ThermoLife International LLC v. Gaspari Nutrition Incorporated et al

Filing 46

ORDER: 39 Defendant's Motion to Dismiss Counts 1, 2, 3, 4, 5, 6, 7, 8, 9, and 11 of Plaintiff's First Amended Complaint is denied as to counts 1, 2, 3, 4, 5, 6, 7, 8, and 9, and granted as to count 11 to the extent Plaintiff alleges interference with business expectancy of relationships with consumers at the Mr. Olympia Weekend Expo. Count 11 is dismissed as directed in this Order without leave to amend. See order for complete details. Signed by Judge Neil V Wake on 5/16/12. (NKS)

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1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 ThermoLife International, LLC, Plaintiff, 10 11 ORDER vs. 12 No. CV 11-01056-PHX-NVW Gaspari Nutrition, Inc., Defendant. 13 14 Before the Court is Defendant’s Motion to Dismiss Counts 1, 2, 3, 4, 5, 6, 7, 8, 9, 15 and 11 of Plaintiff’s First Amended Complaint (Doc. 39). The Motion will be denied in 16 part and granted in part for the reasons stated below. 17 I. BACKGROUND FACTS 18 Plaintiff ThermoLife International, LLC (“ThermoLife”) and Defendant Gaspari 19 Nutrition, Inc. (“Gaspari”) are both suppliers of dietary supplements targeted at 20 competitive and amateur bodybuilders. 21 misleadingly marketed and sold its products – specifically Defendant’s Novedex XT, 22 Halodrol Liquigels, Halodrol MT, and SuperPump 250 products – as safe, natural, 23 complaint with the federal Dietary Supplement Health and Education Act of 1994 24 (DSHEA), and legal. Plaintiff makes nine separate claims of false advertising related to 25 Defendant’s claims that (1) it only sells legal products; (2) Novedex XT is DSHEA 26 compliant; (3) Novedex XT is naturally occurring; (4) Novedex XT is safe; (5) Halodrol 27 Liquigels and Halodrol MT are DSHEA complaint; (6) Halodrol Liquigels and Halodrol 28 MT are safe; (7) Halodrol Liguigels and Halodrol MT contain 95% 3,4- Plaintiff claims that Gaspari falsely and 1 divanillytetrahydrofuran; (8) SuperPump 250 contains turkesterone; and (9) SuperPump 2 250 contains effective doses of turkesterone. In 2010, the FDA issued reports stating that 3 Defendant’s Novedex XT and Halodrol products were not DSHEA compliant. Plaintiff 4 asserts that Defendant’s products contain unsafe materials that are not naturally 5 occurring, even though they were advertised as safe and naturally occurring. 6 In addition, Plaintiff asserts that it tested material that was marketed and sold as 7 95% 3,4-divanillytetrahydrofuran and concluded that commercial production of 95% 3,4- 8 divanillytetrahydrofuran was cost prohibitive, and that therefore Defendant’s Halodrol 9 products could not actually contain 95% 3,4-divanillytetrahydrofuran. Plaintiff also 10 asserts that it tested Defendant’s SuperPump 250 product and did not detect the presence 11 of any turkesterone. Even if SuperPump 250 were to contain some small trace of 12 turkesterone, such trace amounts would not be an effective dose. Accordingly, Plaintiff 13 asserts Defendant falsely advertised that the SuperPump 250 contained effective levels of 14 Turkesterone. Plaintiff cites to various statements made by Defendant and its agents 15 from 2006 until 2010 to support its claims. 16 Plaintiff manufactures dietary supplements that are in direct competition with 17 Defendant’s products, such as Plaintiff’s T-BOL, E-BOL, Tribosten, and Ecdysten 18 products, and that it sells and markets its products through the same stores and channels 19 as Defendant. Plaintiff also claims to be the market leader in the use of turkesterone in 20 dietary supplements and that it has an exclusive distribution agreement with the only 21 company known to produce turkesterone for use in dietary supplements. Plaintiff asserts 22 that it has been harmed by Defendant’s false and misleading advertisements related to 23 these products through a direct diversion of Plaintiff’s sales and a lessening of the 24 goodwill associated with its products. 25 Finally, Plaintiff alleges that Defendant improperly prevented Plaintiff from 26 attending and exhibiting at the 2009 Mr. Olympia Weekend Expo bodybuilding 27 competition and trade show by contacting American Media, Inc., the organizer of the 28 event, and threatening to pull its advertising if ThermoLife was allowed to exhibit at the -2  1 event. Plaintiff claims Defendant’s actions caused Plaintiff to lose business opportunities 2 and unrecoupable costs it had expended in anticipation of attending the competition, such 3 as plane tickets, hotel reservations, and planning its exhibition. 4 Defendant intentionally and maliciously interfered with its contractual relationship with 5 American Media, Inc., as well as preventing Plaintiff from earning business and goodwill 6 at the event. Plaintiff claims 7 On December 16, 2011, the Court granted Defendant’s motion to dismiss 8 Plaintiff’s original complaint and gave Plaintiff leave to file an amended complaint (Doc. 9 34), which Plaintiff filed on January 13, 2012 (Doc. 38). Plaintiff’s amended complaint 10 raises the above-discussed nine counts for false advertising under 15 U.S.C. § 11 1125(a)(1)(B) (hereinafter “the Lanham Act”) related to statements made about 12 Defendant’s products, one count for common law unfair competition, and one count for 13 tortious interference with business and business expectancy. Defendant now moves to 14 dismiss the counts for false advertising and tortious interference. 15 II. LEGAL STANDARD 16 On a motion to dismiss under Fed. R. Civ. P. 12(b)(6), all allegations of material 17 fact are assumed to be true and construed in the light most favorable to the nonmoving 18 party. Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009). To avoid dismissal, a 19 complaint must contain “only enough facts to state a claim for relief that is plausible on 20 its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial 21 plausibility when the plaintiff pleads factual content that allows the court to draw the 22 reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. 23 Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1949 (2009). However, the principle that a court 24 accepts as true all of the allegations in a complaint does not apply to legal conclusions or 25 conclusory factual allegations. Id. at 1949, 1951. “Threadbare recitals of the elements of 26 a cause of action, supported by mere conclusory statements, do not suffice.” Id. at 1949. 27 “A plaintiff’s obligation to provide the grounds of his entitlement to relief requires more 28 -3  1 than labels and conclusions, and a formulaic recitation of the elements of a cause of 2 action will not do.” Twombly, 550 U.S. at 555. 3 III. ANALYSIS 4 Defendant moves to dismiss Plaintiff’s counts for false advertising under the 5 Lanham Act for lack of standing and untimeliness. Defendant also moves to dismiss 6 Plaintiff’s count for tortious interference for failing to state sufficient facts to support that 7 claim. 8 A. Standing Under the Lanham Act 9 Defendant claims that the first nine counts of Plaintiff’s amended complaint fail 10 because Plaintiff has not suffered a commercial injury based on Defendant’s alleged 11 misrepresentations and therefore does not have standing to bring a claim for false 12 advertising under the Lanham Act. In order for a plaintiff to have standing to state a 13 claim under the false advertising provisions of the Lanham Act, the plaintiff must allege 14 “(1) a commercial injury based upon a misrepresentation about a product; and (2) that the 15 injury is ‘competitive,’ or harmful to the plaintiff’s ability to compete with the 16 defendant.”, Inc. v. EDriver Inc., 653 F.3d 820, 826 (9th Cir. 2011) 17 (quoting Jack RussellTerrier Network of Northern Ca. v. Am. Kennel Club, Inc., 407 F.3d 18 1027, 1037 (9th Cir. 2005)). Defendant claims that because Plaintiff has not sufficiently 19 alleged that any of its products compete directly with any of Defendant’s products and 20 that it has failed to allege anything beyond speculative injury, it does not have standing to 21 bring these claims.1 22 The Ninth Circuit’s recent opinion in TrafficSchool analyzed a standing challenge 23 on the basis of an alleged lack of non-speculative, concrete injury and held that “a false 24 25 26 27 1 Defendant also claims that to the extent Plaintiff purports to bring this action on behalf of consumers hurt by Defendant’s false advertising, such injury is not actionable under Section 43(a) of the Lanham Act (Doc. 39 at 2). However, Plaintiff clearly alleges direct competitive harm to itself; it does not rely on injury to consumers as the basis for its false advertising claims. 28 -4  1 advertising plaintiff need only believe that he is likely to be injured in order to bring a 2 Lanham Act claim.” 653 F.3d at 825. TrafficSchool makes clear that “when [a] plaintiff 3 competes directly with [a] defendant, a misrepresentation will give rise to a presumed 4 commercial injury that is sufficient to establish standing.” Id. at 827. Here, Plaintiff has 5 specifically alleged that it is a direct competitor of Defendant and sells products that are 6 competitive with Defendant’s, including its T-BOL, E-BOL, Tribosten, and Ecdysten 7 products.2 Plaintiff has also alleged that it is the market leader in dietary supplements 8 containing turkesterone and that Defendant’s false advertising of its SuperPump 250 as 9 containing effective doses of turkesterone, caused the SuperPump 250 to be in direct 10 competition with Plaintiff’s production of supplements containing turkesterone. Plaintiff 11 is not simply alleging damage to the “industry overall resulting from” Defendant’s false 12 advertising or basing its claim on injury to misled consumers. Skydive Arizona, Inc. v. 13 Quattrochi, 2006 WL 2460595, at *10 (D. Ariz. 2006). Rather, it is alleging direct 14 competitive injury in the form of diversion of its own sales to Defendant’s falsely 15 advertised products. 16 While Plaintiff may not be able to muster specific and concrete non-speculative 17 evidence of any injury to allow a damages recovery at a later stage, it has raised a 18 presumption of injury – diversion of its own sales and goodwill to Defendant – sufficient 19 to confer standing under the Lanham Act. Accordingly, Defendant’s motion to dismiss 20 Plaintiff’s false advertising claims for lack of standing will be denied. 21 22 23 24 25 26 27 2 Defendant’s unsupported attempt in its reply (Doc. 44 at 2-3) to narrowly define the universe of “competitive” products to only products which are effectively identical and advertised as such is unavailing. Plaintiff’s allegations that both Plaintiff and Defendant sold dietary supplements containing similar ingredients, serving similar purposes, and targeting a specific audience (here, competitive and amateur bodybuilders) is sufficient to allege direct competition and justify the presumption of competitive injury at the motion to dismiss stage. 28 -5  1 B. 2 Defendant also claims that Plaintiff’s false advertising claims are barred by the 3 statute of limitations. Defendant asserts the most analogous state statute of limitations for 4 Plaintiff’s claims is the one year statute of limitations under the Arizona Consumer Fraud 5 Act, A.R.S. § 44-1522. Because Defendant’s alleged false advertising occurred more 6 than one year prior to the filing of Plaintiff’s complaint on May 26, 2011, Defendant 7 argues Plaintiff’s Lanham Act claims are time barred. Plaintiff claims in response that, 8 under Jarrow Formulas, Inc. v. Nutrition Now, Inc., 304 F.3d 829, 836 (9th Cir. 2002), 9 laches, not the statute of limitations, applies to its claims. Plaintiff further asserts that the 10 proper laches period is three years, and that it is inappropriate for Defendant to claim 11 Plaintiff’s claims are time barred at this stage in the proceedings since it was not 12 previously raised and there is no showing that Defendant would suffer prejudice or that 13 Plaintiff’s delay in filing suit was unreasonable. Statute of Limitations Under the Lanham Act 14 The issue before the court in Jarrow was “whether laches bars a manufacturer of 15 nutritional supplements from suing its competitor for false advertising under the Lanham 16 Act when the analogous state statute of limitations period [had] expired.” Jarrow, 304 17 F.3d at 832. Defendant had moved for summary judgment “on the grounds that the 18 statutes of limitation and laches bar[red] Jarrow’s claims.” Id. at 833. The district court 19 had dismissed Jarrow’s action as barred by laches but did not address the statute of 20 limitations issue. Id. Therefore, the Ninth Circuit limited its review to the district court’s 21 determination of a laches bar to plaintiff’s claims for false advertising. The court first 22 noted that it was “well established that laches is a valid defense to Lanham Act claims, 23 including those for false advertising.” Id. at 835 (citations omitted). It went on to note 24 that 25 26 27 [W]hile laches and the statute of limitations are distinct defenses, a laches determination is made with reference to the limitations period for the analogous action at law. If the plaintiff filed suit within the analogous limitations period, the strong presumption is that laches is inapplicable. … However, if suit is filed 28 -6  1 outside of the analogous limitations, courts often have presumed that laches is applicable. 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Id. In reviewing the application of laches to plaintiff’s claims, the court noted that the “proper interplay between laches and the statute of limitations for Lanham Act claims is somewhat elusive.” Id. at 836. The court acknowledged that Ninth Circuit cases had stated that the Lanham Act “borrows a state limitations period as a statute of limitations defense,” but had “failed to consider whether Congress intended that laches, as opposed to the statute of limitations, be the sole timeliness defense available to [claims for false advertising under the Lanham Act].” Id. The court noted that the “equitable character” of false advertising claims under the Lanham Act might support the idea that only laches, and not a statute of limitations, be available as a time bar. However, although Jarrow engaged in this discussion, the court did not reach the issue of whether laches is the sole time bar to claims for false advertising under the Lanham Act. Rather, it simply conducted its laches analysis with reference to the most analogous state limitations period, which the parties agreed was California’s three year limitations period for fraud. Id. at 838 (citing Conopco, Inc. v. Campbell Soup Co., 95 F.3d 187 (2d Cir. 1996), which borrowed New York’s fraud period for a Lanham Act false advertising claim). The court went on to hold that “in determining the presumption for laches, the limitations period [for a false advertising claim] runs from the time the plaintiff knew or should have known about his § 43(a) cause of action.” Id. Because plaintiff was aware of defendant’s false advertising more than three years prior to commencing the suit, the court applied a presumption of laches and analyzed whether defendant had shown that plaintiff’s delay in filing was unreasonable and whether defendant would be prejudiced thereby, and ultimately concluded that plaintiff’s suit was barred by laches. Id. at 838-41. Jarrow therefore does not resolve the currently pending dispute as to whether the statute of limitations period, or only laches, is available as defense against Plaintiff’s claims. Defendant contends that the statute of limitations can apply to bar Plaintiff’s suit -7  1 and cites Theodosakis v. Contract Pharmacal Corp., 172 Fed. Appx. 772, 2006 WL 2 7739222 (9th Cir. 2006), for the proposition that Arizona’s one year limitations period, 3 under the Arizona Consumer Fraud Act is the most analogous state statute of limitations. 4 In that unpublished decision, the Ninth Circuit did not determine which state statute of 5 limitations period is appropriate in analyzing claims under the Lanham Act; rather, it 6 simply held that the district court “properly granted summary judgment against 7 [plaintiff’s] claims regardless of which Arizona limitations period applies (the one-year 8 consumer fraud, trademark statute or the three-year fraud statute) because [plaintiff] 9 knew about the potential infringement” more than three years prior to his filing suit. Id. 10 at *1. Nor did Theodosakis resolve whether laches is the exclusive time bar defense to a 11 Lanham Act claim; it simply noted that plaintiff made this argument, but that it was 12 unnecessary to decide that question because the district court “did not abuse its discretion 13 in finding that laches barred this action as well.” Accordingly, Theodosakis is unhelpful 14 in deciding the question before the Court. Defendant cites no further case law for its 15 position that a one year limitations period should bar Plaintiff’s claims here. 16 Plaintiff cites Au-Tomotive Gold, Inc. v. Volkswagen of Amer., Inc., 603 F.3d 1133 17 (9th Cir. 2010), for the proposition that Arizona’s three-year statute of limitations for 18 fraud applies to provide the laches period for Lanham Act claims. Defendant contends 19 that Au-Tomotive Gold is inapplicable here, as that case dealt with a Lanham Act claim 20 for trademark infringement and dilution, not false advertising. However, Au-Tomotive 21 Gold relied on Jarrow, a false advertising case, in its laches analysis, and made no 22 distinction based on the underlying nature of plaintiff’s claims. Id. at 1139-40. Further, 23 it held without qualification that “Arizona’s three-year statute of limitations for fraud 24 applies to Lanham Act claims.” Id. at 1140. The Court finds no persuasive reason to 25 divert from this holding, and accordingly agrees that Arizona’s three year fraud 26 limitations period is the proper limitations period. 27 Whether the Court conducts a statute of limitations or a laches analysis is not 28 controlled by any of the authority presented by the parties. However, the Court need not -8  1 decide this issue because Plaintiff’s claims cannot be determined to be time-barred by 2 either the statute of limitations or laches at this stage in the proceedings. While Plaintiff 3 alleges Defendant made false statements as far back as 2007, it cannot be said from the 4 pleadings that Plaintiff discovered then that the statements were false. Rather, a plausible 5 inference is that Plaintiff did not know of the falsity of Defendant’s statements until 6 Defendant’s products began being recalled (in 2009 and 2010) and Plaintiff 7 independently conducted tests of Defendant’s products to determine whether Defendant’s 8 advertising was false (in 2009), all of which falls within the three year limitations period. 9 Defendant’s motion to dismiss Plaintiff’s Lanham Act claims on the basis that they are 10 time-barred will therefore be denied. 11 C. Tortious Interference With Business Expectancy 12 Plaintiff has raised a claim for tortious interference with business expectancy 13 related to Defendant’s alleged improper actions in preventing Plaintiff from exhibiting at 14 the 2009 Mr. Olympia Weekend Expo. 15 Plaintiff’s contract with American Media, Inc., the company organizing the weekend 16 expo, and Plaintiff’s business expectancy with potential customers at the weekend expo. 17 Defendant has moved to dismiss Plaintiff’s claim for tortious interference with business 18 expectancy with potential customers at the weekend expo because Plaintiff has not 19 sufficiently alleged any specific party with which it expected to do business or identified 20 any specific damages resulting from the alleged interference.3 Plaintiff claims Defendant interfered with 21 To state a claim for tortious interference with business expectancy, a plaintiff must 22 allege “(1) [t]he existence of a valid contractual relationship or business expectancy; (2) 23 knowledge of the relationship or expectancy on the part of the interferer; (3) intentional 24 interference inducing or causing a breach or termination of the relationship or 25 expectancy; and (4) resultant damage to the party whose relationship or expectancy has 26 27 3 Defendant has not moved to dismiss Plaintiff’s claim for tortious interference with respect to its claim regarding Plaintiff’s relationship with American Media, Inc. 28 -9  1 been disrupted.” Wagenseller v. Scottsdale Mem’l Hosp., 147 Ariz. 370, 386, 710 P.2d 2 1025, 1041 (1985) (superseded by statute in other respects). Any alleged interference 3 must have been both intentional and improper. Id. at 387-88, 710 P.2d at 1042-43. A 4 plaintiff must be able to “identify a specific relationship with which the defendant 5 interfered” to state a plausible claim for relief; the speculative hope of a business 6 expectancy is not enough. Dube v. Likins, 216 Ariz. 406, 414, 167 P.3d 93 (Ct. App. 7 2007). 8 Plaintiff has only conclusorily asserted that it would have earned business at the 9 Mr. Olympia Weekend Expo if it had been allowed to exhibit there. Such an allegation is 10 insufficient to state a claim for tortious interference with business expectancy. Plaintiff 11 identifies customers that attended the Mr. Olympia Weekend Expo as the individuals 12 with whom it would have formed business relationship absent Defendant’s alleged 13 interference. 14 business expectancy, nor can Plaintiff sufficiently show that it suffered any specific loss 15 because of Defendant’s alleged interference. See Dube, 216 Ariz. 412-13 (noting a 16 “claim for tortious interference with a business expectancy is insufficient unless the 17 plaintiff alleges facts showing the expectancy constitutes more than a mere ‘hope’” 18 (citing Marmis v. Solot Co., 117 Ariz. 499, 502, 573 P.2d 899, 902 (Ct. App. 1977)). However, these allegations do not rise beyond the “mere hope” of a 19 Plaintiff’s reliance on Antwerp and Edwards is misplaced. In Antwerp, the court 20 held that the defendant’s publication of defamatory reports about plaintiff’s business 21 would likely have deterred potential customers and therefore supported a claim for 22 tortious interference. 130 Ariz. 523, 530, 627 P.2d 733, 740 (1981). In Edwards, the 23 court held that defendant’s interference in contract negotiations between plaintiff and a 24 third party for the purchase of plaintiff’s mining claims supported a claim for tortious 25 interference because there was a specific, identifiable relationship with which defendant 26 had interfered, even though no contract was actually formed. 115 Ariz. 313, 314, 565 27 P.2d 190, 191 (Ct. App. 1997). Here, while Plaintiff certainly intended to form business 28 relationships with the customers at the expo, whether Plaintiff actually would have made - 10   1 a profit or entered into any contract with customers at the weekend expo is too 2 speculative to form the basis for an independent tortious interference claim. 3 See Soilworks, LLC v. Midwest Indus. Supply, Inc., 575 F.Supp.2d 1118, 1128 (D. Ariz. 4 2008) (noting speculative damages that cannot be established with reasonable certainty 5 may not form the basis for a tortious interference judgment). Further, to the extent 6 Plaintiff can establish any damages related to potential business expectancies it would 7 have yielded had it been permitted to attend the weekend expo, these will be recoverable 8 under Plaintiff’s claim for tortious interference with its contract with American Media, 9 Inc., which Defendant has not moved to dismiss. Accordingly, Defendant’s motion to 10 dismiss Plaintiff’s claim for tortious interference with its prospective business 11 relationships with customers at the Mr. Olympia Weekend Expo will be granted. 12 IT IS THEREFORE ORDERED that Defendant’s Motion to Dismiss Counts 1, 2, 13 3, 4, 5, 6, 7, 8, 9, and 11 of Plaintiff’s First Amended Complaint (Doc. 39) is denied as to 14 counts 1, 2, 3, 4, 5, 6, 7, 8, and 9, and granted as to count 11 to the extent Plaintiff alleges 15 interference with business expectancy of relationships with consumers at the Mr. 16 Olympia Weekend Expo. Count 11 is dismissed as directed in this Order without leave to 17 amend. 18 Dated this 16th day of May, 2012. 19 20 21 22 23 24 25 26 27 28 - 11  

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