF class”); (2) all consumer subscribers who have alarm monitoring accounts with
Defendant and whose rates were increased by Defendant without prior notice while
in the initial contract period or during subsequent contractual extensions.
6.
Through a uniform and common course of conduct, Defendant charged
Plaintiff Rubeo and other customers ETFs consisting of 75% of the amount due
under their contract at the time of termination – even though no further services were
being provided. On information and belief, Defendant’s contracts in some instances,
as with Plaintiff Hogan’s contract, provide for ETFs of $200 or $400 instead of the
75% ETF. The flat fee ETFs imposed upon customers do not vary during the term of
the service plan. The customer is required to pay the full ETF whether he or she
cancels two months after the service plan goes into effect or one month before the
initial contract term is scheduled to expire.
7.
As alleged herein, Defendant’s conduct gives rise to Plaintiffs’ claims
for (1) violation of California and Illinois’ consumer protection laws and
substantially similar laws nationwide; (2) Declaratory Relief pursuant to 28 U.S.C.
Section 2201; (3) violation of the Truth in Lending Act; and (4) unjust enrichment.
JURISDICTION AND VENUE
8.
The Court has jurisdiction over these claims pursuant to 28 U.S.C. §
1332(d), because this is a nationwide class action lawsuit in which over $5,000,000
is at issue, there are more than 100 putative class members, and at least one Class
Member is a citizen of a state other than Defendant’s state of citizenship.
9.
Venue is proper pursuant to 28 U.S.C. § 1391(a) because a substantial
part of the events giving rise to the claims asserted occurred in this District. Venue
is also proper pursuant to 28 U.S.C. § 1391(c) because Defendant conducts
substantial business in this District, has sufficient minimum contacts with this
District, and otherwise purposely avails itself of the markets in this District, through
the promotion, sale, and marketing of its products and services in this District.
THE PARTIES
10.
Plaintiff Emily Hogan is a citizen of California, residing in Los
Angeles.
11.
Plaintiff Pamela Rubeo is a citizen of Illinois, residing in Chicago.
12.
Defendant ADT, LLC d/b/a ADT Security Services is a Delaware
corporation with its principal place of business in Florida. ADT provides alarm and
monitoring services in California and nationwide through its authorized dealers or
directly.
ADT AUTHORIZED DEALERS
13.
Defendant and its authorized dealers were agents or joint venturers of
each other at all times mentioned herein and in entering into and enforcing ADT’s
contracts its authorized dealers were acting within the course and scope of such
agency and/or joint venture. Defendant had actual and/or constructive knowledge of
the acts of its authorized dealers and ratified, approved, joined in and/or authorized
the acts of any authorized dealer in connection with the Unilateral Price Increases
and ETFs and cancellation fees discussed herein.
14.
Whenever an allegation regarding any act of the Defendant is made
herein, such allegation shall be deemed to mean Defendant or its agents, employees,
officers or directors did or authorized such acts while actively engaged in the affairs
of the Defendant and while acting in the scope and course of their agency or
employment.
FACTUAL ALLEGATIONS
Unilateral Price Increases
15.
Defendant is and has at all times relevant to this Complaint been
engaged in the business of selling home security services and equipment, specifically
burglar alarms and monitoring and related goods and services in California and
Illinois, and, on information and belief, nationwide.
16.
The aforementioned goods and services are sold directly by ADT or
through a network of ADT authorized dealers. All direct and indirect sales involve
written contracts and all involve the purchase of goods or services.
17.
Defendant requires customers to abide by a standard customer service
agreement (“Agreement”) that is provided by ADT and by its authorized dealers
directly to its customers. On information and belief, ADT prepares and provides the
form contracts to its authorized dealers.
18.
Defendant distributes the Agreement on a preprinted, standardized form
that is not subject to modification or negotiation. Defendant presents the Agreement
to prospective subscribers on a “take it or leave it” basis. The Agreement is a
contract of adhesion.
19.
The contracts currently used in California are substantially similar to the
Agreements used in Illinois and elsewhere. The Agreement provides, on the front
page – the only page that the subscriber is asked to sign -- a fixed price for the
purchase or an alarm and monitoring service for a fixed contract term. The
Agreements generally provide that the “initial term” of the residential Agreement
shall be two or three years. After the expiration of the initial term, the contract
provides that service continues automatically on a month to month basis, with a
consumer retaining the right to terminate the contract upon 30 days’ written notice.
20.
Upon information and belief, ADT’s contracts consist of several pages,
only the first page of which is required to be signed. The first page of the contract
sets forth the services to be provided and the total monthly service charge for
burglary monitoring and related monitoring services. The total amount of fees due
each month for services is handwritten in the space provided. This form also
specifies the equipment to be installed and prices for that equipment.
21.
Upon information and belief, none of the contracts indicate the sum
total for all payments to be made during the initial term of the contract.
22.
The contracts between ADT and consumers for burglary and monitoring
services, to the extent that they require more than four installment payments, are
retail installment contracts as defined by the Truth in Lending Act (TILA).
23.
TILA requires that the total of all payments, or the total cash price of
the goods or services purchased, be disclosed on any retail installment contract.
24.
Moreover, within the boiler plate of the Agreement, Defendant
unilaterally reserves the right to increase its monthly monitoring rate upon notice to
its customers at any time after the first year of service. This provision is buried
within the contract and does not require signature on the page in which it appears, or
require other acknowledgement. It is this provision upon which Defendant relies to
regularly and uniformly increase rates upon its customers after having locked them
into a multi-year contract purporting to provide a fixed monthly monitoring fee.
25.
Defendant’s practices do not even comply with their own contract
because they do not uniformly provide notice of rate increases. The contract allows
customers to challenge any fee increase within 30 days of notice of the increase.
However, on information and belief, ADT routinely increases its customers’ rates
without any notice whatsoever, expecting consumers to overlook the increase
because it simply appears as a (typically small) increased charge on their bills.
26.
ADT does not disclose, at the time a consumer signs the direct contract
with ADT, the amount by which the service charge will increase, when it will
increase, nor the increase in the total amount due over the initial term.
27.
Because of the manner in which the price for the monthly service charge
is presented on the ADT contract form, reasonable consumers entering into such
contracts are likely to be deceived as to the true cost of the service during the initial
contract term. Furthermore, because ADT does not provide notice of fee increases
even after the initial contract period, reasonable consumers may not become aware of
the fee increase in sufficient time to challenge it or change providers without
incurring additional costs.
28.
Because Defendant fails to disclose the sum total of all required
installment payments due during the initial and extension terms of its contracts, and
deceptively presents the contract rate and cost information to consumers, its acts and
practices violate TILA and the state consumer protection laws set forth herein.
Early Termination Fees
29.
Defendant’s Agreement includes, as a term and condition of service, a
purported liquidated damages clause that requires subscribers to pay an early
termination fee (“ETF”) of 75% of the remaining balance of the contract amount, if
for any reason they seek to terminate service before the expiration of the contract
period, which is typically two or three years.
30.
Some forms of ADT’s contracts provides for a flat fee of $450 to ADT
if the consumer terminates the contract at any time during the first year of the initial
term and $200 to ADT if the consumer terminates at any time during the second of
the two years of the initial term. Thus, a consumer who terminates in the eleventh
month must pay the same ETF as the consumer who terminates in the second month.
31.
Furthermore, the customer must pay the ETF even if cancellation is the
result of non-existent, poor or otherwise inadequate service.
32.
None of the versions of the ETF described herein provide a reasonable
measure of the anticipated or actual loss, if any, that the termination causes
Defendant. Moreover, the actual loss occasioned by termination is readily
ascertainable.
33.
The ETF is not designed to compensate Defendant for damages, if any,
arising from the early termination, but rather is designed to serve as a disincentive
for customers to switch to competing services in the event that they become
dissatisfied with the services provided by Defendant.
34.
If and to the extent that Defendant suffers any damage upon early
termination of a customer’s contract, it is neither impractical nor extremely difficult
to measure or estimate the actual damage. Further, if and to the extent Defendant
suffers any damage upon early termination of a service contract, the ETF of 75% of
the contract amount due and/or the flat fee ETFs are not a reasonable measure or
estimation of such damages.
35.
In addition to deterring customers from entering into contracts with
competing service providers, another purpose of the ETF may be, in some instances,
to recoup alarm equipment costs.
36.
If that is the case, Defendant is disguising a fee to recover equipment
costs and prevent customer defection as a liquidated damages clause, which is an
illegal penalty when damages are readily calculable, as they are here, and when the
charge bears no reasonable relationship to the anticipated harm in the even of a
breach by the other party. The ETF is neither designed nor intended to compensate
Defendant for any damages arising from the termination, but has the effect of
locking in subscribers and discouraging them from switching to competing
providers.
37.
Defendant’s ETF stifles competition in the alarm services industry by
preventing consumers from freely shopping for the best provider.
38.
The ETF is an illegal and void penalty provision that constitutes an
unjust, unconscionable, unlawful, unfair and deceptive practice under applicable law.
39.
Furthermore, Plaintiffs are informed and believe that any request for a
change in service to a new location or to the scope of services provided, can only be
granted with a renewal of the initial contract term, thereby extending the service
contract an additional two or three years as of the date of the change. This required
extension further discourages Plaintiffs and members of the ETF Class from
exploring other service options, changing their service to obtain lower prices or
otherwise modifying their plan because it reinstates early termination penalties.
40.
Plaintiffs are informed and believe that Defendant’s customers are
locked into service agreements beyond the period at which Defendant no longer
needs to “recover” alleged equipment costs.
41.
Plaintiffs are informed and believe that the early termination penalty
provisions have permitted Defendant to collect revenues and generate enormous
profits as a result of: (a) the payment of early termination penalties; and (b) the
revenue generated by tethering Plaintiffs to service for at least the original contract
period and, in many cases, for additional months or years.
FACTS RELATING TO NAMED PLAINTIFFS
42.
Plaintiff Emily Hogan entered into an Agreement with Defendant in
July 2008. Her initial quarterly contract rate was $140.97 per month. Defendant
unilaterally increased her rate, without prior notice, in August 2011. Defendant
again unilaterally increased her rate in March of 2012. Emily Hogan’s Agreement
requires notification of any rate increase. The contract provides that Ms. Hogan
would have the right to challenge, in writing, any rate increase within 30 days of
notice of the increase. The contract further provides that ADT may then agree to
waive the increase however, if ADT does not do so, Ms. Hogan would have to
provide 30 days’ notice of termination.
43.
This provision provides another disguised penalty fee for ADT. If ADT
does not waive its increased fee, a customer would be charged that fee for at least
another month or two before ADT would allow them to terminate.
44.
Plaintiff Pamela Rubeo entered into an Agreement with Defendant in
March 2011. Her home was burglarized in September 2011, despite the fact that her
alarm system was activated that morning. After reporting the burglary, Rubeo was
advised by ADT that the alarm she had purchased from Protect Your Home, an ADT
Authorized Dealer, was obsolete and was not being sold by ADT. Because Rubeo
had not realized that the alarm they purchased could so easily be bypassed, she
elected to terminate her relationship with ADT and its authorized dealer. She
notified ADT and Protect Your Home in writing and sought to cancel her contract
without penalty. Despite being advised that ADT would not pursue an ETF penalty,
she was advised months later by the Dealer that an ETF would be applied, and she
was subsequently billed $743.19 for early termination of her contract. After having
been burglarized and lost thousands of dollars worth of possessions, she was now
being penalized by the very company that was supposed to protect her home in the
first place. Because she did not want to have this wrongful bill negatively impact her
credit, she has been making payments toward a reduced amount that ADT and its
agent, Protect Your Home, agreed to accept.
45.
Plaintiff is entitled to recoupment of the ETF payments that have been
made because the ETF is an illegal and unenforceable penalty.
CLASS ACTION ALLEGATIONS
46.
Plaintiffs bring all claims herein as class claims pursuant to Fed. R. Civ.
P. 23. The requirements of Fed. R. Civ. P. 23(a), (b)(2) and (b)(3) are met with
respect to the classes defined below (collectively “ETF Class” and “Increased Rate
Class”), of which Plaintiffs are members. Class A is the ETF Class and consists of
all current and former consumer subscribers of Defendant’s alarm monitoring
services in the United States who have been charged or are subject to an ETF or
other fee related to the cancellation of service. Class B is the Increased Fee Class
that consists of all current and former consumer subscribers of Defendant’s alarm
monitoring services in the United States who have been charged or are subject to a
fee increase which fee was not specifically disclosed prior to the provision of
services subject to such increased fee.
47.
Plaintiffs also seek to represent subclasses defined as: (i) all current and
former consumer subscribers of Defendant’s alarm monitoring services in California
and Illinois who have been charged or are subject to an ETF or other fee related to
the cancellation of service; and (ii) all current and former consumer subscribers of
Defendant’s alarm monitoring services in California and Illinois who have been
charged or are subject to a fee increase which fee was not specifically disclosed prior
to the provision of services subject to such increased fee.
48.
Excluded from the Classes are members of the judiciary, Defendant, any
entity in which it has a controlling interest, and officers and directors and the
members of their immediate families. Plaintiffs specifically reserve the right to
amend the Classes after further investigation and discovery.
49.
At this time, Plaintiffs do not know the exact size of the Classes;
however, due to the nature of the trade and commerce involved, Plaintiffs believe the
Class Members are so numerous that joinder of all members is impracticable. The
number of class members can be determined through discovery of Defendant’s
records.
50.
This action involves questions of law and fact common to Plaintiff and
all members of the Class, which include the following:
(a)
Whether Defendant’s Agreement is a retail installment contract;
(b)
Whether Defendant’s Agreement is governed by TILA, and if so
whether the requirements of TILA were met;
(c)
Whether Defendant breached its Agreement by failing to provide
advance notice to its customers of fee increases;
(d)
Whether the ETF is an unlawful penalty;
(e)
Whether Defendant charged Class members ETFs;
(f)
Whether Defendant’s conduct constitutes deceptive, unfair and/or
oppressive conduct;
(g)
Whether Defendant is/was unjustly enriched;
(h)
Whether Defendant intended the ETF to restrict Class members’
ability to switch providers or subsidize the cost of alarm systems purchased by
Plaintiffs and the Class from Defendant;
(i)
Whether Declaratory Relief is appropriate; and
(j)
Whether Plaintiffs and the Class have been damaged, and, if so
the proper measure of damages.
51.
These and other questions of law and/or fact are common to the Class
and predominate over any questions affecting only individual Class members.
52.
The claims of the named Plaintiffs are typical of the claims of the
proposed Classes, and Plaintiffs will fairly and adequately protect the interests of the
Classes and have no interests adverse to, or which directly conflict with, the interests
of the other members of the Classes.
53.
Plaintiffs have engaged the services of counsel who are experienced in
complex class litigation, who will adequately prosecute this action, and who will
assert and protect the rights of and otherwise represent Plaintiffs and the absent Class
Members.
The Prerequisites of Rule 23(b)(2) are Satisfied
54.
The prerequisites to maintaining a class action for injunctive and
equitable relief exist as Defendant has acted or refused to act on grounds generally
applicable to the Classes thereby making appropriate final injunctive and equitable
relief with respect to the Classes as a whole.
55.
The prosecution of separate actions by members of the Classes would
create a risk of establishing incompatible standards of conduct for Defendant.
56.
Defendant’s actions are generally applicable to the Classes as a whole,
and Plaintiffs seek, inter alia, equitable remedies with respect to the Classes as a
whole.
57.
Defendant’s systemic policy and practice makes declaratory relief with
respect to the Classes as a whole appropriate.
The Prerequisites of Rule 23(b)(3) are Satisfied
58.
The common questions of law and fact enumerated above predominate
over questions affecting only individual members of the Classes, and a class action is
the superior method for fair and efficient adjudication of this controversy. The
likelihood that individual members of the Classes will prosecute separate actions is
remote due to the extensive time and considerable expense necessary to conduct such
litigation, especially in view of the relatively modest amount of monetary, injunctive
and equitable relief at issue for each individual member of the Classes. This action
will be prosecuted in a fashion to ensure the Court’s able management of this case as
a class action on behalf of the classes identified above.
COUNT I
Violation of the Unfair Competition Law, California Business & Professions
Code Sections 17200, et seq.
(California Subclass only)
59.
Plaintiffs incorporate the above allegations by reference as though fully
set forth herein.
60.
Plaintiff Hogan brings this claim individually and on behalf of the
California Subclass members, as defined above.
61.
The acts and practices engaged in by Defendant and described herein
constitute unlawful, unfair, and fraudulent business practices in that they impose
ETFs and cancellation fees that are unreasonable, invalid and unfair because they are
not reasonably related to the loss or damage suffered by ADT.
62.
Defendant’s actions are also unlawful, unfair and/or fraudulent in that
they: (i) fail to adequately disclose material information including the ETFs and
cancellation provisions of their contracts; (ii) fail to adequately disclose material
information including that ADT reserves the right to unilaterally increase its fees at
any time; (ii) fails to adequately disclose that contract terms may be required to be
extended (or an ETF applied) if a customer moves or changes the terms of service
prior to the expiration of his/her initial contract term; (iii) includes unconscionable
and unenforceable terms and conditions in its form contracts that Class members
never accepted or otherwise agreed to; (iv) implements an ETF and cancellation fee
for the purpose of retaining customers; (vi) fails to provide full disclosure at the
inception of the contract period of amounts due under the contract, including
amounts due under any proposed fee increases; and (vii) fails to provide advance
notice of any fee increases.
63.
Defendant intended or consciously disregarded that Plaintiff Hogan and
the California Subclass members would rely on its omissions, misrepresentations,
and practices so that customers would become enrolled and face fees if they
cancelled services for any reason, including that the services provided were
inadequate or failed of their essential purpose.
64.
Pursuant to Cal. Bus. & Prof. Code Section 17203, Plaintiff Hogan and
the California Subclass members are therefore entitled to equitable relief, including
restitution of all monies paid to ADT by the imposition of the ETF and cancellation
fees and unauthorized fee increases, disgorgement of all profits accruing to ADT
because of its unlawful, unfair and fraudulent business practices, a permanent
injunction enjoining ADT from its unlawful, unfair and fraudulent business activities
as alleged herein, and appropriate declaratory relief as described herein.
COUNT II
Violation of Consumers Legal Remedies Act, California Civil Code Sections
1750, et seq.
(California Subclass Only)
65.
Plaintiffs incorporate the above allegations by reference as though fully
set forth herein.
66.
Plaintiff Hogan brings this claim individually and on behalf of the
California Subclass members.
67.
Defendant is a “person” within the meaning of Civil Code Sections
1761(c) and 1770, and provides “services” within the meaning of Civil Code Section
1761(b) and 1770. Defendant’s customers, including Plaintiff Hogan and the
California Subclass members, are “consumers” within the meaning of Civil Code
Section 1761(d) and 1770.
68.
Defendant violated Section 1770(a)(5)’s proscription against
representing that goods or services have sponsorship, approval, characteristics,
ingredients, uses, benefits or quantities that they do not have by failing to adequately
disclose the fees to be assessed under the contracts, including monthly fees, ETFs
and cancellation fees, and by assessing the related fees against Plaintiff Hogan and
the California Subclass members.
69.
Defendant violated Section 1770(a)(9)’s proscription against advertising
goods or services with the intent not to sell them as advertised by failing to provide
advance notice of fee increases as required by its contract and by failing to
adequately disclose the fees to be assessed under the contracts, including monthly
fees, ETFs and cancellation fees, and by assessing the related fees against Plaintiff
Hogan and the California Subclass members.
70.
Defendant violated Section 1770(a)(14)’s proscription against
representing that a transaction confers or involves rights, remedies or obligations that
it does not have or involve, or which are prohibited by law, including by failing to
adequately disclose the fees to be assessed under the contracts, including monthly
fees, ETFs and cancellation fees, and by assessing the related fees against Plaintiff
Hogan and the California Subclass members.
71.
Defendant violated Section 1770(a)(19) by inserting unconscionable
provisions in the Agreement, including the ETF and other clauses that limit ADT’s
liability for its own intentional misconduct, that purport to limit the statutes of
limitation under which consumers can bring suit for breach of the Agreement and
other claims, and that allow ADT to unilaterally increase fees.
72.
Defendant has a duty to disclose all monthly fees and charges to be
assessed during the contract period prior to completing the transaction which triggers
these contractual obligations. ADT failed to do so.
73.
The facts concealed or inadequately disclosed by Defendant were
material, in that a reasonable person would have considered them important in
deciding whether or not to subscribe to ADT’s services.
74.
Defendant’s concealment and deceptive practices, in violation of the
CLRA, were designed to induce Plaintiff Hogan and the California Subclass
members to subscribe to ADT’s services.
75.
Defendant intended to do the act that was deceptive and/or fraudulent,
to market and sell ADT services without disclosing the material terms of service
described herein, and by omitting to advise customers of the conditions under which
their contracts would be extended and additional fees assessed.
76.
Plaintiff Hogan and the California Subclass members suffered actual
damages as a direct result of Defendant’s concealment and/or omissions.
77.
To this day, ADT continues to violate the CLRA by assessing
unreasonable ETF’s and cancellation fees and failing to disclose fee increases prior
to their assessment or prior to entering into a contract for service.
78.
Plaintiff Hogan has complied with California Civil Code Section
1782(a) by serving a preliminary notice before filing a complaint for damages under
the Consumers Legal Remedies Act, Cal. Civil Code Section 1750, et seq.
79.
Defendant has failed to remedy its conduct as demanded in Plaintiffs’s
preliminary notices.
80.
Pursuant to the provisions of Cal. Civ. Code Section 1780, Plaintiff
Hogan on behalf of herself and the California Subclass members seek injunctive
relief, restitution, compensatory and punitive damages pursuant to Cal. Civil Code
Sections 1780, 1782(b) as requested herein, and any other relief this Court deems
appropriate.
COUNT III
Violation of California Civil Code Section 1671
(California Subclass Only)
81.
Plaintiffs incorporate the above allegations by reference as though fully
set forth herein.
82.
Plaintiff Hogan brings this claim individually and on behalf of the
California Subclass members.
83.
It is neither impractical nor extremely difficult for ADT to determine
the actual amount of damages occasioned by a customer’s early termination of the
purported Agreement.
84.
ADT’s ETFs bear no reasonable relationship to the actual costs incurred
by ADT when customers cancel their service. Rather, the ETFs are intended as a
penalty to dissuade Class members from cancelling ADT’s service.
85.
Based on the foregoing, the ETF is an invalid liquidated damages
provision and imposition of the ETF violated Cal. Civil Code Section 1671(d) and is
unlawful, void and unenforceable under this statute.
86.
The California Subclass members have suffered harm as a proximate
result of the violations of law and wrongful conduct of ADT as alleged herein.
Pursuant to Cal. Civil Code Section 1671(d), Plaintiff Hogan seeks an order of this
Court declaring the ETF contained in the Agreement void and preliminarily and
permanently enjoining ADT from further enforcement and collection of ETFs as
alleged herein.
87.
Plaintiff Hogan also seeks an order requiring ADT to immediately cease
its unlawful practices; make full restitution of all money wrongfully obtained; and
disgorge all ill-gotten revenues and/or profits.
COUNT IV
Violation of the Illinois Consumer Fraud and Deceptive Business Practices Act
and Similar Consumer Protection Statutes in Other States
(Illinois and Non-California Class)
88.
Plaintiffs incorporate the above allegations by reference as though fully
set forth herein.
89.
Plaintiffs bring this claim individually and on behalf of the Illinois
Subclass and all Non-California Class members.
90.
At all times relevant hereto there was in full force and effect the Illinois
Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1 et. seq. (the
“Act”). Similar statutes, identical in their material respects, are in effect in most
other jurisdictions within the United States1.
91.
Section 2 of the Act provides in relevant part as follows:
Unfair methods of competition and unfair or deceptive acts or
practices, including but not limited to the use or employment of
any deceptive, fraud, false pretense, false promise,
misrepresentation or the concealment, suppression or omission of
any material fact, with intent that others rely upon the
concealment, suppression or omission of such material fact, or the
use or employment of any practice described in Section 2 of the
“Uniform Deceptive Trade Practices Act,” approved August 5,
1965, in the conduct of any trade or commerce are hereby
declared unlawful whether any person has in fact been misled,
deceived or damaged thereby.
815 ILCS 505/2 (footnotes omitted).
92.
Plaintiffs and other members of the Class, as subscribers of ADT’s
services, are consumers within the meaning of the Act and similar consumer fraud
acts given that Defendant’s business activities involve trade or commerce, are
1 The consumer fraud claims of Pamela Rubeo and absent class members who are
current or former subscribers of ADT’s services in Illinois are brought under the Act.
The consumer fraud claims of absent class members who are current or former
subscribers of ADT’s services in states other than California are brought under the
consumer protection statute(s) of their respective states of subscription.
addressed to the market generally and otherwise implicate consumer protection
concerns.
93.
As detailed above, Defendant, failed to disclose material information
including: (i) the fees to be assessed to consumers, including any increases of the
monthly fees to be assessed during the initial contract term or in advance of any
contract extensions; (ii) that moving or changing service during the contract term
may result in extending the original contractual obligation by an additional two or
three years or trigger an assessment of an ETF penalty.
94.
Defendant used unconscionable commercial practices, deception, fraud,
false promise and misrepresentation by: (i) imposing an ETF and cancellation fees
that are invalid and unfair and hence a penalty, and representing that such amounts
are due and owed; (ii) charging ETF’s and cancellation fees that are not reasonably
related to the loss or damage suffered by ADT; including unconscionable and
unenforceable terms and conditions in the Agreement; and (iii) implementing an
ETF for the purpose of retaining customers.
95.
The imposition of an ETF is deceptive because ADT describes it as a
liquidated damages clause and states that its damages are difficult or impracticable to
calculate when, in fact, it is a charge intended to tether the customer to Defendant
and/or recover the cost of equipment. ADT’s damages, if any, are in fact quite
simple to calculate and/or recover.
96.
The imposition of an ETF is unfair because it is imposed even when
ADT does not suffer any damages from a class member’s early cancellation, such as
when the alarm equipment was not provided by ADT and no further monitoring is to
take place.
97.
The ETF is an illegal penalty and is unfair because it offends public
policy; is so oppressive that the consumer has little alternative but to submit (e.g.
Defendant turns delinquent accounts over to collections and negatively impacts
consumers’ credit history); and causes consumers substantial injury.
98.
Defendant’s unilateral fee increases are unfair because Defendant does
not properly disclose the full amount of contract fees its customers will be required
to pay in the initial contract document.
99.
Defendant’s unilateral fee increase is also unfair and deceptive because
its reservation of the right to unilaterally increase fees is buried in a boilerplate
contract of adhesion where it is not signed or attested to. The first page of the
contract is the only page that is signed and it specifically refers to other provisions of
the contract, including those in which ADT purports to limit its own liability, but this
provision is not referenced.
100.
Defendant’s unilateral fee increase is also invalid because it violates
TILA.
101.
Defendant intended or consciously disregarded that Plaintiffs and absent
Class members would rely on its omissions, misrepresentations and practices so that
customers would enroll with ADT and face increased fees while under contract and
fees if they cancelled service.
102.
By the conduct described herein, ADT has engaged in unfair methods of
competition, unconscionable acts or practices, and unfair or deceptive acts or
practices in the conduct of trade or commerce.
103.
The representations made by ADT were likely to deceive reasonable
consumers and a reasonable consumer would have relied on those representations
and omissions.
104.
Had ADT disclosed all material information regarding its services,
Plaintiff and the non-California Class members would not have subscribed to ADT’s
services.
105.
Plaintiff Rubeo and the non-California Class members suffered damages
as a proximate result of the unfair acts or practices of Defendant alleged herein.
Defendant’s misrepresentations and/or omissions of material fact were done
knowingly, intentionally, willfully or with reckless disregard for the consequences of
its actions.
COUNT V
Declaratory Relief Pursuant to 28 U.S.C. Section 2201
106.
Plaintiffs incorporate the above allegations by reference as though fully
set forth herein.
107.
Plaintiffs bring this claim individually and on behalf of the Class
members.
108.
There is an actual controversy between ADT and the Classes concerning
the enforceability of the Unilateral Price Increase and ETF and cancellation
provisions contained in the customer service agreements to which they are all parties.
109.
Pursuant to 28 U.S.C. Section 2201 this Court may “declare the rights
and legal relations of any interested party seeking such declaration, whether or not
further relief is or could be sought.”
110.
Plaintiffs are interested parties who seek declarations of their rights and
legal relations vis-à-vis ADT with regard to the Unilateral Price Increase and ETF
and cancellation provisions contained in the customer service agreements to which
they are all parties.
111.
An actual controversy has arisen and now exists between Plaintiffs and
Defendant because Plaintiffs contend and ADT denies that: (i) the Unilateral Price
Increase and ETF and cancellation provisions contained in the customer service
agreements constitute unlawful, unfair and/or deceptive business practices; (ii) the
ETF and cancellation provisions are invalid liquidated damages clauses and are
therefore void; (iii) the Agreements are credit arrangements governed by TILA and
ADT’s failure to accurately disclose the fees to be paid by Class members in advance
of providing services rendered for those fees violates TILA.
112.
Plaintiffs and Class members who were charged and paid Unilateral
Price Increases and ETF and cancellation fees have been harmed because they paid a
charge which was not legally due and owing.
113.
Plaintiffs and Class members who were charged and who did not pay
ADT have also been harmed because their credit has been damaged due to ADT’s
reporting of a debt that is due and owing.
114.
A declaration of rights and responsibilities is also necessary for parties
who have not been charged these unlawful fees but who are under contract with
ADT and susceptible to imposition of these unlawful fees and price increases.
COUNT VI
Violation of the Truth in Lending Act (15 U.S.C. § 1601 et seq.)
115.
Plaintiffs incorporate the above allegations by reference as though fully
set forth herein.
116.
On information and belief, most if not all residential contracts with
ADT require more than four installment payments during the initial term of each
contract.
117.
These transactions are credit sales pursuant to 15 U.S.C. § 1602(g) and
12 C.F.R . § 226.2(a)(16).
118.
Pursuant to 15 U.S.C. § 1638 (a)(6) and 12 C.F.R . § 226.18(g), ADT is
required to disclose on its contracts with consumers the total sale price (cash price,
additional charges and finance charges, if any) using that term, and a descriptive
explanation.
119.
ADT is also required to disclose any dollar or percentage charge that
may be imposed before maturity due to a late payment. ADT is further required to
disclose that the consumer should refer to the contract for information about
nonpayment and default.
120.
These disclosures must be made clearly and conspicuously in writing,
grouped together with no extraneous information. Defendant has failed to make the
appropriate disclosures.
121.
ADT intended that Plaintiffs rely upon ADT’s disclosures (or lack of
appropriate disclosures) and Plaintiffs did so rely.
122.
As a result, Plaintiffs have sustained actual damages and are entitled to
statutory damages for non-compliance with TILA.
COUNT VII
Unjust Enrichment
123.
Plaintiffs incorporates the above allegations by reference as though fully
set forth herein.
124.
Plaintiffs brings this claim individually and on behalf of the Class.
125.
Defendant received and retained a benefit conferred by Plaintiffs and
Class Members at their expense through imposition of Unilateral Price Increases and
ETF and cancellation fees.
126.
ADT has benefited unjustly at Plaintiffs’ and Class members’ expense,
which in equity and good conscience ADT should not be permitted to retain.
127.
Defendant has been unjustly enriched in retaining the revenues derived
from Class members’ purchases of the Treatment, which retention of such revenues
under these circumstances is unjust and inequitable because ADT’s ETF and
cancellation provisions are illegal penalties, are not based upon any reasonable
assessment of ADT’s damages upon a customer’s breach, are imposed when ADT
itself fails to provide adequate equipment and service under the contract or under
other circumstances that do not constitute a customer breach, and because ADT’s
Unilateral Price Increases are not disclosed at the time of contracting or prior to the
receipt of services subject to the purported fee and are therefore violative of TILA
and consumer protection laws intended to protect customers from deceptive and/or
fraudulent practices.
WHEREFORE, Plaintiffs, individually and on behalf of the Class of Persons
described herein, themselves and all others similarly situated, pray for the following
relief:
A.
An Order certifying the Classes as defined above;
B.
Designating Plaintiffs as representatives of the Class and their counsel
as Class counsel;
C.
Entering judgment in favor of Plaintiffs and the Classes and against
ADT;
D.
A declaration that the early termination fee and cancellation provisions
are unlawful penalties and violate the consumer fraud laws asserted herein;
E.
A declaration that the contracts are retail installment contracts governed
by TILA and that Defendant failed to properly comply with TILA in that, among
other things, its unilateral price increases were not properly disclosed prior to the
inception of a contract term.
F.
Preliminary and permanent injunctive relief enjoining Defendant from
engaging in all deceptive, unjust and unreasonable practices described herein;
G.
Awarding Plaintiffs and the Class members their individual damages,
statutory damages and attorneys’ fees and allowing costs, including interest thereon;
and
H.
Such other and further relief as the Court deems appropriate.
DEMAND FOR JURY TRIAL
Plaintiff hereby demands trial of her claims by jury to the extent authorized by
law.
Dated: December 10, 2012
Respectfully submitted,
BURSOR & FISHER, P.A
By:
L. Timothy Fisher
L. Timothy Fisher (State Bar No. 191626)
Sarah N. Westcot (State Bar No. 264916)
1990 North California Boulevard, Suite 940
Walnut Creek, CA 94596
Telephone: (925) 300-4455
Facsimile: (925) 407-2700
E-Mail: [email protected]
[email protected]
MORGAN & MORGAN, P.C.
Peter Safirstein
Elizabeth S. Metcalf
Five Penn Plaza, 23rd Fl.
New York, NY 10001
Telephone: (212) 564-1637
Facsimile: (212) 564-1807
Email: [email protected]
[email protected]
MORGAN & MORGAN, P.C.
Christopher S. Polaszek
One Tampa City Center
201 N. Franklin St., 7th Fl.
Tampa, FL 33602
Telephone: (813) 314-6484
Facsimile: (813) 222-2406
Email: [email protected]
LAW OFFICE OF JANA EISINGER,
PLLC
Jana Eisinger
11 West Prospect Avenue
Mount Vernon, New York 10550
Telephone: (914) 418-4111
Facsimile: (914) 455-0213
Email: [email protected],
Attorneys for Plaintiff
| securities |
A0Zn_YgBF5pVm5zYXf9u |
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
XUECHUN LI, Individually and
On Behalf of All Others Similarly Situated,
Plaintiff,
vs.
Civil Action:
CLASS ACTION COMPLAINT FOR
VIOLATIONS OF THE FEDERAL
SECURITIES LAWS
JURY TRIAL DEMANDED
GRIDSUM HOLDING INC., GUOSHENG
WI, PENG ZHANG, GOLDMAN SACHS
(ASIA) L.L.C., CITIGROUP GLOBAL
MARKETS INC. and STIFEL, NICOLAUS &
COMPANY INCORPORATED,
Defendants.
Plaintiff (“Plaintiff”), individually and on behalf of all other persons similarly situated, by
his undersigned attorneys, for his complaint against Defendants, alleges the following based upon
personal knowledge as to himself and his own acts, and information and belief as to all other
matters, based upon, inter alia, the investigation conducted by and through his attorneys, which
included, among other things, a review of Defendants’ public documents, United States Securities
and Exchange Commission (“SEC”) filings, wire and press releases published by and regarding
Gridsum Holding Inc. (“Gridsum” 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 Gridsum securities between
September 22, 2016 through April 20, 2018, both dates inclusive (the “Class Period”), seeking to
recover damages caused by Defendants’ violations of the federal securities laws and to pursue
remedies under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange
Act”) and Rule 10b-5 promulgated thereunder and violations of Sections 11 and 15 of the
Securities Act of 1933 (the “Securities Act”), against the Company, certain of its top officials and
the Underwriter Defendants (defined below).
2.
Gridsum Holding, Inc. is a holding company that designs and develops
sophisticated data analysis software for multinational and domestic enterprises and government
agencies in China. The Company offers software that allows customers to collect and analyze
information that is collected, indexed, and stored in an organized manner.
3.
Founded in 2005, Gridsum is headquartered in Beijing, China, and its American
Depositary Shares (“ADSs”) trade on the NASDAQ Global Select Market (“NASDAQ”) under
the ticker symbol “GSUM.”
4.
In the Company’s initial public offer (the “IPO”) documents and throughout the
Class Period, Defendants made materially false and misleading statements regarding the
Company’s business, operational and compliance policies. Specifically, Defendants made false
and/or misleading statements and/or failed to disclose that: (i) Gridsum lacked effective internal
control over financial reporting; (ii) consequently, Gridsum’s financial statements were inaccurate
and misleading, and did not fairly present, in all material respects, the financial condition and
results of operations of the Company; and (iii) as a result of the foregoing, Gridsum’s public
statements were materially false and misleading at all relevant times.
5.
On April 23, 2018, Gridsum issued a press release entitled “Gridsum Reports
Suspension of Audit Report on Financial Statements,” announcing that its “audit report for the
2
Company’s financial statements for the year ended December 31, 2016 should no longer be relied
upon.” According to the press release, Gridsum’s auditor identified certain issues in conducting
its audit of Gridsum’s financial results for the year ended December 31, 2017. Those issues related
to “certain revenue recognition, cash flow, cost, expense items, and their underlying
documentation which [the auditor] had previously raised” with Gridsum.
JURISDICTION AND VENUE
6.
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) and Sections 11 and 15 of the Securities Act (15 U.S.C. § 77k and §
77o, respectively).
7.
This Court has jurisdiction over the subject matter of this action pursuant to 28
U.S.C. §§ 1331, Section 27 of the Exchange Act, and Section 22 of the Securities Act (15 U.S.C.
8.
Venue is properly laid in this District pursuant to Section 27 of the Exchange Act,
Section 22 of the Securities Act (15 U.S.C. § 77v) and 28 U.S.C. §1391(b). Gridsum’s ADSs
trades under the NASDAQ, located within this District.
9.
In connection with the acts, conduct and other wrongs alleged in this Complaint,
Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,
including but not limited to, the United States mail, interstate telephone communications and the
facilities of the national securities exchange.
3
PARTIES
10.
Plaintiff, as set forth in the attached Certification, acquired Gridsum securities
traceable to the Company’s IPO and at artificially inflated prices during the Class Period and was
damaged upon the revelation of the alleged corrective disclosures.
11.
Defendant Gridsum is headquartered in China, with principal executive offices
located at Jade Palace Hotel Office Building, 76 Zhichun Road Haidian District, 8th Floor, Beijing,
China 100086. Gridsum’s ADRs trade on the NASDAQ under the ticker symbol “GSUM.”
12.
Defendant Guosheng Qi (“Qi”) founded and has served at all relevant times as the
Company’s Chief Executive Officer (“CEO”) and Chairman. Defendant Qi signed the Company’s
Registration Statement.
13.
Defendant (Michael) Peng Zhang (“Zhang”) has served as the Company’s Chief
Financial Officer (“CFO”) since February 2014. Defendant Zhang signed the Company’s
Registration Statement.
14.
Defendant Goldman Sachs (Asia) L.L.C. (“Goldman Sachs”) served as an
underwriter to Gridsum in connection with the Offering. Goldman beneficially owns 10% or
more of our ordinary shares of the Company.
15.
Defendant Citigroup Global Markets Inc. (“Citigroup”) served as an underwriter
to Gridsum in connection with the Offering.
16.
Defendant Stifel, Nicolaus & Company, Incorporated (“Stifel”) served as an
underwriter to Gridsum in connection with the Offering.
17.
Defendants referenced above in ¶¶ 12-13 are sometimes referred to herein as the
“Individual Defendants.”
4
18.
Defendants referenced above in ¶¶ 14-16 are sometimes referred to herein as the
“Underwriter Defendants.”
SUBSTANTIVE ALLEGATIONS
19.
On September 21, 2016, the Company filed with the SEC a Form F-1 Registration
Statement which offered 6,521,740 American depositary shares of Gridsum American Depositary
Shares. The Form F-1 provided Gridsum shareholders with summary consolidated statements of
operations data for the six months ended June 30, 2015 and 2016, and summary consolidated
balance sheet data as of June 30, 2016, which was derived from the Company’s unaudited interim
consolidated financial statements. The unaudited interim consolidated financial statements were
prepared on the same basis as the Company’s audited consolidated financial statements and include
all adjustments, consisting of normal and recurring adjustments, that the Company consider
necessary for a fair statement of our financial position and operating results for the periods
presented.
20.
The Form F-1 Registration statement proved in relevant part:
You should read this Summary Consolidated Financial Data section together with
our consolidated financial statements and the related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus. Our consolidated financial statements are
prepared in accordance with U.S. GAAP. Our historical results are not necessarily
indicative of results expected for future periods.
5
21.
On September 22, 2016, the Company filed with the SEC a prospectus offering
Gridsum ADSs at $13.00:
6
22.
The Company’s offering material contained summary consolidated statements of
operations data for the six months ended June 30, 2015 and 2016, and summary consolidated
balance sheet data as of June 30, 2016.
23.
The Company’s offering material stated in relevant part:
We have grown rapidly in recent periods, with net revenues in 2013, 2014 and 2015
of RMB62.5 million, RMB124.5 million and RMB234.8 million (US$35.3
million), respectively, representing year-over-year growth of 99% and 89%,
respectively, and net revenues in the six months ended June 30, 2015 and 2016 of
RMB84.6 million and RMB148.1 million (US$22.3 million), respectively,
representing period-over-period growth of 75%. We have continued to make
expenditures and investments, including in our technologies, personnel, sales and
marketing, infrastructure and operations, and incurred net losses of RMB30.7
million, RMB37.3 million, RMB48.8 million (US$7.3 million) and RMB29.7
million (US$4.5 million) in 2013, 2014, 2015 and the six months ended June 30,
2016, respectively. Our customers increased in number from 141 in 2013 to 211 in
2014 and 307 in 2015, and over the same period, our average customer contribution
increased 33% and 30% year over year. We enjoy high customer loyalty and
revenue retention, with 168%, 116% and 138% revenue retention rates in 2013,
2014 and 2015, respectively. We calculate average customer contribution by
dividing total net revenues in a period by total number of customers in the same
period. Our revenue retention rate consists of aggregate net revenues from all
customers in the prior period that remain customers in the current period, divided
by total net revenues from all customers in that prior period.
24.
On March 15, 2017, the Company issued a press release entitled “Gridsum Reports
Unaudited Fourth Quarter and Full Year 2016 Financial Results.” It was in this press release that
the Company stated:
BEIJING, March 15, 2017 (GLOBE NEWSWIRE) — Gridsum Holding Inc.
(“Gridsum” or the “Company”) (NASDAQ: GSUM), a leading provider of cloud-
based data analytics solutions in China, today reported its unaudited financial
results for the fourth quarter and full year ended December 31, 2016. The Company
will hold a conference call at 8:30 p.m. Eastern Time on March 15, 2017, or 8:30
a.m. Beijing Time on March 16, 2017. Dial-in details are provided at the end of this
release.
Fourth Quarter 2016 Financial Highlights
•
Net revenues increased by 66.7% to RMB153.5 million (US$22.1 million)
from RMB92.1 million in the comparable period in 2015, driven by 62.7%
7
growth in Enterprise revenues and 116.4% increase in e-Government and
other revenues.
•
Gross profit increased by 70.0% to RMB131.7 million (US$19.0 million)
from RMB77.5 million in the comparable period in 2015.
•
Income from operations increased by 133.2% to RMB7.3 million (US$1.0
million) from RMB3.1 million in the comparable period in 2015.
Full Year 2016 Financial Highlights
•
Net revenues increased by 70.4% to RMB400.3 million (US$57.6 million)
from RMB234.8 million in the prior year, driven by 68.1% growth in
Enterprise revenues and 101.6% increase in e-Government and other
revenues.
•
Gross profit increased by 73.7% to RMB346.8 million (US$49.9 million)
from RMB199.6 million in the prior year.
•
Loss from operations narrowed by 19.5% to RMB36.8 million (US$5.3
million) from RMB45.7 million in the prior year.
“We are delighted to report another quarter of solid growth in both our financial
and operating performance,” stated Mr. Guosheng Qi, Chief Executive Officer of
Gridsum. “Our topline continued to witness significant momentum in the quarter
with revenues exceeding our expectations. This strong performance was driven by
both new customer wins as well as an increase in average revenue per customer. In
2016, we had 395 total customers, representing a 28.7% year-over-year increase.
Additionally, average revenue per customer increased by 35.5% year over year to
RMB1.0 million. These solid metrics demonstrate that our innovative DNA is a
core component of our success, and our commitment to strengthen our R&D
capabilities remains robust. This is exemplified by the increase in the number of
granted and pending patents, which have accumulated to over 60 and 1,500 as of
December 31, 2016, respectively. In addition, we are pleased to announce that
Gridsum has established a strategic alliance with Tencent Cloud, the cloud
computing arm of Tencent Group that focuses on government and business
customers. This collaboration will initially explore ways to jointly leverage both
Tencent’s impressive bank of technology as well as our big-data, machine-learning
platform focused toward products and solutions for the legal services sector. Going
forward, we will continue to leverage our first-mover advantage, competitive
product offerings as well as our leading big data, machine learning and artificial
intelligence (AI) platform to further penetrate into new markets. We firmly believe
in the immense market potential in China for Gridsum and our ability to seize upon
these opportunities to generate significant value for our shareholders going
forward.”
8
Mr. Michael Zhang, Chief Financial Officer of the Company, commented, “Driven
by a 62.7% increase in Enterprise revenues and a 116.4% increase in e-Government
and other revenues, our net revenues experienced solid growth of 66.7% year over
year in the fourth quarter. Meanwhile, our 2016 full year revenues increased by
70.4% year over year. As our business grows, we will continue to invest to further
strengthen our portfolio of products and the robustness of those products, as well
as to broaden Gridsum’s market visibility with targeted investment into sales and
marketing to fuel our continued growth. We will also continue to expand into new
markets that possess significant growth potential and believe we are well
positioned, with the right strategy, to capitalize on this dynamic growth momentum
and further fortify our position as China’s leading cloud-based data analytics and
enterprise SaaS provider.”
Fourth Quarter 2016 Financial Results
REVENUES: Net revenues for the fourth quarter of 2016 increased by 66.7% to
RMB153.5 million (US$22.1 million) from RMB92.1 million in the comparable
period in 2015, driven by strong growth in Enterprise revenues and e-Government
and other revenues.
Enterprise revenues increased by 62.7% to RMB128.4 million (US$18.5 million)
in the fourth quarter of 2016 from RMB78.9 million in the comparable period in
2015. This growth was due to an increased number of customers as well as
increased average revenue per customer. e-Government and other revenues
increased by 116.4% to RMB30.0 million (US$4.3 million) in the fourth quarter of
2016 from RMB13.9 million in the comparable period in 2015. This growth was
due to the increased demand from both e-Government and Law Dissector
customers.
25.
On April 27, 2017, Gridsum filed an Annual Report on Form 20-F with the SEC,
announcing the Company’s financial and operating results for the quarter and fiscal year ended
December 31, 2016 (the “2016 20-F”). For fiscal year 2016, Gridsum reported a net loss of $67.69
million, or $6.47 per diluted share, on revenue of $400.26 million, compared to a net loss of $48.82
million, or $8.52 per diluted share, on revenue of $234.84 million for fiscal year 2015.
26.
In the 2016 20-F, the Company stated in relevant part:
Our discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with U.S. GAAP, appearing elsewhere in this annual report. The
preparation of these consolidated financial statements requires us to make
estimates, judgments and assumptions that affect the reported amounts of assets,
9
liabilities, revenues, expenses and related disclosure of contingent assets and
liabilities. We evaluate these estimates, judgments and assumptions on an ongoing
basis for taxes.
Our estimates are based on historical experience and various other assumptions that
we believe to be reasonable under the circumstances. These estimates form the basis
for our judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ materially from such
estimates under different assumptions or conditions.
27.
The 2016 20-F contained signed certifications pursuant to the Sarbanes-Oxley Act
of 2002 by Defendants Qi and Zhang, stating, in relevant part, that the information contained in
the 2016 20-F “fairly presents, in all material respects, the financial condition and results of
operations of the Company.”
28.
On May 26, 2017, Gridsum issued a press release, filed as Exhibit 99.1 to Form 6-
K with the SEC, entitled “Gridsum Reports Unaudited First Quarter 2017 Financial Results.” The
press release stated in relevant part:
“The first quarter of 2017 was another solid quarter with robust financial and
operating results,” stated Mr. Guosheng Qi, Chief Executive Officer of Gridsum.
“We are pleased to see our topline continue its strong growth momentum, primarily
driven by solid customer base expansion, which we target to grow by 30-40% in
2017, and a steady increase in Average Revenue Per User (“ARPU”).
* * *
Mr. Michael Zhang, Chief Financial Officer of the Company, commented, “In the
first quarter of 2017, our net revenues increased by 57.3% year over year to
RMB100.6 million, driven by a solid 51.5% increase in our Enterprise revenues
and 112.4% increase in e-Government and other revenues. The significant growth
of our e-Government and other business was primarily driven by the better-
thanexpected performance in all the three revenue streams of e-Government, new
media and legal services with legal services, in particular, exhibiting exceptional
growth. To fuel further topline growth, we will leverage our superior sales
efficiency and continue our targeted investment in sales and marketing to broaden
our market visibility. R&D will remain another key area of focused investment to
strengthen our technology leadership and drive expansion into new products and
services.”
10
29.
On August 25, 2017, Gridsum issued a press release, filed as Exhibit 99.1 to Form
6-K with the SEC, entitled “Gridsum Reports Unaudited Second Quarter 2017 Financial Results.”
The press release stated in relevant part:
“We delivered strong financial and operating results once again in the second
quarter of 2017,” stated Mr. Guosheng Qi, Chief Executive Officer of Gridsum.
“Our topline maintained its robust growth trajectory, primarily driven by solid
customer base expansion and increased Average Revenue Per User (‘ARPU’). We
remain on target to grow our customer count by 30% to 40% in 2017. In particular,
we were very effective in cross-selling and upselling our products and services to
existing clients.
* * *
Mr. Michael Zhang, co-Chief Financial Officer of the Company, commented, “In
the second quarter of 2017, our net revenues increased by 43.8% year over year to
RMB120.9 million, driven by a 34.6% increase in our Enterprise revenues and a
123.9% increase in e-Government and other revenues. Although our gross margin
declined from 87.2% to 83.3% year over year, it is within our budgeted range and
expectations as we increased our investment in optimizing and enhancing the
performance and security of our system and database. During the quarter, we also
increased our spending in sales and marketing as well as research and development,
consistent with our strategy of augmenting our brand recognition and solidifying
our technology leadership. At the same time, we are carefully monitoring the ROI
of our investments and making sure that our cost structure is optimized for
efficiency. Going forward, we will continue to prudently invest in our future
growth.”
30.
November 29, 2017, Gridsum issued a press release, filed as Exhibit 99.1 to Form
6-K with the SEC, entitled “Gridsum Reports Unaudited Third Quarter 2017 Financial Results.”
The press release stated in relevant part:
Mr. Guosheng Qi, Chief Executive Officer of Gridsum, commented, “We delivered
another strong quarter of growth driven by our continued effectiveness at attracting
new clients, including companies such as Dyson, Domino’s, Stanley Black and
Decker, Union Life, Viking Cruise, and others, to our core marketing automation
business, and cross selling and upselling additional products and features which
drove growth of average revenue per customer (‘ARPU’) within our expanding
portfolio of clients. We have also made considerable progress in our strategy to
develop solutions for new verticals, such as an intelligent customer relationship
management system (CRM) which is anticipated to be launched next month and
11
the industrial internet of things (IIoT). In August, Mr. Xijian Liu joined us as our
chief strategy officer. He also heads our newly established IIoT division. Mr. Liu’s
more than three decades of IT and strategic management experience at one of the
largest state-owned petrochemical companies in China lays a solid foundation for
our rapid development in the IIoT space. Moving forward, we will continue to
consolidate long-term relationships with our clients and delve deeper into their
businesses by offering solutions to multiple parts of their organizations to help them
with their digital transformations. We continue to target having around half of our
growth being driven by new client additions, and around half from ARPU
expansion.”
* * *
Mr. Michael Zhang, co-Chief Financial Officer of Gridsum, concluded, “During
the quarter, enterprise revenues increased by 47.8% while e-Government and other
revenues increased by an even faster 98.0%, albeit from a smaller base. We
continue to invest for the future while carefully balancing growth opportunities with
a path to profitability. We believe that with rapid top line growth our operating
leverage will become more significant. We have already started to see solid
leverage from our sales and marketing (‘S&M’) spending, and we expect to see
greater stability in our research and development (‘R&D’) and general and
administrative (‘G&A’) spending, which should put us on a stronger path to
profitability. R&D remains a critical element of our business to ensure that we
maintain our leading position in the enterprise SaaS space over the short, medium
and long term. As such, we expect that R&D spending, in absolute terms, to
continue growing at a sustainable level in the coming quarters.”
31.
The statements referenced above were materially false and misleading because
Defendants made false and/or misleading statements, as well as failed to disclose material adverse
facts about the Company’s business, operational and compliance policies. Specifically,
Defendants made false and/or misleading statements and/or failed to disclose that: (i) Gridsum
lacked effective internal control over financial reporting; (ii) consequently, Gridsum’s financial
statements were inaccurate and misleading, and did not fairly present, in all material respects, the
financial condition and results of operations of the Company; and (iii) as a result of the foregoing,
Gridsum’s public statements were materially false and misleading at all relevant times.
THE TRUTH BEGINS TO EMERGE
32.
On April 23, 2018, Gridsum issued a press release entitled “Gridsum Reports
12
Suspension of Audit Report on Financial Statements,” announcing that its “audit report for the
Company’s financial statements for the year ended December 31, 2016 should no longer be
relied upon.” The press release further stated in relevant part:
BEIJING, April 23, 2018 — Gridsum Holding Inc. (“Gridsum” or “Company”)
(NASDAQ:GSUM), a leading provider of cloud-based big-data analytics and
artificial intelligence (“AI”) solutions in China, today reported that on April 20,
2018, PricewaterhouseCoopers Zhong Tian LLP (“PwC”), the Company’s
independent registered public accounting firm, notified the Company’s Board of
Directors and Audit Committee that PwC’s audit report for the Company’s
financial statements for the year ended December 31, 2016 should no longer be
relied upon. Therefore, investors should not rely on that audit opinion.
In its letter, dated April 16, 2018 (“PwC Letter”), PwC informed the Company of
certain issues it had identified in conducting its audit of the Company’s financial
results for the year ended December 31, 2017. Those issues relate to certain
revenue recognition, cash flow, cost, expense items, and their underlying
documentation which PwC had previously raised with the Company. Of the items
specifically identified in the PwC Letter, the Company estimates a 2016 revenue
impact of approximately RMB 2 million and a 2016 expense impact of
approximately RMB 6 million. There can be no assurance that the Company or
PwC will not identify more items as the Company finalizes the review. The Audit
Committee Chairman and the Company’s Co-Chief Financial Officer have
discussed the topics covered by the PwC Letter with representatives of PwC. The
Company’s Audit Committee is fully investigating these issues with assistance
from external legal and accounting advisors and is working diligently toward an
expeditious conclusion of the investigation. The Company undertakes no obligation
to update its disclosures on this topic until the Audit Committee investigation is
complete. Because PwC will not be in a position to issue reports on the Company’s
financial statements until the Audit Committee completes its review and PwC is
satisfied that any outstanding issues have been satisfactorily addressed, the
Company’s 20-F filing will be delayed until such audit is completed.
Mr. Guosheng Qi, Chief Executive Officer of Gridsum, commented, “For many
years, starting well before our IPO, we have been committed to transparency and
good corporate governance and remain so. When we became aware of certain
accounting issues, we immediately took measures to address this situation. Our
Audit Committee started an investigation and appointed a respected global law firm
to conduct that review with the assistance of ‘big four’ forensic accounting
specialists. This work is still ongoing. I have full confidence in the integrity and
professionalism of all parties involved and we hope to report our results as soon as
practicable after that work concludes. Meanwhile, we continue to make good
13
progress in our efforts to grow the Company and expand our product range and
client base. Our fundamentals and business prospects remain robust, and we look
forward to continuing to work toward increasing shareholder value.” [Emphasis
added.].
33.
On this news, Gridsum’s ADR price fell $1.17, or 16.04%, to close at $6.12 on
April 23, 2018.
PLAINTIFF’S CLASS ACTION ALLEGATIONS
34.
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 Gridsum securities during the Class Period (the “Class”) and pursuant to the IPO; 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.
35.
The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, Gridsum 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 Gridsum 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.
36.
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.
14
37.
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.
38.
Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
whether the federal securities laws were violated by Defendants’ acts as
alleged herein;
whether statements made by Defendants to the investing public during the
Class Period misrepresented material facts about the business, operations and management
of Gridsum;
whether Defendants caused Gridsum to issue false and misleading financial
statements during the Class Period;
whether Defendants acted knowingly or recklessly in issuing false and
misleading financial statements;
whether the prices of Gridsum securities during the Class Period were
artificially inflated because of Defendants’ conduct complained of herein; and
whether the members of the Class have sustained damages and, if so, what
is the proper measure of damages.
39.
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
15
wrongs done to them. There will be no difficulty in the management of this action as a class
COUNT I
(Violations of Section 10(b) of the Exchange Act and
Rule 10b-5 Promulgated Thereunder Against All Defendants)
40.
Plaintiff repeats and re-alleges each and every allegation contained above as if fully
set forth herein.
41.
This Count is asserted against defendants and is based upon Section 10(b) of the
Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder by the SEC.
42.
During the Class Period, Defendants engaged in a plan, scheme, conspiracy and
course of conduct, pursuant to which they knowingly or recklessly engaged in acts, transactions,
practices and courses of business which operated as a fraud and deceit upon Plaintiff and the other
members of the Class; made various untrue statements of material facts and omitted to state
material facts necessary in order to make the statements made, in light of the circumstances under
which they were made, not misleading; and employed devices, schemes and artifices to defraud in
connection with the purchase and sale of securities. Such scheme was intended to, and throughout
the Class Period, did: (i) deceive the investing public, including Plaintiff and other Class members,
as alleged herein; (ii) artificially inflate and maintain the market price of Gridsum securities and
(iii) cause Plaintiff and other members of the Class to purchase or otherwise acquire Gridsum
securities and options at artificially inflated prices. In furtherance of this unlawful scheme, plan
and course of conduct, defendants, and each of them, took the actions set forth herein.
43.
Pursuant to the above plan, scheme, conspiracy and course of conduct, each of the
defendants participated directly or indirectly in the preparation and/or issuance of the quarterly
and annual reports, SEC filings, press releases and other statements and documents described
16
above, including statements made to securities analysts and the media that were designed to
influence the market for Gridsum 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 Gridsum’s finances and business prospects.
44.
By virtue of their positions at Gridsum, the Individual 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 Individual Defendants acted with reckless disregard for the truth in that they failed or refused
to ascertain and disclose such facts as would reveal the materially false and misleading nature of
the statements made, although such facts were readily available to defendants. Said acts and
omissions of the Individual Defendants were committed willfully or with reckless disregard for
the truth. In addition, the Individual Defendant knew or recklessly disregarded that material facts
were being misrepresented or omitted as described above.
45.
Information showing that defendants acted knowingly or with reckless disregard
for the truth is peculiarly within defendants’ knowledge and control. As the senior managers
and/or directors of Gridsum, the Individual Defendants had knowledge of the details of Gridsum’s
internal affairs.
46.
The Individual Defendants are liable both directly and indirectly for the wrongs
complained of herein. Because of their positions of control and authority, the Individual
Defendants were able to and did, directly or indirectly, control the content of the statements of
Gridsum. As officers and/or directors of a publicly-held company, the Individual Defendants had
a duty to disseminate timely, accurate, and truthful information with respect to Gridsum’s
businesses, operations, future financial condition and future prospects. As a result of the
17
dissemination of the aforementioned false and misleading reports, releases and public statements,
the market price of Gridsum securities was artificially inflated throughout the Class Period. In
ignorance of the adverse facts concerning Gridsum’s business and financial condition which were
concealed by defendants, Plaintiff and the other members of the Class purchased or otherwise
acquired Gridsum securities at artificially inflated prices and relied upon the price of the securities,
the integrity of the market for the securities and/or upon statements disseminated by Defendants
and were damaged thereby.
47.
During the Class Period, Gridsum securities were traded on an active and efficient
market. Plaintiff and the other members of the Class, relying on the materially false and misleading
statements described herein, which the defendants made, issued or caused to be disseminated, or
relying upon the integrity of the market, purchased or otherwise acquired shares of Gridsum
securities at prices artificially inflated by defendants’ wrongful conduct. Had Plaintiff and the other
members of the Class known the truth, they would not have purchased or otherwise acquired said
securities or would not have purchased or otherwise acquired them at the inflated prices that were
paid. At the time of the purchases and/or acquisitions by Plaintiff and the Class, the true value of
Gridsum securities was substantially lower than the prices paid by Plaintiff and the other members
of the Class. The market price of Gridsum securities declined sharply upon public disclosure of
the facts alleged herein to the injury of Plaintiff and Class members.
48.
By reason of the conduct alleged herein, Defendants knowingly or recklessly,
directly or indirectly, have violated Section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder.
49.
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,
18
acquisitions and sales of the Company’s securities during the Class Period, upon the disclosure
that the Company had been disseminating misrepresented financial statements to the investing
COUNT II
(Violations of Section 20(a) of the Exchange Act Against The Individual Defendants)
50.
Plaintiff repeats and re-alleges each and every allegation contained in the foregoing
paragraphs as if fully set forth herein.
51.
During the Class Period, the Individual Defendants participated in the operation
and management of Gridsum, and conducted and participated, directly and indirectly, in the
conduct of Gridsum’s business affairs. Because of their senior positions, they knew the adverse
non-public information about Gridsum’s misstatement of income and expenses and false financial
statements.
52.
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 Gridsum’s
financial condition and results of operations, and to correct promptly any public statements issued
by Gridsum which had become materially false or misleading.
53.
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 Gridsum disseminated in the marketplace during the Class Period concerning
Gridsum’s results of operations. Throughout the Class Period, the Individual Defendants
exercised their power and authority to cause Gridsum to engage in the wrongful acts complained
of herein. The Individual Defendants therefore, were “controlling persons” of Gridsum within the
19
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 Gridsum securities.
54.
Each of the Individual Defendants, therefore, acted as a controlling person of
Gridsum. By reason of their senior management positions and/or being directors of Gridsum, each
of the Individual Defendants had the power to direct the actions of, and exercised the same to
cause, Gridsum to engage in the unlawful acts and conduct complained of herein. Each of the
Individual Defendants exercised control over the general operations of Gridsum 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.
55.
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 Gridsum.
COUNT III
For Violations of Section 11 of the Securities Act (Against All Defendants)
56.
Plaintiff repeats and realleges each and every allegation contained above. This
count is predicated upon Defendants’ strict liability for making false and materially misleading
statements in the Registration Statement.
57.
This Count does not sound in fraud. Any proceeding allegations of fraud,
fraudulent conduct, or improper motive are specifically excluded from this Count. Plaintiff does
not allege for this Count that Defendants had scienter or fraudulent intent, which are not elements
of this claim.
58.
This Count is brought pursuant to Section 11 of the Securities Act, 15 U.S.C.§ 77k,
on behalf of the Class, against all Defendants.
20
59.
As discussed herein, the Registration Statement for the IPO was inaccurate and
misleading, contained untrue statements of material facts, omitted to state other facts necessary in
order to make the statements not misleading, and omitted to state material facts required to be
stated therein.
60.
Gridsum is the registrant for the IPO. The Individual Defendants are responsible
for the contents of the Registration Statement based upon their status as directors of the Company
or because they signed or authorized the signing of the Registration Statement on their behalf
pursuant to Section 11(a)(1)-(3) of the Securities Act. The Underwriter Defendants are responsible
for the contents of the Registration Statement pursuant to Section 11(a)(5) of the Securities Act.
61.
As issuer of the shares, Gridsum is strictly liable to Plaintiff and the Class for any
misstatements and omissions. The Individual Defendants named herein made a reasonable
investigation or possessed reasonable grounds for the belief that the statements contained in the
Registration Statement were true and without omissions of any material facts and were not
misleading.
62.
By reason of the conduct alleged herein, each Defendant violated, and/or controlled
a person who violated, Section 11 of the Securities Act.
63.
Plaintiff acquired Gridsum common stock pursuant and/or traceable to the
Registration Statement for the IPO.
64.
Plaintiff and the Class have sustained damages. The value of Gridsum’s common
stock has declined substantially subsequent to and due to Defendants’ violations.
65.
At the time of their purchases of Gridsum securities, Plaintiff and other members
of the Class were without knowledge of the facts concerning the wrongful conduct alleged herein
and could not have reasonably discovered those facts. Less than one year has elapsed from the
21
time that Plaintiff discovered or reasonably could have discovered the facts upon which this
complaint is based to the time that Plaintiff filed this complaint. Less than three years has elapsed
between the time that the securities upon which this Count is brought were offered to the public
and the time Plaintiffs filed this complaint.
COUNT IV:
For Violations of Section 15 of the Securities Act (Against the Individual Defendants)
66.
Plaintiff repeats and realleges each and every allegation contained above.
67.
This Count does not sound in fraud. Any proceeding allegations of fraud,
fraudulent conduct, or improper motive are specifically excluded from this Count. Plaintiff do not
allege for this Count that Defendants had scienter or fraudulent intent, which are not elements of
this claim.
68.
This Count is brought pursuant to Section 15 of the Securities Act against the
Individual Defendants.
69.
Each of the Individual Defendants acted as controlling persons of Gridsum within
the meaning of Section 15 of the Securities Act by virtue of his position as a director and/or senior
officer of Gridsum. By reason of their senior management positions and/or directorships at the
Company, as alleged above, the Individual Defendants, individually and acting pursuant to a
common plan, had the power to influence and exercised the same to cause Gridsum to engage in
the conduct complained of herein. Further, the Individual Defendants’ positions made them privy
to and provided them with actual knowledge of the material facts concealed from Plaintiff and the
Class. By reason of such conduct, the Individual Defendants are liable pursuant to Section 15 of
the Securities Act.
22
70.
Each of the Individual Defendants was a culpable participant in the violations of
Section 11 of the Securities Act alleged in Count I above, based on their having signed the IPO
Registration Statement and having otherwise participated in the process which allowed the IPO to
be successfully completed.
71.
By virtue of the conduct alleged herein, the 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.
23
| securities |
iO-7EocBD5gMZwczWXsd | UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
KILEY L. BENITEZ-WHITE
§
and others similarly situated
§
§ CIVIL ACTION NO. 4:20-CV-1562
Plaintiffs
§
§
§
VS.
§
§
PEOPLES REPUBLIC OF CHINA and
§ CLASS ACTION COMPLAINT
COMMUNIST PARTY OF CHINA
§
§
Defendants
§
CLASS ACTION COMPLAINT
TO THE HONORABLE U.S. DISTRICT JUDGE:
COME NOW, Kylie L. Benitez-White and others (“Plaintiffs”), by and through
their attorneys, and bring this action on behalf of themselves and all others similarly
situated against the PEOPLES REPUBLIC OF CHINA (“PRC”) and the COMMUNIST
PARTY OF CHINA (“CPC”), collectively “DEFENDANTS”. Plaintiffs hereby allege,
on information and belief, except as to those allegations which pertain to the named
Plaintiffs, which allegations are based on personal knowledge, as follows:
I. NATURE OF THE ACTION
1.
Plaintiffs bring this class action on behalf of U.S. residents who were
affected by the 2020 outbreak of COVID-19, also known as Coronavirus.
2.
Through negligence, carelessness, and purposeful subterfuge, Defendants
unleased an epidemic across the United States that has been traced back to China’s only
Biosafety Level 4 containment lab in Wuhan, China.
operated the Wuhan Biosafety Level 4 lab in an unsafe and negligent manner that led to
the outbreak of COVID-19. This disease outbreak and subsequent pandemic has caused
more than 70,000 deaths in the United States, loss of jobs, loss of economic activity, and
permanent damage to the survivors of the epidemic.
4.
By selling a large portion of its goods in Texas, delivering shipping
containers and automobiles with a yearly value of $1.83 Billion dollars through the Port
of Houston, and collecting payments for goods shipped to Texas, DEFENDANTS have
availed themselves to the laws of the State of Texas and the United States.
5.
Due to their negligence, wrongful acts, neglect, carelessness,
unskillfulness, and default, DEFENDANTS are liable to residents of Texas and the
United States, under Texas and Federal law.
6.
Plaintiffs bring this class action on behalf of themselves and all others
similarly situated, asserting claims including death, personal injury, and economic losses
under Texas law, the Justice Against Sponsors of Terrorism Act (JASTA) codified as 18
USC § 2333 (amended by the federal Justice Against Sponsors of Terrorism Act, Pub. L.
No. 114-222, 130 Stat. 852 (2016)), and claims under common law.
7.
Plaintiffs seek damages and equitable relief on behalf of the class, which
relief includes but is not limited to the following: providing class members with
compensation for death or injury, loss of employment, and business losses; costs and
expenses, including attorney’s fees; and any additional relief that this Court determines to
be necessary to provide complete relief to Plaintiffs and the Class.
II. U.S. CONGRESSIONAL DELEGATION NOTES DEFENDANTS
PRC AND CPC RESPONSIBLE FOR COVID-19 PANDEMIC
Senator Tom Cotton (R-Arkansas) introduced legislation that would allow Americans to
seek compensation from DEFENDANTS due to DEFENDANTS’ negligence and actions
in allowing the COVID19 virus to spread into the general population and attempting to
coverup the outbreak for political reasons, that led to more deaths.
9.
Congressman Crenshaw notes the following:
“We need to hold the Chinese government accountable for their malicious
lies and coverup that allowed the coronavirus to spread across the world.
The communist regime expelled journalists, silenced whistleblowers, and
withheld vital information that delayed the global response to the
pandemic. Simply put: their actions cost American lives and livelihoods.
This bill will help ensure China’s actions are not without consequences.”
Posted April 16, 2020 on Congressman Crenshaw’s webpage.
See https://crenshaw.house.gov/news/documentsingle.aspx?Docu
mentID=267
10.
Senator Cotton notes the following:
“By silencing doctors and journalists who tried to warn the world about
the coronavirus, the Chinese Communist Party allowed the virus to spread
quickly around the globe. Their decision to cover up the virus led to
thousands of needless deaths and untold economic harm. It’s only
appropriate that we hold the Chinese government accountable for the
damage it has caused.”
Posted April 16, 2020 on Congressman Crenshaw’s webpage.
See https://crenshaw.house.gov/news/documentsingle.aspx?Docu
mentID=267
11.
The statements made by Congressman Crenshaw and Senator Cotton are
also significant, because these two members of Congress have access to daily classified
briefings that contain significantly more information on the origin of COVID-19, than the
general public has been privy to.
LAPSES IN WUHAN BIOSECURITY LEVEL 4 LAB PROCEDURES, SAFETY,
AND PROTOCOL THAT COULD LEAD TO AN PANDEMIC
12.
Prior to the statements by Senator Cotton and Congressman Crenshaw,
U.S. State Department Officials noted that the safety protocols and procedures at the
Wuhan Biolab (the only Level 4 Biosecurity Site in China), were lacking and created an
extremely dangerous situation.
13.
In January 2018, the U.S. Embassy in Beijing took the unusual step of
repeatedly sending U.S. science diplomats to the Wuhan Institute of Virology (WIV)1 to
conduct safety audits and report back to the embassy.
14.
The scientists were alarmed because the Wuhan lab lacked basic safety
protocols and was being operated in a dangerous manner. The scientists’ observations
were written into a cable drafted by the U.S. Embassy and forwarded to the U.S. State
Department. The cable notes:
“During interactions with scientists at the WIV laboratory, they noted the
new lab has a serious shortage of appropriately trained technicians and
investigators needed to safely operate this high-containment laboratory.”
15.
As the cable stated, the U.S. visitors met with Shi Zhengli, the head of the
research project, who had been publishing studies related to bat coronaviruses for many
years. In November 2017, just before the U.S. officials’ visit, Shi’s team had published
research showing that horseshoe bats they had collected from a cave in Yunnan province
____________________
1 - In 2015, the Wuhan lab became China’s first laboratory to achieve the highest level of
international Biosafety (known as BSL-4)
were very likely from the same bat population that spawned the SARS coronavirus in
2003.
16.
The cable added:
“Most importantly, the researchers also showed that various SARS-like
coronaviruses can interact with ACE2, the human receptor identified for
SARS-coronavirus. This finding strongly suggests that SARS-like
coronaviruses from bats can be transmitted to humans to cause SARS-like
diseases. From a public health perspective, this makes the continued
surveillance of SARS-like coronaviruses in bats and study of the animal-
human interface critical to future emerging coronavirus outbreak
prediction and prevention.”
See Washington Post. ‘State Department Cables Warned of Safety
Issues in Wuhan Lab Studying Bat Coronaviruses’, https://www.
washingtonpost.com/opinions/2020/04/14/state-department-
cables-warned-safety-issues-wuhan-lab-studying-bat-
coronaviruses/ accessed April 22, 2020.
17.
The dangerousness of this type of research is well-known. In fact, in
October 2014, the U.S. government imposed a moratorium on funding of any research
that makes a virus more deadly or contagious, known as ‘gain of function’ experiments.
Id.
IV. INTELLIGENCE DOSSIER PREPARED BY THE USA, UK, CANADA,
AUSTRALIA, AND NEW ZEALAND NOTES WUHAN LAB WAS STUDYING
AND MODIFYING BAT CORONAVIRUSES PRIOR TO OUTBREAK
18.
In April 2020, Western Intelligence agencies released a report linking the
coronavirus research in the Wuhan Biosafety Level 4 lab, to the COVID-19 pandemic.
The report noted that the Wuhan researchers, including Dr. Shi Zhengli, collected a
sample of horseshoe bat feces that contained a virus that was 96.2% identical to COVID-
like coronaviruses to determine whether the viruses could be transmissible from bats to
mammals. Furthermore, a November 2015 study produced by the Wuhan researchers and
Dr. Shi Zhengli noted that the lab created SARS-like viruses that could jump from bats to
humans and there was no treatment.
20.
Dr. Shi Zhengli’s study notes:
“To examine the emergence potential (that is, the potential to infect humans) of
circulating bat CoVs, we built a chimeric virus encoding a novel, zoonotic CoV
spike protein — from the RsSHCO14-CoV sequence that was isolated from
Chinese horseshoe bats — in the context of the SARS-CoV mouse-adapted
backbone.”
21.
The co-author of Dr. Zhengli’s paper, Professor Ralph Baric said the
following about the Wuhan lab-created virus in an interview with Science Daily:
“This virus is highly pathogenic and treatments developed against the original
SARS virus in 2002 and the ZMapp drugs used to fight Ebola fail to neutralise
and control this particular virus.”
22.
Even more troubling, the Wuhan researchers were also transporting live,
wild-caught bats from Australia to be dissected and studied to identify more deadly
coronaviruses.
23.
The COVID-19 virus was kept in the Wuhan lab until late 2019 when an
employee violated safety protocols and caused the release of the virus into the local
population. The Wuhan lab worker, researcher Huang Yan Ling, is believed to be patient
zero. She was apprehended and arrested by DEFENDANTS after a news report from the
Ling’s whereabouts are unknown.
24.
On December 31, 2019, Chinese authorities began censoring news of the
virus from search engines, deleting terms including “SARS variation, “Wuhan Seafood
market” and “Wuhan Unknown Pneumonia.” On January 1, 2020, without any
investigation into where the virus originated from, the Wuhan seafood market was closed
and disinfected.
25.
The following are key dates in DEFENDANTS’ efforts to cover-up the
COVID-19 outbreak:
NOV 9, 2015
Wuhan Institute of Virology publish a study revealing they created
a new virus in the lab from SARS-CoV.
DEC 6, 2019
Five days after a man linked to Wuhan’s seafood market presented
pneumonia-like symptoms, his wife contracts it, suggesting human
to human transmission.
DEC 27, 2019
China’s health authorities told a novel disease, then affecting some
180 patients, was caused by a new coronavirus.
DEC 26-30, 2019
Evidence of new virus emerges from Wuhan patient data.
DEC 31, 2019
Chinese internet authorities begin censoring terms from social
media such as Wuhan Unknown Pneumonia.
JAN 1, 2020
Eight Wuhan doctors who warned about new virus are detained
and condemned.
JAN 3, 2020
China’s top health authority issues a gag order.
JAN 5, 2020
Wuhan Municipal Health Commission stops releasing daily
updates on new cases. Continues until January 18.
mostly a “mild condition”.
JAN 12, 2020
Professor Zhang Yongzhen’s lab in Shanghai is closed by
authorities for “rectification”, one day after it shares genomic
sequence data with the world for the first time.
JAN 14, 2020
PRC National Health Commission chief Ma Xiaowei privately
warns colleagues the virus is likely to develop into a major public
health event.
JAN 24, 2020
Officials in Beijing prevent the Wuhan Institute of Virology from
sharing sample isolates with the University of Texas.
FEB 6, 2020
China’s internet watchdog tightens controls on social media
platforms.
26.
After the outbreak, officials with the Chinese Communist Party attempted
to stem the flow of information about the outbreak by arresting doctors, suspending news
reports, removing information from websites, and sequestering scientists who worked at
the Level 4 Biosecurity lab in Wuhan. In addition, DEFENDANTS spread a false
narrative that the virus came from the local wet market, when in fact the local market
does not sell dead bats, live bats, or bat soup.
27.
Ultimately, DEFENDANTS’ actions to control information and save face,
led to more infections, deaths, loss of jobs, loss of businesses, and economic damages in
the United States.
28.
What started off as an infected employee in a Biosecurity Level 4 lab in
Wuhan morphed into a worldwide pandemic that changed the fabric of life in the United
States with the deaths of more than 70,000 U.S. residents and the loss of millions of jobs.
29.
The proximate cause of these damages to U.S. citizens and class members
and default.
V. JURISDICITON AND VENUE
30.
This Court has subject matter jurisdiction pursuant to 18 USC § 2333
(amended by the federal Justice Against Sponsors of Terrorism Act, Pub. L. No. 114-222,
130 Stat. 852 (2016)) and 28 U.S.C. §§1331, 1332, and 1367, because Plaintiffs’ claims
arise under federal statute. The Court has supplemental jurisdiction over Plaintiffs’ state
law claims pursuant to 28 U.S.C. §1367(a).
31.
This Court has original jurisdiction over this action under the Class Action
Fairness Act of 2005, 28 U.S.C. §1332(d)(2) (“CAFA”), as to the named Plaintiffs and
every member of the Class, because the proposed Class contains more than 100 members,
the aggregate amount in controversy exceeds $5 million, and members of the Class reside
across the United States and are therefore diverse from Defendant.
32.
This Court has jurisdiction over Defendants because Defendants have
availed themselves to the laws of the United States by conducting significant business in
the United States and exporting goods with a value of $120.3 Billion dollars to the United
States in 2018.
33.
Venue is proper in this District pursuant to 28 U.S.C. §1391(b), because a
substantial part of the events or omissions giving rise to Plaintiff’s claims occurred in this
District. Venue is proper in this District as Lead Plaintiff lives in this District and lost her
job in this District. Venue is also proper under 18 U.S.C. §1965(a), because Defendants
transact a substantial amount of their business in this District through the Port of
Houston, which receives $1.83 Billion dollars of Defendants’ yearly exports to the United
Houston. See U.S. Trade Numbers and U.S. Census data https://www.ustradenumbers.
com /port/port-of-houston, accessed on April 22, 2020.
VI. PARTIES
34.
Plaintiff Kiley L. Benitez-White (“Ms. Benitez”) resides in Conroe, Texas.
Ms. Benitez was employed by C&A Peppers Properties but was laid off in March 2020
due to the COVID-19 pandemic.
35.
Defendants Peoples Republic of China (“PRC”) and Communist Party of
China (“CPC”) are based overseas yet conduct substantial business in the State of Texas
by delivering more than $1.83 Billion dollars’ worth of goods to the United States
through the Port of Houston.
36.
Defendants PRC and CPC do not have sovereign immunity under the Joint
Sponsors of Terrorism Act (JASTA, 18 USC §2333). Defendant CPC does not have
sovereign immunity as it is a political party, and not a sovereign country.
37.
Defendants are not signatories to the Hague Convention and can be served
via 28 USC §1608 (a)(3).
VII. DEFENDANT’S UNLAWFUL CONDUCT
38.
Since the mid 2010s, Defendants have operated a Biosecurity Level 4 lab
in Wuhan, China. The initial purpose of the lab was to study and develop treatments for
novel coronaviruses, MERS, and other contagious and communicable diseases.
Biosecurity Level 4 lab began to track and trace novel coronaviruses in bats. Part of the
research involved harvesting these viruses from various bat populations in Southern
China. Many of these viruses had not been transmitted to humans yet. This harvesting
represented an opportunity to study new or novel coronaviruses and how they would
respond to various types of treatment.
40.
However, this capture and collection of bat specimens and novel
coronaviruses was also dangerous, as an outbreak due to improper lab procedures and
safety measures was a major risk to the populace, since these viruses are deadly to
humans.
41.
Visits by U.S. scientists and diplomatic cables from the U.S. Embassy in
Beijing, China to the U.S. State Department reiterated these dangerous conditions and
lack of safety protocols to include: inadequate storage, inadequate disposal, and improper
use of safety equipment.
42.
The cables noted that the DEFENDANTS Wuhan lab was experimenting
with bat-derived coronaviruses:
“Most importantly, the researchers also showed that various SARS-like
coronaviruses can interact with ACE2, the human receptor identified for
SARS-coronavirus. This finding strongly suggests that SARS-like
coronaviruses from bats can be transmitted to humans to cause SARS-like
diseases. From a public health perspective, this makes the continued
surveillance of SARS-like coronaviruses in bats and study of the animal-
human interface critical to future emerging coronavirus outbreak
prediction and prevention.”
See Washington Post. ‘State Department Cables Warned of Safety
Issues in Wuhan Lab Studying Bat Coronaviruses’, https://www.
washingtonpost.com/opinions/2020/04/14/state-department-
cables-warned-safety-issues-wuhan-lab-studying-bat-
43.
Upon information and belief, the patient zero that unleashed the COVID-
19 pandemic was a lab tech working at the Biosecurity Level 4 lab in Wuhan. The lab
tech was told to destroy some samples of COVID-19, but due to improper safety
protocols, the lab tech became infected with COVID-19 and subsequently released the
virus to a major population center in Wuhan, China.
44.
The whereabouts of the Wuhan Biosecurity Level 4 lab tech and the lab’s
chief scientist are unknown. It is believed that they were detained and sequestered by
Defendants, with the possibility that they were imprisoned or executed for their errors.
45.
Rather than admit the outbreak occurred and take immediate steps to deal
with the contagion, the Defendants worked together to quash, hide, and discount the story
about the outbreak.
46.
In fact, one of the local Wuhan medical doctors (not affiliated with the
Biosecurity Level 4 lab) who began to report about the COVID-19 outbreak was arrested
and subsequently punished for causing a panic and creating dissent. This same doctor, Dr.
Li Wenliang, later became infected with COVID-19 and died on Feb 6, 2020.
47.
Due to Defendants’ actions of: a) improperly operating a Biosecurity
Level 4 lab in Wuhan, China then b) taking proactive steps to cover-up the outbreak,
Defendants unleased a plague and viral pandemic upon the world.
48.
As the United States is the Defendants’ largest trade partner, the United
States and its residents have been hit hardest by the epidemic.
49.
As of May 1, 2020, more than 70,000 U.S. residents have died, hundreds
of thousands have been hospitalized, and millions of Americans have lost their jobs and
50.
Defendants have a history of lax safety protocols, political oppression,
heavy-handed tactics towards whistleblowers, and severe human rights abuses to include
the harvesting and sale of organs from political prisoners. These deceptive actions,
negligence, and misconduct can only be remedied through Class Action litigation.
VIII. PLAINTIFFS’ ALLEGATIONS
51.
Plaintiffs are U.S. residents who have suffered personal injury and
economic damages due to Defendants’ misconduct.
52.
Plaintiffs learned that far from being the only ones experiencing such
problems with the Defendants, there were hundreds of thousands of other residents with
similar complaints.
53.
Plaintiffs have suffered injury in fact and loss of life, money, or property,
and they have been damaged in varying amounts depending on the type of losses they
experienced. These classmembers will be organized in groups, according to their
respective damage models, in the forthcoming class definition to be provided at Class
certification.
IX. CLASS ALLEGATIONS
54.
Plaintiffs bring this class action on behalf of themselves individually and
all others similarly situated, pursuant to Rule 23 of the Federal Rules of Civil Procedure.
55.
The proposed class consists of all U.S. residents and businesses that were
affected by the COVID-19 pandemic through and including the date of the class notice
56.
This action is properly brought as a class action for the following reasons:
a.
proposed class is so numerous and geographically dispersed
throughout the United States that the joinder of all class members is
impracticable. When Plaintiffs do not know the exact number and identity
of all class members, Plaintiff believes there are tens if not hundreds of
thousands of class members;
b.
the disposition of Plaintiffs’ and proposed class members’ claims
in a class action will provide substantial benefits to both parties and the
Court;
c.
the proposed class is ascertainable and there is a well-defined
community of interest in the questions of law or fact alleged herein since
the rights of each proposed class member were infringed or violated in the
same fashion;
d.
there are questions of law and fact common to the proposed class
which predominate over any questions that may affect particular class
members. Such common questions include:
(i) Whether Defendants are liable for damages arising from the
COVID-19 pandemic that was the proximate cause of classmembers’
death, injury, disability, loss of income, or loss of job, due to the
Defendants, or Defendants’ agents, or Defendants’ servants: wrongful act,
neglect, carelessness, unskillfulness, or default.
(ii) In the instant case, Defendants’ wrongful act, neglect, and/or
Containment Lab was the proximate cause that led to Plaintiffs’ injuries.
Specifically, that:
(1) Defendants operated a lab that was used to track and
study live bat coronaviruses that were dangerous and
contagious to humans.
(2) Defendants were repeatedly warned that the lab was not
following Level 4 Biocontainment Safety protocols.
(3) Defendants hired and supervised staff that were
untrained and not qualified to maintain safety protocols.
(4) One of Defendants’ employees was ordered to destroy
live virus samples including a sample of the COVID-19
contagion, otherwise known as the ‘novel coronavirus’.
(5) Instead of destroying the sample, the Defendants’
employee became infected, due to improper lab protocols,
and then inadvertently released COVID-19 into the general
population in Wuhan, China.
(6) When the first contagion clusters were detected in
Wuhan, China, Defendants immediately began a campaign
to silence, discredit, and stop the release of information
identifying COVID-19 as a virus that was being studied at
the Wuhan Biosecurity Level 4 lab.
(7) Defendants arrested, sequestered, and silenced medical
personnel who identified the outbreak and were determined
(8) This cover-up led to even more deaths and injury as the
virus was able to cross borders through international
airline travel.
(9) Due to the high infection rate of COVID-19, and the
actions and inactions of Defendants, tens of thousands of
U.S. residents have died, many more have been
hospitalized, and millions are unemployed.
(ii)
Whether Defendants improperly operated the Biosecurity
Level 4 lab in Wuhan, China.
(iii)
Whether Defendants are strictly liable to Plaintiffs and the
class and whether Defendants failed to warn Plaintiffs and the class;
(iv)
Whether Defendants are liable to Plaintiffs under Texas
Wrongful Death statutes;
(v)
Whether Defendants are liable to Plaintiffs for Plaintiffs’
economic losses and damages;
(vi)
Whether Defendants are liable to Plaintiffs for Plaintiffs’
personal injury;
(vii)
Whether Plaintiffs and proposed class members have been
harmed and the proper measure of relief;
(viii) Whether Defendants violated Title 18 USC § 2333
(amended by the federal Justice Against Sponsors of Terrorism Act, Pub.
L. No. 114-222, 130 Stat. 852 (2016)) and 28 U.S.C. §§1331, 1332; and
(ix)
Whether Plaintiffs and proposed class members are entitled
Defendants.
e.
Plaintiffs’ claims are typical of the claims of the members of the
proposed class.
f.
Plaintiffs will fairly and adequately protect the interests of the
proposed class in that they have no interests antagonistic to those of the
other proposed class members, and Plaintiffs have retained attorneys
qualified in consumer class actions, business litigation, multi-district
litigation, and complex litigation as counsel.
g.
A class action is superior to other available methods for the fair
and efficient adjudication of this controversy for at least the following
reasons:
(i)
Given the size of individual proposed class member’s
claims and the expense of litigating those claims, few, if any,
proposed class members could afford to or would seek legal
redress individually for the wrongs Defendants committed against
them and absent proposed 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, proposed class members will
proceed without remedy while Defendants continues to reap and
retain the substantial proceeds of its wrongful conduct; and
(iv)
Plaintiffs know of no difficulty that will be encountered in
the management of this litigation, which would preclude its
maintenance as a class action.
57.
Plaintiffs seek damages and equitable relief on behalf of the proposed
class on grounds generally applicable to the entire proposed class.
X. FIRST CAUSE OF ACTION
(Wrongful Death)
58.
Plaintiffs re-allege and incorporate by reference the allegations contained.
59.
In Texas, an entity (or country) is liable for damages arising from an
injury that causes an individual’s death if the injury was caused by the entity’s (or
country’s) or his agents’ or servants’:
a)
wrongful act,
b)
neglect,
c)
carelessness,
d)
unskillfulness,
e)
or default.
60.
In the instant case, the Defendants’ wrongful act, neglect, and/or
carelessness in their operation of the Wuhan Biosafety Level 4 lab was the proximate
cause of classmembers’ death.
(Personal Injury)
61.
Plaintiffs re-allege and incorporate by reference the allegations contained
in the paragraphs above as if fully set forth herein.
62.
This cause of action arises under the Texas Personal Injury statutes. In
Texas, the theory of negligence is based upon: a) the defendant owed the victim a duty of
care, b) the defendant breached this duty it owed to the plaintiff, c) the breach caused the
victim to suffer an injury, and d) the victim suffered damages stemming from the injury.
63.
In the instant case, Defendants negligently operated a Biosecurity Level 4
Containment Lab in Wuhan, China that led to an outbreak of COVID-19.
64.
The Defendants were negligent in the collection and study of novel
coronaviruses in bats, including COVID-19, a virus that is fatal to humans.
65.
The Defendants were negligent in the disposal of COVID-19. A lab tech
was ordered to destroy various active COVID-19 samples. However, due to improper
training and safety protocols, the lab tech became infected with COVID-19 and then
released the contagion into the general population.
66.
The Defendants discovered the release of COVID-19 into the general
population then intentionally began a cover-up to hide the release.
67.
Defendants then began a disinformation campaign that blamed the United
States and the United States Army as the source of the COVID-19 outbreak.
68.
Defendants’ negligence was the proximate cause of personal injuries
suffered by the class members. These personal injuries include death, hospitalization,
infection, permanent damage to lungs, and other physical ailments.
(Gross Negligence)
69.
Plaintiffs re-allege and incorporate by reference the allegations contained
in the paragraphs above as if fully set forth herein.
70.
In Texas, the theory of gross negligence is based on an objective and
subjective component. That is: 1) viewed objectively from the standpoint of the actor, the
act or omission must involve an extreme degree of risk, considering the probability and
magnitude of the potential harm to others; and 2) the actor must have actual, subjective
awareness of the risk involved, but nevertheless proceed in conscious indifference to the
rights, safety, or welfare of others. See Lee Lewis Constr., Inc. v. Harrison, 70 S.W.3d
778, 785 (Tex. 2001).
71.
In the instant case, Defendants operated a Biosecurity Level 4
Containment Lab in Wuhan, China with gross negligence that led to an outbreak of
COVID-19.
72.
The Defendants were grossly negligent in the collection and study of
novel coronaviruses in bats, including COVID-19, a virus that is fatal to humans.
73.
The Defendants were grossly negligent in the disposal of COVID-19. A
lab tech was ordered to destroy various active COVID-19 samples. However, due to
improper training and safety protocols, the lab tech became infected with COVID-19 and
then released the contagion into the general population.
74.
The Defendants discovered the release of COVID-19 into the general
population then intentionally began a cover-up to hide the release.
75.
Defendants then began a disinformation campaign that blamed the United
States and the United States Army as the source of the COVID-19 outbreak. Defendants
76.
Defendants’ gross negligence was the proximate cause of personal injuries
and economic losses suffered by the class members. These personal injuries include
death, hospitalization, infection, permanent damage to lungs, and other physical ailments.
XIII. FOURTH CAUSE OF ACTION
(Respondeat Superior)
77.
Plaintiffs re-allege and incorporate by reference the allegations contained
in the paragraphs above as if fully set forth herein.
78.
In Texas, under the doctrine of respondeat superior, an employer can be
held vicariously liable for the tortious acts of its employees conducted within the scope of
their employment. See Baptist Mem'l Hosp. Sys. v. Sampson, 969 S.W.2d 945, 947 (Tex.
1998). Employers are held liable for the conduct of their employees because employers
generally have the right to control the means and methods of the employees’ work.
79.
In the instant case, Defendants are responsible for the negligence of their
employees’ actions in operating the Biosecurity Level 4 lab in Wuhan, China. Defendants
had been warned repeatedly that their lab safety procedures were inadequate. In addition,
Defendants’ employees were collecting and studying live COVID-19 samples taken from
bats. This negligent operation of the lab and the collection, storage, and improper
disposal of the COVID-19 virus led to Plaintiffs’ personal injury and economic damages.
80.
The acts of Defendants’ employees were the proximate cause of personal
injuries and economic losses suffered by the class members. These personal injuries
include death, hospitalization, infection, permanent damage to lungs, and other physical
ailments.
(Economic Losses)
81.
Plaintiffs re-allege and incorporate by reference the allegations contained
in the paragraphs above as if fully set forth herein.
82.
In Texas, Plaintiffs can recover economic losses stemming from
Defendants’ intentional torts. See Sharyland Water Supply Corp. v. City of Alton, 354
S.W.3d 407, 418 (Tex. 2011).
83.
In the instant case, Defendants intentionally operated a Biosecurity Level
4 lab in Wuhan, China. Defendants intentionally collected, harvested, and studied live
COVID-19 virus samples from bats in Southern China.
84.
Defendants were aware that they were exposing the populace to a severe
and dangerous condition – specifically studying active and novel coronaviruses that had
not yet been transmitted to humans.
85.
Once the outbreak occurred, Defendants then intentionally attempted to
stop news about the outbreak by imprisoning, sequestering, and charging scientists with
disorderly conduct and other crimes against the state.
86.
Defendants then intentionally spread a false report that the COVID-19
virus was released in China by the U.S. Army and the United States.
87.
Defendants intentional study of COVID-19 and the intentional cover-up
about the spread of the pandemic led to death, loss of jobs, loss of livelihoods, and
economic losses to the class members.
88.
As a result, Plaintiffs and the class have suffered economic losses
including loss of jobs, business revenue, and other losses.
XV. SEVENTH CAUSE OF ACTION
(Unjust Enrichment)
89.
Plaintiffs re-allege and incorporate by reference the allegations contained
in the paragraphs above as if fully set forth herein.
90.
Defendants improperly received and continue to improperly receive from
Plaintiffs and class members millions of dollars as result of the conduct alleged above,
through the sale of PPE (Personal Protective Equipment) to class members. This PPE is
used by class members to protect themselves from a pandemic created by Defendants’
intentional and negligent actions.
91.
In the instant case, Defendants intentionally operated a Biosecurity Level
4 lab in Wuhan, China. Defendants intentionally collected, harvested, and studied live
COVID-19 virus samples from bats in Southern China.
92.
Defendants were aware that they were exposing the populace to a severe
and dangerous condition – specifically studying active and novel coronaviruses that had
not yet been transmitted to humans.
93.
Once the outbreak occurred, Defendants then intentionally attempted to
stop news about the outbreak by imprisoning, sequestering, and charging scientists with
disorderly conduct and other crimes against the state.
94.
Defendants then intentionally spread a false report that the COVID-19
virus was released in China by the U.S. Army and the United States.
95.
Defendants intentional study of COVID-19 and the intentional cover-up
about the spread of the pandemic led to death, loss of jobs, loss of livelihoods, and
economic losses to the class members.
Containment Lab in Wuhan, China that led to an outbreak of COVID-19.
97.
Defendants were negligent in the collection and study of novel
coronaviruses in bats, including COVID-19, a virus that is fatal to humans.
98.
Defendants were negligent in the disposal of the COVID-19 sample. A lab
tech was ordered to destroy various active COVID-19 samples. However, due to
improper training and safety protocols, the lab tech became infected with COVID-19 and
then released the contagion into the general population.
99.
Defendants discovered the release of COVID-19 into the general
population then intentionally began a cover-up to hide the release.
100. Defendants then began a disinformation campaign that blamed the United
States and the United States Army as the source of the COVID-19 outbreak.
101. Defendants’ negligence was the proximate cause of personal injuries
suffered by the class members. These personal injuries include death, hospitalization,
infection, permanent damage to lungs, and other physical ailments.
102.
Defendants’ unjust enrichment by selling PPE (Personal Protective
Equipment) to Plaintiffs and class members to mitigate a virus released by the
Defendants is unconscionable. Defendants created a hazardous condition, then profited
by selling equipment to class members to mitigate that hazard.
103.
As a result, Plaintiffs and the class have conferred a benefit on Defendants
to which Defendants are not entitled. Defendants have knowledge of this benefit,
wrongfully and deceptively obtained this benefit, and have voluntarily accepted and
retained the benefit conferred to it. Defendants will be unjustly enriched if they are
allowed to retain such funds and therefore, a constructive trust should be imposed on all
Defendant, and returned to Plaintiffs and the class.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs pray this Court enter a judgment against Defendants that:
A.
This action be certified and maintained as a class action under Rule 23 of the
Federal Rules of Civil Procedure and certify the proposed class as defined;
B.
Awards compensatory and/or punitive damages as to all Causes of Action
where such relief is permitted;
C.
Awards Plaintiffs and proposed class members the costs of this action,
including reasonable attorney’s fees and expenses;
D.
Orders Defendants to immediately cease their wrongful conduct as set forth
above;
E.
Awards equitable monetary relief, including restitution and disgorgement of
all ill-gotten gains, and the imposition of a constructive trust upon, or
otherwise restricting Defendant’s ill-gotten gains, to ensure that Plaintiffs and
proposed class members have an effective remedy;
F.
Awards pre-judgment and post-judgment interest at the legal rate; and
G.
Such further legal and equitable relief as this Court may deem just and proper.
DATED: May 3, 2020
Respectfully submitted,
THE ROSALES LAW FIRM, LLC
OMAR W. ROSALES
Texas Bar No. 24053450
14846 Valencia Cir S
Harlingen, TX 78550
(512) 955-0579 Tel
www.owrosales.com
By:
/s/ Omar W. Rosales
Omar W. Rosales
Lead Counsel for Class
Pending Admission Pro Hac Vice
| products liability and mass tort |
gBH5FocBD5gMZwczyJ2z | DEC
21
2012
LONG ISLAND OFFICE
CV - 12 6324
X
WEXLER,
Plaintiffs,
-against-
LINDSAY,
Defendants.
X
Plaintiffs, ANCELMO SIMEON MENDEZ LOPEZ and SANTOS NATIVIDAD
PRELIMINARY STATEMENT
1.
Defendants have profited at the expense of their current and former
2.
Defendants employed Plaintiffs and similarly situated employees as "non-
3.
Defendants failed to pay Plaintiffs and similarly situated workers the
4.
Defendants failed to pay Plaintiffs and similarly situated workers the
5.
By the conduct described throughout this Complaint, Defendants willfully
NATURE OF THE ACTION
6.
Plaintiffs seek to recover unpaid minimum and overtime wages that
JURISDICTION AND VENUE
7.
This Court has subject matter jurisdiction pursuant to 28 U.S.C. §§ 1331
8.
In addition, the Court has jurisdiction over Plaintiffs' claims under the
9.
Venue is proper in the Eastern District of New York pursuant to 28 U.S.C.
10.
Defendants do business in the State of New York, within the Eastern
THE PARTIES
11.
The Plaintiff, ANCELMO SIMEON MENDEZ LOPEZ ("LOPEZ"), is a
12.
At all times relevant to the complaint, Plaintiff, LOPEZ, was and still is an
13.
The Plaintiff, LOPEZ, was employed by the defendants from in or about
14.
The Plaintiff, LOPEZ, performed non-exempt duties for the defendants.
15.
The
Plaintiff,
SANTOS
NATIVIDAD
CALI
ZAMBRANO
16.
At all times relevant to the complaint, Plaintiff, ZAMBRANO, was and
17.
The plaintiff, ZAMBRANO, was employed by the defendants from in or
18.
The Plaintiff, ZAMBRANO, performed non-exempt duties for the
19.
Upon information and belief, defendant SETAUKET CAR WASH &
20.
Upon information and belief, the defendant SETAUKET CAR WASH &
21.
At all times relevant, defendant, SETAUKET CAR WASH & DETAIL
22.
Upon information and belief, defendant TLCW INC., was and still is a23.
Upon information and belief, the defendant TLCW INC. was and still is
24.
At all times relevant, defendant, TLCW, INC. was and still is an
25.
Upon information and belief, defendant KARP ENTERPRISES, INC.,
26.
Upon information and belief, the defendant KARP ENTERPRISES, INC.
27.
At all times relevant, defendant, KARP ENTERPRISES, INC. was and
28.
Upon information and belief, the defendant STEVEN SAVIANO, owns
29.
Upon information and belief, the defendant STEVEN SAVIANO is the
30.
Upon information and belief, the defendant STEVEN SAVIANO is a
31.
Upon information and belief, the defendant STEVEN SAVIANO has
32.
Upon information and belief, the defendant STEVEN SAVIANO, owns
33.
Upon information and belief, the defendant STEVEN SAVIANO is the
34.
Upon information and belief, the defendant STEVEN SAVIANO is a
35.
Upon information and belief, the defendant STEVEN SAVIANO has
36.
Upon information and belief, the defendant STEVEN SAVIANO, owns
37.
Upon information and belief, the defendant STEVEN SAVIANO is the
38.
Upon information and belief, the defendant STEVEN SAVIANO is a
39.
Upon information and belief, the defendant STEVEN SAVIANO has
40.
At all times hereinafter mentioned, the defendant, STEVEN SAVIANO,
41.
Upon information and belief, the defendant MARK CHAIT, owns and/or
42.
Upon information and belief, the defendant MARK CHAIT is the
43.
Upon information and belief, the defendant MARK CHAIT is a
44.
Upon information and belief, the defendant MARK CHAIT has authority
45.
Upon information and belief, the defendant MARK CHAIT owns and/or
46.
Upon information and belief, the defendant MARK CHAIT is the
47.
Upon information and belief, the defendant MARK CHAIT is a
48.
Upon information and belief, the defendant MARK CHAIT has authority
49.
Upon information and belief, the defendant MARK CHAIT owns and/or
50.
Upon information and belief, the defendant MARK CHAIT, is the
51.
Upon information and belief, the defendant MARK CHAIT, is a
52.
Upon information and belief, the defendant MARK CHAIT, has authority
53.
At all times hereinafter mentioned, the defendant, MARK CHAIT, was
54.
Plaintiff, LOPEZ, has personal knowledge of defendants' pay practices at
55.
Plaintiff, LOPEZ, has personal knowledge of defendants' pay practices at
FACTS
56.
At all times relevant, Plaintiffs performed non-exempt duties, including,
57.
At all times hereinafter mentioned, plaintiffs were required to be paid
58.
Plaintiffs worked more than forty hours in most workweeks in which they
59.
Plaintiff and similarly situated current and former employees regularly60.
Plaintiffs, and similarly situated current and former employees, were paid an
61.
Defendants failed to compensate the plaintiffs for time worked in excess of forty
62.
Defendants paid Plaintiff, and similarly situated current and former employees,
63.
Defendants willfully disregarded and purposefully evaded record keeping
64.
Defendants failed to pay Plaintiffs and similarly situated employees spread of
65.
Defendants' refusal and/or failure to pay overtime and spread of hours pay was
66.
Defendants paid plaintiffs, at times, wholly or partially in cash, without providing
67.
Defendants failed to provide plaintiffs and similarly situated employees time off
68.
On numerous occasions, plaintiffs received neither the thirty (30) minute noonday
69.
Defendants retained all or part of the Plaintiffs' gratuities.
COLLECTIVE ACTION ALLEGATIONS
70.
At all relevant times, Plaintiffs and the other FLSA Collective Action
71.
Upon information and belief, there are many current and former
72.
Plaintiffs seek to proceed as a collective action pursuant to 29 U.S.C.
73.
The First Claim for Relief is properly brought under and maintained as an
FEDERAL RULE OF CIVIL PROCEDURE RULE 23
CLASS ACTION ALLEGATIONS
74.
Plaintiffs also bring New York Labor Law claims on behalf of themselves
75.
The persons in the Rule 23 Class identified above are SO numerous that
76.
The Rule 23 Class Members are readily ascertainable. For purposes of
77.
Defendants have acted or have refused to act on grounds generally
78.
There are questions of law and fact common to the Rule 23 Class that
(a)
Whether the defendants unlawfully failed to pay proper compensation in
violation of and within the meaning of the New York Labor Law Article 6,190 et seq. and the supporting New York State Department of Labor
Regulations, 12 N.Y.C.R.R. Part 142;
(b)
Whether the New York Class Representatives and Rule 23 Class are non-
exempt from entitlement to premium compensation for hours worked in
excess of forty (40) hours per week;
(c)
Whether defendants have failed to keep true and accurate time records for
all hours worked by Plaintiffs and the Rule 23 Class;
(d)
What proof of hours worked is sufficient when an employer fails in its
duty to maintain true and accurate time records;
(e)
What were the policies, practices, programs, procedures, protocols and
plans of Defendant regarding payment of overtime wages;
(f)
Whether defendants failed and/or refused to pay Plaintiffs and the Rule 23
Class overtime pay for hours worked in excess of 40 hours per work week
within the meaning of 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;
(g)
the nature and extent of Rule 23 Class-wide injury and the appropriate
measure of damages for the class;
(h)
Whether defendants' general practice of failing and/or refusing to pay
Plaintiffs and the Rule 23 Class overtime pay for hours worked in excess
of 40 hours per work week was done willfully or with reckless disregard
of the federal and state wage and hour laws.
79.
The claims of the Plaintiffs are typical of the claims of the Rule 23 Class
80.
Plaintiffs' claims are typical of those claims which could be alleged by
81.
Plaintiffs will fairly and adequately represent and protect the interests of
82.
Plaintiffs have retained counsel competent and experienced in complex
83.
A class action is superior to other available methods for the fair and
84.
Current employees are often afraid to assert their rights out of fear of
FIRST CLAIM FOR RELIEF
(FAIR LABOR STANDARDS ACT)
85.
Plaintiffs allege and incorporate by reference all allegations in all
86.
Defendants employed plaintiffs for workweeks longer than forty (40)
87.
The complete records concerning the number of hours worked by the88.
Defendants have engaged in a widespread pattern and practice of violating
89.
Plaintiffs have consented in writing to be parties to this action, pursuant to
90.
At all relevant times, Plaintiffs and other similarly situated current and
91.
The overtime wage provisions set forth in §201 et seq. of the FLSA apply
92.
Defendants are employers engaged in commerce and/or the production of
93.
At all relevant times, Plaintiffs were employees within the meaning of 29
94.
Defendants have failed to pay Plaintiffs and other similarly situated
95.
Defendants' violations of the FLSA, as described in this Complaint have
96.
Because defendants' violations of the FLSA have been willful, a three-
97.
As a result of defendants' willful violations of the FLSA, Plaintiffs and all
98.
As a result of defendants' unlawful acts, Plaintiffs and other similarly
SECOND CLAIM FOR RELIEF
(NEW YORK LABOR LAW: UNPAID OVERTIME WAGES)
99.
Plaintiffs allege and incorporate by reference all allegations in all
100. At all relevant times, Plaintiffs were employees and Defendant has been
101.
The overtime wage provisions of Article 19 of the New York Labor Law
102.
Defendants employed plaintiffs for workweeks longer than forty (40)
103.
The complete records concerning the number of hours worked by the
104. Defendants have failed to pay Plaintiffs and the Rule 23 Class Members
105. By defendants' failure to pay Plaintiffs and the Rule 23 Class Members
106. Due to defendants' violations of the New York Labor Law, Plaintiffs and
FEDERAL MINIMUM WAGE
107. Plaintiffs allege and incorporate by reference all allegations in all
108. At all times relevant to this action, plaintiff LOPEZ was defendants'
109.
At all times relevant to this action, plaintiff ZAMBRANO was defendants'
110.
At all times relevant, defendants were plaintiff's employer within the
111. At all times relevant, plaintiff and defendants were engaged in commerce
112.
At all times relevant, the applicable federal minimum wage is codified by
113.
Defendants willfully failed to pay plaintiff the minimum wages for hours
114. As a consequence of the willful underpayment of wages, plaintiff is
FOURTH CLAIM FOR RELIEF ON BEHALF OF PLAINTIFFS
ZAMBRANO AND SIMILARLY SITUATED EMPLOYEES
FOR FAILURE TO PAY MINIMUM WAGE IN VIOLATION OF
NEW YORKLABORLAW
115.
Plaintiffs allege and incorporate by reference all allegations in all
116.
At all times relevant to this action, the state minimum wage was $5.15 per
117.
Defendants willfully violated plaintiff's rights by failing to pay plaintiff118.
Due to defendants' New York Labor Law violations, plaintiff is entitled to
FIFTH CLAIM FOR RELIEF
FOR FAILURE TO PAY SPREAD OF HOURS
IN VIOLATION OF 12 NYCRR §142-2.4
119. Plaintiffs allege and incorporate by reference all allegations in all
120. Defendants failed to pay plaintiffs one additional hour pay at the basic
121. Defendants' failure to pay plaintiff an additional hour pay for each day
122. As a result of Defendants' New York Labor Law violations, Plaintiff is
SIXTH CLAIM FOR RELIEF
FOR VIOLATION OF NEW YORK LABOR LAW SECTION 195
123. Plaintiff alleges and incorporates by reference all allegations in all
124. Defendant failed to provide plaintiff with notice of her rate of pay; the
125.
Due to defendant's failure to provide plaintiff with the notice required by
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs, individually and on behalf of all other similarly
(i)
Unpaid wages and an additional and equal amount as liquidated damages
(ii)
Certification of this case as a collective action under 29 U.S.C. $216(b)
(iii)
Designation of Plaintiffs as representatives of the Rule 23 Class, and
(iv)
Issuance of a declaratory judgment that the practices complained of in this
(v)
Unpaid overtime and spread of hours pay pursuant to New York Labor
(vi)
Damages in an amount to be determined at trial for Defendant's violation
(vii) Damages in the amount of $2,500.00 pursuant to New York State Labor
(viii) All attorneys' fees and costs incurred in prosecuting these claims; and
(ix)
Such other relief as this Court deems just and proper.
DEMAND FOR TRIAL BY JURY
Pursuant to Rule 38(b) of the Federal Rules of Civil Procedure, Plaintiffs demand
December 20, 2012
FRANK & ASSOCIATES, P.C.
By:
you
Peter A. Romero (PR-1658)
500 Bi-County Blvd., 112N
Farmingdale, New York 11735
Tel. (631) 756-0400
Fax (631) 756-0547
[email protected]
Attorneys for Plaintiffs | employment & labor |
ExdDZosBKYQs9unkf2Oc | IN THE COURT OF COMMONPLEAS OF ALLEGHENY COUNTY, PENNSYLVANIA
CIVIL DIVISION
LINDA SASINOSKI and BOB SASINOSKI,
her husband,
No.: GD 07-001656
Plaintiffs,
COMPLAINTIN CIVIL ACTION
Filed on behalf of Plaintiffs
Counsel of Record for this Party:
OLYMPUS AMERICA,INC.,
WEST PENN ALLEGHENY HEALTH
SYSTEM,INC.,
FORBES REGIONAL HOSPITAL;
DAVID R. MULOCK,D.O.; and
KELLY AND WOOD,LTD.,
Defendants.
Philip A. Ignelzi, Esquire
PA ID# 34286
Michael A. Murphy, Esquire
PA ID# 55846
John D. Perkosky, Esquire
PA ID# 83083
JURY TRIAL DEMANDED
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OGG, CORDES, MURPHY
& IGNELZI, L.L.P.
Firm ID# 568
245 Fort Pitt Boulevard
Pittsburgh, PA 15222
(412) 471-8500
IN THE COURT OF COMMONPLEAS OF ALLEGHENY COUNTY, PENNSYLVANIA
LINDA SASINOSKI and BOB SASINOSKI,
CIVIL DIVISION
her husband,
No.: GD 07-001656
Plaintiffs,
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OLYMPUS AMERICA,INC.;
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WEST PENN ALLEGHENY HEALTH
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SYSTEM,INC.,
)
FORBES REGIONAL HOSPITAL;
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DAVID R. MULOCK,D.O.; and
)
KELLY AND WOOD,LTD.,
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)
)
Defendants.
NOTICE TO DEFEND
You have been sued in Court. If you wish to defend against the claims set forth in the
following pages, you must take action within twenty (20) days after this Complaint and Notice
are served, by entering a written appearance personally or by attorney andfiling in writing with
the Court your defenses or objections to the claims set forth against you. You are warnedthat if
you fail to do so the case may proceed without you and a judgment maybeentered against you
by the court without further notice for any money claimed in the complaint or for any other claim
or relief requested by the plaintiff. You may lose moneyorproperty or otherrights importantto
YOU SHOULD TAKE THIS PAPER TO YOUR LAWYER AT ONCE.
IF YOU DO
NOT HAVE A LAWYER OR CANNOT AFFORD ONE, GO TO OR TELEPHONE THE
OFFICE SET FORTH BELOW TO FIND OUT WHERE YOU CAN GET LEGAL HELP.
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LAWYER REFERRAL SERVICE
ALLEGHENY COUNTY BAR ASSOCIATION
920 CITY-COUNTY BUILDING
PITTSBURGH,PA 15219
(412) 261-2088
COMPLAINT IN CIVIL ACTION
AND NOW,comePlaintiffs, LINDA SASINOSKI and BOB SASINOSKI,her husband,
by and throughhercounsel, Philip A. Ignelzi, Esquire, Michael A. Murphy, Esquire, John D.
Perkosky, Esquire and the law firm Ogg, Cordes, Murphy & Ignelzi, L.L.P., andfiles the
foregoing Complaint in Civil Action averring as follows:
1.
Plaintiff, LINDA SASINOSKI (herein “MRS. SASINOSKT’),is an adult
individual residing at 2828 Phillips Avenue, Glenshaw, Allegheny County, Pennsylvania 15116.
2.
Plaintiff, BOB SASINOSKI (herein “MR. SASINOSKY”)is an adult individual
residing at 2828 Phillips Avenue, Glenshaw, Allegheny County, Pennsylvania 15116. Atall
times relevant to this matter, Plaintiffs were married and residedat this address.
3.
Defendant, OLYMPUS AMERICA,INC.(herein “OLYMPUS”’)is a corporation
organized and existing under the laws of the Commonwealth of Pennsylvaniaandatall times
relevant to this matter was involvedin the business of designing, manufacturing and distributing
of medical equipment, including colonoscopesused in conjunction with colonoscopies.
OLYMPUSregularly conducts business within the Commonwealth of Pennsylvania by
distributing its products through the state and hasa principle place of business at 3500 Corporate
Parkway, Center Valley, Lehigh Valley, Pennsylvania 18034.
4.
Defendant, WEST PENN ALLEGHENY HEALTH SYSTEM,INC.(herein
“HEALTH SYSTEM”) ”) is a non-profit corporation organized and existing under the laws of
the Commonwealth of Pennsylvania and is engaged in the business of offering healthcare and
hospital facilities and services, and hasa principle place of business at 4800 Friendship Avenue,
Pittsburgh, Allegheny County, Pennsylvania, 15224.
At all times relevant to the matters set forth herein, HEALTH SYSTEM owned,operated,
possessed and maintained a generalhospital and, through physicians and other health care
personnelat said hospital, provided medical care, treatment and hospital services to MRS.
SASINOSKI andotherpatients. At all times material hereto, HEALTH SYSTEMacted by and
through these duly authorized agents,ostensible agents, servants, and/or employeesandfor the
benefit of HEALTH SYSTEM.
5.
Defendant, FORBES REGIONAL HOSPITAL(herein “HOSPITAL?”)is a non-
profit corporation organized and existing under the laws of the Commonwealth of Pennsylvania
and is engaged in the businessof offering healthcare and hospital services, and has
a
principle
place of business at 2570 Haymaker Road, Monroeville, Allegheny County, Pennsylvania 15146.
At all times relevant to the matters set forth herein, HOSPITAL owned,operated,
possessed and maintained a general hospital and, through physicians andother health care
personnelat said hospital, provided medicalcare, treatment and hospital services to MRS.
SASINOSKI andotherpatients. Atall times material hereto, HOSPITAL acted by and through
these duly authorized agents, ostensible agents, servants, and/or employeesandfor the benefit of
HOSPITAL.
6.
Defendant, DAVID R. MULOCK,D.O.(herein “DR. MULOCK”)is a physician
licensed to practice medicine in the Commonwealth of Pennsylvania, and is engaged in
providing medical care at HEALTH SYSTEM, HOSPITAL and K and W.
Plaintiffs are
asserting a professionalliability claim against this Defendant.
7.
Defendant, KELLY AND WOOD,LTD(herein “K and W’’)is a corporation
organized to do business in the Commonwealth of Pennsylvania, providing medicalcare,
treatment andservicesto its patients through its agents, ostensible agents, servants and/or
employees and hasa principle place of business at 3347 Forbes Avenue,Pittsburgh, Allegheny
County, Pennsylvania 15213.
FACTUAL BACKGROUND
8.
In 2003, a problem wasdiscovered in New York and California regarding the
failure of healthcare providers to properly clean, sanitize and disinfect certain colonoscopes
manufactured by OLYMPUS.Asa result of improper cleaning anddisinfecting of the
colonoscopes, a numberof individuals contracted Hepatitis C. The cleaning problem involved
the failure of the healthcare providers to properly disinfect auxiliary channels in the involved
colonoscopes.
9.
As a result of the failure of these healthcare providers to properly disinfect
auxiliary channels of the involved colonoscopes, OLYMPUSsentsafety notices to over 2,300 of
its customers, including manyhospitals and other healthcare providers, warning of the need to
properly clean and disinfect the auxiliary channels. On information andbelief Plaintiffs, MRS.
SASINOSKI and MR. SASINOSKI,believe that Defendants, HEALTH SYSTEM, HOSPITAL,
K and W and DR. MULOCK,receivedthe safety notices from OLYMPUSinforming them of
the need to properly clean anddisinfect all the auxiliary chambers of the Olympus colonoscopes.
10.|
Sometimeprior to October 28, 2004, HEALTH SYSTEM and HOSPITAL
purchased two new colonoscopes from OLYMPUS. The new colonoscopes were model number
CF-QI60AL. These colonoscopes contained an auxiliary chamber that permitted water to be
pumpedthroughit. On information andbelief, before October 2004, HEALTH SYSTEM and
HOSPITAL had not owned any Olympus model CF-Q160ALcolonoscopes.
11.
On information and belief, MRS. SASINOSKI and MR. SASINOSKI assert that
these new Olympuscolonscopes were either accompanied by or supposed to be accompanied by
instruction and user manualsthat contained specific instructions telling Defendants how to
properly clean and disinfect the Olympus CF-Q1I60AL colonoscope.
12.
Despite their knowledgethatthe failure to clean and disinfect instruments such as
a colonoscope could have grave consequencesfor their patients, and despite their knowledge that
the Olympuscolonoscopes had auxiliary chambers that needed to be properly disinfected to
avoid serious and/orfatal injuries to their patients, HEALTH SYSTEM, HOSPITAL,K and W
and DR. MULLOCKfailed to properly implement the information provided by OLYMPUSon
the proper cleaning and disinfecting of the Olympus CF-Q160AL colonoscope.
13.
Alternatively, Defendant, OLYMPUS,failed to provide sufficient warnings,
instructions or notice to Defendants HEALTH SYSTEM, HOSPITAL,K and W,and DR.
MULOCK,on the need for and procedureas to properly clean and disinfect the aforementioned
colonoscope,specifically the auxiliary chamber.
14.
Because ofthe failure of HEALTH SYSTEM, HOSPITAL,K and W,and DR.
MULOCKto implementtheinstructions provided by OLYMPUSonhowto properly clean and
disinfect such scopes,all person who had a colonoscopy at HOSPITAL between October28,
2004 and February 26, 2005, including MRS. SASINOSKI on January 27, 2005, underwent a
colonoscopy with the Olympus CF-Q160AL colonoscope with an improperly cleaned and
disinfected colonoscope.
15.
Alternatively, because of the failure of OLYMPUSto provide proper instructions
on howto properly clean and disinfect such scopes,all persons who had a colonoscopyat
HOSPITALbetween October 18, 2004 and February 26, 2005,including MRS. SASINOSKI on
January 27, 2005, underwenta colonoscopy with the Olympus CF-Q160AL colonoscope with an
improperly cleaned and disinfected colonoscope.
16.|
Thecareless and reckless conduct of Defendants as described above, subjected
MRS. SASINOSKI and MR. SASINOSKI to
a
significantly increased risk of contracting a viral
and/or bacterial infection and/orillness, including butnot limited to, Hepatitis B, Hepatitis C and
17.
On information and belief, HEALTH SYSTEM, HOSPITAL,K and W and DR.
MULOCKdiscovered on February 27, 2005, or shortly thereafter, that all persons who had a
colonoscopy at HOSPITALusing the Olympus CF-Q160AL colonoscope betweenthe dates of
October 28, 2004 and February 26, 2005 were subjected to a colonoscopy with an improperly
cleaned and disinfected colonoscope, and werethusat risk of contracting infection and/orillness.
Defendants knew that if any such patient engaged in unprotected sexualrelations or otherwise
transferred blood, or certain other body fluids, additional persons wouldbeat risk of contracting
viral and/or bacterial infections and/or illnesses.
18.
Despite this knowledge, Defendants waited over a month,or until late March
2005, to inform patients of the potential risks. In late March 2005, HEALTH SYSTEM and
HOSPITAL sentcertified letters to about 200 patients, including MRS. SASINOSKI,advising
them that they wereat risk of infection and/orillness as a result of having undergone
colonoscopy with an improperly cleaned and disinfected colonoscope. Thepatients, including
MRS. SASINOSKI, were advised to submit to two blood tests, one immediately and onein six
months, to determine if they had contracted anyillnesses as a result of having undergoing a
colonoscopy with an improperly cleaned and disinfected colonoscope.
COUNT
I
—
NEGLIGENCE
Plaintiffs v. Olympus America,Inc.
19.
Plaintiffs incorporate paragraphs 1 through 18asif fully set forth herein.
20.
At all material times, OLYMPUSwasacting by and throughits servants, agents,
ostensible agents, and/or employees whoactedor failed to act within the scope of their authority
in the course of OLYMPUS’ business.
21.
Atall material times, OLYMPUS owed MRS.SASINOSKI a duty of care in the
design, testing, manufacturing, marketing, distribution and selling of the Olympus CF-QI60AL
colonoscopeandits related components and parts so as to avoid unreasonablerisk of injury to
MRS. SASINOSKI, a foreseeable user.
22.
At all material times, MRS. SASINOSKT in no wayparticipated in the
operation of this equipment, and she actedatall times in a reasonable, prudent and cautious
mannerandin a fashion free of any contributory negligence.
23.
Atall material times, OLYMPUSowed a duty to MRS. SASINOSKI or any and
all entities or individuals to adequately warn andinstruct asto all defects, either known or should
have been known by OLYMPUS,asto avoid an unreasonable risk of injury to MRS.
SASINOSKI,a foreseeable user.
24.
At all material times, OLYMPUShadan obligationto refrain from placing in the
stream of commerce the Olympus CF-Q160AL colonoscopeandits related components that were
in a defective condition and unreasonably dangerousto foreseeable users such as MRS.
SASINOSKI andto instruct and warn of such defective conditions.
25.
At all material times, OLYMPUSdesigned, manufactured and distributed the
Olympus CF-Q160ALcolonoscope andits related componentsin the regular course ofits
business. The Olympus CF-Q160AL colonoscopeandits related components were expected to
and did reach the users of this equipment without substantial change in its condition.
26.
At the time the Olympus CF-Q160ALcolonoscope andits related components
left OLYMPUS’control, it was in a defective condition because ofits unsafe and improper
design and manufacture.
27.
At the time of the incident described in this Complaint, the condition of the
Olympus CF-Q160AL colonoscopeandits related components had notbeen substantially
changed from its condition when designed, manufactured, distributed and sold by OLYMPUS.
28.|
The Olympus CF-Q160AL colonoscope and related components defective
condition, was a direct and proximate causeof the injuries suffered by MRS. SASINOSKI and
OLYMPUSisstrictly liable.
29.
The injuries and damagessuffered by MRS. SASINOSKI werethe direct and
proximate result of the negligence and carelessness of OLYMPUS,by andthroughits officers,
agents, ostensible agents, servants, and/or employees acting within course and scopeof their
authority, servitude or employment, general, and in the following particulars:
a.
In failing to design and/or utilizing improper designs or
procedures for the manufacture, assembly, andsale of the
Olympus CF-Q160ALcolonoscopeandits related
components;
b.
In designingorin utilizing defective designs and
procedures for the manufacture, assembly andsale of the
Olympus CF-Q160ALcolonoscope and related components;
C.
In failing to properly test the Olympus CF-Q160AL
colonoscope and componentparts after its manufacture
andpriorto sale;
d.
In failing to include proper instructions for the maintenance
of the Olympus CF-Q160AL colonoscope andits related
componentsafter its manufacture andpriorto sale;
e.
In failing to adequately inform or warn purchasers or
ultimate users of the Olympus CF-Q160AL colonoscope
and its related componentsas to the proper proceduresfor
maintaining it and its related components;
f.
In failing to adequately inform or warn purchasers or
ultimate users of the Olympus CF-Q160AL colonoscope
andits related componentsofthe risks or dangers posed byit;
g.
In failing to provide proper and sufficient instructions relating to
disinfecting andsterilizing the colonoscope;
h.
In failing to provide adequate warningsas to the need for and
methodsto properly disinfect and sterilize the colonoscope; and
i.
In designing, manufacturing and distributing the colonoscope
in a fashion that madeit difficult and confusing to disinfect andsterilize.
30.
As a direct and proximateresult of the above actions and omissions of
OLYMPUS,MRS. SASINOSKT hassustained injury and incurred the following damages:
a.
Past and future impairment of MRS. SASINOSKI’S
general health, strength andvitality;
b.
Past and future pain and suffering;
Cc.
Past and future mental anguish, embarrassment and
inconvenience;
d.
Submission to past and future testing;
e.
Medical expenses;
f.
Increasedrisk of contracting infectious diseases;
g.
Past and future pain and inconvenience ofbloodtesting;
h.
Lost wages and income; and
1.
Deprivation of MRS. SASINOSKT’Sability to enjoy ordinary
pleasuresof herlife.
31.
WHEREFORE,Plaintiffs, LINDA SASINOSKI and BOB SASINOSKI,claim
damages against OLYMPUS AMERICA,INC.in a sum in excessof the applicable arbitration
limits and demanda trial by jury.
COUNT II — NEGLIGENCE
Plaintiffs v. West Penn Allegheny Health System,Inc.
32.
Plaintiffs incorporate paragraphs | through 31 asif fully set forth herein.
33.
HEALTH SYSTEMhada duty and responsibility to MRS. SASINOSKI,its
patients, and to the public to provide appropriate and competent medical care and treatment.
34.
In subjecting MRS. SASINOSKI to a colonoscopy with an improperly cleaned
and disinfected colonoscope, HEALTH SYSTEM,through their employees, agents,ostensible
agents, and/or servants was negligent and acted with reckless indifference to the safety of MRS.
SASINOSK1 in the following particulars:
a.
In failing to properly care for Mrs. Sasinoski;
b.
In failing to learn, instruct and inform others of the proper method
of cleaning and disinfecting the Olympus CF-Q160AL colonoscope;
In failing to have in effect adequate rules, regulations and protocols
that required their employees, agents, ostensible agents,
and/or servants to read and follow cleaning, disinfecting and
other instructions provided by the manufactures of medical
instruments such as the Olympus CF-Q1I60AL colonoscope;
In failing to adequately enforce rules, regulations and protocols requiring
their employees, agents, and servants to read and follow
cleaning, disinfecting and other instructions provided by the
manufacturers of medical instruments such as the Olympus
CF-Q160AL colonoscope used in HOSPITAL,
In permitting an improperly cleaned and disinfected
Olympus CF-Q160AL colonoscope to be used on Mrs. Sasinoski;
f.
In failing to properly clean and disinfect the Olympus CF-Q160AL
colonoscopebefore it was used on Mrs. Sasinoski,
g.
In failing to properly train those responsiblefor the cleaning,
disinfecting and maintenance of the Olympus CF-Q160AL
colonoscope;
h.
In failing to recognize at any time before February 26, 2005
that they were subjecting Mrs. Sasinoski to a colonoscopy with
improperly cleaned and disinfected Olympus CF-Q160AL
colonoscopes; and
i.
In failing to promptly and in a timely mannernotify Mrs.
Sasinoski that she had been subjected to a colonoscopy with
an improperly cleaned and disinfected Olympus CF-Q160AL
colonoscope and wasthereforeatrisk of contracting and/or
spreading viral and/or bacterial infections and/orillnesses.
35.
Asa direct and proximate result of the above acts or omissions of Defendants,
Plaintiffs have sustained the following damagesandlossesset forth in paragraph 30 above,
which paragraphis incorporated by reference.
WHEREFORE,Plaintiffs, LINDA SASINOSKI and BOB SASINOSKI,claim damages
against WEST PENN ALLEGHENY HEALTH SYSTEM,INC.in a sum in excessofthe
applicable arbitration limits and demanda trial by jury.
COUNTII - NEGLIGENCE
Plaintiffs v. Forbes Regional Hospital
36.
Plaintiffs incorporate paragraphs 1 through 35 as if fully set forth herein.
37.|
HOSPITALhad a duty andresponsibility to MRS. SASINOSKL,its patients, and
to the public to provide appropriate and competent medical care and treatment.
38.
In subjecting MRS. SASINOSKI to a colonoscopy with an improperly cleaned
and disinfected Olympus CF-Q160AL colonoscope, HOSPITAL,through their employees,
agents, ostensible agents, and/or servants was negligent and acted with recklessindifference to
the safety of MRS. SASINOSKT inthe followingparticulars:
a.
In failing to properly care for Mrs. Sasinoski;
b.
In failing to learn, instruct and inform others of the proper method
of cleaning and disinfecting the Olympus CF-Q160AL colonoscope;
In failing to have in effect adequate rules, regulations and protocols
that required their employees, agents, ostensible agents,
and/or servants to read and follow cleaning, disinfecting and
other instructions provided by the manufactures of medical
instruments such as the Olympus CF-Q160AL colonoscope;
In failing to adequately enforce rules, regulations and protocols requiring
their employees, agents, and servants to read and follow
cleaning, disinfecting and other instructions provided by the
manufacturers of medical instruments such as the Olympus
CF-Q160AL colonoscope used in HOSPITAL;
In permitting an improperly cleaned and disinfected
Olympus CF-Q160AL colonoscope to be used on Mrs. Sasinoski;
In failing to properly clean and disinfect the Olympus CF-Q160AL
colonoscope before it was used on Mrs. Sasinoski;
In failing to properly train those responsible for the cleaning,
disinfecting and maintenance of the Olympus CF-QI60AL
colonoscope;
In failing to recognize at any time before February 26, 2005
that they were subjecting Mrs. Sasinoski to a colonoscopy with
improperly cleaned and disinfected Olympus CF-Q160AL
colonoscopes; and
In failing to promptly and in a timely manner notify Mrs.
Sasinoski that she had been subjected to a colonoscopy with
an improperly cleaned and disinfected Olympus CF-Q160AL
colonoscope and wastherefore at risk of contracting and/or
spreading viral and/orbacterial infections and/orillnesses.
39.
Asadirect and proximateresult of the above acts or omissions of Defendants,
Plaintiffs have sustained the following damagesandlosses set forth in paragraph 30 above,
which paragraphis incorporated by reference.
WHEREFORE,Plaintiffs, LINDA SASINOSKI and BOB SASINOSKI,claim damages
against FORBES REGIONAL HOSPITAL in a sum in excessof the applicable arbitration limits
and demanda trial by jury.
COUNTIV —- NEGLIGENCE
Plaintiffs v. David R. Mulock, D.O.
40.
Plaintiffs incorporate paragraphs 1 through 39 asif fully set forth herein.
41.
DR. MULOCKhad
a
dutyandresponsibility to MRS. SASINOSKI,hispatients,
and to the public to provide appropriate and competent medicalcare and treatment.
42.
In subjecting MRS. SASINOSKI to a colonoscopy with an improperly cleaned
and disinfected Olympus CF-Q160AL colonoscope, DR. MULOCK,through his employees,
agents, ostensible agents, and/or servants was negligent and acted with reckless indifferenceto
the safety of MRS. SASINOSKI in the following particulars:
a.
In failing to properly care for Mrs. Sasinoski;
b.
In failing to learn, instruct and inform others of the proper method
of cleaning and disinfecting the Olympus CF-Q160AL colonoscope;
c.
In failing to havein effect adequate rules, regulations and protocols
that required their employees, agents, ostensible agents,
and/or servants to read and follow cleaning, disinfecting and
other instructions provided by the manufactures of medical
instruments such as the Olympus CF-Q1I60AL colonoscope;
d.
In failing to adequately enforce rules, regulations and protocols requiring
their employees, agents, and servants to read and follow
cleaning, disinfecting and otherinstructions provided by the
manufacturers of medical instruments such as the Olympus
CF-Q160AL colonoscope used in HOSPITAL;
e.
In permitting an improperly cleaned and disinfected
Olympus CF-Q160AL colonoscopeto be used on Mrs. Sasinoski;
f.
In failing to properly clean and disinfect the Olympus CF-QI60AL
colonoscopebefore it was used on Mrs. Sasinoski;
g.
In failing to properly train those responsible for the cleaning,
disinfecting and maintenance of the Olympus CF-Q160AL
colonoscope;
h.
In failing to recognize at any time before February 26, 2005
that they were subjecting Mrs. Sasinoski to a colonoscopy with
improperly cleaned and disinfected Olympus CF-QI60AL
colonoscopes; and
1.
In failing to promptly and in a timely mannernotify Mrs.
Sasinoski that she had been subjected to a colonoscopy with
an improperly cleaned and disinfected Olympus CF-Q160AL
colonoscope and wastherefore at risk of contracting and/or
spreading viral and/or bacterial infections and/orillnesses.
43,
Asa direct and proximateresult of the above acts or omissions of Defendants,
Plaintiffs have sustained the following damagesandlossesset forth in paragraph 30 above,
which paragraphis incorporated by reference.
WHEREFORE,Plaintiffs, LINDA SASINOSKI and BOB SASINOSKI,claim damages
against DAVID R. MULOCK,D.O.in a sum in excess of the applicable arbitration limits and
demanda trial by jury.
COUNT V - NEGLIGENCE
Plaintiffs v. Kelly and Wood,Ltd.
44.
Plaintiffs incorporate paragraphs 1 through 43asif fully set forth herein.
45.|
Kand Whad
a
duty andresponsibility to MRS. SASINOSKI,its patients, and to
the public to provide appropriate and competent medical care and treatment.
46.
In subjecting MRS. SASINOSKI to a colonoscopy with an improperly cleaned
and disinfected Olympus CF-Q160ALcolonoscope, K and W,through their employees, agents,
ostensible agents, and/or servants was negligent and acted with reckless indifference to the safety
of MRS. SASINOSKI in the following particulars:
|
a.
In failing to properly care for Mrs. Sasinoski;
b.
In failing to learn, instruct and inform others of the proper
methodof cleaning and disinfecting the Olympus CF-Q1I60AL
colonoscope;
In failing to have in effect rules, regulations and protocols
that required their employees, agents, ostensible agents,
and/or servants to read and follow cleaning, disinfecting and
other instructions provided by the manufactures of medical
instruments such as the Olympus CF-Q160AL colonoscope;
In failing to enforce rules, regulations and protocols requiring
their employees, agents, and servantsto read and follow
cleaning, disinfecting and other instructions provided by the
manufacturers of medical instruments such as the Olympus
CF-Q160AL colonoscope used in HOSPITAL;
In permitting an improperly cleaned and disinfected
Olympus CF-Q160AL colonoscopeto be used on Mrs.Sasinoski;
In failing to properly clean and disinfect the Olympus CF-Q160AL
colonoscopebefore it was used on Mrs. Sasinoski;
In failing to train those responsible for the cleaning,
disinfecting and maintenance of the Olympus CF-Q160AL
colonoscope;
In failing to recognizeat any time before February 26, 2005
that they were subjecting Mrs. Sasinoski to a colonoscopy with
improperly cleaned and disinfected Olympus CF-QI60AL
colonoscopes; and
In failing to promptly and in a timely mannernotify Mrs.
Sasinoski that she had been subjected to a colonoscopy with
an improperly cleaned and disinfected Olympus CF-Q160AL
colonoscope and wastherefore at risk of contracting and/or
spreading viral and/or bacterial infections and/orillnesses.
47.
Asa direct and proximate result of the above acts or omissions of Defendants,
Plaintiffs have sustained the following damagesandlossesset forth in paragraph 30 above,
which paragraphis incorporated by reference.
WHEREFORE,Plaintiffs, LINDA SASINOSKI and BOB SASINOSKI, claim damages
against KELLY AND WOOD,LTD.in a sum in excessof the applicable arbitration limits and
demanda trial by jury.
COUNT VI-— NEGLIGENT INFLICTION OF EMOTIONAL DISTRESS
Plaintiffs
V.
Olympus America, Inc., West Penn Allegheny Health System,Inc.,
Forbes Regional Hospital, David R. Mulock, D.O., and Kelly and Wood,Ltd.
48.
Plaintiffs incorporate paragraphs 1 through 47asif fully set forth herein.
49.
Asaresult of the negligent actions of Defendants, Plaintiffs are at risk for
contracting numerousinfectious diseases.
50.
As aresult of Defendants’ negligent actions, Plaintiffs were placed in danger of
and were physically impacted.
51.
As a result of Defendants’ negligent actions, Plaintiffs suffered emotional distress,
anxiety and anguish.
WHEREFORE,Plaintiffs, LINDA SASINOSKI and BOB SASINOSKI,claim damages
against Defendants OLYMPUS AMERICA,INC., WEST PENN ALLEGHENY HEALTH
SYSTEM,INC., FORBES REGIONAL HOSPITAL, DAVID R. MULOCK,D.O. and KELLY
AND WOOD,LTD.in a sum in excessof the applicable arbitration limits and demanda trial by
COUNTVII —- NEGLIGENCE
Bob Sasinoski
-V-
Olympus America, Inc., West Penn Allegheny Health System,Inc.,
Forbes Regional Hospital, David R. Mulock, D.O., and Kelly and Wood,Ltd.
52.
Plaintiffs incorporate paragraphs 1 through 51 if fully set forth herein.
53.
Atall times relevant to this matter, Plaintiff, MR. SASINOSKI was married to
Plaintiff, MRS. SASINOSKI, and engagedin the normalactivities of marital couples.
54.
On January 27, 2005, MRS. SASINOSKI underwenta colonoscopy with the
Olympus CF-Q160AL colonoscope with an improperly cleaned and disinfected colonoscope.
Onthat date, MR. SASINOSKI wasplacedat risk of contracting infection and/or illness from
MRS. SASINOSKI.
55.|
Asadirect and proximate result of the above actions and omissions of
Defendants, MR. SASINOSKI hassustained injury and incurred the following damages:
a.
Past and future impairmentof his general health,
strength andvitality;
Past and future pain and suffering;
Past and future mental anguish, embarrassment and
inconvenience;
Submission to past and futuretesting;
Increased risk of contracting infectious diseases;
Past and future pain an inconvenience of bloodtesting;
Medical expenses;
Lost wages and income; and
Deprivation of his ability to enjoy ordinary pleasuresofhislife.
WHEREFORE,Plaintiffs, LINDA SASINOSKI and BOB SASINOSKI, claim damages
against Defendants OLYMPUS AMERICA,INC., WEST PENN ALLEGHENY HEALTH
SYSTEM,INC., FORBES REGIONAL HOSPITAL, DAVID R. MULOCK,D.O. and KELLY
AND WOOD,LTD.in a sum in excessof the applicable arbitration limits and demanda trial by
COUNT VII - LOSS OF CONSORTIUM
Bob Sasinoski
-V-
Olympus America, Inc., West Penn Allegheny Health System, Inc.,
Forbes Regional Hospital, David R. Mulock, D.O., and Kelly and Wood,Ltd.
56.
Plaintiffs incorporate paragraphs 1 through 55if fully set forth herein.
57.
Plaintiff, BOB SASINOSKI is now,and wasatall times material hereto, married
to Plaintiff LINDA SASINOSKI,andresides with her at 2828 Phillips Avenue, Glenshaw,
Allegheny County, Pennsylvania 15116.
58.|
Asadirect and proximateresult of the aforesaid negligence of all Defendants,
Bob Sasinoski has suffered and/or will suffer the following injuries and damages:
a.
Lossof society;
b.
Loss of companionship;
Cc.
Loss of consortium;
d.
Lossof services; and
€.
Hehas been,and in the future, may be required to expend
substantial sums of money for his wife’s medical expenses.
WHEREFORE,Plaintiff, BOB SASINOSKI, claims damages against OLYMPUS
AMERICA, INC., WEST PENN ALLEGHENY HEALTH SYSTEM INC., FORBES
REGIONAL HOSPITAL, DAVID R. MULOCK,D.O., and KELLY AND WOOD,LTD.ina
sum in excessof the applicable arbitration limits and demandsa trial by jury.
. Ignelzi, Esquire
urphy, Esquire
OGG, CORDES, MURPHY
& IGNELZI, L.L.P.
orneysfor Plaintiffs
IN THE COURT OF COMMONPLEAS OF ALLEGHENY COUNTY, PENNSYLVANIA
LINDA SASINOSKI and BOB SASINOSKI,
)
CIVIL DIVISION
her husband,
)
)
No.: GD 07-001656
Plaintiffs,
)
)
-v-
)
)
OLYMPUS AMERICA,INC,;et al.,
)
)
Defendants.
)
VERIFICATION
We, Linda and Bob Sasinoski, hereby verify that we have read the foregoing Complaint
in Civil Action, and that the statements contained therein are correct to the best of my personal
knowledge, information and belief. Further, we hereby verify that the foregoing Complaintis
based on information I furnished to counsel, as well as information gathered by counsel in the
course of this lawsuit.
The languageofthis pleading is that of counsel and not of signers. To the extent that the
contents of the pleadingis that of counsel, we have relied upon counsel in making this
Verification.
This statement and verification are made subject to the penalties of 18 Pa. C.S. § 4904
relating to unsworn falsification to authorities, which provides that if we make knowinglyfalse
averments we may be subjected to criminal penalties.
Levene
nL
Linda Sasinoski
fick
~
Bob Sasinoski
CERTIFICATE OF SERVICE
I, herebycertify that a true and correct copy of the within Complaintin Civil Action was served
on this Gm
day of
Viaup
, 2007, via U.S. mail, postage prepaid, on the following
parties of record:
David R. Johnson, Esquire
Thomson, Rhodes & Cowie, P.C.
1010 Two Chatham Center
Pittsburgh, PA 15219
(Counsel for Defendants West Penn Allegheny Health
System, Inc. and Forbes Regional Hospital)
Terry C. Cavanaugh, Esquire
White and Williams, LLP
1001 Frick Building
Pittsburgh, PA 15219
(Counsel for Defendants David R. Mulock, D.O.
and Kelly and Wood,Ltd.)
Olympus America,Inc.
3500 Corporate Parkway
Center Valley, PA 18034-8229
ban. Fetes
John D. Perkosky, Esquir
Ogg, Cordes, Murphy & Ignelzi, LLP
| products liability and mass tort |
ZU__A4kBRpLueGJZ8_ev | UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
________________________________________________
NORTH BREVARD COUNTY HOSPITAL
DISTRICT D/B/A PARRISH MEDICAL
CENTER,
1:20-CV-0363 (TJM/CFH)
Case No.: __________
Plaintiff,
-against-
COMPLAINT
C.R. BARD, INC.; BARD ACCESS
SYSTEMS, INC.,
JURY TRIAL DEMANDED
Defendants.
________________________________________________
HINCKLEY, ALLEN & SNYDER LLP
Christopher V. Fenlon, Esq.
30 South Pearl Street, Suite 901
Albany, New York 12207
Attorneys for Plaintiff North Brevard County Hospital District
d/b/a Parrish Medical Center
TABLE OF CONTENTS
NATURE OF THE ACTION ........................................................................................................1
JURISDICTION AND VENUE ....................................................................................................4
PARTIES ........................................................................................................................................4
RELEVANT MARKETS ..............................................................................................................5
Product Market for the Sale of Tip-Location Systems ........................................................5
Product Market for the Sale of PICCs .................................................................................6
Geographic Market ..............................................................................................................6
MARKET POWER .......................................................................................................................6
Bard’s Market Power in the Tip-Location Market ..............................................................6
Bard’s Market Power in the PICC Market ...........................................................................7
EXCLUSIONARY CONDUCT ....................................................................................................8
Bard’s Tying of Its PICCs and Tip-Location Systems ........................................................8
ANTITRUST INJURY………………………………………………………………………....10
Harm to PICC Price Competition and Innovation .............................................................10
Suppression of the AngioDynamics Life-Saving PICC Technology ................................12
CLASS INJURY AND STANDING ...........................................................................................16
CLASS ACTION ALLEGATIONS ...........................................................................................17
Class of Direct Purchasers of Bard PICCs .........................................................................17
Federal Rule of Civil Procedure 23(a) ...............................................................................17
Federal Rule of Civil Procedure 23(b)(3) ..........................................................................18
Federal Rule of Civil Procedure 23(b)(2) ..........................................................................18
CAUSES OF ACTION ................................................................................................................19
COUNT I: Tying of Separate Products in Violation of Section 1 of the Sherman Act ....... 19
Per Se Violation ................................................................................................................ 19
Bard Ties Its PICC Tip-Location Systems to Its PICCS .................................................. 19
Bard Coerces Purchasers to Buy Its PICCS ...................................................................... 19
Bard Possesses Market Power in the Tip-Location Market .............................................. 19
Bard’s Conduct Harms PICC Competition in the Tied Market ........................................ 20
Bard’s Tying Impacts a Substantial Amount of Interstate Commerce ............................. 21
Rule-of-Reason Violation ................................................................................................. 21
COUNT II: Monopolization of the PICC Market in Violation of Section 2
of the Sherman Act .................................................................................................................... 21
PRAYER FOR RELIEF..............................................................................................................22
JURY TRIAL DEMANDED .......................................................................................................23
Plaintiff, North Brevard County Hospital District d/b/a Parrish Medical Center,
individually and on behalf of a class of direct purchasers of peripherally inserted central catheters
that Defendants sold, alleges as follows.
NATURE OF THE ACTION
1.
Defendants, C.R. Bard, Inc. and Bard Access Systems, Inc. (collectively “Bard”),
have unlawfully and anticompetitively tied its sales in a market for peripherally inserted central
catheters (“PICCs”) to its sales in a distinct and separate market for tip-location systems. Bard has
market power in both markets and has used its power in the former to coerce anticompetitive sales
in the latter. As a consequence, Bard has harmed PICC price and other competition, and hospitals
and other purchasers have paid Bard supra-competitive prices for its PICCs.
2.
Defendants’ conduct has also denied hospitals the choice of PICCs superior to
Bard’s PICCs in the suppression of dangerous blood clotting. Bard competitor AngioDynamics,
Inc. sells a PICC catheter that uses superior innovative technology with a significant positive
impact on patient outcomes with respect to blood clotting. Bard’s PICC technology is inferior. In
AngioDynamics, Inc. v. C.R. Bard, Inc., Civ. No. 1:17-CV-0598 (BKS/CFH), filed in this Court,
AngioDynamics alleges that Bard’s conduct in this regard has violated the Sherman Act, harming
competition in the relevant market and causing injury to AngioDynamics.
3.
A PICC is a central venous catheter placed into a peripheral vein, usually the basilic
vein in the arm, and passed to the distal superior vena cava, near the junction of the right atrium
of the heart. Clinicians use PICCs to administer fluids, medications, and nutrients; to sample blood;
and to power-inject contrast media. The PICC is a thin, soft, flexible tube. The PICC may remain
in place for an extended period if no complications arise.
4.
Separate technologies that provide information concerning the location of the tip of
the PICC are essential to the use of any PICC. These technologies assist clinicians in navigating
the PICC through the venous system so it reaches the proper place in the body and to confirm that
the tip of the PICC has been positioned in the proper place. Improperly positioned PICCs may
cause complications and serious health risks, some of which can be fatal. Historically, a chest x-
ray or fluoroscopy determined the final PICC location. Clinicians today typically use tip-location
systems, tracking the PICC as it moves.
5.
Many tip-location systems use a patient’s electrocardiographic (“ECG”) waveform
to determine a PICC’s final position in relation to the heart. Tip-location systems have
revolutionized PICC placement because they serve as a less expensive, less time-consuming, and
more accurate alternative to chest x-rays or fluoroscopy to determine final PICC position. If a tip-
location system includes navigation technology, the technology can be used to guide the placement
of the PICC by gathering information regarding its movement toward its destination.
6.
Bard possesses market power in the market for tip-location systems. Bard is the
largest player in this market, and its market share exceeds 70 percent.
7.
Bard’s tip-location systems are sold under the brand names Sherlock 3CG® Tip
Confirmation System (“Sherlock 3CG”) and Sherlock® II Tip Location System (“Sherlock
II”). Bard was the first company to come to market with navigation technology. Bard’s Sherlock
3CG system is the first and only tip-location system on the market that includes three
complementary technologies to facilitate PICC placement: (i) ultrasound technology for PICC
insertion into a suitable vein, (ii) magnetic-tracking technology for PICC navigation through the
venous system, and (iii) ECG technology for PICC tip location within the superior vena cava.
Bard’s Sherlock 3CG system is thus widely regarded as providing the most advanced technology
available and the greatest ease of use for clinicians placing PICCs.
8.
Bard has illegally used its firmly established, dominant position in the market for
tip-location systems to stifle competition in the market for sale of PICCs. Bard has done so by
illegally tying its market-leading tip-location systems to its PICCs. If a customer wants to use one
of Bard’s superior tip-location systems, it must also buy Bard’s PICCs to obtain the proprietary
Bard stylets necessary to operate the tip-location systems. In short, Bard forces customers to buy
its PICCs to acquire its tip-location systems.
9.
By leveraging its market power in the market for tip-location systems to expand its
sales of PICCs, Bard has harmed PICC competition, including price competition, and suppressed
free hospital choice of the superior AngioDynamics PICC technology. As a result of Bard’s
exclusion of PICC competition, in the exercise of its market power, direct purchasers of Bard’s
PICCs have paid supra-competitive prices.
10.
Bard has no legitimate business or health reason to tie its market-leading tip-
location systems to its PICCs. Bard obtained FDA approval to sell its proprietary stylet allowing
use of its systems separately from its PICCs, in “single-sterile” style, which would allow its
systems to be used with any company’s PICCs. Bard has sold the stylet in this way to one large
purchaser with significant leverage, the Cleveland Clinic, allowing the Clinic to use a Bard tip-
location system and AngioDynamics’ BioFlo PICCs together. Bard has not made this option
available to any other purchaser, and Bard requires any purchaser interested in acquiring and using
its systems to purchase and use Bard’s PICCs.
JURISDICTION AND VENUE
11.
Plaintiff brings suit under Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15,
26, to recover treble damages, injunctive relief, costs of suit, and reasonable attorneys’ fees arising
from Defendants’ violations of Sections 1 and 2 of the Sherman Act, 28 U.S.C. §§ 1, 2.
12.
Subject matter jurisdiction is proper under Sections 4 and 16 of the Clayton Act, 15
U.S.C. §§ 15, 26, and 28 U.S.C. §§ 1331 and 1337.
13.
The medical devices at issue are sold in interstate commerce, and the alleged
unlawful activities have occurred in, and have substantially affected, interstate commerce.
14.
Defendants are subject to personal jurisdiction in this district under Section 12 of
the Clayton Act, 15 U.S.C. § 22, because they may be found in this district and they transact
business in this district.
15.
Venue is proper pursuant to Section 12 of the Clayton Act, 15 U.S.C. § 22, and 28
U.S.C. § 1391 because Defendants transact business in this district, a substantial part of the events
giving rise to purchaser claims occurred in this district, and AngioDynamics resides in this district.
PARTIES
16.
Plaintiff, North Brevard County Hospital District d/b/a Parrish Medical Center
(“Parrish”), is a governmental entity located at 951 North Washington Ave., Titusville, Florida
32796. Plaintiff has directly purchased PICCs from Bard since 2013.
17.
Defendant C.R. Bard, Inc. (“C.R. Bard”) is a company organized under the laws of
New Jersey and headquartered in Murray Hill, New Jersey. C.R. Bard is a publicly traded provider
of vascular access, oncological, urological, and surgical medical devices. C.R. Bard manufactures
PICC catheters.
18.
Defendant Bard Access Systems, Inc. (“Bard Access”) is a company organized
under the laws of Utah and headquartered at Salt Lake City, Utah. Bard Access is a subsidiary of
C.R. Bard and is listed on C.R. Bard’s website as a “division” of C.R. Bard. Bard Access primarily
distributes PICC catheters manufactured by C.R. Bard.
19.
On April 23, 2017, Becton, Dickinson and Company (“Becton”), another medical-
device manufacturer, and Bard announced that they had reached an agreement under which
Becton would acquire Bard for $24 billion. In a presentation to investors, the companies stated
that together they would have about $16 billion in annual revenue and 65,000 employees with a
presence in nearly every country around the world.
RELEVANT MARKETS
Product Market for the Sale of Tip-Location Systems
20.
The relevant product for the sale of tip-location systems (“the tip-location market”)
encompasses sales to hospitals and other purchasers of tip-location systems (including stylets)
reasonably interchangeable in use with those sold by Bard.
21.
While tip-location systems are designed to be used with PICCs, they are sold in a
separate market from the market for the sale of PICCs. The latter products perform a different
medical function from tip-location systems and are not reasonably interchangeable in use with tip-
location systems. They are product complements to tip-location systems.
22.
Industry organizations recommend using tip-location systems over other,
traditional methods of locating PICC placement, such that tip-location systems are the standard of
care in the industry. Tip-location systems have largely displaced the use of x-rays and fluoroscopy
to locate PICC placement.
Product Market for the Sale of PICCs
23.
The relevant product market for the sale of peripherally inserted central catheters (“the
PICC market”) encompasses sales to hospitals and other purchasers of PICCS reasonably
interchangeable in use with those sold by Bard.
24.
PICCs are thin, soft, flexible tubes inserted into the body through a vein, typically
in the upper arm, and passed to the superior vena cava. PICCs are used to administer fluids,
medications and nutrients; to sample blood; and to power-inject contrast media.
25.
PICCs are sold in a separate market than the tip-location market. PICCs historically
have been sold on a standalone basis. They are complements to tip-location systems rather than
substitutes and perform a different medical function. PICCs are a widely used method of vascular
access, with clinicians placing approximately 2.7 million PICCs every year.
26.
PICCs are not reasonably interchangeable with other types of vascular catheters for
the multi-day period for which PICCs are typically used. Short peripheral intravenous venous
catheters are typically used for very short-term treatments, and implantable vascular ports are
typically used for long-term treatments.
Geographic Markets
27.
The geographic scope of both the tip-location market and PICC market, as
described further below, is the United States.
MARKET POWER
Bard’s Market Power in the Tip-Location Market
28.
Bard has market power in the market for tip-location systems. It was the first
company to market tip-location systems with navigation technology. Tip-location systems have
become the industry standard of care in PICC placement, and at least one recent survey suggests
that approximately 75 percent of tip-location purchasers would not buy a tip-location system that
lacked navigation. In addition, Bard is the only company on the market with a tip-location system
that provides ECG tip location technology, navigation technology, and ultrasound technology.
This combination of technologies provides the highest quality in PICC placement, thus providing
the greatest ease of use for clinicians. A Bard tip-location system includes the proprietary stylet
necessary to operate the system as a component. A tip-location system and stylet comprise one
product because they are designed to function together and one cannot function without the other.
29.
There are high barriers to entry in the tip-location market. These include both
technological and regulatory barriers. Entry into the market requires significant research and
development – including hardware and software design, clinical testing, market research, and FDA
approval – prior to any sales. As a result, the time to market is lengthy. The level of investment
required is high.
30.
Bard’s share of the tip-location market exceeds 70 percent. Very few Bard
competitors have entered the tip-location market. Bard has always maintained a dominant share of
the tip-location market.
Bard’s Market Power in the PICC Market
31.
In substantial part by virtue of its unlawful tying of the sale of its tip-location
systems to the sale of its PICCs, Bard has the power to control price or exclude competition in the
PICC market. Bard’s share of the PICC market exceeds 70 percent.
32.
After the advent of AngioDynamics’ superior BioFlo PICCs, Bard has nevertheless
expanded its dominant position in the PICC market. As a consequence, AngioDynamics, a product
innovator, has been effectively shut out of a substantial portion of the market for PICCs, and price
competition from it and other competitors has decreased.
33.
In addition to Bard’s exclusionary tying, there are high technology and regulatory
barriers to entry into this market. As evidenced in part AngioDynamic’s development of superior
anti-clotting properties, entry requires substantial research and development and FDA approval.
The level of investment is high.
EXCLUSIONARY CONDUCT
Bard’s Tying of Its PICCs and Its Tip-Location Systems
34.
Bard has used its market power in the tip-location market to coerce purchases of its
PICCs in the PICC market. Bard has exploited its control over the tip-location market to force
purchasers, members of the Class, to purchase Bard’s PICCs, which the purchasers would have
preferred not to purchase or to purchase otherwise and on different terms.
35.
Bard’s Sherlock 3CG system and its Sherlock II tip-location systems cannot be
utilized without Bard’s proprietary stylet. Bard only sells this stylet preloaded in its PICCs.
Accordingly, to use one of Bard’s tip-location systems, one must also purchase its PICCs to obtain
the stylets necessary to operate the system.
36.
There is no legitimate reason, technological, business, or otherwise, that Bard must
tie the sale of these separate products. Bard does so to drive sales of its inferior, less safe PICCs,
thereby injuring competition in the PICC market. Any justification Bard has for this tying is far
outweighed by the anti-competitive effects in the market for PICCs.
37.
Bard itself has acknowledged that there is no reason that its tip-location systems
and its PICCs cannot be sold separately such that Bard’s market leading tip-location system could
be used with AngioDynamics’ innovative, best-in-class PICCs.
38.
Bard sought FDA approval to sell its proprietary stylets single-sterile, and the FDA
granted section 510(k) premarket-notification clearance for such sales. In its section 510(k)
clearance letter, the FDA stated that Bard’s stylet “may now be used with specific Bard catheters
as well as any open-ended, non-valved, polyurethane peripherally inserted central catheter that
meets the dimensional specifications of the stylet (0.020 in minimum lumen diameter).”
39.
Bard has previously sold its stylets single-sterile to one of the leading medical
centers in the United States, the Cleveland Clinic. Given its prominence, the Clinic has significant
purchasing leverage. The Clinic had trialed BioFlo PICCs and noted a significant reduction in
upper-extremity deep-vein thrombosis, discussed further below, in patients using BioFlo PICCs
versus polyurethane PICCs. The Clinic thereafter successfully requested to purchase Bard’s stylets
single-sterile so that it could use AngioDynamics’ BioFlo PICCs with the Bard Sherlock 3CG tip-
location system.
40.
This is the only time that Bard has sold its stylets single-sterile in order to allow its
tip-location systems to be used with another company’s PICCs. Other institutions have requested
that Bard sell its stylets single-sterile to them, and Bard has refused their requests. Aside from its
sales to the Cleveland Clinic, Bard has always refused to sell its stylet single-sterile, despite having
the FDA approval to do so.
41.
Because Bard refuses to sell the stylet necessary to operate their systems single-
sterile, Bard’s large market share in the tip-location market means that the tie has a substantial
impact on the PICC sales of AngioDynamics and Bard’s other competitors.
42.
Bard is the only seller of tip-location systems that has a “closed” system, in which
the tip-location system is tied to its PICCs and cannot be purchased separately. No other seller of
tip-location systems thus ties its tip-location systems to its PICCs. Instead, they all have “open”
systems in which they sell their tip-location systems separately, or offer to do so, and thus allow
them to be used with any manufacturer’s PICCs.
43.
Bard has market power in the tip-location market. The tying product is Bard’s tip-
location system. A Bard tip-location system includes the proprietary stylet necessary to operate
the system as a component. A tip-location system and stylet comprise one product because they
are designed to function together and one cannot function without the other.
44.
The tied product is Bard’s PICC. Bard has FDA approval to sell its tip-location
stylets separately from its PICCs. These stylets are compatible with AngioDynamics’ BioFlo PICC
and with other competitors’ PICCs as well. Yet Bard has refused and continues to refuse to sell
the stylets separately from its PICCs.
45.
The stylet is not a component of the PICC; Bard sought and received approval from
the FDA to sell its stylets separately from its PICCs, and Bard has done so for use with
AngioDynamics’ PICCs. This demonstrates that it is not necessary to use the Bard stylet with a
Bard PICC.
46.
There is no legitimate business or other reason that Bard must tie its tip-location
systems (including proprietary stylets) to its PICCs. Bard ties its tip-location systems to its PICCs
for the sole purpose of eliminating competition in the sale of PICCs. Any justification Bard has
for this tying is far outweighed by the anti-competitive effects in the market for PICCs.
47.
Bard’s tying the sale of its PICC tip-location systems to the sale of its PICCs
therefore violates Sections 1 and 2 of the Sherman Act.
ANTITRUST INJURY
Harm to PICC Price Competition and Innovation
48.
Bard’s tying has unlawfully excluded substantial PICC competition, including
suppressing price competition throughout the PICC market. It has enabled supra-competitive
pricing for Bard’s sale of its PICCs whether or not the hospital purchases the Bard tip-location
system. Bard’s tying has also suppressed competitive choice and innovation, and has compromised
patient welfare with its inferior PICCs.
49.
Bard’s tying has prevented competitors from selling to a substantial portion of the
PICC market and helps Bard maintain its market power. Bard’s conduct has caused
anticompetitive effects in the PICC market.
50.
Bard’s tying has been very successful, allowing Bard to maintain a dominant
position in the PICC market, exceeding 70 percent market share, while other competitors’ sales
and market shares have gone down. AngioDynamics and other competitors have thus been
foreclosed from selling PICCs to a substantial share of the PICC market.
51.
PICC purchasers requiring use of the superior Bard tip-location system have been
coerced into buying Bard PICCs and have not been able to buy competitors’ PICCs because Bard
has refused to sell its tip-location system stylets single-sterile and instead ties them to its PICCs.
Customer choice and innovation have thus been significantly reduced.
52.
Bard’s tying arrangement stifles innovation and harms patient welfare, preventing
a large segment of the population from obtaining access to Angiodynamics’ BioFlo PICCs, which
have been proven to reduce thrombus accumulation, and reduce the reflux of blood into the catheter
for valved PICCs, thereby reducing the risk of further complications.
53.
As a result of Bard’s market power in the PICC market, price competition in that
market has decreased substantially. Because Bard has been able to capture and maintain market
power in the PICC market, it has caused competitors to lose PICC sales and market share. As a
result, AngioDynamics and other competitors have been foreclosed from a substantial share of the
PICC market.
54.
Bard’s tying has caused antitrust injury nationwide. Purchasers have paid supra-
competitive prices whether or not they have attempted to purchase Bard tip-location systems. By
suppressing the market shares of its PICC competitors below 30 percent of the PICC market,
Bard’s competitors do not have sufficient shares to take enough PICC business away from Bard to
make its supra-competitive pricing unprofitable, thereby forcing it to reduce that pricing to
competitive levels available across the class of purchasers of Bard PICCs.
55.
Bard has effectively coerced purchasers of its tip-location systems to purchase its
PICCs. Unless they purchase Bard’s PICCs, they are unable to obtain Bard’s proprietary stylet to
operate its tip-location systems. The only economically viable option for PICC purchasers who
wish to use one of Bard’s dominant and superior tip-location systems is to purchase their PICCs
from Bard to obtain the stylet necessary for their operation. Purchasing Bard’s stylet preloaded in
a Bard PICC and additionally purchasing, for example, AngioDynamics’ BioFlo PICC is not an
economically reasonable or viable option. The purchaser would pay for two sets of PICCs when
only one set was needed.
Suppression of the AngioDynamics
Life-Saving PICC Technology
56.
Despite their popularity for patient treatments over intermediate periods of time,
PICC use is associated with a variety of complications, including infection, blood clotting, and
line malfunction or blockage. Blood clotting can result in obstruction of a blood vessel, a condition
called venous thrombosis.
57.
Deep vein thrombosis (“DVT”) occurs when a blood clot blocks a large, essential
vein below the surface of the skin. Pulmonary embolism (“PE”) occurs when a blood clot
originating in another part of the body travels to and obstructs vessels in the lungs. Both conditions
can be life-threatening and require immediate medical attention.
58.
DVT and PE are together known as venous thromboembolism (“VTE”). In the
United States, there are more than 900,000 VTE events per year, a rate that has not changed
significantly in the past 25 years. However, because the risk of DVT and PE is closely correlated
with aging, the impact of these conditions is expected to increase as the U.S. population ages.
59.
DVT-related PE is the most common cause of preventable death in hospitalized
patients, with more patients experiencing DVT in a given year than heart attack or stroke.
60.
In 2008, in recognition of the high number of DVT and PE cases in the United
States, the acting Surgeon General issued a “call to action” to reduce the number of DVT and PE
cases. The Surgeon General asked the healthcare community to develop methods for combatting
this problem, calling DVT and PE “a major public health problem” that “exact[s] a significant
human and economic toll on the Nation.”
61.
AngioDynamics has manufactured and sold PICC products in the United States
since 2007. In 2012, AngioDynamics obtained FDA approval for a groundbreaking new PICC,
which it markets as the BioFlo PICC. BioFlo PICC is manufactured using a proprietary material
that resists the accumulation of blood components and thus impedes clot formation.
62.
BioFlo’s technology is a permanent and “non-eluting” integral polymer. This
means that it is not a coating or impregnated into the catheter. Instead, the Endexo Technology
polymer is blended with carbothane thermoplastic polyurethane during the proprietary
manufacturing process. Unlike a coating or impregnated material, this technology is present
throughout the catheter material, including the outer surface, inner surface, and even the cut
catheter tip. The combined material imparts the catheter shaft with protection against thrombus
accumulation by creating passive surfaces. All other things equal, the BioFlo PICC reduces the
risk of serious and life-threatening patient complications including DVT and facilitates higher
quality care at a lower cost.
63.
A number of health-care institutions have studied the efficacy of BioFlo PICCs and
have independently published or formally presented results in a scientific platform. These studies
demonstrate the dramatic results of the use of BioFlo. As examples: the Cleveland Clinic noted
that BioFlo PICCs reduced thrombosis by a factor of 6.2 overall; St. Rita’s Medical Center in
Lima, Ohio, noted a 73 percent reduction in catheter occlusions, 80 percent reduction in DVT, and
64 percent reduction in the cost of tissue plasminogen activator; and Flagler Hospital in St.
Augustine, Florida, noted a 74 percent reduction in catheter occlusions and a 73 percent reduction
in DVT.
64.
The BioFlo PICC is available with PASV Valve Technology, which is
AngioDynamics’ patented valve designed to automatically resist backflow and reduce blood reflux
on the inside of the catheter.
65.
As such, AngioDynamics’ BioFlo PICC with Endexo Technology is a life-saving,
disruptive, and innovative product offering. It is the first PICC of its kind with the ability to
significantly reduce thrombus accumulation and, for those PICCs with PASV Valve Technology,
to reduce the reflux of blood into the catheter as well. It provides a safe, cost-effective, advanced
technology designed to significantly improve patient outcomes.
66.
When AngioDynamics introduced BioFlo PICCs to the U.S. market, it anticipated
rapid adoption of the BioFlo technology, given its groundbreaking anti-thrombogenic properties,
and a resulting increased demand for its PICCs. Actual adoption of BioFlo PICCs, however, has
been severely limited due to Bard’s tying arrangements.
67.
Bard sells standard polyurethane PICCs. They do not contain any thrombo-resistant
material. Bard has been unable to develop a thrombo-resistant material similar to the technology
included in AngioDynamics’ BioFlo PICCs, despite its efforts to do so. In addition, Bard catheters
exhibit longer taper lengths (4-7cm), creating additional obstruction of blood flow through the
vessels, further increasing complication risk.
68.
In sum, Bard’s PICCs have none of the technological advancements designed to
improve patient outcomes that AngioDynamics’ PICCs have and, in addition, have design features
that increase the risk of complications.
69.
During an earnings call in October 2013 (not long after BioFlo PICCs received
FDA approval and began to gain traction in the market), Bard announced that it was developing a
new thrombo-resistant PICC family of products and anticipated launching them in 2014, following
FDA clearance.
70.
In subsequent earnings calls in 2014 and 2015, Bard reported that the development
of its thrombo-resistant PICCs had been delayed and that it had yet to submit any “new” catheter
technology to the FDA for approval.
71.
In a January 2015 earnings call, Bard described the thrombo-resistant PICCs it
intended to launch as “coated PICCs.” This thrombo-resistant coating has proven ineffective in
achieving the reduced thrombus results of Endexo Technology, which is not a coating but rather a
polymer added directly to the base polyurethane during the manufacturing process.
72.
Among other things, coatings create an additional step in the manufacturing
process, and they are ineffective in protecting cut surfaces. Coatings also elute into the blood
stream, exposing patients to chemicals unnecessarily.
73.
Endexo Technology does not suffer from any of these shortcomings. BioFlo PICCs
benefit from a consistent manufacturing process, and the Endexo Technology in BioFlo PICCs
cannot wear off, given that it is an integral part of the catheter itself, not a coating. This also means
that it is present on the cut catheter tip and protects that surface.
74.
In addition, in more recent earnings calls, Bard has not made any further reference
to its efforts to develop a thrombo-resistant PICC family of products. Bard thus does not have any
PICC products on the market that provide the type of reduced thrombus accumulation that
AngioDynamics’ BioFlo PICCs provide, and it does not appear that Bard is close to introducing
any such PICCs into the market.
CLASS INJURY AND STANDING
75.
Plaintiff and the Class of Bard PICCs have suffered injury of the type the antitrust
laws were intended to prevent and flows from that which makes Defendants’ act unlawful.
76.
Plaintiff and the Class allege that Defendants’ anticompetitive conduct has caused
them to pay supra-competitive prices for Bard’s PICCs. Such an injury is plainly of the type the
antitrust laws were intended to prevent.
77.
Defendants’ misconduct has directly caused this injury to Plaintiff and the Class.
Plaintiff and the Class are naturally motivated to enforce the antitrust laws because they had and
have the natural economic self-interest in paying reasonable rather than supra-competitive prices.
78.
Whereas Bard’s competitor AngioDynamics, as noted, has pursued antitrust claims
against Bard for its harm to competition in the PICC market, that lawsuit has not sought to recover
for the injuries to the members of the Class, and denying Plaintiff and the Class a remedy in favor
of a suit by Bard’s competitor would be likely to leave a significant antitrust violation undetected
or unremedied.
79.
Any overlaps in the facts and issues between this action and the action that Bard’s
competitor AngioDynamics has brought do not concern the calculation of damages in the
respective actions, which calculations involve conceptually and categorically different measures
that pose no threat of duplicative recoveries.
CLASS ACTION ALLEGATIONS
Class of Direct Purchasers of Bard PICCs
Federal Rule of Civil Procedure 23(a)
80.
Plaintiff (“Class Representative”) is a representative of a Class of U.S. direct
purchasers from Bard of its PICCs on or after March 31, 2014. “Purchasers” include in part
hospitals, hospital systems, and clinics.
81.
Prosecution of the claims of the Class as a class action is appropriate because the
prerequisites of Rule 23(a) of the Federal Rules of Civil Procedure are met:
(a)
The number of members of the Class is in the thousands, and the members are
therefore so numerous that joinder of all of them is impracticable. Joinder also
is impracticable because of the geographic diversity of the members, the need to
expedite judicial relief, and the Class Representative’s lack of knowledge of the
identity and addresses of all members.
(b)
There are numerous questions of law and fact arising from the tying restraint of
trade which are common to the members of the Class. These include, but are not
limited to, common issues as to (1) the existence of separate tip-location and
PICC markets; (2) Bard’s market power in both markets; (3) whether Bard has
tied sales of its tip-location systems including proprietary stylet to the sales of
its PICCs; and (4) whether the tying has caused antitrust injury to the members.
In addition, there are common issues as to the nature and extent of the injunctive
and damage relief available to the members.
82.
The Class Representative and its counsel will fairly and adequately protect the
interests of the members of the Class. There are no material conflicts between the claims of the
Class Representative and the members that would make class certification inappropriate. Counsel
for the Class will vigorously assert the claims of the Class Representative and the other members.
Federal Rule of Civil Procedure 23(b)(3)
83.
The prosecution of the claims of the Class as a class action pursuant to Rule 23(b)(3)
is appropriate because (a) questions of law or fact common to the members of the Class predominate
over any questions affecting only its individual members; and (b) a class action is superior to other
methods for the fair and efficient resolution of the controversy.
Federal Rule of Civil Procedure 23(b)(2)
84.
The prosecution of the claims of the Class as a class action pursuant to Rule 23(b)(2)
is appropriate because Defendants have acted, or refused to act, on grounds generally applicable to
the Class, thereby making appropriate final injunctive relief, or corresponding declaratory relief,
for the Class as a whole.
CAUSES OF ACTION
COUNT I
Tying of Separate Products
in Violation of Section 1 of the Sherman Act
85.
Plaintiff realleges the allegations above.
Per Se Violation
Bard Ties Its PICC Tip-Location Systems to Its PICCs
86.
Bard’s tying of its PICC tip-location systems with proprietary stylet to its PICCs
during the relevant period is a per se violation of Section 1 of the Sherman Act. Bard’s tip-location
system with proprietary stylet is the tying product. Bard’s PICC is the tied product.
87.
The tip-location systems, including proprietary stylets, and the PICCs are separate
products sold in separate markets. The FDA has approved Bard’s sale of the stylet single-sterile.
Bard sold the stylet single-sterile on only one occasion, when the Cleveland Clinic demanded it.
Bard has otherwise refused to sell the stylet single-sterile.
Bard Coerces Purchasers to Buy Its PICCs
88.
Bard leverages its control of its proprietary stylet, which is necessary to operate its
tip-location system, to coerce purchases of its PICCs by refusing to sell the stylet separately from
the PICC. By doing so, Bard has conditioned the purchase of its tip-location systems upon the
purchase of its PICCs, depriving purchasers of these systems of the option of buying
AngioDynamics’ BioFlo PICCs and the PICCs of other competitors.
Bard Possesses Market Power in the Tip-Location Market
89.
At all times relevant to this action, Bard has had substantial market power in the
tip-location market. Bard’s Sherlock 3CG system is the only one on the market that provides ECG
tip-location technology, navigation technology, and ultrasound technology. This combination of
technologies provides the highest quality in PICC placement, thus providing the greatest ease of
use and accuracy for clinicians.
90.
Bard has a substantial share of the tip-location market and has had a significant
share for some time. Bard’s current share of the market exceeds 70 percent.
91.
There are high barriers to entry in the tip-location market, including both
technological and regulatory barriers. As one would expect given such conditions, there has been
little entry in the market.
92.
Given its dominant position in the tip-location market, Bard possesses market
power sufficient to coerce customers into purchasing the tied product, Bard’s PICC.
Bard’s Conduct Harms PICC Competition in the Tied Market
93.
Bard’s refusal to sell its proprietary stylets necessary to operate its tip-location
systems single-sterile has foreclosed purchasers who prefer AngioDynamics’and other
competitors’ PICCs from pairing them with Bard’s superior tip-location systems.
94.
Instead, purchasers that want a Bard tip-location systems must purchase Bard
PICCs to obtain the stylet necessary to operate the tip-location systems. This hampers competition
in the PICC market to the detriment of purchasers and Bard competitors.
95.
Bard has substantially suppressed price competition and maintained its market
power in the PICC market and has been able to charge pricing above the competitive levels that
would have been available across members of the class with full and vigorous PICC competition.
96.
Although AngioDynamics’ BioFlo PICCs are far superior to Bard PICCs and
provide significant and superior health benefits, Bard’s anticompetitive tying stifled sales of
BioFlo PICCs and has denied purchasers competitive choice and harmed patient outcomes.
97.
Bard’s conduct has thus harmed price and quality competition in the PICC market,
enabling Bard’s supra-competitive pricing.
Bard’s Tying Impacts a Substantial Amount of Interstate Commerce
98.
PICC sales in the United States total approximately $400 million per year. Bard
accounts for the vast majority of sales in the PICC market. PICCs are widely used in hospitals and
other medical care facilities across the United States to administer medicines to thousands of
patients. Bard’s tying thus impacts a substantial amount of interstate commerce.
Rule-of-Reason Violation
99.
If Bard’s tying is not per se illegal, it nevertheless violates Section 1 of the Sherman
Act under the rule-of-reason doctrine because it is an unreasonable restraint of trade.
100.
There is no legitimate business or other pro-competitive justification for Bard’s
tying of its tip-location system to its PICC. Bard has FDA approval to sell its stylet separately from
its PICC, and Bard has sold them separately on at least one occasion. Its refusal to do so otherwise
is designed to eliminate competition in the PICC market. Any justification Bard may have for its
tie is far outweighed by the anti-competitive effects in the PICC market.
COUNT II
Monopolization of the PICC Market
in Violation of Section 2 of the Sherman Act
101.
Plaintiffs reallege the allegations above.
102.
Bard has monopolized the PICC market for the sale of PICC catheters. Bard has
market power in the PICC market and has willfully maintained that market power.
103.
Bard has thereby substantially harmed competition in the PICC market and has
charged supra-competitive prices to members of the Class.
104.
As a result of Bard’s conduct, members of the Class purchasing Bard’s PICC
catheters have suffered antitrust price injury.
105.
Bard’s conduct violates Section 2 of the Sherman Act, 15 U.S.C. § 2.
PRAYER FOR RELIEF
106.
Plaintiff and the Class pray that this Court certify the Class and enter judgment on
their behalf against Defendants and decree as follows:
(a)
Defendants have engaged in conduct in violation of Sections 1 and 2 of the
Sherman Act and have harmed competition and imposed antitrust price injury
on members of the Class in their businesses or property, as well as suppressed
life-saving competitive PICC choice.
(b)
Plaintiff and the Class recover damages sustained, and a judgment in favor of
Plaintiff and the Class shall be entered against Defendants, in an amount to be
trebled in accordance with such laws, including Section 4 of the Clayton Act;
(c)
Defendants, their subsidiaries, affiliates, successors, transferees, assignees, and
the respective officers, directors, partners, agents, and employees thereof, and
all other persons acting or claiming to act on their behalf, shall be permanently
enjoined and restrained from continuing the illegal conduct alleged herein;
(d)
Plaintiff and the Class shall be awarded pre-judgment and post-judgment
interest, and such interest shall be awarded at the highest legal rate from and
after the date of service of the initial complaint in this action;
(e)
Plaintiff and the Class shall recover their costs of this suit, including reasonable
attorneys’ fees as provided by law; and
(f)
Plaintiff and the Class shall receive such other or further relief as may be just
and proper.
JURY TRIAL DEMANDED
Plaintiff demands trial by jury.
Dated: March 31, 2020
Respectfully submitted,
By: /s/ Christopher V. Fenlon
HINCKLEY, ALLEN & SNYDER LLP
Christopher V. Fenlon (516392)
30 South Pearl Street, Suite 901
Albany, New York 12207
Telephone: (518) 396-3100
Facsimile: (518) 396-3101
Email: [email protected]
BERRY LAW PLLC
R. Stephen Berry (PHV to be filed)
1100 Connecticut Avenue, NW, Suite 645
Washington, D.C. 20036
Telephone: (202) 296-3020
Facsimile: (202) 296-3038
Email: [email protected]
ROCHE CYRULNIK FREEDMAN LLP
Velvel (Devin) Freedman (PHV to be filed)
Edward Normand (515258)
99 Park Avenue, Suite 1910
New York, New York 10016
Telephone: (646) 350-0527
Facsimile: (646) 392-8842
Email: [email protected]
Email: [email protected]
Attorneys for Plaintiff
North Brevard County Hospital District
d/b/a Parrish Medical Center
| antitrust |
PAjLFYcBD5gMZwczxB6T | UNITED STATES DISTRICT COURT
DISTRICT OF RHODE ISLAND
MAXWELL D. KOZLOV and BENJAMIN D.
:
BOSIS, individually and on behalf of other
:
similarly situated individuals,
:
Plaintiffs,
:
Collective Action
:
v.
:
C.A. NO.: 2019
:
BROWN UNIVERSITY IN PROVIDENCE IN :
THE STATE OF RHODE ISLAND AND
:
PROVIDENCE PLANTATIONS, alias,
:
Defendant
:
COMPLAINT
I.
Introduction
1.
This is an action brought by Plaintiffs Maxwell D. Kozlov and Benjamin D. Bosis
(collectively referred to herein as “Plaintiffs”) against their current and former employer,
Defendant Brown University in Providence in the State of Rhode Island and Providence
Plantations, seeking compensatory, liquidated, and punitive damages, counsel fees, costs and
other equitable relief arising out of violations of the Fair Labor Standards Act (“FLSA”), 29
U.S.C. § 201, et seq. and the Rhode Island Payment of Wages Act (“RIPWA”), R.I. Gen. Laws
§ 28-12-1, et seq. and § 28-14-1, et. seq.
2.
With respect to the claims brought under the FLSA, this action is brought
pursuant to the opt-in collective action provisions of the FLSA, 29 U.S.C. § 216(b).
3.
Additionally, and in the alternative, with respect to the FLSA and RIPWA claims,
Plaintiffs bring this action as a multi-party action, separate and apart from the opt-in collective
action claims set forth herein.
II.
Parties
4.
Plaintiff Maxwell D. Kozlov (“Plaintiff Kozlov”) is a resident of the City of
Providence, County of Providence, and State of Rhode Island, and at all times relevant to this
action was an employee—within the meaning of 29 U.S.C. § 203(e)(1) of the FLSA and R.I.
Gen. Laws § 28-12-2(5) and § 28-14-1(2) of the RIPWA—employed by the Defendant in the
State of Rhode Island.
5.
Plaintiff Benjamin D. Bosis (“Plaintiff Bosis”) is a resident of the City of
Providence, County of Providence, and State of Rhode Island, and at all times relevant to this
action was an employee—within the meaning of 29 U.S.C. § 203(e)(1) of the FLSA and R.I.
Gen. Laws § 28-12-2(5) and § 28-14-1(2) of the RIPWA—employed by the Defendant in the
State of Rhode Island.
6.
Defendant Brown University in Providence in the State of Rhode Island and
Providence Plantations, alias (“Defendant”) is a non-profit corporation duly organized and
incorporated under the laws of the state of Rhode Island, with a principal office located at 1
Prospect Street, Providence, RI 02912.
III.
Jurisdiction
7.
The United States District Court for the District of Rhode Island has federal
subject matter jurisdiction over this case under the provisions of 28 U.S.C. § 1331 because
Plaintiffs assert claims arising under federal law; specifically, the FLSA, 29 U.S.C. § 201, et seq.
Supplemental jurisdiction over the state law claims set forth herein is predicated on 28 U.S.C.
§ 1367 as they arise out of the same case or controversy.
IV.
Venue
8.
Venue is proper in this Court insofar as Defendant is doing business in Rhode
Island and therefore is deemed to reside in the District of Rhode Island, in compliance with the
requirements set forth in 28 U.S.C. § 1391. Moreover, a substantial part of the acts and/or
omissions giving rise to the claims asserted herein occurred in the District of Rhode Island.
V.
Material Facts
A.
FLSA Liability Allegations
9.
At all relevant times, Defendant was Plaintiffs’ employer within the meaning of
29 U.S.C. § 203(d) of the FLSA and R.I. Gen. Laws § 28-12-2(6) and § 28-14-1(3) of the
RIPWA.
10.
Defendant is, and at all relevant times was, engaged in related activities
performed through unified operation or common control for a common business purpose, and is,
and at all times hereinafter mentioned was, an enterprise within the meaning of 29 U.S.C. §
11.
At all relevant times, Defendant, on a regular, consistent and recurrent basis, as
part of the Defendant’s regular course of business of providing services and distributing product
in interstate commerce, employed workers in the activities of said enterprise engaged in
commerce or in the production of goods for commerce, including handling, selling or otherwise
working on goods or materials that have been moved in or produced in commerce.
12.
At all relevant times, Defendant’s enterprise has had an annual gross volume of
sales made or business done in the amount of not less than $500,000.00.
13.
At all times relevant to this action, Defendant was an institution of higher learning
within the meaning of 29 U.S.C. §§ 203(r) and (s).
14.
Accordingly, additionally, by statutory definition, Defendant is, and at all relevant
times was, an enterprise engaged in commerce or in the production of goods for commerce
within the meaning of 29 U.S.C. §§ 203(s)(1)(A) and/or (B).
B.
FLSA Collective Action Allegations
15.
Plaintiffs bring this action on behalf of themselves and all other similarly situated
current and former employees (“Class Plaintiffs”) of Defendant, who were and/or are affected by
the actions, pay schemes, policies, and procedures of Defendant as described herein.
16.
In addition, Plaintiffs bring this action in their individual capacities, separate and
apart from the collective action claims set forth herein.
17.
The FLSA collective action class is defined as follows:
All individuals employed by the Defendant as either Student Unit
Managers and/or Assistant Managers and/or Student Unit Supervisors in the
Cashiers, Carts, or Blue Room Units (or other comparable positions) for Brown
University Dining Services (“Brown Dining Services”) and subject to the
following common practices and/or policies of Defendant at any time from three
(3) years before the filing of this Complaint to the present:
a.
Who were scheduled or required to be “on call” for work; and,
b.
Who were not paid at least minimum wage for each hour they
worked and/or were scheduled or required to be “on call” for work; and,
c.
Who worked more than forty (40) hours in a week, including but
not limited to “on call” hours; and,
d.
Were not paid at least one and one-half (1 ½) times their regular
rate of pay for all hours worked in excess of forty (40) in a week, including but
not limited to “on call” hours; or,
e.
Who were just subject to the payment practices described in
subparagraphs “a” and “b” above.
18.
Plaintiffs are similarly situated with other Student Unit Managers or Assistant
Managers (“Managers”) and Student Unit Supervisors (“Supervisors”) or other comparable
positions employed by Defendant in the Cashiers, Carts, or Blue Room Units in that they were
all subject to the same payroll practices, policies and procedures of Defendant, performed similar
work under similar working conditions, and were subject to the same unlawful practices alleged
in this Complaint and sustained the same or similar damages as a result.
19.
Plaintiffs and Class Plaintiffs reserve the right to amend said class definition
consistent with information obtained through discovery.
C.
Allegations Common to Plaintiffs and All Class Plaintiffs: Brown Dining Services
Organization and Operation and Student Manager Responsibilities
20.
At all relevant times, Plaintiffs and Class Plaintiffs worked for Defendant as
either Student Unit Managers or Assistant Managers or Student Unit Supervisors in the Cashiers,
Carts, or Blue Room Units (or other comparable positions) for Brown Dining Services.
21.
Brown Dining Services is the name of the department or division of the
Defendant responsible for operating Defendant’s two all-you-can-eat dining halls, four eateries,
four satellite cafés, two campus markets, a bakery, a faculty dining club, and an extensive
catering service.
22.
At all relevant times, Plaintiffs and Class Plaintiffs were full-time students
enrolled in and matriculating at the Defendant.
23.
At any one time, Defendant employed three Unit Managers, one each in the
Cashiers, Carts, and Blue Room Units, and one Assistant Unit Manager in the Blue Room.
24.
The Blue Room Unit has an Assistant Manager to assist the Manager of the unit,
who performs essentially all the duties of a Manager except is in charge of a different section of
the Blue Room Unit subject to oversight of the Manager.
25.
Plaintiffs and Class Plaintiffs were responsible for, in collaboration with and
subordinate to non-student professional staff, training, supervising, scheduling, managing, and
disciplining, approximately 200 student “line workers” employed by Brown Dining Services and
for making sure the dining units in which they worked ran smoothly, effectively, and were
properly staffed.
26.
As part of the above responsibilities of Plaintiffs and Class Plaintiffs, two
Supervisors and a Manager were required to be “on call” for all periods in which a Unit was in
operation.
27.
Supervisors were scheduled for an on call shift of two (2) to three (3) hours and a
Unit Manager was always considered on call during Unit operating hours, unless on approved
time off.
28.
The line workers, supervised, scheduled, and managed by Plaintiff and Class
Plaintiffs, performed work as cashiers, bussed tables, washed dishes, cooked, prepared food,
and/or performed such other routine labor for Brown Dining Services.
29.
Line workers self-scheduled themselves to work regular shifts of 2-3 hours via an
online scheduling system.
30.
Frequently, line workers subsequently become unavailable, unable, or unwilling
to work a scheduled shift for any number of reasons, including a sudden class schedule change,
studying for an examination, fatigue, illness, injury, mistake, or numerous other unforeseen
reasons.
31.
Accordingly, Plaintiffs and Class Plaintiffs were required to schedule themselves
as “on call” for all scheduled line worker shifts.
32.
Plaintiffs and Class Plaintiffs were also required to schedule themselves for any
shifts for which no line workers were self-scheduled.
33.
When Plaintiffs and Class Plaintiffs scheduled themselves for unfilled shifts they
did so as “back up.”
34.
When a line worker with whom Plaintiff and Class Plaintiffs had experience as
being unreliable was scheduled for a shift, Plaintiff and Class Plaintiff would sometimes
schedule themselves as “back up.”
35.
In the event a shift was still unfilled when it was due to commence or when an
unreliable worker did indeed call out or no-show, the Plaintiff or Class Plaintiff who had
scheduled themselves as “back up” was required to work.
36.
In the event a “back up” shift was subsequently filled by a line worker, the
Supervisor would become merely “on call” for that shift.
37.
As a matter of custom or practice, although “no showing” for a shift would
generally result in discipline, line workers could sometimes “no show” for many shifts before
discipline resulted in their termination.
38.
As a matter of custom or practice, line workers generally may call out for a
scheduled shift without discipline.
39.
This is particularly true during “Critical Periods,” which for scheduling purposes
are the approximately two week periods each semester between the start of the Academic
Reading Period and the end of Final Examinations.
40.
As a matter of policy, during Critical Periods, with advance notice, a line-worker
could miss any shift without adverse employment action.
D.
Allegations Common to Plaintiffs and All Class Plaintiffs: On Call Duties and
Compensation Scheme
41.
At all relevant times, Managers and Supervisors were not paid a guaranteed
“salary” but were instead paid hourly, and therefore were not exempt employees because the
respective “salary” basis tests applicable under the FLSA and the RIPWA were not met.
42.
Additionally, when called into or otherwise required to report to the work site for
work while “on call,” Managers and Supervisors were not compensated for a minimum shift pay
of three hours, contrary to state law and Defendant’s own policy. R.I. Gen. Laws § 28-12-3.2
(“An employer who requests or permits any employee to report for duty . . . and does not furnish
at least three (3) hours work on that shift, shall pay the employee not less than three (3) times the
regular hourly rate.”); Brown University Administrative Polices §40.030 (“If non-exempt
employees are called in to work, they must be paid for a minimum of three hours or the actual hours
43.
At all relevant times, during numerous workweeks, the hours of physical work
performed by Managers and Supervisors in combination with their uncompensated “on call” time
exceeded forty (40) hours, however, they were never paid over time compensation at time and
one-half for all hours worked in excess of forty (40) in those workweeks.
44.
When “on call,” Plaintiffs and Class Plaintiffs were not paid at all unless they
swiped in at a swipe station located at Brown Dining Services or requested pay for “unswiped”
time on their biweekly time sheets.
45.
Defendant regularly reminded Plaintiffs and Class Plaintiffs to minimize
submissions of “unswiped” time on timesheets and actively discouraged requests for
compensation for “unswiped” time from Plaintiffs or Class Plaintiffs.
46.
Specifically, Defendants displayed, general hostility toward “unswiped” time
submissions on Plaintiffs and/or Class Plaintiffs time sheets, challenged “unswiped” time
submissions made by Plaintiffs or Class Plaintiffs, instructed Plaintiffs or Class Plaintiffs not to
request compensation for “unswiped” time on time sheets, and threatened adverse employment
actions for “excessive” “unswiped” time, and directed Plaintiffs and Class Plaintiffs to physically
go to a swipe station while resolving issues if they wanted to be paid.
47.
While “on call,” Plaintiffs or Class Plaintiffs were required, by policy, practice,
and circumstance, to remain on Defendant’s campus during all “on call”.
48.
Indeed, Plaintiffs or Class Plaintiffs, while “on-call, were required to immediately
physically report to their unit to fill open shifts or address a problem that required them to be at a
49.
Further, as a matter of custom, policy, practicality, and Health Code regulation,
Plaintiffs or Class Plaintiffs while “on-call” were required to be on campus, with their
manager/supervisor card, and in dress code, which included closed toed shoes, long pants, and a
shirt with sleeves, no matter the season or time of year.
50.
Despite this compensation system, Defendant required Plaintiffs and Class
Plaintiffs to attend to many, time-consuming work tasks, which often required immediate
attention and were performed away from locations where Plaintiffs or Class Plaintiffs could
swipe and record their time.
51.
For example, while “on call,” Plaintiffs and Class Plaintiffs were required to
answer phone calls from line workers, non-student managers, and other Managers and
Supervisors, and immediately respond to and resolve whatever issue was presented.
52.
Also, while “on call,” Plaintiffs and Class Plaintiffs were required to respond to
text messages from line workers, non-student managers, and other Managers and Supervisors,
immediately and to respond to and resolve whatever issue was presented.
53.
Further, Plaintiffs and Class Plaintiffs were required to actively engage with a
group text communication application call “GroupMe” and respond to messages from non-
student managers, and other Managers and Supervisors, immediately when “on call,” and
promptly even when not “on call.”
54.
Additionally, while “on call,” Plaintiffs and Class Plaintiffs were required to
respond to emails from line workers, non-student managers, and other Managers and
Supervisors, immediately and to respond to and resolve whatever issue was presented.
55.
Responding to these communications and resolving whatever issues were
presented was entirely uncompensated except for some limited “unswiped” time, the time when a
Manager or Supervisor was required to actually physically report to a Unit, and then only the
time physically spent at the Unit, and the rare time when a Manager or Supervisor happened to
already be at a Unit and could swipe in while doing this work.
E.
Supervisors
56.
Supervisors, in conjunction with Unit Managers and non-student managerial staff,
were responsible for recruiting, training and overseeing, line workers.
57.
Supervisors, in conjunction with Unit Managers, were also responsible for
ensuring that all shifts are covered.
58.
The Units in question in this case generally employed approximately eight (8) and
ten (10) Supervisors at any given time.
59.
At any one time, Defendant employed approximately twenty-four (24) to thirty
(30) Supervisors in the Cashiers, Carts, and Blue Room Units.
60.
Supervisors had to schedule themselves to be “on call” during the period that the
Unit at which they are employed is in operation and to collectively ensure that all hours of
operation were cover with appropriate “on call” Supervisors.
61.
These “on call” shifts normally ranged from two (2) to three (3) hours each and
Supervisors divided them up to cover the operational hours of the Unit at which they were
employed.
62.
When “on call,” Supervisors were required to remain on and not to leave
Defendant’s campus.
63.
When “on call,” Supervisors” were required to be in dress code, which included
closed toed shoes, long pants, and a shirt with sleeves, no matter the season or time of year.
64.
When “on call,” Supervisors were required to answer and respond to phone calls
regarding issues arising at the Unit immediately.
65.
These issues vary, but most often involve line-workers calling out and/or no-
showing for their shifts, issues with the register and/or point of sale software (“PoS”),
discrepancies in the amount of cash in the draw and the amount recorded by the PoS, and
conflicts between line-workers.
66.
During an “on call” shift of two (2) to (3) hours, Supervisors normally would
receive up to five (5) phone calls, involving issues which typically took between fifteen (15)
minutes and one (1) hour to resolve and often requiring the Supervisor to open their computer
and review a number of spreadsheets, make additional phone calls, send text messages, emails,
and messages to the group communication application “GroupMe,” and/or physically report to
the Unit to resolve issues.
67.
During an “on call” shift of two (2) to (3) hours, Supervisors typically would take
part in up to five (5) text message conversations, each taking about fifteen (15) minutes to one
(1) hour to resolve, and typically dealing with the same issues as set forth in paragraph 66 above.
68.
During an “on call” shift of two (2) to (3) hours, Supervisors would typically
spend about thirty (30) minutes to one (1) hour sending and receiving messages on the group
communication application “GroupMe,” typically dealing with the same issues as set forth in
paragraph 66 above and/or general communications and/or management of the Unit.
69.
In the aggregate, during a normal two (2) to three (3) hour “on call” shift, when a
Supervisor was not required to actually cover the line worker shift, they would typically spend
between about thirty percent (30%) and seventy percent (70%) of the “on call” time actively
answering communications, making calls, sending messages, and otherwise doing work and
completing tasks to ensure the smooth operation of the Unit.
70.
Further, during about sixty percent (60%) of “on call” shifts, Supervisors would
have to be physically present at the Unit at least once to resolve an issue and would typically
have to cover at least some part of a line-worker shift about forty (40%) of the time.
71.
Typically, a Supervisor is scheduled to be “on call” between approximately 10-35
hours per week.
72.
Typically, a Supervisor performs between approximately 15 to 40 hours of
compensated work weekly attending scheduled meetings with other supervisors, training,
recruiting, and overseeing line workers (by on-site visits or “check-ins”), handling a matter or
issue by phone, and filling “on call” “back up” or “no show” line worker shifts.
73.
The above estimate of compensated work does not include uncompensated work
done while “on call” either when a Supervisor did not swipe in at a swipe machine or during the
period of time a Supervisor was dealing with an issue while “on call” before they physically
reported to a Unit except for a small amount of compensated “unswiped” which was typically
limited by Defendant to a few hours per biweekly pay period.
74.
Supervisors had essentially no ability to “trade off” their “on call” time, due to
their limited number as well as the inability to efficiently notify line workers of the switch, as a
consequence of which they would be contacted regardless of any change.
75.
The latter is true because “on call” schedules were posted across campus for line
workers on a weekly basis and were not and could not be changed until the following week’s
schedule was posted.
76.
Accordingly, Supervisors could not effectively swap “on call” shifts because line
workers had already been directed to call a particular Supervisor and would do so regardless of
any effort to swap an “on call” shift on the part of Supervisors.
77.
As such, Supervisors did not “trade off” their “on call” time.
78.
Supervisors typically logged more scheduled “on call” hours and worked more
line worker shifts during Critical Periods due to more frequent “call outs” and “no shows.”
79.
For example, due to the nature of the Cashiers Unit, during Critical Periods,
Supervisors in that unit were typically scheduled to be on-call between approximately 50-72
hours per week.
80.
Not surprisingly, during Critical Periods, Supervisors would receive even more
phone calls, texts, and GroupMe messages than normal.
81.
During Critical Periods, Supervisors would typically spend between about fifty
percent (50%) and one-hundred percent (100%) of “on call” shift time actively doing work.
82.
Supervisors were not compensated for any of the above work unless they were
physically present at the Unit and swiped themselves in, or they requested pay via “unswiped”
time which, as a matter of practice and policy, was limited by Defendant to a few hours during
each biweekly pay period.
83.
At all relevant times, Supervisors were compensated biweekly on an hourly basis
anywhere between $12.45 per hour and $10.10 per hour.
F.
Managers
84.
Managers, in conjunction with Supervisors and non-student managerial staff,
were responsible for recruiting, training and overseeing, line workers.
85.
Managers, in conjunction with non-student managerial staff, were also
responsible for recruiting, training and overseeing Supervisors.
86.
Managers recruited, oversaw, and evaluated a team of Supervisors and scheduled
and attended at least two weekly meetings, one with their team and another with other Managers
to ensure all shifts were covered, the units were fully staffed, staffing levels were maximized and
efficiently deployed, and to develop and disseminate uniform policies and standards.
87.
Managers, in conjunction with Supervisors, are also responsible for ensuring that
all shifts are covered.
88.
Managers are also required to schedule themselves to fill any open Supervisor “on
call” hours which are not covered and to be the line-worker of last resort if the “on call”
Supervisors are unable or unavailable to work an open shift or is already filling in on a shift.
89.
Further, Managers are required to be “on call” in their managerial capacity during
the entire period of time during which their unit is in operation each day, to check in on their
Unit on at least a daily basis and maintain a regular presence, including late-nights and weekends
in applicable Units, and if they must be away arrange back up coverage and notify non-student
managers, their supervisors, and other relevant parties.
90.
As part of their “on call” responsibilities, Managers would, on a normal day,
typically send between about twenty (20) and one-hundred (100) messages on GroupMe, and
receive between fifty (50) and three-hundred (300) message on GroupMe, dealing with shifts for
which line workers called out or no-showed and dealing with other scheduling issues and spent
about thirty (30) minutes to three (3) hours a day communicating on GroupMe and resolving the
issues related to those communications.
91.
As part of their “on call” responsibilities, Managers would, on a normal day,
typically receive about seven (7) emails and send about five (5) emails relating to people
notifying management that they would be out, other administrative work such as correcting
hours, resolving other scheduling issues, composing and sending digests of issues, changes,
policies, and updates related to the Unit the Manager oversaw, communicating with student
staffing office about line worker and Supervisor availability, investigating issues which might
require discipline and filling out discipline forms for student workers, resolving scheduling
requests, and working on scheduling software.
92.
Depending on the problem or issue, each email sent or received typically required
about three (3) minutes to forty (40) minutes, with most taking about twenty (20) to thirty (30)
minutes to resolve matter.
93.
Managers were expected to act on emails expeditiously—more or less promptly
depending on the subject matter.
94.
As part of their “on call” responsibilities, Managers would, on a normal day,
typically receive, up to six (6) phone calls per day, with an average of two (2) or three (3) phone
calls a day relating to no-show issues with line workers, typically requiring about fifteen (15)
minutes to one (1) hour to resolve; technical issues with registers, PoS and cash discrepancies,
generally requiring the Manager to physically attend to the Unit themselves or find another
managerial employee to do so, typically taking about fifteen (15) to forty-five (45) minutes to
resolve; resolving disputes between line workers related to work and scheduling, typically taking
about thirty (30) to forty-five (45) minutes to resolve; and calls from non-student staff related to
payroll and/or scheduling, typically requiring about thirty (30) minutes to resolve.
95.
As such, Managers typically spend about one (1) hour to one and one half (1 ½)
hours answering phone calls and resolving issues related to those calls during any given day and
sometimes spent as much as about four (4) or five (5) hours doing so.
96.
Managers were expected to answer the phone at all times while their Unit was in
operation and to resolve the issue immediately.
97.
As part of their “on call” responsibilities, Managers would, on a normal day,
typically receive up to fifteen (15) text messages about distinct issues mostly from line workers
and generally relating to scheduling, no shows, disputes between line workers, and problems
with registers, PoS, and cash discrepancies, and typically spend about thirty (30) minutes to one
and one half (1 ½) hours a day responding to and resolving those issues.
98.
In order to address these issues and respond properly to emails, GroupMe, phone
calls, and text messages Managers generally had to consult and revise spreadsheets, consult
policy manuals and handbooks, use scheduling software, and communicate with others via email,
text, and phone calls with many of these tasks requiring the use of their computer.
99.
As such, as a practical matter, Managers had to have their phone and computer
with them at all times their Unit was in operation, which composed the majority of any given
100.
As Managers are listed on the “on call” sheet posted in their Unit it was
impossible to “trade off” “on call” time because line workers would simply call the number
listed at all times the Unit was in operation if there was an issue.
101.
As a practical matter, Managers had to be on Defendant Campus at all times while
“on call” in order to effectively and properly carry out their responsibilities.
102.
This was the case except in the unusual event of an unavoidable personal
obligation or emergency or the rare case where there were no existing or anticipated problems,
all shifts were filled, and additional Supervisors were willing, able, and available and could
assume management functions while the Manager was off campus.
103.
Managers typically spent between about thirty (30%) and fifty (50%) of the
operational hours of their unit on any given day doing work that was part of their “on call”
responsibilities.
104.
During Critical Periods, Managers could expect to receive even more phone calls,
texts, and GroupMe messages than normal.
105.
During Critical Periods Managers could expect to spend between about forty
percent (40%) and eighty (80%) of “on call” shift time actively doing work.
106.
Managers were not compensated for any of the above work unless they were
physically present at the Unit and swiped themselves in, or they requested pay via “unswiped”
time which, as a matter of practice and policy, was limited by Defendant to a few hours during
each biweekly pay period.
107.
Even when swiped in, the time spent before arriving at the Unit, communicating
about the problem, trying to resolve the issue remotely and getting to the Unit, was
uncompensated.
108.
At all relevant times, Managers were compensated biweekly on an hourly basis at
a rate of $11.70 to $14.35 per hour.
G.
Allegations Common to Plaintiffs and All Class Plaintiffs: Restrictions on Activities
109.
Managers and Supervisors, while “on-call,” were typically unable to engage in
any activities off campus, including attending social, athletic, theatrical, political, family, and/ or
other events or functions, shopping, visiting family or friends, see a movie, or even eating dinner
out at a restaurant.
110.
As such, Managers were totally unable and Supervisors were substantially less
able then normal students or student workers to move to less expensive off campus housing,
particularly housing located somewhat farther away from campus, and thus had no or limited
access to better and cheaper housing stock.
111.
Even on campus activities were limited, including the ability of Managers and
Supervisors to study, participate in study groups or group projects, or attend certain campus
functions or to work-out or engage in any other physical exertion that would require them to
shower and change.
112.
Indeed Managers and Supervisors would routinely have to leave class, study
sessions, the library, and other activities to answer and make phone calls, to rush to Units
physically to resolve problems or cover shifts, and to otherwise respond to communications.
113.
In addition, the sleep patterns of Managers and Supervisors were interrupted and
adversely affected, due to the inability to maintain a normal sleep cycle routine by the
uncertainty and actually handling of “on call” obligations, particularly during Critical Periods.
114.
For example, in the Carts Units, the last on-call shift ended at 2 a.m. and the first
one began the next morning at 7 a.m., leaving only five (5) hours of time without pressing
potential communications.
115.
At all relevant times, the obligations of Managers and Supervisors to respond on
account of “on call” obligations were both frequent and immediate as outlined above.
116.
At all relevant times, Managers and Supervisors were subject to discipline for
failure to comply with their extensive “on call” obligations under the foregoing scheme.
117.
At all relevant times, Managers and Supervisors, were effectively required to
report to a Brown Dining Services site with a swipe machine in order to be compensated for
work done while “on call” creating a situation where Managers and Supervisors would either
have to report to a Brown Dining Services site with a swipe machine at least once or twice every
few hours in order to be paid, or to not be paid at all except for highly limited “unswiped” time
typically limited by Defendant to a few hours every biweekly pay period.
118.
At all relevant times, the extensive “on call” obligations of Managers and
Supervisors under the foregoing scheme were imposed by and for the benefit of the Defendant in
order to permit Defendant to exploit a large, readily available and cheap, but not particularly
reliable, line worker student work force that was on or near the site of its work locations.
119.
At all relevant times, “on call” time imposed such a burden on Managers and
Supervisors that Defendant’s policy required that they be paid for such time. Brown University
Administrative Polices §40.030 (“When non-exempt employees are on-call and are required to
remain on Brown's premises, they are considered to be working and must be compensated for
this time.”).
H.
Allegations Specific to Plaintiff Kozlov
120.
Plaintiff Kozlov was employed by Defendant between on or about September of
2016 and September 22, 2018 as either a Manager or Supervisor.
121.
Plaintiff Kozlov was a Supervisor in the Cashiers Unit between on or about
September of 2016 and May of 2017, a Manager in the Cashier Unit between May of 2017 and
June of 2018, and a Manager in the Carts Unit between May of 2018 and September 22, 2018.
122.
During the forgoing period, Plaintiff Kozlov was either scheduled or required to
work “on call” anywhere between about 30 and 112 hours per week.
123.
During the forgoing period, Plaintiff Kozlov was required to perform all the work
outlined above as either a Supervisor or Manager, depending on his role at the time.
124.
During the forgoing period, Plaintiff Kozlov was not compensated for any “on
call” work or time unless he was physically present at a Unit and swiped himself in, and then
only for time he actually spent in the Unit, or when requested pay for “unswiped” time which
was, as a matter of practice and policy, typically limited by Defendant to a few hours during each
biweekly pay period.
125.
During the forgoing period, Plaintiff Kozlov typically spent between about thirty
(30%) and eighty (80%) of the operational hours of their unit on any given day doing work that
was part of their “on call” responsibilities, a large portion of which was uncompensated time.
126.
During the forgoing period, Plaintiff Kozlov was often reminded that he was not
to request pay for more than a limited amount of “unswiped” time and would be disciplined if he
requested too much “unswiped” time or did so too frequently.
127.
Indeed one of his Kozlov’s non-student supervisors informed him via email that
“I noticed that you have numerous unswiped time notations on your time sheet for the last pay
period. Please note that unswiped hours should be kept to a minimum and only occur when you
can't get somewhere with a time clock and the work absolutely can not wait. Doing work at
night in your dorm room/apartment should not become routine. If you can, you should try to
plan to do that work in a unit somewhere that has a time clock. Or try to plan to do the work
earlier in the day.”
128.
However, the requirement that he promptly attend to communications while “on
call” coupled with the frequency of communications he received “on call” meant that this
compensation scheme suggested by his non-student supervisors would either have required
Kozlov to typically report to a swipe machine at least a dozen times a day and spend much of
every day at a Brown Dining Services worksite, or to be entirely uncompensated for the vast
majority of work he did while “on call.”
129.
Further, at all relevant times, during numerous workweeks, Plaintiff Kozlov was
called into work to cover or complete a line-worker shift and was not paid for a minimum of
three hours on each occasion.
130.
At all relevant times, during numerous workweeks, Plaintiff Kozlov’s hours
performing compensated work in combination with his uncompensated “on call” work and time
exceeded 40 hours, however, he was never paid overtime compensation at time and one-half for
all hours worked in excess of 40 in any of these workweeks.
131.
For instance, during the week of Sunday, September 10, 2017 to Saturday,
September 16, 2017, in the capacity of Manager of the Cashiers Unit, Plaintiff Kozlov worked on
site and was compensated for 31.5 hours; however, the Unit was in operation from 10:30 a.m.
until 2:15 a.m each and every day. Accordingly he was “on call” for 15.75 hours each and every
day or a total of 110.25 “on call” hours for the week. After taking into account physical work he
was called in to perform on call and was paid for that week, Plaintiff Kozlov was “on call” and
uncompensated for 78.75 hours that week including 70.25 hours of overtime compensation.
I.
Allegations Specific to Plaintiff Bosis
132.
Plaintiff Bosis was employed by Defendant between on or about October of 2016
and September 16, 2018 as a Supervisor in the Cashier Unit.
133.
During the forgoing period, Plaintiff Bosis was either scheduled to work “on call”
anywhere between 12 and 24 hours per week.
134.
During the forgoing period Plaintiff Bosis was expected to perform all the duties
of a Supervisor as outlined above.
135.
During the forgoing period Plaintiff Bosis was not compensated for any “on call”
work or time unless he was physically present at a Unit and swiped himself in, and then only for
time he actually spent in the Unit, or he requested pay via “unswiped” time which was, as a
matter of practice and policy, typically limited by Defendant to two (2) or three (3) hours during
each biweekly pay period.
136.
During the forgoing period Plaintif Bosis was often reminded that he was not to
request pay for more than a limited amount of “unswiped” time and would be disciplined if he
requested too much “unswiped” time or did so too frequently.
137.
At all relevant times, during numerous workweeks, Plaintiff Bosis was called into
work to cover or complete a line-worker shift and was not paid for a minimum of three hours on
each occasion.
138.
At all relevant times, during numerous workweeks, Plaintiff Bosis’s hours
performing compensated work in combination with his uncompensated “on call” work and time
exceeded 40 hours, however, he was never paid overtime compensation at time and one-half for
all hours worked in excess of 40 in any of these workweeks.
139.
For instance, during the week of Sunday, January 29, 2017 to Saturday, February
4, 2017, in his capacity as a Supervisor in the Cashier Unit., Plaintiff Bosis worked on site and
was compensated for 31.5 hours; during the same period he was scheduled for 26.5 “on call”
hours. After taking into account physical work he was called in to perform “on call” and was
paid for that week, Plaintiff Bosis should have been compensated for a total of 47.5 hours that
week, including 7.5 hours of overtime compensation.
J.
Plaintiffs and Class Plaintiffs Were Entitled to Be Paid for Hours Worked “On
Call”
140.
At all relevant times, Plaintiffs and Class Plaintiffs were non-exempt employees1
entitled to payment of wages for all hours worked. 29 U.S.C. §206; R.I. Gen. Laws § 28-12-3
(requiring that employees be paid a minimum wage per hour).
141.
Both the FLSA and the RIPWA require employers to pay their non-exempt
employees at a rate not less than one and one-half (1 ½) times their regular rate of pay for all
hours worked in excess of forty (40) in any one (1) workweek. 29 U.S.C. § 207(a)(1); R.I.G.L. §
28-12-4.1.
142.
In interpreting the FLSA, the United States Supreme Court has long held that
waiting time, standby time, and on-call time may be compensable under certain circumstances.
See, e.g., Skidmore v. Swift & Co., 323 U.S. 134, 65 S.Ct. 161, 89 L.Ed. 124 (1944); Armour &
Co. v. Wantock, 323 U.S. 126, 65 S.Ct. 165, 89 L.Ed. 118 (1944).
143.
The relevant inquiry is whether an employee is “engaged to wait” or “wait[ing] to
be engaged.” Skidmore, 323 U.S. at 137, 65 S.Ct. 161.
144.
Plaintiff and Class Plaintiffs could not leave Defendant’s campus while “on call”
and thus all “on call” time is compensable under the FLSA. See 29 C.F.R. § 785.17 (“An
employee who is required to remain on call on the employer's premises or so close thereto that he
cannot use the time effectively for his own purposes is working while ‘on call’.”)
145.
This time is worktime even if the employee is allowed to leave the premises or the
job site during such periods of inactivity, particularly when whether or not the employee will be
called into work is unpredictable, because the employee is unable to use the time effectively for
his or her own purposes. 29 CFR §785.15.
146.
Further, while “on call” Plaintiffs and Class Plaintiffs spent substantial amounts
of time not merely engaged to be waiting “on call” but actually working and must be
compensated for the time spent working for Defendant while “on call.”2
147.
Finally, the sheer amount of time spent working, coupled with the restrictions on
the small amount of non-active working time Plaintiffs and Class Plaintiffs had while “on call”
renders all “on call” time compensable.
2 See e.g. Rutlin v. Prime Succession, Inc., 220 F.3d 737, 744 (6th Cir. 2000) (“We agree with Rutlin that,
for pay period V, he should be compensated for the time spent answering the fifteen to twenty phone calls he
received per night. Answering these phone calls was not typical on-call time; rather, Rutlin was actually working,
albeit from home. There is no question that the time Rutlin spent on those phone calls was primarily for the benefit
of Prime Succession; therefore, Rutlin should be compensated for that time.”)
148.
First, although Plaintiffs and Class Plaintiffs spent some time waiting for
additional work to arrive, such a large portion of their time was devoted to that work, and when
the work would arrive was so unpredictable that such time must be compensated under the
FLSA.3
149.
Second, the amount of work, and the restrictions on the use of non-work time,
rendered any “on call” time not spent actively working compensable because the time was
primarily used to the benefit of the employer. See Boehm v. Kansas City Power & Light Co.,
868 F.2d 1182, 1185 (10th Cir. 1989), quoting Armour & Co. v. Wantock, 323 U.S. 126, 133
(“[T]he test for whether an employee's time constitutes working time is whether the “time is
spent predominantly for the employer's benefit or for the employee’s.”)
150.
Courts determine whether time is spent predominantly for the employer’s benefit
or for the employee’s by looking to several relevant factors, including: the number of calls,
required response time, and ability to engage in personal pursuits while on call. See Pabst v.
Oklahoma Gas & Electric Company, 228 F.3d 1128, 1132 (10th Cir. 2000); Armitage v. City of
Emporia, 982 F.2d 430, 432 (10th Cir.1992); Renfro v. City of Emporia, 948 F.2d 1529, 1537–
38 (10th Cir.1991).
151.
Of these factors, the “critical distinction” is the frequency of calls. Pabst v.
Oklahoma Gas & Electric Company, 228 F.3d 1128, 1134 (10th Cir. 2000); Gilligan v. City of
Emporia, 986 F.2d 410, 412 (10th Cir.1993).
3 FLSA. See 29 CFR §785.15 (“A stenographer who reads a book while waiting for dictation, a messenger
who works a crossword puzzle while awaiting assignments, fireman who plays checkers while waiting for alarms
and a factory worker who talks to his fellow employees while waiting for machinery to be repaired are all working
during their periods of inactivity. The rule also applies to employees who work away from the plant. For example,
a repair man is working while he waits for his employer's customer to get the premises in readiness. The time is
worktime even though the employee is allowed to leave the premises or the job site during such periods of
inactivity. The periods during which these occur are unpredictable. They are usually of short duration. In either
event the employee is unable to use the time effectively for his own purposes. It belongs to and is controlled by the
employer. In all of these cases waiting is an integral part of the job. The employee is engaged to wait.”)
152.
The added burden of always being on call, all day, every day is a factor weighing
in favor of compensability. See Pabst v. Oklahoma Gas & Electric Company, 228 F.3d 1128,
1134 (10th Cir. 2000); Cross v. Arkansas Forestry Comm’n, 938 F.2d 912, 916–17 (8th Cir.1991)
(holding that on-call time is compensable under the FLSA because employees were required to
continuously monitor transmissions and respond within thirty minutes, and because they were
subject to on-call status twenty-four hours per day for every day of a work period).
153.
Other factors courts have considered relevant to a determination of the
compensability of “on call” time include: “geographical restrictions on employees' movements, .
. . use of a pager, . . . the ease with which on-call employees can trade on-call responsibilities, . .
. and . . . the existence and provisions of any agreement between the parties governing on-call
work.” Berry v. Cty. of Sonoma, 763 F. Supp. 1055, 1058 (N.D. Cal. 1991)(footnotes omitted).
154.
In light of all the relevant facts and circumstances of their employment, Managers
and Supervisors were “engaged to be waiting” while working “on call” and therefore entitled to
compensation.
K.
Failure to Pay Wages for all Hours Worked and/or Minimum Shift Pay
155.
Throughout their employment with Defendant, Plaintiffs and Class Plaintiffs
regularly worked hours “on call” for which they received no compensation.
156.
Despite the fact that Plaintiffs and Class Plaintiffs were and are non-exempt
employees, Defendant failed or refused to pay Plaintiffs and Class Plaintiffs compensation for all
hours worked in a given workweek as required by the FLSA and the RIPWA or minimum shift
pay under the RIMWA when called into work to perform less than 3 hours work.
157.
Defendant willfully and repeatedly violated the FLSA as well as the RIPWA by
failing to pay Plaintiffs and Class Plaintiffs the regular rate at which they were employed for
each hour they worked, but no less than minimum wage4 or minimum shift pay.
L. Failure to Pay Overtime Wages
158.
Throughout their employment with Defendant, Plaintiffs and Class Plaintiffs
regularly worked more than forty (40) hours each workweek, including “on call” time.
159.
Despite the fact that Plaintiffs and Class Plaintiffs are non-exempt employees,
Defendant failed or refused to pay Plaintiffs and Class Plaintiffs overtime pay on numerous
workweeks as required by the FLSA and the RIPWA.
160.
Defendant willfully and repeatedly violated the FLSA as well as the RIPWA by
employing Plaintiffs and Class Plaintiffs for more than forty (40) hours per workweek without
compensating them at a rate not less than one and one-half (1 ½) times the regular rate at which
they were employed.
M.
Work Suffered or Permitted
161.
Defendant is liable for the payment of compensation for all hours worked,
including “on call” hours, and overtime wages for all hours over forty (40) that Plaintiffs and
Class Plaintiffs were “suffered or permitted to work” in any one workweek—regardless of
4 29 C.F.R. § 778.113(a)(when salaried employee has fixed workweek less that forty (40) hours, she is
entitled to her hourly equivalent for all additional hours worked up until forty hours (not minimum wage) and time
and one half for every hour worked above hour forty); see Sobczak v. AWL Indus., Inc., 540 F. Supp. 2d 354, 359,
360 (E.D.N.Y. 2007) (FLSA can only increase, not decrease, amounts to which employees are contractually entitled;
“the Supreme Court has determined that it is ‘the hourly rate actually paid the employee for the normal, non-
overtime workweek for which he is employed [that is relevant].’ ” (quoting Walling v. Youngerman-Reynolds
Hardwood Co., 325 U.S. 419, 424 (1945)); see also, 29 U.S.C.A. § 218 (“No provision of this chapter shall justify
any employer in reducing a wage paid by him which is in excess of the applicable minimum wage under this
chapter”); 29 C.F.R. § 778.5 (“Where a higher minimum wage than that set in the Fair Labor Standards Act is
applicable to an employee . . ., the regular rate of the employee, as the term is used in the Fair Labor Standards Act,
cannot be lower than such applicable minimum, for the words “regular rate at which he is employed” as used in
section 7 must be construed to mean the regular rate at which he is lawfully employed.”).
whether the work was requested, authorized or needed—whenever Defendant knew or had
constructive knowledge that the work was being performed.5
162.
Defendant knew or had reason to believe that Plaintiffs and Class Plaintiffs were
performing work and overtime work for which they were not being compensated.
163.
Moreover, Defendant knew or had reason to believe that Plaintiffs and Class
Plaintiffs were working in excess of forty (40) hours per week on a regular basis.
164.
Accordingly, Defendant had constructive, if not actual, knowledge that Plaintiffs
and Class Plaintiffs regularly performed work and overtime work for which they were not
compensated.6
165.
Nevertheless, Defendant failed or refused to pay Plaintiffs and Class Plaintiffs the
compensation to which Plaintiffs and Class Plaintiffs were legally entitled for all hours and
overtime hours worked.7
VI.
Claims for Relief
166.
Plaintiffs and Class Plaintiffs incorporate the allegations in ¶¶1 through 165 above
in each of the counts set forth below.
5 As long as the employer knows or has reason to believe that its employee is continuing to work, that time
is “work time,” and the employee is entitled to the payment of wages from the employer for said time. See 29 C.F.R.
§ 785.11.
6 An employer is said to have “constructive knowledge” of its employee's overtime work when it has reason
to believe that its employee is working beyond his shift. Allen v. Bd. of Pub. Educ. for Bibb Cnty., 495 F.3d 1306
(11th Cir. 2007).
7 Once an employer knows or has reason to know that an employee is working overtime, it cannot deny
compensation even where the employee fails to claim overtime hours or the work was not requested. Holzapfel v.
Town of Newburgh, N.Y., 145 F.3d 516 (2d Cir. 1998); Johnson v. RGIS Inventory Specialists, 554 F. Supp. 2d 693
(E.D. Tex. 2007).
COUNT ONE
Fair Labor Standards Act,
U.S.C. § 201, et seq.
167.
Defendant, by its acts and/or omissions, including, but not limited to, those
described herein, violated the FLSA by failing to pay wages and overtime wages as provided
therein, thereby causing Plaintiffs and Class Plaintiffs to suffer damages as aforesaid, for which
they are entitled to relief pursuant to 29 U.S.C. § 216(b).
COUNT TWO
Rhode Island Payment of Wages Act,
R.I. Gen. Laws § 28-12-1, et seq., and
R.I. Gen. Laws § 28-14-1, et seq.
168.
Defendant, by its acts and/or omissions, including, but not limited to, those
described herein, violated the RIPWA by failing to pay wages and overtime wages as provided
therein, thereby causing Plaintiffs and Class Plaintiffs to suffer damages as aforesaid, for which
they are entitled to relief pursuant to R.I. Gen. Laws § 28-14-19.2.
VI.
Prayers for Relief
WHEREFORE, Plaintiffs pray that this Honorable Court grant the following relief:
1.
A declaratory judgment declaring that the acts and/or omissions of Defendant,
including, but not limited to those complained of herein, are in violation of the FLSA and the
RIPWA.
2.
An injunction directing Defendant to take such affirmative action as is necessary
to refrain from such conduct as is necessary to ensure that the effects of these unlawful
employment practices are eliminated and not repeated.
3.
An award of unpaid wages and overtime wages.
4.
An award of compensatory damages.
5.
An award of punitive damages.
6.
An award of liquidated damages pursuant to 29 U.S.C. § 216(b).
7.
An award of liquidated damages in an amount of two times the amount of wages
and and/or benefits owed pursuant to R.I. Gen. Laws § 28-14-19.2 and § 28-14-20.
8.
An award of reasonable attorney’s fees and costs of litigation pursuant to 29
U.S.C. § 216(b).
9.
An award of reasonable attorney’s fees and costs pursuant to R.I. Gen. Laws
§§ 28-14-19.2 and § 28-14-20.
10.
An award of other appropriate equitable relief pursuant to 29 U.S.C. § 216(b).
11.
An award of other appropriate equitable relief or penalties pursuant to R.I. Gen.
Laws § 28-14-19.2.
12.
An award of such other and further relief as this Honorable Court deems just and
proper.
VII.
Demand for Jury Trial
Plaintiffs hereby demand a trial by jury on all counts so triable.
VIII. Designation of Trial Counsel
Plaintiffs hereby designate Richard A Sinapi, Esquire, as trial counsel.
Plaintiffs and Class Plaintiffs
By their attorneys,
SINAPI LAW ASSOCIATES, LTD.
Dated: January 24, 2019
/s/ Richard A. Sinapi, Esq.
Richard A. Sinapi, Esq. (#2977)
2374 Post Road Suite 201
Warwick, RI 02886
Phone: (401) 739-9690; FAX: (401) 739-9490
Email: [email protected]
| employment & labor |
_HLjFYkB9sM9pEma2pFd | IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF FLORIDA
(Tampa Division)
8:19-cv-2950-F-
Civil Action No.
CLASS ACTION COMPLAINT
(1) Breach of Contract.
(2) Breach of Implied Warranty of
Habitability, Fla. Stat. § 83.51.
Plaintiffs,
(3) Violations of the Florida Deceptive and
Unfair Trade Practices Act, Fla. Stat.
§ 501.201, et seq.
(4) Negligence / Gross Negligence.
(5) Unjust Enrichment.
INJUNCTIVE RELIEF SOUGHT
DEMAND FOR JURY TRIAL
Defendants.
INTRODUCTION
1.
This action is brought by Plaintiffs Joshua Lenz, Traci Lenz, Jason Norquist, Amie
2.
The men and women of our country's armed forces deserve better housing and
3.
Pursuant to a contract with the United States Air Force under the Military Housing
4.
The MHPI is part of the 1996 National Defense Authorization Act's authorization
5.
The goal of the MHPI is to provide military families with access to safe, quality,
2
6.
Unfortunately, AMC, Clark, and the other Defendants have failed miserably in
7.
Defendants' failure to properly develop, build, maintain, and manage Plaintiffs'
8.
Service members and their families living in privatized military housing often have
3
9.
In May 2019, the Military Family Advisory Network ("MFAN"), a 501(c)(3)
10.
Mold problems at MacDill AFB have been so extensive that the United States Air11.
When notified by Plaintiffs and other Class members of mold problems in their
4
12.
Worse yet, in some instances, obvious mold areas were sanded without the proper
13.
In at least one instance, moldy conditions went untreated by Defendants for SO long
14.
Indeed, once a leak, flood, or dampness occurs, mold can begin to spread, and its
15.
In other instances, Plaintiffs, Class members, and their families, have been forced
5
16.
During these times, Plaintiffs and Class members have been forced to stay in
17.
As a direct result of prolonged mold exposure, Plaintiffs, Class members, and their
18.
Despite their knowledge and awareness of the pervasiveness of the mold problems
19.
The severe toll on United States service members from living in substandard, mold-
6
20.
Ron Hansen, the President of Defendants Michaels and MMS, has stated publicly
21.
Yet, despite widespread news coverage and recognition of the severe and pervasive
PARTIES
Plaintiffs
22.
Plaintiff Joshua Lenz, a Master Sergeant in the United States Air Force, and his
23.
Plaintiff Jason Norquist, a Special Forces Officer in the United States Army, and
24.
Plaintiff Ryan Morgan, a Staff Sergeant in the United States Air Force working as
See Mold in Homes Still Affecting Military Families, WFLA 8 News Nov. 14, 2019,
725.
Plaintiff Gary Elbon, a Staff Sergeant in the United States Air Force working as a
26.
Plaintiff Jason Genrich, a Chief Warrant Officer Three in the United States Army,
Defendants
27.
Defendant The Michaels Organization ("Michaels") is a New Jersey limited
28.
Defendant Michaels Management Services, Inc. ("MMS") is a New Jersey
8
29.
Defendant Interstate Realty Management Co., Inc. ("Interstate") is a New Jersey
30.
Defendant AMC East Communities, LLC ("AMC") is a Delaware limited liability
31.
Defendant Clark Realty Capital, LLC ("Clark") is a Delaware limited liability
9
32.
Defendants AMC and MMS jointly manage privatized housing located on MacDill
33.
As listed on Harbor Bay's Facebook webpage, as well as on the United States Air
JURISICTION AND VENUE
34.
This Court has jurisdiction over this action under 28 U.S.C. § 1331 because
35.
Diversity jurisdiction also exists under 28 U.S.C. § 1332.
36.
The Court also has jurisdiction under the Class Action Fairness Act and 28 U.S.C.
37.
Venue is proper in this District under 28 U.S.C. § 1391(b)(2) because MacDill AFB
10FACTUAL ALLEGATIONS
Mold and Its Adverse Health Effects
38.
Mold is a type of fungus that consists of small organisms. They can be black, white,
39.
In housing, mold grows in locations where there is moisture, such as around leaks
40.
If mold is growing in a home, the mold needs to be addressed and remediated
and work to prevent future growth." See
41.
It is well-known and generally accepted that human exposure to damp and moldy
11
42.
In 2004, the Institute of Medicine ("IOM") - which is affiliated with the National
43.
Other recent studies have suggested a link between early mold exposure and the
Defendants' Awareness of Mold in MacDill AFB Homes
44.
Defendants have long been aware of the serious mold problems at MacDill AFB.
45.
The Resident Guidelines and Community Handbook for MacDill Air Force Base
12
46.
Despite Defendants' recognition of the causes of mold and the speed with which it
47.
The mold problems at MacDill AFB have been evident in many homes that are built
48.
In the last year alone, dozens of articles and news reports have highlighted the
MacDill Penalizes Base Housing Operator Over Mold as Bilirakis
Launches Congressional Inquiry, Tampa Bay Times, Feb. 3, 2019,
https://www.tampabay.com/news/military/macdill-penalizes-base-
housing-operator-over-mold-as-bilirakis-launches-congressional-inquir
20190201/;
Combat Veteran on Mold Problem: "MacDill was the Worst Place I Ever
Lived",
Tampa
Bay
Times,
Feb.
13,
2019,
13https://www.tampabay.com/news/military/combat-veteran-on-mold
problem-macdill-was-the-worst-place-i-ever-lived-20190213/;
Survey of Families Finds Slum-Like Base Housing, The Fayetteville
Observer,
Feb.
14,
2019,
https://www.fayobserver.com/news/20190214/survey-of-families-finds-
slum-like-base-housing;
New Report Highlights More Mold and Maintenance Problems for MacDill
Housing, WFLA 8, May 22, 2019, https://www.wfla.com/8-on-your-
side/new-report-highlights-more-mold-and-maintenance-problems-for-
macdill-housing/;
More Than Half of Families Surveyed at MacDill AFB Complain of Mold,
Fox
13
Tampa
Bay,
May
23,
2019,
https://www.fox13news.com/news/more-than-half-of-families-surveyed-
at-macdill-afb-complain-of-mold; and
"Despicable": Mold Problems Still an Issue for Families at MacDill AFB,
WFLA 8 November 11, 2019, hhttps://www.wfla.com/news/hillsborough-
county/despicable-mold-problems-still-an-issue-for-families-at-macdill-
afb/.
49.
The problems and complaints have been so severe and pervasive that in March
50.
In June 2019, the United States Air Force brought a representative from the United
51.
Despite these complaints and actions and the deteriorating health of Plaintiffs and
14
52.
The Merriam Webster definition of the term "slumlord" is "a landlord who receives
53.
For example, Defendants will often offer cosmetic solutions (including simply
54.
In addition, Defendants do not disclose to service members moving into military
55.
Defendants also have failed to disclose to Plaintiffs and Class members the results
56.
Even where Defendants do undertake any steps to attempt to remediate a mold
15
57.
Additionally, Defendants' remediation efforts often fail to fully address the severe
Plaintiffs' Experiences with Moisture and Mold at MacDill AFB
The Lenz Family
58.
Plaintiff Joshua Lenz is a Master Sergeant in the United States Air Force.
59.
Master Sergeant Lenz is married to Plaintiff Traci Lenz. They have three minor
60.
In early June 2018, Master Sergeant Lenz signed a one-year lease with Defendant
16
61.
Pursuant to Defendants' procedures, the Lenzes were not permitted to walk through
62.
On June 28, 2018, the Lenz family moved into 1805 Billy Mitchell Loop.
63.
During their move in, the Lenzes made a video detailing the poor living conditions64.
The Harbor Bay housing office told the Lenz family to run bleach through the
65.
After moving in, the members of the Lenz family began to experience various
66.
B.L. (age 13), who had a preexisting immune disorder but who had maintained a
67.
The Lenzes then noticed that spots on the vents had returned and made a request
17
68.
It took three calls before a Harbor Bay maintenance worker was dispatched to the
69.
On October 24, 2018, the Lenzes called Harbor Bay to request a mold inspection.
70.
When the Harbor Bay maintenance worker finally came to the Lenz home, the
71.
On January 3, 2019, the Lenzes found mold growing on the inside of their vents
72.
At 6:30 p.m. that day, a worker arrived unannounced and did not clean anything
73.
The next day, January 4, 2019, Traci Lenz bought testing kits and tested water,
74.
When no one from Harbor Bay called the family on January 4, 2019, as promised,
18
75.
Later that same day, a Harbor Bay representative called the Lenzes to advise them
76.
Harbor Bay maintenance came to the house on January 8, 2019 to test for moisture
77.
The maintenance worker reported that only one area was found to have moisture
78.
Harbor Bay thereafter informed the Lenzes that they would be moved to a hotel
79.
In fact, however, lodging was available at the TLF, and the Lenzes were able on
80.
On January 9, 2019, the Lenzes stopped by their house to check on the progress of
1981.
On January 10, 2019, the Lenzes returned to their home but were locked out without
82.
That same day, Nick Leabo from Harbor Bay called to extend the Lenzes' hotel
83.
Despite Mr. Gausche's statements, Harbor Bay found more mold on January 11,
84.
Master Sergeant Lenz thereafter contacted Harbor Bay to inquire about moving to
85.
On January 11, 2019, Traci Lenz spoke with the previous tenants of 1805 Billy
20
86.
On January 14, 2019, Master Sergeant Lenz requested the records of prior issues
87.
On January 15, 2019, the Lenz family returned to their house, but it was
88.
Traci Lenz begged Harbor Bay to send the Lenzes back to a hotel SO the house
89.
On January 16, 2019, the ServPro worker came to the house to vacuum the air return
90.
Later that day, Mrs. Lenz received the lab results for two of the independent tests
91.
Due to adverse health symptoms being exhibited by the family, Traci Lenz became
21
22
92.
The discovery of these conditions after the Lenzes had been told that the duct work
93.
Based on the failure of Harbor Bay to properly clean their home, the Lenzes emailed
94.
On January 17, 2019, the family placed security cameras outside the house with a
95.
Later that same day, the family secured an on base hotel for the week by paying out
96.
Over the next several days, the Lenz family had to change hotels several times and
97.
The Lenzes asked Harbor Bay to pay for a move and fund a temporary hotel SO the
98.
Harbor Bay staff entered the house on January 18, 2019 without providing notice
99.
Harbor Bay did a visual inspection only and the Lenzes requested that no further
23100.
The evening of January 18, 2019, Harbor Bay informed the Lenzes that they could
101. Traci Lenz learned from another military spouse residing at MacDill AFB that
102. As posted on his LinkedIn profile, https://www.linkedin.com/in/john-gausche-
103.
By January 21, 2019, the Lenzes found an available rental that was smaller and
104.
On January 22, 2019, a representative of Harbor Bay stated that it did not have any
105. Unsatisfied with Harbor Bay's repeated failures to repair and remediate the
24
25
106. During the next week, movers arrived to assist in taking large items out of the
107. On January 28, 2019, Harbor Bay finally responded to the Lenzes and stated that
108. On January 29, 2019, the Lenzes took a walk-through video of the home after their
109.
In the first week of February 2019, the full mold inspection reports from CMA were
110. On February 21, 2019, the Lenzes met with Harbor Bay management and were
111.
On February 27, 2019, Traci Lenz stopped by the house to see work being done on
112.
The Lenzes have since sent mold reports, damaged household inventory, and
26
113. Prior to moving into Harbor Bay housing in June 2018 on MacDill AFB, the Lenz
114.
Master Sergeant Lenz has lung, liver, and spleen damage that his doctors have
115.
Traci Lenz has received medical treatment for breathing issues and a sore throat, as
a
116. M.L., age 17, developed spots on her skin and in her throat that were recommended
117. B.L., age 13, exhibited a rash on her skin and had her immune function retested.
118. G.L., age 3, began to get ill frequently starting just two weeks after moving into
27119. In total, the Lenz family has spent nearly $28,000 dollars on unreimbursed out-of-
The Norquist Family
120.
Plaintiff Jason Norquist is a Special Forces Officer ("SFO") in the United States
121. SFO Norquist is married to Plaintiff Amie Norquist, and they have four children:
122. In July 2018, SFO Norquist signed a lease with Defendant AMC and moved
to
123. By August 2018, the Norquists noticed that their children were getting sick more
124.
The Norquist children's pulmonologist accredited their breathing and lung issues
28
125. After the Norquists made multiple requests to Defendant Harbor Bay to conduct a
126. During the subsequent inspection of the Norquist home, Defendants' agents found
127.
The Norquist family was moved into temporary lodging for two weeks at the end
128.
Toward the end of the remediation, the Norquists entered their home to inspect the
129. Upon returning to the home in mid-October 2018 following remediation, the
130. Within a few days, Harbor Bay was back in the Norquists' home to discuss a new
131. -- A representative of Harbor Bay told the Norquists that their belongings and carpets
132. Harbor Bay planned to place the Norquists into the company's hospitality suite on
29
133.
For the next two months, November and December 2018, the Norquists lived in
134.
The Norquists report that the more Harbor Bay worked on their home, the more
135.
In December 2018, the Norquists petitioned the Commander of the MacDill AFB
136. By late December 2018, the Norquists moved into an empty rental home
137. The Norquists' estimated loss in household goods damaged due to mold
138.
The Norquists also have incurred additional unreimbursed out-of-pocket expenses,
139. Prior to moving onto MacDill AFB military housing, the Norquists were a healthy
140. Amie Norquist suffers with an ongoing cough and periodic episodes of memory
30141. The Norquists' oldest daughter has undergone two lung procedures and was
142.
The Norquists' youngest daughter also battled persistent health issues while living
143.
The Norquists' oldest son has suffered from upper respiratory infections and was
144.
The Norquists' youngest son has suffered repeat infections and bouts of respiratory
145. The Norquists have not received reimbursement or compensation for the horrific
The Morgan Family
146.
Plaintiff Ryan Morgan is a Staff Sergeant in the United States Air Force. Staff
147.
Staff Sergeant Morgan is married to Plaintiff Erica Morgan. They have two
31
148. On February 22, 2019, Staff Sergeant Morgan signed a Florida Lease Agreement
149.
As part of his initial lease paperwork, Staff Sergeant Morgan was provided with a
150.
On or about March 2, 2018, the Morgans moved into 8522 Levitow Street, located
151. After moving in, the Morgans began to experience decreased energy levels,
152.
In October 2018, after living in the house for several months, the Morgans noticed
153. Staff Sergeant Morgan called Harbor Bay maintenance to address the problem. A
154. By January 2019, carpenter ants were coming out of the backsplash area. The
32
155. In February 2019, the Morgans were forced to moved out of their home and stay in
156.
On the first occasion when they were forced into temporary housing, the Morgans
157.
In April 2019, one of the Morgans' children's rocking chair punctured a portion of
158.
Following their calls to Harbor Bay, the Morgans were forced to vacate their home
33159. On May 23, 2019, Staff Sergeant Morgan pointed out that the necessary full
160. While staying in the hotel in May 2019, Staff Sergeant Morgan requested that
161. On August 15, 2019, the Morgans noticed moisture coming from their flooring
34
35
162. The Morgans were once again forced to vacate their home while Defendants
163.
During their month-long stay at the Residence Inn, the Morgans and their two
164.
In total, the Morgans were forced to spend 58 days out of their home between
165.
As a result of the continued moisture and mold problems in their home, the Morgans
166.
The Morgans subsequently hired an independent mold specialist, from Indoor Air
167. During August 2019, Harbor Bay finally agreed to let the Morgans move to a
36
168. The family washed every single piece of clothing and linen item before bringing
169.
All members of the Morgan family have experienced a decline in their health since
170. Staff Sergeant Morgan's physician has explained that the skin rash and other
171.
In addition to suffering from rashes and other allergies, Staff Sergeant Morgan
172.
In addition to their continuing health problems, the Morgans have been forced to
37173.
The Morgan family is now living in a second home at MacDill AFB. The new home
174.
When the Morgans sit on some of their furniture in the new home, they notice an
175. Staff Sergeant Morgan and his wife remain very concerned for their family.
The Elbon Family
176. Plaintiff Gary Elbon is a Staff Sergeant in the United States Air Force working as
177.
Staff Sergeant Elbon is married to Plaintiff Kayla Elbon. Together they have three
178.
The Elbons moved from Montgomery, Alabama to MacDill AFB in Tampa, FL, on
38
179. In February 2018, the Elbons noticed that their HVAC unit was leaking, and
180. In April 2019, the Elbons' air conditioner unit again began leaking, ultimately
181. Numerous work orders were then submitted by Staff Sergeant Elbon, which Harbor
182. Harbor Bay eventually made a purported remediation effort limited to simply
183.
After returning to their home, the Elbons discovered mold in their kitchen flooring
184.
Harbor Bay informed the Elbons that they would have to move out of their home
39
185.
When the Elbons requested that Harbor Bay's remediation company test for mold,
186.
The damage to the Elbons' home turned out to be extensive. The HVAC, which
187.
The Elbons conducted two inspections prior to moving back into their home. They
40188. When the Elbons moved back into their home in September 2019, the musky smell
189.
Harbor Bay eventually dispatched two mold companies to conduct further testing
190.
Despite numerous requests to Harbor Bay by email, phone and in person, the Elbons
191. Prior to the Elbons' moving to MacDill AFB, they had no significant medical
192.
The Elbons' three children all suffer from rashes and have been referred to an
193.
The Elbons currently reside on MacDill AFB in their mold-contaminated and
194. The Elbons' estimated loss in household goods damaged due to mold
41
195. In addition, the Elbons have not received reimbursement or compensation for the
The Genrich Family
196.
Plaintiff Jason Genrich is a Chief Warrant Officer Three ("CW3") in the United
197.
CW3 Genrich is married to Plaintiff Jenny Genrich.
198.
The Genrichs arrived at MacDill AFB in July 2018, having transferred from Fort
199. On July 17, 2018, CW3 Genrich signed a lease (the "Genrich Lease") listing
200. On August 22, 2018, the Genrichs moved into 8412 Tampa Point Blvd., a house
42
201.
During the walk-through on the day of their move-in, the Genrichs observed that
202.
The Genrichs also noticed that the walls in the laundry room were stained an ugly
203.
The Genrichs, however, wanted to move into the home on Tampa Point Blvd.
204.
Almost immediately after moving into their home on MacDill AFB, CW3 Genrich
205.
On October 1, 2018, CW3 Genrich woke up in the middle of the night with sharp
43206. Plaintiff Jenny Genrich took CW3 Genrich to the emergency room at Tampa
207.
Over the next several days, CW3 Genrich began having memory issues and mood
208.
On October 4, 2018, CW3 Genrich saw his PCM, who reviewed the test results
209. On October 17, 2018 the Genrichs noticed a light fixture leaking water in their
210.
In addition to his previous symptoms, CW3 Genrich began experiencing lack of
44
211. Meanwhile, in November 2018, Jenny Genrich also began experiencing serious
212. In late 2018, the Genrichs noticed additional and worsening problems with the
45
213. Following this testing, Harbor Bay determined that the flooring in the Genrich
214.
Harbor Bay scheduled a discussion for the repairs and hotel stay on January 17,
215. On February 21, 2019, the Genrichs attended a town hall meeting and were
216. Jenny Genrich called Harbor Bay the next day and demanded to have her home
217. On February 27, 2019, CW3 Genrich visited his neurologist and informed her of
46
218.
The Genrichs lived in a hotel room for more than a month, from February 22, 2019
219.
During this time, Jenny Genrich visited the home and took pictures and reported
220. While the Genrichs were living in the hotel, some of their symptoms improved and
221.
The Genrichs returned to their house on or about March 23, 2019. All of their mold
222. Despite Harbor Bay promising that the Genrichs' possessions would be barriered
223. The Genrichs hired an independent mold testing company in April 2019. Even after
224.
As a result, the Genrichs were forced to move out of their house again from
225.
Following the concerning results of the independent testing and due to their
47226. The Genrichs have suffered thousands of dollars of economic damages in the form
227.
The Genrichs have been living off-base for seven months and continue to deal with
228.
CW3 Genrich continues to see his neurologist for treatment. In August 2019, he
229.
For the past three months, CW3 Genrich has received nerve block injections in his
230. Jenny Genrich deals with heightened ongoing anxiety, panic attacks, and
48
231. Prior to living on MacDill AFB, the Genrichs enjoyed exploring local cities. CW3
232. The emotional distress of their living situation continues to haunt the Genrichs.
233.
CW3 Genrich's desire is to get past these problems so he can continue being a total
234.
The Genrichs have not received reimbursement or compensation for the horrific
CLASS ACTION ALLEGATIONS
235. Plaintiffs bring this action under Federal Rules of Civil Procedures 23(b)(2) and
all current and former military personnel and their family members
who resided in housing located on MacDill AFB that was owned,
maintained, managed, or operated by any of the Defendants (the
"Class").
236. The Class is so numerous that joinder of all members is impracticable. There are
49
237. In this case there are many common questions of law and fact that are susceptible
a.
whether Defendants breached the terms of their leases by failing to provide
b.
whether Defendants breached the implied duty of habitability;
c.
whether Defendants' misrepresentations and omissions regarding the
d.
whether Defendants owed a duty to the Class to remediate and repair the
e.
whether Defendants breached their duty to remediate and repair the
f.
whether Defendants' failure to remediate and repair the moisture and mold
g.
whether Defendants' failed to have the proper policies and procedures in
h.
whether Defendants were unjustly enriched through retention of the Class
i.
whether Defendants' actions caused the Class damage.
50238.
Plaintiffs' claims are typical of the claims of the Class. Each Plaintiff rented from
239.
Plaintiffs are adequate representatives because their interests do not conflict with
240. A class action is superior to all other available means of fair and efficient
51
241. In addition, Defendants have acted, and refused to act, on grounds generally
CAUSES OF ACTION
COUNT I
BREACH OF CONTRACT
(brought by Plaintiffs Joshua'Lenz, Jason Norquist, Ryan Morgan, Gary
Elbon, Jason Genrich and all Class members who signed a lease for property
on MacDill AFB against Defendant AMC East Communities, LLC)
242. Plaintiffs repeat and reallege all preceding allegations as if set forth fully herein.
243.
Plaintiffs Joshua Lenz, Jason Norquist, Ryan Morgan, Gary Elbon, Jason Genrich,
244. Plaintiffs and Class members have complied with all obligations under the leases,
245.
Pursuant to the terms of the leases, Defendant is required to repair and maintain, in
246.
According to the terms of a Mold Addendum attached to and incorporated as part
52
a. Developing and implementing a scope of work to remedy the condition;
b. Inspecting the home and premises to remedy the condition;
C. Erect barriers and or provide instructions for the safety of the Class member
tenant and others; and
d. Provide alternative living arrangements in the event the Class member must
vacate the home.
247.
Defendant is and has been on notice of the mold problems in Plaintiffs' and Class
248. Any purported limitation of liability for Defendant's material breach of the leases
249.
Defendant materially breached Plaintiffs' and Class members leases, including the
250. In addition, Defendant materially breached Plaintiffs' and Class members' leases
251.
As a result, Defendant breached material terms of the leases.
53252. An implied covenant of good faith and fair dealing exists between the parties to a
253.
Defendant's breach of the leases has caused damages to Plaintiffs and Class
COUNT II
VIOLATION OF THE IMPLIED WARRANTY OF HABITABILITY
(by all Plaintiffs against all Defendants)
254. Plaintiffs repeat and reallege all preceding allegations as if set forth fully herein.
255. Florida has by statute adopted the implied warranty of habitability. Fla. Stat.
256. The duty of the landlord is two-fold:
a. Prior to possession by the tenant, the landlord has a duty to reasonably
inspect the premises, and to make necessary repairs to transfer a reasonably
safe dwelling unit, unless the tenant waives the defect; and
b. After possession by the tenant, the landlord has a continuing duty to exercise
reasonable care in repairing dangerous defective conditions upon the tenant
giving notice of their existence.
257. Defendants warranted that the leased premises would meet ordinary, normal
258. The presence of moisture and mold was a dangerous defective condition in
259. Plaintiffs provided Defendants with notice of the dangerous and defective
54
260. Defendants breached the implied warranty of habitability by failing to properly
261. Defendants breached the implied warranty of habitability by failing to exercise
262.
Any purported limitation of liability for Defendants' material breach of the leases
263.
As a result of Defendants' breaches of the implied warranty of habitability,
COUNT III
VIOLATION OF THE FLORIDA DECEPTIVE
AND UNFAIR TRADE PRACTICES ACT, FLA. STAT. § 501.21, et seq.
(by all Plaintiffs against all Defendants)
264.
Plaintiffs repeat and reallege all preceding allegations as if set forth fully herein.
265.
This Count does not sound in fraud.
266.
As set forth above, Defendants violated the Florida Deceptive and Unfair Trade
267. FDUTPA was enacted to protect the consuming public and legitimate business
55
268.
For the reasons discussed herein, Defendants violated and continue to violate
269. Defendants' actions constitute unconscionable, deceptive, or unfair acts or
270.
Defendants knowingly engaged in these false, misleading and deceptive practices
271. Defendants' acts in violation of the laws of Florida include, but are not limited to:
representing that goods or services are of a particular standard, quality, or
grade, if they are of another;
representing that work or services have been performed on, or parts replaced
in, good when the work or services were not performed or the parts not
replaced; and
failing to disclose information regarding goods or services which were
known at the time of the transaction where such failure was intended to
induce the consumer into the transaction which the consumer would not
have entered had the information been disclosed.
56272. By virtue of their ownership and/or management of the houses at MacDill AFB,
273.
Defendants' misrepresentations and omissions regarding the habitability and safety
274.
Plaintiffs and the Class suffered damages as a direct result of Defendants' wrongful
275. Plaintiffs and the Class would not have leased the premises nor continue to reside
276. Plaintiffs also seek, on behalf of themselves and the Class, an injunction to prohibit
COUNT IV
NEGLIGENCE/GROSS NEGLIGENCE
(by all Plaintiffs against all Defendants)
277.
Plaintiffs repeat and reallege all preceding allegations as if set forth fully herein.
278.
As the owners and/or property managers of houses at MacDill AFB, Defendants
57
279. Defendants knew or should have known that moisture and mold was present and
280.
In addition, by virtue of the leases and other records, Defendants are aware that
281. Defendants knew or should have known that the MacDill AFB homes were either
282.
Defendants breached the duties they owed to Plaintiffs and the Class by failing to
283. Defendants' conduct was of a gross and flagrant character, evincing blatant and
284. Defendants' reckless indifference to the rights of others is the equivalent to an
285.
Plaintiffs and Class members were damaged by Defendants' negligent and grossly
58
286. Defendants' failure to properly inspect and repair the homes of Plaintiffs and Class
287. Plaintiffs' and Class members' exposure to moisture and mold and other dangerous
288.
Plaintiffs and the Class are entitled to recover damages in amount to be proven at
COUNT V
UNJUST ENRICHMENT
(by all Plaintiffs against all Defendants)
289.
Plaintiffs repeat and reallege all preceding allegations as if set forth fully herein.
290. Plaintiffs and the Class conferred a benefit on Defendants in the form of monies
291. Defendants failed to provide Plaintiffs and the Class with safe and habitable
292. In light of Defendants' wrongful conduct as described herein, Defendants' retention
293.
Plaintiffs and the Class are entitled to restitution of all monies paid to Defendants.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs, on behalf of themselves and other members of the Class,
A.
Certify the Class pursuant to Federal Rule of Civil Procedure 23 and designate
59B.
Enter judgments against each of the Defendants and in favor of the Plaintiffs and
C.
Award Plaintiffs and the Class actual, equitable, compensatory, and punitive
D.
Award Plaintiffs and the Class declaratory and injunctive relief, as appropriate;
E.
Award Plaintiffs and the Class their costs of suit, as well as reasonable attorneys'
F.
Award Plaintiffs and the Class pre-judgment and post-judgment interest, as allowed
G.
Award all other relief as the Court may deem just and proper.
DEMAND FOR JURY TRIAL
Plaintiffs and the Class demand a trial by jury on all issues so triable.
60
Natalie Khawam
WHISTLEBLOWER LAW FIRM, PA
400 N. Tampa Street, Suite 1015
Tampa, FL 33602
Telephone: (813) 944-7853
[email protected]
Shanon J. Carson
E. Michelle Drake
Glen Abramson
Lane L. Vines
BERGER MONTAGUE PC
1818 Market Street, Suite 3600
Philadelphia, PA 19103
Telephone: (215) 875-3000
Facsimile: (215) 875-4604
[email protected]
[email protected]
[email protected]
[email protected]
Attorneys for Plaintiffs and the Proposed Class
61 | consumer fraud |
Y6tDCocBD5gMZwczuUaR |
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WISCONSIN
Case No. 14CV398
BRITTANY INEMAN,
7762 Hansgrove Court, Dublin, Ohio
43016, individually and on behalf of all
others similarly situated,
Plaintiff,
v.
CLASS ACTION COMPLAINT FOR
DAMAGES AND INJUNCTIVE RELIEF
PURSUANT TO 47 U.S.C. § 227 ET SEQ.
(TELEPHONE CONSUMER PROTECTION
ACT)
CLASS ACTION
KOHL’S CORP.,
N56 W17000 Ridgewood Drive,
Menomonee Falls, WI 53051,
DEMAND FOR JURY TRIAL
Defendant,
Plaintiff Brittany Ineman (hereinafter referred to as “Plaintiff”), individually and
on behalf of all others similarly situated, alleges on personal knowledge, investigation of her
counsel, and on information and belief as follows:
NATURE OF ACTION
1.
Plaintiff brings this action for damages, and other legal and equitable
remedies, resulting from the illegal actions of Kohl’s Corp. (hereinafter referred to as “Kohl’s”)
in contacting Plaintiff and Class members on their cellular telephones without their prior express
consent within the meaning of the Telephone Consumer Protection Act, 47 U.S.C. § 227 et seq.
(hereinafter referred to as the “TCPA”). Kohl’s has violated the TCPA by contacting Plaintiff
and Class members on their cellular telephones via an “automatic telephone dialing system,” as
defined by 47 U.S.C. § 227(a)(1), and/or by using “an artificial or prerecorded voice” as
described in 47 U.S.C. § 227(b)(1)(A), without their prior express consent within the meaning of
the TCPA.
2.
Plaintiff brings this action for injunctive relief and statutory damages
resulting from Kohl’s illegal actions.
JURISDICTION AND VENUE
3.
This matter in controversy exceeds $5,000,000, as each member of the
proposed Class of thousands or millions is entitled to up to $1,500.00 in statutory damages for
each call that has violated the TCPA. Accordingly, this Court has jurisdiction pursuant to 28
U.S.C. § 1332(d)(2). Further, Plaintiff alleges 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. This Court also has federal question jurisdiction pursuant to 28 U.S.C. § 1331.
4.
This Court has personal jurisdiction over Kohl’s because, since Kohl’s is
a Wisconsin corporation with a principal place of business in Menomonee Falls, Wisconsin,
Kohl’s is a resident of the State of Wisconsin for purposes of personal jurisdiction.
5.
Venue is proper in the United States District Court for the Western
District of Wisconsin pursuant to 28 U.S.C. §§ 1391(b)-(c), because Kohl’s is deemed to reside
in any judicial district in which it is subject to personal jurisdiction at the time the action is
commenced and Kohl’s contacts with this District are sufficient to subject it to personal
jurisdiction.
PARTIES
6.
Plaintiff Brittany Ineman is an individual citizen of the State of Ohio, who
resides in Dublin, Ohio.
7.
Kohl’s is a corporation incorporated under the laws of the State of
Wisconsin, with its principal place of business in Menomonee Falls, Wisconsin.
THE TELEPHONE CONSUMER PROTECTION ACT OF 1991
(TCPA), 47 U.S.C. § 227
8.
In 1991, Congress enacted the 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 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.
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
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).
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).
12.
The Declaratory Ruling further specifies that a “creditor on whose behalf
an autodialed or prerecorded message call is made to a wireless number bears the responsibility
for any violation of the Commission’s rules.”6
FACTUAL ALLEGATIONS
13.
At all times relevant, Plaintiff is, and at all times mentioned herein was, a
“person” as defined by 47 U.S.C. § 153(39).
14.
On or around August 2008, Plaintiff applied for and obtained a general-
use credit card issued by Kohl’s. Upon information and belief, Plaintiff did not list her then-
current cellular telephone number on the application for the credit card. As such, Plaintiff did
not give Kohl’s prior express consent to contact her on her then-current cell phone number with
an autodialer and/or with a prerecorded or artificial voice during the transaction that gave rise to
the debt owed.
15.
Beginning in late 2008, Plaintiff received autodialed and/or prerecorded
calls on her cell phone from Kohl’s and/or parties operating on Kohl’s behalf. Plaintiff received
numerous such calls. These calls continued on a periodic basis from 2008 until early 2013, when
the Plaintiff paid off and closed her Kohl’s credit card account.
16.
The calls received by Plaintiff were primarily in the form of a pre-
recorded message, instructing her to call a designated number to speak with Kohl’s
representatives. Upon information and belief, Plaintiff also received calls which were made by
an “automated dialer.”
17.
In October 2012, Plaintiff changed her cellular phone number and carrier
in an attempt to prevent Kohl’s from harassing her with unwanted autodialed and/or prerecorded
6 FCC Declaratory Ruling, 23 F.C.C.R. at 564-65 (¶ 10); accord In the Matter of The Joint
Petition Filed by DISH Network, LLC, et al., for Declaratory Ruling Concerning the Telephone
Consumer Protection Act (TCPA) Rules, 2013 FCC LEXIS 2057, at *50 (F.C.C. May 9, 2013)
(¶ 38).
18.
However, soon after this change, Plaintiff began to receive calls from or
on behalf of Kohl’s on her new cell phone number. Upon information and belief, Kohl’s or its
agents obtained Plaintiff’s new cellular telephone number via one of several techniques
commonly referred to as “skip-tracing.”
19.
Upon information and belief, Plaintiff's experience is typical of that of
other Kohl’s customers, and that Kohl’s maintains a coordinated program of calling customers
using an “automatic telephone dialing system” and/or “an artificial or prerecorded voice,” as well
as using “skip-tracing” techniques to identify a customer's current cell phone number. This
belief is formed, in part, by the fact that another Kohl’s cardholder, Stephanie Sapp, has been
subject to the same pattern of persistent automated calls with respect to her Kohl's credit card
account. Kohl’s called Ms. Sapp at least once with an autodialer and/or with a prerecorded or
artificial voice after she changed her cell phone number in response to Kohl’s repeated, harassing
automated calls.
20.
Kohl’s is, and at all times mentioned herein was, a “person”, as defined
by 47 U.S.C. § 153(39).
21.
On information and belief, all telephone contact by Kohl’s to Plaintiff on
her cellular telephone occurred via an “automatic telephone dialing system,” as defined by 47
U.S.C. § 227(a)(1), and/or used “an artificial or prerecorded voice” as described in 47 U.S.C.
§ 227(b)(1)(A).
22.
The telephone numbers that Kohl’s called to contact Plaintiff, with an
“artificial or prerecorded voice” and/or made by an “automatic telephone dialing system,” were
assigned to a cellular telephone service as specified in 47 U.S.C. § 227(b)(1)(A)(iii).
23.
Plaintiff did not provide her “prior express consent” allowing Kohl’s to
place telephone calls to Plaintiff’s cellular phone utilizing an “artificial or prerecorded voice” or
placed by an “automatic telephone dialing system,” within the meaning of 47 U.S.C.
§ 227(b)(1)(A). Indeed, with respect to the calls Kohl’s or its agents made to Plaintiff’s new
cellular number, Plaintiff could not have provided such number to Kohl’s at the time she took
out her Kohl’s credit card.
24.
Kohl’s telephone calls to Plaintiff’s cellular phone were not “for
emergency purposes” as described in 47 U.S.C. § 227(b)(1)(A).
25.
Kohl’s telephone calls to Plaintiff’s cellular phone utilizing an “artificial
or prerecorded voice” or placed by an “automatic telephone dialing system” for non-emergency
purposes and in the absence of Plaintiff’s prior express consent violated 47 U.S.C.
§ 227(b)(1)(A).
26.
Under the TCPA and pursuant to the FCC’s January 2008 Declaratory
Ruling, the burden is on Kohl’s to demonstrate that Plaintiff and all class members provided their
prior express consent within the meaning of the statute.7
CLASS ACTION ALLEGATIONS
27.
Plaintiff brings this action on behalf of herself and on behalf of all other
persons similarly situated (hereinafter referred to as “the Class”).
28.
Plaintiff proposes the following Class definition, subject to amendment
as appropriate:
All persons within the United States who, on or after June 2, 2010, received a
non-emergency telephone call from or on behalf of Kohl’s to a cellular telephone
through the use of an automatic telephone dialing system or an artificial or
prerecorded voice and who did not provide the cellular phone number called on
any initial application for a Kohl’s credit card.
Collectively, all these persons will be referred to as “Class members.” Plaintiff represents, and is
a member of, the Class. Excluded from the Class are Kohl’s and any entities in which Kohl’s
has a controlling interest; Kohl’s agents and employees; any Judge to whom this action is
assigned and any member of such Judge’s staff and immediate family; and claims for personal
injury, wrongful death and/or emotional distress.
7 See FCC Declaratory Ruling, 23 F.C.C.R. at 565 (¶ 10).
29.
Plaintiff does not know the exact number of members in the Class, but
Plaintiff reasonably believes that Class members number at minimum in the tens of thousands.
30.
Plaintiffs and all members of the Class have been harmed by the acts of
Kohl’s.
31.
This Class Action Complaint seeks injunctive relief and money
damages.
32.
The joinder of all Class members is impracticable due to the size and
relatively modest value of each individual claim. The disposition of the claims in a class action
will provide substantial benefit to the parties and the Court in avoiding a multiplicity of identical
suits. The Class can be identified easily through records maintained by Kohl’s and/or its agents.
33.
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 Kohl’s and/or its agents made non-emergency
calls to Plaintiff and Class members’ cellular telephones using an automatic
telephone dialing system and/or an artificial or prerecorded voice;
b.
Whether Kohl’s and/or its agents utilized “skip tracing”
methods to locate cellular telephone numbers;
c.
Whether Kohl’s can meet its burden of showing it obtained
prior express consent (i.e., consent that is clearly and unmistakably stated), to
make such calls;
d.
Whether Kohl’s conduct was knowing and/or willful;
e.
Whether Kohl’s is liable for damages, and the amount of
such damages; and
f.
Whether Kohl’s should be enjoined from engaging in such
conduct in the future.
34.
As a person who received numerous and repeated telephone calls using
an automatic telephone dialing system or an artificial or prerecorded voice, without her prior
express consent within the meaning of the TCPA, Plaintiff asserts claims that are typical of each
Class member. Plaintiff will fairly and adequately represent and protect the interests of the
Class, and has no interests which are antagonistic to any member of the Class.
35.
Plaintiff has retained counsel experienced in handling class action claims
involving violations of federal and state consumer protection statutes, including claims under the
TCPA.
36.
A class action is the superior method for the fair and efficient
adjudication of this controversy. Classwide relief is essential to compel Kohl’s to comply with
the TCPA. The interest of Class members in individually controlling the prosecution of separate
claims against Kohl’s is small because the statutory damages in typical individual actions for
violation of the TCPA are relatively small. Management of these claims is likely to present
significantly fewer difficulties than are presented in many class claims because the calls at issue
are all automated and the Class members, by definition, did not provide the prior express consent
required under the statute to authorize calls to their cellular telephones. Indeed, in the Seventh
Circuit, class certification in TCPA actions is “normal.”8
37.
Kohl’s has acted on grounds generally applicable to the Class, thereby
making final injunctive relief and corresponding declaratory relief with respect to the Class as a
whole appropriate. Moreover, on information and belief, Plaintiff alleges that the TCPA
violations complained of herein are substantially likely to continue in the future if an injunction
is not entered.
CAUSES OF ACTION
FIRST COUNT
KNOWING AND/OR WILLFUL VIOLATIONS OF THE TELEPHONE
CONSUMER PROTECTION ACT, 47 U.S.C. § 227 ET SEQ.
38.
Plaintiff incorporates by reference the foregoing paragraphs of this
Complaint as if fully stated herein.
8 Ira Holtzman, C.P.A. v. Turza, 728 F.3d 682, 684 (7th Cir. 2013).
39.
The foregoing acts and omissions of Kohl’s 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.
40.
As a result of Kohl’s knowing and/or willful violations of 47 U.S.C. §
227 et seq., Plaintiff and each member of the Class are entitled to treble damages of up to
$1,500.00 for each and every call in violation of the statute, pursuant to 47 U.S.C. § 227(b)(3).
41.
Plaintiff and all Class members are also entitled to and do seek
injunctive relief prohibiting such conduct violating the TCPA by Kohl’s in the future. Plaintiff
and Class members are also entitled to an award of attorneys’ fees and costs.
SECOND COUNT
VIOLATIONS OF THE TELEPHONE CONSUMER PROTECTION ACT 47 U.S.C. §
227 ET SEQ.
42.
Plaintiff incorporates by reference the foregoing paragraphs of this
Complaint as if fully set forth herein.
43.
The foregoing acts and omissions of Kohl’s constitute numerous and
multiple violations of the TCPA, including but not limited to each of the above cited provisions
of 47 U.S.C. § 227 et seq.
44.
As a result of Kohl’s violations of 47 U.S.C. § 227 et seq., Plaintiff and
Class members are entitled to an award of $500.00 in statutory damages for each and every call
in violation of the statute, pursuant to 47 U.S.C. § 227(b)(3)(B).
45.
Plaintiff and Class members are also entitled to and do seek injunctive
relief prohibiting Kohl’s violation of the TCPA in the future.
46.
Plaintiff and Class members are also entitled to an award of attorneys’
fees and costs.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff respectfully requests that the Court grant Plaintiff and all
Class members the following relief against Kohl’s:
A.
Injunctive relief prohibiting such violations of the TCPA by Kohl’s in the
B.
As a result of Kohl’s 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, of up to $1,500.00 for each and every call that violated the TCPA;
C.
As a result of Kohl’s 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 call that
violated the TCPA;
D.
An award of reasonable attorneys’ fees and costs to counsel for Plaintiff
and the Class;
E.
An order certifying this action to be a proper class action pursuant to
Federal Rule of Civil Procedure 23, establishing an appropriate Class and any Subclasses the
Court deems appropriate, finding that Plaintiff are a proper representatives of the Class, and
appointing the lawyers and law firms representing Plaintiff as counsel for the Class;
F.
Such other relief as the Court deems just and proper.
DEMAND FOR JURY TRIAL
Plaintiff demands a trial by jury of any and all issues in this action so triable.
Dated: June 2, 2014
Respectfully submitted,
By: /s/ Tamara B. Packard
Tamara B. Packard
CULLEN WESTON PINES & BACH LLP
Lester A. Pines, SBN 1016543
Email: [email protected]
Tamara B. Packard, SBN 1023111
Email: [email protected]
122 West Washington Avenue, Suite 900
Madison, WI 53703
Telephone: (866) 443-8661
Facsimile: (608) 251-2883
LIEFF CABRASER HEIMANN & BERNSTEIN, LLP
Daniel M. Hutchinson*
Email: [email protected]
275 Battery Street, 29th Floor
San Francisco, CA 94111-3339
Telephone: 415.956.1000
Facsimile: 415.956.1008
LIEFF CABRASER HEIMANN & BERNSTEIN, LLP
Jonathan D. Selbin*
Email: [email protected]
Douglas I. Cuthbertson*
Email: [email protected]
250 Hudson Street, 8th Floor
New York, NY 10013
Telephone: (212) 355-9500
Facsimile: (212) 355-9592
MEYER WILSON CO., LPA
Matthew R. Wilson
Email: [email protected]
Michael J. Boyle, Jr.
Email: [email protected]
1320 Dublin Road, Ste. 100
Columbus, Ohio 43215
Telephone: (614) 224-6000
Facsimile: (614) 224-6066
Attorneys for Plaintiff Brittany Ineman and the Proposed
Class
* Applications for Admission to the bar of the Western
District of Wisconsin forthcoming.
| privacy |
H8DuDIcBD5gMZwczqsMR | UNITED STATES DISTRICT COURT
DISTRICT OF COLORADO
ZACHARIAH ROBERTSON, Individually and
on Behalf of All Others Similarly Situated,
CASE NO: 1:19-cv-2910
v.
COLLECTIVE ACTION (29 U.S.C. § 216(b))
REP PROCESSING, LLC. d/b/a RIMROCK
ENERGY PARTNERS
COLLECTIVE ACTION COMPLAINT
SUMMARY
1.
Plaintiff Zachariah Robertson brings this lawsuit to recover unpaid overtime wages
and other damages under the Fair Labor Standards Act (“FLSA”) against Defendant REP
Processing, LLC d/b/a Rimrock Energy Partners (Rimrock).
2.
Robertson and the other workers like him regularly worked for Rimrock in excess of
40 hours each week.
3.
But these workers never received overtime for hours worked in excess of 40 hours in
a single workweek.
4.
Instead of paying overtime as required by the FLSA, Rimrock paid these workers a
daily rate with no overtime pay. This collective action seeks to recover the unpaid overtime wages
and other damages owed to these workers.
JURISDICTION AND VENUE
5.
This Court has original subject matter jurisdiction pursuant to 28 U.S.C. § 1331
because this action involves a federal question under the FLSA. 29 U.S.C. § 216(b).
6.
Venue is proper in this Court pursuant to 28 U.S.C. § 1391(b)(2) because a substantial
portion of the events giving rise to this action occurred in this District.
7.
Robertson works for Rimrock in this District in Weld County, Colorado.
THE PARTIES
8.
Robertson has been performing work for Rimrock as a welding inspector from
approximately March 2019 through the present. Throughout his time with Rimrock, he has been
paid a day-rate with no overtime compensation. His consent to be a party plaintiff is attached as
Exhibit A.
9.
Robertson brings this action on behalf of himself and all other similarly situated
workers paid by Rimrock’s day-rate system. Rimrock paid each of these workers a flat amount for
each day worked and failed to pay them overtime for all hours that they worked in excess of 40
hours in a workweek in accordance with the FLSA. The class of similarly situated workers (“Putative
Class Members”) consists of:
Current and former inspectors employed by or performing work on behalf of
REP Processing, LLC d/b/a Rimrock Energy Partners and paid a day-rate
without overtime during the past three years. (the Putative Class Members).
10.
Rimrock is a corporation doing business throughout the United States. Rimrock may
be served by serving its registered agent for service of process: The Corporation Company, 7700
East Arapahoe Road, Suite 220, Centennial, Colorado 80112.
COVERAGE UNDER THE FLSA
11.
For at least the past three years, Rimrock has been an employer within the meaning
of section 3(d) of the FLSA, 29 U.S.C. § 203(d).
12.
For at least the past three years, Rimrock has been part of an enterprise within the
meaning of section 3(r) of the FLSA, 29 U.S.C. § 203(r).
13.
For at least the past three years, Rimrock has been part of an enterprise 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 enterprise has and has had employees engaged in commerce
or in the production of goods for commerce, or employees handling, selling, or otherwise working
- 2 -
on goods or materials that have been moved in or produced for commerce by any person and in that
said enterprise has had and has an annual gross volume of sales made or business done of not less
than $1,000,000 (exclusive of excise taxes at the retail level which are separately stated).
14.
For at least the past three years, Robertson and the Putative Class Members were
engaged in commerce or in the production of goods for commerce.
FACTS
15.
Rimrock’s business is to “develop, acquire, and operate midstream [oil and gas] assets
in various basins throughout Colorado, Wyoming, New Mexico, Texas, and Oklahoma.”1 One of
Rimrock’s larger current public projects is the construction of the Pierce Gas Processing &
Gathering facility that processes 200 million cubic feet of gas per day (MMcf/d) t with over 120
miles of gathering pipeline.2 The vast amount of pipeline involved in its projects necessitates the use
of welding and pipeline inspectors throughout the construction and production process.
16.
Many of these inspectors worked for Rimrock on a day-rate basis and make up the
proposed Putative Class. While exact job titles and job duties may differ, these inspectors are
subjected to the same or similar illegal pay practices for similar work. Specifically, Rimrock paid
these workers a flat sum for each day worked, regardless of the number of hours that they worked
that day (or in that workweek) and failed to provide them with overtime pay for hours that they
worked in excess of 40 hours in a workweek.
17.
For example, Robertson worked for Rimrock starting in March 2019 through the
present as a welding inspector. Throughout his time with Rimrock, he was paid on a day-rate basis.
1 http://rimrockenergy.com/about-us/ (Last visited October 10, 2019).
2 http://rimrockenergy.com/assets/ (Last visited October 10, 2019).
- 3 -
18.
As a welding inspector, Robertson’s primary job duties included inspecting oil and
gas pipelines and other welding projects as needed. Robertson worked well in excess of 40 hours
each week while employed by Rimrock.
19.
The work Robertson performed was an essential part of Rimrock’s core business.
20.
These workers carry out the hands-on, day-to-day production work of Rimrock.
21.
Workers like Robertson are an integral part of the work Rimrock does.
22.
To the extent employees make “decisions,” the decisions do not require the exercise
of independent discretion and judgment.
23.
Instead, Rimrock employees apply well-established techniques and procedures. The
daily report submitted by Robertson to his supervisors is generated and required by Rimrock.
Robertson and the other inspectors’ supervisors are Rimrock employees. The assignments and
schedules for Robertson and the other inspectors are created and assigned by Rimrock. The
timesheets that Robertson and the inspectors submit to be paid are approved and audited by
Rimrock.
24.
Inspectors are not permitted to deviate from established quality standards.
25.
These workers are blue collar. They rely on their hands, physical skills, and energy to
perform manual labor in the field.
26.
With these job duties, these employees are clearly non-exempt under the FLSA.
27.
Rimrock paid Robertson and the Putative Class Members a flat sum for each day
worked, regardless of the number of hours that they worked that day (or in that workweek) and
failed to provide them with overtime pay for hours that they worked in excess of 40 hours in a
workweek.
28.
Robertson was paid on a day-rate basis throughout his time with Rimrock.
29.
Robertson and the Putative Class Members were not paid a salary.
- 4 -
30.
Robertson and the Putative Class Members were not guaranteed a predetermined
amount above $455.00 per week.
31.
Rimrock typically scheduled Robertson to work 10-12 hour shifts, for as many as 6-7
days a week.
32.
But Rimrock did not pay Robertson overtime.
33.
Robertson and the Class Members worked for Rimrock over the past three years
across the United States.
34.
As a result of Rimrock’s pay policies, Robertson and the Class Members were denied
the overtime pay required by federal law.
35.
Rimrock keeps accurate records of the hours, or at least days, its employees work.
36.
It also keeps accurate records of the amount of pay these workers receive.
37.
Despite knowing the FLSA requirements and that its inspectors regularly worked
more than 40 hours in a workweek, Rimrock does not pay them overtime.
38.
The Putative Class Members also worked similar hours and were denied overtime as
a result of the same illegal pay practice.
39.
The Putative Class Members regularly worked in excess of 40 hours each week.
40.
Like Robertson, the Putative Class Members were generally scheduled for daily shifts
of 12 (or more) hours for weeks at a time.
41.
Rimrock did not pay Robertson on a salary basis.
42.
Rimrock did not pay the Putative Class Members on a salary basis.
43.
Rimrock paid Robertson on a day-rate basis.
44.
Rimrock paid the Putative Class Members on a day-rate basis.
45.
Rimrock failed to pay Robertson overtime for hours worked in excess of 40 hours in
a single workweek.
- 5 -
46.
Rimrock failed to pay the Putative Class Members overtime for hours worked in
excess of 40 hours in a single workweek.
FLSA VIOLATIONS
47.
Robertson incorporates the preceding paragraphs by reference.
48.
As set forth herein, Rimrock violated the FLSA by failing to pay Robertson and the
Class Members overtime at 1 and ½ times their regular rate of pay, for hours worked in excess of 40
in a workweek. 29 U.S.C. § 207(a).
49.
At all relevant times, Rimrock has been an employer engaged in interstate commerce
and/or the production of goods for commerce, within the meaning of the FLSA.
50.
Rimrock employed Robertson and each member of the Class.
51.
Rimrock’s pay policy denied Robertson and the Class Members overtime
compensation at the legal overtime rates required by the FLSA.
52.
Rimrock owes Robertson and the Class Members overtime wages equal to 1 and ½
their regular rates for each overtime hour worked during the last three years.
53.
Rimrock knew, or showed reckless disregard for whether, its failure to pay overtime
violated the FLSA. Its failure to pay overtime to Robertson and the Class is willful.
54.
Due to Rimrock’s FLSA violations, Robertson and the Class Members are entitled to
recover from Rimrock for their unpaid overtime compensation, liquidated damages, treble damages,
reasonable attorney fees, costs, and expenses of this action.
55.
The improper pay practices at issue were part of a continuing course of conduct,
entitling Robertson and Class Members to recover for all such violations, regardless of the date they
occurred.
JURY DEMAND
56.
Robertson demands a trial by jury.
- 6 -
RELIEF SOUGHT
57.
WHEREFORE, Robertson prays for judgment against Defendant as follows:
a)
An Order designating the Putative FLSA Class as a collective action and
permitting the issuance of a notice pursuant to 29 U.S.C. § 216(b) to all
similarly situated individuals with instructions to permit them to assert timely
FLSA claims in this action by filing individual Consents to Sue pursuant to 29
U.S.C. § 216(b);
b)
For an Order appointing Robertson and his counsel to represent the interests
of the FLSA Class;
c)
For an Order finding Defendant liable to Robertson and the Potential Class
Members for unpaid overtime owed under the FLSA, as well as liquidated
damages in an amount equal to their unpaid compensation;
d)
For an Order awarding attorneys’ fees, costs, and pre- and post-judgment
interest at the highest available rates; and
e)
For an Order granting such other and further relief as may be necessary and
appropriate.
Respectfully submitted,
By: /s/ Michael A. Josephson
Michael A. Josephson
State Bar No. 24014780
[email protected]
Andrew W. Dunlap
State Bar No. 24078444
[email protected]
JOSEPHSON DUNLAP
11 Greenway Plaza, Suite 3050
Houston, Texas 77046
713-352-1100 – Telephone
713-352-3300 – Facsimile
AND
- 7 -
Richard J. (Rex) Burch
Texas Bar No. 24001807
BRUCKNER BURCH, P.L.L.C.
8 Greenway Plaza, Suite 1500
Houston, Texas 77046
713-877-8788 – Telephone
713-877-8065 – Facsimile
[email protected]
ATTORNEYS IN CHARGE FOR PLAINTIFF
- 8 -
| employment & labor |
x7RoC4cBD5gMZwczrHw- | IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
11-CV-7075
JURY DEMANDED
MARKUS OWINGS, individually, and on
behalf of all others similarly situated,
Plaintiffs,
v.
ESTES EXPRESS LINES, INC.,
Defendant.
)
)
)
)
)
)
)
)
)
)
)
)
COMPLAINT
Plaintiff Markus Owings, on behalf of himself and all other persons similarly situated
known and unknown, through his attorney, James X. Bormes, for his Complaint against Estes
Express Lines, Inc. (“Defendant”), states as follows:
NATURE OF PLAINTIFFS’ CLAIMS
1.
This lawsuit arises under the Illinois Minimum Wage Law, 820 ILCS 105/1 et
seq. (“IMWL”), the Illinois Wage Payment and Collection Act, 820 ILCS 115/1, et seq.
(“IWPCA”), and the Fair Labor Standards Act, 29 U.S.C. 201, et seq. (“FLSA”) for Defendant’s
failure to pay Plaintiff and other similarly-situated persons all earned overtime pay, and for
Defendant’s failure to compensate fully Plaintiff and other similarly-situated persons for all time
worked.
2.
Defendant provides trucking services within this judicial district.
3.
Defendant paid Plaintiff and those similarly situated to him regular time rather
than time and a half for work performed in excess of 40 hours and less than 56 hours in a given 7
day work week
4.
Plaintiff brings his IMWL overtime claims and IWPCA unpaid wage claims as a
class action pursuant to Fed.R.Civ.P. 23.
5.
Plaintiff brings his FLSA overtime claim as an individual action
THE PARTIES
6.
Representative Plaintiff Markus Owings is an individual who was employed as an
hourly, non-exempt employee in one of Defendant’s trucking terminals located in Elgin, Illinois
from approximately June of 2005 to November of 2010. Plaintiff resides in and is domiciled
within this judicial district.
7.
Plaintiff was employed by Defendant as an “employee,” as that term is defined by
Section 3 of the IMWL, 820 ILCS 105/3, and within Section 2 of the IWPCA, 820 ILCS 115/2
and Section 203 of the FLSA.
8.
At all relevant times, Defendant was Plaintiff’s “employer” as that term is
defined by Section 3 of the IMWL, 820 ILCS 105/3, and within Section 2 of the IWPCA, 820
ILCS 115/2 and Section 203 of the FLSA.
JURISDICTION AND VENUE
9.
This Court has original jurisdiction over individual FLSA claims in this action
under 29 U.S.C. § 1331.
10.
This Court has supplemental jurisdiction over all class claims in this action under
28 U.S.C. § 1367.
CLASS ACTION ALLEGATIONS
11.
Plaintiff and other employees are similarly situated to one another because their
duties consisted primarily of working as spotters in Defendant’s trucking terminals. Plaintiff and
other similarly situated employees all shared similar policies, job titles, job descriptions, training,
job duties and compensation, amongst other things.
12.
Plaintiff and other employees are also similarly situated to one another because
Defendant only paid for overtime work at the rate of time and a half only for hours worked in
excess of 55 hours in a 7 day work week.
13.
With respect to Plaintiff’s IMWL claim, Plaintiff seeks to represent a class that is
comprised of and defined as:
All individuals who were employed or are currently employed by
Defendant, its subsidiaries or affiliated companies, in the state of
Illinois as hourly paid, non exempt spotters, or other similarly
titled positions, from October 6, 2008 through and including the
present (herein the “IMWL Class”).
14.
With respect to Plaintiffs IWPCA claim, Plaintiff seeks to represent a class that is
comprised of and defined as:
All individuals who were employed or are currently employed by
Defendant, its subsidiaries or affiliated companies, in the state of
Illinois as hourly paid, non exempt spotters, or other similarly
titled positions, from August 17, 2002 through and including the
present (herein the “IWPCA Class”).
15.
Based on information and belief, Defendant employed in excess of 100 spotters at
several different terminals located throughout Illinois during the relevant statutory period.
16.
This action is being brought as a class action, Fed. R. Civ. P. 23, because the
IMWL Class and IWPCA Class are so numerous that joinder of all class members is
impracticable.
17.
Plaintiff and the IMWL and IWPCA Classes have been equally affected by
Defendant’s practice of not properly compensating employees for all time worked.
18.
Plaintiff and the IMWL and IWPCA Classes have been equally affected by
Defendant’s failure to pay all earned overtime wages to Plaintiff and the class.
19.
Furthermore, members of the IMWL and IWPCA Classes still employed by
Defendant may be reluctant to raise individual claims for fear of retaliation.
20.
The issues involved in this lawsuit present common questions of law and fact;
these common questions of law and fact predominate over the variations that may exist between
members of the Classes, if any.
21.
Plaintiff, the IMWL and IWPCA Classes and Defendant have a commonality of
interest in the subject matter and the remedy sought.
22.
Plaintiff is able to fairly and adequately represent and protect the interests of the
IMWL and IWPCA Classes. Plaintiff's Counsel is competent and experienced in litigating large
wage and hour and other employment class actions.
23.
If individual actions were required to be brought by each member of the class
injured or affected, the result would be a multiplicity of actions, creating a hardship to the IMWL
and IWPCA Classes, to the Court, and to Defendant. Accordingly, a class action is an
appropriate method for the fair and efficient adjudication of this lawsuit and distribution of the
common fund to which the Classes are entitled.
24.
The books and records of Defendant are material to Plaintiff’s case as they
disclose the overtime hours worked by members of the IWPCA and IMWL Classes and the
amounts they were paid for that work.
25.
Plaintiff has retained counsel experienced in complex employment litigation and
in class action litigation.
26.
Plaintiff and his counsel will fairly and adequately protect the interest of both
classes.
COUNT I
Violation of the Illinois Minimum Wage Law
(Class Action)
27.
Plaintiff hereby realleges and incorporates the above paragraphs of this
Complaint, as if fully set forth herein.
28.
This Court has original jurisdiction over the matters alleged herein pursuant to 28
U.S.C. § 1332(d) and in the alternative, supplemental jurisdiction over the matters alleged herein
pursuant to 28 U.S.C. § 1367.
29.
The matters set forth in this Count arise from Defendant's violation of the
overtime compensation provisions of the Illinois Minimum Wage Law. 820 ILCS 105/4a.
Plaintiff brings this action on his own behalf and on behalf of the IMWL Class pursuant to 820
ILCS 105/12(a).
30.
Pursuant to 820 ILCS 105/4(a), for all weeks during which Plaintiff and the
IMWL Class worked in excess of forty (40) hours, Plaintiff and the IMWL Class were entitled to
be compensated at one and one-half times their regular hourly rate of pay for time worked in
excess of forty (40) hours per week.
31.
Defendant did not pay Plaintiff and the IMWL Class one and one-half times their
regular hourly rate of pay for all time worked in excess of forty (40) hours per week.
32.
Defendant violated the Illinois Minimum Wage Law by refusing to compensate
Plaintiff and the IMWL Class at one and one-half times their regular hourly rate of pay for all
time worked in excess of forty (40) hours per week.
33.
Pursuant to 820 ILCS 105/12(a), Plaintiff and the IMWL Class are entitled to
recover punitive damages in the amount of two percent (2%) per month of the amount of under
payments.
WHEREFORE, Plaintiff and the IMWL Class pray for a judgment against Defendant as
follows:
a.
That the Court determine that this action may be maintained as a class
action;
b.
A judgment in the amount of one and one-half times Plaintiff's and the
IMWL Class’ regular rate for all time worked in excess of forty
(40) hours per week;
c.
Punitive damages pursuant to the formula set forth in 820 ILCS 105/12(a);
d.
Reasonable attorney's fees and costs incurred in filing and pursuing this
action; and
e.
Such other and further relief as this Court deems appropriate and just.
COUNT II
Violation of the Illinois Wage Payment and Collection Act
(Class Action)
34.
Plaintiff hereby realleges and incorporates the above paragraphs of this
Complaint, as if fully set forth herein.
35.
This count arises under the IWPCA, 820 ILCS 115/1, et seq. for Defendant’s
failure and refusal to pay Plaintiff and the IWPCA Class he represents for all their wages earned.
36.
During the course of his employment with Defendant, Plaintiff was not fully
compensated for all time worked in certain work weeks.
37.
Other IWPCA Class members were similarly not fully compensated for all time
worked in certain work weeks.
38.
Plaintiff and the IWPCA Class were entitled to be compensated for all time they
worked at the rate agreed to by the parties.
39.
Defendant’s failure to pay Plaintiff and the IWPCA Class members for all their
wages earned, including overtime wages, at the rates agreed to by the parties violated the
IWPCA.
40.
Plaintiff represents all current and former employees of Defendant who worked as
spotters who have not been paid for all their wages earned at the rates agreed to by the parties.
WHEREFORE, Plaintiff and the IWPCA Class pray for a judgment against Defendant as
follows:
a.
That the Court determine that this action may be maintained as a class
action;
b.
A judgment in the amount of all back wages due, as provided by the
Illinois Wage Payment and Collection Act;
c.
Prejudgment interest on the back wages in accordance with 820 ILCS
205/2;
d.
An injunction precluding Defendant from violating the Illinois Wage
Payment and Collection Act, 820 ILCS 115/1 et seq.;
e.
Such other and further relief as this Court deems appropriate and just.
COUNT III
Violation of the Fair Labor Standards Act
(Individual Actions)
41.
Plaintiff incorporates by reference all preceding paragraphs.
42.
Plaintiff brings Count III as an individual claim for unpaid overtime pursuant to
the FLSA.
43.
At all times relevant hereto, Defendant was an “enterprise engaged in commerce”
within the meaning of Sec. 3(s) of the FLSA, 29 U.S.C. 203 (s).
44.
At all times relevant hereto, Defendant was an “employer” within the meaning of
Sec. 3(d), 29 U.S.C. 203(d).
45.
At all times relevant hereto, Plaintiff was an “employee” as defined by Sec. 3(e)
of the FLSA, 29 U.S.C. 203(e).
46.
Plaintiff was not paid overtime wages for all hours worked in excess of 40 in a
week during the applicable statutory time period in violation of the maximum hours provisions
of the FLSA, to wit, 29 U.S.C. 207(a).
47.
At all times relevant hereto Defendant’s failure to pay Plaintiff premium pay for
all hours worked over 40 in a week was willful in that among other things:
a.
Defendant knew that the FLSA required it to pay time and one-half for all
hours worked over 40 in a week.
b.
Defendant failed to maintain true and accurate payroll records.
48.
As a direct and proximate result thereof, Plaintiff is due unpaid back wages and
liquidated damages, pursuant to 29 U.S.C. 216.
WHEREFORE, Plaintiff Markus Owings individually prays for judgment against
Defendant and in favor of Plaintiff 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:
MARKUS OWINGS, individually,
and on behalf of all others
similarly situated,
/s/ James X. Bormes
Plaintiff's attorney
James X. Bormes
Law Office of James X. Bormes, P.C.
8 South Michigan Avenue
Chicago, IL 60603
312-201-0575
Dated: October 6, 2011
| employment & labor |
FVbHBIkBRpLueGJZ2_T8 |
Case No. 18-cv-104
SHAKED LAW GROUP, P.C.
Dan Shaked (DS-3331)
44 Court Street, Suite 1217
Brooklyn, NY 11201
Tel. (917) 373-9128
Fax (718) 504-7555
Attorneys for Plaintiff and the Class
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
-----------------------------------------------------------X
MARY CONNER, Individually and as the
representative of a class of similarly situated
persons,
Plaintiff,
CLASS ACTION COMPLAINT
- against -
POP BAR, LLC,
Defendants.
-----------------------------------------------------------X
INTRODUCTION
1. Plaintiff, Mary Conner (“Plaintiff” or “Conner”), brings this action on behalf of
herself and all other persons similarly situated against Pop Bar, LLC (“PopBar” or “Defendant”),
and states as follows:
2. Plaintiff is a visually-impaired and legally blind person who requires screen-
reading software to read website content using his computer. Plaintiff uses the terms “blind” or
“visually-impaired” to refer to all people with visual impairments who meet the legal definition of
blindness in that they have a visual acuity with correction of less than or equal to 20 x 200. Some
blind people who meet this definition have limited vision; others have no vision.
3. Based on a 2010 U.S. Census Bureau report, approximately 8.1 million people
in the United States are visually impaired, including 2.0 million who are blind, and according to
1
the American Foundation for the Blind’s 2015 report, approximately 400,000 visually impaired
persons live in the State of New York.
4. Plaintiff brings this civil rights action against PopBar for their failure to design,
construct, maintain, and operate their website to be fully accessible to and independently usable
by Plaintiff and other blind or visually-impaired persons. Defendant is denying blind and visually-
impaired persons throughout the United States with equal access to the goods and services PopBar
provides to their non-disabled customers through http//:www.pop-bar.com (hereinafter “pop-
bar.com” or “the website”). Defendants’ denial of full and equal access to its website, and
therefore denial of its products and services offered, and in conjunction with its physical locations,
is a violation of Plaintiff’s rights under the Americans with Disabilities Act (the “ADA”).
5. Pop-bar.com provides to the public a wide array of the goods, services, price
specials, employment opportunities, and other programs offered by PopBar. Yet, pop-bar.com
contains thousands of access barriers that make it difficult if not impossible for blind and visually-
impaired customers to use the website. In fact, the access barriers make it impossible for blind
and visually-impaired users to even complete a transaction on the website. Thus, PopBar excludes
the blind and visually-impaired from the full and equal participation in the growing Internet
economy that is increasingly a fundamental part of the common marketplace and daily living. In
the wave of technological advances in recent years, assistive computer technology is becoming an
increasingly prominent part of everyday life, allowing blind and visually-impaired persons to fully
and independently access a variety of services.
6. The blind have an even greater need than the sighted to shop and conduct
transactions online due to the challenges faced in mobility. The lack of an accessible website
means that blind people are excluded from experiencing transacting with defendant’s website and
from purchasing goods or services from defendant’s website.
2
7. Despite readily available accessible technology, such as the technology in use at
other heavily trafficked retail websites, which makes use of alternative text, accessible forms,
descriptive links, resizable text and limits the usage of tables and JavaScript, Defendant has chosen
to rely on an exclusively visual interface. PopBar’s sighted customers can independently browse,
select, and buy online without the assistance of others. However, blind persons must rely on
sighted companions to assist them in accessing and purchasing on pop-bar.com.
8. By failing to make the website accessible to blind persons, Defendant is violating
basic equal access requirements under both state and federal law.
9. Congress provided a clear and national mandate for the elimination of
discrimination against individuals with disabilities when it enacted the ADA. Such discrimination
includes barriers to full integration, independent living, and equal opportunity for persons with
disabilities, including those barriers created by websites and other public accommodations that are
inaccessible to blind and visually impaired persons. Similarly, New York state law requires places
of public accommodation to ensure access to goods, services, and facilities by making reasonable
accommodations for persons with disabilities.
10. Plaintiff browsed the website intending to learn about the different PopBar
flavors and intended to make an online purchase of Hot Chocolate on a Stick on pop-bar.com.
However, unless Defendant remedies the numerous access barriers on its website, Plaintiff and
Class members will continue to be unable to independently navigate, browse, use, and complete a
transaction on pop-bar.com.
11. Because Defendant’s website, pop-bar.com, is not equally accessible to blind
and visually-impaired consumers, it violates the ADA. Plaintiff seeks a permanent injunction to
cause a change in PopBar’s policies, practices, and procedures so that Defendant’s website will
become and remain accessible to blind and visually-impaired consumers. This complaint also
3
seeks compensatory damages to compensate Class members for having been subjected to unlawful
discrimination.
JURISDICTION AND VENUE
12. This Court has subject matter jurisdiction over this action under 28 U.S.C. §
1331 and 42 U.S.C. § 12181, as Plaintiff’s claims arise under Title III of the ADA, 42 U.S.C. §
12181 et seq., and 28 U.S.C. § 1332, because this is a class action, as defined by 28 U.S.C. §
1332(d)(1)(B), in which a member of the putative class is a citizen of a different state than
Defendant, and the amount in controversy exceeds the sum or value of $5,000,000, excluding
interest and costs. See 28 U.S.C. § 133(d)(2).
13. This Court also has supplemental jurisdiction over pursuant to 28 U.S.C. §
1367, over Plaintiff’s pendent claims under the New York State Human Rights Law, N.Y. Exec.
Law, Article 15 (Executive Law § 290 et seq.) and the New York City Human Rights Law, N.Y.C.
Administrative Code § 8-101 et seq. (“City Law”).
14. Venue is proper in this District of New York pursuant to 28 U.S.C. §§ 1391(b)-
(c) and 144(a) because Plaintiff resides in this District, Defendant conducts and continues to
conduct a substantial and significant amount of business in this District, and a substantial portion
of the conduct complained of herein occurred in this District.
15. Defendant is registered to do business in New York State and has been
conducting business in New York State, including in this District. Defendant maintains Brick-
and-mortar places of accommodation in this District which are subject to personal jurisdiction in
this District. Defendant also has been and is committing the acts alleged herein in this District and
has been and is violating the rights of consumers in this District and has been and is causing injury
to consumers in this District. A substantial part of the act and omissions giving rise to Plaintiff’s
claims have occurred in this District. Specifically, Plaintiff attempted to learn about the different
4
PopBar flavors and intended to make an online purchase of Hot Chocolate on a Stick on
Defendant’s website, pop-bar.com.
PARTIES
16. Plaintiff, is and has been at all relevant times a resident of Queens County, State
of New York.
17. Plaintiff is legally blind and a member of a protected class under the ADA, 42
U.S.C. § 12102(l)-(2), the regulations implementing the ADA set forth at 28 CFR §§ 36.101 et
seq., the New York State Human Rights Law and the New York City Human Rights Law.
Plaintiff, Mary Conner, cannot use a computer without the assistance of screen reader software.
Plaintiff, Mary Conner, has been denied the full enjoyment of the facilities, goods and services of
pop-bar.com, as well as to the facilities, goods and services of Defendant’s brick and mortar
locations, as a result of accessibility barriers on pop-bar.com.
18. Defendant, The Pop Bar, LLC, is a New York Domestic Limited Liability
Company with an address at 5 Carmine Street, New York, NY 10014.
19. Defendant owns and operates PopBar Shops (hereinafter, “PopBar Shops” or
“Shops”), which are a place of public accommodation.
21. Upon information and belief, PopBar, LLC is the operator and/or owner of
www.pop-bar.com.
22. PopBar Shops provide to the public important and enjoyable goods and
services such as food and beverage. Defendant also provides to the public a website known as
pop-bar.com which provides consumers with access to an array of goods and services offered to
the public by the PopBar Shop, including, the ability to view food items, the ability to purchase
food items for delivery, to obtain information about the Shop history, location and hours, and to
learn about employment opportunities. The inaccessibility of pop-bar.com has deterred Plaintiff
5
from locating the Shop and from learning about the different PopBar flavors and the ability to
make an online purchase of Hot Chocolate on a Stick.
23. Defendant’s locations are 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 that is heavily integrated with Defendant’s physical Shops and operates as a gateway
thereto.
NATURE OF THE CASE
24. 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.
25. The blind access websites by using keyboards in conjunction with screen-
reading software which vocalizes visual information on a computer screen. Except for a blind
person whose residual vision is still sufficient to use magnification, screen access software
provides the only method by which a blind person can independently access the Internet. Unless
websites are designed to allow for use in this manner, blind persons are unable to fully access
Internet websites and the information, products and services contained therein.
26. For screen-reading software to function, the information on a website must be
capable of being rendered into text. If the website content is not capable of being rendered into
text, the blind user is unable to access the same content available to sighted users.
27. Blind users of Windows operating system-enabled computers and devises have
several screen-reading software programs available to them. Job Access With Speech, otherwise
known as “JAWS” is currently the most popular, separately purchase and downloaded screen-
reading software program available for blind computer users.
6
28. 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 persons. These guidelines are universally
followed by most large business entities and government agencies to ensure their websites are
accessible. Many Courts have also established WCAG 2.0 as the standard guideline for
accessibility. The federal government has also promulgated website accessibility standards under
Section 508 of the Rehabilitation Act. These guidelines are readily available via the Internet, so
that a business designing a website can easily access them. These guidelines recommend several
basic components for making websites accessible, including but not limited to: adding invisible
alt-text to graphics, ensuring that all functions can be performed using a keyboard and not just a
mouse, ensuring that image maps are accessible, and adding headings so that blind persons can
easily navigate the site. Without these very basic components, a website will be inaccessible to a
blind person using a screen reader.
FACTUAL ALLEGATIONS
29. Defendant, PopBar, operates PopBar Shops which are located throughout New
York State and which provide food items.
30. Pop-bar.com is a service and benefit offered by PopBar and PopBar Shops
in New York State. Pop-bar.com is owned, controlled and/or operated by PopBar.
31. Pop-bar.com is a commercial website that offers products and services
for online sale that are available in the PopBar Shop. The online Shop allows the user to browse
menu items, purchase food items, and perform a variety of other functions.
32. Among the features offered by pop-bar.com are the following:
7
(a) learning Shop information including, allowing persons who wish to visit PopBar
to learn its location, hours of operation, and phone numbers;
(b) an online Shop, allowing customers to purchase food items which can be
delivered to the purchaser; and
(c) learning about the different products, buzz, events, and about employment
opportunities.
33. This case arises out of PopBar’s policy and practice of denying the blind access
to pop-bar.com, including the goods and services offered by PopBar Shop through pop-bar.com.
Due to PopBar’s failure and refusal to remove access barriers to pop-bar.com, blind individuals
have been and are being denied equal access to PopBar Shop, as well as to the numerous goods,
services and benefits offered to the public through pop-bar.com.
34. PopBar denies the blind access to goods, services and information made
available through pop-bar.com by preventing them from freely navigating pop-bar.com.
35. Pop-bar.com contains access barriers that prevent free and full use by Plaintiff
and blind persons using keyboards and screen-reading software. These barriers are pervasive and
include, but are not limited to: lack of alt-text on graphics, inaccessible drop-down menus, the lack
of navigation links, the lack of adequate prompting and labeling, the denial of keyboard access,
empty links that contain no text, redundant links where adjacent links go to the same URL address,
and the requirement that transactions be performed solely with a mouse.
36. Alternative text (“Alt-text”) is invisible code embedded beneath a graphical
image on a website. Web accessibility requires that alt-text be coded with each picture so that a
screen-reader can speak the alternative text while sighted users see the picture. Alt-text does not
change the visual presentation except that it appears as a text pop-up when the mouse moves over
the picture. There are many important pictures on pop-bar.com that lack a text equivalent. The
8
lack of alt-text on these graphics prevents screen readers from accurately vocalizing a description
of the graphics (screen-readers detect and vocalize alt-text to provide a description of the image to
a blind computer user). As a result, Plaintiff and blind pop-bar.com customers are unable to
determine what is on the website, browse the website or investigate PopBar Shop’s web pages
and/or make purchases.
37. Pop-bar.com also lacks prompting information and accommodations
necessary to allow blind shoppers who use screen-readers to locate and accurately fill-out online
forms. On a shopping site such as pop-bar.com, these forms include search fields to locate food
items, fields that specify the number of items desired, and fields used to fill-out personal
information, including address and credit card information. Due to lack of adequate labeling,
Plaintiff and blind customers cannot make purchases or inquiries as to Defendant’s menu items,
gift cards, and locations, nor can they enter their personal identification and financial information
with confidence and security.
38. Similarly, pop-bar.com lacks accessible drop-down menus. Drop-down
menus allow customers to locate and choose products as well as specify the quantity of certain
items. On pop-bar.com, blind customers are not aware if the desired products, such as Hot
Chocolate on a Stick, have been added to the shopping cart because the screen-reader does not
indicate the type of product or quantity. Therefore, blind customers are essentially prevented
from purchasing any items on pop-bar.com.
39. Pop-bar.com also lacks accessible forms. Quantity boxes allow customers to
specify the quantity of certain items. On pop-bar.com, blind customers are unable to select
specific quantity because the screen-reader does not indicate the function of the box. As a result,
blind customers are denied access to the quantity box. Furthermore, Plaintiff is unable to locate
the shopping cart because the shopping basket form does not specify the purpose of the shopping
9
cart. As a result, blind customers are denied access to the shopping cart. Consequently, blind
customers are unsuccessful in adding products into their shopping carts and are essentially
prevented from purchasing items on pop-bar.com.
40. PopBar.com lacks accessible image maps. An image map is a function that
combines multiple words and links into one single image. Visual details on this single image
highlight different “hot spots” which, when clicked on, allow the user to jump to many different
destinations within the website. For an image map to be accessible, it must contain alt-text for
the various “hot spots.” The image maps on pop-bar.com’s web pages do not contain adequate
alt-text and are therefore inaccessible to Plaintiff and other blind persons attempting to find the
Shop’s location, browse the different PopBar flavors or purchase a Hot Chocolate on a Stick.
41. Moreover, the lack of navigation links on Defendant’s website makes
attempting to navigate through Pop-bar.com even more time consuming and confusing for
Plaintiff and blind consumers.
42. Pop-bar.com requires the use of a mouse to complete a transaction. Yet, it is a
fundamental tenet of web accessibility that for a web page to be accessible to Plaintiff and blind
people, it must be possible for the user to interact with the page using only the keyboard. Indeed,
Plaintiff and blind users cannot use a mouse because manipulating the mouse is a visual activity
of moving the mouse pointer from one visual spot on the page to another. Thus, pop-bar.com’s
inaccessible design, which requires the use of a mouse to complete a transaction, denies Plaintiff
and blind customers the ability to independently navigate and/or make purchases on Pop-
bar.com.
43. Due to pop-bar.com’s inaccessibility, Plaintiff and blind customers must in
turn spend time, energy, and/or money to make their purchases at a PopBar Shop. Some blind
customers may require a driver to get to the Shop or require assistance in navigating the Shop.
10
By contrast, if pop-bar.com was accessible, a blind person could independently investigate
products and programs and make purchases and reservations via the Internet as sighted
individuals can and do. According to WCAG 2.0 Guideline 2.4.1, a mechanism is necessary to
bypass blocks of content that are repeated on multiple webpages because requiring users to
extensively tab before reaching the main content is an unacceptable barrier to accessing the
website. Plaintiff must tab through every navigation bar option and footer on Defendant’s
website in an attempt to reach the desired service. Thus, pop-bar.com’s inaccessible design,
which requires the use of a mouse to complete a transaction, denies Plaintiff and blind customers
the ability to independently make purchases on pop-bar.com.
44. Pop-bar.com thus contains access barriers which deny the full and equal
access to Plaintiff, who would otherwise use pop-bar.com and who would otherwise be able to
fully and equally enjoy the benefits and services of PopBar Shop in New York State.
45. Plaintiff, Mary Conner, has made numerous attempts to complete a purchase
on pop-bar.com, most recently in November, 2017, but was unable to do so independently
because of the many access barriers on Defendant’s website. These access barriers have caused
pop-bar.com to be inaccessible to, and not independently usable by, blind and visually-impaired
persons. Amongst other access barriers experienced, Plaintiff was unable to learn about the
different PopBar flavors or order a Hot Chocolate on a Stick.
46. As described above, Plaintiff has actual knowledge of the fact that
Defendant’s website, pop-bar.com, contains access barriers causing the website to be
inaccessible, and not independently usable by, blind and visually-impaired persons.
47. These barriers to access have denied Plaintiff full and equal access to, and
enjoyment of, the goods, benefits and services of pop-bar.com and the PopBar Shop.
11
48. Defendant engaged in acts of intentional discrimination, including but not
limited to the following policies or practices:
(a) constructed and maintained a website that is inaccessible to blind class
members with knowledge of the discrimination; and/or
(b) constructed and maintained a website that is sufficiently intuitive and/or
obvious that is inaccessible to blind class members; and/or
(c) failed to take actions to correct these access barriers in the face of substantial
harm and discrimination to blind class members.
49. Defendant utilizes standards, criteria or methods of administration that have
the effect of discriminating or perpetuating the discrimination of others.
50. Because of Defendant’s denial of full and equal access to, and enjoyment of,
the goods, benefits and services of pop-bar.com and PopBar Shop, Plaintiff and the class have
suffered an injury-in-fact which is concrete and particularized and actual and is a direct result of
defendant’s conduct.
CLASS ACTION ALLEGATIONS
51. Plaintiff, on behalf of herself and all others similarly situated, seeks
certification of the following nationwide class pursuant to Rule 23(a) and 23(b)(2) of the Federal
Rules of Civil Procedure: “all legally blind individuals in the United States who have attempted
to access Pop-bar.com and as a result have been denied access to the enjoyment of goods and
services offered in the PopBar Shop, during the relevant statutory period.”
52. Plaintiff seeks certification of the following New York subclass pursuant to
Fed.R.Civ.P. 23(a), 23(b)(2), and, alternatively, 23(b)(3): “all legally blind individuals in New
York State who have attempted to access pop-bar.com and as a result have been denied access to
12
the enjoyment of goods and services offered in the PopBar Shop, during the relevant statutory
period.”
53. There are hundreds of thousands of visually-impaired persons in New York
State. There are approximately 8.1 million people in the United States who are visually-
impaired. Id. Thus, the persons in the class are so numerous that joinder of all such persons is
impractical and the disposition of their claims in a class action is a benefit to the parties and to
the Court.
54. This case arises out of Defendant’s policy and practice of maintaining an
inaccessible website denying blind persons access to the goods and services of pop-bar.com and
the PopBar Shop. Due to Defendant’s policy and practice of failing to remove access barriers,
blind persons have been and are being denied full and equal access to independently browse,
select and shop on pop-bar.com and by extension the goods and services offered through
Defendant’s website to PopBar Shop.
55. There are common questions of law and fact common to the class, including
without limitation, the following:
(a) Whether pop-bar.com is a “public accommodation” under the ADA;
(b) Whether pop-bar.com is a “place or provider of public accommodation” under
the laws of New York;
(c) Whether Defendant, through its website, pop-bar.com, denies the full and
equal enjoyment of its goods, services, facilities, privileges, advantages, or accommodations to
people with visual disabilities in violation of the ADA; and
(d) Whether Defendant, through its website, pop-bar.com, denies the full and
equal enjoyment of its goods, services, facilities, privileges, advantages, or accommodations to
people with visual disabilities in violation of the law of New York.
13
56. The claims of the named Plaintiff are typical of those of the class. The class,
similar to the Plaintiff, is severely visually-impaired or otherwise blind, and claims PopBar has
violated the ADA, and/or the laws of New York by failing to update or remove access barriers on
their website, pop-bar.com, so it can be independently accessible to the class of people who are
legally blind.
57. Plaintiff will fairly and adequately represent and protect the interests of the
members of the Class because Plaintiff has retained and is represented by counsel competent and
experienced in complex class action litigation, and because Plaintiff has no interests antagonistic
to the members of the class. Class certification of the claims is appropriate pursuant to Fed. R.
Civ. P. 23(b)(2) because Defendant has acted or refused to act on grounds generally applicable to
the Class, making appropriate both declaratory and injunctive relief with respect to Plaintiff and
the Class as a whole.
58. Alternatively, class certification is appropriate under Fed. R. Civ. P. 23(b)(3)
because questions of law and fact common to Class members clearly predominate over questions
affecting only individual class members, and because a class action is superior to other available
methods for the fair and efficient adjudication of this litigation.
59. Judicial economy will be served by maintenance of this lawsuit as a class
action in that it is likely to avoid the burden that would be otherwise placed upon the judicial
system by the filing of numerous similar suits by people with visual disabilities throughout the
United States.
60. References to Plaintiff shall be deemed to include the named Plaintiff and
each member of the class, unless otherwise indicated.
FIRST CAUSE OF ACTION
(Violation of 42 U.S.C. §§ 12181 et seq. – Title III of the Americans with Disabilities Act)
14
61. Plaintiff repeats, realleges and incorporates by reference the allegations
contained in paragraphs 1 through 60 of this Complaint as though set forth at length herein.
62. Title III of the American with Disabilities Act of 1990, 42 U.S.C. § 12182(a)
provides that “No individual shall be discriminated against on the basis of disability in the full
and equal enjoyment of the goods, services, facilities, privileges, advantages, or accommodations
of any place of public accommodation by any person who owns, leases (or leases to), or operates
a place of public accommodation.” Title III also prohibits an entity from “[u]tilizing standards or
criteria or methods of administration that have the effect of discriminating on the basis of
disability.” 42 U.S.C. § 12181(b)(2)(D)(I).
63. The PopBar Shop located in New York State is a sales establishment and
public accommodation within the definition of 42 U.S.C. §§ 12181(7)(E). Pop-bar.com is a
service, privilege or advantage of PopBar Shop. Pop-bar.com is a service that is by and
integrated with the Shop.
64. Defendant is subject to Title III of the ADA because it owns and operates the
PopBar Shop.
65. Under Title III of the ADA, 42 U.S.C. § 12182(b)(1)(A)(I), it is unlawful
discrimination to deny individuals with disabilities or a class of individuals with disabilities the
opportunity to participate in or benefit from the goods, services, facilities, privileges, advantages,
or accommodations of an entity.
66. Under Title III of the ADA, 42 U.S.C. § 12182(b)(1)(A)(II), it is unlawful
discrimination to deny individuals with disabilities or a class of individuals with disabilities an
opportunity to participate in or benefit from the goods, services, facilities, privileges, advantages,
or accommodation, which is equal to the opportunities afforded to other individuals.
15
67. Specifically, under Title III of the ADA, 42 U.S.C. § 12182(b)(2)(A)(II),
unlawful discrimination includes, among other things, “a failure to make reasonable
modifications in policies, practices, or procedures, when such modifications are necessary to
afford such goods, services, facilities, privileges, advantages, or accommodations to individuals
with disabilities, unless the entity can demonstrate that making such modifications would
fundamentally alter the nature of such goods, services, facilities, privileges, advantages or
accommodations.”
68. In addition, under Title III of the ADA, 42 U.S.C. § 12182(b)(2)(A)(III),
unlawful discrimination also includes, among other things, “a failure to take such steps as may
be necessary to ensure that no individual with disability is excluded, denied services, segregated
or otherwise treated differently than other individuals because of the absence of auxiliary aids
and services, unless the entity can demonstrate that taking such steps would fundamentally alter
the nature of the good, service, facility, privilege, advantage, or accommodation being offered or
would result in an undue burden.”
69. There are readily available, well-established guidelines on the Internet for
making websites accessible to the blind and visually-impaired. These guidelines have been
followed by other business entities in making their websites accessible, including but not limited
to ensuring adequate prompting and accessible alt-text. Incorporating the basic components to
make their website accessible would neither fundamentally alter the nature of Defendant’s
business nor result in an undue burden to Defendant.
70. The acts alleged herein constitute violations of Title III of the ADA, 42 U.S.C.
§ 12101 et seq., and the regulations promulgated thereunder. Patrons of PopBar Shop who are
blind have been denied full and equal access to pop-bar.com, have not been provided services
16
that are provided to other patrons who are not disabled, and/or have been provided services that
are inferior to the services provided to non-disabled patrons.
71. Defendant has failed to take any prompt and equitable steps to remedy its
discriminatory conduct. These violations are ongoing.
72. 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 pop-bar.com and PopBar Shop in violation of Title III
of the Americans with Disabilities Act, 42 U.S.C. §§ 12181 et seq. and/or its implementing
regulations.
73. Unless the Court enjoins Defendant from continuing to engage in these
unlawful practices, Plaintiff and members of the proposed class and subclass will continue to
suffer irreparable harm.
74. The actions of Defendant were and are in violation of the ADA, and therefore
Plaintiff invokes his statutory right to injunctive relief to remedy the discrimination.
75. Plaintiff is also entitled to reasonable attorneys’ fees and costs.
76. Pursuant to 42 U.S.C. § 12188 and the remedies, procedures, and rights set
forth and incorporated therein, Plaintiff prays for judgment as set forth below.
SECOND CAUSE OF ACTION
(Violation of New York State Human Rights Law, N.Y. Exec. Law
Article 15 (Executive Law § 292 et seq.))
77. Plaintiff repeats, realleges and incorporates by reference the allegations
contained in paragraphs 1 through 76 of this Complaint as though set forth at length herein.
78. 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
17
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.”.
79. The PopBar Shop located in New York State is a sales establishment and
public accommodation within the definition of N.Y. Exec. Law § 292(9). Pop-bar.com is a
service, privilege or advantage of PopBar Shop. Pop-bar.com is a service that is by and
integrated with the Shop.
80. Defendant is subject to the New York Human Rights Law because it owns and
operates the PopBar Shop and pop-bar.com. Defendant is a person within the meaning of N.Y.
Exec. Law. § 292(1).
81. Defendant is violating N.Y. Exec. Law § 296(2)(a) in refusing to update or
remove access barriers to pop-bar.com, causing pop-bar.com and the services integrated with
PopBar Shop to be completely inaccessible to the blind. This inaccessibility denies blind patrons
the full and equal access to the facilities, goods and services that Defendant makes available to
the non-disabled public.
82. Specifically, under N.Y. Exec. Law § unlawful discriminatory practice
includes, among other things, “a refusal to make reasonable modifications in policies, practices,
or procedures, when such modifications are necessary to afford facilities, privileges, advantages
or accommodations to individuals with disabilities, unless such person can demonstrate that
making such modifications would fundamentally alter the nature of such facilities, privileges,
advantages or accommodations.”
83. In addition, under N.Y. Exec. Law § 296(2)(c)(II), unlawful discriminatory
practice also includes, “a refusal to take such steps as may be necessary to ensure that no
individual with a disability is excluded or denied services because of the absence of auxiliary
18
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.”
84. There are readily available, well-established guidelines on the Internet for
making websites accessible to the blind and visually-impaired. These guidelines have been
followed by other business entities in making their website accessible, including but not limited
to: adding alt-text to graphics and ensuring that all functions can be performed by using a
keyboard. Incorporating the basic components to make their website accessible would neither
fundamentally alter the nature of Defendant’s business nor result in an undue burden to
Defendant.
85. Defendant’s actions constitute willful intentional discrimination against the
class on the basis of a disability in violation of the New York State Human Rights Law, N.Y.
Exec. Law § 296(2) in that Defendant has:
(a) constructed and maintained a website that is inaccessible to blind class
members with knowledge of the discrimination; and/or
(b) constructed and maintained a website that is sufficiently intuitive and/or
obvious that is inaccessible to blind class members; and/or
(c) failed to take actions to correct these access barriers in the face of substantial
harm and discrimination to blind class members.
86. Defendant has failed to take any prompt and equitable steps to remedy their
discriminatory conduct. These violations are ongoing.
87. 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,
19
accommodations and/or opportunities of pop-bar.com and PopBar Shop under N.Y. Exec. Law §
296(2) et seq. and/or its implementing regulations. Unless the Court enjoins Defendant from
continuing to engage in these unlawful practices, Plaintiff and members of the class will continue
to suffer irreparable harm.
88. The actions of Defendant were and are in violation of the New York State
Human Rights Law and therefore Plaintiff invokes his right to injunctive relief to remedy the
discrimination.
89. Plaintiff is also entitled to compensatory damages, as well as civil penalties
and fines pursuant to N.Y. Exec. Law § 297(4)(c) et seq. for each and every offense.
90. Plaintiff is also entitled to reasonable attorneys’ fees and costs.
91. Pursuant to N.Y. Exec. Law § 297 and the remedies, procedures, and rights set
forth and incorporated therein, Plaintiff prays for judgment as set forth below.
THIRD CAUSE OF ACTION
(Violation of New York State Civil Rights Law, NY CLS Civ R,
Article 4 (CLS Civ R § 40 et seq.))
92. Plaintiff repeats, realleges and incorporates by reference the allegations
contained in paragraphs 1 through 91 of this Complaint as though set forth at length herein.
93. Plaintiff served notice thereof upon the attorney general as required by N.Y.
Civil Rights Law § 41.
94. 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
20
place shall directly or indirectly refuse, withhold from, or deny to any person any of the
accommodations, advantages, facilities and privileges thereof . . .”
95. 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.”
96. The PopBar Shop located in New York State is a sales establishment and
public accommodation within the definition of N.Y. Civil Rights Law § 40-c(2). Pop-bar.com is
a service, privilege or advantage of the PopBar Shop. Pop-bar.com is a service that is by and
integrated with the Shop.
97. Defendant is subject to New York Civil Rights Law because it owns and
operates PopBar Shop and pop-bar.com. Defendant is a person within the meaning of N.Y. Civil
Law § 40-c(2).
98. Defendant is violating N.Y. Civil Rights Law § 40-c(2) in refusing to update
or remove access barriers to pop-bar.com, causing pop-bar.com and the services integrated with
the PopBar Shop 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.
99. There are readily available, well-established guidelines on the Internet for
making websites accessible to the blind and visually-impaired. These guidelines have been
followed by other business entities in making their website accessible, including but not limited
to: adding alt-text to graphics and ensuring that all functions can be performed by using a
keyboard. Incorporating the basic components to make their website accessible would neither
21
fundamentally alter the nature of Defendant’s business nor result in an undue burden to
Defendant.
100. In addition, N.Y. Civil Rights Law § 41 states that “any corporation which
shall violate any of the provisions of sections forty, forty-a, forty-b or forty two . . . shall for each
and every violation thereof be liable to a penalty of not less than one hundred dollars nor more
than five hundred dollars, to be recovered by the person aggrieved thereby . . .”
101. Specifically, under N.Y. Civil Rights Law § 40-d, “any person who shall
violate any of the provisions of the foregoing section, or subdivision three of section 240.30 or
section 240.31 of the penal law, or who shall aid or incite the violation of any of said provisions
shall for each and every violation thereof be liable to a penalty of not less than one hundred
dollars nor more than five hundred dollars, to be recovered by the person aggrieved thereby in
any court of competent jurisdiction in the county in which the defendant shall reside . . .”
102. Defendant has failed to take any prompt and equitable steps to remedy their
discriminatory conduct. These violations are ongoing.
103. As such, Defendant discriminates, and will continue in the future to
discriminate against Plaintiff and members of the proposed class on the basis of disability are
being directly indirectly refused, withheld from, or denied the accommodations, advantages,
facilities and privileges thereof in § 40 et seq. and/or its implementing regulations.
104. Plaintiff is entitled to compensatory damages of five hundred dollars per
instance, as well as civil penalties and fines pursuant to N.Y. Civil Rights Law § 40 et seq. for
each and every offense.
FOURTH CAUSE OF ACTION
(Violation of New York City Human Rights Law,
N.Y.C. Administrative Code § 8-102, et seq.)
22
105. Plaintiff repeats, realleges and incorporates by reference the allegations
contained in paragraphs 1 through 104 of this Complaint as though set forth at length herein.
106. 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.”
107. PopBar Shop located in New York State is a sales establishment and public
accommodation within the definition of N.Y.C. Administrative Code § 8-102(9). Pop-bar.com is
a service, privilege or advantage of the PopBar Shop. Pop-bar.com is a service that is by and
integrated with the Shop.
108. Defendant is subject to City Law because it owns and operates the PopBar
Shop and pop-bar.com. Defendant is a person within the meaning of N.Y.C. Administrative
Code § 8-102(1).
109. Defendant is violating N.Y.C. Administrative Code § 8-107(4)(a) in refusing
to update or remove access barriers to pop-bar.com, causing pop-bar.com and the services
integrated with the PopBar Shop to be completely inaccessible to the blind. This inaccessibility
denies blind patrons full and equal access to the facilities, goods, and services that Defendant
makes available to the non-disabled public. Specifically, Defendant is required to “make
reasonable accommodation to the needs of persons with disabilities . . . any person prohibited by
the provisions of [§ 8-107 et seq.] from discriminating on the basis of disability shall make
reasonable accommodation to enable a person with a disability to . . . enjoy the right or rights in
question provided that the disability is known or should have been known by the covered entity.”
N.Y.C. Administrative Code § 8-107(15)(a).
23
110. Defendant’s actions constitute willful intentional discrimination against the
class on the basis of a disability in violation of the N.Y.C. Administrative Code § 8-107(4)(a)
and § 8-107(15)(a) in that Defendant has:
(a) constructed and maintained a website that is inaccessible to blind class
members with knowledge of the discrimination; and/or
(b) constructed and maintained a website that is sufficiently intuitive and/or
obvious that is inaccessible to blind class members; and/or
(c) failed to take actions to correct these access barriers in the face of substantial
harm and discrimination to blind class members.
111. Defendant has failed to take any prompt and equitable steps to remedy their
discriminatory conduct. These violations are ongoing.
112. 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 pop-bar.com and the PopBar Shop under N.Y.C.
Administrative Code § 8-107(4)(a) and/or its implementing regulations. Unless the Court
enjoins Defendant from continuing to engage in these unlawful practices, Plaintiff and members
of the class will continue to suffer irreparable harm.
113. The actions of Defendant were and are in violation of City law and therefore
Plaintiff invokes his right to injunctive relief to remedy the discrimination.
114. 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.
115. Plaintiff is also entitled to reasonable attorneys’ fees and costs.
24
116. Pursuant to N.Y.C. Administrative Code § 8-120(8) and § 8-126(a) and the
remedies, procedures, and rights set forth and incorporated therein, Plaintiff prays for judgment
as set forth below.
FIFTH CAUSE OF ACTION
(Declaratory Relief)
117. Plaintiff repeats, realleges and incorporates by reference the allegations
contained in paragraphs 1 through 116 of this Complaint as though set forth at length herein.
118. An actual controversy has arisen and now exists between the parties in that
Plaintiff contends, and is informed and believes that Defendant denies, that pop-bar.com contains
access barriers denying blind customers the full and equal access to the goods, services and
facilities of pop-bar.com and by extension PopBar Shop, which PopBar owns, operates and/or
controls, fails to comply with applicable laws including, but not limited to, Title III of the
American with Disabilities Act, 42 U.S.C. §§ 12182, et seq., N.Y. Exec. Law § 296, et seq., and
N.Y.C. Administrative Code § 8-107, et seq. prohibiting discrimination against the blind.
119. A judicial declaration is necessary and appropriate at this time in order that
each of the parties may know their respective rights and duties and act accordingly.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff respectfully demands judgment in favor of Plaintiff and
the class and against the Defendants as follows:
a)
A preliminary and permanent injunction to prohibit Defendant from violating the
Americans with Disabilities Act, 42 U.S.C. §§ 12182, et seq., N.Y. Exec. Law § 296, et
seq., and N.Y.C. Administrative Code § 8-107, et seq., and the laws of New York;
b) A preliminary and permanent injunction requiring Defendant to take all the steps
necessary to make its website, pop-bar.com, into full compliance with the requirements
25
set forth in the ADA, and its implementing regulations, so that Pop-bar.com is readily
accessible to and usable by blind individuals;
c)
A declaration that Defendant owns, maintains and/or operates its website, pop-bar.com,
in a manner which discriminates against the blind and which fails to provide access for
persons with disabilities as required by Americans with Disabilities Act, 42 U.S.C. §§
12182, et seq., N.Y. Exec. Law § 296, et seq., and N.Y.C. Administrative Code § 8-107,
et seq., and the laws of New York;
d) An order certifying this case as a class action under Fed. R. Civ. P. 23(a) & (b)(2) and/or
(b)(3), appointing Plaintiff as Class Representative, and his attorneys as Class Counsel;
e)
Compensatory damages in an amount to be determined by proof, including all applicable
statutory damages and fines, to Plaintiff and the proposed class for violations of their civil
rights under New York State Human Rights Law and City Law;
f)
Plaintiff’s reasonable attorneys’ fees, expenses, and costs of suit as provided by state and
federal law;
g) For pre- and post-judgment interest to the extent permitted by law; and
h) For such other and further relief which this court deems just and proper.
Dated: Brooklyn, New York
December 14, 2017
SHAKED LAW GROUP, P.C.
Attorneys for Plaintiff
By:/s/Dan Shaked_______
Dan Shaked (DS-3331)
44 Court St., Suite 1217
Brooklyn, NY 11201
Tel. (917) 373-9128
Fax (718) 504-7555
26
| civil rights, immigration, family |
eEpuA4kBRpLueGJZg-S4 | UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF ILLINOIS
PEORIA DIVISION
1:20-cv-01206
Case No.
EULA SCURLARK, individually and on
behalf of a class of similarly situated
persons,
Plaintiff,
v.
JURY TRIAL DEMANDED
AFNI, INC.,
Defendant.
CLASS ACTION COMPLAINT
Now Comes Plaintiff EULA SCURLARK, individually and on behalf of all others
similarly situated, by and through undersigned counsel, and brings this Class Action
Complaint against AFNI, INC.:
I.
Parties, Jurisdiction and Venue
1.
Plaintiff EULA SCURLARK (“Plaintiff”) is a resident of Grand Prairie, Texas
and has filed this civil action pursuant to the Fair Debt Collection Practices Act
(“FDCPA”), 15 U.S.C. §1692, et seq.
2.
Federal subject matter jurisdiction exists pursuant to 15 U.S.C. § 1692k(d)
and 28 U.S.C. §§1331 and 1337.
3.
Defendant AFNI, INC. (at times “Defendant”) is incorporated in the State
of Illinois, employees persons in the State of Illinois to collect debts and maintains its
principal place of business and headquarters in Bloomington, Illinois. Defendant’s agent
for service of process is CT Corporation, 208 S, LaSalle St. Suite 814, Chicago, IL 60604.
4.
Defendant is a debt collector as defined by Section 1692a(6) of the FDCPA
because its principal purpose is the purchase of and collection of consumer debts and
routinely uses the United States Postal Service for the collection of consumer debts.
1
5.
Venue and personal jurisdiction exist in this District pursuant to U.S.C.
§§ 1391(b)-(c) and 1441(a) because Defendant, as a corporation, is deemed to reside in
any judicial district in which it is subject to personal jurisdiction at the time the action
is commenced.
6.
Venue is also proper in this District pursuant to § 1391(b) because
Defendant is subject to personal jurisdiction within this District by virtue of the fact
that it has conducted significant and continuous debt purchase and collection activities
within this jurisdiction, including accepting payments at a Bloomington, Illinois
address.
II.
Allegations Regarding the Subject Collection Notice Dated 2/12/2020
7.
In an attempt to collect a purported debt, Defendant sent a letter to
Plaintiff dated February 12, 2020 (hereafter the “Collection Notice”).
8.
A true and accurate image of the upper portion of Collection Notice is
depicted below:
9.
When Defendant mailed or caused the Collection Notice to be mailed to
Plaintiff, Defendant regarded Plaintiff as being a “consumer” as this term is defined by
15 U.S.C. § 1692a(3) because Defendant regarded her as a “person obligated or allegedly
obligated to pay” a debt purportedly owed to “AT&T U-VERSE” (hereafter the “Subject
Debt”).
10.
The below image is the entire front page of the Collection Notice.
11.
Plaintiff disputes that “AT&T U-VERSE” is the actual creditor of the
Subject Debt.
3
12.
As reflected by the below screen capture taken of a search result from the
Illinois Secretary of State’s website search engine, “AT&T U-VERSE” is not a recognized
legal entity by the Office if the Illinois Secretary of State:
13.
Instead, as reflected by screen captures taken of search results from the
Illinois Secretary of State’s website search engine, dozens of entities starting with
“AT&T” are listed as a result of typing the words “AT&T”:
4
14.
The following search results demonstrate that “AT&T U-VERSE” is not a
recognized entity when searching for corporations on the State of Texas’ search engine
15.
Although Plaintiff cannot confirm that the amount list for the Subject Debt
is completely accurate as the amount may incur improper fees or charges, Plaintiff can
confirm that any lawful charges that make up the Subject Debt (subject to a reduction
for any improperly added fees or charges) were incurred for personal and household
expenses.
16.
Because of unforeseeable financial difficulties, Plaintiff was unable to pay
the Subject Debt.
17.
As depicted in the above image, the upper left former of the Collection
Notice contains Defendant’s logo and name, and below Defendant’s name is a rounded
below with the heading “WHAT IS MY ACCOUNT INFORMATION?” in bold font (“Account
Information Box”).
18.
The first line contained within the Account Information Box contains the
word “Creditor” and directly next to “Creditor” is “AT&T U-VERSE”.
19.
The second line contained within the Account Information Box contains
the words “Creditor Account” and directly next to “Creditor Account” are a series of
numbers.
20.
The third line contained within the Account Information Box contains the
words “Afni, Inc. Account” and directly next to “Afni, Inc. Account” are a series of
numbers.
21.
The fourth line contained within the Account Information Box contains the
words “BALANCE DUE” and thereafter an amount of $324.06 is listed.
22.
Next to Account Information Box is the body of the Collection Notice and
the first paragraph of the body of the Collection Notice states as follows:
Your AT&T U-VERSE account has been referred to Afni, Inc. for
collection. In an effort to assist you, we are willing to accept $178.23
to resolve your account. Once you pay this discounted amount, your
account will be closed and marked as settled in full with Afni, Inc. and
AT&T U-VERSE.
(Emphasis supplied).
23.
Below the above quoted words, the Collection Notice states:
***Discounted Offer: $178.23***
24.
Below the above quoted words, the Collection Notice states:
We are committed to helping you resolve your debt. Please contact us.
25.
The bottom of the Collection Notice contains a payment stub which
instructed “Make payments payable to Afni, Inc.” and listed Defendant’s P.O. Box in
Bloomington, Illinois.
26.
Below the above quoted words, the Collection Notice recites certain
statutory disclosures requited by § 1692g(a) of the FDCPA, and in particular, §§
1692g(a)(2)-(5).
27.
Section 1692g(a)(2) requires debt collectors to identify “the name of the
creditor to whom the debt is owed”.
28.
Section 1692g(a)(3) requires debt collectors to provide:
a statement that unless the consumer, within thirty 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[.]
29.
Section 1692g(a)(4) requires debt collectors to provide:
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[.]
30.
Section 1692g(a)(5) requires debt collectors to provide:
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.
III.
Defendant Violated Sections 1692e, e(2)(A), e(10) and f of the FDCPA
31.
Section 1692e of prohibits debt collectors from using “false, deceptive, or
misleading representation or means in connection with the collection of any debt”.
32.
Section 1692e(2)(A) prohibits “[t]he false representation of - the character,
amount, or legal status of any debt.”
33.
Section 1692e(10) specifically prohibits “[t]he use of any false
representation or deceptive means to collect or attempt to collect any debt or to obtain
information concerning a consumer.”
34.
Section 1692f of the FDCPA prohibits a debt collector from using “unfair
or unconscionable means to collect or attempt to collect any debt.”
35.
Plaintiff is an unsophisticated consumer. See, Turner v. J.V.D.B. &
Associates, Inc., 330 F.3d 991, 995 (7th Cir. 2003) (holding that "our test for determining
whether a debt collector violated § 1692e is objective, turning not on the question of
what the debt collector knew but on whether the debt collector's communication would
deceive or mislead an unsophisticated, but reasonable, consumer").
36.
When credit reporting takes place, an account is paid “in full” and reported
as a payment in full by a credit furnisher or debt collector account.
37.
In contrast, a consumer’s payment of a discounted settlement offer is
reported by a credit furnisher or debt collector as a settlement for less than the full
amount of the debt. This second type of reporting is not a favorable method of reporting
the closing of a debt.
38.
Defendant’s Collection Notice does not explicitly state that if Plaintiff paid
the settlement amount that Defendant would report the debt as “settled in full, for less
than the full balance”, which is plausibly how the payment would be reflected to, and
by, a credit reporting agency.
39.
By stating the effect of a discounted payment will be credit reported as
“settled in full,” the Collection Notice falsely and deceptively describes misleading,
confusing, contradictory terms, unfair or false terms.
8
40.
A common understanding with unsophisticated consumers of the term
“settled,” means a payment of less than a full amount of the debt. By using the phrase
“settled in full”, the Collection Notice letter violates Sections 1692e, 1692e(2)(A),
1692e(10) and 1692f. A collection letter is materially misleading if it is open to more
than one interpretation, one of which is false.
41.
The phrase “[o]nce you pay this discounted amount, your account will be
closed and marked as settled in full with Afni, Inc. and AT&T U-VERSE” violates Sections
1692e, 1692e(2)(A), 1692e(10) and 1692f because only Defendant could report any
settlement of the Subject Debt because AT&T U-VERSE (a non-existent entity) could not
credit report the Subject Debt.
42.
Further, phrase “[o]nce you pay this discounted amount, your account will
be closed and marked as settled in full with Afni, Inc. and AT&T U-VERSE” violates
Sections 1692e, 1692e(2)(A), 1692e(10) and 1692f because neither Defendant nor AT&T
U-VERSE (a non-existent entity) could not report the payment of portion of the full
amount of a debt as “settled in full”. Further the above quoted constitutes a “false,
deceptive, or misleading representation or means in connection with the collection of [a]
43.
Plaintiff wanted to dispute and verity the amount of the Subject Debt as is
her right as afforded §§ 1692g(a)(3) and 1692g(a)(4). Plaintiff, however, was confused as
to whether the settlement offer would expire during the time periods listed on the face
of the Collection Notice. Plaintiff was also worried that Defendant would not honor or
otherwise renew the settlement offer if she attempted to dispute the debt and seek
verification.
44.
Further, because the Collection Notice did not identify a proper legal entity,
pursuant to the rights afforded by § 1692g(a)(5), Plaintiff wanted to learn the correct
9
legal name of the debt collector. Plaintiff, however, was confused as to whether the
settlement offer would expire during the time periods listed on the face of the Collection
Notice. Plaintiff was also worried that Defendant would not honor or otherwise renew
the settlement offer if she attempted to dispute the debt and seek verification.
45.
Defendant’s Collection Notice violates Sections 1692e, 1692e(2)(A),
1692e(10) and 1692f by offering of a discounted payment option in Defendant’s initial
communication to a consumer before the expiration of the rights afforded to a consumer
by §§ 1692g(a)(3), 1692g(a)(4) and 1692g(a)(5).
46.
The Collection Notice identified “AT&T U-VERSE” as the creditor.
47.
The Collection Notice violated § 1692g(a)(2) by identifying “AT&T U-
VERSE”.
48.
The Collection Notice does include the phrase “[w]e are not obligated to
renew any offers provided” or any similar type disclaim regarding whether the settlement
offer would or could be extended or renewed.
49.
The Collection Notice violates Sections 1692e, 1692e(2)(A), 1692e(10) and
1692f because it does include any language indicating that a consumer’s invocation of
the statutory rights afforded by Sections 1692g(a)(3), 1692g(a)(4) and 1692g(a)(5) would
not impact the proposed settlement offer.
50.
The Collection Notice violates Sections 1692e, 1692e(2)(A), 1692e(10) and
1692f because it does include any language indicating that a consumer could except
the proposed settlement offer after Defendant responded to a consumer’s invocation of
any of the rights afforded by Sections 1692g(a)(3), 1692g(a)(4) and 1692g(a)(5).
51.
Because of Defendant's false, deceptive, misleading and unfair debt
collection practices, Plaintiff has been damaged.
52.
The Collection Notice is a template letter. Based upon an analysis of
collection activities engaged in by Defendant and lawsuits reviewed in LexMachina and
PACER, more that forty persons with addresses located within this Judicial District and
more that forty persons with addresses located within the State of Texas were sent the
same for Collection Notice.
53.
The factual and legal issues related to Defendant mailing of similarly
formatted letters are common and typical of the proposed class members.
54.
Plaintiff will serve as an adequate class representative and suffers from no
unique defenses that would not be otherwise faced by putative class members.
55.
Plaintiff is represented by attorneys well acquainted in prosecuting
violations of the FDCPA as well as class action litigation. For example, attorney James
C. Vlahakis was appointed to the Steering Committee in a nationwide class action
against Apple, Inc. See, In Re: Apple Inc. Device Performance Litigation, 18-md-02827
(N.D. Cal. May 15, 2018) (Dkt. Entry no. 99). After extended litigation, the parties
proposed a $310 to $500 million dollar settlement to the court which received
preliminary on May 15, 2020) (Dkts. 415-16, 420, 429).
56.
Further, as an associate and partner of Hinshaw & Culbertson, LLP, a
prominent law firm in the defense of the debt collection industry, Mr. Vlahakis defended
well over a hundred FDCPA based claims since 1998.
57.
Plaintiff’s counsel understand how to approach class-action based
settlements. For example, as a former defense attorney, Mr. Vlahakis worked with
opposing counsel to present courts with agreed proposed class action settlements. See,
e.g., Prater v. Medicredit, Inc., 2014-cv-0159, 2015 U.S. Dist. LEXIS 167215 (E.D. Mo.
Dec. 7, 2015) ($6.3 million dollar TCPA based automated dialing system wrong party
settlement); Wood v. State Collection Service, Inc., 15-cv-0475 (S.D. Ind. January 29,
11
2016) (granting approval of an FDCPA class action settlement);Long v. Fenton &
McGarvey Law Firm, (S.D. Ind. February 23, 2017) (same).
58.
Further, Plaintiff’s counsel understand alternative approaches to litigating
class actions. For example, after causing an insurer to reverse the denial of insurance
coverage in a pair of junk-fax based putative class action against to suburban based
mortgagee company, Crown Mortgage Company (“Crown”), see, Irish Sisters, Inc. v.
Crown Mortgage Company, 09-CH-10688 (Cook Co.) and Lanciloti Law Office v. Crown
Mortgage Company, 09-CH-31582 (Cook Co.) ,Mr. Vlahakis filed a petition for
declaratory relief before the Federal Communication Commission (“FCC”) where he
obtained favorable declaratory relief for Crown. See, FCC’s Order of October 30, 2014,
FCC 14-164, in CG Docket Nos. 02-278 and 05-338.1
59.
Plaintiff’s counsel will be responsive to the common defenses raised to
oppose certification. For example, Mr. Vlahakis defeated certification efforts in the
following cases. See, Jamison v. First Credit Servs., 290 F.R.D. 92 (N.D. Ill. Mar. 28,
2013) (defeating a bid to certify TCPA cell phone based class certification motion); Pesce
v. First Credit Servs., 2012 U.S. Dist. LEXIS 188745 (N.D. Ill. June 6, 2012)(decertifying
a previously certified TCPA class action).
60.
As a prosecutor of FDCPA class actions on behalf of consumers, Mr.
Vlahakis obtained a partial reversal of a motion dismissing a proposed FDCPA class
action in the case of Preston v. Midland Credit Management, Inc., 948 F.3d 776 (7th Cir.
2020).
61.
Lastly, Mr. Vlahakis’ firm has the available resources to provide notice to
putative class members and to litigate this case to trial.
IV.
Causes of Action
1 https://docs.fcc.gov/public/attachments/FCC-14-164A1.pdf+&cd=1&hl=en&ct=clnk&gl=us
Count I – The Collection Notice Violates Section1692e of the FDCPA
62.
Plaintiff EULA SCURLARK realleges the above paragraphs as though fully
set forth herein.
63.
The FDCPA prohibits a debt collector using “any false, deceptive, or
misleading representation or means in connection with the collection of any debt.” 15
U.S.C. § 1692e.
64.
As set forth above, the Collection Notice constitutes a false, deceptive, or
misleading representation or means in connection with the collection of the Subject
65.
The proposed District based Section 1692e class is defined as follows:
All persons with mailing addresses within the State of Illinois and the State
of Texas who were mailed the form Collection Notice depicted in this
Complaint in an attempt to collect a debt owed where the original creditor
was AT&T U-VERSE.
66.
Alternatively, if sufficient numerosity does not exist relative to the above
proposed class and other equitable factors exist, the proposed Nationwide Section 1692e
class is defined as follows:
All persons with mailing addresses within the United States who were
mailed the form Collection Notice depicted in this Complaint in an attempt
to collect a debt owed where the original creditor was AT&T U-VERSE.
WHEREFORE, Plaintiff EULA SCURLARK respectfully requests that this
Honorable Court:
a. declare that the form of the Collection Notice violated Section 1692e;
b. award Plaintiff statutory damages of $1,000;
c.
award class members maximum statutory damages; and
d. award costs and reasonable attorney’s fees pursuant to §1692k.
Count II – The Collection Notice Violates Section 1692e(2)(A) of the FDCPA
13
67.
Plaintiff EULA SCURLARK incorporates realleges the above paragraphs as
though fully set forth herein.
68.
Section 1692e(2)(A) prohibits “[t]he false representation of - the character,
amount, or legal status of any debt.”
69.
As set forth above, the Collection Notice constitutes a false representation
of the character and/or legal status of the Subject Debt.
70.
The proposed District based Section 1692e(2)(A) class is defined as follows:
All persons with mailing addresses within the State of Illinois and the State
of Texas who were mailed the form Collection Notice depicted in this
Complaint in an attempt to collect a debt owed where the original creditor
was AT&T U-VERSE.
71.
Alternatively, if sufficient numerosity does not exist relative to the above
proposed class and other equitable factors exist, the proposed Nationwide Section 1692e
class is defined as follows:
All persons with mailing addresses within the United States who were
mailed the form Collection Notice depicted in this Complaint in an attempt
to collect a debt owed where the original creditor was AT&T U-VERSE.
WHEREFORE, Plaintiff EULA SCURLARK respectfully requests that this
Honorable Court:
a. declare that the form of the Collection Notice violated §1692e(2)(A);
b. award Plaintiff statutory damages of $1,000;
c. award class members maximum statutory damages; and
d. award costs and reasonable attorney’s fees pursuant to §1692k.
Count III – The Collection Notice Violates Section 1692e(10)(A) of the FDCPA
72.
Plaintiff EULA SCURLARK incorporates realleges the above paragraphs as
though fully set forth herein.
73.
Section 1692e(10) prohibits “[t]he use of any false representation or
deceptive means to collect or attempt to collect any debt or to obtain information
concerning a consumer.”
74.
As set forth above, the Collection Notice constitutes the use of a false
representation or deceptive means to collect or attempt to collect the Subject Debt.
75.
The proposed District based Section 1692e(10) class is defined as follows:
All persons with mailing addresses within the State of Illinois and the State
of Texas who were mailed the form Collection Notice depicted in this
Complaint in an attempt to collect a debt owed where the original creditor
was AT&T U-VERSE.
76.
Alternatively, if sufficient numerosity does not exist relative to the above
proposed class and other equitable factors exist, the proposed Nationwide Section
1692e(10) class is defined as follows:
All persons with mailing addresses within the United States who were
mailed the form Collection Notice depicted in this Complaint in an attempt
to collect a debt owed where the original creditor was AT&T U-VERSE.
WHEREFORE, Plaintiff EULA SCURLARK respectfully requests that this
Honorable Court:
a. declare that the form of the Collection Notice violated § 1692e(10);
b. award Plaintiff statutory damages of $1,000;
c.
award class members maximum statutory damages; and
d. award costs and reasonable attorney’s fees pursuant to §1692k.
Count IV – The Collection Notice Violates Section 1692f of the FDCPA
77.
Plaintiff EULA SCURLARK incorporates realleges the above paragraphs as
though fully set forth herein.
78.
Section 1692f of the FDCPA prohibits a debt collector from using “unfair
or unconscionable means to collect or attempt to collect any debt.”
15
79.
As set forth above, the Collection Notice constitutes an unfair or
unconscionable means to collect or attempt to collect the Subject Debt.
80.
The proposed District based Section 1692f class is defined as follows:
All persons with mailing addresses within the State of Illinois and the State
of Texas who were mailed the form Collection Notice depicted in this
Complaint in an attempt to collect a debt owed where the original creditor
was AT&T U-VERSE.
81.
Alternatively, if sufficient numerosity does not exist relative to the above
proposed class and other equitable factors exist, the proposed Nationwide Section 1692f
class is defined as follows:
All persons with mailing addresses within the United States who were
mailed the form Collection Notice depicted in this Complaint in an attempt
to collect a debt owed where the original creditor was AT&T U-VERSE.
WHEREFORE, Plaintiff EULA SCURLARK respectfully requests that this
Honorable Court:
a. declare that the form of the Collection Notice violated Section 1692f;
b. award Plaintiff statutory damages of $1,000;
c.
award class members maximum statutory damages; and
d. award costs and reasonable attorney’s fees pursuant to §1692k.
Count V – The Collection Notice Violates Section1692g(a)(2) of the FDCPA
82.
Plaintiff EULA SCURLARK realleges the above paragraphs as though fully
set forth herein.
83.
As set forth above, the Collection Notice violates Section 1692g(a)(2).
84.
The proposed District based Section 1692g(a)(2) class is defined as follows:
All persons with mailing addresses within the State of Illinois and the State
of Texas who were mailed the form Collection Notice depicted in this
Complaint in an attempt to collect a debt owed where the original creditor
was AT&T U-VERSE.
16
85.
Alternatively, if sufficient numerosity does not exist relative to the above
proposed class and other equitable factors exist, the proposed Nationwide Section 1692e
class is defined as follows:
All persons with mailing addresses within the United States who were
mailed the form Collection Notice depicted in this Complaint in an attempt
to collect a debt owed where the original creditor was AT&T U-VERSE.
WHEREFORE, Plaintiff EULA SCURLARK respectfully requests that this
Honorable Court:
a. declare that the form of the Collection Notice violated Section
1692g(a)(2);
b. award Plaintiff statutory damages of $1,000;
c.
award class members maximum statutory damages; and
d. award costs and reasonable attorney’s fees pursuant to §1692k.
Plaintiff demands a jury trial
Respectfully submitted, on behalf of
Plaintiff EULA SCURLARK individually
and on behalf of all others similarly situated,
Date: 5/30/2020
/s/James C. Vlahakis
James Vlahakis
SULAIMAN LAW GROUP, LTD.
2500 South Highland Ave.,
Suite 200
Lombard, IL 60148
(630) 575 - 8181
Email: [email protected]
17
| consumer fraud |
MbNVC4cBD5gMZwczl-PA | PELTON & ASSOCIATES PC
Brent E. Pelton (BP 1055)
[email protected]
Taylor B. Graham (TG 9607)
[email protected]
111 Broadway, Suite 1503
New York, NY 10006
Telephone: (212) 385-9700
www.peltonlaw.com
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
DONALD LITTLE and TERRENCE
JOHNSON, Individually and On Behalf of All
Others Similarly Situated,
Plaintiffs,
COMPLAINT
CLASS & COLLECTIVE
ACTION COMPLAINT
-against-
Jury Trial Demanded
CARLO LIZZA & SONS PAVING, INC.,
SHIPS POINT INDUSTRIES LTD., A&B
CONTRACTORS LLC and ELIA ALY
LIZZA, Jointly and Severally,
Defendants.
Plaintiffs Donald Little and Terrence Johnson (the “Plaintiffs”), individually and on
behalf of all others similarly situated, as class representatives, upon personal knowledge as to
themselves and upon information and belief as to other matters, allege as follows:
1
NATURE OF THE ACTION
1.
Plaintiffs are former safety flagmen who worked for Defendants on New York
City roadways, pursuant to contracts with the New York City Department of Transportation (the
“DOT Contracts”). For their work, Plaintiffs were either not paid wages of any kind for hours
worked in excess of forty (40) per week or paid at straight-time rates for all hours worked, and
were also not paid the prevailing rate of wages or supplemental benefits for their work on public
works project including New York City roadways.
2.
Plaintiffs bring this action to recover unpaid overtime premium pay owed to them
pursuant to both the Fair Labor Standards Act (“FLSA”), 29 U.S.C. §§ 201 et seq. and the New
York Labor Law (“NYLL”), §§ 650 et seq.
3.
Plaintiffs also seek to recover unpaid prevailing wages, daily overtime and
supplemental benefits which they and the members of the putative Class were entitled to receive
for work, including weekend and evening work, they performed pursuant to contracts entered
into between Defendants and public entities, including but not limited to, the New York City
Department of Transportation.
4.
Plaintiffs also bring this action for Defendants’ failure to provide proper wage
notices and wage statements pursuant to the NYLL and the supporting regulations.
5.
Plaintiffs bring their FLSA claim on behalf of themselves and all other similarly
situated employees of Defendants and their NYLL claims on behalf of themselves and a Federal
Rule of Civil Procedure 23 class of all employees of Defendants working as safety flagpersons
and other construction laborers.
2
JURISDICTION AND VENUE
6.
This Court has subject matter jurisdiction over this matter pursuant to 28 U.S.C.
§§ 1331, 1337, and 1343, and supplemental jurisdiction over Plaintiffs’ state law claims pursuant
to 28 U.S.C. § 1367. In addition, the Court has jurisdiction over Plaintiffs’ claims under the
FLSA pursuant to 29 U.S.C. § 216(b).
7.
Venue is proper in this district pursuant to 28 U.S.C. § 1391 because a substantial
part of the events or omissions giving rise to the claim occurred in this district.
8.
This Court is empowered to issue a declaratory judgment pursuant to 28 U.S.C.
§§ 2201 and 2202.
THE PARTIES
Plaintiffs:
9.
Plaintiff Donald Little (“Little”) was, at all relevant times, an adult individual
residing in New York County, New York.
10.
Plaintiff Terrence Johnson (“Johnson”) was, at all relevant times, an adult
individual residing in New York County, New York and Bronx County, New York.
11.
Plaintiffs consent in writing to be parties to this action, pursuant to 29 U.S.C. §
216(b), and their consent forms are attached hereto.
Defendants:
12.
Upon information and belief, Defendant Carlo Lizza & Sons Paving, Inc. (“Carlo
Lizza Paving”) is an active New York corporation with headquarters located at 200 Winding
Road, Old Bethpage, NY 11804.
13.
Upon information and belief, Defendant A&B Contractors LLC (“A&B”) is an
active New York Limited Liability with headquarters located at 1617 Carrie Street, Schenectady,
3
New York 12308.
14.
Upon information and belief, Defendant Ships Point Industries Ltd. (“Ships Point
Industries” and, collectively with Carlo Lizza Paving and A&B, the “Corporate Defendants”) is
an active New York Limited Company with headquarters located at 64 Ships Point Lane, Oyster
Bay, New York 11771.
15.
At all relevant times, the Corporate Defendants have been 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).
16.
Upon information and belief, at all relevant times, the Corporate Defendants had
gross revenues in excess of $500,000.00.
17.
Defendant Elia Aly Lizza (“Lizza”) is listed as the Chief Executive Officer of
Carlo Lizza Paving and Ships Point Industries in corporate filings with the New York
Department of State, Division of Corporations.
18.
Upon information and belief, Defendant Lizza is an owner and operator of Carlo
Lizza Paving and Ships Point Industries who sets the companies’ payroll policies, including the
unlawful practices complained of herein. Throughout the relevant time period, upon information
and belief, Lizza was in charge of determining the companies’ policies with respect to payroll
and otherwise running the business of Carlo Lizza Paving and Ships Point Industries.
19.
At all relevant times, Defendants employed and/or continue to employ Plaintiffs
and each Collective and Class Action Member within the meaning of the FLSA, 29 U.S.C. §
20.
The Individual Defendant participated in the day-to-day operations of Carlo Lizza
Paving and Ships Point Industries and acted intentionally and maliciously in his direction and
4
control of Plaintiffs and Carlo Lizza Paving and Ships Point Industries’ other similarly situated
employees, and is an “employer” pursuant to the NYLL § 2 and the regulations thereunder, and
is jointly and severally liable with the Corporate Defendants.
21.
All actions and omissions described in this complaint were made by Defendants
directly or through their supervisory employees and agents.
COLLECTIVE ACTION ALLEGATIONS
22.
Pursuant to 29 U.S.C. § 207, Plaintiffs bring their First Cause of Action as a
collective action under the FLSA on behalf of themselves and the following collective:
All persons employed by Defendants at any time since September
18, 2012 and through the entry of judgment in this case (the
“Collective Action Period”) who worked as safety flagpersons and
other construction laborers (the “Collective Action Members”).
23.
A collective action is appropriate in this circumstance because Plaintiffs and the
Collective Action members are similarly situated, in that they were all subjected to Defendants’
illegal policies, including but not limited to, failing to pay overtime premiums for work
performed in excess of forty (40) hours each week. As a result of this policy, Plaintiffs and the
Collective Action Members did not receive the legally-required overtime premium payments for
all hours worked in excess of forty (40) hours per week.
24.
Plaintiffs and the Collective Action Members have substantially similar job duties
and are paid pursuant to a similar, if not the same, payment structure.
5
CLASS ACTION ALLEGATIONS
25.
Pursuant to the NYLL and the New York common law, Plaintiffs bring their
Second through Sixth Causes of Action under Rule 23 of the Federal Rules of Civil Procedure on
behalf of themselves and the following class:
All persons employed by Defendants at any time since September
18, 2009 and through the entry of judgment in this case (the “Class
Period”) who worked as safety flagpersons and other construction
laborers (the “Class Members”).
26.
The Class Members are readily ascertainable. The number and identity of the
Class Members are determinable from the records of Defendants. 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 Rule 23.
27.
The Class Members are so numerous that joinder of all members is impracticable.
Although the precise number of Class Members is unknown to Plaintiffs, the facts on which the
calculation of that number can be based are presently within the sole control of Defendants.
28.
Upon information and belief, there are in excess of forty (40) Class Members.
29.
Common questions of law and fact exist as to all Class Members and such
questions predominate over any questions solely affecting individual Class Members. Such
common questions will determine Defendants’ liability to all (or nearly all) Class Members.
These common questions include:
a. whether Defendants employed Plaintiffs and the Class Members within the meaning
of the NYLL;
b. whether Defendants failed to keep true and accurate time records for all hours worked
by Plaintiffs and the Class Members;
c. whether Defendants failed to pay overtime wages to Plaintiffs and the Class Members
6
for all hours worked over forty (40) in a given week;
d. whether Defendants breached contracts with local, state and/or federal governmental
entities by failing to pay Plaintiffs and the Class Members, who were third-party
beneficiaries of such contracts, at New York State and/or New York City prevailing
wage rates;
e. whether Defendants failed and/or refused to pay Plaintiffs and the Class Members
overtime hours at the prevailing wage overtime rates for all hours worked on
prevailing wage projects in excess of forty (40) hours per workweek or eight (8)
hours per day;
f. whether Defendants failed and/or refused to pay Plaintiffs and the Class Members
supplemental benefits on prevailing wage jobs as required by the New York City and
New York State prevailing wage schedules;
g. whether Defendants were unjustly enriched by failing to pay Plaintiffs and the Class
Members at prevailing wage rates on prevailing wage jobs;
h. whether Defendants failed to provide Plaintiffs and the Class Members with proper
wage notices and wage statements;
i. whether Defendants’ failure to properly pay Plaintiffs and the Class Members lacked
a good faith basis; and
j. whether Defendants are liable for all damages claimed hereunder, including but not
limited to compensatory damages, liquidated damages, interest, costs and
disbursements and attorneys’ fees.
30.
Plaintiffs’ claims are typical of the Class Members’ claims. Plaintiffs, like all
Class Members, are construction employees who worked for Defendants pursuant to their
7
corporate policies. The Class Representatives, like all Class Members, were, inter alia, not paid
overtime wages for all hours worked over forty (40) in a given workweek; not paid prevailing
wages, supplemental benefits or daily/weekly overtime prevailing wages for work performed on
New York City roadways; were not reimbursed for the purchase of certain necessary clothing
items and protective gear; and were not provided with proper wage notice and wage statements.
If Defendant is liable to the Class Representatives for the Class claims enumerated in this
Complaint, they are also liable to all Class Members.
31.
The Class Representatives and their Counsel will fairly and adequately represent
the Class. There are no conflicts between Plaintiffs and the Class Members, and the Class
Representatives bring this lawsuit out of a desire to help all Class Members, not merely out of a
desire to recover their own damages.
32.
Plaintiffs’ counsel are experienced class action litigators who are well-prepared to
represent the interests of the Class Members.
33.
A class action is superior to other available methods for the fair and efficient
adjudication of this litigation. Defendants are sophisticated parties with substantial resources.
The individual plaintiffs lack the financial resources to vigorously prosecute a lawsuit in federal
court against the Corporate Defendant. The individual members of the Class have no interest or
capacity to bring separate actions; Plaintiffs are unaware of any other litigation concerning this
controversy; it is desirable to concentrate the litigation in one case; and there are no likely
difficulties that will arise in managing the class action.
8
STATEMENT OF THE FACTS
A.
Defendants’ Companies
34.
At all relevant times, Defendants Carlo Lizza Paving and Ships Point Industries
have been in the asphalt and paving contracting business. Upon information and belief, Carlo
Lizza Paving transferred all of its employees and business operations to Ships Point Industries in
or around the summer of 2015. While Carlo Lizza Paving remains an active New York
Corporation, Ships Point Industries has, upon information and belief, taken over the business of
Carlo Lizza Paving, and has continued the operations in the same manner complained of herein.
35.
At all relevant times, Defendant A&B has been in the construction contracting
business. Upon information and belief, Carlo Lizza Paving subcontracted with A&B to provide
safety flagmen on New York City roadways starting in or around the spring of 2014.
36.
Upon information and belief, A&B and/or Carlo Lizza Paving entered into
contracts as prime and/or sub-contractors that required Plaintiffs and the Class Members to be
paid prevailing wages for work performed on New York City roadways.
37.
Upon information and belief, Kelvin Quick, the leader of a workforce coalition
which staffed Carlo Lizza Paving with many of the flagpersons, and Quick’s partner, Aaron Van
Dyke, are co-owners of Defendant A&B.
38.
Upon information and belief, A&B is an exclusive subcontractor for Carlo Lizza
Paving and Ships Point Industries.
9
B.
The Public Works Contracts
39.
Upon information and belief, Defendants have entered into certain contracts, as
either a subcontractor or prime contractor, with public agencies to provide flagging and other
construction work on New York City roadways, or with prime contractors not currently known,
to furnish labor, material and equipment to perform work on New York City roadways (the
“Public Works Contracts”).
40.
Upon information and belief, the Public Works Contracts obligated Defendants to
pay Plaintiffs and the Class Members at or above the local prevailing wage rates, including any
required supplemental benefits and overtime premiums for hours worked in excess of forty (40)
hours per week, eight (8) hours per day, hours worked on Saturday and Sunday and hours
worked during the evening. Defendants’ failure to pay Plaintiffs proper prevailing wage rates,
supplemental benefits and overtime premiums was a corporate policy that also applied to all of
Defendants’ other similarly situated employees.
41.
As employees of Defendants who were assigned to work on Defendants’ publicly-
financed projects, Plaintiffs and the Class Members were intended third-party beneficiaries of
Defendants’ Public Works Contracts.
42.
As required by law, a schedule containing the prevailing rates of wages and
supplemental benefits (“prevailing wage schedules”) to be paid to the plaintiff Class should have
been annexed to and formed a part of the Public Works Contracts. If not annexed to the Public
Works Contracts, these schedules were expressly or impliedly incorporated into the contracts as
a matter of law and/or public policy.
43.
The promise to pay and ensure payment of the prevailing wage and supplemental
benefit rate stated in the Public Works Contracts was made for the benefit of all workers
10
furnishing labor on New York City roadways and, as such, the workers furnishing labor on New
York City roadways are the beneficiaries of that promise and the contracts entered into between
Defendants and government agencies.
44.
Upon information and belief, in furtherance of the Public Works Contracts
entered into by Defendants, Plaintiffs and other members of the putative Class performed various
flagging tasks, including, but not limited to, bolting and connecting beams to form building
structures, welding and installing beams to form building floors.
45.
Upon information and belief, Plaintiffs should have been paid at the prevailing
rate of wages (including supplemental benefits) of:
a. July 1, 2010 through June 30, 2011: $37.71 plus $28.70 in supplemental benefits per
hour;1
b. July 1, 2011 through June 30, 2012: $38.84 plus $28.70 in supplemental benefits per
hour;
c. July 1, 2012 through June 30, 2013: $38.99 plus $32.15 in supplemental benefits per
hour;
d. July 1, 2013 through June 30, 2014: $39.67 plus $33.55 in supplemental benefits per
hour;
e. July 1, 2014 through June 30, 2015: $40.32 plus $35.15 in supplemental benefits per
hour;
f. July 1, 2015 through June 30, 2016: $40.98 plus $36.92 in supplemental benefits per
hour;
1 The rates listed below are those of a “Paver & Roadbuilder - Laborer” from the Office of the
Comptroller, City of New York’s § 220 Prevailing Wage Schedules.
11
C. Plaintiffs’ Work for Defendants
46.
At all relevant times, Plaintiffs performed safety flagging services for Defendants
in New York City.
47.
Plaintiff Little worked for Defendants as a safety flagman on New York City
roadways from in or around May 2012 through in or around May 2014 and again from in or
around March 2015 through in or around August 7, 2015 (the “Little Employment Period”).
48.
Due to the seasonal nature of his work, Little typically did not work December,
January and February of each year.
49.
Plaintiff Little’s duties included setting up orange barrels around the areas in
which milling work was being performed, steering all traffic through detours, and sweeping the
ground to ensure that pedestrians walked on a smooth surface.
50.
From in or around May 2012 through in or around November or December 2013,
Plaintiff Little worked approximately twelve (12) hours per day five (5) days per week, Monday
to Friday, for a total of approximately fifty-five to sixty (55-60) hours per week. Although he
was scheduled to work from 8:00 pm to 4:00 am for work done in Manhattan and 7:00 am to
3:30 pm for work done in the Bronx, Brooklyn, and Queens, Plaintiff Little was required to stay
on the job site until the work was finished. From in or around November or December 2013
through in or around March 2014, Plaintiff Little typically worked eight to ten (8-10) hours per
day five (5) days per week for a total of approximately forty-eight to fifty (48-50) hours per
week. For a period of approximately two (2) months in March and April 2014, Plaintiff Little
typically worked eight (8) hours per day, five (5) days per week, for a total of approximately
forty (40) hours per week. In approximately May or June 2014, Plaintiff Little left the company
briefly and returned in or around March 2015. From in or around March 2015 through in or
12
around July 2015, Plaintiff Little typically worked a night shift in Manhattan from 8:00 pm to
4:00 am followed by a day shift in Queens from approximately 7:00 am to between 3:30 pm and
5:00 pm, plus two (2) or three (3) additional single shifts if he was able to join another crew, for
a total of approximately forty-eight to fifty-six (48-56) hours per week. From in or around July
2015 through the end of the Little Employment Period, Plaintiff Little worked eight (8) hours per
day five (5) days per week for a total of approximately forty (40) hours per week.
51.
From the start of the Little Employment Period to in or around March 2015,
Plaintiff Little received thirty dollars ($30.00) per hour plus thirty-two dollars ($32.00) per hour
for a health annuity. In approximately March 2015, Plaintiff Little and Carlo Lizza Paving’s
other safety flagmen were subcontracted to Defendant A&B. From in or around March 2015
through the end of the Little Employment Period, Plaintiff Little was paid twenty dollars
($20.00) per hour with no health annuity. On one occasion, Plaintiff Little received a check for
fifteen dollars ($15.00) per hour. Throughout the Little Employment Period, Plaintiff Little did
not receive correct supplemental benefits for his work on New York City roadways, nor was he
paid the prevailing wage in effect at that time.
52.
For approximately twenty-five (25) days in the fall of 2013, Plaintiff Little
performed flagging work on First Avenue from 79th Street to 125th Street (the “First Avenue
Project”). Although he typically worked approximately forty-five (45) hours per week on the
First Avenue Project, including five (5) hours of nighttime work, pursuant to a special contract
with the City, he was only paid for thirty-two (32) hours at his regular hourly rate of thirty
dollars ($30.00) per hour and four (4) hours of overtime based on his regular hourly rate. When
he complained to Defendant Lizza that he was not being paid pursuant to the city contract, Lizza
responded by telling him that he “shouldn’t be complaining” because the company was paying
13
him thirty-two dollars ($32.00) per hour for his health annuity.
53.
From in or around the beginning of the Little Employment Period to in or around
March 2015, Plaintiff Little was paid for eight (8) hours of work per day, regardless of the
number of hours that he actually worked. He did not receive wages of any kind for hours worked
in excess of forty (40) per week. From in or around March 2015 through the end of the Little
Employment Period, Plaintiff Little received his regular hourly rate for all hours worked,
including hours worked in excess of forty (40) hours per week. Throughout his employment
period, Little typically did not receive overtime premiums of one and one-half (1.5) times his
hourly rate for hours worked in excess of forty (40) hours per week.
54.
Throughout the Little Employment Period, Plaintiff Little received his wages
entirely in check. From in or around March 2015 through the end of the Little Employment
Period, Plaintiff Little occasionally received two (2) checks each week from Defendant A&B,
one for forty (40) hours of work and one for hours worked in excess of forty (40) during the
same work week.
55.
On several occasions, Plaintiff Little complained to Defendant Lizza that he was
not receiving proper overtime pay or prevailing wages. Lizza would typically respond by telling
Little that “[Little’s] guy made a deal with my guy,” referencing an alleged deal between former
workforce coalition head Jesus Torres and Defendant Lizza to pay safety flagmen thirty dollars
($30.00) per hour plus a thirty-two dollar ($32.00) health annuity.
56.
On several occasions in 2015, Plaintiff Little complained to Quick and Van Dyke
that he was not receiving proper overtime pay or prevailing wages. Quick and Van Dyke
responded by telling Plaintiff Little that he could “find another job.”
57.
Upon information and belief, Defendant Lizza paid Defendant A&B thirty dollars
14
($30.00) per safety flagman subcontracted out from Carlo Lizza Paving. On at least one
occasion, when Plaintiff Little complained to Quick and Van Dyke that his pay had dropped to
twenty dollars ($20.00) per hour, they informed him that they “were only getting thirty dollars
($30.00) per man from Lizza” and couldn’t afford to pay him the full thirty dollars ($30.00) per
58.
Throughout the Little Employment Period, Plaintiff Little was rarely, if ever, able
to take a thirty (30) minute uninterrupted break because he was not permitted to leave his
flagging post.
59.
Defendants kept track of the hours the Plaintiff Little worked by requiring
Plaintiff Little to record his arrival and departure times on a sign-in sheet maintained by the
assistant foreman. Although Plaintiff Little typically accurately recorded their hours on the sign-
in sheet, he was not properly compensated for all hours that he worked.
60.
Plaintiff Johnson worked for Carlo Lizza Paving as a safety flagman on New
York City roadways from in or around March 2011 through in or around the spring of 2013 (the
“Johnson Employment Period”).
61.
Due to the seasonal nature of his work, he typically did not work in December,
January and February of each year.
62.
Plaintiff Johnson’s duties included closing off city blocks with barrels, walking
alongside machines on city streets to ensure that they moved safely from one side of the street to
the other, directing traffic and ensuring safe crossing for pedestrians.
63.
Throughout the Johnson Employment Period, Plaintiff Johnson typically worked
eight to twelve (8-12) hours per day five (5) days per week from Monday through Friday, for a
total of approximately forty-five to fifty (45-50) hours per week. Plaintiff Johnson typically
15
worked from 7:00 am to between 3:30 pm and 5:00 pm when he worked a day shift and from
7:00 pm to between 7:00 am and 9:00 am, and sometimes as late as 10:00 am, when he worked a
night shift.
64.
For his work, Plaintiff Johnson was paid thirty dollars ($30.00) per hour. Plaintiff
Johnson did not receive correct supplemental benefits for his work on New York City roadways,
nor was he paid the prevailing wage in effect at that time.
65.
Throughout his employment, Plaintiff Johnson did not receive wages of any kind
for hours worked in excess of forty (40) per week, much less overtime premiums of one and one-
half (1.5) times his hourly rate, for hours worked in excess of forty (40) hours per week.
66.
For the duration of his employment, Plaintiff Johnson received his payment
entirely in check.
67.
Throughout the Johnson Employment Period, Plaintiff Johnson was rarely, if
ever, able to take a thirty (30) minute uninterrupted break because he was not permitted to leave
his corner.
68.
Upon information and belief, Aaron Van Dyke and Kelvin Quick owned and
operated “Quickworks,” a company that posted “no parking” signs for Carlo Lizza Paving before
Carlo Lizza Paving started milling work on certain roads. Upon information and belief,
Quickworks paid certain safety flagpersons twenty-five dollars ($25.00) per hour entirely in
cash. Plaintiff Little has spoken to several flaggers who claim that Quick and Van Dyke would
deduct two hundred and fifty dollars ($250.00) from their payment each week for “taxes” after
Defendant Aly Lizza paid Defendant A&B. Upon information and belief, Quick and Van Dyke
would also deduct one (1) hour of pay per day from the cash that the flaggers received for
coalition dues.
16
69.
At all relevant times, Plaintiffs and the Class Members were employed by
Defendants within the meaning of the NYLL, §§ 2 and 651.
70.
Defendants’ failure to pay overtime premiums of one and one-half (1.5) times the
regularly hourly rate for hours worked in excess of forty (40) per week was a corporate policy
that applied to all safety flagpersons other construction employees employed by Defendants.
71.
Upon information and belief, during the period of time for which Plaintiffs and
the members of the putative Class performed work on New York City roadways, Defendants
failed to ensure payment of the correct prevailing rate of wages and supplemental benefits to
which Plaintiffs and other members of the putative Class were entitled.
72.
Notwithstanding the fact that Plaintiffs and other members of the putative Class
sometimes worked in excess of eight (8) hours in a day and/or more than forty (40) hours in a
week, Defendants failed to pay these individuals daily overtime or the prevailing wages and
supplemental benefits required by applicable prevailing wage schedules.
73.
Defendants failed to provide Plaintiffs and their other similarly situated
employees with proper wage notices at the time of hire or on February 1 of each year or proper
wage statement(s) with every payment of wages or accurate wage statements pursuant to the
NYLL.
17
FIRST CAUSE OF ACTION
FAIR LABOR STANDARDS ACT – UNPAID OVERTIME
74.
Plaintiffs, on behalf of themselves and the Collective Action Members, repeat and
reallege each and every allegation of the preceding paragraphs hereof with the same force and
effect as though fully set forth herein.
75.
The overtime wage provisions set forth in the FLSA, 29 U.S.C. §§ 201 et seq.,
and the supporting federal regulations, apply to Defendants and protect Plaintiffs and the
Collective Action Members.
76.
Defendants have failed to pay Plaintiffs and the Collective Action Members at the
correct overtime wages for all of the hours they worked in excess of forty (40) hours in a
workweek.
77.
As a result of Defendants’ violations of the FLSA, Plaintiffs and the Collective
Action Members have been deprived of overtime compensation and other wages in amounts to
be determined at trial, and are entitled to recovery of such amounts, liquidated damages,
prejudgment interest, attorneys’ fees, costs, and other compensation pursuant to 29 U.S.C. §§
201 et seq.
78.
Defendants’ unlawful conduct, as described in this Class and Collective Action
Complaint, has been willful and intentional. Defendants were aware or should have been aware
that the practices described in this Class and Collective Action Complaint were unlawful.
Defendants have not made a good faith effort to comply with the FLSA with respect to the
compensation of Plaintiffs and the Collective Action Members.
79.
Because Defendants’ violations of the FLSA have been willful, a three-year
statute of limitations applies, pursuant to 29 U.S.C. §§ 201 et seq.
18
SECOND CAUSE OF ACTION
NEW YORK LABOR LAW – UNPAID OVERTIME
80.
Plaintiffs, on behalf of themselves and the Class Members, repeat and reallege
each and every allegation of the preceding paragraphs hereof with the same force and effect as
though fully set forth herein.
81.
The overtime wage provisions of Article 19 of the NYLL and its supporting
regulations apply to Defendants, and protect Plaintiffs and the Class Members.
82.
Defendants have failed to pay Plaintiffs and the Class Members the proper
overtime wages to which they are entitled under the NYLL and the supporting New York State
Department of Labor Regulations.
83.
Defendants failed to pay Plaintiffs and the Class Members one and one-half (1.5)
times their regular hourly rate for all hours worked in excess of forty (40) per workweek.
84.
Through its knowing or intentional failure to pay Plaintiffs and the Class
Members overtime wages for hours worked in excess of forty (40) per week, Defendants have
willfully violated the NYLL, Article 19, §§ 650 et seq., and the supporting New York State
Department of Labor regulations.
85.
Due to Defendants’ violations of the NYLL, Plaintiffs and the Class Members are
entitled to recover from Defendants their unpaid overtime wages, liquidated damages as
provided for by the NYLL, reasonable attorneys’ fees and costs of the action, and pre-judgment
and post-judgment interest.
19
THIRD CAUSE OF ACTION
BREACH OF CONTRACT
86.
Plaintiffs, on behalf of themselves and the Class Members, repeat and reallege
each and every allegation of the preceding paragraphs hereof with the same force and effect as
though fully set forth herein.
87.
Upon information and belief, the Public Works Contracts entered into by
Defendants contained schedules of the prevailing rates of wages and supplemental benefits to be
paid to Plaintiffs and the employees performing work pursuant to such contracts.
88.
Those prevailing rates of wages and supplemental benefits were made part of the
Public Works Contracts for the benefit of the Plaintiffs and the other employees performing work
pursuant to such contracts. In the event that the contracts or agreements entered into failed to
explicitly contain prevailing wage schedules, the prevailing wage requirements were
supplemented as a matter of law, requiring Defendants to pay the Plaintiffs and Class Members
prevailing wages, daily/weekly overtime and supplemental benefits for all work performed.
89.
Defendants’ failure to pay Plaintiffs at the correct prevailing wage rates for
straight time, overtime, and supplemental benefits for work performed on Public Works Projects
constituted a material breach of the contracts entered into directly or indirectly between
Defendants and certain public entities.
90.
As a result of Defendants’ failure to pay Plaintiffs at prevailing wage rates, they
are entitled to relief from Defendants for breach of contract under New York common law of
contracts.
20
FOURTH CAUSE OF ACTION
UNJUST ENRICHMENT & QUANTUM MERUIT
(Pled In The Alternative)
91.
Plaintiffs, on behalf of themselves and the Class Members, repeat and reallege
each and every allegation of the preceding paragraphs hereof with the same force and effect as
though fully set forth herein.
92.
Based on Defendants’ failure to pay Plaintiffs the appropriate prevailing wage
rates, Defendants were unjustly enriched at the expense of Plaintiffs.
93.
Equity and good conscience require that Defendants pay restitution to Plaintiffs.
94.
Upon information and belief, when Defendants entered into the contract, they
agreed to pay the required prevailing wages, overtime, shift-differential and holiday premiums,
and supplemental benefit rates of pay to Plaintiffs and other employees who performed work
pursuant to the contracts.
95.
Plaintiffs provided valuable services to Defendants performing prevailing wage
jobs for which Plaintiffs expected compensation. Defendants knowingly accepted such services
yet failed to pay Plaintiffs the reasonable value of such services as defined by the New York
State and New York City prevailing wage schedules.
96.
As a result of Defendants’ failure to pay Plaintiffs at prevailing wage rates on
prevailing wage jobs and Defendants’ corresponding unjust enrichment, Plaintiffs are entitled to
relief from Defendants under New York’s common law of unjust enrichment.
97.
As a result of Defendants’ failure to pay Plaintiffs the reasonable value of the
valuable services they rendered, Plaintiffs are entitled to relief from Defendants under New
York’s common law of quantum meruit.
21
FIFTH CAUSE OF ACTION
NEW YORK LABOR LAW –WAGE NOTICE VIOLATIONS
98.
Plaintiffs, on behalf of themselves and the Class Members, repeat and reallege
each and every allegation of the preceding paragraphs hereof with the same force and effect as
though fully set forth herein.
99.
At all relevant times, Defendants employed and/or continue to employ Plaintiffs
and each Class Member within the meaning of the NYLL, §§ 2 and 651.
100.
Defendants have willfully failed to supply Plaintiffs and the Class Members
notice as required by Article 6, § 195, on the date of hire and February 1 of each year, in English
or in the language identified by Plaintiffs and the Class Members as their primary language,
containing Plaintiffs’ and Class Members’ rate or rates of pay and basis thereof, whether paid by
the hour, shift, day, week, salary, piece, commission, or other; hourly rate or rates of pay and
overtime rate or rates of pay if applicable; the regular pay day designated by the employer in
accordance with NYLL, Article 6, § 191; the name of the employer; or any “doing business as”
names used by the employer; the physical address of the employer’s main office or principal
place of business, and a mailing address if different; the telephone number of the employer; plus
such other information as the commissioner deems material and necessary.
101.
Due to Defendants’ violations of the NYLL, Plaintiffs and the Class Members are
entitled to recover from Defendants fifty dollars ($50.00) per employee for each workweek that
the violations occurred or continue to occur, or a total of twenty-five hundred dollars ($2,500.00)
per employee, as provided for by NYLL, Article 6, §§ 190 et seq., reasonable attorneys’ fees,
costs, pre-judgment and post-judgment interest, and injunctive and declaratory relief.
22
SIXTH CAUSE OF ACTION
NEW YORK LABOR LAW – WAGE STATEMENT VIOLATIONS
102.
Plaintiffs, on behalf of themselves and the Class Members, repeat and reallege
each and every allegation of the preceding paragraphs hereof with the same force and effect as
though fully set forth herein.
103.
Defendants have willfully failed to supply Plaintiffs and Class Members with an
accurate statement of wages as required by NYLL, Article 6, § 195, containing Plaintiffs’
overtime rate or rates of pay if applicable; and an accurate count of the number of hours worked,
including overtime hours worked if applicable.
104.
Due to Defendants’ violations of the NYLL, Plaintiffs and the Class Members are
entitled to recover from Defendants one hundred dollars ($100.00) per employee for each
workweek that the violations occurred or continue to occur, or a total of twenty-five hundred
dollars ($2,500) per employee, as provided for by NYLL, Article 6, §§ 190 et seq., liquidated
damages as provided for by the NYLL, reasonable attorneys’ fees, costs, pre-judgment and post-
judgment interest, and injunctive and declaratory relief.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs, on behalf of themselves and the Collective Action Members
and Class Members, respectfully request that this Court grant the following relief:
(a)
Designation of this action as a collective action on behalf of the Collective Action
Members and ordering the prompt issuance of notice pursuant to 29 U.S.C. §
216(b) to all similarly situated members of an FLSA Opt-In Class, apprising them
of the pendency of this action, permitting them to assert timely FLSA claims in
this action by filing individual Consents to Sue pursuant to 29 U.S.C. § 216(b)
and appointing Plaintiffs and their counsel to represent the Collective Action
Members;
(b)
Certification of this action as a class action pursuant to Fed. R. Civ. P. 23(b)(2)
and (3) on behalf of the Class, appointing Plaintiffs and their counsel to represent
the Class and ordering appropriate monetary, equitable and injunctive relief to
23
remedy Defendants’ violation of the common law and New York State law;
(c)
An order tolling the statute of limitations;
(d)
A declaratory judgment that the practices complained of herein are unlawful
under the FLSA, NYLL and New York Common Law;
(e)
An injunction against Defendants and their officers, agents, successors,
employees, representatives and any and all persons acting in concert with
Defendants, as provided by law, from engaging in each of the unlawful practices,
policies and patterns set forth herein;
(f)
An award of compensatory damages as a result of the Defendants’ willful failure
to pay overtime compensation pursuant to the FLSA, NYLL, and supporting
regulations;
(g)
An award of liquidated and/or punitive damages as a result of the Defendants’
willful failure to pay overtime compensation pursuant to the FLSA, NYLL and
supporting regulations;
(h)
Fifty dollars ($50.00) per Plaintiff and each Class Member for each workweek
that the violations of the wage notice provision of the NYLL, Article 6 § 195
occurred or continue to occur, or a total of twenty-five hundred dollars ($2,500)
per Plaintiff and each of the NYLL Class Members as provided for by NYLL,
Article 6 § 198(1-b);
(i)
One Hundred dollars ($100.00) per Plaintiff and each Class Member for each
workweek that the violations of the wage statement provision of the NYLL,
Article 6 § 195 occurred or continue to occur, or a total of twenty-five hundred
dollars ($2,500.00) per Plaintiff and each Class Member as provided for by
NYLL, Article 6 § 198(1-d);
(j)
An award of monetary damages to be proven at trial for all unpaid prevailing
wages, daily/weekly overtime and supplemental benefits owed to Plaintiffs and
the Class;
(k)
An award of prejudgment and post judgment interest;
(l)
An award of costs and expenses of this action together with reasonable attorneys’
and expert fees; and
(m)
Such other and further relief as this Court deems just and proper.
24
| employment & labor |
L_RZE4cBD5gMZwczLHIq | COHN LIFLAND PEARLMAN
HERRMANN & KNOPF LLP
PETER S. PEARLMAN
Park 80 West - Plaza One
250 Pehle Avenue - Suite 401
Saddle Brook, NJ 07663
Tel.: (201) 845-9600
[email protected]
Attorneys for Plaintiff
[Additional Counsel listed on signature page.]
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
BRIAN BAAR, Individually and on Behalf of
All Others Similarly Situated,
Plaintiff,
v.
CLASS ACTION COMPLAINT
DEMAND FOR JURY TRIAL
JAGUAR LAND ROVER NORTH
AMERICA, LLC and JAGUAR LAND
ROVER LIMITED,
Defendants.
Plaintiff Brian Baar (“Plaintiff”), residing at 1892 Chalcedony St., San Diego, California,
individually and on behalf of a class of all those similarly situated, brings this class action for
treble damages and injunctive relief against Jaguar Land Rover North America, LLC (“JLR”) and
Jaguar Land Rover Limited (collectively, “Defendants”) for violations of the Sherman Antitrust
Act (“Sherman Act”), the Clayton Antitrust Act (“Clayton Act”) and the laws of the several states
identified herein. Based on counsel’s investigation, research and review of publicly available
documents, on Plaintiff’s personal knowledge, and upon information and belief, Plaintiff alleges
as follows:
INTRODUCTION
1.
This is an antitrust, state competition law and unjust enrichment class action against
Defendants arising out of the implementation and enforcement of an unlawful anticompetitive
agreement, which prohibits purchasers (“Purchasers”) of new JLR motor vehicles (“JLR
Vehicles”) from exporting their JLR Vehicles outside of the United States for resale for up to one
year from the date of delivery (the “JLR No-Export Policy”).
2.
Under the JLR No-Export Policy, Purchasers are required to sign No-Export
Agreements, which are virtually identical among JLR’s authorized U.S. dealers (“Dealers”). One
Dealer’s No-Export Agreement provides:
[DEALER] as a Jaguar Land Rover North America authorized, franchised dealer,
is subject to the anti-export and broker policy of Jaguar Land Rover North America.
Jaguar Land Rover North America prohibits its authorized dealers from exporting
or agreeing to export Jaguar Land Rover vehicles outside of the Jaguar Land Rover
North America authorized sales territory, which includes the United States. Jaguar
Land Rover North America prohibits its authorized dealers from selling vehicles to
individuals, entities or other vehicle dealer, with intent to resell or broker vehicles.
An individual, entity or other vehicle dealer, who purchases vehicles with the intent
to resell or export for resale (regardless of whether the vehicle is titled or
registered), will be considered a broker and the transaction brokered. In the event
Jaguar Land Rover North America determines that a Jaguar Land Rover vehicle
sold or leased by a Jaguar Land Rover North America authorized dealer has been
exported from its sales territory or brokered to another individual, entity or dealer,
Jaguar Land Rover North America may assess charges, penalties and other related
costs against the selling dealer. [DEALER], therefore, requires each purchaser or
lessee of a new Land Rover vehicle to acknowledge and agree in writing that the
vehicle being purchased/leased is intended for use within the United States and is
not intended for export outside the United States and is not intended for resale.
Accordingly, by your signature below, you the purchaser/lessee acknowledge and
represent that the Land Rover vehicle being purchased/leased by you is not intended
for export or resale and is intended for use within the United States.
3.
The No-Export Agreement also requires a Purchaser to attest that (i) the Purchaser
has no intention of exporting the JLR Vehicle outside the United States for up to one year from
the date of delivery; (ii) if the JLR Vehicle is exported (even by subsequent purchasers), the
Purchaser is subject to liquidated damages ranging from $25,000 to $40,000, losses and expenses;
and (iii) the JLR Vehicle warranty will be voided.
4.
Beginning as early as April 2013, Defendants implemented and enforced the JLR
No-Export Policy. Dealers agreed to comply with and enforce the JLR No-Export Policy.
5.
Defendants were motived to implement and enforce the unlawful anticompetitive
JLR No-Export Policy in light of high demand for luxury vehicles in certain foreign countries,
including China. In these countries, the price of certain luxury vehicles can be three to four times
higher than the sale price of the same vehicles in the United States. This price differential creates
an arbitrage opportunity for individuals or entities who wish to purchase luxury vehicles in the
United States and export them to foreign markets for profit. In late 2014 and early 2015, China
eased restrictions on automobile imports, making the export of luxury vehicles from the United
States more attractive.
6.
There is nothing unlawful about exporting motor vehicles that are purchased in this
country. Notwithstanding the legality of this conduct, Defendants sought to curb individuals and
entities in the United States from exporting JLR Vehicles abroad for resale.
7.
Through implementation of the JLR No-Export Policy, Defendants sought to
zealously protect their and their corporate affiliates’ ability to sell JLR Vehicles in foreign markets,
like China, at substantially higher prices than are charged for the same JLR Vehicles in the United
8.
The JLR No-Export Policy is multi-faceted. First, JLR prohibits its Dealers from
selling JLR Vehicles to Purchasers who intend to broker or resell the JLR Vehicles for export. In
accordance with this prohibition, Dealers routinely conduct extensive and intrusive due diligence
checks on prospective customers to determine whether a JLR Vehicle is likely to be exported.
Dealers conduct such background checks and “profile” individuals, even if the transaction is all
9.
Dealers look for “red flags” identified by JLR in the JLR No-Export Policy, such
as whether a Purchaser did not negotiate the price, paid with a cashier’s check, or had the JLR
Vehicle trucked-off the lot rather than driving it away.
10.
Dealers are required to maintain proof of their due diligence efforts in the deal
jacket for each JLR Vehicle transaction.
11.
Dealers are also required to identify and report purchasers whom they believe to be
exporting JLR Vehicles. Dealers are required to maintain and frequently update a list of expected
exporters, commonly referred to in the industry as a “blacklist.” In performing their due diligence,
Dealers are required to compare a prospective customer’s name and address against JLR’s
“blacklist” or “known exporter list,” among other databases.
12.
Under the JLR No-Export Policy, Dealers are subject to penalties in the form of
chargebacks, reduction in inventory on popular models and even potential termination if too many
of the JLR Vehicles they sell are exported. In addition to the financial penalties imposed by JLR,
the JLR No-Export Policy prohibits Dealers from freely selling their inventory, thereby reducing
their overall sales.
13.
Under the JLR No-Export Policy, Purchasers are required to sign a No-Export
Agreement when they purchase or lease a JLR Vehicle.
14.
A JLR representative publicly stated that the JLR No-Export Policy resulted in a
two-thirds reduction in exports of JLR Vehicles from the United States.
15.
Through the JLR No-Export Policy, Defendants seek to restrict Purchasers,
including U.S. consumers and exporters, from re-selling their JLR Vehicles abroad to protect the
high prices that Defendants and/or their foreign affiliates charge outside of the United States.
16.
The JLR No-Export Policy constitutes a contract, combination or conspiracy to
prevent JLR Vehicles purchased in the United States from being exported.
17.
As a direct and proximate result of the JLR No-Export Policy, U.S. commerce has
been harmed and continues to be harmed by eliminating a channel of JLR Vehicle distribution,
eliminating an arbitrage opportunity for Purchasers, and restricting the export market for re-sale
of JLR Vehicles.
JURISDICTION AND VENUE
18.
This Complaint is filed and these proceedings are instituted under Sherman Act
Section 1, Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15 and 26, to obtain injunctive relief
under federal antitrust laws and to recover treble damages and the cost of suit, including reasonable
attorneys’ fees under state antitrust and consumer protection laws and restitution under common
law, against Defendants for the injuries Plaintiff and members of the Class (defined below)
sustained as a result of Defendants’ misconduct.
19.
Jurisdiction is conferred upon this Court pursuant to 28 U.S.C. §§ 1331 and 1337,
and by the Clayton Act, 15 U.S.C. §§ 15(a) and 26.
20.
The interstate commerce described in this Complaint is carried on, in part, within
this judicial district. Venue is proper in this district pursuant to the provisions of 15 U.S.C. § 22
and 28 U.S.C. § 1391. This Court has jurisdiction over the state law claims pursuant to 28 U.S.C.
§§ 1367 and 1332.
21.
Venue is also proper because at least one Defendant is headquartered in this judicial
district and Defendants operate and transact business within the district, have substantial contacts
with this district, and engaged in an illegal anticompetitive conspiracy that was directed at, and
had the intended effect of causing injury to, persons and entities residing in, located in, or doing
business in this district.
PARTIES
A. Plaintiff
22.
Plaintiff Brian Baar is a California resident. Plaintiff Baar purchased a 2015 Range
Rover HSE on April 1, 2015 from Hoehn JLR, Inc. in Carlsbad, California. Plaintiff was subject
to and required to sign the No-Export Agreement in connection with this purchase. The No-Export
Agreement which Plaintiff signed subjected him to a monetary fine or penalty if the JLR Vehicle
he purchased was exported within one year of delivery. Plaintiff would have re-sold the JLR
Vehicle for export within one year of delivery absent the No-Export Agreement. Plaintiff was
injured as a direct and proximate result of the No-Export Agreement. But for the No-Export
Agreement, Plaintiff would continue to lease or purchase and resell JLR Vehicles within one year
of delivery for export. If the JLR No-Export Policy, including the No-Export Agreement, is
declared unlawful and its terms unenforceable, Plaintiff intends to purchase JLR Vehicles for
resale within one year of delivery for export.
B. Defendants
23.
Defendant Jaguar Land Rover North America, LLC (“JLR”) is a company
organized under the laws of Delaware with its principal executive offices at 555 MacArthur
Boulevard, Mahwah, New Jersey, United States. Defendant JLR is a U.S. distributor of luxury
cars and sport utility vehicles bearing the Jaguar and Land Rover (including Range Rover)
marques. JLR is a wholly-owned subsidiary of Defendant Jaguar Land Rover Limited (“JLR UK”)
and the entity through and with which JLR UK implements the JLR No-Export Policy. JLR’s
intermediary parent company is Jaguar Land Rover Automotive plc. Jaguar Land Rover
Automotive plc operates within different territories or countries through related companies. Jaguar
Land Rover Automotive plc is a subsidiary of Indian automaker Tata Motors Ltd.
24.
Defendant JLR UK is a company organized under the laws of England and Wales
with its principal executive offices located at Abbey Road, Whitley, Coventry, CV3 4LF, United
Kingdom. JLR UK designs, develops, manufactures and sells JLR Vehicles in the United States
and abroad.
CO-CONSPIRATORS
25.
Various other persons, firms and entities not named as defendants herein have
participated as co-conspirators with Defendants and have performed acts and made statements in
furtherance of the conspiracy.
FACTS
A. The JLR Vehicle Distribution System
26.
JLR UK manufactures JLR Vehicles in the United Kingdom. JLR UK sells JLR
Vehicles in different countries, at various prices, through authorized distributors in specific
territories. Land Rover vehicles are exported to 169 countries and Jaguar vehicles are exported to
63 countries.
27.
JLR is the sole distributor of JLR Vehicles in the United States and Canada pursuant
to an arrangement with JLR UK. Upon information and belief, JLR’s allocation of vehicles from
JLR UK may be reduced due to the volume of JLR Vehicles that are exported from the United
28.
In accordance with the arrangement between JLR and JLR UK, JLR establishes
territories and grants exclusive franchises to Dealers through Automobile Dealer Sales and Service
Agreements. The purpose of such agreement is fourfold: (i) to allow the Dealer to represent itself
as an authorized JLR Dealer; (ii) to impose rights and operating obligations; (iii) to affirm an
expectation between the parties that each will perform its obligations in accordance with the rules
of JLR; and (iv) to create a distribution network among Dealers under unitary rules of operation
for all Dealers.
B. The JLR No-Export Policy
29.
Demand for luxury motor vehicles in certain foreign countries, including China and
Russia, has soared. The Chinese car market is the largest passenger car market in the world.
30.
In foreign countries, such as China, certain vehicles sell for approximately three
times the price as in the United States. As a result, there is an arbitrage opportunity for U.S.
Purchasers, who can obtain up to approximately $40,000 for shipping a vehicle to China for resale.
31.
Recognizing the financial impact to its foreign sales resulting from U.S.-exported
JLR Vehicles, Defendants and their co-conspirators implemented the JLR No-Export Policy
through a series of steps in violation of the federal and state antitrust laws to prevent JLR Vehicles
purchased in the United States from being exported for resale.
32.
First, the JLR No-Export Policy prohibits Dealers from selling JLR Vehicles to
Purchasers who intend to broker or resell those vehicles for export.
33.
Second, the JLR No-Export Policy requires Dealers to take certain steps to prevent
Purchasers from subsequently exporting their JLR Vehicles, including performing due diligence
to determine if the Dealer should decline the sale and requiring Purchasers to sign No-Export
Agreements.
34.
The JLR No-Export Policy requires each Dealer to conduct extensive due diligence
on its customers, including those who intend to pay cash for a JLR Vehicle. Dealers are required
to thoroughly “profile” their customers to identify what JLR believes to be “red flags” that suggest
the customer may be acquiring the JLR Vehicle for export. If, as a result of this investigation, a
Dealer believes a customer intends to resell the JLR Vehicle for export, the Dealer must refuse to
sell the Vehicle to that customer.
35.
A “blacklist,” also known as the “known exporter list” is electronically transmitted
to Dealers in order to enforce the JLR No-Export Policy. The “blacklist” is maintained and
reviewed by Dealers at the direction of JLR. Dealers refuse to sell JLR Vehicles to customers
whose names appear on the “blacklist.”
36.
JLR also requires Dealers to maintain accurate lists of all customers who purchase
or lease their cars and to share that list with JLR. Under the JLR No-Export Policy, Dealers should
also review JLR’s “prospect research tool,” which allows Dealers to identify customers who
recently purchased multiple JLR Vehicles at different Dealers.
37.
Dealers abide by the JLR No-Export Policy by maintaining proof of all due
diligence efforts from a sale in the deal jacket.
38.
In accordance with the JLR No-Export Policy, Dealers also require all Purchasers
of JLR Vehicles to confirm in writing, through No-Export Agreements, that they are not
purchasing the JLR Vehicle for the purpose of exporting it or re-selling it to an exporter, broker,
dealer, or wholesaler for export.
39.
The No-Export Agreements inform customers that if their JLR Vehicle is shipped
overseas by them or someone else for up to one year of the date of delivery, they can be subject to
an action for damages, losses and expenses, rescission of the sale, criminal liability for defrauding
the dealership, loss of the warranty, and might be prohibited from purchasing a JLR Vehicle in the
40.
The No-Export Agreements, which are all virtually identical among Dealer, provide
in pertinent part:
[DEALER] as a Jaguar Land Rover North America authorized, franchised dealer,
is subject to the anti-export and broker policy of Jaguar Land Rover North America.
Jaguar Land Rover North America prohibits its authorized dealers from exporting
or agreeing to export Jaguar Land Rover vehicles outside of the Jaguar Land Rover
North America authorized sales territory, which includes the United States. Jaguar
Land Rover North America prohibits its authorized dealers from selling vehicles to
individuals, entities or other vehicle dealer, with intent to resell or broker vehicles.
An individual, entity or other vehicle dealer, who purchases vehicles with the intent
to resell or export for resale (regardless of whether the vehicle is titled or
registered), will be considered a broker and the transaction brokered. In the event
Jaguar Land Rover North America determines that a Jaguar Land Rover vehicle
sold or leased by a Jaguar Land Rover North America authorized dealer has been
exported from its sales territory or brokered to another individual, entity or dealer,
Jaguar Land Rover North America may assess charges, penalties and other related
costs against the selling dealer. [DEALER], therefore, requires each purchaser or
lessee of a new Land Rover vehicle to acknowledge and agree in writing that the
vehicle being purchased/leased is intended for use within the United States and is
not intended for export outside the United States and is not intended for resale.
Accordingly, by your signature below, you the purchaser/lessee acknowledge and
represent that the Land Rover vehicle being purchased/leased by you is not intended
for export or resale and is intended for use within the United States.
41.
The No-Export Agreements also require all Purchasers to attest that:
• The JLR Vehicle is being purchased or leased for personal or business use in the
United States and the Purchaser has no intention of exporting the JLR Vehicle
outside the United States;
• The JLR Vehicle will not be exported outside the United States for up to one year
from the date of delivery;
• If the JLR Vehicle is exported outside the United States within one year of delivery,
the Purchaser shall be prohibited from future purchases/leasing and subject to
liquidated damages of ranging from $25,000 to $40,000, losses and expenses as
well as potential criminal liability; and
• The JLR Vehicle warranty will be voided under the Passport Services program if
the JLR Vehicle is exported out of the United States.
42.
JLR forces Dealers to take required steps to comply with the JLR No-Export Policy
by threatening to penalize them if JLR Vehicles sold by the Dealers are found to have been
exported. Dealers who sell a JLR Vehicle to persons who export the JLR Vehicle outside the
United States are subject to fines, inventory allocation reductions, and/or termination of their
dealership(s).
43.
JLR communicates its policies to dealers through “operations bulletins” on a
regular basis. Upon information and belief, JLR communicated the JLR No-Export Policy to
Dealers by issuing approximately three operations bulletins between 2013 and present. The
operations bulletins were issued in or around April 2013, November 2014, and December 2015.
44.
The purpose and effect of the JLR No-Export Policy is to prevent Purchasers from
taking advantage of an arbitrage opportunity that exists in foreign countries, such as China. U.S
Purchasers can obtain up to approximately $40,000 for shipping a JLR Vehicle to China for resale.
45.
At least one federal court recognized the anticompetitive motive behind export
policies, such as the JLR No-Export Policy: “foreign luxury car manufacturers are clearly
attempting to eliminate” Purchasers from “taking advantage of vehicle price differentials in foreign
countries.” United States of America v. Contents of Wells Fargo Bank Account XXX5826 in the
name of Auto. Consultants of Hollywood, Inc., 13-cv-716, 2014 WL 12656914, at *8 (S.D. Ohio
Apr. 1, 2014) (hereinafter, “ACH”).
46.
JLR has acknowledged that some JLR Vehicles will slip through the cracks and be
exported outside of the United States. According to Stuart Schorr, JLR’s Vice President of
Communications and Public Affairs, JLR has expressly told Dealers that if more than 3% of their
sales end up overseas they will be subject to fines, chargebacks, inventory reduction or termination.
47.
Notably, Mr. Schorr has stated publicly that the JLR No-Export Policy has resulted
in a two-thirds reduction in exports of JLR Vehicles from the United States.
48.
The December 2015 operations bulletin further demonstrates the anticompetitive
impact of the JLR No-Export Policy on the export market, stating: “[s]ince the implementation of
the November 24, 2014 Export and Broker Policy . . . [JLR] has seen a decrease of vehicles
exported from the U.S.”
49.
The December 2015 operations bulletin also stated that JLR was amending the
policy “[i]n recognition of the retailer network’s efforts in curbing vehicle exports.”
50.
During a December 2015 interactive webinar between JLR and Dealers, JLR
presented a graph showing a significant decrease in the percentage of exports. The graph depicted
decreases between 39% and 49% of certain Range Rover models that were exported within 6
months of sale from April 2013 to either May or October 2015. This decline was the result of the
Dealers’ agreement to comply with the JLR No-Export Policy.
51.
There are no legitimate, pro-competitive justifications for the No-Export Policy.
52.
Any claimed pro-competitive justifications are mere pretexts for Defendants and
their co-conspirators’ unlawful anticompetitive agreement.
53.
At least one federal court recognized “that the primary concern” of luxury
automobile companies, such as Defendants, in imposing no-export policies “is guarding their
foreign market profits from competition from domestic automobile brokers.” ACH, 13-cv-716,
2014 WL 12656914, at *6.
54.
In ACH, the Court rejected the U.S. government’s suggestion that manufacturers
sought to curb exports due to issues they may face in delivering recall notices to owners of exported
cars and the fact that servicing exported vehicles may increase costs for a vehicle owner. The
Court stated that the latter would “be an issue for the vehicle owner and the parts seller to sort out.”
55.
The JLR No-Export Policy is not in the economic interest of the Dealers. A Dealer
in Cincinnati, Ohio (Rich Allen) told federal agents his dealership routinely receives--and is forced
by the JLR No-Export Policy to refuse--one to three suspected exporter inquiries per week.
According to Mr. Allen, he could sell his entire inventory in a matter of days if he did not screen
for exporters.
C. Prior Allegations of an Antitrust Conspiracy to Prohibit Automobile Exports
56.
The automotive industry previously faced similar allegations of federal and state
antitrust law violations through unlawful agreements to restrict the export of new vehicles from
Canada to the United States. See In re New Motor Vehicles Canadian Export Antitrust Litig., 03-
md-1532 (D. Maine) (“Canadian Export”).
57.
Beginning in 2003, consumers brought a class action against U.S. and Canadian
new motor vehicle manufacturers, distributors and dealer associations alleging that they conspired
to restrict exports of lower priced vehicles from Canada into the United States. The defendants
entered into their alleged conspiracy to prevent downward pressure on the prices of new U.S.
vehicles. The class plaintiffs alleged that the defendants conspired to implement a series of
requirements upon their dealers to foreclose the export distribution channel.
58.
The following evidence of conspiratorial conduct among the defendants was
presented in Canadian Export:
a. Manufacturers discussed addendum agreements or clauses in sales
agreements stating that consumers agreed not to export purchased vehicles
(i.e., No-Export Agreements);
b. Automobile manufacturers met to discuss exchanging export data, best
practices for curbing export sales, and sharing lists of known exporters;
c. Following joint meetings, the automobile manufacturers ramped up their
export restraints through enhanced due diligence checklists to dealers,
harsher chargeback policies, dealer audits resulting in substantial
chargebacks, developing online versions of known exporter blacklists,
reducing vehicle allocations, and voiding warranties on exported vehicles;
d. Subsequent to implementation of their enhanced export restraints, the
automobile manufacturers continued to meet to share information on the
measures that they were undertaking in order to prevent Canadian exports;
and
e. The manufacturers discussed how to mitigate exports to the United States
and make exporting so difficult that it would be unattractive to exporters.
59.
Notably, in Canadian Export, the Court indicated in its summary judgement
opinion that “there is probably enough evidence to reach a jury” on whether there was a conspiracy.
D. Unsuccessful Prosecutions in the Vehicle Export Market
60.
Exporting vehicles to most countries, including China, for resale is not unlawful.
Indeed, the U.S. Government has conceded that this conduct is entirely lawful under U.S. export
provisions, customs statutes, and the law. See ACH.
61.
In or around 2013, the U.S. government and the New York Attorney General began
investigating automobile exporters who purchased luxury automobiles in the United States and
exported or intended to export those vehicles abroad for resale. In accordance with those
investigations, authorities seized vehicles and assets of suspected exporters.
62.
Following multiple unfavorable court decisions, which recognized the lawfulness
of exporting vehicles for resale, the U.S. government released seized vehicles and funds.
Thereafter, the government dropped proceedings and either slowed or halted investigations
concerning purchases of vehicles for export.1
63.
For example, in January 2015, federal prosecutors in South Carolina agreed to
return 57 luxury vehicles and nearly $380,000 to a Virginia-based exporter.
64.
In another case in South Carolina, a Porsche Cayenne and over $120,000 seized by
U.S. authorities was returned to the owner and a civil forfeiture lawsuit was dropped.
RELEVANT MARKET
65.
The relevant product market is the export market for JLR Vehicles.
66.
The relevant geographic market is the United States.
INJURY AND THREATENED INJURY TO PLAINTIFF AND
MEMBERS OF THE CLASS
67.
As a direct and proximate result of Defendants’ misconduct, Plaintiff and members
of the Class have been barred from or otherwise materially impaired in their ability to purchase
JLR Vehicles free of the export restriction. Consequently, Plaintiff and members of the class have
been injured in their business and/or property by purchasing JLR Vehicles with restrictions that
artificially depress the resale value of their JLR Vehicles and that prevent them from participating
1 Matthew Goldstein, Prosecutors Ease Crackdown on Buyers of China-Bound Luxury Cars, THE NEW YORK TIMES
(Apr. 1, 2015), https://www.nytimes.com/2015/04/02/business/dealbook/prosecutors-ease-crackdown-onbuyers-of-
china-bound-luxury-cars.html.
in the export market. Because the contract, combination and/or conspiracy is ongoing, Plaintiff
and members of the Class are threatened with similar injury in the future.
TRADE AND COMMERCE
68.
During the Class Period (defined below), Defendants and their co-conspirators
distributed, sold, and/or leased JLR Vehicles in a continuous and uninterrupted flow of interstate
commerce to customers throughout the United States, its territories, and the District of Columbia
(collectively, the “United States”).
69.
Throughout the Class Period, there was a continuous and uninterrupted flow of
invoices and other documents essential to the sale and provision of JLR Vehicles transmitted
interstate between and among the offices of Defendants and from Defendants to the Dealers
throughout the United States.
70.
Throughout the Class Period, Defendants transported substantial amounts of JLR
Vehicles in a continuous and uninterrupted flow of interstate commerce throughout the United
71.
Throughout the Class Period, Defendants’ unlawful activities took place within and
substantially affected the flow of interstate commerce and had a direct, substantial and reasonably
foreseeable effect upon commerce in the United States.
CLASS ACTION ALLEGATIONS
72.
Plaintiff brings this action on his own behalf 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 all
members of the following Class:
All persons and entities (excluding governmental entities, this Court, Defendants,
their present and former parents, subsidiaries, affiliates, and co-conspirators) who
have been “blacklisted” or who signed a No-Export Agreement when indirectly
purchasing a JLR Vehicle from Defendants through a Dealer in the United States
from June 8, 2013 to present.
73.
With respect to the Third, Fourth and Fifth Claims for Relief, the Class seeks
damages for those members of the Class who were harmed by Defendants’ unlawful conduct in
the United States asserted in those Claims for Relief.
74.
Plaintiff does not know the exact number of Class members, because such
information is in the exclusive control of Defendants. Due to the nature of the trade and commerce
involved, however, Plaintiff believes that Class members are in the thousands throughout the
United States, and in any event, are sufficiently numerous and geographically dispersed throughout
the United States so that joinder of all Class members is impracticable.
75.
Except as to the amount of damages each member of the Class has incurred, all
other questions of law and fact are common to the Class, including, but not limited to:
a.
Whether Defendants engaged in a contract, combination or conspiracy to prevent
the export of JLR Vehicles from the United States;
b.
The duration and extent of the contract, combination or conspiracy alleged in this
Complaint;
c.
Whether the alleged contract, combination or conspiracy violates Section 1 of the
Sherman Act;
d.
Whether the alleged contract, combination or conspiracy violates the antitrust or
consumer protection laws of various states;
e.
The appropriate measure of damages sustained by Plaintiff and other members of
the Class;
f.
Whether, and to what extent, Defendants have been unjustly enriched as a result
of its inequitable conduct; and
g.
Whether injunctive relief is an appropriate remedy.
76.
Plaintiff’s claims are typical of the claims of the Class members, and Plaintiff will
fairly and adequately protect the interests of the Class.
77.
Plaintiff is typical and Plaintiff’s interests are coincident with and not antagonistic
to those of the other members of the Class.
78.
In addition, Plaintiff is represented by counsel who are competent and experienced
in the prosecution of complex antitrust class action litigation.
79.
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.
80.
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, damages, and restitution.
81.
A class action is superior to other methods for the fair and efficient adjudication of
this controversy.
82.
Treatment as a class action will permit a large number of 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 also will permit the adjudication of claims by many Class members who could not
individually afford to litigate an antitrust claim such as is asserted in this Complaint. This Class
action likely presents no difficulties in management that would preclude maintenance as a class
action.
83.
The Class is readily ascertainable directly from the records of Defendants.
FIRST CLAIM FOR RELIEF
Violation of Section 1 of the Sherman Act
(For Declaratory Relief)
84.
Plaintiff repeats and realleges the allegations contained in the preceding paragraphs
as though set forth herein.
85.
Defendants entered into a contract, combination or conspiracy to eliminate the
export of JLR Vehicles from the United States in violation of Section 1 of the Sherman Act, 15
U.S.C. § 1.
86.
In furtherance of this contract, combination or conspiracy, Defendants required,
and continue to require, Dealers to:
a. Conduct “due diligence” investigations and “profile” prospective buyers to identify
potential exporters and to refrain from selling JLR Vehicles to Purchasers identified
as potential exporters;
b. Review, create, maintain, and transmit to JLR and/or co-conspirators “blacklists”
comprising the names of customers known or believed to be exporting JLR
Vehicles;
c. Refuse to sell JLR Vehicles to anyone who intends to export JLR Vehicles; and
d. Utilize No-Export Agreements that prohibit Purchasers from exporting JLR
Vehicles and impose substantial penalties in the event that a JLR Vehicle is
exported.
87.
Defendants and/or their co-conspirators also took and are taking measures to
enforce the contract, combination or conspiracy, including:
a. Threatening to penalize and penalizing Dealers that sell JLR Vehicles that are
subsequently exported;
b. Threatening to withhold and withholding inventory of popular styles and colors of
JLR Vehicles from Dealers that sell JLR Vehicles that are subsequently exported;
c. Threatening to terminate Dealers that had export incidents exceeding three percent
of the Dealers’ sales;
d. Threatening to terminate and terminating warranties for JLR Vehicles that were
exported;
e. Refusing to provide owners of JLR Vehicles that are exported with warranty and
recall information; and
f. Threatening, recommending and/or pursuing legal action against Purchasers who
violate a No-Export Agreement or seeking to collect liquidated damages from
Purchasers who violate a No-Export Agreement.
88.
These actions violate 15 U.S.C. § 1, et seq. and 15 U.S.C. § 26, et seq. in that they
constitute a restraint of trade.
89.
An actual controversy exists between Plaintiff and the class on the one hand and
Defendants on the other concerning the unlawful implementation and enforcement of the JLR No-
Export Policy.
90.
Plaintiff and the Class are entitled to a declaration of the rights and obligations of
the respective parties pursuant to 28 U.S.C. § 2201 et seq. These violations are continuing and
will continue unless enjoined by this Court.
91.
Pursuant to Section 16 of the Clayton Act, 15 U.S.C. § 26, Plaintiff and the Class
seek the issuance of a declaratory judgment that Defendants’ course of conduct is unlawful as
alleged herein.
SECOND CLAIM FOR RELIEF
Violation of Section 1 of the Sherman Act
(For Injunctive Relief)
92.
Plaintiff repeats and realleges the allegations contained in the preceding paragraphs
as though set forth herein.
93.
Defendants entered into a contract, combination or conspiracy with their co-
conspirators to eliminate the export of JLR Vehicles from the United States in violation of Section
1 of the Sherman Act, 15 U.S.C. § 1.
94.
In furtherance of this contract, combination or conspiracy, Defendants required,
and continue to require, Dealers to:
a. Conduct “due diligence” investigations and “profile” prospective buyers to identify
potential exporters and to refrain from selling JLR Vehicles to Purchasers identified
as potential exporters;
b. Review, create, maintain and transmit to JLR and/or their co-conspirators
“blacklists” comprising the names of customers known or believed to be exporting
vehicles;
c. Refuse to sell JLR Vehicles to anyone who intends to export JLR Vehicles; and
d. Utilize No-Export Agreements that prohibit Purchasers from exporting JLR
Vehicles and impose substantial penalties in the event that a JLR Vehicle is
exported.
95.
Defendants and/or their co-conspirators also took and are taking measures to
enforce these agreements, including:
a. Threatening to penalize and penalizing Dealers that sell JLR Vehicles that are
subsequently exported;
b. Threatening to withhold and withholding inventory of popular styles and colors of
JLR Vehicles from Dealers that sell JLR Vehicles that are subsequently exported;
c. Threatening to terminate Dealers that had export incidents exceeding three percent
of the Dealers’ sales;
d. Threatening to terminate and terminating warranties for JLR Vehicles that were
exported;
e. Refusing to provide owners of JLR Vehicles that are exported with warranty and
recall information; and
f. Threatening, recommending and/or pursuing legal action against Purchasers who
violate a No-Export Agreement or seeking to collect liquidated damages from
Purchasers who violate a No-Export Agreement.
96.
These actions violate 15 U.S.C. § 1, et seq. and 15 U.S.C. § 26, et seq. in that they
constitute a restraint of trade.
97.
These violations are continuing and will continue unless enjoined by this Court.
98.
Pursuant to Section 16 of the Clayton Act, 15 U.S.C. § 26, Plaintiff and the Class
seek an injunction prohibiting Defendants and their co-conspirators’ continued illegal course of
conduct and adherence to the unlawful agreements alleged herein.
THIRD CLAIM FOR RELIEF
Violation of State Antitrust Statutes
99.
Plaintiff repeats and realleges the allegations contained in the preceding paragraphs
as though set forth herein.
100.
Plaintiff seeks to enjoin Defendants from engaging in future anti-competitive
practices and seeks damages as permitted under the antitrust laws of various states as set forth
herein.
a. Defendants have violated Arizona Revised Stat. §§ 44-1401, et seq.
b. Defendants have violated Cal. Bus. & Prof. Code §§ 16700, et seq.
c. Defendants have violated D.C. Code Ann. §§ 28-4503, et seq.
d. Defendants have violated Iowa Code §§ 553, et seq.
e. Defendants have violated Kan. Stat. Ann. §§ 50-101, et seq.
f. Defendants have violated Me. Rev. Stat. Ann. 10, §§ 1101, et seq.
g. Defendants have violated Mich. Comp. Laws Ann. §§ 445.772, et seq.
h. Defendants have violated Minn. Stat. §§ 325D.51, et seq.
i. Defendants have violated Miss. Code. Ann. §§ 75-21-1, et seq.
j. Defendants have violated Neb. Rev. Stat. Ann. §§ 59-801.
k. Defendants have violated Nev. Rev. Stat. Ann §§ 598A, et seq.
l. Defendants have violated N.M. Stat. Ann. §§ 57-1-1, et seq.
m. Defendants have violated N.Y. Gen. Bus. Law §§ 340, et seq.
n. Defendants have violated N.C. Gen. Stat. §§ 75-1, et seq.
o. Defendants have violated N.D. Cent. Code §§ 51-08.1-02, et seq.
p. Defendants have violated R.I. Gen. Laws §§ 6-36-1, et seq.
q. Defendants have violated S.D. Codified Laws Ann. §§ 37-1-3.1, et seq.
r. Defendants have violated Tenn. Code Ann. §§ 47-25-101, et seq.
s. Defendants have violated Utah Code Ann. §§ 76-10-3101 et seq.
t. Defendants have violated Vt. Stat. Ann. 9, §§ 2453, et seq.
u. Defendants have violated W. Va. Code §§ 47-18-1, et seq.
v. Defendants have violated Wis. Stat. §§ 133.01, et seq.
101.
Plaintiff and members of the Class have been injured by reason of Defendants’
violations of the above statutes.
FOURTH CLAIM FOR RELIEF
Violation of State Consumer Protection Statutes
102.
Plaintiff repeats and realleges the allegations contained in the preceding paragraphs
as though set forth herein.
103.
As a direct and proximate result of Defendants’ unfair and unconscionable conduct,
Plaintiff and members of the Class were injured by virtue of Defendants’ implementation and
enforcement of the JLR No-Export Policy. Defendants engaged in unfair competition, unfair or
unconscionable acts or practices in violation of the state consumer protection statutes as alleged
herein.
104.
By engaging in the foregoing conduct, Defendants have violated the following state
unfair trade practice statutes and/or consumer protection laws:
a. Defendants have engaged in unfair competition or unfair acts or practices in
violation of Ariz. Rev. Stat. §§ 44-1522, et seq.
b. Defendants have engaged in unfair competition or unfair acts or practices in
violation of Cal. Bus. & Prof. Code §§ 17200, et seq.
c. Defendants have engaged in unfair competition or unfair acts or practices or made
false representations in violation of D.C. Code §§ 28-3901, et seq.
d. Defendants have engaged in unfair competition or unfair acts or practices in
violation of Fla. Stat. §§ 501.201, et seq.
e. Defendants have engaged in unfair competition or unfair acts or practices in
violation of Iowa Code §§ 714.16, et seq.
f. Defendants have engaged in unfair competition or unfair acts or practices in
violation of Idaho Code Ann. §§ 48-601, et seq.
g. Defendants have engaged in unfair competition or unfair acts or practices in
violation of 815 Ill. Comp. Stat. Ann. §§ 505/1, et seq.
h. Defendants have engaged in unfair competition or unfair acts or practices in
violation of Kan. Stat. Ann. §§ 50-623, et seq.
i. Defendants have engaged in unfair competition or unfair acts or practices in
violation of Me. Rev. Stat. tit. 5 §§ 207, et seq.
j. Defendants have engaged in unfair competition or unfair acts or practices in
violation of Mass. Gen. Laws ch. 93A, et seq.
k. Defendants have engaged in unfair competition or unfair acts or practices in
violation of Mich. Comp. Laws Ann. §§ 445.901, et seq.
l. Defendants have engaged in unfair competition or unfair acts or practices in
violation of Minn. Stat. §§ 8.31, et seq.
m. Defendants have engaged in unfair competition or unfair acts or practices in
violation of Neb. Rev. Stat. §§ 59-1601, et seq.
n. Defendants have engaged in unfair competition or unfair acts or practices in
violation of Nev. Rev. Stat. §§ 598.0903, et seq.
o. Defendants have engaged in unfair competition or unfair acts or practices in
violation of N.H. Rev. Stat. Ann. §§ 358-A:1, et seq.
p. Defendants have engaged in unfair competition or unfair or acts or practices in
violation of N.M. Stat. Ann. §§ 57-12-1, et seq.
q. Defendants have engaged in unfair competition or unfair or acts or practices in
violation of N.Y. Gen. Bus. Law §§ 349, et seq.
r. 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.
s. Defendants have engaged in unfair competition or unfair acts or practices in
violation of N.D. Cent. Code §§ 51-15-01, et seq.
t. Defendants have engaged in unfair competition or unfair acts or practices in
violation of R.I. Gen. Laws §§ 6-13.1-1, et seq.
u. 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.
v. Defendants have engaged in unfair competition or unfair or deceptive acts or
practices in violation of Tenn. Code Ann. §§ 47-18-101, et seq.
w. Defendants have engaged in unfair competition or unfair acts or practices in
violation of Utah Code Ann. §§ 13-11-1, et seq.
x. Defendants have engaged in unfair competition or unfair or deceptive acts or
practices in violation of Vt. Stat. Ann. tit. 9 §§ 2451, et seq.
y. Defendants have engaged in unfair competition or unfair acts or practices in
violation of W. Va. Code §§ 46A-6-101, et seq.
105.
Plaintiff and the Class have been injured in their business and property by reason
of Defendants’ anticompetitive, unfair or unconscionable acts alleged herein. 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
106.
Plaintiff repeats and realleges the allegations contained in the preceding paragraphs
as though set forth herein.
107.
Defendants have violated the unjust enrichment laws of every state, except Indiana
and Ohio. Defendants have benefited from their unlawful acts by the imposition of the JLR No-
Export Policy with respect to their dealings with Plaintiff and members of the Class, thereby
causing Plaintiff and the members of the Class to sustain injury to their business and property. It
would be inequitable for Defendants to be permitted to retain the benefit of increased revenue that
they received resulting from the implementation and enforcement of the JLR No-Export Policy.
108.
Plaintiff and members of the Class are entitled to the establishment of a constructive
trust consisting of the benefit received by Defendants as a result of the inequitable conduct alleged
herein from which Plaintiff and the other Class members may make claims on a pro-rata basis for
restitution.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays:
A.
That the Court determine that this action may be maintained as a class action under
Federal Rule of Civil Procedure 23;
B.
That the Court determine that the alleged contract, combination or conspiracy
among Defendants and their co-conspirators be declared, adjudged and decreed to be an
unreasonable restraint of trade in violation of Section 1 of the Sherman Act, and enter an order
enjoining such conduct in the future under Section 16 of the Clayton Act together with attorneys’
fees and costs of suit;
C.
That judgment be entered against Defendants, and in favor of Plaintiff and each
member of the Class for the maximum damages permitted under state antitrust and consumer
protection laws determined to have been violated by them and for reasonable attorneys’ fees and
costs of suit;
D.
That judgment be entered against Defendants and against Defendants’ successors,
assignees, subsidiaries, and transferees, and their respective officers, directors, agents, and
employees, and all other persons acting or claiming to act on behalf thereof or in concert therewith,
to perpetually enjoin and restrain them from, in any manner, directly or indirectly, continuing,
maintaining, or renewing the aforesaid combination, conspiracy, agreement, understanding, or
concert of action, or adopting or following any practice, plan, program, or design, having a similar
purpose or effect in restraining competition together with attorneys’ fees and costs of suit;
E.
That judgment be entered establishing a constructive trust funded by Defendants’
ill-gotten gains, from which Plaintiff and Class members may seek restitution on a pro-rata basis;
F.
That the Court order such other and further relief as may appear just and proper.
JURY DEMAND
Pursuant to Fed. R. Civ. P. 38(b) and otherwise, Plaintiff respectfully demands a trial by
jury for all issues so triable.
DATED: June 8, 2017
Respectfully Submitted,
s/ Peter S. Pearlman
PETER S. PEARLMAN
COHN LIFLAND PEARLMAN
HERRMANN & KNOPF LLP
Peter S. Pearlman
Park 80 Plaza West-One
250 Pehle Avenue, Suite 401
Saddle Brook, NJ 07663
201-845-9600
[email protected]
MOTLEY RICE LLC
MICHAEL BUCHMAN, ESQ.
600 Third Avenue
Suite 2101
New York, NY 10016
Tel.: 212-577-0050
Fax: 212-577-0054
[email protected]
SINA LAW GROUP
REZA SINA, ESQ.
888 West 6th Street, 11th Floor
Los Angeles, CA 90017
Tel.: 310-957-2057
[email protected]
CERTIFICATION PURSUANT TO L. CIV. R. 11.2
I certify that to the best of my knowledge, the matter in controversy is currently not the
subject of any other action pending in this court.
I certify under penalty of perjury that the foregoing is true and correct.
Executed on this 8th day of June, 2017.
s/ Peter S. Pearlman
PETER S. PEARLMAN
CERTIFICATION PURSUANT TO L. CIV. R. 201.1
Peter S. Pearlman, of full age, certifies that pursuant to L. Civ. R. 201.1 the within matter
is not arbitrable, being that the Complaint seeks damages that are in an excess of $150,000.
I certify under penalty of perjury that the foregoing is true and correct.
Executed on this 8th day of June, 2017.
s/ Peter S. Pearlman
PETER S. PEARLMAN
| products liability and mass tort |
5vaME4cBD5gMZwczCAqO | IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF INDIANA
HAMMOND DIVISION
DR. DAVID GEORGE, doing business as
)
HAMMOND PET HOSPITAL,
)
on behalf of plaintiff and
)
the class members defined herein,
)
)
Plaintiff,
)
)
v.
)
)
PRODUCT SLINGSHOT, INC.,
)
THINK 3D/PRELUDE, INC.
)
doing business as FORECAST 3D,
)
and JOHN DOES 1-10,
)
)
Defendants.
)
COMPLAINT – CLASS ACTION
MATTERS COMMON TO MULTIPLE COUNTS
INTRODUCTION
1.
Plaintiff Dr. David George, doing business as Hammond Pet Hospital, brings this
action to secure redress for the actions of defendants Product Slingshot, Inc., and Think
3D/Prelude, Inc., doing business as Forecast 3D, 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”), and the Indiana Deceptive Consumer Sales Act, Ind.
Code §24–5–0.5–1 et seq. (“IDCSA”).
2.
The TCPA and IDCSA expressly prohibit 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.
1
PARTIES
3.
Plaintiff Dr. David George is an individual who has offices in Hammond, Indiana,
where he maintains telephone facsimile equipment. He does business as Hammond Pet Hospital.
4.
Defendant Product Slingshot, Inc., is a California corporation that has offices
at 2221 Ruther Road, Carlsbad, CA, 92008.
5.
Defendant Think 3D/Prelude, Inc., is a California corporation that has offices
at 2221 Ruther Road, Carlsbad, CA, 92008.
6.
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
7.
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).
8.
Personal jurisdiction exists in that defendants:
a.
Have committed tortious acts in Indiana by causing the transmission of
unlawful communications into the state.
b.
Have transacted business in Indiana.
9.
Venue in this District is proper for the same reason.
FACTS
10.
On or about June 20, 2018, Hammond Pet Hospital received the unsolicited fax
advertisement attached as Exhibit A on its facsimile machine, promoting defendants’ services.
11.
Discovery may reveal the transmission of additional faxes as well.
12.
The fax refers to a web address, Forecast3D.com, which is registered to Product
Slingshot, Inc. (Exhibit B).
13.
Forecast3D.com states that the business is operated by Corey Weber and Donovan
2
Weber (Exhibit C).
14.
Corey Weber and R. Donovan Weber conduct business via Product Slingshot,
Inc., and Think 3D/Prelude, Inc. (Exhibit D).
15.
Defendants Product Slingshot Inc., and Think 3D/Prelude Inc., are responsible for
sending or causing the sending of the fax.
16.
Defendants Product Slingshot Inc., and Think 3D/Prelude Inc., as the entities who
products or services were advertised in the fax, derived economic benefit from the sending of the
17.
Defendants Product Slingshot Inc., and Think 3D/Prelude Inc., either negligently
or wilfully violated the rights of plaintiff and other recipients in sending the faxes.
18.
Plaintiff had no prior relationship with defendants and had not authorized the
sending of fax advertisements to plaintiff.
19.
On information and belief, the fax attached hereto was sent as part of a mass
broadcasting of faxes.
20.
The fax does not contain an “opt out” notice that complies with 47 U.S.C. §227.
21.
On information and belief, defendants have transmitted similar unsolicited fax
advertisements to at least 40 other persons in Illinois.
22.
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
23.
Plaintiff incorporates ¶¶ 1-22.
24.
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).
25.
The TCPA, 47 U.S.C. §227(b)(3), provides:
3
Private right of action.
A person or entity may, if otherwise permitted by the laws or rules of court
of a State, bring in an appropriate court of that State–
(A) an action based on a violation of this subsection or the regulations
prescribed under this subsection to enjoin such violation,
(B) an action to recover for actual monetary loss from such a
violation, or to receive $500 in damages for each such violation,
whichever is greater, or
(C) both such actions.
If the Court finds that the defendant willfully or knowingly violated this
subsection or the regulations prescribed under this subsection, the court
may, in its discretion, increase the amount of the award to an amount equal
to not more than 3 times the amount available under the subparagraph (B) of
this paragraph.
26.
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.
27.
Plaintiff and each class member is entitled to statutory damages.
28.
Defendants violated the TCPA even if their actions were only negligent.
29.
Defendants should be enjoined from committing similar violations in the future.
CLASS ALLEGATIONS
30.
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 facsimile numbers (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
defendants Product Slingshot Inc., and Think 3D/Prelude Inc., promoting their goods or services
for sale (d) where defendants do not have evidence of consent or an established business
relationship prior to the sending of the faxes.
31.
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.
32.
There are questions of law and fact common to the class that predominate over
4
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.
The manner in which defendants compiled or obtained their list of fax
numbers;
c.
Whether defendants thereby violated the TCPA;
33.
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.
34.
Plaintiff’s claims are typical of the claims of the class members. All are based on
the same factual and legal theories.
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 prosecution of
separate claims against defendants is small because it is not economically feasible to bring
individual actions.
36.
Numerous courts have certified class actions under the TCPA. Holtzman v.
Turza, No. 08 C 2014, 2009 WL 3334909 (N.D.Ill. Oct. 14, 2009), aff’d in part, rev’d in part,
vacated in part, 728 F.3d 682 (7th Cir. 2013); Ballard RN Center, Inc. v. Kohll's Pharmacy and
Homecare, Inc. 2015 IL 118644, 48 N.E.3d 1060; American Copper & Brass, Inc. v. Lake City
Indus. Products, Inc., 757 F.3d 540, 544 (6th Cir. 2014); In re Sandusky Wellness Center, LLC,
570 Fed.Appx. 437, 437 (6th Cir. 2014); Sandusky Wellness Center, LLC v. Medtox Scientific,
Inc., 821 F.3d 992, 998 (8th Cir. 2016); Sadowski v. Med1 Online, LLC, No. 07 C 2973, 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); Targin Sign Systems, Inc. v. Preferred Chiropractic Center, Ltd., 679
5
F.Supp.2d 894 (N.D.Ill. 2010); Garrett v. Ragle Dental Laboratory, Inc., No. 10 C 1315, 2010
WL 4074379 (N.D.Ill. Oct. 12, 2010); Hinman v. M&M Rental Center, Inc., 545 F.Supp.2d 802
(N.D.Ill. 2008); Clearbrook v. Rooflifters, LLC, No. 08 C 3276, 2010 U.S.Dist. LEXIS 72902
(N.D.Ill. July 20, 2010) (Cox, M.J.); G.M. Sign, Inc. v. Group C Communications, Inc., No. 08-
cv-4521, 2010 WL 744262 (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. 2007); Display South, Inc. v. Graphics House Sports Promotions, Inc., 992 So.2d
510 (La.App. 2008); Lampkin v. GGH, Inc., 146 P.3d 847 (Ok.App. 2006); ESI Ergonomic
Solutions, LLC v. United Artists Theatre Circuit, Inc., 203 Ariz. 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); Lindsay Transmission, LLC v. Office Depot, Inc., No.
4:12-CV-221 (CEJ), 2013 WL 275568 (E.D.Mo. Feb. 24, 2013).
37.
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 – INDIANA DECEPTIVE CONSUMER SALES ACT
38.
Plaintiff incorporates ¶¶ 1-22.
39.
IC §24-5-0.5-2(a)(1)(B) defines as a “consumer transaction” subject to the IDCSA
6
an “unsolicited advertisement sent to a person by telephone facsimile machine offering a sale,
lease, assignment, award by chance, or other disposition of an item of personal property, real
property, a service, or an intangible.”
40.
IC §24-5-0.5-3 defines as a “deceptive act” in violation of the IDCSA “(19) The
violation by a supplier of 47 U.S.C. 227, including any rules or regulations issued under 47
U.S.C. 227.”
41.
“Supplier” is defined in IC §24-5-0.5-2(a)(3) as “A seller, lessor, assignor, or
other person who regularly engages in or solicits consumer transactions, including soliciting a
consumer transaction by using a telephone facsimile machine to transmit an unsolicited
advertisement. The term includes a manufacturer, wholesaler, or retailer, whether or not the
person deals directly with the consumer.”
42.
Defendants are a “supplier,” in that they send unsolicited fax advertisements
offering goods or services.
43.
IC §24-5-0.5-4 authorizes actual damages or $500, whichever is greater, plus
reasonable attorney’s fees. Statutory damages may be increased to $1,000 in the case of a
willful violation.
44.
Plaintiff is entitled to file suit under Fed. R. Civ.P. 23 without complying with
notice requirements under state law. Shady Grove Orthopedic Associates, P.A. v. Allstate Ins.
Co., 559 U.S. 393 (2010); Mace v. Van Ru Credit Corp., 109 F.3d 338, 345-46 (7th Cir. 1997).
45.
Plaintiff and each class member suffered damages as a result of receipt of the
unsolicited faxes, in the form of loss of paper, ink, toner, memory, and time.
46.
Defendants engaged in such conduct in the course of trade and commerce.
47.
Defendants’ conduct caused recipients of their advertising to bear the cost thereof.
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 Indiana fax numbers (b) who, on or after a date 2 years
7
prior to the filing of this action, (c) were sent faxes by or on behalf of defendants Product
Slingshot Inc., and Think 3D/Prelude Inc., promoting their goods or services for sale (d) where
defendants do not have evidence of consent or an established business relationship prior to the
sending of the faxes.
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
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 engaged in unfair acts and practices, in
violation of the IDCSA.
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 are 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
8
plaintiff and the class and against defendant for:
a.
Appropriate damages;
b.
Attorney’s fees, litigation expenses and costs of suit;
c.
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
Heather A. Kolbus
EDELMAN, COMBS, LATTURNER & GOODWIN, LLC
20 S. Clark Street, Suite 1500
Chicago, Illinois 60603
(312) 739-4200
(312) 419-0379 (FAX)
9
NOTICE OF ASSIGNMENT
Please be advised that 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
20 S. Clark Street, Suite 1500
Chicago, Illinois 60603
(312) 739-4200
(312) 419-0379 (FAX)
10
DOCUMENT PRESERVATION DEMAND
Plaintiff hereby demands that defendant take affirmative steps to preserve all
data and documents relating to the fax transmissions described herein. These materials are likely
very 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.
/s/ Daniel A. Edelman
Daniel A. Edelman
T:\35282\Pleading\Revised Complaint_Pleading.wpd
11
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iEbvAokBRpLueGJZBnAI |
NO.
COMPLAINT—CLASS ACTION
DEMAND FOR JURY TRIAL
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
KELSEY SMITH, on behalf of herself and all
others similarly situated,
Plaintiff,
vs.
ASSURANCE IQ, LLC,
Defendant.
Kelsey Smith, individually and on behalf of others similarly situated, alleges the
following against Defendant Assurance IQ, LLC (“Assurance IQ” or “Defendant”).
I. NATURE OF ACTION
1.
As the Supreme Court recently explained, “Americans passionately disagree
about many things. But they are largely united in their disdain for robocalls. The Federal
Government receives a staggering number of complaints about robocalls—3.7 million
complaints in 2019 alone. The States likewise field a constant barrage of complaints. For
nearly 30 years, the people’s representatives in Congress have been fighting back. As relevant
here, the Telephone Consumer Protection Act of 1991, known as the TCPA, generally
prohibits robocalls to cell phones and home phones.” Barr v. Am. Ass'n of Political
Consultants, No. 19-631, 2020 U.S. LEXIS 3544, at *5 (July 6, 2020).
2.
Assurance IQ is an insurance company providing insurance products and
services to consumers.
3.
To promote these insurance products and services, Assurance IQ uses pre-
recorded robocalls.
4.
Assurance IQ made unsolicited calls to Plaintiff on her cellular telephone using
prerecorded messages.
5.
Assurance IQ also made these calls to residential telephone numbers, like
Plaintiff’s, that were listed on the National Do Not Call Registry.
6.
Plaintiff now files this lawsuit seeking injunctive relief, requiring Assurance IQ
to stop placing unsolicited telemarketing calls to residential and cellular telephone numbers,
and to those numbers listed on the National Do Not Call Registry, as well as an award of
statutory damages and costs to class members.
II. JURISDICTION AND VENUE
7.
This Court has federal question subject matter jurisdiction over this action under
28 U.S.C. § 1331, as the action arises under the Telephone Consumer Protection Act,
47 U.S.C. §227 (“TCPA”).
8.
This Court has personal jurisdiction over Assurance IQ, and venue is proper in
this District under 28 U.S.C. § 1391(b) because Defendant Assurance IQ resides in this
District.
III. PARTIES
9.
Plaintiff Kelsey Smith is a citizen of Maryland.
10.
Defendant Assurance IQ, LLC is a limited liability company with its principal
place of business located at 920 5th Avenue, Suite 3600, Seattle, Washington 98104 in King
County. Assurance IQ, thus, is a citizen of Washington.
IV. TCPA BACKGROUND
A.
The TCPA Prohibits Automated Telemarketing Calls
11.
The TCPA makes it unlawful to make any call (other than a call made for
emergency purposes or made with the prior express consent of the called party) using an
automatic telephone dialing system or an artificial or prerecorded voice to any telephone
number assigned to a cellular telephone service or that is charged per the call. See 47 U.S.C.
§ 227(b)(1)(A)(iii); see also 47 C.F.R. § 614.1200(a)(2).
12.
Similarly, the TCPA also prohibits the initiation of any telemarketing telephone
call to a residential telephone line using an artificial or prerecorded voice without the prior
express consent of the called party. See 47 U.S.C. § 227(b)(1)(B); see also 47 C.F.R.
§ 614.1200(a)(3).
13.
The TCPA provides a private cause of action to persons who receive calls in
violation of 47 U.S.C. § 227(b)(1)(A) or 47 U.S.C. § 227(b)(1)(B). See 47 U.S.C. § 227(b)(3).
14.
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.
15.
The FCC also recognized that “wireless customers are charged for incoming
calls whether they pay in advance or after the minutes are used.” In re Rules and Regulations
Implementing the Tel. Consumer Prot. Act of 1991, CG Docket No. 02-278, Report and Order,
18 F.C.C. Rcd. 14014, 14115 ¶ 165 (2003).
16.
In 2013, the FCC required prior express written consent for all autodialed or
prerecorded telemarketing calls (“robocalls”) to wireless numbers and residential lines.
Specifically, it ordered that:
[A] consumer’s written consent to receive telemarketing robocalls
must be signed and be sufficient to show that the consumer: (1)
received “clear and conspicuous disclosure” of the consequences
of providing the requested consent, i.e., that the consumer will
receive future calls that deliver prerecorded messages by or on
behalf of a specific seller; and (2) having received this
information, agrees unambiguously to receive such calls at a
telephone number the consumer designates.[] In addition, the
written agreement must be obtained “without requiring, directly or
indirectly, that the agreement be executed as a condition of
purchasing any good or service.[]”
In the Matter of Rules & Regulations Implementing the Tel. Consumer Prot. Act of 1991,
27 F.C.C. Rcd. 1830, 1844 (2012) (footnotes omitted).
B.
The National Do Not Call Registry
17.
Section 227(c) of the TCPA requires the FCC to “initiate a rulemaking
proceeding concerning the need to protect residential telephone subscribers’ privacy rights to
avoid receiving telephone solicitations to which they object.” 47 U.S.C. § 227(c)(1).
18.
The National Do Not Call Registry allows consumers to register their telephone
numbers and thereby indicate their desire not to receive telephone solicitations at those
numbers. See 47 C.F.R. § 64.1200(c)(2).
19.
A listing on the Registry “must be honored indefinitely, or until the registration
is cancelled by the consumer or the telephone number is removed by the database
administrator.” Id.
20.
The TCPA and implementing regulations prohibit the initiation of telephone
solicitations to residential telephone subscribers to the Registry and provides a private right of
action against any entity that makes those calls, or “on whose behalf” such calls are made.
47 U.S.C. § 227(c)(5); 47 C.F.R. § 64.1200(c)(2).
V. FACTUAL ALLEGATIONS
A.
Factual Allegations Regarding Defendant
21.
Assurance IQ provides insurance services to consumers.
22.
One of Assurance IQ’s strategies for marketing its insurance services includes
the use of prerecorded messages.
23.
Assurance IQ engages in prerecorded calls to solicit new customers.
24.
Recipients of these prerecorded calls, including Plaintiff, did not consent to
receive such calls.
B.
Factual Allegations Regarding Plaintiff
25.
Plaintiff is, and at all times mentioned herein was, a “person” as defined by
47 U.S.C. § 153(39).
26.
Plaintiff’s telephone number, (XXX) XXX-2291, is assigned to a cellular
telephone service.
27.
Plaintiff’s telephone number was registered on the National Do Not Call
Registry on July 9, 2011.
28.
Plaintiff’s telephone number is for personal use only.
29.
Plaintiff’s telephone number is not associated with a business.
30.
Plaintiff has never been an Assurance IQ customer and never consented to
receive calls from Assurance IQ.
31.
Despite this, Plaintiff received multiple prerecorded calls from Assurance IQ
starting in September 2020.
32.
The calls all used a prerecorded message regarding the sale of insurance.
33.
On several occasions, after the prerecorded message played, Plaintiff was
connected with a live agent and asked the caller to stop calling.
34.
However, the calls continued.
35.
Assurance IQ’s marketing communications became so frequent that on October
29, 2020, Plaintiff sent an email to the CEO of Assurance IQ, Michael Rowell.
36.
In response to her complaints, Assurance IQ finally confirmed in November
2020 that it would stop calling her.
37.
Assurance IQ is responsible for making the above-described calls.
38.
Assurance IQ has received multiple complaints about their prerecorded calling
process, including from state attorneys general.
39.
Plaintiff and other individuals who received these calls suffered an invasion of
privacy and were harassed by the conduct of Assurance IQ.
VI. CLASS ACTION ALLEGATIONS
40.
Plaintiff incorporates by reference all other paragraphs of this Complaint as if
fully stated herein.
41.
As authorized by Rule 23(b)(2) or (b)(3) of the Federal Rules of Civil
Procedure, Plaintiff brings this action on behalf of two classes of all other persons or entities
similarly situated throughout the United States (the “Classes”).
42.
Plaintiff proposes the following Class definitions, subject to amendment as
appropriate:
Robocall Class:
All persons within the United States: (1) to whose residential or
cellular telephone number; (2) Defendant (or an agent acting on
behalf of Defendant) placed a telemarketing call; (3) within the
four years prior to the filing of the Complaint; and (4) using an
identical or substantially similar prerecorded message used to
place the telephone call to Plaintiff.
National Do Not Call Registry Class:
All persons in the United States (1) whose telephone numbers
were on the National Do Not Call Registry for at least 31 days (2)
but who received more than one telemarketing call (3) from
Defendant (or an agent acting on behalf of Defendant) (4) within
a 12-month period, (5) within the four years prior to the filing of
the Complaint.
43.
Excluded from the Classes are counsel, Defendant, any entities in which
Defendant has a controlling interest, Defendant’s agents and employees, any judge to whom
this action is assigned, and any member of such judge’s staff and immediate family.
44.
Plaintiff is a member of and will fairly and adequately represent and protect the
interests of the Classes as she has no interests that conflict with any of the Class members.
45.
Plaintiff and all members of the Classes have been harmed by the acts of
Defendant, including, but not limited to, the invasion of their privacy and the intrusion on their
telephone that occupied it from receiving legitimate communications.
46.
The Classes, as defined above, are identifiable through Defendant’s dialer
records, other telephone records, and telephone number databases.
47.
Plaintiff does not know the exact number of members in the Classes, but
Plaintiff reasonably believes Class members number, at minimum, in the hundreds since the
use of prerecorded messages is typically employed to call en masse.
48.
The joinder of all Class members is impracticable due to the size and relatively
modest value of each individual claim.
49.
Additionally, 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.
50.
There are well defined, nearly identical questions of law and fact affecting all
parties. The questions of law and fact, referred to above, involving the Class claims
predominate over questions that may affect individual Class members.
51.
There are numerous questions of law and fact common to Plaintiff and to the
proposed Classes, including but not limited to the following:
a.
Whether Defendant used prerecorded messages to send calls;
b.
Whether Defendant made calls to Plaintiff and members of the Robocall
Class without first obtaining prior express written consent to make the calls;
c.
Whether the Defendant made multiple telephone calls to Plaintiff and
members of the National Do Not Call Registry Class;
d.
Whether Defendant’s conduct constitutes a violation of the TCPA; and
e.
Whether members of the Classes are entitled to treble damages based on
the willfulness of Defendant’s conduct.
52.
Plaintiff’s claims are typical of the claims of the Classes. Plaintiff’s claims, like
the claims of Classes, arise out of the same common course of conduct by Defendant and are
based on the same legal and remedial theories.
53.
Plaintiff will fairly and adequately protect the interests of the Classes. Plaintiff
has retained counsel with substantial experience in prosecuting complex litigation and class
actions, and especially TCPA class actions. Plaintiff and her counsel are committed to
vigorously prosecuting this action on behalf of the other members of the Classes and have the
financial resources to do so. Neither Plaintiff nor her counsel have interests that are contrary to
or that conflict with those of the proposed Classes.
54.
Common questions of law and fact predominate over questions affecting only
individual Class members, and a class action is the superior method for fair and efficient
adjudication of the controversy. The only individual question concerns identification of Class
members, which will be ascertainable from records maintained by Defendant and/or its agents.
55.
A class action is the superior method for the fair and efficient adjudication of
this controversy. The interest of individual members of the Classes in individually controlling
the prosecution of separate claims against Defendant are small because the damages in an
individual action for violation of the TCPA are small. Management of these claims is likely to
present significantly fewer difficulties than are presented in many class claims. Class treatment
is superior to multiple individual suits or piecemeal litigation because it conserves judicial
resources, promotes consistency and efficiency of adjudication, provides a forum for small
claimants, and deters illegal activities. There will be no significant difficulty in the
management of this case as a class action.
56.
Defendant has acted on grounds generally applicable to the Classes, thereby
making final injunctive relief and corresponding declaratory relief with respect to the Classes
appropriate on a classwide basis.
FIRST CAUSE OF ACTION
Violation of the Telephone Consumer Protection Act
(47 U.S.C. 227(b) on behalf of the Robocall Class)
57.
Plaintiff incorporates the allegations from all previous paragraphs as if fully set
forth herein.
58.
The foregoing acts and omissions of Defendant and/or its affiliates, agents,
and/or other persons or entities acting on Defendant’s behalf constitute numerous and multiple
violations of the TCPA, 47 U.S.C. § 227(b), by delivering prerecorded telemarketing messages
to the cellular and residential telephone numbers of Plaintiff and members of the Robocall
Class.
59.
As a result of Defendant’s and/or its affiliates, agents, and/or other persons or
entities acting on Defendant’s behalf’s violations of the TCPA, 47 U.S.C. § 227, Plaintiff and
members of the Robocall Class presumptively are entitled to an award of $500 in damages for
each and every call made to their cellular and residential telephone numbers using an artificial
or prerecorded voice in violation of the statute, pursuant to 47 U.S.C. § 227(b)(3)(B).
60.
If the Defendant’s conduct is found to be knowing or willful, Plaintiff and
members of the Robocall Class are entitled to an award of up to treble damages.
61.
Plaintiff and members of the Robocall Class are also entitled to and do seek
injunctive relief prohibiting Defendant and/or its affiliates, agents, and/or other persons or
entities acting on Defendant’s behalf from violating the TCPA, 47 U.S.C. § 227(b), by making
telemarketing calls to any cellular or residential telephone numbers using an artificial or
prerecorded voice in the future.
SECOND CAUSE OF ACTION
Violation of the Telephone Consumer Protection Act
(47 U.S.C. § 227, et seq. on behalf of the National Do Not Call Registry Class)
62.
Defendant violated the TCPA and the Regulations by making, or having its
agent make, two or more telemarketing automated calls within a 12-month period on
Defendant’s behalf to Plaintiff and members of the National Do Not Call Registry Class while
those persons’ telephone numbers were registered on the National Do Not Call Registry.
63.
As a result of the Defendant’s violations of 47 U.S.C. § 227, et seq., Plaintiff
and National Do Not Call Registry Class members are entitled to an award of up to $500 in
statutory damages for each and every violation of the statute, pursuant to 47 U.S.C.
§ 227(c)(5).
64.
Plaintiff and National Do Not Call Registry Class members are also entitled to
and do seek injunctive relief prohibiting the Defendant from advertising their goods or
services, except for emergency purposes, to any number on the National Do Not Call Registry
in the future.
65.
The Defendant’s violations were knowing or willful.
VII. PRAYER FOR RELIEF
WHEREFORE, Plaintiff, individually and on behalf of the Classes, prays for the
following relief:
A.
Injunctive relief prohibiting Defendant from calling telephone numbers
advertising their goods or services, except for emergency purposes, to any cellular or
residential telephone number using a prerecorded message in the future, or in any call to a
residential number on the National Do Not Call Registry;
B.
That the Court enter a judgment awarding Plaintiff and all Class members
statutory damages of $500 for each violation of the TCPA and $1,500 for each knowing or
willful violation; and
C.
An order certifying this action to be a proper class action pursuant to Federal
Rule of Civil Procedure 23, establishing Classes the Court deems appropriate, finding that
Plaintiff is a proper representative of the Classes, and appointing the lawyers and law firms
representing Plaintiff as counsel for the Classes;
D.
Such other relief as the Court deems just and proper.
VIII. DEMAND FOR JURY TRIAL
Plaintiff hereby demands a trial by jury.
RESPECTFULLY SUBMITTED AND DATED this 17th day of June, 2021.
TURKE & STRAUSS LLP
By: /s/ Samuel J. Strauss, WSBA #46971
Samuel J. Strauss, WSBA #46971
Email: [email protected]
613 Williamson St., Suite 201
Madison, Wisconsin 53703
Telephone: (608) 237-1775
Facsimile: (608) 509-4423
Attorneys for Plaintiff
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