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Handy v. Logmein, Inc.

United States District Court, E.D. California

April 14, 2015

DARREN HANDY, individually and on behalf of all others similarly situated, Plaintiff,
LOGMEIN, INC., Defendant.


JENNIFER L. THURSTON, Magistrate Judge.

Defendant LogMeIn, Inc. seeks sanctions against Plaintiff Darren Handy and his counsel of record, Matthew Loker, pursuant to Rule 11 of the Federal Rules of Civil Procedure. (Doc. 17.) Plaintiff opposes the issuance of sanctions. (Doc. 26.) The Court heard the oral arguments of the parties at a hearing on April 14, 2014. Because Plaintiff has a factual basis for the allegations in his Complaint and Mr. Loker made a reasonable factual inquiry prior to filing the complaint, as explained below, Defendant's motion is DENIED.

I. Background

Plaintiff initiated this action by filing a complaint for himself and others similarly situated, seeking to challenge "Defendant's misleading business practices that caused Plaintiff damages." (Doc. 1 at 2, ¶ 1.) Plaintiff alleged he purchased an application ("app") called Ignition from Defendant for $29.99 on April 4, 2010. ( Id. at 3, ¶ 14.) According to Plaintiff, Ignition was advertised by Defendant as "One app to control all your information, " manage files, expand an iPad's possibilities, and "to be more productive." ( Id. at 3-4, ¶¶ 15-18.) Plaintiff alleged the advertising explained: "With one touch, you can directly control all of your computers from your iPad or iPhone. It's anywhere, anytime access to everything on your PC or Mac - all your files, applications and desktops - right at your fingertips." ( Id. at 4, ¶ 15.)

Plaintiff alleged that on January 21, 2014, "Defendant abruptly informed consumers... that consumers would no longer be able to utilize Ignition the functions for which consumers previously paid $29.99.[1] (Doc. 1 at 4, ¶ 19.) Further, Plaintiff alleged Defendant stated that customers who "desired to continue using Ignition are required to purchase an account-level subscription of LogMeIn Pro, " which ranges in an annual cost from $99.00 for an individual to $449.00 for small businesses. ( Id., ¶ 20.) Plaintiff asserted that when induced to purchase Ignition, "Defendant did not inform Plaintiff that additional fees beyond the $29.99 already paid to download the app would ever be required to continue usage of Ignition." ( Id. at 5, ¶ 22.) Plaintiff alleged that as of August 19, 2014, he could "no longer utilize Defendant's app without paying [an] undisclosed fee now required by Defendant." ( Id., ¶ 23.) Based upon these factual allegations, Plaintiff asserted Defendant is liable for violations of California Business & Professions Code Section 17200, which prohibits unfair, unlawful, and fraudulent business practices. ( See Doc. 1 at 6-10.)

Defendant waived service of the Complaint on December 1, 2014. (Doc. 9.) Defendant served Plaintiff with a draft of the motion for sanctions on January 9, 2015, pursuant to Rule 11(c)(2) of the Federal Rules of Civil Procedure. (Doc. 17 at 3.) Defendant filed the motion with the Court, as well as a motion to dismiss the complaint, on January 30, 2015.[2] (Docs. 17, 18.) Plaintiff filed a First Amended Complaint on February 17, 2015. (Doc. 19.) Accordingly, Defendant withdrew the motion to dismiss. (Doc. 22.) However, the amended pleading, filed beyond the safe harbor period, did not render the motions for sanctions moot. See Grynberg v. Ivanhoe Energy, Inc., 663 F.Supp.2d 1022, 1026 (D. Colo. 2009).

II. Legal Standard

Parties and their counsel have an obligation to file non-frivolous actions pursuant to Rule 11 of the Federal Rules of Civil Procedure, which "is intended to reduce the burden on district courts by sanctioning, and hence deterring, attorneys who submit motions or pleadings which cannot reasonably be supported in law or in fact. Golden Eagle Distrib. Corp. v. Burroughs Corp., 801 F.2d 1531, 1536 (9th Cir. 1986); see also Cooter & Gell v. Hartmarx Corp. 496 U.S. 384, 393 (1990) ("the central purpose of Rule 11 is to deter baseless filings in District Court"). Specifically, Rule 11 provides:

By presenting to the court a pleading, written motion, or other paper... an attorney or unrepresented party certifies that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances: (1) it is not being presented for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation; (2) the claims, defenses, and other legal contentions are warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law; (3) the factual contentions have evidentiary support or, if specifically so identified, will likely have evidentiary support after a reasonable opportunity for further investigation or discovery; and (4) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on belief or a lack of information.

Fed. R. Civ. P. 11. The Ninth Circuit explained that "[u]nder the plain language of the rule, when one party files a motion for sanctions, the court must determine whether any provisions of subdivision (b) have been violated." Warren v. Guelker, 29 F.3d 1386, 1390 (9th Cir. 1994). If Rule 11(b) was violated, the court "may" impose sanctions. Id. at 1390.

When, as here, the challenged pleading is a complaint, the Court "must conduct a two-prong inquiry to determine (1) whether the complaint is legally or factually baseless from an objective perspective, and (2) if the attorney has conducted a reasonable and competent inquiry before signing and filing [the complaint]." Holgate v. Baldwin, 425 F.3d 671, 676 (9th Cir. 2005) (quoting Christian v. Mattel, Inc., 286 F.3d 1118, 1127 (9th Cir. 2002). Therefore, the Court may only find a complaint is "frivolous" and in violation of Rule 11 if it is " both baseless and made without a reasonable and competent inquiry.'" Id. (quoting Moore v. Keegan Mgmt. Co., 78 F.3d 421, 434 (9th Cir. 1996) (emphasis in original). The inquiry requirement is satisfied if there is " any factual basis for [an] allegation." Brubaker v. City of Richmond, 943 F.2d 1363, 1377 (4th Cir. 1991) (emphasis added).

III. Discussion and Analysis

Defendant argues the initial complaint filed by Plaintiff "lacks any objective factual basis." (Doc. 17 at 14.) According to Defendant, "Plaintiff's entire theory of liability rests upon the demonstrably false factual allegation that users who purchased the App no longer have access to it without paying an additional subscription fee." ( Id. ) Defendant maintains that, contrary to Plaintiff's allegations, "all App users-to this day-still have full access to the App without paying any additional subscription fees." ( Id. ) Defendant asserts the subscription fee applies to "LogMeIn's separate and distinct premium service, LogMeIn Pro." ( Id. )

In addition, Defendant argues, "Plaintiff's counsel failed to make a reasonable inquiry into the relevant facts prior to filing suit." (Doc. 17 at 15.) Defendant asserts that it appears Plaintiff relied entirely upon a blog posted by LogMeIn on January 21, 2014, which "merely provided notice of upcoming changes to LogMeIn's suite of products, namely LogMeIn Pro, and alerted users to potential future developments, the details of which would be communicated to users in future messages." ( Id. ) Defendant contends, "Even the most cursory investigation by Plaintiff at any point in time prior ...

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