Munderloh v. Biegler GmbH

• Court: District Court, D. Arizona
• Decided: March 28, 2022
• Docket: 3:21-cv-08004
• Status: Unknown

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 Timothy Munderloh, et al., No. CV-21-08004-PCT-GMS

10 Plaintiffs, ORDER

11 v.

12 Biegler GmbH, et al.,

13 Defendants. 14 15 16 Pending before the Court is Biegler GmbH’s (“Defendant Biegler”) Motion to 17 Dismiss Under 12(b)(2) and 12(b)(6) (Doc. 33). Also pending before the Court is Dr. 18 Timothy Munderloh, Dr. Travis Stiegler, and Munderloh Medical Incorporated’s 19 (“Plaintiffs”) Motion for Leave to File a Surreply (Doc. 45). For the reasons below, both 20 Motions are denied. 21 BACKGROUND 22 For the purposes of the Motion—and unless otherwise noted—the Court construes 23 all facts alleged in the Complaint as true. Defendant Biegler manufactures the Stivax 24 device. (Doc. 1 at 8.) As defined by the Food and Drug Administration (“FDA”), the 25 Stivax device is “an electro-acupuncture device for use in the practice of acupuncture by 26 qualified practitioners of acupuncture.” (Doc. 1 at 13.) In 2016, the FDA authorized the 27 sale of the Stivax device in the United States as an acupuncture device. (Doc. 1 at 13.) 28 After receiving FDA approval, Defendant Biegler engaged Defendant Solace 1 Advancement as the importer and distributor of the Stivax device in the United States. 2 (Doc. 1 at 14.) Both Defendants Biegler and Solace Advancement then contacted other 3 distributors, including Doc Solutions, to market and sell the Stivax device. (Doc. 1 at 14.) 4 Mark Kaiser (“Mr. Kaiser”), Doc Solutions’s Chief Executive Officer, personally 5 promoted, marketed, and sold the Stivax device throughout the United States to various 6 medical providers, including Plaintiffs. (Doc. 1 at 15.) 7 Although the FDA had classified the Stivax device as an electro-acupuncture 8 device, Defendants, including Defendant Biegler, marketed the device to medical providers 9 as an “implantable non-narcotic pain management medical device” that was reimbursable 10 by Medicare. (Doc. 1 at 4–5, 42.) Importantly, Defendant Biegler knew that the Stivax 11 device was not actually reimbursable. (Doc. 1 at 11–13, 41.) Despite this knowledge, 12 Defendant Biegler collaborated with Defendant Solace Advancement to produce 13 promotional materials, including a promotional video, that misrepresented that the Stivax 14 device was implantable and usable by doctors. (Doc. 1 at 16–18, 40–42.) Acupuncture 15 was not mentioned in any of these materials. (Doc. 1 at 17–18.) 16 In addition to these promotional materials, Defendants Biegler and Solace 17 Advancement created the “Stivax Coding Scheme,” pursuant to which the Stivax device 18 would be marketed as reimbursable by Medicare as an implantable pain management 19 device. (Doc. 1 at 36, 42.) As part of this scheme, Mr. Kaiser personally visited Plaintiffs 20 to induce them to purchase the Stivax device. As is the industry norm, Mr. Kaiser trained 21 the purchasing medical providers on how to properly code and bill the Stivax device for 22 reimbursement by Medicare. (Doc. 1 at 15–17, 26–28.) Mr. Kaiser instructed Plaintiffs 23 that they should use a particular set of codes to bill for the Stivax device and explained that 24 because the Stivax device was “piercing skin,” it could be coded as an implantable pain 25 management device. (Doc. 1 at 26–28.) Based on Mr. Kaiser’s representations and the 26 promotional materials developed by Defendants Biegler and Solace Advancement, 27 “Plaintiffs purchased hundreds of Stivax devices.” (Doc. 1 at 29.) Soon thereafter, 28 Plaintiffs billed the Stivax device as they had been instructed by Mr. Kaiser, which resulted 1 in overpayments and audits by Medicare. (Doc. 1 at 33–37.) 2 Based on the foregoing, Plaintiffs filed suit on behalf of themselves and all others 3 similarly situated against Defendants Biegler, Solace Advancement, and others, alleging 4 violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) as well as 5 common-law fraud claims. (Doc. 1.) Defendant Biegler has moved to dismiss for lack of 6 personal jurisdiction and for failure to state a claim upon which relief can be granted. 7 (Doc. 21c33.) 8 DISCUSSION 9 I. Personal Jurisdiction in Arizona 10 Defendant Biegler first argues that the Court cannot assert personal jurisdiction over 11 it without violating due process.1 (Doc. 33-1.) On a motion to dismiss for lack of personal 12 jurisdiction, the plaintiff “bears the burden of demonstrating that jurisdiction is 13 appropriate.” Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir. 14 2004). “Where, as here, the motion is based on written materials rather than an evidentiary 15 hearing, ‘the plaintiff need only make a prima facie showing of jurisdictional facts.’” Id. 16 (quoting Sher v. Johnson, 911 F.2d 1357, 1361 (9th Cir. 1990)). Although the plaintiff 17 cannot “simply rest on the bare allegations of its complaint,” id. (quoting Amba Mktg. Sys., 18 Inc. v. Jobar Int’l, Inc., 551 F.2d 784, 787 (9th Cir. 1977)), the Court must “take as true all 19 uncontroverted allegations in the complaint.” Glob. Commodities Trading Grp., Inc. v. 20 Beneficio de Arroz Choloma, S.A., 972 F.3d 1101, 1106 (9th Cir. 2020). Allegations that 21 are contradicted by affidavit are not assumed as true, but factual disputes between affidavits 22 are resolved in the plaintiff’s favor. CollegeSource, Inc. v. AcademyOne, Inc., 653 F.3d 23 1066, 1073 (9th Cir. 2011). 24 The Court applies Arizona law to determine whether it may exercise jurisdiction 25 over a defendant. Picot v. Weston, 780 F.3d 1206, 1211 (9th Cir. 2015). “The Arizona 26 long-arm statute provides for personal jurisdiction co-extensive with the limits of federal 27 1 Plaintiff does not seem to contest that Arizona does not have general personal jurisdiction 28 over Defendant Biegler. Therefore, the Court will only consider whether Arizona has specific personal jurisdiction. 1 due process.” Doe v. Am. Nat. Red Cross, 112 F.3d 1048, 1050 (9th Cir. 1997); Ariz. R. 2 Civ. P. 4.2(a). For a court’s exercise of personal jurisdiction over a nonresident defendant 3 to comport with due process, “that defendant must have at least ‘minimum contacts’ with 4 the relevant forum such that the exercise of jurisdiction ‘does not offend traditional notions 5 of fair play and substantial justice.’” Schwarzenegger, 374 F.3d at 801 (quoting Int’l Shoe 6 Co. v. Washington, 326 U.S. 310, 316 (1945)). 7 Here, Defendant Biegler provided an affidavit from its President and CEO Ingeborg 8 Biegler (“Mr. Biegler”). (Doc. 33-1 at 21–24.) In it, Mr. Biegler claims that Defendant 9 Biegler is an Austrian corporation with its principal place of business in Austria; that 10 Defendant Biegler does not conduct any business operations within the United States and 11 has no physical presence in Arizona; that Defendant Biegler does not market, sell, or 12 distribute products directly to Arizonans; and that Defendant Biegler has no control over 13 where the product is marketed after it is given to the distributor, Defendant Solace 14 Advancement. (Doc. 33-1 at 22–23.) Plaintiffs provide no rebuttal evidence of Defendant 15 Biegler’s Arizona contacts; instead, Plaintiffs reallege the allegations in the Complaint.2 16 (Doc. 43 at 5.) This is insufficient to defeat Defendant Biegler’s Motion. Cummings v. W. 17 Trial Laws. Ass’n, 133 F. Supp. 2d 1144, 1154, 1158 (D. Ariz. 2001); see Data Disc., Inc. 18 v. Sys. Tech. Assocs., Inc., 557 F.2d 1280, 1284 (9th Cir. 1977) (“If only one side of the 19 conflict was supported by affidavit, [the] task would be relatively easy, for [courts] may 20 not assume the truth of allegations in a pleading which are contradicted by affidavit.”). 21 Plaintiffs have failed to meet their burden to show that Arizona courts may exercise specific 22 jurisdiction over Defendant Biegler. 23 II. Jurisdiction under Rule 4(k)(2) 24 Plaintiffs argue that this Court may assert jurisdiction pursuant to Federal Rule of 25 Civil Procedure 4(k)(2). (Doc. 43 at 7.) The Rule states, “[f]or a claim that arises under 26 federal law, serving a summons or filing a waiver of service establishes personal 27 2 The Court has considered both the cited exhibits in the Complaint and the evidence in 28 Plaintiffs’ Surreply. Neither sufficiently demonstrates that Defendant Biegler committed an intentional act directly aimed at Arizona. 1 jurisdiction over a defendant if: (A) the defendant is not subject to jurisdiction in any state’s 2 courts of general jurisdiction; and (B) exercising jurisdiction is consistent with the United 3 States Constitution and laws.” Fed. R. Civ. P. 4(k)(2). To assert jurisdiction under Rule 4 4(k)(2), (1) the claim must arise under federal law; (2) “the defendant must not be subject 5 to the personal jurisdiction of any state court of general jurisdiction”; and (3) “the federal 6 court’s exercise of personal jurisdiction must comport with due process.” Holland Am. 7 Line Inc. v. Wartsila N. Am., Inc., 485 F.3d 450, 461 (9th Cir. 2007). 8 Plaintiffs clearly meet the first element because they allege two claims arising under 9 federal law.3 (Doc. 1 at 49–51.) With respect to the second requirement, if the defendant 10 has not named a state in which it would be subject to jurisdiction, “then the federal court 11 is entitled to use Rule 4(k)(2).” Holland, 485 F.3d at 461. Defendant Biegler has named 12 no such state. (Doc. 33-1.) Therefore, the only remaining issue is whether this Court’s 13 exercise of jurisdiction over Defendant Biegler comports with due process. The due 14 process analysis under Rule 4(k)(2) is nearly identical to traditional personal jurisdiction 15 analysis with one significant difference: rather than considering contacts between 16 Defendant Biegler and Arizona, the Court considers Defendant Biegler’s contacts with the 17 nation as a whole. Holland, 485 F.3d at 462. 18 The Ninth Circuit uses a three-part test to determine whether specific jurisdiction 19 exists. “First ‘[t]he non-resident defendant must purposefully direct his activities or 20 consummate some transaction with the forum or resident thereof; or perform some act by 21 which he purposefully avails himself of the privilege of conducting activities in the forum, 22 thereby invoking the benefits and protections of its laws.’” Glob. Commodities, 972 F.3d 23 at 1107 (quoting Schwarzenegger, 374 F.3d at 802). “Second, the claim must arise out of 24 or relate to the defendant’s forum-related activities.” Id. “Finally, the exercise of 25 jurisdiction must be reasonable.” Id. 26 The substance of the first element differs depending on the “nature of the claim at 27 3 “Of course, if a plaintiff properly invokes Rule 4(k)(2), it can rely on pendent jurisdiction 28 for its state law claims, so long as those claims arose under the same nucleus of operative facts.” Grayson v. Anderson, 816 F.3d 262, 271 (4th Cir. 2016) 1 issue.” Picot, 780 F.3d at 1212. “A purposeful availment analysis is most often used in 2 suits sounding in contract.” Schwarzenegger, 374 F.3d at 802. “A purposeful direction 3 analysis, on the other hand, is most often used in suits sounding in tort.” Id. Because RICO 4 claims are torts, the purposeful direction analysis is appropriate. See, e.g., Barantsevich v. 5 VTB Bank, 954 F. Supp. 2d 972, 991 (C.D. Cal. May 29, 2013); Kayne v. Ho, LA 6 CV09-06816 JAK (CWx), 2012 WL 12883918, at *2 (C.D. Cal. Sept. 6, 2012). 7 A. Purposeful Direction 8 “[A] defendant purposefully direct[s] his activities at the forum if he: ‘(1) committed 9 an intentional act, (2) expressly aimed at the forum state, (3) causing harm that the 10 defendant knows is likely to be suffered in the forum state.’” Picot, 780 F.3d at 1214 11 (quoting Schwarzenegger, 374 F.3d at 803). But “[t]he proper question is not where the 12 plaintiff experienced a particular injury or effect but whether the defendant’s conduct 13 connects him to the forum in a meaningful way.” Walden v. Fiore, 571 U.S. 277, 290 14 (2014). Thus, specific jurisdiction cannot be established solely by allegations that “a 15 defendant ‘engaged in wrongful conduct targeted at a plaintiff whom the defendant knows 16 to be a resident of the forum state.’” Axiom Foods, Inc. v. Acerchem Int’l, Inc., 874 F.3d 17 1064, 1069 (9th Cir. 2017) (quoting Wash. Shoe Co. v. A-Z Sporting Goods Inc., 704 F.3d 18 668, 675 (9th Cir. 2012), abrogated by Walden, 571 U.S. at 290). 19 1. Intentional Act 20 A defendant commits an intentional act when it acts with the “intent to perform an 21 actual, physical act in the real world.” Schwarzenegger, 374 F.3d at 806. Plaintiffs argue 22 that the following constitute “intentional acts” for purposes of personal jurisdiction: 23 Defendant Biegler’s (i) FDA 510(k) applications for the Stivax device; (ii) “interactive 24 websites fulfilling Stivax device orders, specifically catered to medical providers in the 25 United States; (iii) shipment of the Stivax device to the United States, specifically to 26 [Defendant] Solace Advancement and/or Doc Solutions; and (iv) direction, coordination, 27 and funding with respect to the marketing and sale of the Stivax device in the [United 28 States].” (Doc. 43 at 8.) Mr. Biegler specifically controverts Plaintiffs’ fourth assertion 1 and generally controverts Plaintiffs’ second assertion. (Doc. 33-1 at 22–23.) Plaintiffs’ 2 own allegations corroborate that the Stivax website was maintained by Defendant Solace 3 Advancement, not Defendant Biegler, although there was a link to Defendant Biegler’s 4 website on the Stivax website.4 (Doc. 1 at 40–41.) Therefore, the Court must determine 5 whether Plaintiffs’ first and third assertions suffice to satisfy purposeful direction. 6 Defendant Biegler has not denied that it sought and received approval from the FDA 7 to market the Stivax device in the United States.5 (Doc. 1 at 42); (Doc. 33-1.) That is 8 clearly an intentional act. Plaintiffs have thus satisfied their burden as to this element. 9 2. Aimed at the Forum 10 Defendant Biegler clearly aimed its conduct at the United States by seeking 11 approval from a U.S. agency to market to a U.S. audience. (Doc. 1 at 14, 42.) Assuming 12 the Complaint’s allegations are true, Defendant Biegler was “responsible for the FDA 13 approval to market the Stivax device in the United States” and received such approval in 14 2016. (Doc. 1 at 14, 42.) That is enough to “aim” an intentional act at the forum. Lewis 15 v. Mercedes-Benz USA, LLC, 530 F. Supp. 3d 1183, 1212 (S.D. Fla. 2021); Ayla, LLC v. 16 Alya Skin Pty. Ltd., 11 F.4th 972, 982 (9th Cir. 2021); see also Silver Ring Splint Co. v. 17 Digisplint, Inc., 508 F. Supp. 2d 508, 515 (W.D. Va. 2007). 18 3. Causes Harm in the Forum 19 Plaintiffs allege that Stivax marketing and sales agents represented that it was 20 classified by the FDA as a “implantable non-narcotic pain management medical device” 21 and was thus reimbursable by Medicare. (Doc. 1 at 4–5.) Based on that representation, 22 Plaintiffs allegedly purchased Stivax devices and were later audited by Medicare and

23 4 Defendant Biegler controverted Plaintiffs’ allegation that the Stivax website was operated at the direction of Defendant Biegler. (Doc. 33-1 at 23 (“Once the Stivax product reaches 24 [Defendant Solace Advancement] in Michigan, [Defendant] Biegler has no direction or control over where or how the product is subsequently marketed . . . .”) This contravention 25 has not been rebutted by Plaintiffs.

26 5 Although Paul Dryden, a resident of Florida, submitted the official paperwork to the FDA, Defendant’s Biegler’s name and Austrian address was provided on the 510(k) summary as 27 the official contact, Defendant Biegler was specifically identified in the 510(k) summary as maintaining that “the Stivax System [was] substantially equivalent to the predicate 28 device,” and Defendant Biegler was the addressee under “care of Paul Dryden” in the FDA approval letter. (Doc. 1-2); see 21 C.F.R. § 807.40. 1 denied coverage. (Doc. 1 at 4–6, 33–37.) Had Defendant Biegler not sought FDA 2 approval, it presumably would not have been able to sell the Stivax device in the United 3 States. Moreover, it is the very nature of that approval—the classification of the device— 4 that is the alleged fraud in this lawsuit. (Doc. 1 at 4–5.) Because the Stivax device’s FDA 5 approval allowed it to be sold in the United States, where the classification was allegedly 6 misrepresented and caused harm, Plaintiffs have sufficiently shown purposeful direction. 7 B. Arising Out of Forum Activities 8 “The second requirement for specific, personal jurisdiction is that the claim asserted 9 in the litigation arises out of the defendant’s forum related activities.” Panavision Int’l, 10 L.P. v. Toeppen, 141 F.3d 1316, 1322 (9th Cir. 1998). The Ninth Circuit “rel[ies] on a ‘but 11 for’ test to determine whether a particular claim arises out of forum-related activities and 12 thereby satisfies the second requirement for specific jurisdiction.” Ballard v. Savage, 65 13 F.3d 1495, 1500 (9th Cir. 1995). 14 Here, as explained above, Defendant Biegler would have been unable to sell the 15 Stivax device, through its distributors, to Plaintiffs without FDA approval. The fact that 16 the Stivax device was allegedly classified as an “electro-acupuncture device” rather than 17 as a “non-narcotic implantable pain management medical device” underpins this lawsuit. 18 Therefore, Defendant Biegler’s alleged contact—seeking FDA approval—is a but-for 19 cause of the harm alleged. 20 C. Reasonableness 21 Even if the first two requirements are met, in order to satisfy the Due Process Clause, 22 the exercise of personal jurisdiction must be reasonable. Ziegler v. Indian River Cnty., 64 23 F.3d 470, 474–75 (9th Cir. 1995). For jurisdiction to be reasonable, it must comport with 24 “fair play and substantial justice.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476 25 (1985). “[W]here a defendant who purposefully has directed his activities at forum 26 residents seeks to defeat jurisdiction, he must present a compelling case that the presence 27 of some other considerations would render jurisdiction unreasonable.” Core–Vent v. Nobel 28 Indus. AB, 11 F.3d 1482, 1487 (9th Cir. 1993). 1 In addressing reasonableness, courts consider seven factors: “(1) the extent of a 2 defendant’s purposeful interjection; (2) the burden on the defendant in defending in the 3 forum; (3) the extent of conflict with the sovereignty of the defendant’s state; (4) the forum 4 state’s interest in adjudicating the dispute; (5) the most efficient judicial resolution of the 5 controversy; (6) the importance of the forum to the plaintiff’s interest in convenient and 6 effective relief; and (7) the existence of an alternative forum.” Panavision Int’l, 141 F.3d 7 at 1323. “No one factor is dispositive; a court must balance all seven.” Id. 8 1. Degree of Interjection 9 Even though the Court has concluded that Defendant Biegler purposefully directed 10 its activities at the United States, “the degree of interjection is nonetheless a factor in 11 assessing the overall reasonableness of jurisdiction.” Harris Rutsky & Co. Ins. Servs., Inc. 12 v. Bell & Clements Ltd., 328 F.3d 1122, 1132 (9th Cir. 2003). “The smaller the element of 13 purposeful interjection, the less is jurisdiction to be anticipated and the less reasonable is 14 its exercise.” Ins. Co. of N. Am. v. Marina Salina Cruz, 649 F.2d 1266, 1271 (9th Cir. 15 1981). 16 To obtain FDA approval, Defendant Biegler filed a Section 510(k) premarket 17 notification of intent to market the Stivax device. 21 C.F.R. § 807.81; (Doc. 1-2.). The 18 notification included information about the Stivax device as well as the submitter’s name 19 and address.6 § 807.92; (Doc. 1-2.). The FDA found that, based on the information 20 provided to it, because the Stivax device was substantially equivalent “to legally marketed 21 predicate devices marketed in interstate commerce . . . or to devices that have been 22 reclassified in accordance with the provisions of the Federal Food, Drug, and Cosmetic Act 23 (Act) that do not require approval of a premarket approval application (PMA),” Defendant 24 Biegler could sell the Stivax device in the United States. (Doc. 1-2 at 2.) Although 25 Defendant Biegler provided information to the FDA, it did not have to undergo extensive 26 FDA testing or trials. Its interjection, therefore, is moderate. 27 6 The Stivax device’s 510(k) summary listed Friedrich Netauschek and Defendant Biegler 28 as Stivax’s “official contact.” (Doc. 1-2 at 5.) 1 2. Burden on the Defendant 2 “A defendant’s burden in litigating in the forum is a factor in the assessment of 3 reasonableness, but unless the ‘inconvenience is so great as to constitute a deprivation of 4 due process, it will not overcome clear justifications for the exercise of jurisdiction.’” 5 Panavision Int’l, 141 F.3d at 1323 (quoting Caruth v. Int’l Psychoanalytical Ass’n, 59 F.3d 6 126, 128–29 (9th Cir.1995)). As the Ninth Circuit has noted, “[m]odern means of 7 communication and transportation have tended to diminish the burden of defense of a 8 lawsuit in a distant forum.” Marina Salina Cruz, 649 F.2d 1266, 1271 (9th Cir. 1981); 9 Ballard, 65 F.3d at 1501. 10 Defendant Biegler is headquartered in Austria and thus would have to litigate this 11 case across international borders, and potentially across language barriers, if the Court 12 found personal jurisdiction. However, because of developments made during the COVID- 13 19 pandemic, modern methods of communication alleviate this burden significantly. Thus, 14 “[a]lthough this factor cuts in favor of [Defendant Biegler], ‘[u]nless such inconvenience 15 is so great as to constitute a deprivation of due process, it will not overcome clear 16 justifications for the exercise of jurisdiction.’” Roth v. Garcia Marquez, 942 F.2d 617, 623 17 (9th Cir. 1991) (quoting Hirsch v. Blue Cross, Blue Shield, 800 F.2d 1474, 1481 (9th Cir. 18 1986)). The Court does not find this factor dispositive. 19 3. Sovereignty 20 “The reasonableness of jurisdiction . . . depends also in part upon the seriousness of 21 the potential affront to the sovereignty of a defendant’s state.” Marina Salina Cruz, 649 22 F.2d at 1272. “[L]itigation against an alien defendant creates a higher jurisdictional barrier 23 than litigation against a citizen from a sister state.” Harris Rutsky, 328 F.3d at 1133. 24 “Although this factor is important, it is not controlling.” Id. 25 Because Defendant Biegler is a foreign company, exercising jurisdiction necessarily 26 implicates Austria’s sovereignty. This factor is not dispositive, but it does weigh in 27 Defendant Biegler’s favor. 28 1 4. Forum State’s Interest 2 The United States has an interest in providing redress to individuals who are harmed 3 by the conduct of foreign companies. That is especially true in a case like this, in which 4 Defendant Biegler is alleged to have specifically sought permission from the FDA to sell 5 the Stivax device to U.S. providers for the use of U.S. patients. This factor weighs in 6 Plaintiffs’ favor. 7 5. Efficient Judicial Resolution 8 “This factor focuses on the location of the evidence and witnesses.” Panavision 9 Int’l, 141 F.3d at 1323. However, “this factor is ‘no longer weighed heavily given the 10 modern advances in communication and transportation.’” Harris Rutsky, 328 F.3d at 1133 11 (quoting Panavision Int’l, 141 F.3d at 1323). 12 Plaintiffs are seeking class certification to represent not only themselves but other 13 medical providers who purchased the Stivax device. (Doc. 1 at 46.) Class members could 14 very well be found throughout the United States. The named Plaintiffs are from Arizona. 15 (Doc. 1 at 7–8.) Defendant Solace Advancement is a Michigan LLC, and Defendants Titan 16 Medical Compliance and Dr. Timothy Warren are residents of Kansas. (Doc. 1 at 8–9.) 17 Because all of Plaintiffs’ claims concern conduct occurring in the United States, most 18 evidence and witnesses are likely in the United States. Although there may be some 19 evidence in Austria, Plaintiffs’ allegation that Defendant Biegler directed its American 20 distributors and agents to misrepresent Stivax’s classification implies that much of the 21 evidence that originated with Defendant Biegler is likely now in the hands of other 22 Defendants in the United States. (Doc. 1 at 14, 36, 40–42.) Moreover, to the extent that 23 there are witnesses in Austria that may need to be deposed, the Court finds that modern 24 technology alleviates much of the burden. This factor weighs in Plaintiffs’ favor. 25 6. Plaintiffs’ Interest in Convenient and Effective Relief 26 “[I]n this circuit, the plaintiff’s convenience is not of paramount importance.” Nat’l 27 Cas. Co. v. Burns & Wilcox Ltd., No. CV-19-04854-PHX-DWL, 2020 WL 4039119, at 28 *10 (D. Ariz. July 17, 2020). “This factor weighs most strongly in favor of the plaintiff if 1 the chosen forum presents the only means of litigating a claim, or if refusing to exercise 2 jurisdiction would force the plaintiff to pursue the case in multiple locations.” Id. 3 If the Court found that the United States lacked jurisdiction over Defendant Biegler, 4 Plaintiffs would likely have to prosecute two cases in two different forums: one against 5 Defendant Biegler in Austria, if cognizable, and the other against the rest of Defendants in 6 the United States. That is far from “convenient” relief; however, the Court recognizes that 7 this factor should not weigh heavily in the reasonableness analysis. Although this factor 8 weighs in Plaintiffs’ favor, it does so slightly. 9 7. Existence of Alternative Forum 10 “The plaintiff bears the burden of proving the unavailability of an alternative 11 forum.” Harris Rutsky, 328 F.3d at 1133–34. Plaintiffs have provided no such argument 12 in this case. Although the Court assumes that Austria would provide Plaintiffs a forum in 13 which they could pursue relief, “whether the forum would be adequate is impossible to say 14 on the record as it now stands.” Ballard, 65 F.3d at 1502. This factor weighs in Defendant 15 Biegler’s favor. 16 8. Balancing the Factors 17 Defendant Biegler has not presented a “compelling case” that this Court’s exercise 18 of jurisdiction would violate due process. Factors 2 and 3 weigh squarely in Defendant 19 Biegler’s favor, as they do in every case involving a foreign defendant. Factors 1 and 7 20 likewise weigh in Defendant Biegler’s favor. However, the Court finds factors 4 and 5 to 21 be most persuasive. Absent compelling circumstances, it would be unjust to allow a 22 foreign defendant to avail itself of the U.S. market and regulatory scheme yet avoid U.S. 23 laws because of the inconvenience of litigating in a foreign forum that it intentionally 24 targeted. The rest of the Defendants are located in the United States, as is the majority of 25 evidence and witnesses, and Plaintiffs should not have to litigate in Austria under these 26 facts. There is therefore specific personal jurisdiction under Federal Rule of Civil 27 Procedure 4(k)(2). 28 1 III. Dismissal for Failure to State a Claim 2 To survive dismissal for failure to state a claim pursuant to Federal Rule of Civil 3 Procedure 12(b)(6), a complaint must contain more than a “formulaic recitation of the 4 elements of a cause of action”; it must contain factual allegations sufficient to “raise a right 5 to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 6 (2007). When analyzing a complaint for failure to state a claim, “allegations of material 7 fact are taken as true and construed in the light most favorable to the nonmoving party.”7 8 Smith v. Jackson, 84 F.3d 1213, 1217 (9th Cir. 1996). However, legal conclusions couched 9 as factual allegations are not given a presumption of truthfulness, and “conclusory 10 allegations of law and unwarranted inferences are not sufficient to defeat a motion to 11 dismiss.” Pareto v. F.D.I.C., 139 F.3d 696, 699 (9th Cir. 1998). 12 Unlike the plausibility standard applied to other claims, fraud claims are subject to 13 a heightened pleading standard. Federal Rule of Civil Procedure 9(b) requires that fraud 14 be pleaded with particularity. “In alleging fraud or mistake, a party must state with 15 particularity the circumstances constituting fraud or mistake. . . . Malice, intent, knowledge, 16 and other conditions of a person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b). 17 Rule 9(b) “requires the identification of the circumstances constituting fraud so that the 18 defendant can prepare an adequate answer from the allegations.” Schreiber Distrib. Co. v. 19 Serv–Well Furniture Co., 806 F.2d 1393, 1400 (9th Cir. 1986) (quoting Bosse v. Crowell 20 Collier & Macmillan, 565 F.2d 602, 611 (9th Cir. 1977)). “[T]he pleader must state the 21 time, place, and specific content of the false representations as well as the identities of the 22 parties to the misrepresentation.” Id. at 1401. “Averments of fraud must be accompanied 23 by ‘the who, what, when, where, and how’ of the misconduct charged.” Vess v. Ciba-Geigy 24 Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (quoting Cooper v. Pickett, 137 F.3d 616, 25 627 (9th Cir. 1997)). Further, a plaintiff must “set forth what is false or misleading about

26 7 Unlike Defendant Biegler’s 12(b)(2) Motion, the Court cannot consider Mr. Biegler’s declaration when deciding its 12(b)(6) Motion without converting the Motion into one for 27 summary judgment. Townsend v. Columbia Operations, 667 F.2d 844, 849 (9th Cir. 1982) (“Once matters outside the pleadings are considered by the court, a Rule 12(b)(6) motion 28 must be treated as a motion for summary judgment.”) The declaration will not be considered. 1 a statement, and why it is false.” Id. (quoting Decker v. GlenFed, Inc. (In re GlenFed, Inc. 2 Sec. Litig.), 42 F.3d 1541, 1548 (9th Cir. 1994)). 3 A. RICO Claim 4 Defendant Biegler first argues that Plaintiffs’ RICO claim should be dismissed for 5 failure to state a claim. (Doc. 33-1 at 10–11.) 18 U.S.C. § 1962(c) makes it unlawful “for 6 any person employed by or associated with any enterprise engaged in, or the activities of 7 which affect, interstate or foreign commerce, to conduct or participate, directly or 8 indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering 9 activity.” Section 1964 creates a civil cause of action for “any person injured in his 10 business or property by reason of a violation of [RICO].” 11 Plaintiffs allege that the Stivax System Enterprise’s fraudulent misrepresentations 12 caused them to pay an inflated price for the Stivax device, in violation of § 1962. (Doc. 1.) 13 Defendant Biegler now moves to dismiss the claim because Plaintiffs have failed to 14 establish standing and have failed to sufficiently plead the RICO and fraud claims. 15 (Doc. 33-1 at 10–11.) 16 1. Statutory Standing 17 Defendant Biegler first argues that Plaintiffs lack standing to bring a RICO claim. 18 (Doc. 33-1 at 10.) “Under RICO, ‘[a]ny person injured in his business or property by 19 reason of a violation of section 1962 of this chapter may sue therefor in any appropriate 20 United States district court” for civil damages.”’ Mendoza v. Zirkle Fruit Co., 301 F.3d 21 1163, 1168 (9th Cir. 2002) (quoting 18 U.S.C. § 1964(c)). “To have standing under 22 § 1964(c), a civil RICO plaintiff must show: (1) that his alleged harm qualifies as injury to 23 his business or property; and (2) that his harm was ‘by reason of’ the RICO violation, which 24 requires the plaintiff to establish proximate causation.” Canyon Cnty. v. Syngenta Seeds, 25 Inc., 519 F.3d 969, 972 (9th Cir. 2008) (quoting Holmes v. Sec. Inv. Prot. Corp., 503 U.S. 26 258, 268 (1992)). 27 a. Injury 28 Plaintiffs’ alleged injury, that they paid more for the Stivax device than they would 1 have had they known it was not reimbursable by Medicare, is a cognizable injury under 2 RICO. (Doc. 33-1 at 10.) The RICO injury statute is “quite similar to the antitrust statute 3 granting standing to ‘any person who shall be injured in his business or property by reason 4 of anything forbidden in the antitrust laws,’ and consequently the two have been interpreted 5 in tandem.” Mendoza, 301 F.3d at 1168 (citation omitted) (quoting 15 U.S.C. § 15(a)). 6 The Supreme Court interpreted § 15 in Reiter v. Sonotone Corp., 442 U.S. 330 7 (1979),8 where it held that “it taxes the ordinary meaning of common terms to argue . . . 8 that a consumer’s monetary injury arising directly out of a retail purchase is not 9 comprehended by the natural and usual meaning of the phrase ‘business or property.’” Id. 10 at 339. Therefore, any “consumer whose money has been diminished by reason of an 11 antitrust violation has been injured ‘in his . . . property’ within the meaning of [§ 15].” Id. 12 Here, as alleged in the Complaint, Plaintiffs relied on a misrepresentation, made by 13 Stivax sales agents, that the Stivax device was reimbursable by Medicare. (Doc. 1.) 14 Although Defendant Biegler is not alleged to have directly made this misrepresentation to 15 Plaintiffs, it is alleged to have developed the Stivax Coding Scheme, in which it directed 16 its distributors and sales agents to make this misrepresentation to American consumers. 17 (Doc. 1 at 40–42.) Plaintiffs allege that they relied on this misrepresentation when they 18 purchased Stivax devices “at an excessively high price.” (Doc. 1 at 37.) Thus, Plaintiffs’ 19 “money has been diminished,” and the Complaint states a sufficient injury to establish the 20 first element of RICO standing.9 21 8 The Supreme Court refers to 15 U.S.C. § 15(a) as “Section 4 of the Clayton Act.” Reiter, 22 442 U.S. at 337.

23 9 To the extent Defendant Biegler argues that Plaintiffs lack Article III standing, that argument is likewise erroneous. (Doc. 33-1 at 10.) Article III standing requires a concrete, 24 particularized, and actual or imminent injury. Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992). Here, Plaintiffs were allegedly fraudulently induced to purchase a product for an 25 inflated price, which caused them economic injury. (Doc. 1 at 37–38, 40.) Clearly, economic injury is sufficient to establish an Article III injury. San Diego Cnty. Gun Rts. 26 Comm. v. Reno, 98 F.3d 1121, 1130 (9th Cir. 1996) (“Economic injury is clearly a sufficient basis for standing.”); In re LinkedIn User Privacy Litig., 932 F. Supp. 2d 1089, 27 1093–94 (N.D. Cal. Mar. 6, 2013) (acknowledging that plaintiffs will have standing if they are deprived of the “benefit of the bargain” and citing cases in support); cf. Humana Inc. 28 v. Mallinckrodt ARD LLC, No. CV 19-06926 DSF (MRW), 2020 WL 3041309, at *16 (C.D. Cal. Mar. 9, 2020). 1 b. Causation 2 Defendant Biegler also argues that Plaintiffs have failed to show that their injury 3 was proximately caused by Defendant Biegler’s conduct. (Doc. 33-1 at 13.) “A ‘showing 4 that the defendant violated § 1962, the plaintiff was injured, and the defendant’s violation 5 was a “but for” cause of plaintiff’s injury’ is insufficient to meet the requirement in 6 § 1964(c) that the plaintiff’s injury be ‘by reason of’ the RICO violation.” Canyon Cnty., 7 519 F.3d at 981 (quoting Holmes, 503 U.S. at 265–66). “Rather, a plaintiff must also show 8 that the defendant’s RICO violation proximately caused her injury.” Id. “Proximate 9 causation requires ‘some direct relation between the injury asserted and the injurious 10 conduct alleged.’” Id. (quoting Holmes, 503 U.S. at 268). 11 Plaintiffs allege that they relied on the misleading promotional material as well as 12 the misrepresentations made by Mr. Kaiser when they decided to purchase the Stivax 13 device. (Doc. 1 at 6, 15–18, 29.) Plaintiffs also allege that Defendant Biegler collaborated 14 with Defendant Solace Advancement to create the misleading marketing material, and that 15 Defendant Biegler “controlled all messaging” by Mr. Kaiser and Defendant Solace 16 Advancement to market the Stivax device as reimbursable by Medicare. (Doc. 1 at 14–15; 17 42–43.) These actions are sufficient, if established, to satisfy both but-for and proximate 18 causation. Had Defendant Biegler not created the misleading promotional material and 19 controlled the misleading marketing by Defendants Solace Advancement and Mr. Kaiser, 20 Plaintiffs would not have received either the material or the misrepresentations made by 21 Mr. Kaiser to have relied upon. Moreover, Defendant Biegler cannot escape liability 22 because of proximate causation merely because it is not alleged to have itself made any 23 material misrepresentation to Plaintiffs. Because Plaintiffs—as potential purchasers of the 24 Stivax device—were the “targets” of the scheme that Defendant Biegler allegedly 25 concocted, they have sufficiently established statutory standing under RICO. See Painters 26 & Allied Trades Dist. Council 82 Health Care Fund v. Takeda Pharm. Co., 943 F.3d 1243 27 (9th Cir. 2019) (holding that patients and third-party payor could sue drug manufacturer 28 under RICO even though the misrepresentations were made by doctors instead of 1 defendants); Postpichal v. Cricket Wireless, LLC, No. C 19–07270 WHA, 2021 WL 2 3403146 (N.D. Cal. Aug. 4, 2021) (holding that customers who relied on misleading 3 marketing could sue telecommunications company under RICO despite “dealers and 4 subsidiaries” acting as “middlemen” in the causal chain); Humana Inc. v. Mallinckrodt 5 ARD LLC, CV 19-06926 DSF (MRW), 2020 WL 3041309 (C.D. Cal. Mar. 9, 2020) 6 (holding that third-party payor could sue drug manufacturer under RICO despite doctors’ 7 intervening, illegal conduct). 8 2. Racketeering Activity 9 Defendant Biegler next argues that Plaintiffs have failed to allege with sufficient 10 particularity that Defendant Biegler engaged in racketeering activity. (Doc. 33-1 at 11.) A 11 RICO violation requires Plaintiffs to show “1) conduct 2) of an enterprise 3) through a 12 pattern 4) of racketeering activity.” Howard v. Am. Online Inc., 208 F.3d 741, 746 (9th 13 Cir. 2000) (quoting Sedima S.P.R.L. v. Imrex Corp., 473 U.S. 479, 496 (1985)). 14 “Racketeering activity” is statutorily defined to include, as relevant here, mail fraud, wire 15 fraud, and interstate transport of stolen property. 18 U.S.C. § 1961(1) (citing §§ 1341, 16 1343, 2314); (Doc. 1 at 50.) 17 “To comply with Rule 9(b), allegations of fraud must be specific enough to give 18 defendants notice of the particular misconduct which is alleged to constitute the fraud 19 charged so that they can defend against the charge and not just deny that they have done 20 anything wrong.” Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007) (quoting Bly– 21 Magee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001)). “[T]here is no absolute 22 requirement that where several defendants are sued in connection with an alleged 23 fraudulent scheme, the complaint must identify false statements made by each and every 24 defendant.” Id. “On the other hand, Rule 9(b) does not allow a complaint to merely lump 25 multiple defendants together but ‘require[s] plaintiffs to differentiate their allegations when 26 suing more than one defendant . . . and inform each defendant separately of the allegations 27 surrounding his alleged participation in the fraud.’” Id. (quoting Haskin v. R.J. Reynolds 28 Tobacco Co., 995 F. Supp. 1437, 1439 (M.D. Fla. 1998)). “In the context of a fraud suit 1 involving multiple defendants, a plaintiff must, at a minimum, ‘identif[y] the role of [each] 2 defendant[ ] in the alleged fraudulent scheme.’” Id. (quoting Moore v. Kayport Package 3 Express, Inc., 885 F.2d 531, 541 (9th Cir.1989)). 4 “Plaintiffs are not required to show that each RICO defendant including [Defendant 5 Biegler] personally committed at least two acts of mail or wire fraud to establish a pattern 6 of racketeering.” In re JUUL Labs, Inc., Mktg., Sales Pracs., & Prod. Liab. Litig., 533 F. 7 Supp. 3d 858, 871 (N.D. Cal. 2021). Instead, they need only demonstrate that Defendant 8 Biegler “was (1) a knowing participant in a scheme to defraud, (2) that [Defendant Biegler] 9 participated in the scheme with the intent to defraud, and (3) that a co-schemer’s acts of 10 mail and wire fraud occurred during [Defendant Biegler’s] participation in the scheme and 11 were within the scope of the scheme.” In re Volkswagen “Clean Diesel” Mktg., Sales 12 Pracs., & Prod. Liab. Litig., No. MDL 2672 CRB (JSC), 2017 WL 4890594, at *13 (N.D. 13 Cal. Oct. 30, 2017). 14 a. Co-Schemer’s Acts of Fraud 15 Plaintiffs allege that Defendants committed a pattern of mail and wire fraud, which 16 underlies the RICO claim. (Doc. 1 at 50.) The elements of mail fraud and wire fraud are 17 “(1) a scheme to defraud, (2) the use of the mails or wires to further that scheme, and (3) the 18 specific intent to defraud.” In re JUUL Labs, 497 F. Supp. 3d at 595. 19 As to Defendant Biegler specifically, Plaintiffs allege that Defendant Biegler 20 developed promotional material that misrepresented that the Stivax device was an 21 implantable medical device used by doctors instead of an electro-acupuncture device used 22 by acupuncturists. (Doc. 1 at 14–16, 39–42.) It then allegedly provided this material to its 23 distributors and agents. (Doc. 1 at 39–42.) Mr. Kaiser is alleged to have forwarded that 24 promotional material to Plaintiffs by email. (Doc. 1 at 17–18.) Plaintiffs also generally 25 allege, 26 Defendants invested substantial sums in advertising and marketing the Stivax 27 device throughout the United States as a reimbursable non-narcotic implantable medical device—rather than an electro-acupuncture device that 28 is not reimbursable by Medicare—on websites, at trade shows, in brochures, 1 in newsletters, in videos, on teleconferences and phone calls, and in on-site presentations at physician offices and ambulatory surgery centers. 2 3 (Doc. 1 at 3–4.) In reliance on these misrepresentations, Plaintiffs purchased Stivax 4 devices by filling out order forms, which were processed by Defendant Biegler’s 5 distributors, who then mailed the device to fulfill the orders. (Doc. 1 at 29–30.) These 6 allegations are sufficient to plead a pattern of Defendants consistently using the mail or 7 wires to perpetuate their fraud for purposes of RICO. Because the alleged scope of the 8 scheme specifically contemplated the misrepresentation of the Stivax device, and because 9 Defendant Biegler is alleged to have specifically participated in the marketing and sale of 10 the device, (Doc. 1 at 2–6, 14, 39–42), Plaintiffs have sufficiently stated the first element 11 of holding Defendant Biegler liable for the fraud of other Defendants. 12 b. Knowing Participant and Intent to Defraud 13 Plaintiffs have sufficiently alleged Defendant Biegler was a knowing participant in 14 a scheme to defraud. Defendant Biegler was allegedly aware that the Centers for Medicare 15 and Medicaid (“CMS”) had deemed the P-Stim device, the Stivax device’s predecessor, as 16 not reimbursable by Medicare. (Doc. 1 at 12); (Doc. 1-6 at 30.)10 Even though the FDA 17 found that the Stivax device as “the substantial equivalent of the P-Stim device,” (Doc. 1 18 at 13), Defendant Biegler nevertheless “concocted” a scheme in which it marketed the 19 device, through its distributors and sales agents, as Medicare-reimbursable. (Doc. 1 at 14, 20 17, 22–23, 39–43.) These allegations sufficiently state that (1) Defendant Biegler knew or 21 reasonably would have known that the Stivax device was not reimbursable, and (2) despite 22 this knowledge, Defendant Biegler nevertheless marketed the device otherwise. (Doc. 1 at 23 14, 39–43.) Moreover, as described above, Defendant Biegler allegedly developed 24 misleading promotional materials, including Defendant Biegler’s own website that

25 10 “[E]vidence outside the pleadings . . . cannot normally be considered in deciding a 12(b)(6) motion.” Cervantes v. City of San Diego, 5 F.3d 1273, 1274 (9th Cir. 1993). “A 26 court may, however, consider certain materials—documents attached to the complaint, documents incorporated by reference in the complaint, or matters of judicial notice— 27 without converting the motion to dismiss into a motion for summary judgment.” United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003); see Fed. R. Civ. P. 12(d). Plaintiffs’ 28 Complaint (Doc. 1) cites and references several exhibits attached to the Complaint. The Court considers these in full. 1 “contain[ed] the same misinformation, concealment, and misrepresentations about the 2 Stivax Device as the Stivax website . . . and [Mr.] Kaiser’s [presentations].” (Doc. 1 at 13, 3 22–23, 28, 40–42.) Plaintiffs have adequately alleged that despite Defendant Biegler’s 4 knowledge of the Stivax’s device’s non-reimbursability, it nevertheless instructed its sales 5 agents to lie about or conceal that fact. This is sufficient to plead Defendant’s Biegler’s 6 knowing participation in a scheme to defraud. 7 Plaintiffs have also adequately alleged intent to defraud. Unlike “the circumstances 8 constituting fraud or mistake[,] [m]alice, intent, knowledge, and other conditions of a 9 person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b). As explained above, 10 Plaintiffs have alleged that Defendant Biegler knew that the Stivax device was not 11 reimbursable but marketed it as reimbursable. These allegations sufficiently state both 12 knowledge and intent to defraud at the pleading stage. Because Plaintiffs have sufficiently 13 alleged that Defendant Biegler was a knowing participant in a scheme to defraud and 14 actually intended to defraud, Defendant Biegler is at this point an appropriate defendant 15 for the mail and wire fraud of its alleged co-conspirators. See In re JUUL Labs, 497 F. 16 Supp. 3d at 595; United States v. Stapleton, 293 F.3d 1111, 1117 (9th Cir. 2002). 17 B. RICO Conspiracy 18 Defendant Biegler also argues that Plaintiffs fail to state a claim for RICO 19 conspiracy. (Doc. 33-1 at 12.) 18 U.S.C. § 1962(d) makes it unlawful for any person 20 associated with an enterprise engaged in interstate commerce to conspire “to conduct or 21 participate, directly or indirectly, in the conduct of such enterprise’s affairs through a 22 pattern of racketeering activity.” § 1962(c)–(d). To be liable for a RICO conspiracy, the 23 defendant must have agreed to both (1) “conduct or participate in the affairs of an 24 enterprise”; and (2) commit “at least two predicate acts.” Baumer v. Pachl, 8 F.3d 1341, 25 1346 (9th Cir. 1993) (quoting United States v. Neapolitan, 791 F.2d 489, 499 (7th Cir. 26 1986)). However, the plaintiff need not show that the defendant “personally committed at 27 least two acts” to establish the second element; instead, it is only necessary that plaintiff 28 allege that “some member or members of the [e]nterprise” did so. In re JUUL Labs, Inc., 1 533 F. Supp. 3d at 871–72. In addition to the two agreements, “conspiracy to violate RICO 2 requires a showing that defendant ‘was aware of the essential nature and scope of the 3 enterprise and intended to participate in it.’” Baumer, 8 F.3d at 1346 (quoting United States 4 v. Muskovsky, 863 F.2d 1319, 1324 (7th Cir. 1988)). “The illegal agreement need not be 5 express as long as its existence can be inferred from the words, actions, or interdependence 6 of activities and persons involved.” Oki Semiconductor Co. v. Wells Fargo Bank, Nat. 7 Ass’n, 298 F.3d 768, 775 (9th Cir. 2002) 8 Plaintiffs allege that Defendant Biegler “concocted the Stivax Coding Scheme to 9 manipulate and defraud,” and that Defendants Biegler and Solace Advancement 10 “collaborated, created, and disseminated marketing and sales material . . . and controlled 11 all messaging associated with marketing and selling the devices.” (Doc. 1 at 42.) This 12 material is alleged to have contained misrepresentations. (Doc. 1 at 17–18.) Plaintiffs also 13 allege that Defendant Biegler required Defendant Solace Advancement, who maintained 14 the Stivax website, to provide a hyperlink to Defendant Biegler’s website on the Stivax 15 website, both of which contained misrepresentations about the Stivax device. (Doc. 1 at 16 41.) As explained above, the Complaint sufficiently alleges that Defendant Biegler knew 17 or reasonably would have known that the Stivax device was not reimbursable by Medicare 18 and was to be used by acupuncturists, not by doctors as a medical pain management device. 19 But it nevertheless created promotional materials that allegedly misrepresented that fact. 20 Defendant Biegler thus is alleged to have had knowledge that the promotional material it 21 was producing, in collaboration with Defendant Solace Advancement, was fraudulent, or 22 at least misleading. By allegedly working with Defendant Solace Advancement to 23 misrepresent the Stivax device, with knowledge that Defendant Solace Advancement 24 would use the promotional materials to conduct a misleading marketing campaign in the 25 United States, Defendant Biegler would have agreed that Defendant Solace Advancement 26 should commit fraud. 27 The same is true of Mr. Kaiser’s instructions about billing. Defendants Biegler and 28 Solace Advancement were allegedly in control of “all messaging associated with marketing 1 and selling the device[].” (Doc. 1 at 42.) Mr. Kaiser personally represented Defendant 2 Biegler as a sales agent and made misrepresentations in that capacity, allegedly at the 3 direction of Defendant Biegler. (Doc. 1 at 15, 26, 38–42.) As alleged, therefore, Defendant 4 Biegler did not merely “participat[e] in the supply chain,” (Doc. 33-1 at 13), but rather 5 affirmatively collaborated with co-conspirators to commit fraud, which is sufficient to 6 plead a RICO conspiracy. Reves v. Ernst & Young, 507 U.S. 170, 179, 185 (1993) (“In 7 order to ‘participate, directly or indirectly, in the conduct of such enterprise’s affairs,’ one 8 must have some part in directing those affairs. . . . [O]ne must participate in the operation 9 or management of the enterprise itself.”) 10 C. State Tort Claims 11 Defendant Biegler alleges that Plaintiffs’ state-law claims are barred by the 12 economic loss doctrine. (Doc. 33-1 at 16.) It also alleges that the Complaint fails to meet 13 the heightened pleading standard required to plead state-law fraud claims. (Doc. 33-1 at 14 15.) 15 1. Economic Loss Doctrine 16 The economic loss doctrine “bars a party from recovering economic damages in tort 17 unless accompanied by physical harm.” Flagstaff Affordable Hous. Ltd. P’ship v. Design 18 All., Inc., 223 Ariz. 320, 323, 223 P.3d 664, 667 (2010) (quoting Carstens v. City of 19 Phoenix, 206 Ariz. 123, 125, 75 P.3d 1081, 1083 (Ct. App. 2003)). The doctrine “limit[s] 20 a contracting party to contractual remedies for the recovery of economic losses 21 unaccompanied by physical injury to persons or other property.” Id. “Arizona courts 22 generally apply the doctrine in product liability and construction defect cases,” Arimilli v. 23 Rezendes, No. CV-21-00345-PHX-GMS, 2021 WL 3406332, at *4 (D. Ariz. Aug. 4, 2021), 24 but the Arizona Supreme Court has not determined whether the doctrine bars fraud claims. 25 Jes Solar Co. v. Matinee Energy, Inc., No. CV 12-626 TUC DCB, 2015 WL 10943562, at 26 *4 (D. Ariz. Nov. 2, 2015). “Where the state’s highest court has not decided an issue, the 27 task of the federal courts is to predict how the state high court would resolve it.” Ticknor 28 v. Choice Hotels Intern., Inc., 265 F.3d 931, 939 (9th Cir. 2001). “‘[A]bsent controlling 1 authority, federal courts look to existing state law’ but refrain from ‘predicting potential 2 changes’ in that law.” Barrett-Jackson Auction Co. v. Mountain Sports Int’l Inc., No. 3 CV-20-00892-PHX-SRB, 2020 WL 9349176, at *3 (D. Ariz. Sept. 9, 2020) (quoting 4 Ticknor, 265 F.3d at 939). 5 Two Arizona Court of Appeals cases have addressed the applicability of the 6 economic loss doctrine in fraud cases. In Cook v. Orkin Exterminating Co., 227 Ariz. 331, 7 258 P.3d 149 (Ct. App. 2011), the Court of Appeals held that the economic loss doctrine 8 barred the plaintiffs’ claims, which included claims for fraud and misrepresentation. Cook, 9 227 Ariz. at 335, 258 P.3d at 153. However, as noted by the Court of Appeals in the second 10 case, Shaw v. CTVT Motors, Inc., 232 Ariz. 30, 300 P.3d 907 (Ct. App. 2013), Cook “did 11 not explicitly address the viability of a claim for fraudulent inducement under the economic 12 loss rule” but rather held that, under the limited facts of that case, contractual remedies 13 were sufficient. Shaw, 232 Ariz. at 32, 300 P.3d at 909. Notably, the Shaw court expressed 14 “concerns about applying the economic loss rule . . . to any claim of fraud in the 15 inducement” because the economic loss rule “exists ‘to encourage private ordering of 16 economic relationships and to uphold the expectations of the parties,’” which is not 17 furthered when such “private ordering” is procured by fraud. Id. at 33 n.4, 300 P.3d at 910 18 n.4 (quoting Flagstaff, 223 Ariz. at 327, 223 P.3d at 671). Federal courts have found 19 similarly, holding that the economic loss doctrine should not apply to claims for fraudulent 20 inducement because doing so would not further the policy behind the doctrine. See Barrett- 21 Jackson, 2020 WL 9349176, at *4 (collecting cases). 22 This Court agrees with the reasoning in Barrett-Jackson and Shaw that the public 23 policy behind the economic loss doctrine is not furthered when the underlying contract is 24 procured by fraud, like it is alleged to be in this case. “If the primary function of the 25 doctrine is ‘to encourage private ordering of economic relationships and to uphold the 26 expectations of the parties,’ then certainly it would seem inapposite to hold innocent parties 27 to limited contractual remedies when those contractual remedies were based on intentional 28 misrepresentations made by the other party.” Id. at *3 (quoting Flagstaff, 223 Ariz. at 327, 1 223 P.3d at 671). Given that the Arizona Supreme Court has favored a “narrow[], case- 2 specific” approach to the economic loss doctrine—rather than using it as a categorical 3 bar—the Court will not apply it to the facts of this case. Flagstaff, 223 Ariz. at 323–24, 4 223 P.3d at 667–68. Plaintiffs’ claims are not barred by the economic loss doctrine. 5 2. Fraudulent Misrepresentation 6 Defendant Biegler next argues that Plaintiffs have failed to state a claim for 7 fraudulent misrepresentation and fraudulent concealment. (Doc. 33-1 at 15.) To make a 8 claim for fraudulent misrepresentation, a plaintiff must show “(1) a representation; (2) its 9 falsity; (3) its materiality; (4) the speaker’s knowledge of its falsity or ignorance of its truth; 10 (5) the speaker’s intent that it be acted upon by the recipient in the manner reasonably 11 contemplated; (6) the hearer’s ignorance of its falsity; (7) the listener’s reliance on its truth; 12 (8) the right to rely on it; and (9) his consequent and proximate injury.” Wells Fargo Credit 13 Corp. v. Smith, 166 Ariz. 489, 494, 803 P.2d 900, 905 (Ct. App. 1990). In contrast, Arizona 14 also recognizes the tort of fraudulent concealment: “One party to a transaction who by 15 concealment or other action intentionally prevents the other from acquiring material 16 information is subject to the same liability to the other, for pecuniary loss as though he had 17 stated the nonexistence of the matter that the other was thus prevented from discovering.” 18 Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons Loc. No. 395 Pension 19 Tr. Fund, 201 Ariz. 474, 496, 38 P.3d 12, 34 (2002). “Where failure to disclose a material 20 fact is calculated to induce a false belief, ‘the distinction between concealment and 21 affirmative misrepresentation is tenuous.’” Id. (quoting Schock v. Jacka, 105 Ariz. 131, 22 133, 460 P.2d 185, 187 (1969)). Moreover, “a conspirator is liable for any tortious act, 23 even unknown, committed in furtherance of the conspiracy, including acts not personally 24 committed. Baker ex rel. Hall Brake Supply, Inc. v. Stewart Title & Tr. of Phx., Inc., 197 25 Ariz. 535, 542, 5 P.3d 249, 256 (Ct. App. 2000). 26 As explained above, Plaintiffs have adequately pleaded the “who, what, when, 27 where, and how” of the fraud in this case. Vess, 317 F.3d at 1106. Between 2016 and 28 2019, Defendant Biegler allegedly conspired with Defendant Solace Advancement to 1 fraudulently market the Stivax device in the United States as reimbursable by Medicare. 2 (Doc. 1 at 14, 17, 22–23, 39–40, 43.) Although Defendant Biegler itself may not have 3 made the fraudulent statements directly to Plaintiffs, the alleged agreement with Defendant 4 Solace Advancement (and other defendants) to fraudulently induce sales of Stivax devices 5 would demonstrate that Defendant Biegler may be held liable for Mr. Kaiser’s and other 6 sales agents’ misrepresentations.11 Defendant Biegler’s Motion to Dismiss is denied as to 7 the misrepresentation and concealment claims. 8 3. Civil Conspiracy 9 Defendant Biegler finally argues that Plaintiffs have failed to plead a claim for civil 10 conspiracy. (Doc. 33-1 at 15–16.) “For a civil conspiracy to occur[,] two or more persons 11 must agree to accomplish an unlawful purpose or to accomplish a lawful object by unlawful 12 means, causing damages.” Rowland v. Union Hills Country Club, 157 Ariz. 301, 306, 757 13 P.2d 105, 110 (Ct. App. 1988). Here, Defendant Biegler is alleged to have intended to 14 accomplish a lawful object—sale of the Stivax device—by fraud, an unlawful means. As 15 explained above, Plaintiffs adequately alleged that Defendant Biegler directed its 16 distributors and sales agents to market the Stivax device as reimbursable by Medicare. See 17 supra Part III.A.2, III.B, III.C.2. Defendant Biegler’s Motion to Dismiss the civil 18 conspiracy claim is denied. 19 IV. Plaintiffs’ Motion for Leave to File a Surreply 20 The Court has read and considered Plaintiffs’ lodged Surreply; however, it does not 21 affect the Court’s ruling on this matter. Therefore, Plaintiffs’ Motion is denied as moot. 22 CONCLUSION 23 The Court has personal jurisdiction over Defendant Biegler under Rule 4(k)(2) 24 11 As noted by the Arizona Supreme Court, the distinction between fraudulent concealment 25 and fraudulent misrepresentation in this case is tenuous. Schock, 105 Ariz. at 133, 460 P.2d at 187. Mr. Kaiser’s statements affirmatively misrepresented which billing codes 26 should be used to receive reimbursement; in much the same way, through those statements, Mr. Kaiser actively concealed that the Stivax device was not actually reimbursable by 27 Medicare. Moreover, the promotional material affirmatively represented that the Stivax device was usable by doctors while also concealing the fact that it was intended for use by 28 acupuncturists. Regardless of whether the claims are cast as “misrepresentation” or “concealment,” Plaintiffs’ claims survive the pleading stage. 1 || because it sought and received approval from the FDA to market the Stivax device in the 2|| United States and engaged a U.S. distributor to so market. Defendant Biegler cannot avail itself of the U.S. market and regulatory scheme without subjecting itself to United States’ courts. Moreover, Plaintiffs have adequately pleaded claims under RICO and Arizona law. || All motions are denied. 6 IT IS HEREBY ORDERED that Defendant Biegler GmbH’s Motion to Dismiss 7|| Under Rules 12(b)(2) and 12(b)(6) (Doc. 33) is DENIED. 8 IT IS FURTHER ORDERED that Plaintiffs’ Motion for Leave to File a Surreply (Doc. 45) is DENIED as moot. 10 Dated this 28th day of March, 2022. 11 - 12 A Whacrsay Fotos 13 Chief United States District Judge 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

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