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Title In Re: Oreck Corporation Halo Vacuum and Air

December 3, 2012

TITLE IN RE: ORECK CORPORATION HALO VACUUM AND AIR PURIFIERS MARKETING AND SALES PRACTICES LITIGATION


The opinion of the court was delivered by: The Honorable Christina A. Snyder

CIVIL MINUTES - GENERAL

Present: The Honorable CHRISTINA A. SNYDER

CATHERINE JEANG LAURA ELIAS N/A

Deputy Clerk Court Reporter / Recorder Tape No.

Proceedings: DEFENDANT DAVID ORECK'S MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION AND TO DISMISS COUNTS X, XI, XII, XIV, XV, XVI, AND XVII (Docket #48, filed October 5, 2012)

DEFENDANTS' MOTION TO DISMISS PORTIONS OF FIRST AMENDED CONSOLIDATED COMPLAINT (Docket #47, filed October 5, 2012)

INTRODUCTION

On February 3, 2012, the Judicial Panel on Multidistrict Litigation ("MDL Panel") centralized and transferred six related cases to this Court pursuant to 28 U.S.C. § 1407.*fn1

On April 17, 2012, the Court consolidated these six cases for pretrial purposes and appointed Kirtland & Packard as interim lead class counsel. Dkt. #33. Plaintiffs' filed a Consolidated Class Action Complaint on July 13, 2012, and a First Amended Consolidated Class Action Complaint on September 7, 2012 ("FACC"). The defendants in the FACC are business entities Oreck Corporation, Oreck Direct, LLC, Oreck Homecare, LLC (collectively the "Oreck Entities"), and individual defendant David Oreck ("Mr. Oreck"). The gravamen of the FACC is that defendants falsely represented in their marketing materials that the use of Halo vacuum cleaners and XL Professional, ProShield, and ProShield Plus air purifiers has certain health benefits, germ-killing properties, and allergy-prevention abilities. The FACC asserts seventeen claims for relief, including claims for breach of warranty, violation of state consumer protection statutes, unfair and deceptive trade practices, and fraud.

On October 5, 2012, David Oreck moved to dismiss for lack of personal jurisdiction the cases arising out of Florida and Ohio, and also moved to dismiss seven claims asserted against him in the FACC for failure to state a claim. Also on October 5, 2012, the Oreck Entities moved to dismiss portions of the FACC. On November 7, 2012, plaintiffs filed oppositions to both motions, and defendants replied on November 2012. Defendants' motions are before the Court.

BACKGROUND

The FACC alleges that defendants engaged in a deceptive marketing campaign promoting Oreck Halo upright vacuum cleaners and Oreck XL Professional, Oreck ProShield, and Oreck ProShield Plus air purifiers (collectively "the Oreck products"). FACC ¶ 1. According to the FACC, defendants advertised that the Oreck products were effective in killing airborne pathogens, that they were scientifically proven to have these pathogen eliminating properties, and that using the products reduced the risk of contracting the flu or other diseases. FACC ¶¶ 1, 56 -- 57. The FACC alleges that this advertising campaign was "nationally uniform," and that the products were promoted in "infomercials, print ads, on [the defendants'] websites, on the products, the product pacakaging, the product labels, and in the products' user's guides." FACC ¶ 29. This advertising campaign allegedly claimed that the Oreck products could eliminate up to 99% of the pathogens either on a consumer's home floor or airborne in the consumer's home. FACC ¶ 31, 39. The FACC gives several examples of the allegedly deceptive advertising. FAC ¶¶ 36 -- 55.

Plaintiffs in this case each purchased the products after viewing marketing materials from the national marketing campaign. In particular, plaintiff Edge purchased a Halo vacuum after viewing an infomercial, plaintiff Chenier purchased a Halo vacuum after viewing an online video, plaintiff Yosri purchased a Halo vacuum after viewing a late night video advertisement, plaintiff Stiepleman purchased a ProShield Plus air purifier after viewing a video advertisement, plaintiff Ruscitti purchased a Halo vacuum cleaner after viewing an infomercial, plaintiff Latta purchased a Halo vacuum cleaner after viewing online advertisements, and plaintiff Paragin purchased a ProShield air purifier and Halo vacuum after seeing an infomercial and viewing online advertisements. FACC ¶¶ 59 -- 70. Each plaintiff seeks to recover the full purchase price paid for an Oreck product, or alternatively the difference between the price they paid and the price they would have had to pay had the products been marketed without the alleged false statements. FACC ¶ 74.

The FACC alleges that David Oreck "was a central participant" in the misleading marketing campaign. It alleges that his image and signature appeared in print advertisements that were nationally circulated, and that he appeared in infomercials that aired around the country, including in the six states in which plaintiffs' in this action reside (California, Illinois, Ohio, Utah, New York and Florida). FACC ¶¶ 18 -- 19; 23 -- 25. Additionally, the FACC provides examples of the advertisements in which Mr. Oreck allegedly appeared. See, e.g., FACC ¶ 50 (infomercial).

LEGAL STANDARD

A. Rule 12(b)(6)

A Rule 12(b)(6) motion tests the legal sufficiency of the claims asserted in a complaint. "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the 'grounds' of his 'entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). "[F]actual allegations must be enough to raise a right to relief above the speculative level." Id.

In considering a motion pursuant to Rule 12(b)(6), a court must accept as true all material allegations in the complaint, as well as all reasonable inferences to be drawn from them. Pareto v. F.D.I.C., 139 F.3d 696, 699 (9th Cir. 1998). The complaint must be read in the light most favorable to the nonmoving party. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001); Parks Sch. of Bus., Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). However, "[i]n keeping with these principles a court considering a motion to dismiss can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth. While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations." Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1950, 129 S.Ct. at 1950.

; Moss v. United States Secret Service, 572 F.3d 962, 969 (9th Cir. 2009) ("[F]or a complaint to survive a motion to dismiss, the non-conclusory 'factual content,' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief.") (citing Twombly and Iqbal); Sprewell, 266 F.3d at 988; W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). Ultimately, "[d]etermining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense."

Furthermore, unless a court converts a Rule 12(b)(6) motion into a motion for summary judgment, a court cannot consider material outside of the complaint (e.g., facts presented in briefs, affidavits, or discovery materials). In re American Cont'l Corp./Lincoln Sav. & Loan Sec. Litig., 102 F.3d 1524, 1537 (9th Cir. 1996), rev'd on other grounds sub nom Lexecon, Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26 (1998). A court may, however, consider exhibits submitted with or alleged in the complaint and matters that may be judicially noticed pursuant to Federal Rule of Evidence 201. In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 986 (9th Cir. 1999); Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001).

For all of these reasons, it is only under extraordinary circumstances that dismissal is proper under Rule 12(b)(6). United States v. City of Redwood City, 640 F.2d 963, 966 (9th Cir. 1981).

As a general rule, leave to amend a complaint which has been dismissed should be freely granted. Fed. R. Civ. P. 15(a). However, leave to amend may be denied when "the court determines that the allegation of other facts consistent with the challenged pleading could not possibly cure the deficiency." Schreiber Distrib. Co. v. Serv-Well Furniture, 806 F.2d 1393, 1401 (9th Cir. 1986); see Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000).

B. Personal Jurisdiction

In order for a court to exercise personal jurisdiction over a nonresident defendant, that defendant must have "minimum contacts" with the forum state so that the exercise of jurisdiction "does not offend traditional notions of fair play and substantial justice." Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). Depending on the nature of the contacts between the defendant and the forum state, personal jurisdiction is characterized as either general or specific. A court has general jurisdiction over a nonresident defendant when that defendant's activities within the forum state are "substantial" or "continuous and systematic," even if the cause of action is "unrelated to the defendant's forum activities." Perkins v. Benguet Consol. Mining Co., 342 U.S. 437, 446-47 (1952); Data Disc, Inc. v. Sys. Tech. Assocs., Inc., 557 F.2d 1280, 1287 (9th Cir. 1977).

The standard for establishing general jurisdiction is "fairly high" and requires that the defendant's contacts be substantial enough to approximate physical presence. Bancroft & Masters, Inc. v. Augusta Nat'l Inc., 223 F.3d 1082, 1086 (9th Cir. 2000). "Factors to be taken into consideration are whether the defendant makes sales, solicits or engages in business in the state, serves the state's markets, designates an agent for service of process, holds a license, or is incorporated there." Id. (finding no general jurisdiction when the corporation was not registered or licensed to do business in California, paid no taxes, maintained no bank accounts, and targeted no advertising toward California). Occasional sales to residents of the forum state are insufficient to create general jurisdiction. See Brand v. Menlove Dodge, 796 F.2d 1070, 1073 (9th Cir. 1986).

A court may assert specific jurisdiction over a claim for relief that arises out of a defendant's forum-related activities. Rano v. Sipa Press, Inc., 987 F.2d 580, 588 (9th Cir. 1993). The test for specific personal jurisdiction has three parts:

(1) The defendant must perform an act or consummate a transaction within the forum, purposefully availing himself of the privilege of conducting activities in the forum and invoking the benefits and protections of its laws;

The claim must arise out of or result from the defendant's forum-related activities; and

(2)

(3) Exercise of jurisdiction must be reasonable.

; see also Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475-76 (1985). The plaintiff bears the burden of satisfying the first two prongs, and if either of these prongs is not satisfied, personal jurisdiction is not established. Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 802 (9th Cir. 2004).

The purposeful availment prong is treated differently in a contracts case. Because a contract is "ordinarily but an intermediate step serving to tie up prior business negotiations with future consequences which themselves are the real object of the business transaction ," a court must evaluate four factors to determine whether this prong is met: (1) prior negotiations, (2) contemplated future consequences, (3) the terms of the contract, (4) the parties' actual course of dealing. Burger King, 471 U.S. at 478-79.

If the plaintiff establishes the first two prongs regarding purposeful availment and the defendant's forum-related activities, then it is the defendant's burden to "present a compelling case" that the third prong, reasonableness, has not been satisfied. Schwarzenegger, 374 F.3d at 802 (quoting Burger King, 471 U.S. at 477). The third prong requires the Court to balance seven factors: (1) the extent of the defendant's purposeful availment, (2) the burden on the defendant, (3) conflicts of law between the forum state and the defendant's state, (4) the forum's interest in adjudicating the dispute, (5) judicial efficiency, (6) the plaintiff's interest in convenient and effective relief, and (7) the existence of an alternative forum. Roth v. Garcia Marquez, 942 F.2d 617, 623 (9th Cir. 1991).

Where, as here, a court decides a motion to dismiss for lack of personal jurisdiction without an evidentiary hearing, the plaintiff need only make a prima facie showing of jurisdictional facts to withstand the motion to dismiss. Ballard v. Savage, 65 F.3d 1495, 1498 (9th Cir. 1995); Doe v. Unocal Corp., 27 F. Supp. 2d 1174, 1181 (C.D. Cal. 1998), , 248 F.3d 915 (9th Cir. 2001). Plaintiff's version of the facts is taken as true for purposes of the motion if not directly controverted, and conflicts between the parties' affidavits must be resolved in plaintiff's favor for purposes of deciding whether a ...


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