Outlaw Lab., LP v. Shenoor Enter., Inc.
Outlaw Lab., LP v. Shenoor Enter., Inc.
Opinion of the Court
*358Outlaw is a manufacturer of male dietary supplements, the Tristeel Products. Outlaw has sued convenience stores because they "advertise and offer for sale" competing male dietary supplements, the Rhino Products. Outlaw alleges that these retailers have committed false advertising under the Lanham Act because they disseminate false statements through the sale of the Rhino Products; specifically, the Rhino Products are labeled "all natural" and state they contain "no harmful synthetic chemicals." Outlaw alleges that these labels are false because Rhino Products contain "dangerous undisclosed ingredients" typically found only in prescription drugs, not over-the-counter supplements. Outlaw argues these retailers are liable for false advertising because they display and sell the falsely labeled Rhino Products in their stores.
Some of the retailers have appeared and moved to dismiss Outlaw's complaint on various grounds. The Court held a hearing on these motions. At the hearing, the Court dismissed Outlaw's complaint for failing to state a claim on which relief could be granted. See Doc. 87, Order. The Court issues this Memorandum Opinion and Order, which is consistent with and elaborates on the reasoning of that ruling.
I.
BACKGROUND
A. Factual Summary
This case arises out of a string of FDA announcements notifying the public that certain male dietary products, including the Rhino Products, contain hidden drug ingredients that could be dangerous. Doc. 1, Compl., ¶¶ 25, 31-32. The FDA warned that Rhino Products were tested and found to contain sildenafil and other undisclosed chemicals. Id. ; see also Doc. 59-1, Ex. A ("FDA News Release"), 1-4. Sildenafil is the active ingredient in the prescription drug Viagra. The FDA has recognized that it is illegal to sell a drug containing sildenafil without a prescription. The Rhino Products do not disclose that they contain sildenafil, which is dangerous for some people because it can cause serious side effects. Doc. 1, Compl., ¶¶ 31-32.
Plaintiff Outlaw is a manufacturer and distributor of male dietary supplements, the Tristeel Products. Id. ¶¶ 58-59. Plaintiff alleges that it uses only all-natural ingredients in the Tristeel Products. Id. Plaintiff alleges it sells the Tristeel products through its website and at retail locations *359across the United States. Id. Plaintiff alleges all-natural products like the Tristeel Products are more expensive to manufacture than synthetic products are. Id.
Sometime after these FDA announcements were made, Outlaw filed this lawsuit. Doc. 1, Compl. The complaint alleges false advertising under the Lanham Act related to the sale of the Rhino Products. Id. ¶¶ 21-30. Named in the complaint are fourteen retail outlets (gas stations and convenience stores) that allegedly sell the Rhino Products. Id. ¶¶ 44-57. Outlaw generally alleges that these retailers ("Retail Defendants") did the following: Retail Defendants "are engaged in a scheme to distribute and sell" Rhino Products; Retail Defendants have "knowingly and materially participated in false and misleading marketing, advertising, dissemination and labeling to promote and sell the Rhino Products," all of which have been the subject of an FDA announcement stating they contain the hidden drugs, including sildenafil; the hidden drugs either require a prescription or are not FDA approved; the Rhino Products do not disclose that they contain these drugs; instead, the Rhino Products have labels stating they are "all natural," with "no harmful synthetic chemicals," do not require a prescription, and have limited side effects. Id. ¶¶ 21-30. Further, Outlaw alleges that Defendants "advertise and offer for sale" these Rhino products. Id. ¶ 61. Outlaw alleges that Defendants "mislabel" the Rhino Products and thus make "numerous false and misleading representations. Id. ¶ 62. Outlaw alleges "Defendants knew, or should have known, that their Rhino Products contain hidden drug ingredients," and that Defendants failed to disclose this to their customers. Id. ¶¶ 63 & 65. Outlaw alleges that these misrepresentations are material and that the goods have been introduced into interstate commerce. Id. ¶¶ 67-68. Finally, Outlaw alleges it has been injured by Defendants' false and misleading statements because it has suffered commercial and reputational damage in the sale of its competing Tristeel Products. Id. ¶ 69.
For relief, Outlaw requests preliminary and permanent injunctions, compensatory damages, disgorgement of Defendants' profits, restitution, treble damages, punitive damages, and costs and fees. Id. at 13-14.
B. Procedural Background
Outlaw filed this complaint on August 30, 2018 (Doc. 1). Outlaw brings the same false-advertising claim under the Lanham Act against all Defendants. The complaint named 14 Retail Defendants and 1-100 unnamed John Does. Here is a list of the named Defendants and their status in this case:
(1) Defendants Shenoor Enterprise, Inc., Rohail Enterprise, Inc., Kzak Enterprises, Inc., and 8th St. Petroleum Inc. have filed motions to dismiss (Docs. 56 & 64);
(2) A & Z Irving Investments, Inc. has joined another Defendant's motion to dismiss (Doc. 37) (joining Doc. 10);
(3) Sahil Ismail Inc. has filed an answer (Doc. 9) and an out-of-time motion to dismiss (Doc. 40);
(4) M & V Enterprise, Inc. has filed an answer (Doc. 7) and a motion to dismiss (Doc. 6);
(5) Bansal Properties has filed a motion to dismiss (Doc. 21);
(6) Refai Investments, Inc. has appeared pro se and filed an answer (Doc. 20);
(7) Defendants PMR Oil & Gas Company, Inc., Mola Investments Inc., and MacLaren Group Ops., LLC have settled with Outlaw and have been terminated from the case; and *360(8) Two Defendants, Cosectra Consortium, Inc. and Swami Management, have not appeared in the case despite being served. Outlaw has not yet moved for default judgment as to these two Defendants.
Defendants moved to dismiss the case on substantially the same grounds. Outlaw has responded to these motions to dismiss in a timely manner. On February 27, 2019, the Court held a hearing on these motions to dismiss; counsel for the parties that filed motions appeared and argued their positions. After considering the arguments, the Court dismissed Plaintiff's complaint. Doc. 87. The Court issues this Memorandum Opinion and Order, which is consistent with and elaborates on the reasoning of that ruling.
II.
LEGAL STANDARD
A. Federal Rule of Civil Procedure 12(b)(1)
" 'Federal courts are courts of limited jurisdiction.' " MacKenzie v. Castro , No. 3:15-cv-0752-D,
"A Rule 12(b)(1) motion can mount either a facial or factual challenge." MacKenzie ,
Here, Defendants filed their Rule 12(b)(1) motion without any additional evidence, so it is considered a facial attack. Thus, the Court may consider just "the allegations in the complaint because they are presumed to be true." Paterson v. Weinberger ,
B. Federal Rule of Civil Procedure 12(b)(6)
Federal Rule of Civil Procedure 12(b)(6) authorizes a court to dismiss a plaintiff's complaint for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). In considering a Rule 12(b)(6) motion to dismiss, "[t]he court accepts all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff." In re Katrina Canal Breaches Litig. ,
To survive a motion to dismiss, a plaintiff must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly ,
III.
ANALYSIS
A. Outlaw's Standing
Defendants first challenge Plaintiff's standing to bring its claim under both the constitution and the Lanham Act. Article III of the Constitution requires a litigant to have standing to bring a challenge in federal court. Valley Forge Christian Coll. v. Ams. United for Separation of Church & State, Inc. ,
While this Order will focus mainly on the Defendants' arguments to dismiss Plaintiff's complaint for failing to state a false-advertising claim, the Court is also concerned about Plaintiff's standing, both constitutional and statutory. Specifically, the Court is concerned that Plaintiff's allegations have not sufficiently shown: (1) that under Article III, its injury is traceable to the Defendants' alleged conduct, Lujan ,
B. Failure to State a Claim for False Advertising
The principal dispute in this case is whether a defendant who merely sells a product at a retail outlet can be held liable for false advertising under the Lanham Act. Outlaw asserts it can; Defendants assert no such cause of action exists. There is scarce law supporting either side's position. To start, § 43(a) of the Lanham Act provides:
Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any ... false or misleading description of fact, or false or misleading representation of fact, which ... 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.
(1) that the defendant made a false statement of fact about its product in a commercial advertisement; (2) that the statement actually deceived or has a tendency to deceive a substantial segment of its audience; (3) the deception is likely to influence the purchasing decision; (4) the defendant caused the false statement to enter interstate commerce; and (5) the plaintiff has been or is likely to be injured as a result.
Logan v. Burgers Ozark Country Cured Hams, Inc. ,
As stated, Outlaw asserts that it can successfully state a false-advertising claim under this act because the labels affixed to the Rhino Products are materially false, Defendants sell these products at their stores, and Defendants know that the Rhino Products are falsely labeled. In response, Defendants argue there are multiple reasons why Outlaw has failed to state a claim for false advertising; the Court focuses on Defendants' argument that Plaintiff has not adequately alleged the first element of its claim-i.e. , that Defendants made a false statement of fact about its product in commercial advertising or promotion. This argument is strong because it appears that the nonparty manufacturer of the Rhino Products created and made the false labels at issue; Plaintiff has only alleged that Retail Defendants sell these products. The question then is whether a defendant that merely offers a product for sale makes a false statement about its product in commercial advertising or promotion.
The Court holds that Plaintiff's complaint fails to sufficiently allege that Defendants made a false statement in the context of commercial advertising or promotion. To make out a claim for false advertising, a plaintiff must first show "that a party made a false or misleading statement of fact about his own or another's product in the context of 'commercial advertising or promotion.' "
*363Transcom Enhanced Servs., Inc. v. Qwest Corp. ,
Here are the specific allegations that Plaintiff argues satisfy this element of its claim:
Paragraph 23: "The Retail Defendants profit from the sale of the Rhino Products by disseminating false statements including that the Rhino Products are 'all natural,' contain 'no harmful synthetic chemicals,' 'no prescription necessary,' and have limited side effects. Aside from these patently false statements , Defendants have failed to disclose the true nature of the Rhino Products to their customers, even though they are aware of the dangerous secret ingredients."
Paragraph 28: "Defendants have knowingly and materially participated in false and misleading marketing, advertising, dissemination and labeling to promote and sell the Rhino Products...."
Paragraph 36: "The Supplier Defendants distribute the Rhino Products through a network of Retail Defendants, detailed herein, who own and operate independent businesses selling the Rhino Products, disseminate false claims about the Rhino Products , and profit from the sale...."
Paragraph 39: "Defendants make numerous false and misleading representations regarding the Rhino Products . For example, and without limitation, Defendants mislabel the Rhino Products as 'all natural' 'dietary supplements,' and advertise and promote such products as containing 'no chemicals,' 'all natural herbal formula,' and 'no prescription necessary,' among other misrepresentations."
Doc. 1, Compl.
Notably, the above allegations do not distinguish the individual Defendants from each other, and attempt to conflate the named Retail Defendants with the unnamed manufacturer and wholesale suppliers. Indeed, the only allegations that separate the actions of each individual Retail Defendant are found at paragraphs 44-57 of the complaint. But these individualized allegations do no more than allege that the Retail Defendant "owns and operates" a store at a certain address and "promotes, advertises, disseminates and offers for sale" the Rhino Products at its store. Id. ¶ 44; see id. ¶¶ 45-57 (repeating the same allegations for each Retail Defendant). What's more, the only false statements Plaintiff identifies are the labels on the Rhino Products. Plaintiff claims that "Defendants," including the unnamed Manufacturer Defendants, are responsible for mislabeling the products. Id. ¶¶ 31, 39. Retail Defendants deny any such involvement in making these labels and state, quite persuasively, that it is implausible that independent retailers who merely sell the products had any influence on product labeling.
Plaintiff's counsel confirmed at the hearing that Plaintiff does not challenge this contention; instead, Plaintiff's argument is that its claim should survive because simply putting a product that is falsely labeled into commerce is sufficient to make out a false advertising claim. Plaintiff relies on the text of the Lanham Act and various cases to support its position.
The Court starts with Plaintiff's argument that the text of the Lanham Act supports its claim in this case. The relevant portion of the Lanham Act is cited *364above. See Section III.B supra , at 361-62. Plaintiff argues that merely selling the falsely labeled Rhino Products supports a claim for false advertising under the text of the statute because it necessarily involves the "use[ ] in commerce" of a "false or misleading description of fact, or ... representation of fact" "in connection with any goods or services, or any container for goods[.]"
Turning to Plaintiff's cases, the Court first notes Plaintiff has failed to cite a case where a court has held a defendant liable for false advertising under the Lanham Act for merely displaying and selling goods in a retail store. Instead, Plaintiff's cases are either not binding on this Court or not directly applicable to a claim like this one.
Plaintiff first cites Gucci America, Inc. v. Action Activewear, Inc. ,
*365Gucci does not address this issue and thus does not get Plaintiff past this first hurdle.
Next, Plaintiff relies on an unpublished order from the Central District of California. See Doc. 81-1, JST Distrib. v. CNV, et al. , 2:17-cv-06264 (C.D. Cal. Mar. 7, 2018). The Court acknowledges that this case is factually similar to the case at hand-in JST Distribution , a manufacturer/seller of male-enhancement products sued the owner of a website that allegedly advertised and sold competing male-enhancement products that contained illicit pharmaceutical ingredients. Id. at 1-2. The plaintiff alleged that the website owner "was at the center of a massive hub-and-spoke conspiracy" that involved the sale of this illicit product and falsely advertised products on twenty-two different websites. Id. Similar to this case, the defendant website owner filed a motion to dismiss; in it, the defendant argued that it did not make the illicit male-enhancement products or the allegedly false labels affixed to them, and it did not create the advertisements associated with the products, which it allegedly posted on its website and disseminated to the other twenty-two websites. Id. at 4-5. The district court rejected the website owner's argument. Id. at 5. The district court agreed with the defendant that the manufacturer of the male-enhancement products made the false advertisements. But the court held the website owner could still be held liable because the plaintiff alleged that the website owner "disseminated the false advertising through its website" and various other websites. Id. (emphasis added).
Here, Retail Defendants argue this case is easily distinguishable because (1) Plaintiff has not made allegations that Defendants ran websites that published false advertisements and (2) merely placing a product for sale in a brick-and-mortar store is a far cry from disseminating advertisements on multiple websites. The Court agrees with Defendants-Plaintiff has alleged only that Retail Defendants sold the Rhino Products in store. This does not rise to the level of "dissemination" of false advertising, as may be the case when one publishes information on a network of websites and provides the information to other websites.
Finally, Plaintiff relies on an order out of the Northern District of Georgia in a related Outlaw case. See Doc. 62, Mot. for Judicial Notice (attaching order in Outlaw Lab., LP v. US 1 Novelties LLC , 1:18-cv-2065-AT (N.D. Ga. Nov. 28, 2018) ("N.D. Ga. Order") ). But in that case, the district court's order dealt only with the issue of whether Outlaw had standing to bring its claim. N.D. Ga. Order, 7. Thus, that order is not directly relevant in determining whether Outlaw has failed to state a claim under 12(b)(6). However, it is notable that the Georgia court found that "it is unclear from the allegations as to the exact nature and extent of [defendant's] participation" and whether that defendant took the "passive" role of merely displaying the products or actively advertised and promoted the availability of the products. Id. at 18. It seems like the court was implying in that case that if the allegations were alleging only the former, that would have been insufficient to show the necessary conduct for statutory standing. Applying that same reasoning in the context of this 12(b)(6) motion, there is nothing in the complaint that alleges the Retail Defendants here did *366anything more than passively offer the Rhino Products for sale.
Defendants provide the Court with a few cases as well that, while not binding, do more directly address the issue at hand. Defendants argue their cases show that courts have refused to hold retailers liable for false advertising when they merely display and sell products. First, Defendants rely on Cohn v. Kind, LLC , where the Southern District of New York held that a plaintiff had failed to state a claim for false advertising under New York law because the plaintiff alleged only that retailers sold power bars with false statements on the wrapper.
Next, Defendants cite Optimum Technologies, Inc. v. Home Depot USA, Inc. , where the Northern District of Georgia granted summary judgment against a plaintiff on its Lanham Act false-advertising claim.
Finally, Defendants cite a number of cases that involve state-law false-advertising claims, negligent misrepresentation claims, or other state-consumer-law claims. Generally, these cases hold that a defendant should not be liable, whatever the cause of action, for merely selling a product affixed with a false label, so long as the defendant had no role in creating the label.
On its own, the Court has also found additional cases that support the Defendants' position. First, a federal district court in Virginia dismissed a plaintiff's complaint for failing to state a claim for false advertising under the Lanham Act because the plaintiff did not show that the defendants made a false statement in commercial advertising. Baldino's Lock & Key Serv., Inc. v. Google, Inc. ,
Second, in a district-court case from Washington, the court granted summary judgment against a plaintiff on its false-advertising Lanham Act claim because the plaintiff failed to show the defendant made a false statement in advertising. Lasoff v. Amazon.com, Inc. ,
Finally and significantly, the policy concerns stemming from a decision that holds retailers liable for false advertisements created and controlled solely by third parties could be severe. Here, Defendants undoubtedly sell many products-should they be responsible for scrutinizing and determining the veracity of every claim on every product label in their stores simply because they sell the product? At least under a false-advertising theory, the Court holds no; instead, to support a false advertising claims against these retailers, Plaintiff must plead in good faith allegations that support a finding that Defendants made false statements in the context of advertising or promotion. To be sure, the Court is not holding that retailers or sellers can never be held liable for false advertising. The Court instead holds that in this case the Retail Defendants cannot be held liable for false advertising based solely on allegations that they displayed and sold the Rhino Products in their stores.
In summary, based on Plaintiff Outlaw's allegations and the applicable case law discussed above, the Court dismisses Plaintiff's complaint for failing to state a claim because Plaintiff has not alleged that Defendants made a false statement in the context of commercial advertising or promotion. Plaintiff has not pointed the Court to a case where, under the Lanham Act, a court has held that mere retailers, such as these Defendants, are liable for solely placing a product on their shelves. In fact, as seen from other Lanham Act cases like Lasoff and Baldino's , federal courts appear unwilling to entertain false-advertising claims that are based almost entirely on false statements that originate with third parties. And Defendants' cases involving state-law false-advertising claims, like Cohn , seem to support the same. See cases cited supra note 2. Finally, as Defendants argue, there are strong policy-grounded arguments that militate against imposing false-advertising liability in these circumstances; to elaborate, if these claims are permitted, the scope of the Lanham Act would be dramatically expanded. False-advertising cases like this one would turn retailers into the guarantors of manufacturers that falsely label their products. The Court declines to construe the Lanham Act so broadly. For these reasons, the Court dismisses Plaintiff's complaint for failing to state a claim for false advertising under the Lanham Act.
C. Repleading
"When a plaintiff's complaint fails to state a claim, the court should generally give the plaintiff a chance to amend the complaint under Rule 15(a) before dismissing the action with prejudice, unless it is clear that to do so would be futile." Lawal v. Lynch ,
Here, Plaintiff has not yet amended its complaint, and at the hearing the Court granted Plaintiff the opportunity to file an amended complaint. Doc. 87. However, to show that it is entitled to relief on its false-advertising claim, Plaintiff must sufficiently allege that the Retail Defendants themselves made false statements or representations in the context of commercial advertising or promotion. As discussed above and at the hearing, the Court finds that the current allegations are insufficient; thus, if Plaintiff chooses to replead, it must allege, in good faith, additional facts indicating that Defendants did more than offer the Rhino Products for sale in their stores. Further, to give the requisite notice to each Defendant, Plaintiff needs to avoid improper "group pleading" that does not distinguish the conduct of the individual Defendants. Based on Plaintiff counsel's representations at the hearing, the Court is skeptical that Plaintiff can allege any set of facts against the Retail Defendants that would survive a motion to dismiss on the same grounds.
Nonetheless, the Court grants Plaintiff an opportunity to file an amended complaint within thirty days (30) of the date of the docket-text order entered after the February 27 hearing. Doc. 87. If Plaintiff chooses to file an amended complaint, the Court will postpone the deadlines for Defendants to file a responsive pleading. The Court will first review the amended complaint to determine if Plaintiff sufficiently cured the defects noted at the hearing and in this Order, and then, if the amended complaint survives this initial scrutiny, issue an order requiring Defendants to file responsive pleadings. If the amended complaint does not cure the noted defects, the Court may dismiss the case with prejudice or again order Plaintiff to replead. Finally, the Court warns Plaintiff that "re-litigating the issues raised in the instant motions through future frivolous, repetitive filings will result in the imposition of sanctions, including dismissal, monetary sanctions, and restrictions on the ability to file pleadings in this court." United States v. Hildenbrand ,
IV.
CONCLUSION
After considering the various motions to dismiss (Docs. 6, 10, 21, 37, 40, 56, & 64), the parties' responsive briefing, and the arguments presented at the hearing, the Court GRANTS Defendants' motions because Plaintiff has failed to state a claim under the Lanham Act. The Court expresses no opinion on the remainder of Defendants' arguments, aside from the above-noted concerns about Plaintiff's standing. Plaintiff has thirty days (30) from the date of the hearing to file an amended complaint that addresses the issues noted above and at the hearing. If Plaintiff files an amended complaint, Defendants shall not be required to answer or respond to such document until the Court orders them to do so.
Additionally, the Court GRANTS Plaintiff's motions for judicial notice under Federal Rule of Evidence 201 (Docs. 59 & 62).
SO ORDERED.
Plaintiff's reliance on Frostie Co. v. Dr. Pepper Co. ,
Defendants cite the following cases. Burger v. Lowe's Home Centers, LLC ,
Reference
- Full Case Name
- OUTLAW LABORATORY, LP v. SHENOOR ENTERPRISE, INC.
- Cited By
- 8 cases
- Status
- Published