Lynch v. Matterport, Inc

Background

Matterport marketed 3D cameras and created the Matterport Service Partner (MSP) program for camera purchasers who wanted to sell 3D scanning services. Shawn Lynch alleged that Matterport’s advertising led him to believe MSPs could build businesses, but that he received little in return for his time and money. He also alleged that Matterport later created Matterport Capture Services, which competed with MSPs and took one of his regular clients.

Lynch sued Matterport and seven members of its board of directors on behalf of himself and proposed classes of MSPs. In an earlier order, the court dismissed all claims against the individual directors and dismissed Lynch’s proposed class claims against Matterport under California’s Seller-Assisted Marketing Plan Act (SAMP Act) and False Advertising Law, California Business and Professions Code section 17500. The court allowed Lynch to seek permission to amend those dismissed claims.

Proposed Claims Against the Directors

Lynch’s proposed second amended complaint alleged that the directors attended more than 20 board meetings, reviewed presentations, evaluated plans, received complaints from MSPs, and authorized, ratified, or directed Matterport’s conduct. In his reply, Lynch withdrew the proposed director claims under the SAMP Act and for breach of the implied promise of good faith and fair dealing. The remaining proposed director claims were under section 17500 and California’s Unfair Competition Law, section 17200.

The court explained that corporate directors are not liable merely because of their corporate roles. Liability requires personal participation in the unlawful practices and control over those practices. The court found that the proposed complaint did not meaningfully distinguish the conduct of the individual directors or show that any director was the guiding force behind the alleged wrongdoing. Attending meetings, reviewing presentations, and evaluating plans were corporate responsibilities that, as pleaded, did not establish the required personal involvement. The court therefore found the proposed allegations conclusory and speculative.

Proposed Class Claims Against Matterport

The SAMP Act and section 17500 claims were subject to three-year statutes of limitations. Lynch became an MSP in April 2018 and filed his initial complaint in March 2022. The court had previously allowed him to seek amendment to plead that the discovery rule delayed accrual of the claims. That rule can delay the start of the filing period until a plaintiff knew or should have known of the alleged wrongful conduct.

For the SAMP Act claim, Lynch alleged that Matterport concealed its Capture Services program until spring 2020. The court rejected that argument because Lynch allegedly knew or had reason to suspect an SAMP Act violation when he enrolled in the MSP program without receiving the required disclosures. The later announcement of Capture Services did not prevent him from discovering alleged registration and disclosure violations with minimal diligence. The court concluded that the SAMP Act class claim was time-barred.

For the section 17500 claim, Lynch alleged that Matterport made misleading statements and omissions about the MSP program’s profitability, leads, assistance, and Matterport’s intention to compete with MSPs. The court concluded that Lynch knew or should have suspected the alleged false advertising before the spring 2020 announcement of Capture Services. Even assuming he had six months to recognize the alleged omissions, the court found that the claim was filed more than three years after the relevant conduct and was time-barred.

Disposition

Judge William Alsup denied Lynch’s motion for leave to file a second amended class-action complaint. The court stated that the amended claims against the individual directors remained inadequately individualized and that the amended proposed class claims against Matterport under the SAMP Act and section 17500 remained time-barred. The court also stated that it would issue a separate case-management order.