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Vivint Inc. v. Northstar Alarm Services LLC

United States District Court, D. Utah

March 8, 2019

VIVINT, INC., a Utah corporation, Plaintiff,
v.
NORTHSTAR ALARM SERVICES, LLC, a Utah limited liability company, Defendant.

          MEMORANDUM DECISION AND ORDER GRANTING IN PART AND DENYING IN PART MOTIONS FOR SUMMARY JUDGMENT AND GRANTING MOTIONS TO DISMISS

          JILL N. PARRISH JUDGE

         This matter is before the court on three motions for partial summary judgment: (1) Defendant's Motion for Partial Summary Judgment on Vivint's Second, Third, and Fifth Causes of Action, and limiting damages; (2) Vivint's Motion for Partial Summary Judgment on its Fifth Cause of Action for Interference with Economic Relations; and (3) Defendant's Motion for Summary Judgment on Vivint's First Cause of Action. The court heard oral argument on the motions on December 3, 2018. Following argument, the court took the motions under advisement. Also before the court are two motions filed after the hearing: (1) the Stipulated Motion to Withdraw Motion for Summary Judgment on Vivint's First Cause of Action and to Dismiss without Prejudice Vivint's First Cause of Action and (2) the Stipulated Motion to Dismiss, in Part, Vivint's Fifth Cause of Action.

         BACKGROUND

         Vivint and NorthStar are both in the business of marketing, selling, and installing electronic home automation and security systems. As two of the more established companies in the industry, Vivint and NorthStar have been competing against each other since 2001.

         Companies in the home alarm and automation industry market their products and services in a variety of ways, including door-to-door direct sales through company sales representatives. In fact, a majority of Vivint's and NorthStar's sales are generated through door-to-door or direct-to-home sales. Because of the intense competition between these home security companies, the two companies solicit many of the same customers. Vivint alleges that in the course of this competition, NorthStar's representatives have engaged in a campaign to target Vivint's customers, improperly soliciting them through false statements and misrepresentations constituting false and deceptive sales practices that have damaged Vivint's reputation. Vivint has identified and presented evidence of 216 individual Vivint customers who experienced deceptive sales practices by NorthStar representatives between 2012 and 2015.

         In late 2015, Vivint sued NorthStar in Utah state court. NorthStar promptly removed the action to federal court. Vivint amended its complaint shortly thereafter. Vivint, in its amended complaint (“Amended Complaint”), alleges that NorthStar has engaged in a campaign to damage Vivint's reputation and steal its customers. Vivint's Amended Complaint alleges six causes of action: (1) declaratory relief, (2) deceptive trade practices in violation of the Utah Truth in Advertising Act; (3) violation of the Lanham Act, (4) unfair competition, (5) intentional interference with customer contracts, and (6) injunctive relief. NorthStar moved for partial summary judgment on the first, second, third, and fifth causes of action. Vivint moved for partial summary judgment on the fifth cause of action. Following a hearing on the motions, the parties stipulated to dismiss the first cause of action for declaratory relief without prejudice and withdraw NorthStar's motion for summary judgment as to the first cause of action, leaving at issue only the second through sixth causes of action.

         ANALYSIS

         A. LEGALSTANDARD

         “The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). When considering a motion for summary judgment, the court must examine all of the evidence in the light most favorable to the nonmoving party. Jones v. Unisys Corp., 54 F.3d 624, 628 (10th Cir. 1995) (citation omitted). This requires that all reasonable inferences be drawn in favor of the nonmoving party. Sports Unltd., Inc. v. Lankford Enters., Inc., 275 F.3d 996, 999 (10th Cir. 2002) (citation omitted). A dispute of fact is genuine only if “a reasonable [trier of fact] could find in favor of the nonmoving party on the issue.” Macon v. United Parcel Serv., Inc., 743 F.3d 708, 712 (10th Cir. 2014). “At the summary judgment stage, the judge's function is not to weigh the evidence and determine the truth of the matter.” Concrete Works of Colo., Inc. v. City & Cty. of Denver, 36 F.3d 1513, 1518 (10th Cir. 1994) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)). “Nonetheless, ‘[w]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party,' summary judgment in favor of the moving party is proper.” Id. (alteration in original) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)).

         B. FIRST CAUSE OF ACTION: DECLARATORY JUDGMENT

         On January 9, 2019, Vivint and NorthStar filed a Stipulated Motion to Withdraw Motion for Summary Judgment on Vivint's First Cause of Action and to Dismiss without Prejudice Vivint's First Cause of Action. The court GRANTS the motion. Vivint's First Cause of Action is dismissed without prejudice and NorthStar's Motion for Summary Judgment as to the First Cause of Action is denied as moot.

         C. SECOND THROUGH FIFTH CAUSES OF ACTION

         NorthStar seeks partial summary judgment on Vivint's Second through Fifth Causes of Action. On the Second and Third counts, NorthStar seeks summary judgment on substantive grounds and alternatively seeks to limit the damages available based upon Vivint's alleged failure to properly disclose its damages pursuant to Fed.R.Civ.P. 26(a)(1)(A). On the Fourth and Fifth counts, NorthStar seeks summary judgment only on the issue of damages.[1]

         1. Damages Generally

         For each claim, NorthStar alleges that Vivint has failed to disclose its claimed damages with the specificity required by Fed.R.Civ.P. 26(a)(1)(A)(iii) and that, pursuant to Fed.R.Civ.P. 37(c), Vivint should be precluded from offering any evidence of the damages that it failed to disclose because its failure was neither substantially justified nor harmless. In response, Vivint argues that it complied with its discovery obligations and, alternatively, that any failure to disclose its damages was harmless or substantially justified. For each cause of action for which the damages disclosures are challenged, the court will first address the sufficiency of the disclosures and then analyze whether any failure to disclose was substantially justified or harmless.

         a. Sufficiency

          Fed.R.Civ.P. 26(a)(1)(A)(iii) requires the parties to disclose “without awaiting a discovery request”:

a computation of each category of damages claimed by the disclosing party-who must also make available for inspection and copying as under Rule 34 the documents or other evidentiary material, unless privileged or protected from disclosure, on which each computation is based, including materials bearing on the nature and extent of injuries suffered.

         In the course of its initial disclosures (“Initial Disclosures”) and seven supplements (“First Supplement, ” “Second Supplement” . . . “Seventh Supplement”), Vivint disclosed seven categories of damages labeled as follows: 1) Utah Truth in Advertising Act; 2) Lanham Act; 3) Actual damages: a) Credits Given to Vivint Customers, b) Lost Reinstallation Fees, c) Lost Reoccurring Monthly Rate, d) New Equipment Installed, and e) the Value of Vivint Customers' Accounts who Cancelled; 4) Goodwill and Reputation Damages; 5) Vivint's Fourth Cause of Action; 6) Vivint's Fifth Cause of Action; and 7) Vivint's attorney fees and costs.[2] NorthStar argues that Vivint failed to properly disclose its 1) UTAA damages, 2) Lanham Act damages, 3) the value of Vivint customer accounts as a basis for Actual Damages, 4) Goodwill and Reputation damages, 5) Vivint's Fifth Cause of Action damages, and 6) Attorney fees and costs. For purposes of deciding the sufficiency of Vivint's disclosures, the court will refer to the most recent supplement for each of the categories.[3] The Fifth Supplement contains the most recent disclosures of all the claimed damages except for the Lanham Act damages, which were most recently disclosed in the Seventh Supplement.

         b. Substantially Justified or Harmless

          Pursuant to Fed.R.Civ.P. 37(c)(1), a party that violates Fed.R.Civ.P. 26 by failing to disclose certain information is precluded from using that information in motions or at trial, unless the failure to disclose was “substantially justified or is harmless.” “[T]he determination of whether a Rule 26(a) . . . violation is justified or harmless is entrusted to the broad discretion of the district court.” HCG Platinum, LLC v. Preferred Prod. Placement Corp., 873 F.3d 1191, 1200 (10th Cir. 2017) (alteration in original) (quoting Neiberger v. Fed Ex Ground Package Sys., Inc., 566 F.3d 1184, 1191-92 (10th Cir. 2009)). The Fed.R.Civ.P. 37(c)(1) inquiry consists of several factors including: “(1) the prejudice or surprise to the party against whom the testimony is offered; (2) the ability of the party to cure the prejudice; (3) the extent to which introducing such testimony would disrupt the trial; and (4) the moving party's bad faith or willfulness.” HCG Platinum, LLC, 873 F.3d at 1200 (quoting Woodworker's Supply, Inc. v. Principal Mut. Life Ins. Co., 170 F.3d 985, 993) (10th Cir. 1999)). “[W]here the exclusion of evidence under Rule 37(c)(1) has the necessary effect of a dismissal, . . . district courts should, in conjunction with the traditional Woodworker's inquiry, carefully explore and consider the efficacy of less drastic alternatives.” HCG Platinum, LLC, 873 F.3d at 1206. Dismissal of a cause of action is an “extreme sanction” ordinarily reserved “for cases involving bad faith or willfulness or instances where less severe sanctions would obviously prove futile.” Id. The court must review each damages disclosure for each cause of action to determine if plaintiff adequately disclosed the damages it seeks and, if so, if any failure to do so was substantially justified or harmless.

         2. Second Cause of Action: Violation of the Uta h Truth in Advertising Act

         Vivint's second cause of action alleges violations of the Utah Truth in Advertising Act (“UTAA”), Utah Code Ann. sections 13-11a-1 through 13-11a-6. NorthStar moves for summary judgment on Vivint's second cause of action on the grounds that 1) the UTAA does not apply to door-to-door solicitation; 2) Vivint failed to provide notice as required by the statute before seeking injunctive relief; and 3) the UTAA applies only to conduct occurring in the state of Utah. Alternatively, NorthStar moves for summary judgment as to damages. At oral argument, Vivint conceded that it did not provide the required notice and that the alleged deceptive conduct must occur in the state of Utah.

         a. Covered Conduct

          Vivint alleges NorthStar violated the UTAA by engaging in certain “deceptive trade practice[s]” unlawful under the statute. NorthStar argues that the UTAA does not apply to the alleged conduct in this case-NorthStar's representatives going door-to-door and lying to Vivint customers-because the UTAA “applies only to advertising” and the definition of advertising “does not include any oral, in person, representation made by a sales representative to a prospective purchaser.” NorthStar Mot. S.J. at 19 (citing Icon Health & Fitness, Inc. v. Consumer Affairs.com, No. 1:16-cv-00168-DBP, 2017 WL 2728413, at *7 (D. Utah 2017) and quoting Utah Code Ann. § 13-11a-2(1)).

         i. The Procter & Gamble Interpretation

         NorthStar relies on the UTAA's statement of purpose, as well as the holdings in Procter & Gamble Co. v. Haugen, 179 F.R.D. 622, 634-5 (D. Utah 1998), aff'd in part, rev'd in part on other grounds sub nom. Proctor & Gamble Co. v. Haugen 222 F.3d 1262 (10th Cir. 2000)[4] and Icon Health & Fitness, Inc., 2017 WL 2728413, at *7, for the proposition that the UTAA only applies to advertising. In Procter & Gamble, the district court, interpreting the UTAA in light of its purpose statement mandate, held that the statute prevents only false, misleading, and deceptive advertising because the purpose statement “effectively imposes an overarching requirement that otherwise actionable conduct constitute advertising.” Procter & Gamble, 179 F.R.D. at 635. The court then applied the UTAA's definition of “advertising” found at section 13-11a-2(1) to all of the prohibited “deceptive trade practices” enumerated in section 13-11a-3.

         At the time of the Procter & Gamble decision, the Utah Supreme Court had not ruled on the scope of the UTAA. Accordingly, the Procter & Gamble court interpreted the UTAA under then-applicable Utah state rules of statutory construction. See Vivint, Inc. v. Alarm Prot., LLC, No. 2:14-cv-441-CW, 2016 WL 146454, at *2 (D. Utah 2016) (quoting Ward v. Utah, 398 F.3d 1239, 1248 (10th Cir. 2005)) (“When interpreting a state statute, a federal court must apply ‘state rules of statutory construction.'”). Twenty years later, the Utah Supreme Court has still not ruled on this issue. And because the Procter & Gamble decision is not binding precedent, this court must interpret the UTAA pursuant to current Utah state rules of statutory interpretation. This court has evaluated the statutory language and disagrees with the Procter & Gamble decision. The court holds that the UTAA is not limited to truth in advertising.

         ii. Covered Conduct is not Limited by the UTAA Definition of Advertising

         In Utah, “the primary goal of statutory construction ‘is to evince the true intent and purpose of the Legislature' and ‘[t]he best available evidence of the Legislature's intent is the statute's plain language.'” Vivint, Inc. v. Alarm Prot., LLC, 2016 WL 146454, at *2 (alteration in original) (quoting Heaps v. Nuriche, LLC, 345 P.3d 655, 659 (Utah 2015)). “The court must ‘presume that the Legislature used each word advisedly and give effect to each term according to its ordinary and accepted meaning.'” Id. (quoting LeBeau v. State, 337 P.3d 254, 260 (Utah 2014)). And the plain language of the statute does not limit the covered conduct to advertising.

         The UTAA contains six sections: 1) Purpose; 2) Definitions; 3) Deceptive trade practices enumerated; 4) Jurisdiction of district courts; 5) Exemptions; and 6) Truth in Music advertising. Utah Code Ann. §§ 13-11a-1 through 13-11a-6. In limiting the reach of the statute to advertising, the Procter & Gamble decision relied heavily on the purpose statement:

The purpose of this chapter is to prevent deceptive, misleading, and false advertising practices and forms in Utah. This chapter is to be construed to accomplish that purpose and not to prohibit any particular form of advertising so long as it is truthful and not otherwise misleading or deceptive.

Utah Code Ann. § 13-11a-1. In short, the court interpreted the purpose statement to limit the coverage of the statute to those activities falling with the definition of advertising contained in section 13-11a-2(1). That section defines “advertisement” as:

any written, oral, or graphic statement or representation made by a supplier in connection with the solicitation of business. It includes, but is not limited to, communication by noncable television systems, radio, printed brochures, newspapers, leaflets, flyers, circulars, billboards, banners, or signs. It does not include any oral, in person, representation made by a sales representative to a prospective purchaser.

         Under this interpretation, the conduct of NorthStar's sales representatives in their door-to-door conversations with Vivint customers would be beyond the reach of the UTAA. But this interpretation is simply inconsistent with the plain reading of the statutory language.

         Under Utah law, “a statement of purpose is generally ‘not a substantive part of the statute.'” Vivint, Inc. v. Alarm Prot., LLC, 2016 WL 146454, at *3 (quoting Price Dev. Co. v. Orem City, 995 P.2d 1237, 1246 (Utah 2000)). “[I]t may be referred to in order to clarify ambiguities, ” but the purpose statement “cannot override the clear terms of the law.” Id. at *3; Id. (quoting Dorsey v. Dep't of Workforce Servs., 330 P.3d 91, 96 (Utah 2014)). In other words, the court may only look to the purpose statement if there is some ambiguity in the plain language of the statute.

         To determine what conduct is covered by the statute, the court must look at the conduct enumerated in the statute at section 13-11a-3, “Deceptive trade practices enumerated.” This section lists twenty or more “deceptive trade practices” that are covered by the statute. Of those twenty practices, some include the term “advertisement” or “advertising” (subsections (i), (j), (k), (m), (n), (p), (q), and (s)) and some do not (subsections (a)-(h), (l), (o), (r), and (t)). Although the statutory definition of “advertisement” contained in section 13-11a-2(1) applies to the subsections that include the term, it has no application to the sections where the term does not appear. Thus, the definition of advertising, which excludes “any oral, in person, representation made by a sales representative to a prospective purchaser, ” applies only where the term “advertising” is used to define the deceptive trade practice at issue. If the Utah Legislature had intended that limitation to apply to the entire statute, it would have been listed not in the definitions section, but in the section enumerating exempted conduct, section 13-11a-5, which is titled “Exemptions.”

         iii. Alleged Conduct is Covered by the UTAA

         Vivint alleges that NorthStar engaged in deceptive trade practices prohibited by the UTAA, specifically violations that “occur when, in the course of a person's ...


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