Lynch v. Matterport, Inc

Background

Shawn Lynch sued Matterport, Inc. and seven members of its board of directors in a putative class action involving Matterport’s Matterport Service Partner program. The program allowed people who bought Matterport cameras to try to build businesses selling three-dimensional scans. Lynch alleged that Matterport’s advertising made material misrepresentations and omissions about the opportunity, including the potential to build a lucrative, self-owned business, the availability of training and marketing support, and the availability of business leads.

Lynch alleged that he saw Matterport’s advertising in or around March 2018, bought his first camera on March 28, 2018, and became a Service Partner on April 25, 2018. He claimed that he spent money on cameras, equipment, website development, and program access, but received little training, inadequate marketing materials, and few leads. He also alleged that Matterport later launched a competing service that took one of his regular clients.

The amended complaint asserted claims for Lynch and three proposed classes. The claims included California’s Seller-Assisted Marketing Plan Act, California’s unfair-competition law, California’s False Advertising Law, the implied covenant of good faith and fair dealing, and requested declaratory and injunctive relief. Lynch withdrew the proposed multi-state class claims and the proposed injunctive-relief class claim during briefing.

Motion and analysis

Matterport moved under Rule 12(b)(6), which allows dismissal when a complaint does not allege enough facts to support a legally plausible claim. The court considered the remaining challenged claims: proposed class claims under the Seller-Assisted Marketing Plan Act, California’s unfair-competition law, and the False Advertising Law, along with Lynch’s individual claims under the unfair-competition and False Advertising Laws.

Claims against the individual defendants. The court dismissed all claims against the seven individual directors. The complaint alleged that they directly or indirectly controlled Matterport, but did not allege what any of them personally did to cause the alleged misconduct or that they personally participated in or authorized it. The court stated that Lynch could seek leave to amend these dismissed claims through a properly noticed motion.

Time-barred proposed class claims. The court held that the proposed class claims under the Seller-Assisted Marketing Plan Act and the False Advertising Law were time-barred as pleaded. It stated that both claims generally have three-year limitation periods and that Lynch filed his initial complaint more than three years after he bought his first camera and became a Service Partner. Lynch argued that the discovery rule delayed the start of the limitation period until Matterport announced its competing program in spring 2020. The court rejected the argument as currently pleaded because Lynch raised it for the first time in his opposition rather than in the complaint. The court allowed him to seek leave to amend to properly plead the discovery-rule theory.

Other arguments. The court rejected Matterport’s arguments that the claims for equitable relief failed because Lynch had not pleaded that legal remedies were inadequate, that statements describing the program as “easy to use” were merely non-actionable advertising puffery, that the fraud-based claims lacked the detail required by Rule 9, that Lynch had not adequately pleaded his domicile, and that he lacked an injury in fact. The court found that the alleged advertisements could plausibly have led reasonable consumers to rely on specific promises about investment costs, the time needed to recover the investment, training, startup materials, and business leads. It also found that Lynch alleged sufficient personal injury at the pleading stage and that his allegations adequately described the alleged misrepresentations and his reliance on them.

Disposition

Judge William Alsup concluded that the defendants’ motion to dismiss was GRANTED IN PART and DENIED IN PART. The motion was granted as to all claims against the individual defendants and as to Lynch’s proposed class claims under the Seller-Assisted Marketing Plan Act and California’s False Advertising Law against Matterport, Inc. The motion was denied as moot as to the withdrawn proposed multi-state and injunctive-relief class claims. It was denied as to all other challenged proposed class and individual claims against Matterport, Inc. The defendants’ request for judicial notice was denied as moot. Lynch’s passing request for leave to amend was denied, but the court permitted him to seek leave to amend the dismissed claims by a separate motion on the schedule stated in the order.