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Strauss v. Angie's List, Inc.

United States District Court, D. Kansas

November 1, 2018

STEVE STRAUSS d/b/a CLASSIC TREE CARE, et al., Plaintiffs,
v.
ANGIE'S LIST, INC., Defendant.

          MEMORANDUM AND ORDER

          HOLLY L. TEETER, UNITED STATES DISTRICT JUDGE

         Plaintiff Steve Strauss filed this putative class action against Defendant Angie's List, Inc. asserting violations of the Lanham Act, 15 U.S.C. §§ 1501-114n (2012), and the Kansas Consumer Protection Act (“KCPA”), §§ 50-623 to -643 (West 2018). The claims hinge on allegations Defendant routinely engages in false advertising and deceptive trade practices through statements published on its website and other forms of media. Before the Court are: (1) Defendant's motion seeking dismissal of Plaintiff's Class Action Complaint (“Original Complaint”) for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6); and (2) Plaintiff Strauss's request for leave to file a First Amended Class Action Complaint (“Amended Complaint”). Docs. 11, 43.

         The vast majority of Plaintiff Strauss's Lanham Act and KCPA claims are time-barred. Those that are not time-barred fail to satisfy at least one essential element of each claim. For these reasons, Plaintiff Strauss's well-pleaded allegations do not plausibly give rise to an entitlement to relief under the Lanham Act or KCPA and Defendant's motion to dismiss (Doc. 11) is granted. The Amended Complaint does not remedy the Original Complaint's shortcomings and Plaintiff Strauss's motion to amend (Doc. 43) is, therefore, denied. If permitted, Plaintiff Strauss's claims under the Amended Complaint would still be subject to immediate dismissal. The only remaining claims would then be those of David Garner, the additional plaintiff sought to be added through the Amended Complaint (“Proposed-Plaintiff Garner”). Because the Court could not exercise personal jurisdiction over Defendant absent Plaintiff Strauss, the Amended Complaint is futile in its entirety. The Court's analysis of and conclusions regarding Defendant's motion to dismiss and Plaintiff Strauss's request for leave to amend are discussed at length below.

         I. PROCEDURAL HISTORY

         Plaintiff Strauss filed his Original Complaint on September 22, 2017, asserting: (1) false advertising claims under section 43(a) of the Lanham Act; and (2) unfair, deceptive, or unconscionable practices claims under sections 4 and 5 of KCPA. Doc. 1 ¶¶ 75-87; see also 15 U.S.C. § 1125 (2012); K.S.A. §§ 50-626, -627 (West 2018). He also seeks class certification of nationwide (Lanham Act) and Kansas-based (KCPA) claims. The Original Complaint contains seventy-four paragraphs of factual allegations-several of which include multiple subparagraphs-exclusive of the counts alleged and prayers for relief. Id. ¶¶ 1-75.

         On November 20, 2017, Defendant moved to dismiss the Original Complaint under Rule 12(b)(6) on numerous grounds, including laches (Lanham Act claims), statute of limitations (KCPA claims), failure to plead with sufficient particularity as required by Rule 9(b) (Lanham Act and KCPA claims), and failure to plausibly plead one or more essential elements of the claim (Lanham Act and KCPA claims). Doc. 11 at 1-2; Doc. 12 at 9-27. Defendant's supporting memorandum is twenty-seven pages. Doc. 12 at 1-27. Plaintiff Strauss responded to the numerous issues raised in Defendant's motion to dismiss on December 26, 2017, in a fifty-four-page brief. Doc. 23 at 1-54. Defendant then filed its reply in a twenty-three-page brief on January 19, 2018. Doc. 25 at 1-23.

         Almost two months after Defendant's motion to dismiss was fully briefed, on March 12, 2018, Plaintiff Strauss sought leave to amend his Original Complaint for purposes of joining Proposed-Plaintiff Garner. Doc. 43 at 1, 9. Plaintiff Strauss's Amended Complaint is nearly identical to his Original Complaint, save the specific factual allegations concerning Proposed-Plaintiff Garner's personal experience with Defendant and the addition of an individual claim on Proposed-Plaintiff Garner's behalf for unfair, deceptive, or unconscionable acts or practices under the Maryland Consumer Protection Act (“MCPA”), Md. Code Ann. §§ 13-301 to -408 (West 2018). Doc. 43-1 ¶¶ 56-74, 109-115. The Amended Complaint does not alter any allegations against Defendant with respect to Plaintiff Strauss. Compare Doc. 1, with Doc. 43-1; see also Doc. 43 ¶¶ 41-43 (identifying Proposed-Plaintiff Garner's individual MCPA claim as the only new claim in the Amended Complaint). Defendant opposed Plaintiff Strauss's request to amend on April 11, 2018, in a twenty-seven-page brief, arguing largely that the amendment did not address the shortcomings of the Original Complaint and would therefore be futile as to Plaintiff Strauss, and that the Court would then lack jurisdiction over the only remaining plaintiff, Proposed-Plaintiff Garner. Doc. 47 at 9-14.[1] Plaintiff Strauss filed his thirty-two-page reply on April 27, 2018. Doc. 50.

         In total, exclusive of tables of contents and authorities, the parties submitted over 270 pages for the Court's consideration in ruling on the pending motions. Docs. 1, 11-12, 23, 25, 43, 47, 50. The briefs raise numerous legal issues irrelevant to the Court's disposition of Defendant's motion to dismiss and Plaintiff Strauss's request for leave to amend. The factual allegations are also voluminous, and many are immaterial to the Court's ultimate legal conclusions. Those allegations that are relevant to the Court's ruling on the pending motions are collected and distilled below.

         II. BACKGROUND

         The following facts are taken from the well-pleaded allegations of the Original Complaint and, consistent with the well-established standards for evaluating motions to dismiss under Rule 12(b)(6), the Court assumes the truth of these facts for purposes of analyzing Defendant's motion to dismiss. Facts unique to the Amended Complaint but necessary to the Court's consideration of Plaintiff Strauss's request for leave to amend are identified as such.

         A. Defendant's General Business Practices

         Defendant is a corporation organized under Delaware state law. Doc. ¶ 2. It has its principal place of business in Indianapolis, Indiana, and is licensed to conduct business in Kansas. Id. Defendant, in fact, conducts business in Kansas. Id. Since its establishment in 1995, Defendant has become one of the leading internet-based consumer ratings services. Id. ¶¶ 6, 13. It primarily serves consumers through its website, [2] which it markets as a forum for the viewing and posting of first-hand, consumer-generated reviews of service providers. Id. At its most basic level, Defendant's website functions as a search engine. Id. ¶¶ 15, 18-22. A consumer in need of goods or services can search Defendant's website and rely on the actual experience of other consumers- displayed on the website through a letter-grade rating and narrative reviews-to identify the service provider best suited to assist with the consumer's needs. Id. ¶¶ 6, 13, 15, 17-22.

         Consumers are led to believe that a search of Defendant's website will return a list of potential service providers, in ranked order, based on the first-hand experience of other consumers. Id. ¶¶ 6-7, 10-11, 13, 15, 17-22. But the order in which Defendant displays service providers within search results is not based solely on consumer-generated ratings and reviews. Id. ¶¶ 8-9, 12, 15, 23-25. Defendant also receives substantial revenue from providing advertising services to service providers who appear on its website. Id. ¶¶ 6, 14, 61-64. And whether a service provider pays Defendant to advertise directly affects its position within search results. Id. ¶¶ 8-9, 12, 15, 23-25, 62-63. An advertising (i.e., fee-paying) service provider is listed at the top of search results and may be listed above a non-advertising (i.e., non-fee-paying) service provider-even if the non-advertising service provider has a higher rating and better reviews. Id. But Defendant does not make this clear to consumers. Id.

         Defendant's general advertising misleads consumers. Id. ¶¶ 11, 18. Through advertising and promotion of its business, Defendant represents to consumers that “[c]ompanies cannot pay to be on [Defendant's website]” and that service providers “don't pay” to be on Defendant's website. Id. ¶¶ 11(a)-(b). Defendant touts itself as a business driven by a “consumer first philosophy” and an “unwavering commitment” to place “the interests of the consumer first.” Id. ¶ 11(c). It advertises its website as the place where consumers can find the service provider best suited to satisfy their needs. Id.

         In Defendant's Membership Agreement, which fee-paying consumers must sign to access the full benefits of Defendant's website, Defendant states that the ratings and reviews displayed on Defendant's website are “based upon the actual first-hand experiences [consumers] have had with [service providers].” Id. ¶ 17. Defendant's website FAQs also state that a service provider's position in search results is determined by their recent grades and number of reviews and companies with the best ratings will appear first. Id. ¶ 21. Companies with a poor rating will appear lower on the list after businesses who have earned good ratings for superior work. Id. ¶ 22.

         In reality, search list order or ranking is not based purely on consumer ratings and reviews. Id. ¶¶ 8-9, 12, 15, 23-25, 62-63. Service providers can artificially manipulate where they appear in search results by paying to advertise with Defendant. Id. Defendant's marketing materials directed to service providers reflect this disparity. Id. ¶¶ 12, 24, 62. Service providers are clearly told that advertising on Defendant's website “exponentially increases [their] exposure to [consumers] . . . .” Id. ¶ 24(a). More specifically, Defendant markets premium advertising options that allow service providers to “[a]ppear on the first page of search results so members can easily find and access [their] review[s].” Id. ¶ 24(c).

         B. Plaintiff Strauss's Relationship and Experience with Defendant

          Plaintiff Strauss is a Kansas resident. Id. ¶ 1. He is the sole proprietor of a tree removal, trimming, pruning, and stump grinding business. Id. ¶ 31. Plaintiff Strauss is an example of the type of service provider commonly listed on Defendant's website. Id. ¶¶ 6, 31, 33. Since 2005, Plaintiff Strauss has been aware of Defendant's advertising services and his ability to affect his ranking in search results on Defendant's website if he paid for such services. Id. ¶¶ 33, 35. Plaintiff Strauss and Defendant entered into advertising agreements each year between 2005 and 2016. Id. ¶ 34. During this time, Plaintiff Strauss paid Defendant more than $200, 000.00 in advertising fees and coupon retention percentages in an effort to appear higher in search results for arborists and tree removal or tree care businesses on Defendant's website. Id. ¶¶ 33-34.

         Before 2013, Plaintiff Strauss and Defendant had an amicable relationship, particularly during the fall and winter of 2011, when Plaintiff Strauss advertised under Defendant's Big Deal Coupon program. Id. ¶¶ 33-47. This program was particularly appealing to Defendant, who shared in 25% of the gross revenues Plaintiff Strauss received for each Big Deal Coupon redeemed by a consumer. Id. ¶¶ 35-38. In 2012, however, Plaintiff Strauss discontinued advertising the Big Deal Coupon, and its relationship with Defendant began to sour. Id. ¶¶ 39-41. For a period of three months in late 2013, Plaintiff Strauss was completely excluded from search results on Defendant's website-purportedly due to a criminal background check that revealed a misdemeanor, which was later deemed to be an error. Id. ¶¶ 41-45. Plaintiff Strauss ultimately engaged legal counsel to resolve the dispute, Defendant offered an apology, and Plaintiff Strauss began to reappear in search results. Id. ¶ 46. During the three-month intervening period, however, it was conveyed to consumers through a message on Defendant's website that Plaintiff Strauss either had not met the requisite qualifications to appear on Defendant's website or had “no ratings or reviews.” Id. ¶ 42. From 2013 to 2016, Plaintiff Strauss appeared in search results, but Defendant intentionally “buried” Plaintiff Strauss within the list despite Plaintiff Strauss having received numerous favorable consumer-generated ratings and reviews. Id. ¶¶ 48-49. In the fall of 2016, Defendant failed to honor its obligations to Plaintiff Strauss under their most recent advertising agreement. Id. ¶ 50. Since 2016, Plaintiff Strauss has not advertised on Defendant's website. Id. ¶ 34.

         Defendant has falsely described, disparaged, and defamed Plaintiff Strauss and his business and services by declaring to consumers who search Defendant's website that: (1) Plaintiff Strauss has “no rating or [consumer] reviews”; (2) has not met certain “criteria” to be listed on Defendant's website; and (3) has no “local offers” to extend to consumers.[3] Id. ¶ 52. In reality, Plaintiff Strauss has many favorable ratings and reviews, has more than satisfied Defendant's published criteria for being listed on Defendant's website, and has several local offers to extend consumers. Id.

         C. Proposed-Plaintiff Garner's Relationship and Experience with Defendant [4]

         Proposed-Plaintiff Garner is a resident of Maryland. Doc. 43-1 ¶ 2. He is the sole proprietor of a roofing, siding, and guttering business in Maryland, doing business as Garner Roofing Company, LLC (“Garner Roofing”). Id. ¶¶ 2, 56. Garner Roofing is another example of the type of service provider commonly listed in search results on Defendant's website. Id. ¶¶ 8, 56. Since 2012, Proposed-Plaintiff Garner has been aware of Defendant's advertising services. Id. ¶ 57. Between 2012 and 2017, Proposed-Plaintiff Garner and Defendant entered into advertising agreements. Id. From 2012 to 2014, Proposed-Plaintiff Garner and Defendant had an amicable relationship and, each year during that time, Proposed-Plaintiff Garner was awarded a Super Service Award by Defendant for achieving and maintaining “a superior rating” on Defendant's website. Id. ¶¶ 58-59.

         In January 2018, Proposed-Plaintiff Garner notified Defendant he did not intend to utilize Defendant's advertising services after that date. Id. ¶¶ 60-62. Defendant attempted to persuade Proposed-Plaintiff Garner to change his mind, but he declined. Id. ¶¶ 63-66. Despite Proposed-Plaintiff Garner's immediately-effective notice of cancelation, Defendant continued to charge him for advertising services during the nine-day period that Defendant attempted to persuade Proposed-Plaintiff Garner to change his mind and an additional six-day period Defendant attributed to a processing delay. Id. ¶¶ 67-72. Proposed-Plaintiff Garner disputed the additional charge, refusing to pay for services subsequent to his first notice of cancellation, but Defendant insisted he was responsible for the cost of additional advertising during that time period. Id. ¶¶ 70-72. Defendant also notified Proposed-Plaintiff Garner that, as a result of the dispute and his refusal to pay, it had appended a “Non-Pay Exclusion” to his business profile on Defendant's website, informing consumers that Proposed-Plaintiff Garner owed Defendant unpaid sums of money. Id. ¶ 73. Defendant also allowed a single consumer to submit a duplicative negative review of Proposed-Plaintiff Garner, assigning him the lowest possible rating, and removed from its website all references to Proposed-Plaintiff Garner's previously-earned Super Service Awards. Id. ¶ 74.

         D. Defendant's Revenue Derived from Advertising

          Defendant derives most of its revenue from advertising (fee-paying) service providers. Id. ¶ 61. “In 2011, 2012, 2013, and 2014, Defendant derived 62%, 69%, 73%, and 76.8% of its total revenue, respectively, not from its consumers/members but from [advertising (fee-paying) service providers].” Id. For example, in 2014, Defendant made approximately $241, 900, 000.00 from agreements with advertising (fee-paying) service providers-more than three times its revenue derived from consumer membership fees. Id. “Recognizing this, in June of 2016, [Defendant] instituted a ‘freemium' model, offering a bare-bones free membership [to consumers]” in addition to its “Silver” and “Gold” plans. Id. “This new course of business provided even further incentive [for Defendant] to extract more advertising revenue from service providers to compensate for the loss of [fee-paying consumers].” Id. Defendant's “economic fortunes are aligned far more with [s]ervice [p]roviders than consumers.” Id.

         III. MOTION TO DISMISS

         Defendant seeks dismissal of Plaintiff Strauss's Lanham Act and KCPA claims in the Original Complaint on several grounds. Relevant to the Court's ruling are three of Defendant's contentions. First, Defendant asserts that Plaintiff Strauss cannot establish at least one essential element of his Lanham Act false advertising claim because the representations on which Plaintiff Strauss's claims are based do not constitute “commercial advertising or promotion.” Second, Defendant asserts that Plaintiff Strauss cannot establish his KCPA claims because he has not plausibly pled the essential elements of reliance or causation. Third, Defendant asserts as an affirmative defense that Plaintiff Strauss's Lanham Act and KCPA claims are all time-barred- the Lanham Act claims by the doctrine of laches and the KCPA claims by the applicable statute of limitations. Because the Court concludes that the vast majority of Plaintiff Strauss's claims are barred by either laches or the applicable statute of limitations, the Court addresses these issues first. The Court then considers Defendant's request to dismiss Plaintiff Strauss's remaining claims-i.e., his remaining timely claims-for failure to plausibly plead at least one essential element of each claim.

         A. Standard of Review

         Under Rule 12(b)(6), to 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)). The plaintiff's claim is facially plausible if he pleads sufficient factual content to allow the Court “to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. The plausibility standard requires “more than a sheer possibility that a defendant has acted unlawfully” but “is not akin to a ‘probability requirement.'” Id. “Where a complaint pleads facts that are ‘merely consistent with' a defendant's liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.'” Id. (quoting Twombly, 550 U.S. at 557).

         This standard results in two principles that underlie a court's analysis. Id. First, “the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.” Stated differently, though the court must accept well-pleaded factual allegations as true, it is “not bound to accept as true a legal conclusion couched as a factual allegation.” Twombly, 550 U.S. at 555 (internal citations and quotations omitted). “Second, only a complaint that states a plausible claim for relief survives a motion to dismiss.” Iqbal, 556 U.S. at 679. “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not ‘shown'-‘that the pleader is entitled to relief.'” Id. (quoting Fed.R.Civ.P. 8(a)(2) (original brackets omitted)). “In keeping with these [two] principles, a court considering a motion to dismiss can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth.” Id. “When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief.” Id.

         B. Affirmative Defenses of Laches and Statute of Limitations

         Defendant contends Plaintiff Strauss's Lanham Act and KCPA claims under the Original Complaint are time-barred-the Lanham Act claims under a laches theory and the KCPA claims by the applicable statute of limitations. Doc. 12 at 19-20, 26-27. Both laches and statute of limitations are affirmative defenses; however, when the factual allegations and dates alleged in the complaint “make clear that the right sued upon has been extinguished, this issue may be resolved on a motion to dismiss.” Thompson v. Jiffy Lube Int'l, Inc., 505 F.Supp.2d 907, 924 (D. Kan. 2007); see also Dummar v. Lummis, 543 F.3d 614, 619 (10th Cir. 2008) (restating holding from Jiffy Lube); United States v. Rodriguez-Auirre, 264 F.3d 1195, (10th Cir. 2001) (considering both laches and statute of limitations defenses at motion to dismiss phase). The Court, in large part, agrees with Defendant. The vast majority of Plaintiff Strauss's Lanham Act and KCPA claims are time-barred.

         1. Plaintiff Strauss's Lanham Act Claims

         Count I of the Original Complaint alleges Defendant engaged in false advertising in violation of section 43(a) of the Lanham Act. Doc. 1 at 32-33. Section 43(a) imposes liability against any individual or entity who “in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographical origin of his or her or another person's goods, services, or commercial activities.” 15 U.S.C. § 1125(a)(1)(B) (2012). The Lanham Act does not contain a statute of limitations, but it “expressly provides for defensive use of ‘equitable principles, including laches.'” Petrella v. Metro-Goldwin-Mayer, Inc. 572 U.S. 663, n.15, ___ 134 S.Ct. 1962, 1979 n.15 (2014) (quoting 15 U.S.C. § 1115(b)(9) (2012)). This includes Lanham Act claims for false advertising under section 43(a). See, e.g., Hot Wax, Inc. v. Turtle Wax, Inc., 191 F.3d 813, 827 (7th Cir. 1999) (affirming dismissal of Lanham Act false advertising claims on grounds of laches); Conopco, Inc. v. Campbell Soup Co., 95 F.3d 187, 194 (2d Cir. 1996) (same).

         Similar to a statute of limitations, laches functions as a temporal limitation on a party's right to sue. Biodiversity Conservation All. v. Jiron, 762 F.3d 1036, 1090 (10th Cir. 2014). “It stems from the principle that ‘equity aids the vigilant and not those who slumber on their rights.'” Id. at 1090-91 (quoting Kansas v. Colorado, 514 U.S. 673, 687 (1995)). “Laches bars a claim when there is: (1) lack of diligence by the [plaintiff], and (2) prejudice to the [defendant].” Id. at 1091 (internal quotations and citations omitted). Although it is a separate defense, the determination of whether laches applies is made with reference to the most analogous state statute of limitations. Yeager v. Fort Knox Security Prods., 602 Fed.Appx. 423, 431 (10th Cir. 2015); see also Santana Prod., Inc. v. Bobrick Washroom Equip., Inc., 401 F.3d 123, 135 (3d Cir. 2005) (“Courts commonly use the appropriate statute of limitations as a guideline in claims for false advertising under § 43(a) of the Lanham Act.”); Jarrow Formulas, Inc. v. Nutrition Now, Inc., 304 F.3d 829, 835 (9th Cir. 2002) (stating laches determination is made with reference to analogous state statute of limitations period). In dealing with Lanham Act claims, courts have applied a “strong presumption . . . that if a § 43(a) claim is filed within the analogous state limitations period, . . . laches is inapplicable; if the claim is filed after the analogous limitations period has expired, the presumption is that laches is a bar to suit.” Jarrow Formulas, 304 F.3d at 837; see also Lyons P'ship, L.P. v. Morris Costumes, Inc., 243 F.3d 789, 799 (4th Cir. 2001); Kason Indus., Inc. v. Component Hardware Grp., Inc., 120 F.3d 1199, 1203 (11th Cir. 1997); Hot Wax, 191 F.3d at 821; Conopco, 95 F.3d at 191; Tandy Corp. v. Malone & Hyde, Inc., 769 F.2d 362, 365-66 (6th Cir. 1985); Univ. of Pittsburgh v. Champion Prods. Inc., 686 F.2d 1040, 1045 (3d Cir. 1982).[5]

         In light of the above, to determine whether laches applies to bar Plaintiff Strauss's Lanham Act claims, the Court must: (1) identify the most analogous state statute of limitations; (2) determine whether Plaintiff Strauss's Lanham Act claims were filed before or after the expiration of the applicable limitations period; (3) determine whether a presumption in favor of or against application of laches exists; and (4) in light of the presumption or lack thereof, determine whether there was a lack of diligence by Plaintiff Strauss in filing suit that has resulted in prejudice to Defendant. Each of these issues is addressed in turn below.

         a. Determination of the Analogous State ...


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