Ciccio v. SmileDirectClub, LLC

UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF TENNESSEE

NASHVILLE DIVISION

DR. JOSEPH CICCIO et al., )

)

Plaintiffs, )

)

v. ) Case No. 3:19-cv-00845

) Judge Aleta A. Trauger

)

SMILEDIRECTCLUB, LLC et al., )

)

Defendants. )

MEMORANDUM

Defendants SmileDirectClub, LLC (“SmileDirect”), Camelot Venture Group (“CVG”),

Alexander Fenkell, David Katzman, Steven Katzman, and Jeffrey Sulitzer have filed a Motion to

Dismiss the Plaintiff Orthodontists’ Claims (Docket No. 68), to which the plaintiffs have filed a

Response (Docket No. 80), and the defendants have filed a Reply (Docket No. 83). The defendants

have also filed a Motion to Strike Certain Allegations (Docket No. 70), to which the plaintiffs have

filed a Response (Docket No. 81), and the defendants have filed a Reply (Docket No. 84). Finally,

the plaintiffs, including two previously voluntarily dismissed plaintiffs, have filed a Motion to

Rejoin Plaintiffs, or in the Alternative, to Intervene (Docket No. 85), to which the defendants have

filed a Response (Docket No. 87), the movants have filed a Reply (Docket No. 89), and the

defendants have filed a Surreply (Docket No. 93). For the reasons set out herein, the defendants’

motions will be denied and the plaintiffs’ motion will be granted, with the qualification that it does

not effect the binding nature of the court’s Order of December 2, 2019 (Docket No. 58).

I. BACKGROUND1

SmileDirect is a Nashville-based Delaware corporation that sells “plastic aligners” for

orthodontic use. (Docket No. 36 ¶¶ 2.b, 2.d, 42.) SmileDirect markets its “SmileDirect Program,”

built around the aligners and teledentistry, as an alternative to conventional orthodontic care. The

rise of SmileDirect in the dental marketplace has drawn a substantial amount of attention—

including a number of regulatory complaints—from, among others, dentists and orthodontists who

consider SmileDirect to be an inferior alternative to established methods of treating orthodontic

problems. (Id. ¶¶ 2, 6, 78.) For example, the American Dental Association (“ADA”) filed a

complaint with the Federal Trade Commission alleging that SmileDirect has made “numerous false

and misleading claims . . . to fraudulently entice customers to purchase its products and services.”

(Id. ¶ 2.c.) The ADA and its state affiliates have also filed complaints with the Food and Drug

Administration and with state licensing authorities. (Id. ¶¶ 2.a–.b.) SmileDirect maintains that the

onslaught of complaints and litigation that it has faced has been the result of a self-interested desire,

on the part of conventional dentists and orthodontists, to protect themselves from competition.

The initial Complaint in this case was filed by a SmileDirect customer, Dena Nigohosian,

and three orthodontists, Dr. Joseph Ciccio, Dr. Arthur Kapit, and Dr. Vishu Raj.2 (Docket No. 1

¶¶ 13–16.) It pleaded eight counts under various common law and statutory theories of false

advertising, consumer protection, and fraud. (Id. ¶¶ 118–92.) The plaintiffs named as defendants

SmileDirect, SmileDirect shareholder CVG, and SmileDirect executives David and Steven

Katzman. (Id. ¶¶ 18–20.) On October 25, 2019, the defendants filed several motions: a Motion to

1 Unless otherwise indicated, the facts herein are taken from the Amended Complaint. (Docket No. 36.)

2 For ease of reading, the court will refer to all the dental provider plaintiffs as “orthodontists.” This does

not reflect any determination regarding any plaintiff’s individual expertise, licensure, or scope of practice,

beyond the fact that they claim to provide dental care that addresses conditions also addressed by the

SmileDirect Program.

Dismiss directed at all claims against CVG and the Katzmans (Docket No. 24); a Motion to

Dismiss directed at the orthodontist plaintiffs’ claims against SmileDirect (Docket No. 29); a

Motion to Compel Arbitration by Nigohosian (Docket No. 27); and a Motion for Rule 11 Sanctions

against all plaintiffs and their attorneys (Docket No. 31).

Nigohosian concedes that, as a SmileDirect customer with an online account, she was

electronically required to accept terms set forth in an “Informed Consent” document that included

an arbitration provision with the following relevant language:

AGREEMENT TO ARBITRATE – I hereby agree that any dispute regarding the

products and services offered my [sic] SmileDirectClub and/or affiliated dental

professionals, including but not limited to medical malpractice disputes, will be

determined by submission to arbitration and not my [sic] lawsuit filed in any court,

except claims within the jurisdiction of Small Claims Court . . . . I agree that the

arbitration shall be conducted by a single, neutral arbitrator selected by the parties

and shall be resolved using the rules of the American Arbitration Association.

(Docket No. 27 at 3; Docket No. 38 at 2.) She has argued, however, that the arbitration clause does

not reach her claims, because, among other things, those claims are “within the jurisdiction of

Small Claims Court.”

On November 15, 2019, the original plaintiffs—joined by several new consumer

plaintiffs3—filed an Amended Complaint, which, among other things, added two more individual

defendants. (Docket No. 36.) On November 21, 2019, the court denied the pending motions to

dismiss as moot in light of the fact that the original complaint had been superseded. (Docket No.

50.)

3 The new consumer plaintiffs were Whitney Blaine, David Capablanca, Emily Gebhard, Krystal Perkins,

Romonia Simpson, Anthony Vasquez, Jessica Vaughn, Zoe Williams, Dana Johnson, Penny Young

Carrasquillo, R.B., Mike Alkema, Visaka Bhandari, Gabriella Loiseau, Eliana Molina, Blair Lofland,

Garbriel Campos, Kenneth Phillips, Pamela Flowers, Jane Lee, Vance Roodzant, and Laurel Wilcox.

(Docket No. 36 at 1.)

On December 2, 2019, the court granted the Motion to Compel Arbitration in part and

denied it in part. (Docket No. 58.) The court did not rule on the ultimate arbitrability of

Nigohosian’s claims against SmileDirect, but rather concluded that, under the terms of the relevant

arbitration clause, the threshold issue of arbitrability should be decided, in the first instance,

through the arbitration process. (Id. at 6.) The court’s Order was directed only at Nigohosian,

because she was the only plaintiff subject to the original motion to compel. The new consumer

plaintiffs, however, also appear to have signed the same or a similar arbitration clause. The court

retained jurisdiction over Nigohosian’s claims pending resolution of the arbitration process. (Id.)

On December 4, 2019, the court, at the defendants’ request, denied their Rule 11 motion

as moot. (Docket No. 60.) The defendants had explained that, while they continued to object to

language in the Amended Complaint on the grounds they had raised with regard to the Complaint,

they now intended to pursue a Rule 12(f) motion to strike, rather than a Rule 11 motion for

sanctions. (Docket No. 59 at 1.)

On December 12, 2019, all of the remaining consumer plaintiffs except Nigohosian and

one other filed a Notice of Voluntary Dismissal Without Prejudice. (Docket No. 64.) Nigohosian

and the other remaining plaintiff filed a Notice of Voluntary Dismissal on January 13, 2020.

(Docket No. 78.)

In the meantime, the defendants, on December 13, 2019, filed their promised Motion to

Strike. (Docket No. 70.) The defendants ask the court to strike three classes of statements from the

Amended Complaint: first, a list of statements, provided in Appendix A to the motion, that the

defendants argue are immaterial, impertinent, and/or scandalous; second, “class allegations that on

their face require such individualized inquiry as to render a class action improper”; and, finally,

any allegations solely in support of the claims of the consumer plaintiffs, all of whom, at the time

the motion was filed, had been (or shortly would be) voluntarily terminated from the case. (Id. at

1.)

On the same day, the defendants filed a Motion to Dismiss the Plaintiff Orthodontists’

Claims. (Docket No. 68.) The defendants argue that the plaintiffs’ facts, taken as true, do not

support any ground for recovery by the orthodontists, who were not themselves SmileDirect

customers. The defendants argue further that the plaintiffs’ fraud allegations have not been pleaded

with the heightened level of particularity required by Rule 9(b) of the Federal Rules of Civil

Procedure. (Id. at 1.)

On January 27, 2020, while the defendants’ motions were pending, one of the consumers

who had voluntarily dismissed her claims in this case, Dana Johnson, filed a Demand for

Arbitration against SmileDirect and other defendants with the American Arbitration Association

(“AAA”). He purported to act both for himself and on behalf of a class of similarly situated

consumers. (Docket No. 85-1 at 1.) On February 26, 2020, AAA Assistant Vice President Adam

Shoneck sent the attorneys involved a letter informing them that the AAA’s “Healthcare Due

Process Protocol” dictates that the AAA “may only proceed forward on arbitration matters arising

out of healthcare treatment agreements if the parties agree to binding forms of dispute resolution

after a dispute arises.” (Docket No. 85-2 at 1 (emphasis in original).) The letter included signature

blocks offering the parties the opportunity to agree to arbitration. (Id.) Unsurprisingly, Johnson

did not consent to arbitrate her claims.

In light of the AAA’s determination that it would not arbitrate Johnson’s claims, Johnson

and Nigohosian have sought to rejoin the case. (Docket No. 85 at 4.) The defendants oppose the

request, pointing out, among other things, that the AAA determination that their claims were not

arbitrable was made administratively, not by an arbitrator, and involved only Johnson, not

Nigohosian or any other previously named plaintiffs. (Docket No. 87 at 2–3.)

The Amended Complaint includes thirteen counts, some of them attributed to a putative

consumer class, some to a putative orthodontist class, some to both, and some to particular

geographic subclasses. Each count is attributed to at least one plaintiff, although, for some of the

counts, the relevant plaintiff or plaintiffs have had their claims voluntarily dismissed and, at least

at this point, have not sought to rejoin the case. The counts are as follows:

Count Type On behalf of By

I False advertising under the Orthodontists All named orthodontist

Lanham Act, 15 U.S.C. § plaintiffs

1125(a)

II Violation of Magnuson-Moss Consumers All named consumer plaintiffs

Act, 15 U.S.C. § 2301 et seq.

III Breach of express warranty Consumers All named consumer plaintiffs

under Tennessee law

IV Common law fraud Consumers All named consumer plaintiffs

V Tennessee Consumer Protection Orthodontists All named plaintiffs

Act (“TCPA”), Tenn. Code Ann. and Consumers

§ 47-18-101 et seq.

VI California Unfair Competition California Blaine, Capablanca, Gebhard,

Law, Cal. Bus. & Prof. Code § Consumers Perkins, Simpson, Vasquez,

17500 and Vaughn*

VII Colorado Consumer Protection Colorado Williams*

Act, C.R.S.A. 6-1-105 Consumers

VIII Florida Deceptive and Unfair Florida Kapit, Johnson, Young-

Trade Practices Act, Fla Stat. § Orthodontists Carrasquillo, and R.B.

501.204(l) and Consumers

IX Michigan Consumer Protection Michigan Alkema and Nigohosian

Act, Mich. Comp. Laws. Ann. § Consumers

445.903(1)

X New York General Business New York Ciccio, Bhandari, Loiseau, and

Law §§ 349 & 350-A Orthodontists Molina

and Consumers

XI Virginia Consumer Protection Virginia Lee*

Act, Va. Code. Ann. § 59.1-200 Consumers

XII Washington Consumer Washington Roodzant*

Protection Act, Was. Rev. Code Consumers

Ann. § 19.86.020

XIII Wisconsin Deceptive Trade Wisconsin Wilcox*

Practices Act, W.S.A. § 100.18 Consumers

* All named plaintiffs for this cause of action have been voluntarily dismissed and have not sought

to rejoin the case.

II. LEGAL STANDARD

A. Joinder/Intervention

Rule 20(a)(1) of the Federal Rules of Civil Procedure permits joinder of plaintiffs if “(A)

they assert any right to relief jointly, severally, or in the alternative with respect to or arising out

of the same transaction, occurrence, or series of transactions or occurrences; and (B) any question

of law or fact common to all plaintiffs will arise in the action.” “This accords with the general

principle under the Federal Rules of Civil Procedure to allow ‘the broadest possible scope of action

consistent with fairness to the parties.’” Bridgeport Music, Inc. v. 11C Music, 202 F.R.D. 229, 231

(M.D. Tenn. 2001) (Campbell, J.) (quoting United Mine Workers of Am. v. Gibbs, 383 U.S. 715,

724 (1966)).

Rule 24 provides that “the court may permit anyone to intervene who . . . has a claim or

defense that shares with the main action a common question of law or fact.” Fed. R. Civ. P.

24(b)(1)(B). “Once these two requirements are established, the district court must then balance

undue delay and prejudice to the original parties, if any, and any other relevant factors to determine

whether, in the court’s discretion, intervention should be allowed.” United States v. Michigan, 424

F.3d 438, 445 (6th Cir. 2005).

B. Motion to Dismiss

In deciding a motion to dismiss for failure to state a claim under Rule 12(b)(6), the court

will “construe the complaint in the light most favorable to the plaintiff, accept its allegations as

true, and draw all reasonable inferences in favor of the plaintiff.” Directv, Inc. v. Treesh, 487 F.3d

471, 476 (6th Cir. 2007); Inge v. Rock Fin. Corp., 281 F.3d 613, 619 (6th Cir. 2002). The Federal

Rules of Civil Procedure require only that a plaintiff provide “a short and plain statement of the

claim that will give the defendant fair notice of what the plaintiff’s claim is and the grounds upon

which it rests.” Conley v. Gibson, 355 U.S. 41, 47 (1957). The court must determine only whether

“the claimant is entitled to offer evidence to support the claims,” not whether the plaintiff can

ultimately prove the facts alleged. Swierkiewicz v. Sorema N.A., 534 U.S. 506, 511 (2002) (quoting

Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)).

The complaint’s allegations, however, “must be enough to raise a right to relief above the

speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). To establish the “facial

plausibility” required to “unlock the doors of discovery,” the plaintiff cannot rely on “legal

conclusions” or “[t]hreadbare recitals of the elements of a cause of action,” but, instead, the

plaintiff must plead “factual content that allows the court to draw the reasonable inference that the

defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009).

“[O]nly a complaint that states a plausible claim for relief survives a motion to dismiss.” Id. at

679; Twombly, 550 U.S. at 556.

Rule 9(b) of the Federal Rules of Civil Procedure states that, when pleading fraud, “a party

must state with particularity the circumstances constituting fraud.” The Sixth Circuit has explained

that, while Rule 9(b) imposes a heightened standard, the underlying purpose of the rule is to serve

the same ends as the general pleading requirements of Rule 8:

[Rule 9(b)] should not be read to defeat the general policy of “simplicity and

flexibility” in pleadings contemplated by the Federal Rules. Rather, Rule 9(b) exists

predominantly for the same purpose as Rule 8: to provide a defendant fair notice of

the substance of a plaintiff’s claim in order that the defendant may prepare a

responsive pleading. Rule 9(b), however, also reflects the rulemakers’ additional

understanding that, in cases involving fraud and mistake, a more specific form of

notice is necessary to permit a defendant to draft a responsive pleading

United States ex rel. SNAPP, Inc. v. Ford Motor Co., 532 F.3d 496, 504 (6th Cir. 2008) (citations

and quotation marks omitted).

“So long as a [plaintiff] pleads sufficient detail—in terms of time, place, and content, the

nature of a defendant’s fraudulent scheme, and the injury resulting from the fraud—to allow the

defendant to prepare a responsive pleading, the requirements of Rule 9(b) will generally be met.”

Id. “Where a complaint alleges ‘a complex and far-reaching fraudulent scheme,’ then that scheme

must be pleaded with particularity and the complaint must also ‘provide examples of specific’

fraudulent conduct that are ‘representative samples’ of the scheme.” United States ex rel. Marlar

v. BWXT Y–12, LLC, 525 F.3d 439, 444–45 (6th Cir. 2008) (quoting United States ex rel. Bledsoe

v. Cmty. Health Sys., Inc., 501 F.3d 493, 510 (6th Cir. 2007)).

C. Motion to Strike

Rule 12(f) of the Federal Rules of Civil Procedure provides only that a “court may strike

from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous

matter.” Fed. R. Civ. P. 12(f). “An allegation is ‘impertinent’ or ‘immaterial’ when it is not relevant

to the issues involved in the action. ‘Scandalous’ generally refers to any allegation that

unnecessarily reflects on the moral character of an individual or states anything in repulsive

language that detracts from the dignity of the court.” Neal v. City of Detroit, No. 17-13170, 2018

WL 1399252, at *1 (E.D. Mich. Mar. 19, 2018) (quoting State Farm Mut. Auto. Ins. Co. v. Pointe

Physical Therapy, LLC, 107 F. Supp. 3d 772, 801 (E.D. Mich. 2015)). “A ‘motion to strike should

be granted only when the pleading to be stricken has no possible relation to the controversy.’”

Clark v. Roccanova, 772 F. Supp. 2d 844, 850 (E.D. Ky. 2011) (quoting Brown & Williamson

Tobacco Corp. v. United States, 201 F.2d 819, 822 (6th Cir. 1953)).

III. ANALYSIS

A. Consumer Plaintiffs’ Request to Intervene in or Rejoin the Case

The defendants argue that Johnson and Nigohosian should not be permitted to rejoin or

intervene in this case because they are still obligated, under their respective arbitration clauses, to

submit their claims to arbitration. The defendants further argue that, in addition to that obligation,

Nigohosian has a continuing duty, imposed by this court’s earlier order, to submit to arbitration

before reviving her claims in court. Although the plaintiffs contend that the AAA’s rejection of

Johnson’s claims has established that neither consumer plaintiff’s claims are arbitrable, the

defendants respond that, although the arbitration clauses require the parties to abide by AAA rules,

they do not require them to rely on the AAA itself to arbitrate. The defendants argue that, if the

AAA will not arbitrate the plaintiffs’ claims, the plaintiffs must seek out an alternative venue. The

defendants also argue out that the AAA, by its own policies, would arbitrate at least Nigohosian’s

claims.

The AAA has adopted a short Healthcare Policy Statement explaining that the AAA “will

no longer accept the administration of cases involving individual patients without a post-dispute

agreement to arbitrate.” Life Care Centers of Am., Inc. v. Estate of Blair by & through Rhoden,

No. CV 17-0249 KBM/KK, 2017 WL 3432209, at *15 (D.N.M. Aug. 9, 2017). The AAA’s

statement of its policy also, however, “provides that ‘the AAA will administer disputes between

patients and healthcare providers to the extent a court order directs such a dispute to arbitration

where the parties’ agreement provided for the AAA’s rules or administration.’” Id. (See Docket

No. 88-1 at 1.) That short statement of policy refers to and claims to be “consistent with” the much

lengthier Healthcare Due Process Protocol, a document formulated by the AAA, the American Bar

Association, and the American Medical Association in 1998 in advance of the AAA’s formal

adoption of a healthcare policy.4 Based on the portion of the Healthcare Policy addressing court-

ordered arbitrations, some courts have concluded that the Healthcare Policy’s bar is not an obstacle

to ordering a case into arbitration, despite the fact that the AAA Rules would otherwise call for

rejecting the case. See id.; Reed v. Johnson, No. 4:14-CV-176-SA-JMV, 2016 WL 913232, at *4

(N.D. Miss. Mar. 9, 2016) (“[I]f this Court grants the motion to compel and orders the case to

arbitration, the AAA will administer the arbitration notwithstanding the general prohibition

discussed above”).

Other courts, however, have read the AAA’s Healthcare Policy as establishing an obstacle

to court-ordered, AAA-administered arbitration in healthcare cases.5 See, e.g., Estate of Eckstein

ex rel. Luckey v. Life Care Ctrs. of Am., Inc., 623 F. Supp. 2d 1235, 1237 (E.D. Wash. 2009)

(“Arbitration before the AAA is not possible because the AAA adopted a Healthcare Policy

Statement . . . .”). Nevertheless, some of the courts unwilling to order AAA arbitration have

concluded that the Healthcare Policy does not prevent a court from ordering arbitration pursuant

to AAA rules—even if the parties must turn to some other forum to administer the arbitration.

4 Available at https://adr.org/sites/default/files/document_repository/Healthcare-Due-Process-

Protocol.pdf.

5 It may be that this difference in approach taken by various courts is the result of different iterations of the

Healthcare Policy Statement, which, by its own terms, is only a statement of the policy, not necessarily a

full explanation of the policy as understood by the AAA. On the current record, the court is unable to resolve

the question of whether that is the case.

These courts have reasoned that “[t]he fact that AAA no longer hears these types of disputes does

not render the Agreement invalid,” because “[a]nother arbitrator may be easily substituted.”

Eckstein., 623 F. Supp. 2d at 1237; see also Fellerman v. Am. Ret. Corp., No. CIVA 03:09-CV-

803, 2010 WL 1780406, at *5 (E.D. Va. May 3, 2010) (ordering arbitration despite AAA

Healthcare Policy, based on distinction between AAA rules and AAA administration); Oesterle v.

Atria Mgmt. Co., LLC, No. 09-4010-JAR, 2009 WL 2043492, at *9 (D. Kan. July 14, 2009)

(construing arbitration provision to require only adherence to AAA rules, not AAA policy);

Eckstein, 623 F. Supp. 2d at 1238 (requiring only AAA rules, not AAA administration). As courts

have observed, there is, at least on a purely formal level, a difference between requiring arbitration

to be performed pursuant to AAA rules and requiring that it be actually administered by the AAA.

See Covenant Health & Rehab. of Picayune, LP v. Estate of Moulds ex rel. Braddock, 14 So. 3d

695, 709 (Miss. 2009) (holding that healthcare arbitration clause that explicitly required AAA

administration was unenforceable due to the Healthcare Policy).

The plaintiffs respond, however, that the belief that AAA rules and AAA administration

can be severed from each other is based on a misunderstanding of those rules, at least with regard

to consumer claims. Specifically, the plaintiffs point out that Rule 1(a) of the AAA Consumer

Arbitration Rules provides that, “[w]hen parties have provided for the AAA’s rules or AAA

administration as part of their consumer agreement, they shall be deemed to have agreed that the

application of the AAA’s rules and AAA administration of the consumer arbitration shall be an

essential term of their consumer agreement.” (Docket No. 89-1 at 9 (emphasis added).)

Accordingly, although the arbitration agreement in this case refers only to AAA rules, those rules

themselves mandate that the provision be construed as acceptance of a binding commitment to

AAA administration.

Rule 1(d) of the Consumer Rules addresses situations in which the AAA administratively

rejects an arbitration as inconsistent with its due process protocols:

The AAA administers consumer disputes that meet the due process standards

contained in the Consumer Due Process Protocol and the Consumer Arbitration

Rules. The AAA will accept cases after the AAA reviews the parties’ arbitration

agreement and if the AAA determines the agreement substantially and materially

complies with the due process standards of these Rules and the Consumer Due

Process Protocol. Should the AAA decline to administer an arbitration, either party

may choose to submit its dispute to the appropriate court for resolution.

(Id. at 10 (emphasis added).) Rule 1(d), on its face, refers only to the Consumer Due Process

Protocol, not the Healthcare Policy. However, the Consumer Due Process Protocol explicitly

reaches “health care services” and provides:

In some cases, the AAA is developing or has developed special dispute resolution

policies and procedures governing particular transactional systems. A recent

example is its current initiative with respect to ADR in contracts for health care

services. Where the general principles set forth in this Protocol conflict with more

specific standards developed under the auspices of the AAA or some other

independent organization with relatively broad participation by affected parties, the

latter should govern.

(Docket No. 89-4 at 5.)

The plaintiffs draw the court’s attention to Woodward v. Emeritus Corp., 368 P.3d 487

(2016), in which the Washington Court of Appeals considered the effect of Rule 1(d) on a

healthcare dispute. The parties in Woodward were bound by an arbitration clause providing that

“[a]rbitrations shall be administered in accordance with the procedures in effect for consumer

arbitration adopted by the American Arbitration Association [AAA].” Id. at 589. Like the

arbitration clause in this case, the clause did not facially require AAA administration. The court

acknowledged, however, that “[t]he relevant procedures adopted by the AAA contemplate that the

AAA will administer the arbitration, and . . . a threshold procedural step will be for the AAA to

review the agreement of the parties in order to determine whether it substantially and materially

complies with the AAA’s due process standards.” Id. at 588. The court concluded that, because

the arbitration was one that the AAA would reject, the arbitration provision was, in effect,

unenforceable, and the trial court therefore did not err in declining to compel arbitration. (Id. at

606.)

Although the conclusion reached by the Washington Court of Appeals differs from that

reached by many other courts, those courts do not appear to have based their conclusions on a

close reading of the AAA rules themselves, but rather merely on the relevant arbitration provisions

and the Healthcare Policy in isolation. The Washington Court of Appeals’ analysis, in contrast,

seems to be a straightforward application of Consumer Rule 1.1(a) and (d). The only potential for

ambiguity would be that Rule 1.1(d) appears to contemplate a rejection under the Due Process

Protocol, and the Healthcare Policy Statement is a separate document. The Due Process Protocol,

however, acknowledges the Healthcare Policy as a complementary and supplemental standard to

the more general standard set out by the Protocol. The policy through which Johnson’s arbitration

was rejected, moreover, is the same due process review discussed in Rule 1(d), even if a

supplemental standard was cited. Johnson has established, therefore, that, by the terms of AAA

rules to which the parties mutually agreed, he is free to “submit [his] dispute to the appropriate

court for resolution.” (Docket No. 89-1 at 10.)

As the defendants point out, however, only Johnson, not Nigohosian, can actually claim

that his case has been rejected under the AAA’s due process review. Moreover, the defendants

have advanced a colorable argument that the AAA would accept Nigohosian’s claim pursuant to

the court’s earlier order, based on an exception in the Healthcare Policy Statement for directly

court-ordered arbitration. This court, therefore, cannot assume that the AAA would necessarily

reject Nigohosians’s claim.

Nigohosian asks the court to rescind its earlier arbitration order because SmileDirect, she

alleges, concealed from her that an earlier arbitration request involving another potential plaintiff

had been rejected under the Healthcare Policy. SmileDirect’s alleged concealment, she argues,

prevented her from making an argument based on the Policy and prevented the court from knowing

of the Policy’s potential applicability. But even if Nigohosian had raised the issue of the Healthcare

Policy at the time, the potential exception for court-ordered arbitration, along with the fact that

Rule 1(d), by its own terms, applies post-rejection, would prevent this court from assuming that

arbitration would be rejected if this court ordered the arbitration before any AAA review had been

performed. The court’s conclusion, therefore, would have been the same. Insofar as Nigohosian’s

voluntary dismissal had any effect on the court’s order compelling her to submit her claims to

review, the court will reinstate the order. The court will make clear, however, that it has made no

determination regarding whether her claims are arbitrable under the Healthcare Policy.

Of course, none of this actually says anything about intervention or joinder. Although the

parties have largely argued the potential plaintiffs’ motion as if it were a defendant-filed motion

to compel arbitration, no such motion is actually pending. Moreover, even if one were pending—

or even had been granted— the court would be within its discretion to allow the plaintiffs to remain

part of the case, albeit subject to a stay, while arbitration proceeded. Glazer v. Lehman Bros.,

Inc., 394 F.3d 444, 451 (6th Cir. 2005) (citing 9 U.S.C. §§ 3–4). Other than the defendants’

arguments that any consumer plaintiff should first arbitrate his claims, they have advanced no

argument that the claims by Johnson and Nigohosian would be inappropriate for permissive joinder

under Rule 20(a) or permissive intervention under Rule 24(b). Consumer claims were central to

this case from the start. For a brief period of time, there were no consumer plaintiffs, but no

judgment has been entered disposing of the original consumer claims. The court, accordingly, will

allow both Johnson and Nihogosian to rejoin the case.

What the court’s ruling will mean for the possibility of arbitration, however, may differ

between the plaintiffs. Nigohosian is still subject to this court’s Order of December 2, 2019,

referring the dispute to arbitration. The defendants have suggested that the court’s references to

“the arbitrator” in that Order suggest that Nigohosian should not be subject to administrative due

process review by the AAA’s non-arbitrator personnel. Such a reading, however, would effectively

be rewriting the AAA rules to which the parties mutually agreed in a contract drafted by

SmileDirect. The court, therefore, will make clear that it has made no determination regarding

whether the case can or should be considered under the AAA’s policies related to healthcare cases.

In the meantime, consideration of Nihogosian’s claims will be stayed.

In contrast, the AAA process to which the parties mutually agreed has been completed in

Johnson’s case, and his claims may proceed. It may seem odd that whether the plaintiffs’ claims

are arbitrable may ultimately depend on mere procedural differences between them. The course a

claim will take is, however, frequently the result of procedural choices and determinations that

may, at the time, seem minor. The parties agreed to follow AAA rules, and this court can only

follow where those rules, within the law, lead.

B. Motion to Dismiss Claims by Orthodontist Plaintiffs

The following claims are attributed entirely or in part to the orthodontist plaintiffs: Count

I (false advertising under the Lanham Act); Count V (Tennessee Consumer Protection Act); Count

VIII (Florida Deceptive and Unfair Trade Practices Act); and Count X (New York General

Business Law §§ 349 and 350-A). The defendants argue that all of those claims should be

dismissed as to the orthodontists, because they have failed to allege facts on which relief could be

granted. The orthodontist plaintiffs oppose the motion in all respects.

1. Lanham Act

The defendants argue that the orthodontist plaintiffs have failed to state a claim under the

Lanham Act for false advertising because they have not sufficiently identified a communication

that satisfies the elements of that cause of action with respect to them. The Lanham Act, 15 U.S.C.

§ 1051 et seq., is a federal statute that more prominently addresses trademark rights, but it also

prohibits unfair competition through the use of misrepresentations of fact about one’s own or

another’s goods, services, or business activities. See 15 U.S.C. § 1125(a). Section 1125(a)(1)(B)

of the Lanham Act provides:

(1) Any person who, on or in connection with any goods or services, or any

container for goods, uses in commerce any word, term, name, symbol, or device,

or any combination thereof, or any false designation of origin, false or misleading

description of fact, or false or misleading representation of fact, which . . .

(B) in commercial advertising or promotion, misrepresents the nature,

characteristics, qualities, or geographic origin of his or her or another

person’s goods, services, or commercial activities, shall be liable in a civil

action by any person who believes that he or she is or is likely to be damaged

by such act.

15 U.S.C. § 1125(a)(1)(B). The Sixth Circuit has described the elements of a Lanham Act false

advertising claim as:

1) the defendant has made false or misleading statements of fact concerning his

own product or another’s; 2) the statement actually deceives or tends to deceive a

substantial portion of the intended audience; 3) the statement is material in that it

will likely influence the deceived consumer’s purchasing decisions; 4) the

advertisements were introduced into interstate commerce; 5) there is some causal

link between the challenged statements and harm to the plaintiff.

Grubbs v. Sheakley Grp., Inc., 807 F.3d 785, 798 (6th Cir. 2015) (quoting Am. Council of Certified

Podiatric Physicians & Surgeons v. Am. Bd. of Podiatric Surgery, Inc., 185 F.3d 606, 613 (6th

Cir. 1999)).

Although the ultimate subject of a false advertising claim is the effect on consumers, the

Lanham Act specifically contemplates enforcement by commercial competitors, not the consumers

themselves. “A plaintiff must allege an injury to a commercial interest in reputation or sales. A

consumer who is hoodwinked into purchasing a disappointing product may well have an injury-

in-fact cognizable under Article III [of the Constution], but he cannot invoke the protection of the

Lanham Act . . . .” Lexmark Int’l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 132

(2014). In this regard, a false advertising claim mirrors a traditional trademark infringement claim

based on likelihood of consumer confusion: while it is consumers who may have been deceived,

the lawsuit itself is typically between sellers. See 15 U.S.C. § 1125(a)(1)(A) (setting out trademark

cause of action based on likelihood of confusion).

As a threshold matter, the court must consider whether this claim is subject to the

heightened pleading standard for fraud under Rule 9(b) of the Federal Rules of Civil Procedure.

The Sixth Circuit has not resolved whether Rule 9(b) applies to false advertising claims, and the

district courts of the circuit have taken a mixed approach to the matter. Compare Elcometer, Inc.

v. TQC-USA, Inc., No. 12-CV-14628, 2013 WL 1433388, at *5 (E.D. Mich. Apr. 9, 2013) (holding

that Rule 9(b) does not apply), with Haworth, Inc. v. Tate Access Floors, Inc., No. 1:12-CV-252,

2013 WL 12290266, at *4 (W.D. Mich. Sept. 5, 2013) (holding that Rule 9(b) does apply). While

Rule 9(b) only mentions “fraud and mistake,” the Sixth Circuit recognizes that the particularity

requirement applies not only to claims that explicitly go under the name “fraud” but also to any

“claims sounding in fraud.” Smith v. Bank of Am. Corp., 485 F. App’x 749, 751 (6th Cir. 2012)

(emphasis added). For example, the Sixth Circuit has held that Rule 9(b) applies to claims under

the False Claims Act based on “false or fraudulent claim[s] paid or approved by the Government.”

SNAPP, Inc., 532 F.3d at 504 (quoting 31 U.S.C. § 3729(a)(2)). Expanding the scope of Rule 9(b)

to statutory claims that share critical elements with common law fraud allows the applicability of

the Rule to hinge on the substance of the relevant claim, not on cosmetic questions of naming. It

does, however, create ambiguity with regard to claims, like Lanham Act false advertising, that fall

somewhere between conventional fraud and some other tort.

The plaintiffs disagree that Rule 9(b) applies to their Lanham Act claims, although they

argue that, even if it does, their claims should survive. The plaintiffs point out that there are aspects

of Lanham Act false advertising, as a cause of action, that arguably make a strict application of

Rule 9(b) unnecessary, unworkable, or unfair. For example, while a conventional fraud case may

be built around a single utterance between individuals, advertisements are frequently disseminated

over and over, sometimes through multiple channels. As the Western District of Tennessee has

observed, “[w]here the allegedly misleading advertising has occurred over a long period of time,

it would be unreasonable and contrary to the Sixth Circuit’s liberal construction of Rule 9(b) to

require Plaintiff to identify the exact day, hour or place of every advertisement which made the

allegedly misleading statements.” Fed. Exp. Corp. v. U.S. Postal Serv., 40 F. Supp. 2d 943, 952

(W.D. Tenn. 1999). Moreover, in a Lanham Act claim, the plaintiff, typically a competitor, is

unlikely to have been the actual intended recipient of the relevant communications. It makes less

sense, therefore, to impose on the plaintiff a heightened responsibility in describing what was

said—a fact about which he, unlike a defrauded person, would have no special knowledge.

On the other hand, however, at least some of the purposes of Rule 9(b) are clearly

implicated in the false advertising context. The Sixth Circuit has acknowledged that one purpose

of the Rule is to protect a defendant from “unwarranted damage to its reputation caused by

‘spurious charges of immoral and fraudulent behavior.’” SNAPP, Inc., 532 F.3d at 504 (quoting

Sanderson v. HCA-The Healthcare Co., 447 F.3d 873, 877 (6th Cir. 2006)). That risk may be

somewhat reduced when advertising is involved, given that the advertisements at issue will often

have been publicly available, and the public will already have had the opportunity to form an

opinion regardless. Nevertheless, it is undeniable that an allegation of false advertising can harm

a company’s reputation—perhaps doubly so, given that the allegation often is both that the

company was dishonest and that its products or services were worse than promised.

Another purpose of Rule 9(b) is to “discourage[] ‘fishing expeditions and strike suits’ [that]

appear more likely to consume a defendant’s resources than to reveal evidence[] of wrongdoing.

Because the defendant is informed of which of its specific actions allegedly constitute fraud, it can

limit discovery and subsequent litigation to matters relevant to these allegations.” Id. at 504

(quoting Bledsoe., 501 F.3d at 510). A vague, sweeping allegation of false advertising has the

capacity to pose such a risk. For example, if a plaintiff vaguely alleges that a product is advertised

as being of higher quality than it is, that could open up discovery into every aspect of the product.

If the plaintiff is required to specifically identify the difference between the advertised features

and the product itself, discovery can be narrowed.

Ultimately, the court is persuaded that Rule 9(b) should apply to Lanham Act false

advertising claims. That conclusion, however, comes with two important caveats. First, while Rule

9(b) may require a heightened level of particularity, it does not in any way alter the substance of

the relevant cause of action. One cannot assume, therefore, that adequately pleading a cause of

action for false advertising requires all the same things that pleading a cause of action for

conventional fraud requires. It is the cause of action that dictates what a plaintiff must allege, not

any generalized caselaw under Rule 9(b). Second, as always, Rule 9(b) “should not be read to

defeat the general policy of ‘simplicity and flexibility’ in pleadings” and should not be construed

to impose a policy of pure “formalism . . . decoupled from the general rule that a pleading must

only be so detailed as is necessary to provide a defendant with sufficient notice to defend against

the pleading’s claims.” SNAPP, Inc., 532 F.3d at 503 (quoting Michaels Bldg. Co. v. Ameritrust

Co., N.A., 848 F.2d 674, 678 (6th Cir. 1988)). The court is permitted to consider the nature and

circumstances of the cause of action to determine what is necessary to provide the defendant

sufficiently particularized notice, as well as what a plaintiff can reasonably be expected to know

at the pleading stage.

The defendants argue, first, that the plaintiffs have failed to identify a relevant “commercial

advertising or promotion,” as required by 15 U.S.C. § 1125(a)(1)(B). “[T]he elusive phrase

‘commercial advertising or promotion’ . . . is defined neither in statute nor in legislative history.”

Grubbs, 807 F.3d at 800. The Sixth Circuit, however, has adopted the following definition: “(1)

commercial speech; (2) for the purpose of influencing customers to buy the defendant’s goods or

services; (3) that is disseminated either widely enough to the relevant purchasing public to

constitute advertising or promotion within that industry or to a substantial portion of the plaintiff’s

or defendant’s existing customer or client base.” Id. at 801. The relevant commercial speech “need

not necessarily resemble traditional television, radio, print, or Internet advertisements.” Id. at 799

(citing Semco, Inc. v. Amcast, Inc., 52 F.3d 108, 112 (6th Cir. 1995)).

The plaintiffs allege that SmileDirect has engaged in an “omni-channel approach to

marketing, using billboards (including in Times Square and the NYC Subway), Google, Facebook,

Instagram, and other social media platforms,” as well as having “purchased advertising time during

televised national sporting events, such as college football games.” (Docket No. 36 ¶ 75.) The

plaintiffs have also compiled a number of “literal falsities” and misleading statements that they

attribute to those advertising campaigns, some of which the plaintiffs quote verbatim. (Id. ¶¶ 77,

96, 115.) The plaintiffs have also identified, as a further example, a specific blog post from

SmileDirect’s “Grin Life” blog, containing what the plaintiffs identify as a false or misleading

statement equating the care received in the SmileDirect Program with conventional, face-to-face

orthodontic care. (Id. ¶ 80.) While the plaintiffs have not given specific dates and times for the

false or misleading statements in the “omni-channel” marketing effort, that requirement can be, as

the court has explained, relaxed in the case of false advertising claims based on sustained, repeated

communications. Moreover, courts have acknowledged, in other cases applying Rule 9(b) to

complex schemes involving numerous false statements, that a plaintiff can satisfy the Rule by

describing the scheme and providing “representative” examples, rather than listing every wrongful

act. See Marlar, 525 F.3d at 444–45. By identifying specific claims and specific advertising venues

through which the claims were conveyed, the plaintiffs have satisfied these requirements

sufficiently to serve the purposes of Rule 9(b). The defendants therefore are not entitled to

dismissal based on the plaintiffs’ alleged failure to plead commercial communications within the

meaning of the Lanham Act.

The defendants argue, next, that none of the relevant statements was false or misleading as

those terms are used in the Lanham Act. Some of the marketing assertions that the plaintiffs have

highlighted, such as the boast that SmileDirect’s customers were highly satisfied, may ultimately

turn out to be the type of vague puffery that cannot support statutory liability. But see La.-Pac.

Corp. v. James Hardie Bldg. Prod., Inc., 928 F.3d 514, 519 (6th Cir. 2019) (“[T]he context of a

message can transform unactionable puffery into an empirically verifiable, factual claim.”). Other

aspects of SmileDirect’s characterization of its products and services, however, involve more

concrete and specific assertions amenable to being true or false and being material to customers’

decisions. For example, the Grin Life blog post highlighted by the plaintiffs included the claim

that “[a]n individual who is requesting treatment by using SmileDirectClub’s aligners is receiving

the same level of care from a treating dentist-orthodontist as an individual visiting a traditional

orthodontist or dentist for treatment.” (Docket No. 36 ¶ 80.) The plaintiffs have identified specific

ways in which SmileDirect’s internet-based teledentistry system falls far below the level of care

involved in a traditional dental setting, particularly with regard to the limited diagnostic tools

available in the SmileDirect setting and the comparatively lesser role played by dentists rather than

non-dentist support personnel. (Id. ¶¶ 81–87.) While the phrase “level of care” may contain some

vagueness, whether it has a sufficiently fixed meaning that it can serve as the crux of a false

advertising claim is a question of fact inappropriate for a Rule 12(b)(6) motion.

The plaintiffs have also alleged that SmileDirect claimed, in its advertising, that

SmileDirect’s plastic aligners work “three times faster than braces.” (Id. ¶ 96.) As the plaintiffs

point out, such a statement suggests that the aligners perform a comparable service to traditional

braces, which the plaintiffs have alleged is false. The plaintiffs have also alleged that SmileDirect

has misrepresented its return policy through its “Smile Guarantee” policy, leading customers to

believe that joining the SmileDirect Program entailed less financial risk than it did. (Id. ¶¶ 101–

02.) As with the allegations regarding level of care, the defendants are free to disagree with these

claims, but whether they are false presents a question of fact, not one of adequate pleading.

The plaintiffs have also adequately alleged that the relevant statements were material to,

and likely influenced, consumers’ purchasing decisions. From the plaintiffs’ description of

SmileDirect’s product and marketing, it is clear that consumers with orthodontic needs would

consider SmileDirect and more traditional, in-person orthodontic treatment as competitive

services. When choosing between competitive services, the degree to which one service actually

offers an adequate substitute for the other is an obviously important consideration. Overall cost is

also an important consideration, and whether one will be able to get a refund is a component of

determining the range of potential costs. The plaintiffs have therefore adequately pleaded the

second and third elements of a false advertising claim. Moreover, their description of

SmileDirect’s massive advertising expenditures pleads entry into interstate commerce, satisfying

the fourth.

Finally, the orthodontist plaintiffs have adequately pleaded that they were harmed by

SmileDirect’s statements. Each of the individual orthodontist plaintiffs specifically alleges that his

volume of business was reduced by the diversion of patients to SmileDirect. (Docket No. 36 ¶¶

16–18.) Although the defendants fault the plaintiffs for failing to allege more facts that would

support the conclusion that specific patients chose SmileDirect over them, it is difficult to imagine

how an orthodontist could reasonably be expected to know the identities of the patients who merely

considered him before going elsewhere. If anyone other than the patients would have that

information, it seems more likely that it would be SmileDirect. See Traxler v. PPG Indus., Inc.,

158 F. Supp. 3d 607, 630 (N.D. Ohio 2016) (“Rule 9(b)’s particularity requirement may be relaxed

when certain information is solely within the defendant’s knowledge.”) (quoting SEC v. Blackwell,

291 F. Supp. 2d 673, 691 (S.D. Ohio 2003)). SmileDirect cannot reasonably dispute that it was

placing its services in competition with orthodontists like the orthodontist plaintiffs and that such

an orthodontist’s loss of business could constitute an economic harm. The orthodontist plaintiffs

have therefore adequately pleaded all of the elements of a Lanham Act false advertising claim.

That count will not be dismissed.

2. Tennessee Consumer Protection Act

The defendants argue that the orthodontist plaintiffs do not have “standing” to bring causes

of action under the Tennessee Consumer Protection Act, which authorizes a private cause of action

on behalf of “[a]ny person who suffers an ascertainable loss of money or property, real, personal,

or mixed, or any other article, commodity, or thing of value wherever situated, as a result of the

use or employment by another person of an unfair or deceptive act or practice.” Tenn. Code Ann.

§ 47-18-109(a). “Person,” for the purposes of the TCPA, can refer to any “natural person,

individual, governmental agency, partnership, corporation, trust, estate, incorporated or

unincorporated association, and any other legal or commercial entity however organized.” Tenn.

Code Ann. § 47-18-103(14). The Tennessee Supreme Court has made clear that, as the statutory

language suggests, “it is irrelevant whether a corporation is a ‘consumer under the Act because the

right of action is given to ‘person[s],’” with “consumer” being a separate, defined term used in

other provisions. ATS Se., Inc. v. Carrier Corp., 18 S.W.3d 626, 629 (Tenn. 2000); see Tenn. Code

Ann. § 47-18-103(3) (defining “consumer”). The same logic would extend to individual

plaintiffs—because a cause of action under the Act is not limited to consumers, the plaintiff is not

required to show that he is a consumer in order to proceed.

The defendants do not cite any cases from Tennessee state courts for the proposition that a

competitor cannot sue under the TCPA based on an “ascertainable loss of money” in the form of

lost business, choosing instead to rely on cases from U.S. district courts, particularly PHG Techs.,

LLC v. St. John Companies, Inc., 459 F. Supp. 2d 640 (M.D. Tenn. 2006) (Echols, J.), and

subsequent cases following its reasoning. The very brief standing analysis in PHG Technologies,

however, did not rely on the text of the TCPA, but rather a citation to general Article III standing

principles, particularly those in Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992). As subsequent

Supreme Court and Sixth Circuit cases have made clear, however, the important guidepost here is

the statutory text. If a plaintiff has standing in a bare-minimum constitutional sense—which a

competitor alleging past or imminent economic harm typically will, see Michigan v. Bay Mills

Indian Cmty., 695 F.3d 406, 411 (6th Cir. 2012) (“[E]vidence of competitive harm is enough to

show an injury in fact for standing purposes .”)—then the question of whether he can proceed

under a particular cause of action is an issue of interpreting the scope of the cause of action, not

“standing” as the term is typically used. See Galaria v. Nationwide Mut. Ins. Co., 663 F. App’x

384, 391 (6th Cir. 2016) (“The Supreme Court has explained that the term ‘statutory standing’

describes an inquiry into the question whether a plaintiff ‘falls within the class of plaintiffs whom

Congress has authorized to sue’ and therefore ‘has a cause of action under the statute.’ However,

this label is ‘misleading, since the absence of a valid (as opposed to arguable) cause of action does

not implicate subject-matter jurisdiction, i.e., the court’s statutory or constitutional power to

adjudicate the case.’”) (quoting Lexmark, 572 U.S. at 128 n.4)).

The ultimate arbiter of Tennessee law is the Tennessee Supreme Court, and that court has

already held that a cause of action under the TCPA can be brought by a person regardless of his

status as a non-consumer under the Act. ATS Se., 18 S.W.3d at 629. The only textual requirement

is a loss of money or property, which the orthodontist plaintiffs have alleged by stating that

SmileDirect cost them business by falsely stating that SmileDirect’s services were an equivalent

substitute for theirs. See Asurion, LLC v. SquareTrade, Inc., 407 F. Supp. 3d 744, 752 (M.D. Tenn.

2019) (Campbell, J.) (holding that a competitor had a cause of action under the TCPA based on a

“misleading advertisement disparage[ing] its product by drawing a direct comparison with” the

defendant’s product). The defendants’ argument that the orthodontist plaintiffs lack standing under

the TCPA is, therefore, without merit, and their claims will not be dismissed.

3. Florida Deceptive and Unfair Trade Practices Act

The defendants argue that the orthodontist plaintiffs’ claims under the Florida Deceptive

and Unfair Trade Practices Act (“FDUTPA”) should be dismissed because the damages they have

alleged are not damages of a type recoverable under the Act. FDUTPA allows a cause of action

for declaratory or injunctive relief to be brought by “anyone aggrieved by a violation” of the Act.

Fla. Stat. Ann. § 501.211(1). If a plaintiff seeks damages, however, the plaintiff must be a “a person

who has suffered a loss as a result of” the relevant FDUTPA violation, and the plaintiff may

recover only “actual damages, plus attorney’s fees and court costs.” Fla. Stat. Ann. § 501.211(2).

The defendants argue that lost profits such as those allegedly suffered by the orthodontists are

consequential damages, not actual damages, under Florida law. See Rodriguez v. Recovery

Performance & Marine, LLC, 38 So. 3d 178, 180 (Fla. Dist. Ct. App. 2010) (“[U]nder FDUTPA,

the term ‘actual damages’ does not include special or consequential damages.”); Paul Gottlieb &

Co. v. Alps S. Corp., 985 So. 2d 1, 9 (Fla. Dist. Ct. App. 2007) (describing “lost profits” as

“consequential damages”). The plaintiffs concede that the FDUTPA does not allow consequential

damages. They argue, however, that it is a misstatement of Florida law to state that lost profits are

categorically classified as consequential, rather than actual, damages.

A review of relevant cases confirms that, “[w]hile [Florida] case law often refers to lost

profits as consequential damages, lost profits do not always constitute consequential damages as a

matter of law. For example, ‘[l]ost profits are recoverable as general damages where they flow

directly and immediately from the breach of a contract.’” HCA Health Servs. of Fla., Inc. v.

CyberKnife Ctr. of Treasure Coast, LLC, 204 So. 3d 469, 471 n.2 (Fla. Dist. Ct. App. 2016)

(quoting Bird Lakes Dev. Corp. v. Meruelo, 626 So. 2d 234, 238 (Fla. Dist. Ct. App. 1993)). The

mere fact that lost profits are actual damages in some instances but not others, however, does not

provide much guidance in telling one situation from the other. Florida’s state courts do not appear

to have resolved the question of whether past lost profits are “actual damages” under the FDUTPA,

and the U.S. district courts in Florida have disagreed on the issue from case to case. Compare

Glob. Tech Led, LLC v. Hilumz Int’l Corp., No. 2:15-CV-553-FTM-29CM, 2017 WL 588669, at

*9 (M.D. Fla. Feb. 14, 2017) (holding that past lost profits are actual damages under the FDUTPA);

Factory Direct Tires Inc. v. Cooper Tire & Rubber Co., No. 3:11-CV-255-RV/EMT, 2011 WL

13117118, at *7 (N.D. Fla. Oct. 24, 2011) (same); Tracfone Wireless, Inc. v. Access Telecom, Inc.,

642 F. Supp. 2d 1354, 1365 (S.D. Fla. 2009) (same); with Diversified Mgmt. Sols., Inc. v. Control

Sys. Research, Inc., No. 15-81062-CIV, 2016 WL 4256916, at *6 (S.D. Fla. May 16, 2016)

(holding that lost profits are not actual damages under the FDUTPA); Five for Entm’t S.A. v.

Rodriguez, 877 F. Supp. 2d 1321, 1331 (S.D. Fla. 2012) (same). Last year, the U.S. District Court

for the Middle District of California considered the history of the issue and concluded that “[t]he

weight of Florida law supports” the conclusion that past lost profits are recoverable under the Act,

although that analysis is far from conclusive. Allergan USA, Inc. v. Prescribers Choice, Inc., 364

F. Supp. 3d 1089, 1114 (C.D. Cal. 2019).

As with Tennessee law, this court’s duty when resolving an issue of Florida law is to make

an “Erie guess”6 regarding how the highest court in that state would resolve the issue. In re Fair

Fin. Co., 834 F.3d 651, 671 (6th Cir. 2016) (quoting Conlin v. Mortg. Elec. Registration Sys., Inc.,

714 F.3d 355, 358–59 (6th Cir. 2013)). Given the mixed nature of the caselaw, the court’s

determination, in this case, truly is a guess—albeit, hopefully, an informed one. Neither party has

identified Florida state precedents resolving or even providing much guidance on the issue, and

none of the federal cases that have examined it offers much of a persuasive general analytical

6 “Erie guess” refers to Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938).

framework for when lost profits are actual damages and when they are consequential damages—

other than that, generally, it varies from one cause of action to another. Ultimately, the language

of the FDUTPA and the balance of the caselaw lead this court to conclude that the more likely

correct interpretation is that the FDUTPA does permit recovery of past lost profits caused by a

violation of the Act. The FDUTPA itself provides that it shall be “construed liberally to promote”

its purposes, Fla. Stat. Ann. § 501.202, and the Act’s private cause of action, like the TCPA’s,

does appear to contemplate a broad range of potential plaintiffs. Indeed, the FDUTPA was

explicitly amended to make clear that it allowed claims by parties other than individual consumers,

which supports the inference that it must permit the kinds of damages that non-consumer plaintiffs

are likely to suffer. See Democratic Republic of the Congo v. Air Capital Grp., LLC, 614 F. App’x

460, 468 (11th Cir. 2015) (discussing revisions to the FDUTPA).

Moreover, as the plaintiffs point out, even if the defendants are correct on this point, the

correct remedy would not be dismissal. Dr. Kapit seeks both damages and injunctive relief, and

the “actual damages” restriction applies only to claims for damages. Accordingly, his claim would

continue regardless. The issue of what damages the FDUTPA allows will only become relevant

when and if Dr. Kapit demonstrates a violation. At that point, there may, the court hopes, have

been intervening guidance from the state’s courts.

4. New York General Business Law §§ 349 and 350-A

Finally, the defendants argue that Dr. Ciccio’s claim under Count X should be dismissed

because he seeks a form of indirect damages not permitted by N.Y. Gen. Bus. Law §§ 349 and

350-A. The cases on which the defendants rely, however, involve wholly derivative injuries—that

is, injuries sustained “solely as a result of injuries sustained by another party.” Spin Master Ltd. v.

Bureau Veritas Consumer Prod. Servs., Inc., No. 08-CV-923, 2011 WL 1549456, at *4 (W.D.N.Y.

Mar. 7, 2011), report and recommendation adopted, No. 08-CV-923A, 2011 WL 1542038

(W.D.N.Y. Apr. 22, 2011). For example, the New York Court of Appeals has held that, where a

tobacco company’s marketing allegedly caused an insurance company’s insured customers to

become sick, the insurer could not itself recover under N.Y. Gen. Bus. Law § 349, since its injury

was entirely derivative of theirs. Blue Cross & Blue Shield of N.J., Inc. v. Philip Morris USA Inc.,

818 N.E.2d 1140, 1145 (N.Y. 2004).

The injuries that Dr. Ciccio has alleged, however, were not derivative of the injuries

suffered by SmileDirect customers. If a potential patient chose SmileDirect over Dr. Ciccio, then

Dr. Ciccio’s loss of business occurred, regardless of how successful or unsuccessful the patient’s

SmileDirect treatment ultimately was. The injuries suffered by consumers may have been caused

by the same allegedly illegal marketing that caused the orthodontists to lose business, but one

injury was not created by the other. See M.V.B. Collision, Inc. v. Allstate Ins. Co., 728 F. Supp. 2d

205, 217 (E.D.N.Y. 2010) (holding that, where the plaintiff company’s harm was done directly by

the defendant’s bad act, it was not derivative of a separate, co-occurring harm to consumers). The

defendants having advanced no other argument to dismiss Dr. Ciccio’s New York statutory claim,

the claim will not be dismissed.

C. Motion to Strike

The court turns, finally, to the Motion to Strike. As an initial matter, the court’s decision

to permit Johnson and Nihogosian to rejoin the case eliminates the need to consider striking

statements related only to consumer claims. Admittedly, the allegations related to a few of the

state-specific claims are still immaterial to the case going forward, because there are no consumer

plaintiffs from those states. But going back and excising a few state-specific allegations simply

because the relevant plaintiffs were dismissed would be far outside the court’s usual practice and

would not even serve the purposes of the defendants’ motion. The defendants have made clear that

their overriding concern is with protecting SmileDirect’s reputation from what they characterize

as an improper attempt to besmirch it through the judicial process. It cannot possibly matter very

much, in that regard, whether there are allegations in the Complaint about, for example,

SmileDirect engaging in bad acts specifically in Colorado. Tidying up the Complaint by removing

allegations related to a few states is beyond the limited purpose of Rule 12(f). The court will,

therefore, deny that aspect of the defendants’ request.

There remain, therefore, two classes of statement that the defendants ask the court to strike:

the miscellaneous statements identified in the defendants’ Appendix A as immaterial, impertinent,

and/or scandalous; and the “class allegations that on their face require such individualized inquiry

as to render a class action improper.”

The court has reviewed the allegations set out in Appendix A and concludes that, although

the plaintiffs sometimes get close to the edge of permissible pleading, none of the statements

warrants granting the motion to strike. The statements identified use dramatic language to cast the

defendants’ actions and motivations in an undeniably unflattering light. The same could be said,

however, for a substantial percentage of the complaints that this court sees, particularly in fields,

such as consumer protection, that involve defendants’ allegedly profiting off of injuries to

members of the general public. Most defendants take issue with some aspect of the allegations

against them; nevertheless, “[m]otions to strike are viewed with disfavor and are not frequently

granted.” Operating Eng’rs Local 324 Health Care Plan v. G & W Const. Co., 783 F.3d 1045,

1050 (6th Cir. 2015) (citing Lunsford v. United States, 570 F.2d 221, 229 (8th Cir.1977); Brown

& Williamson, 201 F.2d at 822). The reason for that is simple: such motions, more often than not,

are simply “time wasters” that tie the court and the parties up in “purely cosmetic” matters that, if

anything, stand in the way of addressing the underlying allegations on the merits. Neal v. City of

Detroit, No. 17-13170, 2018 WL 1399252, at *1 (E.D. Mich. Mar. 19, 2018) (quoting Wright &

Miller, 5C Fed. Prac. & Proc. § 1382 (3d ed. 2004)).

As the defendants acknowledge, “immaterial,” in the context of a motion to strike, refers

only to allegations with “no possible relation to the controversy.’” Clark, 772 F. Supp. 2d at 850

(quoting Brown & Williamson, 201 F.2d at 822). Although most of the statements covered in

Appendix A are not strictly necessary to pleading a cause of action, they are all relevant to the

plaintiffs’ overall narrative and theory of the case. For example, the defendants complain about

the plaintiffs’ mentioning of Better Business Bureau complaints against SmileDirect and the

characterization of SmileDirect as “under siege.” (Docket No. 71-1 at 1, 4.) At the heart of the

plaintiffs’ case, however, is the contention that SmileDirect is operating a business built around an

ineffective product and a disregard for licensing and regulatory authorities. The need to conceal

the alleged flaws and shortcuts underlying SmileDirect’s business model in the face of increasing

scrutiny is part of the broader account of the company’s ongoing, allegedly unlawful operation.

While the Rules of Civil Procedure do not require a plaintiff to tell a larger story with supporting

details in order to state a claim, they do not forbid it. It is undeniably true that plaintiffs sometimes

take this as an opportunity to editorialize. Anyone with even a rudimentary grasp of the judicial

process, however, should know that the plaintiffs’ allegations are, at this stage, untested and

unproven. They do not have the imprimatur of the court or the endorsement of a jury. The

defendants will have every opportunity to defend themselves and may find themselves, as many

defendants do, vindicated—or at least victorious in litigation. That is not a sufficient ground for

striking the allegations in the Complaint now.

The defendants’ argument to strike class-related claims is similarly without merit. The

Rules of Civil Procedure require the court to determine whether a class should be certified “[a]t an

early practicable time after a person sues or is sued as a class representative.” Fed. R. Civ. P.

23(c)(1)(A). It is clear to the court that the time for making a decision about class certification in

this case has not yet arisen. The defendants, however, attempt to force an unnecessary early battle

over the issue in the form of their motion to strike. As with the other aspects of the motion to strike,

this request is unnecessary.

The defendants rely in significant part on Pilgrim v. Universal Health Card, LLC, 660 F.3d

943 (6th Cir. 2011), in which the Sixth Circuit upheld a district court’s decision to strike class

allegations in a putative consumer protection class action related to a “healthcare discount

program.” Id. at 944. The Sixth Circuit, like the district court, focused on the putative class’s

inability to satisfy the predominance requirement of Rule 23(b)(3), which offered the only route

for satisfying Rule 23(b).7 The court observed that, “because each class member’s claim would be

governed by the law of the State in which he made the challenged purchase, . . . the differences

between the consumer-protection laws of the many affected States would cast a long shadow over

any common issues of fact plaintiffs might establish.” Id. at 946.

However, the court left open the possibility that “a nationwide class covering claims

governed by the laws of the various States could . . . overcome this problem by demonstrating

considerable factual overlap.” Id. at 947. The specific claims at issue in Pilgrim, though, had

7 A class action will be certified only if, after rigorous analysis, the court is satisfied that the prerequisites

of Fed. R. Civ. P. 23(a) have been met and the action falls within one of the categories under Fed. R. Civ.

P. 23(b). Bridging Cmties. Inc. v. Top Flite Fin. Inc., 843 F.3d 1119, 1124 (6th Cir. 2016). A party seeking

to maintain a class action must be prepared to show that Rule 23(a)’s numerosity, commonality, typicality

and adequacy of representation requirements have been met. Comcast Corp. v. Behrend, 569 U.S. 27, 33

(2013). In addition, the party must satisfy, through evidentiary proof, at least one of Rule 23(b)’s provisions.

Id. at 34.

features that made them inherently susceptible to factual, not merely legal, variation on the basis

of geography:

A core part of the claim is that the program was worthless because the listed

healthcare providers near the plaintiffs did not offer the promised discounts or

because there were no listed providers near them in the first place. But to establish

the point, the plaintiffs would need to make particularized showings in different

parts of the country, particularly since the program apparently satisfied some

consumers, as confirmed by the unchallenged reality that fifteen percent of those

who signed up remained enrolled months after the suit was filed.

Id. at 948. Those factual issues, in addition to the fact that multiple states’ laws were implicated,

formed the basis for striking class allegations.

It is true that the plaintiffs in this case may ultimately struggle to establish that shared issues

predominate over class members’ claims across different jurisdictions. In addition to the fact that

the plaintiffs rely on different state consumer protection statutes, their federal claims involve,

among other things, allegedly false marketing comparing the SmileDirect Program to conventional

dentistry, which could implicate individual states’ licensure and scope-of-practice laws. It is not

enough, however, for the defendants to simply point out that multiple states’ laws will govern the

claims. There must actually be some kind of identifiable discontinuity between the states’

respective laws that would frustrate the possibility of a shared resolution of the claims. Many

states’ laws in areas such as consumer protection and professional licensure share significant

similarities. The laws may not be identical, but the court cannot simply assume that they are too

different to be applied side-by-side. That is especially true, given that this issue has been raised in

the context of the rarely-appropriate tool of a motion to strike, rather than in response to a motion

to certify, where the plaintiffs would bear the burden. Because the plaintiffs’ prospects of class

certification are not so dim as to render their allegations immaterial or impertinent within the

meaning of Rule 12(f), the court will not grant the motion to strike the class allegations across the

board.®

IV. CONCLUSION

For the foregoing reasons, the defendants’ Motion to Dismiss the Plaintiff Orthodontists’

Claims (Docket No. 68) and Motion to Strike Certain Allegations (Docket No. 70) will be denied,

and the Motion to Rejoin Plaintiffs, or in the Alternative, to Intervene (Docket No. 85) will be

granted, with the caveat that the court’s earlier order requiring Nigohosian to submit her claims to

the arbitration process remains in effect.

An appropriate Order will enter. Uy

ALETA A. TRAUGE

United States District Judge

8 The court acknowledges that the defendants have also identified some claim-specific reasons for

striking class allegations. For example, the Tennessee Supreme Court has held that the TCPA does

not permit an individual consumer plaintiff to bring a cause of action for damages on behalf of

other individual consumers—a power reserved, by the Act, for the Tennessee Attorney General.

See Walker v. Sunrise Pontiac-GMC Truck, Inc., 249 S.W.3d 301, 311 (Tenn. 2008). The plaintiffs

respond that they are permitted to bring TCPA class action claims because they have limited their

class claims solely to requests for injunctive and declaratory relief. See Tenn. Code Ann. § 47-18-

109(g) (‘No class action lawsuit may be brought to recover damages for an unfair or deceptive act

or practice declared to be unlawful by this part.) (emphasis added). Although the plaintiffs’

position appears to be consistent with the current language, the court sees no reason to resolve the

issue on a motion to strike.

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