SA Luxury Expeditions, LLC v. Schleien

Background

SA Luxury Expeditions, LLC provides tours in Latin America and advertises through pay-per-click internet advertising. Under that system, the advertiser pays a search engine when someone clicks an advertisement. A click can generate a customer lead when the visitor submits contact information and expresses interest in the business’s services.

SA Luxury Expeditions alleged that about 20 percent of its leads were false in October 2021, but that more than half were false during parts of 2022. It alleged that the false leads increased its advertising expenses and caused it to spend staff time pursuing people who were not genuine potential customers. It further alleged that the defendants benefited by attracting customers who otherwise might have used SA Luxury Expeditions.

The plaintiff’s investigation identified two allegedly false leads connected to the defendants. The first, the “Smith Lead,” involved a request for a seven-day Peru itinerary and was allegedly submitted by the Peru for Less marketing team. The second, the “Debedout Lead,” involved interest in sightseeing in Peru, and the plaintiff alleged that its digital forensic examiner traced the submitting internet address to Bernard Schleien.

The plaintiff alleged on “information and belief” that the defendants were responsible for all, or most, of the large increase in false leads during 2022. It relied on facts including the timing of the leads, their submission during Peruvian working hours, statistics about the increase in false leads, and the defendants’ status as competitors.

The defendants moved to dismiss the amended complaint for failure to state a claim. The court had previously dismissed the original breach-of-contract claim with prejudice and dismissed the original unfair-competition claims without prejudice, allowing the plaintiff to amend those claims.

Legal standard

For a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), a complaint must allege enough facts to make the requested relief reasonably plausible, rather than merely possible or speculative. The court generally accepts well-pleaded factual allegations as true and draws reasonable inferences for the plaintiff, but it does not accept legal conclusions presented as facts.

Because the allegations involved fraudulent conduct, Federal Rule of Civil Procedure 9(b) required the plaintiff to describe the alleged wrongdoing with particularity. The court explained that allegations based on information and belief must include facts supporting that belief, except for facts especially within the opposing party’s knowledge.

New York unfair-competition claim

New York common-law unfair competition generally involves the bad-faith misuse of another’s work or expenditures. The claim also requires special damages—identifiable losses and a factual connection between those losses and the alleged wrongdoing.

The court held that the plaintiff adequately pleaded that the defendants submitted the Smith and Debedout Leads. But pleading those two leads did not adequately connect the defendants to the large volume of additional false leads that allegedly caused the plaintiff’s losses. The court stated that the plaintiff did not need to identify every false lead, but it needed facts tending to show that the defendants, rather than other possible sources, were responsible for the alleged flood.

The court found that the plaintiff’s circumstantial allegations were insufficient. The fact that the Smith Lead preceded the increase in false leads, that Schleien allegedly submitted the Debedout Lead, and that the defendants had an incentive to harm a competitor did not reasonably establish that the defendants organized the larger scheme. The court also found that the statistics did not show how many false leads were received or how many came from the defendants. It rejected the argument that discovery would uncover supporting evidence because the complaint did not provide enough facts to create a reasonable expectation that discovery would reveal illegal conduct.

California unfair-competition claim

The plaintiff also asserted a claim under California’s unfair-competition statute, which covers unlawful, unfair, or fraudulent business practices and misleading advertising. That claim required an economic injury caused by the alleged conduct. Because the plaintiff relied on an allegedly fraudulent business practice, the heightened particularity requirement also applied.

The court dismissed the California claim for the same basic reason as the New York claim: the amended complaint did not adequately connect the defendants to the substantial number of false leads that allegedly caused the plaintiff’s economic harm. The two adequately described leads and the other circumstantial allegations were insufficient to establish that connection.

Disposition

The court granted the defendants’ motion to dismiss. It dismissed the amended complaint with prejudice and directed the clerk to close the motion and the case.