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NIRP Pasadena PLLC v. Medstreaming LLC

United States District Court, W.D. Washington, Seattle

June 27, 2018

NIRP PASADENA, PLLC; and NIRP SUGAR LAND, PLLC, Plaintiffs,
v.
MEDSTREAMING, LLC; WAEL ELSEAIDY; and RYAN PLASCH, Defendants.

          MINUTE ORDER

         The following Minute Order is made by direction of the Court, the Honorable Thomas S. Zilly, United States District Judge:

         (1) Defendants' Motion for Partial Judgment on the Pleadings, docket no. 17, is DENIED. A Rule 12(c) motion for judgment on the pleadings may not be granted unless, accepting all factual allegations in the complaint as true and drawing all reasonable inferences in favor of the nonmoving party, the moving party is entitled to judgment as a matter of law. See Gregg v. Haw. Dep't of Pub. Safety, 870 F.3d 883, 886-87 (9th Cir. 2017). Defendants have not made the requisite showing that any of them is entitled to judgment as a matter of law.[1]

(a) With regard to plaintiffs' first claim for “recovery of license payments, ” the most defendants have demonstrated is that plaintiffs mislabeled their cause of action, which seeks a refund of amounts they paid to defendant Medstreaming, LLC (“Medstreaming”). Plaintiffs pursue such remedy on grounds that Medstreaming failed to cure material breaches of the parties' agreement (i.e., breach of contract) and, in the alternative, was unjustly enriched. Compl. at ¶¶ 4.3 & 4.5 (docket no. 1-1). Plaintiffs' first claim will be treated as asserting breach of contract and/or unjust enrichment.
(b) With regard to plaintiffs' second, third, and fourth claims for breach of contract (revocation or rejection), breach of express warranty, and breach of implied warranties, whether plaintiffs assert such claims against individual defendants Wael Elseaidy and Ryan Plasch is unclear, but to the extent such claims are alleged against Messrs. Elseaidy and Plasch, the Court construes them, in conjunction with plaintiffs' seventh claim for “negligent participation liability by officer, ” as contending that a basis exists for piercing the corporate veil or for imposing liability on a corporate officer for engaging in or ratifying wrongful conduct. See Grayson v. Nordic Constr. Co., 92 Wn.2d 548, 553-54, 599 P.2d 1271 (1979); Johnson v. Harrigan-Peach Land Dev. Co., 79 Wn.2d 745, 751-54, 489 P.2d 923 (1971). Whether plaintiffs can prove such theory of individual liability remains to be seen, but at this stage of the proceedings, Messrs. Elseaidy and Plasch are not entitled to judgment on the second, third, fourth, or seventh causes of action.
(c) With regard to plaintiffs' fifth claim for fraudulent inducement, defendants cite to Rule 9(b), which requires that allegations of fraud be stated with particularity, but they appear to seek either judgment as a matter of law or dismissal with prejudice. Neither remedy is appropriate. Moreover, the Court is satisfied that plaintiffs have pleaded fraudulent inducement with sufficient particularity, and any questions about exactly which of Medstreaming's owners, officers, and/or employees allegedly made the misrepresentations at issue can be sorted out in discovery.
(d) With regard to plaintiffs' sixth claim for violation of Washington's Consumer Protection Act (“CPA”), plaintiffs have adequately pleaded the facts necessary to allege a “plausible” cause of action. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556-70 (2007). Plaintiffs' CPA claim alleges unfair or deceptive acts or practices not regulated by statute but in violation of public interest. See Klem v. Wash. Mut. Bank, 176 Wn.2d 771, 787, 295 P.3d 1179 (2013). Defendants contend that the pleadings fail to establish two of the five elements of a CPA claim, [2] namely an “unfair or deceptive” practice and a “public interest.” Defendants' arguments lack merit for the following reasons.
(i) When a business practice is not per se unfair or deceptive, the question is whether the practice is either unfair or deceptive under the criteria developed in Washington jurisprudence. See Rush v. Blackburn, 190 Wn.App. 945, 962-63, 361 P.3d 217 (2015) (outlining a three-part test for “unfair” acts[3] and a separate standard for “deceptive” practices[4]). The complaint alleges that Medstreaming misrepresented the status and/or capabilities of its software and that the software did not perform as Medstreaming indicated it would. The complaint further asserts that Medstreaming arranged for plaintiffs to enter into a finance agreement with non-party Balboa Capital Corporation (“Balboa”) via which Medstreaming received payment up front for the software licensed by plaintiffs, and plaintiffs are required to continue to make periodic payments to Balboa even though Medstreaming's software never worked and plaintiffs no longer have access to the product. Contrary to defendants' arguments, the Court cannot say as a matter of law that, assuming these facts to be true, plaintiffs cannot prove the “unfair or deceptive” act element of their CPA claim.
(ii) An unfair or deceptive act or practice affects the public interest if it injures others besides the plaintiff or has or had the capacity to injure others. RCW 19.86.093. Washington courts have applied a five-factor test when evaluating whether an essentially consumer transaction involves the public interest, [5] and a different four-part inquiry when the dispute is contractual or private in nature, [6] but in both scenarios, no one factor is dispositive, and not all factors need to be present. Rush, 190 Wn.App. at 969. Moreover, the “consumer transaction” / “private contract” dichotomy does not apply in every case, and that “neat distinction” was disregarded by the Washington Court of Appeals in Rush. Id. at 969-70. In this matter, the Court is similarly unconvinced that the “private contract, ” as opposed to the “consumer transaction, ” set of factors control, and to the extent that Medstreaming is engaged in an ongoing, unfair and/or deceptive course of conduct, plaintiffs might be able to demonstrate the type of public interest required to proceed on their CPA claim.
(iii) Corporate officers who participate in wrongful conduct or with knowledge approve of wrongful conduct that violates the CPA cannot use the corporate form to shield themselves from liability. Washington v. Ralph Williams' N.W. Chrysler Plymouth, Inc., 87 Wn.2d 298, 322, 553 P.2d 423 (1976); see Strategic Intent, LLC v. Strangford Lough Brewing Co., 2011 WL 1810474 at *17 (E.D. Wash. May 11, 2011). Plaintiffs have alleged sufficient facts to proceed on their claims against the individual defendants under the CPA.

         (2) Defendant Medstreaming's Motion for Protective Order, docket no. 23, is GRANTED as follows. Any materials produced by Balboa in response to plaintiffs' Rule 45 subpoena duces tecum that contain the identity and/or contact information of Medstreaming's customers or clients, and/or any pricing information, shall be treated as confidential. Such documents and information (the “Confidential Material”) shall be maintained in a secure manner, may not be used for any purpose other than prosecuting, defending, or attempting to settle this litigation, and may not be disclosed to any person other than:

(a) plaintiffs' counsel of record in this action, as well as employees of plaintiffs' counsel to whom it is reasonably necessary to disclose the Confidential Material for this litigation;
(b) plaintiffs' officers, directors, and employees to whom disclosure is reasonably necessary for this litigation;
(c) experts and consultants to whom disclosure is reasonably necessary for this litigation and who have signed an “Acknowledgment and Agreement to Be Bound” in the form attached to the district's model stipulated protective ...

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