Federal Trade Commission v. Kochava, Inc.

District Court, D. Idaho·Decided November 3, 2023·No. 2:22-cv-00377·Unknown

Opinion

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF IDAHO

FEDERAL TRADE COMMISSION, Case No. 2:22-cv-00377-BLW Plaintiff, MEMORANDUM DECISION v. AND ORDER

KOCHAVA INC.,

Defendant.

INTRODUCTION Before the Court are Defendant Kochava, Inc.’s Motion for Sanctions Under Rule 11 (Dkt. 40) and Plaintiff Federal Trade Commission’s Motion to Withdraw Motion to Seal and to Unseal the Amended Complaint (Dkt. 29). For the reasons explained below, the Court will deny Kochava’s motion and grant the FTC’s motion. BACKGROUND On August 29, 2022, the Federal Trade Commission (FTC) filed a complaint in this Court alleging that Kochava, Inc.’s business practices violate Section 5(a) of the Federal Trade Commission Act (FTC Act), 15 U.S.C. § 45(a)(1). Dkt. 1. Specifically, the FTC claimed that Kochava violates consumers’ privacy and exposes them to risks of secondary harms by linking geolocation data with Mobile Device IDs (MAIDs) in data banks that its customers can access. In October 2022, Kochava moved to dismiss the FTC’s complaint on several

grounds, including that the FTC had not adequately alleged a “substantial injury to consumers” as is required under Section 5(a) of the FTC Act. Dkt. 7. The Court agreed, granting Kochava’s motion and dismissing the FTC’s complaint. Dkt. 24.

Although both of the FTC’s theories of consumer injury were legally plausible, the FTC’s factual allegations were insufficient. Id. However, because the Court concluded that those deficiencies were curable, it allowed the FTC thirty days to file an amended complaint. Id. at 35.

The FTC filed its First Amended Complaint (Dkt. 26) on June 5, 2023. The Amended Complaint asserts the same Section 5(a) claim and seeks the same relief as the FTC’s original complaint but includes additional factual allegations to

support the FTC’s theories of consumer injury. See Am. Compl. ¶¶ 11–106, Dkt. 26. The FTC filed its Amended Complaint under seal along with a Motion to Seal (Dkt. 25) because it anticipated Kochava arguing “that some of the materials referenced, excerpted, or cited in the Amended Complaint constitute trade secrets

and are entitled to confidential treatment.” Pl.’s Motion to Seal at 1, Dkt. 25. The FTC sought to seal its Amended Complaint “out of an abundance of caution” and only “until such time as the Court [could] rule on a motion to unseal and decide that the materials referenced in the Amended Complaint are not entitled to confidential treatment.” Id. One week later, on June 12, 2023, the FTC filed a

Motion to Withdraw (Dkt. 29) its Motion to Seal, explaining that Kochava had failed to promptly provide it with a list of proposed redactions, or to explain its reasons for seeking to seal portions of the Amended Complaint. Pl.’s Motion to

Withdraw at 3, Dkt. 29. Kochava responded the next day by filing a Notice (Dkt. 30) of its intent to oppose the unsealing of the Amended Complaint and to seek Rule 11 sanctions. Shortly thereafter, Kochava filed a Motion to Seal (Dkt. 31) explaining its

argument for maintaining the Amended Complaint under seal. For the time being, Kochava asked the Court to keep the Amended Complaint under seal and refrain from ruling on its unsealing until “either the withdrawal [of the Amended

Complaint] by the FTC or the Court’s decision on Kochava’s motion for sanctions under Rule 11.” Notice at 4, Dkt. 30. The Court granted Kochava’s motion and ordered that the Amended Complaint would be kept under seal “until the merits of this disagreement can be resolved through Kochava's forthcoming Rule 11 motion

for sanctions.” Dkt. 36. Today, the Court will resolve both issues by denying Kochava’s Motion for Sanctions Under Rule 11 (Dkt. 40) and granting the FTC’s request to unseal the Amended Complaint. MOTION FOR RULE 11 SANCTIONS

Kochava asks the Court to sanction the FTC under Federal Rule of Civil Procedure 11 for filing the Amended Complaint. Dkt. 40. By way of remedies, it seeks to strike the Amended Complaint from the docket and recover all attorney

fees and costs it incurred in bringing its motion. Def.’s Memo. in Supp. at 20, Dkt. 40-1. The Court will deny Kochava’s motion. 1. Legal Standard Rule 11 authorizes courts to impose a variety of sanctions to “deter baseless

filings and curb abuses.” Business Guides, Inc. v. Chromatic Commc’ns Enters., Inc., 498 U.S. 534, 534 (1991). Sanctions are appropriate when a party or attorney files a pleading or paper that is “frivolous, legally unreasonable, or without factual

foundation,” or one that is “brought for an improper purpose.” Estate of Blue v. City of Los Angeles, 120 F.3d 982, 985 (9th Cir. 1997); FED. R. CIV. P. 11(b)(1)- (4). The standard for Rule 11 sanctions is objective and asks whether the pleader, “after conducting an objectively reasonable inquiry into the facts and law, would

have found the complaint to be well-founded.” Holgate v. Baldwin, 425 F.3d 671, 677 (9th Cir. 2005). Motions for Rule 11 sanctions are not a proper avenue for testing the plausibility of a complaint or the strength of a plaintiff’s evidence. There are other litigation tools suited for those tasks, such as motions to dismiss under Rule

12(b)(6) and motions for summary judgment under Rule 56. Rule 11 sanctions, in contrast, are “reserve[d] . . . for the rare and exceptional case where the action is clearly frivolous, legally unreasonable or without legal foundation, or brought for

an improper purpose.” Operating Eng’rs Pension Trust v. A-C Co., 859 F.2d 1336, 1344 (9th Cir. 1988). “Rule 11 is an extraordinary remedy, one to be exercised with extreme caution.” Id. at 1345. 2. Analysis

With its Motion for Sanctions (Dkt. 40), Kochava essentially challenges the plausibility of the FTC’s factual assertions and the strength of its evidence. But, as explained above, neither is an appropriate argument in favor of Rule 11 sanctions.

The plausibility analysis is one the Court must perform independently in resolving Kochava’s separate Motion to Dismiss (Dkt. 33), which is currently pending before this Court. And, after discovery, the Court may be asked to weigh the strength of the FTC’s evidence through a Rule 56 motion for summary judgment. But, at this

stage, the Court must only determine whether the FTC’s Amended Complaint is “frivolous, legally unreasonable, or without factual foundation, or [was] brought for an improper purpose.” Estate of Blue, 120 F.3d at 985; FED. R. CIV. P. 11(b)(1)-(4). A. The Amended Complaint is not legally unreasonable.

This Court held in its prior Memorandum Decision and Order (Dkt. 24) that both of the FTC’s theories of consumer injury are legally plausible. That is, either a severe privacy intrusion or an increased risk of secondary harms could plausibly

constitute “substantial injury to consumers” under Section 5(a) of the FTC Act. With its Amended Complaint, the FTC has simply realleged those plausible theories with additional factual allegations. Doing so is not unreasonable. B. The Amended Complaint is not factually baseless.

Sanctions may be imposed on a party or attorney who files a pleading containing allegations that utterly lack a “factual foundation.” Estate of Blue, 120 F.3d at 985. It is important, however, to distinguish this standard from the standard

for dismissal under Rule 12(b)(6). FED. R. CIV. P. 12(b)(6). If the Rule 11 and Rule 12(b)(6) standards were the same, “every Rule 12(b)(6) motion would be accompanied by a motion for sanctions.” In re Cal. Bail Bond Antitrust Litig., 511 F. Supp. 3d 1031, 1054 (N.D. Cal. Jan. 5, 2021).

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Federal Trade Commission v. Kochava, Inc., (D. Idaho 2023).

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