FTC Suit for Unfair or Deceptive Acts under 15 U.S.C. § 45(a)(1) Is Subject to Rule 9(b) — Case Law Split
From Federal Trade Commission v. Lights of Am., Inc., 2010 U.S. Dist. LEXIS 137088 (C.D. Cal. Dec. 17, 2010):
The FTC Act prohibits "unfair or deceptive acts or practices in or affecting commerce." 15 U.S.C. § 45(a)(1). In resolving the FTC's motion to dismiss, the central issue is whether the FTC's claim that the Vakils engaged in "unfair or deceptive acts or practices" in violation of this act are subject to the heightened pleading standard of Rule 9(b). This issue appears to be one of first impression in this Circuit. ***"Rule 9(b) applies when (1) a complaint specifically alleges fraud as an essential element of a claim, (2) when the claim 'sounds in fraud' by alleging that the defendant engaged in fraudulent conduct . . . and (3) to any allegations of fraudulent conduct, even when none of the claims in the complaint 'sound in fraud.'" *** The Vakils do not argue that the FTC's Complaint specifically alleges fraud as an essential element of its claim or that the Complaint makes allegations of fraudulent conduct. Rather, they argue that the claim for violation of the FTC Act "sounds in fraud" and, therefore, is subject to the heightened pleading requirement of Rule 9(b). ***
A claim "sound[s] in fraud" where the plaintiff "allege[s] a unified course of fraudulent conduct and rel[ies] entirely on that course of conduct as the basis of [the] claim. In that event, . . . the pleading of that claim as a whole must satisfy the particularity requirement of Rule 9(b)." *** The FTC has alleged that the Vakils distributed promotional materials that made specific representations about the watt equivalency, lumen output, and life spans of their LED lamps, that these representations were "false or not substantiated," 2 and that the Vakils "knew or should have known" that their conduct was unfair or deceptive. *** The gravamen of these allegations is that the Vakils engaged in a unified course of fraudulent conduct. The FTC's omission of the "magic word" — fraud — from its Complaint does not detract from the apparently fraudulent nature of the allegations. *** Additionally, the FTC's only claim against the Vakils is for violation of the FTC Act, so its claim relies entirely on the course of conduct alleged in the Complaint. Therefore, the Court finds that the FTC's claim sounds in fraud because it alleges a unified course of fraudulent conduct and relies entirely on that course of conduct as the basis of its claim.
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