Case 2:11-cv-00390-JAT Document 145 Filed 02/01/12 Page 1 ...

1 1234567891011121314151617181920212223242 5262728 ANN BIRMINGHAM SCHEELA cting United States AttorneyDistrict of Arizona TONY WESTA ssistant Attorney General MAAME EWUSI-MENSAH FRIMPONGA cting Deputy Assistant Attorney General MICHAEL L. BLUMED irector, Consumer Protection BranchKENNETH L. JOSTD eputy Director, Consumer Protection BranchJESSICA R. GUNDERT rial Attorney, Consumer Protection BranchMissouri Bar # 60156 United States Department of JusticeLiberty Square Building - Room 6400 South450 Fifth Street, NW Washington, DC 20001 Telephone: (202) 532-4719 Facsimile: (202) 514-8742E-Mail: for the United StatesUNITED STATES DISTRICT COURTDISTRICT OF ARIZONAUNITED STATES OF AMERICA,Plaintiff, RECOVERY SERVICES, LLCa limited liability company, and,BRIAN HESSLER individually, and as owner, officer,or manager of Business RecoveryServices, LLC, 2:11CV00390 JAT Response in Opposition to Defendants Motion to Dismiss for Failure to State a Claim Under Rule 12(b)(6)Defendants motion is untimely and should be denied as Defendants Answer wasfiled over ten months ago.

2 If the Court does consider this untimely motion, it should berejected as Defendants arguments are meritless. Case 2:11-cv-00390-JAT Document 145 Filed 02/01/12 Page 1 of 1312345678910111213141516171819202122232 425262728 ARGUMENT I. This Motion is Untimely and Should be DismissedMotions under Rule 12(b)(6) must be made before pleading if a responsive pleadingis allowed. Fed. R. Civ. P. 12(b); see also Elvig v. Calvin Presbyterian Church, 375 , 954 (9th Cir. 2004). As the Ninth Circuit has noted, [a] fundamental tenet of theFederal Rules of Civil Procedure is that certain defenses under Fed. R. Civ. P. 12 must beraised at the first available opportunity or, if they are not, they are forever waived. American Ass n of Naturopathic Physicians v. Hayhurst, 227 1104, 1106 (9th ). An answer to a complaint is a responsive pleading.

3 See Fed. R. Civ. P. 7(a)(2). Defendants Filed an Answer to the Complaint in this matter on March 28, 2011 [doc.#16]. Relief under Fed. R. Civ. P. 12(b)(6) is therefore foreclosed. II. This Motion Also Fails on the MeritsUntimely motions to dismiss are sometimes treated as a motion for judgment on thepleadings. Aldabe v. Aldabe, 616 1089, 1093 (9th Cir. 1980); Elvig, 375 at 954. A judgment on the pleadings is properly granted when, taking all the allegations in thepleadings as true, [a] party is entitled to judgment as a matter of law. Lyon v. Chase BankUSA, , 656 877, 883 (9th Cir. 2011) (quoting Dunlap v. Credit Prot. Ass n, ,419 1011, 1012 (9th Cir. 2005); Owens v. Kaiser Found. Health Plan, Inc., 244 , 713 (9th Cir. 2001)). If the Court elects to convert Defendants untimely motion todismiss into a judgment on the pleadings, the motion should be denied on the merits.

4 A. The Court Must Consider the Complaint in Its Entirety when Evaluating aMotion to Dismiss for Failure to State a assert that all three counts of the Complaint are conclusory and fail to stateclaims upon which relief can be granted. To support this argument, Defendants ask that theCourt ignore all but three of the paragraphs of the Complaint - paragraphs 19, 21, and 25 -which Defendants state do not contain sufficient factual detail. Defendants proposition that the Court should not consider the remaining 292 Case 2:11-cv-00390-JAT Document 145 Filed 02/01/12 Page 2 of 1312345678910111213141516171819202122232 425262728paragraphs of the Complaint should be rejected outright. It is well established that [c]ourtsmust consider the complaint in its entirety, as well as other sources courts ordinarily examinewhen ruling on Rule 12(b)(6) motions to dismiss[.]

5 ] Dunn v. Castro, 621 1196, (quoting Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 308, 322 (2007));Magulta v. Samples, 375 1269, 1274-75 (11th Cir. 2004) (when reviewing a motion todismiss for failure to state a claim, courts should read the complaint in its entirety); 5 Wright& Miller, Federal Practice and Procedure 1286 (3d ed. 2004); 5B Wright & Miller, FederalPractice and Procedure 1357 (3d ed. 2004). Defendants provide no legal support for the proposition that these three paragraphsshould be pulled out of the Complaint and examined independently. Plaintiff s decision toadd subheadings which enumerate and delineate the separate counts was done as aconvenience to Defendants and the Court, and does not limit the factual averments in theComplaint to only what is included under each individual subheading. The Court mustconsider the Complaint as a whole.

6 Id. Consideration of the Complaint as a whole demonstrates that it meets the requirementsestablished under the Federal Rules. [A] complaint must contain sufficient factual matter .. to state a claim for relief that is plausible on its face. Ashcroft v. Iqbal, 129 1937,1949 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 544, 570 (2007)). Thisstandard is met where the plaintiff pleads factual content that allows the court to draw thereasonable inference that the defendant is liable for the misconduct alleged. Iqbal, 129 1949 (citing Twombly, 550 at 556). Here, the Complaint presents a detailedrecitation of Plaintiffs assertions that more than satisfies the pleading requirements. Areview of the entire Complaint demonstrates that the Complaint in no way relies upon merelegal conclusions but contains a detailed factual account of Defendants illegal practiceswhich establish their liability for the violations of both the FTC Act and Telemarketing SalesRule.

7 3 Case 2:11-cv-00390-JAT Document 145 Filed 02/01/12 Page 3 of 1312345678910111213141516171819202122232 425262728B. Counts II and III Do Not Need to Meet the Pleading RequirementsEnumerated in Fed. R. Civ. P. 9(b)Defendants contention that Counts II and III are subject to the heightened pleadingrequirements of Fed. R. Civ. P. 9(b) is incorrect. Rule 9(b) requires that fraud be plead withparticularity, but neither of these counts plead fraud. Rather, Plaintiff pleads in Count II thatDefendants have violated Section (a)(2)(iii) of the Telemarketing Sales Rule by misrepresenting .. material aspects .. of the goods that are the subject of their salesoffer[.] Similarly, Count III does not plead fraud, but instead asserts that Defendantsviolated the FTC act by making misleading or unsubstantiated representations in connectionwith the advertising, marketing, promotion, offering for sale, or sale of recovery goods andservices.

8 The Federal Rules require that in alleging a fraud or mistake, a party must state withparticularity the circumstances constituting the fraud or mistake. Malice, intent, knowledge,and other conditions of a person s mind may be alleged generally. Fed. R. Civ. P. 9(b). Thepurposes of Rule 9(b) are to provide the defendant with sufficient notice of the basis for theplaintiff s claim, to protect the defendant against frivolous suits, to eliminate fraud actionswhere all of the facts are learned only after discovery, and to safeguard the defendant sreputation. See generally 5A Arthur R. Miller and Mary Kay Kane, Fed. Prac. & Proc. Civ. 1296 (3d ed. 2004). In the Ninth Circuit, Rule 9(b) is properly applied to fraud claims,securities fraud claims, and civil RICO claims based on fraud, but generally not to negligentmisrepresentation or other non-fraud causes of action.

9 See Concha v. London, 62 1493,1502 (9th Cir. 1995); Miller v. IBM, 138 x 12, 16-17 (9th Cir. 2005). Rule 9(b) issimply not applicable in cases where a complaint does not allege fraud or mistake. Concha,62 at 1503. Only those claims that require an essential showing of fraud must meet thehigher standard of Rule 9(b). Courts have long held that prohibited deceptive practices under Section 5 of the FTCAct, 15 45(a), do not amount to a claim of fraud as that term is commonly4 Case 2:11-cv-00390-JAT Document 145 Filed 02/01/12 Page 4 of 1312345678910111213141516171819202122232 425262728understood or as contemplated by Rule 9(b). FTC v. Freecom Communications, Inc., 1192, 1204 (10th Cir. 2005). This is consistent with both the elements and purposeof these FTC actions being distinguishable from common law fraud claims.

10 In an actionunder the FTC Act, it need only be shown that a defendant engaged in a materialmisrepresentation or omission that was likely to mislead reasonable consumers. FTC Credit First, LLC, 244 x. 942, 944 (11th Cir. 2007) (citing FTC v. Tashman,318 1273, 1277 (11th Cir. 2003)). This is further reinforced by the fact that FTCenforcement actions serve a public purpose. As the Tenth Circuit discussed in FreecomCommunications with respect to FTC enforcement actions: [They are] not a private or common law fraud action designed to remedy asingular harm, but a government action brought to deter deceptive acts andpractices aimed at the public and to obtain redress on behalf of a large class ofthird-party consumers who purchased defendants products and services over anextended period of time. 401 at 1204 (citing FTC v.)