Opinion
Case No. 2:20-cv-6692-JFW (PDx)
2020-11-06
UNITED STATES of America, Plaintiff, v. MYLIFE.COM, INC., a corporation, and Jeffrey Tinsley, individually and as an officer of MyLife.com, Inc., Defendants.
Lisa K. Hsiao, Rachel Baron, Zachary Alan Dietert, Patrick Raymond Runkle, US Department of Justice, Washington, DC, for Plaintiff. Jeffrey E. Tsai, Andrew B. Serwin, Hector Emilio Corea, Mandy Chan, Tamany Vinson Bentz, DLA Piper LLP, Los Angeles, CA, for Defendant MyLife.com, Inc. Jeffrey E. Tsai, Hector Emilio Corea, Mandy Chan, Tamany Vinson Bentz, DLA Piper LLP, Los Angeles, CA, for Defendant Jeffrey Tinsley.
Lisa K. Hsiao, Rachel Baron, Zachary Alan Dietert, Patrick Raymond Runkle, US Department of Justice, Washington, DC, for Plaintiff.
Jeffrey E. Tsai, Andrew B. Serwin, Hector Emilio Corea, Mandy Chan, Tamany Vinson Bentz, DLA Piper LLP, Los Angeles, CA, for Defendant MyLife.com, Inc.
Jeffrey E. Tsai, Hector Emilio Corea, Mandy Chan, Tamany Vinson Bentz, DLA Piper LLP, Los Angeles, CA, for Defendant Jeffrey Tinsley.
STATEMENT OF DECISION DENYING JEFFREY TINSLEY'S MOTION TO DISMISS
John F. Walter, United States District Court Judge
Before the Court is Defendant Jeffrey Tinsley's ("Tinsley") motion to dismiss the Complaint (Dkt. 30). The Court has already denied Defendant MyLife's motion to dismiss the Complaint (Dkt. 29). For the reasons explained in that separate opinion, the Complaint alleges sufficient facts to allow the Court to reasonably infer MyLife's corporate liability. Tinsley now moves to dismiss on the ground that the Complaint fails to establish his individual liability. For the reasons that follow, Tinsley's motion to dismiss is DENIED.
I. RELEVANT FACTS
The factual allegations relevant to MyLife's corporate liability are summarized in the Court's opinion denying MyLife's motion to dismiss. The Complaint alleges the following additional facts of particular relevance to Tinsley. Tinsley is the founder, CEO, and Chairman of MyLife, a privately held company in which he has a major ownership interest. Compl. (Dkt. 1) ¶¶ 5, 6. As the company's creator and principal director, he has been responsible for MyLife's overall direction and business strategies since its inception. Id. ¶ 6. Among other things, Tinsley has directed MyLife's billing, marketing, advertising, and subscription practices, and he personally markets MyLife's products. Id. He also created and developed the "Reputation Score" displayed on each consumer's profile on MyLife's website. Id. Tinsley maintains a personal blog attesting to his personal knowledge of MyLife's business practices, user agreements, and the purported benefits of a subscription. Id.
Over the years, hundreds of consumers have complained about MyLife's business practices, including policies that have resulted in lawsuits brought by consumers and regulators. Id. ¶ 37. For example, MyLife settled lawsuits in 2012 and 2015 with terms that bound Tinsley and other company principals. Tinsley has submitted declarations in such litigation, and he has personal knowledge that MyLife continues to use certain business practices that MyLife agreed to cease in order to settle such lawsuits, id. ¶ 6.
II. LEGAL STANDARDS
A. Rule 12(b)(6)
A motion to dismiss brought pursuant to Federal Rule of Civil Procedure 12(b)(6) tests the legal sufficiency of the claims asserted in the complaint. "A Rule 12(b)(6) dismissal is proper only where there is either a ‘lack of a cognizable legal theory’ or ‘the absence of sufficient facts alleged under a cognizable legal theory.’ " Summit Technology, Inc. v. High-Line Medical Instruments Co., Inc. , 922 F. Supp. 299, 304 (C.D. Cal. 1996) (quoting Balistreri v. Pacifica Police Dept. , 901 F.2d 696, 699 (9th Cir. 1988) ). However, "[w]hile a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the ‘grounds’ of his ‘entitlement to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (internal citations and alterations omitted). "[F]actual allegations must be enough to raise a right to relief above the speculative level." Id.
In deciding whether a complaint states a claim, courts must accept as true all factual allegations in the complaint, Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), and must construe those allegations in the light most favorable to the nonmoving party, Wyler Summit Partnership v. Turner Broadcasting System, Inc. , 135 F.3d 658, 661 (9th Cir. 1998). To survive a motion to dismiss, a complaint must allege "facts that are suggestive enough to render [liability] plausible." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).
B. Rule 8(a)(2)
To state a claim, a complaint must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). A complaint need not plead specific facts; it must only "give the defendant fair 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) (per curiam) (internal quotation marks and citation omitted; ellipses in original).
Defendants contend that the claims in this case are subject to the heightened pleading standard in Fed. R. Civ. P. 9(b). For the reasons explained in the Court's opinion denying MyLife's motion to dismiss, the Court concludes that the Complaint would satisfy the pleading standard under either Rule 8(a) or 9(b). In any event, moreover, as set forth in greater detail below, application of Rule 9(b) here would have no effect on the issue of Tinsley's individual liability.
III. DISCUSSION
A. The Complaint Adequately Pleads Tinsley's Individual Liability
MyLife argues that the Complaint fails to allege facts supporting Tinsley's individual liability under the FTC Act. To state a claim for individual liability under the FTC Act, the United States must first allege corporate liability, as it has here. Once corporate liability is established, an individual is liable for injunctive relief if he "participated directly in" the practices in question or "had the authority to control them." FTC v. Garvey , 383 F.3d 891, 900 (9th Cir. 2004). An individual is also liable for restitution if he had actual or constructive knowledge of the practices. Id. Actual knowledge, reckless indifference, or awareness of a high probability of deceptive acts or practices all satisfy this knowledge requirement. See FTC v. Network Services Depot, Inc. , 617 F.3d 1127, 1138–39 (9th Cir. 2010).
Here, the Complaint pleads facts that plausibly render Tinsley liable for injunctive relief and restitution. "An individual's status as a corporate officer and/or the authority of that individual to sign documents on behalf of a corporate defendant is sufficient to show the requisite control." FTC v. Dinamica Financiera LLC , No. CV 09–03554 MMM (PJWx), 2010 WL 9488821, at *10 (C.D. Cal. Aug. 19, 2010) (citing FTC v. Publishing Clearing House, Inc. , 104 F.3d 1168, 1170 (9th Cir. 1997) ); see also FTC v. Lights of Am. Inc. , No. SACV 10–1333 JVS (MLGx), 2011 WL 1515158, at *2–4 (C.D. Cal. Mar. 31, 2011) ; FTC v. Commerce Planet, Inc. , Case No. SACV 09-01324CJC (RNBx), 2010 WL 11673796, at *2 (C.D. Cal. Feb. 12, 2010). As a court in the Central District of California has observed, "the most important fact for individual liability under the Section 5 of the FTC Act" is that the individual is "the ... director of the company" that engaged in the allegedly unlawful practices. Commerce Planet , 2010 WL 11673796, at *2. That is because, "[b]ased on judicial experience and common sense, it is certainly plausible for a president of a company to know about and have authority to control" the company's deceptive business practices. Id.
Here, the United States’ allegations are sufficient to permit the Court to infer Tinsley's ability to control the relevant business practices. The Complaint alleges that Tinsley is the "founder, Chief Executive Officer, and Chairman of MyLife, in which he has a major ownership interest," that Tinsley has been "responsible for MyLife's overall direction and strategies" since its inception, and that Tinsley has "directed MyLife's billing, marketing, advertising, and subscription practices." Compl. ¶ 6. Although Tinsley attempts to dismiss these factual allegations as "conclusory," they are not; they do more than state legal conclusions, and they plausibly demonstrate the requisite control under the case law cited above.
The Complaint also permits a plausible inference of Tinsley's knowledge of, or at least reckless indifference to, the alleged misconduct. As described in the Complaint, the alleged practices include prominent features of MyLife's public website, have prompted hundreds of consumer complaints, and have resulted in prior litigation, in which Tinsley has submitted declarations. Compl. ¶¶ 25–38. Knowledge can also be inferred from a defendant's supervision of and active involvement in a company's business affairs. Lights of Am. Inc. , 2011 WL 1515158, at *2–4 ("Active involvement in [the company's] business affairs ... support[s] a reasonable inference that [defendants] were aware"); see also FTC v. Publishers Bus. Servs., Inc. , 540 F. App'x 555, 558 (9th Cir. 2013) ; FTC v. Am. Fin. Benefits Ctr. , 324 F. Supp. 3d 1067, 1080–81 (N.D. Cal. 2018) ; FTC v. Wellness Support Network, Inc. , No. C-10-04879 JCS, 2011 WL 1303419, at *10 (N.D. Cal. Apr. 4, 2011) ; FTC v. Sharp , 782 F. Supp. 1445, 1450 (D. Nev. 1991).
Contrary to Tinsley's suggestion, this is not a case in which the United States is attempting to infer knowledge from "mere title." See Tinsley's Memorandum of Points and Authorities in Support of Motion to Dismiss the Complaint ("Memo.") at 4 (Dkt. 30). The Complaint alleges not only that Tinsley is the founder, chairman, CEO, and a major owner of MyLife, but that he directed MyLife's marketing, billing, and subscription practices, Compl. ¶ 6, that he "personally markets MyLife's products," id. , that he has "personal knowledge that MyLife continues to use certain business practices that MyLife agreed to cease" in order to settle lawsuits, id. , that he created and developed the "Reputation Score" feature displayed on each consumer's profile on MyLife's website, id. , and that he even maintains "a personal blog attesting to his personal knowledge of MyLife's business practices, user agreements, and the purported benefits of a subscription," id. at ¶ 37. The Complaint also alleges that "Defendants [including Tinsley] are aware that MyLife subscribers have used background reports for various purposes, including to find out what information about themselves is available online or whether to rent to or from someone." Compl. ¶ 9. At the pleading stage, these various allegations, taken together and construed in the light most favorable to the plaintiff, raise a plausible inference of Tinsley's knowledge of or reckless indifference to MyLife's improper marketing, subscription, and billing practices.
B. Fed. R. Civ. P. 9(b) Does Not Affect Tinsley's Individual Liability
Tinsley contends that the factual allegations supporting Tinsley's individual liability must satisfy Rule 9(b). Memo. at 4–5; see also Tinsley's Reply in Support of Motion to Dismiss Complaint ("Reply") at 1–2. However, even if the claims at issue in this case are subject to Rule 9(b) ’s heightened pleading standard, Rule 9(b) does not shield Tinsley from individual liability. Tinsley seems to assume that Rule 9(b) requires pleading that Tinsley "participated directly" in the company's unlawful conduct. Memo. at 4–6; see also Reply at 2-5. But that is not the test. Rather, once corporate liability is established, the individual defendant is liable for injunctive relief if he "participated directly in the violation or had authority to control the entit[y] ," FTC v. Grant Connect LLC , 763 F.3d 1094, 1101 (9th Cir. 2014) (emphasis added), and for restitution if he had knowledge of or was recklessly indifferent to the misconduct, FTC v. Affordable Media , 179 F.3d 1228, 1235 (9th Cir. 1999).
As to authority to control, even courts that apply Rule 9(b) to FTC Act claims hold that allegations less detailed than the ones here may suffice. See, e.g., Lights of Am. , 2011 WL 1515158, at *2–4 ("[A]n individual's status as a corporate officer and/or the authority of that individual to sign documents on behalf of a corporate defendant is sufficient to show the requisite control" (citation and internal quotation marks omitted)); FTC v. Ivy Capital, Inc. , No. 2:11-CV-283 JCM, 2011 WL 2118626, at *5 (D. Nev. May 25, 2011) ; but see FTC v. Swish Mktg. , No. C 09-03814 RS, 2010 WL 653486, at *5 (N.D. Cal. Feb. 22, 2010) (concluding that defendant's "status as CEO, standing alone" did not suffice). Tinsley relies almost exclusively on Swish . See Memo. at 5-7; Reply at 5-6. But "the comparison is inapt" because the Complaint's allegations here are "more robust." Am. Fin. Benefits Ctr. , 324 F. Supp. 3d. at 1080. In Swish , the complaint "alleged only that (1) the individual defendant ... was the CEO of the corporation; and (2) ‘[c]onsumers [had] filed complaints’ with the defendants, the BBB, and law enforcement." Id. (quoting Swish , 2010 WL 653486, at *5-6 ). Here, as discussed above, the Complaint plausibly establishes Tinsley's authority to control MyLife's practices with specific factual allegations about his high-level leadership and day-to-day management that go beyond merely identifying his title.
As to knowledge, it is well established that "allegations of the individual[’s] knowledge are subject to the general pleading standard of Rule 8(a) rather than the heightened pleading standard of Rule 9(b) because these allegations are relevant to the availability of a particular remedy (i.e. restitution), not to the sufficiency of the underlying cause of action." Lights of Am. , 2011 WL 1515158, at *3 (collecting cases). Here, as discussed above, Tinsley's knowledge of, or reckless indifference to, MyLife's misconduct can reasonably be inferred from allegations about his participation in the business's affairs, including his direction of MyLife's billing, marketing, and subscription practices, his personal role in marketing MyLife's products, his participation in defending MyLife against past consumer protection lawsuits, and his personal knowledge of practices that MyLife agreed to cease in order to settle those lawsuits. Nothing more is required.
C. Tinsley's Individual Liability Does Not Rest on an Alter Ego Theory
In a final bid to escape individual liability, Tinsley argues that he is not MyLife's alter ego. As the United States points out, however, none of its claims in this case are predicated on an alter ego theory, and Tinsley cites no authority for the proposition that alter ego status is necessary to establish individual liability under any of the counts alleged in the Complaint. At this point, the Court therefore sees no need to decide whether Tinsley can be held liable on an alter ego theory.
IV. CONCLUSION
For the foregoing reasons, Tinsley's motion to dismiss is DENIED in its entirety.