Opinion
No. C 04-0569 MJJ.
November 8, 2004
ORDER DENYING DEFENDANT'S MOTION TO STRIKE ALLEGATIONS OF FALSE ADVERTISING
INTRODUCTION
Before the Court is Defendant E.piphany, Inc.'s motion to strike allegations of false advertising from Plaintiff Sigma Dynamic, Inc.'s first amended complaint ("FAC"). Plaintiff opposes this motion. For the reasons set forth below, the Court DENIES Defendant's motion.
BACKGROUND
The facts of this case were set forth in the Report and Recommendation issued by Magistrate Judge Laporte on May 21, 2004 and need not be repeated here in their entirety. It is sufficient for the purposes of the instant motion to note the following. Plaintiff's original complaint asserted claims for false advertising pursuant to the Lanham Act. 15 U.S.C. § 1125(a). In response to Defendant's motion to dismiss, Judge Laporte recommended dismissing, with leave to amend, those claims that alleged false statements 1) made to investors, 2) that occurred before Plaintiff began competing with Defendant, and 3) made by third-parties and not republished for the purpose of influencing Defendant's consumers. This Court issued an Order adopting this recommendation on June 28, 2004. On July 15, 2004, Plaintiff filed its FAC, attempting to comply with the pleading recommendations set forth by Judge Laporte.
LEGAL STANDARD
Under Rule 12(f), a court may strike "any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed.R.Civ.P. 12(f). "'Immaterial' matter is that which has no essential or important relationship to the claim for relief or the defenses being pleaded." Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993) (quoting 5 Charles A. Wright Arthur R. Miller, Federal Practice and Procedure § 1382, at 706-707 (1990)). "'Impertinent' matter consists of statements that do not pertain, and are not necessary, to the issues in question." Id. at 1527 (quoting Wright Miller at 711). "[C]ourts must view the pleadings under attack in the light more favorable to the pleader." Lazar v. Trans Union LLC, 195 F.R.D. 665, 669 (N.D. Cal. 2000).
"[S]triking a party's pleadings is an extreme measure, and, as a result . . . 'motions to strike . . . are viewed with disfavor and are infrequently granted.'" Stanbury Law Firm v. I.R.S., 221 F.3d 1059, 1063 (8th Cir. 2000) (quoting Lunsford v. United States, 570 F.2d 221, 229 (8th Cir. 1997)). These motions will generally be denied "unless it is clear that matter to be stricken could have no possible bearing on the subject matter of litigation." Lazar, 195 F.R.D. at 669 (quoting LeDuc v. Kentucky Cent. Life Ins. Co., 814 F. Supp. 820, 830 (N.D. Cal. 1992)). Additionally, motions to strike will be denied if there is a mixed question of law and fact that cannot be resolved. See 4 Charles Alan Wright Arthur R. Miller, Federal Practice and Procedure § 1381 (3d ed. 2004). These questions are more appropriately addressed either on a summary judgment motion or at trial. Id.
ANALYSIS
I. Statements to InvestorsPlaintiff's original complaint alleged that Defendant advertised its products through earnings conference calls with investors. (Compl. ¶ 14.) Judge Laporte recommended that the Court find "[s]tatements made during an earnings conference call primarily to influence investors that may have an incidental effect on promoting goods to customers are not with the reach of the Lanham Act." (Rep. at 4:17-19 (relying on Rice v. Fox Broadcasting Co., 330 F.3d 1170, 1181 (9th Cir. 2002).) The Court adopted her recommendation that Plaintiff amend the complaint to show that the purpose of the investor calls was to sell Defendant's goods. (Rep. at 4:25-26.)
Defendant argues that the purpose of the earnings conference calls was to report E.piphany's financial condition, and that Plaintiff has at most alleged, in its FAC, an incidental effect on promotion or advertising — insufficient to proof a false advertising claim under the Lanham Act. (Defendant's Motion to Strike ("Mot.") at 7:24-26.) To prove a false advertising claim, a claimant must establish that the defendant, in advertisements, "made false statements of fact about its own or another's product." 15 U.S.C. § 1125(a)(1)(B). The Ninth Circuit has held that statements constitute commercial advertising if they are:
1) commercial speech; 2) by a defendant who is in commercial competition with plaintiff; 3) for the purpose of influencing consumers to buy defendant's goods or services. While the representations need not be made in a 'classic advertising campaign,' but may consist instead of more informal types of 'promotion,' the representations 4) must be disseminated sufficiently to the relevant purchasing public to constitute 'advertising' or 'promotion' within that industry.Rice, 330 F.3d at 1181.
Whether "representations" were sufficiently disseminated to the purchasing public for the purpose of influencing consumers to buy Defendant's product is a question of fact. Plaintiff alleges that Defendant "advertises and promotes its product through the statements it makes to industry and financial analysts." (FAC ¶ 15.) Further, Plaintiff alleges that Defendant's conference calls were open to the public, which allowed "[m]any customers and prospective customers for E.piphany's (and Sigma's) software [to] listen in on these calls. . . . E.piphany knows that statements made about its products on these calls directly or indirectly influence the software purchasing decisions of large IT departments." (FAC ¶ 21.) These pleadings, viewed in a light more favorable to Plaintiff, are sufficient at this stage in the litigation. While Defendant is correct in noting that no court has held that statements made to investors are actionable under the Lanham Act (Reply ("Rep.") at 2:21-22.), Defendant fails to note that no court has even addressed this issue. Simply stated, the Court will not extend a Rule 12(f) motion to strike into a mechanism for making factual inferences, deciding credibility issues, or determining purely legal questions. Plaintiff's amended allegations are neither immaterial nor impertinent, and therefore do not warrant the granting of Defendant's motion to strike.
Additionally, Defendant interprets Rice and Judge Laporte's report to require that Plaintiff plead that the "primary purpose" of the investor statements was to advertise. (Rep. at 2:22-24.) This heightened burden is not evidenced in the report or relevant case law.
Similarly, the Court will not decide policy issues — specifically, whether allowing the FAC to stand undermines the pleading requirements of the Private Securities Litigation Reform Act. 15 U.S.C. § 78a et seq.
II. Allegedly False Statements Made Before Plaintiff Competed with Defendant
Plaintiff's original complaint and FAC alleged that Defendant made false statements as early as August 2002. (Compl. ¶ 17; FAC ¶ 18.) Plaintiff's original complaint alleged that it was founded in early 2003, but in its opposition to Defendant's motion to dismiss, it contended that Sigma Dymanics was founded in October 2002. Upon the recommendation of Judge Laporte, the Court gave Plaintiff leave to amend to show that Defendant's statements made before "actual competition commenced" harmed Plaintiff. (Report at 5:13-22.) In its FAC, Plaintiff now alleges that it was founded in August 2002 — the same period that the allegedly false statements were made. (FAC ¶ 8.)
The Ninth Circuit holds that representations constitute commercial advertising under the Lanham Act if they are made "by a defendant who is in commercial competition with plaintiff." Rice, 330 F.3d at 1170. The court does not, however, establish a temporal standing requirement in order for plaintiffs to bring a false advertising claims. In addition, none of the cases relied upon by the parties sufficiently address whether a plaintiff, who is in competition with a defendant at the time the false advertising suit is filed, must be in competition with defendant at the time the false statement was made. See Telecom Int'l Am., Ltd. v. ATT Corp., 280 F.3d 175, 197 (2d Cir. 2001) (finding that the plaintiff, call-turnaround provider, did not have standing because the defendant's statements were made as an equipment and service provider, not as a call-turnaround provider competitor); Princeton Graphics Operating, L.P. v. NEC Home Electronics, Inc., 732 F. Supp. 1258, 1264-1265 (S.D.N.Y. 1990) (requiring that plaintiff show it is likely to be damaged as a result of the false advertising); West Indian Sea Island Cotton Ass'n v. Threadtex, Inc., 761 F. Supp. 1041, 1049 (S.D.N.Y. 1991) (finding that competition between the plaintiff and the defendant may be direct or indirect for claims under the Lanham Act).
Defendant relies on these above-mentioned cases to show the deficiencies in Plaintiff's FAC. First, Defendant notes that Plaintiff, unlike the plaintiff in Princeton Graphics, failed to make concrete factual charges that show a competitive injury. (Rep. at 5, 6:1-4.) Second, Defendant relies on Threadtex to argue that Plaintiff failed to allege that the pre-competition statements affected the market for its products. (Rep. at 6:5-13.) Princeton Graphics (bench trial decision) and Threadtex (motion for summary judgment) are distinguishable for the sole reason that neither decision was in the context of a motion to strike. Thus, the plaintiffs in those cases had to put forth evidence establishing their false advertising claims. On the contrary, at this stage in the litigation, Plaintiff is only required to plead "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2).
Regardless of the pleading standard for false advertising claims ( see Part IV), Plaintiff alleges that it was founded in August 2002, that Defendant began making false statements in August 2002, and that these statements have damaged, and continue to present the likelihood of damage to its business. (FAC ¶¶ 8, 18, 43.) These allegations are sufficient to defeat Defendant's motion to strike.
III. Republished Opinion Statements Made by Third Parties
The Court adopted Judge Laporte's finding that Plaintiff's original complaint insufficiently plead a claim for liability for republication. (Report at 6:13-14.) First, Plaintiff's allegations in its original complaint focused on the research reports, and not on whether Defendant republished them. Second, Plaintiff failed to show that the republished reports were targeted at consumers. (Report at 6:14-21.) In its FAC, Plaintiff alleges that "E.piphany republishes many of the industry analysts' misleading reports, further misleading customers and prospective customers who rely on these reports and on E.phiphany's own statements when making purchasing decisions." (FAC ¶ 34; see also ¶¶ 39-40.) Defendant argues that Plaintiff fails to satisfy the Court's order to more precisely allege republication. (Mot. at 11-13:13-14.) This argument is without merit.
Plaintiff specifically alleges the four republished statements at issue, who made them, and when they were made: 1) Patricia Seybold Group's August 2002 statement that E.6 applications were deployed on a J2EE infrastructure; 2) Patricia Seybold Group's March 2003 statement that E.piphany's product suite is "[b]uilt on collections of EJBs and BIOs components that are specified in Java"; 3) Gartner Group's July 2003 statement that "[t]he E6 rewrite of the application code base into J2EE appeals to the many enterprises pursuing a Web services architecture"; and 4) Gartner Group's September 2003 statement that "E.piphany's current release establishes a full suite under common tools and compatibility with several J2EE-compliant commercial application servers." (FAC ¶¶ 35-39.) With regard to Patricia Seybold Group's two statements, Plaintiff alleges that Defendant republished them on its website. ( Id.) Although it is not clear where and when Defendant republished the Gartner Group statements, it is sufficient that Plaintiff is informed and believes that these statements were distributed to E.piphany customers. ( Id.) Plaintiff has complied with the Court's request that it more precisely allege Defendant's republication of false third party statements.
IV. Sufficiency of Plaintiff's Allegations
Defendant presents a catch-all argument at the conclusion of its motion to strike, asserting that Plaintiff's FAC lacks the specificity required for pleading a Lanham Act false advertising violation. (Mot. at 13:21-26.) Defendant relies on Accuimage Diagnostics Corp. v. Terarecon, Inc., 260 F. Supp. 2d 941, 948 (N.D. Cal. 2003), where the court dismissed the plaintiff's false advertising claim because it failed to "allege any facts regarding the location, timing, or content of the defendant's allegedly false statements."
First, the Court notes that Accuimage does not per se require a heightened pleading standard for Lanham Act false advertising violations. Again, all that is required is that a pleading contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2); see also Summit Tech., Inc. v. High-Land Med. Insts., Co., 933 F. Supp. 918, 937 (C.D. Cal. 1996) (noting that Rule 8(a), in the context of a false advertising claim, does not require the plaintiff to set forth specific allegations or evidentiary facts).
Second, the Court finds that even if a heightened pleading standard were required for false advertising violations, Plaintiff has met this standard. Plaintiff, throughout its FAC, explicitly states the alleged false statements at issue, who made them, and when they were made. Further, Plaintiff alleges that these statements damaged its sales, profits, and business reputation. Plaintiff's FAC has sufficiently put Defendant on notice to defend these allegations.
CONCLUSION
For the foregoing reasons, Defendant's motion to strike is DENIED.