Temming v. Summus Holdings, LLC

Background

Steve Temming, a retired veterinarian and citizen of New Jersey, attended a veterinary convention in San Francisco on December 6, 2018. He alleged that Scott Allen, a sales representative for the defendants, demonstrated and sold him a medical laser bearing the “K-Laser” mark. Temming alleged that Allen represented that the defendants were authorized distributors of lasers manufactured by Eltech K-Laser S.r.l., even though the device was counterfeit. Temming financed the transaction through a 60-month equipment lease with Beneficial Equipment Finance; the lease identified K-Laser USA LLC as the supplier and included a Pennsylvania choice-of-law and forum-selection provision.

Temming alleged that Eltech had ended the defendants’ distribution agreement before the sale and that the defendants were later enjoined from using the K-Laser mark. After learning in April 2021 that the laser was not manufactured by Eltech, Temming demanded a refund, but the defendants refused.

He asserted claims under the Racketeer Influenced and Corrupt Organizations Act, or RICO; California’s false-advertising statute, California Business and Professions Code § 17508; and California common-law fraud. The defendants moved under Federal Rule of Civil Procedure 12(b)(2) to dismiss the claims against Summus Holdings and Dr. Albright for lack of personal jurisdiction. They also moved under Rule 12(b)(6) to dismiss all claims for failure to state a claim and alternatively sought transfer to the Middle District of Tennessee or Pennsylvania.

Personal Jurisdiction

The court granted the motion to dismiss Summus Holdings and Dr. Albright for lack of personal jurisdiction. It applied the test for specific personal jurisdiction, which asks whether the defendant deliberately engaged with the forum, whether the claim arose from those forum activities, and whether exercising jurisdiction would be reasonable.

Summus Medical Laser did not contest personal jurisdiction, and the court found that it purposefully engaged in business in California because its employees attended the San Francisco convention and conducted business there. By contrast, Summus Holdings did not attend the convention, send employees there, have employees in California, or place goods into the stream of commerce. The court held that its business registration in California was not enough to establish purposeful contact connected to the transaction.

The court also found that Dr. Albright did not purposefully engage in business in California. He was domiciled in Tennessee, did not conduct or solicit business in California, owned no California property, and did not attend the convention.

Temming also argued that RICO’s nationwide service provision should allow jurisdiction because of the “ends of justice.” The court rejected that argument on the record presented. The Middle District of Tennessee could exercise jurisdiction over all defendants, and Temming had not established that no other district could exercise jurisdiction over all alleged participants. The court therefore dismissed the claims against Summus Holdings and Dr. Albright under Rule 12(b)(2).

RICO Claim

The court granted dismissal of the RICO claims. For the RICO provision invoked by Temming, he needed to allege an investment injury separate from the injury caused by the alleged racketeering acts. The court held that he alleged only that the defendants sold counterfeit products and did not allege facts showing a separate injury caused by the investment of racketeering income. The court also held that Temming’s conspiracy claim failed for the same reason because it was based on the alleged violation of that RICO provision.

The court separately held that Temming did not adequately plead at least two predicate acts of racketeering. The complaint did not adequately allege that the mark was a legally defined counterfeit mark because it did not allege that Eltech owned the registered mark when the defendants used it. The complaint also did not plead the specific intent to defraud required for the alleged mail- and wire-fraud predicates. Temming did not contest the defendants’ argument concerning the alleged unlawful interstate-travel predicate, and the court found that the California counterfeit-mark predicate was also inadequately pleaded.

The court dismissed the RICO claim with leave to amend.

False-Advertising Claim

The defendants argued that California Business and Professions Code § 17508 does not create a private right of action. Temming conceded that point, said he intended to sue under § 17500 instead, and requested permission to amend. The court granted leave to amend and dismissed the § 17508 claim.

Common-Law Fraud Claim

The court denied the motion to dismiss the common-law fraud claim. Temming alleged that the defendants represented that they were authorized distributors of Eltech-manufactured lasers, displayed the devices in a way that suggested they were genuine Eltech products, and sold him a laser despite Eltech’s prior termination of the distribution agreement.

Applying the pleading rules, including the heightened requirement that fraud be described with particularity, the court held that Temming identified the alleged misrepresentations and omission sufficiently at this stage. The court noted that the evidence might ultimately show there was no misrepresentation, but the claim was adequately pleaded against Summus Medical Laser. The court did not treat the absence of statements by Dr. Albright or Summus Holdings as a reason to dismiss because the surviving claim was against Summus Medical Laser.

Transfer

The court denied the motion to transfer. Under 28 U.S.C. § 1404(a), the party seeking transfer must show that another federal district would be more convenient and that transfer would serve the interests of justice. The court gave substantial weight to Temming’s choice of forum because the transaction underlying the lawsuit occurred in the Northern District of California. Although the defendants had substantial contacts with the Middle District of Tennessee, the other factors were generally neutral, and the defendants did not meet their burden.

The court did not decide whether the Pennsylvania forum-selection and choice-of-law provisions in the lease applied to these parties. The defendants had raised their argument that they were third-party beneficiaries of the lease for the first time in their reply brief. The court stated that they could raise the issue in a later motion to dismiss an amended complaint.

Disposition

The court dismissed the claims against Dr. Albright and Summus Holdings for lack of personal jurisdiction, dismissed the RICO and § 17508 claims with leave to amend, denied the motion to dismiss the common-law fraud claim, and denied the motion to transfer. It directed that any amended complaint be filed within three weeks, unless the parties stipulated otherwise or the court ordered otherwise, and required the amended complaint to include a blackline comparison with the current complaint.