Stemmelin v. Matterport, Inc.

Background

John Stemmelin brought a proposed class action against Matterport, Inc. and its officers. He alleged that Matterport marketed 3D cameras, related software and storage services, and a Matterport Service Partner program as a way to start a lucrative self-owned business. According to the complaint, the program advertised pre-qualified local leads, necessary resources and materials, minimal training, and an upfront investment of $4,100.

Stemmelin alleged that he saw Matterport’s advertisements around January 2017, bought a first camera in February, applied to the Service Partner program in May, and bought a second camera. He alleged that he spent more than $22,000 but could not profit from selling 3D models or recover his investment. His complaint asserted business-opportunity claims under the laws of multiple states and Washington, D.C., along with claims under California’s unfair-competition and false-advertising laws.

Matterport moved to dismiss for lack of standing and failure to state a claim. A motion to dismiss for failure to state a claim asks whether the complaint contains enough factual allegations to support a legally valid claim. The court considered the written briefing and telephone argument.

California Claims

The court held that the California unfair-competition and false-advertising claims were subject to the heightened pleading requirement for fraud under Federal Rule of Civil Procedure 9(b). That rule requires a complaint to identify the who, what, when, where, and how of the alleged deception, including why the statements were false or misleading.

The complaint identified some advertisements, when Stemmelin saw them, and when he purchased equipment and services. But the court found that it did not explain how he relied on the advertisements to his detriment, how he understood the representations, or how he pursued the promised business leads and resources. It also did not establish whether he actually became a Matterport Service Partner. Because the allegations did not permit the court to evaluate whether his reliance was reasonable from the viewpoint of an ordinary consumer, the court held that the California claims failed under Rule 9(b).

Claims Under Other States’ Laws

Stemmelin sought to represent people from twenty jurisdictions, in addition to Illinois, under separate state-law claims. The court applied the constitutional standing requirement that a plaintiff must have suffered an actual injury traceable to the defendant and capable of being remedied by the court.

The court reasoned that the alleged harm occurred when each class member made a deception-induced purchase. The complaint showed that Stemmelin purchased his cameras and services in Illinois, but did not allege that he made purchases in the other states or Washington, D.C. Because each state-law claim required its own showing of standing, the court held that Stemmelin lacked standing to assert the claims based on purchases he did not make. The court dismissed all claims except the Illinois claim.

Illinois Claim

The Illinois Business Opportunity Sales Law allows a purchaser of a covered business opportunity to sue for certain violations, including fraud or deception in offering or selling the opportunity. The court found that Matterport’s advertised exchange of equipment, services, leads, and resources appeared at least initially to fit the statute’s definition of a business opportunity.

However, the court held that the complaint did not allege that Stemmelin actually entered into or purchased that business opportunity. The complaint alleged that he bought two cameras and a Cloud Service Plan and later applied to become a Matterport Service Partner, but it did not allege that he became a Service Partner. Because the challenged leads and resources were reserved for Service Partners, the court concluded that the complaint did not show that Stemmelin was a statutory “purchaser” entitled to sue under the Illinois law.

Disposition

The court granted defendants’ motion to dismiss. It permitted Stemmelin to move for leave to amend by December 3, 2020, at noon, and required any such motion to include a redlined proposed amendment. The court stated that the order did not reach other issues, including the possible extraterritorial application of the various state commercial laws.