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Spence v. Basic Research

United States District Court, D. Utah

April 27, 2018



          Clark Waddoups United States District Judge.

         Before the court is Plaintiff Adelaide Spence's “Motion for Leave to File an Amended Complaint.” (Mtn. to Amend, ECF No. 102.) The Motion follows the court's dismissal of multiple counts from the First Amended Complaint (FAC), [1] some with and some without prejudice. (Order on Mtn. to Dismiss, ECF No. 99.) The proposed Second Amended Complaint (SAC) drops the claims dismissed with prejudice and attempts to cure the deficiencies in those dismissed without prejudice. The court held a hearing on the Motion on November 30, 2017. (ECF No. 108.) Having carefully considered the arguments set forth in the briefs and oral arguments, and for the reasons stated herein, the court now DENIES Spence's Motion and DISMISSES this action with prejudice.


         The facts as alleged in the FAC are set forth in the court's May 31, 2017 order. (Order on Mtn. to Dismiss, ECF No. 99.) After the court entered its order, in which it dismissed Spence's claims, Spence timely sought leave to amend. (Mtn. to Amend, ECF No. 102.) The Motion alleges that the SAC cures the deficiencies “by adding factual allegations that provide more specificity” regarding the allegedly false and misleading advertisements that she relied upon in purchasing Vysera-CLS. (Id. at 5.) She alleges the impossibility of the advertisements' promises, the ineffectiveness of P. Vulgaris, and the lack of supporting science for Vysera-CLS. (Id. 5-6.) Defendants object to amendment, claiming it would be futile. (Defendants' Resp. Brief 3, ECF No. 103.)


         Federal Rule of Civil Procedure 15(a) permits amendment after service of responsive pleadings only upon leave from the court. Fed.R.Civ.P. 15(a). It instructs the court to “freely give[]” leave “when justice so requires.” Id. “‘Refusing leave to amend is generally only justified upon a showing of undue delay, undue prejudice to the opposing party, bad faith or dilatory motive, failure to cure deficiencies by amendments previously allowed, or futility of amendment.'” Bylin v. Billings, 568 F.3d 1224, 1229 (10th Cir. 2009) (quoting Frank v. U.S. West, Inc., 3 F.3d 1357, 1365 (10th Cir. 1993)). The lenient amendment standard exists “to provide litigants ‘the maximum opportunity for each claim to be decided on its merits rather than on procedural niceties.'” Minter v. Prime Equip. Co., 451 F.3d 1196, 1204 (10th Cir. 2006) (quoting Hardin v. Manitowoc-Forsythe Corp., 691 F.2d 449, 456 (10th Cir.1982)). Nevertheless, “the grant of leave to amend the pleadings pursuant to Rule 15(a) is within the discretion of the trial court.” Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 330 (1971). Here, Defendants object to leave only on the basis of futility, and it appears that there is no other basis for denying leave to amend.

         “A proposed amendment is futile if the complaint, as amended, would be subject to dismissal. The futility question is functionally equivalent to the question whether a complaint may be dismissed for failure to state a claim . . . .” Gohier v. Enright, 186 F.3d 1216, 1218 (10th Cir. 1999). Ordinarily “[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). It must identify a basis for plaintiff's claim for relief, which “requires more than labels and conclusions.” Twombly, 550 U.S. at 555. “[A] formulaic recitation of the elements of a cause of action will not do.” Id. Where the claims for relief are based, however, on a theory of fraud, as is the case in this action, “a party must state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b).

         When considering a motion to dismiss, the court “must take all of the factual allegations in the complaint as true, ” but it is “not bound to accept as true a legal conclusion couched as a factual allegation.” Iqbal, 556 U.S. at 678. It must also “view all reasonable inferences in favor of the plaintiff” and “liberally construe” the pleadings. Ruiz v. McDonnell, 299 F.3d 1173, 1182 (10th Cir. 2002) (quoting Swanson v. Bixler, 750 F.2d 810, 813 (10th Cir. 1984)). Applying these standards, the court considers each cause of action that Spence has alleged in the SAC.


         1. Fraud-Based Claims

         Spence alleges two fraud-based claims, which require a heightened level of pleading. The court previously dismissed all of Spence's fraud-based claims under Federal Rules of Procedure 9(b) and 12(b)(6) because Spence failed to plead with the particularity necessary to support fraud-based claims. Pursuant to Federal Rule of Civil Procedure 9(b), a party “alleging fraud or mistake . . . must state with particularity the circumstances constituting fraud or mistake.” This heightened pleading requirement exists “‘to afford defendant fair notice of plaintiff's claims and the factual ground upon which [they] are based.'” Schwartz v. Celestial Seasonings, Inc., 124 F.3d 1246, 1252 (10th Cir. 1997) (alteration in original) (quoting Farlow v. Peat, Marwick, Mitchell & Co., 956 F.2d 982, 987 (10th Cir. 1992)). The particularity requirement is met where the complaint “set[s] forth the time, place and contents of the false representation, the identity of the party making the false statements and the consequences thereof.” Lawrence Nat'l Bank v. Edmonds (In re Edmonds), 924 F.2d 176, 180 (10th Cir. 1991).

         a. RICO

         The SAC alleges RICO violations under 18 U.S.C. §§ 1962(c) and (d). Under § 1962(c), Spence must allege that “person[s]” “(1) conducted the affairs (2) of an enterprise (3) through a pattern (4) of racketeering activity, ” George v. Urban Settlement Servs., 833 F.3d 1242, 1248 (10th Cir. 2016). And § 1962(d) requires proof of a conspiracy to commit the aforementioned. RICO defines a “person” as “any individual or entity capable of holding a legal or beneficial interest in property.” 18 U.S.C. § 1961(3). Defendants “conduct[] the affairs” of a RICO enterprise by “participat[ing] in the operation or management of the RICO enterprise.” Resolution Trust Corp. v. Stone, 998 F.2d 1534, 1541 (10th Cir. 1993) (citing Reves v. Ernst & Young, 507 U.S. 170 (1993)). And an “enterprise” is “any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.” 18 U.S.C. § 1961(4).

         Spence alleges that Defendants Basic Research, Bremenn, Gay, Friedlander, and Strobel are all persons involved in an association-in-fact enterprise comprised of the same individuals and entities. (SAC, ¶¶ 89& 91, ECF No. 102-1.) But “the ‘person' conducting the enterprise's affairs [must] be distinct from the ‘enterprise.'” George, 833 F.3d at 1249 (citing Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158 (2001)). It is insufficient to identify “simply the group of . . . defendants accused of engaging in the racketeering” as the enterprise. Switzer v. Coan,261 F.3d 985, 992 (10th Cir. 2011). The Tenth Circuit Court of Appeals has said that the distinction requirement means that the “person” and “enterprise” must “be different entities, ” Bd. of Cty. Comm'rs of San Juan Cty. v. Liberty Grp.,965 F.2d 879, 885 (10th Cir. 1992), and that a plaintiff must plead “that the defendant conducted the affairs of the enterprise rather than simply conducting the defendant's own affairs, ” George, 833 F.3d at 1249. While the United States Supreme Court has held that a “corporate owner/employee, a natural person, is” sufficiently “distinct from the corporation itself, ” Cedric Kushner, 533 ...

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