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Utah Division of Consumer Protection v. Stevens

United States District Court, D. Utah

August 19, 2019

TROY STEVENS, an individual, and doing business as REAL ESTATE WORKSHOP, a Utah DBA; CORY WADSWORTH, an individual, and partner in REAL ESTATE WORKSHOP; MJ AUGIE BOVE, an individual, and partner in REAL ESTATE WORKSHOP; PROSPERITY INTERNATIONAL LLC, a Utah limited liability company, formerly doing business as FLIP AND BUILD WEALTH, a Utah DBA, and formerly doing business as REAL ESTATE WORKSHOP; OPUS MANAGEMENT GROUP, LLC, a Utah limited liability company; MANTIS MANAGEMENT, INC, a Utah corporation; SELECTIVE MARKETING COMPANY, a Utah corporation; and BO-ROC MANAGEMENT INC., an Alaska corporation, Defendants.



         The Utah Division of Consumer Protection (“Utah” or “the State”) has sued Defendants, alleging violations of federal and state laws governing telemarketing and other business activities. Defendants have moved to dismiss the suit, claiming, inter alia, that the State lacks standing to bring this suit as well as statutory authority to do so. For the following reasons, the court grants the motion to dismiss.


         This case centers on a company known as Real Estate Workshop (“REW”). The State alleges that REW, under the guidance of Defendants Troy Stevens, Cody Wadsworth, and MJ Augie Bove, invites customers to free seminars, purportedly to learn how to invest in tax liens. Dkt. No. 1 (“Compl.”) ¶¶ 34-50. The State alleges, however, that “the actual purpose of the event[s] is to entice customers to purchase additional training from REW.” Id. ¶ 47. According to the State, customers who attend the free seminars are pressured to pay $597 (or a similar fee) to attend a three-day seminar, and customers who attend the three-day seminar are then pressured to pay up to $50, 000 for additional training and mentorship. Id. ¶¶ 49-57. The State alleges that Defendants telephone customers who decline to purchase additional training at the seminars and pressure them to reconsider their decisions. Id. ¶¶ 62-64. In addition, the State alleges that Defendants seek to sell customers additional related services by telephone. Id. ¶ 64.

         According to the State, many of the representations made by Defendants in the course of selling their services are fraudulent. The State alleges that Defendants represent that purchasers of their services “(1) are guaranteed to earn substantial income quickly and easily, (2) will learn the skills necessary to engage in tax lien and other real estate investment strategies, and (3) will have access to mentors to assist in their success.” See Dkt. No. 27-3 at 4 (proposed findings of fact and conclusions of law). The State alleges that these representations are “unsubstantiated and wholly or partially false.” Id. The State also alleges that “[d]issatisfied purchasers cannot get their money back without withdrawing any complaints about Defendants.” Id.

         The State contends that Defendants have violated the Telemarketing Act, 15 U.S.C. § 6101 et seq., as implemented by the Telemarketing Sales Rule, 16 C.F.R. § 310 et seq. See Compl. ¶¶ 149-62 (Count I). It also alleges violations of various Utah statutes. See Id. ¶¶ 163-96 (Counts II-IV).


         Motions to dismiss for lack of subject matter jurisdiction generally take one of two forms. See Holt v. United States, 46 F.3d 1000, 1002 (10th Cir. 1995). A “facial attack on the complaint's allegations as to subject matter jurisdiction questions the sufficiency of the complaint, ” and in reviewing such a challenge, “a district court must accept the allegations in the complaint as true.” Id. In a “factual attack, ” by contrast, a party “may go beyond allegations contained in the complaint and challenge the facts upon which subject matter jurisdiction depends.” Id. at 1003. In reviewing such a challenge, the district court does not “presume the truthfulness of the complaint's factual allegation” but has “wide discretion” to consider “affidavits” and other evidentiary submissions “to resolve disputed jurisdictional facts.” Id. In this case, the court considers the State's allegations, declarations submitted by both parties in connection with the various motions that have been filed in this case, and representations made by both parties in their briefing on these motions and at a hearing held on August 1, 2019. Ultimately, however, the jurisdictional facts are not in dispute; rather, the court's decision turns on its analysis of governing law.


         Defendants argue that the State lacks standing to assert a claim under the Telemarketing Act because its declarations fail to establish-and its complaint fails even to allege-that “any Utah resident was ever contacted, sold to, or harmed” by Defendants. Dkt. No. 31 at 2. Indeed, Defendants represent that REW does not have any past or current Utah customers, and the State does not dispute this representation. See Transcript of Hearing on Motion for Preliminary Injunction at 11, 62. The State argues, however, that it has quasi-sovereign interests in (1) “enforcing consumer protection laws, both to protect individual consumers and to protect an honest marketplace, ” (2) “protecting its business reputation, ” (3) “fostering an honest business climate, ” (4) promoting “its reputation for responding to out-of-state consumer complaints, ” and (5) “protecting the interests of Utah consumers who may purchase REW products and services” in the future. Dkt. No. 47 at 4-7. The State asserts that these interests “extend to all Utah residents”-both corporate and natural-that Defendants' conduct threatens or has harmed these interests, and that the threated or actual harm to these interests gives the State standing to assert a claim under the Telemarketing Act as parens patriae to its citizens. Dkt. No. 47 at 7-8. As explained below, the court finds that concrete injury to a State's citizens-whether actual or impending-is a prerequisite to parens patriae standing. Neither the parties nor the court have identified any case holding that a State has parens patriae standing to sue based on injuries to its citizens as abstract, generalized, and indirect as those asserted here. The court concludes that the State lacks standing to assert a claim under the Telemarketing Act.

         Article III of the United States Constitution limits the judicial power to resolving “Cases” and “Controversies.” U.S. Const. art. III, § 2, cl. 1. Considering this limitation and “the separation-of-powers principles underlying [it], ” the Supreme Court has “deduced a set of requirements that together make up the ‘irreducible constitutional minimum of standing.'” Lexmark International, Inc. v. Static Control Components, Inc., 572 U.S. 118, 125 (2014) (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992)).

         The plaintiff “carr[ies] the burden of establishing [its] standing under Article III” and “must demonstrate standing for each claim [it] seeks to press.” DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 342, 352 (2006). To prove standing for a particular claim, the plaintiff “must demonstrate that it has suffered a concrete and particularized injury that is either actual or imminent, that the injury is fairly traceable to the defendant, and that it is likely that a favorable decision will redress that injury.” Massachusetts v. EPA, 549 U.S. 497, 517 (2007) (citing Lujan, 504 U.S. at 560-61).

         As the State correctly notes, the Supreme Court has indicated that “‘States are not normal litigants for the purpose of invoking federal jurisdiction' and are ‘entitled to special solicitude in [the] standing analysis.'” Dkt. No. 47 at 2 (quoting Massachusetts, 549 U.S. at 518-20 (2007)). The Supreme Court, however, has not dispensed with the requirement that States satisfy the requirements of Article III. Rather, it has outlined three general ways in which a State may satisfy these requirements, two of which are not available to private litigants.

         First, “like other associations and private parties, a State is bound to have a variety of proprietary interests.” Alfred L. Snapp & Son, Inc. v. Puerto Rico, 458 U.S. 592, 601 (1982). “A State may, for example, own land or participate in a business venture.” Id. When a State faces actual or threatened injury to its proprietary interests, it may establish standing in the same way as similarly situated private parties. See Id. at 601-02. In Massachusetts v. EPA, for example, the Supreme Court emphasized the actual and threatened harm to state-owned coastal lands posed by rising sea levels, concluding that the State had “alleged a particularized injury in its capacity as a landowner.” 549 U.S. at 522-23; see also Id. (finding that “rising seas have already begun to swallow Massachusetts' coastal land, ” of which the State “owns a substantial portion”) (citations and quotation marks omitted).[1]

         Second, in light of the States' role as separate sovereigns in our constitutional system, the Supreme Court has recognized States' standing to vindicate their sovereign interests. In Snapp, the Supreme Court recognized two such interests that may give a State standing in federal court. 458 U.S. at 601. First, a State has a sovereign interest in its “exercise of sovereign power over individuals and entities within the relevant jurisdiction-this involves the power to create and enforce a legal code, both civil and criminal.” Id. When, for example, a federal court holds that a state law is unconstitutional, a State has standing to appeal that holding to vindicate its interest as a sovereign lawmaker. See, e.g., Diamond v. Charles, 476 U.S. 54, 62 (1986). Second, a State has a sovereign interest in its “recognition from other sovereigns-most frequently this involves the maintenance and recognition of borders.” Snapp, 458 U.S. at 601. This interest frequently supports standing, especially in cases with the Supreme Court's original jurisdiction. See id.

         Third, the Supreme Court has held that a State may establish standing when its citizens have suffered injury and that injury-either because of its nature or its extent-implicates a state interest that is more than just the sum of the private injuries suffered by its citizens. See Snapp, 458 U.S. at 600-608. This type of standing is known as “parens patriae standing, ” and the requisite special interest of the State is known as a “quasi-sovereign” interest. Id. at 600-01. As the Tenth Circuit has elaborated, “[p]arens patriae standing has been explained on the ground that the plaintiff state is not merely advancing the rights of individual injured citizens, but has an additional sovereign or quasi-sovereign interest.” Satsky v. Paramount Communications, Inc.,7 F.3d 1464, 1469 (10th Cir. 1993) (quoting 17 Charles A. Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure: Jurisdiction 2d ยง 4047 at 223 ...

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