Judge Rejects Kochava’s Motion for Rule 11 Sanctions Against FTC

U.S. District Judge Lynn Winmill for Idaho in Coeur d'Alene denied Kochava’s motion for Rule 11 sanctions against the FTC on grounds that the agency's June 5 amended complaint contained consumer privacy allegations that were frivolous, knowingly false or filed for an improper purpose, said his memorandum decision and order Friday (docket 2:22-cv-00377). The judge also granted the FTC’s motion to unseal its complaint, and gave the parties 14 days to object to the disclosure of documents not addressed in his order.

The FTC alleges that Kochava violates consumers’ privacy and exposes them to risks of secondary harms by linking geolocation data with mobile device IDs in data banks that its customers can access to track consumers’ movements to sensitive locations, such as medical appointments. But motions for Rule 11 sanctions aren’t “a proper avenue for testing the plausibility of a complaint or the strength of a plaintiff’s evidence,” said the judge’s order. “There are other litigation tools suited for those tasks, such as motions to dismiss under Rule 12(b)(6) and motions for summary judgment under Rule 56,” it said.

With its motion for sanctions, Kochava “essentially challenges the plausibility of the FTC’s factual assertions and the strength of its evidence,” said the order. But neither “is an appropriate argument in favor of Rule 11 sanctions,” it said. The plausibility analysis is one the court “must perform independently” in resolving Kochava’s separate motion to dismiss, which is currently pending, it said.

The court, after discovery, “may be asked to weigh the strength of the FTC’s evidence through a Rule 56 motion for summary judgment,” said the order. But at this stage, the court must determine only whether the FTC’s amended complaint is frivolous, legally unreasonable, without factual foundation, or was brought for an improper purpose, it said. The court held in its prior memorandum decision and order that both FTC theories of consumer injury are legally plausible, it said. With its amended complaint, the FTC “has simply realleged those plausible theories with additional factual allegations,” it said: “Doing so is not unreasonable.”

The amended complaint also isn’t “factually baseless,” said the order. Kochava argues that 10 paragraphs in the FTC’s amended complaint contain allegations that are knowingly false, it said. But the court can’t identify “a single one that appears false or misleading,” it said. The court also concludes the FTC’s other allegations and exhibits filed with its response brief “provide at least some evidence to support those factual allegations,” it said.

Kochava will have an opportunity after discovery “to set the record straight,” said the order. “But at this stage, the FTC’s assertions do not appear baseless,” it said. “Whether or not Kochava’s data sets are distinct,” there is at least “some support for the FTC’s allegation” that each of the listed data points is tied to a mobile device ID in one or more of Kochava’s data sets, it said.

The court also is “unpersuaded” by Kochava’s arguments that the FTC filed its amended complaint for an improper purpose, said the order. It concludes the FTC’s legal and factual allegations aren’t frivolous, “so an in-depth analysis of improper purpose is unnecessary,” it said. It also finds that Kochava’s claim of an improper purpose “is long on hyperbole and short on facts,” it said.

The court agrees with the FTC’s arguments that Kochava hasn’t satisfied its burden of showing a “compelling reason” to keep the amended complaint under seal, said the order. Though the FTC’s allegations cast Kochava’s services “in an unfavorable light,” that’s “no reason to shield the complaint from public view,” it said. Nor is the court persuaded that unsealing the amended complaint “would put Kochava at a competitive disadvantage in the marketplace,” it said.