Sukumar v. Nautilus, Inc.

• Decision Date: 19 December 2011
• Docket Number: Case No. 7:11–cv–00218.
• Citation: 829 F.Supp.2d 386
• Parties: Ponani SUKUMAR, and Southern California Stroke Rehabilitation Associates, Inc., Plaintiffs, v. NAUTILUS, INC., Defendant.
• Court: U.S. District Court — Western District of Virginia

829 F.Supp.2d 386

Ponani SUKUMAR, and Southern California Stroke Rehabilitation Associates, Inc., Plaintiffs,

v.NAUTILUS, INC., Defendant.

Case No. 7:11–cv–00218.

United States District Court, W.D. Virginia,Roanoke Division.

Dec. 19, 2011.

William B. Poff, Woods Rogers PLC, Roanoke, VA, Dae Hee Cho, Lawrence Robert Laporte, Michael Albert Tomasulo, Dickstein Shapiro LLP, Los Angeles, CA, for Plaintiffs.

Cynthia L. Santoni, Wilson Elser Moskowitz Edelman & Dicker LLP, McLean, VA, Walter Herbert Peake, III, Wade Travis Anderson, Frith Anderson & Peake PC, Roanoke, VA, Robert Wayne Harrison, Patrick Joseph Kearns, Wilson Elser Moskowitz Edelman & Dicker, LLP, San Diego, CA, for Defendant.

MEMORANDUM OPINION AND ORDER

JAMES C. TURK, Senior District Judge.

This matter is before the Court on Defendant Nautilus, Inc. (“Nautilus” or “Defendant”)'s Partial Motion to Dismiss (ECF No. 70). Plaintiffs Ponani Sukumar (“Sukumar”) and Southern California Stroke Rehabilitation Associates, Inc. (“SCSRA”) (collectively, “Plaintiffs”) have filed an Opposition (ECF No. 77), to which Nautilus has replied (ECF No. 84). Oral argument was held on December 6, 2011, and the matter is now ripe for decision. For the reasons set forth below, Nautilus's Partial Motion to Dismiss is DENIED.

I. FACTUAL AND PROCEDURAL BACKGROUND

This case, although still in its early stages, has already amassed a significant procedural history. Sukumar and SCSRA originally filed a Complaint against Nautilus in the Central District of California, accusing it of falsely marking a number of products in contravention of 35 U.S.C. § 292 (“Section 292”). See Compl., Oct. 20, 2011, ECF No. 1. On Nautilus's motion (ECF No. 20), the case was subsequently transferred to this District. See Ord. Re Def's Mot. to Transfer, May 9, 2011, ECF No. 34. On June 3, 2011, Nautilus filed a motion to stay these proceedings. In support of its motion, Nautilus argued that a case determining the constitutionality of Section 292 was pending before the Federal Circuit, and that legislation which would affect the outcome of this case was pending in Congress. See Def.'s Mot. to Stay, June 3, 2011, ECF No. 51. The Court agreed with Nautilus that a stay was appropriate in this case, and on June 30, 2011, ordered that the proceedings be stayed until the earlier of (1) 180 days from the date of the order; (2) Section 292 was amended by legislative act; or (3) the Federal Circuit ruled on Section 292's constitutionality.

On September 16, 2011, President Obama signed into law the Leahy–Smith America Invents Act, Pub.L. 112–29, 125 Stat. 284 (2011) (“America Invents Act”), which, inter alia, amended Section 292 to eliminate the qui tam provisions and institute a “competitive injury” requirement for false marking suits. The Court subsequently lifted its litigation stay. Ord. Lifting Stay, Sept. 19, 2011, ECF No. 68. In light of the changes in the law, Sukumar and SCSRA filed a First Amended Complaint (“FAC”). In the FAC, Plaintiffs modified their Section 292 claim to allege bad faith on the part of Nautilus and explicitly allege that they suffered a competitive injury as a result of Nautilus's false marking. They also brought forth three additional state law claims: false advertising in violation of California law, unfair competition in violation of California law, and unfair competition in violation of Washington law. Nautilus responded with the instant Partial Motion to Dismiss, arguing that the state law claims are preempted by federal law and accordingly fail to state claims upon which relief can be granted.¹

II. STANDARD OF REVIEW

A complaint must include a short and plain statement of the claim under which the pleader is entitled to relief. Fed.R.Civ.P. 8(a)(2). Under the notice pleading standard employed by the federal courts, the complaint need only “give the defendant notice of what the claim is ... and the grounds upon which it rests.” Erickson v. Pardus, 551 U.S. 89, 93, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). In considering a motion to dismiss under Rule 12(b)(6), the Court is obligated to accept as true all of the complaint's factual allegations and take the facts in the light most favorable to the plaintiff. Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir.2008). In order to survive a motion to dismiss, however, a complaint's “[f]actual allegations must be enough to raise a right to relief above the speculative level.” Bell Atl., 550 U.S. at 555, 127 S.Ct. 1955. Where state law claims are preempted by federal law, they necessarily fail to “state a claim upon which relief can be granted,” Fed.R.Civ.P. 12(b)(6), and must be dismissed. See generally Anderson v. Sara Lee Corp., 508 F.3d 181, 190 (4th Cir.2007) (affirming district court's dismissal of state law claims on preemption grounds where challenged under Rule 12(b)(6)).

III. DISCUSSIONA. The State Law Claims

At issue here are three state law claims: (1) unfair/unlawful business practices in violation of California's Unfair Competition Law, Cal. Bus. & Prof.Code §§ 17200–17209 (West 2008) ²; (2) false advertising in violation of the California False Advertising Law, Cal. Bus. & Prof.Code § 17500 (West 2008); and (3) unfair competition in violation of the Washington State Consumer Protection Act, Wash Rev.Code § 19.86.020 (2010).

1. California Unfair Competition Law and False Advertising Law

The California Unfair Competition Law (“UCL”) covers five types of wrongs: (1) an unlawful business act or practice; (2) an unfair business act or practice; (3) a fraudulent business act or practice; (4) unfair, deceptive, untrue, or misleading advertising; and (5) any act prohibited by certain other statutes, including the False Advertising Law. Cal. Bus. & Prof.Code § 17200 (West 2008). Its purpose “is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services.” Kwikset Corp. v. Superior Court, 51 Cal.4th 310, 320, 120 Cal.Rptr.3d 741, 246 P.3d 877 (2011) (quoting Kasky v. Nike, Inc., 27 Cal.4th 939, 119 Cal.Rptr.2d 296, 45 P.3d 243, 249 (2002)). Until 2004, the UCL had an extraordinarily permissive standing requirement—anyone could sue on behalf of the general public. See Cal. Bus. & Prof.Code § 17204 (West 1997); Baxter v. Salutary Sportsclubs, Inc., 122 Cal.App.4th 941, 19 Cal.Rptr.3d 317, 323 (2004). In November 2004, California voters passed Proposition 64, which created a heightened standing requirement for private actions under the UCL.³

The False Advertising Law prohibits any “unfair, deceptive, untrue, or misleading advertising.” Cal. Bus. & Prof.Code § 17500 (West 2008). The UCL and the False Advertising Law are closely related and in some ways intricately intertwined. They share several elements, Kasky, 119 Cal.Rptr.2d 296, 45 P.3d at 250; carry the same standing requirement, Morgan v. AT & T Wireless Svcs., 177 Cal.App.4th 1235, 1259, 99 Cal.Rptr.3d 768 (Cal.Ct.App.2009); and a violation of the False Advertising Law is necessarily a violation of the UCL. Kasky, 119 Cal.Rptr.2d 296, 45 P.3d at 250. Here, Plaintiffs allege that by affixing patent labels to its products that contained false information, Nautilus violated both the UCL and the False Advertising Law. See FAC ¶¶ 80–94.

2. Washington Consumer Protection Act

The Washington Consumer Protection Act, Wash. Rev.Code § 19.86.020 (2010) (“CPA”), requires a successful plaintiff to show: “(i) an unfair or deceptive act or practice; (ii) occurring in the conduct of trade or commerce; (iii) affecting the public interest; (iv) which causes; (v) injury to plaintiff's business or property.” Goel v. Jain, 259 F.Supp.2d 1128, 1142 (W.D.Wash.2003) (citing Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wash.2d 778, 719 P.2d 531, 535 (1986)). According to the Washington legislature, the purpose of the CPA is to “complement the body of federal law governing restraints of trade, unfair competition and unfair, deceptive, and fraudulent acts or practices in order to protect the public and foster fair and honest competition.” Wash. Rev.Code § 19.86.920 (2010). Plaintiffs here allege that Nautilus's false labeling constitutes an unfair or deceptive act or practice that affected the public interest by stifling competition, deterring innovation, and causing consumers to pay higher prices for products. FAC ¶¶ 99–100.

These three state law causes of action—the California Unfair Competition Law, California False Advertising Law, and Washington Consumer Protection Act—are very similar in character. As discussed below, they are all consumer protection laws, and although they may have important differences, they can be treated similarly for the Court's limited purpose of determining whether they are preempted by federal false marking law.⁴

B. The General Presumption Against Preemption

Under the Supremacy Clause, federal statutes are part of “the supreme law of the land.” U.S. Const. Art. VI, cl. 2. A long-standing principle of our jurisprudence teaches that, where there is a clash between state and federal laws, federal law prevails. Cipollone v. Liggett Grp., Inc., 505 U.S. 504, 516, 112 S.Ct. 2608, 120 L.Ed.2d 407 (1992). However, the dictates of the Supremacy Clause must be balanced with the overarching notion that ours is a federal, and not a unitary, system of government. Our federal government is one of enumerated powers. See United States v. Morrison, 529 U.S. 598, 608, 120 S.Ct. 1740, 146 L.Ed.2d 658 (2000). Thus, under the American constitutional design, each of the states retains its own sovereignty, which cannot be effortlessly overrun by each and every federal mandate. In deference to this sovereign status, courts have “long presumed that Congress does not cavalierly pre-empt state-law causes of action.” Medtronic, Inc. v. Lohr, 518 U.S. 470, 485, 116 S.Ct. 2240, 135 L.Ed.2d 700 (1996). As noted...