Marketing Products v. Healthandbeautydirect.Com

• Decision Date: 07 September 2004
• Docket Number: Civ. No. AMD 03-3064.
• Citation: 333 F.Supp.2d 418
• Parties: MARKETING PRODUCTS MANAGEMENT, LLC and Chris Lundin, Plaintiffs, v. HEALTHANDBEAUTYDIRECT.COM, INC., Venture Cycle, LLC, VI Holdings, Inc., DMSG Holdings, Inc., Venture Media Limited Partnership, Ventech, Inc., and Brian Fraidin, Defendants.
• Court: U.S. District Court — District of Maryland

333 F.Supp.2d 418

MARKETING PRODUCTS MANAGEMENT, LLC and Chris Lundin, Plaintiffs, v. HEALTHANDBEAUTYDIRECT.COM, INC., Venture Cycle, LLC, VI Holdings, Inc., DMSG Holdings, Inc., Venture Media Limited Partnership, Ventech, Inc., and Brian Fraidin, Defendants.

Civ. No. AMD 03-3064.

United States District Court, D. Maryland.

September 7, 2004.

JoAnne Zawitoski, Alexander M. Giles, Robert Leigh Hebb, Semmes Bowen and Semmes PC, Baltimore, MD, for Plaintiffs.

Lisa Crowley DeLessio, William C. Davis, III, Shulman Rogers Gandal Pordy and Ecker PA, Rockville, MD, for Defendants.

T. Christine Pham, Rosenberg Martin Funk Greenberg LLP, Baltimore, MD, for Consolidated Counter-Claimants.

MEMORANDUM OPINION

DAVIS, District Judge.

Plaintiffs, Marketing Products Management, LLC ("MPM") and Christopher Lundin, have instituted two federal claims and numerous state law claims against Brian Fraidin and several of the entities Fraidin controls: Healthandbeautydirect.com, Inc. ("HBD"), Venture Cycle, LLC ("Venture Cycle"), VI Holdings, Inc., DMSG Holdings, Inc. ("DMSG"), Venture Media Limited Partnership ("Venture Media"), and Ventech, Inc. ("Ventech"). Complete diversity of citizenship is absent. The two federal claims alleged by plaintiffs are said to arise under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. ("RICO"), and section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). All of plaintiffs' claims grow out of disputes over an agreement entered into by HealthandBeautyDirect, Inc. (a predecessor of defendant Healthandbeautydirect.com, Inc.), and MPM to market the LandRider, a bicycle with patented technology allowing the bike's gears to shift automatically.

Now before the court are defendants' motions to dismiss. The motions have been fully briefed and a hearing has been held. For the reasons stated herein, the motions shall be granted as to the two federal claims, and the state law claims shall be dismissed for lack of jurisdiction.

I.

The applicable standard for the review of a complaint challenged by a motion to dismiss for failure to state a claim under Fed.R.Civ.P. 12(b)(6) is well settled:

A Rule 12(b)(6) motion should only be granted if, after accepting all well-pleaded allegations in the plaintiff's complaint as true, it appears certain that the plaintiff cannot prove any set of facts in support of his claim entitling him to relief. See Edwards v. City of Goldsboro, 178 F.3d 231, 244 (4th Cir.1999). Furthermore, the "Federal Rules of Civil Procedure do not require a claimant to set out in detail the facts upon which he bases his claim." Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). Rather, Rule 8(a)(2) requires only a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2).

Migdal v. Rowe Price-Fleming Int'l, Inc., 248 F.3d 321, 325-26 (4th Cir.2001). It is also important to be mindful, however, that the defendants are entitled to have the legal sufficiency of the complaint fully examined and that, although the truth of all facts is assumed, consistent with the complaint's allegations, see Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984); Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957), the court need not accept the legal conclusions drawn from the facts, see Schatz v. Rosenberg, 943 F.2d 485, 489 (4th Cir.1991), or unwarranted inferences, unreasonable conclusions, or arguments. See generally 5A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure §§ 1357 (2d ed.1990 & 2004 Supp.).

II.

The following events state the basis of plaintiffs' claims. Of course, the factual allegations of the amended complaint are viewed (and any inferences from them are drawn) in the light most favorable to plaintiffs.

The Parties

Plaintiff MPM is a Delaware limited liability company with its principal place of business in Maryland. Am. Compl. (Hereinafter "Compl.") ¶ 2. Plaintiff Chris Lundin, the sole managing member of MPM, resides in Delaware. Id. Defendants HBD, Venture Cycle, VI Holdings, DMSG, and Ventech are Delaware corporations with principal places of business in Maryland. Id. ¶¶ 3-8. Venture Media is a Maryland limited partnership with its principal place of business in Maryland. Id. ¶ 7.

HBD, VI Holdings, DMSG, and Venture Media were engaged in the business of marketing products through "direct response advertising." Id. ¶¶ 3, 5-7. Fraidin created Venture Cycle in consequence of his dealings with plaintiffs to develop a parent brand name for the LandRider, limit HBD's liability for potential product liability claims from LandRider sales, accept LandRider sales revenues and facilitate LandRider accounting. Id. ¶ 4. Ventech was the largest shareholder in HBD. Id. ¶ 8. Fraidin controls each of these entities. Id. ¶ 9.

MPM was in the business of acquiring products and, like the defendants, marketing them through "infomercials." Id. ¶ 12.¹ In or about June 2000, Lundin acquired the exclusive rights to make and sell the LandRider. Id. ¶ 13. Lundin worked with the inventor to design and to obtain patents for the product. He spent $150,000 and 18 months in uncompensated time on development of the LandRider. Id.

The Agreement

In October 2000, Fraidin, acting on behalf of HBD, responded to MPM's search for a joint venture partner to market and sell the LandRider on a world-wide basis. Id. ¶ 14. During the negotiations over an agreement, HBD, through Fraidin, made the following allegedly false representations by telephone, electronic mail and facsimile transmission:

. HBD was partnered with major national and international media outlets enabling HBD to advertise products via television and print ads at deeply discounted rates;

. Sinclair Broadcasting Group was an investor in HBD, providing HBD with the necessary financial backing to market the LandRider nationally and internationally; and

. John Schulberg, a well-known infomercial producer, was a member of HBD's management team.

Id. ¶ 16.

Effective as of January 1, 2001, MPM and HBD entered into a so-called "Consulting Agreement" (hereinafter, "the Agreement"). Pursuant to the Agreement, MPM agreed to assign its right to source, manufacture, market, and sell the LandRider, and to provide consulting services to HBD in connection with product sourcing, development, production, and marketing of the LandRider. Id. ¶ 18. In consideration for the assignment and MPM's consulting services, HBD agreed to pay compensation to MPM during the terms of the Agreement, to include: (1) specific monthly fees; (2) expense reimbursement; (3) 20% of direct operating profit; and (4) 20% of net purchase proceeds in the event of sale of all or substantially all of the assets, stock, or ownership in the LandRider. Id. ¶¶ 20-21. In accordance with these terms, HBD would provide MPM with a quarterly accounting of LandRider sales. Id. ¶ 33.²

The initial nine-month term of the Agreement expired on September 30, 2001; a subsequent three-month term expired on December 31, 2001. Id. ¶ 24. Meanwhile, on or about October 31, 2001, HBD and Fraidin advised MPM and Lundin that HBD would renew the Agreement for a third term only if Lundin agreed either to accept part-time employment with HBD in exchange for a sharply reduced monthly compensation, or, alternatively, only if MPM agreed to reduce its 20% equity participation.³ Id. ¶ 25. Ultimately, the Agreement terminated. Id. ¶ 27. MPM received no additional profit participation or quarterly accountings. Id. ¶ 28.

The Infomercial

In or about January 2001, Lundin participated in the creation of, and appeared in, a LandRider infomercial. Id. ¶ 43. After the termination of the Agreement, HBD produced another infomercial, apparently an edited version of the original.⁴ The infomercial identifies Lundin as a "member of the Design team" for Venture Cycle and depicts him wearing a Venture Cycle t-shirt. Id. There were no separate negotiations over Lundin's appearance in the infomercial, and he signed no writing governing his appearance in the infomercial or HBD's future use of the infomercial. Nevertheless, Lundin alleges that his "reasonable expectation was that his likeness would only be used as long as he was employed and compensated as a [HBD consultant] pursuant to the Agreement." Id. Once the Agreement terminated, Lundin repeatedly — and unsuccessfully — requested that HBD and Fraidin edit Lundin out of the infomercial. Id. ¶ 45. The infomercial was still being broadcast at the time the amended complaint was filed. Id.

Predicate Acts

In purporting to allege a RICO claim, plaintiffs have included in the amended complaint the following description of alleged "fraudulent misrepresentations" made by Fraidin to non-parties to this case:

(1) The Schulberg Matter

In or around November 1, 1999, Fraidin induced Jon Schulberg, the principal of Schulberg Media Works, Inc. (collectively, "Schulberg"), to produce infomercials for Fraidin's businesses at or below cost and to provide marketing to HBD in exchange for a position on HBD's management team and stock options in HBD. He also represented that HBD would soon become a publicly traded company. Id. ¶ 47. Fraidin also told Schulberg that HBD had partnered with Sinclair Broadcasting Group, Inc., and that Sinclair had agreed to give HBD preferential rates for the airing of all infomercials, which would result in greater profit distribution to Schulberg. Id. MPM alleges that these statements were false and misleading when made and were intended to induce Schulberg to rely on them to his detriment. Id. ¶ 48. Schulberg produced infomercials, including a LandRider infomercial, but Fraidin did not compensate him. Id. ¶ 50. MPM alleges that Fraidin then "marketed" industry leaders Schulberg and Nick Cirmo to Lundin and others as shareholders and members of HBD so that Fraidin could trade on Schulberg's industry status when in fact...