Court: District Court, D. Nevada; March 26, 2014; Federal District Court
The Court granted in part and denied in part the motions from Shuffle Master to dismiss LT Game International Ltd.’s claims and LT’s request to file a second amended complaint. LT, a Canadian gaming-technology company operating in Nevada and Macao, accused Shuffle Master of unfair competition and tortious interference, alleging that Shuffle Master engaged in a campaign to misrepresent LT's products, causing damage to LT's business. LT’s initial five-page complaint included claims under the Lanham Act, Nevada common law, the Macau Commercial Code, and tortious interference. Shuffle Master argued that LT's allegations were insufficient under the Federal Rules of Civil Procedure, particularly citing the heightened pleading standard for fraud claims. The Court determined that LT's claims, largely sounding in fraud, did not meet the required standard, leading to the dismissal of all but one claim. However, the Court permitted limited amendments to address factual deficiencies.
LT opposed the dismissal, asserting that its claims did not require the heightened standard and requested leave to amend its complaint to include LT Game Canada as a new plaintiff, characterizing it as the real party in interest for claims prior to LT's formation in 2011. Shuffle Master contested this motion, alleging that the amended complaint still lacked specificity and that LT acted in bad faith by introducing the new party at the last moment.
Both motions were found appropriate for resolution without oral argument, resulting in partial grants and partial denials. The Court addressed the Motion to Dismiss under Federal Rule of Civil Procedure (FRCP) 8(a), which mandates that a pleading must include: a statement of the grounds for jurisdiction, a claim showing entitlement to relief, and a demand for relief. The standards set forth in Ashcroft v. Iqbal and Bell Atlantic Corp. v. Twombly require that a complaint contain sufficient factual matter to state a claim that is plausible on its face, moving beyond mere labels or formulaic recitations.
Particular scrutiny is applied to complaints involving fraud or mistake under Rule 9, which necessitates detailed allegations that specify the circumstances of the alleged misconduct, thereby enabling defendants to prepare an adequate defense. Claims based on fraud or mistake must satisfy both the plausibility standard of Rule 8(a) and the particularity standard of Rule 9(b), which aims to facilitate clarity and avoid unnecessary discovery.
Regarding LT’s Lanham Act claim, the Court identified that LT’s First Amended Complaint suggests a claim under the Lanham Act’s false advertising provision, 15 U.S.C. § 1125(a)(1)(B), but lacks specificity in its legal basis. To succeed on this claim, LT must establish five elements, including the presence of a false statement, its materiality, and resulting injury. Shuffle Master argued that LT's allegations should be assessed under Rule 9(b) due to their fraudulent nature, contending that LT's claims do not meet the heightened particularity requirement and thus should be dismissed. LT countered this assertion, claiming that its characterization of Shuffle Master’s conduct as a misrepresentation does not necessitate Rule 9’s stricter standards.
The Lanham Act claim is based on fraud, but fraud is not a required element for a false advertising claim under this statute; only a "false" statement leading to "deception" is necessary. Therefore, the heightened pleading standard of Rule 9 does not automatically apply to these claims. However, in the Ninth Circuit, if a plaintiff alleges fraudulent conduct in a claim where fraud is not an essential element, the entire claim may still be subject to Rule 9's particularity requirement. Misrepresentation claims are considered a form of fraud and must meet this standard.
In the case at hand, LT's allegations of fraud do not satisfy Rule 9. LT's claim consists of vague assertions, including a broad statement that the defendant's actions constitute unfair competition under the Lanham Act, along with claims of damage to LT. The court scrutinizes the underlying allegations, which detail an international disparagement campaign by the defendant against LT’s business and misrepresentations about LT's products, notably at trade shows and to potential customers. However, these allegations lack substantive detail required under Rule 9, rendering them insufficient for establishing a fraud-based claim.
Defendant's misrepresentations have harmed Plaintiff's business and affected its current and prospective deals, resulting in lost opportunities and reduced value. Defendant is accused of willfully interfering with Plaintiff's business dealings. The allegations, relying on misrepresentations categorized as fraud, must meet the requirements of Rule 9(b), including detailing the specifics of the misconduct, which LT has failed to do. While LT identifies the "who," "where," and "when" of the alleged fraud, it does not adequately explain the "how" or provide sufficient detail on what statements were misleading or why they were false. This lack of specificity leads the court to dismiss the fraud-related allegations.
Consequently, the court evaluates the remaining non-fraud allegations, which claim that Defendant has engaged in a campaign to disparage Plaintiff’s business and interfere with its contracts. However, these allegations are deemed to be mere formulaic recitations of legal elements without sufficient detail to support a Lanham Act claim. The motion to dismiss LT's Lanham Act claim is granted.
Regarding the Nevada unfair competition claim, while the tort is broadly defined, it also must adhere to federal pleading standards. LT's claim repeats prior allegations without providing substantial new information, merely asserting that Defendant's actions constitute unfair competition and cause irreparable harm. Since the court strips away the inadequately pled fraud allegations, the remaining claims similarly lack the specificity required for a valid cause of action, leading to dismissal of the unfair competition claim as well.
Threadbare allegations presented by LT fail to establish a valid claim for relief, leading to the dismissal of the claim. Shuffle Master argues that LT's Macao unfair competition claim is also flawed, as it relies on insufficiently detailed fraud-based allegations that do not meet Rule 9's standards. LT’s inclusion of approximately 25 pages of a translated section of Macao’s commercial code lacks proper verification of accuracy, further weakening its position.
In addressing the tortious interference claim, Shuffle Master contends that LT cannot claim interference with contractual relations since it lacks the necessary licenses to sell gambling products in Nevada, implying no valid contracts existed to interfere with. LT counters that its allegations extend beyond Nevada to include global activities in Macau and Australia.
According to Nevada law, to prove intentional interference with existing contracts, LT must demonstrate the existence of a valid contract, Shuffle Master's knowledge and intentional disruption, actual disruption, and resulting damages. For prospective economic advantage claims, LT needs to show a potential contractual relationship, Shuffle Master's knowledge, intent to harm, lack of justification, and actual harm incurred.
LT attempts to bolster its claim with additional allegations, but paragraph 31, which references misrepresentations, lacks specificity and must be disregarded. The remaining allegations must be evaluated under Rule 8 to determine if they substantiate the claims of tortious interference and must reflect direct actions that disrupt LT's business activities.
Defendant is intentionally disrupting Plaintiff's business relationships with current and potential customers regarding gaming and casino products, fully aware of ongoing negotiations. This interference has negatively impacted Plaintiff's business, leading to lost contracts. The document notes that there is no evidence suggesting Plaintiff has contracts outside the U.S. or that Defendant's actions affect international dealings, particularly in Macau and Australia. While the Hilton standard does not necessitate that contracts be formed in Nevada to support a claim of intentional interference, Plaintiff has not established that the alleged contracts with customers, specifically Las Vegas Sands Corporation and the Venetian, are valid and existing. Consequently, the claim for interference with existing contracts is dismissed. However, the claim for tortious interference with prospective business relations remains viable since it does not require proof of a valid contract. The Court denies Defendant's Motion to Dismiss this claim.
Additionally, Plaintiff sought leave to file a second amended complaint, citing inadequacies in the first. The Court acknowledges these deficiencies and allows for amendments to the claims to provide more detailed facts but denies the addition of LT Canada as a party. The standard for amending complaints under Rule 15 favors liberal amendment when justice requires it.
In Foman v. Davis, the U.S. Supreme Court established that plaintiffs should generally be allowed to amend their claims if they present valid underlying facts. However, courts retain discretion to deny such amendments based on specific justifications. In the Ninth Circuit, five factors guide this determination: 1) bad faith, 2) undue delay, 3) prejudice to the opposing party, 4) futility of amendment, and 5) whether the plaintiff has previously amended the complaint. While any of the first four factors can justify denial of leave, the primary focus is often on the bad faith of the party seeking the amendment and the potential prejudice to the opposing party.
In this case, the court permits limited amendment for LT to address factual deficiencies in its claims, emphasizing that fairness necessitates this opportunity. However, the request to add LT Canada as a plaintiff is denied. The court finds no bad faith in LT's timely request to amend its own claims, as it was made in response to a motion to dismiss and included factual supplements. Conversely, the last-minute request to add LT Canada lacks credibility, suggesting insufficient diligence in identifying the proper parties before filing. The court underscores that LT should have thoroughly investigated its claims prior to litigation, indicating that the failure to include LT Canada was due to carelessness rather than new discovery. Thus, while LT may amend its claims, the attempt to add LT Canada is viewed as lacking diligence and bad faith.
Regarding undue delay, LT's request to amend existing claims is considered timely, but the late identification of LT Canada as a potential plaintiff reflects undue delay. The court clarifies that mere delay is not a solid basis for denying amendments; however, it questions LT's awareness of LT Canada's role prior to the filing of its initial complaint, suggesting that LT's late addition of this party was not justified.
A request to add a new plaintiff, LT Canada, should have been made prior to the midnight deadline if it was genuinely meritorious, favoring factual amendment but opposing the addition of a new party. The potential prejudice to the opposing party, Shuffle Master, is significant; while LT can amend its complaint to address existing claims' deficiencies without undue prejudice to Shuffle Master, introducing LT Canada at this stage would unfairly disrupt the case. Discovery has been completed based on the original parties and claims, and Shuffle Master has already filed a motion for summary judgment. The Ninth Circuit views amendments as unduly prejudicial when they require reopening discovery, which would be necessary if LT Canada were added. Shuffle Master argues LT has failed to remedy deficiencies in prior amendments, but since the initial amendment was granted as a right, this does not weigh against the current amendment request. Lastly, the proposed second amended complaint presents multiple issues that could render the amendment futile, particularly in how it defines the plaintiffs and presents the allegations. LT must ensure clarity in its allegations regarding misconduct to avoid future dismissal, as the court may not allow further amendments without extraordinary circumstances, especially after the completion of discovery and in light of the apparent lack of a viable claim.
LT is permitted to file a second amended complaint to address identified factual deficiencies, but is denied the opportunity to add a new plaintiff. LT may submit the amended complaint within 15 days if it can present sufficient facts to revive dismissed claims; otherwise, the case will continue solely on the remaining claim for tortious interference with prospective business relations. Shuffle Master, Inc.’s Motion to Dismiss is partially granted, dismissing LT’s claims for Unfair Competition under the Lanham Act, Macao Commercial Code, and Nevada common law, as well as the claim for Tortious Interference with Contracts. The motion is denied concerning LT's claim for Tortious Interference with Prospective Business Relations. The document notes that LT filed the original complaint on July 10, 2012, and an amended complaint shortly thereafter in response to an earlier motion to dismiss, which was subsequently denied as moot.
Most false advertising claims under section 1125(a)(1)(B) are likely to be subject to Rule 9(b) scrutiny, as the plaintiff must allege that the defendant made a "false" statement, either intentionally (fraud) or unintentionally (mistake). Specificity regarding the time, place, and content of the alleged false statements is required for allegations grounded in fraud, as demonstrated in Swartz v. KPMG LLP. General or vague allegations, such as claims not limited to specific systems or customers, do not meet the Rule 9(b) standard. Rule 9(b) has also been applied to negligent misrepresentation claims in Nevada, where intent is considered an essential element, even if not explicitly mentioned in the law.
Federal Rule of Civil Procedure 15(a)(2) allows for amendments, and courts have emphasized the importance of compliance with local rules regarding disclosure of parties with a pecuniary interest in the case. In this instance, LT stated that there were no known interested parties besides those named in the caption, which is critical for the court’s evaluation of potential recusal. Local Rule 7.1-1 mandates more extensive disclosure than Federal Rule 7.1, and failure to comply with certification requirements can lead to dismissal of the action, as observed in various cases.
On October 23, 2007, the Court noted the absence of case law regarding the duty to supplement its Certification but determined that the Local Rule’s language does not warrant a different conclusion in this case. The Court referenced its previous ruling in Righthaven, where it required additional briefing to justify a lack of disclosure about other parties’ interests, thus avoiding sanctions. Citing various precedents from the Ninth Circuit, the Court highlighted that delays in disclosing pertinent facts, such as an eight-month wait before seeking to amend, were deemed unreasonable. The citations included cases like AmerisourceBergen Corp. v. Dialysist West, Inc., Texaco, Inc. v. Ponsoldt, and others that reinforce the standards for timely disclosure and amendment in legal proceedings.
