LegalForce RAPC Worldwide, P.C. et al v. LegalZoom.Com, Inc. et al, No. 3:2017cv07194 - Document 111 (N.D. Cal. 2018)

Court Description: ORDER DENYING PLAINTIFFS' MOTION FOR LEAVE TO FILE SECOND AMENDED COMPLAINT; CONTINUING CASE MANAGEMENT CONFERENCE. Plaintiffs' motion for leave to file the proposed Second Amended Complaint submitted on March 21, 2018, is denied. L egal Force, which previously was afforded leave to amend, shall file any Second Amended Complaint no later than May 18, 2018. The Case Management Conference is continued from June 1, 2018, to July 27, 2018, at 10:30 a.m. A Joint Case Management Conference Statement shall be filed no later than July 20, 2018. Signed by Judge Maxine M. Chesney on April 30, 2018. (mmclc1, COURT STAFF) (Filed on 4/30/2018)
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1 2 3 4 IN THE UNITED STATES DISTRICT COURT 5 FOR THE NORTHERN DISTRICT OF CALIFORNIA 6 7 LEGALFORCE RAPC WORLDWIDE, P.C, et al., 8 Plaintiffs, 9 10 v. LEGALZOOM.COM, INC., et al., United States District Court Northern District of California 11 Defendants. Case No. 17-cv-07194-MMC ORDER DENYING PLAINTIFFS' MOTION FOR LEAVE TO FILE SECOND AMENDED COMPLAINT; CONTINUING CASE MANAGEMENT CONFERENCE Re: Dkt. No. 84 12 13 Before the Court is plaintiffs LegalForce RAPC Worldwide, P.C. ("LegalForce 14 RAPC") and LegalForce, Inc.'s ("LegalForce") "Motion for Leave to File Second Amended 15 Complaint," filed March 21, 2018. Defendants LegalZoom.com, Inc. ("LegalZoom") and 16 the United States Patent and Trademark Office ("USPTO") have separately filed 17 opposition, to which plaintiffs have replied. Having read and considered the papers filed 18 in support of and in opposition to the motion, the Court rules as follows.1 19 By the instant motion, plaintiffs seek leave to file a proposed Second Amended 20 Complaint ("Proposed SAC").2 The Court considers in turn the proposed claims. 21 A. LegalForce RAPC's Proposed Amended Claims Against LegalZoom 22 23 24 25 Plaintiffs seek leave to amend four of the six claims alleged by LegalForce RAPC against LegalZoom in their First Amended Complaint ("FAC"). Subsequent to the date on which the instant motion was filed, the Court granted LegalZoom's motion to compel arbitration of the claims alleged by LegalForce RAPC 26 1 By order filed April 23, 2018, the Court took the matter under submission. 2 The Proposed SAC is attached as an exhibit to the instant motion. 27 28 1 against it, and stayed said claims pending arbitration. (See Order, Doc. No. 102, filed 2 April 10, 2018.) In their reply in support of the instant motion, which reply was filed after 3 the above-referenced order, plaintiffs fail to argue, let alone demonstrate, LegalForce 4 RAPC's proposed amendments take any of the stayed claims outside the scope of the 5 arbitration agreement. See AT&T Technologies, Inc. v. Communication Workers of 6 America, 475 U.S. 643, 650 (1986) (holding "where [a] contract contains an arbitration 7 clause, there is a presumption of arbitrability"); Westinghouse Hanford Co. v. Hanford 8 Atomic Metal Trades Council, 940 F.2d 513, 518 (9th Cir. 1991) (holding, "[b]ecause of 9 the presumption in favor of arbitrability, [the party opposing arbitration] bears the burden of proving that the parties did not intend to arbitrate the [claim]"). Consequently, to the 11 United States District Court Northern District of California 10 extent the Proposed SAC seeks to amend LegalForce RAPC's claims against 12 LegalZoom, the Proposed SAC is futile. See Carrico v. City and County of San 13 Francisco, 656 F.3d 1002, 1008 (9th Cir. 2011) (holding leave to amend "properly 14 denied" where "amendment would be futile"); Halliburton & Associates, Inc. v. 15 Henderson, Few & Co., 774 F.2d 441, 445 (11th Cir. 1985) (holding proposed 16 amendment was "futile" where proposed claims were "subject to the parties' agreement 17 to arbitrate"). 18 Accordingly, to the extent plaintiffs seek leave to amend LegalForce RAPC's 19 claims against LegalZoom, the motion will be denied. 20 B. LegalForce's Proposed Amended Claims Against LegalZoom 21 22 23 Plaintiffs seek leave to amend each of the four claims alleged by LegalForce against LegalZoom in the FAC. Subsequent to the date on which the instant motion was filed, the Court granted 24 LegalZoom's motion to dismiss LegalForce's claims as alleged in the FAC, and afforded 25 LegalForce leave to amend to cure the deficiencies identified by the Court. (See Order, 26 Doc. No. 103, filed April 10, 2018.) In their reply in support of the instant motion, which 27 reply was filed after the Court dismissed with leave to amend LegalForce's claims against 28 LegalZoom, plaintiffs fail to argue, let alone demonstrate, the Proposed SAC cures the 2 1 deficiencies identified by the Court, and, as discussed below, the Court finds it does not. 2 1. Declaratory Relief 3 In the FAC, LegalForce sought, with regard to the submission of trademark 4 applications to the USPTO, a declaration setting forth the type of conduct in which 5 "licensed attorney[s]," "licensed law firm[s]," "legal technology C corporation[s]," and 6 "foreign law firm[s] organized as an Alternative Business Structure" are permitted to 7 engage. (See FAC ¶ 100.) The Court found the FAC failed to identify any controversy 8 between LegalForce and LegalZoom, neither of which was alleged to be any of the 9 above-listed entities, and dismissed LegalForce's claim for declaratory relief. 10 In the Proposed SAC, plaintiffs base LegalForce's claim for declaratory relief on United States District Court Northern District of California 11 the existence of an alleged controversy as to whether LegalZoom "is engaged in the 12 unauthorized practice of law." (See Proposed SAC ¶ 53.) The Proposed SAC fails, 13 however, to allege any facts to establish LegalForce's standing to bring such a claim. 14 Specifically, the Proposed SAC includes no facts to support a finding that LegalForce has 15 "suffered an injury in fact" that is "likely to be redressed" by issuance of a declaration 16 addressing the question of whether LegalZoom is engaging in the unauthorized practice 17 of law. See Center for Biological Diversity v. Mattis, 868 F.3d 803, 816 (9th Cir. 2017) 18 (setting forth elements necessary to establish standing to seek declaratory relief); (see 19 also n.3, infra). Consequently, the proposed amended declaratory relief claim would be 20 subject to dismissal, and, as such, is futile. See Moore v. Kayport Packaging Express, 21 Inc., 885 F.2d 531, 538 (9th Cir. 1989) (holding leave to amend properly denied where 22 proposed complaint, if amended, would be "subject to dismissal"). 23 24 Accordingly, to the extent plaintiffs seek leave to amend LegalForce's declaratory relief claim against LegalZoom, the motion will be denied. 25 2. Lanham Act 26 In the FAC, LegalForce alleged LegalZoom, in violation of the Lanham Act, made 27 false and/or misleading statements in its advertisements. (See FAC ¶¶ 129-37.) The 28 Court dismissed the Lanham Act claim for the reason that the FAC failed to include any 3 1 facts to support a finding that LegalForce suffered an injury proximately caused by 2 LegalZoom's assertedly false advertising. 3 "To invoke the Lanham Act's cause of action for false advertising, a plaintiff must 4 plead (and ultimately prove) an injury to a commercial interest in sales or business 5 reputation proximately caused by the defendant's misrepresentations." Lexmark Int'l v. 6 Static Control Components, Inc., 134 S. Ct. 1377, 1395 (2014). As with the FAC, the 7 Proposed SAC includes no factual allegations to support a finding that LegalZoom's 8 advertising has had any effect on LegalForce's commercial interests or its reputation.3 9 Consequently, the proposed amended Lanham Act claim would be subject to dismissal, 10 United States District Court Northern District of California 11 12 and, as such, is futile. Accordingly, to the extent plaintiffs seek leave to amend LegalForce's Lanham Act claim against LegalZoom, the motion will be denied. 13 3. California Business & Professions Code § 17500 et seq. 14 In the FAC, LegalForce alleged LegalZoom, in violation of § 17500 of the 15 California Business & Professions Code, made false and/or misleading statements in its 16 advertisements. (See FAC ¶¶ 144-47.) The Court dismissed the claim for the reason 17 that the FAC failed to include any facts to support a finding that LegalForce suffered an 18 injury as a result of LegalZoom's advertising. The Proposed SAC likewise fails to include 19 any such facts. Consequently, the proposed amended § 17500 claim would be subject to 20 dismissal, and, as such, is futile. 21 Accordingly, to the extent plaintiffs seek leave to amend LegalForce's § 17500 22 3 23 24 25 26 27 28 In an introductory section of the Proposed SAC, plaintiffs collectively refer to both LegalForce RAPC and LegalForce as "LegalForce" (see Proposed SAC at 2:1-2), and, in a later section of the Proposed SAC, allege that "LegalForce" has "lost revenue" due to LegalZoom's "false advertising" because "consumers" have "purchase[d] LegalZoom's services instead of LegalForce's services" and because "LegalForce" has had to "reduce their attorney led service prices." (See Proposed SAC ¶ 46). Read in context, the latter references to "LegalForce" are solely references to LegalForce RAPC, as plaintiffs have alleged LegalForce, Inc. "makes no revenue from [the] preparation and filing o[f] U.S. trademark applications," but, rather, earns a "flat monthly" licensing fee from LegalForce RAPC that is "independent of the legal services revenue" earned by LegalForce RAPC. (See FAC ¶ 20.) 4 1 against LegalZoom, the motion will be denied. 2 4. California Business & Professions Code § 17200 3 In the FAC, LegalForce alleged LegalZoom, in violation of § 17200 of the 4 California Business & Professions Code, engaged in "unfair competition" when it 5 assertedly made false statements in its advertising. (See FAC ¶¶ 158-59.) The Court 6 dismissed the claim for the reason that the FAC failed to include any facts to support a 7 finding that LegalForce suffered an injury as a result of LegalZoom's advertising. The 8 Proposed SAC likewise fails to include any such facts. Consequently, the proposed 9 amended § 17200 claim would be subject to dismissal, and, as such, is futile. Accordingly, to the extent plaintiffs seek leave to amend LegalForce's § 17200 10 United States District Court Northern District of California 11 against LegalZoom, the motion will be denied. 12 C. Plaintiffs' Proposed Amended Claims Against the USPTO As noted, plaintiffs, in the FAC, sought, with regard to the submission of trademark 13 14 applications to the USPTO, a declaration setting forth the type of conduct in which 15 "licensed attorney[s]," "licensed law firm[s]," "legal technology C corporation[s]," and 16 "foreign law firm[s] organized as an Alternative Business Structure" are permitted to 17 engage. (See FAC ¶ 100.) By separate order filed concurrently herewith, the Court 18 granted the USPTO's unopposed motion to dismiss said claim to the extent alleged 19 against the USPTO. By the instant motion, plaintiffs seek leave to assert in the Proposed SAC the 20 21 following claims against the USPTO: (1) a claim that the USPTO has deprived 22 LegalForce RAPC of equal protection of the law; (2) a claim that the USPTO has 23 deprived LegalForce RACP of due process; and (3) an amended claim for declaratory 24 relief on behalf of both plaintiffs. As discussed below, each of the proposed claims is 25 futile. 26 1. Equal Protection 27 Plaintiffs seek leave to allege, on behalf of LegalForce RAPC, a claim that the 28 USPTO has deprived LegalForce RAPC of equal protection of the law. According to 5 1 plaintiffs, the USPTO has violated the Equal Protection Clause by applying to LegalForce 2 RAPC, but not to LegalZoom, its "regulations governing how to practice before the 3 USPTO with respect to filing trademarks" (see Proposed SAC ¶ 98),4 even though 4 LegalForce RAPC and LegalZoom "provide the same types of services" (see Proposed 5 SAC ¶ 100). Plaintiffs allege the USPTO has, for example, required LegalForce RAPC to 6 comply with a regulation providing that "a practitioner having direct supervisory authority 7 over [a] non-practitioner assistant shall make reasonable efforts to ensure that the 8 person's conduct is compatible with the professional obligations of the practitioner," but 9 has not required "LegalZoom's attorney employees" to comply therewith. (See Proposed 10 United States District Court Northern District of California 11 SAC ¶¶ 88.b., 92.d.,98.e.) To state an equal protection deprivation claim based on "selectivity in 12 enforcement" of a government rule, the plaintiff must establish "the selection was 13 deliberately based upon an unjustifiable standard such as race, religion, or other arbitrary 14 classification." See Oyler v. Boles, 386 U.S. 448, 456 (1962); see also Lee v City of Los 15 Angeles, 250 F.3d 668, 686-87 (9th Cir. 2001) (holding claim for violation of equal 16 protection requires showing "defendants acted with intent or purpose to discriminate 17 against the plaintiff based upon membership in a protected class"). Here, as the USPTO 18 points out, plaintiffs fail to allege the USPTO's alleged disparate treatment of LegalForce 19 RAPC and LegalZoom, or of employees of said entities, is or was based on an 20 unjustifiable standard, let alone the USPTO's alleged decision not to enforce its 21 regulations against LegalZoom was deliberately based on such a standard. 22 Consequently, the proposed equal protection deprivation claim would be subject to 23 dismissal, and, as such, is futile. 24 4 25 26 27 28 Plaintiffs identify eight such regulations (see Proposed SAC ¶¶ 88, 95), including regulations requiring "[a] practitioner" to "provide competent representation to a client" (see Proposed SAC ¶ 88.a.), to "not represent a client if the representation involves a concurrent conflict of interest" (see Proposed SAC ¶ 88.e.), and to "hold property of clients or third parties that is in a practitioner's possession in connection with a representation separate from the practitioner's own property" in an "IOLTA trust account" (see Proposed SAC ¶ 88.g.). 6 Accordingly, to the extent plaintiffs seek leave to allege an equal protection 1 2 deprivation claim against the USPTO, the motion will be denied. 3 2. Due Process 4 Plaintiffs seek leave to allege, on behalf of LegalForce RAPC, a claim that the 5 USPTO has deprived LegalForce RAPC of due process. Specifically, plaintiffs allege, the 6 USPTO has deprived LegalForce RAPC of its "right to engage in [its] chosen 7 occupation," which is "practicing trademark law." (See Proposed SAC ¶¶ 90-91.) Plaintiffs base their due process deprivation claim on their allegations that the 8 9 USPTO has promulgated a number of regulations under which it has required LegalForce RAPC, but not LegalZoom, to comply. Specifically, plaintiffs allege, LegalForce RAPC 11 United States District Court Northern District of California 10 has been subjected to "repeated and harassing acts by the USPTO including asking for 12 'names and home contact information for all non-practitioner legal assistants employed 13 by LegalForce [RAPC]'" (see Proposed SAC ¶¶ 91, 93 (quoting "letter" LegalForce RAPC 14 allegedly received from USPTO)), and has "spent over $100,000 on external ethics 15 counsel as well as diverted over 80 hours of internal management working time solely to 16 preparing responses" to the USPTO's "requests" that LegalForce RAPC demonstrate its 17 compliance with USPTO regulations, while LegalZoom has not been required to show its 18 compliance with USTPO regulations (see Proposed SAC ¶¶ 92-93). To establish a due process deprivation claim based on the theory that the 19 20 government has deprived a plaintiff of its "right to engage in the occupation of [its] 21 choice," a plaintiff "must show, first, that [it is] unable to pursue an occupation in the 22 [chosen field of business], and second, that this inability is due to actions that were 23 clearly arbitrary and unreasonable." See Wedges/Ledges of California, Inc. v. City of 24 Phoenix, 24 F.3d 56, 65 (9th Cir. 1994); see also Conn v. Gabbert, 526 U.S. 286, 291-92 25 (1999) (noting that every Supreme Court decision recognizing a "due process right to 26 choose one's field of private employment" entailed "a complete prohibition of the right to 27 engage in a calling"). 28 // 7 Here, as the USPTO points out, plaintiffs fail to allege any facts to support a 1 2 finding that LegalForce RAPC, as result of the asserted difference in required 3 compliance, is "unable to pursue" the practice of trademark law. See Wedges/Ledges, 4 24 F.3d at 65. Indeed, plaintiffs allege that LegalForce RAPC, notwithstanding the 5 USPTO's alleged insistence that it comply with USPTO regulations while not requiring 6 LegalZoom to do so, "is the largest law firm filer of trademarks before the USPTO and 7 has been for each of the past five years." (See Proposed SAC ¶ 31.) Consequently, the 8 proposed due process deprivation claim would be subject to dismissal, and, as such, is 9 futile. 10 United States District Court Northern District of California 11 Accordingly, to the extent plaintiffs seek leave to allege a due process deprivation claim against the USPTO, the motion will be denied. 12 3. Declaratory Relief 13 As noted, the Court dismissed plaintiffs' claim for declaratory relief against the 14 USPTO, for the reason that plaintiffs did not oppose such dismissal. Plaintiffs now seek 15 leave to amend that dismissed claim. Specifically, plaintiffs propose to plead they are 16 entitled to declaratory relief to remedy the "USPTO's deprivation of [p]laintiffs' 17 constitutional rights by its disparate enforcement of USPTO regulations." (See Proposed 18 SAC ¶ 51.) 19 To the extent plaintiffs seek leave to allege the claim on behalf of LegalForce 20 RAPC, the claim is futile, for the reasons stated above with respect to the proposed equal 21 protection and due process deprivation claims. To the extent plaintiffs seek leave to 22 allege the claim on behalf of LegalForce, the claim is futile, as the Proposed SAC 23 includes no facts to support a finding that any USPTO regulation arguably applies to 24 LegalForce, much less that the USPTO has attempted to enforce or otherwise threatened 25 to enforce its regulations against LegalForce. See, e.g., Ellis v. Dyson, 421 U.S. 426, 26 434 (1975) (holding, to establish "case or controversy" for purposes of claim for 27 declaratory relief, plaintiff must show "genuine threat" exists; explaining, in context of 28 challenge to criminal ordinance, plaintiff must show "credible threat" he "might be 8 1 2 arrested and charged" thereunder). Accordingly, to the extent plaintiffs seek leave to amend their claim for declaratory 3 relief against the USPTO, the motion will be denied. 4 CONCLUSION 5 6 7 For the reasons stated above, plaintiffs' motion for leave to file the proposed SAC submitted on March 21, 2018, is hereby DENIED. As set forth in the Court's April 10 order of dismissal, however, LegalForce has 8 been afforded, for purposes of curing the deficiencies identified by the Court in said 9 order, leave to amend any of the claims it asserted against LegalZoom in the FAC. Any such Second Amended Complaint shall be filed no later than May 18, 2018, and 11 United States District Court Northern District of California 10 LegalForce may not, nor may any other plaintiff, add therein any new defendants, any 12 new claims against LegalZoom or any claims against the USPTO, without first obtaining 13 leave of court. See Fed. R. Civ. P. 15(a)(2). 14 In light of the above, the Case Management Conference is hereby CONTINUED 15 from June 1, 2018, to July 27, 2018, at 10:30 a.m. A Joint Case Management 16 Conference Statement shall be filed no later than July 20, 2018 17 IT IS SO ORDERED. 18 19 Dated: April 30, 2018 MAXINE M. CHESNEY United States District Judge 20 21 22 23 24 25 26 27 28 9