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Melaleuca, Inc v. Daryl Hansen

April 15, 2011


The opinion of the court was delivered by: U. S. District Judge Honorable Edward J. Lodge



Pending before the Court is Defendant's Motion to Dismiss (Dkt. No. 9.) The Complaint in this action was filed on November 10, 2010 and the pending Motion was filed on February 7, 2011. (Dkt. Nos. 1, 9.) The Plaintiff filed an opposition and Defendant filed an objection to the opposition. (Dkt. Nos. 10, 11.) Having fully reviewed the record herein, the Court finds that the facts and legal arguments are adequately presented in the briefs and record. Accordingly, in the interest of avoiding further delay, and because the Court conclusively finds that the decisional process would not be significantly aided by oral argument, the Motion shall be decided on the record before this Court without oral argument.


Defendant Daryl Hansen resides in California and at the time of these alleged events, worked as an independent marketing executive for a multi-level marketing company called ITV. In connection with the work he performed for ITV, Mr. Hansen would attempt to get ITV customers to join ITV, performing the same type of work. Plaintiff, Melaleuca, Inc., an Idaho corporation, is engaged in a similar type of business model. Melaleuca encourages its customers to become marketing executives by referring family and friends to Melaleuca to purchase its products and allowing them to earn commission on any orders made by the referred individuals.

Additionally, Melaleuca is the owner of the domain name Through, Melaleuca gives their marketing executives the option of purchasing Internet services, including e-mail. Internet access, however, is provided by Melaleuca through a third-party Internet Service Provider ("ISP"), IP Applications, Inc., who has been identified in the introductory paragraphs of the Complaint as a "non-party." (Dkt. No. 1, ¶ 4.)*fn2 IP Applications owns certain servers and other equipment and has, the Complaint alleges, assigned all of its rights, title, and interest in any claims, demands, and causes of action of any kind whatsoever that relate to the Defendant's actions in the sending of unsolicited commercial email to email accounts sold by Melaleuca to the general public for which IP Applications provides services and equipment. (Dkt. No. 1, ¶ 4.)

After Mr. Hansen began working at ITV, he contacted individuals via e-mail, some of whom worked at Melaleuca, and inquired whether they would be interested in hearing about a new business opportunity. The e-mails gave a brief description of how ITV works, exulted the benefits of working for ITV, and asked the individuals to call him. Mr. Hansen may have been aware that several of these individuals worked at Melaleuca. Some of the Melaleuca marketing executives he contacted were users of the e-mail service.

On May 8, 2007, Melaleuca filed a Complaint in Case No. CV07-212-E-EJL, ("Melaleuca I")*fn3 alleging claims against Mr. Hansen, including violation of the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 ("CANSPAM" Act), 15 U.S.C. § 7701, et seq., violation of the Idaho Consumer Protection Act ("ICPA"), Idaho Code § 48-603E(2), misappropriation of trade secrets in violation of the Idaho Trade Secrets Act ("ITSA"), Idaho Code § 48-801 et seq., and tortious interference with contract. (Melaleuca I, Dkt. No. 1.)*fn4 The Defendants filed a Motion to Dismiss"Spam Issues" asking that the claims for violations of federal and state anti-span statutes be dismissed on the grounds that Melaleuca did not have standing to raise such claims. (Melaleuca I, Dkt. No. 38.) Magistrate Judge Mikel H. Williams held a hearing on the Motion and entered a Report and Recommendation ("Report") recommending that the Motion to Dismiss be granted; concluding Melaleuca lacked standing to bring a claim under the CAN-SPAM Act and that the Court should not exercise jurisdiction over the remaining state law claims. (Melaleuca I, Dkt. No. 69.) This Court considered the Report as well as Melaleuca's objections and the Defendants' response thereto and concluded that the Report had correctly decided the Motion and adopted the same. (Melaleuca I, Dkt. No. 72.) As such, the case was dismissed without prejudice. (Melaleuca I, Dkt. No. 73.) On October 29, 2010, Melaleuca filed an appeal which has since been voluntarily dismissed. (Melaleuca I, Dkt. Nos. 74, 81.) On November 17, 2010, Mr. Hansen filed a cross-appeal, which remains pending, asking whether or not the Court erred in not dismissing Melaleuca's claims with prejudice. (Melaleuca I, Dkt. No. 77.)

On November 10, 2010, Melaleuca initiated this new action by filing the Complaint raising the same four causes of action against Mr. Hansen. (Dkt. No. 1.) In response, Mr. Hansen filed his pro se Motion to Dismiss which the Court now takes up. (Dkt. No. 9.)


1. Standard of Review

A motion to dismiss under Rule 12(b)(6) will be granted when the complaint fails to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6).Generally, the Court may not consider any material beyond the pleadings in ruling on a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). Branch v. Tunnel, 14 F.3d 449, 453 (9th Cir. 1993). Furthermore, if a Rule 12(b)(6) motion raises "matters outside the pleading" and these matters are "presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56." Id. at 453. When reviewing a motion for summary judgment, the proper inquiry is whether "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). "[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). Material facts are those which may affect the outcome of the case. See Id.

2. Defendant's Motion to Dismiss

Mr. Hansen's Motion seeks dismissal of Melaleuca's claims against himprimarily based on issue preclusion/collateral estoppel as well as violations of Federal Rule of Civil Procedure 26(d). (Dkt. No. 9.) Mr. Hansen argues the dismissal in Melaleuca I precludes the claims raised here. Melaleuca opposes the Motion arguing the prior case was dismissed without prejudice and, therefore, is not preclusive of the claims brought in this action. (Dkt. No. 10.) Mr. Hansen replies arguing Melaleuca addresses only res judicata/claim preclusion but does not dispute the application of issue preclusion/collateral estoppel. (Dkt. No. 11, p. 2.)

A. Principles of Preclusion

"Although the literal definition of the term res judicata is expansive enough to cover both preclusion of relitigation of the same cause of action and relitigation of the same issue, the modern tendency is to refer to the aspect of the doctrine that precludes relitigation of the same issue in a separate cause of action as collateral estoppel, and to refer to that aspect preventing relitigation of the same cause of action as res judicata. Res Judicata thus applies to protect litigants from the burden of litigating the same cause of action with the same party or its privity" Coeur d'Alene Tribe v. Asarco Inc., 280 F.Supp.2d 1094, 1117-19 (D. Idaho 2003) (quotations and citations omitted).*fn5 "[I]n order for res judicata to bar litigation, the following requirements must be met: (1) the same claim or cause of action arising out of the same facts must be involved in both suits; (2) there must be a final judgment on the merits in the prior action; and (3) the parties in the instant action must be the same as or in privity with the parties in the prior action in question." Id. (citations omitted). "The purposes of these judicially created rules are to conserve judicial resources, protect litigants from multiple lawsuits, and foster certainty and reliance in legal relations." Id.*fn6

On the other hand, "[c]ollateral estoppel bars 'the re-litigation of an issue that has been actually litigated and necessarily decided.'" Schoenleber v. Harrah's Laughlin, Inc., 423 F.Supp.2d 1109, 1112 (D. Nev. 2006) (quoting Clements v. Airport Authority of Washoe County, 69 F.3d 321, 330 (9th Cir. 1995). "Collateral estoppel, or issue preclusion, bars the relitigation of both issues of law and issues of fact actually adjudicated in previous litigation between the same parties. Collateral estoppel applies not only against actual parties to prior litigation, but also against a party that is in privity to a party in previous litigation." Washington Mut. Inc. v. United States, ___ F.3d ___, No. 09-36109, 2011 WL 723101, *9 (9th Cir. March 3, 2011) (citation omitted).*fn7

Federal law controls the collateral estoppel analysis where, as here, a federal court has decided the earlier case. See McQuillion v. Schwarzenegger, 369 F.3d 1091, 1096 (9th Cir. 2004). Melaleuca I invoked the Court's original jurisdiction by virtue of the federal law claim made under the CAN-SPAM Act. (Melaleuca I, Dkt. No. 1.) The state claims in Melaleuca I were based on supplemental jurisdiction. (Melaleuca I, Dkt. No. 1.)*fn8 Because "[f]ederal law governs the collateral estoppel effect of a case decided by a federal court," the Court will apply the federal law elements for collateral estoppel. See Trevino v. Gates, 99 F.3d 911, 923 (9th Cir.1996) (Trevino involved a federal law claim brought under ยง 1983 which invoked the ...

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