United States District Court, D. Nevada
[Copyrighted Material Omitted]
For LT Game International Ltd., Plaintiff: Amanda C Yen, LEAD ATTORNEY, Joseph P Schrage, McDonald Carano Wilson LLP, Las Vegas, NV; Dariush Keyhani, LEAD ATTORNEY, PRO HAC VICE, Meredith & Keyhani, PLLC, East Aurora, NY.
For Shuffle Master, Inc., Defendant: Christopher R Miltenberger, Eric T Aldrian, James J. Pisanelli, LEAD ATTORNEYS, Todd L. Bice, Pisanelli Bice, PLLC, Las Vegas, NV.
For DEQ Systems, Corp., Interested Party: Robert L Rosenthal, LEAD ATTORNEY, Howard and Howard, Las Vegas, NV.
Order Granting in Part and Denying in Part Defendant Shuffle Master's Motion to Dismiss [Doc. 17] and Plaintiff LT Game International Ltd.'s Motion for Leave to File Second Amended Complaint [Doc. 37]
JENNIFER A. DORSEY, UNITED STATES DISTRICT JUDGE.
In this international, unfair competition case, the Court must determine whether the plaintiff gaming-technology company's five-page complaint sufficiently states claims for unfair competition under state, federal, and Macao law, and claims for tortious interference with existing and prospective business relationships and, if not, whether leave to amend should be allowed. Because plaintiff's factual allegations sound in fraud but do not satisfy Rule 9's heightened pleading standard, the Court finds that all claims save one must be dismissed for inadequacy. The Court will, however, allow limited amendment to cure these factual deficiencies.
LT International, Ltd. (" LT" ) is a Canadian corporation authorized to do business
in the State of Nevada. Doc. 14 at 1. The company claims to market and sell gaming technology and services both in North America and international markets, including Macao. Id. at 2. Among the products LT is licensed to market and sell is a " Live Multi-Table System," an electronic interface that allows gamblers at a casino table to simultaneously place bets at other tables. See id. at 3.
Shuffle Master, Inc. is a direct competitor of LT. Id. LT alleges that in the year preceding the filing of its Complaint, Shuffle Master began " an international campaign of disparagement of [LT's] business and its products and services." Id. According to LT, Shuffle Master has, inter alia, wilfully misrepresented the quality of LT's products and services, including the Live Multi-Table System, to customers both in Nevada and Macao, damaging LT's business, both current and prospective. Id.
By its five-page, already once-amended complaint, LT sues Shuffle Master for (1) Unfair Competition under the Lanham Act, 15 U.S.C. § 1051 et seq. ; (2) Unfair Competition under Nevada common law; (3) Unfair Competition under the Macau Commercial Code; and (4) Tortious Interference with Current and Prospective Business and Contractual Relations. Doc. 14 at 3-4. LT prays for an order enjoining Shuffle Master from making false representations about LT's products " to the public, the gaming and casino industry, and any current or prospect[ive] customer," or " unfairly competing with [LT] in any manner." Id. at 5. LT also seeks legal relief, including a disgorgement of Shuffle Master's profits; the damages LT sustained as a result of Shuffle Master's actions; attorney's fees and costs; and statutory damages under the Lanham Act. Id.
Shuffle Master moves this Court to dismiss all of LT's claims, arguing that the thin allegations in this five-page complaint alleging claims grounded in fraud are insufficient to state a cognizable claim for relief under FRCP 8, 9, and 12(b)(6). Doc. 17. Shuffle Master further urges dismissal of LT's tortious-interference claim on the grounds that any contract that may be the subject of that claim would be illegal and thus unenforceable because LT has not received the license necessary to sell or distribute gaming devices in Nevada. Id. at 12. LT opposes the motion, contending that its claims do not sound in fraud and thus require only notice pleading under Rule 8, which LT's allegations satisfy. Doc. 19. Nevertheless, should this Court find its allegations insufficient, LT should be granted leave to cure any deficiencies because this litigation remains in its infancy. Id. at 9.
In addition to its request for leave to cure deficiencies in its factual allegations, Doc. 19, LT also asks for leave to file a second amended complaint to add a new party (LT Game Canada) as a plaintiff because LT Game Canada is the true plaintiff for all claims arising before LT's formation in 2011. Doc. 37. Shuffle Master opposes this motion, contending that the proposed new version of the complaint still falls short of the specificity required by the rules, that LT acted in bad faith by sandbagging with this new party on the last day for amendment, and if LT Game Canada is the true real party in interest, the LT entities should have known that from the inception of this case. Doc. 42.
The Court finds both motions appropriate for disposition without oral argument. L.R. 78-2. For the reasons set forth below, both motions are granted in part and denied in part.
A. Motion to Dismiss
Federal Rule of Civil Procedure 8(a) provides the basic standard for federal pleadings: " A pleading that states a claim for relief must contain: (1) a short and plain statement of the grounds for the court's jurisdiction . . . .; (2) a short and plain statement of the claim showing that the pleader is entitled to relief; and (3) a demand for the relief sought." The United States Supreme Court fleshed out that standard and its relationship to FRCP 12(b)(6) in Ashcroft v. Iqbal and Bell Atlantic Corp. v. Twombly. " To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face."  " [A] plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level."  The Court is also " not bound to accept as true a legal conclusion couched as a factual allegation." 
A complaint is subject to deeper scrutiny when it contains allegations of fraud or mistake. Rule 9 of the Federal Rules of Civil Procedure requires a party to " state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally."  Rule 9's " particularity" standard requires a plaintiff to " identify the who, what, when, where, and how of the misconduct charged, as well as what is false or misleading about the purportedly fraudulent statement, and why it is false."  This increased detail is required " to give defendants notice of the particular misconduct which is alleged to constitute the fraud charged so that they can defend against the charge and not just deny that they have done anything wrong."  Thus, claims grounded in fraud or mistake must meet both the " plausibility" standard of Rule 8(a) and the " particularity" standard of Rule 9(b), ensuring they meet " Rule 8's requirement of simplicity, directness, and clarity," which " has among its purposes the avoidance of unnecessary discovery." 
1. Lanham Act Claim
LT's First Amended Complaint gestures to the " Lanham Act" and " unfair competition" without specifying the specific legal basis for this theory. See Doc. 14 at 3-4. From the sparse facts of LT's First Amended Complaint and its references in its opposition to the motion to dismiss, the Court concludes that LT relies on the Lanham Act's false advertising
provision, 15 U.S.C. § 1125(a)(1)(B), as the sole basis for its Lanham Act false advertising claim. To prove that claim, the plaintiff must establish: (1) a false statement of fact was made by the defendant in a commercial advertisement about its own or another's product; (2) the statement actually deceived or has the tendency to deceive a substantial segment of its audience; (3) the deception is material, in that it is likely to influence the purchasing decision; (4) the defendant caused its false statement to enter interstate commerce; and (5) the plaintiff has been or is likely to be injured as a result of the false statement, either by direct diversion of sales from itself to defendant or by a lessening of the goodwill associated with its products.
Shuffle Master contends that LT's Lanham Act claim should be evaluated under Rule 9(b)'s particularity standard because the allegations that support it are fraudulent in nature. Doc. 17 at 4-8. LT's allegations fail Rule 9's more demanding particularity standard, Shuffle Master contends, requiring dismissal of this claim. Id. LT challenges the notion that its allegations must be evaluated under the heightened Rule 9 standard merely because LT characterized Shuffle Master's intentional conduct as a " misrepresentation." Doc. 19 at 2-3.
a. The Lanham Act claim is grounded in fraud.
Neither fraud nor mistake is an element of a Lanham Act false advertising claim. To be actionable under this statute, the statement need only be " false" and result in " deception."  Thus, nothing in the elements of a Lanham Act false advertising claim themselves triggers Rule 9's heightened pleading standard.
But that's not the end of the analysis. In the Ninth Circuit, there is more than one way to trigger Rule 9. The language penned in a complaint when pleading a claim for which fraud is not an essential element may garner Rule 9 scrutiny:
In cases where fraud is not a necessary element of a claim, a plaintiff may choose nonetheless to allege in the complaint that the defendant has engaged in fraudulent conduct and rely entirely on that course of conduct as the basis of a claim. In that event, the claim is said to be " grounded in fraud" or to " sound in fraud," and the pleading of that claim as a whole must satisfy the particularity requirement of Rule 9(b).
LT's contention that its claim cannot qualify as grounded in fraud merely by its use of the word " misrepresentation" is without merit because " [i]t is well settled in the Ninth Circuit that misrepresentation claims are a species of fraud, which must meet Rule 9(b)'s ...