2:17-cv-03007
D. Nev.Nov 25, 2019Background
- Diamond Resorts (plaintiffs) develop and sell perpetual timeshare interests; purchasers contract with Diamond entities and owe ongoing fees.
- Timeshare Exit Team (TET) and founders Reed and Hein (with Parenteau as COO) advertised a proprietary, "legal/guaranteed" method to "exit" or cancel timeshare contracts; Happy Hour is TET’s in‑house marketing agency that created and distributed the ads.
- Diamond alleges TET’s statements were false/misleading because termination as advertised required Diamond’s consent; TET often induced breaches leading to foreclosure and credit harm, injuring Diamond’s sales and revenues.
- After an earlier partial dismissal, Diamond filed an amended complaint asserting claims for intentional interference (existing and prospective), Lanham Act false advertising (direct and contributory), NDTPA violations, and civil conspiracy against Reed, Hein, Parenteau, TET, and Happy Hour.
- The court granted the motions to dismiss in part: dismissed without prejudice Diamond Resorts, International, Inc.; Diamond Resorts U.S. Collection Development, LLC; and Diamond Resorts Management, Inc. for lack of standing, and dismissed the NDTPA claim for failure to plead with specificity; otherwise the motions were denied and most federal and common‑law claims survive.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing of DRI, DRM, US Collection | These entities suffered economic injury from defendants’ conduct and thus have Article III standing | Defendants point to Diamond’s allegation that DRC "encapsulates" all litigation damages, undermining separate injury allegations | Court: DRI, DRM, US Collection dismissed without prejudice for implausible injury allegations; leave to amend granted |
| Intentional interference (existing & prospective) | Ads demonstrate knowledge of contracts and intent to induce breaches and to interfere with prospective upgrades/sales | Happy Hour says Diamond fails to allege intent to induce breaches by Happy Hour | Court: Allegations (ads, targeting, consequences) suffice under Rule 8; interference claims adequately pleaded |
| Lanham Act falsity / puffery | TET made objectively false or misleading factual claims (exit, proprietary method, legal/guaranteed, freedom from obligations) and plaintiffs identify specific website statements | Defendants argue statements are nonactionable puffery or literally true (e.g., efficient‑breach theory); also challenge particularity | Court: Statements are plausibly false/misleading and not mere puffery in this context; pleading of falsity and why statements are false is adequate under Rule 9(b) for fraud‑based claims |
| Lanham Act causation / zone of interests | Deceptive ads caused consumers to withhold trade and induced breaches, injuring Diamond’s sales—fits Lexmark test | Defendants contend no direct causal connection or competitive injury | Court: Under Lexmark, Diamond alleged economic injury to commercial interests flowing directly from deception (consumers withholding trade); causation sufficiently pleaded |
| Contributory false advertising against Happy Hour | Happy Hour materially participated in and knew of TET’s false ads as in‑house marketer, so it contributed to false advertising | Defendants say Ninth Circuit hasn’t recognized contributory false advertising and Happy Hour didn’t materially participate | Court: Applies Duty Free Americas formulation; Ninth Circuit test for contributory liability fits; Diamond plausibly pleads third‑party false advertising and Happy Hour’s material participation/knowledge |
| NDTPA claim specificity | Diamond points to multiple deceptive practices and factual allegations supporting the claim | Defendants say complaint fails to identify which NDTPA provisions were violated and lacks Rule 9(b) particularity | Court: NDTPA claim dismissed without prejudice for failing to identify statutory subsections and plead fraud‑based allegations with particularity; one final leave to amend granted |
| Civil conspiracy / intra‑corporate doctrine | Diamond alleges an agreement to interfere and specific acts by individuals and by separate entity Happy Hour | Defendants invoke intra‑corporate conspiracy doctrine and argue lack of factual specificity | Court: Civil conspiracy adequately pleaded under Rule 8; intra‑corporate doctrine inapplicable because officers allegedly acted for personal gain and Happy Hour is separate entity |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading must contain factual allegations sufficient to state a plausible claim)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (established plausibility standard for complaints)
- Lexmark Int’l, Inc. v. Static Control Components, Inc., 572 U.S. 118 (2014) (Lanham Act: zone‑of‑interests and proximate‑cause test for false advertising claims)
- Duty Free Americas, Inc. v. Estée Lauder Companies, Inc., 797 F.3d 1248 (11th Cir. 2015) (recognizes contributory false advertising and sets elements for such a claim)
- Coastal Abstract Serv., Inc. v. First American Title Ins. Co., 173 F.3d 725 (9th Cir. 1999) (distinguishes actionable statements from nonactionable puffery)
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992) (standing burden and pleading at the motion‑to‑dismiss stage)
- J.J. Industries, LLC v. Bennett, 71 P.3d 1264 (Nev. 2003) (elements of tortious interference under Nevada law)
- Consolidated Generator–Nevada, Inc. v. Cummins Engine Co., 971 P.2d 1251 (Nev. 1998) (Nevada standard for civil conspiracy)