F.T.C. v. Innovative Marketing, Inc., Civil Action No. RDB-08-3233.

• Decision Date: 16 September 2009
• Docket Number: Civil Action No. RDB-08-3233.
• Parties: FEDERAL TRADE COMMISSION, Plaintiff, v. INNOVATIVE MARKETING, INC., et al., Defendants.
• Court: U.S. District Court — District of Maryland

654 F.Supp.2d 378

FEDERAL TRADE COMMISSION, Plaintiff, v. INNOVATIVE MARKETING, INC., et al., Defendants.

Civil Action No. RDB-08-3233.

United States District Court, D. Maryland.

September 16, 2009.

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Carmen Louise Christopher, Colleen Brennan Robbins, Ethan R. Arenson, Federal Trade Commission, Washington, DC, for Plaintiff.

William Thomas Welch, General Counsel PC, McLean, VA, Erik William Laursen, Minnillo and Jenkins Co. LPA, Cincinnati, OH, Benjamin Dalrymple Wood, Edward S. Wisneski, Robert D. Luskin, Patton Boggs LLP, Russell D. Duncan, Garret G. Rasmussen, Jonathan Adler Direnfeld, Michael J. Madigan, Orrick Herrington and Sutcliffe LLP, Michael A. Del Negro, Winston and Strawn LLP, Washington, DC, Dan K. Webb, Justin E. Endres, Thomas L. Kirsch, II, Winston and Strawn LLP, Chicago, IL, for Defendants.

MEMORANDUM OPINION

RICHARD D. BENNETT, District Judge.

The Federal Trade Commission ("FTC") brought this case under sections 5(a) and 13(b) of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. §§ 45(a) and 53(b), for injunctive and other equitable relief against a group of corporate entities and individuals for alleged deceptive conduct in connection with the sale of software. Specifically, the FTC alleges that two companies, Defendants Innovative Marketing, Inc. ("Innovative Marketing") and ByteHosting Internet Services, LLC ("Bytehosting") operated as a common enterprise (the "IMI Enterprise" or "Enterprise") to conduct a massive "scareware"¹ scheme that marketed a variety of computer security software via deceptive advertising. Several of the companies' officers and directors, namely, Sam Jain ("Jain"), Daniel Sundin ("Sundin"), Marc D'Souza ("D'Souza"), Kristy Ross ("Ross"), and James Reno ("Reno"), are alleged to have directed or participated in the IMI Enterprise. Finally, the FTC has named Maurice D'Souza, the father of Marc D'Souza, as a defendant in this suit.

The FTC filed the present action on December 2, 2008. After a hearing was held on December 12, 2009, this Court entered a Preliminary Injunction that served to, inter alia, prohibit Defendants from continuing the alleged deceptive business activities, freeze Defendants' assets, and compel Defendants to turn over certain business records to the FTC. On March 4, 2009, Defendant Marc D'Souza filed a Motion to Dismiss under Rules 12(b)(7) and 19 (Paper No. 70), which was ultimately denied by Letter Order dated June 10, 2009 (Paper No. 110). However, in the interim period between the filing and denial of his initial motion to dismiss, Marc D'Souza filed the pending Motion to Dismiss under Rule 12(b)(6) (Paper No. 106).

D'Souza now moves this Court to dismiss the Complaint on the basis that it fails to state a claim under sections 5(a) and 13(b) of the FTC Act. He contends that the FTC has not presented sufficient factual allegations to satisfy the plausibility standard recently enunciated by the United States Supreme Court in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) and Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). All submitted briefs have been reviewed and no hearing is necessary. See Local Rule 105.6 (D.Md.2008). For the reasons stated below, D'Souza's Motion to Dismiss under Rule 12(b)(6) (Paper No. 106) is DENIED.

I. Preliminary Procedural Issue

Before proceeding to the merits of D'Souza's motion to dismiss, it is necessary to address FTC's preliminary argument that the instant motion is procedurally barred for failure to comply with Rules 12(g) and 12(h)(2) of the Federal Rules of Civil Procedure, which govern successive motions to dismiss.

Rule 12(g) sets a general limitation on successive motions to dismiss. See Fed. R.Civ.P. 12(g) ("[A] party that makes a motion under this rule must not make another motion under this rule raising a defense or objection that was available to the party but omitted from its earlier motion."). Rule 12(h)(2) then exempts from this general waiver any Rule 12(b)(6) defenses that are raised (A) in an answer; (B) in a motion for judgment on the pleadings; or (C) at trial. See Fed.R.Civ.P. 12(h)(2).

A technical reading of Rules 12(g) and 12(h)(2) appears to prevent defendants from filing successive pre-answer motions to dismiss under the circumstances present in the instant case. However, as the FTC acknowledges, many courts have interpreted these rules permissively and have accepted subsequent motions on discretionary grounds. See, e.g., Tatum v. R.J. Reynolds Tobacco Co., No. 02-373, 2007 WL 1612580, at *5-6, 2007 U.S. Dist. LEXIS 39801, at *16-19 (M.D.N.C. May 31, 2007); Mylan Laboratories, Inc. v. Akzo, N.V., 770 F.Supp. 1053, 1059 (D.Md. 1991); In re Westinghouse Sec. Litig., No. 91-354, 1998 WL 119554, at *6, 1998 U.S. Dist. LEXIS 3033, at *24 (W.D.Pa. Mar. 12, 1998). Such a permissive reading has been justified as comporting with the general spirit of the rules and as promoting the interests of efficiency. See 5C Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1392 (3d ed. 2004) ("Since the basic purpose of Rule 12(h)(2) probably is to preserve the defenses, rather than to delimit the precise timing of their assertion, this [more permissive] approach seems sound and within the spirit, if not the letter, of the provision."); Dart Drug Corp. v. Corning Glass Works, 480 F.Supp. 1091, 1095 n.3 (D.Md.1979) ("A complaint is always vulnerable to a challenge for legal sufficiency[, and] it is far more efficient to treat the arguments prior to more extensive discovery."); In re Westinghouse Sec. Litig., 1998 WL 119554, at *6, 1998 U.S. Dist. LEXIS 3033, at *23-24 (noting the efficiency benefits of addressing successive motions to dismiss).

Recognition of D'Souza's second motion to dismiss is especially warranted due to the fact that it squarely addresses the Supreme Court's recent decision in Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), which was issued after D'Souza's first motion to dismiss was filed. D'Souza now moves to dismiss on the basis that the allegations in the FTC's Complaint are insufficient to support the claims leveled against him. The Iqbal decision, together with the Supreme Court's earlier decision in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), "have refined the standard of review [a court] should apply in determining whether a plaintiff's complaint sufficiently states a claim for relief pursuant to the requirements of Rule 8." Fletcher v. Philip Morris USA Inc., No. 09-284, 2009 WL 2067807, at *4, 2009 U.S. Dist. LEXIS 63094, at *11 (E.D.Va. July 14, 2009). In addition, there is no indication that D'Souza's filing was done in order to delay the proceedings or to inconvenience or prejudice the Plaintiff. See Am. Chiropractic Ass'n v. Trigon Healthcare, Inc., No. 00-113, 2001 WL 420602, *2, 2001 U.S. Dist. LEXIS 24364, *6-7 (W.D.Va. Jan. 29, 2001) (noting that a second motion to dismiss may be permitted if it "will not visit that sort of inconvenience or prejudice upon the plaintiffs that is sought to be avoided under the federal rules"). Because D'Souza invokes a legitimate issue that was recently addressed by the Supreme Court, this Court exercises its discretion to addresses the instant 12(b)(6) motion.²

II. Standard of Review

Pursuant to Rule 8(a)(2) of the Federal Rules of Civil Procedure, a complaint must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). A motion to dismiss under Rule 12(b)(6) for failure to state a claim upon which relief can be granted is a challenge to the legal sufficiency of a complaint, as governed by Rule 8. Fed.R.Civ.P. 12(b)(6). See Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir.1999). When reviewing such challenges, courts construe the pleading requirements prescribed by Rule 8 liberally and accept "all well-pleaded allegations in the plaintiff's complaint as true and draw[ ] all reasonable factual inferences from those facts in the plaintiff's favor." Id. at 244. Traditionally, reviewing judges have operated under the oft-stated mantra that "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957).

The Supreme Court recently modified the standard of review under Rule 12(b)(6) that had prevailed for half a century. In Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) the Court dispensed with the "no set of facts" language in Conley. Instead, the Court held that to withstand a motion to dismiss, a plaintiff must plead sufficient facts to "state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570, 127 S.Ct. 1955. Under the plausibility standard, while a complaint need not contain "detailed factual allegations," it must contain "more than labels and conclusions" or a "formulaic recitation of the elements of a cause of action." Id. at 555, 127 S.Ct. 1955. In other words, the legal framework of the complaint must be supported by factual allegations that "raise a right to relief above the speculative level." Id.

In Iqbal, the Court expanded upon Twombly by explicating the analytical approach to be followed in any Rule 12(b)(6) test to the sufficiency of a complaint. First, reviewing courts are instructed to identify and segregate out the legal conclusions in the complaint, which, unlike the factual allegations, are "not entitled to the assumption of truth." Iqbal, 129 S.Ct. at 1950. Second, a court must determine whether the factual allegations "plausibly suggest an entitlement to relief." Id. at 1951. The Court advised that the "plausibility standard is...