Stemmelin v. Matterport, Inc.

Background

John Stemmelin alleged that Matterport, Inc., and its officers marketed 3D cameras and the Matterport Service Partner program as a profitable business opportunity. The advertisements promised, among other things, that the program required a $4,100 upfront investment, involved minimal training, could be learned quickly, offered business leads, and could allow a participant to recoup the investment within six months. Stemmelin alleged that he bought cameras and related equipment, joined the program, spent more than $22,000, and did not recover his costs.

Stemmelin sued under multiple states’ business-opportunity and consumer-protection laws, as well as California’s unfair-competition and false-advertising laws. A prior order dismissed the original complaint for lack of standing and failure to state a claim. Stemmelin then moved to amend. The court applied the rule that permission to amend should generally be freely given, while testing challenged proposed claims under the same plausibility standard used for a motion to dismiss.

Scope of the Amendment and Standing

The court allowed Stemmelin to add claims rather than limiting him to the claims in the original complaint because the earlier order had directed him to plead his best case. The court found no undue delay, bad faith, or prejudice from the proposed amendments.

The court clarified that claims under business-opportunity laws outside Illinois, where Stemmelin resided, were dismissed with prejudice as to Stemmelin himself for lack of standing and preserved for appeal. The court also dismissed with prejudice all newly added consumer-fraud claims except those under Illinois law, setting aside the California claims. It held that Stemmelin could assert California claims based on transactions allegedly originating with Matterport in California and ending with Stemmelin in Illinois. The California business-opportunity claim was not barred by the earlier standing ruling because it had not been included in the original complaint.

California Unfair-Competition and False-Advertising Claims

The proposed California unfair-competition claim relied on California Business and Professions Code section 17200, which covers unlawful, unfair, and fraudulent business practices. The false-advertising theory relied on section 17500. Because the false-advertising allegations sounded in fraud, the court required particularity: the complaint had to identify the who, what, when, where, and how of the alleged deception and explain why the statements were false.

The court found that Stemmelin’s proposed allegations met that requirement for his individual claims. The allegations identified his response to a Facebook advertisement in January 2017, his later telephone conversations with Matterport employee Jackie Dietzen, specific representations about equipment, software updates, qualified leads, and recouping his investment, and a February 21 communication describing the Service Partner program. The proposed complaint also described how Stemmelin relied on those statements, what he purchased, and why he alleged the representations were false.

The court rejected Matterport’s argument that the advertisements were only “puffery,” meaning statements too vague for a reasonable consumer to rely on. It concluded that the specific investment amount, six-month recoupment timeline, training and startup promises, and location-specific leads could plausibly have deceived reasonable consumers. The false-advertising claim therefore could proceed.

The court also allowed the unfair-competition claim to proceed under its Seller Assisted Marketing Plan, fraudulent, and unfair grounds. The false-advertising allegations supported the fraudulent ground, and the alleged violation of a legislatively declared policy supported the unfair ground.

Claims Against Individual Defendants

The court agreed in part with the individual defendants’ objections. The proposed complaint named RJ Pittman, Dave Gausebeck, Matt Bell, Carlos Kokron, Peter Hebert, Jason Krikorian, and Mike Gustafson as officers with direct or indirect control over Matterport, but did not allege specific actions by them. On that basis, the claims against the named directors failed except for the Illinois Business Opportunity Sales Law claim.

The Illinois statute permits liability for a person who directly or indirectly controls a person liable under the statute, subject to the statutory defense that the controlling person did not know and could not reasonably have known the relevant facts. The court held that whether the officers knew or should have known of Matterport’s alleged liability presented factual questions to be addressed after discovery.

Forms of Relief and Disposition

The court ruled that California Business and Professions Code sections 17200 and 17500 provide equitable relief, not damages. The damages request tied to the California false-advertising claim therefore failed. The proposed allegations plausibly suggested that the alleged misconduct continued to affect Stemmelin and other Service Partners, so requests for injunctive or declaratory relief could proceed within the statutory limits. The request for punitive damages under the Illinois Consumer Fraud Act could also proceed because the Illinois Supreme Court had allowed punitive damages for willful violations of that law.

The court concluded that the motion to amend was GRANTED to the extent stated in the order. The section 17200 and section 17500 claims survived, as did the implied-covenant, Illinois Consumer Fraud, Illinois Business Opportunity Law, and California Seller Assisted Marketing Plan claims. Claims arising under laws outside California or Illinois were dismissed with prejudice for lack of standing. Claims against the named directors failed except for the Illinois Business Opportunity Sales Law claim.